6. Determining the Terms of the Contract Flashcards
What are the two types of contract terms?
Conditions and warranties
Can contract terms be express and implied?
Yes
What is the difference between a term and a representation?
A term is intended by the parties to form part of the contract.
A representation is made merely to induce a party to enter into the contract.
How is it determined whether a statement is a term or a representation?
Based on the intentions of the parties, viewed objectively through their conduct from the perspective of a reasonable person
How will the court likely classify an oral statement which was not included in a written contract, and why?
As a representation, because if the parties thought it was important enough to be a condition, they should have put it in the written contract
What are the three factors a court will take into account when determining whether a statement is a term or a representation?
- Importance of the statement
- Stage of negotiations at which the statement was made
- Whether the party making the statement had any specialist skill
What is the question to ask when considering whether a statement is important?
If the other party wouldn’t have entered into the contract but for the statement, it is likely to be deemed important, and therefore a term
What is the question to ask when considering specialist skill?
Did the seller make a factual statement that should be within the scope of their knowledge, intending that the other party would act on the statement
Why is the distinction between term and representation important?
If the statement turns out to be untrue, the available remedies depend on whether it was a term or representation
What is the impact of a statement being deemed a term?
Any failure to comply will be a breach of contract, entitling the other party to damages
What is the impact of a statement being deemed a representation?
If it is untrue and it has not been incorporated into the contract, the remedy will depend on whether the misrepresentation was made innocently, negligently, or fraudulently
Why is the distinction between condition and warranty important?
It determines the remedies which are available upon breach
Along with condition and warranty, what is the third category of term, where it is unclear whether it is a condition or warranty?
Innominate term
What will the courts give more weight to: the term’s label or its effect on the operation of the contract?
The term’s effect on the operation of the contract
What is a condition?
A term so fundamental that it goes to the root of the contract, and the contract does not work without it
What is another name for a breach of condition?
Repudiatory breach
What options are available to the other party upon a breach of condition?
They can terminate the contract and sue for damages
What is the effect of the other party affirming a contract after breach of condition?
They lose the right to terminate, but can still sue for damages
What is a warranty?
A term that is incidental/collateral to the main terms of the contract
Can the other party terminate the contract for breach of warranty?
No
With innominate terms, how does the court determine what remedy should be available?
By looking at the effect of the breach
In what instance will the court deem an innominate term to be a condition?
Where the other party loses substantially the whole of the benefit of the contract due to the breach
What is the effect of time being of the essence on whether a term is a condition or warranty?
Time of the essence: the term is a condition (late performance gives rise to right to terminate)
Time not of the essence: the term is a warranty
When is time presumed to be of the essence?
In commercial contracts, where a delivery time has been agreed
Regarding notice, what is required for a term to form part of a contract?
The parties must have reasonable notice of it
What is the parol evidence rule?
When a contract is in writing, there is a general presumption that external evidence cannot vary the terms of the written contract
What are three exceptions to the parol evidence rule?
- Implied terms
- If there is a secondary (collateral) contract
- Where the court finds that the contract was always partly written and partly oral
What is an entire agreement clause?
A term in written contracts which provides that the written document constitutes the entire agreement between the parties
What is one instance in which the courts are unwilling to uphold an entire agreement clause?
Where it is being used by a party to avoid liability for misrepresentation
What is the binding effect of an implied term?
Same as if it had been expressly agreed between the parties
What are four ways through which terms are implied?
- Statute
- Courts
- Custom and usage, or
- A course of dealing between the parties
What are the three main sources of law through which contract terms are implied?
- Sale of Goods Act 1979
- Consumer Rights Act 2015, and
- Supply of Goods and Services Act 1982
What is an important term implied by the SGA?
s12 - that the seller has legal right to sell the goods
What is the impact of a seller not having title?
There is no consideration, and therefore no valid contract
What are other terms implied by the SGA?
Goods sold should:
s13(1) - match any description given by the seller
s14(2) - be of satisfactory quality (if seller is a business), and
s14(3) - be fit for any particular purpose made expressly or impliedly known to the seller by the buyer (if seller is a business)
s15 - bulk of goods must correspond with sample
What does s14(2) satisfactory quality mean?
- Fit for the purpose for which such goods are generally used
- Appearance and finish
- Free from minor defects
- Safe
- Durable
What defects are excluded when considering satisfactory quality?
- Defects brought to the buyer’s attention
- Defects that would have been obvious to the buyer had they inspected the goods prior to sale
Are terms implied under SGA conditions or warranties and what is the importance of this?
Conditions, meaning that if they are breached, the buyer can terminate the contract, reject the goods, and refuse to pay, but must return the goods
Note: this is subject to s15A
When is a breach of terms implied under the SGA a breach of warranty?
s15A - when the breach is so slight that it would be unreasonable for the buyer to reject the goods
What does UCTA 1977 provide regarding SGA implied terms?
- UCTA prevents a seller from excluding s12 title
- Exclusion of liability for all other implied terms will be valid only if reasonable
Terms implied by SGSA 1982 regarding supply of services
- s13 - Supplier will carry out service with reasonable care and skill
- s14 - Supplier will carry out service within reasonable time (if no time is agreed)
- s15 - Buyer will pay a reasonable price (if no price agreed)
Are terms implied by the SGSA conditions, warranties, or innominate terms?
Innominate terms
What terms are implied under SGSA for transfer of goods or hire of goods?
The same terms which are implied under SGA:
- title (for hire: right to transfer possession)
- description
- fitness/quality
- sample
What does the UCTA provide regarding SGSA implied terms?
Same as for SGA
What is the scope of the CRA 2015?
Supply of goods/services in a B2C context, i.e. between trader and consumer
What is a big difference between CRA and SGA/SGSA?
Under CRA, liability for breach of implied terms cannot be excluded at all
What are the 4 terms implied by the CRA into contracts for services?
- Carried out with reasonable care and skill
- Completed for a reasonable price
- Completed within a reasonable time
- Completed in accordance with information relied upon by the consumer when (i) deciding to enter the contract; or (ii) making any decision about the service after entering the contract (e.g. price)
Although the courts are reluctant to interfere with the presumed intentions of the parties generally, other than in the statutory contexts, when are they prepared to imply terms into contracts?
To give business efficacy to the contract, i.e. make it work in a way which reflects the parties’ intentions and expectations
What is the officious bystander test in the context of a court implying terms into a contract?
They will only do so if the term to be implied is so obvious to a reasonable person that it goes without saying
What kind of term are the courts unlikely to imply?
One that contradicts an express term
What is required for the courts to imply a term through course of dealings between the parties?
The parties have contracted on the same terms on several occasions, enough to show a regular and consistent course of dealings
Whilst the courts will generally not get involved to make an incomplete or vague contract work, what is required of a contract before they would get involved?
Sufficient certainty
What is one instance where the courts will not get involved with a contract?
Where the court is unable to conclude that the parties intended to be bound
What are four instances in which the courts will get involved in a contract which is uncertain?
- Mechanism, e.g. a clause, between the parties to resolve uncertainties
- Commercial cases in which the parties are familiar with the trade
- Future performance over a period of time (parties can resolve uncertainty over time), and
- Where there has been partial performance, or one party has invested on the basis of the agreement
What is one term the statutes will help resolve if it is not dealt with in the contract?
If no price has been agreed and none can be determined from the dealings between the parties, the buyer must pay a reasonable price
In deciding to sever an uncertain term, what is the test the courts will use?
Whether the term can be severed without affecting the substance of the bargain between the parties
What is the effect of an uncertain term not being able to be severed?
The entire contract is void for uncertainty
What terms are implied by CRA 2015 into contracts for goods?
- s9 - satisfactory quality
- s10 - fit for particular purpose
- s11 - match description
What terms are implied by CRA 2015 into contracts for digital content?
- s34 - satisfactory quality
- s35 - fit for particular purpose
- s36 - match description
what is special about CRA 2015 (compared to SGA/SGSA)?
CRA 2015 not only implies terms, but also specifies remedies for consumers when those terms are breached
Note these are in addition to general contractual remedies
Under CRA 2015, if goods sold to a consumer do not meet s9 (satisfactory quality), s10 (reasonably fit for particular purpose) or s11 (matches description), the goods are…
Non-conforming
under CRA 2015, what remedies are available where goods are non-conforming?
(a) The short term right to reject;
(b) The right to repair or replacement;
(c) The right to a price reduction or the final right to reject.
under CRA 2015, contracts for goods:
for how long is the short term right to reject available?
30 days running from the time
(i) that ownership has passed (or, in the case of contracts for hire or the like, possession has been transferred) and
(ii) the goods have been delivered and
(iii) in cases where the trader is required to install the goods or to take other action to enable the consumer to use the goods, the trader has notified the consumer that the required steps have been taken (s 22).
under CRA 2015, contracts for goods:
when would repair or replacement NOT be available?
when it is either impossible or disproportionate (s23)
under CRA 2015, contracts for goods:
what is the meaning of disproportionate?
imposes an unreasonable cost on the trader relative to the other remedies and the interests of the consumer (s23)
under CRA 2015, contracts for goods:
is the consumer entitled to both a price reduction and the final right to reject?
no, only one or the other
under CRA 2015, contracts for goods:
WHEN can the consumer get a price reduction OR the final right to reject?
ONLY:
(a) after one repair or one replacement, the goods do not conform to the contract; or
(b) the consumer can require neither repair nor replacement of the goods (because it is impossible or disproportionate); or
(c) the consumer has required the trader to repair or replace the goods, but the trader is in breach of the requirement to do so within a reasonable time and without significant inconvenience to the consumer (s 24).
under CRA 2015, contracts for goods:
what general rule does s24(10) provide about the final right to reject?
where the final right to reject is exercised within 6 months (the clock running—as with the short term right to reject—from the time that ownership has passed, and so on), there should be a full refund with no deduction for use—but this does not apply to motor vehicles or any other goods that may be specified by statutory order.
under CRA 2015, contracts for goods:
are ss9, 10 and 11 conditions or warranties? can the consumer repudiate the contract following breach?
neither, and no.
rather, the extent to which breach gives a rise to a right to repudiate the contract is subject to the 3 remedies:
(a) short-term right to reject
(b) right to repair or replacement;
(C) right to a price reduction or final right to reject
under CRA 2015, contracts for digital content, where the digital content is non-conforming in breach of the terms
implied by ss 34 (satisfactory quality), 35 (reasonably fit for purpose) and/or 36 (matching description):
what remedies are available?
- The right to repair or replacement; and
- The right to price reduction.
- s42(9) provides that ‘digital content which does not conform to the contract at any time within the period of 6 months beginning with the day on which it was supplied must be taken not to have conformed to the contract when it was supplied.’
under CRA 2015, contracts for services, where the services are non-conforming in breach of the term implied by s49 (reasonable care and skill):
what remedies are available?
- The right to require repeat performance; and
- The right to a price reduction.
under CRA 2015, contracts for digital content, s34 satisfactory quality:
what does satisfactory mean?
- According to s 34(2), the ‘quality of digital content is satisfactory if it meets the standard that a reasonable person would consider satisfactory’.
- Such a reasonable person would take account of matters of description and price together with ‘all other relevant circumstances’ (s 34(2)(c)), such circumstances including ‘any public statement about the specific characteristics of the digital content made by the trader, the producer or any representative of the trader or producer’ (s34(5)).
under CRA 2015, contracts for digital content, how is the right to repair or replacement qualified?
- s43(2)(a) - within a reasonable time and without significant inconvenience to the consumer
- s43(3) - precludes consumer from requiring repair or replacement where impossible or disproportionate; and
- s43(5) - the nature of the digital content together with the purpose for which the digital content was obtained or accessed is material to judging ‘what is a reasonable time or significant inconvenience’.
under CRA 2015, contracts for digital content, how is the right to a price reduction qualified?
only available where consumer either:
- cannot require repair or replacement (because this is impossible or it would be
disproportionate); or
- where the trader has failed to repair or replace the digital content within a
reasonable time and without significant inconvenience to the consumer.
What is the legal position if non-compliant digital content causes damage to a device or to other
content?
s46: where
(a) a trader supplies digital content to a consumer under a contract,
(b) the digital content causes damage to a device or to other digital content,
(c) the device or digital content that is damaged belongs to the consumer, and
(d) the damage is of a kind that would not have occurred if the trader had exercised reasonable care and skill,
then the consumer is entitled to repair or to a compensatory payment.
CLASSIFICATION OF TERMS - flowchart
- has the term in question has been classified as a condition or a warranty by: i) statute; ii) the parties or iii) previous judicial decision(s).
- If that does not provide an answer, then the court will need to look at the contract, the subject matter and the surrounding facts to determine whether the parties intended for any breach of the term to entitle the innocent
party to terminate the contract (this is where the ‘root of the contract’ test may be relevant). - If the court cannot determine the parties’ intention, or determines that their intention was that not every breach would lead to the right to terminate, then the court is likely to decide that the term is innominate, and apply the test from Hong Kong Fir: Does the breach deprive the party not in default of substantially the whole benefit which it was
intended that he should obtain from the contract?
if time is not already of the essence, how can it become so?
- innocent party serves a notice on the defaulting party which states time is of the essence
- notice must state completion date
- completion date must be reasonable
under CRA 2015, contracts for goods when a trader is in breach of the requirement to repair or replace within a reasonable time and without significant inconvenience to the consumer (s 24), what does this actually mean?
According to s 23(5) these questions of reasonableness and significance
are to be determined by taking into account
(a) the nature of the goods; and
(b) the purpose for which the goods were acquired’.
under CRA 2015, contracts for services, how is the right to repeat performance qualified?
55(2)(a) requires the supplier to provide the repeat performance within a reasonable time and without significant inconvenience to the consumer (s 55(4) offering the usual guidance on what, for this purpose, is reasonable and significant), and s 55(3) states that the consumer cannot require repeat
performance if completion in conformity with the contract is impossible.
According to s 56(3), a price reduction becomes available only where repeat performance is impossible or where the trader has failed to provide repeat performance within a reasonable time
and without significant inconvenience to the consumer.
Where the services are non-conforming in breach of the term implied by ss 52 (performance within a reasonable time) the remedial option is the right to a price reduction.
