Contract Law - Topic 2 - Terms and Representations

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When will a statement become a term?

Heilbut, Symons & Co v Buckleton (1913)

Who? -  D who owned a Rubber company and P who wanted to invest in the company

What? - Rubber company, P asked D if it was an ‘alright’ company. To which D replied ‘We are bringing it out.’ P invested in the company from that conversation. BUT the company was far from alright

HOL – Held that D had no intention of warranting that either the company was a rubber company or that it was a good investment.

  • A statement will become a term of the contract

    • “provided it appears on the evidence to be so intended.”

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What must be considered to determine intention?

  1. Following heilbut - First Circumstance is: Timing of the statement.

    Authority –Inntrepreneur Pub Co v East Crown Ltd (2000)

    In this case, Lightman J, drew attention to two relevant timing issues:

  1. The lapse of time between a statement made and the making of the formal contract is significant

    “[The] longer the interval, the greater the presumption… that the parties did not intend the statement to have contractual effect.”

  2. There is an assumption that written contracts will include all the terms that the parties wanted to be binding

    “The prima facie assumption will be that the written contract will include all the terms parties wanted to be binding between them.”

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What must be considered to determine intention?

Following - Heilbut - Second circumstance is: Importance of the statement.

Authority –Bannerman v White (1861)

The statement was the most important aspect of the subject matter, so far as the plaintiff was convinced.Thus, this meant the judges saw the statement as a term. Additionally, if the statement heavily influences the Claimants decision then again, it is likely saw as a term.

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What must be considered to determine intention?

Following Heilbut - Third circumstance is: Relative position of the parties Expertise?

General Rule: When an EXPERT makes a statement to an AMATEUR = likely to be a term of the contract. BUT- When an AMATEUR makes a statement to an EXPERT = likely to be a mere representation.

For example: Authority – Oscar Chess Ltd v Williams (1957)

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Authority - Oscar Chess Ltd v Williams (1957)

Who?

  •  D (is an amateur) selling a car.

  • C is Morris Car to Car dealers (would be considered an expert)

What?

  • D sold a car to C in a part exchange for a new car. D described the car as a 1948 Morris Because that’s what it said in the car manual, but it was a 1939 model and was worth a lot less. C realised too late and couldn’t claim for misrepresentation, so they sued D for damages, claiming he warranted the age of the car.

COA?

  • Held D’s intentions were not to make such a promise as he was an amateur therefor it was unlikely he would have intended to make such a promise, especially to a car dealership who would be considered an expert.

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What must be considered to determine intention?

Following heilbut - Forth circumstance is: External Verification

  1. General Rule:

  • If D encourages C to rely on his assurance without seeking external verification of its accuracy, the courts will see the statement as a term.

  • If D encourages C to seek external verification the statement is a mere representation.

For example: Authority – Ecay v Godfrey (1947)

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Authority – Ecay v Godfrey (1947)

Who?

  • D (Godfrey) is selling a boat

  • C (Ecay) bought D’s boat.

What?

  • C bought a boat from D for £750, but the boat was in appalling condition, incapable of sea voyage. C resold the boat for £45 and claimed D had warranted that the boat was in good condition.

Lord Goddard

  • Held D had asked C whether he was having a survey done. Lord Goddard concluded that it would be inconsistence for D to recommend a survey if he was intending to warrant that the boat was in good condition (as it obviously to anyone whether they have knowledge of boats or not that it wasn’t in good condition).

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What must be considered to determine intention?

Following Heilbut - The fifth cicumstance is: collateral Contracts

Collateral contracts sometimes contain a statement which is not a part of the main contract but is a term (statement) of a separate collateral contract

  • Typically, the term (statement) adds to the main contract.
  • But sometimes it can also contradict the main contract

For example: Authority – City & Westminster Properties Ltd v Mudd (1959)

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City & Westminster Properties Ltd v Mudd (1959)

 What?

  • Landlord gave ora assurce when renewing lease of shop, that although the lease said the premises were not to be used for sleeping, that he would not object if tenants slept on the premises. 9-years later the landlord sought to forfeit the lease for breach of this covenant in the lease.

Court?

  • Held that there was a clear oral promise that the landlord would not forfeit the lease if the tenants slept on the premises. As it was oral it would not be incorporated as a term o the lease, but it did not stop it forming a collateral contract.

NOTE: Sometimes the main written contract will contain an ‘Entire agreement clause.’ In which the parties acknowledge that all their contractual terms are contained in this contract and nowhere else.  

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Contract Law - Topic 2

Implied terms

  • Terms implied by statute
  • Terms implied at common law
  • Terms implied by Law
  • Terms implied by Fact.
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Terms implied by Statute

Terms implied by statute

  • S. 9 CRA 2015:

    • Every contract to supply goods is to be treated as including a term that the quality of goods are satisfactory

    • The quality of goods are satisfactory if they meet the standards that a reasonable person would consider satisfactory, considering:

      • A) the description of the goods

      • B) the price or other consideration for the goods, and,

      • C) all the other relevant circumstances.

  • Landlord and Tenant Act 1985:

    • Landlord’s covenants into leases of houses at low rent that the house is and will be kept fit for human habitation.

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Terms implied 'In fact'

Terms implied 'In Fact'

  • Terms implied by the courts into individual contracts. To do this the courts focus on the presumed intentions of the parties. Additionally, they look at the words used in the contract and analyse the surrounding circumstances.

  • Terms implied ‘in fact’, are implied based on what the parties MUST have intended.

  • Term ‘in fact’ can ONLY be implied where it is strictly necessary. (but the principle of necessary is vague).

For example: Authority – City & Westminster Properties Ltd v Mudd (1959)

“There is only one question, is that what the instrument read as a whole against the relevant background would reasonably be understood to mean?”

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For terms implied 'in fact' - Part 1

What is needed to make the agreement work?

1) Business Efficacy

Authority – The Moorcock (1889)

“Honest business could not be carried on between such a person as the respondent and such people as the appellants, unless the later had impliedly undertaken some duty towards the respondent with regard to the bottom of the river at this place. If that is so, what is the least onerous duty which can be implied” … “should take reasonable care – i.e. fix the bottom or inform the claimants”

Business efficacy is restrictive, a term will only be implied if the contract simply will not work without it, from the point of view of the parties’ respective commercial position.


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For terms implied 'in fact' - PArt 2

2. Officious bystander

Authority – Shirlaw v Southern Foundries (1926)

“if while the parties’ were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common “oh of course”

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Terms implied in Law

Terms implied in law

Likely to be implied due to the nature of the relationship For example,

  • Landlord and tenants

  • Employer and employee

Authority – Liverpool CC v Irwin (1976)

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Authority – Liverpool CC v Irwin (1976)

HOL:

  • Held that a term should be implied at law into leases of council blocks of flats that the landlord covenanted to take reasonable care to keep the common parts of the block in reasonable condition. Although such a term would not apply in the strict test (business efficacy) for implication in fact.

  • “the judgements in all those cases show implied term according to whether it was reasonable in the circumstances to do so”– Per Lord Denning

  • “There are a variety of implications which the courts think fit to make, and they do not necessarily involve the same process.

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Lord Wilberforce in Liverpool CC v Irwin (1976)

4 levels of implication of terms

  1. Gap filling

    1. “The courts are spelling out what both parties know and would if asked, unhesitatingly agree to be part of the bargain.”

  2. Business efficacy

    1. “There is apparently completed bargain willing to add term on the grounds that without it, the contract will not work.”

  3. Reasonableness

    1. NO!! “I cannot go so far as to endorse his principle: indeed, it seems to me with respect to extend long and undesirable way beyond sound authority.

  4. Incomplete contracts/necessity

    1. “The present case presents a 4th category, simply concerned to establish what the contract is, the parties not having fully stated it’s terms.”

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Finding the right term… ‘in fact?’ or in law?

The process of implication of terms can be difficult.

  • E.g. if the courts imply a term that is too broad into a certain type of contract, it can be seriously disrupting to establishing rights and obligations.

  • Terms implied in law are implied into all contracts of a certain type unless specifically excluded. So, the courts first must ask what type of contract is before it.

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Scally v Southern Health and Social Service Board

What?

  • New Health Service Regulations gave employees an advantageous right to purchase extra pension entitlement, but the right had to be exercised within 12 months. The authority neglected to publicise the new regulations or inform their employees about it.

  • Scally lost the opportunity to take advantage, thus he sued, alleging there was an implied term in his contract of employment that the authority would take reasonable steps to bring such rights to his attention

HOL: Agreed with Scally. But stressed such a term could not be implied bu the business efficacy/officious bystander test

“It is necessary to imply an obligation on the employer to bring it to his attention to render officious the very benefit which the contractual right to purchase added years was intended to confer.”

But the decision in Scally was a restrictive one and would not apply to contracts of employment in general.

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Crossley v Faithful & Gould Holdings Ltd (2004)

- Rather than focus on the exclusive concept of necessity it is better to recognise that, to some extent at least the existence and scope of standardise implied terms raises questions of reasonableness, fairness and the balancing of competing policy considerations.

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Incorporation by signiture

Authority – L’Estrange v Graucob (1934) - Slot machine was defective – yet signed contract

  • “when a document containing contractual terms is signed them, in the absence of fraud, ….or… misrepresentation, the part signing it is bound, and it is wholly immaterial whether he has read the document or not.”  - Per Scruton L.J

Influence of policy:

  • commercial parties have certainty
  • Other doctrines deal with problems create by rule,
  • Statute deals with unfair contract terms

Authority – Saunders (executrix of will of gallie) v Anglia Building Society (1971)  

Non-est Factom? (plea that the written agreement is invalid)

  • The party signing must have made a fraudulent mistake as to its character or effect AND
  • The party making the mistake must not have intended to do so as a result of their own negligence.
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Incorporation by notice (unsigned contracts)

About if one party has taken reasonable steps to bring the terms to the other party’s attention

NOT whether one party has read and understood them.

Authority – Thompson v London Midland & Southern Railway

What? Ticket given to old lady containing the words “issued subject to conditions and regulations in the companies timetables and notices and other bills.”

Held: The company had done everything “that was reasonably necessary as a matter of ordinary practice to call attention to the conditions upon which the ticket was issued.”

NOTE: Today the opposite decision would have been made due to the Unfair Contract Terms Act 1977 and Consumer Rights Act 2015  

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Reasonable steps to give notce of terms been made?

The courts consider all the circumstances prevailing when the contract was made to determine whether reasonable steps to give notice of terms have been made.

For example, they:

  1. Identify whether there was a prior course of dealings between parties

    1. If parties have always contracted on certain terms I the past, it will not matter if those terms have not been expressly mentioned or pointed out on this occasion, they’re incorporated based on a course of dealing between the parties.

  2. However, two conditions apply:

    1. The course of conduct must be consistent.

      1. “where the conduct is not consistent there is no reason why it should still produce an invariable contractual result.” Per Lord Pearce.

    2. The course of conduct must be regular.

      1. Authority – Hollier v Rambler Motors (AMC) LTd  - This means the terms were used often enough that the parties must have intended to transact on that basis.

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Reasonabe steps to give notice of terms been made?

Usual conditions in a particular business

Authority – British crane hire v Ipswich Plant Hire

Who?

  • Both companies in the businesses of hiring cranes and both have standard terms and conditions based on the same trade association standard form.

  • D hired cranes from C in the past, so knew their T&C. But on this occasion D needed to hire a crane urgently, so C supplied it immediately before the contractual papers were dealt with

Held:

  • “the plaintiffs were entitled to conclude that D were accepting [the crane] on the terms of the plaintiffs own printed conditions… It’s as if the plaintiffs had said “we will supply it in our usual conditions” and D had said “off course”.

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Reasonable steps give notice of term been made?

Terms can ONLY be introduced before or at the time of the contract is made. Thereafter no amount of notice will do the trick as it is simply too late to add terms to the contract.

Authority – Olley v Malborough Court (1949)

Who? - Mr and Mrs Olley

What?

  • They reserved a hotel room and paid in advance, then booked in at reception on arrival. Displayed in their hotel room was a notice exempting the hotel from liability for lost or stolen articles. Later some Jewellery, furs and a hat box were stolen from their room

COA - Held that the contract was made when Mr and Mrs Olley booked in at reception (with no mention of exempt clause). So, it was too late to incorporate such a term thereafter however promenade the notice.

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Reasonable steps to give notice of term been made?

How onerous is the term?

The more onerous the term the greater the steps that will be needed to draw it to the attention of the other party.

Authority – T Spurling Ltd v Bradshaw (1956)

“The more unreasonable the clause, the greater the notice which must be given to it…[the clause] would need to be printed in red ink on the face of the document, with a red hand pointing to them before the notice can be held as sufficient.”

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How onerous is the term?

Authority – Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd (1989)

What? No prior course of dealings between the companies. Interfoto sent 45 transparencies which arrived containing a delivery note which had T&C. One said that if the transparencies were kept for more than 14 days, a daily fee of £5 per transparency was payable. Stiletto phoned back accepting the offer but did not notice the term. They returned the transparencies after one month for which interfoto charged them £3700.

COA: Held the term charging a daily fee had not been incorporated into the contract. Furthermore, it was onerous and unusal, so it should have been specifically drawn to Stiletto’s attention. Instead interfoto was entitled to a reasonable fee for Stiletto’s use of the transparencies.

Bingham LJ - “English law does not generally adopt the notion of good faith in contractual dealings, but instead has a number of piecemeal devices to ensure fair dealings between contractual parties, of which the requirement of sufficient notice for onerous terms is one.”

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More on timing

EU directives on consumer Rights 2011

Art 6 (1) – provided in clear and comprehensive manner in any way appropriate to enable informed consent

Art 8 (1) – consumer must receive within confirmation accessible to him the information, prior, during or on time of delivering of the contract.

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Parole Evidence Rule

Traditionally, the rule was that hen parties had reduced their contracts to writing, it was not permissible to adduce ‘parole’ (oral) evidence to add to vary or contradict the written instrument

Law commission Report No 154 (1986)

“Where the parties intended all the terms of the contract to be in a written document, they cannot bring evidence of their terms; but where the parties did not intend the document to represent the whole agreement, outside evidence is admissible.

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Traditional Approach – Literal

Court task – to find intention of the parties

To do this they must focus on the language used I n the contractual document attempting to discern it’s meaning without considering the background to the contract or any other external matters

Authority – Lovell & Christmas Ltd v Wall (1911)

“it is for the court to construe a written document. It is irrelevant and improper to ask what the parties, prior to the execution of the instrument, intend or understood. What is the language they have used?

 The meaning of the contract was to be found within its “four corners”“ duty of the courts… to construe the document accordingly to the original grammatical meaning of the words used there in.”

This approach was taken to promote the certainty desirable in commercial contracts but was not mechanically applied.

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Turning point – from Literal to Prose

Authority - Prenn v Simmonds (1971)

Moved away from the traditional approach, allowing some consideration of the commercial background.

“we must enquire beyond the language and see what the circumstance were with reference to which the words were used and the object, appearing from those circumstances which the person using then had in view.”  - per lord Wilberforce

He recognised the surrounding martix of facts are relevant to the interpretation of a contract.

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Modern approach

Lord Hoffman, tried to restate the law to reflect more clearly the approach considered appropriate. Lord Hoffman has been the most staunch advocate of Lord Wilberforce’s ‘factual matrix’ approach, & built on it with five set principles for interpreting written contractual terms in

Authority – Investors Compensation Scheme Ltd v West Bromwich Building Society (1998)

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Lord Hoffman - principle one

Objectivity – ascertaining the meaning of the contract as it would appear to a reasonable person in the position of the party – remains the central test.

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Lord Hoffman - principle two

Lord Hoffman redefined the ‘factual matrix’ saying that it includes ‘absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.’

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Lord Hoffman - Principle three

  The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent.”

Lord Hoffman makes an exeption for the previous negotations of the parties’. The reason for the exclusion is that only the final bargain must be construed , so evidence of the parties, shifting positions in negotiations and discarded drafts are irrelevant and unhelpful.

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