Lecture 5:The terms of a contract

Question 1

term

Answer 1

• is a particular agreed undertaking or promise made in circumstance from which it can be inferred that it was intended to be legally binding
• define the rights and duties of the parties
• provide the yardstick by which performance of the contract is measured

Question 2

terms of a contract

Answer 2

-describe the entire contents of a legally enforceable agreement

Question 3

freedom of contract

Answer 3

• the law allows contracting parties the freedom to negotiate and agree to the terms of their contract without outside interference
• there are some general limits on the extent to which freedom of contract operates (ex. illegal undertakings are not enforceable)

Question 4

proving the terms of a contract

Answer 4

• terms of wholly oral contracts are established by evidence from the parties themselves, or other witnesses
• terms of partly written and partly oral contracts are proved by oral and written evidence
  ex. V v C
• terms of wholly written contract are proved by reference to the written contract alone- the parol evidence rule
  ex. L v T
• there are various circumstances in which the parol evidence rule will not be strictly applied

Question 5

various circumstances in which the parol evidence rule will not be strictly applied

Answer 5

• evidence in support of rectification
• evidence that the written contract is only part of the agreement
• resolution of uncertainty in the written document

Question 6

statements that do not become terms of the contract

Answer 6

• puffs
• opinions
• representations

Question 7

puffs

Answer 7

• are exaggerated or obviously insincere statements made by a contracting part to engage, attract or excite others into contracts
• do not become part of the contract

Question 8

opinions

Answer 8

• are statements of personal views or beliefs

- the expression of an opinion does not create legal liability if honestly made even if wrong

Question 9

representation

Answer 9

• a statement of fact made by one party when negotiating a contract
• do not become terms of the contract unless it can be inferred from the circumstances that the statement was intended to be a binding promise
• this is so even if the statement induced the other party to enter into the contract
• have to ask what can reasonably be inferred from the circumstances
• ex. O v W, H v N

Question 10

misrepresentation

Answer 10

• a representation that proves untrue
• can be deliberate (fraudulent), careless (negligent) or simply the result of error (innocent)
• are not terms of the contract and do not give rise to an action for breach of contract even if the misrepresentations are fraudulent ones

Question 11

laws that provide other relief

Answer 11

-tort law and under the Australian Consumer law

Question 12

classifying the terms in a contract

Answer 12

• conditions
• warranties
• innominate terms
• whether a term is a condition or warranty depends on the intention of the parties, as evidenced by the circumstances
• from the circumstances can it be inferred that the promise was so important that the person whom it made (the promisee) would not have entered the contract without it, and this was apparent to the person making the promise (the promisor)
  ex. A v B, B v G

Question 13

conditions

Answer 13

-are terms that are fundamental importance in the agreement

Question 14

warranties

Answer 14

-are terms that are of lesser importance than conditions

Question 15

innominate terms

Answer 15

• are these if the court avoids classifying terms as conditions or warranties
• breach of this term
  ex. C v B, K v S

Question 16

terms can become part of a contract either:

Answer 16

• by agreement (which can be expressed or implied); or

- because they are put into the contract by operation of law (either the general law or legislation)

Question 17

expressly agreed terms

Answer 17

• terms that have actually been declared or definitely stated, either in writing or orally
• this can be done by being discussed or included in a sign document or referred to on a ticket or notice
• sometimes there is a disagreement over whether particular terms have been included in the contract or not
• L v F, C v B

Question 18

implied term

Answer 18

• a term that can be inferred that it was intended to be part of the contract without being expressly stated or referred to
• not easily recognized by courts
• number of requirements must be satisfied before a term be implied ad hoc
• there must be gaps in the agreed terms which implied terms are obviously required to fill

Question 19

officious bystander test

Answer 19

• it must be obvious from the circumstances that the parties must have intended to include such a term as part of their agreement
• ask what would the parties have replied if an officious bystander had asked them at the time of their agreement whether the suggested term was part of their contract
• if it can be inferred that the parties would have answered’of course’ the necessary intention is established
  ex. C v S, M v B

Question 20

business efficacy

Answer 20

-the contract would be effective without the proposed term, than that term will not be implied in to the contract

Question 21

further requirements in addition to the officious bystander test

Answer 21

• implied term must be necessary to give business efficacy to the contract
• it must be reasonable and equitable
• it must be capable of clear, unambiguous expression
• it must not contradict any express terms

ex. B v H

Question 22

terms put into a contract by operation of law

Answer 22

• contracting parties cannot foresee and provide for every possible situation by agreement
• the law may put terms into a contract to fill these gaps

Question 23

universal terms

Answer 23

• terms that are put into all contracts

- two important terms put into all contracts by the common law

Question 24

two important terms put into all contracts by the common law

Answer 24

• to cooperate and do what is reasonable so that both parties get the benefit of the contract
  ex. P v C, S v S
• to act in accordance with good faith(ex, use contractual powers honestly and reasonably
  ex. A v S, B v H

Question 25

generic terms

Answer 25

• terms that are implied by law only into certain kinds of contract
• certain kind of contracts meaning (sale of goods contract lease, an insurance contract, or a doctor and patient contract for ex.)
• terms put into different kind of contract by both the general law and by legislation

Question 26

sale of goods legislation

Answer 26

• an important example of terms implied into a contract by legislation
• Australian states and territories have inherited the English Sale of Goods 1893 and in Vic it is enacted at the Goods Act 1958
• contains many residual provisions for commonly occurring gaps in the agreed terms of sales contracts like:
• when, where, and how delivery should be made
• when, where, and how payment should be made

Question 27

statutory implied terms regarding the quality of goods sold

Answer 27

• various sections in the sale of good legislation put terms into a contract that make a seller liable for the quality of the goods
• sections numbers are from the Goods Act 1958
• equivalent sections are found in the sale of legislation of the other states and territories

important to know

• the circumstances in which each of the sections apply and
• the effect of the sections when they apply

Question 28

section 18

Answer 28

• applies simply if the goods sold are identified by description
• goods are sold by description when they are described as belonging to a particular class or type of goods (ex. shoes)
• this section makes it a condition of the contract that the goods delivered must be those identified by the description
• no implied guarantees as to the quality of the goods
• the principle caveat emptor applies (let the buyer beware)

Question 29

section 19a

Answer 29

• applies if a buyer makes known to a seller the purpose for which good are required; and
• the buyer shows reliance on the seller’s skill or judgment to provide goods suitable for that purpose; and
• the goods are a description that it is in the course of the seller’s business to supply (even if the seller has not manufactured them)
• it become a condition of the contract that the seller will supply goods reasonably fit for the buyer’s purpose
• otherwise the buyer may treat the contract as terminated and reject the goods
  ex. E v W

Question 30

section 19(a) provision

Answer 30

• at the end of section
• says that there is no implied condition as to the fitness of the goods for any particular purpose if specified articles are bought under a patent or trade name
• applies if, when purchasing goods by reference to their trade name, it is clear that the buyer is not relying on the seller’s skill and judgment to supply suitable goods, or when it is clear that the seller is disclaiming any such liability
  ex. B v M

Question 31

section 19 b)

Answer 31

• applies if goods are bought by description; and
• the seller deals in goods of that description (whether or not they manufactured them);
• then it becomes a condition of the contract that the seller is obliged to deliver goods that are at least of merchantable quality;
• unless the buyer has examined the goods in a way that ought to have revealed the defects complained of
• goods are of merchantable quality if other buyer, knowing of any defect in the goods, would buy those goods under the same description and for about the same price as the original buyer
  ex. A v G

Question 32

section 20

Answer 32

• applies when it is agreed that the quality of the goods will be determined by reference to the sample
  ex. L v T
• if a sale is by sample, it becomes a condition of the contract that the bulk of the goods must correspond with the sample and be free of any defect not reasonably apparent in the sample that makes them unmerchantable
• the buyer has a reasonable opportunity after delivery to compare the bulk with the sample

Question 33

contracting parties often restrict their liability by agrement

Answer 33

ex.

• a bus company restricts liability for injury to passengers
• a dry-cleaner excludes liability for damage to clothing; C v B
• an insurance company excludes liability for death arising from dangerous sports;
• a manufacturer excludes liability for defective products

Question 34

particular aspects of liability can be excluded or limited but to be enforced the terms must be:

Answer 34

• clear and precise;

- properly brought to the attention of the other party so as to be incorporated into the agreement

Question 35

terms in a contract that exclude or limit liability

Answer 35

• if they are properly incorporated into the contract, exclusion clauses are generally interpreted in the same way as any other term
• where the meaning of an exclusion clause is ambiguous, it is likely to be interpreted against the interest of the preferred party (contra preferentem

Question 36

contra preferentem

Answer 36

-ambiguous exclusion clause, is likely to be interpreted against the interest of the preferred party
ex.
-ambiguous words are interpreted narrowly;
-events that fall outside of the four corners of a contract will not be covered by an exclusion clause which appears to be intended to exclude liability only for things done within the ambit of the contract

Question 37

section 61 of Goods Act 1958

Answer 37

• the parties may validly agree to exclude or vary a liability arising under the Goods Act, including the terms implied in sections 18, 19, and 20
• makes no distinction between commercial and consumer contracts