Contract reading session 5
General Reading
McKendrick casebook Ch 8:
● Whether a statement made by one party to another forms a contractual term or
merely a representation depends on the objective intention of the parties. However the
relevance has been reduced by the availability of damages for negligent
misrepresentation as well as fraudulent misrepresentation.
● The “parol evidence” rule set out a general principle that where a contract has
been put in writing, evidence cannot be adduced to show the existence of another term,
that varies, contradicts etc the written agreement. However this rule is subject to
exceptions, changes etc.
1. Identifying Terms
i) Classifying Contractual Terms
Heilbut Symons v Buckleton [1913] AC 30: Ds were underwriting shares of what they
claimed was a rubber company. P called Ds to inquire about the shares. D said they were
"bringing out a rubber company". Based on this statement, P purchased a large amount of
shares. The shares turned out not to be for a rubber company at all, the shares did very
poorly. P sued for breach of warranty. HL denied P’s claim.
Lord Moulton: P could be successful in two ways. First, if the plaintiff could show
fraudulent misrepresentation "or what is equivalent thereto, must be made recklessly, not
caring whether it be true or not." Second, if there was intent to be held to a promise then
there may be a collateral contract, which would bind D to their representation. However,
collateral contracts are difficult to find, and, on the fact, none was found.
VC Haldance LC: the general principle is NOT to presume that a collateral contract (one
aside from the main contract) in the absence of an expression or implication to that effect.
Oscar Chess Ltd. v. Williams [1957] 1 WLR 370: P sold D a car in a part exchange. D
told P that the car he was trading in was one type of car and P reduced the amount on that
basis. It turned out that it was a different type that was worth much less. D had genuinely
believed it to be the type of car he claimed since the person who he bought it off had told
him that and the cars documents suggested that. P sued D for the difference between the
initially stated value of the car and the actual value of the car. CA found that D did not
have to pay damages.
,Denning LJ: Was the statement as to the type of the car a “warranty” i.e. a guarantee?
Was it a term of the contract, breach of which demands payment? He says determining
something as a warranty or a term rather than mere representation depends on intentions
of the parties. In this case the assertion as to the type of car was a claim or a belief, not a
promise (quotes the actual speech of D which proves this). Here, D obviously had no
personal knowledge of when the car was made and had he been asked to guarantee the
type of car, he would have been unable to do so, not having any more knowledge than
what he deduced from the log-book, which P had also inspected. P therefore knew that D
was in no position to guarantee or warrant the model of the car: he could merely make an
informed guess. Also in this case P could have checked by referencing the chassis no.
with the company, but did not do so. McKendrick: P’s claim might succeed today under
Misrepresentation Act 1967 (see next week).
Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. [1965] 1 WLR 623: D sold
P a car but made false claims as to the mileage of the car and P sued for the difference
between the value he paid and the actual value. CA allowed his claim.
Denning LJ: If a representation is made so that P will act on it, and P does in fact act on
it, there is prima facie ground for saying that it was a warranty. This presumption can be
rebutted by D if he can show that (1) it was made innocently i.e. he had no fault in a false
representation being made, and (2) that it would not, in the circumstances, be reasonable
for him to be bound by it. In this case the prima facie warranty is not rebutted since D
was in a position to, and ought to, have found out the truth about the car. The statement as
to mileage was made without justification. This is contrasted with D in Oscar Chess who
could not have discovered the truth about the car.
L Schuler AG V. Wickman Machine Tools Sales Ltd. [1974] AC 235: See week 4
Lombard North Central v. Butterworth [1987] QB 527: P lent a computer to D on a
hire-purchase basis, stating that timely payment was to be a condition. D narrowly failed
to make the payments and P repossessed the computer and resold it. The CA upheld P’s
termination because the breach was of a condition. This shows the danger of letting the
parties decide what should be a condition and what a warranty, since the more powerful
party can simply make every small term a condition. Bad decision since Schuler shows
that this is not necessary. On the hand time might have been v important to P genuinely…
Arcos Ltd. v. E A Ronaassen & Son [1933] AC 470: P agreed to buy wood 8/16 inch
thick but D actually delivered wood 9/16 inch thick. The court considered that P could
not be bound to accept goods that did not match the description of those specified in the
contract. P was allowed to terminate, even though the goods were “merchantable”. The
real reason for p terminating was because it had made a bargain that was unprofitable to
them. This case shows the unfairness of an absolute insistence on the specified terms of
the contract.
Hong Kong Fir Shipping Co. Ltd v. Kawasaki Kisen Kaisha Ltd. [1962] 2 QB 26- see
week 4
,The Hansa Nord [1976] QB 44 (see note in BBF)- see week 4
Bunge Corporation v. Tradax SA [1981] 1 WLR 711: D was shipping P’s goods and
clause 7 of their contract stated that D had to give notice of 15 days prior to shipping
regarding readiness of the ship. D gave late notification that his ship would not be ready,
and P, stating that clause 7 was a condition, argued that they could terminate the contract.
HL held that P was right.
Lord Wilberforce: this case is distinct from Hong Kong Fir since there the CA’s reasoning
was that a term which would almost certainly, and could very easily, be breached was
unlikely to be considered as a condition. However giving late notice can only be
committed in one way and is easily avoided. Therefore Hong Kong Fir reasoning does
not prevent clause 7 here from being regarded as a condition. On the facts it was “clearly
essential” that the notice be given in time.
Lord Roskill: The use of the “innominate term” should not be used to allow escapes from
bad bargains. Where it is right to do so, terms will be construed as conditions for the sake
of commercial certainty: This is especially so where the contract is part of a chain or
string of contracts, or where it would be difficult for the court to quantify the amount lost
by P if termination were not permitted.
2. Implied Terms
Sale of Goods Act 1979, ss 12–15 (s 14 as amended by Sale and Supply of Goods to
Consumers Regulations 2002, SI 3045/2002, Reg 3):
Regarding s.14 Sales of goods act (see week 3), the circumstances to be taken into
account in determining whether the good is of adequate quality includes public
statements as to the goods’ characteristics by the seller, including advertising and
labelling. However they are not to be taken into account if at the time the contract was
made, the seller was not, and could not reasonably have been, aware of the statement;
before the contract was made, the statement had been withdrawn in public or, to the
extent that it contained anything which was incorrect or misleading, it had been corrected
in public; or the decision to buy the goods could not have been influenced by the
statement.
The Moorcock (1889) 14 PD 64: P contracted with D to unload his boat at D’s jetty,
which was unsafe and P’s boat was damaged in mooring. The court implied a term into
the contract that D had to take reasonable care to ensure the safety of the harbour, which
he had breached and for which he was liable.
Bowen LJ: An implied warranty…is in all cases founded upon the presumed intention of
the parties and upon reason”. CW: the problem here is that had P been aware of the
implied term he probably would have charged more for the contract initially.
, Liverpool CC v Irwin [1977] AC 239: Ps claimed for damages from D, who ran their
block of flats, on the grounds that D had failed to maintain the flats e.g. elevator
problems etc. HL held that there was an implied duty on the part of D to take reasonable
care to ensure that the building was in repair, but on the facts there was no breach of this
duty.
Lord Wilberforce: the courts are willing to imply terms. It is very commonly done in
cases where the term to be implied would be considered by both parties to be part of the
contract anyway. A term is also implied where, without it, the contract will not work- see
Moorcock. This is a strict test. The standard for implying a term is that the term “must
not exceed what is necessary in the circumstances”. In this case, what is necessary is that
D take reasonable care to keep he buildings in reasonable repair, which D has done.
NB In CA Lord Denning MR suggested an approach that HL rejected and that Lord
Wilberforce called “dangerous”. He says that the courts can imply a term where it is
merely “reasonable” to do so (as opposed to necessary)- This is much more trigger-happy
with implying terms.
Lord Salmon (HL): said that to imply terms as freely as Denning advocates would be to
undermine the point of the contract: that the parties have agreed what terms should be
included.
Lord Cross: there is a distinction between terms implied in law and terms implied in fact:
terms implied in fact are terms that exist but are not explicitly stated i.e. a common
understanding that the term exists. However a term in law (which Lord Cross says exists
here) is a term that should apply to all legal situations of this type (i.e. letter and lessee).
Scally v Southern Health & Social Services Bd [1991] 4 All ER 563: Ps sued D (their
employer) for failing to tell them about changes to their dept. pension plan of which they
would have been able to take advantage, had D told them about it earlier (there was a
time limitation which had passed on taking advantage of the new benefit). HL held that it
was an implied term of the contract of employment that D would tell P about changes to
the pension plan.
Lord Bridge: The law will imply a duty on D to inform P in the following circumstances:
Where (1) the terms are not negotiated by the employee but by a representative body or
by reference; (2) a term in the contract makes a valuable right available to the employee,
contingent upon his action; (3) the employee “cannot, in all the circumstances, reasonably
be expected to be aware of the term unless it is drawn to his attention”. This is on the
basis that the parties intended P to be able to take advantage of the term, else why create
it?
Grogan v. Robin Meredith Plant Hire [1996] CLJ 427: P entered an agreement with D to
hire D’s driver. D’s manager was given time sheets to sign, displaying the amount of time
D’s driver had worked and hence how much P owed D. However at the bottom of the
General Reading
McKendrick casebook Ch 8:
● Whether a statement made by one party to another forms a contractual term or
merely a representation depends on the objective intention of the parties. However the
relevance has been reduced by the availability of damages for negligent
misrepresentation as well as fraudulent misrepresentation.
● The “parol evidence” rule set out a general principle that where a contract has
been put in writing, evidence cannot be adduced to show the existence of another term,
that varies, contradicts etc the written agreement. However this rule is subject to
exceptions, changes etc.
1. Identifying Terms
i) Classifying Contractual Terms
Heilbut Symons v Buckleton [1913] AC 30: Ds were underwriting shares of what they
claimed was a rubber company. P called Ds to inquire about the shares. D said they were
"bringing out a rubber company". Based on this statement, P purchased a large amount of
shares. The shares turned out not to be for a rubber company at all, the shares did very
poorly. P sued for breach of warranty. HL denied P’s claim.
Lord Moulton: P could be successful in two ways. First, if the plaintiff could show
fraudulent misrepresentation "or what is equivalent thereto, must be made recklessly, not
caring whether it be true or not." Second, if there was intent to be held to a promise then
there may be a collateral contract, which would bind D to their representation. However,
collateral contracts are difficult to find, and, on the fact, none was found.
VC Haldance LC: the general principle is NOT to presume that a collateral contract (one
aside from the main contract) in the absence of an expression or implication to that effect.
Oscar Chess Ltd. v. Williams [1957] 1 WLR 370: P sold D a car in a part exchange. D
told P that the car he was trading in was one type of car and P reduced the amount on that
basis. It turned out that it was a different type that was worth much less. D had genuinely
believed it to be the type of car he claimed since the person who he bought it off had told
him that and the cars documents suggested that. P sued D for the difference between the
initially stated value of the car and the actual value of the car. CA found that D did not
have to pay damages.
,Denning LJ: Was the statement as to the type of the car a “warranty” i.e. a guarantee?
Was it a term of the contract, breach of which demands payment? He says determining
something as a warranty or a term rather than mere representation depends on intentions
of the parties. In this case the assertion as to the type of car was a claim or a belief, not a
promise (quotes the actual speech of D which proves this). Here, D obviously had no
personal knowledge of when the car was made and had he been asked to guarantee the
type of car, he would have been unable to do so, not having any more knowledge than
what he deduced from the log-book, which P had also inspected. P therefore knew that D
was in no position to guarantee or warrant the model of the car: he could merely make an
informed guess. Also in this case P could have checked by referencing the chassis no.
with the company, but did not do so. McKendrick: P’s claim might succeed today under
Misrepresentation Act 1967 (see next week).
Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. [1965] 1 WLR 623: D sold
P a car but made false claims as to the mileage of the car and P sued for the difference
between the value he paid and the actual value. CA allowed his claim.
Denning LJ: If a representation is made so that P will act on it, and P does in fact act on
it, there is prima facie ground for saying that it was a warranty. This presumption can be
rebutted by D if he can show that (1) it was made innocently i.e. he had no fault in a false
representation being made, and (2) that it would not, in the circumstances, be reasonable
for him to be bound by it. In this case the prima facie warranty is not rebutted since D
was in a position to, and ought to, have found out the truth about the car. The statement as
to mileage was made without justification. This is contrasted with D in Oscar Chess who
could not have discovered the truth about the car.
L Schuler AG V. Wickman Machine Tools Sales Ltd. [1974] AC 235: See week 4
Lombard North Central v. Butterworth [1987] QB 527: P lent a computer to D on a
hire-purchase basis, stating that timely payment was to be a condition. D narrowly failed
to make the payments and P repossessed the computer and resold it. The CA upheld P’s
termination because the breach was of a condition. This shows the danger of letting the
parties decide what should be a condition and what a warranty, since the more powerful
party can simply make every small term a condition. Bad decision since Schuler shows
that this is not necessary. On the hand time might have been v important to P genuinely…
Arcos Ltd. v. E A Ronaassen & Son [1933] AC 470: P agreed to buy wood 8/16 inch
thick but D actually delivered wood 9/16 inch thick. The court considered that P could
not be bound to accept goods that did not match the description of those specified in the
contract. P was allowed to terminate, even though the goods were “merchantable”. The
real reason for p terminating was because it had made a bargain that was unprofitable to
them. This case shows the unfairness of an absolute insistence on the specified terms of
the contract.
Hong Kong Fir Shipping Co. Ltd v. Kawasaki Kisen Kaisha Ltd. [1962] 2 QB 26- see
week 4
,The Hansa Nord [1976] QB 44 (see note in BBF)- see week 4
Bunge Corporation v. Tradax SA [1981] 1 WLR 711: D was shipping P’s goods and
clause 7 of their contract stated that D had to give notice of 15 days prior to shipping
regarding readiness of the ship. D gave late notification that his ship would not be ready,
and P, stating that clause 7 was a condition, argued that they could terminate the contract.
HL held that P was right.
Lord Wilberforce: this case is distinct from Hong Kong Fir since there the CA’s reasoning
was that a term which would almost certainly, and could very easily, be breached was
unlikely to be considered as a condition. However giving late notice can only be
committed in one way and is easily avoided. Therefore Hong Kong Fir reasoning does
not prevent clause 7 here from being regarded as a condition. On the facts it was “clearly
essential” that the notice be given in time.
Lord Roskill: The use of the “innominate term” should not be used to allow escapes from
bad bargains. Where it is right to do so, terms will be construed as conditions for the sake
of commercial certainty: This is especially so where the contract is part of a chain or
string of contracts, or where it would be difficult for the court to quantify the amount lost
by P if termination were not permitted.
2. Implied Terms
Sale of Goods Act 1979, ss 12–15 (s 14 as amended by Sale and Supply of Goods to
Consumers Regulations 2002, SI 3045/2002, Reg 3):
Regarding s.14 Sales of goods act (see week 3), the circumstances to be taken into
account in determining whether the good is of adequate quality includes public
statements as to the goods’ characteristics by the seller, including advertising and
labelling. However they are not to be taken into account if at the time the contract was
made, the seller was not, and could not reasonably have been, aware of the statement;
before the contract was made, the statement had been withdrawn in public or, to the
extent that it contained anything which was incorrect or misleading, it had been corrected
in public; or the decision to buy the goods could not have been influenced by the
statement.
The Moorcock (1889) 14 PD 64: P contracted with D to unload his boat at D’s jetty,
which was unsafe and P’s boat was damaged in mooring. The court implied a term into
the contract that D had to take reasonable care to ensure the safety of the harbour, which
he had breached and for which he was liable.
Bowen LJ: An implied warranty…is in all cases founded upon the presumed intention of
the parties and upon reason”. CW: the problem here is that had P been aware of the
implied term he probably would have charged more for the contract initially.
, Liverpool CC v Irwin [1977] AC 239: Ps claimed for damages from D, who ran their
block of flats, on the grounds that D had failed to maintain the flats e.g. elevator
problems etc. HL held that there was an implied duty on the part of D to take reasonable
care to ensure that the building was in repair, but on the facts there was no breach of this
duty.
Lord Wilberforce: the courts are willing to imply terms. It is very commonly done in
cases where the term to be implied would be considered by both parties to be part of the
contract anyway. A term is also implied where, without it, the contract will not work- see
Moorcock. This is a strict test. The standard for implying a term is that the term “must
not exceed what is necessary in the circumstances”. In this case, what is necessary is that
D take reasonable care to keep he buildings in reasonable repair, which D has done.
NB In CA Lord Denning MR suggested an approach that HL rejected and that Lord
Wilberforce called “dangerous”. He says that the courts can imply a term where it is
merely “reasonable” to do so (as opposed to necessary)- This is much more trigger-happy
with implying terms.
Lord Salmon (HL): said that to imply terms as freely as Denning advocates would be to
undermine the point of the contract: that the parties have agreed what terms should be
included.
Lord Cross: there is a distinction between terms implied in law and terms implied in fact:
terms implied in fact are terms that exist but are not explicitly stated i.e. a common
understanding that the term exists. However a term in law (which Lord Cross says exists
here) is a term that should apply to all legal situations of this type (i.e. letter and lessee).
Scally v Southern Health & Social Services Bd [1991] 4 All ER 563: Ps sued D (their
employer) for failing to tell them about changes to their dept. pension plan of which they
would have been able to take advantage, had D told them about it earlier (there was a
time limitation which had passed on taking advantage of the new benefit). HL held that it
was an implied term of the contract of employment that D would tell P about changes to
the pension plan.
Lord Bridge: The law will imply a duty on D to inform P in the following circumstances:
Where (1) the terms are not negotiated by the employee but by a representative body or
by reference; (2) a term in the contract makes a valuable right available to the employee,
contingent upon his action; (3) the employee “cannot, in all the circumstances, reasonably
be expected to be aware of the term unless it is drawn to his attention”. This is on the
basis that the parties intended P to be able to take advantage of the term, else why create
it?
Grogan v. Robin Meredith Plant Hire [1996] CLJ 427: P entered an agreement with D to
hire D’s driver. D’s manager was given time sheets to sign, displaying the amount of time
D’s driver had worked and hence how much P owed D. However at the bottom of the
