Module code LW650

Module title Contract Law

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The legal issues concerning Jodie are whether she can make a claim against
the following:
• Bruce- for his false statement that the horse was free from hereditary
disease.
• The vet- for providing an inaccurate certificate.
• Horsie co- for selling her a defective product.
Jodie’s ability to claim against these parties under contract law will depend on
whether she has had a contract with them. In short, a contract is a legally
binding promise between two parties to fulfil an obligation in return
for consideration.

Jodie v Bruce
Bruce promised to sell the horse and Jodie purchased that horse for £20,000;
therefore, Jodie did have a contract with Bruce, as there was an exchange of
promises for consideration. Jodie can either claim misrepresentation or
breach of contract (BoC) against Bruce, depending on whether his statement
was a term or representation. Representations are statements of fact that
entice the other party to enter a contract, whereas terms are the parties’
obligations and rights that form parts of their contract. This distinction is
relevant when identifying the available remedies.

Misrepresentation

Misrepresentation occurs at the precontractual stage, where a party makes a

false statement of material fact, which induces the other party to enter a
contract.
Although Bruce’s statement about the health of the horse was false, he could
try to argue that it was a mere opinion, which generally does not amount to an
actionable misrepresentation, as seen in Bisset v Wilkinson.1 However,
Jodie’s situation should be distinguished from Bisset,2 as the reason that the
statement was deemed an opinion was because the claimant was in no better
position than the defendant to know the accuracy of the statement. Therefore,

1 [1927] AC 17.
2 Ibid.
misrepresentation can occur in situations where the defendant is in a better
position to know the accuracy of the statement.3
Jodie could argue that Bruce was in a better position because he is the dealer
of the horses, so he would have greater knowledge on the health of his
horses.
The requirement of material fact is an object test of the reasonable person.
Here, the reasonable person buying a horse for a race, would likely purchase
a horse that is free from disease; thus, would be induced by Bruce’s
statement. Additionally, Jodie must show that Bruce’s statement induced her
to enter the contract. This requires Bruce’s statement to be a causal factor in
Jodie’s decision to enter the contract.4 The facts clearly state that after being
reassured by Bruce that the horse was free from disease, she decides to
purchase one. Therefore, but for Bruce’s statement Jodie would have unlikely
entered the contract. Furthermore, as all the elements for an actionable
misrepresentation have seemingly been established, the next step is to
identify the type of misrepresentation the claim would be, as it will determine
the available remedies.

Remedies
S 2 (1) of the Misrepresentation Act 1967 (MA) provides remedies for
fraudulent misrepresentation. It might be difficult to evidence actual fraud, as
Bruce was not aware that his statement was false. Therefore, it is advisable
for Jodie to pursue fiction of fraud misrepresentation5, as there is no
requirement to show fraud.6 This simply requires the claimant to evidence that
all the elements for misrepresentation have been satisfied.7
The onus is on Bruce to evidence that he had reasonable grounds for
believing that his statement was true. Bruce could claim that he did because
the vet’s certificate also stated that the horse was healthy. However, the
problem with this argument is that Bruce made his statement before he
received the vet’s certificate. Therefore, he could not have relied on the

3 Smith v Land and House Property Corporation [1885] LR 28 Ch D 7.

4 JEB fasteners [1981] 3 All ER 289.
5 Royscot Trust Ltd v Rogerson [1991] EWCA Civ 12.
6 Derry v Peak [1889] 61 LT 265.
7 Yam Seng Pte v International Trade Corp [2013] BLR 147.
certificate when making his statement. As a result, for Bruce to be successful
in this defence, he would have to show evidence of previous horse
inspections that confirmed his statement. If he can do so, then no actionable
misrepresentation under s 2(1) MA can be made out. However, if he is unable
to evidence his defence, then Jodie will be successful in her claim and could
receive the remedies of rescission and damages.

If Jodie had not done anything to limit her right of rescission, for instance,
affirmed the contract,8 then rescission will be available. That means Jodie
would return the horse and Bruce would return her £20,000.

In addition to recession, Jodie may be entitled to damages for her

consequential loss of potential income (£50,000).9 The measure of damages
is the same as the tort of deceit, so there is no need for Bruce to have
foreseen this loss.10 Providing that Jodie had taken reasonable steps to
mitigate her loss,11 she should be able to claim damages. However, there is
an argument that the horse’s disease was not the operative cause of Jodie’s
loss (failure to complete the race), as it was her defective saddle that caused
her to fall and not finish. Therefore, she may not receive the full £50,000 in
damages.

Alternatively, if Bruce can prove that he had reasonable grounds for believing
the truth of his statement, Jodie may still be entitled to damages under s 2(2)
MA or negligent misstatement (NM).

8Long v Lloyd [1958] 1 WLR 753.

9Smith New Court Securities [1996] 3 WLR 1051.
10(n 5).
11 Pankhania v Hackney LBC [2002] EWHC 2441.
BoC

Alternatively, Bruce’s statement could be a term rather than a representation.

The test for this distinction is whether a reasonable person would see that it
was the intention of the statement maker to guarantee the truth of the
statement. In Schawel v Reade12 it was held that accepting responsibility for
the truth of the statement indicates that the statement was intended to be a
term. It could be argued that Bruce guaranteed the truth of his statement (that
the horse was free from disease) by adding that his horses are checked by a
vet. Therefore, unlike in Ecay v Godfrey,13 Bruce did not advise Jodie to verify
the truth of his statement; thus, indicating that it was a term.

It could also be argued that Bruce’s statement was one of high importance,
indicating that the statement was intended to be a term, as seen in
Bannerman v White14. However, an important difference is that in
Bannerman,15 the claimant explicitly stated that they would not buy the
product if it contained sulfur, whereas Jodie did not explicitly state that she
would not buy the horse if it had a hereditary disease. Therefore, it is unclear
whether Bruce’s statement would be considered a term.

Nevertheless, if Bruce’s statement is found to be a term, Jodie could claim

damages for BoC. The measure for damages is the question of what position
Jodie would have been in, if she had received a horse that was free from
hereditary disease. This amount would likely be the difference between what
she paid for the horse, and how much a horse with a known hereditary
disease would cost. Jodie could also claim damages for her consequential
losses, subject to the principles of mitigation of loss (MoL) and remoteness of
damage (RoD).

12 [1913] 2 IR 64.
13 [1947] 80 LI.L. Rep. 286.
14 [1861]10 CB NS 844.
15 Ibid.
Furthermore, misrepresentation is the stronger claim and provides a better
remedy.

Delivery
Bruce’s late delivery is unlikely to give rise to any actionable BoC or
misrepresentation. This is because contractual terms can only be made
before or during the formation of the contract. Jodie’s contract formed upon
her acceptance (when she paid over the £20,000). Therefore, as Bruce made
the delivery promise after Jodie’s acceptance, it is unlikely that the promise
would be contractually binding. Similarly, there would be no actionable
misrepresentation because misrepresentation only deals with precontractual
statements.

Jodie v Vet
NM
As the vet is a third party, misrepresentation cannot be established; however,
Jodie could make a claim against the vet through NM. This common law tort
was established in Hedley Byrne V Heller,16 which in obiter found that liability
can arise in situations where the duty of care (DoC) owed to one party has
been breached by the other party’s negligence, in not acting with reasonable
skill and care when making a statement.

Firstly, Jodie must establish that the vet owed her a DoC. This is assessed by
examining whether there was sufficient proximity between both parties.
Hedley Byrne 17 clarified that sufficient proximity means having a special
relationship (where there is an assumption of responsibility). Caparo v
Dickman 18 refined the Hedley Byrne19 test, by holding that sufficient
proximity requires the party owning the DoC to have been fully aware of the
purpose of their statement and would have reasonably foreseen the other
party’s reliance on it. It is unclear whether the vet knew that the horse would
be given to Jodie, let alone that Jodie would use the horse for racing.

16 [1963] 3 WLR 101.

17 Ibid.
18 [1990] 1 All ER 568.
19 (n 16).
Therefore, it is unlikely that the vet appreciated the purpose of the certificate
or foresaw Jodie’s reliance on it.
Secondly, Jodie must have relied on the vet’s certificate to enter the contract
with Bruce. This is unlikely because she had already contracted with Bruce
before he had given her the vet’s certificate. This situation is similar to Hunt v
Optima,20 where NM was not established because the claimants received the
surveyor’s certificate after they had entered into their tenancy agreements.
Therefore, it is likely that the court will follow the judgment in Hunt,21 and find
that reliance cannot be established. All Jodie’s reliance was on Bruce’s
statement; therefore, Jodie would unlikely be successful in her claim for NM.

Jodie V Horsie Co

BoC

Jodie had a contract with Horsie Co (HC), as she purchased a saddle pad
from HC; therefore, there was an exchange of promises for consideration. The
type of contract Jodie has with HC is relevant here, as it will determine the
statutory rights that Jodie has as a purchaser. Since Jodie was buying the
saddle for her profession, she would not be considered a consumer according
to s 2(3) of the Consumer Rights Act. Therefore, her contract with HC would
likely be a business- business contract (B-B), and since Jodie has a contract
of sale with HC, she would be protected under the Sale of Good Act 1979
(SGA).22

Implied terms

Due to the statutory protections under SGA, Jodie could make a claim against
HC for breach of the implied terms under s14 SGA. This section establishes
an obligation on the seller to sell goods that are of satisfactory quality.23

20
[2014] EWCA Civ 714.
21 Ibid.
22 SGA, s1(1).
23 SGA, s14 (2).
Therefore, the fact that the saddle was defected breaches this implied term;24
thus, Jodie could claim damages for her losses resulting from this breach.
However, the issue with this claim is that HC included provisions in their
contract, which exclude and limit the claim for damages relating to breaches
of s14 SGA. This means that if HC’s provisions were incorporated contractual
terms, the amount of damages Jodie could receive would be limited to £500.
Therefore, it is in Jodie’s best interest to evidence that those provisions were
not incorporated into their contract.

As HC included the provisions in their contract, they would likely be express

terms (terms of the agreement which are expressly agreed between the
parties). There are a few ways that express terms can be incorporated into a
contract, the first being incorporation by signature. This is also known as the
L’Estrange25 principle, which is that if you sign a contract then you are bound
by it. It should be noted that although HC’s contract with Jodie was electronic,
the L’Estrange26 principle still applies. This is due to the Electronic
Communications Act 2000 (ECA), which states that electronic signatures can
be legally binding.27 However, the facts do not state whether Jodie signed
this contract, so incorporation by signature cannot be determined.

Nevertheless, even if Jodie did not sign the contract, HC’s provisions could
still have been incorporated into the contract through notice. Terms will only
be incorporated by notice where reasonable steps are taken by one party to
bring it to the others attention.28 This is an objective test, so it does not matter
whether Jodie had read or understood the provisions. To assess this, the
courts will consider the context of the provisions. For instance, as HC’s
provisions are attempting to exclude and limit liability, the court will likely
consider how onerous the provisions are. The general rule is that the more
onerous the term is, the greater the steps needed to draw attention to it, as

24 Ibid (2B).
25 [1934] All ER 16.
26 Ibid.
27 ECA, s7.
28‘The Law of Contract’ 164 [7.24].
held by Lord Denning in Spuring Ltd v Bradshaw.29 This is known as the red
hand rule, which simply means that some clauses need to be highlighted in
some way to draw notice to them. Unfortunately, the facts do not state how
HC presented the provisions, so it is unclear whether they presented them in
a way (for instance, in bold font), that would draw Jodie’s attention to them.
However, it should be noted that in AEG Ltd v Logic Resources Ltd,30 a term
stating that “the purchaser shall return the defective parts at his own expense”
was held to be onerous and not incorporated. That term was similar to HC’s
second provision which limits liability regarding defective goods. However, in
AEG31 the provision excluded liability, whereas the second provision in HC’s
contract only restricts the liability (to £500). Due to this difference, it is unclear
whether the courts would hold HC’s provisions to be an onerous term.

Unfair Terms
Nevertheless, even if it was proven that HC had taken reasonable steps,
Jodie can still rely on the Unfair Contract Terms Act 1977 (UCTA) to evidence
that HC’s provisions were not incorporated into the contract. HC’s provisions
seek to exclude and limit liability for breaches of s14(2B) SGA, HC’s first
provision excludes liability regarding the obligation of fitness of the product,
and their second provision limits liability regarding the obligation of freedom
from defects. Under s6 UCTA, liability for breach of the obligations arising
from s14 SGA cannot be excluded or restricted by reference to a contract
term, except if it satisfies the requirement of reasonableness. The burden of
proof will be on HC to show that their provisions were reasonable.32 The test
for reasonableness is found in s11 UCTA, which states that reasonableness is
judged by all the circumstance which were known, or ought to have been
known or in the contemplation of the parties. The court will assess whether
HC’s provisions are reasonable with reference to the 5 factors stated in

29 [1956] 1 WLR 461.

30 [1996] CLC 265.
31 Ibid.
32 UCTA, s.11 (5).
Schedule 2 UCTA.33 Common law guidance is limited, as reasonableness is
considered on a case-by-case basis. One factor that the courts will take into
consideration is the relative bargaining powers of each party.34 The more
significant the imbalance is in these bargaining powers, the more likely that
term is unreasonable.35 Courts recognise the importance of freedom of
contract and are less willing to deem a clause unreasonable in B-B
contracts.36Therefore, it is unlikely that they would find a significant imbalance
in the bargaining powers of HC and Jodie, as Jodie was free to not agree to
those provisions and contract elsewhere.

Courts will also consider whether it was standard trading practice to include
such exemption provisions. Therefore, if HC’s provisions were standard
practice, they would unlikely be considered unreasonable. 37 Moreover, if
HC’s insurance could cover Jodie’s loss resulting from their defected product,
then their second provision would likely be unreasonable.38

Remedies
To conclude, there is not enough information in the facts to reach a
conclusion as to the reasonableness of HC’s provisions. If HC’s provisions are
found to be unreasonable or not incorporated terms, then Jodie would be
entitled to damages for her losses, subject to the principles of RoD and MoL.
Jodie would likely be able to recover the loss resulting from her injuries
(£15,000). However, it is unclear whether the loss of potential income
(£50,000) would be considered reasonably foreseeable enough to satisfy the
RoD.

33 UCTA, s. 11(2).
34 UCTA, sch 2(a).
35 Watford electronics [2001] BLR 143.
36 Ibid, Per Chadwick LJ.
37 George Mitchell v Finney Lock Seeds [1983] QB 284.
38 UCTA, s11 (4).
 Bibliography
Books:
O’Sullivan J, Hilliard J, The Law of Contract (8th edn, Oxford University Press
2018)
Cases:
• AEG Ltd v Logic Resources Ltd [1996] CLC 265.
• Bannerman v White [1861]10 CB NS 844.
• Bisset v Wilkinson [1927] AC 17
• Caparo v Dickman [1990] 1 All ER 568.
• Derry v Peek [1889] 61 LT 265.
• Ecay v Godfrey [1947] 80 LI.L. Rep. 286.
• George Mitchell v Finney Lock Seeds [1983] QB 284
• Hedley Byrne v Heller [1963] 3 WLR 101.
• Hunt v Optima [2014] EWCA Civ 714.
• JEB fasteners v Marks, Bloom & Co [1981] 3 All ER 289.
• L'Estrange v F Graucob Ltd [1934] All ER 16
• Long v Lloyd [1958] 1 WLR 753
• Pankhania v Hackney LBC [2002] EWHC 2441.
• Royscot Trust Ltd v Rogerson [1991] EWCA Civ 12.
• Schawel v Reade [1913] 2 IR 64.
• Smith v Land and House Property Corporation [1885] LR 28 Ch D 7
• Smith New Court Securities v Scrimgeour Vickers [1996] 3 WLR 1051
• Spurling v Bradshaw [1956] 1 WLR 461
• Watford Electronics Ltd v Sanderson CFL Ltd [2001] BLR 143.
• Yam Seng Pte v International Trade Corp [2013] BLR 147.
Statues:
• Consumer Rights Act 2015
• Electronic Communications Act 2000
• Misrepresentation Act 1967
• Sale of Goods Act 1979
• Unfair Contract Terms Act 1977