UNLOCKING CONTRACT LAW
The Obligations under a Contract: Terms
(see Chapter 6 of Unlocking Contract Law, Third Edition)
Q.1: How does one distinguish between pre-contractual statements that do not become
terms of a contract, and those that do?
In answering an essay question you should:
• Interpret what the question is asking by breaking the question down to its key words
• Identify the relevant information and law
• Evaluate, analyse and explain
• Offer a reasoned conclusion
Keywords: Pre-contractual statements; terms of a contract
Relevant law: The law relevant to this question can be found in chapters having to do with
incorporation of terms, and also in those dealing with misrepresentation and breach of
contract. The key cases are Bisset v Wilkinson [1927] AC 177, Esso Petroleum Co Ltd v
Marden [1976] QB 801, Oscar Chess Ltd v Williams [1957] 1 WLR 370, Dick Bentley
Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623.
Evaluation: Statements related to contract formation fall into three broad categories:
a) mere sales puffs, or opinions not based on expert knowledge (Bisset)
b) representations that induce the other party to enter into the contract (that can lead to
misrepresentation if false); and
c) statements that are significant enough to become terms of the contract (Dick Bentley).
The deciding factor differentiating between opinions and representations is the level of
knowledge of the maker of the statement and the reliance placed upon it by the recipient of
the statement. A representor with the status of an expert cannot escape potential liability by
arguing they were just offering their opinion (Esso). Similarly, statements that are important to
the recipient, and come from a person of higher knowledge, are likely become terms of the
contract (Oscar Chess, Dick Bentley).
Conclusion: The main method of assessing the contractual significance of pre-contractual
statements is to determine the knowledge differential between the parties and the importance
of the statements.
Unlocking Contract Law Third Edition
© Ioannis Glinavos 2011
Q.2: Jack visited the supermarket Masda where he purchased an mp3 player
manufactured by Bony. At the exit of the supermarket, on his way out after completing
his purchase, Jack noticed a sign that said 'Free USB key with the purchase of every
digital music player'. When he returned to the till to ask for this key, he was refused
with the argument that his transaction was already complete. When Jack returned
home and opened the box, he found a notice that said 'Customer guarantee: 5 years
free cover to all Bony products. Two weeks subsequently the player malfunctioned.
Jack contacted Bony, only to be told that as he did not buy the product from them, he
should direct all queries to the retailer.
Advise Jack.
In resolving problem questions it is best to use the ISAC formula:
• Identify the issues
• State the law
• Analyse
• Conclude
Relevant Issues: The issues relevant to Jack's problem are:
• Whether the offer of a free USB key constituted part of the terms and conditions of his
purchase of the mp3 player
• Whether the manufacturer's guarantee is an enforceable obligation (privity of contract).
Law and Analysis: For terms to be incorporated into a contract that is not in writing and
signed (L'Estrange v F Graucob Ltd [1934] 2 KB 394), they need to be brought to the attention
of the parties before the contract is completed (Thornton v Shoe Lane Parking Ltd [1971] 2
QB 163). If the supermarket took reasonable steps to bring the notice with the offer of the free
key to the attention of customers before they completed the transaction at the till, then Jack
would have a good argument that the key constituted part of his purchase of the player. For
the manufacturer's guarantee to be effective, under the common law Jack would need to
establish a direct contractual relationship with the manufacturer, usually in the form of a
collateral contract (Shanklin Pier Ltd v Detel Products Ltd [1951] 2 KB 854) or via the law of
agency. There is however now a statutory obligation on manufacturers to give these
guarantees the same legal status as contracts in the Sale and Supply of Goods to Consumers
Regulations 2002. As a result Jack would be entitled to replacement or repair of his product.
Conclusion: If the notice about the free USB key was only displayed at the exit of the
supermarket, then Jack is not likely to obtain the key. Jack will be able to rely on the
guarantee offered by Bony.
Summary: Relevant issues are incorporation of contract terms by notice and the legal status
of manufacturer's guarantees. Jack is likely to be partially successful.
Unlocking Contract Law Third Edition
© Ioannis Glinavos 2011