Contract law 2:
Module content:
- Terms and exemption clauses
- Unfair terms
- Role of statue and common law
Discharge (end of contract):
- Performance
- Breach
- Frustration (practice question) when things happen outside of peoples control e.g. pandemic
Remedies for breach:
Introduction to terms:
- A contract is composed of a number of terms: contents of the contact- defines the parties rights
and liabilities
- Representation v terms
- Express terms: terms expressed between the parties
- Implied terms: terms read into the agreement either by the courts or Parliament
- Categorising terms: conditions, warranties and innominate terms
Representation or term?
- Statements made prior to a contract- dispute as to whether or not they were intended to form part
of the contract
- Has a statement made before the contract become:
A term of the contract (remedy lies for breach if untrue) or is it a mere representation (remedy may
be available for misrepresentation if untrue)
- Basic test is one of intention- objective test
- Distinction is not quite as important prior to changes in the law of misrepresentation in the 1960s
Importance of the statement:
The more importance attached to the statement then the more likely it is that is a term
Bannerman v White (1861):
o Bannerman offered hops to white
o White asked if sulphur had been used
o Bannerman said ‘no’
o Contract made- later established sulphur had been used
o Held: this amounted to breach of a contractual term
Reliance:
Statement likely to be a term if statement maker accepts responsibility for the truth of the statement.
Schawel v Reade [1913] 2 IR 64
o PI inspecting a horse, mallow man
o D said ‘You need not look for anything; the horse is perfectly sound. If there was anything the
matter with the horse I would tell you.’
o PI ceased inspection and bought the horse
o Horse was unfit
o HL held: statement was a term
Contrast this case with Ecay v Godfrey (1947)- boat sale; seller said boat was sound, but suggested the
buyer get a survey completed- not a term
,Relative knowledge of the parties 1:
Where a statement is made without particular knowledge or expertise, it is less likely to be a term
Oscar Chess Ltd v Williams (1957):
o D sold car to a car dealer
o D innocently described it as 1948 model (was 1939) which would have affected price
o CA held : no term (innocent misrepresentation) that the car was a 1948 model- D not in a
better position to know.
Relative knowledge of the parties 2:
Statements made by parties with specific expertise are more likely to be able to be relied upon
Dick Bentley Productions Ltd v Harold Smith (motors) Ltd (1965)
o Smith was a car dealer
o He told DB that a car had only 20,000 miles (actually had more)
o Representation about mileage was a term of contract
Timing:
Generally, the longer the lapse of time between making the statement in negotiation and creation of the
contract the less likely the statement was term.
Routledge v Mckay [1954] 1 WLR 855
- Seller gave age of motorcycle
- Week elapsed the buyer bought the bike
- Held: age not a term
Commercial awareness:
Heads of Terms (HoTs)
Memorandum of Understanding
Letters of intent
- Early stages of commercial transactions
- Prior to due diligence and money
- Moral force but not legally binding (except s/t confidentially/costs clauses)
Expressed terms:
- Terms made by the parties themselves (or standard form) – remember contracts can be made
verbally, in writing or inferred from conduct
Construction (interpretation):
Parties often disagree as to what a clause is untended to mean
- Parol evidence rule- the parties will normally be bound and limited to the written evidence of their
agreement
Parol evidence rule exceptions:
Partly written/partly oral
J Evans & Son v Andrew Merzario (1976)
o Plaintiff shipped goods with defendant. Contract gave defendant freedom as to method of
transportation. Defendant gave an oral assurance container would be stored below deck.
Container stored on deck and fell into the sea.
o Held:
Oral assurance was an express term and defendant was liable for breach. Contract was
partly written and partly oral.
Other exceptions: custom; ambiguity
, Interpretations of terms 1:
What is the meaning of an express term?
Traditionally – literal approach
Modern approach:
Investors compensation Scheme Ltd v West Bromwich Building Society (1998).
o Lord Hoffman stated the current legal principles. It would seem that unless the words have
technical meaning, they are to be construed in their natural and ordinary meaning set in the
context of the contract as a whole.
Note Sigma Finance Corp (2009) UKSC: whole context
Interpretations of terms 2:
For recent consideration in the Supreme Court see Arnold v Britton, 2015
Lord Neuberger sets out 7 factors with 4 significant on approach to interpretation:
“the purpose of interpretation is to identify what the parties agreed…[W]hen interpreting a contract a
judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party.”
- Freedom of contract
- Objective approach
- Poole – ‘common commercial sense’ will only feature if ambiguous
Implied terms:
How are terms implied?
- Terms implied in fact
- Terms implied in law
- Terms implied in custom
Terms implied in fact:
‘this seeks to convey the idea that the term is being implied as a matter of fact to give effect to what the
courts perceives to be the unexpressed intention of the parties’- McKendrick
2 tests:
Business efficacy test:
The term must be required to make the contract workable
The Moorcock (1889):
- D owned a wharf on the Thames
- Made a contract with plaintiff for him to unload the vessel there
- Vessel was damaged
Held:
Implied undertaking that the defendants would take reasonable care to see that the berth of the
wharf was safe (‘presumed intention of the parties’- avoids the idea that the court is making the
contract for the parties)
Officious bystander test
Shirlaw v Southern Foundries Ltd (1939):
- “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 the agreement, they
would testily suppress him with a common ‘oh, of course’” per Mackinnon LJ)
Shell UK v Lostock Garage Ltd (1976):
- Lostock could only sell Shell petrol
- Petrol price war- shell introduced a scheme to subsidise two garages but not Lostock
Module content:
- Terms and exemption clauses
- Unfair terms
- Role of statue and common law
Discharge (end of contract):
- Performance
- Breach
- Frustration (practice question) when things happen outside of peoples control e.g. pandemic
Remedies for breach:
Introduction to terms:
- A contract is composed of a number of terms: contents of the contact- defines the parties rights
and liabilities
- Representation v terms
- Express terms: terms expressed between the parties
- Implied terms: terms read into the agreement either by the courts or Parliament
- Categorising terms: conditions, warranties and innominate terms
Representation or term?
- Statements made prior to a contract- dispute as to whether or not they were intended to form part
of the contract
- Has a statement made before the contract become:
A term of the contract (remedy lies for breach if untrue) or is it a mere representation (remedy may
be available for misrepresentation if untrue)
- Basic test is one of intention- objective test
- Distinction is not quite as important prior to changes in the law of misrepresentation in the 1960s
Importance of the statement:
The more importance attached to the statement then the more likely it is that is a term
Bannerman v White (1861):
o Bannerman offered hops to white
o White asked if sulphur had been used
o Bannerman said ‘no’
o Contract made- later established sulphur had been used
o Held: this amounted to breach of a contractual term
Reliance:
Statement likely to be a term if statement maker accepts responsibility for the truth of the statement.
Schawel v Reade [1913] 2 IR 64
o PI inspecting a horse, mallow man
o D said ‘You need not look for anything; the horse is perfectly sound. If there was anything the
matter with the horse I would tell you.’
o PI ceased inspection and bought the horse
o Horse was unfit
o HL held: statement was a term
Contrast this case with Ecay v Godfrey (1947)- boat sale; seller said boat was sound, but suggested the
buyer get a survey completed- not a term
,Relative knowledge of the parties 1:
Where a statement is made without particular knowledge or expertise, it is less likely to be a term
Oscar Chess Ltd v Williams (1957):
o D sold car to a car dealer
o D innocently described it as 1948 model (was 1939) which would have affected price
o CA held : no term (innocent misrepresentation) that the car was a 1948 model- D not in a
better position to know.
Relative knowledge of the parties 2:
Statements made by parties with specific expertise are more likely to be able to be relied upon
Dick Bentley Productions Ltd v Harold Smith (motors) Ltd (1965)
o Smith was a car dealer
o He told DB that a car had only 20,000 miles (actually had more)
o Representation about mileage was a term of contract
Timing:
Generally, the longer the lapse of time between making the statement in negotiation and creation of the
contract the less likely the statement was term.
Routledge v Mckay [1954] 1 WLR 855
- Seller gave age of motorcycle
- Week elapsed the buyer bought the bike
- Held: age not a term
Commercial awareness:
Heads of Terms (HoTs)
Memorandum of Understanding
Letters of intent
- Early stages of commercial transactions
- Prior to due diligence and money
- Moral force but not legally binding (except s/t confidentially/costs clauses)
Expressed terms:
- Terms made by the parties themselves (or standard form) – remember contracts can be made
verbally, in writing or inferred from conduct
Construction (interpretation):
Parties often disagree as to what a clause is untended to mean
- Parol evidence rule- the parties will normally be bound and limited to the written evidence of their
agreement
Parol evidence rule exceptions:
Partly written/partly oral
J Evans & Son v Andrew Merzario (1976)
o Plaintiff shipped goods with defendant. Contract gave defendant freedom as to method of
transportation. Defendant gave an oral assurance container would be stored below deck.
Container stored on deck and fell into the sea.
o Held:
Oral assurance was an express term and defendant was liable for breach. Contract was
partly written and partly oral.
Other exceptions: custom; ambiguity
, Interpretations of terms 1:
What is the meaning of an express term?
Traditionally – literal approach
Modern approach:
Investors compensation Scheme Ltd v West Bromwich Building Society (1998).
o Lord Hoffman stated the current legal principles. It would seem that unless the words have
technical meaning, they are to be construed in their natural and ordinary meaning set in the
context of the contract as a whole.
Note Sigma Finance Corp (2009) UKSC: whole context
Interpretations of terms 2:
For recent consideration in the Supreme Court see Arnold v Britton, 2015
Lord Neuberger sets out 7 factors with 4 significant on approach to interpretation:
“the purpose of interpretation is to identify what the parties agreed…[W]hen interpreting a contract a
judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party.”
- Freedom of contract
- Objective approach
- Poole – ‘common commercial sense’ will only feature if ambiguous
Implied terms:
How are terms implied?
- Terms implied in fact
- Terms implied in law
- Terms implied in custom
Terms implied in fact:
‘this seeks to convey the idea that the term is being implied as a matter of fact to give effect to what the
courts perceives to be the unexpressed intention of the parties’- McKendrick
2 tests:
Business efficacy test:
The term must be required to make the contract workable
The Moorcock (1889):
- D owned a wharf on the Thames
- Made a contract with plaintiff for him to unload the vessel there
- Vessel was damaged
Held:
Implied undertaking that the defendants would take reasonable care to see that the berth of the
wharf was safe (‘presumed intention of the parties’- avoids the idea that the court is making the
contract for the parties)
Officious bystander test
Shirlaw v Southern Foundries Ltd (1939):
- “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 the agreement, they
would testily suppress him with a common ‘oh, of course’” per Mackinnon LJ)
Shell UK v Lostock Garage Ltd (1976):
- Lostock could only sell Shell petrol
- Petrol price war- shell introduced a scheme to subsidise two garages but not Lostock
