WS5 – SALES OF GOODS - EXCLUSION OF LIABILITY

Summary of Checklist

ALWAYS GO THROUGH ALL SIX STEPS, OFTEN INCONCLUSIVE ON THE FACTS SO EXPLORE ALL OPTIONS

What are the relevant contractual terms that IMPOSE LIABILITY,

express (from contract)
or
1. implied (SGA and CL)?

NB – for express look for terms impose liability / also remember the
agreed delivery date is an express term
Look at these questions
from the Buyers point of
2. Have the terms above been breached? Question of fact. view

What remedy does the innocent party want/ sought?

(look in instruction of question)
3.
What remedies are available?
- Condition – reject / terminate / damages
- Warranty – damages

What exclusion clauses apply to the breach that has occurred???

Are there any relevant exclusion clauses incorporated into the contract?
4.
(run through the different methods of incorporation eg signed / reasonable steps)
Look at these questions
from the Sellers point of
5. Construction: Do the exclusion clauses cover the specific breach and remedy? view.

For each question state

Are exclusion clauses ‘reasonable’ according to the Unfair Contract Terms Act which party is most likely
6.
1977? to ‘win’
Which of S.3 or S.6 applies? And then S.11 test – state / explain / relate.

7. Conclude. On balance decide whether most probably that the clauses will be void or not.

STRUCTURE FOR EXCLUSION OF LIABILITY QUESTION:

1. EXPRESS TERMS:
What are the
relevant  ONLY if they impose liability (if exclusion unlikely to impose)
contractual terms,
express or IMPLIED TERMS:
implied?

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 SALES OF GOODS ACT 1979
Area covered Section Details (always mention bits in bold)

Title 12 (2) Implied term that seller has good title. The seller must pass good title
to the goods:

(a) there is an implied term that the goods are free from an charge or
encumbrance not already known to the buyer.

(b) that the buyer will enjoy quiet possession of the goods

Description 13 Implied term goods correspond to description

Quality 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

Further : Where PURPOSE is an issue – under S.14(2B)(a):

“fitness for all the purposes for which goods of the kind in question are
commonly supplied”

So… if item in question is still satisfactory quality for its common purpose
then there will be no breach of S.14(2)

In Addition:

(2B) the quality of goods remains satisfactory in following cir’s:

(b) appearance and finish,
(c) freedom from minor defects,
(d) safety, and
(e) durability.

(2C) goods remains satisfactory in following cir’s:

(a) specifically drawn to the buyer's attention before the contract is

made,
(b) where the buyer examines the goods before the contract is made,
which that examination ought to reveal,

Fit for 14(3) Where the seller sells goods in the course of a business and the
Purpose 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, 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.

Needs RELIANCE – normally conclude with ‘it would probably be

reasonable for the B to rely on S’… otherwise cannot continue question.

Classification 14(6) says that the terms implied by 14(2) and 14(3) are conditions of the
of 14(2) + (3) contract

Sample 15 Implied term goods correspond to sample. The goods should also be
free from any defect, not obvious by reasonable inspection.

SALES OF GOODS AND SERVICES ACT 1982

Area covered Section Details (always mention bits in bold)

Care and Skill 13 In a contract for the supply of a service where the supplier is acting in
the course of a business, there is an implied term that the supplier will
carry out the service with reasonable care and skill.
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2. Question of fact. Evidential Issue.
Have the terms
above been Does the seller admit the breach?
breached?

3.
What remedy does
the innocent party
want? What
remedies are
available?

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Remedies Details
available
generally

Reject the goods Primary right for breach of contract is to reject goods and repudiate contract of
sale

Breach must be of a condition/go to the root of the contract. Section 14(6)

says that 14(2) and 14(3) are conditions

Section 36 says if goods are rejected then the buyer is not obliged to return
them.

UNLESS :

Section 15A says limits right to reject goods. Right to reject is lost if the sale is
not a consumer sale and the breach is so slight that it is unreasonable for
the buyer to reject the goods. (this only applies to s 13-15 sale of goods act)

Section 35 deals with when the buyer loses his right to reject the goods, i.e.
accepts them or intimates acceptance.

N.B. can lose the right to reject the goods by delay. See Clegg and Jones v
Gallagher cases.

Cannot reject goods for breach of a warranty per section 61 SGA 1979.

Damages The buyer can claim damages for breach of a warranty or for breach of a
condition where he has elected not to reject the goods per section 53.

Calculating damages? Dealt with under principles of Hadley v Baxendale:

DISCUSS THE FOLLOWING BRIEFLY ONLY IF THE QUESTION SAYS

THAT THE CLIENT WANTS DAMAGES / COMPENSATION.

Remoteness – if the loss is too far removed the buyer will not be able to claim:

1. 1st Limb – Direct Loss

 Loss flowing naturally from the breach

 Knowledge assumed / imputed
 Eg.. B cannot use product to produce further products of his own

2. 2nd Limb – Indirect Loss

 Must be within the reasonable contemplation of the parties

 They knew or should have known (actual knowledge)
 Eg.. B tells S of particularly lucrative contract that depends on S’s
supply of goods. Eg a premium that may be paid to get products early

Specific Not always available.

Performance
Section 52 SGA 1979 limits the remedy to claims for breach of contract for a
failure to deliver ‘specific or ascertained goods.’

Further, the remedy is discretionary, ‘if the court thinks fit.’

Rescission The buyer may rescind the contract if a pre-contractual statement has become
a term of the contract or the contract has been performed (Section 1
Misrepresentation Act 1967).

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4. Look at contract. Must form part of the contract
Are there any
relevant exclusion If so, what do they exclude?
clauses trying to
exclude liability If so, are the relevant exclusion clauses properly incorporated into the contract?
incorporation
Methods of incorporation:
OFTEN MISSED
OUT IN EXAM First think if they are part of the contract…

 If offer and acceptance before T+C’s given then the terms are not part of the contract.
 Think in terms of offer / acceptance / counter offer – battle of forms / acceptance by conduct

a. The customer signed the document.

Then, chances are, is incorporated.

b. Did customer have notice of exclusion clause? Take steps before contract is entered into

If yes and notice is sufficient term will be incorporated.

c. Is term incorporated by a regular and consistent course of dealing? If the parties have
contracted on these terms before, then it is more likely that these terms will be binding.

What constitutes regular depends upon facts of case.

Commercial parties >

Equal bargaining power > more likely to be implied
Term customary in trade>

5. Even if the clause is incorporated into the contract, it will only be effective only if it covers the breach,
Construction: Do which actually occurs.
the exclusion
clauses cover the INSERT STRUCTURE FOR STANDARD CONDITIONS???????????????????????
breach?
Then:

The clause must explicitly exclude liability for the breach which actually occurs:

1. Does clause cover the breach specifically?

AND
2. Does it specifically exclude the remedy the Buyer is seeking?

IF unclear:

NB – unclear wording can be fine for quality but not for purpose, purpose must have been
specified expressly.

Excluding liability for negligence needs to be clear and unambiguous. I.e. must really use word
‘negligence,’ seller may resist this though.

Principles of construction used by the courts if words are ambiguous:

a. Contra proferentem

The clause is interpreted against the party seeking to rely in it.

Effect of this is that any ambiguity in the exclusion clause is resolved against the party seeking
to rely on it. Clear and unambiguous words are needed for the exclusion to be effective.

b. Expressio unius…

If not in list, not covered and therefore not effective.

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 c. Ejusdem generis

General words following specific words are limited to type of the specific words.
More relevant for property documents.

6. What does UCTA 1977 do? - Makes certain terms void:

Are exclusion
clauses
‘reasonable’
according to the
Unfair Contract
Terms Act 1977?

1. CHOOSE which UCTA term applies to the breaches that have occurred:

EXPRESS TERMS between parties.. eg delivery date

 Section 3 requires terms limiting/excluding liability for breach of contract to meet the
‘reasonableness’ test if either:
-one party deals on the other’s standard terms S.3(1)

IMPLIED TERMS between parties… eg quality / purpose

 Section 6(3) requires any attempt to limit liability for breach of sections 13- 15 SGA 1979
against a person who does not deal as a consumer meet the requirement of
reasonableness.

 s.2(2) requires clauses excluding liability for negligence meet the requirement for
‘reasonableness.’

2. What is the REASONABLENESS TEST?

 State test found in S.11(1):

‘the term shall have been a fair and reasonable one to be included having regard to the
circumstances which were, or ought reasonably to have been, known to or in the
contemplation of the parties when the contract was made.’

N.B. Onus is on the seller claiming term is reasonable to prove (section 11(5)).

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  The courts apply the guidelines contained in Schedule 2 to the act when assessing whether a
term is reasonable or not.

Schedule 2 guidelines:

CHOOSE IF THEY ARE REASONABLE / UNREASONABLE TO THE PARTY

a) Size of the companies - the strength of the bargaining positions

b) reasonable if buyer accepted an inducement eg discounts, or if he could have entered into

a similar contract without such an exclusion.

c) did customer know/ought reasonably have known of existence and extent of term

d) if term excludes liability if term not complied with, is this condition reasonable?

e) were the goods manufactured or adapted to the special order of the customer?

Watford outlined following factors:

11(4)(a) court should take account of resources available to person seeking to enforce
limitation on his liability

11(4)(b) court should have regard to how far it was open to that person to cover himself with
insurance.

If clause is overall found to be reasonable then it is valid.

Other types of contracts

Contracts of exchange - dealings of business in developing countries.

and barter

Hire purchase - buyer obtains immediate possession of goods in return for making regular payments
- ownership can be obtained by paying the final instalment
- the buyer buys the item from the financial house
- OPTION to buy the goods

Conditional sale - buyer obtains immediate possession and makes regular payments in return
- buyer can obtain ownership by making the final payment
- however, there is no option to purchase (ownership does not pass until the last payment is
made)
- CONTRACTUALLY COMMITED TO PURCHASING the goods

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Hire agreements - only possession passes (not ownership)
- consumer credit act, 1974 regulates this.
- The title does not pass, only the possession of them passes.

Contracts for services - service must be performed with reasonable care and skill
- the service will be performed with reasonable care and skill
- the work will be carried out within a reasonable time

contracts for work and - e.g contract for repair

material - overlap with sale of goods contract

leases of goods - hire of an asset

- the leasor is the owner of the equipment and keeps the ownership
- finance leases- equipment is supplied to one user only who retains possession for the whole
working life. It is possible to extend the lease beyond the time agreed. Leases can be agreed
to include maintenance. There could be a lease of computer systems- the lessee has the right
to use the equipment. The finance company gets the equipment from the supplier (therefore it
can be difficult for the user to enforce against the supplier- can avoid this through- assignment
of rights by finance company to the user; partial motivation- a new contract between the
finance company and the supplied; a direct collateral- contract between the user and the
supplier.
- operating leases- equipment is hired out to the user for a short period and then hired out to
another individual.
Financing the sale of goods

Financing against - e.g car manufacturers- few car owners can afford to buy the stock, therefore, lender tides
stock them over until they have sold the cars on.
- There will be a close connection between the dealer and the lender- the lender may be able to
offer the customer hire purchase.

Security over the - finance house have some control over the legal ownership of the goods.
stock - Dealer would get notification by the lender of the potential sale of the goods

Bailment - the dealer does not buy the goods from the supplier and then finance through the finance
house. Instead the dealer acts through the finance house its self.

Financing against - finance is provided to the retailer by a finance house on the basis of what money is received
receivables by the retailer from its customers
- lending money to a business