Sara Shawleen Disha

Barrister-at-Law

CLASS NOTE 4

Terms of a Contract
A contract may contain both express and implied terms. Express terms depend on the words
used by the parties in reaching their agreement. Implied terms are included even though they
have not been expressly stated in words. Therefore, there are two kinds of contract terms:
Express and Implied.

Express

In so far as express terms are concerned the intention of the parties is of primary importance.
The ascertaining of express terms is mainly a question of fact. Problems may arise where a
contract incorporates another document, for example, subject to the rules of a trade
association, or subject to some set of rules. In such cases, the parties may not be aware of the
full contents of the incorporated document, and/or there could be inconsistencies between the
terms of the contract and the provisions of the incorporated document.

Implied

These can be divided into: terms implied in fact; terms implied in law.

Implied in fact

This is a term not expressly stated, but which the parties must have intended to include
because it was ‘so obvious that it goes without saying’.

In other words, if while two parties were making their bargain, an officious bystander were to
suggest some express provision for it in the agreement, they would suppress him with a
common ‘Oh of course!’ Shirlaw v. Southern Foundries Ltd (1939).

In one case, A sold some land to B, and he undertook that if he was going to sell some
adjoining land in the future, B should have ‘the first refusal’. A term was held to be implied in
this contract, that A would not defeat B’s expectation by conveying the adjoining land to a third
party by way of gift; Gardner v. Coutts & Co. (1967).

Implied in Law

This category includes terms implied by statutes, and by common law. A person who contracts
to supply services in the course of a business undertakes (impliedly) that he will carry them out
with reasonable skill and care (Supply of Goods and Services Act 1982).

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 Sara Shawleen Disha
Barrister-at-Law
At common law such implied terms can be excluded, but nowadays the power to exclude such
terms has been considerably reduced by statute. Thus a term excluding liability as to the
quality of the goods, which is a term implied by the Sale of Goods Act 1979, is invalid in a
consumer sale.

Importance of the Terms of a Contract

Not all terms in a contract carry equal weight. Failure to perform one of the terms may have a
more serious effect on the contract than failure to perform another. The identification of the
terms of a contract is of great importance, because, as it will be seen later, the remedies
available to the parties are considerably affected.

Traditionally, terms used to be classified as conditions and warranties, a condition being a

term, the breach of which goes to the root of the contract and therefore is capable of
terminating the contract.

For example, a contract of sale may require that goods be shipped by a particular date: or a
charter-party may provide that the ship owner can withdraw the ship if the hire is not punctually
paid. Such term has been held to be a condition; Bunge Corporation v. Tradax Export S.A.
(1981); The Laconia (1977).

For a term to be held to be a condition at least one of the following three requirements must be
fulfilled:

1 The particular term has already been classified as a condition by previous judicial decision.
For example if A has entered into a charter-party with B, and the charter-party provided that
the ship will be expected ready to load at a particular port, on a particular date. Such term has
been held to be a condition. The Mibalis Angelos (1970).

2 The term may be a term prescribed by statue as a condition, such as the various implied
terms contained in the Sales of Goods Act 1979. Thus, the Sales of Goods Act 1979 provided
that it is an implied condition that the seller will have the right to sell at the time when the
property is to pass to the purchaser, that is, will have legal ownership.

3 The parties have expressly or impliedly agreed that a particular term should be a condition.
The word ‘condition’ has a number of meanings and is often used in a non-specific sense, for
example, standard form ‘Terms and Conditions’. If the word is expressly used, the court must
be satisfied that it was intended to be used in its technical sense: Schuler A.G. v. Wickman
Machine Tool Sales Ltd (1974). A provision giving the buyer the right to reject goods if they did
not possess a specified quality would be classified as a condition, as this would give effect to
the intention of the parties.
Thus in Bannerman v. White (1861), was intending to buy hops from Y and he asked him
whether sulphur had been used in the cultivation of the hops, adding that if it had, he would
not even bother to ask the price. Y said that no sulphur had been used, though in fact it had. It
was held that Y’s assurance that sulphur had not been used was a fundamental term of the
contract, that is, a condition.

A warranty if breached entitles the innocent party to damages only. For example, the Sale of
Goods Act 1979 classifies as a warranty the implied term that the goods are free from charges
in favour of third parties. In such case damages, enabling the buyer to pay off the charge, will
generally be an adequate remedy. The difference between a condition and a warranty may be
illustrated by the following cases:

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 Sara Shawleen Disha
Barrister-at-Law

In Poussard v. Spiers (1876), Poussard was engaged to appear in an opera from the start of
its London run. Owing to illness, she was not available until a week after the show had opened
and the producers were forced to engage a substitute. They refused Poussard’s offer to take
up the part.

In was held that the obligation to perform from the first night was a condition of the contract.
Failure to carry out this term entitled the producers to repudiate Poussard’s contract.

In Bettini v. Gye (1876), Bettini, an opera singer, was engaged by Gye to appear in a season
of concerts. He undertook to be in London at least six days before the first concert for the
purpose of rehearsals. He arrived three days late and Gye refused to accept his services. It
was held that the promise to appear for rehearsals was a less important term of the contract.
Gye could claim compensation for a breach of warranty but he could not repudiate Bettini’s
contract.

A third category has been added to these, that of ‘intermediate’ or ‘in nominate’ term. The main
difference of this category is that breach of it only justifies rescission if it leads, or amounts, to
a serious failure in performance. Thus, in Reardon Smith Line v. Hansen-Tangen (1976), a
ship which was going to be chartered, was described in the charter-party as Osak number 354
(this is the yard where it was built) when it was in fact Oshima number 004. In all other
respects the ships were exactly the same. As this is a mis-description, usually considered to
be a condition, the charterers sought to terminate the contract. The House of Lords rejected
the argument and held that the description was not a condition but an innominate term and
that sine the inured party had not been deprived of substantially the whole benefit under the
contract, the charterers were only entitled to damages and not to rejection of the contract.

Generally speaking, the courts have expressed a preference for innominate terms rather than
conditions, mainly because of the flexibility this permits them in deciding the appropriate
remedy. The position in so far as remedies are concerned, is broadly speaking as follows:

1 If the term broken is a condition, the innocent party can terminate the contract usually
irrespective of the degree of loss or damage flowing from the breach. In addition if loss or
damage has also been caused by the breach of the term, the innocent party may claim for
such loss or damage.

2 If the term broken is a warranty, the remedy is one in damages only.

3 If the term broken is an intermediate one the injured party can terminate the contract if the
actual and prospective consequences of the breach are such as to substantially deprive him of
the benefit of the whole of the consideration he bargained to receive under the contract.
Otherwise, damages are only awarded.

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