TERMS OF CONTRACT
After the preliminaries of Negotiations, which culminated into offer and acceptance with the requisite intention to create legal relations, the next important thing is the main body of the contract. The terms are items that are well articulated and agreed upon by the parties.
Whether a contract is orally or partly in writing, it must contain terms which will determine the full extent of the parties liabilities or obligations.
Not all the statement made by the parties in the course of negotiation will be binding as the terms of contract. It is only those intended statements by the parties at the time of the agreement which form part of the contract and it is called contractual terms. But a distinction has to be made between a term of contract and a more representation.
A statement is a term of the contract if it creates a legal obligation while a mere representation is a statement made in the course of negotiation which is intended to induce the other party into the contract but which is not part of the contract.
Read also: Variation of Contractual Rights
Whether a statement is taken or regarded as a term of the contract or mere representation is a matter of construction but the importance of the distinction between the two lies on the fact that the cause of action in the court will have to be determined by reference to the classification.
Whether statement is a term or mere representation, it is determined by some criteria:
1. The first criterion is the stage in the negotiation (The point in time the statement was made).
Usually, the time gap between the period a statement is made and the actual formation is taken into account.
If there is a long gap, it may imply that it is a statement of mere representation and not intended as a term of contract. Thus in Routledge v MCkay (1954) All Indian Law Report P 255 where the time gap was one week, it was held that the statement was mere representation. In this case, the interval between the negotiation and the contract was well marked.
2. The second criterion is the importance of the statement of the parties. If the statement is made with some force, obviously it will be regarded as being of sufficient importance to be regarded as the term of the contract.
Thus, in Bamerman v White (1861) 142 AIER pg. 685, a prospective buyer of hops asked the seller whether sulphur has been used in their cultivation adding that if it was so, he will not even bother to ask for the price, the seller assumed that the hops have not been treated with sulphur. It was held that it was a term of the contract.
A statement which is not strong may well be regarded as a mere representation.
3. The third criterion is Relative strength. The Relative strength of the two parties. If there is an inequality of bargaining power, the law will very often favour the weaker party. This is especially so where the stronger party is an expert sales man and the weak is inexperience members of the public, it will follow them that the statement of the stronger party tends to be a term of the contract.
Read also: Acceptance in contract
In Shawel v Reade and Esso petroleum limited v Mardon, the statement in each case was made by an expert and relied upon by layman and in both cases, the statement were held to be terms of the contract. If however the statement is made by a person who has less knowledgeable about the subject matter of the contract, it is regarded as a mere representation.
This is illustrated in the case of Oscar Chess Limited v Williams (1957)1 WLR pg 370. The contract concerned a moriss car. The plaintiffs were car dealers, the defendant mother bought it is 1984. The log book showed it to have been registered on 1948. In 1985, the defendant traded it in part exchange with the plaintiff dealers for a new eman car. The car was traded as a 1948 model. The plaintiff allowed 290 euros on it. In fact, the car was a 1939 model upon which they will only have allowed 175 euros. The plaintiff discovered this some 8 months later and sued for the interest of 116 pounds and breach of contract.
It was held that the plaintiff were experts who could have test by confirming the engine number and number four the maker since they are export the representation made by the defendant as to the year of make was not treated as a contractual term.
4. Another grade in determining whether a statement is a fact or mere representation is the verification Test. A statement will not be regarded as a term of the contract of the person making it expects the other to verify the truth of it. The case of Ecay v Godfrey
Effects of Contractual Terms
After ascertaining whether a statement on a contract is a term or a mere representation, it is necessary to consider in more details the various categories of contractual terms since all the terms are not of equal importance.
At present, 4 categories of terms have been identified in the following order of importance:
- Fundamental Terms
- Irominate or Intermediate Term
Fundamental Term is a term which constitution the mean purpose of the contract. It is of the greatest importance in a contractual obligation, and the failure to comply with it is equivalent to non performance of the contract.
It is something which underlines the whole contract so that if it is not complied with the performance becomes, it something totally different from that which the contract contemplates. It is the breach that goes to the root of the entire contact. For instance, a contract to buy groundnut from a seller and the seller supplies beans, it is a fundamental breach and amounts to non performance of the contract.
A breach of fundamental term gives the innocent party option to sue even if there is an exception clause.
A locus classicus case to illustrate this is the case of Karsals Ltd v Wallis (1956) 2 ALLER pg. 866. Wallis entered into a contract of hire purchase of a motor car which he has inspected and found to be in excellent condition. The contract contained a clause:
“No condition or warranty is given whether the vehicle is road worthy or fit as to its age condition or fitness for any purpose is given by the owner or implied.’’
The car was shortly afterwards delivered at night. The next morning, when Wallis came to inspect it, he found it to be in a deplorable condition. Many of the original parts have been removed and the car will not move. It was held by the court that the car delivered was not the thing contracted for. There was a fundamental breach of contract irrespective of the exception clause.
Conditions and Warranties
A condition may be defined as a statement of fact which forms an essential term of a contract. If the statement or the promise is unfulfilled, the innocent party may plead the breach or repudiate the contract which discharges him from further obligations.
Condition inherent is relevant to our study. It qualifies the obligation in the contract and it is not external to it. In this sense, a condition is an important part of the contract, the breach of which entitle the injured party to treat himself as discharged from future obligation under the contract or to sue for damages immediately. If he does not exercise the right to elect, he will remain bound by the contract.
On the other hand, warranty means an agreement which is collateral to the other purpose of a contract. The breach of which gives right to a claim for damages but not to a right to reject the contract and treat it as repudiated. The destruction between condition and warranty is more blurred but useful guides can be found on the definition provided by sales of goods Act 1893.
Contracts are concluded within the context and framework established practices. This means it necessary not to take all terms in a contract expressly. Thus implied terms are not mentioned by the parties to a contract.
Read also: Consideration in Contract
Nevertheless, terms can be implied by the court, statute, and by the custom in order to promote commerce and business efficacy.
- Terms implied by court:
Court are not always anxious to temper with contract made by the parties but they imply a term where it is really necessary in order to give the contract a business efficacy, i.e. to make it work. This is based on the idea that the parties must have intended the term to be in the contract although they did not expressly make it so. The test to determine the presumed intention of the parties which the court may imply is the officials by stander test which was first propounded in the case known as Morcock’s case
In the case of Okotete v Electricity Corporation of Nigeria (Unreported) PHC
- Terms Implied by Statute:
The provision of sales of goods Act 1893 which have been locally exacted on some states in Nigeria is a good example of terms implied by statute.
- Terms implied by Custom:
A contract is made subject to customary term or usages preventing within sphere of the subject matter of the contract even though such term have not been expressly mentioned in the contract. This is based on the assumption that it was intention of the parties to be bound by the custom.
A good example of a term implied by custom in a contract is in the Maine insurance when there is an implied undertaken that the premium will be paid by the broker, i.e. he (the broker) is deemed to provide the insurer that he will be liable for the payment of premium in the event of default on the part of the assured.
It must be noted however that a custom can be excluded from an agreement by express term. Thus, when a custom is expressly excluded, the custom will not operate to override the express provision in the contract.
In the case of Mainland Nig Ltd v Dizengoll, the court held that no evidence of custom can override the express terms of a contract.
Another thing about importing custom into a written contract is that the custom must be sufficiently well established so as to be known to all those engaged on the trade. If the custom have not been well established, it cannot be applied to a contract on which notice of which have not been given to one of the parties.
Contributed by: Adedokun Samuel
Inioluwa Olaposi is a Law student at Obafemi Awolowo Universities, Ile-Ife, Nigeria. Before LawHub NG, he started publishing law-related posts on his former multi-niche website.