Statements made during negotiations

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Oral statements made during negotiations can have contractual force (subject to the parol evidence rule and entire agreement clauses). Statements are usually classified into the following categories:

  • Promissory - statements that were intended to be binding. They become terms of the contract and have contractual force.
  • Representational - statements that were not intended to be binding, and do not become terms. They have no contractual force.

In classifying the statements, the court objectively considers whether the statement intended to be binding[1]. It takes into account:

In the case where a statement is reneged on or proves false, the victim may seek relief through:

This article is a topic within the subject Contracts.

Contents

Required Reading

Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009), pp. 346-350 [12.35-12.60].

Classification

Statements are classified into categories in order to determine one has contractual force:[2]

  • Promissory statements (terms) - A statement will be considered promissory if it can be established that the statement was intended to be a binding promise (see below). It a statement was promissory, it is then a term of the contract, and there will be a remedy if it is breached. Terms are also subdivided into 2 categories:
    • Conditions are the most important terms, those without which, the parties would not have entered the contract. If a condition is breached or proved false, the victim will be entitled to terminate the contract as well as seek damages.
    • Warranties are less important terms. When a warranty is proved false, the victim will be able to seek damages as per his losses. The contract will remain binding.
  • Representational statements - Where the statement was not intended to be a binding promise, it is a mere representation. It is not a part of the contract and a remedy should be sought under the laws of misrepresentation or misleading or deceptive conduct.

Differentiating between terms and representations

[3] In order to determine whether a statement has cotnracutal force, the courts objectively look at the intention of the parties - does the statement reasonably appear to be a contractual promise in this situation?[4]. Specifically, this includes:

Language used

[5] The words of a promise obviously help in revealing whether a statement intended to be promissory or representational. Words such as 'promise', 'guarantee' would indicate a promissory intention, whereas more vague words would indicate to the contrary. This issues was discussed in JJ Savage & Sons Pty Ltd v Blakney:

  • An 'expression of opinion' cannot be considered a promissory statement.
  • words can "tend...against the inference of a promise[6]".

Relevant expertise of the parties

[7] Relative knowledge or expertise of the parties may be reveal whether a statement was intended to be promissory or representational. A statement made by a party with expertise to an inexperienced person is more likely to be promissory than a statement made by a party considered as 'inexperienced', or statement made between two highly experienced dealers. This issues was discussed in Oscar Chess Ltd v Williams:

  • Defendant had no personal knowledge of the model year. He was relying solely on he registration book.
  • Thus, "it is unlikely that such a person would warrant the year of manufacture. The most he would do is state his belief, and then produce the registration book in verification of it. In these circumstances the intelligent bystander would...say that the seller did not intend to bind himself...[8]"
  • This means that the lack of expertise and personal knowledge of the Defendant, who was making a statement to an expert and experienced Plaintiff, indicate that it is less likely that his statement intended to be binding.

The importance of relevant expertise is also reiterated in Dick Bentley Production v Harold Smith (Motors) Ltd:

  • Experienced/expert party (a dealer) made a statement which proved to be false.
  • Due to his position of power, and ability to check, his statement is considered promissory.

The importance of the statement

[9] A statement which appears to be highly significant to the transaction (these are often identifiable as specific requests made by a party) is more likely to be considered a promissory.[10]

References

Casebook refers to Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009).

Textbook refers to Paterson, Robertson & Duke, Principles of Contract Law (Lawbook Co, 3rd ed, 2009).

ACL refers to the Australian Consumer Law.

  1. ref needed
  2. Textbook, p. 230 [12.25]
  3. Casebook, p. 346 [12.35], Textbook 231 [12.45]
  4. Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41
  5. Textbook, p 231 [12.50]
  6. (1970) 119 CLR 435, 442
  7. Textbook, p. 231 [12.55]
  8. [1957] 1 WLR 370, 376
  9. Textbook, p 232 [12.60]
  10. Van den Esschert v Chappell [1960] WAR 114
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