LE Lecture 5
LECTURE 5
Terms, Warranties and Representations
1.0 Pre-contractual statements including the following:
• Puffs
• Terms
• Representations
1.1 Sales/Trade puff
a. Is merely a slogan with exaggerated, vague and inaccurate words.
b. never meant to be taken literally and not a representation.
c. no intention to be legally bound.
1.2 Terms
a. Terms are the specific details or provisions that outline the rights, responsibilities, and
obligations of parties.
b. Terms are contents and subject matters of the agreement
c. If breached → sue for damages or rescind the contract
d. Divided into:
- Express terms
- Implied terms
1.3 Representations
a. Statement of facts designed to induce/tempt the opposite party to enter into the contract
b. No contractual obligation as it is not part of the contract
c. But, if the representation is false, it would amount to misrepresentation
d. a statement made by a person with special skill and knowledge can be relied on → it is terms,
not mere representation.
1.4 How to distinguish between Terms and Representations
a. Importance
If the statement is very important in the eyes of one party, more likely it is a term.
b. Time gap to conclusion of a contract
Closer to the conclusion of a contract, more likely a term.
c. Incorporated into the contract
If the statement is incorporated into the contract, more likely a term.
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d. Statement made by a party with special skill
If made by a person with special skill, more likely it is a term.
1.5 Cases
1. Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd (1965)
a. D was a used-car dealer.
b. D promised P that a car just done 20,000 miles
c. But the statements made by D was false
Held:
a. D must have the skills and knowledge in his industry
b. Statement made by D not mere a representation
c. The statement was intended to be a term of the contract
d. P was entitled to claim damages from D
2. Oscar Chess Ltd v Williams (1957)
a. P was a car dealer.
b. D sold a car to P saying it was a 1948 model.
c. But it was in fact a 1939 model, which looked alike as 1948 model.
d. D found a logbook which stated the model incorrectly.
e. D did not dishonestly misstate the age of the car.
Held:
a. D’s statement about 1948 model is a mere representation.
b. P was a professional car dealer and could not be misled by the innocent seller, D.
c. If D was asked to pledge himself to it, he would refer to the logbook.
d. P’s claim was dismissed.
3. Bannerman v White (1861)
a. A buyer wanted to buy hops (啤酒花) free from sulphur treatment.
b. Seller told him no sulphur was used.
c. The buyer relied on the assurance from the seller and bought the goods.
d. Buyer found that the seller’s statement was untrue and refused to take delivery.
Held:
a. The representation from seller was a term of the contract.
b. The seller knew that no sulphur is crucial to buyer’s decision to buy the goods.
2.0 Terms can be classified into:
a. Conditions (條件條款)
b. Warranty (附屬條款)
c. Innominate terms (無名條款/中間條款)
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2.1 Condition
a. Important terms (core) of a contract
b. A breach of the condition → either to terminate the contract and claim damages; or
c. Let contract continue and claim damages for compensation
Case:
Poussard v Spiers and Pond (1875))
a. P was engaged by D to play a principal role in a new opera
b. Before the opening of opera, P was very ill and could not appear
c. D found another singer to replace P
d. P recovered a few days later and wanted to join the opera
e. D refused to take her back
Held:
a. P failed to attend the opening opera was a breach of condition
b. Which goes to the root of the matter
c. D was allowed to terminate the contract with P
2.2 Warranty
a. minor terms of a contract
b. A breach of the warranty cannot rescind the contract
c. Just claim damages for compensation
Case:
Betinie v Gye (1875)
a. P was a singer and agreed to sing in D’s opera
b. D required P to arrive 6 days before the commencement of the opera
c. P just arrived 2 days before the opera
d. D terminated the contract with P
Held:
a. The requirement to arrive 6 days before the commencement was only a warranty.
b. It did not go to the root of the matter and fundamentally affect the contract
c. It is a breach of warranty, not a condition
2.3 Innominate terms
a. terms of a contract which are in between condition and warranty
b. depending on the seriousness of the breach
c. to be decided in court
d. If the breach is serious, it amounts to a breach of a contract → rescind
e. If the breach is trivial, it will be regarded as a warranty breach → damages
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Case:
Cehave NV v Bremer Handels GmbH (1975)
a. Buyer bought goods from a company in Germany
b. When the goods arrived, a small part of the goods was damaged
c. Buyer rejected the whole lot of goods
Held:
a. The damage is only a small part of the goods
b. The breach was not serious
c. The buyer could claim damages but could not reject the whole lot of goods
3.0 Condition Precedent (先決條件/延遲條件) and
Condition Subsequent (後決條件/解除條件)
3.0.1 Condition Precedent (CP)
a. A CP refers to an event or state of affairs that is required before the contract comes into
effect.
b. unless CP are satisfied, no contract comes into existence.
c. E.g. a sales contract subject to the approval
3.0.2 Condition Subsequent (CS)
a. A CS refers to an event or state of affairs that brings an end to the contract.
b. on the happening of CS, the contract will be brought to an end.
c. E.g. an employment contract where the employee failed the medical examination
3.1. Verbal Statements and Parol evidence rule (口頭證據原則)
a. The presumption is that the written contract contains all the terms of the agreement.
b. The rule is known as parol evidence rule.
c. no extrinsic evidence, including oral or written evidence relating to matters outside the contract
vary or add to the written terms of the contract.
d. oral evidence is not admissible to add vary or contradict a written contract.
Case:
Hawrish v Bank of Montreal (1969)
a. H as a guarantor signed a continuing guarantee to a bank.
b. The bank’s officer told him that the guarantee was capped at a fixed sum.
c. H refused to pay the extra sum of money under the guarantee.
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Held:
a. no oral evidence could be admissible to vary the terms of the written guarantee.
b. The guarantee was a continuing one.
4.0 Express and Implied Terms
a. Terms of a contract can also be classified as express terms and implied terms.
b. Express terms are those clearly stated in the agreement
c. Implied terms may not be seen in the agreement.
d. Implied into a contract, e.g. s14 – 17 Sale of Goods Ordinance (Cap. 26). There are other
possibilities to imply terms into a contract:
1. Previous dealings between the parties
2. Business efficacy
3. Customs and Trade Usage
4.1 Previous dealings between the parties
If the parties have previous dealings, the court will assume that they intended to have the same
terms in the present dealing, unless proved to the contrary.
4.2 Business efficacy
If the contract fails to include a crucial term, the court will imply such a term in the interest of
business efficacy.
Case
Liverpool City Council v Irwin (1977)
a. The landlord rented a flat to the tenant
b. After moving in, the tenant found that the lifts and lights of the building did not work
c. The landlord refused to be responsible for the defects
Held
a. the tenant could not occupy the building without proper access
b. So relevant terms needed to be implied on these matters.
c. The landlord had the responsibility to keep those parts in reasonable repair.
Case
Kensland Realty Ltd v Whale View Investment Ltd CFA (2002)
a. The seller entered into an agreement for the sale and purchase of a shop in Mongkok with the
purchaser.
b. In the S & P, there was no express term as to the exact time by which split payment
information must be given.
c. Though, in the agreement, it was stated that time was of the essence of the contract.
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d. The instruction for split payment included eight cheques and two cashier’s orders was given
to the buyer’s solicitors only one hour and 12 minutes before the deadline.
e. Eventually, the payments were 6 minutes late when delivered to the vendor’s solicitors
f. The vendor refused to complete and treat the delay a repudiatory breach of the agreement and
forfeited the deposit paid.
Held
a. In the absence of an express term, the time for the giving of the split cheque direction must be
implied from the terms of the contract itself.
b. Business efficacy demanded that the notice be given so as to allow the purchaser’s solicitors a
reasonable time to do what had to be done.
c. The court ruled that the vendor did not leave enough time to enable the purchaser’s solicitors
to prepare split cheques.
d. The vendor’s refusal to accept the payment was itself a repudiatory breach of the contract.
4.3 Customs and Trade Usage
a. If the custom or usage of a particular trade is well known, it can be implied into a contract.
b. However, there must be a common understanding between the parties.
Case
Tung Guan Co Pte Ltd v Jih Dong Enterprises Co. (1992)
a. the telex contract stated that the contract was subject to “usual Chinese export terms”.
b. It was later found that there were a number of “standard Chinese contracts” with inconsistent
terms.
Held
The contract was of no effect because of uncertainty.
5.0 Exemption Clauses (EC)
a. EC are the provisions in a contract which protect a contracting party and limits or excludes
his liability arising from the contract.
b. Classified as c
1. an exclusion clause (excluding all one’s liability) and
2. a limitation clause (limiting one’s liability to a certain extent).
c. EC To be effective, it must satisfy the following 3 conditions:
1. It must have been incorporated into the contract;
2. Its wordings must be clear and wide enough to protect the party relying on it; and
3. It must not be in contravention of any provisions of the Control of Exemption Clauses
Ordinance (Cap. 71) (“CECO”)
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5.1 Incorporation into the contract
To consider the following points:
1. Whether the clause is part of a formal written contract or a part or a less formal dealing, (e.g.
found on a ticket or notice in a brochure).
2. If the clause is part of a written and signed contract, the presumption is that the party has
read and understood the clause unless the party can prove non est factum (not my deed).
3. If the contract is contained in a ticket or notice, the party in question will be bound if the
document would be regarded by a ‘reasonable man’ as contractual in nature and likely to
contain an EC.
Case
Chappleton v Barry Urban District Council (1940)
a. C hired two beach chairs from B.
b. C received two tickets from B which contained an exemption clause excluding B from
liability from the hire of the chair.
c. C was injured because the chair broke
Held
a. a reasonable person would assume that the tickets were receipts only.
b. not be aware that the tickets were contractual documents contained exemption clauses.
c. Therefore, B was liable for C’s injury.
Case
Interfoto Picture Library v Stiletto Visual Programmes Ltd (1988)
a. SVP ordered transparency from IPL.
b. The goods delivered to SVP with a note stating that a holding fee of 5 pounds per day
was payable for each transparency after 14 days.
Held
a. no sufficient and reasonable notice given to SVP (i.e. not incorporated into the contract
and no reasonable steps to inform SVP)
b. a sum of 3.5 pounds per week for each transparency was awarded.
4. Notice of the exemption clause must be given before or at the time the contract was made
Case
Olley v Marlborough Court Hotel Ltd (1949)
A notice in a hotel bedroom exempted the management from liability for loss of goods from
the bedroom.
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Held
A notice in the bedroom was too late for the contract had been made already.
5. EC may be binding if a previous course of dealings between the parties on the basis of such
terms can be established.
Case
L’Estrange v F Graucob Ltd (1934)
a. P bought a machine from D and signed an agreement.
b. The agreement contained an exemption clause about certain defects in the machine.
c. P did not read the agreement .
Held
a. A document containing contractual terms is signed.
b. The party signing it must be bound by the document, whether he has read it or not.
Case
Thompson v London Midland and Scottish Railway Co (1930)
a. P could not read. P bought a cheap excursion ticket from D through her niece.
b. On the face of the ticket, it says: “For condition, see back”
c. On the back, it refers to the D’s timetables and excursion bills.
d. The timetables contained an exclusion clause for D.
e. P was injured on the journey.
Held
a. D had taken reasonable steps to bring the exclusion clause to P’s notice
b. Anyone took the ticket would be aware there were some conditions he was subject to.
c. P’s illiteracy is not an excuse.
d. P’s claim must fail.
5.2 Wordings of exemption clauses
a. to see if there is any ambiguity or doubt as to the meaning of the exemption clause
b. if an exemption clause is not clear, the court will interpret the clause to the disadvantage of
the person relying on the protection of the exemption clause.
c. Contra Proferentem Rule.
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Case
Dense Billion Ltd v Hui Ting Sung (1996)
a. P required D, a transportation company, to deliver goods from China to P in HK
b. There was an exemption clause protecting D.
c. D’s employee, a driver, left the goods unattended and the goods were stolen.
Held
a. There was no express reference to negligence of D’s employee
b. The court needed to see if the wordings of the exemption clause were wide enough to cover
the negligence of D’s employee
c. If any doubt arose, the court must resolve against the party who sought to rely on the
exemption clause.
5.3 Control of Exemption Clauses Ordinance (Cap. 71) (CECO)
CECO is to help the victims of unfair exemption clauses through the enactment of an ordinance
a. S2(2), Cap 71
Defined business liability as the liability for things done
1. in the course of a business or
2. from occupying premises used for business purposes
b. Section 7(2)
Any exemption clause which excludes or limits liability for any damage or loss resulting from
negligence is effective only if the clause is reasonable.
c. Section 7(2)
An exemption clause related to personal injury is not effective. Although an exemption clause
related to loss or damages of property is good.
d. Section 8
1. Relates to liability arising from contracts – B to C
2. B adopted written standard terms of business and C has no bargaining power
3. The exemption clause is not effective unless it satisfies the test of reasonableness
5.4 Test of Reasonableness
a. Common sense approach to determine reasonableness will be used.
b. A limitation clause is more likely to be a reasonable clause than an exclusion clause.
c. S 3 set out a number of factors for determining the question of reasonableness.
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These include:
1. The resources
A big company will have huge resources and able to shoulder higher responsibility and
compensation when compared with a small sole-proprietor shop.
A limitation clause may be reasonable to a small shop but not a big company.
2. Customer’s alternative option
Where the company monopolizes the business, the customers have no alternative option.
The court will not regard the exemption clause of the company as reasonable.
3. Insurance cover for the risk concerned
If a company can buy insurance to cover the risk concerned, it is not necessary for the
company to rely on an exemption clause.
6.0 Unconscionable Contracts Ordinance (Cap. 458) 《不合情理合約條例》
a. Unfair terms in a contract can be defeated under Cap. 458
b. For B to C, if any part of the contract to have been unconscionable, the court may refuse to
enforce the contract.
c. the person claiming that a contract or part of a contract is unconscionable to prove.
Case
Hang Seng Credit Card Ltd v Tsang Nga Lee (2000)
a. P is a finance company. D was in default of repayment of debt owed to P.
b. P entered default judgement and claimed costs and expenses including administrative costs
and debt collector’s service charges.
Held
a. P was in a much stronger bargaining position. D suffered from unequal bargaining position.
b. D did not have real choice to acquire the alternative service
c. The cost provisions were unconscionable and not enforceable.
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