Chapter 10: Terms

Question 1

A contract consists of a number of terms. What are the 2 terms that describe the duties and obligations of each party assumes under their agreement.

Answer 1

Major obligations
Minor obligations

Question 2

What are the 4 methods of creation of terms?

What is the cause of action that is brought if terms are breached?

Answer 2

A term can be made

• expressly
• implied
• orally
• writing

When a term is breached it is a breach of contract

Question 3

What is the Contractual Cartography Test?

Answer 3

What is it?

• Allows judges to identify/distinguish the differences between terms and the other statements

Lord Moulton Fletcher in Heilbut Symons & Co v Buckleton stated

• CCT are sets of questions used by the courts to decipher the intention of contracting parties
• Not conclusive, but courts use them to decide how the parties treated a particular PCS

Question 4

What are the 6 guidelines that are taken into account of the CCT?

Answer 4

1. The importance of the statements to the parties
2. Specialist knowledge/skills
3. If the knowledge was the same or the other party (buyer) has greater knowledge - then it is representation
4. Was the statement reduced in writing
5. The time the statement was made
6. Accepting responsibility / advising on verification

Question 5

What is the definition of terms?

Answer 5

Clauses that creates obligations in a contract

Question 6

What are the 2 main sources of terms?

Answer 6

Express terms (terms that are put in by the parties)

• Oral
  Written

Implied terms (not stated in document; but feels should be there)

• Courts
• Custom
• Statute (most important)

Question 7

What are express terms? What are the 2 types of terms under this and what is the nature of it?

Answer 7

Terms specifically agreed upon by the contracting parties. Can be through oral or written

Oral Terms

• It is a question of fact for the judge to decide what exactly was said by each individual party
• Hard to get evidence (an issue)

Written Terms

• The courts can face some difficulties - whether the courts can go beyond the written agreement in an attempt to discover the existence of an additional term to the contract (Parol Evidence Rule)

Question 8

What is the Parol Evidence Rule under written terms of Expressed Terms? What is the general rule?

general rule

Answer 8

GR - Once the contract has been reduced in writing, the parties cannot adduce extrinsic (outside) evidence to add, vary or contradict the written contract - Jacobs v Batavia & General Plantations Trust Ltd. (1924)

• On the basis that what was already written in the document, are the parties final thoughts (cannot change anymore)
• To promote certainty (AIB Group plc v Martin (2001))

Note

• However this rule, if applied too strictly/rigidly can lead to considerable injustice. It is therefore not an absolute rule
• E.g. written document procured by fraud

Question 9

What are the 2 situational circumstances where there is excpetions to the Parol Evidence Rule?

exceptions

Answer 9

Partly oral, partly written contract

• Where the intended document was not intended to disclose the whole information of the agreement (Allen v Pink (1838))
• But it is presumed if the contract was written, it was the full contract
• Party that wants to adduce extrinsic evidence has to give evidence to rebut this presumption

Extrinsic evidence is admissible/permitted to prove -

1. Terms which must be implied into the agreement (Gillespie Bros & Co v Cheney; Eggar & Co. (1896))
2. A custom which must be implied into the contract (Hutton v Warren)
3. To show that the contract is invalid on the grounds of misrepresentation, mistake, fraud/non est factum (Campbell Discount Co v Gall)
4. To show that the document should be rectified/modified
5. To show that the contract has not yet come into existence/ceased to operate (Pym v Campbell)
6. To prove the collateral agreement (Mann v Nunn)

Question 10

What is an Entire Obligation Clause under expressed terms?

Answer 10

Used in Commercial Contracts

• Usually an Express term/Clause that expressly provides that the written contract records the totality of their legally enforceable agreement
• Cannot use extrinsic evidence (for certainty)

Question 11

What is the case for entire obligation clause?

Answer 11

Axa Sun Life Services v Campbell Martin (2011)

Held

• CA -such clauses will help reduce litigation and cost

Question 12

What are criticisms to the Parol Evidence Rule?

Answer 12

Subject to criticism as there too many exceptions to it

Abolish it

• In 1986, the Law Commission recommended that it be abolished but in the more recent report, it concluded that no legislative action need to be taken

2 reasons not to abolish

• This rule did not preclude the courts from having the recourse to extrinsic evidence where such a course was consistent with the intentions of the parties
• Any legislation would most likely cause confusion rather than clarify the law

Question 13

What is the definition of Implied terms?

Answer 13

Terms that are implied (by courts/customs/statute) into the contract in addition to the express terms of the contract (not expressly stated in the contract)

Question 14

What are 2 things to note about courts and implied terms?

Answer 14

1) Courts are generally reluctant to imply terms into the contract as their role is merely to interpret and uphold the contract. Not to create contracts

2) Courts would use this as integrity - to assist parties that are at a lesser bargaining position (as they don’t know their rights)

• Crossley v Faithful & Gould Holdings Ltd [2004]
• Geys v Societe Generale [2012]

Question 15

What are the 3 sources of implied terms?

Answer 15

1. Common law
2. Custom
3. Statute

Question 16

What is the nature of relationship of terms implied by common law?

Answer 16

• Some terms will be implied because of the nature of the relationship between the parties
• They are ‘general default rules’ arising from ‘particular forms of contracts’ - Lord Steyn in Equitable Life Assurance Society v Hyman [2002]

Question 17

What are the 2 types of relationships under terms implied by common law?

Answer 17

Landlord and tenant

Employer and employee

Question 18

What is the case for landlord and tenant?

terms implied by common law

Answer 18

Liverpool City Council v Irwin [1976]

Question 19

Liverpool City Council v Irwin [1976]

terms implied by common law

Answer 19

Held

• HOL implies a duty to take reasonable care of the so called common parts on the landlord of premises with multiple occupants

Question 20

What 5 restrictions/limitations of employer and emplyee relationships?

terms implied by common law

Answer 20

Terms have been implied into contracts of employment to the effect that an employer shouldn’t -

1. Overwork its staff in a way that damages their health
2. Conduct business fraudulently
3. Go back on an earlier promise to provide a large ‘bonus pool’ (Attrill v Dresdner Kleinwort Ltd [2012]) in a manner likely to destroy or seriously damage the relationship of confidence and trust between the 2 parties
4. Business Efficacy Test
5. The Officious Bystander Test

Question 21

What is the case for employers should not overwork its staff in a way that damages their health?

Employer and emplyee relationship

Answer 21

Johnstone v Bloomsbury Health Authority [1992]

Question 22

What is the case for employers should not conduct business fraudulently?

employer and employee relationship

Answer 22

Malik v Bank of Credit and Commerce International SA (In Liquidation) [1997]

Question 23

What is the 2 cases for employers should not go back on their promise, giving large bonus pool which may destroy or seriously damages employer and employee relationship?

employer and employee relationship

Answer 23

Scally v Southern Health Board [1992]

In contrast with

Crossley v Faithful & Gould Holdings Ltd (2004)

Question 24

What is the Business Efficacy Test?

Employer and employee

Answer 24

Where courts may imply terms into the contract to give effect to what appears to be the unexpressed presumed intention of the parties
* In some circumstances, the contract will not function unless the term is implied
* On grounds that it is for ‘business efficacy’ of the contract (makes business sense)

Question 25

What case was adopted by the Business Efficacy Test? What is the test about?

Answer 25

**Moorcock (1889)** test * where the term was implied, because without it, the **contracts cannot be performed as the parties intended** * The contract would not **make business sense** * Term implied to give business efficacy

Question 26

What is the case for the Business Efficacy Test?

Answer 26

**Re Force India Formula One Team Ltd [2022]**

Question 27

What is The Officious Bystander Test? What case created this test?

Answer 27

Courts imply a term that was **so obvious and clear** that the parties would have intended to include the term (**Shirlaw v Southern Foundries Ltd (1926)**) * Something so obviously clear that if the parties were arguing on the terms. A bystander would go “**oh, of course**”

Question 28

What are **terms implied by custom or trade usage**? What are the cases for this?

Answer 28

Terms consistent with the **established customs/usage** of the relevant trade would be **implied unless** such a term would be **inconsistent with the express terms of the contract** * In order for the term to be incorporated, the term **must be well established and notorious** (well known within the trade context, e.g., paying of commissions) Case * **Hutton v Warren** * **British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd**

Question 29

How does terms implied by statute work? | How does it apply on contracts?

Answer 29

Statute applicability depends on the **type of contract**

Question 30

What are the 2 types of contract that is governed by terms implied by statute? What are the relevant Acts/statutes for each of them?

Answer 30

Business to business (B2B) * **Sale of Goods Act 1979** (SOGA) * **Supply of Goods and Services Act 1982** (SOGASA) Business to consumer (B2C) * **Consumer Rights Act 2015** (CRA)

Question 31

What does **Sale of Goods Act 1979** state for B2B contracts? What section defines this?

Answer 31

Act only applies to a contract for the **sale of goods** Defined in **Section 2** SOGA * “the seller transfers or agrees to transfer property in the goods to the buyer for a **money consideration** called the price”

Question 32

What are the relevant sections and subsections of **SOGA 1979** for B2B contracts? What do these sections talk about? ## Footnote B2B

Answer 32

**Section 12** - right to sell * Section 12(1) * Section 12(5a) **Section 13**- sales by description * Section 13(1a) * Section 13(2) * Section 13(3) **Section 14(2)** - satisfactory quality * Section 14(2) * Section 14(2a) * Section 14(2b) * Section 14(2c) **Section 14(3)** - fitness for a particular purpose **Section 15(1)** - sample by sample

Question 33

What are the relevant sections and subsections of **SOGASA 1982** for B2B contracts? What do these sections talk about? | Supply of Goods and Services Act 1982 ## Footnote B2B

Answer 33

**Section 13** - services provided

Question 34

What does **Consumer Rights Act 2015** state about B2C contracts?

Answer 34

* CRA 2015 imposes a **duty on traders contracting with consumers**, that correspond (relate) to implied terms B2B contracts * Uses **language of duties** - Doesn’t make a distinction of conditions & warranties

Question 35

What are the relevant sections and subsections for **CRA 2015** for B2C contracts? What do these sections talk about?

Answer 35

**Section 9** - goods to be satisfactory quality * Section 9(1) * Section 9(2) * Section 9(3) * Section 9(4) **Section 10** - goods to be fit for particular purpose * Section 10(1)(3) * Section 10(3) * Section 10(4)(3) **Section 11** - goods to be as described * Section 11(1) * Section 11(2) **Section 13** - goods to match a sample * Section 13(1) * Section 13(2)(a) * Section 13(2)(b) **Section 14** - goods match a model seen or examined * Section 14(1) * Section 14(2) **Section 49** - service to be performed with reasonable care and skill * Section 49(1) **Section 51** - reasonable price to be paid for a service * Section 51 * Section 51(1)(a) * Section 51(1)(b) * Section 51(1)(c) * Section 51(2) * Section 51(3) **Section 52** - service to be performed within a reasonable time

Question 36

What are classification of terms?

Answer 36

**Types of terms** offer the kind of **remedies available** for breach of contract Note * remedy depends on the **type of breach/obligation**

Question 37

What are the 3 types of classification of terms?

Answer 37

1. Condition (core/fundamentals of the contract) 2. Warranty 3. Innominate

Question 38

What are the remedies available for each of the classification of terms?

Answer 38

**Condition** * terms and damages & affirm and damages **Warranty** * damages only **Innominate terms** * (depends on seriousness of breach)

Question 39

What is an important thing to note about classification of terms?

Answer 39

1) Termination of a contract can be a **drastic/big step**, as sometimes it's used by the Injured Party to escape a **Bad Bargain** * Motive of termination irrelevant 2) Party **rescinding** for breach - **need not show** that the **breach of condition actually caused any loss** * **Bowes v Shand [1877]** * **Re Moore and Landauer [1921]** 3) There is **different meaning** of rescission regarding breach of contract (terms) and for misrepresentation (representation)

Question 40

What is the case of the injured party escaping a bad bargain under classification of terms?

Answer 40

Arcos Ltd v Ronaasen & Sons (1933) Facts 1. Regarding purchase of timber 2. Goods were described in the contract as half inch thick 3. Turns out was 9/16” thick 4. But this didn’t impair its utility for making cement barrels 5. Buyer rejected all the goods delivered Held 1. Buyer was **entitled to reject** the goods Takeaway * Termination was allowed **even though the motive was clear** (that market price for timber fell) * On grounds that it was the BUYERS fault, that he entered into a bad bargain

Question 41

What is a **condition**? What are the aspects, nature of the breach, and the remedy available?

Answer 41

Introduction * **Core terms** of the contract (root/major obligation) Aspects * Obligations that go directly to the substance of the contract * So essential to the v**ery nature of the contract** that the non-performance/failure will amount to substantial failure of the contract (**Wallis, Sons & Wells v Pratt & Haynes (1911)**) Breach * Breach is generally **repudiatory** (so serious) Remedy - innocent party entitled to either 1. **Terminate** the contract & **claim damage**s; or 2. **Affirm** (go with) the contract and **claim damages**

Question 42

What is a **warranty**? What is the nature of the breach and remedy for this?

Answer 42

Introuduction * Terms that contain **minor obligations** (less important) * **Collateral or secondary** to the main purpose of the contract Breach * Not repudiatory Remedy * Innocent party entitled to **damages only**

Question 43

What is an important thing to note about warranties?