Contract - Terms Of A Contract

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Conditions

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Terms of a contract which are deemed to be sufficiently important enough to entitle the injured party to end the contract and sue for damages if they are breached.

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Puffery / Mere Puff

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Terms used in pre-contractual negotiations= representation

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Representations

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Statements which do not amount to contractual terms.

Warranties, are considered to be legally binding terms that form part of the contract. However ... "statements which are designed to induce the parties to enter into the contract
but which will not subsequently form part of the contract . . . are known as 'representations'".

If the latter terms are subsequently discovered to be false or untrue, then an action may lie in misrepresentation, but there will be no action for breach of contract.

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Breach of a term

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Breach of contract = damages

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Breach of representations

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If the representations are subsequently discovered to be false or untrue, then an action may lie in misrepresentation, but there will be no action for breach of contract.

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Warranty

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terms of a contract which are considered to be less important than conditions. If a warranty is breached it entitles the injured to sue for damages only.

Warranties are considered to be legally binding terms that form part of the contract.

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Term or representation?

General Principles

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Where a party does not take responsibility for the accuracy of a statement, it may be taken to be a representation or affirmation rather than a warranty.

5 factors relevant in determination or warranty or representation:

i. Time in transaction the statement is made
ii. If the contract is written and the statement is not there – can suggest it was not to have contractual force
iii. If the person making statement has specialist knowledge – likely to be warranty
iv. Importance of the statement – may be a warranty
v. Indication statement may be relied on by one party – may be warranty – Schawel v. Reade [1931] – soundness of a horse – eye defect – HELD warranty

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Murphy v. Hennessy [1897] IRISH:

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• HELD any statement made during the course of a sale of which a purchase was made, is a warranty.

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Carey v. Independent Newspapers (Ireland) [2005]

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• Plaintiff journalist
• Headhunted by Evening Herald
• Left secure job as political editor with Ireland on Sunday
• Agreement made that plaintiff did not have to attend the office until 9.30am – domestic duties involving son
• New editor took over – insisted she attend meetings before 9.30am
• Terminated her contract
• She sued – WON
• HELD term pertaining to plaintiff’s morning routine was a warranty

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Manor Park Homebuilders Ltd v. AIG Europe [2009]:

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• Insurance contract
• HELD a warranty cannot arise from representation made prior to a contract unless party seeking to rely made clear the term was to form basis of contract

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Onus of Proof

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Party alleging term is a warranty bears burden of proof.

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Fitzpatrick v. Harty and Ballsbridge International Bloodstock Sales Ltd (1983) IRISH

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• Sale of a horse
• Sued for price
• Def argued that he should not pay because horse suffered from ringbone (arose AFTER sale)
• Def failed to discharge onus of proof

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Who has Authority to give Warranties?

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May be agent of vendor

Employees can be held to have authority to express warranties at time of sale

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Rooney v. Fielden [1899] IRISH:

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• HELD Employee had authority to warrant the condition of a cow being sold

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Parol Evidence Rule

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Rule applies to Oral evidence

Prevents a party to a written contract from presenting extrinsic evidence that contradicts or adds to the written terms of the contract that appears to be whole.

McDermott : Parol evidence rule is not really a rule but rather a presumption.

General rule is Parol Evidence is not allowed to prove CONTENT.

Friel: " ... the contract is bordered by the four walls of the written document."

BUT

" ... this archaic rule has been virtually abolished by various judicial pronouncements since its practical impact was to work considerable in justice".

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Bank of Australasia v. Palmer [1897]

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Lord Morris:

“Parol testiomy cannot be received to contradict, vary add 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”.

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Macklin &McDonald v. Greene & Co [1983]

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• HELD SC contract for sale of the licence of a licenced premise could not be varied by reliance on Parol Evidence
• Contract reduced to written form
• Written document was evidence
• “Extrinsic evidence is not admissible to vary the terms of the document”

HOWEVER

If the equitable remedy of rectification of a document is sought on the grounds of mistake, the admission of parol testimony may be admissible.

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To Establish the Limits of the Contract

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Where a party seeks to establish that there was actually no contract at all or there were 2 contracts.

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Bula Ltd v. Tara Mines (1999)

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• Extrinsic evidence is not admissible

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Carrigy v. Brock (1871) IRELAND

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• A deed omitted Brock supposed to pay monies to landlord
• Agreement not recorded in a memo of the parties
• Carrigy sought to rely on memo
• Brock objected – violated Parol Evidence rule – deed was the contract
• Attempt to invoke rule FAILED
• Plaintiff sought recovery on 2nd contract, not variation of deed

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To Explain the Circumstances Surrounding an Agreement

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Parol evidence may be allowed - Revenue v Moroney (1972)

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Revenue v. Moroney [1972] IRELAND:

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• Admitted Parol evidence
• Relevant to explain circumstances in which a deed was executed

It was held that extrinsic oral evidence was admissible to show that a written document which appeared to be a contract for the sale of land, was in fact a transfer of a gift.

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To Explain the Subject Matter of the Contract

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Parol evidence may be allowed:

Chambers v. Kelly [1873] IRELAND

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Chambers v. Kelly [1873] IRELAND:

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• Contract for sale of oaks
• Plaintiff vendor claimed successfully that the parties had intended part of his land to be the plantation and felling on other parts breached contract
• HELD necessary to go outside the written agreement to ascertain the subject matter
• A literal interpretation would have produced a different outcome

Oral evidence was introduced to show that the words "all other trees" contained in a written contract concluded for the sale of land referred only to larch trees.

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To Correct A Mistake

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Parol evidence is admissible to correct a mistake

Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] UK

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Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] UK

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• In cases of mistake, evidence of declarations of subject intent may be adduced
• Limited to actions for rectification

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To Prove the Consideration

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Parol evidence admitted to prove the price payable – Jefcott v. North British Oil Co. (1873)

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To Explain a Custom

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If contracting parties recognise a trade custom exists – parol evidence may be used to bring it to the court’s attention

Wilson Strain Ltd. v. Pinkerton (1897) IRELAND:
• Employer to take over outstanding debts upon roundsman leaving
• Universal practice in bakery industry

If contract clearly states omission of a custom – not admissible

If contract is silent – admissible

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Wilson Strain Ltd. v. Pinkerton (1897) IRELAND:

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• Employer to take over outstanding debts upon roundsman leaving
• Universal practice in bakery industry

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Where the Written Document is not the Entire Contract

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Where the Written Document is not the Entire Contract parol evidence may be admissable.

Howden v. Ulster Bank [1924] IRELAND:

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Howden v. Ulster Bank [1924] IRELAND

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• Plaintiff’s contracted for a ship to be built
• Shipyard went bankrupt before ship completed
• Plaintiffs sought damages for wrongful detention of ship
• Memo of agreement indicated the titled remained in the defs BUT on hearing oral testimony HELD written doc did not represent entire contract

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Other Exceptions

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Parol Evidence admissible to:
• Show capacity of parties
• Attack contract’s validity

General rule is Parol Evidence is not allowed to prove CONTENT

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Collateral Contracts

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Judicial discretion is often involved in the discovery of a collateral contract

3 requirements for a collateral contract to be recognised:

1. Consideration
2. Intention to be contractually bound
3. Collateral contract does not contradict the terms of the written agreement

Consideration often satisfied by entering the “main” contract – Heilbut, Symmons & Co v. Buckleton [1913]

Intention – courts must examine criterion strictly

Some members of the judiciary have sought to evade the parol evidence rule entirely by providing that two contracts may have come into existence. However, fresh consideration must be provided in order to make the second contract legally enforceable. A collateral contract is a subsidiary contract of the main contract in that it adds to the consideration for the main contract, but is also enforceable severably.

Requirements:
- Consideration must exist before the collateral contract will be enforced. The consideration for the collateral contract will typically be the act of entering into the main contract.
- There must be an intention to be contractually bound.
- It must not directly contradict the terms of the written agreement; this is not always applied strictly by the courts.

Main situations where a collateral contract will be used:

- avoiding the parol evidence rule;
- avoiding exclusion clauses;
- avoiding the Statute of Frauds (Ireland) Act 1695: where a contract for the sale of land may be unenforceable because the memorandum is defective, it may be possible to remedy the situation by holding that there are in fact two contracts;
- conflict of laws: Parol Evidence Rule may be used to show that the' Irish Courts have jurisdiction over the claim;
- consideration: where the plaintiff is unable to show that consideration moved from him - the promise - the parol evidence rule may be admitted to show this;
- expanding Remedies;
- illegality;
- other Defects.

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Consideration in Collateral Contracts

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Consideration often satisfied by entering the “main” contract – Heilbut, Symmons & Co v. Buckleton [1913]

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Intention in Collateral Contracts

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Strictly construed by courts - Flynn -v- Dermot Kelly Ltd. (2007)

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Flynn v. Dermot Kelly Ltd [2007] IRELAND:

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• Plaintiff took tractor from def
• Finance package arranged for lease – sold to NH Finance (2nd def)
• Plaintiff did not deal as a consumer – no contract of sale
• HELD court found a collateral contract in order to do justice

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Innominate terms

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These are unclassified terms which are only labelled when the consequence's of their breach are known. If consequences arising from the breach of such a term are serious, then it will be labelled as a condition. If the consequences are less serious then it will be labelled a warranty. - Hong Kong Firs (1962)

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Hong Kong Fir Shipping Company v Kawaski [1962] 1 All
ER 474

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A dispute arose re a seaworthiness term in a shipping contract. Due to
technical problems, the ship's sailing was delayed nearly five months.

The defendants sought to avoid the contract by arguing that the seaworthiness clause had been breached and that it was a condition.

However, the Court of Apppeal held that the nature of the term could be determined by reference to the effects of its breach. A seaworthiness term could be breached if there was a hole in the ship causing it to sink or if one lifejacket was missing.

In the former case a
breach of that term would be treated as a breach of condition whereas in the latter it would be merely treated as breach of a warranty.

The Court of Appeal held that the breach in question could be remedied by an award of damages and therefore it was a breach of warranty.

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Warranty v Mere Representation

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Not every statement made by the parties will form part of the contract. Express terms define the contractual obligations between the parties.

Generally, where a written contract is entered into, and is deemed to represent the entire contract between parties, there is little difficulty.

However, where a contract is made by a combination of oral and written statements or the contract is made orally, problems may arise when trying to determine the terms of the contract.

Indeed, in order to help clarify what terms will have contractual status, a distinction has been made between warranties (a contractual term) and mere representations (non-binding term).

McDermott has identified the following factors as being relevant when determining whether a statement is a representation or a warranty:

(I) At what stage 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 [1954] 1 WLR

(2) If contract later reduced to writing and the statement was omitted, it is more likely to be a representation.

(3) If person making the statement has some special skill, it is more likely a warranty - Dick Bentley Productions v Harold Smith ( Motors) Ltd [1965] 2 All ER 65.

(4) The more Important the statement is to the completion of the contract-more likely it is a warranty - Carey v Irish Independent Newspapers Ltd [2003] IEHC 67

(5) If there is an indication from the maker that the statement can be relied upon and need not be venfied then its an indication that the statement is a warranty - Schawl -v- Reade [1913] 2 IR 81.

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McGuinness v Hunter (1853) 6 Ir. Jur. 103

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The defendant owned a horse and during negotiations for the sale of the horse told the plaintiff, the " ... horse is alright and I know nothing wrong with him" . The plaintiff bought the horse, which died soon after.

The plaintiff argued that the words "is alright" was a promissory statement. It was held that the statement was a warranty and therefore part of the contract, and for the breach the plaintiff was entitled to damages.

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Schawl v Reade { 1913] 2 IR 81

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Four weeks before the conclusion of the contract the seller of a horse represented to the plaintiff that the horse was perfectly sound for stud purposes.

This was held by the court to be a warranty and thus form part of the contract.

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Routledge v McKay [1954] 1 ALL ER 855

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A similar time-frame of four weeks resulted in the court holding that the statement concerning the age of a motorbike did not constitute a term of the contract.

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Difference between Schawl and Rougledge

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Friel asserts that:

"[t]he difference in approach is only explicable on the basis that in Schawl the defendant appeared somewhat less than honest, whereas the defendant's error in Routledge was an honest mistake . .. It has been argued that the decision in 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 the basis that the seller relied only on the details of the vehicle's registration, which he would have no reason to doubt."

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Hummingbird Motors v Hobbs [1986] RTR 276

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The defendant sold a car to the plaintiff for £2,700. He had bought it for £2,275 at an auction. The milometer said 34,900 miles and the defendant signed a declaration that this was correct to the best of his knowledge. The contract was completed and later the plaintiff discovered the mileage was in fact 80,000 miles.

The Court of Appeal held that there was no warranty by the defendant as there was no reasonable basis for the plaintiff to believe that the defendant was making a contractual promise. The defendant was not an expert in the history of the car.

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Oscar Chess v Williams [1957] Appeal Cases 221

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The plaintiffs were car dealers. The defendant wanted to buy a car on hire purchase. A second-hand car was offered in part-exchange. The car's registration book said 1948, and the defendant confirmed this orally. Some months later it was discovered that the car was actually of 1939 vintage, and that the book had been altered by a previous owner. The plaintiff sued for damages for breach of warranty.

In the Court of Appeal, it was held by Denning LJ that the statement was a mere representation and not a term of the contract, especially having regard to the relative position of the parties:

"[The buyer] must prove a warranty ... in its ordinary English meaning to denote a binding promise. Everyone knows what a man means when he says 'I guarantee it' or 'I warrant it' or 'I give you my word on it'. He means that he binds himself to it .. .. The crucial question is: was it a binding promise or only an innocent misrepresentation? ... The material distinction here is between a statement which is a term of the contract and a statement which is only an innocent misrepresentation . ... It is sometimes supposed that the tribunal must look into the minds of the parties to see what they themselves intended. That is a mistake . .. The question whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than on their thoughts.

If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice ....

What is the proper inference from the known facts? It must have been obvious to both [seller and dealer] that the seller has himself no personal knowledge of the year when the car was made. He only became owner after a great number of changes. He must have been relying on the registration book. It is unlikely that such a person would warrant the year of manufacture. The most he would do would be to state his belief, and then produce the registration book in verification of it. In those circumstances the intelligent bystander would, I suggest, say that the seller did not intend to bind himself so as to warrant that it was a 1948 model. If the seller was asked to pledge himself to it, he would at once have said 'I cannot do that. I have only the log book to go by, the same as you."'.

[Denning L.J. goes on to note that it was open to the dealer to verify the age of the car by contacting the manufacturers.]

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Test in Oscar Chess

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Objective test:

If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice ....

Denning LJ

Kenny J in Bank of Ireland -v- Smith (1966):

The modern cases, however, show a welcome tendency to regard a misrepresentation
made in connection with a sale as being a warranty unless the person who made it can show that he was innocent of fault in connection with it.

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Dick Bentley Productions v Harold Smith (Motors) Ltd [1965] 2 All ER 65

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Here, a dealer sold a car to a private individual and the
Court of Appeal held that a statement by the dealer as to the mileage of the car constituted a warranty binding on the seller.

The dealer was in a better position than the other parties to verify the truth of the statement.

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Bank of Ireland v Smith [1966] IR 161

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Summarises the modern approach in distinguishing between representations and warranties.

Here, an advertisement for land erroneously stated that a portion of the land was sown with barley and undersown with permanent pasture. This statement was made honestly, but mistakenly, by the seller's agents. The purchaser discovered the mistake and sued for breach of warranty. The seller claimed it was merely a misrepresentation.

Kenny J. held that the representation induced the plaintiff to enter into the contract and therefore such representation should be treated as a warranty. Kenny J. stated that:

The modern cases, however, show a welcome tendency to regard a misrepresentation
made in connection with a sale as being a warranty unless the person who made it can show that he was innocent of fault in connection with it.

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Rooney v Fieldon [1899] 33 ILTR 100

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An employee was held to have had authority to warrant a cow that was sold.

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Fitzpatrick v Harty and Ballsbridge International Bloodstock Sales Ltd (Unreported, High Court, 25
February, 1983)

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The onus of proof is on the person alleging that a particular term is a warranty.

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Clayton Love v B & I (1970) 104 ILTR 157

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In this case, a written contract reflected an agreement that the defendant would transport frozen scampi from Dublin to Liverpool. The plaintiff had clarified, via telephone, that the food had to be transported at a frozen temperature. Upon arrival, however, the scampi was found to be at room temperature and thus ruined.

The Irish Supreme Court permitted oral evidence of a phone call that supplemented the instructions contained in the written contract.

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The Plain Meaning Rule

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This rule essentially provides that if a term of the contract is clear, the courts cannot go beyond the literal meaning of the words in order to interpret the contract - LAC Minerals v Chevron (6 August 1993, unreported), High Court. In other words, if the words are clear, then one cannot have recourse to extrinsic evidence to interpret the contract - Marathon Petroleum v Bord Gais Eireann (18 February 1986, unreported), High Court. In interpreting the contract using the plain meaning rule the words must be looked at in the context of the contract as a whole - Laird Brothers v The City of Dublin Steam Packet Co. (1899) 34 ILTR 9.

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The Factual Matrix Approach

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Under this approach the words used are interpreted in a manner which is not divorced from the surrounding circumstances of the contract. In Prenn v Simmonds [1971] 1 WLR 1381; Lord Wilberforce observed that the courts must "inquire beyond the language and see what the circumstances were with reference to which words were used, and the object, appearing from those circumstances, which the person, using them had in view." The factual matrix approach was approved in the Irish case of LAC Minerals v Chevron (6 August 1993, unreported), High Court, where the test was applied to an agreement which contained a clause regarding pre-emption rights. One clause referred to the offer to remain open for 55 days, while another referred to 60 days. The conflict was resolved by outside evidence of the intentions of the parties.

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Maxims of Construction

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The courts have developed a number of maxims to assist them when interpreting contracts:

1. Commercial sense and unreasonable results - commercial contracts should be interpreted in a manner which makes good commercial sense - Antaios Compania Naviera SA v Sa/en Rederierna AB [1985] AC 191.

2. Purpose of the agreement- the courts can take into consideration the purpose of the agreement -- O'Neill v Beaumont Hospital Board [1990) ILRM 419.

3. Market Practice- the courts will consider parol evidence in establishing custom and practice when interpreting terms - Brady v Irish National Insurance Co Ltd. [1986] IR 698.

4. Documents forming part of the same transaction - the courts will consider other documents forming part of the same agreement - Jacobs v Batavia and General Plantations Trust [1924] 2 Ch 329.

5. Tailor made clauses - the general rule is that if a clause specifically drafted for the purposes of the agreement conflicts with a standard clause then the tailor-made clause will prevail - Tokn Grass Products Ltd v Sexton (3 October 1983, unreported), High Court.

6. The contra proferentem rule - where a term is ambiguous, the interpretation less favourable to the person seeking to rely on it will prevail - Brady v Irish National Insurance Co. Ltd. [1986] IR 698.

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Incorporation in to the Contract

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If a term has not been incorporated into a contract, then it may not be relied upon as a contractual term. Essentially, incorporation will be adjudged according to whether the document is signed or unsigned. If an exemption clause is included in the main document and a party signs it, that party is generally bound by the terms in that document. In circumstances where no document has been signed, the courts will inquire into whether or not the party seeking to rely on the exemption clause made reasonable attempts to bnng It to the attention of the other party.