Intro to Commercial Contracts

Question 1

What does commercial law covers?

Answer 1

the sale of goods, marketing agreements, transport, finance and credit arrangements,
competition law, intellectual property, insurance and related areas, such as banking or tax law. the thread that links together all of these interconnecting areas of law is the use of commercial contracts.

Question 2

Sources of commercial law?

Answer 2

1. The law of contract;
   2.Established custom and usage of the trade;
2. National legislation;
3. European Union law; and
4. International conventions

Question 3

What are upstream contracts?

Answer 3

are typically those which provide the client with the resources needed in order to
carry on his business - contracts which require some sort of financial outlay by the business

Question 4

What are downstream contracts?

Answer 4

are those under which the client passes on and exploits the fruits of his labour,
contracts for the supply of goods and services by the business – in other words, contracts which generate
income for the business

Question 5

What are Standard Terms and Conditions?

Answer 5

• An important consideration for the client will be whether to use standard terms and conditions or individually
  negotiated contracts.
• In practice, it is very common for a set of terms to be put into a standard contract which a business will use for
  all transactions.
• Whether the contract between the buyer and seller is based on the seller’s standard terms and conditions or
  the buyer’s will depend on the relative bargaining positions of the parties.

The use of standard terms ensures that the final contract suits the needs of whichever party has been able to
insist on their use. Standard terms and conditions have the added advantage of ensuring commercial certainty.

Question 6

What does the buyer wants?

Answer 6

(a) Will want the goods to be delivered on time, preferably to its own premises; and
(b) Will want the seller to be liable for any defects

Question 7

What does the seller wants?

Answer 7

(a) Will want flexibility for late delivery if, for example, it is let down by its own suppliers;
(b) Will want the buyer preferably to collect the goods from its factory; and
(c) Whilst it might be willing to accept some liability for defects, will not want to be liable for every trivial problem.

Question 8

Advantages of standard terms and conditions?

Answer 8

• Contract on terms favourable to client
• Standardised procedure
• Commercial certainty Incorporation difficulties/”battle of the forms”
• Cheaper
• Starting point for negotiation

Question 9

Disadvantages of Standard terms and conditions?

Answer 9

• Lack of flexibility
• Effective training and procedures essential
• Incorporation difficulties/”battle of the forms”
• Need for regular review
• Legal constraints, eg UCTA 1977

Question 10

What is the basic checklist for a commercial agreement ?

Answer 10

1. Commencement and date;
2. The parties;
3. The recitals, if any;
4. Definitions and interpretation;
5. Conditions precedent, if any; - operative part
6. Agreements; - operative part
7. Representations and warranties; - operative part
8. Indemnities; - operative part
9. Limitations and exclusions; - operative part
10. ‘boiler-plate’ clauses
11. Execution clause and signature; and
12. Schedules.

Question 11

What are the distinct phases of a contract?

Answer 11

(a) Negotiation;
(b) Entry into the contract;
(c) Performance;
(d) Discharge.

Question 12

What is a doctrine of waiver?

Answer 12

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 13

What is post-contractual variation?

Answer 13

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 14

What is promissory estoppel?

Answer 14

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

Question 15

What is meant by prevention?

Answer 15

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 16

What is meant by economic duress?

Answer 16

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 18

When does a contract come to an end?

Answer 18

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 19

What is frustration of contract?

Answer 19

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 20

What are the remedies for a breach of a contract?

Answer 20

1. 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.
2. 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 21

What is sale of goods?

Answer 21

The SGA 1979, s 2(1) defines a contract for the sale of goods as:
… a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price.

Question 22

Define sale?

Answer 22

Section 2(4) defines a sale as follows:
Where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is
called a sale.

Question 23

What are goods?

Answer 23

The SGA 1979, s 61 defines goods as including ‘all personal chattels other than things in action and money’.
Section 5(1) differentiates between present and future goods:
The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured or acquired by him after the making of the contract of sale, in this Act called future goods

Question 24

What are the duties of a seller?

Answer 24

1. To deliver the goods (s 29)
2. To deliver the correct quantity (s 30)
3. To pass good title (s 12)
   4.To deliver goods which:
   – correspond with description (s 13)
   – are of satisfactory quality and fit for purpose (s 14)
   – correspond with sample (s 15)

Question 25

What are the duties of a buyer?

Answer 25

1. To accept delivery (s 27)
2. To pay for the goods (s 27)

Question 26

What are the rights/remedies of a seller?

Answer 26

1. To terminate/repudiate the contract for breach of
   condition
2. Action for the price (s 49)
3. Damages for non-acceptance (s 50)
4. Rights of the unpaid seller:
   – lien (s 41)
   – stoppage in transit (ss 44, 45)
   – resale (s 48)
   5.To retain title to the goods until paid (ss 17 and 19)

Question 27

What are the rights/remedies of a buyer?

Answer 27

1. To inspect the goods (s 34)
2. To reject the goods and refuse payment for breach of
   condition
3. To damages for non-delivery (s 51)
4. To damages when the goods are accepted (s 53)
5. To request specific performance (s 52)

Question 28

What are the effects of a sale of goods contract?

Answer 28

(a) ownership of the goods is transferred to the buyer;
(b) the risk in the goods passes to the buyer; and
(c) The seller is paid.

Question 29

Define delivery?

Answer 29

‘Delivery’ is defined in s 61(1) as the ‘voluntary transfer of possession from one person to another’. It is, if you like, handing over the goods. However, it is important to distinguish between ‘legal’ and ‘physical’ delivery.
DELIVERY: means the point in time and space at which the parties can be seen to have agreed that the legal right to possession of the goods passes from the seller to the buyer. – it does not mean physical delivery.
A clear distinction must be made between ‘delivery’ (ie the transfer of possession) and the passing of title (ie ownership).

Question 30

What are the steps to determine if a breach of duty occurred?

Answer 30

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?

Question 31

What are Representations?

Answer 31

are statements of factual and legal matters which one of the parties requires to be made to it in a legally binding way.

Question 32

What are Warranties?

Answer 32

are promises that a given statement or fact is true. Can give provisions for repair or
replacement.

Question 33

What are boiler-plate’ clauses?

Answer 33

Standard clauses which are included as a matter of course into all agreements of a certain type.

Question 34

What are the different types of boiler-plate clauses?

Answer 34

1. Prevail clauses
2. Entire or whole agreement clauses
   3.No authority’ clauses
3. Waiver
4. Insolvency
5. Choice of law and jurisdiction
6. Service of notices
7. Force majeure
8. ‘No partnership’ clauses
9. ‘No assignment, no subcontracting’ clauses
10. Dispute resolution
11. Severance

Question 35

Define Prevail clause.

Answer 35

A prevail clause states that, in the event of a dispute, one party’s (e.g. the seller’s) terms shall prevail.

Question 36

Define Entire or whole agreement clauses.

Answer 36

An entire or whole agreement clause provides that all of the
obligations of the parties are recorded in one document. They seek to avoid the evidential difficulties associated with oral representations and discussions.

Question 37

Define No authority clause.

Answer 37

A ‘no authority’ clause states that variation of the contract will be effective only if made by certain people (eg directors) or in a certain way (eg evidenced in writing).

Question 38

Define Insolvency clause.

Answer 38

This is a standard provision relating to the operation of the agreement. It makes provision for what happens if one of the parties becomes insolvent.

Question 38

Define Waiver clause.

Answer 38

There may also be a clause trying to prevent any waiver arising as a result of one party agreeing to a relaxation of a contractual provision, for example an express delivery date.

Question 39

Define Choice of law and jurisdiction clause.

Answer 39

It is important that the contract includes an express choice of the
law and the jurisdiction which will govern the contract in the event of a dispute.

Question 40

Define service of notice clause.

Answer 40

A notice clause has to provide for the places where notice is to be served, the method of service and the time at which the notice is deemed to be served.

Question 41

Define force majeure clause.

Answer 41

A force majeure clause is intended to suspend or terminate the contractual obligations in the event of an occurrence outside the control of the parties (eg fire, flood, storm, etc).

Question 42

Define no partnership clause.

Answer 42

This type of clause seeks to ensure that the agreement cannot be
construed as a partnership between the parties to the agreement.

Question 43

Define no assignment, no subcontracting clause.

Answer 43

If a buyer has selected a specific supplier, it will not want that supplier to subcontract the work to an unknown third party. Similarly, the buyer may not want the contract to be assigned to another supplier. Thus, a clause to cover both these possibilities is often included in commercial contracts.

Question 44

Define dispute resolution.

Answer 44

Particularly where there is a long-term supply contract, a dispute resolution clause may be included in the contract.

Question 45

Define severance clause.

Answer 45

Some agreements may include a severance clause purporting to allow the court to strike out any clause or part of a clause which is for some reason illegal or invalid.

Question 46

What are schedules in a contract?

Answer 46

Schedules are a way of removing unnecessary detail from the body of an agreement and thereby improving its readability. In a large agreement, representations and warranties would also be removed to the schedules. Schedules can also be used to annex other documents to the contract.