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Terms of a Contract

IV. Terms of a Contract

 

The terms of a contract define the rights and duties of the parties arising under the con­tract.

 

Terms may be expressly agreed by the contracting parties of implied by the courts or by statutory legislation.

 

1.Express Terms

 

Express terms are those specifically mentioned and agreed by the contracting parties at the time when the contract is made,whether it is done in writing or verbally.

 

(1)Conditions and Warranty

 

Contractual terms, oral or written, differ in importance and may be further classified into conditions and warranties. A condition is an important term which goes to the root of the contract , so that its non - observance will frustrate the main purpose of the contract. Breach of a condition will give the innocent party a right to rescind or repudiate the contract. However,the innocent party may on his own volition, elect to go on with the contract.

 

A warranty is a less important contract term, breach of which will only give the innocent party the right to sue for damages but not to treat the contract as discharged.

 

Many express terms are difficult to classify so neatly in advance at the time when the con­tract is made and they can only be classified by reference to the nature of the breach. A minor breach of the term might only be a breach of warranty, whereas a serious breach or a breach which has serious consequence might be a breach of condition. Both conditions and warranties are terms in condition or a warranty having regard to the intentions of the parties. The significance lies in the remedy in the event of breach.

 

(2)The  Parol  Evidence  Rule

 

Apparent agreement by Professors Williston and Corbin, except as noted, on the rules stat­ed above conceals real conflict. The battleground upon which they express disagreement is a major one;the concept of total integration. This,of course,is the area in which most of the cases arise. Both assert that the existence of a total integration depends on the intention of the par­ties. .. It appears,however,that in this context they use the term" intent" in ways that are re­markably dissimilar. A typical fact situation will illustrate this. A agrees to sell and B agrees to purchase Blackacre for $10,000. The contract in writing and in all respects appears complete on its face. Prior to the signing of the contract A,in order to induce B’s assent,orally promise him in the presence of a number of reputable witnesses that if B will sign the contract, A will remove an unsightly shack on A’s land across the road from-Blackacre. May this promise be proved and enforced? This depends upon whether the writing is a total integration.

 

Williston argues that if the intention to have a total integration were to be determined by the ordinary process of determining intention, the parol evidence rule would be emasculated. He

 

 

points out that the mere existence of the collateral oral agreement would conclusively indicate that the parties intended only a partial integration and that the only question that would be pres­ented is whether the alleged prior or contemporaneous agreements were actually made. This would be a question of fact for the jury, thus eliminating the special protection which the trial judge should afford the writing.

 

[Williston therefore suggests that] where the writing appears to be a complete instrument expressing the rights and obligations of both parties, it is deemed a total integration unless the alleged additional terms were such as might naturally be made as a separate agreement by par­ties situated as were the parties to the written contract.

 

Professor Corbin has an easy task in demolishing the Willistonian approach. In treating the matter of integration as a question of intent, as Professor Williston purports to do, he shows the absurdity of excluding all relevant evidence of intent except the writing itself. But... Williston, and [ courts that follow his view] are unconcerned about the true intention of the parties. Rath­er, shorn of rote language of fiction indicating a search for intention, they are advocating and ap­plying a rule of form. Since (and even before) the common law had its genesis, there has been a deeply - felt belief that transactions will be more secure, litigation will be reduced, and the temptation to perjury will be removed, if everyone will only use proper forms for his transac­tions. The Statute of Wills and the Statute of Frauds are but examples of this belief. Professor Corbin,by attacking the apparent arguments of Williston’s position has not expressly come to grips with the substance of his position. This is not to suggest that either he or Professor Willis­ton have been unaware of the true nature of their disagreement. Rather, they seem for the most part to have been content not to make explicit the basis of their differing views.

 

The debate involves the question; is the public better served by giving effect to the parties’ entire agreement written and oral, even at the risk of injustice caused by the possibility of perju­ry and the possibility that superseded documents will be treated as operative, or does the securi­ty of transactions require that, despite occasional injustices, persons adopting a formal writing be required, on the penalty of voidness of their oral and written side agreements, to put their entire agreement in the formal writing.

 

(3)Certainty of Terms

 

A contract will be void for uncertainty unless the parties make their contract in terms which are certain.

 

Moreover,there cannot be a contract to make another contract. The parties cannot,in other words,reach an agreement to keep in the future. The parties must agree on the terms which are definite or capable of being made definite without further agreement.

 

However, if the parties have agreed a procedure whereby the terms could determine either by conferring on a court of law or an arbitrator the power to fill in a term in their agreements, then the contract is binding.

 

If the whole contract consists of meaningless terms, the contract is void. However, if the meaningless terms are secondary, the contract may be held valid and the meaningless terms will be disregarded in law.

 

2.Implied Terms

 

Implied terms may be divided into three groups:

 

(1)Terms Implied in Fact

 

Terms implied in fact refer to terms which are not expressly set out in the contract, but which the parties must be intended to include.

 

One test for the implication of a term in fact is the" officious bystander" test,by which the courts decides whether, if it had been suggested at the time the contract was made that the clause should be included,the parties would have readily agreed. For a term to be implied into a contract it must be obvious and essential. It is not sufficient that the term should be reasona­ble.

 

A second test for the implication of a term in fact is that of" business efficacy" ,the judge regarding himself as doing merely what the parties themselves would have done in order to cover the situation if they had addressed themselves to it, and to make these contract workable, that is to say,to give them"business efficacy. "

 

(2)Terms Implied in Law

 

Terms implied in law refer to terms imported by operation of law, although the party may not have intended to include them.

 

There are,for example,a series of rights and duties implied into contracts of agency,em­ployment and tenancy. Under a contract of employment, an employer owes an implied duty to take reasonable care for the safety of his employees, not to endanger the employees’ health and not to require to the employees to do any unlawful act;and an employee owes a duty to show good faith,to obey lawful and reasonable instructions,and not to act against the employer’s in­terest.

 

(3)Customary Implied Terms

 

A contract may be subject to customary terms not specifically mentioned by the parties. However, customary terms will not be implied if the express terms of the contract reveal that the parties had a contrary intention.

 

3.Exemption Clauses

 

Many large companies and public authorities impose conditions in their contracts exemp­ting or excluding themselves from liability for torts, particularly negligence, arising from con­tracts. The rules applicable in such situations may be summarized as follows:

 

(1)An exemption clause can be incorporated in the contract by signature, by notice or by course of dealing;

 

a.Where the terms are signed, the parties are bound as a general rule even if the plaintiff

 

has not read it;

 

b.The inserter of exemption clauses must do all that is reasonability necessary to the no­tice of the person subject to the clause or to draw his attention to it;

 

c.The conditions must be brought to the notice of the offeree either before or at the same time when the contract is made;

 

d.An exemption clause printed on a receipt is not an integral part of the contract.

 

(2)The party who wishes to rely on an exemption clause must show that the breach and loss are covered by the clause. If there is any doubt as to the scope of an exemption clause,it will be construed under the following rules:

 

a.The contra proferentem rule. If there is any ambiguity or room for doubt as to the mean­ing of an exemption clause, it will be construed against the person who puts it into the contract;

 

b.The repugnancy rule. If an exemption clause is in direct contradiction to another term of the contract,the exemption clause can be struck out;

 

c.The four comers rule. Exemption clauses only protect a party when he is acting within the four comers of the contract. Thus he is liable for damage which occurs when he deviates from contract and he would not be protected by any exemption clause.

 

3.The Control of Exemption Clauses Ordinance came into force in December 1990. It limits the extent to which civil liability for breach, or for negligence or other breach of duty, can be avoided by means of contract terms or by warning notices. The main purpose of the legisla­tion is to prevent absolute attempts to exclude liability for death or personal injury and to place limitation on unfair exemption clauses used in the course of a business.

 

The essential elements of this Ordinance are as follows;

 

a.No contract term or notice is able to exclude or restrict a person from liability for death or personal injury resulting from negligence;

 

b.For negligence causing damage other than death or personal injury,the exemption clause will only be effective if the term or notice is reasonable having regard to all circumstances;

 

c.Where a business contracts on its own written standard terms,it cannot exclude or vary its liability for breach of contract unless it can show that the exemption is reasonable;

 

d.For contracts imposing an indemnity,no person dealing as a consumer can be made to indemnify another in respect of liability incurred by the other’s negligence or breach of contract unless the contract term imposing such an indemnity is reasonable.

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