Terms of a Contract

Express terms

terms that have been explicitly agreed upon, including: Verbal statements made between parties, Written terms or, included in a notice available before the contract

Verbal statements

Not every statement will be a term, only those sufficiently important will be incorporated:

• The importance of the statement

• Special knowledge or skill of the person making the statement

• The time between statement and contract

Importance of the statement

the more importance attached to the statement by either party, the more likely it is to be a term of the contract

Bannerman v White

A buyer of Hops asked whether they’d been treated with sulphur. He was told know when they in fact where. This was a term of the contract that the hops hadn’t been treated, as the importance was made clear

Special knowledge or skill

Where the statement is made by someone with special knowledge or skill, this is more likely to be seen as a term than a statement made by an amateur with no expertise

Dick Bentley v Harold Smith Motors

Buyers said they were looking for a well “vetted” Bentley car. The dealer stated it had only done 20k miles when it had done 100k. the statement as to mileage was considered a term of the contract

Oscar chess v Williams

A private seller wanted to trade in his car. represented his car as a 1948 model when it was a 1939. The statement of the cars age was not a term as the garage were more likely to know the truth

Time between statement and contract

Sometimes the court may assess that the time lapse is too great to support a claim that the statement is incorporated in the contract as a term

Routledge v McKay

A motorcycle was stated to be a different year model than it was. the contract drafted a week later didn’t mention the bikes age and was therefore not considered a term due to the lapse

Written or Signed documents

Presumed that a written document contains all the terms of the contract (parole evidence rule). This can only be displaced if it is clear outside evidence was meant to form part of the contract (Couchman v Hill)

L’estrange v Graucob

If a party signs a written document containing contractual terms, then he or she will be bound by those terms - even if they have not read them

Grogan v Robin Meredith Plant Hire

An agreement to hire a machine was made over phone. 2 weeks later the hirer was made to signa timesheet which referred to the standard terms of the company who owned the machine. This was not a contractual document so no new terms could be incorporated through it

Incorporation by notice

a written term will be part of the contract if the document is contractual and the other party has been given reasonable notice of the term’s existence before or at the time of contracting

Parker v South East Railway

P paid to leave a bag at a train station left-luggage, on the ticket were the words “see back”; on the back was a clause limiting liability to £10. the court held that a party could be deemed to have reasonable notice if they knew of the clause, or if reasonable steps were taken .

Thompson v LMS Railway

An illiterate person was held to have notice of a clause on a ticket regardless of the fact she could not read or understand it. the Railway had done all that was necessary

Thornton v Shoe land Parking

T entered a car park with a ticket that said it was “issued subject to conditions displayed on the premise” and a notice inside the car park excluded liability. The court held the notice wasn’t a term as it was communicated after T got a ticket.

The more unusual or unfair the clause, the more notice needed

Interfoto Picture Library v Stiletto

Interfoto presented weird conditions for delivery, that the court decided required more attention to be brought to them as they were particularly unusual

Implied terms

these are terms added into the contract by law. the parties might not even be aware of these terms being added. may be implied by stature or courts

Terms implied by statute

Parliament has deemed it necessary to imply certain terms into all contracts for the sale and supply of goods and services to ensure a level playing field for businesses and consumers. most crucially this includes the consumer rights act 2015

S.9 CRA - Goods to be of satisfactory quality

1. every contract to supply goods is treated as including a term that the quality of the goods is satisfactory

2. Goods should meet the standard that a reasonable person would find satisfactory

3. quality of goods include state and conditions as well as:

   (a)fitness for all usual purposes (b)appearance and finish

   (c)freedom from minor defects

   (d)safety

   (e)durability

4. where defects have been drawn to attention, there will be no claim on the basis of S.9

S.10 CRA - goods to be fit for a particular purpose

if a consumer makes known to the trader any particular purpose for which they’re buying the goods then the contracted includes a term that the goods are fit for tat purpose. but if the consumer didn’t rely on the skill of the trader then s.10 does not apply

S.11 CRA - goods to be as described

Every contract to supply goods by description is to be treated as including a term that the goods will match the description given. This includes samples (s.13) and models (s.14)

Consumer remedies

• S.20 short term right to reject within 30 days, refund must be given in 14 days

• S.23 right to repair or replacement, within a reasonable time and without costs

• S.24 right to price reduction or final right to reject, only available if an attempt at repair or replacement has been unsuccessful. Final right is within 6 months

• S.31 prevents a trader from excluding or restricting rights and remedies

Digital content

Digital content has similar terms to all sale or supply contract:

• of satisfactory quality (s.34)

• fit for a particular purpose (s.35)

• as described (s.36)

• Right to repair or replacement (s.43)

• right to price reduction (s.44)

• right to refund (s.45)

Contracts for supply of services

• CRA requires services must be performed with reasonable care and skill (s.49)

• the consumer must pay a reasonable price for the service (s.51)

• if the contract does not expressly fix the time for the service, the service must be provided in a reasonable time (s.52)

• S.57 prevents a trader restricting rights or remedies

Terms implied by the courts

there are strict tests for when a court will imply terms into a contract on a “one-off” basis. the courts are cautious about implying terms, to reflect the principle of freedom of contract

Marks and Spencer v BNP paribas

M&S rented some commercial premises from BNP Paribas. M&S gave notice that they wished to terminate the lease and requested repayment of advance rent. the supreme court decided M&S was not entitled to a repayment of rent

Business efficacy test

in general the court tries to uphold a contract rather than destroy it for lack of formalities like missing a term. the court will imply a term into the contract to “make it work”. a term will only be implied if the contract would lack coherence if not

The Moorcock

Ds owned a wharf. they agreed to dock a ship and unload cargo. both parties were aware that the ship would settle on the riverbed. the ship was damaged, and Ds argued there was no term guaranteeing the riverbed condition. the court disagreed and implied that term, else the contract would make no sense

Officious bystander test

this test was set out in (Shirlaw v Southern foundries). if whilst parties made their agreement, an officious bystander were to suggest some express terms, both parties would say “yes, of course”. i.e. where it was so obvious to both parties it goes without saying

Shell v Lostock Garage

Shell had a contract to supply petrol to Lostock who in return agreed to buy only from shell. Later Shell supplied to other garages in a price war. Lostock argued there was a term that shell wouldn’t abnormally discriminate against Lostock, this failed as shell would never have agreed

Terms implied by course of dealings

Where the parties have dealt with one another before on standard terms and conditions, a court may be prepared to imply terms where it is clear that both sides would have had those terms in mind.

British crane hire v Ipswich plant hire

Both parties ran plant hire businesses, and had dealt with each other before, where a printed form was used. a crane was needed by Ipswich, and a printed form was provided. the crane got stuck in mud beforehand. Court decided the conditions on the form were part of the contract. Previous dealings included this term and both parties knew.

Term Classification - Conditions

Conditions are vitally important terms that are central to the contract. A condition is said to go to the root of the contract and if breach would destroy the purpose of the contract

Poussard v Spiers

An opera singer failed to turn up for the first 6 nights of a production she was contract for. The courts decided that this was a condition of the contract and the theatre had the right to end the contract and claim damages

Term classification - Warranties

Warranties are less important terms of a contract. Only damages can be claimed for breach of a warranty - the contract is not ended.

Bettini v Gye

An opera singer agreed to attend six rehearsal days and to appear in a production. Missing 2 rehearsals was only considered breach of a warranty as the main purpose of the contract (the production) could continue

Innominate terms

these developed out of a desire that the right to repudiate should only be available in the event of a breach when it is fair to both sides. Innominate terms either have important or trivial consequences depending on the nature of the breach.

Hong Kong Fir Shipping v Kawasaki Kisen Kaisha

D chartered a ship from C for 2 years, with a term that provided the ship to be seaworthy. the poor condition of the ship meant 20 weeks of the charter were lost. D terminated the contract and C claimed it was only a warranty

If a term isn’t clearly a condition then it’s innominate. A breach o an innominate term is repudiatory if the innocent party is deprived of the whole benefit, which D wasn’t in this case.

Lombard v Butterworth

A contract stated it was “of the essence” that hirers of computer equipment should pay hire fees on time. The court decided that parties were free to classify this as a condition even if it wouldn’t otherwise.

Schuler v Wickman

The parties made a contract in which a promise to visit certain motor manufacturers was described as a “condition”. The court decided the parties own classification of a term was not conclusive.

Exclusion Clauses

Exclusion clauses are terms in a contract that attempt to exclude or restrict liability for a breach of contract. A party wishing to rely on the exclusion clause must prove 3 things:

1. The clause must be incorporated as a term

2. The wording must cover the alleged breach

3. The exclusion clause must be allowed under statute law

Is the clause a term of the contract

exclusion clauses must be incorporated the same as any other term:

• by signing a written contractual document (L’estrange v Graucob)

• By giving reasonable notice of the existence of the term (Thornton / Interfoto)

• Implied by a previous course of dealings (British crane hire)

Olley v Marlborough Court

O booked a hotel room. when some belongings were stolen the hotel tried to rely on a notice excluding liability that was on the back of her room door. This was considered incorporated as O could not have known about it at the time of the contract making

Curtis v Chemical Cleaning and Dyeing Co

Mrs C took a dress to be cleaned and signed a document exempting the cleaners from liability for any damage “however so arising”. Mrs c was told this only referred to beads or sequins attached to the dress. when the dress received a stain, Mrs C could claim due to the verbal reassurances

Does the wording cover the breach

Once it is established than an exclusion clause has been incorporated into a contract, it needs to be checked whether the clause covers the breach that has occurred. If the breach is fundamental, then very clear words will be required typically.

Photo Production Ltd v Securicor

In a contract to provide security services for a factory, a clause in the contract said that Securicor would “under no circumstance be responsible for any injurious act by any employee, unless such act could have been foreseen and avoided”. the court held that “on its natural and ordinary meaning” it did cover the damage when a guard burnt down the factory

Contra Proferentem rule

if there is any doubt about the meaning or scope of an exclusion clause, the ambiguity should be resolved “against” the party seeking to rely on it. It is the other party who is given the benefit of the doubt.

Andrew Bros (Bournemouth) v Singer

A garage made contract with a car manufacturer to buy its new cars. the contract contained a clause excluding “all conditions, warranties and liabilities implied by common law and statute”. the court held that the exclusion clause would not protect the manufacturer as it excluded implied terms, while the requirement of “new” cars was an express term.

Shell v P&O Roadtanks

a clause stating that it covered all claims and demands whatsoever, was not clear and unambiguous enough to cover d’s liability to negligence

Is the clause allowed under statute

There are two acts of parliament which may prevent a party from relying on an exclusion clause:

• Consumer rights act 2015- applies to contracts between a trader and consumer

• Unfair contract terms act 1977- applies to contracts between businesses only

Protection under the CRA 2015

• s.62 CRA - (1)an unfair term on a consumer is not binding on the consumer (2) an unfair consumer notice is not binding (4) a term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties rights

• s.67 CRA - the effect of an unfair term is that the contract continues without the term

• s.68 CRA - a trader must ensure a written term of a consumer contract is transparent

• s.69 CRA - if there is any doubt about the meaning of a written term, the interpretation most favourable to the consumer wins

Part 1 of Schedule 2 of CRA 2015

contains a “grey list” of terms. this is a non-exhaustive list of terms that may be unfair

Bars on exclusion clauses in consumer contracts

• s.31 CRA - a trader cannot exclude or restrict liability for any of the statutory rights or remedies relating to the sale of goods

• s.57 CRA - implied terms relating to the provision of services cannot be excluded

• s.65 CRA - a trader cannot by a term of a consumer contract or by a consumer notice exclude or restrict liability for death or personal injury arising from negligence.

s.2 UCTA 1977 (negligence liability)

1. A business cannot exclude or restrict liability for death or personal injury caused by their negligence.

2. In the case of other loss or damage, a business cannot exclude or restrict liability for negligence except in so far as it is reasonable to do so.

s.3 UCTA 1977

A business cannot, by reference to the exclusion clause, exclude liability for breach of contract unless it is reasonable. Note: this only applies where one party is subject to the other’s standard written terms of business

s.6 UCTA 1977

• (1) A term cannot protect sellers of goods if they do not have ownership (title) of them

• (1)(A) The implied terms in the sale of goods act 1979 as to conformity with description, satisfactory quality, fitness for purpose etc (SGA) cannot be excluded or limited UNLESS shown to be reasonable

Test of “reasonableness”

Whether an exclusion clause if fair and reasonable is decided in the light of what was known to parties at the time the contract was made: s.11

George Mitchell v Finney Lock Seeds

C was a farmer who bought “winter cabbage seed” from D at a cost of £200. it turned out to be spring cabbage seed. The contract limited liability to replacement of the goods or a refund.

This was found not reasonable because:

• the breach arose from the seller’s negligence

• The seller could have more easily ensured

• The unequal bargaining power favoured the seller

Watford Electronics v Sanderson

C bought software from D. the system failed to perform. in D’s standard terms there was a clause limiting liability to the price of the goods supplied. the court said that it was a reasonable term since the parties were of equal bargaining power.

Smith v Eric Bush

Bush was a surveyor who inspected and valued a house. Bush excluded any liability to the buyer, Mrs Smith. his valuation falsely stated zero defects. The court held that the exclusion clause was unreasonable as Mrs smith had relied on the report to buy the house.