DISCUSSION 1 (22/4/2020)

December 2013
Part A Q5
What is an ‘implied term’? With reference to cases, explain TWO (2) instances when a term is
implied into a contract for the sale of a car.  
An implied term is a term that can be impliedly read into the contract by the court or the legislators to
p rovide the parties’ rights and liabilities and give effect to the parties’ presumed intention. The term
is not expressly stated, either verbal or written. It goes by an implication.
Terms can be implied into a contract in 3 ways, which are terms implied by customs, terms implied by
law and terms implied by courts. Terms that are implied by law can be either through common law or
through statutes. In Malaysia, there is a Sale of Goods Act 1957 that govern the implied terms in
contract.
Implied terms in a contract for the sale of a car can be seen explained in a few sections, such as
Section 14(a) and Section 14(c). Section 14(a) involve the implied condition as to title. This is an
implied condition on parts of the seller in the sale, where he has the right to sell the goods that, in the
agreement of the sale, he will have the right to sell the goods at the time when the property is to pass.
This condition is not provided in the contract but the condition is implied by law. This is applied in
the case of Rowland v Divall, where a car dealer, who is the plaintiff, bought a car from the
defendant. After using it for four months, the car was impounded by the police as it has been stolen.
The plaintiff had to return it to the original owner. The court held that, the defendant did not have the
right to sell the goods as he did not obtain a good title. Hence, the defendant had breached the
condition as to title and allowed the Plaintiff to recover the full price.
Next, under Section 14(c), it is the implied warranty that the goods are free from any charge or
encumbrance in favour of any plaintiff that is not declared or known to the buyer before or at the time
when the contract is made. This is applied in the case Lloyds & Scottish Finance Ltd v Modern Cars
& Caravans Ltd. In this case, a Wood sold a camper van to the defendants, Modern Cars and Caravans
who sold it to the plaintiffs, Lloyds & Scottish, who in turn sold it on to a Mr Worsfold. However, the
camper can was not paid when Wood bought it. The sheriffs seized the camper van from Worsfold
who then refused to pay Lloyds & Scottish. They in turn sued Modern Cars for selling them goods
with a pre-existing sheriff's levy. The court held that Modern Cars had breached the implied
warranties as to quiet possession and free from encumbrance.
Part A Q6
Explain the test applied by the courts to distinguish a representation from a term of contract.
There are few tests that can be used in order to differentiate between a representation from a term of
contract. Firstly, it is the time factor. The longer the duration, the more likely the statement is a mere
representation. This is applied in the case of Routledge v Mckay, one week after a negotiation, a
contract was entered between the plaintiff and defendant and the contract was silence on the model of
the motorcycle. Plaintiff later found out that the motorcycle a 1930 model, and argued that the
defendant’s statement that it was a 1942 model was a term and the defendant had breached the
contract. However, the plaintiff argument as rejected as on the grounds of the contract, the contract
was only entered into one week after the negotiations. Hence, the statement made was a
representation.
Next, it is the test of relative skill and knowledge test. If the person making the statement has special
knowledge or skill or is in a better position to ascertain the accuracy of the statement compared to the
person who is receiving the information, the court would more likely believe that the statement made
is a term rather than a representation. In Dick Bentley Production Ltd & Anor v Harold Smith
(Motors) Ltd, the plaintiff bought a car from the defendant, relying on a Smith’s recommendation
since he notified the plaintiff that he was in a position to find our history of cars. The car that the
plaintiff bought was proved disappointing and plaintiff brought an action for breach of warranty. The
court held that, if a representation was made for the purpose of inducing the other party into a contract
and it actually induces him to act on it, the representation was intended as a warranty.
Thirdly, it is the writing factor. If there is a written contract and the statement in question is not
included in the contract, then there is a higher likelihood that the statement is a representation. This is
based on the assumption that if the statement is important, it would have been induced in writing. In
Oscar Chess Ltd v Williams, Lord Denning stated that, if an oral representation is afterwards recorded
in writing, it is good evidence that it was intended as a warranty. However, if the purchase is not
recorded in writing, it must not be assumed that every representation made in the course of dealing is
to be treated as a warranty.
Lastly, the court will also consider the importance of the statement. The greater the importance a party
places on a statement, the more likely the statement will be regarded as a term. Provided in the case of
Bannnerman v White, the buyer relied on the seller’s statement where he said that no sulphur was
used in the process of growing the hops. However, after the buyer entered into a sale and purchase
agreement for the hops, there was evidence that sulphur had been used on a small portion of the hops.
The court agreed with the buyer since the buyer had placed a great importance on the truth of the
statement.
Part B
a) The general principle of Parol Evidence Rule is that it prohibits a person from adducing oral
evidence where the terms of the contract have been put in writing. The court does not allow
parties to adduce extrinsic evidence to add, to contradict or vary the written instrument.
However, under Section 92(b) it provides an exception from this rule, which is regarding
collateral contract.

According to Section 92(b) of the Evidence Act, a collateral contract is an instrument that is
used to admit pre-contractual statement that had not been incorporated into the written
agreement. The oral promise that is made to induce the party to enter into a contract, is treated
to be a separate contract but it collateral to the main transaction.

According to the case of Kluang Wood Products v Hong Leong Finance, there are 3
requirements in order to prove the existence of a collateral contract. In this case, at the
negotiations between the second appellant and the regional manager, the regional manager
agreed that the respondent would furnish the appellant with a bridging loan and syndicated
end-finance and also represented that for a finance company of the first respondent’s repute.
However, the appellant failed to provide the end representation finance as promised. The
court held that they were admissible as the statements fell within the scope Section 92(b).

The elements that are adopted from the case are that firstly, there must be a representation
intended by the defendant to be relied upon. This can be seen in the case of Tan Swee Hoe Co
Ltd v Ali Hussain Bros, the appellants had orally agreed to allow the respondent to stay as
long as he wished in the premise as long as they paid $14,000 as tea money. However, when
there was a conflict between them, the appellants served a notice to quit on the respondents.
The court held that the appellants were in breach of the oral statement when they issued the
notice to quit.
In our current issue, there is a representation that was made by Burn where he told Kimmy
that she can continue to rent the place for as long as she likes and Kimmy had relied upon the
representation as to the reason why she did not want to move. The first element is fulfilled.

Secondly, the representation must induce the signing of the contract. In the case of Tan Chong
and Sons Motors Company (Sdn) v Alan McKnight. In this case, the respondent only agreed
to buy the car on the representation that the car conformed to the Australian Design
Regulation, however, the car did not comply to the regulation. The court held that extrinsic
evidence can be used to prove the existence of warranty and a separate contractual promise.
Hence, the oral agreement is allowed.
In our current issue, Kimmy leased the house to Burn for three years, which is from January
2011 to December 2013. However, the representation that was made by Kimmy was made
after the contract has been created, which is two years later. Hence, this shows that Burn did
not rely on the representation made by Kimmy as Burn had entered the contract, regardless
whether he could stay at the premise as long as he likes. The second element is not fulfilled.
The last element is that the representation must amount to warranty, a collateral to the main
contract. It must act as a supplement to the main contract. For example, in the case of Mentari
Sekitar Sdn Bhd v Heritage Property Sdn Bhd, the appellant wanted to add in new terms that
clearly contradicts the various express terms of the sale and purchase agreement. The court
held that such action is clearly prohibited by Section 92 of the Evidence Act.
In this case, the lease that was made between Kimmy and Burn had clearly mentioned that
Burn could only stay at the premise for 3 years. The representation that was made Kimmy
clearly shows a contradiction between the lease and the representation. Hence, the third
element is not fulfilled.

As a conclusion, there was no collateral contract between Kimmy and Burn as there are two
elements that were not fulfilled.