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Terms Puff, representations & terms •

Puff- advertising gimmick. Puffs are statements that give rise to no legal consequences. They are statements not meant to be taken literally and there is no intention to be legally bound.

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Terms- a term involves a promise as to the truth of the statement

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Representation- a representation involves no such promise as to the truth of the statement. The representation does however induce the contract

Pre-contractual statements 

Has a statement made in the pre-contractual negotiations become a term of the contract?

 Mere puffs- are just sales gimmicks and so have no consequences even if false.  Representations- if false, remedies are available in the law of misrepresentation  Contractual term- If broken, remedies are available for breach of contract

Terms v representations Q Why is it important to distinguish terms and representations? •

The ability to claim damages is different

•

The measure of damages is different

Terms and representations- ability to claim damages  Breach of contractual term There is an automatic right to claim damages on proof of breach of a term.  Misrepresentation Damages for misrep may only be claimed on proof of fault (fraud or negligent misrep) Terms and representations- measure of damages

 Breach of contractual term

 Contractual measure of damages is the expectation measure – put claimant into same position as if the contract had been properly performed.  Remoteness rule (Hadley v Baxendale): loss within the reasonable contemplation of both parties.

 Misrepresentation  Tortious measure of damages - restore precontract position.  Remoteness rule: all direct loss, regardless of foreseeability (s.2(1) Misrepresentation Act 1967).

Test- term or representation? Q. What was the intention of the statement maker? Was the statement maker, making a binding promise as to the truth?

YES-

Statement is a term

NO-

Statement is a mere representation inducing the contract. The statement is not a binding promise that the statement is true.

Term or representationguidelines • • •

Accepting responsibility or advising on verification. The importance attached test The statement maker’s special knowledge of the subject matter

Accepting responsibility 1) Accepting responsibility - or advising on

verification If the statement maker accepts responsibility for the truth of a statement,

the statement is likely to be regarded as a term, in accepting responsibility the statement maker is guaranteeing its truth.

– Schawel v Reade (1913) The plaintiff stopped examining a horse when told by the defendant that the horse was sound and there was no need to continue the examination.

Compare Ecay v Godfrey

Accepting responsibility continued • •

•

Contrast Schawel v Reade (1913) with Ecay v Godfrey (1947) If the statement maker asks/advises the other to check the reliability of the statement e.g. recommending a survey be carried out/accounts be checked. The statement should be interpreted as a representation. The person is not making a binding statement that it is true. Ecay v Godfrey- the defendant asked the plaintiff if he would having the motor cruiser surveyed. The defendant was not accepting responsibility for its condition.

Importance attached test

2) Importance attached test – If it is made clear that the statement was so important to the recipient that the recipient would not have contracted had that statement not been made, that statement is likely to be interpreted as a term. 

Bannerman v White (1861)- defendant asked whether sulphur had been used in production of hops, that he was considering buying. He said he was not interested in buying them if sulphur had been used. He was assured no sulphur had been used. The hops were found to contain sulphur. Defendant claimed to be entitled to reject them on the basis of breach of a term. His argument prevailed. I

Special knowledge of statement maker 3) Special knowledge of the statement maker •

• • •

Where a person making the statement has special knowledge of the subject matter of the contract or holds themselves out as having such knowledge, the courts are more willing to treat the statement as a term.

NO special knowledge-implication that no binding promise as to truth. Oscar Chess Ltd v Williams (1957) contrast Pritchard v Cook & Red Ltd (unreported 1998)

Specialist knowledge- no special knowledge Oscar Chess Ltd v Williams (1957)

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A private seller represented his car to be a 1948 Morris. It was, in fact, a 1939 version of the same model but worth substantially less. The statement of the car’s age was held not to be a term. The private seller had no specialist knowledge and had relied upon the registration book for his belief. In this case, the buyers were car dealers and were in a position to uncover the truth. The private seller did not assume any personal responsibility for the statement

No special knowledge, but responsibility taken Pritchard v Cook & Red Ltd • In this case the defendant had clearly taken personal responsibility for the manufacturer’s specification by copying it onto his own paper and not issuing a disclaimer. • The case concerned the sale of a rally car. Defendant copied the car specification onto its own headed notepaper. The plaintiff asked to see the specification. The contract was made on the basis of the specification. The Court of Appeal held that the document was clearly contractual.

Special knowledge- Yes 3) Special knowledge of statement maker

YES- specialist knowledge- collateral warranty •

• •

Before the time damages were available for negligent misrepresentation, it was frequently argued that a non fraudulent pre contractual statement was a term giving rise a liability in damages on the basis that it was a collateral warranty. Normally a statement is a term, on the basis of intention to guarantee the truth A collateral warranty is an implied promise that reasonable care and skill has been employed in making the statement.

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Such a promise is most frequently implied, where the statement is a forecast made by an expert. The courts have treated such forecasts as terms.

Specialist knowledge- YES- term Dick Bentley v Harold Motors (1965) • A car dealer stated that a car had an engine that had done only 20,000 miles. This was, in fact, untrue. The buyer sought damages as to breach of contract. The statement as to mileage was a term. Car dealer had specialist knowledge Esso Petroleum v Mardon (1976) • Court of Appeal held that a forecast by a person with 40 years experience of the volume of sales of a petrol station, amounted to a collateral warranty. The statement was intended to induce the defendant to take a tenancy on the petrol station. The forecast had been given using reasonable skill and care.

Outcomes- puffs, representations & terms 1)Puffs, representations, terms 2)Pre contractual statements Ability to claim damages 3)Terms v representations Measure of damages Accepting responsibility (Schawel/Ecay) 4) Test Importance attached test (Bannerman v White) Statement maker’s special knowledge No special knowledge (rep) Yes special knowledge(term) Oscar Chess v Williams Dick Bentley v Harold Smith Pritchard v Cook Esso Petroleum v Mardon...