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Determining Promissory Intent and Collateral Agreements in Contract Law, Schemes and Mind Maps of Consumer Law

University of AberdeenConsumer Law

The legal concepts of express terms, mere representations, and collateral contracts in pre-contractual situations. It discusses the importance of determining promissory intent in pre-contractual statements, the implications of misrepresentation, and the elements required to establish a collateral contract. Through various case studies, this document provides insights into the application of these concepts in contract law.

Typology: Schemes and Mind Maps

2021/2022

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CONTRACT TERMS
Express Terms:
Terms v Mere representation:
- Terms: pre-contractual statements which are sufficiently promissory in character
- Mere representation: induce the representee to enter into the contract, but which
are not guaranteed by the promisor, and hence have no contractual force
- If a pre-contractual statement is a term, it is considered as an express term of the
K, which means that breach of the term gives rise to claim for damages
- If the statement is merely a representation, the P may have recourse to
misrepresentation under the Australian Consumer Law
***To determine whether a pre-contractual statement is promissory in
character:
l The intention of the party
The court will try to ascertain the objective intention of the parties, and ask
whether a reasonable person would interpret the statement as being promissory
in nature: Oscar Chess v Williams
- Where the necessary intention is not established, the statement takes effect
as a representation
- If it was false, the representee is entitled to rescind the K for
misrepresentation if it induced entry into the K. The representee may also be
entitled to damages in tort or under statute, but cannot claim damages for
breach of Ks
- Where there are reasonable grounds to believe that the promisor believed
that his statement was true, then his amounts to innocent representation and
is not considered a term: Oscar Chess v Williams
Oscar Chess v Williams [1957]
The question whether a warranty was intended depends on the conduct of
the parties, on their words and behavior, rather than on their thoughts. If an
intelligent bystander would reasonably infer that a warranty was intended,
that will suffice.
- The D sold his mother’s car to a car dealer,
- Evidenced by a registration book, the car was a 1948 model
- It was subsequently disclosed that the car was actually a 1939 model
- The car dealer sued the D for the difference of the payment
Based on the facts, it must have been obvious to that seller had
himself no personal knowledge of the year when the car was made.
He must have been relying on the registration book. It is unlikely that
such a person would warrant the year of manufacture. The most he
would do would be to state his belief, and then produce the
registration book in verification of it, in these circumstances the
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CONTRACT TERMS

Express Terms:

Terms v Mere representation:

  • Terms: pre-contractual statements which are sufficiently promissory in character
  • Mere representation: induce the representee to enter into the contract, but which are not guaranteed by the promisor, and hence have no contractual force
  • If a pre-contractual statement is a term, it is considered as an express term of the K, which means that breach of the term gives rise to claim for damages
  • If the statement is merely a representation, the P may have recourse to misrepresentation under the Australian Consumer Law

*****To determine whether a pre-contractual statement is promissory in character:** l The intention of the party The court will try to ascertain the objective intention of the parties, and ask whether a reasonable person would interpret the statement as being promissory in nature: Oscar Chess v Williams

  • Where the necessary intention is not established, the statement takes effect as a representation
  • If it was false, the representee is entitled to rescind the K for misrepresentation if it induced entry into the K. The representee may also be entitled to damages in tort or under statute, but cannot claim damages for breach of Ks
  • Where there are reasonable grounds to believe that the promisor believed that his statement was true, then his amounts to innocent representation and is not considered a term: Oscar Chess v Williams Oscar Chess v Williams [1957] The question whether a warranty was intended depends on the conduct of the parties, on their words and behavior, rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice.
  • The D sold his mother’s car to a car dealer,
  • Evidenced by a registration book, the car was a 1948 model
  • It was subsequently disclosed that the car was actually a 1939 model
  • The car dealer sued the D for the difference of the payment

Based on the facts, it must have been obvious to that seller had

himself no personal knowledge of the year when the car was made.

He must have been relying on the registration book. It is unlikely that

such a person would warrant the year of manufacture. The most he

would do would be to state his belief, and then produce the

registration book in verification of it, in these circumstances the

intelligent bystander would, I suggest, say that the seller did not intend

to bind himself so as to warrant that it was a 1948 model.

l The time of the statement The proximity between when the statement was made and entry into the K may help to determine intention: Harling v Eddy

l The content of the statement If the statement is of great significance to the K, this evidences a clear intention to be bound: Coucham v Hill {1947} There is no doubt that the P did make some attempt of the kind in order to protect himself from the risk of buying an animal that was not of the kind described. The real question is, what did the parties understand by the question addressed to and the answer received from both vendor and auctioneer. Thus, the court’s task is to try to ascertain the objective intention of the parties. The more important the content of the statement, the more likely it is that the parties intended it to be a term.

  • The P Couchman purchases at an auction sale a heifer belonging to the D which was described as “unserved”
  • The catalogue contained an exemption clause which exclude the liability of the sellers of any fault by stating that the lots were sold ‘with all faults, imperfections and errors of description”.
  • At the sale, the P asked both the D and the auctioneer whether they would confirm the heifer in question was unserved and received from both the answer ‘yes’
  • Later the heifer was found to be in calf and died as a result of carrying a calf at to young an age.

In the circumstances the answer of the D and the auctioneer to the P’s

question amounted to an offer of a warranty overriding the conditions of

sale; that such offer was accepted by the P’s bid for the heifer; and that

the description amounted to a condition on the breach of which the P was

entitled to treat it as a warranty and recover damages.

l The knowledge and expertise of the parties

  • Where a party has expertise, they should be able to distinguish between mere statement of opinion and statements of fact accompanied by guarantee from its maker: Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd
  • However, where a party has no expertise in the matter, the statement might amount to an innocent representation, which does not constitute a guarantee: Oscar Chess v Williams Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] If a representation is made in the course of dealing for a K for the very purpose of inducing the other to act on it, and it actually induces him to act on it by

The truth is that a collateral contract, which may be either antecedent or contemporaneous, being supplementary only to the main K, cannot impinge on it, or alter its provisions or the rights created by it; consequently, where the main K is relied on as the consideration in whole or part for the promise contained in the collateral contract, it is a wholly inconsistent and impossible contention that the order party is not to have the full benefit of the main contract as made… in that case, it is not collateral, but dominant…

  • Spencer was himself a lessee of a house and leased the house the Hoyt’s Pty Ltd for a period of four years
  • The lease provided that the D might at terminate the lease by gibing to the P notice at least four weeks beforehand
  • Spencer later gives notice in pursuant to the lease agreement to terminate the K
  • The P brought an action against the D alleging that in consideration of its taking the lease, the D agreed that he would not terminate the lease unless requested and required to do so by the head lessor.

Shepperd v Ryde Municipal Council (1952) The reluctance of courts to hold that collateral warranties or promises are given or made in consideration of the making of a K is traditional. But a chief reason for this is that too often the collateral warranty put forward is one that you would expect to find its place naturally in the principal contract. In this case, the rule is, the subject matter of the collateral contract was something separate to the main K and made it easier to establish the claim.

  • The P purchased a house from the D’s corporation by relying on the information contained in the pamphlet and also the D’s promise that the opposite area would be built into a park
  • The K itself made no reference to the park area
  • One year later the D decided to sub-divide the area that was supposed to be the park
  • The P sought an injunction It is the common intention that he would so rely upon it and on that basis proceed to contract to buy the particular lot allocated to him. It is because of this that the assurance, which is embodied in the plan, when it is read in the light of the pamphlet, obtains its effect as a collateral promise.

JJ Savage & Sons Pty Ltd v Blakney (1970) In consideration of whether there is a collateral contract, except for the promise’s reliance on the promise, the intention of the promisor, i.e., the representation is intended to be promissory and not merely representational, is also important. Thus, where there is a statement of opinion, it may be hard to prove the existence of a collateral contract.

  • The respondent contemplated to buy a motorboat from the appellant’s company
  • In the letter the appellant made recommendation in favor of one engine, of which the ‘estimated speed’ was to be 15 miles per hour
  • The respondent placed an order according to the recommendation
  • In the K, there was no reference to the capacity of the boat to attain any particular speed.
  • Evidence showed the boat supplied was not capable of moving faster than 12 miles per hour
  • The respondent sued the appellant for breach of warranty The expression that without the statement the K would not have been made does not provide an alternative and independent ground on which a collateral warranty can be established. Such a fact is a step in some circumstances towards the only conclusion which will support a collateral warranty, namely, that the statement so relied on was promissory and not merely representational. So far from being a promissory expression, ‘estimated speed 15 mile per hour’ indicates, in our opinion, an expression of opinion as the result of ‘approximate calculation based on probability’.

Incorporation of Terms

****Signed contracts: the effect of signature:**

  • The most common way for terms to be incorporated into a K is through signature. Once a K is executed, a party will be bound notwithstanding that it did not know or had not read terms of K: L’Estrange v Graucob
  • Exception: in cases of fraud, misrepresentation, duress, undue influence, unconscionable conduct, and non est factum: Curitis v Chemical Cleaning & Dyeing Co.
  • Non est factum doctrine applies to hold that a person may not be bound to a signed document because they made a fundamental error about the nature of the document. The doctrine developed out of circumstances where illiterate people were signing documents which they did not understand.

L’Estrange v Graucob [1934] In case in which the K is contained in a railway ticket or other unsigned document, it is necessary to prove that an alleged party was aware, or ought to have been aware, of its terms and conditions. These cases have no application when the document has been signed. When a document containing contractual terms is signed, then, in the absence of fraud and misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.

  • Mr. L’Estrange signed a “Sales Agreement” to buy a cigarette vending machine from the D
  • The machine did not work satisfactorily
  • The P sued the D for breach of an implied warranty that the machine was reasonably fit for the purpose for which it was required, pursuant to SOGA
  • D relied on an exclusion clause on the “Sales Agreement” to exclude his liability. The clause provided ‘the agreement contains all the terms and conditions under which I agree to purchase the machine specified above and any express or