#5 - Contractual Terms, Incorporation, Exclusion Clauses - Contract Law

Contract reading session 5 General Reading McKendrick casebook Ch 8: * Whether a statement made by one party to another forms a contractual term or merely a representation depends on the objective intention of the parties. However the relevance has been reduced by the availability of damages for negligent misrepresentation as well as fraudulent misrepresentation. * The "parol evidence" rule set out a general principle that where a contract has been put in writing, evidence cannot be adduced to show the existence of another term, that varies, contradicts etc the written agreement. However this rule is subject to exceptions, changes etc. 1. Identifying Terms i) Classifying Contractual Terms Heilbut Symons v Buckleton [1913] AC 30: Ds were underwriting shares of what they claimed was a rubber company. P called Ds to inquire about the shares. D said they were "bringing out a rubber company". Based on this statement, P purchased a large amount of shares. The shares turned out not to be for a rubber company at all, the shares did very poorly. P sued for breach of warranty. HL denied P's claim. Lord Moulton: P could be successful in two ways. First, if the plaintiff could show fraudulent misrepresentation "or what is equivalent thereto, must be made recklessly, not caring whether it be true or not." Second, if there was intent to be held to a promise then there may be a collateral contract, which would bind D to their representation. However, collateral contracts are difficult to find, and, on the fact, none was found. VC Haldance LC: the general principle is NOT to presume that a collateral contract (one aside from the main contract) in the absence of an expression or implication to that effect. Oscar Chess Ltd. v. Williams [1957] 1 WLR 370: P sold D a car in a part exchange. D told P that the car he was trading in was one type of car and P reduced the amount on that basis. It turned out that it was a different type that was worth much less. D had genuinely believed it to be the type of car he claimed since the person who he bought it off had told him that and the cars documents suggested that. P sued D for the difference between the initially stated value of the car and the actual value of the car. CA found that D did not have to pay damages. Denning LJ: Was the statement as to the type of the car a "warranty" i.e. a guarantee? Was it a term of the contract, breach of which demands payment? He says determining something as a warranty or a term rather than mere representation depends on intentions of the parties. In this case the assertion as to the type of car was a claim or a belief, not a promise (quotes the actual speech of D which proves this). Here, D obviously had no personal knowledge of when the car was made and had he been asked to guarantee the type of car, he would have been unable to do so, not having any more knowledge than what he deduced from the log-book, which P had also inspected. P therefore knew that D was in no position to guarantee or warrant the model of the car: he could merely make an informed guess. Also in this case P could have checked by referencing the chassis no. with the company, but did not do so. McKendrick: P's claim might succeed today under Misrepresentation Act 1967 (see next week). Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. [1965] 1 WLR 623: D sold P a car but made false claims as to the mileage of the car and P sued for the difference between the value he paid and the actual value. CA allowed his claim. Denning LJ: If a representation is made so that P will act on it, and P does in fact act on it, there is prima facie ground for saying that it was a warranty. This presumption can be rebutted by D if he can show that (1) it was made innocently i.e. he had no fault in a false representation being made, and (2) that it would not, in the circumstances, be reasonable for him to be bound by it. In this case the prima facie warranty is not rebutted since D was in a position to, and ought to, have found out the truth about the car. The statement as to mileage was made without justification. This is contrasted with D in Oscar Chess who could not have discovered the truth about the car. L Schuler AG V. Wickman Machine Tools Sales Ltd. [1974] AC 235: See week 4 Lombard North Central v. Butterworth [1987] QB 527: P lent a computer to D on a hirepurchase basis, stating that timely payment was to be a condition. D narrowly failed to make the payments and P repossessed the computer and resold it. The CA upheld P's termination because the breach was of a condition. This shows the danger of letting the parties decide what should be a condition and what a warranty, since the more powerful party can simply make every small term a condition. Bad decision since Schuler shows that this is not necessary. On the hand time might have been v important to P genuinely... Arcos Ltd. v. E A Ronaassen & Son [1933] AC 470: P agreed to buy wood 8/16 inch thick but D actually delivered wood 9/16 inch thick. The court considered that P could not be bound to accept goods that did not match the description of those specified in the contract. P was allowed to terminate, even though the goods were "merchantable". The real reason for p terminating was because it had made a bargain that was unprofitable to them. This case shows the unfairness of an absolute insistence on the specified terms of the contract.