terms Flashcards
1
Q
types of terms
A
Contract terms may be conditions or warranties. Both conditions and warranties can be either expressly agreed between
the parties during their negotiations (express terms) or
implied into a contract by statute, by the courts or by custom
and usagage(implied terms)
2
Q
TERMS VS. REPRESENTATIONS
A
- what is representation
Statements of fact or law made during the negotiations for
a contract will either be** incorporated** into the contract itself as terms (if the parties intended the statements to form part of the contract) or not incorporated (if they were made to
induce the other party to enter into the contract). These latter
statements are known as representations. - Whether a statement is a term or representation will be determined by the intentions of the parties, viewed objectively, that is, from the perspective of a reasonable person,having regard to the conduct of the parties.
- The courts will take the following factors into account when determining whether a statement is a term or a representation:
* **The importance **of the statement (from the perspective
of the party to whom it was made). In other words, would that party have entered into the contract if it wasn’t for
the statement? If the answer is no (in other words, if the term is fundamental to that party), then the statement is
more likely to be a term of thecontract.
* At what stage in the contract negotiations the statement was made. If a statement is made at the time of the contract, it is more likely to be viewed as a term; if made during preliminary negotiations, it is more likely to be viewed as a representation.
* Whether the party making the statement had any specialist **knowledge or information **or a particular skill. If a sellermakes a factual statement that should be within the scopeof their knowledge, intending that the buyer will act on thestatement, it is much more likely that thestatement would
be viewed as a term of the contract. If, however, the sellermakes a statement of belief of which they have no direct
knowledge, it is more likely to be a representation. - The distinction between the two types of statement is important because if the statement turns out to be untrue, the remedy available to the innocent party will differ depending
whether there has been a breach of a term or** a false representation** (known as a ‘misrepresentation’). If the statement
is viewed as a term, then any failure to comply with the term will be a breach of contract and, therefore, the innocent party may be able to claim damages. However, if the statement
is a misrepresentation and has not been incorporated into the contract, the remedy will depend whether the misrepresentation was made innocently, negligently, or fraudulently.
Damages may still be available, but the amount recoverable is likely to be less than for a breach of contract.
3
Q
conditions and warranties
A
- The distinction is important, as how a term is classified will determine the remedies
available to an innocent party in the event that the term is
breached. Breach of a condition will give the innocent party
the option of terminating the contract. - If it is unclear at the outset whether a term is a condition or warranty, it falls into a
third category,** innominate terms,** - Note that whether a term is a condition or a warranty
is not determined merely by the label given to the term in the
contract: the courts will look behind any label to **the actual
effect of the term **on the operation of the contract as a whole .
4
Q
conditions
A
1. A condition is a term that is so fundamental that it is said to
go to the root of the contract. If a condition is breached, the
contract does not work without it. A breach of a condition is
sometimes referred to as a ‘repudiatory breach’, because a
party who breaches a condition is effectively repudiating the
contract altogether. For this reason, the innocent party has
the option to terminate the contract and claim damages for
their loss.**
5
Q
warranties
A
a warranty is a term that is incidental or collateral
to the main terms of the contract. Because it does not go to
the root of the contract, any breach is regarded by the courts
as less serious. Consequently, the remedies available to an innocent party in respect of a breach of warranty are fewer and
they do not have the option to bring the contract to an end.
6
Q
innominate terms
A
- An innominate term is a term as to which it is unclear at the
outset whether it is a condition or warranty, as it has not been
designated as either a condition or a warranty and when the
contract is concluded it is not clear how severe the consequences of a breach would be. - If the term is then **breached,
the courts will look at the effect of the breach **of the term to determine what remedy should be available to the innocent
party. - if the breach of such a term results in the innocent party losing substantially the whole of the benefit of the contract, it will be treated akin to a condition,
7
Q
‘Time of the Essence’
A
- What are the innocent party’s rights if the other party does
not perform its obligations when required by the contract?
The answer depends whether time is ‘of the essence’ of the
obligation in question. If time is of the essence in respect of
an obligation, that obligation is a condition and late performance entitles the innocent party to terminate the contract.
If time is not of the essence, it is a warranty, and the innocent
party’s only remedy is to claim damages. - Many contracts will
make it clear whether time is of the essence of a particular
obligation. There is a general presumption in commercial
contracts that time will be of the essence for delivery if a time
for delivery has been agreed.
8
Q
express terms
A
- Whether the contract is oral or written, a term will form part of
the contract only if the parties have reasonable notice of it.
9
Q
The Parol Evidence Rule
A
- If contract is written, a rule known as the ‘parol evidence
rule’ exists to help decide whether evidence of terms outside
the written contract can be taken into account so as to alter
the written terms. -
There is a general presumption that external evidence cannot add to, subtract from, contradict, or
vary the terms of a written contract. This is true whether the external evidence is written (for example, correspondence
between the parties) or oral. - There are several exceptions to
this rule, particularly implied terms (see below) or if there is a
secondary (collateral) contract. In the latter case, the courts could find that there were two contracts between the parties:
the first contract which has been reduced to writing, and a
second oral collateral contract. A further situation in which
the parol evidence rule will not apply is if the court finds that
the contract was always partly written and partly oral, so that
the oral terms always formed part of the contract.
10
Q
implied terms
A
- A term that is implied into a contract will be equally as binding on the parties as if it had been expressly agreed between
them. In the same way as express terms, it will constitute
either a condition, a warranty, or an innominate term
2.exception to Parol evidence rule
3.contract terms can be implied by:
(1) statute
(2) court
(3)custom and usage
(4)a course of dealing between parites
11
Q
implied terms by statute
A
- The main sources of terms implied by statute are the Sale of
Goods Act 1979 (‘SOGA’ or ‘SGA’), the Consumer Rights Act
2015 (‘CRA’), and the Supply of Goods and Services Act 1982
(‘SGSA’).
2.SOGA
12
Q
Sale of Goods Act
sale between businesses
A
- implied terms
An important term implied by the SGA is that the seller has a
legal right to sell the goods in question, in other words, that
the seller has title to them. If the seller does not have title,
then there is no consideration and, therefore, there is no valid contract. The SGA also implies terms requiring that goods:
* Match any **description **applied to them by the seller;
* In a sale by a business, be of satisfactory quality; and
* In a sale by a business, be **fit for any particular purpose **
made known to the seller by the buyer.
2.satisfacotry quolity
Meaning of Satisfactory Quality
The SGA defines what is meant by satisfactory quality and
includes a requirement that the goods in question be fit for
the purpose for which such goods are generally used and
free from minor defects, and also safe and durable. - SGA Implied Terms Are Conditions
The SGA categorises these implied terms as conditions of
the contract. Thus, if the conditions are breached, the buyer
is entitled to terminate the contract, reject the goods, and
refuse to pay the price, but it must return the goods. However, if the breach is so slight that it would be unreasonable
for the buyer to reject the goods, the breach is treated as a
breach of warranty rather than a breach of condition - Excluding Liability for Breach of the SGA Implied Terms
The Unfair Contract Terms Act 1977 (see 7.3, below) makes
it difficult for a seller to exclude liability for breach of these
implied terms.
13
Q
Sale of Goods and Service Act
sale between businesses
A
- SGSA implies terms for example, that the supplier (if it is a business) will carry out the service within a reasonable time (if no time is agreed) and with reasonable care
and skill. - These terms are ‘innominate’ terms rather than
conditions, so if they are breached, the court will determine
the remedy on the basis of the seriousness of that breach - In relation to goods supplied as part of the supply of services, the SGSA implies conditions similar to
those implied in the SGA.
14
Q
Consumer Rights Act 2015 (‘CRA’)
A
- Like the implied terms under the SGA, the CRA has provisions
requiring that all goods supplied under a consumer contract
(including digital content) should:
* Match their description;
* Be of satisfactory quality; and
* Be fit for purpose - A big difference from the SGA
is that liability for a breach of the implied terms cannot be excluded or limited at all. - Under the CRA, there are implied terms that services should
be:
* Carried out with reasonable care and skill;
* Completed in accordance with any information which
the consumer relies on, for example, price quotations;
* Completed for a reasonable price (if no price has been
expressly agreed); and
* Completed within a reasonable time (if no timescale has
been expressly agreed).
15
Q
terms implied by court
A
- The courts are reluctant to interfere with the presumed intentions of the parties but are prepared to imply terms into contracts if necessary to give them what is known as ‘business efficacy’, that is, to make them work in a way that reflects the parties’ intentions and expectations. These terms are known as terms implied in fact. The courts are likely to imply a term only if the term to be implied is so obvious to a reasonable person that it goes without saying. (This test is also known as the ‘officious bystander’ test.)
- the test used by the courts when deciding whether to imply a term in fact is very stringent.
The test is not whether it is ‘reasonable’ to imply the
term. A term will be implied only if it is necessary for the
contract to work as intended. Remember also that the
courts are very unlikely to imply a term which contradicts the express terms of the contract.
