I have been asked to advise a client on considering contracting with a building company to build new head offices in the area. I will explain the rules of offer and acceptance. Rules of intention, legal capacity, specific contract terms, standard form con
Common Law Assignment 1I have been asked to advise a client on considering contracting with a building company to build new head offices in the area. I will explain the rules of offer and acceptance. Rules of intention, legal capacity, specific contract terms, standard form contracts and exemption clauses. OfferAn offer is a definite promise to be bound on specific terms. (BPP Common Law 1994)The offer has to be specific in order to actually constitute an offer. For example in the case of Gunthing V Lynn 1831 the facts of the case were the offeror to pay a further sum for a horse if it was ‘lucky’. The offer was too vague so the judge said it was not specific enough to constitute an offer. It could constitute an offer if the offeror said that he/she would buy the horse if it wins the 2.30pm race at Oxford. Invitation to treatAn invitation to treat is an indication that someone is prepared to receive offers with the view to forming a binding contract. It is not an offer in itself. (BPP Common Law 1994)There are four types of an invitation to treat.1. Auction sales At an auction the bid itself is an offer and then the auctioneer can either accept or reject the offer. A good example of this is the case of Payne and Cave 1789, the defendant made the highest bid for the plaintiff's goods at an auction sale, but he withdrew his bid before the fall of the auctioneer's hammer. It was held that the defendant was not bound to purchase the goods. His bid amounted to an offer which he was entitled to withdraw at any time before the auctioneer signified acceptance by knocking down the hammer.2. AdvertisementsThis is an attempt to induce offers and is therefore classified as an invitation to treat. A very good example of this is the case of Partridge V Crittenden 1968. Mr Partridge placed an advertisement for selling a protected species of bird in a magazine. Then RSPCA then brought a prosecution of the Birds Act 1953 but the case was quashed as Mr Partridge was not making an offer as it was the advertisement constituted an invitation to treat.3. Exhibition of goods for sale This is displaying goods in a shop such as Tesco etc. this constitutes inviting customers to make offers to purchases such items or invitation to treat. An example of this is the case of Fisher V Bell; a shopkeeper was prosecuted for offering for sale an offensive weapon by exhibiting a flick knife in his shop window. Displaying an item with a price in a shop window is an invitation to treat so he was inviting offers from potential buyers which the shopkeeper could either accept or reject the offer. 4. An invitation for tenders A tender is an estimate submitted in response to a prior request. When a person tenders for a contract he is making an offer to the person who has advertised a contract as being available. An example would be if you wanted to borrow a loan you might obtain tenders from three different banks, you therefore receive three different offers and you then decide which one to accept.An example of invitation to treat is if you see goods for sale in a shop window for far less then the usual retail price and go into the shop to make your purchase. The shopkeeper then tells you that she has made an error on the price; therefore there is no offer it’s merely an invitation to treat.Offeror and offereeAn offeror is the negotiating because he controls the terms and conditions of the offer i.e. he controls the price and how long the offer stands.An offeree is the person who is prepared to accept the offer.Termination of an OfferThe way in which an offer can be terminated is if it is accepted, therefore creating an agreement. The diagram below shows how an offer can be terminated. Death Rejection Termination of offer Failure of Revocation Lapse of time condition (BPP Common Law 1)RejectionAn outright rejection can cancel an offer also a counter-offer terminates the original offer made. An example of this is the case of Hyde V Wrench 1840. Wrench offered to sell his farm for £1000. Hyde offered £950 (counter-offer) which Wrench rejected. A few days later Hyde said he would buy the farm for £1000. Wrench refused to sell and Hyde maintained that they had a contract. The counter-offer of £950 had rejected the original offer to sell of £100 so therefore the offer was rejected and there was no contract.Lapse of timeAn offer may be expressed to last for a certain period of time but if there is no express time limit set, it expires after a reasonable time. What is a reasonable time depends on the circumstances of the case. (BPP Common Law 1994) An example of this is the case of Ramsgate Victoria Hotel Company V Montefiore 1866. Montefiore applied to Ramsgate Victoria Hotel Company in June for shares and paid a deposit to the companies’ bank. At the end of November the company sent him a letter of acceptance of the allotment and requested payment of the balance due. Montefiore persevered that his offer had expired and could no longer be accepted. The offer was for a reasonable time only, so the offer had lapsed.Revocation by the offerorAn offeror may revoke an offer before it has been accepted, but the revocation must be communicated to the offeree, although not necessarily by the offeror. This raises two important points. While posting a letter is a sufficient act of acceptance, it is not a sufficient act of revocation of offer. The case of Byrne V Tienhoven 1880 is an example of this. The defendants were in Cardiff; the claimants in New York. The sequences of the events follow.1 October Letter posted in Cardiff, offering to sell1,000 boxes of tinplates.8October Letter of Revocation of offer posted in Cardiff.11 October Letter of offer received in New York and telegram of acceptance sent.15 October Letter confirming acceptance posted in New York.20 October Letter of revocation received in New York. The offeree had meanwhile resold the contract goods.The outcome of the case was the letter of revocation could not take effect until received (20 October). Simply posting a letter does not revoke the offer until it is received. Therefore there was no binding contract.While acceptance must be communicated by the offeree, revocation of offer may be communicated by any third party who is adequately reliable informant. If the offer was made to the entire world, such as Carlill’s case, the revocation must take form that is similar to the offer. However, an offer may not be revoked if it has been summarised in an option. This is a unilateral contract as an offer was accepted ensuring that the offeree did there part which was to use the smoke ball three times daily for two weeks.Failure of conditionAn offer may be conditional. If the condition is not satisfied, the offer is not capable of acceptance. (BPP Common Law 1994) An example of this is from the case of Financings Ltd V Stimson 1962.The defendant wished to purchase a car, and on the 16th of March he signed a hire purchase form. The form, issued by the claimants, stated that the agreement would be binding only upon signature by them. On 20th March the defendant, not satisfied with the car, returned it to the motor dealer. On the 24th March the car was stolen from the premises of the dealer, and was recovered badly damaged. On 25th March the claimants signed the form. They sued the defendant for breach of contract. The defendant was not bound to take the car. His signing of the agreement was actually an offer to contract with the claimant. There was an implied condition in this offer that the car would be substantially the same condition when the offer was accepted as when it was made.DeathThe offeror’s death terminates the offer unless the offeree accepts it in ignorance of the offeror’s death, and the offer is not of personal nature.The death of an offeree terminates the offer. AcceptanceAcceptance is a final unqualified expression of assent to all terms of the offer (Tretel, Law of Contract). It can be expressed by writing, orally or by action. For acceptance to be expressed orally it should be backed up in writing, for acceptance to be expressed as an action you would physically do the action for example if you have a job you would turn up at the job this is an action.The case of Carclill V Smokeball Co 1893 expresses acceptance in words and action as I will explain. “the manufacturers of a patent medicine published an advertisement by which they undertook to pay ‘£100 reward to any person who contracts influenza after having used the smoke ball three times daily for two weeks’. The advertisement added that £1,000 had been deposited at a bank ‘showing our sincerity in this matter’. The claimant read the advertisement, purchased the smoke ball and used it as directed. She contracted influenza and claimed her £100 reward. The manufacturers argued a number of defences, including the offer were so vague that it could not form the basis of a contract as no time limit was specified. Also it was not an offer, which could be accepted since it was offered to the whole world.” (Common law 1 BPP)The outcome of the case was that there was an offer as it was specified of what to do and it was an offer to the public can be accepted so as to form a contract.Acceptance must be unqualified agreement to the terms of the offer, an acceptance which claims to introduce any new terms is a counter-offer and if it is made the original offeror may accept it, but if he rejects it his original offer is no longer available for
acceptance. Therefore a counter-offer may be accepted by the original offeror; this will have the effect of creating a binding contract. An example of this comes from the case of Butler Machine Tool Co V Ex-cell-O Corp (England) 1979. The claimant offered to sell tools to the defendant. Their quotation included the details of their standard terms and conditions of sale. The defendant accepted the offer enclosing their own standard terms which was different from the claimant terms. The claimant acknowledged acceptance by returning a tear-off slip from the order form. The outcome of the case was that the defendant‘s ...
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acceptance. Therefore a counter-offer may be accepted by the original offeror; this will have the effect of creating a binding contract. An example of this comes from the case of Butler Machine Tool Co V Ex-cell-O Corp (England) 1979. The claimant offered to sell tools to the defendant. Their quotation included the details of their standard terms and conditions of sale. The defendant accepted the offer enclosing their own standard terms which was different from the claimant terms. The claimant acknowledged acceptance by returning a tear-off slip from the order form. The outcome of the case was that the defendant‘s order was really a counter-offer. The claimant had accepted this by returning the tear-off slip. Acceptance must be communicated to the offeror and is not effective until this has been done. There are four methods of communicating acceptance; there is reward, waiver and mode. There is the postal rule as well which has been discussed.RewardWith reward cases it is whether contractual obligations arise if a party, in ignorance of an offer, performs an act which fulfils the terms of an offer. The case of R V Clarke 1927 is an example of reward cases. “A reward of £1,000 was offered for information leading to the arrest andconviction of a murder. Clarke, an accomplice, gave the necessary information. He claimed the reward, admitting that he had acted only to save his own skin.”The outcome of the case was that his claim failed, although he had seen the offer, it was not present in his mind when he acted.(Taken from Common Law 1 BPP.)Waiver of communicationThe offeror may, by his offer, dispense with the need for communication of acceptance. In Carlill V Carbolic Smoke Ball Co 1893 it was sufficient for the claimant to act on the offer with out acceptance of it first. Prescribed mode of communicationThe offeror may call for acceptance by specified means. But if the offeror stipulates that this is the only method of acceptance which suffices, then acceptance by some other means equally expeditious would constitute a valid acceptance: Tinn V Hoffmann 1873. A telegram or even a verbal message could be sufficient acceptance of an offer inviting acceptance ‘by return of post’. This would probably apply now also to acceptance by fax machine or e-mail. Taken from Common Law 1 BPP.ConsiderationThe consideration of a contract is very vital as it is the third element in a contract. Consideration is the price for which the promise of the other is brought. It must be something of value which is recognised by the courts as amounting to consideration i.e. Detriment to the promise or benefit to the promisor. Consideration does not have to be money but there are sub principles when consideration is involved. These are as follows;1. Consideration maybe executed or executory but not past. Executed is a performed act in return for a promise, if for example A offers a reward for the return of lost property, his promise becomes binding when B performs the act of returning A’s property to him. This was an example in Calill’s case. Executory is a promise given for a promise but is not a performed act for example a customer orders a product which the shop owner undertakes to obtain from the manufacturer, the shop owner promises to supply the product and the customer promises to accept and pay for the product. Neither of could withdrew from the contract with out the consent of the other, otherwise they will be in breach of the contract. Both of these considerations are provided at the time when the promise is given so it can not be in the past.2. Consideration must move from the promise but not necessarily to the promisor.3. Consideration must be sufficient though not necessarily adequate. This means that the consideration need not be of equal value to the parties to the contract, but it must be of some value to the parties involved, but does have to be financial. An example of adequacy was of the case of Chappell and Co V Nestle Co Ltd;“The defendants made a special offer, whereby if people collected three wrappers from Nestle bars of chocolate and then sent then in with a small sum of money, they could get a copy of a record called ‘Rockin’ Shoes’. The case arose because the claimants owned the copyright to the music and the two parties were trying to calculate the amount of royalties payable to Chappell, on the basis of the value of the records. The argument hinged on whether the wrappers, which were merely thrown away on receipt by Nestle, constitutes part of the consideration and therefore should be included in the royalty calculation” (Taken from Common Law1 BPP)The outcome of the case was that the defendants had required that wrappers were sent in as part of the special offer, for obvious commercial reasons. Therefore the wrappers were held part of the consideration as they had commercial value in the eyes of Nestle, one of the parties to the contract.Sufficiency of consideration means that the consideration must be something more than the party involved was already intending to do. For example a doctor’s job role can not be regarded consideration as the person involved would be doing it anyway. A good example of this is the case of Collins V Godefroy 1831; “The claimant had been summoned to court to give evidence on behalf of the defendant in another case. He alleged that the defendant had promised to pay six guineas (£6.30) for appearing.” (Taken from Common Law 1 BPP)The outcome of the case was that there was not any consideration for this promise as the claimant was obliged to appear in court by law. He failed his claim for six guineas.Waiver of existing rightsCertain complications arise over sufficiency of consideration for promises to waive existing rights. For example if A owes B £50 but B accept a lesser sum, say, £30, in full settlement of B’s claim, that is a promise by B to waive his entitlement to the balance of £20. The promise should be supported by consideration and if it is not supported by consideration it is not binding. The case of Foakes V Beer 1884 is an example of waiver of existing rights; “The defendant had obtained a court judgement against the claimant for the sum of £2,091. Judgement debts bear interest from the date of the judgement. By a written agreement the defendant agreed to accept payment by instalments of the sum of “2,091, no mention being made of the interest. Once the claimant had paid the amount of the debt in full, the defendant claimed interest, claiming that the agreement was not supported by consideration.” (Taken from Common Law 1 BPP)The outcome of the case was that she was entitled to the debt with interest. No consideration had been given by the claimant for the waiver of any part of her rights against him.Promissory estoppelPromissory estoppel operates when a person, by his words or conduct, leads another to believe that a certain state of affairs exists. If the other person, relying on the belief, alters his position to his detriment, the first person is prevented from claiming later that a different state of affairs existed. The case of Central London Property Trust V High Tress House 1947, if the defendants had sued on the promise, they would have failed for want of consideration. The principle is that it is a defence, which does not create rights. The case is shown below; “In September 1939, the claimants let a block of flats to the defendants at an annual rent of £2,500 p.a. it was difficult to let the individual flats in wartime, so in January 1940, the claimants agreed in writing to accept a reduced rent of £1,250 p.a. no time limit was set on the arrangement but it was clearly related to wartime conditions. The reduced rent was paid from 1940 to 1945 and the defendants sublet the flats during the period on the basis of their expected liability to pay rent under the head lease at £1,250 only. In 1945 the flats were fully let. The claimants demanded a full rent of £2,500 p.a., both retrospectively and for the future. They tested this claim by suing for rent at the full rate for the last two quarter of 1945.”(Taken from Common Law 1 BPP)The outcome of the case was that the agreement of January 1940 was temporary expedient only and had ceased to operate early in 1945. The claim was upheld. However, had the claimants sued for arrears for the period 1940 to 1945, the 1940 agreement would have served to defeat the claim.Three elements are required if promissory estoppel is to apply:1. A waiver of rights by one of the parties2. Where terms confer benefit to a third party3. There must be special and unusual circumstances that must apply.These three elements can clearly be shown in the High Trees case which is shown below:1. Central London Property trust waived their right to the full rent while subletting was difficult2. High Trees relied on that waiver by in turn reducing the rents charged to their tenants3. The situation arose because of the war: an unusual set of circumstances.(Taken from Common Law 1 BPP)Specific Contract Terms Terms of a contract can be specified in to categories of express terms, implied terms and innominate terms they are detailed below.Express Terms These are of two types’ conditions and warranties. A condition is a term which is vital to the contract, going to the root of the contract. Where as a warranty is a less important term. It does not go to the root of the contract, but is subsidiary to the main purpose of the agreement. Two cases, Poussard V Spiers 1876 and Bettini v Gye 1876 both about singers, illustrate the legal distinction between condition and warranty. Poussard V Spiers 1876 shows the legal definition of a condition and the case of Bettini V Gye 1876 shows the legal definition of a warranty. Both cases are show below.Poussard V Spiers 1876 “Poussard was engaged to appear in an operetta from the start of its London run for three months. The plaintiff fell ill and the producers were forced to engage a substitute. A week later Poussard recovered and offered to take her place, but the defendants refused to take her back.”The court held that the defendant's refusal was justified and that they were not liable in damages. What chiefly influenced the court was that Poussard's illness was a serious one of uncertain duration and the defendants could not put off the opening night until she recovered. The obligation to perform from the first night was a condition of the contract. Failure to carry out this term entitled the producers to repudiate Poussard's contract. (Taken from www.lawteacher.net/Contract/Contents/termscases.htm Accessed on 17 November 2005)Bettini V Gye 1876 “Bettini, an opera singer, was engaged by Gye to appear in a season of concerts. He undertook to be in London at least six days before the first concert for the purpose of rehearsals. He arrived three days late because of a temporary illness. He gave no advance notice and Gye refused to accept his services.”It was held that the plaintiff had been engaged to perform for a 15-week season and the failure to attend rehearsals could only affect a small part of this period. The promise to appear for rehearsals was a less important term of the contract. The defendant could claim compensation for a breach of warranty but he could not repudiate Bettini's contract. (Taken from www.lawteacher.net/Contract/Contents/termscases.htm Accessed on 17 November 2005) Implied Terms Terms may be implied into a contract by custom, courts or statute. Les Affreteurs V Walford 1919 is an example of custom. Also consider Liverpool Corporation v Irwin 1976 which stated that the legal relationship between banker and customer is governed by implied terms. An important example is the Sale of Goods Act 1979 which is in Appendix A. Both of these cases are shown below.Les Affreteurs V Walford 1919 “A charter of a ship provided expressly for 3% commission payment to be made on signing the charter. There was a trade custom that it should only be paid at a later stage. The ship was requisitioned by the French government before the charterparty began, and so no hire was earned.”The outcome of the case was that an express term prevails over a term otherwise implied by custom. The commission was payable on hire. (Taken from Common Law 1 BPP)Liverpool Corporation V Irwin 1976 “The condition of a council tower block deteriorated: there were defects in the stairs and lifts and internal rubbish chutes became blocked. The Irwins alleged a breach on the part of the council of its implied covenant for their quiet enjoyment of the property.”The House of Lords held that it was an implied term of a lease of a maisonette in a Council block that the landlord should take reasonable care to keep the common parts of the block in a reasonable state of repair. The term was clearly not implied in fact: the "officious bystander" test was not satisfied; nor was the implication necessary to `give business efficacy to the contract. The implication arose because the nature of the relationship made it desirable to place some obligation on the landlord as to the maintenance of the common parts of the premises. It amounted to the imposition of a legal duty, in spite of the fact that no term could be implied in fact. However, on the facts there had been no breach of the obligation. (Taken from (Taken from www.lawteacher.net/Contract/Contents/termscases.htm Accessed on 17 November 2005) Innominate Terms In this case the remedy available will depend on the seriousness of the breach, if the breach is so serious that it goes to the root of the contract then the innocent party will be entitled to repudiate the contract and claim for damages. This was demonstrated in the case of Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) 1975 where the buyers of citrus pulp pellets rejected the goods because they were in a damaged condition and later bought them at a cheaper price and used them for the same purpose. It was held to be a wrongful rejection of the goods as there was not a serious breach of contract and that the buyers were only entitled to damages. (Taken from homepages.unl.ac.uk/~bamfordj/lecture5.htm accessed on 17 November 2005) In theses type of cases the courts could delay deciding whether an event is a breach of condition or warranty until the extent of the damage is known. Intention, Capacity and FormIntentionIntention has to be implicity, which means you do not have to say it but you imply it, for example saying to somebody something, does that does not form a contract. If an agreement is between relatives, friends, husbands and wives it is said that there is no intention to create legal relations. If the matter relates to property, the courts may well impute an intention to create legal relations.Social and Domestic AgreementsIn the case of Merritt V Merritt 1970 the husband in this case had left his wife for another woman and agreed with his wife maintenance of £40 per month if she discharged the mortgage on their home. He also agreed that he would transfer the ownership of the house into her name but he failed, despite a written agreement, to do so. The wife sought a declaration that she was the sole owner of the property and an order that her husband transfer ownership to her. This was granted. An agreement between spouses, which is made at a time when they are not enjoying marital harmony, will be enforceable. The wife’s payment of the mortgage was sufficient consideration. Jones v Padavatton 1969 where a mother agreed to finance and house her daughter during studies. Later, after a quarrel the mother went back on her agreement. Held that it was not legally binding, as it was a social or domestic arrangement. (Taken from http://www.cwgsy.net/private/sljohn/icsabuslaw.htm accessed on 22 Novem!ber 2005)Business / Commercial Agreements Here the law presumes that there is intent for the agreement to be legally binding. However this presumption can and has been rebutted as in Jones v Vernon's Pools 1938 as the plaintiff claimed to have won the football pools. The coupon stated that the transaction was "binding in honour only". It was held that the plaintiff was not entitled to recover because the agreement was based on the honour of the parties (and thus not legally binding). CapacityCapacity refers to the fact that law regards some groups as being unable to enter into a binding contract because they might not be in the position to fully understand the agreement. People under the age of 18 (minors) can enter into a contract with another party but it has to be on certain terms. The contract has to be for necessities which can be suitable or of needs. Suitability is measured by the living standards of a minor. Things may be necessaries even though they are luxurious in quality for example a rich seventeen year old may class a sports car as a necessities but a poor seventeen year old student would class that as a luxury. Needs is something that you have to have where wants is a desire. For example a seventeen year old would need food and water but may want to eat out every day at an expensive restaurant. An example of necessities is the case of Nash V Inman 1908; “Nash was a London tailor who sued Inman on bills totalling £145 for clothes, including eleven fancy waistcoats. It was conceded that the clothes were suitable, but it was shown that he already had plenty of them.”(Taken from Common Law 1 BPP)The outcome of the case was that the clothes were not necessaries.Another type of contract that is binding on a minor is a service contract for the minor’s benefit which contains an element of education or training. The case of Doyle V White City Stadium 1935 is an example of this; “Doyle, who was a minor, obtained a licence to compete as a professional boxer. Under his licence he agreed to be bound by rules which could withhold his prize money if he was disqualified for a foul blow (as in fact happened). He asserted that the licence was a void contract since it was not for his benefit.”(Taken from Common Law 1 BPP)The outcome of this case was that his licence enabled him to pursue a lucrative occupation. Despite the penal clause, it was beneficial as a whole.If you are a minor you can cancel certain contracts such as land, shares and partnerships. You can cancel the contract unilaterally but the other person cannot get out of it without your permission. However when you get to eighteen normal laws apply and you can to void a contract unless it is done in a reasonable period of time. This could be a couple of weeks depending on the court in which your case would go to. An example of voidable contracts comes from the case of Edwards V Carter 1893; “A marriage settlement was made under which the father of the husband to be agreed to pay £1,500 p.a. to the trustees. The husband to be, who was a minor at the time of the settlement, executed a deed under which all property which he might receive under his father’s will would also be vested in the trustees. He attained his majority one month later, and three and a half years later his father died. A year after this, he repudiated the agreement.”(Taken from Common Law1 BPP)The outcome of the case was that the repudiation was too late and was ineffective.The diagram below shows the effect of having a contract regarding the capacity.Effect of ContractValid Unenforceable Voidable VoidEnforceable Guarantees 1.Misrepresentation 1.Mistakeby action in not evidenced 2.Duress 2.Illegalitycourt in writing 3.Some minors 3.Contracts which contracts should be in writing but are not of no ` effect whatsoever Valid but Valid and enforceable unenforceable unless and until avoidedForms of contractForms of a contract are not usually in writing, for example when you go to the shop you pick up an item say a handbag for example, you then go to the cash desk pay for the item and then walk out. This is a contract with out you even realising it, as there was an offer, acceptance, consideration and the intention to create legal relations. When contracts are in writing it is usually related to one of the following:• Some contracts must be in Deed• Some contracts must be in writing• Some contracts must be evidenced in writing.Contracts by deedContracts made by deed must be in writing, signed and witnessed. Contracts that in deed will include leases of three or more years, a conveyance or transfer of a legal estate in land (including a mortgage) as this is the completion on a sale of a house or land. Also a promise which is not supported by consideration this for example would be if you were giving money to a charity as it is called a deed of covenant as the charity gets the money you donate plus tax you pay on the donation and you are getting nothing back.Written ContractA contract that is in writing is usually signed by at least one of the parties; the contracts that are in writing include the following:• A transfer of shares within a limited company.• The sale or disposition of an interest in land (the exchange of contracts on the sale of a house)• Bills of exchange and cheques• Consumer credit contracts which relates to credit cards and hire purchase.Contracts which must be evidenced in writingCertain contracts may be made orally but in the court of law they are not enforceable as there is no proof to what either party will justify. But if there is evidence of their terms in writing then it can be enforceable. A contract of guarantee is the most important contract of this type as a signed note of the material terms of the contract is sufficient.Standard Form ContractA standard form contract is a standard document prepared by many large organisations and setting out terms on which they contract with their customers. The individual must usually take it or leave it: he does not really ‘agree’ to it. For example a customer has to accept his supply of electricity on the electricity boards term; individuals cannot negotiate discounts. One of the main problems with standard form contracts is when the dominant party tries to exclude liability for the terms in the contract, but legislation protecting consumers in such situations is the Unfair Contract Terms Act.Exemption ClausesAn exemption clause is a clause which seeks to release one of the parties from liability should something go wrong with the contract. If both parties bargain fairly on their terms of their contracts it would not end up in the courts but sellers use it so they may try to exclude or limit the liability for failure to perform as promised for breach of contract or negligence. There has been strong criticism of the use of exemption clauses in contracts made between manufacturers o sellers of goods or services and private citizens as consumer, standard form contract.The courts have generally required protecting the consumer from the harsher effects of exemption clauses in two ways:1. An exemption clause must be properly incorporated into a contract before it has any legal effect.2. Exemption clauses are interpreted strictly; this may prevent the application of the clause.Incorporation of exemption clausesIt must be shown that the clause was incorporated into the contract and agreed by both parties. The exemption clause must be sufficiently communicated. For an exemption clause to be enforceable, certain conditions must be met: • is must be validly incorporated in the contract, and • its meaning must be clear, and match the nature of the defence to which it is to be put, and • it must not be prevented by statute, and • the contract must remain sufficiently intact that the clause still has some legal force; however, it is increasingly difficult to rely on fundamental breach of contract to invalidate an exemption clause. In the case of Chapelton v Barry UDC 1940 it was held that the exemption clause on the back of a receipt was not adequately communicated. Chapelton V Barry UDC 1940 “There was a pile of deck chairs and a notice stating ‘hire of chairs 2d (1p) per session of 3 hours’. The claimant took two chairs, paid for them and received two tickets which he put in his pocket. One of the chairs collapsed and he was injured. The defendant council relied on a notice on the back of the tickets by which it disclaimed liability for injury.”(Taken from Common Law 1 BPP)The outcome of the case was the notice advertising the chairs for hire gave no warning of limiting conditions and it was not reasonable to communicate them on receipt. The disclaimer of liability was not binding on the claimant.In Thompson v LMS Railway 1930 it was held that an exemption clause on the back of a railway ticket was adequately communicated, as it was reasonable for the ticket to contain contract terms. Thompson V LMS Railway 1930 “An elderly lady who could not read asked her niece to buy her a railway excursion ticket on which was printed ‘Excursion: for conditions see back’. On the back it was stated that the ticket issued subject to conditions contained in the company’s timetables. These conditions excluded liability for injury.”(Taken from Common Law 1 BPP)The outcome of the case was the conditions had been adequately communicated and therefore had been accepted.Signed contracts If a contract is signed which includes an exemption clause restricting a persons rights, it is held to have been agreed by the person signing it. In the case of L’Estrange V Graucob 1934 we can argue that the claimant had signed the contract therefore should be aware of the terms and conditions in the contract as he agreed to it. Therefore he is liable to pay the whole sum of £30.000 to the defendant. How ever under the UCTA (Unfair Contract Terms Act) 1977 the terms and conditions stated in the contract seem to be unfair. Also under section 13 of in the supply of goods and services act 1982 it states that goods must be of quality standard. Therefore the defendant did not meet the standards is in breach of the act. Exemption clause is not effective on grounds of statue. Clause 84 -contra proferentem re payment as clause ambiguous, in this case payment was never made therefore clause does not cover breach. Contra proferentum is the rule that !the courts will in cases of ambiguity interpret the clause against the person making it.Prior information on terms most contracts are entered into with out the party actually signing any thing, in this instance exemption clauses may be stated on notices or tickets but since the terms of a contract are fixed at the moment of acceptance and offer an exemption clause can not be stated afterwards i.e. the case of Chapelton V Barry UDC 1940. The case of Olley V Marlbourgh Court 1949 is a case of Proir information on terms.Olley V Marlbourgh Court 1949 “A husband and wife arrived at a hotel and paid for a room in advance. On reaching their bedroom they saw a notice on the wall by which the hotel disclaimed liability for loss of valuables unless handed to the management for safe keeping. The wife locked the room and handed the key in at the reception desk. A thief obtained the key and stole the wife’s furs from the bedroom.” (Taken from Common Law 1 BPP)The outcome of the case was that the hotel could not rely on the notice disclaiming liability, as the contract had already been made previous when the room was booked and paid for so the disclaimer was too late.Previous Dealing If parties to a contract have had previous dealings with each other then the person bound by the exemption clause should be aware of it at the time of making the latest contract. In a consumer contract the person might actually knew of a condition but this does not necessarily mean he actually was aware of it. In the case of Hollier V Rambler Motors 1972 Hollier had about four or five repairs on his motors which took place at Rambler motors. He had always signed a form in which the garage disclaims liability for damage caused by fire to customer’s cars. On this occasion he didn’t and because of the negligence of the workers Hollier’s car caught on fire and the Defendant was adamant that the disclaimer had by course of dealing become an established term of any contract between the two parties. But in theory the garage was liable as there was not any evidence showing that the plaintiff had signed a form and had agreed to the condition as a continu!ing term of his contracts with Rambler motors so therefore they were liable for the damage caused to Hollier’s motor.Onerous terms An onerous term should be bought to the attention of the other party; otherwise it may not be included in the contract. These terms can include conditions which can be unfair and unreasonable and which seek to punish. An example would be the Library lending service; if you do not return the books on time you will incur a charge for every day that they are late. This is not an excessive charge and so is not deemed as unfair or unreasonable however if the library were to charge excessive amounts then this is deemed unfair punishment as the party should not 'earn' extra money which is not morally theirs. In the case of Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd 1988, the defendant had received 47 photographic transparencies by post with a delivery note with conditions on the back. In small print there was a clause stating that for every day late the transparencies were held there would be £5 charge plus VAT. The defendan!t returned those 14 days late. The courts found that the term was onerous and had not been sufficiently bought to the attention of the defendant. They reduced the fee to 50p per transparency so that it covered any loss caused to the claimants by the delay. Unfair Contract Terms Act 1977The Unfair Contract Terms Act 1977 limits the use of exclusion clauses in contracts. Generally only a court can decide whether an exclusion clause is reasonable, however, any exclusion of liability whether in a contract term or in a notice is always void if used for the purpose of evading liability for death or personal injury caused by negligence. Also, a trader selling goods cannot exclude liability for a breach of a consumer’s rights under the Sale of Goods Act. Contractual exclusion clauses in relation to services are not illegal but they are not enforceable if they are unreasonable. UCTA places a number of restrictions on the contract terms businesses can agree to. Specifically, it lays down rules for the ways in which vendor businesses can use exclusion clauses to limit liability in certain areas:• Excluding liability for death or injury is not permitted in any circumstances. • Excluding liability for losses caused by negligence is permitted only if it is reasonable. • Excluding liability for defective or poor-quality goods is also permitted only if it is reasonable. The act does not define reasonableness it is up to the courts but there are some deciding factors such as:• the information available to both parties when the contract is being drawn up • whether the contract was negotiated or in standard form • whether the purchaser had the bargaining power to negotiate better terms Conclusion I have discussed what offer, acceptance, consideration, intention, legal capacity, exemption clauses and the Unfair Contract Terms Act 1977. I have used the Internet and various textbooks to gather data as well as class notes. All my work has been cited through referencing.RecommendationIn order for a contract to be legal binding there originally needs to be an offer then the offeree would have to accept the offer. Acceptance must be communicated in some way to form an agreement. There then has to be consideration from both parties. In order for a contract to be legally binding there must be intention as well as the capacity to fulfil the contractual obligations. All of this is what makes up a legally binding contract. When making a contract the other party needs to be aware of exemption clauses, UCTA 1977 was introduced in order to control unfair terms especially to a consumer. Overall when getting into a contract, you must be aware of what you are agreeing to because if there was consideration and intention within the contract then you can not go back on what you have agreed to (promissory estoppel). Appendix ASALE OF GOODS ACT 1979Implied terms about titleSection 12 provides:(1) In a contract of sale … there is an implied term on the part of the seller that in the case of a sale he has a right to sell the goods, and in the case of an agreement to sell he will have such a right at the time when the property is to pass.(2) In a contract of sale … there is also an implied term that-(a) the goods are free, and will remain free until the time when the property is to pass, from any charge or encumbrance not disclosed or known to the buyer before the contract is made, and (b) the buyer will enjoy quiet possession of the goods except so far as it may be disturbed by the owner of or other person entitled to the benefit of any charge or encumbrance so disclosed or known.The term implied by s12 (1) is a condition and the term implied by s12 (2) is a warranty: s12 (5A).Sale by descriptionSection 13 provides:(1) Where there is a contract for the sale of goods by description, there is an implied term that the goods will correspond with the description.(1A) … the term implied by subsection (1) above is a condition.(2) If the sale is by sample as well as by description it is not sufficient that the bulk of the goods correspond with the sample if the goods do not also correspond with the description.Implied terms about quality or fitnessSection 14 provides:(2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality.(2A) … goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all other relevant circumstances.(2B) … the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods -(a) fitness for the purposes for which goods of the kind in question are commonly supplied,(b) appearance and finish,(c) freedom from minor defects,(d) safety, and(e) durability.(2C) the term implied by subsection (2) above does not extend to any matter making the quality of goods unsatisfactory -(a) which is specifically drawn to the buyer's attention before the contract is made,(b) where the buyer examines the goods before the contract is made, which that examination ought to reveal, or(c) in the case of a contract for sale by sample, which would have been apparent on a reasonable examination of the sample.(3) Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known -(a) to the seller …any particular purpose for which the goods are being bought, there is an implied term that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller …The terms implied by sections 14(2) and (3) are conditions: s14 (6)Sale by sampleSection 15 provides:(2) In the case of a contract for sale by sample there is an implied term -(a) that the bulk will correspond with the sample in quality; (c) that the goods will be free from any defect, making their quality unsatisfactory, which would not be apparent on reasonable examination of the sample.The term implied by s15 (2) is a condition: s15 (3).Modification of remedies for breach of condition in non-consumer casesSection 15A provides:(1) Where in the case of a contract of sale -(a) the buyer would, apart from this subsection, have the right to reject goods by reason of a breach on the part of the seller of a term implied by sections 13, 14 or 15 above, but(b) the breach is so slight that it would be unreasonable for him to reject them,then, if the buyer does not deal as a consumer, the breach is not to be treated as a breach of condition but may be treated as a breach of warranty.(2) This section applies unless a contrary intention appears in, or is to be implied from, the contract.(3) It is for the seller to show that a breach fell within subsection (1) (b) above.Taken from slcc.strath.ac.uk/scotslawcourse/contract/con2/Statutes/ucta1977.htm accessed on 17 November 2005 ReferencesHND/HNC Mandatory Unit 5 Common Law 1 BPP London Aldine place.Tretel, Law of Contract, 9th edition 1995, sweet and Maxwellwww.dti.gov.uk/ccp/topics1/saleandsupply.htm#uct accessed on 17 November 2005homepages.unl.ac.uk/~bamfordj/lecture5.htm accessed on 17 November 2005www.lawteacher.net/Contract/Contents/termscases.htm Accessed on 17 November 2005slcc.strath.ac.uk/scotslawcourse/contract/con2/Statutes/ucta1977.htm accessed on 17 November 2005http://www.cwgsy.net/private/sljohn/icsabuslaw.htm Accessed on 22 November 2005.