A term in contract law is a clause or provision that sets out the rights and obligations of each party under an agreement.
If you are entering into a contract, either on behalf of your business or as an individual, you need to ensure that you understand the contract terms. Contract terms set out the details of the agreement, and once you have signed the contract, you will be bound to comply with them. Failure to do so will be a breach of contract, and you could be sued for this.
Understanding the different types of contract terms is crucial when entering into a contract. It is also important to know your rights if you believe that a contract has been breached. If you assume that the contract is at an end and act accordingly, you could face a claim yourself for breaching the contract, even if the other party was initially at fault.
- For Businesses: Understanding contract terms helps you avoid costly disputes and protect your commercial position.
- For Employees: It clarifies their rights, duties and protections at work.
- For Consumers: It helps ensure you are treated fairly and enjoy the protections given to you by UK law.
If you believe that contract terms have been breached, you are strongly advised to speak to an expert contract solicitor before taking any action.
Summary
This blog covers:
- Different Types of Contract Terms
- Why Implied Terms Matter in Business and Consumer Contracts
- The Difference Between a Condition and a Warranty
- Innominate (Intermediate) Terms
- How Courts Interpret Contract Terms
- Remedies for Breach of Contract Terms
- Practical Examples of Express and Implied Terms
- How to Avoid Contract Disputes
- Contact Our Contract Law Solicitors
- FAQ
Different Types of Contract Terms
When a contract is drafted, the terms set out within it are referred to as express terms. However, there are other terms, referred to as implied terms, that also form part of the contract, even if they are not expressly stated.
These can be implied in several ways, including:
Express Terms
These are the terms that are clearly stated, either in writing or agreed verbally. They usually cover key issues such as price, payment terms, delivery dates, job title, hours of work and notice periods.
Implied by Statute
Certain contract terms are a matter of law. For example:
- When consumers enter into a contract, it is implied that the terms of the Consumer Rights Act 2015 will apply to the agreement (for example, that goods must be of satisfactory quality and fit for purpose).
- When an employee enters into a contract, it is implied that the employer will pay them wages for their work in accordance with the Employment Rights Act 1996.
- In the sale of goods and services, the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982 also imply certain minimum standards to many contracts.
Implied by Common Law
Similarly, where court cases have set a legal precedent, certain terms are implied.
An example is an employer’s duty to maintain a relationship of mutual trust and confidence with their employees. This is a term implied in all employment contracts following a range of cases, including Woods v WM Car Services Peterborough Limited (1981).
Another important case is The Moorcock (1889), where the court implied a term into a contract to ensure business efficacy, in other words, to make the contract work as the parties must have intended.
Implied by Custom or Practice
Certain types of contracts will routinely incorporate specific terms. Provided this usage is well-established, then it can be implied in the contract.
An example is where all employees within a business or within an industry receive the same type of annual bonus or follow the same working pattern.
Where the following criteria are met, there is a good chance of establishing that a contract term is implied by custom or practice:
- The custom or practice has been well-established for a period of time.
- It has been consistently applied to all employees since the start of the custom or practice.
- It is known to all employees and expected by all employees and not just some of them.
Implied from Previous Dealings
Where the parties have had dealings before, and a certain contract term has previously been adhered to, the courts may find that it is implied in the contract in question.
For example, if two companies have repeatedly used the same standard terms and conditions over several years, a court may decide those terms have been implied into a later contract, even if they were not expressly attached on a particular occasion.
Implied by Intent
If a term is not expressly included, the court can imply the term if it finds that the parties must have intended it, for the contract to make commercial sense.
This is closely linked to the principle in The Moorcock, the court will only imply terms that are necessary to give the contract business efficacy and reflect what reasonable parties would have agreed.
Comparison of Express and Implied Terms
| Type of Term | Description | Example | Legal Source |
| Express | Explicitly stated in writing or verbally | Payment deadlines, delivery dates | Written or verbal contract |
| Implied by Statute | Automatically applied by law | Satisfactory quality of goods | Consumer Rights Act 2015, Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982 |
| Implied by Common Law | Derived from court precedent | Duty of mutual trust in employment | Case law (e.g. Woods, The Moorcock) |
| Implied by Custom/Practice | Based on long-standing and consistent practice | Annual Christmas bonus to all staff | Established business or industry custom |
| Implied from Previous Dealings | Based on repeated behaviour between the parties | Standard terms carried over each year | Course of dealing |
| Implied by Intent | A term is needed to make the contract work as intended | Implied access or safety obligations | Court implications for business efficacy |
Why Implied Terms Matter in Business and Consumer Contracts
Implied terms are important because they:
- Protect parties even where something is not written down;
- Ensure minimum standards are met, particularly for consumers and employees; and
- Allow the courts to fill gaps where the contract would otherwise not work as intended.
They can significantly affect your rights and obligations, so it is important to understand that the written contract is not always the full picture.
The Difference Between a Condition and a Warranty
Contract terms can also be classified as either conditions or warranties. This classification affects what remedies are available if a term is breached.
Conditions
A condition is a contract term which is vital to the agreement. It goes to the heart of the contract, and a breach of a condition is so serious that the contract can be ended.
An example is the 1875 case of Poussard v Spiers. An opera singer, Madame Poussard, was hired by Spiers to perform in an opera for three months. Due to illness, she was unable to appear for the first three days of the performance. The defendant hired a replacement and told her she was no longer needed.
The court found that not turning up to sing on the first day of the performance was a breach of a condition. Performing on the first day was at the very root of the contract, and the defendants were therefore entitled to terminate the contract.
Warranties
A warranty is a less important term, and breach of a warranty will generally only allow the recovery of damages and not the termination of the contract.
An example is the similar case of Bettini v Gye (1876). This also dealt with a contract signed by an opera singer, Mr Bettini. He was contracted to be in London for six days before his first performance to allow rehearsals to take place. He arrived only two days before the first performance due to illness.
The court found that being a few days late for rehearsals was only a breach of a warranty and not a breach of a condition. This meant that the defendant was not entitled to terminate the contract.
Modern Context
In a modern commercial setting, a failure to deliver essential goods at all is likely to be treated as a breach of condition, allowing termination. By contrast, a short delay in delivery, where it does not undermine the whole deal, may be treated as a breach of warranty, giving rise only to a claim for compensation.
Summary: Conditions vs Warranties
| Type of Term | Severity of Breach | Remedy | Example |
| Condition | Fundamental term at the heart of the contract | Termination of contract + damages | Poussard v Spiers |
| Warranty | Less important, ancillary term | Damages only | Bettini v Gye |
However, not all terms fit neatly into these two categories. Some are classified as innominate terms, where the court looks at the impact of the breach rather than just the label given to the clause.
Innominate (Intermediate) Terms
Innominate terms (sometimes called intermediate terms) are terms whose classification depends on the seriousness of the breach and its effect on the contract.
The key case is Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (1962). The court decided that instead of automatically treating a term as a condition or a warranty, it would look at the consequences of the breach:
- If the breach deprives the innocent party of substantially the whole benefit of the contract, they may be entitled to terminate and claim damages.
- If it does not, the remedy is likely to be damages only, and the contract continues.
For example, a delay of two weeks in a long-term construction project might not justify termination, whereas a delay of six months that makes the project commercially useless may well do so.
Innominate terms give the courts flexibility, but they can also create uncertainty. It is therefore important to seek legal advice if a breach has occurred and you are unsure whether you can safely treat the contract as at an end.
How Courts Interpret Contract Terms
Courts do not simply look at the words in isolation. They interpret contract terms objectively, that is, by asking how a reasonable person would understand the words used, in their proper context.
A leading case is Investors Compensation Scheme v West Bromwich Building Society [1998], where the court set out principles for interpreting contracts, including:
- The contract must be read as a whole, in its factual and commercial context.
- The court looks at what the language would reasonably be understood to mean, not what either party says they secretly intended.
- Prior negotiations are usually not admissible, but the background known to both parties can be relevant.
Courts will also consider:
Entire Agreement Clauses
Many commercial contracts contain an entire agreement clause stating that the written contract represents the whole agreement between the parties.
- These clauses can limit the ability to rely on prior statements or discussions.
- In some cases, they may restrict which terms can be implied, although they cannot generally exclude statutory protections (for example, consumer rights).
Implied Terms and Business Efficacy
Courts are cautious about implying terms and will usually only do so where it is necessary to:
- Make the contract work in practice (business efficacy), or
- Reflect something so obvious that “it goes without saying”.
This is the principle applied in cases such as The Moorcock.
Examples of when interpretation issues arise include:
- When a contract term is ambiguous or capable of more than one meaning;
- When no express clause clearly covers a key obligation or situation;
- When a party argues that an entire agreement clause prevents reliance on earlier assurances.
Remedies for Breach of Contract Terms
If a contract term is breached, the remedy will depend largely on the type of term and the seriousness of the breach.
Summary of Remedies
| Type of Term | Main Remedy | Example |
| Condition | Termination of the contract + damages | Complete failure to deliver essential goods |
| Warranty | Damages only | Minor delay in performance |
| Innominate | Depends on the seriousness of the breach | Delay or defect that may or may not undermine the whole deal |
Damages
The most common remedy is an award of damages, intended to put the innocent party in the position they would have been in had the contract been properly performed.
Termination
Where there is a sufficiently serious breach (for example, breach of a condition or a serious breach of an innominate term), the innocent party may be entitled to terminate the contract and claim damages.
Equitable Remedies
In some cases, the court may also grant:
- Specific Performance: An order requiring a party to carry out their contractual obligations (often used in property transactions).
- Injunctions: Orders restraining a party from acting in breach of a negative obligation (for example, enforcing a restrictive covenant).
If you are unsure what remedy you may be entitled to, it is important to take specialist legal advice before acting, particularly if you are considering terminating the contract.
Practical Examples of Express and Implied Terms
To illustrate how express and implied terms operate in everyday life, here are some common scenarios:
- Employment Contract
- Express terms: job title, salary, hours of work, notice periods.
- Implied terms: duty of mutual trust and confidence, duty to obey lawful and reasonable instructions, duty of fidelity.
- Supplier Contract
- Express terms: price, delivery dates, payment terms, product specifications.
- Implied terms: that goods will be of satisfactory quality and fit for purpose (statutory terms in many cases).
- Commercial Lease
- Express terms: length of the lease, rent, service charge, permitted use.
- Implied terms: landlord’s duty to take reasonable care of common parts, or to repair in certain circumstances (sometimes implied through statute and case law, for example, Liverpool City Council v Irwin (1977)).
- Consumer Purchase (Online or In Store)
- Express terms: price, description of goods, and delivery arrangements.
- Implied terms: goods must be as described, of satisfactory quality and fit for purpose (Consumer Rights Act 2015).
Understanding which terms are expressed and which are implied helps you identify whether there has been a breach and what your options may be.
How to Avoid Contract Disputes
While not all disputes can be avoided, there are practical steps that businesses and individuals can take to reduce the risk:
- Have Contracts Professionally Drafted: Make sure your contracts are clear, comprehensive and tailored to your circumstances, rather than relying on generic templates.
- Identify Key Terms as “Conditions” Where Appropriate: Where certain obligations are fundamental, ensure the contract clearly reflects their importance and the consequences of breach.
- Include Clear Termination and Dispute Resolution Clauses: Set out when and how the contract can be brought to an end, and how disputes will be handled (for example, mediation or arbitration).
- Review Contracts Regularly: As your business or personal circumstances change, review and update your contracts so they remain fit for purpose.
- Seek Early Legal Advice: If an issue arises, taking advice early can often prevent a situation from escalating into a full dispute.
Contact Our Contract Law Solicitors
We are contract law experts. We can draft a robust contract, protecting your rights as far as possible, and we can also provide advice and representation in the event of a contract dispute.
Whether you are drafting a new contract, reviewing existing terms or dealing with a potential breach, our experienced contract solicitors can guide you through your options and help you make confident, informed decisions.
If you would like to speak to one of our expert contract lawyers, ring us on 0330 173 3041, email us at info@witansolicitors.co.uk or fill in our contact form, and we will talk through your situation with you and discuss how we can help.
FAQ
What is the difference between express and implied terms?
Express terms are those that are clearly stated in the contract, either in writing or verbally. Implied terms are not written down but are inserted by statute, case law, custom, prior dealings or the parties’ intentions. Both are legally binding.
What is an innominate term in simple terms?
An innominate term is a contract term that is not labelled as a condition or a warranty. Instead, the remedy depends on how serious the breach is; if it deprives the innocent party of most of the benefit of the contract, they may be able to terminate; otherwise, they may be limited to damages.
Can you remove implied terms from a contract?
Some implied terms, particularly those arising under statute (such as consumer protections), cannot easily be excluded, especially in consumer contracts. Others may be limited or excluded in commercial contracts, but any exclusion clause must be clearly drafted and is subject to reasonableness tests under UK law.
What happens if a contract term is unclear?
If a term is unclear, the court will interpret it objectively, looking at the wording, the context and what a reasonable person would think it meant. Ambiguous clauses may be interpreted against the interests of the party who drafted them, particularly in consumer contracts.
How can a solicitor help with contract terms?
A solicitor can help by drafting clear, enforceable contract terms, identifying which terms should be conditions, warranties or innominate terms, advising on implied terms and ensuring that any exclusion or limitation clauses are legally effective and fair. They can also advise you on your options if you suspect a breach.
