Monday, 1 July 2013

[Contract] Express Terms

Term is any clause or provision in a contract whether written or oral

Terms are expressed and could be implied.

An express term is one which the parties specifically agree upon and express. It is to be contrasted with an implied term which does not satisfy that description and which is read into the contract. The focus of this post is the express term.


1.0 Classification

The purpose of classifying statements made prior to entry into the contract is to find a contract which is not a term and therefore has no contractual force.

Basic classification here is between the terms and representations. The word 'term' has a narrower meaning than the word 'representation because it describes a contractual statement which amounts to an undertaking or guarantee ('warranty'), by the maker of the statements, of its truth or that the maker had reasonable ground for making it.

 1.1 Puffs

Puffs are laudatory statements which are not intended to be taken seriously. Sales talk or puffery on behalf of a seller of goods for example that this car is yet the best choice on the market does not have contractual force.

1.2. Representations

More than a puff but yet still not a term is referred to as representation. Representation is described as factual statement or statements which induce the representee to enter into the contract but which are not guaranteed by their maker.

Because it is merely a representation and therefore has no contractual force, there cannot be a breach of contract. The plaintiff can look at the law of fraud and negligence. 

1.3 Terms

If a pre-contractual statement is a term of the contract, it is then an express term.

The key distinction between representations and terms is the intention of the maker of the statement to guarantee its truth.

2.0 Relevant factors

2.1 Intention of parties 

The court must be objective and ask what conclusion a reasonable person in the position of the person to whom the statement was made would have reached (Hospital Products v United States Surgical Corp; Oscar Chess v Williams)

If an ordinary person would have concluded that the maker of the statement intended to guarantee its truth, it does not matter whether there was an actual intention of the party (Ellul v Oakes)

Again, if the statement is false, the plaintiff can seek remedies under tort or under statute. However, the person cannot claim damages for breach of contract.

2.1.1 Time of statement

The more brief the occurrence of statement and entrance into contract, the more likely that there was an inducement by the maker. The close proximity between the statement and entry into the contract was one factor which justifies the conclusion that statement is a term (Harling v Eddy)

It must be noted that this factor is not the conclusive element. Hence, even if there was some time of lag or delay, it should not be concluded that there was no intention and hence no term. 

2.3 Content of statement

The more important the content of a statement, the more likely it is that the parties intended it to be a term of the contract.

A party which enters into a contract after an offer accompanied by an important false statement is able to claim damages for breach of contract since the importance of the statement makes it a term (Couchman v Hill)

2.4 Existence of written memorandum

If the parties execute a memorandum of the terms of the contract which does not include a pre-contractual statement later relied on as a term, the representee will find it difficult to establish that the statement was a term.

It is a matter of commonsense; a failure to include the statement may be an indication that it was not intended to be a term (Hospital Products v United States Surgical Corp)

2.5 Knowledge and expertise of the parties

When a party cannot guarantee a statement, then it is not a term (Oscar Chess v Williams). But a party intentionally engaging in falsifying important facts will be incorporating express terms and a breach of contract will arise (Ellul v Oakes)

A seller who is in a better position to know more about the selling products and taking advantage of other party's lack of knowledge to induce them into a contract will be liable because that statement will be a term (Dick Bentley v Harold Smith)

Without an element of expertise, the statement would have been regarded as a statement of opinion.

3.0 Collateral Contracts

3.1 Form and nature 

First form of collateral contract: Where a person enters into a contract (the main contract) with the other because of a promise by that person in relation to the subject matter of the main contract, or otherwise by way of inducement to enter into that contract

Second form of collateral contract: Where A enters into a contract with C after a statement by B which takes effect as a contract between A and B which is collateral to the main contract between A and C.

In both cases, the consideration for the promise in the collateral contract is entry into the main contract. 'It is collateral to the main contract ,but each has an independent existence, and they do not differ in respect of their possessing to the full the character and status of a contract' (per Lord Moulton in Heilbut Symons & Co v Buckleton)

3.2 Elements

There elements must be established (J J Savage & Sons Pty Ltd v Blakney)

  1. That the statement was intended to be relied on;
  2. Reliance by the party alleging the existence of the contract; and 
  3. An intention, on the part of the maker of the statement, to guarantee its truth. (See Shepperd v Ryde Corp)
3.3 Requirement of consistency 

A statement will not be effective as a collateral contract if it is inconsistent with the main contract. (Hoyt's v Spencer)

3.4 Contract with third party

The requirement of consistency, however, does not apply where the contract is with a third person (Andrews v Hopkinson). 

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