EGERTON UNIVERSITY

FACULTY OF LAW

LLBE 111—CONTRACT LAW

LESSON ELEVEN

TERMS OF A CONTRACT AND EXCLUSION CLAUSES

1. Different between Terms and mere representations.
2. Difference between Implied and Express terms and how terms are implied into a
contract.
3. Know the difference between conditions and warranties and
Innominate/intermediate terms.
4. Explain what an exclusion clause is and judicial controls of the same (what tests they
should pass before they become binding).

Terms distinguished from mere representations

A statement made orally during negotiations may be a term even if not included in
written terms or may remain a mere representation, having no impact on the
contract.

Factors Considered by Court –these are the same factors considered when the
court wants to establish whether there was a misrepresentation in a contract
1. Superior knowledge – a term of a contract.
-Oscar Chess v Williams – from non professional not binding—a private
motorist stated that the car was a 1948 model—turned out later it was 1939 model—
representation did not become part of the contract –seller was not an expert.
-Dick Bentley case – from professional – binding—that car had covered
lower mileage—later found to have covered higher mileage—ct—formed part of the
terms of the contract even if not included in the written contact—seller an expert
2. Time gap -If time gap is bigger mere representation
-If shorter –a term--ROUTLEDGE V MCKAY (1954)
3. Importance of the statement-- emphasis of the same
– Bannerman v white – buyer demanded that it wa important that the
hops were free from sulphur—seller assured him so -turned later that
they contained sulphur –ct—representation was part of the contract
terms.
-If speaker believes as to guarantee the statement – it is a term—if it is a
fact but not an opinion—it is a fact—the speaker knows it and asserts that it is true
and that is the position.
 Smith v Land & House Property Corporation (1884)

S, the vendor of property described it as ‘rented to F (a most desirable tenant) at a

rent of 400 pounds p.a. for 27.5 years thus offering a first-class investment’.

In fact F was behind in rent payment for the last 6 months as well as the recent
quarter’s rent.

Held: This is not a mere opinion but an assertion (statement of fact). This

description of the tenant amounted to a representation which was a false

representation hence a misrepresentation.

Hence he cannot sue the defendant for breach of contract. Def was right
to refuse to be bound (rescind) after discovering the misrepresentation.

Bisset v Wilkinson (1927)

W, the vendor of land stated that it could support about 2000 sheep. This proved
to be untrue. The buyer knew that the land had never been previously grazed.

Held: Since both parties did not know exactly how many sheep it could graze,
the statement was a mere opinion. It did not amount to an
assertion/representation. Therefore the P could not bring an action in
misrepresentation.

-If the representee (offeree) tells the speaker that he is relying on that
representation-- it is a term.

Express terms
-Expressly agreed – can be oral or written or partly oral and partly written

-Those terms specifically agreed.

If terms are express, implied terms will not be allowed to contradict the express terms.
Extrinsic evidence will not be allowed in court when terms are express

This is what is called the parol evidence rule-- the parties thereby being confined "within the
four corners of their agreement".
However there are exceptions to the parol evidence rule—situations when extrinsic
evidence can be allowed.
The parol evidence rule and its exceptions

Even if a contract is wholly in writing, its interpretation can nonetheless be a fertile ground for
disputes which must be judicially resolved.

The courts have long enforced what is now known as "the parol evidence rule".

The rule states that, where a contract has been reduced to writing, neither party can rely on
extrinsic evidence which seeks to add to, vary or contradict the written document.

It should be noted that whilst the word "parol" is used, the rule applies to any extrinsic evidence
and not just oral evidence.

The rule reflects the objective nature of the law of contract in that the law is not concerned "with
the parties' actual intentions but with their manifest intentions as evidenced by the written
contract; the parties thereby being confined "within the four corners of the document in which they
have chosen to enshrine their agreement". –the intention of the parties is manifested in
their written agreement
The parol evidence rule does, however, have its exceptions.
(1) It is possible to adduce evidence of custom or trade usage which may add terms to the
contract.
(2) There seems to be no objection to oral evidence being offered to show that, the parties had
agreed that the contract would not operate until some specified event had
occurred, even though on the face of things a valid enforceable contract had been created at an
earlier stage.
In such cases the written terms of the contract are not varied or supplemented; the operation of the
contract is simply suspended. Thus, in Pym v Campbell [1856], a written agreement for the sale of
a patent was drawn up and evidence was admitted that there was an oral agreement that the
contract would not become operative until a third party had verified and approved of the patent.

(3) The parol evidence rule forbids a person from relying on extrinsic-evidence only as to the
terms of the contract and not as to whether the contract is valid or invalid. A party can adduce
extrinsic evidence to show that the contract was not binding for want of consideration or was
invalid because of some other defect such as lack of capacity, mistake or misrepresentation.

(4) It may be that the written document is an attempt to represent a prior oral agreement but does
so inaccurately. In such an instance a party may apply to the court for the written agreement
to be rectified. This is an exceptional use of the parol evidence rule since the oral evidence is used
to correct a mistake; in the other exceptions to the rule there is no such mistake which precludes the
use of rectification to alter the document.
(5) Even though extrinsic evidence cannot normally be used to vary or add to the terms of a
written contract, it may be possible for the parties to use it to prove the existence of a separate
collateral contract; there are thus two contracts, a written one and an oral one. Generally, the
courts will find such a contract only if the term it is alleged to contain is independent of the main
contract and neither goes to the very root of the whole agreement nor contradicts the terms of the
main contract.
 Hence in City and Westminster Properties (1934) Ltd v Mudd [1959]. a collateral contract was
found to exist where a tenant was allowed to live on the premises despite the fact that the lease
contained a covenant that the premises were to be used for business purposes only.

It might seem that the notion of collateral contracts could all but destroy the parol evidence rule. It
should be noted that a collateral contract must comply with the other rules of contract: there must
be consideration and an intention to create a legal relationship. Further, it should Lie noted that
this device is not a true exception to the rule because it merely establishes the existence of a
separate contract, rather than adding to or varying the terms of the main contract.

(6) A further exception to the rule exists where the court finds that the writing was not intended
to reflect the whole of the agreement between the parties and in such a case extrinsic evidence
of other terms is admissible. There is, however, a rebuttable presumption that if the document
appears to be the contract then it will be the whole contract, thus precluding parol evidence.

The courts decide whether the document comprises the whole contract by reference to the intention
of the parties; the modern approach is to infer that the parties did not intend the document to be
exclusive, but that they intended it to be read alongside their oral statement.

Thus, in Couchman vHill [1947], the defendant's heifer was put up for auction. The catalogue
described it as "unserved" but it also contained statements that the sale was ''subject to the
auctioneers' usual conditions", which were that "the lots were sold with all faults, imperfections
and errors of description". Further, the auctioneers would not be responsible for any error in the
catalogue. The claimant, before bidding, asked the auctioneer and the defendant if they could
confirm that the heifer was "unserved" and they both replied in the affirmative and on this basis he
successfully bid for the heifer.
Later it was found that the heifer was in calf and it eventually died as a result of calving at too
young an age. The Court of Appeal held that the claimant was entitled to recover damages for
breach of contract. The documents in the case comprised only part of the contract and therefore the
oral assurance was part of the other terms to form a single transaction.

Similarly, in J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976], the parties had
done business together previously and the claimants shipped goods on trailers with the defendants.
The trailers had always been stored below deck but then the defendants decided that they wanted
to change to containerisation. The claimants agreed to the change provided that the containers were
stowed below decks. The defendants orally agreed to this request though the written contract did
not reflect this agreement and, in fact, gave the defendants complete freedom as far as the handling
and transportation of the goods was concerned. One container was stowed on deck and while being
shipped fell into the sea. The Court of Appeal held that there was a breach of contract and that the
defendants could not rely on the written agreement. Denning LJ's decision was based on the oral
agreement amounting to a collateral contract, however, Roskill and Lane LJJ held that there was a
single contract - partly oral and partly in writing.

In response to the collateral contract argument Roskill LJ stated: "That phrase is normally only
applicable where the original promise was external to the main contract, the main contract being a
contract in writing, so that usually parol evidence cannot be given to contradict the terms of the written
contract. . . But the doctrine, as it seems to me, has little or no application where one is not concerned
with a contract in writing (with respect, I cannot accept counsel for the defendants' argument that
there was a contract in writing) but with a contract which, as I think, was partly oral, partly in writing
and partly by conduct. In such a case this court does not require to have recourse to lawyers' devices
such as collateral oral warranty in order to seek to adduce evidence which would not otherwise be
admissible. The court is entitled lo look at and should look at all the evidence from start to
finish in order to see what the bargain was that was struck between the parties." The two
different approaches adopted in this case produced the same result. Should the contract contain a
so-called "merger" or 'entire contract" clause, that the document is intended and agreed to contain
the entire terms of the contract, however, it would be impossible to conclude that the contract was
partly in writing and partly oral. Similarly, there are occasions when the contract must be in
writing, as in contracts for the sale of land, and here it would seem to be clear that the terms of the
oral collateral contract would not be included in the sale.

The truth of the matter is that there are now so many exceptions to the parol evidence rule
that its effect is minimal.

This was the conclusion of the Law Commission(UK) in its report on the rule and because of this
the Commission did not recommend legislation for its abolition. The rule applies only where the
written document is intended to cover all the terms of the contract.

Implied terms and how they can be implied into a contract

1 – Implied by law( statutes/Acts) has made standard terms to apply to some contracts e.g
Cap 31 – Sale of Goods Act— has implied terms applicable to contract of sale of Goods. Also
hire purchase Act cap 507

Implied Right to sell—sec 14(a) cap 31 –sale of Goods Act-- Rowland v Divall [1923]-that the
sell must own the goods he is selling –if not the buyer to repudiate the contract and claim
refund of purchase price.

2.-Equally terms can be implied by custom (way of trade/trade usage)

Thus, in Hutton v Warren [1836], it was proved by local custom that a tenant (farming tenant),
on quitting in accordance with notice given by the landlord, was entitled to a fair allowance for
the seeds and labour he had put on the land and of which the landlord would now reap the
benefit.

3.-Also court can imply terms – the parties thought them being obvious--the officious
bystander test

The owner of the ship in The "Moorcock"[1889] CASE agreed to hire a wharf to habour the ship
along river Thames. When the tide went low, the vessel rested on the bottom of the river and
because of the presence of a ridge of rock, suffered damage. The owners of the ship claimed
damages. The owner of the wharf argued that he had not promised that the bottom of the river
would be safe for the ship. It was held that, as both parties envisaged that the ship would rest on
the river bed at low tide, there was an implied term in the contract that the bed would be
reasonably safe for this purpose. The business of the habour could not be carried on except on
such a basis.
 4.-Implied in order to give meaning and enforcement of the contract—business
efficacy

In Liverpool City Council v Irwin [1976]—Tenancy agreement—did not provide for

maintenance of the house by the landlord—Landlord (plaintiff) failed to maintain the house—
defendant (tenant) refused to pay rent
Ct—even if there was no term to maintain the house, the land lord was under obligation to
maintain common places and do repairs when necessary—tenant was right to refuse to pay
rent until repairs done –term implied to give completeness of the contract—and to enable each
party fully perform their obligations.

CONDITIONS AND WARRANTIES— This is classification of terms according to their seriousness

or lack of it.

1. Conditions – serious terms

– Effect of the breach

- Injured/aggrieved party to Repudiate the contract

-Case Poussard vs Spiers (1876) – she agreed to sing in opera failed to appear on the
first night.

- Organizers Cancelled the contract – she sued

HELD: She had Breached a condition – hence no damages-def was right to repudiate
the contract

2. Warranty: -Lesser term

-Incidental to the main terms/ purpose

-if breached-- not to repudiate

-But aggrieved part to claim damages

Case: Bettni v Gye (1876)

-Plaintiff agreed to sing in a concert—singing opera

-To attend rehearsal for 6 days

-Fell sick- failed to appear for rehearsal for 4 days

 -Defendant refused to accept her--repudiated

-She sued

-Held – rehearsal – a warranty

-Defendant not to repudiate the contract

-Defendant was in breach of contract—must pay damages to the plf.

STANDARD FORM CONTRACTS AND EXEMPTION CLAUSES—what they are and how they are
controlled by the courts

-Terms inserted into a contract to exclude a party from being liable or to limit his liability.

Juducia Controls—REQUREMENTS BY COURTS FOR THE CLAUSE TO BE BINDING

COURTS ARE NOT FRIENDLY TO EXEMPTION CLAUSES

EQUALLY COURTS HAVE SAID THAT AN EXEMPTION CLAUSE CAN NOT BE ALLOWED WHEN IT
IS EXCLUDING THE DEFENDANT FROM BEING LIABLE FOR THE PERSONAL INJURUES TO
THE PLAINTIFF-IF THIS IS THE LIABILITY EXCLUDED—COURTS CAN NOT ALLOW THIS
AND THE DEFENDANT MUST BE LIABLE REGARDLESS THE EXEMPTION CLAUSE—SEE
THE CASE OF CHAPELTON BELOW.

THOMPSON V L.M&S RAILWAY COLTD (1930)

PLF BOUGHT A R/WAY TICKET-HAVING EXCEMPTION CLAUSE-EXCLUDING THE DEF FROM

LIABILITY FOR NEGLIGENCE IF PLFF IS INJURED-ALSO THE CLAUSE WAS WRITTEN ON
THE NOTICEBORD AND DEF’S TIME TABLE—THE PLFF WILL NOT READ-PLFF WAS
INJURED –WENT TO CT-CT SAID THAT THE DEF HAD TAKEN REASONAPLE STEPS TO
BRING THE CLAUSE TO THE ATTENTION OF THE PLFF AND HENCE THE DEF WERE NOT
LIABLE.

NB-THIS CASE IS NOT A GOOD PRECEDENT-THE COURTS CURRENT POSITION IS THAT THE DEF
CAN NOT EXCLUDE THEMSELVES FROM LIABILITY IF IT INVOLVES PERSONAL INJURY TO
THE PLAINTIFF AND MORE SO IF IT IS INTENDED TO NEGATE THEIR DUTY OF CARE
THEY OWE THE PLAINTIFF

EQUALLY IF THE CLAUSE IS GOING TO FUNDAMENTALLY CHANGE THE CONTRACT AND LEAD
TO INJUSTICE –COURTS CAN NOT ACCEPT IT—IF IT CAN LEAD TO EXCLUDING THE DEFENDANT
FROM PERFORMANCE-COURTS CAN NOT ALLOW.
KARSALE LTD V WALLIS (1956)—PLF WAS SELLING HIS CAR-DEF INSPECTED THE SAME—
OFFERD TO PURCHASE IT—WAS IN EXCELLENT CONDITION—HE SIGNED AGREEMENT-
WAS TO PAY ON DELIVERY—WHEN DELIVERD-THE CAR WAS IN A SHOCKING
CONDITION-CAN NOT EVEN SELF-START-AGREEMENT CONTAINED AN EXEMPTION
CLAUSE—THAT THE SELLER DOES NOT WARRANTY ROADWORTHNESS/FITNESS OF THE
CAR—DEF REFUSED ACCEPTANCE—PLF WENT TO CT-CT SAID—BREACH WAS VERY
SERIOUS –WENT TO THE ROUT OF THE CONTRACT-PLF CAN NOT RELY ON THE
EXCEMPTION CLAUSE –THE CAR WAS TO BE DELIVERD IN THE EXCELLENT CONDITION
IT WAS—PLF WAS IN BREACH OF CONTRACT—DEF WAS RIGHT TO REFUSE
ACCEPTANCE

1. – A party bound only when he accepts it—must sign it—hence incorporated into the
contract.

L’Estrange v Graucob (1934)

-The plaintiff signed a hire-purchase agreement in regard to a cigarette vending machine—

without reading it. The agreement contained a clause exempting the defendant from liability
if the machine failed to work. It failed to work and the plaintiff went to court to claim the
refund of purchase price.

Court—By signing the document, the plf was bound by the same- she was bound by its terms
including the exemption clause—hence had no remedy---exemption clause binding.

BUT if there was misrepresentation from the other party, then the contract will be voidable
for misrepresentation and the signing party will not be bound by that document.

Curtis v Chemical Cleaning and Dyeing co(1951)

The laundry attendant told the plaintiff that the exemption clause was only in regard to
damage of decorations on the dress while it was excluding them from being liable even if it
was the whole dress damaged-the dress was breached-the court said the lady was not bound
even if she had signed because of misrepresentation from the defendant-hence defendant
liable to pay damages.

2. To be stated before acceptance

-Olley v Malborough court (10490 1KB 532 – Hotel Case

3. To be sufficiently communicated –to be put in front, in bold letters and clear –
Also the parties to explain the implications to the other part—then what is the
position of exemption clauses put behind a receipt/document and in small
prints and the customer signs infront?—railway, psvs, laundry, curior services
etc

—Chapelton v Barry U.D.C (1940)—plaintiff hired a deck chair from the def.—was
given a receipt –which he put in pocket w/o reading—behind the receipt-said-if
the chair beaks and injured—def not liable-plf sat-got injured—the ct said the
def must be liable—put at the back-not brought to the plf’s attention –def
liable

4. If it is exchange of forms (battle of forms) it is binding on signing. What is battle

of forms?.

5. contra proferuntum Rule.

i). MUST BE VERY CLEAR---Courts interpret them strictly against the person
inserting them---- if it is ambiguous to be resolved in favour of the other party
–hence not binding --Holier v Rambler-- where a party said that he will not be
liable for any damage caused by fire—did not say whether fire cause by
accident or fire caused by negligence—clause was ambiguous/vague—hence
not clear-hence not binding

ii). MUST BE COMPREHENSIVE---Clause to be comprehensively drafted to cover

the liability/damage. photo production Ltd v Securicor Transprt Ltd(1980)
Clause said that the security firm will not be liable for any loss caused by
negligence of their Guard. --A fire caused by negligence of a guard destroyed
the factory. Court held clause was comprehensive hence applicable—hence
binding