ORAL, EXPRESS AND

IMPLIED TERM IN
CONTRACT

Presented by: rhea and shiv

Oral Terms in
Contract Law

• Oral statements can play a crucial role in

contract formation and interpretation.
• While written contracts are generally preferred
for clarity, oral terms can still be legally
binding under certain circumstances.
• This section explores the various aspects of oral
terms in contract law.
Intention as a Determining Factor
1 Objective Intention
The objective intention of the parties is a key factor in determining
whether an oral statement was meant to be a binding term of the
contract. The court will examine the conduct and circumstances
surrounding the statement to ascertain its intended effect.

2 Oscar Chess v Williams

In this case, Lord Denning emphasized that the intention is
dependent on the parties' conduct. The court must consider the
overall context and behavior of the parties to determine if an oral
statement was intended to be a contractual term.

3 Schawel v Reade [1913]

This case illustrates that if a significant amount of time has elapsed
between making an oral statement and concluding the contract, the
oral term may not be considered part of the contract. The lapse of
time can indicate that the parties did not intend for the oral
statement to be binding.
 Collateral Contracts
Definition: Example: Requirements:
A collateral contract is a In the case of City and To establish a collateral
separate agreement that Westminster Properties contract, the following
exists parallel to the Ltd v Mudd, the requirements must be
main contract and landlord made an oral met:
shares the same subject assurance not to enforce • The oral statement
matter. It is a binding a covenant against the was promissory
promise made in tenant. This oral and intended to be
addition to the main assurance constituted a relied upon.
contract. collateral contract, and • The person to
if breached, the tenant whom the
could seek damages. statement was
made relied on it
to their detriment.
• The promise was
consistent with
the intention of
the main contract.
 The Parol Evidence Rule
1 Definition 2 Cases
• The parol evidence rule states • In Henderson v Arthur [1907]
that if the parties intended the and HP Kasabia Brothers Ltd v
contract to be fully in writing, Reddy Construction Co. Ltd
extrinsic evidence (such as oral (1977), the courts held that the
statements) is not admissible to words expressed in the written
contradict or add to the written contract must be first construed
terms. and agreed upon, regardless of
any prior oral agreement or
intention, if the contract is fully
written.

3 Exceptions
The parol evidence rule has several exceptions, including:
• Evidence that the written contract is yet to commence
• Evidence of custom, trade usage, or a collateral contract
• Evidence of consideration or invalidity
• Parties to the contract were unclear or identification of subject matter or terms
Express Terms in
Contract Law

• In contract law, express terms are the parts of an oral or

written agreement that are expressly agreed upon
between the parties.
• These terms play a crucial role in defining the rights and
obligations of each party and are essential for
determining whether a breach has occurred.
• Express terms are divided into three main categories:
conditions, warranties, and intermediate or innominate
terms.
 Conditions: The Vital Essence of a Contract

1 Definition
A condition is a vital or essential term that lies at the heart of a
contract. Its fulfillment is paramount, as failure to satisfy a
condition constitutes a breach of contract, potentially rendering it
void.

2 Illustrative Cases
The cases of Betteni v Gye (1876) and Poussard v Spiers (1876)
shed light on the distinction between conditions and warranties.
In Betteni v Gye, the court ruled that attendance at rehearsals
was a warranty rather than a condition, while in Poussard v
Spiers, the attendance at the first performance was deemed a
condition. These cases demonstrate the importance of contractual
interpretation in determining the nature of a term.

3 Intention and Interpretation

The case of Schuler AG v Wickman Machine Tools Ltd (1974)
emphasized that the intention of the parties, as disclosed by the
contract as a whole, determines the nature of a condition. Simply
using the word "condition" does not automatically make a term a
condition of the contract.
 Conditions Precedent and Subsequent

Conditions Precedent Conditions Subsequent Consequences of Breach

Conditions precedent are Conditions subsequent Failure to comply with
actions or events that are terms that prevent a conditions precedent or
must occur before a party from performing subsequent can result in
contract becomes fully certain acts in the future. a breach of contract,
operative. The case of For example, in the case potentially leading to
Pym v Campbell (1815) of The Good Luck termination or damages,
illustrated this concept, (1991), a condition in the depending on the nature
where the parties had to contract prevented the of the condition and the
enter into a sales and ship from entering a specific circumstances.
purchase agreement specific area of the
before obtaining Persian Gulf, making it
approval from a third an obligatory condition.
party.
Wrongful Termination and Remedies

Wrongful Termination Remedies

If a party terminates a contract on the The remedies available in case of a
grounds of a breach of condition, but it breach of condition or warranty differ.
is later determined that the term was For a breach of condition, the innocent
not a condition, the terminating party party can terminate the contract and
may be liable for wrongful claim damages. However, for a breach
termination. The case of Hong Kong of warranty, the innocent party can
Fir Shipping v Kawasaki Ltd (1962) only claim damages and cannot
exemplifies this, where a ship charter terminate the contract.
was wrongfully terminated despite a
breach of a lesser term.
 Warranties: The Lesser but Significant Terms

1 Definition 2 Interpretation
A warranty is a lesser term in a The interpretation of warranties
contract. While a breach of a involves examining the intention of
warranty entitles the innocent party the parties, as demonstrated in the
to claim damages, it does not case of Associated Newspapers v
provide grounds for terminating the Bancks (1924). In this case, the
contract. court determined that the term
regarding the placement of a comic
strip was a subsidiary term, entitling
the innocent party to damages but
not termination.

3 Breaches and Termination

While a single breach of a warranty may not justify termination, successive
breaches can potentially lead to discharge from the contract. This principle was
upheld in the case of Taubmans Paints (Fiji) v Faletau and Trident Heavy
Engineering (1999), where the court emphasized that a breach must be fundamental
to warrant termination.
Innominate Terms: The Grey Area
Definition The Hong Kong Fir Determining
Shipping Case Consequences
Innominate terms, also
known as intermediate The landmark case of The consequences of
terms, are those that do Hong Kong Fir Shipping breaching an innominate
not fall neatly into the Co Ltd v Kawasaki Kisen term are determined by
categories of conditions Kaisha Ltd (1962) dealt considering whether the
or warranties. The with the interpretation of term is a condition or a
consequences of innominate terms. The warranty and the effect of
breaching an innominate court held that the the breach on the contract
term depend on the seaworthiness of a as a whole. The key
specific circumstances. charter ship was an question is whether the
innominate term, and the breach deprived the
breach did not give the innocent party of a
right to terminate the substantial benefit of the
contract, as the innocent contract.
party was not
substantially deprived of
the contract's benefits.
 The Test for Determining Term Classification

Step 1 Step 2 Step 3 Step 4

Identify whether Assess the effect If the term is a
If the term is a
the term is a of the breach on warranty or an
condition and the
condition or a the contract as a innominate term,
breach deprives
warranty by whole, the innocent
the innocent
examining the considering party may claim
party of a
language of the whether it damages but
substantial
contract and the deprives the cannot terminate
benefit, the
intention of the innocent party of the contract
innocent party
parties. a substantial unless the
may terminate
benefit of the breach is so
the contract.
contract. significant that it
deprives them of
the substantial
benefit of the
contract.
 Implied Terms in
Contract Law

• Implied terms are an essential aspect of contract law, as

they help to fill in the gaps and clarify the intentions of
the parties when their express terms are inadequate or
ambiguous.
• These terms are implied by the courts based on certain
principles and circumstances, ensuring that contracts are
interpreted fairly and in accordance with the reasonable
expectations of the parties involved.
 Limitations on Implied Terms
Courts Cannot Necessary
1 2 3 Express Exclusion
Make Contracts Implication
If the parties have
It is important to note For a term to be expressly excluded a
that courts do not have implied, it must be a particular term, the
the authority to create necessary implication courts cannot imply it
or modify contracts. arising from the parties' into the contract. This
Their role is limited to intentions. The courts principle was
interpreting the terms will not imply terms highlighted in the case
and intentions of the that are not essential or of Keil v Polynesian
parties based on the that contradict the Airlines Ltd [1980-93],
evidence presented. express terms of the where the court held
This principle was contract. that terms that have
established in cases
been clearly excluded
such as Lee v Mitlal
cannot be subsequently
and kissun (1966) and
implied.
Hamlyn v Wood
[1891].
 Implied Terms by Custom, Usage, or Trade

1 Established Custom or Usage

Courts may imply terms based on established customs, usages, or
practices within a particular trade or industry. The case of Hutton v
Warren (1836) illustrates this principle, where a laborer was
entitled to reimbursement for work done on contracted property
due to the custom of the trade.

2 Well-Known and Reasonable

For a custom or usage to be implied, it must be well-known within
the relevant industry and considered reasonable. The courts have
set forth conditions for implying such terms, including the absence
of contrary intentions, the custom being widely known, and its
reasonableness.

3 Not Contrary to Express Terms

Implied terms based on custom or usage cannot contradict the
express terms of the contract. The case of R v Apia Stevedoring Co
Ltd [1950-69] demonstrates this principle, where an unreasonable
custom was rejected by the court.
Implied Terms for Business Efficiency

The Moorcock Case Ensuring Practical Effectiveness

In the Moorcock case, the court implied a term The doctrine of business efficiency allows
that the defendants should have taken courts to imply terms that are essential for the
reasonable care to ensure the wharf was safe practical and effective operation of a contract.
during low tide. This implied term was based These terms are implied to ensure that the
on the principle of business efficiency, which contract can be carried out in a reasonable and
recognizes that certain terms may be necessary efficient manner, even if they were not
for the effective operation of a contract. expressly stated by the parties.
Implied Terms Based on the “Officious
Bystander" Test

Obvious and Goes Without Saying

The "officious bystander" test is a principle used by courts to imply terms
that are so obvious and fundamental that they go without saying. If a
reasonable bystander were present during the formation of the contract
and suggested including a particular term, and both parties would have
agreed without hesitation, then that term may be implied.

Shirlaw v Southern Foundries [1939]

In the case of Shirlaw v Southern Foundries [1939], the court established
that if certain terms are so apparent and obvious that they are left out of
the express terms, they may be implied based on the "officious bystander"
test.

CP Homes Ltd v Mahlon Ali (1995)

Another example is the case of CP Homes Ltd v Mahlon Ali (1995),
where the court implied a hire fee based on the parties' conduct after the
initial contract had ended, as it was so obvious that it went without saying.
Implied Terms for Contracts of a Particular Class

Leases Employment Contracts

In the case of leases, certain terms Employment contracts often have
may be implied based on the nature implied terms, such as the
of the agreement. For example, in the employee's duty to exercise
case of Taba'a v Hyundai Timber reasonable care in the performance of
Company Limited, the court implied their duties, and the employer's
a periodic tenancy term based on the obligation not to conduct themselves
oral agreement between the parties. in a manner that damages the
relationship of trust and confidence,
as established in the case of Banque
Indosuez Vanuatu Limited v Ferrieux
(1989-1994).
Building Contracts
In building contracts, courts may imply a term requiring contractors to use
reasonable care in their work and the supply of materials, ensuring that the project
is completed to a satisfactory standard.
 Implied Terms from Previous Course of
Dealings

Regular and Intended Arrangements Hillas and Co v Arco Ltd (1932)

Implied terms may arise from the In the case of Hillas and Co v Arco Ltd
previous course of dealings between (1932), the court implied a term
the parties if their arrangements or regarding a "fair specification" based
conduct were regular and intended to on the parties' previous dealings and
be applied to the current contract. This the regular arrangements they had
principle recognizes that the parties' established.
past practices and understandings can
inform the interpretation of their
current agreement.
Implied Terms of Good Faith

General Honesty and Good

1 Will
2 Inherent in All Contracts

While it is generally understood The implied term of good faith is

that all contracts should be entered often considered inherent in all
into and performed with honesty contracts, even if it is not expressly
and good faith, courts may imply a stated. It serves as a guiding
specific term requiring the parties principle for the parties' conduct
to act in good faith. This term and helps to ensure that the
recognizes the importance of contract is carried out in a manner
maintaining a cooperative and fair that upholds the reasonable
relationship between the expectations and intentions of both
contracting parties. parties.
Implied Terms by Statute
Statute Implied Terms

Sale of Goods Act • Seller has the right to sell

• Goods correspond to description
• Goods are of merchantable quality
• Goods are fit for the purpose
indicated by the buyer

Leases • Standard obligations on lessors and lessees

• Periodic tenancy for exclusive
possession and rent payment

Sea Carriage of Goods Act • Warranty of seaworthiness for

every bill of lading

Employment Relation Promulgation • Hours of work

1997 • Prohibition of certain practices
• Equal pay
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