Contents of a Contract – How to distinguish Between Terms and Representation

You would have to understand that Statements encountered during contractual negotiations may be considered as:

Ø      terms

Ø      collateral contracts

Ø      representations (i.e. extra-contractual statements designed to induce the contract)

Ø      ‘mere puffs’, the sort of advertisers’ exaggeration which has no legal significance

You would remember that Contracts is all about obligations and is also known that a contract is defined as ‘a promise, or set of promises, which the law will enforce’ and these promises may be oral or written

You will have to also note that if the contract is both oral and written – an issue of parole evidence may arise

The parole evidence rule states that extrinsic evidence is not admissible to add to, varied, or contradict the written agreement, which is deemed to include all the terms. In the past the rule was the source of much difficulty and its operation has been drastically limited by the following principles. Extrinsic evidence (albeit oral or otherwise) cannot be brought into court to vary a written document. - Hawkrish v Bank of Montreal[1],

However, the parole evidence could in evaded in the following manner:

Rectification: an equitable remedy whereby a written document may be amended to accord with the expressed intentions of the parties. Oral terms may form a collateral agreement to a written contract: Brikom Investments v Carr[2].

Contract intended to be partly written and partly oral (Birch v Paramount Estates Ltd[3] )

When the written contract is merely a token of transaction, extrinsic oral evidence may be brought to explain the contents of the transaction. (Allen v Pink)

Note:

Ø      One must distinguish between a term of the contract and a mere representation

Ø      Distinction between terms and representations rests upon the intention of the parties.

Lord Moulton in Heilbut, Symons & Co. v Buckleton[4] - the contractual cartography guidelines that are not decisive tests of intention.

The key distinction of the classification of terms and representation is the remedies available

Ø      Term - automatic remedy (i.e. damages at the very least) upon breach.

Ø      Representation – no automatic remedy. There must be an actionable misrepresentation before remedies are available.

The above guidelines only applies with regard to expressed statements.

What is Contractual Cartography Guidelines?

The time the statement was made and the importance of the statement and undertakings by the promisor

Cases that illustrates this point are:

Bannerman v White[5]

·        This is where a prospective buyer, in the course of negotiating for the purchase of hops, asked the seller if any sulphur had been used in their treatment, adding that, if it had, he would not even trouble to ask the price.

·        The seller answered that no sulphur had been used.

Held: It is an undertaking and therefore is a term of a contract. A reasonable man would not buy if he had known that the hops had sulphur.

Couchman v Hill[6] (Court of Appeal)

·        There was a statement that a heifer is “unserved” by a seller is a term and may override any written terms to negate liability.

Birch v Paramount Estates[7]

When a seller makes a promise about something that which is or should be within his control intending that the buyer would act on it, it was easy to infer that the statement was a term of the contract.

Did the person who made the statement have special knowledge or skill as compared to the other party?

In order to understand to different, the cases such as Oscar Chess v Williams and Dick Bentley v Harold Smith Motor should be considered.

Oscar Chess v Williams[8] (Court of Appeal)

·        A statement by a seller to car dealers of the model of a car is was not a term of the contract

It was the plaintiffs as car dealers, who possessed special skill and knowledge, and who if anyone could have discovered in time the true age of the car.

Contrast this with:

Dick Bentley v Harold Smith Motors Ltd. [9]

·        The defendants were motor dealers made a statement in relation to the mileage of the car to the plaintiffs who were private purchasers.

·        The statement turned out to be wrong, as the actual mileage was more.

Held: The defendant’s statement in relation to the mileage of the car was a term of the contract. The defendants were as motor dealers involved in the running of a car business whereas the plaintiffs were not. Therefore it was reasonable for the plaintiffs to rely on the statement made by the defendants.

Accepting responsibility or advising on verification?

This guide concerns as to whether the maker of the statement takes responsibility over the statement. Consider the case of Schawel v Reade[10]

Here, there is a declaration of a seller, “ You need not look for anything; the horse is perfectly sound. If there was anything the matter with the horse I would tell you.” Would render a statement a term

Compared this case to:

Ecay v Godfrey[11] - Here, there would not be a term inferred if there is no undertaking by sellers – such undertaking could be negated by suggesting for a survey to be conducted.

Was the statement reduced to writing?

This is where you would have to understand the impact and status of statements that were reduced into writing and those which are not.

Routledge v McKay[12]

If the parties intended the statement to be a term where there is a written agreement, the statement would have incorporated into the written agreement. Failing to incorporate such a term would indicate that it may not be important enough to be a term