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According to GH Treitel, The Law of Contract, 9th ed. p176, there are
obvious grounds of convenience for the application of the parol
evidence rule to contracts: certainty is promoted by holding that parties
who have reduced a contract to writing should be bound by the writing
and by the writing alone. On the other hand, the parol evidence rule will
commonly be invoked where a dispute arises after the time of
contracting as to what was actually said at that time; and in such cases
one of the parties could feel aggrieved if evidence on the point were
excluded merely because the disputed term was not set out in the
contractual document. Evidence extrinsic to the document is therefore
admitted in a number of situations which fall outside the scope of the
rule.
(C)IMPLIED TERMS
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Parol evidence can be used to show that the contract does not yet
operate, or that it has ceased to operate. See:
Pym v Campbell (1856) 6 E & B 370.
Where the words of the contract are clear, parol evidence cannot be
used to explain their meaning, unless they have a special meaning by
custom. Parol evidence can, on the other hand, be used to explain
words or phrases which are ambiguous, or which, if taken literally, make
no sense, as well as technical terms.
(H) RECTIFICATION
Even though parol evidence cannot be used to vary or add to the terms
of a written contract, it may be possible to show that the parties made
two related contracts, one written and the other oral, ie a collateral
contract. See:
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(A) TIMING
The court will consider the lapse of time between the making of the
statement and the contract's conclusion: if the interval is short the
statement is more likely to be a term. See:
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The court will consider the importance of the truth of the statement as a
pivotal factor in finalising the contract. The statement may be of such
importance that if it had not been made the injured party would not
have entered into the contract at all. See:
The court will consider whether the statement was omitted in a later,
formal contract in writing. If the written contract does not incorporate
the statement, this would suggest that the parties did not intend the
statement to be a contractual term. See:
The court will consider whether the maker of the statement had
specialist knowledge or was in a better position than the other party to
verify the statement's accuracy. See:
(A) CONDITIONS
(Note: The word 'condition' also has another meaning. It may mean a
stipulation that a contract should not be enforceable except on the
happening of a given event, or should be brought to an end on the
happening of a given event. The condition is then properly called a
'condition precedent', or a 'condition subsequent' respectively. See
Cheshire & Fifoot, p153-4).
(B) WARRANTIES
(D) NOTE
3. IMPLIED TERMS
· Sections 13, 14 and 15 of the Supply of Goods and Services Act 1982;
and
· the relevant provisions of the Sale and Supply of Goods Act 1994.
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Section 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 description
Section 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.
Section 14 provides:
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(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.
The terms implied by sections 14(2) and (3) are conditions: s14(6)
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Sale by sample
Section 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.
(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,
Section 13 provides:
In a contract for the supply of a service where the supplier is
acting in the course of a business, there is an implied term
that the supplier will carry out the service with reasonable
care and skill.
Section 14 provides:
(1) Where, under a contract for the supply of a service by a
supplier acting in the course of a business, the time for the
service to be carried out is not fixed by the contract, left to
be fixed in a manner agreed by the contract or determined
by the course of dealing between the parties, there is an
implied term that the supplier will carry out the service
within a reasonable time.
Section 15 provides:
(1) Where, under a contract for the supply of a service, the
consideration for the service is not determined by the
contract, left to be determined in a manner agreed by the
contract or determined by the course of dealing between
the parties, there is an implied term that the party
contracting with the supplier will pay a reasonable charge.
A clause may be inserted into a contract which aims to exclude or limit one
party's liability for breach of contract or negligence. However, the party may
only rely on such a clause if (a) it has been incorporated into the contract, and
if, (b) as a matter of interpretation, it extends to the loss in question. Its
validity will then be tested under (c) the Unfair Contract Terms Act 1977 and
(d) the Unfair Terms in Consumer Contracts Regulations 1999.
A. INCORPORATION
The person wishing to rely on the exclusion clause must show that it formed
part of the contract. An exclusion clause can be incorporated in the contract
by signature, by notice, or by a course of dealing.
1. SIGNED DOCUMENTS
2. UNSIGNED DOCUMENTS
(i) The clause must be contained in a contractual document, ie one which the
reasonable person would assume to contain contractual terms, and not in a
document which merely acknowledges payment such as a receipt. See:
(ii) The existence of the exclusion clause must be brought to the notice of the
other party before or at the time the contract is entered into. See:
3. PREVIOUS DEALINGS
Even where there has been insufficient notice, an exclusion clause may
nevertheless be incorporated where there has been a previous consistent
course of dealing between the parties on the same terms. Contrast:
4. PRIVITY OF CONTRACT
As a result of the doctrine of privity of contract, the courts held that a person
who is not a party to the contract (a third party) was not protected by an
exclusion clause in that contract, even if the clause purported to extend to
him. Employees are regarded in this context as third parties. See:
Now see the provisions in the Contracts (Rights of Third Parties) Act 1999
(Handout on Privity of Contract).
5. COLLATERAL CONTRACTS
Even where an exclusion clause has been incorporated into a contract, it may
not have been incorporated in a collateral contract. See:
A problem arises if one party sends a form saying that the contract is made
on those terms but the second party accepts by sending a form with their own
terms on and stating that the contract is on the second party's terms. The
"rule of thumb" here is that the contract will be made on the last set of terms
sent. See:
B. INTERPRETATION
1. CONTRA PROFERENTEM
Very clear words are needed in a contract to exclude liability for negligence.
See:
Under this rule, a court can strike out an exemption clause which is
inconsistent with or repugnant to the main purpose of the contract. See:
· Prior to 1964, the common law considered that a fundamental breach could
not be excluded or restricted in any circumstances as this would amount to
giving with one hand and taking with the other. This became elevated to a
rule of law.
· However, the rule of law approach was rejected in UGS Finance v National
Mortgage Bank of Greece [1964] 1 Lloyd's Rep 446, on the basis that it
conflicted with freedom of contract and the intention of the parties. The
question of whether a clause could exclude liability for a fundamental breach
was held to be a question of construction.
· The UGS case was unanimously approved by the House of Lords in the
Suisse Atlantique case [1967] 1 AC 361, and Photo Production Ltd v Securicor
Transport [1980] AC 827.
The basic purpose of UCTA 1977 is to restrict the extent to which liability in a
contract can be excluded for breach of contract and negligence, largely by
reference to a reasonableness requirement, but in some cases by a specific
prohibition.
The Act does not apply to insurance contracts; the sale of land; contracts
relating to companies; the sale of shares; and the carriage of goods by sea
(Schedule 1); or to international supply contracts (s26).
Most of the provisions of the Act apply only to what is termed "business
liability". This is defined by s1(3) as liability arising from things done by a
person in the course of a business or from the occupation of business
premises. The exceptions are ss6 and 7 where the Act also applies to private
contracts.
The Act gives the greatest protection to consumers. Under s12(1) a person
"deals as a consumer" if he does not contract in the course of a business
while the other party does contract in the course of a business; and if it is a
contract for the supply of goods, they are of a type ordinarily supplied for
private use or consumption. But see:
Under s11(1) the requirement of reasonableness is that "the term shall have
been 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."
(1) The bargaining strengths of the parties relative to each other and
the availability of alternative supplies.
(2) Whether the customer received an inducement to agree to the
term. (The supplier may have offered the customer a choice: a lower
price but subject to an exemption clause or a higher price without the
exemption.)
(3) Whether the customer knew or ought reasonably to have known of
the existence and extent of the term.
(4) Where the term excludes or restricts any relevant liability if some
condition is not complied with, whether it was reasonable at the time of
the contract to expect that compliance with that condition would be
practicable.
(5) Whether the goods were manufactured, processed or adapted to
the special order of the customer.
Under s11(4) where the exclusion clause seeks to limit liability rather than
exclude it completely, the court must have regard to two factors: the
resources available to meet the liability, and the extent to which insurance
cover was available to the party aiming to limit liability. See also:
Section 11(5) provides that it is up to the person who claims that a term or
notice is reasonable to show that it is.
4. s13 CLAUSES
A party to a contract may try to disguise an exclusion clause, even though the
effect of such a clause is to exclude liability. Section 13(1) tries to stop this
and prevents:
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Such clauses are void or must be reasonable if they exclude or restrict liability
respectively. Section s13, for example, will apply to terms: (a) imposing a
time limit for making claims; (b) limiting a buyer's right to reject defective
goods; and (c) stating that acceptance of goods shall be regarded as proof of
their conformity with the contract. See also: