Terms of Contract : Common Law and

Statutory

The Distinction between Terms and

Mere Representations

Statements that are made during the negotiations, leading to a contract, can be either terms or mere representations.

Is the statement forms part of the contract?

Terms These are statements which form the express

terms. If these are untrue the untruth constitute breach of contract.

Mere representations These are statements which do not form part

of the contract, but which help to induce the contract.

If these are untrue, they are misrepresentations

Whether a statement becomes a term of the contract or not, it depends on the intention of the parties.

To ascertain the intention, the court take into account :-

a) Importance of the statement to the partiesb) Special knowledge and skillc) The time lapse between making the statement and formation of the contractd) Reducing the statement to writing.e) When the statement is incorporated in the contract and is signed

a) Importance of the statement to the parties

Bannerman v White (1861),• White was considering buying hops from Bannerman –

asked if they had been treated with sulphur - ‘if sulphur has been used, I do not want to know the price’ –

• B said there had been no such treatment – believing this to be true, a sale contract was made.

• Later W discovered that sulphur had been used on some hops (5 out of 300 acres).

• W refused to pay saying B had breached a term of the contract.

• B sued for the price, • Held : the statement was a term of the contract.

Other case :- Couchman v Hill (1947)

b) Special Knowledge and Skill

Where a statement is made by someone who has expert knowledge or skill on the subject in hand, the statement is deem a “term”.

Oscar Chess v Williams (1957) Dick Bentley Productions v Harold Smith (Motors) (1965)

c) The Time Lapse between Making the Statement and Formation of the Contract

If the interval is short the statement is more likely to be a term

Routledge v Mckay (1954) A motor cycle was actually registered in 1939 but on a new registration book has wrongly stated it as 1941. In 1949, the current owner, who was unaware of this

inaccuracy, told the prospective buyer that the car was 1941 (as per the registration document)

The P bought the motor cycle a week later. The S&P contract does not mention the age of the car. Later he discovered that the car was actually 1939. He sued for

breach of term. Held : The lapse of time was too distance to create a binding

relationship based on the statement.

d) Reducing the statement to writing.

When a contract is written, but the statement was oral – the statement is not intended to form part of the contract mere representation.

Routledge v Mckay (1954)

e) When the statement is incorporated in the contract and is signed

It is deem “term” of contract – Irrespective of whether they have been read by the party signing.

L’Estrange v Graucob (1934) A woman signed a hire-purchase agreement for a cigarette

vending machine, without reading it. The agreement contained, in very small print, a broad

exemption from liability for the product. The machine proved defective. Held : Signing the contract meant that the woman was bound

by the clauses. It is immaterial whether she read it or not – unless there is misrepresentation or fraud.

The ‘Parol Evidence’ Rule At the beginning, terms are clearly stated in the

contract. Then one of the party tried to show that the

written document did not fully reflect the actual agreement.

He invoke oral representation made prior to the contract to add, vary or contradict the written terms in the contract.

He is against the ‘parol evidence’ rule.

Justification of the Rule1. If the contract had been reduced to writing

then it was supposed that things omitted from the written document does not form part of the agreement.

2. Adding terms in after the written agreement leads to uncertainty.

1) VALIDITY the contract is not valid because of mistake, misrepresentation, no consideration, no contractual intention, incapacity

2) IMPLIED TERMSTerms that are although not mentioned in the contract, but they are implied terms

3) OPERATION OF THE CONTRACTthe contract is not put into operation yet – it is subjected to ‘condition precedent’.

Pym v Cambell (1856)

4) TRADE CUSTOM Hutton v Warren (1836)

5) WRITTEN AGREEMENT NOT INTENTED TO BE THE WHOLE AGREEMENT It is presumed that ‘a document which looks like a contract is the whole contract’, but this is rebuttable Couchman v Hill (1947) Evans v Andrea Merzario [1976]

6) CAPACITY OF THE CONTRACTING PARTIESA person contracted in a capacity as an agent of a principle Humfrey v Dale (1857)

7) VAGUE TERMSContract contains explain words, phrases or jargon that are ambiguous, or which, if taken literally, make no sense.

8) SUPPLEMENTAL AGREEMENTThe contract is contained in more than one document.

9) COLLATERAL CONTRACTS City v Westmister Properties Ltd v Mudd (1959)

Funny Terms in Apple Contract

Classification of Contractual Terms

Terms classified in accordance to its level of importance

1)Warranty

2)Condition

3)Innominate

Introduction

A condition is a major term which is vital to the main purpose of the contract.

A breach of condition will entitle the injured party to repudiate the contract and claim damages.

The injured party may also choose to go on with the contract and recover damages instead.

Poussard v Spiers (1876)

Condition

A warranty is a less important term: it does not go to the root of the contract.

A breach of warranty will only give the injured party the right to claim damages;

he cannot repudiate the contract.

Bettini v Gye (1876)

Warranty

Sometime it is impossible to classify a term neatly in advance as either a condition or a warranty.

Some undertakings may occupy an intermediate position

If the breach results in severe loss and damage, the injured party will be entitled to repudiate the contract

If the breach involves minor loss, the injured party's remedies will be restricted to damages.

Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha [1962]

The Mihalis Angelos [1971] The Hansa Nord [1976] Reardon Smith Line v Hansen-Tangen [1976]

Innominate

In most contracts the primary obligations of the parties are contained in express terms. In addition there are extra terms may be implied into the agreement.

a) Terms implied by Customb) Terms implied by the Courtc) Terms implied by Statute

Implied Terms

The terms of a contract may have been negotiated against the background of the customs of a particular locality or trade.

The parties automatically assume that their contract will be subject to such customs and so do not deal specifically with the matter in their contract.

Hutton v Warren (1836)

Terms implied by Custom

The courts will be prepared to imply a term into a contract in order to give effect to the obvious intentions of the parties.

Sometimes the point at issue has been overlooked or the parties have failed to express their intention clearly.

In these circumstances, the court will supply a term in the interests of 'business efficacy' so that the contract makes commercial sense.

The Moorcock (1889)

Terms implied by the Court

The 'officious bystander test' If while the parties were making their contract, an

officious bystander were to suggest some express provision, they would both reply, "oh, of course."

Wilson v Best Travel [1993]

• Sections 12, 13, 14 and 15 of the Sale of Goods Act 1979;

• Sections 13, 14 and 15 of the Supply of Goods and Services Act 1982; and

Terms implied by Statute

The End

Activity- Quick Quiz Which of the following situations do you

think is likely to contain a term?

1. Jasvinder is a greengrocer. He puts a poster in his window, saying ‘The tastiest apples around’.

Quick Quiz - cont’d2. Andrew is selling his caravan. He describes it

as a ‘family caravan’. It has one double bed and two couches on which it would be possible for other people to sleep.

3. Annie has been given a present of a computer that she cannot use, so she is selling it to Raj. Raj asks if it has a large memory and Annie says that she thinks it has.

Quick Quiz – con’t

4) Sid is selling his motorbike to Colin. He tells Colin that the bike is ‘mechanically perfect’. In fact, the bike breaks down as Colin is leaving Sid’s house.

THE END