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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. Types of terms. Statement: representation or term?.

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terms of the contract
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
statement representation or term
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
statement representation or term4
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]

parol evidence rule
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.
statement is it an oral promise
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.
statement as an oral promise
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)

statement as a term
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


    • a warranty: a term of lesser importance that allows the injured party only to recover damages


    • 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
statement as a term9
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)


    • look at the effect the breach has on the contract

CASE: Poussard v Spiers & Bond [1876]

CASE: Bettini v Gye [1876]


    • 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]

statement as a term10
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


    • condition subsequent:
      • a term in the contract which can terminate it on the occurrence of some external event

CASE: Head v Tattersall (1871)

implied and meaningless terms
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)

exclusion clauses
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).
exclusion clauses13
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]

exclusion clauses14
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]

exclusion clauses15
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)

exclusion clauses16
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).
exclusion clauses17
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.
exclusion clauses18
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.