Chapter 5 – Terms

Essay question

Critically discuss the situations in which a court might imply a term into a contract.

Essay question answer guidance

Generally a court can imply a term into a contract as a matter of law or as a matter of fact.  Terms implied as a matter of law are implied into a contract as a necessary incident of a particular type of contract (see, for example, Liverpool City Council v Irwin (1977)). Terms implied in fact are essentially implied on the basis of the parties’ unexpressed intentions. However, the courts are cautious not to re-write bargains or make them more reasonable.  Thus the courts use this power sparingly.  However, at least two different tests have been used over the years to restrict the courts’ power to imply terms in fact: the necessity test (see Equitable Life Assurance v Hyman (2002)) and the ‘officious bystander’ test (Shirlaw v Sothern Foundries (1939)). The precise relationship between these two tests and indeed the relationship between implication and interpretation has been disputed (see, for example, Attorney General of Belize v Belize telecom Ltd (2009)). However, it is important to discuss Marks & Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited (2015) where the Supreme Court provided useful guidance on this area and regarded the necessity and ‘officious bystander’ tests as alternatives.

Problem question

Melhuish Motors Ltd sells luxury motor homes from its premises in Cardiff. Earlier this year, Barbara visited Melhuish Motors Ltd and noticed a second-hand motor home which had recently been imported from Canada. She wished to buy such a motor home for her motor home rental business. During discussions with Melhuish Motors Ltd, Barbara was (incorrectly) told that this particular motor home had only ‘done 30,000 miles’. Barbara was concerned that the motor home might actually be too large for UK roads. However, her concerns were eased by a statement by Melhuish Motors Ltd that ‘it is perfectly legal to drive it on UK roads … trust us!’ This was incorrect – the motor home was too wide to be lawfully driven on UK roads. Barbara purchased the motor home; and the written contract, which contained an entire agreement clause, made no mention of these statements. Two weeks later, the engine of the motor home exploded, and it is beyond repair.

Barbara wishes to know of any contractual remedies she might have against Melhuish Motors Ltd.

Problem question answer guidance

This question centres on the terms of the contract (both express and implied) between Melhuish Motors Ltd and Barbara. A number of statements were made during the course of negotiations which Barbara may wish to argue were contractual terms. It is useful to set out the distinction between terms and representations, as well as the consequences of this distinction. It is also useful to set out the guidelines which the courts use in distinguishing terms from representations (for example, did the statement maker advise the other party to verify the statement, as in Ecay v Godfrey (1947)?). On the facts Barbara might argue that the statement about the number of miles done by the motor home is a term; as, arguably, Melhuish Motors Ltd has specialist knowledge (see Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd (1965)). Barbara may also be able to argue that the statement concerning the legality of driving this home on UK roads is also a term (as, for example, Melhuish Motors Ltd seems to have accepted responsibility for this, as in Schawel v Reade (1913)).

However, the contract contains an entire agreement clause and, following Rock Advertising Ltd v MWB Business Exchange Centres Ltd (2018), Barbara may be unable to rely on the oral statements as contractual promises. Barbara would need to explore what terms were contained in the written agreement (for example, was there a provision about the quality of the motor home?). Moreover, the express terms might be supplemented by implied terms (such as the motor home must be of ‘satisfactory quality’ under the Sale of Goods Act 1979, s.14(2)).