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) contractis 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

4. 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]

5. Parol evidence rule • The parol evidence ruleexcludes 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.

6. 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.

7. 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: Hoyt’s 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)

8. 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

9. 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 party’s 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)

11. 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)

12. 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).

13. 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: L’Estrange v Graucob Ltd [1934]

14. 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 customer’s 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]

15. 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)

16. 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).

17. 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.

18. 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.