Terms

Question 1

Terms of a contract

Answer 1

Usually the terms of a contract are expressly provided in a written agreement between the parties. Occasionally orally agreed

Terms may also be implied into a written agreement through commercial or trade usage, or statutory provision, or by courts if necessary to give business efficacy to the agreement

written contracts and the parol evidence rule - if there is a dispute between parties as to which oral terms should be incorporated within a written contract, this is a matter for determination by the judge on the evidence submitted. If entire agreement has been reduced by writing, the admissibility of additional evidence is governed by the parol evidence rule

Question 2

Parol evidence rule

Answer 2

Where a contract has been reduced to writing, neither party can rely on extrinsic evidence which seeks to add to, vary, or contradict the written document

However, there are so many exceptions to this rule now that for practical purposes it is almost redundant. Generally speaking, the rule applies only where the written document is intended to cover all terms of the contract

Question 3

Incorporation of statements as terms of a contract

Answer 3

Why is there difference between mere representations and legally enforceable terms? Both have legal consequences but latter gives rise to action for a breach of contract

In practice the courts rely on an objective test interpreting the intention of the parties. and identifying status of a particular statement. The question is not easy to answer and courts will apply variety of subsidiary considerations

courts apply a variety of subsidiary considerations such as…

Question 4

incorporations of statements as a term of contract - 1

Answer 4

if there is a significant gap in time between the making of the statement and the reduction of the terms into writing, the court will usually be reluctant to incorporate the statement into the terms of the contract

Routledge v. McKay [1954]
The claimant acquired a Douglas BSA motorcycle and sidecar by exchanging another motorcycle and paying £30. The registration documents stated that it
was a 1942 model and this is what the defendant stated the year of the
motorcycle to be when the claimant came to look at it. The motorcycle was in fact a 1936 model but had been modified and re-registered by a previous owner. The purchaser went away to think about it and then returned a few days later a
written agreement was produced to the effect of the exchange which ended with the words “It is understood that when the £30 is paid over that this transaction is
closed”.

Held: The statement was a representation and not a contractual term. The
registration document was not prima facie evidence of a contractual term.
Neither party was an expert, and there was a lapse of time between the making of
the statement and entering the contract giving the claimant the opportunity to
check the statement. Furthermore there was no mention of the date in the written
agreement and the words of the agreement stating the transaction is considered
closed excluded any possible collateral warranty

Question 5

incorporation of statements as a term of contract - 2

Answer 5

importance of terms - a statement is likely to be treated as a term of the contract if its importance is such that the representee would not have entered into the contract unless the statement was included

Bannerman v. White [1861]
Here there were negotiations for the sale and purchase of some hops, during which the buyer asked if sulphur had been used in their cultivation, saying that if it had
he would not go ahead with a contract. The seller said that no sulphur had been
used, and a contract was concluded. However, this was untrue and the buyer, on being sued for the price, claimed that he was entitled to reject the hops. The court agreed with the buyer: without the false statement there was not merely a
pre-contract inducement but a description of the subject-matter of the sale and
therefore a term of the contract
7

Question 6

incorporation of statements as a term of a contract - 3

Answer 6

reduction of terms into writing - if an oral statement is reduced into a written statement the courts have to decide whether the written contract alone should represent the contract or whether it should be part oral and part written

excluding oral statements tend to suggest they weren’t meant to be part of a contractual term

Question 7

special knowledge

Answer 7

if the person who makes the statements is in possession of special knowledge or skill the courts are more willing to treat the statement as a term of the contract

Schawel v. Reade [1913]
The claimant purchased a horse from the defendant. The claimant went to see the horse and had told the defendant that he wished to use the horse for stud purposes. Whilst he was examining the horse, the defendant told him that the
horse was sound. He stated that if there was anything wrong with the horse he would tell him and told him there was no need to get a vet to check him out. In reliance of these statements the claimant purchased the horse which turned out
to have a hereditary eye disease and was therefore not able to be used as a stud.

Held:
The statement was a contractual term. The defendant had assured him he could relyon his word and the claimant had communicated the purpose for which the horse was to be used. The defendant was thus in breach of contract

Question 8

birch vs paramount estates

Answer 8

The defendants, who were developing a housing estate,
offered a house to the plaintiff stating that it would be ‘as
good as the show house’. The plaintiff bought the house, but
the written contract made no reference to the earlier
representation. The house was not as good as the show
house. The Court of Appeal treated the oral statement as
part of the written agreement, and allowed the plaintiff’s
claim for damages
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Question 9

Implied terms

Answer 9

In some contracts the parties may not have expressed all primary obligations, or may not have provided for every eventuality that might occur whilst the contract is carried out. The law then uses implied terms to fill the gaps left in the contract, provided this does not amount to rewriting a vague or meaningless agreement

terms may be implied into a contract in 3 ways
- by courts
- by statute
- by custom

Question 10

implied terms - 1

Answer 10

terms implied by fact / the officious bystander test

Prima facie that which in any contract is left to be
implied and need not be expressed is something so obvious that it goes without saying, so that if, while the
parties wrer making their bargain, an officious bystander were to suggest some express provision for it
in their agreement, they would testily suppress him with
a common “oh, of course” 14

Question 11

Terms implied by law

Answer 11

not based on common intentions of the parties, but on the basis that such obligations arise generally in a contractual relationship regardless of the particular circumstance of the case

Liverpool City Council v. Irwin [1977]
Liverpool city council owned a block of flats in which the defendant was a tenant. The common parts of
the flats, the lifts, stair cases, rubbish chutes etc, had fallen into disrepair. A rent strike was
implemented by many of the tenants including the defendant. The council sought to evict the defendant for non payment of rent and she counter claimed for breach of an obligation to repair. However, the tenancy agreement did not mention any obligation to repair. In fact the tenancy agreement only imposed obligations on the tenant with no mention of the obligations of the landlord. The defendant asked the court to imply a term that the council had an obligation to repair the
common parts of the block of flats.

Held:
The courts did imply a term. The implied term arose as a legal incident in contracts of a defined type
between landlord and tenant that the landlord was to take reasonable care to maintain the common
parts. However, there was no breach of this duty.

Question 12

Terms implied by statute

Answer 12

In contracts for the sale of goods and supply of services certain
basic provisions are implied by statute in order to provide
protection to purchasers. In consumer contracts, the provisions
derive from the Consumer Rights Act 2015. The Consumer
Rights Act 2015 came into force on 1st Oct 2015 and replaced
many of the provisions contained in the Sale of Goods

Act 1979 and the Supply of Goods and Services Act 1982 where
there is a consumer sale. The Sale of Goods Act 1979 and the
Supply of Goods and Services Act 1982 have not been repealed
and still apply to contracts for the sale of goods and the supply
of services outside a consumer context (eg private sales and
business to business transactions)

Question 13

The implied terms as to title are contained in

Answer 13

S.12 Sale of Goods Act 1979
S.17 Consumer Rights Act 2015
S. 12 Sale of Goods Act 1979 implied terms as to title
S. 12 applies to private sales in addition to where goods have been purchased in
a business to business context.

S.12(1) implies a term that the seller has the right to sell the goods. This covers situations where the seller is selling stolen goods (whether the actual thief or a
subsequent sale in the chain). This term is a condition in all sales.
A buyer who treats the contract as repudiated is entitled to return of the full purchase price even if they have enjoyed use of the goods for some time

Question 14

Rowland v Divall

Answer 14

The claimant, a car dealer, bought a car from the defendant for £334. He
painted the car and put it in his showroom and sold it to a customer for £400. Two months later the car was impounded by the police as it had been stolen. It was then returned to the original owner. Both the claimant and defendant were unaware that the car had been stolen. The claimant returned the £400 to the customer and brought a claim against the defendant under the Sale of Goods Act.

Held:
The defendant did not have the right to sell the goods as he did not
obtain good title from the thief. Ownership remained with the original owner. The defendant had 2 months use of the car which he did not have to pay for and the claimant was not entitled to any compensation for the work carried out on the car

Question 15

Encumbrances

Answer 15

s.12(2) (a) implies a term that the goods are free from any
undisclosed charge or encumbrance. This applies where for
example goods which are still subject to hp terms have been
sold without telling the purchaser of the hp agreement or where
any other debt has been secured on the goods. This term is only
a warranty so whilst the purchaser can claim for any loss caused
by the charge or encumbrance they can not end the contract
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Question 16

Consumer rights act 2015

Answer 16

S.17 (1) Implies a term that the trader has the right to transfer the goods.
S. 19(6) If the trader is in breach of the term that section 17(1), the
consumer has a right to reject without time limit.
S.17 (2) implies a term that the goods will be free from any undisclosed
charge or encumbrance & buyer will enjoy quiet possession of the
goods.

Question 17

description

Answer 17

Sale of Goods Act 1979
s.13(1) Sale of Goods Act 1979 provides that where there is a contract for the sale of goods
by description, there is an implied term that the goods will correspond with the description.
This applies to private sales and business to business contracts.
This section applies where the sale is solely by description. If the buyer sees the actual
goods before the sale then s.13 can not be relied upon
S.13 (1) is simply concerned with description and not quality as was made clear in:

Arcos v Ranaason [1933] AC 470
Consumer Rights Act 2015: applies only to consumer contracts
S.11 (1) Consumer Rights Act 2015 - Where there is a sale by description, there is an implied term
that the goods must match the description
S.11 (2) If the supply is by sample as well as by description, it is not sufficient that the bulk of the
goods matches the sample if the goods do not also match the description

Question 18

quality and fitness for purpose

Answer 18

Sale of Goods Act 1979 - s.14
S.14 only applies where the seller sells goods in the
course of a business. It therefore does not apply to
private sales although there may be an action for
breach of an express term or misrepresentation in
some circumstances.
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Question 19

consumer rights act 2015 - s.9 and s.10

Answer 19

S.9 (1) Consumer Rights Act 2015 implies a term in consumer contracts that the goods are of
satisfactory quality
S.9(2) Consumer Rights Act 2015 An objective test is applied to determine if the goods are
satisfactory.
S.9(3) Consumer Rights Act 2015 the quality of goods includes their state and condition,
including in particular:
a) Fitness for purpose
b) Appearance and finish
c) Freedom from minor defects
d) Safety
e) Durability
S.9(4) Consumer Rights Act 2015 - Can not use S.9 if the defect was bought to the buyers
attention at the time the contract was made

Question 20

Statutory implied terms where services are provided

Answer 20

Where goods are supplied in addition to services outside a consumer contract, eg the installing of a machinery on a production line, the goods are covered by the Supply of Goods and Services Act
1982) (SGSA) rather than the Sale of goods Act.

The SGSA is divided
into two parts Part 1 covers the supply of goods and part 2 covers the supply of services. Part 1 covers contracts which transfer property in
goods and hire contracts. Where the contract is a consumer contract
the Consumer Rights Act 2015 applies.

Question 21

Terms implied by custom

Answer 21

A contract may be subject to terms that exist as a matter of custom, even though they have not been mentioned by
the parties

Hutton v. Warren [1836]
It was proved by local custom that a tenant, on quitting in
accordance with notice given by the landlord, was entitled to a fair allowance for the seeds and labour he had expended on the land, and of which the landlord would
now reap the benefit

Question 22

Classification of terms - conditions and warranties

Answer 22

Not all terms in a contract have the same importance- some breaches will be serious and entitle a party to end the contract, whilst others will amount to only minor breaches and would not give rise to such a right. Terms are traditionally
classified as being either conditions or warranties. The importance of the distinction lies principally in the remedies available.

Question 23

Poussard vs Spiers (1876)

Answer 23

Madame Poussard entered a contract to perform as an opera singer for three months. She became ill five days before the opening night and was not able to perform the first four nights. Spiers then replaced her
with another opera singer.

Held:
Madame Poussard was in breach of condition and Spiers were entitled
to end the contract. She missed the opening night which was the most
important performance as all the critics and publicity would be based
on this night.

Question 24

Innominate or intermediate terms

Answer 24

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd
Facts

The shipowners chartered the vessel Hongkong Fir to the charterers for 24 months. The contract required the vessel to be seaworthy on delivery and to be maintained in good condition.

Although the ship was delivered in reasonably good condition, it had an old engine requiring maintenance and an incompetent chief engineer. This led to repeated breakdowns and significant delays.

The charterers repudiated the contract, arguing breach of the seaworthiness obligation.

Issues

Was the seaworthiness clause a condition, breach of which allows termination?

Were the delays serious enough to entitle the charterers to repudiate the contract?

Held

The Court of Appeal rejected the charterers’ claim.

1️⃣ The seaworthiness obligation was not a condition, but an innominate (intermediate) term.

2️⃣ The delays, although serious, did not deprive the charterers of substantially the whole benefit of the contract. Therefore, they were not entitled to terminate, only to claim damages