THE COMPOSITION OF A CONTRACT
The Composition of a Contract (Contract Terms)
Contract Term or Representation
A contract term and a representation are different terms in contract law. For instance, a contract term is a statement that ultimately becomes part of a contract; it may be express or implied to show the intention of the parties when the contract was made. A representation, on the other hand, is a statement that is relied on by a party while entering into a contract; the statement influences the party to enter the contract. Thor, a computer technician, advised Loki, a customer, to buy the iStrawb 2020 which has a 1TB storage and can stream movies in less than 30 seconds. Loki wanted a laptop with large storage capacity and a fast processor. However, the laptop did not meet Loki’s expectations. He relied on Thor’s advice and bought the laptop, which amounts to a representation.
Courts consider four factors when determining whether a statement is a contractual term or a representation. For instance, the parole evidence rule which states that terms that have been put into writing are considered contractual terms, while verbal statements are representations[1]. The parole evidence rule applies when a contract has been finalized and shows that the parties to the contract intended that it should be the final contract. Parole evidence may be used to show that a party was persuaded fraudulently to get into the contract[2]. In the case of Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Assn.[3], the court considered outside evidence and held that the parole evidence rule can be applied to prevent injustice. The interaction between Loki and Thor was verbal hence it was a representation; the parole rule evidence could also be used to show that he bought the laptop after fraudulent persuasion.
Courts also look the relative expertise of the parties based on possesses more knowledge between them. If the representor has greater knowledge than the representee, it would be considered a contractual term. However, if the opposite takes place (the representee has more knowledge than the representor, it would be a representation[4]. In the case of Oscar Chess Ltd v Williams[5], the Court of Appeal held that Oscar Chess Ltd, the representee, had the greater knowledge because it was a car dealership hence they were in a better position to know the date of manufacture than Williams. Thor was in a better position to know the specifics of the laptop than Loki hence it was a representation.
If the representee informs the representor of the importance of the statement and reliance, it shall be considered as a contractual term. For instance, in the case of Bannerman v White[6], the claimant stated the importance of the term and relied on the statement hence the court held that it was a breach of contract, bearing in mind that the parties had agreed by contract. Loki communicated verbally the importance of having large storage capacity and a fast processor to Thor before he purchased the laptop, hence it was a representation. Courts also consider the time lapse between making the statement and making the contract; if the time lapse is longer, it shall be considered a representation[7]. In the case of Routledge v Mackay[8], the Court of Appeal considered the transaction as a representation. Loki realized that the processor took 30 minutes as opposed to 30 seconds to stream a movie after he took the laptop home hence it was a representation.
Condition or Warranty
While agreeing to a contract of sale, a buyer and seller sets stipulations depending on the nature of the contract. Conditions and warranties are terms that are used to delegate responsibilities to the parties in a contract. They are set out in a contract in the event that either party breaches the contract. James Bond placed an order for 1000 computers for his secret intelligence agency. He added that they should be encrypted with passwords to protect the secret information. Thor delivered the computers on time but they were not password encrypted. A condition goes to the root of the contract hence it forms the basis of the contract. If a party fails to meet a condition set out in the contract, it can be terminated. However, if a party fails to meet a warranty, the aggrieved party can sue for damages- the contract cannot be considered as repudiated. James Bond’s implied condition was that the computers had to be password encrypted because of the secret information his agency dealt with and they had to be delivered within two days. Thor met part of Bond’s demands but left out the most important one.
Conditions are divided into express and implied. Express conditions are in writing in a contract. If obligations are not met, an assessment of the liabilities and damages would be conducted[9]. Implied conditions are divided into conditions as to title, description, quality or fitness, merchantability, sample, and sample and description[10]. Implied conditions cannot, however, supersede express conditions, if an issue arises. Conditions as to title relate to the seller’s right to sell and pass the property in the goods to the buyer. Conditions as to description indicate that the goods sold shall correspond with the description provided by the buyer, in this case, James Bond. The buyer may not see the goods but relies on the description given by the seller. Quality or fitness applies when a buyer informs the seller of the particular purpose for the goods. The buyer relies on the seller’s skill and judgement because they are in the seller’s ordinary course of business. James Bond relied on Thor’s skill and judgement, the description of the goods, and the quality or fitness of the goods they had discussed before agreeing to purchase the computers[11]. James has the right to repudiate the contract as was held in the case of Poussard v Spiers[12]. Thor was mandated to deliver computers that were password encrypted because they were meant to protect secret information.
Warranties are minor terms that may either be express or implied. An express warranty is treated as the seller’s representation of the transaction, while an implied warranty is inferred from the conduct of the parties[13]. The innocent party may claim damages but the contract is not repudiated. A condition can be treated as a warranty if the buyer waives the conditions and decides to treat the breach of condition as a breach of a warranty. Implied warranties are divided into quiet possession and free from encumbrances[14]. Courts put into consideration the party that initiated the transaction, oral or written reliance, and whether the buyer insisted on a particular brand[15]. In the case of Bettini v Gye[16], it was held that Bettini was in breach of a warranty but the employer could not repudiate the contract. Hence a breach of warranty does not bring the contract to an end because it does not go to the root of the contract. In Thor’s case, he breached an implied condition by not delivering password encrypted computers, hence James Bond could repudiate the contract.
Exclusion Clause
Exclusion clauses are used in contracts to protect a party from liability or limit obligations. They may be incorporated in the terms and conditions section in a product. They may also be incorporated through signatures and reasonable notice by the parties. Businesses use exclusion clauses to allocate risk and determine the responsible party for insuring the risk. Courts interpret the exclusion clause in its plain meaning as long as it is incorporated validly in the contract. Thor gave Flash a contract that points out that Strawberry Technologies Ltd would not be held liable for any damage on the repaired products. The exclusion clause is valid because Flash was informed before the speakers were repaired.
The contracting party should be directed to the exclusion clause, failure to which would deem it unenforceable. Thor directed Flash to the clause before he took the speakers for repair. Flash signed the contract, proving that he agreed with the terms of the contract, including the exclusion clause. In the case of L’Estrange v Graucob[17], the Court of Appeal held that the claimant’s claim was unsuccessful because once she signed the contract, she was bound by all the terms, regardless of whether she read them or not. Whether Flash read the clause or not is immaterial in this case. The reason is that Thor directed him to the exclusion clause and he appended his signature afterwards.
The exclusion contract should be part of the contract; it should not be addendum. In the case of Chapelton v Barry UDC[18], the court held that an exclusion contract should be incorporated into the contract after it was written at the back of the ticket, which would easily be referred to as a ticket. Thor’s exclusion contract was included in the contract, deeming it a valid clause in the contract. Thor will not be held liable for the damage caused on laptop.
Bibliography
Cases: Bannerman v White
Bettini v Gye
Chapelton v Barry UDC
L’Estrange v Graucob
Oscar Chess Ltd v Williams
Poussard v Spiers
Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Assn
Routledge v Mackay
Advocate Khoj.’Sale of Goods.’ < www.advocatekhoj.com/library/lawareas/saleofgoods/express.php?Title=Sale%20of %20Goods&STitle=Express%20and%20Implied%20Conditions%20/%20Warranties %20:%20A%20Sale> Accessed 31 May 2020
E-law Resources. ‘Contractual term or representation.’ <e-lawresources.co.uk/Contractual- term-or-representation.php> Accessed 31 May 2020
Law Shelf. ‘Module 3: Warranties and Limits on Sales Contracts.’ < lawshelf.com/videocoursesmoduleview/warranties-and-limits-on-sales-contracts- module-3-of-5/> Accessed 31 May 2020
Law Shelf. ‘The Parole Evidence Rule.’ < lawshelf.com/shortvideoscontentview/contract- law-the-parol-evidence-rule/?TimeIndex=10> Accessed 31 May 2020
UpCounsel. ‘Terms Of Contract Conditions And Warranties: Everything You Need to Know.’ < www.upcounsel.com/terms-of-contract-conditions-and-warranties> Accessed 31 May 2020
[1] E-law Resources. ‘Contractual term or representation.’ <e-lawresources.co.uk/Contractual-term-or-representation.php> Accessed 31 May 2020
[2] Law Shelf. ‘The Parole Evidence Rule.’ < lawshelf.com/shortvideoscontentview/contract-law-the-parol-evidence-rule/?TimeIndex=10> Accessed 31 May 2020
[3] 291 P.3d 316 (2013)
[4] E-law Resources. ‘Contractual term or representation.’ <e-lawresources.co.uk/Contractual-term-or-representation.php> Accessed 31 May 2020
[5] [1957] 1 WLR 370
[6] (1861) 10 CB NS 844
[7] E-law Resources. ‘Contractual term or representation.’ <e-lawresources.co.uk/Contractual-term-or-representation.php> Accessed 31 May 2020
[8] [1954] 1 WLR 615
[9] UpCounsel. ‘Terms Of Contract Conditions And Warranties: Everything You Need to Know.’ < www.upcounsel.com/terms-of-contract-conditions-and-warranties> Accessed 31 May 2020
[10] Advocate Khoj.’Sale of Goods.’ < www.advocatekhoj.com/library/lawareas/saleofgoods/express.php?Title=Sale%20of%20Goods&STitle=Express%20and%20Implied%20Conditions%20/%20Warranties%20:%20A%20Sale> Accessed 31 May 2020
[11] Ibid
[12] (1875) LR 1 QBD 410
[13] Law Shelf. ‘Module 3: Warranties and Limits on Sales Contracts.’ < lawshelf.com/videocoursesmoduleview/warranties-and-limits-on-sales-contracts-module-3-of-5/> Accessed 31 May 2020
[14] Advocate Khoj.’Sale of Goods.’ < www.advocatekhoj.com/library/lawareas/saleofgoods/express.php?Title=Sale%20of%20Goods&STitle=Express%20and%20Implied%20Conditions%20/%20Warranties%20:%20A%20Sale> Accessed 31 May 2020
[15] Law Shelf. ‘Module 3: Warranties and Limits on Sales Contracts.’ < lawshelf.com/videocoursesmoduleview/warranties-and-limits-on-sales-contracts-module-3-of-5/> Accessed 31 May 2020
[16] (1876) QBD 183
[17] [1934] 2 KB 394
[18] [1940] 1 KB 532