Unfair Contract Terms and Exclusion Clauses - Essay Example

CASE STUDY OF LAW Institute Introduction: The issue in this question requires an analysis of express and implied terms within a contract, conditions and warranties, Sale of Goods Act and the possible difference in conclusion in consumer and non consumer sales. Each of the issues would be discussed in turn and finally an evaluation of the courts that the case would go to and the procedure in respect of the same. Statement a term of the contract: The first and foremost question that needs to be determined in respect of the facts at hand is whether the statements that were made by Alan Daly to Winston were terms that is they formed part of the contract, this is so because if it is a term of a contract there would be possibility of a claim of damages and right to terminate the agreement. If on the contrary, there appears the fact there was a representation and not a term then there would not be any breach of contract. In respect of the facts at hand it can be seen that Winston had clearly expressed that he wanted the van for a specific purpose and in addition provided the specifications in that respect therefore the possibility of the statement not being terms is excluded. However, an analysis of express and implied terms needs to be made so as to evaluate the position. It is important to cite the fact that if there is a false representation then it must come under misrepresentation so as to enforce any action in that respect. It is also to important to ascertain the intention of the parties as provided for in the decision of the House of Lords in Heilbut, Symons & Co. v. Buckleton1. The intention as provided for by Lord Moulton is objective and not subjective and so the words and conduct of the parties have to be taken into account, as discussed by Lord Denning in Oscar Chess Ltd. v. Williams2 wherein he said that ‘ if an intelligent bystander would reasonably infer that a warranty was intended that will suffice’. The criteria laid down in Heilbut was that of the important of the statement; reliance by one party upon the other makes the statement a term; and relative knowledge of the parties, and so if one party is more knowledge about the matter than the other this would be an indication of the statement being a term of the contract. Implied terms and its use In respect of implied terms the Act that is considered to be important is the Sale of Goods Act 1979 and in accordance with the fact s.14(2A) of the aforementioned act stated that the court implies satisfactory quality goods. It is important to emphasize on the point that the court are generally reluctant to impose terms into a contract. The situations where the courts have implied terms into a contract are where an established trade usage is found; the relationship between the parties; to give effect to an unexpressed intention of the parties; operation of statute. Trade Usage: In respect of trade usage being demonstrated, the courts can imply terms within a contract, which is quite common in respect of commercial and mercantile contracts. Relationship of the parties: Implied terms would also be incorporated because of the relationship between the parties as demonstrated in the case of Malik v. BCCI3 where it was held that the employer was under an implied obligation not to work in a manner so as to destroy or damage the relationship of confidence between an employer and employee. Officious bystander: In respect of unexpressed intention of parties, the courts may give effect to such circumstances by imposing implied terms. This is used because of necessity, as seen in Shirlaw v. Southern Foundries4 wherein it was stated that ‘Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common ‘Oh, of course’ Terms implied by way of statute: The courts may imply terms by way of statute. This is to provide standardization to contracts and protection for certain parties. An important aspect that needs to be considered in respect of the facts at hand is that of s.14 of Sale of Goods Act 1979 as amended by Sale and Supply of Goods Act 1994 wherein it was stated that goods that a seller sells within the course of business shall be of satisfactory quality. Satisfactory quality has been defined under s.14(2A) as ‘for the purposes of this Act, 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 the other relevant circumstances’. Furthermore the aspect as to quality in s.14(2B) state ‘for the purposes of this Act, 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 all 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.’ Finally defects disclosed by seller or that which the buyer could have seen if proper examination had been conducted have been listed down in (s.4(2C)). The changes brought about by the 1994 Act are that if the buyer is not a consumer and it is pertinent that the breach is ‘so slight that it would be unreasonable’ to reject. Terms that are implied can be defeated by the parties, however, this is so subject to the limits that have been placed upon by the Unfair Contract Terms Act 1977 and Unfair Terms in Consumer Contracts Regulations 1999. Difference between conditions and warranties: It is important to distinguish between the terms because a contractual term if breached would lead to a primary obligation. The secondary obligation for such breach would be payment of damages and in some cases the right to terminate the contract. If the party does not terminate the contract it can affirm the contract and go on to claim damages. The distinction is important because the right to terminate is given only if a condition is breached or there is a sufficiently serious breach of an innominate term. Breach of conditions give the party the right to refuse further performance contrary to warranties which give the right to claim damages only. Loss for breach of condition must be showed so as to allow the party to rescind the contract. (Bowes v. Shand)5. In respect of Sale of Goods Act 1979 it has been stated that the most important terms are conditions and the lesser important are warranties. As far as common law is concerned the intention of the parties is the only crucial factor that is taken into account when determining whether a term is a condition or warranty. Furthermore, if the intention of the party is not clear or expressed clearly, then the court would draw ‘proper inference’ (Behn v. Burness)6. In respect of innominate terms things have changed considerably after the decision of Hong Kong Fir wherein the courts defined what are known as innominate terms, that is they are neither conditions nor warranties. In respect of such innominate terms the courts need to look into the seriousness of the consequences of the breach and its effect on the injured party. As far as the facts are concerned the courts would infer the implied terms that had been given by Winston to Alan Daly which had been understood Alan. Clearly this cannot be an express term as there was no mention of such a term. The test of officious bystander might be used to ascertain such an implied term, otherwise the Sale of goods Act 1979 wherein the fitness for a particular purpose and satisfactory quality would be considered so as to imply such an implied terms. However, the only problem in respect of the situation would be the there is an exclusion clause that has been provided for in the contract wherein such aspects of quality and other aspects have been expressly excluded. However, this needs to be looked into, in the light of the Unfair Contract Terms Act that had been cited above. Unfair Contract Terms and Exclusion Clauses In respect of contractual clauses the first and foremost thing that needs to be done is that of incorporation which can be done by inclusion of a clause in a contractual document which is signed by the other party (L’Estrange v. Graucob)7 or by a clause being incorporated in a document which has been signed with the provision of reasonable notice given at or before time of contracting. The final one of regular course of dealing is not relevant to the facts of our case. After the procedure of incorporation, the next step is that of construction, wherein it has to be seen that the clause covers the breach that has occurred. Finally there was the concept of fundamental breach for which liability could not in the beginning be excluded. A fundamental breach was that which was either central to the contract (Karsales (Harrow) Ltd. v. Wallis)8 or where the result of breach was exceptionally serious. The approach was changed by the House of Lords. The Unfair Contract Terms Act 1977 operates alongside the common law. However, in respect of the facts at hand there had been incorporation of the clause in the standard contract and upon construction there was a breach related to such clause. In respect of exclusion clauses to avoid contractual liability, the provision that comes into play is that of section 3 which applies either when one party deals as a consumer or where one party deals with the other’s ‘written standard terms of businesses. Thus standard terms would, as stipulated in the facts would come under this section. In respect of the first category, clearly Winston was dealing in the course of business and so that cannot be used. However, by virtue of the second category, s.3(2) makes attempt to exclude liability subject to test of reasonableness. The test of reasonableness has been provided for in section 11 and schedule 2 of the Act, which stated that the clause muse be ‘a fair and reasonable one to be included’ in the contract, ‘having regard to the circumstances which were, or ought reasonably to have been, in contemplation of the parties when the contract was made’. The said approach was confirmed in Stewart Gill Ltd. V. Horatio Myer & Co. Ltd9. The possibility of insurance has also been covered by the Act. The House of Lord in Smith v. Eric S Bush stated that the bargaining power of the parties, availability of alternative sources, the difficulty of task for which liability is being excluded and practical results of allowing such exclusion should be considered. In respect of the current situation, there is an argument on the basis of the standard terms wherein the exclusion of the implied terms which were condition were done. Court and Procedure: Since the original value of the case that is cited is less than 10000 it can be argued that the case would go to a small claims court, however, the possibility of damages that have arisen in respect of the said case would lead to the possibility of the claim increasing from aforementioned amount and thus the claim could no longer be dealt with in the small claims court. Thus the county court would be excluded in respect of the claim at hand if damages exceed. The important element that needs to be remembered is that of statute of limitation for bringing an action that is the time to bring an action in court. The full name of the person against whom the suit is being filed needs to be ascertained. The paperwork for filing the suit that is by way of a claim form needs to be filled up and the cost of filing suit needs to be paid. Documents which have been filed then need to be issued. Conclusion: In respect of the facts at hand clearly there has been a breach by the sole proprietorship by way of the breach of implied terms in particular Alan, even though he had been told of the specification and thus the exclusion of liability would not be applicable in this case as the reasonableness test would not be satisfied. Bibliography MACKENDRICK, E. (2009). Contract law. Basingstoke, Palgrave Macmillan Read More