Contents of contracts

When a contract is made, not everything that is said is a term. Some of what is said will be regarded as puff, some as a collateral contract, and some will be regarded as mere representation. A statement that is puff is not reasonably believable, and is not intended to be believed. Determining the status of whether the statement was a representation or a term (either of the main contract or a collateral contract) depends on the intention of the parties viewed objectively as to whether the statement is promissory, or merely an inducement to contract; Oscar Chess Ltd v Williams, Heilbut, Symons & Co v Buckleton. <Is the statement a promise that something will occur? =prima facie promissory> Subsidiary tests to assist in general test: -The words and conduct of the parties- if the statement is important in the minds of the parties it is probably a term; Harling v Eddy; Couchman v Hill -If one party is in a better position to ascertain the truth of the statement it is probably a term, Oscar ChessLtd v Williams -if the statement maker has control of the information, it is probably a term Hospital Products Ltd v United States Surgical Corporation -if there is a long interval between the statement and the conclusion of contract the statement is probably not a term; Routledge v McKay -if it is an oral statement not reduced into writing, it is probably not a term, <after subsidiary tests, on qualitative balance prima facie conclusion correct or incorrect?> Promissory terms may be Collateral contracts or Terms. This is a question of construction. If there were two transactionsone main agreement, pending on another agreement, then it is likely a collateral contract. <see collateral contract bellow> If the subject matter of the statement was closely associated with the main contract, the true construction would be a single transaction rather than a collateral contract, and the statement becomes a term.

Collateral contract:
A collateral contract is not concerned with the parol evidence rule because it is separate from the presumed conclusiveness of the main contract; De La salle v Guildford. Courts have been prepared to find a collateral contract where one party refused to enter the main contract unless certain assurances were given, or unless there was an assurance that one of the written terms of the main contract would not be enforced. For the court to hold that a collateral contract has been made, its terms must be consistent with the main written contract; JJ Savage & Sons v Blackney, Mendelssohn v Norman Ltd. The remedy available for breach of a collateral contract is damages only- the innocent party can not terminate the main contract because it is entirely separate from the collateral contract. Requirements for collateral contract: - The parties must have intended that the promise would be legally binding, - the promisee must have entered into the main contract on the basis of the promise and in reliance upon it; and - the promise must not be inconsistent with the terms of the main contract. Three-party collateral contracts are the exception to the rule of privity; Shanklin Pier Ltd v Detel Products Ltd Bipartite or tripartite collateral contract? Tripartite- 3 parties- the consideration in the contract was entering into a contract with a third party; Wells (Mersthan) Ltd v Buckland Sand and Silica Co Ltd Bipartite- 2 parties - are made between the same parties who enter into the main contract; Shepperd v The Council of the Municipality of Ryde In oral contracts: Court will admit all facts known to parties. (including words + actions +more) not all statements made when forming contract become terms. In written contracts: Terms generally written down. Consider whether the written contract was actually an oral/written mix.

Not all statements made over the course of negotiations will be regarded as terms Parol Evidence Rule: If a contract is in writing the general rule is that no oral evidence can be raised in court to vary contradict or change the written document. However where there is ambiguity or uncertainty in the contract it will be possible to vary this rule. Parol Evidence Rule says that generally if a contract is in writing, no oral evidence may be raised against it in court which may alter the contract. In Mercantile Bank of Sydney v Taylor, Innes J said: Where a contract is reduced into writing or where the contract appears in writing to be entire, it is presumed that the writing contains all the terms of it, and evidence will not be admitted of any previous or contemporaneous oral agreement which would have the effect of adding to or varying it in any way Exceptions where the Parol Evidence Rule will NOT be strictly applied are: Partly written/oral contracts; Van Den Esschert v Chappell, Couchman v Hill Contracts necessarily subject to some trade custom; Where a mistake has occurred in reducing the contract to writing; or Where parol evidence is required to resolve any ambiguity/uncertainty.

Sufficiently certain It must also be shown that the term was sufficiently certain. What the parties agreed to may be determined objectively with a reasonable amount of certainty: Whitlock v Brew; G Scammell & Nephew Ltd v HC & G Ouston. The courts will go to their utmost to uphold agreements, especially those using common language: Hillas & Co Ltd v Arcos Ltd. <Thus the specific agreement would stand?> Oral Statement: representation or term? Depends on: Time lapsed between the making of the statement and the final agreement Whether the innocent party was asked to verify the statement Schawel v Read Whether the statement was made with the intention of preventing the other party from looking for/finding any defects: Hopkins v Tanqueray; The importance attached to the statement CASE: Pym v Campbell; Bannerman v White Whether one of the parties had special skill or knowledge (or in a position to : Oscar Chess v Williams; Dick Bentley Productions v Harold Smith (Motors) Ltd

Is the term a condition or a warranty?

Initially the courts will presume that a term in a contract that is described as a condition has been given that description because it is important and likewise a term that is described as a warranty will be presumed to be less important; Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd If the contract does not explicitly say whether the term was a condition or a warranty (or of utmost importance or lesser importance), the court will frequently determine the status of the term using an objective test. The intention of the parties at the time of agreement is considered; Associated Newspapers Ltd v Banck, An essential term (or a condition) is one where a party would not have entered into the contact unless they were sufficiently assured of a strict and substantial performance of it, and the other party should have realized that; Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd, Poussard v Spiers. <would the party have agreed to the contract if they were not assured of a complete, strict and substantial performance? If yes, warranty. If no, condition. If there can different degrees of breach, innominate> If a term is too wide to be classified as a condition or a warranty just by looking at the contract or from the evidence of the intentions of the parties (i.e. there can be varying severities of breach of the term) then the term will be identified as an innominate term and in the event of a dispute the court will go beyond the term of the contract and look at the seriousness of any breach; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd. If the breach is serious then the court will treat the term in relation to that breach as a condition, if the breach is less serious then the term will be treated as a warranty in relation to that breach. Remedies for breach of terms: Condition or innominate terms where there has been a serious breach: If a condition is breached, or an innominate term is breached severely (i.e. a breach which denies the innocent party the

whole of the benefit of the contract; Hong Kong Fir Shipping Co Ltd v Kawasaki Kaisen Kaisha), the innocent party may choose to: (1) Continue with the contract and claim damages against the other party; or (2) Repudiate the contract i.e. end it and claim rescission which means the party would be put into the same position as he or she would have been in had the contract never existed; The Mihalis Angelos

Warranty or an innominate term where there has been a less serious breach: If the term that is breached is a warranty the innocent party can claim for losses suffered as a result of the breach (the party would be put into the same position as if the contract had been properly performed), however the contract cannot be terminated unless it deprives the innocent party of the whole of the benefit of the contract; Cehave N.V v Bremer Handelsgesellschaft m.b.h. (The Hansa Nord), Bettini v Gye Example showing issue: The issue raised by the facts given is whether <party As> failure to fulfil his contractual requirement to < insert contractual requirement> justified <party B> in refusing to proceed with the contract; the issue is not whether the plaintiff has any excuse for failing to fulfil this part of his contract. The answer to the issue depends on whether that part of the contract was a condition precedent to the defendants liability, or a warranty of lesser importance which would not justify a repudiation of the contract, merely a cause for seeking compensation in damages. It is necessary to look to the root of the agreement to determine whether the intention of the parties made the term a condition (i.e. it was very important) or a warranty (i.e. it was less important). <state rule for determining condition or warranty>

Condition precedent & condition subsequent

A condition precedent is a condition that must be met before either the contract comes into effect, or a party is not obligated to provide some specific consideration; Sandra Investments Pty Ltd v Booth, Pym v Campbell. Whether the failure of the event to occur means that there is no contract or simply no obligation to perform depends upon the intention of the parties: George v Roach. Such a condition is not promissory and no liability attaches if the event does or does not occur: Meehan V Jones A condition subsequent means that a contract will be terminated once that condition is met; Geipel v Smith, Head v Tattersall. Such a condition is not promissory and no liability attaches if the event does or does not occur: Meehan V Jones. The effect of the contingency depends on the specific agreement: Perri v Coolangatta Investments Pty Ltd. <in this case it would appear that the contract of purchase itself is subject to the contingency, rather than meerly, e.g. the obligation to pay the balance> <If contingency hasnt occurred, entitled to terminate.> <if for his benefit, may choose to waive the nonoccurrence and claim right to enforce contract, give example> If the contract is terminated, parties are relieved of having to provide further consideration. If there is a total failure of consideration, parties will be entitled to recover deposits.

Exclusion clauses:
Exclusion clauses are where a party puts a term in a contract which seeks to limit or exclude a liability which would otherwise be his or hers. Both the courts and parliament have sought to control the use of these clauses and have laid down certain rules and conditions for their use. It is for the party relying on the exclusion clause to show that they are within its protection. They are binding: It will be almost impossible for a party who has signed a document which contains an exemption clause to deny its contractual character unless there has been fraud or misrepresentation by the party inserting the clause: L'Estrange v Graucob, Curtis v Chemical Cleaning and Dyeing Co If not signed, parties must be made aware of clause before contract starts: If the party against whom the exemption clause is pleaded has not signed a document containing it, then reasonable notice of the clause must be given and such notice must be given before the contract has been entered into - Parker v SE Rly, Thornton v Shoe Lane Car Parks, <thornton is the ticket case>A reasonable person in that situation must also have considered it a part of the contractual

contract; Causer v Browne Except where there has been a previous, consistent course of dealing between the parties where the exclusion clause has been consistently used, and there is a reasonable expectation that the same terms will apply; Spurling v Bradshaw. Whether the clause is incorporated by the previous dealings depends on whether those previous dealings were frequent; if they were, the clause applies; Henry Kendall & Sons v William Lillico & Sons Ltd, which is contrasted against Hollier v Rambler Motors (AMC) Ltd where three to four transactions spread over five years was insufficient. It is a matter of legal debate whether or not a reasonable expectation that the same terms will apply requires actual knowledge of the exclusion clause in the previous dealings. The stronger position seems to be that actual knowledge of the clause is not required and constructive knowledge is sufficient; Henry Kendall & Sons v William Lillico & Sons Ltd, however this is at odds with the ratio in Eggleston V Marley engineers Pty Ltd. Except where it is the usual trade practise to include an exclusion clause, and defendant is reasonably aware of that trade practise; British Crane Hire Corp. v Ipswich Plant Hire

impact of the exclusion clause:

If an exclusion clause becomes part of a contract, the court may have to determine the meaning of that clause. The court has created several tests and rules for doing so: The court will interpret the clause according to its natural and ordinary meaning; Sydney City Council v West, Darlington Futures Ltd v Delco Australia Pty Ltd. The contra proferentem rule attempts to interpret ambiguities that arise, and can be applied to exclusion clauses. It states that in the result of an ambiguous clause, the interpretation shall go against the party who included the clause/is relying on the clause; Elder Smith Goldsbrough Mort Ltd v McBride, Wallis v Pratt, TNT (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd The Question is whether the words used are wide enough to cover the negligence shown in the facts; Rutter v Palmer. Four corners rule (for exclusion) If an act was outside the 4 corners of the contract, it is not covered by the exclusion clause: Council of city Sydney v West NOTE Balmain New Ferry Co Ltd v Robertson.

Unclear terms:
Terms that are ambiguous or unclear within a contract cannot be enforced by the court and may in some circumstances be severed by the court, provided that it is possible to give effect to the remainder of the contract. The unclear term may also be a reflection that there was no clear agreement between the contracting parties; disagreement caused due to ambiguity reflects a lack of Consensus ad idem; Scammell and Nephew Ltd v Ousten.

Implied terms:
terms were obviously intended but not included: In The Moorcock, it was established that the parties intention may be seen from the facts of the individual case. The test for deciding whether the parties intended a term to be implied was described by Mackinnon LJ in Shirlaw v Southern Foundaries (1926) Ltd and has been named 'the officious by stander test'. <If a bystander were to suggest the term, would the parties would have responded with a common oh, of course!>This is further supported in Liverpool CC v Irwin. BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1978). In a particular industry, trade or business implied terms may be read into a contract to reflect the practice in that industry, trade or business. In Con-Stan Industries v Norwich Winterthur Insurance, A tem may be implied into a contract as a matter of fact if the following are satisfied: Codfelfa construction Pty Ltd v State Rail Authority of New South Wales suggests the following test: implication must be reasonable and equitable, implication must be necessart to give business efficacy to the contract so that no ter will be implied if th contract is

effective without it, term must be so obviousthat it goes without saying, term must be capable of clear expression, and term must not contradict any express term of the contract;

Contract ay be containted in more than one document: Toll (FGCT) Pty Limited V Alphaphar Pty Limited, if reference was made to various sections to incorporate the: Smith v South Wales Switchgear Co Ltd