BetterLawNotes-5 (2)

CONTRACT LAW

The courts have identified a number of factors which may help to establish whether a statement made in negotiations was intended to have contractual effect (ie, be a term). Note that the court is trying to establish not so much what the parties actually intended, but rather what they appeared to intend:

‘The judicial task is not to discover the actual intentions of each party; it is to decide what each was reasonably entitled to conclude from the attitude of the other’. Gloag on Contract at 9.

‘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. And this, when the facts are not in dispute, is a question of law.’

Oscar Chess v Williams [1957] 1 WLR 370 (Denning LJ)

The Importance of the Statement

Bannerman v White (1861) 10 CB (NS) 844

B offered hops for sale to W. W asked whether any sulphur had been used in treating the hops, saying he would not trouble to ask the price if any had been. B said, incorrectly, that no sulphur had been used. The Court of Common Pleas upheld the jury’s finding that B’s assurance as to the non-use of sulphur was intended by the parties to be a contractual term.

Harrison v Knowles [1918] 1 KB 608

In this case the seller stated that the capacity of each of the two ships, the sale of which he was negotiating, was 460 tons. The statement was held not be a term of the contract since it was not a characteristic in which the buyer was particularly interested.

Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989

The case concerned a charterparty of ship. The charterparty was made before the vessel had been built, referred to the vessel as Osaka 354, indicating that it was to be built at the Osaka shipyard with the hull number 354. In fact the vessel was built at Oshima shipyard and bore the hull number 004. The charterers refused to take delivery of the vessel when tendered by the owners on the ground that the vessel failed to comply with the terms of the contract in that it was Oshima 004 and not Osaka 354. The House of Lords held that the reference to Osaka 354 in the contract was merely a means of identifying the vessel and was not a term of the contract.

J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078

AM agreed to transport E’s machinery and orally undertook that the machinery would be packed in containers stowed under deck. However, some of the containers were carried on deck and one was lost overboard. AM sought to rely on a clause in its written conditions permitting it to carry all cargo and excluding liability for loss damage to such cargo. Held: AM was bound by its oral undertaking and could not rely on the exemption clause.

Who Assumed Responsibility for the Accuracy of the Statement?

Ecay v Godfrey (1947) 80 Ll R 286

The seller of a boat told the buyer that the boat was sound but advised the buyer to have it surveyed. The statement as to soundness was held not to be a term of the contract.

Schawel v Reade [1913] 2 IR 64

B wanted a stallion for stud purposes and was examining the horse S was offering for sale. S stopped him, saying ‘you need not look for anything: the horse is perfectly sound’. Three weeks later the sale was agreed. It turned out that the horse was unfit for stud purposes. Here the statement as to fitness was held to be a term of the contract.

Couchman v Hill [1947] KB

Two heifers, sold at auction, had been described as “unserved”. A special condition in the auction particulars stated that “lots are sold with all faults, imperfections, and errors of description, the auctioneers not being responsible for the correct description, genuineness, or authenticity of, or any fault or defect in any lot, and giving no warranty whatever”. When the animals were in the ring, the claimant asked the defendant, the owner, and the auctioneer for confirmation that the heifers were unserved. Both confirmed this was the case. It later transpired that one of the heifers had not been unserved and it died from carrying a calf at too young an age. The Court of Appeal held that the defendant’s response was a term of the contract, and it overrode the special condition in the auction particulars.

Harling v Eddy [1951] 2 KB 739

S offered his Guernsey heifer for sale at auction. The auction catalogue stated that no warranty was given on any animal unless specially mentioned at the time of sale and contained on the buyer’s account. In response to a lack of interest, S said that there was ‘nothing wrong with her’ and that he would ‘absolutely guarantee her in every respect’. B bought the heifer which turned out to have tuberculosis and died. The Court of Appeal held that the statement was incorporated into the contract as a condition and, as such, was unaffected by the exclusion in the catalogue. If the statement was to be regarded as a warranty, the intention of the parties was that it was to override the exclusion contained in the catalogue.

At what stage was the statement made?

Routledge v McKay [1954] 1 WLR 615

S was negotiating the sale of his motor-bike to B. Both were private parties. Relying on the registration book, S described the motor-bike as a 1942 model. A week later a written contract was made, which made no reference to the age of the bike. It turned out that the bike was a 1930 model. S’s claim for damages for breach of contract failed.

The period of time between the making of the statement and the contract may also help to explain the different outcomes in, on the one hand, Couchman v Hill and Harling v Eddy, and, on the other, Hopkins v Tanqueray.

Hopkins v Tanqueray (1854) 15 CB 130

The day before the sale by auction at Tattersalls of a horse, California, the seller said ‘I assure you he is perfectly sound in every respect’; to which the buyer responded: ‘If you say so, I am perfectly satisfied’. The buyer bought the horse the following day but then discovered the horse was unsound. The Court of Common Pleas held that there had been no basis for the jury’s finding of a warranty of soundness.

‘The explanation seems to be that both parties knew at the time of the conversation that the sale was to be by auction at Tattersalls, that the well-known course of business there is that sales are without a warranty and that the parties could not have intended a warranty since they could not have supposed that the buyer would be in a better position than other bidders at the sale. The court expressed doubts about the legality of a private warranty at a public auction without a warranty; but the decision is that no warranty was intended.’

Smith and Thomas: A Casebook on Contract (11th edn) 387.

Who had Specialist Knowledge?

Oscar Chess v Williams [1957] 1 WLR 370

D wanted to buy a car from C on hire-purchase with his own car in part-exchange. D had bought his car from his mother. The registration book showed the car was a 1948 model and that it had changed hands 5 times between 1948 and 1954. Relying on the registration book, D described the car as a 1948 model. C accordingly valued the car at £290. Eight months later, C discovered that D’s car was a 1939 model and that its trade-in value should have been £175. C sued D for the difference between the two values. Held: the statement as to age was not a term of the contract.

‘When the seller states a fact which is or should be within his own knowledge and of which the buyer is ignorant, and intending that the buyer should act on it, and he does so, it is easy to infer a warranty . . . so also if the seller makes a promise about something which is or should be within his own control . . . But if the seller, when he states a fact, makes it clear that he has no knowledge of his own but has got his information elsewhere, and is merely passing it on, it is not so easy to imply a warranty. . .

. . . If the seller says; ‘I believe the car is a 1948 Morris. Here is the registration book to prove it’, there is clearly no warranty. It is a statement of belief, not a contractual promise. If, however, the seller says: ‘I guarantee that it is a 1948 Morris. This is borne out by the registration book, but you need not rely solely on that. I give you my own guarantee that it is’, there is clearly a warranty. The seller is making himself contractually responsible, even though the registration book is wrong.’

Denning LJ.

Dick Bentley Productions v Harold Smith [1965] 1 WLR 623

B went to inspect S’s car which S was offering for sale. S described the car as having done only 20,000 miles since being fitted with a new engine and gear-box. B bought the car but later discovered that it had done nearly 100,000 miles since the re-fit. S’s statement as to mileage was held to be a term of the contract.

Beale v Taylor [1967] 1 WLR 1193

D advertised his car for sale, describing the vehicle as a ‘Herald, convertible, white, 1961, twin carbs’. C having seen the advertisement bought the car. It turned out that the car comprised two separate halves welded together, only one of which was from a 1961 model. Held: the statement that the car was a 1961 Herald was a term of the contract.

Harlingdon & Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd [1991] 1 QB 564

D sold a painting, described as ‘a Gabriele Munter’, to C. Gabriele Munter was an artist of the German expressionist school. C’s purchaser, a specialist in the German expressionist school, had inspected the painting. D’s owner, who was a specialist in contemporary British artists, made clear that he knew nothing about the painting. The painting turned out to be a forgery. A majority of the Court of Appeal held that the description of the painting as a Munter was not a term of the contract.

Esso v Mardon [1976] QB 801

The parties were negotiating the terms of a tenancy of a petrol-station. Esso told Mardon that it estimated that the through-put of petrol would reach 200,000 gallons by the third year of operation. In fact, the station was never likely to achieve through-put on this scale. Esso was held to be in breach of a term that its estimate had been made with reasonable care and skill. (Esso was also liable for negligently misrepresenting that its estimate had been so made.)

Was the Contract Reduced to Writing?

‘If an oral representation is afterwards recorded in writing, it is good evidence that it was intended as a warranty. If it is not put into writing, it is evidence against a warranty being intended; but it is by no means decisive,’

Oscar Chess v Williams [1957] 1 WLR 370 (Denning LJ).

Where the contract is reduced to writing it is more difficult to establish that an earlier oral statement not repeated in the document is a term of the contract. In this situation, it is also important to bear in mind the parol evidence rule (see below).

An example of where an oral statement not repeated in a written contract was held to have contractual effect is:

Birch v Paramount Estates (1956) 167 EG 396

D was selling houses on an estate it had developed. D told C that C’s house would be as good as the show-house. C agreed to buy the house but the written contract made no mention of this statement. C’s house was not as good as the show-house. Held: D’s statement was a contractual term and C was entitled to damages for breach.

You cannot copy content of this page