Chapter 4 Contractual Rights and Obligations 1 Introduction

Chapter 4 Contractual Rights and Obligations 1

Introduction: Contents of a Contract The terms of a contract are its substance, they determine the nature of the transaction and the rights and obligations of each party to the bargain. • Express terms are those clearly expressed by the parties, either verbally or in writing, and are voluntarily placed in the contract by the parties themselves. • Implied terms are those terms not deliberately placed in the contract by the parties, but which are implied either by legislation , by the courts or by certain customs or trade usage. 2

Introduction: Types of Terms • A condition is a term of fundamental and vital importance. It goes to the heart of the contract and must be complied with exactly. A breach of a condition entitles the injured party not only to claim damages, but also to rescind the contract. • A warranty is a term of lesser importance. A breach of a warranty may entitle the injured party to damages, but not to rescind the contract. 3

Determining the Terms of a Contract Term of the Contract A ‘Simple’ or ‘Mere’ Representation A Collateral Contract An Advertising Puff Creates legally enforceable obligations between the parties. A non-contractual statement made precontract, during negotiations, intended to be contractually binding (although if misleading and deceptive may be actionable under legislation). A preliminary contract where the main contract would not have been entered into without the earlier promissory statement. No legal effect. 4

Types of Terms To determine whether the parties intended a statement as a mere representation or an actual contractual term, the court will consider: How important is the statement to the parties to the contract? Was the statement in question promissory in nature? At what stage in the negotiations was the statement made? Was the statement made to prevent the other party from discovering information that might stop them from entering into the contract? • Did one party enter into the contract solely because of the statement made? • Was the statement made during negotiations left out of the subsequent contract? • Did one party accept a statement made by the other because they relied on the special skills or knowledge of that party? • • 5

Parol Evidence Rule • If there is a written contract, the Parol Evidence Rule provides that, generally, statements that have been made verbally will not be taken into account in a dispute if they add to, vary or contradict the contents of the written agreement. • The court takes the position that if the parties have gone to the trouble to put their agreement in a written document, then all contractual terms will be contained within the ‘four corners’ of that document. • In other words, the written document takes precedence over any other surrounding evidence. 6

Written Terms and the Effect of Signature • A signature will bind a party to the terms of a contractual document, regardless of whether or not the party has read or understood the terms. • A signature has the legal effect of reading and accepting the contract, regardless of whether the party actually did so. • In the case of contracts entered into on the internet, provision for electronic signatures is made by the Electronic Transactions Act 1999 (Clth) • An electronic signature (e-signature) binds a party to the terms of a contract. • REFER TO CASES - L’Estrange v Graucob (1934) 2 KB 394 pg. Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 pg. READ COMMERCIAL TIP – pg.

Importance of the Terms – Conditions or Warranties Difference between Conditions and Warranties • Whether a term is a condition or a warranty depends upon the intention of the parties as it appears in or from the contract. • The basic test involves looking at the contract in its entirety. A court will consider whether the term was of such importance that the party relying on it would not have entered into the contract without it.

Condition Precedent and Condition Subsequent A condition precedent exists where the contract cannot be commenced or performed until the occurrence of a particular external event. A condition subsequent exists when the contract requires that the contract will be terminated upon either: • The happening of a certain event, such as a rise in interest rates, or change in an exchange rate. • Or it is a term that must be complied with after the contract is made, otherwise the other party can terminate for non-fulfilment. 9

Implied Terms As well as the express terms which the parties deliberately and voluntarily place into the contract, a contract may also contain implied terms that bind the parties. Implied terms are not placed there by the parties, but may be implied: • By the court. • By custom or trade usage. • By statute. 10

Exclusion Clauses An exclusion clause is a term of a contract which limits or excludes a liability to which one party to the contract would otherwise be subject. • Actual notice occurs when the existence of a clause is brought to the attention of the party bound by it, either by the other party reading the clause or by some other direct and specific means. • Constructive notice occurs when the party bound is not actually and specifically aware of the clause, but the party seeking to rely upon it has done all that is reasonably necessary to bring it to the attention of a reasonable person. 11

Standard Form Consumer Contracts A standard form contract is one that is prepared by one party to the contract and is not subject to negotiation between the parties – the deal is offered on a ‘take it or leave it’ basis. Provisions exist under the Australian Consumer Law (ACL) that may result in unfair terms in standard consumer contracts being void. It is up to a court to decide if a term in a standard form contract is unfair, and these provisions do not apply to business contracts. EXAMPLES of standard form consumer contracts include: credit card contracts telephone plan or internet service contracts mortgage contracts 12

Standard Form Consumer Contracts Provisions are to ensure that consumers are not forced or tricked into agreeing to deals that are unfair, or arrangements where terms are not sufficiently disclosed to, understood by or contemplated by the consumer. The ACL defines a ‘consumer contract’ as a contract for: • The supply of goods or services. • The sale or grant of an interest in land to an individual who acquires it wholly or predominantly for personal, domestic or household use or consumption. 13

Standard Form Consumer Contracts A term will be considered to be unfair if all three of the following matters are proven on the balance of probabilities: • The term would cause a significant imbalance in the parties’ rights and obligations under the contract. • The term is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term. • The term would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on. 14