Contracts Notes

cONTRACTS 2

WEEK 1

We will first be looking at Terms.

Then at Termination - though breaches may occur and warrant damages; some circumstances grant a right to terminate. If it is a breach of condition there are serious ramifications. If it is a breach of warranty; then damages will occur.

Then at Remedies - for wherever there is a Breach of Contract, generally there are Damages.

Then there will be an examination of Vitiating Factors. Contracts where this occurs, a contract is called voidable. There is then an option - rescind or affirm. The circumstances in which someone can vitiate, through a reasonable time; duress; misrepresentation; unconscionable conduct; undue influence (i.e. spiritual advisor). Alongside common law the ACL deals with misrepresentation and deception alongside unconscionable conduct.

1. IDENTIFYING express terms

In a simple case, the terms of the contract will be those proposed by the offeror and accepted by the offeree. In more complex cases however, the rules of offer and acceptance may not identify the terms on which the parties have contracted. For example, it may be unclear which terms the offeror was proposing to contract on, or the parties may have reached agreement without there being a clear offer and acceptance.

The terms can be found in communication through which contract was made, or they can be incorporated into the contract.

The meaning of the terms of a contractual terms of a contractual document is to be determined by what a reasonable person would have understood them to mean.^[1]

1.2 Standard form contracts

Some willingness to use common law rules on incorporation of terms to regulate the use of unusually onerous terms.^[2]

1.3 Statements made during negotiations

General rule for statements made during negotiations

Parties negotiating a contract may make a number of statements about matters relating to their contract. Not all statements may be included in their written contract. Should a statement prove false, one party may attempt to seek a legal remedy by arguing that the statement formed part of the contract. There are 3 ways to classify pre-contractual statements:

1. Puffs

• Carter (on Contracts) describes ‘puff’s as ‘laudatory statements not intended to be taken seriously.’ Sales talk or puffery on behalf of a seller of goods does not have contractual force (Thake v Maurice)

1. Representations

• Representations are ‘those factual statements which induce the representee to enter into a contract but which are not guaranteed by their maker. Such a statement is described as a ‘mere representation’ reflecting the absence of contractual intent.’ (Carter on Contracts)  

1. Terms  

• What distinguishes a term from a representation ‘is the intention of the maker of the statement to guarantee its truth.’ When a pre-contractual statement is classified as a ‘term’ it is usually referred to as a ‘warranty.’  A term can be classified as either express or implied. There are three types of term: a condition, a warranty and an intermediate term.

statements during negotiations test

Test for determining whether statement is promissory, puffery or representative:

Puffs

• Letters of Comfort: A 'letter of comfort,' or reassurance, will be regarded as a commitment to perform since the creation of a meaningless instrument in the commercial world is unthinkable.^[3]  This is however, only in the case of strongly worded letters, were when a statement made in a commercial document does not appear to have been intended as a commercial promise, the onus lies on the party alleging a contract to show that the statement was inteded as a contractual promise.^[4]

Representations

• Importance of the Statement: A statement that the circumstances show was highly significant or important to the transaction is more likely to be regarded as a promise rather than a statement of lesser significance. For examples, when one purchases a house on the basis of a statement that no white ants are housed within it.^[5] 
• The Words Used: A statement is more likely to be promissory where the party making it uses words that suggest a promise i.e. promise; guarantee; warrant. Conversely a person who indicates that he or she is merely expressing an opinion or a hypothesis, is likely to be found to be just making a representation.^[6]
• Expert Expressions of Opinion: A statement made by a party with expertise to a person who is inexperienced is more likely to be promissory than a statement made by a party known to be inexperienced or statements made between two highly experienced parties.^[7] "If an intelligent bystander would reasonably infer [deduced from the totality of the evidence] that a warranty was intended, that will suffice.' Denning LJ.

Terms  

• What distinguishes a term from a representation ‘is the intention of the maker of the statement to guarantee its truth.’ When a pre-contractual statement is classified as a ‘term’ it is usually referred to as a ‘warranty.’  A term can be classified as either express or implied. There are three types of term: a condition, a warranty and an intermediate term.

To show that an oral statement made in negotiations is a term of a subsequent written contract, there are 3 issues to consider

• Is there an entire contract clause contained within the written agreement?
• Does the parol evidence rule have any effect?
• Was the statement intended by the parties to form a term of the contract?

1.4 Written contracts and the Effect of Signature

General rule/test

The traditional rule, is that a party will be bound by the terms contained in a contractual document that he or she has signed. Signature will bind a party to the terms of a contractual document regardless  of whether or not the party has read or understood the terms.^[8]