Terms of Contract

Business Law
LAW1014
Introduction
Introduction

• Contracts Act 1950 does not categorise terms and define their
status;

• Some provisions however deal with a specific term

– Section 56(1) and (2) deal with time of performance
– Both provisions can be used to determine when time for
performance is important and not so important

• Absence of general rules with respect to terms makes it necessary

to refer to English Law
– Civil Law Act 1956, section 5.
Contents of a Contract
Contents of a Contract
Terms and representations

• At common law statements made by parties can be classified as:

– Terms; and
– Representations

• Representation are statements that parties make:

– During negotiations; or
– Prior a contract to induce another to enter into the contract.
– See Oscar Chess Ltd v Williams
– See Abdul Razak bin Datuk Abu Samah v Shah Alam
Properties Sdn. Bhd
Characteristic of a Representation
What is a Representation?

• Induce party to enter into the contract;

• May become terms if there is evidence to

show parties intended it to be a term
Characteristic of a term
What is a Term?

• Rights – creates expectation on what is to

be gained at the end of the contract

• Obligations – regulates performance of the

contract

• Enforceable by the courts

Contents of a Contract
Terms and representations

Some
Point at which representations
contract is made become terms

A B C
Negotiation Performance of
contractual
obligations

Representations Terms of contract

Illustration of terms and representations

A CONTRACT

1. CLAUSE
Negotiation When “A”
on how to contract
deal with
B 2. CLAUSE
signed “C”
issues

C
How to decide whether a statement is
a term or representation?

Is the contract Representations

made orally or is it Written included in the
written? written document are
the terms
Oral

Time Factor Factors used

Need to consider the to determine
following factors to intention of
decide whether term Relative Skill
the parties
or representation & Knowledge
Oral Contracts
Written Contracts

• Where ‘representations’ are reduced into writing,

the contents of the written document signed by
both parties are the terms.

• See the presumption in L’Estrange v Groucob

Oral Contracts
Time Factor

• Precedents
• Industry
What is the subject matter of
standards
contract?
• Rules set by
commercial
bodies
• Public Authority
i de d by
Gu • Statute
What is the usual time taken to
enter into such contracts?

Statement is a representation
‘YES’
Is the time taken by the
person entering into the
contract too long? ‘ NO ’ Statement is a TERM
Oral Contracts
Time Factor

Routledge v McKay
• Contract concerned the sale of a motor-cycle.

• The statement was held to be ‘representation’ because of a

seven days gap between making the statement and the
contract.

• Point to ponder: Would seven days be significant to decide a

statement as representation if the subject matter were a
house?
Oral Contracts
Relative skill and Knowledge

• Statements made by persons who have relatively more

knowledge and skill than the other would usually be
considered as a term.

• The important factor here would be the degree of

reliance on such skill and knowledge

• See Esso Petroleum Co. Ltd. v Mardon

• See Schawell v Reade
Oral Contracts
Relative skill and Knowledge

Schawell v Reade
• Contract was for the sale of a horse for stud purposes.

• When the buyer began to examine the horse, the seller said,
“You need not look for anything: the horse is perfectly sound. If
there was anything the matter with the horse I would tell you ”

• Seller made himself out to be an expert, therefore held that the

statement was a term
Construing Terms
Rules of Interpretation
General Rules

• Remember it is not the function of the court to make a

contract for the parties

• It is also not the function of the courts to improve the

contract for the parties

• In Seet Chuan Seng v Tee Yih Jia Foods Manufacturing

Pte Ltd, the court stated that if a clause (term) in the
contract is plain and clear, the courts will enforce the
obligation related to the clause.
Rules of Interpretation
6 Principles of Construction

1. A deed must be construed as a whole

2. If a document between two parties contains ambiguity that cannot be
satisfactorily resolved, it is to be construed adversely to the party
who was responsible for putting it forward as a term
3. A contractual document cannot oust the jurisdiction of the local courts
4. Construction of a contract is a question of fact for the determination
of the courts
5. An agreement may not be interpreted by reference to the subsequent
conduct of the parties
6. Parties to a contract may by their subsequent conduct give a term in
the contract a specific meaning
Rules of Interpretation
Parol Evidence Rule

• Section 92, Evidence Act 1950 – court will not allow any
oral evidence to add, vary or contradict a written document
unless the oral evidence comes within one of the
exceptions or illustrations contained in the section

• Application to contract and terms – once you have a

written contract, you cannot use oral evidence
1. to add new terms into the contract,
2. Modify the terms of the contract
3. Contradict the terms of the contract
Rules of Interpretation
Parol Evidence Rule

Examples of Exceptions:
1. Tan Chong & Sons Motor Co Sdn Bhd v Alan McKnight -
Where there is strong evidence parties made their contract
partly oral and partly in writing
2. Walker Property Investment (Brighton) Ltd v Walker – the oral
agreement will be read together with the written agreement to
get a comprehensive idea about the whole contract
Classification of Terms
General Overview

Express Terms: Conditions

found in the contract

between parties
Warranties
Terms
Implied Terms:
Conditions
Inferred to exist by the
courts or required to
exist because of Warranties
legislation
Conditions
What are Conditions?

• Very Important terms

• Without such terms – contract is

vague

• Breach of such terms allows the

innocent party to terminate
and/or claim for damages.
Conditions
Poussard v Spiers

• HELD: Singer’s non-attendance

during the first few weeks was
held to be breach of condition.

• The court was of the view that

attendance when the show had
started was a very important
term of the contract.
Warranties
What are warranties?

• Warranties are also terms of the contract

• Warranties deal with other aspects of

contractual performance

• Not as significant – contract can still

continue even if breached

• Breach only entitles damages

Warranties
Bettini v Gye

• Singer undertook to arrive 6 days

early for rehearsals
• He was late for 3 days
• Organisers terminated contract on
the ground of breach of condition
• He sued.
• Court held organisers not entitled to
terminate because it was only a
breach of warranty
Implied Terms
How are terms implied?

Terms
Implied by…

Legislation Courts

E.g. Consumer Previous

Protection Act Course of Trade Practice
1999 Dealing
Terms Implied by Courts
Courts will look into…

• Language of the contract

• Circumstances in which contract was entered
into
• Parties must have intended such a term from the
background evidence of the contract
• There is a precedent that such a term should
exist in the type of contract the parties have
entered into
Terms Implied by Courts
Reason to imply the term and test used…

• The court will imply terms in two situations:

– Where the term implied represents the obvious, but
unexpressed intention of the parties - ‘officious by stander’
test
– Where it is necessary to give business efficacy to the
contract – ‘business efficacy test’

• If the term argued to be implied does not satisfy these test,

then it will be caught by section 92, Contracts Act 1950.
Terms Implied by Courts - Examples
Akitek Tenggara Sdn Bhd v Mid Valley City Sdn Bhd

• The contract did not expressly provide

how the contract may be terminated.

• Courts implied the term by referring to

Conditions of Engagement in the Fourth
Schedule of the Architect Rules 1973
Terms Implied by Courts - Examples
Yong Ung Kai v Enting

• D contracted with the P for the sale of

timber on certain land.
• There was no provision on the acquisition
of licence to carry out the works
• The court used the ‘business efficacy test’
and ‘officious bystander test’ to imply a
term that licence was needed.
Term Implied by Courts - Examples
Popular Industries Ltd v Eastern Garment Manufacturing
Sdn Bhd

• In this case, previous course of dealings of 16

years between the parties allowed the court to
imply a term that provided for the Defendant
informing of shipment dates to the Plaintiff.
Essential Reading

Chapter 8, "Terms of a Contract", Law for

Business (2022), Sweet & Maxwell