#4606 - Terms Part 1 - GDL Contract Law

• Terms either express or implied

  • Implied: In fact (presumed intentions of parties) or In law

Terms or representations

• Poole: ‘The main distinction …. Is that a term involves a promise as to the truth of the statement, whereas a representation involves no such promise as to truth, although the statement in question does induce the making of the contract’

• But legal consequences are not the same (distinction less important since Misrepresentation Act 1967)

  • Ability to claim damages : automatic for breach whereas must prove fault for misrepresentation

  • Measure of damages: expectation measure for breach, tortious for misrepresentation

  • Remoteness Rule: in tort you can claim for all direct damage whereas with breach of contract the loss must be in the reasonable contemplation of the parties and/or that other party has ‘assumed responsibility for that loss’ (Transfield Shipping Inc. v Mercator Shipping inc.)

Express Terms

Statements made during negotiations

• Material statements: 2 groups

1. Statements of fact which the parties do not intend to be binding – representations if they help to induce the making of the contract

2. Statements of fact which the parties do intend to be binding – seen as promissory in nature - conditions, warranties or innominate terms

Express term of a contract or a representation

• Where a statement is made during negotiations with the purpose of inducing the other party to enter into contract there prima facie ground for inferring the statement was intended to be a binding term

  • But this can be rebutted if it is shown that it would not be reasonable to hold him bound by it

• Objective Test – ‘What would a reasonable man understand to be the intention of the parties, having regard to all the circumstances?’

• The importance of the statement

  • Will be regarded as a term if it can be shown that the injured party considered it so important that they would not have entered into the contract otherwise

    • Bannerman v White:

      • Negotiations to purchase hops – D was assured that they did not contain sulphur

      • D had right to treat contract as repudiated as the statement was understood and intended by the parties to be a term of the contract

    • Pritchard v Cook & Red Ltd:

      • D produced the manufacturer’s specifications for car which he had copied on to his own headed notepaper – the written contract made no reference to it

      • CA – specifications were a term of the contract on the importance attached test (C had asked to see it) – by copying it down onto his own paper, the D had taken personal responsibility

• Timing

  • If said at the time of contracting then more likely to be a term: if there is a delay then it will be less likely

    • Routledge v McKay: seller told buyer in good faith a week before contracting, that a car was a 1941 or 1942 model (was in fact a 1930): lapse of time meant that it was a representation

• Reduction of the contract into writing

  • Routledge v McKay: oral agreement wasn’t included in the written contract, suggesting that it was not significant (as parties would have ensured inclusion if it was)

  • But this is not conclusive: other factors taken into account

    • Birch v Paramount Estates: written contract made no reference to statement – but CA still saw statement as contractual term – here D was held to have special skill and knowledge

• Special knowledge or skill

  • Contrasting cases:

    • Oscar Chess Ltd v Williams: C (car dealer) and D (customer): D confirmed the wrong registration date on his car, in good faith, so received more for it than it was worth - HELD: age of the car was not a term of the contract – no breach by the D

    • Dick Bentley Productions v Harold Smith (Motors) - skill/expertise was in the hands of the statement maker and thus the statement DID amount to a term of contract – CA distinguished Oscar – D was a car dealer who should have had superior knowledge

  • Statement may become a term where the vendor expressly accepts the responsibility of the soundness of the sale item in question

    • Schawel v Reade – C attempted to examine horse before purchase but was told that he didn’t need to look for anything as horse was fit for stud: 1) did D represent that horse was fit 2) did the C rely on it: answer to both was yes so statement deemed to be a term

      • Difficult to reconcile with Hopkins v Tanqueray: about a horse again – ‘I assure you that he is perfectly sound in every respect’ – Court of Common Pleas held that the D’s statement was a representation

      • In Schawel v Reade the contract was made on the same day that the statement was made whereas in Hopkins v Tanquearay there was delay

      • Also in Schawel v Reade the D actually dissuaded the C from making checks - contrast Ecay v Godfrey – seller of a boat said it was sound but advised buyer to have it surveyed –did not intend his statement to be taken as a term

Express Terms

• Difficulties may arise in adducing evidence which is extrinsic to a writing agreement

The Parol Evidence Rule

• States that if the contract is written then that writing is the whole contract and the parties cannot adduce extrinsic evidence, especially oral evidence, to ‘add to, vary, or contradict that writing’ (Henderson v Arthur)

• Used to be applied strictly – but exceptions - collateral contracts + all implied terms

  • Does not apply where the written agreement is not the whole agreement – (circular argument)

• J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd – oral promise DID have contractual force as D attached great importance to the carriage of goods under deck and on the basis that he would not have agreed to the new mode of carriage but for the promise

  • Oral assurance was an express term as the contract was partly oral and partly written

• Same result in Couchman v Hill – documents were held to form not the whole, but only part of the contract – oral assurance could be held side by side with them so as to constitute a single and binding transaction

The effect of signature

• L’Estrange v E. Graucob Ltd: ‘when a document containing contractual terms is signed, then…the party signing it is bound, and it is wholly immaterial whether he has read the document or not’

  • Signatures now includes electronic signatures

• Limitations on the principle:

1. Statute now regulates exemption clauses and unfair terms in consumer contacts (UCTA 1975 and Unfair Terms in Consumer Contracts Regulations 1999)

2. Document which is signed must be a document which would be expected to contain contractual conditions (Grogan v Robin Meredith Plant Hire – signing a time sheet containing clauses)

Collateral Contracts

• Way out of the parol evidence rule – courts can use this device to show that there are in fact 2 contracts

• Basis for 2^nd contract – extrinsic oral assurance is given:

  • Lord Moulton in Heilbut Symons & Co v Buckleton: ‘there may be a contract the consideration for which is the making of some other contract’: but made it clear that these would be rare

• J Evans v Merzario - oral assurance that the goods should be held below deck was a collateral contract

• City and Westminster Properties v Mudd: collateral contract can contradict the main one

• Collateral contract doesn’t have to be btw the same parties as the original - Shanklin Pier v Detel Products: where A contracts with B on the faith of an express promise by C collateral contract between A and C

  • C owned a pier and entered into a contract with a contractor to have the pier repaired and repainted – under the terms of contract, C had right to specify which paint the painters used - on the basis of information by the D – the C requested that the contractors used paint from the D – paint proved to be unsuitable for painting the pier – HELD: The D’s statements constituted a binding warranty, breach of which entitled the C to damages

Onerous or unusual terms

• The party seeking to enforce it must make sure it has been understood/brought to attention of other party

• Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd – CA applied Parker v South Eastern Railway Co. and Thornton v Shoe Lane Parking Ltd

• Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd: ‘extortionate’ term in terms of the delivery note – CA held that it was extortionate and could not be enforced as it had not been brought to the attention of the D’s so not part of the contract

Incorporation of written terms (see exemption clauses)

• Various means of achieving incorporation:

  • By signature

  • By reasonable notice

1. Must be set out in a document which would be expected to contain contractual terms

2. Reasonable notice of the existence of the terms must have been given before or at the time of contracting

   • On the basis of a consistent course of dealing –

   • On the basis of the common understanding of the parties – v. limited circumstances

Implied Terms

• To give effect to the deemed intentions of the parties or on basis on ‘necessity’

• Scancarriers v Aotearoa Internaional – PC made it clear that the process of implication is available only where a binding contract has been made – not relevant until the formation of contract has been completed

Terms Implied in fact

• If there is an express term – courts wont imply term to the contrary – Trollope Colls v North West Regional Hospital Board

• Trade of professional customs

  • Terms can be implied on grounds of a custom

  • Custom can be excluded from an agreement by an express term to that effect

  • British Crane Hire v Ipswich Plant – contract involving hire of a crane – both parties were in the same trade – owner sought to rely on his usual terms although these weren’t stated at...