The obligations and rights of parties are outlined in formal agreements through contract terms. Terms can either be express or implied.
Express Terms refer to terms which are explicitly outlined in the contract. Generally, written or oral express terms are incorporated into a contract through signature, notice referring to another document containing terms, or a regular course of dealing, whereby terms in previous agreements may be assumed as incorporated.
Implied Terms refer to terms which are not explicitly outlined in the contract. Generally, these terms arise in situations where parties do not consider or turn their minds to particular events. Implied terms may be:
- Implied by fact – a term which “goes without saying” e.g: if you order food at a restaurant, that the restaurant will serve the food, and the customer will pay for it.
- Implied by law – a term part of specific categories of contracts under legislation or precedent e.g: lease, employment, or service contracts.
- Implied by custom – a term which can be reasonably presumed to align with other contracts in the same industry or context.
Parol Evidence Rule
For contracts that are wholly in writing, the Parol Evidence Rule (‘PER’) generally prevents extrinsic evidence from admissibility to the Court. Extrinsic evidence may include statements made and correspondence between parties during negotiations, prior to the contract’s formalisation in writing.
However, exceptions to the PER may arise in the following circumstances:
- When there is ambiguity in determining the meaning of a term – in this case, extrinsic evidence including context and history may be considered by the Court to ascertain a term’s meaning as intended by the parties;
- When the Court finds existence of an extrinsic agreement, known as a collateral contract, determined through the satisfaction of the following conditions:
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- The agreement is both connected, but independent, to the main contract;
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- The agreement must be consistent with the terms of the main contract.
The general example of a collateral contract is inducing a party to enter into the main formal agreement by providing further consideration e.g: a car salesperson promises an additional warranty period if purchase a car and agree to its main contract terms.
- When there is fraud, duress, illegality, misrepresentation, or other misconduct – in this case, extrinsic evidence in relation to the misconduct may be considered by the Court to invalidate the contract.
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