Distinction between Representations and Terms

THE CONTENTS OF THE CONTRACT

(This lecture is divided into 2 parts)

Seminar 1:

1. Distinction between representations and terms

2. Remedies for pre-contractual statements

2.1. Misrepresentation

2.2. Collateral contract

2.3. Negligent misstatement

2.4. Conclusion on pre-contractual statements

3. Express terms

3.1. Incorporation

3.2. Construction

3.3. “Purposive” or “commercial” interpretation

3.4 Conditions, warranties and innominate terms

Seminar 2:

4. Implied terms

4.1. Terms implied by the courts

4.2. Terms implied by custom

4.3. Terms implied in fact

4.4. The Moorcock test & The “officious bystander” test

4.5. Terms implied by law

4.6. Terms implied by statute

4.7. Implied terms under the Sale of Goods Act

Introduction

This lecture is concerned with the situation where the parties have fulfilled all the requirements for making a valid contract. It may then become necessary to determine exactly what the obligations are under the contract. Problems may arise in a number of ways. There may perhaps, have been a lengthy period of pre-contractual negotiation, and it may not be clear which, if any, of the statements which were made at that stage were intended to form part of the contract. The contract may be in writing, and yet one of the parties may allege that it does not truly represent their intentions. In this case the job of the court will be to «construe» the contract in order to decide what the language which it contains should be taken to mean. The task of «interpreting» or «constructing» the contract is likely to be influenced by the surrounding circumstances, including the relative bargaining powers of the parties. Such a contextual approach would be easier if the courts adopted a «relational» approach to construction. This would enable them to take a broad view of the commercial and personal factors surrounding the agreement, both at the time it was made and as it has developed. Under the classical theory, the courts are limited to matters which may help them to decide what they think that the parties actually meant at the time the agreement was made.

The process of construing a written contract can also in some circumstances be constrained by statutory regulation.

In other situations, the contract may be purely verbal, in which case there may be a dispute as to what was said or promised, and by whom. The problems here are likely to be mainly evidential and so outside the scope of the Contract Law course. Nevertheless, issues of construction may arise here in a similar way to written contracts.

Some of the problems in deciding what the terms of a contract are may be resolved by the rules which the courts have developed to enable terms to be implied into a contract. Moreover, in certain situations, terms will be implied by statute, irrespective of the wishes or intentions of the parties.

The order of treatment adopted here is to look first at the question of pre-contractual statements, and the remedies that may be available for them. Secondly, the approach to express terms and their interpretation will be discussed. Finally, the rules relating to the implication of terms, both at common law and by statute, will be considered.

Distinction between Representations and Terms

The importance of identifying those pre-contractual statements which do not form part of the contract arises from the question of the remedies that will be available in each case. If a statement amounts to a promise which forms part of a contract, then a person who conditions. The statement that the plaintiffs’ goods would be carried below deck was a contractual term, and the plaintiffs were entitled to succeed.

4.2.1 Was the claimant relying on the skill and knowledge of the defendant?

If there is an imbalance of skill and knowledge relating to the subject matter of the contract as between the claimant and defendant, this will be relevant in deciding whether an oral pre-contractual statement should be treated as a contractual term. The fact that the defendant is in a better position to be able to guarantee the truth of a statement will lend weight to its being regarded as part of the contract. If, on the other hand, it is the claimant who is the expert, then the reverse will be true.

Two cases concerning contracts for the sale of cars conveniently illustrate the two sides of this test. The first case to consider (though the later in time) is Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd. The plaintiff had bought a car from the defendants, relying on a pre-contractual statement as to its mileage, which later turned out to be untrue. The Court of Appeal held that the test to be applied was that of whether an intelligent bystander would reasonably infer from what was said or done that the statement was intended to be contractual (that is, «detached objectivity»). Applying this test, the court came to the conclusion that the statement as to the mileage was a term of the contract, on the basis that the defendant was a car dealer who should be taken to have better knowledge of such matters than the plaintiff, who was not involved in the motor trade. In reaching this decision, the court distinguished the earlier case of Oscar Chess Ltd v Williams. Here, the defendant was a private individual who had sold a car to a garage. The relevant pre-contractual statement was that the defendant had innocently told the garage that the date of the car was 1948, when in fact it had been first registered in 1939. The garage sued for breach of contract, but the Court of Appeal held that, on the basis of the fact that the plaintiffs here had the greater skill and knowledge of such matters, the statement should not be regarded as a term. The intelligent bystander, looking at all the circumstances, would not say that the seller intended to guarantee the age of the car. The seller was in no position to do so, since all he could rely on were the car’s registration documents, and he had no means of determining whether they were accurate. The purchaser, on the other hand, being in the motor trade could, for example, have taken the engine and chassis numbers and checked with the manufacturer.

It should be noted that a case such as Bentley v Harold Smith, if the facts recurred, would be more likely nowadays to be dealt with as a negligent misrepresentation under s 2 (1) of the Misrepresentation Act 1967. The remedy in damages for misrepresentations provided by this section was not, of course, available at the time.

Other cases where the greater skill and knowledge of the defendant has been relevant in giving contractual status to a pre-contractual statement include Birch v Paramount Estates Ltd (developer stating that a house would be as good as the show house), Schawel v Reade (owner selling a horse which he stated was «perfectly sound») and Harling v Eddy (owner selling a heifer stating that there was «nothing wrong» with her).

4.2.3 Was there a significant lapse of time between the statement and the contract?

The courts generally consider that the closer in time that the statement was made to the conclusion of the contract, the more likely it is that it was a matter of importance to the claimant, and should therefore be treated as a contractual term. It is certainly true that if there is no significant gap, the statement may well be treated as being intended to be part of the contract, particularly if the agreement is not put into writing. It is by no means clear, however, that the mere existence of a delay should be regarded as in itself reducing the significance of the statement. Such delay may well have been caused by matters irrelevant to the statement, and the claimant may have felt that having settled the issue which the statement concerned, there was no need to re-state it at the time of the contract. Nevertheless, whatever the true significance of the delay, it is undoubtedly the case that as far as the courts are concerned it will weaken the claimant’s case.

An example of the application of this test is the case of Routledge v McKay. This concerned the sale of a motorbike. The defendant, who was selling the bike, had told the plaintiff that the date of the bike was 1942. In fact, it dated from 1930. A week elapsed between the defendant’s statement and the making of the contract of sale (which was put into writing). It was held by the Court of Appeal that the defendant’s statement was not a term of the contract. The decision may appear a little harsh, but it may be significant that application of both the other tests outlined above would have gone in favour of the defendant. Thus, the written agreement made no mention of the age of the bike, and neither party had any special skill or knowledge. Both were private individuals, and the defendant in making the statement had innocently relied on false information contained in the bike’s registration document.

As this last case shows, it must be remembered that none of the tests discussed here is automatically conclusive of the issue. All may need to be considered and, if they point in different directions, weighed against each other. The ultimate question is whether the statement, viewed objectively, was intended to form part of the contract. All the other tests are simply matters which may provide guidance to the court in determining this issue.

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