5.4 express terms (negotiations) (slides)-1.pptx

Principles of Business Law TOPIC 5: TERMS OF A CONTRACT EXPRESS TERMS – STATEMENTS MADE DURING NEGOTIATIONS When are promises made during negotiations enforceable? For a statement made during negotiations to be enforceable as a contractual promise:  the parties must have intended (determined...

Principles of Business Law TOPIC 5: TERMS OF A CONTRACT EXPRESS TERMS – STATEMENTS MADE DURING NEGOTIATIONS When are promises made during negotiations enforceable? For a statement made during negotiations to be enforceable as a contractual promise:  the parties must have intended (determined objectively) to enter into either a:  partly-written, partly-oral contract; or  wholly oral contract; AND  the statement must be sufficiently promissory in nature:  Handbury v Nolan  Oscar Chess Ltd v Williams Different types of contracts  Wholly-written: the parties have signed a document and intend (determined objectively) it to be the sole source of their contractual obligations.  Partly-written, partly-oral: the parties have signed a document but intend (determined objectively) that their agreement also contains terms agreed orally.  Oral: the agreement only contains terms agreed to orally. No terms have been reduced to writing. Different types of contracts: Partly-written, partly-oral contracts Van den Esschert v Chappell FPBCL (2023) p 431-2 Facts  Before C purchased V’s house, V made an oral promise that the house was free from infestation by white ants.  The written contract between the parties contained no such promise.  C sued V for breach of the promise when he became aware that the house is in fact infested by white ants. Issue  Was the oral promise part of the contract? Decision/reason:  Contract was partly-written, partly-oral (because of the importance of the oral promise).  The statement that the house was free from infestation was promissory.  Thus, the oral promise was thus part of the contract. When are promises made during negotiations enforceable?  Where the contract was intended to be wholly-written, promises made during negotiations not contained in the written document are not contractually enforceable.  Where the contract was intended to be partly-written, partly-oral, or wholly- oral, only promissory statements made during negotiations will be enforceable. Statements made during negotiations: The promise requirement  Only promissory statements can become contractual terms.  A statement made by one party to another during negotiations may fall into one of three categories 1. puffery or statement of opinion 2. representation of fact 3. promise  Only where the statement falls into the third category will it result in contractual liability.  Puffs Non-promissory Puffs are exaggerated statements made statements: to engage, attract or excite others. The Puffs and opinions reasonable person would not take the statement literally Puffs do not become part of the contract. Opinions Opinions are statements of personal views or beliefs. The expression of an opinion does not create legal liability if honestly made. Opinions do not become part of the contract.  Representations Non-promissory A representation is a statement of fact statements: made by one party when negotiating a Representations contract. Such statements do not become terms of the contract. This is so even if the statement induced the other party to enter into the contract. A representation that proves untrue is called a misrepresentation. It may provide grounds for rescinding (cancelling) a contract. Topic 8 Promissory statements Whether a statement is promissory depends upon:  the language used;  the circumstances in which the statement was made. Example of a representation: Oscar Chess Ltd v Williams FPBCL p 397-8 Facts  W offered to trade in his mother’s car to a car dealer (OC).  W described the car as a 1948 car as this was the date shown in the car’s registration book (which had been fraudulently altered by the previous owner unbeknown to W or his mother).  On this basis, the car dealer paid Williams £290 for the car.  It turned out that the car was a 1939 model and, therefore, only worth £175.  The car dealer claimed damages in the amount of £115 (the difference in value). Issue  Was W’s statement that the car was a 1948 model a promise or a representation? Example of a representation: Oscar Chess Ltd v Williams (ctd) Decision  The description of the car was a (mis)representation, not a contractual promise. Reason  The seller had no special knowledge or expertise in cars – in such circumstances it was not possible to infer that a promise was intended by the seller.  Morris LJ dissented. His Lordship was influenced by the importance of the term.  This approach has not found favour in subsequent cases.  You will not be examined on Morris LJ’s dissenting judgment. Example of contractual promise: Handbury v Nolan FPBCL p 362 Facts  An auctioneer offered a cow for sale at auction.  Before the sale, the auctioneer stated that a pregnancy test had been conducted and that the result was ‘positive’.  The cow was not pregnant and proved to be infertile.  The buyer sued, arguing that the seller (through their agent, the auctioneer) had contractually promised that the cow was pregnant. Issue  Was the auctioneer’s statement a promise? Example of contractual promise: Handbury v Nolan Decision  The auctioneer’s statement was promissory, and thus an express term of the contract. Reason  Language used: the statement is expressed as a statement of fact (representation) (“the cow is pregnant”, not “I promise the cow is pregnant”).  However, the circumstances were such that the court implied a promise from the statement expressed as a representation.  The statement was made at a breeders’ sale, just before the sale, by a party with knowledge of the cow.  Once these circumstances were considered, the statement was held to be promissory.