Terms of a contract
Introduction
The rights and obligations of parties to a contract are determined by the terms of that contract. These terms may be express (those articulated by the parties - whether in written or oral form) or implied. Terms might be implied by common law (as a result of conduct of the parties, necessity or normal commercial practice) or by statute; the latter is now much more common in the case of consumer contracts.
Express Terms
Express terms are those terms that the parties have articulated prior to - or at the time of - concluding their contract. Sometimes identifying these terms is simple - for example, if they appear in a written contract. On other occassions it is less clear.
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 previoius owner and/or was originally manufactureed in 2007. 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 might be classified as either:
1. Sales puff
2. Term of a contract
3. Collateral contract
4. Mere representation
(as a statement may be both a term and a representation the word 'mere' is used here to refer to representations that are not also terms)
More detail forthcoming
Implied Terms
Implied terms are those terms which the law implies into a contract notwithstanding the fact taht they have not been discussed by the parties or referred to in a contract. They may be implied at common law or by statute:
Common law
At common law terms are generally implied where it is necessary to give full effect to the intention of the parties - eg, it may imply a term requiring parties to do what is necessary to enable the contract to be performed. In some cases courts will ask whether or not the parties would have expressly agreed to the term if they had considered the issue when entering into their contract (ad hoc implied terms). In some cases the courts will imply 'standard' terms without the need for inquiry into the actual intent of the parties (standard implied terms). In the case of the latter, if there is a clear intention to the contrary the terms will not be implied. Some standard impliied terms include: that materials are of good quality and fit for purpose and that contracts for professional services will be supplied will be provided with reasonable care.
Statute
Terms may be implied by legislation; this is now much more common so that the statutory regimes are now far more relevant than the common law principles. Statutory implied terms generally impose obligations on one of the parties and are most common in consumer contracts. Currently there are a number of overlapping and different regimes; there is a federal implied terms regime and separate state and territory regimes (sometimes more than one). There is a current proposal for national consumer protection legislation which would remove some of these layers - for now it is important to be familiar with the various different regimes.
View sample approach to statutory implied terms
Commonwealth
The key consumer protection legislation in Australia is the Trade Practices Act 1974. Part V of this Act implies terms into consumer contracts.
Victoria
In Victoria, in addition to common law implied terms, three regimes operate to imply terms into contracts; an overview of the regimes is provided below (note, it is not designed to be comprehensive and focuses on goods rather than services). See also sample approach to Victorian implied terms regime.
| Application |
Goods Act
All contracts for the sale of goods unless Part 2A of the FTA applies (s 32FA FTA). Implied terms may be excluded or modified by the parties: s 61 GA.
Fair Trading Act
Consumer contracts only: see 32D. Covers sales of goods valued at under $40,000 or above that amount but of a kind ordinarily acquired for personal, household and domestic use. However, specifically excludes (s 32DA) goods bought for purpose of resale or raw materials ordinarily acquired for repairing goods or incorporation in other goods. Implied terms not excludable: 32L.
Trade Practices Act
Consumer contracts only (s 4B) – application virtually identical to FTA but also covers commercial road vehicles. Also, supplier must be a corporation. Implied terms not excludable: s 68 |
| Title – right to supply
Implied term |
s 17 GA, ss 32G & 32GA FTA, s 69 TPA
Seller will have:
* right to sell/supply or will have at the time property is to pass (this is a condition): Niblett; Rowland. Title may be ‘fed’ if acquired after property passes but before breach is claimed (Patten v Thomas Motors)
and parties may agree to transfer limited title only
* right to quiet possession (warranty only)
* goods will be free from charge or encumbrance (warranty only) |
| Conformity with description |
s 18 GA, s 32H FTA, s 70 TPA) where:
* contract for the sale of goods
* by description (must be influential to sale
and must relate to identity not just quality (Ashington Pig; Elder Smith)
* to consumer (FTA and TPA only)
In TPA need supply by corporation in course of business and auction sales are specifically excluded |
| Fitness for purpose |
s 19(a) GA, s 32IA FTA, s 71(2) TPA
Implied condition goods will be fit for purpose at time property passes where:
* Particular purpose is made known (can be expressly or by implication (implied if obvious; eg kettle) and must enable S to exercise skill/judgment (Kendalll v Lillico; Ashington Piggeries)
* There is reliance (full or partial) on the seller’s skill and judgment; and
* Sold in the course of business (note differences in Acts, below); and
* (Goods Act only) not sold under trade name
(this only applies where reference to trade name demonstrates no reliance on the seller’s skill and judgment)
Reliance
Goods Act makes it is a pre-requisite for the buyer to demonstrate they made the purpose known ‘so as to show that the buyer relies’ on S’s skill and judgment.
The
FTA and TPA term is implied (if purpose made known) unless
(a) circumstances show that the consumer does not rely; or
(b) it is unreasonable for him to rely
on the seller’s skill and judgment
Demonstration of reliance can be express or implied. More likely to be implied where consumers are involved rather than when both customer and shopkeeper are equally knowledgeable: Kendall v Lillico; Ashington Piggeries
Course of business
Goods Act must be goods of a description which it is in the course of the seller’s business to supply
- probably still covers sales of items that seller is willing to order and sell in his business
o definitely covers goods of the type sold before: Ashington Piggeries
FTA and TPA must be goods of a description which it is in the course of a business to supply
- excludes private or irregular sales but otherwise covers most sales
Reasonably fit
Goods must be reasonably – not absolutely – fit for purpose (Cavalier Marketing and Barclay Oysters) |
| Merchantable Quality |
Where supply of goods in the course of a business (not private sale) there is an implied condition goods are of merchantable quality
(s 71(1) TPA; 32I FTA; 19(b) GA):
Does not apply in relation to defects:
(a) purchaser is aware of when supply is made; or
TPA: defects ‘specifically drawn to consumer’s attention before the contract is made’; FTA: defects purchaser is aware of at time of sale; GA: no specific reference but given excludability it is likely to be implied that it does not apply to such defects
(b) if goods have been examined, defects examination ought to have revealed
TPA: that examination (focus on actual examination undertaken); FTA: the examination (focus on actual examination undertaken); GA: such examination (focus on what a reasonable examination would have discovered – even if actual examination would not have: Thornett v Beers)
Merchantable quality
Fit for all normal purposes (having regard to price and other relevant circumstances): s 66(2) TPA; s 32I(2) FTA and Fit for any normal purpose: Kendall v Lillico
Extra Goods Act requirement: Goods must be bought by description from a seller dealing in goods of that description |
| Sale by sample |
Where there is an express or implied term to the effect goods are supplied by reference to sample, (or under FTA supplier showed purchaser a sample and purchaser was induced by this) there is an implied condition (s 72 TPA; 32HA FTA; 20 GA):
* Bulk will correspond with sample in quality
* Consumer will have reas. opportunity to compare bulk with sample; and
* Goods will be free from any defect rendering them unmerchantable that would not be apparent on reasonable examination
(unless purchaser was aware of defects at time of purchase (FTA)) |
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