Contract Law

Chapter 1
 Formation of • Definition
contracts • Components of a contract

• Contract terms: express and implied

Contractual terms
• Exclusion clauses

Breach of contract • Breach of contract

and its associated
• Damages’ payment
remedies

Contract law includes:

• Unit 2  Components of a contract
• The requirements to be able to enter into a contract are
• CAPACITY and CONSENT
• And then in order to be valid a contract needs to have an
• OBJECT and a CAUSE

PREVIOUSLY IN
BUSINESS LAW…
• We are going to try and identify the express and implied
terms of a contract…
• Then we will study the extent of exemption clauses

UNIT 3 – Contractual
terms
• What is a term and what are the different kinds of terms in
a contract?
• A contractual term can be defined as ‘Any provision forming
part of a contract’.
• Each term gives rise to a contractual obligation and breach of
which can give rise to litigation.
• All terms are not stated expressly
• Generally, the terms of a contract may be either: oral, written,
partly oral and partly written
• Terms are to be distinguished from statements – some
statements can become a term of the contract

Express and implied

contractual terms
• Express terms can be defined as the oral or written terms
that have been specifically mentioned and agreed upon by
both parties at the time of making a contract,
• Implied terms are terms that have not been mentioned by
either party at the time of making a contract but that will
nonetheless be included in the contract, often because the
contract does not make any sense without them

Definitions:
• Oral statements are expressions and representations made
during the negotiations prior to the conclusion of
contracts,
• When does the STATEMENT become an express term of
a contract?
• We have to analyze 4 elements of the statement:

From STATEMENTS to
EXPRESS TERMS
• 1 Importance of the statement
• If the statement is so important that a party would not
otherwise have entered into the contract, the statement is
likely to be viewed as a term
• 2 Timing of the statement
• Generally, the more time lapses between the making of the
statement and the conclusion of contract, the less likely is
the statement going to be considered a term of contract
• 3 Writing of the statement
• When the contract is drafted and becomes written, previous
spoken terms which are not included in the writing are
considered representations
• 4 Knowledge and Expertise of the parties
• If the statement is made by a party with special knowledge
and expertise on the contract matter, courts are more likely
to deem statement as a term than if that statement is made
by someone without such expertise (Example: a mechanic
selling a car)
• If the contract is put down in writing, any statement
appearing in that written agreement will be regarded as a
term,
• Prior oral statements that are not in the written agreement
will be regarded as a representation, due to the
assumption that if a statement is left out of a written
agreement, the parties did not view the statement as
important,
• Signature will usually make it difficult to argue that the
written terms of the agreement do not represent what they
have agreed

Written contract
• When does the written text become part of terms of an oral
contract?
• When the text is written and incorporated to the contract before
the contract is concluded,
• Such incorporation can be proved by signature, reasonable notice,
usual course of dealing, and/or shared understanding of parties
• The more expensive or unusual the written clause the harder it is
to incorporate written terms to an oral contract,
• In assessing the extent to which a clause can be unusual or
expensive, the “meaning and effect of the clause in question” must
be analyzed not the kind or type of clause

Written terms
• When interpreting contractual terms, courts attempt to
determine objectively the intention of parties.

• Courts must look for “the meaning which the document

would convey to a reasonable person having all the
background knowledge which would reasonably have been
available to the parties in the situation in which they were at
the time of the contract.” – Bromwich Building Society
(1998)

• Traditionally, courts have been reluctant to take account of

background material.

Interpretation of express
terms
• Where a contract is drafted in writing, neither party can submit
external evidence to the contractual document alleging terms agreed
upon but not contained in the document
• There are however exceptions to this rule:
• Demonstrated intention that the agreement was only partially written:
• If the written document was not intended to set out all of the terms agreed
between the parties, other terms can be admissible. Courts tend to infer
such an intention (ex: car sale model contract that you buy in library).
• Rectification:
• If the document is intended to record previous oral agreement but does not
do so accurately, evidence of oral agreement is admissible.
• Proof of custom or trade usage:
• Evidence may be admitted to prove a custom or trade usage that would
determine the interpretation of a term

Interpretation of express
terms: Parole evidence rule
• Entire agreement clauses: These clauses state that the
written contract contains the entire agreement. They are
aimed at preventing one party subsequently claiming that
an earlier statement is also part of the written agreement.
• These will be upheld by the courts but do not exclude
liability for misrepresentation by one of the parties
• Significance of wording: Where possible, words are to
be given their natural and ordinary meaning. Nowadays,
many contracts are drafted with the definitions of all the
technical words.

EXCEPTIONS
• There are four categories of implied terms:
• 1. Implied by fact
• 2. Implied by law
• 3. Implied by custom
• 4. Implied by trade usage

Implied Terms
 • These are terms that courts assume both parties would have
intended to include in the contract had they thought about the
issue. They are implied on a “one-off” basis.
• Two tests have been used to ascertain parties’ intention:
• Officious bystander test: “if, while the parties were making the
transaction, an officious bystander were to suggest some express
provision for it in the agreement, they would testily suppress him
with a common “Oh, of course!” (ex: does this functioning car
have four wheels?)
• Business efficacy test: terms must be implied to make contract
work  Would the contract make business sense without it?
• Both tests are subjective in the sense that they ask what the
parties of the contract would have agreed, not what a
reasonable person in their position would have agreed.

Terms implied by fact

• These are terms which the law requires present in certain
types of contracts (i.e. not just on “one-off” basis and
sometimes irrespective of the wishes of the parties):
• Contracts of employment in Tunisia will include implied
term that employer will give a departing employee a job
reference (attestation de travail - Convention Collective
Cadre, art. 21)
• Statutes will also imply terms: Sale of goods to
consumers will have implied term that goods are “of
satisfactory quality” (Sale of Goods Act 1979 s. 14(2))

Terms implied in law

• Custom: Terms can be implied if there is evidence that under
local custom they would usually be present.
• For example, when contracting a plumber, there might be an
implied term that they will bring their own tools, as this is standard
practice in the industry.
• Trade usage (or past dealings): Terms routinely used in
contracts within a particular trade or business may be implied
into other such contracts.
• Keep in mind that the threshold for these requirements is high!
(the parties deal with each other all the time or very often)

Terms implied by custom

and trade usage
• Any professionally drafted contract is very likely to
contain some provisions which either restrict or exclude
the liability of one or both parties for breach.
• If events occur which cause such a clause to be relied
upon, there are often arguments as to whether or not the
clause has been incorporated as a term, or whether the
events are covered by the clause.

EXEMPTION CLAUSES
• In the modern world the need for efficiency and economy
has led to a huge increase in the use of standard form
contracts. Such contracts are uniform printed documents
which generally have to be accepted by those who deal
with large-scale organizations or companies,
• They are convenient and save time, but put the individual
at a disadvantage - it is difficult to change the terms and
almost impossible to avoid using them.

STANDARD FORM
CONTRACTS
• Common examples are insurance policies: In these sorts
of contract the parties are not of equal power and there is
a risk that exploitation of consumers by large commercial
entities or strong insurance companies may occur.
• Courts recognized this danger early on and applied strict
interpretative techniques to clauses, especially
exemption clauses, which seemed to benefit the stronger
party at the expense of the weaker.
• INCORPORATION
• As with all express clauses, an exemption clause can be
incorporated into a contract by signature, notice or course
of dealing

Exemption clauses
conditions
• In general a person who signs a document is bound by its
terms even if he or she did not read them:
• where a person of full age and capacity signs a contractual
document, that person is bound by it whether it has been
read or not.

Signature
• There are three requirements for the validity of
exemption clauses:
• Timing : notice of the terms must be given before or at the
same time when the contract is concluded
• Contractual document: the document containing or referring
to the the exclusion clauses must have been intended to
have contractual effect
• Notice must be reasonable: reasonable steps must have
been taken to bring the terms to the attention of the other
party.

NOTICE
• BREACH OF CONTRACT AND
• REMEDIES
• …and that will be the end of Contract Law

NEXT WEEK IN BUSINESS

LAW…