Terms of a Contract PDF

Preview

Summary

Contract full notes...

Description

THE CONTENT OF A CONTRACT The sources of the obligations of the parties under the contract are called the TERMS OF THE CONTRACT. It is important to be able to recognise terms, to appreciate the sources of terms and the relative importance of terms. READ McKendrick Contract Law, Chapter 8 Terms and Representations When the parties are involved in pre-contractual negotiations numerous statements may be made. The law has to be able to distinguish between pre-contractual statements which become part of the contract, ie terms, and statements which cause the contract to be formed, but do not form a part of the contract, ie representations. It is important to distinguish between terms and representations because the remedies available differ. (i) If a term of the contract is broken then the remedies are damages and possibly the ending of the parties’ future obligations under the contract. Damages are to be assessed using contractual principles. (ii) If a representation proves to be false then the remedies are to be found in the law relating to misrepresentation. Damages are assessed on tortious principles. How to identify Terms and Representations? The test for identifying terms and representations is as follow: Did the parties INTEND the statement to be a term of the contract or to be a mere representation? The test of intention is objective ie would a reasonable person have taken the statement to be meant as a contractual term or a representation? The courts have developed a number of guidelines that may be employed in ascertaining the presumed intention of the parties. The Guidelines 1) What is the strength of the statement made? If a party is told that the statement made is accurate and need not be checked, this tends to support the parties intending the statement to be a term. Schawel v Reade [1913] 2 Ir Rep 81 Seller of a horse prevented a buyer from examining a horse with the words "you need not look for anything...if there was anything the matter with the horse I would tell you". The buyer relied on the statement and bought the horse. Held: the statement was a term.

1

Ecay v Godfrey (1947) 80 Ll L R 286 Seller of a boat stated that it was "sound", but advised the buyer to have the boat surveyed. Held: statement of seller not a term 2) Was the statement important to the representee? If the person to whom the statement was made, the representee, made it clear to the maker of the statement that the presence of the statement was important to the making of the contract, then this suggests that the statement is a term Bannerman v White (1861) 10 CBNS 844 A buyer, who intended to purchase hops asked if the hops had been treated with sulphur, adding that if they had "I will not even trouble to ask the price". The seller assured the buyer that sulphur had not been used. Held: statement as to sulphur was a term. 3) Did the maker of the statement have specialist knowledge? If the maker of the statement has specialist knowledge, then the statement is more likely to be a term. Oscar Chess v Williams [1957] 1 WLR 370 A seller of a motor car, he was trading in, innocently described it as a "1948 model". It was in fact a 1939 model. Held: the statement as to the age of the car was a mere representation. The buyers were car dealers and had greater expertise than the seller, a lay person. Dick Bentley Productions v Harold Smith (Motors) Ltd [1965] 1 WLR 623 The seller, a car dealer, sold a car stating that it had only done 20,000 miles since the fitting of a replacement engine. It had, in fact, done 100,000 miles. Held: the statement was a contractual term; the seller was in a better position to judge the truth of the statement.

2

4) Was the statement reduced into writing? If a written contract is formed and the statement is not included in the contract, then it is unlikely to be a contractual term. Note that a contract may, however, be part written and part oral. Routledge v McKay [1954] 1 WLR 615 See the comments on this case in Oscar Chess v Williams Plaintiff and defendant discussed the possible sale of Seller's motor cycle on 23rd October. Defendant innocently said that the motorcycle was a 1942 model. On 30th October a written contract for the motor cycle was signed and made no reference to the age of the bike. The motorcycle was, in fact, a 1930 model. Held: the statement was not a contractual term, merely a representation. But see Birch v Paramount Estates Ltd (1956) 16 EG 396 5) Was there a lapse of time between the making of the statement and the formation of the contract? The longer the time lapse between the making of the statement and the formation of the contract the less likely the statement is to be a term of the contract. Routledge v McKay [1954] 1 WLR 615 Consider whether the guidelines are of equal weight and the approach the courts will adopt if some guidelines point toward a statement being a term and other guidelines point to the statement being a representation? See Heilbut Symons & Co v Buckleton [1913] AC 30. Express and Implied Terms Read McKendrick Contract Law, Chapter 9. When agreement is made, the agreement may set out, either in writing or orally, the extent of the rights and obligations undertaken by each of the contracting parties. In order to identify these rights and obligations it is essential to be able to determine what the terms of the contract are. Terms may be express, that is, stated by the parties and, therefore, it is necessary to analyse the words used by the parties to express their intention. Additionally, terms not expressly stated by the parties may be implied into the contract. Such implication may arise in various ways (see later).

Express terms The main questions you need to address concern finding and interpreting express terms. Remember that in English Law the general rule is that a contract may be made in writing, or orally or be a mixture of both. However, you should note those contracts which must be made in writing or require other formalities in order to be sued upon. Particularly note the

3

formalities for contracts for the sale or other disposition of an interest in land – s 2 Law of Property (Miscellaneous Provisions) Act 1989. The parol evidence rule states that oral or any other extrinsic evidence may not be used to add to, vary or contradict a written contract; Henderson v Arthur [1907] 1 KB 10. Note a document that looks like a contract is treated as the whole contract, Gillespie Bros v Cheney Eggar & Co [1896] 2 QB 59. But this is a presumption that may be rebutted by evidence that the parties intended the contract to be part-written and part-oral. The parol evidence rule is subject to several further exceptions eg it applies to express, but not to implied terms. Incorporation of the written terms into a contract There are three ways in which terms may be incorporated into a contract: 1) Signature. The simplest way in which terms are incorporated into a contract is by signature. In this instance the parties are taken to have assented to clause. *L'Estrange v Graucob [1934] 2 QB 394; Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805. Note the impact of Grogan v Robin Meredith Plant Hire [1996] CLC 1127, where signature of a time sheet (which sought to incorporate an indemnity clause) was not subject to the rule in L'Estrange v Graucob because the document was not contractual.

2) Notice. If the clause appears in a document that has not been signed or on a notice on a wall at the place where the contract is made, or is referred to a document which directs the other to another document containing terms, then, whether or not the clause is incorporated depends upon the rules relating to notice. The basic rule of notice is that terms will only be incorporated if the person relying on the exemption clause has taken reasonable steps to draw it to the attention of the other party; the test is objective. Note, that this does not mean that the other party must have actual knowledge of the clause. However, if there is evidence to suggest that that person does have actual knowledge then the clause is a part of the contract.

In determining if reasonable steps have been taken the following points need to be considered: (a) Is the document containing the terms contractual in nature or merely in the nature of a receipt? If the document is a receipt, then it is not reasonable to expect that such will contain important contractual terms. *Chapleton v Barry UDC [1940] 1 KB 532. (b) How is the clause presented? Is it prominently displayed or hidden amongst other terms or, if it is a notice, is it small or obscured? The steps taken to bring the clause to the attention of the other party depend very much upon the facts of the case. *Parker v South Eastern Railway (1877) 2 CPD 416; *Thompson v L M &.S Railway Co [1931] 1 KB 41.

4

Incorporation by reference - If a document has terms on the back of it, then there should be a reference on the front to see the back. Failure to include such an instruction may prevent incorporation. Henderson v Stevenson (1875) LR 2 HL Sc App 470. If a term is unusual or onerous the law requires more to be done to draw it to the attention of the other party, see *Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 1 All ER 348. (c) At what time was the contract formed? For a clause to be incorporated, it must be notified before, or at, the time the contract is formed. If the clause is notified after the contract is made, then it will not be incorporated. *Olley v Marlborough Court Ltd [1949] 1 KB 532.

3) Course of Dealings. It may be that at the time the contract is formed no exemption clause is brought to the attention of the other party. Ordinarily, this would mean that no reliance could be placed upon the clause. However, the situation may be different if the parties had previously contracted and the contract had included an exemption clause. The clause may be incorporated because of a previous course of dealings. Spurling v Bradshaw [1956] 2 All ER 121. What constitutes a previous course of dealings? (a) Has there been a consistent course of dealings? In other words, have the same terms been used when the parties have contracted previously or have parties contracted in the same way? McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125. (b) How many times have the parties previously contracted and over what period of time? If the parties have contracted on many occasions over a short period of time, then it is more likely that the court will infer notice from the parties' previous course of dealings. There are no hard and fast rules as to how many contracts must be made or as to the length of time needed. Compare the number of transactions and time period in: *Hollier v Rambler Motors (AMC) Ltd [1972] QB 71. Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association [1969] 2 AC 31.

5

Implied Terms There are various sources of implied terms. (i) Terms implied in fact Terms which the parties must have intended to include but have failed to do so because of inadvertence or a failure of expression. Treitel in The Law of Contract classifies such implication as terms implied in fact, recognising that this process depends upon the facts surrounding the formation of the contract to establish what the parties intended to include in the contract. There are two tests for identifying the intention of the parties: the "business efficacy" test and the "officious bystander" test, respectively. Note what constitutes each test. The Moorcock (1889) 14 PD 64 and Shirlaw v Southern Foundries Ltd [1939] 2 KB 206. It has been said that to imply a term in fact both tests must be satisfied; it must be both obvious and necessary. This is doubtful and in the absence of evidence as to intention, negativing the “officious bystander test”, satisfaction of one or other test will suffice. Bournemouth and Boscombe Athletic FC v Manchester United FC, The Times, May 22nd, 1980; Gardner v Coutts & Co [1967] 3 All ER 1064. The courts involvement in this process is limited to spelling out from the evidence what the parties must have intended in their agreement. The courts will not rewrite the contract for the parties so as to improve it. The evidence of the parties’ intention must, therefore, be very clear for a term to be implied in fact. Note that the intention of both parties must not only indicate that there should be a term implied, but it must also point to the implication of the same term. In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282–283 Lord Simon said that in implying a term in fact the following conditions must be satisfied: '(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying” (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.' Note AG of Belize v Belize Telecom Ltd [2009] UKPC 10 and Lord Hoffmann’s restatement of rules relating to implication in fact – implication of a term is an exercise in interpretation of a contract. However, in Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd and another [2015] UKSC 72 Lord Neuberger said Belize case has not changed law. ‘No dilution of the requirements which have to be satisfied before a term will be implied’ post-Belize. Traditional tests of necessity and obviousness were reaffirmed. ‘The express terms of a contract must be interpreted before one can consider any question of implication.’

6

(ii) Terms implied in law. This source of implication is two-fold, statute law and case law. Note that implication of terms under this heading does not depend upon the intention of the parties, but is based upon the law providing that in certain types of contract, eg Sale of Goods contracts, employment contracts, landlord and tenant contracts, certain terms are to be implied. The law in this instance is regulating the relationship between the parties and is laying down standards, adherence to which is a legal requirement. (a) Statute Law The main examples you need to consider here are: the Sale of Goods Act 1979; and the Supply of Goods and Services Act 1982. Supply of Goods and Services Act 1982 section 12 (1) In this Act a “relevant contract for the supply of a service” means, subject to subsection (2) below, a contract under which a person (“the supplier”) agrees to carry out a service, other than a contract to which Chapter 4 of Part 1 of the Consumer Rights Act 2015 applies. (2) For the purposes of this Act, a contract of service or apprenticeship is not a relevant contract for the supply of a service … Note: contract of service means an employment contract section 13 In a relevant contract for the supply of a service where the supplier is acting in the course of a business, there is an implied term that the supplier will carry out the service with reasonable care and skill. section 14 (1) Where, under a relevant contract for the supply of a service by a supplier acting in the course of a business, the time for the service to be carried out is not fixed by the contract, left to be fixed in a manner agreed by the contract or determined by the course of dealing between the parties, there is an implied term that the supplier will carry out the service within a reasonable time. (2) What is a reasonable time is a question of fact. section 15 (1) Where, under a relevant contract for the supply of a service, the consideration for the service is not determined by the contract, left to be determined in a manner agreed by the contract or determined by the course of dealing between the parties, there is an implied term that the party contracting with the supplier will pay a reasonable charge. (2) What is a reasonable charge is a question of fact. Important Note: the Consumer Rights Act 2015 replaced the above terms as they affect contracts between traders and consumers with a new set of similar terms to be included in such a contract – for goods see ss.9-18 and for services see ss.48-57 Consumer Rights Act 2015.

7

(b) Case Law This process once again involves the courts but is very different from the process of implying terms in fact. Cheshire, Fifoot and Furmston say of the courts implying terms in law: "...the court is really deciding what should be content of a paradigm contract of hire, of employment, etc. The process of decision is quite independent of the intention of the parties except that they are normally free, by using express words, to exclude terms that would otherwise be implied. So the court is in effect imposing on the parties a term which is reasonable in the circumstances." Liverpool City Council v Irwin [1977] AC 239. Look, particularly, at Lord Wilberforce's opinion and compare it with that of Lord Cross. See also Scally v Southern Health and Social Services Board [1991] 4 All ER 563. The problem is what do the courts take into account in assessing reasonableness? In Crossley v Faithful & Gould Holdings Ltd [2004] EWCA 293, Dyson LJ said: “rather than focus on the elusive concept of necessity, it is better to recognise that, to some extent at least, the existence and scope of standardised implied terms raise questions of reasonableness, fairness and balancing competing policy considerations”. See E Peden, Policy Concerns Behind Implication of Terms (2001) 117 LQR 459. (iii) Terms may be implied by custom or usage. Contracts may be negotiated against the background of a particular trade or commercial practice. In certain instances, terms may be implied from established custom or usage. A custom to be implied must be certain, notorious, reasonable and consistent with the express terms of the contract. Hutton v Warren (1836) 1 M&W 466; British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd [1975] QB 303.

8...