Express And Implied Terms Flashcards
Terms
Terms - the individual statements made by the contracting parties which form the contents or subject matter of the contract.
Once agreed upon, terms are the binding part of the contract which parties agree to perform in order to fulfill the contract. If either party fails to carry out a term, they will be in breach of contract and legal recourse (action taken to remedy legal difficulty) is possible for the breach.
Types of terms put into contracts
-Express (from parties themselves)
-Implied (assumed by court or statute)
Representations
Distinction between terms and representations must be made. This depends on parties’ intentions.
Representations - statements of opinion/fact (‘mere puffs’) which simply encourage a party to enter a contract, and are not binding (may or may not become a term of the contract)
Liability will be attached to representations when:
- if a representation has wrongly induces a party, this is misrepresentation
- if an opinion has come from an expert, the party is entitled to rely on it
Express terms
Express terms must be written or specifically agreed upon by the parties. Common law has created a series of tests to determine whether a term is included in a contract:
1) how important was the representation?
2) a party relies on the skill of the other making the representation
3) was the written agreement signed?
4) a representation is not a term unless the parties are aware of it when making the contract
How important was the representation test
If a party attaches great importance to a statement made during a negotiation, it is likely considered a term
A party relies on the skill of the other making the representation test
If a party makes a specific representation due to their level of expertise and the other party relies upon it, reliance is entitled and it is likely to become a term of the contract
Was the written agreement signed test
If a written contract is signed, the courts will usually take it that both parties have read and agreed to its contents.
The courts agreed in L’Estrange v Graucob that the term was ‘in regrettably small print but quite legible’
A representation is not a term unless the parties are aware of it when making the contract
If a party is unaware of a term which is relied upon later by the other party who knew, then the term is unlikely to be actionable. This depends on the term and the likely impact of its performance
Implied terms
There could be an event that occurs where express terms do not cover eventuality, therefore terms can be implied into contracts. The law implied terms through one of three ways:
1) implied through custom
2) implied by fact
3) implied by statute
Implied through custom
Terms that are a common occurrence/practice within its trade purpose e.g., fit for purpose
Specific to the type of industry and what commonly operates though professional custom
Implied by fact
Where the courts, through common law, attempt to give the presumed intention of the parties in cases of dispute. The way of which they do this are:
- officious bystander test
- business efficacy test
Officious bystander test
If a third party was with the parties at the time the contract was made and had suggested the terms should be implied
Business efficacy test
Business efficacy - the power to produce the intended result
It’s necessary to give business efficacy to the contract, so that a term will not be implied if the contract is effective without it
Test introduced in The Moorcock
Implied by statute
Due to the rise of unequal bargaining power between consumers and traders, statutory terms have been implied into contracts to balance the parties’ positions. These terms must be included, regardless of the wishes of the parties.
The main statute governing this area is in consumer contracts, where under CRA 2015, the terms implied are specifically under sections 9, 10 and 11 for the supply of goods, and sections 49 and 52 for the supply of services
Birch v Paramount Estates (Liverpool) Ltd
Express terms - importance
The CoA stated that the statement was so crucial to forming the contract that it became a term
Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd
Express terms - reliance on skill
The CoA held that it was a term and the claimant was reasonably entitled to rely upon a representation regarding the subject of their expertise
Oscar Chess Ltd v Williams
Express terms - reliance on skill
The statemnt was an innocent representation as as a motor dealer, the error should have been spotted
L’Estrange v Graucob
Express terms - signature
The party signing a contractual document is bound whether or not he has read the document and is aware of its contents. Small print is still enforceable.
Hutton v Warren
Implied through custom
The term was implied as it was common practice for farming tenancies to provide compensation for work and expenses undertaken in growing crops
Marks and Spencer v BNP Paribas
Implied by fact
Lord Hoffman noted that the implication of terms was a part of “determining the scope and meaning of the contract”
Shirlaw v Southern Foundaries Ltd
Implied by fact - officious bystander test
Officious bystander test: it must be obvious that both parties agreed to the term at the time the contract was made
The Moorcock
Implied by fact - business efficacy test
Bowen LJ: business efficacy test – the law will imply contract terms necessary and obvious to give business efficacy but terms shall not be implied merely because they appear reasonable
Liverpool City Council v Irwin
Implied by statute
The court will imply by law a term that is ‘necessary to the type of contract’
Spring v Guardian Assurance plc
Implied by statute
A duty of care can be owed to not only to the direct recipient of the misstatement but also to a person reasonably relying upon it
Grant v Australian Knitting Mills
Implied by statute - CRA 2015
Implied term under s9((3)(a) of CRA 2015 – no need to state intended purpose for goods where goods are being used for their normal purpose
Conditions, warranties and innominate terms
Conditions, warranties and innominate terms
When terms are implied into a contract, some will have vital significance to the contract, since a failure to stick to the terms will mean the contract cannot be performed. Whereas, other terms may have a part in the contract, but failure to stick to them will still allow the contract to be performed, although not precisely in the way the parties intended.
The type of term breached dictates the type of remedy/resolution to which the injured party is entitled. The courts have determined that there are three types of terms: conditions, warranties and innominate terms
Conditions
A term that goes to the root of the contact and is fundamental in carrying out the purpose of the contract. If breached, the injured party has the right to reject the contract.
Warranties
Any other term of the contract. They are lesser terms that are generally descriptive and ‘ancillary’ (subsidiary) to the contract – almost constitutes a secondary promise
If breached, it’s a minor breach and injured party cannot reject the contract but can claim for damages to compensate for loss
Innominate terms
Neither a clear condition or clear warranty. It is decided upon by the courts depending on the level of ‘injury’ following a breach of contract.
Poussard v Spiers and Pond
Conditions
Injured party was entitled to end the contract as a condition was breached
Grand China Logistics v Spar Shipping
Innominate terms
The CoA confirmed that in the absence of an express term, there was no breach of condition, therefore the injured party was entitled to damages
Express and implied terms plan
Issue - Are the terms expressed or implied?
Define terms
Types of terms put into contracts: express (from parties themselves) and implied (assumed by courts or statute)
Distinction between representations and terms: ‘mere puffs’, not binding, liability only in cases of misrepresentation or expertise
- Apply
Express terms:
Common law series to determine whether a term is included in a contract:
1) How important was the representation? - Birch v Paramount Estates (Liverpool) Ltd
2) A party relies on the skill of the other making the representation - Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd, Oscar Chess Ltd v Williams
3) Was the written agreement signed? - L’Estrange v Graucob
4) A representation is not a term unless the parties are aware of it when making the contract
Apply…
Implied terms:
The law implies terms through one of three ways:
1) Implied through custom
- Standard in industry - Hutton v Warren
2) Implied by fact - Lord Hoffman in Marks and Spencer v BNP Paribas
- Reflect parties’ intentions
- Officious bystander test - Shirlaw v Southern Foundaries Ltd
- Business efficacy test - The Moorcock
3) Implied by statute - Liverpool City Council v Irwin, Spring v Guardian Assurance plc
- Consumer contracts - CRA 2015 s9,10,11 (goods) and s49, 52 (services) - Grant v Australian Knitting Mills
Apply…
Types of terms:
- Conditions (fundamental and goes to root of contract) - Poussard v Spiers and Pond
- Warranties (lesser terms, subsidiary to the contract, minor breach)
- Innominate terms (neither condition or warranty, decided by the level of ‘injury’) - Grand China Logistics v Spar Shipping
Apply…
Conclusion - If terms are expressed or proven as implied, they are legally enforceable.
