Terms

Question 1

Why does the distinction between representations and terms matter?

Answer 1

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.
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.
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 2

What does the court consider when determining if a statement is a term?

Answer 2

• 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 3

How does the importance of a statement impact whether a statement is a term?

Answer 3

. 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. An example of the application of this guideline can be seen in the case of Bannerman v White (1861) 10 CB NS 844. 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. 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 4

How does the timing of a statement impact whether a statement is a term?

Answer 4

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.
In Routledge v McKay [1954] 1 WLR 615 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 5

How does reduction of a statement into writing impact whether a statement is a term?

Answer 5

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. 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.
Note. This is not necessarily decisive in classifying the statement as a mere representation.

Question 6

How does special knowledge or skill impact whether a statement is a term?

Answer 6

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.

Oscar Chess Ltd v Williams
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. 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.

Dick Bentley Productions v Harold
Smith (Motors)
Mr Smith, of the defendant company, told Mr Bentley 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. 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 7

Assumption of responsibility/further checks

Answer 7

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. This factor was taken into account in Schawel v Reade [1913] 2 IR 81 (HL). 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.
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 8

What are the four ways that express terms can be incorporated?

Answer 8

1. A signed written contract
2. Incorporation by notice
3. Incorporation by course of dealing
4. Other ways of incorporation

Question 9

What constitutes a signed written contract?

Answer 9

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!) (see L’Estrange v Graucob Ltd [1934] 2 KB 394). Accordingly, all the terms of the signed contract will be binding.
By way of exception, if the document signed was not one which was 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 (see Grogan v Robin Meredith Plant Hire [1996] CLC 1127). 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 contractual effect.
In addition, a party may be prevented from relying on incorporation of a clause through signature of a document if it has orally misrepresented the meaning of the clause to the other party.

Question 10

What constitutes incorporation by notice?

Answer 10

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. What will amount to reasonable notice will be dictated by the facts of the case. Thompson v London, Midland & Scottish Railway [1930] 1 KB 41 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.

Where a party wants to incorporate terms which are particularly adverse to the other party, it must clearly bring these to the other party’s attention. In Thornton v Shoe Lane Parking [1971] 2 QB 163, Lord Denning MR, 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. 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).

Finally, terms will only be incorporated by notice if the document giving notice was intended to have ‘contractual effect’ (there is an analogy here with the law in relation to signed documents outlined above).
In Chapleton v Barry UDC [1940] 1 KB 532, 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 contractual effect
–an observer would have understood it to be only a receipt.

Question 11

How does timing impact the incorporation of an express term by notice?

Answer 11

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. In Thornton v Shoe Lane Parking [1971] 2 QB 163 the events were as follows:
* 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.
The defendant company claimed that the ticket was a contractual document and that it incorporated a condition exempting them, inter alia, from liability for injury to the customer occurring when the customer’s motor vehicle was in the car park. Accordingly, the contract had been formed before the machine produced the ticket, and the conditions referred to on the ticket (or later) were not incorporated into the contract.

Question 12

What constitutes incorporation by course of dealing?

Answer 12

It is often the case that the contract in question is one of a number of contracts entered into by the parties. They may have dealt with each other on many occasions over a period of years. 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. In
McCutcheon v David MacBrayne [1964] 1 WLR 125 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. 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. 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 13

What are other ways of agreeing express terms?

Answer 13

We have set out above how terms can be incorporated by notice or by a course of dealing, or how they might be contained in a written contract. We have addressed these possibilities because they give rise to interesting legal issues. However, the terms of a contract can be arrived 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 an example in an email) and the other party agreeing to those (for example, by expressing agreement in reply by email).

Question 14

What is an entire agreement clause?

Answer 14

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. This is an example:
Possible boilerplate clause – ‘entire agreement’ clause 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.
Note. It is unlikely that such a clause would be effective to exclude liability for misrepresentation. Misrepresentation, and clauses excluding liability for it, are not explored in this chapter.

Question 15

What is a term implied by fact?

Answer 15

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.

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).

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 (see McCutcheon
v MacBrayne [1964] 1 WLR 125 and Hollier v Rambler Motors [1972] 2 QB 71).

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 on the grounds that 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’ (Shirlaw v Southern
Foundries [1939] 2 KB 206 CA). When implying terms in fact, one must ask what the reasonable person would understand the contract to mean rather than enquiring as to the subjective intentions of the parties.

Question 16

What is term implied by law?

Answer 16

Terms implied at common law
Terms can also be implied by the courts at common law in order 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 (see Liverpool City Council v Irwin [1976] 2 WLR 562). These are often referred to as terms implied in law.

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).
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 17

What are the key terms implied into contracts by the Sale of Goods Act 1979?

Answer 17

• 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 18

What are the key terms implied into contracts by the Supply of Goods and Services Act 1982?

Answer 18

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.

(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. What is a reasonable charge and a reasonable time is a question of fact and will depend on the
particular circumstances.

Question 19

Can you contract out of the implied terms from the Supply of Goods and Services Act 1982?

Answer 19

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 20

What terms are implied into contracts by the Consumer Rights Act 2015?

Answer 20

The CRA 2015 implies the following terms into contracts between traders and consumers:
- 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 21

What is the difference between a condition and a warranty?

Answer 21

The question of whether a term is a condition or a warranty becomes significant in the event of breach of contract. 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. In such instance, the innocent party waives the right to repudiate.

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.

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.
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 22

What is an innominate term?

Answer 22

The traditional distinction between conditions and warranties is no longer regarded as exhaustive. In 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. Rather than classify such terms at the outset the court advocated looking at the consequences of breach and asking:
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?
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.
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.
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). 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 23

How do innominate terms relate to statutory implied terms?

Answer 23

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. The effect is that breach of these implied terms is not to be treated automatically as a breach of condition but
may, at the court’s discretion, be treated as a breach of warranty and accordingly the only remedy available will be to claim damages.
In relation to the Consumer Rights Act 2015, a different approach is taken. 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. The detail of this is not addressed in this section.

Question 24

What about where the term is about time for performance or completion?

Answer 24

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. This intention will be assessed by reference to the express terms of the contract and, where appropriate, by implication,
depending on the nature and circumstances of the contract.
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. 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.