Topic 6: Contract Law: Terms of a Contract and Non-contractual Representations
Commercial Law
Overview of this topic:
Express terms
Representations and promises
Terms implied by the court
Implied Terms and Statutory terms
Unenforceable terms
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Learning Outcomes:
What is a ‘term of the contract’?
What is the effect of a term being included in a written and signed contract? How can a term be included in a contract that is not in writing and signed?
When will the common law imply terms into a contract and what terms are implied into contracts by the sale of goods legislation?
What are disclaimers and how do they protect a party from the consequences of breach?
Are there types of contractual term that a court will not enforce?
What is the difference between a term and a non-contractual representation or promise? When will a non-contractual representation or promise be enforceable?
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Reading materials
Chapter 8 of Nickolas James’s Business Law (Wiley, 5th ed, 2020)
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Express terms
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Express Terms
The terms of the contract are the specific details of the agreement, including each party’s rights and obligations.
Broadly speaking, there are two types of contractual terms: express terms and implied terms: terms may be implied either by the courts and/or any relevant statutory terms.
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EXPRESS TERMS: Representations and promises
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EXPRESS TERMS: Representations and promises
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EXPRESS TERMS: Representations and promises At common law
The terms of a contract – what the contract contains – the rights and obligations agreed upon within it – are usually arrived at as a result of negotiations during which much may be said by both parties.
The crucial issue here, is then, to determine how much of what was said was intended to be a term of the contract?
This gives rise to the need to distinguish between statements which are considered to be part of the contents of a contract [terms] and those statements which were not [representations].
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EXPRESS TERMS: Representations and promises At common law
REPRESENTATIONS
If the statement is not part of the content of a contract [a term], it is referred to as a ‘mere representation’.
A mere representation is a statement which has no contractual impact: Oscar chess v Williams [1957] 1 WLR 370
It stands outside the contract.
That does not mean that that statement cannot form the basis for a remedy under another heading just because it is not a term. It can.
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EXPRESS TERMS: Representations and promises At common law
That remedy will lie in ‘Misrepresentation’, which is:
A statement of fact;
which is not true;
which stands outside the contract and
which induces someone to enter into a contract.
The misrepresentation may be:
Innocent: Derry v Peek; Whittington v Seale-Hayne
Negligent: Esso Petroleum v Mardon or
Fraudulent: Derry v Peek
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EXPRESS TERMS: Representations and promises At common law
The remedies available are:
Innocent misrepresentation: Rescission only: Derry v Peek; Whittington v Seale-Hayne
Negligent misrepresentation: Rescission and damages in the tort of Negligent Misrepresentation: Esso Petroleum v Mardon
Fraudulent misrepresentation: Rescission plus damages in the tort of Deceit: Derry v Peek
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EXPRESS TERMS: Representations and promises At common law
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EXPRESS TERMS: Representations and promises At common law
PAROL EVIDENCE RULE
As an alternative to possibly constituting a misrepresentation, the statement made can constitute one of the exceptions to the parol evidence rule.
This possibility requires the discussion of both the rule and one of the exceptions to it – that the contract was partly written and partly oral.
The parol evidence rule provides that if the contract is fully and completely in writing, no oral evidence will be allowed to change the provisions of the written contract: Van Den Esschert v Chappell [1960] WAR 114
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EXPRESS TERMS: Representations and promises At common law
One of the exceptions to the parol evidence rule provides that if the contract is partly written and partly oral, the court will allow evidence of the oral statement made: Van Den Esschert v Chappell.
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EXPRESS TERMS: Representations and promises At common law
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EXPRESS TERMS: Representations and promises At common law
If a court determines that the contract is partly written and partly oral, then that oral statement is considered to be a term of the contract. The next question to be determined is how important was the oral promise which is now a term?
Was it a condition? Associated Newspapers Ltd v Bancks (1951) 83 CLR 322
Was it a warranty? Bettini v Gye (1876) QBD 183
The difference between the two types of terms will determine the contractual damages and thus, remedy.
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EXPRESS TERMS: Representations and promises At common law
COLLATERAL CONTRACTS
The final possibility of what the oral statement may be is that of a collateral contract.
De Lasalle v Guildford: [1901] 2 kb 215.
A collateral contract is a contract the consideration (payment) for which is the entry into of another contract.
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EXPRESS TERMS: Representations and promises At common law
There are three prerequisites to the application of a collateral contract argument:
There must be no inconsistency with the main contract: Hoyt’s Ltd v Spencer (1919) 27 CLR 133
The statement made must be promissory in nature: JJ Savage & Sons Pty Ltd v Blakney (1971) ALR 92 and
There must be consideration given for the collateral promise made: De Lasalle v Guildford.
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EXPRESS TERMS: Representations and promises Under Statute
Apart from these alternative arguments at common law, there may also be grounds for breaching certain statutory provisions of the ACL.
If the other party was tricked or deceived into entering into a contract they can commence a legal action using the statutory provisions in the ACL that prohibit misleading or deceptive conduct, false representations and other unfair practices: see Chapter 11 (covered later).
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EXPRESS TERMS
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EXPRESS TERMS: Signed documents
There are two ways by which a term becomes an express term of the contract:
by inclusion in a signed written contract.
by being brought to the attention of the other party by reasonable notice.
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EXPRESS TERMS: Signed documents
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EXPRESS TERMS: Signed documents
If a term is in a written contract that has been signed by the parties, it is a binding and enforceable term of the contract, even if one of the parties has not actually read and understood the written contract: L’Estrange v F Graucob ltd [1934] 2 KB 394
UNLESS
There is fraud or misrepresentation: Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805
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Express terms: Signed documents
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EXPRESS TERMS: Signed documents
In Curtis’ case the exclusion clause was on a ticket handed out by a dry cleaning company.
Normally, that would mean that this case belongs under the ‘unsigned’ documents heading.
But in that case, the dry cleaning company asked the client to SIGN the ticket (which had an exclusion clause on it) thereby bringing the case under the ‘signed’ document heading.
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EXPRESS TERMS: Signed documents
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EXPRESS TERMS: Signed documents
Situations where a signed contract may be unenforceable include:
cooling off periods, and
non est factum.
Cooling off periods
It is not uncommon to find a ‘cooling off’ provision in certain contracts today.
Where these provisions are contained in a contract, they provide a period for a signatory to the contract in which a party may change his/her mind and not proceed with the contract.
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EXPRESS TERMS: Signed documents
Non est factum
A latin phrase which literally means ‘it is not my deed.’ This phrase applies to situations where a party is mistaken as to the nature of the document signed.
EXAMPLE: I believe I am witnessing a document of receipt when in fact I am signing an option contract: Petelin v Cullen. There is usually an onus on the person who signed the document to show that that person had not been careless in signing the document. However the issue of carelessness does not apply where the plaintiff’s behaviour has not been innocent.
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EXPRESS TERMS: Signed documents
Petelin v Cullen (1975) 132 CLR 355
Petelin, who could not read English, signed a document believing it to be a receipt for $50. In fact, the document gave Cullen an extension on a previous option given by Petelin to Cullen to purchase Petelin’s land which Cullen did not exercise within the relevant period.
Cullen requested an extension of the option which Petelin signed not knowing that he was doing so. Cullen subsequently excercised the extended option but Petelin refused to sign a contract of sale and Cullen sought specific performance.
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EXPRESS TERMS: Signed documents
Cullen was unsuccessful because his real estate agent (acting on behalf of Cullen), had lead Petelin to believe that Petelin was signing a receipt for the payment of $50 which had previously been made by Cullen for the exercise of the original option (which had since run out) and which Petelin believed he was simply acknowledging in writing.
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EXPRESS TERMS: Signed documents
The issue of carelessness was irrelevant in the circumstances because the behaviour of Cullen’s agent (for which Cullen had to accept responsibility) was not innocent. In relation to the extended option sought, the agent had told Petelin that Petelin that was signing a receipt for the original option payment and that Petelin must sign the document.
Petelin believed what Cullen’s agent said in relation to the nature of the document and to the necessity for signing the document.
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EXPRESS TERMS: Unsigned documents
UNSIGNED DOCUMENTS
If a statement is not contained in a written and signed contract (unsigned document) it will only be an express term of the contract if the other party had reasonable notice of the statement
Unsigned documents are usually referred to as the ‘ticket’ cases – cases where a customer is given a ticket when goods are left in another’s care:
EXAMPLE: Dry cleaners, car parks, boot makers
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EXPRESS TERMS: Unsigned documents
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EXPRESS TERMS: Unsigned documents
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EXPRESS TERMS: Unsigned documents
Tickets are generally viewed as ‘vouchers’, ‘dockets’ or ‘receipts’ – a means of identifying the goods left in another’s care and paying for the services rendered in relation to those goods.
As a general rule therefore, tickets are not viewed as contractual documents. So any provision (such as an exclusion clause on a ticket) is not viewed as having any contractual significance: Causer v Browne [1952] VLR1
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EXPRESS TERMS: Unsigned documents
If however actual notice or reasonable notice is given of the existence of the exclusion clause, prior to the completion of the contract, then the exclusion clause will form part of the contract.
Actual notice exists where a party is advised of the existence of the exclusion clause and given a choice as to whether or not that party wishes to proceed with the transaction.
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EXPRESS TERMS: Unsigned documents
Reasonable notice occurs when everything that is reasonably required of a party to bring the existence of the exclusion clause to the attention of another party prior to the completion of a contract, has been done.
In that case, the exclusion clause will also be considered to be part of the contractual terms.
Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163
Thomson v London, Midland and Scottish Railway Co [1930] 1 KB 41
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EXPRESS TERMS: Unsigned documents
This necessarily means that
an exclusion clause
brought to the attention of another
after the contract has already been formed
will not be a term of the contract
because reasonable notice was not given prior to the contract’s completion.
Olley v Marlborough Court [1949] 1 KB 532
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EXPRESS TERMS: Unsigned documents
CONTRA PROFERENTUM RULE
If the exclusion is considered to be part of the contract for either reason, then the wording of that exclusion will be considered by a court in order to determine if the exclusion clause is appropriately worded to cover exclusion from the liability by the defendant for which the plaintiff is suing.
If there is ambiguity in the wording, the court will apply the contra proferentem rule and read the exclusion clause down and against the party seeking its application:
White v John Warwick & Co [1953] 2 All ER 1021
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EXPRESS TERMS: Unsigned documents
FUNDAMENTAL BREACH
When a party acts outside the contract in this way, usually, they will have committed a ‘fundamental breach’ of contract.
To commit a fundamental breach is to do something which is as bad as not performing the contract at all.
The court takes the view that if a fundamental breach has been committed by one of the parties, the law will presume (in case of ambiguity in the wording of the exclusion clause), that the exclusion clause was not meant to cover exclusion from that liability.
This means the defendant will not be able to rely on the ambiguous exclusion clause when sued by a plaintiff.
Sydney City Council v West (1965) 114 CLR 481
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EXPRESS TERMS: Unsigned documents
The court’s view is a presumption only and applies to ambiguously worded exclusion clauses.
That means that if the exclusion clause is carefully and precisely worded so that it leaves no room for doubt that it intends to cover exclusion from liability for a fundamental breach, then the court will give that exclusion clause effect.
Photo Production Ltd v Securicor Transport Ltd [1980] AC 827
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EXPRESS TERMS: Unsigned documents
Fundamental breach then is equal to non-performance of the contract.
Contrast this with the case where a party breaches a term of the contract – either a condition or warranty.
Breaching a condition or warranty occurs when someone is working within the contract and trying to perform it, but doing so, badly.
Fundamental breach, on the other hand, is going ‘outside’ the contract and its terms in such a way as not to perform the contract at all.
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Terms implied by the court
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IMPLIED TERMS: At Common law
AT COMMON LAW To give the contract legal effect. Courts are frequently willing to imply a term into a settled contract to ‘fill the gaps’, as long as it is:
reasonable and fair,
necessary to make the contract viable,
so obvious that it ‘goes without saying’,
able to be clearly expressed, and
consistent with the express terms.
Codelfa Construction Pty Ltd V State Rail Authority of NSW [1982] HCA 24
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IMPLIED TERMS: At Common law
Prior Dealings
On the basis of prior dealings between the parties:
The Balmain New Ferry Co v Robertson (1906) 4 CLR 379
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Implied Terms Statutory terms
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IMPLIED TERMS:Under Statute
UNDER STATUTE: State Legislation
The Sale of Goods legislation is legislation on a State level and implies statutory terms that protect the buyer into contracts for the sale of goods;
Similar terms are implied into Consumer contracts by the ACL (Federal legislation);
(These are considered in Topic 10.)
A contract for the sale of goods is a contract where a seller transfers, or agrees to transfer, the ownership of goods to a buyer in return for a monetary price.
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IMPLIED TERMS: Under Statute
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IMPLIED TERMS: Under Statute
In the Goods Act 1958 (Vic), in every contract for the sale of goods there is an implied condition that the:
seller has title, i.e. the right to sell those goods to the buyer: s 17
goods will correspond with their description: s 18
the goods will be of merchantable quality: s 19 (b)
goods will be fit for their purpose: s 19 (a)
bulk of the goods corresponds with the sample: s 20
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IMPLIED TERMS: Under Statute
Section 18: Sale by Description
A seller will have breached the statutory implied term regarding sale by description if the goods are sold by description and they have failed to correspond to the description.
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IMPLIED TERMS: Under Statute
Section 19 (a): Implied Condition of Fitness for Purpose
A seller will have breached the statutory implied term regarding fitness for purpose if:
the contract is for the sale of goods;
the seller normally sells goods of that description;
the buyer has either expressly or by implication told the seller the purpose for which they were buying the goods;
the buyer has relied on the seller’s expertise;
the goods are not fit for the stated purpose; and
the buyer has not requested the particular goods by name.
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IMPLIED TERMS: Under Statute
Section 19 (b): Implied Condition of Merchantable Quality
A seller will have breached the statutory implied term regarding merchantable quality if:
the contract is for the sale of goods;
the buyer has relied upon a description of the goods;
the seller normally sells goods of that description;
the goods are not of merchantable quality; and
the buyer has not examined the goods or, if they have examined the goods, the defect is not one that would have been revealed by the examination.
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IMPLIED TERMS: Under Statute
The State legislation regarding the sale of goods only applies within the relevant State geographical area.
Each State has its own Act which contains similar provisions to other States.
As State legislation it is only relevant and binding in relation to the sale of goods within the relevant State.
Unlike the Sale of Goods legislation, the ACL (the Australian Consumer Law, to be discussed later), is Federal legislation which applies in exactly the same way and uniformly to every State and Territory within Australia.
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IMPLIED TERMS:Under Statute
The sale of goods legislation also implies statutory terms into contracts relating to:
Passing of ownership: ss 21-25 SGA
Acceptance: s 41-43 SGA
Payment: s 35 SGA
Delivery: s 36-40 SGA
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Unenforceable terms
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UNENFORCEABLE TERMS
The courts will also refuse to enforce a term that is:
An attempt to limit the court’s jurisdiction; e.g. a term that provides that in the event of a breach by one party, the other party is not permitted to commence legal proceedings, or
A restraint on trade if the restraint imposed by the term is unreasonable in terms of time, geographical area, and/or scope of business.
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Takeaways from today?