3. Terms of Contract

Question 1

What is the importance of terms?

Answer 1

• It sets outs the rights and duties of the party, and
• the remedies for the breach of terms

Question 2

What are express terms?

Answer 2

• Terms specifically discussed and agreed upon by the parties at the time of the contract

Question 3

What are implied terms and the 3 ways terms are implied?

Answer 3

• Terms which are not agreed to expressly but are nevertheless part of the contract:

1. By Fact (obvious and necessary for business efficacy)
2. By Law (SOGA, UCTA)
3. By Custom (industry/trade practice)

Question 4

When is the Sale of Goods Act (SOGA) applicable?

Answer 4

It applies to contracts involving the sale of goods.

Question 5

What are the 4 implied terms under the SOGA?

Answer 5

1. Title - implied term that the seller has the right to sell goods and warranty that the buyer will enjoy in quiet possession
2. Description - implied term that the goods sold will match the description
3. Satisfactory quality - implied term that the goods sold in the course of business should meet the standard that a reasonable person who regard as satisfactory.
4. Fitness for purpose - implied term that the goods sold in the course of business should be reasonably fit for the purpose specified by the buyer.

Question 6

What are the 3 different natures of terms and why is it important to identify them?

Answer 6

1. Condition
   - Vital to the main purpose of the contract.
   - In a breach of condition, the injured party would be unlikely to obtain the benefits of the contract.
   - Injured party can choose to terminate and claim damages of accept the breach and claim damages
2. Warranty
   - Less vital to the main purpose of the contract.
   - In breach of warranty, injured party suffers some loss but the breach does not affect the main purpose of the contract.
   - Injured part cannot terminate but can claim damages.
3. Innominate term
   - Cannot be classified as a condition or warranty from the outset.
   - Consequences of the breach would depend on whether the injured party has been substantially deprived of the benefit of the contract.
   - If substantially deprived > treated as a condition
   - If not substantially deprived > treated as warranty

Question 7

What is the purpose of an exclusion clause?

Answer 7

• A term in a contract to limit or totally exclude liability for the breach of contract

Question 8

How is an exclusion clause usually treated?

Answer 8

1. The court will try to restrict use of ECs by asking whether it is actually part of a contract:
   (i) In signed documents it will be regarded as part of the contract as the the party signing is deemed to have read, understood, and agreed to the EC.
   (ii) In unsigned documents, party seeking to rely on clause must prove that the other party knew or should have reasonably known about the existence of the EC in the contract
2. The meaning of the EC must be clear to be interpreted favourably to the party who put it in the contract.
3. The EC must be valid, effective, and reasonable under the Unfair Contract Terms Act (UCTA).

Question 9

When are exclusion clauses ineffective?
(3 Ways)

Answer 9

The EC is made totally ineffective by the UCTA for the exclusion of liability by a business party:

1. for death or injury resulting from the business party’s negligence.
2. for breach of implied terms as to title in contracts for the sale of goods whether between 2 business parties or between business and consumer.
3. for breach of implied terms as to description, satisfactory quality, or fitness for business in contracts for the sale of goods between business and consumer.

Question 10

When are exclusion clauses valid?
(2 Ways)

Answer 10

Exclusion of liability for:

1. for loss or damage to property arising from business party’s negligence.
2. for breach of implied terms as to description, satisfactory quality, or fitness for purpose in contracts for the sale of goods between 2 business parties

Question 11

When will exclusion clauses be considered reasonable under the UCTA?
(5 Ways)

Answer 11

EC will be considered reasonable if:
1. both parties have equal bargaining power
2. customer received inducement to agree to the terms
3. customer knows/ought to know about the existence of the EC.
4. the EC restricts/excludes liability if a condition is not complied with
5. the goods were manufactured, processed, or adapted to the special order of the customer