Rules of Contract Law Tutorials

The general rule for the doctrine of privity imposes that only the parties to a contract are entitled to take action in order to enforce it so therefore a third party beneficiary can not take any enforcement action and cannot be held liable. The doctrine is linked to the rule that consideration must move from the promise e.g.: Tweedle v Atkinson (1861). In this case, a son was about to get married. His future father in law had agreed prior with the sons father that he would pay the son a particular amount of money. However the father in law failed to do this. It was held by the courts that since the son was not a party to the contract in question between the son’s father and father in law, he was unable to bring a successful claim against the father in laws estate. This indicates, as well as emphasises, the fact that under this specific doctrine of privity, a contract cannot confer rights to people who are not privy to it.

2. There are certain situations where the privity rule can be avoided. There are a number of general law principles that enable a third party to overcome or avoid the doctrine of privity. The rule of Agency implies that if one of the contracting parties contracts as an agent, then either the agent or the principle can sue to enforce the contract. For example if B is C’s agent then either B or C can enforce the contract against party A. Agency principles however usually arise with contracts involved for the carriage of goods.

Collateral contracts can also avoid the privity rule. A collateral contract is a contract that accompanies the main contract between two particular parties. It is one which involves either of them as well as a third party. In the case of Shanklin Pier v. Detel Products Shanklin, the plaintiff employed contractors to paint a pier. The contractors instructed Detel to supply them with paint as they claimed the paint would last for 7 years. However, after a period of 3 months, the paint work fell apart and therefore the plaintiff sued against Detel the defendants as even though the main contract had been between the contractor and the defendant there was in actual fact existence of a collateral contract between the plaintiff and the defendant which guaranteed the 7 years of protection. Multilateral contracts are also exceptions to the doctrine of privity.

3. Section 1 of the contract states that a person that is not a party to a contract may enforce a term of that contract if a) the contract so specifies OR b) a term of the contract purports to benefit that person (provided the contract identifies that person by name or as a member of class). Section 2 governs changes to and rescission of contracts. This prevents parties to a contract rescinding it or altering it to modify or remove the terms that affect a third party if the third party has told the promisor that he agrees to the terms or he has relied on the contract. Section 3 identifies the defences that are available to the promisor of the third party decides to bring an action against them. Section 4 preserves the right of the promisee to enforce any term of the contract. This allows the promisee to sue for any losses to themselves but not including the losses of the third party. Section 5 protects the promisor from double liability (paying 2 sets of damages for the same breach-one to the 3rd party and one to the promisee if promisor breaches contract). Section 6 lists all the exceptions. The act does not apply to contracts made as part of bills of exchange, promissory notes or articles of association. Section 7 includes supplementary provisions relating to the rights of 3rd parties. Section 8 states arbitration provisions which require the parties to submit to specific arbitration procedures in the event of disputes. Section 9 deals with differences between English and Northern Irish law, and modifies how the Act should be interpreted in Northern Ireland.

In Summary, in the Beswick v Beswick case, Peter Beswick a coal merchant who had no business premises. All he owned was a lorry, scales and weights. His nephew John Beswick helped him with the business. However Peter Beswick and his wife were over 70 and Peter had his leg amputated. The nephew was anxious to get hold of the business before peter died so they went to see a solicitor who could see to this. The agreement was that Peter had to assign his business to his nephew in consideration of the nephew employing him for the rest of his life as well as paying a weekly annuity to Mrs. Beswick. Since the latter term was for the benefit of someone who was not a party to the contract, the nephew did not believe it was enforceable under the doctrine of privity and so did not perform it therefore he paid one payment.

Woodar v Wimpey-

4-Nisshin Shipping Co Ltd v Cleaves and Co Ltd (2004) – This act appears to be the first case in which the 1999 act has been considered by the courts. It provides a clear example of the manner in which the act may be utilised by third parties to bring claims under a contract to which they are not a party. This is the legal significance of the case. Cleaves were ship chartering brokers who negotiated 9 contracts for the charter of ships between Nisshin who were the ship owners. These agreements between the owner and the charterers contained clauses which stated that a commission of 1% was payable by the owners to Cleaves on any hire paid under the charter. Nisshin refused to pay arguing that the agency relationship with Cleaves was at an end due to repudiation by him which was brought by Cleaves becoming a shareholder and senior manager of a company which was a competitor to Nisshin.

Relying on the 199 act, it bought a claim for payment of commission under terms of charterparty agreements. The case was also referred to arbitration. Nisshin applied to the court wanting to seek a declaration that the arbitrators had no jurisdiction to hear the claim and the 1999 act had no application. However it was held that Cleaves was entitled to rely on the 199 act. Accordingly it was necessary to determine whether the contract “purported to confer a benefit” on Cleaves. The judge held that this requirement had indeed been satisfied on the facts of the case. The clause stating that Cleaves was entitled to a commission of 1% did “purport to confer a benefit” on Cleaves.

Laemthong International Lines Co Ltd v Artis- This was where the claimant owners chartered their vessel Laemthong Glory to the first defendant Artis on an amended Sugar charterparty 1999 form for a voyage from Santos to Aden carrying a cargo of sugar. The sugar was sold by Artis to the second defendant on C and F terms. Before the expected arrival of the vessel at Aden, the second defendant asked Artis to issue a letter of indemnity to the ship-owners and request them to instruct the master’s agents to allow the vessel to commence discharge and deliver the cargo to the second defendant without production of the bills of lading. The second defendant subsequently sent Artis a letter of the consequences of releasing the cargo without presentation of the bills of lading.

Avraamides & anor v Colwill & anor (2006)-

Prudential Assurance Co Ltd v Ayers & Ors (2007)-

Tutorial 2

1a) The first step in determining whether a statement or an alleged obligation is enforceable is to ask whether it is even a term; that is, does the assurance given amount to an undertaking inside the contract? If a party’s expectations from a concluded contract are disappointed, the law responds by depending on the status accorded to the other party’s words or conduct which induced those expectations by a term, representation or ‘mere puff’.

The courts when deciding whether a statement constitutes a term of the contract are guided by identifying certain criteria. However in this particular case, one of the most important criteria is the importance of the truth of the statement to the representee i.e. the importance of the fact if the car in question had only one previous owner. The courts hold that the more important the statement is to the representee, the more likely it is to be a term. In the case of Bannerman v White (1861) W asked if the hops on sale had been treated with sulphur and furthermore stated if they were he would not even consider asking the price. B said no. This case is based on facts similar. Imran stated he was only interested if the car had 1 previous owner. Tariq told Imran there was indeed only one previous owner when in actual fact there had been three.

As well as this, Tariq had special knowledge. If this is the case, a court is more likely to find a term if the maker of a statement has special knowledge in the subject matter or is in a ‘better position to ascertain or bears more responsibility for ascertaining, the accuracy of the statement than the other party’. Accordingly, in the case of Dick Bentley productions Ltd v Harold Snitch Motors Ltd, a car dealer made a false statement to a private buyer about the mileage of the car. The dealer who was in a ‘position to know or at least find out the history of the car… stated a fact that should be within his own knowledge’. Tariq as the owner of the car was in a position to know or find out the history of the car and therefore made a false statement to Imran.

However, it can be recognised that in this particular case, that Tariq’s statement about the car was in fact a term of the contract.

b)

c)

2) TASK COMPLETED IN TUTORIAL

3) Contractual terms can be classified as being either conditions, warranties or inominate terms. Not all terms have the same status. Some are categorised as being more important than others. It was once assumed that very contractual term could be classified at the time of formation by parties, statutes or the courts.

Conditions are statements of fact or promises which form the essential terms of the contract. If a statement is not true or the promise not fulfilled (breach of contract), the innocent and injured party can terminate contract and sue for damages. Conditions can also be referred to as important terms that ‘go to the root of the contract’. In Poussard v Spiers & Pond (1876), a singer was employed as the lead role in an opera. She was unable to take the role until a week after the season had begun. While this time, another singer was employed to take over the role for the whole season. It was held that her promise to perform from the first performance was actually a condition and her breach entitled management to discharge the contract with her.

4) Terms may be implied into a contract from custom, facts of the particular contract, by law (statute, common law).

Terms may be implied by Custom of the market, the trade or locality in which the actual contract is concluded. Ungoed Thomas J set out the requirements of terms implied by custom in the case of Cunliffe-Owen v Teather & Greenwood 1967.

Terms must be certain (clearly established in case law, identifiable, consistent)

Notorious- (well Known by those doing business in the specific trade place)

Recognised as binding- (compliance comes from legal obligation rather than choice or commercial convenience)

Reasonable

Not contradicted by the express terms or nature of the contract

Terms can also be implied into contracts from factual context, ostensibly to give effect to the unexpressed intention of the party’s. The idea is whether through forgetfulness, lack of time or bad drafting, the parties failed to include a term which they would have if they had more time. There are 3 overlapping tests that can be taken.

Business Efficacy- the Moorcock 1889 case stipulated that the term sought to be implied must be necessary to give the transaction business efficacy as the parties must have intended.

Officious Bystander- In Shirlaw v Southern Foundries 1926, Mackinnon Lj said that a term in fact is something so obvious that it virtually goes without saying so while the parties are making their bargains, an officious bystander were to suggest some express provisions for it in agreement, they would testily suppress him with a common ‘oh, of course’.

Implications by law are usually contracts that fall into certain commonly occurring types e.g. Sales of Goods, Employment etc: attract their own set of obligations enforceable as implied terms unless the parties exclude them. For example: it is implied in employment contracts that the employer will not require the employee to act unlawfully as well as the employer and employee owe each other a duty of trust and confidence (Malik v Bank of Credit and Commerce Intl).

The imposed nature of terms implied by law is reinforced by the following:

Courts often rely exclusively on precedents to imply a term in law rather than examining intentions of parties to the particular contract (Yeomen Credit Ltd v Appl 1962)

The terms implied by law may be so complex that they are unlikely to have been over looked because they go without saying (Scally v Southern Health and Social Service Board)

Implied terms may necessitate a narrow interpretation of the express terms (Johnstone v Bloomsbury head authority 1992) where a junior hospital doctor’s employment contract allowed the employer to require him to work up to 88 hours per week. The Court of Appeal accepted the doctor’s argument that the employment exercise of power as subject to an implied limitation for the health and safety of the doctor and his patients. Because the employee’s discretionary power was not expressly stated to be limited, there was no direct contradiction in implying a limit.

It may be possible to exclude terms implied by law by the parties express agreements. In Malik v BLCL, the House of Lords made it clear that express terms could not affect an implied obligation of mental trust and confidence.

Terms may also be implied by statutes. An example is the Sale of Goods Act (1979) which implies into the sales of goods contract (1979) that the seller can sell the goods and the goods sold are of satisfactory quality, goods sold are reasonably for the purpose that the buyer has made known to the seller.

Contract Law Tutorial 3

Tutorial 4

To advise Habib, it is first necessary to establish whether or not the clause in question which was on the slip of paper or above the counter is indeed effective. The clause attempts to limit the liability of the bus company and so is an example of an exclusion clause. Because these clauses can have various different consequences, common law as well as statutory rules has been developed rules in order to control these certain effects.

Common law has an established rule which states that for an exclusion clause to be deemed effective, it must form part of the contract therefore any notice containing a clause must be given before the contract is formed. This has also been illustrated in the case of Olley v Marlborough Court hotel. It was held that a notice which was displayed in one of the bedrooms of the hotel did not exclude the hotels liability for negligence. However this notice of the exclusion clause was given after the formation of the contract. It is important that the actual notice of an exclusion clause must be given before the contract is made. In the case of Thornton v Shoe Lane Car parking a notice in a car park was ineffective as contract formation took place at the barrier of the entrance into the car park.

In addition, it is also important that a reasonable attempt must be made to give notice to the clause and in normal circumstances; a mere receipt is not something you would think to have contractual terms. Therefore, an exclusion clause contained on the back of a receipt generally is not considered to form part of the contract. The case of Chapelton v Barry illustrates this as the courts held that the exclusion clause on the back of the receipt was ineffective due to this particular reason.

A case very similar in facts as Habib’s case is the case of parker v S E Railway Co. The facts of the case are as follows: A passenger received a ticket with an exclusion clause on the back when he left his bag at the left luggage office. On the front of the ticket, it clearly said ‘See back’. The company however could rely on the clause if they had brought reasonable notice and attention to the passenger. The courts suggested that if reasonable notice was provided of the fact that the ticket contained terms, then the passenger was bound. It was felt that the term could have been incorporated if a reasonable person would suspect there was writing with contractual terms on the back of the ticket. In the case of Thompson v LMS Railway Co. a reasonable attempt to give notice was made. It was held that the railway company had given sufficient notice by handing the passenger a ticket which stated that it was subject to conditions on the company’s timetable. This was held even though the defendant/passenger could not read.

In Habib’s case, the exclusion clause was at the back of a slip of paper and he was also told he would be able to retrieve his luggage by this slip.

In some specific cases such as Chapelton, it could be possible to claim that Habib suspected a mere slip to contain contractual terms. However, the notice above the counter was apparently visible to Habib before the contract was actually made.

Another common law rule states that exclusion clauses will be constructed against the party who seeks to rely on them. The Baldry v Marshall Case explains this. In this case, an exclusion clause excluded any guarantees and it was held that on construction of the clause, this would not exclude liability for the breach of a condition. Furthermore, the more burdensome the exclusion clause is, the more the clause will be constructed strictly. In Alexander v Railway Executive, a limitation clause limited the amount which was payable in respect to lost luggage left at a office. This was held to be ineffective even thought there was reasonable notice of it. The clause excluded liability for mis- delivery; not for deliberate wrong delivery. Habib could argue that the wording of the clause was not entirely clear to cover liability form the company’s negligence.

Section 2 of the Unfair Contract Terms act 1977, purports that any contract term which excludes liability for loss or the damage to property due to negligence will only be effective if it is reasonable and sufficient. This means the clause must be fair in the circumstances and known to the parties involved. The courts should also view the positions of both parties and their strengths and whether there was any inducement involved or if the person knew the clause was reasonable. The case of Smith v Eric Bush it was the bus company that was in the better position to bear the loss and provide insurance.

Therefore, if the clause in part of the contract then to be effective it must be able to go through the reasonable test and maybe that if we take into account the bargaining strength of both parties, the courts would find that the limitation is infact unreasonable. Under the Unfair terms in consumer contracts regulations 1999 terms which are placed in standard contracts between suppliers and sellers must satisfy a fairness test.

In conclusion, after taking into account all the cases discussed, whilst the exclusion clause on the receipt would be ineffective, the clause at the counter will be deemed to be effective but would have to satisfy the reasonable test.

2.

Tutorial 5

Even where all contractual elements may be present i.e. offer and acceptance, there may be factors that mean there is no genuine consent. These can be referred to as vitiating factors. The one vitiating factor which needs to be considered is misrepresentation. A misrepresentation is a false assertion of an existing fact made by word or conduct during negotiations for a contract made by one party which is intended to and does induce the other party to enter the contract.

After looking at the case of Conway Stables and Fred, Conway Stables considered buying a horse to be used for stud purposes from Fred. Fred made a statement which implied that the horse was ‘perfectly sound’ and if there was anything wrong, he would tell them. This statement induced Conway Stables to enter the contract and just three weeks later Conway Stables brought the horse and found it was useless for stud purposes.

Contract Law requires contracting parties not to make false statement (misrepresentation) to induce parties consent to the contract. Often many parties make specific statements during negotiations that induce the contract but do not form part of it i.e. mere representations. Statements made have to be material and the person has to rely on them.

In the case of Hummingbird Motors Ltd v Hobbs 1986, a private seller of a car said he believed the odometer reading to be correct since he had no way of knowing whether or not it actually was correct. Again in Kyle Bay 2006, K relied on U’s erroneous statement about the basis for calculating an insurance claim without checking the policy itself. The courts held U’s statement to be simply a negotiating position of an opinion containing no implications of a reasonable basis since it was a commercial negotiation being conducted by experienced professionals on both sides. Both parties had equal access to papers and were both able to form their own opinions.

By taking into account Fred’s statement about the horse it can also be assumed that it was a statement of opinion. However, opinions need to be reasonably held and it is essential to bear in mind the knowledge, skills and experience of the opinion maker. Because the horse belonged to Fred, it was obvious that Fred more than anyone else had knowledge/experience and therefore should have been perfectly aware if the horse in question was suitable for stud purposes. An important contrasting point to note is if Conway Stables had in fact more skill and knowledge on the horse as judging by their name, you would expect them to be experienced in horses and able to tell whether the horse was suitable for stud purposes.

Following the hearing of the case Bisset v Wilkinson Lord Denning stated ‘if a man who has or professes to have special knowledge, skill makes a representation by virtue thereof to another, be it advice, information or opinion with the intention of inducing him to enter the contract, he is under reasonable duty to use reasonable care to see that the representation is correct and that the advice, information or opinion is reliable’.

A case which is based on facts exactly the same is the case of Schawel v Reade (1913), here a buyer considered buying a horse. The seller told the buyer ‘you need not look for anything, the horse is perfectly sound’. If there was anything wrong with this horse, I should tell you’. A few days later, the price was agreed and 3 weeks later the plaintiff bought the horse. The statement was held to be a term of the contract but here the defendant who was the owner of the horse would appear to have special knowledge. However, in this case it was held that the defendant’s statement was a term of the contract and so was liable. The buyer in this case had been stopped from verifying or checking the truth of the statement and therefore it was more likely to be a term.

It is important to note that if a statement is made by a party who has special knowledge and expertise on the matter; the courts are more likely to deem the statement as a term. However, referring back to Fred’s case, the statement made by Fred cannot be considered as a term of the contract reasons being the timing issue and the long gap of 3 weeks when the sale was actually made (Conway Stables bought the horse). Therefore it is less likely to be a term and more likely to be a misrepresentation.

Examples of such instances of where the special skill/ knowledge issue has been brought up or occurred are the cases of Dick Bentley Productions Ltd v Harold Smith (1965) or Oscar Chess v Williams (1977). In the case of Dick Bentley v Harold Smith, the defendant sold the plaintiff a car saying it had done 20,000 miles. Harold bought the car and found it had done considerably more. Here the representation was made for the purpose of inducing a sale. Another point the courts made was that the seller should have had special knowledge/skill of the car in question and therefore his representation was made solely for the reason that a sale could be made.