THE CONTENTS OF A CONTRACT

Question 1

WHAT ARE THE THREE DIFFERENT TYPES OF STATEMENTS PARTIES CAN MAKE WHEN NEGOTIATING A CONTRACT?

Answer 1

1. Mere puffs
2. Representations
3. Terms

Question 2

WHAT ARE ‘MERE PUFFS’?

Answer 2

Extravagant claims (i.e ‘this tastes sensational’) which traditionally have no legal effect.

Question 3

WHAT ARE ‘REPRESENTATIONS?

Answer 3

Pre-contractual statements intended to persuade the other party to enter into the contract

Question 4

WHAT ARE ‘TERMS’?

Answer 4

Statements incorporated into the contract which may be express or implied.

Express terms - clearly and distinctly discussed, stated and agreed by the parties.

Implied term - not been openly considered, but is read into the contract by the courts, by statute or by custom.

Question 5

HOW DO THE COURTS DISTINGUISH BETWEEN ‘REPRESENTATIONS’ AND ‘TERMS’?

Answer 5

The courts will consider several factors:

1. The importance attached to the statement
2. Whether the statement has been reduced to writing
3. The timing of the statement
4. Whether the parties involved in the negotiations had any special knowledge or skills

Question 6

HOW IS THE ‘IMPORTANCE OF THE STATEMENT’ RELEVANT TO DISTINGUISHING A ‘REPRESENTATION’ FROM A ‘TERM’?

Answer 6

If it can be shown that the person to whom the statement was made would not have entered the contract if the statement had not been made, then it is more likely that the statement will be considered to be a term

Question 7

HOW IS ‘PUTTING A STATEMENT IN WRITING’ RELEVANT TO DISTINGUISHING A ‘REPRESENTATION’ FROM A ‘TERM’?

Answer 7

If a statement made during contractual negotiations has not been included within any written contract, the court will usually assume that the statement was merely a representation.

However, the court may alternatively consider that this oral statement was intended to be a term of the contract – that the contract is part written and part oral

Question 8

HOW IS THE ‘TIMING OF A STATEMENT’ RELEVANT TO DISTINGUISHING A ‘REPRESENTATION’ FROM A ‘TERM’?

Answer 8

The longer the gap between the making of a statement and entering into the contract, the more likely the court is to consider that the statement was not intended to be a term of the contract

Question 9

HOW ARE ‘SPECIAL KNOWLEDGE OR SKILLS’ RELEVANT TO DISTINGUISHING A ‘REPRESENTATION’ FROM A ‘TERM’?

Answer 9

When the person making the statement has relevant specialist knowledge or skills, the courts are more likely to consider that statement to be a term of the contract

Question 10

HOW ARE EXPRESS TERMS DISCOVERED?

Answer 10

By considering what the parties said or wrote when they made the contract

Question 11

HOW DO THE COURTS DECIDE WHETHER A STATEMENT IS AN EXPRESS TERM OF CONTRACT?

Answer 11

The court will usually need to establish whether the claimant has had notice of the term.

It is convenient to consider issues of notice in two separate situations:

1. Where a written document, containing contractual terms, has been signed
2. Where one of the parties attempts to incorporate written terms into an oral contract

Question 12

WHAT IS AN EXCLUSION CLAUSE?

Answer 12

This term attempts to restrict, or, in some cases, completely remove a party’s liability in the event of breach of contract, but it can only be valid if it is a term of the contract

Question 13

WHAT IS A LIMITATION CLAUSE?

Answer 13

This term attempts to cap, or limit, the total amount for which a party might be liable in the event of a breach

Question 14

WHAT IS THE RULE IN L’ESTRANGE V F GRAUCOB LTD [1934] IN RESPECT OF SIGNED WRITTEN DOCUMENTS CONTAINING CONTRACTUAL TERMS?

Answer 14

The written details are usually deemed to be part of the contract, whether or not that have been read by the signatories; this therefore shows the importance of ‘always reading the small print’ before signing anything, as you are likely to be bound by any terms contained in that document.

Question 15

WHAT ARE THE LIMITED EXCEPTIONS TO THE RULE IN L’ESTRANGE V F GRAUCOB LTD [1934] IN RESPECT OF SIGNED WRITTEN DOCUMENTS CONTAINING CONTRACTUAL TERMS?

Answer 15

Where a signature was obtained as a result of a mistake, or by misrepresentation

Question 16

HOW CAN WRITTEN TERMS BE INCORPORATED INTO ORAL CONTRACTS?

Answer 16

1. Through notice
2. Through a consistent course of dealing
3. Through a common understanding of the parties

Question 17

HOW ARE WRITTEN TERMS INCORPORATED INTO ORAL CONTRACTS THROUGH ‘NOTICE’?

Answer 17

1. Giving the party actual notice of these terms - the term must be brought to the claimant’s attention at the time of making the contract.
2. If a notice is clearly and obviously displayed, the fact that a specific person cannot read it will not prevent the notice from being incorporated as a valid term
3. If the claimant did not actually know about the term before or at the time of making the contract, it could still be considered a term of the contract if reasonable notice can be shown to have been given

Question 18

WHAT ARE THE FACTORS THAT THE COURTS WILL CONSIDER WHEN DECIDING WHETHER REASONABLE NOTICE HAS BEEN GIVEN IN RESPECT OF WRITTEN TERMS BEING INCORPORATED INTO ORAL CONTRACTS?

Answer 18

1. The timing of the document
2. The type of document in which the clause is contained
3. The type of clause

Question 19

HOW ARE WRITTEN TERMS INCORPORATED INTO ORAL CONTRACTS THROUGH ‘CONSISTENT COURSE OF DEALING’?

Answer 19

A term may be incorporated into a contract because the parties have previously dealt with each other on those terms.

If A and B have made the same contract on the same terms serval times before, the court may find that the parties have established a sufficiently consistent course of dealing for the term(s) to be incorporated into their next agreement, even if they do not receive actual or reasonable notice of the terms on this particular occasion.

Question 20

HOW ARE WRITTEN TERMS INCORPORATED INTO ORAL CONTRACTS THROUGH ‘COMMON UNDERSTANDING’?

Answer 20

Even in situations where there is lack of notice and no consistent course of dealing can be found, written terms can still be incorporated into an oral contract where to do so, would reflect the common understanding of the parties

Question 21

WHAT ARE THE THREE WAYS IN WHICH TERMS ARE IMPLIED?

Answer 21

1. By statute
2. By custom
3. By the courts

Question 22

WHAT ARE THE PIECES OF LEGISLATION RELEVANT TO IMPLIED TERMS AND HELPING PROTECT CONSUMERS FROM BEING TAKEN ADVANTAGE OF?

Answer 22

Consumer Rights Act 2015 (CRA 2015)

Sale of Goods Act 1979 (SGA 1979)

Supply of Goods and Services Act 1982 (SGSA 1982)

Question 23

WHAT PIECE OF LEGISLATION GOVERNS BUSINESS-TO-CONSUMER CONTRACTS?

Answer 23

CRA 2015 applies to all contracts made on or after 01 October 2015 between a trader and a consumer and governs business-consumer contracts

Question 24

WHAT IS A ‘TRADER’ IN RESPECT OF BUSINESS-TO-CONSUMER CONTRACTS?

Answer 24

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 trader’s name or on the traders behalf (s2(2) CRA 2015)

Question 25

WHAT IS A ‘CONSUMER’ IN RESPECT OF BUSINESS-TO-CONSUMER CONTRACTS?

Answer 25

An individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession (s2(3) CRA 2015)

Question 26

WHAT PIECE OF LEGISLATION GOVERNS GOODS CONTRACTS?

Answer 26

Chapter 2 CRA 2015 covers goods contracts, with ‘goods’ identified as any tangible moveable items (s2(8) CRA 2015)

Question 27

WHAT ARE THE THREE TERMS IMPLIED INTO BUSINESS-TO-CONSUMER GOODS CONTRACTS BY CRA 2015?

Answer 27

• Of satisfactory quality
• Fit for their particular purpose
• As described

Question 28

WHAT DOES S9 CRA 2015 STATE IN RESPECT OF ‘SATISFACTORY QUALITY’ IN TERMS OF BUSINESS-TO-CONSUMER GOODS CONTRACTS?

Answer 28

Every contract to supply goods will include a term that the goods sold are of a satisfactory quality

This means that the goods must meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price or other consideration for the goods (if relevant) and all other relevant circumstances (s9(2) CRA 2015).

Question 29

WHAT DOES S9(3) CRA 2015 STATE IN RESPECT OF ‘SATISFACTORY QUALITY’ IN TERMS OF BUSINESS-TO-CONSUMER GOODS CONTRACTS?

Answer 29

The quality of goods included their state of condition; and the following aspects (among others) are appropriate on cases aspects of the quality of goods:

a) Fitness for all purposes for which goods of that kind are commonly supplied
b) Appearance and finish
c) Freedom from minor defects
d) Safety
e) Durability

Question 30

WHAT DOES S9(4) CRA 2015 STATE IN RESPECT OF ‘SATISFACTORY QUALITY’ IN TERMS OF BUSINESS-TO-CONSUMER GOODS CONTRACTS?

Answer 30

The promise as to satisfactory quality does not, however, apply to defects that were specifically brought to the buyer’s attention before the goods were bought nor, when the buyer examines the goods or a sample of the goods before making the contract, to fault which should have been revealed by that examination

Question 31

WHAT DOES S10 CRA 2015 STATE IN RESPECT OF ‘FITNESS FOR PURPOSE’ IN TERMS OF BUSINESS-TO-CONSUMER GOODS CONTRACTS?

Answer 31

There is an implied term that, where the consumer makes known to the trader of any particular purpose for which the goods are required, the goods will be fit for that purpose, whether or not it is a purpose for which goods of that kind are commonly supplied.

This term only applies if the consumer relies on the trader’s skill and judgement. A consumer who makes their own choice of product and finds it unfit for their purpose, will not have a case under this section.

Question 32

WHAT DOES S11 CRA 2015 STATE IN RESPECT OF ‘DESCRIPTION’ IN TERMS OF BUSINESS-TO-CONSUMER GOODS CONTRACTS?

Answer 32

When goods are sold by description, there is an implied term that will match the description

Question 33

WHAT DOES S11(2) CRA 2015 STATE IN RESPECT OF ‘DESCRIPTION’ IN TERMS OF BUSINESS-TO-CONSUMER GOODS CONTRACTS?

Answer 33

Where goods are supplied by sample and description, the goods eventually supplied must match both in terms of its quality

Question 34

WHAT DOES S11(3) CRA 2015 STATE IN RESPECT OF ‘DESCRIPTION’ IN TERMS OF BUSINESS-TO-CONSUMER GOODS CONTRACTS?

Answer 34

Supply of goods is not prevented from being a supply by description just because the goods are exposed for supply and selected by the buyers.

This means that s11 CRA 2015 does not just offer protection in relation to goods that we buy without physically seeing them first, but the law here also covers goods that we can physically inspect, but where we still rely on the seller’s description

Question 35

WHEN DOES S11 CRA 2015 APPLY IN RESPECT OF ‘DESCRIPTION’ IN TERMS OF BUSINESS-TO-CONSUMER GOODS CONTRACTS?

Answer 35

The consumer must also rely on the trader’s description, which means that where – for example – the consumer is more knowledgeable about the subject matter than the trader, or where the consumer simply dismisses the description as inaccurate, there will be no breach of s11 CRA 2015

Question 36

WHAT ARE THE FOUR TERMS IMPLIED INTO BUSINESS-TO-CONSUMER SERVICES CONTRACTS BY CRA 2015?

Answer 36

1. S49 - that the trader will perform the service with reasonable care and skill
2. S50 - anything said or written to the consumer, by or on behalf of the trader, will be implied as a term of the contract if the information was considered by the consumer when:a. Deciding whether to enter into the contract
   b. Making any decision about the service after
   having entered into the contract
3. S51- that the consumer must pay a reasonable price for the service, and no more. This term only applies where the consumer has not already agreed a price, or some other consideration
4. S52 - the trader must perform the service within a reasonable time. This provision only applies where the time for performance has not been expressly fixed within the contract

Question 37

WHICH CONTRACTS UNDER WHICH A TRADER SUPPLIES DIGITAL CONTENT TO A CONSUMER ARE COVERED BY CRA 2015?

Answer 37

• For a price (s33(1) CRA 2015)
• Free with goods, services or other digital content which has been paid for, and which would not otherwise be generally available to consumers (s33(2) CRA 2015)

Question 38

WHAT LEGISLATION GOVERNS BUSINESS-TO-BUSINESS CONTRACTS?

Answer 38

The ‘old’ law:

Sales of Goods Act 1979 (SGA 1979)
Supply of Goods and Services Act 1982 (SGSA 1982)

Question 39

IN RESPECT OF BUSINESS-TO-BUSINESS CONTRACTS, WHEN DOES THE SALES OF GOODS ACT 1979 APPLY?

Answer 39

Only applies to a contract for the sale of goods.

This is defined under s2(1) SGA 1979 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 40

IN RESPECT OF BUSINESS-TO-BUSINESS CONTRACTS, WHAT IMPLIED TERMS ARE RELEVANT UNDER THE SALES OF GOODS ACT 1979?

Answer 40

1. Satisfactory quality - S14(2) SGA 1979
2. Fitness for purpose - S14(3) SGA 1979
3. Description - S13 SGA 1979

Question 41

IN RESPECT OF BUSINESS-TO-BUSINESS CONTRACTS, WHEN DOES THE SUPPLY OF GOODS AND SERVICES ACT 1982 APPLY?

Answer 41

SGSA 1982 covers a range of contractual situations, including contracts for the transfer of property in goods

A contract for the transfer of property in goods is defined in s1 SGSA 1982as a contract under which one person transfers or agrees to transfer to another property in goods, other than an excepted contract, and an excepted contract includes a sale of goods contract.

Question 42

IN RESPECT OF BUSINESS-TO-BUSINESS CONTRACTS, WHAT IMPLIED TERMS ARE RELEVANT UNDER THE SUPPLY OF GOODS AND SERVICES ACT 1982 IN RESPECT OF CONTRACTS FOR THE TRANSFER OF PROPERTY IN GOODS?

Answer 42

1. Satisfactory quality - S4 SGSA 1982
2. Fitness for purpose - no corresponding term in
   SGSA 1982
3. Description - S3 SGSA 1982

Question 43

IN RESPECT OF BUSINESS-TO-BUSINESS CONTRACTS, WHAT IMPLIED TERMS ARE RELEVANT UNDER THE SUPPLY OF GOODS AND SERVICES ACT 1982 IN RESPECT OF CONTRACTS FOR THE SUPPLY OF SERVICES?

Answer 43

1. Satisfactory quality - S13 SGSA 1982
2. Fitness for purpose - S15 SGSA 1982
3. Description - S14 SGSA 1982

Question 44

HOW CAN TERMS BE IMPLIED BY ‘CUSTOM’?

Answer 44

Terms can also be implied into a contract as a result of local or trade usage, commonly known as custom

Question 45

WHAT CRITERIA IS EXAMINED WHEN CONSIDERING WHETHER TERMS ARE TO BE IMPLIED BY ‘CUSTOM’?

Answer 45

• Whether the term has been in use for a sufficient length of time
• Whether it is reasonable to imply such a term
• Whether the term is inconsistent with an express term
• That such a term is used in practice
• That the implication of such a term is acceptable to the court

Terms implied by custom are unusual today.

Question 46

HOW CAN TERMS BE IMPLIED BY THE COURTS?

Answer 46

Under the common law, the courts may read terms into a contract in two ways:

1. They may read terms into a contract because case law, often as a matter of policy, has established that these terms always appear in these types of contract. These are sometimes referred to as terms implied by law
2. They may read terms into a contract by reference to the intentions of the parties. These are sometimes called implied on the particular facts

Question 47

WHAT ARE THE TWO TESTS RELEVANT TO TERMS BEING IMPLIED BY THE COURTS?

Answer 47

A term should only be implied on the particular facts if it satisfied either the business efficacy test or the officious bystander rule

Question 48

WHAT IS THE ‘BUSINESS EFFICACY TEST’?

Answer 48

The business efficacy test requires that a term is needed to give the contract business efficacy; that is, the contract would be unworkable without it.

The strict nature of this test was explained in Liverpool City Council v Irwin [1976]

Question 49

WHAT IS THE OFFICIOUS BYSTANDER RULE?

Answer 49

This comes from Shirlaw v Southern Foundries Ltd [1939] where it was states:

‘if, while the parties making their bargain an officious bystander were to suggest some express provision for it in the agreement, they would testily suppress him with a common ‘Oh of course!’’

Question 50

WHAT NEEDS TO BE CONSIDERED WHEN CONSIDERING THE IMPORTANCE OF A CONTRACTUAL TERM?

Answer 50

Conditions and warranties need to be differentiated

Question 51

WHAT IS A CONDITION?

Answer 51

The more important contract terms are called conditions.

A condition is a term that goes to the very root of the contract, and it is of central importance.

Breach of a condition will allow the innocent party to treat the contract as at its end. The innocent party can also, or alternatively, sue for damages.

Question 52

WHAT IS A WARRANTY?

Answer 52

A warranty is a term of the contract which is less important. If a warranty is broken, the injured party must carry on with the contract but they can sue for damages.

Question 53

WHEN WILL A COURT BE BOUND BY PARTIES’ EXPRESS INTENTION?

Answer 53

When they have stated expressly in the contract which terms they consider to be of fundamental importance

Question 54

WHAT ARE INTERMEDIATE OR INNOMINATE TERMS?

Answer 54

Terms which do not clearly fit into one category

Question 55

HOW WILL THE COURT DECIDE THE STATUS OF INTERMEDIATE OR INNOMINATE TERMS?

Answer 55

The court will consider whether the breach of the term which has occurred ‘goes to the root of the contract’.

For innominate terms, the courts adopt a ‘wait and see’ approach and determine the effect of the breach after the term has been broken by looking at the severity of the consequences of the breach

The modern position is that, unless the parties expressly categorise terms themselves or the intention of the parties is made clear in some other way, the starting point will be that a term will be classified as innominate (Spar Shipping AS v Grand China Logistics [2015])