Large group 5 - Contents of a contract and classification of terms by remedial effect. Damages. PDF

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Large group 5 is a lecture about contents of a contract and classification of terms by remedial effect and damages....

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CONTRACT LAW LARGE GROUP 5 Student Guide

Contents of a contract and classification of terms by remedial effect. Damages. Context There are three aims of this large group. First of all, to explore the contents, or “terms” of contracts. The terms of a contract that have been expressly agreed may be easy to identify, but not always. Think about when you buy goods on-line having first ‘accepted’ or ‘agreed’ the seller’s terms and conditions. Do you know, or even care, what is in the small print? Not normally, unless and until there is a problem and it is only then that you may discover it contains onerous terms. Consequently, common law rules have evolved to try and protect buyers (especially consumers) from becoming bound by unfair terms of which they were blissfully unaware. In addition to terms that have been expressly negotiated and agreed by both parties, terms may be implied in to contracts by custom, the courts or by statute. For example, when you buy goods from a shop, statute implies that the goods will be of satisfactory quality and fit for their purpose. The second aim is to introduce you to the different types of terms that exist. The classification of terms affects the remedies that may be available should they be breached. For every breach of contract the non-defaulting party is entitled to damages (monetary compensation); but in some cases he may also be entitled to terminate the future performance of the contract. The final aim is to consider in outline the key legal principles which govern awards of damages which will be covered in more detail in Workshop 6.

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Outcomes By the end of this large group you should be able to: 1.

Identify the express terms of a contract and explain how terms may be implied into a contract by statute.

2.

Explain the different ways in which terms are classified and how this impacts on the remedies that may be available for breach.

3.

Explain the main legal principles which govern awards of damages.

1. Identifying the terms of a contract When 2 parties/companies agree what they are going to do between them and sign a written contract

1.1

Express terms – what has been expressly agreed

1.1.1 Incorporation – if you want to rely on a term of the contract then it must form part of the contract – must be incorporated into the contract There are three ways to incorporate terms and conditions into a contract 

Signature – if you sign a contract you are bound by it

The document that has been signed must be a contractual type of document – contains terms and conditions

L’Estrange v Graucob(1934) – the clause the parties were arguing over was in very small print but it was legible and the court found therefore that the clause was incorporated into the contract because the contract had been signed

Curtis v Chemical Cleaning and Dyeing (1951) – somebody was tricked into signing a contract   

The claimant took a wedding dress, trimmed with beads and sequins, to the defendant’s shop for cleaning. The assistant asked the claimant to sign a receipt. The claimant asked why.

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   

The assistant said that the receipt exempted the defendant from liability for damage to the beads and sequins. The claimant signed. In fact, the receipt exempted the defendant from liability for any damage however caused. When the dress was returned, it was stained.

Decision – even though the receipt had been signed and arguably therefore the defendant was bound by the exemption clause in this case because the dry-cleaning shop had misled her, they were not able to rely on that clause. Any misrepresentation as to the existence or extent of an exemption clause will mean that the person seeking to rely on that exemption clause cannot do so As long as you are not misled then the general rule is you will be bound by those terms as they are deemed to be incorporated into the contract  Reasonable notice before or at the time of the contract The law requires the party who wants to rely on the term to have given reasonable notice. If that has been given and its been given before or at the time the contract is entered into the law will regard those terms as incorporated into the contract Give reasonable notice - bring terms to claimants’ attention by setting them out clearly in legible print or put them in a notice so they are easily seen Other things law considers when reasonable steps are taken is not only whether the steps taken are clear and effective, the law will also look at how onerous or unusual the terms are which you are trying to bring to the other parties attention Spurling v Bradshaw (1956) Lord Denning said: ‘the more unreasonable the clause, the greater the notice which must be given of it. Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to them before the notice could be held to be sufficient.’ Defendants need to do more to bring clause to the other parties attention if the clause is onerous in order to make sure it is incorporated into the contract Affirmed by Lord Denning in Thornton v Shoe Lane Parking Ltd (1971)

 

Previous consistent course of dealings For terms to be incorporated in this way the parties must have had a lot of regular dealings in the past which were all on the exact same terms and conditions. By this stage of the dealings the parties should be familiar with the terms and conditions

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Activity 1 - Previous consistent course of dealings Look at the fact patterns set out below. In which, if any, of them do you think a court would conclude that the parties intended to contract on the same terms as they had done in the past? The parties have had three or four dealings over the last five years always on the same terms. Consistent but not sufficient regularity – no Hollier v Rambler Motors

The parties have had lots of dealings in the past but there has been no consistency; sometimes, but not always, one party has been asked to sign a document containing terms.

Fails for consistency – no Mccutchen v David Mcbrane

The parties have had dealings three or four times a month over a long period of time and a sale note has routinely been handed over which sets out the seller’s standard terms and conditions.

Parties intended to contract on the same terms as in the past – yes

2.

Statutory Implied terms

Implied terms can arise by custom, in fact, in law or by statute Sale of Goods Act 1979

Activity 2 – Terms implied by the Sale of Goods Act 1979 © The University of Law Limited

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The owner of a public house, Gary, is on the internet looking to buy a large smart screen TV to mount on a wall in the bar so that customers can watch live sports coverage. He finds a suitable TV on the Supatelly company website. It’s priced at £1,200. There’s a description underneath the picture of the TV, stating its screen size and resolution, the inputs it can take and other details. Gary likes what he reads and orders one. He clicks on the “I agree to Supatelly’s terms and conditions” button, puts in his credit card details, and in due course the new TV arrives. Set out below are a few sections of the Sale of Goods Act (SGA). Using both the facts and the SGA sections identify as many express and implied terms of the contract between Gary and Supatelly as you can.

Section 13(1) Where there is a contract for the sale of goods by description, there is an implied term that the goods will correspond with the description.

Section 14(2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality. (2A) …. goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances.

Section 14(3) Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known to the seller, . . . any particular purpose for which the goods are being bought, there is an implied term that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller

3.

Categorisation of terms according to their remedial effect

3.1

Remedial effect (i.e. the remedies available if breached)

3.1.1 Termination/repudiation Termination is bringing the contract to an end - treating the contract as repudiatory 956a755904f10f14281349cd5dcabd1a.docx

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The right to terminate depends on the nature of the term broken, not all terms of the contract are of equal importance Some terms are so important that the courts will say if they are breached the innocent party can treat the contract as an end and those terms are called conditions. When a condition is broken the innocent party can terminate and claim damages. The Sale of Good Act provisions are deemed to be conditions. If you buy something that is not of satisfactory quality, you can terminate that contract Termination is only available when a condition is breached 3.1.2 Damages – monetary compensation for breach are available for breach of any contractual term – conditions or another type of term. You can claim damages

3.1.2.1 Aim – loss of expectation. – aim of damages in contract is to put innocent party, as far as money can do, into position they are expected to be in had been properly performed Robinson v Harman (1848)

3.1.2.2 Recoverable types of loss



Mental distress/disappointment

Addis v Gramophone Co. Ltd. (1909)

General rule – damages for mental distress, mere inconvenience and disappointment are not generally awarded in contract

Jarvis v Swans Tours Ltd (1973) The claimant, Mr Jarvis, booked a two week holiday with the defendants and paid £63.45. The holiday was a catalogue of disasters. There was supposed to be a 'houseparty’ but there were only 13 guests there during the first week and none during the © The University of Law Limited

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second - apart from Mr Jarvis. The holiday failed to comply with the description in the brochure in numerous other respects. For example, there was supposed to be a bar at the hotel but it was in an unoccupied annexe and only open for one evening. All in all Mr Jarvis had a pretty miserable holiday. Decision – court decided despite Addis v Gramophone where the aim of the contract was to provide enjoyment, entertainment or pleasure then the court will award damages for mental distress

Activity 3 – damages for distress/disappointment What sorts of contract are “proper cases” for the award of damages for mental distress?

Mr Jarvis’s holiday cost him £63.45 in 1969. How much compensation do you think he should have been awarded for his loss of entertainment and enjoyment? Tick the appropriate range of figures Range Up to £100 £101 - £120 £121 - £140 £141 - £160

3.1.2.3

Tick

Remoteness of loss

General rule - A defendant is not liable for all the consequences of his breach, but only for those losses which are not too remote.



The rule in Hadley v Baxendale (1854)

“[Damages] should be such as may fairly and reasonably be considered either arising naturally, i.e. according to the usual nature of things, from such a breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.” Limb 1: Losses which flow naturally from the breach or losses which are an inevitable consequence of the breach are recoverable 956a755904f10f14281349cd5dcabd1a.docx

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Limb 2: If a particular loss isn’t an inevitable consequence of the breach, ask what the defendant knew at the time of the contract. Did they know of special circumstances which meant they should have realised there was a likelihood or real possibility of that particular loss resulting. If they new of special circumstances and realised that there was a real possibility of that loss then that loss will be recoverable



Victoria Laundry (Windsor) Ltd. v Newman Industries Ltd (1949)

The claimants were launderers and dyers. They wanted to extend their business and bought a boiler from the defendant to be delivered on 5 June. The defendant did not deliver until 8 November. The defendant knew that the claimants were launderers and dyers and that they intended to put the boiler to immediate use in their business. The claimants claimed damages for: 

loss of ordinary profits, taking into account the extra customers they could have taken on had they received the boiler in time; and



loss of profit on some highly lucrative dying contracts with the Ministry of Supply which they would have accepted had they received the boiler in time.

Decision



Parsons (H) (Livestock) Ltd v Uttley Ingham & Co Ltd (1978)

Defendants supplied claimants with bulk pig food storage hopper. The hopper was inadequately ventilated and so pignuts went mouldy. Pigs suffered intestinal infection, and 254 pigs died. It was not unlikely (there was a serious possibility) that the pigs would become ill if fed from an inadequately ventilated hopper. “If physical injury or damage is within the contemplation of the parties, recovery is not to be limited because the degree of physical injury or damage could not have been anticipated [- cited from McGregor on Damages, 13th ed.] …

Decision

3.1.2.4 Measures of loss 

Cost of cure

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Difference in value

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Consumer surplus/loss of amenity

Ruxley Electronics and Construction v Forsyth (1996) Mr Forsyth entered into a contract with Ruxley to build him a swimming pool with a 7ft 6 inch deep end. In the event, the deep end was 6 inches too shallow. In all other respects, it was a perfectly adequate swimming pool which was safe to dive in to. There was no difference in value. Cost of cure was over £21,500 (the cost of rebuilding the pool). Mr Forsyth claimed the cost of cure. At first instance he was awarded £2,500. The Court of Appeal awarded cost of cure. Decision of the House of Lords

3.1.2.5 Mitigation The claimant must take reasonable steps to reduce the loss suffered. If the other party proves that the claimant has failed to mitigate their loss, damages will not be awarded for the loss caused by this failure. British Westinghouse Electric Co Ltd v Underground Electric Railways Co of London Ltd (1912)

3.1.2.6

Specified damages and penalty clauses

“The clause is enforceable if it does not exceed a genuine attempt to estimate in advance the loss which the claimant would be likely to suffer from a breach of the obligation in question.” – Chitty on Contracts, 31st ed. Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd (1915)

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4.

Classification of terms

4.1

Conditions

4.2

Warranties

4.3 9

Innominate terms

4.4

How do courts determine whether a particular term is a condition, warranty or innominate term?

Cehave v Bremer, The Hansa Nord(1976) Ormrod J: 1)

2)

L. Schuler A.G. v Wickman Machine Tool Sales Ltd (1974) A contract drafted by non-lawyers described one particular term as a ‘condition’. The term stated that for four and a half years one of two named representatives from Wickman would visit six firms every week. There was no provision to substitute other representatives to cover illness etc nor for the six firms saying a visit was not convenient. If the term was a ‘condition’ failure to make a single visit would entitle Schuler to terminate the contract. Held:

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4) There remains the non-specific class of terms where termination is justified only where the breach goes to the very root of the contract. Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (The Hongkong Fir) (1962) The defendants agreed to hire a ship from the claimants for 24 months. A term of the contract provided that the ship was ‘fitted in every way for ordinary cargo service’, ie that the ship was seaworthy. Diplock LJ: “There are, however, many contractual undertakings of a more complex character which cannot be categorised as being ‘conditions’ or ‘warranties.’ Of such undertakings all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon the nature of the event to which the breach gives rise and do not follow automatically from a prior classification of the undertaking as a ‘condition’ or a ‘warranty.’” 5.

Workshop 5 

Student Guide



Overview of preparation.

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