Contract Law - Large Group 5

Contract Terms and Remedies for Breach

Identifying the Terms of a Contract - Express and Implied

Contractual Terms are Either:

- Expressed
- Implied

Expressed Terms

Expressed terms which are actually recorded in a written contract or openly expressed in an
oral contract at the time the contract is made (or there may be a combination of written and
oral express terms).

Incorporation

If terms of a contract are to be relied upon then it must form part of the contract. There are
three ways to incorporate terms and conditions into a contract, these are;

- Signature
- Reasonable Notice Before or at the Time of the Contract
- Previous Consistent Course of Dealings

Signature

If you sign it, you are then bound by it. The document that has been signed must be a
contractual type of document - contained terms and conditions.

L’Estrange v Graucob (1934) - the close the parties were arguing. Herbert was in very small
print, but it was legible, and the court found, therefore that the clause was incorporated
into the contract because the contracts have been signed.

Curtis v Chemical Cleaning and Dyeing (1951) - tricked into signing a contract

 The claimant took a wedding dress, trimmed with beads and sequins, to the defendant’s
shop for cleaning.
 The assistant asked the claimant to sign a receipt.
 The claimant asked why.
 The assistant said that the receipt exempted the defendant from liability for damage to
the beads and sequins.
 The claimant signed.
 In fact, the receipt exempted the defendant from liability for any damage however
caused.
 When the dress was returned, it was stained.
Decision

The assistant had misrepresented the effect of the clause and therefore could not rely on
the clause in the form even though the claimant had signed it.

As long as you are not misled than the general is that you will be bound by those terms as
they are deemed to be incorporated into the contract.

Reasonable Notice Before or at the Time of the Contract

The law requires the party, who wants to rely on the time to have given reasonable notice. If
that has been given and it’s been given before or at the time of the contract is entered into
the law will regard those times as incorporated into the contract.

Give Reasonable Notice - bring terms to claimants’ attention by Setting them out clearly in
legible, print or put them in a notice, so they are easily seen.

Other things, the law considers when reasonable steps are taken, is not only whether the
steps taken or clear and effective, the law also look at how onerous or unusual the terms
are, which you were trying to bring to the other parties attention.

Spurling v Bradshaw (1956)

Lord Denning said:

‘the more unreasonable the clause, the greater the notice which must be given of it. Some
clauses which I have seen would need to be printed in red ink on the face of the document
with a red hand pointing to them before the notice could be held to be sufficient.’

Defendants need to do more to bring clothes to the other parties attention. If the clause is
onerous in order to make sure it’s incorporated into the contract.

Affirmed by Lord Denning in Thornton v Shoe Lane Parking Ltd (1971)

Previous Consistent Course of Dealings

Four times to be incorporated in this way, the parties must have had a lot of regular dealings
in the past, which were all on the exact same terms and conditions. By this stage of the
dealings, the party should be familiar with the terms and conditions.

Activity 1 - Previous Consistent Course of Dealings

Look at the fact patterns set out below. In which, if any, of them do you think a court
would conclude that the parties intended to contract on the same terms as they had done
in the past?
 The parties have had three or four dealings over the last five years always on the same
terms.

Three or four dealings over the last five years isn’t that regular therefore, you would have
a good argument in these circumstances.

Hollier v Rambler Motors

The parties have had lots of dealings in the past but there has been no consistency;
sometimes, but not always, one party has been asked to sign a document containing
terms.

The lack of consistency is an issue - No

Mccutchen v David Mcbrane

The parties have had dealings three or four times a month over a long period of time and
a sale note has routinely been handed over which sets out the seller’s standard terms and
conditions.

Parties intended to contract in the same terms as in the past - Yes

Implied Terms

Statutory Implied Terms

Implied terms can arise by custom, in fact, in law, or by statute.

Sales of Goods Act 1979

In Fact:

- Based on the presumed intentions of the parties

- Something so obvious it goes without saying

In Law:

- Legal implications in contracts of common occurrence

- Based on wider considerations

Implied terms are not stated in the contract but arise 'by implication' to reflect the intention
of the parties at the time the contract was made. Terms may be implied by fact, law or
custom.
Activity 2 - Terms implied by the Sale of Goods Act 1979

The owner of a public house, Gary, is on the internet looking to buy a large smart screen
TV to mount on a wall in the bar so that customers can watch live sports coverage. He
finds a suitable TV on the Supatelly company website. It’s priced at £1,200. There’s a
description underneath the picture of the TV, stating its screen size and resolution, the
inputs it can take and other details. Gary likes what he reads and orders one. He clicks on
the “I agree to Supatelly’s terms and conditions” button, puts in his credit card details,
and in due course the new TV arrives.

Set out on below are a few sections of the Sale of Goods Act which imply certain terms
into business-to-business contracts for the sale of goods. From them and the facts above,
try and work out what are the express and implied terms of Gary’s contract with
Supatelly.
Expressed Terms:
- Standard Terms & Conditions
- Price of the TV
- Description of the TV
Implied Terms:
- Section 14(2) Sales of Goods Act 1979
- Section 13(1) Sales of Goods Act 1979
- Section 14(3) Sales of Goods Act 1979

Section 13(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(2) Where the seller sells goods in the course of a business, there is an implied
term that the goods supplied under the contract are of satisfactory quality.

(2A) Goods are of satisfactory quality if they meet the standard that a reasonable person
would regard as satisfactory, taking account of any description of the goods, the price (if
relevant) and all the other relevant circumstances.

Section 14(3) Where the seller sells goods in the course of a business and the buyer,
expressly or by implication, makes known to the seller . . .

any particular purpose for which the goods are being bought, there is an implied term
that the goods supplied under the contract are reasonably fit for that purpose, whether
or not that is a purpose for which such goods are commonly supplied, except where the
circumstances show that the buyer does not rely, or that it is unreasonable for him to
 rely, on the skill or judgment of the seller.

Classification of Terms
Contractual terms can either be conditions, warranties or innominate terms. Traditionally,
contractual terms were classified as either conditions or warranties. The category
of innominate terms was created in Hong Kong Fir Shipping. It is important for parties to
correctly identify which terms are to be conditions and which are to be warranties. Where
there has been a breach of contract, it is important to determine which type of term has
been breached in order to establish the remedy available.
Classification of Terms:
- Conditions
- Warranties
- Innominate Terms

Conditions

A condition is a major term of the contract which goes to the root of the contract. If a
condition is breached the innocent party is entitled to repudiate (end) the contract and
claim damages.

Poussard v Spiers (1876)

Warranties

Warranties are minor terms of a contract which are not central to the existence of the
contract. If a warranty is breached the innocent party may claim damages but cannot end
the contract.

Bettini v Gye (1876)

Innominate Terms

The innominate term approach was established in the case of Hong Kong Fir
Shipping. Rather than classifying the terms themselves as conditions or warranties, the
innominate term approach looks to the effect of the breach and questions whether the
innocent party to the breach was deprived of substantially the whole benefit of the
contract. Only where the innocent party was substantially deprived of the whole benefit,
will they be able to treat the contract as at an end.

Only if the breach substantially deprives, the innocent party of the whole benefit, he
expected to get can he terminate the contract.

This approach has been criticised for sacrificing certainty. Also, the innocent party may
well be liable for wrongful repudiation if they treat the contract as at an end where it is
found that the breach did not deprive them of substantially the whole benefit of the
contract.

Hong Kong Fir Shipping v Kawasaki Kisen Kaisha (1962)

Facts

- The defendants agreed to hire a ship from the claimants for 24 months.
- A term of the contract provided that the ship was ‘fitted in every way for ordinary
cargo service’, i.e., that the ship was seaworthy.

Diplock LJ:

“There are, however, many contractual undertakings of a more complex character which
cannot be categorised as being ‘conditions’ or ‘warranties’.

Of such undertakings all that can be predicated is that some breaches will and others will
not give rise to an event which will deprive the party not in default of substantially the
whole benefit which it was intended that he should obtain from the contract; and the legal
consequences of a breach of such an undertaking, unless provided for expressly in the
contract, depend upon the nature of the event to which the breach gives rise and do not
follow automatically from a prior classification of the undertaking as a ‘condition’ or a
‘warranty’.

Remedies

Various remedies exist in contract law. These include:

- Damages
- Termination/Repudiation

Termination/Repudiation

Termination is bringing the contract to an end, treating the contract as repudiatory. The
right to terminate depends on the nature of the term broken, not all terms of the contract
are of equal importance.

Sometimes are so important that the court will say if they are breached, the innocent party
can treat the contract as an end and those terms of cold conditions. When a condition is
broken, the innocent party can terminate and kind damages. The Sales of Goods Act
provisions are deemed to be conditions. If you buy something that is not of satisfactory
quality, you can terminate the contract.

Termination is only available when a condition is breached.

Damages
Damages in contract law are a legal remedy available for a breach of contract. Damages are
in a world of money to compensate the innocent party. The primary purpose of damages in
contract law is the place the injured party in the position they would have been in had the
contract be formed. An award of damages in contract law is subject to the application of the
rules on causation, remoteness, and a duty to mitigate loss.

Loss of Expectation

Loss of Expectation refers to the innocent party's loss of a bargain, such as the profits they
would have expected to receive had the contract been performed, less the costs they would
have incurred to earn that profit. The aim of expectation loss damages is to put the innocent
party in the same position as if the contract had been performed. 

Robinson v Harman (1848)

- An art dealer buys a painting described as an original for a price of £10m

- It turns out to be a fake and only worth £1000.
- Had it been an original it would’ve been worth £11m.

What term(s) of the contract have been breached?

Section 13(1) of The Sales of Goods Act 1979.

If the boy keeps the painting, what would be the amount of damage for loss of expectation?

As they’ve kept the painting that they’ve been told is worth £1000 the amount of damages
awarded would be £10,999,000 which is the £11m minus the £1000.

Recoverable Types of Loss

- Mental Distress/Disappointment
- Remoteness of Loss
- Measures of Loss
- Mitigation
- Specified Damages & Penalty Clauses

Mental Distress/Disappointment

General Rule - damages for mental distress, inconvenience and disappointment are not
generally awarded in contract law

Addis v Gramophone Co. Ltd. (1909)

Jarvis v Swans Tours Ltd (1973)

- The claimant, Mr Jarvis, booked a two-week holiday with the defendants and paid
£63.45.
 - The holiday was a catalogue of disasters. There was supposed to be a 'house party’
but there were only 13 guests there during the first week and none during the
second apart from Mr Jarvis.
- The holiday failed to comply with the description in the brochure in numerous other
respects. For example, there was supposed to be a bar at the hotel, but it was in an
unoccupied annexe and only open for one evening.
- All in all, Mr Jarvis had a pretty miserable holiday.

Decision

Where a contract is entered for the specific purpose of the provision of enjoyment or
entertainment, damages may be awarded for the disappointment, distress, upset and
frustration caused by a breach of contract in failing to provide the enjoyment or
entertainment.

Activity 3 - Damages for Distress/Disappointment

What sorts of contract are “proper cases” for the award of damages for mental distress?

Mr Jarvis’s holiday cost him £63.45 in 1969. How much compensation do you think he
should have been awarded for his loss of entertainment and enjoyment? Tick the
appropriate range of figures

Range Tick
Up to £100
£101 - £120
£121 - £140
£141 - £160

Remoteness of Loss

A defendant is not liable for all the consequences of his breach, but only for those losses
which are not too remote.

Hadley v Baxendale (1854)

- Hadley (H) owned a mill

- The shaft broke
- H entered into a contract with Baxendale (B) to take it to Greenwich to be used as a
pattern for a new one
- B delayed and the shaft was delivered late
- The mill was idle during the delay because, unbeknown to B, H did not have a spare
shaft

The Rule in Hadley v Baxendale (1854)

“[Damages] should be such as may fairly and reasonably be considered either arising
naturally, i.e., according to the usual nature of things, from such a breach of contract itself,
or such as may reasonably be supposed to have been in the contemplation of both parties,
at the time they made the contract, as the probable result of the breach of it.”

Limb 1:

Losses which flow naturally from the breach or losses, which are an inevitable consequence
of the breach are recoverable.

Limb 2:

If a particular loss isn’t an inevitable consequence of the breach, ask what the defendant
knew at the time of the contract. Did they know of special circumstances, which meant they
should have realised there was a likelihood or real possibility of that particular loss resulting.
If they knew of special circumstances and realise that there was a real possibility of that
loss, then that loss will be recoverable.

Victoria Laundry (Windsor) Ltd. v Newman Industries Ltd (1949)

The claimants were launderers and dyers. They wanted to extend their business and
bought a boiler from the defendant to be delivered on 5 June. The defendant did not
deliver until 8 November. The defendant knew that the claimants were launderers and
dyers and that they intended to put the boiler to immediate use in their business.
The claimants claimed damages for:
Loss of ordinary profits, taking into account the extra customers they could have taken on
had they received the boiler in time; and
Loss of profit on some highly lucrative dying contracts with the Ministry of Supply which
they would have accepted had they received the boiler in time.

Decision

The claimants could only recover losses which were in the reasonable contemplation of the
parties which included the loss of profit that could be expected from the lack of use of the
boiler, but the claimant could not recover for the loss of the exceptionally lucrative contract
since the defendant was unaware of this contract.

Parsons (H) (Livestock) Ltd v Uttley Ingham & Co Ltd (1978)

- Defendants supplied claimants with bulk pig food storage hopper.

- The hopper was inadequately ventilated and so pignuts went mouldy.
- Pigs suffered intestinal infection, and 254 pigs died.
- It was not unlikely (there was a serious possibility) that the pigs would become ill if
fed from an inadequately ventilated hopper.
“If physical injury or damage is within the contemplation of the parties, recovery is not to be
limited because the degree of physical injury or damage could not have been anticipated [-
cited from McGregor on Damages, 13th ed.]
Decision

The death of the pigs was a natural result of feeding the pigs mouldy food within the first
limb of Hadley v Baxendale (1854) EWHC Exch J70. There was no need to consider whether
the death by e-coli was in the reasonable contemplation of the parties under the second
limb.

Measures of Loss

- Cost of Cure
- Difference in Value
- Consumer Surplus/Loss of Amenity

Ruxley Electronics and Construction v Forsyth (1996)

- Mr Forsyth entered into a contract with Ruxley to build him a swimming pool with a
7ft 6-inch-deep end.
- In the event, the deep end was a number of inches too shallow. In all other respects,
it was a perfectly adequate swimming pool which was safe to dive in to.
- There was no difference in value. Cost of cure was over £21,500 (the cost of
rebuilding the pool).
- Mr Forsyth claimed the cost of cure.
- At first instance he was awarded £2,500.
- The Court of Appeal awarded cost of cure.

Decision of the House of Lords

Forsyth could not recover the cost of re-building because this would be totally out of
proportion to the loss he had suffered. He could recover £2,500 for loss of amenity but the
law must cater for cases where full performance of the promise would vastly exceed the loss
which had truly been suffered. The pool was, in fact, worth no less because of the breach
but to award nothing would render the contractual promise illusory, and so a nominal
award was appropriate.

Mitigation

The claimant must take reasonable steps to reduce the loss suffered. If the other party
proves that the claimant has failed to mitigate their loss, damages will not be awarded for
the loss caused by this failure.

• Tutor who is paid £36,000 net pay (£3,000 net per month) is dismissed in breach of
contract. The tutor is entitled to 6 months’ notice.
• So, damages = £18,000
 • After 2 months the tutor is offered another teaching job at £36,000 net pay but turns
it down
• Damages = £6,000

British Westinghouse Electric Co Ltd v Underground Electric Railways Co of London Ltd

(1912)

Specified Damages & Penalty Clauses

“The clause is enforceable if it does not exceed a genuine attempt to estimate in advance
the loss which the claimant would be likely to suffer from a breach of the obligation in
question.” - Chitty on Contracts, 31st ed.

Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd (1915)

Damages

- Aim
- Type of loss
- Remoteness
- Measure
- Mitigation
- Specified Damages/Penalty