ACCA/CAT

Terms of the contract

1 Certainty of terms

1.1 Once a contract has been made its important to ascertain its content. The content of a contract is its terms. N.B. mere representations made pre contract are not part of the contractual terms.

2 Conditions and warranties

2.1 A condition is a core element of a contract. It is fundamental to the existence of the contract.

Breach of a condition entitles the injured party to:

(i) repudiate the contract (ie. treat contract as discharged); and

(ii) claim rescission which would enable him to receive property transferred; and

(iii) claim damages: Poussard v. Spiers.

2.2 A warranty is "collateral to the main purpose of the contract". It is not essential.

Breach of a warranty entitles the injured party to claim damages only: Bettini v. Gye.

2.3 Innominate terms: is a term which cannot be categorised at the start of the contract. The court will look at the effect of the breach: Hong Kong Fir Shipping Company v Kawasaki Kisen Kaisha.

3 Express and implied terms

3.1 An express term is one which has been clearly stated orally or in writing, or may be by reference at the time of contract:

3.2 An implied term is one which the court will allow because:

(a) It has to as the term is statutory (e.g. Sale of Goods Act 1979 as amended); This states that it will be a condition of the contract that (inter alia);

(i) the seller had title to the goods,

(ii) the goods are of satisfactory quality and fit for purpose,

(iii) the goods correspond with their description.

(b) It is necessary for the efficacy of the particular contract: The Moorcock; or

(c) It is customary through trade usage. Terms implied by custom cannot override the express terms of an agreement.

(d) Also where the parties have had previous dealing on the basis of an exclusion clause, that clause may be included in later contracts.

4 Formalities

Certain contracts have to be made in a formal way:

4.1 Some contracts must be in writing:

(a) consumer credit agreements

(b) transfer of company shares

(c) money lending contracts

(d) contract for the sale or other disposition of land e.g. leases: LP(MP)A'89

4.2 Some contracts do not have to be in writing. But written evidence must be available to enable an action to be brought. eg. Contract of guarantee.

4.3 Certain contracts must be executed as a Deed (and are called speciality contracts):

(a) Gratuitous promises: Deeds of Covenant

(b) Transfers of a legal estate in land

4.4 Contracts of employment need not be in writing or evidenced in writing but the main details must be outlined.

5 Terms in restraint of trade

5.1 Contracts or contract terms in restraint of trade are prima facie void but will be upheld if there is a legitimate proprietary interest to protect and the term is reasonable between the parties and for the community.

Legitimate Proprietary Interest

5.2 The following are legitimate proprietary interests:?

(a) Trade Secrets.

(b) Business Goodwill.

5.3 It is not legitimate to restrain the use of personal skills.

Reasonableness

5.4 The clause must only be sufficiently wide to protect the legitimate proprietary interest and no wider.

5.5 Factors to consider:

(a) Area.

(b) Duration.

(c) Activity (i.e. the drafting must restrict the specific activity and no other).

5.6 The burden of proof is on the claimant.

The bargaining position of the parties is taken into account.

Severance

5.7 The court will not rewrite a restraint which is too wide: Office Angels Ltd v Rainer-Thomas and O’Connor.

5.8 (a) The court may apply the "blue pencil test" if clauses are severable; Home Counties Dairies v Skilton.

(b) The blue pencil test will not be used if the restraint is really one covenant.

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