Chapter 6: Contents of the Contract: Terms

Terms of the contract: Issues

 Are statements made before, during or after the contract is made enforceable?
 How are the terms classified?
- express or implied?
- how important (warranty or condition)?

 Does the breach of them so fundamentally affect the contract so that the parties would not have
entered into the contract?
 Which legislation is implied into contracts?
 Can terms be so unreasonable they do not form part of the contract?

What is in the contract?

 The terms of the contract are the specific details of the agreement, including each party’s rights
and obligations.
 Two types of contractual terms 
1. express terms
2. implied terms

Express Terms
Contents of Contract: Representation or Term?
Parties may disagree about what the terms were, eg:

- Ben: “Why have I been charged for delivery?”

- Jerry: “Free delivery was only discussed as part of the pre-contractual
negotiations!”
- Ben: “But you said delivery would be free”
- Jerry: “I said it might be!
 - Ben: “You promised so it is a term and therefore part of our contract”
- Jerry: ‘Nope”
- Ben: “I will see you in court!”

Parol Evidence Rule (PER)

 Definition:“where a contract is reduced into writing, & appears to be entire, it is presumed that
the writing contains all the terms, & evidence will not be admitted of any previous or
contemporaneous oral agreement which would have the effect of adding to or varying it in any
way” Mercantile Bank of Sydney v Taylor
 Once the contract has been negotiated and put into writing, it is presumed that the contract
contains everything the parties intended to be bound by, although this assumption can be
rebutted
 There are exceptions to the PER

Pre-contractual statements
o During negotiations one party often makes statements (‘representations’) to encourage the
other to enter the agreement but which are not intended to be part of contract
o We will look at rules to help decide whether it is in or out contract
o A misrepresentation is an untrue pre-contractual statement that induces the other party to
enter the contract
o A misrepresentation may give rise to other rights and remedies (eg in negligence & ss 18, 29, 30
of ACL)
o A misrepresentation may render the contract void or voidable

-Void == no legal effect

-Voidable == only void when party entitled to rescind the contract applies to a court to set it aside

Pre-contractual statements
 o These are statements made before contract entered into (ie negotiation phase)
- Are they false or misleading? AND
- Did they induce me to enter the contract?
 can sue for misrepresentation

- If not false are they:

Representations  not part of contract so cannot sue
Terms  part of contract so can sue to enforce contract

o How is this different to the operation of the PER rule?

Distinguishing pre-contractual statements from contractual terms

1. puffs  no reasonable person would believe [our company will provide ‘world-beating customer
experience’]
2. mere representations  non-contractual statements of fact [eg rubbish is collected on Tuesdays]
3. Opinion  non-contractual[understand/believe/think]
4. Terms  contractual [binding]

Use case law rules to find factors to determine which category

Puffery :
Language of the statement: JJ Savage v Blakney (1970)

Facts: During the negs Savage said that the boat would, when fitted with a particular engine,  have an
‘estimated speed of 15 mph’.  No reference was made to this speed in the subsequent written contract.
The boat did not go 15 mph and B sued for breach.
Issue: Was statement a term of the contract?
Decision: No. Speed of boat was mere representation, an “expression of opinion”
Ratio decidendi: Relevant factor is language of the statement: “promise, agree, guarantee, warrant”
suggests term while “estimate, guess, I think” suggests mere representation.

Time of the statement: Harling v Eddy [1951]

Facts: The defendant put up an unpromising-looking heifer for sale at an auction. There being no bids,
the defendant then declared that there was nothing wrong with her. The plaintiff then bought her in
reliance upon this statement made DURING THE AUCTION.
The heifer's condition at once proved unsatisfactory and it died shortly afterwards
Issue: Was the statement about the heifer a term of the contract?
Held: The defendant's statement formed a term of the contract because it was made just before the
contract was formed
Ratio decidendi: Factor is the time of the statement: the closer to contract formation the more likely to
be a term of contract

Significance of term: Van Den Esschert v Chappell [1960]

Facts: Purchaser of house before signing contract asked vendor if there were any white ants (termites).
Vendor assured there weren’t. Termite infestation is of great significance to purchase a house - massive
structural damage that can’t be seen from the outside
Issue: Was oral statement about termites’ part of contract?
Held: Yes, was a term
Ratio decidendi: The more significant the statement is, the more likely it is to be a term.

Expertise of the parties:Oscar Chess Ltd v Williams [1957]

Facts: Williams’ mother owned a second-hand Morris Minor motor car which she believed was a 1948
model. In 1955, W took the car to used car dealer Oscar Chess to trade it in.

The docs W showed to the dealer contained a statement that the car was a 1948 model – but in fact it
was a 1939 model. Oscar Chess claimed that the statement about the age of the car in the document
was a promise and was intended to be contractually binding.

Issue: Was the statement in the docs a term of the contract or a mere representation?

Decision: Mere representation as reps will not become terms of the contract unless it can be inferred
from the circs that the statement was intended to be legally binding.

Ratio Decidendi: Factor in determining whether term or representation is the relative knowledge and
expertise of the parties: more expertise  more likely to be term if speaker is expert.

Term reduced to writing: Routledge v McKay [1954]

Facts: Registration docs of bike stated a 1942 model. No mention in the written contract. In fact the bike
was a 1936 model.
Issue: Was the model year a term of contract?
Held: No. The statement was a representation and not a contractual term. Neither party was an expert,
and there was a lapse of time between the statement and entering the contract, giving opportunity for
buyer to check.
Ratio decidendi: Where the contract is put into writing, previous spoken terms, omitted from the written
contract, will probably be representations (non-contractual)

Summary of factors to determine if term or representation

o Language of the statement: “promise, agree, guarantee, warrant” vs. “estimate, guess”: JJ
Savage v Blakney (1970)
o Time of the statement: closer to contract formation  more likely to be a term: Harling v Eddy
[1951]
o Content and importance of the statement: more significant  more likely to be a term: Van
Den Esschert v Chappell [1960]
o Relative Knowledge and expertise of the parties: more expertise  more likely to be term:
Oscar Chess v Williams [1957]
o Reduction into writing  where the contract is consolidated into writing, previous spoken reps
omitted from the written contract will relegated to mere representations: Routledge v Mackay
[1954]
Importance of being a term
o If term  can enforce the contract
o If a term then determine what type of term?
 Condition?
-then can terminate contract, sue for damages or continue contract
 Warranty?
-then cannot terminate but can sue for damages
 See Bettini v Gye and Poussard v Spiers & Pond

o Intermediate terms  Koompahtoo v Sanpine

- non-essential term but breach gives rise to serious consequences so can terminate
contract

Bettini v Gye (1876)

Warranty
Facts: Bettini contracted to sing operas for promoter Gye over 15 week period.
Term: B should arrive 6 days before the first opening and attend rehearsals.Being ill, B arrived 2 days
before opening but was ready to sing. G wanted to terminate the future performance of the contract as
alleged breach of term by B.
Issue: Was term a condition or warranty?
Held: Warranty not condition because it did not go “to the root” of the contract. Attendance at the
rehearsals was not necessary since B was ready to sing at opening. Nevertheless, B had breached the
term so G could claim compensation from B

Poussard v Spiers & Pond (1876)

Condition
Facts: Madam P was under contract with Spiers to sing a leading role in an opera at the Criterion
Theatre. She fell sick and was unable to attend rehearsals or the first 3 days of the performance.
Issue: Was requirement to sing live at performance a condition or warranty?
Held: Condition. Singing at the live performance went to heart of contract. The theatre company could
terminate contract as the absence was a breach of condition.

Question - Condition/Warranty
Bobby, contracted with Ronaldo, for him to be the star of a stage show to run for a season of six weeks.
The contract required him to attend at rehearsals five weeks before the performance season began.

Ronaldo decided to go on holiday and arrived for rehearsals only three weeks before the season was due
to start. Bobby told him that he had already engaged someone else and that he was no longer required.

Advise Ronaldo.
Would your answer be any different if he had missed all rehearsals and had arrived at the start of the
performances?

Similar fact patterns to Bettini v Gye & Possard v Spiers

What are the agreed terms of the contract?
 Ronaldo would be the star of a stage show that would run for 6 weeks
 Ronaldo would attend rehearsals 5 weeks beforehand
 Which terms are essential and which are of lesser importance?
Reasoning
 Ronaldo would be the star of a stage show that would run for 6 weeks [condition because the
parties would not have entered the agreement without it]
 Ronaldo would attend rehearsals 5 weeks beforehand [warranty because not essential to
contract]

Would your answer be any different if he had missed all rehearsals and had arrived at the start of the
performances?
Well it depends because if he was still able to perform and fulfil the condition of the contract without
attending rehearsals it did not go the root of the contract]

BREACH GIVES RIGHT

BEGIN TO ANALYSE
CLAUSE
ANALYSING CONTRACT TERMS TO TERMINATE
CONTRACT AND
Classification: Trusted CLAIM DAMAGES

CONDITION

CLASSIFY TERM:
IS CLAUSE A TERM TERM IS TERM A
EXPRESS?
OR CONDITION OR
IMPLIED? WARRANTY?
REPRESENTATION?
WRITTEN?

WARRANTY

REPRESENTATION

BREACH GIVES RIGHT

CLAUSE HAS NO TO CLAIM DAMAGES
CONTRACTUAL EFFECT ONLY

Types of Condition
 Condition precedent (CP) 
- term that requires something specific to happen before specified rights and/or obligations are
triggered, eg: If Collingwood makes it into the Grand Final, I will sell you my ticket. Should
Collingwood make the Grand Final, the contract comes into existence

 Condition subsequent (CS) 

- a condition that must occur to bring an end to something else, eg Jack agrees to mow Jill’s grass
if it does not rain. If it rains, Jack is relieved of the obligation to mow the grass and Jill is relived of the
obligation to pay.

Collateral Contracts
De Lassalle v Guildford
Facts: During negotiations to rent property, landlord promised tenant verbally that drains were in
working order. Tenant signed the lease contract on that basis, however the lease did not contain any
terms in relation to the drains which were not in working order.
Issue: Could landlord rely on the parol evidence rule that statement about the drains was part of pre-
contractual negotiation?
Held: The statement regarding the drains was a CC whereby the price of the promise (consideration)
paid by tenant was entry into main lease contract.

Collateral Contract: Elements

1. The parties must have intended that the promise would be legally binding
2. The promisee must have entered into the main contract on the basis of the promise and in
reliance upon it; and
3. The promise must not be inconsistent with the terms of the main contract.

ECs and Signed Contracts

L’Estrange v Graucob
Facts: L bought a vending machine from G & both signed the contract. L had not read the contract.
There was an exclusion clause removing any liability for the quality of the machine. The machine was
defective.
Issue: Was the exclusion clause enforceable, given that L had not read it?
Held: Yes. L had not been induced by misrepresentation or fraud to sign, so was bound by contract.
Ratio decidendi: If the exclusion clause is contained in a signed document a person will be bound by the
clause even if they have not read the document.

Toll v Alphapharm (2004) HCA 52

Facts: Alphapharm (‘A’) was a distributor of a flu vaccine. A entered into a freight agreement with Toll
(‘T’). A’s employee signed the contract but did not read a term that excluded T’s liability for ‘any loss,
injury or damage suffered by the Customer in respect of any goods being carried or stored on its behalf’
(the Exclusion Clause). T did not keep vaccine cold enough and so vaccine was damaged.
Issue: Whether term was part of contract or whether insufficient notice given of the EC, so that T was
liable for damage?
Held by HCA: Term was part of contract. A was bound by signature of its employee, so Toll could rely on
EC to escape liability. ‘…to sign a document known and intended to affect legal relations is an act which
conveys … the person … has read and approved the contents … whatever they might be.’
Parker v South Eastern Railway [1877]
(application of reasonable notice test)
Facts: Mr Parker left a bag in the cloakroom of Charing Cross Station. He paid 2p & received a ticket. On
the front it said "see back". On its back, it said: The railway is excluded from liability for items worth £10
or more. [the EC]. Mr Parker did not read the EC as he thought the ticket was only a receipt. His bag,
which was worth more than £10, was lost. He sued the company for damages.
Issue: Was sufficient notice given such that the railway could avoid liability for the lost bag on account of
the EC?
Decision: The court found it was reasonable for him not to read the ticket (although he knew there was
writing on the ticket). Was not given sufficient notice of EC. Company had to pay.
Ratio decidendi: An individual cannot escape a contractual term by failing to read the K (from L’Estrange
v Graucob & Toll v Alphapharm) but that a party wanting to rely on an EC must take reasonable steps to
bring it to the attention of the customer.

Olley v Marlborough Court Hotel [1949]

Application of the reasonable notice test
Facts: Olley paid for a week's board and lodging in advance at the front desk, & then went up to room
where a notice contained the EC: “the proprietors will not hold themselves responsible for articles lost or
stolen unless handed to the manager for safe custody.“ Hotel staff were negligent & thief stole fur coat.
Issue: Whether the notice in the room formed part of the contract of accommodation between Olley &
the MC Hotel?
Decision: The EC was not communicated before or at the time the contract was made (at front desk).
The hotel was accordingly liable for the loss.

Balmain Ferry v Robertson (1906)

Application of the prior dealings test
Facts: R intended to travel on ferry. Fare price was paid at entry & also exit to wharf. R paid but missed
ferry. R tried to leave wharf without paying a second time & was restrained by employee. He sued for
false imprisonment.
Issue: Whether R had reasonable notice of company’s policy
Held: Yes. R had traveled on ferry many times previously and was aware of the terms that the company
conducted its business on – would have been different if R was a stranger who had never travelled on
ferry before.
Thornton v Shoe Lane Parking [1971]
Application of the reasonable notice test
Facts: T entered an automatic car park for the first time. At the entrance was a notice:
EC1:‘All cars parked at Owner’s Risk’.
T drove in and received a ticket. Ticket had words in small print
EC2: ‘issued subject to conditions .. displayed on premises’.
A pillar opposite the ticketing machine stated that SLP was
EC3: ‘not liable for personal injuries’.
T was run down and severely injured when he returned to his car. T claimed damages but SLP relied on
EC to deny compensation.
Issue: Did SLP give reasonable notice to T of EC2 and EC3?
Held (by Denning LJ):
o Offer was contained in notice at entrance (EC1), concerning damage to car only. Offer was
accepted when T took ticket. Contract was then concluded and could not then be altered.
o T was only bound by terms already brought to his notice
o T was only bounds by EC1, not EC2 and EC3 as insufficient notice before contract was formed
o The harsher or more unusual the EC, the harded it will be to meet the reasonable notice
requirement.

Causer v Brown [1952]

Nature of the doc test
Facts: C took dress to B for dry cleaning.
was handed a “docket” that said “No responsibility is accepted for loss or injury to articles through any
cause whatsoever” [the EC]. C did not read what was written and the statement was not specifically
drawn to his attention. Dress was ruined during cleaning & C claimed $$. B relied on EC.
Issue: Had B reasonably notified C such that the EC become a term of the contract?
Decision: The “docket” did not appear to C to be a contractual doc – it was reasonable for C to assume it
was only an identifying doc. Thus C did not agree to exempt B from liability for negligence.

Curtis v Chemical Cleaning & Dyeing Co

Misrepresentation negates EC
Facts: C took a dress for dry cleaning and was asked to sign a receipt. C did not read it & asked why she
had to sign. CCD said they took no responsibility for ‘damage to beads & sequins’. Dress was ruined
during cleaning and C claimed compensation. CCD relied on EC: “No responsibility is accepted for loss or
injury to articles through any cause whatsoever”
Issue: Had the EC become a term of the contract?
Decision: The “docket” did not appear to C to be a contractual doc – it was reas for C to assume it was
only an identifying doc. Thus C did not agree to exempt B from liability for negligence.
Misrepresentation by CCD and liable to C for damage.

Curtis v Chemical Cleaning & Dyeing Co

Misrepresentation negates EC
Facts: C took a dress for dry cleaning and was asked to sign a receipt which contained an EC.
EC: ‘This or these articles is accepted on condition that the company is not liable for any damage
howsoever arising, or delay.’
C did not read it & asked why she had to sign. CCD said they took no responsibility for ‘damage to beads
& sequins’. Dress was ruined during cleaning and C claimed compensation. CCD relied on EC1.
Issue: Had EC1 become a term of the contract?
Decision: The “docket” did not appear to C to be a contractual doc – it was reasonable for C to assume it
was only an identifying doc. Thus C did not agree to exempt B from liability for all negligence.
Misrepresentation by CCD negated EC1 and so liable to C for damage to dress.

Le Mans Grand Prix Circuits v Illiadis [1998]

Facts: Le Mans provided go-kart racing. Illiadis attended & was told to sign a form to register to enter
the go-kart race. He signed but was not given time to read it & thought it was for marketing. I was
injured but Le Mans claimed he had signed contract containing EC excluding them from liability
Issue: Was I bound by his signature?
Held: No. No contractual relationship – participants were given no indication they were signing anything
other than permission to drive.
Non est factum: Petelin v Cullen (1975)
Escaping the effect of the signature
Facts: P who was illiterate signed an extension of an option in favour of C to whom he was selling his
property. P believed he was signing a receipt.
Issue: Whether P could rely on non est factum to nullify the effect of the signature
Held: Yes because:
1. P had to rely on others
2. The signed documents were radically different to what he thought they were
3. The failure to read was not due to carelessness

Interpreting Exclusion Clauses (ECs)

o Generally read according to
 natural & ordinary meaning and
 in the light of the contract as a whole
o Courts do not view ECs favourably, ie they use the contra proferentem rule to determine
meaning. This rule means that ambiguities in an EC will be construed against the party who
inserted it. If a clause can be given another meaning the court will adopt the least favourable
meaning to party relying on it.

Interpreting ECs – contra proferentum

Insight Vacations Pty Ltd v Young
EC: ‘Where passenger occupies a .. seat … with a safety belt, no liability for any injury, illness or death or
for any damages or claims whatsoever arising from any accident or incident, if the belt is not being worn
at the time of the accident / incident’
Passenger was out of her seat, fetching something from overhead luggage shelf, when injured.
Issue: Could defendant rely on EC to avoid liability for injury?
Held: No. Clause did not apply, because she was not ‘occupying a seat’ at the time, it was also expected
that passengers get up to go to toilet.

Interpreting Exclusion Clauses: Sydney City Council v West

Facts: W parked his car & was given a ticket with EC. A thief stole his car but did not know the
registration number of the car at the exit – but SCC let him drive it away anyway. SCC said not liable
because of EC.
Held: An exclusion clause will not cover an act that is neither authorised nor permitted by the main
object of the contract. The Council could not rely on the exclusion clause when the plaintiff’s car was
stolen from the Domain car park. Read strictly, the exclusion clause did not cover the Council conduct
and they were held liable. (application of contra proferentum)

Implied Terms
o By General Law
o By Legislation

Business efficacy implied – The Moorcock [1886]

Facts: The owners of a wharf on the Thames River in London contracted with the owners of the ship the
Moorcock to berth it whilst it was unloaded. The tide went out and the hull of the ship was damaged by
a ridge of rock. The ship’s owners sued the wharf owners.
Issue: Was there an implied term that the ships could be safely berthed?
Held: The law will imply in commercial (non-consumer) agreements terms that are "necessary and
obvious...to give business efficacy". However, terms shall not be implied merely because they appear
"desirable and reasonable".

Implied terms – by general law

In order to imply a term, the term:
 must be ‘reasonable’ & ‘equitable’ – fair to both & will not impose an unreasonable
burden or detriment on either; or
 must be necessary to give contract ‘business efficacy; or
 must be so obvious, that it ‘goes without saying’ (would the parties have readily agreed,
if it had been suggested at the negotiation stage?); or
 could represent a previous course of dealing between those parties; or
 must be capable of clear expression; or
 must not contradict any express term of the contract.
Implied by Legislation
-Goods Act 1958 (Vic) implies statutory terms that protect the buyer into contracts for the sale of goods:
 seller has title, i.e. the right to sell those goods to the buyer: s 17
 goods will correspond with their description: s 18
 the goods will be of merchantable quality: s 19(b)
 goods will be fit for their purpose: s 19(a)
 bulk of the goods corresponds with the sample: s 20
-Similar terms are implied into consumer contracts by the Australian Consumer Law (‘ACL’) (Federal
legislation);

S 19 (b): Implied Condition of Merchantable Quality

A seller will have breached the statutory implied term regarding merchantable quality if: 
1. the contract is for the sale of goods;
2. the buyer has relied upon a description of the goods;
3. the seller normally sells goods of that description;
4. the goods are not of merchantable quality; and
5. the buyer has not examined the goods or, if they have examined the goods, the defect is not
one that would have been revealed by the examination.

EC Problem
Amy stopped her car at the barrier entrance to a car park and an automatic ticket issuing machine
projected a ticket which Amy took in accordance with a large notice attached to the barrier which read:

“HALT - Parking at Owner's Risk - Take Ticket from Machine. Pay when leaving.”
Amy put the ticket in her pocket without looking at it, the barrier raised and Amy drove through and
parked her car. On returning to pick up her car she found it completely demolished beneath a large
concrete block which had fallen from the ceiling. She looked at her ticket which had the following text:
“It is a condition of the issue of this ticket that vehicles are parked on these premises at the owner's risk
and responsibility. The proprietors accept no responsibility for loss of damage to vehicles in the parking
area whether caused by negligence or in any manner whatsoever”.

Advise Amy of her common law rights in relation to the notices on the barrier and ticket.

Parker v South Eastern Railway [1877] 2 CPD 416

Facts: Mr Parker left a bag in the cloakroom of Charing Cross Station. He paid 2p & received a ticket. On
the front it said "see back". On its back, it said:
The railway was excluded from liability for items worth £10 or more [the EC].
Mr Parker did not read the EC as he thought the ticket was only a receipt. His bag, which was worth
more than £10, was lost. He sued the company.
Issue: whether Mr Parker has reasonable notice of the EC
Decision: The court found it was reasonable for him not to read the ticket (although he knew there was
writing on the ticket). Therefore, EC was not part of contract.
Ratio: an individual cannot escape a contractual term by failing to read the contract (from L’Estrange v
Graucob & Toll v Alphapharm) but that a party wanting to rely on an EC must take reasonable steps to
bring it to the attention of the customer.
Olley v Marlborough Court Hotel [1949] 1 KB 532
Facts: Olley paid for a week's board and lodging in advance at the front desk, and then went up to their
room where a notice was exhibited which contained the EC: “the proprietors will not hold themselves
responsible for articles lost or stolen unless handed to the manageress for safe custody".
Owing to the negligence of the hotel staff, a thief gained access to the room and stole her fur coat.
Issue: whether the notice exhibited in the room formed part of the contract between the plaintiff and
the defendants.
Decision: The notice was not communicated before or at the time the K was made. The plaintiff only
became aware of it later. The hotel was accordingly liable for the loss.
Ratio: Terms cannot be added to a contract after it has been created.

Analysis:
Amy stopped her car at the barrier entrance to a car park and an automatic ticket issuing machine
projected a ticket which Amy took in accordance with a large notice attached to the barrier which read:

“HALT - Parking at Owner's Risk [EC1 but does not expressly exclude liability for negligence of the car
park]
- Take Ticket from Machine. Pay when leaving.” [the car park has made an offer, its terms have been
brought to Amy’s attention]

Amy put the ticket in her pocket without looking at it, [additional terms on the ticket have not been
brought to her attention] the barrier raised & Amy drove through and parked her car. [Amy has now
accepted the terms of the barrier notice and there is a contract formed. She is also bound by the terms
of the ticket that she has not read to the extent they are not ECs].

On returning to pick up her car she found it completely demolished beneath a large concrete block
which ad fallen from the ceiling. [The accident has been caused by the negligence of the car park, which
is outside EC1. The 4 corners rule applies – this event is outside the contemplation of EC1: Council of the
City of Sydney v West, Codelfa]

The parking ticket had the following notice printed on it

“It is a condition of the issue of this ticket that vehicles are parked on these premises at the owner's risk
and responsibility. The proprietors accept no responsibility for loss of damage to vehicles in the parking
area whether caused by negligence or in any manner whatsoever”. [EC2]
[Amy is not bound by EC2 because it has not been brought to her attention: Causer v Brown, Parker v SE
Railway]

Conclusion
 EC1 applies but it did not expressly exclude liability for negligence of the car park operators,
since Contra preferentum rule – the EC will be interpreted narrowly against the interest of the
party relying on it (the car park)

 EC2 is excluded because Amy was not given reasonable notice

 Result: Car Park is likely to be found liable to pay for damage to car