Law (9084) | Contents of a contract

Study Notes: Law 9084 – Contents of a Contract (A Level)

Welcome to one of the most practical and exciting chapters in Contract Law! You've already learned how a contract is made (Offer, Acceptance, Consideration, Intention). Now, we are going to open up that finished contract document and look at the actual rules and obligations inside—this is the contents of the contract.

Why is this important? If a contract goes wrong, the court needs to know two things: 1) What specific rule (term) was broken? 2) How serious was that broken rule? Understanding the contents is key to determining liability and the appropriate remedy.

3.2.1 Express Terms: The Rules Written Down

Express terms are the promises clearly stated by the parties, either orally or in writing.

1. Terms vs. Representations: A Vital Distinction

When parties are negotiating, they say many things. Some are promises that become part of the contract (Terms), and some are just statements designed to encourage the other party to contract (Representations).

The Importance of the Difference:

• If a Term is false or broken, this is a breach of contract. The remedy is damages for breach (and potentially termination).
• If a Representation is false, this is misrepresentation. The remedy arises under the law of misrepresentation (not breach of contract law).

How do the Courts decide if a statement is a Term or a Representation?

Courts look at the intention of the parties objectively, considering:

• Timing: Was the statement made close to the final agreement? (Closer = more likely a term).
• Importance: Was the statement crucial? If the contract wouldn't have been made without it, it's likely a term (Bannerman v White).
• Knowledge/Expertise: If the maker of the statement has specialist knowledge the other party relies on, it is usually treated as a term (Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd). If the statement is made by a non-expert, it is often a representation (Oscar Chess Ltd v Williams).
• Reduction to Writing: If the contract is written, and the statement is not included, it suggests it was only a representation.

2. Written Terms: Incorporation

A term is only binding if it has been successfully incorporated into the contract.

A. Incorporation by Signature

The simplest rule: if a party signs a document, they are generally bound by all the terms in that document, whether they have read them or not.

Case Example: L'Estrange v F Graucob Ltd – Mrs. L'Estrange bought a vending machine and signed a sales agreement. It contained a tiny, unread clause excluding all liability. The court held that by signing, she was bound by the term, even though she hadn't read it.

Exception: This rule does not apply if the signature was obtained by misrepresentation or fraud.

B. The Parol Evidence Rule

This rule applies where a contract has been put into writing. It states that extrinsic evidence (like oral statements or earlier drafts) cannot be used to add to, vary, or contradict the written document.

Analogy: Think of the written contract as a sealed bottle. You cannot introduce any 'new liquid' (new terms) from outside the bottle.

Did you know? In modern law, there are many exceptions to the Parol Evidence Rule (e.g., if the written contract was clearly incomplete, or to prove implied terms). It has lost much of its strict meaning.

3.2.3 Status of Terms: Conditions, Warranties, and Innominate Terms

The status (or type) of a term determines the remedy available to the innocent party when a breach occurs. It’s like classifying injuries: is it a paper cut (warranty) or a broken leg (condition)?

1. Conditions

Conditions are the major, fundamental terms that go to the very root of the contract. They are essential to the performance of the contract.

• Effect of Breach: If a condition is breached, the innocent party has the right to repudiate (terminate) the contract and claim damages.
• Analogy: You contract to buy a red Ferrari. If the seller delivers a green Kia, they have breached a fundamental condition. You can reject the car entirely and sue for damages.

2. Warranties

Warranties are minor terms, subsidiary to the main purpose of the contract. They are less important.

• Effect of Breach: If a warranty is breached, the innocent party must continue with the contract but can claim damages for the loss suffered. They cannot terminate the contract.
• Analogy: You contract to buy a red Ferrari, and the seller promises to include a specific brand of floor mats (warranty). They deliver the red Ferrari but with different mats. You must keep the Ferrari but can sue for the cost of the promised mats.

3. Innominate Terms (The ‘Wait and See’ Terms)

Don't worry if this seems tricky at first! Innominate terms (sometimes called 'intermediate terms') are flexible. The court does not classify them as Condition or Warranty until the breach actually occurs.

• How they work: The court looks at the nature and effect of the breach on the innocent party.
• If the breach results in serious consequences, depriving the innocent party of substantially the whole benefit of the contract, it is treated like a breach of a Condition (allowing termination).
• If the breach results in minor consequences, it is treated like a breach of a Warranty (damages only).
• Case Example: Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd – The ship was chartered for two years, but due to staffing issues, it was unavailable for several months. The court held that the term requiring the ship to be seaworthy was innominate. Since the breach did not frustrate the *entire* two-year contract, the innocent party could only claim damages, not terminate the charter.

3.2.2 Implied Terms: Consumer Rights Act 2015 (CRA)

Implied terms are rules not expressly stated by the parties but are inserted into the contract by law (usually Parliament or case precedent) to ensure fairness, especially in contracts between a Trader and a Consumer.

The Consumer Rights Act 2015 (CRA) governs implied terms in consumer contracts for goods and services in England and Wales.

1. Implied Terms for Goods (s9, s10, s11)

The following terms are automatically implied as Conditions into every contract for the sale of goods from a trader to a consumer:

• s9: Satisfactory Quality

  Goods must meet the standard that a reasonable person would regard as satisfactory, taking into account price, description, and safety. This includes appearance, finish, freedom from minor defects, and durability.

• s10: Fitness for Particular Purpose

  Goods must be reasonably fit for any particular purpose the consumer makes known to the trader (expressly or by implication).

  Example: If you tell the seller you need a paint to use outdoors, the paint must be suitable for outdoor use.
• s11: Goods to be as Described

  The goods must match any description given by the trader (e.g., in advertisements or packaging).

Consumer Remedies for Breach of Goods Terms (s20, s22, s23, s24)

If goods breach s9, s10, or s11, the consumer has a clear tiered system of remedies:

1. Short-Term Right to Reject (s20 & s22): The consumer has 30 days to reject the goods and get a full refund. This is the simplest remedy.
2. Right to Repair or Replacement (s23): If the 30 days have passed, the consumer must usually allow the trader one attempt to repair the goods or replace them. The trader must bear the cost and perform the remedy within a reasonable time.
3. Final Right to Reject OR Price Reduction (s24): If repair/replacement fails, or if it is impossible, the consumer gains the "final right to reject" (full or partial refund) or the right to a reduction in price (keeping the item but getting some money back).

2. Implied Terms for Services (s49, s52)

These apply when a consumer contracts a trader to provide a service (e.g., hiring a plumber or car repair shop).

• s49: Service to be Performed with Reasonable Care and Skill

  The standard is objective: what would a reasonably competent person in that profession do?

• s52: Service to be Performed within a Reasonable Time

  Unless the contract specifies a time, the service must be completed within a reasonable period.

Consumer Remedies for Breach of Service Terms (s55, s56)

If services breach s49 or s52:

• s55: Right to Repeat Performance: The trader must repeat the service at their own cost until it is performed correctly.
• s56: Right to a Price Reduction: If repeat performance is impossible or not done within a reasonable time, the consumer can demand a price reduction (up to the full cost).

3.2.4 Control of Exemption Clauses

An exemption clause (or exclusion clause) is a term in a contract that attempts to limit or exclude one party's liability for a breach of contract or negligence.

Because these clauses can be unfair, especially against consumers, they are strictly controlled by both Common Law and Statutory Law.

1. Common Law Controls

Courts apply a two-stage test:

Stage 1: Incorporation (Is the clause part of the contract?)

A clause must be validly incorporated through:

• Signature: (As above, L'Estrange v Graucob).
• Reasonable Notice: Notice must be given before or at the time of contracting (Olley v Marlborough Court Hotel) and must be contained in a document where one would expect to find contractual terms (Chapelton v Barry UDC).
• Course of Dealing: If parties have dealt with each other many times before on the same terms, the clause may be incorporated, even if not explicitly mentioned this time.

Stage 2: Interpretation (Does the clause cover the breach?)

The courts interpret exclusion clauses very narrowly against the party seeking to rely on them.

• The Contra Proferentem Rule: Any ambiguity in the clause will be resolved against the party who inserted it and who is relying on it.

2. Statutory Controls (UCTA 1977 and CRA 2015)

Statutory controls determine whether an incorporated clause is legally effective, regardless of how clearly it was written.

A. Unfair Contract Terms Act 1977 (UCTA)

UCTA applies mainly to Business-to-Business (B2B) contracts.

• s2: Negligence Liability
  • s2(1): Liability for death or personal injury resulting from negligence cannot be excluded or restricted. This exclusion is void.
  • s2(2): Liability for other loss or damage (e.g., property damage, financial loss) resulting from negligence can only be excluded if the clause satisfies the test of reasonableness (s11).
• s3: Liability Arising in Contract

  If a party attempts to exclude liability for a breach of the contract itself, the clause must also satisfy the test of reasonableness (s11).

• s11: The Reasonableness Test

  The entire clause must be 'a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.'

  The court considers factors like the relative bargaining power of the parties, whether legal advice was available, and whether the customer received an inducement (e.g., lower price) for accepting the risk.

B. Consumer Rights Act 2015 (CRA)

CRA applies to Trader-to-Consumer (B2C) contracts (s61 defines this relationship).

The CRA is much stricter than UCTA because it protects the weaker consumer party.

• s65: Negligence Liability

  A trader cannot exclude or limit liability for death or personal injury resulting from negligence.

• s31 & s57: Exclusion of Implied Terms (Goods and Services)

  Traders cannot exclude or limit liability for breach of the key implied terms relating to quality, fitness, or description (s9, s10, s11 for goods; s49 for services). Any clause attempting this is void.

  This is an absolute ban—it cannot be saved by being "reasonable".
• s62: Requirement for Contract Terms to be Fair

  Beyond exclusion clauses, all standard contract terms are subject to a test of fairness. A term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations to the detriment of the consumer.

• s68: Requirement for Transparency

  A written term must be transparent (expressed in plain and intelligible language, legible). If it is ambiguous, the contra proferentem rule is reinforced.