Terms of contract

CPA-Business-Law-Section-1 BLOCK RELEASE

In the course of negotiations, a number of statements may be made each of parties. Some of these eventually form part of the contract, while others are left out. Statements which form part of the contract are known as terms of the contract. Those which are made in the course of negotiations but are ultimately left out of the contract are called representations. A representation is a statement that is not within the contract. If it turns out to be a false representation, either fraudulently or innocently made, it is called a misrepresentation. If the statement is within the contract then there is a further problem of deciding whether it is a classified as express and implied terms.

The terms of a contract are as follows;
The rights and obligations of the parties to a contract depend on the terms of the contract, not on mere presentations. It is therefore always important to determine whether a particular statement is a term or a presentation:

Oscar Chess, Ltd. V. Williams (1957)
The defendant offered the plaintiffs a second-hand Morris as part of the consideration for a hire purchase contract. The registration book of the Morris stated that the car was a 1948 model, and this was confirmed the defendant in good faith. But it turned out later that the car was in fact a 1939 model, which should have been valued at lower figure. The plaintiffs who were car dealers sued the defendant for the difference in value. The court had to determine whether his statement as to the age of the car was a term of the contract or a mere representation.
Held: The statement as to the age of the car was not a term of the contract but a mere representation. The plaintiffs were not therefore entitled to recover the difference in value.

Dick Bentley Productions, Ltd. V. Harold Smith Motors Ltd. (1965)
The defendants sold a Bentley car to the plaintiffs, stating that the car had done only 20,000 miles from the time it was fitted with a replacement engine and gearbox. This statement turned out to be false, the car proved unsatisfactory and the plaintiffs sued. The court had to determine whether the defendant’s statement as to mileage was to term of the contract or a mere representation.
Held: The statement as to mileage was a term of the contract; and the plaintiffs were entitles to damages for breach of contract.

Looking at the above decisions together, it is clear that it is not always easy to determine whether a particular statement is a term or a mere representation. Generally a statement made a person possessed of special knowledge or skill is treated seriously, to the extent of being considered a term of the contract; while a statement made a person not position and will usually be regard as a mere representation. Thus, in Oscar Chess,Ltd. V. Williams the purchasers of the car (the plaintiffs) were themselves car dealers and as such were in a position to ascertain the age of the car independently of any statement made the defendant.

As car dealers they were possessed of some special knowledge or skill; the defendant’s statement would not therefore mean much to them and it was rightly held to be mere representation. On the other hand, in Dick Bentley Case, the defendants had been in possession of the car and were on a better position, compared to the plaintiffs, to tell the mileage which had been done the car; their statement therefore had to be a term of the contract.

Besides the state of knowledge or skill of the respective parties, the question whether a particular statement is a term or a mere representation may be determined in another way. Where the parties make an oral agreement, which is subsequently reduced to writing, only those statements which are incorporated in the written agreement will be regarded as terms of the contract, while the oral statements left out of he noted, however, that much depends on the peculiar circumstances each case and no hard and fast rule can be laid down.

Express and Implied Terms
Parties to a contract are free to make their own bargain under the banner of “freedom of contract” They may therefore agree on any terms, as long as these are covered law. But standard form contracts are in exception. In this type of contract, one of the parties virtually dictates all the terms of the contract, which are contained in a special document presented to the other party for signature- e.g. insurance contracts.

Express terms are those which are specifically (or expressly) agreed upon the parties, whether orally, in writing, or partly orally and partly in writing.
In the absence of specific (or express) agreement on my matter in a particular contract, certain terms may be treated law as governing the matter in question. These are known as implied terms. Terms may be implied in a contract statute (e.g. the Sale of Goods Act implied certain terms in every contract of sales of goods); custom (e.g. trade customs); or court (e.g. in contracts of employment in master/servant relationship). Sometimes, an implied term is excluded in the express terms of the contract.

Conditions and Warranties
Not all terms of a contract carry the same weight. Some are important than the others. Those which are regarded as major terms of the contract are known as conditions, while those which are minor or of less consequence are called warranties. The distinction between conditions and warranties is best illustrated the effect which a breach of each one of them has on the contract.
In a contract of sale of goods, for example, a breach of condition one party entitles the other (innocent) party to treat himself as discharged from his obligations under the contract, while a breach of warranty one party only entitles the other (injured) party to damages, but not to as right to regard himself discharge from his obligations under the contract.
Both conditions and warranties may be express or implied. But conditions are further subdivided into condition precedent and condition subsequent.
A condition precedent is one which must be satisfied before a contract can become effective or operational: until such condition is satisfied the existence or operation of the contract is suspended and none of the parties has any enforceable right in the meantime:

Pym V. Campbell (1856)
The plaintiff and defendant entered into a written agreement under which the defendant agreed to buy a share in the plaintiff’s invention. But it was understood that the agreement was subject to an approval of the invention X, an engineer. X later disapproved the invention and the defendant refused to proceed with the agreement. The plaintiff sued.
Held: In the absence of X’s approval there was no effective agreement and the plaintiff’s action could not therefore be maintained.

Again, if A enters into a contract with B is to construct a number of residential houses for A, and
A is required to obtain permission from the City Council before the construction work can commence, out the obligation imposed on B the contract.
A condition subsequent, on the other hand, is a condition whose occurrence may affect he rights of the parties under a contract which is already in operation. For instance, where there is a provision that a contract is to remain valid until a stated event occurs, the occurrence of the event is a condition subsequent which terminates the contract.

Is an illiterate person protected law?
The answer is yes, and the relevant protection is to be found in the illiterates Protection Act. The
Act defines an illiterate as “a person who is unable to read and understand the script or language in which the document is written or printed as the case may be”. The document must be read over and explained to the illiterate in a language he understands; after this the illiterate, if he is satisfied, appends his mark to it in the presence of a witness whose true and full name and address must be stated; and after the illiterate has appended his mark his name must be written on the document the witness. Similarly, any person who writes such document must give his true and full name and address. In either case, there is a presumption that the instructions of the illiterates have been complied with and that the document was read over and explained to him. The burden is on the illiterate to rebut this presumption. He should, for instance, insist on the document being read over to him, otherwise he will be bound it.

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