CLAW1001 Study Guide - Final Guide: Parol Evidence Rule, Dick Bentley, Luxury Vehicle
22 May 2018
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Cases on Terms or Representation: Description of subject matter — is it: a statement of belief
(representation) OR promise that it is true (term)?
• Oscar Chess Ltd v Williams [1957] 1 All ER 325
W sole his car described as 1948 Morris Minor to car dealer. Log book indicated car was registered
in 1948 BUT car dealer later discovered it was a 1939 model and W honestly believed statement
was true. Car dealer sued. — Innocent Misrepresentation NOT a Term
— W had no specialist knowledge or expertise to determine year/model of car.
— Statement of his belief was mot a promise that the year was true.
On the other hand, if the party making the statement has more knowledge or expertise about the
subject matter than the other party, then the statement is probably a term:
• Dick Bentley Productions v Harold Smith Motors [1965] 2 All ER 65
Plaintiff buys a luxury car from defendant car dealer. During negotiations before the contract of
sale, ca dealer states that car had done 20, 000 miles since new engine and gearbox fitted. Plaintiff
later discovers that car had done over 100, 000 miles. Is the statement a term?
— Dealer has special knowledge & beer relies on the statement, therefore statement = term.
Interpretation of Terms & The Parol Evidence Rule
• Natra Pty Ltd v Markhill Investments Pty Ltd [2005] FCA 552 — “Meaning according to
the language the parties actually used”:
1. If it is necessary to avoid absurdity or inconsistency then words may be supplied, omitted or
corrected.
2. If the context of the language makes its meaning doubtful, the court may hear evidence of the
surrounding circumstances to clarify the meaning.
3. As a general rule, evidence of the parties’ negotiations or intentions concerning the
document should not be admitted. — Parol Evidence Rule
4. If the parties have refused to include something in the agreement, evidence of this can be
admitted so as to refute an inference which might otherwise be drawn form the circumstance.
5. No term can be implied which is inconsistent with the express terms of the document nor where
the document shows that the parties considered it and deliberately rejected it or deliberately
abstained from including it.
Exceptions of the Parol Evidence Rule: where evidence of previous negotiations will be allowed
to assist with the interpretation and content of the contract:
1. When ambiguity or uncertainty of meaning of words used
2. Whether or not terms can be implied into the contract
3. Evidence of common mistake (both parties make the same mistake) made when reducing the
contract into writing
4. Evidence of oral agreement to vary or suspend the written agreement
5. Evidence that the contract is not “entire” (e.g. partly written and partly oral)
6. Evidence of a prior collateral contract
Note: Statement surrounding a written contract may also be actionable under statute as misleading
or deceptive conduct or unconscionable conduct.
Cases on the Parol Evidence Rule
• As the parol evidence rule applies only to written document agreed to be complete and entire, the
rule will NOT apply to contracts that are partly written: Van den Esschert v Chappell [1960]
WAR 114: Agreement for the sale of a house. Immediately before signing, purchaser
specifically asks about “white ants”. Seller gives verbal assurance. Purchase signs. Statement
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proves to be incorrect. Since there is nothing in the written document about white ants, is the
seller’s statement a term of the contract?
Note: Specific request + important subject matter + before the written contract is signed = collateral
oral contract. Thus, contract is complete, parol evidence rule does not exclude statement.
Collateral Contract
An oral contract subsidiary to the main written contract (the consideration for which is entry int the
main contract) — really just a way for court to give contractual effect to pre-contractual oral
statements when main contract is in writing. Breach = Damages only.
• Collateral promise must not be inconsistent with main contract: Hoyts Pty Ltd v Spencer [1919]
27 CLR 133
• Case example of the collateral warranty that goods be shipped in a special place: J Evans & Sons
(Portsmouth) Ltd v Andrea Merzario Ltd [1976] WLR 1078
• A written contract may contain an “entire agreement” clause that seeks to displace the relevance
of anything said outside the document: Inntrepreneur Pub Co (GL) v East Crown Ltd (2000) 2
Lloyds Rep 611
But anything said could still attract the misleading and deceptive conduct prohibition in the
Australian Consumer Law.
Implied Terms
Implied terms are terms that are deemed to be in a contract by courts (on the basis of common law
or statute).
When are terms implied into the contract?
1. Previous Consistent course of dealings: Hillas &Co Ltd v Arcos Ltd [1932] All ER 494
2. Business efficacy: The Moorcock [1886]
3. Custom / trade usage: Goodman Fielder Consumer Foods Ltd v Cospak International Pty
Ltd [2004] term implied regarding correction of initial installation faults
4. Statute: Sale of Goods Act 1923 (NSW), Australian Consumer Law (Cth)
• Past Dealings between the Parties
Usually happens in cases of incompleteness or uncertainty. Recall: an uncertain or incomplete
agreement is unenforceable. BUT if possible, court will enforce agreement by reference to previous
dealings between the parties: question of fact based on particular circumstances of the parties. Need
to identify previous terms + sufficient number of past dealings to establish a “course of dealing”.
Case Studies: Hillas & Co Ltd v Arcos Ltd [1932] All ER 494
Issue about size of timber etc. in 1931 contract. But could relate 1931 contract to 1930 contract that
was completed without problem. Previous dealings give rise to expectation that the same terms
should be included in the subsequent contract.
• Custom or trade usage: When will a court imply a term on the basis of custom or trade usage？
Requirements set out in: Con-Stan Industries of Australia Ltd v Norwich Winterthur
Insurance (Australia) Ltd [1986] 160 226 at 223-237:
1. Existence of custom is question of fact
2. Custom is well known and generally acquiesced in
3. Custom must not contradict express terms
4. Party may be bound by a custom even if had no knowledge of it (notoriety sufficient — actual
knowledge not required)
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• Businesss Efficacy: When will a court imply a term on the basis of business efficacy?
Case I. Hospital Products v United States Surgical Corp [1984] HCA 64:
The term must:
1. be reasonable and equitable
2. be necessary in order to give business efficacy to the contract so that no term will be implied if
the contract is effective without it
3. be so obvious that “it goes without saying”
4. not contradict any express term of the contract
Case II. Explained in Cantarella Bros v Andreason [2005] NSWSC 1157 where the contract was
held to have no business efficacy unless the supplier was guaranteed of purchase of their coffee
given they had supplied the coffee machine.
Case III. For the court to imply a term for the parties to act in good faith for business efficiency it is
more likely for it to be an issue in a relational contract such as franchise or long term delivery
service.
Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187
Contract provided for new stores based on Burger King going approval. No approvals were given.
The approvals were withheld with the intent to stifle the expansion of Hungry Jack’s and not based
on the conditions set in the contract. The withholding constituted a breach of a duty of IMPLED
good faith in the contract.
• Implied term: of Good Faith
Contrast with: Overlook v Foxtel [2002] NSWSC 17
A relational contract where Foxtel was distributing Overlook’s content. There was an initial
expectation of what Foxtel was distributing Overlook’s content. Accepted there was an implied
term of good faith. The price reduction impacted Overlook’s earnings from its contract with a rival
distributer: Optus. No breach because Foxtel operated in its legitimate commercial interest as
expressly provided for in the contract. Good faith could not extend protecting Overlook’s
commercial interests at the expense of Foxtel.
Exclusion Clause
Exclusion clause or exemption clause are terms in a contract used to limit or exclude a party’s
liability for breach of contract or negligence. For the exclusion clause to be effective it must be a
term in the contract and the clause must cover the breach or liability that has occurred.
• Issues with exclusion clauses:
1. Is the clause incorporated into the contract?
2. What does the clause mean?
3. Does it apply to the facts to exclude liability?
4. How does the clause interact with legislation?
• Incorporation with Exclusion Clauses
Is the exclusion clause a term of the contract? How can an exclusion clause be incorporated into the
contract?
1. By signature
2. By notice
3. BY prior dealings
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Document Summary
W had no specialist knowledge or expertise to determine year/model of car. Statement of his belief was mot a promise that the year was true. Cases on terms or representation: description of subject matter is it: a statement of belief (representation) or promise that it is true (term): oscar chess ltd v williams [1957] 1 all er 325. W sole his car described as 1948 morris minor to car dealer. Log book indicated car was registered in 1948 but car dealer later discovered it was a 1939 model and w honestly believed statement was true. Plaintiff buys a luxury car from defendant car dealer. During negotiations before the contract of sale, ca dealer states that car had done 20, 000 miles since new engine and gearbox fitted. Plaintiff later discovers that car had done over 100, 000 miles. Dealer has special knowledge & beer relies on the statement, therefore statement = term.
