Contents Flashcards
what are express terms?
Express terms are specific terms in a contract that are agreed upon by both parties and are usually written down. They outline the legal rights and responsibilities of each party to the contract
How can an express term be incorporated into a contract? What is the effect of this?
A term may be incorporated into a contract in the following ways:
o Signature
o Reasonable notice before or at the time of the contract
o A previous consistent course of dealing
This allows for terms which have been expressly agreed to be incorporated and the small print (i.e. terms and conditions, notices)
re: express terms
what is the effect of a signature?
parties will be bound by the contract they sign, this will include and terms and conditions inc. those which state ‘‘I have read and understood the terms and conditions overleaf’’ or where a box to this effects ticked
what type of clause can be difficult to apply the incorporation principles to?
exemption clauses
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when will someone not be bound by a signed contract?
if the document has been misrepresentation
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when might the ‘reasonable notice’ principle apply?
This might apply when there are terms and conditions but a party has not necessarily signed something i.e.:
o Terms that are contained in notices at the point of sale
o Terms that are on the back of tickets
re: express terms
what is the general position in relation to the ‘reasonable notice’ principle?
The general position is that the party who wants to rely on the terms needs to have given reasonable notice at or before the time of the contract
If reasonable notice has been given, then the term will be regarded as incorporated
If reasonable notice has not been given, then the term will not be incorporated
re: express terms
what will the court consider when deciding if reasonable notice has been given?
o The nature of the document - would a reasonable person expect there to be a contract?
o Timing - the notice must have come before the contract (i.e. at quotation) and not afterwards (i.e. on an invoice)
o Onerous terms - the more onerous the term, the more a party should do to bring it to the other party’s attention.
o The exemption clause must be legible
o If the term is on the back, there should be words on the front i.e. ‘see terms overleaf’
re: express terms
give an example where the court held a term was not a term of a contract
re: reasonable notice and considering the nature of the document
a term on the back of a ticket that someone had been given after paying for the hire of a deckchair was held not to be a term of the contract. A reasonable person would simply have assumed that the ticket was proof of payment.
re: express terms
explain the incorporation by a previous consistent course of dealing principle and the rationale
Terms can be incorporated by virtue of previous consistent dealings that were on exactly the same terms.
The premise is that by this stage of the dealings parties should be familiar with the T&Cs
re: express terms
give 2 examples when incorporation will not be deemed to have taken place by a previous course of dealings
- The parties have had three or four dealings over the last five years always on the same terms: The terms will not be incorporated. There will not have been sufficient dealings for the innocent party to remember the terms they contracted on in the past.
- The parties have had lots of dealings in the past but there has been no consistency; sometimes, but not always, one party has been asked to sign a document containing terms: The terms will not be incorporated, whilst dealings might be regular, they haven’t been consistent.
re: express terms
give an example when incorporation will be deemed to have taken place by a previous course of dealings
The parties have had dealings three or four times a year over a long period of time and a sale note has routinely been handed over, which sets out the seller’s standard terms and conditions.
re: express terms
how are express terms classified and what are they?
Terms are generally classified as:
o Conditions (important terms)
o Warranties (minor terms)
o Innominate terms (i.e. a term that cannot be defined as a condition or warranty)
re: express terms
why is it important to properly classify a term to a contract?
It is important to classify the term of the contract because this will depend on the remedy available to the claimant if there has been a breach
re: express terms
what remedy is available if a condition has been breached?
If a condition is breached, then prima facie the innocent party can terminate future performance of the contract and claim damages
re: express terms
if there has been a breach of condition, what has usually happened?
A breach of a condition usually means that the innocent party has been deprived of the entire benefit of the contract in some way
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what is the difference between a condition and warranty?
conditions are the fundamental terms to the contract, they are the basis of the contract.
the warranties are the ancillary terms. They generally offer assurances and guarantees and are not as important as conditions.
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how do you identify a condition and warranty?
the contract may specifically say, however contracts can be drafted by lay persons who do not understand the significance of each terms.
in the latter, you need to look at al the circumstances to decide whether the parties could have intended that breach of the specific clause would lead to termination of the contract
also, some terms have been judicially recognised as being a condition or a warranty i.e. ‘expected ready to load’ clauses in charter parties (contracts to hire ships) are conditions
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what is the remedy for breach of warranty?
If a warranty is breached, then the only remedy available is damages
re: express terms
what is an innominate term?
also called an intermediate term
this is a term which cannot be defined as a condition or a warranty. These are terms where there could be a spectrum of breaches.
re: express terms
what remedy is available for breach of innominate terms?
Lord Diplock said with these types of terms you need to wait and see. Only if the breach of the term substantially deprives the party of the whole benefit he expected to get, we he be entitled to terminate the contract.
Otherwise, they will only be entitled to damages.
re: express terms
what is the problem with innominate terms?
With these terms comes fairness but there is uncertainty in having to wait and see whether the breach in an ongoing contract is serious enough to justify the innocent party terminating the future performance of it
what are implied terms?
terms which are so obvious they go without saying
what is an example of an implied term?
If you buy something from a shop and it doesn’t work, you can take it back and return it. But the shop did not expressly promise that the goods would work and you did not check? You can return the goods because it goes without saying that the new goods would be fit for purpose and free from defects.
what are the categories of implied terms?
o Terms implied by custom
o Terms implied by fact
o Terms implied in law
o Terms implied by statute
what is a term implied by custom?
A term may be implied if it reflects well-known and legally binding customs of a particular trade
what is a term implied by fact?
A term where the parties have not expressly agreed something, but the contract would be unworkable without the relevant term i.e. something so obvious it goes without saying
It is assumed that the parties have implicitly agreed it so as to make commercial sense of the contract
what is a term implied by law?
A term will be implied if the law regards it as a necessary incident to a particular type of contract i.e.:
o In an employment contract there is an implied duty on the employer to provide a healthy and safe environment for the employee to work in or an obligation for the employee not to disclose confidential information
o The law sees this as an essential to an employee relationship
what is a term implied by statute?
where a piece of legislation sets out the term that is to be implied (these are really a sub-category of terms implied by law)
re: implied terms
what are the three key statutes which imply terms?
o Sale of Goods Act 1979
o Supply of Goods and Services Act 1982
o Consumer Rights Act 2015
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what types of contracts does the Sale of Goods Act 1979 apply to?
business to business contracts for the sale of goods
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what types of contracts does the Supply of Goods and Services Act 1982 apply to?
business to business contracts involving:
o Service contracts (i.e. furniture removal contract)
o The supply of work and materials (i.e. to supply and fit a new kitchen)
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what types of contracts does the Consumer Rights Act 2015 apply to?
business to consumer contracts for the sale of goods and supply of goods and services
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what are the main implied terms under the Sale of Goods Act 1979?
12(1) that the seller has a right to sell the goods
13(1) that the goods will correspond with the description
14(2) & (2A) that the goods are of satisfactory quality. Goods will be of satisfactory qualify if they meet the standard that a reasonable person would regard as satisfactory, taking account of the description of goods, any price and all other relevant circumstances
14(3) if the buyer expressly or impliedly makes it known to the seller the purpose for which the goods are being bought, there is an implied term that the goods are reasonable fit for that purpose, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller
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what is the classification of the implied terms under the Sale of Goods Act 1979?
they are all conditions
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what liability is imposed by the implied terms under the Sale of Goods Act 1979? what is the effect?
what are the exceptions to this?
These are all conditions and impose strict liability
There are exceptions to this:
o They have accepted the goods or intimated acceptance (i.e. they have kept them beyond a reasonable time without seeking to reject them); or
o In relation to 13 & 14, the breach is so slight it would be unreasonable to reject the goods
re: implied terms
what is the best way to approach an SBAQ?
o What type of contract is in operation i.e. business to business? business to consumer?
o What type of term has been breached
o Then you can identify the remedy
re: implied terms
what are the main implied terms under Supply of Goods and Services Act 1982 in relation to work and materials contracts only?
state the classification of the term.
what type of liability do these impose?
2(1) the transferor has the right to transfer the property (condition)
(3) the goods will correspond with the description (condition)
4(2) the goods will be of satisfactory quality (condition)
4(5) if the buyer makes known to the supplier their purpose for the goods (either expressly or impliedly) and reasonably relies on the supplier’s skill/knowledge, there is an implied term that the goods will be fit for that purpose (condition)
these terms impose strict liability.
re: implied terms
what are the main implied terms under Supply of Goods and Services Act 1982 in relation to work & materials contracts and service contracts?
state the classification of the term.
what liability is imposed?
- there is an implied term work will be carried out with reasonable care and skill (innominate term)
- where no time for performance has been agreed, it is implied that work will be done within a reasonable time (innominate term)
- if a price for work has not been fixed, there is an implied term that a reasonable sum will be charged (innominate term)
these are not strict liability
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where applicable, what is meant by strict liability and what is the effect of this?
the seller will be liable, regardless of fault. This means that the buyer does not need to prove that the seller was at fault to receive damages
re: implied terms
what terms are implied by the Consumer Rights Act 2015 in relation to sale of goods and supply of goods under a goods and services contract?
what liability do they impose?
- the goods will be of satisfactory quality
- if the buyer makes known to the supplier their purpose for the goods (either expressly or impliedly) and reasonably relies on the supplier’s skill/knowledge, there is an implied term that the goods will be fit for that purpose
- the goods will correspond with the description
- the seller has the right to sell/transfer the goods
the terms impose strict liability.
re: implied terms
if there has been a breach of s9 - 11 of the Consumer Rights Act 2015, what remedies are available?
A consumer has rights to enforce terms about goods under s19 CRA 2015.
This is a pecking order of remedies. If one is lost / not available then you move onto the next:
o The short-term right to reject and get a full refund (ss20 & 22)
o The right to repair or replacement (if appropriate) (s23)
o The right to a price reduction and get a partial refund to reflect the consumer’s use of the goods (ss20)
re: implied terms
where there has been a breach of a term implied by the Consumer Rights Act 2015 and the consumer is seeking a remedy, what is the ‘short-term right’ and the time frame attached to it?
The short-term right to reject and get a full refund (ss20 & 22)
Unless otherwise agreed, the time limits are:
* Non-perishable goods - 30 days
* Perishable goods - no longer than the goods could reasonably be expected to last
re: implied terms
where there has been a breach of a term implied by the Consumer Rights Act 2015 and the consumer is seeking a remedy, what is the time frame attached to the right to repair and right to a price reduction?
Unless otherwise agreed:
Non-perishable - 6 months from date of delivery
Perishable - where the goods did conform to the contract on the day of delivery (this can be difficult to prove)
re: implied terms
what impact does s19 Consumer Rights Act 2015 have on a consumer’s common law right? What does this mean?
a consumer’s common law right to damages is unaffected by the rights under s19.
in other words, they can exercise their rights under s19 and they can still exercise their common law right to damages. This is a remedy that allows a claimant to receive monetary compensation from a defendant who is responsible for causing loss or damage i.e. if they can get a refund and if they purchase a new item which is more expensive, they can claim the extra cost of the new item
re: implied terms
what terms are implied by the Consumer Rights Act 2015 in relation to goods and services contracts and service contracts?
what liability do they impose? Give an example.
- there is an implied term work will be carried out with reasonable care and skill
- where no time for performance has been agreed, it is implied that work will be done within a reasonable time
- if a price for work has not been fixed, there is an implied term that a reasonable sum will be charged
these are strict liability. If there is a contract for goods and services between a trader and consumer, the trader cannot rely on the fact that there is a manufacturing defect (so the defect is the fault of the manufacturer, not the trader) to escape liability
re: implied terms - consumer rights act 2015
what remedy is available to the consumer when the service/work does not conform with the contract?
S54 provides that where service/work does not confirm with the contract because of a breach of express term relating to the performance of the service/work or if there has been a breach of s49 (i.e. reasonable skill and can), the consumer has the right to:
require repeat performance (where reasonable); or
a price reduction
If there is a breach of s52 (i.e. charge a reasonable sum) the consumer has a right to an appropriate price reduction.
what is an exemption clause? What is their aim? Give an example.
These are clauses to exclude or limit liability for loss or damage in the event of failure to perform the contract properly i.e. if the goods are delivered late or the service is performed badly
They seek to cut down the innocent party’s remedy and make it more difficult to enforce their legal rights
to protect buyers from unfair terms, what protections are in place in relation to exemption/limitation clauses?
steps 1 and 2 are common law rules:
1) Incorporation
2) Construction
3) statutory controls
when can the defendant rely on an exemption/limitation clause?
They will need to effectively clear three hurdles to be able to rely on the clause and exclude liability:
1) Incorporation - the clause must have been incorporated
2) Construction - the term must exclude the particular breach and damage it has caused
3) statutory controls
what is meant by the construction stage in relation to exemption/limitation clauses? what rule applies?
i.e. as a matter of construction, is the clause purporting to exclude/limit liability for the particular breach and loss that breach has caused?
The ‘contra proferentem rule’ applies. This means that if there is any ambiguity at all, the clause will be construed against the person seeking to rely on it. There is a strict application of this rule.
what is the contra proferentem rule?
This means that if there is any ambiguity at all, the clause will be construed against the person seeking to rely on it. There is a strict application of this rule.
re: exemption clauses
what are the potential outcomes of the construction stage?
exemption clause specifically excludes/limits liability for the breach in question - consider the statutory controls and whether any of those impede the use of the exemption clause.
If there is any ambiguity surrounding the exemption clause, it will fail at this hurdle.
give 2 examples of when an exemption clause was not construed to cover the liability in question
Example 1
* Facts: Claimant’s car was being repaired at the defendants’ garage when it was damaged by fire caused by the defendants’ negligence.
* Clause: ‘The Company is not responsible for damage caused by fire to customers’ cars on the premises.’
* Outcome: the exemption clause did not cover the liability in question. The clause was merely a ‘warning’ that D would not be liable.
Example 2
* Facts: At the time of the accident there were six people in a car with seating accommodation for only five.
* Clause: Car insurance policy excluded liability for damage ‘caused or arising whilst the car is conveying any load in excess of that which it was constructed for’.
* Outcome: the exemption clause did not cover the liability in question. The court held that the word ‘load’ only applied where there was a specified weights that must not be exceeded i.e. lorries and vans
re: exemption clauses
what are the two main statutes which limit exemption/limitation clauses and what contracts do they apply to?
o Unfair Contract Terms Act 1977 - business-to-business contracts
o Consumer Rights Act 2015 - business-to-consumer contracts
re: exemption clauses
what are the three possible outcomes when applying UCTA 1977?
There are three outcomes when applying UCTA:
o UCTA has no effect on the clause
o UCTA renders the clause void
o The clause is subject to the ‘requirement of reasonableness’
re: exemption clauses
explain when UCTA would have no effect on a business to business contract
UCTA will have no effect on an exemption/limitation clause in a freely negotiated contract which excludes liability of an express term
In this instance, the defendant could rely on the exemption clause to avoid liability.
re: exemption clauses
what is the reasonable test?
s11 UCTA = was the term fair and reasonable to be included at the time the contract was made, having regard to all the circumstances and taking into account what was known or out to have been known
when deciding whether a term was reasonable, the court should have regard to the factors set out in Schedule 2.
re: exemption clauses
explain when UCTA will render the exemption/limitation clause automatically void
UCTA will render an exemption clause void in two instances:
- If the clause purports to exclude negligence liability which causes death or personal injury (i.e. if, as a result of one party’s negligence, the other dies or is injured, the negligent party will be liable, regardless of any term in the contract)
- If the clause purports to exclude/restrict liability for breach of the implied term regarding the seller’s undertaking of ownership of title
re: exemption clauses
UCTA 1977 stipulates types of clauses which are subject to the reasonable test, what are the main ones?
remember, this is to business to business contracts only
exemption and limitation clauses which relate to:
- s2 - clauses exempting liability for loss or damage caused by negligence.
- s3 - clauses exempting liability for breach of an express term contained in the standard written terms of the person seeking to exempt liability
NB: UCTA will have no effect on an express them that has been freely negotiated. s3 is different because it is looking specifically at the standard terms. - s6 & s7 - clauses exempting liability for breach of statutory implied terms relating to goods i.e. description, quality, fitness for purpose
it is possible to exclude/limit liability in relation to the above issues, but it must be reasonable to do so
re: exemption clauses
when will a clause be subject to the ‘reasonable’ test?
If the clause is not an express term that was freely negotiated and is not automatically void, then the exclusion/limitation clause will likely be subject to the reasonable test
re: exemption clauses
what obligation is on the court in relation to schedule 2?
If the case involves the sale or supply of goods it is mandatory for the court to consider Schedule 2. In all other cases, the court should have regard to Schedule 2
The court simply have to consider schedule 2, it is not a list of determining factors. The court can also consider other factors that aren’t set out in Schedule 2.
re: exemption clauses
who must prove the exemption/limitation clause is reasonable?
The onus is on the defaulting party to show that the exemption clause is reasonable
re: exemption clauses
what are the schedule 2 factors?
- parties’ bargaining position (it will be more likely to argue the clause is reasonable if they are equal)
- Did the customer receive an inducement to agree to the exemption clause? Could the customer have entered into a similar contract elsewhere without the exemption clause but chose not to? (if so, the court might be reluctant to interfere as they may have had good reason for accepting the clause, making it reasonable)
- Whether the customer knew, or ought reasonably to have known of the existence and extent of the clause, taking into account any trade custom and previous dealings
- If the clause states that the exemption clause will not apply if a condition is not complied with (this will depend on whether it was reasonable at the time of the contract to expect compliance with the condition would be practicable)
re: exemption clauses
what are other factors a court might consider when evaluative the reasonableness of an exemption/limitation clause?
o Whether the risk was insurable
o The difficulty of the task i.e. if it was difficult or dangerous and there is a high right of failure, this would point towards the clause being reasonable
o The nature of the parties’ dealings and negotiations
re: exemption clauses
what are some examples of when a court might consider an exemption/limitation clause to be unreasonable?
o if the clause excludes liability for defects in goods unless defects are notified to the supplier within 7 days of delivery (an unreasonable condition)
o the seller is a large company that insists on selling goods on its own standard terms and conditions which contain exemption clauses similar to other suppliers
o the exemption clause is buried in the small print
re: exemption clauses
what are some examples of when a court might consider an exemption/limitation clause to be reasonable?
o the seller agreed to reduce the price of goods if the buyer was prepared to accept the exemption clause
o experiences businessmen enter into freely negotiated contracts including exemption clauses
re: exemption clauses
what is the difference between a limitation clause and exclusion clause?
limitation clause limits liability, while an exclusion clause excludes liability
re: exemption clauses
what is a limitation clause? Give an example.
a limitation clause limits liability for certain breaches, such as by capping the amount of damages that can be paid. A limitation clause might also restrict the types of losses that can be recovered or the remedies available
re: exemption clauses
what are the additional obligation on the court in relation to limitation clauses?
when considering the reasonableness of a limitation clause, the court should also have regard to:
o The resources the defendant could expect to be available for them for the purpose of meeting the liability should it arise; and
o How far it was open to the defendant to take out insurance cover
re: exemption clauses
what is the position regarding the main statutory implied terms under the Consumer Rights Act 2015 and exclusion/liability clauses in relation to service contracts?
with this in mind, give examples of the types of clauses that would not be binding on the consumer
s49 reasonable skill and care - a trader cannot exclude liability for breach of this implied term. They cannot limit liability if it would prevent the consumer from getting a full refund.
s51 (reasonable sum) and s52 (reasonable time) - these provisions do not apply where the contract stipulates a sum/time. If the contract does not state either of these things, the respective provisions will apply. Where these provisions apply, they cannot liability if it would prevent the consumer from getting a full refund.
The position on limiting liability ensures the consumer can at least recover the full amount they paid if the trader doesn’t fulfill the agreed-upon standards.
example of non-binding clauses:
o Exclude or restrict a right or remedy in respect of liability for breaches of ss49 – 52;
o Make a right or remedy or its enforcement subject to a restrictive or onerous condition;
o Put a person at a disadvantage as a result of pursuing such a right or remedy; or
o Exclude or restrict rules of evidence or procedure
re: exemption clauses
what is the position regarding the main statutory implied terms under the Consumer Rights Act 2015 and exclusion/liability clauses in relation to sale contracts?
with this in mind, give examples of the types of clauses that would not be binding on the consumer
The implied terms (i.e. matching description, fit for purpose and reasonable skill and care) cannot be excluded or restricted; nor can a cause prevent an obligation or duty arising in the first place.
In effect, they are essentially non-excludable rights because liability for breach cannot be excluded or limited by clauses in the contract
examples of non-binding clauses:
o Exclude or restrict a right or remedy for a breach of ss9 – 11;
o Make such a right or remedy or its enforcement subject to restrictive or onerous condition;
o Allow a trader to put a business at a disadvantage as a result of pursuing the right or remedy; or
o Exclude or restrict rules of evidence or procedure
re: exemptions clauses
what is the position in relation to exemption clauses and third parties?
if an exemption clause seeks to protect someone who is not party to the contract, the general rule is that the exemption clause cannot protect a third party due to the privity rule
however, if the third party is named or identified as a member of class intended to benefit from it, the third party can rely on the exemption clause to the same extent as the contracting party (CRTPA 1999)
re: exemptions clauses
what is an example of an exemption clauses covering a third party? what is the effect of this?
Jordan’s car is negligently repaired by a mechanic at Car Care. Jordan is injured due to this.
8.1 Neither Car Care Ltd nor any of its employees will be liable for loss or damage to property howsoever caused (including negligence).
8.2 Neither Car Care Ltd nor any of its employees will be liable for personal injury, unless caused by negligence.
o Jordan can sue Car Care for breach of contract. He would not sue the mechanic as there is no contract between them.
o Jordan can sue the mechanic in the tort of negligence. The mechanic could rely on 8.1 to avoid liability by virtue of CRTPA 1999 (if it is incorporated and reasonable)
when might a term labelled as a ‘condition’ not be conclusive in a contract?
Where a contract is drafted by a non-lawyer, they do not always understand the importance of the terminology.
If one party breaches a ‘condition’ in a contract drafted by a non-lawyer, it could be argued the other party is not entitled to terminate the contract. If the term was one which the parties must have known would be breached at some time or another, it could be argued they could not have intended one breach to justify terminating the contract
