Terms and representation

The parties will make various statements in the course of the negotiation. It’s important to distingue them:

 Mere puff
It’s a mere statement of opinion and will have no legal effect
 Representation
It’s a statement that induces a party to enter into a contract (but does not form part of it)
If false →misrepresentation (needs proof of fault), remedies: remedy for breach of contract (expectation
interest for damages)
 Term
It’s a promise that becomes part of the contract.
If false → breach of contract (automatic right to sue), remedies: set aside the contract (only if the broken term is
a condition or innominate term)or claim damages for misrepresentation (reliance interest).

Whether a statement is a contractual term, or a representation depends on the intention of the parties (was the
intention of the statement to bind the parties or just to inform them?)

The courts have developed a number of tests to decide if a statement is a term or representation:
−verification= a statement is unlikely to be a term if the maker of the statement asks the other party to verify the truth.
Ecay v Godfrey
A seller of a boat stated that the boat was sound but advised the buyer to have it surveyed. It was hekld that the
statement was a mere representation.
Schawel v Reade
The defendant told the claimant that was looking for a horse for stud purposes, was told that the horse was perfectly
fine and there was no need to check. Therefore, the claimant bought the house that was in fact totally unfit. It was held
that the statement was a term of the contract.

−importance= if great importance is given to a statement (without it one party would not have entered into the
contract) then it is likely to be a term
Bannerman v White
D was the purchaser of hops. Before the contract was made the purchaser stated that: “if they have been treated with
Sulphur, I am not even interested in knowing the price of them”.

−specific knowledge= if the statement is made by one party with specific knowledge or skill, then it may be a term.
Dick Bentley Productions Ltd v Harold Smith Ltd
The claimant asked the defendants to source a ‘well vetted’ Bentley. The defendants claimed that a particular car had
done 20,000 miles since being fitted with a new engine and gearbox. It had in fact, done 100,000 miles, which the
claimant discovered after purchasing the car. The statement of the miles was held to be a term of the contract. The
claimant had relied on the specific knowledge of the dealer, and it was a major factor of entering into the contract.

Oscar Chess Ltd v Williams

The defendant sold a car to the claimant at £290. The car was not the same year model as it was described. The
defendant had obtained the information as to the age of the car from the car logo book. Therefore, it was held that the
statement was a mere representation because it was an erroneous but honest statement.

Section 1 (a) of the Misrepresentation Act 1967 provides that a representee who has entered into a contract after a
misrepresentation has been made to him, may rescind the contract for misrepresentation (if he is entitled to do so),
even though the misrepresentation is subsequently incorporated into the contract.
Sources of Contractual terms
There are two principal sources of contractual terms:
1. Implied terms: terms which are not specifically agreed by the parties but that are implied
- by the court
the court may imply terms in fact or in law.
 Terms implied in fact are inserted to represent the obvious, but unexpressed, wishes of the parties
to the particular contract in question. The test used by the courts is the officious bystander test:
prima facie that which is left to be implied is 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’.
The Moorcook
The claimant entered into a contract with the defendant to dock and unload cargo from his ship at
their wharf on the Thames. The ship was grounded at the jetty at low tide and broke up on rocks.
The claimant sued for the damages to his ship. The defendants claimed that there was no express
term relating to the ship and, as such, they could not be liable for breach of contract. the court held
there was an implied term in the contract that the ship would not be damaged. This term was
necessary to give the contract business efficacy. Therefore the defendants were liable for breach of
this implied term.
 Terms implied in law are inserted into the contract regardless of the wishes of the parties: typically
to regulate a particular sort of agreement and often to protect the interests of the weaker party.
Liverpool City Council v Irwin
The condition of a council tower block deteriorated such that the stairs and lifts were in disrepair
and internal rubbish chutes were blocked. Irwin alleged a breach on the part of the council of its
implied covenant for their quiet employment of the property. The House of Lords held that it was an
implied term of the lease that the landlord should take reasonable care to keep the common parts
of the block in a reasonable state of repair.
- by the custom
a contract may incorporate any relevant custom of the market, trade or locality in which the contract is
made. However, terms will not be implied by custom where they would be contrary to the expressed terms
of the contract.
- by statute
parliament has implied some terms into contracts. Their function is to protect the expectation s of
purchasers (Consumer Rights Act 2015)
2. Express terms: agreed specifically by the contracting parties, orally or in writing.

The parole evidence rule

When the parties have written down in a document their contract, the parties cannot adduce extrinsic evidence to add,
very or contradict the written document.
The purpose is to promote certainty. The rule is not an absolute only, it has many exceptions:
 The rule does not apply when the written document was not intended to contain the whole of the agreement
 Parole evidence is admissible to prove terms which must be implied into the agreement, to show that the
contract is invalid on grounds of misrepresentation, fraud, mistake, non est factum, to show that the document
should be rectified, to explain words that are ambiguous…
 In one case extrinsic evidence was used to contradict the terms of the agreement. (City and Westminister
Properties)

N.B. the rule is in existence but because of the width of the exceptions, it’s unlikely to have significant effects in practice.

Bound by signature?
A person is bound by a document which he signs, whether he reads it or not.
L’Estrange v Graucob
The claimant, a café owner, bought a cigarette machine from the defendant. In the contract there was a clause which
excluded liability for all the expressed and implied warranties. The machine did not work, and the claimant brought an
action for breach of an implied warranty. The court held that when a contract is signed, the party signing it is bound and
it is wholly immaterial whether he ahs read the document or not.

This rule was impacted by the unfair Contract Terms Act 1977 and the Consumer Right Act 2015. Also the rule would not
apply where the signature has been procured by fraud or misrepresentation or where the defense of non est factum is
made.

Non est factum is an antique defence in English law. If a person without consenting mind has signed a contract he could
rely on the defence.
- To whom is it available? Those who are permanently or temporarily unable through no fault of their own to
have without explanation any real understanding of a particular document, whether that be from defective
education, illness or innate incapacity.
- When a person cannot rely on this defence? Where there is carelessness on the part of the person who signs the
document.
Incorporation of written terms
There are 3 steps that the parties must take to incorporate written terms into the contract:
1. Notice of the terms must be given at or before the time of concluding the contract
2. The terms must be contained in a document which was intended to have contractual effect
Chapleton v Barry
The claimant hired a deck chair from the defendants. On payment he was given a ticket, which unknown to him,
contained an exclusion clause. The claimant was injured when he sat on the deck chair. He sued the defendants
who relied on the exclusion clause. It was held they could not rely on the exclusion clause because it was
contained in a mere receipt which was not intended to have contractual effect.
3. Reasonable steps must be taken to bring the terms to the attention of the other party.
Parker v South Easter Railway
The tickets given to customers on making their deposit had a notice printed on them in legible writing stating
that the company would not be responsible for any deposits exceeding £10 in value. Parker did not read the
notice and post his bag on the train. The court held at first that he was bound to the term even if he had not
read them. Instead the Court of appeal ordered a re-trial because the test was whether the defendant took
reasonable steps to bring the notice to the attention of the claimant, not whether the claimant actually read the
notice.

The more unusual or unreasonable the clause is, the greater the degree of notice required by the courts.
Interfoto Picture Library v Stiletto visual programmes
The defendants ordered photographic transparencies from the claimants. The claimants sent them 47
transparencies with a delivery note containing condition. Condition 2 stated that a holding fee of £5 per day was
payable for every day the transparencies were kept in excess of 14 days. The defendant forgot about them and
sent them bac after 1 month. The claimant then sent the defendant an invoice of £3,783.50, which the
defendant refused to pay. The Court of appeal held that condition 2 was not incorporated into the contract
because insufficient notice had been given. A term which is onerous or unusual must have been fairly and
reasonably drawn to the attention of the other party.

Incorporation by course of dealing

Terms may be incorporate by course of dealing. The courts have never defined with precision course of dealing. Course
of dealing must be both regular and consistent.

McCutcheon v David MacBrayne Ltd

The defendants’ ferry sank and the claimant’s car in it, was lost. The claimant brought an action and the defendant
sought to rely on an exclusion clause contained in a risk note, which they normally ask to sign but the forgot in this case
to ask the claimant’s brother-in-law. The House of Lords held that there was no consistent course of dealing on the basis
of which the exclusion clause could not be incorporated into the contract.

Interpretation

Terms of the contract must be interpreted to establish their ‘true’ meaning. When interpreting a contract, the court
must seek to ascertain and give effect to the intention of the parties. The intention of the parties must be derived from
the document in which they have expressed their agreement. In Investors Compensation Scheme Lord Hoffmann set out
the 5 principles by which contracts are interpreted:
1. the right meaning is what the document conveys to a reasonable person;
2. this includes everything in the “matrix of fact”, or relevant background circumstances;
3. prior negotiations are excluded from this (a point which has been much criticized since);
4. the meaning of words is not a literal meaning, but the one reasonably understood from the context, and
5. the meaning should not contradict a common-sense view of what a contract required.
There is inconsistency in the case law:
Arnold v Britton
The case concerned a number of chalets in a leisure park in the Gower peninsula, each of which was subject to a 99-year
lease. The covenant appeared to suggest that the initial service charge was to be increased by %10 every 3 years. The
lessees contended that this could not be the meaning of the covenant because that would require them to pay ‘an
increasingly absurd high annual service charge in the later years’ of their leases. The Supreme Court held that the leases
had the meaning contained for them by the lessors. The decision was reached on reliance of commercial common sense.
Rectification
One of the parties may argue that the written agreement, as interpreted, fails to reflect the intention of the parties in
making the agreement. In such a case, the court may be asked to rectify the agreement so that it reflects the agreement
which the parties did reach.
Rectification is an equitable remedy and as such is only available on discretion of the court. It’s concerned with defects
not in making but recording of the contract.
Frederick E Rose Ltd v William H Pim Jnr v Co
The claimants were asked to supply the buyers with ‘Moroccan horsebeans known here as feveroles’. The claimant
asked the defendants what this were, and they were told that they were simply horsebeans. In fact, feveroles’ were a
more expensive type of horsebeans. The buyer claimed damages and sought to have the contract rectified by the
insertion of the word ‘feveroles’. The Court of appeal refused to rectify the contract and held that this was not a case in
which the document failed to record the intention of the parties, the parties were simply sharing a misapprehension.
In deciding whether rectify a document a court will look at:
- ‘convincing proof’ is provided that the document fails to record the intention of the parties
- the document must fail the intention of BOTH parties (unless one party knows that the other is mistaken)
- The document must have been preceded by a concluded or by a ‘continuing common intention’.
Classification of contractual terms
Not all contract terms are of equal significance. They are divided into three categories:

1. Conditions = most important term of the contract which goes to the heart to the contract.
Breach of condition: entitles to terminate the contract, claim damages for breach, or affirm the contract.
N.B. we are concerned with promissory conditions, which are terms of contract under which one party promises
to do a particular thing, and failure to do that is breach of contract!
A term may be held to be a condition in 3 ways.
 Condition by statute
Sections 12 to 15 of the sale of Goods Act 1979 imply certain terms into the contract for goods. The
implied terms as to quality, fitness, purpose, compliance with description are declared to be conditions.
 Condition by the courts
there are two grounds on which a court may decide that a term is a condition:
→by necessary implication, the parties must have intended that that term should be treated as a
condition
→binding authorities requires the court to hold that the term is a condition.
Arcos v Ronaasen & Son
It was a contract for the sale of timber, which was described in the contract as half an inch thick to make
cement barrels. Instead the timber was 9/16-inch-thick but this did not impair its utility for making
cement barrels. It was held that the buyers could reject the timber, even though their motive in doing so
was clearly that the market price for timber had fallen.
 Condition by the parties
If agreed by both parties, the contract states that a term is a condition, then the term will generally be
regarded as a condition.
Lombard North Central plc v Butterworth
A contract for the hire of computers stated in clause 2 that the hirer should pay each instalment
promptly. The hirer failed to pay certain instalments promptly. The owners retook possession of the
computers and sued the hirer for damages. The Court of Appeal held that the term being of the essence
entitled the claimant to terminate the contract and ask for damages.
Schuler v Wickman machine tool sales
In contract the clause 7 (b) stated that ‘it shall be a condition of the agreement that Wickman shall send
its representatives to visit six UK manufacturers at least once a week for the purpose of soliciting
orders’. Wickman failed to make some visits. Schuler claimed that they were therefore entitled to
terminate the agreement because Wickman had broken a condition of the agreement. This argument
was rejected by the House of Lords because otherwise the failure to even make one visit would entitle
Shuler to terminate the contract and this would be unreasonable. Therefore, the court interpreted the
‘condition’ in clause 7 (b) in its non-technical sense.
2. Warranties = it’s a term of lesser importance than a condition
Breach of warranty: ONLY entitles to claim for damages.
3. Innominate terms =
The courts have developed an approach involving innominate terms. The courts look at the effects of the breach
on the injured party to determine whether the breach itself was of a condition or a warranty. This gives the
courts some flexibility in determining the appropriate remedy (repudiation and/or damages or damages only).
Breach of an innominate term allows the party to terminate the contract only where the breach has had serious
consequences for him.
Hong Kong Fir shipping Co v Kawasaki Kisen Kaisha
Kawasaki contracted with Hong Kong Fir to charter a vessel for a period of 2 years. A term in the contract
required that the vessel was ‘fitted in every way for ordinary cargo service’ and that the owners would ‘maintain
her in an efficient state… during service’. Soon after the beginning of the voyage the ship broke down and it was
discovered that it was not seaworthy and in need of repairs. The claimants were deprived of the use of the ship
for 18 weeks. Kawasaki wrote to the owners repudiating the charter. Hong Kong Fir brought an action for
wrongful repudiation, claiming that the term was only a warranty and not a condition. It was held that Hong
Kong Fir was in breach of contract to deliver a seaworthy vessel and that it failed to maintain the vessel in an
efficient state. However, this breach was not substantial enough to entitle the charterer to repudiation of the
contract.