LAW OF CONTRACT

CONTENTS OF CONTRACT
 CONTENTS/TERMS OF CONTRACT
INTRODUCTION
A Person enters into a restaurant and simply says, “a cup of tea, please” a waiter or the business proprietor
accepts the offer and a contract comes into existence.
Question: With your knowledge of Terms of contract explain what the sentence in the quotation means and
what are the things that has not been said but expected?
•When parties contract, they exchange promises and certain rights and obligations arise out of the exchange of
promises. These rights and obligations are the terms of the contract. The terms may be express or implied.
•Contents or terms of contract refers to the scope of obligations assumed by the contracting parties. This
involves the consideration of various factors by the court with the aim of ascertaining the intention of the
contracting parties. Thus apart from the express terms, written or oral, it may be necessary to imply terms
into the contract so as to give it a business efficacy.
In the above scenario, there is a contract with one express term; that tea should be provided.
In addition, how-ever, a number of implied terms are understood and taken for granted by the parties even
though not expressly stated; that the tea will be hot and freshly made, and milk and sugar will be available.
Terms such as these are implied by what is customary. If for example, Lemon tea was required, this would not
be usual and an express term stating the requirement would be necessary.
 INTRODUCTION CONT.
Some terms are regarded as fundamental terms, some are minor terms while some may be seen as lying
between the two.
In some cases also, distinction is made between the contract and mere representation.
Highlight of the sub-topics to be presented.
(a) Express Terms and Parol Evidence Rule
(b) Implied terms
(c) Terms and Mere Representation
(d) Collaterals Contracts
(e) Nature and effect of Contractual Terms
(f) Exclusion and Limitation Clause
 Express Terms and the Parol Evidence Rule
Express terms are those that are specifically mentioned and agreed upon by the parties. These consist of
oral or written statement made by the parties.
If the contract is oral, its terms or contents must be established by evidence as a question of fact. If it is
wholly in writing, the rule is that extrinsic evidence will not be admitted to contradict the written
document. This rule is known as the Parol evidence rule as stated by the court of appeal in Shettimari v.
Nwokoye
The Parol evidence rule is a contract law doctrine that prevents parties to a written contract from
presenting “extrinsic” evidence of terms in a contract that contradict, modify, or vary the terms of a
written agreement , when that written agreement is considered complete and finalized. For example, in a
dispute over the sale of a home, if the buyer and seller have signed a written contract for the sale of a
home and have written down that the sale price is #50,000,000.00 , the buyer will be barred from
introducing evidence of a discussion that he had with the seller where she agreed to sell it to him for
#40,000,000.00.
The Parol evidence rule can be simplified as “the outside evidence rule.” Parol evidence cannot be used
where there is a written contract. Parol evidence can be other written agreement, written promises, oral
agreements and discussions prior to finalising the written contract.
 Express terms cont.
However the Parol evidence rule is subject to the following exceptions (that is Parol evidence may be
admitted in the following situation):
(a) To establish lack of consensus ad idem (meeting of the mind): here the argument is that by vitue of
mistake or incapacity or misrepresentation or non- performance of a condition precedent, among
others, there is no valid or binding contract. In the case of Raffles v. Wichelhaus, where a customer
contacted a supplier for a shipment of good for October but the supplier mistakenly delivered in
December. The customer refused to make payment.
(b) To establish Custom or Usage: Parol evidence may also be admitted for the purpose of establishing
a custom or trade useage. In the case of Oyenuga v. International Computers (Nigeria) Ltd. Where
Nigerian Institute of chartered Architect (NIA) percentage of 3% was awarded to the
Plaintiff/Claimant on the basis of implied term of trade usage was upheld by the supreme court.
However, parol evidence of custom or usage will not be admitted where the effect is to contradict
the express intension of the parties.
(c) Oral and written Contract: where a contract is partly written and oral .
(d) Collateral agreement: A contract of promise to agree on the main contract.
 Express terms cont.
(e) To resolve patent Ambiguity: extrinsic evidence may be admitted to resolve an ambiguity in the
contract. Language with more than one meaning. Shettimari v. Nwokoye, where a lease agreement
was drafted but part of the written agreement contradict the intention of the lessor. A lease
agreement commenced in October, 1982 with initial payment and parties agreed that subsequent
payment be made in a year and half after the initial payment which will be March, 1984. The
content of the agreement reads “”that is about June, 1984.” The court cleared the ambiguity in this
case by stating that the intention of the party is March, 1984 as against June, 1984 written in the
contract.
 IMPLIED TERMS
Implied terms are those not specified but implied. The importance of implied terms stems from the fact
that express terms may not necessarily state every detail of the intention of the parties in entering into
the contract. Additional terms may be implied so as to meet the intentions of the parties. Example is
our first scenario (the customer who ordered a cup of tea).
Apart from the express terms, other terms may be implied into the contract to give it a business efficacy
required for a proper discharge of the contractual expectations. Such terms may be implied:
(a) where custom or trade practice indicate that such a term was intended;
(b) where a term is implied by statute;
(c) where a term is implied by the court.
(a) Terms Implied by Custom: Trade custom and usage must be taken into consideration in deciding on
the totality of the agreement between the contracting parties. The case of Oyenuga v. International
Computers (Nigeria) Ltd is a good example here. Custom will not be implied where it has been excluded
by the parties expressly or impliedly. Such custom should be an establised one. Custom cannot be
admitted to destroy the express intention of the parties but it can add to it.
 IMPLIED TERMS CONT.
(b) Implied Terms by Statute: Terms implied by statute are to be found mainly in the Sale of Goods Act.
1893 sections 12 to 15. There are five main implied conditions namely:
(a) Implied condition as to title S 12(1): a seller of goods implies by the act of sale that he has the right to
sell the goods either as the owner or as an authorised agent.
(b) Implied condition that goods sold by description will correspond with the sample as well as with the
description as contained in S. 13 of the Sale of Goods Act. Example of this are goods bought on social
media.
Section 14 of the Sales of Goods Act contains two implied conditions as follows:
(c) Implied condition as to merchantable quality and
(d) Implied Condition as to fitness for purpose
These two implied condition above provide exceptions to the general rule expressed in the Latin maxim
Caveat Emptor(Let the buyer beware)
(e) Implied condition as to sample as provided for by S.15 of the Sale of Goods Act. 1893.
 IMPLIED TERMS CONT.
(c) Implied Terms by Court: A term may sometimes be implied by the court on the ground that it is a term
which the parties would have expressly included in their contract if they had thought about it. However,
the primary function of the court is to interpret the intention of the arties as expressed in the contract
and not to write it for the. Although, a term may be implied to give the contract its business efficacy under
the circumstances where the express terms do not reveal the true intention of the parties. The case of
Oyenuga v. International Computer (Nigeria) Ltd.
Glanville williams identified the following terms that may be implied by the courts:
(a) Terms that the parties probably had in mind but did not express. It must be terms that went without
saving, a term necessary to give business sense to the contract.
(b) A term may be implied, regardless of what the parties had in mind, to achieve fairness or as a matter
of policy. According to Lord Denning, terms are implied by the court because they are just and reasonable
not because the parties had agreed to them either expressly or impliedly. For example, a term is implied
where no time is specified in the contract, that it be performed within a reasonable time.
 TERMS AND MERE REPRESENTATION
In the event of a dispute or an alleged breach of contract, it may become imperative to establish whether a
particular statement was a term of the contract or a mere representation. The distinction is imperative so as
to ascertain whether a breach of contract has been committed and if so, the appropriate remedy available.
To determine pre-contractual statement which is a term of contract or mere representation, the following
tests will be considered:
(a) At what stage of the transaction was the crucial statement made? Preliminary negotiation s are not
acceptable but there are exceptions.
(b) Was the agreement reduced to writing? If not written then it is a mere representation. This as also been
unreliable.
(c) Superior knowledge of the party: this as proved to be the most useful of the three tests. In the case of
Shawel v. Reade, the statement made by a stable owner about the horse he sold was taken to be a term of
contract. This was because the stable owner is an expert.
 COLLATERAL CONTRACTS
A Collateral contract is defined as a contract where the parties to one contract enter into or promise to
enter into another contract. It is a promise which is not a term of contract. However, without the main
contract, it properly would not have existed. In another word, a collateral contract is independent and
separate from but related to or in addition to the main contract. That there maybe a contract the
consideration for which is the making of some other contract. e.g. “if you make a contract I will give you
N100,000.00 is in every sense a contract.” To prove that an oral statement is collateral to the main contract,
it must be promissory and not a mere representation. This means that the person must have intended to
promise something and not just make an opinion or passing comment.
A collateral contract is usually a single term contract, made in consideration of the party for whose benefit
the contract operates agreeing to enter into the principal or main contract, which sets out additional terms
relating to the same subject matter as the main contract.
In the case of De Lassalle v Guildford ,the parties negotiated a lease of house. The tenant seeks an
assurance (the drain in good condition) from the landlord before signing. The terms of the lease was agreed
by both parties but the tenant refused to conclude the deal unless he receive an assurance that the drain is
in order. This assurance was held to be a collateral contract. The landlord argued that they were in order,
but it turned out that they were not in order and the Plaintiff sued. The court held that the representation
made by the landlord as to the drain being in good order was a warranty which was collateral to the lease.
 NATURE AND EFFECT OF CONTRACTUAL
TERMS
The best approach is to classify contractual terms into conditions and warranties representing major
terms and minor terms. Though there are some terms which do not fit easily into either of the two
traditional division known as Innominate or intermediate terms.
1. Conditions
This refers to a major term of the contract, breach of which will entitle the innocent party to damages
as well as to a repudiation of the contract. There may be condition precedent or condition subsequent
in a contract.
A condition precedent is a term that must be fulfilled before a contractual obligation takes effect.
There may be no contract at all until the condition is fulfilled. For example in cases involving
disposition of land, there may be a phrase “this agreement is subject to the acquisition of the
certificate of occupancy on the property on sale”
A condition subsequent is a condition which operates to terminate a party’s absolute promise to
perform. For example, a law firm hires a recent law school graduate and newly licensed attorney.
Their contract provides that the firm’s obligation to continue employment is discharged if the
employee fails to maintain her license to practice law.
 NATURE AND EFFECT OF CONTRACTUAL
2. TERMS
Warranties
A warranty is a stipulation or terms of the contract breach of which may give rise to a claim for damages
but not to a right to reject the goods and treat the contract as repudiated. Warranty is not a major term
of contract.
3. Intermediate or Innominate Terms
Intermediate or innominate terms are terms of a contract that are in limbo and are somewhere between
a condition and a warranty. A term becomes innominate when it cant be shown that it is a condition or
warranty. Intermediate or innominate terms are characterized by an examination of the effect of a
breach of such a term rather than on the quality of the term broken.
 EXEMPTION, EXCLUSION OR LIMITATION
CLAUSE
Exemption clauses are often employed in standard form contract. These are contracts on standard
terms prepared by one party and set out in a printed form which contracting party is required to accept
in their entirety with no opportunity for negotiation. Contract for travels by air or bus, carriage of
goods, employment contracts, insurance contracts, commercial sales, equipment leasing and hire-
purchase contract, hotel services, laundry services.
In the spirit of the principle of freedom of contract, exclusion clauses are perfectly legitimate and the
courts are normally prepared to uphold their validity. There are however circumstances where the
courts will hold that such clauses are inoperative. In doing this they will usually take into account the
relative bargaining power of the parties, i.e. whether the parties are contracting as equals or whether
one party is in a stronger negotiating position than the pother. Where the parties are unequal, the
courts have been able to redress the balance by developing stringent requirements which limit the
scope and effectiveness of exclusion clauses.
 EXEMPTION, EXCLUSION OR LIMITATION CLAUSE CONT.
These requirements are:
(a) The document relied on as containing notice of excluding clause must be a contractual document.
A document is contractual if it is known to contain contractual terms as distinct from say a receipt or
voucher. If the parties knew that the ticket issued for a transaction was intended to form part of the
contract then they will be bound by the terms printed on It; but if the ticket is taken for a mere receipt
then any terms printed on it will not be binding upon the parties.
The case of Chapelton v. Barry UDC is a very good example, the Claimant in this case hired a deck chair
from Barry UDC for use on the beach. There was a notice on the beach next to the deck chairs stating that
the deck chairs could be hired as 2dollars for three hour and also “respectfully requested” the public to
obtain tickets issued by the chair attendants. The Claimant obtained a ticket and put it in his pocket
without reading it. In fact there was an exclusion clause printed on the ticket excluding the council’s
liability for personal injury caused in using the deck chair. The Claimant was injured when he sat on the
chair. The fabric of the deck chair split away from the frame. He brought an action against the council and
they sought to rely on the exclusion clause contained in the ticket.
Held: the exclusion clause was not incorporated into the contract. A reasonable person would regard the
ticket as nothing more than a receipt and would not expect it to contain contractual terms. Furthermore,
 EXEMPTION, EXCLUSION OR LIMITATION CLAUSE CONT.
Furthermore, the wording of the notice suggested that a person could obtain the deck chair and get a ticket
later. The notice constituted an offer and collecting the chair would amount to acceptance. It would not be
opened to the council to introduce new terms after the contract had been formed.
(b) Notice
If the contractual documents is not signed then the question of notices arises. Standard terms including
exemption clauses are printed on a document Posted up on premises where the contract is made or handed
or sent by one party to the other. In such a case the clause will be incorporated into the contract only if at all
before the contract is made the party relying on the exclusion clause took reasonable step to bring it to the
notice of the other party.
An example of this is the case of Olley V. Marlborough Court limited, in this case O books in at the reception
desk of an hotel she then went up to her bedroom. On the wall was a notice excluding liability for loss of
stolen articles. O left a coat in the bedroom, lock the door and hung the key at the reception. The coat was
stolen and hotel sought to rely on the exception clause. The court held that the exception clause did not avail
the hotel because the contract was made at the reception desks and O only saw the notice later. It was
therefore not part of the contract.
However where the parties have been accustomed to dealing with each other the court may infer notice.
 EXEMPTION, EXCLUSION OR LIMITATION CLAUSE CONT.
(c) Signature
The general rule is that where a party signs a documents containing the exception clause, the party signing is
bound by that clause even though he may not have read the documents. But the maker of the document
may still be denied the protection of the exception clause under the circumstance, if he has misrepresented
the effect of the clause to the other party.
In the case of Cuties V. chemical cleaning and dyeing Company the claimant took a dress for cleaning. She
was given a document to sign. On inquiry about the significance of the document, she was told by the
assistant that it exempted the cleaners from liability for damages to the beads and sequins. In fact the
document exempted the cleaner from liability for ‘”any damage” however arising. The court held that the
assistant innocently had misrepresented the effect of the document. The defendant could not rely on the
exception clause.
(d) Ambiguity
The rule is that any ambiguity or other doubts in an exception clause, shall be interpreted against the party
seeking to rely upon the clause.
EXEMPTION, EXCLUSION OR LIMITATION
CLAUSE CONT
(e) Third party
Where an exception clause is part of the contract, it cannot be invoked to protest a person
who is not a party to the contract.
Fundamental breach and exclusion clauses
In the continuous attempt to curb the excesses is in the use of exception clauses, the court
developed a new doctrine. This was the doctrine of fundamental breach . A fundamental
breach is a breach that is so central to the purpose of the contract that the performance
rendered is essentially different from that promised. The court developed what appeared to
be a substantive rule of law that if a party committed a fundamental breach of his contract he
was not entitled to rely on any exception clause in the contract.