Chitty on Contract

General Principles-Vol.1

Chapter 12

Express Terms

Proof of terms: Where the agreement of the parties has been reduced to writing and the
document containing the agreement has been signed by one or both of them, it is well
established that the party signing will ordinarily be bound by the terms of the written
agreement whether or not he has read them and whether or not he is ignorant of their precise
legal effect.* (Pg 907, 12-002)

Contract in standard form: A different problem may arise in proving the terms of the
agreement where it is sought to show that they are contained or referred to in a contract in
standard form, i.e. in some ticket, receipt, or standard form document. If a party signs a
contractual document,* he will normally be bound by its terms.* Frequently, however, the
document is simply made available to him before or at the time of making the contract, and
the question will then arise whether the printed conditions which it contains or to which it
refers have become terms of the contract.* They party to whom the document is supplied will
probably not trouble to read it, and may even be ignorant that it contains any conditions at all.
Yet standard form contracts very frequently embody clauses which purport to impose
obligations on him or to exclude or restrict the liability of the person supplying the
document.* Thus it becomes important to determine whether these clauses should be given
contractual effect. (Pg 912, 12-008)

Contractual document: where the conditions are contained in a document, the document must
be of a class which either the party receiving it knows, or which a reasonable man would
expect, to contain contractual conditions. Thus a cheque book,* a time sheet,* a ticket for a
deck chair,* a ticket handed to a person at a public bath house* and a parking ticket issued by
an automatic machine* have been held to be cases:

..where it would be quite reasonable that the party receiving it should assume that the
writing contained no conditions and should put it in his pocket unread.*(Pg 912, 12-009)

Onerous or unusual terms: Although the party receiving the document knows it contains
conditions, if the particular condition relied on is one which is a particularly onerous or
unusual term, or is one which involves the abrogation of a right given by statute, the party
tendering the document must show that it has been brought fairly and reasonably to the
others attention.* (Pg 915, 12-015)

Personal disability: It is immaterial that the party receiving the document is under some
personal, but non-legal, disability, such as blindness, illiteracy, or an inability to read our
language.* Provided the notice is reasonably sufficient for the class of person to which the
party belongs(e.g. passengers on a ship or railway) he will be bound by the conditions.(Pg
916, 12-06, Q/A)

Fundamental terms: There was at one time some support for the view that, in addition to
conditions, warranties and intermediate terms, the law recognizes yet a fourth category of
term, the fundamental term.* The fundamental term has been described as part of the
core of the contract,* the non-performance of which destroys the very substance of the
agreement. It has been distinguished by Devlin J.* as being something narrower than a
condition of the contract and as:

.something which underlies the whole contract so that, if it is not complied with, the
performance becomes totally different from that which the contract contemplated. (Pg 917,
12-021)

And the reason why any breach of condition has this effect has been put on the ground that
the parties are to be regarded as having agreed that any failure of performance, irrespective of
the gravity of the event that has in fact resulted from the breach, should entitle the other
partly to elect to put an end to all primary obligation of both parties remaining unperformed.*
The parties may, by express words* or by implication of law,* agree that a particular
stipulation is to be a condition of their contract. But they may also be held to have done so by
necessary implication arising from the nature, purpose and circumstances of the contract,*
and in this respect: (Pg 920, 12-026)

Promissory and contingent conditions: A condition in the sense mentioned above may
conveniently be termed a promissory condition, being a promise or assurance for the non-
performance of which a right of action accrues to the innocent party.* This sense must be
carefully distinguished from that of a contingent condition, i.e. a provision that on the
happening of some uncertain event an obligation shall come into force, or that an obligation
shall not come into force until such an event happens.* In this latter case, the non-fulfillment
of the condition gives no right of action for breach*; it simply suspends the obligation of one
or both parties.*(Pg 921, 12-027)

Electronic documents: It is submitted that an agreement which is concluded by electronic

means, the terms of which are recorded electronically in a computer or on disc and which are
capable of being retrieved and converted into readable form, should be regarded as a written
agreement for the purpose of the application of principles of construction and the
admissibility of extrinsic evidence.*(Pg 933, 12-048)

Chapter -13

Implied terms

Terms implied by law: The implication of a term is a matter of law for the court,* and
whether or not a term is implied is conventionally said to depend upon the intention of the
parties as collected from the words of the agreement and the surrounding circumstances.* In
many classed of contract, however, implied terms have become standardized, and it is
somewhat artificial to attribute such terms to the unexpressed intention of the parties.(Pg 985,
13-003)

Traditional principles: In many cases, however, one or other of the parties will seek to imply
a term from the wording of a particular contract and the facts and circumstances surrounding
it. The court will not make a contract for the parties* but will be prepared to imply a term if
there arises from the language of the contract itself, and the circumstances under which it is
entered into, an inference that the parties must have intended the stipulation in question.*
Traditionally, an implication of this nature may be made in two stipulation: first, where the
term implied represents the obvious, but unexpressed, intention of the parties. These two
criteria often overlap* and, in many cases, have been applied cumulatively,* although in
other cases they have (more sensibly) been treated as alternative grounds.* Both are
predicated to depend on the presumed common intention of the parties. Such intention is, in
general, to be ascertained objectively and is not dependent on proof of the actual intention of
the parties at the time of contracting. As so formulated, these criteria were traditionally
regarded as tests which were required to be satisfied if a term was to be implied.(Pg 986,
13-006)

Efficacy to contract: A term will be implied if it is necessary, in the business sense, to give
efficacy to the contract. The general principle of law was thus stated by Bowen L.J. in The
Moorcock*:

Now, an implied warranty, or, as it is called, a covenant in law, as distinguished from an

express contract or express warranty, really is in all cases founded upon the presumed
intention of the parties, and upon reason. The implication which the law draws from what
must obviously have been the intention of the parties, the law draws with the object of giving
efficacy to the transaction and preventing such a failure of consideration as cannot have been
within the contemplation of either side; and I believe if one were to take all the cases, and
there are many, of implied warranties or covenants in law, it will be found that in all of them
the law is raising an implication from the presumed intention of the parties with the object of
giving to the transaction such efficacy as both parties must have intended that all events it
should have.

In this situation, although there is an apparently complete bargain, the courts are willing to
add a term on the ground that without it the contract will not work* or because an implication
is necessary to give effect to the reasonable expectations of the parties.*(Pg 988, 13-006)

Obvious inference from agreement: A term which has not been expressed may also be
implied if it was so obviously a stipulation in the agreement that the parties must have
intended it to form part of their contract.*

Prima facie that which in any contract is left to be implied and need not be expressed 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.*

A term will not, however, thus be implied unless the court is satisfied that both parties would,
as reasonable men, have agreed to it had it been suggested to them.* The knowledge or
ignorance of each party of the matter to be implied, or of the facts on which the implication is
based, is therefore a relevant factor.*

Further, since:
. The general presumption is that the parties have expressed every material term which
they intended should govern their contract, whether oral or in writing,*

The court will only imply a term if it is one which must necessarily have been intended by
them,* and in particular will be reluctant to make any implication where it is essential that
contracts of the particular type should operate in accordance with the terms which appear on
their face* or where the parties have entered into a carefully drafted written contract
containing detailed terms agreed between them.* Nevertheless, even a carefully drafted
contract may not have catered for an unanticipated contingency and a term can then be
implied if obviously required.*(Pg 990, 13-008)

Where term not implied: A term ought not to be implied unless it is in all the circumstances
equitable and reasonable.* But this does not mean that a term will be implies merely because
in all the circumstances it would be reasonable to do so* or because it would improve the
contract* or make its carrying out more convenient*: the touchstone is always necessity and
not merely reasonableness.* The term to be implied must also be capable of being
formulated with sufficient clarity and precision.* But it may be that lack of precision in the
criterion to be embodied in the term is not fatal to any implication, since: . it is no novelty
in the common law to find that a criterion on which some important question of liability is to
depend can only be defined in imprecise terms which leave a difficult question for decision as
to how the criterion applies to the facts of a particular case.*

A term will not be implied if it would be inconsistent with the express wording of the
contract.*(Pg 992, 13-010)

When implied from usage or custom: If there is an invariable, certain and general usage or
custom of any particular trade or place, the law will imply on the part of one who contracts or
employs another to contract for him upon a matter to which such usage or custom has
reference a promise for the benefit of the other party in conformity with such usage or
custom*; provided there is no inconsistency between the usage and the terms of the contract.*
To be binding, however, the usage must be notorious, certain and reasonable, and not contrary
to law*; and it must also be something more than a mere trade practice.* But when such
usage is proved, it will form the basis of the contract between the parties, and:

..their respective rights and liabilities are precisely the same as if without any usage the
had entered into a special agreement to the like effect.*
These usages are incorporated on the presumption that:

..the parties did not mean to express in writing the whole of the contract by which they
intended to be bound, but a contract with reference to those known usages*

or on the ground that the courts are spelling out what both parties know and would, if asked,
unhesitatingly agree to be part of the bargain.* However, even in cases where the party
alleged to be liable upon an implied promise, arising solely from the usage of a particular
trade, is not shown to have been cognizant of the usage, he can still be held to be liable by
virtue of it.*(Pg1000, 13-019)

Express terms prevail: A custom or usage can only be incorporated into a contract if there is
nothing in the express of necessarily implied terms of the contract to prevent such inclusion,
and it can only be incorporated if it is not inconsistent with the tenor of the contract as a
whole.* (Pg 1002, 13-024)

Implication from words of recital: Where words of recital or reference manifest a clear
intention that the parties should do certain acts, the courts may from these infer a covenant to
do such acts, just as if the instrument had contained an express agreement to that effect.*(Pg
1003, 13-025)

Implied restriction on contractual discretion: A discretion conferred by contract in seemingly

absolute terms may be restricted by the implication of a term: that the discretion should not
be exercised dishonestly, for an improper purpose, capriciously, arbitrarily, or in a way that
no reasonable person, acting reasonably, would act.* (Pg 1003, 13-027)

Implied term as to trust and confidence: In Malik v Bank of Credit and Commerce
International SA* the House of Lords recognized that, in a contract of employment, there was
to be implied a term that the employer should not:

..without reasonable and proper cause, conduct itself in a manner likely to destroy or
seriously damage the relationship of confidence and trust between employer and employee.

The exact boundaries of the incidence of this implication are somewhat uncertain* but the
duty may possibly be reciprocal in some cases and extend to analogous relationships, e.g.
principle and agent,* but not to ordinary commercial relationships.*(Pg 1004, 13-028)
 Chapter-14

Exemption Clauses

Exemption clauses distinguished from other similar clauses: Agreed damages clauses, by
which the parties liquidate the damages payable upon breach, are not to be classified as
exemption clauses, at least where the liquidated damages provision is a genuine pre-estimate
of the loss likely to be suffered in the event of breach.* It has also been said that force
majeure clauses are not exemption clauses.* (Pg 1013, 14-004)

General principles: Exemption clauses must be expressed clearly and without ambiguity or
they will be ineffective.* The clause must clearly express what its intention is. In J. Gordon
Alison and Co Ltd v Wallsend Shipway and Engineering Co Ltd,* if a person was under a
legal liability and wished to get rid of it he could only do so by using clear words.*
Exemption clauses will therefore be construed strictly, and the degree of strictness
appropriate to their from the implied obligations ordinarily accepted by the parties in entering
into a contract of a particular kind* and whether the clause purports entirely to exclude an
obligation or liability or merely to limit the compensation recoverable from the party in
default.* However, the principles of construction applicable to written contracts* apply
equally to exemption clauses to ascertain what meaning the words bear.* If the clause is
expressed clearly and unambiguously, there is no justification for placing upon the language
of the clause a strained and artificial meaning so as to avoid the exclusion or restriction of
liability contained in it.*(Pg 1014, 14-005)

He found it difficult to believe that this conclusion would accord with the the true common
intention of the parties. Nevertheless the clause on its true construction may be found to
qualify the main purpose of the contract, so that there is no inconsistency,* or to define the
respective roles of the parties under the contract.* And if the clause does not entirely exclude
the liability, it does not render his contractual promises illusory.* Further, if in the context of
the contract as a whole and of the business relationship between the parties the words of the
clause are clear and fairly susceptible of one meaning only, then effect must in any event be
given to the clause.*(Pg 1017, 14-008)

Lord Morton in R. v Canada S.S. Lines Ltd.* These tests, or guidelines,* have been
subsequently approved and applied both by the Court of Appeal* and the House of Lords*:
(1) If the clause contains language which expressly exempts the person in whose favour it is
made (hereafter called the proferens) from the consequences of the negligence of his own
servants, effect must be given to that provision(2) If there is no express reference to
negligence , the court must consider whether the words used are wide enough, in their
ordinary meaning, to cover negligence on the part of the servants of the proferens..(3) If
the words used are wide enough for the above purpose, the court must then consider whether
the head of damage may be based on some ground other than of negligneceThe other
ground must not be so fanciful or remote that the proferens cannot be supposed to have
desired protection against it; but subject to this qualificationthe existence of a possible
head of damage other than that of negligence is fatal to the proferens even if the words used
are prima facie wide enough to cover negligence on the part of his servants.(Pg 1020, 14-
010)

Words wide enough to cover negligence: To satisfy the first