Terms of a Contract

Terms of a contract

Definition (AO1)

Terms are important factors of a contract and are obligations for the CPs.

Terms may be:

• Express - Expressly agreed between CPs

• Implied - Not expressly agreed between CPs (implied by courts or legislation)

Representation

Definition (AO1)

A statement made to encourage the other party to enter into the contract.

Not part of the contract, but other party may sue if it is found to be false - known as Misrepresentation

Remedies are more limited compared to breach of term.

Statement of Opinion

Definition (AO1)

Does not form part of a contrract and is not a representation

This is also true of ‘mere puffs’ aka ‘trade puffs’ whcih are boasts not intended to be taken seriously.

The closer the boast is to be factual, the more likely it is to be taken as a term of a contract (Carlill v Carbolic Smokeball Co)

Statement of Opinion

Case (AO3)

(Dimmock v Hallett)

Statement that land was ‘fertile and improveable’ was not to be taken seriously and so was neither a term nor representation.

(Bisset v Wilkinson)

Seller of farm who had not used it to farm sheep, made a statement that it could hold 2000.

C could not claim as this was a mere statement of opinion as opposed to a false statement of fact.

Express term characteristics

• Have been agreed to by the parties when it was being negotiated

• May be oral statements made by one party to another

• May be written in a notice that was available to be seen before the contract was made

• May be included in a document which formed part of the document

Implied term characteristics

• Put into contrat by law, the CPs may not even be aware of them

• May be implied by statute e.g. The Sale of Goods Act

• May be implied by the common law (decided cases)

• May be implied because the parties knew that a certain term is always present in certain types of contract - called Course of dealings

Express terms

Definition (AO1)

• Terms expressly / specifically agreed between the parties:

  • Orally

    and / or

  • In writting

Express terms

Cases (AO3)

(Goss v Lord Nugent) - Parole evidence Rule

When the CPs write down the terms of their contract, they are bound by all of it. They cannot add to it or change it.

Oral or other evidence will not be allowed to alter or contradict what is contained in the written contract.

(L’Estrange v Graucob)

A person is bound by a document he signs, whether he reads it or not.

Incorporation of Express Terms

Considerations (AO2)

• Pre-contract negotiations between parties

• Distinguish statements which are mere representations (no contractual liability)

  AGAINST

• Statements which are terms of the contract and do impose an obligation.

Examples:

1. Importance to contract

2. Time of Statement

3. Was Statement in Writing

4. Special Skill / Knowledge of maker of statement

5. Verification

Importance to Contract

Rule (AO1)

If a statement is so important that a party would not have entered into a contract without it, then likely to be a term.

Importance to Contract

Case (AO3)

(Couchman v Hill)

Female cow was for sale without warranty.

C asked if it was pregnant and was told it was not, so he bought the heifer.

When cow then had a miscarriage, buyer sued.

Held that representation was so crucial to the buyer that it was a term of the contract, entitling the buyer to sue for breach of contract.

Time of Statement

Cases (AO3)

Was there a lapse of time between statement and contract?

• Statement made immediately before the contract -(Bannerman v White) - Hopps not to be treated with sulfer - Seen as express term

• Satement made immediately before the contract -(Routledge v McKay) - Statement made 7 days before contract - Didn’t include age of moterbike in terms of contract. - Not seen as express term

Oral Statement followed by written contract

Rule (AO1)

Where a contract is made in writing:

• A prior oral statement will not be a contract term

  UNLESS

• It is included in the written contract

Oral Statement followed by written contract

Case (AO3)

(Routledge v McKay)

Special skill / Expertise of statement

Cases (AO3)

(Oscar Chess v Williams)

Maker of statment had less specialist knowledge than other party - Not seen as an express term

(Dick Bently v Smith Motors Ltd)

Maker of statement had more specialist knowledge than other party - Seen as express term

Verification

Rule (AO1)

If the seller makesa statement but informs the buyer that he should verify it, this is less likely to be a term of the contract

Verification

Case (AO3)

(Ecay v Godfrey)

Seller of a boat said it was sound, but advised buyer to have a survey done.

Held that this was a representation, not a term

Implied terms

Definition (AO1)

Terms not expressly agreed between parties

Sources:

• Courts

  • By custom

  • For business efficacy

  • To reflect prior dealing

• Legislation - Statutory implied terms (i.e. CRA 2015)

Terms implied by the Courts - Custom

Definition (AO1)

Courts may imply terms intor particular (types of) contract to reflect established custom and is based on the assumption that parties wish to incorporate that custom, tradition or trade.

Terms implied by the Courts - Custom

Case (AO3)

(Hutton v Warren)

Court implied a term of compensation for the work and expenses undertaken in growing the crops. The term was implied as it was common practice for farming tenancies to contain such a clause.

Terms implied by the Courts - Custom - Exception to rule

Definition (AO1)

Term will not be implied if it is contrary to an express term made between the CPs

Terms implied by the Courts - Custom - Exception to rule

Case (AO3)

(Les Affreteurs Reunis v Walford)

Express term regarding time for payment of commission overrode trade custom

Terms implied by the Courts - Business Efficacy

Definition (AO1)

Courts may imply a term into a contract to make the contract effective and the courts should aim to do what the CPs would have done if they had considered the issue.

Terms implied by the Courts - Business Efficacy

Case (AO3)

(The Moorcock)

If you are paying for a private mooring on the Thames - should be implied that the mooring is suitable and safe for boats to moor up to.

Terms implied by the Courts - Business Efficacy - Test

Definition (AO1)

The Officious Bystander Test -

The court will imply a term that is so obvious that “it goes without saying”.

If that term is so obvious then the courts will imply it

Terms implied by the Courts - Business Efficacy - Test

Case (AO3)

(Shirlaw v Southern Foundries)

Terms implied by the Courts - Prior Dealing

Definition (AO1)

Courts may imply a contract term to reflect previous course of dealing between parties:

These cover situations where you don’t need to go back over the terms of contract each time you form a new contract, as you are such a frequent customer

Less contracts need to be made when regarding business to business of equal bargening power.

Terms implied by the Courts - Prior Dealing

Cases (AO3)

(Hollier v Rambler Motors) - Did not qualify

Only 3 or 4 contracts made in 5 years

(Henry Kendall Ltd v William Lillico Ltd) - Did qualify

Hundred contracts in 3 years

Terms implied by Statute

Definition (AO1)

Where statute imposes particular terms into particular types of contract

I.e. Consumer Rights Act 2015 - implies terms for goods and for services.

Relative Importance of Contract Terms

Definition (AO1)

Not all terms are equal

• The breach of any term gives right to damages

• The breach of some terms gives right to terminate contract & claim compensation.

Types of terms:

1. Condition

2. Warranty

3. Innominate Terms

Conditions

Definition (AO1)

• Major term of the contract - Goes to the ‘root of the contract’

• Breach of condition gives innocent party right:

  • To damages

    AND

  • Right to terminate the contract (Repudiatory Breach)

Conditions

Case (AO3)

(Poussard v Spiers and Pond)

C was a leading opera singer in production but didn’t attend the rehearsals along with first week of performances.

Employer ended the contract

C sued the employer but terminating the contract was lawful and employer could claim for damages.

Warranty

Definition (AO1)

• Minor term of contract

• Breach only gives innocent party right to damages (not termination)

• Wrongful termination for breach of warranty = breach of contract by innocent party.

Warranty

Case (AO3)

(Bettini v Gye)

Background actor missed 2 days of rehearsals but was present for all others along with all performances.

Employer ended the contract

Actor sued and was successful as he did majority of job

Innominate Term

Definition (AO1)

Unclear / Ambiguoes / Unclassified - To prevent everything being a condition

• Not a condition or warranty

• Remedy for breach depends on seriousness of consequences.

• Breach of innominate term always gives right to damages.

• May also give right to termination if the “breach deprives the innocent party of substantially the whole benefit of the contract”

Innominate Term

Case (AO3)

(Hong Kong Fir)

Contract for hire of C’s ship to D - Contract term that ship seaworthy

Contract for 24 months hire, ship required reparis for 20 weeks

Classed as a warranty as ship was still used for 19 out of 24 months (84%).

So could only claim for damages.

Innominate Terms - The need for certainty

Definition (AO1)

The courts are reluctant to find that an innominate term is a condition unless there is clear evidence that this was the intention of the parties

Innominate Terms - The need for certainty

Case (AO3)

(Bunge Corp)

As part of shipping contract, 15 days notice that ship was ready for loading was required but only 11 days were given.

Held that the term was a warranty as the need for certainty was more important than considering the extent of the breach, and time has generally been seen as of the essence in commercial contracts.

The same idea applies for terms regarding payments.