Terms of a Contract

A contract does not exist without its terms. Terms of a contract are the main body of a contract that exists between two parties. The terms must be incorporated into the contract whether that is by them being written terms, implied into the contract by trade custom or whether one party makes a representation to the other party where it is clear that the other party treats the representation to be of great importance and more. In addition, the terms of a contract upholds promises to the contract formed by parties in that contract itself. If the court considers a statement to be part of the terms in the contract, the court has to decide how significant the statement is to the contract. This is because not all terms are stated expressly and some terms carry less legal gravity than the other. The terms are commonly classified as conditions, warranties and the term that lies in between which is innominate terms. The Australian court looks at each case differently as each case has its own unique characteristics. For the court to make a decision, the court has to look into its surrounding circumstances, which includes how serious the consequences are to the contract, whether the contract will be held as non-binding, as well as the intentions at the time when the contract is made. The court may decide otherwise if a term in the contract was regarded as a condition but after further considerations the court can conclude that the term maybe a warranty or an innominate term.

Conditions are the building blocks to what a contract is based on. It is frequently described as the essentials or simply the roots of a contract. It is also referred to as the most important obligation to a contract. Conditions are so important that without them both parties may decide not to enter into the contract. When a case for breaching of terms is presented before the court, the court will have to test how essential that term is to the contract, whether the term is a condition or a warranty. An example of a case would be Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd . In this case, Luna Park agrees to rent space for advertising on three trams in Sydney for three years from Tramways Advertising Pty Ltd. A term in the contract states that all three trams would be on the rail for eight hours every day and also that the advertisements would be in full view for the same number of hours. After two years, Luna Park decided to terminate the remaining contract on grounds that the conditions have been breached. Luna Park claims that even though the trams they were advertising on were on the tracks for eight hours a day, they had not been in full public view. Tramways Advertising continued to display the advertisements for the third year and when Luna Park failed to provide payment, Tramways sued them. When this case was brought to the High Court, a majority of them agreed that Tramways Advertising had been found guilty because they have breached one of the conditions in the contract. The court was only able to award nominal damages as Luna Park had failed to prove the number of days Tramways Advertising did not display the advertisements. For a term to be a condition, the term has to be essential to the contract, so much so that if the term did not exist the contract would not have taken place. A test of essentiality was applied by the High Court as in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd and found that Luna Park might not have entered the contract in the first place if they were not assured of the performance of the promise the trams would be out for eight hours a day and that the sign would be in full public view for that time period. The High Court disagreed with the Supreme Court on the amount of damages that was awarded and came to a conclusion that the $300 awarded to Luna Park was not supported by sufficient facts.

The significance of a condition is further shown in the case of Associated Newspapers Ltd v Bancks . Bancks, the creator of an animation character, held a contract with the newspaper agency so that he could have a full page for his comic every Sunday over a period of ten years. The comic was to be published on the front page of each Sunday's comic column. Two years later, while in the contract, a newsprint shortage occurred and the cartoon was found in the third page of the section for three consecutive Sundays. After the third Sunday upon realizing that his comic would be published on the third page for several more times, Bancks repudiated the contract and signed with another newspaper company and treated the contract as a breach. The court found that Bancks had the right to repudiate the contract because he would have not entered the contract in the first place unless there was an assurance that the comic would be on the first page by Associated Newspapers Ltd. Therefore, if a stipulation was considered to be essential, then the term would be a condition. The classification of a term as a condition was also practiced in the case of Poussard v Spiers & Pond . In this case, Poussard's promise to perform on the actual night was a condition. Her failure to show up due to illness on the night forced the producers to look for a substitute. Postponing the show will potentially cause financial problems for the defendants. Therefore the producers were entitled to repudiate the contract as they would not have entered into agreement if they were not assured of performance on Poussard's side of the deal.

Warranties are not known to have similar significance to a contract as a condition. A warranty is a form of a minor term in the contract. A term will be considered as a warranty if its existence