Hierarchy of Terms

The main components of a contract – that is the terms defining the transaction for which the contract was entered into – are called the conditions or express terms. Terms of lesser significance, but which are not trivial, are called intermediate terms. Terms of minor significance are called warranties, or minor terms. (A warranty, here, has nothing to do with the right to return defective goods to a retailer). Just because a contract states which terms are express terms, is not conclusive. Their actual importance is of greater significance. If a breach of any terms is likely to deprive the counter party of their entitlements, then the term will probably be a condition.

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If an express term is breached, the contract can be terminated and then other remedies, such as damages are available. But if a minor term is breached you cannot terminate: other remedies such as damages, injunctions and specific performance are available. Where a term is of intermediate significance it is dealt with according to its own importance under the circumstances, so a contract can be terminated for breach of an intermediate term, but not necessarily. Courts always try to keep a contract going if possible.

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Interpreting and Changing a Contract

Contracts are interpreted in accordance with the apparent intentions of the parties. A written contract is interpreted first by reference to the document alone. That is, regardless of what is said or assumed in negotiation, accepted as fair, or known in common practice, the wording is paramount. For this reason one must always read the fine print when the stakes are high.

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Where there is a lack of clarity or issues arising that are not covered in writing, then courts readily consider evidence of assumptions and verbal assertions, and common practice.

 

Courts DO NOT overrule or change terms for unfairness, unless there is evidence of deceit, coercion, or the like. If fairness was a forefront issue it would be very difficult to do business profitably as nothing could be bought or sold at anything other than a standard value.

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Re-negotiation

If the terms are no longer suitable for any reason – a change in supply prices, the applicable laws, or market demand, for example, you may want to change the terms of the contract. The agreement with the other party remains as is, unless re-negotiated lawfully.

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This normally requires detailed communication, signatures and so forth. But it is common practice for banks, utility providers and the like to send out amended terms by post expecting the customer to agree automatically. Classically the new terms are invalid, but the customer typically goes ahead and continues using the service or performing their obligations. In so doing they give implied assent to the new terms. (Think of Mrs Carlill’s implied acceptance of the original terms of her contract to use the smoke ball). Implied consent/assent is therefore a very powerful tool when doing business with a mass market, or seeking flexibility in business arrangements, or when trying to slip in something ‘special.’ A party to a contract dispute must be wary and be aware of the latest edition of their contract.

 

The good news is that the rules which apply to make certain contracts or terms invalid apply to re-negotiated contracts the same way.

 

Statements Made in Negotiations

Statements made during negotiations prior to the formation of a final agreement ARE enforceable even if they are not part of the formal document in the end. To make a negotiation statement enforceable it must be promissory in nature and it must not be retracted prior to execution of the contract.

 

Non-promissory statements made in negotiation are called ‘representations’ and are NOT enforceable. (False representations are unlawful as misleading and deceptive conduct).

 

In order to induce a party to enter a contract an entirely separate offer might be made. If accepted (eg: by entry into the main contract), this is called a collateral contract.

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