Contract - Terms, Breach & Privity

Question 1

What is a condition, warranty and innominate term?

What is their significance regarding breach of contract and possible remedies?

Answer 1

Condition - term which goes to the heart of the contract

Warranty - Information that Seller promises the Buyer, e.g. I will do X, the company has no IP infringements, the condition of the item is “brand new”.

Innominate Term - any other term which is not a condition or warranty.
If the innominate term “HAS THE EFFECT OF DEPRIVING C OF SUBSTANTIALLY THE WHOLE BENEFIT OF THE CONTRACT”, then it will be treated as a condition (Hong Kong Fir Shipping).

1. Breach of warranty: only Damages.
2. Breach of condition, non-performance of contractual obligations, or sufficiently serious breach of innominate term: C gets choice of AFFIRMING CONTRACT or REPUDIATION (walking away from the contractual obligations) and seeking Damages.

Question 2

What factors affect whether a term is a “representation” or a “term”?

Answer 2

• Importance of the statement
• Timing (how long did C wait until suing?)
• Reliance / Assumption of Responsibility (e.g. C did not pursue testing the asset by relying on D’s statement)
• D’s specialist expertise (e.g. car dealership).
• Whether the term was included in the contract or just discussed beforehand (Parol Evidence Rule).

Question 3

What happens if the representation of the seller was untrue?

What if a term is untrue or not kept to?

Answer 3

You can consider suing for misrepresentation.

You can sue for breach of contract (damages to put C in position as if the contract WAS performed as agreed).

Question 4

How do we determine the express terms of a contract?

Answer 4

SIGNED WRITTEN CONTRACT;
- C can express an intention to be bound, even if they have not read the contract!
- If a party has orally misrepresented a term, or it is not intended by the parties to be binding, the term will NOT be incorporated into the contract.

INCORPORATION BY NOTICE;
- reasonable steps must be taken to bring the term to the party’s attention, e.g. train ticket refers to term in the train timetable. Where the terms are adverse the other party, greater steps must be taken to give notice (Thornton v Shoe Lane Parking): notice AFTER the contract is not sufficient.

INCORPORATION BY COURSE OF DEALING;
incorporation must be consistent & regular, e.g. if signing was sometimes required, sometimes not, this is not consistent (McCutcheson). The dealings must also be regular, e.g. 3 or 4 times a month, with 5/13 months involving the dealings was sufficient (PetroTrade Inc).

Question 5

What is an “entire agreement” clause?

Answer 5

This confirms that the contract as agreed on these 4 corners is the sole agreement relevant to the contract; that no other representations or terms contained elsewhere are relevant. This helps minimise the likelihood of disputes.

Question 6

How are terms implied? What is the different between implication “by fact” and “by law”?

Answer 6

Implied by fact is via a course of dealings or based on industry/trade/professional custom.

Implied by law refers to certain relationship between parties, e.g. landlord and tenant (Liverpool CC v Irwin - landlord had a reasonable duty to maintain common parts); B2B (Sale of Goods Act), or B2C (Consumer Rights Act)

Question 7

What are the two tests for implied terms?

Answer 7

Business efficacy test (term is necessary for business common-sense);

Officious Bystander test (bystander would say: “Oh, of course this term is necessary and both parties would have surely agreed!”).

Question 8

Is there a time where terms implied by statute will not bind/be incorporated into a contract?

Answer 8

Yes, if there is a valid exemption clause, e.g. excluding Sale of Goods Act or UCTA (but note that exemption clauses are disliked by the courts, cannot be unconscionable and are always interpreted against the person seeking to rely on them (contra proferentum rule).

Question 9

What terms are implied by the Sale of Goods Act?

Answer 9

1. Title (implied Seller has title)
2. Satisfactory Quality (Asset is of) + checklist:
   - fit for purpose;
   - appearance & finish;
   - free from minor defects;
   - safety
   - durability
   - match their description (e.g. round tables vs rectangular)
3. Fit for Purpose (that the Seller has expressly or impliedly made known)
4. Bulk of Goods corresponds with the Sample

Question 10

What happens if you breach the implied terms via Sale of Goods Act?

Answer 10

They are breaches of CONDITION (reject goods + repudiate the contract), unless the breach is so minor that it should only be a breach of TERM (claim damages).

Question 11

Can you exclude/restrict the implied terms via Sale of Goods Act?

Answer 11

It is impossible to restrict/exclude the TITLE implied term, but the others can be restricted subject to a REASONABLENESS requirement.

Question 12

What are the key terms implied by the Supply of Goods and Services Act?

If these are breached, is this breach of CONDITION or WARRANTY?

Answer 12

Services will be carried out with REASONABLE CARE AND SKILL.

For the hire of goods (e.g. taxi car) / transfer of property in goods, there are parallel provisions to the Sale of Goods Act.

Breach is treated as warranty (damages only).

Question 13

What are the main implied terms in the Consumer Rights Act 2015?

Answer 13

‒ Contracts for goods: goods will be of satisfactory quality, fit for any particular purpose made known to the trader, and will comply with their description.

‒ Contracts for digital content: the content will be of satisfactory quality, fit for any particular purpose made known to the trader, and will comply with its description.

‒ Contracts for services: the services will be performed with reasonable care and skill, provided in a reasonable time, and (where price has not been agreed) a reasonable price will be paid.

Question 14

Explain the status of remedies under the Consumer Rights Act - are they the only remedies available? When are they available?

Answer 14

No, the CRA remedies are available IN ADDITION to standard contract remedies.

However, a consumer cannot treat a contract as at an end as a result of a breach of these terms other than in the manner specifically provided for in the Act.

Question 15

Who is a “consumer” under the CRA?

Answer 15

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

(The reverse applies for the definition of “trader”, with the burden of proof being on the trader).

Question 16

What are the 3 main remedies under the CRA?

Answer 16

1. Short-term Right to reject (30 days from delivery or ownership passing);
2. Right to repair or replacement (unless at trader’s unreasonable cost or otherwise disproportionate;

EG: A right to require the trader to perform the service again to the extent necessary to complete its performance to conform with the contract’s specification.

3. Right to price reduction or final right to reject.

Question 17

What type of assets does the CRA apply to?

Answer 17

Goods, electronic goods, and services - between “traders” and “consumers”.

Question 18

Is rescission available for breach of contract (Condition or Warranty)?

Answer 18

No, rescission is not available (contract void ab initio); only repudiation (walking away from the contract (i.e. stopping future performance) + suing for damages).

Question 19

Can you be sued if you are not party to a contract?

Answer 19

No - privity means you cannot accept any benefits or obligations under a contract unless you are party to it.

Question 20

What are the common law-based exceptions to privity?

Answer 20

1. AGENCY (express or implied authority; Principal should be named)
2. ASSIGNMENT (can be excluded by clause)
3. COLLATERAL CONTRACT
   e.g. A and B contract together on the basis that B’s paint - supplied by C - will last for 7 years (warranty term). A instructed B to purchase C’s paint on the basis of this warranty. When the paint does not last for 7 years, A can have a claim against C.
4. ACTIONS IN TORT (e.g. negligence; Donoghue v Stevenson, as the friend bought the drink).
5. Judicial attempts to avoid privity
   (Woodar v Whimpey); (Jackson v Horizon Holidays) cricitised privity, e.g. where A contracts with B to provide a benefit to C; if B does not, C has suffered loss but has no actionable claim.

Question 21

A third party can, exceptionally, sue a contract party under the Unfair Contract Terms Act 1997 - what are the 2 conditions for this occur?

Answer 21

1. Where the contract expressly states the third party can sue, AND
2. The contract purports to confer a benefit on the third party (unless it appears the parties did not intend for this term to be enforceable / binding).

In all cases, the third party MUST BE EXPRESSLY IDENTIFIED in the contract, even if they do not exist at the time (e.g. company incorporation).

Question 22

What are some limitations on a third party’s right under UCTA?

Answer 22

The third party’s right cannot be greater than the rights they would have received, had they been a party to the contract.

Question 23

Can the contract parties extinguish a third party’s valid claim under UCTA, either by rescission or agreement?

Answer 23

No, not unless the third party consents to this.

The court can dispense with the TP’s rights if his whereabouts cannot reasonably be obtained / he does not have capacity.

Question 24

Can you exclude TP rights under the contract?

Answer 24

Yes, a boilerplate provision can exclude third party claims before they arise / eliminate doubt of TP claims.

Question 25

What does UCTA say about “double liability” where D could be liable against C and a TP?

Answer 25

Any award of damages to a third party is reduced by the court/tribunal to the extent deemed appropriate, if the promisee (claimant) has already recovered against D (promisor).

Question 26

When are exemption clauses or limitation clauses valid?

Answer 26

When they are:

1. Incorporated into the contract like any other term (by signature; by giving reasonable notice to the other party; by course of dealings).
2. Construction
   - interpreted against the draftsman if there is doubt as to meaning or scope; limitation clauses are treated less harshly (contra proferentum);
   - cannot be unconscionable, unreasonable or contrary to good faith;
   - cannot defeat object of the contract.
3. Statute (UCTA / CRA)

Question 27

What can exemption / limitation clauses cover?

Answer 27

Limiting breach of contract / tort claims to a certain value (quantum), e.g. £50,000

Excluding a TYPE of loss, e.g. any loss in relation to abestos claims

Excluding a TYPE of claim / duties
EG1: all liability relating to loss or damage of the goods caused by the Seller’s negligence.
EG2: Any express or implied condition, statement or warranty, statutory or otherwise, note stated herein, is hereby excluded.

Question 28

Explain how the “contra proferentum” rule applies with an example; do any factors affect how strongly it is applied?

Answer 28

(Houghton v Trafalgar Insurance)
- the disputed clause sought to exclude any and all damage/loss incurred when the car was beyond its stated “load” capacity.

The court held that “load” could NOT refer to passengers; the judges would need the “plainest words” to limit the insurance cover in this way.

Contra Proferentum is applied less vigorously where:
1. It is merely a limitation clause, instead of full exemption/exclusion of liability.

2. The parties are both commercial parties with equal bargaining power (Victoria Street v House of Fraser), where business common sense, the words used, and the facts of the case are usually enough to determine whether an exclusion clause is valid.

Question 29

Can you exclude your own negligence in a contract?

Answer 29

1. Yes, but the clearest possible terms must be used, and the word “negligence” is the safest way to guarantee this.
2. If the words are not wide enough, the normal contra proferentum, rule applies and the clause is ineffective.
3. If the unclear term could cover a different type of liability, it should cover this instead of negligence.

(Canada Steamship rules).

Question 30

What sort of exclusions/limitations does UCTA regulate?

Answer 30

Exclusion/limitation of:

1. Negligence liability
2. Breach of Implied terms
3. Breach of Express terms

Question 31

Does UCTA allow you to exclude/limit liability for breach of an express term? If so, how?

Answer 31

UCTA APPLIES TO BUSINESS-to-BUSINESS relationship (both parties have to be acting “in the course of business”).

UCTA applies if dealing with the other party’s standard written terms of business (to protect the party not familiar with the standard written terms of the other); UCTA does not apply to wholly negotiated contracts. Even if other parts of the contract are negotiated, if the exemption clause is a standard term, UCTA will apply.

Liability for breach of an express term can be excluded IF REASONABLE.

Question 32

Does UCTA allow you to exclude/limit liability for breach of an implied term? If so, how?

Answer 32

Yes, UCTA applies here.

Liability for breach of an implied term can be excluded IF REASONABLE.

Question 33

Does UCTA allow you to exclude/limit liability for negligent breaches of contract? If so, how?

Answer 33

Yes, UCTA applies to attempted exclusion of negligence liability in contracts.

You CANNOT exclude liability for death / personal injury.

You can exclude loss / damage IF REASONABLE.

Question 34

How is “reasonbleness” considered by UCTA re. limitation / exemption clauses?

Answer 34

The limitation / exclusion clause must be in the parties’ contemplation, or ought to have been, AT THE TIME OF CONTRACTING.

Also consider:
- parties’ bargaining power
- notice given re. the term
- did the customer know, or should have known about the existence and extent of the term, e.g. given trade customs?

Question 35

Does UCTA apply to all unfair terms?

Answer 35

No, only to limitation and exclusion clauses.

Question 36

Does the Consumer Rights Act allow you to exclude:

• death or personal injury resulting from one party’s negligence?
• breach of implied terms re. goods, electronic goods and services?

Answer 36

No, the consumer will NOT be bound by these terms (other than limitations relating to services that prevent recovery of price paid).

[Effectively, liability cannot be limited/reduced to less than the price paid].

Question 37

Does the Consumer Rights Act allow you to exclude other possibly unfair terms (not explicitly covered by the CRA)?

Answer 37

Yes, other terms, not limited to but including limitation / exclusion clauses WILL NOT BE BINDING, if it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer (i.e. against good faith).

Question 38

The CRA cannot assess or label terms “unfair” to the consumer if they are ___ and ___?

Answer 38

TRANSPARENT and PROMINENT terms cannot be assessed as unfair to the consumer under CRA.

Question 39

Domestic<–>Trader contracts are governed by the Consumer Rights Act 2015.

There is an obligation under the CRA to provide the service with reasonable care and skill.

Can you outright exclude AND/OR limit liability for this?

CLAUSE 1:The decorator’s liability for any injury caused by a failure to perform the service with reasonable care and skill will be limited to £5,000.

CLAUSE 2: Nothing in clause restricts liability for death / personal injury resulting from negligence.

Answer 39

These clauses are validly incorporated into the written agreement, but the limitation of the duty to provide reasonable care and skill WILL DEPEND ON THE PRICE PAID.

If you cannot recover at least what you paid for the service when you sue, the limitation clause is invalid.
EG: You pay £6,000 for the decorating work but the contractor has limited recovery to £1,000.

Question 40

You agree to pay £1,000 for a new bike with lots of attachments, e.g. a bright light, industry-leading brakes, etc…

After signing the contract, you then realize that a bike with almost identical attachments is being sold at a discount bike store for £750.

Can the bike store enforce the payment clause on you?

Answer 40

Yes, the payment clause is enforceable.

The Consumer Rights Act 2015 does not allow the courts to assess terms specifying the main subject matter of the contract or assess the fairness of the price of goods. The payment obligation cannot be interfered with.

The fairness test would be whether it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer - none of this is relevant on the facts.

Simply put, C has just entered into a bad bargain, which UK contract law does not assist people with.

Question 41

Are penalty notices / terms valid? What it the test?

EG: I sell you my champagne but due to our reputation, you must sell it for at least £120 and for every bottle you sell under this value, you must pay us £240.

Later, the shop owes £30,000 in penalties to the champagne supplier - do they owe them this?

Answer 41

The court will, amongst other factors, consider whether the amount is extravagant and unreasonable in amount by comparison to the greatest loss that has ensued (see Dunlop v New Garage Co [1915]).

Although the sum seems disproportionate, the champagne house also wishes to protect its reputation and in the context of the product being supplied the figure is likely to be seen as reasonable to ensure that the champagne is not sold at an under-price on the wider market.

Question 42

During the course of lengthy trade negotiations, various verbal statements about the deal are made by two contracting parties. The negotiations eventually conclude and, one week later, some of the statements are put in writing by way of an agreed contract which is signed by the parties.

Which of the statements are most likely to be contractual terms?

Answer 42

The written-down statements and any important verbal statement made near to the time when the contract was written (Parol Evidence Rule).

Verbal statements extrinsic to the contract cannot affect, vary, contradict or supplement the contractual clauses, but they might be able to aid in the construction / interpretation of the contract.

Question 43

C is continuously paid late for his services. The contract provided is very short and does not specify that time is of the essence (essential to C’s livelihood that he is paid on-time but this is not mentioned in the contract).

What sort of term is this? Can C sue for damages and/or terminate the contract.

Answer 43

The term is likely to be an innominate term (as the contract does not specify that time is of the essence), but likely it is treated as substantially depriving C of the whole benefit of the contract (Hong Kong Fir), so likely to be treated as a condition. C can terminate the contract, therefore.

Question 44

C is contracting to sell her organic produce to D. C presents a standard term contract (unsigned) and an email between C and D where they have agreed specific terms as to price, quantity and frequency of supply.

Which document prevails - the email or standard form contract?

Answer 44

With or WITHOUT signature, where special terms have been specifically negotiated and agreed, they will usually prevail over standard terms of contract. For example, if it is found that the words in the standard terms of contract are inconsistent with the main object and intention of the transaction as disclosed by the terms agreed, the standard terms will be limited to ensure that the main object of the transaction is achieved (Neuchatel Asphalte Co Ltd v Barnett [1957] 1 All ER 362).