Terms Flashcards
Contractual terms
Terms are provisions which lay out the legal obligations between parties. Terms can be express or implied. The three categories of terms are conditions, warranties and innominate terms. The law characterises the contractual terms in a hierarchy depending on the consequences of breaching them.
Condition
A condition is an essential term that is key to the contracts purpose. Breach of a condition will always entitle the party to elect to sue for damages and/or repudiate the contract. Conditions can be promissory or contingent. A promissory condition is a promise to bring about a particular event.
Re Moore v Landaver
A clause which stated there was 30 pieces of fruit in a tin was a condition, therefore when the quantity of fruit ordered was delivered in tins of 24, the buyer was entitled to terminate the contract despite no actual loss.
Arcos Ltd
A sale for timber, which was delivered 1/16th thicker than stated in a condition, entitled the buyer to terminate the agreement. A condition may also be contingent.
Warranties
Warranties are basic contractual terms which are of minor significance considering the contract in its entirety. They are considered subsidiary terms to conditions. A breach of a warranty entitled the party to a claim in damages only. A warranty never gives rise to right of termination, regardless of how serious the breach.
Innominate term:
This is a term which is not labelled as a warranty or a condition, and the remedy for its breach will depend on the seriousness of the breach in question. Enright states that they ‘lie somewhere between conditions and warranties’.
Burge Corporation v Tradax SA
Defined inominate terms
Hong Kong Firs v Kirwasaki
Inominate terms were developed in this case. Lord Diplock held a breach of an innominate term deprived the party of substantially the whole benefit of the contract, then the injured party could repudiate the contract. However if it is insubstantial, damages is the adequate remedy.
s11(2) Sale of Goods Act 1893
Whether a term is a condition, a warranty or an innominate term is a question of interpretation and this is enshrined in this section
How may terms be categorised?
Terms may be categorised as either by Statute or precedent. For example, the Sale of goods Act has certain implied conditions for the sale of goods such as the right to sell under s12.
The test for classification of terms:
- Does contract expressly confer right of termination for such a breach- if so this will stand
- If no- does contract give right to recission or damages? If yes this stands
- Does statute or stare decisis point towards a condition or a warranty?
- Does breach go to the root of the contract so as to deprive the injured party of what he has contracted for?
What approach do courts take when interpreting contractual documents?
Where there is a dispute between parties as to the meaning of a term or terms in the contract, the courts primary objective is to derive what was intended by the parties at the time of constructing the contract. It is what the parties say or do that matter, not what they meant to say or do. To do this, the courts will conduct a ‘rigorous analysis of the words used, viewed on an objective basis within the context of the factual matrix in which the contract was concluded’ as stated by Clark.
The courts have traditionally adopted two approaches when interpreting the meaning of words;
- The plain meaning approach
- The factual matrix rule
Plain Meaning approach
This rule essentially means that the courts use the black-letter method, by giving words their literal meaning. The courts will not stray outside the words used in the contract. If the words are clear and unambiguous, their literal meaning is given. This therefore excludes any extrinsic evidence being admitted into the interpretation of the terms used in the contract. The rationale underpinning this is that it is non-complex, and provided predictable outcomes in interpreting contracts.
Factual matrix rule
A contract does not exist in a vacuum, meaning that it is in relation to its context. This approach is where the courts will interpret the words by allowing background information to be considered. This traditionally was only used when a strict interpretation would lead to absurdity, but this has now become the favoured method of interpretation.
Woods v Capita Insurance Services
Lord hodge held that the literalist approach focusing solely on the parsing of the wording has been abandoned as a method of interpretation. He held ‘where there are rival meanings, the court can give weight to the other that makes more business sense’.
Emo Oil v Sun Alliance
The court accepted the five principles laid down by Lord Hoffman in ICD v west Bromwich.
ICD v West Bromwich principles
- Interpretation- meaning the document would convey to a reasonable person having all background knowledge reasonable to have been available at the time of the contract
- The background matrix of fact includes anything that would have affected the way in which the language of the document would have been understood to a reasonable man
- Law excludes previous negotiations and subjective intent of parties
- The meaning of the document is what the parties using those words against the relevant background would have reasonably have been understood to mean
- If it is concluded from the background something must have gone wrong with the language- the law does not require judges to attribute to the parties an intention they didn’t have.
Law Society v MIBI
O’Donnell J favoured the factual matrix approach stating that the courts must consider ‘not just the words used, but also the specific context, the broader context’. McDermott states O’Donnell J’s acceptance of the ICS principles ‘suggests that contextualism has decisively won out over textualism in this jurisdiction’. The wide lens approach is a much broader method of contractual interpretation and recent authorities demonstrate that it is the favoured approach at present in interpreting contracts.
Jackie Green Construction v IBRC
Clarke J emphasised the importance of interpreting words in their context.
King v Ulster Bank
Cooke J cautioned the factual matrix approach should only be used when there are clear ambiguities. This is a reasonable precaution, as the courts should be slow to introduce evidence outside the four corners of the document unless necessary to ensure that what was intended by the parties at the time of the contract remains of paramount importance.
Business efficacy test
Courts are giving effect to the presumed intentions between the parties that their agreement be workable.
The Moorcock
Plaintiff agreement with defendant to dock ship at jetty owned by defendant. Ship damaged by uneven seabed near the docking area.
Officious bystander test
Term is implied if any reasonable person would assume it goes without saying, as per Shirlaw v southern foundries.
