Contract Terms1

CONTENTS OF CONTRACT (1)

DR. SONNY ZULHUDA

INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA

<Dr. Sonny Zulhuda> 2

OUTLINETermsTerms vs Mere RepresentationTerms: Conditions vs Warranties

<Dr. Sonny Zulhuda>

3

Terms of ContractTerms of Contract are its contents that

spell out the rights and obligations of the parties under the contract.

Contracts Act 1950 contains no provision dealing explicitly with the terms of a contract.

In most cases, Malaysian courts had filled this lacuna by adopting common law through the decided cases.

Contracting parties dispute on:


Whether or not certain statements are in fact made;

Whether or not certain statements that are in fact made, were held binding and incorporated into the contract; or

Whether or not those statements (that are part of the contract) are to be given the same importance as ascribed by the other party.


Some principles of construction..Court will not allow any oral evidence to ‘add, vary or

contradict’ a written document Parol evidence rule (note some exceptions given under section 92 of the Evidence Act 1950

Court do not make or improve the terms that are already agreed by the parties to contract (see Seet Chuan Seng v Tee Yih Jia Foods Manufacturing Pte. Ltd.)

If a document contains an ambiguity that cannot otherwise be satisfactorily resolved, it is to be construed adversely to the party who proffered it for execution (see Kandasami v Mohammed Mustafa).

Statements are either TERM or a mere REPRESENTATION..TERMS of contract are those that spell out the

rights and obligation of the contracting parties. The breach of which creates a legal obligation, and the injured party is entitled to take a legal action based on the breach of contract.

Mere REPRESENTATION means those statements made by either parties in the contract which induces the representee. It is also called an inducement. If it is breached, contract is not broken and it does not create legal obligation.


How to distinguish Terms from mere Representation?Lapse of timeImportance of the statement in the minds of

the partiesKnowledge of the partiesManner of the statementWhether the statement is reduced to writingInducement factorOral agreement incorporate d in a written

agreement


Routledge v McKay [1954] 1 All ER 855P purchased D’s motorcycle – prior

to that, on 23rd October, D told P that the motorcycle was 1942 model – A written contract was subsequently made 30th Oct in which the model was not mentioned – P found out later that the bike was actually of 1930 model – P sued D for damages.

Court: the gap of time shown that what seems to be broken was only a representation.


Lapse of time & whether reduced to writing

Also, the fact that such statement was not included when contract was reduced to writing could mean it is purposely left out and hence deemed as mere representation

Bannerman v White (1861) 142 ER 685D (a hop merchant) purchases hops from

P – during negotiation D asked whether sulphur was used for treatment, if yes, D would not proceed – P said no sulphur – agreement concluded – After delivery D found sulphur was used – D repudiated the contract.

Does the statement of ‘no sulphure’ constitute a term of contract?

The test: the more important such a statement, the more likely it becomes terms of contract.


Importance of the statement in the minds of the parties

Schawel v Reade (1913) 2 IR 81


Knowledge of the parties

P wanted to buy stallion for stud purpose – when he examined a horse D interrupted saying “You need not look for anything, the horse is perfectly sound. If there is anything the matter with the horse I would tell you.” – P stopped his examination – agreement reached.

P later found out that the horse was unfit for stud purposes.

Test used: Did the maker has a special knowledge or skill? Did P rely on such statement?

Low Kon Fatt v. Port Klang Golf Resort (M) Sdn Bhd [1998] 6 MLJ 448.


D was the licence-holder of a golf course at a resort – P, lured by the defendant's brochure which promised various seasports facilities at the resort, signed up for membership at the resort – P was dissatisfied with the facilities provided (no sea sport facilities were provided) – P wanted to rescind the agreement and get the refund

D argued it did not amount to a warranty or representation of whatever nature – P claimed the brochure has induced him to become a member.

Test to be used: When a statement is represented in such a way that induces a representee to enter into a contract, then such a statement intends to have contractual force and thus a term of contract.

Inducement factor

Lim Sew Lan v Pembangunan Hysham Sdn Bhd & Anor [1999] 5 MLJ 670


P purchased from D one unit of shop office within D’s building – Recital C to the agreement said that D were developing six blocks of five to seven storey shop office and service suites – P terminated the agreement after it was found that D would only construct three-storey shop office without service suites – P contended that he was induced by D’s brochure to enter into the agreement.

Test to be used: When a statement is represented in such a way that induces a representee to enter into a contract, then such a statement intends to have contractual force and thus a term of contract.

Inducement factor

Condition vs WarrantyTerms are either: Condition or Warranty

Contracts Act 1950 is silent; Sale of Goods Act 1957 provides the distinction, which only applies on the sale of goods contract.

For other types of contract, court has adopted the common law in distinguishing conditions from warranty.


Sale of Goods Act 1957Section 12. Condition and warranty. (1) A stipulation in a contract of sale with reference to goods

which are the subject thereof may be a condition or warranty. (2) A condition is a stipulation essential to the main purpose of

the contract, the breach of which gives rise to a right to treat the contract as repudiated.

(3) A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.

(4) Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the contract. The stipulation may be a condition, though called a warranty in the contract.


Condition vs WarrantyConditions: terms which are essential to the

main objective of the contract, once broken it goes to the root of the contract, and the injured party may seek for repudiation of contract.

Warranty: terms which are less essential, i.e. subsidiary to the main objective of the contract, once breached it does not entitle the injured party to repudiate a contract, though other remedies would be available, i.e. damages.


Consider buying a house….Which is a condition and which is

a warranty?Price: RM 150,000 nettSpecification: width, length,

etc..Interior designChimney’s functionsAdjacent landsAccess to highwayOutside viewHistory/previous occupant


Ching Yik Developments S/B v Setapak Heights Development S/B [1996] 3 MLJ 675R, an owner of land, sold the land to A on an increased

price. Soon after the A sent a cheque for paying the remaining price, Appellant stopped payment of the cheque.

Appellant argued: R had breached a condition of contract having failed to deliver up a duly executed memorandum of transfer to A’s solicitor,

R argued: it is A who had breached the condition of contract by not fulfilling the payment. Failure of delivery of the memorandum of transfer should only amount to a breach of warranty.


Ching Yik Developments S/B v Setapak Heights Development S/B [1996] 3 MLJ 675Court: in a contract for the sale of land, the payment

of the purchase price was a fundamental term or a condition.

The obligation to deliver the executed memorandum of transfer was merely a subsidiary term or warranty, the non-performance of which did not relieve the appellant of its obligations under the contract.

The appellant’s failure to pay was a breach of condition.


Compare and contrast:Poussard v Spiers and Pond [1876] 1 QBD 410

Singer was contracted to play in an opera by D – did not show up due to illness in four performances – but can play afterwards – D refused – P lost the case.

Bettini v Gye [1976] 1 QBD 183P (a singer) was contracted to perform at D’s theater

for a period of 3½ months, provided that he should undergo rehearsal 6 days before the opening night – P could only come 2 days before the start due to illness – D refused him – P sued – D lost, could not repudiate.


NEXT: Exclusion Clause

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Contract Terms1