Contract Law: Express and Implied Terms - Week 4

• Terms of a contract define the rights and obligations arising from it.
• Contractual terms can be express or implied.

Express Terms

• Express terms are statements made by the parties, intending to be bound, either in writing, orally, or a combination of both.

Implied Terms

• Implied terms are not explicitly stated but are deemed by law to exist.

Express Terms Contrasted with Representations

• Statements during negotiations can be:
  • Mere puffs: Statements of no legal significance.
  • Representations: Statements of fact or law not intended to be binding but induce the contract.
  • Terms: Statements of fact the parties intend to be binding.
• The distinction is important when a statement is untrue or a promise is unfulfilled.

Breach of Contract

• If a statement is a term and is not fulfilled, it is a breach of contract, entitling the innocent party to remedies, including damages.

Misrepresentation

• If an untrue statement is a representation, it may amount to misrepresentation, which also provides remedies.
• A statement can be both a term and a representation.

Determining a Representation or a Term

• The key is whether the parties intended the statement to be binding, assessed objectively.
• Statements made to induce a contract are assumed to be binding terms.
• Courts consider various factors to determine intent.

Importance of the Statement

• A statement is a term if the injured party would not have entered the contract without it.
  • Bannerman v White (1861): A statement about sulphur treatment of hops was a term of the contract.

Timing

• Statements made at the time of contracting are more likely to be terms.
  • Routledge v McKay: A statement about a motorcycle's model year made a week before the contract was a representation, not a term.

Reduction to Writing

• If a contract is written, oral statements not included are less likely to be terms.
  • Routledge v McKay: The written contract's silence on the motorcycle model year indicated the statement was not a term.

Special Knowledge or Skill

• Statements by parties with special knowledge are more likely to be terms.
  • Oscar Chess Ltd v Williams: The seller's statement about the car's age was a representation because the buyer (car dealer) had more expertise.
  • Dick Bentley v Harold Smith (Motors): The car dealer's statement about mileage was a term because they had superior knowledge.

Assumption of Responsibility

• Express acceptance of responsibility for the soundness of an item can make a statement a term.
  • Schawel v Reade: The seller's assurance about a horse's fitness for stud was a term.
  • Ecay v Godfrey: The seller's advice to survey a boat indicated the statement was not a term.

Express Terms: Ascertaining the Terms

• The goal is to determine what an objective observer would consider the parties intended to be bound by.

Signed Written Contract

• Signing a contract indicates intent to be bound, even if the terms are unread or misunderstood.
  • L'Estrange v Graucob Ltd: A party is bound by a signed contract.
• Exception: If the document signed was not intended to have contractual effect, the terms are not binding.
  • Grogan v Robin Meredith Plant Hire: A time sheet was a post-contractual document without contractual effect.
• Misrepresentation of a clause can prevent reliance on it.
  • Curtis v Chemical Cleaning and Dyeing Co: An orally misrepresented clause was not binding.

Incorporation by Notice

• Terms are part of the contract if reasonable steps were taken to bring them to the claimant's attention.
  • Parker v South Eastern Railway Co: Reasonable steps to notify terms incorporate them.
• Notice can refer to other documents.
  • Thompson v London, Midland & Scottish Railway: Terms in a timetable were incorporated by reference.
• Onerous terms require clear notification.
  • Thornton v Shoe Lane Parking, Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd: Onerous clauses need explicit attention.
• Terms are binding in signed documents even if onerous.
  • L'Estrange v Graucob Ltd: Signed terms are binding regardless of how onerous.

Online Contracts

• Parker-Grennan v Camelot UK Lotteries Ltd : Reasonable steps were taken to bring the relevant clauses to the claimant’s attention and the claimant was therefore bound by those terms.

Timing of Notice

• Notice must be given before or at the time of contracting.
  • Thornton v Shoe Lane Parking: Terms on a ticket issued after payment were not incorporated.

Contractual Effect of Document

• The document giving notice must be intended to have contractual effect.
  • Chapleton v Barry UDC: A deck chair ticket was a receipt, not a contractual document.

Incorporation by Course of Dealing

• Clauses from previous dealings may be implied if the course of dealing is consistent and regular.
  • McCutcheon v David MacBrayne: Inconsistent signature requirements prevented incorporation.
  • Hollier v Rambler Motors (AMC) Ltd: Three or four transactions over five years were insufficient.
  • Harry Kendall & Sons v William Lillico & Sons Ltd, Petrotrade Inc v Texaco Ltd : More frequent transactions were sufficient.

Other Ways of Agreeing Express Terms

• Terms can be agreed in conversations, verbal exchanges or in writing.

Incorporation and Exclusion Clauses

• Exclusion clauses limit or exclude liability for breach.

Entire Agreement Clauses

• These clauses state that a written contract is the complete agreement, superseding prior understandings.
• They aim to reduce uncertainty about oral terms.

Implied Terms: Introduction

• Courts may infer terms not expressed, which are as binding as express terms.
• Terms can be implied in fact or in law.

Terms Implied in Fact

• Intended to give effect to the presumed intention of the parties.
• Courts consider trade customs and business efficacy.
• Express provisions override implied terms.

Trade or Professional Customs

• Terms implied based on the intent to be bound by well-known customs.
  • British Crane Hire v Ipswich Plant : Trade customs can be implied

Course of Dealing

• Terms implied based on prior consistent dealings, presuming continued intent.

Business Efficacy

• Terms implied to make the contract workable.
  • The Moorcock : Terms implied to give business efficacy to a contract.
• The implied term must be obvious.
  • Shirlaw v Southern Foundries : The ‘Oh, of course’ test

Terms Implied as a Matter of Law

• Implied at common law: to give effect to legal duties arising from certain contractual relationships.
  • Liverpool City Council v Irwin : Terms implied at common law in landlord and tenant relationships

Terms Implied by Statute

• Implied by laws like the Sale of Goods Act 1979, the Consumer Rights Act 2015, and the Supply of Goods and Services Act 1982.

Sale of Goods Act 1979: Important Implied Terms

• Most important legislation on the sale of goods.
• Does not apply to consumer contracts under the Consumer Rights Act 2015.

Implied Terms as to Title – s12

• The seller has the right to sell the goods, a condition of the contract.

Correspondence with Description – s13

• Goods must match their description, a condition under s13(1A).

Satisfactory Quality – s14(2)

• Goods sold in the course of a business must be of satisfactory quality.
• s14(2A): Satisfactory quality is judged by what a reasonable person would consider satisfactory.
• s14(2B): Considers fitness for purpose, appearance, freedom from defects, safety, and durability.
• s14(2C): Exceptions include defects drawn to the buyer's attention or revealed by examination.
• Breach of s14(2) is a breach of condition.

Fitness for a Particular Purpose – s14(3)

• Goods must be fit for a purpose the buyer makes known to the seller.
• No implied condition if the buyer does not rely on the seller's skill or judgment.
• Breach of s14(3) is a breach of condition.

Sale by Sample – s15

• The bulk must correspond with the sample in quality, with goods free from hidden defects.
• Breach of s15(2) is a breach of condition.

Modification of Remedies for Breach of Condition - s15A

• If a breach is slight and rejection is unreasonable, it is treated as a breach of warranty, not a condition.
• The seller must prove that the breach is slight.

Contracting Out of Implied Terms

• s 55: Exclusion/restriction is possible, subject to the Unfair Contract Terms Act 1977 (UCTA).
• s 6(1)(a) UCTA: Section 12 SGA 1979 cannot be excluded or restricted.
• s6(1A) UCTA: Sections 13-15 can be excluded/restricted if reasonable.

Supply of Goods and Services Act 1982 (as amended)

• Applies to contracts for the transfer of property in goods, hire of goods, and supply of services.
• Does not apply to consumer contracts under the Consumer Rights Act 2015.

Contracts for the Transfer of Property in Goods

• Terms implied corresponding to those in contracts for the sale of goods (title, description, quality, fitness, sample).

Contracts for the Hire of Goods

• Terms implied corresponding to those in contracts for the sale of goods (right to transfer possession, description, quality, fitness, sample).

Contracts for the Supply of Services

• s 13: Services must be carried out with reasonable care and skill.
• s 14: If the time is not fixed, services must be carried out within a reasonable time.
• s 15: If the consideration is not determined, a reasonable charge must be paid.

Contracting Out of Terms

• Exclusion subject to the Unfair Contract Terms Act 1977 (UCTA).

Consumer Rights Act 2015

• Part I: Consumer contracts for goods, digital content, and services.
• Part II: Regulates unfair terms.

Scope

• Applies to contracts between a trader and a consumer.
• Consumer: An individual acting for purposes wholly/mainly outside their trade/business.
• Trader: A person acting for purposes relating to their trade/business.
• The trader must prove if the individual was not acting as a consumer.

Contracts for Goods

• Key implied terms:
  • s 9: Goods of satisfactory quality.
  • s 10: Goods reasonably fit for the consumer's purpose.
  • s 11: Goods match the description.

Contracts for Digital Content

• Implied terms:
  • s 34: Content of satisfactory quality.
  • s 35: Content reasonably fit for purpose.
  • s 36: Content matches the description.
• s 34(2): Quality must meet the standard a reasonable person would consider satisfactory.
• s 34(5): Considers public statements about the content.

Contracts for Services

• Key rights:
  • s 49: Service performed with reasonable care and skill.
  • s 51: Reasonable price if not agreed.
  • s 52: Service provided in a reasonable time if not fixed.
• s 50(1): Statements made about the service are included as terms.

Additional Remedies

• Apply alongside general contract law remedies.

Contracts for Goods Remedies

• Non-conforming goods (breach of ss 9, 10, 11) give rise to:
  • Short-term right to reject (30 days).
  • Right to repair or replacement (unless impossible/disproportionate).
  • Right to price reduction or final right to reject.
• After repair/replacement, if goods remain non-conforming: price reduction or final rejection.

Contracts for Digital Content Remedies

• Non-conforming content (breach of ss 34, 35, 36) give rise to:
  • Right to repair or replacement.
  • Right to price reduction.
• s 42(9): Non-conformity within six months is presumed to have existed at the time of supply.
• s 43: Repair/replacement must be within a reasonable time and without significant inconvenience.
• s 44: Price reduction available if repair/replacement is impossible/disproportionate or fails within a reasonable time.
• s 45: Consumer gets a refund
• s 46: Compensation for damage to a consumer's device due to non-compliant digital content.

Contract for Services Remedies

• Non-conforming services (breach of s 49) gives rise to:
  • Right to require repeat performance.
  • Right to a price reduction.
• Non-conforming services (breach of s 52 relating to timing) - Right to a price reduction
• s 55: Repeat performance must be within a reasonable time and without significant inconvenience.
• s 56: Price reduction available if repeat performance is impossible.

Conditions and Warranties: Introduction

• Terms of a contract can be conditions, warranties, or innominate terms.
• Breach of contract leads to remedies.

###Breach of a Condition

• The innocent party has a right to treat the contract as repudiated by the breaching party
• The affect that both parties are released from all future obligations under the contract
• The innocent part can also sue for damages immediately
• Has the option of not exercising the right to treat the contract as at an end, and instead chooses to affirm the contract

Breach of Warranty

• The only remedy is sue for damages ie there isn't a right to treat the contract as repudiated

Distinguishing Between Conditions and Warranties

• Traditional view: A condition "goes to the root of the contract". Poussard v Spiers
• the parties intended, at the time of contracting, that any breach of the relevant term could result in the innocent party terminating (see Poussard v Spiers again)

Innominate Terms

• Terms are neither conditions nor warranties but of an intermediate nature.
  • Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd
• Consequences of breach determine the remedy:
• Does the breach deprive the injured party of substantially the whole benefit of the contract?
  • If it is a YES – Right of election: Affirm & damages OR terminate & damages
  • If it is a NO – Damages only
• Taking all this into account, when considering the classification of terms, the starting position should be to consider whether the term in question has been classified as a condition or a warranty by: i) statute; ii) the parties or iii) previous judicial decision(s). If that does not provide an answer, then the court will need to look at the contract, the subject matter and the surrounding facts to determine whether the parties intended for any breach of the term to entitle the innocent party to terminate the contract (this is where the “root of the contract” test may be relevant). If the court cannot determine the parties' intention, or determines that their intention was that not every breach would lead to the right to terminate, then the court is likely to decide that the term is innominate, and apply the test from Hong Kong Fir.

Classification of Statutory Implied Terms

• SGA 1979 ss12-15 - breached terms allow the right to reject and claim refund (Conditions )
• SGSA 1982 s13 - (Innominate terms)

###s 15A

• There are remedies for a breach of the terms implied by ss 13-15 SGA Section 15A provides that if the breach is so slight that it is unreasonable for the buyer to repudiate the contract and reject the goods, the breach should only be treated as a breach of warranty. In such instance, the buyer will only be entitled to claim damages.
• s 12(1) SGA, the implied condition as to title doesn't apply.
• Remedy may happen at the court's discretion only, be treated as a breach of warranty and accordingly the only remedy available will be to claim damages.

s 13-15 SGA

• Section 15A provides that if the breach is so slight that it is unreasonable for the buyer to repudiate the contract and reject the goods, the breach should only be treated as a breach of warranty. In such instance, the buyer will only be entitled to claim damages.
• Remedy may happen at the court's discretion only, be treated as a breach of warranty and accordingly the only remedy available will be to claim damages.

Key Word

• Parties have committed a breach of a condition is said to have committed a repudiatory breach.
• Innocent party can elect to 'treat the contract as repudiated' and also to treat contract as at an end (which is often committed by the defaulting party).

Time for Performance or Completion

• Parties must state for a date for delivery for the sale of goods, in most kinds of contract.
• The intention of the parties depends on whether it is a breach of condition or a warranty depending.
• 'Time is of the essence' is used by certain requirements as timing is essential to the contract, which for instance occurs mercantile contracts
• Failure to comply with such a stipulation is breach of contract, amountint to repudiatory breach if there is lateness entitling the other party to terminate the contract.
• The serving innocent party must provide a notice on the defaulting party which states time is of the essence (which becomes so)
• Notice must state completion date to be considered a reasonable requirement.