Terms and the interpretation of contracts

Question 1

What are the three groups of statements that are made by parties during negotiations leading up to a contract?

Answer 1

-Mere puffs-statements of no legal significance

-Representations-statements of fact or law which the parties do not intend to be binding (if false, a claim for misrepresentation might be possible)

-Terms-statements of fact which the parties intend to be binding (breach gives rise to a claim for breach of contract)

Question 2

What is the difference between a representation and a term?

Answer 2

A term is intended to be binding whereas a representation is not.

Question 3

What guidelines do the Court take into account when considering whether a parties intended a statement to be binding?

Answer 3

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

-Timing-more likely to be a term of the contract if made at the time of contracting rather than at an early stage of negotiations.

-Reduction into writing-if not included in writing, it is unlikely to be a term as a term would have been included in any written agreement.

-Special knowledge/skill-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.

-Assumption of responsibility/further checks-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.

Question 4

What are the four ways in which express terms can be agreed/incorporated into a contract?

Answer 4

1. Signed written contract
2. Incorporation by notice
3. Incorporation by a course of dealing
4. Other ways of agreeing express terms (verbal agreement, email agreement)

Question 5

Does a signed written contract show that the parties intend to be bound?

Answer 5

Yes, even if a party signing has not read or understood what the contract means.

The exception is if the document signed was not one which was intended to have any contractual effect-Grogan v Robin Meredith Plant Hire (1996).

Question 6

How can terms be incorporated by notice, refer to Thornton v Shoe Lane Parking (1971)?

Answer 6

Terms can be incorporated by notice if one party notifies the other party of them before or at the time of contracting, but reasonable steps must be taken to bring them to the other party’s attention.

Thornton v Shoe Lane Parking (1971): where a party wants to incorporate terms which are particularly adverse to the other party, it must clearly bring these to the other party’s attention eg printed in red ink, with a red hand pointing to it.

Question 7

How can terms be incorporated by a course of dealing and what constitutes a course of dealing?

Answer 7

Where a 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 it has been omitted.

In order for this rule to operate, it must be shown that the course of dealing has been consistent over a period of time.

Petrotrade Inc v Texaco Ltd (1999): only a few occasions over a number of years is not consistent and regular enough, whereas 3-4 times a month and 5 times over 13 months is sufficient.

Question 8

What are other ways of agreeing express terms?

Answer 8

Obvious and common examples include the agreement of terms in a conversation or verbal exchange, or terms being set out in writing and the other party agreeing to those (vie email).

Question 9

What is an entire agreement clause?

Answer 9

This means that the parties agree that this agreement constitutes the entire agreement between them, and supersedes any previous understandings or arrangements between them.

Question 10

How can terms be implied and is an implied term binding to the same extent as an express term?

Answer 10

Terms can be implied on the basis of fact or law. An implied term is binding to the same extent as an express term.

Question 11

How may terms be implied in fact?

Answer 11

-Trade or professional customs-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: British Crane Hire v Ipswich Plant (1975).

-A course of dealing between the parties-parties have dealt with each on many occasions over a long period of time

-Business efficacy-to make the contract produce its intended objective. Only implied if without the implied term, the arrangement would be so unworkable that sensible people could not be supposed to have entered into it: Barton v Morris (2023).

Question 12

How may terms be implied in law?

Answer 12

-Terms implied at common law e.g. landlord and tenant relationship

-Terms implied by statute e.g. CRA 2015

Question 13

What is the implied term under S12 SGA 1979?

Answer 13

S12-title, the seller has the right to sell the goods. This is a condition of the contract.

Question 14

What is the implied term under S13(1) SGA 1979?

Answer 14

S13(1)-description, the goods will correspond with their description. This is a condition of the contract.

Question 15

What is the implied term under S14(2) SGA 1979?

Answer 15

S14(2)-satisfactory quality, this standard is met if they meet the standard a reasonable person would regard as satisfactory.

Question 16

What factors may be taken into account when assessing satisfactory quality under S14(2B) Sale of Goods Act 1979?

Answer 16

a) Fitness for purpose
b) Appearance and finish
c) Freedom from minor defects
d) Safety
e) Durability

Question 17

What are the exceptions to the implied term as to satisfactory quality under S14(2C)(a) & (b) SGA 1979?

Answer 17

There is no condition as regards defects specifically drawn to the buyer’s attention pre-contract or if the buyer examines the goods pre-contract.

Question 18

What is the implied term under S14(3) SGA 1979?

Answer 18

S14(3)-fitness for a particular purpose. Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known:

any particular purpose for which the goods are being bought, there 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 such 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.

Question 19

What is the implied term under S15 SGA 1979?

Answer 19

S15-sale by sample. Two conditions are implied into the contract by virtue of this section:

a) that the bulk will correspond with the sample in quality
b) that the goods will be free from any defect, making their quality unsatisfactory, which would not be apparent on reasonable examination of the sample

Question 20

What does S15(A) SGA 1979 state in relation to the modification of remedies for breach of condition?

Answer 20

S15A provides that if the breach of a condition 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.

This burden of proof falls on the seller.

Question 21

Can the implied undertaking as to title contained in S12 SGA 1979 be excluded or restricted?

Answer 21

No, it cannot be excluded or restricted as per S6(1)(a) UCTA 1977.

Question 22

Can the implied undertakings as to description, quality, fitness for purpose or sample contained in S13-15 SGA 1979 be excluded/restricted?

Answer 22

Yes, they can be excluded/restricted subject to the requirement of reasonableness as per S6(1)(a) UCTA 1977.

Question 23

What does the Supply of Goods and Services Act (SGSA) 1982 provide for?

Answer 23

This statute provides for the implication 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

Question 24

What terms are implied by SGSA 1982 into contracts for the transfer of property in goods/hire of goods?

Answer 24

The same terms will be implied corresponding to those which are implied in the case of contracts for the sale of goods.

Question 25

What are the terms implied into contracts for the supply of services under S13-S15 SGSA 1982?

Answer 25

S13-supplier will carry out the service with a reasonable care and skill

S14-supplier will carry out the service within a reasonable time if not already agreed by contract/a course of dealing

S15-the party contracting with the supplier will pay a reasonable charge if not already agreed by contract/a course of dealing

Question 26

Can a party contract out of the terms implied under SGSA 1982?

Answer 26

Yes, subject to the provisions of UCTA 1977.

Question 27

What does the Consumer Rights Act (CRA) 2015 provide?

Answer 27

Part I provides a bespoke scheme of regulation for each of three classes of consumer contracts that are covered-contracts for goods, digital content and services.

Question 28

What are three cornerstone rights implied in a consumer sale of goods under S9-S11 CRA 2015?

Answer 28

S9-goods should be of a satisfactory quality

S10-goods should be reasonably fit for any purpose which the consumer makes known to the trader that they intend to use the goods for

S11-goods should match any description

Question 29

What are the three remedial options available where the goods sold to a consumer fail to meet the requirements under S9-S11 CRA 2015?

Answer 29

-The short term right to reject (which runs for 30 days)

-The right to repair or replacement

If the above is impossible/disproportionate, the consumer has:

-The right to a price reduction or the final right to reject

Question 30

What are the three terms implied in a contract for digital content under S34-S36 CRA 2015?

Answer 30

S34-goods should be of a satisfactory quality

S35-goods should be reasonably fit for purpose

S36-goods should match any description

Question 31

What are the two remedial options available where the digital content sold to a consumer does not comply with S34-S36 CRA 2015?

Answer 31

-The right to repair or replacement

If the above is impossible/disproportionate:

-The right to price reduction

Question 32

What are three terms implied in a contract for services under S49, S51 & S52 CRA 2015?

Answer 32

S49-service is performed with reasonable care and skill

S51-a reasonable price is to be paid

S52-service is provided in a reasonable time

Question 33

What are the two remedial options available where a contract for services does not comply with S49, S51 & S52 CRA 2015?

Answer 33

-The right to require repeat performance

If the above is impossible/trader has failed to provide repeat performance:

-The right to a price reduction

Question 34

What are the three categories that the terms of a contract can be classified as?

Answer 34

-Conditions
-Warranties
-Innominate terms

Question 35

What is the difference between a condition and warranty?

Answer 35

Breach of condition = affirm & damages or repudiate & damages

Breach of warranty = damages only

A condition is an important term going to the root of the contract, whereas a warranty is a less important term not going to the root of the contract.

Question 36

What is an innominate term?

Answer 36

An innominate term is a contractual term that cannot be classified as a condition or warranty but is of an intermediate nature.

Question 37

If an innominate term is breached, what question does the Court consider when assessing what the remedy will be?

Answer 37

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, the term will be a condition and the innocent party can treat the contract as repudiated and claim damages.

If no, the innocent party is entitled to claim for damages only.

Question 38

What are S12-S15 SGSA 1979 classified as?

Answer 38

Conditions, breach of which gives rise to the right to reject and claim refund.

Question 39

What is S13 SGSA 1979 classified as?

Answer 39

An innominate term.