Contents of a contract - Express terms

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Overview

Express terms are the backbone of contract law, clearly outlining the rights and duties of the parties involved. For those preparing for the SQE1 FLK1 exam, a solid understanding of express terms is essential. This article explores their nature, creation, interpretation, and application, equipping candidates with the skills needed for exam success and beyond.

Understanding Express Terms

Express terms explicitly define the rights, duties, and expectations of contracting parties, whether in writing, verbally, or both. Their primary roles include:

  1. Expression of Intent: Directly reflecting the agreed terms and specific intentions of the parties.
  2. Legal Certainty: Minimizing ambiguity and providing a firm basis for enforcement.
  3. Risk Management: Allowing customization to meet specific needs.
  4. Conflict Resolution: Serving as a key reference for resolving disputes.

In the case of Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989, Lord Wilberforce highlighted the significance of understanding express terms in their commercial context:

"In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating."

This highlights the need for a contextual approach, considering both the literal words and the broader business environment.

Creating and Including Express Terms

The formation and inclusion of express terms involve key elements:

1. Offer and Acceptance

Express terms are established through the process of offer and acceptance. The case of Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd [1979] 1 WLR 401 shows the complexities that can arise, especially during the "battle of the forms."

2. Certainty and Completeness

Terms must be definite and complete to be enforceable. In Scammell and Nephew Ltd v Ouston [1941] AC 251, it was established that there must be a clear consensus on essential terms.

3. Signature Incorporation

The principle in L'Estrange v F Graucob Ltd [1934] 2 KB 394 states that a signed contract binds a party to its terms, unless there are exceptions like misrepresentation.

4. Notice Incorporation

Terms may also be included by giving proper notice, as seen in Parker v South Eastern Railway Co (1877) 2 CPD 416, where reasonable steps must be taken to inform the other party.

Interpreting Express Terms

Understanding express terms is key in contract disputes, with legal principles as guidelines:

1. Objective Approach

Courts focus on how a reasonable person would interpret terms. This principle is seen in Smith v Hughes (1871) LR 6 QB 597.

2. Plain Meaning Rule

When contract language is clear, the court follows its literal meaning, reinforced in Arnold v Britton [2015] UKSC 36.

3. Contextual Interpretation

Context matters in Wood v Capita Insurance Services Ltd [2017] UKSC 24, where interpretation balances literal meaning and business sense.

The Parol Evidence Rule and Exceptions

The parol evidence rule limits external evidence in written contracts, but some exceptions are:

  1. Collateral Agreements: Supporting agreements that don’t conflict with the main contract.
  2. Ambiguity: External evidence can clarify unclear terms.
  3. Misrepresentation or Fraud: Allows challenge of terms based on misleading statements.

In J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd, oral assurances were accepted due to misrepresentation.

Drafting Express Terms Precisely

Accurate drafting is key to preventing disputes:

  1. Specificity: Use clear, unambiguous language.
  2. Completeness: Cover all important aspects within the contract.
  3. Entire Agreement Clause: Include a clause confirming the written agreement represents the entire contract.

Example: Business Partnership Agreement

In a partnership agreement, precise drafting of profit-sharing and decision-making terms prevents misunderstandings.

Practical Application and Exam Relevance

For success in the SQE1 FLK1 exam, candidates should be ready to:

  1. Analyze scenarios to identify relevant express terms.
  2. Apply legal principles of interpretation and inclusion.
  3. Evaluate conflicting terms, especially in cases with standard form contracts.
  4. Consider the commercial context when interpreting terms.
  5. Recognize situations where express terms might be unenforceable.

Conclusion

Express terms play a vital role in contract law, detailing the intentions and duties of parties. Understanding their formation and interpretation is critical for SQE1 FLK1 exam success. Key takeaways are:

  1. Express terms provide clarity in contractual relationships.
  2. They involve offer, acceptance, certainty, signature, and notice.
  3. Courts interpret them with a focus on objective meaning and context.
  4. The parol evidence rule restricts external evidence, with notable exceptions.
  5. Careful drafting is essential for enforceability and reducing disputes.
  6. Commercial context significantly influences interpretation.

By understanding these elements, candidates can effectively handle complex contractual scenarios in exams and their future careers.