Contractual terms, misrepresentation and mistake

Question 1

Pre-contractual terms intro

Answer 1

• Pre-contractual statements: parties may exchange many oral or written statements before a contract is made
• The classification of a pre-contractual statement determines its legal effect, and this informs the remedies that are available to the representeeo Terms: a pre-contractual statement that contains a promise that something is true, which becomes part of the contract
  o Representations: not a promise that something is true, but induces the other party to enter the contract
  o Puff: an extravagant statement (often found in advertisements) that a reasonable person would recognise as not intended to have legal consequences. Puffs do not have legal consequences

Question 1

Puff

Answer 1

Statements in a advertisements are often (but not always) puff and English law takes the view that a reasonable person would not take such statements literally – no legal effect

Question 2

express terms

Answer 2

• Express terms are statements made by the parties, by which they intend to be bound. A contract can have terms agreed in writing, or agreed orally, or a mixture of the two.

Question 3

Express terms v representations

Answer 3

• Statements made by the parties during negotiations can be divided into ‘mere puffs’, representations or terms of the contract.
• Representations: a statement that induces the representee to enter the contract
• If an untrue statement is a term of the contract then this may give rise to a claim for breach of contract.
• A statement is likely to be a term if the parties intended the statement to be binding.

Question 4

Common law tests to determine whether a pre-contractual statement is a term or representation:

Answer 4

• Did the representor have special knowledge or expertise?
  o No – representation
  o Yes – term
• The ‘importance attached’ to the statement. Did the representor know that the representee would not have entered into the contract if the pre-contractual statement had not been made?
  o No – representation
  o Yes – term
• Did the representor assume responsibility for the pre-contractual statement?
  o No – representation
  o Yes – term
• Or, did the representor advise the representee to check/verify the statement?
  o Yes – representation
  o No – term
• The court will also consider:
  o The timing of the statement – e.g. was it made on the same day the contract was entered into?

Question 5

incorporation of express terms

Answer 5

• The terms that a party intends to be bound by will be the terms of the contract. How the ‘intention to be bound’ is demonstrated varies in different circumstances.
• Signing a written contract almost always shows an intention to be bound.
• Terms can be incorporated by notice, but ‘reasonable steps’ need to be taken to bring those terms to a party’s attention, and notice of the terms must be given before or at the time of contracting.
• Terms can be incorporated by a regular and consistent course of dealing.
• Terms can be agreed in many other ways, such as by a conversation or an exchange of emails.
• An ‘entire agreement’ clause in a written agreement helps rule out the possibility of there being representations or terms agreed orally which form part of a contract.
• Document must have contractual effect.

Question 6

implied terms

Answer 6

• not agreed on orally or in writing
• but law deems that they exist
• implied by court, custom and statute
• can be implied by the court on the basis of law or fact

Terms are implied in law, in fact, by statute or by custom

Question 7

Key terms implied by statute in B2B regime

Answer 7

The seller has the right to sell the goods

The goods will comply with their description

The goods are of satisfactory quality and are suitable for any purpose made known to the seller

If goods are sold by sample, the bulk will correspond with the sample

Where the supplier is acting in the course of a business, there is an implied term that the supplier will carry out the service with reasonable care and skill

Question 8

Consumer Rights Act 2015 and B2C

Answer 8

The quality of the goods is satisfactory

The goods are reasonably fit for any particular purpose that the consumer makes known to the trader before buying the goods

The goods will match the description

Where goods are sold by sample, the goods will match the sample

Where a model is seen or examined before the goods are bought, the goods will match the model

Correct installation is part of conformity of goods with the contract

Items that include digital content must conform to the contract

Services should be performed with reasonable care and skill

Services should be performed within a reasonable time

Question 9

CRA 2015 implies certain things for certain types of contracts

Answer 9

• Contracts for goods: goods will be of satisfactory quality, fit for any particular purpose made known to the trader, and will comply with their description.
• Contracts for digital content: the content will be of satisfactory quality, fit for any particular purpose made known to the trader, and will comply with its description.
• Contracts for services: the services will be performed with reasonable care and skill, provided in a reasonable time, and (where price has not been agreed) a reasonable price will be paid.
• The CRA 2015 sets out various remedies which are available when these terms are breached. These remedies sit alongside normal contractual remedies, but a consumer cannot treat a contract as at an end as a result of a breach of these terms other than in the manner specifically provided for in the Act.

Question 10

unfair terms

Answer 10

largest category are exemption clauses

• Unfair terms are only enforceable if:
  o They have been incorporated into the contract,
  o The wording in the clause covers the claim, and
  o They are not rendered unenforceable by statute or common law

Question 11

Incorporation of unfair terms

Answer 11

1. Signature

Exceptions
- Fraud/misrep
- it is not my deed -> radical diff between what they signed and this or didn’t understand it
- doc is not contractual

2. Reasonable notice (some docs form contracts without being signed like train tickets, provided reasonable notice is given)

Test
- notice must be timely
- if term is usual then prominently displayed on front of doc and if unusual then additional measures are necessary

3. Consistent course of dealing
4. Common knowledge/awareness
   - must be exact same industry not just similar industries

Question 12

can exemption clauses stand with personal injury/death?

Answer 12

Not usually

Question 13

What is necessary to exclude liability in regards to negligence?

Answer 13

Must be clear and unambiguous words which exclude liability for negligence in contract and word ‘negligence’ must be incorporated

Exception when no use of ‘negligence’
 cases where the only basis for liability is negligence – usually effective to cover negligence
 cases where the party will be liable irrespective of negligence – usually not effective – e.g. reference to contractual liability

Question 14

Burden of proof on innocent party’s right to affirm

Answer 14

The burden of proof is on the contract breaker to show that the innocent party did not have a legitimate interest in affirming.

Question 15

breach of condition remedy

Answer 15

repudiate/terminate the contract

Question 16

breach of warranty remedy

Answer 16

damages

Question 17

breach of innominate term remedy

Answer 17

if minor - damages
if serious - repudiate contract and damages

Question 18

distinction between condition and warranty

Answer 18

• a condition is an important term ‘going to the root of the contract’.

Question 19

when terms implied by statute….

Answer 19

statute will normally specify whether they are conditions or warranties (in some cases the statute will also state or modify the remedy available upon breach of such a term)

Question 20

Misrep makes a contract…

Answer 20

voidable

Question 21

Mistake makes a contract…

Answer 21

void

Question 22

what is actionable misrepresentation?

Answer 22

• “An unambiguous false statement of fact made to the representee, and which induces the representee to enter into the contract with the statement maker”

Question 23

What should you look for in misrep?

Answer 23

o Was it material?
o Was it known to the representee?
o Did the representor intend the statement to be acted upon?
o Was it acted upon?

Question 24

During sale does a representor have a duty to tell prospective buyer of change in value if they have made a representation of it during negotiations?

Answer 24

Yes, because silence is not allowed in this case and can lead to misrep if leads to half-truths

Question 25

Advertising puff

Answer 25

not misrep

Question 26

inducing the claimant to enter into contract and plays a ‘real and substantial’ part in inducing the claimants to act

Answer 26

• ‘Induced’ means formed one of the reasons for entering into the contract. If the statement is material, inducement will be inferred. If not material, then inducement must be proved. 4 conditions:
  1. The statement must be material,
  2. The representee must be aware of the statement,
  3. The representor must intend the representee to act on the statement, and
  4. The representee must act on the statement
• Material: a statement is material if it would affect the judgment of a reasonable person in deciding whether/not to enter into the contract – e.g. a statement that the object is in good condition

Question 27

Categories for misrep

Answer 27

Innocent, fraudulent and negligent

Question 28

rescission

Answer 28

setting the contract aside with the aim of putting the parties back in the position they were in before the contract was made

Question 29

indemnity

Answer 29

it is possible that as part of the process of rescission, an indemnity may be awarded to cover expenses for obligations assumed as a direct result of the contract

Question 30

Mistake

Answer 30

• There are three categories of mistake that can amount to operative mistakes:

1. common mistake:
   * e.g. as to the existence of the subject matter – void, unless contract impliedly/expressly allocates this risk

• e.g. as to a fact/quality fundamental to the agreement – void only in the most severe instances of mistake

2. mutual mistake:
   * both parties make a fundamental mistake in respect of a contract term

• there is no agreement when parties to a contract both make a fundamental mistake as to what they have agreed –e.g. as to the identity of the subject matter – void
• in a scenario where one of the parties is mistaken because he has been careless or reckless (Tamplin v James), rather than because of ambiguity/misrepresentation, the party at fault will be bound by the agreement

3. unilateral mistake:
   * one party to a contract is fundamentally mistaken as to a term of the contract, and the other party to the contract is aware, or should be aware, of the mistake

• unilateral mistake renders a contract void
• to rely on unilateral mistake, the mistaken party must provide evidence to satisfy the 3 following conditions:
  1. the other party was aware, or should have been aware of the first party’s mistake at the time the contract was made
  2. the mistake was in respect of a term that induced the first party to enter into the contract, not a collateral matter (a term not mentioned in the contract)
  3. the mistaken party was not at fault – e.g. if the mistaken party is careless/negligent in reaching his mistaken conclusion, he cannot rely on unilateral mistake