2. Contents of a Contract

Question 1

Terms of the contract:

Terms v representations

Answer 1

A statement that forms part of the contract would seen as a term whereas a statement that does not is called a representation.

Factors to consider in distinguishing between terms and representations:

• The importance of the statement: If a statement is fundamental to the contract and the party would not have entered into the contract had it not been made, it is likely to be seen as a term (Bannerman v White (1861) 142 ER 685)
• Timing of the statement: The closer the statement is made to the conclusion of the contract, the more likely it is to be seen as a term.
  If there is break between the statement being made and the contract being concluded, it is likely to be seen as a representation.
  Routledge v McKay
• Reduction of the contract to writing: If the contract is put into writing and does not include the statement, it is likely to be seen as a representation (Routledge v McKay)
• Special knowledge and skill: Where the person who made the statement has special knowledge when compared to the other party or can have access to information that the other party does not, the statement is likely to be seen as a term. Dick Bentley Productions v Harold Smith (Motors) Ltd

Question 2

Terms of the contract:

Implied terms

Answer 2

• The express terms that the parties include in a contract will not cover every potential issue that could arise
• The court will have to consider how the contract should be viewed in order to reach a solution to the dispute
• The court can imply terms into a contract to give effect to the presumed intention of the parties

Question 3

Terms of the contract: Implied terms

Terms implied at common law

Answer 3

The ‘officious bystander’ test (Shirlaw v Southern Foundries (1926) Ltd):
- Where the courts feel that the parties have omitted a term that would have been obvious to them if they had considered it, the court can include it.

Business efficacy (The Moorcock (1889)):
- Terms will only be implied in order to make the term effective and not to do what is fair between the parties
- A term can only be implied if a contract is read in its commercial setting
- The court’s power to imply terms would be used sparingly and only when strictly necessary

Question 4

Terms of the contract: Implied terms

Terms implied by trade usage or custom

Answer 4

Terms can also be implied when they reflect the normal practice in a particular trade or industry or they represent the custom in a particular area.

Smith v Wilson

It is often the case that trade bodies will publish standard terms and conditions that can be used for specific transactions - the courts might imply a term that the parties have contracted on those standard terms providing the parties are of equal bargaining power and are both in the trade (see British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd [1975] QB 303)

Question 5

Terms of the contract: Implied terms

Terms implied by statute

Answer 5

Sale of Goods Act 1979 (SGA),
Supply of Goods and Services Act 1982 (SGSA)
Consumer Rights Act 2015 (CRA)

Question 6

Terms of the contract: Implied terms

Terms implied by statute: Satisfactory quality (s14 SGA, s4 SGSA, s9 CRA)

Answer 6

• The test for satisfactory quality is that the goods ‘meet the standard that a reasonable person would regard as satisfactory’.

Courts consider:
* description of the goods;
* the price; and
* any other relevant circumstances.

• ‘The quality of the goods includes their state and condition’
  (a) fitness for all the purposes for which goods of the kind in question are commonly supplied;
  (b) appearance and finish;
  (c) freedom from minor defects;
  (d) safety; and
  (e) durability.

NB: Term not implied where any defect has been brought to the buyer’s attention, where the buyer has had the chance to inspect the goods before the contract was made and the inspection would have revealed the defect or in a sale by sample where the defect would have been apparent on an inspection of the sample.

Question 7

Terms of the contract: Implied terms

Terms implied by statute: Fitness for a particular purpose (s14 SGA, s4 SGSA, s10 CRA)

Answer 7

The Acts will imply into the contract that the goods are reasonably fit for that purpose even if it is not a purpose for which the goods are commonly used.

NB: term not implied implied if the buyer does not rely on or it is unreasonable for him to rely on the skill or expertise of the seller.

Question 8

Terms of the contract: Implied terms

Terms implied by statute: Sale by sample (s15 SGA, s5 SGSA, s13 CRA)

Answer 8

A sale by sample occurs where the seller provides a small quantity of the product to help the buyer to decide whether they want to proceed with the contract.

Implied term that the bulk of the goods will match the sample:
- CRA: term will not be implied if the defect is brought to the attention of the consumer before the contract is made

Implied term that the goods will be free of any defect making them unsatisfactory that would have been discovered upon a reasonable inspection

Question 9

Terms of the contract: Implied terms

Terms implied by statute: Services

Answer 9

Implied term that any services must be provided with reasonable care and skill (s13 SGSA and s49 CRA)

Implied term that the services are to be provided within a reasonable time where there is no specific date referred to in the contract (s14 SGSA and s52 CRA) - Question of fact

Price/consideration for the services - s15 of the SGSA and s51 of the CRA
- Where the contract is silent on this, the buyer will have to pay a reasonable price/charge - Question of fact

Question 10

Terms of the contract: Implied terms

Terms implied by statute: Exclusion of statutory implied terms

Answer 10

Under the SGA and SGSA, the parties can exclude the implied terms either by express agreement, a course of dealing or trade usage (see s55 SGA and s16 SGSA). This is subject to the provisions of the Unfair Contract Terms Act 1977 and, in particular, the test of reasonableness

Under s31 of the CRA a contract for the sale of goods would not be binding on a consumer where it seeks to exclude or restrict the liability of a business for the relevant implied terms

Question 11

The classification of terms

Answer 11

Relative importance of the different terms: conditions, warranties, innominate terms

Will have an impact on the remedies that can be claimed for breach of the relevant term

Question 12

The classification of terms: Conditions

Answer 12

A condition is fundamental to a contract and ‘goes to the root of the matter, so that a failure to perform it would render the performance of the rest of the contract by the plaintiff a thing different in substance from what the defendant has stipulated for’ (see the judgment of Blackburn J in Bettini v Gye (1876) 1 QBD 183).

Where a term such as this is breached, a party is entitled to repudiate (terminate) the contract and/or claim damages.

Options:
- All future obligations under the contract will cease and they can claim damages immediately, OR
- The party can choose to affirm (carry on with) the contract and so the obligations under the contract will continue but damages can still be claimed.

Question 13

The classification of terms: Warranties

Answer 13

A subsidiary term of a contract the breach of which ‘merely partially affects’ the contract ‘and may be compensated for in damages’

A breach of a warranty will not give rise to a right to terminate the contract.

Question 14

The classification of terms: Distinction between a term and a warranty

Answer 14

Poussard v Spiers and Pond:
- An opera singer, who was contracted to perform a lead role in a new production, fell ill. As a result, she could not appear at the first night on 28 November and was not able to perform until 4 December by which point the contract had been terminated.
- It was of great importance that the production started well. As a result, the failure of the claimant to appear at the first night and the following initial performances was a serious detriment to the defendants which went to the root of the contract.
- CONDITION

Bettini v Gye:
- An opera singer was contracted to sing a lead role in an opera at various venues between 30 March and 13 July. The contract stipulated that he would be in London six days before the performances started in order to attend rehearsals. Due to illness, he missed the first three days of rehearsals and his contract was terminated.
- The agreement to attend six days of rehearsals did not go to the root of the contract. It was therefore not a condition and so the defendant was not entitled to terminate the contract.
- WARRANTY

Question 15

Innominate Terms

Answer 15

Innominate terms: not designated as either conditions or warranties in the contract - occupy an intermediate position between conditions and warranties as the result of the breach will depend on the seriousness of the consequences flowing from it.

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha, Ltd: the dispute revolved around a term which stated that the ship should be seaworthy. The court felt that this could cover a multitude of situations ranging from trivial breaches, such as a few missing nails, to more fundamental defects

Question 16

Exemption Clauses

Answer 16

Exemption clauses exclude or limit liability a party has for a breach of contract - can limit or avoid paying damages to the other party

Must be valid to operate; 3 requirements:

1. Incorporation: Has the clause been validly incorporated in the contract?
2. Construction: Does the clause cover the liability of the breach in question?
3. Statute: What is the effect of the UCTA 1977 (for B2B contracts) for the CRA 2015 on the clause?

Question 17

Exemption clauses: Requirements

1. Incorporation

Answer 17

Incorporation can take place in various ways:

1. Signing a document
   If the exemption clause is in a document that has been signed, it is incorporated, even if the other party did not read it (unless misrepresentation)
2. Incorporation by notice
   - Party took reasonable steps to bring the clause to the attention of the other party (before or at the time of contracting)
   - If the clause is particularly onerous (wide-ranging), notice must be absolutely clear to the other party
3. Course of dealing
   Where two parties have entered into the same contract, in the same way and on the same terms on a number of previous occasions

Question 18

Exemption clauses: Requirements

2. Construction

Answer 18

Interpretation of clauses—‘contra proferentem’: if the clause is ambiguous or lacking in clarity it will be interpreted against the party seeking to rely on it

Clauses seeking to limit liability for negligence:
- Canada Steamship Lines Ltd appellants; v The King
1. Does the clause expressly cover negligence on behalf of the party seeking to rely on it? If so, the clause will be effective.
2. If there is no express reference to negligence, are the words wide enough, in their ordinary meaning, to cover negligence? If there is any doubt about this the clause cannot be relied on.
3. If the answer to question 2 is yes, are the words in fact too wide so that they cover another cause of action other than negligence? If this is the case, the clause will be effective against the other cause of action and not negligence. That being said, this other cause of action must not be too fanciful so that the party would not have intended to be protected against it.

Clauses seeking to limit liability:
- Clauses seeking to limit liability likely to be treated less strictly than those excluding liability totally

Question 19

Exemption clauses: Requirements

3. Statute

Answer 19

Statutory controls on exemption clauses

B2B: The Unfair Contract Terms Act 1977:
1. Do you have a written standard terms contract or an individually negotiated contract?
2. See if UCTA applies by identifying the purpose of the exemption clause. What liability is it trying to cover?
3. Identify the rule in UCTA for that kind of liability. Is the exemption clause made void by UCTA, or is it valid if reasonable?
4. Apply the rule to the exemption clause: Is it valid under UCTA?

UCTA applies to exemption clauses limiting liability for death + PI or ss 12, 13, 14 and 15 SoGA 1979 only - does not apply to an exemption clause for any other breach

Liability: The rule in UCTA
- Negligence causing PI or death: Void
- Breach of s 12(1) SoGA 1979 (implied term as to title): Void
- Breach of ss 13 (description), 14 (quality/fit for purpose), 15 (sample) SoGA 1979: Valid if reasonable (apply reasonableness test)
- Any other breach of contract: UCTA does not apply

NB: For written standard terms contracts (basis terms and conditions) UCTA does apply if reasonable

Question 20

UCTA reasonableness factors - exemption clauses (B2B contracts)

Answer 20

Reasonableness factors:
1. The strength of the bargaining positions of the parties

2. Was the customer persuaded to enter into the contract because of the insertion of the exemption clause? If yes - more likely to be reasonable
3. Did the customer know or ought to haver known of the extent of the exemption clause taking into account previous dealings between the parties or trade customs? If yes - more likely to be reasonable
4. If the exemption clause is dependent on a condition, is that condition reasonable?
5. If the clause is wanting to only limit the liability of one of the parties, rather than completely exclude it, you also need to look at:
   - How much money the party trying to limit liability actually has to meet the liability should it arise
   - Whether insurance cover was available to that party

Question 21

Exemption clauses: Consumer Rights Act 2015 - contracts from business and consumer

Answer 21

Similarities with UCTA:
- Prohibition on clauses which exclude or restrict liability for personal injury or death (see s65 CRA)
- There is also essentially the same provision ruling out the potential defence that the consumer voluntarily assumed the risk of personal injury or death because they agreed to or were aware of the exemption clause (see s65(2)

Unfair terms:
- Test for deciding this is set out in s62(4): A term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.
- Unfair terms are not binding on the consumer - though the contract will still be valid

Question 22

Variation

Question 23

Contractual variations:

Alteration promises to pay more

Answer 23

• As a general rule, performance of an existing contractual duty owed to the other party is not consideration for a promise of extra payment.
• Exceeding a contractual duty is consideration.
• Performance of an existing contractual duty owed to the other party will be consideration for a promise of extra payment if it confers a practical benefit; however, if the promise to pay more was made under duress the promise may be set aside

Question 24

Contractual variations:

Alteration promises to pay less - Rule in Pinnel

Answer 24

In the case of an undisputed debt, at common law, an agreement between a creditor and a debtor that the creditor will simply accept part payment in full and final settlement of the full amount is not binding on the creditor.

Common law exception:
* Remember the rule – consideration must be sufficient, but need not be adequate. Provided a debtor gives the creditor something (other than just part payment) in return for the creditor’s promise to forgo the balance of the debt then that something different will be consideration
* Unless there is some consideration for the concession, a debtor is at risk of the creditor changing his mind. This is where the equitable doctrine of promissory estoppel comes in.