Friday, March 28, 2008

LAW OF CONTRACT - CONTRACTUAL TERMS

TERMS OF CONTRACT

Statements made in the formation of a contract could be categorised intoeither, condition, warranty and representation. Whether a statement is a contractual term or warranty depends ultimately on he intention with which it was made.The distinction between terms and representations rests upon the intention of the parties as objectively ascertained i.e. did the parties intend that the statement maker was making a binding promise as to the truth of the statement. Lord Moulton said the intention of the parties can only be deduced from the totality of evidence and no secondary principle of such kind can be universally true - Heilbut, Symons &Co. v Buckelton (1913). Where the maker of a statement asked the other party to verify its truthfulness it is unlikely to be a terms Ecay v Godfrey (1947) – the seller of a boat who asked the buyer to evaluates its condition. In Schawel v Read (1913) when the seller asked the buyer not to bother verifying the accuracy of his statement of the health of a horse, where statement is of such importance to the person relying on it without which he would not have entered into a contract Coachman v Hill (1947) , where the maker of the statement has special knowledge Dick Bently Productions Ltd v Harold Smith Motors the statements were considered term. However, where the person making the statement was less knowledgeable ton the subject thatn the other party, then such statement is a warranty Oscar Chess Ltd v Williams (1957) seller who sold a car to a card dealer.

There are two principal sources of contractual terms i.e. express and implied terms. Express terms may be agreed orally or in writing while the implied terms are those which are not specifically agreed but implied into the contract by courts or parliament. Parole evidence rule which imply that parties are bound by their written agreement government the management of contract by the courts. There are however exception to this rule for example where the written document was not intented to contain the whole of the agreement Allen v Pink (1938), where there are proof that of terms which must be implied Gillepsie Bros & Co. V Cheney, Eggar & Co (1996) where it could be shown that the contract is invalid on the ground of misrepresentation, mistake or fraud Campbell Discount Co, Ltd v Gall (1961) where its is possible to prove that a custom is implied Hutton v Warren (1836), where it is possible to show that the contract has not yet come into operation or that it has ceased to operate Mann v Nunn (1804). The width if the exception off parole evidence rule has always been a subject of criticism, but it has not been abolished because it did not preclude the courts from having recourse to extrinsic evidence where such a course was consistent with the intention of the party and the fear that legislative changes may cause more confusion that clarity to the law on such matter. Another important issue is the parties being bound by their signatures L’Estrange v Graucob Ltd (1934) but the document signed must however be capable of being called a contract Grogan v Robin Meridith Plant Hire (work sheet). Unfortunately however, these cases did not address the binding effect of the issues of onerous terms signed by a party Interfoto Picture Library Ltd v Stilleto Visual Programmes Ltd (1989) and Peninsula Services Ltd v Sweeney (2004).

In the absence of established common law principles which can attach onerous clause, the focus of attention has shifted to statutory provisions in form of UCTA 1997, UTCCR 199 and Sale of Goods Act 1979. The laws attacked the incorporation of such terms into a contract. Another defence available is non est factum Sanders v Anglia Building Society (Gallie v Lee (1971) which is available to those who cannot read, where the document is radically different but it is not applicable where there is a carelessness on the part of the person who signed the contract. Contracting parties can incorporate terms into a contract provided they give notice of such terms at or before the contract is concluded Olley (1949), the terms are contained or referred to in a document which was intended to have contractual effect Chapleton (1949) and the term must be brought to the attention of the other party Parker (1977). The test is whether reasonable steps have been taken to inforn the other party. This would depend on the circumstance of each case Thompson v London Midland & Scotish Railway Co. Ltd (1936) reasonable step Richardson, Spencer and Co. Ltd v Rowntree (1894). Terms may also be incorporated into a contract in the course of dealing, where the dealing is both regular and consistent Henry Kendall Ltd v William Lillito LTD (1969) 100 similar contracts over three years was consider course of dealing whereas in Hollier v Rambler Motors (AMC) Ltd 1972 3 or 4 contract over five years were held not to be in the course of dealing. The dealing must not only be regular it must be consistent McCutcheron v David MacBryyne Ltd.

Interpretation of the contractual term is the duty of the court once there is a dispute as to the acceptable terms by the parties. The court start this by construing and there was desire in the past to place as much obstacle as possible on the part of those seeking to exclude liability Bank of Credit and Commerce Internattional v S. A. v Ali (2001). Purposive approach is adopted for such interpretation Mannai Investment Co. Ltd v Eagle Star Life Assurance Co (1997) and Total Gas Marketing Ltd v Arco British Ltd (1998). There is however criticism of the purposive approach in that it creates too much uncertainty and it make it difficult to predict the outcome of interpretation. The House of Lords was spited 3:2 Mania and 4:1 in West Bromish, Burnop and BCCI. The breach of the second principle on factual matrix (particularly the use of words like absolute anything) is likely to encourage lawyers to seek to adduce evidence which previously was inadmissible by introducing the matrix of fact. There is fear that the 4th and 5th principle would blur the line between purposive interpretation (which is legitimate) and creative interpretation (which is clearly illegitimate). After interpretation the court could them implied terms into a contract under the statutory provisions, common law rectification term and generally accepted custom. This are rectification terms and court will only rectify a contract where there is convincing proof that the documents fails to record the intention of the party where there is no defect in the making of the contract but the recording of the contract.

Whether particular statement made or assurance given in the course of negotiation forms part of the contract; how terms can be implied either by operation of a statute or common law; and an why major or essential undertakings are distinguished from the minor or inessential ones. Those statements that form path of the contract are terms – breach of terms gives right to damages or termination. Representations are statement that do not form part of a contract (mere puff no legal significance. Warranty a term of a contract, or a separate collateral. If representations are false there is no action for breach of contract. Possible action will only apply if there is misrepresentation or meet separate criteria for actionability (Misrepresentation Act 1967; tort of negligent misstatement in Hedly Byrne & Co Ltd v Heller & Partner Ltd 1964) misrepresentation has to be fraudulent for injured party to receive damages. Finding the intention of the parties – the basic criterion is set out by the House of Lords in the case of Heilbut Symons & Co. v Buckleton (1913). Criteria: importance of the statement; where one party is relying on the other; and the relative knowledge of the party. Terms of collateral contract - term of separate contract collateral to the main contract. It is actionable as a branch if the collateral term is improperly warranted - Heilbut Symons & Co. v Buckleton (1913) and Esso Petroleum Co. Ltd v Mardon 1976. Parole evidence rule – when parties decide to commit the terms of their contract to a written agreement, they cannot come later to seek to establish that there are terms outside the written agreement. There are many exceptions to this rule. Sources of contractual terms. The Use of implied terms – in certain terms the court will imply terms into a contract s.14(2A) of the Sales of Goods Act 1979. Courts are generally reluctant to imply terms into a contract. They generally consider their role to be that of interpreter rather than maker. Courts will imply terms under the following conditions – where there is established trade usage; relationship between parties (Malik v BCCI (1997), Liverpool City Council v Irwin (1976) and Equitable Life Assurance Society v Hyman (2002) ; effect to unexpressed intentions (MacKinnon Lj in Shirlaw v Southern Foundries (1926) Ltd (1939): Officious bystander suggestion and operation of statute (s14 of Sale of Goods Act 1979 amended by Sale and Supply of Goods Act 1994 (goods must be sold in satisfactory quality (new s.14(2A), quality listed s.14(2B) defect revealed s.14(2C) restriction of buyers right to reject s.14(2D), title s.12, description s.13 and Sample s.15). It is open to the parties to defeat implied terms. There are limits to which parties can defeat terms implied by statutes (Unfair Contract Terms Act 1977 and Unfair Terms in Consumer Contracts Regulations 1999). S.14(3) Slater v Finnings (1996) 3 All ER 393) Supply of Goods and Services Act 1982. Stevenson v Rogers (1999)

A contractual term is a primary obligation and every breach of primary obligation gives rise to a secondary obligation to damages for the loss caused. For a breach the injured party may be provided with the option to a) terminate and claim damages; b) affirm the breach, insist on continuous performance and claim damages. Classification is important to determine whether the breach or innominate term. Injured party is not given the right to terminate the contract for a breach that is a warranty. Rescinding for breach means the injured party is entitled to treat contract as breach. Rescission for misrepresentation means cancelling the contract from the very beginning. Conditions – (most important conditions) breach of which gave right to refuse further performance. Warranties – (less important conditions) for breach of which damages were the only remedy. Parties rescinding need not show the breach has actually caused any loss Bowes v Shand (1877) Re Moore and Landawer (1921)

At Common Law the ultimate test is intension, if intension is clearly expressed a term will be a condition, if not the court will have to draw “proper inference” Behn v Burnes (1868) Bettini v Gye (1876); Poussard v Spiers. Court of Appeal in Hong Kong Fir case recognise a new category of terms that are neither conditions nor warranties and such unclassified terms are referred to as ‘innominate’ or ‘intermediate terms’ . For breach of ‘innominate’ or ‘intermediate terms’ the court will determine whether the injured party has right to rescind Cehave v Bremer HG (The Hansa North (1976). The Hong Kong Fir approach may make it less easy for a contract to be rescinded for breach on a mere technicality but it introduces greater uncertainty. Mihalis Angelos (1970): Bung v Tradax (1981); the Naxas (1990) Barber v NWS Bank (1996) contrast Torvald Klaveness v Arni Maritime Corp (the Gregos). House of Lords held that the obligation to re-deliver a time-chartered ship on due date was probably not a condition. Has not changed condition but have had a knock-on effect – Smith v Hansen-Tangen (1976) words identifying the yard where ship was to be built was no part of the description as to amount to condition to charter-party; L Schuler v Wickman Machine Tools Sales (1974). Lombard North Centra v Butterworth (1987) punctual was made a condition. Union Eagle v Golden Achievement (1997) ALL ER 215 – a 10 minute delay was too much. Time was of essence as the time for performance has passed so too had the right to performance.

Examination Advise – Determine the terms of the contract, expressed term, implied term (Sale of Goods Action 1979 s.14(2) a, b, and c. Unfair Contract Terms Act. Reliance on Purchase where purchaser has great experience or expertise (Esso Petroleum Co. Ltd v Mardon); A seller of car/buyer Unfair contract Terms Act 1977 and Unfair Terms in Consumer Contracts Regulations 1999. ‘Innocent of fault’ Those whose is at fault should check the accuracy of their statement and will bear the responsibility for the failure. B is the only manufacturer if there are other supplier it might the necessary to imply them.

The traditional view of the common law is that it is up to the parties to decide on their respective obligations and that the court should not intervene. Onerous clauses attempting to exclude or limit liability for breach led the courts to develop fairly strict rules designed to limit their scope. Efforts to protect the weaker party led to statutory intervention in form of Unfair contract Terms Act 1977 and Unfair Terms in Consumer Contracts Regulations 1999

Incorporation (is the clause a part of the contract) of clauses as means of controlling their effect. Court develop a relating to fundamental breach – breach so serious that exclusion clause cannot apply. r exclusion clause to be effective it must have been incorporated L’Estrange v Graucob (1934). The party signing will be bound by the clause even if it has not been provided the other party did not make any misrepresentation. Curtis v Chemical Cleaning and Dyeing Co. (1951). The clause even if not in a document which has been signed it can be incorporated provided reasonable notice is given at or before the time of contracting. Notice will not be reasonable after the contract has been made Olley v Marlborough Court Hotel (1949) contract made at Reception desk, exclusion clause displayed in the guest bedroom. Chapelton v Barry UDC (1940) and Thornton v Shoe Lane Parking (1971). Reasonableness was first put forward in Parker v South Eastern Rly (1877). It was to be decided in the light of all circumstances. It does not need to be in the document but indicate the existence of the document. It should be more than a receipt but a document where you will expect to find contractual terms or reference to them. Chapelton v Barry UDC, (1940). Cases Spurling v Bradshaw (1956) Thornton v Shoe Lane Parking (1971), Interfoto Picture Library v Stilleto Visual Programmes (not only to the content of consumer products); AEG (UK) Ltd v Logic Resource Ltd (1966). Another way for incorporation is course of dealing i.e. exclusion clause has been part of previous dealing – Kendall (Henry) & Sons v Lillico (William) & Sons Ltd (1969). Consistence in course of dealing McCutcheon v MacBrayne (1964) previous dealing but exclusion clause as not always used.

Interpret ambiguity against the person trying to rely on the clause (contra proferentem rule) Andrew v Singer (1934); Wallis, son and Wells v Pratt & Haynes (1911) and Houghton v Trafalgar Insurance Co. Ltd (1954). You can extend exclusion for implied term to expressed term. Because consumer are generally protected by legislative provisions the courts have indicated there is less need to adopt strain construction of clauses and more relaxed view of clauses that limit liability rather than exclusion – Photo Production Ltd v Securicor Transport Ltd (1980) AC 827 p843 (1980) all ER 556 p561; Alan Craig Fishing Co. Ltd v Malvern Fishing Co. Ltd (1983) Not followed on Australia Darlington Futures Ltd v DelcoAustralia Pty Ltd (1987). In deciding whether a clause cover liability for negligence by contractor employee – Privy Council opinion in Canada Steamship Lines Ltd v The King (1952) laid the following four principles: if the clause exempt a person from negligence effect must be given to the clause; if there is no express reference to negligence the court will determine if the word use are wide enough to cover it; if the words used are wide enough the court will determine whether liability may be based on some other grounds other than negligence. This was applied in EE Caledonia Ltd v Orbit Valve Plc (1994); 2nd and 3rd rule white v John Warwick (1953). Howsoever caused in bicycle will be effective to exclude liability; Hollier v Rambler M otors (1972). Appeal Court once ruled exclusion clause(s) would not be effective against fundamental breach – obligation central to the performance of a contract e.g. Karsale (Harrow) Ltd v Wallis (1956) Car bought in good condition but delivered incapable of self propulsion. Consequences of breach exceptionally serious Harbutt Plastine Ltd v Wayne Tank and Pump Co. Ltd
Approach to fundamental breach reviewed by the House of Lords in Suisse Atlantique Societe d’Armament Maritime SA v NV Rotterdamsche Kolen Central (1976) and Photo Production Ltd v Securicor Transport Ltd (1980). The house reject court of appeal’s assertion that that there was a rule of law preventing reliance on exclusion clause in case of fundamental breach. The question is that of construction. The effect of the Unfair Contract Terms Act 1977 is that in all consumer contracts an exclusion clause which attempts to exclude liability for a fundamental breach which attempts to exclude liability for a fundamental breach will either be automatically void or subject to a test reasonableness. Contra proferentem rule – applied particularly strictly where the defendants alleges that liabilities for negligence has been excluded. The Common Law controls the use of exclusion clauses by means of the rules of incorporation.

UNFAIR CONTRACT TERMS ACT 1977
Statutory framework for the regulation of exclusion clauses and operate alongside the common law. UCTA is primarily concerned with exclusion and limitation clauses (regarding business liabilities s.1(3) private individual will rely on common law) rather than unfair term in general. R & B Customs Brokers v UDT (firm selling of its old computer not a business contract. Enforcement subject to restrictive or onerous conditions (all claims to be made within 24 hours of the conclusion of the contract). Smith v Eric Bush (1989) Bush 1989 – surveyor giving valuation without any acceptance of liability for its accuracy; Philips Products Ltd v Hyland (1987). UCTA does not apply to insurance, land, intellectual property, international supply contract – s.4, s.26 (Amiri Flight Authority v BAE Systems Plc (2003) ECWA Civ 1447 (2003) 2 Lloyd’s Rep. 767. Negligence Liability – Negligence is defined as covering an obligation to take reasonable care in the performance of a contract; the tort of negligence; and liability under Occupiers Liability Act 1957; Any clause excluding negligence resulting in death or personal injury is null and void s.2(1). The section does not apply where the effect of the clause is to transfer liabilities between possible tortfeasors rather than preventing victim from recovering – Thomson v Lohan (Plant Hire) 1987. In s.2 restriction of liability will only be effective if it satisfies the requirement of reasonableness. Contractual liability - s.3 covers the exclusion of contractual liability other than through negligence where one party deals as consumer (does not hold himself out to make contract in the courses of business, where one of the party deal on others written standard terms of business. R & B Customs Brokers v UDT (1988) Export company bought cars for use in business and directors personal use. Stevenson v Rogers (1999) the CA took a different view. The supply of goods – ss.6 and 7 of UCTA prohibits any exclusion of liabilities. In relation to the implied terms as to description or quality (Sales of Good Act ss.13 and 14) the position depends on whether the buyer is dealing as a consumer or not. In relation to s.2(6.23) with the additional requirement that the goods must be of a type ordinarily supplied for private consumption (s.12(1). R & B Customs Brokers v UDT (1988). The Test of reasonableness – looking at the clause at the time or the contract rather than in the light of any breach. Whether the clause was a reasonable one to include in the first place, rather than whether it would be reasonable to allow reliance on it in the circumstances which actually occurred – Steward Gill Ltd v Horatio Myer & Co. Ltd (1992). The Obiter suggestion to the contrary in Overseas Medical Supplies Ltd v Orient transport Services Ltd (1999) seems to go against the clear wording of s.11. The more resources are available, and the greater the opportunity for insurance, the less likely the clause is to be reasonable. Schedule 2 contain list of factor. Judicial consideration – Before UCTA House of Lord Gorge Mitchel v Finney Lock Seeds (1993). Sale of cabbage seed. The wrong seed for supplied and the seed failed entirely. Clause limit liability to the price of the seed. The seller could easily insured against the liability it was common not to rely but to negotiate settlement of claims on terms more favourable. Post UCTA House of Lords Smith v Eric S Bush. Importance of balance of bargaining power, availability of alternative. Court of Appeal. Courts emphasised in general that the court should assume that business contractors will be the best judges of commercial fairness of their agreement. It is only if there is evidence that one party has taken unfair advantage of the other or the term is so unreasonable that the court should intervene.

UNFAIR TERMS IN CONSUMER CONTRACTS REGULATION 1999
UTCCR result from implementation of European Directive (93/13/EC) 1994 and 1999. Difference between UTCCR and UCTA – UTCCR apply to consumer (natural person) contract. UCTA apply to all types of contractual clauses other than those individually negotiated. Good faith test and significance imbalance in rights and obligation – Khatum v Newham LBS (2003) EWHC 2326. Schedule 2 illustrative and non exhaustive list. Regulation 7, all term of contract must be in plain, intelligible language. UTCCR 1999 (reg. 10) also give a general supervisory power to the Office of Fair Trading
INCORPORATION OF TERMS INTO A CONTRACT –
Olley v Marlborough Court Hotel (1949) the CA held that since a contract was made at the reception desk, the notice in the bedroom came too late and were not incorporated. Chapleton v Barry UDC (1940); HL held that the ticket was a mere voucher. Only the notice was capable of containing conditions and that made no mention of an exemption. The pile of deck was held to constitute a standing order and a contract was formed when a chair (which eventually gave way and injured the plaintiff) removed from pile. Thorton v Shoe Lane Parking (1971): CA held that the notice came too late since the contract was concluded the moment the car drove up the machine at the defendant’s automatic garage. Parker v South Eastern Rly (1987): CA held that the judge misdirected the jury as he did not ask whether the defendant has taken reasonable steps to give the defendant notice of the condition. Notice at the back of a receipt after payment was considered inadequaten. Terms are also implied into contract by reason of s.14 of the Sale of Goods Act 1979 (goods sold in the course of business should be of satisfactory quality. Breach of implied terms and whether express terms cover the breach. Unfair Terms in Consumers Contract Act 1977 (UCTA) [s.1 applies where one party deals in the course of a business or where the parties deal on one party’s standard written terms s.2) and Unfair Terms in Consumers Contract Regulations Act 1999 (UTCCR). Applications of ss. 6 and 12 of UCTAA 1997 and the relevant case law. A business cannot exclude the implied terms arising by operation of SOGA 1979 as against a consumer. Application of ss.2(2), 3, 11, 13, 24, Sch. 2 and the case laws interpreting the sections. 1999 (UTCCR) applied to unfair terms between a seller and supplier on the one hand and consumer on the other s.4(1). Unfair terms principles in Director-General of Fair trading v First National Bank Plc (2002) HL; UTCCR 1999 ss.4-6, Sch.2) – The HL held that a term of a loan agreement which provided for interest to be paid at the contractual rate on sums owing both and after judgement did not fall within reg. 3(3)(b). It was an incidental term setting out the consequences of default by the borrower. Unfair terms are of no effect against a consumer s.8. For a consumer UTCCR 1999 is preferable, because express term are of no effect if unfair to UCTA 1997 which would allow the express terms to the extent that they are reasonable

2 comments:

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pellejero said...

is it possible to write a contract with this clause:
“The vendor undertakes no liability for defects in the goods sold”.
What happen if the contract in first instance was verbal and both parties agree that the opposite of this clause but when the contract was signed the customer did not read it when signed.
Please advise.
What are the rights of the customer?