Terms of the contract

1
Terms of the contract

• The terms of the contract encapsulate the rights
  and obligations of the parties
• Breach of a term gives rise to an action for
  breach of contract
• Terms include both
• express terms
• implied terms

2
Types of terms
3
Statement representation or term?

• A statement could be
• a term will create contractual obligations
  between the parties, breach resulting in the
  injured party being able to sue.
• a collateral (or preliminary) contract is a
  preliminary contract on which the main contract
  is entered into, breach resulting in the injured
  party being able to sue.
• a representation induces an offeree to enter into
  the contract but is not part of the contract and
  not actionable in contract law. A remedy may lie
  under Part V of the Trade Practices Act 1974
  (Cth).
• a sales puff is not intended to have any legal
  effect, and no remedy is available

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Statement representation or term?

• To determine whether a statement is a
  representation or a term depends on
• time lapsed between the making of the statement
  and the final agreement
• whether the innocent party was asked to verify
  the statement
• whether the statement was made with the intention
  of preventing the other party from looking
  for/finding any defects
• CASE Hopkins v Tanqueray (1854)
• the importance attached to the statement
• CASE Pym v Campbell (1856)
• whether one of the parties had special skill or
  knowledge
• CASE Oscar Chess v Williams 1957

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Parol evidence rule

• The parol evidence rule excludes oral evidence
  that will add to, vary or contradict the
  written document except when
• custom or trade usage demands otherwise
• it will suspend a written agreement when the
  contract has not yet become effective
• the written agreement is not the whole contract
• CASE Van Den Esschert v Chappell 1960
• it clarifies any ambiguous language
• it rectifies a mistake of the parties where the
  agreement was not accurately expressed in the
  written contract.

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Statement is it an oral promise?

• Collateral contracts
• Oral promises made by the parties prior to entry
  into the main contract which are not terms may
  have contractual effect as a collateral (or
  preliminary) contract on which the main contract
  is based
• CASE De Lassalle v Guildford 1901
• A collateral contract has an independent
  existence to the main contract and is not subject
  to the parol evidence rule.

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Statement as an oral promise

• Criteria for recognising the existence of a
  collateral contract
• The collateral contract must be consistent with
  the main contract
• CASE Hoyts Pty Ltd v Spencer (1919)
• unless the inconsistency comes from the operation
  of an exclusion clause
• CASE Mendelssohn v Normand Ltd 1970
• The plaintiff only entered into the main contract
  on the basis of the collateral promise made by
  the defendant
• CASE JJ Savage and Sons Pty Ltd v Blakney (1970)

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Statement as a term

• If the statement is a term, then you need to ask
  is it
• a condition a vital term going to the root of
  the contract and allowing the injured party the
  option of rescission and/or damages
• or
• a warranty a term of lesser importance that
  allows the injured party only to recover damages
• or
• an innominate term an intermediate term which,
  while it could be minor, could have a very
  serious effect and cause the contract to end,
  allowing the innocent party to rescind the
  contract and/or obtain damages

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Statement as a term

• To determine the importance of a term, the courts
  may
• apply an objective test, looking at the contract
  as a whole, and consider whether the stipulation
  is essential to the contract
• CASE Associated Newspapers Ltd v Bancks (1951)
• or
• look at the effect the breach has on the contract
• CASE Poussard v Spiers Bond 1876
• CASE Bettini v Gye 1876
• or
• consider if the breach has deprived the innocent
  party of substantially the whole benefit that
  they should have derived from the contract
• CASE Hong Kong Fir Shipping Co Ltd v Kawasaki
  Kisen Kaisha Ltd 1962

10
Statement as a term

• A statement may also be classified as a
• condition precedent
• a term that prevents an agreement turning into a
  contract until the happening of a stated event
• CASE Pym v Campbell (1856)
• a term which goes to the performance of a partys
  obligations under a contract
• or
• condition subsequent
• a term in the contract which can terminate it on
  the occurrence of some external event
• CASE Head v Tattersall (1871)

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Implied and meaningless terms

• Implied terms are derived from
• custom or trade usage
• CASE Pelly v Royal Exchange Assurance (1757)
• statute, e.g. consumer protection legislation
• the courts, where there has been an oversight by
  the parties
• CASE The Moorcock (1889)
• prior dealings
• CASE Hillas Co Ltd v Arcos Ltd (1932)
• CASE Scammell v Ouston 1941
• If the term has no meaning, the courts will sever
  it if possible
• CASE Fitzgerald v Masters (1956)

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Exclusion clauses

• Also known as exception or exemption clauses or
  terms
• Most commonly found in standard form contracts.
• Their purpose is exclude or limit the liability
  of the person inserting them.
• Their effectiveness is a matter of construction
  of the contract as a whole, taking into account
  the bargaining position of the parties.
• The courts construe an exclusion clause strictly
  against the party relying on it (the contra
  proferentum rule).

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Exclusion clauses

• The following rules can be used to determine
  their effectiveness
• Does the writing constitute a contractual
  document and not a mere receipt?
• CASE Chapelton v Barry Urban District Council
  1940
• In the case of signed documents, unless there is
  fraud or misrepresentation
• CASE Curtis v Chemical Cleaning Dyeing Co
  1951
• the document is binding whether it has been read
  or not
• CASE LEstrange v Graucob Ltd 1934

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Exclusion clauses

• In the case of unsigned documents, if it has been
  decided that document is an integral part of the
  contract
• Would a reasonable person have regarded the
  document as containing contractual terms or
  regarded it as a mere receipt?
• CASE Causer v Browne 1952
• Has reasonable notice of the terms been given?
• CASE Thompson v L M S Railway Co 1930
• Have particularly onerous or unusual conditions
  been brought to the customers notice?
• CASE Interfoto Picture Library Ltd v Stiletto
  Visual Programmes Ltd 1988
• Have the parties have had previous dealings?
• CASE Balmain New Ferry Co. Ltd v Robertson
  (1906)
• Were the terms included after the contract had
  been completed?
• CASE Olley v Marlborough Court Ltd 1949

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Exclusion clauses

• Where a clause has been properly incorporated
  into the contract
• it will be strictly construed against the party
  attempting to rely on it (the contra proferentum
  rule)
• CASE White v John Warwick Co Ltd 1953
• the four corners rule will apply so the
  exclusion clause only operates to cover a loss
  which occurs within the operations envisaged by
  the contract
• CASE The Council of the City of Sydney v West
  (1965)

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Exclusion clauses

• Where a clause has been properly incorporated
  into the contract, cont
• the exclusion clause is to be construed according
  to its natural and ordinary meaning
• CASE Photo Production Ltd v Securicor Transport
  Ltd 1980
• and this is a rule of construction based on the
  presumed intention of the parties
• CASE Darlington Futures Ltd v Delco Australia
  Pty Ltd (1986)
• in commercial contracts (but note position in
  consumer contracts if there is inequality of
  bargaining power for the consumer).

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Exclusion clauses

• Position of third parties
• Third parties are generally not protected by an
  exclusion clause because of the operation of the
  privity rule
• CASE Adler v Dickson 1955
• For an exclusion clause to protect third parties
• CASE Scruttons v Midlands Silicones Ltd 1962
• it must be clear the contract was intended to
  benefit third parties
• it was clear the defendant was contracting for
  itself and third parties
• there was an agency relationship between the
  defendant and the third party
• consideration moved from the third party.

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Exclusion clauses

• Statutory modifications to the common law
• Commonwealth and state/territory legislatures
  have intervened in the area of exclusion clauses,
  e.g.
• ss 52, 68, 68A, 74K of the Trade Practices Act
  1974 (Cth)
• sale of goods and consumer protection
  legislation.