Contract Law

Lecture 2
Contents •

•
Lecture 4: Express Terms I
Lecture 5: Express Terms II

2
Terms

Express Terms
Express Terms
Express and implied contractual terms distinguished
 Contractual terms may be either express or implied:
Express Terms Terms which are actually recorded in a written contract or openly expressed in an
oral contract at the time the contract is made (or there may be a combination of
written and oral express terms)
Implied Terms Terms which are not stated in the contract but arise 'by implication' to reflect the
intention of the parties at the time the contract was made. Terms may be implied
by fact, law or custom.

4
Classification of Terms

5
Express Terms (Cont.)
Where terms are expressly agreed, issues can arise as to:
 Incorporation—what has been incorporated as an express term of the
agreement, and
 Construction or interpretation — what the incorporated terms mean
 Where statements are made in the course of negotiations, but not
effectively incorporated as express terms of the agreement, consideration
should also be given as to whether such statements are
misrepresentations.
6
Introduction Mere puffs

Pre-contractual statements may be:

1. Mere Puffs: no legal consequence
Pre-
2. Terms: intended to form part of the contract, and are Contractual
Statements
incorporated into the contract (terms may be
“conditions”, “warranties” or “innominate terms”)
Representations Terms

3. Representations: intended to induce the other party to

enter into the contract and itself not incorporated into
the contract; but, if incorporated into the contract, then
they become terms

7
Introduction (Cont.)
 Breachof “terms” leads to breach of contract. Usual remedy
is damages, or in some cases, the right to rescind (terminate)
the contract and damages.

 If“representation” is untrue, no breach of contract, but there is

liability for misrepresentation. Usual remedy is rescission (an
equitable remedy) to restore the parties to their original position.
8
Distinguishing Terms & Representation
 Whether or not a statement has been incorporated into a contract
as a term depends on the INTENTION of the parties
OBJECTIVELY ASCERTAINED from the totality of
evidence: Heilbut, Symons & Co v Buckleton [1913] AC 30.
 Courts
have developed various tests and guidelines to determine
whether a statement is a term or a representation; (cont.)

9
Summary of Factors Taken into Account by
Courts
 Sir Jack Beatson, Anson’s Law of Contract, 28th edition:
1. Time elapsed between making of statement and making of contract – long
interval points to a representation
2. Importance of the statement in the minds of the parties – if important, likely to
be a term
3. If parties execute a formal written agreement without including the statement,
more likely to be a representation
4. If maker of statement is in a better position to ascertain accuracy of statement or
is responsible for ascertaining accuracy, likely to be a term

10
Other Factors
Beatson’s list is not exhaustive. Other factors include:
5. If maker asks other party to verify accuracy of statement,
unlikely it will amount to a term
6. If maker expressly states that there is no need to verify
truth of statement, more likely it will amount to a term.

11
Distinguishing Terms and Representation
• Couchman v Hill [1947] KB 554
• Bannerman v White (1861) 10 CBNS 844
Terms (Warranties, • Dick Bentley Productions Ltd v Harold Smith (Motors)
Conditions)
Ltd [1965] 1 WLR 623, CA
• Esso Petroleum Co v Mardon [1976] QB 801 (CA)

• Routledge v McKay [1954] 1 All ER 855

Representation • Oscar Chess Ltd v Williams [1957] 1 WLR 370 (CA)
• Ecay v Godfrey (1947) 80 LI L Rep 286

12
Distinguishing Terms and Representation
Routledge v McKay [1954] 1 All ER 855
Innocent Misrepresentation
 P bought D’s motor cycle. D told him it was a 1942 model based on
information on vehicle’s registration book. D was its 4th owner.
 One week later parties entered into a written contract but with no mention
of the vehicle’s. P later found out it was a 1930 model.
 P sued D for breach of contract (i.e. P’s contention is that D’s statement
that it was a 1942 model had become a term of the contract)
 HELD:
(1) the interval between the statement being made and the contract
being concluded and (2) the fact that the written contract did not
mention the date of the model suggested that the statement was not a
term;
 It was an innocent misrepresentation for which (according to the law as it
then stood) no damages could be awarded.
Couchman v Hill [1947] KB 554
Term of Contract (Warranty)
 P bought a heifer belonging to D at an auction sale. Before the sale P
asked D and the auctioneer: “Can you confirm heifer’s unserved?” Both
said: “Yes.”
 Between 7 and 8 weeks after the purchase the heifer suffered a
miscarriage and three weeks later died as a result of the strain of carrying
a calf at too young an age for breeding.
 P brought action for damages for breach of warranty.
HELD:
 Having regard to the importance to P of the assurance given to him by
D that the heifer was unserved, D’s statement was a warranty [ i.e. a
term of the contract]
 P was entitled to damages for breach of contract
13
Bannerman v White (1861) 10 CBNS 844 –
Term of contract (Condition)
 W,a hop merchant, entered into a contract with B, who was a hop grower, for the
purchase of hops by sample.
 W asked B at the time of making the contract if sulphur had been so used in their
growth. [If sulphur had been used W would not have been able to sell the hops to his
customers.]
B stated that it had not, and the parties entered into the contract immediately.
 Further
B knew of the objection by hop merchants to sulphured hops, and that W would
not have bought the hops if he had been aware that sulphur had, in fact, been used.
 Later W found out that sulphur had been used and refused to pay the purchase price.

14
 HELD:
Having regard to:
1. The importance that W had placed on B’s statement that
no sulphur had been used, and;
2. The fact that the agreement was made
contemporaneously with the statement
 Thestatement made by B was a condition of the contract
and W was entitled to reject the hops.

15
Oscar Chess Ltd v Williams [1957] 1 WLR
370 (CA) – Innocent Misrepresentation
 Williams bought a car described in the registration book as a 1948 model
from its previous owner and became the 5th owner of the car.
 Williams then sold the car to Oscar Chess Ltd (P), who were motor
dealers, describing it as a 1948 model, for £290. It was in fact a 1939
model whose value was only £175.
 P sued Williams for £115 as damages for breach of contract
 Issue:
was Williams’ statement a condition [i.e. a term] of the contract or
an innocent misrepresentation?
16
 HELD:

 Thestatement that the car was a 1948 model was not a

condition of the contract.
 Williams,being the 5th owner, had no personal knowledge
(and P knew this) of date of manufacture and this was a matter
on which P might well also have formed their own opinion.
 Williams had merely made an innocent misrepresentation of
the date of manufacture, which gave no rights to damages to P.

17
 Per Lord Denning:
 “When the seller states a fact which is or should be within his
own knowledge and of which the buyer is ignorant, intending
that the buyer should act on it and he does so, it is easy to infer
a warranty [term]; see Couchman v Hill…”
 “If,
however, the seller, when he states a fact, makes it clear
that he has no knowledge of his own but has got his information
elsewhere, and is merely passing it on, it is not so easy to imply
a warranty. Such a case was Routledge v McKay”

18
 Inthis case “…the plaintiffs, the motor dealers who bought
the car, relied on the year stated in the log-book. If they had
wished to make sure of it, they could have checked it then and
there, by taking the engine number and chassis number and
writing to the makers.”
 They did not do so at the time, but only eight months later.
 They are experts, and, as they did not make that check at the
time, I do not think that they should now be allowed to recover
against the innocent seller who produced to them all the
evidence which he had, namely, the registration book.”
19
Dick Bentley Productions Ltd v Harold Smith
(Motors) Ltd [1965] 1 WLR 623, CA – Warranty
B told defendant company’s agent, S, that he (B) was looking
for a well vetted Bentley car.
S told B he could find out the history of cars.
S found a Bentley car and negligently (without making any
checks) told B that it had done only 20,000 miles.
B bought the car and later brought an action for breach of
contract against the defendant company.
20
 HELD:

 S’ statement
regarding the mileage of the car amounted prima facie to a
warranty, and the inference of a warranty was not, in the present case, rebutted.
 Accordingly, B was entitled to damages for breach of warranty.
 Ifa statement is made during contractual negotiations to induce the other party
to act on it, and if it actually induces him to act on it by entering into a
contract, that is prima facie ground for inferring that the statement was
intended as a warranty;
 Butthe maker of the statement can rebut this inference, if he can show
that he was innocent in making it and that it would not be reasonable for
him to be bound by it.

21
 On the facts, the inference was not rebutted.
 “Here we have a dealer, Mr Smith, who was in a position
to know, or at least to find out, the history of the car. He
could get it by writing to the makers. He did not do so.
 Indeedit was done later. When the history of this car was
examined, his statement turned out to be quite wrong. He
ought to have known better. There was no reasonable
foundation for it.”

22
Esso Petroleum Co v Mardon [1976] QB
801 (CA) – Warranty
 Duringnegotiations for tenancy of an Esso petrol station, Esso’s
representative, told M that the station would reach a throughput of
200,000 gallons per year by the 3rd year.
 Infact the station was capable of an annual throughput of only 70,000
gallons.
 Esso sued M for price of petrol supplied.
M counterclaimed for damages for breach of contract contending that
Esso’s representative’s statement was a term of the contract.
23
 HELD:

 Thestatement as to potential throughput was a contractual

warranty.
 It
was a factual statement on a crucial matter made by a
party who had, or professed to have, special knowledge
and skill with the intention of inducing the other party to
enter into the contract of tenancy.
 Esso were in breach of the warranty and liable in damages
for the breach.
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 Per Lord Denning MR:
 “…[Esso] did not guarantee that the throughput would be 200,000
gallons. But, nevertheless, it was a forecast made by a party, Esso,
who had special knowledge and skill. It was the yardstick…by which
they measured the worth of a filling station…”
 “[Esso] were in a much better position than Mr Mardon to make a
forecast…If such a person [i.e. a person with special skill or
knowledge] makes a forecast – intending that the other should act on it
and he does act on it – it can well be interpreted as a warranty that the
forecast is sound and reasonable in this sense that they made [the
forecast] with reasonable care and skill.”
25
Ecay v Godfrey (1947) 80 LI L Rep 286 –
Representation
Ecay v Godfrey (1947) 80 LI L Rep 286 Schawel v Reade [1913] IR 64
Representation
 Seller of boat told buyer that it was sound but  Where the maker of the statement expressly
advised him to have it surveyed. states that there is no need to verify the truth of
the statement, it is more likely that the
 Held: The statement that the boat was sound was
statement will amount to a term.
not a term of the contract; it was merely a
representation.
 Principle: when maker of a statement asks the
other party to verify its accuracy, the statement is
unlikely to be regarded as a term of the contract.

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Question: Distinguishing Terms and
Representations
1. Name the factors courts will take into account to
distinguish terms and representations.

27
Incorporation of
Terms Signature

Three principal methods:

1. Signature on document(s) that contains all the
Incorporation
relevant terms of Terms

2. Bringing terms to the Notice of the other party – Previous

Bringing
course of
take reasonable steps to bring the relevant terms to dealing
Terms to the
Notice of the
between the
the notice of the other party parties
other party

3. Incorporation by previous course of dealing

between the parties

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Incorporation of
Terms
1. By Signature
Incorporation by Signature
 A partyis, generally, bound by his signature, whether or not
he has actually read the document and even if he does not
understand the terms of the document.

30
Incorporation of Terms – Signature

• L’Estrange v F. Graucob Ltd [1934] 2 KB 394

• Curtis v Chemical Cleaning & Dyeing Co Ltd
[1951] 1KB 805, CA
Incorporation by • Grogan v Robin Meredith Plant Hire [1966]
Signature CLC 1127, CA
• Subramaniam v Retnam [1966] 1 MLJ 172
• Sebor (Sarawak) Trading Sdn Bhd v Syarikat
Cheap Hin Toy [2003] 2 MLJ 486

31
L’Estrange v F. Graucob Ltd [1934] 2 KB
394
 P boughta machine from D and signed an agreement which
included [in small print] this clause:
 “This agreement contains all the terms and conditions under
which I agree to purchase the machine specified above, and
any express or implied condition, statement or warranty,
statutory or otherwise not stated herein is hereby excluded.”
 Machine was faulty.
32
 P broughtaction alleging that the machine was not fit for
the purpose for which it had been sold and this amounted
to a breach of condition implied under the Sale of Goods
Act 1893.
D denied liability on the basis of the exclusion clause.
 P argued that exclusion clause had not been incorporated
into their contract because D had not taken reasonable steps
to bring the clause to her attention.

33
Held: Clause had been incorporated by
signature; P’s claim dismissed
 “When a document containing contractual terms is signed,
then, in the absence of fraud, or…misrepresentation, the
party signing it is bound, and it is wholly immaterial
whether he has read the document or not.” per Scrutton LJ
 “…subject to certain contingencies, there is no doubt that it
was wholly immaterial whether the plaintiff read the small
print or not…” per Maugham LJ
34
Limits on the Rule That a Party is Bound by
His Signature
 Nonest factum (defendant through no fault of his own has no
understanding of what he has signed and has not been given an
explanation) (L’Estrange)
 Whenparty has been induced to sign because of fraud or
misrepresentation (L’Estrange)
 When the document signed is not a contractual document but an
administrative document (e.g. time-sheet) (Grogan v Robin Meredith
Plant Hire [1996] CLC 1127)
35
Curtis v Chemical Cleaning & Dyeing Co
Ltd [1951] 1KB 805, CA
 BeforeP gave her wedding dress, trimmed with beads and sequins, to D for cleaning she
was asked to sign a “Receipt”
 She asked shop assistant why she had to do that.
 He replied that it was to exclude D’s liability for damage to beads and sequins.
 She then signed it without reading it.
 In fact the receipt excluded D’s liability for all risks.
 The dress was returned with a stain.
 P brought an action for negligence.
D sought to rely on the exclusion clause.

36
HELD:
D could not rely on the exemption clause because their
assistant by an innocent misrepresentation had created a
false impression in the mind of P as to the extent of the
exemption and thereby induced her to sign the receipt.

37
Grogan v Robin Meredith Plant Hire [1966]
CLC 1127, CA
 TCE hired a driver and machinery from Robin Meredith (RM). They agreed on a daily rate for the hire
but no other terms were agreed.
 RM’s driver presented a time sheet for the signature of TCE's agent at the end of each week which
contained the words "All hire undertaken under CPA conditions."
 CPA conditions contained a term that TCE would indemnify RM against third party liability i.e. for
any losses incurred by RM if their driver injured any person through his negligent driving.
 Grogan (G) was injured when the machinery was involved in an accident and G brought an action
against RM.
 RM claimed to be entitled to an indemnity from TCE on grounds that the CPA conditions had been
incorporated into their agreement because TCE had signed the time sheets referring to the CPA
conditions.

38
Held: CPA conditions had not been
incorporated
 Whether [the CPA conditions had been incorporated into] the contract between TCE and
RM depended upon whether the time sheets came within the class of documents which
the receiving party could, or a reasonable person would, expect to contain relevant
contractual conditions.
 It
was the common understanding of the parties that the time sheets were essentially
administrative and accounting documents designed to record the driver’s hours.
 Thatthe time sheets referred to conditions not previously part of the contract was not of
contractual significance.
 Regardlessof whether they had been signed by TCE, they did not have the clarity of
meaning and purpose required to incorporate the CPA conditions into the contract.

39
Subramaniam v Retnam [1966] 1 MLJ 172
 Malaysian Case
 P suedD for money lent. D had signed a written acknowledgement, in English, of taking the
loan from P in which he promised to repay by a certain date.
 HELD: D was bound by the written contract that he had signed.
 Per GillJ: I find support in the following statement of the law, with which I respectfully
agree, in the judgment of Wood Ag.C.J., in Ismail bin Savoosah & Ors Hajee Ismail (1889)
4 Ky 453 458:–
 “…the person who contracts by a written document, whether or not he understands the
language in which it is written, is bound, in the absence of fraud or misrepresentation, by
the terms of that contract...”

40
Sebor (Sarawak) Trading Sdn Bhd v
Syarikat Cheap Hin Toy [2003] 2 MLJ 486
 Malaysian Case
 Oneissue was whether appellant could rely on an exclusion clause
found on the reverse side of the Bill of Lading.
 Per Mohd Saari JCA: “…[from] the fact that…a director of the
respondent company had signed on the reverse side of the BOL which
contained the exemption clause, it could be inferred that [the director]
must have been aware of the said clause…[therefore] the respondent
had reasonable sufficiency of notice regarding the exemption clause.”

41
Incorporation of
Terms
2. Giving Reasonable Notice of
Terms
Incorporation by Giving Reasonable Notice
of Terms
 Here we are considering cases not involving signature by one party but the other
party is relying on some unsigned printed documents/notices said to contain the
terms of the contract.
 A partywho wishes to incorporate terms into a contract by giving his contracting
party notice of them must satisfy 3 requirements:
1. Must give notice at or before the time of contracting;
2. Terms must have been contained or referred to in a document intended to have
contractual effect
3. Must take reasonable steps to bring the terms to the attention of the other party.

43
 Notice at or before
the time of making
contract

Giving Reasonable Giving

Reasonable

Notice of Terms Term must be

contained or
Notice of
Terms

Reasonable steps to
referred to in a
bring terms to
document intended
attention of party
to have contractual
effect

44
1. By Giving Reasonable Notice of
Terms

45
Incorporation of Terms – By Giving
Reasonable Notice of Terms

Incorporation
by Giving • Olley v Marlborough Court Ltd [1949] 1 KB
Reasonable 532, CA
Notice of
Terms

46
Olley v Marlborough Court Ltd [1949] 1
KB 532, CA
 A manand his wife, on arrival at the hotel as guests, in accordance with the
custom of the hotel paid for a week’s board and residence in advance.
 They then went upstairs to the bedroom allotted to them, where a notice
purporting to exclude the hotel’s liability for articles lost or stolen was
displayed.
 Some of their article were lost.
 They sued the hotel.
 The Hotel sought to rely on the notice excluding their liability.
47
HELD:
 The terms of the notice in the bedroom formed no part of
the contract made between the guests and the proprietors of
the hotel.
 The contract had been made before the guests could see
the notice.

48
 Per Denning LJ:
 Persons who rely on a term to exempt themselves from liability must prove that
term strictly.
 The best way of proving such a contract term was by a written document
signed by the party to be bound.
 Another way was by handing to him before or at the time of the contract a
written notice, specifying its terms, and making it clear to him that the
contract was on those terms.
 A prominent public notice which was plain for him to see when he made the
contract or an express oral stipulation would, no doubt, have the same effect.
 But nothing short of one or other of these three ways would suffice.

49
2. Reasonable Steps to Bring Terms
to Attention of Party

50
Incorporation of Terms – Reasonable Steps to
Bring Terms to Attention of Party

Incorporation • Thornton v Shoe Lane Parking [1971] 2 QB

by Reasonable 163, CA
Steps to Bring • Interfoto Picture Library Ltd v Stiletto Visual
Terms to Programmes Ltd [1989] QB 433, CA
Attention of • Sanggaralingam s/o Arumugam v Wong
Party Kook Wah & Another [1987] 2 CLJ 255

51
Thornton v Shoe Lane Parking [1971] 2
QB 163, CA
 P entered D’s automatic car park where he was issued a ticket by a machine stating
it was issued “subject to conditions…displayed on the premises.”
 P did not read the ticket and was unaware of the conditions displayed on the
premises one of which excluded D’s liability for injury howsoever caused to
customer.
 P was injured because of D’s negligence when he was collecting his car.
 HELD: Since P did not know of the exemption condition and since D had not
done what was reasonably sufficient to bring the exemption condition to his
notice it did not exempt D from liability.

52
Per Lord Denning MR:
 “Thecustomer pays his money and gets a ticket…The contract
was concluded at that time…
 Theoffer is made when the proprietor of the machine holds it out
as being ready to receive the money. The acceptance takes place
when the customer puts his money into the slot.
 The terms of the offer are contained in the notice [not the ticket
issued] placed on or near the machine stating what is offered for
the money. [The notice near the machine did not refer to the
conditions displayed in the premises.]
53
 The customer is bound by those terms [of the ticket or the notices displayed in
the premises] as long as they are sufficiently brought to his notice before-hand
[i.e. before the contract was concluded], but not otherwise.
 He is not bound by the terms printed on the ticket if they differ from the
notice, because the ticket comes too late.”
 Also “…the customer is bound by the exempting condition if he knows that the
ticket is issued subject to it; or, if the company did what was reasonably
sufficient to give him notice of it.”
 Further, where the exempting condition is “so wide and so destructive” of a
person’s rights then “In order to give a sufficient notice, it would need to be
printed in red ink with a red hand pointing to it – or something equally
startling.”

54
Interfoto Picture Library Ltd v Stiletto Visual
Programmes Ltd [1989] QB 433, CA
 IPL delivered
47 transparencies to SVP to be returned by a certain date.
Condition 2 of delivery note stated £5 per day per transparency
would be charged if there were any delay in returning them.
 SVP returnedthem 14 days late. IPL sued them at the “agreed” rate and
obtained judgment for the full sum. This came up to £3,290.
 SVP appealed arguing Condition 2 had not been incorporated into the
contract.

55
Held: Condition 2 had not been incorporated;
appeal allowed
 Where clauses incorporated into a contract contained a particularly onerous or
unusual condition, the party seeking to enforce that condition had to show that it
had been brought fairly and reasonably to the attention of the other party.
 Since
IPL had done nothing to draw SVP’s attention to condition 2, it never
became a part of the contract (per Dillon LJ)
 Althoughcondition 2 was incorporated, Ds were relieved from liability because
no reasonable notice had been given (per Bingham LJ)
 Therefore,
the plaintiffs could only recover a holding fee assessed on the basis of
quantum meruit

56
Per Dillon LJ
 “Condition 2…is…a very onerous clause…nothing whatever was
done by the plaintiffs to draw the defendants’ attention particularly
to condition 2; it was merely one of four columns’ width of
conditions printed across the foot of the delivery note. Consequently
condition 2 never, in my judgment, became part of the contract…”
 “Iwould therefore allow this appeal and reduce the amount of the
judgment…to the amount…awarded on a quantum meruit…i.e. the
reasonable charge of £3.50 per week per transparency…” [this
amounted to £329]

57
Per Bingham LJ
 “The tendency of the English authorities has…been to look at the
nature of the transaction in question and the character of the parties to
it; to consider what notice…was given of the particular condition…;
and to resolve whether in all the circumstances it is fair to hold him
bound by the condition in question.”
 Onthe facts, “…I do not think the defendants could successfully
contend that [the conditions] were not incorporated into the contract.”
However, “the plaintiffs [cannot] be said fairly and reasonably to
have brought condition 2 to the notice of the defendants.”

58
Per Bingham LJ (Cont.)
 “Thedefendants are not to be relieved of that liability
because they did not read the condition
 They are to be relieved because the plaintiffs did not do
what was necessary to draw this unreasonable and
extortionate clause fairly to their attention.
Iwould therefore allow the defendants’ appeal and
substitute for the judge’s award the sum which he assessed
upon the alternative basis of quantum meruit.”
59
Sanggaralingam s/o Arumugam v Wong
Kook Wah & Another [1987] 2 CLJ 255
 Malaysian Case
 P senthis car to 2nd D’s workshop for repairs which had a notice
stating “All vehicles stored or driven by our employees are at
owner’s risk. We accept no responsibility for loss or damage.”
 2ndD’s employee while test driving the car after the repairs with
the P in it met with an accident. P was injured.
D sought to rely on the exclusion notice to escape liability.
60
Per Ajaib Singh J
 “There was no evidence to show that the appellant knew of
the notice or that his attention was drawn to it by the
respondents. A case on point appears to be that of
Thornton v Shoe Lane Parking Ltd. [1971] 1 All ER
686…”

61
3. Term Must be Contained or
Referred to in a Document Intended
to Have Contractual Effect

62
Incorporation of Terms – Term Must be Contained or
Referred to in a Document Intended to Have
Contractual Effect

Term Must be
Contained or • Chappelton v Barry UDC [1940] 1 KB 532
Referred to in a • Parker v South Eastern Railway Co (1877) 2
Document
CPD 416 (CA)
Intended to
• Thompson v London, Midland and Scottish
Have
Contractual Railway Co [1930] 1 KB 41
Effect

63
Chappelton v Barry UDC [1940] 1 KB 532
 P rentedD’s deck-chair. Notice near D’s deck-chairs
stated: “…Hire of chairs 2d. per session of 3 hours”;
customers “respectfully requested” to obtain tickets for
their chairs from chair attendants; tickets should be
retained for inspection.
 P paidthe attendant and received a ticket, which he
slipped into his pocket without reading it.
64
 Ticket had time of issuance printed on it and it also stated:
“Available for three hours. Time expires where indicated by
cut-off and should be retained and shown on request. The
council will not be liable for any accident or damage
arising from the hire of the chair.”
 P was injured when the deck-chair he’d rented collapsed
and brought an action against D for damages for injuries
suffered. D sought to rely on the exemption clause found on
the ticket.

65
HELD:
 The ticket was a mere voucher or receipt for the money paid for
the hire of the chair [i.e. the exemption clause was not found in a
document intended to have contractual effect].
 Theconditions upon which D offered to hire out the chairs
were those contained in the notice put up near the pile of
chairs.
 As that notice contained no limitation of liability for any
accident or damage arising from the hire of the chairs, D were
liable to P.
66
Per Slesser LJ
 The ticket was merely “evidence [to] show that the
obligation he was under to pay 2d. for the use of the chair
for three hours had been duly discharged…”
 “…this ticket is no more than a receipt, and is quite
different from a railway ticket which contains upon it the
terms upon which a railway company agrees to carry the
passenger.”

67
Parker v South Eastern Railway Co (1877)
2 CPD 416 (CA)
 P handedover a parcel of value exceeding £10 at D’s
cloakroom, paying 2d and receiving a ticket in return.
 Tickethad words “See back” and on the back was a
condition that D would not be responsible for any package
exceeding £10 in value.
 P’s package was lost and he brought an action for its loss.

68
HELD:
 ForP to be bound it is not sufficient that he knew there was
writing on the ticket.
 Tobe bound P must have either known or have been given
reasonable notice that the ticket contained conditions.
 Here the D had taken reasonable steps [by printing the
words “See Back”] to bring the exclusion clause to P’s
attention.

69
Thompson v London, Midland and Scottish
Railway Co [1930] 1 KB 41
 P boughta reduced-fair railway ticket which referred to terms and
conditions to be found in company’s time-table.
 Time-table contained words “neither the holder nor any other person
shall have a right of action against the company in respect of injury…
however caused”.
 P was
unable to read. She fell while descending and was injured. She
brought action for damages for negligence.
D sought to rely on exclusion clause in the time-table.
70
HELD:
 The fact that P could not read did not alter the legal
position. She was bound by the contract made on the ticket
on the acceptance of the ticket
 The indication of the special conditions by reference to
the time-tables was sufficient notice of their existence
and contents.

71
Per Lord Hanworth MR
 “Any person who took the trouble to follow out the plain
and legible words on the ticket, “See conditions,” would be
directed without difficulty to the source of the conditions[the
time-tables] and would be able to find it.”
 With regard to “whether or not sufficient notice was given
of these conditions…the mere circuity which has to be
followed to find the actual condition [does not prevent] the
passenger having notice that there was a condition.”
72
Incorporation of
Terms
3. Incorporation by Previous
Course of Dealing
Incorporation by Previous Course of Dealing
1. REGULARITY

J Spurling Ltd v Bradshaw [1956] 1 WLR 461, CA:

• D had stored goods at P’s warehouse on several occasions.
• On each occasion D would receive P’s “landing account” which
contained terms stating that P would not be responsible for damage
to stored goods.
• P would also issue invoice stating goods stored were at “owner’s
risk”.

74
 On the occasion in question D’s goods were damaged whilst
in storage.
D refused to pay storage charges.
 P sued for storage charges. D counterclaimed for damages.
 P soughtto rely on exclusion clause in the landing account
and invoice to resist D’s counterclaim since D had received
many “landing accounts” and invoices previously for other
goods stored and so should have been aware of the
exclusion clause.
75
 HELD: terms of landing account and invoice incorporated
 Having regard to:
1. the reference to the conditions contained in the landing account,
2. the mention on the invoice that the goods would be at owner’s risk
and
3. the course of business between and conduct of the parties,
D had sufficient notice of the conditions and they formed part of the
contract of bailment i.e. the conditions contained in the landing
account and the invoice had been incorporated into the contract for
storage of D’s goods on this occasion.
76
Hollier v Rambler Motors (AMC) Ltd
[1972] 2 QB 71 (CA)
 P repaired his car with D on 3 or 4 occasions over a 5-year period.
 On 2 previous occasions P had signed a document that excused D from
liability for “damage caused by fire to customers’ cars on the premises”.
 Onthe occasion in question P did not sign such a document and his car
was damaged by fire.
D contended exclusion clause had been incorporated as a result of the
course of dealing between the parties.

77
 HELD: the exclusion clause had NOT been incorporated
into the contract for repairs on this occasion. Per
Salmon LJ:
 “Iknow of no case in which it has been decided…that a
term could be implied into an oral contract on the strength
of a course of dealing…which consisted at the most of three
or four transactions over a period of five years.” [i.e. basis
of this decision was lack of regularity of previous dealings]

78
Henry Kendall & Sons v William Lillico &
Son [1969] 2 AC 31
B bought Brazilian nuts from S under oral contracts followed by written
“sold notes” which stated that B took no responsibility for any latent defects
in nuts
 Therewere 3 or 4 such transactions per month over 3 years. One batch of
nuts was defective. B sued S who sought to rely on the exclusion clause.
 HELD: the term as to latent defects in the sale note confirming the contracts
between B and S could be incorporated into the contracts [because of the
regularity of the past dealings between the parties].

79
McCutcheon v David MacBrayne Ltd
[1964] 1 WLR 125 (HL)
2. CONSISTENCY OF THE PAST DEALINGS

• M’s brother-in-law delivered car to DML for shipping to the main land. Ship
sank, and M brought action against DML.
• DML sought to rely on exclusion clause in their contract of carriage found in
their “risk note”.
• DML’s usual practice was to get their clients to sign a “risk note” when
delivering goods for shipment containing their terms and conditions for
carriage which included an exclusion clause.

80
 M’sbrother-in-law had shipped vehicles many times
before. Sometimes he had signed a risk note and sometimes
he had not, but he had never read the risk note. On this
occasion he did not sign any risk note.
M himself had consigned goods before and each time he
had signed the risk note but had not read it.
 Issue: Wasthere was a sufficient and consistent course of
dealing between the parties for DML’s terms of carriage as
found in the “risk note” to be incorporated this time?

81
HELD:
Per Lord Reid:
 “…there had been no consistent course of dealing;
sometimes he was asked to sign and sometimes not. And
moreover he did not know what the conditions were. This
time he was offered an oral contract without any reference
to conditions, and he accepted the offer in good faith.”

82
 Per Lord Guest:
 “The practice of [DML] was to insist on a written contract incorporated in the
risk note. On the occasion in question [this did not happen and instead] a
verbal contract was made without reference to the conditions.”
 Per Lord Pearce:
 “Itis the consistency of a course of conduct which gives rise to the implication
that in similar circumstances a similar contractual result will follow.
 Whenthe conduct is not consistent, there is no reason why it should still
produce an invariable contractual relationship.
 [DML] have previously offered a written contract, on this occasion offered an
oral one.”

83
Yong & Co v Wee Hood Teck Development Corp
Ltd [1984] 2 MLJ 39 (FC)
 Malaysian case
 Yong & Co (Y), a firm of solicitors, prepared an agreement between P, D
and W whereby P would purchase 2 houses from D, and W would loan P
the purchase price.
 Y agreed that it would take steps to register a charge over the 2 houses in
favour of W as security for the loan to P but failed to do so.
 P failed
to repay the loan to W who, due to Y’s failure, now did not have
any security for the repayment of the loan.
84
 W brought proceedings against Y for negligence contending
that there was a retainer (contract) between W and Y and
that Y had breached the retainer in failing to register the
charge and that W had thereby suffered loss.
 Y contended that there was no retainer because they acted
only for D in preparing the agreement.
 W relied on past course of dealings between W and Y to
establish the retainer.

85
Held: Y was liable for damages
for breach of retainer
 Y had previously prepared W’s articles of association, sent bills and
receipts relating to other transactions to W who made payments on those.
 Therefore, a retainer (contract) came into existence by the conduct of the
parties which showed a course of dealings establishing the relationship
of solicitor and client between Y and W.
 The retainer put into operation the normal terms of the contractual
solicitor-client relationship including in particular the duty of Y as
solicitors to protect the interest of W as their client.

86
Popular Industries Ltd v Eastern Garment
Manufacturing Sdn Bhd [1989] 3 MLJ 360
 For 16 years (1963-1979) EGM had been supplying goods to PIL
 Their
arrangement had been for EGM to specify the name of the ship on
which the goods were to be shipped and the shipping date after which PIL
would issue irrevocable letters of credit (LCs) in favour of EGM as payment.
 In
1980 EGM failed to specify names of ships and shipping dates on 26
contracts, PIL did not issue LCs, and EGM did not deliver goods.
 When PIL sued for damages for non-delivery, EGM contended that their
failure was because PIL had failed to issue the LCs.

87
Held: EGM was in breach of contract
 “…courts strive to uphold rather than destroy bargains
which the parties believe to have concluded and this is
especially so in the case of commercial dealings in a trade
with which both parties are familiar…
 Inaccordance with this approach, the court may import
terms from a previous course of dealing between the
parties.”
88
 “…it is important to have regard to the previous course of
dealings between the parties… the 26 contracts sued on [should]
be construed in the general context of the parties' [previous
course of dealings] rather than as separate documents in
isolation.”
 “….having regard to the course of dealings aforesaid,…[EGM]
had been in breach of their contractual obligations to furnish the
shipping dates to [PIL]. Until and unless [EGM] discharged that
obligation [PIL] were under no obligation to open the [LCs]…
therefore…[EGM] are liable for damages for breach of contract.”

89
Questions: Incorporation of Terms
1. Name the 3 classifications of terms.
2. What are the 3 main methods by which a term can be incorporated into a
contract?
3. What is a situation by which the rule on parties being bound by signature
is limited?
4. How can terms be given at a reasonable notice?
5. What are the 2 ways in which terms may be incorporated by way of past
dealings?
90
End of Lecture 4
Next Lecture: Express Terms II

91
Interpretation of
Contracts
Lecture 5
Interpretation of Contracts
Traditional
Approach:
Literal
Approach

Interpretation
of Contracts

Current
Approach:
Contextual
Approach

93
Interpretation of Contacts

• Construing contract according to the ordinary

grammatical meaning of the words used;
• Finding the meaning within the 4 corners of a
Traditional document, without reference to anything which had
Approach: Literal previously passed between the parties
Approach • Commercial purpose of the contract – generally
disregarded
• Lovell and Christmas Ltd v Wall (1911) 104 LT 85;

94
Lovell and Christmas Ltd v Wall (1911) 104
LT 85
P carried on business of provision merchants.
D, a director of P, agreed not to carry on or be engaged in the business of “provision merchants”
within a prohibited area for a certain number of years after leaving P’s employment.
D left P’s employment and wanted to carry on the business of margarine manufacturing and
distributing it to retailers within the prohibited area (“the margarine business”).
P sought an injunction to restrain D from carrying on the margarine business.
P argued that it was the parties intention to include the margarine business within the meaning of
the business of provision merchants.
Issue: what was the correct interpretation to be placed on the relevant clause? Did the restriction
placed on D include the margarine business?

95
HELD:
 Upon a true construction of the agreement, the manufacturing
and selling by D of margarine would not be a breach of the
agreement.
 “…it is for the court to construe a written [contract]…It is
irrelevant and improper to ask what the parties, prior to the
execution of the [contract], intended or understood.”
 i.e.
interpretation of a contract is an objective process; the
courts seek to discover objectively the intention of the parties
as to what they mean.
96
Gradual Shift From a Literal to a Contextual
Approach to Interpreting Contracts
 Prennv Simmonds [1971] 1 WLR 1381, HL: Per Lord
Wilberforce:
 “The time has long passed when agreements…were isolated
from the matrix of facts in which they were set and
interpreted purely on internal linguistic considerations…

97
 We must…inquire beyond the language and see what the
circumstances were with reference to which the words were
used, and the object, appearing from those circumstances,
which the person using them had in view.
 Moreover…evidence of mutually known facts may be
admitted to identify the meaning of a descriptive term.”

98
Reardon Smith Line Ltd v Hansen-Tangen
[1976] 3 All ER 570 (HL)
 Charterpartybetween S (shipowners) and HT (charterers) for
ship described as “Hull 354, until named, to be built by
Osaka Shipbuilders”.
 Sub-charterparty between HT and RSL for the same ship.
 The ship was in fact built by Oshima and it matched the
specifications required by HT, and RSL in every respect except
that it was described as “Hull 004” in Oshima’s books
99
 When Hull 004 was delivered, the market had collapsed.
RSL, wanting to escape from what had now become a bad
bargain, refused to accept delivery on grounds that the
vessel tendered did not correspond with the contractual
description. HT then also refused delivery.
 Issue:although the ship did not correspond with the
contractual description, so that S was in breach of contract,
did this entitle HT to reject the ship that was tendered, or
was HT merely entitled to damages?

100
Per Lord Wilberforce: When Interpreting a
Contract
 “…one[is not] confined within the four corners of the
document.
 No contracts are made in a vacuum: there is always a setting
in which they have to be placed.
 The nature of what is legitimate to have regard to is usually
described as 'the surrounding circumstances' but this phrase
is imprecise: it can be illustrated but hardly defined.
101
 “Ina commercial contract…the court should know the
commercial purpose of the contract and this in turn
presupposes knowledge of the genesis of the transaction, the
background, the context, the market in which the parties are
operating.”
 “…when one is speaking of aim, or object, or commercial
purpose, one is speaking objectively of what reasonable
persons would have in mind in the situation of the parties.”
 “What the court must do…is to place itself in thought in the
same factual matrix as that in which the parties were.”
102
Held: HT not entitled to refuse delivery
 The
commercial purpose of the charterparties was to make available to the charterers (HT and RSL) a
medium sized tanker which was not in existence or under construction at the date of either charterparty.
 Inthe circumstances the use of the yard number 354 and the expression 'to be built by Osaka' served no
purpose other than to identify the vessel and was not an essential part of the contractual description
of the vessel.
 Accordingly,
as words of identification, the words used could be given a much more liberal
construction than they could as words of contractual description.
 Thewords were to be construed as merely identifying the vessel. [i.e. Osaka’s Hull 354 and Oshima’s
Hull 004 both referred to the same vessel]
 Thehull could also properly be described as having been built by Osaka since Osaka had planned,
organised and directed the building by Oshima.

103
Anaitos Compania Naviera v Salen
Rederierna [1985] AC 191
 Per Lord Diplock:
 “…if detailed semantic and syntactical analysis of words in
a commercial contract is going to lead to a conclusion that
flouts business commonsense, [such conclusion] must be
made to yield to business commonsense.”

104
Mannai Investment Co Ltd v Eagle Star Life
Assurance Co Ltd [1997] 2 WLR 945 (HL)
 Clause 7(13) of a 10-year lease allowed early termination by
tenant (M) by: “… not less than six months' notice in writing
on the landlord…such notice to expire on the third anniversary
of the commencement of this lease” [i.e. 13 January 1995]
 Actual notice sent by M on 24 June 1994 read: “Pursuant to
clause 7(13) of the lease we as tenant hereby give notice to you
to determine the lease on 12 January 1995.”

105
 Landlord(Eagle Star) contended that the notice issued by M
was invalid because, literally, the notice expired on 12
January and not, as agreed, 13 January.
 House of Lords considered how clause 7(13) was to be
interpreted – literal approach or purposive approach?

106
Held by 3:2 Majority
 The construction of the notice had to be approached objectively.
 The question was how a reasonable recipient of the notice would have understood
the notice, bearing in mind its context.
 Thepurpose of the notice was to inform the landlord (E) of the tenant's (M’s)
decision to terminate the lease in accordance with Clause 7(13).
 A reasonable recipient with knowledge of the terms of the lease and of the third
anniversary date would have no doubt that M wished to terminate the lease on 13
January 1995 but had wrongly described it as 12 January 1995.
 Accordingly, the notice issued by M was effective to terminate the lease.

107
The Majority View:
Lord Steyn & Lord Hoffmann
Per Lord Steyn:
 Thequestion is not how the landlord (E) understood the notice. The
construction of the notices must be approached objectively.
 The issue is how a reasonable recipient would have understood
the notice. And in considering this question the notice must be
construed taking into account the relevant objective contextual
sense.

108
 It
is important not to lose sight of the purpose of a notice under the break clause
[clause allowing termination]
 The notice serves one purpose only: to inform the landlord that the tenant has decided
to determine the lease in accordance with the right reserved.
 That purpose must be relevant to the construction and validity of the notice.
 In
determining the meaning of the language of a commercial contract, and unilateral
contractual notices, the law therefore generally favours a commercially sensible
construction [because] a commercial construction is more likely to give effect to
the intention of the parties.
 Words are therefore interpreted in the way in which a reasonable commercial
person would construe them. And the standard of the reasonable commercial person
is hostile to technical interpretations and undue emphasis on niceties of language.

109
Per Lord Hoffman
 The court should take into account “…the way we interpret utterances in everyday
life…people can convey their meaning unambiguously although they have used the
wrong words… and we adjust our interpretation of what they are saying accordingly.
 We do so in order to make sense of their utterance”
 “If
one applies that kind of interpretation to the notice in this case, there will…be no
ambiguity.
 Thereasonable recipient will see that in purporting to terminate pursuant to clause
7(13) but naming 12 January 1995 as the day upon which he will do so, the tenant has
[merely] made a mistake.
 He[the reasonable recipient] will reject as too improbable the possibility that the
tenant meant that unless he could terminate on 12 January, he did not want to
terminate at all.”

110
Investors Compensation Scheme Ltd v West Bromwich
Building Society [1998] 1 WLR 896 (HL)

 Lord Hoffmann’s re-statement of principles of interpretation of contracts:-

1. Interpretation means ascertaining the meaning which the document would convey
to a reasonable person with the knowledge of the background available to the
parties;
2. Background (or “matrix of fact”) includes any relevant matter which would
have affected the way in which the language of the document would have been
understood by the reasonable man
3. But, previous negotiations of parties and declarations of their subjective intent
do not form part of the admissible background (except in cases of rectification)

111
4. The meaning which a document or utterance would convey
to a reasonable man is not the same thing as the dictionary
and grammatical meaning of its words; it is what the
parties would reasonably have been understood to mean
having regard to the relevant background
5. Generally people do not make linguistic mistakes
especially in formal documents, but, if having regard to the
background something has gone wrong with the language,
the law does not require judges to attribute to the parties an
intention which they plainly could not have had
112
Seet Chuan Seng v Tee Yih Jia Food
Manufacturing Pte Ltd [1994] 2 MLJ 770 (SC)
 Malaysian case
 Case involved interpretation of clause which read: ‘There
shall be no restraint of competition whatsoever imposed on
the vendor’.
 The majority interpreted this as ‘There shall be no restraint
of fair competition whatsoever imposed on the vendor’. i.e.
the majority adopted a purposive approach
113
Per Gunn Chit Tuan, CJ (Malaya) delivering majority
decision:
 “…in construing this agreement made between two traders or
businessmen, we would be inclined to use a rule of interpretation
described as 'the good commercial sense principle' as formulated
by Lord Diplock in Miramar Maritime Corp v Holborn Trading:
 Theremust be ascribed to the words a meaning that would make
good commercial sense…and not some meaning that imposed…a
financial liability of unknown extent that no businessman in his
senses would be willing to incur.”
114
 “Wewould also quote and adopt the following words of
Lord Diplock in yet another recent case of Antaios
Compania Naviera SA v Salen Rederierna AB:
… if detailed semantic and syntactical analysis of words in
a commercial contract is going to lead to a conclusion that
flouts business common sense, it must be made to yield to
business common sense.”

115
Per Eusoff Chin, SCJ (dissenting) (adopting literal approach)
 “[Clause5] is worded in plain and clear language. It contains no ambiguity or
uncertainty. The court should not read into this cl 5 something else which is not
there.
 Byinterpreting cl 5 to mean that unfair competition is to be excluded, or only fair
competition is to be allowed, the court is in fact, inserting new terms into the
agreement.
 It
is not the function of the court to make the contract for the contracting
parties.
 It
is also not the function of the court to improve the contract which the parties
have negotiated and made for themselves, however desirable the improvement
might be.”

116
Kluang Wood Products Sdn Bhd v Hong
Leong Finance Bhd [1999] 1 MLJ 193
 Malaysian case
 KW wanted to develop their land with financing from HLFB.
 HLFB’s letter of offer to KW stated: “We refer to your loan application and are pleased to
confirm that our management committee has approved your bridging loan of RM3.5m and end-
finance of RM26m subject to the following terms and conditions…Total end-financing
facilities to be syndicated by HLFB is RM26m. HLFB will provide facilities of up to RM5m.”
 KW drew down the bridging loan was in full, but thereafter no end-finance was made available;
as a result KW’s project failed.
 KW’s claim for loss and damage suffered as a result of HLFB’s failure to arrange the end-
finance turned on interpretation of the letter of offer.

117
Held per Lamin PCA
 “…Ifail to appreciate how this sentence is to be read otherwise than that of the
approval of the two items, namely the bridging loan of RM3.5m and end-finance
of RM26m. The clear wording of the [letter of offer] must be given effect to…
 [The words] 'total end-financing facilities to be syndicated by HLFB' [convey]
the meaning that [HLFB] undertook to organize and to make available the said
facilities.
 [It]
does not state that [HLFB] 'shall endeavour' to organize and to make
available the required syndicated loans.

118
Per Chong Siew Fai CJ (Sabah & Sarawak):
 “[HLFB’s] contractual obligations could properly be
ascertained from its letter of offer [which] clearly showed
[HLFB's] commitment to the end-finance of RM26m to be
syndicated by [HLFB] and in which [HLFB] would
participate RM5m…
 Theterms and conditions relating to the end-finance…are
clear leaving no room for surmise on [HLFB's] obligation
to make available the end-finance to [KW]…”

119
Berjaya Times Square Sdn Bhd v M Concept
Sdn Bhd [2010] 1 MLJ 597 (FC)
 Malaysian case
 Per
Gopal Sri Ram FCJ (citing several English cases including Investors
Compensation Scheme v WBBS):
 “…a contract is to be interpreted in accordance with the following
guidelines.
 First,
a court interpreting a private contract is not confined to the four
corners of the document. It is entitled to look at the factual matrix
forming the background to the transaction.
120
 Second, the factual matrix which forms the background to
the transaction includes all material that was reasonably
available to the parties.
 Third,
the interpreting court must disregard any part of the
background that is declaratory of subjective intent only.
 Lastly,the court should adopt an objective approach when
interpreting a private contract.”

121
Contra Proferentum Rule
 If
there is an AMBIGUITY in a contract term, the
ambiguity is to be resolved AGAINST the party relying on
that term.

122
Houghton v Trafalgar Insurance [1954] 1
QB 247
 Insured’scar was built for 5 passenger. It was damaged when
carrying 6 passengers. He brought a claim against his insurers.
 Insurerssought to rely on Clause (d) of the insurance policy
that excluded liability for damage caused to a car “conveying
any load in excess of that for which it was constructed”.
 Issue:
did carrying 6 passengers mean that the car was
conveying a load in excess for which it was constructed?
123
HELD:
 On its true construction clause (d) extended only to cases
where there was a weight specified in respect of the load of
the vehicle, as, for instance, in the case of a lorry.
 It
could not be extended to cover the case of a private car in
which an extra passenger was being conveyed

124
 Per Sommervell LJ
 “If
there is any ambiguity, since it is the defendants'
clause, the ambiguity will be resolved in favour of the
assured.
 Inmy opinion, the words relied on, "any load in excess of
that for which it was constructed," only clearly cover cases
where there is a weight load specified in respect of the
motor-vehicle, be it lorry or van.”

125
Malaysian National Insurance Sdn Bhd v Abdul Aziz
bin Mohd Daud [1979] 2 MLJ 29 (FC)
 Malaysian case
 A was involved in accident whilst driving his father’s car. Under the insurance
policy authorised drivers were covered only if “the person driving is permitted in
accordance with the licensing or other laws and regulations to drive the motor
vehicle or has been so permitted, and is not disqualified by order of a court of
law or by reason of any enactment or regulation in that behalf from driving the
motor vehicle.”
 A’s driving licence had expired when he met with the accident.
 Issue: Did the exclusion clause apply?
126
Held: Insurers were liable
to indemnify assured
 The exception clause in the proviso has on the ordinary principles of construction to be
read against the insurance company i.e. if there were any doubt as to its extent and the
question were to arise as to the liability of the insurers, the construction most favourable
to the assured must be given to it.
 Thewords…indicate clearly that the insurers were contemplating the case of a person
who has been permitted to drive but has been disqualified for holding or obtaining a
driving licence by reason of a court order or by reason of age or physical or mental
disability.
 [Note:
not holding a driving licence does not “disqualify” a person from driving; it
merely exposes him to a penalty if he drives without a licence.]

127
Parol Evidence Rule
 If
parties have reduced their contract into writing, may a party lead
evidence of alleged terms other than those contained in the written
contract?
 Generally,
under the “parol evidence rule” parties are not allowed to lead
any evidence for the purpose of adding to, varying, subtracting from, or
contradicting the terms contained in the written contract (or document).
 “Parol”mean oral, but the rule extends to any extrinsic evidence (including
any other written document said to contain terms of the contract).

128
Jacobs v Batavia & General Plantations
Trust [1924] 1 Ch 287
 “…parol evidence cannot be admitted to add to, vary or
contradict a deed or other written instrument…except in
cases of fraud or rectification
 …parol evidence will not be admitted to prove that some
particular term, which had been verbally agreed upon, had
been omitted (by design or otherwise) from a written
instrument....”
129
Exceptions to Parol Evidence rule
Exceptions 1. Where the written agreement is not the whole agreement i.e. the written
agreement is incomplete

2. Where the document alleged to be the whole written contract is no more

than a record or written memorandum of a transaction

3. Where parol evidence relates to matters which would not be expected to

be set out in a written agreement

4. Parol evidence may be led to prove invalidity of a transaction

130
Exceptions to Parol Evidence rule
1. Where the written agreement is not the whole agreement i.e. the written
agreement is incomplete
 Thus, on the facts of Jacobs v Batavia the parol evidence rule did not apply.
 “…the deposit notes issued to the plaintiff do not, and were not intended to,
contain the whole of the terms of the bargain arrived at between [the parties]
 [the deposit notes] did not embody the promise made by the [defendant] as set
out in…the prospectus [which the defendant intended to be binding even
though] it was not…inserted in the deposit notes.”

131
Allen v Pink (1838) 4 M & W 140
2. Where the document alleged to be the whole written contract is
no more than a record or written memorandum of a transaction
 P boughta horse from D which D had orally warranted was quiet
and not vicious. It was in fact vicious.
 There was a written document recording the sale which did not
mention the warranty. It merely stated: "Bought of G. Pink, a horse
for the sum of 71. 2s. 6d. G. PINK.”

132
Per Lord Abinger C.B
 “The contract [was] first concluded by parol, and
afterwards the paper [was] drawn up, which appears to
have been meant merely as a memorandum of the
transaction, or an informal receipt for the money, not as
containing the terms of the contract itself.”
 P wastherefore allowed to lead evidence of the oral
warranty.

133
Gillespie Bros v Cheney, Eggar & Co
[1896] 2 QB 59
3. Where parol evidence relates to matters which would not be expected
to be set out in a written agreement
 Coal supplied under written contract of sale which did not mention the
particular purpose for which the coal was required although before making
the contract the buyers had made known that purpose to the sellers, who
were coal agents on whose skill and judgment the buyers relied.
 Coalsupplied was not fit for the particular purpose. Buyers brought an
action for damages for breach of warranty by sellers.

134
HELD:
 Evidence of “..the course of dealing and conduct [during
negotiations] may be important to show…that in the course of the
antecedent negotiations the particular purpose for which the goods
were required was stated to the seller, or to show that the buyer relied
on the seller's skill and judgment.
 Those are not things one would expect to find in the contract itself;
 theyare matters to be gathered from the course pursued by the
parties, and from their conduct and acts and writings antecedent but
leading up to the contract itself.”

135
 Evidence of what took place between the parties prior to
the making of the contract was admissible to raise the
implication of the condition specified in Sale of Goods
Act 1893, s.14
 Therefore, by virtue of that section a warranty or
condition by the sellers that the coals were reasonably fit for
the purpose for which they were required must be implied.
As the sellers had breached that implied term they were
liable to the buyers.

136
Campbell Discount Co v Gall [1961] 1 QB
431, CA
4. Parol evidence may be led to prove invalidity of a transaction
 Parties
entered into an oral agreement for hire-purchase of car at a hire-purchase price of
£265 payable by deposit of £65 and weekly instalments of £2.
D signed P’s HP agreement in blank which was later filled up to show HP price £325 payable
in weekly instalments of £13.
 P issued
proceedings to recover arrears of instalments. D’s defence was that the HP
agreement being for goods less than £300 was void because formalities under Hire Purchase
Act 1938 not complied with.
 Issue:could parol evidence be led to show that the HP agreement was in fact for goods less
than £300?

137
HELD:
 Thequestion whether the written document was enforceable or was
void depended on an examination of the true nature of the
transaction.
 For that purpose parol evidence was admissible in a case which involved
the Hire-Purchase Acts, since those Acts could not be [circumvented] by
documents which, though purporting to be outside the Acts, represented
a transaction which was in truth within their ambit
 Theparol evidence here showed that the true bargain was one within the
Acts and, as it did not comply with the statutory requirements, it was
void and unenforceable by the company
138
Pym v Campbell (1856) 6 E&B 370
5. Parol evidence to show circumstance when written contract was intended
to come into operation or cease operation [condition precedent]
 Parties
drew up a written agreement concerning the sale of a share in an
invention. Evidence was admitted that one party had stipulated orally that the
agreement should not become operative until an independent expert had
approved the invention.
 HELD: The parties may not vary a written agreement; but they may show that
they never came to an agreement at all, and that the signed paper was never
intended to be the record of the terms of the agreement.

139
Collateral Contracts and the Parol Evidence
Rule
 One view is that collateral contracts are an exception to the
parol evidence rule.
 Another view is that collateral contracts operate as
independent agreements that exist side-by-side with
written contracts that are subject to the parol evidence rule.

140
Mann v Nunn (1874) 30 LT 526
 P orallyagreed to take a lease of D’s premises if D would first
repair the premises and which D agreed to do so.
 However, the written lease did not refer to D’s promise to
repair and D in fact did not carry out the repairs.
 P was allowed to enforce D’s oral promise because “The
parol agreement neither alters nor adds to the written one,
but is an independent agreement.” [i.e the second view]
141
Henderson v Arthur [1907] 1 KB 10
 Writtenlease agreement provided for payment of rent
quarterly in advance.
D sought to rely on an earlier oral agreement allowing him
(in effect) to pay the rent in arrears.
 HELD: such evidence was not admissible as it was
inconsistent with the written lease agreement.

142
 HELD:

 “…when the terms of the [oral] agreement are looked at…it is

not a merely collateral agreement, but provides in another and
contradictory manner for doing what was subsequently provided
for by the lease.”
 “We are asked…to give effect to an antecedent parol agreement
in order to contradict the terms of the lease, and to give it a
meaning different from that which the law would otherwise give
to it. To do so would, I think, be contrary to the general
principles of the law of evidence.”
143
Distinction Between Mann v Nunn and
Henderson v Arthur
 In
Mann the written lease was silent on the issue of repairs.
Therefore the collateral agreement did not contradict the
written lease; instead it supplemented the written lease.
 InHenderson the written lease expressly provided how
rental was to be paid; the so-called collateral agreement
related to a matter on which the written lease was not silent
and sought to contradict it.
144
City and Westminster Property v Mudd
[1959] Ch 129
M had been using rented premises for his business and also to reside
thereat since 1941.
 In
1947 a new draft lease agreement was prepared by the landlord
(CWP). It contained a covenant that M would use the premises for
business purposes only, failing which the lease would be forfeited.
M wanted removal of that covenant. CWP’s agent orally assured M that
CWP would not object to him continuing to reside on the premises. M
then signed the agreement which contained that covenant.

145
 In1956 CWP’s managing director became aware that M (in
breach of the written lease agreement) was residing on the
premises.
 CWP then issued a notice that the lease was forfeited and
claimed for possession of the premises.
M counterclaimed for relief against forfeiture based on the
oral assurance given by CWP’s agent.

146
 HELD:

 Evidence of the oral collateral agreement that M was allowed

to reside at the premises was admissible [to support an
estoppel?].
 “The promise was that so long as [M] personally was tenant, so
long would the landlords forbear to exercise the rights which they
would have as to residence if he signed the lease. He did sign the
lease on this promise and is therefore entitled to rely on it so long
as he is personally in occupation of the shop.”
 Landlord’s claim was dismissed.
147
Parol Evidence Rule in Malaysia
 Gistof parol evidence rule: written contract cannot be supplemented by
extrinsic evidence; written document is final and conclusive as to what
the parties have agreed upon
 S.
91 Evidence Act 1950: “When [ALL] the terms of a contract have
been reduced to the form of a document no evidence shall be given in
proof of the terms of the contract except the document itself.”
 [i.e.
to prove what the parties had agreed reference can only be made to
the document itself]
148
S. 92 Evidence Act 1950
 “When the terms of any such contract have been proved
according to section 91 no evidence of any oral agreement
or statement shall be admitted for the purpose of
contradicting, varying, adding to, or subtracting from its
terms:
 Provided that [the section then sets out 6 exceptions in
provisos (a) to (f)]”
149
S. 92 does not apply if the parties did NOT intend that
all terms be included in the written contract
 Tan Chong & Sons Motor v Alan McKnight [1983] 1 MLJ 220 (FC):
 M, an Australian air force pilot posted in Butterworth, purchased a motor
car from TC intending to take it back to Australia. TC’s salesman had
orally represented that the motor car would conform to Australian Design
Regulations (ADR) for motor cars.
 However, the “Buyer's Order”, a pre-printed form prepared by TC, stated
that no guarantee or warranty was given by the seller (TC).

150
 HELD: Evidence of the oral warranty was admissible
 “…the prohibition against admissibility of evidence under
section 92 only applies where all — as opposed to some only —
of the terms of the contract are written into the agreement. Thus
where some terms are given orally and some in writing, oral
evidence could be given to prove the terms agreed to orally.”
 (The court applied Singapore case of Dhamo Jhadao v Paras
Nath Singh [1965] 2 MLJ 38 – “section 92 applies only when all
the terms of the contract have been reduced by or by consent of
the parties to the form of a document.”)

151
 Theword "warranty" in the law of Contract tends to be
confusing as it may relate to a term of a contract, or to a
separate enforceable promise which is collateral to a
contract.
 Insofaras the word is used to denote a term of a contract, its
employment is purely for the purpose of distinguishing the
most important terms (known as conditions) from the less
important ones (known as warranty), the breaches of which
lead to different results and give different remedies to the
innocent party.
152
 The other context in which the word "warranty" is used in
the law of Contract is a separate pre-contract statement on
the basis of which parties subsequently entered into a
contract.
 Such pre-contract statements are binding and enforceable
as a collateral warranty. It is referred to as collateral
because it is external and subsidiary to the main contract.
 It
is in the context of a collateral warranty that [M] founded
his cause of action in this case.

153
Sime Bank Bhd v Kuala Lumpur City
Securities [2001] 5 MLJ 670, HC
 Per Kang Hwee Gee J (obiter, citing Chitty on Contracts):
 “…the parol evidence rule…has no application until it is first determined that the
terms of the parties' agreement are wholly contained in the written document.
 Therule only applies where the parties to an agreement reduce it to writing, and
agree or intend that the writing shall be their agreement.
 Whether the parties did so agree or intend is a matter to be decided by the court
upon consideration of all the evidence relevant to this issue. It is therefore always
open to a party to adduce extrinsic evidence to prove that the document is not a
complete record of the contract.”

154
Rationale for S. 92 Prohibition
on Parol Evidence
 Tindok Besar Estate Sdn Bhd v Tinjar Co [1979] 2 MLJ 229 (FC): The FC found as a
fact that all the terms in this case had been reduced to writing, and went on to say:
 “[Tinjar’s]contention…for the admission of the parol evidence…was that not all the
terms had been incorporated in the agreement.
 If this contention [were generally accepted] then it would be open to any party to a
litigation concerning an agreement to say that the agreement did not contain all the terms
thereof and to seek to introduce such terms or even terms which might not even have been
within the contemplation of the other party.
 No agreement would then be safe from being re-written by one party in a court of law.”

155
S.92 Evidence Act 1950
92. When the terms of any such contract, grant or other disposition of property, or any matter required by law to be reduced to the form of a document,
have been proved according to section 91, no evidence of any oral agreement or statement shall be admitted as between the parties to any such instrument
or their representatives in interest for the purpose of contradicting, varying, adding to, or subtracting from its terms:

Provided that--

(a) any fact may be proved which would invalidate any document or which would entitle any person to any decree or order relating thereto, such as fraud,
intimidation, illegality, want of due execution, want of capacity in any contracting party, the fact that it is wrongly dated, want or failure of consideration,
or mistake in fact or law;

(b) the existence of any separate oral agreement, as to any matter on which a document is silent and which is not inconsistent with its terms, may be proved, and in
considering whether or not this proviso applies, the court shall have regard to the degree of formality of the document;

(c) the existence of any separate oral agreement constituting a condition precedent to the attaching of any obligation under any such contract, grant or
disposition of property, may be proved;

(d) the existence of any distinct subsequent oral agreement, to rescind or modify any such contract, grant or disposition of property, may be proved except in
cases in which the contract, grant or disposition of property is by law required to be in writing, or has been registered according to the law in force for the time being
as to the registration of documents;

(e) any usage or custom by which incidents not expressly mentioned in any contract are usually annexed to contracts of that description may be proved if the
annexing of any such incident would not be repugnant to or inconsistent with the express terms of the contract; and

(f) any fact may be proved which shows in what manner the language of a document is related to existing facts.

156
S. 92(a) – Facts Invalidating the Written
Contract
 Any fact may be proved which would invalidate any document such as
1. Fraud, intimidation,
2. Illegality, want of due execution,
3. Want of capacity in any contracting party,
4. The fact that it is wrongly dated,
5. Want or failure of consideration,
6. Mistake in fact or law
157
 Exception in Proviso (a) is similar to the common law
exception that allows parol evidence tending to show
invalidity of the written contract. (Refer to slides above)

158
Amalgamated Steel Mills Bhd v Ingeback
(M) Sdn Bhd [1990] 2 MLJ 374
 D’s letter of offer to sell its land to P stated the price as RM 11.8 million
 P accepted the offer. D then refused to sell the land.
 P suedD for specific performance and sought an interim injunction to restrain D from
dealing with the land until P’s suit was disposed of.
D raised the issue of illegality.
D wanted to lead evidence that the real sale price was orally agreed at RM14.157
million and that the purpose of showing a lower figure in the letter of offer was to
avoid paying a higher stamp duty on the transaction
 Issue: could D lead parol evidence of the real sale price?

159
 HELD:

 “… proviso (a) [to S. 92] allows parol evidence to show

that a contract in writing was really made for objects
forbidden either by statute or common law.”
 The purchase price of $11.8m mentioned in the letter of
offer was a fictitious one. The object of citing a fictitious
purchase price in the said letter of offer was to defeat the
Stamp Ordinance 1949.

160
 The transaction at a fictitious purchase price could and was
intended to commit fraud.
 The mention of such a fictitious price in the letter of offer
and purportedly accepted by the plaintiff amount to overt
steps in carrying out the fraud.
 The court therefore refused an interim injunction pending
full trial of the matter.

161
S.92(b) – Existence of a Separate Oral
Agreement
 Theexistence of any separate agreement, as to any matter
on which a document is SILENT AND WHICH IS NOT
INCONSISTENT WITH ITS TERMS may be proved.
 In
deciding whether this exception applies, the court must
have regard to the DEGREE OF FORMALITY of the
documents.

162
Gek Lau Choon Theatrical Co v Hu Kiang
Yan [1937] 1 MLJ 25
D engaged services of P’s theatrical group under a written contract
for $1,800 for 15 days. P sued D for unpaid balance of $650.
D admitted owing the $650 but counterclaimed for damages based
on an alleged oral agreement that P would pay damages if some of
their group could not perform on any of the days.
 Issues:
could evidence of the oral agreement be led? If yes, was
existence of oral agreement proven?

163
 HELD:

 A collateral oral contract is provable under [S. 92(b)] .

 The
court relied on English case of Heilbut Symons & Co v
Buckleton which stated
 “…there may be a contract the consideration of which is the
making of some other contract. Such collateral contracts…are…
viewed with suspicion by the law. They must be proved strictly.
Not only the terms of such contracts but the existence of an
animus contrahendi [intention to contract] on the part of all the
parties to them must be clearly shewn.”
164
 “The more formal the written document is, the more
suspicious the Court must be as to the existence of a
collateral contract, and if the contract is informal less
suspicion attaches to the attempt to set up a collateral
contract.”
 On the facts, although the court allowed D to lead evidence
of the alleged oral contract under Proviso (b), the court
concluded that there was no such contract because animus
contrahendi was not proven.

165
Padang Serai Kilang Kayu Bhd v Khor Kia
Fong & Others [1998] 1 MLJ 589
 Bya written contract a partnership sold its sawmill and timber business to P, a newly
incorporated company, whose directors were partners of the partnership.
 Attime of sale, KSC, one of the partners, orally promised to transfer the land on which the
business stood to P in consideration of 3,000 shares in P being allotted to him.
 KSC died 5 days after signing the contract. KSC’s administrators distributed his estate and
transferred the land to the defendants as beneficiaries.
 P later
sued the defendants for a declaration that the land belonged to P pursuant to the oral
agreement.
 Oneof the issues was whether the verbal promise by KSC to P to transfer the said land was
admissible as evidence.

166
Held: Sections 91 and 92 of the Evidence Act 1950 do
not preclude completely the admission of oral evidence
 Where there is a prior oral agreement or statement verbally agreed
to by the parties at the time of executing the document, pertaining to
a matter on which the document is silent, evidence as to its nature,
factual background or surrounding circumstances may be given
when such oral agreement is not inconsistent nor contradicts the
terms of the document.
 Thus,the oral evidence adduced by P was admissible under provisos
(b) and (f) to s 92 of the Evidence Act 1950.
167
S. 92(c) – Existence of Separate Oral Agreement
Constituting Condition Precedent
 Theexistence of any separate oral agreement constituting a
condition precedent to the attaching of any obligation under
such contract may be proved.
 This exception is based on Pym v Campbell

168
Ganesan & Another v Baskaran
[1986] 2 MLJ 26 (SC)
G agreed to buy B’s land and paid a deposit of $20,000. However, the
land could not be transferred without the consent of the Ruler in
Council and such consent was not obtained.
B applied to terminate the contract and forfeit the deposit on the
ground that G had failed to complete the transaction
G contended that there was a separate oral agreement where B had
agreed to obtain the consent and this was a condition precedent to G’s
liability to complete the transaction.
169
 HELD:

 Evidence of the separate oral agreement was admissible under proviso

(c) to S. 92.
 “It
may well be that the onus is on [G] to prove the existence of such
an oral undertaking, but that is hardly the point. What matters is that
clearly [G] is permitted in law to adduce evidence to prove the
existence of such a promise.
 If
there was such an oral undertaking by B, G, having entered into the
agreement on the strength of such a promise, is entitled to rely on that
promise. (See City and Westminster Properties (1934) Ltd v Mudd).”

170
S.92(d)
 Theexistence of any distinct subsequent oral agreement
rescinding or modifying the contract may be proved
except where the contract is required to be in writing or has
been lawfully registered in accordance with the law.
 This
exception is based on the English case Goss v Lord
Nugent (1833) 5 B & Ad 58

171
Voo Min En v Leong Chun Fatt [1982] 2
MLJ 241
 Leong leased premises from Voo for 16 years. Lease was in
writing and registered under the Sabah Land Ordinance.
 Lease provided for renewal by written request only
 Lease
expired without Leong having made a written request for
renewal and Voo sought possession of premises.
 Leongcontended that there was a subsequent oral agreement
by which Voo had extended the lease.
172
 HELD:

 “To admit the alleged oral agreement in evidence would amount

to varying or adding to the [renewal clause of] the lease. This is
contrary to section 92 of the Evidence Act . The alleged oral
agreement is therefore not admissible.
 Further, even if the alleged oral agreement was a "distinct
subsequent oral agreement" within the meaning of proviso (d), it
is still inadmissible because the exception to proviso (d) applied.”
 [A lease
of land is required to be in writing under the Sabah Land
Ordinance and in this case the lease had been registered.]
173
S. 92(e) – Usage or Custom
 Any usage or custom by which incidents not expressly
mentioned in any contract are usually annexed to contracts
of that description may be proved [but only] if the
annexing of any such incident would not be repugnant to
or inconsistent with the express terms of the contract.
 Similarto English Law (London Export Corporation v
Jubilee Coffee Roasting Co [1958] 1 WLR 661)
174
Cheng Keng Hong v Govt of the Federation
of Malaya [1966] 2 MLJ 33
 Government requested tenders for certain works based on
“specifications”. The “drawings” however indicated that works
additional to those shown in the specifications would be required.
C submitted tender based on specifications but later sought to claim for
the additional works based on the drawings.
C contended that there was a custom that although the tender was based
on specifications, whatever work put in by a contractor in accordance
with drawings were paid as “extras” by the Government.

175
 HELD:

 “Tradeusage or custom, may possibly form part of a

contract although not expressly incorporated in the written
agreement.
 Theincorporation of a trade usage is, however, subject to
well defined principles of law and that is it must be
reasonable and not so as to contradict the tenor of the
contract as a whole” [see English case of London Export
Corp v Jubilee Coffee Roasting]

176
 “Consistentwith the above principles, proviso (e) of section
92…enacts that oral evidence is admissible to establish a trade
usage to be annexed to the written contract, but…such usage
must be consistent with the terms and tenor of the written
contract.”
 On the facts, “the alleged custom was not only a blind
confidence of the most unreasonable description but also
repugnant to the terms and tenor of the contract and as such
was not a trade custom but merely a long established
irregularity.”
177
S.92(f)
 Any fact may be proved which shows in what manner the
language of a document is related to existing facts.
 Thisexception deals with admissibility of extrinsic
evidence as an aid to construction e.g. where there is a
latent ambiguity in the contract.

178
Poh Sin Mining Co v Welfare Insurance Co
[1971] 1 MLJ 65
 A person called Liau signed a proposal form for a policy to cover workmen's compensation
claims in the name of Lau Sook Khim and Hah Ah Sin.
 Hah was a partner, together with 4 others, of Poh Sin Mining Co. (“PSM”), whilst Lau was a
“representative” of PSM. PSM’s rubber stamp was placed over Liau’s signature on the proposal
form.
 WIC issued a workmen’s compensation insurance policy to “Lau Sook Khim and Hah Ah Sin”.
An employee of PSM was injured whilst at work and PSM made a claim under the insurance
policy.
 WIC disclaimed liability on ground that the policy was not issued to PSM.
 PSM sought to lead parol evidence to show that the policy was in fact issued to PSM.

179
 HELD:

 On the facts, “there is a latent ambiguity in the policy”

because “the language [of the policy] is not prima facie
consistent with the existing facts and there is a conflict
between the plain meaning of the language used and the
facts existing.”
 “Itis settled law that where there is a latent ambiguity,
extrinsic evidence is admissible to identify the persons or
things referred to in the document.”
180
181