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4.1.3 Terms of a Contract Lecture – Hands on Example

The following section will test your knowledge of terms in the context of contract law – what they are, how they are implied into contracts, and the different ways in which they can be classified. After studying the previous sections, you should have the ability to identify the issues in these questions and apply the law appropriately. The answers for the questions can be found at the very bottom of this page.

A question involving the terms of contract can usually be identified by there being some kind of breach in a contract, and there is a question as to whether the term breached has been successfully incorporated into the contract, from this point, there can be questions of the classification of the term. The below example should allow you to get a general idea of how questions involving terms of a contract may appear.

When addressing an issue involving the terms of a contract, this would be a recommended approach.

  • Is the statement a puff, a term, or a representation?
  • Has the term been successfully incorporated into the contract?
  • Is the term express or implied? If implied, how has it been implied?
  • What type of term is it?
  • What does this mean for the breach of the term?

This step-by-step approach will cover all of the issues and ensure you do not miss one. You will need to have knowledge of the relevant legal principles and relevant cases once you manage to identify the issues.

Scenario

John repairs computers for a living, and also sells various computers and related electrical goods. He has recently formed a number of contracts which he needs some legal advice on. For his repair service, he has a fixed contract which he issues to the customer at the time the contract is made.

  1. James has had his computer repaired by John, and is angry about two things. Firstly, outside the shop, there is a sign which says “get your computer running faster than it ever has before!” and James claims his computer is not as fast as it was when he purchased it after the repair.

Is there a claim James could have here?

  1. Secondly, James enquired about which operating system John would install on the computer, as he has “no clue what they are and how they work”. John told James that the best operating system there is, Doors 10, which was worth £1,000, would be installed on his repaired computer. James later finds out that Doors 98 has been installed instead, which is free from the Doors website.

Is this statement a term or a representation? What is the significance of this differentiation?

  1. The term stating Doors 10 will be installed with all repairs is found in the standard repair terms and conditions document. When James made the contract for his computers repair, John issued him with a ticket which stated “this is a contractual document”, and included a few terms of the contract. It did not include anything about the promise to include Doors 10, but it did state “contract subject to all other standard repair terms and conditions”

Has the term been successfully incorporated into the contract?

  1. The statement “get your computer running faster than it ever has before!” is clearly a puff, and not intended to form a term of the contract. It is obvious this is an advertising gimmick and not to be taken literally. The case of Carlill v Carbolic Smoke Ball Co is good authority for this.
  1. The question of whether this statement is a term or a representation is one related to specialist skill. Clearly, in this case, it has been made clear that James has no knowledge or specialist skill in the area of operating systems, as he states “he has no clue what they are and how they work”. Therefore, as John has held himself out to have specialist knowledge of the operating system, by virtue of him working on computer repairs, this statement would be held to be a term. The case of Dick Bentley Productions Ltd v Harold Smith (Motors Ltd) would be authority for this.

The significance in this distinction is that the statement being a term means James would have a right to claim for damages automatically. If the statement was only a term, James would have to prove that John made the statement fraudulently or negligently. James would also be able to claim damages on an expectation measure, rather than only a tortious measure.

  1. The term in question has clearly not been incorporated by signature, and there is no previous course of dealings between the two, therefore it is an issue of notice. The first requirement is that the term is included in a document in which contractual terms would normally be found. A ticket would suffice, especially since the ticket clearly states “this is a contractual document” – although not conclusive, this statement along with the fact it was issued at the time of the contract means it amounts to a contractual document (Parker v South Eastern Railway)

The second requirement is, there must have been reasonable notice of the existence of the term, which means before or at the time of contracting (Olley v Marlborough Court Ltd). In this case, notice of the term was given at the time of the contract on the ticket. However, the term regarding Doors 10 was included in the standard repair terms and conditions, not in the ticket terms. The ticket terms only referred James to the standard repair terms and conditions. A referral can amount to incorporation, but only where the document is ‘readily available’ (Sterling Hydraulics Ltd v Dichtomatik Ltd). In this case, therefore, it is a question of whether those standard terms and conditions were readily available. If they were, for example, clearly stated on a poster in the shop, they would likely be incorporated. This is a question of fact and more details would be required to make a definitive decision.


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