Express and Implied Terms

Carolyn Abbot
October 2013

Combining the strengths of UMIST and

The Victoria University of Manchester
 What are we going to cover in the next
six lectures?
• Express terms: how do you determine what the
express terms of a contract are, and how should they
be interpreted?
• Implied terms: when will the courts imply terms into a
contract?
• Classification of terms: how are contractual terms
classified? What is the difference between
conditions, warranties and innominate terms?
• Exclusion clauses: what is an exclusion clause and
when will an exclusion clause be valid?
Combining the strengths of UMIST and
The Victoria University of Manchester
 Express Terms – The Basics

• Express terms are (unsurprisingly!) those terms that

have been agreed to between the parties
• There are two key issues:
1) How do you determine what the express terms of the
contract are?
2) What exactly do these express terms mean i.e. how
should they be interpreted?

Combining the strengths of UMIST and

The Victoria University of Manchester
 Terms v Representations
• During the process of contractual negotiations, many
things will be said and many conclusions reached –
such conclusions are not automatically terms of the
final contract
• Why is it important to distinguish between terms and
representations?
• Both give rise to legal consequences but these legal
consequences are different

Combining the strengths of UMIST and

The Victoria University of Manchester
 If a term of the If the statement is
contract is deemed to be a
broken ..... representation AND
The remedy the representation
lies in breach turns out to be untrue
of contract
.... The remedy lies in
And you can claim an
misrepresentation ...
expectation measure
of damages – these
put you in the And you can claim a
position you would
have been in had the tortious measure of
contract been damages, the aim of
performed which is to you in the
position you would
have been in had the
statement not been
made
Combining the strengths of UMIST and
The Victoria University of Manchester
 So how do the courts decide whether or not
something is a term or a representation?
• Did the parties intend the statement to be
contractually binding?
• Test is one of ‘detached objectivity’ – what would an
intelligent bystander have taken the parties to have
intended?
• There are various factors that guide the courts in
determining intention i.e. there are several indicators
of intention including:
1) Timing
2) Importance
3) Special skill or knowledge
Combining the strengths of UMIST and
The Victoria University of Manchester
 Indicators of Intention
• The lapse of time between the making of the statement and the
entering into the contract may be relevant – the longer the time, the
less likely it is to be a term:
Routledge v McKay [1954]
• If it is made clear that the statement is so important to the recipient that
they would not have contracted without it, the statement is likely to be a
term:
Bannerman v White (1861)
Couchman v Hill [1947]
• Where the representor has some special knowledge or skill, the
statement is more likely to be a term of the contract:
compare Oscar Chess v Williams [1957] (Morris LJ dissenting) with
Dick Bentley v Harold Smith (Motors) [1965]

Combining the strengths of UMIST and

The Victoria University of Manchester
 The Parol Evidence Rule
• In the case of wholly written contracts, it’s not difficult to
determine the express terms
BUT what if one party claims that there are additional terms
(either agreed orally or in another document)? Will the courts
entertain such an argument??
• The parole evidence rule applies to written contracts – it states
that generally, extrinsic (external) evidence will not be admitted
which seeks to add, vary or contradict the terms of a written
contract
Jacobs v Batavia and General Plantations Trust [1924]
“It is a firmly established rule of law that parol evidence cannot
be admitted to add to, vary or contradict a deed or other written
instrument.” (Per Lawrence J)
• What is the purpose of the rule and is it fair?
• Is this the end of the story? …… no!
Combining the strengths of UMIST and
The Victoria University of Manchester
 Avoiding the Parol Evidence Rule(1)

• It applies ONLY to express terms and does not operate to prevent

the implication of terms (many of the cases we’ve looked at so far
involve the courts implying terms into contracts)
• Where the contract is partly written and partly oral, the parol
evidence rule doesn’t apply i.e. the written contract is incomplete
and wasn’t intended to reflect the agreement between the parties
(see e.g. Couchman v Hill)
so …. it is possible to introduce extrinsic evidence of oral terms in
order to determine whether the contract is a wholly written contract
to which the rule applies
J Evans and Sons Ltd v Andrea Merzario Ltd [1976]
“The parol evidence rule only operates where the whole
agreement was recorded in writing. And there is only a
presumption that a written contract contains the whole agreement.
So if one can rebut this presumption, the parol evidence rule has
no purchase.”
Combining the strengths of UMIST and
The Victoria University of Manchester
 Avoiding the Parol Evidence Rule (2)

• The use of collateral contracts is another way of avoiding the

parol evidence rule:
Heilbut, Symons and Co. v Buckleton [1913]
“It is evident, both on principle and on authority, that there may
be a contract the consideration for which is the making of some
other contract, ‘If you will make such and such a contract, I will
give you one hundred pounds’, is in every sense of the word a
complete legal contract. It is collateral to the main contract, but
each has an independent existence ...”
City and Westminster Properties v Mudd [1959]
• Even IF a term is an express terms of the contract, it will not
automatically be recognised by the courts, especially if it is very
unusual and very onerous
Interfoto v Stilletto [1989]
Combining the strengths of UMIST and
The Victoria University of Manchester
 Interpreting the Terms of the Contract
• how do the courts interpret the terms of a contract? – by finding
the intention of the parties (determined objectively i.e. what
would a reasonable person have understood the parties to
mean?)
• New contextualism v old fashioned literalism
traditionally, in determining the intention of the parties, the courts
limited themselves to the contractual document and construed it
according to the ordinary grammatical meaning of the words
used
BUT in 1998 Lord Hoffman reformulated the principles of
interpretation to provide for a more contextual approach
Investors Compensation Scheme Ltd v West Bromwich Building
Society [1998] – courts should adopt a more commercially
sensible construction
Combining the strengths of UMIST and
The Victoria University of Manchester
 Terms Implied by Custom and in Fact
• Terms can be implied by the courts in various ways:
1) Terms implied by custom – on the basis of trade usage:
Hutton v Warren (1836)
2) Terms implied in fact – purpose of implying terms is to represent the true
intention of the parties:
two tests traditionally applied: for ‘business efficacy’ – The Moorcock (1889)
as applied in Alpha Trading v Dunnshaw-Patten Ltd [1981]
the ‘officious bystander’ test – Shirlaw v Southern Foundries Ltd [1939]
“… if while the parties were making their bargain, an officious bystander were
to suggest some express provision for it in the agreement, they would testily
suppress him with a common ‘Oh, of course’”
BUT change of emphasis to the implication of terms in fact as evidenced by
Lord Hoffman in Attorney-General of Belize v Belize Telecom Ltd [2009] -
the process of implying a term in fact is one of construction of the content of
the contract – what would the contract be understood to mean by a
reasonable person with knowledge of the relevant commercial background

Combining the strengths of UMIST and

The Victoria University of Manchester
 Terms Implied in Law
• Discussed in the leading case of Liverpool City Council v Irwin [1976]
terms will be implied in law where:
a) the agreement is incomplete
b) the agreement is of a type that is sufficiently common (El Awadi v
BCCI [1989])
c) the term implied is one which is necessary (or reasonable?) – is there
a difference between necessary and reasonable?
“The difference in opinion between [Lord Denning (in the Court of
Appeal) and the House of Lords]... seems to have been somewhat
unreal. For it is evident that the formula that implications can only be
made when necessary is not to be taken too literally. It is not necessary
to have lifts in blocks of flats ... though ... inconvenient not to have them.
So ‘necessary’ really seems to mean ‘reasonably necessary’ and that
must mean, ‘reasonably necessary according to the context and the
price’. So in the end there does not seem to be much difference
between what is necessary and what is reasonable.” (An Introduction to
the Law of Contract, (4th ed., 1989) at p. 221).
Combining the strengths of UMIST and
The Victoria University of Manchester
 Terms Implied by Statute

• Over the years, terms which have been formally

implied by the courts have very often been given
statutory authority
e.g. Sale of Goods Act 1979 section 14 implies a
term into a sales contract that the item bought will
be of merchantable (satisfactory) quality
Supply of Goods and Services Act 1982 section 13
implies a term that those supplying services will take
reasonable care in performing them

Combining the strengths of UMIST and

The Victoria University of Manchester
 Classification of Terms: Conditions and Warranties
• Traditionally, there were two basic types of contractual terms:
conditions and warranties
• Why is the distinction important? Because it determines the remedy
that is available if there has been a breach of that term
• Conditions are major terms of a contract – they go to the root of the
contract
=> if a condition is broken, the innocent party can sue for
damages AND terminate (repudiate) the contract
• Warranties are also terms of a contract “the breach of which may give
rise to a claim for damages but not to a right to reject the goods and
treat the contract as repudiated”

[statutory implied terms will be either conditions or warranties (as

determined in the statute) e.g. Sale of Goods Act 1979 section 12(1)
condition as to seller having title, and section 12(2) warranty as to goods
being free of encumbrances

Combining the strengths of UMIST and

The Victoria University of Manchester
 What if the parties themselves classify the term?

• “it is a condition of the contract that you pay on December 12th” – will the
courts follows this classification?
• Schuler AG v Wickman Ltd [1974] – where a term is described as a
condition, there is a presumption that (a ‘strong indication’ that) it will be
treated as such BUT this presumption can be rebutted (Lord Wilberforce
dissented arguing that it assumed that “contrary to the evidence, that both
parties … adopted a standard of easy-going tolerance rather than one of
aggressive, insistent punctuality and efficiency.”)
• Lombard North Central v Butterworth [1987] – clause stated that it was ‘of
the essence’ of the contract that the hirer should pay each instalment
promptly – wording was a synonym of ‘condition’ so owners entitled to
repudiate

Combining the strengths of UMIST and

The Victoria University of Manchester
 And after Conditions and Warranties …. Innominate
Terms
• Distinction between conditions and warranties can be over-
simplistic
=> creation of the innominate term in Hongkong Fir Shipping v
Kawasaki [1962] – clause stated that the ship should be “fitted in
every way for ordinary cargo service” – this clause was an
innominate term and not a condition because otherwise, even a
trifling breach would entitle the innocent party to repudiate – this
clause was too complicated for such simplistic treatment – what
is important is the impact of the events flowing from the
breach on the injured party’s bargain
in this case, the breach did not deprive the charterer of
substantially the whole benefit of the contract

Combining the strengths of UMIST and

The Victoria University of Manchester
 How do the courts decide whether breach of an
innominate term entitles the innocent party to
repudiate?

• Question to ask = does the breach deprive the innocent party of

substantially the whole of the benefit he expected to gain from the
contract?
The Hansa Nord [1976] - in this case, the breach did not go to
the root of the contract – the citrus pulp pellets could be used for
their original purpose, despite their being damaged when shipped
from Florida
• Just because terms are not classified in contracts as warranties
or conditions, it does not mean that they are innominate terms
Bunge v Tradax [1981]

Combining the strengths of UMIST and

The Victoria University of Manchester
 IF WE HAVE TIME, HERE IS A PROBLEM QUESTION ON WHAT WE’VE DONE SO
FAR …..

Andy, a haulier, contracts with Bill to carry a load of asparagus from Bill's farm in
Cambridgeshire to the Paris market once every week for ten weeks. The agreement
provides inter alia:
“The deadline to catch the market is 4 am Monday. It is a condition of the contract
that the lorry shall be at the farm ready to load by 5 pm every Sunday, and that the
vehicle shall at all times be in a good roadworthy condition.”
On the first Sunday, the lorry did not arrive at the farm until 5.05 pm because the
driver had lost his way. It was nevertheless loaded and duly despatched in time to
make it to the market. Later that same day, it suffered a mechanical breakdown which
caused it to miss the Channel ferry, but the driver managed to catch the next one, and
by dint of some `hard driving' he managed to reach the Paris market in time.
On the second Sunday, the lorry was punctual and managed to make the trip without
mishap. On the third Sunday, however, the lorry had another mechanical breakdown
on its way to the farm and arrived at 5.30 pm. The driver assured Bill that the trouble
had been dealt with and that he could still catch the ferry, but Bill sent him away and
telephoned Andy to tell him that the contract was cancelled.

Advise Andy as to the legal position.

Combining the strengths of UMIST and
The Victoria University of Manchester