Professional Documents
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A Terms of The Contract
A Terms of The Contract
• Puffs
• Terms
• Representations
A puff
A puff is a statement which cannot give rise to legal consequences, as they are never meant to
be taken literally and there is no intention to be legally bound. The advertisement in Carlill v
Carbolic Smoke Ball Co [1893] 1 QB 256 was argued to be a puff unsuccessfully.
Both terms and representations provide a remedy for the aggrieved party, therefore, why does
it matter which of the two a statement is? The significance is the form of remedy, as the
remedies are different for the two. First, it is helpful to define the two.
Representation: There is no promise, but the statement induces the making of the contract
Misrepresentation: Allows for a claim for damages if it can be proven that the statement
was made fraudulently or negligently, an innocent representation will not result in a claim for
damages (unless there is an exception under Section 2(2) of the Misrepresentation Act 1967).
Term: Damages will be based on an expectation measure – the claimant will be put into the
position they would have been in had the contract been properly performed. Damages will be
recoverable based on the remoteness rule from Hadley v Baxendale(1854) 9 Exch 341
Misrepresentation: Damages will be limited – the claimant will be put into the position they
were in before the contract was made and will allow for a claim for all direct loss by the
claimant, irrespective of foreseeability.
If a statement is in writing, there will be a presumption that it will form a term of the contract.
There are a variety of different rules related to this.
Even if there is a written contract, parties may claim there are other terms in the contract,
perhaps ones in another document, or ones from an oral agreement. Claims pointing to other
documents or oral agreements will usually be ignored. This is known as the ‘parol evidence’
rule.
Collateral contracts
The parol evidence rule can be circumvented by the use of a collateral contract. The courts
may hold that the oral statements following the formation of a written contract may represent
a collateral contract which runs alongside the written contract.
This interesting device used by the courts can only be found to exist if the promise contains a
term which is different to the ones in the written contract, and does not contradict them at all
– Henderson v Arthur [1907] 1 KB 10
The presumption is also limited by statute, any terms which fall foul of the Unfair Contract
Terms Act and similar legislation will be void.
The document being signed also must be one which would be expected to contain contractual
terms - Grogan v Robin Meredith Plant Hire [1996] CLC 1127.
If the individual making the statement has some specialist skill/knowledge of the contractual
subject matter, or claims to have such knowledge, the presumption is that the statement is
more likely to be a term.
If the individual relying on the statement makes it clear that the statement was of such
importance that they would unlikely have contracted without that guarantee, the presumption
is that the statement will be a term. This is a two-part test.
1. Is the statement so important that the party would not have entered into the contract
but for the statement?
2. Is the above importance clear to the statement maker at the time this statement is
made, either by an express statement or it would be clear from the contractual
circumstances
How long was the lapse of time between the statement being made and the formation of the
contract?
The first presumption relating to a lapse of time is that if a party makes a statement, and soon
after, the contract is reduced to writing without inclusion of the statement in writing, that
statement would not form a term of the contract, and would only be a representation
– Heilbut, Symons and Co. v Buckleton [1913] AC 30.
These presumptions can be rebutted if the parties’ intentions are clear through another means.
There are two presumptions which fall under this heading. First, if a statement maker accepts
responsibility for the truth of a statement, the statement will be a term. This was seen
in Schawel v Reade [1913] 2 IR 81.
The second presumption is that where a statement is made, but that party advises or tells the
other party to verify that statement, the statement will be a representation, not a term - Ecay v
Godfrey(1947) 80 Lloyd’s Rep 286.
Incorporation of terms
Once a statement has been identified as a term of a contract, it is not the case that this will
always be binding on the parties; the term must have been successfully incorporated into the
contract. There are three main ways by which this may be done:
Notice
In order for a term to be incorporated into the contract, the party who it confers obligations
upon must be or ought to be aware of its existence. In light of this, there are two
requirements.
1. The term must be included in a document in which contractual terms would normally
be found
2. There has been reasonable notice of the existence of these terms before or at the time
of contracting - Parker v South Eastern Railway (1877) 2 CPD 416
Documents
See Chapelton v Barry Urban District Council [1940] 1 KB 532. Here are the two main
factors to consider when assessing a document to decide whether it is contractual:
1. What the document is called is not conclusive – the document does not have to be
specifically identified as a contract
2. This document must be delivered before the contract or at the time of the contract
- Olley v Marlborough Court Ltd [1949] 1 KB 532.
There are some occasions where notice of terms will not be required to be given. This will be
on the basis that the parties have had a previous course of dealings, and therefore will be
aware of all the relevant terms – Hardwick Game Farm v Suffolk Agricultural Poultry
Producers Association [1969] 2 AC 31.
1. There must be sufficient notice of the term - Spurling v Bradshaw [1956] 1 WLR 461
2. The previous dealings must have been sufficiently consistent - McCutheon v David
MacBrayne Ltd [1964] 1 WLR 125.
A term may be incorporated into the contract either expressly or impliedly. Express terms are
those which have been explicitly communicated between the parties orally or in writing. The
intention of the parties is clear and there is little discussion to be had of these.
Implied terms are those terms which fill the gaps in the contract. Terms can be implied in the
following ways:
1. Custom
2. Law
3. Fact
Terms in law can be implied irrespective of the intentions of the parties, they relate to legal
obligations imposed either by the courts or by statute.
Where it has been deemed necessary by the legislature, certain terms have been implied into
contracts by statute. The most obvious example of this relates to the sale or supply of goods.
Courts should not interfere and imply terms – Attorney-General of Belize v Belize Telecom
Ltd [2009] UKPC 10. There are two methods of implication at fact:
1. The ‘officious bystander’ test - Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB
206
2. The ‘business efficacy’ test has two grounds - SABIC UK Petrochemicals Ltd v Punj
Lloyd Ltd [2013] EWHC 2916 (TCC)
1. Conditions
2. Warranties
3. Innominate
If a condition of a contract is breached, the aggrieved party can choose to bring all
contractual obligations to an end, and will have the right to sue for damages. A condition will
be typically described as being of fundamental importance to the contract.
In contrast, a warranty is of less importance to the contract. The result of a breach of warranty
is the innocent party can claim damages for that specific breach of contract, but will not be
able to bring the contract to an end.
1. Statutory presumption
2. Identified by parties
3. The importance of the term to the contract
Statutory presumption
As we are now aware, there are some terms of contracts which are implied by statute, for
example the Sale of Goods Act.
In the absence of statutory or party intention, a holistic overview of the contract will be
required in order to ascertain the importance of the term to the contract. The presumption
being the more important the term is to the contract, the more likely the term will be a
condition. Subsequently, if a term is less important to the contract, it will more than likely be
a warranty.
See Poussard v Spiders(1875) LR 1 QBD 410 and Bettini v Gye (1875) LR 1 QBD.
Innominate terms
An innominate term is one which strikes a middle ground between a condition and a
warranty. The result of such a term is that the courts will classify the term upon breach of it
- Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.
• Will the breach deprive the innocent party of a substantial part of their bargain?
If yes, the term is likely to be a condition, if no, the term is likely to be a warranty.