•
6
The Contract
(Part Three): Terms
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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.
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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.
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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
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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.
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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.
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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
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Parol Evidence Rule - Exceptions
• • There are number of exceptions to the Parol
Evidence Rule:
1.
2.
3.
4.
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.
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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.
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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
•
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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
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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
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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.
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A) Signed documents
•
• L’Estrange v Graucob
• Tilden Rent-A-Car Co v Clendennin
• Le Mans Grand Prix Circuits Pty Ltd v Iliadis
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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
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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
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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
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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
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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
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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
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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
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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
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Types of Terms
•
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