LECTURE 6

TERMS OF A CONTRACT

EXPRESS TERMS

INTRODUCTION

Express terms are those explicitly included in the contract by the parties. In many cases this will
not present any difficulties. However, there are cases where the identity of express terms is not at
all clear. The following examples can serve as introductions to a number of principles used in
identifying the express terms of a contract.

Example 1

X and Y undertook lengthy negotiations relating to the sale of X’s Ford motor vehicle
to Y for $5,000. During the negotiations, X stated that the car was a 1996 model Ford.
After the contract was completed Y discovered that the Ford was a 1994 model, and
therefore worth somewhat less as a trade-in than a 1996 model.

Is the statement by X as to the year model a term of the contract, with the consequence
that X is in breach of contract? In other words, did X promise to sell a 1996 Ford or
simply a Ford? If it is the former, X is liable to Y for damages for breach of contract,
whereas in the latter case there is no liability for damages because there is no breach
of contract.

Example 2

P agreed to lease his farm to Q and a detailed written lease agreement was prepared by
P for the parties to sign. The written lease agreement covered all the terms one would
generally expect to find in a contract of this type. Q was in agreement with all of its
terms. However, before Q signed the lease, he sought an assurance from P that the
drainage system on the farm was in good working order. The written agreement
prepared by P was silent on this matter. P promised Q that the drainage system was in
excellent condition. Q signed the lease. Q later discovered that the drainage system
was not in good working order.
 Can Q sue P for breach of contract in relation to the fact that the drainage system is
not working as promised by P? In other words, does the promise made by P about the
drainage system amount to an express term in a contract between P and Q?

TERMS AND REPRESENTATIONS

Example 1 above raises the question of whether X’s statement was a term of the contract or merely
a representation. This is crucial because, if X’s statement is false and it is held to be a term, X is
in breach of contract and liable to Y for damages. If the statement is a mere representation, it lacks
any contractual force and X cannot be liable for damages for breach of contract. However, a false
representation may constitute a misrepresentation, with the consequence that X may be able to
rescind the contract. Alternatively, the false representation may attract various remedies for
breaching the statutory prohibition of misleading and deceptive conduct.

In ascertaining whether statements such as the one made by X are terms or mere representations,
see Ellul & Ellul v Oakes (1972) 3 SASR 377; Hospital Products Ltd v United States Surgical
Corporation (1984) 156 CLR 41 at 61; Oscar Chess Ltd v Williams [1957] 1 All ER 325; Dick
Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 2 All ER 65; JJ Savage & Sons Pty
Ltd v Blakney (1970) 119 CLR 435 at 442

COLLATERAL CONTRACTS

Example 2 above raises the issue of collateral contracts. P’s assurance as to the condition of the
drains could amount to a contract that is separate and distinct from the written lease. The separate
contract is referred to as a collateral contract. Indeed, in De Lassalle v Guildford [1901] 2 KB 215,
on very similar facts to Example 2, a collateral contract was found to exist. In relation to collateral
contracts see Heilbut Symons & Co v Buckleton [1913] AC 30 at 47; Shepperd v The Council for
the Municipality of Ryde (1952) 85 CLR 1 at 12.

The elements of a collateral contract are: (i) that the statement is promissory in nature; and (ii) that
there is no inconsistency between the main contract and the alleged collateral contract.