Source of Contractual Terms

Question 1

What are the types of terms?

Answer 1

• Expressed
• Implied
• Inominate

Question 2

What is an Express Term??

Answer 2

A Term of the contract agreed by the party in advance

Question 3

Factors to determine whether a statement is a term?

Answer 3

Responsibility and Checks - Schawel v Reade &Ecay v Godfrey

Importance of the statement made - Bannerman v White & Couchman v Hill

Timing - Routledge v McKay

Reduction into writing - Routledge v McKay

Specialist Skill & Knowledge - Oscar chess v William
Dick Bentley v Harold Smith Motors; Esso Petroleum Mardon

Question 4

Responsibility and checks + Cases

Answer 4

•Statement may become a term where the vendor expressly accepts responsibility

Schawel v Reade : Horse said to be sound by owner, buy stops examining horse because of this and the horse turns out to not be sound.
This was a warranty as the vendor encouraged buyer to rely on sellers assurance.

HELD : Term of contract

Question 5

Importance of the statement made + cases

Answer 5

Couchman v Hill: Prior to auction buyer asked auctioneer and owner whether heifer was unserved, both said “yes” but was in calf and died
HELD: this was a term

Bannerman v White: Buyer asked whether sulphur had been used in the production of hops - would not buy if had; hops contained sulphur.
HELD: the assurance was a term

Question 6

Timing + Cases

Answer 6

Routledge v McKay - 2nd hand motor cycle sole successively with each sale relying on misinformation in long book

HELD: Age not a term (Lapse of time too wide to create a binding relationship based on statement)

Question 7

Reducing the agreement into writing +Cases

Answer 7

Routledge v McKay (1954)

Writhing agreement made no mention of the age of the motor cycle
HELD: it had not been important enough to be a term

Question 8

Expertise/ Special Knowledge + Cases

Answer 8

Oscar Chess v Williams (1954): Owner told garage his car was a 1948 Morris (log book gave this date), was a 1939 model - no warranty
(D had no expertise and was an innocent misrepresentation (before Hedley Byrne so no remedy)

Dick Bentley v Harold Smith (1965) : statement by dealer car had done 20,000 miles when it had done 100,000 - a warranty (Claim allowed because C relied on specialist expertise of the car dealers and statement was key to deciding to contract)

Question 9

Expertise + Cases (continued)

Answer 9

Esso Petroleum v Mardon(1976): prospective tenant told forecourt throughput was 200,000 gallons, did 60,000 to 70,000 (The amount of Petroleum that the area would sell)

• breach of contractual warranty
• negligence misstatement
• Esso had special knowledge and skill in making forecast

Question 10

What is the parol evidence rule?

Answer 10

Any oral or other evidence that the party was trying to introduce to show the actual agreement would not be accepted as admissible if it was to be used either to add to, or to vary or to contradict, the terms contained in the written contract.

• applies to contracts in writing
• Extrinsic evidence may not be adduced to vary an express written contract (Jacobs v Batavia)

Question 11

What is the problem with the Parol evidence rule?

Answer 11

Many contracts are partly written and party oral, and therefore, in reality, both elements of the agreement would need to be considered in order to have an accurate picture of the contract in total.

All the exceptions to this rule had made it unworkable

Question 12

What is an implied term??

Answer 12

A term in a contract which has not been expressly stated, but which the courts are willing, or required by statue, to imply.

Question 13

How are implied terms imposed?

Answer 13

• By Statute
• Implied in law
• Implied In fact

Question 14

How are Implied term imposed by statute?

Answer 14

Sale of Good Act 1979 (Business to Business)

S.12: title
S.13: description
S.14 quality

Supply of Goods and Service Act 1982 (Business to Business)
S.13 reasonable care and skill

Consumer Rights Act 2015 (Business to Consumer)
S.9 satisfactory quality
S10(3) particular purpose
S.11 Description

Question 15

Terms implied as a matter of Law (CASES)

Answer 15

Shell v Lostock Garage

Contract between Shell and a Garage owner under which the garage owner could only purchase petrol from Shell but Shell later gives other garages cheaper rate.

HELD : no grounds for a term being implied

Liverpool City Council v Irwin
Implied term to keep property in reasonable repair

Courts felt that such terms should always be present

Question 16

Terms implied as a matter of law [Employment contracts] CASES

Answer 16

Spring v Guardian Assurance plc

HELD: Courts Implied term into a contract of employment that an employer will write a reference for an employee based on facts complied with due care.

Employee will serve diligently with loyalty and reasonable competence - Lister v Romford Ice & Cold Storage ltd (1957)

Employer will not require employee to act unlawfully - Gregory Ford (1951)

Employer will take reasonable care not to endanger employee’s health: Jhonstone v Bloomsbury (1992)

Employer and employee owe each other an obligation not to act so as to destroy or damage the relation and confidence between them: Malik v BCCI (1998)

Question 17

How do courts imply term by fact

Answer 17

Courts try to ascertain and give effect to the true, yet unexpressed intention of the parties

Two test

1) Business Efficacy
2) officious bystander test

Question 18

What is the business efficacy test

Answer 18

The moorcock (1889)

Action for damages brought by a ship owner against the owner of a wharf due to damage caused to the vessel when attempting to load cargo; it was necessary for the vessel to rest on the ground adjoining the wharf when loading.

“An implication from the presumed intention of the parties with the object of giving the transaction such efficacy as both parties must have intended..” INTENTION OF PARTY

Question 19

What is the officious bystander test?

Answer 19

Shirlaw v Southern Foundries

HELD: A term may be implied where it is so obvious that it goes without saying

Question 20

Officious bystander test CASES

Answer 20

Equitable Life Assurance v Hyman
HELD: that the society’s distraction was subject to an implied term preventing it from overriding or undermining the guaranteed annuity rate

Lord Stein “the implication is essential to give effect to the reasonable expectation of the parties”.

Question 21

What do Business efficacy and officious bystander test have in common?

Answer 21

INTENTION

Both these test focus on what the parties intended (unexpressed intention)

Attorney General of Belize and Other v Belize

Question 22

Terms implied in fact (trade or professional customs) CASES

Answer 22

Hutton v Warren
-Custom was well founded and this became part of the contract

British Crane Hire v Ipswich Plant

• Both parties were in the plant hire business
• Court was prepared to imply a term based on trade custom