Chapter 6 - False Preliminary Statements Flashcards
What is a false preliminary statement in contract law?
A false preliminary statement is an untrue statement made during contract negotiations. It can be classified as a mere puff, an express term, or a representation.
What is a ‘mere puff’?
A mere puff is an extravagant or gimmicky claim made during contract negotiations. It is not actionable, meaning there is no legal remedy for it.
An example of a mere puff is an advertising slogan that is clearly exaggerated.
What is an ‘express term’ in a contract?
An express term is a statement that forms part of the contract. If an express term is untrue, the innocent party can sue for breach of contract.
What is a ‘representation’ in contract law?
A representation is a statement made during contract negotiations that induces the other party to enter the contract, but does not become part of the contract. If a representation is untrue, the innocent party may have a remedy for misrepresentation.
Why are false preliminary statements important in commercial contracts?
In commercial contracts, where significant sums of money are involved, parties often seek assurances about the subject matter of the contract. Many commercial contracts contain clauses that attempt to exclude liability for false preliminary statements.
How might a company try to exclude liability for false preliminary statements?
A company might include a clause in the contract that states sales representatives are not authorized to make representations or introduce additional terms. This aims to prevent sales representatives from binding the company to potentially exaggerated claims.
Can a company limit liability for misrepresentation in a contract?
A company may include a clause limiting liability for misrepresentation. However, in non-consumer contracts, such clauses are subject to the reasonableness test under the Unfair Contract Terms Act 1977.
What is the reasonableness test under the Unfair Contract Terms Act 1977?
The reasonableness test under the Unfair Contract Terms Act 1977 determines if a clause that excludes or limits liability is fair and reasonable in the circumstances. This test applies to clauses that exclude liability for misrepresentation in non-consumer contracts and for breach of an express term when one party uses their standard written terms.
Why is it important to distinguish between terms and representations in a contract?
The remedies for breach of contract and misrepresentation differ. While a claimant can pursue both breach of contract and misrepresentation claims alternatively, they cannot receive double recovery for the same loss.
What is the primary test to distinguish between a term and a representation in a contract?
The primary test is to determine the common intention of the parties when they entered the contract. The court assesses whether the parties intended the statement to be a contractual term or merely a representation.
What guidelines does the court use to distinguish terms and representations when the parties’ intention is unclear?
The court considers several guidelines, including: the relative skill and knowledge of the parties, whether a verbal statement was included in the written contract, whether the statement’s importance was emphasized, whether verification was encouraged, and the time elapsed between the statement and the contract formation.
How does the relative skill and knowledge of the parties affect the classification of a statement?
If an expert makes a statement to a non-expert, it is more likely to be considered a term. Conversely, a statement made by a non-expert to an expert is more likely to be a representation.
Explain the case of Oscar Chess Ltd v Williams (1957).
In this case, a seller (Williams) unknowingly sold a car to a motor dealer (Oscar Chess Ltd) based on an incorrect registration book stating the car was a 1948 model. The car was actually a 1939 model. As the seller had no personal knowledge of the manufacturing year and the buyer was in a better position to know, the statement was deemed an innocent misrepresentation, not a term.
Explain the case of Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd (1965).
A car dealer (Harold Smith Motors) sold a car to a private individual (Dick Bentley Productions Ltd) claiming it had done 20,000 miles based on the odometer. The mileage was later found to be false. As the seller was a car dealer with expertise, the statement was considered a term, and the buyer successfully sued for breach of contract.
How does the inclusion or exclusion of a verbal statement in a written contract affect its classification?
If a statement made verbally is included in the written contract, it is strong evidence that it was intended as a term. However, if it’s not included, it may be considered a representation. This factor is not always conclusive.
Explain the significance of the case of Birch v Paramount Estates.
In this case, although the seller’s oral promise about the quality of a house wasn’t included in the written contract, the court still considered it a term. This highlights that contracts can be partly written and partly oral.
How does the emphasis on the statement’s importance influence its classification?
If the recipient of the statement makes it clear that it is vitally important, the statement is more likely to be deemed a term.
For example, in Bannerman v White (1861), the buyer explicitly stated they wouldn’t purchase hops treated with sulphur. The seller’s assurance that no sulphur was used was considered a term.
How does encouraging or discouraging verification impact the statement’s classification?
If the statement maker encourages the other party to verify the statement, it is more likely to be a representation. Conversely, discouraging verification suggests the statement is a term.
Explain the case of Ecay v Godfrey (1947).
The seller of a boat suggested to the buyer that they should have the boat surveyed. This implied the seller did not intend their previous statements about the boat’s condition to be a term.
Explain the case of Schawel v Reade.
The seller discouraged the buyer from getting a horse inspected, implying their statements about the horse’s quality were intended as a term.
How does the lapse of time between a statement and contract formation influence the classification?
A longer time lapse between the statement and the contract formation makes the statement more likely to be considered a representation.
In Routledge v McKay (1954), a statement about a motorcycle’s model year made during negotiations but not included in the written contract signed a week later was deemed a representation.
Are all guidelines for distinguishing between terms and representations equally important?
No, some guidelines carry more weight than others. The relative skill and knowledge of the parties is a particularly significant factor.
Summarize the process of classifying actionable pre-contractual statements.
The first step is to assess the parties’ common intention regarding the statement. If unclear, the court uses guidelines to determine whether it’s a term or a representation. If it’s a term, the remedy is for breach of contract. If it’s a representation, the next step is to determine if it constitutes a misrepresentation, which has its own remedies.
What should be considered if a false preliminary statement is a misdescription of goods?
It might breach the statutory implied condition of the Sale of Goods Act 1979, the Supply of Goods and Services Act 1982, and the Consumer Rights Act 2015 that goods sold by description should match that description.
What are the potential consequences of a misdescription of goods?
If a misdescription of goods breaches statutory implied conditions, the innocent party may have remedies like damages, the right to reject the goods, and additional remedies if they are a consumer.
Define ‘misrepresentation’ in contract law.
A misrepresentation is a false statement of fact made by one party to the other before the contract, which induces the other party to enter the contract.
What forms can a misrepresentation take?
A misrepresentation can be oral, written, or by conduct.
Explain the case of Spice Girls v Aprilia World Service BV (2000).
The Spice Girls participated in filming a commercial, representing they were unaware of any member intending to leave the group. This was untrue, and their conduct was deemed a misrepresentation, entitling the sponsor who relied on it to damages.
Does silence constitute a misrepresentation?
Generally, silence does not amount to a misrepresentation. There are exceptions when: a fiduciary relationship exists between parties, the contract requires utmost good faith, a half-truth distorts what is said, or a change in circumstances makes a previous true statement untrue.
What is the ‘utmost good faith’ requirement in contract law?
Contracts of utmost good faith require parties to disclose all material facts, even if not specifically asked about. Insurance contracts are a common example.
Provide an example of a half-truth that could constitute a misrepresentation.
Advertising a car as having ‘one lady owner’ while omitting previous male owners creates a misleading impression and could be a misrepresentation.
The principle is to disclose the whole truth.
Explain the case of Curtis v Chemical Cleaning and Dyeing (1951).
A dry cleaner misled a customer about the extent of an exclusion clause on a document signed when handing over a dress. The customer had inquired about the document’s content and was entitled to rely on the cleaner’s explanation, making it a misrepresentation.
Explain the case of With v O’Flanagan (1936).
A vendor truthfully stated the value of a medical practice. However, before the sale, the vendor’s illness caused profits to drop significantly. Failing to disclose this change was deemed a misrepresentation, allowing the contract to be set aside.
Can a statement of opinion be considered a misrepresentation?
Generally, statements of opinion are not misrepresentations. However, if the opinion is not genuine, lacks reasonable grounds, or is made by someone with superior knowledge of the facts, it can imply a false statement of fact and constitute a misrepresentation.
Explain the case of Smith v Land and House Property Corporation (1884).
A seller described a tenant as ‘most desirable’ despite knowing they were in rent arrears. This was deemed a misrepresentation as the seller had superior knowledge implying a false statement of fact.
Contrast the case of Smith v Land and House Property Corporation with Bisset v Wilkinson (1927).
In Bisset, a seller estimated a farm’s sheep capacity despite never having used it for sheep farming. This was considered an opinion as both parties knew the seller lacked firsthand knowledge. In Smith, the seller had knowledge (rent arrears) that contradicted their statement.
