THE TERMS OF THE CONTRACT

THE TERMS OF THE CONTRACT. The contents of a contract are known as terms or clauses. The contract terms may be express or implied and may be classified as conditions, warranties, or innominate terms. First, the terms of a contract will be distinguished from representations, which are statements made by one party to the other that are not intended to be an integral part of the agreement..

Similarly, collateral warranties, which are preliminary assurances that are contractually binding, but not as part of the principal agreement, will be distinguished from representations that are not contractually binding. Secondly, the importance of different types of terms will be examined by reference to the distinction between conditions, warranties and intermediate terms. Thirdly, the implications of contractual terms will be explored..

A contractual term can be defined as ‘Any provision forming part of a contract’. Each term gives rise to a contractual obligation and a breach, which can lead to litigation. Not all terms are expressly stated, but some carry less legal gravity because they are peripheral to a contract's objectives. An agreement will generally consist of various terms. Even the simplest contracts will have terms. The main terms are generally the price paid and the subject matter of the contract, e.g., the goods or services provided..

It is common for businesses to have standard-form written terms, which can be quite lengthy. It is not required that terms be written in simple contracts, although writing is required in certain types of contracts, e.g., contracts for the sale of land, mortgages, and consumer credit agreements. Where a contract is formed orally, it may be difficult to establish which statements made in negotiating the contract amount to terms and which statements are merely representations..

Terms and Representations. During negotiations leading to the conclusion of a binding agreement, one or other of the contracting parties may make a statement or give an assurance calculated to produce in the mind of the other party a belief that facts exist which render the proposed bargain advantageous to the interests of the other party. A Court may later have to decide whether this statement or assurance formed part of the contract, or whether it was merely a ‘representation’ or inducement, in the sense that the party making it did not undertake to make it good. Although a representation which proves to be false renders the agreement voidable at the suit of the party misled, (intended to have a legal effect) and may, if made fraudulently or negligently, give rise to damages in tort; nevertheless, it cannot of itself give rise to an action for breach of contract..

If a statement is a term of a contract, it creates rights and obligations, the breach of which would give rise to an action. If a statement is a mere representation, it cannot give rise to an action for breach of contract even if it turns out to be false, except if it was made fraudulently or negligently in certain circumstances. Bisset v Wilkinson Privy Council (1927) AC 177; 96 LPJC.

The respondent purchased from the appellant two plot of land in New Zealand for the purpose of sheep farming. During the negotiations, the appellant told the respondent that if the place were worked properly, it would carry 2,000 sheep. The respondent, it was admitted, bought the place believing that it would carry two thousand sheep, as both parties were aware, the appellant had not, and, so far as appeared, no other person had at any time carried on sheep-farming on the land. In an action for rescind for misrepresentation, Sim J said:.

In ordinary circumstances, any statement made by an owner who has been occupying his own farm as its carrying capacity would be regarded as a statement of fact… this however, is not such a case… In these circumstances, the defendant was justified in regarding anything said by the plaintiff as to the carrying capacity as being anything more than an expression of his opinion on the subject..

Silence and Misrepresentation. The general principle that there is no obligation to speak during negotiation for an ordinary commercial contract is one of the foundations of our law of contract. There are countless cases in which one party to a contract has, in the course of negotiations, failed to disclose a fact known to him which the other party would have regarded as highly material if it had been revealed. However, ordinarily in the absence of misrepresentation, our law leaves that other party entirely without remedy..

Wales v Wadham. On February 15 1973, Wales and his wife reached a compromise agreement under which he would pay her 13,000 pounds out of his half-share of the proceeds from the sale of their matrimonial home if she would not make any further claims for maintenance. The agreement was embodied in a consent order made on July 6, granting a decree nisi to the wife. Wales sought to rescind the agreement on the ground, inter alia, that he would not have entered into the agreement on Feb 15 had he known that his wife then intended to remarry. The agreement was intended to commute his liability for periodical payments, a liability he would never have had. She had stated on several occasions in 1971 that she would never remarry. She did not reveal her intention to marry Mr Wadham because she did not wish him to be involved in the divorce proceedings..

Hedley Byrne & Co v Heller & Partner. Hedley Byrne was a firm of advertising agents interested in working with Easipower, a company with which they had not previously worked, so they sought a financial reference from their bank. Heller and Partner provided a satisfactory reference for Easipower, which turned out to be incorrect and inappropriate. When Hedley Byrne suffered losses due to Easipower's non-payment, it sought to recover those losses as damages against Heller and Partners. McNair J held that Heller &Partner were negligent but that they owed no duty of care and did not find it necessary to decide whether Heller was negligent. Hedley Byrne appealed. There was an actionable cause in negligence, where there is a special relationship in certain circumstances, which could give rise to a claim for purely economic loss, a special relationship where there is an assumption of responsibility. There is no contract..

To import such a duty, the representation must be normally, I think, concerned with a business or professional transaction whose nature makes clear the gravity of the inquiry and the importance and influence attached to the answer. The court held that I do not find it possible to say that a liability was assumed… I would, therefore, dismiss the appeal..

PEYMAN V LANJANI. The plaintiff entered into an agreement to purchase from the defendant the lease of a restaurant for 55,000 pounds, to be paid by the plaintiff, and to sell his house to the defendant for 32,000 pounds, the balance to be paid in cash. The defendant obtained the landlord’s consent to the assignment of the lease to him by fraud (impersonation). On February 9, when the plaintiff was reluctant to proceed with the transaction, he learned of the impersonation. The solicitor who was acting for both parties urged him to proceed with the transaction. A month later, the plaintiff consulted a new solicitor who advised that he had a right to rescind, and the plaintiff gave notice to the defendant of his intention to do so. The judge held that the plaintiff had affirmed the contract, taken possession of the restaurant and paid 10,000 pounds to the defendant. The plaintiff appealed to the Court of Appeal. The court of appeals held that the plaintiff was not deprived of his right to rescind because, despite knowing the facts that gave rise to that right, the plaintiff, an Iranian who spoke no English, did not realise he had such a right. As he did not know he had such a right, he could not be said to have elected to affirm the contract by his actions..

Classification of Terms. The terms of the contract may be expressly agreed upon by the parties either orally or in writing. In the absence of express terms, the court would imply certain terms into the contract depending on the circumstances of the case..

Multichoice (Nig) Ltd v Azeez (2010) 15 NWLR (1215)40, 50.

had been increased from N9,000.00 to N9,550.00 monthly, and the balance of N550.00 was paid by the respondent to the appellant on the 4th of October 2004. On the 1st November 2004, the respondent's service was again scrambled by the appellant, and the respondent had to travel to the appellant's office in Lagos to lodge a complaint before the service was reconnected. It is on the basis of these facts that the respondent took out a writ against the appellant..

The learned trial Judge in delivering judgment for the respondent on the 29th June 2006 found in favour of the respondent. The appellant went on appeal. One of the issues was whether the trial Judge was right in concluding that there is an implied term that the defendant-appellant ought to give notice of an increment of its subscription fee to the plaintiff-respondent, and if a breach of such term is material to the contract to warrant the award of damages. From the entire evidence before me. it is implied in the contract between the parties that notice of such an increase would be given to the plaintiff/respondent.

conditions, warranties and intermediate terms. The word condition is used mainly to mean a promise in a contract of such importance that a failure to perform it entitles the other party to terminate the contract and sue for damages. In this sense, the word is contrasted with warranty, which, it will be recalled, also means a promise, but one of a subsidiary nature, the breach of which entitles the injured party to damages only and not to terminate the contract. In the case of Trans Trust S.P.R.L. v Danubian Trading Co Ltd, and Bentworth Finance Ltd v Lubert and Another (1968) 1QB. These are examples of a condition precedent because the condition must be fulfilled before the obligation exists or becomes operative..

In deciding whether a contract can be terminated for breach, or whether the breach merely triggers a right to damages, the Courts have looked at the importance of the term broken and the seriousness of the consequences of the breach. This has led to a distinction between conditions, warranties, and intermediate terms. Under one approach, reflected in the Sale of Goods Act 1979,49 the term is classified at the time the contract is made as either a condition or a warranty..

If the parties regard the term as essential, it is classified as a condition: any breach of a condition entitles the innocent party to be discharged from further performance of the contract. If the parties did not regard the term as essential, but as a subsidiary or collateral, it is classified as a warranty..

A condition is the most important term of a contract. The presumption is that the more important the term is to the contract, the more likely it is to be a condition. If a condition of a contract is breached, the aggrieved party can choose to bring all contractual obligations to an end and will have the right to sue for damages. In the case of Pousard v Spiders (1875) 1 QB 410, Pousard entered a contract to perform in a show, the terms of which included that they must attend rehearsals before performing in the show, and they must perform in the show. Pousard, the singer, failed to perform on the opening night of the show, and the court held the term to perform in the show as a condition..

In the case of Heyworth v Hutchinson [1867] LR2 WB 447 Lord Blackburn defined condition as a stipulation in a contract the breach of which may give rise to right to treat the contract as repudiated, while a warranty is defined as a stipulation in a contract the breach of which may give rise to a claim for damages but not a right to treat the contract as repudiated. [see Sale of Goods of Act 1893]. In any case, whether a stipulation in a contract is a condition or a warranty depends on the construction of the contract Sale of Goods Law of the State of Reivers. Under the Law, a condition is defined as a term which goes directly to the substance of the contract and is so essential to its very nature that its nonperformance may fairly be considered by another party as a substantial failure to perform the contract and so gives him the right to repudiate the contract in addition to a claim for damages. Section 61 (1) of the Sale of Goods law, River state.

PYM V CAMPBELL (1856) QB. The plaintiff alleged that the defendant agreed in writing to purchase a share in an invention of the plaintiffs the defendant gave evidence that they had agreed on the price at which the invention should be purchased, but first of all, they must arrange for a meeting at which the plaintiff was to explain his invention to two engineers appointed by the defendants. If they approve, the machine should be bought. At the appointed time, the defendant and the two engineers, Fergusson and.

Albernethie attended, but the plaintiff did not appear, and the engineers left. Shortly after they were gone, the plaintiff arrived. Fergusson was found and expressed a favourable opinion, but Albernethie could not then be found. It was then proposed that, as the parties were all present and might find it troublesome to meet an agreement again, a new agreement should be drawn up and signed, which, if Abernethie approved of the invention, should be the agreement, but if Abernethie did not approve, it should not be one. Abernathie did not approve of the invention when he saw it, and the defendant contended that there was no agreement. Lord Chief Justice told the jury that if they are satisfied that, before the paper was signed, it was agreed amongst them all that it should not operate as an agreement until Abernetie approved all the inventions, they should find for the defendants. Verdict for the defendants. The plaintiff appealed for a new trial on the grounds of misdirection. Erle, LJ said I think that this rule ought to be discharged. The point made is that this is a written agreement absolute on the face of it, and that evidence was shown to be conditional..

WALLIS, SON & WELLS V PRATT AND HAYNES (1910). The defendant sold to the plaintiffs by sample the quality of seed described as Common English Sainfoin seed, equal to the sample, which was delivered, and a portion of it was resold by the plaintiff as common English Sainfoin. When it came up, it was found to be not common English but giant sainfoin, a seed which is undisguisable but of inferior quality. The plaintiff reasonably and properly settled a claim brought against them by the sub-purchaser and sued to recover the amount so paid. The defendant relied on a term in the written contract, ‘seller gives no warranty, expressed or implied, as to growth description or any other matter.’ Bray J gave judgment for the plaintiff, but the Court of Appeal reversed it. Vaughan William and Fawel LJ held that the plaintiffs, having accepted and resold the seed, had put it out of their power to treat the description as common English Sainfoin, as a condition, and could treat it only as a warranty..

The decision of the Court of Appeal was revised by the House of Lords on the grounds given by Fletcher Moulton LJ. A party to a contract who has performed, or is ready and willing to perform, its obligations under that contract is entitled to the performance by the other contracting party of all the obligations which rest upon it. There are some which go so directly to the substance of the contract or, in other words, are so essential to its very nature that their non-performance may fairly be considered by the other party as a substantial failure to perform the contract at all. Now it is admitted that the vendor committed a breach of this contract by delivering seed of giant sainfoin, which is a different article of inferior value..

But the purchasers resold the goods in ignorance; this breach gave them the choice of two remedies: either rejecting the goods, thereby preventing themselves from exercising the higher right, or retaining the goods and thereby exercising the higher right. They, therefore, content themselves with suing for damages for breach..

WARRANTY. In Bettinin v Gye (1876) 1 QBD 183, the plaintiff entered into a contract to sing for the defendant for a certain period at a fixed salary. Among the terms of the contract was an undertaking that he would be in London for six days, at least, before the commencement of his engagement, for rehearsals. In fact, due to ill health, he arrived two days before his engagement commenced, and the defendant refused to go on with the contract. It was held that the term as to rehearsals was not a condition but merely a warranty, and its breach did not, therefore, operate as a discharge and could be compensated for by damages. It must be noted that the innocent party's right to rescind the contract for breach of a condition is not absolute. If he so wishes, the innocent party can waive compliance with the condition and enforce the contract, or, with knowledge of the breach, elect to affirm the contract as still binding and sue only for damages..

In Yadis (Nig) Ltd V Great Insurance Co Ltd. The appellant and the respondent entered into an insurance contract under which the appellant insured against fire, its materials in trade, in a warehouse in Lagos. Clause 8 (c ) of the insurance policy provided that if the property insured is removed to any building or place other than that in which it is herein insured, the insurance ceases to attach as regards the property affected. The appellant later moved its goods to another location and wrote a letter to inform the respondents. A month later, a fire occurred at the appellant’s new warehouse, completely destroying the insured goods. The appellant's claim was dismissed by the trial court, and its appeal was dismissed by the court of appeals and the SC. Onnoghen JSC said: It is clear that clause 8 (c ) is the condition in the insurance policy, a breach of which clearly gives the aggrieved party an excuse for non-performance of his side of the bargain or contract. The aggrieved may decide to affirm the contract after being aware of the breach of the condition if he so desires-he has the election..

INTERMEDIATE TERMS. Recent developments in contractual terms have shown that the courts are not satisfied with the traditional classification of terms into conditions and warranties. If the term is a condition, no matter how minor the breach may be, or how trivial the consequences may be, the result is the same. The innocent party is entitled to treat the contract as repudiated. The courts have therefore recognised an intermediate or innominate term, which is neither a condition nor a warranty. In this categorisation, the results of a breach of contract are not predetermined. Instead, when a breach occurs, the court will examine the nature and consequences of the breach to see whether or not it will deprive the party, not in default, of substantially the whole benefit which it was not intended that he should obtain..

In Cehave NV v Bremer Handelsgesellschaft mbH (1976) QB 44, the defendants sold citrus pulp pellets to the plaintiffs. The contract term was ‘shipment to be made in good condition’. The goods were not delivered all at once, and when a particular consignment was delivered, it was found that 1,260 tons of the goods, out of a total consignment of 3,293 tons, were damaged. The plaintiff rejected the whole cargo on the ground that the shipment was not made in good condition and claimed the recovery price. The English Court of Appeal held that the contractual term ‘shipment to be in good condition’ was not a condition, but an intermediate or innominate term. Lord Denning MR said: ‘If a small portion of the whole cargo was not in good condition and arrived a little unsound, it should be met by a price allowance. The buyers should not have the right to reject the whole cargo unless it was serious or substantial.’.

These intermediate or innominate terms are different from conditions, in that breach does not of itself give rise to a right to rescind the contract, and from warranties, in that the remedy of the party not in default is not even prima facie restricted to damages-he can rescind if it is serious or substantial. Thus, Lord Denning MR distinguished between the three categories of terms: A condition, in which case any breach would justify repudiation; A warranty, in which case a breach could not possibly justify repudiation but damages only; An intermediate term, in which case the remedy for any breach would depend upon the nature of the breach rather than the status of the term..

EXEMPTION OR EXCLUSION CLAUSE. Exclusion or exemption or exception clauses are terms which exclude or limit, or purport to exclude or limit a liability which would otherwise arise at common law, or by statute or under the terms of a contract. Such a clause may imply terms of a contract, but the effect of these clauses is not confined to contractual liability. Duties imposed by the common law or by statute may sometimes be excluded by the terms of a contract or, indeed, by a notice not having a contractual effect. The common law bailment imposes duties on the bailee to take proper care of the goods, but this duty may be restricted or excluded by a contract or notice accompanying the bailment..

In the SC case of Anyah v Imo Concord Hotel (1992) 4 NWLR (pt 234) 210, it was held that a hotel proprietor was not liable for a vehicle that was stolen in its premises. The rationale behind the decision was that there was no duty of care between the car owner and the hotel proprietor. The enforcement of exclusion and limitation clauses depends on various factors, such as whether the clause is part of the contract. It can either be part of the contract referred to in the contract as an appendix. This is to ensure that the other party is aware of the exclusion clause before entering into the contract. That a party failed to read the portion of a contract containing the exclusion/limitation clause despite being given the contract is of no effect..

Narumal & Sons Limited v NBTC Limited,. The Defendant contracted the plaintiff’s services to transport goods to Lagos. The goods were not delivered in good condition, and as a result, the defendant refused to pay the contract sum. The trial court held in favour of the defendant, that the plaintiff’s barges were not seaworthy, containing leakages through which the goods were damaged. In the trial court’s view, this was a material breach, and as such, the plaintiff could not rely on an exclusion clause in the contract. The SC, on the contrary opinion, held that the barges were seaworthy, thus no fundamental breach was committed. The SC went further to hold that even if the barges had been unseaworthy, the exemption clause in the contract would have availed the plaintiff. The SC further held that there is no rule of law that an exemption clause is nullified by a fundamental breach..

Curtis v Chemical Cleaning and Dyeing Co (1951) 1KB.

WRITTEN AND ORAL TERMS. It is trite that a contract need not be in writing and can be made orally. Thus, any oral or parol agreement between parties is binding and gives rise to an enforceable contract. Oshevire Ltd v Tripoli Motors (1997) 5 NWLR (Pt 503) 1 In Omega Bank (Nig) Plc v OBC Ltd (2002) 16 NWLR (Pt 794) 483 the court of appeal held that a loan contract is not required by law to be in writing and any part of it can be oral, however, if the parties had agreed orally on any particular point and later enter into a written agreement, it is part of general commercial practice to reduce the oral agreement into writing. Eke v Odolofin (1961) 1 All NLR (Pt 2) 404. It follows that where there is any disagreement between the parties to the written contract on any point, the authoritative and legal source of information to resolve that disagreement or dispute is the written contract executed by the parties. Larmie v Data Processing Maintenance & Services Ltd (2005) 12 SC (Pt 1) 93. 103..

The general principle is that where an oral or parol agreement has been reduced into writing, the best evidence of the contents of the contract is the production of the document itself. Salimatu V Biba (1975) NNLR 176. In other words, where the parties have embodied the terms of their contract in a written document, either by the requirement of law or by agreement of the parties, parole or oral evidence, which is intrinsic to the document, is generally inadmissible to contradict, alter, vary, add to or subtract from the contents of the document. This rule, generally known as the ‘parole evidence rule has been codified in the Evidence Act. Section 128 (1)..

The grounds for the exclusion of extrinsic evidence commonly given are: That to admit inferior evidence when the law requires superior evidence would be to nullify the law; and That when the parties have deliberately put their agreement in writing, it is conclusively presumed between themselves and others that they intend the writing to form a full and final statement of their intention,.

In Macaulay v NAL Merchant Bank Ltd (1990) 4 NWLR (Pt 144) 283 The SC held that where a defendant admitted that the terms of the agreement between the parties have been reduced into writings, such a defendant cannot be heard to say that besides the written terms, there is other evidence of the terms of the agreement. In Olaloye V Balogun (1990) 5 NWLR (Pt 148) 24 The SC also held that once there is a document evidencing the sale of land, the oral evidence of the sale would be excluded, and the question as to what land was sold has to be settled by reference to the document.

In Union Bank of Nigerian Ltd v Ozigi (1994) 3 NWLR (Pt 333) 385 the SC reiterated the general rule that where the parties have embodied the terms of their contract in a written document, extrinsic evidence is not admissible to add to, vary, subtract from or contradict the terms of the written instrument. Thus in Oloko v Ube (2004) 17 NWLR (Pt 903) the court of Appeal held that oral evidence may be admitted to prove fraud, mistake of fact or law or any other matter of which, if proved, would produce any effect upon the validity of any document or any part of it which would entitle any person to any judgment, decree or order relating thereto, accordingly, oral evidence was allowed to show that fraud or mistake of fact was perpetrated in the execution of signing of the loan agreement by the appellant..

IMPLIED TERMS. An implied term is a stipulation in a contract that, although not expressly stated by the parties, is deemed to be part of the contract by the operation of law. It is a term, though tacit, that is part of the contract the parties made for themselves. Generally, the law recognised implied terms in various ways. In particular, a term will be implied to give effect to the presumed intentions of the parties, to enforce an established custom or usage in the trade or locality, or to give effect to a principle of law or statutory provision..

Thus, there are three categories of implied terms. These are terms implied by the court, by custom and usage, and by law or statute. We examine the terms one after the other.

TERM IMPLIED BY THE COURT. The court will imply a term into a contract, under the doctrine of the implied term, if it was the presumed intention of the parties that a particular term should have been part of the contract, but they omitted to state it expressly. In implying a term into a contract, the exercise is to ascertain the presumed intention of the parties, as gathered from the words of the agreement and the surrounding circumstances..

Thus, the object sought to be achieved in construing any agreement is to ascertain what the mutual intentions of the parties were as to the legal obligations each of the parties assumed by the contractual words in which they sought to express them. That object also translates into a duty on the court to ascertain the presumed intention of the parties as regards their agreement. Mobile Producing (Nig) Ltd v Umenweke (2002) 9 NWLR (Pt 773) 543, 556 In order to ascertain the intention of the parties to a contract, the court applies two objective tests: the officious bystander test and the business efficacy test.

OFFICIOUS BYSTANDER TEST. The officious bystander test as laid down by Mackinnon LJ IN Shirlaw v Southern Foundries Ltd (1926) [1939] 2 KB 206. It is to the effect that, prima facie, what any contract is left to be implied and needs to be expressed is something so obvious that it goes without saying; so that if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common ‘oh, of course’. In other words, it is something so clear that the parties did not trouble themselves to state it in their contract.

Facts Shirlaw was appointed managing director of Southern Foundries (SF) for a fixed term of ten years. SF was taken over by another company that altered the pre-existing articles of association, empowering two directors and a secretary to remove a director, irrespective of the terms of his contract. Shirlaw was sacked before the expiration of the fixed term, and he brought a claim for damages for breach of contract..

Issues The company contended that it was empowered to amend its articles of association under s. 10 Companies Act 1929. The new articles had been appropriately adopted, and the new procedures correctly followed. Given the statutory right to alter articles, it would be inappropriate for a court to interfere with the company’s right to do so. Shirlaw argued that his employment contract was for a fixed term of 10 years, and that the articles could not amend it. He argued there was an implied term of the contract that the company would not amend its articles in a way which would be detrimental to him..

Decision / Outcome Shirlaw successfully recovered damages for breach of contract. It was an implied term of his employment contract that he would not be removed from his role during the fixed ten-year period. The company could not be prevented from altering its articles of association, but it may be liable in damages if it amends the articles so as to prejudice a contract validly made prior to the amendments..

BUSINESS EFFICACY TEST. The court will imply a term into a contract, from the presumed intention of the parties, with the object of giving ‘business efficacy’ to the transaction. As Bowen LJ puts it, ‘business transaction such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as may have been intended at all events by both parties who are businessmen’. The Moorcock [1889] 14 PD 64, 68.