Legal Frameworks and
Regulation
Lecture 6
Contract:
Terms & Misrepresentation
1
Certainty

Terms must be certain and enforceable, as
in:



Nicolene Ltd v Simmonds (1953) 1 ALL ER
822 contract contained uncertain and
meaningless terms, and the courts ignored them
in interpreting the contract; and
Scammell v Ouston (1941) 1 ALL ER 14 Terms for the hire purchase of a van were held to
be too vague to be enforceable; but:
Hillas Co Ltd v Acros Ltd (1932) 38 Com Cas
23 uncertain terms were enforceable in the light
of trade practice and previous dealings
2
Representation and Term


A representation is a statement which
induces the contract but does not form
part of the contract
A term is a promise or undertaking
which forms part of the contract
3
Representation or Term?
We need to consider:
1)
Strength of statement, as in:


Ecay v Godfrey (1947) 80 LIL Rep. 286 where
the party making the statement suggested the
other party checked the statement makes the
statement NOT a term.
Whereas in Schawel v Reade (1913) 21 R 81 a
statement was made in such a forceful and
categoric way that it became a term of contract.
4
Representation or Term?
2) Importance of statement

In Bannerman v White (1861) 10 CB 844,
the fact that the party making a statement
knew that the other party placed great
importance on the truth of the statement
turned the statement into a term of
contract.
5
Term or Representation?
3) Special knowledge and skill


In Oscar Chess Ltd v Williams (1957) 1 ALL ER
325, the claimant was a car dealer and should
have known that the 1948 Morris he had just
bought was really a 1939 model, therefore the
statement was not a term.
Whereas Dick Bently Productions Ltd v Harold
Smith (Motor) Ltd (1965) 1 WLR 623, the
defendant car dealer lied about the mileage of a
car. Since he was better placed to know the
truth, the statement became a term of contract.
6
Representation or Term


Statements in writing are usually taken
as terms
Statements not in writing are usually
(subject to above) representations
7
Parol Evidence rule


A contract may be oral, written or by conduct
Generally extrinsic evidence will not be
permitted to add to, vary, subtract from or
contradict the terms in a written document,
with the following exceptions:




operation of contract
Validity
Incompleteness
rectification
8
Collateral Contracts

In De Lassalle v Guildford (1901) there
was a tenancy agreement which was
not completed until an assurance was
given that the drains were OK.



A collateral contract was given that they
were OK, but they turned out not to be.
Held that failure of the collateral contract
circumvents the parole evidence rule
the main contract for the tenancy was
unenforceable
9
Collateral Contracts cont..

Shanklin Pier Ltd v Detel Products
Ltd (1951) 2 KB 854. This was a
collateral contract with a paint
supplier that paint supplied for the
pier would last 7 to 10 years
10
Collateral Contracts
Three months later it started to peel
off, and Shanklin were able to sue
Detel because of the collateral
contract
11
Terms - Conditions and
Warranties

A Condition is a term that goes to the
root of a contract

Breach of a condition is known as a
repudiatory breach


It repudiates the contract
Such a breach allows the other party to
accept repudiation, rescind the contract
and sue for damages.
12
Terms - Conditions and
Warranties cont..

A Warranty is a term of lesser
importance


Breach of a warranty is not a repudiatory
breach!
Breach allows the other party to sue for
damages only


They may not rescind the contract
Distinction is important!
13
Conditions and Warranties
cont.


In Poussard v Spiers & Pond (1876) 1
QBD 410, the claimant was unable to
sing on the opening night of a show
due to illness.
It was held that she could not sue for
not being asked to sing on the other
nights, because singing on the opening
night went to the root of the contract

She had breached a condition
14
Innominate terms

Innominate terms are those terms
which are not clear as to whether they
are conditions or warranties



In Hong Kong Fir Shipping v Kawasaki
Kisen Kaisha a ship was not seaworthy for
20 weeks
Held that breach did not put an end to the
contract, but entitled Defendant to
damages
Important to look at effect of a breach in
order to decide condition or warranty
15
Express and implied terms


express term - specific statements and
promises made by the parties
implied term (presumed intention of
parties)

no term will be implied which contradicts
an express term or which addresses a
matter an express term deals with

Unless of course the express term is unlawful
16
How do the Courts Imply
Terms?


By Statute
E.g. Sale of Goods and Services Act
1982 & Sale of Goods Act 1979 (both as
amended by the Sale and Supply of
Goods Act 1994)
17
How do the Courts Imply
Terms?
 By Common Law –
 Business efficacy test - must be something
that the parties should have included in order
to give the contract business efficacy
 Officious bystander test - something so
obvious that it goes without saying
 The Moorcock (1889)
 Officious bystander test does not apply if one
party has no knowledge of the matter to be
implied or would clearly not have agreed.
18
Exemption Clauses
 Clauses which limit liability. The Courts
do not like such clauses and take a
strict approach. Such clauses governed
by:
 Common law
 Statute
19
Exemption Clauses – Common
Law
Is the clause a term of the contract
 If a document containing an exclusion
clause has been signed by a party, s/he is
bound by its terms (L’Estrange v F
Graucoub (1934))
 However, if such an exclusion clause is
misleading, the effect may be limited to
what was understood by the other party
(Curtis v Chemical Cleaning and Dyeing Co
Ltd (1951))
20
Exemption Clauses - Common
law
 If a document is unsigned but merely
delivered to the other party, then
reasonable and sufficient notice of the
existence of the exclusion clause must be
given before the contract is formed. The
clause must be contained in a contractual
document. (Otley v Marlborough Court
Hotel Ltd (1949) 1 KB 532)
 Insufficient notice but previous dealings
may be sufficient to enforce an exemption
clause.
21
Exemption Clauses – Common
Law
 Liability can only be excluded by clear
words
 The main rules of construction
(interpretation) of exemption clauses
are:
 Contra proferentem rule - any ambiguity in
the wording of an exclusion clause will be
construed as narrowly as possible against
the party relying on the clause (Houghton
v Trafalgar Insurance (1954))
22
Exemption Clauses – Common
Law
 Rules of Construction cont..
 Main purpose - an exclusion clause can be
struck out of a contract if it is seen to
defeat the main purpose of the contract
(Glynn v Margeston (1893) AC 351)
 Negligence - if it is intended to exempt
liability in negligence then clear wording
required to that effect
23
Exemption Clauses – Statute
Law
The Unfair Contract Terms Act 1977
 The scope of the Act is to restrict the extent
to which liability can be excluded or limited
within contract for breach of that contract or
negligence


s.2 A person cannot exclude liability for death
and personal injury caused by negligence
s.3 In consumer contracts, the business party
cannot exclude or restrict his liability for
breach of contract unless it is reasonable.
24
Misrepresentation

A misrepresentation is an untrue
statement made by one party to the
other which induces them to enter into
the contract
25
Misrepresentation cont..

Statement must be



a statement of existing fact and not law
Solle v Butcher (1950) 1 KB 671
a statement must be one of fact and not
opinion Edgington v Fitmaurice 29 ChD
476
a statement of fact and not future intention
26
Misrepresentation cont..


A misrepresentation has no effect
unless material
To be of effect it must induce a person
into contract (therefore the person
must rely on it)


Redgrave v Hurd (1881) 20 ChD 1
Horsfall v Thomas (1862) 1 H&C 90
27
Misrepresentation cont..

Generally speaking, silence is not a
misrepresentation except for:



half truths
changes in circumstances
insurance contracts (uberrima fides)
28
Misrepresentation cont..

Types of misrepresentation

Fraudulent


Negligent


Knowingly or without belief in its truth or
recklessly careless as to whether true or false
Derry v Peek (1889)
A false statement made by a person who had
no reasonable grounds for believing it to be
true Esso Petroleum Co Ltd v Mardon
Innocent

Not fraudulent or negligent
29
Misrepresentation cont..

Misrepresentation - remedies (Common
law & Misrepresentation Act 1967)

Rescission (or setting aside the contract) is
available for fraudulent, negligent or
innocent
30
Misrepresentation - Remedies
 Rescission is not available where:
 The injured party has affirmed the contract
in the full knowledge of the
misrepresentation
 Impossibility of restitution due to a
substantial change to one party’s position
 Third party rights have accumulated
preventing the possibility of rescission
31
Misrepresentation - Remedies.
 Damages
 Negligent misrep.
 Common law under the Hedley Byrne principle
 S.2(1) of Misrepresentation Act 1967
 Fraudulent misrep.
 Common law tort of deceit
 Innocent misrep.
 Discretion of Court s.2(2) 1967 Act
32