Classification of Terms AO3
Implied Terms
Introduction
Implied terms are terms which are automatically part of a contract, even if it not mentioned by the parties at all.
These can be enforced through both common law (e.g. Business efficacy test, officious bystander test and customs and/or prior dealings)
These can also be enforced by statute - s.9, s.10, s.11 of CRA 2015
Common law Implied terms overview
Judges only imply terms because they think the parties intended it and just simply forgot to mention it→ Courts are reluctant to imply terms in order to respect the freedom of contract
Shell V Lockstock- Lockstock argued for an implied term saying Shell wouldn’t sell oil at a lower price, the courts didn’t imply this term as Shell would never agree to this
→ This is fair as it protects individuals from terms which they would not agree to, however inconsistencies can arise when the courts interfere with what the parties intended and agreed upon
Hutton V Warren- A local custom in relation to a lease on a land was treated as any other agricultural lease in respect to the custom, which went against what the parties intended
Bystander Test
Officious bystander test → Where the courts will imply a term if they were to ask someone if the term would be expected to exist
→ This is highly fictitious and highly subjective
Shirlaw V Southern Foundaries- Judge said if a reasonable officious bystander were to be asked if a term is to be implied, they would say “Of Course!”
→ This can be uncertain as it depends on the judge’s opinion, which could lead to unfair verdicts
However, the updated test in M&S V BNP now said “a term can only be implied if without the term, the contract lacks commercial or practical coherence
→More fairer as it is more specific and less subjective
Nonetheless, in common law tests one party would argue one way and the other party would disagree,
s.9 CRA 2015 “satisfactory quality”
Parliament’s intention when implying a term is to protect the weaker party, who is known as a “consumer” - an individual who is acting for purposes wholly or mainly outside his trade, business etc.
Statutory implied term seen in s.9 Consumer Rights Act 2015- “must be of satisfactory quality” → meaning goods must meet standards of what a reasonable person would consider satisfactory
→ This allows a good standard of quality and protects consumers from getting poor quality
→ However, statutory implied terms interfere with the freedom of contract drastically, as it ignores the business’s terms, even if the term is to take advantage over the weaker party, this means businesses can no longer create contracts without Parliament’s approval → unfair
Statutory Implied terms overview
Uncertainty around statutory implied terms raises a risk to contracts being repudiated too easily, due to trivial errors being broken in a term
Re Moore- there was the correct amount of peaches, but they were packaged slightly different to the terms agreed, which was held to be in breach of s.11 CRA 2015 - “as described”
→ This breach allowed CLMT to end the contract, which can be seen as unfair as it was an insignificant error, this creates uncertainty in contracts
However, CRA 2015 only applies to consumers- trader contracts, meaning private sale contracts are allowed to have a greater freedom of contracts
However, this means they have less protection, showing how statutory implied terms are restricted
Conclusion
Statutory and common law implied terms are fair but there are some interference with the freedom of contract
→ Link to Question
Express Terms
Introduction
Express terms are terms which are agreed by both parties in a contract, in the old system the 2 types of express terms were conditions and warranties, each with their own type of remedies
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Fairness/benefit of Conditions and Warranties
Well established categories. → All terms were either conditions or warranties. This achieved certainty.
Poussard v Spiers, the singer should have known that the requirement to perform on opening night was very important so her contract would be ended if she didn’t appear.
This distinguishment can be further seen in warranties
Bettini V Gye- singer missed 3 out of 6 rehearsals, but did not miss any actual performances so the contract could not be repudiated
→ Increases certainty
However, difficulties arise when a party terms a minor term as a condition, meaning contracts can be repudiated too easily
Arcos V Ronassean- A condition was made concerning the thickness of timber, which was actually insignificant and C only did this as the price of timber was falling so he wanted to get it elsewhere cheaper
Remedies
Parties could know in advance what the consequences would be if they breached a particular term.
e.g. condition breached means it could lead to repudiation and damages, whereas a breach of a warranty would only lead to damages (terms reflect the importance of terms)
Seen in Bettini V Gye (see above)
However, if a term was not labelled as a condition or warranty then difficulties can arise as the judge has to decide the importance of terms
→ In contrast Courts decided category of term (condition or warranty) based on what the judge presumed the parties intended (for it to be an important term or not) which respects freedom of contract
→ may be unfair as its not always what parties intended, as in Bettini, the D wanted to end the contract
Use of Innominate terms
Established in Hong Kong Fir- It was held that 18 weeks of a ship being repaired out of 2 years was only a minor breach, despite it being said the ship would be able to last long
→ This is fair as it prevents parties repudiating contracts too easily as seen in Arcos v Ronnasean (see above)
But it can be seen as unfair, as it what a judge thinks is not that serious whereas the parties would differ, (18 weeks is still a significant amount of time)
Guidelines for Innominate terms
It was said in Hong Kong Fir, that terms should be respected if they are already labelled as a condition or warranty
→ respects freedom of contract
This respect of the classification of terms was seen in Lombard V Butterworth → payments being late respected as a condition so D could repudiate the contract
Anomalies can arise where a judge still decides the term to be a innominate term, even when it is labelled as a condition
Seen in Schuler v Wickman → Missing a few visits labelled as a condition by the parties, but the courts intervened and said it was an innominate term and it wasn’t severe enough for D to repudiate the contract and could only claim for damages
→ Major interference with freedom of contract, promotes uncertainty
Conclusion
New system still provides fairer results, potential reform could be that parties cannot label minor terms as conditions, and if they do they can be ignored as in Schuler
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