Terms of a Contract
This will examine how the parties’ agreements are interpreted. Will examine how
the terms of the contract are identified, and assess how the courts interpret the
meaning of certain terms.
Are statements made pre-contract terms or representations?
The first point to address is in relation to statements made at the pre-contractual
stage, which are not in the written contract. The difficulty with these statements is
that they are often made orally. Do these statements form part of the agreement
or not? Generally, the courts will take an objective approach to consider the
intentions of the parties. There are a number of guidelines which the courts use in
order to ascertain the intentions of parties.
Pre-contractual statements can be categorised as one of the following:
Puffs
Terms
Representations A puff
A puff is a statement which cannot give rise to legal consequences, as they are never
meant to be taken literally and there is no intention to be legally bound. As example
of a puff would be an advertisement for a theme park which stated “you will have
the time of your life at our
theme park”, what if you didn’t have “the time of your life”, would you be able to
sue for breach of contract? Evidently, this is a statement not meant to be taken
literally, and is an advertising gimmick. The advertisement in Carlill v Carbolic
Smoke Ball Co [1893] 1 QB 256 was argued to be a puff unsuccessfully.
Term or representation? Why does it matter?
Both terms and representations provide a remedy for the aggrieved party,
therefore, why does it matter which of the two a statement is? The significance is
the form of remedy, as the remedies are different for the two. First, it is helpful to
define the two.
Term: A promise as to the truth of a statement
Representation: There is no promise, but the statement induces the making of the
contract
,The ability to claim damages
Term: On a breach of a term, there is automatically a right to claim for damages
Misrepresentation: A misrepresentation only allows a claim for damages if it can be
proven
that the statement was made fraudulently or negligently, an innocent
representation will not result in a claim for damages (unless there is an exception
under Section 2(2) of the Misrepresentation Act 1967, see the misrepresentation
chapter for more information).
The measure of damages
Term: Damages will be based on an expectation measure - the claimant will be put
into the position they would have been in had the contract been properly
performed
Misrepresentation: Damages will be limited - the claimant will be put into the
position they were in before the contract was made.
It is clear from this that the measure of damages is favourable in the event of a term
breaching a contract, as opposed to misrepresentation. However, the ability to
recover for damages is slightly different.
Term: Damages will be recoverable based on the remoteness rule from Hadley v
Baxendale(1854) 9 Exch 341 (see chapter on damages for more information). This
test requires that the loss suffered by the claimant was ‘reasonably contemplated’
by the parties
Representation: Fraudulent misrepresentation will allow for a claim for all direct
loss by the claimant, irrespective of forseeability.
In contrast to the right to claim for damages, a representation is much more
favourable, as the damage need not be in contemplation of the parties. Therefore,
it becomes clear that it is extremely important to the outcome of the case whether
a statement is classed as a term or representation, it could be the difference
between thousands of pounds in damages.
The difference between a term and a representation
, This section will examine the key differences between a term and a representation,
and how the courts will make a decision on the matter. Some presumptions and
guiding factors which the courts will consider will be examined, these are as follows:
1. Is the statement in writing?
2. Is there any specialist skill or knowledge from one party?
3. Is there reliance on the statement, or importance placed on the statement?
4. How long was the lapse of time between the statement being made and the
formation of the contract?
5. Could the party relying on the statement have verified it? Is the statement
in writing?
6. If a statement is in writing, there will be a presumption that it will form a
term of the contract. There are a variety of different rules related to this.
Each will be examined in turn.
7. The parol evidence rule
8. Even if there is a written contract, parties may claim there are other terms
in the contract, perhaps ones in another document, or ones from an oral
agreement.
9. The starting point for a court determining whether a written term is a term
or a misrepresentation is that it will be a term, and the only term. The case
of Henderson v
10. Arthur [1907] 1 KB 10 is authority for this point. Claims pointing to other
documents or oral agreements will usually be ignored. This is known as the
‘parol evidence’ rule.
11. It should be noted that there will be circumstances in which other
documents or oral agreements can form terms, but this is the initial starting
point for the courts when faced with terms reduced to writing. One such
rebuttal to this can be found in J. Evans & Son
12. (Portsmouth) Ltd v Andrea Merzario [1976] 1 WLR 1078. If the contract was
intended to be partly written and partly oral, the parol evidence rule will not
apply. To this effect, the courts will look at the conduct of the parties from
the start to the end of the contract formation.
13. Exam consideration: Can you think of some example of conduct which may
mean that oral evidence is allowed and the parol evidence rule would be
displaced?
14. Collateral contracts
This will examine how the parties’ agreements are interpreted. Will examine how
the terms of the contract are identified, and assess how the courts interpret the
meaning of certain terms.
Are statements made pre-contract terms or representations?
The first point to address is in relation to statements made at the pre-contractual
stage, which are not in the written contract. The difficulty with these statements is
that they are often made orally. Do these statements form part of the agreement
or not? Generally, the courts will take an objective approach to consider the
intentions of the parties. There are a number of guidelines which the courts use in
order to ascertain the intentions of parties.
Pre-contractual statements can be categorised as one of the following:
Puffs
Terms
Representations A puff
A puff is a statement which cannot give rise to legal consequences, as they are never
meant to be taken literally and there is no intention to be legally bound. As example
of a puff would be an advertisement for a theme park which stated “you will have
the time of your life at our
theme park”, what if you didn’t have “the time of your life”, would you be able to
sue for breach of contract? Evidently, this is a statement not meant to be taken
literally, and is an advertising gimmick. The advertisement in Carlill v Carbolic
Smoke Ball Co [1893] 1 QB 256 was argued to be a puff unsuccessfully.
Term or representation? Why does it matter?
Both terms and representations provide a remedy for the aggrieved party,
therefore, why does it matter which of the two a statement is? The significance is
the form of remedy, as the remedies are different for the two. First, it is helpful to
define the two.
Term: A promise as to the truth of a statement
Representation: There is no promise, but the statement induces the making of the
contract
,The ability to claim damages
Term: On a breach of a term, there is automatically a right to claim for damages
Misrepresentation: A misrepresentation only allows a claim for damages if it can be
proven
that the statement was made fraudulently or negligently, an innocent
representation will not result in a claim for damages (unless there is an exception
under Section 2(2) of the Misrepresentation Act 1967, see the misrepresentation
chapter for more information).
The measure of damages
Term: Damages will be based on an expectation measure - the claimant will be put
into the position they would have been in had the contract been properly
performed
Misrepresentation: Damages will be limited - the claimant will be put into the
position they were in before the contract was made.
It is clear from this that the measure of damages is favourable in the event of a term
breaching a contract, as opposed to misrepresentation. However, the ability to
recover for damages is slightly different.
Term: Damages will be recoverable based on the remoteness rule from Hadley v
Baxendale(1854) 9 Exch 341 (see chapter on damages for more information). This
test requires that the loss suffered by the claimant was ‘reasonably contemplated’
by the parties
Representation: Fraudulent misrepresentation will allow for a claim for all direct
loss by the claimant, irrespective of forseeability.
In contrast to the right to claim for damages, a representation is much more
favourable, as the damage need not be in contemplation of the parties. Therefore,
it becomes clear that it is extremely important to the outcome of the case whether
a statement is classed as a term or representation, it could be the difference
between thousands of pounds in damages.
The difference between a term and a representation
, This section will examine the key differences between a term and a representation,
and how the courts will make a decision on the matter. Some presumptions and
guiding factors which the courts will consider will be examined, these are as follows:
1. Is the statement in writing?
2. Is there any specialist skill or knowledge from one party?
3. Is there reliance on the statement, or importance placed on the statement?
4. How long was the lapse of time between the statement being made and the
formation of the contract?
5. Could the party relying on the statement have verified it? Is the statement
in writing?
6. If a statement is in writing, there will be a presumption that it will form a
term of the contract. There are a variety of different rules related to this.
Each will be examined in turn.
7. The parol evidence rule
8. Even if there is a written contract, parties may claim there are other terms
in the contract, perhaps ones in another document, or ones from an oral
agreement.
9. The starting point for a court determining whether a written term is a term
or a misrepresentation is that it will be a term, and the only term. The case
of Henderson v
10. Arthur [1907] 1 KB 10 is authority for this point. Claims pointing to other
documents or oral agreements will usually be ignored. This is known as the
‘parol evidence’ rule.
11. It should be noted that there will be circumstances in which other
documents or oral agreements can form terms, but this is the initial starting
point for the courts when faced with terms reduced to writing. One such
rebuttal to this can be found in J. Evans & Son
12. (Portsmouth) Ltd v Andrea Merzario [1976] 1 WLR 1078. If the contract was
intended to be partly written and partly oral, the parol evidence rule will not
apply. To this effect, the courts will look at the conduct of the parties from
the start to the end of the contract formation.
13. Exam consideration: Can you think of some example of conduct which may
mean that oral evidence is allowed and the parol evidence rule would be
displaced?
14. Collateral contracts
