Undue Influ

8/12/2019 Undue Influ

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How Do I Prove Undue Influence?

Undue influence is based upon four elements. First, the victim mustprove that he or she faced the probability of undue influence. Physicalor mental illness is common in undue influence cases. Injuries froman accident, the recent death of a loved one and other traumaticevents may create situations where the victim will be vulnerable toundue influence.

Second, the victim must show that the defendant had the opportunityto dominate the victim. As mentioned previously, special relationshipsoften hold the potential for such opportunities. The victim believesthat the defendant had victims best interests in mind when thedefendant was actually ta!in" advanta"e of the victims trust and

circumstances.

Third, it must be shown that the defendant too! the opportunity toinfluence the victim. Attempts to isolate the victim or to constantlypressure the victim into a decision are common si"ns that thedefendant is usin" the victim for the defendants own ends.

Finally, there must be a record of an unusual or suspicioustransaction. This is usually the result or product of the defendantsundue influence over the victim. The defendant abuses the

relationship with the victim to coerce the victim into doin" somethin"beneficial for the defendant. Pressurin" the victim to sell the victimshome to the defendant at an e#tremely low cost is an e#ample ofsuch a transaction

Unconscionable ConductUnconscionable conduct deals with transactions between dominant and wea!er parties$ it

therefore overlaps with duress and undue influence. Unconscionable conduct is prohibited both in

e%uity and, more recently, by statute.

Allcard v Skinner (1887) 36 Ch D 145

In &'() an unmarried woman a"ed *) sou"ht a cler"yman as a confessor. Thefollowin" year she became an associate of the sisterhood of which he wasspiritual director and in &')& she was admitted a full member, ta!in" vows ofpoverty, chastity and obedience. +ithout independent advice, she made "ifts of


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money and stoc! to the mother superior on behalf of the sisterhood. She left thesisterhood in &') and in &''- claimed the return of the stoc!. Proceedin"s torecover the stoc! were commenced in &''.

It was held by the /ourt of Appeal that althou"h the plaintiff0s "ifts were voidable

because of undue influence brou"ht to bear upon the plaintiff throu"h the trainin"she had received, she was disentitled to recover because of her conduct and thedelay.

Ways In Which Contracts May Be Terminated

Contracts may be brought to an end:

(a) Byperformanceof the parties i.e. each party completing his obligations as stipulated by

the contract.

(b) By frustrationi.e. an event through no fault of the parties that make one party unable to

perform the contract. For example: if one party suffers a prolonged illness which makes him

unable to perform the contract.

(c) By lapse of timei.e. if the time limit set for the contract to be executed by both parties

has been passed. For example sellers of real estate usually re!uire that the buyers pay the

full balance on the property within a certain time period after the initial down payment has

been made.

(d) By the mutual agreementof all parties.

(e)"f one of the parties becomebankruptafter the contract has been signed.

(f) By changes in lawi.e. where a legal contract is rendered illegal through changes in law.

(g) By notice e.g. some firms re!uire that employees give at least one month notice when

resigning their positions.

(h) "f one party dies.

(i) Bybreach of contract#$hen one party defaults on his part of the agreement i.e. he does

not perform his part of the contract.

Remedies in contract law

~~ Play arcade games on remedies in contract law ~~
http://e-lawrevision.org.uk/Contract-remedies-arcade-games.phphttp://e-lawrevision.org.uk/Contract-remedies-arcade-games.php


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~~ Take a quiz on remedies in contract law~~~~ Do a word search on remedies in contract law~~

~~ Play hangman on specific performance~~~~ Play hangman on damages in contract law~~

Various remedies exist in contract law. Theseinclude:

Damages

epudiation

escission !pecific performance

"n#unctions

estitutionary awards

Damages in Contract Law

Damages in contract laware a legal remedy

a$aila%le for %reach of contract. Damages are
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an award of money to compensate theinnocent party. The primary purpose

of damages in contract lawis to place the

in#ured party in the position they would ha$e%een in had the contract %een performed.

&ddis $ 'ramophone()*+*, &- // -ase summary

&n award of damages in contract law is su%#ectto the application of the rules on causation0remoteness and a duty to mitigate loss.

Causation:

The Monarch Steamship v KarlshamnsOljefabrika()**, &- )*1 -ase summary

Remoteness:

2nder the rules of remoteness of damage incontract law set out in Hadley v Baxendale0 a

claimant may only reco$er losses which mayreasona%ly %e considered as arising naturally

from the %reach or those which mayreasona%ly %e supposed to %e in thecontemplation of the parties at the time the

contract was made:

Hadley v Baxendale3)/45 * 6x -h 7) -ase summary
http://www.bailii.org/uk/cases/UKHL/1909/1.htmlhttp://e-lawresources.co.uk/cases/Addis-v-Gramophone.phphttp://www.bailii.org/uk/cases/UKHL/1948/1949_SC_HL_1.htmlhttp://www.bailii.org/uk/cases/UKHL/1948/1949_SC_HL_1.htmlhttp://www.bailii.org/uk/cases/UKHL/1948/1949_SC_HL_1.htmlhttp://www.e-lawresources.co.uk/cases/The-Monarch-1949.phphttp://www.bailii.org/ew/cases/EWHC/Exch/1854/J70.htmlhttp://www.e-lawresources.co.uk/cases/Hadley-v-Baxendale.phphttp://www.bailii.org/uk/cases/UKHL/1909/1.htmlhttp://e-lawresources.co.uk/cases/Addis-v-Gramophone.phphttp://www.bailii.org/uk/cases/UKHL/1948/1949_SC_HL_1.htmlhttp://www.bailii.org/uk/cases/UKHL/1948/1949_SC_HL_1.htmlhttp://www.e-lawresources.co.uk/cases/The-Monarch-1949.phphttp://www.bailii.org/ew/cases/EWHC/Exch/1854/J70.htmlhttp://www.e-lawresources.co.uk/cases/Hadley-v-Baxendale.php


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The application of this principle can %e seen in the followingcases:

Victoria Landry !"indsor# Ltd v $e%man&ndstries Ltd()**, 8 9 48/ -ase summary

Kpohraror v "ool%ich Bildin' Society()**1, &ll 6 ))* -ase summary

(ilkin'ton v "ood()*47, -h ;;+ -ase

summary)ackson v *oyal Bank of Scotland(8++4, )eron ""5()*1*,) &- 74+ -ase summary

Parsons $ 2ttley "ngham()*;/, ? ;*) -asesummary

Duty to mitigate loss

The claimant is not permitted to allow theirlosses to mount up. They are under a duty totake reasona%le steps to reduce their loss:

(ay, v Sanders()*)*, 8 9 4/) -asesummary

(ilkin'ton v "ood()*47, -h ;;+ -asesummary

Heads of damages
http://e-lawresources.co.uk/cases/Victoria-Laundry-v-Newman.phphttp://e-lawresources.co.uk/cases/Kpohraror-v-Woolwich-Building-Society.phphttp://www.e-lawresources.co.uk/cases/Pilkington-v-Wood.phphttp://www.e-lawresources.co.uk/cases/Pilkington-v-Wood.phphttp://www.bailii.org/uk/cases/UKHL/2005/3.htmlhttp://www.e-lawresources.co.uk/cases/Jackson-v-Royal-Bank-of-Scotland.phphttp://www.e-lawresources.co.uk/cases/Czarnikow-Ltd-v-Koufos.phphttp://www.bailii.org/ew/cases/EWCA/Civ/1977/13.htmlhttp://www.e-lawresources.co.uk/cases/Parsons-v-Uttley-Ingham.phphttp://www.e-lawresources.co.uk/cases/Parsons-v-Uttley-Ingham.phphttp://e-lawresources.co.uk/cases/Payzu-v-Saunders.phphttp://e-lawresources.co.uk/cases/Payzu-v-Saunders.phphttp://www.e-lawresources.co.uk/cases/Pilkington-v-Wood.phphttp://www.e-lawresources.co.uk/cases/Pilkington-v-Wood.phphttp://e-lawresources.co.uk/cases/Victoria-Laundry-v-Newman.phphttp://e-lawresources.co.uk/cases/Kpohraror-v-Woolwich-Building-Society.phphttp://www.e-lawresources.co.uk/cases/Pilkington-v-Wood.phphttp://www.e-lawresources.co.uk/cases/Pilkington-v-Wood.phphttp://www.bailii.org/uk/cases/UKHL/2005/3.htmlhttp://www.e-lawresources.co.uk/cases/Jackson-v-Royal-Bank-of-Scotland.phphttp://www.e-lawresources.co.uk/cases/Czarnikow-Ltd-v-Koufos.phphttp://www.bailii.org/ew/cases/EWCA/Civ/1977/13.htmlhttp://www.e-lawresources.co.uk/cases/Parsons-v-Uttley-Ingham.phphttp://www.e-lawresources.co.uk/cases/Parsons-v-Uttley-Ingham.phphttp://e-lawresources.co.uk/cases/Payzu-v-Saunders.phphttp://e-lawresources.co.uk/cases/Payzu-v-Saunders.phphttp://www.e-lawresources.co.uk/cases/Pilkington-v-Wood.phphttp://www.e-lawresources.co.uk/cases/Pilkington-v-Wood.php


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There exist $arious heads of damage incontract law under which an amount can %e

claimed to reflect different types of loss. These

include loss of %argain0 reliance loss0discomfort or disappointment0 incon$enience0diminution of future prospects0 speculati$edamages and liquidated damages.

Reliance loss


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Inconvenience


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party in %reach0 this is known as a penalty clause which is notenforcea%le:

.nlop v $e% /ara'e()*)4, &- ;* -ase

summary-ine es Cilmcilik $ 2nited "nternationalPictures(8++7, 6


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>ong 9ong Cir !hipping $ 9awasaki 9isen9aisha()*18, 8? 81 -ase summary

!ee further here.

Rescission

escission is an equita%le remedy a$aila%le atthe discretion of the #udge. escission seeks to

place the parties %ack in their preBcontractual

position and thus represents an unra$eling ofthe contract. escission is a$aila%le where a

contract is $oida%le as a result of a $itiatingfactor such as misrepresentation0 undueinfluenceor duress. The right to rescind may

%e lost if the claimant affirms the contract0where a third party acquires rights in the

goods0 through lapse of time orwhere restittio in inte'rmis not possi%le.

+ar 0 1niversal +redit v +ald%ell()*1, 8


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Specific performance

!pecific performance is an equita%le remedya$aila%le at the discretion of the #udge. "t is anorder %y the court requiring one party toperform their contractual o%ligation.


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+ohen v *oche()*8;, ) 9 )1* -asesummary

8. Type of contract

!pecific performance is most commonlyordered for contracts for the sale of land

The courts are unlikely to order specificperformance for contracts for personal

ser$ice.

7. 6quity

-lean hands:

"alters v Mor'an3)/1)5 7 DC E @ ;)/ -ase

summary

Lamare v .ixon3)/;75 = 1 >= ) -ase

summary

>ardship:

-oBop insurance $ &rgyll !tores()**;, 8


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"n#unctions are another form of an equita%leremedy a$aila%le only at the discretion of the

#udge. There are three types:

). "nterlocutory or interim 3temporary

in#unction until a court hearing58. Prohi%itory 3a court order that a party

must not do something5

7. andatory 3an order that a party mustdo something5

There is an o$erlap %etween mandatory in#unctions andspecific performance which has %een recognised %y the courts.The courts will not grant an in#unction in circumstances thatwould in effect %e an order for specific performance where itwould not generally %e allowed:

(a'e One *ecords v Britton()*1/, ) owe$er0 this does not pre$ent the ordering of a prohi%itoryin#unction which may %e an indirect way of ensuringcompliance with contract:

Lmley v "a'ner3)/485 8 6 1/; -ase summary

The court may se$er terms and only order an in#unction inrespect of partial o%ligations:

"arner Bros v $elson()*7;, ) 9 8+* -ase summary

1emedies for breach of contract esource t!"e# Article

Status# $ublished on %1&'ct&1

urisdiction# United *in+do,
http://e-lawresources.co.uk/cases/Page-One-Records-v-Britton.phphttp://e-lawresources.co.uk/cases/Page-One-Records-v-Britton.phphttp://e-lawresources.co.uk/cases/Lumley-v-Wagner.phphttp://e-lawresources.co.uk/cases/Warner-Bros-v-Nelson.phphttp://e-lawresources.co.uk/cases/Page-One-Records-v-Britton.phphttp://e-lawresources.co.uk/cases/Page-One-Records-v-Britton.phphttp://e-lawresources.co.uk/cases/Lumley-v-Wagner.phphttp://e-lawresources.co.uk/cases/Warner-Bros-v-Nelson.php


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This final part of a four part series on practical contract law considers remedies for breach of

contract.

Samantha Cotton, PLC

2any commercial a"reements contain e#press provisions for remedies. For e#ample, in a

contract for the sale of "oods, the buyer may be entitled to re%uire the seller to ma!e "ood or

replace defective items. There may be a presumption 3which may be e#pressed in thecontract4 that all the terms which are to "overn their contractual relationship have been

included by the parties in e#press written form in the contract itself. In doin" so they intended

to displace any ri"hts and remedies provided by law 3such as the buyer0s ri"ht to terminate

the contract for fundamental breach4 which are not specified in the contract.

The purpose of a cumulative remedies clause is to ensure that the parties0 ri"hts specifically

provided for in the a"reement are in addition to their ri"hts provided by the "eneral law 3see

inset box "Cumulative remedies clause"4. Any particular remedy that a party envisa"es it

may need should be specifically preserved in the contract.

Da,a+es

Unli!e the e%uitable remedies of specific performance and injunction 3see "Specificperformance" and "Injunctions" below)dama"es for loss in a breach of contract claim are

available as of ri"ht.

An innocent party may claim dama"es from the party in breach in respect of all breaches of

contract. The dama"es may be nominal or substantial. 5ominal dama"es are awarded

where the innocent party has suffered no loss as a result of the other0s breach and

substantial dama"es are awarded as monetary compensation for loss suffered as a result of

the other party0s breach.

For an innocent party to obtain substantial dama"es he must show that he has suffered loss

as a result of the breach 3remoteness4 and the amount of his loss 3measure4. It is up to the

party in breach to ar"ue that the innocent party has failed to miti"ate his loss.

e,oteness o- lossThe innocent party may only recover dama"es for loss suffered as a result of the breach

provided it is not too remote. The aim of dama"es is to put him in the position he would have

been had the contract been properly performed.

The principles of remoteness are "iven in Hadle v !axendale #$%&'( *xch+ '$4 and

provide that the followin" losses are recoverable6 All loss which flows naturally from the breach.

All loss which was in the contemplation of the parties at the time the contract was

made as a probable results of the breach.

If the loss does not fall within the above cate"ories, then it will be too remote and will not be

recoverable.The rule in Hadle v !axendalehas been interpreted to mean that only loss which is within

the reasonable contemplation of the parties may be recovered 3-he Heron II #$.( $ /C

&04.

35ote that when dealin" with specific types of contract there may be le"islation that covers

remedies under that particular type of contract. For e#ample, in a sale of "oods contract, a

party may be able to recover special dama"es 3for e#ample, from unusual loss arisin" from


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special circumstances !nown the contract brea!er 3section &', Sale of 1oods /ct $24

3S7A4.4

.easure o- da,a+esThis is the method for calculatin" the dama"es to which the innocent party is entitled. It

covers loss of bar"ain or e#pectation loss. The usual aim of the court is to put the innocent

party in the position he would have been in had the contract been properly performed

33obinson v Harman #$%'%( $% L4 *x 5054. The two usual methods of assessin" this are

difference in value or cost of cure. The court will "enerally use the more appropriate.

Sometimes reliance loss may be sou"ht where loss of e#pectation is difficult to prove. The

aim of reliance loss is to put the innocent party into the position he would have been in had

the contract never been made, that is, an indemnity for his out of poc!et e#penses incurred

in reliance on the contract 3/n6lia -7 v 3eed #$25( $ 8! .04.

There are many other types of loss that have been claimed by innocent parties. 8ama"es for

disappointment or mental distress are not "enerally awarded 3/ddis v 1ramophone Co+ Ltd

#$0( /C '%%4 unless the contract is, for e#ample, a holiday contract 34arvis v Swans -ours

Ltd #$2( $ 8! 54..iti+ation

An innocent party cannot recover for loss that he could have avoided by ta!in" reasonable

steps. This is sometimes e#pressed as the duty to miti"ate. This does not apply to actions for

the price of "oods delivered. Such an action is an action for an a"reed sum and not an

action for dama"es.

Althou"h there is no duty to miti"ate before actual breach occurs the innocent party should

not a""ravate his loss. It is for the defendant to prove that the plaintiff has failed to miti"ate

his loss 3Pil9in6ton v :ood #$&( Ch 2204.

Advance "a!,entsIf a party in breach has made advanced payments under the contract his ability to recover

that money depends upon whether that payment constitutes a deposit 3that is, a "uarantee

by him of due performance4 or merely a payment of the whole or part of the price in advance.

If it is a deposit 3this depends on the intentions of the parties4 the "eneral rule is that it

cannot be recovered and it will be set off a"ainst any dama"es awarded to the innocent

party. /are should always be ta!en with deposits so that they do not amount to penalties

3see9Penalt clauses" below4. :owever it may be possible to recover a deposit if the party

has a lien over it 3for e#ample,Chatte and /nother v ;arndale Holdin6 Inc+, -he -imes, $2th


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contracts, whether individually ne"otiated or on a party0s standard business terms and, most

commonly, in relation to late rather than defective performance, particularly in the fields of

construction and en"ineerin" and supply or sale of "oods.


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e#clude liability4 but this is unli!ely to apply to a "enuine li%uidated dama"es clause. If the

clause specifies a sum which is more than a "enuine pre;estimate 3and therefore a penalty4

the clause will be unenforceable. The courts will not benefit the party claimin" dama"es by

imposin" a lower substitute fi"ure.

To claim on a "enuine li%uidated dama"es clause, the claimant merely has to show breach

of contract, whether or not there has been any actual loss and re"ardless of the e#tent ofany loss.

It is not entirely clear whether a li%uidated dama"es clause is intended to be a mutually

bindin" limitation on the amount of dama"es payable. It is li!ely that it is intended to be

mutually bindin" in the field of buildin" and en"ineerin" contracts. A /ourt of Appeal case

held that where 9=nil9 was inserted as the amount of li%uidated dama"es, then "eneral

dama"es for breach of contract were not recoverable in the alternative 3-emloc v *rrill

Properties, $%2 !L3+04. A contract can, however, e#pressly provide for the party

see!in" to impose the clause to have a choice whether to operate it or not. /ertain

charterparty cases su""est that the claimant may have a choice either to sue under the

li%uidated dama"es clause or to i"nore it and claim "eneral dama"es without limitationalthou"h these cases are probably limited to that area of law.

If, however, the clause is invalidated because it is a penalty clause or due to acts of the

claimant 3such as re%uirin" the other party to perform additional wor! without a contractual

mechanism to "rant that party further time to perform the contract4 or breach of contract by

the claimant, then the limit specified in the unwor!able clause will operate as a limitation on

the amount of dama"es which can be claimed 3althou"h in the case of a penalty the limit is

unli!ely to be reached because by its nature, it will be hi"her than the loss could ever be4.

As re"ards enforcement, many contracts will specify that the dama"es can be deducted from

subse%uent sums due. This is particularly the case for buildin" contracts where interim

payments to the contractor are usual. 2any contracts will also provide for the claimant to be

able to recover li%uidated dama"es as if they were a debt due by the other party. If possible,

when draftin" a penalty clause, you should try to ensure that you can deduct or recover

dama"es in these ways as they are a more effective way of ensurin" that you will be able to

recover the money due.


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e#ample where the subject matter of the contract is uni%ue for e#ample, /hinese vases

in ;alc9e v 1ra3#$%&( ' =rew .&$4 but not if a replacement of the subject matter could be

obtained even after a lon" delay 3Societe des Industries Aetallur6iBues S/ v !ronx

*n6ineerin6 Co Ltd #$2&( $ Llods 3ep '.&4.

It is a "eneral rule that specific performance will not be ordered if the contract re%uires

performance or constant supervision over a period of time and the obli"ations in the contractare not clearly defined. For e#ample, specific performance of a covenant to !eep a shop

open durin" normal business hours was refused by the :ouse of >ords in Coop Insurance v

/r6ll Stores3#$2( /ll *3 524 on the "rounds that enforcement of a covenant to carry on

a business would re%uire constant supervision of the courts with the court resortin" to

criminal punishment for contempt of court if the order was not complied with. :owever, a

recent case has reversed this rule in relation to a tenant0s repair covenants 33ainbow

*states Limited v -o9enhold Limited and another #$%( ?ew Propert Cases 4. The jud"e

in this case concluded that the old law of refusin" specific performance if it would involve

constant supervision was no lon"er "ood or 3at least4 that there were e#ceptions. It may be

that only in the most e#ceptional circumstances 3such as in this case4 specific performancewill be available to the landlords$ however the ar"uments advanced indicate that it should be

available in other situations. Specific performance was ordered re%uirin" tenants to spend

=?@@,@@@ on repairs to the flats. Factors militatin" in favour of this remedy were that the

landlord had no ri"ht of entry to repair in default of the tenant$ that the lease had no forfeiture

clause and that the buildin" was listed so that repair as distinct from redevelopment was the

most appropriate outcome.

Specific performance is often ordered in relation to buildin" contracts because the contract

deals with results rather than the carryin" on of an activity over a period of time and it usually

defines the wor! to be completed with certainty 34eune v 8ueens Cross Properties Ltd

#$2( /ll *3 24.

Specific performance is not available for contracts re%uirin" personal services such as

employment contracts because such an order would restrict an individual0s freedom

3Chappell v -imes ?ewspapers Ltd #$2&( $ :L3 '%54.

The court has broad discretion to award specific performance and in e#ercisin" this

discretion it ta!es into account factors such as6 8elay in as!in" for the order 3LaDard !rothers @ Co Ltd v ;airfield Properties co

Aafair) Ltd #$22( $5$ S4 24. +hether the person see!in" performance is prepared to perform his side of the

contract 3Chappell v -imes ?ewspapers Ltd #$2&( $ :L3 '%54. +hether the person a"ainst whom the order is sou"ht would suffer hardship in

performin" 3Patel v /li #$%'( $ /ll *3 2%4.

The difference between the benefit the order would "ive to one party and the cost ofperformance to the other 3-ito v :addell ?o 5) #$22( Ch $0.4.

+hether any third party ri"hts would be affected.

+hether the contract lac!s ade%uate consideration 3the rule 9e%uity will not assist a

volunteer9 applies so that specific performance will not be ordered if the contract is fornominal consideration even if it is under seal 34effrs v 4effrs #$%'$( $ Cr @ Ph $%44.

n2unction


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>i!e specific performance, an injunction is an e%uitable remedy and therefore only "ranted at

the discretion of the court. It is awarded in circumstances where dama"es would not be an

ade%uate remedy to compensate the claimant because the claimant needs to restrain the

defendant from startin" or continuin" a breach of a ne"ative contractual underta!in"

3prohibitory injunction4 or needs to compel performance of a positive contractual obli"ation

3mandatory injunction4.In e#ercisin" its discretion the court will consider the same factors as above for specific

performance and will use the balance of convenience test 3wei"hin" the benefit to the injured

party and the detriment to the other party4. An injunction will not be "ranted if its effect would

be to compel a party to do somethin" which he could not have been ordered to do by a

decree of specific performance 3Lumle v :a6ner #$%&5( $ =A @ 1 .0')+

In ur"ent cases a plaintiff may be able to obtain an interim injunction to restrain an act.

Special types of injunction may be "ranted to preserve property and assets pendin" trial

32areva injunctions and Anton Piller orders4.

uasi contract# other re,edies

uasi;contract creates obli"ations at common law, distinct from obli"ations under a contract.It is an area of law in its own ri"ht.

uasi;contractual remedies are sometimes available either as an alternative to a remedy for

breach of contract or where there is no remedy for breach of contract. For e#ample, a claim

for %uantum meruit 3a reasonable remuneration for wor! done of "oods supplied under a

contract which is later discovered to be void4.

i,itation o- actionsAn innocent party will lose his ri"ht to brin" a claim for breach of contract if he delays for a

certain len"th of time.

The >imitation Act &'@ provides statutory limitation periods. Theses do not apply to

e%uitable remedies, however, in practice, e%uity usually applies the statutory rules.

The >imitation Act &'@ distin"uishes between simple contracts and deeds. It provides the

followin" limitation periods6 For simple contracts, si# years from when the cause of action accrued.

For deeds, twelve years from when the cause of action accrued.

If there has been fraud or mista!e, the limitation period does not be"in to run until the

innocent party has discovered this or should have discovered this. There is a three year time

limit in respect of dama"es for personal injuries arisin" from breach of contract.

In ac%uisition a"reements 3which may be deeds4 the seller may want a shorter limitation

period 3commonly si# years from the date of the contract4 This shorter period relates to the

Inland 1evenue0s time limit for ma!in" ta# assessments. Alternatively, the seller may want

an even shorter period in relation to non;ta# matters 3perhaps to lin! in with the audit of thetar"et company4.

Sel-&hel" re,edies1ather than brin"in" an action for breach of contract, parties can ma!e use on some self;

help remedies such as retention of title clauses, enforcement of security, withholdin"

payments and set off and ri"hts a"ainst the "oods themselves.

etention o- title


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A seller can avoid the problems of havin" to sue a buyer in event of the buyer0s default under

the a"reement by insertin" a retention of title clause into the contract.

A retention of title clause 3sometimes referred to as a 3omalpaclause, after the first leadin"

case on the subject,/luminium Industrie 7aasen !7 v 3omalpa /luminium Ltd #$2.( $

:L3 .2.4 aims to "ive the supplier of "oods priority over secured and unsecured creditors

of the buyer if the buyer fails to pay for the "oods because it is insolvent, or for some otherreason which may be specified in the clause.

In a basic retention of title clause the supplier reserves ownership of the "oods supplied to

the buyer until the buyer has paid for those particular "oods. +hen draftin", it is important to

ensure that le"al and beneficial title are retained6 the reservation of e%uitable or beneficial

title alone will not do 3e !ond :orth #$2( /*3 $). The clause should be

supplemented by standard clauses containin"6 A ri"ht for the supplier to enter the buyer0s premises in order to repossess the "oods

3so that the supplier will not commit a trespass when doin" so4.

An obli"ation on the part of the buyer to store the supplier0s "oods separately from

"oods belon"in" to third parties, to mar! them as the supplier0s property and to allow the

supplier access to the buyer0s premises to verify that this has been done. This will enable thesupplier to identify its own "oods if a repossession of the "oods becomes necessary.

A list of insolvency related events which will tri""er the supplier0s ri"ht to demand

payment for the "oods 3if not already due4 and to repossess them.

In addition, althou"h not a standard clause, if the "oods supplied mi"ht be attached to the

buyer0s premises 3for e#ample, in the case of heavy plant or machinery4, it is worth includin"

a provision prohibitin" the buyer from anne#in" them to such premises without the supplier0s

consent. If "oods do become anne#ed to the buyer0s premises, the consent of the owner of

those premises will be necessary if the supplier is to be entitled to repossess them in the

event of non;payment by the buyer.

This basic clause is often bac!ed up by certain other standard clauses such as clauses for

all monies, proceeds of sale and mi#ed "oods6All ,onies clauseIn this of clause, the supplier reserves ownership of the "oods supplied until the buyer has

paid not only for those particular "oods, but also for any other "oods supplied by the supplier

to the buyer, and has repaid all other moneys owed to the supplier, re"ardless of how such

indebtedness arose.

A limitation upon the practical effectiveness of this clause is that the supplier retains title to

"oods only until those specific "oods have been paid for. The buyer will therefore obtain title

to those "oods upon payin" for them even if other "oods received from the supplier have not

been paid for. The effect of the all monies clause is that all of the "oods supplied, whether

paid for or not, belon" to the supplier until the buyer has settled all invoices. In practice, theclause therefore avoids the need to relate specific "oods at the buyer0s warehouse with

specific unpaid invoices.

It has been su""ested that an all monies clause creates a char"e by the buyer in favour of

the supplier, which would be void a"ainst a li%uidator or administrator and any creditor of the

buyer unless re"istered at /ompanies :ouse in accordance with the /ompanies Act &'.

The :ouse of >ords, on appeal from a Scottish decision, has held that such a clause does


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not create a char"e, but the decision, while of stron" persuasive authority, is not bindin" on

the Bn"lish courts 3/rmour v -hssen *delstahlwer9e /1, PLC, $0, I&), &$4.

It is therefore advisable to incorporate the all monies clause in a separate sub;clause from

the basic retention of title clauses so that it could be severed from them if it were ever held

invalid by a court for lac! of re"istration as a char"e. Althou"h possible in theory, the

re"istration by a supplier of all its sales contracts at /ompanies :ouse in case they containretention of title clauses which create char"es is, for a number of practical reasons, unli!ely

to be a realistic option.

$roceeds o- sale clauseThis is where the "oods supplied are to be sold on by the buyer and the supplier see!s ri"hts

in the proceeds of sale in order to satisfy the purchase price of the "oods.

A clause "ivin" the supplier ri"hts over the sale proceeds of "oods resold by the buyer was

held to be valid in the 3omalpacase, on the basis that there was, on the facts before the

court, a fiduciary relationship between the buyer and the supplier, and the buyer as a

fiduciary was under a duty to account for the sale proceeds to the supplier as beneficiary.

Since the 3omalpadecision, the courts have distin"uished the facts of the cases before themfrom the facts in the3omalpacase, and have in a series of cases held that clauses of this

!ind create a char"e by the buyer in favour of the supplier which will be void if not re"istered

at /ompanies :ouse.

As a result, it is now e#tremely difficult, if not impossible, to draft a proceeds of sale clause

without its bein" construed as a char"e over the "oods which will, therefore, be

unenforceable unless re"istered as such.


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The supplier may be sellin" "oods for use in a manufacturin" process, rather than for resale

in their ori"inal condition 3if, for e#ample, it is a supplier of components rather than finished

products4. The case law distin"uishes between6 7oods which maintain their identity 3and which, if attached to other "oods, can be

separated without causin" dama"e4. Such "oods will continue to belon" to the supplier

where there is a basic form of retention of title clause as described above, so no additionalprovisions are necessary. 7oods which lose their identity in the manufacturin" process$ for e#ample, the sale of

resin which is used in the manufacture of chipboard. The resultin" new product 3thechipboard4 will belon" to the buyer and the courts have held that if a retention of title clausepurports to reserve ri"hts in the new "oods to the supplier, the clause will create a char"ewhich will be ineffective if not re"istered 3!orden E>) Limited v Scottish -imber Products#$2( /*3 .$4.

It is clear from the case law, therefore, that the use of a mi#ed "oods clause will achieve

nothin" for the supplier$ on the contrary, it may do harm if 3followin" the same ar"ument as

described above in the case of a proceeds of sale clause4, its invalidity also rendered the

basic and all monies clauses invalid for non;re"istration as char"es. Suppliers of products

which are %uic!ly consumed within a manufacturin" process should therefore consideralternative means of securin" their purchase price, such as credit insurance.

i,itations on e--ectivenessThe followin" actual or potential limitations upon the effectiveness of retention of title clauses

should be borne in mind6

If the buyer is a company a"ainst which an application for an administration order

has been made, no steps may be ta!en without the consent of the court 3which in practice isunli!ely to be forthcomin"4 to repossess "oods supplied pursuant to a retention of title clauseuntil the hearin" of the application and, if an administration order is made, while the orderremains in force 3section $$, Insolvenc /ct $%.4.

The retention of title clause must be properly incorporated in the contract between

the supplier and the buyer in order to be enforceable as a contract term. A retention of titleclause is not, however, so unusual that special notice needs to be "iven of it 4ohn Snow @Compan Limited v =!1 :oodcroft @ Compan Limited #$%&( !CLC &').

1etention of title will be of little or no practical benefit where the "oods supplied are

perishable or have a low scrap value. 1etention of title is an area which "enerates a rapidly chan"in" body of case law.

Particular clauses are liable to be rendered ineffective by a court decision at any time, so areview of retention of title clauses is a particularly important aspect of the overall review ofstandard terms which suppliers should be carryin" out on a re"ular basis.

8ecisions of the courts have severely restricted the effectiveness of comple# mi#ed "oods

and proceeds of sale clauses. The most that a well drafted retention of title clause is li!ely to

achieve for a supplier is6

The ri"ht to enter the buyer0s premises without trespassin". The ability to recover "oods stored at the buyer0s premises which can be identified as

the supplier0s, possibly to the e#tent of all sums owed by the buyer to the supplier.

A possible action for dama"es for conversion a"ainst a receiver or li%uidator

personally who sells "oods which were identifiably the supplier0s.

A retention of title clause should be re"arded as an adjunct to a proper credit control system,

not as a substitute for it. +here the supplier has doubts as to the financial standin" of the

buyer, the supplier should consider6


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1educin" the period of credit allowed to the buyer, or the amount of credit, or both.

Ta!in" alternative forms of security, such as a ban! "uarantee or letter of credit.

e"al set;off is a procedural remedy which evolved from the Statutesof set;off and a number of &'th and &th century cases 3see also !ennett v :hite #$$0(58! .' C/4. It can only be resorted to as a defence to a court action and, unli!e othertypes of set;off, is not available as a 9self;help9 remedy. >e"al set;off is also only availablewhere the two claims are li%uidated or ascertainable with certainty and are both due andpayable at the commencement of the action. :owever, unli!e e%uitable set;off, the twoclaims do not have to arise from the same transaction or closely connected transactions.

9/uitable set&o--This is available to a debtor outside the conte#t of liti"ation where

his cross;claim arises from the same transaction 3or a closely related transaction4 as the debtowed. Bither and probably both of the claims may be for an unli%uidated sum, such as aclaim for dama"es 3Hana9 v 1reen #$&%( 5 /ll *3 $'$ C/ and AcCrea6h v 4udd #$5(:? $2' =C4. As it is a self;help remedy, a debtor can, without formality, simply deduct theamount of his mutual cross;claim from the debt he owes and tender the balance of the debt

3if any4 to the creditor. :owever, as with le"al set;off, the sums in %uestion must be due andpayable or, in the case of unli%uidated dama"es must be a reasonable assessment of theloss made in "ood faith 3-he ?anfri #$2%( LlodFs 3ep $5 C/4.

:anker;s set&o--Can!er0s set;off arises in a situation where a customer has more

than one account with his ban!, at least one of which is in debit and one of which is in credit.It is also !nown as the ri"ht to combine accounts. Can!er0s set;off is ar"uably of widercommercial application and could be available in any situation where one party has two ormore accounts with another, for e#ample between principals and their a"ents or between asupplier and his customer, but the position has not been e#plicitly judicially determined. A


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debtor can only invo!e ban!er0s set;off if the two accounts are current or runnin" accounts,that is, where the balance on the account, whether it be positive or ne"ative, is payable ondemand or on reasonably short notice 33e :illis, Percival @ Co ex parte Aorier #$%2( $5Ch= '$ C/4. As with e%uitable set;off, the remedy is one of self;help and can beautomatically e#ercised without formality.

nsolvenc! set&o--+hile each of the above cate"ories of set;off may be varied by

contract, either by e#tendin" or restrictin" a party0s ri"hts under the "eneral law, the rules ofinsolvency set;off are mandatory and may not be varied by contract 3Halesown Presswor9and /ssemblies Ltd v :estminster !an9 #$25( /C 2%&4. /ontractual ri"hts of set;off do notsurvive the li%uidation or ban!ruptcy of either the creditor or the debtor.

Any creditor provin" in a li%uidation or ban!ruptcy must deduct from his claim the amount of

any liabilities incurred6

Prior to the company or individual "oin" into li%uidation or ban!ruptcy.

At any time when the creditor had notice of either a resolution or a petition to wind up

the company or ban!rupt the individual.

All liabilities, includin" future, contin"ent and unli%uidated sums must be brou"ht into

account 33ule '+0, Insolvenc 3ules $%. for compan liBuidationsG section 5, Insolvenc

/ct $%. for ban9ruptcies4.

Since any attempt to vary these rules by contract will be void, parties would need to use

indirect means to avoid their application. They could, for e#ample, enter into an a"reement

which provides that one or both of them should not prove in any li%uidation or ban!ruptcy of

the other or that any such claims will be subordinated to those of other creditors.

1i"hts of set;off are fre%uently varied by the terms of a contract. For e#ample, in a

commercial contract, a buyer may want the ability to set;off claims for debts or claims under

other contracts a"ainst payments that he owes for "oods or services under that contract.

$ur"ose o- eclusion o- set&o-- clause/ommercial a"reements fre%uently restrict ri"hts of set;off. For e#ample, a seller may wish

to ensure that a buyer is prevented from settin" off amounts owed to it or claims re"ardin"

alle"ed defects in the seller0s performance a"ainst the sums due to be paid by it to the seller

under the a"reement. An e#clusion of set;off ri"hts is particularly common in an a"reement

which provides for payments over a period of time. A borrowers0 ri"ht of set;off will invariably

be e#cluded in loan and security documentation.

+hile such a clause does not survive the insolvency of either party, the /ourt of Appeal has

confirmed that such a clause is enforceable and not contrary to public policy 3CocaCola

;inancial Corporation v ;insat International, -he -imes, $st Aa, $.4. :owever, as

a"ainst a party contractin" on its standard terms or with a consumer, the clause constitutes a

limitation of liability which will be subject to the reasonableness test set out in the Unfair

/ontract Terms Act &)) 3Stewart 1ill v Horatio Aer Co #$5( 5 /ll *3 5&2)+

S


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There are restrictions on the buyer0s ri"ht to reject the "oods. First, at common law, if the

shortfall is de minimis,he will not be allowed to reject the "oods. Second, section ?@3*A4

provides that a buyer who does not deal as a consumer may not reject the "oods if the

shortfall is so sli"ht that it would be unreasonable for him to do so.

If a the buyer is in breach of a term of a sale of "oods contract, for e#ample in relation to the

payment terms, the unpaid seller has ri"hts a"ainst the "oods themselves in addition tori"hts a"ainst the buyer. These ri"hts may prove useful on the buyer0s insolvency. If some or

all of the price of the "oods is outstandin" the seller will be an unpaid seller 3section %$),

S1/4. This "ives the seller the ri"ht to6 1etain the "oods. This can be done if the seller is still in possession of the "oods and

the buyer has not been "iven a period of credit, or the credit period has e#pired or the buyeris insolvent. The seller can retain the "oods until the buyer pays for them 3the seller0s lien4.The seller loses his lien when the "oods are delivered to an independent carrier or the buyerlawfully ta!es possession of them.

Stop the "oods in transit. If the buyer is insolvent the unpaid seller may stop the

"oods in transit and retain them until the buyer pays for them 3section ''4. Sections - and-( provide rules as the duration of transit and how to effect stoppa"e.

1esell the "oods. Section -'3?4 allows the seller to resell the perishable "oods if he

notifies the buyer of his intention to sell and the buyer does not pay within a reasonable time.The seller may claim dama"es from the buyer for loss on the resale 3section '%)4.

9/uitable e,edies

There are two main e%uitable remedies for breach of contract.

Specific performance ; this is an order directin" the breachin" party to perform the contract in the

way specified by the court. It will only be ordered if dama"es will not provide ade%uate

compensation and will not be awarded in relation to contracts of personal service.

Injunctions ; these are orders directin" a party not to do somethin" ; e", not to persist with a

contractual breach.

Coth remedies are discretionary$ the court is not obli"ed to award them even where breach is

established.

B%uitable dama"es may also be available in some cases

Mistake Case

Raffles v Wichelhaus"#$%&' ( H ) C *+%Court of Exchequer

The parties entered a contract for the sale of some cotton to beshipped by 'The Peerless' from Bombay. The Peerless had a sailing from

Bombay in October and in December. The defendant thought that itas the October sailing and the claimant belie!ed it as the

December sailing hich had been agreed.


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The court applied an ob"ecti!e test and stated that a reasonableperson ould not ha!e been able to state ith certainty hich sailing

had been agreed. Therefore the contract as !oid as there asno consensus ad idem

Undue Influ

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