Law of Contract

Terms of Contract 1

TermsWhat are the obligations of the parties under the contract? : We will have to look at the terms.

Not all that is said and written are terms of a contract

• Express terms • ( Terms or mere representations)

• Implied terms

• Mere Puffs

TermsThe distinction between a term and a mere representation is important because :

1) A failure to comply with a term results in a breach of contract.

2) If a statement is a mere representation which is not complied with then it results in a claim for misrepresentation (damages).

TermsBefore the introduction of the Misrepresentation Act 1967, only fraudulent misrepresentation entitled the claimant to claim damages.

For innocent and negligent misrepresentation it was not allowed.

But now under the statute in some cases it is allowed.

Thus the distinction between terms and representations are no longer crucial

Terms

Whether a statement made is a term or a mere representation is to be decided based on the intentions of the parties, and based on principles that help to guide the courts.

Intentions ? Objective test.

Helibut, Symons & Co v Buckleton (1913)

as per Lord Moulton, who laid down the

4 criterias.

TermsCommon law has established some “principles” to decide whether a statement is a term or a representation.

1) Verification

2) Importance of the statement to the receiver.

3) Special knowledge

4) The time the statement was made

VerificationA statement is unlikely to be a term of contract if the maker of the statement asks the other party to verify its truth.

Ecay v Godfrey (1947)

Facts : a seller of a boat stated that the boat was sound but advised the buyer to have it surveyed.

Held : His statement was a mere representation, as he did not expect the claimant to rely on his statement.

But see Schawel v Reade (1913)

VerificationIf the maker of the statement does not state that the other party should verify or need to verify the statement, then it is a term.

Schawel v Reade (1913)

Facts : The claimant, while examining a horse with a view to buying it for stud purposes, was told by the defendant : “You need not look for anything; the horse is perfectly sound. If there is anything the matter with the horse I should tell you”. Based on the above the claimant bought without examining the horse.

Held : The defendant’s statement was a term.

Importance of statementA statement is likely to be a term of contract where it is of such importance to the person to whom it is made that, had it not been made, he would not have entered into the contract.

Couchman v Hill (1947)

Facts : a heifer was put up for sale at an auction but no warranty was given to its condition. The claimant asked the defendant whether the heifer was in calf and stated that he was not interested in purchasing if it was.

He was told that it was not in calf. Approximately 7 weeks after the purchase the heifer suffered a miscarriage and died.

Held : It was a breach of contract as it was a term, since the maker of the statement knew the importance given to it.

Importance of statementBannerman v White (1861)

Facts : A buyer who was negotiating the purchase of some hops asked the seller if they had been treated with sulphur, saying that if they had he would not even bother asking the price. The seller said that they had not and a contract for purchase was agreed. When the buyer discovered that some of the hops were grown using sulphur he sued for breach.

Held : The importance given to the requirement made the statement a term.

Special knowledgeIf the maker of a statement has some special knowledge or skill compared to the other party, the statement may be held to be a term.

Dick Bentley Prod. Ltd v Harold Smith(1965)

Facts : The claimant asked the Defendants, who were car dealers, to find him a “well vetted” Bentley car. The defendants found a car which they sold to the claimant and which stated had done only 20,000 mile, since a replacement engine had been fitted. It had in fact done 100,000 miles.

Held : that the statement as to the car’s mileage was a term of contract. The Defendants being car dealers were in a better position to know whether their statement was true.

Special knowledgeOn the other hand if both parties have equal knowledge or skills to determine the truth of the statements then it is a representation.

Oscar Chess Ltd v Williams (1957)

Facts : D, sold a car to the claimants(car dealer) for £290. The car was described as a 1948 Morris 10 ; in fact it was a 1939 model (which was worth only £175). The defendant had obtained the information that the car was a 1948 model in good faith from the log book. (but the log book was a forgery)

Held : It was a mere representation, both parties had equal knowledge and ability to gauge the age of the car.

Time statement madeIf a statement was made at the time that the contract is made, or near it, then it is more likely that it was intended to be a term.

Routledge v Mckay (1954)Facts : When selling a motor bike, the defendant on 23Oct, told the claimant that the bike was a 1942 model. On 30Oct, a written contract was concluded which made no reference to the date of the bike. Subsequently it was found that it was a 1930 model.

Held : The claimant failed to show that it was a term. Thus it was only a representation.

Sources of terms• Express Terms

Terms that are stated and agreed upon by the parties

• Implied Terms

Although terms are not expressed they are implied into the contract by courts (custom & practice) or by parliament

Sale of Goods Act 1979

Express termsExpress terms made orally :

Difficulties

1) difficult questions of fact that have to be proved.

2) Court will decide based on what was actually “said”.

Express termsExpress terms may be agreed orally or in writing.

Difficulties even in written express terms :

1) Whether the court can go beyond the written terms and discover additional terms.

2) Whether parties are necessarily bound by the terms

3) Whether written terms may be incorporated into a contract either by notice or by course of dealings.

Parol evidence ruleGeneral Parol evidence rule : Presumption

Once parties have chosen to have their contracts (terms) written, the courts will not allow parties to adduce extrinsic evidence to add to, vary or contradict the written document.

Jacobs v Batavia & General Plantations (1924): The rule is to promote certainty of written terms

Parol evidence ruleHawkrish v Bank of Montreal (1969)

Facts : H signed a guarantee of a debt of a company. The form which the bank gave him to sign referred to a “continuing guarantee” up to $6000, “of all present and future debts”

H had intended that the guarantee should only cover a then existing debt of $6000 and he therefore wanted to introduce oral evidence to this effect

Held : H’s parol evidence was held inadmissible.

Parol evidence ruleLogic of parol evidence rule :

The attitude of the courts is that if the parties have gone to trouble creating a written document containing terms of the contract, then they must have intended that document to be the definite contract.

Parol evidence ruleAs the court’s aim is to find the true intention of the parties, the parol evidence rule may be over-ruled, due to exceptions :

1) Where docs not intended to be whole contract

2) To prove terms that must be implied into contract

3) To prove a custom that must be implied into contract

4) To show contract is invalid on ground of misrepresentation, mistake, fraud, non est factum.

5) Where oral contract is collateral to written

Parol evidence ruleException :

1) Where document is not intended to be whole contract

Evans v Andrea Merzario (1976)If the written agreement was not intended to be the whole contract, on which the parties actually agreed, parol evidence is admissible.

See also Allen v Pink (1838)

Parol evidence ruleException : 2) To prove terms which must be implied into the agreement

Gillespie Bros & Co v Cheney (1896)To prove a custom that is practiced in business.

Smith v Wilson (1832)The written contract referred to 1,000 rabbits. Oral evidence was admitted to show that under the local custom 1,000 rabbits meant 1,200 rabbits.

Parol evidence ruleException :

3) If an “oral contract” is collateral to the original written contract.

City and Westminster Properties v Mudd (1934)

Facts : Mudd rented a shop from the claimant who was aware that he often slept in a room attached to the shop. When a new lease was being negotiated, Mudd was told that he would still be allowed to sleep in the room. A clause in the contract restricted the premises to “showrooms, workrooms and offices only”. He entered into the clause based on the oral assuarance.

Held : Parol evidence of oral collateral contract allowed

Parol evidence rule

Law Commission 1976 (working paper No.76) recommendations :: Suggested earlier that the parole evidence rule (or presumption) be abolished, but in its later report 1986 (Working paper No. 154), suggested that it be left alone, since :

1) The rule did not stop the courts from having recourse to extrinsic evidence where its consistent with the intention of parties.

2) Legislative change would be more confusing

Bound by signatureA person is generally bound by a written document that he signs : Whether he reads it or not :

L’estrange v F Graucob Ltd (1934)

Facts : The claimant bought an automatic slot machine from the defendants. She signed an order form which contained a clause which excluded liability for all express and implied warranties. When the claimant discovered that the machine did not work she brought an action against breach of an implied warranty.

Held : Defendants can rely on exclusion clause

Bound by signatureThe Ontario Court of appeal (commonwealth case) may be persuasive argument against L’estrange decision

Tilden Rent-a-car Co v Clendenning (1978)

Held : The court adopted a more realistic view and recognised that many standard form printed contracts are signed without being read or understood.

The court held that a signature could only be relied upon as evidence of genuine consent when it was reasonable for the party relying on the signed document to believe that the signer did assent to the onerous terms proposed.

Bound by signatureUnder common law, defence of,

“non est factum” can be pleaded.

i.e it is not my deed.

So what is the court to do ?1) Give effect to the contract document that one has signed?

2) preventing an injustice of holding a person to a contract and terms that he had not “consented” to.

Bound by signatureIf common law does not protect : Statute might

The Unfair Contract Terms Act 1997

The Unfair Terms in Consumer Contracts Regulations 1999 :

Para 1(i)of schedule 2 to Regulations 5(5)

“a term which has the object or effect of irrevocably binding the consumer to terms with which he has no real opportunity of becoming acquainted before the conclusion of the contract” is indicatively unfair.