1 Extent of the obligation A TERM of the contract -- a statement within the contract indicating how it should be performed.

In contrast a REPRESENTATION is a statement that induces the offeree to enter the contract. 2 Express terms i. ii. Representation or term? Where a statement has been made by one of the parties, it is necessary to determine whether it is a mere representation, which unless it is fraudulent is not part of the contract, or a term, and therefore a condition or warranty. While it is never easy to determine whether a statement is a term or a representation, the courts will take into account: o the time lapse between the making of the statement and the final agreement; o whether the person making the statement asks the other person to check or verify it; o whether the statement was made with the intention of preventing the other party from finding any defects (Hopkins v. Tanqueray [1854]); o the importance attached to the statement by the parties; o whether it is an oral statement and precedes a written contract; whether the person who has made the representation has some special skill or knowledge not possessed by the other party (Oscar Chess v. Williams [1957].

3 The parol evidence rule In the case of written contracts, the courts operate within the confines of the 'four corners' doctrine. The parol evidence rule excludes oral evidence that will 'add to, vary or contradict' the written document except when: i. ii. iii. iv. v. custom or trade usage demands otherwise; it will suspend a written agreement when the contact has not yet become effective; the written agreement is not the whole contract (Van Den Esschert v. Chappell [1960]); it clarifies any ambiguous language; or it rectifies a mistake of the parties where the agreement was not accurately expressed in the written contract.

4 Collateral contracts A mere representation can be regarded as significant if it can be established that it amounts to a collateral or preliminary contract, so that the main contract would not have been entered into in the absence of those earlier statements (de Lassalle v. Guildford [1901]). It is essential that: i. ii. there is no inconsistency between the making of the statements and the main contract (Hoyt's Pty Ltd v. Spencer [1919]), unless the inconsistency comes from the operation of an exclusion clause, in which case the collateral contract would override the exclusion clause (Mendelssohn v. Normand Ltd [1970]); and the plaintiff entered into the contract only because of the statement made by the defendant (J.J. Savage and Sons Pty Ltd v. Blakney [1970]).

5 How important is the term? i. Condition or warranty? o If it is established that a statement is a term, it must next be established whether it is a: -- condition---a vital term which goes to the root of the contract and allows the injured party the option of rescission and/or damages (Poussard v. Spiers & Bond [1876]; or a -- warranty---a term of lesser importance that allows the injured party only to recover damages (Bettini v. Gye [1876]); or an -- innominate term---intermediate terms which, while they could be minor, could have a very serious effect and cause the contract to end, allowing the innocent party to rescind the contract and obtain damages (Hong Kong Fir Shipping Co. Ltd v. Kawasaki Kisen Kaisha Ltd [1962]) . o A condition may also refer to an 'external event' by which an obligation is suspended or cancelled. It must be separate from the contract and will be either a: -- condition precedent---where an obligation or right is suspended until the happening of a stated event (Pym v. Campbell [1856]); or -- condition subsequent---where the obligation or right is terminated on the occurrence of some external event (Head v. Tattersall [1871]).

6 Implied terms Implied terms are derived from: i. custom or trade usage (Pelly v. Royal Exchange Assurance [1757]);

ii. iii.

statute, for example, sales of goods legislation, hire purchase legislation and trade practices and consumer protection legislation; the courts---if the parties had prior dealings, the court may call expert witnesses to fill in missing pieces (Hillas & Co. Ltd v. Arcos Ltd [1932]). Where the parties have had no prior dealings the court will have little option but to strike the contract down (Scammell v. Ouston [1941]).

7 Meaningless terms Where the validity of a contract will be unaffected by severing a meaningless term from it, the courts will do so (Fitzgerald v. Masters [1956]). This is a matter of construction. 8 Exception, exemption or exclusion clauses or terms Exclusion clauses are most commonly found in standard form contracts, and the following rules can be used to determine their effectiveness: i. ii. iii. Does the writing constitute a contractual document? It must have been intended as a contractual document and not as a mere receipt (Chapleton v. Barry Urban District Council [1940]). In the case of signed documents, unless there is fraud or misrepresentation (Curtis v. Chemical Cleaning & Dyeing Co. [1951]), the document is binding whether it has been read or not (L'Estrange v. Graucob Ltd [1934]). In the case of unsigned documents, if it has been decided that the document is an integral part of the contract: o Did the customer know of and consent to the exclusion clause? If they did not, would a reasonable person have regarded the document as containing contractual terms or regard it as a mere receipt (Causer v. Browne [1952])? o Where the document is neither a receipt nor an acknowledgement, has reasonable notice of the terms been given (Thompson v. L M & S Railway Co. [1930])? Unusual conditions must be brought to the customer's notice (Interfoto Picture Library Ltd v. Stiletto Visual Programmes Ltd [1988]). o Where the parties have had previous dealings, knowledge of the exemption clause can be more readily inferred (Balmain New Ferry Co. Ltd v. Robertson [1906]). o Where the contract has been completed, additional onerous terms cannot be included later (Olley v. Marlborough Court Ltd [1949]). Interpretation of exclusion clauses, where they have been properly incorporated into the contract, are based on three possibilities: o it will be strictly construed against the party who attempt to rely on it (the contra proferentum rule) (White v. John Warwick & Co. Ltd [1953]); or o the 'four corners' rule where 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)); or o the exclusion clause is to be construed according to its natural and ordinary meaning (Photo Production Ltd v. Securicor Transport Ltd [1980]) and this is a rule of construction based on the presumed intention of the parties (Darlington Futures Ltd v. Delco Australia Pty Ltd [1986]). Contracts between business entities where there is equality of bargaining power are generally read according to their plain and ordinary meaning. In the case of consumer contracts, the same rule will apply unless there is inequality of bargaining power and the end result would be to produce a harsh result on reading the clause according to its plain and natural meaning. Unreasonable terms may be deleted from the contract by statute (e.g. sale of goods, hire-purchase, trade practices and similar legislation). Third parties will generally not be protected under an exemption clause as they are not parties to the contract (Adler v. Dickson [1955]).

iv.

v.

vi. vii.