Terms of a contract Flashcards
What are terms?
Terms - the binding content of the contract that state the parties rights and obligations
- Terms of a contract must be certain
- The terms of a contract must be sufficiently certain; they must not be too vague or incomplete.
- However, it may be possible to infer details that make otherwise incomplete or vague terms definite enough to be enforceable.
- Types of Contractual Terms
Why is the distinction between conditions and warranties important?
a) Conditions: A term which is clearly an important one, in the sense that a breach of it would have very significant consequences for the innocent party, will usually be regarded by the courts as a condition.
b) Warranties: The word warranty usually describes a contractual term which can be broken without highly important consequences.
Why is the distinction between conditions and warranties important?
Because of the impact that a breach of these terms has on a contract;
- Where a condition is breached, the innocent party is entitled to regard the contract as repudiated, and so need not render any further performance, and
can also sue for damages; - Where a warranty is breached the innocent party can claim damages for loss suffered but must continue with the performance of the contract.
c) Innominate terms
Also known as ‘intermediate terms’, these are terms which can be broken with either important or trivial consequences, depending on the nature of the breach. If the effects of the breach are serious, the term will act as a condition; if they are minor it acts as a warranty.
- Term v. Representation
What are Terms and rep
What is a mere sales puff?
What 4 factors distinguish terms and representations?
Why is the distinction between terms and representations important?
Statements made prior to the contract may be either:
a) Terms: This is statement that forms part of a contract;
b) Representations: This is a pre-contractual statement;
c) Mere sales ‘puffs’: not meant to be taken seriously. Traders’ hype. (E.g. “this computer package is incredible value” or “a washing powder that washes whiter
than white”).
Distinguishing between a term and a representation
Factors include:
1) The importance of the statement to the parties
2) The knowledge and skill of the party making the statement
3) Timing of the statement
4) Agreements in writing
Why is the distinction between terms and representations important?
Because of the different remedies available:
Representations:
- these are pre-contractual statements that, if found to be untrue, may give rise to a remedy for MISREPRESENTATION but not for breach of contract
Statements that become part of a contract:
- are treated as terms, which if breached, will give rise to a claim for damages for breach of contract
BUT distinction less important since Misrepresentation Act 1967.
- How terms are incorporated into a contract
a) Express terms: terms contained within the offer, which become part of the contract once accepted.
b) Implied terms
- Implied by statute: e.g. Sale of Goods Act 1979 & Consumer Rights Act 2015
- Terms implied by custom: Terms can be implied into a contract if there is evidence that under local trade custom they would normally be there
- Terms implied by the Courts (implied in fact)
A term can be implied into a contract to make the contract work – to give it business efficacy
A term will only be implied into a contract by the courts where it is strictly necessary to make a contract workable. A term will not be implied into a contract to make the contract fairer.
- Terms implied by the Courts (implied in law)
The courts may imply a term into a contract as a matter of law.
- Exemption Clauses
These are clauses in a contract that attempt to exclude or limit one of the party’s liabilities to the other party;
- Exclusion clause: When the exemption clause attempts to exclude all legal liability;
- Limitation clause: When the exemption clause attempts to limit legal liability.
Validity of Exemption Clauses
Three stage test
1. Is the exemption clause incorporated into the contract?
2. Is the exemption clause clear and unambiguous?
3. Is the exemption clause in compliance with statutory law (the
Unfair Contract Terms Act 1977 or the Consumer Rights Act 2015)?
1. Incorporation of Exemption Clauses
- Party signing a document will be bound by its contents;
- Form of Notice: For unsigned documents, must show that a reasonable person would think it to be part of the contract
- Notice of the exemption clause must be given before or at the time the contract was made
- Attempts to incorporate the exclusion clause later will be ineffective
- Incorporation by previous course of dealings
2. The Exception Clause must be clear and unambiguous
The contract contained a clause excluding all conditions, warranties and liabilities implied by statute, common law or otherwise’
Courts will take strict approach to interpretation and if in doubt, interpret against the party seeking to rely on it: (contra proferentem rule).
3. Statutory control of Exemption clauses (1)
Business-to-business exemption clauses covered by Unfair Contract Terms Act 1977 (UCTA)
Exemption clauses covered by UCTA are either rendered void or made subject to a test of reasonableness;
- S.2(1): cannot exclude liability for death or personal injury through negligence;
- S.2(2): can only exclude liability for other types of loss or damage from negligence where reasonable (the test of ‘reasonableness’).
Reasonableness test under UCTA
- In order for a term to be regarded as reasonable, the term must be fair and reasonable taking into account the circumstances that were known, or ought reasonably to have been known or in the contemplation of the parties when the contract was made
- Section 11(2) refers to Schedule 2 to UCTA which lays down a number of factors that the court may consider when deciding whether a term is reasonable
3. Statutory control of exclusion clauses (2)
Exemption clauses in consumer contracts covered by Consumer Rights Act 2015 (CRA);
S.2(3): consumer means an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession.
- S.65: a trader cannot restrict liability for death or personal injury resulting from negligence by a term in a consumer contract or consumer notice;
- Other exclusion/limitation clauses fall under CRA s.62 on unfair terms more generally.
Unfair contractual terms and notices
Some terms are automatically unenforceable;
As well as s.65 CRA 2015 dealing with exclusion of liability for death or personal injury through negligence, also includes:
- S.31 CRA 2015: trader cannot exclude or restrict consumer rights or remedies in contracts to supply goods to a consumer.
Other contractual terms in consumer contracts subject to a test of fairness and good faith
- S.62(4): a term is unfair if, contrary to the requirements of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.
- Under s.62(5), fairness is to be determined:
(a) Taking into account the nature of the subject matter; and
(b) By reference to all the circumstances existing when the term was agreed and to all the other terms of the contract or of any other contract on which it depends.
- Terms implied into sale of goods contracts by SOGA
and CRA
What does CRA only apply to?
Terms included in Consumer Contracts (CRA) (5)
Terms included in Non-consumer Contracts (SOGA)
CRA only applies to consumer contracts between a trader and a consumer;
Other contracts covered by Sale of Goods Act 1979
Terms included in Consumer Contracts (CRA)
- S17- right to supply the goods
- S11 - in contracts to supply goods by description, goods will match the description
- S9 – the quality of goods supplied is satisfactory
- S10- the goods supplied are reasonably fit for purpose;
- S13- the goods supplied by sample will match the sample
Terms included in Non-consumer Contracts (SOGA)
- S12 - right to sell the goods
- S13 - goods sold by description shall correspond with the description
- S14(2) - goods must be of satisfactory quality
- S14(3) – goods must bereasonably fit for their purpose
- S15 - goods sold by sample must correspond with the sample
