 Hello, it's Waylon Chow, and this is Contractual Terms and Defects, Module 2B, Part A. In this part of this module, we will look at the differences between a PUF, a representation, and a term of a contract, and then explain what is an express term of a contract versus an implied term of a contract, and look at how we go about interpreting express terms of a contract when there is a dispute as to the meaning of what is something that is written in a contract. In many contract negotiations, there is a lot of back and forth communications between the two parties involved, and those communications have certain various legal status. So the three different types are a PUF, a representation, and a term. We'll go back to our friends Daria and Jamal to help us understand what is a PUF versus a representation versus a term. So Daria asked Jamal again, do you want to buy my Apple laptop for $500? This time Jamal says maybe, tell me more about it. And then Daria says one of the following three statements. The first statement is, it's a great computer, you'll love it. The second statement is, it's got the LISMAC operating system, and the third statement is, I'll throw in my laser printer. With the first statement, that's considered to be a PUF. It's only mere sales words that Daria is using to try to convince Jamal to buy the computer. As a PUF, if that statement turns out to be false, if Jamal does not love the computer or it's not a great computer, there are no legal consequences. The contract is still a valid contract. The second statement, it's got the LISMAC operating system, would be considered to be a representation. It is a statement of fact, which induces the other party to enter into a contract. We talked about representations in the previous module. And we'd also mentioned in that module that if a representation or a statement of fact turns out to be false, it is a misrepresentation and the other party can sue for misrepresentation to say that the contract is voidable and can be canceled. In other words, that's called rescission. And the person can also sue for any damages that are suffered because of that misrepresentation. The third statement, I'll throw in my laser printer, is considered to be a term of the contract. It is an actual contractual promise. By Jamal promising to pay $500, Daria is promising to deliver the Apple laptop and the printer. It is a part of the agreement. Now, if that promise is not kept by Daria, then that is considered to be a breach of contract and Jamal could sue her for that breach of contract. There are two types of contractual terms, express terms and implied terms. Express terms are the ones that we know best. They're the ones that are either written on paper or they're stated verbally out loud by one of the parties. And both are considered to be terms when a reasonable person would believe that the statement was intended to create an enforceable obligation. In other words, they are terms, they're not representations and they're not puffs. Now with implied terms, those are terms of the contract. They're still part of the contract, but they're not written or even stated verbally, but instead they are somehow implied by law. Now, in what situations does the law imply terms? One or a couple of situations is where it's necessary to imply a term where it is an obvious consequence of the parties agreement, where it's something that is essential, that was missing in the agreement, but it's essential and an obvious consequence of the agreement we need to just automatically imply it, or it is required for the purpose of business efficacy. Another situation where the law would imply a term is to reflect standard industry practice and also based on common law rules for certain types of contracts, terms will be implied. One obvious example is with an employment contract. There is a common law implied term that to terminate an employee, they need to be given reasonable notice. And also terms can be implied by government legislation that identifies specific contracts and requires specific terms to be automatically implied for those contracts. One example is under the Sale of Goods Act, which requires terms regarding the quality of the items or the delivery of the items to be automatically implied into sales contracts. To get a better idea of when the law will imply a contractual term, let's have a look at this quick quiz question. At this time, please pause the video so that you have a chance to read the question and consider your answer. Okay, so the question says, even if a lease does not expressly say that the item leased must come back in the same condition in which it went out, subject to reasonable wear and tear, a court will imply such a term. Courts will do so on the basis that such a term, D is in accordance with the usual industry practice and the industry the parties are engaged in. Now, let's go through the other answers before we explain why D is the right answer. A says it was clearly intended by both parties. Since it was not expressly stated that the items would come back in the same condition, we can't say that it was clearly intended by both parties. Now, B was clearly desirable. Just because it's desirable is not a basis for implying a term into a contract. And C would improve the contract is also not enough to justify the implication of a term into the contract. We would need more than just mere improvement. The term would be the kind that's required to make the contract effective. And we skip to E is found in some leases just because it's found in some leases, but not many or all leases does not make it does not justify that such a term be implied. Now, D is the right answer, which is basically saying that this term is a part of industry practice in the leasing industry. So whenever items are leased out such as a car, it's normal in the industry to expect that that car be returned in the same condition that it was when it was originally sent out. But subject to reasonable wear and tear of that car, of course. Sometimes we need to interpret the meaning of express terms used in a contract. Remember that express terms are contractual terms that are either actually stated verbally or put into writing in a contract. And there are instances where if a word or a phrase or a sentence in a contract is written in a way that's not altogether clear and the two parties involved have a dispute as to the proper interpretation of that term. We need some legal rules to help us determine what is the appropriate interpretation of the express term. Now the general rule that the courts apply is how would a reasonable business person in the party's position have interpreted the express term. And that's a nice legal statement, but whenever we use the word reasonable, it's not a very precise term. So we need some more guidance to help us determine what precisely is reasonable in a particular situation. So the courts give us a bit more guidance. So there's something called the golden rule. The golden rule says that we should start with the plain meaning of the words. In other words, it's called the literal approach. We look at the literal plain meaning of the actual words used in the contract. And to determine that plain meaning, the most obvious place to look usually is the dictionary. We look up the common meaning of a word that's defined in the dictionary. So golden rule says that we start with that plain ordinary meaning. But if by applying that plain ordinary meaning, it leads to an absurd result, then we need to look at some other different interpretive approaches beyond the literal approach. Now these other interpretive approaches are the first is called the contextual approach. That's where we're looking beyond just what the definition is in the dictionary. We're looking at the actual parties' intentions and the surrounding circumstances to determine what did the parties intend these words to mean. A third approach is called the contra-proferendum rule. So that rule says that we apply the meaning of the word or the phrase that is least favorable to the party who drafted the contract. Or in other words, we interpret the words in favor of the party who did not draft the contract. So we look at those two other approaches, the contextual and contra-proferendum and also the literal approaches, which is what we did in the first step. And we go back to the question, how would a reasonable business person in the party's position have interpreted the express term?