terms

Question 1

types of terms

Answer 1

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)

Question 2

4

TERMS VS. REPRESENTATIONS

Answer 2

1. 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.
2. 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.
3. 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 the contract.

• 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 seller makes a factual statement that should be within the scope of their knowledge,intending that the buyer will act on the statement, it is much more likely that the statement would be viewed as a term of the contract. If, however, the seller makes a statement of belief of which they have no direct knowledge, it is more likely to be a representation.

4. 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.

Question 3

conditions and warranties

Answer 3

1. 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.
2. If it is unclear at the outset whether a term is a condition or warranty, it falls into a third category,** innominate terms,**
3. 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 .

Question 4

2

conditions

Answer 4

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.
2. 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.

Question 5

2

warranties

Answer 5

1. a warranty is a term that is** incidental or collateral** to the main terms of the contract. Because it does not go tothe root of the contract, any breach is regarded by the courts as less serious.
2. Consequently, the remedies available to an innocent party in respect of a breach of warranty are fewer andthey do not have the option to bring the contract to an end.

Question 6

3

innominate terms

Answer 6

1. 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.
2. 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.
3. 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,

Question 7

2

‘Time of the Essence’

Answer 7

1. 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.
2. 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.

Question 8

express terms

Answer 8

1. Whether the contract is oral or written, a term will form part of the contract only if the parties have reasonable notice of it.

Question 9

3

The Parol Evidence Rule

Answer 9

1. 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.
2. 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.
3. There are several exceptions to this rule, particularly implied terms 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.

Question 10

2

implied terms

Answer 10

1. 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
contract terms can be implied by:
(1) statute
(2) court
(3)custom and usage
(4)a course of dealing between parites

Question 11

implied terms by statute

Answer 11

1. 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

Question 12

4

Sale of Goods Act

sale between businesses

Answer 12

1. 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 quality
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.

3. 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
4. Excluding Liability for Breach of the SGA Implied Terms
   The Unfair Contract Terms Act 1977 makes
   it difficult for a seller to exclude liability for breach of these
   implied terms.

Question 13

3.

Sale of Goods and Service Act

sale between businesses

Answer 13

1. 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.
2. 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
3. In relation to goods supplied as part of the supply of services, the SGSA implies conditions similar to those implied in the SGA.

Question 14

3

Consumer Rights Act 2015 (‘CRA’)

Answer 14

1. 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
2. A big difference from the SGA is that liability for a breach of the implied terms cannot be excluded or limited at all.
3. 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).

Question 15

2

terms implied by court

Answer 15

1. 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.)
2. 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.

Question 16

4

terms implied by cusotm and usage

Answer 16

1. If there is an industry or market standard in respect of the particular area where the parties to the contract are dealing, this may be enough to imply terms into the contract that are
   normal for that particular industry or market.
2. However, a custom can also be excluded by an express term of the contract agreed between the parties, and
3. a term will not be implied by custom or usage if it contradicts an express term in the contract.
4. Cases in which there is a mechanism agreed between the parties to resolve uncertainties. An example of this would be a clause which leaves an important matter undecided but allows it to be determined unilaterally by one of the parties or by a third party, or possibly by an arbitrator.

Question 17

terms implied in course of dealing

Answer 17

If the parties have contracted on the same terms (usually
standard form terms and conditions) on several occasions,
enough to show a** regular** and** consistent** course of dealings, then the courts will imply the same terms into a contract between the parties if, for example, the usual terms and conditions were not supplied in error.

Question 18

3

incomplete agreements

Answer 18

1. Without a reasonable degree of certainty, the contract is unlikely to be enforced, as it would be impossible to conclude that the parties had the same intention—in other words the required ‘meeting of minds’ evidenced by offer and acceptance would be missing
2. where the courts will not get involved
   a. If the court is unable to conclude that the parties intended to be bound without its intervention, it is unlikely to get involved, and thus the contract will not be binding on the parties.
   b. agreements to agree
   The use of the words ‘to be agreed’ (or similar) in relation to an essential term is likely to prevent any contract coming
   into existence because it is uncertain.
3. when courts will get involved
   a. resolving uncertainty
   If the courts are satisfied that the parties intended to be bound by the terms of the contract as they stand, they are likely to try to give effect to this intention
   i.Cases in which there is a mechanism agreed between the parties to resolve uncertainties.
   ii. Commercial cases in which the parties are familiar with the trade in question
   iii. Cases of contracts for future performance over a period of time in which the parties leave matters to be adjusted in the working out of their contract.
   iv.Cases in which there has been partial performance or in which one of the parties has made an investment on the basis of the agreement
   **b. statutory assistance **
   The Sale of Goods Act 1979, the Supply of Goods and Services Act 1982, or the Consumer Rights Act 2015 may provide assistance if a contract is incomplete in its terms.

c. serving uncertain terms
If the courts are unable to find sufficient certainty to enforce
a term, they may be able to sever (remove) the uncertain term from the agreement and allow enforcement of the remainder. The test in each case is whether the term can be severed without affecting the substance of the bargain between the parties.