Business Law_Terms of the Contract

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The Terms of the The Terms of the

ContractContract

Business Law Business Law Daniel O·ConnellDaniel O·Connell

Spring 2009Spring 2009

Copyright © 2009 Daniel E. O¶Connell



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Learning ObjectivesLearning Objectives

Terms of a Contract Terms of a Contract

Implied TermsImplied Terms

Ty pes of Terms Ty pes of Terms

Exclusion clausesExclusion clauses



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Terms of a Contract Terms of a Contract

Now that we know how to create a validNow that we know how to create a valid

contract, we need to think about what is in acontract, we need to think about what is in a

contractcontract

A contract is an agreement A contract is an agreement

The The termsterms of a contract express what theof a contract express what the

parties to the contract have agreedparties to the contract have agreed A term in a written contract is often called a A term in a written contract is often called a

clauseclause



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Express vs. Im plied TermsExpress vs. Im plied Terms

Statements that are actually spoken or writtenStatements that are actually spoken or writtenmay bemay be express termsexpress terms

However, contracts can also haveHowever, contracts can also have im pliedim pliedtermsterms

These terms are not stated expressly by the These terms are not stated expressly by the

parties, but they

are still regarded as being parties, but they

are still regarded as being terms of the contractterms of the contract

Courts will NO T make contracts for theCourts will NO T make contracts for theparties (the term must have been intended)parties (the term must have been intended)



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Im plied TermsIm plied Terms

There are 3 way s in which implied terms There are 3 way s in which implied terms

become part of a contract:become part of a contract:

Implied by the courtImplied by the court

Implied by customImplied by custom

Implied by statuteImplied by statute



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Im plied by CourtIm plied by Court

A contract represents what the parties have A contract represents what the parties have

agreedagreed

Therefore, a court is usually unwilling to Therefore, a court is usually unwilling tomake changes to a contractmake changes to a contract

Courts will imply a term only if it wasCourts will imply a term only if it was

obviously intended by the parties to be a termobviously intended by the parties to be a term SeeSee The MoorcockThe Moorcock [1889] (Court of Appeal)[1889] (Court of Appeal)



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Im plied by CustomIm plied by Custom

Some terms may not be included in a contractSome terms may not be included in a contract

by the parties, but they are regarded as having by the parties, but they are regarded as having

been included automatically because it isbeen included automatically because it iscustomary in that kind of business or contractcustomary in that kind of business or contract

SeeSee Hutt on v. Warren Hutt on v. Warren [1836];[1836]; Kenall v. LillicoKenall v. Lillico

[1969];[1969]; Liverpool Ci ty Cou ncil v. Irwin Liverpool Ci ty Cou ncil v. Irwin [1977][1977]



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Im plied by StatuteIm plied by Statute

Some statutes say that certain terms areSome statutes say that certain terms areincluded in contracts even if the parties to theincluded in contracts even if the parties to the

contract do not include them expressly contract do not include them expressly Statutes that recognize implied terms include:Statutes that recognize implied terms include:

Sale of Goods Act 1979Sale of Goods Act 1979

Supply of Goods (Implied Terms) Act 1973Supply of Goods (Implied Terms) Act 1973

Supply of Goods and Services Act 1982Supply of Goods and Services Act 1982



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Ty pes of Terms Ty pes of Terms

Once we know that a statement is a term in aOnce we know that a statement is a term in acontract, we need to identif y what kind of contract, we need to identif y what kind of

statement it isstatement it is This is important as different kinds of This is important as different kinds of

statements have different remedies when astatements have different remedies when aparty breaches themparty breaches them

A A breachbreach of contract occurs when one party of contract occurs when one party does not follow an agreed term of thedoes not follow an agreed term of thecontractcontract



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Ty pes of Term (cont.) Ty pes of Term (cont.)

There are 3 ty pes of term: There are 3 ty pes of term:

ConditionsConditions

Warranties Warranties

Innominate termsInnominate terms



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ConditionsConditions

A condition is a basic and important part of A condition is a basic and important part of

the contractthe contract

If one party breaches a condition then theIf one party breaches a condition then theother party may terminate the contract andother party may terminate the contract and

claim damagesclaim damages



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Warranties Warranties

On the other hand, a warranty is not vital toOn the other hand, a warranty is not vital to

the contractthe contract

If one party breaches a warranty then theIf one party breaches a warranty then theother party can only continue with theother party can only continue with the

contract and then sue for damagescontract and then sue for damages



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Conditions v. WarrantiesConditions v. Warranties

T wo cases involving opera singers show the T wo cases involving opera singers show the

difference between conditions and warrantiesdifference between conditions and warranties

P ouss ard v. Spier s and P ond P ouss ard v. Spier s and P ond

Be tt ini v. Guy Be tt ini v. Guy



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P ouss ard v. Spier s and P ond P ouss ard v. Spier s and P ond

Opera singer Poussard agreed to sing in an operaOpera singer Poussard agreed to sing in an operastarting on 28 Novemberstarting on 28 November

She became ill and was unable to sing until 4She became ill and was unable to sing until 4December.December.

The opera company had to hire another singer The opera company had to hire another singer They could only get another singer if they hired her They could only get another singer if they hired her

for all the performances of the opera.for all the performances of the opera.

They did this and refused the services of Poussard They did this and refused the services of Poussardonce she was betteronce she was better

The Court held Poussard breached a condition of The Court held Poussard breached a condition of the contractthe contract



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Be tt ini v. Guy Be tt ini v. Guy

Opera singer Bettini agreed to sing in London in aOpera singer Bettini agreed to sing in London in anumber of theatres beginning on 30 Marchnumber of theatres beginning on 30 March

He also agree that he would arrive in London 6 day sHe also agree that he would arrive in London 6 day sbefore the first performance in order to practicebefore the first performance in order to practice

Bettini became ill and did not arrive in London untilBettini became ill and did not arrive in London until3 day s before the first performance3 day s before the first performance

The opera company refused to allow him to sing The opera company refused to allow him to sing

Court held that Bettini breached a warranty , so theCourt held that Bettini breached a warranty , so theopera company could not terminate the contractopera company could not terminate the contract



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Innominate TermsInnominate Terms

These are terms which may be either These are terms which may be either

conditions or warrantiesconditions or warranties

If the breach of the term deprives the otherIf the breach of the term deprives the otherparty of substantially the whole benefit of theparty of substantially the whole benefit of the

contract, the term will by a conditioncontract, the term will by a condition



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Sale of Goods Act 1979Sale of Goods Act 1979

Applies only to the sale of goods Applies only to the sale of goods

A contract of sale of goods is a contract by A contract of sale of goods is a contract by

which the seller transfers or agrees to transfer which the seller transfers or agrees to transferthe property in goods to the buy er for money the property in goods to the buy er for money



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Terms Im plied by the Sales of Goods Terms Im plied by the Sales of Goods

Act 1979 Act 1979

Section 12( 1 ) implies a condition that the seller has theSection 12( 1 ) implies a condition that the seller has theright to sell the goodsright to sell the goods

Section 13( 1 ) implies a condition that the goods willSection 13( 1 ) implies a condition that the goods will

match any description soldmatch any description sold Section 14(2) implies a condition that the goods are of Section 14(2) implies a condition that the goods are of

satisfactory quality satisfactory quality

Section 14(3) implies a condition that the goods are fitSection 14(3) implies a condition that the goods are fit

for the buy er·s purposefor the buy er·s purpose Section 15(2) implies a condition that, where goods areSection 15(2) implies a condition that, where goods are

sold by sample, the bulk will match the samplesold by sample, the bulk will match the sample



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S. 12(1) Right to Sell the GoodsS. 12(1) Right to Sell the Goods

There is an implied condition that the seller There is an implied condition that the seller

has the right to sell the goodshas the right to sell the goods

SeeSee R owland v. Divall R owland v. Divall [1923] (Court of Appeal)[1923] (Court of Appeal)



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S. 13(1) Corres pondence withS. 13(1) Corres pondence with

Descri ptionDescri ption

Where there is a contract for the sale of goods by Where there is a contract for the sale of goods by description, there is an implied condition that the goodsdescription, there is an implied condition that the goods will match the description will match the description

SeeSee H arlingdon & Lien st er En t erpri s e s L t d v. Chri st opher H arlingdon & Lien st er En t erpri s e s L t d v. Chri st opher Hu ll Fine Ar t L t d Hu ll Fine Ar t L t d [1991 ];[1991 ]; Arcos L t d v. E.A. R onaa s en & Arcos L t d v. E.A. R onaa s en & Son Son [1933];[1933]; R e Moore & Co and Landa u er & CoR e Moore & Co and Landa u er & Co [1921 ][1921 ]

For the implied condition to occur:For the implied condition to occur: There must have been a description of the goods There must have been a description of the goods

The description must have been intended as part of the The description must have been intended as part of thecontractcontract The goods must have been sold with reference to the The goods must have been sold with reference to the

descriptiondescription



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S. 14 Quality and Fitness in BusinessS. 14 Quality and Fitness in Business

SalesSales

S. 14 only applies to goods sold ´in the courseS. 14 only applies to goods sold ´in the course

of businessµof businessµ

Doesn·t apply to private sales of goodsDoesn·t apply to private sales of goods SeeSee S t even s on v. R oger s S t even s on v. R oger s [1999] (Court of Appeal)[1999] (Court of Appeal)



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S. 14(2) Satisfactory QualityS. 14(2) Satisfactory Quality

Where the seller sells goods in the course of Where the seller sells goods in the course of

business, there is an implied term that the goodsbusiness, there is an implied term that the goodssupplied under the contract are of satisfactory supplied under the contract are of satisfactory

quality quality

Exceptions:Exceptions:

It doesn·t apply regarding defects specifically It doesn·t apply regarding defects specifically

identified by seller to buy eridentified by seller to buy er

It doesn·t apply if buy er examines the goods beforeIt doesn·t apply if buy er examines the goods beforepurchasing, where defects should have been revealedpurchasing, where defects should have been revealed



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The Meaning of Satisfactory Quality The Meaning of Satisfactory Quality

What a reasonable person would consider satisfactory , What a reasonable person would consider satisfactory ,in light of the description, price and otherin light of the description, price and othercircumstancescircumstances

SeeSee Thain v. Annie s land Trade Cen t re 1997 Thain v. Annie s land Trade Cen t re 1997

The court will consider: The court will consider:

The fitness for all purposes for which goods of the kind are The fitness for all purposes for which goods of the kind arecommonly suppliedcommonly supplied

Appearance and finish Appearance and finish

Freedom from minor defectsFreedom from minor defects

Safety Safety

durability

durability



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S. 14(3) Fitness For Pur poseS. 14(3) Fitness For Pur pose

If a customers tells a seller the particularIf a customers tells a seller the particularpurpose for which he/she is buy ing the goods,purpose for which he/she is buy ing the goods,there is an implied condition that the goods arethere is an implied condition that the goods are

reasonably fit (appropriate) for that purposereasonably fit (appropriate) for that purpose Does not apply unless the buy er relies on, or it isDoes not apply unless the buy er relies on, or it is

reasonable for the buy er to rely on, the skill orreasonable for the buy er to rely on, the skill orjudgment of the sellerjudgment of the seller

SeeSee Gran t v. Aust ralian Kni tt ing Mill s L t d Gran t v. Aust ralian Kni tt ing Mill s L t d [1936];[1936];Griffi t h s v. P e t er Conwa y L t d Griffi t h s v. P e t er Conwa y L t d [1939] Cou r t of Appeal [1939] Cou r t of Appeal



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S. 15 Sale by Sam pleS. 15 Sale by Sam ple

If goods are sold by sample, two conditions are implied:If goods are sold by sample, two conditions are implied:

The bulk of the goods must correspond with the sample in The bulk of the goods must correspond with the sample inquality quality

The bulk must be free from hidden defects making the goods The bulk must be free from hidden defects making the goodsunsatisfactory , if the defects would not be discovered by aunsatisfactory , if the defects would not be discovered by a

reasonable examination of the samplereasonable examination of the sample

SeeSee Godle y v. P err y Godle y v. P err y [1960][1960]

NO TE: Unless the buy er is a consumer, buy er cannotNO TE: Unless the buy er is a consumer, buy er cannotterminate the contract where the breach is so small thatterminate the contract where the breach is so small thatit would be unreasonable to allow the buy er toit would be unreasonable to allow the buy er toterminateterminate



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Exclusion ClausesExclusion Clauses

Exclusion clauses are terms of a contractExclusion clauses are terms of a contract

which try to limit the liability of one of the which try to limit the liability of one of the

parties if they breach the contractparties if they breach the contract These clauses can create unfair situations These clauses can create unfair situations

where one party is able to insist they are where one party is able to insist they are

included in the contract because that party isincluded in the contract because that party ismuch stronger than the other party much stronger than the other party



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Exclusion Clauses (cont.)Exclusion Clauses (cont.)

A common situation is where the business A common situation is where the business

has a standard printed contracthas a standard printed contract

The consumer only has a choice of signing The consumer only has a choice of signing (and making a contract) or not signing (and(and making a contract) or not signing (and

not making a contract)not making a contract)

There is no opportunity for the consumer to There is no opportunity for the consumer tonegotiate to try to improve his (or her)negotiate to try to improve his (or her)positionposition



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Dealing with Exclusion ClausesDealing with Exclusion Clauses

T wo things to consider: T wo things to consider:

Has the exclusion clause been included in theHas the exclusion clause been included in the

contract?contract?

Does the Unfair Contract Terms Act 1977Does the Unfair Contract Terms Act 1977apply to the exclusion clause?apply to the exclusion clause?



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Included in the ContractIncluded in the Contract

An exclusion clause has to be part of the An exclusion clause has to be part of the

contract or it has no effectcontract or it has no effect

There are 3 way s that an exclusion clause can There are 3 way s that an exclusion clause canbecome a term in a contractbecome a term in a contract

By signatureBy signature

By noticeBy notice By customBy custom



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By signatureBy signature

If someone signs a contract which containsIf someone signs a contract which contains

an exclusion clause then the exclusion clausean exclusion clause then the exclusion clause

is a valid term in that contractis a valid term in that contract This is true even if the person did not read This is true even if the person did not read

the contract before signing itthe contract before signing it

SeeSee Chapel t on v. Barr y UDC Chapel t on v. Barr y UDC [1940] (Court of [1940] (Court of Appeal) Appeal)



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By noticeBy notice

Except in the case where someone does notExcept in the case where someone does not

read the contract, an exclusion clause is only read the contract, an exclusion clause is only

valid where the person knew about it or was valid where the person knew about it or wasgiven notice of itgiven notice of it

SeeSee Olle y v. Marlborou gh Cou r t H ot el L t d Olle y v. Marlborou gh Cou r t H ot el L t d [1949][1949]

(Court of Appeal);(Court of Appeal); Thorn t on v. Shoe Lane Thorn t on v. Shoe Lane P arking L t d P arking L t d [1971 ] (Court of Appeal)[1971 ] (Court of Appeal)



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By customBy custom

If the parties have previously entered intoIf the parties have previously entered into

other contracts with each other whichother contracts with each other which

contained exclusion clauses, then the clausecontained exclusion clauses, then the clausemay become part of later contracts toomay become part of later contracts too

But the party affected by the clause mustBut the party affected by the clause must

know it was in the previous contractsknow it was in the previous contracts



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Unfair Contract Terms Act 1977Unfair Contract Terms Act 1977

This Act prohibits clauses which try to This Act prohibits clauses which try to

exclude liability for death or injury resulting exclude liability for death or injury resulting

from negligencefrom negligence The Act also say s that an exclusion clause in a The Act also say s that an exclusion clause in a

contract with a consumer is only valid if it iscontract with a consumer is only valid if it is

reasonablereasonable



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Assignment Assignment

For March 20, Ty ped Answers to PracticeFor March 20, Ty ped Answers to Practice

Questions 1Questions 1--6, pp 976, pp 97--9898

Business Law_Terms of the Contract

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