Law of contract-Breach of Contract-Unfair Contract Terms Act-Solution of a problem question

Breach of Contract

Abbas would sue Frank Ferrillo for breach of the implied terms under s 14 (2) and s 14 (3) of the Sale of Goods Act 1979. Because the oven failed to reach the satisfactory quality, this constitutes a breach of contract. If the problem with oven has due to negligence when it was installed and the supplier had installed it, he could possibly sue under s 13 of the Supply of Goods and Services Act 1982. Ferrillo Catering Services therefore will try to rely on the exemption clause with a defence in the document, which Abbas signed as protecting him from liability. If Ferrillo wishes to rely on the clauses (7 &8), he must show three main parts, which are: it must be incorporated, and must on it’s true construction cover the breach that has occurred. If it satisfies both these tests, then it will be necessary to consider whether it is affected by the Unfair Contract Terms Act 1977 (UCTA).

When the document is unsigned but merely delivered to the other party, then reasonable and sufficient notice of the existence of the exclusion clause must be given[1]. However, in the problem, Abbas therefore has signed the contractual document. So, the question of notice is unnecessary here. In this case, Abbas however will have difficulty arguing against incorporation of the term on the basis of lack of reasonable notice, which was the test established by Parker v. South Eastern Rly (1877)[2]. It could be argued that the notice of the terms must be given before the time of concluding the contract. If it is introduced later, then it can not be part of the contract as stated in Olley v. Marlborough Court (1949)[3]. Abbas might argue that he made his contract with Ferrillo over the phone. He agreed to deliver the oven, he agreed to pay the cost of £3000. All the essential elements of a contract seem to be present. If that is the case, then the document containing the exemption clause can be said to come too late, and so not be part of the contract.

The General proposition is that if the claimant signs a document purporting to have contractual effect containing an exclusion clause, he is bound by its terms. If L’Estrange v. Graucob (1934)were to be applied, since Abbas has signed the contract containing the clauses, this is generally enough to deem him to be incorporated, whether Abbas was aware of them or not[4].

Ferrillo, is a “normal supplier” of Abbas, and might be able to rely on the fact that he has dealt with Abbas in the past. Assuming that he has always had to sign a form of the kind used in this case, he might presume that he had sufficient notice of the clause from previous dealings as stated by the court in Spurling v. Bradshaw (1956)[5]. Of course the course of dealing must be both regular and consistent. Thus, in Henry Kendall ltd. v. William Lillico ltd. (1969), the court stated that the number of similar contracts over a period of three years constituted a course of dealing[6]. On the other hand, Abbas might argue that the usual document, by some over sight might not have been handed over to Ferrillo at the time of contracting. However, the exemption clause is not incorporated in that particular transaction. This view has taken by Lord Devlin in McCutcheon v. David MacBrayne ltd (1964), where he said that previous dealings were only relevant if they proved actual knowledge of the terms, and assent to them, but this view was rejected by the House of Lords in Henry Kendall ltd v. William lillico & Sons ltd (1969)[7].

The next issue to consider, assuming that the clause is incorporated, is whether it covers the breach, which occurred. The basic approach is that liability can only be excluded by clear words. In the problem, clause (8) notwithstanding the above, Ferrillo Catering Services limit their liability for defects in their goods to £250” which purported to limit their liability to £250. According to Lord Fraser, the rules of construction should not be applied as strictly to limitation clauses as to exclusion clauses[8]. If Ailsa Craig Fishing Co ltd v. Malvern Fishing Co ltd (1983) were to be applied, Ferrillo Catering’s liability is limited to £250. Limitation clause is not to be construed by the exacting standards applicable to exclusion clause, and since this clause is clear and unambiguous, it is wide enough to cover liability in negligence[9]. Abbas would argue that the loss was caused by breach of contract and /or negligence. So, the clause should not avail Ferrillo because the oven had totally failed to work.

The contract proferentem rule means that any doubt or ambiguity will be interpreted against the person trying to rely on the clause[10]. In the problem, the ambiguity in the wording of the exclusion clauses will be construed in the claimant’s favor. If Houghton v. Trafalgar Insurance (1954)were to be applied, where it was stated that a reference in an insurance contract to excess ‘loads’ did not apply where a car was carrying more passengers than the number which it was constructed to carry[11].

Negligence liability relates to the situation where a contracting party seeks to exclude liability for his own negligence. Ferrillo may wish the exclusion clauses to cover not only negligence on his part, but also any limit liability which he may incur by supplying the oven. In Hollier v. Rambler Motors ltd (1972), where the court stated that they could not rely on a provision that they were not responsible for fire damage which was not attributable to their own negligence[12]. On the other hand, the clause limits liability, but does not wholly exclude liability. Thus, Ferrillo is strictly liable for defects in goods; so that the general words would not exclude liability for defects due to his negligence[13].

Fundamental breach is that some breaches of contract are so serious that no exclusion clause can cover them[14]. If Photo production ltd v. Securicor Transport ltd (1980) were to be applied, the clause was clear and unambiguous and it protected Ferrillo from liability because the exclusion clause did, in fact, cover the damage which had arisen[15].

If Ferrillo succeeds on the incorporation and construction arguments, he will then face the restrictions of the Unfair Contract Terms Act 1977 (UCTA). Ferrillo seeks to exclude liability of the breaches of contract, the relevant section in UCTA is s 6 (2) stated that any term excluding or restricting the implied term is void against a consumer. It is then necessary to determine whether Abbas is a consumer. It provides three criteria under s (12) which are as follows: (a) the party did not make the contract in the course of a business, nor held him/ her self out as doing so; (b) the party relying on the clause did make the contract in the course of business; and (c) the goods are goods commonly supplied for private use. At first sight, it appears that Abbas buys in the course of a business, but this may not be the answer that the courts give. If R & B Customs Brokers v. UDT (1988) were to be applied, Abbas is not in the business of buying and selling the ovens. In addition, there was no evidence that this was done with any regularity. It seems likely that, on the basis of the R &B Customs Brokers decision, he will be treated as a consumer purchaser[16].

If he is not a consumer then s 6 (3) is applicable, where states that the clause may be upheld, if it is reasonable. As regards the business purchaser, the position is that there may be exclusion, but the clause must satisfy the requirement of reasonableness under s(11) of UCTA.

Under s 11(1), the clause must be a fair and reasonable one to have included at the time the contract is made. S 11 (2), it refers the “guidelines” for reasonableness, in schedule 2S 11 (4), where liability is restricted to a specific sum (as with clause 8 here), the court should take account of the defendants resources, and the availability of insurance.

The first clause to consider, clause (7), is the exclusion of liability for a term of the contract and breach of implied terms. The breach of the implied terms under the Sales of Goods Act 1979here, satisfactory quality, “ the thermostat in the oven fails to work and the oven gets hotter and hotter”. This situation indicates to consider the requirement of reasonableness. In Stewart Gill v. Horatio Myer & Co LTD (1992) where it was held that the clause was unreasonable as a whole, and that it could not be severed so as to exclude only the right of set-off[17]. The clause does cover the breach it may still fail to satisfy the requirement of reasonableness. In George Mitchell LTD v. Finney Lock Seeds LTD (1983), Where stated that the clause would not be fair and reasonable to allow reliance on the clause[18]. When there was no equality of bargaining power, the clause will be unreasonable as stated in Smith v. Eric S. Bush (1990)[19]. The court however have taken into account a number of factors in deciding whether an exclusion clause is reasonable, and most essential factors are: the equal bargaining power of the parties, whether the exclusion clause was freely negotiated, and the availability of insurance.

Clause (8) showed “Ferrillo Catering Services limit their liability for defects in their goods to £250”. According to Scott Baker J in St Albans City and District Council v. International Computers LTD (1995), stated that the limitation clause was not reasonable and could not be relied upon[20].

Under s 1 (3) the contract given involves business liability between Abbas and Ferrillo, and so most of UCTA’s provisions will apply. In this problem, which regard to negligence liability either s (2) or s (3) would be applied if there were any loss or damage other than injury.

The advice to Abbas would therefore seem to be that he has a good chance of recovering his full losses as regards (assuming he is regarded as buying as a consumer) the breaches of the Sales of Goods Act implied terms. As far as the specific breach of clause (7) is concerned, however, clause (8) may operate to limit recovery. In practice, this is unlikely to matter to Abbas if he is able to achieve full recovery of his losses under one of the other heads.


1. W T Magor and Christine Taylor (1996) Law of Contract, 9th edition, M & E Pitman, London.

2. Richard Stone (1997) Principles of Contract Law, 3rd, Cavendish, London.

3. H G Beale, W D Bishop & M P Furmston (1995) Contract Cases and Materials, 3rd, Butterworths,London.

4. Sir Guenter Treitel (1999) The Law of Contract, 10th, Sweet & Maxwell, London.

5. Robert Upex (1995) Davies on Contract, 7th, Sweet & Maxwell, London.

6. Ewan Mckendrick (1997) Contract Law, 3rd, Macmillan, London.

7. Jill Poole (1997) Casebook on Contract, 4th , Blackstone, London.

8. Mc Cutcheon v. David Mac Brayne ltd (1964) 1 WLR 125.

9. Cheshire, Fifoot & Furmston’s (1996) Law of Contract ,13th, Butterworths, London.

10. J. Beatson, QC (1998) ANSON’S LAW OF CONTRACT, 27th, Oxford, London.

11. Sir John Smith (2000) A Case Book on Contract, 11th, Sweet & Maxwell, London.

1. Cited in Robert Upex, Davies on Contract, 7th, p-72.

2. Cited in Jill Poole, Casebook on Contract, 4th,p-261

3. Cited in Ewan Mckendrick, Contract Law, 3rd,p-164.

[4] Cited in W T Magor and Christine Taylor , Law of Contract, 9th edition,p-96

[5] Cited in Sir John Smith, A Case Book on Contract, 11th , p-240

[6] Cited in J. Beatson, QC , ANSON’S LAW OF CONTRACT, 27th

[7] Cited in Sir Guenter Treitel , The Law of Contract, 10th, p-200

[8] Cited in Jill Poole , Casebook on Contract, 4th , p-326

[9]Cited in H G Beale, W D Bishop & M P Furmston , Contract Cases and Materials, 3rd , p-856

[10] Cited inEwan Mckendrick, Contract Law, 3rd, p-196.

[11] Cited in Richard Stone , Principles of Contract Law, 3rd, p-151.

[12]Cited in Cheshire, Fifoot & Furmston’s ,Law of Contract ,13th ,p-168

[13] Cited in Sir Guenter Treitel ,The Law of Contract, 10th, p-204.

[14]Cited in Richard Stone , Principles of Contract Law, 3rd,p-153.

[15]Cited in Ewan Mckendrick , Contract Law, 3rd, p-202.

[16] Cited in Sir Guenter Treitel ,The Law of Contract, 10th, p-230.

[17] Sir Guenter Treitel (1999) The Law of Contract, 10th, p-236

[18] Jill Poole (1997) Casebook on Contract, 4th ,p-311.

[19] H G Beale, W D Bishop & M P Furmston (1995) Contract Cases and Materials, 3rd,p-867.

[20] J. Beatson, QC (1998) ANSON’S LAW OF CONTRACT, 27th,p-167.