Solicitors Qualifying Examination

Terms of a Contract | Contract Law – Study For SQE1 Exam –

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Terms of a Contract
Overall approach
1. Identify term = express or implied?
2. Consider breach of the term
3. Categorise – breach of condition, warranty or innominate term?
4. Exemption clause?
5. Conclude => effectiveness of exemption – damages? + right of election?
Identify the contract
• The contract is for the sale of goods / provision of services in a B2B
context, and is governed by Sale of Goods Act 1979 (SGA) / Supply of
Goods and Services Act 1982 (SGSA) and Unfair Contract Terms Act 1977
• The terms of a contract define the rights and obligations of the parties.
They may be express, implied in fact or implied in law.
• Identify the term in question + whether it is express or implied…
Express Terms
Statements made during negotiations – consider whether MERE PUFF:
1. Statements of fact or law – parties do not intend to be binding =
2. Statements of fact – intend to be binding = terms (conditions, warranties,
innominate terms) of contract
3. Mere advertising puffs – no legal significance (Dimmock v Hallett –
‘fertile and improvable’ land ≠ representation, as mere puff)
Potential oral terms alongside express written terms – the Parole Evidence
• Parole evidence rule = extrinsic evidence (oral or otherwise) which
adds, varies or contradicts terms of written contract cannot be adduced
(Jacobs v Batavia & General Plantations Trust)
o Does not apply to:
§ Part written / part oral contracts
§ Collateral contracts
§ Implied terms
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Exception 1: Part written/oral contracts
• Parole evidence rule applies if party is reasonably entitled to assume
that the writing contains all terms (J Evans & Son Ltd v Andrea Merzario
Ltd – Roskill + Geoffrey Lane LJJ (Denning MR dissenting to collateral
o Machines carried below deck in crates or trailers
o C agreed orally to packing in containers but below deck
o Machines carried above deck and lost
o = terms of contract were partly oral and partly written, as
importance of location of carriage + but for assurance that carried
below deck, C would not have agreed to change of packaging
Exception 2: Collateral Contracts
• Interpret two contracts (Heilbut Symons & Co v Buckleton):
o Written contract w/ parole evidence rule
o Oral collateral contract w/out parole evidence rule = consideration
of assurance FOR entering into main agreement
• Collateral contract may override conflicting terms in main written
agreement (City and Westminster Properties v Mudd)
o Mudd lives in back of shop
o New lease in which he covenants not to allow any lodging
o Mudd told by C’s agent that if he signed the lease, C would not
object to living in shop
o C seeks forfeiture of lease on basis of breach of covenant
• Collateral agreement may be between same parties as main contract, or
between one party + third party (Shanklin Pier v Detel Products) = A
contracts with B on basis of promise by C ~ A+C collateral contract
o Here, statements to Shanklin by Detel = enforceable warranties for
consideration of recommending their paint
Entire Agreement Clauses
• Clauses expressing that written document = entire agreement ~ allowed
(Inntrepreneur Pub Co v East Crown Ltd)
• However, case law suggests movement resisting these where an attempt
made to avoid liability for misrepresentations (Axa Sun Life Services plc v
Campbell Martin Ltd and others)
o Rix LJ: Exclusion of liability for misrepresentation must be clearly
§ “No representations have been made”
§ “No reliance on representations”
§ Exclusion of liability for misrepresentation
§ “Contract supersedes prior agreements” = insufficient
o + must pass test of reasonableness (s 3 Misrepresentation Act
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Representation or Term?
• If statement untrue:
o If term (warranty) = breach of contract and can claim
o If representation ≠ breach of contract; can claim for misrepresentation
(Misrepresentation Act 1967)
• Intention to be bound? – Objective test: ‘What would a reasonable man
understand to be the intention of the parties?’ (Smith v Hughes)
Factors for deciding if representation or term
• Importance of statement – term if so important that party would not
have entered the contract but for that statement (Bannerman v White)
o Questions about whether hops contained sulphur and assurances
that they did not = term of contract, as party not interested if they
• Timing
o At time of contracting = term
o Early stage of negotiations + delay between statement and signing
= not term (Routledge v McKay)
§ Year of model of motorbike erroneously given (in good
faith); one week delay before signing; memorandum of sale
does not mention year; delay ~ therefore, representation,
not a term
o Lord Evershed MR in Harling v Eddy suggests that a term (fitness
of horse) exists in Schawel v Reade as made on day of contract, but
in Hopkins v Tanqueray an assurance made the day before the
contract was a mere representation – uncertain (as other factors
inc. auctions including warranties in brochure in Hopkins), but
worth mentioning.
• Reduction into writing – contract reduced into writing + not including
oral statement = statement unimportant, so representation not term
(Routledge v McKay)
o BUT not necessarily decisive (Birch v Paramount Estates) – quality
of house stated orally, not included in written contract; but was
term of contract as D had special skill and knowledge
• Special knowledge or skill – statement made by party with exclusive
access to information or special knowledge (Birch v Paramount Estates)
o One Chess Ltd v Williams – C has expertise – claimant = car sales
company, who give part exchange value for D’s car; car is of wrong
date (given in good faith); One Chess as experts should have known
this, not Williams
o Dick Bentley Productions v Harold Smith (Motors) – D has
expertise – Claimant, Mr Bentley, looking for well-vetted Bentley
car; Smith says miles since new engine (incorrectly) = term as D a
car dealer who should have had better knowledge of miles than
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• Assumption of responsibility – if vendor expressly accepts
responsibility for soundness of sale item (Schawel v Reade)
o C requires stud horse; assured he need not examine horse as it is
fit for stud purpose; this proves erroneous; = term, as D took
responsibility for ensuring horse fit for stud purposes
• Hopkins v Tanqueray – similar facts (except sold at auction rather than
direct), but representation rather than term here, because:
o Timing (Lord Evershed, Harling v Eddy = same day vs. day before)
o Horses sold at auction are not warranted unless this is expressly
stated in the catalogue
• Ecay v Godfrey – D states that boat is sound, but advises buyer to survey it
= vendor does not accept responsibility for soundness of item
Onerous or unusual terms
• Onerous or unusual terms = party seeking to enforce must show it has
been fairly and reasonably brought to the attention of the other party
(Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd)
o (Parker v South Eastern Railway Co + Thornton v Shoe Land Parking
Ltd = unusual exception clauses, but Interfoto says these apply to
obligations as well as to exemption clauses)
o Interfoto send Stiletto transparencies at their request + delivery
note, including terms
o Package overlooked + returned a month later
o C claims £3783.50 for £5 per transparency from 19 March to 2
April, as per delivery note
o If not brought to the attention of D, unusual terms not part of
contract ~ instead, judge orders payment of reasonable charge
(£3.50 per transparency per week)
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Implied Terms
Unexpressed terms
• Presumption that parties have expressed (orally or in writing) every material term
• Implication only available following formation of contract (Scancarriers v Aotearoa
Terms implied in fact – giving effect to intentions of parties
• Where unambiguous express provision in contract, the court will not
imply a term to the contrary (Trollope Colls v North West Regional
Hospital Board)
Courts take notice of:
• Trade/Professional Customs (British Crane Hire v Ipswich Plant)
o Hiring crane; owner sought to rely on usual terms (based on model
by trade association), although not included; HELD: included by
common trade custom
• Course of dealing between parties (McCutcheon v MacBrayne) –
consistent + regular pattern to dealings
• ‘Business efficacity’ – inferred where without this, the arrangement
would be so unbusinesslike that sensible people would not have entered
into it (The Moorcock)
o Implied term obligating wharf owners to take reasonable care to
see that berth safe for ship to moor in contract for this purpose
• Shirlaw v Southern Foundries – limits inference of terms ~ infer only that
which is ‘so obvious that it goes without saying’ = ‘officious bystander
test’ (i.e. even a bystander would suggest this as a term, and both parties
would say ‘of course!’)
o AG of Belize v Belize Telecom – implying terms in fact = what would
a reasonable person (objectively) deem to be the intentions
o BUT Spring v Amalgamated Stevedores and Dockers Society –
applies only where both parties aware of term that is sought to be
implied (i.e. not where they fall below standard of bystander)
• Self-interest and cooperation – classical necessity test: in the absence of
express provisions, C will struggle to argue that terms be implied if they
act in reliance on the expected (but not express) cooperation of D (Suisse
Atlantique Société d’Armament Maritime v Rotterdamsche Kolen Centrale)
o Paid rate for staying in port rather than paying owners, who
expected payment = self-interested, but not BoC
• Now: greater contextualisation to consider whether certain cooperation is
to be reasonably expected
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Terms implied in common law
• Terms implied in common law to give effect to legal duties under common types of
contractual relationships (e.g. tenant – landlord)
• Liverpool City Council v Irwin – Lord Wilberforce:
o Obligations to be read into contract as the nature of the contract requires =
through necessity
o Lift, stairs and rubbish chutes essential (cannot live without), so in absence of
obligations on tenants, maintenance obligation (to standard of reasonable
repair and usability) on landlord implied
Terms implied by statute
The Sale of Goods Act 1979 (as amended by Sale and Supply of Goods Act
S 12 – ‘title’
• S 12 = ‘title’ = right to sell
o S12(1) = seller has the right to sell the goods = condition
o S12(2)(a) = goods free from any undisclosed encumbrance =
warranty (s12(5A))
o S12(2)(b) = the buyer will enjoy a right to quiet possession of the
goods = warranty (s12(5A))
• Rowland v Divall
o Buyer discovers car stolen before in possession of seller (car
o Car returned to owner
o Sues car dealer
o HELD: breach of implied condition under s12(1) SGA 1979 +
failure of consideration from car dealer = purchase price
S13 – correspondence with description
• S 13(1) = where sale of goods by description, goods will correspond
with description (applies to private and business sales) = condition
• Sale of goods by description?
o Grant v Australian Knitting Mills Ltd
§ Sale by description even if good displayed on counter if
sold as thing corresponding to a description, i.e. where
there is a description attached to product
o Reardon Smith Line Ltd v Hansen Tangen
§ Does particular item in description constitute a substantial
ingredient of the identity of the thing sold?
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• Beale v Taylor
o Advertisement for 1961 car (which was in fact amalgam of two
o HELD: advert part of contractual description of car and seller liable
under s13(1) SGA 1979
S 14(2) – satisfactory quality
• S14(2) = satisfactory quality = condition (s 14(6))
• Only applies to goods sold in course of a business
• S14(2A) – satisfactory if: meet the standard that a reasonable person
would regard as satisfactory, taking account of description, price and
• S14(2B) – checklist to take into account when assessing quality:
a) Fitness for common purpose
§ Priest v Last – hot water bottle burst = liable for medical
expenses incurred
§ Grant v Australian Kitting Mills – retailer liable in contract
for dermatitis of user of woolen underpants
b) Appearance
c) Freedom from minor defects
d) Safety
§ Can claim against:
• Seller under SGA here
• Producer / importer under CPA 1987
e) Durability
§ Reasonable condition for reasonable time
§ Damages confined to breach of warranty, due to
acceptance by buyer of item + difficulties with having
used something as to cause of fault (s 35(1) SGA 1979)
• S14(2C)(a) + (b) – exceptions to satisfactory quality
o Defects drawn to buyers attention OR buyer examines goods +
ought to have seen defects
o S14(2C)(c) – contract for sale by sample ~ buyer cannot claim for
defect discoverable on examination of sample
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S 14(3) – fitness for particular purpose
• S 14(3) = condition (s 14(6))
• Where buyer tells seller / credit broker about intended purpose, fitness
for this purpose is implied term, except where buyer does not rely or
unreasonable (given skill of seller/c.b.) to rely
o Balmoral Group Ltd v Borealis Ltd – Balmoral made purpose of
buying polymer (for making oil tanks) known, but it was not
reasonable for them to rely on Borealis knowing if polymer was fit
for this unusual purpose – this was for Balmoral to assess, so no
BoC under implied s14(3)
S 15(2) – Sale by sample
• S 15(2) = condition (s 15(3))
o Bulk correspond to sample in quality
o No defect making quality unsatisfactory not apparent on
reasonable examination
S 15A – modification of remedies for breach of condition
• Ss 13, 14(2), 14(3), 15 = breach of condition
… BUT if breach so slight that unreasonable for buyer (s 15A(1)(b))
(accounting for purpose of buyer) to reject goods + repudiate contract,
breach treated as breach of warranty (s 15A(1)) = only entitled to claim
damages (does not apply to s 12(1))
o NB BoP on the seller (s 15A(3))
Contracting out of implied SGA 1979 terms
• Restrict liability above under
o S 55 SGA 1979
o Unfair Contract Terms Act 1977
§ S6(1)(a) UCTA 1977 = ‘title’ (s 12) cannot be
§ S6(1A) UCTA 1977 = description, quality + fitness for
purpose / sample = excluded subject to requirement of
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The Supply of Goods and Services Act 1982 (as amended)
• Here we have innominate terms as the Act silent as to their status
Contracts for transfer of property in goods
• Transfer or agreement to transfer to another the property in goods other than:
o Contract of sale of goods
o Hire-purchase agreement
o Contract under which property in goods is or is to be transferred in exchange
for trading stamps
o A transfer by deed for only presumed consideration
o Contract intended to operate by way of security: s1.
• … In case of transfer of goods, terms implied as with sale of goods:
o Title (s2)
o Description (s3)
o Quality or fitness (s4)
o Transfer by sample (s5)
Contracts for the hire of goods
• Contract for hire of goods = one person bails goods by way of hire other than:
o Hire-purchase agreement
o Goods bailed in exchange for trading stamps: s6
• … In case of hire of goods, terms implied as with sale of goods:
o Right to transfer possession (s7)
o Description (s8)
o Quality or fitness (s9)
o Hire by sample (s10)
Contracts for supply of services
Implied terms in contract for supply of service:
a) Care and skill – supplier acting in course of business = supplier will carry
out service with reasonable care and skill (s 13(1))
b) Time and performance – supplier acting in course of business + time for
service not fixed = carry out service in reasonable time (s 14)
c) Consideration – consideration not determined by contract = will pay
reasonable charge (s 15)
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Contracting out of terms implied under SGSA 1982
• Transfer / hire of goods – supplier may contract out of implied terms
subject to s 11 (which accounts for Unfair Contract Terms Act 1977)
• Supply of services (+ other) – party may contract out of implied terms
under SGSA 1982 subject to s 16 (which accounts for Unfair Contract
Terms Act 1977)
o Supply of services + sale of goods ~ exclusion of implied terms
subject to test of reasonableness (Unfair Contract Terms Act 1977)
o Liability for death / personal injury sustained through negligence
cannot be excluded
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Nature of terms
1. Classify term according to statute
2. Consider parties’ intentions at the time of contracting and ‘root of
contract’ test
3. If intention unclear / unclear that parties intended breach to entitle
termination / ITs under SGSA, per Treitel = Hong Kong Fir test for
regardless of intentions of parties)
Relative significance of terms
Classification of Conditions and Warranties
• Classification of term by parties as condition or warranty is not
decisive – for courts to decide if parties deemed not to have intended the
term to have had this effect (Schuler v Wickman Machine Tool Sales)
o Condition = Wickman (distributer of Schuler’s presses) must visit
car manufacturers every week
o Failure to visit ~ HoL ruled this was not intended to be a condition
as a single breach would not have been intended to entitle a party
to terminate the contract
• Shuler, Lord Wilberforce (dissenting): ‘condition’ and ‘warranty’ should
be conclusive (without interpretation by courts), as could lead to issues
with innocent party terminating the contract and being in breach for
wrongful repudiation (The Hansa Nord)
Conditions and Warranties
• All terms = either condition or warranty
• Condition ‘goes to root of the contract’ (Poussard v Spiers); warranty =
less important (‘collateral to the main purpose of the contract’, s 62 SGA
• Breach of…
o Condition = right to treat contract as repudiated (i.e. to terminate)
§ May terminate = release from future obligations (for
purchasers, reject good and claim refund) + sue for
§ May affirm (waiving right to repudiate) = parties remain
bound, but party can sue for damages caused by breach
o Warranty = sue for damages
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Distinguishing Conditions and Warranties
Poussard v Spiers and Pond
• Actress under contract to play in operetta from beginning of London run
• Ill, so could not start until a week later (which is not a breach of contract, but parties
released from obligations as the contract was frustrated)
• Obligation to perform from start of run = condition, so other party had right to terminate
Bettini v Gye
• Singer under obligation to sing in concerts + 6 days of rehearsals
• Arrived 3 days late, only having 3 days of rehearsals
• Taking part in rehearsals = warranty not a condition, so damages but not termination
The modern approach
• Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd – some terms are
clearly conditions
• However, many terms which are neither conditions nor warranties at the
outset ~ they are intermediate = innominate terms
o Breach with minor effect = interpreted as warranty
o Breach with major effect (deprives party of substantially the
whole benefit of contract, Diplock LJ) = interpreted as condition
• Here, undertaking that ship ‘in every way fitted for ordinary cargo
service’; ship had broken down due to incompetence of crew, so
unavailable for 2 months; HELD: no breach of condition as it did not go so
much to the root of the contract that it made further commercial
performance impossible (Upjohn LJ)
• The Hansa Nord: prior words or conduct making clear that a party will not
perform obligations in a vital respect = other party may terminate
‘Expected readiness to load’ = condition
• Greater flexibility in establishing conditions and warranties on the basis
of the event to which a breach gives rise is to the detriment of the
certainty of the contracting parties
• ‘Expected readiness to load’ clause (assurance by owner that ship will be
ready to load on agreed date) = condition (The Mihalis Angelos – certainty
here deemed to be essential over flexibility)
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Time for performance or completion
• Failure to comply with stipulated date of delivery = breach of contract,
but could be breach of warranty or condition depending on intention of
the parties (express terms + by implication given circumstances)
• In commercial contract, time clause is not necessarily a condition, i.e. time
is not usually of the essence
• If timing essential to the contract, it is said that ‘time is of the essence’ =
condition, allowing repudiation (Bunge Corporation v Tradax)
o Similarly, Bowes v Shand = shipment of goods outside shipment
period ~ condition + allowed to repudiate
• If time not of the essence, innocent party can serve a notice stating time is
of the essence, stipulating completion date reasonably ascertained
(Charles Rickards Ltd v Oppenhaim)
o Car body work to be completed and delivered within 7 months =
time of the essence
o Not completed
o D repeatedly requests delivery after 7 months = waiving of ‘time of
the essence’ by D
o D notifies C that will not accept delivery after 25th July = time again
of the essence as reasonable notice
• Where no time stipulated = implied term of completion within a
reasonable time (s 14, SGSA 1982)
Abusive termination
• The law has taken a number of steps to prevent abusive termination as in Arcos Ltd v
o Timber ordered, but was not precisely the length described (s 13 SGA 1893
breach), but was fit for the purpose of the buyer (no s 14 SGA breach)
o HoL held it was allowed to rescind the contract, even though the true motive
behind this was a fall in the price of timber
• Express terms = may be interpreted as innomate and thus tend towards interpretation
as warranties if there is no deprivation of substantially the whole benefit of contract
to either party (Hong Kong Fir Shipping)
• Implied terms = requirement that the rejection of goods caused by a breach of implied
terms under SGA 1979 be ‘reasonable’ (s 15A), and if not that it is a warranty only
entitling party to damages


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