Terms of a Contract for SQE1
Contract Law > Terms of a Contract
Once a contract is formed, the next question is: what are its terms? SQE1 tests your ability to classify terms, distinguish express from implied terms, and understand the consequences of breaching different types of term. The classification of a single term often determines which remedies are available — a critical distinction in exam scenarios. This follows directly from formation of a contract and sits within the broader Contract Law framework.
What Are the Terms of a Contract?
Candidates often confuse conditions with warranties on SQE1, leading to wrong answers about remedies — but the distinction is everything. Breach of a condition allows termination plus damages; breach of a warranty allows only damages. The examiners test this distinction repeatedly.
The terms of a contract are the obligations each party has agreed to perform. They define what each side must do and what happens if they fail to do it. Terms can be:
- Express — explicitly agreed by the parties, orally or in writing
- Implied — incorporated by statute, custom, or by the courts
The classification of a term determines the remedies available if it is breached.
Key Principles for SQE1
Express Terms
- Express terms: are explicitly agreed by the parties, whether orally or in writing. The parol evidence rule generally prevents a party from relying on evidence outside a written contract to add to, vary, or contradict its terms — though there are significant exceptions.
Implied Terms
By Statute
Terms implied by legislation override the parties' agreement where applicable:
- Sale of Goods Act 1979 (ss.12–15) — implied terms as to title, description, satisfactory quality and fitness for purpose
- Consumer Rights Act 2015 — statutory terms protecting consumer buyers, requiring goods to be of satisfactory quality and fit for purpose; consumer contracts cannot restrict these rights
By the Courts
A term may be implied in fact to give business efficacy to the contract (The Moorcock) or because the term is so obvious it 'goes without saying' (Shirlaw v Southern Foundries). The test was confirmed in Marks and Spencer plc v BNP Paribas (2015): the term must be necessary for business efficacy, not merely reasonable.
By Custom
A term may be implied by trade custom or local usage if it is:
- Certain
- Reasonable
- Well-established
Conditions, Warranties and Innominate Terms
Conditions
-
Conditions: are fundamental terms that go to the root of the contract. Breach of a condition entitles the innocent party to:
-
Terminate the contract and
-
Claim damages (Poussard v Spiers and Pond)
Example: In a contract for the sale of a car, the seller's obligation that the car is roadworthy may be a condition.
Warranties
-
Warranties: are less important terms. Breach of a warranty entitles the innocent party to:
-
Claim damages only — not to terminate the contract (Bettini v Gye)
Example: A promise that a car has been regularly serviced might be a warranty.
Innominate Terms
-
Innominate terms: (Hong Kong Fir Shipping) are terms that are neither clearly conditions nor warranties. The remedy depends on the seriousness of the breach:
-
If the breach deprives the innocent party of substantially the whole benefit of the contract, they may terminate and claim damages
-
If not, the remedy is damages only
Quick Comparison Table
| Term Type | Breach Allows Termination? | Breach Allows Damages? | |---|---|---| | Condition | Yes (+ damages) | Yes | | Warranty | No | Yes | | Innominate | Only if serious enough | Yes |
Representations vs. Terms
A pre-contractual statement may be a mere representation (giving rise to misrepresentation remedies) rather than a contractual term. Factors include:
- The importance attached to the statement
- The timing (closer to contract formation = more likely to be a term)
- Whether it was reduced to writing
- The relative expertise of the parties
Incorporation of Terms
Terms may be incorporated:
- By signature — signing a document containing terms binds the party to those terms even if they did not read them (L'Estrange v F Graucob)
- By notice — at the time of contract formation, reasonable steps must be taken to draw attention to terms, especially onerous ones (Parker v South Eastern Railway, Interfoto Picture Library v Stiletto)
- By previous course of dealing — where parties have consistently dealt on the same terms over multiple occasions, those terms may be incorporated (Spurling v Bradshaw, Hollier v Rambler Motors)
Exam tip
After Marks and Spencer v BNP Paribas, courts are restrictive about implying terms. A term is only implied if necessary for business efficacy, not merely because it seems reasonable. Do not assume terms are implied unless the facts clearly suggest the contract cannot work without them.
How This Appears in SQE1 Questions
SQE1 questions present a breach and ask what remedies are available — the answer depends entirely on whether the term breached is a condition, warranty, or innominate term. This is one of the most commonly tested areas in SQE1. The key trap is treating every breach as entitling the innocent party to terminate — only breach of a condition (or a sufficiently serious breach of an innominate term) allows termination.
Questions also test:
- The distinction between representations and terms
- Whether a term can be implied
- How terms are incorporated
Common Mistakes Students Make
- Assuming all breaches entitle termination — only breach of a condition or a sufficiently serious breach of an innominate term allows this.
- Confusing representations with terms — remedies are different (misrepresentation vs. breach of contract).
- Overstating the power to imply terms — after Marks and Spencer v BNP Paribas, a term is only implied if necessary, not merely reasonable.
- Forgetting the innominate term category — forcing every term into the condition/warranty classification.
- Assuming ordinary consumers cannot rely on statutory implied terms — the Consumer Rights Act 2015 cannot be contracted out of by non-negotiated terms.
Want to test your understanding of contract terms? Try a few SQE1-style questions below before moving on.
Quick Summary
- Express terms are explicitly agreed; implied terms come from statute, custom, or the courts.
- Conditions allow termination plus damages on breach; warranties allow damages only.
- Innominate terms allow termination only if the breach deprives the innocent party of substantially the whole benefit.
- Implied terms must be necessary for business efficacy, not merely reasonable (Marks and Spencer v BNP Paribas).
- Terms are incorporated by signature, by notice (with reasonable steps for onerous terms), or by a consistent course of dealing.
- Representations are statements that do not become terms; they give rise to misrepresentation remedies, not breach of contract.
- Consumer Rights Act 2015 implied terms cannot be restricted by contract.
Want to test this now? Try a few SQE1-style questions below before moving on.
Test Yourself
Test yourself
Quick check questions based on this article.
Question 1
Scenario
A consumer purchases a new laptop computer from an electronics retailer for £1,200. The retailer is a well-established high street chain with over 200 stores nationwide. The consumer uses the laptop for personal purposes. Within three weeks of purchase, the laptop's screen develops a persistent flickering fault that renders it unusable. The consumer returns the laptop to the retailer and asks for a full refund. The retailer argues that the consumer should contact the manufacturer directly, as the laptop is covered by a manufacturer's warranty. The retailer's sales assistant had recommended the laptop as a reliable model. The consumer had compared prices at several retailers before making the purchase. The retailer's terms and conditions contain a clause stating that faulty goods must be returned within seven days. The consumer did not read the terms and conditions before purchasing. The consumer seeks legal advice on whether she is entitled to a refund from the retailer.
Which of the following best describes the consumer's legal position regarding her entitlement to a refund?
Question 2
Scenario
A logistics company contracts with a manufacturer to transport fragile electronic equipment from a factory in Birmingham to a warehouse in Manchester. The logistics company's standard terms, which include a limitation clause capping liability at £5,000 for damage in transit, are printed on the reverse of a delivery note handed to the manufacturer's warehouse manager at the time of collection. The warehouse manager signs the delivery note without reading the reverse. The electronic equipment is damaged in transit due to the driver's negligent handling, causing losses of £45,000. The logistics company has transported goods for the manufacturer on four previous occasions, each time using delivery notes with the same standard terms printed on the reverse. The manufacturer argues that it is not bound by the limitation clause because the clause was not specifically drawn to its attention before the contract was formed. The manufacturer's procurement team negotiated the transport contract by telephone two days before collection, and no reference was made to the standard terms during that call. The logistics company's website contains the same standard terms, but there is no evidence that the manufacturer accessed the website. The manufacturer's warehouse manager has no authority to agree contractual terms on the manufacturer's behalf.
Is the limitation clause likely to be incorporated into the contract between the logistics company and the manufacturer?
Question 3
Scenario
A food wholesaler enters into a contract with a restaurant chain to supply fresh fish every Monday morning for a period of 12 months. The contract contains a term stating: 'All fish supplied shall be delivered in a chilled condition and shall comply with applicable food safety regulations.' The contract does not expressly classify this term as a condition or a warranty. For the first eight months, deliveries are made without incident and the fish is consistently of high quality. In the ninth month, the wholesaler delivers a consignment of fish that is not properly chilled. The restaurant chain's head chef inspects the delivery and determines that the fish cannot safely be served to customers. The restaurant chain rejects the consignment and purchases replacement fish from another supplier at short notice, incurring an additional cost of £800. The wholesaler apologises and offers a credit note for the value of the rejected consignment. The restaurant chain, having lost confidence in the wholesaler, writes to the wholesaler terminating the contract with immediate effect. The wholesaler disputes the termination, arguing that a single defective delivery over nine months does not justify termination and that the appropriate remedy is damages only. The restaurant chain has received no other complaints about the wholesaler's service.
Is the restaurant chain entitled to terminate the contract on the basis of the defective delivery?
Practice with full exam-style questions
Related Topics
- SQE1 Contract Law: Complete Guide
- Formation of a Contract for SQE1
- Exclusion Clauses and Unfair Terms for SQE1
- Remedies for Breach of Contract for SQE1
Practise Terms Of A Contract Questions for SQE1
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