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Printed v Handwritten Terms in a Contract

By 12 October 2013Consumer Law
Printed v Handwritten Terms in Contracts

Printed v Handwritten Terms in a Template Lease

In any commercial undertaking, it is always recommended that business dealings are reduced into writing. Contracts are the best tool to safeguard the resources of the contracting parties. A business whether corporate, partnership or sole proprietorship must use formal written contracts as a tool in their day to day business operations.

For this purpose, contracts must be properly worded and must comply with all the requisites and formalities required in law to be valid between parties. When contracts deviate from the standards and practices of the law, chances are the contract becomes ambiguous. Ambiguity leads to different interpretations of the terms by parties. When this happens, parties will have to go to court to give light to the real intentions of the parties, costing all parties involved in time, general expenses and legal fees.

Importance Written Contracts in Business

Contracts are voluntary and represent the stipulations between two or more parties. Normally, whether it is oral or written, it is binding and enforceable before the courts (NOTE: certain contracts must be written, for example, the sale of real estate). A contract contains the embodiment of the party’s rights and obligations. For business purposes, a written contract is preferred. The old fashioned business relationship through a “handshake” should always end up with a written document, called “contract”. A written contract clearly sets out both parties intentions, an oral contract is often convoluted, unclear and relies on the memory of the parties (who often remember it solely in their favour!).

The complexity of modern business dealings such as varied employment regulations, complicated but simplified accounting procedure, and disputes and litigation make it necessary and essential to have legally enforceable contracts to remind the parties of their contractual obligations. Businesses of all sizes should have their contracts reduced to writing for safe and protected business environment.

Typically, the contract covers the entire process from negotiation up to the finality (signing) of the contract. When the terms and conditions of the parties are reduced into writing and evidenced by a contract, the parties are bound to comply with such terms and conditions and the promises that each party has to provide to each other.

W & K Holdings (NSW) Pty Ltd v Mayo [2013]

In the case of W & K Holdings (NSW) Pty Ltd v Mayo [2013] NSWSC 1063, the Supreme Court of New South Wales rectified a lease contract on the basis that there were inconsistencies between the printed terms of a template lease and the handwritten terms. The Supreme Court, in this case, gave more weight to the hand-written provisions in the contract.

The case came about when Plaintiff (W & K Holdings) leased machinery and commercial equipment from the defendant (Laureen Margaret Mayo) for use in its business. The lease documentation was prepared using the previous lease template. The lease was prepared with the same wordings except for the date, interest rate percentage, terms pertaining to rental payments, GST bank fees, rental frequency and the cost of the property which were all handwritten.

The Plaintiff went to Court to resolve some conflicting provisions and asked the court to provide the correct interpretation under the contract. The Plaintiff questioned the applicable interest rate. The template claimed a “diminishing value” however the handwritten monthly payment term states the reducible interest rate is to be calculated on a “flat rate” interest basis.

The Supreme Court found and construed the contract based on existing facts and the circumstances surrounding the creation of the contract. Accordingly, the real intention of the parties to the lease agreement was to provide for interest charged on a flat rate basis.  The facts suggested that Ms. Mayo, however, had an actual intention to transact on a reducible rate basis.

Thus, in this case, the court rectified the lease agreement to correct the inconsistency between the printed provision (template lease) and the handwritten provision. In this case, the Court mentioned the ability of a court in appropriate circumstances to correct an error as a matter of construction rather than by the equitable remedy of rectification. This was the decision made by Lord Millet in Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC 715 at [192].

The Court in arriving at its decision explained:
  • Where there is an inconsistency in a contract between printed clauses and handwritten clauses, more weight should be given to the hand-written components as these required the particular attention of the drafter; and
  • Diminishing value’ was used in the lease to reflect other tax related concepts, this would not be the correct basis for which interest was charged in this particular case.

Giving Effect to the Intent of Parties.

When a court reviews a contract, a determining factor is often the intent of the parties. The intent of the parties is best ascertained by looking into:

  • the words used by the parties in the agreement;
  • the actions of the parties pursuant to the agreement; and
  • the circumstances surrounding the agreement as they would be interpreted by a reasonable person, rather than the parties’ subjective intentions (usually expressed after the fact).
  • Plain Meaning Rule. Contracts are interpreted according to its plain and ordinary meaning or from the face of the instrument; and
  • Handwritten terms prevail over typewritten terms. Handwritten terms are often given more weight by Court in template contracts, as they required the parties to put their mind to a provision.

Why is Interpretation Important?

A court will generally prefer to uphold a contract, and will edit and review wherever necessary once the intention of the parties is objectively ascertained and identified, and “there is not, so to speak, a limit on the amount of red ink or verbal rearrangement or correction which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant…” (Chartbrook Ltd v Persimmon Homes [2009] 1 AC 1101 at p.1113-1114).

In business, disputes over commercial contracts involve conflicting provisions and interpretation of contracts most of the time. In many cases, disputes in the interpretation of contracts are resolved outside of the court with the help of third parties like a mediator or arbitrator without going through the courts.

However, conflicts may be avoided entirely. To avoid unnecessary issues and conflicts, let your lawyer prepare the contract for you. They have the knowledge, skills and expertise to create a contract that will embody the real intention of parties, can protect your interests. The expense of a paying a lawyer to look over and draft every contract you enter into can initially seem massive, however, that expense is often small compared to the cost of litigation.