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Topic 8- Contractual Terms (Innominate Terms (Term in question cannot be…
Topic 8- Contractual Terms
Introduction
Once court satisfied alleged contract contains all the basic elements required for its formation
It will inquire into the terms of that contract in order to determine what the parties have mutually agreed
Express or implied
Expressed- orally or in writing
Implied:
: As Matter of fact- clear he parties intended to include these erms despite fact they did not express them
: As Matter of law (terms may be implied as result of the constitution, common law or statute
Classification of terms
Warranties
Breach of which entitled injured party to sue for damages only
Less serious form of breach
Innominate term
A term which is not 'labelled' as a condition or warranty and the legal consequences (right of election or damages only) which arise from its breach will depend on whether the breach deprives the injured party of substantially all of the benefits it was intended that would be derived from the contract
Conditions
Breach of which entitled the injured party a right of election- end the contract and sue for damages or affirm the contract and sue for damages
More serious form of breach
Conditions/Warranties
The question as to whether a term is a condition, warranty or innominate term is a question of interpretation
Anso: In modern law it is probably safe to say that any term of a contract will be classified as an innominate term unless the court concludes that it falls within one of the following situations
Categorisation by statute or precedent
Express designation in the contract
Implied designation in the contract
1. Categorisation by statute/precedent
e.g. legislation might classify the term as a matter of law
s13 SGSSA 1980: implies a condition in all contracts for the sale of goods that where goods are sold by description that they must correspond to that description
2. Express designation in the contract
THe parties themselves are free to classify the term as eiher a condition or warranty
Betini v Gye:
Parties may think some matter, apparently of little importance, essential; and if they sufficiently express an intention to make the literal fulfilment of such a thing a condition... it will be one
e.g. if I really want a radio in car I can make it part of the contract
3. Implied designation in the contract
Classification of term may be implied in certain circumstances
e.g. If the term is a standard one, in a particular type of contract then it may be implied from the standard classification of such terms within that field
The Milalis Aneglos
: One of the most important elements of the law is predictability
at any rate in commercial law, there are obvious and substantial advantages in having where possible, a firm and definite rule for a particular class of legal relationship
e.g. the legal categorization of a particular definable type of contractual clause in common use
Innominate Terms
Term in question cannot be labelled as either a condition or warranty based on the above test= innominate term
Bunge Corporation v Tradax SA:
One upon the true construction of the contract the parties have not mde a condition, and breach of which may be attended by trivial, minor or very grave consequences
McDermott: One can readily understand why C of A reached conclusion that it did
the charteres wished to escape from their contractual obligations because they desired to avail of the fact that freight charges had dropped and could obtain vessel at lower cost
Problem- it is litigation orientated
It is only when the judge determines how serious he thinks the breach was that a party will know whether or no hey were entitled to walk away from teh contract
Attacked as undesirable because it leads to uncertainty and unpredictability of result
Hong Kong Shipping Company v Kawaski:
Dispute arose re seaworthiness term in a shipping contract
Due to number of technical problems the ship's sailing delayed nearly 5 months out of a two year charter
Issue: Ds sought to avoid contract by arguing seaworthiness clause had been breached and that the term was a condition
Held: C of A: the nature of the term could be determined by reference to the effects of its breach
A term as to vessel's seaworthiness could be broken by something as serious as a hole beneath waterline of ship
or by something trivil like the absence of a life jacket
Former scenario- breach of the term would be treated akin to breach of condition
Latter- treated akin to a breach
HELD- The breach in qu would be remedies by an award of damages and therefore deemed breach of warranty
TEST:
Does the occurence of teh event deprive the party who has further undertaking sill o perform of substantially the whole benefit which it was the intention of the parties expressed in the contract that he should obtain as the consideration for performing those undertakings
Westpark Investment Ltd v Leisureworld ltd
Facts: Lease arrangement between D lessee who operated an entertainment centre
Premises lease from P
Access to car parking= essential to D, lese guaranteed minimum amount of car parking spaces
Issue: Proposed construct underground car park, entered into variation of original leases whereby D agreed to have lesser number of car park spaces and would not have to pay rent between 2007 and 2010 as compensation for the anticipated inconvenience and loss of car parking
Due to economic crisis car park never completed
Express terms of the contract provided for a definite period during which rent was not required to be paid
No evidence on which court could imply a term into contract that would releive D from obligation to pay rent for an indefinite period of time
D refused to pay P any rent at end of period, because
the construction sie intruded on remaining car parking spaces
construction was unsighly and damaging to custom
not completing the car park within reasonable ime
Held: Approved Hong Kong Firs test
This breach could not in itself justify the total non-payment of rent
Leisureplex has nonetheless received a substantial benefit from this contract and it must accordingly pay rent in accordance with the terms of the contract
Express Terms
Parol Evidence
In cases where the parties have reduced their agreement to writing, qu arises as to whether or not oral testimony can be admitted as evidence to vary, alter or contradict terms
RULE- PAROL TESTIMONY CANNOT BE RECEIVED TO CONTRADICT, VARY, ADD TO OR SUBTRACT FROM THE TERMS OF A WRITTEN CONTRACT OR THE TERMS IN WHICH THE PARTIES HAVE DELIBERATELY AGREED TO RECORD ANY PART OF THEIR CONTRACT'
Bank of Australia v Palmer
Thus: The contract is bordered by the four walls of the written document
Macklin and McDonald v Greacan:
Held that a contract for the sale of licensed premises could not be varied by reliance on parol evidence
Exceptions
Despite apparent severity of this rule, Friel has acknowledged 'this archaic rule has been virtually abolished by various judicial pronunciations since its practical impact was to work considerable injustice
2. To explain circumstances surrounding the agreement
Where terms of written agreement are unclear and ambiguous, courts may permit parol evidence to clarify the circumstances surrounding contract
Revenue Commissioners v Moroney:
Held extrinsic oral evidence admissible to show a written documents which appeared to be a contract for sale of land, in fact a transfer of a gift
4. To correct a mistake
If the equitable remedy of rectification of a document is sought on grounds of mistake, the admission of parol testimony may be admissible
1. Written document does not reflect entire contractual agreement
Where written agreement is not meant to reflect the totality of the agreement, but only par thereof
If the parties clearly intended that the contract would consist of the written document read in light of the other documents or oral statements, then the parol evidence rule does not apply
Clayton love v B and I Transport
Facts: Written contract reflected an agreement that D would transport frozen scampi from Dublin to Liverpool
P clarified via telephone the food had to be transported at a frozen temp
Issue: Scampi found at room temp and ruined
HELD: SC: permited oral evidence of a phone call that supplemented the instructions contained in written contract
3. To explain the subject matter
In circumstances where the subject matter of the written document is not entirely clear, parol evidence will be admitted to clarify this uncertainty
Chambers v Kelly
: Oral evidence introduced to show the words 'all other trees' contained in a written contract concluded for sale of land referred only to larch trees
5. To prove the Consideration
If the written contract fails to mention the consideration payable under the contract, parol evidence can be used to prove price payable, or indeed, to prove the money in qu has already been paid
6. To prove the alleged contract was not a contract at all
Parol testompny may be admissible to show that an alleged contract was not intended to be a contract at all
Furthermore, where there is a key element of a contract absent, such as intention to create legal relations, then the court may allow oral evidence to prove this
RELATIVE IMPORTANCE OF STATEMENTS MADE DURING CONTRACTUAL NEGOTIATIONS
Not every statement made by parties will form part of the contract
Express terms will define the mutual obligations between the parties
Generally, where a written contract is entered into and deemed to represent entire contract between parties= little difficulty
However, where a contract is made by a combo of ORAL and WRITTEN statements or contract made orally- problems arise when trying to determine terms of contract
Distinction between:
WARRANTIES: contractual term, actionable by breach of contract action
binding terms of contract
MERE REPRESENTATIONS: not a contractual term, actionable in form of an action for misrepresentation
statements which are designed to induce the parties to enter into contract but which will be no action for breach of contract
SALES PUFF: Not contractual term or legally actionable
Test
: to determine whether parties intended their utterances to amount to legally binding contractual terms
Trietal: observed 'the question depends on the intention with which the statement was made, objectively ascertained
Objective test of intention appears to operate from POV of considering the impression the statement has on the recipient
In order to make such determination, following factors considered:
Verification- Did one party warn the other to verify the info?
Importance- How important to the conclusion of the contract was the relevant statement?
Special knowledge- The relative abilities of the parties to ascertain the truth of what was said
McDermott
: Identified following factors as relevant when determing whether a statement is a representation or a warranty:
A QUESTION OF FACT IN EACH CASE AND THESE PRINCIPLES ARE SIMPLY GUIDELINES WHICH MAY BE FOLLOWED WHERE APPROPRIATE:
At what sage was the statement made? The closer the statement is made to the actual completion of the contract, the more likely it will be deemed to be a term (
Routledge v McKay)
If contract later reduced to writing and statement was omitted- more likely to be a representation
If person making statement has some special skill- more likely warranty-
Dick Bentley Productions v Harold Smith (Motors) Ltd
The more important the statement is to teh completion of the contact, more likely it is a warranty
Carey v Irish Independent Newspapers Ltd
If there is an indication from the maker that the statement can be relied upon and need not be verified i is an indication the statement is a warranty (Schawl v Reade)
McGuinness v Hunter
: Negotiations for sale of horse, P said 'the hourse is alright and I know nothing wrong with him'
P bought horse, died soon after
Held: Statement was a warranty- therefore part of the contract
for breach P entitled to damages
Schawl v Reade
: Four weeks before conclusion of the contract the seller of horse represented to P horse was perfectly sound for stud purposes
Held: Warranty- formed par of contract
CONTRAST
Routledge v McKay
Similar time frame of four weeks resulted in court holding statement concerning the age of motorbike did not constitute a term of contract
Distinguish: Schawl is based on the skill of the seller who was in a position to know the true health of the horse, whereas Routledge is explicable on basis that the seller relied only on details of the vehicle's registration, which he would have no reason to doubt
Oscar Chess v Williams
Facts: P car dealers, D wanted to buy car on hire purchse
Second hand car offered in part exchange
Car's regisration book said 1948, D confirmed this orally
Issue: Some months later discovered car actually of 1939 vintage- book altered by previous owner
P sued for damages for breach of warranty
Held: The statement was a mere representation and not a term of the contract
It must have been obvious to bith seller and dealer that the seller has himself no personal knowledge of teh year when car was made, must be relying on registration book
unlikely that such a person would warrant he year of manufacture
Was open to dealer to verify age of car by contacting manufacturer
CONTRAST
Dick Bently Products v Harold Smith
: Oscar case distinguished
Facts: Dealer sold car to private individual and court of appeal held statement by the dealer as to the mileage of the car constituted a warranty binding on he seller
Dealer was in a better position than the other parties to verify the trust of the statement
SPECIAL SKILL FACTOR- BETTER POSITION, MORE LIKELY TO BE WARRANTY
IMPORTANCE OF THE STATEMENT TO THE SUCCESSFUL COMPLETION OF THE CONTRACT- MAY BE INDICATION STATEMENT = WARRANTY AND NOT A REPRESENTATION
Carey v Independent Newspapers
: P journalist was told during course of negotations for a new job that she coul have flexible working arrangements (such as working from home)
THis statemnet was a warranty because without it, an agreement would never have been made
MODERN APPROACH IN THIS AREA
Bank of Ireland v Smith
An advertisement for land erroneously stated a portion of the land was sown w barley and undersown with permanent pasture
This statement made honestly but mistakenly, by seller's agents
Issue: purchaser discovered mistake and sued for breach of warranty
held: Moder cases
show a welcome tendency to regard a misrepresentation made in connection wih a sale as ebing a warranty unless the person who made it can show that he was innocent of fault in connection with it
Onus on proof on person alleging a particular erm is a warranty
There is an inclination to hold employees have authority to give express warranties at the time of sale
e.g. Rooney v Fieldon: Employee held to have had autority to warrant a cow sold
Collateral Contracts
Some members of judiciary have sought to evade parol evidence rule entirely b providing two contracts may have come into existence
However, fresh consideration must be provided in order to make second contract legally enforceable
Collateral to main contract in that it adds to the consideration for the main contract, but is also enforceable severably
Requirements
Consideration must exist before collateral contract will be enforced
: consideration for collateral contract will typically be act of entering into main contract
There must be an intention to be contractually bound
It must not directly contradict the terms of the written agreement
not always applied strictly by courts
Used to:
Avoid parol evidence
Avoid exclusion clauses
Avoid statue of frauds