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Business Law 1100

Your pathway to Curtin. On campus. On track.

www.curtincollege.edu.au

Diploma of

Commerce

Lecture Topic 5

Contents of a Contract

What to do this week

Attend seminar

Read chapter 6 of First Principles of Business Law

Do the tutorial ‘The contents of a contract’.

Note – do not need to cover the material on innominate terms or the Sale of Goods Act (no. 8 in tutorial). Do not need to read about this or do the tutorial for these rules of law.

Learning Outcomes

After completing this topic you should be able to:

explain the importance of terms

explain the notion of freedom of contract

distinguish between statements that become terms and statements that do not

distinguish between express terms and terms implied from the circumstances

establish the relative importance of particular terms

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Learning Outcomes

After completing this topic you should be able to:

explain how agreed terms may be used to exclude liability

know how and when terms are put into a contract by law

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Terms of the contract

A ‘term’ is a particular agreed undertaking or promise made in circumstances from which it can be inferred that it was intended to be legally binding.

The ‘terms of a contract’ describe the entire contents of a legally enforceable agreement.

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Terms of the contract

Terms define the rights and duties of the parties.

Terms provide the yardstick by which performance of the contract is measured.

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Terms are important because…

Breach of contract:

Failure to perform in accordance with the terms means that there is a breach of contract.

A breach of contract provides a ‘cause of action’

If sufficiently serious, a breach may justify a refusal to accept performance in addition to a claim for damages.

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The importance of terms

In order to establish whether there was a breach giving rise to a cause of action must know:

An enforceable contract was created

What was promised in the contract -the terms of the contract.

The terms of a contract define the obligations of the parties. It is by analysing the terms that you can find out what has to be done to discharge those obligations

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Freedom of contract

Persons are free to choose the contractual terms on which they will be bound.

The law usually does not interfere with this, but it does set some parameters e.g. illegal contracts are not enforceable.

The law also provides contractual protection for vulnerable parties e.g. minors, persons of unsound mind.

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Proving the terms of a contract

Terms of wholly oral contracts are established by evidence from the parties themselves, or other witnesses.

Terms of wholly written contracts are proved by reference to the written contract alone – the ‘parol’ evidence rule’

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Parol evidence rule

A rule of evidence that a written document expresses the whole contract

External evidence of intention and negotiations cannot be considered

The rule excludes oral statements of extra terms

LG Thorne & Co v Thomas Borthwick & Sons (1955) 56 SR (NSW) 81

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Exceptions to the parol evidence rule

There are a number of circumstances in which the parol evidence rule will not be strictly applied. These include:

Where custom or trade usage is relevant to the written agreement

Where an ambiguity in the language of the contract needs to be resolved

Where the subject matter or a party to the contract are not identified in the written agreement.

Another situation that provides an exception to the parol evidence rule is when the contract is partly oral and partly written.

The terms of partly oral and partly written contracts are proved by oral and written evidence: Van den Esschert v Chappell [1960] WAR 114.

Summary

Proving the terms: Parol evidence rule.

Written contract on the face of it complete: LG Thorne

an alternative way of putting it is that terms cannot be added to a contract after it has been reduced to writing: Olley v Marlborough.

Exception if obvious importance; partly written/verbal contract: Van den Esschert v Chappell

Statements that do not become part of the contract

Not everything that is said while negotiating a contract becomes a legally enforceable part of that contract. Distinguish between the following:

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