4 - Express & Implied Terms

Question 1

What are express terms in a contract, and what is the main area of difficulty in identifying them?

Answer 1

Express terms are the specific terms that parties have agreed upon, which can be easily identified in situations like purchasing an item at a stated price or signing a written contract.

However, the main area of difficulty arises with ‘small print’ such as terms and conditions in brochures, tickets, or on the back of documents, where it is unclear if they are part of the contract without explicit agreement.

Question 2

How can terms be incorporated into a contract?

Answer 2

Terms may be incorporated in the following ways:
- Signature: Signing a contract binds the parties to the terms, even if they haven’t been read, unless misrepresentation, illegibility, or particularly onerous terms apply.
- Reasonable Notice: Terms not signed for must be reasonably brought to the other party’s attention at or before the time of contract.
- Previous Consistent Course of Dealing: Where terms have been consistently used in past dealings, they may be incorporated.

Question 3

What is the effect of signing a contract in terms of incorporation of express terms?

Answer 3

Signing a contract typically means that the signatory is bound by the terms, including those they may not have read.

Exceptions arise if:
- The term is illegible.
- A particularly onerous term was not sufficiently brought to their attention.
- The document’s contents were misrepresented.

Question 4

How does reasonable notice affect the incorporation of express terms into a contract?

Answer 4

If a document containing terms has not been signed, reasonable notice must be given before or at the time of the contract for the terms to be incorporated.

Courts consider factors such as:
- Nature of the document: Is it one where a reasonable person would expect contract terms?
- Timing: Notice must be provided at or before the contract formation.
- Onerous terms: Particularly stringent terms must be clearly highlighted.
- Legibility and clarity: Terms must be legible, and references like “See terms overleaf” should be included.

Question 5

How are express terms incorporated through a previous consistent course of dealing?

Answer 5

Terms may be incorporated if the parties have had frequent and consistent dealings on the same terms and conditions, indicating familiarity with those terms.

However, sporadic or inconsistent dealings are insufficient for incorporation, as the parties cannot be expected to remember or predict the terms.

Question 6

How are contract terms classified, and why does it matter?

Answer 6

Terms are classified as:
- Conditions: Important terms, where breach allows termination and damages.
- Warranties: Minor terms, where breach only allows for damages.
- Innominate terms: Terms that depend on the seriousness of the breach, with remedies based on the effect of the breach on the contract. Sometimes called intermediate terms.

Classifying terms is essential when the claimant seeks termination of the contract, not just damages.

Examples: A sale and purchase agreement may label specific terms as conditions or warranties, which can clarify the consequences of a breach.

Non-lawyer drafted contracts may misuse labels like ‘condition,’ requiring a broader evaluation of whether breach of a term warrants termination.

Case law, like charter parties’ ‘expected ready to load’ clauses, may judicially recognise terms as conditions.

Question 7

What are innominate terms, and how are they treated in contract law?

Answer 7

Innominate terms are those that are not classified as conditions or warranties.

Their classification depends on the severity of the breach:
The test focuses on the consequences of the breach and asks the question whether the breach has deprived the innocent party of substantially the whole benefit of the contract. Where the question is answered in the affirmative, ie the consequences of the breach are serious, the term will be treated as a condition. Where the question is answered in the negative, ie the consequences of the breach are minor, the term will be treated as a warranty.

• The innocent party is limited to suing for damages where the consequence of the breach is minor.
• If the breach deprives the innocent party of substantially the whole benefit of the contract, they may terminate or affirm the contract.
• This approach, introduced in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (1962), allows for flexibility but may create uncertainty in ongoing contracts.

Question 8

What are implied terms in a contract?

Answer 8

Implied terms are not simply the deal the parties have expressly agreed upon; they are backed up by terms implied by necessary implication to make sense of what has been expressly agreed.

They serve to support express terms, ensuring that the contract is workable and reflects the parties’ intentions.

The main categories of implied terms are:
- Terms implied by custom
- Terms implied in fact
- Terms implied in law
- Terms implied by statute

Question 9

What are terms implied by custom?

Answer 9

Terms implied by custom may be implied into a contract if they reflect what are regarded as the well-known and legally binding customs of a particular trade.

However, a term will not be implied by custom if it contradicts an express term of the contract.

For instance, if a specific industry consistently follows certain practices, those practices can be implied into contracts within that industry unless otherwise specified.

Question 10

What are terms implied in fact?

Answer 10

Terms implied in fact are those that may be implied into a contract when the parties have not expressly agreed on something, but the contract would be unworkable without the relevant term.

It is taken that the parties have implicitly agreed on what is necessary to make commercial sense of their contract, involving terms that are so obvious they go without saying.

An example would be a contract for services where the provider is expected to have the necessary qualifications, even if not explicitly stated.

Question 11

What are terms implied in law?

Answer 11

Terms implied in law may be implied into a contract because the law regards them as a necessary incident of a particular type of contract.

For example, in an employment contract, there is an implied duty on the employer to provide a healthy and safe environment for the employee to work in, and a duty on the employee to provide an honest and loyal service.

The law sees these obligations as essential to the employment relationship.

Question 12

What are terms implied by statute?

Answer 12

Terms implied by statute are considered a sub-category of terms implied in law, treated separately due to their significance.

This includes terms implied into contracts for the sale and supply of goods and/or services under specific statutes.

For business-to-business contracts, the relevant statutes are the Sale of Goods Act (SGA) 1979 and the Supply of Goods and Services Act (SGSA) 1982.

Question 13

What does the Sale of Goods Act 1979 state about implied terms?

Answer 13

Under the Sale of Goods Act 1979, certain implied terms are established:
- Section 12(1): There is an implied term that the seller has a right to sell the goods.
- Section 13(1): For goods sold by description, there is an implied term that the goods will correspond with that description.
- Section 14(2): If 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.
- Section 14(3): If the buyer makes known a particular purpose for which the goods are being bought, there is an implied term that the goods will be reasonably fit for that purpose.

Question 14

What are the implications of the Sale of Goods Act 1979’s conditions?

Answer 14

Sections 12, 13, and 14 of the SGA 1979 are classified as ‘conditions’ and impose strict liability, meaning liability does not depend on fault by the seller.

If these terms are breached, the innocent party can reject the goods and obtain a refund, as well as claim damages unless:
(a) The buyer has accepted the goods.
(b) In the case of breaches regarding sections 13 and 14, the breach is so slight that it would be unreasonable to reject the goods.

Strict liability means the seller does not need to be personally at fault for the goods not meeting the description or being defective.

Question 15

What are the main types of contracts in relation to the Sale of Goods and Services Act 1982?

Answer 15

Apart from contracts for the sale of goods, the two other main types of contracts include:
- Contracts for a service/work (e.g., furniture removal contracts).
- Contracts that involve both the supply of work and materials (e.g., a contract to supply and fit a new kitchen).

The Supply of Goods and Services Act 1982 implies certain terms related to the work/service supplied, and terms nearly identical to those in the SGA 1979 in relation to any goods supplied.

Question 16

What are the key implied terms under the Supply of Goods and Services Act 1982?

Answer 16

Under the Supply of Goods and Services Act 1982, the following implied terms apply to business-to-business contracts:
- Section 2(1): An implied condition that the transferor has the right to transfer ownership in the goods.
- Section 3: An implied term that goods will correspond with their description.
- Section 4(2): An implied term that goods supplied in the course of business are of satisfactory quality.
- Section 4(5): An implied term that goods will be fit for purpose if the buyer has made known their purpose and reasonably relies on the supplier’s skill or judgement.
- Section 13: An implied term that work or a service done in the course of a business will be carried out with reasonable care and skill.
- Section 14: An implied term that if no time for performance has been agreed, the work will be done within a reasonable time.
- Section 15: If a price for work or a service has not been fixed, there is an implied term that a reasonable sum will be charged.

Question 17

How does the Supply of Goods and Services Act 1982 govern contracts for the hire of goods?

Answer 17

For the purposes of the SGSA, pursuant to s 6 a ‘contract for the hire of goods’ means a contract under which one person bails or agrees to bail goods to another by way of hire (broadly, this means contracts where party A owns the goods but party B voluntarily has possession of the goods – this is what happens in a common hire arrangement) other than any of the following:
(a) A hire purchase agreement; and
(b) A contract under which goods are bailed in exchange for trading stamps.

In any contract for the hire of goods, terms will be implied corresponding to those which are implied in the case of contracts for the sale of goods (as amended).

They are:
- Implied terms about the right to transfer possession (s 7 – this is equivalent to the implied term concerning title in a sale of goods contract),
- Implied terms where hire is by description (s 8),
- Implied terms about quality or fitness (s 9) and
- Implied terms where hire is by sample (s 10).

Question 18

What is the Consumer Rights Act 2015 relevant to?

Answer 18

Terms implied by statute into trader- to- consumer contracts for the sale of goods and supply of goods and services.

Question 19

What are the implied terms in the Consumer Rights Act 2015 for goods sold or supplied in the course of a business?

Answer 19

The Consumer Rights Act 2015 (CRA 2015) establishes several implied terms when goods are sold or supplied in the course of a business:

• Satisfactory Quality: There is an implied term that the goods will be of satisfactory quality (s 9).
• Fitness for Purpose: If the buyer makes known their purpose for the goods, either expressly or impliedly, and relies on the seller’s skill or knowledge, there is an implied term that the goods will be fit for that purpose (s 10).
• Correspondence with Description: For sales by description, there is an implied term that the goods will correspond with that description (s 11).
• Right to Sell: The seller has the right to sell or transfer the goods at the time ownership is transferred (s 17).

Question 20

What are the implied terms related to services under the Consumer Rights Act 2015?

Answer 20

Under the Consumer Rights Act 2015, when work or a service is done in the course of a business, the following implied terms apply:

• Reasonable Care and Skill: There is an implied term that the work or service will be carried out with reasonable care and skill (s 49).
• Reasonable Price: If a price for the work or service has not been fixed, there is an implied term that a reasonable sum will be charged (s 51).
• Reasonable Time for Performance: If no time for performance has been agreed, it is implied that the work will be done within a reasonable time (s 52).

Question 21

How does the Consumer Rights Act 2015 govern contracts for digital content?

Answer 21

The digital content:
(a) Should be of satisfactory quality (s 34);
(b) Should be reasonably fit for purpose (s 35); and
(c) Should match any description of it given by the trader to the consumer (s 36).

• According to s 34(2), the ‘quality of digital content is satisfactory if it meets the standard that a reasonable person would consider satisfactory’.
• Such a reasonable person would take account of matters of description and price together with ‘all other relevant circumstances’ (s 34(2)(c)), such circumstances including ‘any public statement about the specific characteristics of the digital content made by the trader, the producer or any representative of the trader or producer’ (s 34(5)).

Question 22

What rights do consumers have under the Consumer Rights Act 2015 when goods do not conform to the contract?

Answer 22

Under s 19 of the CRA 2015, if goods do not conform to the contract due to breaches of sections 9–11, the consumer has the following rights:

• Short-Term Right to Reject: Consumers can reject the goods and obtain a full refund (ss 20 and 22).
• Right to Repair or Replacement: Consumers have the right to repair or replacement of the goods if appropriate (s 23).
• Price Reduction or Final Right to Reject: If the above remedies are not appropriate, the consumer may be entitled to a price reduction or to reject the goods for a partial refund to reflect their use (ss 20 and 24).

If the short-term right to reject has been lost, the consumer should consider repair or replacement, or, if not appropriate, seek a price reduction or partial refund.

Question 23

What time limits apply to a consumer’s right to reject goods under the Consumer Rights Act 2015?

Answer 23

Unless the parties have expressly agreed otherwise, the time limit for the short-term right to reject non-perishable goods is 30 days after purchase, delivery, and installation if applicable. For perishable goods, the time limit is no longer than the goods could reasonably be expected to last.

For the other rights, if goods do not conform to the contract within six months of delivery, they will be presumed not to have conformed on that day, except in cases of perishable goods or where proof exists that the goods did conform on the day of delivery.

Question 24

What rights do consumers have regarding services under the Consumer Rights Act 2015?

Answer 24

Under s 54 of the CRA 2015, if a service or work does not conform to the contract due to:
- A breach of an express term regarding performance, or
- A breach of the implied term to exercise reasonable care and skill (s 49),
the consumer has the right to:
- Repeat Performance: Require repeat performance where reasonable, or
- Price Reduction: A price reduction.

In the case of a breach concerning performance within a reasonable time (s 52), the consumer is entitled only to an appropriate price reduction.

Question 25

How does the Consumer Rights Act 2015 apply to a goods and services contract examples?

Answer 25

In a case where Jenny contracted with Windows Ltd to build a conservatory, and the double-glazed window panels were defective:
- This is a goods and services contract governed by the CRA 2015.
- There is a breach of implied terms regarding satisfactory quality and fitness for purpose (ss 9 and 10).
- The fault being a manufacturing defect does not excuse liability.
- Jenny may exercise her short-term right to reject the faulty panels or seek replacement panels, as repair or price reduction may not be appropriate.

In the case of Patrick, who employed John to lay a grey Indian stone patio:
This also constitutes a goods and services contract under the CRA 2015.
- The use of brown stone instead of grey breaches both an express term and the implied term that goods will correspond with their description (s 11).
- Additionally, not laying the patio properly constitutes a breach of the implied term requiring reasonable care and skill (s 49).
- Patrick can exercise his short-term right to reject but might find it more practical to seek replacement stones that conform to the contract description.

Question 26

What is an ‘entire agreement’ clause and what is its purpose?

Answer 26

The parties agree that this agreement constitutes the entire agreement between them, and supersedes any previous understandings and/or arrangements between them, whether oral or written.

The courts will uphold such clauses where they are indeed an attempt to avoid any misunderstanding about the scope of the parties’ agreement. Such a clause might therefore be effective in avoiding confusion about whether any oral terms or preceding written statements form part of the contract.

Note that it is unlikely that such a clause would be effective to exclude liability for misrepresentation.

Question 27

When are statutory implied terms held to be valid?

Answer 27

Statutory implied terms are imposed in contracts by statute and they operate irrespective of the intention of the parties unless there is a valid exemption clause

Question 28

Provide a summary of express terms.

Answer 28

Contracts contain both express and implied terms. Express terms may be incorporated in contracts in the following ways:
- Signature (provided the clause is legible; not particularly onerous and not reasonably drawn to the other party’s attention; and has not been misrepresented)
- Reasonable notice before, or at the time of, the contract
- A previous consistent course of dealing

Express Terms are classified as either conditions, warranties or innominate terms:
- If a condition is breached prima facie the innocent party can terminate the future performance of the contract as well as claim damages.
- If a warranty is breached the only remedy is damages.
- With innominate terms the parties have to wait and see what the consequence of breach is. The innocent party will be entitled to terminate the contract only if the breach effectively deprives them of substantially the whole intended benefit.

Question 29

Provide a summary of implied terms and the relevant statute.

Answer 29

Terms may be implied:
- By custom;
- In fact, based on the presumed intention of the parties;
- In law, where as a legal incident certain terms are implied into contracts of common occurrence such as employment contracts; and
- By statute (eg the SGA 1979, which implies certain terms into business- to- business contracts for the sale of goods) or the CRA which governs business-to-consumer contracts for the sale of goods and supply of goods and services.