3 - terms of the contract

• 3 types of categorisation

  1. puffs
  2. representations
  3. terms
• Contractual terms

  • the enforceable elements of a contract
  • expressed terms are discussed by the parties during the representation process
  • implied terms are how other representations become terms of the contract without expressed discussion from the parties
  • 3 types of terms: conditions, warranties, innominate terms
• representations

  • anything discussed pre contract is a representation
  • some representations become terms, some dont
• mere puffs

  • a statement not meant to result in contractual liability
• test for the incorporating of terms

  • what is the intention of the parties at the time the contract was made
• the classic rule

  • bannerman v white - B offer hops (brewing ingredient in beer) to W, W asked if sulphur had been used in their treatment as hops with sulphur were rejected, B said no, W bought them but they did contain sulphur. B's specific noting of the lack of sulphur was seen as a condition upon which the contract was entered as W made it clear he couldn't use them if sulphur was used, showing his intentions, making it contractually enforceable
• representations

  • Oscar Chess v Williams - private seller sold a car to dealer stating it was a 1948 model, logbook showed it was 1948, it was actually a 1939 model - logbook was altered in the past (this was unknown to either party). CoA stated this was a representation not a term as the car being a 1948 model was not in the contract and the car dealer was not relying on the private seller in purchasing the car
• Written and oral contracts

  • oral contracts not invaluable, just harder to prove - parol evidence rule
  • Jacobs v Batavia and general Plantations Trust - 'parol evidence cannot be admitted to add to, vary or contradict a deed or other written instrument'
• Couchman v Hill - a heifer (farming cow that hasn't borne calf) bought at an auction as 'unserved', later died after a miscarriage (meaning probably had been served), although the auction catalogue had a disclaimer, the owner confirmed it was unserved. Oral terms overrode the printed exemption clause (which mentioned nothing about being served or not)
• City and Westminster Properties v Mudd - the lease of a shop, both parties knew the tenant would sleep in the back, new lease drawn up specifically said property could only be used for retail purposes, before lease was signed the tenant said 'will i be able to continue living in the shop' the man said yes, court said the lease didn't allow for residential use however there was a separate contract alongside the lease which was oral (collateral warranty) and that this had been breached
• conditions

  • essential to the contract - they are 'any formal arrangement of words, but must depend on the reason and sense of the thing as it is to be collected from the whole contract' - its about the importance of the term to the contract as a whole, not the specific words used
• condition precedent

  • essential to the contract as its breach gives the innocent party the option of being discharged from future performance of the contract (repudiation)
• warranties

  • everything else (if not a condition, its a warranty)
  • a breach of a warranty only allows the innocent party to claim for damage, contract cannot be terminated
• Schuler v wickman - W entered a contract where he had to visit 6 motor manufacturers in the UK once a week, expressly stating this as a condition, W failed to make a number of visits and S sought to repudiate. Term couldn't have been a condition as the parties couldnt have intended a trivial breach to allow repudiation. Court held it was not a condition
• innominate terms

  • neither conditions or warranties
  • when parties intentions are unclear
  • when there's a breach, look at the effects of said breach and treat it as a condition/ warranty accordingly
• Hong Kong Fir v Kawasaki KK - charterers sought to repudiate for providing an unseaworthy ship, term found to be innominate, charter could repudiate if the breach deprived the promisee substantially of the whole of the benefit he expected to gain from the contract (the seriousness of the breach depends on the consequences)
• • expressed terms come from parties negotiating the contract
  • implied terms enter through a process of implication independent of the parties themselves
• implication by statute

  • Harlingdon and Leinster enterprises v christopher hull fine art- artwork described as being by Munter but the seller did not claim to have expertise in the matter, the artwork was a forgery .S13(1) of the Sale of goods act 1989 implies a condition that the goods will correspond with their description
• business efficacy test - implying a term to ensure the outcome of the contract will be fulfilled
• terms implied in fact

  • the Moorcock - ship was to land and store cargo on a jetty on the Thames. Owners had not determined the jetty was safe for the vessel to use, at low tide the vessel grounded and took damage. Held, there was not an implicit terms that they had taken reasonable care to ensure usage would not damage the vessel
• officious bystander test

  • Reigate v union manufacturing - "a term can only be implied if it is necessary in the business sense to give efficacy to the contract"
  • if both parties would hypothetically said 'of course' to a term being proposed by an officious bystander
• officious bystander

  • Shirlaw v southern foundries - S employed as director of a company for 10 year in 1922. Company ownership changed in 1935, this new business changed in order to allow the removal of a director, S was removed. Held, there was an implied term not to alter the articles of association to remove him, the reason it was not expressly included is because it was "so obvious that it goes without saying"
• implication still a contested area of law

  • M&S v BNP paribas security services - M&S sought to rely on implied terms that allowed them to reclaim back rent after a 'break clause' had been triggered in a lease, the implication was refused.
  • A term will only be implied if it satisfies the test of business necessity or it is so obvious that it goes without saying
• implication by common law

  • Liverpool city council v Irwin - tenants claimed the contract had implied clauses to have the common areas looked after, they claimed a breach. There was no formal lease and the contract only contained the tenants obligations, not landlords. Held, there were implied obligations to take care of common areas as the contract cannot be binding if both parties are not exchanging anything so it was necessary to imply the terms
• implication by prior course of dealing

  • Hollier v Rambler Motors - contract between owner of the car and owner of the garage, car damaged in fire in public garage, owner claimed damages due to respondents negligence, usually exclusion clause (no liability) in contract, H signed contract every time he left his car there, except this time. Prior course of dealing implies that it should apply here but it didn't because the contracts were signed hurriedly previously
• implication by prior course of dealing

  • McCutcheon v David MacBrayne Ltd - car on a ferry, previously goods were put on the ferry and a consignment note was signed, which contained an exclusion clause, MCC claimed he was aware there were conditions but within the note but not what they were. Held, had to be a consistent and regular course of dealing for terms to be applied to case where note not signed, parties also have to be aware of the conditions they are signing to
• implication by Custom

  Perry v Barnett - contract in Bristol to buy shares in a bank, shares had to be bought on London stock exchange, stock purchased according to the rules of LSE but void under other legislation. Bristol buyer refused to pay for stocks so both parties not aware of the custom and could not be inferred that the stocks would be purchased not in accordance to the legislation as they were from Bristol so would have no knowledge of the LSE
• implication by custom

  • British crane hire v Ipswich plant hire - IPH arranged a crane via telephone, crane delivered, they had had prior dealings and after each phone call they would receive a package in the post with terms, the crane sank into soft ground before the terms arrived in the post and BC sought to rely on an indemnity clause, as both parties were involved in the trade, they were aware of the typical contract terms
• onerous terms

  • a term so unusual that requires specific attention to be given to it
  • if you wish to include an onerous terms, you need to show it specific attention before the contract has been signed for it to be seen as legitimate
• the red hand rule

  • the more unreasonable a clause is, the more notice must be given to it
• notice of onerous terms

  • J Spurling v Bradshaw - 8 casks of orange juice stored in a warehouse, documents for the storage referred to conditions in small print on the reverse excluding liability, on return the casks were empty or damaged. Denning LJ "the more unreasonable a clause is, the greater notice which must be given to it" - some clauses need to be in red ink on the front of the document with a red hand pointing to it to be sufficient
• onerous terms

  • Photo production v Securicor transport - S night patrol service, contract included exclusion clause "not responsible for any loss suffered through fire except so far as is solely attributable to the negligence of the company's employees acting within the cause of their employment", fire deliberately started by an employee destroyed the premises. Held, exclusion clause covered liability
• automated contracts

  • Thornton v Shoe Lane Parking - use of an automated parking garage, sign outside read all cars are 'parked at owners risk'. Ticket taken on entry to garage, in small print the ticket was 'issued subject to conditions displayed on the premises'. Held, the plaintiff didn't know of the conditions and SLP had not done what was reasonably sufficient to being it to his notice
• course of dealing and knowledge

  • McCutcheon v David MacBrayne - M signed risk notes on 4 previous occasions, not this time, he was aware of conditions referred to but not the nature of those conditions. They could not have been implied through a course of dealing. Lord Devlin "previous dealings are relevant only if they prove knowledge of the terms, if a term is not expressed in a contract, there is only one other way in which it can come into it and that is by implication, no implication can be made against a party of a term which was unknown to him"
• Limitation clauses

  • seek to limit the extent of a party's liability under a contract
  • often seek to limit the maximum liability under a particular head of damage
  • the limitation will often be a maximum sum of money
• exclusion clauses

  • seek to exclude entirely a form of liability for a party when there is a breach
• interpretation of exclusion clauses

  • the normal rule is based on the parties intention at the time of drafting - what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be
• a stricter rule is normally applied to exclusion clauses

  • the term will be construed against the party seeking to rely on it to exclude liability
  • that is especially the case when there is perceived to be an imbalance of bargaining power and one party had imposed the exclusion on the other
  • when both parties are of equal power, the clauses are more likely to be upheld
• Exclusion of liability for negligence

  • Canada steamship lines v R
  • Three stage test for exclusion of negligence
  • . 1 - express reference to negligence
  • . 2 are the words used wide enough to cover liability for negligence
  • . 3 if words are wide enough, could the party desire protection from another form of liability and it is likely that the words will be taken to refer to the non negligent liability only
• penalty and damage clauses

  • what makes the clause enforceable depends on its proper construction
  • if the term is deemed a penalty clause, it cannot be recovered
  • if the term is deemed a genuine attempt to 'liquidate' (reduce certainty) prospective damages of an uncertain amount, the term will be deemed to be a liquidated damages clause and the sum will be recoverable