Chapter 40 Terms

Question 1

What are terms in a contract?

Answer 1

The terms of a contract are what the parties to a contract have agreed. These terms can either be specifically agreed between the parties, known as express terms, or implied in the contract.

For example if I buy a cup of coffee for £1: The express terms are coffee and £1- this is the consideration in the contract. Other terms may be implied, for example that the coffee is hot.

Question 2

Difference between a term and a representation?

Answer 2

A term is a promise forming part of a contract. Breach of term=breach of contract- damages and, if serious, termination

A representation is a pre-contractual statement that induces the contract but is not itself a promise. If false= misrepresentation- rescission and/or damages (Misrepresentation Act 1967)

Question 3

Distinction between a term and a representation-importance in remedies

Answer 3

If a term is not observed, there can be a claim for breach of contract. If a representation is untrue, the remedy is misrepresentation

Question 4

Distinguishing between terms and misrepresentations

Answer 4

When negotiations are taking place, many things are discussed so that the terms of a contract are agreed. The difficulty is deciding whether what was said is term or remains a representation. The courts will take into account the following factors:

1. The importance attached to the representation
2. Special knowledge or skill of the person making the statement

3.Any time lag between making the statement and making the contract

4.Whether there is a written contract

Question 5

1.The importance attached to the representation

Answer 5

The more central the statement, the more likely its a term. Where the statement is obviously important to the contract, it will be seen as a term of the contract.

Bannerman v White: Bannerman, formed a contract with the defendant, White, regarding the purchase of hops, intending to use them to produce beer. The claimant specifically enquired as to whether the hops had received a sulphur treatment as it is only possible to make usable beer from hops that have not received this treatment. Furthermore, the claimant expressly stated that he would be unwilling to buy the hops if they had been treated. The defendant assured the claimant that the hops were untreated, however in fact the hops had received sulphur treatment and were subsequently useless to the claimant.
The Court found for the claimant, viewing that the matter of whether the hops had received Sulphur treatment was indeed a contractual term rather than a mere representation.

Question 6

2. Special knowledge or skill of the person making the statement

Answer 6

Statements made by experts are more likely to be terms. There are 2 contrasting cases that show the importance of the skill expected of a person making a statement

Oscar Chess v Williams: The private seller of a car believed it to be a 1948 model but it was actually much older. The statement was not a term of the contract

Dick Bentley v Harold Smith Motors: the car dealer stated the car had done 20,000 miles when in fact it had done 100,000 miles. Even though the statement was not written in the contract, it was taken to be a term of the contract not a representation. This distinction is important as the purchaser of the car could take action for breach of contract rather than for misrepresentation. This case established that a representation from an experienced party to an inexperienced party is likely to be interpreted as a contractual term rather than a misrepresentation

Question 7

3.Time lag between making the statement and making the contract

Answer 7

Where a contract is made some time after negotiations and does not refer to the statement that had been made during negotiations, it is likely that the statement will not become a term of the contract.

Seen in Routledge v McKay: both parties were private individuals and relied on the registration documents of a motorbike. The contract was made seven days after the date of the vehicles manufacture was mentioned, and did not refer to the date of the vehicle. The actual date of manufacture was misstated by 12 years. Because of the time gap between negotiations and the written contract, the statement was a mere representation and not a term of the contract

Question 8

4.Whether there is a written contract

Answer 8

Omission from written contract suggests representation. As seen in Routledge v McKay, the court tends to presume that everything the parties wanted to include as a term of the contract is put in the written contract

Question 9

What are express terms

Answer 9

Express terms are words agreed by the parties to be incorporated in their contract. They are terms which are written in a contract or stated verbally at the time the contract is made. There can be a combination of written and oral express terms.

Question 10

What is incorporation of terms?

Answer 10

Where terms are expressly agreed there may be problems with incorporation or interpretation. Incorporation involves deciding what terms are in the contract and interpretation is concerned with what the incorporated terms mean

Question 11

1. Written notice- clarity

Answer 11

Curtis v Chemical Cleaning- Bride asked what she was signing; told it excluded damage to beads only. It actually excluded all damage. Dress was ruined. It was held that it was a misrepresentation of clause- not incorporated. Principle: terms must be honestly and clearly explained

When a party misrepresents the significance of a term, it ceases to be legally binding

Verbal terms overrule written terms

Question 12

2. Onerous terms

Answer 12

Onerous terms are clauses that place an unusually heavy burden or risk to one party.

Interfoto v Stiletto Visual: Hidden £5 per photo per day holding fee. Clause was harsh and not highlighted. It was held to not be incorporated. The more unreasonable the term, the clearer the notice required

Question 13

3. Tickets and Reciepts

Answer 13

Parker v South Eastern Railway: passenger bound by conditions in ticket if reasonable notice is given

Chapleton v Barry UDC- clause on the back of the receipt was not incorporated; recipe merely acknowledged payment.

Principle: only documents expected to contain contractual terms can do so

Question 14

4. Signed Documents

Answer 14

L’Estrange v Graucob- signature binds even if not read. Clauses on a written contract are binding on the signatories even where a party is unaware of the contracts full contents

Grogan v Robin Meredith- Time sheets signed later were administrative not contractual. Time sheets serve as an administrative record of performance of an already existent obligation.

Signature= assent only if the document is contractual

Question 15

What are implied terms?

Answer 15

Terms can be implied into the contract by the common law or by statute. The parties do not need to agree to these expressly.

Question 16

Terns implied by common law

Answer 16

Terms can be implied in 2 ways through the courts:
1.Through business efficacy and the officious bystander test

2.By custom or prior dealings between the parties

Question 17

Business efficacy test

Answer 17

The courts will imply a term into a contract if the term is necessary to make sure that the contract works on a business-like basis. There is a two-part test for this:

1.Is the term necessary to make the contract effective? (without that term the contract would not work/necessary)

2. If the parties to the contract had thought about it, would they have agreed that the suggested term was obviously going to go in the contract?

Question 18

An example of business efficacy- The Moorcock

Answer 18

The defendants owned a wharf on the River Thames. The claimants arranged to dock their ship, the Moorcock there to unload cargo. When the tide went out, the ship grounded on a ridge beneath the riverbed and was damaged. The claimants sued, arguing that the wharf owners had impliedly promised the berth would be safe. The question- was there an implied term in the contract that the berth would be safe for the ship to dock? It was held yes- the CA held there was an implied term that the riverbed at the jetty would be reasonably safe for the ship to lie at low tide. There would be no point in the contract if ships aren’t safe or are going to get damaged.

Principle: A term can be implied where it is necessary to give business efficacy to the contract-meaning the contract would not make sense or work properly without that term. This is often called the ‘business efficacy test’

Question 19

The Officious Bystander

Answer 19

If an officious bystander been present at the time the contract was made, and had suggested a term should be included, would it have been obvious both parties would have agreed to it?

-If a neutral bystander was there would they have suggested term and would the parties have agreed to it. I.e a term will be implied if it goes without saying. If the courts are satisfied that if this happened both parties would agree to that term than it is an implied term

Question 20

Exception - Shell UK Ltd v Lostock Garage Ltd

Answer 20

Lostock Garage entered into an agreement with Shell to buy petrol. Lostock claimed shell was selling petrol more cheaply to nearby garages, making it impossible for them to compensate. They stopped buying Shell petrol and Shell sued for breach of contract. Lostock argued that there was an implied term that shell would not discriminate against them in pricing in a way that makes their business unprofitable. The issue was whether the court could imply a term into the contract that Shell would not act in a way that made Lostock’s performance unprofitable?

Held: No- the CA refused to imply such a term. The alleged term was not necessary to give the contract business efficacy- the contract could still operate without it, even if it was disadvantageous for Lostock. The term was not so obvious that ‘it went without saying’- Shell would clearly never have agreed to such a limitation to their commercial freedom. The court emphasised that implied terms must be based on necessity, not fairness

Principle: A court will only imply a term if it is strictly necessary to make the contract work as intended by BOTH parties-not merely because one party later believes it would be more reasonable

Question 21

Exception: Egan v Static Control Components

Answer 21

Mr Egan was the managing director of a company that owned money to Static Control Components. He personally signed a guarantee for the company’s debts. Later, he argued that there was an implied term in the guarantee that Static would not make excessive credit available to the company( which increases his liability)

The issue: could the court imply a term into the guarantee that Static Control would act reasonably in guaranteeing credit? It was held- no- the CA refused to imply such a term. The reasoning was that the contract (guarantee) worked perfectly well without the implied term- it was not necessary to make the agreement effective. The guarantee clearly set out the obligations and Mr Egan had freely agreed to them. The court could not rewrite a clear contract to protect a party from a bad bargain.

Principle: a term will only be implied where it is necessary to give business efficacy to the contract or is so obvious that it goes without saying. This is an objective test- genuinely implied terms are what a reasonable person would have understood the intention of both parties in the context of the contract. The reasonable person would assume that the guarantee applies to both existing and future debts

Question 22

What did Marks and Spencer plc v BNP Paribas Securities Services Trust Company clarify?

Answer 22

The Supreme Court clarified the law relating to implied terms in contracts:

• reasonableness is to be judged objectively, according to what the reasonable person would agree to
• fairness and acceptability to the parties are not enough to imply a term
• only one test needs to be satisfied- the business efficacy or officious bystander test
• Lord Sumpton suggested that it may be more helpful to say that a term can only be implied if, without the term the contract would lack commercial or practical coherence

Question 23

Terms implied by custom

Answer 23

Much of English law is founded on the law of custom. Some local customs survive such as the one in the case of Hutton v Warren where local customs survive such meant that at the end of an agricultural lease, a tenant farmer was entitled to an allowance for seed and labour on the land . The court decided that the terms of the lease must be viewed in the light of the custom. This means it is implied based on what you expected, in some practices it is custom to imply a term

Question 24

Terms implied by prior dealings between parties

Answer 24

The prior conduct of the parties may indicate terms to be implied, as shown in Hillas v Acros. If you deal with someone frequently it should get to a point where you know the terms

Hillas v Acros: a contract drawn up in 1930 between the two parties included an option clause, allowing the claimants to buy a further 100,000 lengths of timber during 1931. The agreement for 1931 was otherwise quite vague. The 1930 timber contract was fulfilled. In 1931, the claimants then wanted the further 100,000 lengths of timber but the defendants refused to deliver the. Their argument was that’s since the 1931 agreement was vague in many aspects, it was therefore no more than a basis for future negotiations. The court decided that, while the option clause lacked specific detail, it was implied that it would be on the same terms as the previous contract

Question 25

Implied terms- Hollier v Rambling Motors

Answer 25

The court accepted that a failure to sign a document on one occasion did not prevent the terms in that document being present in the contract, if it was merely an oversight in not signing the document on that particular occasion

Question 26

Implied terms, business efficacy- CTI Group inc v Transclear SA

Answer 26

In CTI Group Inc v Transclear SA, a buyer and seller had a contract for the sale and shipment of cement. The sellers own suppliers failed to deliver the goods, meaning the seller could not, in turn, supply the buyer. The seller agreed that there was an implied term both parties would be discharged from the contract if this happened. However, the CA held that the seller bore the risk of his supplier failing. There was always a foreseeable risk of non- delivery and it was the sellers responsibility to protect himself by securing a binding contract with his own supplier or making his obligation conditional on the goods being available The court decided that the term suggested by the seller was: - inconsistent with the express terms of the contract, not necessary to give the contract business efficacy and not so obvious that it went without saying. Therefore, no term was implied

Question 27

Terms implied by statute: The Consumer Rights Act 2015

Answer 27

The Consumer Rights Act 2015 protects customers when buying goods, services and digital content. It ensures that certain terms are automatically implied into every consumer contract, so buyers don’t need to specifically ask for them. These implied terms guarantee a minimum standard The act also sets out specific remedies available to consumers in contracts to which the Act applies

Question 28

Why are implied terms important?

Answer 28

Implied terms protect consumers who are often in a weaker position than businesses. They ensure fairness by setting non-negotiable rights that sellers can not exclude or limit. If goods fail to meet these standards, consumers have clear remedies such as repair, replacement or refund

Question 29

Definition of consumer-CRA 2015

Answer 29

The Act defines a consumer as ‘an individual acting for purposes that are wholly or mainly outside that individuals trade, business or profession. A company can therefore not be a consumer as it is not an individual The definition is wider than existing definitions as it includes individuals who enter contracts for a mixture of business and personal reasons, so long as the contracts ware mainly for personal reasons. It is a trader who has to prove than an individual is not a consumer in the circumstances

Question 30

Definition of a trader- CRA 2015

Answer 30

A trader is described in the Consumer Rights Act 2015 as a person acting for purposes relating to that persons trade, business or profession So a trader can be a sole trader, a company, business partnership or any other form of business organisation

Question 31

Sections of the CRA 2015

Answer 31

Implied terms, called rights of the Act For the supply of goods: -S9- the right to satisfactory quality -S10- the right to fitness for particular purpose S11- the right relating to description For the supply of services: - S49- reasonable care and skill -S50- information about services -S51- reasonable price -S52- performance within a reasonable time

Question 32

Supply of goods- S9- satisfactory Quality

Answer 32

Goods must meet the standard that a reasonable person would consider satisfactory, taking into account - the description of the goods - price -all the other relevant circumstances Factors considered include: appearance and finish, freedom from miner defects, safety and durability However, this will not apply -with respects to defects specifically drawn to the consumers attention before the contract is made -where the consumer examines the goods before the contract is made in relation to any defect that the examination would have revealed, or where the goods have been sold after inspection of a sample and the defect would have been apparent on a reasonable examination

Question 33

S9- right to satisfactory quality- reasonable test

Answer 33

This is an objective test- would an ordinary reasonable buyer think the goods are acceptable? In Roger’s v Parish (Scarborough) Ltd, a new Range Rover with faults was found not of satisfactory even though it still worked. A reasonable burr of a new car would expect it to be free from defects

Question 34

S10 CRA 2015- the right to fitness for particular purpose

Answer 34

If the buyer tells the seller ( expressly or implicitly) the purpose for which they want the goods, they must be fit for that purpose. Normal purpose: the ordinary, everyday use of the goods Particular purpose: a specific use made known to the seller Where, however, the purchaser had a particular sensitivity that is not known to the seller, then so long as the goods are fit for the normal purpose to most people, there will be no breach of the requirement. This was seen in Griffiths v Peter Conway Ltd where a woman brought a tweed coat that caused a skin reaction. She didn’t tell the seller about her sensitive skin, so the coat was for for normal use- seller not liable

Question 35

S11 CRA 2015- rights relating to description

Answer 35

Goods must match their description- whether written, verbal or shown in advertisements or labels. If goods don’t correspond with the description provided, it’s a breach of contract There is also a provision that where goods are supplied after being seen or examined by the consumer, the goods must match the model. This was seen in Beale v Taylor where a car was advertised as a 1961 model but was partly made from an older vehicle. The court held that the car did not match its description so the buyer was entitled to a remedy

Question 36

Remedies for breach of terms to supply of goods- CRA 2015

Answer 36

You must bring your claim against the retailer, not the manufacturer because you have the contract with the retailer not the manufacturer Before 30 days.. -S20, right to reject After 30 days… -S23- the right to repair or replacement -S24- the right to a price reduction or final right to reject

Question 37

S20 - CRA the short term right to reject

Answer 37

The short term right to reject under S20 must be exercised within 30 days of the delivery of the goods. Ot gives a consumer the right to reject goods that are unsatisfactory quality, unfit for purpose or not as described to get a full refund, but this is limited to within 30 days of the purchase The refund must be given within 14 days, beginning with the day on which the trader agree that the consumer is entitled to a refund

Question 38

S23 CRA 2015 - the right to repair or replacement

Answer 38

This provides that you have to give the retailer one opportunity to repair or replace any goods if you are outside the 30 days If the S20 right is not exercised by consumer, they will have the right to repair or replacement under S23. The trader must: - repair or replace the times in reasonable time - do this without significant inconvenience to the consumer The consumer only has to accept one repair or replacement. If the goods still do not meet their consumer rights, the consumer can expect their right to a price reduction or final right right to reject

Question 39

S24 CRA 2015- the right to a price reduction or a final right to reject

Answer 39

If S23 does not bring satisfaction, the consumer has as right to a price reduction or a final right to reject the goods and claim a refund under S24. The trader can have only one attempt at repair it replacement for the consumer to have this right *It has to have the same issue with the product.

Question 40

6 months before or after purchase -CRA 2015

Answer 40

If a fault is discovered within six months of purchase, it is presumed to have been there since purchase, unless the retailer can prove otherwise If a fault is discovered after the 6 months, the burden is on the consumer to prove that the product was faulty at the time of delivery. You have 6 years to take a claim to the small claims court

Question 41

Supply of services CRA-Sections 49-53

Answer 41

These sections of the CRA 2015 cover the supply of services A contract to supply a service might be a contract to carry out building work or to service a car. Such contracts often include both goods and services. The service element would include deciding what was needed and the fitting of parts to the car. The parts themselves are a supply of goods

Question 42

Section 49 CRA- reasonable care and skill

Answer 42

A contract to supply a service implies that the trader must perform the service with reasonable care and skill. The trader must perform the service with the same care and skill expected of a reasonably competent person in that trade or profession. For example, a hairdresser must perform a haircut to a professional standard Thake v Maurice: A surgeon carried out a vasectomy, but the patient's wife later became pregnant. It was held that while the surgeon did not guarantee success, he was expected to exercise reasonable care and skill. There was an implied term that the surgeon would perform the operation o the standard of care and skill of a competent surgeon. Principle: Professionals are not expected to guarantee results. only to perform with proper skill and competence

Question 43

S49- reasonable care and skill- Wilson v Best Travel

Answer 43

Wilson v Best travel: A tourist was injured by a glass door in a foreign hotel. It was held that the tour operator had met local safety standards and had not breached reasonable care and skill. Principle- the standard of care is judged by what is reasonable, not perfection

Question 44

S50 CRA 2015 - information about the service is binding

Answer 44

Any information given to the consumer about the service (e.g time. price, method) is legally binding if relied upon. For example a decorator who promises to finish by Friday must do so

Question 45

S51 CRA- Reasonable price

Answer 45

Price is not always known beforehand. If no price is agreed beforehand, the trader can only charge a reasonable amount. For example, a plumber without a quote can only charge a fair market rate

Question 46

Remedies for breach of terms to supply of services

Answer 46

If the service does not conform to the contract, the consumer's rights are: -The right to require repeat performance (S55) - The right to a price reduction (S56)

Question 47

S52 CRA- Performance within a reasonable time

Answer 47

This term applies where the contract does not include a specific time and the service has not completed or has taken longer then expected. What is a reasonable time is a question of fact, which will depend on the circumstances. If no time is agreed, the service must be completed within a reasonable time period. For example, a mechanic must finish repairs within a typical timeframe

Question 48

Remedies for breach of terms to supply of services- S55

Answer 48

S55- the right to require repeat performance The trader must redo the service correctly, at no extra cost, within a reasonable time and without significant inconvenience. The trader must also bear any necessary costs incurred in doing so such as the cost of labour or materials

Question 49

Remedies for breach of terms to supply of services- S56

Answer 49

S56- The right to a price reduction. If repeat performance is impossible or not completed within a reasonable time, the consumer can claim a reduction in price (up to 100%). For example a customer refuses to pay full price for a poor- quality driveway This remedy is available only in two situations: -Where completion by repeat performance is impossible or, -If the consumer has asked for repeat performance but the trader breaches the requirement to do it within a reasonable time and without significant interreference to the consumer

Question 50

Types of term

Answer 50

When parties form a contract not all terms are of equal importance. The classification of a term affects the remedies available if it is breached. The three main types are conditions, warranties and innominate terms

Question 51

Types of term - Condition

Answer 51

A condition is a term in a contract, so important that a failure to perform the obligation would destroy the main purpose of the contract. If a condition is a major or fundamental term of the contract. It goes to the root of the agreement. If a condition is breached, the innocent party can terminate the contract and/or claim damages Poussard v Spiers and Pond: An actress agreed to perform the lead role in a production. She failed to attend the opening performances due to illness. She tried to return for the following nights but was not given the role. This was held to be a breach of condition, as her presence at opening night was central to the contract. Opening night is the most important night of the show

Question 52

Example of a condition

Answer 52

A contract for a new laptop specifies it must have genuine Windows software, but the buyer receives one with unlicensed software. This would likely be a breach of condition because it affects the main purpose of the agreement

Question 53

Types of term- warranty

Answer 53

A warranty is a minor term of the contract. Breach of this term does not end the contract but allows a claim for damages only. The contract is not terminated and the main purpose of the contract can continue to be performed despite the breach. It does not go to the root of of the contract but is still legally binding Bettini v Gye: A singer failed to attend a few rehearsals but was ready for the main performances. This was a breach of warranty, not a condition, so the contract could not be terminated

Question 54

Example of a warranty

Answer 54

For a phone, it is not central to the contract if the phone will only store 99 contracts rather than the 100 stated in the contract. It still performs the main purpose of making phone calls . One fewer contact available in the memory is not central to the contract

Question 55

Types of term- Innominate term

Answer 55

An innominate term (or an intermediate term) is one that cannot be classified as a condition or warranty in advance. The remedy depends on the seriousness of the breach and its effect on the contract. The parties wait until the effect of the breach when it is treated as a conditioned or warranty. Legal effect of the breach: -If the breach deprives the innocent of substantially the whole benefit of the contract, it is treated like a condition (allowing termination) -If not, it is treated like a warranty (damages only) Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd: A ship was delivering late due to incompetence of the crew, but the contract could still largely be performed. The court held the term was innominate, and the breach was not serious enough to end the contract

Question 56

Example of an innominate term

Answer 56

A contract for the delivery of fresh produce requires delivery within 24 hours, but delivery is delayed by 3 hours due to traffic. This is likely a breach of an innominate term- not serious enough to end the contract, so damages may be claimed instead Wanting a phone with a great camera for taking photographs but when purchased it is discovered that it doesn't. This would be treated as a condition because that was essential to the customers needs and therefore fundamental to the contract

Question 57

Exclusion and limitation clauses

Answer 57

Exclusion clause- a term in a contract that prevents one party being liable for a breach of contract. A limitation clause is a term in a contract an upper limit on liability for breach of contract. Exclusion clauses are often found in standard form contracts and on notices

Question 58

The nature of exclusion and limitation clauses

Answer 58

Courts generally accept that the parties to a contract can agree any terms they like under the principle of freedom of contract. However, this view is balanced by the idea that often during negotiations, one party is in a much stronger position than another. The courts and Parliament have tried to find ways of limiting the effectiveness of an exclusion clause when considering exclusion clauses, first look at the common law approach through case law and see the result. If the clause is effective to exclude or limit liability, then look at the statutory provisions and see whether they reduce its effectiveness

Question 59

The court's approach -Common law controls

Answer 59

A clause in a contract that seeks to exclude or limit liability is subjected to the normal rules regarding terms (those involving incorporation of terms). The first question to consider is whether the term is part of the contract 1.Whether the agreement is signed? Signed = bound to the agreement, even if not read 2. Whether any notice with the term in it is incorporated in the contract (clear to see), for unwritten agreements 3.Whether the term is incorporated by previous dealings with parties

Question 60

1. Signed - a written agreement- L'Estrange v Graucob

Answer 60

Where a party has signed a written agreement, they are bound by that agreement, as in L'Estrange v Graucob L'Estrange v Graucob: Mrs L'Estrange bought a cigarette vending machine and signed a sales contract without reading it. The machine didn't work but the contract contained a clause excluding all implied warranties. Could she claim despite not reading the exclusion clause? It was held that she couldn't. By signing the contract, she was bound by all it's terms , even if she hadn't read or understood them. LP: When a party signs a contractual document, any exclusion clause within it is automatically incorporated and binding, unless there is fraud or misrepresentation. Signing= acceptance of terms= clause effectively excludes liability

Question 61

Verbal terms and written agreements

Answer 61

However, if a party relying on an exclusion clause in a written document asks the other to sign it , and in response to a query from the other, misrepresents the effect of the clause, the clause will be interpreted in accordance with the misrepresentation and not with the written document. This is so even if the document is signed by the other. This was shown in Curtis v Chemical Cleaning and Dyeing Co. Ltd Curtis v Chemical Cleaning and Dyeing Co. Ltd: Mrs Curtis took her wedding dress to be cleaned and was asked to sign a document that exempted the cleaners from liability for any damage. Before signing the document she was asked what she was signing. She was told that it only referred to the fact that the cleaners would not accept liability for beads or sequins attached to the dress. When the dress was returned, it had a large stain on it. The cleaners could not rely on the exclusion clause because because of the verbal assurances made to Mrs Curtis that they were only excluding liability for damage to beads

Question 62

Is any notice with the term in it incorporated in the contract?

Answer 62

Incorporation can only happen if, at the time the contract was made, the unsigned document was brought to the attention of the person suffering the exclusion clause. Any attempt to introduce new terms to the contract AFTER acceptance will fail, unless there is a new contract changing the original one or the original contract allows for terms to change. The problem of incorporation arises when the terms are not made clear when the contract was made Olley v Marlborough Court Hotel: The claimants booked into the hotel at its reception desk. At this point a contract was formed. They later went out, leaving the key at reception as required. In their absence, someone took the key, entered their room and stole some of their belongings. The hotel claimed that they were not liable because of an exclusion clause. However, the clause was not incorporated in the contract, since it was on a notice inside the Olly's bedroom in the hotel and could not be known about when they made the contract.

Question 63

There must be a contractual document- distinction between document and receipt

Answer 63

Chapelton v Barry Urban District Council: Mr Chapelton hired a deckchair from the council. He took a ticket after paying, which had an exclusion clause on the back stating that the council wasn't liable for injury. The chair collapsed and injured him. It was held that the exclusion clause was not part of the contract. The ticket was merely a receipt not a contractual document and was not incorporated into the contract. Can not expect that a ticket will have an exclusion clause For an exclusion clause to be effective, it must be clearly brought to the other party's attention before or at the time the contract was made. A receipt or ticket given after agreement is not a contractual document, the exclusion clause is not binding.

Question 64

There must be reasonable steps to draw the exclusion clause to the attention of the other party - Thompson v LMS Railway

Answer 64

Thompson v LMS Railway: Mrs Thompson was injured after buying a railway ticket. The ticket referred passengers to the company's timetable, which contained an exclusion clause limiting liability for injuries. She was illiterate and hadn't read it. It was held that the exclusion clause was incorporated into the contract even though she had not read it. The clause was validly incorporated into the contract, because reasonable notice had been given (by reference to the timetable). Clause was not hidden. An exclusion clause is effective if the party takes reasonable steps to bring it to the others attention- even if the other party cannot or does not read it. Reasonable notice= binding- lack of understanding or literacy doesn't prevent corporation. Objective test- must be a document that you would expect to see terms on or brought to the attention of the other party

Question 65

The reasonable notice must be given before the conclusion of a contract by acceptance of an offer- Thornton v Shoe Lane Parking Ltd

Answer 65

Thornton v Shoe Lane Parking Ltd: Mr Thornton parked in an automatic car park. The machine issued a ticket after payment, which referred to terms displayed inside the car park, including an exclusion for injury. He was later injured. The exclusion clause was held to not be a part of the contract. The contract was formed when payment was made at the machine. Any terms displayed after that point were too late to be incorporated. Exclusion clauses must be brought to the attention before or at the time of contracting. The more unreasonable or onerous a clause, the clearer the notice required. In automatic transactions- contract forms at payment- later terms are not binding

Question 66

3 things needed for an exclusion clause to be incorporated

Answer 66

An exclusion clause will only be incorporated into a contract when it is contained in a document that has contractual significance. In summary, for reasonable notice: 1. There must be a contractual document, with reference to the distinction between such a document and a receipt: Chapelton v Barry Urban District Council 2. There must be reasonable steps to draw the exclusion clause to the other party's attention: Thompson v LMS Railway 3. The reasonable notice must be given before conclusion of a contract by acceptance of an offer

Question 67

Is the term incorporated as a result of the previous dealings of the parties?

Answer 67

If the parties have dealt on the same terms in the past, it is possible to imply knowledge of the clause from these past dealings. Hollier v Rambler Motors: Mr Hollier had his car serviced several times ( 3 times out of 5 years) by Rambler Motors. On past occasions, he'd signed a form stating the garage was 'not liable for fire damage', but no form was signed this time. A fire caused by the garage's negligence damaged his car. It was held that the exclusion clause was not part of the contract through previous dealings. The course of dealings was not regular or consistent enough to incorporate the clause. Even if it had been, the clause was unclear and would not exclude liability for negligence. Regular would mean same time every week or month For an exclusion clause to be incorporated through previous dealings, those dealings must be regular and consistent. Ambiguous clauses are interpreted against the party seeking to rely on them. Irregular past dealings + unclear wording = exclusion clause not valid.

Question 68

The contra proferentem rule/ overrules everything and makes the 3 rules irrelevant

Answer 68

Contra proferentem doctrine is there to remove doubt. It was designed to help with contract interpretation. The rule is: if a term is unclear, it will be constructed against the person who put them in the contract. If the exclusion clause is clear, contra proferentem does not apply. McCutcheon v David MacBrayne Ltd: The claimant had often used the defendants ferries. Sometimes, but not always, he was asked to sign a document (a risk note) including an exclusion clause. On this occasion, one of his relatives too the car to the ferry. The relative received a receipt which referred to notices containing conditions displayed on the ferry company premises. He did not read the receipt and was not asked to sign it. The ferry sank and the car was destroyed. The court decided there was no consistent course of action to assume that the claimant knew the exclusion clause was always present, so it was not incorporated into the contract E.g.-if a clause said we are not liable for any damage, however caused- this is not clear, not sure what you are excluding against

Question 69

Statutory controls of exclusion clauses- The CRA 2015

Answer 69

The Consumer Rights Act 2015 sets out restrictions on exclusion clauses in contracts between traders and consumers. These are: 1. A list of terms which cannot be excluded 2. A ‘fairness test’ for enforceability of terms and consumer notices 3. A provision that the main subject matter of the contract or terms that set the price are only exempt from the test of fairness if they are ‘transparent and prominent’ 4. A ‘grey list’ of potentially unfair clauses in consumer contracts

Question 70

Statutory controls over exclusion clauses

Answer 70

There are two principle statutes - The Consumer Rights Act 2015- consumer contracts - The Unfair Contract Terms Act 1977- business to business in an exam you have to pinpoint what act to use in a scenario and must apply the correct one

Question 71

1. A list of terms which cannot be excluded

Answer 71

Exclusions and limitations amid void by the Consumer Rights Act 2015: 1.S31 prohibits a term excluding or limiting liability, including for the following sections of the Act with respect to the sale of goods -S9 (satisfactory quality) -S10 (goods to be fit for particular purpose) -S11 -goods to be as described -S13- goods to match a sample -S14 - goods to match a model see or examined -S15- installation as part of conformity of the goods with the contract -S17- trader to have right to supply goods etc In an exam, if there is an exclusion clause that excludes liability for one of these then it is not a valid exclusion clause

Question 72

1. A list of terms which cannot be excluded- S57, supply of services

Answer 72

Section 57 prohibits a term excluding or limiting liability for the supply of services under the following sections of the Act: -S49- services to be performed with reasonable care and skill -S50- info about trader or service to be binding -S51- reasonable price -S52- reasonable time *Section 65 prohibits exclusion or restriction of liability for death or personal injury resulting from negligence. -popular in exam

Question 73

2.A ‘fairness test’ for enforceability of terms and exclusion notices

Answer 73

Section 62 states that all consumer terms and notices must be fair. The Act defines ‘unfair’ terms as those which put the consumer at a disadvantage, by limiting the consumers rights or disproportionally increasing their obligations as compared to the trader’s rights and obligations. In simple terms, the trader should not give themselves more power while taking rights away from the consumer The court should take into account the specific circumstances existing when the term was agreed, other terms in the contract and the nature of the subject matter

Question 74

Examples of an unfair and fair terms

Answer 74

A gym contract says: “ the gym can cancel your membership at any time without refund, but you must pay the full year even if you stop attending”. This is likely to be unfair because the trader has flexibility. The consumer has no choice and must keep paying. This creates a significant imbalance A mobile phone contact says: “Either party may cancel the contract with one month’s notice”. This is more likely fair because both sides have equal rights and there is no clear disadvantage to the consumer

Question 75

3. Terms must be transparent and prominent

Answer 75

The Consumer Rights Act 2015 says that the consumer terms and notices must be transparent, easy to understand. This means they must be clear and easy to understand and written In plain language- shouldn’t need a lawyer to understand them Some terms must also be prominent, meaning they are clearly brought to the consumers attention before the contract is agreed

Question 76

What does ‘transparent’ mean?

Answer 76

A term is transparent if: It is written in plain, simple language and is easy to understand and read. It is not hidden in complex legal wording. Consumers should not need a lawyer to understand what the term means An example of a transparent term: a car rental agreement states: ‘ if the car is returned late, you will be charged £25 for each extra hour’. This is transparent because the wording is clear, the consequence is explained and the cost is specific. An example of a non-transparent term: ‘Additional charges may apply in certain circumstances’. This is not transparent because it ia vague and the consumer does not integrate the charges are when they apply

Question 77

What does ‘prominent’ mean?

Answer 77

A term is prominent if it is: - brought clearly to the consumers attention - displayed in a way an an average consumer would notice - not hidden in small print or obscure locations. This is especially important for key or unusual terms, such as extra charges or exclusions of liability - remember these must be shown before purchase

Question 78

Examples of prominent terms

Answer 78

An airlift clearly displays on the booking page: “this ticket is non-refundable. This is prominent because: it appears before purchase, it is clearly visible and the consumer can not miss it Example of a non-prominent term: A hotel advertises a cheap room price but in the terms(small print) it says: a mandatory £50 cleaning fee applies. This is not prominent because the charge is hidden and the consumer only finds out after purchase

Question 79

4. The Grey List of terms (CRA 2015)

Answer 79

The Grey List is found in Schedule 2 of the Consumer Rights Act 2015. This contains a list of terms that may be unfair If used in consumer contracts( not automatically unfair). These terms are not automatically unfair, but they raise suspicion and are closely examined by the courts

Question 80

Grey list common examples

Answer 80

1. Terms allowing the trader to change the contract unilaterally: a term that allows the trader to change the price or change the service without giving the consumer a right to cancel. For example allowing a trader to increase a monthly prescription at any time. This is likely unfair as the consumer has no protection or choice 2. Terms excluding or limiting the trader’s liability. A term that limits the trader’s responsibility if something goes wrong. For example: a company ‘accepts no responsibility for damage caused by faulty equipment’. This is likely unfair as it removes important consumer rights 3. Terms allowing the trader’s to decide if they have breached the contract: a term that lets the trader be judge in their own case. For example “we will decide whether the service has been provided quickly”. This is likely unfair as it creates a significant imbalance

Question 81

Exclusion and limitation clauses: Statutory Protection: The Unfair Contract Terms Act

Answer 81

The Unfair Contract Terms Act 1977 provides the main protection against exclusion clauses in non- consumer contracts (business to business). It contains a test of reasonableness to be applied to exclusion clauses

Question 82

Exclusions and limitations made void by the Unfair Contract Terms Act 1977

Answer 82

Certain types of exclusion clauses are invalidated by the Act and will therefore be unenforceable: -S2(1) states a person cannot exclude liability for death or personal injury caused by negligence -S2(2) states that in cases of loss of damage a person cannot exclude or restrict liability for negligence except in situations where it is reasonable to do so -S6(1) states the implied condition as to title (the sale of Goods and Services Act 1979 and s7 of the Supply of Goods and Services Act 1982) cannot be excluded- loss of finance and business

Question 83

Section11 (1)- exclusion clauses in general- is it reasonable?

Answer 83

Smith v Eric S Bush: A surveyor valued a house for mortgage; it included a clause excluding liability for the surveyors work. The buyer relied on it- surveyor was negligent and the house was damaged. Was the exclusion clause valid under the UCTA 1977? Clause was unreasonable- the surveyor owed a duty of care to the buyer. Exclusion clauses for negligence in consumer-type contracts are usually unreasonable; professional ls can owe a duty of care to third parties who rely on their work

Question 84

What is ‘reasonable’?

Answer 84

A term is reasonable if it is ‘fair and reasonable’ for it to be included, considering what the parties knew or ought to have known when the contract was made. Key factors from Schedule 2 and Case law : -Bargaining power of each party ( when one business has a larger bargaining power than the other than this is likely invalid) -availability of alternatives (could the consumer get the goods/service elsewhere without the term) if the business seeking to exclude liability is the only business that skews that product or decide than this is likely invalid as they are using their position unfairly -Inducement- was the customer offered any benefit for agreeing? - Knowledge of the term- was it clear or hidden in small print -practical ability to comply- could the customer meet any conditions( e.g- to report defects) -insurance- could one part have insured against the loss ? Reasonableness= fairness at the time of contracting, not with hindsight

Question 85

Reasonableness- Watford Electronics v Sanderson

Answer 85

Business to business contract for computer software. The contact contained limitation and exclusion clauses for defects and loss. It was held that clauses were reasonable and valid. Both parties were experienced businesses with equal bargaining power who negotiated the terms In commercial contacts between businesses, exclusion clauses are usually enforceable if the terms are freely agreed. Reasonableness depends on the context- consumer type contracts are treated differently

Question 86

S11(4) UCTA 1977- Limitation Clauses

Answer 86

When a clause limits (not excludes) liability, it’s reasonableness depends on: 1. Resources available to meet the liability- could the party afford to cover the loss? 2. Availability of insurance- could the party reasonably have insured against the risk? If they could have insured against it then this is more likely to be unreasonable A limitation Claus did more likely to be reasonable if the party could not realistically insure or if the limit reflects the available resources

Question 87

s11(4)- George Mitchell v Finley Lock Seeds

Answer 87

George Mitchell v Finney Lock Seeds: A farmer brought cabbage seeds that failed to grow. Properly. Seller relied on a clause limiting liability to replacement of seeds only. This loss was much greater than that. Was the limitation clause reasonable under S11(4) UCTA 1977? It was held that the clause was unreasonable. The seller knew the loss could be far greater and had insurance to cover it .The buyer could not have detected the defect. Reasonableness considers bargaining power, insurance and fairness of risk allocation. Even limitation clauses can be struck out if unfair in the circumstances