Drafting commercial contracts

Question 1

What are some characteristics of commercial law

Answer 1

Private law not Public law
Concerned with businesses not consumers
Regulates the contract of sale of goods and those ancillary to…
Concerned with the regulation of mass, inter-related and not individual transactions
The governing rules take a variety of forms and are derived from a variety of sources

Question 2

How are commercial contracts regulated

Answer 2

• Law of the parties contract (freedom of contract)
  • Express terms
  • Individually negotiated or use of Standard Term Contracts (STC’s)
• Governing law which regulates the contract
  • Implied terms, e.g. The Sale of Goods Act 1979
  Note importance of the principles governing the interpretation of contractual terms and their impact on contract drafting.

Question 3

Give examples of commercial contracts

Answer 3

• Logistics &Transport
• Joint Venture
• Loan and Finance
• Sale and Purchase
• Supply contracts
• Licences, Leases and Development
• Distributorship and Agency
• Services and Outsourcing
• Intellectual Property & Copyright
• Procure, Build and Maintain
• Bespoke commercial agreements

Question 4

List the content in a commercial contract

Answer 4

• Operative (‘the deal’)/Non-operative Provisions
• Clauses
• Terms
• Conditions
• Warranties
• Innominate Terms

Question 5

Define a clause

Answer 5

• Definition: the series of consecutively-numbered and titled sections that will contain many, or most, or all, of the operative terms of the contract, often preceded by a contents page
• References to ‘clauses’ will usually be interpreted as including their respective sub-clauses

Question 6

Give examples of clauses

Answer 6

Parties 
Definitions and interpretation
Duration
Warranties and indemnities
Financial provisions
Data processing
Variation
Exclusion and limitation of liability 

Force majeure 
Termination 
Assignment and sub-contracting 
Governing law 
Jurisdiction 
Notice 
Execution 
Schedules

Question 7

Define terms

Answer 7

Definition: an express or implied provision of a contract that is ‘operative’ and binding.
• They will: (a) set out the rights, liabilities and obligations of the parties.
(b) have been incorporated into it by being:
• expressed (orally or in writing), or
• implied i.e. a term which does not appear in the contract but nevertheless applies to it and binds the parties.

Question 8

How are written terms incorporated via signature

Answer 8

• A party is bound by their signature regardless of whether they have read the document before they signed. This offers certainty (for third parties) but can produce harsh results – e.g. L’Estrange v Graucob [1934] CA, which involved the purchase of faulty automatic cigarette vending machine.
• Note now the significance of the UCTA 1977

Question 9

How are terms incorporated by notice

Answer 9

• A party wishing to incorporate terms into the contract must satisfy 3 requirements:
1) Notice must be given before or at the time of contracting (see, Olley v Marlborough Court [1949] and Thornton v Shoe Lane Parking [1971]
2) The terms should be contained or referred to in a contractual document (See, Chapelton v Barry UDC [1940])
3) Reasonable steps must be taken to bring the terms to the notice of the other party (see Parker v South Eastern Railway [1877] CA
The more unusual or onerous the term or exorbitant the fee, the greater the steps required to be taken to make the other party aware (see, Interfoto Picture Library v Stiletto Visual Programmes [1989])

Question 10

How are terms incorporated by custom and course of dealing

Answer 10

• A term may be incorporated based on a series of business dealings between the parties which can objectively be described as regular and consistent. McCutcheon v David MacBrayne Ltd [1964] HL, or;
• On the basis of a ‘common understanding’ of the parties derived from the practice of the trade, i.e. a trade custom. British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd [1975] CA

Question 11

How can terms be implied

Answer 11

• by the Courts
• by statute
• by trade custom and practice, i.e. from the usage or custom which is ‘known’ in the industry in which the parties interact and/or;

Question 12

How are terms implied by the law

Answer 12

implied if it is a necessary incident of this type of contract.
• The term must be a reasonable one to imply and necessary in this type of contract.

Question 13

How are terms implied by fact

Answer 13

implied to give effect to the presumed intention of the parties and on the basis of necessity.

• The term in issue will be implied if it is necessary to give business efficacy to the contract, The Moorcock [1889] CA
• officious bystander test’ – in other words, the term must be so obvious that its implication goes without saying Shirlaw v Southern Foundries (1926) Ltd [1939]’;
• which was more recently confirmed in the‘Marks & Spencer v BNP Paribas (2015) SC series of ruling on implied terms.