LECTURE 7 Terms of the contract

INTRODUCTION
The terms (the contents) of a contract describe the duties and obligations that each party assumes under their agreement. Usually the parties to a contract state the terms expressly, and may choose to do so orally, or in writing, or in a combination of these methods. However, terms can sometimes be implied (required) by law.
2

Representations or Terms
A representation is a statement which may have encouraged or induces one party to make the contract but is not itself part of that contract, while a term (refers to the contents of a contract) is a promise or undertaking that is part of the contract. Disputes generally centre around statements which have proved to be untrue: if that statement is a representation, it can give rise to an action for misrepresentation, whereas if it is a term, it can give rise to an action for breach of contract.
3

Importance of Statement
A statement is likely to be seen as a term if the injured party has made the other party aware that had it not been for that statement, they would not have entered into the contract.
Case example: Bannerman v White (1861)
4

Test for Representations or Terms

Three tests have been used by judges in determining whether a statement made by a party is a term or a mere representation.

1. The time test 2. The writing test 3. The skill and knowledge test.
5

1. The Time Test

If the statement was made at the time the time the contract was formed, or shortly before, then it is more likely to be a term than a representation.
Case example: Routledge v. Mc Kay (1954)
6

2. The Writing Test If the terms are in writing, then any oral statement is more likely to be a mere representation.
Case example: Heilbut, Symons & Co. v Buckleton (1913)
7

3. Special Knowledge and Skill

Where a statement is made by someone who had expert knowledge or skill that is relevant to the subject in hand, the courts will be more willing to deem that statement a term than if the same words were used by an amateur with no special expertise on the matter.
Case example: Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd (1965)
8

Complete Terms
A legally binding agreement must be complete in its term otherwise there is no contract since the parties are still at the stage of negotiating the necessary terms.
Scammell v Ouston 1941
The facts: An agreement for the purchase of a van provided that the unpaid balance of the price should be paid over two years on hire purchase terms. Decision: there was no agreement since it was uncertain what terms of payment were intended. Hire purchase terms vary as to intervals between payments, interest charges to be added, an so on.
9

Terms to be Settled by Other Means

It is always possible for the parties to leave an essential term to be settled by specified means outside the contract. For example, it may be agreed to sell at the ruling open market price (if there is a market) on the day of delivery, or to invite an arbitrator to determine a fair price. The price may even be determined by the course of dealing between the parties:
Case example: Hillas & Co v Arcos Ltd 1932
10

Terms to be Settled by Other Means (Contd)

If the parties use meaningless but non-essential words, for example by use of standard printed conditions some of which are inappropriate, such phrases may be disregarded. Nicolene v Simmonds 1953
The facts: In the wording of a contract there was the phrase We are in agreement that the usual conditions of acceptance apply. In fact there were no usual conditions of acceptance so the words were meaningless, but one of the parties was trying to argue that the contract was unenforceable as it was not complete. Decision: the contract was enforceable as the clause was so meaningless that it could be ignored, and still leave the contract valid and understandable.

11

Express Terms
An express term is a clear stipulation in the contract (they are terms of the contract and may choose to do so orally, or in writing, or in a combination of these methods.) which the parties intend should be binding upon them. Traditionally, the common law had divided terms into two categories.

1. Conditions 2. Warranties
See slide 26 for Implied Terms.
12

: 1. Conditions
Express Terms

A condition is a major term which is vital to the main purpose of the contract. A breach of condition will entitle the injured party to repudiate the contract and claim damages. The injured party may also choose to go on with the contract, despite the breach, and recover damages instead.
13

Express Terms:

1. Conditions (Contd)
Poussard v Spiers (1876)
The facts: Poussard was engaged to appear in an operetta (musical theatrical production) from the start of its London run for three months. The plaintiff fell ill and the producers were forced to engage a substitute. A week later Poussard recovered and offered to take her place, but the defendants refused to take her back. Decision: The court held that the defendant's refusal was justified and that they were not liable in damages. What chiefly influenced the court was that Poussard's illness was a serious one of uncertain duration and the defendants could not put off the opening night until she recovered. The obligation to perform from the first night was a condition of the contract. Failure to carry out this term entitled the producers to repudiate Poussard's contract.

14

Express Terms:

2. Warranties
A warranty is a less important term: it does not go to the root of the contract. A breach of warranty will only give the injured party the right to claim damages; he cannot repudiate the contract.

15

Express Terms:

2. Warranties (Contd)
Bettini v Gye (1876)
The facts: Bettini, an opera singer, was engaged by Gye to appear in a season of concerts. He undertook to be in London at least six days before the first concert for the purpose of rehearsals. He arrived three days late because of a temporary illness. He gave no advance notice and Gye refused to accept his services. Decision: It was held that the plaintiff had been engaged to perform for a 15-week season and the failure to attend rehearsals could only affect a small part of this period. The promise to appear for rehearsals was a less important term of the contract. The defendant could claim compensation for a breach of warranty but he could not repudiate Bettini's contract.

16

Intermediate Terms (Innominate Terms)

It may be impossible to classify a term neatly in advance as either a condition or a warranty. Some undertakings may occupy an intermediate position, in that the term can be assessed only in the light of the consequences of a breach. If a breach of the term results in severe loss and damage, the injured party will be entitled to repudiate the contract; where the breach involves minor loss, the injured party's remedies will be restricted to damages. These intermediate terms have also become known as innominate terms.
Case example: Hong Kong Fir Shipping v Kawasaki Kisa Kaisha Ltd [1962]
17

Implied Terms
Implied terms are those terms which, although not expressly stated by the parties by words or conduct, are by law deemed to be part of the contract. Implied terms is one that is actually stipulated by one of the parties, requiring the other party to do certain things.

Terms may be implied into contracts by: 1. Terms implied by Custom 2. Terms implied by the Courts 3. Terms implied by the Statute
18

1. Terms implied by the Customs

The terms of a contract may have been negotiated against the background of the customs of a particular locality or trade. The parties automatically assume that their contract will be subject to such customs and so do not deal specifically with the matter in their contract.
Case example: Hutton v Warren (1836)
19

1. Terms implied by the Customs (Contd)

But any express term overrides a term which might be implied by custom.
Case example: Les Affreteurs v Walford 1919
20

2. Terms implied by the Courts

(i) Intention of the Parties/Terms Implied as Fact
The courts will be prepared to imply a term into a contract in order to give effect to the obvious intentions of the parties. Sometimes the point at issue has been overlooked or the parties have failed to express their intention clearly. In these circumstances, the court will supply a term in the interests of 'business efficacy' so that the contract makes commercial sense.
Case example: The Moorcock (1889)
21

2. Terms implied by the Courts (Contd)

A more recent test is the 'officious bystander test' used to incorporate implied obvious terms (Shirlaw v Southern Foundries [1940] AC 701). If while the parties were making their contract, an officious bystander (onlooker or a person present but not involved) were to suggest some express provision, they would both reply, "oh, of course."

22

2. Terms implied by the Courts (Contd)

Wilson v Best Travel [1993]
Wilson booked a holiday in Greece with Best Travel. He fell through a glass door in the hotel and was injured and claimed that (a) there was an implied term that the hotel would be reasonably safe, or (b) there was a breach of a duty to provide services with care and skill under s13 of the Supply of Goods and Services Act 1982. In applying the officious bystander test, the court said that the defendants would not have said 'Oh, of course' to such a term, as the defendants had no control over the hotel. The hotels were inspected and as they met Greek standards (although not British ones) the defendants had acted with care and skill. Therefore the plaintiff's claim failed.
23

2. Terms implied by the Courts (Contd)

(ii) Relationship Between the Parties/Terms Implied by Law In certain relationships and contracts the law seeks to impose a model or standardised set of terms as a form of regulation. Such terms arising from the relationship between the parties will be implied as of law.
24

2. Terms implied by the Courts (Contd)

Liverpool City Council v Irwin [1976]
The condition of a council tower block deteriorated: there were defects in the stairs and lifts and internal rubbish chutes became blocked. The Irwins alleged a breach on the part of the council of its implied covenant for their quiet enjoyment of the property. The House of Lords held that it was an implied term of a lease of a maisonette in a Council block that the landlord should take reasonable care to keep the common parts of the block in a reasonable state of repair. The term was clearly not implied in fact: the "officious bystander" test was not satisfied; nor was the implication necessary to give business efficacy to the contract. The implication arose because the nature of the relationship made it desirable to place some obligation on the landlord as to the maintenance of the common parts of the premises. It amounted to the imposition of a legal duty, in spite of the fact that no term could be implied in fact. However, on the facts there had been no breach of the obligation

25

3. Terms implied by Statute (In Law)

Terms may be implied by statute (formal written enactment of legislative authority that governs a country, state, city or country). In some cases the statute permits the parties to contract out of the statutory terms (thus the terms of partnership implied by the Partnership Act 1890 may be excluded). In other cases the statutory terms are obligatory. The protection given by the Sale of Goods Act 1979 to a consumer who buys goods from a trader cannot be taken away from him.
26

3. Terms implied by Statute (In Law)

These are terms which the law dictates must be present in certain types of contract in some cases, regardless of whether or not the parties want them. Liverpool City Council v Irwin (1977)
The facts: The defendants lived in a council marionette, which was part of a high-rise block in Liverpool. The whole building was in an extremely unpleasant condition, with unlit stairs, lifts that seldom worked and rubbish chute that were frequently blocked, all due largely to persistent vandalism (damage / destruction). The defendants (and others in the block) protested against the condition by withholding their rent and, when the case went to court, claimed that the Council were in breach of an implied term in the contract of tenancy that communal areas should be kept in repair and properly lit.

27

3. Terms implied by Statute (In Law)

Liverpool City Council v Irwin (1977) contd
The facts: The Council argued that there was no such implied term. When they took up their tenancy, the Irwin family had been given a copy of the Council rules for tenants, which contained a list of tenants obligations; but there was no written document containing the Councils obligations as landlord. Decision: The House of Lords held that a landlord who let property containing several homes in one building must be under some implied obligation in law to provide proper access to the individual dwellings. They stated that the appropriate implied term in this case was that the landlord should take reasonable care to keep the common parts of the block in reasonable state of repair, and their Lordship held that the Council had in fact taken reasonable care to do so, and could not be expected constantly to repair damage done by vandals and by the tenants themselves. Consequently, the claim failed.

28

3. Terms implied by Statute (In Law)

Certain statues imply terms into particular types of contract, and in some cases notably consumer contracts these terms must be read into the contract, regardless of either partys intentions. For example, under combined provisions of the Sale of Goods Act 1979 and the Unfair Contract Terms Act 1977, goods sold to a consumer by someone acting in the course of a business must be of satisfactory quality and it is not possible to exclude liability for breach of this term. The Late Payment of Commercial Debts (Interest) Act 1998 provides that it is an implied term in commercial contracts that interest must be paid on certain debts, and a further 100 paid for late payment of debts worth over

10,000.

29