Express terms
Overview
The rights and obligations of parties to a contract are determined (subject to some statutory modification) by the terms of that contract.
These terms may broadly be classified as express terms (those articulated by the parties - whether in written or oral form) or implied terms (those the parties did not articulate but may be implied based on the presumed intention of the parties or by statute).
When assessing contractual terms it is important to keep in mind that both pre-contractual negotiations of the parties and their post-contractual conduct may give rise to non-contractual rights and obligations in addition to, or independently from, the concluded terms of the contract.
Most obviously, a false pre-contractual statement will often give rise to liability for contravention of s 18 of the Australian Consumer Law (prohibiting misleading or deceptive conduct)).
Express terms
Express terms are those terms that the parties have articulated prior to concluding their contract. Sometimes identifying these terms is simple - for example, if they appear in a written contract. On other occasions it is less clear. In addition to the inclusion of express terms in a written document, terms may be incorporated into a contract in the following ways:
There are two further rules to consider when determining the terms of a contract. The first relates to the effect of signature (this will usually bind the signatory to the included terms, even if they have not read them - but there are exceptions!) and second is the 'parol evidence rule' which may preclude a party from demonstrating that their contract included oral terms in addition to those contained in a written document.
Pre-contractual statements
It can sometimes be difficult to classify statements (oral or written) made prior to entering into a contract. A party might be induced to purchase a second hand computer after being told it has had one previous owner and/or was originally manufactured in 2012. What happens if these statements turn out to be false? Did they constitute terms which might give rise to contractual breach or misrepresentations which might provide both contractual and non-contractual remedies or are they of no consequence? Categorisation of these terms is important because it will impact upon the remedies available. Typically, pre-contractual statements are classified as either:
Term of a contract
Collateral contract
Mere representation (ie, a representation but not a term)
Sales puff
Correctly classifying pre-contractual statements is important because the remedies are different in each case:
Term of contract - remedy for breach of contract (contractual damages, equitable remedies)
Collateral contract - remedy for breach of collateral contract (not necessarily the same as for breach of main contract)
Mere representation - no action for breach of contract; may be remedy for common law misrepresentation or broader remedies for breach of s 18 of the Australian Consumer Law.
Sales puff - no remedy
It is possible for pre-contractual statements to fall in more than one category; for example, it is quite common for statements to be classified as both a term of the contract and a representation.
Term of a contract
To constitute a term of the contract the parties must have intended it to be promissory in nature. As is the case with determining intention to create legal relations, intention in this context is determined objectively - what would a reasonable person have thought was intended in the circumstances?
Collateral contract
In some cases pre-contractual statements may give rise to a collateral contract. Where this is the case there will be two concluded contracts:
the main (normally written) contract;
the collateral (oral) contract
In order for a representation to constitute a collateral contract the following conditions (in addition to normal rules of formation) must be satisfied:
the statement must have been promissory (this is required for any contractual terms)
the statement must not have been intended to be part of the main contract (if that is the case the parol evidence rule would generally prevent the statement forming a term of the main contract
the statement must not contradict the main contract (see Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133)
consideration must be provided for the promise (normally the consideration will be the promisee entering into the main contract)
See
Representation
Pre-contractual statements that constitute 'terms' will also constitute representations. In some cases representations are not intended to be promissory and therefore do not constitute contractual terms. However, should they prove false, the party to whom they were directed may have remedies available at common law or, more commonly, under statute.
At common law, where a contract was induced by a false representation the representee may be able to rescind the contract.
In addition, section 18 of the Australian Consumer Law provides a wide range of remedies for misleading conduct occurring in trade or commerce. The consequences of pre-contractual misrepresentation are discussed in more detail on the ➤ misrepresentation page.
Puff
A 'sales puff' refers to exaggerated sales talk. They are not intended by the speaker to be taken literally and a reasonable person would recognise this. As they do not constitute a 'representation' in law or a term, there is no remedy if they turn out to be false.
Terms displayed or delivered
Terms can be considered 'express', even if not discussed by the parties. For example, terms may be incorporated by the exchange of written terms, notice-board displays and tickets. However, to be successfully incorporated into a contract these terms must exchanged or displayed prior to conclusion of the contract and adequate notice of the terms must be given to the other party.
Incorporation of terms by a course of dealing
Express terms may be incorporated by a course of prior dealings between the parties. This is only possible if parties have had regular dealings with each other over a reasonable period of time prior to the contract in question; where this is the case the latest contractual terms used may be incorporated despite no specific reference to them.
Signature
As a general rule, parties are bound by all terms contained in a document that they sign, regardless of whether they have read them or understood them.
There are some exceptions to this general rule:
Misrepresentation
If the party proffering the terms misrepresents their nature or effect prior to signing they will not be able to rely on the misrepresented terms. For example, if one party advises the other that the document does not contain any exclusions of liability, when in fact it does, that party will not be able to rely upon those exclusions, notwithstanding the document was signed.
Mistake (non est factum)
This is a very limited exception and applies only where the signing party can demonstrate that they did not understand the nature of what they were signing (ie, they did not understand it was a contract). The limited scope of this exception is discussed on the mistake page.
Statutory exceptions
A number of statutory exceptions have developed to protect consumers from the effect of the general rule in some cases. These tend to be quite limited in their scope.
Further resources on relevance of signature
Spencer, ‘Signature, consent and the Rule in L'Estrange v Graucob’ (1973) Cambridge Law Journal 104
Admissibility of extrinsic evidence and the parol (oral) evidence rule
As a general rule, where the terms of an agreement are recorded in writing extrinsic evidence (including 'parol' (oral) evidence) cannot be produced to show that there are other terms or that the terms are different from those that have been recorded.
➤ State Rail Authority of New South Wales v Health Outdoor Pty Ltd (1986) 7 NSWLR 170 at 191.
➤ Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 (AustLII)
Exceptions to the general rule
A number of exceptions to the general rule have developed. They include:
Evidence as to the validity of the contract
Evidence as to the true nature of the contract
Evidence of other terms
Evidence to explain the document
Evidence as to the validity of the contract
Extrinsic evidence can be given to show there was no binding contract. For example, to demonstrate the agreement was tainted by fraud or that one of the parties had been operating under mistake affecting the contract's validity
Evidence as to the true nature of the contract
In cases of mistake that would give rise to rectification (for example, a typo in the price or address on a contract), evidence may be given as to the true term. Extrinsic evidence may also be introduced, for example, to show that one party was acting as an agent for an undisclosed principal.
Evidence of other terms
It is very difficult to displace the presumption that a written document does not or was not intended to contain all the terms agreed by the parties. However, evidence may be introduced to demonstrate this was not the intention. For example, the nature of the written document itself might suggest that it was only intending to address in detail one aspect of a broader arrangement. Even where the presumption can be displaced, evidence as to oral terms must not contradict the written part.
President Allsop (as he then was) in the NSW Court of Appeal set out the following principles for deciding whether an agreement is wholly in writing or partly written and partly oral (➤ Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234 at [90] (footnotes omitted)).
(1) When there is a document that on its face appears to be a complete contract, that provides an evidentiary basis for inferring that the document contains the whole of the express contractual terms that bind the parties ...
(2) It is open to a party to prove that, even though there is a document that on its face appears to be a complete contract, the parties have agreed orally on terms additional to those contained in the writing ...
(3) The parol evidence rule applies only to contracts that are wholly in writing, and thus has no scope to operate until it has first been ascertained that the contract is wholly in writing ...
(4) Where a contract is partly written and partly oral, the terms of the contract are to be ascertained from the whole of the circumstances as a matter of fact ...
(5) In determining what are the terms of a contract that is partly written and partly oral, surrounding circumstances may be used as an aid to finding what the terms of the contract are ...
(6) A quite separate type of contractual arrangement to a contract that is partly written and partly oral is where there is a contract wholly in writing and an oral collateral contract ...
In Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 352, Mason J stated (emphasis added):
[11] The broad purpose of the parol evidence rule is to exclude extrinsic evidence (except as to surrounding circumstances), including direct statements of intention (except in cases of latent ambiguity) and antecedent negotiations, to subtract from, add to, vary or contradict the language of a written instrument ....
Evidence to explain the document
In cases of ambiguity evidence may be given to explain the intended meaning of a term.
This will be considered in the context of construction.
➤ External link
Last updated: 18 October 2019