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Dreana Marshall

Contract Terms

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TERMS OF THE CONTRACT

 

The first step in determining the terms of a contract is to establish what the parties said or wrote.

Statements made during the course of negotiations may traditionally be classed as representations or terms and if one turns out to be wrong, the plaintiff's remedy will depend on how the statement is classified:

  1. A representation is a statement of fact made by one party which induces the other to enter into the contract. If it turns out to be incorrect the innocent party may sue for misrepresentation.
  2. Breach of a term of the contract entitles the injured party to claim damages and, if he has been deprived substantially what he bargained for, he will also be able to repudiate the contract.
  3. If a statement is not a term of the principal contract, it is possible that it may be enforced as a collateral contract (which has developed rapidly in the twentieth century as a significant means by which the difficulties of fixing a statement with contractual force may be circumvented).

How can the courts decide whether a statement is a term or a mere representation?

(A) TIMING- he court will consider the lapse of time between the making of the statement and the contract's conclusion: if the interval is short the statement is more likely to be a term.

(B) IMPORTANCE OF THE STATEMENT -
he court will consider the importance of the truth of the statement as a pivotal factor in finalising the contract. The statement may be of such importance that if it had not been made the injured party would not have entered into the contract at all.


(C) REDUCTION OF TERMS TO WRITING -
The court will consider whether the statement was omitted in a later, formal contract in writing. If the written contract does not incorporate the statement, this would suggest that the parties did not intend the statement to be a contractual term.

(D) SPECIAL KNOWLEDGE/SKILLS -The court will consider whether the maker of the statement had specialist knowledge or was in a better position than the other party to verify the statement's accuracy.

CONDITIONS AND WARRANTIES

Traditionally terms have been divided into two categories: conditions and warranties.

(A) CONDITIONS - A condition is a major term which is vital to the main purpose of the contract. A breach of condition will entitle the injured party to repudiate the contract and claim damages. The injured party may also choose to go on with the contract, despite the breach, and recover damages instead.


(B) WARRANTIES  - A warranty is a less important term: it does not go to the root of the contract. A breach of warranty will only give the injured party the right to claim damages; he cannot repudiate the contract.

(C) INTERMEDIATE TERMS - It may be impossible to classify a term neatly in advance as either a condition or a warranty. Some undertakings may occupy an intermediate position, in that the term can be assessed only in the light of the consequences of a breach. If a breach of the term results in severe loss and damage, the injured party will be entitled to repudiate the contract; where the breach involves minor loss, the injured party's remedies will be restricted to damages. These intermediate terms have also become known as innominate terms.

IMPLIED TERMS

In most contracts the primary obligations of the parties are contained in express terms. In addition there are various circumstances in which extra terms may be implied into the agreement.

A) TERMS IMPLIED BY CUSTOM - The terms of a contract may have been negotiated against the background of the customs of a particular locality or trade. The parties automatically assume that their contract will be subject to such customs and so do not deal specifically with the matter in their contract.

B) TERMS IMPLIED BY THE COURT

(i) Intention of the Parties/Terms Implied as Fact

The courts will be prepared to imply a term into a contract in order to give effect to the obvious intentions of the parties.

(ii) Relationship Between the Parties/Terms Implied by Law

In certain relationships and contracts the law seeks to impose a model or standardised set of terms as a form of regulation.

Dreana Marshall