week 4- contents and interpretation of the contract

• express terms

  • Terms that the parties specifically agreed to
  • ie. what they promised to do in their agreement
• implied terms

  • Terms not specifically agreed to, but which are still part of the contract because the law provides for this result
• problems with express terms

  • oral contracts
  • evidentiary issues: proving what was said and what was agreed might be hard in oral and partly oral contracts. Identifying express terms are important
• Types of pre-contractual statements

  • supports fact that "not everything said in a contract is a term"
  • mere puffs - no legal consequences
  • representations - statements of fact that might persuade someone to agree to a contract, if they are wrong, the consequences depend on the kind of misrepresentation
  • terms - legally blinding and part of the contract, if there is a breach, the consequences depend on the kind of the term

  
• term or representation? (reasonable person test)

  • the importance of the statement (if important, more likely to be term)
  • the time lapse between when the statement was made and when the contract was formed (the more time passed, the less likely it's a term)
  • whether or not the agreement was subsequently reduced to writing (oral statements less likely to be term if not included in a later written contract)
  • the relative knowledge and expertise of the parties
  • whether the statement is one of opinion or intention (likely to be representation)
• MISREPRESENTATION - Oscar Chess v Williams

  • Williams traded his second car, believing it as a 1947 Morris as that was what it said on the registration papers.
  • Eight months later, it was discovered that the vehicle was a 1939 model, which Williams was unaware of.
  • Oscar Chess sough to recover 115 pounds in damage, it was ruled in Williams favour as it was an innocent misrepresentation and not a term in the contract.
  • If Williams instead said “I guarantee” instead of “I believe” then the decision would have been ruled the other way.
• Dick Bentley v Harold Smith (greater knowledge)

  • The purchaser of the motor car was told during negotiations that the car had only travelled 20k miles when it actually had around 100k miles. The court decided that the statement was a term of the contract and as the vendor was a car dealer, possessing knowledge of a car was a factor in ruling whether it was a term or representation
• Dick Bentley v Harold Smith (greater knowledge)

  • The purchaser of the motor car was told during negotiations that the car had only travelled 20k miles when it actually had around 100k miles. The court decided that the statement was a term of the contract and as the vendor was a car dealer, possessing knowledge.
• Ross v Allis-Chalmers Australia (statement of opinion)

  • Ross was negotiating to buy a harvester for commercial use, which he required to be able to harvest 120 to 130 acres per day. The salesman said “in my experience the best this one could do is 90 acres per day” Ross bought the machine and it could not do 90 acres.
  • He sued for breach of contract and argued that the statement was a term of the contract.
  • The court rules that the statement was merely a statement of opinion and was not a term of the contract,
• parol evidence rule

  • when a contract is in writing and appears to be the entire agreement between parties, courts assume that the written contract contains all the express terms.
  • this means that oral /parol evidence, cannot be given and the written contract is complete
  • exception: collateral contracts
• collateral contracts - exception to parol evidence rule

  • they're seperate contracts that contain just one or multiple oral terms

  1. the statement must be a promise and must have been intended to have contractual effect
  2. the statement must not be inconsistent with the main contract (cant have contradictions)
  3. the promisee must have given consideration for the collateral contract (usually entering into the main contract)
• Van Den Esschert v Chappell (succesful collateral contract)

  • A purchaser for the house signed a contract about whether there were any termites in the house.
  • After receiving a confirmation that there were none, the purchaser signed the contract. Some months after, the purchaser discovered termites in the house.
  • The court decided that the parol evidence rule did not apply as there was both a written contract and a collateral warranty, as all three criteria for a collateral contract was satisfied.
• Crown Melbourne v Cosmopolitan Hotel (unsuccessful collateral contract)

  • Cosmopolitan held two leases in the Crown Melbourne complex for five years. The lease required Cosmopolitan to undertake refurbishments.
  • After the lease did not renew, it was alleged that in order to accept the lease, Crown made an oral statement that Cosmopolitan would be looked after at renewal.
  • The high court decided that the statement be looked after at renewal time was too incoherent, uncertain or ambiguous to give rise to a contract.
• when addressing what a contract requires

  • must follow 2 step process
  • 1)incorporation: is an express term incorporated in a contract, if not, then not binding
  • 2) interpretation: how is an express term interpreted
• Step 1: Incorporation

  • whether an exclusion clause has been incorporated into contract, making it legally binding
  • if signed contract: apply signature rule
  • if unsigned contract : apply reasonable notice rule

  A) signature

  B) reasonable

  
• signature rule

  • when a party signs a contract, they will be bound by all of its terms, whether or not they have read or understood them
  • CASE: Toll v Alphapharm
• reasonable notice rule

  • if a contract is not signed, terms will form part of the contract only if reasonable notice of the terms is given at or before the time the contract is formed
• exceptions

  • For both signed and unsigned documents, if it is not apparent that the document is ‘contractual’ in nature, there can be no incorporation
  • ie. regardless whether there's signature, if its not clear enough that something is a contract, the terms/exclusion clauses are not incorporated in the contract
  • Causer v Browne
• Step 2: Interpretation

  • how is an express term interpreted (what does it require the parties to do)
  • just because a clause is incorporated, it may not be effective. words can have different meanings and meanings can be affected by context.
  • links to statutory interpretation
• rules of interpretation

  1. seek out objective interpretation of the parties (not subjective interpretation)
  2. give words their ordinary and natural meaning
  3. consider the nature and object of the contract
  4. adopt a meaning that makes the most commercial sense
• contra proferentum rule

  • rule of last resort
  • where a promise, agreement of term is ambiguous, the meaning is the one that works against the interests of the party that provided the wording
  • ie. if you wrote exclusion clause and it was ambiguous, the law blames you for it, so it's interpreted against your interests
  • applies when it is broad AND ambiguous

  
• exclusion clause interpretation

  A) consumer

  B) commercial

  
• excluding negligence

  • exclusions clauses can protect against breach of contract as well as liability in negligence, exclusion clauses need clear words to do so
• scope of the contract

  • exclusion clauses won't normally be interpreted as covering acts done outside the scope of the contract
• broad vs ambiguous

  • broad: when it covers a wide range of situations or circumstances without being detailed
  • eg. "the seller shall repay the buyer against all claims", too broad, what claims?
  • ambiguous: when a clause is unclear or capable of multiple interpretations
  • eg. "The employee is entitled to a bonus for exceptional performance." what counds as an exceptional performance?
• broad and unambiguous

  • "The tenant is responsible for maintaining the interior of the premises in good condition."

  broad and ambiguous

  • "The contractor shall complete the project in a timely manner."
• online contracting

  • forum selection agreements (another common clause): a contract clause where parties agree on which court or jurisdiction will hear any legal disputes that arise between them
  • eg. eBay, app stores, websites, in-app purchases, cryptocurrency exchanges
• online contracting

  • Terms with an agreement button: ‘click-wrap agreements’ :
  • ->Clicking ‘accept’ is equivalent to signing a written contract
  • Terms on a different page: ‘browse-wrap agreements’
  • -> Question will be whether or not reasonable notice of the terms was given at or before the time the contract was entered into: consider hyperlinks, language, etc …
• implied terms

  • terms that the law adds in even if they weren’t actually agreed to
  • implied by: The courts (via common law), Parliament (via statutes), Customers or trade usage (via common law)
  • just as binding as express terms
• why are implied terms a thing

  • Might not be possible to include everything in the contract
  • may be no genuine pre-contractual negotiations (eg. buying a coffee)
  • some events may not be anticipated (eg. floods destroy a farmer’s crop)
  • some groups may be recognised as needing the law’s special protection (eg. consumer contracts)
• Terms implied by the courts

  • courts imply terms to fill in any gaps or ensure fairness in contracts
  • to give business efficacy - to give the power to produce intended results
  • Always better to make sure important details are covered in the contract, to avoid uncertain reliance on the common law
• Terms implied by statute

  • Terms are implied into contracts for the sale of goods via the State and Territory Sale of Goods Acts
  • Terms used to be implied into consumer contracts by the Trade Practices Act 1974 (Cth)
  • The Australian Consumer Law, which now supersedes the Trade Practices Act 1974 (Cth). These rights are enforceable by law, independent of any specific agreements or warranties made by the seller.