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By
now, you ought to have researched unfamiliar legal terms that you have
come across on my blog. If not, here are some explanations in layman terms;
- Plaintiff: This is the person who has sued;the person who went to make a report to the lawyer and judge.
- Defendant: This is the person who was reported;who has to come to the court to explain his own side of the story to the judge on reasons why he should not be punished by the court.
- Party:There are two parties to a contract, the offeror (the person initiating a contract) and the offeree (the person who wants to accepts the contract.The plaintiff is a party to the contract, the defendant is the other party to the contract.
- Holding/Held: This is the decision of the judge.
- Rescind/Revoke: To call off a contract.
- Facts:The story of a case.
- Terminate:To stop a contract.
- Remedy:The action that can be sought by an aggrieved party as compensation.
- Damages: The compensation paid by a party to another party as a way of saying, sorry.
I move on to the final part of the elements of a contract.
6. Terms of contract
The first step in determining the terms of a contract is to establish
what the parties said or wrote.
Statements made during the course of
negotiations may traditionally be classified as representations or terms
and if one turns out to be wrong, the plaintiff's remedy will depend on
how the statement is classified.
A representation is a statement of fact made by one party which induces
the other to enter into the contract. It does not form part of a contract.
If this statement turns out to be incorrect the
innocent party may sue for misrepresentation.
Breach of a term of the contract entitles the injured party to claim damages
and if he has been deprived substantially what he bargained for, he will also
be able to repudiate the contract.
How can the courts decide whether a statement is a term or a mere representation?
It was established in Heilbut, Symons & Co v Buckleton
[1913], that intention is the overall guide as to whether a
statement is a term of the contract.
Facts:
The plaintiff said to the defendants' manager that he understood the
defendants to be "bringing out a rubber company."
The manager replied
that they were, on the strength of which statement the plaintiff applied for,
and was allotted, shares in the company.
It turned out not to be a rubber
company and the plaintiff claimed damages, alleging that the defendants had
warranted that it was a rubber company.
Held:
The claim failed as nothing said by the
defendants' manager was intended to have contractual effect.
In seeking to implement the
parties' intentions and decide whether a statement is a term or a mere
representation, the courts will consider the following four factors:
(A) TIMING
The court will consider the lapse of time between the making of
the statement and the contract's conclusion. If the interval is short
the statement is more likely to be a term.
See the case of:
Routledge v McKay [1954]
Facts:
The defendant stated that a motor cycle, the subject matter of the proposed
sale, was a 1942 model.
In the written contract, signed a week later, no mention
was made of the date of the model.
The lapse of a week between the two events
weighed with the court as a factor militating against construing the statement
as a contractual term.
(B) IMPORTANCE OF THE STATEMENT
The court will consider the importance of the truth of the
statement as a pivotal factor in finalizing the contract.
The statement
may be of such importance that if it had not been made the injured party
would not have entered into the contract at all.
See the case of:
Bannerman v White (1861)
Facts:
The buyer of hops (one of the ingredients for making beer) asked whether sulphur had been used in their cultivation.
He added that if it had, he would not even bother to ask the price.
The seller
assured him that it had not.
Held
This assurance was held to be a condition of the
contract. It was of such importance that, without it, the buyer would not have
contracted.
(C) REDUCTION OF TERMS TO WRITING
The court will consider whether the statement was omitted in a
later, formal contract in writing.
See the case of:
Birch v Paramount Estates (1956)
Facts
The defendants made a statement about the quality of a house.
The contract,
when reduced to writing, made no reference to the statement.
Held:
The Court of Appeal
regarded the statement as a contractual term. But here the defendants had
special knowledge.
If the written contract does not
incorporate the statement,this would suggest that the parties did not intend the statement to be a contractual term.
(D) SPECIAL KNOWLEDGE/SKILLS
The court will consider whether the maker of the statement had
specialist knowledge or was in a better position than the other party to
verify the statement's accuracy.
See the case of:
Harling v Eddy [1951]
Facts
The vendors of a heifer represented that there was nothing wrong with the
animal but, in fact, it had tuberculosis from which it died within three months
of the sale.
Held
A contributory factor leading the Court of Appeal to decide that
the statement was a term of the contract was that the vendors were in a special
position to know of the heifer's condition.
A Representation is a statement of fact which is relied
on by the receiving party and induces them to enter into the contract.
A party may claim misrepresentation where a false representation has been
made.
They may be entitled to rescind the contract, which means that the
contract would be set aside and the receiving party may also be entitled to
damages to put them back into the position they would have been had the
contract never been entered into.
See the case of:
Lambert v Co-Operative Insurance [1975]
Facts
In 1963 Mrs. Lambert signed a proposal form for an
insurance policy to cover her own and her husband's jewellery.
No questions were asked about previous convictions
and Mrs. L gave no information about them. She knew that her husband had been
convicted some years earlier of stealing cigarettes and fined £25.
The company issued a policy providing that it
should be void if there was an omission to state any fact material to the risk.
The policy was renewed from year to year.
In 1971 the husband was convicted of conspiracy to
steal and theft and sentenced to 15 months imprisonment.
Mrs. L knew of the
conviction but did not disclose it and the policy was renewed.
In 1972, seven
items of the insured jewellery, valued at £311, were lost or stolen.
Holding
Mrs. L's claim was repudiated on the grounds that
she had failed to disclose her husband's first and second convictions.
The
judge dismissed the wife's claim on the ground that the 1971 conviction was a
material fact and that a prudent insurer, knowing of it, would not have
continued the risk. This decision was upheld by the court of appeal.
Another important thing to bear in mind considering the terms and
conditions of a contract is the division of the terms, in order to determine
the importance to be attached to them. These are: condition, warranty and
innominate terms.
Condition: This considered the most
important term in a contract as a breach or non-performance of a
conditional term of the contract will entitled the injured party to discharge
himself from the contract and claim damages.
See the case of:
Poussard v Spiers (1876)
Facts
Poussard was engaged to appear in an operetta from the start of its London
run for three months.
The plaintiff fell ill and the producers were forced to
engage a substitute.
A week later Poussard recovered and offered to take her
place, but the defendants refused to take her back.
Held:
The court held that the defendant's refusal was justified and that they were
not liable in damages.
What chiefly influenced the court was that Poussard's
illness was a serious one of uncertain duration and the defendants could not put
off the opening night until she recovered.
The obligation to perform from the
first night was a condition of the contract.
Failure to carry out this term
entitled the producers to repudiate Poussard's contract.
Warranty: is
a statement of fact contained in the contract.
If it is not true the
receiving party has a claim for breach of contract.
If it is a
fundamental breach the receiving party may have the right to terminate the
contact in addition to a claim for damages.
However, unlike a claim for
misrepresentation, the contract is not undone.
A warranty
is of lesser importance and a breach of this only entitles the injured party to
claim damages and not to discharge himself from the contract.
See
the case of:
Bisset v Wilkinson [1927]
Facts
The
plaintiff purchased from the defendant two blocks of land for the purpose of
sheep farming.
During
negotiations, the defendant said that if the place was worked properly, it
would carry 2,000 sheep.
The
plaintiff bought the place believing that it would carry 2,000 sheep.
Both
parties were aware that the defendant had not carried on sheep-farming on the
land.
Holding
In
an action for misrepresentation, the trial judge said:
"In
ordinary circumstances, any statement made by an owner who has been occupying
his own farm as to its carrying capacity would be regarded as a statement of
fact....
This,
however, is not such a case.... In this circumstance, the defendants were not
justified in regarding anything said by the plaintiff as to the carrying
capacity as being anything more than an expression of his opinion on the
subject."
The
Privy Council concurred in this view of the matter, and therefore held that, in
the absence of fraud, the purchaser had no right to rescind the contract.
See also under warranty;
Betinni v Guy [1876]
Facts
Bettini, an opera singer, was engaged by Gye to appear in a season of
concerts.
He undertook to be in London at least six days before the first
concert for the purpose of rehearsals.
He arrived three days late because of a
temporary illness. He gave no advance notice and Gye refused to accept his
services.
Held
It was held that the plaintiff had been engaged to perform for a 15-week
season and the failure to attend rehearsals could only affect a small part of
this period.
The promise to appear for rehearsals was a less important term of
the contract. The defendant could claim compensation for a breach of warranty
but he could not repudiate Bettini's contract.
Innominate Terms: This is a term of a contract that cannot be immediately classified as a condition or warranty until the effects of its breach has been determined.
See the case of:
Sycamore Bidco Ltd v Breslin and Dawson [2012].
Facts
Sycamore had acquired a company from Breslin and Dawson for £16.5
million under the terms of a share purchase agreement.
After purchase, the buyer discovered errors in the seller’s
accounts which they had relied on when purchasing the business.
The agreement had been subject to a number of express warranties in
the share purchase agreement relating to the value of the accounts.
However, liability for these warranties
had been expressly
limited.
Sycamore Bidco Ltd, sought to argue that these had in fact
been false representations which had
induced them into the contract.
Holding
Liability for these representations was unlimited. The case was
judged in favour of the plaintiff.
Exclusion Clauses
By exclusion clauses in a contract, a party can limit the terms to which
he is bound under the contract.
Therefore, when exclusion clauses exist in a contract, the contracting
party must decide whether to accept the contract as it is or not enter it at
all.
An example of such a contract is found in many hotels, banks and
shopping mall. E.g. “Cars parked at owner’s risk” or “Management will not be
liable for any lost property”.
Similar clauses are also found in laundry and dry cleaning services;
airline, etc, where the operators limit their liability to a certain amount.
In these instances, the customer is faced with a choice either to take
it or leave it.
Kindly check read properly the terms, conditions and exclusion clauses
of that music deal before you sign it.
But it is not in all cases that the terms guiding the contract are
written. There are some terms of a contract that are implied by law, customs of
trade e.g. based on the profession or sector of the economy and or by the
court.
The laws may also imply some terms which though not expressly agreed to
by the parties, but is used as a form of protective or regulatory measures.
The court may also, within certain restrictive guidelines, imply terms
into a contract to give them business efficacy and workability in the course of
resolving a dispute between the parties to the contract.
In my next blog on law of contracts, I shall be writing about the
various ways by which a contract can and will be terminated.
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See you later.
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