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6. The Contract (Part Three): Terms. Introduction. Once a contract has been formed it then becomes necessary to identify the terms of the contract. The terms of the contract impose the obligations on each party.

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The Contract

(Part Three): Terms

introduction
Introduction
  • Once a contract has been formed it then becomes necessary to identify the terms of the contract.
  • The terms of the contract impose the obligations on each party.
  • Before identifying what type of terms there are we must first distinguish mere representations, which are not considered to be terms.
representations v terms
Representations v Terms
  • The question of whether a statement made by a party is a term or a mere representation is important because the statement’s classification has implications when determining the issues of breach and remedies.
representations v terms cont
Representations v Terms cont…
  • Characteristics of terms
    • Contractual force: Binding
    • Promissory
    • Breach of a term: Remedy of damages and/or rescission depending on type.
  • Characteristics of representations
    • Not Contractually Binding
    • Usually a statement made by one party to the other party before the contract is formed
    • Breach of a Representation: Typical Remedy Damages
    • Contract Remains in Force unless there is a misrepresentation
representations v terms cont5
Representations v Terms cont…
  • How do the courts distinguish between a Term and a Representation?

The courts attempt to give effect to the parties intentions, and they do this using the objective test. The courts ask :

What would a reasonable person believe to be the parties intentions in regard to the contractual force of the statement.

  • Why is the distinction important?

The major reason for the distinction is the type of remedy that is available. For breach of a term damages is available as a remedy. With a breach of a representation no remedy is available unless it was made fraudulently/negligently.

oral contracts
Oral Contracts
  • With oral contracts the terms of the contract will be determined by the words actually used by the parties when the contract was made.
  • This is a question of fact and will be determined by the court. The presence of witnesses will often be crucial.
written contracts parol evidence rule
Written Contracts: Parol Evidence Rule
  • The main view taken with written contracts is that if they are entirely in writing then the document itself contains all of the terms of the contract. This is referred to as the parol evidence rule.
  • The rule operates to restrict the parties to a written contract from providing evidence which contradicts the terms of the contract: Mercantile Bank of Sydney v Taylor
parol evidence rule exceptions
Parol Evidence Rule - Exceptions
  • There are number of exceptions to the Parol Evidence Rule:
  • Oral evidence can be admitted to show a custom or trade usage which is part of the contract.
  • Oral evidence is admissible to clarify any unclear language used in the written contract.
  • Oral evidence is admissible to show that the written document represents only part of the agreement.
  • Oral evidence is admissible to show that due to a mistake of the parties, their agreement has been recorded incorrectly.
parol evidence rule exceptions cont
Parol Evidence Rule – Exceptions cont…
  • Oral evidence may be given to show that the written agreement between the parties was entered into subject to a verbal condition which has not been fulfilled.
  • Oral evidence may be given to show that the written contract is not binding because there is evidence of fraud or duress.
  • Oral evidence can be given to show that a subsequent oral agreement rescinded the original written agreement.
  • Oral evidence can be given to show that there is a collateral contract in existence.
types of terms conditions and warranties
Types of Terms – Conditions and Warranties

1) Condition

  • A condition is a statement/term which forms an essential part of the contract. It is a term which goes to the root of the contract.
  • Breach of a condition entitles the innocent party to claim damages and rescind (terminate) the contract: Associated Newspapers v Bancks
types of terms conditions and warranties cont
Types of Terms – Conditions and Warranties cont…

2) Warranty

  • A warranty is a term of the contract which is not essential and does not go to the root of the contract.
  • Breach of a warranty entitles the innocent party to damages only. The innocent party is not entitled to rescind The contract: Bettini v Gye
how do courts determine whether a term of the contract is a condition or warranty
How Do Courts Determine Whether a Term of the Contract is a Condition or Warranty?
  • Courts apply the Test of Essentiality:

The courts look at the contract as a whole and ask whether the statement is of such importance to the innocent party, that the innocent party would not have entered into the contract unless that promise was made: Tramways Advertising v Luna Park

exclusion clauses the position at common law
Exclusion Clauses: The Position at Common Law
  • An exclusion clause is a term of the contract which limits or excludes a liability from one party which would otherwise be subject to.
  • The function of an exclusion clause is to limit or exclude liability for breach of an express/implied term, or even negligence in a contract.
  • The courts approach to interpreting such a clause is to interpret them narrowly.
a signed documents
A) Signed documents
  • L’Estrange v Graucob
  • Tilden Rent-A-Car Co v Clendennin
  • Le Mans Grand Prix Circuits Pty Ltd v Iliadis
b unsigned documents ticket cases
B) Unsigned documents: ticket cases
  • With an unsigned document, an exclusion clause will be binding only if the clause was brought to the notice of the customer. This notice must be reasonable notice, and is determined objectively by the courts.
  • Parker v SE Railway
  • Thompson v LMS Railway Co.
  • Baltic Shipping v Dillon
  • Thornton v Shoe Lane Parking
c contractual document
C) Contractual Document
  • The document containing the exclusion clause must be of a contractual nature before the courts will hold the exclusion clause to be binding. To determine whether a clause is a contractual document the courts employ the reasonable person test and ask:
  • Would a reasonable person expect such a document to contain an exclusion clause or would it merely represent a receipt or voucher?
  • Causer v Browne
d time of notice
D) Time of Notice
  • If notice of the exclusion clause is not given until after the contract has been completed the exclusion clause will not be binding:Olley v Marlborough
e previous course of dealing
E) Previous Course of Dealing
  • If the customer has had previous dealings with the defendant, the court will more readily infer knowledge of the exclusion clause. If the customer through his previous dealings knows about the clause then he will be bound by it:

Henry Kendall & Sons v William Lillico

f effect of misrepresentation
F) Effect of Misrepresentation
  • If the effect/scope of the exclusion clause has been misrepresented to the customer then the exclusion clause is not binding:

Curtis v Chemical Cleaning Co

g contra proferentum rule
G) Contra proferentum rule
  • The contra proferentum rule is a rule of interpretation used by the courts. The rule provides that the courts will interpret the exclusion clause against the party relying on the clause:

Elder Smith Goldsbrough Mort Ltd v McBride

White v John Warwick & Co Ltd [1953] 1 WLR 1285

h scope of the exclusion clause
H) Scope of the Exclusion Clause
  • The scope of the exclusion clause is limited to only acts performed within the scope of the contract.
  • The exclusion clause will not exclude liability for acts occurring outside the contract, AND the scope of the exclusion clause is a matter of construction/interpretation by the court:

Darlington Futures Ltd v Delco Australia P/L

Sydney City Council v West

exclusion clauses the position under statute law
Exclusion Clauses: The Position under Statute Law
  • Given the view that exclusion clauses are generally considered to be unfair to consumers, legislation has been enacted to modify the operation of exclusion clauses in relation to the sale of goods/services.
  • This is especially the case for the implied terms in the Sale of Goods Acts of the various states and the TPA.
  • See: S.68 TPA