Contents of a Contract

Question 1

In order to be terms, statements (whether oral or in writing) must be…

Answer 1

…incorporated into the contract.

Question 2

Implied terms are not expressly created by the parties but are…

Answer 2

…implied or read into the contract.

Question 3

Terms implied by the court include…

Answer 3

• Terms implied by local custom or trade usage
• Terms implied by a previous course of dealings between the parties
• Terms implied by the courts to reflect the presumed intention of the parties (business efficacy (so that the contract makes sense) and bystander test)
• Terms implied by the courts because of the type of contract (employment contracts/tenancy agreement)

Question 4

What case illustrates terms implied by trade and local custom?

Answer 4

Hutton v Warren (1836) 1 M & W 466 an outgoing tenant farmer was entitled to an allowance for seed he had used and work he had done in the last year of his tenancy even though the lease was silent on this point.

This term was implied into the contract because it was customary in the locality for this allowance to be given and there was nothing in the lease to suggest that this custom should not be followed.

However, it would not have been possible to imply the term into the lease if the lease had contained a provision which contradicted the custom. The court would consider that the parties had thought about the local custom but decided to do something different. The approach would be the same if the court was asked to imply a term based on trade usage. It would not do so if there was a provision in the contract which contradicted the trade usage.

Question 5

What case illustrates terms implied by a previous course of dealings between the parties?

Answer 5

This is illustrated by the case of Spurling J Ltd v Bradshaw [1956] 1 WLR 461, CA, which involved an exemption clause.

Bradshaw delivered barrels of juice to the claimants for storage. As on all of the many previous occasions when they had had dealings, Bradshaw was later sent a receipt for the barrels and the receipt included an exemption clause.

When Bradshaw collected the barrels, they were empty. Bradshaw consequently refused to pay the storage charges and was sued.

He counter-claimed for negligence and the claimants relied on the exemption clause as a defence. The court held that although the exemption clause was included in a post-contractual document (ie a receipt), it was nevertheless a term of the contract.

It was incorporated in the contract by the parties’ previous consistent course of dealing. This principle is not confined to exemption clauses. It could be used to imply other terms where the parties have had previous consistent dealings.

Question 6

What are the two tests that have been devised by the courts to imply terms into a contract based on the presumed intentions of the parties?

Answer 6

The ‘business efficacy’ and ‘officious bystander’ tests.

Question 7

What case established the ‘business efficacy’ test?

Answer 7

The Moorcock (1889) 14 PD 64, CA. The defendant owned a wharf on the River Thames and agreed to allow the claimants to moor their ship at the wharf.

Both parties knew that the Thames was a tidal river and that the ship would rest on the river bed at low tide. The ship was damaged due to a ridge of hard ground beneath the mud of the river bed. There was no express term of the contract dealing with this.

However, the Court of Appeal felt that the parties must have contracted on the basis that the wharf owner had taken reasonable care to see whether the berth was safe and implied a term into the contract on this basis.

The reason for this is that it was necessary to give business efficacy to the contract (ie so that the contract made business sense). The court would not imply a term making an absolute guarantee that the berth was safe as that would be wider than necessary to give business efficacy to the contract.

Question 8

What is the principle behind the decision in The Moorcock case?

Answer 8

The idea behind the decision in The Moorcock is that the court should consider whether a term is necessary to make the contract work commercially. It is not enough that the term would be a reasonable one to imply in the sense that it would improve the contract.

Question 9

Which case illustrated the bystander test?

Answer 9

Shirlaw v Southern Foundries Ltd [1939]
MacKinnon LJ suggested that a term could only be implied if the point was so obvious that it went without saying that that was what the parties intended.

He described this as an ‘officious bystander test’. Suppose the parties are negotiating their agreement and a bystander suggests a term to include, then, if the response of both parties would be a common, ‘Oh, of course’, the test would be passed and the court would imply the term into the contract.

Question 10

Where a contract is of a kind which frequently occurs, the court may identify provisions which are typical of that kind of contract and say that these provisions will be implied terms unless the parties make contrary provision. What case illustrates this?

Answer 10

The case of Liverpool City Council v Irwin and Another [1977] AC 239, HL involved a tenancy agreement of flats in a tower block owned by the local authority.

Owing to vandalism the lifts were regularly out of action, the stairs were often unlit and the rubbish chutes were often blocked. The tenants withheld rent in protest.

The agreement did not contain any provision about repair and maintenance of the lifts, stairs or rubbish chutes. The House of Lords had to decide whether there was any implied duty on the landlords to repair and maintain these common parts.

Question 11

Which statutes imply terms into a contract of sale?

Answer 11

Sale of Goods Act 1979
Supply of Goods and Services Act 1982
Consumer Rights Act 2015

Question 12

What does the SGA 1979 apply to?

Answer 12

SGA 1979 only applies to contracts for the sale of goods which are made

• business-to-business,
• consumer-to-consumer or
• consumer-to-business

Question 13

What does the CRA 2015 apply to?

Answer 13

CRA 2015 applies to contracts for the sale of goods and services made between a trader and a consumer.

Question 14

What does the SSGA 1982 apply to?

Answer 14

This implies terms into contracts for services and contracts for work and materials.

A service contract is one where the supplier is simply contracting to provide a service. Examples of service contracts governed by the SGSA 1982 are commercial cleaning contracts and commercial courier services.

Question 15

Which implied terms of the SGA are conditions?

Answer 15

Section 13 Where there is a contract for the sale of goods by description, s 13 implies a condition that the goods will correspond with their description.

Section 14(2) Where the seller is selling in the course of a business, s 14(2) implies a condition that the goods supplied will be of satisfactory quality.

Section 14(3) Where the seller is selling in the course of a business and the buyer expressly or by implication makes known any particular purpose for which the goods are being bought, s 14(3) implies a condition that the goods supplied are reasonably fit for that purpose (except if it is not reasonable of the buyer to rely on the seller’s skill or judgement).

Question 16

SGA - The implied terms of satisfactory quality (s 14(2)) and reasonable fitness for the buyer’s purpose (s 14(3)) apply only if the seller sells….

Answer 16

….in the course of a business to a commercial buyer.

Question 17

SGA - Section 14(3) refers to the buyer’s purpose being made known to the seller expressly or by implication.

If you intend to use goods just for their normal purpose, you do not have to tell the seller what this is. It is made known by implication. However if you have a special or unusual purpose in mind, then to get the benefit of s 14(3) you should….

Answer 17

…you should tell the seller what this is. . Remember, though, that it must be reasonable for the buyer to rely on the seller’s skill and judgment.

Question 18

SGA - Liability for breach of s 14(2) and 14(3) is strict. What does this mean?

Answer 18

This means that the buyer does not have to prove that the seller is at fault.

This means, for example, that it is no defence for the seller to say that he did not know and could not have known that the goods were defective when they were supplied to him.

Question 19

SGA - S 13 says where there is a contract for the sale of goods by description there is an implied condition that the goods will correspond to that description.

This term will be implied whether the seller is a business or….

Answer 19

…or a private individual, unlike the terms implied by s 14(2) and 14(3) where the seller must sell in the course of a business.

Question 20

SGA - What did Harlingdon & Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd [1991] establish with regards to s13 of the SGA?

Answer 20

In order for s 13 to apply the buyer must rely on the description.

Therefore, in order to identify a sale by description, you should ask whether the buyer relied on the seller’s description and whether this was reasonable.

Question 21

SGA - What principle did Beale v Taylor [1967] 3 All ER 253 establish with regards to s13?

Answer 21

There can also be a sale by description even where the buyer has seen the goods and examined them, provided he has reasonably relied on the description.

For example, in the case of Beale v Taylor [1967] 3 All ER 253, the defendant advertised a car for sale, describing it as a 1961 model. In fact the car was made up of two halves of different cars welded together. One half dated from 1961, the other was older.

The court decided that there had been a sale by description even though the buyer had inspected the car.

Question 22

SGA - Liability for breach of the term implied by s 13 is strict which means….

Answer 22

….the buyer does not have to prove that the seller is at fault.

Question 23

SGA - If one of the terms implied by s 13 or s 14 is broken then normally….

Answer 23

…the buyer can terminate the contract and reject the goods even if the breach is minor.

This means that the buyer is not obliged to perform any further obligations under the contract and can recover money paid, but must give back the goods to the seller.

He can also sue for damages if there is any further loss. Alternatively, the buyer may affirm the contract, keep the goods and just sue for damages for any loss suffered.

Question 24

SGA - The right to terminate the contract and reject the goods will be lost in two circumstances. What are they?

Answer 24

i) breach is so slight it would be unreasonable to reject;
(s 15A of the SGA 1979). So, for example, if you buy something for your business and the goods are usable but very slightly defective, you will not be able to reject the goods for breach of s 14(2) and s 14(3). Your remedy will be restricted to damages.

or

(ii) the buyer has accepted goods, eg by keeping the goods beyond a reasonable time without intimating rejection.

This is covered by s 11(4) and s 35 of the 1979 Act. Section 11(4) provides that the buyer cannot reject the goods if he has accepted them. Section 35 sets out situations when the buyer will be deemed to have accepted the goods.

The most common situation where the buyer is deemed to have accepted the goods is where he retains the goods beyond a reasonable time without intimating rejection. What is a reasonable time is a question of fact in each case.

In deciding this, the court must consider whether the buyer has had a reasonable opportunity in commercial terms to examine the goods to see whether they are in conformity with the contract. The nature of the goods and their complexity will be relevant. It seems that time starts to run from the date of delivery. The buyer is allowed a reasonable time to try out the goods in general terms.

Question 25

SGSA - Section 3 and 4 (2) and (5) are conditions? What are they?

Answer 25

Section 3 implies a term that the goods will correspond with the description;

Section 4(2) that the goods will be of satisfactory quality; and

Section 4(5) that they are reasonably fit for any particular purpose which the transferee makes known.

Note that s 4(2) and s 4(5) only apply where goods are supplied in the course of a business. The terms implied by ss 3 and 4 are described as conditions.

Question 26

SGSA - Section 13 implies a term that where the supplier of a service is acting in the course of a business, the supplier will carry out the service with…

Answer 26

…reasonable care and skill.

If a supplier of a service does not carry it out with reasonable care and skill, he will be in breach of the term implied by s 13 and this will amount to a negligent breach of contract.

Question 27

SGSA - Section 14 states that where the supplier of a service is acting in the course of a business and the time for the service to be carried out is not fixed by the contract or determined by a course of dealing between the parties, there is an implied term that the….

Answer 27

…service will be carried out within a reasonable time. Section 14 will not apply if the contract includes a time for carrying out the service. Section 14 only applies if the contract is silent on this point.

Question 28

SSGA - Section 15 states that where the consideration (ie the price) for the service is not determined by the contract or by a course of dealing between the parties, there is an implied term that a…

Answer 28

…reasonable charge will be paid.

s 15 only implies a term that a reasonable price will be paid if the contract is silent and here the parties had agreed a price.

Question 29

SSGA - if the contract is just for the supply of a service…

Answer 29

…only ss 13, 14 and 15 need to be considered.

Question 30

SSGA - Where the contract is to supply both goods and services, you have to consider…

Answer 30

…ss 13, 14 and 15 for the service and also ss 3 and 4 for the goods.

Question 31

SSGA - ss 13 to 15 of the 1982 Act about the service supplied are only described as terms and they are treated as..

Answer 31

..innominate.

Question 32

The CRA 2015 applies only to ‘sales contracts’ made between a…

Answer 32

…trader and consumer (s 5).

‘Sales contracts’ not only include straightforward contracts for the sale of goods but also any contract where goods are supplied and paid for as part of the contract, eg a work and materials contract (such as a building contract).

Question 33

CRA - what terms does it imply with regards to the sale of goods?

Answer 33

Section 9 implies a term that goods will be of satisfactory quality,
Section 10 implies a term that goods will be fit for their particular purpose, and
Section 11 implies a term that goods will be as described.

The CRA 2015 does not pre-classify these terms as ‘conditions’; instead it presents them as ‘statutory rights’ - statutory rights which are of fundamental importance to the consumer. On that basis, it should be the case that these terms are conditions.

Question 34

CRA - Liability is strict which means ie the buyer does not have to…

Answer 34

…prove that the seller is at fault. This means, for example, that it is no defence for the seller to say that he did not know and could not have known that the goods were defective when they were supplied to him.

Question 35

CRA - The consumer’s rights to enforce terms ABOUT GOODS are set out in s 19 of the CRA 2015, and, broadly speaking, if the goods do not conform to the contract because of a breach of ss 9-11, the consumer’s rights are….

Answer 35

(a) the short-term right to reject and get a full refund (ss 20 and 22);
(b) the right to repair or replacement (if appropriate) (s 23); and
(c) the right to a price reduction or the final right to reject and get a partial refund to reflect the consumer’s use of the goods (ss 20 and 24).

Basically, this is a pecking order of remedies.

Unless the parties have expressly agreed otherwise, the time limit for the short-term right to reject non-perishable goods is 30 days after they have been bought, delivered and, where appropriate, installed. With perishable goods, the time limit is no longer than the goods could reasonably be expected to last.

Question 36

CRA - what terms does it imply with regards to the provision of services?

Answer 36

Section 49 implies a term that the service/work will be carried out with reasonable care and skill;
Section 51 implies a term, where no price has been fixed, that a reasonable price will be paid for the service/work;
Section 52 implies a term, where no time for performance has been fixed, that the service/work will be performed within a reasonable time. As with the terms implied in relation to goods, these terms are again presented by the CRA 2015 as ‘statutory rights’

Question 37

CRA - Section 54 of the CRA 2015 provides that where a service/work does not conform to the contract because of either

• breach of an express term relating to the performance of the service/work or
• breach of the implied term to exercise reasonable care and skill (s 49),

the consumer has the right to…..

Answer 37

…..require repeat performance (where reasonable) or

to a price reduction.

In relation to a breach of the implied term as to performance within a reasonable time (s 52), the consumer simply has the right to an appropriate price reduction.

Question 38

A condition is a major term or, as some writers say, a term going to the…

Answer 38

…root of the contract.

A warranty is a minor, less important, term.

Question 39

To decide whether a term in a contract is a condition or a warranty, the court applies an objective test. Would a reasonable person…

Answer 39

…think the parties intended the term to be a condition or a warranty?
In applying this test, the court will look at the
- circumstances surrounding the making of the contract,
- the contract as a whole,
- and it will take into account whether the parties have described the term as a condition or a warranty in the contract.

The emphasis, therefore, is on deciding the importance of the term which has been broken at the time the contract was made, rather than looking at the effects of the breach and the loss or damage which has resulted from the breach.

Question 40

If the court decides that the term is a condition, and the contract has not been fully performed, the innocent party will usually have the option of….

Answer 40

…terminating the future performance of the contract, as well as obtaining damages for any additional loss suffered. This is so, even if he has only suffered minor loss or damage.

Question 41

If the court decides the term is a warranty, the innocent party cannot…

Answer 41

…terminate the contract but can only sue for damages for loss suffered. This applies even if the innocent party has suffered serious loss or damage.

Question 42

What happened in Schuler v Wickman Machine Tool Sales Ltd [1974]?

Answer 42

In the case of Schuler v Wickman Machine Tool Sales Ltd [1974] AC 235, HL, the parties had described a particular term as a ‘condition’, but the House of Lords decided that the parties had not intended to use the word in its strict legal sense.

The term the court was considering stated that, over a long period, one of two named representatives from Wickman would visit six other firms every week.

There was no provision to substitute other representatives to cover illness, and neither was there provision for the six firms saying a visit was not convenient. If the term was a condition, failure to make a single visit would entitle Schuler to terminate the contract. The court thought this was such an unreasonable result that it was unlikely to be what the parties had intended, in spite of the fact that the term was called a condition in the contract.

Question 43

With regards to innominate or intermediate terms, it is necessary to wait until…

Answer 43

…the breach of contract has occurred to decide whether the innocent party should be allowed to terminate the future performance of the contract.

If the breach deprives him of substantially the whole benefit of the contract he can terminate, but not otherwise.

Question 44

What happened in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962]?

Answer 44

The defendants agreed to hire a ship from the claimants for 24 months. A term of the contract provided that the ship was ‘fitted in every way for ordinary cargo service’, ie that the ship was seaworthy. In fact the engines were old and the engine room staff inefficient with the result that the ship was in port for repairs for 20 weeks. The defendants terminated the contract, ie refused to carry on with it. The claimants sued, claiming that the defendants were in breach of contract. The judge at first instance found that the ship was unseaworthy but that the defendants were not entitled to terminate the contract. The defendants appealed to the Court of Appeal.

In the Hong Kong Fir Shipping case, the defendants who had hired the ship were not entitled to terminate the contract. The time lost repairing the ship was not sufficient to deprive the defendants of substantially the whole benefit of the contract of hire.