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Elements in a Contract XII - Terms implied by custom, trade usage & entire agreement clauses
A term may also be implied by custom. In Smith v Wilson (1832) the defendant agreed to lease a rabbit warren, agreeing to pay £60 per thousand rabbits and paid less than what was outstanding. The plaintiff sued and the defendant argued that according to local custom 1,000 rabbits was taken to mean 1,200 rabbits and therefore he wasn’t in arrears.
The court found in favor of the defendant. It was implied that at the time of entering into the contract, the parties had acted in accordance with local custom and therefore the defendant had made the correct payment.
In Hutton v Warren (1936) the plaintiff was a tenant in the defendant’s fields and had accordingly tilled the fields and sown it with seeds. The tenancy was then terminated prior to the crops being harvested and the defendant, contrary to local custom refused to pay the plaintiff for the cost he’d incurred and for the work he’d done because it was not stipulated in the written agreement. The plaintiff brought and action against the defendant and was successful.
Terms are also implied into a contract based on trade usage. In British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd (1975) the defendants were in urgent need of a crane and the plaintiffs agreed to supply a crane over the telephone without entering into a written contract and the defendants started using the crane prior to the formalization of the contract. It was not the first time that the defendants had hired a crane from the plaintiffs.
Subsequently, there were two accidents one after the other and the question of liability arose. It was held that the normal terms that were stipulated in the two previous contracts would apply.
Entire Agreement Clauses
Some contracts contain clauses that are called entire agreement clause and these clauses are included in the contract to prohibit one party from arguing that the contract was part oral or part in writing or that there is a collateral contract in place which induced the party to enter into the main contract or that there are implied terms that should be read into the contract.
In Inntrepreneur Pub Co v East Crown Ltd (2000) a landlord contracted with a tenant to rent out his public house with the condition or stipulation that the tenant purchase the beer that was served from a nominated supplier.
The contract contained an entire agreement clause which read somewhere along the lines of that the contract contained the entire details of the agreement. The tenant later started purchasing the beer that was supplied in his public house from other parties and the landlord sued. The courts held that the clause constituted a binding agreement and that the entire terms of the contract were to be found in the agreement.
Entire agreement clauses though valid do not exclude liability for misrepresentation. In Lloyd v Sutcliffe (2007) a landowner and a developer had an agreement whereby, the developer would have an equal share in a company formed to develop the landowner’s land. The agreement was later put into writing but there was an additional promise to share the profits that was not included. The agreement however did contain an entire agreement clause which stated that the agreement superseded any previous agreements entered into by the parties and that the agreement (the written agreement) contained the entire agreement.
The court held that because the agreement did not in any manner infringe the profit sharing clause, the entire agreement clause did not apply to the promise to profit share. Furthermore the promise had been affirmed by words and conduct after the contract had been formalized.
I.e. even if there was a promise made prior to entering into a contract which contained an entire agreement clause, the promise would still be valid if it was affirmed by words and conduct after the formalization of the contract.
Entire agreement clauses can exclude implied terms. In Exxonmobil Sales and Supply Corp v Texaco Ltd (2003), Exxonmobil entered into a contract for the sale of diesel to Texaco. Upon delivery, Texaco had the diesel tested and decided that it did not comply with the contractual conditions or stipulations and thereby rejected the consignment.
Exxonmobil contended that the diesel had been tested by an independent inspector and Texaco argued that it was an implied term of the contract that a representative portion of the diesel should be retained.
The contract contained an entire agreement clause which stated that the agreement contained all the details of the contract and that the agreement would not be effected by any other agreements, terms or promises. The court held that the entire agreement clause was sufficient to exclude any other terms either express or implied and that it was valid.
© 2017 Kathiresan Ramachanderam and Dyarne Jessica Ward