contract law


Contractual agreement!

An offer is an expression of willingness to contract on certain terms made with the intention that it will become binding as soon as it is accepted to whom it is addressed. Gibson v Manchester City Council- expression of willingness because there were certain terms. An offer can be made to the world at large (Carlill). ITT-Not an offer, simply invitation:

  • Goods on display (Fisher v Bell) or (Pharamaceutical society of GB v Boots cash chemists).
  • Advertisements- Patridge v Crittenden, advertisements not offer because otherwise the offeror would be bound to fulfill an offer to the world at large which they may not be able to do. May be considered as offer if amount of stock is specified (Leftkowtiz)
  • Auctions- ITT until the fall of the hammer which is acceptance (Payne v Cave) (Barry v Davies- if no reserve price then must sell to the highest bidder).
  • Invitations to tender- not bound to accept tenders (Spencer v Harding), however if offeror accepts highest bid or lowest offer for work then he is bound by it (Harvela Investments ltd), parties must consider all tenders submitted by the deadline although they are not bound to accept them. (Blackpool and Flyde Aero Club).
  • Mere statments of price- where a party states the minimum price they will accept this is an ITT (Harvey v Facey)
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Communication and Termination of offers!

Offer must be communicated to the offeree. (Taylor v Laird). Termination of offers:

  • Revocation- rescinding, annuling or withdrawal of an offer, offer may be withdrawn anytime prior to acceptance( Routledge v Grant) Revocation must be communicated to offeree (Byrne). Revocation by a third party is valid provided that: third party is reliable source of information and third party is one whom can be relied upon by both parties (Dickinson). In unilateral contracts the offeror must take reasonable steps to notify people who are likely to accept (Shuey).However if performance has begun then revocation is invalid (Errington).
  • Lapse of time-If no specific date given then offer will lapse after a reasonable amount of time(Ramsgate Victoria Hotel co Ltd). This also includes offers made by telegram etc (Cole)
  • Failure to comply with a condition precedent- where parties agreed to meet certain conditions and then failed to do so (Stimson)
  • Death- offeror dies before offer is accepted then the personal representatives may still be bound by an acceptance if: the contract does not involve the personal services of the deceased, and the offeree is ignorant of the offerors death (Bradbury). Where offeree dies before acceptance the offer lapses (Reynolds).
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An acceptance is a final and unqualified expression of assent to the terms of an offer. Mirror image principle- valid acceptance must correspond exactly with the terms of the offer.

Counter offers- destroys the orginal offer, so it can no longer be accepted. (Hyde).

Requests for information: If a response is made that does not vary the terms of the offer it is not a counter offer and the original offer is still capable of acceptance. (Mclean).

Standard form contracts- Battle of the forms: where one or both parties attempts to rely on their standard terms is often referred to as the battle of the forms. If both parties terms are in conflict then there is no contract as offer and acceptance dont match. In case of conflict each communication is considered as a counter offer so that if a contract is formed (usually through performance) then it must be on the terms of the last counter offer. (Zambia steel and building supplies Ltd). Courts reluctant to hold that there is no valid agreement once performance has started (British steel corporation). Butler Machine Tool Co. Ltd - Lord Denning held that the court could replace conflicting terms with reasonable implications. 

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Acceptance continued!!

Tenders- acceptance of tender does not always result in binding contract: Where the tender is submitted for supplying specific goods or services on a specific date, acceptance results in a binding contract, where the tender is submitted for supplying a specific quantity of goods over a specified period of time acceptance is binding, Where the tender is submitted for indefinite subject matter such as 'such quantities as you may order' then acceptance of that tender does not result in a binding contract at that time. Acceptance occurs when order is placed (Percival) once the order is placed then the tender is binding (Great northern ireland Railway v Witham)Communication of Acceptance-Acceptance has no effect until it is communicated to the offeror (Entores). Silence cannot amount to acceptance (Felthouse) The Leonidas D 'axiomatic that acceptance of an offer cannot be inferred from silence, save in the most exceptional circumstances. Acceptance in unilateral contracts- the offer can be accepted by fully performing the stipulated act or forbearance (Daulia Ltd), there is no need to communicate acceptance to offeror (Carlill), the offer can be withdrawn before it is accepted: the offer being accepted only by some performance. Acceptance by conduct-Acceptance can be inferred from conduct without it being expressly communicated(Brogden).

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Methods of acceptance & the Postal rule

Stipulated methods of acceptance- where the offer stipulates a particular method of acceptance such as 'return by post', then if the offeree uses a different method there may not be a contract (Eliason- if the offeror clearly states that only the stipulated method of acceptance will be sufficient. If the offeree uses an equally expeditious method of acceptance to that stipulated, then that should be sufficient. (Hoffman). If no method is stated then the required speed of acceptance can be deduced from the means by which the offer was sent: if the offer was sent by telegram then the offeree should use an equally speedy means. Therefore, an acceptance by post would be ineffective (Quenerduaine).Acceptance by Post - The Postal rule- Acceptance by post is the exception to the general rule that acceptance must come to the attention of the offeror before it is valid. (Adams v Lindsell).

For the postal rule to apply: Acceptance by post must have been requested by the offeror, or acceptance by post must be a normal, reasonable or anticipated means of acceptance (Henthorn v Fraser), The letter of acceptance must be properly addressed and stamped (RE London &Northern bank, ex parte jones), The postal rule must not have been expressly excluded in the offer (Holwell securities), Use of the postal rule must not create 'manifest inconvenience or absurdity (Holwell securities). Postal rule also applies if the letter is received after revocation of the offer has been sent (Henthorn) of if the letter of acceptance is never received (Grant).

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Non instantaneous communication of acceptance

Acceptance takes place when and where it is received (Entores). However when answering machines are used it must be considered if, where and when a contract is formed. (Brinkibon- Telex sent out of office hours was not an instantaneous form of communication and therefore acceptance could only be effective when the office reopened).

Intention to create legal relations- where both parties intend for their to be legal consequences flowing from their relationship. 

Social and domestic arrangments-Presumption that there is no intention to create legal relations in social or domestic agreements, however this can be rebutted. Husbands and wives (Balfour v Balfour) However where husband and wife have already separated then parties are required to sort out their finances in more precise terms and therefore any agreement between them is more likely to have intention and to be binding.(Merritt v Merritt). Parents and children- domestic arrangments are presumed not be create legal relations(Jones v Padavatton). Parties sharing a house- where people who share a house but are not related, court more willing to find agreement if money has changed hands (Simpkins v Pays)

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Intention to create legal relations!

Commerical arrangments- It is presumed that there is intention to create legal relations. This presumption can generally only be rebutted by express provision in the contract. (Rose and Frank Co). This is so even if the agreement appears to be gratuitous in nature, such as those involving an ex gratia payment (Edwards v Skyways). However it does not apply to 'comfort letters' which are interpreted as a statement of fact rather than as a contractual promise (Kleinwort Benson Ltd). 

Advertisements- most sellers make statements that are a 'mere puff' and so do not create legal relations. Statements that say they will match the price of any other seller with a lower price are usually binding. A statement will not be considered binding if the court considers that it was not seriously meant (Weeks v Tybald)

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Quid pro quo- Lord Denning, Or the price tag on the promise.

  • Consideration must move from the promisee-person to whom the promise was made can only enforce the promise if they have themselves provided the consideration for it. The promise cannot be enforced if the consideration moved from a third party( Tweddle v Atkinson).  
  • Consideration must not be past- 3 types of consideration: Executory- promises exchanged to perform acts in the future, Executed- one party performs an act in order to fulfil a promise made by the other, Past- the consideration for a promise must be given in return for that promise. I cant clean your windows and then ask you for 10 quid because you didnt promise to pay me (Re McArdlle). Exception to the rule (Lampleigh v Braithwaite- if services are rendered on request and where both parties understand that payment will be made, the promise may be enforeable even if consideration is past. Pao on v Lau Yiu Long- The act must have been done at the promisors request;the parties must understand that there is an implied promise to pay to be quantified at a later date; the payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance.
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Consideration continued..

  • Consideration must be sufficient but need not be adequate- As long as the consideration has some value (sufficient to render the promise enforceable) the courts will not concern themselves with its adequacy (whether it represents a good bargain). (Thomas v Thomas).
  • In order for consideration to be sufficient in law, consideration must be: real, tangible and valuable (it must have some actual value). White v Bluett (a promise not to complain is insufficiently tangible to amount to good consideration. Ward v Bytham (no duty to keep child happy and so promise to keep child happy was held to be good consideration). Chappell & Co ltd v Nestle co Ltd (a contracting party can stipulate for what consideration he chooses, giving someone peppercorn as consideration when actually they dont like peppercorn and will throw it away, does not mean that the corn will cease to be good consideration.
  • A promise to perform a duty which you are already bound to do, is not sufficient to amount to consideration for a new arrangement (Collins v Godefroy) (Stilk v Myrick) the general rule in relation to the performance of an existing duty is that it is not good consideration for a new promise. The exceptions to this are: where a public duty is exceeded(Glassbrook Bros v Glamorgan County Council- promise to pay enforceable because they did more than they ordinarily would have), where a contractual duty is exceeded- (Hartley v Ponsonby), where there is an existing contractual duty owed to a third party-(Scotson v Pegg)
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Consideration continued..

The exception in Williams v Roffey:

  • If A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B; and
  • At some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and
  • B thereupon promises A an additional payment in return for A's promise to perform his contractual obligations on time; and
  • as a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and 
  • B's promise is not given as a result of economic duress or fraud on the part of A; then
  • the benefit to B is capable of being consideration for B's promise, so that the promise will be legally binding.
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Consideration: Part payment of debt!

Pinnels case: Payment of a lesser sum may discharge the full debt if some additional consideration is provided. This may be so if the part payment is made: Before it is due (as in Pinnels case), By different means (Creditor accepts property in lieu of money), in a different place to that orginally specified. These situations provide sufficient consideration in terms of a benefit to the creditor and a detriment to the debtor. Rule from Pinnel's case can operate harshly (Foakes v Beer).

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Promissory Estoppel!!

The equitable doctrine of promissory estoppel can provide a means of making a promise binding, even without consideration. It was developed by Lord Denning in the case of High trees. For the doctrine to apply:

  • There must be a clear or unequivocal promise or representation (Collin v Duke of Westminister);
  • Which is intended to affect the legal relationship between the parties (Spence v Shell);
  • Which indicates that the promisor will not insist upon his strict legal rights against the promisee in relation to the promise;
  • the promise or representation must have influenced the conduct of the promisee in some way (it is often said that the promisee must have acted in reliance upon that promise) (W J Alan Co. Ltd v El Nasr Export and Import Co);
  • it must be inequitable for the promisor to go back on his promise (D&C builders v Rees)
  • The doctrine can only be used as a defence, Since it is an equitable doctrine, the general equitable maxim that 'Equity is a sheild, not a sword' applies. It does not create new rights (Combe v Combe).
  • The doctrine temporarily suspends rights; it does not extinguish them (Tool metal manufacturing co) and it is only available at the discretion of the court. 
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Notes on Promissory Estoppel!

It appears unlikely that the doctrine will be developed further (Brikom Investments- it would be wrong to extend the doctrine of promissory estoppel.. to the extent of abolishing in this back handed way the doctrine of consideration'. An attempt to rely on Williams v Roffey in situations involving part payment of debt failed (RE Selectmove). Additonal advise:Might be helpful to read Halliwells (1994) article or Trukhtanov's (2008) which criticises the willingness to apply the equitable doctrine of promissory estoppel evident in Collier. Important points to include: Explain the common law rule from Pinnels case- that part payment of a debt on the due date can never satisfy the full debt owed, but if some additional consideration is given then this may render a promise to forego the balance binding. Mention Foakes v Beer and RE selectmove. Explain that the common law rule can lead to harsh outcomes and the doctrine of promissory estoppel was developed in order to mitigate some of the harshness of the law.

Discuss the orgins of the doctrine in Hughes v Metropolitan Railway (which concerned the doctrine of waiver: the parties should be prevented from going back on a promise to waive certain rights) and its development in High trees. Explain what conditions are needed for the doctrine to operate with supporting case authority. Then summarise: The doctrine of Promissory Estoppel will prevent the enforcement of strict legal rights in certain circumstances, provided that the criteria required for its operation are met.

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The Doctrine of Privity!

The general rule of the privity of contract is that only parties to a contract can acquire rights and liabilities under the contract. If you are not a party to a contract then you cannot sue upon it or be sued under it. (Dunlop v Selfridge- not a party to the contract).The common law rule of privity has been criticised for leading to harsh outcomes, especially in cases where the contract purports to confer a benefit on a third party who remains unable to sue if that benefit is not forthcoming due to a breach by one of the parties to the contract (Tweddle v Atkinson).   Exceptions have been developed: 1. Exceptions provided by statute- Section 148 (7) Road traffic act 1988 (requires drivers to have third party insurance which can be relied upon by third parties who suffer loss or damage even though they were not a party to that contract. Competition Act (1998) prohibits price-fixing arrangements (Dunlop). However attempts to use statute as a creative 'loophole' to avoid privity have failed (Beswick). 2. Collateral contracts- (Shanklin Pier) A contract between two parties may be accompanied by a collateral contract between one of those parties and a third party relating to the same subject matter. The collateral contract device is a way to identify a contract between the party making a promise and the other party, since this promise has induced the other party to enter into a separate contract with a different party. Therefore the party making the promise gains some benefitin being able to sell their goods on the strength of the main contract and are bound by their promise. 

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The Doctrine of Privity!

3. Agency- The parties to an agency arrangement are as follows:

Principal-The party on whose behalf the contract is made and who receives the benefit arising under the contract.

Agent- The agent is a party to the contract with the third party. The agent has a direct contractual relationship with the third party, but is making the contract on behalf of the principal and not on his own behalf. 

Third party-The third party enters into the contract with the agent. However the rules of agency provide that there is no contractual relationship with the agent. Instead the principal is bound by the contractual relationship with the third party which has been entered into by the agent on his behalf. 

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The right to claim damages!

Unless one of the exceptions to the doctrine of privity arises, then the third party has no means of enforcing the contract at common law unless one of the parties to the contract sues in their own right. However if the contract confers a benefit on the third party, it is unlikely that the party who brings the claim will have sufferered loss themselves. Therefore if an award of damages is made, this will be to compensate the party who brings the claim, who- having suffered no loss- would be entitled to only nominal damages.

However there is a common law rule originating from Dunlop v Lambert (1839) which allows a remedy to be awarded to a party even without privity of contract 'where no other would be available to a person sustaining loss which under a rational legal system ought to be compensated by the person who caused it'. This rule was applied in Jackson v Horizon Holidays ltd (1975), however it was critised and was narrowed in Woodar Investment Development ltd v Wimpey Construction (UK) Ltd (1980).

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Contracts (Rights of Third Parties) Act 1999

s1.(1) Subject to provisions of this act, a person who is not a party to a contract (a third party) may in his own right enforce a term of the contract if-

a) the contract expressly provides that he may, or

b) subject to subsection (2), the term purports to confer a benefit on him.

(2) Subsection 1 (b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.

(3) The third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into.  Therefore the act allows contractual provisions to be enforced by a non-contracting party in two ways: Where the contract expressly provides that he may (s1 (1) a), where the contract term purports to confer a benefit upon him (s1(1) b), provided that it appears that the parties did not intend the term to be enforceable by the third party,then s1(2) does not disapply s 1(1) b. S 1(3) provides that the party must be identifed by name, as a member of a class or answering a particular description but need not exist when the contract is entered into.

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The act will not apply to: Bills of exchange, promissory notes and negotiable instruments (s6(1);

  • Statutory contracts that were made under s14 of the companies Act 1985 (repealed by the companies act 2006) (s6(2).;
  • any incorporation document of a limited liability partnership or any limited liability partnership agreement (s6(2a); 
  • Contracts of employment (s6(3);
  • contracts for the carriage of goods by sea (other than clauses of exlcusion or limitation)  Variation of the contract:The promised benefit to the third party may not be removed by a variation of the contract if:
  • the third party has communicated his assent to the term to the promisor (s2(1).
  • the promisor is aware that the third party has relied on the term (s2(1) b)
  • the promisor can reasonably be expected to have foreseen that the third party would rely on the term and the third party has in fact relied on it(s 2 (1) c). s1(5) of the act provides that the third party has available to him any remedy that would have been available under breach of contract if he had been a party to the contract. s1(5) allows the claimant to claim any damages as would be available to him under breach of contract as if he were a party to the contract.
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Exclusion of liability!

Common law-

  • it must be a term of the contract (it must be incorporated), by signature (Curtis), by notice (Olley) (Parker-notice of exclusion clause must be reasonable), on a ticket (Thornton v Shoe lane parking), by reference to another document (Dillon), incorporation by previous course of dealings (J, spurling ltd) (however this will only apply if the dealings have been consistent-McCutcheon)
  • it must cover the damage that was caused-the contra proferentum rule-, any ambiguity in a clause will go against the party trying to rely on it(Houghton), if the clause trys to exclude liability in negligence then it must reach a very high standard of clarity and precision in drafting to cover the breach that has occured. 
  • it must be reasonable
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The Unfair Contract Terms Act 1977

UCTA generally applies to business liability.

S2(1) liability for death or personal injury resulting from negligence cannot be excluded by reference to any contract term or notice.

S2 (2) for loss or damage other than death or personal injury, liability may be excluded or limited so far as the term satisfies the reasonable ness test.

Breach of contract- S3 (2) a provides that where one party 'deals as consumer' or deals on the others written standard terms of business, then the other party cannot exclude or restrict liability for breach of contract, unless the term satisfies the reasonableness test. In order to deal as consumer: one party must not make the contract in the course of business nor hold himself out as doing so, and the other party must make the contract in the course of business; in the case of a contract governed by sale of goods or hire-purchase, the goods to which the contract relates must be of a type ordinarily supplied for private use or consumption unless the party is an individual. s12 (3) provides that the burden falls on the party trying to rely on the clause to to disprove that the contract is a consumer contract. 

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Sale of goods!

Where the contract is for the sale of goods there are a number of terms which are implied into the contract by the Sale of Goods Act 1979. S6(1) UCTA provides that liability for breach cannot be excluded. S6 (2) provided the claimant is dealing as consumer, liability for breaches of the implied conditions as to: Conformity with description (s13), quality or fitness (s14) and conformity with sample (s15), cannot be excluded.  If a person is not dealing as a consumer then liability can be excluded for breach of the implied terms as long as it is reasonable (s6(3)). Terms implied into contracts for the supply of goods and services by the supply of goods and services act. These apply to contract terms excluding or restricting liability for breach of an 'implied obligation' in a contract under which the possession or ownership of goods passes but which are not contracts for the sale of goods. The implied condition as to title can never be excluded. Provided that the claimant is dealing as consumer, liability for breaches of the implied conditions to: transfer by description (s3 SGSA 1982), quality or fitness (s4), transfer by sample (s5), cannot be excluded. If not consumer then they can be excluded if reasonable.  S11(1) provides when the reasonableness test is to be applied- it must have been reasonable in all the circumstances when the contract was made. Clauses that attempt to limit liability, by S11 (4) the court must consider the resources that D had available to meet that liability and whether D had the possbility to protect himself by insurance. S 11 (5) states that the burden of proof is on D, to prove that the clause is reasonable (Warren).

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UCTA Schedule 2

S11(2) provides guidelines for the application of the reasonableness test. 

  • the strength of the bargaining powers of the parties relative to eachother;
  • whether the customer received an inducement to agree to the term (R.W. Green ltd).
  • whether the customer knew or ought reasonably to have known of the existence and the extent of the term (having regard, among other things, to any trade custom and any previous course of dealings between the parties);
  • where the term excludes or restricts any relevant liability if some condition was not complied with, whether it was reasonable at the time of the contract to expect that compliance with a condition would be practicable;
  • whether the goods were manufactured, processed or adapted to the special order of the customer.

The reasonableness test has been used in George Mitchell (Chesterfield) ltd v. Finney Lock Seeds (1983), Smith v Eric S. Bush (1990), Watford electronics ltd v Sanderson CFL Ltd (2001). Where contracts between businesses are concerned, even standard form terms are rarely regarded as unreasonable: Rohlig (UK)Ltd v Rock Unique Ltd (2011).

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The Unfair Terms in Consumer Contract Regulations

Regulations apply to only contracts between business and consumer (therefore they do not apply to contracts between businesses). However the regulations do apply to all kinds of contracts and they consider the fairness of contracts as a whole and not just the fairness of the exclusion clauses. 

3(1) defintion of consumer is 'any natural person who.. is acting for purposes which are outside his trade, business or profession. (Standard bank London Ltd). 

4 regualtions apply in relation to unfair terms in contracts concluded between a seller or a supplier and a consumer. 

5(1) A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties rights and obligations arising under the contract, to the detriment of the consumer.

5 (2) defines a term which has not been individually negociated as one which has been drafted in advance and the consumer, therefore, has not been able to influence the substance of the term.

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The Unfair Terms in Consumer Contract Regulations

6: provides that (in so far as a term is in plain intelligible language) the assessment of the fairness of a term shall not relate to the defintion of the main subject matter of the contract, or to the adequacy of the price or remuneration, as against the goods or services supplied in exchange. In other words, the regulations are not concerned with the fairness of core terms such as subject matter of the contract or the price paid. 

7: Provides that any written term of a contract must be expressed in plain, intelligible language. Where there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail. This has the same effect as the contra proferentum rule.

8:Unfair terms shall not be binding on the consumer. However, the contract will remain in existence if it can do so without the offensive term.

10: Director General of fair trading is the general supervisor of compliance with the regulations. He is authorised to receive complaints about breaches ( in other words, consumers may complain directly to him about unfair terms) and to apply for injunctions to restrain the use of unfair terms (director general of fair trading v First national bank (2001)).

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The Unfair Terms in Consumer Contract Regulations

The regulations also offer a list of terms which may be regarded as unfair: excluding or limiting the legal liability of a seller or supplier in the event of the death or personal injury of a consumer;

  • inappropriately excluding or limiting the legal rights of the consumer in the event of total or partial non-performance or inadequate performance by the seller;
  • requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation;
  • enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract;
  • enabling the seller or supplier to alter unilaterally without a valid reason any characteristics of the product or service to be provided;
  • providing for the price of goods to be determined at the time of delivery or allowing a seller of goods or supplier of services to increase their price without in both cases giving the consumer the corresponding right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded;
  • giving the seller or supplier the right to determine whether the goods or services supplied are in conformity with the contract.
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