Law of Contract

TERMS OF A CONTRACT
STRUCTURE OF THE PRESENTATION

• Introduction
• Pre-Contractual Statements and
Representations
• Types of Representations and their
Consequences
• Terms
• Express Terms
• Process of Incorporating Express Terms
STRUCTURE OF THE PRESENTATION
• Factors Relevant to Incorporating Terms
• Implied Terms
• Terms Implied by Custom
• Terms Implied by the Statute
• Terms Implied by the Court
INTRODUCTION
• A contract is made up of many clauses or provisions.
• However, the most important clauses in a contract are the
terms of the contract, which are the obligations owed by
the parties to each other under the contract.
• The terms of a contract, therefore sets out the parties’
respective rights and duties under the contract.
• If a party fails to act as required by the contract that party
is in breach of contract and may be sued as a result.
• Though the parties to a contract usually state the terms of
a contract expressly, that is, in writing or orally or both,
terms may also be implied in the contract by the courts,
statute or custom.
INTRODUCTION
• The terms of the contract, whether express or
implied have varying degrees of importance and
as such the breach of an important or major term
of the contract namely, a condition will attract
wider and serious remedies as compared to the
breach an unimportant or minor term, namely, a
warranty.
• Finally, terms in a contract may not only confer
rights on one or both of the parties, but may also
restrict or exclude a party’s rights.
INTRODUCTION
• Before examining the terms of a contract in
detail we must first distinguish between terms
and representation.
• A term is part of the contract, a
representation, which is a statement of fact
made by one party, which induces the other
party to enter into the contract, is not part of
the contract.
Pre-Contract Statements and Representations
• The statements made by the parties in the pre-

contractual stage are known as ‘representations’.
• Any statement made at the time of contracting or
before the contract is formed is referred to as a
‘representation’.
• The representation may be as to current facts or
as to the intention of the parties. At this stage it
is merely a statement that may or may not be
relied upon once the contract is complete.
• The law then makes a distinction between terms and

representations.
• Any statement made by either party to the contract
which may or may not have been intended to induce
the other party to enter the contract but was not
intended to form part of the contract is a
representation.
• It may have certain legal consequences if certain
circumstances are satisfied but it never forms part of
the contract.
• Even if the statement is false, it cannot amount to a
breach of the contract itself.
• An express term of a contract is any statement

by which the parties to the contract do intend to
be bound and so does also form part of the
contract and can be relied upon by the parties.
• If these terms are not complied with there will be
a breach of the contract, but the remedy
available will depend on the precise classification
of the term , e.g. a condition, or warranty.
Types of Representation and their
consequences
• There are a number of statements made at
the time the contract was formed or in the
negotiations leading up to the formation that
will not attach liability and have no legal
significance.
• This is because the courts cannot find reliance
placed upon such statements by the parties,
and no sensible person would believe that
they would induce a party to enter a contract.
Types of Representation and their
consequences
• These types of representation can be divided
into three distinct groups namely:
(i) Trade Puffs
(ii) Mere Opinions
(iii) Mere Representations
(i) Trade Puffs
• Puffs are mere boasts or unsubstantiated claims,
commonly made by, amongst others, advertisers of
products or services.
• Puffs are often nothing more than a catchy gimmick
designed or used to highlight the product that is being sold,
e.g. mosi ‘as might as the mosi-oa-tunya’.
• Puffs are an exaggerated claim made to boost the
saleability of the product, and hence not intended to be
taken seriously.
• The law allows the puffs and thus the legal maxim simplex
commendatio non obligat – meaning no obligations are
created because no reliance can be placed upon them.
(i) Trade Puffs
• In Carlill v. Carbolic Smoke Ball Co Ltd [1893] 1 QB 256: Mrs
Carlill claimed on the promise that the company would pay
100 pounds if the medicine failed to prevent a variety of
cold-related illness.
• The Smoke Ball Company argued in its defence that the
claim in the advertisement that the product would do as it
suggested was a mere advertising gimmick, designed to sell
more of the product.
• Its argument failed because of the promise it made to give
100 pounds to anybody contracting one of the prescribed
illness after using the smoke ball correctly. The fact that it
had stated in its advertisement that a sum of money was
deposited in a bank to cover such claims was even greater
proof of its intention to be bound by its promise.
(ii) Mere Opinions
• Some statements such as a mere opinion made by a party to a
contract attach little legal significance because they lack any weight
and the other party ought not to rely on them.
• An opinion does not carry any liability for the party making it
because it is not based on fact.
• In Bisset v. Wilkinson [1927] AC 177: A vendor was selling two
blocks of land in New Zealand. The purchaser was intending to use
the land for sheep farming, though it had not previously been used
for that purpose.
• The vendor, in response to a request by the purchaser, made a
rough estimation that in his judgment the land could support 2,000
sheep. In fact, it could support nowhere near that number and did
indeed prove impractical as a sheep farm.
• The purchaser sued and argued that the statement was an
actionable misrepresentation.
(ii) Mere Opinions
• The Court held that because of the inexperience
on which it was based , it was nothing more
than an honest opinion, and was not actionable
because no reliance could be placed on it.
• The outcome would be completely different if the
statement of opinion were known to be untrue
by the party expressing it. In this case the
statement might well be actionable as a
misrepresentation.
(ii) Mere Opinions
• In contrast to a mere opinion, a party will be able to sue on the
basis of false opinion which has been stated by a party with
specialist expertise in that field, and therefore who is in a superior
bargaining position to the party to whom it is addressed.
• In Esso Petroleum Co Ltd v. Marden [1976] QB 801: Esso acquired a
site on which it proposed to build a petrol station.
• On the basis of professional estimates it represented to Marden, a
person intending to take on the franchise, that the filling station
would have a throughput of 200,000 gallons per year.
• Marden queried the throughput figure but Esso assured him it
would be possible. Despite Marden’s best efforts, sales only ever
reached 78,000 gallons, he lost money and was unable to pay back
a loan from Esso.
(ii) Mere Opinions
• Esso eventually sued for repossession of the
site and Marden counter-claimed. One of
Esso’s arguments in defence was that the
statement as to the likely throughput of petrol
was a mere opinion.
• This argument failed to convince the court
because of its extensive expertise in the area.
Marden was able to rely on the estimate as
though it were a factual statement.
(iii) Mere Representations
• Where a party to a contract has made a representation as to fact,
which is intended to induce the other party to enter the contract,
but which is not intended to form part of the contract, and it is in
fact true, there can be no further contractual significance. This is
known as a ‘mere representation’.
• On the other hand, where a representation has been made so as
to induce a party to enter a contract and they have done so, if the
representation has been falsely made then there may well be
further legal consequences.
• In this case the representation may amount to a misrepresentation
which can be actionable and lead to a variety of remedies.
• This will be the case even though the representation has never
actually become incorporated as a term of the contract.
TERMS
• A term is an expression of willingness by both parties
to be bound by the obligation contained in the
contract and if a term is breached, or not complied
with, it will give the other party the right to sue.
• The distinction between a term and a representation is
important because the remedies available where
there is a breach are different.
• If a statement is held to be a term of a contract, a
failure to comply with it will be a breach of contract
entitling the innocent party to a remedy for breach of
contract.
TERMS
• If however, the statement is held to be a
mere representation, the innocent party
cannot claim that there has been a breach of
contract because the statement was not a
term of the contract.
• The innocent party’s remedy if any is to seek
to have the contract set aside or claim
damages for misrepresentation.
TERMS
• The basic test for determining whether a statement made
by a party to a contract is a term or mere representation
depends on the intention.
• In considering the intention the courts have adopted the
objective test . In Oscar Chess Ltd v Williams [1957] 1WLR
370, Lord Denning stated at p.375:
• “It is sometimes supposed that the tribunal must look into
the minds of the parties to see what they themselves
intended, that is a mistake… the question of whether a
warranty was intended depends on the conduct of the
parties, on their words and behaviour rather than on their
thoughts. If an intelligent bystander would reasonably infer
that a warranty was intended that would suffice.”
EXPRESS TERMS
• Express terms are terms that are agreed upon by the
parties at the time the contract is formed.
• Since contracts can be formed in writing or orally or
even by the conduct of the parties, then the terms may
arise in many ways, such as individual expression of
the agreement between the parties, through standard
method of contracting as in ‘standard forms’, or simple
oral promise.
• What they all have in common is that parties
themselves have agreed on them and they are subject
to some form of legal action if they are breached.
THE PROCESS OF INCORPORATING
EXPRESS TERMS
• Where a contract is in writing the process of
distinguishing between terms and representations is
much easier.
• The terms are stated in the written contract.
• Where, however, negotiations leading up to the
contract are oral, the courts have developed
guidelines to determine whether or not a particular
statement is incorporated as a term.
• In general, the courts adopt an objective test or
analysis, basing their decision on what a reasonable
man would consider in the mind of the parties at the
time they formed the contract.
FACTORS RELEVANT TO INCORPORATING
TERMS
• Whether or not a statement is incorporated as a term can depend
on a number of factors.
• These factors have been developed by the judges in the case law in
an attempt to produce a consistent approach.
• These factors are:

(i) Importance of the Statement
(ii) Verification
(iii) Special Knowledge or Skill of the maker of the Statement
(iv) Time between making the statement and formation of the
Contract
(v) Reducing the Agreement, including the statement, to writing
• A statement is likely to be a term of the contract
where it is of such importance to the person to
whom it is made that, if it had not been made
he would not have entered into the contract.
• In short the more importance is attached to the
statement by either party then the more likely it
is that it is a term of a contract.
• Failure to treat the statement as such would be
to ignore the intention of that party.
• In Birch v. Paramount Estates (Liverpool) Ltd
(1956) 16 EG 396: A newly-wed couple bought a
house from developers. They agreed to buy on
the basis of a promise made to them that the
house would be ‘as good as the show house’. In
fact, the house was not as the show house.
• The court held that the statement was so
central to the agreement that it had been
incorporated into the contract as a term. The
couple would have been unlikely to contract but
for the statement upon which they relied.
• Similarly, in Couchman v. Hill [1947] KB 554: the plaintiff bought the
defendant’s heifer (a young female cow, usually one that has not
yet had a calf) at an auction, but no warranty was given as to its
condition. Before the sale, or prior to the making of the contract
the plaintiff asked the both the auctioneer and defendant to
confirm that the heifer was unserved (meaning not yet having been
used for breeding), and they both assured him that it was. Relying
on these assurances, he bought the heifer. However, approximately
seven weeks after the purchase, he discovered that the heifer was
having a calf, and suffered a miscarriage and died. The plaintiff
brought an action for breach of contract.
• It was held that the statement that the heifer was not in calf was
held to be a term of the contract because of the importance
attached to the statement.
• Where one party has requested specific details about the
agreement then this can also be taken to indicate that
importance is attached to the answer. Because of this, the
courts will be willing to hold that they are incorporated
into the contract terms.
• In Bannerman v. White [1861] 10 CBNS 844: Brewers were
refusing to use hops contaminated with sulfur. Bannerman
offered hops to White, and White asked if any sulfur had
been used in the growth or treatment of hops. Bannerman
said “No” and White said that he would not even ask the
price if sulfur had been used. A contract was made for the
sale of hops. But later it was found that sulfur had in fact
been used in growing a small portion of hops.
• It was held that it was a term of the contract
that sulfur had not been used in growing of
hops.
• It had been clear to both parties that the
question of the use of sulfur was very important
to White and that he would not have contracted
without the assurance that no sulfur had been
used on Bannerman’s hops.
• White was therefore, entitled to terminate the
contract for breach.
(ii) Verification
• A statement is not likely to be a term of the
contract if the maker of the statement asks the
other party not to rely on it without verifying its
truth.
• In Ecay v Godfrey [1947] 80 Lloyds LR 286, a seller
of a boat stated that the boat was sound but
advised the buyer to have it surveyed.
• The seller’s statement was held not to be a term
of the contract but a mere representation.
(ii) Verification
• However, in Schawel v Reade [1913] 2 IR 64: The plaintiff wished to
purchase a horse for stud purposes and went to the defendant’s
stables where he began examining a horse. While the plaintiff was
inspecting a horse “Mallowman”, the defendant said “You need not
look for anything; the horse is perfectly sound. If there was
anything the matter with the horse, I would tell you.” The plaintiff
ceased his inspection and three weeks later he bought
“Mallowman”. The horse was found to be totally unfit for stud
purposes because hereditary eye disease. The question in the case
was whether the defendant’s statement amounts to a term or a
representation.
• The House of Lords held that the defendant’s statement was a
term of the contract, and as such the defendant was in breach of
the contract.
(ii) Verification
• This case should, however, be contrasted with
the case of Hopkins v Tangueray [1854] 15 CB
130; the plaintiff purchased the defendant’s
horse at auction. The previous day the defendant
had found the plaintiff examining the horse’s legs
and had said, “You need not examine his legs:
you have nothing to look for. I assure you that he
is perfectly sound in every respect.”
• The Court held that the defendant’s statement
was not a term of the contract only a
representation.
(iii) Special Knowledge or Skill of the
maker of the Statement
• If the maker of a statement has some special
knowledge or skill compared to the other party,
the statement may be held to be a contractual
term.
• If on the other hand, the parties’ degrees of
knowledge are equal or if the person to whom it
is made has the greater knowledge, the
statement may be held to be a mere
representation.
• These propositions are illustrated by the two
cases discussed below.
• In Oscar Chess Ltd v Williams [1957] 1WLR 370: In June 1955 the
defendant sold a second hand Morris car to the plaintiffs, car
dealers, for £290. The registration book which was examined by the
plaintiffs’ representative showed that the car was first registered in
1948, and the defendant honestly believed that it was a 1948
model. The purchase price was calculated on this basis. In January
1956, the plaintiffs discovered from the manufacturers that the car
was a 1939 model, so the price was £175, and claimed for breach of
warranty.
• It was held that the defendant was not liable to the plaintiffs in
damages for breach of the term of the contract because, as the
plaintiffs knew, the defendant had no personal knowledge of the
date of the manufacture of the car and the plaintiffs were in at
least as good a position to know this. The defendant had made an
innocent misrepresentation, that is, non fraudulent.
• However, in Dick Bentley Productions Ltd v Harold Smith
(Motors) Ltd [1965] 1 WLR 623: where the maker of the
statement was in the better position to establish its truth,
the statement was found to be a term of the contract. The
facts of the case were:
• The plaintiff, Dick Bentley, asked the defendants, Harold
Smith Ltd, who were car dealers, to find him “a well
vented” Bentley car. A car was found. The defendants
informed the plaintiff that they were in a position to find
out the history of cars and this car had been fitted with a
replacement engine and gear box and had done only
20,000 miles since then when in fact the car had done
100,000 miles. The defendants relied on the odometer
reading and had not checked the details.
• The plaintiff bought the car and discovered
that this representation as to the mileage was
untrue. The plaintiff sued the defendants
seeking damages for breach of contract.
• It was held that the defendants’ statement as
to the car mileage was a term of the
contract; and the defendants, being car
dealers, were in a better position than the
plaintiff to know their statement was true.
(iv) Time between Making the statement and
formation of the Contract
• Sometimes the court may assess the time lapse
between the statement made in the negotiations
and the creation of the contract itself, particularly
if there is a major difference between the two.
• Courts will generally hold that the longer the time
between the two, the less possible it is to support
any claim that the statement was in fact
incorporated into the contract as a term.
• This is then particularly so where the substance of
the statement is not repeated in the contract.
(iv) Time between Making the statement and
formation of the Contract
• In Routledge v. Mckay [1954] 1 WLR 615: A motor cycle had
actually first been registered in 1939. However, on a new
registration book being issued this was wrongly stated as
1941. In 1949 the current owner, who was unaware of this
inaccuracy, was selling the motor cycle and in response to a
prospective buyer’s inquiry as to the age gave the age in
the registration documents. The prospective buyer then
bought the motor cycle a week later, in a written contract
that made no mention of the age. When he discovered the
true age and tried to sue for breach of a term, he failed.
• The court held that the lapse of time was too wide to
create a binding relationship based on the statement. The
statement was not incorporated.
(v) Reducing the agreement, including the
statement to writing
• Written evidence is more powerful and more
immediately convincing than the spoken word.
• Consequently, where a contract is made in a written
document and a statement made orally between the
parties is not then included in the written document,
the court will generally infer that it was not intended to
form part of the contract but is a mere representation.
• In Routledge v. Mckay [1954] 1 WLR 615: Since the
written agreement made no mention of the age of the
motor cycle, the court held that it had not been
considered important enough to be a term.
THE PAROLE EVIDENCE RULE
• Once contracting parties have elected to
enshrine their contract in a written document,
the courts have held that as a general rule, the
parties cannot adduce extrinsic evidence to add
to, vary or contradict the written document.
• The document is the sole repository of the
terms of the contract.
• This rule is called the ‘Parol Evidence Rule’
• The rationale behind the rule is the promotion
of certainty in that once parties have gone to
the trouble of drawing up a written document,
one party should not be able to allege with
impunity that there were in fact other terms
which were for some reason not incorporated
into the final written document.
• In Henderson v Arthur (1907),the plaintiff and
the defendant were parties to a lease which
contained a covenant for the payment of rent
quarterly in advance, although before the
lease was drawn, the parties had agreed that
the rent could in fact be paid in arrears. When
the tenant was sued for not making the
payments in advance, he pointed out this
prior oral agreement but the court of appeal
• Held that the terms of a proir oral agreement
could not be substituted for the terms of a
later formal contract concerning the same
transaction. The written document effectively
destroyed the previous oral agreement about
the rent.
• There are a number of exceptions to the parol
evidence rule.
1. RECTIFICATION
• Where a document is intended to record a
previous oral agreement but fails to do that
accurately, evidence of the oral agreement
will be admitted.
2. PARTIALLY WRITTEN AGREEMENTS
• Where there is a written document but the
parties clearly intended it to be qualified by
other written or oral statements, the parol
evidence rule is again displaced.
• In Couchman v Hill (1947), the defendant’s
heifer was up for auction and before making
the bid, the plaintiff asked both the auctioneer
and the defendant to confirm that the heifer
was ‘unserved’ which they both did and on
this understanding the plaintiff successfully
bid for the cow. The animal was later
discovered to be in calf and because it was too
young to bear a calf, it eventually died.
• The court of Appeal found that the plaintiff
could recover damages for breach of contract
because the documents (the catalogue and
the usual conditions) were only part of the
contract and the oral statements could be
placed alongside them so that all together
they formed one binding transaction.
3. IMPLIED TERMS
•The parole evidence rule only applies where a
party seeks to use extrinsic evidence to alter the
express terms of the contract.
•Where a contract is of a type that is usually
subject to terms implied by law, evidence may be
given to support or to rebut the usual implication.
4. OPERATION OF THE CONTRACT
•The rule does not apply to extrinsic evidence
which shows that the written contract was
• Intended to come into operation or to cease
to operate in the event of a particular
circumstance.
• In Pym v Campbell (1856),the parties drew up
a written agreement concerning the sale of a
share in an invention. Evidence was admitted
that one party had stipulated orally that the
agreement should not become operative until
an independent expert had approved the
invention.
4. EVIDENCE ABOUT THE PARTIES
•Extrinsic evidence can be used to show the
capacities in which the parties were acting when
they made their contract. For example were a
person has apparently contracted as a principal,
parole evidence is admissible in order to prove
that he or she really acted as agent for someone
else.
5. PROVING CUSTOM
•Where it is suggested that a term should be
read in light of local or trade custom, evidence
of that custom is admissible to add to or explain
a written agreement, though not to contradict
it.
•In Smith v Wilson (1832), evidence was
admitted to the effect that under local custom,
1000 rabbits meant 1,200 rabbits.
6. PROVING COLLATERAL CONTRACTS
•In City and Westminister Properties (1934) Ltd
v Mudd (1959), a lease was entered into by the
parties containing a covenant which stated that
the tenant could use the premises for business
purposes only. The tenant had been induced to
sign the lease by an oral assurance given by the
lessors’ agent that the lessors would not raise
any objection to the tenant residing in the
premises. In an action for forfeiture on grounds
of using the premise
• For residential purposes, it was held that
evidence of the assurance given by the
lessors’ agent was admissible to prove the
existence of a collateral contract, despite the
fact that it contradicted the express terms of
the lease.
IMPLIED TERMS
• Generally, the parties to a contract will be
deemed to have included as express terms of
the contract all of the various obligations by
which they intend to be bound.
• There are, however, occasions when terms
will implied into a contract, even though they
do not appear in a written agreement or in the
oral negotiations that have taken place
leading up to the contract.
IMPLIED TERMS
• Implied terms are terms which, though not
expressly stated, by the parties by words or
conduct, are implied to give effect to the
presumed intention of the parties.
• The three ways through which terms may be
implied into the contract are by:
(i) Custom
(ii) Statute or
(iii) Courts.
(i) TERMS IMPLIED BY CUSTOM
• By custom we mean an established practice or usage in a trade,
profession, locality, type of transaction, or between parties. It is a
well settled principle of law that a contract may be subject to the
terms that are sanctioned by custom though they have not been
expressly stated or mentioned by the parties.
• In Hutton v Warren [1836] 1M & W: In this case a long standing
local custom was to the effect that on termination of an agricultural
lease the tenant of a farm would be entitled to an allowance for
seed and labour on the land. This was an important custom at a
time when the majority of the population was engaged in
subsistence agriculture.
• It was held that the tenant was entitled to an allowance for the
seeds and labour on leaving. There was no express term to that
effect, but he was so entitled on the basis of a local custom.
• Baron Parke, in explaining the rationale of implying terms
in the contract on the basis of custom had the following to
say (at p.475):
• “It has long been settled that, in commercial transactions,
extrinsic evidence of custom and usage is admissible to
annex incidents to written contracts in matters with respect
to which they are silent. The same rule has also been
applied to contracts in other transactions of life, in which
known usages have been established and prevailed; and
this has been done upon the principle of presumption that,
in such transactions the parties did not mean to express in
writing the whole of the contract by which they intended to
be bound but to contract with reference to those known
usages.”
• Similarly, in British Crane Hire Corporation v Ipswich Plant Hire Ltd
[1975] Q.B 303: Both the plaintiffs and defendants were in the
business of hiring out heavy earth moving equipment. The
defendants hired a crane by telephone from the plaintiffs. After
delivery, the plaintiffs sent the defendants a printed form setting
out the conditions of hire, which were similar to those used by all
plant hiring firms and which stated that the defendants would be
liable for all expenses arising out of the use of the crane. Before this
form was signed by the defendants, the crane sank in marshy
ground. The plaintiffs sought to recover expenses incurred in
recovering the crane form marshy ground, and the defendants
claimed that the conditions had not been incorporated.
• It was held that the conditions of the hire were part of the
contract and the defendants knew that the conditions were in
common use in the business and they are always applied.
• Where an express term of the contract contradicts or
conflicts with a custom, then an express term will prevail.
• In London Export Corporation Ltd v Jubilee Coffee Roasting
Company [1958] 1 WLR 661:
• Lord Jenkins at p.675 stated:
• “An alleged custom can be imported or incorporated into

a contract only if there is nothing in the express or
necessarily implied terms of the contract to prevent such
inclusion and further that a custom will only be imported
into a contract where it can be so imported consistently
with the tenor of the document as a whole.”
• Afffreteurs Reunis Societe Anonyme v Walford [1919]
AC 801: A charter party provided that commission was
to be paid to the Charterers Brokers on the signing of
the Charter whereas by custom commission was
payable only when the hire had actually been earned.
• It was held that the commission was payable on the
signing of the charter as custom was entirely
inconsistent with the plain words of the agreement
and thus, in the circumstances of the case of no
effect. The Charterers would enforce this provision
against the ship owners.
• It is not easy to establish the existence of a particular custom or
usage.
• The custom or usage must, in the words of Ungoed Thomas J. at
p.1438 in Cunliffe-Owen v Teather & Greenwood [1967] 1WLR 1421,
be:
• “Certain, in the sense that the practice is clearly established; it
must be notorious, in the sense that it is so well known in the
market in which it is alleged to exist, that those who conduct
business in the market contract with the usage as an implied term;
and it must be reasonable.”
• In summary, the custom must be generally known, clear and
reasonable, and must not conflict with common or statute law.
(ii) TERMS IMPLIED BY THE STATUTE
• Terms implied by statute are those terms that are
implied into contracts based on the rule of law or
public policy, and not on the intention of the parties.
• The purpose of terms implied by statute is to provide
some form of protection to the weaker party from
the exploitation by the stronger party.
• Often the weaker, such as the purchasers, particularly
consumers, may not have the same bargaining powers
as the sellers.
• Examples of contracts to which terms are implied
include the contracts for sale of goods, landlord and
tenant, and master and servant.
(ii) TERMS IMPLIED BY THE STATUTE
• The Sale of Goods Act 1893 contains a number of implied terms which include the
following:
(i) The seller has the right to sell the goods, and the goods are free from charges or
encumbrances in favour of third parties (s.12);
(ii) In a sale by description, the goods shall correspond with the description
(s.13);
(iii) In a case of a seller who sales goods in the course of business, there is an
implied condition that the goods supplied under the contract are of
satisfactory quality (s.14);
(iv) Where the seller sells goods in the course of a business, and the buyer
makes known to the seller any particular purpose for which the goods are
bought, there is an implied condition that the goods supplied under the
contract are reasonably fit for that purpose (s.14 (3)).

(iii) TERMS IMPLIED BY THE COURTS
• Although it is not the duty of the courts to insert a
term into contracts, but rather interpret contracts,
courts at times do imply a term to give a contract
‘business efficacy.’
• The rationale for such court’s intervention is that since
the parties intended to create a binding contract,
they must have intended to include terms to make
the contract work.
• The courts will imply two types of terms into contracts
namely:
(a) terms implied in fact, and
(b) terms implied in law.
(a) Terms Implied in Fact
• The terms implied in fact, also known as tacit
terms, are those terms which are so obvious that
the parties must have intended them to be
included into the contract.
• In order to give ‘business efficacy’ to the contract,
the implied term must be both obvious and
necessary.
• Therefore, courts will not imply a term into a
contract merely because it is reasonable to do so.
• The test which is often used by the courts in implying a
term into a contract is the ‘officious bystander’ test,
whose origin lies from the statement of Lord Mack:
nnon L.J in Shirlaw v Southern Foundries Ltd [1939] 2
KB 206 at p.207:
• “Prima facie that which in any contract is left to be
implied and need not be express is something so
obvious that it goes without saying; so that 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’.”
• In BP Refinery (Western Port) PTY Ltd v Shire of Hastings
[1978] ALJR 20: Lord Simon laid down the requirements for
terms implied in fact as follows (at p.26):
• “For a term to be implied, the following conditions (which
may overlap) must be satisfied:
(i) It must be reasonable and equitable;
(ii) It must be necessary to give business efficacy to the
contract, so that no term will be implied if the contract is
effective without it;
(iii) It must be so obvious that ‘it goes without saying’;
(iv) It must be capable of close expression;
(v) It must not contradict any express term of the contract.”
• In the; Moorcock [1889] 14 PD 16: The defendant
owned a wharf on the Thames and made a contract
with the plaintiff ship owner for him to unload his
vessel at their wharf. Both parties knew that the vessel
was such that, while at the wharf, it must ground at
low tide. The vessel grounded and was damaged.
• It was held to be an implied term of the contract that
the defendant had taken due care to ascertain that
the bed of the river adjoining the wharf was not such
as to damage the vessel when it grounded.
• The defendants were in breach of the implied term
that the wharf was safe.
(b) Terms Implied in Law
• Terms implied in law cover many classes of contract, such
as contracts of employment and contracts between
landlord and tenant.
• In a tenancy agreement, for example the landlord impliedly
covenants that his tenant shall enjoy quiet possession, and
the tenant impliedly agrees not to commit waste.
• Similarly, in a contract of employment the employee
impliedly undertakes, for example, to faithfully serve his
employer and that he is reasonably skilled.
• The employer on the other hand, impliedly undertakes that
he will not require the employee to do unlawful act, and
that he will provide safe premises.
• In Liverpool City Council v Irwin [1977] AC 239:
the defendant let a flat in an upper floor of a
block of flats to the plaintiff tenant.
• A term was implied by the court into a tenancy
agreement between the plaintiff and the
defendant that the defendant had an obligation
to keep in repair the stairs and the lift in the
block of flats which they owned, thereby
insuring that the plaintiff could gain access to his
property.
• Similarly in Baylis v Barnett [1988] the plaintiff
lent the defendant a sum of money. The
defendant knew this involved the plaintiff in
borrowing the money from the bank.
• Although the parties did not discuss the
question of interest the court held there was
an implied term that the defendant would
indemnify the plaintiff for any interest he
owed to the bank.
CLASSIFICATION OF TERMS
• There is a very important distinction between
those terms of a contract which entitle an
innocent party to terminate (rescind, or treat as
discharged) a contract in the event of a breach,
and those which merely enable a person to claim
damages.
• Terms of a contract may be classified into three
categories namely:
(a) Conditions
(b) Warranties, and
(c) Innominate or Intermediate Terms
(a) CONDITIONS
• These are statements of fact or promises which form
the essential terms of the contract.
• A condition as a term of the contract is so important
that failure to perform or fulfill the condition would
render the contract meaningless and destroy the
whole purpose of the contract
• Consequently, anything that is accepted as being a
condition is said to ‘go to the root of’ a contract.
• Where a condition is unfulfilled or not satisfied, the
injured party enjoys various remedies namely sue for
damages or claim damages and terminate, repudiate
or treat as discharged the contract.
(a) CONDITIONS
• Repudiation or termination as a remedy is the
right of the injured party or victim of the breach
to consider the contract ended as a result of the
other party’s breach of the contract.
• This may be particularly important as it may
mean that the claimant can contract with an
alternative party and treat himself as relieved of
his obligations under the contract, without fear
of the defendant successfully alleging a breach by
the claimant instead.
(a) CONDITIONS
• In Poussard v. Spiers and Pond (1876) 1 QBD 410: An
actress was contracted to perform the lead role in an
operetta for a full season. The actress, who was taken
ill, was unable to attend for the early performance, by
which time the producers had given her role to the
understudy. The actress sued for breach of contract
but lost.
• It was held that she had in fact breached the contract
by turning up after the first night. As a lead singer,
her presence was crucial to the production and so
was a condition entitling the producers to repudiate
and terminate her contract for non-attendance at the
early performances.
(b) WARRANTIES
• Warranties are considered as minor terms of the
contract or those terms where the contract
might still continue despite their breach.
• A warrant is therefore any term of the contract
which does not go to the root of the contract.
• Warranties are a residual category of terms
dealing with obligations that are either ancillary
or secondary to the major purpose of the
contract.
(b) WARRANTIES
• Consequently, the remedy for a breach of
warranty is merely an action for damages.
• There is no right for the injured party to
repudiate for a breach of a warranty. If the
party who is the victim of the breach of a
warranty tries to repudiate his obligations
then this itself is an unlawful and actionable
repudiation.
(b) WARRANTIES
• In Bettini v. Gye [1876] 1 QBD 183: A singer was contracted
to appear at a variety of theatres for a season of concerts.
His contract included a term that he should attend
rehearsals for six days prior to the beginning of the actual
performances. In the event, he was absent for the first
three days of rehearsals and on his return his role had been
replaced. When the singer sued, the producers’ claim that
the obligation to attend rehearsals was a condition failed.
• It was held that the requirement was only ancillary to the
main purpose of the contract which was appearing in the
actual production. In consequence, the court held that the
breach only entitled the producers to sue for damages
and not to end the contract and replace the singer as they
had done.
INNOMINATE TERMS
• The origin of this development can be found in
the judgement of Hong Kong Fir Shipping Co
Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB
26, when he said, “There are many…
contractual undertakings…. Which cannot be
categorised as being conditions or warranties…
of such undertakings all that can be predicated
is that some breaches will and others will not
give rise to an event which will deprive the
party not in default”
• Of substantially the whole benefit which it
intended that he should obtain.”
• Innominate terms are terms which can be
broken with either important or trivial
consequences depending on the nature of the
breach.
• If the effects of breach are serious, the term
will act as a condition and if they are minor, it
acts as a warranty.
• The courts themselves are ready to find that a
term is innominate even if the parties
themselves describe it as a condition.
• In Schuler Ag v Wickman Machine Tool Sales
Ltd (1973), the parties made a contract in
which one party agreed to visit certain
manufacturers atleast once every week. The
written contract described this promise as a
condition of the agreement
• The house of Lords held that the use of the
word ‘condition’ was an indiction that the
parties intended that the innocent party
should be allowed to terminate if that term
was breached but it was only an indication. It
was important to discover the intention of the
parties by looking at the contract as a whole
and the relevant consideration could be
whether imposing strict legal meaning
• Of the condition created a very unreasonable
result. In that the more unreasonable the
result the less likely it is that the party
intended it. In this case their Lordships felt the
result would be unreasonable since the term
could be breached in very minor ways. Thus
the term was not held to be a condition.
• In Cehave NV v Bremer Handelsgesellschaft
mbH (The Hansa Nord) (1975), a dispute
arose over a contract to ship 12,000 tons of
citrus pellets in good condition. Some of the
cargo became damaged although apparently
not seriously. It was argued that a contract for
sale of goods was governed by the Sale of
Goods Act from which distinctions between
conditions and warranties are derived
• And such contracts could not contain
‘intermediate’ or innominate terms. The court
of appeal rejected this argument holding that
the clause was indeed an innominate term and
because the breach was not serious the buyers
were not entitled to repudiate the contract.
• One problem with innominate terms is their
potential for uncertainty in that not until
breach has occurred, may it be clear what kind
of term is involved.
THANK YOU

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TERMS OF A CONTRACT

STRUCTURE OF THE PRESENTATION

• The statements made by the parties in the pre-

• The law then makes a distinction between terms and

• An express term of a contract is any statement

• These factors are:

• “An alleged custom can be imported or incorporated into

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