6. Contract Interpretation, Implied Terms, and Mistake

What is the basic principle of contract interpretation?

The objective meaning a reasonable person would understand, considering background context

What are textualism and contextualism in interpretation?

Textualism focuses on conventional word meaning; contextualism on circumstances, purpose, common sense

Can courts disregard the literal meaning of contract terms?

Yes, if background shows language is wrong and a clear reasonable meaning emerges

What are the limits to contextual interpretation?

Do not undervalue language or rewrite imprudent deals; identify what parties agreed

Is evidence of pre-contractual negotiations admissible for interpretation?

Generally inadmissible to infer contract meaning, per Prenn v Simmonds

When can pre-contractual negotiations be considered?

To explain transaction's genesis/aim, establish known facts, or support rectification/estoppel claims

What are the two types of implied terms?

Implication in fact (specific contract circumstances) or implication by law (statute, common law, custom)

What are the tests for implying terms in fact?

Business efficacy (The Moorcock) or officious bystander (so obvious it goes without saying)

Is implication in fact just an aspect of contract interpretation?

No, interpretation precedes implication. Implied terms cannot contradict express term

When is a duty of good faith implied in contracts?

In "relational contracts" (long-term, collaborative) or for contractual discretions

What terms are implied into non-consumer contracts by the Sale of Goods Act 1979

Title (s12), description (s13), satisfactory quality/fitness for purpose (s14), sample (s15)

Can implied terms under the Sale of Goods Act be excluded?

Title (s12) cannot be excluded. Others (s13-s15) can be excluded if reasonable (UCTA s6)

When are terms implied by custom?

When certain, notorious, reasonable, binding, and not inconsistent with express terms

Employment contracts (trust/confidence), construction contracts (good workmanship, proper materials, fitness)

What is unilateral mistake as to terms?

No contract if one party mistakes terms and other knew or ought to have known

What is the difference between unilateral mistake and "corrective interpretation"?

Corrective interpretation yields an enforceable contract at intended meaning; unilateral mistake means no contract

What is rectification?

Court orders change to written document to reflect parties' true intentions where drafting mistake occurred

When can rectification for a shared mistake be ordered?

If document fails to reflect prior contract or continuing common intention + outward accord

When can rectification for unilateral mistake be ordered?

If A knows B believes common intention and document doesn't reflect it, but A fails to tell B

What is the non est factum doctrine?

Signatory is not bound if unable to understand document and it's radically different to what they thought

How does common mistake differ from other mistake doctrines?

It addresses mistakes about the factual position/assumptions, not contract terms/wording

What are the requirements for a successful common mistake plea?

Common assumption, no warranty, no fault, impossible performance, mistake to existence/vital attribute of consideration

What is the effect of an operative common mistake?

The contract is void for all purposes; it never was a legally binding agreement