Contract Law Essay

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Contract Law Essay


The case, as set out, concerns two companies, Smart Co (hereinafter S Co) and Bright Co (hereinafter B Co). S Co needs to be advised as to whether it can claim compensation under the breach of the contract, which can exceed the 50£ limitation, which limitation is included in the contract under a clause. In simple words the validity and therefore the effectiveness of the limitation clause is to be considered under the Unfair Contract Terms Act 1977 . For the purposes of the examination of the effectiveness of the contractual clause in this case, the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) is deemed unsuitable. This is made clear under section 3(1) of the UTCCR : “3 Interpretation

(1)In these Regulations-
“consumer” means any natural person who, in contracts covered by these Regulations, is acting for purposes which are outside his trade, business or profession;…” Given that S Co buys computer for the private and business use of one of its directors, it acts for purposes, which are within its business, it is obvious that UTCCR cannot apply to this case.

Furthermore this examination requires the consideration of three key issues, which are as follows: 1) the incorporation of the clause into the contract, 2) its scope of effectiveness over the breach of terms in this case, in McKendrick’s words whether “the exclusion clause, as a matter of construction, is effective to exclude liability for the loss that the claimant [here S Co] has suffered” . 3)third issue weather the contract could be considered as a breach of warranty, or breach in Sale of goods act 1979 of satisfactory good. Main Part

As far as the incorporation of the clause is concerned, the facts of the case along with principals on incorporation can provide useful information. It appears that, “S Co has made a number of similar computer purchases from B Co in the past”. In addition, B Co normally asks its customers to sign its “standard terms” containing the clause of limited liability.

On the basis of the principal that “a term may be incorporated into a contract as a result of a course of dealing between the parties or as a result of the custom of the trade in which the parties work” it can be argued that in this case the terms of the contract are undeniably incorporated. S Co had made a number of similar purchases from B Co in the past.

Two cases as dealt by the courts can also serve as an affirmation of this principle. The first is the case of Spurling Ltd v Bradshaw , in which L. J. Denning concluded in his judgement that “by the course of business and conduct of the parties, these conditions were part of the contract” .Furthermore, in the case of Henry Kendall & Sons v William Lillico & Sons Ltd “there had been three or four contracts a month between two of the parties” . Thus, the Court of Appeal decided that, on the grounds of the “regularity” of the dealing between the two parties, the exemption clause was valid and effective by consistency of dealing. Consequently, the exemption clause in the case of S Co and B Co falls within the principle of incorporation of a term by course of dealing. The case law referred to above indicates that the courts do not ignore the regularity of the dealing between the two parties, which regularity is present in this case of S Co and B Co. We must now consider the second issue in relation to the exemption clause of this contract between S Co and B Co, namely the construction of the clause and whether it covers the breach of the terms implied by Sale of goods Act 1979(hereinafter SOGA).

According to SOGA
14.Implied terms about quality or fitness:
(2B) For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods— (a)fitness for all the purposes for which goods of the kind in question are commonly...
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