Contract - Terms of Contract (3) Flashcards
What are terms?
Terms: Terms are express or implied clauses of the contract, conferring obligations over one or both parties. These may further be divided into ‘conditions’, ‘warranties’ and ‘innominate terms’.
What are express terms?
Express Terms: Express terms are those included in the contract through the express agreement of the parties.
Valid Incorporation
Valid Incorporation: Express terms must be validly incorporated to bind the parties. There are 3 methods.
(1) Signature: A party is bound to a term if they sign the contract containing them (L’Estrange v Graucob).
>Only bound to the extent that the term describes itself (Curtis v Chemical).
>Onerous clauses typically require attention to be brought to them (Blue-Sky v Be Caring).
>Terms may be small, provided they are legible.
(2) Reasonable Notice: A party is bound to a term if reasonable notice was drawn to it (Chapelton v Barry).
>This means the party must be reasonably aware of the term, and that it is a term (Parker v South Eastern).
>More typical of oral contracts.
Actual Notice: Party has seen the term.
Constructive Notice: Reasonable steps were taken to draw attention to the term, even if unread.
(3) Consistent Course of Dealings: A party is bound to terms that have been present in a regular and consistent court of dealings with the other party (Kendall v Lillico).
>Dealings and terms must be consistent, i.e. the same type of transaction regularly (McCutcheon v MacBrayne).
>Regular arrangements means multiple times a year, not once a year or less (Hollier v Rambler).
Type of Express Term
Type of Express Term: Express terms can be conditions, warranties or innominate terms. This affects whether breach will permit termination of contract. Most express terms are innominate today.
(1) Condition: Conditions are major terms permitting termination for breach.
(2) Warranty: Warranties are minor terms not permitting termination for breach.
(3) Innominate Term: Innominate terms permit termination if breach is severe. They are a midground between conditions and warranties, and are the default position (Hong Kong Fir Shipping).
>Breach must seriously and effectively deprive a party of substantially the whole benefit of a contract to permit termination.
What are implied terms?
Implied Terms: Implied terms are those that are incorporated into a contract automatically. There are four types:
(1) Statute: Statutes imply the vast majority of implied terms into contracts (below).
(2) Common Law: The common law implies a number of duties into contracts, such as tortious negligence or the duty of ‘honourable service’ (this relates to confidential information).
(3) Necessity: Terms may be implied where necessary to make an otherwise inoperable contract work.
(4) Custom: Terms may be implied by well-known customs of a trade, unless excluded expressly.
Sale of Goods Act 1979
Sale of Goods Act 1979: A number of terms are implied into contracts for the sale of goods for business-to-business, consumer-to-business, and some consumer-to-consumer contracts. The main terms are:
(1) Match Description: Goods must match their description, unless the purchaser did not rely on this description (s13). This is a condition with strict liability.
>It is irrelevant whether the purchaser inspected the goods.
(2) Satisfactory Quality and Fit for Purpose: Goods must be of satisfactory quality, and fit for their intended purpose, if made in the course of business (s14). It is a condition with strict liability.
(3) Breach: Buyers can reject goods and recoup costs, unless the breach is too slight or goods have been retained for too long (damages instead).
Supply of Goods and Services Act 1982
Supply of Goods and Services Act 1982: Similar terms are implied into supply of service contracts, for B2C, C2B and some C2C contracts.
(1) Match Description: As above, also a condition (s3).
(2) Satisfactory Quality and Fit for Purpose: As above, also a condition, also course of business (s4).
(3) Reasonable Care and Skill: Services must be conducted with reasonable care and skill (s13). This is an innominate term.
(4) Breach: Breach will differ by term. Damages are usually awarded, and the right to rescind a contract is permitted for conditions and serious breaches of innominate terms (s11).
Consumer Rights Act 2015
Consumer Rights Act 2015: A number of terms are implied into business-to-consumer contracts for goods and services.
(1) Goods Terms: Goods must meet their description (s11), be of satisfactory quality (s19), and be reasonably fit for purpose (s10).
(2) Breach of Goods Terms: Breach of goods terms permit the following remedies, in hierarchical order:
Reject: Consumers can reject goods within 30 days of delivery, purchase or instalment and claim a refund (perishable goods must be rejected during lifespan) (ss20-22).
Repair: Consumers can seek repair or replacement for non-perishables if they stop working within 6 months (s23).
Partial Refund: If goods cannot be rejected or repaired, a partial refund may be sought (s20).
Damages: Alongside these remedies, consumers can make a claim for damages (i.e. loss of bargain).
(2) Services Terms: Services must be conducted with reasonable care and skill (s49), be of reasonable price (s51) and be conducted within a reasonable time (s52). This is subject to contrary agreement.
(3) Breach of Services Terms: Breach of services terms permit the following remedies, in hierarchical order:
Repeat Performance: If of substantially poor quality, the service should be repeated within a reasonable time (s49).
Price Reduction: If repeat performance is impossible or not necessary, a price reduction should be spight (s52).
Damages: These remedies do not deprive consumers of a right to seek damages.
Exemption Clauses
Exemption Clauses: Contracts may exempt themselves from liability for breach of implied terms through ‘exemption clause’.
(1) Non-B2C: Non-B2C contracts can exclude liability for most terms, if ‘reasonable’.
(2) B2C: B2C contracts can exclude liability for some terms, if ‘fair’. They cannot exclude liability for breach of implied goods terms in goods contracts, or failure to exercise reasonable care and skill in service contracts.
What are exemption clauses?
Exemption Clauses: Parties may attempt to exclude or limit their liability for a breach of contract through ‘exemption clauses’, specifying the effect of breach expressly. These must be valid, meaning incorporated as express terms (above), clear, and reasonable (B2B) or fair (B2C).
Clear Term
Clear Term: Exemption clauses must be clear and unequivocal in their intended effect. The following considerations apply:
(1) Contra Proferentem: Ambiguous clauses are construed in favour of the innocent party (Houghton v Trafalgar).
(2) Contradiction: It is not relevant that exemption clauses contradict the objectives of the contract (Mitsubishi v Eastwind).
(3) Exclusion for Negligence: Excluding liability for negligence must be done in patently clear terms, such as referencing ‘negligence’, or ‘damage howsoever caused’ (Canada v King).
(4) Exclusion for Deliberate Breach: Excluding liability for a deliberate breach is permitted provided the clause is extremely clear in intending to do so (Photo v Securicor).
Reasonableness Test
Reasonableness Test: Contracts governed by the SGA 1979 and SGSA 1982 can include exclusion clauses provided they are ‘reasonable’. The burden on proof is on the party seeking to enforce them (Unfair Contract Terms Act 1977).
(1) Excluded Exemptions: Liability cannot be exempted for death, personal injury, fraudulent misrepresentations, or the right to sell.
(2) Reasonable: There are five factors that must be balanced to determine reasonableness. Reasonableness is determined at the time of negotiation, not breach:
Bargaining Power: The bargaining power of each party.
Trade-Off: Whether the innocent party accepted a benefit in trade-off for the exemption clause.
Prominence: The prominence of the exclusion clause (was it clearly marked).
Compliance: The effect to which compliance with the clause would have been practical.
Nature of Contract: Was the contract or contents bespoke, or a standard transaction.
(3) Further Considerations: The following considerations will also affect reasonableness:
Industry: Whether the clause is standard for the industry (Cover v DHL).
Insurance: Whether the innocent party is insured in respect of the breach (Goodlife v Hall).
(4) Effect: If any part of the clause is unreasonable on balance, the entire clause is invalid.
Fairness Test
Fairness Test: Contracts governed by the CRA 2015 can include exemption clauses if they are ‘fair’ (Consumer Rights Act 2015).
(1) Excluded Exemptions: Consumer contracts cannot exclude liability for non-satisfactory, not-fit for purpose, or not as described goods, or failure to exercise reasonable care and skill in services (ss31;49).
(2) Fairness: The following considerations will affect the fairness of a clause:
Imbalance: The extent to which they cause a significant imbalance to the party positions.
Detriment: The extent to which they are to the detriment of consumers.
Bad Faith: The extent to which they are contrary to good faith relations.
(3) Effect: If any part of the clause is unfair, the entire clause is invalid (s4).
Exempting Liability for Third Parties
Exempting Liability for Third Parties: By default, exemption clauses will not exclude third parties from liability, unless properly conferred (Adler v Dickson).
(1) Exemption Clause: Clause must expressly exempt liability for the third party by name or class, provided the clause is also incorporated and reasonable/fair (s1 Contracts (Rights of Third Parties) Act 1999).
(2) Effect: This generally prohibits the claimant from pursuing an individual incidental to the breach of contract, or under tortious rules.
>(A) pays (B) to build a bathroom. (B)’s installer is negligent, causing a leak. (B)’s exclusion clause exempts liability for third-parties. This means (A) cannot sue (B) in contract, or the installer in negligence.
