Chapter 7: Terms

Question 1

Definition of Terms

Answer 1

The terms of a contract are its contents. They define the rights and obligations arising from the
contract. Contractual terms may be express or implied.

Question 2

Express Terms

Answer 2

Express terms are statements made by the parties, by which they intend to be bound. A contract
can have terms agreed in writing, or agreed orally, or a mixture of the two.

Question 3

Implied Terms

Answer 3

Implied terms are not formed by statements made by the parties – they have not been agreed
upon, orally or in writing. Nonetheless, the law deems that they exist.

Question 4

2. Express terms contrasted with representations

Answer 4

One challenge in relation to express terms is to pick out from the many statements which might
have been made orally or in writing those which have become terms of the contract. Statements made by the parties during negotiations leading up to a contract can be divided into
three groups: mere puffs; representations and terms.

Question 5

Mere puff

Answer 5

Statements of no legal significance.

Question 6

Representations

Answer 6

Statements of fact or law which induce the making of the contract which the parties do not intend to be binding.

Question 7

Terms

Answer 7

Statements of fact which the parties intend to be binding.

Question 8

2.2 Why does the distinction between representations and terms matter?

Violation of Term = Contractual Breach

Answer 8

The distinction between representations and terms becomes important when the statement turns
out to be untrue, or the promise is not fulfilled. The court then has to decide which statements are
contractual terms and which are non-contractual representations, inducing the contract but forming no part of it. If a statement is a term of the contract and this term is not fulfilled, this will amount to a breach of contract, for which the innocent party may claim, amongst other
remedies, damages

Question 9

Violation of a no-term = misrepresentation

Answer 9

If the untrue statement is not a term of the contract but a representation, this may amount to a misrepresentation. This is not the same as a breach of contract, but the innocent party may still be able to obtain a remedy in the law of misrepresentation

Question 10

Both breach & misrepresentation

Answer 10

Also note that a statement can be both a term and a representation, giving rise to an action for
both breach of contract and misrepresentation.

Question 11

2.3 How do I know if a statement was a representation or a term (or both)?

Answer 11

The difference between a representation and a term is that only the latter is intended to be
binding. In seeking to discover whether the parties intended to be bound by a statement made by
one of them, the court will apply an objective test based on the question: ‘what would a reasonable person understand to be the intention of the parties, having regard to all the circumstances?’

Question 12

Negotiations during a contract

Answer 12

Where a statement is made during negotiations to induce the other party to enter into the contract, there is, prima facie, ground for inferring that the statement was intended
to be a binding term of the contract. However, the inference can be rebutted if the party making
the statement can show that it would not be reasonable to hold them bound by it

Question 13

2.4 The importance of the statement

Answer 13

A statement may be regarded as a term of the contract if it can be shown that the injured party considered it so important that it would not have entered into the contract but for that statement

Question 14

Bannerman v White (1861) 10 CB NS 844.

Answer 14

In this case, in respect of negotiations to purchase hops, the defendant said: ‘if they have been treated with sulphur, I am not interested in even knowing the price of them’. When the plaintiff produced samples, the defendant again enquired whether
sulphur had been used and was assured that it had not. In fact, a small amount of the crop, some
five acres out of a total of 300 acres, had been treated with sulphur.

Question 15

Bannerman v White (1861) 10 CB NS 844.

Answer 15

The defendant treated the
contract as repudiated, and the question as to whether they were entitled to do so hinged upon
whether it could be regarded as a condition of the agreement that the hops may be rejected if sulphur had been used. It was argued by the plaintiff that the conversation relating to the sulphur was preliminary to entering the contract and, as such, was not part of the contract. The court held that the statement was understood and intended by the parties to be a term of the contract
of sale.

Question 16

2.5 Timing

Answer 16

The time of the making of the statement appears to be an important factor. If the statement was made at the time of contracting, it is more likely to be a term of the contract than if it was made at an early stage of the negotiations. If, on the other hand, there is a delay between the making of the statement and the parties entering into the contract, then it is less likely to be treated as a term

Question 17

Routledge v McKay [1954] 1 WLR 615 (Issues with Lapse of Time)

Answer 17

The private seller of a motorcycle told the buyer, in good faith, that it was a 1941 or 1942 model. One week later, the buyer and seller entered into a contract of sale. The written memorandum of the sale did not mention the year of the model. The
motorcycle was a 1930 model and the buyer sued for breach of contract. The Court of Appeal
held that the lapse of time between the making of the statement and entering into the contract meant the statement as to the year of the model was a representation and not a term of the contract.

Question 18

2.6 Reduction of the contract into writing (Routledge v McKay)

Answer 18

It is also apparent from the decision in Routledge v McKay that the court was influenced by the fact that the contract had been reduced into writing and the written contract made no mention of the previous oral statement about the motorcycle being a 1941 or 1942 model.

Question 19

Statement not considered significant if it was not written (Routledge v McKay)

Answer 19

The inference drawn
by the court was that the statement could not have been regarded as significant by the parties. If
it had been, they would have ensured its inclusion in the written agreement. Consequently, the
court concluded that the statement regarding the year of the model was never intended to be a
term of the contract but a representation.

Question 20

2.7 Special knowledge or skill

Answer 20

Where the party who made the statement had exclusive access to information or special knowledge as compared with the other party, this is likely to be taken into account in the latter’s favour.

Question 21

Oscar Chess Ltd v Williams [1957] 1 WLR 370

Answer 21

The claimant car dealers, Oscar, agreed on a trade-in of Williams’ old car as part of a new purchase. Williams had no knowledge of the motor trade. The registration book of the car traded in gave its date as 1948 and Williams confirmed this date in good faith. It was later discovered that the date should have been 1939 and the car was worth much less than thought.

Question 22

Oscar Chess Ltd v Williams [1957] 1 WLR 370 Judgement

Answer 22

The Court of Appeal held that the
age of the car was not a term of the contract and therefore there was no breach of contract by Williams. It was clear that the skill and expertise lay in the hands of Oscar, the car
dealers, and not in the hands of Williams, who was making the statement. Consequently, the
statement remained as a representation without contractual force

Question 23

Dick Bentley v Harold Smith
[1965] 1 WLR 623.

Answer 23

Mr Smith, of the defendant company, told MrBentley that a car had done 20 thousand miles only since the fitting of a new engine and gearbox. The milometer also showed 20
thousand miles. Later that day, Mr Bentley took his wife to see the car and Mr Smith repeated his statement. Mr Bentley bought the
car but it soon became clear that it had done more than 20 thousand miles since the change of engine and gearbox

Question 24

Dick Bentley v Harold Smith
[1965] 1 WLR 623 judgement

Answer 24

The Court of Appeal held that the statement as to the mileage was a term of the contract. The
defendant was a car dealer who should be taken to have better knowledge of such matters than Mr Bentley, who was not involved in the motor trade.

Question 25

2.8 Assumption of responsibility/further checks

Answer 25

A statement may become a term of the contract where the vendor expressly accepts the responsibility for the soundness of the sale item in question.

Question 26

Schawel v Reade [1913] 2 IR 81 (HL)

Answer 26

Here, the claimant required a horse for stud purposes. He attempted to examine the defendant’s horse but was told that he need not look for anything and that the horse was sound in every way. The price was agreed and delivery of the horse took place three weeks later. The horse was not in fact fit for stud purposes and the judge directed the jury to
consider two points: did the defendant, at the time of the sale, represent that the horse was fit for
stud purposes? Did the purchaser act on that in purchasing the horse? Both questions were answered in the affirmative and consequently, the statement was deemed to be a term of the contract.

Question 27

Ecay v Godfrey (1947) 80
Lloyd’s Rep 286

Answer 27

Another factor which may have been at work in was that the defendant, by the strength of his statement, actually dissuaded the plaintiff from making further checks himself with regard to the fitness of the horse for stud purposes. This can be contrasted with Ecay v Godfrey (1947) 80
Lloyd’s Rep 286, where the seller of a boat stated that it was sound but advised the buyer to have it surveyed. This advice showed that the seller did not intend that his statement should be taken
as a term of the contract and that the onus of verification of the soundness of the boat lay with
the purchaser.

Question 28

2.9 Summary

Answer 28

• Statements made by the parties during negotiations can be divided into ‘mere puffs’, representations or terms of the contract.
• If an untrue statement is a term of the contract then this may give rise to a claim for breach of
  contract.
• A representation is likely to be a term if the parties intended the statement to be binding. To
  ascertain if this is the case, the court will consider.
• The importance of the statement.
• The timing of the statement.
• The reduction of the contract into writing.
• Special knowledge or skill of the person making the statement.
• Assumption of responsibility by the person making the statement.

Question 29

3. Express terms

Answer 29

The process of ascertaining the express terms of a contract is, at heart, a search to ascertain what an objective observer would think that the parties intended to be bound by. The terms that the parties intend to be bound by (as it would appear to an objective observer) will be terms of the contract. This is the essence of a contract: agreement between the parties. However, how this ‘intention to be bound’ is demonstrated varies in different circumstances. We will now look at some of the possibilities.

Question 30

3.1 A signed written contract

(L’Estrange v Graucob Ltd [1934] 2 KB 394)

Answer 30

Firstly, written terms might be set out in a signed written contract. In almost all such cases the signing of a contract shows that the parties intended to be bound by it. This is true even if a party signing has not read the terms or has not understood what they mean. A party can express an intention to be bound by something they have not read or understood (although it is not wise to
do so!)

Question 31

Grogan v Robin Meredith Plant Hire [1996] CLC 1127

Answer 31

By way of exception, if the document signed was not intended to have any contractual effect (eg it was a document simply acknowledging receipt of goods) then the terms within it will not form part of the contract.

This is because signing such a document does not indicate an intention to be bound by its terms, precisely because it was not intended that the document would have any contractual effect. In this regard, timing is also important: the document in Grogan was described by Auld LJ as a ‘post-contractual document’ making it much less likely it would have a contractual effect

Question 32

(Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805)

Answer 32

In addition, a party may be prevented from relying on the incorporation of a clause through signature of a document if it has orally misrepresented the meaning of the clause to the other party

Question 33

3.2 Incorporation by notice (Parker v South Eastern Railway Co (1876-77) 2 CPD 416)

Answer 33

Terms can also be incorporated by notice ie by one party notifying the other party of them. In Parker v South Eastern Railway Co (1876-77) 2 CPD 416 it was established that terms will form part of the contract if reasonable steps have been taken to bring them to the claimant’s attention. This is logical, where reasonable steps have been taken to draw terms to a party’s attention, that party’s persistence with the transaction suggests an intention to be bound by the terms

Question 34

Thompson v London, Midland & Scottish Railway [1930] 1 KB 41

Answer 34

Established that terms may be incorporated by reference to a different document (in this case the contractual document, a ticket, referred to terms contained within a railway timetable). Examples where insufficient notice was given include
Henderson v Stevenson (1875) LR S SC & Div 470 where the clause was not referred to on the front of the ticket and Sugar v London, Midland & Scottish Railway [1941] 1 All ER 241 where the clause was illegible.

Question 35

In Thornton v Shoe Lane Parking [1971] 2 QB 163, Lord Denning MR

“Printed in Red Ink” to highlight incorporation by notice

Answer 35

Where a party wants to incorporate terms that are particularly adverse to the other party, it must bring these to the other party’s attention. stated that where a clause was particularly onerous it would need to be ‘printed in red ink, with a red hand pointing to it, or something equally startling’ to give sufficient
notice. This principle was confirmed in the case of Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] 1 QB 433

Question 36

Incorporation of Onerous Terms

Answer 36

The above discussion relates to the incorporation of onerous terms through reasonable notice.
Note that when a document containing contractual terms is signed the signing party is bound by
those terms, even if the offending clause is onerous (L’Estrange v Graucob Ltd).

Question 37

3.2.1 Timing

Answer 37

For a clause to be incorporated into the contract, reasonable notice of it must be given before or at the time of contracting. It follows that any clause will not amount to a binding term if it is communicated only after the contract is made.

Question 38

Thornton v Shoe Lane Parking [1971] 2 QB 163

Answer 38

• The claimant drove his car to a multi storey automatic car park that he had never used before. At the entrance was a sign giving the charges for the car park.
• The claimant drove up to the entrance. The movement of the car turned a light at the entrance
  from red to green, and a ticket machine produced a ticket that stated that the ticket was
  issued ‘subject to the conditions of issue as displayed on the premises’.
• The claimant drove into the car park without reading the words on the ticket or those displayed
  on a pillar opposite the ticket machine.
• The claimant parked his car and went about his business.
• When the claimant returned to the car park, he attended the office in the car park, and paid the necessary charges.
• The claimant then returned to his car and was severely injured whilst attempting to put his belongings into his car.

Question 39

Lord Denning’s judgment on the Thornton v Shoe Lane Parking [1971] 2 QB 163 case

Answer 39

No customer in a thousand ever read the conditions. If he had stopped to do so, he would have missed the train or the boat. None of those cases has any application to a ticket which is issued by an automatic machine. The customer pays his money and gets a ticket. He cannot
refuse it

He cannot get his money back. He may protest to the machine, even swear at it. But
it will remain unmoved. He is committed beyond recall. He was committed at the very moment
when he put his money into the machine.

The customer is bound
by those terms as long as they are sufficiently brought to his notice before-hand, but not otherwise. He is not bound by the terms printed on the ticket if they differ from the notice, because the ticket comes too late. The contract has already been made.

Question 40

3.2.2 Contractual effect

Answer 40

Finally, terms will only be incorporated by notice if the document giving notice was intended to have a ‘contractual effect’ (there is an analogy here with the law about signed documents outlined above).

Question 41

Chapleton v Barry UDC [1940] 1 KB 532

Answer 41

The claimant hired a deck chair. Having paid for the hire, he was given a ‘ticket’. On the back of the ticket, there were additional terms and conditions. These were held not to be binding because the ticket was not intended to have a contractual effect
–an observer would have understood it to be only a receipt

Question 42

3.3 Incorporation by a course of dealing

Answer 42

Where a clause has been brought to the notice of the other party during previous dealings, it may be implied into the current transaction to give effect to the presumed intentions of the parties, even though it has on this particular occasion been omitted. In order for this rule to operate, it must be shown that the course of dealing has been consistent over a period of time.

Question 43

McCutcheon v David MacBrayne [1964] 1 WLR 125

Answer 43

An attempt to incorporate by a course of dealing was unsuccessful because the written terms relied upon had not been consistently
incorporated in the past – sometimes a signature in relation to those terms had been required, sometimes it had not

Question 43

In Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71

Course of dealing has to be consistent over a period of time and sufficiently regular

Answer 43

As well as being consistent, a course of dealing must also have been regular. Incorporation by a course of dealing will not be established if the parties have contracted with each other on only a few occasions over a number of years.

In Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71 three
or four transactions over a period of five years was held to be insufficiently regular to establish a
course of dealing

Question 43

Henry Kendall & Sons v William Lillico& Sons Ltd [1969] 2 AC
31 and Petrotrade Inc v Texaco Ltd [1999] 12 WLUK 745 w

Answer 43

Contrast this with Henry Kendall & Sons v William Lillico& Sons Ltd [1969] 2 AC 31 and Petrotrade Inc v Texaco Ltd [1999] 12 WLUK 745 where three or four times per month and five instances over 13 months respectively appeared sufficiently regular.

Question 44

3.4 Other ways of agreeing express terms

Answer 44

However, the terms of a contract can be arrived at in many other ways provided that the parties adequately express an intention to be bound by those terms. Obvious and common examples include the agreement of terms in a conversation or verbal exchange (such terms often being quite simple), or terms being set out in writing (for example in an email) and the other party agreeing to those (for example, by agreeing in reply by email).

Question 45

3.5 Incorporation and exemption clauses

Answer 45

Such ‘exemption clauses’ are often ‘onerous’ in the sense that they can leave one party with a dramatically reduced remedy than would
otherwise be the case, in the event of breach. Much of the case law about incorporation and about giving ‘reasonable notice’ of clauses was created in the context of exemption clauses.

Question 46

3.6 Entire agreement clauses

Answer 46

We have already explored the challenges of:
(a) Distinguishing representations from terms of the contract.
(b) Identifying whether there are binding oral terms alongside the written terms

These challenges can cause uncertainty and confusion for the parties to the contract. The parties
might seek to reduce this uncertainty and confusion by including in a written contract an ‘entire agreement’ clause. In its simplest form, such a clause provides that a particular document or set of documents constitutes the entire agreement between the parties

Question 47

Possible boilerplate clause – ‘entire agreement’ clause

Answer 47

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.

Question 48

3.7 Summary

Answer 48

• The terms that a party intends to be bound by will be the terms of the contract. How the
  ‘intention to be bound’ is demonstrated varies in different circumstances.
• Signing a written contract almost always shows an intention to be bound.
• Terms can be incorporated by notice, but ‘reasonable steps’ need to be taken to bring those
  terms to a party’s attention, and notice of the terms must be given before or at the time of
  contracting.
• Terms can be incorporated by a regular and consistent course of dealing.
• Terms can be agreed in many other ways, such as by a conversation or an exchange of emails.
• An ‘entire agreement’ clause in a written agreement helps rule out the possibility of there being
  representations or terms agreed orally which form part of a contract.

Question 49

4. Implied terms

Answer 49

4.1 Introduction: There is a general presumption that the parties have expressed, orally or in writing, every material term which they intend should govern their contract. But there are circumstances where terms
which have not been expressed by the parties are inferred by the courts. An implied term is binding to the same extent as an express term.

A term may be implied in a contract based on fact or law. A term is implied in fact to give effect to the presumed but unexpressed intentions of the parties. A term is implied in law because the courts or statute require this, regardless of the intention of the parties.

Question 50

4.2 Terms implied in fact

Answer 50

In order to discover the unexpressed intention of the parties, the courts may take notice of trade customs and the need to give ‘business efficacy’ to a contract. It must be emphasised that, where the parties have made an unambiguous express provision in
their contract, the court will not imply a term to the contrary.

Question 51

4.2.1 Trade or professional customs

Answer 51

Where a term is implied on the grounds of a custom, the implication is based on the assumption that it was the intention of the parties to be bound by well-known customs of a particular trade (British Crane Hire v Ipswich Plant [1975] QB 303).

Question 52

4.2.2 A course of dealing between the parties see McCutcheon
v MacBrayne [1964] 1 WLR 125 and Hollier v Rambler Motors [1972] 2 QB 71).

Answer 52

A term may be implied into an agreement on the basis that the parties have dealt with each other
on many occasions over a long period of time. A term will only be implied in these circumstances
where the dealings of the parties have followed a consistent and regular pattern

Question 53

4.2.3 Business efficacy

(Shirlaw v Southern
Foundries [1939] 2 KB 206 CA).

Answer 53

A term may be implied to give ‘business efficacy’ to a contract – ie to make the contract produce
its intended objective (The Moorcock (1889) 14 PD 64). A term will not be implied merely because such an implication will transform the agreement into a business-like arrangement.

A term will only be implied on this ground if, without the implied term, the arrangement would be
so unworkable that sensible people could not be supposed to have entered into it. Something so
obvious that if suggested to the parties, they would respond. ‘Oh, of course’.

Question 54

4.3 Terms implied as a matter of law (see Liverpool City Council v Irwin
[1976] 2 WLR 562).

Answer 54

Terms can also be implied by the courts at common law to give effect to legal duties which arise, as a matter of policy, out of certain common types of contractual relationships, for example in the context of a landlord and tenant relationship

Question 55

4.4 Terms implied by statute

Answer 55

Certain statutes indicate that stipulated terms will be implied into contracts. Statutory implied
terms will also operate irrespective of the intention of the parties, unless there is a valid exemption clause. Examples of statutory implied terms are to be found, most notably, in the Sale of Goods Act 1979, the Consumer Rights Act 2015 and the Supply of Goods and Services Act 1982 (as amended).

Question 56

4.4 Terms implied by statute

Answer 56

These acts provide for the implication of certain very important obligations on the seller in contracts for the sale of goods and the supplier in contracts for the supply of goods and services.
The detail of these acts is not considered in this section.

Question 57

5. The Sale of Goods Act 1979

Answer 57

The Sale of Goods Act 1979 (as amended by the Sale and Supply of Goods Act 1994) (SGA) is
probably the most important piece of legislation in relation to the sale of goods generally. This section addresses the most important implied terms originating from that legislation, but its scope is considerably broader than the matters addressed in this section.

Question 57

Important

Answer 57

Implied terms set out in this section do not apply to consumer contracts as defined in the Consumer Rights Act 2015. That Act implies many similar terms in consumer contracts, but the provisions are not precisely the same, and accordingly, the two situations must not be confused.

Question 57

4.5 Summary

Answer 57

• Terms can be implied on the basis of fact or law.
• Terms can be implied in fact on the basis of a custom or on the basis of a course of dealing between the parties.
• Terms can also be implied in fact to give ‘business efficacy’ to a contract.
• Terms can be implied at common law, as a matter of policy, in certain types of relationships.
• Terms can be implied at law as a result of statutes which indicate that they will be implied, such as the Sale of Goods Act 1979, the Supply of Goods and Services Act 1982 and the
  Consumer Rights Act 2015.

Question 58

5.1 Implied terms as to title – s 12

Answer 58

Section 12 provides for the implication that the seller has the right to sell the goods. The term implied by ss 12(1) is categorised as a condition of the contract. The distinction between conditions and warranties and the relevance of that distinction are not detailed in this section.

Question 59

5.2 Correspondence with description – s 13

Answer 59

Section 13(1) provides:
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. Where goods are described as having certain characteristics and specifications then they must
correspond with that description.
The term implied by ss 13(1) is categorised as a condition under s 13(1A).

Question 60

5.3 Satisfactory quality – s 14(2)

Answer 60

Section 14(2) of the Sale of Goods Act 1979 (as amended) provides: 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

Question 61

According to s 14(2A), the goods are of satisfactory quality if:

Answer 61

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

Question 62

Section 14(2B) provides a checklist of what may be taken into account in assessing whether the
goods are of satisfactory quality. These are:

Answer 62

(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.

Question 63

Self-Evident Purpose

Answer 63

If goods have a self-evident purpose, eg a hot-water bottle, this self-evident purpose will clearly
be covered by s 14(2B)(a) as a purpose for which the ‘goods of the kind in question are commonly
supplied’.

Question 64

Section 14(2C)(a) and (b).

Answer 64

The exceptions to the implied term as to satisfactory quality are to be found in s 14(2C)(a) and (b). Thus, there is no condition as regards defects specifically drawn to the buyer’s attention before the contract was made, or, if the buyer examines the goods before the contract is made, as
regards defects which that examination ought to have revealed.

Breach of s 14(2) is classified as breach of a condition by s 14(6).

Question 65

5.4 Fitness for a particular purpose – s 14(3)

Answer 65

In addition to satisfactory quality, the goods should also be fit for purpose. Section 14(3) states where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known to the seller: 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-broke

Question 66

Unreasonably of reliance

Answer 66

The section above makes clear that no implied condition as to fitness for a particular purpose arises where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller’s skill or judgment.

Question 67

5.5 Sale by sample – s 15

Answer 67

Where a sale is by sample, two conditions are implied into the contract by the Sale of Goods Act
1979 by virtue of s 15(2):
(a) ‘that the bulk will correspond with the sample in quality;
(b) […]
(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.’
Breach of s 15(2) is classified as breach of a condition by s 15(3)

Question 68

5.6 Modification of remedies for breach of condition - s 15A

Answer 68

Although a breach of ss 13, 14(2), 14(3) and 15 is breach of a condition, this is subject to s 15A.

Section 15A provides that if the breach is so slight that it would be unreasonable for the buyer to
reject the goods and repudiate the contract, the breach should be treated as a breach of warranty, which will only entitle the buyer to claim damages. The burden of proving that the breach is so slight and therefore unreasonable for the buyer to
reject the goods falls on the seller.

Question 69

5.7 Contracting out of the implied terms under the Sale of Goods Act 1979 (as amended)

Answer 69

Section 55 indicates that a seller’s liability under ss 12, 13, 14 and 15 of the SGA 1979 can be excluded and/or restricted by agreement of the parties, subject to the Unfair Contract Terms Act 1977 (UCTA).

UCTA does in fact significantly limit the ability to exclude/restrict these terms.

Under s 6(1)(a) of UCTA, the implied undertaking as to title contained in s 12 SGA 1979 cannot be
excluded or restricted.

Under s 6(1A) of UCTA, the implied undertakings as to description, quality, fitness for purpose or sample contained in ss 13-15 of the SGA can be excluded/restricted subject to the requirement of reasonableness.

Question 70

5.8 Summary

Answer 70

The Sale of Goods Act 1979 implies the following terms into contracts for the sale of goods:
* Broadly, the seller has the right to sell the goods (s 12);
* The goods will comply with their description (s 13);
* The goods will be of satisfactory quality (s 14(2);
* The goods will be suitable for any purpose made known to the seller (s 14(3); and
* The goods will comply with any sample (s 15).

Question 71

6. Supply of Goods and Services Act 1982

Answer 71

The Supply of Goods and Services Act 1982 (SGSA) provides for the implication of terms in:
(a) Certain contracts for the transfer of property in goods;
(b) Contracts for the hire of goods; and
(c) Contracts for the supply of services.
The SGSA 1982 also governs the exclusion of such implied terms.

Note: It is important to note that the implied terms set out in this section do not apply to consumer
contracts as defined in the Consumer Rights Act 2015.

Question 72

6.1 Contracts for the transfer of property in goods

Answer 72

(a) A contract of sale of goods;
(b) A hire purchase agreement;
(c) A contract under which the property in goods is or is to be transferred in exchange for trading
stamps;
(d) A transfer made by deed for which there is no consideration other than presumed
consideration; and
(e) A contract intended to operate by way of security.

Question 73

In any Contract for the Transfer of Goods: Implied Terms

Answer 73

They are implied terms regarding title (s 2), implied terms where transfer is by description (s 3), implied terms about quality or fitness (s 4) and
implied terms where transfer is by sample (s 5). Those terms are not addressed in detail in this
here.

Question 74

6.2 Contracts for the hire of goods

Answer 74

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

(a) A hire purchase agreement; and
(b) A contract under which goods are bailed in exchange for trading stamps.

Question 75

In any contract for the hire of goods

Answer 75

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 76

6.3 Contracts for the supply of services

Answer 76

(a) Care and skill: 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 a reasonable care and skill: s 13.

(b) Time of performance: where the supplier is acting in the course of a business and the time for the service to be carried out is not fixed by the contract, 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: s 14.

(c) Consideration: where the consideration for the service is not determined by the contract, left
to be determined in a manner to be 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: s 15.

Question 77

6.4 Contracting out of terms implied under the SGSA

Answer 77

In the case of contracts for transfer of goods or the hire of goods, under s 11 a supplier may negative or vary the terms set out in this section, subject to the provisions of the Unfair Contract Terms Act 1977 (UCTA).
Similarly, in the case of contracts for the supply of services, under s 16 a party may contract out of the implied terms set out in this section, subject to the provisions of UCTA. UCTA does in fact significantly limit the ability to negative/vary these terms. The detail of this is not addressed in this here.

Question 78

6.5 Summary

Answer 78

• The Supply of Goods and Services Act 1982 implies the following term into contracts for the
  supply of services:
• Services will be carried out with reasonable care and skill (s 13).

Question 79

7. The Consumer Rights Act 2015

Answer 79

The Consumer Rights Act 2015 comprises three Parts.
Part 1 deals with consumer contracts for goods, digital content, and services.
Part 2 regulates unfair terms (in consumer contracts).
Part 3 is of a miscellaneous and general nature.

Question 80

Part 1 of the CRA deals with consumer contracts for goods, digital content, and services.

Answer 80

Part I of the Act applies to contracts to supply goods, digital content or services between a trader
and a consumer. A ‘consumer’ is defined as ‘an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession’. A ‘trader’ is defined as ‘a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf’. Section 2(4) provides that, where a trader claims that an individual was not acting for purposes wholly or mainly outside the individual’s trade, business, craft or profession, then it is for the trader to prove it.

Question 81

CRA Dates

Answer 81

Note. Contracts between a consumer and a business entered into prior to 1 October 2015 are governed by the Sale of Goods Act 1979 or the Supply of Goods and Services Act 1982 and the Unfair Contract Terms Act 1977

Question 82

The cornerstone rights implied in a consumer sale of goods are that:

Answer 82

(a) Goods should be of a satisfactory quality (s 9);
(b) Goods should be reasonably fit for any purpose which the consumer makes known to the
trader that the consumer intends to use the goods for (s 10); and
(c) Where goods are sold by description the goods should match that description (s 11).

Question 83

Contracts for digital content (Implied Terms)

Answer 83

In line with the provisions for
consumer goods, the implied terms are that 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).

Question 84

Section 34 (2) of the CRA

Answer 84

According to s 34(2), the ‘quality of digital content is satisfactory if it meets the standard that a
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 85

Contracts for Services

What are the statutory rights of a consumer under a services contract?

Answer 85

Most importantly, the
the consumer has a right:
(a) That the service is performed with reasonable care and skill (s 49);
(b) That (where a price has not been agreed) a reasonable price is to be paid (s 51); and
(c) That (where a time has not been fixed) the service is provided in a reasonable time (s 52).

Question 86

Section 50(1)

Answer 86

A lso provides that anything that is said or written to the consumer, by or on behalf of the trader, about the trader or the service is to be included as a term where it is taken
into account by the consumer:
(a) When deciding to enter into the contract; or
(b) When making any decision about the service after entering into the contract.

Question 87

7.1 Additional remedies under the Consumer Rights Act 2015

Answer 87

Not only does the Consumer Rights Act 2015 imply terms as set out earlier in this section, it also specifies remedies for consumers when those terms are breached.

Unless otherwise stated, these
remedies sit alongside the remedies which would be available to the consumer under the general
law. Remedies under contract law generally are not considered in this chapter, but it makes sense
to consider the remedies under the Consumer Rights Act 2015 at this stage.

Question 88

Remedies for Contracts of Goods

Answer 88

The Consumer Rights Act 2015 provides that where goods sold to a consumer fail to meet any of
the requirements in s 9 (satisfactory quality), s 10 (reasonably fit for their particular purpose) or s
11 (correspondence with description) then the goods are regarded as non-conforming. Where the
goods are non-conforming, there are three remedial options available to the consumer

Question 89

(a) The short term right to reject;

Answer 89

Broadly speaking, the short term right to reject is available to the consumer for 30 days running from the time (i) that ownership has passed (or, in the case of contracts for hire or the like, possession has been transferred) and (ii) the goods have been delivered and (iii) in cases where the trader is required to install the goods or to take other action to enable the consumer to use the goods, the trader has notified the consumer that the required steps have been taken (s 22).

Question 90

(b) The right to repair or replacement;

Answer 90

The right to repair or replacement is available unless repair or replacement is either impossible or
disproportionate (in the sense that it imposes an unreasonable cost on the trader relative to the
other remedies and the interests of the consumer) (s 23).

Question 91

(c) The right to a price reduction or the final right to reject. (not both)

Answer 91

The consumer is not entitled to both a price reduction and final rejection; and, in either case, the
remedy may only be exercised where: (a) after one repair or one replacement, the goods do not
conform to the contract; or (b) the consumer can require neither repair nor replacement of the goods (because it is impossible or disproportionate); or (c) the consumer has required the trader to repair or replace the goods, but the trader is in breach of the requirement to do so within a reasonable time and without significant inconvenience to the consumer (s 24).

Question 92

The final right to reject

Answer 92

It should also be noted that s 24(10) provides that the general rule is that, where the final right to reject is exercised within 6 months (the clock running—as with the short term right to reject—from the time that ownership has passed, and so on), there should be a full refund with no deduction for use—but this does not apply to motor vehicles or any other goods that may be specified by
statutory order.

Question 93

Not treat is as an end result

Answer 93

Finally in relation to contracts for goods, it is worth noting that consumers cannot treat the
contract as at an end as a result of a breach of a term implied by ss 9, 10 or 11, save to the extent
set out in the Act (summarised above). So in one sense, the implied terms are neither conditions or
warranties – the extent to which breach gives rise to a right to treat the contract as at an end is
set out in the Act.

Question 94

Figure 7.12: Contracts for digital content

Answer 94

Section 42 provides that, where the digital content is non-conforming in breach of the terms implied by ss 34 (satisfactory quality), 35 (fitness for purpose) and/or 36 (matching description), there are two remedial options available to the consumer, namely:

• The right to repair or replacement; and
• The right to price reduction.

Question 95

Section 42(9)

Answer 95

In relation to these remedies, s 42(9) provides that ‘digital content which does not conform to the contract at any time within the period of six months beginning with the day on which it was supplied must be taken not to have conformed to the contract when it was supplied.’

Question 96

Section 43

Answer 96

Elaborates and qualifies the right to repair or replacement in the way that we have seen already in relation to contracts for goods. In particular, s 43(2)(a) requires the trader to
repair or replace the digital content ‘within a reasonable time and without significant inconvenience to the consumer’; s 43(3) precludes the consumer from requiring repair or replacement where this would be impossible or disproportionate; and s 43(5) identifies the nature of the digital content together with the purpose for which the digital content was obtained or accessed as material to judging ‘what is a reasonable time or significant inconvenience’.

Question 97

Section 44

Answer 97

Qualifies the right to price reduction, this right being exercisable only where the consumer either cannot require repair or replacement (because this is impossible or it would be disproportionate) or where the trader has failed to repair or replace the digital content within a reasonable time and without significant inconvenience to the consumer

Question 98

Section 45

Answer 98

Section 45 gives the consumer the right to receive a refund of all money pay for the digital content. A refund must be given within 14 days. The trader must give a refund using the same payment method that the consumer used to pay for the digital content, without imposing any fee
in respect of the refund. Like the provisions in relation to goods, it is not open to a consumer to treat a contract as at an end as a result of a breach of these implied terms.

Question 99

Section 46

Answer 99

According to section 46, where (a) a trader supplies digital content to a consumer under a contract, (b) the digital content causes damage to a device or to other digital content, (c) the device or digital content that is damaged belongs to the consumer, and (d) the damage is of a kind that would not have occurred if the trader had exercised reasonable care and skill, then the consumer is entitled to repair or to a compensatory payment

Question 100

Section 54

Answer 100

Section 54 provides that, where the services are non-conforming in breach of the term implied by
ss 49 (reasonable care and skill), there are two remedial options available to the consumer,
namely:
(a) The right to require repeat performance; and
(b) The right to a price reduction.

Question 101

The Right to Repeat Performance

Answer 101

The right to require repeat performance is elaborated and qualified in ways that are analogous to the parallel provisions in relation to goods and digital content. In particular, s 55(2)(a) requires the
supplier to provide the repeat performance within a reasonable time and without significant inconvenience to the consumer (s 55(4) offering the usual guidance on what, for this purpose, is reasonable and significant), and s 55(3) states that the consumer cannot require repeat performance if completion in conformity with the contract is impossible. According to s 56(3), a price reduction becomes available only where repeat performance is impossible or where the trader has failed to provide repeat performance within a reasonable time and without significant inconvenience to the consumer.

Question 102

Non-conforming services

Answer 102

Where the services are non-conforming in breach of the term implied by ss 52 (performance
within a reasonable time) the remedial option is the right to a price reduction.

Question 103

Example Case Study

Answer 103

A consumer buys a kettle from a trader. On day two the kettle will not switch on. What is the
consumer’s legal position under the Act? Clearly, the kettle is non-compliant relative to the
requirements in s 9 (satisfactory quality) or s 10 (fitness for particular purpose) or both. In principle, the consumer may (within 30 days) reject the kettle and get a full refund, or accept a replacement or insist on repair. The consumer is likely to be happy with either an exchange or a
refund.

Question 104

Reference to standards of reasonableness, proportionality and other equally imprecise concepts.

Answer 104

For example, s 23(2)(a) requires the trader to repair or replace the goods ‘within a reasonable time and without significant inconvenience to the consumer’. If the goods under repair are the consumer’s only laptop, what would be a reasonable time for undertaking the repairs and at what point would the inconvenience to the
consumer be significant?

Question 105

Determinants of standards of reasonableness, proportionality

Answer 105

According to s 23(5) these questions of reasonableness and significance
are to be determined by taking into account ‘(a) the nature of the goods; and (b) the purpose for
which the goods were acquired’. In the laptop case, before we can determine what is reasonable
or significant, we need to know more about the particular context.

Question 106

7.2 Summary

Answer 106

• Contracts for goods: goods will be of satisfactory quality, fit for any particular purpose made known to the trader, and will comply with their description.
• Contracts for digital content: the content will be of satisfactory quality, fit for any particular purpose made known to the trader, and will comply with its description.
• Contracts for services: the services will be performed with reasonable care and skill,
  provided in a reasonable time, and (where price has not been agreed) a reasonable price
  will be paid.
• The CRA 2015 sets out various remedies which are available when these terms are breached.
  These remedies sit alongside normal contractual remedies, but a consumer cannot treat a contract as at an end as a result of a breach of these terms other than in the manner specifically provided for in the Act.

Question 107

Conditions, warranties & Innominate Terms

Answer 107

8.1 Introduction
The terms of a contract (whether express or implied) can be classified as conditions, warranties or
innominate terms. We will begin by considering the distinction between conditions and warranties before considering the law in relation to innominate terms.

Question 108

8.2 The significance of the distinction between conditions and warranties

Answer 108

As a general principle, if a party breaches a condition, the innocent party has a right to treat the contract as repudiated ie they can terminate the contract, put an end to it with
the effect that both parties are released from all future obligations under the contract.

The innocent party may also sue for damages immediately. If it does not exercise the right to elect to
treat the contract as at an end, and instead chooses to affirm the contract, the contract remains
in full force and effect, meaning that all parties will remain bound to perform their obligations
under the contract, but the innocent party can still sue for damages with respect to the other party’s breach.

The Right to Repudiate is waived

Question 109

Breach of warranty

Answer 109

In contrast, if a party is in breach of a warranty, the only remedy available to the innocent party is to sue for damages ie there is no right to treat the contract as repudiated.

Question 110

8.3 How to distinguish conditions and warranties

Answer 110

According to the traditional approach, the distinction between a condition and a warranty is that a condition is an important term ‘going to the root of the contract’ (Poussard v Spiers (1876) 1 QBD 410). A warranty is a less important term not going to the root of the contract.

Question 111

Poussard v Spiers

Answer 111

The crucial question is, whether the parties intended, at the time of contracting, that any breach
of the relevant term could result in the innocent party terminating (see Poussard v Spiers again). Only if the answer to this question is clearly ‘yes’ should the term be categorized as a condition from the outset.

Question 112

8.4 Innominate terms

Answer 112

Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 the Court of Appeal held that there are many terms which, at the outset, are neither conditions nor warranties but are of an ‘innominate’ or intermediate nature. The term in question in Hong Kong Fir was that the ship being hired was, ‘in every way fitted for ordinary cargo service’. This is a clause that could be breached in a variety of ways, ranging from the minor to significant.

Question 113

Key Question: Does the breach deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract?

Answer 113

If the answer to this question is ‘yes’ then the term will be treated as a condition and the innocent
party is entitled to treat the contract as repudiated and claim damages. If the answer is ‘no’ the innocent party is entitled to claim damages only.

Question 114

Traditional approach based on parties

Answer 114

This is quite different from the traditional approach based on the intention of the parties at the
time they made their contract which distinguishes between minor terms (warranties) and important terms (conditions). Admittedly, this analysis may promote justice as between the
parties, but such justice is achieved at the cost of certainty, in particular certainty as to whether the innocent party has the right to terminate the contract as a result of the breach.

Question 115

Starting point for the classification of terms

Answer 115

Taking all this into account, when considering the classification of terms, the starting position
should be to consider whether the term in question has been classified as a condition or a warranty by: i) statute; ii) the parties or iii) previous judicial decision(s).

Question 116

If question is not answered

Answer 116

If that does not provide an
answer, then the court will need to look at the contract, the subject matter and the surrounding
facts to determine whether the parties intended for any breach of the term to entitle the innocent
party to terminate the contract (this is where the ‘root of the contract’ test may be relevant). If the court cannot determine the parties’ intention, or determines that their intention was that not every breach would lead to the right to terminate, then the court is likely to decide that the term is
innominate, and apply the test from Hong Kong Fir.

Question 117

Categories of Terms

Answer 117

Condition: An important term going to the root of the contract.
Warranty: A less important term not going to the root of the contract.
Innominate term: A term which at the outset is neither a condition or warranty but is of an
intermediate nature.

Question 118

Section 15A

Answer 118

Importantly, however, the remedy for breach of the terms implied by ss 13-15 SGA has been altered as a result of s 15A. Section 15A does not apply to s 12(1) SGA, the implied condition as to title. Section 15A provides that if the breach is so slight that it is unreasonable for the buyer to
repudiate the contract and reject the goods, the breach should only be treated as a breach of warranty. In such instance, the buyer will only be entitled to claim damages

Question 119

A different approach with the Consumer Rights Act 2015

Answer 119

When it comes to the terms implied in contracts for the supply of goods by s 9 (satisfactory quality) s 10 (reasonably fit for their particular purpose) or s 11 (correspondence with description) the Consumer Rights Act 2015 specifically provides rights to reject goods, but only in certain circumstances: in this way, the classification of these terms is not really of central importance

Question 120

A note on terminology

Answer 120

A party that has committed a breach of a condition is said to have committed a repudiatory
breach. The innocent party can then elect to ‘treat the contract as repudiated‘. Another way of
phrasing this is that the innocent party can elect to ‘accept the repudiatory breach‘ (which has
been committed by the defaulting party) and to treat the contract as at an end

Question 121

Repudiatory breach

Answer 121

A party that has committed a breach of condition is said to have committed a repudiatory breach. Generally, the innocent party has a right to treat the
contract as repudiated ie they can terminate the contract.

Question 122

8.5 Time for performance or completion

Answer 122

One area where the law on conditions and warranties has developed in a particular way is in relation to contractual terms setting out the time performance or completion of the contract.

Time is of greater or lesser importance to the parties in most kinds of contract. It is quite usual for the contracting parties to stipulate for a date for delivery for the sale of goods. Failure to comply with such a stipulation is, obviously, a breach of contract, but whether it is a breach of a condition or a warranty will depend on the intention of the parties.

Question 123

Timing is essential to contract

Answer 123

Where a requirement as to timing is essential to the contract, for instance in mercantile contracts,
the expression used is that ‘time is of the essence’. If time is of the essence, lateness will amount to a repudiatory breach entitling the other party to terminate the contract.

Question 124

Time is not essential

Answer 124

Where time is not of the essence, it can usually become so, by the innocent party serving a notice on the defaulting party which states time is of the essence. Such a notice must state completion date, which must be reasonable.

Question 125

8.6 Summary

Answer 125

• The terms of a contract (whether express or implied) can be classified as conditions, warranties or innominate terms.
• If a party breaches a condition, the innocent party has a right to treat the contract as
  repudiated ie they can terminate the contract
• If a party is in breach of a warranty, the only remedy available to the innocent party is to sue
  for damages
• Some terms, at the outset, are neither conditions nor warranties but are of an ‘innominate’ nature. A breach of such a term, if it has a minor effect, will allow the innocent party to claim damages only. A breach with more serious consequences will allow the innocent party to treat the contract as repudiated and claim damages.
• Where terms are implied by statute, the statute will normally specify whether they are
  conditions or warranties (in some cases the statute will also state or modify the remedy
  available upon breach of such a term).