1 Contractually: where the contract is for the supply of
goods and services but the parties have not fixed a sum
to be paid. The common law position is supported now
by statutory provisions. Section 8 of the Sale of Goods
Act 1979 provides that if the price of goods cannot be
fixed by the contract or in a way agreed under the con-
tract or by trade custom, the buyer must pay a reason-
able price. There is similar obligation to pay a reasonable
sum for services under s 15 of the Supply of Goods and
Services Act 1982 (see also Chapter 10 ).
2 Quasi-contractually:
■Where the defendant has abandoned or refused to
perform his part of the contract, as was the case in
Planchév Colburn(1831).
■Where work has been performed by the claimant and
accepted by the defendant under a void contract. In
Craven-Ellisv Canons Ltd(1936) a managing director
of a company was able to recover a reasonable sum by
way of remuneration for work he had done until it
was discovered that his appointment was invalid
under the company’s articles.
■Where one party confers a benefit on the other with
the intention on both sides that the benefit is to be
paid for even though a contract is not finally con-
cluded (British Steel Corporationv Cleveland Bridge
& Engineering Co Ltd(1984)).
Total failure of consideration
If the claimant has paid money to the defendant in respect
of a valid contract, and the defendant completely fails to
honour his part of the bargain, the claimant has a choice
of remedy. He can bring a claim for breach of contract
and claim damages for breach or he can terminate the con-
tract and sue in quasi-contract to recover the money he
has paid over on the basis that there has been a total failure
of consideration. Rowlandv Divall(1923), which will be
considered in detail in Chapter 10 , is an example of
a claim based on a total failure of consideration.
Money paid under a mistake
A claimant may recover money which has been paid
over under a mistake of fact. A mistake of fact would
include, for example, errors in a restaurant bill because
the waiter had made a mistake when adding up all the
items, or at the supermarket check-out when a cashier
inadvertently scans an item twice. In Admiralty Comrs v
National Provincial and Union Bank Ltd(1922), money
paid into a bank account of a customer, on the basis that
he was alive, was held to be recoverable under a mistake
of fact, when he turned out to be dead.
Until recently it was settled law that moneys paid under
a mistake of lawcould not be recovered. However, this
rule has now been overturned by the House of Lords in
the following case.Part 3Business transactions
260
Kleinwort Benson Ltdv Lincoln City
Council(1998)
The case involved the use of ‘interest rate swap’ trans-
actions by local authorities. Following a case brought by
an auditor appointed by the Audit Commission, such con-
tracts were held to be ultra viresfor local authorities and,
therefore, void. Kleinwort Benson (KB) claimed restitution
of the money it had paid to four local authorities under
these transactions. KB claimed that the money had been
paid under a mistake so as to avoid the six-year time
limit laid down in the Limitation Act 1980. The House of
Lords held that the ‘mistake of law rule’, under which
money was not recoverable in restitution because it had
been paid under a mistake of law, should no longer form
part of English law.
Comment. This case is an interesting example of judi-
cial law-making. The ‘mistake of law rule’ had been the
subject of much criticism over the years and had been
referred to the Law Commission. The Law Commission
concluded that the rule should be changed by legislation.
Their Lordships decided to press ahead with the reform
themselves, rather than wait for Parliament to legislate,
even though considerable difficulties have been created
because of the retrospective effect of the judgment.
These problems could have been avoided if the change
had been made by legislation.Limitation of actions
The right to sue does not last indefinitely. The parties
may include a provision in their contract which limits
the time within which a claim must be made. Where
such an agreement is made between businesses and the
parties are of equal bargaining strength, it is likely to be
upheld by the courts.Granville Oil and Chemicals Ltdv Davis
Turner & Co Ltd(2003)
DT, an international freight forwarder, agreed to carry
a consignment of paint from Kuwait to GOC’s ware-
house in the UK. The contract was subject to the British