Contractual term
Encyclopedia
A contractual term is "Any provision forming part of a contract" Each term gives rise to a contract
ual obligation, breach
of which can give rise to litigation
. Not all terms are stated expressly and some terms carry less legal gravity as they are peripheral to the objectives of the contract
.
. Breach
of these terms repudiates the contract
, allowing the other party to discharge the contract
. A warranty is less imperative than a condition, so the contract
will survive a breach
. Breach
of either a condition or a warranty will give rise to damages
.
It is an objective matter of fact whether a term goes to the root of a contract
. By way of illustration, an actress's obligation to perform the opening night of a theatrical
production is a condition, whereas a singer's obligation to perform during the first three days of rehearsal is a warranty.
Statute
may also declare a term or nature of term to be a condition or warranty. For example, the Sale of Goods Act 1979
s15A provides that terms as to title, description, quality, and sample (as described in the Act
) are conditions save in certain defined circumstances.
, created the concept of an innominate term, breach
of which may or not go to the root of the contract
depending upon the nature of the breach. Breach
of these terms, as with all terms, will give rise to damages. Whether or not it repudiates the contract
depends upon whether legal benefit of the contract
has been removed from the innocent party. Megaw LJ, in 1970, preferred the use of the classic categorising into condition or warranty due to legal certainty
. This was interpreted by the House of Lords as merely restricting its application in Reardon Smith Line Ltd. v Hansen-Tangen.
for the non fulfillment of a term as opposed to representations or mere puffs.
may take into account in determining the nature of a statement. These include:
The parol evidence rule
limits what things can be taken into account when trying to interpret a contract
. This rule has practically ceased operation under UK law
, but remains functional in Australian Law.
.
established a five stage test in BP Refinery Western Port v. Shire of Hastings:
In Australia
, the High Court
has ruled that the test in BP Refinery
applies only to formal contract
s, while the test in Byrne and Frew v. Australian Airlines Ltd shall apply to informal contracts:
These terms will be implied into all contract
s of the same nature as a matter of law
.
s are governed are provided in specialized statute
s that deal with particular subjects. Most countries
, for example, have statutes which deal directly with sale of goods, lease transactions, and trade practices. For example, each American state
except Louisiana
has adopted Article 2 of the Uniform Commercial Code, which regulates contracts for the sale of goods. The most important legislation
implying terms under United Kingdom
law
are the Sale of Goods Act 1979
, the Consumer Protection (Distance Selling) Regulations 2000
and the Supply of Goods and Services Act 1982
which imply terms into all contract
s whereby goods are sold or services provided.
made, if not expressly agreed to the contrary. The parties must have dealt on numerous occasions and been aware of the term purported to be implied. In Hollier v Rambler Motors Ltd. four occasions over five years was held to be sufficient. In British Crane Hire Corp. Ltd. v Ipswitch Plant Hire Ltd. written terms were held to have been implied into an oral in which there was no mention of written terms.
s will imply an obligation to negotiate in good faith
provided that certain conditions are satisfied
The test of whether one has acted in good faith is a subjective one; the cases suggest honesty, and possibly also reasonableness. There is no such implied term under UK common law
: an attempt was made by Lord Denning in a series of case during the 70s and 80s but they are no longer considered 'good law'. European legislation imposes this duty, but only in certain circumstances.
The Unfair Terms in Consumer Contracts Regulations 1999
reg 8 renders ineffective any 'unfair' contractual term if made between a seller or supplier and a consumer.
Regulation 5 of the statutory instrument further elaborates upon the concept of 'unfair', which is rather novel to English law. 'Unfair' is a term that was not individually negotiated (i.e. standard form
) that "causes a significant imbalance in the parties' rights and obligations arising under the contract
to the detriment of the consumer". This is not possible if the term is not contrary to 'good faith'; such as in Director General of Fair Trading v First National Bank, wherein the lack of a seemingly unfair interest
term would leave the bank open to a very poor deal whereby no interest
could be charged.
specifies "subject to contract", it may fall into one of three categories:
If a contract
specifies "subject to finance", it imposes obligations on the purchaser:
This may also refer to contingent conditions, which come under two categories: condition precedent and condition subsequent.
Conditions precedent are conditions that have to be complied with before performance of a contract
With conditions subsequent, parties have to perform until the condition is not met.
Failure of a condition repudiates the contract
this is not to necessarily discharge it. Repudiation will always gives rise to an action
for damages.
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
ual obligation, breach
Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
of which can give rise to litigation
Lawsuit
A lawsuit or "suit in law" is a civil action brought in a court of law in which a plaintiff, a party who claims to have incurred loss as a result of a defendant's actions, demands a legal or equitable remedy. The defendant is required to respond to the plaintiff's complaint...
. Not all terms are stated expressly and some terms carry less legal gravity as they are peripheral to the objectives of the contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
.
Condition or Warranty
Conditions are terms that go to the very root of a contractContract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
. Breach
Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
of these terms repudiates the contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
, allowing the other party to discharge the contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
. A warranty is less imperative than a condition, so the contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
will survive a breach
Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
. Breach
Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
of either a condition or a warranty will give rise to damages
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...
.
It is an objective matter of fact whether a term goes to the root of a contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
. By way of illustration, an actress's obligation to perform the opening night of a theatrical
Theatre
Theatre is a collaborative form of fine art that uses live performers to present the experience of a real or imagined event before a live audience in a specific place. The performers may communicate this experience to the audience through combinations of gesture, speech, song, music or dance...
production is a condition, whereas a singer's obligation to perform during the first three days of rehearsal is a warranty.
Statute
Statute
A statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...
may also declare a term or nature of term to be a condition or warranty. For example, the Sale of Goods Act 1979
Sale of Goods Act 1979
The Sale of Goods Act 1979 is an Act of the Parliament of the United Kingdom which regulates English contract law and UK commercial law in respect of goods that are sold and bought. The Act consolidates the original Sale of Goods Act 1893 and subsequent legislation, which in turn had codified and...
s15A provides that terms as to title, description, quality, and sample (as described in the Act
Act of Parliament
An Act of Parliament is a statute enacted as primary legislation by a national or sub-national parliament. In the Republic of Ireland the term Act of the Oireachtas is used, and in the United States the term Act of Congress is used.In Commonwealth countries, the term is used both in a narrow...
) are conditions save in certain defined circumstances.
Innominate term
Lord Diplock, in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha LtdHong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] is a landmark English contract law case. It introduced the concept of innominate terms, between "warranties" and "conditions". Diplock LJ emphasised that some terms could lead to either the right to terminate a contract as a remedy,...
, created the concept of an innominate term, breach
Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
of which may or not go to the root of the contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
depending upon the nature of the breach. Breach
Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
of these terms, as with all terms, will give rise to damages. Whether or not it repudiates the contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
depends upon whether legal benefit of the contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
has been removed from the innocent party. Megaw LJ, in 1970, preferred the use of the classic categorising into condition or warranty due to legal certainty
Legal certainty
Legal certainty is a principle in national and international law which holds that the law must provide those subject to it with the ability to regulate their conduct. Legal certainty is internationally recognised as a central requirement for the rule of law....
. This was interpreted by the House of Lords as merely restricting its application in Reardon Smith Line Ltd. v Hansen-Tangen.
Status as a term
Status as a term is important as a party can only take legal actionLawsuit
A lawsuit or "suit in law" is a civil action brought in a court of law in which a plaintiff, a party who claims to have incurred loss as a result of a defendant's actions, demands a legal or equitable remedy. The defendant is required to respond to the plaintiff's complaint...
for the non fulfillment of a term as opposed to representations or mere puffs.
Statements
Legally speaking, only statements that amount to a term create contractual obligations. Statements can be split into the following types:- Puff (sales talk): If no reasonable person hearing this statement would take it seriously, it is a puff, and no action in contractContractA contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
is available if the statement proves to be wrong. It may also be referred to as "puffery". This is common in televisionTelevisionTelevision is a telecommunication medium for transmitting and receiving moving images that can be monochrome or colored, with accompanying sound...
commercials. - Representation: A representation is a statement of fact which does not amount to a term of the contractContractA contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
but it is one that the maker of the statement does not guarantee its truth. This gives rise to no contractual obligation but may amount to a tortTortA tort, in common law jurisdictions, is a wrong that involves a breach of a civil duty owed to someone else. It is differentiated from a crime, which involves a breach of a duty owed to society in general...
, for example misrepresentationMisrepresentationMisrepresentation is a contract law concept. It means a false statement of fact made by one party to another party, which has the effect of inducing that party into the contract. For example, under certain circumstances, false statements or promises made by a seller of goods regarding the quality...
. - Term: A term is similar to a representation, but the truth of the statement is guaranteed by the person who made the statement therefore giving rise to a contractual obligation. For the purposes of Breach of ContractBreach of contractBreach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
a term may further be categorized as a condition, warranty or innominate term.
Determination of nature of a statement
There are various factor that a courtCourt
A court is a form of tribunal, often a governmental institution, with the authority to adjudicate legal disputes between parties and carry out the administration of justice in civil, criminal, and administrative matters in accordance with the rule of law...
may take into account in determining the nature of a statement. These include:
- Timing: If the contractContractA contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
was concluded soon after the statement was made, this is a strong indication that the statement induced the person to enter into the contractContractA contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
. Lapse of a week within the negotiations of a carČarČar is a village in the municipality of Bujanovac, Serbia. According to the 2002 census, the town has a population of 296 people.-References:...
sale was held to amount only to a representation in Routledge v McKay - Content of statement: It is necessary to consider what was said in the given context, which has nothing to do with the importance of a statement.
- Knowledge and expertise: In Oscar Chess Ltd v. Williams, a person selling a carČarČar is a village in the municipality of Bujanovac, Serbia. According to the 2002 census, the town has a population of 296 people.-References:...
to a second-handSecond-HandSecond-Hand was a 2005 Romanian film directed by Dan Piţa.-Plot summary:The film's plot surrounds the romantic involvement of two contrasting characters: Petre , a Mafioso, and Andreea , a young violin player. The pair meet and fall in love...
carČarČar is a village in the municipality of Bujanovac, Serbia. According to the 2002 census, the town has a population of 296 people.-References:...
dealer stated that it was a 1948 MorrisMorris Motor CompanyThe Morris Motor Company was a British car manufacturing company. After the incorporation of the company into larger corporations, the Morris name remained in use as a marque until 1984 when British Leyland's Austin Rover Group decided to concentrate on the more popular Austin marque...
, when in fact it was a 1939 model car. It was held that the statement did not become a term because a reasonable person in the position of the car dealer would not have thought that an inexperienced person would have guaranteed the truth of the statement. - Reduction into Writing: Where the contractContractA contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
is consolidated into writing, previous spoken terms, omitted from the consolidation, will probably be relegated to representations. The old case of Birch v Paramount Estates Ltd. provided that a very important spoken term may persist even if omitted from the written consolidation; this case concerned the quality of a residential house.
The parol evidence rule
Parol evidence rule
The parol evidence rule is a substantive common law rule in contract cases that prevents a party to a written contract from presenting extrinsic evidence that contradicts or adds to the written terms of the contract that appears to be whole...
limits what things can be taken into account when trying to interpret a contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
. This rule has practically ceased operation under UK law
Law
Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...
, but remains functional in Australian Law.
Implied terms
A Term may either be expressed or implied. An Express term is stated by the parties during negotiation or written in a contractual document. Implied terms are not stated but nevertheless form a provision of the contractContract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
.
Terms implied in fact
The Privy CouncilPrivy council
A privy council is a body that advises the head of state of a nation, typically, but not always, in the context of a monarchic government. The word "privy" means "private" or "secret"; thus, a privy council was originally a committee of the monarch's closest advisors to give confidential advice on...
established a five stage test in BP Refinery Western Port v. Shire of Hastings:
- Reasonableness and equitableness: The implied term must be reasonable and equitable.
- Business efficacy: The implied term must be necessary for the business efficacy of the contract. For instance, if the term simply causes the contractContractA contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
to operate better, that does not fit this criterion. This is the principle laid out in The Moorcock. The presiding judgeJudgeA judge is a person who presides over court proceedings, either alone or as part of a panel of judges. The powers, functions, method of appointment, discipline, and training of judges vary widely across different jurisdictions. The judge is supposed to conduct the trial impartially and in an open...
created a quaint concept of an officious bystander; if the officious bystander were to propose a term and both the parties would be likely to reply with a testy "oh, of course", the term is implied. - Obviousness: The term is so obvious that it goes without saying. Furthermore, there must be one and only one thing that would be implied by the parties. For example, in Codelfa Construction Pty Ltd v. State Rail Authority of New South Wales, a term regarding the inability of construction company to work three shifts a day could not be implied because it was unclear what form it would have taken. In English LawEnglish lawEnglish law is the legal system of England and Wales, and is the basis of common law legal systems used in most Commonwealth countries and the United States except Louisiana...
, This principle was established in the case of Spring v. NASDS, in the context of a Trade UnionTrade unionA trade union, trades union or labor union is an organization of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates labour contracts with...
membership contract. - Clear expression: The term must be capable of clear expression. No specific technical knowledge should be required.
- Consistency: The implied term may not contradict an express term.
In Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
, the High Court
High Court of Australia
The High Court of Australia is the supreme court in the Australian court hierarchy and the final court of appeal in Australia. It has both original and appellate jurisdiction, has the power of judicial review over laws passed by the Parliament of Australia and the parliaments of the States, and...
has ruled that the test in BP Refinery
BP
BP p.l.c. is a global oil and gas company headquartered in London, United Kingdom. It is the third-largest energy company and fourth-largest company in the world measured by revenues and one of the six oil and gas "supermajors"...
applies only to formal contract
Formal contract
A formal contract is a contract where the parties have signed under seal, while an informal contract is one not under seal. A seal can be any impression made upon the document by the parties to the contract. This was traditionally done in wax stating the intentions of the parties to be bound by...
s, while the test in Byrne and Frew v. Australian Airlines Ltd shall apply to informal contracts:
- Necessity: The term must be necessary to ensure reasonable or effective operation of a contractContractA contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
of the nature before the courtCourtA court is a form of tribunal, often a governmental institution, with the authority to adjudicate legal disputes between parties and carry out the administration of justice in civil, criminal, and administrative matters in accordance with the rule of law...
. - Consistency: The implied term may not contradict an express term (same as for formal contracts).
- Clear expression: The term must be capable of clear expression (same as for formal contracts).
- Obvious: McHugh and Gummow JJ have stated that it must also be obvious to all the people involved include jews and jaws.
Common law
- Liverpool City Council v. Irwin established a term to be implied into all contracts between tenant and landlord that the landlord is obliged to keep the common areas in a reasonable state of repair.
- Wong Mee Wan v Kwan Kin Travel Services Ltd. established that when a tour operator contracts to for the sale of goods. The most important legislationLegislationLegislation is law which has been promulgated by a legislature or other governing body, or the process of making it...
under United KingdomUnited KingdomThe United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
lawLawLaw is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...
is the Sale of Goods Act 1979Sale of Goods Act 1979The Sale of Goods Act 1979 is an Act of the Parliament of the United Kingdom which regulates English contract law and UK commercial law in respect of goods that are sold and bought. The Act consolidates the original Sale of Goods Act 1893 and subsequent legislation, which in turn had codified and...
, the Consumer Protection (Distance Selling) Regulations 2000Consumer Protection (Distance Selling) Regulations 2000The Consumer Protection Regulations 2000, SI 2000/2334, incorporates Directive into law of the United Kingdom. They apply to contracts "concluded between a supplier and a consumer under an organised distance sales or services provision scheme run by the supplier who, for the purposes of the...
and the Supply of Goods and Services Act 1982Supply of Goods and Services Act 1982The Supply of Goods and Services Act 1982 is an Act of the Parliament of the United Kingdom that requires traders to provide services to a proper standard of workmanship...
which imply terms into all contracts whereby goods are sold or services provided.
These terms will be implied into all contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
s of the same nature as a matter of law
Law
Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...
.
Statutory
The rules by which many contractContract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
s are governed are provided in specialized statute
Statute
A statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...
s that deal with particular subjects. Most countries
Country
A country is a region legally identified as a distinct entity in political geography. A country may be an independent sovereign state or one that is occupied by another state, as a non-sovereign or formerly sovereign political division, or a geographic region associated with a previously...
, for example, have statutes which deal directly with sale of goods, lease transactions, and trade practices. For example, each American state
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...
except Louisiana
Louisiana
Louisiana is a state located in the southern region of the United States of America. Its capital is Baton Rouge and largest city is New Orleans. Louisiana is the only state in the U.S. with political subdivisions termed parishes, which are local governments equivalent to counties...
has adopted Article 2 of the Uniform Commercial Code, which regulates contracts for the sale of goods. The most important legislation
Legislation
Legislation is law which has been promulgated by a legislature or other governing body, or the process of making it...
implying terms under United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
law
Law
Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...
are the Sale of Goods Act 1979
Sale of Goods Act 1979
The Sale of Goods Act 1979 is an Act of the Parliament of the United Kingdom which regulates English contract law and UK commercial law in respect of goods that are sold and bought. The Act consolidates the original Sale of Goods Act 1893 and subsequent legislation, which in turn had codified and...
, the Consumer Protection (Distance Selling) Regulations 2000
Consumer Protection (Distance Selling) Regulations 2000
The Consumer Protection Regulations 2000, SI 2000/2334, incorporates Directive into law of the United Kingdom. They apply to contracts "concluded between a supplier and a consumer under an organised distance sales or services provision scheme run by the supplier who, for the purposes of the...
and the Supply of Goods and Services Act 1982
Supply of Goods and Services Act 1982
The Supply of Goods and Services Act 1982 is an Act of the Parliament of the United Kingdom that requires traders to provide services to a proper standard of workmanship...
which imply terms into all contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
s whereby goods are sold or services provided.
Terms implied by custom or trade
One is generally bound by the custom of the industry that one is in. To imply a term due to custom or trade, one must prove the existence of the custom, which must be notorious, certain, legal and reasonableCourse of dealing
If two parties have regularly conduct business on certain terms, the terms may be assumed to be same for each contractContract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
made, if not expressly agreed to the contrary. The parties must have dealt on numerous occasions and been aware of the term purported to be implied. In Hollier v Rambler Motors Ltd. four occasions over five years was held to be sufficient. In British Crane Hire Corp. Ltd. v Ipswitch Plant Hire Ltd. written terms were held to have been implied into an oral in which there was no mention of written terms.
Good faith
It is common for lengthy negotiations to be written into a heads of agreement document that includes a clause to the effect that the rest of the agreement is to be negotiated. Although these cases may appear to fall into the category of agreement to agree, Australian courtCourt
A court is a form of tribunal, often a governmental institution, with the authority to adjudicate legal disputes between parties and carry out the administration of justice in civil, criminal, and administrative matters in accordance with the rule of law...
s will imply an obligation to negotiate in good faith
Good faith
In philosophy, the concept of Good faith—Latin bona fides “good faith”, bona fide “in good faith”—denotes sincere, honest intention or belief, regardless of the outcome of an action; the opposed concepts are bad faith, mala fides and perfidy...
provided that certain conditions are satisfied
- Negotiations were well-advanced and the large proportion of terms have been worked out; and
- There exists some mechanism to resolve disputes if the negotiations broke down.
The test of whether one has acted in good faith is a subjective one; the cases suggest honesty, and possibly also reasonableness. There is no such implied term under UK common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
: an attempt was made by Lord Denning in a series of case during the 70s and 80s but they are no longer considered 'good law'. European legislation imposes this duty, but only in certain circumstances.
The Unfair Terms in Consumer Contracts Regulations 1999
Unfair Terms in Consumer Contracts Regulations 1999
The Unfair Terms in Consumer Contracts Regulations 1999 is a UK statutory instrument, which implements the EU Unfair Consumer Contract Terms Directive into domestic law.Implemented under the European Communities Act 1972. See also, L95 OJ 29...
reg 8 renders ineffective any 'unfair' contractual term if made between a seller or supplier and a consumer.
Regulation 5 of the statutory instrument further elaborates upon the concept of 'unfair', which is rather novel to English law. 'Unfair' is a term that was not individually negotiated (i.e. standard form
Standard form contract
A standard form contract is a contract between two parties where the terms and conditions of the contract are set by one of the parties, and the other party is placed in a "take it or leave it" position with little or no ability to negotiate terms more favorable to it.Examples of standard form...
) that "causes a significant imbalance in the parties' rights and obligations arising under the contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
to the detriment of the consumer". This is not possible if the term is not contrary to 'good faith'; such as in Director General of Fair Trading v First National Bank, wherein the lack of a seemingly unfair interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
term would leave the bank open to a very poor deal whereby no interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
could be charged.
"Subject to" contracts
If a contractContract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
specifies "subject to contract", it may fall into one of three categories:
- The parties are immediately bound to the bargain, but they intend to restate the deal in a formalised contract that will not have a different effect; or
- The parties have completely agreed to the terms, but have made the execution of some terms in the contract conditional on the creation of a formalised contract; or
- It is merely an agreement to agree, and the deal will not be concluded until the formalised contractContractA contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
has been drawn up.
If a contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
specifies "subject to finance", it imposes obligations on the purchaser:
- The purchaser must seek finance; and
- When offers of finance arrive, the purchaser must make a decision as to whether the offers of finance are suitable.
This may also refer to contingent conditions, which come under two categories: condition precedent and condition subsequent.
Conditions precedent are conditions that have to be complied with before performance of a contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
With conditions subsequent, parties have to perform until the condition is not met.
Failure of a condition repudiates the contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
this is not to necessarily discharge it. Repudiation will always gives rise to an action
Lawsuit
A lawsuit or "suit in law" is a civil action brought in a court of law in which a plaintiff, a party who claims to have incurred loss as a result of a defendant's actions, demands a legal or equitable remedy. The defendant is required to respond to the plaintiff's complaint...
for damages.