BUSINESS LAW (Spring Term ‘20)

Instructor: Misha Zaheer

TERMS
The formation of a contract may entail lengthy negotiations and exchanges; some of these may
be insignificant while the others may be highly significant. It is important to determine which of
the many statements made form part of the contract and which do not. The statements that form
part of the contract are terms and breach of a term gives rise to a right to damages and possibly
termination of a contract. When the statement does not form part of the contact it is merely a
representation. A representation is a statement which may have encouraged the party to make
the contract but it does not itself form part of a contract. Hence if it is false, there will be no
breach of a contract.

The question of whether a statement is a term or a mere representation may be determined by the
basic criterion of the intention of the parties. In order for a statement to be a term of a contract it
must be made with the intention (note: objective) that it be a term of the contract (Heilbut
Symons & Co. v. Buckleton 1913). The criterion laid out was as follows:

1. The importance of the statement –the greater the importance the more likely it was that it
would form part of the contract

2. Reliance - Where one party is relying on the other, it is indicative of the fact that the
statement is intended to be a term

3. The relative knowledge of the parties – if one party knows a great deal more about a
particular matter, this is indicative that the statement is intended to be a term of the contract.
E.g. where prospective buyers of a car said they were looking for a “well-vetted” Bentley.
The car dealers stated that the car for sale had its engine and gear box replaced and tht the car
had only done 20,000 miles since then. Soon after the sale the car began to give problems
and it was discovered that the car had in fact done 100,000 miles. In such a case the car
dealers statements were held to be terms of the contract (Dick Bentley Productions Ltd. v.
Harold Smith Motors Ltd. 1965)

Note: it is also possible that the statement is a term of a collateral contract i.e. a contract
collateral to the main contract

IMPLIED TERMS

Some terms in a contract are express terms, they are clearly indicated or explicitly stated, and
others may be implied, by law or by circumstances of the case. E.g. I order a pair of roller-blades
from an online store - I choose the color black, size 38 and four in-line wheels. At checkout I am
informed that delivery can take 2-4 days. These are all express terms. A term that may be
implied in such a case will be the satisfactory quality of the roller-blades.

1
 BUSINESS LAW (Spring Term ‘20)
Instructor: Misha Zaheer

Generally, courts are hesitant to imply terms into a contract. The general role of the courts is to
interpret contracts not to make them. However, terms may be implied in the following
circumstances:

1. Trade usage – E.g. in commercial/mercantile contracts it may be implied that the vendors of a
certain kind of goods will always pay the broker commission with regard to the sale. Where such
a term is absent in a contract it will be implied by the courts.

2. Nature of relationship – E.g. courts may imply a term that the employer is under an obligation
to not conduct his business in a manner that is likely to seriously damage the relationship
between the employer and the employee (Malik v. BCCI 1997).

3. Terms implied by operation of statute – where terms are implied because it has been legislated
that the terms will form a part of certain kinds of contracts. In some instances this is done to
standardize certain types of contracts or to protect the interests of certain kinds of consumers.
E.g. s 15 of the Sale of Goods Act, 1930: where there has been a sale by description, it is implied
that the goods shall correspond with that description. Similarly s 17 of the Act provides that
where there has been a sale by sample, the goods must correspond with the quality of the sample.

Note: such terms are implied by statute; the parties can choose to bypass these by way of express
agreement.

CONDITIONS & WARRANTIES

Conditions: more important terms a breach of which give the right to terminate the contract or
incase of performance contracts the right to refuse further performance. A condition will go to
the root of the contract e.g. ordering a color screen TV.

Warranty: less important terms a breach for which damages are the only remedy, the injured
party will not have the right to termination of the contract.

Innominate terms: these are neither conditions nor warranties – intermediate terms. In terms of
breach of such a term the court will determine whether the party has the right to rescind the
contract