Express terms

Express Terms in Contracts

Introduction to Express Terms

In contract law, express terms are pivotal as they form the explicit agreements between parties involved in a contract. These terms can be articulated orally, presented in writing, or comprise a combination of both. The treatment of written clauses as integral components of a larger contract often becomes a central topic in critical legal discussions. This is particularly salient when it comes to exemption clauses, which offer critical insights into liability limitations and will be explored with greater depth in Chapter 9. However, the current focal point is on oral statements and the complex question of whether such statements constitute a term of the contract or merely representational assertions.

Importance of Equitable Certainty

The principle of maintaining clarity and certainty in contracts enables parties to uphold their rights and understand their obligations under the liability they accept. The lack of clarity can lead to disputes and practical challenges in enforcing agreements.

No Oral Variation Clause

A significant point regarding express terms is the no oral variation clause, which mandates that any modifications or amendments to the contract must be documented in writing. This clause is vital as it provides legal clarity and encapsulates the manifest intention of the parties. The Supreme Court's decision in Rock Advertising Limited v MWB Business Exchange Centres Limited (2018) affirmed this notion, reinforcing the importance of maintaining contractual certainty in varied business dealings. Similar follow-up cases, like NHS Commissioning Board v Vasant and others (2019) and Kabab-Ji SAL v Kout Food Group (2020), further corroborated this judgement, illustrating that any modification necessitates a written form, thereby precluding unauthorized oral variations and promoting fairness in business transactions.

Nature of Oral Statements

Oral statements have the potential to emerge as terms of either the main contract or a related collateral contract. A collateral contract functions as a supplemental arrangement, intended to navigate potential issues in determining whether a particular statement or theme is part of the main contract. This becomes especially relevant if a party affected by the statement is not directly involved in the primary contract, thereby sidestepping notions of privity – this crucial aspect will be discussed further in Chapter 17.

Definitions: Representations Versus Terms

Distinction of Terms and Representations

The statements made by one party prior to the formation of a contract can manifest as either a term of the contract or simply a representation. The pivotal distinction lies in the statement’s relation to current facts or forecasts of future events. When a statement qualifies as a term, breaches of that term allow the aggrieved party to claim remedies for breach of contract. In contrast, if deemed merely a representation, the remedies may only encompass misrepresentation claims rather than breach claims. The primary determinative factor distinguishing these two categories is the intention of the parties involved, which significantly influences judicial discretion – particularly in legacy cases where courts historically showed less leniency in awarding damages for misrepresentations.

Intent and Terminology in Court

The terminology used in courts often reflects this issue of intention. When determining whether a statement qualifies as a term in a contract, the focus is on whether it functions as a warranty—a commitment by the party that the statement is true. The term 'warranty' technically refers to a specific category of terms with well-defined legal implications, contrasting with conditions and innominate terms. For clarity and consistency in this discussion, 'term' will simply denote the existence of a contractual provision while minimizing potential ambiguity around different types of warranties.

Intention as a Test for Statements

The Intention Test

The crux of determining if a statement qualifies as a term lies within the intention of the parties. This principle was clearly articulated by the House of Lords in Heilbut, Symons, & Co. v Buckleton (1913). In this case, Buckleton engaged with Heilbut regarding shares in a rubber company, believing the company was indeed involved in rubber production. Upon discovering discrepancies in the company's nature, Buckleton sought damages based on alleged misrepresentation, which culminated in the House of Lords ruling that the company could not justifiably be labeled a rubber company—therefore, no contractual promise regarding its classification existed.

Objective vs. Subjective Intention

It is crucial to note that intentions are evaluated objectively regarding contractual terms rather than subjectively drawn from the parties' personal perceptions. As Lord Denning articulated in Oscar Chess Ltd v Williams (1957), it is a misapprehension to assume that a tribunal must delve into the parties' mental states. Instead, the analysis should focus on their expressed conduct, statements, and interactions to discern if a warranty was intended.

Indicators of Intention in Contractual Terms

The courts consider various factors to determine whether a statement was deemed a term:

1. Importance of the Statement: A statement may be classified as a term if it is pivotal to one party’s decision to contract. In Bannerman v White (1861), the assurance regarding the absence of sulphur significantly influenced the negotiation, establishing it as a term of the contract.

2. Reliance on Statements: The extent to which one party can depend entirely on a statement is crucial. Should a seller indicate that a buyer can rely solely on their words, it implies that these statements are contractually binding terms. Schawel v Reade (1913) exemplifies this principle, where a seller's assertion regarding a horse's soundness became a translated contractual term.

3. Best Position to Know: If one party is better equipped to ascertain the truth of a statement, it is likelier to be regarded as a term. Ecay v Godfrey (1947) illustrates this logic where a seller’s recommendation for inspection negated the implied guarantee of the boat’s soundness.

4. Relative Knowledge of Parties: Differentiating what each party knows about a statement can inform judgments on intent. In Oscar Chess Ltd v Williams (1957), the court determined that no term existed since neither party possessed superior knowledge regarding the car’s age.

5. Contrast in Positions: In Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd (1965), the court found a mileage statement to be a term because the seller was in a superior position to verify odometer accuracy.

Implications of the Parol Evidence Rule

The parol evidence rule raises critical discussions surrounding the admissibility of extrinsic evidence in written contracts. While a written agreement is usually assumed to embody all terms, this presumption can be rebutted, as evidenced by case law. The Law Commission has critiqued the parol evidence rule as a presumption lacking genuine substance, allowing for exceptions where oral agreements or customary practices can supplement written contracts. Moreover, the concept of collateral contracts may also circumvent the restrictions imposed by the parol evidence rule when statements cannot be directly categorized as main contract terms.

Conclusion: Collateral Contracts

Recognizing that some statements, while not part of the primary contract, can also be identified as part of collateral contracts is vital. This framework allows contracts to establish legally enforceable terms based on secondary agreements, reinforcing the ensemble of contractual interactions. Furthermore, this provides remedies for breaches akin to those in main agreements. In essence, understanding express terms and their evolution through judicial interpretation provides essential insights into the labyrinth of contract law, fostering clearer contractual relationships and obligations among parties in various contexts.