Content of contracts

Terms versus representations

The terms of the contracts are incorporated either in writing or by implication. They create contractual obligations for both parties, breach of which can give rise to litigation. A representation is something said by the offeror in order to induce the offeree to enter into the contract. It may or may not become a term of that contract.

The distinction between terms and representations is important because, if a statement is untrue, the remedies available to the innocent party differ:

• if the representation becomes a term of the contract, the innocent party has remedies for breach of the term as well as for misrepresentation
• if, however, the representation does not become a term of the contract, the innocent party will have remedies only for misrepresentation which are based on equitable remedies.

Sources of terms

Terms may be express or implied:

• Express terms are those specifically inserted into the contract by one or both of the parties. They must be clear for them to be enforceable.
• Implied terms are not expressly included in the contract, but they are nevertheless still part of the contract. They may be implied by statute, by the courts, or by custom. An example of this is a contract of employment which has implied terms such as an employee's duty to obey lawful and reasonable orders.

Express terms will generally override implied terms. However, some statutory terms cannot be overridden by express agreement (for example, terms inserted by the Sale of Goods Act 1979).

The sources of terms are summarised in the following diagram:

The Moorcock (1889)

There was an agreement by a wharf owner to permit a shipowner to unload his ship at the wharf. The ship was damaged when it was grounded at low tide on the bottom of the river on a hard ridge.

The court implied a term into the agreement that the river bottom would be reasonably safe for ships to dry out on.

Types of terms

There are three types of terms:

• conditions
• warranties
• innominate terms.

The distinction between the types of term is important because it determines the remedies that may be available in the event of a breach.

Conditions

A condition is an important term going to the root of the contract.

Breach can result in damages or discharge or both. Discharge entitles the innocent party to repudiate the contract and claim damages.

Warranties

A warranty is a less important term, which is incidental to the main purpose of the contract.

Breach of warranty results in damages only.

Innominate terms

An innominate or indeterminate term is neither a condition nor a warranty.

The remedy depends on the effects of the breach:

• if trivial - damages only i.e. term is treated as if it were a warranty.
• if serious - damages, discharge or both i.e. term is treated as if it were a condition.

Exclusion clauses

An exclusion clause (or exemption clause) is a term that seeks to exclude or limit a party's liability for breach of contract.

In order to be valid an exclusion clause must satisfy two conditions:

• it must be incorporated into the contract
• its wording must cover the loss.

An exclusion clause can be incorporated into a contract by:

• signature
• notice
• previous dealings.

Signature

The case of L'Estrange v Graucob (1934) established that a clause is incorporated by signature even if the signatory did not read or understand the document.

However, the situation in L'Estrange v Graucob (1934) can be contrasted with Curtis v Chemical Cleaning (1951) in which it was held that a signature does not incorporate the clause if the effect of the term was misrepresented.

Notice

For an exclusion clause to be incorporated by notice, reasonable steps must have been taken to bring it to the attention of the other party at the time the contract was made. What are 'reasonable steps' depend on the circumstances.

Previous dealings

For an exclusion clause to be incorporated by previous dealings, there must have been a consistent course of dealings between the parties.

The wording must cover the loss

Under the contra proferentem rule, the courts interpret the words narrowly against the interests of the person seeking to rely on the clause.

Statutory rules

Even if a clause passes the common law test, it must also satisfy the statutory rules. These are contained in:

• Unfair Contract Terms Act 1977
• Unfair Terms in Consumer Contract Regulations 1999

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Tags:	terms;representations;express terms;implied terms;conditions;warranties;innominate terms;exclusion clauses