Terms

• Pages: 58-96

CHAPTER 6

TERMS

CONTRACTUAL TERMS

The terms of a contract are its contents, and they defi ne the rights and obligations

arising from the contract. Contractual terms may be express or implied .

Express terms are those specifi cally laid down by the contract, and they consist of

express oral or written statements made by the parties.

Implied terms are those which are not specifi ed in the contract but which are

implied either (i) by statute, or (ii) by custom, or (iii) by the court.

EXPRESS TERMS

A contract may be (i) purely written, (ii) purely oral, or (iii) partly written and

partly oral. Generally, no formality is required for a term, whether oral or in writing

(or partly orally or partly in writing), to form part of a contract. If the terms of a

contract are in dispute, a court will determine what terms were decided on by the

parties. The object of the court in this exercise is to do justice to the parties, and the

court should not be ’deterred by diffi culties of interpretation, as diffi culty is not

synonymous with ambiguity’.

1 This is a question of fact, and, in respect of oral

contracts, precise evidence may be required in order to clarify exactly what the terms

of the agreement were, as the dispute may turn on very fi ne details.

2

PROOF OF TERMS

Oral contracts

Terms and representations

Statements made by parties can be categorised as (1) promises or (2) mere represen-

tations. Except in the case of the simplest transactions, there will generally be a

period of negotiation before the fi nal terms of the contract are agreed. Promises

(sometimes called ‘warranties’) made during negotiations and not withdrawn will

form part of an oral contract and are therefore binding. An action for damages will

lie for breach of these terms.

3 By contrast, there are some statements (often referred

to as ‘mere puffs’) which cannot be relied upon as terms of the contract because they

are imprecise or were not meant to be taken literally. The court must determine the

category into which a statement fi ts.

1 Hardman v Meister BS 1993 SC 64.

2 For example, in Smith v Hughes (1871) LR 6 QB 597, the dispute centred on whether goods were

described as ‘good oats’ or ‘good old oats’.

3 J Evans & Son (Portmouth) Ltd v Andrea Merzario Ltd [1976] 2 All ER 930.

Chapter 6: Terms 59

A statement made during negotiations may be either (a) a contractual term

which constitutes a binding obligation (unless held to be a mere puff), or (b) a mere

representation, which is an inducement to enter into a contract.

The distinction between each type of statement is important as, on the one hand,

the breach of a promise (which is a binding term), gives rise to the usual remedies for

breach of contract (that is, damages, rescission). On the other hand, failure to conform

to a mere representation, though in some circumstances giving the right to rescind

the contract, will not be remediable by damages unless the representation was delib-

erately false (i.e. fraudulent) or made negligently, in which case actions in tort for

damages for deceit or negligence respectively will lie. Further, in Trinidad and

Tobago and Bermuda, as well as in the UK, damages can be recovered under the

Misrepresentation Acts.

4

Since the question of whether a statement is a contractual term (warranty) or a

mere representation is a question of law, and not fact, the issue is one for the court to

decide.

5 The court’s task in deciding whether a representation is a binding term is a

diffi cult one. In making this determination a court will take various factors into

account, including the importance of the truth of the statement,

6 the length of time

which passed between the making of the statement and the fi nal agreement,

7 whether

the party making the statement was better placed than the recipient of the statement

to verify its truth,

8 and, where the contractual terms are later put into writing,

whether the statement was included in the written agreement.

9 It should be noted

that none of these tests is conclusive.

10

The key determining factor in whether or not a statement is a term (and therefore

gives rise to contractual liability) was laid down in Heilbut, Symons & Co v Buckleton 11

The test is whether there is evidence of an intention (that is, animus contrahendi ) by

one or both parties that there should be contractual liability in respect of the accu-

racy of the statement. In Heilbut , B said to J, HS’s broker, ‘I understand you are

bringing out a rubber company.’ The reply was, ‘We are.’ B then asked whether J had

any prospectuses, and his reply was that he did not. B then asked ‘if it was all right’,

and replied: ‘We are bringing it out’, to which the respondent said, ‘That is good

enough for me.’

B took a large number of shares which were allotted to him. He gave evidence

that his reason for being willing to do this was that the position the appellants

4 See, for example: Misrepresentation Act, Ch 82:35 (Trinidad and Tobago); and Law Reform

(Misrepresentation and Frustrated Contracts) Act 1977 (Bermuda).

5 Heilbut, Symons & Co v Buckleton [1913] AC 30.

6 Bannerman v White (1861) 10 CB NS 844.

7 Routledge v McKay [1954] 1 WLR 615. See also Pasley v Freeman (1789) 3 Term Rep 51, 57; Schawel v

Read [1913] 2 IR 64; Mahon v Ainscough [1952] 1 All ER 337; Inntrepreneur Pub Co v East Crown Ltd

[2000] 2 Lloyd’s Rep 611.

8 Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623; Esso Petroleum Co Ltd v

Mardon [1976] QB 801. Cf Heilbut, Symons & Co v Buckleton [1913] AC 30; Gilchester Properties Ltd v

Gomm [1948] 1 All ER 493.

9 Heilbut, Symons & Co v Buckleton [1913] AC 30, 50; Gilchester Properties Ltd v Gomm [1948] 1 All ER

493; cf Miller v Cannon Hill Estates Ltd [1931] 2 KB 113; Inntrepreneur Pub Co v East Crown Ltd [2000]

2 Lloyd’s Rep 611.

10 Heilbut, Symons & Co v Buckleton [1913] AC 30, 50.

11 [1913] AC 30.

60 Commonwealth Caribbean Contract Law

occupied in the rubber trade was of such high standing that ‘any company they

should see fi t to bring out was a suffi cient warranty’ to him ‘that it was all right in

every respect’.

At that time, the rubber industry was booming, and so the rubber company’s

shares remained at a high value. It was later discovered that, contrary to the

prospectus, the rubber estate owned by the company was defi cient in rubber trees

and the company’s shares fell in value.

The House of Lords held that there was no breach of contract, on the basis

that J’s statement about the rubber company was a mere representation and not a

binding warranty. This was because it had not been shown that the parties had

intended for contractual liability to arise in respect of the accuracy or otherwise of

the statement.

In Oscar Chess Ltd v Williams , 12 a car salesman sold a second- hand Morris car to a

purchaser, in the honest belief, based on reasonable grounds, that it was a 1948

model. This belief was based on the fact that the date of the car included in the

vehicle registration book was 1948. It was held that in producing the registration

book, the salesman did not intend to bind himself so as to warrant the accuracy of

the statement that it was a 1948 model.

By contrast, in Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd , 13 a car

salesman who sold a car on the basis of a milometer showing that the vehicle had

driven 20,000 miles, when in fact it had driven 100,000 miles, was held to have

warranted the truth of the statement, thereby binding himself contractually. The

court found that the salesman had ‘stated a fact that should be within his own knowl-

edge. . .[that] he had jumped to a conclusion and stated it as a fact’. The court distin-

guished Oscar Chess on the basis that there the salesman had held an honest belief,

based on reasonable grounds, that the car was a 1948 model. This was contrasted

with the position in the Dick Bentley case where the representation, tested by what

the intelligent bystander would infer from the conduct of the parties, was a state-

ment made by a seller in a position to fi nd out, but not having found out, the facts.

Thus, a statement will only be a term of the contract if the party making it

intended to make himself contractually liable for the truth of the statement. In deter-

mining whether this intention exists, the court will consider the totality of the

evidence showing the specifi c circumstances of the agreement (such as the knowl-

edge, and access to knowledge, of the seller in the Dick Bentley case).

These cases show that distinguishing between binding and non- binding state-

ments is a diffi cult task, particularly where there is a complex matrix of fact.

Denning LJ’s judgment in the Oscar Chess case is instructive on the court’s

attitude towards determining whether a statement is a promise or a mere

representation. He explained:

I entirely agree with the Judge that both parties assumed that the Morris was a 1948

model and that this assumption was fundamental to the contract. But this does not

prove that the representation was a term of the contract. The assumption was based by

both of them on the date given in the registration book as the date of fi rst registration.

12 [1957] 1 WLR 370.

13 [1965] 1 WLR 623.