The law of contract

Part A

The main intention in the law of contract is to ensure that what a party has been contributed to expect shall come to pass and that what has been assured to that party shall be present. However in some occasions both parties contract will not in practice perform as they planned. The main reason would be that there might be a gap in the contractual terms in which the parties have expressly contracted. Then one of the parties may suggest that a term should be implied in order to fulfil the gap. Hence, in a valid contract, the terms can both be express and implied. When an offer or proposal is made otherwise than words, it would be an implied contract. The terms of contract will be observed through conduct or performing of or abstinence from an act. However if in an agreement, the proposal is made in words either spoken or written, it is called an express contract. ‘Express terms', Wishart indicates as they “are those specifically agreed by the parties. Express terms can be in writing or oral or both...”.

The case of Moorcock was associated with the scope to which terms could be implied with the lack of any external factor for such a term. The case concerned a contract between the parties that the plaintiff's ship could load-and-unload at the defendant's wharf of the Thames. Both parties were aware that at low tide any vessel at the wharf would be grounded, but there was not a term related to this in the contract. The plaintiff's ship was damaged as a result of the condition of the river. It was held that a term may possibly be implied to that result. Also it was suggested that this must have been the aim of the parties; without such a term the contract was successfully unenforceable. This sort of implication is often called implication in fact. As it has been indicated by Bowen L.J that the implication which the courts “...draws...the intention of the parties the law draws with the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either side...”. Therefore it can be said that in Moorcock the idea of ‘business efficacy' which means that what is required for the contract to be workable. A law commentator Bailey supposed that it cannot be assumed that both parties would have settled to something logical, rather than necessary.

Nevertheless, in order to determine the intention of the parties the court has developed new ways in later cases. One of the most distinguished of these alternative methods is the ‘officious bystander' test. It was recognised in Shirlaw v SFLtd laid down in the judgement of MacKinnon L.J. it performs by assuming what would have occurred if, at the time of the agreement, an ‘officious bystander' had recommended the specific term which it is planned should be implied. If the possible response of the parties would have been an irritable ‘oh, of course', and also in B.P. Refinery v. Shire of Hastings Lord Simon has extended this test by stating that because the bystander test was so obvious that it should go without saying, in that case the courts should be organized to imply the term after establishing the conditions which has been pointed out by Lord-Simon. Additionally MacKinnon L.J specified that the test in the Moorcock was too broad in nature and his test was a more concrete criterion. It is clear that this is simply an additional method of trying to resolve what both parties must have intended when the contract made.

On the other hand the House of Lords (HofL) have established a different test in Liverpool CC v Irwin. The HofL were considering the tenancy agreements concerning a block of flats in which nothing was supposed about who was accountable for maintenance of the common parts of the block and particularly, the lifts and rubbish chutes. Moreover the HofL implied a term that the property-owner should take reasonable care to keep the common areas in fine repair. However it cannot be said that a term was essential to make the contract effective, in the sense of Moorcock. A commentator Bailey among others has argued that it would have been reasonably possible to have a tenancy contract in which responsibility for the common areas was shared between the whole tenants of the block. Additionally Elisabeth stated that in order to achieve a fair conclusion the court should have considered the officious bystander test which might be able to provide an agreed answer. Whereas the HofL has followed a different criteria which is laid down by Lord Denning; (1) the agreement was incomplete,(2) the agreement was satisfactorily common that the court could decide that particular terms would usually be anticipated to be found in such a contract, and (3) the implied term was thought to be reasonable by the HofL in dealing with the ordinary preparations of the requirements between tenant and licensee. This approach is not relate to as a term implied in fact, it is generally implied in law. Therefore it is not reflecting what the parties would have settled on if they had consideration about the issues when the agreement was made, however, it is enforced by the courts on both party. Nevertheless Lord-Cross were dissenting by saying that “it is not enough for the court to say that the suggested term is reasonable one...which would make the contract a better or fairer one...” also he has added that 'officious-bystander' method is the proper test for a term to be implied into a contract. The question then is for the court to decide which of the two approaches they might be able to identify distinctive obligations, in order to fulfil the gaps the Liverpool v Irwin method. However the test of necessity which is laid down in the case of The Moorcock can be used if the contract is different.

In conclusion, there is nowadays a different test followed by the courts which is Liverpool v Irwin and this is not established upon the intention of both parties and also upon business efficacy. However it is still accurate to say that the test which was laid down in the case of Moorcock does signify the courts' approach to imply the terms. It true to say that there are also various situations to illustrate that when a term may be implied into a contract such as through establishing ss 12-15 of the Sales Goods Act 1979 and also Unfair Contract Terms Act 1977.

Part B

In the case under study Jonathon and Ricky intend to sue Cowell Enterprises Ltd (COLtd), which created breach of contract on the bases of the terms of Implied Contract. The following legal issues have been raised in this case:

  1. whether the company to be sued at the court of law can completely rely upon the clauses of the terms & conditions it has mentioned in its tickets;

  2. breach of the implied term as to the description of the programme.

In dealing with each of these, COLtd are arguing that they are protected from liability by clauses 5 and 6 of their Terms and Conditions. A valid exemption clause has to be incorporated and also must on its factual construction cover the breach that has aroused. If it meets both these tests in that case it will be essential to consider whether it is affected by the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) or the Unfair Contract Terms Act (UCTA) 1977.

The incorporation of exemption clauses plays an important role in Jonathan and Ricky's case. The main rule is that the clause must have been presented before or at the time of the agreement, therefore if it is putted forward after the contract made, it cannot be part of the agreement. Suppose that Jonathan and Ricky have signed contract there would be an influential assumption that they were confined by its Terms (L'Estrange v FGraucob Ltd) but when the signature is not required then they must be given sufficient notice of the Terms-and-Conditions. In the case of Parker v South Eastern Ry it was indicated that notice of the Terms which is important not their principal reading or understanding so therefore if the notice is unreadable or concealed by a date stamp as in Richardson, Spence&Co v Rowntree it will be unsuccessful. According to the problem the clauses were stated on the reverse of the ticket and receipt and there is no notice stating that ‘Turnover for Terms-and-Conditions' on its front face. This is most probably an obstacle to COLtd, because in Henderson v Steven it was held that without a notice on the front of a ticket applying to clauses on it's back made the clauses unacceptable. Additionally the notice that is specified must be concurrent with the agreement's creation (Thornton v SLP Ltd). It is true to say that the exclusion clauses in the problem are positively not displayed to Ricky as COLtd only gave him a small receipt when the show was on demonstration so that this might means that he was on a rush and COLtd did not inform him to check conditions properly. The condition might therefore seem to be not fulfilled. In common law it is the rule that the article containing the clauses must be a contractual paper such as one which a reasonable man would believe to enclose the Terms of the agreement. As in Chapelton v Barry UDC it was held that a receipt which was given for the hire of a deck chair was not a contractual article.

Turning to Jonathan's case the situation is different as he has booked ticket in person at the booking office and at the same time the Conditions have been brought reasonably to his notice which has enabled him to remember. However it can be said that there was not sufficient and reasonable notice, for instance in JSpurling Ltd v Bradshaw per Lord Denning has illustrated that the clause “...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 sufficient...”. Consequently it is accurate to say that the condition will not be fulfilled. Jonathan may argue that he was a regular customer of COLtd for certain amount of time and then the company knew that he was illiterate as it was held in the case of Thompson the court have established a test of ‘reasonably sufficient notice for reasonable person'. This may support his chance of succeeding in this case.

On the other hand there is a contra proferentem rule which means that any doubt or ambiguity will be interpreted against the person to rely on the clauses, in this case the rule will be applied in the favour of Jonathan-and-Ricky. The question is one of creation of the agreement, however if COLtd repudiates liability for ‘any loss-or-damage' the court may consider that they are attempting to exclude all types of loss without being adequately precise as to their cause (Price v Union-LCo). However it can be said that in the light of the UCTA 1977 the common law's power are recently of less significance.

In addition Section.2(1) of the UCTA 1977 nullifies any attempt by a contract conditions or notice to repudiate or limit liability for bodily injury -or- death arising from negligence. It appears indubitable that it was negligent to leave studio lighting on the floor and because of Jonathan's claim clause.5(a) of the contract will be unsuccessful. Also in the case of other loss-or-damage Section.2(2) states that an exclusion clause will only be accountable insofar as it satisfies the preconditions of reasonableness. This can be applicable to COLtd, as it is indicated in Section.11 and says that a clause must be a reasonable and fair one to have been included in the contract (Fair Trading v Abbey National). This test applies not to the time when it was broken, to the time the contract was completed (Stewart Gill-Ltd v Horatio MCo). In the case of Stewart-Gill (above) it was decided that the ‘entire' clause must be reasonable, not purely the section relied by the accused: clause.5(a) and (b) and also clause.6 may then be unsuccessful in its completeness. Additionally Section.11(4) states that if the accused restricts its liability to a certain amount of money (clause.5(c)), in considering reasonableness, to the sources which he could expect to be available to him to cope-with the liability and how far open to him to cover himself by insurance. It is arguable that COLtd should have insured against the risk will be asked and this would definitely be the problem if COLtd could insure without any significant increase to Jonathan-and-Ricky in the contract price (George Mitchell Ltd v FLS Ltd).

The UTCCR 1999 also relevant to these facts. Because COLtd is a business supplier, which is defined in reg.3(1) “any natural or legal person who, in contracts covered by these Regulations, is acting for purposes relating his trade, business or profession, whether publicly owned or privately owned”. Additionally Jonathan-and-Ricky are customers as it was defined in reg.3(1) “who is acting for purposes which are outside his trade, business or profession”. The Regulations apply merely to contract Terms (reg.4(1)) however, on the facts which are given the ‘Terms and Conditions' would seem to enclose obligations. The UTCCR 1999 has established and applied to the contract between the parties, it will be the question that if any of the contract Terms are unfair and not obligatory (reg.8(1)) on Jonathan-and-Ricky as being in opposition to the condition of good faith and made an important disparity in the parties responsibilities and rights occurring under the contract, to the disadvantage of the buyer (reg.5(1)).

In conclusion, It is feasible to infer that the test of ‘reasonableness' under the UCTA 1977 may possibly, again establish to be more favourable to Jonathan-and–Ricky as under the 1977 Act , the burden is entirely on COLtd to prove that the exclusion clauses fulfils that test however, under the Regulations, the burden of proving that the terms are unfair is placed on Jonathan-and –Ricky. However there are also various Directives and Sales of Goods Act 1979 which could also be considered in order to support both claimants case.

Bibliography:

Books

  • Anson S.W.R and Beatson J. Anson's Law of Contract.(28th Edi. OUP, Oxford 2002)

  • Furmstone M.P, Cheshire G.C. and Fifoot C.H.S. Law of Contract (15th Edi. OUP, Oxford 2007)

  • Koffman L. and Macdonald E. The Law of Contract (6th Edi. OUP, Oxford 2007)

  • Mckendrick E. Contract Law (8the Edi. Palgrave Macmillan, London 2009)

  • Richard S. The Modern Law of Contract (6th Edi. Cavendish Publishing, London 2005)pp 198-217

  • Wishart, W.C.. Contract Law (2nd Edi. OUP, Oxford 2008) pp 395-485

  • Turner C. Contract Law (2nd Edi. Hodder Arnold, London 2007)

Journals

  • Elisabeth ‘Policy concerns behind implication of terms in law' L.Q.R. 2001.

  • Biers ‘Dickinson v Dodds' [1876].

  • Phang ‘Implied terms revisited' J.B.L 394 1990.

  • Clive ‘Interperation, implied terms and interference with conditions' Ed.L.R 283 2008.

  • Bailey ‘Construction of express terms and implied terms' C.L.J. 1994.

Cases

  • AEG (UK) Ltd v. Logic Resource Ltd [1996] C.L.C. 265.

  • B.P. Refinery v. Shire of Hastings [1978] A.J.L.R. 20.

  • Chapelton v Berry UDC [1940] 1 KB 532.

  • Fair Trading v Abbey National Plc [2009] UKSC 6 (SC).

  • Henderson v Steven [1875] LR 2 HL (Sc) 470.

  • J Spurling Ltd v Bradshaw [1956] 1 WLR 461. 

  • L'Estrange v FGraucob Ltd [1934] 2 KB 394.

  • Liverpool CC v Irwin [1976] 2 WLR 562.

  • George Mitchell Ltd v FLS Ltd [1983] 2 AC 803.

  • Ollie Marlborough Court Hotel [1949] 1KB 532.

  • Richardson, Spence&Co v Rowntree [1894] AC217.

  • Shirlaw v SFLtd [1939] 2 KB 206.

  • Parker v South Eastern Ry [1877] 2 CPD 416.

  • Photo Production Limited v Securicor Transport Ltd [1980] AC 827.

  • Price v Union-LCo [1904] 1 KB 412.

  • Stewart GLtd v Horatio MCo [1992] 1 QB 600.

  • The Moorcock [1889] 14 PD 64.

  • Thornton v SLP Ltd [1971] 2 QB 163.

  • Thompson v London Midland Scottish Railway Co [1930] 1 KB 41.

Statutes

  • Sales Goods Act 1979.

  • Unfair Terms in Consumer Contracts Regulations 1999.

  • Unfair Contract Terms Act 1977.