Contracts 2 Rose Vassel 2012 CONTRACTS 2 LAWS1072. Rose Vassel

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1 CONTRACTS 2 LAWS1072 Rose Vassel 1

2 INCORPORATION BY A COURSE OF DEALINGS This is justified by the idea that by continuing to deal with the party seeking to impose those terms, they have demonstrated a willingness to be bound by those terms. Balmain New Ferry Co Ltd v Robertson (1904) 4 CLR 379 HCA Robertson - sign above wharf 1penny to enter or exit - entered through turnstiles - missed boat - tried to exit w/o paying - restrained - escaped by gap bt. tunrstiles. Held On what terms did the P enter the wharf? Appeal allowed. He had entered it [the wharf] of his own free will and with the knowledge that the only exit on the land side was through the turnstile, operated as a part of the company s system of collecting fares...if he wished to use the turnstile as a means of exit he could only do so on complying with the usual conditions on which the company opened them [391] O Connor J. For a term to be incorporated by a course of dealings, that course of dealings must have been regular and uniform. Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 Ac 31. The document relied on in previous transactions must also have had the appearance/reasonably be considered to be a contractual document as opposed to a mere receipt or docket. Rinaldi & Patroni Pty Ltd v Precision Mouldings Pty Ltd (1986) WAR 131 WASC (Full Ct.) Issue Held R contracted A to transport fishing boats - damaged - similar contracts entered into 9-10 times previously - cart note signed by consignee on receiving and copy sent to R - on face said subject to conds. on reverse - cond. 5 was exclusion of liability cl. Were the conds. on the back of the cart note incorporated into the contract by virtue of a course of dealings? Appeal dismissed Cart notes were not contractual documents bc. in the Hill s case the hirer did not know and had no reason to know that the words printed on the back of the form contained conds. applicable to the supply of the machine which had been hired....then the notes are not, in the sense in which the expression is used in Hill s case, contractual documents and it is for that reason that the terms printed on the back of them cannot, in my opinion, est. a course of dealings leading to the conclusion that they were incorporated by implication into subsequent contracts [140], Burt CJ. 2

3 STATEMENTS MADE DURING NEGOTIATIONS If statements made during the making of a contract prove false, the party to whom it was made may seek a legal remedy. If the P can establish that the statement was promissory (i.e. a term of the contract), there will be a remedy for breach of contract. However, if it is a mere representation and not part of the contract they must seek relief under the law relating to misrepresentation. (1). Is the evidence of the purported term admissible to the court? (2). Courts must then decide whether the parties intended it to be a part of the contract. ENTIRE AGREEMENT CLAUSES PAROL EVIDENCE RULE A merger or entire contract clause allows parties to specifically state their intention that the contract be wholly in writing, that is that the written contract contains the entire agreement of the parties. This puts contracts that have been reduced to writing into a category which limits the evidence, extrinsic to the written document, that the court will admit to determine what the terms are and what they mean. (1) Extrinsic evidence is prevented from being given to add to, vary or contradict the terms in the document (i.e. the ambit of the document. (2) Evidence that might be given to explain those terms is limited. Evidence excluded Any extrinsic evidence to a contract in writing is excluded including oral conversations, letters or early drafts of the contract. Can extrinsic evidence be used to determine whether contract wholly in writing? The parol evidence rule only applies to exclude evidence of a term supplement in a written contract that is wholly in writing. Thus, is does not apply to exclude extrinsic evidence relevant to the identification of terms of a contract only partly in writing. There are two approaches to answering the above question: (1) Stricter approach: Prime place is given to the written document which, on face value, appears to be a complete record of the parties contract. Therefore, extrinsic evidence is not admissible to add to, vary or contradict the terms contained in the written document. (2) Flexible approach: focuses on determining what the presumed intentions of the parties were. The parol evidence rule does not apply so as to exclude extrinsic evidence until it is determined. The HCA has not yet determined which of these approaches should be used to identify the terms of a contract. See the following: Corbin on Contracts: The real issues involved in identifying the terms of a contract are: (1) have the parties made a contract? (2) Is that contract void or voidable because of illegality, fraud, mistake or any other reason? (3) Did the parties assent to a particular writing as the complete and accurate integration of the contract?...no one of these issues can be determined by mere inspection of the written document The existence of writing which appears to represent a written contract bt. the parties is no more than an evidentiary foundation for a conclusion that the agreement is wholly in writing. State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 Contract w/ SRA for hoardings + ads on state owned land - cl. 6 termination w/i 1mths notice in writing shall not give rise to claim for compensation - SRA terminated in

4 Issue Does the parol evidence rule allow reliance on the oral assurances of Mr Giles? The proper conclusion to be drawn from the discussion bt. the parties is that, as a matter of contract, cond. 6 was one of the contractual terms and that its literal effect was to give the D an unfettered right to terminate the contract. Mr Giles made it clear he did not have the authority to change the contract, would have difficulty doing so and that as it was a standard form contract could not be changed. Whatever the effect this discussion had it did not add to the terms of the contract. PAROL EVIDENCE RULE CONT D In Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234, Campbell JA set out the principles used to decide if an agreement is wholly in writing or partly written and partly oral: (1) When there is a document that on its face appears to be a complete contract, that provides an evidentiary basis for inferring that the document contains the whole of the express contractual terms that bind the parties... (2) It is open to a party to prove that, even though there is a document that on its face appears to be a complete contract, the parties have agreed orally on terms additional to those contained in the writing... (3) The parol evidence rule applies only to contracts that are wholly in writing, and thus has not scope to operate until it has first been ascertained that the contract is wholly in writing... (4) Where a contract is partly written and partly oral, the terms of the contract are to be ascertained from the whole of the circumstances as a matter of fact... (5) In determining what are the terms of a contract that is partly written and partly oral, surrounding circumstances may be used as an aid to finding what the terms of the contract are... (6) A quite separate type of contractual agreement to a contract that is partly written and partly oral is where there is a contract wholly in writing and an oral collateral contract Exceptions to the parol evidence rule in identifying terms Collateral contracts A contract made when one party makes a promise, connected to but independent of a main contract, and as consideration for that promise, the other party agrees to enter into the main contract. The parol evidence rule does not apply to exclude evidence of a collateral contract. Requirements for establishing a collateral contract Collateral contracts must be strictly proved (Heilbut Symons & co v Buckleton [1913] AC 30 per Lord Moulton). The burden of the party trying to prove it is lessened somewhat if the alleged contract deals with a subject matter which one would not normally expect to find in the main contract, i.e. Shepperd v Municipality of Ryde (1952) 85 CLR 1 FACTS: P purchased house from D corporation having read pamphlet issued by D describing housing program, and receiving assurance that areas designated as parks would be so laid. Contract of sale did not mention park areas. HELD: But a chief reason for this [reluctance to find collateral contract] is that too often the collateral warranty put forward is one that you would expect to find its place naturally in the principle contract. In a case like the present it is, we think, otherwise. For a statement to give rise to a collateral contract it must be: (a) made as a promise: JJ Savage & Sons Pty Ltd v Blakney (1970); and (b) intended to induce entry into the contract: JJ Savage & Sons Pty Ltd v Blakney (1970); and (c) consistent with the terms of the main contract: Hoyt s Pty Ltd v Spencer (1919). 4

5 If the parties have a history of dealings then contractual terms from earlier contracts may be incorporated into a subsequent contract. The collateral contract alters, as every contract must, the contractual relations of the parties, but it does not alter, and from the simple statement of the bargain is not intended to alter, the contractual relations which are est. by the main contract. Hoyt s Pty Ltd v Spencer (1919) 27 CLR 133 HCA Spencer, R, lessee of premises from head lessor - by registered memorandum of lease leased premises to A for 4yrs - proviso that could terminate w/ 4wks written notice - proviso followed - A claimed R had said would only terminate if head lessor terminated. Was the prior agreement a collateral contract?... a collateral contract, which may be either antecedent or contemporaneous, being supplementary only to the main contract, cannot impinge on, or alter its provisions or the rights created by it; consequently, where the main contract is relied on as the consideration in whole or part for the promise contained in the collateral contract, it is a wholly inconsistent and impossible contention that the other party is not to have the full benefit of the contract as made THE PAROL EVIDENCE RULE CONT D Exceptions to the parol evidence rule cont d Estoppel The courts are conflicted as to whether the parol evidence rule precludes the admission of extrinsic evidence for the purpose of establishing a estoppel. legal rights trumped in equity incl. those protected by the parol evidence + entire contract rules Saleh v Romanous [2010] NSWCA 274 Purchasers buy property from vendors based on assumption of JV to develop properties w/ vendors brother - vendor says if Edmond doesn t want to then they can rescind and have their deposit back - purchasers unable to negotiate w/ Edmond. Does the parol evidence rule apply to cases of promissory estoppel? In my judgment the Judge correctly held that the purchasers had established a promissory estoppel which entitled them to restrain the vendors from entering the contract of sale. Such an estoppel is not the equivalent of a contract, and cannot give the purchasers positive rights to rescind and recover their deposit that they would have had if the pre-contractual promise had contractual force. A pre-contractual promissory estoppel which conferred positive rights of that nature would be contrary to Hoyt s case Branir Pty Ltd v Owston Nominees [2001] FCA 1833 Obiter Allsop J sees force in the views of McHugh: in his rejection of the exclusion of a role for estoppel (at least in equity) where the detriment founding the estoppel is, in effect, the entry into an agreement which in turn negates, by its terms, the representation or conduct which is sufficiently clear to found an estoppel and reliance upon which led to the agreement being entered If contract wholly in writing then evidence of negotiations cannot be admitted to find an estoppel. Australian Co-operative Foods Ltd v Norco Co-operative Ltd [1999] NSWSC 274 5

6 the estoppel could not be enforced because the new license agreement is as its terms show intended to be a comprehensive written expression of the parties agreement, so that its provisions cannot be qualified by evidence of the terms of the the parties negotiations. 6

7 WHEN IS A STATEMENT A TERM OF A CONTRACT? WHEN IS A STATEMENT A TERM OF A CONTRACT? For an oral statement to be binding as a term of the parties contract, the statement must have been: (1) made as a promise; and (2) intended by the parties to be part of their contractual agreement; and (3) judged objectively - whether or not the statement would reasonably be considered a binding contractual promise by a person placed in the situation of the parties. Courts will consider several potentially relevant factors in assessing the status of oral statements. These include: Significance of a written contract; language used; the relevant expertise of the parties; the importance of the statement; the timing of the statement; and the form of the written contract. Objective test and significance of written agreement Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 271 Group of investors subscribe for ltd liability partnerships - written loan agreement with lender related to promoter to borrow subscription moneys + pay interest in advance - project failed - lender assigned debts - assignee sought to enforce written loan agreement - investors claim earlier oral agreement ltd recourse to prepaid interest etc. Can an agreement be found in the oral statements. The oral ltd recourse terms alleged by the respondents contradict the terms of the written loan agreement. If there was an earlier, oral consensus, it was discharged and the parties agreement recorded in the writing they executed. The statement must be promissory: the only conclusion which will support a collateral warranty [is]...that the statement so relied on was promissory and not merely representational. JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 HCA Blakney negotiated with A over boat construction - info. on engines recommended on as estimated speed 15mph - R replied preferred this advice - boat was 12mph max Was the representation enough to establish a collateral warranty? That the statement actually made by the A was intended to have some commercial significance upon a matter of importance to the R can be conceded; that the R was intended to act upon it, and that he did act upon it, is clearly made out. But those facts do not warrant the conclusion that the statement was itself promissory and the only conclusion which will support a collateral warranty [is]...that the statement so relied on was promissory and not merely representational. Intention can only be deduced from the totality of the evidence and it depends on if an intelligent bystander would reasonably infer that a warranty was intended, that will suffice. Oscar Chess Ltd v Williams [1957] 1 WLR 370 Court of Appeal D offered his car, thinking it was 1948 model (said that in log book) when actually 1939 model, as part payment for new car - P s allowed 290 pounds against new car - 10mths later discover 1939 model and only would have allowed 175 pounds. 7

8 Was the alleged term (that the car was a 1948 model) a condition of the contract? In these circumstances the intelligent bystander would, I suggest, say that the seller did not intend to bind himself so as to warrant that it was a 1948 model. If the seller was asked to pledge himself to it, he would at once have said: I cannot do that, I have only the log-book to go by, the same as you. The maker of the representation can rebut this inference if he can show that it really was an innocent misrepresentation, in that he was in fact innocent of fault in making it, and that it would not be reasonable in the circumstances for him to be bound by it Dick Bentley Productions v Harold Smith (Motors) Ltd [1965] 2 All ER 65 Court of Appeal B purchased 2nd hand car from S - prior to purchase S told him it had done only 20,000 miles since being fitted w/ new engine and gearbox - prior B told S he wanted well vetted Bentley car - S said he was in a position to find out the history of cars - Here we have a dealer, Mr Smith, who was in a position to know, or at least to find out, the history of the car. He could get it by writing to the makers. He did not do so. Indeed, it was done later. When the history of this car was examined, his statement turned out to be quite wrong. He ought to have known better. There was no reasonable foundation for it. 8