A valid contract should have the intention to create legal relations e.g. legal consequences. In practices parties do not direct their attention to these aspects when forming an agreement. To this effect, courts have formulated certain principles that will apply where legal consequences have not been expressed. These are classified into:
Domestic and family agreements
Agreements between husband, wife, children, uncles, aunts, cousin’s e.t.c. are considered not to create legal relations except if they constitute a commercial agreement. Where husband and wife are separated, any agreement between them is legally binding.
These are agreements between friends and are presumed not to carry any legal consequences except if they constitute commercial agreements.
These are business contracts and are presumed to have legal consequences unless an agreement to the contrary is expressed.
Collective bargaining agreements
These have no legal consequences unless they are in writing and have been registered with the industrial court.
Mere advertisement puff
These are opinions and exaggerations by sales men and advertisers and have no legal consequences. They should not be taken literally.
Terms are rules, requirements and provisions which govern an agreement or a contract. Statements containing terms should be clear, certain and devoid of double meaning. In the process of negotiation, statements made by the parties may be terms or representations. A statement that becomes part of the contracts is a term. These other statements are representation.
The following guidelines are used to distinguish between a term and representation:
- Superior knowledge: a statement made by a person with superior knowledge about the matter is likely to be a term.
- Intention of the parties: if the makers of the statement intended to influence the other party, then the statement is a term.
- Time gap: a statement made before or during formation of a contract is more likely to be a term. A statement made after is a representation.
- Does the statement preclude further inquiry or verification? If yes, the statement is a term. If no, the statement is a representation.
- Would the party have entered the contract minus the statement? If no, the statement is a term. If yes the statement is a representation.
- Was the statement reduced I writing? If yes it is a term, otherwise it is representation.
Terms to a contract can further be classified into conditions, warranties or innominate terms;
This is a term that goes to the root of the contract. It forms the basis of the formation of a contract. Breach of condition entities the aggrieved party to rescind a contract i.e. set it aside and sue for damages. The party may also decide to affirm (treat as subsisting)
A warranty is a minor term in a contract. It does not go to the root of the contract. Breach of warranty entities the aggrieved party to seek other remedies other than rescission.
Guidelines to distinguish a condition and a warranty
- The court will consider the intention of the parties.
- The court will examine the contract as a whole in the absence of an express declaration of what is a term and what is a condition.
- The court will also examine any implied terms by customs or statutes or by the courts.
Parties are presumed to have entered into a contract and specified all the terms to govern their agreement. However, it is not always possible that all the terms are specified in the contract. Therefore terms will be implied in contract either by customs, statutes or by court:
- a) Implied terms by customs. Parties are presumed to have entered into the contract as per the prevailing customs and traditions.
- b) Implied terms by statute. Terms may be implied in a contract by a specific Act of parliament; such terms will always be binding even if there are contrary terms expressed by the parties.
- c) Implied terms by court. The court will imply terms in a contract in order to give it business meaning. Terms implied by courts are either facts or law. Terms implied by law are necessary for maintaining a standard behavior e.g under a contract of employment; employees undertake to carry on all lawful duties given by employer. It is implied that employer will not give any unlawful duty.
Terms implied by facts are the obvious and necessary terms to give meaning to a contract.
NOTE: The general rule is that terms should not be implied in written contracts, except in the following circumstances:
This are terms that difficult to classify as conditions or warranties until the magnitude of breach is seen and assessed.
These are clauses that seek to protect a party from liability arising from a contract. The law allows the presence of exemption clauses but it has formulated following rules for their applications;
- Fundamental breach -exemption clauses should not amount to fundamental breach of contract.
- Privity of contract -it is only the parties to a contract that can enforce the exemption clause. Strangers or 3rd parties cannot rely on them.
- Misrepresentation -exemption clauses should not amount to a lie or misrepresentation of facts.
- Notice of the clause -the exemption clause should be clearly pointed out to the other party for it to be reliable.
- Signing of documents -where a party has signed documents, the requirements of notice is deemed to have been fulfilled. A party is assumed to have thoroughly read the document he signed.
- Negligence -exemption clauses should not exempt a party from negligent acts.
- Clear terms –exemption clauses must be expressed clearly.
- Reasonableness –exemption clauses must be reasonable and should not amount to oppression of the other party because he or she lacks bargaining power.
- Incorporation -exemption clauses must have been an integral part of the contract and not an after-thought.
- Contract as a whole -the court will interpret the whole contract and not just the exemption clauses in isolation.