Express Terms and Pre-Contractual Statements in Contract Law
Module 9: Express Terms, Representations, and Pre-Contractual Statements
Overview of Module 9-11 Content - Module 9: Identifying and classifying verbal and written statements; Pre-contractual statements (Express Terms); Parol Evidence Rule; Classification of promissory terms for specific purposes. - Module 10: Implied Terms (by law or fact); Collateral contracts; Construction of terms. - Module 11: Excluding, limiting, and exempting terms.
Learning Outcomes for Module 9 - Distinguishing between a Representation and a Term. - Comparing remedial outcomes: Actionable misrepresentations (rescission and restitution, possibly damages) versus breaches of contract terms (termination and damages). - Understanding the Parol Evidence Rule. - Evaluating the Incorporation of Terms via signed documents, notice, and course of dealings. - Identifying the Classification of Terms (Condition, Warranty, Innominate) specifically for the purpose of contract termination.
Foundational Concepts of Express Terms - Sources of Terms: Terms can originate from various sources including: - Contracts reduced into writing. - Documents other than contracts. - Verbal statements. - Implied terms (by law or fact). - Collateral contracts. - Hierarchy of Statements: Not everything said during negotiations is a binding term. Statements are categorized as: - Puff: Extravagant sales talk with no legal bindingness. - Opinion: A statement of belief rather than fact. - Representation: A statement of fact that induces the contract but is not a promise. - Term: A promissory statement that form part of the contract.
Problem-Solving Steps for Express Terms - Step 1: What was said or agreed upon (verbal or written)? - Step 2: Which of those statements are binding terms? - Step 3: If binding, how important is the term (Condition, Warranty, or Innominate)? - Step 4: What is the remedy if the term is breached?
Distinguished Terms from Representations: The Objective Test
The Objective Test for Contractual Intention - The court determines if a statement is a term based on what a reasonable person in the position of the parties would conclude, rather than the subjective intent of the individual making the statement. - Ellul and Ellul v Oakes (1972) 3 SASR 377: - Facts: A real estate booklet mistakenly indicated a property was connected to a sewer. The seller signed a form from an agent who carelessly indicated the sewerage status. - Held: While the vendor subjectively did not intend a warranty, a reasonable reader would conclude the statement was promissory. The statement was deemed a term. - Key Quote (Bray CJ): "Intention for this purpose must be judged according to the way in which [a party] objectively behaved… rather than in accordance with his subjective intention." - Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451: Reinforces the objective approach to determining contractual intention.
Sub-Rules for Determining if a Statement is a Term - The specific words and language used: Promissory language (e.g., "guarantee") vs. opinionated language (e.g., "estimated"). - The skill or knowledge of the maker: Is the person an expert relative to the other party? - The importance of the statement: Was it vital to the promisee's decision to enter the contract? - Time elapsed: How much time passed between the statement and the final contract formation? - Subsequent reduction to writing: Was the statement included in the final written agreement?
Analysis of Case Law: Context and Inducement - Handbury v Nolan (1977) 13 ALR 339: - Facts: Auctioneer stated a cow was pregnant based on a test. The buyer paid $3200 for the cow, which was infertile and not pregnant. - Held: The statement was a term, not a mere opinion. It was a statement of fact made immediately before bidding began. - Oscar Chess Ltd v Williams [1957] 1 WLR 370: - Facts: A seller (innocently) claimed a Morris Minor was a model; it was actually a model. - Held: It was a representation, not a term. Denning LJ noted that if a seller says "I believe," it is an opinion; if they say "I guarantee," it is a term. An intelligent bystander would not infer a warranty given the seller's lack of expertise compared to the car dealer buyer. - JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435: - Facts: A buyer purchased a cruiser based on an "estimated speed of ." - Held: Inducement is neither necessary nor sufficient to make a statement a term. The word "estimated" indicates opinion/calculation rather than a promissory guarantee.
Analysis of Case Law: Time and Importance - Routledge v McKay [1954] 1 All ER 855: A statement about a motorcycle's age made a week before a written contract (which was silent on the age) was a mere representation due to the time gap. - Van Den Esschert v Chappell [1960] WAR 114: - Facts: Just before signing a contract to buy a house, the buyer asked if it had white ants. The seller said no. - Held: Because the request was made immediately before signing on a matter of high importance, it was intended as a term of the contract. - Bannerman v White (1861): The buyer asked specifically if sulphur was used in hops and stated they wouldn't even ask the price if it had. This made the non-use of sulphur a condition. - Ecay v Godfrey (1947): Seller said a boat was sound but advised the buyer to get a survey. This advice indicated the seller did not intend to be bound by the statement of soundness; it was an opinion. - Schawel v Reade [1913] 2 IR 81: Seller told a buyer they "need not look for anything" because the horse was sound. Because the seller dissuaded the buyer from inspecting, the statement was a term.
Analysis of Case Law: Skill and Knowledge - Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd (1965) 1 WLR 623: - Facts: A car dealer stated a car had done when it had actually done significantly more. - Held: The statement was a warranty (term) because the seller was in a position of superior knowledge and stated a fact that should be within his knowledge to induce the buyer.
The Parol Evidence Rule
The General Rule - Mercantile Bank of Sydney v Taylor (1891): If a contract is reduced to writing and appears to be entire, evidence is not admitted of any previous or simultaneous agreements that add to or vary the written terms. - Justification: Higgins J in Bacchus Marsh Concentrated Milk Co Ltd v Joseph Nathan & Co Ltd (1919) stated the rule preserves "finality in written instruments" and prevents written words from being altered by "slippery memory."
Application and Threshold - The rule only applies when the contract is wholly in writing. - State Rail Authority of NSW v Heath Outdoor Pty Ltd (1986): McHugh JA noted that the rule has no operation until it is determined the agreement is entirely written. The existence of a written document is merely an evidentiary foundation for that conclusion. - Hoyts v Spencer (1919): Evidence of a prior agreement is inadmissible if it contradicts the written agreement. - Henderson v Arthur [1907]: A verbal agreement to accept post-dated cheques instead of quarterly cash rent was inadmissible as it contradicted the written lease.
Exceptions to the Parol Evidence Rule - Partly Written/Partly Oral Contracts: As seen in Van Den Esschert v Chappell, where an oral promise on a vital matter (white ants) is part of the deal despite a written sales contract. - Trade Usage or Custom: Hutton v Warren (1836) allowed local custom (rebates for seeds/labour) to be read into a written lease because the parties were presumed to contract with reference to known usages. - Requirement: The custom must be "notorious" (Nelson v Dahl). - Contracts Suspended by Oral Agreement: When parties agree the contract won't start until an event occurs. - Invalid Contracts: Admitting evidence to prove duress, misrepresentation, or incapacity. - Rectification: To correct a mistake where the writing doesn't reflect the actual agreement. - Ambiguity or Uncertainty: To clarify the meaning of terms. - Identity: To prove who the parties actually are.
Incorporation of Express Terms
Incorporation by Signature: The Rule in L’Estrange v F Graucob Ltd [1934] - Rule: A person is bound by the terms of a document they sign, whether they have read it or not, provided there is no fraud or misrepresentation. - Toll (FGCT) v Alphapharm (2004): The High Court of Australia adopted this rule, stating that signing conveys a representation that the signer has either read and approved the contents or is willing to be bound by them. - Click-wrap Agreements: Clicking "I accept" on websites functions similarly to a signature (eBay International AG v Creative Festival Entertainment Pty Ltd).
Exceptions to the Signature Rule - Non-Contractual Appearance: If the document would not reasonably be expected to contain terms (e.g., a receipt or voucher). - Chapelton v Barry UDC (1940): Exclusion clause on a deck chair ticket was not binding as the ticket was perceived as a receipt. - DJ Hill and Co Pty Ltd v Walter Wright: A delivery docket signed after performance was considered a receipt, not a contract. - Misrepresentation of Effect: - Curtis v Chemical and Dyeing Co [1951]: A customer signed a document she was told only excluded liability for sequins, but it actually excluded all liability. The shop could not rely on the clause due to the misrepresentation. - Non Est Factum ("not my deed"): - Petelin v Cullen (1975): A heavy onus exists to prove this defense. It requires: - The signer belongs to a limited class (e.g., blind, illiterate). - The document signed was "radically different" from what they believed it to be. - The failure to understand was not due to carelessness (unless the other party knew of the misapprehension).
Incorporation by Notice - Notice of terms must be given before the contract is concluded. - Terms must be reasonably brought to the attention of the other party. - Thornton v Shoe Lane Parking Ltd [1971]: Terms printed on a ticket inside a parking garage were not incorporated because the contract was formed at the entrance machine before the customer could see them. - Oceanic Sun Line Special Shipping Co Inc v Fay: Terms on a ticket issued after the contract was made in another country were not incorporated.
Incorporation by Course of Dealing - Terms can be incorporated if the parties have a history of dealings that are regular and uniform. - Balmain New Ferry v Robertson (1906): Prior use of the ferry meant the passenger was bound by the notice regarding the one-penny fare for entering/leaving. - Hardwick Game Farm [1966]: Frequent transactions over with consistent "sold notes" incorporated the terms. - Hollier v Rambler Motors [1971]: or transactions over were insufficient to constitute a regular course of dealing. - La Rosa v Nudrill Pty Ltd [2013]: Invoices sent after oral performance are generally not contractual documents. A course of dealing was not established because the invoices were seen as mere demands for payment, not terms of a new agreement.
Classification of Promissory Terms
Tripartite Classification for Termination Purposes - Conditions: Essential terms. Breach allows the innocent party to terminate the contract and claim damages. - Test of Essentiality: Would the party have entered the contract without being assured of strict or substantial performance of this promise? (Tramways Advertising Pty Ltd v Luna Park). - Associated Newspapers Ltd v Bancks (1951): Front-page placement of a comic was a condition. - Warranties: Less important terms. Breach allows for damages but not termination. - Bettini v Gye (1876): A singer missing rehearsals was a breach of warranty, as it didn't go to the root of the contract. - Poussard v Spiers (1876): A lead singer missing the opening night was a breach of condition, allowing termination. - Innominate/Intermediate Terms: Terms that are not easily classified as conditions or warranties. The right to terminate depends on the gravity and consequences of the breach. - Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962]: A ship being unseaworthy for out of a charter was a breach of an intermediate term, but not grave enough to allow termination. - Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007): The High Court of Australia officially adopted the intermediate term category.
Substance Over Form - Calling a term a "condition" in the text of the contract is not conclusive. - L Schuler AG v Wickman Machine Tool Sales Ltd [1974]: The court held that a term labeled a "condition" (requiring weekly visits to motor manufacturers) was not a legal condition because a strict interpretation would lead to an unreasonable result. The court looks at the agreement as a whole.