Contract Terms: Part A - Puffs, Reps. & Terms; Express & Implied Terms, Interp. of Express Terms

Duration: 13:25 1780 transcript words EN summary

Video summary

This video lecture introduces the fundamental categories of statements made during contract negotiations, distinguishing between puffs, representations, and terms. A puff is defined as an exaggerated statement of opinion or sales talk that lacks legal effect, meaning even if it turns out to be false, no legal consequences arise. In contrast, a representation is a statement of fact intended to induce the other party into entering the contract; if this factual claim is proven false after the agreement is formed, it constitutes a misrepresentation that can lead to legal remedies such as rescission or damages. Finally, a term is a binding promise that forms part of the actual agreement, and failure to fulfill such a promise results in a breach of contract for which the injured party can sue. The lecture further categorizes terms into express and implied types. Express terms are those explicitly agreed upon by the parties, whether written down or stated verbally, outlining specific obligations like the price and item description. Implied terms, however, are not explicitly written or spoken but are incorporated into the contract automatically through law, custom, or industry practice to ensure the contract is workable. For instance, in a sale of goods, there is an implied term that the item must be of merchantable quality and fit for its intended purpose. If these obligations are not met, they constitute a breach just like express terms, highlighting that the significance of a term lies in its enforceability regardless of how it was established. When disputes arise regarding the meaning of express terms, courts employ specific rules of interpretation to resolve ambiguities. The primary method is the golden rule, which dictates that words should be given their plain ordinary meaning unless doing so leads to an absurd result. If the literal interpretation creates an absurdity, the court may resort to alternative approaches such as the contextual approach, which examines surrounding circumstances to determine the parties' true intentions, or the contra proferentem rule, which interprets ambiguous terms against the party who drafted the contract. These methods ensure that contracts are interpreted fairly and practically rather than strictly literally when the literal meaning would be unreasonable. The video concludes by applying these legal principles to a practical scenario involving two students negotiating the sale of a laptop. In this case, an express term regarding delivery within 48 hours was written into the contract, but one party attempted to enforce it at an impractical time of 2:00 AM. The lecture demonstrates how the golden rule would initially allow such a time as it falls within the 48-hour window, but since this leads to an absurd result requiring delivery during unreasonable hours, the court would shift to other methods. By considering the contextual reality that both parties are students who operate during school hours and applying the contra proferentem rule because one party drafted the contract, the court would likely reject the unreasonable delivery time. This illustrates how legal interpretation balances the literal text of a contract with practical realities and fairness to resolve disputes effectively.

Read the full video transcript

Hello, this is Wayne Chow. This is a video lecture series on contract terms. There will be three parts. This part, part A, we'll focus on puffs, representations and terms, express terms versus implied terms, and the interpretation of express terms. In the course of negotiating a contract, there often will be a number of communications back and forth between the parties involved. Those communications could be written or verbal. Some of those communications may represent significant elements that lead to the formation of a contract, especially an offer and acceptance. But we could also have counter offers and rejections of offers. If an agreement is formed, the significance of some other communications that may have occurred could also be relevant. There are three types of categories. puffs, representations, and terms. Let's go back to our friends Sonia and Ahmed to help us understand what is a puff versus a representation and the term. So, Sonia is still trying to sell her laptop to Ahmed. So, she says, "Do you want to buy my Apple laptop for $700?" And Ahmed replies, "Maybe. Tell me more about it." And now Sonia says one of the following statements before Ahmed accepted Sonia's offer. The first statement is this is the best laptop in the world. The second it has a brand new battery installed last week. And the third statement I'll include a free carrying case. So for that first statement it would be considered a puff. It's an exa exaggerated statement. It's considered to be only sales talk. So even if it turns out to be wrong, to be false, there are no no legal consequences attached to that. The second statement, it has a brand new battery installed last week. That would likely be considered a representation, which is a statement of fact that it induces the other party to enter into the contract. So that statement made Ahmed believe that factually there was a brand new battery in the laptop and that was one of the things that induced him to decide to buy the laptop. So there are legal consequences if that statement turns out to be false. It would be considered a misrepresentation with legal remedies such as recision or the awarding of damages. The third statement, I'll include a free carrying case. That would be considered a term. It would be considered a binding promise that is a part of the agreement that Sonia and Ahmed have entered into. It is a promise made by Sonia to provide the laptop along with the carrying case in exchange for Ahmed paying the $700 as a term. If that promise is not performed, the other party can sue for breach of contract. Let's explore more detail contract terms. Contract terms are the promises, conditions, and obligations that make up the content of the contract. The terms simply set out what each party must do and what each party can expect in return. There are two types of terms, express and imply. Express terms are the ones that are clearly agreed to. If it's a written contract, it's actually written in the contract. If it's a verbal agreement, it's actually been stated and agreed to verbally by the parties. Implied terms are neither written nor stated verbally, but they are a part of the contract by way of law or custom or industry practice or to make a contract workable. An example of a provision that is automatically included, let's say in an employment contract is the common law requirement that reasonable notice be given on the termination of an employee. The significance of a term is that if a term is not met, if it's not if the obligation is not fulfilled, it it results in a breach of contract which allows the injured party to sue for remedies. Let's go back to our friends Sonia and Ahmed and have a careful look at the conversation that they had that led to the formation of their contract. Sonia started by saying, "I'm selling my Apple laptop for $700. Would you like to buy it?" So, that is considered to be an offer with the express terms identifying the item that's being sold, which is the Apple laptop, and the price, which is $700. Ahmed says, " $700 sounds a bit high. Is it worth it?" That is considered to be an inquiry. There's no legal effect of making inquiry. It's just asking questions to gather more information. Sonia then says, "This is the best laptop on the market. It runs lightning fast." That's considered to be a puff. It's only an exaggerated sales statement and has no legal effect. Her next statement, it has a new battery installed last month and the hard drive was replaced just 6 months ago. That's a representation. It's a factual statement. And if that statement turns out to be false, it would be considered a misrepresentation. Her next statement is I'll also include the original charger and a carrying case in the price. So what she's doing there, she's adding more express terms to the offer. And Ahmed chimes in and says, "Okay, that's reassuring, but will it actually work properly for my online classes?" So that's an inquiry. There's no legal effect. No legal effect for an inquiry. Sonia now responds. Of course, it runs the latest operating system and everything works fine. So what she's doing there, she's making a representation. So it's another factual statement and if that's false, it'll be considered a misrepresentation. But there's also now an implied expectation that the laptop will work for the purpose that Ahmed needs it for, which is for online classes. And Ahmed finally says, "All right, I'll take it for $700." So that's the acceptance that forms the contract. Let's sum up our legal analysis of Sonia and Ahmed's conversation. There was an agreement formed based on the offer made by Sonia and the acceptance provided by Ahmed. The express terms were Sonia promises to give Ahmed the Apple laptop along with the charger and carrying case and Ahmed promised to pay Sonia $700. There was an implied term in this contract and that is that the laptop must be of merchantable quality and fit for ordinary use. So this is the use specifically would be Ahmed's intended use of using the laptop for online classes. So this term is implied by the sale of goods act. There was also a puff about the laptop being the best laptop on the market. There are also also some representations with regard to a new battery and hard drive and the latest operating system. Sometimes when we do have a contract and we have express terms in that contract, there still may be problems. Sometimes the wording of those express terms may not be entirely clear and the parties may disagree on the meaning of a written or even a spoken term express term in the contract and those those disagreements would be resolved by a court. The question a court would ask is how would a reasonable business person understand those words? Now the difficulty of that question is you know how do you determine what is reasonable. So the courts have provided some further guidance. They have developed something called the golden rule to determine what is reasonable. Golden rule says that we should apply the plain ordinary meaning of the words. In other words, that usually means you know the dictionary meaning of the words unless by applying the plain ordinary meaning it leads to absurd results. So in other words let's stick to the plain ordinary meaning unless in the exceptional case if it results in absurdity then we will resort to other methods of interpretation. So if the results are absurd, the other methods of interpretation are the contextual approach which is where we look at the surrounding circumstances to try to figure out what the parties intended. The second alternative approach is a rule called contraferentum which says that we should interpret ambiguous terms against the party who drafted them. Let's now go back to our friends Sonia and Ahmed. Sonia again is asking Ahmed, "Do you want to buy my laptop for $700?" Ahmed says, "Great, I'll take it." When can you deliver it to me? Anytime in the next 48 hours, says Sonia. I'll include that in the written contract. So this time they're actually writing up a contract, which is always a good idea. So Sonia puts a clause in the written contract which says delivery will be made within 48 hours. Then sometime later Sonia says to Ahmed say, "Hey Ahmed, I want to come by at 2 am tomorrow to give you the laptop." Ahmed says, "What? Can't you bring it at a decent time during the day?" And Sonia says, "That's the only time I can do it. If you can't take the delivery, the deal is canled." Let's now apply the golden rule to what just happened between Sonia and Ahmed. Remember the golden rule says we use the plain ordinary meaning of the words unless that leads to absurd results. The plain ordinary meaning of within 48 hours would include 3:00 a.m. the next morning as Sonia has proposed or could include essentially any time of Sonia's choosing in the 48 hours after the contract was formed. This seems to lead to an absurd result since it would require Ahmed to take delivery at impractical times when he may not be available. So assuming that that is a absurd result, we now look at the other the other methods of interpretation. The first is the contextual approach where we look at the surrounding circumstances to determine what the parties intentions might have been. One one key fact could be that the parties involved here in this contract, they're both students and they usually see each other during school hours. So that would imply that a better interpretation would be that a reasonable delivery time would be during regular school hours or generally business hours. The other the other method of interpretation is controp. So remember with with that rule, we interpret ambiguous terms in favor of the party who did not draft the contract. In this case, Sonia drafted the contract. Therefore, any ambiguity in the wording of the contract should be resolved in Ahmed's favor. So under both of these approaches, they seem to suggest that that's Sonia's interpretation is not the proper one. And that the two of them should try to uh set a delivery time that is practical and reasonable for both of them.