Contract terms

Terms or representations

When contracts are negotiated, or entered into, the parties may make statements, only some of which will become terms of the contract:

• Sales puff: such as extravagant sales talk that is not meant to be believed and which gives rise to no legal remedy if untrue (because it should have been seen as mere hype or puff).

• A representation: is a statement intended to induce the contract but does not become a term of it. A false representation may amount to a legally actionable misrepresentation.

• A term: is a statement intended (assessed objectively) to become a term of the contract. Breach of a term amounts to breach of contract, giving the innocent party a right to claim damages.

Whether a statement has become a contractual term ‘depends on the conduct of the parties, on their words and behaviour, rather than on their thoughts.’ Lord Denning concluded that ‘if an intelligent bystander would reasonably infer that a warranty [term] was intended, that will suffice.’ (1) A number of guidelines exist to assist on this issue.

i. Responsibility: did the seller accepted responsibility for the statement?

If the seller claims that the item is of a certain quality because there is no need to carry out independent checks then the statement is likely to be a term. On the other hand, if the seller says that the item is of a certain quality but that it is advisable to have an independent check then the statement is likely to be representation. In the latter scenario the seller is putting the onus on the buyer to verify the accuracy of the statement.

ii. Capacity to know: did the seller have particular skill or knowledge regarding the statement?

Consider these two scenarios in which statements are made, which turn out to be false, yet only the latter is likely to be a term:

• Representation: the car buyer who buys a car with a log-book stating its year to be 1948 who then sells the car by repeating what is in the log-book is making a representation, because he is merely repeating what he believes to be true.

• Term: the car dealer who said that the car ‘had done 20,000 miles only since it had been fitted with a replacement engine and gearbox’ has established a term because he was in a position to either know or at least find out whether his statement was true. (2)

iii. Importance: did the buyer make clear that the issue was particularly important?

If the buyer states that the vegetables he purchases for resale must be organic and the seller assures him that they will be, then the statement is likely to be a term.

iv. Written: is the seller’s oral statement repeated in any written contract?

If not, then the oral statement is unlikely to be a term in the absence of other factors suggesting otherwise.

The incorporation of terms

For a statement to have contractual force it needs to be incorporated into the contract, which can happen in a number of ways:

i. Signature & non est factum

By signing a contract its terms will have been incorporated. The signature is evidence of the signer’s assent to the terms, which is sometimes confirmed by a tick box inviting the signer to confirm that ‘I have read and understood the terms and conditions above’.

The doctrine of non est factum (‘this is not my deed’) applies where:

• the person signing a document is fundamentally mistaken as to the nature of the document, and

• this mistake was not a result of carelessness by the signer. (3)

Where the doctrine applies the written contract is void.

ii. Reasonable notice

Many contracts are oral, and some have terms that are contained in additional documents or statements. In either case the law requires that these terms will only be incorporated if the buyer has reasonable notice of them. Factors relevant to this issue include:

Timing: the terms must be drawn to the buyer’s attention before the contract is concluded. (4)

Nature of the document: is the document one on which the reasonable person would expect there to be contract terms? For example, does the front of the document refer to ‘additional terms on the reverse of this notice’ or does it merely contain additional terms on the reverse that many would overlook?

Nature of the clause: the more important, onerous or unusual a term, the more notice needs to be given of it. Some clauses are such that to be incorporated, they may require the seller to highlight them, such as by specifically drawing the buyer’s attention to them or by printing them with larger and emboldened text. (5)

iii. A course of dealing or custom and practice

If the parties have previously dealt with each other then it may be that those terms can be assumed to apply to a further contract between the same parties.

Similarly, in some spheres of activity there are ‘industry standard’ terms, which the parties can expect to be incorporated into their particular contract.

Parol evidence rule & collateral contracts

If the contract is written then the writing will constitute the whole contract and the parties cannot adduce extrinsic evidence to add to, vary, or contradict that writing. However, this parol evidence rule is often avoided since it does not apply:

•to implied terms(as described below),

•if the contract is treated as partly written and partly oral,

•to an oral collateral contract. (6)

(1) Oscar Chess Ltd v Mr Williams [1956] EWCA Civ 5.

(2) Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] EWCA Civ 265.

(3) Saunders v Anglian Building Society [1971] AC 1004, where the plea failed to satisfy either ground when raised by an elderly lady who had broken her glasses and could not read the document relating to her house.

(4) Thornton v Shoe Lane Parking Ltd [1970] EWCA Civ 2. After paying to park his car an automated machine gave the driver a ticket with terms, which the court found were not incorporated, as Lord Denning explained:

The customer pays his money and gets a ticket. He cannot refuse it. He cannot get his money back. He may protest to the machine, even swear at it. But it will remain unmoved. He is committed beyond recall. He was committed at the very moment when he put his money into the machine. The contract was concluded at that time. It can be translated into offer and acceptance in this way: the offer is made when the proprietor of the machine holds it out as being ready to receive the money. The acceptance takes place when the customer puts his money into the slot. The terms of the offer are contained in the notice placed on or near the machine stating what is offered for the money. The customer is bound by those terms as long as they are sufficiently brought to his notice before-hand, but not otherwise. He is not bound by the terms printed on the ticket if they differ from the notice, because the ticket comes too late.

(5) For a review of several authorities see Interfoto Picture Library Ltd[1987] EWCA Civ 6, which refers to Lord Denning’s famous remark:

‘I quite agree that the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient.’

(6) Burley v Burley [2002] EWCA Civ 1163, §§24-26.