ACCA F4 - Corp and Business Law (ENG)

74 5: Content of contracts  Part B The law of obligations

Study guide

Intellectual level

B The law of obligations^

2 Content of contracts

(a) Distinguish terms from mere representations 1

(b) Define the various contractual terms 1

(c) Explain the effect of exclusion clauses and evaluate their control 2

Exam guide

You may be asked to identify contract terms, conditions and warranties and how they are brought into a

contract. Scenario questions may require you to explain as to whether a party can rely on an exclusion

clause.

1 Contract terms

Statements made by the parties may be classified as terms or representations. Different remedies attach

to breach of a term and to misrepresentation respectively.

In addition to the final contract, many statements may be made during the process of negotiation that

often lead to the formation of a contract. It is important to be able to establish whether what has been

written or said actually amounts to a contract term or whether it is simply a representation. Statements

may be classified as terms or as representations.

A representation is something which induces the formation of a contract but which does not become a

term of the contract. The importance of the distinction is that different remedies are available depending

on whether a term is broken or a representation turns out to be untrue.

If something said in negotiations proves to be untrue, the party misled can claim for breach of contract if

the statement became a term of the contract. If the pre-contract statement was merely a representation

then the party misled can claim misrepresentation, resulting in a lesser remedy than for breach of

contract. There are a number of factors that a court may consider when determining whether a statement

is or is not a term.

The court will consider when the representation was made to assess whether it was designed as a

contract term or merely as an incidental statement. The court will also look at the importance the recipient

of the information attached to it.

Bannerman v White 1861

The facts: In negotiations for the sale of hops the buyer emphasised that it was essential to him that the

hops should not have been treated with sulphur adding that, if they had, he would not even bother to ask

the price. The seller replied explicitly that no sulphur had been used. It was later discovered that a small

proportion of the hops (five acres out of 300) had been treated with sulphur. The buyer refused to pay the

price.

Decision: The representation as to the absence of sulphur was intended to be a term of the contract.

Key term

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