Terms define or regulate the legal relationship between parties for the duration of the contract. In the event that a term is broken, damages may be claimed for.
Varieties of Terms (Dependant on Contract):
Clauses
Provisions
Conditions
Undertakings
Heads
Typical Terms:
Terms can specify responsibilities. EG: quantity, quality, price etc.
Limiting liability between parties. EG: limitation clauses.
Dispute resolution methods if case of contractual breach / problems with the contract.
Outline procedures for changes of circumstance. EG: termination clauses, price change etc.
Warranties and Conditional Terms:
Warranties:
Warranties are less fundamental terms, but an injured party can still claim for damages.
Conditions:
Conditions are more fundamentally important to the contract as they establish the obligations of the parties. A breach a condition entitles an injured party to either terminate the contract or affirm the contract, in addition to damages.
Contingent Conditions:
Contingent conditions make a promise that is contingent on another event occurring.
EG: repayment after a certain date.
Contingent conditions are subsequent when there is a promise contingent on the fact that something does not happen.
EG: move of house – window cleaner contract stops.
Promissory Conditions:
Promissory conditions end the contract at a certain time.
EG: completion of obligation, date etc.
Innominate Terms:
Innominate terms are neither conditions or warranties. The innocent party is not confined to only seeking remedy in damages, as they can also repudiate (reject) the contract (though they do not have to).
Examining the seriousness of the consequence of the breach of contract and determining how serious a role the term played in the contract was established by Diplock LJ in HK Shipping v Kawasaki.
Express and Implied Terms:
Express Terms:
Express terms are agreed upon between parties.
They can be given orally, in writing, in reference to another document or a mix of all.
Parol Evidence Rule:
Express terms in writing cannot be overruled, contradicted or varied by orally given terms. However, a court can rectify a written term if it does not conform to a prior oral agreement, subject to exceptions.
In Shogun Finance Ltd v Hudson, Hobhouse LJ stated that the parol evidence rule is 'is fundamental to the mercantile law of this country’ and that ‘the certainty of the contract depends on it’. In what may be thought to be something of an overstatement he concluded by saying that ‘the rule is one of the great strengths of English commercial law and is one of the main reasons for the international success of English law in preference to laxer systems which do not provide the same certainty'.
Implied Terms:
Terms added into a contract by statute, custom or common law. Courts may imply these terms into a contract, even when neither party considered them, so that the contract follows the law.
Implied terms cannot contradict express terms, except for where they are implied by statute.
Improve fairness, risk management or cost saving.
Controversial as it can be seen as a way of the courts interfering with agreements.
Implied by Statute:
Examples of terms that are implied by statutes are from the Sale of Goods Act, Sale and Supply of Goods Act, Law of Property Act, Consumer Protection Regulations etc.
The court could imply the terms of that a product must be ‘as described, fit for purpose and of satisfactory quality’ from the Sale of Goods Act into a contract.
Implied by Custom:
Terms may be implied by custom because they are taken for granted, is well-established or well known. This protects the reasonable expectations, as examined by a third party.
In Hutton v Warren, a tenant of a farm was entitled to receive an allowance from the landlord for the seeds that were planted and the labour done after they left.
Implying by Common Law (Fact and Law):
Implying in fact is when the term is applied as to how the court perceives the unexpressed intention of the parties. This allows the court and parties to make sense of the contract.
Implying in law is when courts imply a term into all contracts of a general type.
In Liverpool CC v Irwin, the landlord set out a list of the tenants’ obligations. The landlord does not set out their obligations to the tenant. When the property falls into disrepair, I refuses to pay rent. LCC seeks eviction of property and I counterclaims for breach of contract. Cross LJ (House of Lords) states that terms can only be implied when it is reasonable and necessary for business efficacy. It also has to be obvious that someone would agree to this term. It is implied that the landlord takes reasonable steps to keep the common areas in a state of repair. However, in this case the council was not in breach of duty as the damage was caused by incessant vandalism.
In Crossley v Faithful, it was debated whether reasonable care and economic wellbeing could be implied terms in employment contracts. Dyson LJ states that standardising implied terms would be controversial because of reasonableness and fairness. The implied term was rejected.
In Shirlaw v Southern Foundries Ltd, MacKinnon LJ states that the ‘officious bystander’ test can be applied to determine whether terms should be implied. He says that if a bystander, having watched a contract formation would state ‘Oh, of course’ when asked if a term is present, then the term can be implied by the court. The Supreme Court reaffirms this in M&S v BNP, but Lord Neuberger JSC states that the test is not ‘absolutely necessary’.
References:
Cases Mentioned:
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1961] EWCA Civ 7
Shogun Finance Ltd v Hudson [2003] UKHL 62
Hutton v Warren [1836] EWHC J61
Liverpool City Council v Irwin [1976] UKHL 1
Crossley v Faithful [2004] EWCA Civ 293
Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701
Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2015] UKSC 72
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