2. The significance of terms in a Typical Contract
Contracts consist of various statements, promises, stipulations etc, grouped together under the word ‘terms’. The terms may be express or implied and it is the terms of the contract that determine the extent of each party’s rights and duties and the remedies available if the terms are broken are determined by the importance of the terms.
Representation and Terms
A statement can become a term if that statement is relied upon as an inducement to enter into contract, especially if that statement is made by a person with specialist knowledge on the subject. However there are certain cases in which one party does not have special knowledge of the subject. For example Oscar Chess v Williams 1959, a private car owner negotiated the part exchange of his old car for a new one. He stated that his car was a 1948 model as this was what the registration book showed, however it was in fact a 1939 model worth significantly less. A previous owner has altered the registration book and the court decided that the statement was only a representation as the seller was not an expert and the buyer had better means of discovering the truth.
If the terms of the agreement are not complete then there will be no contract. A legally binding agreement must have complete terms. For example if you agree to discuss a price later and continue to sort everything else, then the contract cannot be final a price is agreed as there is no consideration.
Scammell v Ouston 1941 – this was the agreement of a purchase of a van providing that the price should be paid over two years by hire purchase. The court ruled that there was no agreement, there was uncertainty of the terms of payment and so the agreement was not complete.
Conditions and Warranties and Innominate terms
Statements which become terms will then be classified into either a condition or a warranty. Conditions go to the root of the contract, the breach of a condition will entitle the injured party to treat himself as discharged from the contract and he is well within his rights to sue for damages. Warranty is commonly used to denote a contractual term of lesser importance, the breach of which gives the injured party the right to claim damages only and not to consider himself discharged from the contract. For example, if you were to buy a car you could specify make, colour etc. If when delivered you discovered it was a different shade of the colour you chose then this would be a breach of warranty, and although you would be entitled to seek compensation for this you are still bound by the contract. However if the car that arrived was a different make then this would be a breach of condition and the contract would be discarded. Whether a term is a condition or a warranty depends on the intention of the parties. A neat illustration of the distinction is to be found by contrasting two cases, Poussard v Spears 1876 (condition) and Bettini v Gye 1876 (warranty). The fact that the parties have described a term in the contract as a ‘condition’ is not conclusive if in fact it is a warranty and visa versa.
Poussard v Spears – Madame Poussard had agreed to sing in an opera for a series of performances, however due to illness she was unable to sing on the opening night or for a few nights after. The Producer found a substitute to sing for these performances and all of the remaining performances. Once Madame Poussard was well again, her services were declined. The court found that failure to sing on the opening night was a breach of conditions, and so the producer was entitled to treat the contract as discharged.
Bettini v Gye – an opera singer had signed a contract under which he would sing at a series of performances. For this he would arrive six days before the opening performance for rehearsals, he did not arrive until the third day and the defendant refused to accept his services, and treated the contract as discharged. The court decided that the defendant had no right to treat the contract as discharged, as the rehearsal clause was subsidiary to the main purpose of the contract and the defendant was legally bound to let the opera singer perform. He could claim damages for this delay in rehearsals if he could prove a loss, but he should compensate the singer as there was a breach of warranty, not a breach of contract.
Innominate Terms
More recently the courts have looked at the effect of a breach on the injured party to ascertain whether a condition or a warranty has been broken. “A term will be classed as ‘innominate’ where it is only when the effects of its breach are considered that its true nature is revealed.” Source: Contract Law – Sweet & Maxwell. The consequence of a term being classed as innominate is that if the effect of the breach is found to substantially deprive the injured party of the benefit in which it was intended, then the courts can decide it was a breach of contract. Therefore the injured party can end the contract and claim damages.
A leading case on the innominate approach is Hong Kong Fir Shipping Co Ltd v Kawasaki Kisa Kaisha Ltd 1962 in which the defendants chartered a ship from the plaintiffs for a period of 2 years. The engines were old and the staff incompetent, with the result that 20 weeks were lost. As a result the defendants decided to terminate the contract due to breach of condition to provide a seaworthy ship. However the plaintiffs bought an action against the defendants for terminating the contract as they believed the breach was not such as entitled the defendants to terminate the contract, but only to claim damages. The court of appeal decided that the question to be asked was whether, looking at the events which had occurred as a result of the breach, the defendants had been deprived of the whole benefit to which they were entitled under contract. As the ship was still available for 17 out of the 24 months the court decided that in fact the defendants were in breach of contract for terminating it when they did.
Implied Terms
Additional terms of a contract may be implied by law, there are 3 ways in which terms which have not been expressed may be implied into the contract; by the court, by custom and by statute.
Terms implied by Court:- where a term is not expressly stated but is one which the parties, in the view of the court, must have intended to include, the term may be implied into the contract. Such a term must be something so obvious that it ‘goes without saying’. An example is the Moorlock 1889, where the defendants, wharf owners, agreed to allow the plaintiffs to unload a vessel. The vessel grounded at low tide and was damaged. Despite the absence of an express term, the defendants were held liable for breach of an implied term to take reasonable care that the berth was safe.
Terms implied by Custom:- the parties may be considered to enter into a contract subject to a custom of their trade. For example a tenant who may be moving into a house will assume that an implied term of contract would include the rights of tenants. Les Affreteurs V Walford 1919, in this case a charter of a ship was provided and it was the custom of the trade for the payment to be made at a later stage. The ship was requisitioned by the French government before the charter began, and so there was no hire earnt. An express term will override a term otherwise implied by custom, the commission was payable on hire.
Terms implied by statute:- certain statutes imply terms into particular types of contract. Of particular importance are the terms implied by the Sales of Goods Act 1979 which protects consumers when buying goods or services.
Exclusion Clauses
An exclusion clause is a clause which can be imposed by one party. The party who imposes it generally seeks to reduce or exclude liability in some form. The courts have sought by various means ways to control the use of such clauses, and also Parliament have intervened with the Unfair Contract Terms Act 1977, and the Unfair Terms in Consumer Regulations 1999. The courts have generally sought to protect the consumer from the harsher effects of exclusion clauses in two ways. Firstly the defendant may only rely on an exclusion clause if it has been incorporated into the contract. Secondly the exclusion clause are interpreted strictly and so this may prevent the application of the clause.
However, generally if the plaintiff signs a document intending to have contractual effect containing an exclusion clause, then he is bound by its terms.
For example, if a person was selling their car privately they may include the clause ‘sold as seen’ so that the buyer is aware that any faults found after they have purchased the car will be their liability. They are agreeing to the clause by buying it and so accept that there is a risk that there may be faults.
The courts will not treat an exclusion clause as a term of the contract unless the party have been fully informed of it and accepted it. Chapelton v Barry UDC 1940, a claimant had hired two deck chairs costing ‘2 d for 3 hours’ once he paid for them he received 2 tickets which he put in his pocket. The claimant was injured when one of the chairs collapsed, however the defendant relied upon the notice that they had printed on the back of the tickets excluding liability for injury. The courts found that there was no warning on the advertisement for chairs and that printing the warning on the back of a receipt was not reasonable, and so the clause was not binding on the claimant. Thompson v LMS Railways 1930, an illiterate railway passenger was held bound by a clause since sufficient notice had been given to the ordinary railway traveller. In the Chapelton case, the ticket was only a receipt, whereas in the Thompson case it is usually the case that tickets of that type will carry conditions.
Where the buyer and seller are regarded as equal weight the court will generally bind the clause. There are some cases in which one partner has an imbalance, for example a car company and a single buyer. The buyer may have less knowledge and no means of checking the clause. The courts have found that often the dominant party will try and include exclusion clauses limiting liability and so they look at whether the exclusion clause was made clear to the party signing the contract. For example, Curtis v Chemical Cleaning and Dyeing Co. 1951, the plaintiff took a dress to be cleaned, and was induced to sign a document in which she was told excluded the defendants liability for damage to sequins. In fact the document excluded liability for any damage. The dress was returned stained and it was held that the defendants were not protected by the clause as it was not communicated fully and that they would only be protected against damage to sequins as this clause was agreed.
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. 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 defendant returned them 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 Terms Legislation
There is now legislation that the courts can use to control the use of exclusion clauses and to protect consumers. The Unfair Contract Terms Act 1977 was created to restrict the extent to which liability in a contract can be excluded for breach of contract and negligence, largely by reference to the reasonableness requirement. The test of reasonableness allows the courts to intercede with the terms agreed. It is the responsibility of the person seeking to rely on the clause to prove its reasonableness. There have been statutory guidelines in the act to assist in the decision of reasonableness, however the court can still take account of all factors.
Unfair Terms are contractual terms which have not been individually negotiated, contrary to the requirement of good faith, this causes a significant imbalance in the parties’ rights and obligations. An unfair term shall not be binding on the consumer, however the contract shall continue to bind the parties if capable of existing without the unfair term. The assessment of unfairness will take into account all the circumstances attending the conclusion of the contract. There is a schedule that the courts will follow which includes a list of terms which may be considered unfair.
In conclusion there are many factors that need to be considered when looking at contracts and terms and conditions. Some statements will remain at statements and some may be taken further, also some conditions and warranties may be unclear and not appropriately communicated. As with all terms and conditions they must be properly Incorporated into a contract and they must be communicated effectively so that one party does not gain in extra benefit from the agreement other than that which was agreed upon. All parties should be aware that once formed a contract is legally binding.
- The Validity of terms contained in a Contract.
The complaint in this case may be seen as justified on face value, however one needs to look at the agreement made and the terms of the contract. It may be that from a legal opinion Tom is unjustified to complain. This is what I intend to investigate.
Firstly we need to look at whether the parties, viewed objectively, reached an agreement. This would begin with an offer. The case states that the owner ‘says that he can arrange for a live band’ there was no mention that he will arrange. An offer is a definite promise to be bound on specific terms. It could be argued that this statement did not become a condition as there is no mention in the case that Tom accepted this offer that the owner ‘ can’ arrange a live band. Therefore a court may feel that this is not a condition and so there could be no breach of condition. They may feel it was merely an invitation to treat such as in Fisher V Bell when it was decided that the display of an article in a shop window with a price on it is simply an invitation to treat. However, a statement can become a condition if that statement is relied upon as an inducement to enter into contract. Tom may argue that he would not have agreed to hire the boat if there was no live band available, and that by making the statement the owner was including it into the terms of the contract. If Tom was to claim for breach of condition then it would have to be an important term of the contract and the injured party would have to have suffered a significant loss. However as the party still went ahead and there was a disco, which could be seen as a substitute for the live band, then the most Tom could claim would be damages for a breach of warranty. This will not entitle him to terminate the contract and so he will still be legally bound.
The owner could argue that he made the statement but there was no acceptance of the offer. He could argue that they had simply ‘discussed terms’ and no agreement had been made. However the court may find that Tom accepted the offer by conduct, for example with Carlill v Carbolic Smokeball Co 1893, Mrs Carhill accepted the offer by purchasing the medicine and using it correctly. For this to happen the courts must first be satisfied that an offer had actually been made.
From the case there is no mention of money or costs of the evening. Without consideration there is no agreement, however one would assume that Tom was aware of the charges and full cost of the evening before he agreed to the hire of the boat. There would have to be an agreement that the full cost of the evening would be billed to Tom after the event. The case states that the owner ‘agrees to provide a buffet for 100 guests’, however Tom found that although the food was fine there was not enough of it. The owner states that he believed there was only to be 50 guests. One would assume that the owner would not provide food unless he knew the amount of guests that would be attending, as so the courts may decide that there was an agreement to provide for 100 people and so Tom may be able to claim for damages.
However, the owner could argue that he was advised that 50 people would be attending, which would also explain the reason why a smaller boat was used. Also there was no agreement or discussion on portion sizes etc. The owner may argue that there was sufficient food for all guests as it was intended to be a light buffet. He would need to prove that the amount he provided would be sufficient for all guests, and that if there wasn’t enough then it was due to the guests eating more. The same would apply to the beer which ran out half way through, it would be assumed that the barrels were full and that there was sufficient beer for the amount of people the boat was designed to hold (whether 100 or 50). In this situation the courts will need to look at whether there was an agreement to provide for 100, but as I mentioned before the courts may be more willing to compensate Tom for this as it would be assumed that the owner would need to know numbers for both the boat and food so that he could cater adequately. Tom would need to prove that he stated there would be 100 guests.
The boat was late due to the previous booking, this is beyond the owners control and may have been an exclusion clause in the agreement so that it cleared him of liability. However there is no mention in the case of the discussion or acceptance of any exclusion clauses. The courts believe that an exclusion clause must be clear and communicated to the buyer. If this had been part of the contract then the courts may not be able to do anything about it. The courts will look at the incorporation of exclusion clauses and then will be able to decide if they believe the owner does have liability for example Curtis v Chemical Cleaning and Dyeing Co where the exclusion clauses were not communicated effectively or agreed to and so the defendants were not protected by the clause.
The owner could claim that it was beyond his control, he can give a time limit to people who hire the boats, but he can not guarantee that they will return the boats on time. However one could look at whether the owner leaves enough time between bookings for the return of the boat, also one would assume that there is some kind of onorous term that would mean the owner can charge extra or a penalty for not returning the boat on time. If this is the case then Tom could argue that he should be compensated for the delay as the owner was. The courts could look at whether this was a breach of warranty rather than condition as the party did still go ahead. They could look at it as an innominate term however the loss to Tom would have to be substantial otherwise it will be a breach of warranty only see Hong Kong Fir Shipping Co Ltd v Kawasaki Kisa Kaisha Ltd 1962.
With regards to the rain cover it is unlikely that Tom would be able to claim anything against this as there is no indication that a rain cover was part of the agreement, however Tom could argue that it was an implied term, as everyone would want to be protected against the weather in that situation. However, similarly the owner could claim that it was an exclusion clause as the weather is beyond his control and is a risk that the parties take. For this he would need to prove that there was an exclusion clause and it was communicated. If it wasn’t communicated as in Chapelton v Barry UDC, then the Tom would be able to claim damages. Another condition that Tom could argue was an implied term is that there was no space to dance. One would assume that if there was a disco on board then it would be obvious that this was accompanied by a dance floor, however there is no mention of there being a dance floor for example there may have been one but it may not have been large enough.
The exclusion clause that means the owner has no liability over any injuries that occur is likely to be upheld by the courts. The warning was in a place where everyone was able to view it, and one would expect to find warnings on walls such as this (for example in the Thompson v LMS railway case). Tom could argue that the sign was not obvious and so he may be able to claim damages. These exclusion clauses may be unfair and Tom may have accepted without being fully aware of them, the Unfair Contract Terms Act will be used by the court to ensure that the terms were fair.
If Tom wished to take action the he should consider taking the case to the County Court. They deal with all civil law cases and it will be suitable, as the claim would be considered a small amount of money. There is a case to argue, however whether Tom could show that there was a breach of contract then he is likely to still be legally bound and cannot terminate the contract. If Tom does not pay then he can be found in breach of contract. The courts however on the evidence provided are likely to award damages to Tom for the complaints that he has, as there was some benefit that was taken away by the actions of the owner. However the courts will look at how much the owner is to blame and how much liability he should have. Tom would need to look at what remedies he would go for ie. Compensation etc. Compensation is the most likely in a case such as this.
I personally feel that although Tom did suffer many shortcomings at his party, the party did still go ahead. The food was still eaten the beer was drunk, the disco was used. Although I believe Tom should be compensated for the bad service he received, he still has to pay for the evening as he is still bound to by contract. I believe that if he could show the courts that he suffered a significant loss then he will be able to claim significant damages, however he needs to look at what areas that the owner was in the wrong. There are certain shortcomings which I feel the owner cannot be completely to blame for example the late arrival of the boat. He may have sent a smaller boat as he believed there would be 50 people or he may have sent a smaller boat as he may have been unable to provide a larger one and so he thought that rather than cancel he would send a substitute. I do feel though that Tom has a strong case for claiming compensation and I would recommend that he do so.
