Incorporation of Terms

Question 1

What is an express term?

Answer 1

A term that has been clearly and distinctly discussed, stated and agreed by the parties.

Question 2

What is an implied term?

Answer 2

An implied term has not been openly considered by the parties but is read into the contract;

1. by the courts,
2. by statute or
3. by custom.

Question 3

What are the three types of pre-contractual statements?

Answer 3

Mere puffs
Representations
Terms

Question 4

What are the legal actions if it turns out that pre-contractual statements are false?

Answer 4

Mere puffs - none

Representations - Misrepresentation, requires proof of fault

Terms - Breach of contract, automatic right to sue

Question 5

What will be considered when the courts are deciding if something is a term or a representation?

Answer 5

Courts will consider the following when differentiating a term and a representation:

1. Importance of the statement
2. Putting statement in writing
3. Timing
4. Special knowledge or skills

Question 6

Answer whether Yes/No would be a term or a representation:

Was the statement of key importance to the recipient?

Answer 6

YES: TERM

NO: REPRESENTATION

Question 7

Answer whether Yes/No would be a term or a representation:

Has the statement become part of a written contractual document?

Answer 7

YES: TERM

NO: REPRESENTATION

Question 8

Answer whether Yes/No would be a term or a representation:

Was there a lengthy gap between making the statement and entering into the contract?

Answer 8

YES: REPRESENTATION

NO: TERM

Question 9

Answer whether Yes/No would be a term or a representation:

Did either party have better knowledge or skills than the other, relating to the statement?

Answer 9

YES, they did: TERM

NO, they didn’t: REPRESENTATION

Question 10

What are the rules of incorporating written terms into an oral contract?

Answer 10

1. Notice
2. Consistent course of dealing
3. Common understanding of the parties

Question 11

Explain incorporation through a notice?

Answer 11

NOTICE

1. Actual notice (they know) e.g. they’ve read the terms of the contract but not signed, but they’ve accepted the contract via conduct.
2. Reasonable/constructive notice (they don’t know, but they should as it was made clear with reasonable steps to bring to their attention)

i) Timing - before or at the time of contract

ii) Type of document - contains contractual information, e.g. ticket or notice, not receipt.

iii) Onerousness - not too unusual, e.g. red hand rule

Question 12

Explain incorporation through a consistent course of dealing?

Answer 12

Where parties have previously dealt with each other on those terms.

“it does not have to be extensive. Three or four occasions over a relatively short period may suffice.”

“consistent and unequivocal”

Question 13

Explain incorporation through a common understanding of the parties?

Answer 13

Where it would reflect the common understanding of the parties. E.g. hire of a crane, care of crane usually sits with those who have hired it.

Question 14

What are the rules of incorporation in general and those that govern incorporating written terms into an oral contract?

Answer 14

GENERAL:
1. Signature
2. Notice
3. Consistent/Previous Course of Dealing

ORAL:
1. Notice
2. Consistent/Previous Course of Dealing
3. Common understanding

Question 15

Implied terms can be implied in which 3 ways?

Answer 15

• By Statute
• By Custom
• By the Courts

Question 16

Which piece of legislation applies to business to consumer contracts?

Answer 16

Consumer Rights Act 2015 (CRA 2015)

Question 17

Which pieces of legislation applies to business to business contracts?

Answer 17

Sale of Goods Act 1979

and

Supply of Goods and Services Act 1982

Question 18

What are the relevant clauses of CRA 2015 for goods contracts?

Answer 18

s9 - satisfactory quality

s10 - fitness for purpose

s11 - as described

Question 19

What are the relevant clauses of CRA 2015 for service contracts?

Answer 19

s49 - reasonable care and skill

s51 - reasonable price

s52 - reasonable time for performance

Question 20

What are the relevant clauses of CRA 2015 for digital contracts?

Answer 20

s34 - satisfactory quality

s35 - fitness for a particular purpose

s36 - as described

Question 21

What are the relevant clauses of SGA 1979 for business - business goods contracts?

Answer 21

s14(2) - satisfactory quality

s14(3) - fitness for purpose

s15 - as described

Question 22

Unlike the CRA 2015 and SGSA 1982 terms, which are just called ‘terms’, what are the SGA 1979 terms referred to as? Why are the CRA and SGSA referred to as terms?

Answer 22

Conditions (more important than terms, goes to the root of the contract). However this has been altered since with s15A SGA to state that where the breach of the implied terms would be so slight where it would be unreasonable for the buyer to repudiate the contract, the breach could be treated as a breach of warranty instead of condition.

CRA and SGSA terms are referred to as terms in order for them to be innominate, so the courts can determine their status on each occasion of the alleged breach.

Question 23

When would you use the Supply of Goods and Services Act 1982, rather than the Sale of Goods Act 1979?

Answer 23

When the transfer of goods cannot have been for money, but perhaps for a swapping of items

or

when the goods transferred when services and goods are supplied together, e.g. car service getting tyres replaced.

Question 24

What are the relevant clauses of SGSA 1982 for business-business goods contracts?

Answer 24

s4 - satisfactory quality

(s4 - fitness for purpose would fall into satisfactory quality for SGSA)

s3 - as described

Question 25

What are the relevant clauses of SGSA 1982 for business-business service contracts?

Answer 25

s13 - reasonable care and skill

s15 - reasonable price

s14 - reasonable time for performance

Question 26

Although unusual, when would it be possible to imply a term by custom?

Answer 26

• where the term has been in use for a sufficient length of time
• it is reasonable
• it is not inconsistent with an express term
• where the term is used in practice
• the implication of term is acceptable to the court.

Question 27

What does ‘implied by law’ mean?

Answer 27

The courts have read terms into a contract because case law has established that these terms always appear in these types of contracts.

Question 28

What does ‘implied on the particular facts’ mean and when should it be used?

Answer 28

The courts have read terms into a contract to concur with the intentions of the parties.

Should only be implied on the particular facts if it is satisfied with either the:

• business efficacy test

or the

• officious bystander rule

Question 29

What is the business efficacy test?

Answer 29

The term is needed to give the contract business efficacy, i.e. the contract would be unworkable without it and both parties would immediately have agreed to insert it without hesitation.

Question 30

What is the officious bystander rule?

Answer 30

The officious (interfering) bystander rule is that if the parties were making the contract and a bystander came by to suggest some express terms, they would roll their eyes and say ‘oh, of course’! It would be so obvious to both parties, that they wouldn’t even feel the need to write it down.

Question 31

What is the difference between conditions and warranties?

Answer 31

A condition goes ‘to the root’ of the contract, it is the most important contract term.

A warranty is a less important contract term and will not end the contract.

Question 32

What are the remedies available for breach of a condition and breach of a warranty?

Answer 32

Breach of condition: something essential to the contract has failed, injured party can repudiate the contract and/or seek damages.

Breach of warranty: injured party must carry on with the contract, but can seek damages.

Question 33

What would be the breach for the below examples?

1. Opera singer misses rehearsal and a few days of the performances
2. Opera singer misses a few days of rehearsal

Answer 33

1. Breach of condition, can terminate/repudiate the contract as missing performance goes to the root of the contract.
2. Breach of warranty, has to carry on with contract, but can sue for damages, as rehearsals don’t got to the root of the contract.

Question 34

What are innominate (or intermediate) terms?

Answer 34

Terms that do not fit into one category or the other, where the courts must decide whether it goes to the ‘root of the contract’, i.e. is fundamental to the contract.

E.g. ship being seaworthy for 19 out of 24 months, did not go to the root of the contract to repudiate, but could sue for damages.

Question 35

What differs about the courts’ approach to conditions/warranties and innominate terms?

Answer 35

For conditions and warranties, the courts look at the intention of the parties at the time of entering into the contract.

For innominate terms, the courts adopt a ‘wait and see’ approach to determine how severe the consequences are.

Question 36

What if a contract does not expressly identify whether the term is a condition or a warranty?

Answer 36

Then the courts will class it as an innominate term to start with, before examining.

Question 37

What are the 5 principles of contractual interpretation?

Answer 37

1. the natural and ordinary meaning of the words
2. the overall purpose of the document
3. the other provisions in the document
4. facts known or assumed by the parties at the time of execution of the document
5. Common sense

Question 38

What is the parol evidence rule?

Answer 38

The parol evidence rule states that, in WRITTEN contracts, evidence other than that which is embodied in the written document cannot be relied upon to change the written contractual terms,

1. Can be oral statements, draft contracts, preliminary agrements, any extrinsic evidence outside the written contract.
2. Does not apply to partly written and partly oral contracts, as these aren’t considered a written contract.
3. It is subject to many exceptions and therefore very narrow in scope. Extrinsic evidence is allowed quite often, e.g. to show mistake/misrep, to identify the parties, to prove custom, collateral contracts, doesn’t operate yet, written agreement not the whole contract.