Contract Terms

Question 1

What are the three types of pre-contractual statements?

Answer 1

Puffs: Exaggerated and vague statements. No legal effect. (Dimmock v Hallet)
Representations: Statements on matters relating to the contract, induces party to enter the contract. Cannot sue for breach but can sue for misrepresentation.
Terms: Assertions/promises/undertakings. Can sue for breach of contract

Question 2

How to differentiate between terms and representations?

Answer 2

Fundamental Criterion: Whether at the time of the contract, both parties have the intention for this statement to be affected with contractual liability, objectively ascertained
5 Non-Conclusive Guidelines:
1. Time of Statement: Closer to contract, more likely a term (Routledge v McKay)
2. Maker’s Special Knowledge: More knowledge, more likely a term (Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd)
3. Maker’s Emphasis: More emphasis, more likely a term (Bannerman v White)
4. Invitation to Verify: No invitation, more likely to be a term (Ecay v Godfrey)
5. Reduced to Writing: Written statement = Term

Question 3

When will the parol evidence rule apply?

Answer 3

When both parties intend the written contract to represent the entire agreement between them

Question 4

What is an exception of the parol evidence rule? (Hint: S(?)(?))

Answer 4

s94(f): Allows extrinsic evidence to help interpret written words in the document (explain, not add/vary/amend/contradict)

Question 5

How to prove an implied term by court in fact? Apply one test

Answer 5

Sembcorp Marine Ltd v PPL Holdings Pte Ltd 3-Step Test:
1. Gap arose because both parties did not contemplate the subject matter of the gap
2. Term implied is necessary in the business/commercial sense to ensure business efficacy
3. The implied term is one where if an officious bystander suggests it and both parties, having regard to business efficacy, would have responded with a “oh, of course”.

Question 6

What are the three types of terms?

Answer 6

1. Condition: Important and fundamental to contract
2. Warranty: Less important, constitutes as secondary obligations
3. Innominate Terms: Too complicated to classify, may result in trivial or serious consequences when breached

Question 7

What is the approach for an innocent party to terminate a contract?

Answer 7

Law: RDC Concrete v Sato Kogyo
1. Term clearly states that innocent party can terminate
2. Party in breach renounces the contract
3a. Term breached is a condition
3b. The breach deprived the innocent party of substantially the whole benefit intended for him to obtain from the contract

Question 8

What are the two approaches used in RDC Concrete case to distinguish between condition and warranty?

Answer 8

3a. Condition-Warranty Approach
To test if the term is a condition, first discern the intention of parties through language used, nature of the case, prior cases, and term implied by statute
3b. Hong Kong Fir Approach
Focuses on the consequences of breach to decide on the remedies. If breach deprives the innocent party of substantially the whole benefit, termination is possible

Question 9

What is an exemption clause?

Answer 9

A term in the contract which seeks to exclude or limit the liability of the party relying on the EC

Question 10

Explain the elements of an exemption clause

Answer 10

1. Incorporation
   By Signature:
   Person who signed a contract is bound to all the terms in the contract, whether he read it or not (L’Estrange v Graucob) or no chance to read it (Press Automation v Trans-Link)
   By Notice:
   Notice must be made before/at the time when contract is formed (Olley v Marlborough Court)
   Notice must be written on a document where a reasonable man will expect to find it (Chapelton v Barry Urban District Council)
   Notice is known through previous course of dealings for a long time, and buyer knew about the terms in the contract (Henry Kendall v William Lillico)
   Notice is brought to the attention of the other party through taking reasonable steps e.g., legible and conspicuous notices
2. Construction
   Contra-Proferentem Rule: If EC is ambiguous, it will be narrowly and strictly construed against the party relying on the EC
   Main Purpose Rule: EC is invalid if it seeks to exclude or limit a fundamental breach of contract (but if EC is unambiguous, it can exclude or limit fundamental breach) (Photo Production v Securicor)
3. Unusual Factors
   Fraud: EC cannot exclude liabilities arising from fraud
   Misrepresentation: Renders the whole EC invalid (Curtis v Chemical Cleaning)

Question 11

What is the reasonable test under UCTA? (Hint: S(?)(?))

Answer 11

S11(1) To fulfil the requirement of reasonableness, the term must be a fair and reasonable one, having regards to the circumstances which were
(a) known to
(b) ought reasonably to have been known to
(c) in the contemplation of both parties
when the contract was being made

Question 12

What is S3(1) and S3(2) of UCTA?

Answer 12

S3(1): Between contracting parties where one deals as a consumer/on the other party’s written terms of business
S3(2): As against that party, the other party cannot by reference to any of the contract term
(a) when he is the party in breach
exclude/restrict any liability of his in respect to the breach
(b) claim to be entitled to
render a contractual performance substantially different from what was stipulated in the contract, and to render no performance at all
UNLESS the contract term passes the reasonableness test