TERMS

Contract Law
 Relevant Chapter
Chapter 8
Trakic A., et al., Law for Business, 2nd edn. (Sweet & Maxwell Asia: Malaysia, 2018)

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WRITTEN CONTRACTS
Why is a written document important?

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Evidence Act 1950
• “When the terms of the contract…have been
reduced by or by consent of the parties to the form
of a document…no evidence shall be given in
proof of the terms of the contract…except the
document itself…”
Section 91 – Documentary Evidence

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Evidence Act 1950
• “Where the terms of any such contract…have been
proved according to Section 91, no evidence of
any oral agreement or statement shall be admitted
as between the parties…for the purpose of
contradicting, varying, adding to, or subtracting
Section 92 – Parol Evidence Rule from its terms.”

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 Leong Gan v Tan Chong Motor Ltd.

[1969] 2 MLJ 8
• Facts: The appellant and respondents executed and registered
two leases under which a piece of land was leased to the
respondents for four years. When the appellant applied for
repossession of the land, the respondents argued that there
was an oral agreement between them that allowed the
respondents to occupy the land for 12 years. The issue raised
before the High Court was in regard to the admissibility of the
oral agreement in view of section 92 of the Evidence Act
1950.
• Raja Azlan Shah J (as His Majesty then was) applied section
92 of the Evidence Act to the facts and held that the extrinsic
oral evidence (the oral agreement) was inadmissible to
contradict what had been expressly agreed in the written
agreement by the parties. Therefore, the appellant’s claim for
repossession of the land was allowed.

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 1. Invalidity of the documents – proviso (a) to section 92;
Parol Evidence Rule – Exceptions 2. Separate oral agreement (collateral agreement) –
proviso (b) to section 92;
3. Condition precedent – proviso (c) to section 92;
4. Subsequent oral agreement – proviso (d) to section 92;
Proviso (a) – (f) to section 92 of Evidence 5. Usage or custom – proviso (e) to section 92; and
Act 1950 6. Ambiguity – proviso (f) to section 92.

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 ORAL CONTRACTS AND
PARTLY ORAL AND PARTLY WRITTEN CONTRACTS
Consider the example below

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 • A statement made with the intention of inducing a
Puffery party to enter into a contract so vague or so much
a matter of opinion that it should have been
obvious to the person to whom it was made that it
was not seriously meant.
“this car’s seats are very comfortable” • See Carlill’s case

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 Term or Representation?
Need to distinguish between them. But Why?

Term Representation
• Binding contractual statement. • Unbinding pre-contractual statement.
• Breach of term = breach of contract • Breach of representation = misrepresentation

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Test for Distinguishing
• Subsidiary factors to consider:
1. Time
2. Writing
3. Skill and Knowledge
Intention of the parties to be judged
4. Importance
objectively (reasonable person test)

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 Time
If a long time elapsed between the time of the
making of the statement and the conclusion of
the agreement – a representation
• Routledge v McKay [1954] 1 All ER 855
• The seller was negotiating a sale of his motorcycle with the buyer.
On October 23, 1949, the buyer asked the seller about the date of
the model, and the seller replied, relying on the registration book,
that it was a late 1941 or a 1942 model. Seven days later, on
October 30, 1949, the parties concluded a written contract of sale
without mention anything about the year of the model. Sometime
later, the buyer discovered that the motorcycle was actually a 1930
model and, thus, claimed damages for the breach of contract. The
court had to decide whether the seller’s statement that the model
was a late 1941 or 1942 was a term of the contract or just a
representation.
• The Court of Appeal decided that the statement was a
representation due to the time gap of seven days given to the
buyer to check the details of the motorcycle.

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 Writing
If the contract is in writing – any oral statement
made before the contract was put in writing, the
court will probably regard as representation.

• Routledge v McKay [1954] 1 All ER 855

• The statement on motorcycle’s age was not incorporated
into the written document and, thus, it was regarded as a
mere representation and not a term.

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 Importance
The statement will be regarded as a term if it is very important to
the contract.
To what extent the statement had induced the parties to enter into a
contract?

• Bannerman v White (1861) 142 ER 685

• The defendant wanted to buy some hops from the plaintiff for beer-
making purposes. During negotiations, he asked the plaintiff if the
hops had been treated with sulphur because if they had, he would
not be interested in buying them as they could not be used for
making beer. After being assured by the plaintiff that the hops had
not been treated with sulphur, the parties entered into a contract.
Later on, when the hops were delivered, the defendant discovered
that the hops had, in fact, been treated with sulphur. The
defendant repudiated the contract on the basis that the plaintiff
breached a term of the contract.
• The court held that the plaintiff was aware that the defendant
entered into the contract relying on the statement and, thus, it was
a term, the breach of which entitled the defendant to repudiate the
contract.

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 Expertise
If the maker of statement has special knowledge or skill
compared to the other party – the court is more inclined to
infer that the statement is a term of the contract.

• Schawel v Reade [1913] 2 IR 81

• The defendant advertised a horse for sale. The plaintiff
wanted to buy the horse for stud purposes. When he started
examining the horse to see if it was fit for stud purposes, the
defendant interrupted him by saying “You need not look for
anything: the horse is perfectly sound. If there was anything
the matter with the horse I would tell you”. The plaintiff, relying
on the advice, stopped examining the horse and concluded a
contract. Later on, it was discovered that the horse was unfit
for stud purposes. Therefore, the plaintiff sued the defendant
for a breach of contract.
• The House of Lords decided that the statement made by the
defendant was a term because of his special knowledge and
skill.

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 Condition or warranty?
Look at the intention of the parties to determine whether the terms are ‘conditions’
or ‘warranties’

Condition Warranty
• Essential term • Subsidiary or collateral term
• Breach of condition = discharge and/or • Breach of warranty = damages only
damages

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 Test to Distinguish
Classical and Modern (as per Gopal Sri Ram JCA in Ching Yik Development Sdn Bhd v
Setepak Development Sdn Bhd [1996] 3 MLJ 675
Classical Test – degree of importance Modern test – seriousness of the
breach
• Whether or not the breach of a term goes to • Innominate or Intermediate terms
the root of a contract? • Hong Kong Fir Shipping Co Ltd v Kawasaki
• The relative importance of the term to a party? Kisen Kaisha Ltd [1962] 2 QB 26
• Poussard v Spiers (1876) 1 QBD 410
• Bettini v Gye (1876) 1 QBD 183

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 Condition
Poussard v Spiers (1876) 1 QBD 410

• Madame Poussard entered a contract to perform as an

opera singer for three months. She became ill five days
before the opening night and was not able to perform the
first four nights. Spiers then replaced her with another
opera singer.

• Held:
Madame Poussard was in breach of condition and Spiers
were entitled to end the contract. She missed the opening
night which was the most important performance as all
the critics and publicity would be based on this night.

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 Warranty
Bettini v Gye (1876) 1 QBD 183

• Bettini agreed by contract to perform as an opera singer

for a three month period. He became ill and missed 6 days
of rehearsals. The employer sacked him and replaced him
with another opera singer.

• Held:
Bettini was in breach of warranty and therefore the
employer was not entitled to end the contract. Missing the
rehearsals did not go to the root of the contract.

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 Intermediate terms
Hong Kong Fir Shipping Co Ltd v Kawasaki
Kisen Kaisha Ltd [1962] 2 QB 26

• A ship was chartered to the defendants for a 2 year period. The agreement
included a term that the ship would be seaworthy throughout the period of hire.
The problems developed with the engine of the ship and the engine crew were
incompetent. Consequently the ship was out of service for a 5 week period and
then a further 15 week period. The defendants treated this as a breach of
condition and ended the contract. The claimants brought an action for wrongful
repudiation arguing the term relating to seaworthiness was not a condition of
the contract.
•
The defendants were liable for wrongful repudiation. The court introduced the
innominate term approach. Rather than seeking to classify the term itself as a
condition or warranty, the court should look to the effect of the breach and ask
if the breach has substantially deprived the innocent party of the whole benefit
of the contract. Only where this is answered affirmatively is it to be a breach of
condition. 20 weeks out of a 2 year contract period did not substantially deprive
the defendants of whole benefit and therefore they were not entitled to
repudiate the contract.

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 Breach of Condition and Warranty
Legal Effects

Breach of Condition Breach of Warranty

• The breach of a condition entitles the innocent • The breach of a warranty entitles the innocent
party to: party to:
a) Discharge the contract; a) Only sue for damages
b) Discharge the contract and sue for
damages; or
c) Accept the breach and sue for damages

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THANK YOU!
Adnan Trakic

Email

adnan.trakic@monash.edu