Exclusion Clauses

Question 1

What forms a contract (formation of a contract)?

Answer 1

requires offer and acceptance. There must be consideration and intention to be
legally bound.

Question 2

What is the negotiation phase?

Answer 2

• In all but the simplest of commercial contracts, the entry into the contract will be preceded by a period of
  negotiation, either oral or written.
• Is this the first time the parties have dealt with each other?
• The subject matter of the contract and whether or not the parties are using standard terms and conditions.

Question 3

What are considered offers?

Answer 3

Throughout the negotiation process, it is important to ensure that any offer remains on the table. An offer can
be ended by rejection, counter-offer, lapse of time, death of the other party or by revocation before it has been
accepted. If any of these has occurred, then there will be no offer capable of acceptance.

Question 4

Define prevail clauses.

Answer 4

A prevail clause provides in effect that if there is a battle of the forms then the seller’s terms will prevail. Legally, the
clause is ineffective, as any later set of terms which is introduced will act as a counter-offer and override an earlier
set. However, a prevail clause is often included for bluff value.

Question 5

Define Entire or whole agreement clauses.

Answer 5

The seller may include an ‘entire’ or ‘whole agreement’ clause. This is intended to prevent any statements made by
sales representatives, or statements included in sales literature, brochures and the like, forming terms of the
contract. The clause will state that the seller’s terms and conditions form the whole agreement between the seller
and the buyer and cannot be varied in any way.

A further danger of a whole agreement clause is that it might exclude other documents which the parties do wish to
have taken into account, for example a price list.

Question 6

What are no authority clauses?

Answer 6

These are attempts by the seller:
(a) to put a limit on the extent to which its sales representatives, or other employees, are permitted to
negotiate individual terms with the buyer; and
(b) To exclude any extravagant claims made by the sales representatives to induce the buyer to enter into the
contract.

Question 7

Define consideration in a contract.

Answer 7

The consideration in a commercial contract will usually be money, goods or services, or the promise of these.

Question 8

Define lock-out and lock-in agreements.

Answer 8

A lock-out agreement is one in which one party, for example a manufacturer (A), agrees with another, a distributor
(B), not to negotiate with anyone other than B. It is essentially a negative promise. Such agreements are too
uncertain and therefore unenforceable.

Question 9

What are cancellation clauses?

Answer 9

Both the buyer and the seller might want to have a let-out clause, allowing them to withdraw from the contract
without liability in certain circumstances. If the cancellation clause is too wide, it may invalidate the contract
altogether.

Question 10

Define Post-contractual variation.

Answer 10

Where one party agrees to do something over and above the terms of an existing contract, the other party must
provide consideration for that promise, either by providing something extra over and above his existing contractual
duty.

Question 10

Define a mistake in a contract.

Answer 10

A mistake may mean that the parties have failed to reach agreement, because, for example, unknown to the parties,
the subject matter of the contract does not exist or has perished. Where there is a mistake, it renders the contract
void.

Question 11

Define The doctrine of waiver.

Answer 11

An example would be where a delivery date has been agreed, but the seller finds that he is unable to deliver.
Normally the buyer can refuse to accept late delivery, but if the buyer agrees to it, the court will usually decide that
the buyer has waived its right to terminate the contract for late delivery.

Question 12

Define Promissory estoppel.

Answer 12

The doctrine of promissory estoppel applies to promises not to claim sums of money which would otherwise be due
under a contract.

Question 13

Define prevention.

Answer 13

In the same way that the parties can attempt to draft the contract to solve ‘battle of the forms’ problems, they may
also attempt to prevent unauthorised variation of the terms of the contract, by extending the no-authority clause.

Question 14

Define economic duress.

Answer 14

Even if a variation is supported by consideration, it may not be valid if it is brought about by economic duress, where
one party threatens to break its side of the contract unless the other side promises to pay more than originally
agreed.

Question 15

Define Interpretation.

Answer 15

– is deciding the meaning of the words of the contract.
Only if the language is unclear or there are clear drafting problems should the court be prepared to
depart from the natural meaning of the words, or invoke business common sense.

Question 16

Define implied terms.

Answer 16

a term will only be implied into a contract if either it is necessary to give business efficacy to the
contract (the ‘business efficacy test’) or it is so obvious that it should be included that it goes without saying (the
‘officious bystander test’). Marks and Spencer v BNP Paribas.

Question 17

When can a contract be discharged?

Answer 17

A contract comes to an end when it has been discharged by:
(a) performance of the contract (which will be the usual situation);
(b) agreement between the parties;
(c) frustration, if the contract can no longer be performed in the manner intended by the parties;
(d) Breach, if it is a repudiatory breach, i.e. breach of a condition not of a warranty, and that repudiation is
accepted by the innocent party.

Question 18

When does a contract become frustrated?

Answer 18

• A contract is frustrated when, after the contract is made, and without the fault of either party, the contract
  becomes impossible or radically different to perform, e.g. because the subject matter of the contract has
  been destroyed
• The result is that the contract automatically comes to an end and both parties are relieved of their
  obligations under the contract.
• Prima facie, the buyer can recover any payments it made before frustration (s 1(2)), and any sums which are
  due before the frustration date will cease to be payable.

Question 19

What are the remedies for breach of contract?

Answer 19

Breach of a condition will give the innocent party the right to repudiate or terminate the contract.
Termination means that the innocent party is discharged from all future obligations under the contract, and
may recover any property transferred under the contract (including the price paid for any goods or services)
and claim damages.
 Breach of warranty only gives the innocent party the right to claim damages (provided that it can show that
it has suffered a loss). The innocent party does not have the option to terminate the contract.

Question 20

Define contractual damages.

Answer 20

• Damages are the ‘usual’ remedy for breach of contract and, provided that the claimant can show that it has
  suffered a loss, are available as of right.
• The purpose of contractual damages is compensatory, not punitive.
• Most damages in contract are assessed on an expectation basis – the aim is to put the claimant into the
  position that he would have been if the contract had been performed as intended.

Question 21

What is remoteness of damage rule?

Answer 21

The remoteness rule was set out in Hadley v Baxendale (1854) 9 Exch 341. Claims for damages are limited to:
(a) first-limb: losses that flow naturally from the breach e.g. ordinary loss of profit.
(b) second-limb: losses that may reasonably be supposed to have been in the contemplation of the parties at
the time they made the contract, as a result either of actual knowledge.
In commercial contracts, most sellers will want to exclude indirect or consequential loss, although in the UK this will
always be subject to UCTA 1977. However, it is not always clear whether loss of profit falls within the first or second
limb

Question 22

What are the implied terms that are implied to all commercial contracts?

Answer 22

1) THE SELLER’S DUTY TO PASS GOOD TITLE TO THE GOODS
Section 12(1)
2) SALE BY DESCRIPTION
Section 13(1)
3) SATISFACTORY QUALITY
Section 14(2) of
4) FITNESS FOR PURPOSE .
5) SALE BY SAMPLE
Section 15(2)
6) BUYER’S REMEDIES FOR BREACH OF THE IMPLIED TERMS

Question 23

WHAT IS AN ‘EXCLUSION CLAUSE’?

Answer 23

An exclusion clause is a clause which attempts to exclude or limit the availability of the remedies arising as the result
of the happening (or more often non-happening) of a specified event, generally a breach of contract by one of the
parties.

Question 24

What is the checklist to determine there was a breach of contract?

Answer 24

1) What are the relevant terms of the contract (express or implied)?
- There could be an express term for payment.
- When payment is to be made.
2) Are the terms incorporated into the contract?
- By signature?
- By previous course of dealings
3) Have these terms been breached
- Is it a breach of condition?
o Breach of any of these terms will therefore entitle the buyer to reject the goods, repudiate the
contract and recover the price from the seller, as well as to claim damages if it has suffered further
loss, eg loss of profit.
-Is it a breach of warranty?
o Section 61 of the SGA 1979 states that breach of a term which is a warranty gives rise only to a claim
for damages. It does not give the buyer the right to reject the goods and treat the contract as
repudiated, only a right to damages.
4) What remedies are being sought by the claimant, and are those remedies legally available?
5) Is there a counter-claim/defence to the claim?