Contract LAW

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THE GUILD OF ARCHITECTURAL IRONMONGERS
Technical Manual
COMMERCIAL & CONTRACT LAW
SECTION 1 2 3 4 5 6 7 8 9
CONTENTS What is a contract Who are the parties to the contract? Elements of a contract What is in a contract? What can go wrong? How does a contract come to an end? The contract and trading terms Issues affecting trading terms More legislation
PAGE 4 5 6 10 12 13 17 22 32
Telephone: 020 7790 3431 www.gai.org.uk
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WHAT IS A CONTRACT?
WHO ARE THE PARTIES TO THE CONTRACT? 2.1 Sole Trader 2.2 Partnership 2.3 Limited Company
ELEMENTS OF A CONTRACT 3.1 Intention to Create a Legal Obligation 3.2 Valuable Consideration 3.3 Offer 3.4 Acceptance 3.5 Communication of Offers and Acceptances
WHAT 4.1 4.2 4.3 4.4
IS IN A CONTRACT? Conditions and Warranties Express Terms Implied Terms Terms and Representations
WHAT 5.1 5.2 5.3
CAN GO WRONG? Voidable Void Unenforceable
HOW DOES A CONTRACT COME TO AN END? 6.1 Discharge by Performance 6.2 Discharge by Agreement 6.3 Discharge by Frustration 6.4 Discharge by Breach 6.5 Damages for Breach of Contract
THE CONTRACT AND TRADING TERMS 7.1 How to make your trading terms apply 7.1.1 Global Agreement 7.1.2 Incorporation by Notice 7.1.3 Implied Agreements 7.1.4 Specific Agreements
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ISSUES AFFECTING TRADING TERMS 8.1 Sale of Goods Legislation 8.1.1 The Legislation 8.1.2 Implied Terms 8.1.3 Retention of Title 8.1.4 Acceptance and Rejection 8.1.5 Right of Rejection 8.2 Exclusion Clauses 8.2.1 Consumers 8.2.2 Limit of Exclusion Clauses 8.2.3 Reasonableness Test 8.2.4 Unfair Terms in Consumer Contracts 8.3 Supply of Goods and Services Act 1982 8.4 Statutory Right to Interest
MORE 9.1 9.1.1 9.1.2 9.1.3 9.1.4 9.2 9.3 9.4
LEGISLATION Consumer Protection Act 1987 Scope of Act Liability for Defective Products Consumer Safety Regulations Price Marking Trade Descriptions Act 1968 Sale and Supply of Goods to Consumers Regulations 2002 Distance Selling Regulations
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1.0
WHAT IS A CONTRACT?
A legally binding agreement between two or more parties. When a customer buys something from your company, he is making a contract. In other words an agreement has been made that your company will supply the goods and the customer will pay the price. If either party fails to honour his obligations then it is said that there has been a breach of contract, and the party who has suffered as a result can claim damages for the breach. So if the goods were defective, the supplier is in breach of contract and may be sued for any damages that have resulted. If the customer fails to pay for satisfactory goods, then he will be in breach of contract and can be sued for the money owing. Very few contracts have to be in writing to be legally enforceable. An agreement for the sale of goods can be reached orally or even by conduct, e.g. by a buyer picking up some goods in a shop, taking them to the cash desk and paying for them. Some people insist on written orders to avoid misunderstandings.
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2.0
WHO ARE THE PARTIES TO THE CONTRACT? KNOW YOUR CUSTOMER
2.1
Sole Trader An individual who: has the right to make all decisions affecting the business is personally responsible for the debts and obligations of the business without limit
2.2 Partnership Two or more persons who: share the right to make decisions affecting the business individually and together are responsible for debts and obligations of the business without limit joint & several liability. This means that either one or both/all of the partners can be pursued for the whole debt. If one partner pays more than his share he can recover the excess from the other partners. 2.3 Limited Company A legal person which owns and operates the business decision making is divided between: Directors: day to day business including contracts for sales and purchases the owners (or members) of the Company make constitutional decisions such as name changes, appointing and dismissing directors.
Shareholders:
company alone is responsible for debts and obligations of the business shareholders liability is limited to the price they have agreed to pay for their shares e.g. 100 x 1 shares = 100 limited liability
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3.0 3.1
ELEMENTS OF A CONTRACT Intention to create a legal obligation In business it is normal for there to be an intention to create a legal obligation, and if one party wished to establish that this was not the case he would need to have very clear proof. An example often seen in housing buying transactions is correspondence marked Subject to Contract. A domestic arrangement such as agreeing to meet for a game of darts at the local would not be construed as a contract, as there would be no intention by the parties to create a legally enforceable obligation.
3.2
Consideration Each Party to a contract must give consideration. In a contract of sale the consideration of the supplier is the promise to deliver the goods, and the consideration of the customer is the promise to pay the price. The law is not concerned as to whether the consideration is adequate, only whether it exists. Insolvent companies are sometimes sold for 1. The payment of 1 is the consideration of the buyer.
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3.3
Offer A promise to be bound to terms if the other party accepts Once an offer is accepted there is a binding contract. When a builder goes to an architectural ironmonger to buy a door closer, it is the builder who makes the offer. When the architectural ironmonger agrees to supply the goods, then he is accepting the offer and a contract is made. An offer should not be confused with an invitation to treat which is merely an indication that a person is willing to consider offers. What is an offer and what is an invitation to treat will depend on the circumstances. The following are examples of invitations to treat (not capable of acceptance to form a contract) display of goods for sale advertisements circular, catalogues and price lists Invitations to Tender are usually Invitations to Treat, not an offer to contract with the party submitting the most favourable tender. But this will depend on the circumstances: if a request for a tender is made to specified parties and it is stated that the contract will be awarded to the lowest or highest bidder it will be an offer. Architectural Ironmongers need to consider whether their quotations are to be offers capable of acceptance to form a binding contract or invitations to treat indicating that they are willing to consider an offer. To avoid any confusion the status of quotations and tenders can be defined in Sale Terms.
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3.4
Acceptance A final and unqualified agreement to all terms of the offer A party to whom an offer has been made can form a contract by accepting the offer providing all the following conditions are met: The offer has not been withdrawn or revoked The person to whom the offer was made has not already rejected the offer or made a counteroffer The offer is accepted within a reasonable time (otherwise it will be deemed to have lapsed) The acceptance is by the method laid down in the offer or was a reasonable method of acceptance An acceptance may be oral, written or by conduct but it must be in exactly the same terms as the offer: a mirror image. A response seeking to vary any of the terms is a counter-offer not an acceptance. Once a counteroffer is made the original offer is finished and can no longer be accepted. Example - Ronnie offers to sell his car to Gary for 500, Gary says he will pay 500 but only 300 now and the balance by instalments. Gary has made a counteroffer which Ronnie can either accept or reject. If Ronnie rejects the counter-offer Gary cant go back and accept the original offer.
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3.5
Communication of Offers and Acceptances Usually an offer or acceptance must be received/heard to be effective: in writing, by fax, telephone or in person. An exception is the postal rule: When a contract is made by post the acceptance is complete as soon as the letter is put into the post box, and that is the place where the contract is made So if it is reasonable to reply to an offer by post there will be a binding contract as soon as the letter is properly stamped addressed and posted - even if it never arrives. To avoid the postal rule use words such as this offer must be accepted by notice in writing. The Postal Rule applies to acceptances only, not offers or the withdrawal of offers. Contracts are frequently made over the internet or by email and the communication will be received when the person to whom it is addressed is able to access it. It is common for acceptance to occur by conduct. Example - If a builder places a written purchase order for goods with an Architectural Ironmonger and there is no further communication between the parties the Architectural Ironmonger will accept the builder's offer to buy the goods when he communicates he is doing so by his conduct - usually when the goods are delivered.
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4.0 4.1
WHAT IS IN A CONTRACT? The TERMS of a Contract are divided into: Conditions vitally important to the contract. If breached (broken) the innocent party can terminate (break off) the contract and claim damages of secondary importance. If a warranty is breached the innocent party can claim damages but cannot break off the contract.
Warranties
4.2
Express Terms The issues specifically agreed by the parties in a contract for the sale of goods. These are likely to be the goods, price, quantity, delivery dates.
4.3
Implied Terms Even if the parties do not expressly mention a term it may be implied into the contract by: Custom trade practice or custom This is the way it's done in the trade, everyone knows that Common Law the Courts will imply a term into the contract if it's obvious and necessary its so obvious it goes without saying If you rent a room at the top of a house, it goes without saying that you can walk through the house to reach it. Statute the Sale of Goods Act 1979 and many others (see section 8.1 for details).
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4.4 Terms and Representations Statements made by the parties in the negotiations leading up to a contract may be either: Terms (if broken the innocent party can claim breach of contract) or Representations. A misrepresentation is an untrue statement which wholly or partly induces or persuades somebody to enter into a contract. The untrue statement can affect the contract providing: It was made by the other party to the contract or his agent; and It was a statement of material fact (i.e. not an opinion); and It was relied upon; and It caused a loss to the party relying on it. There are three kinds of misrepresentation: A fraudulent misrepresentation is a false representation of a material fact made knowing it to be false A negligent misrepresentation is a false statement made by a person who had no reasonable grounds for believing the statement to be true An innocent misrepresentation is a false statement made by a person who had reasonable grounds for believing that the statement was true, both when the statement was made and also at the time the contract was entered into. The remedy for an innocent misrepresentation is to apply to the court for a rescission of the contract, but at its discretion the court may award damages instead. In the case of negligent or fraudulent misrepresentations it is possible to seek both rescission and damages. If rescission is granted, the parties to the contract are to be restored to their pre-contract positions, i.e. it is as if the contract never existed. Goods purchased would be returned to the supplier and any money paid refunded to the buyer.
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5.0
WHAT CAN GO WRONG? A Contract may be:
5.1
VOIDABLE: a valid contract which can be avoided/set aside in certain circumstances by a party who has been at a disadvantage. Example: a party who enters a contract under duress (e.g. by being threatened with violence) or under undue influence (where one party dominates the other) or has been induced to enter into to contract by a misrepresentation
5.2
VOID: A contract which is of no legal effect. Examples: - a contract to commit a crime - a bet/wager or gaming contract - anti-competitive contracts: market sharing or price fixing.
5.3
UNENFORCEABLE: A contract that cannot be enforced because of a lack of certain formalities Examples: - a guarantee, which may be given by a Director to meet the debt of his company to the supplier, must be in writing and signed by the guarantor. - contracts for the sale of land and buildings must be in writing in the form of a Deed.
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6.0
HOW DOES A CONTRACT COME TO AN END?
Discharge of contract 6.1 Discharge by performance Most contracts are discharged by performance, where both parties carry out their side of the agreement. 6.2 Discharge by agreement If no part of a contract has been performed and the two parties agree to cancel the contract, this is called a waiver. If the contract has been partly performed and it is agreed that the contract be called off, then the party who has partly carried out his obligation must be paid for what he has done. The contract is said to be discharged by accord and satisfaction. If the two parties agree that a contract shall be replaced by another contract, then the original contract is said to be discharged by novation. 6.3 Discharge by frustration When something happens so that a contract becomes impossible to perform (although it was possible when the agreement was made), then the contract is discharged by frustration. Example - If there was a contract for the hire of a special vehicle and it was destroyed due to an accident, the hire contract would be discharged by frustration. Example - An employment contract may be frustrated by death or prolonged illness of the employee. Example - If the law changes so that performance of a contract becomes unlawful then it is discharged by frustration.
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6.4
Discharge by breach of contract A breach of contract may be:
Actual: one party fails to perform his part of the contract as agreed; or Anticipatory: one party makes clear by words or actions that he does not intend to perform his part of the contract. This is a repudiation and the innocent party must decide whether to accept the repudiation or wait until the time for performance. Whenever there is a breach of a contract for the supply of goods it is usually a breach of a warranty and the innocent party will normally be entitled to claim appropriate damages. In some cases, if the breach is sufficiently serious (breach of a condition) the innocent party in addition to claiming damages may terminate the contract and be entitled to regard himself as freed from his obligations. Example - If the delivery date is said to be of the essence of the contract the parties have made it clear it is an important term regarding a condition. If the goods are delivered late the purchaser can claim damages for late delivery and refuse to accept the goods.
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6.5
Damages for breach of contract The aim of damages is to put the injured party in the same financial position he would have been in if no breach had occurred. But not all loss is recoverable. The Rules concerning damages are: The innocent party must mitigate his loss - take reasonable steps to minimise the loss, Example - If the purchaser refuses to accept the goods the supplier must try and sell them elsewhere and can only claim as damages the price difference. The loss must be something which is a natural consequence of the breach: normal or direct loss, Note - The party in the wrong would know in the ordinary course that the innocent party would suffer this loss as a result of the breach. If there is indirect, special, abnormal or unusual loss the innocent party can only recover these special damages if they were something both parties contemplated at the time of the contract. Example: A boiler was delivered 22 weeks late. The Claimants could only recover their regular profits and not the profits from a highly lucrative contract because the defendant did not know of it. Note - If a particular type of loss is contemplated it is irrelevant if the amount of loss is much greater than the parties thought.
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Penalties and Liquidated Damages Where the amount of compensation is left to be assessed by the Court, damages are called unliquidated damages. Sometimes, the parties agree in advance on the amount of damage payable in the event of a breach. Such an amount is called liquidated damages, and in any action for breach of contract where liquidated damages have been agreed, the Court will award this sum unless it has been fixed in such a way as to offend the rules against penalties. Liquidated damages must be a genuine pre-estimate of the amount of loss which the breach of contract may cause. The Court will not award a larger sum, even though a greater loss has occurred. A penalty, on the other hand, is a sum fixed at random to intimidate or penalise. If a sum is held to be a penalty, the Court will not award it, but may award damages which is considered appropriate. Quantum Meruit: As much as he deserves This is a claim for reasonable remuneration as opposed to a claim for compensation for loss (i.e. damages). The party in breach will be ordered by the Court to pay to the other party a fair sum representing the value of the work carried out or the goods supplied. It arises when a contract has been partially completed and the innocent party cannot finish it because of the other partys breach, or the partial performance is accepted.
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7.0
THE CONTRACT AND TRADING TERMS Architectural Ironmongers will have their own standard terms on which they will want to trade. These may be Standard Sale Terms for use with customers or Standard Purchase Terms for use with suppliers. Standard Terms are useful as they provide the Architectural Ironmonger with: A Fast Track to making a contract. Each clause does not have to be negotiated each time. Consistency - The Architectural Ironmonger knows the terms of each contract Protection - The Architectural Ironmonger can use Standard Terms to change or limit so far as possible terms implied into each transaction by statute and provide protection from claims. A basis for Negotiation. Not all Trading Terms are strictly enforced every time but they can provide a useful base for negotiating settlements.
7.1
How to make your trading terms apply Methods of Incorporation Trading Terms whether sale or purchase will only apply to a transaction if they have been incorporated into the Contract. As an example, it is a common misconception that the endorsement of Sale Terms on invoices alone is sufficient to incorporate those Sale Terms into contracts. This is wrong, invoices are usually post contractual documents. To be incorporated the terms must be included in the offer and accepted by the Customer or Supplier.
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7.1.1
Global Agreement The Customer acknowledges in writing, for example on the credit application form, that all trade will be subject to the Architectural Ironmongers Trading Terms. We agree that all future trade with you will be on your Trading Terms a copy of which we have received. .......................................................................... Director/Company Secretary/Partner/Proprietor NB if this method of incorporation is used, ensure that your customers are sent copies of your Terms as they are updated.
7.1.2
Incorporation by Notice Even if there is no paperwork between the parties prior to the contract it is possible to incorporate Trading Terms by giving the Customer sufficient notice of the Trading Terms before or at the time of the contract. Trading Terms can be publicised on catalogues, price lists and displayed at points of sale. Whether or not the Trading Terms have been incorporated will depend on each circumstance. The legal precedents are known as the Ticket Cases. The Document must be seen to be a Contractual Document Examples - A ticket for the hire of deck chairs showing 3d on the front and exclusion clauses on the back was not on the face of it a contractual document. - Instructions on a cheque book were not a contractual document Reasonable Notice of the Term must be given Examples - A rail ticket stating see back was reasonable notice of terms on the reverse even though the passenger had not read them. - Notice can be reasonable even if it refers to Conditions in another document. A rail ticket referred to Conditions in the Station Masters office or on the timetable. The ticket cost 25p and the timetable 5p. - Reasonable notice not Actual notice - an objective test. It is irrelevant if the party is blind, illiterate or does not read the terms.
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Notice must be given before or at the time of the contract
Examples - At the car park the contract was made when the coin was inserted in the ticket machine. The ticket was issued afterwards and it referred to conditions displayed inside the car park visible only after entry. - The contract for a stay at a hotel is made at the time of booking. Notice excluding liability for lost/stolen property in the bedroom was too late. Attention must be drawn to any unusual clause Examples - On a car park ticket it was acceptable to exclude liability for damage to the car but not personal injury without special notice. - A retention charge ten times higher than normal required special notice. It is good practice to print Terms on the reverse of all documents, invoices and statements as well as quotations and acknowledgments of order. If it is not possible to print the terms in full or if transactions are often conducted by facsimile or e-mail always refer to the Terms: All trade is subject to our Trading Terms copies available on request.
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7.1.3
Implied Agreements Course of Dealing
There is evidence to show that in numerous prior transactions the parties traded on the Terms. Even if there is no global agreement or specific evidence that the purchaser has prior notice of the Terms in this contract it is reasonable to imply because of a course of dealing that the parties intended the contract to include those Terms. Examples - If the guests had stayed at the hotel many times before the exclusion clause may have been incorporated. - Bradshaw deposited orange juice in Spurlings warehouse. On the occasion in question the contractual document was not sent until several days after the contract. The Terms were incorporated because the parties had always done business on this basis. Transactions must be sufficiently numerous. The dealings must be consistent - no deviation from the transaction in question. Manifest Knowledge Even though there have been no previous dealings between the parties the Terms are sufficiently familiar in that trade for there to be an implied agreement that the contract included the Terms. Example - In the hire industry the Contractors Plant Association terms for plant and Hire Association of Europe terms for small tools are generally accepted to apply to hire contracts: The terms were reasonable and well known in the trade.
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7.1.4
Specific Agreements If there is no Global Agreement or conflicting evidence as to whether the parties intended a Global Agreement to apply, each transaction will be analysed individually. Very often there is a series of communications between the Architectural Ironmonger and the Customer with each attempting to incorporate its own Terms of sale and purchase respectively. The answer as to when the contract was made and whose Terms apply depends upon an analysis of the transaction to determine at what point an offer was unconditionally accepted. This is known as the battle of the forms and the general rule of thumb is that : The contract includes the Terms which last passed between the parties before delivery. TAKE CARE: This is a rule of thumb only it does not apply if there is a Global Agreement and may not apply if the transaction includes telephone conversations.
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8.0 8.1
ISSUES AFFECTING TRADING TERMS Sale of Goods Legislation The Legislation is: The Sale of Goods Act 1979, The Sale and Supply of Goods Act 1994 and The Supply of Goods and Services Act 1982 This Legislation sets out the general principles of the law of sale of goods and supply of services. They state a number of terms which are implied into all contracts for the sale of goods and supply of services unless the parties make an agreement to the contrary. The right to agree otherwise is regulated by UCTA. (see 8.2.4)
8.1.1
8.1.2
Implied Terms a warranty of TITLE the seller must have the right to sell the goods a term that the goods will correspond to their DESCRIPTION When a customer buys goods and relies on the description given to them, they must be as described. Example - If the customer buys a pair of hinges described on the box as solid brass, and it turns out they are only brass plated, he is entitled to return the goods and get his money back. (He may agree to accept a solid brass replacement, but he is not obliged to do so). Even if the customer selects goods himself - as may be the case in a self-selection department - if he relies on a description, such as the label on the box, the goods must be as described. Sale by Sample A term that where goods are sold by sample; the bulk of the goods must correspond to the SAMPLE.
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a term that the goods are of SATISFACTORY QUALITY.
goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all other relevant circumstances. The quality will be determined taking into account their: state and condition; fitness for all the purposes for which goods of that kind are commonly supplied; appearance and finish; freedom from minor defects; safety; durability. This definition of quality applies to all contracts of sale unless the implied term is excluded in trade sales. The seller is not liable if he draws specific attention to the defects or if the customer actually inspects the goods supplied and the inspection ought to have revealed the defects. a term that goods supplied shall be reasonably FIT FOR THE PURPOSE for which they are required. Goods may be of satisfactory quality but may not do the job for which they were purchased. Example - If a Customer asked an Architectural Ironmonger to recommend the type of hinge to use to hang a 60 minute fire door. The Architectural Ironmonger will be liable if the Customer: makes known the purpose for which the goods are bought - this may be by implication reasonably relies on skill and judgment of the Architectural Ironmonger.
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8.1.3 Retention of Title The Act says that the title (i.e. legal ownership, also known as property) to the goods shall pass to the customer as agreed in the contract of sale and that the parties may agree that title will only pass when conditions are satisfied. This is the basis of a Retention of Title clause. The title to the goods remains with the seller until payment is made even if the goods are delivered (transfer of possession as distinct from transfer of title/property) to the customer. Goods remain the property of the seller until the buyer pays all sums owed to the seller. The retention of title clause provides the seller with some security when goods are sold on credit. Because the parties can agree their own terms, retention of title clauses can be enforced whenever the contract specifies. This is often in insolvency circumstances but need not be limited to this. To prove a retention of title claim a seller must show: a valid retention of title clause the clause is incorporated in the contract a debt the goods claimed were supplied by the seller the goods have not been sold to a third party in good faith without knowledge of the retention of title clause the goods have not been fixed to land or buildings Some contracts that are in use within the construction industry state that the title will pass to the employer or site owner as soon as the goods arrive on site. An all monies clause in a retention of title clause will provide that title to the goods only passes once the customer has paid all sums owing to the seller, even those relating to previous transactions or another instalment in the same transaction. If an all monies retention of title clause is in the contract it is NOT necessary to identify goods supplied against unpaid invoices. Otherwise, the seller can only reclaim those goods not paid for, which would be difficult if the seller is providing small items in bulk or in instalments. A retention of title clause is always accompanied by a clause stating that the risk in the goods passes to the customer on delivery. This overrides a provision in the Sale of Goods Act 1979 which states that unless the parties agree otherwise the risk in the goods will pass when the property passes. 24
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8.1.4 Acceptance and Rejection The Sale of Goods Act 1979 contains many rules governing the parties rights and gives the buyer specific rights to reject the goods and the whole contract if: the supplier delivers the wrong quantity of goods; the contract goods are mixed with goods of another description; goods are delivered by instalments and this was not agreed in the contract; goods did not comply with a sample or description; goods were not of satisfactory quality; or goods were not fit for their purpose. The right to reject is in addition to the right to claim damages for breach of contract. If the buyer chooses to accept the quantity of goods that are not in accordance with the contract, he must pay for these at the contract rate. Acceptance is a key concept in the law relating to the sale of goods. Acceptance prevents the buyer from rejecting the goods (i.e. sending them back to the supplier and asking for his money back) but it does not stop a claim for damages for a breach of contract. For a buyer to have accepted the goods he must be given reasonable opportunity to examine them to ensure they: conform with the contract conform with any sample The buyer is deemed to have accepted the goods if: he tells the seller he has accepted them, or after delivery he acts inconsistently with the seller's ownership (e.g. he sells them on to a third party), or he retains the goods beyond a reasonable time The Sale of Goods Act 1979 goes on to say that the right of rejection for trade customers (non-consumers) is not available if the breach is so slight that it would be unreasonable to reject.
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For trade customers (non-consumers) it is possible to amend these rules by agreement and accordingly it is common to find in a set of Sale Terms provisions relating to trade customers such as: the buyer must inspect the goods at the time of delivery and notify the supplier within [a reasonable period of time] of any variation in quality failure to conform with the contract failure to conform with a sample other defect that is apparent on inspection failing which the buyer is deemed to have accepted the goods as delivered in accordance with the delivery documents. The buyer still has a claim for damages if there is something wrong with the goods or they do not conform with the contract but unless he complies with the actual notice provisions he cannot reject the goods. 8.2 Exclusion Clauses Parties to a contract can try to limit or exclude their liability by including an exclusion clause. Examples - In a car park: cars parked at owners risk In a shop: no refunds or exchanges In trading terms: our liability will not exceed the price of the goods. The Sale of Goods Act 1979 acknowledges the right of the parties to reach their own agreement and many of the implied terms (satisfactory quality, fitness for purpose, compliance with sample and description) can be excluded if the parties agree otherwise. Exclusion clauses can be unfair particularly if the bargaining power between the parties differ. The right to exclude liability is governed by the Unfair Contract Terms Act 1977 which for convenience is called UCTA. UCTA draws a distinction between trade customers and consumers.
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8.2.1
Consumers UCTA has its own definition of a consumer
Individual/Partnership/Limited Company who does not buy in the course of business, and the goods are of a type ordinarily supplied for private use, and seller sells goods in the course of business, and goods not bought at auction or by competitive tender 8.2.2 Limit of Exclusion Clauses All Contracts: It is not possible to exclude or restrict liability for: death or personal injury caused by negligence; breach of the statutory implied term as to title; Consumer Contracts: It is not possible to exclude or restrict liability for breaches of the statutory implied terms that the goods will: Comply with a description Comply with a sample Be of satisfactory quality Be fit for their purpose
Trade Contracts: loss (other than personal injury, death or breach of warranty as to title) can be excluded or limited but only if the exclusion or limitation passes the reasonableness test.
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8.2.3
The Reasonableness Test What is reasonable depends on the circumstances. Each case is looked at on its own merits taking into account the parties' position at the time the contract was made. UCTA contains a non-exhaustive list of guide-lines to determine reasonableness: bargaining strength of the parties (including alternatives open to customer); any inducement given to the customer; whether the customer could enter into a similar contract with other persons without the disputed clause; whether the customer knew (or ought to have known) of the existence of the clause; reasonableness of any conditions; whether the goods were manufactured, processed or adapted to the special order of the customer. If liability is stated to be limited to a specific sum of money the requirement of reasonableness will have specific regard to: the resources available to the seller to meet the liability should it arise; and the availability of insurance to the seller to cover that liability.
8.2.4
Unfair Terms in Consumer Contracts Consumer protection was extended by the Unfair Terms in Consumer Contracts Regulations 1999 which came into force on 1 October 1999 and revoked the 1994 regulations of the same title. These Regulations run in parallel with and at times overlap the provisions of UCTA. For the purposes of the Regulations a consumer is a natural person (not a company or a partnership as in UCTA) who is acting for purposes which were outside his or her trade, business or profession when making the relevant contract. The Regulations cover standard form contracts which have not been individually negotiated and accordingly Standard Trading Terms will be covered if the customer is a consumer.
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The Regulations demand that the standard terms are fair. Any term will be unfair if contrary to the requirement of good faith it causes a significant imbalance in the parties rights and obligations under the contract to the detriment of the consumer. Language which is not plain and intelligible is enough to tip the balance. Any ambiguity in the language of the term will be construed in favour of the consumer. It is up to the consumer to prove that the term is unfair. The schedule to the Regulations gives some illustrations as to what may be considered to be unfair in any given circumstances - for instance: a term which allows the forfeiture of a customers deposit unless there is a corresponding right for a customer to be paid an equivalent sum if the supplier terminates the contract. a term providing for the price of goods to be determined at the time of delivery or allowing the supplier to increase the price unless the customer is given the corresponding right to cancel the contract if the final price is deemed to be too high in relation to that agreed when the goods were ordered. a term obliging the customer to fulfil all his obligations even though the supplier does not perform his. For example, reserving the right to deliver late or not to deliver if there is a shortage of goods but still requiring the customer to accept delivery. a term reserving to the supplier the right to determine whether goods supplied are in accordance with the contract. The Regulations provide that if a term of the contract is unfair it is not binding on the consumer although the remainder of the contract can continue without the unfair term. A similar result occurs with unreasonable exclusion clauses under UCTA, however the Regulations go further. If a complaint is made to the Director General of the Office of Fair Trading he has the power to take the offending supplier to Court and obtain an injunction to prevent the continued use of that term.
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8.3
Supply of Goods and Services Act 1982 Some contracts under which goods are supplied are not covered by the Sale of Goods Act 1979, because they are contracts for the supply of services only or for work and materials. They are nevertheless covered by this Act. The main kinds of contracts affected are contracts where some goods are supplied but the provision of services forms an important part of the contract. (e.g. supply and fix, or repair). Goods supplied When goods are supplied as part of a repair or supply and fix contract, there are implied terms of satisfactory quality, fitness for purpose, compliance with sample and description. Services Where one party acting in the course of business has agreed to carry out any service, there are implied terms that: The work will be carried out with reasonable care and skill; and The work will be carried out within a reasonable time; and Where the price is not agreed in the contract and no method of fixing it has been agreed, the price must be a reasonable one. Two types of service are excluded from these terms. They are the services of an advocate and the services rendered to a company as a company director.
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8.4
The Statutory Right To Interest Late Payment of Commercial Debts (Interest) Act 1998 The Act Implies a term into every business to business (commercial) contract for the sale of goods or supply of services that interest and compensation will be paid on late payment. The aim of the Act is to deter late payment and the interest rate is Bank of England Official Dealing Rate (base rate) plus 8%. Interest will run from the day after the agreed date for payment or if there is no agreement from the day after the expiry of the statutory default period. The Default Period is the later of 30 days from : performance - supply of the goods or services; or the day when the purchaser has notice of the amount of the debt. The notice of the debt need not be in writing - it could be a telephone call. The Act also enables the creditor to recover compensation for late payment on a fixed scale: Up to 999.99 1,000 - 9,999.99 10,000 or more 40 70 100
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9.0 9.1
MORE LEGISLATION Consumer Protection Act 1987 Scope of the Act The Consumer Protection Act 1987 is concerned with: 1. Strict liability for defective products so that anyone injured by a defective product will be able to claim compensation from the producer without the need to prove negligence. 2. Consumer safety regulations which make it a criminal offence to supply specified goods that do not comply with regulations made about them. 3. Price marking and control of misleading prices. All goods and materials are covered by the Act, with the exception of unprocessed agricultural produce. The Act is only concerned with rights against those supplying in the course of business, and does not affect rights available under the laws of contract or the Sale of Goods Act.
9.1.1
9.1.2
Liability for defective products The Act makes the manufacturer of a faulty item which causes injury, death or property damage strictly liable (ie, he does not have to have been negligent). If the goods are manufactured outside the EEC, then it is the importer who assumes this liability. Some suppliers of ironmongery sell own brand products which bear their name instead of the name of the actual manufacturer. Often they shop around for the keenest price, and the manufacturer they use may change from time to time. If the manufacturer cannot be identified the liability under the Act which normally belongs to the manufacturer now falls on the organisation whose name appears on the product. If the manufacturer, importer or own brander cannot be found the supplier will be liable. The person liable for defective products has strict liability to pay compensation for death or physical injury or property damage of not less than 275. Damage to or loss of the product itself is not covered.
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9.1.3 Consumer safety regulations It is a criminal offence to supply specified goods other than in accordance with regulations made about them. Example: the requirement of a sticker on the cable of electrical appliances indicating the way the wires should be connected to the plug. 9.1.4 Price marking It is a criminal offence to give a misleading indication of price - whether ones own or another persons - to consumers in relation to goods, services, accommodation and most facilities. If goods are wrongly marked with a price which is lower than the correct price, a customer has no contractual right to have the goods at the price marked. The display of goods is an invitation to treat only but he can complain to the local authority who may prosecute the seller. Where a price is compared to a higher price charged by the seller, it is assumed that the higher price has been charged for a continuous period of 28 days during the previous 6 months unless there is a notice to the contrary. Comparisons with a recommended price are deemed to relate to the price recommended by the manufacturer or producer generally for retail supply in that area. It is well known that some manufacturers recommend prices with high profit margins to allow for price cutting. 9.2 Trade Descriptions Act 1968 The Trade Descriptions Act 1968 applies only to suppliers in the course of business and does not affect private suppliers. It is irrelevant whether or not the recipient of the goods or services is a private consumer or a trader. It is a criminal offence under the Act to apply a false trade description to goods or supply or offer to supply goods to which a false trade description has been applied. Offences are of strict liability, and can thus be committed innocently (i.e. without negligence or intent). A misleading description can be applied by labels on the goods, any other notice which appears to relate to the goods or even by oral statements.
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9.3
The Sale and Supply of Goods to Consumers Regulations 2002 These regulations amend the Sale of Goods Act and give new remedies to a Consumer: a natural person (not a limited company or a partnership) who acts outside his or her trade, business or profession when buying goods.
9.3.1
Faulty Goods Goods must conform with the contract: comply with their description comply with any sample provided be of satisfactory quality be fit for their purpose comply with any express term If within a reasonable period of time following the date of the sale any breach of the terms of the contract arises, the Consumer has the right to request: repair or replacement; The Consumer is entitled to have the remedy completed without significant inconvenience but the retailer can decline either of these if he can show that they are disproportionately costly in comparison with the alternative; or a partial or full refund; Depending on what is reasonable in the circumstances. These remedies are only available if the goods were faulty at the time of the sale. For the first six months from the date of the sale the usual burden of proof is reversed and it is assumed that the goods were faulty unless otherwise proved by the retailer. Thereafter to claim the new remedies of the right to repair or replacement or a partial or full refund it is up to the Consumer to show that the goods were defective at the date of delivery.
n practical terms, other than the reversal of the burden of proof in the first 6 months, this new remedy differs little from what in fact happens in practice. The remedy of repair, replacement or refund is often stated in existing trading terms.
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9.3.2
Consumer Guarantees and Public Statements The common practice of providing a Consumer guarantee this product will last for 100 years takes on a new meaning under these regulations. A guarantee: Will be legally binding on the person offering the guarantee; Will have to be written in English and in plain intelligible words; Must be available for viewing by consumers before purchase, e.g. by advising where they may be seen such as on the internet for those with access; and Must state that they do not affect the Consumers legal rights. Any public statements made by the manufacturers, importers or producers and retailers about the specific characteristics of the goods particularly in advertising or on labelling, will become a contractual obligation between the retailer and the Consumer. A retailer will not be responsible if he can show that: he was not aware of this statement that it had been corrected in public before the conclusion of the sale; or the Consumer could not have been influenced by this statement.
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9.4
The Consumer Protection (Distance Selling) Regulations 2000 The Regulations apply to businesses which sell their products or services to consumers: On the internet On interactive digital television By mail order, including catalogue shopping By telephone By fax By advertising on television, radio, in newspapers or magazines The contract must be performed within 30 days, unless agreed otherwise between the parties. Duty to provide information Before the conclusion of the contract, the seller is obliged to give the customer the following written (or in other durable medium) information in a clear and comprehensible manner: The identity of the seller and, if the contract requires payment in advance, the sellers address Description of the goods or services Price, including all taxes Delivery costs if applicable Arrangements for payment, delivery or performance That the customer has the right to cancel The cost of using the distance communication, if higher than the basic rate Period for which the price or offer is valid The minimum duration of the contract if applicable In a contract for services, the customer must be informed that he will not be able to cancel the contract once performance has begun with his agreement, unless agreed otherwise Notice: If substitute goods or services of an equal quality and price may replace the goods or services ordered. If the seller makes cold calls to customers, he must state the identity of the seller and the commercial purpose of the call at the beginning.
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The cooling-off period and the customers right to cancel
The cooling-off period enables the customer to cancel the contract by giving written notice of cancellation to the seller within a certain period of time. This has the effect of treating the contract as if it had never been made. The right to cancel is not available with contracts for the following goods/services (unless it is agreed otherwise): Services which, by agreement, begin before the end of the cooling off period Goods made to the consumers specification Goods that cannot be returned Perishable goods Unsealed cd, dvd, software, audio or video Newspapers and magazines Betting, gaming and lotteries Where it applies, the period is calculated as follows: Where the seller has provided the written information to the customer on time, 7 working days from the date of the contract in the case of services; Where the seller has provided the written confirmation to the customer on time, 7 working days from the date of receipt of the goods; Where the seller has provided the customer with the written information later than he should have done (up to 3 months), the period is 7 working days from receipt of the written confirmation; Where the supplier fails to comply with the information requirement, the cooling off period is 3 months (from the date of the contract for services, or the date of receipt of the goods). If the customer cancels the contract within the cooling off period, the customer must be reimbursed within a maximum of 30 days. Any related credit agreement is automatically cancelled, and the seller must inform the credit supplier. The customer has to store the goods and take reasonable care of them. The customer is not obliged to return the goods by the regulations, but if he is obliged to return them under the contract and does not do so he must pay the seller the cost of recovering them.
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Supported by
Irwin Mitchell
150 Holborn London EC1 2NS Phone: 0870 1500 100 DDI: +44 (0) 20 7 421 3946 Fax: +44 (0) 20 7242 5976 devinep@irwinmitchell.co.uk www.imonline.co.uk
THE GUILD OF ARCHITECTURAL IRONMONGERS
8 Stepney Green, London E1 3JU. Telephone: 020 7790 3431 Facsimile: 020 7790 8517 Email: info@gai.org.uk www.gai.org.uk GUILD OF ARCHITECTURAL IRONMONGERS LTD. 2004 Edited by Pauline Devine, partner Irwin Mitchell.
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THE GUILD OF ARCHITECTURAL IRONMONGERS

COMMERCIAL & CONTRACT LAW

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WHAT 4.1 4.2 4.3 4.4

WHAT 5.1 5.2 5.3

CAN GO WRONG? Voidable Void Unenforceable

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MORE 9.1 9.1.1 9.1.2 9.1.3 9.1.4 9.2 9.3 9.4

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WHO ARE THE PARTIES TO THE CONTRACT? KNOW YOUR CUSTOMER

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WHAT CAN GO WRONG? A Contract may be:

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HOW DOES A CONTRACT COME TO AN END?

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Discharge by breach of contract A breach of contract may be:

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Notice must be given before or at the time of the contract

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Implied Agreements Course of Dealing

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a term that the goods are of SATISFACTORY QUALITY.

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Consumers UCTA has its own definition of a consumer

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The cooling-off period and the customers right to cancel

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