Week 8 Contract : Terms of the contract

what are the ‘terms’ of a contract?

provisions that define the rights and obligations of each party. They form part of the contract and failure to perform a term results in a breach of contract.

what is the difference between a trader’s hype, a representation, and a term?

• puff (traders hype): mere sales talk, not legally binding

• representation: statement made to induce a contract, but not necessarily binding

• Term: legally binding part of the contract

how do you distinguish between a term and a representation?

depends on the intention of the parties. use an objective test; what would a reasonable person think the parties intended, based on all the circumstances?

what factors influence whether a statement is a term or a representation?

1. importance to the parties - if fundamental, likely a term (e.g. Bannerman v White)

2. Timing - longer delay suggests its a representation (Routledge v McKay)

3. Special knowledge - if one party has expertise, statement more likely to be a term (Dick Bentley v Harold Smith)

4. Private seller - less likely to make binding terms (Oscar Chess v Williams)

what is the difference between express and implied terms?

• express terms: clearly agreed upon, oral or written

• implied terms: not stated but inserted by law, custom or necessity

how are terms implied in a contract?

• in fact: based on the intention and circumstances

• in law: by statute, precedent, or custom

• Note: implied terms can be overriden by express terms unless they are mandatory

what is a condition in a contract?

an essential term. breach allows the innocent party to terminate the contract and claim damages

what is a warranty in a contract?

a less important term. breach allows for damages, but not termination

what is an innominate term?

a term that is neither clearly a condition nor a warranty. remedy depends on the seriousness of the breach

what do we mean by interpretation (or ‘construction’) of contract terms?

understanding what the words in a contract mean, to reflect the parties’ intentions and ensure fairness and certainty

what is the literal interpretation of contract terms?

• based on plain, ordinary meaning of words

• within the ‘four corners’ of the document (Parol Evidence Rule)

• rigid but increases certainty

what is the contextual interpretation of contract terms?

• words interpreted in their context

• allows courts to consider surrounding facts (“matrix of fact”)

• based on a reasonable person’s view (Investors Compensation Scheme v West Bromwich)

what are the five principles from Investors Compensation Scheme v West Bromwiich (1998)?

1. interpret as a reasonable person would

2. use all background facts known to the parties

3. exclude prior negotiations and subjective intent

4. read terms in full context

5. use ordinary meaning unless it defeats the contracts intention

when can courts depart from literal meanings?

• if literal meaning contradicts parties’ intention

• if it goes against business common sense

• if it leads to unfair results

what is contra proferentem rule?

any ambiguity in a term is interpreted against the party who drafted it.

e.g. Andrew Bros v Singer - express term ‘new car’ couldn’t be overriden by exclusion clause