Chapter 3 - Contents of a Contract

Question 1

What are the contents of a contract?

Answer 1

The contents of a contract are its terms, which determine the extent of the parties’ obligations.

Question 2

Why is it important to know the contents of a contract?

Answer 2

It’s important to know the contents of a contract because if a party breaks the terms of the contract, they can be sued for breach of contract, and the usual remedy is monetary compensation, called damages.

Question 3

Provide an example of a breach of contract.

Answer 3

A hotel confirms a booking for five nights with a sea view, but when the guest arrives, there is only a room available for two nights and the room faces a busy main road. In this situation, the hotel will have broken terms of the contract, and the guest can sue for breach of contract.

Question 4

What are the three types of contract terms covered in this source?

Answer 4

The three types of contract terms covered in this source are:
* Express terms
* Implied terms
* Exemption clauses

Question 5

What are express terms?

Answer 5

Express terms are terms specifically agreed by the parties and can be either in writing or oral.

Question 6

Provide an example of express terms in a contract.

Answer 6

Ashtons Ltd enters into a contract with Jaswinder to paint her café for £2,000. Ashtons Ltd will supply ice blue paint for the doors and white for all other woodwork and will use a base coat followed by two topcoats. The express terms are:
* Ashtons Ltd will paint Jaswinder’s café
* Price £2,000
* Ashtons Ltd to supply paint
* Paint to be ice blue for doors and white for all other woodwork
* Ashtons Ltd will use a base coat and two topcoats.

Question 7

What are implied terms?

Answer 7

Implied terms are not specifically created by the parties but are implied (ie read) into the contract, sometimes by a court in the course of litigation and sometimes by particular pieces of legislation.

Question 8

Why might terms be implied into a contract?

Answer 8

• Parties may not expressly agree all the terms because of common assumptions based on local custom or trade usage.
• Parties may assume their latest contract will contain the same provisions as their previous contracts.
• A court may imply a term to protect one of the parties.

Question 9

Provide an example of a statutory implied term.

Answer 9

A statutory implied term is that goods are of satisfactory quality. If a consumer buys a tin of beans from a supermarket and the contents are moldy, the supermarket will be in breach of contract.

Question 10

What are the four situations where terms may be implied by the courts?

Answer 10

Terms may be implied by the courts:
* By local custom or trade usage
* By a previous course of dealings between the parties
* To reflect the presumed intention of the parties
* Because of the type of contract

Question 11

Provide an example of a term implied by local custom or trade usage.

Answer 11

In Hutton v Warren (1836), an outgoing tenant farmer was entitled to an allowance for seed used and work done in the last year of the tenancy, even though the lease was silent on this point. This term was implied into the contract because it was customary in the locality for this allowance to be given.

Question 12

Provide an example of a term implied by a previous course of dealings between the parties.

Answer 12

In Spurling J Ltd v Bradshaw, Bradshaw delivered barrels of juice to the claimants for storage and was later sent a receipt containing an exemption clause, as on all previous occasions. When Bradshaw collected the barrels, they were empty, and he refused to pay. The court held that the exemption clause was a term of the contract, incorporated by the parties’ previous consistent course of dealing.

Question 13

What are the two tests devised by the courts to imply terms into a contract based on the presumed intentions of the parties?

Answer 13

• The business efficacy test
• The officious bystander test

Question 14

Describe the business efficacy test.

Answer 14

The business efficacy test states that a term should be implied into a contract if it’s necessary to make the contract work commercially. The court will not imply a term simply because it would improve the contract.

Question 15

Provide an example of the business efficacy test.

Answer 15

In The Moorcock (1889), the defendant owned a wharf and agreed to allow the claimants to moor their ship there. The ship was damaged at low tide. The court implied a term that the wharf owner had taken reasonable care to see whether the berth was safe because it was necessary to give business efficacy to the contract.

Question 16

Describe the officious bystander test.

Answer 16

If a bystander were to suggest a term to include in a contract, and both parties would respond ‘Oh, of course!,’ then the term should be implied into the contract because it reflects the obvious intentions of both parties.

Question 17

Provide an example of a term implied by the courts because of the type of contract.

Answer 17

In Liverpool City Council v Irwin and Another, a tenancy agreement for flats in a tower block owned by the local authority did not contain any provision about repair and maintenance. The House of Lords implied a term that the landlord should take reasonable care to keep the common parts in reasonable repair.

Question 18

Which three statutes imply terms into contracts?

Answer 18

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

Question 19

What types of contracts do these Acts cover?

Answer 19

These Acts cover contracts for the sale of goods, contracts for the supply of services, and work and materials contracts.

Question 20

How was the application of the SGA 1979 and SGSA 1982 impacted by the CRA 2015?

Answer 20

Since the CRA 2015 came into force, the SGA 1979 and SGSA 1982 no longer apply to contracts between a trader and a consumer, meaning a business and an individual.

Question 21

In what situations does the SGA 1979 still apply?

Answer 21

The SGA 1979 now only applies to contracts for the sale of goods which are made:
* business-to-business
* consumer-to-consumer
* consumer-to-business

Question 22

What does the CRA 2015 define as a trader?

Answer 22

A trader is “a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf.”

Question 23

What does the CRA 2015 define as a consumer?

Answer 23

A consumer is “an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession.”

Question 24

What are the two types of terms implied into contracts for the sale of goods by the SGA 1979?

Answer 24

• Conditions: major terms of the contract
• Warranties: minor terms of the contract

Question 25

Why is the distinction between a condition and a warranty important?

Answer 25

This distinction is important because of the remedies available to the innocent party if a term is broken.

Question 26

What term is implied by section 13 of the SGA 1979?

Answer 26

Correspondence with description is implied by section 13. This means if goods are sold ‘by description,’ the buyer is entitled to goods that match that description.

Question 27

What two terms are implied by section 14 of the SGA 1979?

Answer 27

• Section 14(2): Implies a term that goods will be of satisfactory quality
• Section 14(3): Implies a term that goods will be fit for purpose

Question 28

Provide an example of terms implied into a contract under the SGA 1979.

Answer 28

Gary, a pub owner, buys a smart screen TV from Supatelly for £1,200 after reading a description of the TV on their website. The express terms are the sale of the specific TV for the stated price and the agreed-upon Supatelly terms and conditions. The implied terms are:
* Correspondence with description: the TV must match the website description
* Satisfactory quality
* Fitness for purpose

Question 29

What are some points to note about section 14 of the SGA 1979?

Answer 29

• The implied terms of satisfactory quality and reasonable fitness for purpose only apply if the seller sells in the course of a business to a commercial buyer.
• If the buyer has a special or unusual purpose for the goods, they should tell the seller to get the benefit of s 14(3).
• Liability for breach of s 14(2) and 14(3) is strict, meaning the buyer does not have to prove that the seller is at fault.

Question 30

Provide an example of the strict liability associated with a breach of s 14(2) and 14(3).

Answer 30

A shop buys goods from a wholesaler and discovers they are faulty due to a manufacturing defect. The wholesaler will be in breach of both s 14(2) and s 14(3) of the SGA 1979, even though they were not at fault.

Question 31

What are some points to note about section 13 of the SGA 1979?

Answer 31

• Section 13 applies whether the seller is a business or a private individual
• Section 13 only applies if the buyer relied on the description.
• A sale by description can occur even if the buyer has seen the goods, as long as they have reasonably relied on the description.
• Liability for breach of s 13 is strict.

Question 32

Provide an example of a sale by description even though the buyer has seen the goods.

Answer 32

In Beale v Taylor, the defendant advertised a car as a 1961 model, but the car was made up of two halves of different cars welded together. The court decided there was a sale by description even though the buyer had inspected the car.

Question 33

What are the remedies available if the terms implied by s 13 or s 14 of the SGA 1979 are broken?

Answer 33

If one of these terms is broken, the buyer can:
* Terminate the contract, reject the goods, and recover money paid, but must return the goods.
* Affirm the contract, keep the goods, and sue for damages.

Question 34

When is the right to terminate a contract and reject goods lost?

Answer 34

The right to reject goods is lost where the buyer has accepted the goods or where the breach is so slight that it would be unreasonable to reject them.

Question 35

What is the most common situation where a buyer is deemed to have accepted the goods?

Answer 35

The most common situation is where the buyer retains the goods beyond a reasonable time without intimating rejection.

Question 36

Provide an example of when a buyer may not be able to reject goods.

Answer 36

If a decorator buys a van for his business and the van is usable but slightly defective, the buyer may not be able to reject the goods and their remedy will be limited to damages.

Question 37

Into what types of contracts does the Supply of Goods and Services Act 1982 imply terms?

Answer 37

The SGSA 1982 implies terms into:
* Contracts for services
* Contracts for work and materials
* Business-to-business contracts that are not between a trader and a consumer

Question 38

Provide examples of contracts covered by the SGSA 1982.

Answer 38

• Service contracts: commercial cleaning and courier services
• Work and materials contracts: contracts to build office blocks or sports stadiums; contracts for garages to service commercial vehicles

Question 39

What is the difference between a service contract and a work and materials contract?

Answer 39

A service contract is one where the supplier is only providing a service, while a work and materials contract is one where the work is the primary element but also involves the supply of goods.

Question 40

What term is implied by section 2(1) of the SGSA 1982?

Answer 40

In a contract for the transfer of goods, there is an implied condition that the transferor has a right to transfer the property [ownership] in the goods.

Question 41

What term is implied by section 3 of the SGSA 1982?

Answer 41

Where there is a supply of goods by description, there is an implied term that the goods will correspond with that description.

Question 42

What terms are implied by section 4 of the SGSA 1982?

Answer 42

• Section 4(2): Where goods are supplied in the course of a business, there is an implied term that the goods will be of satisfactory quality.
• Section 4(5): When the buyer makes known to the supplier the buyer’s purpose for the goods and reasonably relies on the supplier’s skill/knowledge, there is an implied term that the goods will be fit for that purpose.

Question 43

What term is implied by section 13 of the SGSA 1982?

Answer 43

Where work or a service is done in the course of a business, there is an implied term that it will be carried out with reasonable care and skill.

Question 44

What is implied by section 9 of the CRA 2015?

Answer 44

Goods will be of satisfactory quality.

Question 45

What is implied by section 10 of the CRA 2015?

Answer 45

Goods will be reasonably fit for their particular purpose.

Question 46

What is implied by section 11 of the CRA 2015?

Answer 46

Goods will be as described.

Question 47

What are the consumer’s rights to enforce terms about goods?

Answer 47

Consumers have the right to:
* Short-term right to reject and get a full refund (within 30 days for non-perishable goods)
* Repair or replacement (if appropriate)
* Price reduction or the final right to reject and get a partial refund.

Question 48

What is the time limit for the short-term right to reject?

Answer 48

The short-term right to reject is 30 days after purchase, delivery, and installation (if applicable).

Question 49

What is the presumption for goods that do not conform to the contract within six months of delivery?

Answer 49

If goods do not conform to the contract within six months of delivery, they are presumed to not have conformed to the contract on the day of delivery.

Question 50

What terms are implied into services contracts under the CRA 2015?

Answer 50

• Section 49: The service/work will be carried out with reasonable care and skill
• Section 51: A reasonable price will be paid when no price has been fixed
• Section 52: The service/work will be performed within a reasonable time when no time for performance has been fixed.

Question 51

What are the consumer’s rights to enforce terms about services?

Answer 51

Where the service/work does not conform to the contract, the consumer has the right to:
* Require repeat performance (where reasonable)
* A price reduction.

Question 52

What are the three classifications of terms in a contract?

Answer 52

All contract terms that impose contractual obligations are classified as:
* Conditions
* Warranties
* Innominate terms.

Question 53

What right does a breach of any term give to the other party?

Answer 53

A breach of any term gives the other party the right to claim damages.

Question 54

What right does a breach of certain terms give to the other party?

Answer 54

A breach of certain terms (conditions and some innominate terms) gives the other party the right to terminate the future performance of the contract and claim damages.

Question 55

What is the traditional approach to classifying terms?

Answer 55

The court would classify a term as either a condition or a warranty.

Question 56

What is the difference between a condition and a warranty?

Answer 56

A condition is a major term going to the root of the contract, while a warranty is a minor, less important term.

Question 57

How does a court determine whether a term is a condition or a warranty?

Answer 57

The court uses an objective test: Would a reasonable person think the parties intended the term to be a condition or a warranty?

Question 58

What factors does the court consider when deciding whether a term is a condition or a warranty?

Answer 58

The court looks at the circumstances surrounding the making of the contract, the contract as a whole, and whether the parties have described the term as a condition or a warranty.

Question 59

What is the effect of a breach of condition?

Answer 59

If the term is a condition and the contract has not been fully performed, the innocent party can usually terminate the contract and claim damages.

Question 60

What is the effect of a breach of warranty?

Answer 60

If the term is a warranty, the innocent party cannot terminate the contract but can sue for damages for loss suffered.

Question 61

How does the court consider the parties’ use of the word ‘condition’ in a contract?

Answer 61

The use of the word ‘condition’ raises a presumption that it is used in the legal sense, but this may be rebutted from evidence of the contract as a whole.

Question 62

Provide an example of when using the term ‘condition’ did not mean it was a condition in the legal sense.

Answer 62

In Schuler v Wickman Machine Tool Sales Ltd, the House of Lords decided that the parties had not intended to use the word ‘condition’ in its strict legal sense despite describing a term as a ‘condition’ because the term was so unreasonable that a single breach would entitle the other party to terminate the contract.

Question 63

What is an advantage of classifying terms as conditions and warranties?

Answer 63

Classifying terms as conditions and warranties promotes certainty because both parties know what the outcome will be if the term is broken.

Question 64

What are some disadvantages of classifying terms as conditions and warranties?

Answer 64

• This classification can lead to unfairness because a party may use a breach of condition as an excuse to end the contract even if the breach is minor.
• It also means that if a term is a warranty, the innocent party cannot terminate the contract even if the breach is major.
• Therefore, classifying terms without looking at the consequences of the breach can be unfair and inflexible.

Question 65

What is an innominate (intermediate) term?

Answer 65

An innominate term is a term that is neither a condition nor a warranty.

Question 66

In what case were innominate terms first recognized?

Answer 66

Innominate terms were first recognized in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd.

Question 67

What test should be used to determine whether the innocent party can terminate a contract when an innominate term is breached?

Answer 67

Ask whether the breach of contract deprived the innocent party of substantially the whole benefit of the contract.

Question 68

In what situations might the test for innominate terms not apply?

Answer 68

This test might not apply if the parties expressly agree when the innocent party can terminate, or if the situation is governed by statute.

Question 69

Provide an example of how the concept of innominate terms was applied.

Answer 69

In Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, the defendants hired a ship for 24 months, but the ship was in port for repairs for 20 weeks. The court decided that the defendants were not entitled to terminate the contract because the time spent repairing the ship was not enough to deprive them of substantially the whole benefit of the contract.

Question 70

How does a court choose between classifying terms as conditions and warranties or innominate terms?

Answer 70

Subject to certain restrictions, it is up to the court to decide whether to adopt the traditional approach (conditions and warranties) or to classify terms as innominate.

Question 71

What are some of the restrictions on the court’s ability to classify terms?

Answer 71

The parties may explicitly state in the contract whether a term is a condition or a warranty. Also, a statute may classify a term, such as in the SGA 1979 and SGSA 1982.

Question 72

What is an exemption clause?

Answer 72

An exemption clause is a clause that seeks to exclude or limit liability if a breach of contract occurs or a tort is committed.

Question 73

What is a limitation clause?

Answer 73

A limitation clause is a clause that restricts liability to a specific amount. It is a type of exemption clause.

Question 74

Provide some examples of exemption clauses.

Answer 74

A clause that:
* Excludes liability for non-delivery under certain circumstances
* States the seller will not be liable for any loss caused by delay
* Excludes liability if goods are defective unless the buyer gives notice within a specified time
* Limits remedies for breach of contract.

Question 75

When does an exemption clause become relevant?

Answer 75

For an exemption clause to be relevant, a breach of contract or a tort must have been committed so that a party is seeking to avoid or limit liability.

Question 76

What are the common law rules on exemption clauses?

Answer 76

• Incorporation: The clause must be incorporated into the contract.
• Construction (interpretation): The wording of the clause must cover the breach of contract and the loss or damage that occurred.

Question 77

What are the three ways an exemption clause can be incorporated into a contract?

Answer 77

• Signature
• Notice
• Consistent course of dealings between the parties.

Question 78

How is an exemption clause incorporated by signature?

Answer 78

If a party signs a contractual document, the clauses in that document are incorporated into the contract, even if they didn’t read them.

Question 79

Provide an example of incorporation by signature.

Answer 79

In L’Estrange v Graucob Ltd, an exemption clause was in small print but was legible. The court found that the clause was incorporated into the contract because the contract had been signed.

Question 80

In what three situations is an exemption clause not incorporated by signature?

Answer 80

An exemption clause is not incorporated by signature if:
* It’s illegible
* Its effect has been misrepresented, and the innocent party relied on that misrepresentation
* It’s unusual and onerous and not fairly and reasonably drawn to the attention of the other party.

Question 81

In what three situations is an exemption clause not incorporated by signature?

Answer 81

An exemption clause is not incorporated by signature if:
* It’s illegible
* Its effect has been misrepresented, and the innocent party relied on that misrepresentation
* It’s unusual and onerous and not fairly and reasonably drawn to the attention of the other party

Question 82

Provide an example of when an exemption clause is not incorporated because of misrepresentation.

Answer 82

In Curtis v Chemical Cleaning & Dyeing Co, a dry cleaner misrepresented the scope of an exemption clause to a customer, stating it covered only damage to beads and sequins on a dress. Because the customer relied on this misrepresentation, the court held that the defendant could not rely on the clause when the dress was stained.

Question 83

What must be true of the document containing the clause for an exemption clause to be incorporated by notice?

Answer 83

The document must be contractual in nature, meaning a reasonable person might expect it to contain contract terms.

Question 84

Provide an example of when a document was not considered contractual in nature.

Answer 84

In Chapelton v Barry Urban District Council, a deckchair ticket was deemed non-contractual in nature because it was seen as a receipt rather than a document likely to contain terms of hire.

Question 85

What are the two ways the innocent party can be deemed to have notice of an exemption clause in an unsigned document?

Answer 85

The innocent party must either:
* Know of the clause
* The party relying on the clause must have taken reasonable steps to bring it to the other party’s notice before the contract was finalized

Question 86

Provide an example of when an exemption clause was not incorporated because it was not brought to the attention of the other party before the contract was finalized.

Answer 86

In Olley v Marlborough Court Ltd, a notice in a hotel room exempted the hotel from liability for lost or stolen items. This was deemed too late to be incorporated into the contract because the contract was made at the reception desk.

Question 87

What factors will a court consider when deciding if reasonable steps were taken to bring a clause to the other party’s attention?

Answer 87

A court will take into account factors such as:
* Position of the clause on the document
* Prominence of the clause on the document
* Type and nature of the clause (e.g., whether it is unusual or onerous)

Question 88

How do the courts treat particularly onerous or unusual exemption clauses?

Answer 88

These clauses need to be drawn to the other party’s attention in the most explicit way for reasonable steps to have been taken.

Question 89

Provide an example of when a court deemed the steps taken to bring an onerous clause to the other party’s attention were not reasonable.

Answer 89

In Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd, an onerous clause in a delivery note was not deemed to be incorporated into the contract because it was not sufficiently prominent.