Contractual Terms

Question 1

What is the Parol Evidence Rule?

Answer 1

The parol evidence rule is a deterrent to the abuse of verbal evidence. If the verbal evidence was intended to be in the contract, it would have been written. The traditional rule is that the verbal terms cannot: add to, vary, or contradict written terms in a document.

Question 2

Contract which are partly written and partly oral can be an exception to the parol evidence rule, why?

Answer 2

If the contract is intended to be partly written and partly oral the parol evidence rule does not apply. Extrinsic evidence may be introduced in order to establish whether the contract was intended to be in writing only- this “exception” turns the rule inside out and has been describe as rendering the rule as no more than a “self-evident tautology”.

Question 3

Walker Property Investments (brighton) Ltd v Walker

Answer 3

The defendant negotiated the lease of a flat with oral acknowledgement that they could make use of the basement for storage, he would also have use of the garden. The formal lease omitted these usages.

Held: The oral and written elements formed one contract.

Question 4

Evans v Merzario

Answer 4

Said goods would be under deck. They weren’t. They got damages.

The court of appeal said even though it was oral, it was the basis of a contract. He wouldn’t have entered the contract if that wasn’t assured.

Question 5

Couchman v Hill

Answer 5

Guy bought cow. The cow was orally said to not be pregnant. It was pregnant and it died later. The courts held that the claimant was entitled to damages.

would not have entered the contract if he’d known.

Question 6

How could scenarios like Evans, Couchman and Walker be avoided?

Answer 6

By adding a clause into the contract which states that everything written in the contract supposed to encompassed in the written document (rather than the oral statements).

Question 7

What is a collateral contract?

Answer 7

These have often been used by the courts to avoid harsh results of the strict application of the parol evidence rule.

Question 8

City of Wesminster Properties v Mudd

Answer 8

The defendant rented a shop from the claimants who knew that the defendant often slept there. When a new lease came up for negotiation, the claimants told the defendant that he could still sleep on the premises after signing the lease. There was a clause in the lease restricting the use of premises to “showrooms, workrooms and offices only”. In reliance on the oral assurance, the defendant signed the lease. The defendant continued to live there and the claimants brought an action for forfeiture of the lease alleging a breach of covenant not to use the premises for anything other than business purposes. Although the defendant was in breach of contract, Harman J. held that the defendant could plead a collateral contract as a defence - by entering the new lease the defendant had provided consideration for a promise not to enforce the strict terms of the least against him.

Question 9

How can collateral contracts be avoided?

Answer 9

It seems that insertion of an entire agreement clause may prevent a party from setting up a collateral contract as a defence to an action for breach of contract.

Question 10

Other exceptions are:

Answer 10

Custom: Smith v Wilson - Local custom meant 1000 rabbits actually meant 1200 rabbits.
Operation of the contract; Pym v Campbell - written agreement for the sale of a share in a patent but the parties agreed that a 3rd party must approve the invention before the contract would operate.
Validity: Written contract lacks validity e.g. for want of consideration, incapacity, misrepresentation or mistake.

Question 11

What is the difference between a representation and a term?

Answer 11

A representation is a statement of face fact said which might be true or untrue.

A term is constitutes a binding promise by which a party commits to fulfilling an obligation.

Question 12

the statament made in Evans v Merzario was classed what? A representation or a term?

Answer 12

A term, as it was so important, without it there would have been no contract.

Question 13

Ecay v Godfrey

Answer 13

In the course of negotiations for the sale of a boat, the seller stated that he believed the boat was sound but suggested that the buyer should haver her surveyed. The buyer did not have her surveyed because he was in a hurry to buy. The vessel turned out to be in poor condition but Lord Goddard C.J. refused to treat the statement that the boat was sound as a term of the contract.

Question 14

Schawel v Reade

Answer 14

the claimant went to the defendant’s stables to look for a horse for stud purposes. While the defendant was examining the horse, which was called “mallow man”, the defendant said “you need not look for anything: the horse is perfectly sound. If there was anything the matter with the horse - I would tell you”. The claimant stopped the inspection and the price was agreed a few days later; the contract was completed three weeks later. The animal turned out to be unfit because of an eye disease. The HoL unanimously held that the statement that the horse was sound was a term. Lord Macnaghten considered that the words used were about as plan a warranty (i.e. A contractual term) as to the soundness of the horse could be given.

It seems that where there is a distinct interval between the making of the statement and the conclusion of the contract, this may indicate the statement is intended to be only a representation.

Question 15

Routledge v Mckay

Answer 15

The defendant was selling a motor bike combination and told the old claimant that it was a 1942 model. Seven days later a written contract was drawn up which made no reference to the date of the machine, but it was discovered later that it was registered in 1930. the CoA held that the claimant could not recover damages from the defendant as the statement was not a term of the contract. Since the statement was made some time before the contract was concluded it was only a representation. This decision may be compared with schawel v Reade where clearly the court regarded the ocntract as having been made over a prelonged period. Nevertheless, in more recent times it has been judicially stated that the longer the interval between the statements and the conclusion of the contract, “the greater the presumption must be that the parties did not intend the statement to have contractual effect”.

Question 16

Bannerman v White

Answer 16

The defendants wanted to buy hops to brew beer. They were concerned about sulphur. They were told there was none. there was sulpher in the hops. This was classed as a term because it had been made known to both parties the importance of the term.

Question 17

Special knowledge and skill.

Answer 17

One party may possess superior skill and knowledge. Therefore is in a stronger bargaining position. Statements made by people who have more knowledge are likely to be called terms.

Question 18

Dick Bentley Productions Ltd v Harold Smith

Answer 18

Dicken Bentley, a car dealer wanted a ‘well vetted’ Bentley. That is, one of which the history is known. Later, the defendant showed the claimant a car which he said had done 20,000 miles since being fitted with a replacement engine and gearbox. The speedomiter said 20,000 miles. He had trouble with the car. The statements about the car were untrue. The car had done 100,000 miles. The court of appeal found for the claimant and held that the statement as to the mileage was a term of the contract. In holding the statement to be a term, Lord Denning Said:

“Here we have a dealer…. who was in a position to know, or at least to find out, the history of the car. He could get it by writing to the makers. He did not do so. When the history of the car was examined, his statement turned out to be quite wrong. He ought to have known better”.

Question 19

Oscar Chess Ltd v Williams

Answer 19

Morris was a 1939 model, not a 1948. The court held this was a representation and not a term because the owner didn’t know. The logbook was the same as what he thought the date was.

Question 20

What is a collateral contract?

Answer 20

a subsidiary contract which induces a person to enter into a main contract or which depends upon the main contract for its existence.

That is to say, where a contract is entered into on the faith of a statement made by one of the parties, the courts may decide that it founds a collateral contract.

Question 21

Collateral contract device forms an exception to the parol evidence rule. In Heilbut, symons & Co v Buckleton Lord moulton considered that the courts should be slow to find a collateral contract although this must be seen in the light of the refusal of the courts at that time to award damages for non-fraudulent misrepresentation. How did he explain the device?

Answer 21

“It is evidence, both on principle and on authority, that there may be a contract consideration for which is the making of some other contract. ‘ if you will make such and such a contract I will give you £100’, is in every sense of the word a complete legal contract. It is collateral to the main contract, but each has an independent existence, and they do not differ in respect of their possessing to the full the character and status of a contract”

Question 22

De Lassalle v Guildford

Answer 22

The defendant was negotiation the lease of a house to the claimant, who refused to complete unless the defendant orally assured him that the drains were in order. The defendant gave such assurance but no term to that effect was inserted into the lease document. The drains were not in order and the claimant sued for damages not upon the lease, which did not refer to the drains, but on a collateral contract based on the defendant’s oral assurance. The consideration to enforce this promise as a separate contract was the claimant’s execution of the lease, i.e. his entering into the main contract.

Question 23

A number of points should be noted in connection with collateral contracts: What are they?

Answer 23

1) Although the collateral contract arises from a process of judicial implication, in theory the court should not find such a contract unless the elements of a separate valid contract are in existence. Thus, the promise that found the collateral contract must be made with the intention that it be acted upon and supported by consideration. The consideration usually consists of the act of entering the main contract.

Secondly, a collateral contract may be valid even though it conflicts with a term in the main contract. We saw in City of Westminster Properties v Mudd that an oral assurance by a Landlord that a tenant could continue to reside on the premises overrode a covenant in the lease that the property should only be used for business. The oral assurance formed the basis of a collateral contract which could be raised as a defenence in an action for rbeach of covenant by the landlord. It was previously thought that the parol evidence rule could only be circumvented by a collateral contract where the statement in question added to, rather than varied or contradicted, the written document.

Thirdly, not only may the collateral contract device be used to side step the parol evidence rule, but it has been used in certain other contexts, for example, to evade an exclusion clause or to avoid the effects of an illegal contract.

Question 24

In Shanklin pier Ltd v Detel Products Ltd…

Answer 24

the device of collateral contract was used to get round the difficulties caused, at the common law, by the rule of privity of contract

Question 25

Record v Bell

Answer 25

shows that the collateral contract can be relied upon in certain circumstances to get round s.2 of the Law of Property (miscellaneous provisions)

In the case it was held that although the correspeondence did not satisfy the formality requirement in s.2, a letter by the vendor offering respondence did not satisfy for the formality requirement in s.2, a letter by the vendor offering a warranty as to title, intended to induce the purchaser to exchange, amounted to an enforceable collateral contract when accepted by the exchange of contract.

Question 26

The concept of the collateral contract proved useful in circumventing…

Answer 26

The concept of the collateral contract proved useful in circumventing the rule that damages were not available for non-fraudulent misrepresentation even where the misrepresenter had been negligent

Question 27

Even after the introduction of remedies in damages for negligent mistatements, the courts have showen a readiness to find a collateral contract or warranty. This may be where the statement is in the form of an opinion of a promise as to the future which may not given rise to liability in misrep. under the Misrepresentation Act 1967

Answer 27

Esso Petroleum Co Ltd v Mardon - The claimts wished to build a petrol filling station at Southport and idenified a suitable site. They carried out a survey and concluded that a filling station on the site would be likely to sell approx. 200,000 gallons of petrol a year by the second year of operation. The claimants obtained planning permission from the local authority who imposed a condition that the petrol pumps should be at the back of the premises i.e., screened from the road. The site was developed according to this plan and it was completed in 1963; the claimants did not, however, revise their estimated annual throughput of petrol. The claimants entered into negotiations with the defendant who was interested in taking a tenancy. The claimants’ experienced representative informed the defendant informed the defendant that he estimated that the site would have an annual throughput of 200,00 gallons. On the basis of that figure, the defendant took a tenancy of the station by the sales never amounted to half the gallonage predicted by the claimants. The defendant could not run the station at a profit and ultimately the claimants sought possession of the site and the defendant counter-claimed for damages for negligence.

CoA held that when the claimants, through their representative, made their forecast as to the potential throughput of the site, they made a collateral warranty that they had used reasonable care and skill in making their forecast. This was based on the claimants’ superior skill and knowledge of the petrol trade which meant that their statement, although in the form of an opinion, was intended to induce the defendant to enter the contract.

as the claimants were in breach of this promise, they were liable in damages. The court also held that the statement constituted a negligent misstatement.

Question 28

Evans (J) & Sons (Portsmouth) Ltd v Andrea Merzario Ltd

Answer 28

an oral assurance that goods would be carried int he hold of a ship was held to override a written contrac tthat permitted carriage on deck. The defendants were held liable in damages when the claimant’s container was swept overboard. the majority of the Court of Appeal held that the oral assurance was a term of a contract partly written and partly oral. Lord Denning M.R. relied on the collateral contract device. The two concepts, though clearly different, were treated in this case as interchangeable.

Question 29

There are 3 ways in which a term may be implied into a contract… What are they?

Answer 29

(i) by custom (ii) by the courts (where terms may be implied in fact or in law); and (iii) by the provisions of statute.

Question 30

In Hutton v Warren what happened?

Answer 30

This is a case about terms being implied by custom.

the lease of a farm was lawfully determined by the landlord and the tenant sought a reasonable sum in the respect of tillage, sowing and cultivation. (i.e. for the crops that had been sown but not harvested). Although the lease was silent on these matters agricultural custom required such a payment. the court held that the custom would be implied into the lease and found for the tenant.

Question 31

A custom will not be applied if it is contrary to the express terms of the contract, what case shows this?

Answer 31

Affreteurs Reunis SA, Les v Leapold Walford (London) Ltd a charterparty contained a clause that commission was to be paid to the broker of the charterers “on signing the charter”. The owners who were sued by the broker for his commission, argued a custom of the trade that commission was payable only when the hire had been earned. the house of Lords held that commission was payable on signing the charter–the custom was incompatible with the clear wording of the clause in the contract.

Question 32

Terms implied by the courts

Answer 32

Apart from the implication of terms by custom, there are two distinct processes whereby a court may imply a term into a contract - these terms are called “implied in fact” and “implied in law”

Question 33

What is a term implied in fact?

Answer 33

A term will be implied in fact where the court is satisfied that the parties, having omitted to insert a provision in their contract to deal with a particular eventuality, must have intended it as a matter of fact to be part of their agreement. Thus the court does not see itself as rewriting the contract for the parties, but rather giving effect to what the parties had agreed and would have explicitly stated had they thought about the matter.

Question 34

A-G of Belize v Belize Telecom Ltd

Answer 34

This case indicated that the various formulation of the test for implying terms should in fact be condensed into a single proposition.

Question 35

Term implied must give the contract…

Answer 35

“business efficacy”

Question 36

The Moorcock.

Answer 36

The facts were that the defendants agreed to let the claimants use their wharf and jetty, which extended into the river Thames, to discharge and store from their steamship, the Moorcock. The ship would be moored alongside the jetty where it would be grounded at low tide. However, the ship having moored, when low tide came, she was damaged owing to a ridge of hard ground beneath the mud. the defendants had done nothing to ascertain whether the river bed adjacent to their jetty was a safe place for mooring and there was no express term as to its suitability for such a purpose. the claimants sought damages from the defendants who denied liability.

The Court of Appeal held that the defendants were liable. A warranty must be implied into the contract that the defendants had taken reasonable care to ensure that the vessel could safely moor as this must have been the intention of the parties. The court could imply the term as it was necessary to make the contract commercially workable i.e. to give it business efficacy.

Question 37

What did bowen LJ say in moorcock?

Answer 37

“In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy as must have been intended by both parties who are business men”.

Question 38

The test established a narrow and restrictive one based on “necessity”….

Answer 38

It is not enough to show that the implied term would better reflect the parties’ intentions or that the implication of the term would be reasonable. In Liverpool City Council v Irwin the House of Lords rejected an attempt by Lord Denning M.R. in the court below to suggest that the courts could imply a term where it would be reasonable to do so. their Lordships confirmed that the test is one of necessity.

Question 39

In the years since moorcock was decided there have been a number of cases which have attempted to forumlate a test for implying terms. Perhaps the best known case is Shirlaw v Southern Foundries (1926) Ltd. Here MacKinnon L.J. put forward what has come to be knows as the “officious bystander test”. He said:

Answer 39

“Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common “Oh, of course!”

Question 40

Spring v National Amalgamated Stevedores and Dockers Society

Answer 40

It was held that the “bridlington Agreement” (a trades Union Congress agreement relating to the transfer of members from one union to another) could not be impled into a contract of employment because the average employee would never have heard of it. Sir Leonard Stone V.C. explained the basis of the decision as follows:

“If the test were to be applied to the facts of the present case and the bystander had asked the claimant at the time he paid his five shillings and signed the acceptance form “won’t you put into it some reference to the Bridlington Agreement?” I think (indeed, I have no doubt) the claimant would have answered “what’s that?”

Question 41

If there are doubts as to whether one of the parties would have agreed to the bystander’s suggestion, the term cannot be implied. Two cases demonstrate this point

Answer 41

Luxor (Easbourne Ltd v Cooper

Shell UK LTD V Losstock Garage Ltd

Question 42

Luxor (Eastbourne) Ltd v Cooper

Answer 42

The appellants employed the respondent, an estate agent, to sell some property. the respondent, by the terms of the contract, was to be paid a considerable sum by way of comission on completeion of sale. he found a buyer ready, willing and able to purchase at the asking price but the appellants refused to proceed with the transaction - they had found a buyer themselves. The appellants refused to pay the comission but the respondent argued that a term should be implied that the appellants should not, without good reason, refuse to sell the property to persons introduced by the respondent. the house of lords held that no such term could be implied because both parties would not have agreed to it at the time of the agreement. It was doubtful that the appellants would have assented to the term. Their lordships considered that no neccesity exister for the term to be implied; the officous bystander test was no specifically mentioned in the case but it is a clear illustration of its application.

Question 43

Shell UK Ltd v Lostock Garage Ltd

Answer 43

the defendants, who operated a small country garage, had an exclusive dealing agreement. with the claimants, shell uk, under which the defendants agreed to buy all their petrol from the claimants The defendants were in competition with four local garages, two of which were also tied to the claimants. Following the energy crisis of 1974, the demand for petrol slumped and there took place a price war between garages. The four local competitors were selling petrol at 70p per galllon but the defendants, being bound by the solus tie, had to ssell at 75p per gallon. The two local garages that were free from ties were able to purchase petrol cheaply from independent suppliers; where as the two which were tied to the claimants benefited from a price support scheme operated by the claimants which kept the price at 70p. The defendants’ garage was took small to benefit from this scheme. In order to stay in business, the defendants switched to a cheaper supplier breaching the tie. The claimants brought an actions seeking an injunction and damages-the defendants argued that the claimants were in breach of an implied obligation in the solus agreement that the claimants would not abnormally discriminate against them.
A majority of the court of appeal held that no such term could be implied, as Lord Denning M.R. explained:

“If the shell company has been asked at the beginning: ‘Will you agree not to discriminate abnormally against the buyer?’ I think they would have declined. It might be a reasonable term, but it is not a necessary term.

Question 44

Equitable life Assurance Society v Hyman

Answer 44

Under art. 65 of the claimant societ’s articles of association the amount of any bonus awarded to policyholders was within the absolute discretion of the directors. The defendant represented the interests of the policyholders who held retirement with-profits policites with the society containing a guaranteed annuity rate. This guaranteed rate was higher than the then

Question 45

Sale of Goods Act 1979

Answer 45

The terms are concerned primarily with the seller’s title and the quality of the goods sold. The implied terms as to quality originally appeared in the the Sale of Goods Act 1893 and they were introduced so that businessmen could better regulate their affairs – it was possible to exclude the terms and such exclusion was frequent before the 1970’s. In those years, however, the implied terms as to quality came to be seen as an important measure of consumer protection and the unfair contract Terms Act 1977 rendered void any attempt to exclude the terms by a business as against a consumer. Exclusion of the terms between businesses was made subject to a requirement of reasonableness.

Question 46

In 1979 a revised version of the Sale of Goods Act was enacted–

Answer 46

the implied terms that we are concerned with are to be found in ss.12-15 That Act was amended by the Sale and Supply of Goods Act 1994 which implied a condition that the goods must be of satisfactory quality instead of merchantable quality, the standard that had applied since 1893. Further reform came with the implementation of the Sale and Supply of Goods to Consumers Regulations 2002

Question 47

S.12 of the Sale of Goods Act 1949 (1) specifies a person must have the “right to sell” The case for this is Rowland v Divall

Answer 47

Claimant bought car. Owner was not real owner had no right to sell. Claimant got compensation under S.1 of Sale of Goods Act.

Question 48

S.13 (1) Of The Sale of Goods Act

Varley v Whipp

Answer 48

Where there is a contract for the sale of goods by description, there is an implied condition that the goods will correspond with the description.

Defendant agreed to buy a reaping machine from the claimant. The claimant had said it was new the previous year and had only cut 50 or 60 acres. The defendant had never seen the machine until it was delivered. It turned to be an old machine that had been mended at some stage and was of no use to the defendant and so he returned it. The claimant brought an action to recover the price but failed. It was a sale by description and the goods did not correspond with the description. This breach of condition entitled the defendant to to treat the contract as repudiated.

Question 49

s.13(3) of Sale of Goods Act Makes it clear that…

Answer 49

a sale of goods is not prevented from being a sale by description “by reason only that, being exposed for sale or hire, they are selected by the buyer”