Contract Law: Express And Implied Terms And Exclusion Clause

1. Whether the contract that is established amid Mikaela and Tower Flours includes the term that almond flour would be gluten free?
2. Whether the contract amid Dan and Jacob & Milaela includes an implied term that their cake would be gluten-free?

Essentials of a Valid Contract

In contract, offer, acceptance, intention, consideration and capacity of parties are the main essentials that are required to make a valid contract. The contract terms defines the rights and obligations of the parties. The terms are:

Express – Eloquent by the parties either orally or in writing.  The express terms are normally defined by the parties before entering into the contract. These are pre contractual statements and can give rise to breach if not performed, depending upon the kind of pre contractual statement it was.

When the term is made part of the written contract then it is promissory in nature and is a contract term and must be complied with at all costs. If the term is part of the contract as collateral (oral) contract, then, also, it is contract term and remedies can be availed if breached, provided, the statement is promissory, is intended to be part of the written contract and is not in contradiction with the main contract. But, if the term is mere representation of sales puff then it is not considered as a term of the contract and cannot be enforced.

Normally, when the contract is written, then the parties must comply with the written terms and there is no scope of any oral terms amid the parties. But, there are few exceptions to the same, that is, if the term is included by misrepresentation or mistake.

Also, no extrinsic evidence can be laid which establishes some other oral term as part of the contract. However, there are few exceptions, that is, terms which establishes the validity or true nature or other terms of the contract can be established by laying own extrinsic evidence or parole evidence rule.

Implied – Imposed upon parties by law or usage or custom. They are not negotiated by the parties while establishing the contract but they are considered to be part of the contract by law, usage or custom. Terms are implied considering the intentions of the parties as well. The terms are implied provided they are reasonable, required to give true meaning to the contract, obvious, clear, not in contradiction with express terms.

Mikaela source its material for the cake shop from Tower Flours (Ricky). Mikaela specifically enquired that whether the almond flour supplied by them is gluten-free. Ricky answered in affirmative. The statement by Ricky implies that the almond flour supplied by them is gluten-free.

Considering the statement of Ricky, Mikaela ordered 40 Kg almond flour. An order form is emailed by Ricky which is duly filled and returned by Mikaela. But, there is no mention that the almond flour supplied will be gluten-free.

Now, since the contract amid Ricky and Mikaela is a written contract thus, the normal rule is no oral evidence can be laid down and the parties must rely on the terms of the contract. But, at times, oral evidences are permitted to depict the true intentions of the parties. It is submitted that the basis of contract amid Ricky, and Mikaela was that the almond flour should be gluten-free. Even though the same is not part of the contract but must be considered as collateral contract and parole evidence must be applied and oral evidence should be laid down which establishes that gluten-free almond flour is the main term on the basis of which contract is made amid the parties.

Express and Implied Terms in Contract Law

So, the contract includes that the term almond flour would be gluten free

When Dan and Jacob order cake from Mikaela the only required that is furnished by them was that the cake must be baked from Almond flour. There is no mention that it should be gluten-free. This term cannot be considered to be an implied term because usage of gluten-free almond flour is not within the custom or usage or trade deals of Mikaela. Also, the specification was also not expressly made by Don and Jacob.

So, the contract with Dan and Jacob does not include an implied term that their cake would be gluten-free and thus there is no breach.

Conclusion

Mikaela can sue Tower Flour for the supply of almond flour which is not gluten-free because it was an express term of the contract. But, Don and Jacob cannot sue Mikaela because their term was neither express nor implied. 

1. Was the icing colour a condition or a warranty of the contract?  
2. Is Mikaela still responsible for the icing being the wrong colour on Kimiko’s cake?

Whenever any contract is made, then the contract terms are normally categorized in two heads, that is, :

1. Condition – The terms which are the soul, essence and heart of the contract are conditions and no contract can be performed without such terms.These are the terms because of which the contract was actually established amid the parties. If the condition is violated, then, the contract can be cancelled and damages can be availed by the plaintiff.
2. Warranties – When the terms are not the contract essence and are only required for the support of the conditions, then the terms are warranties. If the warranties are violated then only damages are sought and the contract cannot be cancelled.

Further, many a times, the parties incorporate a term in the contract wherein the liability of one of the party is limited or excluded on the happening of some contingent event. Such clause are called exclusion clause. The exclusion clause is considered to be valid provided:

1. The clause is incorporated mutually by the partiesbefore the incorporation of the contract.
2. If one party inserted the termwithout the approval of the other party, that is, if the term is incorporated unilaterally, then, the same is valid only when it is brought in the notice of other party. If the term is not within the knowledge of the party then the term is not valid.
3. The term must not be contrary to any law.
4. The exclusion clause must specifically define the kind of liability excluded.

The law is applied.

1. Kimiko places an order at the cake shop of Mikaela. Kimiko specifically submitted that the cake must be chocolate, round and covered with blue and purple colored icing. The cake supplied by Mikaela which has blue and green icing instead of blue and purple icing.

It is submitted that Kimiko required the specific icing because she was planning to use it in the function. However, this specification was not told to Mikaela when the cake was ordered. Thus, a minor change in the color of the icing will not result in violating the main essence of the contract. the cake was appropriate and the term is not a condition.

So Kimiko cannot cancel the contract, though she can sue Mikaela for damages.

Now, Mikaela specifically puts a sign on the wall next to the counter which says that ‘We accept no responsibility for breach of any warranty’. The sign is read by Kimiko when she was finalizing the order of the cake. Now, since the term which is breached by Mikaela is a warranty and the same is specifically excluded by Mikaela and is also bright in the notice of Kimiko before the formation of the contract. Thus, the exclusion term is valid and is binding upon the parties.

So, Kimiko cannot sue Mikaela for any damages for the brace of warranty.

Conclusion

It is thus concluded that the contract amid Kimiko and  Mikaela was a valid contract but the term that the cake must be of specific inclining color is only a warranty and is not the essence of the contract. thus, the contract cannot be rescinded and only damages can be claimed. But, the warranty is also excluded by Mikaela by relying on the exclusion clause.

Thus, the exclusion clause is valid and Kimiko cannot sue Mikaela for damages as  well. 

Reference List

Books/Articles/Journals

Carrrey BA, ‘Guidebook to Contract Law in Australia’ (1991) CCH Australia.

Clark J, ‘Terms of a contract’ (2013) Australian Contract Law.

Case laws

Australia Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd. [2004] HCA 52;

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 40

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337.

Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur (Australia) Ltd (1986) 160 CLR 226

Curtis v Chemical Cleaning [1951] 1 KB 805 

Ellul and Ellul v Oakes. (1972) 3 SASR 377.

Gordon v Macgregor – [1909] HCA 26

Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133.

Thornton v Shoe Lane Parking [1971] 2 WLR 585