Types of terms Flashcards
Essentialia definition
■ Definition: distinctive terms used to identify or classify a contract as one of the specific contracts recognised by our common law; the characteristic rights and duties that distinguish them
Naturalia definition
■ Definition: terms additional to the essentialia that are automatically incorporated in contract by operation of law (ex lege).
Advantages of naturalia
○ These are convenient in that the parties don’t have to negotiate and agree upon them.
○ They also serve to protect one of the parties from a hazard typically associated with that type of contract.
Examples:
● One of the naturalia of a contract of sale is that the seller will be liable for latent defects, which protects the purchaser from being sold something that has defects that are not immediately apparent.
● The landlord’s tacit hypothec, which protects the landlord from a tenant who does not pay their rent by allowing them to attach the property of the tenant until the tenant pays any outstanding amount.
Incidentalia definition
■ Definition: additional terms provided by the parties other than naturalia and essentialia.
● E.g. parties agreeing in a contract of sale that the purchaser pay a fee for delivery, or that the seller is exempted from liability for latent defects.
Function of incidentalia
● The parties may want naturalia excluded, qualified, or supplemented.
● In this way, the law attempts to strike a balance between protecting parties and freedom of contract.
Examples: warranty and condition and exemption clauses
Contra proferentem
Has to do with exemption clauses
○ The courts have responded by interpreting such clauses narrowly, or contra proferentem (“against the proposer” of the contract), though this protection is limited in that courts only have discretion to do this in cases of ambiguity
Onus regarding variation of the naturalia: Stocks and Stocks v TJ Daly Facts
○ The appellant was a construction company who instituted action against the respondent for damage caused to a mobile crane during transportation.
○ The appellant alleged that the contract was an oral one in which the respondent undertook to convey the crane for a sum of money.
Court on appeal:
○ The final analysis of the case turned on the incidence of the burden of proof.
○ Ordinarily, the general rule is that a plaintiff who sues on a contract must prove their contract.
Outcome of stocks
Onus of proof:
○ There was an additional argument by the appellant that the onus rests on the respondent because the alteration amounts to a waiver of the normal rights accorded by the contract of carriage to the appellant.
■ The court rejected this argument, holding that a party who, in the course of negotiating a contract, agrees to a term which will have the effect of varying what otherwise would have been one of the normal incidents of the contract, cannot be said to waive a right.
Finding:
○ The court thus confirmed the finding that it was the appellant who had to prove that the clause was not part of the contract (which they failed to do), and that the alteration of the naturalia of a contract does not affect this onus.
○ The appeal was dismissed.
Express terms definition
○ contractual terms specifically agreed upon by parties expressed in words orally or in writing
The caveat subscriptor rule
Deals with signed contracts
● A party who signifies their assent by signing a written contract is ordinarily held bound by its terms whether or not they have read or understood them, protecting the reliance interest of the other party
In what three ways can a signatory escape liability under the caveat subscriptor rule?
- Iustus error (regarding the contents of the contract, the nature of the contract, or the identity of the parties)
- Where the other party unreasonably relied on the appearance of consensus suggested by the fact that the document was signed; or
- Where consent is tainted by misrepresentation, duress, undue influence or commercial bribery
Express terms in standard-form contracts
● A party presenting a standardised contract to another for signature is expected to draw attention to any term one would not expect to find in such a contract (otherwise the signatory may not be bound).
Tacit term definition
terms which the parties intended (already had in their mind), or are deemed to have intended, but which they did not express.
● These have the same legal effect as express terms and are established by having regard to the conduct of the parties, as well as considering the express terms of the contract.
Dual basis for a tacit term
- Actual unexpressed intention; or
2.Imputed/deemed intention.
Dual basis for tacit term: Alfred McAlpine v TPA
“The court implies not only terms which the parties must actually have had in mind but did not trouble to express but also terms which the parties, whether or not they actually had them in mind, would have expressed if the question, or the situation requiring the term, had been drawn to their attention.”
○ If they had been asked about it, they would have expressed that they wanted to include it.
Test for tacit term
Bystander test
○ When an impartial bystander asks the parties to a contract what would happen in a particular situation (which they had thought about but not expressed an opinion on, or which they had not thought about yet), and the parties agree the answer to is self-evident, then they are taken to have included that term
Factors when applying the bystander test
- A tacit term can only be imported into a contract if it is by necessary implication (i.e. necessary for the contract they’re entering into), not when it is merely reasonable or convenient
- It must be inferred from the express terms and surrounding circumstances, but not inferred if -
○ It is contrary to an express term (and the tacit term has the effect of contradicting the express term); or
■ Remember: a tacit term is not a new term brought in; we are just making clear a term that already exists in the contract.
○ The contract is detailed and comprehensive.
■ Courts are slow to recognise tacit terms, but particularly where the contract is detailed and the term is something the parties must have considered at the time of the contract - the fact that it is left out means its exclusion must have been intended. - The tacit term must be capable of clear, precise formulation.
○ Courts have said that the more complex a tacit term that the party alleges, the less likely it is that the parties actually considered that or, at the time of contracting, that they would have agreed.
4.It must concern the actual or supposed intention / prompt response of both parties - not just one.
Wilkins v Voges facts
○ Stronghold (appellant) had purchased a piece of land and intended to develop a residential township from Voges (respondent). However, after having paid a substantial portion of the purchase price, Stronghold discovered that a plan existed for the construction of a road across the parcel of land which, if implemented, would impede the development
Wilkins v Voges outcome
○ The court found that the imputed tacit term relied on has not been established and gave a number of reasons for its conclusion.
- The tacit term pleaded is not readily reconcilable with the scheme or express terms of the agreement.
● The reason for this was that the tacit term purported to saddle Voges down with a lot of responsibility when he had no such obligation to or even direct interest in the development of the township.
● There was thus no incentive for Voges to have agreed to such a tacit term. - There was a fundamental inconsistency in Stronghold’s approach.
- The warranty is not essential to give “business efficacy” to the contract because a warranty, as opposed to an ordinary term which governs the performances to be rendered by the parties, confers a benefit on one party only.
- The defendant failed to mention the alleged warranty at the first appropriate opportunity
- Finally, the defendant appeared to experience difficulties with the formulation of the tacit term - a number of terms were pleaded with a number of alternatives.
outcome:
■ In general, courts are slow to find that tacit terms exist and the court here found that not a single compelling reason had been advanced to read in the tacit term.
Tacit contract definition
○ Contracts that are inferred from the parties’ conduct as opposed to written or spoken words.
Subjective and objective basis of tacit contracts?
Subjective basis:
● Christie suggests that they are not based on reasonable reliance, but rather on actual consensus as inferred from the proven facts.
● The problem is that tacit contracts have been found to exist where it seems as if at least one party was labouring under a material mistake, which negates actual agreement between the parties.
Objective basis:
● The reliance theory has surfaced within this context, suggesting that tacit contracts are in fact a manifestation of objective approaches to contractual liability (i.e. what the intention of parties appears to be).
Test for determining the existence of a tacit contract?
Buffalo City Metro Municipality v Nurcha Development Finance 2019:
● “The party alleging a tacit contract needs to prove a) unequivocal conduct, giving rise to b) an inference of consensus on a balance of probabilities.”
Implied terms definition
● Terms not explicitly agreed upon by the parties, but which are nevertheless included in a contract by operation of law (ex lege), by custom or trade usage, or from the facts surrounding the agreement of the parties; naturalia.
● A term implied ex lege is one imported into a contract by law and operates unless the parties exclude it - something they are usually, but not invariably, permitted to do.
Custom/trade usage
● If the parties are engaged in a particular trade and they know that there is a trade usage governing their transaction, they are taken to have tacitly incorporated it into their contract
In a situation where one of the parties knows of the trade usage, but the other does not -
The latter may still be bound if:
1. The alleged trade usage is shown to be universally and uniformly observed within the particular trade concerned;
2. It is notorious, reasonable and certain;
3. It does not conflict with positive law; or
4. It does not conflict with the clear provisions of the contract.
○ In this case, the ignorant party would not in fact have agreed to the term imported by the custom, but they are taken to have done so if they led the other party reasonably to believe that they were aware of the well-known term and meant to contract subject to it (basis in reasonable reliance).
South African Forestry v York Timbers facts
■ In 1993, the government transferred all its rights and obligations under the two relevant contracts to the appellant (SAFCOL).
■ In 1999, SAFCOL instituted action in the HC for an order declaring that the two contracts had been terminated. The HC found in favour of York Timbers and the case went on appeal
■ All individual contractors complied with the agreements reached, however, between 1991 and 1993, York refused to pay the increase.
■ When SAFCOL inherited the contract, York was still paying prices from 1990 and thus had a competitive edge.
■ SAFCOL decided to employ the provisions in clause 3.2. The Minister agreed with SAFCOL that an agreement between the parties was not a real possibility, which gave rise to a review application by York. Eventually, the litigation was settled and York undertook to pay the increased prices without interest (thus, still benefitted).
■ After a series of delay tactics by York, SAFCOL attempted to cancel the contract
