What are the terms? Express and implied
The first distinction of many, between the terms of a contract involves whether the terms of a contract are express or implied.
Express terms will expressly state in words or writing the terms in contains. Where as an implied term are terms established not so clear as spoken or written words but implied through fact, law or custom.
It is commonly assumed that a contract has to be a written document. In fact, most contracts formed on a daily basis require no formalities and can be created orally, although a deed or document may substitute the consideration of either party.
If there is consideration (bargaining element of either party) then certain requirements are restricted to specific types of contracts.
Statements, representations and terms
Where someone makes a statement prior to the actual contract being established then this could become an actual term of the contract itself or it could possibly become a mere representation.
If it is decided to be a mere representation and it is proven to be untrue and false or doies not occur then there will be no remedy available for a breach of term, as it is not an actual term but a representation.
If it is decided that the statement is an actual term of the contract, then if the term is breached, there will be a remedy available.
In certain situation it is possible that a statement becomes both a term and a representation. If this is the case then the person claiming the breach decides which route they wish to follow and then depending on they choice, which remedy they pursue.
The basic test
The basic test for establishing whether a statement is a term is all based on the intention of the parties.
The intention of the parties can be identified by the conduct of the parties, do their actions imply they have the intention to make their statement a term of the contract?, their words and behaviour rather than their thoughts.
If a reasonable bystander would honestly believe that their intention was to make their statement a term of the contract then this will be enough to satisfy the test of intention.
Indicators of intention
It may be clear to both parties to a contract that specific statements were obviously meant to be terms of the contract.
There are three concepts that will be considered when a court is deciding whether a statement is a term of the contract or a mere representation.
These include the importance of the statement, the reliance on the statement by all parties involved and the relative knowledge of the parties.
Importance of the statement
Where it is clear to both parties that a particular statement is a definitive term of the contract then this is how the courts will judge.
An indication by one party to the contract that a statement can be relied upon with no need for verification that it is indeed a term of the contract should without any question be regarded therefore as a term of the contract.
Relative knowledge of the parties
One of the key concerns the courts will raise when deciding upon a case involving the confliction over which statements are actual terms of the contract will focus around which party to the contract is in the best position to know whether the statement is a mere representation or an actual term of the contract.
This concept is connected with both the reliance of the parties on the statement and how important the statement is to the establishment of the contract.
The courts will be much more likely to decide that the statement is an actual term of the contract if the person in the best position to know has made the statement.