⇒ The terms of a contract lay down the rights and obligations of the parties to the contract

⇒ If a term is breached a cause of action can result

⇒ Terms bind and are contractual, whilst representations do not bind and are usually not contractual

⇒ Therefore, breaching a representation is not a cause of action for breach of contract

• An innocent party can only claim misrepresentation

⇒ Whether something is a term or a representation depends on the objective intention of the parties - so if what was said was meant to form part of the agreement, then that will be a term

⇒ The “guiding factors” and “presumptions” the court asks itself are:

• 1) Has the Statement been reduced to writing?
• 2) Does one party have specialist skill or knowledge?
• 3) The importance placed upon the statement
• 4) Has there been a lapse in time between the statement being made and the contract being formed?

⇒ If a statement is written down it is more likely to be a term

⇒ If the statement is signed that is greater evidence it is a term (L’Estrange v F Graucob 1934)

⇒ Parole evidence rule:

• Parties may try to claim there is oral evidence that it was not their intention for the statement to be a term – the parol evidence rule states that if the statement is written the courts will simply say that IS the intention and any oral statements cannot be terms

⇒ If a party relies on the specialist statement when entering a contract that can be a term e.g. if Party A makes a statement (which only they know because of their professional/knowledgeable understanding) which induces party B to enter into a contract, then that statement can be a term of the contract

⇒ See, for example, Dick Bentley Productions v Harold Smith [1965]. However, compare this case with Oscar Chess v Williams [1957]

⇒ The statement maker must know the other party thought the statement was important for it to be a term

⇒ Surrounding circumstances could make the statement important e.g. Bannerman v White (1861)

⇒ If the statement was made a long time before the contract was finalised the less likely it is a term e.g. Routledge v McKay [1954]

⇒ If a statement is identified as a term it is only binding if it forms part of the contract (incorporated)

⇒ 3 methods of incorporating a term (see exclusion clauses):

• By Signature (L’Estrange v Graucob [1934])
• By Notice (Thompson v LMS Railway [1930])
• By previous dealings (British Crane hire v Ipswich Plant Hire [1975])

⇒ It is not always necessary for all terms to be agreed expressly; instead, the court will imply terms to reflect the party intentions

• Terms are implied in fact, in law, and in custom

⇒ Parties must have intended such terms to be a part of the contract but felt it unnecessary to expressly state the term

⇒ Terms are implied in fact when:

• 1) To give contract “business efficacy”
• 2) The “officious bystander” test

⇒ 1) Business efficacy:

• A term will be implied if it supports their commercial intention
• See, for example, The Moorcock (1889)

⇒ 2) The “Officious bystander” test:

• A term will be implied if it is “something so obvious that it goes without saying” – so, an officious bystander would know the term is necessary (Shirlaw v Southern Foundries [1939])

⇒ 1) A term implied in law by the court

• See, for example, Liverpool City Council v Irwin [1977] → The court implied a term, after a dispute arose, that the council had “to take reasonable care to keep [the flats] in reasonable repair and usability”
• There has been tension between the Court of Appeal and House of Lords as to when a term should be implied by the courts → Lord Wilberforce said (in Irwin) that the court will imply a term in law if it is necessary to do so (House of Lords). But Denning said it should be about reasonableness (Court of Appeal)

⇒ 2) Terms implied in law by statute

• Statute automatically implements terms into certain contracts e.g. Sale of Goods Act 1979

⇒ 3) Terms implied in law by customs

• Such as when the parties are in the same industry because both parties should know the existence of such terms e.g. British Crane Hire Corp v Ipswich Plant Hire [1975]

⇒ 1) Conditions

⇒ 2) Warranties

⇒ 3) Innominate (or intermediate) terms → although, these are not really terms!

⇒ Breaching a condition will end the contract

⇒ A condition is a fundamental term of a contract. Therefore, breaching a condition is a 'repudiatory' breach

⇒ Not as important as conditions, so a contract will not automatically end if a warranty is breached

⇒ However, damages can be sought

• It is important to identify a term as a condition or a warranty because one ends the contract and the other does not

⇒ The innocent party can accept the breach of warranty and withdraw from the contract:

• But the breach must be clear and unequivocal
• The withdrawl must be communicated to the contract breaker (Vitol v Noref (1996))
• Once he/she decides to withdraw it is irrvocable

⇒ OR the innocent party can affirm and waive the right to withdraw

• This keeps the contract alive, but he/she can still claim damages for the breach of contract
• Again, the waiving of the right to withdraw must be clear and unequivocal. Mere inactivity is not affirmation. HOWEVER, affirmation can be implied: Yukong Line of Korea v Rendsburg Investment Corporation of Liberia (1996)
• If the innocent party waives the right to withdraw it is irrevocable, unless there is a fresh breach of the contract (Johnson v Agnew)

⇒ Often statute will expressly say whether a term is a condition or a warranty e.g. the Sale of Goods Act 1979 s12: an implied term as to title is expressly stated, so should be a condition

⇒ Also, the parties can identify a term as a condition or warranty

• However, even if a contract says a term is a condition or warrant this is not final and the court still has the discretion to decide e.g. L Schuler AG v Wickman Machine Tools Sales [1974]

⇒ If both statute and the parties cannot deem whether a term is a warrants or a condition the court will look to the importance of such a term

⇒ An innominate term is a term which cannot be identified as either a condition or a warranty

⇒ The court will determine whether the term is a condition or a warranty depending on the seriousness of the breach and at the time of the breach

• See, for example, Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962]

⇒ Bunge v Tradax: ‘unless the contract makes it clear (…) that a particular term is a condition or only a warranty, it is an innominate term’ Lord Scarman

⇒ Advantage of clarifying a term as innominate:

• Flexibility for the court: they can look at why a party may have wanted a contract to end

⇒ Disadvantage of classifying a term as innominate

• Party uncertainty: hard for parties to regulate conduct