#17406 - The Control Of Terms - Contract Law

THE CONTROL OF TERMS

THE INCREASING USE OF STANDARD TERMS AND THE NEED FOR CONTROL MECHANISMS:

The citations below vividly express some of the problems of SFC (standard form contracts)s, especially in the context of B2C contracts.

“In the ordinary way the customer has no time to read them, and if he did read them he would probably not understand them. And if he did understand and object to any of them, he would generally be told he could take it or leave it. And if he then went to another supplier the result would be the same” (Suisse Atlantique Société d’Armement Maritime SA v Rotterdamsche Kolen Centrale [1967] 1 AC 361, as per Lord Reid at 406)

“Trouble with exemption clauses (past) : They were printed in small print on the back of tickets and order forms and invoices. They were contained in catalogues or timetables. They were held to be binding on any person who took them without objection. No one ever did object. He never read them or knew what was in them. No matter how unreasonable they were, he was bound. All this was done in the name of “freedom of contract”. - (George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284, as per Lord Denning MR at 296-297).

SFCs mean that it is difficult to describe the contract as the product of a process of individual negotiation and consent between parties of equal bargaining strength.

This is exacerbated in the context of electronic standard form contracting and the rise of :

• ‘shrinkwrap’ contracts - typically used in software contracts – they bind a person to terms contained therein even if these terms cannot be seen or agreed to until the product is bought and opened

• ‘clickwrap’ contracts – where parties are bound by clicking ‘I agree’ or equivalent online.

• ‘browsewrap’ contracts where the terms for use of a website or downloadable product are posted on the website, typically as a hyperlink at the bottom of the screen and the site user is bound by simply using the product, such as by entering the website or downloading software

Exemption clauses are terms in contracts which limit or exclude the liability of one party. Historically one party was free to exclude liability. L’Estrange’s case saw her exemption clause being legally binding due to the theory of the freedom of contract. Exemption clause is an attempt to restore the balance between frustration and fairness.

The common law judges had four doctrines that they used to deal with exemption clauses. The control of exemption clauses at common law is not subject to UCTA. In most cases the Act supersedes the main common law doctrine but not entirely. Some contracts between businesses not on standard terms are outside the scope of the Act and therefore the common law still applies in full.

INCORPORATION

Terms must be incorporated into the contract if it is to form part of the contract.

How are terms incorporated into a contract?

• Signature

• Reasonable notice of the written term

• Previous dealing or custom

Incorporation rules are still vital to this area of law; these rules are still relevant today as they were, because it still has to be decided whether the terms and conditions are part of a contract. If they fail to become part of a contract, then they are not legally binding. If the notice has not been displaced sufficiently and prominently enough it has failed to exclude liability or limit liability it is therefore ineffective. Under category 1 of the incorporation rules, they remain supremely relevant to the issue of liability and to whether or not it has been disclaimed or limited.

Signature

If you sign something without reading it then you are bound by your signature. The Court Of Appeal stated that there are many exceptions to this rule. This is a reflection of the objective approach to contract formation. This was present in L’estrange v Graucob.

L’Estrange v Graucob Ltd [1934] 2 KB 394 (signed order form bound purchaser to exemption clause, even though on brown paper in an unusual place and in ‘regrettably small print’).

Facts: Mrs. L’estrange owned a cafe. She ordered a cigarette machine from the manufactures which was faulty. The contract, which she had signed, contained a clause stating that ‘any express or implied condition, statement or warranty, statutory or otherwise not stated is hereby excluded’ this was an exclusion of liability by Graucob. This exemption clause was to protect the seller against claims for liability. L’estrange claimed for breach of a term implied by the Sale of Goods Act 1983 that the goods were unfit for purpose. She also claimed that she had not seen the clause and therefore had no knowledge of the contents.

HELD: L’Estrange’s claim failed. Scrutton LJ stated that: ‘When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound and it is wholly immaterial whether he has read the document or not’

By signing the contract, she agreed to all the terms, including the exemption clause.

L’Estrange’s contract is the epitome of what contract law has become in this day and age. A standard form contract was provided to Mrs. L’estrange. The vast majority of consumer contracts are in standard form. This is where the terms and conditions are entirely drafted by one of the parties. It is known sometimes as a ‘take it or leave it’ contract. There is an inequality of bargaining of power thus why subsequent law after L’estrange v Graucob attempts to address this issue.

• Criticized for objective approach used to ascertain whether an agreement had been reached. – JR Spencer.

But: Judges also laid out exceptions, rule is not absolute:

Non est Factum:

The defence of non est factum is a defence of respectable antiquity in English Law. It was originally applied to the case where an illiterate person signed a deed which had been read to him incorrectly by another person. In such a case, the illiterate person was not bound by the deed; to put it in technical

terms, he could plead non est factum as a defence which means ‘this is not my defence’. The effect of non est factum is to render the deed void so that a third party cannot obtain a good title under it.

The importance of non est factum has declined. It originated from Tudor times. The essence of the rule is that you sign something believing it to be something completely different. Although the responsilbity is entirely yours, the law allows you to get out of it. It is very difficult and narrow to apply.

In Lloyds Bank v Waterhouse, the Court of Appeal developed three rules for non est factum to apply. 1. The person must be under a disability 2. The document was fundamentally or radically different to what they thought they was signing 3. The person signing was not careless or negligent in signing and took sufficient precaution to ascertain the contents and significance of the document.

The Document must be one which could reasonably be expected to contain contractual terms: Grogan v Robin Meredith Plant Hire [1996] CLC 1127 (signed weekly time sheets).

Held: Further, Auld LJ stated that a timesheet was more appropriately termed an administrative document than a contractual one, and thus the average reasonable person would not expect that any conditions stated on it are contractual in nature. Rather, timesheets serve as an administrative record of the performance of an already existent obligation by a party. Thus, despite that the timesheet was a formal document containing the signatures of both parties, Courts ought to also have consideration for the circumstances of and intentions regarding the document in determining whether it ought be legally binding.

Curtis v Chemical Cleaning and Dyeing Ltd [1951] 1 KB 805 (a misrepresentation induces the customer to sign document)

The claimant took her wedding dress to the cleaners. She was asked to sign a form. She asked the assistant what she was signing and the assistant told her that it excluded liability for any damage to the beads. The form in fact contained a clause excluding all liability for any damage howsoever caused. The dress was returned badly stained.

Held: The assistant had misrepresented the effect of the clause and therefore could not rely on the clause in the form even though the claimant had signed it.

Reasonable notice of the written term – unsigned documents.

Unsigned documents consist of 6 types of documents:

1. Tickets 2. Receipts 3. Invoices 4. Notices and Sign 5. Manual Instructions/ warnings 6. Information Leaflets etc

The question here is whether reasonable steps were taken. There are 3 questions:

1. Did the person know/see there was writing on the contract

2. Did the person know that the writing contained legal conditions

3. Were sufficient steps taken to bring the conditions to the person’s attention?

1. Notice must be given at or before contract formation

Have to look at moment of offer and acceptance.

Olley v Marlborough Court Hotel Ltd. [1949] 1 KB 532

FACTS: The plaintiff booked in for a weeks stay at hotel. Her mink coat was stolen. There was a notice on the black of her bedroom door which stated that ‘’the proprieties will not hold themselves responsible for articles lost or stolen unless handed to the manageress for safe custody’’

HELD: The Court of Appeal held that the notice was not incorporated in the contract between the proprietors and the guest. The contract was made in the hall of the hotel before the plaintiff entered her bedroom and saw the notice.

Thornton v Shoe Lane Parking [1971] 1 ALL ER 686

Facts Thornton drove his car to a car park. Outside the...