Sample 2:1 Undergraduate Law Coursework

What is a contractual term, and what are the various sources of contractual terms in English law?

Introduction

A contract under law is known to be made of several terms – however, the terms in a contract do not always denote everything that has been discussed during the negotiation of the contract.[1] A principal distinction to be drawn here is that between the term of a contract and what is also known as a mere representation. The distinction here is considered to be important because if a statement is considered to be a term, failure to adhere to it is a breach of contract, thereby giving the aggrieved party a remedy in law.[2]

On the other hand, if the statement is considered to be a mere representation, then there can be no claims of breach of contract as the statement is not considered to be constitutive of the contract. A false representation which induced the contract may still give rise to rescission or damages, even if it also became a term (Misrepresentation Act 1967, ss 1–2). Therefore, it is crucial to be aware of this distinction when a statement is considered to be a term of a contract. Hence, this paper seeks to study what a term of a contract is, and also seeks to establish the various sources of contractual terms under English contract law. The first part of the paper shall study the various principles deciding when a statement is a term of a contract, while the second part shall study the various sources of contractual terms.

Principles Governing Terms

It must be noted firstly, that while there are indeed a few principles that decide when a statement is a term, no principle is decisive. Rather, their applicability depends on the particular case itself.[3]

Firstly, there is the point of verification – if the maker of a particular statement has discouraged the other party from verifying the statement, then such a statement is likely to be held as a term.[4] Indeed, in the case of Ecay v Godfrey,[5] the person selling the boat had told the buyer that he believed the boat to be sound. However, the seller had also suggested that the buyer have the boat surveyed before purchasing it. Hence, it was held in this case that the statement was only a mere representation.

Secondly, there is the idea of importance of the statement being made. A statement would most likely be considered to be a term where the person to whom the statement has been made has made its importance clear. The point here is that if that statement had not been made, the person would not have agreed to enter into the contract. In the case of Couchman v Hill,[6] a heifer had been put up for sale as unserved. The buyer had asked the seller and the auctioneer to confirm that she had not been mated, which both did. However, the heifer was in calf and subsequently died. When proceedings were instituted, the statement that the heifer was unserved was considered to be a term by the court, given the high level of importance the claimant had attached to it prior to the conclusion of the contract.

Thirdly, the level of specialist knowledge of the person making the statement is also relevant here. Where the person making the statement is deemed to have specialist knowledge or a skill, as compared to the person to whom the statement is being made, then there is a strong chance that this is considered to be a term of a contract rather than a mere representation. On the other hand, if the person receiving the statement is actually of superior knowledge than the person making it, then the statement is more likely to be considered a mere representation rather than a term.[7]

This can be made evident when one considers the case of Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd.[8] In this case, the claimant had requested a car dealer company (the defendant) to help him find a well vetted Bentley car. The defendants had thereby found a car which they had told the client to have only travelled 20,000 miles since the engine and gearbox had been replaced. However, the car had done nearly 100,000 miles under its previous owner, and the mileage since the work was unknown. The court had held that the statement made by the defendants regarding the miles travelled by the car was a contractual term. As car dealers, the defendants were in a position to check the mileage with the maker. Therefore, owing to specialist knowledge, statements can actually be treated as terms of a contract.

Sources of Contractual Terms in English Law

Given that this paper has studied what constitutes a contractual term, it is now time to consider some of the sources of contractual terms. There are essentially two main sources of contractual terms – express terms and implied terms. While express terms refer to those terms which parties have openly agreed to, implied terms refer to terms which are implied into the contract by statute, custom or the courts, for various reasons. This section shall first consider express terms, and then deal with implied terms.

Express Terms: Parol Evidence Rule

The first source of express contractual terms can be described as the contract itself, as illustrated by the parol evidence rule. By this rule, where the parties intend a written document to contain their whole contract, they generally cannot rely on earlier or contemporaneous statements to add to, vary or contradict its terms.[9] The parties may still agree to vary the contract later, subject to any applicable formalities.

However, there are indeed various exceptions to this parol evidence rule, most of which fall outside the scope of this paper. It can be stated with conviction that the parol evidence rule today does not apply in a very strict manner, for doing so could lead to considerable injustice. One should consider the case where the contractual document has been procured through fraud or deceit or where the contract is not supposed to contain the whole list of terms agreed to by the parties.[10]

Express Terms: Signature Rule

Another source of contractual terms is a contractual document which a person has signed, regardless of whether or not he is aware of the content of the document.[11] This denotes that not only can a contract itself, but another signed document intended to have contractual effect could be considered to be a source of contractual terms under English law. Once again, this rule comes with certain exceptions, in order to ensure that there are no administrative injustices done. Indeed, in the case of Grogan v Robin Meredith Plant Hire,[12] the court held that the signed time sheet was merely an administrative document which had been designed in order to help the parties facilitate their actual agreement.

Express Terms: Incorporation of Written Terms

Another source of express terms is the process of parties to a contract agreeing to incorporate a set of written terms into their contract. Three main points apply where incorporation depends on notice. Firstly, notice of the terms to be incorporated must be given prior to the conclusion of the contract, or at the point of the conclusion of the contract.[13] Secondly, the terms must have been set out or referred to in a document or notice that a reasonable person would expect to have contractual effect. In determining this, reference may be made to current commercial practices as to whether or not it can be considered to be so.[14] Thirdly, reasonable steps must have been undertaken in order to bring the written terms to the attention of the other party. An unusually onerous term may require more prominent notice.[15]

Express Terms: Incorporation by Course of Dealing

Finally, another source of express terms is the course of dealing of the parties itself, whereby terms could be incorporated into contracts through a course of dealing. Such course of dealing between the parties must have been regular and consistent, in order for this to serve as a source of express contractual terms.[16] In British Crane Hire, there had been only two prior contracts between the parties. The terms were incorporated because both parties were in the same trade and understood that the usual hire conditions would apply.[17]

Implied Terms: Statutory Terms

The first source of implied terms is statutory provisions, whereby Parliament has sought to imply terms into contracts for various reasons. For example, when one considers a business-to-business sale under the Sale of Goods Act 1979,[18] Section 12(1) states that it is generally an implied term that the seller has the right to sell the goods or, in an agreement to sell, will have that right when ownership passes. Similarly, Section 14(2) of the Act states that where a seller is selling goods in the course of his business, then there is an implied condition that the goods that are being supplied as per the contract must be of satisfactory quality. For a sale by a trader to a consumer, the corresponding terms are now supplied by sections 9 and 17 of the Consumer Rights Act 2015. For consumer services, statements by or on behalf of the trader about itself or the service can also become terms under section 50 if the consumer takes them into account in deciding to contract or in a later decision about the service.

Implied Terms: Customary Practices

The second source of implied terms is customary practice, whereby a relevant custom of the market could be implied into a contract.[19] The custom must be certain, reasonable and sufficiently well known to those involved in that trade or locality. It must also be consistent with the express terms.

Implied Terms: Common Law

The final and most important source of implied terms is the common law, whereby there are two categories of terms implied at common law. The first is known as terms which are implied in fact – this means that the court will imply a term into the contract on the basis of the parties’ presumed intentions, judged objectively. Such a form of implication occurs where it is deemed to be necessary in order to give the contract the business efficacy which the parties intended, or where the term is so obvious that it goes without saying. The term must be clear and consistent with the express terms.[20]

The second category is known as terms that are implied in law, which means that such terms could be implied into all contracts of a particular type. Some examples include employment contracts, and general contracts concluded between landlords and tenants. With regards to employment contracts then, one can note that there is the general implied term that the employee will serve the employer in a faithful manner and take reasonable care in his work. In Lister, the employee was liable for the damages his employer incurred as a result of his negligent driving.[21] The question is whether the term is necessary for that type of contractual relationship.

Conclusion

In summary, it has become clear that there are a few guiding principles on when a statement is considered to be a term, and when it is a mere representation. It must be remembered that no principle is conclusive, and the question of whether a statement is a term is judged objectively. The relevant principles must be given due regard in the context of each and every case, rather than in a general manner. At the same time, the paper has also shown that there are two main sources of contractual terms – implied terms and express terms. Within express terms, sources of such terms include the parties’ oral or written agreement, the signature rule, incorporation of written terms and incorporation of terms based on a course of dealing. Sources of implied terms include terms implied by statute, terms implied by customary practices, and terms implied by principles of common law.

Bibliography

Table of Cases

Allen v Pink (1838) 4 M & W 140

British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd [1975] QB 303

Chapelton v Barry UDC [1940] 1 KB 532

Couchman v Hill [1947] KB 554

Cunliffe-Owen v Teather & Greenwood [1967] 1 WLR 1421

Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623

Ecay v Godfrey (1946) 80 Ll L Rep 286

Grogan v Robin Meredith Plant Hire [1996] CLC 1127

Heilbut, Symons & Co v Buckleton [1913] AC 30

Hutton v Warren (1836) 1 M & W 466

Jacobs v Batavia & General Plantations Trust Ltd [1924] 1 Ch 287

L’Estrange v F Graucob Ltd [1934] 2 KB 394

Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555

Liverpool City Council v Irwin [1977] AC 239

Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2015] UKSC 72

McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125

Olley v Marlborough Court Ltd [1949] 1 KB 532

Oscar Chess Ltd v Williams [1957] 1 WLR 370

Parker v South Eastern Railway (1877) 2 CPD 416

Parker-Grennan v Camelot UK Lotteries Ltd [2024] EWCA Civ 185

Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24

Routledge v McKay [1954] 1 WLR 615

Schawel v Reade [1913] 2 IR 64

The Moorcock (1889) 14 PD 64

Table of Legislation

Consumer Rights Act 2015

Misrepresentation Act 1967

Sale of Goods Act 1979

Other Sources

Andrews N, Contract Law (2nd edn, Cambridge University Press, 2015)

Poole J, Textbook on Contract Law (13^th edn, Oxford University Press, 2016)

[1] J Poole, Textbook on Contract Law (13^th edn, Oxford University Press, 2016) 217.

[2] N Andrews, Contract Law (2nd edn, Cambridge University Press, 2015) 245.

[3] Heilbut, Symons & Co v Buckleton [1913] AC 30. On the timing of the statement and its omission from a later written agreement, see Routledge v McKay [1954] 1 WLR 615.

[4] Schawel v Reade [1913] 2 IR 64.

[5] Ecay v Godfrey (1946) 80 Ll L Rep 286.

[6] Couchman v Hill [1947] KB 554.

[7] Oscar Chess Ltd v Williams [1957] 1 WLR 370.

[8] Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623.

[9] Jacobs v Batavia & General Plantations Trust Ltd [1924] 1 Ch 287. On later variations, see Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24, [10]–[16].

[10] Allen v Pink (1838) 4 M & W 140.

[11] L’Estrange v F Graucob Ltd [1934] 2 KB 394.

[12] Grogan v Robin Meredith Plant Hire [1996] CLC 1127.

[13] Olley v Marlborough Court Ltd [1949] 1 KB 532.

[14] Chapelton v Barry UDC [1940] 1 KB 532.

[15] Parker v South Eastern Railway (1877) 2 CPD 416. Parker-Grennan v Camelot UK Lotteries Ltd [2024] EWCA Civ 185, [31]–[33].

[16] McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125.

[17] British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd [1975] QB 303.

[18] Sale of Goods Act 1979, ss 12(1), (3), (7) and 14(2)–(2C), (9). Consumer Rights Act 2015, ss 9, 17 and 50(1)–(2).

[19] Hutton v Warren (1836) 1 M & W 466. Cunliffe-Owen v Teather & Greenwood [1967] 1 WLR 1421, 1438.

[20] The Moorcock (1889) 14 PD 64. Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2015] UKSC 72, [18]–[23].

[21] Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555. Liverpool City Council v Irwin [1977] AC 239, 253–254.