Questions

• 1. What is a ‘term’ in a contract?

• 2. What is meant by ‘the relative skill and special knowledge’ factor?

• 3. What is the ‘Parol Evidence Rule’ and are there any exceptions to this rule?

• 4. What is the difference between condition and warranty?

• 5. What is an exclusion clause?

• 6. “Reasonably sufficient notice of the exemption clauses must be given.”

Explain the statement with a case law to support your answer.
• 7. When will the Courts apply the ‘Contra Proferentem Rule?’ Support your
answer with a relevant case law.
Terms of Contract
1. What is a ‘term’ in a contract?
• Rights – creates expectation on what is to be gained at the end of the
contract
• Obligations – regulates performance of the contract

• Enforceable by the courts

• The terms of a contract are important because they define the rights and
obligations of the parties and can give rise to legal remedies if they are
breached
• Bannerman v White
• 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 statement that the hops had not been treated with sulphur
was a term of the contract and not a representation because the Plaintiff knew how
important the statement was to the Defendant and that the Defendant entered into the
contract relying on that statement.
2. What is meant by ‘the relative skill and special
knowledge’ factor?
• If a statement has been made by a person who possesses special
knowledge or skill in the area on which the statement has been made,
then the Court will be inclined to consider the statement as a contractual
term.
• Schawel v Reade
• 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 it if 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 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.
3. What is the ‘Parol Evidence Rule’ and are there
any exceptions to this rule?
• Section 92, Evidence Act 1950
• The courts will not allow any oral evidence to add, vary or contradict a written
document unless the oral evidence comes within one of the exceptions or illustrations
contained in the section

• Once you have a written contract, you cannot use oral evidence
• To add new terms into the contract,
• Modify the terms of the contract
• Contradict the terms of the contract
• Tan Chong & Sons Motor Co Sdn Bhd v Alan McKnight
• The issue was whether a written contract for the sale of a car could be changed by
prior oral discussions between the parties. The seller, Tan Chong & Sons Motor, argued
that the written contract was complete and final and that the buyer, Alan McKnight,
could not rely on any prior discussions to add terms to the agreement.
• However, the court disagreed and allowed McKnight to use evidence of the prior oral
discussions to prove that there were additional terms to the agreement that were not
reflected in the written contract. This was because the written contract did not specify
the color of the car, which was a term that McKnight claimed was agreed upon orally.
• The court relied on an exception to the parol evidence rule. The exception allows for
the use of extrinsic evidence, such as prior oral discussions, when the written contract
is not a complete expression of the parties' agreement.
4. What is the difference between condition and
warranty?
• Datuk Abu Samah v Shah Alam Properties
• “The traditional method of classifying the terms of a contract is according to the degree
of their importance. Stipulations that are essential are called ‘conditions,’ while those of
a secondary nature are referred to as ‘warranties.’ The breach of a condition entitles the
innocent party to repudiate the contract, that is, to treat it as at an end as to future
obligations and to sue for damages. On the other hand, the breach of a warranty sounds
only in damages.”

• A condition can be defined as a vital term of a contract where the breach

would go to the root of the contract.
• A warranty could be defined as a subsidiary or less vital term of a
contract.
• Poussard v Spiers
• Madame Poussard had entered into a contract to perform as an opera singer for three
months. However, she fell ill just five days before the opening night and was unable to
perform for the first four nights. As a result, Spiers hired another singer to replace her
without consulting Poussard.
• The court held that Poussard had breached a key condition of the contract by missing
the opening night, which was considered the most important performance due to the
presence of critics and the generation of publicity. Therefore, Spiers were within their
rights to terminate the contract and hire a replacement singer without consulting
Poussard.
• Bettini v Gye
• The Plaintiff, an opera singer, entered into a contract with the Defendant to perform in
the Royal Station Opera in London for about three months. The contract provided that
the Plaintiff was obliged to be in London six days before the performance for
rehearsals. However, the Plaintiff arrived only two days before his performance due to
his temporary illness. When he arrived, the Defendant refused to accept his service
and thus repudiated the contract.
• The issue before the Court was whether the performance at the rehearsals was a
condition or warranty.
• The Court held that the Plaintiff breached a warranty of the contract by failing to
perform during the first few days of rehearsal. Therefore, the Defendant was not
entitled to repudiate the contract.
Exclusion Clauses
5. What is an exclusion clause?
• An exclusion clause is a type of term found in contracts where the party
inserting them into the contract is seeking to exclude liability under the
contract specifically, generally or limit the damages claimable from him
• For example:
• PARK AT YOUR OWN RISK
• WE ARE NOT RESPONSIBLE FOR ANY DAMAGED, LOST OR STOLEN ITEMS

• Taveechai Marine Case

• Clauses that limit liability to a particular breach
• Clauses that exclude/restrict liability for something that otherwise would be considered
a breach
• Clauses that limit the amount of damages claimable
6. “Reasonably sufficient notice of the exemption
clauses must be given.” Explain the statement with
a case law to support your answer.
• Whether the party seeking to rely on the exclusion clause had done what
was reasonably sufficient in the circumstances to bring the clause to the
attention of the other party.
• Parker v South Eastern Railway
• That if the person knew that there was writing on the ticket but did not know or
believe that the writing was referring to the conditions of the ticket, he may still be
bound by those conditions if they have been sufficiently brought to his notice by the
party who is relying on it.
7. When will the Courts apply the ‘Contra Proferentem
Rule?’ Support your answer with a relevant case law.
• The rule means the court will construe an exclusion clause in a document
forcibly against the person putting forward the document
• However the rule only applies where there is an ambiguity in the clause –
this means that there may two possible meanings to the clause
• Malaysian National Insurance Sdn Bhd v Abdul Aziz bin Mohamed
Daud
• In this case the Defendant and the father were authorized drivers of a vehicle
• The vehicle was involved in an accident and the Defendant sought to claim on the
policy the car was insured
• However the policy contained an exclusion clause that provided only authorized
drivers who are not disqualified under the law from driving can claim on the policy
• At the time of the accident the Defendant’s license had expired and therefore this was
an issue in the case
• The Defendant was held to be able to claim on the policy
• At the Federal Court, it was stated that how a driver was disqualified under the law
was ambiguous
• Therefore the clause had to be interpreted against the party who put the clause in the
document that was put forward, which was the insurance company.
8. Max joined a gym and signed a contract that said the gym isn't
responsible for any injuries he might sustain while working out.
Later, he gets injured and wants to sue the gym. The gym argues
that Max signed a contract that contained an exclusion clause
and therefore cannot hold the gym liable for the injury. Max, on
the other hand, argues that he did not know about the exclusion
clause and therefore did not agree to it. Will Max be able to claim
for the injuries sustained?
• Incorporation by signature
• If a contract is concluded in writing, then the best way to incorporate an exemption
clause is to make sure that the other contracting party signs the contract.
• The signature by the other party shows that he/she is aware of the contract, including
the exclusion clause.
• Therefore, one should never sign a document which she/he has not read because the
signature will normally mean that the person who signed the document is bound by
its terms.
• L’Estrange v Graucob Limited
• The Plaintiff entered into a sales agreement with the Defendant to buy an automatic
cigarette vending machine for her café.
• The sales agreement contained, inter alia, the following provision, “any express or
implied condition, statement or warranty, statutory or otherwise not stated herein is
hereby excluded.”
• The vending machine failed to work properly and the Plaintiff brought an action
against the Defendant. She argued that she was unaware of the contract’s content
(including the exclusion clause) at the time of signing the contract and that it could
not be easily read because it was written in small print.
• Held:
• The Court of Appeal decided in favour of the Defendant. The Court added that the fact
the Plaintiff failed to read the contents of the contract before signing it was
immaterial.
• The exemption clause, together with the other written terms of the contract, was
incorporated into the contract by the signature of the other contracting party.