TOPIC TWO
CONTENTS OF THE CONTRACT
A contract may contain many terms, some of them may be important ones
while the others may not be important and its non-performance renders no
a breach of a contract.
Express Terms
These are terms which are expressly said or written by the parties to the
contract. If the contract is oral, evidence has to be presented on what was
said by the parties. But if it is written, the court will generally interpret
what the parties wrote.
Express terms can further be categorized as either:
Representation and Terms
Representation
These are statements which merely induce a contract. They are
sometimes called pre-contractual [Link] just encourage one
party to make the contract but themselves are not part of the [Link]
representation is breached it can give action for misrepresentation.A
contract is still valid and no damages to be awarded.
Terms
These are part to the contract and they make up its contents. They are
what constitute the contract. It is a promise or undertaking that is part of
the contract. If a term is breached it can give rise to an action for breach
of the contract. Compensation can be awarded to an innocent party when
terms are breached.
NB: Terms to the contract can further be categorized as:
Conditions and Warranties
A Condition
It is a vital term which goes directly to the root of the contract. It also goes
directly to the substance of the contract. It is a term essential to its very
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nature that its non-performance may be considered by the other party as
a substantial failure to perform the contract at all. The innocent party may
sue for damages when a condition is breached.
Bunge Corp v. Tradax Export SA (1981)
Warranty
It is subsidiary to the main purpose. It is an obligation which though it
must be performed, it is not so vital and a failure to perform it goes to the
substance of the contract. It is a minor term of the contract a breach of
which does not entitle the innocent party to repudiate the contract, rather
than suing for damages.
Intermediate/Innominate Terms
Are the terms which can be broken with either important or trivial
consequences, depending on the nature of the breach. If the effects of the
breach are serious the term will act as a condition, and if the effect are
less serious the term will act as a warranty.
The Parole Evidence Rule
Most of the contractual disputes concern the parties’ rights and obligations
under the contract. To resolve this kind of disputes the courts normally
look at the terms of the contracts. In other words, they try to determine
what promises were made by parties to each other at that time when the
contract was formed and signed. However, once a court accepts that an
agreement is entirely in writing, it is presumed that the writing contains all
the terms. This is called the “parole evidence rule”.
It is a contract law doctrine that prevents parties to a written contract from
presenting “extrinsic” evidence of terms in a contract that contradict,
modify, or vary the terms of a written agreement, when that written
agreement is considered complete and finalized.
Also the rule provides that where a contract is reduced into writing and
appears in the 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
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contemporaneous agreement which would have the effect of “adding
extra terms or clauses to the agreement, add to the written agreement in
any way, or modify its terms”.
Case
Mercantile Bank of Sydney v Taylor
However, not necessarily agreements between parties are always, or must
be in writing. But if the parties agreed that the contract to be entirely in
writing, parole evidence is not admissible to add to or vary or contradict
the writing.
Case
Robertson v Kern Land Pty Ltd (1989)
Exceptions to the General Rule
As we have seen in other situations a number of exceptions to the rule
have emerged over time and been acceptable by courts. However, if both
parties agreed that other unwritten (oral) factors would affect the contract
in the future then, the parole evidence rule must bend to admit that
possibility.
As inHoyt’s Ltd v Spencer (1919) 27 CLR 133 (at 143) the parole
evidence rule applies to “unless it can be shown that the document was
not intended to as the complete record of their bargain”:
Where a written agreement is not a whole agreement
(incompetent written contract):
When a contract is formed it is assumed that all the terms are included
but, if there are terms missing and not included in the contract then, it
may allow the parties to give verbal evidence in court, and this is the case
where the contract is partly written partly oral. This happens when the
written contract was not intended to be the whole contract on which the
parties actually agreed.
Mistake
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If a term is clearly wrong and that it was a mistake and, that the parties’
intention was not accurately recorded in the document, then, the
document may be rectified by giving verbal agreement.
As aid to construction (ambiguous terms)
This is especially applicable when the word or terms used are ambiguous
or uncertain and thus capable of being understood in different meanings.
Here ambiguity remains a prerequisite for the admissibility of the extrinsic
(oral) contract.
As a proof of custom or usage and implied terms
Where the language used in the instrument has a particular meaning, for
example, by custom or usage in a particular trade, industry or region,
evidence of that meaning is admissible. Here the parties may imply the
terms by law or custom though not included in the written contract. This
exception to the rule was confirmed in the case of Hutton v Warren
Collateral agreements
Is a written or oral agreement associated as a second or side contract
made between the original parties, or between a third party and an
original party. This typically occurs before or at the same time the first or
main contract is made. This collateral agreement is independent and
sepa0r0ate from primary contract. This may be enforced even though it
forms no constructive part of the original [Link] contracts also
arise from statement made during negotiations.
Exemption/Exclusion Clause
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
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contractual duties or regulate the other party's right to remedies for a
possible breach of contract.
There are two types of exemption clause which have different degrees to
exclusion.
Exclusion clause
If there is an exclusion clause within a contract, then liability of a party
may be completely excluded.
Limitation clause
If there is a limitation clause within a contract, then the liability of a party
may be limited, but not completely excluded from liability.
Here are three ways in which an exemption clause can be incorporated
within two parties’ contractual liability to one another.:
incorporation by signature,
incorporation by notice and
incorporation by previous course of dealings.
In incorporation by signature, it includes a clause written on a document
that all the parties have signed. Besides that, in incorporation by notice, it
includes an exclusion clause if the person relying on a contract took a
rational measure to draw notice in order to attract other parties’ attention.
In incorporation by previous course of dealings, it is practically use words.
It means that, this incorporation involves a course of dealings between the
parties were depends on the facts incorporated by a contract.
Cases
Olley v. Marborough Court (1930) 1KB 532
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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 known the Hotel’s policy. Therefore, the
exclusion clause was 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.
Thornton v. Shoe Lane Parking (1971)1 ALL ER 686
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
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
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injured party being bound by its terms whenever there is
misrepresentation to it.
Ms Curtis took a wedding 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 any damage done to `beads
and sequins’ on the dress. The dress came back damaged, she thus
brought a claim for damage against them. In response, the defendants
submitted that she had no grounds for a claim due to the exclusion of
liability clause. In fact, the exclusion clause was for all damage of any
kind, but the court ruled that the, a party is typically bound by all the
contents of a signed written contract, even where they had not properly
read the contract, but a clause ought not be deemed legally enforceable
where the drafting party misrepresents the effect of a clause to the other
party. Hence, 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 paid to leave his bag in the room of SER. There was
notice within the room stating that SER would not be responsible for any
deposits exceeding E10 in value. The tickets given to customers on
making their deposit had the same notice printed on them in legible
[Link], Mr Parker claimed that he thought the ticket was merely a
receipt, not a contractual document and he was not seen the notice in the
room and had not read the terms on the ticket. The jury in the original trial
found for Mr Parker, on the basis that his reasoning was sound. However, it
was ordered a re-trial because this wasn’t the case in point; the relevant
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issue was whether SER had taken reasonable steps to indicate that
contractual nature of the ticket.
On retrial, the judge’s direction at first instance that Parker was not bound
by terms he had failed to read was incorrect. Parker would not be bound
by terms he did not know were printed on the ticket, but where he knew
there were terms on the ticket, or that there was writing on the ticket, he
would be bound providing the jury were satisfied he had been given
sufficient notice.
L’estrange v Graucob (1934)
This case (L’Estrange v Graucob Ltd [1934] 2 KB 394) demonstrates that
one cannot evade being bound by the terms of a Contract, even an
Exclusion clause on the basis that one did not read or understand the
terms.
Mrs L’Estrange owned a cafe. She ordered a cigarette machine from the
manufacturers which, it turned out, never worked properly. Although an
implied contract term in the sale of goods is that the goods will be suitable
for the purpose intended, the contract which Mrs L’Estrange had signed
did state that the manufacturers disclaimed all liability regarding the
malfunction of the machine. It was held that Mrs L’Estrange could not
claim damages on the grounds that she “did not see” the clause in the
contract. There was no evidence of fraud or misrepresentation that might
have mitigated this judgement.
Rules of Constructing Exemption Clause
Contra Proferentem Rule
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This means if there is ambiguity, uncertainty or doubt with regards to the
meaning of exemption clause, the court will construe against or
unfavourable to the person who put into the contract.
Cases
Pollock and Co v. Macrae (1922) SC (H.L)192
Baldry v. Marshall (1925) 1KB 260
Repugnancy Rule
The rule states that, if the exemption clause will contradict another term
of the contract, such clause will be repugnant to it. In other words, the
court will strike an exemption clause which is inconsistent with the main
purpose of the contract.
Case
Evans Ltd v. Andrea Merzario (1976) 1WLR 1078
The Four Corners Rule
The exemption clause cannot protect a party who deviates from the
contract or a party who acts outside the four corners of the contract.
Case
Thomas National Transport (Melbourne)Pty Ltd and Pay v.
May and Baker (1966) 2L1 Rep 347
The Doctrine of Fundamental Breach
The doctrine is said to be developed by the Court of Appeal of England as
a weapon with which to attack exclusion clauses which had been properly
[Link], it was demolished by the House of Lords in
1980 vide the case of Photo Production Ltd v. Securicor Transport
Ltd (1980) 1ALL ER 556
The doctrine stated that, an exclusion clause could not, as a matter of law,
protect a party from liability for a serious breach of contract, even if, as a
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matter of construction, the words of the clause did apply to the breach
which had occurred.
Case
Harbutt’sPlasticine Ltd v. Wayne Tank and Pump Co. Ltd
(1970) 1ALL ER 225
Prepared by Benhard Samson (Course Instructor)
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