Contracts - 1.7 - Terms Flashcards
Contract formation requires
Offer & Acceptance
Consideration
ICLR
Capacity
Ways in which an otherwise good contract might be voided
Duress and undue influence
The content of a contract
Means the terms and interpretation of contracts
Express Terms
Terms communicated between the parties
Implied Terms
Terms that have not been communicated between the parties, but the law assumes or decides they exist.
Statements made by parties during negotiations may be divided into three groups
1) Mere puffs - no legal significance
2) Representations - statements not intended to be binding
3) Statements of fact - intended on being binding
When does the distinction between representations and terms matter?
- The statement turns out to be untrue
- Promise is not fulfilled
Is there a remedy in law for misrepresentation?
Yes
The difference between a representation and a term
Only a Term is binding
How do Courts ascertain if parties intend to be bound by a statement made by one of them?
An objective test
What would a reasonable person understand to be the intention of the parties having regard to all circumstances
What is taken into account when ascertaining whether a statement is binding?
- The importance of the statement
- The timing of the statement
- The reduction of the contract into writing
- Special knowledge/skill of person making statement
- Assumption of responsibility
The importance of the statement
- Regarded a Term if it can be shown that the injured party would not have entered into the contract but for that statement.
Bannerman v White 1861
The Terms of a contract are….
- It’s contents
- They define rights and obligations
Express terms
Statements made by the parties, by which they intend to be bound.
A contract can have terms agreed in writing, or agreed orally, or a mixture of the two.
Implied Terms
Not formed by statements made by the parties.
They have not been agreed
upon, orally or in writing.
The law deems that they exist.
Mere Puff
Statements of no legal significance.
Representations
Statements of fact or law which induce the making of the contract which the parties do not intend to be binding.
Terms
Statements of fact which the parties intend to be binding.
Why does distinction between representations and terms matter?
- When a statement is not true
- May amount to a breach of contract, leading to remedies or damages
- Misrepresentation is not a breach, but may be able to obtain a remedy in law.
Can a statement be both a term and a representation
YES
This would give rise to an action for both breach of contract and misrepresentation
What is the objective test for whether parties intended to be bound by a statement?
‘what would a reasonable person understand to be the intention of the parties, having regard to all the
circumstances?’
Where a statement is made during negotiations for the purpose of inducing the other party to enter a binding contract,
There is ground for inferring the statement was intended to be binding.
The inference can be rebutted if the party if it can be shown that it is not reasonable to hold them bound to it
The importance of the statement
Statement may be regarded as a term, if it can be shown it was so important that the counterparty would not have entered into the contract but for that statement
- Bannerman v White
Bannerman v White
- Purchase of hops
- Not interested if they are treated with sulphur
- Held that the statement was a term of the contract
Timing
- If the statement was made at the time of contracting, it’s more likely to a term than if at an early stage
Routledge v McKay, 1954
Routledge v McKay [1954]
- Private seller of motorcycle
- Told the buyer it was a 1941 or 1942 model
- Entered into sale, did not mention the year of the model
- CoA held that the time lapsed meant the statement was a representation and not a term of contract.
Reduction of the contract into writing
- Court influenced by the fact contract reduced into writing.
- Inference drawn is that the statement could not have been regarded as significant
- Court concluded the statement was never intended to be a term
eg Routledge v McKay: Motorcycles
Special knowledge or skill
When one party had exclusive access to info or special knowledge this is likely to be taken into the other’s favour.
Oscar Chess Ltd v Williams vs Dick Bentley Productions v Harold Smith (Motors)
Oscar Chess Ltd v Williams
- Age of car wrong (1939 rather than 1948)
- The skill and expertise lay in the hands of the car dealer
- Consequently age of the car was a representation rather than a term
Dick Bentley Productions v Harold Smith (Motors)
- Told consumer that car had done 20,000 miles
- After changing the engine and gearbox it was clear that the car had done more miles
- Court of Appeal held the mileage was a term.
Harold should have known better
Assumption of Responsibility
A statement may become a term of the contract where the vendor expressly accepts the responsibility for soundness of the sale item in question.
Schawel v Reade 1913
Schawel v Reade 1913
- Horse for stud purposes
- Tried to examine stud horse, was told the horse was sound in every way.
- At the time of sale was the horse represented as fit for stud purposes?
- Did the purchaser act on that to but the horse?
- Strength of statement dissuaded plaintiff from making checks
Ecay v Godfrey (1947)
- Seller of a boat stated it was sound but advised the buyer to have it surveyed
- Buyer did not intend that his statement should be taken as a term of the contract.
- Onus of verification on purchaser
In deciding if a statement is a representation, the court will consider
- The importance of the statement.
- The timing of the statement.
- The reduction of the contract into writing.
- Special knowledge or skill of the person making the statement.
- Assumption of responsibility by the person making the statement.
How are express terms incorporated
- A signed written contract
- Incorporation by notice
- Other ways of agreeing express terms
- Incorporation by a course of dealing
A signed written contract
In almost all cases then signing a contract shows that parties intended to be bound.
Even if they have not read the terms or understood them L’Estrange v Graucob Ltd
Exception to Incorporating terms by signed written contract
Grogan v Robin Meredith Plant Hire [1996]
If the document signed was not intended to have any contractual effect (eg it was a document simply acknowledging receipt of goods) then the terms within it will not form part of the contract.
‘post contractual document’
Oral Misrepresentation
Curtis v Chemical Cleaning and Dyeing Co [1951]
A party may be prevented from relying on incorporation of a clause through signature
of a document if it has orally misrepresented the meaning of the clause to the other party`
Incorporation by notice
ie by one party notifying the other party of them.
Where reasonable steps have been taken to draw terms to a party’s attention, that
party’s persistence with the transaction suggests an intention to be bound by the terms
Parker v South Eastern Railway Co (1876-77)
Reasonable Notice: Incorporation by notice
Thompson v London, Midland & Scottish Railway [1930]
* terms may be incorporated by reference to a different document (in this case the contractual document, a ticket, referred to terms contained within a railway timetable)
Insufficient notice
- Henderson v Stevenson (1875): where the clause was not referred to on the front of the ticket
- Sugar v London, Midland & Scottish Railway [1941]: clause was illegible.
Incorporation by notice of adverse terms
- Must clearly bring these tot the other party’s attention
- Denning MR stated that would need printing in red ink with a red hand to it or something equally startling
(Thornton v Shoe Lane Parking) - Confirmed in: Picture Library Ltd v Stiletto Visual Programmes Ltd [1989]
Parker v South Eastern Railway Co (1876-77)
- Limit of liability for bags costing more than £10 that are lost or stolen.
- Notified via signs
- Parker argued he did not see notice or ticket believing it was a receipt
- Court held that an individual cannot escape a contractual term by failing to read the contract but that a party wanting to rely on an exclusion clause must take reasonable steps to bring it to the attention of the customer.
Thompson v London, Midland & Scottish Railway [1930]
- Exclusion clause for inuries
- Company had taken sufficient steps to bring the terms to customers’ attention in clear and legible print.
- Accepting the ticket for travel constituted acceptance of the terms of travel
- Reference to the time tables amounted to adequate notice of the existence of the terms and of their contents.
Henderson v Stevenson (1875)
- Luggage lost on voyage
- Ticket by steamer
- not on front of the ticket
Sugar v London, Midland & Scottish Railway [1941]
A date stamp made the writing on the ticket illegible. The clause was therefore not incorporated.
Thornton v Shoe Lane Parking [1971]
- Ticket tried to incorporate conditions displayed on premises.
- Slipped/liability
- When did offer and acceptance take place
- Exclusion clause not successfully incorporated; not brought to attention prior to contract formation.
- Offer was notice at entrance - too late to retract.
Interfoto Picture Library Ltd v Stiletto Visual
Programmes Ltd [1989]
- Transparencies should be returned, holding fee.
- SCP contended they were unaware of standard conditions and had not be sent copy prior.
- Insufficent steps to communicate onerous terms
- Clause not successfully incorporated into the contract.
- Where a clause is particularly onerous, as in this case, and the fees are exorbitant at ten times the level of other photographic libraries, the party seeking to rely on the clause must show they have taken reasonable steps to bring the clause to the other party’s attention.
- IPL had failed to do this and they could, therefore, only recover fees assessed on a quantum meruit basis.
Incorporation of terms: Timings
- Reasonable notice of it must be given before or at the time of contracting.
- Clause not binding term if it is
communicated only after the contract is made
Thornton v Shoe Lane Parking [1971]
Thornton v Shoe Lane Parking [1971]
Car parking
The contract had been formed before the machine produce the ticket, and the conditions referred to on the ticket or later were not incorporated into the contract
Contractual Effect - Incorporation of terms
Terms will only be incorporated by notice if the document giving notice was intended to have ‘contractual effect’
Chapleton v Barry UDC [1940]
Chapleton v Barry UDC [1940]
Hired a deck chair, paid.
On the back of the ticket there were T&Cs.
Not binding, as ticket was not intended to have contractual effect
Incorporation by a course of dealing
- Parties have dealt with each other on many occasions
- if a term was brought to the notice of the other party during previous dealings, it may
be implied into the current transaction
must be shown that the course of dealing has been consistent over a period of time
McCutcheon v David MacBrayne [1964
- Incorporation by course of dealing was unsuccessful
- Written terms relied upon had not been consistently incorporated in the past
- Signature sometimes required sometimes not
Regularity of course of dealing
- To incorporate terms the course of dealing must be consistent and regular
- If irregular then the terms will not be incorporated
Hollier v Rambler Motors (AMC) Ltd [1972]
Hollier v Rambler Motors (AMC) Ltd [1972]
- Three or four transactions over a period of five years
- Insufficiently regular
- Henry Kendall & Sons v William Lillico & Sons Ltd [1969]
- Petrotrade Inc v Texaco Ltd [1999]
- Three or four times per month
- Five instances over 13 months
- Both were held to be sufficiently regular
Other ways of agreeing express terms
- Email exchange
- Verbal agreement
Entire Agreement clauses are unlikely…
Entire Agreement clauses are unlikely to exclude liability for misrepresentation
Exemption clauses are often onerous
As they can leave one party with a dramatically reduced remedy
Entire Agreement Clauses
Parties might seek to reduce the uncertainty of inferred clauses and confusion by including in a written contract an ‘entire agreement’ clause.
How can terms be incorporated?
- Written contract
- Incorporated by notice, but “reasonable steps”
- Regular and consistent course of dealing
- Conversation or emails
- An “entire agreement” clause helps
Implied Term
Binding to the same extent as an express term.
May be implied in contract on the basis of fact or law
Term implied in fact
- Trade, customs and “business efficacy” to a contract
Trade or professional customs
Intention of the parties to be bound by well-known customs of a particular trade
British Crane Hire v Ipswich Plant [1975]
British Crane Hire v Ipswich Plant [1975]
here parties are of equal commercial bargaining power, the conditions usually contained within industry contracts would be successfully incorporated based on the common understanding of the parties. BCHC could, therefore, recover the costs of recovering the crane.
https://www.lawteacher.net/cases/british-crane-v-ipswich-plant.php
A course of dealing between the parties
A term will only be implied in these circumstances
where the dealings of the parties have followed a consistent and regular pattern
(McCutcheon
v MacBrayne [1964] Hollier v Rambler Motors [1972] ).
McCutcheon
v MacBrayne [1964]
Hollier v Rambler Motors [1972] ).
Business Efficacy
A term may be implied to give ‘business efficacy’ to a contract – to make the contract produce its intended objective
(The Moorcock (1889)
(The Moorcock (1889)
term may be implied to give ‘business efficacy’ to a contract – ie to make the contract produce
its intended objective
A term will only be implied on the ground of Business Efficacy if…
without the implied term, the arrangement would be so unworkable that sensible people could not be supposed to have entered into it.
‘Oh, of course’ (Shirlaw v Southern
Foundries [1939]
Terms implied as a matter of law
erms can also be implied by the courts at common law in order to give effect to legal duties
which arise, as a matter of policy, out of certain common types of contractual relationships, for
example in the context of a landlord and tenant relationship (see Liverpool City Council v Irwin
[1976] 2 WLR 562). These are often referred to as terms implied in law.
Liverpool City Council v Irwin
[1976] 2 WLR 562
Terms implied by statute
Certain statutes indicate that stipulated terms will be implied into contracts.
Statutory implied
terms will also operate irrespective of the intention of the parties,
unless there is a valid exemption
clause
Examples of Statutory Implied Terms
Sale of Goods
Act 1979,
Consumer Rights Act 2015
Supply of Goods and Services Act 1982
Terms implied by law
- Either by common law
- Or by statute
Terms can be implied in fact
- basis of a custom or
- course of dealing between the parties.
- to give “business efficacy” to a contract.
Terms can be implied at common law
as a matter of policy, in certain types of relationships
The Sale of Goods Act 1979 does not apply to.
Do not apply to consumer contracts as defined in the Consumer Rights Act 2015
Sale of Goods Act 1979
S12
Title
Section 12 provides for the implication that the seller has the right to sell the goods.
The term implied by ss 12(1) is categorised as a condition of the contract.
Sale of Goods Act 1979
S 13(1)
Correspondence with description
Where goods are described as having certain characteristics and specifications then they must correspond with that description.
A condition under s 13(1A)
The Sale of Goods Act 1979 s14(2)
Satisfactory Quality
A reasonable person.
Section 14 2(B) A checklist of what counts as satisfactory quality
Satisfactory Qualirt
(a) Fitness for all the purposes for which goods of the kind in question are commonly supplied;
(b) Appearance and finish;
(c) Freedom from minor defects;
(d) Safety; and
(e) Durability.
SGA s 14 (3)
Fitness for a particular purpose.
No implied condition when the buyer does not rely, or it is unreasonable for him to rely on the seller’s skill or judgement.
Breach of a condition
SGA, s 15
Sale by sample
Two conditions implied
- The bulk will correspond with the sample in quality
- Free from any defect… which would not be apparent on reasonable examination of the sample
SGA, s15A
Modification of remedies for the breach of condition
If the breach is so slight it would be unreasonable for the buyer to reject the goods - should be treated as a breach of warranty, damages only
Burden on Seller
Contracting out of the SGA
Can be excluded and/or restricted by the agreement of the parties, subject to Unfair Contract Terms Act 1977
UCTA 1977 - SGA
Unfair Contract Terms Act
S6(1)(1) - title cannot be excluded or restricted
13 - 15 can be excluded subject to the requirement of reasonableness
s12 - quick fire
Title
s13(1) quick fire
Description
s 14(2) quick fire
Satisfactory quality
s14(3) - quick fire
Fit for particular purpose the purchaser has expressly or impliedly made known
s15 quick fire
The bulk of the goods must correspond with sample
Supply of Goods and Services Act 1982
Implication of terms in:
(a) Certain contracts for the transfer of property in goods;
(b) Contracts for the hire of goods; and
(c) Contracts for the supply of services.
SGSA does not apply to
Consumer contracts defined in CRA 2015
SGSA 1982: Contracts for the transfer of property - other than
(a) A contract of sale of goods;
(b) A hire purchase agreement;
(c) A contract under which the property in goods is or is to be transferred in exchange for trading
stamps;
(d) A transfer made by deed for which there is no consideration other than presumed
consideration; and
(e) A contract intended to operate by way of security.
SGSA - Contracts for the hire of goods
a contract
under which one person bails or agrees to bail goods to another by way of hire Other than:
- Hire purchase agreement
- goods are bailed in exchange for trading stamps.
SGSA: Contracts for the supply of services
- Care and skill (s13)
- Reasonable time (s14)
- Consideration = reasonable charge (s15)
Contracting out of terms implied under the SGSA
Can contract out, subject to the Unfair Contract Terms Act 1977
Consumer Rights Act - S1
deals with consumer contracts for goods, digital content, and services.
Consumer Rights Act - S2
Regulates unfair terms (in consumer contracts).
The three sections of the Consumer Rights Act 2015
- Contracts for goods
- Contracts for digital content
- Contracts for services
A consumer, CRA 2015
Defined as “an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession”
Trader, CRA 2015
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
CRA 2015: Contracts for goods
s9 - Satisfactory quality
s10 - Reasonably fit for any purpose
s 11 - match description
CRA: Contracts for digital content
- s34 Satisfactory quality
- s35 Reasonably fit for purpose
*s36 Match description
CRA: Contracts for services
- s49 Reasonable care and skill
- s51 Reasonable price to be paid
- s52 Reasonable time
s50(1) - anything said/written to the consumer to be included as a term if taken into account when entering the contract
As well as implying terms, the CRA also ….
Specifies remedies when terms are breached
CRA Remedies - Contracts for good
- Short term right to reject (usually 30 days)
- Right to repair or replace
- Right to reduce price, or final right to reject
NEED TO RELOOK AT CRA
Significance of distinguishing between conditions and warranties
In a breach of a contract
Term - repudiate, sue
Warranty - sue
Distinguish between conditions and warranties
A condition is an important term ‘going to the root of the contract’
(Poussard v Spiers (1876)).
A warranty is a less important term not going to the root of the contract.
Poussard v Spiers (1876)
What is a crucial question when distinguishing breach of relevant term?
Did the parties intend at the time of contracting, that any breach of the relevant term could result in the innocent party terminating
Inominate terms
Distinction between conditions and warranties not exhaustive
Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd [1962]
n Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd [1962]
CoA - many terms which are neither conditions nor warranties.
Term: Ship hired, ‘in every way fitted for ordinary cargo service
Does the breach deprive the party substantially of the whole benefit of the contract?
Condition
An important term going to the root of contract
Warranty
Less important term not going to the root of contract
Inominate term
A term which at the outset is neither a condition or warranty but is of an intermediate nature.
SGA ss 12 -15
Condition
Breach gives rise to right to reject and claim refund
SGSA, s13
Innominate Terms
Section 15 A
If breach is so slight it is unreasonable for the buyer to
repudiate the contract and reject the goods, should be treated as a breach of
warranty
A party that has committed a breach of condition is said to have committed a …
Repudiatory breach
Repudiatory Breach
- A party that has committed a breach of condition is said to have
committed a repudiatory breach. * innocent party has a right to treat the contract as repudiated ie they can terminate the contract.
Time for performance or completion
- Time is of the essence, lateness will amount to
a repudiatory breach entitling the other party to terminate the contract. - If time is not of the essence, can become so by serving notice with a reasonable completion date
