contractual term

Definition of contractual term

Further reading

A contractual term is "Any provision forming part of a contract" Each term gives rise to a contractual obligation, breach of which can give rise to litigation. Not all terms are stated expressly and some terms carry less legal gravity as they are peripheral to the objectives of the contract.

Classification of term

Condition or Warranty

Conditions are terms that go to the very root of a contract. Breach of these terms repudiates the contract, allowing the other party to discharge the contract. A warranty[2] is less imperative than a condition, so the contract will survive a breach. Breach of either a condition or a warranty will give rise to damages.

It is an objective matter of fact whether a term goes to the root of a contract. By way of illustration, an actress's obligation to perform the opening night of a theatrical production is a condition, whereas a singer's obligation to perform during the first three days of rehearsal is a warranty.

Statute may also declare a term or nature of term to be a condition or warranty. For example, the Sale of Goods Act 1979 s15A provides that terms as to title, description, quality, and sample (as described in the Act) are conditions save in certain defined circumstances.

Innominate term

Lord Diplock, in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, created the concept of an innominate term, breach of which may or not go to the root of the contract depending upon the nature of the breach. Breach of these terms, as with all terms, will give rise to damages. Whether or not it repudiates the contract depends upon whether legal benefit of the contract has been removed from the innocent party. Megaw LJ, in 1970, preferred the use of the classic categorising into condition or warranty due to legal certainty. This was interpreted by the House of Lords as merely restricting its application in Reardon Smith Line Ltd. v Hansen-Tangen.

Status as a term

Status as a term is important as a party can only take legal action for the non fulfillment of a term as opposed to representations or mere puffs.

- Statements

Legally speaking, only statements that amount to a term create contractual obligations. Statements can be split into the following types:

• Puff (sales talk): If no reasonable person hearing this statement would take it seriously, it is a puff, and no action in contract is available if the statement proves to be wrong. It may also be referred to as "puffery". This is common in television commercials.
• Representation: A representation is a statement of fact which does not amount to a term of the contract but it is one that the maker of the statement does not guarantee its truth. This gives rise to no contractual obligation but may amount to a tort, for example misrepresentation.
• Term: A term is similar to a representation, but the truth of the statement is guaranteed by the person who made the statement therefore giving rise to a contractual obligation. For the purposes of Breach of Contract a term may further be categorized as a condition, warranty or innominate term.

- Determination of nature of a statement

There are various factor that a court may take into account in determining the nature of a statement. These include:

• Timing: If the contract was concluded soon after the statement was made, this is a strong indication that the statement induced the person to enter into the contract. Lapse of a week within the negotiations of a car sale was held to amount only to a representation in Routledge v McKay
• Content of statement: It is necessary to consider what was said in the given context, which has nothing to do with the importance of a statement.
• Knowledge and expertise: In Oscar Chess Ltd v. Williams, a person selling a car to a second-hand car dealer stated that it was a 1948 Morris, when in fact it was a 1939 model car. It was held that the statement did not become a term because a reasonable person in the position of the car dealer would not have thought that an inexperienced person would have guaranteed the truth of the statement.
• Reduction into Writing: Where the contract is consolidated into writing, previous spoken terms, omitted from the consolidation, will probably be relegated to representations. The old case of Birch v Paramount Estates Ltd. provided that a very important spoken term may persist even if omitted from the written consolidation; this case concerned the quality of a residential house.

The parol evidence rule limits what things can be taken into account when trying to interpret a contract. This rule has practically ceased operation under UK law, but remains functional in Australian Law.