Recording-2025-08-27T02:52:45.347Z
Core contract concepts: enforceable obligations over two weeks of content
The context: two weeks focused on obligations that arise from agreements that are enforceable.
What makes an agreement enforceable in a simple contract? Three elements often cited:
Agreement: typically an offer and acceptance.
Intention to create legal relations (intent).
Consideration: something of value exchanged.
Distinguishing terms from representations
In forming a contract, not every statement becomes a term of the contract; some statements are representations or puffery.
A term is a promise that forms part of the contract; if it’s breached, there are remedies tied to the term.
A representation is a statement made to induce entering the contract but not itself a binding term unless proven otherwise.
Puffery: high-level, highly subjective claims that no reasonable person would take literally (advertising hype).
Example: a pub sign claiming “the best steak in Brisbane” for $15.
This is likely not a term; it’s advertising to attract customers and not a guaranteed fact.
Context matters: what counts as a term depends on how essential or specific the claim is.
The problem to resolve: distinguishing what was promised (term) from what was merely stated to induce the contract (representation).
Illustrative examples solidifying the distinction
If a store says the phone has no cracks and you buy it, is the statement a term?
Depends on proximity to agreement, importance, and the seller’s knowledge.
Puffery vs. explicit assurances:
“Best steak in Brisbane” is puffery; not a term.
If a seller holds themselves out as having expert knowledge about engine reliability, a claim about the engine’s condition may become a term if deemed important and knowledge-based (see Dick Bentley discussion).
A common scenario: a handwritten or signed document versus verbal statements.
Written, spoken terms, and implied terms
A contract can be formed by acts (e.g., walk into a cafe, order, and pay) without a written document; those terms may still exist (price, what is supplied).
A term can arise from prior dealings and customary practice, even if not written; example: a coffee shop charges a known price based on prior dealings.
Implied terms (by courts or statutes) exist in addition to express terms:
Court-implied terms (e.g., merchantable quality).
Statutory implied terms (consumer protection laws).
These are not the focus of today’s discussion but are important in practice.
Terms can be expressed (spoken or written) or implied by conduct or prior dealings.
The top three rules you need to know (overview)
Rule 1: Parol (parole) evidence rule
If a contract is reduced to writing, the written document is the definitive record of the agreement.
You generally cannot introduce oral statements as terms if they contradict or add to the written contract.
The rule promotes certainty: what’s in the written contract is the contract. If there’s a need to change, a new agreement should be formed.
Rule 2: The three-factor test to determine whether a statement is a term or a representation
The court looks at three factors together:
1) Close to the point of agreement: how soon after or near the agreement was the statement made.
2) Importance of the statement: how significant is the statement to the contract (e.g., engine condition in a car sale).
3) Special knowledge or influence by the maker: did the maker have superior knowledge about the matter (e.g., a seller with knowledge about engine quality vs buyer’s lack of expertise).Example (Dick Bentley): seller’s knowledge about engine quality, statement near agreement, and its importance make it a term.
Rule 3: Practical considerations for incorporation of terms and disclaimers
Entire/Whole of Agreement clause: a clause stating the written document constitutes the entire agreement; can block or limit consideration of verbal statements.
Collateral contracts: a separate, secondary contract created by an offer and acceptance that supplements the main contract (e.g., if you buy a product, there’s a side promise that something else will be delivered).
Disclaimers: attempts to limit liability use a different set of rules; they must be part of the contract, interpreted narrowly, and must be properly noticeable to be binding.
Terms vs warranties vs conditions (practical distinctions)
A term is any promise that forms part of the contract; it can be a major or minor term.
Major terms are often called conditions: breach allows termination of the contract.
Minor terms are often called warranties: breach allows damages but usually not termination.
Examples:
Condition (major): a bicycle must have functional brakes; you would not buy the bike without brakes.
Warranty (minor): you’d like streamers on handlebars, but you could still purchase without them; failure to include streamers is a warranty rather than a condition.
The remedies for breach reflect their categorization:
Breach of a condition → possible termination of the contract.
Breach of a warranty → typically damages, not termination.
The Parol Evidence Rule in depth
The rule: when a contract is reduced to writing, the written document contains the terms of the agreement; oral statements cannot modify or add terms to that contract.
Rationale: if a term is important, it should be written down to be enforceable.
Practical implications:
If there’s a signing of a “whole of agreement” clause, oral statements generally cannot override the written terms.
If you want to rely on a verbal term, you need to ensure it is included in writing or supported by a collateral contract.
Related concept: collateral contracts can sometimes create separate obligations (e.g., a promise outside the main contract) that may be enforceable alongside the main contract, though this can complicate remedies.
How to determine whether a statement is a term (three-factor test, elaborated)
Proximity to agreement:
A statement made very close to forming the contract is more likely to be a term.
Importance of the statement:
If the matter is crucial (e.g., engine condition in a car sale), it’s more likely to be a term.
Knowledge and expertise of the speaker:
If the speaker has special knowledge and the other party relies on that knowledge, the statement is more likely to be a term.
Combined, these factors help courts decide term vs representation in ambiguous cases.
Collateral contracts explained
Definition: a separate contract entered into in connection with the main contract, often arising from promises made in negotiations or advertising.
Example in class: AdBlaster TV ad plus steak knives offer. Purchasing the AdBlaster creates a main contract; a collateral contract promises the steak knives if you purchase, which may stand regardless of performance under the main contract.
Practical effect: Might create enforceable obligations independent of the main contract; can influence remedies depending on which contract breach occurs.
Takeaway: collateral contracts are a real tool to create additional promises, but they can complicate the analysis of terms in the main contract.
Implied terms, consumer law, and merchantability (awareness, not deep dive here)
Implied terms can be inserted by courts or by statute (e.g., merchantable quality, fitness for purpose, consumer guarantees).
In consumer transactions, many terms are implied by consumer protection law, limiting what a seller can or cannot do.
These implied terms operate in addition to express terms (written or spoken) and may be non-derogable by disclaimers in some jurisdictions.
This lecture focuses on express terms, but be aware implied terms can fill gaps where the contract is incomplete.
Disclaimers and how they operate (three governing rules)
Disclaimers must be part of the contract to be enforceable.
They are interpreted narrowly; courts apply a form of the four corners rule to determine whether the disclaimer was effectively communicated and incorporated.
They cannot be misrepresented: you cannot agree to a term you do not know about.
Incorporation by notice: a disclaimer can be incorporated if reasonable notice is given (e.g., signage at the entrance of a venue).
Reasonable notice examples:
Entrance signage where you see and accept terms before forming the contract.
If notice appears after an important step (e.g., after entering), it may not be incorporated.
Practical prompts:
If you regularly deal with a supplier and a disclaimer is not posted in a consistent place, liability may be expected to cover those prior dealings.
Some disclaimers may be hollow if it tries to offload all liability for foreseeable risks (often scrutinized in court).
Examples used in class:
Parking lot disclaimers: signage at entry may limit liability for loss; if the sign isn’t noticed before forming the contract, it may not be binding.
“Not liable for injuries on tours” or “no liability for scooter use” notices present in many consumer settings.
Important limits:
Disclaimers cannot override fundamental protections; misrepresentation of a disclaimer is not allowed, and broad disclaimers won’t excuse serious negligence or fundamental breaches.
Remedies and damages: practical implications
The core aim of damages is to place the injured party in the position they would have been in had the contract been performed as promised.
Damages are not intended to be a windfall or “free lottery.” They reflect the loss caused by the breach.
Examples of damages scope:
If a promised feature (like brakes on a bike) is missing, damages may cover the cost to obtain the missing feature or the loss caused by its absence.
If a person is terminated due to breach, they are not compensated by punishing the other party but by restoring the injured party to the baseline position they would have been in otherwise.
A few quick formulas to keep in mind (for study purposes):
General damages concept: ext{Damages} = ext{Value promised} - ext{Value received}
Expectation damages seek to recover the value of the bargain that was lost due to breach.
Practical takeaway: whether you can terminate or only claim damages depends on whether the breached term is a condition (major) or a warranty (minor).