Identifying the terms of a contract

What are express terms of a contract? (includes essential and incidental)

Essential terms are also known as material terms, they are the core parts of the contract. Without essential terms there is no valid contract. If essential terms are uncertain or missing the contract is void. Non-essential are also called incidental terms and are extra details that support the contract. The contract can still exist without them. They just refine the agreement, make things clearer and add convenience. If incidental terms are missing or unclear, the contract is still valid.

What are implied terms of a contract?

An implied term is a term of the contract that is binding on the parties even though they have not mentioned it expressly in their verbal or written agreement. There are three types of implied terms, it includes tacit terms/terms implied on the facts, terms implied by law/residual/natural terms and terms implied by trade usage.

What are tacit terms (terms implied from the facts)?

These come from what the parties must have intended, even though they didn’t say it. The court asks, ‘What would both parties have agreed to if we asked them at the same time?‘ To see if there is a tacit term the courts apply the ‘curious bystander test‘. It works where an imaginary bystander had asked both parties at the time that the contract was entered into: ‘What about this particular term that you haven’t mentioned?‘ Then they both acting honestly and reasonably would have answered; ‘Oh, of course that is included, but we didn’t think about it, or oh, of course it is included but it was so obvious we didn’t think to mention it.‘

What are terms implied by law (natural/residual terms)?

These are terms that the law automatically inserts into certain types of contracts, even if the parties didn’t think about them. Examples in employment, the employee must act in good faith. In sale, goods must be fit for purpose (depending on context). This is not based on intention unlike tacit terms, they are based on legal rules.

What are latent defects?

A hidden defect in a thing that is not visible on reasonable inspection, but affects its use or value. It is a problem that you cannot see when you check the item but it is already there at the time of sale.

What is voetstoots clause?

The buyer takes the thing ‘as is‘, with all defects, so the seller is basically saying ‘I am not responsible for defects‘. normally the seller can be liable for latent defects but with a voetstoots clause, the seller is protected even for latent defects. The clause will not protect the seller if the seller knew about the latent defect and deliberately hid it.

What are terms implied by trade usage?

These come from customs or practices in a particular industry. If something is commonly done in that trade, it becomes part of the contract. Example in a specific industry, delivery is always within 30 days, even if not written, it may be assumed. The usage must be well-known, reasonable, consistently followed, must be certain, must not conflict with the law, must not contradict the other express provisions of the contract.

What are under common terms?

Conditions and time terms.

What is a condition?

A condition is a qualification which renders the operation and the consequences of the contract dependent upon an uncertain future event. A time term is certain and a condition is uncertain. There are two types of conditions: suspensive and resolutive conditions.

What is a suspensive condition?

A condition that pauses the operation of a contract until a future uncertain event happens. The contract exists but it doesn’t take effect yet. It only becomes fully enforceable if the condition is fulfilled.

What is resolutive condition?

A condition where the contract is fully valid and effective immediately, but will come to an end if a future uncertain event happens. Example, ‘Ill lease you my apartment, but if I get transferred to another city, the lease ends.‘

What is an exclusion clause?

These are clauses which attempt to exclude one party’s liability (contractual or delictual) which the law would otherwise attach to that party.

What is a cancellation clause?

A term in the contract that gives a party the right to cancel the contract in certain situations. It tells you when you are allowed to cancel and how you must cancel. Example if either party breaches the contract and does not fix it within 7 days, the other party may cancel the contract.

What is a penalty clause?

A term that says a party must pay a fixed amount (or suffer a consequence) if they breach the contract. They agree in advance what the innocent party will be able to claim as financial loss in the event of breach. Thus, they agree on a pre-determined loss.

What are the effect of imposed terms?

These are terms which may be imposed on a party to a contract even if they have not read or understood them. Exclusion clauses are one type of imposed term. These clauses try to limit one party’s delictual or contractual liability.

When will caveat subscriptor not apply?

Where the party can prove a mistake and the contract is void. Where the other party knew or ought to have known that the terms did not reflect the signatory’s true intention. This could also lead to a mistake and render the contract void.

When will the caveat subscriptor not apply (if CPA applies)?

If the exclusion clause is not drawn to the attention of the consumer then it will not be binding on the consumer. If the exclusion clause is not in plain language then it will not be binding on the consumer. If the consumer is not given adequate time to read and comprehend the clause, then the clause will not be binding on the consumer. The consumer must show his consent by signing the clause or acting in a manner which shows consent. If not, the clause will not be binding on the consumer. If there is an unusual nature which an ordinarily alert consumer could not be expected to contemplate or that could result in serious injury or death, then signing will not be adequate enough.

How are terms included in unsigned contracts?

With unsigned contracts, there is no document, which is signed between the parties, but these exclusion clauses are normally contained in notices or tickets. We call the terms included in these notices or tickets the imposed terms. These contracts is governed by the CPA, as it is most often a ‘supplier‘ who uses such tickets and notices to limit liability, not a private person. With regards to these contracts, the CPA and common law treats them the same.

What is gross negligence?

It is absolute recklessness. It is way beyond normal negligence. It would be for example, a doctor performing an operation while drunk. Under the CPA, the supplier cannot exclude liability for gross negligence.

What factors do we check to see if a customer is bound by exemption clauses?

The term on the ticket or notice must be drawn to the attention of the consumer. The term on the ticket or notice must be in plain language. In the case of tickets only it must be in a contractual form. The consumer must have an opportunity to read the exemption clause before entering into the contract. The consumer must consent to the provision (would have to act in a way that shows consent).