BUS201 - CONTRACT & AGENCY LAW

STUDY UNIT 3
Chapter 5
TYPES OF STATEMENTS
Puffs, Representations, and Terms (Condition, Warranty, Innominate Term)

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. Identify the Types of Statements made by Parties (underline what he said, she said)
Start by underlining the different statements made by the different parties. List out in your answer each relevant statement, and analyse each
statement based on the Steps below.

NOTE: It is important to classify the statements made by parties as (a) Puffs , (b) Representations and (c) Terms - so that the parties will know
their remedies if the statements are incorrect or untrue.

You want to know if there has been a Breach of Contract (ie, a breach of a Term of the contract).

2. Is it a Puff?
A puff is made during the course of negotiation, usually exaggerating the quality of good or service.
Eg. "This is the most beautiful room that you will ever see!"
If the puff is incorrect or breached, there are no legal consequences.

3. Is it a Representation or Term? Case law IMPORTANT!

3(a) Objective test: Did the parties intend that there be Tan Chin Seng v Raffles Town Club (2002) Sometimes, the statements are not expressly made. You
contractual liability for that statement? may be asked whether there are any IMPLIED TERMS.

The following 5 guidelines help to determine the a. Terms can be implied into contract due to long usage and
parties' intention: trade custom - Hutton v Warren (1836)

b. Terms can be implied to ensure business efficacy . The

TERMS
courts will decide if an unspoken / unwritten term must have
Guideline #1: When the Statement was Made been intended by the parties so as to ensure that the
contract can continue along normal business lines. Is the
- More likely to be a term if the statement was made Routledge v McKay (1954) term commercially necessary? - The Moorcock (1889)
closer to time of contract. Long interval between the
statement and contract suggests that the statement
was unimportant.
c. Terms can be implied via the officious bystander test . A
complementary test to the "business efficacy test".
Guideline #2 - The Emphasis of the Speaker Forefront Medical v Modern-Pak (2006)
- More likely to be a term if the statement is given Bannerman v White (1861)
much emphasis. Emphasis suggests importance.
d. Terms can be implied by statutes eg. Sale of Goods Act. It
is irrelevant whether the parties are aware of the statutes.
Guideline #3 - Special Knowledge of the Speaker
Oscar Chess Ltd v Williams (1957)
- More likely to be a term if the speaker had more Dick Bentley v Harold Smith (1965)
knowledge about the statement, than the other party.

Guideline #4 - Statement is Written Down

- More likely to be a term if the statement was made
orally and later written down into the contract. Terms
of the contract are usually contained in the written
contract.

REPRESENTATIONS
Guideline #5: Invitation to Verify the Statement Ecay v Godfrey (1947)

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STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS
- More likely to be a representation if the other party
is invited to verify the truth of the statement.

4. If it is a Term and it is breached, it is a

Breach of Contract

Conclude if it is a breach of contract.

Check to see if the Question asks you to decide on the nature of the term (i.e., whether it is a Condition or Warranty). If yes, go to Step 5.
Check to see if the Questions asks you to state the Remedies for Breach. If yes, then briefly mention that:
- an incorrect puff will not result in any legal consequences;
- a breach of representation, the innoccent party may sue for damages; and
- a breach of a term can entitle the innocent party to discharge (terminate) the contract and/or sue for damages (monetary compensation).

5. Is it a Condition or Warranty ? Case law IMPORTANT!

TEST : The Singapore court decides whether the term RDC Concrete v Sato Kogyo (2007)

is a condition or warranty, based on the intention of

the parties.

5a. CONDITION REMEDIES for Breach of a Condition

- Terms which are important, essential or fundamental to the contract. Injured party can:

Eg. The term stating the amount of salary under an employment contract. - affirm (continue) the contract + sue for damages
- discharge (terminate) the contract + sue for damages

5b. WARRANTY REMEDIES for Breach of a Waranty

- Terms which are less important and are secondary obligations. Injured party can only claim for damages. Must still
continue with contract.
Eg. The term stating that you shall submit all claims by 15th of each month under an
employment contract.

6. If it is Representation and it is breached, discuss Misrepresentation (Chapter 6).

7. Conclude whether there has been a breach of condition or warranty.

To also mention briefly the remedies are available to the injured party.

* See next page for Exemption Clause (a special category of terms).

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 BUS201 - CONTRACT & AGENCY LAW
STUDY UNIT 3
Chapter 5 (cont'd)
EXEMPTION CLAUSES

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. Define "Exemption Clause"

An exemption clause is a term in a contract which seeks to totally exclude the liability of the party relying on the clause.

Different from a "limitation of liability " clause which seeks to limit the liability to a specified amount.

2. Identify and state the exemption clause given in the Question.

- Identify the exemption clause in the Question (ie, demonstrate that you know which clause in the Question is an exemption clause ).
- State that for an exemption clause to be valid, it must satisfy 4 criteria: (a) incorporation, (b) construction, (c) no unusual factors and (d) Unfair
Contract Terms Act (UCTA).

3. 1st Criteria - INCORPORATION Case law IMPORTANT!

(a) Is it incorporated by signature?

Did the parties sign a written contract (eg. standard Press Automation v Trans-Link (2003) Does not matter if the party did not read the contract. Once
form contracts) that included the exemption clause? he signed it, he is bound (unless there was fraud or
misrepresentation) - L'Estrange v Graucob (1934)

If yes, then the exemption clause is incorporated by

signature.

(b) If there is no written contract or the contract is

not signed, consider whether it is incorporated by
notice.

(i) Location of Notice

- Is the document of a type that a reasonable Chapelton v Barry Urban District Council (1940)
person would have expected to find contractual
terms?

(ii) When was the Notice Given?

- The notice must be given before or at the Olley v Marlborough Court (1949)
time that the contract was made.

Party A (relying on the exemption clause) must do what is

(iii) Was the Notice Adequate?
- Were reasonable steps taken to bring the
notice to the attention of the injured party?
- Was the notice sufficiently conspicuous and
legible?
reasonable to bring the notice to the attention of Party B
Thornton v Shoe Lane Parking (1971)
(the injured party).
Thompson v London Midland (1930)
Party A can then rely on the clause UNLESS he knew from
Jet Holding v Cooper Cameron (2005)
the start that Party B was under some disability (eg.
illiterate) preventing the Party B from understanding the
notice - Geier v Kujawa (1970)

(iv) Previous Course of Dealings?

- If there were previous course of dealings Henry Kendall v William Lillico (1969)
which had included an exemption clause AND
the parties indicated that the present contract
would be based on the terms of the earlier
contracts.

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STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

3. 2nd Criteria - Construction Case law

Construction = interpret the clause

Rule #1 - Contra Proferentum Rule

Look at the words used in the clause. Is there any
ambiguity or vagueness in the words used?
- If there is any ambiguity in interpreting a clause, the Singapore Telecommunications v Starhub Cable
clause will be interpreted in the least favourable Vision (2006)

manner to the person who drafted / who is relying on

the clause.

Rule #2 - Main Purpose Rule

Does the exemption clause defeat the main purpose
of the contract?

B-Gold Interior Design v Zurich Insurance (2007)

It is presumed that parties do not intend for
Photo Production v Securicor Transport (1980)
exemption clauses to defeat the main purpose of the
contract. If it does, then the exemption clause is
invalid UNLESS the clause uses clear and unambiguous
words.

4. 3rd Criteria - Unusual Factors Case law IMPORTANT!

Are there any unusual factors or extraordinary facts Curtis v Chemical Cleaning & Dyeing (1951) It is important to give an example of unusual factors, to
which limits the effectiveness of the exemption clause demonstrate that you understand the concept.

eg. misrepresentation or fraud?

5. 4th Criteria - UCTA (Unfair Contract Terms Act) Statutory Provision IMPORTANT!
In general, UCTA requires exemption clauses to be
"reasonable" if they are to be valid.

A person cannot exclude liability arising for death or Section 2(1) UCTA
personal injury arising from his negligence.

Schedule 2 UCTA - Guidelines on "Reasonableness" "Reasonableness" under Schedule 2 UCTA applies to sales of

A person cannot exclude liability arising for other goods for $$ - section 11(2) UCTA.
loss or damage (eg. property damage or financial loss)
arising from his negligence UNLESS it is considered In other cases eg. sale of services, the courts will determine
"reasonableness" based on all circumstances (a) which were
"reasonable" under Schedule 2 of UCTA.
known to, (b) ought reasonably to have been known to, OR
(c) were in the contemplation of parties when contract is
(a) Bargaining position of the parties made - Section 11(1) UCTA. In practice, the courts may
If the party relying on the exemption clause is in decide to be guided by Schedule 2 UCTA.
a stronger bargaining position, then the clause is
likely to be unreasonable.

(b) Any inducement to the injured party to accept

the exemption clause?
If yes, the inducement is like a "sweetener" to
accept the clause. Hence, the clause is more
likely to be reasonable.

(c) Did the customer know of the exemption clause?

If yes, then the clause is more likely to be

reasonable.

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STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

(d) Is compliance with the exemption clause

practical?
Are there conditions in the clause which are
impractical to comply with? If yes, then the
clause is likely to be unreasonable.

(e) Were the goods ordered specially?

If the goods were ordered specially based on the
customer's specifications, then any damage is
likely due to the customer's "fault" as a result of
his specifications. In such a case, the exemption
clause protecting the seller is likely to be
reasonable.

6. Conclude whether the exemption clause is valid for

death / personal injury / other damage.
What can the injured person do? Sue for damages?
Or is he prevented from suing due to the valid
exemption clause?

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