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Summary Contract Terms
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Topic 4 in the contract law course. Used by a 1:1 (1st) student.
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University of NottinghamLaw of Contract
1. EXPRESS TERMS
Express terms are terms set out in the contract by the parties, and can be written, oral, or partly written and
partly oral. Implied terms are added in the contract as they are assumed.
(a) Identification: Term or Representation?
During contractual negotiations, several statements are generally made:
Some are incorporated as terms of the contract:
A promises B that a particular state of affairs is true. If false, B may, in some situations, terminate for
breach of term (end future performance of the contract) and may claim damages (contractual
measure, the position they would have been in had the statement been true).
Others are mere representations:
A’s statement may have induced B to enter into the contract. If false, B may rescind the contract (be
restored to a position as if there had never been a contract) and, depending on the type of
misrepresentation, claim damages (tortious measure).
Test depends on the parties’ intention, judged objectively:
Heilbut, Symons & Co v Buckleton [1913] AC 30 (HL).
Lord Moulton [51]: ‘The intention of the parties can only be deduced from the totality of the evidence’.
Is there ‘evidence of an intention on the part of either or both of the parties that there should be a
contractual liability in respect of the accuracy of the statement’?
Did D provide a warranty to C that the company was a rubber company? D’s statement was not a
fraudulent misrepresentation. There was no evidence that D had given C a warranty, so the Lords held,
judged objectively, no.
Factors that could be considered include:
The importance of the truth of the statement:
Bannerman v White (1861): Hops merchants (buyers) asked hops growers (sellers) if any Sulphur had
been used in cultivating the hops (plants used in beer production), stressing that they would not ask for
the price if Sulphur had been used. Sellers reassured them that no Sulphur had been used. Buyer
agreed to purchase hops from the seller and subsequently discovered that, in fact, Sulphur had been
used in treating some of the hops. The seller’s statement (that no Sulphur had been used) was
intended by the parties to be a contract term.
Was C’s statement intended by the parties as a contract term? (C’s statement was not a fraudulent
misrepresentation). Based on the parties’ intentions, assessed objectively, the court held yes.
The timing of the statement:
Inntrepreneur Pub Co v East Crown Ltd [2000] 2 Lloyd's Rep. 611 (HC): Mr Justice Lightman (at [10]):
‘‘[An] important factor [is] the lapse of time between the statement and the making of the formal
contract. The longer the interval, the greater the presumption must be that the parties did not intend
the statement to have contractual effect in relation to a subsequent deal’.
Whether a statement made orally was subsequently included in a written contract, if the parties’ verbal
negotiations were followed by a formal written agreement:
Inntrepreneur Pub Co v East Crown Ltd [2000] 2 Lloyd's Rep. 611 (HC): Mr Justice Lightman (at [10]):
‘One important consideration [is] whether the statement is followed by further negotiations and a
written contract not containing any term corresponding to the statement. In such a case, it will be
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Law of Contract
harder to infer that the statement was intended to have contractual effect because the prima facie
assumption will be that the written contract includes all the terms the parties wanted to be binding
between them’.
The relative positions of the parties:
If A (the party making the statement) is in a better position than B (the other party) to determine the
truth of the statement, the statemen is more likely to be a term.
Oscar Chess Ltd v Williams [1957] 1 WLR 370 (CA): D (an individual) part-exchanged his Morris car
(£290) for another car (hire-purchase transaction). D described the car as a 1948 model (based on the
log book). In fact, the log book had been forged (unbeknown to either party) and the car was a 1939
model worth only £175. When C (car dealership) realized this, C wanted to recover from D the £115
difference. However, assessed objectively, D’s statement (that the car was a 1948 model) was not a
promise but merely a representation. D who made the statement was less knowledgeable re subject
matter (as an individual) compared to C (as a car dealership).
Was D’s statement intended as a term of the contract? The court held, no, it was a representation. ‘In
these circumstances the intelligent bystander would,,, say that D did not intent to bind himself so as to
warrant that it was a 1948 model’ Lord Denning [376].
Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623 (CA): C bought a Bentley
motor car from D (£1,850). D: the car had done 20,000 miles since being fitted with replacement
engine and gearbox. The speedometer showed 20,000 miles. C bought the car, which gave him a lot of
trouble. In fact, the true milage was 100,000. D’s statement (re the 20,000 milage) was intended as a
term of the contract. D who made the statement had superior knowledge (as a car dealership) re
subject matter compared to C (as an individual).
Lord Denning (at 628): ‘In Oscar Chess…a man had bought a second-hand car and received with it a log-
book which stated the year of the car, 1948. He afterwards resold the car. When he resold it he simply
repeated what was in the log-book and passed it on to the buyer. He honestly believed on reasonable
grounds that it was true. He was completely innocent of any fault. There was no warranty by him, but
only an innocent misrepresentation. Whereas in the present case it is very different….Here we have a
[car] dealer…who was in a position to know, or at least to find out, the history of the car….He ought to
have known better’.
Was D’s statement intended as a term of the contract? The court held, yes.
Esso Petroleum Co Ltd v Mardon [1976] QB 801 (CA): C who made the statement had superior
knowledge (as an oil company) re subject matter compared to D).
Lord Denning (at 818): ‘‘The forecast here of 200,000 gallons…was a forecast made by a party (Esso)
who had special knowledge and skill. It was the yardstick by which they measured the worth of a filling
station. They knew the facts. They knew the traffic in the town. They knew the throughput of
comparable stations. They had much experience and expertise at their disposal. They were in a much
better position than Mr. Mardon to make a forecast. It seems to me that if such a person makes a
forecast, intending that the other should act upon it—and he does act upon it, it can well be
interpreted as a warranty that the forecast is sound and reliable in the sense that they made it with
reasonable care and skill. …If the forecast turned out to be an unsound forecast such as no person of
skill or experience should have made, there is a breach of warranty’.
Was C’s statement a term? The court held, yes.
(b) The ‘Parol Evidence’ Rule
‘Parol’ means verbal or oral (Jowitt’s Dictionary of English Law).
In a written contract, there is a presumption that a term must be in writing, in the contractual
document, and that any oral promises given around the making of the contract cannot be terms. This is
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Law of Contract
known as the ‘parol evidence’ rule: that extrinsic oral evidence cannot be adduced to vary the written
contract.
o Goss v Lord Nugent (1833) 5 B & Ad 58.
Denman CJ at [64]: ‘If there be a contract which has been reduced to writing, verbal
evidence is not allowed to be given…so as to add to or subtract from, or in any manner
to vary or qualify the written contract’.
Exceptions to the ‘parol evidence’ rule include, among others, collateral contracts:
o City & Westminster Properties v Mudd [1959] Ch 129.
C (landlord) presented D (tenant) with a new lease which contained a covenant that D
would use the premises only for business purposes (and not for residential purposes).
D did not agree (as D was using the premises for business and residential purposes). C
told D orally that C would make no objection to D sleeping on the premises if D signed.
D signed the lease. Later, C wanted to forfeit the lease for D’s breach of this covenant.
Held: C’s oral assurance to D constituted a separate collateral contract which bound C.
o J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078 (CA).
D (forwarding agents) agreed to arrange the transport of machinery from Italy to
England for C (importers). The written contract allowed D freedom to choose, inter
alia, the placement of cargo. D usually transported C’s goods under deck (as C’s
machines were liable to rust). D proposed a change in their system of transport (from
crates to containers) and gave C a verbal assurance that C’s goods will be transported
under deck. C then accepted the change. Unfortunately, C’s goods were shipped on
deck and the machine (worth £3,000) was lost overboard.
CA held: D’s oral assurance to C constituted a separate collateral contract which bound
D.
To prevent exceptions occurring, an ‘entire agreement’ clause can be added to prevent any external
evidence being adduced to change the written terms.
o Intrepreneur Pub v East Crown [2000] Lloyds Rep 611.
Mr. Justice Lightman (at [7]): ‘The purpose of an entire agreement clause is to preclude
a party to a written agreement from threshing through the undergrowth and finding in
the course of negotiations some (chance) remark or statement (often long forgotten or
difficult to recall or explain) on which to found a claim…to the existence of a collateral
warranty. The entire agreement clause obviates the occasion for any such search and
the peril to the contracting parties posed by the need which may arise in its absence to
conduct such a search. For such a clause constitutes a binding agreement between
the parties that the full contractual terms are to be found in the document
containing the clause and not elsewhere, and that accordingly any promises or
assurances made in the course of the negotiations (which in the absence of such a
clause might have effect as a collateral warranty) shall have no contractual force, save
insofar as they are reflected and given effect in that document’.
(c) Incorporation of Terms
The subject of incorporation questions which express terms form part of the contract.
o The answer to this question is crucially important in practice. If a term is ‘incorporated’ into the
contract, it binds the parties. If it is not incorporated, it has no effect.
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o Through the rules of incorporation, we seek to establish the content of the contract. The
search for the parties’ agreement is an objective exercise. The law is not concerned with what
the parties’ state of mind or subjective intentions were when they made the contract. The law
adopts the objective position of a reasonable person, and seeks to establish how a reasonable
person would have understood the parties’ agreement, a standard form contract. Freedom of
contract and sanctity of contract are key pillars of contract law.
The issue of incorporation arises in relation to written contracts and, in the majority of cases, in
relation to standard contract terms.
o The issue in these cases is usually this: will a specific term from one party’s standard terms
form part of the contract?
o The practical difficulty with standard terms is that they often appear in small print with one
party having little or no awareness or understanding of the term. Should such a term be
binding on the party who had no understanding of its legal effect?
o The courts have been torn between the conflicting values of certainty on the one hand, and
fairness on the other. English law does not have an overarching principle of ‘good faith and fair
dealing’ or similar principle that would allow the courts to interfere with the parties’ contract
to make it more just.
In principle, the law is concerned with the procedural fairness of contract formation
(through vitiating factors: duress, misrepresentation, undue influence, unconscionable
bargains), but it is not concerned with the substantive fairness of the bargain.
In practice, however, the courts have recognised that a strict adherence to legal
certainty and to the objective approach may lead to unacceptably harsh results in
certain circumstances. Therefore, considerations of fairness have played an important
role in the case law. However, the question remains whether the courts have gone too
far in their efforts to promote fairness when deciding cases on incorporation.
o The challenges relating to the fairness of contracts have been recognised by Parliament and
some aspects of ‘unfair’ terms are now addressed under the Unfair Contract Terms Act 1977
(UCTA) for business to business (B2B) contracts, and under the Consumer Rights Act 2015
(CRA) for business to consumer (B2C) contracts.
Some of the cases dealing with incorporation would today be decided under UCTA and
there would be no issue of extreme judicial intervention, because UCTA expressly
authorises judges to strike down certain unreasonable exclusion clauses.
The subject of incorporation deals with the incorporation of any type of contract term, whether the
terms is an exclusion clause, a limitation clause, a retention of title clause, or other term. This is so,
despite the fact that most cases involve an exemption (exclusion or limitation) clause of some type.
Written terms can be incorporated by:
o Signature
o Reasonable notice, or
o Previous dealing or custom.
Signature
The general rule is that a party is bound by his signature, regardless of whether he has read or understood
the terms of the contract. A party’s signature serves as evidence of objective consent (unless obtained by
fraud). This is required by legal certainty to give assurances to both parties that the contract will be binding
as signed. It also protects third parties who obtained rights by relying on the signed document.
o Parker v South Eastern Railway Co (1877) 2 CPD 416 (CA).
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