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

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

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: Oscar Chess v Williams [1957] 1 WLR 370. 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

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

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

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

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

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

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

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.

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.

Express and Implied Terms Quiz

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

1 / 12

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

2 / 12

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

If it would cause considerable injustice otherwise

If consideration is provided for the oral variation

Never

Always

3 / 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?

4 / 12

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

By asking objectively what a reasonable bystander would take the term to mean

By looking for unity in the party's subjective understandings

By interpreting the contract according to the literal meaning of its words

5 / 12

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

If an officious bystander would think it obvious that the parties would have agreed to the term if asked

Where the term is necessary for a contract of a defined type

If the term is necessary to give the contract the business efficacy intended

If an officious bystander would think that the term was an obviously fair one to include

Where it is fair, just and equitable to include the term

6 / 12

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

7 / 12

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

The parties' subjective intention

The subjective importance of the statement to the other party

The fact that the other party's own checks seemed to affirm the statement

The objective importance of the statement to the other party

The superior knowledge of the statement-maker

The statement-maker indicated that the other party could rely on it

8 / 12

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

A reasonable person in the parties' position would be unaware of the subject matter of the proposed term

A reasonable person would not think the term was a fair, just or equitable one to include

The express terms of the contract appear to cover the situation

The term causes a severe imbalance in the parties' rights and obligations

There are strong policy reasons for not including the term

What the term should be is unclear

There is precedent indicating that the term should not be implied

9 / 12

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

Background knowledge reasonably available to the parties at the time of contracting

The parties' post-contractual conduct

The parties' pre-contractual negotiations

10 / 12

What is the parol evidence rule?

Extraneous evidence can never be admitted to contradict the terms of a written or oral contract

There is a rebuttable presumption that extraneous evidence cannot be admitted to contradict the terms of a written contract

The court cannot imply terms into a written contract

Extraneous evidence can never be admitted to contradict the terms of a written contract

11 / 12

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

The term is not a fair, just or reasonable one to include

The term causes a severe imbalance in the parties' rights and obligations

Whether the term should exist is best considered an issue for Parliament and not the courts

The express terms of the contract appear to cover the situation

A reasonable person in the parties' position would be unaware of the subject matter of the proposed term

There are strong policy reasons for not including the term

There is precedent indicating that the term should not be implied

What the term should be is unclear

12 / 12

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

If the practice is universally-used, reasonable and not contradicted by other contractual terms

If the parties agreed that the customs of their trade or industry would apply to the contract or their dealings

If the practice is universally-used and reasonable

If the practice is clearly established, notorious and reasonable

If the practice is clearly established, notorious, reasonable and not contradicted by other contractual terms

Your score is

Contract: Express Terms

Express Contract Terms

Establishing the Express Terms

The Nature of Express Terms

Express Term or Representation?

Importance

Reliance

Relative Knowledge

Interpreting Contract Terms

Rules For Interpreting Contracts

The Interpreter’s Knowledge

Exception: Previous Negotiations

Exception: Subsequent Conduct

Interpreter’s Approach

Ambiguity & Errors

Commercial Sense

Parol Evidence Rule

‘No Oral Variation’ Clauses

Special Rules in Consumer Contracts

Collateral Contracts

Like this:

Express Contract Terms

Establishing the Express Terms

The Nature of Express Terms

Express Term or Representation?

Importance

Reliance

Relative Knowledge

Interpreting Contract Terms

Rules For Interpreting Contracts

The Interpreter’s Knowledge

Exception: Previous Negotiations

Exception: Subsequent Conduct

Interpreter’s Approach

Ambiguity & Errors

Commercial Sense

Parol Evidence Rule

‘No Oral Variation’ Clauses

Special Rules in Consumer Contracts

Collateral Contracts

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