L 29/01/24 Intro to Terms
18 January 2024 16:49
A. Introduction
Once it has been established that a contract has been created it is necessary to find out what the terms of the contract are.
- Terms may either be express (i.e. the parties expressed them orally or in writing) or implied.
- It is also necessary to determine the meaning of express terms.
B. Pre-contractual statement: mere representation or contractual term?
During contractual negotiations, oral statements of fact are often made however, subsequently after the formation of the cont ract turns out to be untrue.
How is the nature of the statement determined?
Categories of pre contractual statements:
▪ A puff: a joke that was made and that everyone can see it´s not meant to be taken seriously. It has no legal effect. e.g. Red bull gives you wings advertisement.
▪ A mere representation
▪ A term of contract
Representation vs Term
The question is if the representor promised the truth of statement, if so then the contractual promise is a term.
- If the promise is not given and it´s also found not to be a puff then it will be considered a mere representation, which might lead to a claim in misrepresentation.
Distinction
Why we need to make a distinction; nature of statement makes difference
1. Availability of damages- will the representee be able to claim damages against the representor at all
2. Measure of damages
Availability of damages
• If statement is term and found to be untrue then damages for breach of contract can be claimed; no fault is required to be shown in English Law for Contract.
• If statement is mere representation, representee can only claim damages for misrepresentation and they require fault e.g. negligent misrepresentation. If the
misrepresentation was innocent then the representee cannot claim for damages.
Measure of damages
• Misrepresentation: placing representee (innocent party) in position as if contract had not been made (reliance loss)
• Breach of contract: placing representee in position as if statement had been true (expectation loss)
Making the distinction
Legislation may categorise certain statements as terms
- Otherwise, common law rules apply
Legislation
Consumer Rights Act 2015- categorises certain pre contractual statements as terms.
Section 50- deals with B2C contract for service so buisness to consumer conracts.
→ Section 50 of the Consumer Rights Act 2015 provides that most pre-contractual statements by a trader constitute terms where there is a contract for services between the
trader and a consumer.
Common Law
Test: Would a reasonable person have concluded that statement maker intended to make a binding promise as to the truth of the statement? (mention the test in a problem
question answer)
Heilbut, Symonds & Co v Buckleton [1913] AC 30- Authority for the test
Factors
Parties do not always express intention as to whether truth is to be guaranteed
- Courts use various factors as indicia of the presence or absence of intention
- factors are weighed against each other
Importance of the statement
Where statement is very important to representee and representor knows this, statement is more likely to be a term. If it in fact was important and representor knew it was
important then this is a factor which is in favour of being a term of contract.
Bannerman v White (1861) 10 CB NS 844
Facts: The claimant, Bannerman, formed a contract with the defendant, White, regarding the purchase of hops, intending to use them to produce beer. The claimant specifically
enquired as to whether the hops had received a sulphur treatment. The defendant assured the claimant that the hops were untreated, however in fact the hops had received
sulphur treatment and were subsequently useless to the claimant; thus Bannerman brought an action against White for damages, contending that the statement regarding
treatment ought be viewed as a contractual term which White had thus breached.
Couchman v Hill [1947] 1 All ER 103
Facts: The claimant asked both the defendant and the auctioneer to confirm that the heifer was unserved. Both answered ‘yes’. The claimant bought the heifer. It later turned out
to be with calf. This was dangerous given the heifer’s young age. The heifer died as a result.
Acceptance of Responsibility
Where representor accepts responsibility, statement is more likely a term
Schawel v Reade [1913] 2 IR 81
Facts: the buyer wanted to buy a horse for breeding and wanted to get it examined. The seller said it wasn´t necessary but later on the buyer found that the horse had an eye
disease and couldn't be used for breeding
- by contrast, where representor recommends that representee checks accuracy of statement, statement is representation
Ecay v Godfrey (1947) 80 Lloyd’s Rep 286
Facts: the seller said the boat was okay but mentioned that the boat should be surveyed to make sure it was fine. The buyer did not get it surveyed.
Terms of contract Page 1
,Facts: the seller said the boat was okay but mentioned that the boat should be surveyed to make sure it was fine. The buyer did not get it surveyed.
Relative knowledge of the parties
Where statement maker has special knowledge of contract’s subject matter, statement is more likely to be a term
Compare these cases:
Oscar Chess Ltd v Williams [1957] 1 WLR 370
Facts: The consumer went to a car dealer to get a new car and went in with his to exchange parts. The consumer said that his car was from 1948 and gave him £290. The dealer
found it was an older car and worth less.
Judgment: Decided it was not a term as the seller was not an expert and relied on the registration book, the buyer was the ex pert.
Dick Bentley Productions Ltd v Harold Smith Motors Ltd [1965] 1 WLR 623
Facts: Car dealer sold a car to a consumer and said the car did 20,000 miles but that was not true.
Judgment: it was decided it was a term since the car dealer was the expert and had means to find out the truth.
Timing
The longer the time between the statement and the formation of the contract, the less likely is it a term
Inntrepreneur Pub Co v East Crown Ltd [2000] 2 Lloyd’s Rep 611 at [10]: “[A] further important factor will be the lapse of time between the statement and the making of the formal
contract. The longer the interval, the greater the presumption must be that the parties did not intend the statement to have contractual effect in relation to a subsequent deal”
Terms of contract Page 2
,L 29/01/24 Parole Evidence rule
23 January 2024 15:27
Written contracts
Where there is contractual document, identification of express terms is often straightforward
• But existence of oral terms may be alleged
• Meaning of express terms may be disputed
Parol evidence rule
Basic idea is that oral evidence will not be considered
If the contract is written, that writing is the whole contract and the parties cannot adduce “parol evidence” to add to, vary or contradict that writing
- “parol evidence” is any evidence other than the contractual document e.g. oral evidence
Parol evidence rule has two limbs:
Incorporation: there are no terms not contained in the contractual document
Interpretation: extrinsic evidence is not considered in interpreting the terms contained in the contractual document
Rectification
Equitable remedy that addresses transcription mistake in recording parties’ agreement
Incorporation
Partly oral contract
Despite parol evidence rule, it is open to party to allege and prove that contract was partly oral and partly written
- J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd: claimant imported machines from Italy to England. The defendants proposed a change in the
method of transportation and gave the plaintiff an oral assurance that the machines would be shipped in containers carried un der deck. No written
provision was made for this change. One of the machines was packed on deck and was lost at sea.
The first rule of the parol rule therefore does not apply anymore
Roskill LJ said (at 1083): [U]sually parole evidence cannot be given to contradict the terms of the written contract … But that doctrine ... has little or no application
where one is not concerned with a contract in writing ... but with a contract which ... was partly oral, partly in writing, and partly by conduct. The court is entitled
to look at and should look at all the evidence from start to finish in order to see what the bargain was that was struck between the parties.”
Collateral contract
Second contract which is connected to main contract
• Consideration for promise in collateral contract is entering into main contract
• Main contract may be written and collateral contract may be oral:
- City and Westminster Properties (1934) Ltd v Mudd: The defendant, who had been a tenant of the premises for six years, had resided at the shop. When
the lease fell for renewal, the plaintiffs inserted a clause for use of the premises to be for business purposes only. The defendant asked if he could sleep there, was
told that he could and he signed the lease.
Judgment: Even though this assurance contradicted the lease, evidence of it was held admissible to prove a collateral contract which the tenant could plead in
answer to a claim for breach of contract.
Entire agreement clause
it states that the document contains the entire contract, and each party acknowledges that it has not relied upon any promise not contained in document. Such
clause will prevent courts from finding the terms.
▫ such clause precludes oral terms
▫ in B2C contracts, it may be an unfair term
Interpretation of contracts
[T]he ultimate aim of interpreting a provision in a contract ... is to determine what the parties meant by the language used, which involves ascertaining what a
reasonable person would have understood the parties to have meant”: Rainy Sky SA v Kookmin Bank at [14] (Lord Clarke speaking for the SC) (objective approach)
Traditional approach
textualism”; means the courts will stick to looking at the language so to the literal meaning of the clause/term of the contract; “four corners” of the contract
- Words in contractual document are to be construed according to their ordinary grammatical meaning
- No consideration of parties’ negotiations or subsequent conduct, background, commercial background and the purposes as to why each party pursued with
the contract
Change of approach
Courts have moved towards “contextualism”, considering the context of the contract in its interpretation
Terms of contract Page 3
, Impetus was given by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society : Court should ascertain meaning which the
document would convey to a reasonable person having all background knowledge
• Court may conclude that parties chose wrong words or syntax, in other words the court is not bound by the language used by the parties
Chartbrook Ltd v Persimmon Homes Ltd: The claimant owned some land which they wished to develop. They hired the defendants as developers. The contract
required the defendants to acquire planning permission for the development. The defendant acquired the planning permission and completed the development.
A dispute later broke out over a clause in the contract which provided for an ‘additional residential payment’. This term was defined in the contract, but the
parties disagreed on how to interpret the definition.
“23.4% of the price achieved for each residential unit in excess of the minimum guaranteed residential unit value less the
costs and incentives.”
23.4% of difference between sale price and minimum value OR difference between 23.4% of sale price and minimum value
Lord Hoffmann (at [25]): “What is clear from these cases is that there is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction
which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a
reasonable person would have understood the parties to have meant.”
Commercial Common Sense
West Bromwich emphasised commercial common sense in interpreting contracts
• Criticism: this creates uncertainty and increases the risk of litigation
In recent cases, SC refused to deviate from literal meaning of clauses
• commercial common sense only relevant where clause is ambiguous
Arnold v Britton
Lessees must pay “a proportionate part of the expenses and outgoings incurred by the lessors in the repair maintenance renewal and the provision of services
hereafter set out the yearly sum of £90 and VAT (if any) for the first three years of the term hereby granted increasing thereafter by ten pounds per hundred for
every subsequent three year period or part thereof.”
Lord Neuberger (at [20]): “[W]hile commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very
slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even
ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should
have agreed.”
… Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist na unwise party or to penalise an astute party.”
Unitary Exercise
Wood v Capita Insurance Services Ltd
▪ Textualism and contextualism are both tools to ascertain objective meaning of clauses it is a unitary exercise
▪ Clause may be negotiated compromise; so neither party was happy with it but they agreed to it
▪ hindsight may reveal bad bargain ; what´s relevant is what parties agreed to when making the contract
Pre-contractual negotiations
Chartbrook Ltd v Persimmon Homes Ltd confirmed exclusion of this for purpose of interpretation (exclusionary rule)
Pre contractual negotiations may be used as evidence of objective fact known to both parties
It may also be used for purpose of rectification
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