Fundamentals of Law Terms of the Contract

1. Fundamentals of Law Terms of the Contract

2. What are the Terms Terms can be In writing Oral Partly in writing and partly oral Implied The terms of the contract are ascertained by examining the evidence Not all pre-contractual statements become terms of the contract

3. Ascertaining the terms Meaning of the terms may not be clear Where the parties have used language that is incapable of any precise meaning the contract may be void for uncertainty It is not the role of the Court to make a bargain for people Courts are reluctant to destroy a bargain

4. Parol Evidence Rule Courts presume that written formal contracts that appear to be a complete record of the agreement, contain the whole agreement Courts will not let a party ‘subtract from, add to or contradict the language of the written agreement’

5. Pre-Contract Representations An oral statement can be a term Only promissory statements become terms All other statements are mere representations A statement does not have to be in the form of a promise to be promissory Remedies Term of contract – Remedy for breach of contract Representation – law of misrepresentation Mere puff – no remedy

6. Reasonable Bystander Test Which statements and representations would a reasonable bystander, aware of the circumstances of the case, regard as promissory? The test is objective Parties actual intention is irrelevant

7. Reasonable Bystander Test (cont) Guidelines Was the representation included in a written document When, in the negotiations, was the representation made Did the representation sound promissory How objectively important is the representation to the whole deal Did either party have special knowledge about the subject matter of the representation

8. Was There a Written Document? If the statement was included in a document drawn up by the parties then this is good evidence that the parties regarded the statement as sufficiently important to be a term Alternatively, if it is left out, that indicates that the parties did not intend it to be a term. State Rail Authority of NSW v Heath Outdoor Pty Ltd (S&OR p131) This is not conclusive of itself, it is merely one matter to be considered

9. When was the statement made? How much time elapsed between the representation and the making of the contract? Statements made only once early in negotiations are less likely to become terms. Van Den Esschert v Chappel (S&OR p132)

10. How Important was the Statement Must be judged in the context of the negotiations Van Den Esschert v Chappel (S&OR p132) Hospital Products v United States Surgical (S&OR p134) What words were used The more precise the language, the more likely it is a term Ross v Allis-Chalmers Australia (S&OR p133)

11. Did a Party have Special Knowledge? Did one party rely on the other’s expertise or special knowledge rather than form its own judgement Oscar Chess v William (S&OR p130) Esso Petroleum v Mardon (S&OR p134)

12. Conditions and Warranties Not all terms carry the same importance A condition is a core term of the contract Goes to the essence of the contract Tramways Advertising v Luna Park (S&OR p209) Associated Newspapers v Bancks (S&OR p209) Warranties are non-core terms of the contract

13. Conditions and Warranties (cont) Intermediate terms will be conditions or warranties depending on the seriousness of the breach A breach so serious as to deprive the innocent party of substantially the whole benefit of the contract Hong Kong Fir Shipping Co v Kawasaki (S&OR p212) Breach of conditions allows the innocent party to terminate the agreement Breach of a warranty only entitles the innocent party to seek damages

14. Conditions and Warranties (cont) To determine if a condition, courts will examine The way in which the term is expressed The likely consequences of a breach The objective importance of the term to the overall contract Whether damages are likely to be an adequate remedy (see Shevill v Builders Licensing Board) The use of the word “condition” is not conclusive Wickman Machine Tool Sales v L Schuler AG (S&OR p210) Parties can expressly state that it is an essential term

15. Conditions and Warranties (cont) Terms implied by statute are often expressed to be conditions Time In a mercantile contract the presumption is that it is a condition Bunge Corp of NYk v Tradax Export SA Panama (S&OR p211) In other contracts it is usually a warranty Bettini v Gye (S&OR p211) Often made a condition by express words “time is of the essence”

16. Exemption Clauses A clause that limits or excludes the consequences of a breach of a parties obligations Courts are biased against them Bias is less noticeable in commercial contracts Courts adopt a 2 step process Has the exemption clause become a term of the contract? If so, does it cover the breach in question?

17. Is It a term of the contract? Essentially the same test as for all terms An exclusion clause cannot be incorporated after the contract has been made (e.g. parking ticket) Past dealings may imply an exemption clause but the Courts are reluctant to do this Signed documents will usually be binding even if the party was unaware of the term unless Signed document could not reasonably be regarded as likely to contain contractual terms Estoppel exists Exemption clause has been misrepresented See Curtis v Chemical Cleaning Co (S&OR p142)

18. Is It a term of the contract? Unsigned exemption clauses will be binding if The innocent party was aware of it; or reasonable notice of it has been given to the innocent party before the contract is made.

19. What is reasonable notice (cont) What is reasonable notice depends on: The nature of the document; The nature of the transaction; and The nature of the exemption clause. Would it be reasonable to expect the document to contain an exemption clause (e.g. a receipt)

20. What is reasonable notice Is the transaction one where you would expect an exemption clause to exist The wider the exemption the greater the steps to be taken to bring it to the attention of the other party Cases Thornton v Shoe Lane Parking (p144) Parker v South Eastern Railway (p126) Oceanic Sun Line Special Shipping v Fay (p127) DJ Hill & Co v Walter H Wright Pty Ltd (p124)

21. Does the Clause Cover the Breach? Courts will examine the clause carefully to determine its effect and limit its scope where possible Generally, the Courts will give effect to the parties intentions as evidenced by the natural and ordinary meaning of the words There are 3 rules that courts use to limit exemption clauses: The Contra Preferendum rule Negligence Clauses The Four Corners Presumption

22. Contra Preferendum Rule Any ambiguities in the exemption clause will be construed against the party seeking to rely on the clause Andrews Bros v Singer Car Co (S&OR p145) Alex Kay v General Motors Acceptance Corp & Hartford Fire Insurance (S&OR p145)

23. The Negligence Rule Liability for negligence may be expressly or impliedly excluded but if the words could reasonably be applied to protect against some ground of liability other than negligence, then liability for negligence will not be excluded White v John Warick & Co (S&OR p146) To exclude liability for negligence, clear words are required Tech Pacific v Air Pacific (S&OR p146)

24. The 4 Corners Presumption The exemption clause will only cover matters within the 4 corners of the contract Whether an event falls outside the contract depends on the a reasonable person test – would a reasonable person aware of the terms of the contract conclude that the parties must have had the relevant event in mind in drawing up the contract. Sydney Corporation v West (S&OR p148) TNT v May & Baker (S&OR p149) Darlington Futures v Delco Australia (S&OR p149)

25. Statutory Reforms In many cases, it is Illegal to attempt to exclude terms implied by statute e.g. Trade Practices Act Attempting to exclude statutory liability (where not permitted) may be misleading and deceptive conduct contrary to section 51 of the Trade Practices Act