Contract - Terms

What are implied terms?

terms that have not been agreed upon, but the law deems them to exist

What are the three groups of statements made by parties during negotiations?

- Mere puffs - statements of no legal significance

- Terms - statements of fact or law which the party intends to be binding

- Representations - statements not intended to be binding but which induce the other party to enter the contract

What is the difference between a representation and a term?

- Only terms are intended to be binding (objective test)

- Representations can be inferred to be binding terms, but this can be rebutted

What is the objective test courts use for parties' intentions?

"What would a reasonable person understand to be the intention of the parties, having regard to all the circumstances?"

How does the importance of a statement affect its classification as term/representation?

A statement may be a term if the injured party considered it so important that they wouldn't have entered the contract without it

How does timing affect whether a statement is considered a term?

- Statements made at the time of contracting are more likely to be terms

vs

- Statements made early in negotiations are less likely to be terms (even a week before contract)

How does not including a statement in writing affect the classification of statements?

- If a statement is not included in a written contract, it's less likely to be considered a term

- Courts may infer that omitted statements were not significant to the parties

- However, this factor is not necessarily decisive

How does special knowledge or skill affect the classification of statements?

Statements made by parties with exclusive access to information or special knowledge are more likely to be considered terms

- eg car seller's statement to dealer held to be representation because of dealer's expertise

- and dealer's statement to a buyer was a term due to their expertise

How does assumption of responsibility affect the classification of statements?

- Statement may become a term if the vendor expressly accepts responsibility for the soundness of the sale item

- eg seller's strong statement about horse's fitness for stud purposes was deemed a term

How does persuading buyer to make further checks affect the classification of statements?

- Persuading buyer to get further checks can influence the classification - opposite of assumption of responsibility

- eg Seller advising buyer to have boat surveyed independently showed statement was not intended as a term - onus of verification of soundness was on the buyer

Why does the term vs representation distinction matter?

breach of term = can sue for breach of contract

representation is untrue = can sue for misrepresentation

Can a statement be both a term AND a representation?

Yes

- so could sue for breach of contract and misrep. for the same statement if necessary

What are express terms?

terms that the parties intend to be bound by, as it would appear to an objective observer

What are the main ways express terms can be incorporated into a contract?

- A signed written contract

- Incorporation by notice

- Incorporation by course of dealing

- Other ways of agreeing express terms (e.g., verbal agreements, email exchanges)

How are terms incorporated through a signed written contract?

- Signing a contract generally shows that the parties intended to be bound by its terms

Can a party be bound if they have not read the contract/do not understand the terms?

Yes (L'Estrange v Graucob Ltd [1934])

- even if the terms are onerous

When will signing a contract not incorporate express terms? (the 2 exceptions)

- If the document was not intended to have contractual effect

- If there was an oral misrepresentation about the meaning of a clause

What is incorporation by notice?

- Terms can be incorporated by one party notifying the other of them

- Reasonable steps must be taken to bring the terms to the other party's attention (what constitutes reasonable notice depends on the facts of the case) - otherwise the term will not be binding

- Particularly onerous terms require more prominent notice

- Document must have been intended to have contractual effect

What factors affect whether incorporation by notice is valid?

- Legibility of the clause

- Placement and visibility of the notice

- Whether terms are referenced in another document

- Timing of the notice (must be before or at the time of contracting)

- The document must have been intended to have contractual effect

How does incorporation by course of dealing work, for express terms?

Terms can be implied into a current transaction based on previous dealings between the parties

What course of dealing is acceptable to bind a term (for express terms)?

- the term must be consistent over time (eg a signature is always required)

- and must be regular (3-4 transactions over 5 years was insufficient, but 3-4 times per month or 5 times in 13 months was sufficient)

What are entire agreement clauses?

- Clauses that state a particular document or set of documents constitutes the entire agreement between parties

- Can be effective in avoiding confusion about oral terms or preceding written statements

- But unlikely to exclude liability for misrepresentation

How do exclusion clauses relate to incorporation of terms?

- these are clauses that limit or exclude liability for breach

- They are frequently incorporated by reference or course of dealing

- Often considered 'onerous' terms requiring prominent notice

(this is the source of most of the caselaw regarding incorporation of terms)

What are the main ways terms can be implied in fact?

- Trade or professional customs

- Course of dealing between parties

- Business efficacy

- Courts may consider these to discover unexpressed intentions of parties

- No term will be implied if it contradicts an unambiguous express provision

How are terms implied based on trade or professional customs?

- Implication based on assumption that parties intended to be bound by well-known customs of a particular trade

How can a course of dealing between parties lead to implied terms?

- Term may be implied if parties have dealt in a particular way over a long period

- Presumption that parties intend to continue dealing in the same way

- Terms may be implied to give effect to this presumed intention

What is the definition of the 'business efficacy' test for implying terms?

- Term may be implied to make the contract produce its intended objective

- Not implied merely to make agreement more business-like

What is the standard of the 'business efficacy test' for implying terms?

- Only implied if arrangement would be so unworkable that no sensible person would have entered into it

- Must be so obvious that parties would respond "Oh, of course" if suggested

- Based on reasonable person's understanding (objective), not subjective intentions

How are terms implied as a matter of law?

- Can be implied by courts at common law

- In order to give effect to legal duties arising from certain contractual relationships

How are terms implied by statute?

- Certain statutes indicate terms to be implied into contracts

- Operate irrespective of parties' intentions, unless valid exemption clause exists

(e.g., Sale of Goods Act 1979, Consumer Rights Act 2015)

What type of contracts does the Sale of Goods Act 1979 not apply to?

consumer contracts under Consumer Rights Act 2015

What are the main implied terms under the Sale of Goods Act 1979?

- S12 - Title

- S13(1) - Description

- S14(2) - Satisfactory quality

- S14(3) - Fit for particular purpose

- S15 - Bulk must correspond with sample

What is the effect of a breach of a condition of the contract?

gives the innocent party the right to terminate or affirm the contract and claim damages

What is Section 12 - Implied terms as to title (SGA 1979)?

- Creates an implied term that seller has right to sell goods

- Classified as a condition of the contract

What is Section 13 (Correspondence with description) in SGA 1979?

- Implied term that goods must match stated characteristics and specifications

- Applies to contracts for sale of goods by description

- A condition of the contract

What is Section 14(2) (Satisfactory quality) of SGA 1979?

- Implied term that the goods supplied under the contract are of satisfactory quality

- Applies to goods sold in course of business

- Quality standard based on reasonable person's expectation

- classified as a condition

What factors will be considered when assessing whether the goods are of satisfactory quality for s. 14(2) SGA 1979 - goods of satisfactory quality?

- Fitness for all the purposes for which goods of the kind in question are commonly supplied

- Appearance and finish

- Freedom from minor defects

- Safety

- Durability

What are exceptions to goods being of satisfactory quality?

- Defects specifically pointed out

- Defects visible upon examination

- Non-business sales

...if these apply, there is no condition to the contract that the good must be of satisfactory quality

What is Section 14(3) - Fitness for particular purpose of the SGA 1979?

- implied term that goods must be fit for the purpose they are supplied for

- Additional requirement beyond satisfactory quality

- classified as a condition

When does Section 14(3) (Fitness for particular purpose) of the SGA 1979 apply?

1. when seller acts in course of business

2. and buyer makes known particular purpose for the goods to the seller (or person giving them credit)

- can be expressed or implied

- applies even when the purpose is not the one the goods are usually supplied for

- does not apply if buyer does not rely on seller's judgement or if it would be unreasonable for buyer to rely on seller's judgement

What are the requirements for Section 15 of SGA 1979 - Sale by sample?

When a sale is by sample, these two terms are implied into the contract:

1. Bulk must match sample quality

2. Goods must be free from non-apparent defects

- breach is classified as a condition

What are the rules around remedies for s. 13, s. 14(2), 14(3) and 15?

- these are conditions, so technically breach of condition

- however, if the breach is so slight that it would be unreasonable for the buyer to reject the goods and repudiate the contract, the breach should be treated as a breach of warranty

- burden of proving breach is slight that buyer cannot reject the goods falls on the seller

What is the effect of a breach of warranty?

- only entitles the buyer to claim damages (but not to repudiate the contract)

How can parties contract out of implied terms?

- Section 55 allows exclusion/restriction by agreement

- Subject to Unfair Contract Terms Act 1977 (UCTA)

Which implied terms from SGA 1979 cannot be excluded?

- S12 (implied term that seller has title) cannot be excluded/restricted

- SS13-15 can be excluded/restricted subject to reasonableness

What is the Supply of Goods and Services Act 1982 (SGSA) and what does it cover?

1. Some contracts for transfer of goods

2. Contracts for hire of goods

3. Contracts for supply of services

What does the SGSA 1982 not cover?

- Contracts of sale of goods

- Hire purchase agreements

- Contracts where goods are exchanged for trading stamps

- Deed transfers without consideration

- Contracts for securities

- Consumer contracts under Consumer Rights Act 2015

What terms will be implied into contracts for sale of goods under SGSA?

Terms are implied regarding the following qualities:

- Title (s2)

- Description (s3)

- Quality/fitness (s4)

- Sample (s5)

What is not included as a contract for hire of goods for the sake of SGSA?

- does NOT include hire purchase agreements

- or contracts where goods are borrowed in exchange for trading stamps

What terms will be implied into contract for hire of goods under SGSA?

Terms corresponding to those implied into contracts for sale of goods:

- implied terms about the right to transfer possession (s 7 - this is equivalent to the implied term concerning title in a sale of goods contract)

- implied terms where hire is by description (s 8)

- implied terms about quality or fitness (s 9)

- implied terms where hire is by sample (s 10).

Which 3 implied terms are included in any contract for supply of a service? (SGSA)

1. implied term that the supplier will carry out the service with a reasonable care and skill

2. implied term that the supplier will carry out the service within a reasonable time (when supplier is acting in course of business)

3. implied term that the party contracting with the supplier will pay a reasonable charge when consideration is not already agreed

How can parties contract out of SGSA implied terms for transfer/hire of goods?

- Section 11 allows variation/exclusion, subject to UCTA restrictions

How can parties contract out of SGSA implied terms for supply of services?

- Section 16 allows contracting out, subject to UCTA restrictions

Who is a consumer under the Consumer Rights Act?

Individual acting wholly or mainly outside their trade/business

Who is a trader under the CRA?

- Person acting for trade/business purposes

- Can act personally or through representatives

Who has the burden of proof if trying to prove someone is not a consumer under CRA?

Trader must prove if claiming someone isn't a consumer

What are the 4 cornerstone implied terms from CRA?

- satisfactory Quality

- Fitness for purpose

- Match description

- Seller has title

What remedies are available for breach in a sale of goods under CRA?

- Short-term right to reject (30 days from passing ownership)

- Repair or replacement (unless impossible or disproportionate)

- Either price reduction or final right to reject

- However, consumer cannot treat a contract as at an end as a result of a breach of these implied terms.

When is a consumer entitled to either price reduction or rejection of the good under CRA?

(a) after one repair or one replacement, the goods do not conform to the contract

(b) the consumer can require neither repair nor replacement of the goods, because it is impossible or disproportionate

(c) the consumer has required the trader to repair or replace the goods, but the trader is in breach of the requirement to do so within a reasonable time and without significant inconvenience to the consumer

Will a full refund be issued when consumer rejects the goods under CRA?

general rule: where the final right to reject is exercised within 6 months of ownership passing, there should be a full refund with no deduction for use

- but this does not apply to motor vehicles and some other goods

What is the remedy for breach of right to supply (eg seller does not own the goods) under CRA?

consumer can reject the goods for a full refund

What rights are implied into contracts for digital downloads under CRA?

- Meets the standard that a reasonable person would consider satisfactory (taking into account all circs + statements by trader)

- Should be reasonably fit for purpose

- Should match any description of it given by the trader to the consumer

What are the remedies for breach of an implied term for digital downloads under CRA?

- The right to repair or replacement 'within a reasonable time and without significant inconvenience to the consumer' (unless impossible or disproportionate)

- The right to price reduction (only as an alternative after repair or replacement)

However, consumer cannot repudiate as a result of a breach of these implied terms.

What rights are given to consumers of services under CRA?

- Performed with reasonable care and skill

- Reasonable price if not agreed

- Reasonable time if not fixed

- Trader's statements become terms if relied upon

What remedies are available under CRA for services?

- Right to repeat performance (within reasonable time and without significant inconvenience to the consumer)

- Price reduction (as a last-resort alternative to repeat performance)

What is the effect of breach of condition?

- Innocent party can treat contract as repudiated and sue for damages immediately

- Can choose to affirm contract instead but still sue for damages

- If affirmed, all parties remain bound but innocent party waives right to repudiate

What is the effect of breach of warranty?

- Only remedy is damages

- No right to treat contract as repudiated

How are conditions and warranties traditionally distinguished?

- Conditions are important terms 'going to the root of the contract'

- Warranties are less important terms

- likely to be a condition if parties intended at time of contracting that any breach could result in termination

What are innominate terms?

- terms that are not clearly terms nor warranties

- eg intentions of the parties are unclear, or it seems that breach is not meant to result in repudiation

- must apply the Hong Kong Fir test to determine the effects of these terms

What is the Hong Kong Fir test for use on innominate terms?

court advocated looking at the consequences of breach of this innominate term and ask:

"Does the breach deprive the other party of substantially the whole benefit which it was intended that he should obtain from the contract?"

yes = term is to be treated like a condition

no = term is to be treated like a warranty

What is the starting point for classifying terms? (1/2)

Check if term classified by:

- Statute

- The parties

- Previous judicial decisions

What should you look at to classify a term if it has not already been defined? (2/2)

- Examine contract, subject matter and surrounding facts

- Determine if parties intended any breach to allow termination

- If intention unclear or court can see that not every breach is meant to allow termination, likely innominate term

- Apply Hong Kong Fir test to determine whether it could be condition or warranty

What are conditions under the Sale of Goods Act?

sections 12-15:

- right to sell goods

- sale by description

- implied terms about quality or fitness

- sale by sample

- however, all but right to sell goods are modified by s. 15A: if breach is slight that it would be unreasonable for buyer to reject, the term may instead be treated as a warranty (at court's discretion)

What is the innominate term in the SGSA?

s. 13 = Implied term about care and skill.

What does it mean to accept a repudiatory breach?

- innocent party treats the contract as at an end, as is their right

(does not mean they are fine the breach and are continuing the contract)

What does it mean if time is of the essence?

- lateness will amount to a repudiatory breach entitling the other party to terminate the contract

- innocent party can also serve a notice making time of the essence, on a breaching party

- if they do not meet the deadline, innocent party can accept repudiatory breach