Contract Law Essays – XYZ Building Services Ltd

X, the MD of XYZ Building Services Ltd, is considering drafting a standard set of terms and conditions to use in contracts with his customers.

Write a report for him explaining

  • What steps he needs to take to ensure that the standard terms are in fact part of any contract he makes with a customer
  • The extent to which he is free to include any term he wants in his standard terms and
  • The provisions of contract law about termination and breach of contract which he may wish to take into account when drafting his standard terms.

Background:

In order for the customer and XYZ to be bound by standard terms and conditions there should be a set of criterion filled. These conditions should be treated as exclusion clauses as they are the extreme conditions to be enforced. For these standard terms and conditions to be enforced there needs to be a valid contract, which means that four requirements have to be fulfilled. A valid contract must have the following elements; offer; acceptance; consideration; capacity; and intention. These are present in this contract when XYZ offers his work and the customer accepts verbally or in writing. There is also intention because there is an understanding that XYZ will turn up to work on a certain day and the customer will pay a certain fee, which is evidence of consideration as the customer is at a disadvantage.This is a valid contract, however the next area to explore is whether the exclusion clause and standard terms apply because the customer has never worked with XYZ and at the verbal contract point does not indicate what his usual terms and conditions are.

Basic Requirements of Ensuring Enforceable Standard Terms and Conditions:

Under contract law there are only three ways that they can be incorporated which are:

  1. By signature even if they are not read;
  2. By notice where there has to be sufficient notice
  3. By custom where there have been previous dealings between the parties even if the clause is added in later.

In every case XYZ should ensure that there is case is a signature in case there is no indication of previous dealings, hence the customer may not bound by these conditions yet. Therefore one has to consider the case of notice, off hand there is no notice as XYZ fully indicates what these conditions  and the question is whether the average person would have notice, especially as XYZ is an builder and the customer as a business and these could be construed as standard conditions in the business; but this would be easy to prove as notice was given due to XYZ giving these terms and conditions before the contract was agreed and giving a good indication of their nature at this level.

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Unenforceable Standard Terms and Conditions

In every case that a signature is required it gives rise to the opportunity where the terms were fully expressed but under contract law there could be one problem with the contract if the customer has received the contract in their hands and failed to read it the case of Alderslade v Hendon Laundry Ltd if the exclusion clause can only be construed in negligence and in certain circumstances then it is applicable and as The customer received the usual terms and conditions before XYZ started the work, i.e. they had a chance to end the contract then they are bound by them. However, the case of White v John Warwick & Co has held that liability for negligence will not normally be excluded. Therefore it is still very confusing whether XYZ is excluded from the damages that the customer is seeking, therefore the statutory provisions of the UCTA and Sale and Supply of Services Act 1982 (SGSA).

Is XYZ is liable for the damages that a customer may ask for? In response there is little evidence in whether the exclusion clauses should be supported or not. Under UCTA Section 2 it holds that negligence cannot be excluded in respect to personal and/or death bat all. In relation to other loss/damage liability cannot be excluded unless there is reasonable notice. Section 11 holds that the reasonable test is that the term is fair and reasonable and whether the individual should have reasonably known or in contemplation of when the contract was made. This is similar to the case law discussion; however it is written from the point that negligence can not be excluded except in strict circumstances. There was no real notice in this case, especially when the verbal contract was made. Therefore it is very likely that this clause will not be upheld as the case of Andrews Bros (Bournemouth) Ltd v Singer and Co Ltd holds that exclusion clauses against the party seeking to rely on them. Yet in relation to the damages to the customer it has to be determined if there is remoteness of damage, whereby monetary compensation can be claimed for a failure to perform a primary obligation as this is a breach and/or the loss for any breach of a secondary obligation. In respect to the negligence that has caused personal injury to persons the law states that this cannot be excluded under Section 1(2) of the UCTA, therefore it has been shown that the customer may claim for this.

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Reasonableness Test, Breach and Questionable Standard Terms and Conditions

Again we must turn to whether there is reasonable notice to exclude liability and under the SGSA Section 16 where restricting liability for breach of implied terms arising from Sections 13-15 is subject to the reasonable test and provisions of the UCTA, where the reasonableness test is based upon the common law officious bystander test that is defined in Sir Law v Southern Foundries Ltd which is a stricter test for exclusion clauses where it has to be so reasonable and that the notice is sufficient that the officious bystander would agree to its terms. This basically holds that there are implied terms such as a reasonable quality of goods and services and that it should be completed in a reasonable quality and should be usable. This means that the exclusion of liability for faulty equipment and liability for faulty work cannot be excluded. This means that these two exclusion clauses cannot be upheld. In respect to the negligent completion of work i.e. was there reasonable excuse for the negligence. Yet it was an express term of the contract and without reasonable excuse this exclusion clause it is possibly not going to be upheld, this is rule from an early common law principle. Yet there is the question whether this is reasonable exclusion for the trade. 

However, as in the case of Edmund Murray Ltd v BSP International Foundations Ltd it was held that it was not fair and reasonable for the party in breach to rely on an exclusion clause for failing to meet the specifications of the other party. Therefore this again will be subject to the reasonableness test where the test applied to the whole term and to the particular reliance on it. Therefore if it is a specific term of the contract to be finished by the certain date and made clear by The customer and XYZ did this as it was then it is very likely it can be excluded because it is a trade standard. Finally, if one considers the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) if the term does not create an unfair balance in detriment to the consumer it can be upheld. Yet as this does create an unfair balance and puts the customer at a loss then they will be protected from the exclusion clause as a consumer, even though she is acting for her business. However are the circumstances of this variation sufficient enough for the customer to claim? If the swimming pool was properly marked the work would have been finished within the time period would variation to the contract be acceptable? Therefore is there a reasonable excuse for the variation and did both the customer and XYZ have equal bargaining power? The first question to ask is whether the circumstances that lead to the variation of the contract would have frustrated the contract, if the variation is perfectly acceptable as long as the customer was not put under duress to accept the new terms.

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Bibliography
  • J. Beatson (1998) Anson’s Law of Contract 27th Edition, Oxford University Press
  • Buyer (The), 2002, Aspects of Frustration, Buyer 24(12)
  • Groves,  2004, Force Majeure,  Bus Ad 2.10 (2)
  • David Kelly, Ann Holmes & Ruth Hayward (2002) Business Law 4th Edition, Cavendish
  • Lunney & Oliphant, 2000, Tort Law: Text & Materials, Oxford Uni Press
  • Ewan McIntyre, (2004) Business Law, Longman
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