Lecture notes
Contractual Terms - Complete
- Module
- Contract Law (LS1520)
- Institution
- The University Of Aberdeen (Aberd)
Complete Lecture notes for Contractual Terms and assignment information.
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Contractual TermsExpress terms, implied terms, and the incorporati on of Express terms
Contents of a contract = its terms
- Terms are what the parties have agreed to do.
- They are legal verbs
- Each party has agreed to do something e.g. to pay, to deliver, to make etc
- A contract is an agreement to perform something
Important distinction between mere representations (the negotiation phase. The sales pitch), and
actual terms (bricks of the contract!)
Terms are the words that make up the contract
- Statements made during the course of negotiations could amount to a contractual term or a
representation [also referred to as clauses].
- It is important to know whether a particular statement is a contractual term or if it is a mere
representation as this will determine the appropriate cause of action and remedy available.
- Representations are merely pre contractual statements [see earlier lectures on
misrepresentation] they do not form part of contract unless embodied into the contract .
- The distinction depends on the objective intentions of the parties.
Terms are contractual statements
- Terms are the actual “bricks” of the contract , the very words that make up the contract
- If the statement is merely a representation which turns out to be untrue, which induced the
other party to enter the contract, then the innocent party may bring an action for
misrepresentation. See earlier lecture on misrepresentation.
- If a statement which is a term of the contract is not fulfilled/performed by one party, then
the innocent party may sue for breach of contract.
- Typically for damages
Express v Implied Terms
- Express – actually said or written by the parties
- Implies – understood without actually being said – they are too obvious to need saying
Express Terms
- An express contract is a term that is directly acknowledged and stated by both parties. They
consist of the direct promises made by either party to the other, and they are binding.
- Express contracts can be written or verbal. But most commercial contracts are written down.
- They are the ‘building blocks’ of the contract.
- Express contracts can be written or verbal. But most commercial contracts are written down.
- Why?
1. Evidential issue – easy to prove a written term, just read contract, much harder with verbal
terms.
2. Written terms can be more complex than verbal one. Many commercial contracts are 50 or
100 pages long!
3. Saves time: Think how long to would take to read out a 50 page contract!
, - Express terms are those that are specifically and expressly agreed by the parties, i.e. they are
the mutual promises that are contained in the contract.
- They can be individually negotiated by the parties or they can be standard terms (offered on
a “take it or leave it” basis) or a mixture of both.
- Most consumer contracts are offered on standard terms. Take it or leave it!
- Standard term contracts are often referred to as “contracts of adhesion”
- Terms will vary vastly according to the nature of the contract and will normally include:
- - a description of the goods or service
- - the price of the goods or service
- - the time of performance of the contract
- - some risk management clauses
3 main categories of express terms
1. Those which relate the substance of the contact, ie what is to be performed under the contract
(type of goods, service to be performed etc). Such terms may also be implied into a contract.
2. Those terms which relate to risk management under the contract – e.g. exemption clauses, force
majeure clauses, liquidate damages clauses. Such terms can never be implied, they must be express
terms.
3. Those terms which relate to the enforcement of the contract: jurisdiction clauses, choice of law
clauses, arbitration clauses. These are usually express terms but some of these terms may also be
implied into a contract.
Express Written Terms
- By writing down the terms of a contract the parties try to promote certainty.
- The Law presumes that a written contract embodies the whole agreement of the parties (but
see implied terms) – contract is “reduced to writing”
- Parties often disagree as to the meaning of the terms in the contract. In this situation the
courts have to interpret or construe the contract (discsued in later lectures).
- Courts only consider the terms of the contract.
- Courts disallow/ignore pre contractual representations
- Courts are uninterested in fairness, they prefer certainty!
Express terms – tend to favour the party who drafted them
- Most complex contracts will include additional express terms.
- The dreaded “T’s & C’s”
- Typical examples are:
- - “risk allocation” clauses limiting or adjusting obligations which would otherwise arise in law,
in contract or delict, by exclusion or indemnity clauses
- - providing for dispute resolution, eg arbitration or mediation.
- - specifying the consequences of breach, eg liquidate damages.
- - protecting a seller who provides credit to a buyer, by controlling when property in goods
passes
- Risk management clauses tend to favour the party who drafted them – see the ‘battle of
forms’ in earlier lecture
Contracts are sacred: Pacta sunt servanda – the “freedom of contract” is freedom to be bound by
any agreed terms
,A famous quote:
“If there is one thing which more than another public policy requires it is that men of full age and
competent understanding shall have the utmost liberty of contracting, and that their contracts, when
entered into freely and voluntarily, shall be held sacred and shall be enforced by Courts of
Justice.”., Printing and Numerical Registering Co. v. Sampson, 1875, L.R. 19 Eq. 46 per Jessel, MR
Freedom of Contract = freedom to be bound
Pre contract = freedom. You are free to agree what you want
Post contract – certainty. You are bound to perform what you agreed to do – pacta sunt servanda.
Freedom of contract can be abused
- Historically, the common law stresses the freedom of parties to agree any terms no matter
how silly or unfair or one sided
- Although a few restrictions were imposed by the court, e.g. on contracts for illegal purposes
or contrary to public policy (see previous lectures) .
- The inadequate response of the courts to one sided standard contracts has been partially
solved via statutory restrictions on freedom of contract:
- Eg. Unfair Contract Terms Act 1977 and Consumer Rights Act 2015 [discussed in later
lectures]
Incorporation of express terms
There are two main ways one accepts written express terms:
1. by signature of printed contract,
L'Estrange v Graucob Ltd [1934] 2 KB 394 or by clicking assent of online contract
Variations include incorporation by reference to another document
Or
2. by performance, Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, Thornton v Shoe Lane Parking
[1971] 2 QB 163
Variations include incorporation by notice and a course of dealings
Methods of incorporation of terms can be analysed further:
1) Signed terms. Ask the party with whom you are intending to contract to sign a copy of your Terms
and Conditions and declare that they are to apply to all dealings between you. Other written
acceptance is also possible – for example, a letter/email or (if you are dealing online) have the other
party tick a box to confirm that your Terms and Conditions are agreed.
2) ‘Incorporation by reference’. Terms may be incorporated by being printed on or referred to in the
contract. For example, if a customer signs an order form which states that your Terms and Conditions
apply and those terms are either attached or are said to be found at a website address.
3) Incorporation by notice Person sees notice followed by acceptance by conduct. This would occur
in a situation where you provide your Terms and Conditions to the other party and, whilst they are
not expressly agreed or rejected, the parties act in a manner which shows they have been agreed. An
example of this is where you supply goods to a customer and the goods are delivered and payment is
, made in accordance with your Terms and Conditions supplied beforehand. In those circumstances
then the conduct of the parties may be evidence that your Terms and Conditions formed part of the
contract. This is an option which is normally only raised when there is a dispute and the party
seeking to rely on the Terms and Conditions has failed to use 1 to 3 above.
4) Previous dealings. If you have dealt with the same customer before and provided your Terms and
Conditions to them previously (e.g. on the back of an invoice) then you may be able to argue that
your further dealing with them was upon your Terms and Conditions. Again, this is normally
something that is only raised in the context of a dispute as to whether Terms and Conditions have
been incorporated and where the party seeking to rely on them is not able to rely on 1 to 3 above.
Golden Rule: terms must be agreed before the contract is created
- In order for Terms and Conditions to be incorporated into a contract, they need to have been
agreed at the time the contract was made
- You cannot include terms after contract is formed unless the other party agrees in which
case the contract is thereby amended.
- Remember a contract is “frozen agreement”
A contract binds – once a contract is agreed by unqualified acceptance of offer, neither party can
turn back time.
Courts care more about process than fairness
- Courts insist on prior notice of terms, a “fair warning”
- But the courts do not insist that the consent of those terms be fair.
Acceptance and incorporation of express terms: by signature
L'Estrange v Graucob Ltd [1934] 2 KB 394
- FACTS: The buyer of an automatic cigarette vending machine signed an order form which
contained the statement "any express or implied condition, statement, or warranty, statutory
or otherwise not stated herein is hereby excluded". i.e. no promise machine actually worked!
She did not read the form.
- Machine did not work!
- Subsequently, she sought to argue that the sellers were in breach of an implied term the
machine was fit for the purpose for which it was sold.
- Held: In the absence of any misrepresentation, the buyer was bound by the terms she had
signed, and it was immaterial, whether or not she had read them, or knew what they were.
- “When a document containing contractual terms is signed, then, in the absence of fraud, or, I
will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether
he has read the document or not.” [1934] 2 KB 394 at 403 per Scrutton LJ
- Reading/understanding the contract is irrelevant, what matters is you had the opportunity
to read it before contract was formed.
- Signing is binding
- This case would not now pass because of the unfair terms act, but the principal still stands.
Verbal statements made at time of contract can trump written terms Curtis v Chemical Cleaning
[1951] 1 KB 805 Court of Appeal
- Facts: Mrs Curtis took a white satin wedding dress to the defendant's shop for cleaning. She
was handed a 'receipt' which she was asked to sign. She asked why she needed to sign and
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