Law of Contract - Terms in a Contract (Part 3)

Boilerplate clauses

There are a number of terms that sophisticated commercial people will always try to incorporate in their contracts. This may be done by incorporating them in their standard terms and conditions.

Many of these are in a standard form and can be found in precedent books or on electronic databases. In practice, a solicitor will take a precedent and adapt it for each particular client rather than draft a new clause from scratch.

The following are examples of Boilerplate clauses.

Choice of law clause

Many professionally drafted contracts contain a choice of law clause. In many situations it is up to the parties to agree which law they wish to govern the agreement. This is particularly important when the parties are in different countries. Traditionally, due to the high regard that English law was held in, English law governed a large proportion of international contracts.

Jurisdiction clause

A jurisdiction clause stipulates which country’s courts will hear litigation arising from the contract.

Please note this is not the same as a choice of law clause. It is quite possible for the High Court in London to have jurisdiction whilst French law governs the contract. 

Exclusion clause

Clauses which seek to exclude or limit liability. 

Force Majeure clause

These are clauses that stipulate what the consequences are of unexpected events which render the contract impossible to perform. Although it is outside the ambit of this syllabus, please note that the effect of this clause is to override the doctrine of frustration.

Liquidated damages clause

These clauses stipulate how much an offending party should pay in the event of a breach of contract. These can be very useful devices because they can save a good deal of time when it comes to litigation. They must however be a genuine covenanted pre-estimate of damage and not a disproportionate sum. If the courts believe that the clause is a penalty clause it will be unenforceable. (Dunlop Pneumatic Tyre Co. v New Garage & Motor Co. Ltd [1915] AC 79)

Arbitration Clauses

Many contracts contain arbitration clauses. Arbitration is an alternative to litigation. This is important – arbitration and litigation do not co-exist.

Historically it was considered desirable to go to arbitration for a number of reasons. Arbitration avoids the harmful publicity of litigation, it can be more flexible and it is sometimes cheaper and quicker.

It is important to note that the advantages of arbitration are today not quite as obvious as in previous years. Since the Woolf reforms (the Civil Procedural Rules) litigation is more streamlined and in many cases may be the cheaper and quicker option. In addition, forms of alternative dispute resolution – mediation in particular - are increasingly popular.

Retention of Title Clauses

These are sometimes referred to as Romalpa (Aluminium Industrie Vaasen BV v Romalpa Aluminiul Ltd [1976] 1 WLR 676) clauses after the case that introduced retention of title into English law. These are used in virtually every standard sale of goods contract. The seller reserves title (ownership) in the goods until the seller has paid him. This means that if the buyer becomes insolvent before the seller has been paid, the buyer can reclaim the goods. 

 

see further: textbooks

Law of Contract - Terms in a Contract (Part 2)

Terms implied by statute

Because of the doctrine of supremacy, Parliament can enact any statute it desires. It can therefore imply terms into any contract.

The implied terms you are most likely to encounter are those contained in S12-15 Sale of Goods Act 1979.

S 12 implies a term into all sales of goods that the seller is legally entitled to sell the goods. (In other words – that he has good title to the goods.)

S.13 implies a term that where there is a sale by description, the goods will match the description.

S.14 (2) implies a term that goods will be of a satisfactory quality.

S.14 (3) implies a term that if goods are sold for a particular purpose they will be fit for that purpose.

In practice these terms are extremely important. It will usually be much easier to rely on these terms than any express terms that may also be in the contract.

Conditions and warranties
Historically it was believed that all terms (implied or express) were either warranties or conditions. This classification is vitally important as it defines the extent of the available remedies in the event of a breach of contract.

Conditions

Conditions are terms that go to the heart of the contract. Because of the importance of this type of term, the consequence of a breach of condition is that the innocent party will be able to terminate the contract and/or claim damages.

Warranties

Warranties are terms of lesser importance. In the sale of goods act they are defined as terms “collateral to the main purpose of the contract.”

Because warranties are not so important, the consequence of a breach of warranty is that the innocent party is only entitled to claim damages.

Innominate Terms

In 1962, the Court of Appeal decided that there was a further group of terms that could not be classified as either warranties or conditions. Innominate terms are those terms which if breached could have serious or minor consequences.

In Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd,( [1962] QB 26) Lord Justice Diplock considered the contractual obligation that a ship should be seaworthy. Lord Diplock decided that the term itself when put into the contract was an intermediate or innominate term - it could only be assessed whether it was a warranty or condition once a breach had occurred.

This makes sense when you try to define “seaworthy”. Seaworthy could mean that the ship must be tidy and well presented. It could also mean that it can put out to sea without sinking! 

 

see further: textbooks

Law of Contract - Terms in a Contract (Part 1)

“The terms of a contract give substance to a parties’ obligation.” (Taylor & Taylor. Contract Law Directions (2007))

Every contract contains terms. The nature and extent of these terms defines each party’s obligations and rights under the contract.

It can sometimes be difficult to decipher what are the terms of a contract. This is particularly so with oral contracts. The problem is that not all pre-contractual statements are terms. They could be representations or mere “puffs”. 

Mere puffs

A mere puff is a statement often associated with advertising. Another way of explaining this is “salesman’s hype” or hyperbole. These are statements that plainly exaggerate and are not intended to be taken seriously. The important point about them is that they have no contractual effect and no legal consequences.

Representations

A representation is a statement that is intended to induce someone into a contract. It is not a term of the contract; therefore it does not have contractual force. Unlike a mere puff, representations do have legal consequences. The area of misrepresentation is outside the ambit of this syllabus, but you will study this on the LLB.

How to distinguish between terms, puffs and representations

Unfortunately, there is no set formula to identify terms. The courts will make a decision using the objective approach to assess the intentions of the contracting parties.

“The intention of the parties can only be deduced from the totality of the evidence, and no secondary principles of such a kind can be universally true.”( Heilbut, Symons & Co. v Buckleton [1913] AC 30)

Express terms and implied terms

Many contracts are made up of a mixture of express and implied terms.

Students often make the mistake of thinking that express terms have to be written. This is not the case. An express term is one that is expressed in some way.

Terms can be implied into a contract in a variety of ways. Probably the most important in practise are those implied by statute. 

see further: textbooks

Law of Contract - Modern Technology and Contract Formation (Part 2)

Internet ‘acceptance’

When making a purchase online, the company will send you a confirmation of order document, detailing the products purchased and the prices. At the very least, you will have opportunity to view your goods in a ‘virtual shopping basket’. At this stage you would be able to withdraw from the agreement.

There is no doubt that contracts can be completed by electronic means. In 2000, the European Union published the Directive on Electronic Commerce 2000/31/EC. Article 9 of this Directive stated that: “Member States shall ensure that their legal system allows contracts to be concluded by electronic means”. However, what is less clear – and is not answered by this Directive – are the acceptance mechanisms involved.

The question is therefore, how do the traditional acceptance rules fit into contemporary communication methods?

Two main arguments have been put forward. First, that all Internet communication is instantaneous and thus subject to the acceptance rule advocated in Entores and Brinkibon. The rationale for this is that Internet communications take place along telephone lines.

Second, that email communication is not instantaneous, because there are no direct links between the two people communicating by email, as all communication goes through a server (perhaps similar to a post box?). Furthermore, once you have pressed the send button on your email, there is nothing that you can do to retrieve the email (perhaps similar to putting a letter into a post box?).

A third way?

Over the past couple of decades, there has been a slight move away from traditional contractual formation rules, instead preferring to use a more subjective approach to contract formation. Cases such as: Butler Machine Tool v Ex-Cello Corp [1979] 1 All ER 965, Gibson v Manchester City Council [1979] 1 All ER 972 and Holwell Securities Ltd v Hughes [1974] 1 All ER 161 suggest a move away from traditional contractual formation rules and a move towards a more subjective ‘intention of the parties involved’. Is this practical? What problems/advantages would this have?

For instance, in Gibson Lord Diplock stated:
…there may be certain types of contract, though I think they are exceptional, which do not fit easily into the normal analysis of a contract as being constituted by offer and acceptance, but a contract alleged to have been made by an exchange of correspondence between the parties in which the successive communications other than the first are in reply to one another is not one of these.

Furthermore, Master of the Rolls, Lord Denning stated in Butler Machine Tool:
In many cases our traditional analysis of offer, counter-offer, rejection, acceptance…is out of date. The better way is to look at all the documents passing between the parties and glean from them or from the conduct of the parties whether they have reached an agreement on all material points.

It could be argued that a more subjective approach to contract formation in relation to modern technology would be more appropriate, as it would allow more flexibility and freedom.

Remember that there have been no specific cases in this area, so there is a large scope for argument and interpretation. 

 

see further: textbooks

Law of Contract - Modern Technology and Contract Formation (Part 1)

Introduction

Although it may appear to be somewhat tedious, the exact moment a contract is formed is of utmost importance. Once there is a valid acceptance, the right of the offeror to withdraw the offer ends. It can also be of assistance in deciding which jurisdiction the contract should be within should a dispute arise. Furthermore, a valid acceptance may demonstrate where taxation liabilities lie.

The common law has established some fairly clear rules in relation to traditional forms of communication, for instance, the Postal rule and the instantaneous communication rule. (These were covered in Session one). The question to ask is whether (or how) these rules apply to newer forms of technology like email, the Internet and mobile phones. To date, there has been no case deciding definitively on this area, so we have to proceed by comparison.

Internet ‘Offers’

The Internet has opened a range of new possibilities to the consumer, who can buy virtually any item they want online. The first question to ask is that if a person goes to a website, for instance ‘tesco.com’, are the goods displayed on ‘offer’ (merely requiring the offeree to accept), or an invitation to treat, as was seen in the case of Fisher v Bell (1974) and requiring the consumer to make the offer, which in turn the seller would accept.

In general, considering the usual set-up of a website, the context is said to be that of an invitation to treat, although this does not discount the possibility of an unilateral offer being made, as was the case in Carlill v Carbolic Smoke Ball Co. [1892], thus meaning that if accepted a contract would be in existence.

The Argos experience

The company Argos is a United Kingdom based catalogue company that has stores all around the country. In 1999, Argos advertised a television worth £299.99 for only £3.00. Needless to say, Argos received thousands of orders for this deal, the total value was reported to be worth over £1m. Once the error came to light, Argos refused to honour the agreement, saying that they had clearly not intended to sell the television at £3.00, and in any case the display of a product on a website does not amount to an offer, and is merely an invitation to treat. No legal action materialised from this, but it does demonstrate the somewhat uncertain context that the law within this area finds itself. 

 

see further: textbooks