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Interpretation Notes

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This is an extract of our Interpretation document, which we sell as part of our Contract Law Notes collection written by the top tier of University College London students.

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Interpretation
The Nature of Terms
Legal responses depend on status.
A term = a promissory/ contractual commitment, something the parties have taken an obligation and committed to do. Difference between a term and representations and mere puffs. If breached= entitled to expectation damages or specific performance where have to perform agreement instead of giving financial compensation.
Representation = statements other side has made which law doesn't treat as promises but just statements of fact that might induce the promise to enter into the contract. i.e. ''My shops turnover is 1 million pounds a year! ''=
misrepresentation, remedy for this = recission; they can set the contract aside and claim reliance damages which seek to put the promisee in the position they would have been in had they never entered into the contract i.e. Give back 1 million pounds that was payed.
Mere puffs= Sales techniques with no legal effect.
Express Terms



May be in writing, oral or combination
Does document purport to contain contractual terms?
'No', statement = not a term but representation.
'Yes', alter with external evidence? Raises question with parol evidence rule.

Parol Evidence Rule
Rule of evidence that says that where a contract is concluded on the basis of a written document then that written document embodies the four corners of a contract. Don't have to go beyond the document to work out what the terms of the contract actually are. When interpreting meaning of the contract, the court is not allowed to add to or vary the terms contained in the document.
Theoretical justification-

if contracting parties have put down the contents of a contract into the document= strong presumption that they intended the terms of the contract to be within the four corners of the document in which they set it down.
The rule promotes certainty and predictability.
Avoids evidential difficulties. (Concerns with efficiency of administration of justice)

Jacobs v Batavia & General Plantations Trust Ltd [1924] 2 Ch 329 (Ch) (external evidence barred).
Exceptions: vitiation i.e due to mistake, undue influence or duress, collateral or implied terms, and rectification.
Collateral Contracts/ Terms Term of the contract not contained in document but still a valid term of the contract where two tests have been satisfied.
Test:
(i)

Intention- partied intended for it to be included in the terms of the contract

(ii)

Causation ('but for')- one of the parties would not have entered into the contract were that collateral term not included.

Collateral term may displace an incompatible term in a collateral document.
Mendelssohn v Normand Ltd [1970] 183-184, 186:
'[W]hen a man has made, by word of mouth, a promise or a representation of fact, on which the other party acts by entering into the contract… the man is not allowed to repudiate his representation by reference to a printed condition… nor is he allowed to go back on his promise by reliance on a written clause… The reason is because the oral promise or representation has a decisive influence on the transaction - it is the very thing which induces the other to contract - and it would be most unjust to allow the maker to go back on it' (Phillimore LJ).
Curtis v Chemical Cleaning & Dyeing Co Ltd [1951] (COA) -
Collateral term from verbal assurance received that exemption clause only applied to beads and sequins on the dress.
Affirms that when a party misrepresents the significance of a term, it ceases to be contractually binding


Facts: The claimant, Curtis, took her wedding dress to be cleaned by a professional laundry service, the defendants, the Chemical
Cleaning and Dyeing Company. Upon purchasing their services, the defendants asked the claimant to sign a form, and she asked the service assistant what the consequences of signing would be. The assistant replied that the form merely included an exclusion of liability clause for any damage they may cause to any beading and sequins on garments,
however in actuality the exclusion of liability clause pertained to all possible damage that may befall a garment whilst being cleaned. When the claimant returned to pick up her dress, it had been damaged by the defendants and she thus brought a claim for damages against them. In response, the defendants submitted that she had no grounds for a claim due to the exclusion of liability clause.
Issue: Whether the exclusion of liability clause was binding upon the claimant given that the service assistant had misrepresented its consequence.
Held: The Court of Appeal found for the claimant, viewing that whilst a party is typically bound by all the contents of a signed written contract,
even where they had not properly read the contract, a clause ought not be deemed legally enforceable where the drafting party misrepresents the effect of a clause to the other party. Thus, the exemption of liability clause was not deemed properly incorporated into the contract and the claimant was awarded damages. Implied Terms
Terms of a contract that can be enforced by a court in the same way as express terms but not expressly set out in writing or orally son have to be discovered by the courts through a process of interpretation of a contract. 3 main ways in which such terms are implied: Custom, facts or Law.
The function of implied terms is to give some protection for the expectations of the purchasers, particularly for consumers (CRA 2015). The element of consumer protection is further evidenced by the fact that both UCTA and CRA place severe restrictions upon the ability of sellers to exclude the operation of these implied terms and many of them cannot be excluded.
Implication by Custom
Custom of market, trade or locality.
Requirements made clear in Cunliffe-Owen v Teather & Greenwood [1967]:




Certain
Notorious - well known by those in that industry or locality.
Binding - have been recognised as legally binding by the participants in the trade rather than a matter of commercial convenience.
Reasonable
Consistent with express terms of contract or nature of the contract taken as a whole.

Not termed on intentions of particular parties involved in dispute of question.
Partied don't have to know about the implied terms so long as majority of people in the particular trade or locality would generally be aware of the custom. -
Suggests that purpose of this is to protect and uphold the reasonable expectations of contracting parties rather than give effect to the unexpressed common intention of the parties who have entered into a particular contract that the particular dispute is about.
Collins doesn't think Implications by custom are a separate category -
they are either part of the background the reasonable person takes into account when interpreting the contract or function as terms implied in law.
Industry bodies often standardise and publish the general terms applicable in their industry - these can then expressly or impliedly be incorporated into contracts - argument that where the allocation of risks has been carefully thought through by an expert body the courts shouldn't then intervene with extra implied termsHutton v Warren:
-Lease of a farm. They bought all the seeds for the next year and then stopped their lease, even though it would be of no value to them. Normally, when a lease comes to an end, it is customary to sow the seeds for the next person to come into the farm. However, this was not part of the contract.
-The court held it was implied by custom.

Implication in Fact Courts giving effect by looking at the parties unexpressed intentions. Threshold
= very high.
Key tests:

1. Business efficacy - Necessary to imply a term into a contract in order to make the contract work/ effective for business purposes? The court will only imply a term in order to give the transaction enough reason to actually make sense objectively. The parties must also have intended it.
The Moorcock (1889)
Contract between wharf owners and ship owners included an implied warranty by the wharf owners that they had taken reasonable care that it was a safe place to dock.
The case surrounding the tying up of a ship at a jetty. D owned the jetty but not the river and had not actually checked if the riverbed was suitable or not. The question was whether there was an implied term of fact that the owner should have checked if the riverbed was suitable for boats.
The court held that there was an implied term of fact that he checked the riverbed as it would make no commercial sense if they did not.
A term can be implied into a contract if it is necessary to give the contract the efficacy which both parties must have intended it to have and not to place all the risks of the transaction on one side or the other - not just because it is reasonable.

2. 'Officious bystander' - Would a bystander looking at the transaction say that the fact implied was something so obvious that it goes without saying.
Shirlaw v Southern Foundries Ltd [1939] 2 KB 206 (KB), 227
''something so obvious that it goes without saying; so that, if, while the parties were making the bargain, an officious bystander were to suggest some express provision for it in the agreement, they would testily suppress him with a common "Oh, of course"'.
Shell v Lostock Garage Ltd
- Shell entered an agreement with Lostock Garage but was charging a much more competitive rate to them than to their own franchisees.
- Lostock argued that there was an implied term of fact that they would not discriminate against their franchisees.
- The court said the contract worked fine without that element of the contract and so it was not an implied term of fact within the contract.
M&S v BNP Paribas:

This moves away from the Belize decision and says that there are in fact two tests:
interpretation and incorporation.

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