Terms of a contract

Contract creates rights, duties and obligations to be undertaken by parties.

When parties exchange promises, certain rights and obligations arise out of
the exchange of promises. These rights and obligations are distilled from the
terms of the contract. The full extent of the parties' obligations in a contract
cannot be accurately determined until the terms are classified and evaluated.
Terms of a contract are obligations of both parties or parties to a contact
which must be fulfilled but the parties in order to give effect to the contract.
They range from fundamental terms (the most important), to warranties, (the
least important). In between these, we have conditions, and the subsequently
identified innominate or intermediate terms. The degree of a party's rights
and/or obligations and the effect of a breach of a particular term are
dependent on the type of terms of the contract.

Difference btw terms of a contract and a mere representation

The legal significance of the distinction between a term of contract and mere
representation lies in the effect of a breach of either. If the breach is of a
term of the contract, then the aggrieved party can sue for a breach of that
term and obtain a remedy in damages or in both damages and repudiation,
depending on the importance of the term breached. If, however, the term
breached is not a term of the contract, but a mere representation, not only is
the remedy available to the plaintiff less valuable, there may, in fact, be no
real remedies at all. Misrepresentation may be innocent or negligent or
fraudulent. If it is established to be an innocent misrepresentation; statement
made by someone who has reasonable grounds for believing it was true when
he made it and when he entered into the contract, the representee may have
no claim against the representor at common law. In equity, the party misled
by the misrepresentation might have nominal remedy. If the
misrepresentation is fraudulent i.e. deliberate falsehood which induced
another party into the contract, the representee can claim damages. The
same applies to negligent misrepresentation. Thus the House of Lords held in
Hedley Byrne & Co Ltd. v. Heller & Partners Ltd that in some
circumstances damages could be awarded for negligent misrepresentation.
This has therefore created a third category of misrepresentation, known as
negligent misrepresentation, for which the remedy of damages is available.
The English Misrepresentation Act, 1967, has somewhat increased the
scope for obtaining damages for misrepresentation, but this Act does not
apply anywhere in Nigeria.

Test in distinguishing

Where a court is faced with a claim for breach of contract, it is cardinal for
the court to, first and foremost, evaluate and identify the part of the contract
that was breached in other to determine the rights and obligation implicit in
such a breach. Cheshire and Fifoot have designed three independent tests
for this purpose.

A. At what stage (or point) of the transaction was the crucial statement
made? The essence of this question is to discover if the statements were
made at the preliminary or early stage of the negotiations or at the later
stage of negotiation. If it were to be the former then there is a high likelihood
that what was breached is mere representation. Because most preliminary
statements made during negotiations may not be intended to be a term of
the contract. However, if it was the later I.e the statement was made at the
point of entering into the contract,it is more likely to be a term of the
contract. What is central in this test is the lapse of time between the
statement and the date in which the contract was concluded.
However, the court decision is not consistent as regards this test. In
Shawel v. Reade for instance, where the lapse between the statement and
the date of contract was three weeks, it was held that the statement
nevertheless constituted a term of the contract, whereas in Routledge v.
McKay, where the lapse was only one week, it was held that the statement
was a mere representation.
So one could reasonably conclude that the decision of the court based on
this test depends on the nature and the fact of the case.

B. Was the oral statement followed by a reduction of the terms to writing?

Central to this test is a determination of whether the oral statement made at
any point of the contract was later reduced into writing by parties. If there
was an oral agreement, which was later reduced into writing, a statement
contained in the oral agreement and also contained in the written document
will be treated as a term of the contract however, any term contained in the
oral agreement not contained in the later document will be treated as a mere
representation.
In the case of B. O. Lewis v. United Bank for Africa Plc held that where
an agreement has been reduced into writing, by virtue of section 132 (1) of
the Evidence Act, none of the parties can be heard to contend that besides
the written terms or conditions, there is other evidence of the terms of the
agreement. This was also reaffirmed by the court in the case of Christaben
Group Ltd., v. Oni,
The court using this test must, however, decide whether it was the intention
of the parties that the contract should be comprised wholly in their document
or whether the contract was to be partly written and partly oral? If the
contract is to be comprised wholly in their document, it will reinvigorate the
fact that the omitted oral statement is a mere representation.

C. One party's superior knowledge. In this case, if the person who made the
statement had special knowledge or skill as compared to the other party,
then the statement is taken to be a term of the contract. If, however, the
statement is made by the person who is less knowledgeable or has inferior
knowledge about the subject matter of the contract, it is regarded as a mere
representation. This was given judicial pronouncement in the case of Dick
Bentley Productions Ltd v. Harold Smith (Motors) Ltd The case of
Oscar Chess Ltd. v. Williams represents the reverse situation where the
"layman" gave wrong information about the date of manufacture of his car to
the "expert", the car dealer. It was held that the statement was a mere
representation.

Treitel, relying on virtually the same cases, has devised two additional tests.
The first is
D. Verification; According to this test, a statement is regarded as a mere
representation if the person making it expressly asks the other to verify the
truth of it. This is illustrated by the case of Ecay v. Godfrey in which the
seller of a boat said it was sound, but advised the buyer to have it examined.
It was held that this advice negatived any intention to warrant the soundness
of the boat. On the other hand, a statement is likely to be a term of the
contract if it is intended to prevent the other party from finding out the truth
and induces him to contract in reliance on it as established in the case of
Shawel v. Reade

E. Degree of Importance of statement; A statement will be regarded as a

term if the other party shows that if it had not been for the assurance or the
statement made he wouldn’t have entered into the contract. This was
established in the case of Bannerman V white same principle was held in
the case of In Couchman v Hill

PAROL EVIDENCE
Parol evidence is an agreement that is not contained within the written
contract. Extrinsic evidence is not confined to oral statements, it can be
written material such as correspondence pertaining to pre-contractual
negotiations. Where a contract Is embodied in a written document, it is a
general rule that parol extrinsic evidence is not admissible to add, subtract
from or contradict the terms of the written document. This was the
position of the court in Henderson v Arthur
However, there are EXCEPTIONS to this rule.

1. Custom - The evidence of the custom of a local area or trade usuage can
be admitted by the court to add but not to contradict written agreement. This
was established by the court in the case of of Smith v Wilson (where
according to custom, a thousand rabbits, can be likened to 1,200 rabbits)

2. Validity - Parol evidence will be allowed to show the capacities the

parties were
acting when the contract was agreed upon. That is, they may be admissible
to show that the contract is invalid for mistake, misrepresentation,
incapacity or want of consideration.

3. Rectification - Rectification occurs where parties have agreed on the

terms but by mistake record them incorrectly in a subsequent document. The
court can order the specific performance by rectifying the errors. Rectification
is an equitable remedy, it is at the discretion of the court and it is an
exception to the parol evidence rule.

4. Operation of the contract - Extrinsic evidence will be allowed to show

that the written contract has yet to come into operation that is was only
going to be in operation after a particular condition has been fulfilled as
established in the case of Pym v Campbell or has ceased to operate.

5. Evidence of Supplementary Terms - Where the contract is reduced to

writing, there is a presumption that the writing is intended to include all the
terms of the contract but where despite written agreement, parties intend to
be bound by oral or other documents, such extrinsic evidence will be
admissible as established in the case of Couchman v Hill

COLLATERAL CONTRACT
According to this doctrine, if the representor makes a statement or promise,
which is intended to induce the representee to enter into a contract, then if
the representee enters into that contract in reliance on that promise, the
representor will be bound by his promise and the court would enforce it, if the
representee is able to prove that he only entered into that contract based on
the promise. The promise is treated as part of a preliminary or collateral
contract.
In order words collateral contracts is not the main contract but a promise
that has been made asides the main contract which if proven with evidence
the law would enforce it.
This doctrine was given judicial pronouncement in the case of City &
Westminster properties ltd V Mudd and also reaffirmed in the case of
wells (Mersham) ltd V Buckland Sand & Silica Co ltd

Nature of contractual terms

Obligations created by a contract are not'all of equal importance. Thus, one

term may be of major importance whose breach could lead to a discharge of
the contract while another term may be relatively minor one whose breach
could result only in damages. 4 categories of technical me have been
identified in the following descending order of importance
A. Warranties
B. Innominate it intermediate terms
C. Conditions
D. Fundamental terms

Conditions

The word 'condition' is used in two senses. In the first sense condition is a
qualification which renders the operation and consequences of the whole
contract dependent upon uncertain future event. In this connection, condition
may be precedent, subsequent or inherent. A condition precedent is one
which must occur or be fulfilled before obligation or right created by the
contract can be enforced. It states that the agreement is not binding until a
formal contract has been drawn up and signed. This is the case in the case
of Pym v. Campbell, this principle was also reaffirmed in the case of
pickard v innes
There is another category of conditions known as condition subsequent. It is a
stipulation in the contract, which provides for the termination, of the contract
on the happening or doing of an act or the occurrence of an event. The
happening of a condition subsequent operates to destroy an existing
obligation. It is one which, after a contract has come into effect, terminates it
if the condition occurs. No convincing illustration of this concept has been
given yet but an unreported case of African Continental Bank ltd V
okonkwo offers the closest illustration so far to a condition subsequent.
The third category of condition is condition inherent that is the conditions
which qualify the obligations contained in the contract. This will lead us to the
second sense of how a condition is defined, Used in this manner, a condition
is viewed as the integral part of a contract, so that if there is breach of a
condition, it is regarded as something that affects the root or basis of the
contract thus, rendering the contract ineffectual.
In the case of Wallis v. Pratt a condition was defined as an obligation which
goes so directly to the substance of the contract or, in other words, is so
essential to its very nature, that its non-performance may fairly be
considered by the other party as a substantial failure to perform the contract
at all.
A statutory clarification of the meaning of condition is afforded by section 11
(1) (b) of the Sale of Goods Act, 1893, which stipulates that when there
is a breach of a condition, the innocent party may exercise the right of
rescinding the contract and may additionally sue for damages. This was given
judicial pronouncement in the case of Poussard V spiers & Pond

Warranties
A warranty is a subsidiary or a minor term, the breach of which entitles the
innocent party to a claim for damages but does not give him the right to
repudiate the contract. It is an obligation which though must be performed, is
not so vital that a failure to perform it goes to the very root of the contract.
According to the Sale of Goods Act 1893, in section 62 it defines a
warranty as collateral to the main purpose of the sale of goods contract, the
breach of which gives rise to a claim for damages, but not to a right to reject
the goods and treat the contract as repudiated. Therefore, warranties are not
central to the existence of the contract. This was further reaffirmed in the
case of Bettini v. Gye

Innominate or intermediate terms

Rather than classify the terms themselves as condition or warranties, the

innominate term approach looks to the effect of the breach and a breach of
terms within this category could lead either to damages. or to repudiation. If
the breach is so devastating as to deprive the injured/innocent party of
substantially the whole benefit which was he was supposed to obtain from
the contract, then the remedy would be repudiation; otherwise but if not then
it would be damages.
The innominate term approach was established in the case of Hong Kong
Fir shipping v. Kawasaki Kisen Kaisha. This doctrine has also received
general, though qualified acceptance. In the case of Cehave v. Bremer,
otherwise known as The Hansa Nord in this case The Court of Appeal held
that apart from conditions and warranties, there was a third type of term, the
intermediate term, the effect of which depended on the gravity of the breach.

Fundamental Terms

A fundamental term may be described as a term whose importance and

effect is more consequential than even a condition. It is a term which
constitutes the main purpose of the contract, and failure to comply with it is
equivalent to not performing the contract. An illustration will help explain this
better. Suppose there was a contract for the sale of hundred cartons of wine
at an agreed price,if the seller sends hundred crates of mineral instead of
wine. There is obviously a breach of contract. This is a breach of a
fundamental term. The main reason for the whole contract in question and
just as I’m the case of conditions, the breach of a fundamental term will
entitle the injured party to repudiate the contract. Additionally, a party in
breach of a fundamental term cannot escape his liability by reliance on an
exclusion clause. This was given judicial blessing in the case of Smeaton
Hanscomb & Co. Ltd v. Sussoon

IMPLIED TERMS

Express terms of contract are those that are specifically mentioned and
agreed upon by the parties while Implied terms are those not specified by
parties but implied into the contract. The importance of implied terms stems
from the fact that in certain circumstances, it may be difficult to ascertain the
intention of the parties without resorting to these implied terms and this is
because express terms may not necessarily state every detail of the intention
of the parties in entering into the contract because human beings cannot
envisage all things or terms which will be relevant in the making of a
contract. This is why the law has allowed terms to be implied into a contract
and just like express terms, implied terms may assume the character of
conditions or of warranties.
There are three types of implied terms;
1. Terms implied by custom/Trade
2. Terms implied by statute
3. Terms implied by the court

Terms implied by custom/Trade

Trade customs, practices and usages may be implied in a contract even
though not expressly stated by parties in the contract. It is necessary to state
that customs and usages can only be implied into a contract in the following
circumstances, namely:

A. Customs cannot be implied in a contract where parties have expressly

excluded its application. Thus customary implied terms cannot override the
terms of a written contract;
This was given judicial notice in the case of Les Affreteurs Reunis Societe
Anonyme v. Walford
In this case the House of Lords held that an alleged custom could not prevail
over the express terms of the contract. Same principle was reaffirmed in the
case of Gottschalk v. Elder Dempster & Co. Ltd here it was held by the
full court that “no evidence of custom can override the terms of a written
contract”.

B. The custom or usage should be well-established and notorious so that both

parties to the contract are either familiar with it or must be presumed to be
familiar with it. The basis of this is that if a custom is well-known, then
everyone making a contract in that situation can reasonably be presumed to
have imported that term into the contract. This principle was given judicial
blessing in the case of Hutton v Warren where the court held that, in
commercial transactions extrinsic evidence of custom and usage is
admissible to support written contracts, in matters with respect to which they
are silent.
The same rule has been applied to contracts in other transactions of life, in
which known usages have been established and this has been done upon the
principle of presumption that in such transactions the parties did not mean to
express in writing the whole of the contract by which they intended to be
bound, but to contract with reference to those known usages…
Same principle was held in the case of British Crane Hire Corporation v.
Ipswich Plant Hire ltd where the court held that customs can be implied
where the usage is well established and notorious, that both parties, to the
contract are either familiar with it or must be presumed to be familiar with it.

Terms implied by statute

Terms of contract may also be implied by statute. Over a long period of time,
courts gradually accepted and enforced certain terms into contracts (mainly
for the sale of goods) even though they were not expressly stipulated. This
was done mainly to protect the weaker party (usually the buyers or
consumers) in contracts for the sale of goods. Section 12 - 15 of the sales of
Goods Act passed by the British parliament in 1893 contains certain terms
which are implied in all contracts for the sales of goods unless expressly
excluded. It should be noted that the Sale of Goods Act of 1893 applies to
Nigeria directly as an English Statute of general application enacted before
1900.42 However, the Western Region of Nigeria enacted its own sales of
Goods law in 1958 and this is currently applicable in Ogun, Oyo and ondo
states. Also Lagos state and Bendel state have their respective Sale of Goods
Laws. This means that the Sale of Goods Act of 1893 does not apply to these
5 states. However, since the terms of their Sale of Goods Laws are virtually
identical to the terms of the English Act, the principles of law arising from the
interpretation of the provisions of these laws are therefore uniformly
applicable throughout the country.