contract lecture 4 - terms of a contract.pdf

8/14/2019 Contract Lecture 4 - Terms of a contract.pdf

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Legal effect of these statements

Mere puffs NO legal effect. Representations if untrue then the injured party will be able to rescind contract and

possibly claim damages. But NOT if misrepresentation was innocent.

Terms person breaking it will be in breach of contract. It depends on what kind of term it isas to what the injured party will receive.

TERMS

a) A condition a term which is vital or fundamental to the performance of the contract. Failure to perform a condition renders contract meaningless. A breach of a condition allows injured party to repudiate contract & claim damages.

SEE: Poussard v Spiers and Pond (1876) 1 QBD 410

b) A warranty terms which are less vital; minor terms. Failure to perform a warranty does not affect contract fundamentally. Breach of a warranty is not repudiatory: innocent party must carry on with contract but may

claim damages for loss resulting from the other partys breach.

SEE: Bettini v Gye (1876) 1 QBD 183

c) Innominate terms intermediate terms. These terms are broadly worded to cover a varietyof possible breaches.

Court has to decide whether the term will be treated as a condition or warranty. Remedy not prescribed in advance simply by whether the term breached is a condition or

warranty, but depends on circumstances of the breach.

SEE: Hong Kong Fir Shipping Co. v. Kawasaki Kisen Kaisha (1962) Court of Appeal; and Cehave NV v.

Bremer Handelgesellschaft (The Hansa Nord) (1975)

All three of the above terms can be found in a contract. However, its important to distinguish

between two ways in which these terms might be found in a contract. The terms might be

expressed, or they might be implied.

PART 2: OVERVIEW CONTENTS OF A CONTRACT

Terms can be express or implied

Express terms: specifically communicated by the offeror; spelt out/expressed by the parties.


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Implied terms: terms which are read into the contract & automatically part of contract without needfor parties to mention them. Terms may be implied by:

i. STATUTEii. CUSTOM

iii. COURTS

i. Terms implied by statute

The Sales of Goods Act 1979 (as amended by the Sale & Supply of Goods Act 1994)

s13: where goods are sold by description there is an implied condition that the goodscorrespond with that description;

s14(2): where the seller sells in the course of a business the goods must be of satisfactoryquality, unless the defect is drawn to the attention of the buyer or any examination the

buyer made should have revealed it; s14(3): where the seller sells in the course of business & the buyer makes known a purposefor which she wants the goods, there is an implied condition that the goods are reasonablyfit for such a purpose.

ii. Terms implied by custom

In many trades it is customary for certain practices to prevail in performance of a contract. N.B. custom cannot override express terms of a contract.

iii. Terms implied by the courts

On occasions the courts will presume the parties intended to include a term not expresslystated.

The courts will imply such a term to give business efficacy to the contract.

SEE: The Moorcock (1889) 14 PD 64 and [1886-90] All ER rep 530

Bowen LJ: I think if they let out their jetty for use they imply that they have taken reasonable care

to see whether the berth, which is the essential part of the use of the jetty, is safe, and if it is not

safe, and if they have not taken such reasonable care, it is their duty to warn persons with whom

they have dealings that they have not done so.

Parol Evidence Rule

If all the terms of a contract are in writing, then there is a strong presumption that noevidence supporting a different oral agreement will be permitted to vary those terms.

SEE: Jacobs v. Batavia and General Plantations Trust Ltd [1924] 2 Ch. 329


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But the parol evidence rule is only a presumption and can be REBUTTED. Oral evidence canbe introduced if it is shown that the document was not intended to set out all the terms

agreed on by the parties.

PART 3: OVERVIEW LIMITATION AND EXCLUSION CLAUSES

When we look at the content of most, if not all, contracts, we tend to find some terms that are

known as limitation clauses . These are terms that lim it liability in the case that the party does not

or cannot fulfil its side of the bargain. So, for example, if you book a train ticket the train company

might limit its liability for delays, and say that it will only pay a fixed rate of compensation.

Alternatively to limitation clauses, we have exclusion clauses. These are clauses that seek to exclude

liability altogether. An obvious example is the phrase found in cloakrooms in clubs or bars or

restaurants: the owners of this establishment do not accept l iability for any damage or loss to items

left here.

Before looking at the content of limitation clauses, though, we need to be clear about when

limitation clauses and exclusion clauses can be invoked. They have to satisfy certain criteria before

they can be effective. Exclusion clause must meet 3 criteria:

a) must be incorporated in the contract;b) must be clear and unambiguous;c) Statutory control of exemption clauses.

a) Exclusion clause (E.C.)must be incorporated into the contract E.C. must be properly put into contract before or at time of contract.

i. Incorporation by signature: a person is bound by what they sign, whether or not they haveread the document or understood it.

ii. Incorporation by notice (e.g. sign or poster): Document bearing E.C. must be integral part of contract; Notice must effectively be brought to attention of other party; Other party must be given sufficient notice of E.C before contract is made so can decide if

still want to make a deal.

SEE: Olley v Malborough Court Hotel [1949] 1 KB 532.

Sufficiency of notice is a matter of fact BUT the more onerous the exclusion, the greater the degree

of notice required. SEE: Interfoto Picture Library v Stiletto Programmes Ltd [1988] QB 433


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iii. Incorporation by custom: where parties have had previous dealings using E.C., that clausemay be used in later contracts. But it has to be shown that other party knew of previous E.C.

b) E.C. must be clear & unambiguous

Words of exclusion must be clear & explicit. Courts will give words their ordinary & usual meaning strictly interpreted. Contra proferentum rule: if there is any ambiguity as to meaning of exclusion clause, courts

will construe it in a way unfavourable to the person who put it in the contract. Clause is construed contra (against) proferentum (the party who offered it).

SEE: Andrew Bros. (Bournemouth) Ltd. v Singer & Co. [1933] All ER 479

Repugnancy OR Main Purpose rule: if E.C. is in direct contradiction to the main purpose of thecontract it will have NO effect because it undermines the very core of the contract and will be struckout.

BUT despite these limitations, it doesnt mean that an E.C. that is onerous or repugnant may neverbe used. In such circumstances even clauses that try & exclude liability for a fundamental breach ofcontract may NOT be invalid. SEE : Photo Production Ltd v Securicor Transport Ltd [1980] AC 827

c) Statutory control of E.C.

Unfair Contract Terms Act 1977 : (really targets unfair exclusion clauses rather than generalunfair contract terms)

Negligence: cant make clauses to exclude liability for death or injury resulting fromnegligence (ss2 & 5)

E.C. relating to other damage caused by negligence will only be enforced if satisfy a

reasonableness test.

Contract: statute applies to consumer & non-consumer transactions BUT only applies to businessactivity.

Business activity broadly defined in s14. E.C. which seeks to avoid liability for breach of contract only valid if meets reasonableness

test. Implied terms in contracts for sale or hire of goods CANNOT be excluded in a consumer

contract [s6(2)] and in a non-consumer contract, any restriction on these implied terms mustmeet reasonableness test [s6(3)]

Reasonableness: fair & reasonable having regard to the circumstances s11 & schedule 2.


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The Unfair Terms in Consumer Contracts Regulations 1999.

Only applies to consumer contracts not to business contracts.

Aim: to control inclusion of unfair terms into contracts where terms havent been individuallynegotiated.

Unfair term: If, contrary to the requirement of good faith, it causes a significant imbalancein the parties rights and obligations arising under the contract, to the detriment of theconsumer. Regulation 5 (1)

Unfair term not necessarily destroy contract: unfair term not be binding on consumer butcontract will still bind parties if it is capable of continuing without the unfair term. Reg. 8.

Next Lecture:

Contract Lecture (5): Week 10 (wk/b 28 st November 2011): Vitiating Factors

Either: Tuesday (10-12: AW WG 5) or Friday (4-6: Howarth 101).

contract lecture 4 - terms of a contract.pdf

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