#3517 - Terms Of Contract - Contract Law

Terms of Contract

Terms of Contract

• Distinguish between:

1. mere statements of opinion = no legal effect

2. terms = failure to comply is a breach

3. mere representations = no breach but could set the contract aide/claim damages for misrep.

• Objective Intention Test:

1. verification – = unlikely to be a term if maker asks the other party to verify it

2. importance – was it so important that determined whether party contracted or not

3. special knowledge – if maker has some special knowledge/skill, might be contractual term

• Classification of Terms:

1. conditionclassified by:

1. statute

2. courts– 3 ways

1. term goes to the heart of performance of the contract- so must have been intended by parties as condition (Schuler v Wickman)

2. binding precedent

3. parties classified it as cond. in the contract not conclusive (intention + used in technical sense (The MihailisAngelos))

• Breachentitles C to

1. terminate &obtain damages for loss

2. affirm & obtain damages for breach

2. warranty - lesser, subsidiary term (e.g. colour of the car)

• no termination but could seek damages

3. innominate – not condition or warrantyconfusing, generates litigation etc. (Bunge Corp v Tradax) but in commercial contracts unless expressly provided it’s a condition, it will be innominate term

• no right to terminate but court has discretion to grant it where C suffers serious consequences

• The Parol Evidence Rule

• Once a contract is in written form, court can’t adduce extrinsic evidence to add, vary or contradict it

• Exceptions where need to show:

1. written doc not intended to contain the whole of agreement

2. terms which must be implied

3. a custom

4. it’s invalid due to misrep, fraud, nonest factum, mistake

5. the need for rectification

6. contract hadn’t yet come into existence/ceased to operate

7. existence of collateral agreement

• Interpretation of Terms

• Meaning depends on context in which contract was concluded

• Principles of Interpretation (Hoffman)

1. ascertain the meaning which doc would convey to a reasonable person having all background knowledge reasonably available to parties at the time of contracting

2. factual matrix = everything which would affect the way in which doc would be understood by reasonable man

3. exclude evidence of previous negotiations + declarations of subjective intent (unless rectification/ estoppel by convention) though boundaries aren’t entirely clear

4. the meaning which it would convey to reasonable man isn’t the same as meaning of words courts will depart from natural & ordinary meaning where

1. it’s ambiguous

2. context shows parties used words in different way

3. ordinary meaning would render contract ineffective, inconsistent or absurd

5. if court concludes from background that something has gone wrong w/the language, it’s not required to attribute to parties intent which they couldn’t have had

• Rectification

• Once interpretation is completed, a party could argue written doc, as interpreted, fails to reflect the agreement&ask for rectification by court (remedy the defects in recordingof the contract)

• Equitable discretionary remedy court asks:

1. is there convincing proof that doc fails to record true intent? highthreshold!

2. is D guilty of unconscionable conduct

3. is doc preceded by a concluded contract/continuing common intent?

• Implied Terms

• May be implied by:

1. Custom(trade/locality/market in which contract’s made) requirements

1. certain

2. discoverable by outsider on inquiry

3. recognised as binding - compliance comes from legal obligation, not choice/commercial convenience

4. reasonable

5. not contradicted by express terms/nature of the contract

2. Common Law

1. In fact – implied as a matter of fact to give effect to unexpressed intentions of the parties

• Test:

1. Business efficacy – implied as to give transaction necessary business efficacy (The Moorcock)

2. Officious bystander – if would have suggested it to parties when contracting, would have gone “oh yes!”

3. Cumulated test (Lord Hoffman in AG v Belize) – not series of independent tests but exercise in construction of contract as a whole what would doc, read against its background, could reasonably be understood to mean. Court has no power to improve upon the doc/make it more reasonable etc. Threshold for implication is high take into acc. whether:

1. term is reasonable & equitable

2. necessary to give business efficacy

3. so obvious it could go w/out saying

4. capable of clear expression

5. not contradicted by express terms

2. In law – implied in contracts e.g. b/w employer & employee, tenant & landlord b/c of their general nature, not that particular relationship b/w parties

• Test: unclear but likely less stringent than officious bystander must

1. reflect court’s perception of nature of parties’ relationship

2. be suitable & reasonable for common implication into contracts of such kind

(Liverpool CC v Irwin)

3. Statute

• SGA 1979

• Supply of Goods (Implied Terms) Act 1973

• Supply of Goods and Services Act 1982

• Won’t be implied if:

1. one of the parties didn’t know of its content

2. unclear if both parties would have agreed to it

3. contract looks very complete, raising presumption that it actually is

4. term is too vague & complicated

5. it’s inconsistent w/express terms

• Exclusion Clauses

• Contracting party who wishes to rely on exclusion clause must show:

1. Clause was properly incorporated into the contract

1. By signature – person bound by signed doc, whether he actually reads it (L’Estrange v Graucob)

• Exceptions:

1. non est factum – where, through no fault of singer, doc turns out to be fundamentally different from his assumption (e.g. fraud)

2. misrepresentation – even if not fraudulent

3. mistake

4. undue influence

5. duress

6. incapacity

7. signed doc was non contractual

2. By Notice - parties can agree to incorporate terms by notice, depending on:

1. its timing – must be given on/before conclusion of the contract (Olley v MalboroughCourt - notice in hotel room not seen until after conclusion at reception); Thornton v Shoe Lane - car park ticket came after conclusion of contract)

2. must be a doc intended to have contractual effect, not a mere receipt (Chapleton v Barry - hire of deck chair ticket contained exclusion clause, not effective b/c mere receipt BUT Parker v SE Railway - ticket for deposited bag was contractual doc b/c exclusion of property damage reasonable?)

3. reasonable steps taken to bring the terms into other party’s attention (Parker v SE Railway - C doesn’t have to read it; Thomson v LM Railway - v. little notice will suffice, railway ticket directed to payable timetable for T&C’s, C blind, but still effective)

• if D knows of C’s illiteracy can’t rely on printed form as reasonable notice

• might not be enough to notify terms exist - might have to take additional steps as required to reasonably bring their significance to other party’s attention

• Seered hand rule (Denning) in order to give sufficient notice, it must be printed in red ink w/red hand pointing to it; or something equally startling

• onerous &unusual terms whether, in all circumstances, reasonable to hold C bound (Interfoto Picture Library v Stilleto Visual Programmes)

3. By Consistent Course of Dealing & Custom (McCutcheon v David MacBrayne – must be sufficiently regular)

2. Properly interpreted (constructed), it covers the loss which has arisen rules of construction

1. Contra Preferentem – any ambiguity in the term construed against party who introduced it

• operates only in cases of genuine ambiguity/some evidence of courts not wanting to be as restrictive as b/f

• courts are less hostile towards limitation than exclusion clauses b/c party more likely to have accepted a limitation (Ailsa Craig Fishing v Malvern Fishing [1983] - courts should apply the natural meaning of the clause & not be too eager to find ambiguity)

• McFarlane: should have a sliding scale approach as opposed to rigorous division

2. Exclusion of Negligence Liability

• Courts more hostile b/c regard it as inherently unlikely that one party will agree to the other excluding liability for negligence apply Canada Steamship rules

1. Is there language expressly exemptingD from consequences of his negligence?

1. Yes = effective [subject to UCTA]

2. No = proceed to b. & c. = double hurdle

2. Are words, in their ordinary meaning, wide enough to cover liability in negligence? (e.g. any act/omission; any damage whatsoever)

• Not sure = resolve against the party seeking to rely on it

• Yes = apply c.

3. Is the only realistic loss suffered by C is loss suffered due to D’s negligence?

• Consider if the alternative source is ‘fanciful’/‘remote’ – the point is one of construction but clause is generally interpreted as not excluding liability for negligence!

1. No (there’s realistic possibility that D may be liable to C in negligence or some other basis) = clause is generally construed as confined to application of that alternative source of liability & doesn’t exclude negligence

3. Fundamental breach –exclusion of liability for breach of term which goes to the root of the contract

• b/f a rule of law, now a rule of construction - the more serious the breach/its consequences, the less likely that it can be excluded (Photo Production v Securicor Transport Ltd; Suisse Atlantique)

• Internet Broadcasting Corporation v MAR LLC [2009] –the rule can have strong impact

Principles:

1. strong presumption against clause being construed to cover deliberate, repudiatory breach – need very ‘clear’ words/‘strong’ language&eventhen words won’t be construed as such if would defeat the ‘main object’ of contract.

2. the proper function b/w commercial parties at arm's length &w/equal bargaining power of...