Chapter 7: Terms Flashcards
Definition of Terms
The terms of a contract are its contents. They define the rights and obligations arising from the
contract. Contractual terms may be express or implied.
Express Terms
Express terms are statements made by the parties, by which they intend to be bound. A contract
can have terms agreed in writing, or agreed orally, or a mixture of the two.
Implied Terms
Implied terms are not formed by statements made by the parties – they have not been agreed
upon, orally or in writing. Nonetheless, the law deems that they exist.
- Express terms contrasted with representations
One challenge in relation to express terms is to pick out from the many statements which might
have been made orally or in writing those which have become terms of the contract. Statements made by the parties during negotiations leading up to a contract can be divided into
three groups: mere puffs; representations and terms.
Mere puff
Statements of no legal significance.
Representations
Statements of fact or law which induce the making of the contract which the parties do not intend to be binding.
Terms
Statements of fact which the parties intend to be binding.
2.2 Why does the distinction between representations and terms matter?
Violation of Term = Contractual Breach
The distinction between representations and terms becomes important when the statement turns
out to be untrue, or the promise is not fulfilled. The court then has to decide which statements are
contractual terms and which are non-contractual representations, inducing the contract but forming no part of it. If a statement is a term of the contract and this term is not fulfilled, this will amount to a breach of contract, for which the innocent party may claim, amongst other
remedies, damages
Violation of a no-term = misrepresentation
If the untrue statement is not a term of the contract but a representation, this may amount to a misrepresentation. This is not the same as a breach of contract, but the innocent party may still be able to obtain a remedy in the law of misrepresentation
Both breach & misrepresentation
Also note that a statement can be both a term and a representation, giving rise to an action for
both breach of contract and misrepresentation.
2.3 How do I know if a statement was a representation or a term (or both)?
The difference between a representation and a term is that only the latter is intended to be
binding. In seeking to discover whether the parties intended to be bound by a statement made by
one of them, the court will apply an objective test based on the question: ‘what would a reasonable person understand to be the intention of the parties, having regard to all the circumstances?’
Negotiations during a contract
Where a statement is made during negotiations to induce the other party to enter into the contract, there is, prima facie, ground for inferring that the statement was intended
to be a binding term of the contract. However, the inference can be rebutted if the party making
the statement can show that it would not be reasonable to hold them bound by it
2.4 The importance of the statement
A statement may be regarded as a term of the contract if it can be shown that the injured party considered it so important that it would not have entered into the contract but for that statement
Bannerman v White (1861) 10 CB NS 844.
In this case, in respect of negotiations to purchase hops, the defendant said: ‘if they have been treated with sulphur, I am not interested in even knowing the price of them’. When the plaintiff produced samples, the defendant again enquired whether
sulphur had been used and was assured that it had not. In fact, a small amount of the crop, some
five acres out of a total of 300 acres, had been treated with sulphur.
Bannerman v White (1861) 10 CB NS 844.
The defendant treated the
contract as repudiated, and the question as to whether they were entitled to do so hinged upon
whether it could be regarded as a condition of the agreement that the hops may be rejected if sulphur had been used. It was argued by the plaintiff that the conversation relating to the sulphur was preliminary to entering the contract and, as such, was not part of the contract. The court held that the statement was understood and intended by the parties to be a term of the contract
of sale.
2.5 Timing
The time of the making of the statement appears to be an important factor. If the statement was made at the time of contracting, it is more likely to be a term of the contract than if it was made at an early stage of the negotiations. If, on the other hand, there is a delay between the making of the statement and the parties entering into the contract, then it is less likely to be treated as a term
Routledge v McKay [1954] 1 WLR 615 (Issues with Lapse of Time)
The private seller of a motorcycle told the buyer, in good faith, that it was a 1941 or 1942 model. One week later, the buyer and seller entered into a contract of sale. The written memorandum of the sale did not mention the year of the model. The
motorcycle was a 1930 model and the buyer sued for breach of contract. The Court of Appeal
held that the lapse of time between the making of the statement and entering into the contract meant the statement as to the year of the model was a representation and not a term of the contract.
2.6 Reduction of the contract into writing (Routledge v McKay)
It is also apparent from the decision in Routledge v McKay that the court was influenced by the fact that the contract had been reduced into writing and the written contract made no mention of the previous oral statement about the motorcycle being a 1941 or 1942 model.
Statement not considered significant if it was not written (Routledge v McKay)
The inference drawn
by the court was that the statement could not have been regarded as significant by the parties. If
it had been, they would have ensured its inclusion in the written agreement. Consequently, the
court concluded that the statement regarding the year of the model was never intended to be a
term of the contract but a representation.
2.7 Special knowledge or skill
Where the party who made the statement had exclusive access to information or special knowledge as compared with the other party, this is likely to be taken into account in the latter’s favour.
Oscar Chess Ltd v Williams [1957] 1 WLR 370
The claimant car dealers, Oscar, agreed on a trade-in of Williams’ old car as part of a new purchase. Williams had no knowledge of the motor trade. The registration book of the car traded in gave its date as 1948 and Williams confirmed this date in good faith. It was later discovered that the date should have been 1939 and the car was worth much less than thought.
Oscar Chess Ltd v Williams [1957] 1 WLR 370 Judgement
The Court of Appeal held that the
age of the car was not a term of the contract and therefore there was no breach of contract by Williams. It was clear that the skill and expertise lay in the hands of Oscar, the car
dealers, and not in the hands of Williams, who was making the statement. Consequently, the
statement remained as a representation without contractual force
Dick Bentley v Harold Smith
[1965] 1 WLR 623.
Mr Smith, of the defendant company, told MrBentley that a car had done 20 thousand miles only since the fitting of a new engine and gearbox. The milometer also showed 20
thousand miles. Later that day, Mr Bentley took his wife to see the car and Mr Smith repeated his statement. Mr Bentley bought the
car but it soon became clear that it had done more than 20 thousand miles since the change of engine and gearbox
Dick Bentley v Harold Smith
[1965] 1 WLR 623 judgement
The Court of Appeal held that the statement as to the mileage was a term of the contract. The
defendant was a car dealer who should be taken to have better knowledge of such matters than Mr Bentley, who was not involved in the motor trade.