Contract Law Case Study: Oral Agreements, Breach, and Remedies for USC

This case study analyzes a contract law dispute between USC and Kalpana, focusing on whether an oral assurance constitutes a term of the contract. The analysis explores the legal framework of contract formation, including offer, acceptance, and consideration, and examines express and implied terms. It delves into the classification of terms as conditions or warranties and their implications in case of breach. The application of legal principles to the given facts determines the status of the oral assurance, whether it is a term of contract or not, and if it is a condition or warranty. The study also identifies the potential remedies USC can seek, considering the nature of the breach and the terms of the agreement. The analysis references relevant case laws to support its conclusions, providing a comprehensive understanding of the legal issues involved.

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Contents
Answer.....................................................................................................................................2
Issues....................................................................................................................................2
Law.......................................................................................................................................2
Application of law.................................................................................................................6
Reference List.........................................................................................................................10
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Answer
Issues
i. Whether oral assurance by Kalpana to Rafia is a term of contract or not?
ii. If the oral assurance is regarded as a term then will court regard it as a
condition or warranty?
iii. What are the remedies USC can seek in the given scenario?
Law
A contract is formulated between the parties when there is an offer and its acceptance
along with consideration, capacity of parties and intention to be in legal relation. In
case there is only offer and acceptance and if one of the other ingredients is missing
then the same is termed as an agreement1.
A contract when formulated between the parties has certain terms and conditions in it.
The terms only make a contract as the collection of terms formulates a contract
between the parties. The terms are those stipulations which the parties abide and
follow in order to be in contractual relation with each other. The terms in a contract
may be express terms or implied terms.2
The terms which are made part of a contract either verbally or in written form are the
express terms. These terms are those terms which are made part of the contract based
upon the assent of the parties to a contract and is held in B.P. Refinery (Westernport)
Proprietary Limited v Shire of Hastings (Victoria)3. The terms which become part of
the contract due to the trade, custom, precedents, etc. are implied terms and is held in
Heimann V Commonwealth Of Australia4.
The parties to a contract are duty bound to abide by the terms of a contract whether
the same are express terms or implied terms. In case of non-following of the same
there is breach of the contract that is incurred.
In case the parties include terms within a contract whether the same is by a written or
an oral mode, then, they come under the preview of the express terms. These terms
are decided between the parties to be included in the contract even before the
1 Peter Gillies. 1988. Concise Contract Law. Federation Press.
2 Maree Sainsbury. 2013. Moral Rights and Their Application in Australia. Federation Press.
3 B.P. Refinery (Westernport) Proprietary Limited v Shire of Hastings (Victoria) [1977].
4 Heimann V Commonwealth Of Australia (1938) 38 SR (NSW) 691
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formation of the contract. The statements which are agreed upon by the parties prior
to the formulation of the contract and are made part of the contract are express pre
contractual statements and the statements which are not part of the final contract are
negotiations5.
The pre contractual statement can be classified as follows6:
i. The pre contractual statements are made part of a contract and are called
contractual terms when they are expressively negotiated between the
contractual parties and parties to a contract have intention that these
statements which are promissory in nature be made part of the contract. The
intention of the parties governs as to whether the pre contractual statements
are to be taken as a part of the contract7.
ii. When pre contractual statements are in form of a collateral contract then also
they are considered to be part of a contract. When a collateral contract is made
between the parties at that time there are two contracts which exist between
the contracting parties. One is the main contract which is in written form and
other is known as a collateral contract which is in oral form. But again the
intention of the parties to make the statement as part of contract must exist in
order to make the same as terms of a contract.
A pre contractual statement can be made part of a collateral contract when8:
a. The parties to a contract have intention to abide by the pre contractual
statements and they are promissory in nature9. In case the intention of the
parties have intention to make them the part of a written contract in that
case the parole evidence rule will not let an oral term be obligatory on the
parties.
b. When the oral terms agreed amongst the parties overlap with the formal
contract then a collateral contract becomes the part of written contract10.
5 Ewan McKendrick and Qiao Liu. 2015. Contract Law: Australian Edition. Macmillan International Higher
Education.
6 Stephen Graw. 2012. An Introduction to the Law of Contract. Thomson Reuters (Professional) Australia.
7 Toll (Fgct) Pty Limited v.Alphapharm Pty Limited & Ors [2004] HCA 52
8 Sydney. 2017. Terms. < https://sydney.edu.au/lec/subjects/contracts/Summer%202016-17/LPAB%20-
%20Contract%20-%20Summer%202016%20-%20Lecture%205.pdf>. Accessed on 17th May 2018.
9 J J Savage and Sons Pty Ltd v Blakney - [1970] HCA 6
10 Shepperd v The Council of the Municipality of Ryde (1952) 85 CLR 1.
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c. The pre contractual statement made between the parties must be supported
by some consideration as then only the pre contractual statement are
considered to be the part of the contract between the parties.
iii. In case where the pre contractual negotiations that takes place amongst the
parties to contract but the parties do not intend the said negotiations to be
promissory in nature. In that case the pre contractual statements are not
obligatory upon the parties and are considered to be representations only.
Mere representations between the parties are not made part of a contract.
iv. Pre contractual statement in the form of sales puff etc. are also not considered
as a term of contract and hence will not have any effect on the contract as they
are not obligatory upon the parties.
From the above mentioned law, it is quite evident that the pre contractual statements
are made part of the written contact in case they are already in the written contract or
they are part of collateral contract with the intention of the parties to abide by them as
same being of promissory nature.
The term of a contract decides whether the breach of that term will result in its
termination or mere damages can be awarded to the suffering party due to such
breach. Thus, as per the importance of the terms the terms can be bifurcated into two
parts i.e. the conditions and warranties11.
CONDITION
A Condition is a terms which is of utmost importance to a contract and the absence of
the terms will not allow the contract to exist. The case law related to the concept of
condition is Poussard v Spiers and Pond12. Without a condition a contract is
considered as incomplete. These terms are considered as the backbone of the contract.
The case law of Federal Commerce & Navigation Co Ltd v Molena Alpha Inc. (The
Nanfri)13 clarifies the condition as a term in a contract. In Koompahtoo Local
Aboriginal Land Council v Sanpine Pty Ltd14 it was stated that the terms which are
important to a contract are conditions.
11 Paul S. Davies. 2016. JC Smith's the Law of Contract. Oxford University Press.
12 Poussard v Spiers and Pond (1876)).
13 Federal Commerce & Navigation Co Ltd v Molena Alpha Inc. (The Nanfri)[1979].
14 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007].
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WARRANTY
The terms which are not as important as conditions in a contract are termed as
warranties. These terms though are necessary for the contract but the contact
formulated between the parties does not solely depend on these terms. The warranties
thus provide a good base to the contract as a mixture of condition and warranties
make a good contract. These are not the basis of a contract but are yet necessary to
formulate a balanced contract as per the wish of the parties. They are those terms
which provide support to the conditions in a contract formed between the parties and
is held in Bettini v Gye15 .
In certain cases where the difference cannot be made out that a certain term is a
condition or a warranty then that term is classified as an innominate term. The
innominate terms is considered as a condition or a warranty depending upon the
circumstances or situation of its breach and is rightly held in the leading case of Hong
Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd16 and Lombard North
Central v Butterworth17.
The terms can be classified into a condition or a warranty by understanding its
seriousness in a contract as in case a certain term if is not complied with then the
other party who is innocent will cancel the contract if that is the case the term is a
condition otherwise a warranty and is held in Rice (t/a Garden Guardian) v Great
Yarmouth Borough Council18 .
When the conditions and warranties are breached the consequences that follow are as
under:
In case a CONDITION is breached by any party to the contract then the suffering
party can cancel the contract and thus the contract comes to an end as the condition
being the basis of the contract ends the contract when the same is breached and is held
in the leading case of Poussard v Spiers. In case of breach of condition the sufferer
has the option to end the contract and sue for damages also.
15 Bettini v Gye 1876
16 Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1961] .
17 Lombard North Central v Butterworth [1986].
18 Rice (t/a Garden Guardian) v Great Yarmouth Borough Council [2000]
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In case a WARRANTY is breached by any party to a contract then in such case the
contract continues but the suffering party has the right to claim damages due to the
breach of the warranty as the warranty being a term of a contact does not has so much
impact on the contract that the contract can be cancelled due to its breach.
Application of law
Issue 1
As per the facts Rafia was at the post of event manager in USC she organized a
multicultural dance program at USC. USC hope that they will be able to reach an
agreement with the representatives of Pune that were there for Indian students to
attend USC on an exchange program.
Rafia after viewing the website on Indian classical dance was impressed and met
Kalpana the principal of dance school and asked her to provide for the main act in the
event.
The statements exchanged between the above persons were as follows:
 Rafia told Kalpana that the programme was of utmost importance for her as
there was contact between USC and university of India.
 Rafia also stated that she wanted a cultural programme for Indian visitors
 Rafia wanted Kalpana to advertise the traditional cultural dance as she will be
able to sell the tickets and impress the Indian visitors
 Kalpana told Rafia that she was into Indian dancing and will performance of
Indian dance.
 Kalpana also told that she is an Indian as she was born there and had got
training in India.
As per the case law of Gordon v Macgregor (1909) the oral statements have no
sanctity when there is written contract between the parties.
The oral terms as per talks between Rafia and Kalpana has no relevance as per the
case law as there was a written contract between them but in the written contract
between them there was no term which stated that the dance to be performed was a
traditional, classical Indian dance. So as the oral terms were not made part of the
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contract and neither the form of dance was mentioned in the written contract the oral
contract cannot be taken into account.
But as per the case law of Toll (Fgct) Pty Limited v.Alphapharm Pty Limited & Ors
the oral terms are a part of a contract as they are collateral to the written contract and
thus must be considered as a apart of the contract between the parties.
As in case provided Rafia and Kalpana exchanged oral statements amongst
themselves which are promissory in nature and thus they have intended these to be of
promissory form, and they had made them with a view to be abide by these
statements. They both had not pressed that the statements must be in written form.
The oral statements are made with a view to comply with same and are not in
contradiction with the written statements of a contract. The contract between the
parties is supported by consideration.
So from the above facts it can be thus states that the oral negotiations are terms of a
contract as they are collateral to the written contract.
Issue 2
Now to analyze as to whether the oral terms can be regarded as a condition or a
warranty
The oral negotiations between the parties which are not part of the written contract are
also the terms as they are collateral to the written terms.
Rafia made it clear to Kalpana that the contract between USC and the Indian
University and Rafia wanted a cultural program to be organized.
Rafia’s main aim to enter into a contract with Kalpana is that she wanted a cultural
Indian show to be put on by Kalpana as the students of Indian university were there
and she wanted to impress them. Rafia also asked Kalpana to advertise the Indian
traditional dance as it would help her in selling the tickets. Rafia by her oral terms
made it clear to Kalpana that she wanted a Traditional and cultural Indian show as het
main aim was to impress students.
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Kalpana also told Rafia that the dance will be performed as per her wish and stated
that performance of beautiful Indian dance is guaranteed and hence gave a definite
guarantee about the performance of dance to Rafia.
Kalpana also stated that she is an Indian by birth and had also got training in Indian
dance. Thus after all the above said discussion only Rafia and Kalpana entered into a
contract with each other though the same is not made part of the written contract but
the intention of the parties was quite there as per which Rafia intended that Kalpana
should get the Indian cultural performance.
The statements of Kalpana made Rafia entered into a contract with her as she with her
statements made such an impression that the Indian cultural dance will be performed
in the event and Kalpana with her statements that she is born in India and trained in
Indian dance made an impression that the dance which Rafia is intending to will be
performed at the event.
Considering the terms as per discussion of parties the oral terms will be considered as
a Condition as it is of utmost importance to the contract and thus the basis of the
contract (Poussard v Spiers and Pond).
As the oral terms are the basis of the contract so in case the same are breached then
there is nothing left in contract and thus the oral terms being basis of the contract
makes them a condition and thus important stipulation to the contract which must had
been followed by Kalpana.
Issue 3
As per the oral discussion between the parties Kalpana assured Rafia that the event
will be a traditional classic and cultural dance show and thus Rafia as per the
discussion advertised the event being a cultural event. But on the day of the event the
dance was more like a Hollywood performance rather than the traditional dance show
which in turn ruined the show and thus the visitors and Rafia as well did not liked the
show and thus everyone was disappointed as they were expecting a traditional cultural
event rather than a Hollywood performance. The contract of Rafia with the Indian
university was also ruined.
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The oral terms as discussed between the parties must be taken as a condition as they
were the base of the contract and thus were of utmost importance for the contract as
they being the backbone and the basis of the contract. The same being a condition
should had been compiled by Rafia.
Thus the contract of Rafia with Kalpana had been breached by Kalpana as the main
condition of the contract was that the dance should be traditional and cultural but
Kalpana did not abide to same and thus made a Hollywood show so Rafia can claim
the loss suffered from Kalpana for the breach committed by Kalpana.
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Reference List
Books/Articles/Journals
Davies, P. 2016. JC Smith's the Law of Contract. Oxford University Press.
Gillies, P. 1988. Concise Contract Law. Federation Press.
Graw, S. 2012. An Introduction to the Law of Contract. Thomson Reuters
(Professional) Australia.
McKendrick, E and Liu, Q. 2015. Contract Law: Australian Edition. Macmillan
International Higher Education.
Sainsbury, M. 2013. Moral Rights and Their Application in Australia. Federation
Press.
Case laws
Bettini v Gye 1876
B.P. Refinery (Westernport) Proprietary Limited v Shire of Hastings (Victoria)
[1977].
Federal Commerce & Navigation Co Ltd v Molena Alpha Inc. (The Nanfri)[1979].
Heimann V Commonwealth Of Australia (1938) 38 SR (NSW) 691;
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1961] .
J J Savage and Sons Pty Ltd v Blakney - [1970] HCA 6;
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007].
Lombard North Central v Butterworth [1986].
Poussard v Spiers and Pond (1876)).
Rice (t/a Garden Guardian) v Great Yarmouth Borough Council [2000]
Shepperd v The Council of the Municipality of Ryde (1952) 85 CLR 1.
Toll (Fgct) Pty Limited v.Alphapharm Pty Limited & Ors [2004] HCA 52
Online material
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Sydney. 2017. Terms. < https://sydney.edu.au/lec/subjects/contracts/Summer
%202016-17/LPAB%20-%20Contract%20-%20Summer%202016%20-%20Lecture
%205.pdf>. Accessed on 17th May 2018.
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