Contract Law - Contract Terms Revision Sheet and Key Cases

Introduction

Contract law is a foundational subject of legal studies, providing the framework for understanding how agreements are formed, enforced, and interpreted. There are five elements of a contract:

• Offer and acceptance

• Consideration

• Intention to create legal relations

• Certainty of terms

• Capacity

For any student studying contract law, mastering the key legal principles and cases is essential for academic success. This article serves as a no-nonsense guide to the terms of a contract and provides a table of landmark cases that have shaped this area of English contract law. Familiarity with these key principles and cases will help equip students with the necessary tools to navigate the complexities of contract law and provide the foundations to succeed in their exams.

Revision Sheet

🔑 Core Principles

• What is a Term?

• Express Terms vs Implied Terms

• Classification of Terms

• Exclusion Clauses

• Statutory Terms

• Entire Agreement Clauses

• Conditions Precedent

  
  

📌 What is a Term?

A term is a promise or provision forming part of a legally binding contract. Breach of a term gives rise to remedies.

📌 Express Terms vs Implied Terms

A contract consists of the express terms agreed between the parties and any terms that are deemed to be implied.

It is important to understand the terms which may be implied into a contract, how they interact with the contract's express terms and when the implied terms may be excluded.

Express Terms

The express terms of a contract are those terms that have been expressly stated by the parties, either in writing or orally.

Terms vs Representations

Not all statements made by the parties during the negotiations leading up to a contract are intended to have contractual force. Some statements are intended only as representations. This means they are intended to induce the other party to enter into the contract, but not to impose liability for breach of contract. Other statements are sufficiently key that they will be considered contractual terms, the breach of which gives rise to liability in damages.

The parties' intentions determine whether a statement is a term or a representation. Factors that will be considered by the courts in attempting to establish the parties' intentions include:

• The time between the making of the statement and conclusion of the contract.

• The importance of the statement.

• The relative ability of the parties to determine the truth of the statement.

The distinction between representations and terms is important because representations give rise to liability in misrepresentation only (and consequent remedies); terms give rise to liability in contract (and potentially misrepresentation too).

Implied Terms

Implied terms are terms that have not been expressly agreed by the parties but are implied into the contract by the court.

Terms implied by fact

A court may imply a term into a specific contract to fill a gap in the contract's drafting but never to improve the contract or introduce terms to make it fairer or more reasonable. The rationale for implying a term in this way is to reflect the parties' intentions when the contract was entered into.

However, a term will not be implied into a contract simply because the court thinks it would have been reasonable for the parties to have done so (Liverpool City Council v Irwin [1976]).

There are several ways this can occur:

1. Common trade practices (also known as 'business efficacy') - the proposed term will be implied if it is necessary to give business efficacy to the contract (The Moorcock [1889]). In other words, terms may be implied based on practices specific to a particular type of industry and how that sector commonly operates.

   
   

2. The official bystander test - the proposed term will be implied if it is so obvious that, if an officious (interfering) bystander suggested to the parties that they include it in the contract, "they would testily suppress [them] with a common 'oh of course'" (Shirlaw v Southern Foundries Ltd [1939]). This means that the term is so obvious is goes without saying.

Terms implied by previous course of dealing

Where two parties have consistently conducted business on certain terms in their previous course of dealing, the court may imply a term relating to that course of dealing. It will do this if it can be shown that the reasonable expectation of the parties is that the term will apply to the transaction in question.

The party seeking to establish the course of dealing must show the following:

• That there has been regular trading between the parties (Hollier v Rambler Motors (AMC) Ltd [1971]). A few contracts over several years would unlikely be sufficient but multiple contracts every month would probably satisfy this requirement.

  
  

• The trading has been consistent. Previous trading must have been on the same terms and a consistent procedure must have been followed (McCutcheon v David MacBrayne Ltd [1964]).

Terms implied at common law

The courts may imply terms with respect to particular types of contracts. This is because the law sees them as necessary.

For example, it is an implied term of an arbitration agreement that the arbitration is confidential (Ali Shipping Corporation v Shipyard Trogir [1997]).

Terms implied by statute

Terms are implied under various statutes and statutory instruments. It's important to note that such terms, when breached, are not a breach of statutory duty but a breach of contract.

These are discussed in further detail below.

📌 Classification of Terms

Contract terms can be classified as a condition, a warranty or a so-called intermediate (or innominate) term. This classification is primarily significant for the effect it has on the remedies available to the non-defaulting party for breach of contract.

Conditions

A condition is the most important of terms. If a condition of a contract is breached, the aggrieved party can choose to bring all contractual obligations to an end, and will have the right to sue for damages.

It should be noted that a breach of "any" condition entitles the non-defaulting party to terminate irrespective of the nature or consequences of the breach. This is true even if the non-defaulting party has suffered little loss or damage by reason of the breach.

Warranty

In contrast, a warranty is of less importance to the contract. The result of a breach of warranty is the innocent party can claim damages for that specific breach of contract, but will not be able to bring the contract to an end, their contractual obligations will continue despite this breach.

Intermediate/Innominate

A term is an intermediate (or innominate) term if the remedy for its breach depends on the nature and effect of the breach. In this sense it is neither a condition nor a warranty.

The question the court asks is whether "the breach deprive the innocent party of a substantial part of their bargain" (Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962]). If yes, the term is likely to be a condition, if no, the term is likely to be a warranty.

Statutory Classification

Statute may dictate or influence the classification of both express and implied terms.

For example, in a sale of goods contract, a term that specifies the time for payment is presumed to be a warranty (Sale of Goods Act 1979, Section 10). However, this is capable of being rebutted by the parties.

📌 Exclusion Clauses

An exclusion clause is a clause which excludes or restricts liability under a contract (Unfair Contract Terms Act, 1977, Section 13(1)).

Students often struggle with exclusion clauses; they ask why one would exclude a party’s liability for a promise they have already made? However, it is evident that an exclusion clause is a vital tool in allocating the risk of contracts between the parties.

Common Law

The courts are happy for parties to use exclusion clauses, and to restrict them would undermine the freedom of parties to contract on terms they wish to. Generally the common law does not provide any specific rules on where an exclusion clause would be deemed unenforceable on the grounds that it is unfair or unreasonable (Photo Production Ltd v Securicor Transport Ltd [1980]).

Incorporation

A contract can only bind a party if the exclusion clause is a contract term. There are a few ways this can take place:

• Signature: A signature incorporates all the signed terms, even if not read or understood.

  
  

• Notice: Terms which have not been signed, but which a party accepts by its speech or behaviour to the other party, are generally incorporated if they were fairly and reasonably brought to the accepting party's attention before the contract was made. However, it should be noted that even if a contract incorporates a party's standard terms, a harsh provision in those terms may not be incorporated. This principle applies to both commercial and consumer contracts (but is rarely applied to a B2B contract between parties of equal bargaining power).

QUOTE: Lord Denning famously stated that some particularly unreasonable and wide-reaching clauses "would need to be printed in red ink on the face of the document with a red hand pointed to it before the notice could be held to be sufficient."(J Spurling Ltd v Bradshaw [1956])

Unfair Contract Terms Act 1977 (UCTA)

The UCTA is a piece of legislation which prevents the exclusion of liability in certain circumstances. Since the Consumer Rights Act 2015, UCTA applies principally outside consumer contracts.

UCTA applies to most B2B contracts. However, there are several exempt contracts. Some of these include:

• International contracts: UCTA is designed to regulate limitation clauses in the UK. It does not intend to interfere with international trade. Consequently, contracts for the international supply of goods are exempt (Sections 26 and 27). However, international supply of services do generally remain within UCTA's control.

  
  

• Insurance contracts: Insurance contracts are exempt from the provisions of negligence and standard terms (Schedule 1). The Insurance Act 2015 regulates insurance contracts instead.

  
  

• Arbitration contracts: Arbitration contracts are exempt from UCTA (Section 13(2)).

Where UCTA does apply, the below table summarises its effect on limitation of liability clauses:

Liability	Damage	Effect of Limit	Provision of UCTA
Excluding liability for death or personal injury	Death or injury	Void	Section 2(1)
Excluding liability for other damage	Other damage	Valid if reasonable	Section 2(2)
Other breach of standard terms	Any	Valid if reasonable	Section 3
Misrepresentation	Any	Valid if reasonable	Section 3

📌 Statutory Terms

Certain terms are implied under various statutes and statutory instruments. Below are some of the most well known instances (and most likely to be examined!).

Sale of Goods Act 1979

In contracts for the B2B sale of goods, the Sale of Goods Act 1979 implies several terms relating to the goods:

• A condition that the seller has the right to sell the goods (Section 12).

• A condition that the goods correspond with their description (Section 13).

  
  

• A condition that the goods are of satisfactory quality. This means that they must meet the standard that a reasonable person would regard as satisfactory taking into account description, price, appearance, finish, freedom from minor defects, safety, durability and fitness for all normal purposes (Section 14).

  
  

• A condition that the goods will be reasonably fit for any purpose expressly or implicitly made known to the seller (Section 14).

In addition to the above, if a sale of goods contract is silent on a particular matter, the Sale of Goods Act 1979 may bridge the gap:

• Where no price for the goods is agreed, the price will be a reasonable one (Section 8).

• Where no place for delivery is agreed, it takes place at the seller's place of business (Section 29).

Supply of Goods and Services Act 1989

This applies to B2B contracts for works and materials. In relation to materials, sections 3 and 4 of the Act imply the same terms as sections 13 and 14 of the Sale of Goods Act 1979 imply into sale of goods contracts.

In relation to works, the Supply of Goods and Services Act 1989 implies the following terms:

• The supplier will carry out the service with reasonable care and skill (Section 13).

  
  

• If the time for carrying out the services is not fixed by the contract, then there is an implied term that the supplier will carry out the services within a reasonable time (Section 14).

  
  

• If the price of the services is not determined by the contract, then there is an implied term that the customer will pay the supplier a reasonable charge (Section 15).

Consumer Rights Act 2015

The Consumer Rights Act 2015 implies terms giving consumers statutory rights and remedies in relation to goods, digital content and services supplied by traders. Any attempt to exclude such rights or liability for failing to meet them is prohibited (as otherwise the legislation would be rendered useless by traders simply excluding terms).

Sale of Goods

For the sale of goods, the following terms and implied into the contract:

• Goods must be of satisfactory quality (Section 9).

  
  

• If, before the contract is made, the consumer makes known to the trader (expressly or by implication) any particular purpose for which the consumer is contracting for the goods, the contract is to be treated as including a term that the goods are reasonably fit for that purpose (Section 10).

  
  

• Where goods are supplied "by description", they will match that description (Section 11).

Sale of Services

For the sale of services, the following terms are implied into the contract:

• The trader must perform the service with reasonable care and skill (Section 49).

• Where the price is not contractually agreed in advance, the price paid for the service must be reasonable (Section 51).

• Where a timescale for performing the service is not agreed in advance, the service must be performed within a reasonable time (Section 52).

  
  

• Every contract to supply a service is to be treated as including as a term of the contract anything that is said or written to the consumer, by or on behalf of the trader, about the trader or the service, if either (Section 50):

  
  

  • It is taken into account by the consumer when deciding to enter into the contract.

    
    

  • It is taken into account by the consumer when making any decision about the service after entering into the contract.

Example: A homeowner employs a cleaning firm to send cleaners once a week to clean their home. They have strong ethical beliefs and only want to use cleaners paid the Living Wage. The cleaning firm assures the consumer that they pay the Living Wage. If it later turns out that they paid only Minimum Wage, the Section 50 right would be breached.

Unfair Terms

Part 2 of the Consumer Rights Act 2015 requires that all terms used with consumers must be fair, save that the fairness test does not apply to terms which reflect the main subject matter of the contract or the adequacy of the price.

A term is 'unfair' if (Section 62):

• It is contrary to the requirement of good faith.

  
  

• It causes a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer.

The requirement of good faith involves "fair and open dealing" (Director General of Fair Trading v First National Bank plc [2001]).

There is a significant imbalance if a term is so weighted in favour of a business that it tilts the rights and obligations under the contract significantly in its favour.

Schedule 2 of the Consumer Rights Act 2025 also includes terms that may potentially be considered unfair. They can be found here in more detail. However, it should be noted that a term may be listed in Schedule 2 and still be fair in a particular contract.

If a term is deemed to be unfair, it will not be legally binding on the consumer (Section 62).

📌 Entire Agreement Clauses

The entire agreement clause is frequently considered as one of the most important boilerplate clauses.

Entire agreement clauses are intended to prevent the parties to a written agreement from raising claims that statements made during contract negotiations which are not included in the final agreement (pre-contractual statements) constitute additional terms of the agreement or some kind of side agreement (often referring to as 'collateral contracts').

No Protection Against Misrepresentation

Occasionally, parties try to rely on entire agreement statements to defend themselves against liability for misrepresentation. To do this, they argue that an entire agreement statement shows the parties intend the contract to be an exhaustive statement of their rights and liabilities towards each other in relation to the contract's subject matter. The courts have consistently rejected this argument, holding that denying contractual force to a statement does not affect its status as a misrepresentation (MDW Holdings Ltd v Norvill [2021])

📌 Conditions Precedent

Condition precedent clauses are a fundamental feature of commercial contracts, allowing parties to make their obligations contingent on specified events occurring.

A condition precedent is a clause in a contract that provides that performance of the contract, or certain obligations under the contract, will only come into force if and when specified conditions are met.

Example: An offer to sell goods may be subject to the grant of an export licence. If the necessary condition cannot be satisfied the offer will lapse and will no longer be capable of acceptance.

🔑 5 Step Exam Checklist

1. Identify the Terms

   What statements were made during negotiations?

   Distinguish between Terms (binding) vs mere representations (non-binding)

   
   

2. Classify the Terms

Condition → goes to the root; breach allows termination + damages

Warranty → minor; damages only

Innominate term → depends on severity of breach (Hong Kong Fir)

3. Express Terms

   Identify terms explicitly agreed (written/oral)

   Apply key rules (e.g. collateral contracts, partly written/partly oral, misrepresentations etc)

   
   

4. Implied Terms

   Consider whether terms are implied in anyway.

   
   

5. Exclusion / Limitation Clauses

   Has liability been excluded or limited?

   What about statutory control?

   • UCTA 1977 (reasonableness test)

   • Consumer Rights Act 2015 (fairness)

Key Cases

Case Name	Facts	Legal Principle
Oscar Chess Ltd v Williams (1957)	Private seller stated car was 1948 model based on logbook; actually older.	Statements are representations (not terms) where the maker lacks expertise.
Dick Bentley Productions v Harold Smith (1965)	Car dealer gave incorrect mileage information.	Statements are terms where made by a party with special knowledge or expertise.
Bannerman v White (1861)	Buyer asked if hops were treated with sulphur; seller said no.	A statement can be a term if it is important to the parties (goes to the root of the contract).
Routledge v McKay (1954)	Seller misrepresented motorcycle age; delay before contract formed.	Time lapse suggests statement is a representation, not a term.
L’Estrange v Graucob (1934)	Buyer signed contract without reading exclusion clause.	Signature binds a party to contractual terms, even if not read (subject to exceptions).
Parker v South Eastern Railway (1877)	Lost luggage; ticket contained exclusion clause.	Reasonable notice required to incorporate written terms.
Thornton v Shoe Lane Parking (1971)	Clause inside car park excluding liability for injury.	Terms must be brought to attention before or at the time of contracting; onerous terms require clear notice.
Olley v Marlborough Court (1949)	Hotel sign excluding liability displayed in room after contract formed at reception.	Terms communicated after contract formation are not incorporated.
Interfoto v Stiletto (1989)	High fee term hidden in delivery note.	Particularly onerous/unusual terms require special prominence.
McCutcheon v David MacBrayne (1964)	Ferry contract relied on previous dealings to include terms.	Previous dealings must be consistent and regular to incorporate terms.
Hollier v Rambler Motors (1972)	Garage relied on prior dealings to exclude liability.	Infrequent dealings are insufficient to incorporate terms.
ParkingEye Ltd v Beavis (2015)	Mr Beavis overstayed free parking and was charged £85. He argued the charge was unfair.	A term is not unfair if it protects a legitimate interest and is transparent and prominent. Confirms fairness test and prominence of core terms.