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What are contract ‘terms’?

Statements, promises and stipulations contained in a contract are its terms Or, the obligations of the parties to the contract.

Types of terms (obligations) which make up the contract Construction contracts contain three types of term:

 • Express terms – those actually expressed

 • Implied terms – those implied by common law or custom

 • Statutory terms – those implied by statute (Acts of Parliament)

Express Terms

Express terms are terms which one party has ‘expressed’ (verbally or in writing) to the other party as a term of the contract.

Every term must by certain – anything which is too vague cannot be enforced

• E.g. in Scammell v Ouston (1941) The House of Lords held an arrangement to acquire a van “on hire-purchase terms” to be too vague

• In business dealings, however, a vague term may be allowed if certainty can be ascertained by trade custom or previous dealings between the parties (Hillas Co Ltd v Arcos Ltd (1932).

Where terms are not expressly stated, they can be implied. Terms are usually implied by the Courts or by Statute, but can (rarely) be implied by custom but only with respect to matters where the contract is silent:

The claimant was a tenant of a farm and had planted his crops. He was given notice to quit before the crops could be harvested. Local custom allowed the tenant to be paid a fair sum for the cost of the seeds and planting of a crop where he was prevented from harvesting the crop. A term was therefore implied into the lease.

The Courts will imply terms based on:

1. the obvious intention of the parties:

2. a matter of law (it is in a statute or case)

3. previous dealings between the parties

Where a term is not expressly stated but, in the view of the court, is the obvious intention of the parties (one which the parties must have intended) in order to give the contract business efficacy (make it work).

“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 the agreement, they would testily suppress him with a common ‘oh of course!’” Shirlaw v Southern Foundries Ltd (1939)

Obvious intention example

A subcontractor involved in only a small part of the Works will not be in a position to take out insurance covering the possibility that the subcontractor might cause destruction to the whole of the Works so far completed. JCT, accordingly, provides for the insurance of the Works to include cover for subcontractors - to a limited extent. (see clause 6.9 of JCT SBC/Q).

 There are two aspects in which the insurance of subcontractors is not provided for by JCT. These aspects are:

1) in regard to ‘All Risks’. None of the cover for subcontractors is on an all risks basis; the provision for sub-contractors in regard to the Works Insurance is as to ‘Specified Perils’ only.

2) in regard to the existing building (where there is one), JCT does not include provision for sub-contractors to be insured in regard to damage they might cause to the existing building in the course of carrying out their work.

 These policies are taken out by the Contractor for all the works they undertake as part of the business. They are not usually project specific. The policies protect the contractor against claims that they have not used “reasonable competence and skill” when undertaking their work.