Constructing the Contract

Constructing the Contract
On completion of this chapter, you should be able to:
 distinguish between representations and terms
 recognise and explain the importance of collateral contracts
 identify and explain the types of terms found in a contract
On completion of this chapter, you should be able to:
 distinguish between conditions and warranties
 outline when terms are implied into a contract and
discuss their effects
 recognise an exclusion clause and discuss its effect
on a contract
Assuming that a simple contract has been
created and that there are no elements that
affect is validity — the next question to be
considered is:
What is the extent of the rights and
obligations that the parties have entered
into?
The answer is found in the terms.

A statement could:
 be a term, which will create contractual obligations
between the parties, a breach of which will result in the
injured party being able to sue.
 create a collateral contract — a preliminary contract on
which the main contract is entered into, a breach of which
will result in the injured party being able to sue.
A statement could be:
 a representation which induces an offeree to enter into the
contract but is not part of the contract and not actionable in
contract law.
 a sales puff - is not intended to have any legal effect; no remedy
is available.
To determine whether a statement is a representation or a
term consider:
 Time lapsed between the making of the statement and the final
agreement.
Whether the innocent party was asked to verify the statement.
 The importance attached to the statement: Pym v Campbell
(1856)9

To determine whether a statement is a
representation or a term
consider:
Whether the statement was made with the intention of
preventing the other party from looking for/finding any
defects:
Hopkins v Tanqueray (1854)
Whether one of the parties had special skill or
knowledge: Oscar Chess v Williams (1957)
Parol = oral, spoken
Where the contract is in writing, the parol evidence rule excludes
oral evidence that will ‘add to, vary or contradict’ the written
document.
There are a number of exceptions to the parol evidence rule.
Exceptions to the parol evidence rule:
 Prove a trade custom or usage
 Show a contact is not yet effective
 The written agreement is not the whole contract: Van
Den Esschert v Chappell (1960)
 Clarify any ambiguous language
 Rectify a mistake where the agreement was not
accurately expressed in writing12

Oral promises made by the parties prior to entry into the main
contract which are not terms may have contractual effect as a
collateral (or preliminary) contract on which the main contract is
based:
De Lassalle v Guildford [1901]
A collateral contract has an independent existence to the main
contract and is not subject to the parol evidence rule.
Criteria for enforceability
 The statement is promissory;
 The collateral contract is not supported by past
consideration; AND
 The collateral contract must be consistent with the
main
contract:
Hoyt’s Pty Ltd v Spencer (1919)
unless the inconsistency comes from the operation of
an exclusion clause
Types of terms:
 Condition
Warranty
 Innominate term
 Condition precedent
 Condition subsequent

Condition:
a vital or essential term going to the root of the contract and
allowing the injured party the option of rescission and/or
damages
Warranty:
a term of lesser importance that allows the injured party
only to recover damages
To determine whether condition or warranty:
Apply an objective test, looking at the
contract as a whole, and consider whether the stipulation is essential
to the contract:
Associated Newspapers Ltd v
Bancks (1951)
Look at the effect the breach has on the contract:
Poussard v Spiers & Bond [1876]
but compare Bettini v Gye [1876 ]
Innominate term:
an intermediate term which, while it could be minor, could
have a very serious effect and cause the contract to end,
allowing the innocent party to rescind the contract and/or
obtain damages.

Innominate term
A term that is capable of being breached in both minor and
major ways. Consider if the breach has deprived the innocent
party of substantially the whole benefit that they should have
derived from the contract:
Hong Kong Fir Shipping Co Ltd v
Kawasaki Kisen Kaisha Ltd
(1962)
Condition precedent
Is a term that prevents an agreement turning into a
contract until the happening of a stated event: Pym v
Campbell (1856)
or
A term which goes to the performance of a party’s
obligations under a contract.
Condition subsequent:
Is a term in the contract which can terminate it on the
occurrence of some external event: Head v Tattersall (1871)

For a term to be implied it must be:
 Reasonable and equitable
 Necessary for business efficacy
 So obvious ‘it goes without saying’
 Capable of clear expression
 Doesn’t contradict express terms
BP Refinery (Westernport) Pty Ltd v
Shire of Hastings (1978)
Types of implied terms
 Custom or usage
Pelly v Royal Exchange Assurance (1757)
 Statute
 By the courts
The Moorcock (1889)
If there have been prior dealings, courts may imply appropriate
terms:
Hillas & Co Ltd v Arcos Ltd (1932) Where there are no past dealings,
courts may be forced to find contract
void for uncertainty:
Scammell & Nephew v Ouston (1941)

If the term has no meaning, the courts will sever it if possible and
leave the rest of the contract valid:
Fitzgerald v Masters (1956) If this is not possible, the
contract will be void for uncertainty.
Also known as exception or exemption clauses.
Their purpose is exclude or limit the liability
of the person inserting them.
Their effectiveness is a matter of construction of the
contract as a whole, taking into account the bargaining
position of the parties.
Does the writing constitute a contractual
document and not a mere receipt?
Chapleton v Barry Urban District Council (1940)
Then consider whether the document was
signed by the acceptor or not.

In the case of signed documents
The document is binding whether it has been read or not:
L’Estrange v Graucob Ltd (1934)
unless there is fraud or misrepresentation:
Curtis v Chemical Cleaning & Dyeing Co (1951)
In the case of unsigned documents
Would a reasonable person have regarded the document
as containing contractual terms? Causer v Browne
(1952)
Has reasonable notice of the terms been given?
Thornton v Shoe Lane Parking[1971]
Have particularly onerous or unusual conditions been
brought to the customer’s notice?
Interfoto Picture Library Ltd v
Stiletto Visual Programmes Ltd
[1988]
In the case of unsigned documents
Plus:
Were the terms included after the contract has been completed?
Olley v Marlborough Court Ltd [1949]
Can terms be implied by custom or trade?
Balmain New Ferry Co Ltd v Robertson
(1906)

Where exclusion clause validly incorporated:
It will be strictly construed against the party attempting to rely
on it — contra proferentum rule:
White v John Warwick & Co Ltd [1953]
Interpretation made according to the express agreement of
the parties:
The ‘four corners’ rule will apply so the exclusion clause only
operates to cover a loss which occurs within the operations
envisaged by the contract.
The Council of the City of Sydney v West
(1965)
Where exclusion clause validly incorporated
The exclusion clause is to be construed according to its
natural and ordinary meaning:
Photo Production Ltd v Securicor Transport
Ltd [1980]
This is a rule of construction based on the presumed intention
of the parties — Darlington Futures Ltd v Delco Australia Pty
Ltd (1986) — in commercial contracts but note position in
consumer contracts if there is inequality of bargaining
power for the consumer.
Position of Third Parties
Third parties are generally not protected by an exclusion
clause because of the operation of the privity rule:
Adler v Dickson (1955)

Position of Third Parties
For an exclusion to protect third parties:
 It must be clear the contract was intended
benefit third parties;
 It was clear the defendant was contracting for
itself and third parties;
 There was an agency relationship between the defendant and the
third party; and
 Consideration moved from the third party. Scruttons v Midlands
Silicones Ltd [1962]
Statutory modifications
Commonwealth and state/territory legislatures have
intervened in the area of exclusion clauses — for
example:
 sale of goods and consumer protection legislation.

Thank You
www.HelpWithAssignment.com

Constructing the Contract

More Related Content

What's hot (19)

Viewers also liked (16)

Similar to Constructing the Contract (20)

Recently uploaded (20)

Constructing the Contract