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Research Methodology
Area: Conditions in a contract
Topic: Conditions: Implied and Express
Research Methodology: I would be doing my research from data
collected from secondary sources which will include materials available
on the internet and books, magazines and journals available in the
library. The research will be deductive in nature and the footnoting
style will be as per the established standard of the University.
Chapterisation:
¢ The first chapter consists of the
introduction where I have given a brief history of the Sale of Goods Act
and the relevant sections regarding the different types of conditions.
Then I have gone on to give the cases where the term condition had first
been used followed by the different types of conditions and how they are
understood in the modern day law.
¢ In my second chapter I have gone
to explain conditions in detail and the different classification of
conditions. I have also related terms with conditions.
¢ My third chapter is the main crux
of my term paper in which I have explained implied conditions, how they
originated, how the courts perceived implied conditions and the
evolution of law relating to these types of conditions and the modern
day position of implied conditions.
¢ My fourth chapter consists of the
problems which may arise when the court interprets implied conditions.
Due to lack of material regarding this point I have focused my chapter
on a particular case which highlights this problem very clearly.
¢ My last chapter is my conclusion
in which I have summed up my term paper.
Objectives:
1. To understand the origin and meaning of the word condition.
2. To understand the different types of conditions.
3. To understand and study cases on contracts in which different types
of conditions have been used.
Research Questions:
1. What are express and implied conditions?
2. What is the role of the courts in interpreting implied conditions?
3. What are the problems that may arise during the process of
interpretation?
(Chapter I)
Introduction
The Act
Sale of Goods Act is one of very old mercantile law. Sale of Goods is
one of the special types of Contract. Initially, this was part of Indian
Contract Act itself in chapter VII (sections 76 to 123). Later these
sections in Contract Act were deleted, and separate Sale of Goods Act
was passed in 1930.The Sale of Goods Act is complimentary to Contract
Act. Basic provisions of Contract Act apply to contract of Sale of Goods
also.
The use of the word condition
appears to have originated in the 17th century . The Sale of Goods Act,
1930 defines the term condition in section 12(2) . According to this
definition a condition can be defined as a stipulation which is so vital
to the contract that its complete and exact performance by one party is
something precedent to the obligation of the other party to perform his
part.
Conditions and Warranties
Opening para of section 16 makes it clear that there is no implied
warranty or condition as to quality of fitness of goods for any
particular purpose, except those specified in Sale of Goods Act or any
other law. - - This is the basic principle of caveat emptor' i.e. buyer
be aware. However, there are certain stipulations which are essential
for main purpose of the contract of sale of goods. These go the root of
contract and non-fulfilment will mean loss of foundation of contract.
These are termed as 'conditions'. Other stipulations, which are not
essential are termed as 'warranty'. These are collateral to contract of
sale of goods. Contract cannot be avoided for breach of warranty, but
aggrieved party can claim damages. - - A breach of condition can be
treated as breach of warranty, but vice versa is not permissible.
A stipulation in a contract of sale
with reference to goods which are the subject thereof may be a condition
or a warranty. [section 12(1)]. A condition is a stipulation essential
to the main purpose of the contract, the breach of which gives rise to a
right to treat the contract as repudiated. [section 12(2)]. A warranty
is a stipulation collateral to the main purpose of the contract, the
breach of which gives rise to a claim for damages but not to a right to
reject the goods and treat the contract as repudiated. [section 12(3)].
Whether a stipulation in a contract of sale is a condition or a warranty
depends in each case on the construction of the contract. A stipulation
may be a condition, though called a warranty in the contract. [section
12(4)].
Where a particular stipulation in
contract is a condition or warranty depends on the interpretation of
terms of contract. Mere stating 'Conditions of Contract' in agreement
does not mean all stipulations mentioned are 'conditions' within meaning
of section 12(2).
Express Conditions
Conditions that are agreed to by the parties, are commonly referred to
as express conditions. Express conditions are usually denoted by
language such as "if", "on condition that", "provided that", "I the even
that", and "subject to" to make an event a condition. But usually in a
dispute it is the court which decides whether an agreement makes an even
a condition by the process of interpretation.
Implied Conditions
If an agreement does not make an event a condition then the court may
supply a term that does so. Such conditions will be referred to as
"implied" conditions, since a court uses the process of implication to
determine whether to supply a term that makes an event a condition and
what term to supply. The distinction between express and implied
conditions is of practical importance because the rule of strict
compliance is limited to express conditions.
(Chapter
II) - Conditions: Meaning and Types
Condition generally refers to promises and the duties they generate. It
is usually an event of significance but this is not always the case as
the parties if they so wish can even make an insignificant event a
condition. Condition can be defined as some operative fact Almost any
event can be a condition and whether a stipulation is a condition or not
can be decided only after looking at the contract in the light of the
surrounding circumstances and then deciding on the intention of the
parties. In present day contracts all conditions refer to some operative
fact which has not yet occurred but which must occur so as to prevent
frustration of the contract.
When a term will be a condition?
The leading textbooks on contract state that a term will be a condition
if it satisfied one of the following four tests , namely
(a) if statute provides that it is a condition;
(b) if a binding authority requires a court to hold that it is a
condition; if every breach, or
(c) if the consequences of every breach, goes to the root of the
contract; or,
(d) If the parties have agreed that it is to be treated as a
condition.
The first three of these tests
involve well established principles, but the fourth yet remains to be
clearly established.
Express agreement by the parties
that one of them shall be able to terminate the contract on the
happening of a breach of a particular term by the, other does not
automatically entitle the other party to the full benefits which flow
from that term being a condition. The express agreement gives an option
to bring the contract to an end on the breach of that term, but such an
option is no different to an option to bring a contract to, an end on
the happening of any defined event; the fact that the event prescribed
is a breach is immaterial. There is an option, but the option does not
affect the nature of the event upon which that option is exercisable.
The, textbooks; ,therefore, are misleading in so far as they suggest
,that a term is a condition where there is agreement by the parties that
its breach is to give rise to the innocent party being able to act as
though the term breached were a condition, because the court has the
right to investigate whether it is the substance of the agreement that
the term is a true condition, or merely the form. If it is just the
form, then the term will in nominate and the, quantum of damages will
depend upon whether the breach was repudiatory at common law.
Classification
Conditions can be classified into two broad categories:
1. Express conditions
2. Implied conditions
Express condition is a condition
which has been expressly stated in the terms of the contract failure of
which will allow one party to either repudiate the contract in whole or
claim for damages. Implied conditions are those which have not been
expressly stated but which the law presumes to be so inherently a part
of the contract that it need not be laid down in clear and written terms
but are to be understood by the parties.
(Chapter
III) - Implied Conditions
Implication of terms
In certain instances, the parties to a contract may have been content to
express only the most important terms of their agreement, leaving the
remaining details to be understood. The court will then be asked to
imply a term or terms to remedy the deficiency. More often, however, a
subsequent disagreement reveals that there are contingencies for which
the parties have not provided in their express contract. The question is
then whether the court can imply a term to cover the contingency which
has unexpectedly emerged.
Intention or meaning in a contract
may be manifested or conveyed either expressly or impliedly and it is
fundamental that that which is plainly or necessarily implied in the
language of a contract is as much a part of it as that which is
expressed. What the function of the law is in such cases is to supply in
contracts what is presumed to have been inadvertently omitted or to have
been deemed perfectly obvious by the parties, the parties being supposed
to have made those stipulations which as honest, fair, and just men they
ought to have made . Once it is determined what the implied provisions
are, they are read into the contract, and the rights of the parties are
to be adjudged as though such provisions were expressed. Implied
promises always exist where equity and justice require the party to do
or to refrain from doing the thing in question. The courts are justly
prudent , careful, and cautious in implying rights, obligation,
promises, or covenants, lest they make the contract speak where it was
intended to be silent or make it contrary to what, as may be gathered
from all the terms and the tenor of the contract, was the intention of
the parties. Accordingly, where a contract is reduced to writing, it is
generally held, in the absence of mistake or fraud, that the written
contract includes or embodies the whole agreement of the parties and all
material provisions, and that, therefore , no agreement of the parties
and all material provision, and that, therefore, no additional
agreements, obligations, or warranties can be implied, if there is to be
any implication, it must result from the language employed in the
instrument or be indispensable to carry the intention of the parties
into effect. Terms should be implied in a contract, not because they are
reasonable, but because they are necessarily involved in the contractual
relationship so that the parties must have intended them and have only
failed to express them because of sheer inadvertence or because they are
too obvious to need expression. No implied obligation can exist under a
contract upon a point which apparently shows that it was not in the
minds of the parties.
It is only where the expressed
contract is silent on a particular point that an implied obligation in
such respect can arise. Express stipulations cannot, in general, be set
aside or varied by implied promises. In such cases the maxim "expressio
unius est exclusion alterius" applies which means, "express
mention of one thing implies the exclusion of the others".
Implied terms can further be categorized under two headings:
1. Terms implied in fact.
2. Terms implied in law.
To understand these two categories we must first see their historical
evolution.
Historical Evolution of Implied
Terms:
Prior to the House of Lords decision in Liverpool City Council v Irwin
case, the concept of the implied term was but sparingly utilized. At
that time implied terms were used only in cases of necessity. In the
Liverpool City Council case a new dimension was brought in. it created a
new category of implied terms altogether which was not based upon the
established criterion of necessity but, rather, upon the much broader
rationale of public policy. This was a radical development, for
reasonableness could now be accommodated, and that the strict
requirement of giving effect only to the presumed intention of the
parties could now be dispensed with where it conflicted with such
broader public policy considerations. Terms implied in fact was the
older category and the terms implied in law are the newer category.
Terms implied in Fact
Implied terms used to fall into this category only before the Liverpool
City Council case. In this category terms were implied only where it was
necessary to give effect to the presumed intention of both parties to
the contract. At that time the test of reasonableness was not followed
and the main emphasis of the courts was on the classical notion of
freedom of contract .
However, difficulties arose with
regard to ascertaining whether implication ought to be effected. Two
tests arose for deciding this, namely
(a) Business efficacy test.
(b) Officious Bystander test.
The first test was formulated in The Moorock
and the second test was formulated by MacKinnon
L.J. in Shirlaw v Southern Foundries.
The Business Efficacy Test
According to this test a term will be implied if it is necessary, in the
business sense, to give efficacy to the contact.
It was Bowen L.J. who had laid down this test in his judgment as
follows,
"now, an implied warranty, or, as it
is called a covenant in law, as distinguished from an express contract
or express warranty, really is in all cases founded on the presumed
intention of the parties, and upon reason. The implication which the law
draws from what must obviously have been the intention of the parties,
the law draws with the object of giving efficacy to the transaction and
preventing such a failure of consideration as cannot have been within
the contemplation of either side; and I believe if one were to take all
the case, and they are many, of implied warranties or covenants in law,
it will be found that in all of them the law is raising an implication
from the presumed intention of the parties with the object of giving to
the transaction such efficacy as both parties must have intended that at
all event it should have, in business transactions such as this, what
the law desires to effect by the implication is to give such business
efficacy to the transactions must have been intended at all event by
both parties who are businessmen; not to impose on one side all the
chance of failure, but to make each party promise in law as much, at all
event as it must have been in the contemplation of both parties that he
should be responsible for in respect of those perils or chance."
As can be seen from the judgment
that the main purpose of Bowen.L.J was that a gap in the contract should
not undermine the underlying business purpose the parties originally
intended. Thus, the central idea was that the courts should fulfill
contractual obligations.
Then in the case of Hamlyn & Co.
v Wood & Co. where both Lord Esher M.R. as well as Bowen L.J had
occasion to consider again the topic of implied terms in general and the
"business efficacy" test enunciated in The Moorock as already stated
above. In this case the court had stated that it had no right to imply
in a written contract any such stipulation, unless, on considering the
term of the contact in a reasonable and business manner, an implication
necessarily arises that the parties must have intended that the
suggested stipulation should exist. Thus, this case too reiterated what
had been held in The Moorock.
The Officious Bystander test
This is the other main test for "terms implied in fact", and is
encompassed within the following word from the judgment of MacKinnon L.J
in the court of Appeal decision of Shirlaw v Southern Foundries,
"if I may quote from an essay I
wrote some years ago, I then said: prima facie that which in any
contract is left to be implied and need not be expressed is something so
obvious that it goes without saying so that, if, while the parties were
making their bargain, an officious bystander were to suggest some
express provision for it in their agreement, they would testily suppress
him with a common "oh, of course!"
Obvious inference from agreement
A term which, has not been expressed may also be implied if it was so
obviously a stipulation in the agreement that the parties must have
intended if to form part of their contract. A term will not, however,
thus be implied unless the court is satisfied that both parties would;
as reasonable men, have agreed to it had it been suggested to them. The
knowledge or ignorance of each party of the matter to be implied, or of
the facts on which the implication is based is therefore a relevant
factor. Further, since "the general presumption is that the parties have
expressed every material term which they intended should govern their
contract, whether oral or in writing, the 'court will only imply a term
if it is one which must necessarily have been intended by them , and in
particular will be reluctant to make any implication "where the parties
have entered into a carefully drafted, written contract containing
detailed terms agreed between them".
Relationship Between the tests
If we compare the two tests it can be said that the officious bystander
test is more specific than the business efficacy test which is
classified as encompassing "generalities". The business efficacy test is
the more general statement of principle which thus serves as the basic
theoretical guideline. The 'officious bystander' test on the other hand
provides the practical mode for affecting the general principle'. There
is really no difference between the "business efficacy" test on the one
hand and the "officious bystander" test on the other. However, one point
which would be worthwhile to note would be that apart from the broader
problems relating to subjectivity, these tests are but broad guidelines
at best. The two tests are not only compatible with each other but also
that they are to be integrated in the process of practical
application-with the latter providing the more specific or concrete
criterion of ultimate application.
Thus, it can be seen that earlier
the main function of implied term was to provide for a fair result in
exceptional circumstance where the express term of the contract could
not. The idea of freedom of contract had a very strong binding hold as
the court did not generally prefer to go out of the contractual
consensus. It were these two tests which had broadened the idea as well
as the application of implied term. Another possibility is that both
these tests reflected the way the judges perceived their capacity to
understand the worldview of the litigants themselves.
Terms Implied in Law
The implication of a term is a matter of law for the court, and whether
or not a term is implied is usually said to depend upon the intention of
the parties as collected from the words of the agreement and the
surrounding circumstances. In many classes of contract, however, implied
terms have become standardized, and, it is somewhat artificial to
attribute such terms to the unexpressed intention of the parties. The
court is, in fact, laying down a general rule of law that, in all
contracts of a defined type-for example, sale of goods, landlord and
tenant, employment, the carriage of goods by land or sea-certain terms
will be implied, unless the implication of such a term would be
contrary, to the express words of the agreement. Such implications do
not depend on the intentions of the parties, actual or presumed, but on
more general considerations.
Either the "business efficacy" test
or "officious bystander" test would, in such a context be inappropriate,
since wider considerations (presumably, of public policy) would apply.
This second (and broader category) of "terms implied by law" only
applied where terms are implied as general legal incidents in all
contracts of a particular category.
Thus, the basic difference between
terms implied in fact and terms implied in law is that the first is a
narrower test based on either the 'business efficacy' criterion or
'officious bystander' criterion for 'terms implied in fact' in order to
give effect to the presumed intention of the parties and secondly a
broader test based on 'reasonableness' (having regard to public policy
considerations) for terms 'implied in law'. Where terms cannot be
implied on the first and narrower basis, the latter category offers a
wider scope for such a implication.
When a term ought not to be
implied?
A term ought not to be implied unless it is in all the circumstances
reasonable, But this does not mean that a term will be implied merely
because in all the circumstances it would be reasonable to do so or
because it would improve the contract or make its carrying out more
convenient. The touchstone is always necessity and not merely
reasonableness. The term to be implied must also be capable of being
formulated with sufficient clarity and precision. A term will not be
implied if it would be inconsistent with the express wording of the
contract.
Terms when implied from usage or
custom
If there is an invariable, certain and general usage or custom of any
particular trade or place, the law will imply, on the part of one who
contracts or employs another to contract for him upon a matter to which
such usage or custom has reference a promise for the benefit of the
other party in conformity with such usage or custom; provided there is
no inconsistency between the usage and the terms of the contract. To be
binding, however, the usage must be certain and reasonable and not
contrary to law; and it must also be something more than a mere trade
practice. But when such, usage is proved it,wil1 form the basis of the
contract between the parties These usages are incorporated on the
presumption that the parties did not mean to express in writing the
whole of the contract by which they intended to be bound, but a contract
with reference to those known usages.
However, A custom or usage can only be incorporated into a contract if
there is nothing in the express or necessarily implied terms of the
contract to prevent such inclusion, and It can only be incorporated if
it is not inconsistent with the tenor of the contract as a whole.
(Chapter
IV) - The Jhonstone case
The facts of this case were Dr Johnstone took his employing
hospital to court alleging that his employment contract breached the
hospital's duty to him to provide a healthy and safe workplace. The
doctor was working from 40 hours Monday to Friday and then a further 48
hours on weekends.
Outcome:
The Court rejected the Hospital's defence. It had been argued that 'if
you can't stand the heat - get out of the kitchen. The Court instead
stated: It is a matter of grave concern that junior doctors should be
required to work such long hours without proper rest that not only their
health may be put at risk but their patients as well.
This was a three judge bench with
one judge Leggatt L.J. dissenting from the majority opinion.
An express term allowing the
employer to require the employee to work 88 hours was qualified by a
term implied on health grounds. This obviously raised the question of
the interrelationship between express and implied terms.
Stuart-Smith L.J. observed that the
duty was implied by law, not just a Moorcock implication. The case may
therefore be an overriding duty case, but another possibility is that a
specific express term can be qualified by an implied general term .
Express and Implied Terms
The link between express and implied terms within the same contract was
the major issue in the Johnstone case. When faced with two conflicting
terms, one express and the other implied, Stuart-Smith L.J chose the one
which appeared to him correct on "principle" presumably, whether the
term which prevailed was express or implied would make no difference,
regard being had to the merits of the case. It so happened that in the
instant case, the term which prevailed was implied.
In response to the defendant
counsels argument that an express term must prevail over an implied
term, Stuart-Smith L.J. responded thus:
"but this is not an implication that arises
because it is necessary to give business efficacy to the contract [i.e.
a term implied in fact] ; it arises by implication of law."
The statement just quoted would seem to suggest that a term implied in
law can "trump" even an express term of contract, precisely because of
its status. This would, in turn, appear to suggest that because a term
implied in law is premised on broader public policy grounds, it ought to
supersede even a (contrary) express term of the contract.
Thus, this is contrary to the
conventional principles. In addition this particular interpretation has
put a premium on careful drafting . Leggatt L.J. adopted the most
straightforward approach, realizing the incompatibility of the express
term on the one hand and the term sought to be implied on the other , he
gave primacy (according to conventional principles) to the express term,
and thus delivered a dissenting judgment and unlike Stuart L.J Leggatt
L.J. placed no emphasis on whether or not a term was implied in law.
Quoting his words
"although it is a canon of
construction that the terms of a contract will be construed, as far as
possible, so as to be compatible with each other, it is axiomatic that
the scope of an express term cannot be cut down by an implied term; and
the it is a true of term implied by law as it is of terms which depend
on the intentions of the parties (i.e terms implied in fact)". It is no
wonder that the Johnstone case was overruled subsequently by the Queens
Bench . It was held that "….certain terms will be implied, unless the
implication of such a term would be contrary to the express words of the
agreement." Thus, the previous position was retained by the court.
Thus, the Johnstone case is an
excellent example which shows the difficulties which the court faces
when it wants to do justice and thus gives an overzealous utilization of
implied terms thereby overriding the express terms itself. When there is
a conflict between express and implied terms it is the former which
should have an overriding effect as it was the express intentions of the
parties themselves. An implied term on the other hand is a product of
the courts interpretation.
(Chapter V) - Conclusion
The doctrine of express and implied terms have evolved a lot through the
ages and have now attained a much more broader and wider encompassing
position. The concept of express and implied terms shows how the
conventional outlook towards contracts have changed, how the main
emphasis was on freedom of contract but slowly there was a decline in
this concept and the concept of implied terms started having a stronger
hold in the interpreting process. Earlier the main function of the
implied term was to provide for a fair result in exceptional
circumstance where the express terms of the contract could not and how
the courts have started taking a more active role in ensuring justice to
the parties by preventing one party to take advantage of another either
due to omissions, errors or superior drafting skills. The doctrine of
implied terms is one of the most flexible. However, the concept of
implied terms can lead to ambiguity especially when there has been an
overzealous utilization of implied terms as has happened in the
Johnstone case. Cases such as these show the element of uncertainty
which may arise while practical application of implied terms is being
done. Thus, the concept of implied terms though greatly beneficial in
nature should be developed carefully in a simple and methodical manner
so as to prevent unnecessary confusion and constraint.
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