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Terms Of The Contract Pq & Essay Notes Notes

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TERMS OF CONTRACT
After determining that a contract has been formed, consider the obligations on the parties.
*The notes in this section have been adapted for both PQs and essay questions in exams.
1 Identification of terms
Deciding if a statement is a term of the contract or a mere representation
Relevance
(i)

What damages can be recovered

If it is a term, damages look to the future - what position C would have been had the contract been performed.
If it is a misrepresentation, the damages look to the past - what position C would have been in had the contract not been formed.
(ii)

The ability of C to set the contract aside

Can set contract aside only if term is a contract and if there is a serious breach of an innominate term.
If it is a misrepresentation, contract can always be set aside.
Criteria
Approach: look at the intention of the parties as ascertained objectively.
 Heilbut v Buckleton [1913] AC 30, 51 (per Lord Moulton):
"[whether there is] evidence of an intention by one or both parties that there should be contractual liability in respect of the accuracy of the statement."
Factors:
(i)

Importance of the term A statement is likely to be a term where it is so important to the person to whom it is made that, had it not been made, he would not have entered into the contract. Couchman v Hill: A
heifer was put up for sale at an auction and C asked whether it was used in breeding before,
stating that he was not interested in buying it if it had been. Held: a term.
(ii)

Relative position/knowledge

If the parties' degree of knowledge is equal, or if the person to whom the statement is made has greater knowledge, the statement is likely to be a mere representation. If the maker of the statement has some special knowledge or skill compared to the other party, the statement is likely to be a term.
Apply following analogously:
 Oscar Chess Ltd v Williams (1957)
Facts: D sold a car to C, describing it wrongly. D had obtained this information in good faith from the car logbook, which was actually a forgery.
Verdict: not a term. C was a car dealer - meant that he was in as good a position as D to discover true age of car. However, if maker of car has special skill or knowledge with C
does not have, statement will likely be a term.
 Dick Bentley Productions v Harold Smith (1965)
Facts: C asked D to find a Bentley car. D, a car dealer, found a car which he sold to C,
stating that it had only done 20,000 miles when it had done 100,000.
Verdict: The statement was a term as the maker of the statement had some special knowledge or skill compared to the other party.
(iii)

Verification of truth of the statement

A statement is unlikely to be a term if the maker of the statement asks the other party to verify its truth. Ecay v Godfrey: D sold a boat to C, stating that the boat was sound, but advising C to have it surveyed. The boat turned out to be defective. Verdict: The statement was a representation.
(iv)

Omission of the statement in the formal written contract If there is such an omission, it is unlikely to be a term.
(v)

Time elapsed between making the statement and final manifestation of consensus

If the time is too long, the statement is unlikely to be a term.
Parol evidence rule
E.g. 2 parties have written everything down. Can evidence of matters outside be admitted to affect the content of the written document?
Bank of Australasia v Palmer (1897): Parol evidence does not affect what the terms of the contract are. "Parol testimony cannot be used to contradict, vary, add to or subtract from the terms of a written contract (only where the contract is entirely contained in writing), or the terms in which the parties have deliberately agreed to record any part of their contract."
NB. Rule applies where the contract is entirely contained in writing. It does not apply if the contract is partly written and partly oral.
Justifications for the rule
(i)

(ii)

(iii)

Safeguards the primacy of the agreed text and promotes certainty. Parties know where they stand by looking at the written document. Important in commercial world so that parties know where they stand and can plan their business.
Eliminates inconvenience and troublesome litigation in many cases. Reference to external matter will complicate and unsettle the process of discovering the meaning of the contract.
Fundamentality of the doctrine to English mercantile law
 Shogun Finance Ltd v Hudson [2004] 1 AC 919 at [49] (per Lord Hobhouse):
"[the parol evidence rule] is fundamental to the mercantile law of this country… the certainty of the contract depends on it… This rule is one of the great strengths of English commercial law and is one of the main reasons for the international success of English law."

Disadvantages of the rule
(i)

Many exceptions

Extrinsic evidence is admissible: 1) to prove terms which must be implied into the agreement,
2) to show that the contract is invalid because of misrepresentation/fraud, 3) to show that the document should be rectified, 4) to prove the existence of a collateral agreement. Though, the Law Commission argues that because of these exceptions, the rule is advantageous in that it would not lead to injustice
 Law Commission No 154, Law of Contract: The Parol Evidence Rule (1986):
2 Incorporation of terms 3 methods of incorporation: signature, bringing terms to notice of other party, course of dealing.
Signature
L'Estrange v F Graucob (1934): "Where a document containing contractual terms is signed… the party signing it is bound, and it is wholly immaterial whether he has read the document or not."
Peekay Intermark Ltd v Australia and NZ Banking Group Ltd: The rule applies even where one party knows or should have known that the other party does not actually consent, or where he is responsible for the mistaken signification of consent. This is because "[the rule in
L'Estrange is] an important principle of English law which underpins the whole of commercial life; any erosion of it would have serious repercussions"
There are exceptions
(i)
(ii)
(iii)

Non est factum: If the party is unable, through no fault of her own, to understand the document without explanation (eg. Mental incapacity);
Fraud/misrepresentation;
The signed document does not purport to have contractual effect and was just an administrative document. Grogan v Robin Meredith Plant Hire: A "time sheet" did not have contractual effect: it was merely an administrative document. As a result,
although it was signed, a clause which it contained was not incorporated into the contract.

Notice
Three requirements must be satisfied:
(i)

Notice must be given before or at the time of contracting.

Olley v Marlborough Court Ltd: C registered at D's hotel and paid for a week's board and lodging in advance. There was a notice in the room, which included an exclusion clause. The notice was too late to be incorporated into the contract. The contract was concluded at the reception desk; the notice came after.
Thornton v Shoe Lane Parking Ltd: C, a customer, was automatically issued a ticket when he drove up to the machine at the entrance of a car park. An exclusion clause was found inside the car park. The notice was too late to be effective. The contract was concluded at the moment of entry.
(ii)

Notice must be in a document intended to have contractual effect.

Chapelton v Barry: C took two deckchairs from D's pile, paying 2d for each and receiving two tickets. An exclusion clause was printed on the back of the ticket. The ticket was not a contractual document and therefore it was not effective. It was no more than a receipt; it was not a document which could reasonably be expected to contain terms.
(iii)

Reasonable steps must be taken to bring the term to the other party's attention: Parker v South Eastern Railway

Follow the scenarios in
 Parker v South Eastern Railway (1877)
Facts: C left his bag in the cloakroom in D's railway station, receiving a ticket with the words "See back" on the front. On the back, it was stated that D would not be responsible for any package exceeding £10 in value (limitation of liability). C did not read it and his bag, worth more than £10, was subsequently lost.
Verdict: The key question was whether D had given reasonable notice to C. Three situations were identified.
a) If the person receiving the ticket did not see or know that there was writing on the ticket, he is not bound by the conditions.
b) If he knew there was writing, and knew or believed that the writing contained conditions, he is bound.
c) If he knew there was writing, but did not know or believe that the writing contained conditions, he is still bound if the ticket was delivered to him in such a manner as to allow him to see that there was writing.
J Spurling Ltd v Bradshaw: "… the more unreasonable a clause is, the greater the notice which must be given of it. 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"
Whether a term is unreasonable depends on the context. Apply the following analogously:
 Interfoto Picture Library v Stiletto Visual Programmes.
Facts: D hired transparencies from C. They were dispatched to D in a bag containing a delivery note, containing conditions printed in small but visible print on its face,
including a clause imposing a much higher holding fee than usual.
Verdict: not incorporated.
Note: Neither the UCTA (covers only exclusion clauses) nor the CRA (C has to be a consumer, ie a natural person, not a company) would have applied. This shows how the rules of incorporation are an indirect method of controlling harsh terms in situations where the law may be inadequate.
 Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371; [2018] BLR

491 Facts: D contracted with C to provide it with a fire suppression system. Clause 11 of D's standard terms and conditions purported to exclude all liability for loss or damage arising to property or goods directly or indirectly resulting from negligence or malfunction of its systems.
Held: D could rely on the exclusion clause. The exclusion clause was not too onerous.
Reasonable notice had been given to C as it was in expressly referred to in the contract, it was not buried away in small print.
 AEG (UK) Ltd v Logic Resource Ltd [1996] CLC 265
Facts: C sold goods to D, but they were discovered to be defective. D arranged to transfer them from Iran, where they were sub-sold, back to C by airplane, but refused to pay the cost. A contractual term stated that "the purchaser shall return the defective parts at his own expense to the supplier immediately upon request by the latter."
Held (by majority): Term was too onerous and not incorporated. Buyer should not be made to pay for the right to return defective goods. NB. Courts had to manipulate the law of incorporation to exclude unreasonable contracts.
Query if this is still necessary after the inception of UCTA. Hobhouse LJ in AEG: "If it is to be the policy of English law that in every case those clauses are to be gone through with, in effect, a toothcomb to see whether they were entirely usual and entirely desirable in the particular contract… it will introduce uncertainty into the law of contract. In the past there may have been a tendency to introduce more strict criteria but this is no longer necessary in view of the Unfair Contract Terms Act… it is under the provisions of that Act that problems of unreasonable clauses should be addressed and the solution found."
Course of dealing
McCutcheon v David MacBrayne (1964): A term can be incorporated into a contract as a result of a course of consistent dealing between the parties. The party wishing to establish this must show consistency of dealing between the parties. Facts: C's car sank in a car ferry owned by D. C had used the ferry on a few occasions before. Sometimes, he had been asked to sign a document containing exclusion clauses, but other times he had not. On this occasion,
he was not asked to do so. D argued that the exclusion clause had been incorporated through previous dealings. Verdict: There was no consistent course of dealing because D was asked to sign the document sometimes but was not asked on other occasions. Thus, there was no incorporation.
3 Interpretation of terms (essay notes)
(1) Development of the law: a shift from a literal to a contextual approach
Interpretation is the exercise by which the meaning of the contract is ascertained. The court's task when interpreting a contract is to give effect to the objective intention of the parties.
Lord Steyn in Sirius International Insurance Co (Publ) v FAI General Insurance Ltd and others [2004] 1 WLR 3251, at para [19]: "There has been a shift from literal methods of interpretation towards a more commercial approach."
(i) Traditional Literal Approach
Lovell and Christmas Ltd v Wall (1911) 104 LT 85, 88 (per Cozens-Hardy MR): "It is the duty of the court… to construe the document according to the ordinary grammatical meaning

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