EXAM NOTES - Terms and Exemption Clauses

Question 1

What is a term?

Answer 1

• an obligation; an element of the contractual promise

- must be clear and certain - ambiguity kills agreement. Gibson/Storer

Question 2

What does not constitute a term?

Answer 2

• mere puffery Dimmock v Hallett eg advertising claims

- representations; pre-contractual statements of fact - though they can become terms

Question 3

What factors determine whether a statement is a representation or an express term?

Answer 3

• timing Routledge v McKay; age of motorbike
• importance Bannerman v White; sulphurous hops
• specialist knowledge Oscar Checks v Williams and Dick Bentley v Harold Smith
• whoever prevented a check Schawel v Reade

Question 4

what is the parole evidence rule?

Answer 4

if the contract is written, extrinsic evidence cannot be adduced to vary it
- Jacobs v Batavia

Question 5

what are the exceptions to the parole evidence rule?

Answer 5

• contract not wholly written J Evans v Andrea Merzario; part written part oral
• collateral contracts Westminster v Mudd sleeping on the business premises
• onerous terms Interphoto v Stiletto; need more notice

Question 6

how can contractors avoid the exceptions to the parole evidence rule?

Answer 6

include an entire agreement clause - only the document will be binding, nothing else Inntrepreneur Pub v East Crown

Question 7

what is the general rule about implied terms?

Answer 7

• sometimes the court will imply terms into a contract
• but not where the parties have made an unambiguous express term to the contrary Trollope v North West Regional Hospital

Question 8

for what reasons will a term be implied into the contract?

Answer 8

1 in law
2 in fact
3 by trade custom British Crane Hire v Ipswich Plant
4 by previous course of dealings

Question 9

how are terms implied in law

Answer 9

• if they are a “necessary incident of this type of contract” ie the contract won’t work without it being implied Liverpool CC v Irwin
• Mahmud v BCCI the bank would behave properly towards its employees

Question 10

how are terms implied in fact

Answer 10

• if without the term the arrangement would be so unbusinesslike that sensible people wouldn’t have entered into it eg The Moorcock - the seabed at the mooring should have been appropriate for the ship at low tide
• Shirlaw v Southern Foundaries - “officious bystander” test - something “so obvious

Question 11

how are terms implied by previous course of dealing?

Answer 11

• need to show consistency in previous course of dealings (ie always the same way) McCutcheon v MacBrayne sinking car ferry
• and regularity of previous dealings Hollier v Rambler Motors

Question 12

What statutes imply terms into contracts?

Answer 12

• Sale of Goods Act 1979

- Supply of Goods and Services Act 1982

Question 13

how does the SGA 1979 imply terms

Answer 13

• s12 good title
• s13 goods will match description eg Arcos v Ronassen - timber staves too thin
• s14 fit for purpose and of sufficient quality eg Priest v Last burst hot water bottle
• s15 goods will correspond to sample Arcos v Ronassen

Question 14

How does the SGSA 1982 imply terms?

Answer 14

s13 if supplier is a business, must carry out services with reasonable care and skill (innominate term)
s14 if supplier is business and time period for performance not fixed, must be carried out in reasonable time
s15 courts will decide reasonable payment if necessary

Question 15

What is a condition?

Answer 15

• important term going to the “root” of the contract. Poussard v Spiers
• breach “deprives the innocent party of substantially the whole benefit” Hong Kong Fir v Kawasaki
• if breached, innocent party can repudiate or affirm eg Poussard v Spiers and Pond; theatre could repudiate due to the sick actress missing so much of the show

Question 16

what is condition subsequent

Answer 16

if a certain state of affairs comes into being while the contract is running, the contract will be terminated

Question 17

what is condition precedent?

Answer 17

certain state of affairs has to come into being before the contract can take effect. The contract hangs on those conditions being met; if they are not, the contract never takes effect

Question 18

what is a warranty?

Answer 18

• less important term that the contract does not hang on
• if breached, innocent party can sue for damages but not repudiate eg in Bettini v Gye the innocent party could only seek damages for the sick singer’s missed work

Question 19

how do courts classify a condition or warranty?

Answer 19

• usually gives effect to parties’ intentions Lombard North v Butterworths
• but use of words like ‘condition’ is not conclusive Schuler v Wickman
• the more unreasonable the result of an interpretation, the more unlikely the parties intended it

Question 20

how does the SGA 1979 affect conditions and warranties?

Answer 20

s11 condition gives right to repudiate if breached, warranty gives right to damages
s62 warranty is collateral to the main purpose
s15A rights to reject goods

Question 21

explain innominate terms

Answer 21

Hong Kong Fir v Kawasaki - most terms are neither conditions nor warranties at the outset - the significance and consequence of the breach determine what they will be
- does not apply to some terms eg loading clauses in shipping Mihalis Angelos

Question 22

explain time for performance clauses

Answer 22

• for the failure to comply with a time stipulation eg delivery date whether it is a condition or a warranty depends on the intention of the parties at the time of contracting
• look for evidence that one side told the other that time was of the essence etc

Question 23

what is the test for exemption clauses?

Answer 23

ICUR an exemption clause

• incorporation
• construction
• UCTA 1977
• Unfair Terms in Consumer Contract Regulations 1999

Question 24

explain incorporation

Answer 24

• was notice of the term given at or before the time of contracting? Thornton v Shoe Lane Parking
• document in which the clause is contained has contractual effect? Chapelton v Barry/Grogan v Robin Meredith
• Incorporation through reasonable notice
• Incorporation through signature L’Estrange v Graucob and Curtis v Chemical Cleaning

Question 25

explain construction

Answer 25

• does the clause cover the breach?
• Ambiguous clauses constructed against the person who wrote the contract Andrew Bros v Singer Cars
• Limitation clauses treated more leniently Aisla Craig Fishing v Malvern Fishing
• key test: Canada Steamship v The King

Question 26

explain the Canada Steamship v The King test for construction

Answer 26

1. Does the exemption clause refer expressly to negligence?
    If so then exemption of negligence liability is effective
2. If not, are there words wide enough to cover negligence?
    If not, no exemption
3. If so, is the clause too wide? Is there a ground of liability other than negligence that could be covered by the clause?
    If not, exemption is effective
    If so, negligence liability will be ineffective – the clause will cover the alternative head of liability ONLY.

Question 27

how does UCTA 1977 relate to exemption clauses?

Answer 27

• Unfair Contract Terms Act 1977
• only covers business liability s1(3)
• only covers exemption clauses s13
• s1(1)(a) breach of s13 SGA is negligence
• cannot exclude for death/PI caused by negligence
• cannot exclude for someone acting as a consumer
• can exclude for businesses so long as it is reasonable

Question 28

what is the UCTA 1977 test for reasonableness

Answer 28

• s11(1) reasonableness judged at time of contracting
• s11(5) burden on person relying on exclusion clause
• s11(2) look to sch 2 UCTA
• s2(2) if unreasonable will be unenforceable

Question 29

how does UTCRR relate to exemption clauses

Answer 29

Unfair Terms in Consumer Contracts Regulations 1999

• only protects consumers Reg 4(1)
• Reg 3(1) defines consumers
• covers clauses that have not been individually negotiated by the parties only Reg 5(1)
• subject to requirement of “good faith” Reg 5 Sch 2
• if term deemed unfair it will not bind the consumer and can be struck out Reg 8
• burden is on consumer trying to challenge the term

Question 30

What does Sch 2 UCTA add to the reasonableness test?

Answer 30

• Stewart Gill v Horatio Myer use Sch 2 for all exclusion clauses
• Sch 2 (a) assess bargaining positions
• Sch 2 (c) did the party the term is being used against have reasonable notice?