Terms

Question 1

What are the three groups statements can be divided into?

Answer 1

1. Mere puffs - statements of no legal significance
2. Statements of fact or law which the parties do not intend to be binding. These statements are classified as representations if they help induce the making of the contract
3. Statements of fact which the parties intend to be binding. These are terms of the contract.

Question 2

What are the actions available for representations and express terms?

Answer 2

Representation: Possible action in misrepresentation.

Express term: breach of contract - damages et al.

A statement can be both a representation and a breach giving rise to an action for both breach of contract and misrepresentation.

Question 3

What is the difference between a representation and a term?

Answer 3

Only a term is intended to be binding.

To tell there is an objective test: What would a reasonable person understand to be the intention of the parties, having regard to all the circumstances?

Question 4

Why is this distinction between a representation and a term important?

Answer 4

Important if the statement turns our to be untrue or the promise is unfulfilled.

Court must decide which statements are contractual terms and which are non-contractual representations, inducing the contract but forming no part of it.

If statement is a term of the contract and is unfulfilled, this will amount to a breach of the contract and the party may claim damages (among other things)

If not a term, but a representation, this may amount to a misrepresentation but not a breach of contract. But may still be able to obtain a remedy in misrepresentation.

Question 5

What are the considerations/factors for whether a term or a representation?

Answer 5

Ask: did the parties intend the statement to be binding?
Take into account:
- 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

If yes then the statement is a term of the contract.

If no, the statement is either:
- a representation or
- mere puff with no legal effect

Question 6

The importance of the statement

Answer 6

A statement may be regarded as a term if it can be shown that the injured party considered it so important it would not have entered into the contract but for that statement.

Case: “if hops were treated with sulphur I’m not even interested in knowing the price of them” amounted to a term (bc they lied and said they hadn’t been treated with sulphur when they had)

Question 7

Timing

Answer 7

If the statement was made at the time of contracting it is more likely to be a term of the contract than if it was made at an early stage of the negotiations.

If there is a delay between the making of the statement and the parties entering into the contract, then it is less likely to be treated as a term.

Case: private seller of a motorbike said (in good faith) he thought the bike as a 1941 or 1942 model. One week later entered into contract, turns out it was a 1930 model and buyer sued.
Court of Appeal held the lapse of time between making the statement and entering into the contract meant the statement was a representation and not a term.

Question 8

Reduction of the contract into writing

Answer 8

Where a contract has been reduced into writing it will be significant if there isn’t or is a mention of the previous oral statement. (logic: if it is significant it would have been included)

Note: not necessarily decisive in classifying the statement - other factors will be taken into account.

Question 9

Special knowledge or skill

Answer 9

Where the party who made the statement had exclusive access to information or special knowledge as compared with the other party this is likely to be taken into account in the latter’s favour.

e.g. car dealer with knowledge and lay person - will be found in favour of the law person because car dealer has skill and expertise and can be taken to have better knowledge

Question 10

Assumption of responsibility/ further checks

Answer 10

A statement may become a term of the contract where the vendor expressly accepts the responsibility for the soundness of the sale item in question. (e.g. buying a horse and told need not look any further as the horse is sound in every way when it was not)
Ask: did the defendant at the time of sale, represent that the horse was fit for purposes? Did the purchaser act on that in purchasing the horse?

Another factor: actually dissuading defendant by the strength of his statement from making further checks with regard to the fitness of the horse for stud purposes.

Different from a case where the seller said their boat was sound but the buyer should have it checked - shows did not intend statement to be a term and onus of verification was with the purchaser.

Question 11

Where do express terms come from?

Answer 11

• A signed written contract
• Incorporation by notice
• Other ways of agreeing express terms
• Incorporation by a course of dealing

Question 12

A signed written contract

Answer 12

• Written terms might be set out in a signed written contract: in almost all such cases the signing of a contract shows that the parties intended to be bound by it.
• This is true even if the party has not read the terms or understood them - all terms will be binding.

Exception: document was not one which was intended to have any contractual effect (eg acknowledging receipt of goods) then the terms will not have contractual effect. “Post contractual document” makes it much less likely it would have contractual effect.

A party may also 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.

Question 13

What is incorporation by notice?

Answer 13

i.e. one party notifying the other party of them. Terms will form part of the contract if reasonable steps have been taken to bring them to the claimants attention.

Reasonable Notice = depends on facts of the case.

Terms may be incorporated by reference to another document (e.g. a ticket which referred to terms contained within a railway timetable) - not accepted where clause was not referred to on the front of the ticket or where the clause was illegible.

Where a clause is particularly onerous, it must be brought clearly to the other part’s attention. “printed in red ink which a red hand pointing to it” (only applies to incorporation by notice, not when document contains contractual terms within it)

Question 14

Timing for a clause to be incorporated into the contract

Answer 14

For a clause to be incorporated into the contract, reasonable notice of it must be given before or at the time of contracting. It follows that any clause will not amount to a binding term if it is communicated only after the contract is made.

The document must also be intended to have contractual effect.

Question 15

Incorporation by a course of dealing

Answer 15

If parties have dealt with each other on many occasions over a period of years and the clause has been brought to the notice of the other party during previous dealings, it may be implied into the current transaction to give effect to the presumed intentions of the parties even though omitted on this particular occasion.

Must show the course of dealing has been consistent over a period of time. (eg found not to where a course of dealings terms had not been consistently incorporated in the past)

Must also be regular (a few dealings over a few years is not regular - 3-4 over 5 years is not enough, where 3-4 times per month, or 5 times over 13 months appeared regualr

Question 16

Other ways of incorporating terms

Answer 16

• Oral agreement
• agreeing over an email

Question 17

What is an ‘entire agreement’ clause?

Answer 17

A clause used to reduce uncertainty and confusion which provides that a particular document or set of documents constitutes the entire agreement between the parties.

Courts will uphold these. (but unlikely to exclude misrepresentation)

Question 18

How can terms be implied into a contract?

Answer 18

Either be implied:

• in law
• in fact

Question 19

How can terms be implied in fact?

Answer 19

• Trade or professional customs
• A course of dealing between the parties
• Business efficacy

Question 20

Implied terms: Trade or professional customs

Answer 20

Where a term is implied on the grounds of a custom, the implication is based on the assumption that it was the intention of the parties to be bound by well known customs of a particular trade.

Question 21

Implied terms: a course of dealing between the parties

Answer 21

A term may be implied into an agreement on the basis that the parties have dealt with each other on many occasions over a long period of time. A term will only be implied in these circumstances where the dealings of the parties have followed a consistent and regular pattern.

Question 22

Implied term: business efficacy

Answer 22

A term may be implied to give ‘business efficacy’ to a contract - i.e. make the contract produce its intended objective.

A term will not be implied merely on the grounds that such an implication will transform the agreement into a business-like arrangement. A term will only be implied on this ground if, without the implied term, the arrangement would be SO unworkable that sensible people could not be supposed to have entered into it.

Something so obvious that if suggested they would respond “oh of course”

When implying terms in fact, one must ask what the reasonable person would understand the contract to mean rather than enquiring as to the subjective intentions of the parties.

Question 23

How can terms be implied in law?

Answer 23

• At common law
• By statute:
  Sale of Goods Act 1979
  Supply of Goods and Services Act 1982

Question 24

implied terms: common law

Answer 24

Terms can be implied by the courts at common law to give effect to legal duties which arise as a matter of policy out of certain common types of contractual relationships e.g. in the context of a landlord and tenant relationship

Referred to as terms implied in law

Question 25

implied terms: statutes

Answer 25

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.

• Sale of Goods Act 1982
• Consumer Rights Act 2015
• Supply of Goods and Services Act 1982

Question 26

What kind of contracts does the Sale of Goods Act 1979 apply to?

Answer 26

Does not apply to consumer contracts. (Applies to Business contracts)

s12 - title: seller has the right to sell the goods
s13(1) - description: goods will comply with their description
s14(2) - satisfactory quality: goods will be of a satisfactory quality
s14(3) - fit for particular purpose the purchaser has expressly or impliedly made known
s15 - the bulk of the goods must correspond with the sample

Question 27

Sale of Goods Act 1979: s12 title

Answer 27

Provides implication that the seller has the right to sell the goods.

Implied as a condition of the contract

Question 28

Sale of Goods Act 1979: s13 correspondence with description

Answer 28

Where there is a contract for the sale of goods by description there is an implied term that the goods will correspond with the description

Where goods are described as having certain characteristics and specifications then they must correspond with that description.

Question 29

Sale of Goods Act 1979: s14(2) satisfactory quality

Answer 29

Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality

Satisfactory quality: if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances.
Checklist:
- fitness for all the purposes for which goods of the kind in question are commonly supplied
- appearance and finish
- freedom from minor defects
- safety; and
- durability

Note: no condition as regards defects specifically drawn to the buyer’s attention before the contract was made, or if the buyer examines the goods before the contract is made as regards defects which that examination ought to have revealed.

Breach of condition

Question 30

Sale of Goods Act 1979: 14(3) fitness for a particular purpose

Answer 30

In addition to satisfactory quality, the goods should also be fit for purpose.

• Where the buyer expressly or by implication makes known to the seller any particular purpose for which the goods are being bought, it is an implied term that the goods supplied under the contract are reasonably fit for that purpose
• whether or not that is a purpose for which the goods are commonly supplied, except where the circumstances show that the buyer does not rely or that it is unreasonable for him to rely on the skill or judgment of the seller or credit broker

Breach of condition

Question 31

Sale of Goods Act 1979: s15 sale by sample

Answer 31

Where a sale is by sample, 2 conditions:

1. that the bulk will correspond with the sample in quality
2. that the goods will be free from any defect making their quality unsatisfactory which would not be apparent on reasonable examination of the sample.

Breach of condition

Question 32

Sale of Goods Act 1979: 15(a) modification for remedied for breach of condition

Answer 32

Breach of condition UNLESS the breach is so slight that it would be unreasonable for the buyer to reject the goods and repudiate the contract, the breach should be treated as a breach of warranty which will only entitle the buyer to claim damages.

Burden of proving that the breach is so slight and therefore unreasonable for the buyer to reject the goods falls on the seller.

Question 33

Can you contract out of the implied terms under the Sale of Goods Act 1979?

Answer 33

The sellers liability under ss12, 13, 14 and 15 of the SGA 1979 can be excluded and/or restricted by agreement of the parties, subject to the Unfair Contract Terms Act 1977 (UCTA).

UCTA does limit the ability to exclude/restrict these terms.

Cannot exclude implied undertaking as to title contained in s12 SGA 1979.

• Implied undertakings as to description, quality, fitness for purpose or sample (ss13-15) of the SGA can be excluded/restricted subject to the requirement for reasonableness.

Question 34

Who does the Supply of Goods and Services Act 1982 apply to?

Answer 34

Provides implications of terms in:

a) Certain contracts for the transfer of property in goods;
b) contracts for the hire of goods
c) contracts for the supply of services

Does not apply to consumer contracts.

Question 35

Under the SGSA 1982 what is a contract for the transfer of goods?

Answer 35

This means a contract under which one person transfers or agrees to transfer to another the property in goods (broadly where ownership of the goods changes hands) other than any of the following:

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
e) A contract intended to operate by way of security

Same implied terms as the case for sale of goods. Title, transfer by description, quality and fitness, transfer is by sample.

Question 36

Under the SGSA 1982 what is a contract for the hire of goods?

Answer 36

Contract for the hire of goods means a contract under which one person bails or agrees to bail goods to another by way of hire, other than:

a) A hire purchase agreement; and
b) A contract under which goods are bailed in exchange for trading stamps.

s9
Terms implied correspond to terms under the SGA: implied terms about the right to transfer possession, implied terms about quality and fitness, implied terms where hire is by sample.

Question 37

SGSA 1982: Contracts for the supply of services

Answer 37

The SGSA provides for the implied terms in a contract for the supply of a service:

a) Care and skill: where the supplier is acting in the course of a business there is an implied term that the supplier will carry out the service with a reasonable care and skill: s13

b) Time of performance: where the supplier is acting in the course of a business and the time for the service to be carried out is not fixed by the contract, left to be fixed in a manner agreed by the contract or determined by a course of dealing between the parties, there is an implied term that the supplier will carry out the service within a reasonable time: s14

c) Consideration: where the consideration for the service is not determined by the contract, left to be determined in manner to be agreed by the contract or determined by the course of dealing between the parties, there is an implied term that the party contracting with the supplier will pay a reasonable charge: s15.

Reasonable charge and reasonable time will depend on the particular circumstances.

Question 38

Can you contract out terms implied under the SGSA?

Answer 38

Transfer of goods or hire of goods: a supplier may negative or vary the terms set out in this element, subject to the provisions of the Unfair Contract Terms Act 1977.

Supply of services: may contract out subject to the UCTA.

UCTA does limit ability to vary these terms.

Question 39

Consumer Rights Act 2015

Answer 39

Applies to consumer contracts between a trader and a consumer.

Part 1:
- Contracts for goods
- Contracts for digital content
- Contracts for services

Part 2: regulates unfair terms (in consumer contracts)

Part 3: miscellaneous and general

Note: contracts between consumers and businesses entered into prior to 1 October 2015 are governed by the Sale of Goods Act 1979, or the Supply of Goods and Services Act 1982 and the Unfair Contract Terms Act 1977

Question 40

Who are consumers and traders under the CRA 2015?

Answer 40

Consumer: defined as an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession

Trader: 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 traders name or on the traders behalf. It is for the trader to prove otherwise.

Question 41

CRA 2015: Contracts for Goods (rights)

Answer 41

Rights implied:
- Goods should be of a satisfactory quality
- Goods should be reasonably fit for any purpose which the consumer makes known to the trader that the consumer intends to use the goods for; and
- Where the goods are sold by description the goods should match that description

Breach of these terms does not give consumers the right to treat the contract as at an end.

Question 42

CRA 2015: Contracts for digital content (rights)

Answer 42

Rights implied:
- Goods should be of a satisfactory quality
- Goods should be reasonably fit for any purpose which the consumer makes known to the trader that the consumer intends to use the goods for; and
- Where the goods are sold by description the goods should match that description

Quality of digital content is satisfactory if it meets the standard that a reasonable person would consider satisfactory

Question 43

CRA 2015: Contracts for services (rights)

Answer 43

Implied terms:
- That the service is performed with reasonable care and skill
- That (where a price has not been agreed) a reasonable price to be paid
- That (where a time has not be fixed) the service is provided in a reasonable time

Note: anything said or written to the consumer, by or on behalf of the trader, about the trader or the service is to be included as a term where it is taken into account by the consumer:
a) when deciding to enter into the contract or
b) when making any decision about the service after entering into the contract

Question 44

CRA 2015: Contracts for Goods (remedies)

Answer 44

Remedies:
1) The short term right to reject - 30 days from the time:
- ownership has passed
- goods have been delivered
- where installation is required, when the trader has notified the consumer that the required steps have been taken

2) Right to replacement/repair: available unless repair or replacement is either impossible or disproportionate (unreasonable cost relative to other remedies)

3) Right to a price reduction or the final right to reject: cannot have both and in either case it is only available where:
a) After one repair or one replacement the goods do not conform to the contract; or
b) the consumer can require neither repair nor replacement of the goods (because it is impossible or disproportionate); or
c) the consumer has required the trader to repair or replace the goods, but the trader is in breach of the requirement to do so within a reasonable time and without significant inconvenience to the consumer

Note: where right to reject is exercised within 6 months, there should be a full refund with no deduction for use

Question 45

CRA 2015: Contracts for digital content (remedies)

Answer 45

Where the content is non-conforming (satisfactory quality, fitness for purpose, matching description), 2 remedial options:

• right to repair or replacement: same as contracts for goods, repair or replace within reasonable time and without inconvenience to the consumer, precludes where would be disproportionate, nature and purpose = reasonable time
• right to price reduction: only exercisable where consumer either cannot require repair or replacement (impossible or disproportionate); or where trader has failed to repair or replace within a reasonable time or significant inconvenience.
• refund: must be given with 14 days using same payment method consumer used to pay and without any fee.

Note: digital content which does not conform to the contract at any time within the period of six months beginning with the day on which it was supplied must be taken not to have conformed to the contract when it was supplied.

Question 46

CRA 2015: Contracts for services (remedies)

Answer 46

A) Right to repeat performance: within reasonable time and without significant inconvenience to the consumer, cannot require repeat performance if completion in conformity with contract is impossible

B) Right to a price reduction: only available where repeat performance is impossible or where the trader has failed to provide repeat performance within a reasonable time and without significant inconvenience to the consumer.

Question 47

What is the significance between a condition and a warranty?

Answer 47

If a party breaches a condition, the innocent party has a right to treat the contract as repudiated (they can terminate the contract with the effect that both parties are released from all future obligations under the contract). Innocent party may also sue for damages immediately

Breach of warranty: the only remedy available is to sue for damages (no right to treat the contract as repudiated).

Question 48

What happens if a breach of a condition happens but the party does not exercise the right to treat the contract as at an end?

Answer 48

They then affirm the contract. The contract will remain in full force and effect, meaning that all parties will remain bound to perform their obligations under the contract, but the innocent party can still sue for damages with respect to the other party’s breach.
The innocent party waives the right to repudiate.

Question 49

How do you distinguish between a condition and a warranty?

Answer 49

A condition is an important term ‘going to the root of the contract’.

A warranty is less important and does not go to the root of the contract.

Question: at the time of contracting did the parties intend that any breach of the relevant term could result in the innocent party terminating. Only if the answer to this question is yes should the term be categorised as a condition from the outset.

Question 50

What is an innominate term?

Answer 50

A term which is neither a condition nor a warranty but is intermediate in nature. How it should be treated is determined by looking at the consequences of the breach and asking:

Does the breach deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract?

If yes, then it should be treated as a condition. If no, the innocent party is entitled to claim damages only.

Question 51

How to classify the term

Answer 51

Starting point: has the term been classified as a condition or a warranty by i) statute, ii) the parties, iii) previous judicial decisions.

If that does not provide an answer then the court will need to look at the contract, the subject matter and the surrounding facts to determine whether the parties intended for any breach of the term to entitle the innocent party to terminate the contract (root of the contract)

If court cannot determine, will likely decide term is innominate and apply the substantially whole benefit test.

Question 52

Time for performance or completion

Answer 52

Where time is essential, expression used “time is of the essence”. Lateness will amount to a repudiatory breach entitling the other party to terminate the contract.

Where not of the essence, it can become so by the innocent party serving a notice on the defaulting party which states time is of the essence. Such a notice must state a completion date which must be reasonable.

Question 53

Under the Sale of Goods Act 1979, what is the classification of the implied term that goods will correspond with their description?

Answer 53

The term is classified as a condition, but it may be treated as a warranty if the breach is so slight that it would be unreasonable for the buyer to reject the goods

Question 54

How do you ascertain if there is a breach of contract and if there is liability for that breach?

Answer 54

1. What type of contract it is (ie sale of goods or supply of services)?
2. Terms (implied, express)/representation/puff?
3. For any express terms setting out performance obligations under the contract - how have they been incorporated into the contract? By signature, notice or course of dealing?
4. Breach?
5. Is the breach term a condition/warranty/innominate term - effect of breach?

Now we add:
6. Incorporation - has an exemption clause been incorporated?
7. Construction: does the clause as drafted cover the alleged breach(es) and resulting loss?
8. What is the effect on the clause of the Unfair Contract Terms 1977/ CRA 2015?