Contractual Terms
A contract is a set of mutually agreed promises made between parties with the intention of creating a legally binding agreement. It is important to analyse exactly what it is that the parties are agreeing to do.
The statements made by the parties under negotiation that are not meant to form part of the contract are called representations, whilst the things that the parties are bound to perform under the contract are called the terms of the contract.
The statements made by the parties under negotiation that are not meant to form part of the contract are called representations, whilst the things that the parties are bound to perform under the contract are called the terms of the contract.
Types of Term
There are two types of term which can be found in a contract:
- the express term
- the implied term
Express TermsExpress terms are statements made by the parties either by word of mouth or in writing and the parties intend that these terms will create the fundamental part of the contract. Express terms can be either conditions or warranties.
ConditionsA condition is a fundamental part of the agreement and is something which forms the root of the contract.
A breach of condition will entitle the injured party to repudiate (treat the contract as if it is over and invalid) and claim damages. WarrantiesA warranty is a less important term that does not go to the root of the contract. A breach of a warranty will only give the injured party the right to claim in damages; the contract itself cannot be rejected.
It is common in business contracts to not only have express terms relating to conditions and warranties, but also to have express key terms included in the contract such as:
The Difference Between Express and Implied TermsExpress terms will be those terms in the contract that the parties have negotiated and expressly agreed. Parties can strike these terms out and re-negotiate until all terms have been agreed. The parties have total control over the type of express terms their contract contains.
On the other hand, implied terms are those that the law insists are included in the contract. Here the parties have no say in the matter and if they wish to do business with each other must follow these implied terms precisely. |
Implied TermsImplied terms are not actually stated in a contract but are introduced into the contract by statute, custom and common law.
Terms Implied by StatuteTo protect parties, terms are implied into a contract by virtue of legislation. A main example of this is the Sale of Goods Act 1979 - which is implied by statute into contracts for the sale of goods.
According to this Act, in every contract for the sale of goods there will be the following terms implied:
The Supply of Goods and Services Act 1982 deals with implied terms that apply to contracts where one person agrees to bail goods to another person by way of hire.
Terms Implied by CustomAn agreement may be subject to customary terms not actually specified by the parties. These could be historical; therefore, a person making a contract should try to find if any such terms are in existence. It should be noted, however, that such a custom will be overruled by any express clause to the contrary.
Terms Implied by the Common LawThe courts will be prepared to imply a term into the contract in order to validate the obvious intentions of the parties. This may be a point that has been overlooked or may not have been clearly stated by the parties. In such circumstances, the court will imply such a term in the interests of 'business fairness' so that the contract makes commercial common sense.
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Additional Content
Contract - Express & Implied Terms Contract: express and implied terms
How are terms incorporated into a contract? At first it looks like a silly question, because we’d usually expect them to be explicitly included in the contract. Express terms are terms that have been specifically mentioned and agreed by both parties at the time the contract is made. They can either be oral or in writing.
However, sometimes a term which has not been mentioned by either party will nonetheless be ‘included’ in the contract, often because the contract doesn’t make commercial sense without that term. Terms like this are called implied terms, and there are two main types:
How are terms incorporated into a contract? At first it looks like a silly question, because we’d usually expect them to be explicitly included in the contract. Express terms are terms that have been specifically mentioned and agreed by both parties at the time the contract is made. They can either be oral or in writing.
However, sometimes a term which has not been mentioned by either party will nonetheless be ‘included’ in the contract, often because the contract doesn’t make commercial sense without that term. Terms like this are called implied terms, and there are two main types:
- Terms implied by statute: the Sale of Goods Act 1979. The key provisions are:
- Section 12: the person selling the goods has to have the legal right to sell them.
- Section 13: if you’re selling goods by description, e.g. from a catalogue or newspaper advert, then the actual goods have to correspond to that description.
- Section 14: the goods must be of “satisfactory quality” – that is, they should meet the standard that a reasonable person would regard as “satisfactory”. Also, if the buyer says they’re buying the goods for a particular purpose, there’s an implied term that the goods are fit for that purpose.
- Section 15: if you’re selling the goods by sample – you show the customer one bag of flour and they order 50 bags – then the bulk order has to be of the same quality as the sample.
- Terms implied by the courts…
- As a matter of fact. Something that’s so obviously included that it didn’t need to be mentioned in the contract. If I agree to pay you £50 for a lawnmower, it probably wouldn’t occur to us to write down that we mean fifty pounds sterling, as opposed to any other sort of pound. That’s obvious to both of us. (Beware of this point – it has to have been obvious to both parties – it’s not enough to show that one party thought it was included, or that the contract would have been more reasonable with the added term.)
- As a matter of law. This is about general considerations of public policy – the courts are laying down, as a matter of law, how the parties to certain types of contract ought to behave. For example, in one case, the courts held that landlords of blocks of flats ought to keep the communal areas (lifts, stairs etc) in a reasonable state of repair – so that term was implied into the rental contract.
- Customary terms. Some terms are generally known to be included in contracts in a particular trade or locality. Amongst bakers, “one dozen” means thirteen – they don’t have to include terms in every contract specifying that.
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