Contract reading session 5

General Reading
McKendrick casebook Ch 8:

• Whether a statement made by one party to another forms a

contractual term or merely a representation depends on the objective
intention of the parties. However the relevance has been reduced by the
availability of damages for negligent misrepresentation as well as
fraudulent misrepresentation.

• The “parol evidence” rule set out a general principle that where a
contract has been put in writing, evidence cannot be adduced to show the
existence of another term, that varies, contradicts etc the written
agreement. However this rule is subject to exceptions, changes etc.

1. Identifying Terms

i) Classifying Contractual Terms

Heilbut Symons v Buckleton [1913] AC 30: Ds were underwriting shares of what they
claimed was a rubber company. P called Ds to inquire about the shares. D said they were
"bringing out a rubber company". Based on this statement, P purchased a large amount of
shares. The shares turned out not to be for a rubber company at all, the shares did very
poorly. P sued for breach of warranty. HL denied P’s claim.

Lord Moulton: P could be successful in two ways. First, if the plaintiff could show
fraudulent misrepresentation "or what is equivalent thereto, must be made recklessly, not
caring whether it be true or not." Second, if there was intent to be held to a promise then
there may be a collateral contract, which would bind D to their representation. However,
collateral contracts are difficult to find, and, on the fact, none was found.

VC Haldance LC: the general principle is NOT to presume that a collateral contract (one
aside from the main contract) in the absence of an expression or implication to that effect.

Oscar Chess Ltd. v. Williams [1957] 1 WLR 370: P sold D a car in a part exchange. D
told P that the car he was trading in was one type of car and P reduced the amount on that
basis. It turned out that it was a different type that was worth much less. D had genuinely
believed it to be the type of car he claimed since the person who he bought it off had told
him that and the cars documents suggested that. P sued D for the difference between the
initially stated value of the car and the actual value of the car. CA found that D did not
have to pay damages.
Denning LJ: Was the statement as to the type of the car a “warranty” i.e. a guarantee?
Was it a term of the contract, breach of which demands payment? He says determining
something as a warranty or a term rather than mere representation depends on intentions
of the parties. In this case the assertion as to the type of car was a claim or a belief, not a
promise (quotes the actual speech of D which proves this). Here, D obviously had no
personal knowledge of when the car was made and had he been asked to guarantee the
type of car, he would have been unable to do so, not having any more knowledge than
what he deduced from the log-book, which P had also inspected. P therefore knew that D
was in no position to guarantee or warrant the model of the car: he could merely make an
informed guess. Also in this case P could have checked by referencing the chassis no.
with the company, but did not do so. McKendrick: P’s claim might succeed today under
Misrepresentation Act 1967 (see next week).

Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. [1965] 1 WLR 623: D sold
P a car but made false claims as to the mileage of the car and P sued for the difference
between the value he paid and the actual value. CA allowed his claim.

Denning LJ: If a representation is made so that P will act on it, and P does in fact act on
it, there is prima facie ground for saying that it was a warranty. This presumption can be
rebutted by D if he can show that (1) it was made innocently i.e. he had no fault in a false
representation being made, and (2) that it would not, in the circumstances, be reasonable
for him to be bound by it. In this case the prima facie warranty is not rebutted since D
was in a position to, and ought to, have found out the truth about the car. The statement as
to mileage was made without justification. This is contrasted with D in Oscar Chess who
could not have discovered the truth about the car.

L Schuler AG V. Wickman Machine Tools Sales Ltd. [1974] AC 235: See week 4

Lombard North Central v. Butterworth [1987] QB 527: P lent a computer to D on a hire-

purchase basis, stating that timely payment was to be a condition. D narrowly failed to
make the payments and P repossessed the computer and resold it. The CA upheld P’s
termination because the breach was of a condition. This shows the danger of letting the
parties decide what should be a condition and what a warranty, since the more powerful
party can simply make every small term a condition. Bad decision since Schuler shows
that this is not necessary. On the hand time might have been v important to P genuinely…

Arcos Ltd. v. E A Ronaassen & Son [1933] AC 470: P agreed to buy wood 8/16 inch
thick but D actually delivered wood 9/16 inch thick. The court considered that P could
not be bound to accept goods that did not match the description of those specified in the
contract. P was allowed to terminate, even though the goods were “merchantable”. The
real reason for p terminating was because it had made a bargain that was unprofitable to
them. This case shows the unfairness of an absolute insistence on the specified terms of
the contract.