Terms of The Contract-CIMA


As a general principle the parties may by their offer and acceptance include in their contract whatever terms they prefer. But the law may modify these express terms in various ways.

(a)The terms must be sufficiently complete and precise to produce an agreement which can be binding. If they are vague there may be no contract.

(b)The terms of the contract are usually classified as conditions or as warranties according to their importance.

(c)If the parties express the terms in writing, the introduction of oral evidence of the terms of the contract is restricted.

(d)Statements made in the precontract negotiations may become terms of the contract or remain as representations to which different rules attach.

(e)In addition to the express terms of the agreement, additional terms may be implied by law.

(f)Terms which exclude or restrict liability for breach of contract (exemption or exclusion clauses) are restricted in their effect or overridden by common law and statutory rules.


A legally binding agreement must be complete in its terms. Otherwise there is no contract, since  the parties are still at the stage of negotiating the necessary terms.

case: Scammell v Ouston 1941

An arrangement for the purchase of 3 var. provided that the unpaid balance of the price should be paid over two years 'on hire-purchase terms'.

Held: there was no agreement since it was uncertain what terms of payment were intended.Terms vary over intervals between payments, interest charge to be added etc.

2.It is always possible for the parties to leave an essential term to be settled by specified means outside the contract. For example, it may be agreed to sell at the ruling open market price (if there is a market) on the day of delivery, or to invite an arbitrator to determine a         It fair price. The price may even be determined by the course of dealing between the parties.

Case: Hillas v Arcos 1932

A contract for the supply of timber in 1930 contained an option for the purchaser to buy z quantity of timber in 1931.

Held: the missing terms of the 1931 purchase could be deduced from the conduct of the parties in their 1930 transaction. The law is not 'a destroyer of bargains' but endeavors to make them effective.

If the parties use meaningless but non-essential words, e.g. by use of standard printed conditions  some of which are inappropriate, such phrases may be disregarded.

Case: Nicolene v Simmonds 1953

A contract made by correspondence provided that ‘the usual conditions of acceptance apply'. The  contract was complete without these words; there were no usual conditions of acceptance. Held: the words should be disregarded.

If however the parties expressly agree to defer some essential term for later negotiation there is no binding agreement. This is described as 'an agreement to agree' which is void, as the parties may subsequently fail to agree.


3The terms of the contract are usually classified by their relative importance as:

(a) conditions -breach of which entitles the party not in breach to treat the contract as

discharged; and

(b)warranties – breach of which only entitles the injured party to claim damages.

Case: Poussard v Spiers 1876

Madame Poussard agreed to sing in an opera throughout a series of performances. Owing to illness she was unable to appear on the opening night and the next few days. The producer engaged a substitute who insisted that she should be engaged for the whole run. When Mme Poussard had recovered the producer declined to accept her services f.)r the remaining performances.

Held: failure to sing on the opening night was a breach of condition which entitled the producer to treat the contract for the remaining performances as discharged.

case: Bettini v Gye 1876

an opera singer was engaged for a series of performances under a contract by which he had to be in London for rehearsals six days before the opening performance. Owing to illness he did not arrive until the third day before the opening.

Held: the rehearsal clause was subsidiary to the main purpose of the contract. Breach of the clause must be treated as breach of warranty, so the producer was bound to accept the singer's services though he could claim damages (if he could prove any loss) for failure to arrive in time for six days' rehearsals.

in nominate terms

Unless the parties expressly agree that a particular term shall be treated as a condition, it .may prove difficult to put it into the appropriate category when the contract is made. In a complicated case on sale of goods decided in 1975 the Court of Appeal developed the theory that some terms should remain unclassified (in nominate terms or intermediate terms) until the seriousness of a breach could be judged: Cehave v Bremer, The Hansa Nord 1975. If the breach went to the root of the contract the relevant term should then be classified as a condition; if it did not then it should be treated as a warranty.

The significance of this is that breach of a condition means that the whole contract is breached, while breach of a warranty can give rise only to damages.

oral evidence relating to contracts in writing

The general rule is that if a contract is or includes a written document, oral evidence may not be given to’ add to, vary or contradict' the document. There are the following exceptions to the rule.

(a) Oral evidence may be given of trade practice or custom.

(b) Evidence may be given to show that the parties agreed orally that their written consent should not take effect until 2 condition precedent had been satisfied, e.g. a written contract to buy a house subject to a verbal agreement that it would take effect only if the purchaser's surveyor gave a satisfactory report.

(c) Oral evidence may be given as an addition to a written contract if it can be shown that the document, such as printed conditions of sale, was not intended to comprise all the agreed terms. But the presumption is that a contract document is the entire contract until tile contrary is proved.

Case: SS Ardennes 19:

A printed bill of lading (for shipment of a cargo of oranges) provided that the ship might go 'by any route … directly or indirectly' to London. The ship-owners' agent had given a verbal undertaking that the vessel would sail direct from Spain to London.

Held: evidence might be given of the verbal undertaking as a term overriding the bill of lading.

(d) Oral evidence maybe adduced to correct a written agreement drawn up subsequently which contains a mistake

Representations and contract terms

If something said in pre-contract negotiations proves to be untrue. the party misled can only claim for breach of contract if the statement became a term of-the contract. Otherwise hi i . remedy is for misrepresentation only Even if the statement is no, repeated or referred to in making the contract it may be treated as a contract term. But such factors as a significant interval of time between statement and contract or the use of a written contract making no reference to the verbal statement suggest that it is not a term of the contract. If, however, the party who makes the statement speaks with special knowledge of the subject it is more likely to be treated as a contract term.

Case: Bannerman v White 1861             –

In negotiations for the sale of hops the buyer emphasized that it was essential to him that the hops should not have been treated with sulphur. The seller replied explicitly that no sulphur had been used. It was later discovered that a small proportion of the hops (bought in by the seller from another grower) had been treated with sulphur.

Held: the absence of sulphur was intended to be a term of the contract. Case: Oscar Chess v Williams 1959

A private motorist negotiated the sale of an old car to motor dealers in part exchange for a new car. The seller stated (as the registration book showed) that his car was a 1948 model. In fact it was a 1939 model (and the registration book had been altered by a previous owner). Held: the statement was a mere representation. The seller was not an expert and the buyer had 5 better means of discovering the truth.

(NB partly to relieve the hardship of these situations, the Misrepresentation Act 1967 created a' right to claim damages for negligent misrepresentation.


Additional terms of a contract may be implied by law.

a)the parties may be considered to enter into a contract subject to a custom or practice of their trade. For example, when a farm is let to a tenant t may be an implied term that local farming custom on husbandry and tenant rights shall apply. Hutton v Warren 1836. But any express term overrides a term which might be implied by custom.

Case: Les Affreteurs v Walford 1919

A charter of a ship provided expressly for a payment to be made on signing the charter. There was a trade custom that it should only be paid at a later stage.

Held: 2n express term prevails over a term otherwise implied by custom.

b)terms may be implied by statute In some cases the statute permits the parties to contract out of the statutory terms (e.g. the terms of partnership implied by the Partnership Act 1890may be excluded). In other cases the statutory, terms are obligatory. The protection given by the Sale of Goods Act 1979 to a consumer who buys goods from a trader cannot be taken away from him

(c)Terms may be implied if the court concludes that the parties intended these terms to apply and did not mention them because they were taken for granted

The parties may take something obvious for granted. For example, if a person undertakes to do work, such as the conveyance of a property, in which he claims to be proficient, it is an implied term that he will show reasonable skill in doing the work. In such cases the officious bystander' test is applied; if an officious bystander had intervened to remind the parties that n formulating their contract they had failed to mention a particular point they would have –replied 'of course … we did not trouble to say that; it is too clear.' case: The moorcock 1839

The owners of a wharf agreed that a ship should be moored alongside to unload its cargo. It was well known to both wharfingers and ship owner that at low tide the ship would ground on the mud it the bottom. At ebb tide the ship rested on a ridge concealed beneath the mud and suffered damage.

Held: it was an implied term, though not expressed, that the ground alongside the wharf (which 3id not belong to the wharfingers) was safe at low fide since both parties !:new that the ship must rest on it.

3.The terms to be implied in this way are those necessary to complete the contract and give it 'business efficacy.' Terms will not be implied to contract t e express terms o the contract nor to provide for events which the parties did not contemplate in their negotiations


'As a general rule a contract may be made in any form – in writing, by. word of mouth or even by implication from conduct. For example, a customer in a self-service shop takes his selected goods to the cash desk, pays for them and walks out. There is a contract of sale although not a word has been spoken; the cash payment slip is merely evidence of payment and not essential to the contract.

2.To the general rule there are some exceptions.

(a)Contract by deed. Some rights and obligations, such as a transfer of title to land, or a lease of land for a period of three years or more, or a promise not supported by consideration (such as a covenant to make annual payments to a charity) are required to be in the form of a deed and may not be binding if they are not in that form.

(b)Contracts in writing. Some types of contract (mainly commercial) are required to be in the form of a written document, usually signed by at least one of the parties, and are void if not in that form. This category includes bills of exchange, hire purchase agreements and agreements relating to land.

(c)Contracts which must be evidenced in writing. Certain types of contract may be made orally but are not enforceable in a court of law unless there is written evidence of their term. The important contract failing under this head is that of guarantee.

Contracts by deed

3. deed used to be referred to as a contract under seal, but sl of the Law of Property (Miscellaneous Provisions) Act 1989 no longer requires an individual to seal s deed. It is a written document (on paper, parchment or other substance) which has been signed by the person executing it (and sealed if created by a corporate body with a common seal) and is expressed on its face to be a deed. signature must be witnessed To be validly executed by an individual, the document must be delivered, the other party by the individual or his agent. Remember that a contract by deed is binding even- though no consideration is given or received.

4.A contract for the sale or other disposition of land o: -f any interest in land (such as the grant of a lease) must be in writing, incorporating all the expressly agreed terms and signed by or on behalf of each party to the contract: s2 Law of Property (Miscellaneous Provisions) Act1989 (repeating s40 Law of Property Act l925). Note that an oral contract relating to an ,   interest in land cannot now be enforced if it is only evidenced in writing – it must actually be in writing. In addition, the doctrine of part performance (whereby equity recognized part performance of such a contract as an alternative form of evidence) no longer applies, though the principle of estoppels should still provide some protection.

5,Note that s2 does not apply to the grant of a short lease or a contract made at public auction. These may still be enforced if they are only evidenced in writing.

6 These new rules mean that not only a document transferring land but also the contract of sale ~ for land must be in writing. A contract for the sale of land must be distinguished from the actual document which transfers the title to that land, that is the conveyance (unregistered land) or transfer (registered land). The contract promises to transfer title at a future date (usually four weeks hence) and must be in writing. The conveyance or transfer must be by deed and will therefore also be in writing. A contract promising to grant a lease must be in writing but the lease itself, if it is for three years or more, must be by deed.


1. In most cases the terms of the contract are included in the agreement when an offer has been accepted. The parties themselves can no longer make changes – but there are a number of ways in – which the law modifies the express terms agreed by the parties. In addition, things said in pre­contract negotiations may later be held to be representations only, and not to be included as terms of the contract.

2.It is important to note the different effects of a contractual tern being a condition or a . J' warranty – breach of the former leads to discharge of the entire contract by breach, whilst breach of the latter entitles the injured party only: to damages. Often it will not be possible to identify a term as a condition or warranty until the consequences of its breach are known (an in nominate term).

3.In many contracts terms are implied by custom, by a-commonsense (the business efficacy' rule) and by statute. We shall see the effects of this latter source on various types of consumer contract later in this text.

4.Finally the required form of a contract must be understood. Despite the old adage a verbal contract ain't worth the paper it's written on' (Sam Goldwyn), many contracts are formed verbally or even by implication from conduct – and, provided the other elements of consideration and intention are there, such contracts are enforceable. However, some contracts are required to be in a particular form – by deed or at least in writing. A contract of guarantee made orally will be enforceable only if there is written evidence of its agreed terms.