Contract: Express Terms

Express Contract Terms

Establishing the Express Terms

The Nature of Express Terms

A contract can contain a mixture of oral and written terms. However, not every oral statement or promise is a term of the contract: some oral statements are merely representations. This is significant because there can be no action for breach of contract if a mere representation is broken. However, there might be an action in misrepresentation.

Express Term or Representation?

An oral term forms part of the contract if, in all the circumstances, it objectively appears as if the parties intended it to be part of the contract: Heilbut, Symons and Co. v Buckleton [1913] AC 30. The subjective intention of the parties is not relevant: Oscar Chess v Williams [1957] 1 WLR 370. The relevant perspective is that of a reasonable bystander.

Factors which are relevant to what the reasonable bystander would conclude include: 

Importance
Importance, trophy

If it was objectively apparent to both sides that the statement was very important to one party, it is likely that the statement is a term of the contract: Bannerman v White (1861) 10 CBNS 844.

Reliance
Reliance, friends climbing together

If the party making the statement indicates that the other party can rely on it, that statement is more likely to be a contract term: Schawel v Reade [1913] 2 IR 81. If, by contrast, the party tells the other to conduct their own checks (or it is customary to do so), the statement is likely a representation: Ecay v Godfrey (1947) 80 Lloyd’s Rep 286.

Relative Knowledge
Relative knowledge, old books

If it is clear that the party making the statement has better knowledge than the other or is in a better position to know, then it is more likely that the statement is a contract term: Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623.


Interpreting Contract Terms

Rules For Interpreting Contracts

The courts determine the meaning of a contract term by assessing what it would mean objectively to the reasonable bystander: Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28. The following principles apply when using this test:

The Interpreter’s Knowledge
Knowledge, books, TV and radio

The reasonable bystander has ‘all the background knowledge which would reasonably have been available to the parties in the situation they were in at the time of the contract’:  Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28.

Exception: Previous Negotiations
Negotiating on the phone

However, the reasonable bystander does not know the previous negotiations of the parties or their subjective intents: Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28.

Exception: Subsequent Conduct
Conduct, walking away

 The reasonable bystander also do not know anything about the parties’ conduct after entering into the contract: Schuler AG v Wickman Machine Tools Sales Ltd [1974] AC 235. 

Interpreter’s Approach
Knowledge, context, question mark

Interpreting a contract is not about determining its literal meaning. The contract’s wording must be interpreted in context using all relevant background knowledge that might affect the words’ meaning: Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28.

Ambiguity & Errors
Literal writing

While it may be reasonable to assume that parties intend what their words literally mean, the fact that they must be interpreted in context means that the courts may conclude that the parties used the wrong words, syntax or language: Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28.

Commercial Sense
Commerce, business, skyscraper

If the literal wording makes no sense in light of commercial practice, then it is possible the parties intended something different: Schuler v Wickman Machine Tools Sales [1974] AC 235. This should not be assumed in all cases where the term is unfair or commercially inefficient, however: Charter Reinsurance v Fagan [1996] 3 All ER 46.

Parol Evidence Rule

If there is a written contract, there is a presumption that extraneous evidence cannot be admitted to add to, vary or contradict the terms in that written document: Jacobs v Batavia and General Plantations Trust [1924] 1 Ch 287. Essentially, the parties are presumed to intend the written contract to be the final and complete deal.

This presumption can be rebutted, however: Gillespie Bros & Co v Cheney, Eggar & Co (1896) 2 QB 59. The presumption also does not stop terms being implied using the normal approach: Hutton v Warren (1836) 1 M & W 466.

‘No Oral Variation’ Clauses

If the written contract contains a term which states that the contract cannot be varied by oral terms, an oral statement cannot vary the contract: Rock Advertising v MWB Business Exchange Centres [2018] UKSC 24. 

Special Rules in Consumer Contracts

If the contract is between a trader and a consumer, and a term could have multiple different meanings, the court must select the meaning which is most favourable to the consumer: Consumer Rights Act 2015, s 69. This does not apply in injunction cases.


Collateral Contracts

If a statement is not a term of the main contract, it might still be a collateral contract. This might be the case if the statement can be interpreted as a promise to provide or guarantee something if the other party enters into the main contract: Heilbut, Symons and Co v Buckleton [1913] AC 30.

However, since a collateral contract is separate from the main contract, all the normal requirements of contract formation must present. Whether the other party has provided consideration for the statement is often an important issue for collateral contracts.


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Express and Implied Terms Quiz

Test yourself on the principles governing express and implied contract terms.

1 / 12

When interpreting an express term of the contract, what information may the court take into account?

2 / 12

When will the courts imply a customary term into a contract?

3 / 12

What factors indicate that an oral statement is a term of the contract? (Three answers)

4 / 12

What is the parol evidence rule?

5 / 12

The courts may imply terms in law into custom, specialised contracts. True or false?

 

6 / 12

Which three factors indicate that a court should not imply a term in fact?

7 / 12

If the written contract contains a 'no oral variation' clause, in what circumstances can the contract be altered by oral statements?

8 / 12

If the literal wording of an express term does not make commercial sense, the courts will intervene to make it more commercially efficient. True or false?

 

9 / 12

When will the courts imply a term into a contract in fact? (Two answers)

10 / 12

When the courts imply a term in law, they are seeking to give effect to the parties' intentions. True or false?

 

11 / 12

Which four factors indicate that a court should not imply a term in law?

12 / 12

How do the courts determine the meaning of an express term of the contract?

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