CONTRACT LAW

LARGE GROUP 5
Student Guide

Contract terms and remedies for breach.

Context

There are three aims of this large group.

First of all, to explore the contents, or “terms” of contracts.

The terms of a contract that have been expressly agreed may be easy to identify, but
not always. Think about when you buy goods on-line having first ‘accepted’ or
‘agreed’ the seller’s terms and conditions. Do you know, or even care, what is in the
small print? Not normally, unless and until there is a problem and it is only then that
you may discover it contains onerous terms. Consequently, common law rules have
evolved to try and protect buyers (especially consumers) from becoming bound by
unfair terms of which they were blissfully unaware.

In addition to terms that have been expressly negotiated and agreed by both parties,
terms may be implied in to contracts by custom, the courts or by statute. For
example, when you buy goods from a shop, statute implies that the goods will be of
satisfactory quality and fit for their purpose.

The second aim is to introduce you to the different types of terms that exist. The
classification of terms affects the remedies that may be available should they be
breached. For every breach of contract the non-defaulting party is entitled to
damages (monetary compensation); but in some cases he may also be entitled to
terminate the future performance of the contract.

The final aim is to consider in outline the key legal principles which govern awards of
damages which will be covered in more detail in Unit 5b.

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Outcomes

By the end of this large group you should be able to:

1. Identify the express terms of a contract and explain how terms may be implied
into a contract by statute.

2. Explain the different ways in which terms are classified and how this impacts
the remedies that may be available for breach.

3. Explain the main legal principles which govern awards of damages.

1. Identifying the terms of a contract- express and implied

1.1 Express terms

1.1.1 Incorporation

 Signature

L’Estrange v Graucob(1934)

Curtis v Chemical Cleaning and Dyeing (1951)

 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

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 Reasonable notice before or at the time of the contract

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.’

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

 Previous consistent course of dealings

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.

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

1.2. Implied terms

1.2.1 Statutory implied terms`

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.

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
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 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

2. Classification of terms

2.1 Conditions

2.2 Warranties

2.3 Innominate terms

Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (The Hongkong Fir)
(1962)
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’, ie 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

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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.’”

3. Remedies

3.1. Termination/repudiation

3.2 Damages

3.2.1 Aim – loss of expectation

Robinson v Harman (1848)

3.2.2 Recoverable types of loss

 Mental distress/disappointment

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 'houseparty’
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
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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

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

3.2.3 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.

 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:

Limb 2:
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 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

 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

3.2.4 Measures of loss

 Cost of cure

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 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

3.2.5 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.

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

Ltd (1912)

3.2.6 Specified damages and 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, 31 st ed.

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

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5. Workshops/Engages 5a and 5b

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