Statements and Terms

Question 1

What are the 3 types of statement made when parties negotiate before making a contract?

Answer 1

> Mere puffs

> Representations

> Terms

Question 2

What is a mere puff?

What legal effect does it have?

Answer 2

An exaggerated statement used in marketing
e.g. “red bull gives you wings”

No legal effect

Question 3

What are representations?

What is significant about a representation?

What legal effect do they have?

Answer 3

Statements made about the contract

It might be the reason you entered into a contract

Not legally binding
- untrue representation doesn’t result in breach of contract
(but in certain cases, misrepresentation might result in a remedy)

Question 4

What is a term?

What legal effect does it have?

Answer 4

A statement incorporated into the contract which defines the obligations of the parties

Legally binding
- breach of a term = breach of contract

Question 5

What are the 2 ways a term can be incorporated into a contract?

Define them

Answer 5

Expressed
= specifically agreed upon by the parties
(contained in the offer)

Implied
= put into the contract, by the courts, by a statute or by custom, without the parties needing to express them

Question 6

What do the courts do to decide the nature of a statement?

How do they do this?

Answer 6

Consider if the parties intended for a statement to be a term
-> the courts are only concerned about the parties’ apparent intentions, not their actual intentions

They can apply 6 tests

Question 7

What are the 6 tests used to help the courts decide the nature of a statement?

What are the caveats to these tests?

Answer 7

1. The relative degrees of the parties’ knowledge
2. The reliance shown to be placed on the statement
3. The strength of the statement
4. The time at which the statement was made
5. Written contracts
6. Statements of opinion

The tests are not conclusive and all of the circumstances must be considered.

Question 8

Explain how ‘the relative degrees of the parties’ knowledge’ test is applied

Answer 8

One party often has more knowledge of the contract’s subject matter
e.g. garage owner will know more about cars than most customers

-> this puts that party in a better position to know whether a statement is true or not

Statements made by those with more expertise
= like to be terms
Statements made by those with less expertise
= likely to be representations

Question 9

Explain how ‘the reliance shown to be placed on the statement’ test is applied

Answer 9

If the party to whom the statement was made demonstrates that they relied upon it
= likely to be a term

Question 10

Explain how ‘the strength of the statement’ test is applied

Answer 10

A statement made very strongly
= likely to be a term

A guarded statement
= likely to be a representation

Question 11

Explain how ‘the time at which the statement was made’ test is applied

Answer 11

Statement immediately prompts making of a contract
= likely to be a term

Considerable amount of time passes between a statement and contract formation
= likely to be representation

(Shorter the delay between making the statement and forming the contract
= more likely the parties intended to rely on it
= more likely to be a term)

Question 12

Explain how the ‘written contracts’ test is applied

What is the general rule of written contracts?

Answer 12

In a written contract, the Parol Evidence Rule prevents extrinsic evidence from being introduced to add to or vary what was written

General rule:
Written statements = entire contract
Oral statements = not included in the contract

Question 13

What are the 4 exceptions to written contracts?

Answer 13

1. If an oral contract has been previously made and the written record of this was incorrect
   - > equitable remedy of rectification allowed to correct written version
2. Extrinsic evidence is allowed to show that the contract wasn’t to operate until a condition was fulfilled
3. Extrinsic evidence is allowed to show that the contract was rendered invalid by some rule of law
4. It may be possible to introduce extrinsic evidence to show that what was agreed was not the whole contract

Question 14

Explain how the ‘statements of opinion’ rule is applied

Answer 14

A statement of pure opinion cannot amount to a term or representation

Question 15

What is the case law example for the ‘statements of opinion’ test?

Give a brief description

Answer 15

Bisset v Wilkinson [1927]

Claimant (Bisset) purchased some land to keep sheep on.

He asked the seller (Wilkinson) how many sheep the land would hold. W had not used it as a sheep farm but estimated 2000 sheep.

In reliance of this statement B bought the land. The estimate was wrong, and B sued W for misrepresentation.

Held:
Statement = statement of opinion, not statement of fact
Not actionable misrepresentation

Question 16

Can terms implied be statute be removed?

Answer 16

No

- even if there is a term expressly stating that they should be

Question 17

What are the implied terms from the Sales of Goods Act 1979?

Answer 17

1. The seller has the right to sell the goods
2. If the contract for the goods was by description, the goods will correspond with it
3. If the contract for the goods was by sale, the goods will match the sample in quality and the bulk of the goods will not contain defects not apparent in the sample

AND if the seller is a business, implies that the goods are:

1. of satisfactory quality
2. reasonably fit for any purpose which the buyer expressly or impliedly made known

Question 18

What are the implied terms from the Supply of Goods and Services Act 1982?

Answer 18

The supplier will carry out the service with reasonable care and skill

(Virtually identical terms to those implied in the SGA 1979, but these goods are supplied, not sold)

Question 19

What terms are the 2 ways that the court implies terms?

Answer 19

Matter of fact

Matter of law

Question 20

How are terms implied by the courts as a matter of fact?

When are these terms implied?

Answer 20

On the grounds that the parties to the contract intended the term to be a part of their agreement, even though they did not agree the term verbally

When it is necessary and obvious that the term should be implied in order to give the agreement ‘business efficacy’

Question 21

What test do the courts use to decide whether or not to imply a term?

Answer 21

Officious bystander test
- how would the parties react if an officious bystander has suggested the term should be expressly included in the contract?

a) Parties irritably tell the bystander that the term was obvious, so didn’t need to be included
= term would be implied by the courts

b) Not supposed that the parties would have reacted in this way
= term not implied

Question 22

Give a caselaw example of the officious bystander test

Answer 22

The Moorcock (1889)

While moored alongside the defendant’s jetty, at low tide the Moorcock was damaged.

Held:
The defendants who owned the jetty were liable.

It was inevitable that the steamship would touch the bottom at low tide, so the defendants had impliedly promised that they had taken reasonable care to make sure the river bed by the jetty was in good enough condition so as not to damage the boat

Question 23

How are terms implied by the courts as a matter of law?

Answer 23

Implied if 3 conditions are satisfied:

1. the contract is a sufficiently recognisable type of contract
2. the parties have not dealt with the issue the term is concerned with
3. it is necessary to imply the term to make the contract work

Question 24

How are terms implied by custom?

Answer 24

If a term is customary in a particular trade, locality or between the parties.

The term will be imposed by the courts on the grounds that the parties were fully aware of the custom and intended for it to be part of the contract.

Question 25

Can implied terms be excluded?

Answer 25

Not in many circumstances (e.g. statute)

But if the parties have expressly agreed that terms should not be included, then they will not be implied

Question 26

What are the 3 types of terms?

Answer 26

1. Conditions
2. Warranties
3. Innominate/intermediate terms

Question 27

What is a condition?

What is a warranty?

What is an innominate term?

Answer 27

An important term which goes to the root of the contract

A term which did not appear vitally important when the contract was made

A term which cannot be defined as an innominate term or a warranty

Question 28

What happens when each of these terms are breached..:

1. …condition?
2. …warranty?
3. …innominate term?

Answer 28

1. Damages + can treat contract as repudiated
   (even if the breach resulted in only trivial consequences, injured party can still repudiate the contract)
2. Only damages
   (if injured party treats contract as repudiated = they’re liable for breach of contract)
3. can repudiate the contract and/or damages depending on seriousness of breach

Question 29

What test will the court apply to innominate terms?

Answer 29

The ‘Damage Test’

= “has the injured party been deprived of substantially the whole benefit of the contract?”

Question 30

Give the caselaw example for explaining a condition

Give a brief description

Answer 30

Pussard v Spiers (1876)

Poussard was a singer who fell ill 5 days before her performance.
She was unavailable for the first 4 performances of her 3 month contract.
She was sacked by her employers.

Held:
Employers were entitled to terminate the contract as missing the opening was a breach of condition

Question 31

Give the caselaw example for explaining a warranty

Give a brief description

Answer 31

Bettini v Gye (1876)

Bettini was a singer on a 3 month contract.
He fell ill and missed 3/6 days of rehearsals, which the contract demanded.

His employers sacked Bettini as they believed the term re rehearsal attendance was a condition.

Held:
The terms requiring Bettini to attend rehearsals were only warranties, so
The employer was no entitled to dismiss him.

The employer had breached a term of the contract by sacking unjustifiably, and so was liable in damages.

Question 32

Give the caselaw example for explaining an innominate term

Give a brief description

Answer 32

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

Ship chartered to defendants for 24 months.
Engines were in poor condition and crew were inefficient -> 5 weeks lost in first voyage and 15 weeks lost for repairs

After repairs, ship was totally seaworthy and available for 17 months of the contract

One term stated that the ship should be ‘in every way fitted for ordinary cargo service’.
Both parties agreed this was breached.

Defendants: thought term was a condition and they were entitled to repudiate
Claimants: thought term was a warranty, so sued for wrongful repudiation

Held:
It was an innominate term.
Contract not terminated as defendants had not been deprived of “substantially whole benefit”.