Terms

Question 1

What is a term of a contract?

(a) 
Statements made by the parties in order to induce formation of the contract but which the parties do not intend to be binding

(b) Statements of fact made by the parties which they intend to be binding

(c) 
Statements made by the parties which have no legal effect

(d) 
Statements made by one party to coerce another party into a contract

Answer 1

(b) Statements of fact made by the parties which they intend to be binding


Question 2

Which factor is not generally relevant when deciding whether the parties to a contract intended a statement to be binding?

(a) Special knowledge or skill of the person making the statement

(b) The timing of the statement

(c) The importance of the statement

(d) The age of the person making the statement

Answer 2

(d) The age of the person making the statement

The age of the person making the statement is not relevant when deciding whether the parties intended the statement to be binding. The factors that are relevant include the timing and importance of the statement and whether the person making the statement had special knowledge or skills

Question 3

What happens if a term of a contract is not fulfilled as required or at all?

(a) 
The innocent party can sue for discharge

(b) 
The innocent party can sue for misrepresentation

(c) 
The innocent party can sue for breach of contract

(d) 
The innocent party can sue for rectification

Answer 3

(c) 
The innocent party can sue for breach of contract


Question 4

Which of the following is not a means by which we can ascertain the terms which the parties to a contract intend to be bound by?

(a) 
A signed written contract

(b) 
Incorporation by agreement
(c) 
Incorporation by notice

(d) 
Incorporation by course of dealing

Answer 4

(b) 
Incorporation by agreement

This is not a means of ascertaining the terms of a contract. The terms can be ascertained where there is a signed written contract, where there is incorporation by notice, or where there is incorporation by course of dealing


Question 5

How can parties to a written contract reduce the possibility of a claim that there are binding oral terms alongside the written terms?


(a) The parties can include a ‘complete agreement’ clause in their written contract

(b) 
The parties can include an exemption clause in their written contract

(c) 
The parties can include an ‘entire agreement’ clause in their written contract
(d) 
The parties can say that there are no binding oral terms alongside the written terms

Answer 5

(c) 
The parties can include an ‘entire agreement’ clause in their written contract

An entire agreement clause provides that a particular contract or set of contracts constitutes the entire agreement between the parties


Question 6

Which of the following is not a basis for implying terms in fact into a contract?

(a) 
On the grounds of trade or professional customs

(b) 
Where the parties have dealt with each other consistently and regularly in the past

(c) 
To give business efficacy to a contract

(d) Under the common law

Answer 6

(d) Under the common law

Terms implied at common law are not implied in fact. The grounds for implying terms in fact are to give business efficacy to a contract, where the parties have dealt with each other consistently and regularly in the past and on the grounds of trade and professional customs

Question 7

Which of the following statute does not contain implied terms?

(a) 
Consumer Rights Act 2015

(b) 
Unfair Contract Terms Act 1977
(c) Sale of Goods Act 1979

Answer 7

(b) 
Unfair Contract Terms Act 1977

The Unfair Contract Terms Act 1977 regulates exemption clauses. The Sale of Goods Act 1979, Supply of Goods and Services Act 1982 and Consumer Rights Act 2015 all contain implied terms


Question 8

Which of the following is correct regarding a term implied by statute?

(a) 
The term is imposed in the contract by the courts

(b) 
A statutory implied term is binding to a less extent compared to an express term

(c) 
The term is implied to give effect to the presumed but unexpressed intentions of the parties

(d) 
The term operates irrespective of the intention of the parties unless there is a valid exemption clause

Answer 8

(d) 
The term operates irrespective of the intention of the parties unless there is a valid exemption clause

Statutory implied terms are imposed in contracts by statute and they operate irrespective of the intention of the parties unless there is a valid exemption clause

Question 9

Which of the following is correct about the Sale of Goods Act 1979?

(a) 
The terms implied by ss 13, 14 and 15 of the Sale of Goods Act 1979 cannot be excluded or restricted by agreement of the contracting parties

(b) 
The Sale of Goods Act 1979 implies terms to an agreement between a trader and a consumer


(c) The Sale of Goods Act 1979 implies a term that the goods will be of satisfactory quality if they meet the standard that the buyer of the goods regards as satisfactory


(d) The Sale of Goods Act 1979 implies a term that the seller of goods has a right to sell the goods

Answer 9


(d) The Sale of Goods Act 1979 implies a term that the seller of goods has a right to sell the goods

The Act implies a term that the seller of goods has a right to sell the goods. This implied term is found in s.12(1) of that Act.
The SGA applies to business-to-business contracts only, and not to consumer contracts ie between a trader and a consumer. Satisfactory quality under the Act is judged on an objective basis (s14(2)), and contracting parties can agree to exclude or restrict ss13,14 and 15 of the SGA 1979, subject to the Unfair Contract Terms Act 1977.

Question 10

A restaurant purchases 30 round tables for its business. When the tables are delivered they are rectangular. Which section of the Sale of Goods Act 1979 implied into this contract is most likely to have been breached?


(a) S 14(3)

(b) 
S 13

(c) 
S 15(3)

(d) 
S 14(2)

Answer 10

(b) 
S 13
: correspond with description

Question 11

A property development company purchases some radiators. The radiators do not heat up properly. Which section implied by the Sale of Goods Act 1979 is most likely to have been breached?

(a) 
S 13

(b) 
S 15(3)

(c) 
S 14(2)

(d) 
S 14(3)

Answer 11

(c) 
S 14(2)
: satisfactory quality

Question 12

The director of a minicab business hires a vehicle from a hire company for use in his minicab business. Which of the following implied terms is relevant to the contract between the two businesses?

(a) 
S13 of the Supply of Goods and Services Act

(b) 
S 14(2) of the Sale of Goods Act 1979

(c) 
S 9 of the Supply of Goods and Services Act 1982
(d) 
S 9 of the Consumer Rights Act 2015

Answer 12

(c) 
S 9 of the Supply of Goods and Services Act 1982

The contract for the hire of the vehicle is an example of a contract for the hire of goods and accordingly, s 9 of the SGSA 1982 which implies a term regarding quality or fitness to contracts, may be relevant.
Regarding the other options, the Consumer Rights Act 2015 does not apply as the contract in the scenario is not between a trader and a consumer; the Sale of Goods Act 1979 does not apply as the contract is for the hire of the vehicle, and not for sale of goods, and finally, s13 of SGSA applies where services are being supplied – that is not the case in this scenario


Question 13

The Supply of Goods and Services Act 1982 does not imply terms in which type of contracts?

(a) 
Contracts for the hire of goods.

(b) 
Contracts for the supply of services.

(c) 
Contracts of sale of goods
(d) 
Certain contracts for the transfer of property in goods

Answer 13

(c) 
Contracts of sale of goods

The Supply of Goods and Services Act 1982 does not apply to contracts of sale of goods (see s1(2)(a) of the 1982 Act).
The SGSA however applies to, and implies terms to contracts for the hire of goods, contracts for the supply of services and certain contracts for the transfer of property in goods


Question 14

A service that is carried out in the course of a business needs to meet what standard under the Supply of Goods and Services Act 1982?

(a) 
A satisfactory standard

(b) 
Performed with reasonable care and skill

(c) 
An absolute standard - liability is strict

(d) 
The relevant industry standard

Answer 14

(b) 
Performed with reasonable care and skill


Question 15

The Consumer Rights Act 2015 regulates contracts entered into by what people?

(a) 
A business and a consumer

(b) 
A company and a consumer

(c) 
A business and a business

(d) 
A trader and a consumer

Answer 15

(d) 
A trader and a consumer

Question 16

A university student buys an e-book from an online bookshop for £29.99. The e-book is missing several pages and the writing is blurred. Which implied term is the student likely to rely upon against the bookshop?

(a) 
S.34(1) of the Consumer Rights Act 2015
(b) 
S.14(2) of the Sale of Goods Act 1979

(c) 
S.49(1) of the Consumer Rights Act 2015

(d) 
S. 9(1) of the Consumer Rights Act 2015

Answer 16

(a) 
S.34(1) of the Consumer Rights Act 2015

The contract is between a bookshop (a trader) and a student (a consumer) therefore the Consumer Rights Act 2015 applies. An e-book is an example of digital content. S.34(1) of the 2015 Act states that ‘every contract to supply digital content is to be treated as including a term that the quality of the digital content is satisfactory.’


Question 17

What remedy is available to a consumer under the Consumer Rights Act 2015 where a trader breaches the implied term that the trader must perform the services contract with reasonable care and skill?

(a) 
The consumer has a right to require the trader to perform the service again to the extent necessary to complete its performance in conformity with the contract
(b) The consumer has a right to reject the service
(c) The consumer has a right to treat the contract as at an end because of the breach

(d) 
The consumer has a right to receive a refund from the trader of all money paid by the consumer for the service

Answer 17

(a) 
The consumer has a right to require the trader to perform the service again to the extent necessary to complete its performance in conformity with the contract

The right to repeat performance is governed by s.55 of the Consumer Rights Act 2015. Where a trader breaches the implied term that he must perform the services contract with reasonable care and skill, the consumer has only two remedies available to him under the 2015 Act. The first is the right to repeat performance already stated, and the second remedy is the right to a price reduction.


Question 18

Under the Sale of Goods Act 1979, what is the classification of the implied term that goods will correspond with their description?

(a) 
The term is classified as an intermediate term

(b) 
The term is classified as a condition, but it may be treated as a warranty if the breach is so slight that it would be unreasonable for the buyer to reject the goods

(c) 
The term is classified as a warranty

(d) 
The term is classified as an innominate term

Answer 18

(b) 
The term is classified as a condition, but it may be treated as a warranty if the breach is so slight that it would be unreasonable for the buyer to reject the goods


Question 19

What is the remedy for breach of an innominate term?


(a) The innocent party is limited to suing for damages where the consequence of the breach is minor
(b) The innocent party has a statutory right to terminate the contract and sue for damages in all situations

(c) 
The innocent party can rescind the contract and sue for damages where the consequences of the breach are serious

(d) 
The innocent party can treat the contract as repudiated and sue for damages where the consequences of the breach are minor

Answer 19

(a) The innocent party is limited to suing for damages where the consequence of the breach is minor

The remedy for breach of an innominate term can be identified by applying the test in the case of Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd.
The test focuses on the consequences of the breach and asks the question whether the breach has deprived the innocent party of substantially the whole benefit of the contract. Where the question is answered in the affirmative, ie the consequences of the breach are serious, the term will be treated as a condition. Where the question is answered in the negative, ie the consequences of the breach are minor, the term will be treated as a warranty.
Regarding the other options, note that the remedy of rescission is not available for breach of contract.


Question 20

Which option is not available to an innocent party following breach of a condition by the other party to the contract?

(a) 
The innocent party has the right to treat the contract as repudiated and sue for damages

(b) 
The innocent party can terminate the contract and sue for damages

(c) 
The innocent party can waive the right to repudiate, affirm the contract and sue for damages

(d) 
The innocent party can accept the repudiatory breach, affirm the contract and sue for damages

Answer 20

(d) 
The innocent party can accept the repudiatory breach, affirm the contract and sue for damages

The right to accept the repudiatory breach is mutually exclusive to the right to affirm the contract – the innocent party either accept the repudiatory breach or they can affirm the contract. They cannot do both. Please note that whichever option the innocent party takes, they will also have the right to sue for damages for the breach.
The other options given in the answers are all open to the innocent party.

Question 21

What are the three categories of statement and how are they treated under law?

Answer 21

1. Mere puffs = statements of no legal significance
2. Statements of fact or law which parties do not intend to be binding - classified as representations if they help to induce making of contract
3. Statements of fact which parties intend to be binding - these are terms of contract

Question 22

Why does the distinction between representations and terms matter?

Answer 22

Becomes important when statement turns out to be untrue, or promise not fulfilled - court has to decide which statements are contractual terms and which are non-contractual reps, inducing contract but not forming part of it

If statement is term of contract and this term is not fulfilled, it will amount to breach of contract

If untrue statement is not term of contract but representation, this may amount to misrep - innocent part may be liable to obtain remedy in misrep

Statement can be both term and misrep, giving rise to action for both breach and misrep

Question 23

How do I know if statement is representation or term?

Answer 23

Only term is intended to be binding

Court will apply objective test based on question: ‘what would a reasonable person understand to be the intention of the parties, having regard to all the circumstances?’

Where statement made during negotiations for purpose of inducting other party to enter into contract there is prima facie ground for inferring that statement was intended to be binding term of contract - inference can be rebutted if party making statement can show that it would not be reasonable to hold them bound by it

Court will consider
1. Importance of statement
2. Timing of statement
3. Reduction of contract into writing
4. special knowledge or skill of person making statement
5. Assumption of responsibility or further checks

Question 24

What are the four categories of express terms?

Answer 24

1. Signed written contract: Party can express intention to be bound by smth they have not read or understood - all terms of contract will be binding (Exception: if doc signed was not one which was intended to have any contractual effect (eg doc simply acknowledging relief of goods) then terms within it will not form part of contract bc doc does not indicate intention to bc bound by terms)
2. Incorporation by notice: terms will form part of the contract if reasonable steps have been taken to bring them to the claimant’s attention - This has to do with incorporation by reasonable notice - when doc containing contractual terms is signed, party is bound by those terms, even if offending clause is onerous - For clause to be incorporated into contract, reasonable notice of it must be given before or at time of contracting - Terms will only be incorporated by notice if doc giving notice was intended to have contractual effect (analogy with law in relation to signed docs)
3. Incorporation by course of dealing: Where clause has been brought to notice of other party during previous dealings, it will be implied into current transaction to give effect to presumed intention of parties even though it has on this particular occasion been omitted - must be consistent and regular
4. Other ways of agreeing eg Agreement of terms in conversation/verbal exchange - usually simple terms
   Terms set out in writing eg email and other party agreeing to those eg by expressing reply by email

Question 25

What are entire agreement clauses and when are they used?

Answer 25

Parties may seek to reduce uncertainly and confusion with ‘entire agreement’ clause

Such clause provides that particular doc or set of docs constitutes entire agreement between parties

Courts will uphold such clauses where they are indeed attempt to avoid any misunderstanding about scope of parties’ agreement - such clause might be effective in avoiding confusion about whether any oral terms or preceding written statements form part of contact

Unlikely that such clause would be effective to exclude liability for misrep

Question 26

What is the difference between implied terms in fact and implied terms in law?

Answer 26

Term implied in fact to give effect to presumed but unexpressed intentions of parties

Term implied in law bc courts or statute require this, regardless of intention of parties

Question 27

When will a term be implied in fact?

Answer 27

1. Trade or professional customs: Where term implied on grounds of custom, implication is based on assumption that it was intention of parties to be bound by well known customs of particular trade
2. Course of dealing between parties: must be consistent and regular
3. Business efficacy: Term will not be implied merely on grounds that such implication will transform agreement into business-like arrangement - term will only be implied on this ground if, without implied term, arrangement would be so unworkable that sensible people could not be supposed to have entered into it - based on reasonable person

Question 28

When will terms be implied in law?

Answer 28

1. Common law: Can also be implied by courts in order to give effect to legal duties which arise, as matter of policy, out of certain common types of contractual relationships
2. Statute: Certain statutes indicate that stipulated terms will be implied - will also operate irrespective of intention of parties, unless there’s valid exemption clause

Question 29

What are the three categories of terms of contract?

Answer 29

1. Conditions
2. Warranties
3. Innominate terms

Question 30

Why is the distinction between conditions and warranties important?

Answer 30

If party breaches condition, innocent party has right to treat contract as repudiated ie they can terminate contract with effect that both parties are released from all future obligations under contract - innocent party may also sue for damages immediately

If it does not exercise right to elect to treat contract as at end, and instead choses to affirm contract, contract remains in full force and effect so all parties remain bound by obligations but innocent party can still sue for damages - here innocent party waives right to repudiate

If party breaches warranty, only remedy available to innocent party is to sue for damages ie there is no right to treat contract as repudiated

Question 31

How do you distinguish between conditions and warranties?

Answer 31

Condition is important term going into root of contract - warranty is less important term not going to root of contract

Crucial question: whether parties intended at time of contracting that any beach of relevant term could result in innocent parties terminating - only if answer to this is clearly yes should term be categorised as condition from outset

Starting position: to consider whether term in question has been classified as condition or warranty by:
1. Statute
2. Parties or
3. Previous judicial decisions

If that doesn’t provide answer, court will need to look at contract, subject matter and surrounding facts to determine whether parties intended for any breach of term to entitle innocent party to terminate contract

Question 32

What happens if the court cannot determine intention or it determines that not every breach would lead to right to terminate?

Answer 32

Likely to decide that term is innominate and apply Hong Kong test

Do the consequences of breach deprive party not in default of substantially whole benefit from contract?
- if no, treated as warranty and damages only
- if yes, treated as condition and right to election so can either affirm and damages OR terminate and damages

Question 33

Why is timing important here and when is time of the essence?

Answer 33

Where requirement to timing is essential to contract eg in mercantile contracts, expression used is that time is of essence - lateness will amount to repudiatory breach entitling other party to terminate contract

When time is not of essence, it can usually become so, by innocent party serving notice on defaulting party which states time is of essence - such notice must state completion date, which must be reasonable