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Contractual Terms
SGA & SOGASA → SASOGA 1994
"Terms" are the content of a contract. There is legislation to limit what businesses
can incorporate into a contractual agreement. The courts tend to favour consumers,
and are "heavy" when the contract seeks to limit liability.
Terms
These may include written or oral, and they define precisely (or should) under what
obligations the parties have consented to place themselves. Contractual terms have
been described as consisting of primary obligations, which deal with issues of
performance, and secondary obligations, which usually only arise in the event of a
breach of a primary obligation and which deal with remedies (usually an award of
damages).
Photo Productions Ltd v Securicor Ltd [1980] 1 All ER 556 (HL) per Lord Diplock
Provisions dealing with contingencies only come into existence if the primary
obligations are breached.
Incorporation
One source of controversy in this area relates to the issue of incorporation of terms
and the requirement of reasonable notice. This is of particular significance where
one party seeks to rely on especially onerous terms or terms which attempt to limit or
exclude liability. (This will be covered in more detail in lecture 7.)
L’Estrange v Graucob [1943] 2 KB 394 (CA)
Signed a contract for a cigarette vending machine. There was a term that said "any
express or implied conditions, statement or warranty, statutory or otherwise, not stated
herein are excluded". The machine failed to work. The plaintiff claimed under an
implied term under the 1893 SGA s.14 that the machine should have been fit for the
purpose. The court said that as the signed agreement excluded this type of term, it
was tough luck - i.e. what WYSIWYG! Note also that the court said that it was
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immaterial whether the plaintiff had read the entire contract or not! Nowadays, it is
unlikely that this would hold, since freedom of contract is no longer possible.
Curtis v The Chemical Cleaning Company
The plaintiff took a dress to the dry cleaners and was asked to sign a receipt by the
assistant. When he asked why, he was told that it was to simply limit the cleaner's
liability … howsoever caused. IN fact, it totally excluded the liability. The dress was
stained and ruined, so the plaintiff sued on the basis that the assistant had made a
misrepresentation and won.
Parker v S.E.Railway (1877) 2 CPD 416 (CA)
"Ticket Case"
Rail freight ticket was bought. Ticket said see back - back said that liability was
limited to £10. There was a notice on the office wall that said the same thing. The
bag went missing, so the plaintiff claimed, unaware of these conditions.. Jury trial
case (nowadays this would only happen in a defamation case). The judge gave the
following direction to the jury - questions of fact:
•
If the plaintiff did not see or know of the writing on the back of the ticket,
he's not bound by it
•
If the plaintiff knew there was some writing and conditions then he was
bound by it
•
Was "see back" enough to satisfy reasonable notice? If not, was the sign on
the wall?
In the event, the jury found in favour of the plaintiff, as both were insufficient. This
begs the question as to whether the ticket seller should have drawn the conditions to
the plaintiff's attention.
Chappleton v Barry UDC [1940] 1 KB 532 (CA)
Hiring deckchairs on a beach. Paid 2d for ticket. Notice said obtain ticket, no
exempting conditions referred to. Back of ticket said "not responsible for accident,
etc." The chair collapsed, causing injury, and the plaintiff claimed compensation.
The Court of Appeal said that the notice was an offer, and that the ticket was a receipt.
Therefore, the conditions were imposed after the agreement had been formed - too
late to be incorporated into the contract.
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Thornton v Shoe Lane Parking Ltd [1971] 1 All ER 686 (CA)
There was an outside notice that said "all cars parked at owner's risk". There was no
attendant, and the plaintiff bought a ticket, and put it in his pocket. The ticket said
that subject to conditions displayed on premises, which were not visible. These
conditions exempted SLPC from any injury to customers howsoever caused. The
plaintiff suffered an injury caused by the defendant's negligence, and claimed
compensation. The court said that the contract was concluded when the ticket was
bought, and that only the conditions on the visible notice applied, and therefore,
compensation for personal injury could be claimed.
McCutcheon v David MacBrayne [1964] 1 All ER 430
David MacBrayne were ferry operators, and McCutcheon was a regular user, but on
this occasion, his agent had arranged for his car to go on, under an oral contract. The
ferry sank, and the car was damaged, so the plaintiff claimed damages. Defendant
said that there was an exclusion of liability on a sign in the ticket office and a risk
note would usually have to be signed. But the agent had not signed any document all he had was a ticket that said "subject to conditions on notice". But, was there
reasonable notice, as the plaintiff had used the firm before - "consistent course of
dealing"? The court said no - he was only a sporadic customer, therefore
compensation was allowed. (Also, the plaintiff was a private individual).
British Crane Corporation Ltd v Ipswich Plant Hire [1974] 1 All ER 1059 (CA)
Similar to McCutcheon
Ordered a crane, urgent, no detailed contract. Dispute as to whether one of the terms
"Contractors Plant Association standard form" was incorporated into the contract.
There had been regular dealings, both were members ⇒ ought to have known ⇒
reasonable ⇒ upheld.
Interfoto Picture Library v Stiletto Visual Programmes [1988] 1 All ER 348 (CA)
The plaintiffs ran a library of photo transparencies. Stiletto phoned and ordered 47
photo transparencies. Interfoto sent them by post, with a notice of conditions of
contract. One of which was that they were to be returned within 14 days, else there
would be a £5 charge per transparency per day. The defendant forgot to return them 15 days late. Claim for £5 × 15 × 47 = £3,525. The Court found in favour of the
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defendants, since there had not been reasonable notice of this condition, which the
defence argued was an unreasonable one in any case.
Where there is a particularly onerous clause, the amount of notice must be much
higher - it should be crystal clear. UCTA 1977 - fair and reasonable?
Although the UCTA did not apply in this case, its spirit was imposed.
“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 it before the notice could be held to
be sufficient.” – Denning LJ in Spurling v Bradshaw [1956] 2 All ER 121 at 125
Implied Contractual Terms
Most contracts (especially oral contracts) will have some terms implied into them by
the courts, either by law, or because the parties of the contract will not always have
set out every detail of the agreement. Such terms may override express terms of the
contract …
Johnstone v Bloomsbury Health Authority [1991] 2 All ER 293 (CA)
i) by Statute
Various statutes imply terms into certain types of contracts, primarily in the field of
Consumer Protection, and these terms cannot be avoided or excluded by express
provisions in the contract (see Unfair Contract Terms Act 1977 ss6 & 11)
ii) an Common Law
a) “in fact” (to give the effect to the “presumed intention” of the parties)
The Moorcock (1886-90) All ER Rep 530 (CA)
The defendants had a wharf, and were to empty the plaintiff's ship. The tide was up.
As the tide went out, the water level subsided, and the ship ended up sitting on mud,
which caused damage to the ship. The contract did not mention who bore the risk
whilst the ship was docked. Was there an implied term about safety? If so, what was
it? The Court of Appeal said that they were in breach of an implied term that the birth
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was safe ⇒ "such business efficacy" to the transaction as must have been intended by
both parties … i.e. does it make sense? "presumed intention of the parties".
Shirlaw v Southern Foundries [1939] 2 KB 206 (CA)
LJ MacCinnon - "Prima facie, that which in any contract is left to be implied … is of
course obvious!" Officious bystander test - test of what is obvious to the parties obvious ←→ intention
b) “at law” (to impose certain standards on the parties)
Liverpool CC v Irwin [1976] 2 All ER 39 (HL)
In the case, the court could not imply as a matter of fact, since it failed the tests →
should a term be implied as a matter of law?
Tenancy agreement between council and tenants. Block of flats, communal entry
point and lifts. What obligation was the council under regarding the communal parts?
Tenants refused to pay the rent. The case centred on the fact that the tenants were
under lots of obligations, but it was unclear as to what obligations the council was
under. The court was asked to imply a term. At the Court of Appeal, Denning LJ said
that courts could imply a term if it was reasonable to do so. However, the House of
Lords rejected this on the basis that this not reasonable and was beyond their powers,
but they said that they could imply a term if it was necessary to the working of the
contract, which is not unreasonable.
But, why such concern? Freedom of contract. Tort (negligence liability) into contract
law. Terms do divorced from party ⇐≠ ⇒ freedom.
Bystander and efficacy tests could not be met.
Generic contract, the courts can imply terms necessary → regulation, standards of
behaviour, uniformity.
See Article - PHANG - 1993 - Journal of Business Law pp242
IN the Liverpool case, the term could be implied as a matter of law - the council was
under an obligation to take reasonable care of the building. But, on the facts of the
case, the council had taken reasonable care and were not in breach.
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Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1985] 2 All ER 947 (PC)
Scarman's judgement - discussion as to different necessity / reasonableness. If there is
a contract, don-t go looking for tort issues! (Normally, the contract argument will be
beneficial to the claimant.)
Scally v Southern Health & Social Services Board [1991] 4 All ER 563 (HL)
The House of Lords did not approve of Scarman's comments in this employment
contract case.
IMPLIED TERMS
Common Law
Statute
In fact
At law
SGA
Presumed intent
Necessity
SOGASA
Sale of Goods Act (provision) (business!)
Primary difference - SOGASA s.13 - business contract - reasonable care & skill.
However, the other sections are broadly in line with each other:
SGA
12
13
14
15
15A
SOGASA
2
3
4
- implies terms about title
- sale by description
- implied terms about quality or fitness
- sale by sample
- IT breach 14(6) ⇒ condition
- if slight breach & if business-business,
contractual warranty, not condition
s.14 SGA - does not apply to private individuals. Merchantable quality was used until
1994, now changed to satisfactory quality.
s.14(6) SGA - terms may be conditions or warranties. Conditions - non-breaching
party may give back the good, Warranties - non-breaching party has to retain the good
- he may not off-load it to the supplier.
s.15A SGA - if the breach is slight and if the buyer is not a consumer, then it is not a
condition, and the contract will still run, but with slight compensation. This is
because a company may want to get out of a contract and may try to use a minor
defect to get out of the whole contract.
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Classification
Traditionally the law has drawn a distinction between two types of terms: conditions
and warranties. The main significance of the distinction relates to the remedies
available to the non-breaching party – breach of condition allows the innocent party to
repudiate the contract and recover damages; breach of warranty gives a right to
recover damages but the contract continues to exist.
Pre-contractual words
Term
Intention, Knowledge
Incorporation
Representation
misrepresentation
(reasonable notice)
Contractual Term
Express
I
1) Statutory
or
Implied
- SOGA 1979, SOGASA 1982, (SASOGA 1994)
2) Common Law
- fact (presumed intention), law (necessity)
1) Condition
2) Warranty
Innominate or
Indeterminate
Repudiation &
damages
Damages
either (1) or (2)
L. Schuler v Wickman machine Tool Sales [1973] 2 All ER 39
Distribution contract for metal panels. In the contract, there was a term that said "it
shall be a condition to perform weekly visits for 4 1/2 years to Schuler's 6 offices.
Wickman missed one visit, and Schuler claimed breach. The House of Lords said that
this the clause was only a warranty, despite the wording. Intention of the parties words are indicative not conclusive. Consider the consequences of he breach. The
House of Lords would appear to have introduced a certain element of uncertainty /
flexibility.
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Lombard North Central plc v Butterworth [1987] 1 All ER 267, see pp271-2
Butterworth leased a computer from the plaintiff. In the contract, it said that
"payments were of the essence". Butterworth were late in paying the 3rd, 4th and 5th
instalments. On the 6th instalment, Lombard claimed breach, and that they wished to
repudiate, and claim for damages etc.. The Court of Appeal said that this was a
condition, despite the fact that the consequences of the breach were fairly minor - the
wishes of the parties had been clear. (This would appear to be contrary to the Schuler
case).
Sale of Goods Act 1979 s15A (added by the Sale and Supply of Goods Act 1994 s4)
s.15A SOGA - sale by sample - the breaches of implied terms (under s.13, s.14, s.15)
in a non-consumer contract which are slight may be treated as breaches of warranties,
not conditions.
More recently, a third category has developed judicially to provide greater flexibility:
the intermediate or innominate term.
Hong Kong Fir Shipping v Kawasaki [1962] 1 All ER 474
Only if substantially the whole of the contract has been breached, will it be a
condition (not widely recognised) - Diplock LJ.
Bunge Corporation v Tradax [1981] 2 All ER 513
House of Lords would seem to contradict Diplock LJ in this case.
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