The Law Handbook 2024

Chapter 7.1: How contract law works 683 Generally, the terms expressly recorded in a con­ tract supersede or override any prior oral statement that was not included or referred to in the contract. However, if from the surrounding circumstances of the case, the pre-contractual statement could reasonably have been understood by the parties to be promissory, then a court may consider such a statement to be a condition (i.e. an essential term of a contract) or a warranty (i.e. a non-essential and subsidiary term of a contract). Courts have generally held that where a statement is reasonably likely to induce, and does induce, a party to enter into a contract, it is presumed to be a term of the contract. This is particularly the case where the party making the statement has more knowledge, information or skill than the other party. For example, a purchaser buys land after viewing a form from the vendor that indicates that the land is sewered. A court has held that a reasonable person would consider that the vendor was providing a warranty that the land was sewered (and therefore constituted a term of the contract), even though the form was not expressly referred to or formally incorporated into the contract (see Ellul v Oakes (1972) 3 SASR 377). Regardless of whether a pre-contractual statement is incorporated as a term into a contract, if such a statement is misrepresentative or misleading, a party may have access to other remedies (see ‘Misrepresentation or misleading conduct’, above, and Chapter 7.2: Consumer protection laws). Signed documents A party is bound by all the terms in a contract if they have signed it. This applies whether or not they have read the contract’s terms or understood them. The exceptions to this rule are legal, equitable or statutory relief (e.g. mistake) as to the nature of the document, false statements, or unfair contract terms. Unsigned documents If a party wishes to rely on a term that has not been signed by the other party, the general rule is that such a term can only be incorporated into the contract if reasonable notice is given to the other party. For example, if an airline wants to rely on terms contained on a printed ticket, such terms could only be incorporated into any contract if the passenger has been given adequate notice of the terms; for example, by being given the ticket well before the flight, and not just at check-in. Incorporation of implied terms Implied terms are incorporated into a contract on the basis of the parties’ hypothetical intentions. However, they are only implied to the extent that they are consistent with the actual terms of the contract. Accordingly, courts generally determine what the actual terms of the contract are before considering whether any terms are implied. There are three different types of implied terms: 1 universal terms that are generally implied by law to be a part of all contracts (e.g. an obligation to cooperate and, arguably, an obligation to act in good faith); 2 generic terms that are implied by law in particular classes or types of contracts (e.g. a duty to take reasonable care in professional services contracts); 3 specific terms that are implied on an ad hoc basis, but only where such a term would: – be reasonable and equitable; – be necessary to give the contract ‘business efficacy’; – be so obvious that it ‘goes without saying’; – be capable of clear expression; and – not contradict any express term of the contract (see BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266). Whether or not any terms are implied can be resolved by adopting an objective approach to the construction of the contract. Interpretation of terms Parties are often in dispute about the meaning of terms and what the terms of a contract require either party to do. As mentioned, the courts have adopted an objective approach to interpreting contractual terms and determine their meaning by referring to what a reasonable person would understand the terms to mean, by: • taking into account the natural and ordinary meaning of the language used in the actual text (if written) or oral term of the contract; • reading the terms in context and as part of the whole contract; • taking into account the purpose and object of the transaction; and • taking into account the objective background and surrounding circumstances known to both parties.