TERMS OF ACONTRACT

 CONTENTS

1.0	Introduction
2.0	Objectives
3.0	Main content
3.1	A Term of the Contract and a Mere Representation
	Distinguished
3.2	Express Terms
3.3	Implied Terms
4.0	Conclusion
5.0	Summary
6.0	Tutor-Marked Assignment
7.0	References/Further Readings

INTRODUCTION

In the process of entering into a contract, there are terms and conditions usually inserted into the body of the contract documents by the parties to the contract. In most cases, these terms and conditions form the basis of the contract. Some of these terms are usually express while others are implied from a variety of situations and circumstances depending on the nature of contract.

OBJECTIVE

In this unit we shall discuss all the terms and conditions which usually bind or regulate the conduct of the parties under the contractual arrangement. By the end of this unit, learners are expected to be able to decipher between express and implied terms. Also, learners are expected to know the major difference between a term of the contract and a mere representation.

MAIN CONTENT

It is usually expected that after the parties have satisfied all the essential requirements of a valid contract, it will  still be  necessary to determine the extent of the obligations which the  contract  creates. To do this, three things must be done.

Firstly, it is necessary to determine what the terms are and which the party has expressly included in the contract. It is important to note that the rights and obligations of the parties under a contract are determined by reference to the content of the contract. In other words, the terms of the contract control the operation of the  contract.

Secondly, the relative importance of those terms must be evaluated.

Thirdly, it may be necessary to ascertain some additional  terms which a statute, the courts and custom may imply into the contract.

A Term of the Contract and Mere Representation Distinguished

The importance of the distinction between a term  of the contract  and a mere representation lies in the type of remedy available to an aggrieved party when a breach of a contract is alleged. If the breach is of a term of the contract, then the aggrieved party can sue for a breach of that term and obtain a remedy in damages or in both damages and repudiation, depending on the importance of the term breached.

If however, the term breached is not a term of the contract, but a mere representation, not only is the remedy available to the plaintiff less valuable, there may in fact, be no real remedies at all. He can only claim damages for misrepresentation if the term breached is a representation.

However, for the purpose of distinguishing  and  identifying  a term of the contract and a mere representation three independent tests have been designed as follows:

• At what  stage  of  the  transaction  was the crucial statement made? Statements made at the preliminary stages of the negotiations are

usually not regarded as terms of the contract, but mere representations. It is assumed that the longer the time f rom wh en the statement was made to the time when the contract was concluded, the more likely would it be regarded as a mere representation and vice versa.

• Reduction of the terms to The issue here is that where there was an oral agreement, which was  subsequently  reduced  into writing, any term contained in the oral  agreement,  not contained in the later document, will be treated as a mere representation.
• One party’s superior If the person who made the statement had special knowledge or skill as compared to the other party, then the statement is taken to be a term of the contract. If, however the statement is made by the person who is less knowledgeable about the subject matter of the contract. It is regarded as a mere representation.

SELF ASSESSMENT EXERCISE 1

Distinguish between a term of contract and a mere representation

Express Terms

If the  contract  is wholly or partly oral,  the task  of  discovering the terms which the parties expressly stipulate is a matter of evidence. But  where the  contract  is  wholly in  written,  the  discovery  of the express terms normally presents no problem, because the written terms are the terms of the contract. In such a case, the  court always insists that the parties must be confined within the four corners’ of the written words in which they have chosen to express their agreement.

In determining the content of the contract, there is a cardinal  rule of construction that no one is allowed ‘to add to, vary or contradict  a written document by  a  parol  evidence’.  The  word ‘parol’   in  this context meaning any extrinsic evidence. This rule is subject to the following exceptions:

• Parol evidence may be adduced to prove a custom or trade usage whose implications the parties have,  or  may  reasonably be deemed to have, tacitly assumed.
• Parol evidence is  adduced  to  show  that  the  operation  of the written contract was subject to an agreed antecedent condition - a condition precedent which had not occurred.
• Parol evidence is adduced to prove  that  the  written agreement was not the whole contract.

3) Parol evidence may  be  given  to  prove  some  invalidating cause outside the written contract itself, e.g. fraud, illegality, misrepresentation, mistake, incapacity or absence of consideration.

CONDITIONS

The word condition is used in two senses. In the first  sense  it means a term or a stipulation in a contract which is absolutely essential to its existence, the breach of which entitles the injure party to repudiate the contract and to treat it as discharged.  In other words, a condition is a term of major  importance  which  forms the main basis of the contract, the  breach  of  which  normally gives the aggrieved party a right, at his option,  to repudiate the contract and treat it as having ended.

In the second sense, a condition is a qualification which renders the operation and consequences of the whole contract dependent upon an  uncertain  future  event;  such   conditions   are   either precedent or subsequent.

A condition precedent is one which must occur or be fulfilled before an obligation or right created by the contract can be enforced. In  PYM V Campbell (1910) K.B. 1012 where under a written contract, the defendant’s promise to buy a share in the plaintiff’s invention was, by an unwritten understanding made subject to the approval of a third party. It was held that, until the approval was given, he defendant was under no obligation to buy. In other words, the contract was unenforceable in the absence of the desired approval which was the condition  precedent.  A condition  subsequent  on  the  other  hand   is   a   statement   of   the  circumstances  in  which the obligations under a contract may be prematurely terminated  after the transaction  has been  embarked upon. In Head v Tattersall (1971)L.R. 7 Exh. 7, the plaintiff bought a horse o f a particular  description  from  the defendant,  with  the understanding that the plaintiff could return it, up to the following Wednesday, if it did not answer the description. The description failed and the plaintiff returned the horse within time. It was held that although a contract had come into existence, the option to  return operated  as  a condition subsequent and the plaintiff was therefore entitled to cancel the contract and return the horse.

WARRANTIES

Warranty ordinarily denotes a binding promise, but when it is used in a narrower and technical sense, it means a subsidiary term in a contract (i.e a term of minor importance) a breach of which gives no right to repudiate the contract, but only a right to an action for damages for the loss sustained. It is described in the Sale of Goods Act, 1893 section 62 as:

“An agreement with reference to goods which

…… (is) collateral  to  the   main   purpose   of such  contract,  the breach of  which gives rise to a claim for damages, but not a right to reject the goods, and treat the contract as repudiated.”

The main difference between a condition and a warranty is that a breach of the former entitles the other party to treat the whole contract as discharged, while a breach of the latter merely entitles the other party to claim damages, but does not absolve him from performing his duties under the contract.

Representation

When a statement is made by the seller of goods to the buyer, relating to the goods, the statement may be mere representation which helps to induce the buyer to enter into the contract or a term of the contract itself.

• a statement which constitutes part of the contract contract.

It is not easy to distinguish whether a statement is a mere representation or a part of the contract.

If a statement is held to be only a representation, then if the statement is false, no damages are obtainable by the buyer at common law unless he shows that the seller was fraudulent i.e that the seller knew his statement was false or made it recklessly not minding whether it was false or not.

SELF ASSESSMENT EXERCISE 2

• Define express terms
• Distinguish between conditions and warranties

Implied Terms

Generally, apart from express terms i.e. oral or written agreements of parties, contracts entered into  by  parties  may  also  be  governed b y implied terms.

Implied terms are terms implied in the contract, and they, like express terms may assume the character of conditions or of warranties. In certain circumstance it may be difficult to ascertain the intention of the parties without resorting to these  implied  terms. This is particularly so when it is remembered  that, it is not in every contractual relationship that the parties will remember to express all the terms which they intended to govern  their contractual arrangement. These implied terms may be discussed under three major groups namely:

Terms Implied by the Courts

Generally, it is not the duty of the court to make a contract for the parties. However, in very exceptional circumstances, whenever it is desirable to effectuate the intention of the parties as may be  gathered from their express terms, the court may imply a term into their contract. But, the circumstances for implying such a  term must be established to be necessary. In  Hutton-Mills  V  Nkansah II and Ors (1940)6 W.A.C.A.32, the court was called  upon  to  imply a term in the written agreement, that the express powers conferred on the respondents under a power of attorney to  determine certain concessions and dispose of them also empowered them to collect arrears of rent. The court declined to do so, as the provisions of the power of attorney were  clear,  and  to  imply  a  term as urged by the respondents could not be said  to  be  necessary for the proper functioning of the contract.

Terms Implied by Law or Statute

Contractual terms may also be implied by law or statute. Among outstanding examples are the implied terms contained in section 4 of the Hire Purchase Act, 1965 and in section 12-15 of the Sale of Goods Act, 1893. For States in the former Western Region of  Nigeria, where the English Act does not apply, provisions corresponding to section 12-15 above are contained in sections 13-16 of the Sale of Goods Law, 1959. These provisions are separately dealt with in the next unit.

Terms Implied by Custom and Usage

As a rule, firmly established local mercantile custom and usages  may be implied in a contract, although not expressly provided  in  the contract by the parties. Thus, in Hutton  v. Warren  (1836)1 M and W 466, it was proved  that, by  a  local  custom,  a  tenant was bound to farm according to a certain course of husbandry and that, on quitting his tenant, he was entitled to a fair allowance for seed and labour on the arable land. The court held that, the lease made by the parties must be construed in the light of this custom.

Also, in Produce Brokers, Co. Ltd v. Olympia Oil and Cook Co. Ltd (1916)1 A.C 314, a written agreement for the sale of goods provided that “all disputes arising out of this contract shall be referred to arbitration;  a  dispute  was  submitted  to  arbitrators who in their award insisted on taking  into  consideration  a particular custom of the trade. The House of Lords held that theywere right to do so.

It should however  be  noted  that  the  application  of  any customary implied terms is subject to the rule that such terms cannot override the terms of a written contract.

SELF ASSESSMENT EXERCISE 3

Discuss the various heads of implied terms and their importance in contractual agreements.

CONCLUSION

The concept of terms of a contract as shown  above usually forms  the bedrock  on  which   a valid   contract   is built.   Apart   from   the  basic requirements  of  an  offer,  acceptance,  consideration  and intention to create legal relations, where the parties  are silent  on the terms intended to govern the contract  at  hand,  there  is likely to be a breach of the contract  by  either  of  the  parties thereto. Therefore, terms of a contract, particularly in relation to commercial transaction are very important.

SUMMARY

The pivotal role played  by the knowledge  of the distinction  between a term of a contract and a mere representation; the importance of express terms in the nature of conditions and warranties and the necessity of implied terms in the absence of specific terms on  a variety of subjects makes this unit a vital one in the knowledge of the basic ingredients of contract relating to commercial transactions.

TUTOR-MARKED ASSIGNMENT

• Examine the    three    tests    adopted    over    the    years    in distinguishing a term of a contract from a mere representation.
• Define an express term of a contract contract.
• Distinguish between conditions and warranties.
• Discuss the various heads under which an implied term could be invoked.

REFERENCES/FURTHER READINGS

1. Kingsley Igweike “Nigeria Commercial Law: Agency.” (1993) FAB Educational Books, Jos, Nigeria.
2. Sagay; (1999). “Nigeria Law of Contract.”
3.  M.C. Okany, Nigerian Commercial Law, 1992.

5. A.  M.  Agbonika  and  J.   A.   A.  Agbonika,  Sale  of   Goods (Commercial Law), 2009, Ababa Press Ltd
6. j. Okoro   (2013),   Business   Law   for   Professional  Exams, MaltHouse Press Ltd.