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2Terms of a contract Questions

Terms of a contract Questions

By (Student)

Question 1

After oral assurances from Ricky that Tower-flour will supply gluten-free almond flour, Mikaela commits to buy 40 kilograms of the flour to bake a client’s cake. The conversation between Mikaela and Ricky regarding gluten-free flour and the subsequent oral placement of offer by the former is an express term of contract between the two parties. Mikaela states clearly that she wants to buy 40 kilograms of gluten-free flour, which Tower flour commits to supply. In Bannerman v White, it was held that where a representee (in this case, Mikaela) emphasises to the representor (in this case Ricky-Tower Flours) the importance of a statement, it should be held to be a term and not a representation.1 Mikaela relies on Ricky’s statement that the almond flour is indeed gluten-free. Ricky assured Mikaela that the flour was gluten-free. It turned out that Ricky’s statement was untrue and a breach of contract.

After the conversation with Mikaela, Ricky sends an order form that constitutes a written agreement between the two parties. Therefore, the agreement is partially written and partially oral. It is inconsequential that the form that was used to place the order did not include the terms gluten-free since the initial conversation constituted a principal contract term. Tower Flours cannot rely on the defence of Parol evidence rule to eliminate verbal terms of agreement since Mikaela can use the initial conversation with Ricky as evidence to clarify ambiguity in the written contract. In addition, Mikaela can evidently prove that the contract with Tower Flours was partially written and partially oral given that the order was first placed through oral communication and supported by an order form sent via email. Moreover, Tower-flours as the representor had the greatest capacity and knowledge to determine the purity of the almond flour. In Dick Bentley Productions v Harold Smith Motors, it was held that where a representee relies on the representor’s expertise, it should be held that a statement made by the former is a term of contract.2 Clearly, Tower-flours as the representor had the greatest knowledge about the purity of the almond flour. Therefore, Ricky’s statement amounted to a contract term.

Question 2

There was an implied term of contract between Dan & Jacob and Mikaela. Mikaela was to bake a cake using almond flour, which is generally understood to be gluten free. In the case of of Codelfa Construction Pty Ltd v State Rail Authority of NSW, the court held that an implied term of contract must be reasonable and equitable.3 In the case of Mikaela’s contract with Dan and Jacob, it is a reasonable that if someone orders a cake baked with almond flour, it should be gluten-free. Moreover, Dan and Jacob would not have ordered the cake if they had knowledge that it will contain wheat flour elements. Therefore, there was an implied term that it will be gluten-free given that almond flour is gluten-free. It is also obvious and goes without saying that almond flour is generally gluten-free. The implied contract term that the cake that Dan and Jacob ordered should be gluten-free can be clearly expressed as almond flour should not have gluten in it. Finally, the requirement that the cake should not contain gluten does not contradict the express contract term between the parties as Dan and Jacob only ordered a cake baked using almond. Notably, they were not informed by Mikaela that the cake will include wheat flour. Clearly, there was an implied contract term in Mikaela’s contract with Dan and Jacob that the latter’s’ cake will be gluten-free as it will baked using almond flour.

Question 3

The blue and purple icing on the cake ordered by Kimiko is condition of the contract and not a warranty. Kimiko orders a cake that has blue and purple coloured icings at Mikaela’s shop. Upon Mikaela’s acceptance of the order, the two parties had effectively entered into a contractual agreement. Kimiko expressly stated that he required a cake with blue and purple coloured icing as this was a very important term of the contract to him. This constituted an essential part of the contract between the two parties.

It goes without saying that Kimiko would not have entered into a contractual agreement with Mikaela had he been informed that the latter will not prepare a cake with blue and purple coloured icing. This implies that Kimiko would have sought a different baker who could fulfil the contractual conditions. In the case of Bettini v Gye, it was held that a breach of warranty can only occur if the term had not been expressly stated in the contract.4 However, in this case, Kimiko had expressly stated that he wanted Mikaela to prepare a cake with blue and purple coloured icing. Apparently, the icing colour was not a mere warranty but an essential term of the contract that goes to the root of the agreement. Mikaela breached the essential term by putting blue and green icing instead of blue and purple. As a result of this breach, Kimiko can rightfully sue for damages arising from the breach of the contract despite the fact that he had already paid for the cake.

Question 4

Mikaela is still responsible for the icing on kimiko’s cake being of the wrong colour. When Kimiko placed the order, he expected Mikaela to make a cake with blue and purple coloured icing. Kimiko performed his part of the contract by paying the amount agreed upon. Kimiko’s obligation is a condition under the contractual agreement. It follows then that, Mikaela’s obligation to make a cake with blue and purple icing is a condition as well. However, Mikaela failed to make a cake with blue and purple icing. In effect, Mikaela breached a condition of the contract. Mikaela should be held responsible for the damages and inconveniences that the breach caused Kimiko. Notably, Mikaela had placed a sign at the shop stating that the business does not accept responsibility for breach of any warranty. This disclaimer would not have been held in the case considering the fact that Mikaela breached an essential contract term and not a mere warranty. In effect Mikaela departed significantly from the four corners of the contract. In The Council of the City of Sydney v West, the court held that an exclusion will not be applicable if an act is not permitted by the main objects of a contract.5 Mikaela deviated from the main object of the contract: preparing a cake with blue and purple icing. Therefore, Kimiko is not prevented from protesting the contract breach by the warranty disclaimer displayed at Mikaela’s shop as it is not applicable in this case.

1Bannerman v White(1861) 10 CBNS 844

2Dick Bentley Productions v Harold Smith Motors[1965] 1 WLR 623

3Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337

4Bettini v Gye(1876) QBD 183

5The Council of the City of Sydney v West (1965) 114 CLR 481