13 CONTRACTUAL TERMS
CHAPTER 13
CONTRACTUAL TERMS
INTRODUCTION
So far in this book we have looked at the theories underpinning the law of contract, what happens in the course of pre-contractual negotiations and problems with formation. In this fifth section, we will focus on the contents of contracts. The ingredients or terms of a contract are not always easy to discover. You will already be aware from the earlier discussion of misrepresentation that certain statements made in the course of pre-contractual negotiations will become terms of the contract whilst others will be excluded from it. Even where a contract is written down and signed by both parties, you will discover that other terms may be added by the courts legislation. In the majority of cases, this will be done because the additional terms represent what the parties intended, but in other instances, the legislature have shown themselves willing to rewrite parts of the contract made by two autonomous and consenting individuals. The extent to which this offends the classical notion of freedom of contract has been the subject of much discussion. Judicial and legislative activity in this area reflects the way in which notions of contractual responsibility have changed and moved away from the political ideals of individualism and laissez-faire.
WHERE CAN TERMS BE FOUND?
The judiciary is not unduly concerned with the form into which the parties put their agreement. Many business agreements, such as export sales, building contracts and hire-purchase agreements, are based on standard printed documents. A contract may be entirely in written form or it may be partly written with the remainder orally expressed. Many agreements are wholly oral and certain contractual obligations may simply be implied from the parties’ conduct whatever they have agreed on paper. So, for instance, if you take a magazine from an unattended pile at a newstand and place 60 pence into a tin on the counter, a contract has been formed without a word having been spoken or a form signed. A variety of factors such as economy, convenience, certainty, security or speed dictate how contracts are expressed and, as one aspect of freedom of contract, the law itself rarely demands a particular approach.
The multiplicity of forms that a contract may take is well illustrated by the case of Evans & Son (Portsmouth) Ltd v Merzario Ltd (1976). The facts of the case were that for several years Merzarui made the transport arrangements for the importation of machinery by Evans from Italy. The course of dealing between the parties was based on the printed standard conditions of the freight forwarding trade, clause 4 of which read: ‘Subject to express instructions in writing given by the customer, the Company reserves to itself complete freedom in respect of means, route and procedure to be followed in the handling and transportation of goods’. It was not disputed that the terms of the standard form had, in the course of dealings, become part of each individual contract made by the parties. After eight years it was proposed that the machinery should be carried in containers, and Merzario’s manager, in the course of discussions in Portsmouth with Evans’s manager, assured him: ‘If we do use containers, they will not be carried on deck where the machinery might go rusty’. Containers were used and invoices, referring as usual to the standard conditions and containing new charges, were sent. Nothing was put in writing about the containers being carried below deck. A container carried on deck fell into the sea and was lost. The court held that Evans was entitled to damages for breach of contract because the oral assurance amounted to an express term of the contract. It was held that the contract was partly in writing, partly implied by conduct and partly oral. Moreover, because the new oral term and clause 4 of the printed conditions were inconsistent, the court held that the individual assurance overrode the standard form.
This case was mainly concerned with express terms: what was written on the printed form or said by the parties. But it is important to understand that, more generally, implied terms are just as binding as express terms. Implied terms can be incorporated into contracts from a variety of sources. Although statute law is the most important source of implied terms, say as regards consumer protection, the courts themselves also possess the power to imply terms into a contract. The courts have long argued that they will not make a contract for the parties. So when and on what basis will they ‘find’ a term which has not been expressed? Judges and academics have gone to great lengths to identify certain categories or groups of implied terms. Opinions vary as to how many categories there are, probably because they are not so much distinctive categories as shades on a continuous spectrum. Moreover, you will see that certain terms added to a contract by the courts or legislature cannot in all honest be ‘implied’ at all but are imposed in the interests of social justice. In the remainder of this chapter we will look at the three key ways in which implied terms can be incorporated into contracts: custom, common law and statute.
IMPLIED TERMS
Terms implied by custom or trade usage
The courts have shown themselves prepared to imply terms to reflect common business practice. This is a clear illustration of the point that it may be unwise to regard a contract’s express terms in isolation. The better course, in appropriate circumstances, is to set them firmly within an overall framework or context of business conduct and relationships. In this way evidence of commercial custom can be added to the contract as a type of ‘annex’ to the contract. The rationale for importing such terms into the contract is that the parties can be taken to assume that normal business practice applies where a contract is silent on a matter. If the parties object to certain types of trade practice, they can circumvent the imposition of implied terms by ensuring that an express term lays down alternative arrangements. In such circumstances, the courts will enforce the express term rather than impose trade custom on the parties where they have expressed a clear intention to avoid it. This reflects the judiciary’s commitment to enforcing what was intended by the parties.
The approach of the courts can is illustrated in British Crane Hire Corpn Ltd v Ipswich Plant Hire Ltd (1975). The facts of the case were that British Crane supplied a dragline crane to Ipswich Plant. It being a matter of urgency, the agreement was made by telephone and nothing was said about the conditions of hire. Later British Crane sent their printed conditions to Ipswich Plant but, before they were signed, the crane sank in marshy ground. The conditions were similar to those used by all firms in the plant hire business and they laid down that the hirer was liable to indemnify the owner of equipment against all expense in connection with its use. When sued for the cost of recovering the crane, Ipswich Plant claimed they were not liable under British Crane’s conditions because they had not been incorporated into the oral contract. The court held that, as Ipswich Plant knew that such conditions were in common use in the business, British Crane were entitled to conclude that Ipswich Plant were accepting the crane on their conditions. As a result the court treated these implied terms as having been incorporated into the contract, on the basis of the common understanding of the parties.
In this case, a term was implied or incorporated into a contract because it was in common use in a trade to which both parties belonged. Similarly, terms may be incorporated into contracts between parties who have established a regular, previous course of dealing, whether or not they are in the same line of business. In Kendall & Sons v Lillico & Sons Ltd