CONTRACTUAL TERMS
OUTLINE…
 Representations and Terms
Meaning of Contractual Terms
Conditions
 Precedent
 subsequent
Warranties and Innominate Terms
Implied and Express Terms
Exemption Clauses
Representations and Terms
• To determine the terms of a contract - establish what the
parties said or wrote.
• Statements made during the course of negotiations may
traditionally be classed as representations or terms.
• The plaintiff’s remedy will depend on how the statement is
classified:
• A representation is a statement of fact made by one party
(representor) which induces the other (representee) to enter
into the contract. If it turns out to be incorrect the innocent
party may sue for misrepresentation.
• If a statement is not a term of the principal contract, it is
possible that it may be enforced as a collateral contract).
MEANING OF CONTRACTUAL TERMS

A term is a firm promise or undertaking which forms part of the
contract itself
 Hence, a term is part of the contract whereas a representation is
not part of a contract.
 Terms of contract represent the obligations each party undertakes
and the representations made in respect of discharging the
contractual obligations.
 A term is a promise or undertaking which forms part of the
contract itself.
 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.
TERMS AND REPRESENTATIONS
 A term is part of a contract whereas a representation is not part of a
contract.
 Whether a statement is a representation or a term is primarily a question of
intention
 How can the courts decide whether a statement is a term or a mere
representation?
 It was established in Heibut, Symons & Co v Buchleton (1913) AC 30, that
intention is the overall guide as to whether a statement is a term of the
contract. 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:




Manner and timing of statement
Importance of statement
Special knowledge and skill
Statement reduced to writing
Manner and Timing of statement
• 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:
• Routledge v McKay [1954] 1 WLR 615
• Schawel v Reade [1913] 2 IR 64
Importance of statement
• The court will consider the importance of the
truth of the statement as a pivotal factor in
finalising the contract.
• The statement may be of such importance that if it
had not been made the injured party would not
have entrered into the contract at all.
See:
• Bannerman v White (1861) CB(NS) 844
• Couchman v Hill [1947] 1 All ER 103
Special knowledge and skill
• 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
• Harling v Eddy [1951] 2 KB 739
• Oscar Chess v Williams [1957] 1 All ER 325
• Dick Bentley Production v Harold Smith
Motors [1965] 2 All ER 55
Statement reduced to writing
• The court will consider whether the statement was
omitted in a later, formal contract in writing. If
the written contract foes not incorporate the
statement , this would suggest that the parties did
not intend the statement to be a contractual term.
See
•
•
Routledge v Mckay (1954) 1 WLR 615
Birch v Paramount Estates (1956) 167
CONTRACTUAL TERMS…
 One is entitled in the course of endeavoring to make a
sale to exaggerate – to engage in praise or sales talk or
mere puffing.
 A term imposes a contractual obligations and a mere
puff is a boast only.
 In Carlill v Carbolic Smoke Ball Co, it was seen that
“the advertisement says that £1,000 is lodged at the
bank for the purpose. Therefore, it cannot be said that
the statement that £1,000 would be paid was to be a
mere puff.”
CONDITIONS AND WARRANTIES
Contractual
warranties.
terms
may
be
conditions
or
Conditions create the fundamental obligations of
the contracting parties. Breach of fundamental
obligations (condition) by one party entitles the
other party to repudiate or rescind the contract
and in addition claim damages.
A condition is a central, fundamental or
important term of the contract.
CONDITION PRECEDENT
 A condition in a contract may be precedent.
 This is where the obligations that a party has to
perform depend upon an external factor.
 It means the condition must be fulfilled before
the contract can be said to exist.
 An example of condition precedent is Carlill v.
Carbolic Smoke Ball Co. The condition of catching
the influenza was to happen before the company
was obliged to pay £100
CONDITION SUBSEQUENT
 Condition subsequent provides that on the
happening of a particular event the contract
will terminate.
 Example: when a father promises that he will
pay her daughter until she marries, the
occurrence of the event is the marriage
INNOMINATE TERMS
 A term may be recorgnised as a condition but its
breach will not affect the injured party significantly.
 This is when the term is neither a condition or a
warranty.
 Innominate or intermediate term falls halfway on
conditions as well as warranties.
 Breach of innominate terms give rise to rescission if it
is sufficiently serious, but otherwise give rise to only
damages
CONDITIONS AND WARRANTIES...
Warranties are also terms but warranties
create minor obligations.
A warranty is a minor term which is of less
importance to the contract.
It may also be a representation that induces the
contract or collateral term of the contract.
A breach of a warranty entitles the injured
party to damages only.
CONDITIONS AND WARRANTIES...
The subject matter of a contract is the condition.
The combined effect of the common law and
equity is that quality, quantity and time for
performance are warranties (unless expressly
made a condition).
However, parties may make any term a condition.
Example: by making time to be of the essence of a
contract, parties elect to make time a condition.
EXPRESS AND IMPLIED TERMS
Contractual terms may be:
1.
2.
•
•
•
•
Expressly agreed upon by the parties
Implied (or assumed) by the parties;
Implied by statutes
Implied by custom
Implied by court
Implied by course of dealing
Express terms
 Express terms are those terms that the parties to the
contract themselves have clearly discussed and agreed
to be the subject matter of the contract.
 Example:
Land-owner agrees with building contractor to pay
GHS10,000 for the construction of a house within 6
months.
In this example, the subject matter and completion date
have been expressly stated.
Terms implied by the parties
 When the parties do not expressly agree to some
specific terms, they may agree to them later when those
terms are brought to their attention.
 What a reasonable person would have done is what is
implied by the court and ascribed to the parties.
 Example: If Mr. A contracts Mr. B to buy cements
within one month for his building project. If the parties
did not specifically discuss what will happen if the cost
of cements increase within the period, then the court
may imply the existence of a contractual fluctuation
clause if it is satisfied that both parties would have
agreed to it if specifically asked about price
escalations during the period.
Terms implied by the court
 In order to give “business efficacy” to a transaction the courts may
imply such terms as are necessary to effect that result.
 The leading case is that of the Moorcock, which concerned a
contract between a ship owner and the owner of a jetty to allow a
steamship to be discharged and loaded at the jetty. The ship was
grounded at low tide.
 The Court of Appeal held that the parties must have intended to
contract on the basis that the ground was safe for the vessel at low
tide, and therefore, a term would be implied that the berth was
reasonably safe for the purpose of loading and unloading.
Terms implied by statutes
 A number of statutes contain implied terms.
 Example: pursuant to the Sale of Goods Act, 1962,
unless the parties agree otherwise, there are implied
terms:
• that specific goods are in existence,
• that goods are of merchantable quality and fit for their
declared purposes, and
• that the delivery of goods by the seller shall be
concurrent with payment for those goods by the buyer.
Terms implied by custom
 A term is implied by custom when:
1.
2.
A course of dealing between the parties establishes a pattern of
consistent arrangements which can be deemed to apply to their
continued dealings; or
The practice in the industry is to incorporate various wellknown terms in their business transactions
In Sowah v Bank for Housing and Construction & Another, the
Supreme Court noted that in construction contracts in Ghana, prices
of material were so unstable that the building trade had adopted a
practice of varying the contract price to reflect current market
prices.
Consequently, such a term would be implied in a construction
contract unless the parties expressly excluded such fluctuation
payments.
EXEMPTION CLAUSES
Contracting parties may incorporate terms to
abridge their rights and or to limit their liabilities
to each other, or one party may agree to accept a
reduction in liability by the other party. These
provisions are called exemption clauses.
Exemption clauses may be contained in standard
form contracts or they may be in individuallydrafted contracts.
Types of exemption clauses
There are 4 main types of exemption clauses:
1. Litigation-limiting clauses
2. Liability limiting clauses
3. Implied – term- modifying clauses, and
4. Restrictive covenant
Litigation-limiting clauses
Contracts may legitimately contain clauses that
postpone litigation till after other specified
dispute-resolution
methods
have
been
unsuccessfully resorted to.
The court may adjourn proceedings for the
contracting parties to first exhaust the specified
dispute-resolution
mechanism
such
as
conciliation,
negotiation,
mediation
and
arbitration.
Liability limiting clauses
 Contracting parties employ these clauses in order to
limit or exclude their contractual liability to the other in
the event of a breach.
 Exemption clauses that limit liability are often used in
contracts of storage (bailment) and carriage (rail, road,
sea, etc.)
 Because they seek to limit liability, courts are reluctant
to enforce liability-limiting clauses.
 Although the law permits exclusion clauses-and applies
them strictly-any such clause that seek to totally
exclude rather than simply limit liability may be
considered void.
Implied term-modifying clauses
These clauses seek to exclude the operation of
terms that would otherwise be implied by
legislation.
The usual phrases used in statute would be:
“subject to any agreement to the contrary by
the parties, the following provisions shall
apply”; and this is followed by a list of the
applicable implied terms.
Restrictive covenant
These are clauses normally found in
employment contracts and are intended to
protect the employer by minimizing
competition by (former) employees.
In a typical employee’s restrictive covenant, an
employee will be made to agree with his
employer not to operate in a competing
business in the employer’s catchment area for
a period of time.
Construction of exemption clauses
Construction of exemption clauses deals with how
the court will interpret the use of exemption clauses
when they are introduced in contracts.
The following 4 rules are used by the court when
interpreting exemption clauses:
1. The reasonable clause rule
2. The four corner rule
3. The repugnancy rule
4. The contra proferentem rule
The reasonable clause rule
 The law detests unreasonableness.
 What is reasonable is a question of fact; it is determined by
the court after considering all of the evidence.
 If a contractual provision is unreasonable, the court will
remove and disregard it and interpret the remainder of the
contract as if the removed provision was never a term of the
contract.
 The reasonable clause rule is invoked to determine whether
an exemption clause will stand or fall. The clause will fall if
it is found unreasonable.
The four corners rule
The rule makes exemption clauses valid only
if the party seeking to rely on them is
operating within the scope of the contract.
A contracting party is not permitted to deviate
from or break a contractual obligation and then
seek to rely on a contractual exemption clause.
The four corners rule operates as an estoppel.
The repugnancy rule
 The repugnancy rule is somehow related to the four corners
rule.
 However, this rule contends that if the exemption clause is
in direct contradiction to the main purpose of the contract,
the clause is repugnant to the contract and is unenforceable.
 Example, a clause which allows a food contractor to supply
a purchaser any type of foodstuff when the contract is for
the supply of yams only is repugnant (contradictory) to the
contract and is therefore unenforceable
The contra proferentem rule
 The contra proferentem rule is adequately explained by
the dictum of Mills-Odoi JSC in Praah & Others V
Anane, to wit: ”if, on the face of the agreement, there
arises any ambiguity or uncertainty as to the
construction or interpretation of a clause or a term
therein, it must be construed against the maker.”
 That is to say, ambiguities and uncertainties in written
contracts are construed against (ie, contrary to the
interest of) the parties who drafts them.