Chapter 10: Terms Flashcards
A contract consists of a number of terms. What are the 2 terms that describe the duties and obligations of each party assumes under their agreement.
Major obligations
Minor obligations
What are the 4 methods of creation of terms?
What is the cause of action that is brought if terms are breached?
A term can be made
- expressly
- implied
- orally
- writing
When a term is breached it is a breach of contract
What is the Contractual Cartography Test?
What is it?
- Allows judges to identify/distinguish the differences between terms and the other statements
Lord Moulton Fletcher in Heilbut Symons & Co v Buckleton stated
- CCT are sets of questions used by the courts to decipher the intention of contracting parties
- Not conclusive, but courts use them to decide how the parties treated a particular PCS
What are the 6 guidelines that are taken into account of the CCT?
- The importance of the statements to the parties
- Specialist knowledge/skills
- If the knowledge was the same or the other party (buyer) has greater knowledge - then it is representation
- Was the statement reduced in writing
- The time the statement was made
- Accepting responsibility / advising on verification
What is the definition of terms?
Clauses that creates obligations in a contract
What are the 2 main sources of terms?
Express terms (terms that are put in by the parties)
- Oral
Written
Implied terms (not stated in document; but feels should be there)
- Courts
- Custom
- Statute (most important)
What are express terms? What are the 2 types of terms under this and what is the nature of it?
Terms specifically agreed upon by the contracting parties. Can be through oral or written
Oral Terms
- It is a question of fact for the judge to decide what exactly was said by each individual party
- Hard to get evidence (an issue)
Written Terms
- The courts can face some difficulties - whether the courts can go beyond the written agreement in an attempt to discover the existence of an additional term to the contract (Parol Evidence Rule)
What is the Parol Evidence Rule under written terms of Expressed Terms? What is the general rule?
general rule
GR - Once the contract has been reduced in writing, the parties cannot adduce extrinsic (outside) evidence to add, vary or contradict the written contract - Jacobs v Batavia & General Plantations Trust Ltd. (1924)
- On the basis that what was already written in the document, are the parties final thoughts (cannot change anymore)
- To promote certainty (AIB Group plc v Martin (2001))
Note
- However this rule, if applied too strictly/rigidly can lead to considerable injustice. It is therefore not an absolute rule
- E.g. written document procured by fraud
What are the 2 situational circumstances where there is excpetions to the Parol Evidence Rule?
exceptions
Partly oral, partly written contract
- Where the intended document was not intended to disclose the whole information of the agreement (Allen v Pink (1838))
- But it is presumed if the contract was written, it was the full contract
- Party that wants to adduce extrinsic evidence has to give evidence to rebut this presumption
Extrinsic evidence is admissible/permitted to prove -
- Terms which must be implied into the agreement (Gillespie Bros & Co v Cheney; Eggar & Co. (1896))
- A custom which must be implied into the contract (Hutton v Warren)
- To show that the contract is invalid on the grounds of misrepresentation, mistake, fraud/non est factum (Campbell Discount Co v Gall)
- To show that the document should be rectified/modified
- To show that the contract has not yet come into existence/ceased to operate (Pym v Campbell)
- To prove the collateral agreement (Mann v Nunn)
What is an Entire Obligation Clause under expressed terms?
Used in Commercial Contracts
- Usually an Express term/Clause that expressly provides that the written contract records the totality of their legally enforceable agreement
- Cannot use extrinsic evidence (for certainty)
What is the case for entire obligation clause?
Axa Sun Life Services v Campbell Martin (2011)
Held
- CA -such clauses will help reduce litigation and cost
What are criticisms to the Parol Evidence Rule?
Subject to criticism as there too many exceptions to it
Abolish it
- In 1986, the Law Commission recommended that it be abolished but in the more recent report, it concluded that no legislative action need to be taken
2 reasons not to abolish
- This rule did not preclude the courts from having the recourse to extrinsic evidence where such a course was consistent with the intentions of the parties
- Any legislation would most likely cause confusion rather than clarify the law
What is the definition of Implied terms?
Terms that are implied (by courts/customs/statute) into the contract in addition to the express terms of the contract (not expressly stated in the contract)
What are 2 things to note about courts and implied terms?
1) Courts are generally reluctant to imply terms into the contract as their role is merely to interpret and uphold the contract. Not to create contracts
2) Courts would use this as integrity - to assist parties that are at a lesser bargaining position (as they don’t know their rights)
- Crossley v Faithful & Gould Holdings Ltd [2004]
- Geys v Societe Generale [2012]
What are the 3 sources of implied terms?
- Common law
- Custom
- Statute
What is the nature of relationship of terms implied by common law?
- Some terms will be implied because of the nature of the relationship between the parties
- They are ‘general default rules’ arising from ‘particular forms of contracts’ - Lord Steyn in Equitable Life Assurance Society v Hyman [2002]
What are the 2 types of relationships under terms implied by common law?
Landlord and tenant
Employer and employee
What is the case for landlord and tenant?
terms implied by common law
Liverpool City Council v Irwin [1976]
Liverpool City Council v Irwin [1976]
terms implied by common law
Held
- HOL implies a duty to take reasonable care of the so called common parts on the landlord of premises with multiple occupants
What 5 restrictions/limitations of employer and emplyee relationships?
terms implied by common law
Terms have been implied into contracts of employment to the effect that an employer shouldn’t -
- Overwork its staff in a way that damages their health
- Conduct business fraudulently
- Go back on an earlier promise to provide a large ‘bonus pool’ (Attrill v Dresdner Kleinwort Ltd [2012]) in a manner likely to destroy or seriously damage the relationship of confidence and trust between the 2 parties
- Business Efficacy Test
- The Officious Bystander Test
What is the case for employers should not overwork its staff in a way that damages their health?
Employer and emplyee relationship
Johnstone v Bloomsbury Health Authority [1992]
What is the case for employers should not conduct business fraudulently?
employer and employee relationship
Malik v Bank of Credit and Commerce International SA (In Liquidation) [1997]
What is the 2 cases for employers should not go back on their promise, giving large bonus pool which may destroy or seriously damages employer and employee relationship?
employer and employee relationship
Scally v Southern Health Board [1992]
In contrast with
Crossley v Faithful & Gould Holdings Ltd (2004)
What is the Business Efficacy Test?
Employer and employee
Where courts may imply terms into the contract to give effect to what appears to be the unexpressed presumed intention of the parties
* In some circumstances, the contract will not function unless the term is implied
* On grounds that it is for ‘business efficacy’ of the contract (makes business sense)
What case was adopted by the Business Efficacy Test?
What is the test about?
Moorcock (1889) test
- where the term was implied, because without it, the contracts cannot be performed as the parties intended
- The contract would not make business sense
- Term implied to give business efficacy
What is the case for the Business Efficacy Test?
Re Force India Formula One Team Ltd [2022]
What is The Officious Bystander Test?
What case created this test?
Courts imply a term that was so obvious and clear that the parties would have intended to include the term (Shirlaw v Southern Foundries Ltd (1926))
- Something so obviously clear that if the parties were arguing on the terms. A bystander would go “oh, of course”
What are terms implied by custom or trade usage?
What are the cases for this?
Terms consistent with the established customs/usage of the relevant trade would be implied unless such a term would be inconsistent with the express terms of the contract
- In order for the term to be incorporated, the term must be well established and notorious (well known within the trade context, e.g., paying of commissions)
Case
- Hutton v Warren
- British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd
How does terms implied by statute work?
How does it apply on contracts?
Statute applicability depends on the type of contract
What are the 2 types of contract that is governed by terms implied by statute?
What are the relevant Acts/statutes for each of them?
Business to business (B2B)
- Sale of Goods Act 1979 (SOGA)
- Supply of Goods and Services Act 1982 (SOGASA)
Business to consumer (B2C)
- Consumer Rights Act 2015 (CRA)
What does Sale of Goods Act 1979 state for B2B contracts?
What section defines this?
Act only applies to a contract for the sale of goods
Defined in Section 2 SOGA
- “the seller transfers or agrees to transfer property in the goods to the buyer for a money consideration called the price”
What are the relevant sections and subsections of SOGA 1979 for B2B contracts?
What do these sections talk about?
B2B
Section 12 - right to sell
- Section 12(1)
- Section 12(5a)
Section 13- sales by description
- Section 13(1a)
- Section 13(2)
- Section 13(3)
Section 14(2) - satisfactory quality
- Section 14(2)
- Section 14(2a)
- Section 14(2b)
- Section 14(2c)
Section 14(3) - fitness for a particular purpose
Section 15(1) - sample by sample
What are the relevant sections and subsections of SOGASA 1982 for B2B contracts?
What do these sections talk about?
Supply of Goods and Services Act 1982
B2B
Section 13 - services provided
What does Consumer Rights Act 2015 state about B2C contracts?
- CRA 2015 imposes a duty on traders contracting with consumers, that correspond (relate) to implied terms B2B contracts
- Uses language of duties - Doesn’t make a distinction of conditions & warranties
What are the relevant sections and subsections for CRA 2015 for B2C contracts?
What do these sections talk about?
Section 9 - goods to be satisfactory quality
- Section 9(1)
- Section 9(2)
- Section 9(3)
- Section 9(4)
Section 10 - goods to be fit for particular purpose
- Section 10(1)(3)
- Section 10(3)
- Section 10(4)(3)
Section 11 - goods to be as described
- Section 11(1)
- Section 11(2)
Section 13 - goods to match a sample
- Section 13(1)
- Section 13(2)(a)
- Section 13(2)(b)
Section 14 - goods match a model seen or examined
- Section 14(1)
- Section 14(2)
Section 49 - service to be performed with reasonable care and skill
- Section 49(1)
Section 51 - reasonable price to be paid for a service
- Section 51
- Section 51(1)(a)
- Section 51(1)(b)
- Section 51(1)(c)
- Section 51(2)
- Section 51(3)
Section 52 - service to be performed within a reasonable time
What are classification of terms?
Types of terms offer the kind of remedies available for breach of contract
Note
- remedy depends on the type of breach/obligation
What are the 3 types of classification of terms?
- Condition (core/fundamentals of the contract)
- Warranty
- Innominate
What are the remedies available for each of the classification of terms?
Condition
- terms and damages & affirm and damages
Warranty
- damages only
Innominate terms
- (depends on seriousness of breach)
What is an important thing to note about classification of terms?
1) Termination of a contract can be a drastic/big step, as sometimes it’s used by the Injured Party to escape a Bad Bargain
- Motive of termination irrelevant
2) Party rescinding for breach - need not show that the breach of condition actually caused any loss
- Bowes v Shand [1877]
- Re Moore and Landauer [1921]
3) There is different meaning of rescission regarding breach of contract (terms) and for misrepresentation (representation)
What is the case of the injured party escaping a bad bargain under classification of terms?
Arcos Ltd v Ronaasen & Sons (1933)
Facts
- Regarding purchase of timber
- Goods were described in the contract as half inch thick
- Turns out was 9/16” thick
- But this didn’t impair its utility for making cement barrels
- Buyer rejected all the goods delivered
Held
- Buyer was entitled to reject the goods
Takeaway
- Termination was allowed even though the motive was clear (that market price for timber fell)
- On grounds that it was the BUYERS fault, that he entered into a bad bargain
What is a condition?
What are the aspects, nature of the breach, and the remedy available?
Introduction
- Core terms of the contract (root/major obligation)
Aspects
- Obligations that go directly to the substance of the contract
- So essential to the very nature of the contract that the non-performance/failure will amount to substantial failure of the contract (Wallis, Sons & Wells v Pratt & Haynes (1911))
Breach
- Breach is generally repudiatory (so serious)
Remedy - innocent party entitled to either
- Terminate the contract & claim damages; or
- Affirm (go with) the contract and claim damages
What is a warranty?
What is the nature of the breach and remedy for this?
Introuduction
- Terms that contain minor obligations (less important)
- Collateral or secondary to the main purpose of the contract
Breach
- Not repudiatory
Remedy
- Innocent party entitled to damages only
What is an important thing to note about warranties?
