Contractual terms and interpretation

Question 1

What is a contract

Answer 1

agreement giving rise to obligations/legal rights/liabilities in a recognised jurisdiction

Question 2

What is a commercial contract

Answer 2

agreement between parties is a commercial transaction giving rights to the above.

Question 3

What are terms

Answer 3

conditions, warranties, innominate or intermediate

Question 4

Parties in a commercial transaction

Answer 4

performance and issues resulting in dispute.

Question 5

How do terms become part of a contract

Answer 5

Expressed orally, in writing, implied by law, trade practice and custom, parties conduct, previous dealings or the parties intentions.

Question 6

What are some key cases for contract terms

Answer 6

Hamilton & co 1889

T W Thomas and Co Ltd 1911

Question 7

Issues with incorporation

Answer 7

Blind incorporation- be careful with what is incorporated, ie unusual or unreasonable clauses- Northern Progress 1996.
Interfoto Picture library Ltd 1989 CA- unusual clauses may not be incorporated

Question 8

How to incorporate express terms

Answer 8

By signature- bound regardless of reading doc prior to signing, offers certainty but can be harsh- L’ Estrange 1934.

By notice-A party looking to rely on a term should take reasonable steps to bring the term to the notice of the other party before or at (but not after) the time of signing the contract. What amounts to reasonable steps remains debatable.

Dealings or custom

Question 9

What is non est factum

Answer 9

‘A defence available in special circumstances under contract law to allow a person to avoid having to honour a contract that they signed. The person hoping to rely on non est factum must prove:
• They were not careless.
• The document signed was different from the one they thought they were signing.
This defence often arises in cases of fraud.’

Question 10

What defences are there to not reading a contract (inducement)

Answer 10

non est factum
misrep
doc needs to have contractual effect

Question 11

How do parties understand intention

Answer 11

• Court must find parties intention
• Intention must be determined objectively based on notional rather than actual intention of the parties
• Need not be handicapped by literal meaning of the term (four corners of the contract) but should focus on natural meaning of the term in the context it was used.
• Reconcile tension between natural meaning of the term and commercial common sense

Question 12

What are the rules of interpretation

Answer 12

Traditional approach to interpretation- literalism or four corner approach

This means that the literal/face value meaning of the terms in the contract mean no more than the grammatical meaning of the word

(see Goods of Peel 1870 or Lovell and Christmas Ltd v Wall 1911)

Interpreting a term of contract in its literal sense is an extension of the PAROLE EVIDENCE RULE

Question 13

What is the parol evidence rule

Answer 13

The parol evidence rule is an evidentiary rule in contract disputes which generally makes evidence of agreements outside the parties’ written contract inadmissible. That is, under the parol evidence rule any agreement that is not contained within the written contract is inadmissible in court.

Question 14

What is the contextual approach

Answer 14

Contextualised approach allows for evidence to demonstrate that the meaning of a term in the contract was intended by the parties to have a meaning wholly different from its ordinary grammatical meaning- law cannot impose on the parties to a contract an intention it did not contemplate.

Question 15

Give some key term understanding cases

Answer 15

Rainy sky/Bank of credit and commerce 2001

Question 16

What are the 5 principles of contractual interp

Answer 16

1. Contextual approach to interpretation
   • Interpretation is the ascertainment of the meaning of the document to the reasonable person having all the background knowledge which would be reasonably available to the parties in the circumstances
2. Wide scope of background knowledge
   • Relevant background knowledge of the includes “absolutely anything” which would have affected the understanding of the reasonable man
3. Pre-contractual negotiations are inadmissible
   • Previous negotiations of the parties and their declarations of subjective intent are inadmissible as background
   • The only exception is in an action for rectification
   • This distinction is made for practical policy of reducing litigation time and costs
4. Substitution of words and syntax
   • The background circumstances “may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax.”
   • Meaning is contextual not literal
5. Business common sense
   • The natural and ordinary meaning must yield to business common sense if it flouts it
   • However, there is the presumption that people do not easily make linguistic mistakes
   • The natural and ordinary meaning is not unhelpful when words have not been used in a natural and ordinary way

Question 17

Can the courts rewrite the contract to appeal to common sense

Answer 17

no proctor and gamble 2012

Question 18

What does Arnold v Britton 2015 tell us

Answer 18

greater weight is given to words used in a contract

Question 19

What is the red ink rule

Answer 19

It is stated by Denning LJ that more attention should be given if the clause is unlikely to be rational. The Court of Appeal had held the ‘red hand rule’ that every clause should be noted in red ink before the clause is to be presented in a valid form in a contract (Keenan & Riches, 1998).

Question 20

terms implied in law vs terms implied in facts

Answer 20

Terms implied in law – implied if it is a necessary incident of this type of contract.
•The term must be a reasonable one to imply and necessary in this type of contract.
Terms implied in fact – implied to give effect to the presumed intention of the parties and on the basis of necessity.

Question 21

What is the officious bystander test

Answer 21

• The term in issue will be implied if it is necessary to give business efficacy to the contract, The Moorcock [1889] CA
• officious bystander test’ – in other words, the term must be so obvious that its implication goes without saying Shirlaw v Southern Foundries [1926] Ltd [1939]’;

Question 22

Can terms be implied by statute

Answer 22

yes

Question 23

What does a major term breach do

Answer 23

A contractual term which is so major that, if breached, gives the non-defaulting party the right to:
•Treat the breach as a repudiation and terminate the contract (i.e.to treat the contract as discharged, so that further contractual obligations come to an end); OR
•Affirm the contract and continue with it.

Question 24

What is designation by statute

Answer 24

Designation by statute, e.g. Sale of Goods Act 1979
S.13 Sale by Description
(1)Where there is a contract for the sale of goods by description, there is an implied term that the goods will correspond with the description.
(1A)As regards England and Wales and Northern Ireland, the term implied by subsection (1) above is a condition.

Question 25

What is designation of conditions

Answer 25

Note: S.15A SGA 1979 – Modification of remedies for breach of conditions (B2B), where:
•The buyer would otherwise have the right to reject goods for breach under ss.13-15, but
•The breach is so slight that it would be unreasonable to reject them, that the breach is not to be treated as a breach of condition but may be treated as a breach of warranty
Unless: a contrary intention appears in or is to be
implied into the contract.

Question 26

What is designation by contract

Answer 26

Lombard North Central plc v Butterworth [1987]
•Express: ‘this term is a condition of the contract’
•Implied: ‘breach of this term will entitle the customer to terminate’
•Inferred: ‘Time for payment is of the essence of the contract’

Question 27

What are warranties

Answer 27

A contractual term whose breach will or may entitle the non-defaulting party to claim damages for any loss suffered, but which will not give the non- defaulting party the right to treat the contract as repudiated.
i.e. the term is not as important and does not go to the substance of the contract.

Question 28

What are designations of warranties

Answer 28

design by statute/designation by contract

Question 29

What are intermediate terms

Answer 29

Definition: A term the remedy for whose breach will depend upon the nature and effect of the breach at the time that it happens.
Test: has the non-defaulting party been deprived of “substantially the whole benefit which it was the intention of the parties as expressed in the contract that it should obtain”? Per Diplock LJ in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26