Law of Contract – Lecture 6

Terms of Contract

Caption
Terms of
Contract
Terms
Terms as promises
Terms are promises contained in a contract
Generally, contracts may be spoken or in writing, and whatever their form, they contain terms

Classification
Terms can be classified in a number of ways, such as:
Condition
Warranty
Intermediate / innominate
Exemption Clause

And they can be classified as:

Express or
Implied
Terms have varying degrees of importance, and the consequences for breaching them varies according to the type of term involved
 Terms
Express Terms
These are promises that are stipulated by the parties
Express Terms Examples: Negotiations for sale of a car stipulate price;
manner of payment (such as bank cheque); delivery date;
inspection; service warranty, etc.
Some contracts may have very detailed terms e.g insurance
Contained in a Found in an contracts; loan contracts; car hire contracts; lease
contracts
written oral or spoken
Written contracts have the advantages of being able to
contract contract contain a large number of terms, and providing evidence of
them.
Spoken (or verbal) contracts do not provide a record of the
parties’ agreement, and therefore may be difficult to
Parol Evidence prove.
rule Implied Terms
Terms will have to be implied i) by the application of any
statutory provision, ii) by customs attached to the particular
trade or iii) the court may imply any term from the
circumstances of the case.
Terms
Condition
Important or major term
Central to meaning of the transaction
If a condition is breached, the innocent party can choose (but is not obliged) to repudiate (
terminate) the contract and/or also sue for damages
Case: Poussard v Spiers & Pond, where a term was found to be a condition
Warranty
Less important or minor term
Innocent party may not terminate the contract and can only sue for damages
Case: Bettini v Gye, where a term was found to be a warranty
Intermediate
Fall between condition and warranty. Classified according to relative seriousness of consequences of
their breach. Innocent party’s remedies depend on how a court views the seriousness of the
consequences of the breach- a breach of condition, or of warranty
Case: Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, where a court assessed the terms as
intermediate, having characteristics of conditions at certain times, and warranties at other times.
Poussard v Spiers (1876) 1 QBD 410

Madame Poussard entered a contract to perform as an opera singer for three months. She became ill five
days before the opening night and was not able to perform the first four nights. Spiers then replaced her
with another opera singer.

Held: Madame Poussard was in breach of condition and Spiers were entitled to end the contract. She
missed the opening night which was the most important performance as all the critics and publicity would
be based on this night.
Bettini v Gye (1876) QBD 183

Bettini agreed by contract to perform as an opera singer for a three month period. He became ill and
missed 6 days of rehearsals. The employer sacked him and replaced him with another opera singer.

Held:Bettini was in breach of warranty and therefore the employer was not entitled to end the contract.
Missing the rehearsals did not go to the root of the contract.
Protection of Terms
Parol Evidence Rule
An important rule known as the Parole Evidence Rule (PER) applies to
written contracts in order to protect their integrity
PER states that if a contract is wholly or entirely in writing , other
evidence is not admissible which would add to, vary, or contradict
the written contract
The point of the rule is to preserve the integrity of written
contracts; to hold otherwise would mean that there would be no
point in having a written contract in the first place
However, there are a number of exceptions to the PER, where
spoken (oral) evidence is allowed to be presented in order to add
to, vary or contradict the terms of the written contract.
Exceptions to Parole Evidence Rule
1. Custom or trade usage my be accepted as a part of the contract
2. The written agreement is subject to a spoken condition (not included in the written contract)
that must be met before the contract comes into operation. This is called a condition precedent.
See Pym v Campbell
3. The written agreement does not contain all the terms and is partly written and partly spoken,
Van Den Esschert v Chappell; where the buyer of a property was assured by the seller moments
before signing the written contract that the house was free of white ants. After signing, the buyer
discovered white ants, and the contract did not contain any terms about this matter. The buyer
sued, and was met with the objection of the PER. Held: spoken evidence was permitted to prove
a term that the house was free of white ants. Factors:
1. Timing of the statement- which was immediately prior to signing
2. Relative importance: high, because it related to the structural integrity of the house.
4. To clarify terms if they are ambiguous
5. To rectify a clear mistake in the written contract
6. To properly identify the parties to the contract
Exemption Clauses
• An exemption clause is a contractual term that forms part of a
contract which attempts to either limit or exclude a party's
liability to the other. This occurs when one party attempts to cut
down the scope of their contractual duties or regulate the other
party's right to remedies for a possible breach of contract.
• Thornton v Shoe Lane Parking (1971)
• Olley v Marlborough Court (1949)
• Curtis v Chemical Cleaning and Dyeing Co Ltd (1951)
 CASE LAW

• Thornton v Shoe Lane Parking (1971)

This case (Thornton v Shoe Lane Parking [1971] 1 All ER 686) demonstrates that for an Exclusion clause to be incorporated into a contract, other than by explicit
agreement, the affected party must be given adequate warning. Mr Thornton parked his car in a commercial car park. The car park did display a sign to the effect that
cars were parked at the owner’s risk. As it happens it was Mr Thornton that was injured, not the car. The car park’s terms of business were printed on the back of the
ticket issued from the ticket dispenser but, it was ruled, this did not form part of the contract as the contract was concluded before the ticket was issued. The notice on
the building was deemed insufficiently precise to allow a disclaimer of liability for injury. This case was one of many in which Lord Justice ` I-hate-exclusion-clauses’
Denning used the rules of incorporation to defeat exclusion clauses that mitigated against consumers. These days such technical manoeuvres would be unncessary, as a
contract term disclaiming liability for personal injury would be deemed void under the UnfairContractTermsAct1977.
• Olley v Marlborough Court (1949)
This case (Olley v Marlborough Court [1949] 1KB 532) demonstrates how an Exclusion clause that is not explicitly written into a contract cannot be upheld unless the
party it acts against had adequate notice.
Mrs Olley had her fur coat stolen from a locked root in the Marlborough Court Hotel. The Hotel tried to defend the ensuing claim for damages on the basis that there
were notices in the bedrooms disclaiming liability for thefts. The court ruled that the contract was formed at the reception desk, and Mrs Olley could not have know
the Hotel’s policy. Therefore the exclusion clause wass struck out. Of course, if it could have been shown that Mrs Olley had visited the hotel regularly, and that she
was aware of the terms under which it did business, the clause may have been allowed to stand.
• Curtis v Chemical Cleaning and Dyeing Co Ltd (1951)
This case ([1951] 1 HB 805, 1 All ER 631) demonstrates that although ignorance of an Exclusion clause will not normally prevent an injured party being bound by its
terms, misrepresentation might. Ms Curtis took a dress to be cleaned, and was asked to sign a contract. When asked what the contract bound her to, the company’s
employee said it was to disclaim liability for damage done to `beads and sequins’ on the dress. The dress came back stained. In fact, the exclusion clause was for all
damage of any kind, but the court ruled that the company could not rely on it because it had been misrepresented in the shop.
• Parker v South Eastern Railway (1877)
This case (Parker v South Eastern Railway (1877) 2 CPD 416) demonstrates that while a person cannot escape the effect of an Exclusion clause by failing to read the
contract terms, it may be a defence to show that the profounder of the clause had not taken sufficient trouble to bring it to notice. The case concerns a railway ticket,
and an exclusion for liability printed on its back. Mr Parker claimed that he thought the ticket was merely a receipt, not a contractual document. The jury in the original
trial found for Mr Parker, on the basis that his reasoning was sound. However, the CPD ordered a re-trial because this wasn’t the case in point; the relevant issue was
whether SER had taken reasonable steps to indicate that contractual nature of the ticket.
Collateral Contracts
Collateral contracts provide an additional means of overcoming the parole evidence rule in
relation to a written contract.
It’s a subsidiary contract that induces a person to enter into the main contract or which depends
upon the main contract for its existence.
It is defined as a contract, separate from but related to the main contract, the consideration for
which is the making of the main contract
From this, it appears that there is a main written contract (which continues to be protected by PER)
and also a separate spoken contract that can be enforced (which is not subject to PER).
Example: A tenant wishes to lease premises from a landlord. Before signing, the tenant asks
for assurance from the landlord that the drains are in good working order. That verbal
assurance is given, and the lease (the main contract) is signed. Later, the tenant discovers the
drains are not in good working order and this appears to be a breach of the earlier verbal
assurance. The problem the tenant faces is that the PER blocks admission of evidence about
the assurance in relation to the main written contract (the lease) as this would have the effect
of adding to or varying that written contract. To overcome this obstacle, the tenant could
argue a breach of collateral contract and claim damages.
Collateral Contracts
Requirements
Verbal
Collateral 1. Collateral contract must be
Contract consistent with the main contract
(i.e the main contract must not
Consideration have a term that says that no
Promise that the promises are given about the
drains are in drains), and
good working 2. The making of the collateral
order drains
promise (by the landlord) was the
Agreed to reason (not one of the reasons) why
enter main
contract,
the tenant entered into the main
Drains not
contract.
working

See JJSavage and Sons Pty Ltd v

Blakney
Condition Precedent and Subsequent
Condition precedent
A term relating to an external event that must occur before performance
under the contract is required. The event must ‘precede’ the performance,
hence, condition ‘precedent’.
e.g agreement to buy a car subject to satisfactory mechanical report
Condition subsequent
A term that states that if an external event occurs later, then the contract
will end.
e.g a term in a supply contract stating that the buyer may return the item
and obtain a refund should the product not be satisfactory
e.g a term in a lease that specifies events for which the tenant is responsible
that will terminate the lease e,g the tenant subletting the premises; or the
tenant using the premises as a house of ill repute