02/11/2020

LAW OF CONTRACT
TERMS I

Jessica Twombley

Suggested Reading
• McKendrick , Contract Law – Part II The Content of a Contract
• Anson’s Law of Contract – Part 2 Chapter 5 The Terms of the Contract
• Treitel , The Law of Contract - Chapters 6 – 7
• Poole, Textbook on Contract Law – Part 2

• Read some of the content of one of the above to check your

understanding

Overview
• Defining Terms
• What is not a term
• The Parol Evidence Rule
• Express Terms
• Implied Terms
• Classifying terms

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Defining Terms
• Definition:
• “If a statement is a term of the contract, it creates a legal
obligation for whose breach an action lies at common law”
(Cheshire, Fifoot & Furmston)
• Express Terms
i. pre-contractual statements made during negotiations
ii. agreed terms written into the contract

• Implied Terms
i. Implied at common law by the courts
ii. Implied by statute

What is not a term?

• Mere puff – Dimmock v Hallett (1866)/Carlill v Carbolic SmokeBall Company

• Leonard v Pepsico (2000) (US case)

• Mere representation –
Kleinwort Benson v Malyasia Mining Corporation

What is not a term?

Terms vs Mere Representations
• Timing of statement
• Bannerman / Routledge v Mackay / Schawel v Reade

• Whether followed up by written reduction

• Routledge v Mackay / Birch v Paramount Estates

• Special knowledge or skill

• Oscar Chess v Williams /
Dick Bentley Productions v Harold Smith / Esso v
Marden Petroleum

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Parol Evidence Rule

• Where the contract is written:-

• Anything outside of the ‘four corners of the document’ will not be

admitted as evidence to change the document
Prenn v Simmonds

• Court first assumes that the written document is the whole contract.
Shogun Finance v Hudson [2003]
See also Chartbrook v Persimmon [2009]

Parol Evidence Rule

Enforcing the parol evidence rule - Entire Agreement Clauses

• Typically stating that the terms are to be found exclusively in the
written agreement and that there is no reliance on any pre-
contractual representation
• “Denudes what would otherwise constitute a collateral warranty of
legal effect” Lightman J, Inntrepreneur v East Crown (2000).
Confirmed in AXA v Campbell Martin (2011)
• Does not preclude misrepresentation claim
• Does not exclude implied terms

ExpressTerms

• Definition: Express terms are those derived from the written or

spoken words, actions and/or conduct forming the agreement
• Have the ‘Terms & Conditions’ been incorporated as express
terms?
• If the party has signed, normally will be – L’Estrange v Graucob
Ltd [1934]
• If not signed? (tickets, receipts etc.)
• Is it a contractual document? – Chapelton v Barry
• Notice - Parker v S.E.R’way
• Timing – Olley v Marlborough Court
• Course of dealing – McCutcheon v David McBrayne Ltd /
Hollier v Rambler Motors / British Crane Hire v Ipswich Plant
Hire

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Implied Terms
• Terms, unexpressed by the parties, which are later written into the
contract by the courts

• ‘Standard’ implied terms – those which will always be implied into

certain types of contract, either through statute or common law

• ‘Specific’ implied terms – those which are implied at common law

on a bespoke, one-off basis

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Implied Terms
Standard Implied terms include:
1. Statutory implied terms from:

• Sale of Goods Act 1979 (as amended) Business to Business

Contracts only
• Supply of Goods & Services Act 1982

Business to Consumer
• Consumer Rights Act 2015 – Contracts only

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Implied Terms
1. Standard implied terms : statutory
Sale of Goods Act 1979
• s14 Quality or fitness for purpose (most important term)

• s12 Title - nemo dat qui non habet Rowland v Divall

The seller must own the goods they are selling
• s13 Description Beale v Taylor
The goods must correspond with their description
• s15 Sample Godley v Perry
The goods must correspond with the sample shown
• Breach of SGA ‘79 implied terms = strict liability (no fault liability)

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Implied Terms

1. Standard implied terms : statutory

Supply of Goods & Services Act 1982

• s13 – with reasonable care and skill (most important term)
Breach of s 13 SGA ’82 = negligence (fault based liability)

• s14 – contract must be completed in reasonable time

• S15 – customer must pay reasonable consideration

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Implied Terms
1. Standard implied terms : statutory

Consumer Rights Act 2015 (not examinable)

 A "consumer“ is an individual who is not acting
for business purposes.

The Act consolidates and amends various existing laws e.g.

 the Sale of Goods Act 1979 and
 the Supply of Goods and Services Act 1982
 the Unfair Contract Terms Act 1977
And replaces others
• UTCC Regs 1999 14

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Implied Terms
Specific ‘one-off’’ terms implied into Contract by court:

1. Common law terms implied by fact

• Business Efficacy – The Moorcock (1889)
• Officious Bystander Test
Or implied by law
• Liverpool City Council v Irwin [1977]
• Necessary, not merely reasonable
• Reluctance to imply specific terms

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Classifying Terms

‘Breach of Contract’ means breach of a term of contract

• Generally the remedies for breach of a term of a contract depend on
the classification of the term breached

3 classifications of terms

• Conditions – most important

• Warranties – less important
• Innominate term – neither condition nor warranty

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Why is classification so important? Remedies

• Conditions – breach of condition gives injured party right of election:
Either:
Repudiate contract and sue for damages – usually expectation loss
Or:
Affirm contract and sue for full contract price plus damages arising from breach
• Warranties – breach of a warranty only gives injured party right to sue for
damages arising from the breach
• Innominate term – neither condition nor warranty until the breach has occurred
at which point the court will decide
Aerial Advertising v Batchelor’s Peas
Hong Kong Fir v Kawasaki Kisen Kaishi

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Classifying Terms

How is the term classified as a condition or a warranty?

• Classification by statute – e.g. SGA ss12-15 (NB - SGA 1994 amendments)

• Classification by the courts:
• Arcos v Ronnaasen (1933)
• Classification by the parties?
• Schuler v Wickman (1974)
• Classification by effect – innominate terms
• Hong Kong Fir Shipping Co (1962)

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Learning Objectives
After this Lecture you should be able to:-
• Identify an express term and distinguish it from a representation
• Identify an implied term
• Explain the Parol Evidence Rule
• Distinguish between a Condition and a Warranty

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