Topic 10 - Contract Terms

BSM579 Legal Systems and Contract Law
Contract Terms
Topic 10: Contract Terms

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In this topic, we will deal with the following matters:
Express contract terms
Implied contract terms
Incorporated contract terms
We will complete our examination of contract terms in Topic 11
Topic Content
Contract Terms
We now turn to consider the content of the contract itself. In other words,
at this stage, we are satisfied that a valid contract exists. We must now
examine its terms. A term in a contract can be one of three basic types:
Express term
Term incorporated by reference
Implied term
We will deal with each of these in turn. With regard to the express and
incorporated terms, they will have to be interpreted. As with statutes, the
words and language in a contract can be ambiguous or incomplete, and,
just as with statutory interpretation, the courts have developed a number
of principles to guide the task of contractual interpretation.
1. Express Terms
Robert Gordon University 2009
Contract Terms
An express term of a contract is one that the parties have specifically

agreed upon. Most commonly, express terms are to be found in written
contracts. However, an express term can be one agreed orally.
Usually, when the parties have entered into a written contract, all of the
express terms will be within that contract. However, sometimes one of
the parties will allege that something was agreed orally in addition to the
written terms. The additional terms might add to the written ones, or it
may even be claimed that they contradict them. The question in such a
case is: do the courts ignore such claims and concentrate only on the
written terms or can they take into account evidence of the oral terms
too? The answer is that normally the written terms only are looked at, but
sometimes the courts consider evidence of oral terms too.
This is the basic position in Scotland and England, but the formulation of
the position is slightly different in these jurisdictions.
In England, there is a common law rule known as the parole evidence

rule. This rule provides that where a written contract exists between the
parties, they cannot introduce other express terms not contained in the
written contract itself. However, this rule only applies where the contract
is wholly in writing. Where it is alleged that there are oral terms too, the
party seeking to rely on those terms can argue that the rule does not
apply since the contract was not wholly in writing. This deprives the
parole evidence rule of any real meaningful effect, since it can always be
pushed aside by an argument that the contract was partly oral and partly
in writing, allowing the opportunity for evidence of the oral terms to be
led.
In two leading English cases, evidence was admitted of an oral contract

and it was held to overrule the contrary written express term: J Evans &
Son (Portsmouth) Ltd. v Andrea Merzario Ltd. [1976] 1 WLR 1078
and Couchman v Hill [1947] KB 554.
The Scottish position is similar, but has a statutory basis. The relevant
provision is the Contract (Scotland) Act 1997, s.1:
s 1 Extrinsic evidence of additional contract term etc.

(1) Where a document appears (or two or more documents appear) to
comprise all the express terms of a contract or unilateral voluntary
obligation, it shall be presumed, unless the contrary is proved, that the
document does (or the documents do) comprise all the express terms of
the contract or unilateral voluntary obligation.
Contract Terms
(2) Extrinsic oral or documentary evidence shall be admissible to prove,

for the purposes of subsection (1) above, that the contract or unilateral
voluntary obligation includes additional express terms (whether or not
written terms).
(3) Notwithstanding the foregoing provisions of this section, where one
of the terms in the document (or in the documents) is to the effect that
the document does (or the documents do) comprise all the express
terms of the contract or unilateral voluntary obligation, that term shall
be conclusive in the matter.
(4) This section is without prejudice to any enactment which makes
provision as respects the constitution, or formalities of execution, of a
contract or unilateral voluntary obligation.
The simplest way to deal with the situation is to provide for it in the
contract. If not, where the contract appears to contain all of the terms, it
will be treated as such, but this is only a presumption that can be
rebutted (challenged) by evidence to the contrary.
In both jurisdictions, then, the effect is similar: oral terms can be

evidenced, and if accepted, will be added to or will displace the relevant
written contract term.
One other point remains on express terms. Where a contract is in writing,

it need not be contained purely in one document. There may be an
exchange of letters, e-mails, faxes. In addition, in the case of an oral
contract or a partially oral contract, a number of conversations (face to
face or over the telephone) may contribute to the terms of the contract.
Of course, the danger with an oral contractual term lies in the problem of
proof; telephone or face-to-face conversations are not usually recorded,
while a written record is usually indisputable, at least as regards its
content.
Where the contract spans a number of documents or conversations, or a

mixture of the two, sometimes it can be difficult to decide at exactly
which point a contract was concluded. This is a slightly different problem
than trying to decide whether a contract has been concluded (agreed)
and we have already covered this. Timing can be an issue for a decision
on what the terms are, since after the contract has been agreed, any
other communication on the subject is contractually irrelevant; it comes
too late to be part of the contract since it has already been concluded.
A good case to illustrate this in action is Thornton v Shoe Lane

Parking Ltd. [1971] 2 QB 163. This case is usually seen as a case on
incorporated terms (see below) but it is also a case on timing. The case
involved an injury in a car park. Mr Thornton parked his car in the car
park. Upon driving onto the car park, he was presented with a ticket
generated by a machine and he took it and entered the car park. The
Contract Terms
ticket referred to terms and conditions displayed inside the car park, one
of which sought to exclude liability for personal injury to any customer
while in the car park (such a clause would be unenforceable today under
the UCTA 1977, see later). The Court of Appeal took the view that the
printed terms on the ticket came too late. By the time the ticket was
taken by the driver, the contract was concluded - the offer was the
machine holding itself out as ready to take the money that had to be
paid. The acceptance took place when the money was paid. The
dispensing of the ticket came afterwards so was too late to affect the
terms of an already concluded contract.
2. Terms incorporated by reference
Here, the whole terms of the contract are not to be found in the main
contractual document, where the contract is a written one. Instead, the
main contract refers to terms in another, separate document and seeks to
incorporate them. Where the main contract is oral, again terms might be
incorporated by reference to a document. Whether the contract is formed
orally or in writing, there are rules to protect the person affected by such
terms.
(a) Where the referring document is signed
If the party affected by the terms signs a document referring to them, he

is taken to have accepted those terms whether or not he read the
referring document properly, or indeed at all. An example of this can be
seen in the case in LEstrange v Graucob Ltd. [1934] 2 KB 394. The
exception is when the signature has been procured by fraud or
misrepresentation (the latter has been dealt with already - see Curtis v
Chemical Cleaning & Dyeing Co. [1951] 1 KB 805 for a case where
an innocent misrepresentation about what was being signed meant the
term was not deemed to be incorporated). Otherwise, the party signing
will be bound by it. In LEstrange, the term was in very small print on
poor quality paper, but was still a part of the contract.
The courts have expressed displeasure at the inflexible approach of this

rule. Lord Devlin said this in the House of Lords case McCutcheon v
MacBrayne 1964 SC (HL) 28, at 39-40 (we will deal with that case
below):
If it were possible for your Lordships to escape the world of make

believe which the law has created into the real world in which
transactions of this sort are actually done, the answer would be
Contract Terms
short and simple. [The signature] should make no difference

whatsoever. This document is not meant to be read, still less to be
understood. Its signature is, in truth, about as significant as a
handshake that marks the formal conclusion of a bargain.
In Scotland, the strict position may be changing. The Inner House of the
Court of Session in Montgomery Litho Ltd. v Maxwell 2000 SC 56 did
not follow the normal rule. There, Maxwell was sued by a printing firm for
a debt for printing services tendered to a company that had since gone
into liquidation. Maxwell had been a director of the company. Maxwell
had signed a credit application with the printing firm, while he was a
director of the company, in which one term provided that the director
opening the account was personally liable, along with the company, for
any debts incurred by the company to the printing firm. Since he had
signed the agreement containing this clause, the normal rule would lead
to the conclusion that Maxwell was liable for the debt. The court held that
he was not. The reason given by the court was that the term of the
contract being relied upon contained an unusual or special condition and
therefore, in order to be included as a term of the contract, it had to be
drawn specifically to the attention of the other party. Here, the term was
simply part of the general conditions, and was not so brought to
Maxwells attention, so it would be ignored as a contract term. The court
relied on the Interfoto case (below) but that was not a case where the
document containing the term was signed. The Montgomery decision
has not yet been followed or disapproved of in a later case, so it is not yet
clear if it will remain good authority even in Scotland.
In England, there is no sign of a relaxation of the rule.
It is relatively common in commercial contracts for additional terms to be

incorporated by reference to another, perhaps substantial, document. We
have seen this already when dealing with the battle of the forms cases.
Indeed, there would be nothing to prevent a party from signing a very
minimal contract referring to another document containing all of the main
terms. Sometimes arbitral rules are incorporated into a contract in this
way, and we will examine such a specific case when dealing with
arbitration next semester.
(b) Incorporation by notice
Here, the party who seeks to disown the terms referred to does not sign a
contract referring to them: his attention is drawn (or attempted to be
drawn) to them by a notice. Most often, the main contract is an oral one,
with a notice referring to written terms. There is a four-stage process to
go through in considering whether such notices are effective.
Contract Terms
Stage 1- is it a contractual notice?
The first question to ask in such cases is whether the notice referring to
the further terms can be regarded as of the requisite status to be
effective. To put it another way, it must be a contractual document and
not just a receipt or other routine document. This was highlighted in the
case of Chapleton v Barry UDC [1940] 1 KB 532. There, a deckchair
was hired and the hirer took a ticket from an attendant. This ticket
contained a clause excluding liability of the hirers for loss by the
customer as a result of the hiring of the deckchair. The Court of Appeal
held that this document was merely a receipt and not a contractual
document at all. A similar view was adopted in the Scottish case of
Taylor v Glasgow Corporation 1952 SC 440. There, the ticket
containing the disputed term was held by the Inner House to be designed
for a number of purposes: it acted as a receipt; it was a domestic check
on the running of the baths in question; it was a record of the type of
service paid for by the holder of the ticket. It was not, however, a
contractual document. The test in such cases seems to be to consider
whether the reasonable consumer would regard the document in question
as of the type that would normally contain contractual terms.
Stage 2- Does the party affected know that the notice contains writing
and that such writing normally carries contractual terms?
If the answer to both is yes the court will be one step closer to holding
that the term is incorporated. In Parker v South Eastern Railway
(1877) 2 CPD 416, these rules were pronounced by Lord Justice Mellish
in the Court of Appeal. This case involved a ticket received following the
deposit of a bag by the claimant in a railway cloakroom owned by the
defendants. The consequence of the rule developed in that case is that if
the party concerned is unaware that there is writing on the document or
notice concerned (this would be unusual) he would not be bound by the
condition. However, if he was so aware, he would be bound by the
conditions, as long as documents of that kind were generally regarded as
containing contractual conditions, whether or not the individual had
formed that impression. This fits well with the objective approach to
contract law (see under interpretation of contract terms, below); the
knowledge or impression of the individual is irrelevant - it is the generally
accepted position that rules.
A prominent notice on the counter of a photo processing store was
regarded as effective to incorporate a limitation of liability in of Wilkes v
Jessop 2007 CLY 795.
Contract Terms
Stage 3- has the party affected been given reasonable notice of the
term?
If the condition has survived the first two stages, the next question is: has
the party affected been given reasonable notice of its existence? If not,
the condition will not be regarded as forming part of the contract. Each
case will depend upon its own facts.
Two cases in which opposite conclusions were reached will indicate how
difficult it might be to predict the outcome of any particular case.
In Thompson v London, Midland & Scottish Railway [1930] 1 KB

41 the condition was referred to on the reverse of the claimants train
ticket where it was stated that the ticket was issued subject to the
conditions stated in the companys timetable. The timetable could only
be accessed if bought for an extra charge and on page 552 of the
timetable there was a condition excluding liability for injury on the
excursion. In addition, the claimant could not read and the ticket was not
bought by her but by a relative. The claimant was injured while
disembarking the train and sued the railway company. They relied on the
exclusion clause in the timetable, and the claim was denied.
In Thornton v Shoe Lane Parking Ltd. [1971] 2 QB 163 (referred to

above) the conditions referred to on the ticket issued by the machine
came too late. Although this was the ratio decidendi of the decision, it
was commented on an obiter basis that the term concerned would not
have been reasonably brought to the drivers attention anyway, even if it
had come on time, since the condition was displayed on a notice on a
pillar opposite the ticket machine and inside an office in the car park. The
notice was not visible from the car park entrance.
Although most reasonable notice cases involve tickets, questions can

arise out of the prominence of the notice: see the case of Wilkes v
Jessop 2007 CLY 795 where the notice limiting liability for damages was
in a photograph development store was regarded as prominent and easy
to read.
Stage 4 unusual or onerous condition requires more explicit notice
Some conditions are regarded as so unusual or onerous that the courts

have held that the condition should be highlighted prominently, and if it is
Contract Terms
not, it will not be regarded as being incorporated into the contract. The
main case in this area is Interfoto Picture Library Ltd. v Stiletto
Visual Programmes Ltd. [1988] QB 433. There, a charge of 5 per
day per photographic negative for late return of the negatives was relied
upon. The term was in a set of terms delivered with the negatives, but
the terms were not signed by the borrowers of the negatives. The Court
of Appeal held that the term was onerous and unusual and since it had
not been drawn fairly to the attention of the other party, it was not
incorporated into the contract and could not be relied upon to claim the
late return fee. The clause could only have been drawn fairly to the
attention of the other party in this case if it were drawn to his attention
in the most explicit way. (A similar test was used by the Inner House in
the Montgomery Litho case (above) but unusually that was a case in
which the document containing the condition was signed by the party
seeking to disown it).
In AEG (UK) Ltd. v Logic Resource Ltd. [1996] CLC 265 the term in
question required the buyer of goods for export to return any defective
goods at his own expense, and this was held to be onerous and in that
context had to be drawn fairly and reasonably to the attention of the
buyer. The term was also unusual since it was not a common or standard
term in such contracts. The plaintiffs had not satisfied the test of fairly
and reasonably brining the term to the attention of the defendant and so
it was held not to be incorporated.
However, in the more recent case of Motours Ltd. v Euroball (West

Kent) Ltd. [2003] All ER (D) 165, the court held that there had been
sufficient incorporation of the terms even where it was held that the
conditions in question were in small print and very difficult to read
because of this and because of the colour of the paper on which they
were printed. However, these terms were neither unusual nor onerous.
It should be noted that the clause in question, in order to attract this

higher standard of notice, must be either onerous or unusual. So there
will be two questions in such cases:
1. Is the clause onerous or unusual or both? and if so
2. Has it been, in the circumstances of the case, fairly and reasonably
drawn to the attention of the party affected by it?
(c) Incorporation by course of dealing
Sometimes parties deal with each other regularly. Often in such cases,
they do so on the basis of standard terms and conditions. Where on each
Contract Terms
occasion there is a contract, properly incorporated, there will be no

difficulty. However, what is the situation where, on a particular occasion,
the terms used previously are not incorporated? Can an aggrieved party
still rely on them on the basis that the parties have always contracted in
the past on the basis of the conditions? The answer is yes, as long as
the course of past dealings has been sufficiently consistent. That does not
necessarily mean that it has to have been entirely intact.
In McCutcheon v MacBrayne [1964] 1 WLR 125 the claimant had

travelled on the ferry operated by the defendants on several occasions in
the past. On some of those occasions he had signed terms and conditions
containing a clause excluding liability for loss and on others he had not
been asked to sign it. On the occasion in question he had not been asked
to sign it. On the journey, the ferry sank and he claimed his losses from
the company. His claim succeeded - the clause could not be relied upon
since the course of dealing involving the term had not been sufficiently
consistent.
Another example is the Scottish case of Grayston Plant Ltd. v Plean

Precast Ltd. 1976 SC 206. This case involved the hire of a crane. The
parties had entered into a contract for the hire of the crane 12 times over
4 years, prior to the occasion in question. In each case, the contract was
an oral one, but was followed up by an acknowledgement of order form
that referred to General Conditions that could be supplied upon
request. It was never supplied to the hirer and was never asked for by
them. The practice of the owner was to include a copy of the conditions
when there was a written contract, but all contracts with this hirer were
oral. These conditions made the hirer liable for damage to the crane. The
crane was damaged while in the hirers possession and the question was
whether the general conditions had been incorporated. The court held
that the condition had not been incorporated since fair and reasonable
notice of it had not been given when it could easily have been by copying
the general conditions with the acknowledgement of order form. So,
consistency is sometimes not sufficient: there is still a fair and reasonable
notice requirement.
More recently, it was held that terms that had been accepted in 14 orders
over a period of 12 months had been incorporated by a course of dealing:
Motours Ltd. v Euroball (West Kent) Ltd. [2003] All ER (D) 165.
However, where it can be shown that the party concerned knew that
conditions of the sort relied upon were used in the particular trade
concerned, this is likely to influence the decision of the court, even where
a prior course of dealing has not been established. This was the position
adopted by the Court of Appeal in British Crane Hire Corp Ltd. v
Ipswich Plant Hire Ltd. 1975 Q.B. 303. There, the course of dealing
consisted of two previous transactions, many months before and were not
Contract Terms
known about by the manager who ordered the crane on this occasion.
However, the terms in the conditions of hire were held to be incorporated
in this case since the conditions were habitually imposed in this trade and
the parties were of equal bargaining power.
However, the British Crane decision was distinguished in the recent case
of Ofir Scheps v Fine Art Logistics Ltd. [2007] EHWC 541. This case
concerned a sculpture by Anish Kapoor, entitled Hole and Vessel II, which
was made of polystyrene, cement, earth, acrylic and pigment. The judge
(Mr Justice Teare in the High Court) said this of the sculpture at paragraph
1 o his judgement:
It is not possible for me to describe it. One expert described it as

sensous and sexy, the other as clumsy and somewhat absurd.
The plaintiff bought the sculpture and had hired the defendants to uplift
the sculpture from the auction house where it had been bought and store
it for a period. The sculpture, however, went missing from the
defendants storage units. The evidence from the defendants general
manager was that he believed that, by mistake, the sculpture had been
paced in a skip and destroyed at a waste transfer station. The plaintiff
had paid US $35,000 for the sculpture. The plaintiff sued the defendants
for breach of contract since they had lost the sculpture. The defendants
argued that their liability was limited to a maximum payment of 350 per
cubic metre of the volume of the missing or damaged item, in line with a
clause to this effect in their standard terms and conditions. If this term
was held to be incorporated into the agreement, this would limit their
liability to 587.13. It was accepted that this term had not been drawn to
the attention of the plaintiff, but the defendants argued that such a term
was normal in contracts for the storage of fine art. The plaintiff had no
knowledge of this condition, although he was held to be aware (due to his
experience in the area) that limitation of liability clauses were not
uncommon in such contracts. It was held however, that the limitation of
liability term was not properly incorporated, since nothing was done to
make the plaintiff aware that he was contracting on the basis of the
standard terms and conditions of the defendants. There was also no
objective reason why the plaintiff would believe this to be the case.
3. Implied Terms
These are terms that are assumed to exist in a contact. They are not
agreed between the parties, either orally or in writing, but the law
assumes that they exist. They are invisible. However, when they are
assumed to exist, they have equal force to the express terms of the
contract: they are not inferior in any way and can be fully enforced.
10
Contract Terms
Indeed, it would not be uncommon for a court action to be based purely

on an implied term. Of course, the party relying on the implied term
would still have to show that a contract existed and will often require to
prove the content of the express terms. Where there is no contract, there
cannot be any terms available to be enforced, implied or otherwise.
There are two categories of implied terms: terms implied by law and
terms implied in fact.
(a) Terms implied by law
These are terms forced upon the parties by law in certain situations. No
account is taken by the law of the intention of the parties, presumed or
otherwise. This goes against the classic theory of contracts which
provides that they are purely consensual devices. However, the law
regards certain situations as being so worthy of protection that the usual
theory is ignored.
The main examples of such implied terms are those involving consumer
protection, in other words contracts where an individual is contracting to
buy goods or services from an entity which is trading in those goods or
services.
In the case of goods, the main implied terms exist in the Sale of Goods
Act 1979, as amended. Sections 12- 15 set out the implied terms with s.
14 being the most important and commonly used:
s 12 Implied terms about title, etc.

(1) In a contract of sale, other than one to which subsection (3) below
applies, there is an implied term on the part of the seller that in the
case of a sale he has a right to sell the goods, and in the case of an
agreement to sell he will have such a right at the time when the
property is to pass.
(2) In a contract of sale, other than one to which subsection (3) below
applies, there is also an implied term that-(a) the goods are free, and will remain free until the time when the
property is to pass, from any charge or encumbrance not disclosed or
known to the buyer before the contract is made, and
(b) the buyer will enjoy quiet possession of the goods except so far as it
may be disturbed by the owner or other person entitled to the benefit
of any charge or encumbrance so disclosed or known.
(3) This subsection applies to a contract of sale in the case of which
there appears from the contract or is to be inferred from its
circumstances an intention that the seller should transfer only such
11
Contract Terms
title as he or a third person may have.

(4) In a contract to which subsection (3) above applies there is an
implied term that all charges or encumbrances known to the seller and
not known to the buyer have been disclosed to the buyer before the
contract is made.
(5) In a contract to which subsection (3) above applies there is also an
implied term that none of the following will disturb the buyer's quiet
possession of the goods, namely-(a) the seller;
(b) in a case where the parties to the contract intend that the seller
should transfer only such title as a third person may have, that person;
(c) anyone claiming through or under the seller or that third person
otherwise than under a charge or encumbrance disclosed or known to
the buyer before the contract is made
s 13 Sale by description.
(1) 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
(2) If the sale is by sample as well as by description it is not sufficient
that the bulk of the goods corresponds with the sample if the goods do
not also correspond with the description.
(3) A sale of goods is not prevented from being a sale by description by
reason only that, being exposed for sale or hire, they are selected by
the buyer
s 14 Implied terms about quality or fitness.

(1) Except as provided by this section and section 15 below and subject
to any other enactment, there is no implied term about the quality or
fitness for any particular purpose of goods supplied under a contract of
sale.
(2) Where the seller sells goods in the course of a business, there is an
implied term that the goods supplied under the contract are of
satisfactory quality.
(2A) For the purposes of this Act, goods are of satisfactory quality if
they meet the standard that a reasonable person would regard as
satisfactory, taking account of any description of the goods, the price
(if relevant) and all the other relevant circumstances.
(2B) For the purposes of this Act, the quality of goods includes their
state and condition and the following (among others) are in appropriate
cases aspects of the quality of goods-(a) fitness for all the purposes for which goods of the kind in question
are commonly supplied.
(b) appearance and finish,
(c) freedom from minor defects,
(d) safety, and
(e) durability.
(2C) The term implied by subsection (2) above does not extend to any
matter making the quality of goods unsatisfactory-(a) which is specifically drawn to the buyer's attention before the
contract is made,
(b) where the buyer examines the goods before the contract is made,
which that examination ought to reveal, or
12
Contract Terms
(c) in the case of a contract for sale by sample, which would have been
apparent on a reasonable examination of the sample.
(3) Where the seller sells goods in the course of a business and the
buyer, expressly or by implication, makes known-(a) to the seller, or
(b) where the purchase price or part of it is payable by instalments and
the goods were previously sold by a credit-broker to the seller, to that
credit-broker,
any particular purpose for which the goods are being bought, there is
an implied term that the goods supplied under the contract are
reasonably fit for that purpose, whether or not that is a purpose for
which such goods are commonly supplied, except where the
circumstances show that the buyer does not rely, or that it is
unreasonable for him to rely, on the skill or judgment of the seller or
credit-broker:
(4) An implied term about quality or fitness for a particular purpose
may be annexed to a contract of sale by usage.
s 15 Sale by sample.
(1) A contract of sale is a contract for sale by sample where there is an
express or implied term to that effect in the contract.
(2) In the case of a contract for sale by sample there is an implied
term-(a) that the bulk will correspond with the sample in quality;
(c) that the goods will be free from any defect, making their quality
unsatisfactory, which would not be apparent on reasonable examination
of the sample
There is a whole branch of the law surrounding the sale of goods

legislation and numerous reported cases. We do not have the space to
deal with these in this module, but the implied terms above are the best
examples. In terms of remedies for breach of these implied terms, the
1979 Act provides for those too - the right to reject the goods within a
reasonable time or to keep the goods and seek damages.
Turning to the supply of services, there are implied terms there too. In
Scotland, there are the following implied terms, all implied at common
law (not by statute):
That a reasonable price will be charged for the services
That reasonable care and skill will be used in delivering the

services
That the services will be delivered within a reasonable time
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Contract Terms
In England, these implied terms also exist, but in the case of the implied
term of reasonable care and skill, this is statutory in origin: the Supply of
Goods and Services Act 1982, s.13-15:
s 13 Implied term about care and skill.

In a contract for the supply of a service where the supplier is acting in
the course of a business, there is an implied term that the supplier will
carry out the service with reasonable care and skill.
s 14 Implied term about time for performance.
(1) Where, under a contract for the supply of a service by a supplier
acting in the course of a business, the time for the service to be carried
out is not fixed by the contracts, left to be fixed in a manner agreed by
the contract or determined by the course of dealing between the
parties, there is an implied term that the supplier will carry out the
service within a reasonable time.
(2) What is a reasonable time is a question of fact.
s 15 Implied term about consideration.
(1) Where, under a contract for the supply of a service, the
consideration for the service is not determined by the contract, left to
be determined in a manner agreed by the contract or determined by the
course of dealing between the parties, there is an implied term that the
party contracting with the supplier will pay a reasonable charge.
(2) What is a reasonable charge is a question of fact.
It is important to note that the Act, and therefore the implied terms, only
apply where there is a contract for the transfer of goods which is not a
contract for the sale of goods or a hire-purchase agreement (s.1(2)(a),
(b)). So a pure contract for services where no goods are transferred in
the
process
(for
example
a
solicitor-client
contract
or
a
surveyor/architect- client contract) does not fall within the Act.
The distinction between those implied in respect of services and those

implied in sale of goods contracts is that in contracts of the former type,
the test of reasonableness exists: in the case of goods under the 1979
Act, the sole question is, for example in the case of quality, whether the
goods are of satisfactory quality or not - the reasonableness of the
actings of the seller of the goods is irrelevant.
One more point about the implied terms in both cases - goods and
services - they apply not only in cases where a trader sells to an
individual, but also in a contract between commercial entities.
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Contract Terms
Terms implied in fact
It is sometimes said that the distinction between the two types of implied
terms is blurred and difficult to see in all cases. However, for the
purposes of this module, the distinction will be kept free from any such
debate.
Terms implied in fact have a different basis from those implied in law:
they originate from the common law and from the consensual theory of
contract law. Such terms are accepted only where the courts can say that
the term is necessary to make the contract work or where it can
be implied on the basis of custom. In such cases, the courts are
willing to imply the term on the basis that the parties can be assumed to
have agreed the term. In other words, the implication of such a term is
based upon the obvious intention of the parties, not by force of law.
The general approach here is that terms are only implied in clear cases.
Lord Justice Waller in the recent Court of Appeal case of Ultraframe
(UK) Ltd. V Tailored Roofing Systems Ltd. [2004] EWCA Civ 585,
put it in this way:
The court's usual role in contractual interpretation is, by resolving
ambiguities or reconciling apparent inconsistencies, to attribute
the true meaning to the language in which the parties themselves
have expressed their contract. The implication of contract terms
involves a different and altogether more ambitious undertaking:
the interpolation of terms to deal with matters for which, ex
hypothesi, the parties themselves have made no provision. It is
because the implication of terms is so potentially intrusive that the
law imposes strict constraints on the exercise of this extraordinary
power.
There are of course contracts into which terms are routinely and
unquestioningly implied. If a surgeon undertakes to operate on a
patient the term will be implied into the contract that he exercises
reasonable care and skill in doing so. It is inconceivable that any
patient would in any imaginable circumstance commit his bodily
well-being to the ministrations of a surgeon who did no undertake
that obligation, or that a surgeon could hope to remain in practice
without professing to discharge. Again, quite apart from statute,
the courts would not ordinarily hesitate to imply into a contract for
the sale of unseen goods that they should be of merchantable
quality and answer to their description and conform with sample. It
is hard to imagine trade conducted, in the absence of express
agreement, on any other terms. But the difficulties increase the
further one moves away from these paradigm examples. In the first
case, it is probably unlikely that any terms will have been expressly
agreed, except perhaps the nature of the operation, the fee, and
the time and the place of operation. In the second case, the need
for implication usually arises where the contract terms have not
15
Contract Terms
been spelled out in detail or by reference to written conditions. It is

much more difficult to infer with confidence what the parties must
have intended when they have entered into a lengthy and
carefully-drafted contract that have omitted to make provision for
the matter in issue. Given the rules which restrict the evidence of
the parties' intention when negotiating a contract, it may well be
doubtful whether the omission was the result of the parties'
oversight or of their deliberate decision; if the parties appreciate
that they are unlikely to agree on what is to happen in a certain not
impossible eventuality, they may well choose to leave the matter
uncovered in their contract in the hope that the eventuality will not
occur. The question of whether a term should be implied, and if so
what, almost inevitably arises after a crisis has been reached in the
performance of the contract. So the court comes to the task of
implication with the benefit of hindsight, and it is tempting for the
court then to fashion a term which will reflect the merits of the
situation as they then appear. Tempting, but wrong.
Moving from the general approach, we will now consider some examples.
Necessity
So, the first alternative test is necessity, not reasonableness. This was
noted in the landmark House of Lords case of Liverpool City Council v
Irwin [1977] AC 239:
it is not enough for the court to say that the suggested term is a
reasonable one, the presence of which would make the contract a
better or fairer one; it must be able to say that the insertion of the
term is necessary.
On what basis might a term be said to be necessary? One common

example is a term that is required in order to give business efficacy to
the contract. That was the justification used by the Court of Appeal in the
elderly case The Moorcock (1889) 14 PD 64.
The courts appear to be, if anything, tightening the test. In the recent
case of Equitable Life Assurance Society v Hyman [2002] 1 AC 408,
the test was stated to be a matter of strict necessity.
16
Contract Terms
In the recent case of Ultraframe (UK) Ltd. V Tailored Roofing

Systems Ltd. [2004] EWCA Civ 585 (cited above) the Court of Appeal
refused to imply a term that one of the parties would not try to poach
the customers of the other party since this would involve the implication
of a term that was not necessary to give efficacy to the agreement.
Custom or usage in the trade/ class of contract
Although the main underlying test is one of necessity, there is an

alternative possibility: that the term should be implied where there is, to
use the words of Lord Wilberforce in the Liverpool case, an established
usage.
Here, the test involves considering the circumstances of
contracts of the type in question and asking: in this trade, is such a term
customary? In a line of Scottish cases, the test is put in this way by Lord
Maclaren in Morton & Co. v Muir Brothers 1907 SC 1211:
The conception of an implied condition is one with which we are

familiar in relation to contracts of every description, and if we seek
to trace any such implied conditions to their source it will be found
in almost every instance that they are founded either on universal
custom or in the nature of the contract itself. If the condition is
such that every reasonable man on the one part would desire for
his own protection to stipulate for the condition and that no
reasonable man on the other hand would refuse to accede to it,
then it is not unnatural that the condition should be taken for
granted in all contracts of this class without the necessity of giving
it formal expression.
It should be noted that this test does not involve the adoption of the term
on the basis of the view of the reasonable man. This test has been
followed in Scotland: see Crawford v Bruce 1992 SLT 524 and GM
Shepherd v North West Securities Ltd. 1991 SLT 499. Although this
is a Scottish formula, it expresses the usage test that exists in both
jurisdictions.
Of course, it is sometimes difficult to decide whether, in a particular case,

a certain custom has been established. It has been held that a practice
must, in order to amount to a usage, be certain, in the sense of being
clearly established, notorious in the trade concerned and it must be
reasonable (see Ungoed-Thomas J in Cunliffe-Owen v Teather &
Greenwood [1967] 1 WLR 1421).
17
Contract Terms
It has also been made clear, however, that repetition of the practice will
not necessarily be enough; the motive for adopting such a practice is
important. In other words, the practice must be adopted not out of
courtesy, but out of a feeling of legal necessity. Slade LJ put it in this way
in General Reinsurance Corp v Forsakringsaktiebolaget Fennia
Patria [1983] QB 856:
There is, however, the world of difference between a course of

conduct that is frequently, or even habitually, followed in a
particular commercial community as a matter of grace and a
course which is habitually followed because it is considered that
the parties concerned have a legally binding right to demand it.
Topic Activities
Activity 1- Suggest 1.5 hours
Consider the cases of Grayston Plant Ltd. v Plean Precast Ltd. 1976
SC 206 and British Crane Hire Corp Ltd. v Ipswich Plant Hire Ltd.
1975 Q.B. 303 (or excerpts from them). It could be said that these
cases, in allowing for the possibility of incorporated terms through a
course of dealing (albeit that in Grayston, the term was held not to be
incorporated), encourage laziness between commercial parties. Is there
an argument for simply abandoning this kind of implied term, and
insisting that commercial parties to a contract must specifically
incorporate any terms they wish to have applied, otherwise the term is
not a part of the contract?
Activity 2-Suggest 1 hour
Read the following cases (or an excerpt of them):

J Evans & Son (Portsmouth) Ltd. v Andrea Merzario Ltd. [1976] 1
WLR 1078 and Couchman v Hill [1947] KB 554 (or excerpts from
them).
and the Contract (Scotland) Act 1997, s.1.
Do you take the view that the result in such cases/legislation can lead to
confusion between contracting parties? Should parties be allowed to
agree on a matter orally that has already been covered in a written
18
Contract Terms
contract? Would it not always be possible to revise, in writing, the written

contract or is there a place for oral revisal?
Activity 3- Suggest 1.5 hours
Compare the cases of Montgomery Litho Ltd. v Maxwell 2000 SC 56,

a Scottish case (or an excerpt from it) and Interfoto Picture Library
Ltd. v Stiletto Visual Programmes Ltd. [1988] QB 433 (or an
excerpt from it) a similar English case. Do you agree with the outcome of
these cases? Should signature of a document by a commercial party not
be sufficient to bind that party, no matter what the relevant term is and
how it is specified?
Activity 4-Suggest 1 hour
Read the very interesting judgement of Lord Denning in Thornton v

Shoe Lane Parking Ltd. [1971] 2 QB 163. Do you agree with what he
says? Do you think his style of expression is interesting and easy to
follow? Consider also the case of Thompson v London, Midland &
Scottish Railway [1930] 1 KB 41 (or an excerpt of it). Do you think the
result is harsh here?
References
McKendrick, Contract Law Text, Cases and Materials, (2nd edn, Oxford,
University Press, Oxford, 2005) Chapters 8, 9 and 10.
Poole, Textbook on Contract Law, (9th ed. Oxford University Press, Oxford,
2008) Chapter 5.
Poole, Casebook on Contract Law, (9th ed. Oxford University Press, Oxford,
2008) Chapter 6.
Woolman and Lake, Contract Law, (3rd edn. W.Green/Sweet and Maxwell,
Edinburgh, 2001) Chapters 7 and 9 (Scots Law text).
Huntley et al, Contract: Cases and Materials, (2nd ed. Thomson/W.Green,
Edinburgh, 2003) Part 4 (Scots Law Text).
Further Reading
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Contract Terms
Bradgate, Unreasonable Standard Terms (1997) 60 MLR 582.

Phang, Implied Terms Revisited [1990] JBL 394.
Phang, Implied Terms in English Law: Some Recent Developments [1993]
JBL 242.
Phang, Implied Terms Again [1994] JBL 255.
MacDonald, The Duty to Give Notice of Unusual Contract Terms [1988]
JBL 375.
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BSM579 Legal Systems and Contract Law