Ahlam Laabid Common Law
Assign No. 2 Title: Contract Law
Task 1-Advice Graham.
Case study Brief:
Graham wanted to save money while refurbishing the exterior of his office; he hired
the paint spraying equipment from Paint Supplies Ltd and decided to do the work
by himself.
Paint Supplies Ltd made Graham to sign a contract, which contains the following
clause:
“Paint Supplies Ltd shall not be liable for any loss or damage, however caused,
arising from use of the company’s products”.
Because of negligent maintenance by Paint Supplies Ltd, the equipment exploded
once Graham used them. The paint spread all over the office of Graham, and caused
a considerable loss of earnings, two clients left Graham, and minor injuries where
caused to him.
Graham complained to Paint Supplies Ltd who refused to compensate Graham,
relying on the exemption clause at the signed contract.
Exemption Clause is a provision in a contract under which one party (usually the
one which drafted the agreement) is protected from being sued by the other party
for damages, loss, negligence, non-performance, etc., or its liabilities are severely
restricted. Banks, for example, use exemption clauses in documents of foreign trade
where they accept no liability for any injury to the customer unless it can be proven
to have been the direct result of their negligence or mistake. The courts, however,
look at this clause with disfavor and often interpret it narrowly to see if it is
reasonable in the circumstances.
The exemption clause may be contained in an unsigned document such as a ticket
or a notice. In such a case, reasonable and sufficient notice of the existence of the
exclusion clause should be given.
I would advice Graham to sue Paint Supplies Ltd at the court, first because the
clause was not clear enough to describe the full picture, it was very vague, I mean,
they said they are not liable for any loss or damage, is this damage physical or
material?
When a term in a contract purporting to exclude or restrict the liability of one of the
parties in specified circumstances, the courts do not regard exemption clauses with
favor. If such a clause is ambiguous, they will interpret it narrowly rather than
widely.
Graham was using the product properly, the explosion was because of luck of
maintenance of the equipments at Paint Supplies Ltd, and this, caused personal
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injury to Graham, so, If he sues the company, the court would take his case
seriously as a criminal offence because of the physical damage it caused.
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. For example:
Example: Parker v South Eastern Railway (1877) 2 CPD 416
The plaintiff deposited a bag in a cloak-room at the defendants' railway station. He
received a paper ticket which read 'See back'. On the other side were printed several
clauses including "The company will not be responsible for any package exceeding
the value of £10." The plaintiff presented his ticket on the same day, but his bag
could not be found. He claimed £24 10s. as the value of his bag, and the company
pleaded the limitation clause in defence. In the Court of Appeal, Mellish LJ gave
the following opinion:
• If the person receiving the ticket did not see or know that there was any
writing on the ticket, he is not bound by the conditions;
• If the person’s attention was not drawn to the existence of exclusion clauses
by clear words on the front of any document, he is not bound
The first rule of the Exemption Clause is: “the clause should be part of the
Contract”, this rule doesn’t apply in our case and Graham wouldn’t benefit from it
because he was given the contract that contained the exemption clause.
The second rule is “The existence of the exclusion clause must be clear without
ambiguity and brought to the notice of the other party before or at the time the
contract is entered into”. Graham’s attention was not drawn to the existence of
exclusion clauses, in this case, this rule is not applicable, so, legally Graham would
win the case if he sues Paint Suppliers Ltd.
Example: Olley v Marlborough Court [1949] 1 KB 532.
The plaintiff booked in for a week's stay at the defendants' hotel. A stranger gained
access to her room and stole her mink coat. There was a notice on the back of the
bedroom door which stated that "the proprieters will not hold themselves
responsible for articles lost or stolen unless handed to the manageress for safe
custody." The Court of Appeal held that the notice was not incorporated in the
contract between the proprietors and the guest. The contract was made in the hall of
the hotel before the plaintiff entered her bedroom and before she had an opportunity
to see the notice.
The third rule of Exemption is “Satisfactory quality and reasonable fitness for the
purpose”
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Section 14 (2) of the Sales Goods Act 1893: when goods are sold in the course of a
business they must be of satisfactory quality. They must meet a standard that a
reasonable person would regard as satisfactory, taking account of any description of
the goods, the price (if relevant) and all other relevant circumstances. The quality
of goods includes their state and condition. The following are also relevant in
regard to quality:
1. fitness for the purposes for which the goods are commonly supplied
2. appearance and finish
3. freedom from minor defects
4. safety
5. durability
if Graham relies on the rule of sales of goods act, he would win his case against
Paint Supplies Ltd, because the product he had been sold was not under good
condition, not safe to use, caused him personal injuries and lots of other damages,
so the Paint supplies ltd didn’t meet the standard of reasonable satisfactory product
and should compensate Graham for the damages the incident caused him,
Graham should sue Paint Supplies Ltd for the actual/compensatory damages that
cover the actual injury “medical expenses” and the repair or replacement of
property.
Remote consequences of a defendant's act cannot form the basis for an award of
compensatory damages, such as the loss in business. When the two clients left
Graham after the incident happen, this caused him a considerable loss of earnings,
but since its considered as remote damage, the court will not compensate him for it.
Example: When a man suffers an injury in consequence of the violation of a
contract, he is in general entitled to damages for the violation of such contract, but
not for remote consequences, unconnected with the contract, to which he may be
subjected; as, for example, if the maker of a promissory note should not pay it at
maturity; the holder will be entitled to damages arising from the breach of the
contract, namely, the principal and interest; but should the holder, in consequence
of the non-payment of such note, be compelled to stop payment, and lose his credit
and his business, the maker will not be responsible for such losses, on account of
the great remoteness of the cause; so if an agent who is bound to account should
neglect to do so, and a similar failure should take place, the agent would not be
responsible for the damages thus caused.
The law does its best to level the playing field here. If a party is trying to rely on an
exemption clause, they have to show that the other party specifically agreed to it at
the time the agreement was reached.
Graham can also rely on the Unfair Contract Terms Act 1977, the main
provisions of which are:
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Assign No. 2 Title: Contract Law
• You can’t exclude liability for personal injury or death which results from
your negligence, (the incident happened to Graham due the maintenance
negligence of the supplier, this act gives Graham the right to claim the loss.)
• Exemption clauses have to be reasonable. If the court thinks the term in
question is unreasonable, that term will be void. (the exemption clause was
vague and not explained to Graham, it should be considered void and the
court would compensate Graham’s loss).
• You can’t exclude liability for defective goods supplied to a consumer (that
is, a non-business user). (the product bought by Graham from Paint supplier
was not under good condition for safe use, so he has the right to claim the
loss)
By all means, Graham would win his case against Paint Supplies Ltd if he relies on
the above mentioned lows that protects his rights and gives him the right for
compensation.
Below is a famous airline exemption clause where the court voided the clause to
compensate passengers
INTERNATIONAL AIRLINE CARRIERS ON NOTICE
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Assign No. 2 Title: Contract Law
Lost-luggage class-action lawsuit against British Airways
moves forward
Image via iddeals.co.uk
BY ETN STAFF WRITER | APR 07, 2009
British Airways passengers attempting to hold the airline accountable for losing an
estimated one million pieces of luggage received some good news today when a District
Court judge ruled a nationwide class action lawsuit could move forward in the United
States court system.
The ruling, issued by United States District Judge Nicholas Garaufis, denied British
Airways' motion to dismiss the consumer class action, filed in 2007, which seeks to
recover travelers' actual losses rather than a US$1,500 cap the airline uses to
limit damages. The court noted and rejected "BA's extreme position" that it was not
responsible for actual losses for lost baggage unless its mishandling rate was "worse
than fifty percent."
According to the suit originally filed in Federal Court in Seattle, British Air lost 23 bags
per 1,000 passengers carried, about 60 percent more than the industry average and
twice as bad as the worst US carrier.
in this case, the court’s decision puts British Airways and other international airline
carriers on notice that they cannot hide behind the luggage liability exemption
clause to deny passengers the care and respect to which they are entitled, and put
their luaggages for example under rain, misrouted and mistreated… especially that
the British airline's backlog of lost passenger baggage reached more than 20,000
pieces by March 2007.
Another example where the court/authority refused to grant an Exemption
clause:
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Assign No. 2 Title: Contract Law
SAA and Senegal (2002Aug179)
South African Airways applied for an exemption of a proposed commercial and
code share agreement with Air Senegal in respect of the Johannesburg/Dakar/New
York route.
The Court said, “The two airlines are not currently competitors on the identified
route and Air Senegal does not appear to be a potential competitor operating its own
aircraft on this route in the near future”.
In this case, the court refused to grant an exemption to the applicant on the basis
that the agreement did not breach the Competition Act 1998 by any mean.
Task 2- differentiate between “Guarantee and Warrantee”. Give examples to
explain your answer. Also write a note on the type of terms in a formal
business contract.
Guarantee/Condition is a major term of a contract. It is frequently described as a
term that goes to the root of a contract or is of the essence of a contract it is
contrasted with a warranty, which is a term of minor importance. Breach of a
condition constitutes a fundamental breach of the contract and entitles the injured
party to treat it as discharged, whereas breach of warranty is remediable only by an
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Assign No. 2 Title: Contract Law
action for damages, subject to any contrary provision in a contract. A condition or a
warranty may be either an express term or an implied term.
Normally a Warranty given along with purchases of fridges or cars. It generally
means that the fridge or car will work properly for the period of Warranty and that
the manufacturer or seller will repair it or replaces parts free of cost. It can be said
loosely that the manufacturer guarantees the performance for the stipulated period.
In case there is a breach of warranty, the remedy is to sue for damages.
A Guarantee usually involves 3 parties and 3 contracts. For e.g. take a case where a
person ''B'' wants to borrow money from a lender ''L''. ''L'' is willing to lend the
money but needs an assurance that ''B'' will return the money in time and at the rate
of interest agreed upon. Therefore B will find a guarantor G who assures L that if B
does not pay, G will pay.
Example for Warranty & Guarantee:
Poussard V Spiers 1876
The Facts: Madame Poussard agreed to sing in an opera throughout a series of
performances. Owing to illness she was unable to appear on the opening night or on
the next few days. The producer engaged a substitute who insisted that she should
be engaged for the whole run. When Mme Poussard had recovered, the producer
declined to accept her services for the remaining performances.
Held: failure to sign on the opening night was a breach of condition which entitled
the producer to treat the contract for the remaining performances as discharged.
Signing on the opening night could be regarded as fundamental to the contract.
Bettini V Gye 1876
The facts: an opera singer was engaged for a series of performances under a
contract by which he had to be in London for rehearsals sis days before the opening
performance. Owing to illness he did not arrive until the third day before the
opening. The defendant refused to accept his services, treating the contract as
discharged.
Held: the rehearsal clause was subsidiary to the main purpose of the contract. The
contract didn't fail because the signer missed some of the rehearsals. Breach of the
clause must be treated as breach of warranty, so the producer was bound to accept
the singer's services. he had no right to treat the contract as discharged and must
compensate the claimant, though he could claim damages (if he could prove any
loss) for failure to arrive in time for six days' rehearsals.
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Assign No. 2 Title: Contract Law
A contract is an exchange of promises between two or more parties to do, or refrain
from doing, an act, which resulting contract is enforceable in a court of law. It is a
binding legal agreement. That is to say, a contract is an exchange of promises for
the breach of which the law will provide a remedy.
There are four types of terms in a formal business contract:
1. Exemption Clause (explained in Q1)
2. Expressed Terms
3. Implied Terms
4. Innominate terms
1- Express terms: are terms that have been specifically mentioned and agreed by
both parties at the time the contract is made. Express contracts are of three sorts:
• A parol contract is defined to be a bargain or voluntary agreement
made, either orally or in writing not under seal, upon a good consideration,
between two or more persons capable of contracting, to do a lawful act or to
omit to do something, the performance whereof is not enjoined by law.
• By specialty or those which are made under seal, as deeds, bonds,
and the like; they are not merely written, but delivered over by the party bound.
The solemnity and deliberation with which, on account of the ceremonies to be
observed, a deed or bond is presumed to be entered into, attach to it an
importance and character which do not belong to a simple contract. In the case
of a specially, no consideration is necessary to give it validity, even in a court of
equity. When, a contract by specialty has been changed by a parol agreement,
the whole of it becomes a parol contract.
• The highest kind of express contracts are those of record such as
judgments, recognizance of bail, and in England, statutes merchant and staple,
and other securities of the same nature, entered into with the intervention of
some public authority.
2- Implied terms: A term which has not been mentioned by either party will
nonetheless be ‘included’ in the contract, often because the contract doesn’t make
commercial sense without that term. Terms like this are called implied terms, and
there are three main types:
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Assign No. 2 Title: Contract Law
Terms implied by custom or trade:
One is generally bound by the custom of the industry that one is in. To imply a term
due to custom or trade, one must prove the existence of the custom, which must be
notorious, certain, legal and reasonable. For example:
Hutton v Warren 1836
The facts: the defendant landlord gave the claimant, a tenant farmer, notice to quit
the farm. He insisted that the tenant should continue to farm the land during the
period of notice. The tenant asked for 'a fair allowance' for seeds and labor from
which he received no benefit because he was to leave the farm.
Decision: by custom he was bound to farm the land until the end of the tenancy: but
he was also entitled to a fair allowance for seeds and labor incurred.
• Terms implied by Statute:
The rules by which many contracts are governed are provided in specialized statutes
that deal with particular subjects. Most countries, for example, have statutes which
deal directly with sale of goods, lease transactions, and trade practices. For
example, each American state except Louisiana has adopted Article 2 of the
Uniform Commercial Code, which regulates contracts for the sale of goods. The
most important legislation implying terms under United Kingdom law are the Sale
of Goods Act 1979, the Consumer Protection (Distance Selling) Regulations 2000
and the Supply of Goods and Services Act 1982 which imply terms into all
contracts whereby goods are sold or services provided.
• Terms implied by the courts:
Terms may be implied if the court concludes that the parties intended those terms to
apply to the contract. For example:
The Moorcock 1889
The facts: the owners of a wharf agreed that a ship should be moored alonside to
unload its cargo. It was well known that at low water the ship would ground on the
mud at the bottom. At ebb tie the ship settled on a ridge concealed beneath the mud
and suffered damage.
Decision: it was an implied term, though not expressed, that the ground alongside
that wharf was safe at low tide since both parites know that the ship must rest on it
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Assign No. 2 Title: Contract Law
A term of a contract which is left to be implied and is not expressed is often
something that goes without saying.
3- Innominate terms: Terms of a contract that cannot be classified as conditions
or warranties. The parties to a contract may label the terms of the contract as either
conditions or warranties and those labels will usually be respected by the courts
provided that the result is reasonable. Similarly, certain terms have traditionally
been treated as conditions or warranties even though they have not been labelled as
such (for example, time clauses in mercantile contracts are to be treated as
conditions). The remedy for breach of an innominate term will depend on whether
or not the breach is of a fundamental nature, i.e. that the injured party has been
deprived of substantially the whole of the benefit of the contract. If the injured party
has been so deprived, he will be entitled to treat the contract as repudiated and
claim damages. If not, he will be entitled to damages only.
An example of innominate terms:
Hong Kong fir shipping Co. Ltd v K awasaki Kisa Kaisha Ltd 1962.
The facts: the defendant chartered a ship from the claimants for a period of 24
months. A term in the contract stated that the claimants would provide a ship which
was 'in every way fitted for ordinary cargo service'. They were in breach of this
term since the ship required a competent engine room crew which they did not
provide. Because of the engine's age and the crew's lack of competence the ship's
first voyage was delayed for five weeks and further repairs were required at the end
of it, resulting in the loss of a further fifteen weeks. The defendants purported to
terminate the contract so the claimants sued for breach of contract on the grounds
that the defendant had no right to terminate; the defendants claimed that the
claimants were in breach of a contractual condition.
Decision: the term was innominate and could not automatically be construed as
either a condition or a warranty. The obligation of seaworthiness embodied in many
charter party agreements was too complex to be fitted into one of the two
categories. The term would be construed in the light of the actual consequences of
the actual breach. The ship was still available for 17 out of 24 months. The
consequences of the breach were not so serious that the defendant could be justified
in terminating the contract as a result.
The defendants were in breach of contract for terminating it when they did.
All employees have an employment contract (attached is my labour contract as an
example), which can be verbal, written or a combination of both. Many contracts of
employment are purely verbal. While this does not reduce any contractual rights, it
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Assign No. 2 Title: Contract Law
may be difficult to prove the existence of a particular term. A verbal contract may
be later evidenced in writing, for example, by a letter of confirmation sent after the
verbal contract has been made. If an employee is covered by a workplace agreement
or an award, it is normal to rely on a verbal contract with a letter of confirmation,
because the workplace agreement or award usually provides details of most of the
conditions of employment.
The express terms of a contract of employment are those specifically agreed
between the parties, whether verbally or in writing, ie. (the wage, the hours, the type
of work that has to be done and where), but there are always other terms that are
implied (that is, they exist without being stated or written down). These fall into
two categories - those implied by law and those implied by the circumstances of a
particular case.
Following are some of the Guarranties in my labor contract:
• Contract Duration
• Salary and Benefits
• Annual Leave entitlment
• Working Hours…
Breach of a guarantee condition constitutes a fundamental breach of the contract
and entitles the claimer to treat it as discharged
Following are some of the Warranties in my labor contract:
• the duty of the employer to provide a secure, safe and healthy environment
for the employee
• the employee's duty of honesty and loyal service
• an implied duty of mutual trust and confidence between me and the
employer
• to adhere with the labor low at all stages
• not to steal anything that belong to employer…
Breach of warranties will entitle the innocent party to damages but not to treat the
contract as discharged by breach
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Ahlam Laabid Common Law
Assign No. 2 Title: Contract Law
3- Write a note on standard form of contract and their practicability:
A standard form contract (sometimes referred to as an adhesion contract or
boilerplate contract) is a contract between two parties that does not allow for
negotiation, i.e. take it or leave it. It is often a contract that is entered into between
unequal bargaining partners, such as when an individual is given a contract by the
salesperson of a multinational corporation. The consumer is in no position to
negotiate the standard terms of such contracts and the company's representative
often does not have the autonomy to do so.
The standard form contract is widely use for: Parking, Valey Parking, Post, rent of
lockers at public place…
An example of a standard form contract, and in particular, a contract of adhesion. In
the United States, many private parking lots and garages have an entrance barrier
which will lift only if a prospective user takes a timekeeping ticket from a vending
machine. The ticket will have a preprinted contract on it like (as per the sample
below). By the time one has accepted the ticket (with the contract on it), proceeded
through the gate, parked one's vehicle, and then stopped to read the contract, one
will have already accepted the contract and it will be too late to back out of it.
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Assign No. 2 Title: Contract Law
Standard form contracts are rarely read
Lengthy boilerplate terms are often in small print and written in complicated
legal language which often seems irrelevant. The prospect of a buyer finding
any useful information from reading such terms is correspondingly low.
Even if such information is discovered, the consumer is in no position to
bargain as the contract is presented on a “take it or leave it” basis. Coupled
with the often large amount of time needed to read the terms, the expected
payoff from reading the contract is low and few people would be expected
to read it.
Access to the full terms may be difficult or impossible before acceptance
Often the document being signed is not the full contract; the purchaser is
told that the rest of the terms are in another location. This reduces the
likelihood of the terms being read and in some situations, such as software
end user license agreements, can only be read after they have been
notionally accepted by purchasing the good.
So, what happens if a company puts an exclusion clause in its standard contract?
Can the customer really be said to have agreed to the term?
Thankfully, there is Unfair Terms in Consumer Contracts Regulations 1999,
which protect consumers from unfair standard terms in contracts. If the courts think
a term is unfair, then it’s not binding on the consumer.
In this context, an “unfair” term is essentially one that puts undue burdens on the
consumer, or seeks to reduce his or her statutory rights. The Regulations put it like
this:
“A contractual term which has not been individually negotiated shall be regarded as
unfair if, contrary to the requirement of good faith, it causes a significant imbalance
in the parties’ rights and obligations arising under the contract, to the detriment of
the consumer.”
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Bibliography:
Course book - Business Essentials – Common Law
http://www.lawteacher.net/Exclusion%20Clauses%20Lecture.php
http://www.lawteacher.net/Exclusion%20Clauses%20Cases.php
http://www.southwest.com/travel_center/baggage.html
http://tutor2u.net/law/notes/contract-unfair-terms.html
http://www.fortunecity.com/meltingpot/partridge/9/law/id28.htm
http://www.eturbonews.com/8655/lost-luggage-class-action-lawsuit-against-british-
airways-moves-f
http://www.compcom.co.za/procedures/SAA&SenegalCorrect.asp
http://www.oup.com/uk/orc/bin/qanda/books/03contract/terms/
http://en.wikipedia.org/wiki/Contractual_terms
http://tutor2u.net/law/notes/contract-express-implied-terms.html
http://www.businesslink.gov.uk/bdotg/action/detail?
type=RESOURCES&itemId=1073791869
http://www.lawhandbook.sa.gov.au/ch16s02s01.php
http://en.wikipedia.org/wiki/Standard_form_contract
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