Obligations under a Contract:

Terms

Md. Rashed Khan MBA

Barrister-at-Law
Advocate
Supreme Court of Bangladesh
 Terms

Known as the contents of the Contract

Terms of a contract are the obligations contained in it.
They represent what the parties agreed to do or give
under the contract.

Reason for dispute- A failure to honour a contractual

obligation and therefore a breach of a term of the
contract.
 Terms-Types

Express terms-
Whatever the parties have expressly agreed
upon.

Implied Terms:
What the law has decided should be included
in the contract.
 Terms-Types

Difficulty with oral contract-

It is difficult to identify which are terms and

which are not.
 Representation

Statements made by the parties in pre-

contractual stage:
Before the contract (at the negotiation phase)
At the time of contracting
Precontractual statement:
Oral
In writing
implied by conduct: fall of an auctioneer hammer
Objective :
Induce the other party to enter into contract.
 Representation

Contents of representation:
Current facts
Intention of the parties.

Impact of pre contractual statement on the

contract depends on:

Character of the statement.

Context in which it is made
 Representation
Character of the statement

Representations that are presumed not to

induce the parties into contract:

Trade puff
Mere opinion
Mere represnation
 Representation

Trade Puff:
Puffs are mere boasts or unascertained claims
Carlsberg-Probably the best lager in the world
They are nothing more than a catchy gimmick
used in order to highlight the product that is being
sold.
It is not intended to be taken seriously but to
catch the attention.
It is assumed that nobody would take them
seriously.
 Representation
Trade Puff:
Statement made Puff achieves
more closer to factuality legal Significance

Carlill v the carbolic Smoke Ball Co Ltd. (1893)

Argumetn of gimmick failed
It was stated in the advertisement that sum of money was
deposited in the bank to cover claims of consumers
Such claim was greater proof of the companys intention to be
bound by promise.
Advertisement promised to cure/prevent : cough, catarrah,
influenza, asthma bronchitis, Whooping cough -18 diseases
List itself seemed to be precise and more than mere boast.
 Representation
Mere opinions:
An opinion does not carry any liability for the party making it
because it is not based on fact.
Bisset v Wilkinson (1927)
Vendor was selling two blocks of land in Newzealand
Purchaser was intending to use the land for sheep farming.
In response to request vendor said in his judgment the land could
support 2000 sheeps.
In fact it could support far less than that and it proved impractical
as a sheep farm.
Purchaser sued and claimed misrepresentation.
Privi Council held because of inexperience; statement was
nothing more than honest opinion, no reliance could be placed on
it.
 Representation
Mere opinions:
False opinion by a party with expertise in the field
Esso Petroleum Co Ltd v Marden (1927)
Esso acquired site to build petrol station
Marden wanted to take franchise. Asked Esso about the potential sales
Esso replied it would be 2,00,000 gallons/year
Local authority approved side entrance from main road rather front
entance, Esso said potential sales would not be altered
Sales reached no more than 78,000 gallons despite all efforts of
Marden.
Marden failed to pay loan taken from Esso, Esso sued for repossession.
Marden counterclaimed his investment
Esso said estimate was opinion
Court held-Marden was able to rely on it as it was a factual statement.
 Representation
Mere Representation:
Statement as to fact intended to induce the other party to enter into
contract.

Not intended to form part of the contract.

If statement is true: Mere representation

If statement is false: Misrepresentation.

 Express Terms

Parties have agreed on them

Subject to legal action if they are breached.
In order to be a term of a contract:
The statement must be incorporated and form part of the
contract.

Test: Whether or not a particular statement is incorporated as

a term
Objective test: what a reasonable man would consider the
parties had in mind during entering into the contract.
Factors relevant to incorporating terms

Factors relevant to incorporating terms:

A. Importance attached to the representation:
Without it being incorporated as term it is unlikely
that the parties would have entered into the
contract.
Birch v Paramount Estates (1927)
A newly wed couple bought a new house from developer
Agreed to buy based on promise: the house would be as
good as the show house.
In fact-the house was not as good as the show house
CA held-the statement was so central to the agreement that
in had been incorporated into the contract as a term.
But for the statement made the couple would not have
entered in to the contract.
Factors relevant to incorporating terms

A. Importance attached to the representation:

Couchman v Hill (1947)
A written agreement for sale of young female cow not yet
had a calf
Condition of sale included (Exclusion) clause: Lots were sold
with all faults, imperfections and error of descriptions
The sale catalogue described the cow as unserved
The buyer asked the auctioneer and seller to confirm it was
unserved
Long after the sale it was proved false (the cow had calf)
It died a result of having calf at too young age
CA held-despite written contract; the representation was so
crucial to the buyer in making the contract that
It was incorporated as a term.
It was more than a misrepresentation but breach of term.
 Factors relevant to incorporating terms

B. Special knowledge of skill affecting equality of

Bargaining power:
Statement made with no particular expertise or specialist
knowledge-unlikely to be construed as term.
Oscar Chess Ltd v Williams (1957)
W was ordinary motorist sold his car to motor dealer for 290
Described it as a 1948 Morris, registration docs also showed so.
Later discovered to be model of 1939
Motor dealer sued for breach of warranty
Action failed
Court held-W had no expertise or specialist skill was completely
reliant on registration document in making the statement.
It was not incorporated as term of the contract.
It was innocent representation; at that time had no remedy.
Factors relevant to incorporating terms

B. Special knowledge of skill affecting equality of

Bargaining power:
Statement made with particular expertise of specialist
knowledge-More likely to be construed as term.
Dick Bentley Productions Ltd v Harold Smith (Motors)
Ltd (1965)
D asked H who was a car dealer to find him a well vetted
Bentley car (good condition)
H falsely stated the car had only done 20,000 miles since fitted
with new engine and gearbox.
In fact it had done 1,00,000 miles.
D sued for breach of warranty
CA held-D relied on the specialist knowledge of the car dealer
Statement as to mileage was key issue for D to enter in to the
contract.
Factors relevant to incorporating terms

C. Time between making the statement and

formation of the contract:
Time lapse- Statement made during negotiation and entering into
contract:
More time-less likely that the statement is incorporated in to the
contract as term.
Routledge v McKay (1954)
Motorcycle was registered in 1939
New registration book recorded as 1941
In 1949 owner told buyer date of registration as 1941
Written document did not mention the age of the motorcycle
Buyer later discovered the true date and sued for breach of term
Court held-the statement was not incorporated as term
Lapse of time was too wide to create binding relationship based on
the statement.
Factors relevant to incorporating terms

D. Written Contract-including the statement in

writing:
If contract is made in written document and statement made orally
between parties in not included in the document
Court will infer that it was not intended to form part of the
contract: but a mere representation.

Routledge v McKay (1954)

Written agreement did not mention the age of the motorcycle
Court held-It was not considered important enough to be term.
Factors relevant to incorporating terms
E. The extent to which the term is effectively drawn to the
notice of the party subject to it.
Olley v Marlborough Court Hotel (1949)
Mr and Mrs Olley booked into the hotel and at the point contract was
formed
They went out; kept key at the reception
In their absence third party took key from reception and entered in to
the room and stole fur coat of Mrs. Olley
Mrs Olley sought compensation from hotel
Owner argued they were not liable-Exclusion clause: the proprietor will
not hold themselves liable for articles lost or stolen unless handed to
the manageress for safe custody.
Mrs. Olley sued
CA held-the clause had not been incorporated in the contract since it
was on a notice on a wall inside the Olleys room.
When the contract was formed Olleys were unaware of the clause
The clause was not part of the contract.
Factors relevant to incorporating terms
Olley v Marlborough Court Hotel (1949)
Mr and Mrs Olley booked into the hotel and at the point contract was
formed
They went out; kept key at the reception
In their absence third party took key from reception and entered in to
the room and stole fur coat of Mrs. Olley
Mrs Olley sought compensation from hotel
Owner argued they were not liable-
Exclusion clause: the proprietor will not hold themselves liable for
articles lost or stolen unless handed to the manageress for safe
custody.
Mrs. Olley sued
CA held-the clause had not been incorporated in the contract since it
was on a notice on a wall inside the Olleys room.
When the contract was formed Olleys were unaware of the clause and
therefore hand been given no chance of negotiating different terms.
The clause was not part of the contract.
Olley v Malborough Court what
happened?
Factors relevant to incorporating terms

F. A party is generally bound by anything that he

has signed whether or not he has read it Written
Contract-including the statement in writing:
LEstrange v Groucob

I should have read

the fine print before
signing the
document. Now I
am bound by what I
signed!
Factors relevant to incorporating terms
Parole Evidence Rule:
A rule that governs the extent to which parties to a case may
introduce into court evidence of a prior or contemporaneous
agreement in order to modify, explain, or supplement the contract at
issue.

The rule states that where the parties to a contract intended for their
written agreement to be the full and final expression of their bargain
(i.e., the writing is an integration),
other written or oral agreements that were made prior to or simultaneous with the
writing are inadmissible for the purpose of changing the terms of the original
agreement.
Factors relevant to incorporating terms

G. Originally the parol evidence prevented a party

from introducing evidence of oral agreement not
actually in the written agreement.

There are now many exceptions to this rule.

 Implied Terms

Terms implied in to a contact:

Implied by fact:
Give effect to presumed intention of the parties by the
court
Implied by law:
Law demands that certain obligations to be included in a
contract: Statutory provisions

Aim: redressing imbalance in bargaining strength

to protect a particular group.
 Terms Implied by Fact

A. Terms implied by custom or habit:

Prescription: In relation to use of land
Ohutton v Warren (1836)
Long standing local custom was that on termination of an agricultural
lease
Tenant would be entitled to allowance for seed and labour on the land
Court held lease made by the parties must be viewed in the light of
this customs.
 Terms Implied by Fact

B. Terms implied by trade of professional customs:

Must not contradict the express terms
Bill of Exchange Act 1882 incorporated long standing
practices of merchants.
Les Affreteurs Reunis SA v Walford (1919)
Charter party contract
Customs were not implied into the contract
 Terms Implied by Fact

C. Terms implied to give sense and meaning to the

agreement:
Schawel v Reade (1913)
S wanted to buy a stallion for stud purposes
R was examining a horse at the stable of R
R said you need not look for anything the horse is perfectly sound. If
there was anything the matter with the horse I would tell you
It turned out that the horse was unfit
Court held assurance of R was implied warranty
S was entitled to rely on the very general assurance made by the
seller.
 Terms Implied by Fact
D. Terms implied to give business efficacy to a
commercial contract
The Moorcock (1889)
The Defendants owned a wharf with a jetty on the Thames.
They made an agreement with the claimant to dock his ship and
unload cargoes at the wharf
Both the parties were aware at the time of contracting that this could
involve the vessels being at the jetty at low tide
The size of the vessels was too great for the depth of water in the
wharf at low tide
As a result the ship became grounded at the jetty and broke up on a
ridge of rock.
The Claimant sued for the cost of the damage to the ship.
Court held that there was implied undertaking that the ship would not
be damaged.
 Terms Implied by Fact
E. Terms implied because of the prior conduct of the
contracting parties
Courts will accept that a later contract will be subject to similar terms.
Hillas v Arcos (1932)
Supply of timber
Though subsequent agreement was quite vague to the type of timber,
the term of shipment and man other issues
Court held that it was implicit that the contract would be carried out
according to previous similar terms.
 Terms Implied by Common Law
A. Terms implied by common law
The courts might also imply a term by law because the judges feel that
it is the type of term that should naturally be incorporated into a
contract of a particular type and
in an area not covered by statute
Liverpool city Council v Irwin (1976)
The Council leased flats in a 15 floor tower block
There were no proper tenancy agreement though there was a list of
tenants obligations that were signed by tenants.
The Council failed to maintain the common areas such as the stairs,
lifts, corridors and rubbish chutes
With time no lighting, lifts and rubbish chutes not working
The claimants were the Tenants who withheld the rent in protest
Council sued for repossession.
 Terms Implied by Common Law
A. Terms implied by common law
Liverpool city Council v Irwin (1976)
The claimants counter claimed and argued a breach of an implied term
that the council should maintain the common areas.
In CA Lord Denning felt that such a term could be implied because it
was reasonable in the circumstances.
HL accepted that there was an implied term to take reasonable care to
maintain the common areas.
 Terms Implied by Statute
In the nineteenth century the law of contract was most commonly
governed by the maxim Caveat Emptor (let the buyer beware)

Little attention was paid to the fact that in many circumstances

one party to the contract was significantly inferior bargaining
position to the other party-consumers, employees

Old maxim has been found wanting and unacceptable.

Parliament through Acts has often given greater protection to the

party with the weaker bargaining strength in certain types of
contracts by the process of inserting or implying terms in to the
contracts irrespective of intention of the parties.
 Terms Implied by Statute

Such process is common in Acts governing consumer

contracts
The Sale of Goods Act 1979 (as amended by the Sale and Supply of
Goods Act 1994)

The Supply of Goods and Services Act 1982

The Unfair Contract Terms Act 1977

Implied terms provide a statutory protection that can

constantly relied upon because they will usually apply
regardless of what is said in the contract.
 Terms Implied by Statute :
The Sale of Goods Act 1979

Section 12-Implied condition as to title

In any contract for sale of Goods s 12 automatically implies a term
that he has right to sale the goods.
Applied in private and B to C sale

Rowland v Divall (1923)

The claimant bought a car that turned out to be stolen
When the proper owner took the car back the claimant was able to
recover the full price of the car from the seller
The seller had no rights of ownership over the car and the court held
that s 12 applied.
 Terms Implied by Statute :
The Sale of Goods Act 1979

Section 13-Implied condition as to description

Goods sold in a sale of goods contract must correspond to any
description applied to them.

Applied in private and B to C sale

Re Moore & Co and Landauer & Cos Arbitration (1921)
Two parties contracted for the sale and purchase of a consignment of
tinned fruit.
In the contract it was described as being in cartons of 30 tins.
When on delivery half of the cartons were of 24 tins
There was a breach of s 13 even though the actual quantity of tins
ordered was correct
The Court taking a narrow view considered that the goods were not as
they were described in the contract and the seller was liable.
 Terms Implied by Statute :
The Sale of Goods Act 1979

Section 14(2)-Implied condition that the goods are of

satisfactory quality
Applies only when the goods are sold in the course of a Business.

Previous requirement: goods should be merchantable quality

Merchantable means as being fit for the purpose for which goods of
the kind were commonly supplied.

Narrow meaning

Many parties were left without remedy

 Terms Implied by Statute :
The Sale of Goods Act 1979

Section 14(2)-Implied condition that the goods are of

satisfactory quality
Rogers v Parish (Scarborough) (1987)

The contract was for the sale and purchase of a brand new Range
Rover
The car misfired and had oil leak and there were scratches on the
paintwork
The court held that the car was not of merchantable quality.

The sale and supply of Goods Act 1994 amended s 14(2) of

the 1979 Act. Replacing the word merchantable with word
satisfactory.
 Terms Implied by Statute :
The Sale of Goods Act 1979

Section 14(2)(b)-Factors that can be taken into account in

deciding whether or not goods are of satisfactory quality:

Fitness for all the purposes for which goods of the kind are commonly
supplied.

Appearance and finish

Freedom from minor defects
Safety and durability.
 Terms Implied by Statute :
The Sale of Goods Act 1979

Section 14(3)-Implied condition that the goods are fit for

their purpose
This provision will apply where the buyer either expressly of impliedly
make known to the seller any particular purpose for which goods are
being bought

Regardless of whether or not that is a purpose for which goods of that

kind are commonly supplied.
 Terms Implied by Statute :
The Sale of Goods Act 1979

Section 14(3)-Implied condition that the goods are fit for

their purpose
Baldry v Marshall (1925)

B bought a Bugatti car

He had asked the seller to supply him with a fast flexible and easily
managed car
That would be comfortable and suitable for ordinary touring purpose
Bugatti did not conform to the requirement set under the contract.
Court held that B had stated his purpose and was entitled to rely on
the skill and judgment of the seller
Seller had breached s 14(3) by failing to supply good fit for the
purpose actually described to him in the contract.
 Terms Implied by Statute :
The Sale of Goods Act 1979

Section 14(3)-Implied condition that the goods are fit for

their purpose
Grant v Australian Knitting Mills (1925)

G purchased woolen underpants

Gamants actually contained traces of chemicals which caused the
claimant painful skin disease.
Court accepted that the garments had an obvious purpose
The buyer would have impliedly known the purpose for which G was
buying the garments
Even if he had not specifically stated it to the seller.
There was a clear breach of implied term.
 Terms Implied by Statute :
The Sale of Goods Act 1979

Section 15-Implied condition that goods sold by sample

should correspond with the sample
Godley v Parry (1960)

A boy was injured in the eye when the elastic snapped on a catapult
that he had bought from retailer
The retailer had taken supplies of the toy after seeing a sample.
Seller was able to show that he had tested the sample and
the catapult did not match the sample
The manufacturer was in breach.
 Terms Implied by Statute :
Supply of Goods and Services Act 1982

This act contains similar terms as those in the Sale of Goods

Act 1979

Certain terms mirror those in the Sale of Goods Act 1979

Implied condition as to title (s 2)

Implied condition as of satisfactory quality and fitness for purpose (4)

Implied condition in respect of sale by sample (5).

Section 15-Implied condition that goods sold by sample

should correspond with the sample
 Terms Implied by Statute :
Supply of Goods and Services Act 1982

Section 13-In a contract for the supply of a service where

the supplier is acting in the course of a business there is an
implied term that the supplier will carryout the service with
reasonable care and skill.
A person paying for a service is entitled to expect that the person
providing it is competent to undertake the work and will behave
professionally
 Terms Implied by Statute :
Supply of Goods and Services Act 1982

Section 13-Where the supplier is acting in the course of a

business there is an implied term that the supplier will
carryout the service with reasonable care and skill.
Lawson v Supasink Ltd (1984)

S was contracted to design, supply and install a fitted kitchen for

1200
Plans were drawn up but the S failed to follow them properly.
L sued under s 13
Court held that since the work was shoddy
C recovered the money for repairing defects.
 Terms Implied by Statute :
Supply of Goods and Services Act 1982

Section 14-If time for carrying out the service is not fixed
there is implied term that the supplier will carry out the
service within a reasonable time.
Charnock v Liverpool Corporation (1968)

L took 8 weeks to repair a car

It was demonstrated to the courts satisfaction that a competent repair
should have taken no more than 5 weeks.
L was held to be in breach of implied term.
 Terms Implied by Statute :
Supply of Goods and Services Act 1982

Section 15- Where consideration for service is not

determined, there is implied term that the party contracting
with the supplier will pay reasonable charge.
 The relative significance of term

Terms of contract will have different weighting and are of

different significance to the contract.

As terms are of different significance then the consequence

of any breach of those terms will also vary in their
significance.

Different remedies are available to the parties depending on

the term that is breached.
 The relative significance of term

The courts have distinguished between terms and

determined their classification in two distinct ways:
Importance of the term to the completion of the contract.

Remedies available to a party who is a victim of a breach of the term.

Courts have determined that there are two types of term:

Conditions-those are critical o the central purposes of the contract.

Warranties- all other terms.

 The relative significance of term

Terms

Importance to the Consideration Remedies

completion of the point for available upon
contract courts breach

Condition Warranty Innominate terms:

No name

Terms critical to the central All other Terms Remedy depends on the
purpose of the contract consequence of breach
 The relative significance of term

Conditions:
Term of a contract which is so important to the contract that failure
to perform the term would render the term meaningless and

destroy the whole purpose of the contract.

Remedies available to the victim of breach:

Sue for damages or

Repudiate his obligation under the contract or

Both

Repudiation: claimant can treat himself as relieved of his

obligation and can contract with an alternative party.
 The relative significance of term

Repudiation:
Clear and absolute refusal to perform, which includes
conduct showing the party is unwilling, even though
he may be able, to perform.

claimant can treat himself as relieved of his

obligation and can contract with an alternative party.
 The relative significance of term

Conditions:
Poussard v Spires and Pond (1876)

An actress was contracted to appear in the lead role in operetta of a

season
Due to illness she was unable to attend for the early performances
The producers had given her role to another
Actress sued
Court held that P had breached the contract by not turning up after
first night.
As the lead singer her presence was crucial to the production and so
was a condition of the contract.
Breach of condition entitled the producer to repudiate and terminate
her contract.
 The relative significance of term

Warranties:
Warranties are regarded as minor terms of the contract

These are residual category of terms dealing with obligations that are
either ancillary secondary to the major purpose of the contract.

The remedy for a breach of a warranty is merely an action for

damages.

There is no right to repudiate for a breach of a warranty.

It the victim of the breach of warranty tries to repudiate his

obligations; this amounts to unlawful and actionable repudiation.
 The relative significance of term
Warranties:
Bettini v Gye (1876)

A singer was contracted to appear at a variety of theatres for a

season of concerts.
Contract included a term that he should attend rehearsals for six days
prior to the beginning of actual parformances
Actor was absent for the first 3 days of rehearsals
On his return his role had been replaced
B sued
Producers claim that obligation to attend to rehearsals was a condition.
Court held-Attending rehearsals was ancillary to the main purpose of
the contract attending the main production
The breach entitled the producers to sue for damages and not to end
the contract and replace the singer.
 The relative significance of term
Innominate terms:
Courts do not give the term any specific classification-
Condition/warranty

Consequence of breach is considered to determine the outcome of

breach (Remedy) rather that how it is classified.

If the consequence of the breach is sufficiently serious-Right to

repudiate

If the consequence of the breach is not sufficiently serious- Damages

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd. (1962)
 The relative significance of term
Even though a term is stated as being as condition it
may be construed as a warranty by the court
Schuler (L) AG v Wickman Machine Tool Sales Ltd (1974)

An agency contract
W was appointed sole distributor of Ss Presses
It was stated as a condition of the contract that Ws representatives
would make weekly visits to six large UK motor manufacturers to solicit
orders for presses.
A further term stated that contract could be terminated for a breach of
an condition in the contract that was not remedied within 60 days.
The duraton of contract was more than four years amounting to more
than 1400 visits.
Ws representatives failed to make a visit
S sought to terminate the contract
 The relative significance of term
Schuler (L) AG v Wickman Machine Tool Sales Ltd (1974)

HL held that it was inevitable that during the length of the contract
there would be occasions when maintaining weekly visits would be
impossible
HL also held that the effect of accepting the term as condition would
be to entitle S to terminate the contract even if there was only one
failure to visit out of the 1400
This would be an unreasonable burden on W and the term could not
stand as a condition.
despite the fact that the term has been stated in the contract as a
condition
Because it did not demonstrate the actual characteristics of a condition
The court was unable to accept that repudiation of the party was
lawful
The court held that despite the classification of the term as in the
contract the only available remedy would have been damages as for
breaches of terms generally.
 The relative significance of term
Statement

Terms Representation

Importance to the Consideration Remedies

completion of the point for available upon
contract courts breach

Condition Warranty Innominate terms

Terms critical to the central All other Terms Remedy depends on the
purpose of the contract consequence of breach
Thank you.