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Week 6:
Terms, Representations,
Puffery, and Incorporation
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Moving Beyond the Pre-class

Materials
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What is the difference between what we study this week with

what we did in weeks 4 and 5 ?
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Mathew sold Tom a car for $37.000, and during negotiation, Mathew made the following
statements:

• “It is a 2012 BMW car”. In fact, a cheap BWM car made in 2002.

• “I only used it to go shopping”. In fact, it was used to travel interstates.

• “It has done only 35,000 km”. In fact, the true mileage is 165,000 km. However, Mathew asked
Tom to have it checked by a mechanic.

• “Seat covers were made in Japan”. In fact – made in Vietnam.

• “It is the most beautiful little car in the world”.

• “If you buy the car, I will give you my bike as well”. In fact, Mathew never gives Tom the bike.

Which statement sound like a term ?

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Part I
Terms, Representations, and Puffery
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Terms, representations, and puffery

What is part of the contract ?

What is enforceable ?

Why is a distinction needed ?

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Terms of the contract

• What do terms of a contract tell us ?

• What if a party fails to comply with its

obligations ?
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In this week, on what do we

focus ?
Express
terms

TERMS

Implied
terms
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What is a term?

• What are the key features of a term ?

• Which feature we do not emphasize in this course ?

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Term v Puffery

• “That’s the most beautiful dog in Vietnam”

• “I think you will be very happy with that television”

• “You should buy that laptop. That’s a good deal for you”

• “Red Bull gives you wings”

Are they terms or just pufferies ?

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Handbury v Nolan (1977)

• Facts:

o An auctioneer stated before the sale that the cow was pregnant.

o It turned out that the cow was not only not pregnant but also was infertile (can’t fall pregnant).

o The buyer sued - but the auctioneer said it was only his opinion (i.e. a puffery).

• Is the statement that ‘the cow on sale was pregnant’ a term or just a puffery ?
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Part II:
TERMS
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Express terms

Express terms - What does ‘express” mean ?

How many types of express terms are there ?

I can sell
that cow
to you for OK. Done
$1000 Deal
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1) Inclusion of a term in a signed and written

contract
 You signed a contract without reading or understanding it. Are you bound by
the terms in there ?

 So, what is the lesson for you in your future business ?

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Example: L’Estrange v Graucob

(1934)
o L'Estrange entered into a contract to buy a cigarette
vending machine from Graucob.
o L'Estrange signed the contract without reading it !
o The machine did not work properly and L'Estrange
sued Graucob.
o L'Estrange argued that she was not bound by a
particular term in the contract because she did not
read the contract.
(That term was as follow:
This agreement contains all the terms and conditions …
any ... implied warranty … is hereby excluded)
Can that argument help L’Estrange ?
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2) Incorporation of a term into a contract

by reasonable notice

o Tom went to a local store to buy a washing machine.

o There is a very big and visible sign at the front desk of the store indicating
clearly that “The company will not be responsible for delivery costs”.
o Tom signed a basic written contract to buy a washing machine. The contract did
not mention delivery costs.
o The washing machine was then delivered to Tom and the delivery man charged
him $200.
o Tom came back and argued that the shop should cover the delivery costs.

o The shop owner pointed to the sign and said: “Sorry, that sign was also a
term of the contract”
o What is the shop owner trying to do in this case ?

o Can that be possible under contract law?

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Now, let’s come to the rule

 What are the conditions for incorporating an outside statement

into a contract ?

 “Reasonable notice” - What does that mean ?

 Did the store owner in the previous example take reasonable

steps to bring the statement into the attention of the other party,
i.e. Tom ?

 Does law care about whether the other party was actually aware
of the outside statement?
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Olley v Marlborough Court Hotel [1949] 1 KB 532 Lt

• A couple checked into a hotel and paid for a week in

advance.
• They went upstairs and found a sign inside the room (on
the back of the main door) stating that “the owners of
this hotel will not be responsible for articles lost or
stolen”.
• The wife’s furs were stolen.
• The hotel owners argued that the sign displayed in the
room had effectively excluded their liability.
• Were the hotel owners correct ?
• Can the sign be incorporated into the contract ?
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Incorporating DOCUMENTS

• What is a contractual document ?

• What is a non-contractual argument ?

• Are the documents below contractual or non-contractual ?

Product Details
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Incorporating DOCUMENTS
Are the documents below contractual or non-contractual ?
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Incorporating DOCUMENTS

Are the documents below contractual or non-contractual ?

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Incorporating VERBAL STATEMENT

o Tom went to a local restaurant and booked 20 tables for a

Christmas party with his family and friends.

o A receptionist told Tom that “There is a 10% service fee on all

bills”.

o Tom then signed a basic contract with the receptionist. The

contract did not mention service fee.

o The party took place happily and when the bill came it included a
10% service fee. He got angry and said he never agreed to that.

o Can the restaurant incorporate that verbal statement into the

written contract?
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Would you be sometimes bound by what

you did not sign ?
CONTRACT

……………………
INCORPORATION ……………………
……………………
Two conditions:
OUTSIDE ……………..
STATEMENTS 1. Reasonable notice of the
outside statement was given to ……………………
the other party ……………………
……………………
2. Reasonable notice was given ……………………
before the formation of the ……………………
Sign contract. ………………..

Document

Verbal statement
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Terms implied by statute

When will we study that in this course ?

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Part III

Terms: Condition & Warranty

25
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Condition and Warranty

Condition and warranty - which one is

extremely fundamental to the contract ?

26
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Condition or Warranty ?

How to distinguish a condition from a warranty?

 “This is a real Rolex” – In fact, fake.

 “This car is a 2012 BMW, and made in Germany” – In fact, BWM,
2002, and made in a developing country.
 “This house has a sewerage system” – In fact, no sewerage system.
 “a 42 inch TV will be installed in the kitchen” - In fact, no TV is
installed.
 “This iPhone 6s will come with a case” – In fact, no case.

Why is a distinction needed ?

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Exercise
A goes to Superbike Exotic bike shop and talks to B, a salesman.
A begins to enquire about the unique bike, Terminator. A tells B
that he is looking for a super fast bike and B tells him that the
terminator has a 500cc engine and can go from 0 to 60 mph in 3.1
seconds. A is impressed. A notices that the rear view mirror is quite
unique looking. B tells A that the rear view mirror is made of
stainless steel and is manufactured in Italy. A finds that interesting.
A finally decides to purchase the Terminator motorbike.
• Question 1: If B delivers to A the Terminator bike but it only has a
300cc engine, can A terminate the contract?

• Question 2: If B delivers to A the Terminator bike but A later

discovers that the rear view mirror was actually made in China,
can A terminate the contract?