Contract terms: express and implied terms, conditions and warranties

Introduction to Contract Terms

Welcome to one of the most practical and heavily tested areas of AQA A-Level Law (Paper 3: Law of Contract). Whenever parties enter into a contract, they create legal promises. But what happens when things go wrong? To solve contract disputes, we must first look at what the parties actually agreed to (the terms), what the law inserts automatically (implied terms), and whether a party can legally dodge their responsibilities using exclusion clauses.

Don't worry if this seems tricky at first! We will break this chapter down into three manageable sections:

1. Contract Terms: General (Express vs Implied terms, and Conditions vs Warranties vs Innominate terms)
2. Terms Implied by Statute in Consumer Contracts (The Consumer Rights Act 2015)
3. Exclusion Clauses (Common law controls and statutory controls under UCTA 1977 and CRA 2015)

Part 1: Contract Terms — General

1. Express vs Implied Terms

Every contract is made up of terms. These terms set out the rights and duties of each party.

• Express Terms: These are terms specifically agreed to by the parties themselves. They can be written down, agreed to verbally (orally), or a mix of both.
• Implied Terms: These are terms not explicitly spoken or written by the parties, but the law inserts them into the contract anyway. Terms can be implied through custom/trade usage, previous course of dealing, statute, or by the courts (implied by fact).

Tests for Terms Implied by Fact (The Courts)

Judges will not rewrite a bad bargain, but they will imply a term if it meets strict common law tests:

• The Officious Bystander Test (Shirlaw v Southern Foundries Ltd [1939]): Imagine an annoying bystander interrupting the contract negotiations and suggesting a term. If both parties would testily respond, "Oh, of course!", the term is implied because it is so obvious it goes without saying.
• The Business Efficacy Test (The Moorcock [1889]): The court asks: is this term necessary to make the contract work commercially? In The Moorcock, a ship was damaged when the tide went down because the riverbed was uneven. The court implied a term that the riverbed was safe, because without it, the contract had no business efficacy.
• Modern Clarification (Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015]): The Supreme Court confirmed that a term will only be implied if it is strictly necessary for business efficacy, not simply because it would be fair or reasonable.

2. Classification of Terms and Legal Remedies

Not all terms carry the same weight. Contract law divides terms into three categories based on their importance:

A. Conditions

• Definition: Major, vital terms that go directly to the root of the contract.
• Key Case: Poussard v Spiers and Pond [1876] — An opera singer failed to perform in the opening performances due to illness. This was a breach of condition because her presence at the start was central to the entire contract.
• Remedy for Breach: The innocent party can choose repudiation (terminate the contract and treat their own obligations as ended) and/or claim damages (compensation).

B. Warranties

• Definition: Minor or subsidiary terms that are secondary to the main purpose of the contract.
• Key Case: Bettini v Gye [1876] — A singer missed the first three days of rehearsals but was ready for the actual performances. This only went to a small part of the contract, making it a breach of warranty.
• Remedy for Breach: The innocent party can claim damages only. They cannot end the contract.

C. Innominate Terms (Intermediate Terms)

• Definition: Terms that cannot easily be labelled as a condition or a warranty at the start. The court looks at the consequences of the breach to decide the remedy.
• Key Case: Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] — A ship was chartered under a term stating it was "seaworthy", but engine trouble caused significant delays.
• The Test: Does the breach deprive the innocent party of substantially the whole benefit of the contract?
    • If YES: Treat it like a breach of condition (right to terminate + damages).
    • If NO: Treat it like a breach of warranty (damages only).

Quick Review Box: Classification of Terms

• Condition: Vital root term \(\rightarrow\) Repudiate (terminate) + Damages (Poussard)
• Warranty: Minor term \(\rightarrow\) Damages only (Bettini)
• Innominate: Flexible term \(\rightarrow\) Look at the effect of the breach (Hong Kong Fir)

Part 2: Terms Implied by Statute in Consumer Contracts (CRA 2015)

When a consumer deals with a business, there is an imbalance of power. To protect consumers, Parliament enacted the Consumer Rights Act (CRA) 2015. This applies strictly to Trader-to-Consumer (B2C) contracts.

1. Contracts for the Supply of Goods

The CRA 2015 automatically implies the following terms into contracts for goods:

• Section 9 — Satisfactory Quality: Goods must meet the standard that a reasonable person would consider satisfactory, taking into account the description, price, fitness for purpose, appearance, finish, safety, and durability.
• Section 10 — Fit for a Particular Purpose: If the consumer expressly or implicitly tells the trader what specific purpose they need the goods for, the goods must be fit for that purpose.
• Section 11 — As Described: Goods must match any description, sample, or display model provided by the trader.

Tiered Remedies for Breach of Goods Terms

If a trader breaches Section 9, 10, or 11, the consumer has a statutory ladder of remedies:

• Tier 1 — Section 20: Short-term right to reject. The consumer can reject the goods and get a full refund. This must usually be exercised within 30 days of ownership/delivery.
• Tier 2 — Section 23: Right to repair or replacement. The trader must provide this within a reasonable time and without significant inconvenience.
• Tier 3 — Section 24: Right to a price reduction or final right to reject. If one repair or replacement fails, or is not provided within a reasonable time, the consumer can ask for a reduction in price or exercise the final right to reject for a refund.

2. Contracts for the Supply of Services

The CRA 2015 also protects consumers hiring services (e.g., car repairs, builders, hairdressers):

• Section 49 — Reasonable Care and Skill: The service must be carried out with the standard of care and skill of a reasonably competent tradesperson/professional.
• Section 52 — Reasonable Time: If the contract does not specify a completion time, the service must be completed within a reasonable time.

Remedies for Breach of Service Terms

• Section 55 — Right to repeat performance: The trader must re-do the faulty part of the service at no extra cost.
• Section 56 — Right to a price reduction: If repeat performance is impossible or not done within a reasonable time, the consumer is entitled to an appropriate reduction in price (up to 100%).

Part 3: Exclusion Clauses (Exemption Clauses)

An exclusion clause (or exemption clause) is a term inserted into a contract to limit or completely exclude a party's liability if they breach the contract or act negligently. For an exclusion clause to be legally enforceable, it must pass two hurdles: Common Law Controls and Statutory Controls.

Hurdle 1: Common Law Controls

Before looking at statutes, the court checks whether the clause is actually part of the contract (incorporation) and whether it covers the loss (construction).

A. Incorporation

An exclusion clause can be incorporated into a contract in three ways:

1. By Signature: If you sign a contractual document, you are bound by its terms, even if you did not read them (L'Estrange v F Graucob Ltd [1934]).
    Exception: If the party relying on the clause gave an oral misrepresentation about what it means, the clause will not protect them (Curtis v Chemical Cleaning and Dyeing Co [1951]).
2. By Notice: If the document is unsigned, the party relying on the clause must show they took reasonable steps to bring it to the other party's attention before or at the time of making the contract.
    • Timing: Notice given after the contract is formed is invalid (Olley v Marlborough Court Ltd [1949] — notice in a hotel bedroom was too late because the contract was made at the reception desk).
    • Document nature: The clause must be on a document where a reasonable person would expect contractual terms, not a mere receipt (Chapelton v Barry UDC [1940] — deckchair ticket was just a receipt).
    • Onerous terms: The more unusual or harsh a term is, the greater the effort needed to draw attention to it (Thornton v Shoe Lane Parking Ltd [1971] — the "red hand" rule).
3. By Previous Course of Dealing: A clause can be incorporated through past dealings, but the transactions must be consistent and sufficiently frequent (Spurling v Bradshaw [1956]; contrasted with Hollier v Rambler Motors [1972], where 3 to 4 transactions over 5 years was not regular enough).

B. Construction (Interpretation)

• The Contra Proferentem Rule: If there is any doubt or ambiguity in the wording of an exclusion clause, the court interprets the clause strictly against the party seeking to rely on it (Transocean Drilling UK Ltd v Providence Resources plc [2016]).

Hurdle 2: Statutory Controls

Even if an exclusion clause is properly incorporated and clear under common law, it may still be struck down by statute.

1. Unfair Contract Terms Act (UCTA) 1977

Important Context: UCTA 1977 applies primarily to Business-to-Business (B2B) contracts.

• Section 2(1): A business can never exclude or restrict liability for death or personal injury resulting from negligence. Any clause attempting to do so is completely void.
• Section 2(2): Liability for other loss or damage (such as property damage) caused by negligence can only be excluded if the clause satisfies the requirement of reasonableness.
• Section 3: When contracting on written standard terms of business, clauses excluding or restricting liability for breach of contract must pass the requirement of reasonableness under Section 11 (and Schedule 2 guidelines).

2. Consumer Rights Act (CRA) 2015

Important Context: CRA 2015 applies strictly to Business-to-Consumer (B2C) contracts.

• Section 31: A trader cannot exclude or restrict liability for the statutory rights regarding goods under Sections 9, 10, and 11.
• Section 57: A trader cannot exclude or restrict liability for the statutory rights regarding services under Sections 49 and 52.
• Section 65: A trader cannot exclude or restrict liability for death or personal injury resulting from negligence under any circumstances.

Common Exam Pitfalls to Avoid

• Mixing up UCTA 1977 and CRA 2015: Always identify the parties first! If it is a consumer buying from a business (B2C), use the CRA 2015. If it is two businesses dealing with each other (B2B), apply UCTA 1977.
• Assuming "Fairness" implies a term: In a problem question, never write that a court will imply a term just because it seems "fair". Remind the examiner of Marks and Spencer v BNP Paribas (2015): implied terms must be strictly necessary.
• Jumping the queue on CRA remedies: Remember the tiered process for goods. A consumer cannot demand a final rejection under Section 24 on day 40 without first going through the Section 23 repair/replacement stage (unless the 30-day short-term rejection under Section 20 applies).
• Missing the timing of notice: Check when the exclusion clause was introduced in the scenario. If it was introduced after payment or contract formation, cite Olley v Marlborough Court or Chapelton v Barry UDC to show it was not incorporated.

Key Takeaways Summary

1. Express terms are agreed by parties; implied terms are added by courts (necessity) or statute.
2. Breaching a condition allows termination and damages (Poussard); breaching a warranty allows damages only (Bettini); innominate terms depend on the severity of the consequences (Hong Kong Fir).
3. CRA 2015 protects consumers: Goods must be of satisfactory quality (s9), fit for purpose (s10), and as described (s11); Services must have reasonable care and skill (s49) and reasonable time (s52).
4. Exclusion clauses must be validly incorporated (signature, notice, or course of dealing) and survive statutory controls.
5. Under both s2(1) UCTA 1977 (B2B) and s65 CRA 2015 (B2C), liability for death or personal injury caused by negligence can never be excluded.