Welcome to the World of Contract Terms!
Ever signed a gym membership or clicked "I agree" on a software update? If so, you’ve dealt with terms. In this chapter, we explore the "ingredients" of a contract. Think of a contract like a recipe: the terms are the specific ingredients and instructions that tell everyone what they must do. If someone uses the wrong ingredient or skips a step, the whole "dish" (the contract) might be ruined!
We’re going to look at what these terms are, how they get into a contract, and what happens when they are broken. Don’t worry if it feels like a lot of detail—we’ll take it one step at a time.
1. What are Terms? (Express vs. Implied)
A term is a promise that forms part of a contract. Not every statement made during a deal is a term. Some are just "sales talk" (representations). But if it’s a term, it’s legally binding.
Express Terms
These are terms that the parties have specifically agreed upon. They can be written down (like in a mobile phone contract) or spoken aloud (like telling a car dealer "I will only buy this if it has a new MOT").
Implied Terms
Sometimes, the law steps in and adds terms to a contract, even if the parties didn't mention them! These are implied terms. They can be added in three ways:
1. By Custom: Based on how things are usually done in a specific industry or local area.
2. By Prior Course of Dealings: If you have done business the same way many times before, the court assumes the same rules apply this time (Hollier v Rambler Motors).
3. By Statute (The Law): Parliament has passed laws that automatically put "safety" terms into contracts to protect people. The most important one for you is the Consumer Rights Act (CRA) 2015.
Quick Review: The Consumer Rights Act 2015
When a business sells to a consumer, the CRA 2015 implies that goods must be:
• Of satisfactory quality: They shouldn't be broken when you buy them.
• Fit for a particular purpose: If you asked for a waterproof coat, it better keep you dry!
• As described: If the box says the phone is "blue," it shouldn't be "red."
Key Takeaway: Express terms are what you say/write; implied terms are what the law or "the usual way of doing things" adds in for you.
2. Incorporation: How do terms get into the contract?
Just because a term is written on a piece of paper doesn't mean it’s actually part of the contract. It must be incorporated (legally included). There are three main ways to do this:
1. Signature: If you sign a document, you are usually bound by everything in it, even if you didn't read it! (L’Estrange v Graucob).
2. Notice: The other person must take "reasonable steps" to show you the terms before or at the time the contract is made. You can’t add terms after the deal is done! (Olley v Marlborough Court Hotel).
3. Course of Dealings: If you’ve used the same company 50 times and they always have the same rules, those rules might apply even if you didn't sign them this time.
Analogy: Imagine buying a cinema ticket. If the ticket says "No popcorn allowed" on the back, that’s notice. But if they only tell you "No popcorn" after you’ve sat down in the theater, that term wasn't incorporated because it was too late!
3. Types of Terms (The Hierarchy)
Not all terms are equal. Some are "deal-breakers," while others are just minor details. We classify them into three groups:
Conditions
A condition is a major term that goes to the very heart of the contract. If a condition is broken, the innocent party can repudiate (end) the contract and claim damages (money compensation).
Example: Hiring a lead singer for an opera. if they don't show up for the opening night, they’ve broken a condition (Poussard v Spiers).
Warranties
A warranty is a minor term. If it’s broken, the contract must continue, but the innocent party can claim damages to fix the problem.
Example: The same opera singer misses a few rehearsals but shows up for the actual performances. This is just a warranty (Bettini v Gye).
Innominate Terms
These are "wait and see" terms. We don't know if they are conditions or warranties until we see how bad the breach was. If the breach is so bad it robs the person of the "whole benefit" of the contract, it's treated like a condition (Hong Kong Fir Shipping).
Memory Aid: Use the "C-W" trick:
Condition = Critical (Can end the contract).
Warranty = Weak (Contract continues).
Key Takeaway: Breaking a Condition lets you walk away; breaking a Warranty only lets you sue for the cost of the fix.
4. Exclusion and Limitation Clauses
An exclusion clause is a term where one party tries to say "I am not responsible if things go wrong." A limitation clause says "I am only responsible up to £50."
The courts and Parliament don't like these because they can be unfair, so they are strictly controlled.
Common Law Controls
A clause only works if it was properly incorporated (see section 2) and if the wording is 100% clear. If the wording is vague, the court will interpret it against the person who wrote it (this is called the contra proferentem rule).
Statutory Controls (The Big Laws)
Even if a clause is written perfectly, these laws might strike it down:
• Unfair Contract Terms Act (UCTA) 1977: This applies to business-to-business contracts. For example, a business can never exclude liability for death or personal injury caused by negligence.
• Consumer Rights Act (CRA) 2015: This applies to business-to-consumer contracts. Any term must be "fair." If a term creates a "significant imbalance" to the disadvantage of the consumer, it is void.
Common Mistake to Avoid: Don't confuse UCTA and CRA. If the scenario involves a regular person buying from a shop, use CRA 2015. If it’s two companies trading, use UCTA 1977.
Quick Review Box
1. Express terms: Agreed by parties.
2. Implied terms: Put in by law (e.g., CRA 2015).
3. Incorporation: Terms must be included via signature, notice, or dealings.
4. Conditions: Major terms (Breach = Repudiation + Damages).
5. Warranties: Minor terms (Breach = Damages only).
6. Exclusion Clauses: Controlled by UCTA 1977 (businesses) and CRA 2015 (consumers).
Final Tips for the Exam
When you get a scenario question about terms, follow these steps:
1. Identify if the statement is an express or implied term.
2. Check if it was incorporated (Was it signed? Was it on time?).
3. Decide if it is a condition or warranty to see what the remedy is.
4. If there is an exclusion clause, check if it’s fair under UCTA or CRA.
Don't worry if this seems tricky at first! Contract law is very logical once you see that it's all about making sure people stick to the "rules of the game" they agreed to play.