Terms

Question 1

Representation or Term introduction

Answer 1

Once the formation of a contract has been established, the next issue to deal with is the content of the contract. It is important to distinguish between representations and terms. This importance in identifying those pre-contractual statements that do not form part of the contract arises from the question of remedies that will be available in each case. If a statement amounts to a promise that forms part of a contract, then a person who breaks it will be liable for the full range of contractual remedies, in particular normally entitled to damages that will compensate for profits that may have been lost. A statement that is not a term however, may still give rise to a remedy but on a different more restricted basis. Contractual terms are those included within an offer and which have been confirmed by acceptance. These are incorporated and the parties will be bound. There are two other types of pre-contractual statements:

1. Mere puffs (sale’s talk, no legal effect)
2. Mere representations (not included in contract but have some legal effect)

Courts will look at a wide range of factors in determining whether a statement is a term of the contract or a mere representation

Question 2

What factors included to determine whether something is a representation or a term

Answer 2

Writing
Statement maker accepts responsibility
Importance of statement
Specialist knowledge
Lapse in time

Question 3

Writing generally

Answer 3

If parties have committed their contract to writing, the courts will be reluctant to find that it does not contain all the terms that were meant to be incorporated

Question 4

What is the name of the rule associated with writing

Answer 4

Parole evidence rule

Question 5

What is the parole evidence rule case

Answer 5

Henderson v Arthur

Question 6

What is the parole evidence rule

Answer 6

This is linked to the parole evidence rule, by virtue of which, when the contract is wholly in writing, all of the terms are taken to be contained in the written document and the parties cannot present extrinsic evidence, especially oral evidence, to add / vary / contradict that writing (Henderson v Arthur.

Question 7

When will the parole evidence rule not apply

Answer 7

This rule will not apply where the contract is partly oral and partly written.

Question 8

Non application of parole evidence rule case and facts

Answer 8

In Evans & Sons Ltd, the plaintiffs had made a contract for the transport of machinery by sea. They had made it clear the machinery should not be transported on deck and this was of great importance. Defendants had given oral assurance that it would be carried below deck. There was printed standard conditions for the contract which allowed for freight to be carried on deck. Machinery was carried on deck and lost overboard. Held by the Court of Appeal that the verbal assurance was a contractual term, took precedence over the written condition.

Question 9

Statement maker accepts responsibility case

Answer 9

Schawel v Reade – Plaintiff was searching for a stallion for stud purposes and examined the defendant’s horse which appeared to be suitable. The defendant stated “you need not look for anything the horse is perfectly sound”. The plaintiff stopped examining. The horse was unfit for stud purposes and the plaintiff sued. The defendant argued it was a mere representation, however it was held to be a term as it was made at the time of the sale & the defendant was the horse’s owner so had specialist knowledge.

Question 10

Importance of statement rule

Answer 10

Generally, the more important the statement is, the more likely it is to be a term

Question 11

Importance of statement case and facts

Answer 11

Bannerman v White. Defendant asked whether sulphur has been used in the production of hops and stated he was not interested in buying them if it had. Assured it had not. The hops were found to contain sulphur. The defendant argued there had been a breach of contract. The court held that without the false statement there would have been no contract. The statement was not merely a pre-contractual inducement but amounted to a description of the subject matter of the sale and was thus a term. If the statement had not been given the purchaser would not have continued to inquire about the price or negotiate towards a contract.

Question 12

Specialist knowledge generally

Answer 12

If there is an imbalance of specialist knowledge or skill relating to the subject matter of the contract between the claimant and defendant, this will be relevant in deciding whether a pre-contractual statement should be treated as a term. If the defendant is in the better position to be able to guarantee the truth of a statement will lend weight to its being regarded as part of the contract. On the other hand, if the claimant is the expert, the reverse will be true

Question 13

Two specialist knowledge cases and facts

Answer 13

Dick Bentley Productions Ltd – Plaintiff had bought a car from the defendants, relying on a pre-contractual statement to its mileage which later turned out to be untrue. Court held that the statement was a term of the contract because the seller had specialist knowledge compared to the plaintiff, who was not involved in the motor trade.

Oscar Chess Ltd v Williams – Defendant was a private individual who had sold a car to a garage. Prior to the conclusion of the contract, the defendant had innocently told the garage that the date of the car was 1948, when in fact it had first been registered in 1939. Garage sued for breach of contract. Court of appeal held the plaintiffs were in a better position as they had greater skill and knowledge of such matters. The seller could only rely on the car’s registration documents which he had no means of determining their accuracy. The statement was therefore held not to be a term of the contract.

Question 14

Lapse in time generally

Answer 14

Courts generally consider that the closer in time that the statement was made to the conclusion of the contract, the more likely it is that it was a matter of importance to the claimant and should therefore be treated as a contractual term. Therefore, if the written agreement is done soon after the representation was made, and does not contain the statement, there is a presumption that the statement was not intended to be a term of the contract.

Question 15

Lapse in time case and facts

Answer 15

Routledge v McKay – Here a motorcycle first registered in 1930 was incorrectly stated as being registered in 1941 when a new registration book was issued. The seller (asked by the buyer) stated that it was a later 1941 or early 1942 model. A week later, they entered into a contract of sale however there was not mention of the date of the motorcycle. The buyer claimed there was a breach of warranty. However, the assumption was that if this was a significant statement then it would have been included in the contract at the time it was made. This lapse in time made it less likely to be considered a term

Question 16

Types of contractual terms

Answer 16

Conditions / Warranty
Express / Implied

Question 17

Why is type of term important

Answer 17

In relation to remedies. If it has been established a term is a condition, a breach of this will allow the contract to be terminated. However, if the term is a warranty, the breach of this means the contract will continue, but may give rise to remedies.

Question 18

Cases for breach of condition / warranty

Answer 18

Poussard - Pousard was an opera singer who was employed to play a leading role in an opera. She was ill for 5 days before the first show and was not able to perform for the first 3 days. The producer found a new singer and refused to let Poussard perform the remaining shows. Poussard sued, however the court held the producer was entitled to terminate the contract as the opening night of the opera was of the utmost importance and a failure to perform was a breach of condition

Bettini- Bettini was an opera singer employed to give a series of performances over three months, including 6 days rehearsal beforehand. He was ill and missed half of the rehearsal. The producer terminated the contract with Bittini. This was found to be a breach by the court because the term relating to rehearsal was less important. Bettini breached the warranty but this could not be a reason for the producer to terminate the contract.

Question 19

Difference between breach of condition and warranties

Answer 19

Conditions:
terminate the contract
get remedies

Warranties:
contract performed
sue for damages

Question 20

Express terms

Answer 20

Express terms have been expressly communicated between the parties by words or in writing. There can be disputes about whether or not an express term has been effectively incorporated which generally arises in the context of exemption clauses / unfair terms.

Question 21

Implied terms

Answer 21

Terms can be implied in several ways, they can be implied by statute or implied by courts.

Question 22

Implied by statute

Answer 22

Various terms are implied into all sale of goods contracts by virtue of ss12-15 of the SGA 1979. In relation to consumer contracts, the terms in SGA no longer applicable and have been superseded by broadly similar provisions in the Consumer Rights Act 2015. The implied terms under SGA are labelled as conditions or warranties. Breach of condition will generally give the innocent party right to repudiate the contract as well as claiming damages, whereas breach of warranty will only give right to damages.

Question 23

Sale of goods act implied terms

Answer 23

S12 SGA ‘TITLE’
‘Concerned with ‘title’ in the sense of the ‘right to sell’. There is an implied condition in every sale of goods contract that the seller has this right at the time when property is to pass. Condition will be broken is the goods belong to someone else, or if they cannot be sold without infringing on another’s rights.

S13 SGA ‘DESCRIPTION’
Section 13 says that where goods are sold by description, there is an implied condition that they will match the description. Description may come from the seller or the buyer and can apply to specific as well as generic goods. In Beale v Taylor, a car was advertised as a 1961 model. In fact it was made from two halves welded together, only one of the halves being from 1961. Held there was a breach of s13.

S14SGA SATISFACTORY QUALITY
Where sale of goofs contract made in the course of business, s14(2) implied a term of satisfactory quality. Godley v Perry - The claimant bought a catapult from Perry, a newsagent who sold toys. The boy used the catapult to fire a stone, the catapult broke and he lost his left eye. It was found that the catapults were made of cheap material and likely to fracture. Perry had purchased a box of catapults from a wholesaler after testing a sample. Perry had pulled back the elastic of the sample catapult and no defect had been detected. Perry was in breach of s14 (today would be CRA s9).

Question 24

Sale of goods act to consumer rights act sections

Answer 24

Sale of goods act:
12 Right to sell
13 sale by description
14(2) Satisfactory quality
14(3) Fitness for particular purpose
15 sale by sample

Now consumer rights act:
17 Trader had the right to supply goods
11 Goods to be as described
9 Goods to be of satisfactory quality
10 Goods to be fit for a particular purpose
13 Goods to match sample

Question 25

Terms implied by court general

Answer 25

Terms implied by the courts can be further divided into terms implied by fact and terms implied by custom. The general approach of the courts is that they are reluctant to imply terms. The parties are generally expected to set the provisions of their agreements in full. There are certain situations where this reluctance is overcome and terms are implied.

Question 26

Terms implied by fact general

Answer 26

The approach here is based on the attempt to determine the intention of the parties. The courts will imply a term if they consider that it represents the objective intention of the parties on a particular issue.

Question 27

Starting point for implied in fact

Answer 27

The starting point for the law in this are is the case of The Moorock. This case concerned a contract that involved the plaintiff’s ship mooring at the defendants wharf in the Thames. Both parties knew the ship could be in the wharf at low tide. However, the ship was damaged due to a ridge of hard ground beneath the mud of the riverbed. The owner sued for breach of contract because the mooring was unsuitable, but there was no express term as to the suitability of the riverbed. Court of appeal held that a term should be implied to the effect that the mooring was suitable. Without such provision the contract would have been unworkable.

Reasonableness is not enough. Liverpool CC v Irwin. Lord Denning attempted to imply a term into a contract based on it being a reasonable term making the contract a better contract as a result however the House of Lords rejected this approach. Lord Cross stated “it is not enough for the court to say that the suggested term is a reasonable one…must be able to say that the insertion of the term is necessary. To give business efficacy to the contract.”

Question 28

What is Moorock based on

Answer 28

From Moorock it can be seen this is based on necessity. Necessity is a good test for the implication of terms as it is a sure guide to what the parties intended. If a contract will not work without inclusion of such a term, it is a reasonable assumption that the parties intended the term was concluded. However, courts have developed to be prepared to consider other tests of intention.

Question 29

After Moorock

Answer 29

The officious bystander test, derives from the case of Shirlaw – Shirlaw was hired as a managing director of Southern Foundries for 10 years. However another company later bought the controlling share and the company’s articles of association were altered allowing directors to be moved. Shilaw’s employment contract was terminated, so he sued asking the court to imply a term that the defendant would not make it incapable for him to perform his contract.

The test is therefore, had an officious bystander been present at the time the contract was made, and had suggested such a term be included, it must be obvious that both parties would have agreed to it.

Question 30

Who said what in Shirlaw

Answer 30

Prima facie that which in a 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” - MacKinnon LJ

Question 31

When is officious bystander not applicable

Answer 31

Where one party to the contract is unaware of the term the other wants implied (Spring). Or where it is uncertain that both parties would have agreed to the term even if it had been included (Shell UK Ltd).

Question 32

Implied by custom

Answer 32

Provided that there is sufficient evidence to establish the custom, the courts will be prepared to interpret the contract in light of it. An early example is Hutton v Warren. Here the claimant was a farmer and tenant on the defendants field. Before harvesting the crops, the tenancy was terminated. The claimant submitted a bill to the defendant for the work and the cost of the seeds, as was customary in farming tenancies. The defendant refused to pay as the specific term wasn’t stipulated in the contract. The court implied a term into the tenancy that provided compensation for the work and the seeds as it was customary for farming tenancies to contain such a clause.