6. Determining the Terms of the Contract Flashcards
What are the two types of contract terms?
Conditions and warranties
Can contract terms be express and implied?
Yes
What is the difference between a term and a representation?
A term is intended by the parties to form part of the contract.
A representation is made merely to induce a party to enter into the contract.
How is it determined whether a statement is a term or a representation?
Based on the intentions of the parties, viewed objectively through their conduct from the perspective of a reasonable person
How will the court likely classify an oral statement which was not included in a written contract, and why?
As a representation, because if the parties thought it was important enough to be a condition, they should have put it in the written contract
What are the three factors a court will take into account when determining whether a statement is a term or a representation?
- Importance of the statement
- Stage of negotiations at which the statement was made
- Whether the party making the statement had any specialist skill
What is the question to ask when considering whether a statement is important?
If the other party wouldn’t have entered into the contract but for the statement, it is likely to be deemed important, and therefore a term
What is the question to ask when considering specialist skill?
Did the seller make a factual statement that should be within the scope of their knowledge, intending that the other party would act on the statement
Why is the distinction between term and representation important?
If the statement turns out to be untrue, the available remedies depend on whether it was a term or representation
What is the impact of a statement being deemed a term?
Any failure to comply will be a breach of contract, entitling the other party to damages
What is the impact of a statement being deemed a representation?
If it is untrue and it has not been incorporated into the contract, the remedy will depend on whether the misrepresentation was made innocently, negligently, or fraudulently
Why is the distinction between condition and warranty important?
It determines the remedies which are available upon breach
Along with condition and warranty, what is the third category of term, where it is unclear whether it is a condition or warranty?
Innominate term
What will the courts give more weight to: the term’s label or its effect on the operation of the contract?
The term’s effect on the operation of the contract
What is a condition?
A term so fundamental that it goes to the root of the contract, and the contract does not work without it
What is another name for a breach of condition?
Repudiatory breach
What options are available to the other party upon a breach of condition?
They can terminate the contract and sue for damages
What is the effect of the other party affirming a contract after breach of condition?
They lose the right to terminate, but can still sue for damages
What is a warranty?
A term that is incidental/collateral to the main terms of the contract
Can the other party terminate the contract for breach of warranty?
No
With innominate terms, how does the court determine what remedy should be available?
By looking at the effect of the breach
In what instance will the court deem an innominate term to be a condition?
Where the other party loses substantially the whole of the benefit of the contract due to the breach
What is the effect of time being of the essence on whether a term is a condition or warranty?
Time of the essence: the term is a condition (late performance gives rise to right to terminate)
Time not of the essence: the term is a warranty
When is time presumed to be of the essence?
In commercial contracts, where a delivery time has been agreed
Regarding notice, what is required for a term to form part of a contract?
The parties must have reasonable notice of it
What is the parol evidence rule?
When a contract is in writing, there is a general presumption that external evidence cannot vary the terms of the written contract
What are three exceptions to the parol evidence rule?
- Implied terms
- If there is a secondary (collateral) contract
- Where the court finds that the contract was always partly written and partly oral
What is an entire agreement clause?
A term in written contracts which provides that the written document constitutes the entire agreement between the parties
What is one instance in which the courts are unwilling to uphold an entire agreement clause?
Where it is being used by a party to avoid liability for misrepresentation
What is the binding effect of an implied term?
Same as if it had been expressly agreed between the parties
What are four ways through which terms are implied?
- Statute
- Courts
- Custom and usage, or
- A course of dealing between the parties
What are the three main sources of law through which contract terms are implied?
- Sale of Goods Act 1979
- Consumer Rights Act 2015, and
- Supply of Goods and Services Act 1982
What is an important term implied by the SGA?
That the seller has legal right to sell the goods
What is the impact of a seller not having title?
There is no consideration, and therefore no valid contract
What are other terms implied by the SGA?
Goods sold should:
- match any description given by the seller
- be of satisfactory quality (if seller is a business), and
- be fit for any particular purpose made known to the seller by the buyer (if seller is a business)
What does satisfactory quality mean?
- Fit for the purpose for which such goods are generally used
- Free from minor defects
- Safe and durable
What defects are excluded when considering satisfactory quality?
- Defects brought to the buyer’s attention
- Defects that would have been obvious to the buyer had they inspected the goods prior to sale
Are terms implied under SGA conditions or warranties and what is the importance of this?
Conditions, meaning that if they are breached, the buyer can terminate the contract, reject the goods, and refuse to pay, but must return the goods
When is a breach of terms implied under the SGA a breach of warranty?
When the breach is so slight that it would be unreasonable for the buyer to reject the goods
What does the Unfair Contract Terms Act 1977 provide regarding SGA implied terms?
- UCTA prevents a seller from excluding the implied term as to title
- Exclusion of liability for all other implied terms will be valid only if reasonable
What are some terms implied by the Supply of Goods and Services Act 1982?
- Supplier will carry out service with reasonable care and skill
- Supplier will carry out service within reasonable time (if no time is agreed)
Are terms implied by the SGSA conditions, warranties, or innominate terms?
Innominate terms
What terms are implied under SGSA for goods supplied incidental to the provision of services?
The same terms which are implied under SGA
What does the Unfair Contract Terms Act 1977 provide regarding SGSA implied terms?
Same as for SGA
What is the scope of the Consumer Rights Act 2015?
Supply of goods/services in a consumer context, i.e. between trader and consumer
What is a big difference between CRA and SGA/SGSA?
Under CRA, liability for breach of implied terms cannot be excluded at all
What are four terms implied by the CRA into contracts for services?
- Carried out with reasonable care and skill
- Completed in accordance with information relied upon by the consumer (e.g. price)
- Completed for a reasonable price
- Completed within a reasonable time
Although the courts are reluctant to interfere with the presumed intentions of the parties generally, other than in the statutory contexts, when are they prepared to imply terms into contracts?
To give business efficacy to the contract, i.e. make it work in a way which reflects the parties’ intentions and expectations
What is the officious bystander test in the context of a court implying terms into a contract?
They will only do so if the term to be implied is so obvious to a reasonable person that it goes without saying
What kind of term are the courts unlikely to imply?
One that contradicts an express term
What is required for the courts to imply a term through course of dealings between the parties?
The parties have contracted on the same terms on several occasions, enough to show a regular and consistent course of dealings
Whilst the courts will generally not get involved to make an incomplete or vague contract work, what is required of a contract before they would get involved?
Sufficient certainty
What is one instance where the courts will not get involved with a contract?
Where the court is unable to conclude that the parties intended to be bound
What are four instances in which the courts will get involved in a contract which is uncertain?
- Mechanism, e.g. a clause, between the parties to resolve uncertainties
- Commercial cases in which the parties are familiar with the trade
- Future performance over a period of time (parties can resolve uncertainty over time), and
- Where there has been partial performance, or one party has invested on the basis of the agreement
What is one term the statutes will help resolve if it is not dealt with in the contract?
If no price has been agreed and none can be determined from the dealings between the parties, the buyer must pay a reasonable price
In deciding to sever an uncertain term, what is the test the courts will use?
Whether the term can be severed without affecting the substance of the bargain between the parties
What is the effect of an uncertain term not being able to be severed?
The entire contract is void for uncertainty
