LAW OF CONTRACT

(TERMS OF A CONTRACT)

Lecturer: Ekundayo Vera (Mrs.)

Before a contract is concluded, there are various discussions and deliberations. Several
factors and issues are considered before the contract is finally agreed upon. A contract
gives rise to obligations and responsibilities. The terms of a contract help to determine
the responsibilities or obligations of the parties to the contract.

The terms of a contract are the rights and obligations that arise from the exchange of
promises made by the parties to a contract. When the terms are direct then they are
said to be express, where they are inferred then they are implied. Hence the terms of a
contract may be express terms and/ or “implied terms.

During negotiation, i.e. before an agreement is reached by parties to a contract, several

issues would have been discussed, agreed upon orally or in writing. After the conclusion
of the contract, it is not all that was discussed, negotiated or deliberated upon that is
eventually contained in the contract. Those things that were finally agreed upon by the
parties at the point of concluding the contract are called the terms of the contract,
while those other things deliberated upon, mentioned or discussed which were left out
by the parties when the contract was concluded are called mere representations.

Sometimes there are arguments by parties to a contract after the conclusion of the
contract on what the terms of the contract are, especially when the contract is
unwritten or partially written. A party may insist that certain issues deliberated on
(though not reflected on the face of the contract) are crucial and therefore should be
considered a term of the contract, while the other party may disagree saying those
things were just said by the way, and therefore not part of the contract.

It is germane to resolve any dispute on what constitute the terms of a contract, as the
remedy available to an aggrieved party in a contractual relationship is determined by
the breach that is alleged, i.e. whether the obligation breached is a term or a mere
representation. Where a term of a contract is breached, the aggrieved party can sue
for a breach of term and obtain a remedy in damages or in both damages and
repudiation, if on the other hand what is breached is mere representation, the remedy
available to the aggrieved party is less valuable, moreover the party will not be able to
sue for breach of contract or damages for repudiation.

How To Distinguish Between The Term Of A Contract And Mere

Representation. Three tests were recommended to help distinguish a term of a
contract from mere representation. The tests are as follows:

1. At what stage was the crucial statement made?

2. Was the oral statement reduced into writing?
3. Was the statement made by a party with superior knowledge?

Please see sagay pages 125-128 for more details

Collateral Contracts

Apart from the test enumerated above, the court also use the device of collateral
contract to determine if a statement or promise made ( usually oral) is a term of a
contract or mere representation. By the doctrine of collateral contracts, where a
statement or promise made by party A is intended to induce party B into entering a
contract, and party B enters into the contract as a result of the statement or promise,
the statement or promise is regarded by the court as a collateral contract, and
therefore binding on the parties to the contract. See City & Westminster Properties
Ltd. V. Mudd in this case, a tenant was told he could use the demise property for
residential purpose also, though the contract finally executed by the parties provided
that the premises was for commercial purpose only. The promise to allow the tenant
use the property for commercial purpose is interpreted by the court as a collateral
contract and therefore binding on the parties as the promise was what induced the
tenant to enter into the contract. ( Page 128 Sagay)
Classification of Contractual Terms

Warranties:- it is a contractual term of minor importance. It is an obligation which

though should be performed, but non-performance of it would not affect the substance
of the contract. Warranties are subsidiary or collateral to the contract. A breach of
warranties can only entitle the aggrieved party to damages and not repudiation of the
contract. See the case of Bettini v. Gye (1856) 1QBD 183. B and G entered into an
agreement where B agreed to sing in a concert in Great Britain. B also agreed to be in
London for six days rehearsal before the concert. B was only able to make it for 2days
of the rehearsal due to ill health. G then refused B from rendering her services, treating
her 4 days absence from the rehearsal as a breach of a condition. B sued G for breach
of contract. The court held that the clause referring to the rehearsal was subsidiary to
the main contract and a breach of which is no more than a breach of a warranty.

Conditions: These are considered very essential term of a contract. A breach of a

condition may empower the injured party (i) to rescind the contract and deem himself
as discharged from the contract (ii) to deem it as still binding and seek damages as
remedy. Condition is an obligation that goes directly to the root of the contract and a
breach of it affects the substance or main purpose of the contract itself. There are over
twelve categories or types of condition. The two most important are explained below

 Condition precedent:- i.e. an obligation that must be complied with or

performed before a contract can be enforced or come into force. See the case of
Pym V. Campbell (1856) 6 E & B 370; 25 L.J Q.B. 277 an agreement made
subject to the approval of a third party was not to be binding until approved by
the said third party.
 Condition subsequent:- i.e. an obligation which comes into effect to terminate
an already existing contract. For example a contract between A and B for supply
of electronic part. Where the contract is made subject to the condition that B
will continue to order electronic part solely from A as long as A does not supply
electronic parts to C, who is B competitor.
Innominate or intermediate terms:- This term is an hybrid of condition and
warranty. A breach of this term may lead either to damages or repudiation depending
on the consequences of the breach. In a situation where the breach is so severe that it
would deprive the injured party a substantial portion of the benefits expected from the
contract, the remedy is repudiation, otherwise it is damages.

Fundamental terms:- It is a term that constitute the main purpose of the entire
contract. A breach of a fundamental term defeats the entire purpose of the contract. It
is the most essential term of a contract; It is a term of greater importance than a
condition. Similar to the consequence of a breach of a condition, a breach of a
fundamental term entitles the aggrieved party to repudiate the contract and claim
damages. In addition, the party in default cannot escape liability by relying on an
exclusion clause. Examples of breach of fundamental terms-

1. A supply of weeds in a contract for supply of carpet grass

2. A supply of local rice (Ofada) in a contract for supply of polished Italian rice
3. A supply of window unit Air conditions in a contract for supply of split unit Air
conditions

IMPLIED TERMS

Apart from the terms that are expressly mentioned or agreed by parties to a contract,
there are terms that are inferred or read into the contract by –

1) the custom or usage prevailing in the trade, profession or locality.

2) the provisions of statutes related to the transaction; and
3) the decision of the court

Terms Implied by Custom:- See the case of British Hire Corporation V.

Ipswich Hire Ltd 1975 Q.B. 303, 1974 1 ALL E.R. 1059, C.A, where the court
held that the terms usually applied by firms in the crane hiring business was applicable,
though these terms were not expressly agreed upon by the parties. Another example
of a trade practice is the bakers dozen. In baking business, a dozen is 13.

To prove the existence of a term implied by custom and practice it will

be necessary to show three things about that practice;

a. Notoriety:- It must be shown that the term is well know in the trade,
industry, company e.t.c. Such a custom must not only be notorious but its existence
must be known to the employee whose contract is in issue. See Foxall v. The
international Land Credit Company where the court held that such custom must be
sufficiently notorious and well understood that people would make contracts on the
supposition that it exists.
b. Certainty:- The formulation of the term must be certain to constitute
a definite offer.
c. Reasonableness:- The scope and operation of the term must not be unduly
onerous or operate unequally between those who it applies.

Terms Implied by Statute:- There are certain terms that are inferred into a contract
by statutes relevant to the transaction in question. A good example is the terms
inferred by the Sales of Goods Act, 1893. The implied terms provided by this Act, is
applicable to all Sales of Goods transaction whether or not the transaction agreement
makes provision for same. Some of the implied terms in the Sales of Goods Act are as
follows:
 Implied condition as to title- Section 12. It provides that a contract of sale shall
be deemed to contain a condition that the seller has title i.e. a right to sell the
goods.
 Implied conditions to correspond with description- Section 13 provides that
where there is a sale of goods by description, a condition shall be implied that
the goods shall correspond with the description. See the case of Beale V.
 Taylor where a car was described as a 1961 Triumph Herald. After purchasing
the car the buyer discovered that only the rear part of the car was a 1961 model,
while the other part of the car was taken from an earlier model. It was held to
b0e a breach of an implied condition to correspond with description.
 Implied condition as to fitness for purpose- Section 14(1). The Act implies a
condition that goods are reasonably fit for the purpose for which they were
made. A breach of this implied condition entitles the buyer to repudiate the
contract. In the case of Godley V. Perry, the defendant a newsagent, sold a
plastic catapult to the plaintiff, a boy of six years. The catapult broke while the
boy was using it in the proper manner, due to the fact that the material used in
its manufacture was unsuitable, the boy was blinded in one eye. The court held
that the seller was liable under section 14(1).
 Implied condition as to merchantability-Section 14(2) Goods are said to be of
merchantable quality when they are suitable for their ordinary use, i.e. what a
reasonable man would expect after a full examination of the goods.
 Implied condition where sale is by sample- Section 15 . The Act provides that
where sale is by sample, it is an implied condition that the bulk supplied shall
correspond with the sample in quality.

Terms Implied by Court:- The court often imply terms into a contract where it
becomes necessary to do so, so as to make the contract practicable. Glanville
Williams in his article “ The language and the Law” enumerated three types of terms
that may be implied by the court of law. These terms are
1. Terms that the parties had in mind, but did not bother to express
2. Terms that whether the parties had it in mind or not but would probably have
expressed it if the question had been brought to their attention.
3. Terms that parties whether or not they had them in mind, or would have
expressed them if they had foreseen the difficulty, are implied by court because
of the court’s view of fairness or policy or in consequence of the rule of law.
In the case of Liverpool City Council V. Irwin, a fourth test was propounded, i.e.
the test of necessity. In that case, Lord Wilberforce held that a court of law will imply
certain terms into a contract if without such terms the contract becomes unworkable.
The defendants in this case were tenants on the 9 th floor of a tower with 15 floors.
Lord Wilberforce held that the following terms are implied into a tenancy agreement
between the parties in the case;
1. A grant of exclusive possession to the tenants
2. A covenant of quite enjoyment
3. The rights in 1 & 2 are useless unless access is gained to the staircase
4. Having regard to the height of the building, the demise is useless without access
to the lifts.