Chapter 3 - Terms of the contract

Question 1

what are express terms?

Answer 1

Terms which are expressly communicated between the parties. They have been discussed and agreed upon either orally or in writing.

Question 2

What are implied terms?

Answer 2

Terms that have not been agreed to expressly but are nevertheless part of the contract.

Question 3

What are the 3 ways an implied term may be implied into the law?

Answer 3

By fact, custom, and law.

Question 4

Explain on implied term implied into a contract by fact?

Answer 4

The courts have implied terms into a contract for the purposes of business efficacy. This means that the courts insect these terms for businesses to operate effectively, even though the parties themselves did not induce the terms expressly.

The rationale is that the terms are so obviously necessary to the contract itself that the parties must have intended such a term.

The court also held that a term will be implied if it is one which the parties themselves would have included in the contract had they addressed their minds to it.
The rational is to give “business efficacy” to their contract.

Question 5

Explain on implied term implied into a contract by custom?

Answer 5

Refers to customs and practices of particular trade which have become so well-known in the trade that it does not need to be expressed.

Question 6

Explain on implied term implied into a contract by law?

Answer 6

Refers to the terms which are implied by law into the contract irrespective of the expressed intentions of the parties. An act of parliament may express intentions of the parties. (E.g. SOGA)

Question 7

What are the 4 implied terms for sale of goods act?

Answer 7

Title, Description, Quality, Fitness for particular purpose

Question 8

What it “Title” (Section 12) of the SOGA?

Answer 8

Section 12 of the Act stated that there is an implied condition in every sale of goods contract that the seller has the right to sell goods. There is also an implied warranty that the buyer will enjoy quiet possession of the goods.

Question 9

What it “Description” (Section 13) of the SOGA?

Answer 9

Section 13 of the Act states that where there is a sale by description there is an implied condition that the goods will match the description.

Question 10

What it “Quality” (Section 14 [2]) of the SOGA?

Are there any circumstances where the rule does not apply?

Answer 10

Section 14(2) of the Act states that where a seller sells goods in the course of business, there is an implied condition that the goods supplied are of satisfactory quality.

This means that the goods must meet the standard that a reasonable person would regard satisfactory, taking into the account the way they are described, the price and all other relevant factors.

Doesn’t apply

1) When a defect has been brought to the attention of the buyer
2) If the buyer had already examined the goods prior to entering into the contract.

Rational is that the buyer has already been given the opportunity to examine and reject the goods prior to (before) entering into the contract.

Question 11

What it “Fitness for particular purpose” (Section 14 [3]) of the SOGA? And are they any exceptions on the rule?

Answer 11

Section 14(3) of the Act states that where the seller sells goods in the course of business and the buyer makes known to the seller any particular purpose for which the goods have been brought, there is an implied condition that the goods will be reasonably fit for the particular purpose.

Exceptions are where the byer does not rely on the seller or it is not reasonable for him to rely on the skill and judgement of the seller.

Question 12

What are the 3 nature of terms?

Answer 12

All terms, whether express or implied can be classified into a condition, warranty or an innominate term.

Question 13

What is a “condition”? What happens if there is a breach of condition?

Answer 13

A condition is a term that is fundamental to the main purpose of the contract.

A breach of condition will result in the termination of the contract. The innocent party has the choice to

1) Terminate the contract an claim damages
2) Accept the breach and claim damages

Question 14

What is a “warranty”? What happens if there is a breach of warranty?

Answer 14

A warranty is a term that is important to the main purpose of the contract. The breach may cause some injury or loss to the innocent party. However, it does not affect the main purpose of the contract.

The innocent party does not have the choice to terminate the contract for breach of warranty. He is entitled to claim damages for breach but is required to carry on with the contract.

Question 15

What is a “Innominate terms”? What happens if there is a breach of innominate terms?

Answer 15

Innominate terms are terms that cannot be classified as a condition or a warranty from the outset. This is due to the debatable nature of the term. The consequences of the breach of innominate terms can only be determined from the effects of the breach.

If breach is serious and fundamental, contract will be treated as discharge. Innocent party is entitled to damages.

If breach is not serious and not fundamental, then contract cannot be discharged. Innocent party is entitled to damages.

Question 16

What are exemption clauses? When it is used?

Answer 16

An exemption clause is used by a party in a contract to exclude or limit the liability of the party in a breach.

It is frequently put into contracts by the commercially stronger party. It arises in situations where parties anticipate a breach of contract and try to protect themselves.

Question 17

What are the 2 types of exemption clauses? and explain

Answer 17

An exclusion of liability clause seeks to completely exclude liability. E.g. All vehicles parked at owner’s risk. No liability accepted for any loss or damage.

An limitation of liability seeks to limit its liability. E.g. Air-travel airline limits the amount it will pay for the loss or damage to luggage.

Question 18

Exclusion clause can be abused by the parties relying on them. What are the three ways the parties relying on these clause must establish?

Answer 18

1) The clause was incorporated into the contract
2) The clause, when properly interpreted, clearly cover the damages
3) That the clause does not run contrary to the Unfair Contract Terms Act

Question 19

Incorporation of exclusion clause can be done through?

Answer 19

Signed Documents or Unsigned Documents

Question 20

Explain on “signed documents”

Answer 20

If the exclusion clause is contained in a document which is signed by a party challenging it, the court will regard it as being part o the contact. ‘

The rational is that any party signing a contract is deemed to have read, understood and agreed to the terms and conditions contained in the document. This would include the exclusion clause as well.

Question 21

Explain on “Unsigned documents” What are the 2 conditions for the party to rely on the exclusion clause?

Answer 21

When the exclusion clause is contained in an unsigned document, it will only be regarded as being part of the contract only if the other knew or should have reasonably known about the existence of the exclusion clause.

In order for the party to rely on the exclusion clause, he must show that

1) He had taken reasonable steps* to bring it to the attention of the other party before or at the time of the contract
2) There has been a course of past dealings between the parties on terms which included the exclusion clause. (E.g. Olley V Marlborough Court )
* Reasonable Steps - Notice must be placed in an obvious place/ notice must be visible and legible

Question 22

What are the conditions for incorporating an exclusion Act into the contract?

Answer 22

1. The clause covers the damage

2) The clause does not run contrary to the unfair Contract Terms Act

Question 23

Explain on “The clause covers the damage” for an exclusion clause

Answer 23

The wording of the clause must clearly cover the loss which took place. The clause must be properly worded to cover the situation where liability is being excluded.

If the wording is ambiguous, it will be interpreted against the party relying in the clause (the contra proferentum rule).

The court will interpret it in a manner least favourable to the party who inserted it into the contract and is trying to rely on it to escape legal responsibility.

Question 24

What is the the contra proferentum rule?

Answer 24

The contra proferentem rule is a legal doctrine in contract law which states that any clause considered to be ambiguous should be interpreted against the interests of the party that created, introduced, or requested that a clause be included.

Link - https://www.investopedia.com/terms/c/contra-proferentem-rule.asp

Question 25

What are the 3 aspects on “The clause does not run contrary to the unfair Contract Terms Act” for an exclusion clause”

Answer 25

1) Reasonableness
2) Scope of UTCA
3) Scope of Section 2(1) and 2(2) of UTCA

Question 26

Explain on “Reasonableness” under UTCA Act” What are the 4 factors used to determine “Reasonableness” ? and explain them

Answer 26

UTCA operates on the basis of reasonableness. If an exclusion clause is unreasonable, it would be deemed void even if it had been incorporated into the contract.

1) Bargaining positions of the parties.

If the parties are on equal footing (one party does not have a stronger bargaining power than the other), then the exclusion clause would be considered reasonable, all other thing being equal.

2) Whether the customer had received an inducement to agree to the term.
e. g. customer receiving an incentive to enter into the contract with an exclusion clause. This would be regarded as reasonable as the incentive was given “in exchange” for the contract with the exclusion clause.
3) If the customer had knowledge of the exclusion clause ; if there was knowledge –> likely to be reasonable
4) Whether it is practical to comply with the exclusion clause.

Question 27

What is the scope of UTCA?

Answer 27

Mainly visible in business liability cases or consumer transaction.

Biz Liability –> liability arising from things done in the course of business or professional activities.

Consume transaction –> Refers to consumer contracts

Question 28

Explain on the scope of Section 2(1) and 2(2) of UTCA.

Answer 28

Section 2(1) 
The exclusion clause restricts or limits liability for death or personal injury arising from negligence is void. 

Therefore if death or personal injury is caused by negligence from the business party relying on the exclusion clause, liability cannot be excluded. Exclusion clause is void and business party will be held liable.

2(2) of UTCA
The exclusion clause that restricts or limits the liability for other types of loss or damage is valid if the term or notice of the exclusion clause is reasonable.

Question 29

What are the 3 instances where exclusion clause are deemed invalid by UTCA?

Answer 29

1) For death or personal injury arising from the business party’s negligence
2) For breach of implied terms as to title under section 12 of SOGA in contracts for sale of goods or hire purchase between two business parties or business party and a consumer
3) For breach of implied terms as to description under section 13, quality under section 14(2), and fitness for purpose under section 14(3) in contracts for the sale of the goods or hire purchase with a consumer.

Question 30

What are the 2 instances where exclusion clause are deemed valid by UTCA?

Answer 30

1) If there is property loss or damage arising from business party’s negligence
2) If there is a breach of an implied term as to description under section 13, satisfactory under section 14(2), and fitness for purpose under section 14(3) in a business to business contract.