CONTRACTUAL TERMS

The terms of a contract describe the duties and obligations that each party assumes under their
agreement. Contracts may contain express terms and implied terms.
Express terms are terms that have been specifically mentioned and agreed by both parties at the
time the contract is made. They can either be oral or in writing.
Implied terms are terms which have not been mentioned by either party but will nonetheless be
‘included’ in the contract, often because the contract doesn’t make commercial sense without
that term.

Determining express terms

(1) When does an assertion become a term of the contract

(a) Special Knowledge

Where a statement is made by someone who has expert knowledge or skill that is relevant to the
subject in hand, the courts will be more willing to deem that statement a term than if the same
words were used by an amateur with no special expertise on the matter.

Esso Petroleum v Mardon [1976]

Facts: Esso selected a site for a new gas station and estimated it would sell 200 000 gallons of
gas per year. The planning authority then refused to allow the station to front on the busy street
as Esso had planned, instead the gas station was hidden behind a building with only a sign on the
busy street directing customers to the gas station. Esso did not revise their estimate of the annual
sales and contracted with Mardon to be a tenant of the station, claiming that the station would
soon reach sales of 200 000 gallons per year. By no fault of Marden, the sales were significantly
less than the predictions and Marden could not pay the rent. Esso proceeded to cut off the petrol
supplies and then issued a writ claiming possession of the gas station and money owed to them
by Marden. Marden counterclaimed for damages for breach of warranty, and alternatively for
negligent misrepresentation as to the expected gas sales.

Held: The trial judge held that the sales predictions were not a warranty, but that the plaintiffs
were liable for negligent representation. The House of Lords held that the gas sales predictions
were a contractual warranty because it was a factual statement on an important matter made by a
party who claimed to have special skill and knowledge. Furthermore the statements were made
with the intention of inducing the contract and did in fact induce Marden to enter into the
contract. therefore Esso breached the warranty and were liable for damages flowing from
the breach. The House of Lords (Denning) held further that if not a warranty, the sales
predictions were negligent representations made by a party claiming to have special skill and
knowledge. Esso was therefore under a duty to take reasonable care ensure that all
representations were accurate. It was held that the duty existed before the contract was formed
and continued to apply once the contract was underway. Accordingly, the plaintiffs were liable
for damages under the tort of negligence. 

Note that warranties normally pertain to present or past facts. However in this case a breach of
warranty was found regarding future facts.
Oscar Chess Ltd v Williams [1957]
Facts: Mrs Williams purchased a second hand Morris car on the basis that it was a 1948 model.
The registration document stated it was first registered in 1948. The following year her son used
the car as a trade in for a brand new Hillman Minx which he was purchasing from Oscar Chess.
The son stated the car was a 1948 model and on that basis the Oscar Chess offered £290 off the
purchase price of the Hillman. Without this discount, Williams would not have been able to go
through with the purchase. 8 months later Oscar Chess ltd found out that the car was in fact a
1939 model and worth much less than thought. They brought an action for breach of contract
arguing that the date of the vehicle was a fundamental term of the contract thus giving grounds to
repudiate the contract and claim damages.

Held: The statement relating to the age of the car was not a term but a representation. The
representee, Oscar Chess ltd as a car dealer, had the greater knowledge and would be in a better
position to know the age of the manufacture than the defendant.
Principle: A statement made by the 'knowledgeable' party is more likely to be treated by the
court as factual than as mere opinion or belief.

(b) Prevention of Fact-Verification

The more emphatically a statement is made, the more likely the courts will be to regard it as a
term of the contract.

Schawel v Reade(1913)
Facts: The defendant told the plaintiff, who required a horse for stud purposes, "You need not
look for anything: the horse is perfectly sound. If there was anything the matter with the horse I
would tell you". A few days later the price was agreed and, three weeks later, the plaintiff
bought the horse. Later however it turned out that the horse was not fit for stud purposes.
Held: The statement was held to be a term of the contract, but here the defendant, who was the
owner of the horse, would appear to have had special knowledge. The court held that this was
not an express warranty that the stallion was fit for stud purposes but it was implied as this
assurance was the purpose for which the claimant was buying the horse.

Ecay v Godfrey (1947)

Facts: Here the seller informed the buyer that the boat was in good condition but advised him
not to take his opinion - greatly weakening the strength of what he had said.
Held: The statement made was merely a representation not a term as the buyer was advised to
have the boat surveyed.
Principle: The more robustly a statement is made the more likely the courts will regard it as a
term.

(c) Importance to Promisee

A statement is likely to be seen as a term if the injured party has made the other party aware that
had it not been for that statement, they would not have entered into the contract.

Bannerman v White
Facts: The buyer of hops (used to make beer) asked whether sulphur had been used in their
cultivation. He added that if it had he would not even bother to ask the price. The seller assured
him that it had not. It later transpired that sulphur had been used and the Claimant brought an
action for breach.
Held: This assurance was held to be a condition of the contract. It was of such importance that,
without it, the buyer would not have contracted. It was a term of the contract rather than a
representation as the claimant had communicated the importance of the term and relied on the
statement in purchasing the goods.

City & Westminster Properties Ltd v Mudd (1959)

Facts: The defendant, who had been a tenant of the premises for six years, had resided at the
shop. When the lease fell for renewal, the plaintiffs inserted a clause for use of the premises to be
for business purposes only. The defendant asked if he could sleep there, was told that he could
and he signed the lease. Even though this assurance contradicted the lease, evidence of it was
held admissible to prove a collateral contract which the tenant could plead in answer to a claim
for breach of contract.
Held: Harman J held that there was a collateral contract that he could stay even if it contradicted
the written agreement’s express terms. He said there was no need to look at the question of
estoppel, because there was a clear assurance preceding the contract.

Evans v Merzario [1976]

Facts: In a contract for the transoceanic shipment of goods, a clause stated that the shipper
"reserves to itself complete freedom in respect of ... procedure to be followed in the handling and
transportation of the goods." But there was a verbal agreement in which the defendant promised
that they would transport the plaintiffs cargo below deck.
Analysis: One of the judges thought that the contract was "partly oral, partly in writing.... In
such a case the court does not require to have recourse to lawyers' devices such as collateral oral
warranty in order to seek to adduce evidence which would not otherwise be admissible. The
court is entitled to look at all the evidence.... One has to treat the promise that no container would
be shipped on deck as overriding any question of exempting conditions."
Held: "The question is whether the company can rely on those exemptions. I do not think so.
The cases are numerous in which oral promises have been held binding in spite of written
exempting conditions... There was a plain breach of the oral promise."

Heilbut Symonds v Buckleton [1913]

Facts: Heilbut, Symons & Co. were rubber merchants who were underwriting shares of what
they claimed was a rubber company. Buckleton, the defendant called up a manager at Heilbut to
inquire about the shares. In response to the questions, the manager stated that they were
"bringing out a rubber company". Based on this statement, Buckleton purchased a large amount
of shares. The shares turned out not to be for a rubber company and in addition the shares did
very poorly. Buckleton then sued for breach of warranty.
Analysis: Lord Moulton identified two ways that the action could be successful. First, if the
plaintiff could show fraudulent misrepresentation "or what is equivalent thereto, must be made
recklessly, not caring whether it be true or not." Second, if there was intent to be held to a
promise then there may be a collateral contract, that would bind Heilbut to their representation.
However, they are difficult to find, and, on the fact, none was found. He went on to say "It is, my
Lords, of the greatest importance, in my opinion, that this House should maintain in its full
integrity the principle that a person is not liable in damages for an innocent
misrepresentation, no matter in what way or under what form the attack is made. In the present
case the statement was made in answer to an inquiry for information. There is nothing which can
by any possibility be taken as evidence of an intention on the part of either or both of the parties
that there should be a contractual liability in respect of the accuracy of the statement. It is a
representation as to a specific thing and nothing more."
Held: Defendants were not liable for the statement made in response to a request for
information.

(d) Time of Assertion

In general, the more time that elapses between the statement being made and the contract being
concluded, the less likely the courts will be to regard the statement as a term.

Routledge v McKay [1954]

Facts: The defendant stated that a motor cycle, the subject matter of the proposed sale, was a
1942 model. The motorcycle was in fact a 1936 model but had been modified and re-registered
by a previous owner. The purchaser went away to think about it and then returned a few days
later a written agreement was produced to the effect of the exchange which ended with the
words "It is understood that when the £30 is paid over that this transaction is closed". In the
written contract, signed a week later, no mention was made of the date of the model.
Analysis: The lapse of a week between the two events weighed with the court as a factor
militating against construing the statement as a contractual term.
Held: It was held that what the parties intended to agree on was recorded in the written
agreement, and that it would be inconsistent with the written agreement to hold that there was an
intention to make the prior statement a contractual term. The statement was a representation and
not a contractual term.
Principle: The fact that a verbal statement is not subsequently included in a written contract, will
suggest that it is not to be treated as a part of the contract.

Roscorla v Thomas (1842) -Australian case

Facts: P purchased a horse from D. D then promised the horse was sound. The horse was in
fact not sound and P sued for breach of contract.
Held: There was no consideration for the promise that the horse was sound. The only
consideration that had been alleged was the contract for the sale of the horse – this, however,
had preceded the defendant’s promise – it was not part of the bargain – not given in exchange
for the promise. Consequently it was not good consideration.
Principle: Consideration cannot be past.

Olley v Marlborough Court [1949]

Facts: The claimant booked into a hotel. In the hotel room on the back of the door a notice
sought to exclude liability of the hotel proprietors for any lost, stolen or damaged property. The
claimant had her fur coat stolen.
 
 Held: The notice was ineffective. The contract had already
been made by the time the claimant had seen the notice. It did not therefore form part of the
contract.
Principle: Consideration cannot be past.
 (2) Incorporation
There are three ways in which written exemption clauses may be incorporated into a contract: by
signature, by reasonable notice and by a previous course of dealing.

Interfoto Picture Library v Stiletto [1988]

Facts: Interfoto ran a library of photographic transparencies. They were asked to deliver some
47 transparencies to Stiletto who had not dealt with Interfoto before. The delivery note in the bag
had conditions on it which said that if the transparencies were held for longer than 14 days, a fee
would be paid. The conditions were supposed to be the conditions of bailment - if Stiletto wished
to use the transparencies, a fresh contract had to be agreed. Stiletto retained them for an extra 2
weeks and was asked to pay £3,783. They refused.
Analysis: Bingham LJ stated that: "The plaintiffs were under a duty in all fairness to draw the
attention of Stiletto to the high price payable for the retention of the transparencies."
It is in each case a question of circumstance as to whether the restriction expressed in any case is
usual, or if unusual whether it has fairly been brought to the attention of the other. In this case,
there was no contract when the defendants made their initial request on the telephone. Nor was
there one on delivery of the bag. On opening it, the delivery note would clearly be seen to be the
sort of document which contained terms. So long as they were of the usual sort, they could not
claim they were not incorporated. Was condition 2 fairly brought to their attention? I think the
inference from the primary findings of the judge is that they were not. The number delivered was
not a number specifically asked for. The daily rate was many times greater than that which was
usual."
Held: On this basis the defendants were relieved because the plaintiffs did not do what was
necessary to bring this unreasonable and extortionate rate to their attention.

O'Brien v MGN [2001]

Facts: The Mirror Group Newspaper put scratchcards with its newspapers. If the card came up
with money, players called a premium rate number to see if the amount matched a mystery bonus
cash amount. Mr O’Brien on 3 July 1995 got two sums of £50,000. 1471 other people did as
well, because MGN had distributed too many by mistake. MGN had only intended to have one
prize of £50,000. MGN held a draw among the 1472. MGN pointed to "Rule 5", which said there
would be a draw where more prizes were claimed than available. Rule 5, however, although
published in some newspapers, was not to be found in the 3 July 1995 edition. This only said
‘Normal Mirror Group rules apply.’ Mr O’Brien had seen that. The question was whether Rule 5
was incorporated into the scratchcard agreement.
Held: Hale LJ held that Rule 5 was incorporated. She noted that Rule 5 was no big burden on the
claimant like in Interfoto nor excluding liability for injury like Thornton, but simply deprived a
windfall. She also noted that in the test for incorporation, the words ‘onerous or unusual’ are not
‘terms of art’. Potter LJ concurred with Hale LJ.
 (3) The Parole Evidence Rule
Under this rule, where there is a written contract, extrinsic (patrol) evidence cannot chage the
express terms laid down in that document. Extrinsic evidence includes oral statements, and
written material such as draft contracts or letters, whether relating to pre-contract negotiations or
the parties’ post-contractual behaviour. The rule only prevents use of extrinsic evidence
concerning the terms of a contract; where one side is seeking to prove whether or not a contract
is valid (for example, by claiming that there was no consideration), extrinsic evidence may be
used even though the actual contract has been put in writing.

Pym v Campbell
Facts: John Pym, P, invented a “crushing, washing, and amalgamating machine,” which he
solicited the sale of 1/8 interest in the benefits to accrue from future sales. At trial the P
produced a document, which was signed by both P and D, that outlined the terms of the
agreement. A meeting was set for two engineers to examine the machine for approval. One
approved but the other did not. The D did not honour the written agreement and the P filed
suit claiming a breach of contract. Trial judge informed the jury that a condition precedent to
formation could be required before an agreement was determined to be valid.
Issue: Whether a condition precedent to the agreement, the second engineer’s approval,
invalidated a written agreement.
Analysis: Evidence has shown that the written agreement was conditional. The jury’s finding
that the writing was signed on the terms that it was to be an agreement if Abernethie approved of
the invention, and not otherwise. The signed paper was never intended to be the record of the
terms of the agreement. Before the paper was signed it was explained to the P that the D did not
intend the paper to be an agreement until Abernethie had been consulted, and approved. The P
assented to this and received the writing on those terms. There was no agreement.
Held: The precedent condition invalidated the written agreement.

Gallie v Lee [1971]

Facts: Mrs Gallie, a woman of 78 years, signed a document which stated it was the sale of her
interest in her home to Mr Lee. Mr Lee then used that document to obtain a mortgage on the
property for £2,000. He failed to keep up repayments on the mortgage and the building society
sought possession of the property mortgaged. Mr Lee was a friend of Mr Parkin who was Mrs
Gallie's nephew. Mrs Gallie knew that they wished to raise some money and she had agreed to
help them. She had told them she would assign her house to the nephew as a gift on condition
that he allowed her to remain there rent free for life. She had been told by the two men that the
document she signed gave effect to that agreement. She signed the document in both their
presence but could not find her glasses so had not been able to read it. The agreement between
Mr Lee and Mrs Gallie had been held to be voidable for misrepresentation. However, in the
action against the building society Mrs Gallie raised the plea of non est factum (it’s not my
deed).
Held: The House of Lords found against Mrs Gallie. The document was not radically different to
that which she believed it to be in that she believed that she was relinquishing her rights to the
property in any event. Furthermore the House of Lords stated that the plea of non est
factum should not be too widely applied and reserved for those who through no fault of their
own are unable to read the document eg blind, illiterate or incapacitated through age.
Josceleyne v Nissen [1970]
Facts: There was an agreement for the transfer for a business and premises, negotiated between
father and daughter. It was understood that the father would continue to live in the premises and
that the daughter should pay his gas and electricity bills. No provisions for such payments were
made in the formal contract finally executed. The daughter did pay the bills for a while and then
stopped. The father then asked the court to rectify the agreements to include these payments.
Analysis: Rose v Pim did not assert or reinstate the view that an antecedent complete concluded
contract was required for rectification. It only showed that prior accord on a term or meaning of a
phrase to be used must have been outwardly expressed or communicated between the parties.
The burden of proof on the party asking for rectification is high.
Held: Oral evidence would be allowed to show that the written contract was invalid due to the
mistake of the parties in correctly recording what had been agreed.

Investors Compensation Scheme Ltd v West Bromwich Building Society [1988]

Facts: Investors were given negligent advice by their financial advisers, building societies and
solicitors and had claims for breach of statutory duty. The Securities and Investments
Board (now under the FSA) started a compensation scheme. To get compensation, investors
contracted with the Investors Compensation Scheme to assign their claims. ICS would
then sue on the investors' behalf. The claims were assigned, excluding "Any claim (whether
sounding in rescission for undue influence or otherwise)" against a building society which would
abate sums otherwise owed to that society. The question was whether ICS, and not the investors,
had a right to claim damages and rescission against the building societies.
Note:
Lord Hoffmann set out five principles for interpreting contracts.
• the right meaning is what the document conveys to a reasonable person
• this includes everything in the "matrix of fact", or relevant background circumstances
• prior negotiations are excluded from this (a point which has been much criticised since)
• the meaning of words is not a literal meaning, but the one reasonably understood from the
context
• the meaning should not contradict a common sense view of what a contract required
***
Homburg Houtimport BV V Agrosin Private LTD [2004] (Starsin)
Facts: At the relevant time, the vessel was on time charter to CPS. The claimants' goods were
damaged due to negligent stowage so they sued the respondent-shipowners. The bill of lading
was signed by the charterers' port agents, alongside the words "as agent for [CPS] (the carrier)".
The back of the bill of lading, however, contained standard form clauses, the effect of which
were that the shipowner was the carrier.
Analysis: A. Despite the existence of an "Identity of Carrier" and a "Demise Clause" on the
reverse of the Bs/L,(Bill of landing) it was held that the Bs/L were charterers' rather than
owners' Bs/L, primarily due to the signature on the front page of the Bs/L. B. It was held that
part 1 of the Himalaya clause that appeared in the Bs/L was an exemption from liability that
could be invoked by an independent contractor and not a covenant not to sue enforceable only by
the contractual carrier. But the protection afforded by part 1 of the clause to an independent
contractor, whose service was the carriage of the goods by sea, was null and void by the
operation of article III Rule 8 of the Hague Rules, which were also incorporated into the Bs/L.C.
Finally, it was also held that three out of the four cargo claimants (i.e. excluding Makrous Hout)
did not have title to sue the shipowners in tort due to the fact that the negligence that caused the
damage to the cargo occurred on or shortly after completion of loading and definitely before the
claimants acquired title to the cargo.
Held: The judge held that the bills were charterers' bills. The Court of Appeal held, by a
majority, Rix Lj dissenting, that they were shipowners' bills.

(4) The Collateral Contract Device

It has been suggested that the device of finding a collateral contract based on an oral statement
largely eliminates the parol evidence rule, and the above case does tend to support this view. Use
of the device is however limited by the fact that a statement can only operate as a collateral
contract if supported by separate consideration. This will often be provided by the act of entering
into the main contract. However, entering the main contract will not be consideration for the
collateral promise if that promise is made after the main contract is concluded – in that case,
entering the main contract will be past consideration and therefore not valid.

Heilbut Symons v Buckleton (Supra)

Dick Bentley v H. Sith Motors Ltd [1965]

Facts: Dick Bentley knew the defendant, who was a car trader specialising in the prestige
market, for some time. He had asked him to look out for a well vetted Bentley car. The defendant
obtained a Bentley and recommended it to the claimant. He told him that the car had been owned
by a German Baron and had been fitted with a replacement engine and gearbox and had only
done 20,000 miles since the replacement. Mr Bentley Purchased the car but it developed faults.
The defendant had done some work under the warranty but then more faults developed. It
transpired that the car had done nearer 100,000 miles since the refit. The question for the court
was whether the statement amounted to a term in which case damages would payable for breach
of contract, or whether the statement was a representation, in which case no damages would be
payable since it was an innocent misrepresentation and the claimant has also lost his right to
rescind due to lapse of time.
Held: The statement was a term. Mr Smith as a car dealer had greater expertise and the claimant
relied upon that expertise.

(B) When are terms implied?

As well as the express terms laid down by the parties, further terms may in some circumstances
be read into contracts by the courts. These implied terms may be divided into four groups: terms
implied in fact, terms implied in law, terms implied by custom and terms implied by trade usage.

Shirlaw v Southern Foundries [1939]

Facts: The claimant had been employed as a managing director of Southern Foundries the office
of employment was to last for 10 years. Federated Foundries then purchased a controlling share
in the company and altered the company's Articles of Association giving them the power to
remove directors. They then dismissed the claimant as a director who brought an action for
wrongful dismissal. There was no breach of contract for his dismissal based on the employment
contract as they had not dismissed him from being a managing director but only as a director.
However, if he was not a director he was not able to be a managing director. The claimant asked
the court to imply a term that the defendant would not act in a way making it incapable for him
to perform his contract.

Held: The Court of Appeal applied the officious bystander test and did imply the term.
The officious bystander test: If a third party was with the parties at the time the contract was
made and had they suggested the term should be implied it would be obvious that both parties
would reply with a hearty 'oh of course'. It must be obvious that both parties would agree to the
term at the time the contract was made.

Luxor (Eastbourne) Ltd v Cooper [1941]

Facts: Cooper sued two companies for £10,000 commission which he alleged they had agreed to
pay him if he introduced a purchaser for two cinemas owned by them. He introduced a potential
purchaser who was prepared to pay the minimum price asked for by the two companies but they
refused to sell the cinemas. Cooper claimed that the two companies had, by not selling the
cinemas, broken an implied term in the contract between himself and them that they would 'do
nothing to prevent the satisfactory completion of the transaction so as to deprive the respondent
of the agreed commission.'
Held: The owner could revoke any time up to exchange of contract.
NOTE: If the agent's task has been more substantial compared to a fee, court may have been
prepared to find implied undertaking.

SALE OF GOODS ACT SS 14-16

http://www.legislation.gov.uk/ukpga/1979/54

(C) Nature of Contractual Terms

(i) The Condition

Trans Trust SRL v Danubian Trading Co [1952]

Facts: The parties entered a contract for the sale of rolled steel on fob. The terms were that
payment was to be made by way of an irrevocable letter of credit, to be opened by the buyer in
the seller’s favour. The buyers subsequently agreed to sell the steel to American buyers, subject
to a requirement that they too should open an irrevocable credit in favour of the first buyers, so
as to facilitate the performance of both contracts. The American buyers failed to open a letter of
credit. In an action by the sellers against the first buyers, the sellers sought a declaration that
they were entitled to be indemnified against any damages payable by them to the American
buyers.
Held: It was held that the sellers were discharged from further performance of their obligation to
deliver when the letter of credit was not opened, since the seller’s obligation was dependent on
performance of the buyer’s obligation to open the credit in the first place.

Mackay v Dick (1881)

Facts: A contract for the sale of a digging machine was subject to a condition precedent that it
should be shown to be capable of excavating a given quantity of clay in a fixed time at a defined
site. The rights and obligations of the parties were each defined by the test. If the machine failed
the test, the buyer was entitled to return the digger within two months. The buyer escaped
liability for the price. If on the other hand the test demonstrated the capability of the machine
then the seller was entitled to the price and the buyer was obliged to pay. The buyer did not co-
operate in carrying out the contractual test by providing the necessary facilities for the test but
purported to reject the digger nevertheless. The seller sued for the price and obtained judgment.
Analysis: Lord Blackburns - there was an implied term of cooperation and the buyer was in
breach of that obligation. That proposition of law has been recognised and applied in many
cases. He held that because of the buyers default the buyer can never be in a position to call upon
the seller to take back the machine, on the ground that the test had not been satisfied. The effect
of the buyers failure to cooperate in satisfying the test, which was condition precedent to the
sellers right to payment, was that the seller was entitled to be paid even though the machine may
not have satisfied the requirements of the contract. It was observed by McCardie J that the
property in the digger had passed to the buyer so that the payment of the price was solely
dependent upon the condition imposed by the clause as to the test. In Mackay v Dick a party
failed to escape liability because his breach of an obligation of cooperation led to a condition
precedent not being fulfilled. As a matter of principle it is difficult to see why a failure to
exercise a right should place a party in a better position. If the operation of the condition
precedent depends upon the exercise of a discretionary contractual right then the condition
should not be made ineffective when a free choice has been made not to exercise the right.
Held: The seller was entitled to be paid the price and the buyer must keep the machine.

(ii) Condition, Warranty or What?

Schuler AG v Wickman [1973]

Facts: Wickman were the exclusive selling agents in the UK for Schuler's goods. The agency
agreement provided that it was a condition that the distributor should visit six named customers
once a week to solicit orders. This entailed approximately 1,500 visits during the length of the
contract. Clause 11 of the contract provided that either party might determine if the other
committed 'a material breach' of its obligations. Wickman committed some minor breaches of
this term, and Schuler terminated the agreement, claiming that by reason of the term being a
condition they were entitled to do so.
Analysis: The House had regard to the fact that the relevant clause was the only one referred to
as a condition. The use of such a word was a strong indication of intention but it was not
conclusive. Lord Reid felt that it would have been unreasonable for Schuler to be entitled to
terminate the agreement for Wickman's failure to make even one visit because of the later
clause. The word 'condition' made any breach of the clause a 'material breach', entitling Schuler
to give notice requiring the breach to be remedied. But not, as Schuler sought, to terminate the
contract forthwith without notice.
Held: The House of Lords held that the parties could not have intended that Schuler should have
the right to terminate the agreement if Wickman failed to make one of the obliged number of
visits, which in total amounted to nearly 1,500. Clause 11 gave Schuler the right to determine the
agreement if Wickman committed a material breach of the obligations, and failed to remedy it
within 60 days of being required to do so in writing.

The Hansa Nord [1975]

Facts: Citrus pulp pellets for use in animal food had been sold for £100,000 under a contract
which provided for "shipment to be made in good condition." Part of the goods had not been so
shipped and in addition the market value in such goods had fallen at the delivery date. The
buyers rejected the goods which were later resold pursuant to a court order and eventually
reacquired by the original buyers for just under £34,000. The buyers then used the goods for the
originally intended purpose of making cattle food, though the defective part of the goods yielded
a slightly lower extraction rate than sound goods would have done.
Held: The Court of Appeal held that rejection was not justified. The term as to shipment in good
condition was neither a condition nor a warranty but an intermediate term; and there was no
finding that the effect of its breach was sufficiently serious to justify rejection. The buyers seem
to have tried to reject, not because the utility of the goods was impaired, but because they saw an
opportunity of acquiring them at well below the originally agreed price. In these circumstances
their only remedy was in damages: they were entitled to the difference in value between
damaged and sound goods at the agreed destination.

Bunge Corporation v Trading Ltd [1981]

Facts: A contract for the sale 5,000 tons of soya beans required the buyers to give the sellers 15
days notice of readiness of loading. This term was stated as a condition. The buyers gave a
shorter notice period and the sellers treated this as terminating the contract and claimed damages.
The price of soya beans had dropped by over $60 per ton. The initial hearing was decide by
arbitration where it was held that the sellers were entitled to end the contract and awarded
$317.500 representing the decrease in value of the soya beans. The buyers appealed to the High
court who reversed this decision applying the innominate term approach from Hong Kong Fir.
The Court of Appeal reversed the decision and the buyers appealed to the House of Lords.

Held: The term was stated as a condition and should be treated as such. The need for certainty in
commercial contracts and the fact that the innominate term approach had caused much litigation
meant that it should only be used where it was impossible to classify the term as a condition or
warranty by reference to the term itself.

Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962]

Facts: A ship was chartered to the defendants for a 2-year period. The agreement included a
term that the ship would be seaworthy throughout the period of hire. The problems developed
with the engine of the ship and the engine crew were incompetent. Consequently, the ship was
out of service for a 5 week period and then a further 15 week period. The defendants treated this
as a breach of condition and ended the contract. The claimants brought an action for wrongful
repudiation arguing the term relating to seaworthiness was not a condition of the contract.

Held: The defendants were liable for wrongful repudiation. The court introduced the innominate
term approach. Rather than seeking to classify the term itself as a condition or warranty, the
court should look to the effect of the breach and ask if the breach has substantially deprived the
innocent party of the whole benefit of the contract. Only where this is answered affirmatively is
it to be a breach of condition. 20 weeks out of a 2 year contract period did not substantially
deprive the defendants of whole benefit and therefore they were not entitled to repudiate the
contract.

Reardon Smith Line v Hansen-Tangen [1976]

Facts: A charter party described the ship to be chartered as "called Yard no 354 at Osaka".
Osaka was the name of the yard responsible for building the ship, although the building was
subcontracted to another yard, Oshima. The Osaka yard could not handle a tankship of that size.
Both parties knew this. But the buyers, wanting to get out of the contract for another reason,
argued that the ship did not correspond with the description under s 13 of the Supply of Goods
and Services Act 1982.
Held: The House of Lords held that the words used did not fall under s 13, because they were
merely labelling which vessel was involved. In the course of the decision, Lord Wilberforce
stated that in construing a contract, the Court must,
place itself in thought in
the same factual matrix as
“ ”
that in which the parties
were.

 The hull number and yard had no particular significance ("innominate terms"). The descrption
needs to focus on the goods not excessively technical arguments.

Sussie Atlantique Case [1967]

Facts: The case involved the charter of a ship for two years’ consecutive voyages between US
and Europe. The ship was to be loaded at a specified rate. The owners were to be paid according
to the number of voyages made during the two year period. If the time taken for loading and
unloading was longer than required, the charterers were to pay $1000 per day by way of
demurrage. The charterers were taking many extra days in loading and unloading but were
allowed to continue to have the use of the ship for the remainder of the two years. Eight round
trips were made. However, the owners alleged that the charterers delay in loading and unloading
had made a further six trips impossible and sued for damages. The owners claimed that they
were not bound by that clause because the charterers by their extraordinary delays had
committed a fundamental breach of the contract.
Held: Lord Reid said, notably, “In the ordinary way the customer has no time to read them, and
if he did read them he would probably not understand them. And if he did understand and object
to any of them, he would generally be told he could take it or leave it. And if he then went to
another supplier the result would be the same. Freedom to contract must surely imply some
choice or room for bargaining.”