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Contract Terms, UCTA 1977 & the Consumer Rights Act 2015
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Detailed explanation of contract law. Namely, contractual terms, the Unfair Contract Terms Act 1977, and the Consumer Rights Act 2015.
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Contract Terms, UCTA 1977 & theConsumer Rights Act 2015
What are Terms?
Terms are contained within the offer. When legitimately incorporated (i.e., included) into the
contract they govern the obligations of the parties. Breaching any term then gives rise to (i.e., results
in) the possibility of being sued for damages.
Knowing what the terms are is not always easy! The parties may have failed to express their
intentions clearly; they may have omitted to mention a particular matter which later assumes (i.e.,
takes on) great importance; or the written document may contradict what was said during the
course of oral negotiations. Where the contract is made wholly by word of mouth, the job of
ascertaining / determining the terms of the contract becomes even more difficult.
Terms can be:
• Express terms: express terms are the details of a contract which have been specifically
agreed between the parties. They may be contained wholly / solely in a written document or
ascertained / determined entirely from what the parties said to each other. In some cases,
the terms may be partly written and partly verbal. The most common types of express term:
o Exemption clause: this term is used to describe an express term in a contract which
seeks to exclude or limit the responsibilities that might otherwise belong to a party.
o Liquidated damages clause: this is a term in a contract which lays down the amount
of damages that will be payable in the event of a breach of contract. Cancellation
charges are an example of a liquidated damages clause.
o Price variation clause: calculating a contract price in a period of inflation can be a
very hit-and-miss operation. A contractor may find themselves bound by a fixed
price which has failed to take sufficient account of increases in the cost of raw
materials, wages, or overheads, such as business rates. One solution to this problem
is to insert a term in a contract which allows a variation in the contract price under
certain circumstances.
• Implied (imposed) by statute terms: a term may be implied into a contract by an Act of
Parliament.
• Implied by courts terms: by custom or in the interest of business efficacy.
Note:
• Business efficacy means the power to produce intended results.
• More detail on express and implied terms available in later sections.
Express Terms
L’Estrange v Graucob [1934]
Note: an exclusion clause is where the party to the contract seeks to exclude all liability for certain
breaches of the contract. An exemption clause is the term used to describe both exclusion and
limitation clauses (see term description above).
,Case Facts
Ms L’Estrange (claimant) bought an automatic cigarette vending machine for use in her café from
the defendant. She signed a sales agreement which stated that any express or implied condition,
statement, or warranty statutory or otherwise would be expressly excluded. Ms L’estrange did not
read this document and was completely unaware of the exclusion clause hidden in the small print.
The machine did not work properly, and the claimant thus brought an action against the defendant,
alleging / asserting / claiming that the machine breached the Sale of Goods Act by not being of
merchantable quality.
Case Decision
The Court of Appeal found in favour of the defendant, determining that the express provisions of the
contract were binding and therefore excluded the relevance of the provisions (a clause in a legal
instrument e.g., a law) of the Sales of Goods Act. Furthermore, the fact that the claimant had not
read the contract did not impact its validity, as in signing the contract she consented to be bound by
its contents.
Point to Take Away
Unless there is misinterpretation or fraud, a party’s signature will incorporate terms into a contract;
regardless of whether that party read or understood those terms.
Case also illustrates that implied terms may be excluded by express agreement between the parties.
Implied (Imposed) by Statute
For instance, for business-to-business transactions:
• Sale of Goods Act 1979
o s.13: goods must fit description
o s.14: satisfactory quality and fit for purpose
For instance, for business-to-consumer transactions:
• Consumer Rights Act 2015
o s.: satisfactory quality and fit for purpose
o s.11: goods must fit description
Implied by Courts (common law)
Officious bystander
A test used to determine if an unexpressed condition was implied at the time a contract was drawn
up.
Shirlaw v Southern Foundries [1939]
Case Facts
Shirlaw (claimant) was appointed managing director of Southern Foundries (defendant) for a fixed
term of ten years. Federated Foundries then purchased a controlling share in the company and
altered the company's Articles of Association, granting them the power to remove directors. Shirlaw
, was sacked prior to the expiration of the fixed term, and he brought a claim to recover damages for
breach of contract.
Case Decision
Using the officious bystander test, the court found in favour of the defendant. It was held that it was
an implied term of his employment contract that he would not be removed from his role during the
fixed ten-year period.
Point to Take Away
Case is an example of the officious bystander test being used by the courts.
By Custom
A contract must always be examined in the light of its surrounding commercial context. The terms of
a contract may have been negotiated against the background of the customs of a particular locality
(i.e., area) or trade. The parties automatically assume that their contract will be subject to such
customs and so do not deal specifically with the matter in their contract.
Hutton v Warren [1836]
Note: a notice to quit is the notice often referred to as "eviction", is given by a landlord to a tenant
to leave the premises either by a certain date or to pay overdue rent or correct some other default
(e.g., pets, damage to premises, too many roommates, using the property for illegal purposes, etc.)
within a short time.
Case Facts
Hutton (claimant) was the tenant farmer of land owned by Warren (defendant). Warren gave Hutton
notice to quit and insisted he continue to cultivate (i.e., farm) the land throughout the notice period.
Hutton continued to farm the land during the last year of the tenancy expending (i.e., using) his own
labour and purchasing seed and manure for use on the land. On quitting the farm, Hutton submitted
a bill to the defendant for the work and cost of seed spent on the field as was customary in farming
tenancies. Warren refused to pay.
Case Decision
The court found in favour of the claimant; incorporating a term into the tenancy agreement that
provided compensation for the work and expenses used / employed on the land during the notice
period. The term was implied because it was common practice for farming tenancies to contain such
a clause.
Point to Take Away
Case is an example of a custom being implied by the courts.
Business Efficacy
The courts will be prepared to imply a term into a contract in order to give effect to the obvious
intentions of the parties. Sometimes the point at issue has been overlooked or the parties have
failed to express their intention clearly. In these circumstances, the court will supply a term in the
interests of ‘business efficacy’ so that the contract makes commercial common sense.
The Moorcock [1889]
Note: ‘On the part of’: phrase is used to ascribe (i.e., assign) responsibility for something to
someone.
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