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Express Terms in a Contract

Questions:

Whether Gluten Free Cake Is The Implied Term In The Contract Between Dan And Jacob With Mikaela?       

Term Related To The Icing Color Is The Condition Or Warranty To The Contract?

Whether Mikaela Is Responsible For The Wrong Icing On The Cake?

Generally, rights and liabilities of the parties to the contract are considered by the terms of the contract. Terms are divided into two parts that are express terms and implied terms. Express terms are those terms which are stated by the parties either in written form or in oral form.

For the purpose of constituting the term of the contract, it is necessary that statement made by the party must intend to be promissory in nature. Court considered the element intention to create legal relation, and in this context intention is determined on objective basis. In other words, whether though made by the reasonable person was intended in those situations (ACL, 2017)?

This can be understood through case law Ellul and Ellul v Oakes. In this case, Court stated that if representation was made by one party under the contract for the purpose of inducing the other party to enter into contract and actually induced the other party to enter into contract, then it was considered as prima facie evidence for treating that representation as the term of the contract.

Therefore, if any representation made by one party induces the other party to enter into contract and parties has intention to create legal relations then such representation is considered as term of the contract.

In the present case, Mikaela specifically asked about the gluten free almond flour, and Ricky replied yes to her. In this both the parties has intention to create legal relations and representation made by Ricky induce the Mikaela to enter into contract. Therefore, Gluten free almond flour can be considered as term of contract.

Implied terms are considered as those terms which are implied by law in the contract, but these terms are not discussed by the parties or referred in the contract. These terms are generally implied by common law or by statute.

Common law implied the terms on the basis of actual and presumed intention of the parties under the contract, and such terms generally give business efficacy to the contract which may be result from the transactions between the parties. This can be understood through case law Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337. In this case, Justice Mason stated that those conditions on the basis of which term can be implied in the contract are defined under BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 40. These conditions are stated below:

  • Terms must be reasonable and equitable in nature.
  • It is necessary that term provided business efficacy to the contract, and it must be noted that term is not implied in the contract if contract is effective in nature even without that term.
  • Term must be so obvious in nature that it must be understood without saying.
  • Term must be capable of clear expression.
  • Term must not violate any express term of the contract.

Implied Terms in a Contract

Usually, Court compare the implication of term with the rectification of the contract, and stated that in both the cases issue raised because of the deficiency of expression on the part of the parties in the contract. In other words, parties omit to include the term in the contract. The difference between implication and rectification is that in rectification parties omit to include the term and when term is included then it was actually agreed between the parties. In case of implication it is presumed that parties are already agreed upon the terms in their mind, which means that term on which parties are already agreed upon. Therefore, rectification give effect to the actual intention of the parties but implication gives effect to the presumed intention (Austlii, n.d.).

In the present case, Dan and Jacob do not specifically ask about the gluten free cake, but they asked for almond flour. In this case, Condition stated in above case law is satisfied in this case:

  • Term related to gluten free cake is not reasonable, and this term is not necessary for business efficacy to the contract because it is possible to make the cake with gluten free cake also.
  • Term is not obvious in nature because Dan asks for almond flour but not for gluten free almond flour.
  • Dan does not give any clear expression of gluten free almond cake. Therefore, term is not capable of clear expression. It must be noted that there is no presumed intention on the part of the Mikaela for gluten free almond flour.

More important terms related to the contract are considered as condition and less important terms are considered as warranty. It must be noted that conditions are very important for the contract that without that term party would not enter into the contract.

For the purpose of determining the condition or warranty court considers the circumstances of the case. Breach of condition allowed the innocent party to terminate the contract. This can be understood through case law Poussard v Spiers (1876) 1 QBD 410 (ACL, n.d.).

In the present case, term related to color is considered as condition because Kimiko wants that cake for sports team celebration, and green icing is not appropriate for that celebration. Kimiko would not enter into the contract if Mikaela said no for the purple icing. Therefore, this term can be treated as the most important term and classified as condition of the contract.

Conclusion:

Exclusion clauses are those clauses which are usually stated in the contract and exclude the liability of one party under the contract in case of certain happenings.  This can be understood through example, when person join the gym then generally contract states that owner of the gym will not be responsible for the injury caused to person while exercising. Exclusion clauses are valid only when these clauses are properly included in the contract.

In other words, exclusion clauses are those terms of the contract which limit or exclude the liability of one party, and these clauses are generally effective if properly drafted. There are some laws which prevent the party to rely on exclusion clauses, especially in case of consumer contracts (ACL, n.d.).

Classification of Terms as Conditions and Warranties

It must be noted that, it is not possible for parties to exclude the liability related to the conditions and warranties under the contract, and those rights and remedies which are stated by the Australian Consumer Law. Section 64 A of the Schedule 2 Competition and Consumer Act 2010 (Cth) states that it is not possible to exclude the consumer guarantee. In case person exclude the liability related to any term which is considered as condition or warranty of the contract then such exclusion clause will considered as void

This can be understood through case law Glynn v Margetson [1893] AC 351. In this case, Court stated that carriers agreed to carry the oranges from Liverpool for the purpose of allowing the ship to call at any port in Europe or Africa. When ship arrived in Liverpool, it was found that oranges were already destroyed. Defendants try to depend on exclusion clause, but Court stated that main purpose of the contract is to deliver the goods safely to the ship, and it is not possible for defendants to rely on any clause which exclude the liability for the main purpose of the contract.

In the present case, the main purpose of the contract is to deliver the cake with Blue and purple icing, but Mikaela deliver cake with blue and green icing which is considered as breach of condition. As per section 64 of the ACL it is not possible for parties to exclude the liability related to the conditions and warranties under the contract, and those rights and remedies which are stated by the Australian Consumer Law.

In above stated case, Court stated that it is not possible for defendants to rely on any clause which exclude the liability for the main purpose of the contract, and in this case main purpose of the contract is to deliver cake for sport celebration.

Therefore, Mikaela cannot rely on exclusion clause in this case.In this case, Mikaela cannot rely on exclusion clause and Kimiko can sue her for breach of contract.

References:

ACL, (2017). Terms of a contract. Available at: https://www.australiancontractlaw.com/law/scope-terms.html. Accessed on 22nd August 2017.

ACL. Classification. Available at: https://www.australiancontractlaw.com/law/scope-classification.html. Accessed on 22nd August 2017.

ACL. Exclusion Clauses. Available at: https://www.australiancontractlaw.com/law/scope-exclusion.html. Accessed on 22nd August 2017.

Austlii. Implied terms in Australian contract law. Available at: https://www.austlii.edu.au/au/journals/MonashULawRw/2011/22.pdf. Accessed on 22nd August 2017.

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 40.

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337.

Ellul and Ellul v Oakes, (1972) 3 SASR 377, Supreme Court of South Australia.

Glynn v Margetson [1893] AC 351.

Poussard v Spiers (1876) 1 QBD 410.

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