Agreement- Offer and Acceptance

Transcription

1 1 Agreement- Offer and Acceptance Offer Essential Terms Intention to be legally bound o Mere Puffery (Carlil v Carbolic Smoke Ball) o Invitation to treat (Pharmaceutical Society v Boots Cash Chemist) o Auctions (AGC v McWhirter; Payne v Cave) o Negotiations Battle of the Forms (Butler Machine Tool Co v Ex-Cell-O Corp) Correspondence- How to identify offer amongst invitations to treat (Gibson v Manchester City Council; Brambles Holdings v Bathurst City Council) o Ticket Cases (MacRobertson Miller Airlines v Commissioner of State Taxation) o Duration Lapse offer to remain open for specified period/time limit may be specified or implied by the court. Offer lapses automatically once time expires. Revocation/withdrawal- Unilateral Offer (Mobil Oil v Wellcome) Rejection (including counter-offer) Once rejected, offer terminates. Offeree can t accept unless offer is renewed. A counter offer acts as a rejection to the offer (Hyde v Wrench) Request for information or clarification is not a counter-offer (Stevenson Jaques v McLean) Conditional Offers-Offer stays open as long as conditions are met Options (Goldsborough Mort V Quinn) Acceptance Must correspond with offer (Butler Machine Tool Co v Ex-Cell-O Corp) Must be unequivocal no terms left to negotiate Can be express or implied can accept through conduct (especially if parties have had previous dealings); Unilateral acceptance through performance. Not effective unless communicated decision to accept is insufficient, communication to 3 rd party is too, until communicated to offeror offer can be withdrawn; are exceptions to this. Should be in mode prescribed (Bressan v Squires; Machester Diocesan Council v Commercial and General) Silence isn t a mode (Felthouse v Bindley) Exception (Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd) Can dispense with notice the offeror can dispense with the requirement of notice. Postal Acceptance Rule If applies, acceptance is at time of posting. Applies when it is within the comtemplation of parties that post might be used to communicate acceptance (Henthorn v Fraser); Does not extend to fax or telephone (Entores), (Brinkibon) Argument that modern business practices might delay relevant person receiving acceptance. See Electronic Transactions Act 2000 (NSW) S13A for /internet. Only offeree can accept Acceptance not valid unless reliant on offer (R v Clarke)

2 2 Consideration Must be given on the request of the promisor (Australian Woollen Mills v Cth) Must move from the promisee (Price v Easton) Must be sufficient (Woolworths v Kelly; Chappel v Nestle) Does not need to be adequate see Woolworths v Kelly Must not be illusory (Placer Development v Cth); Uncertain or uneforeable (Dunton) Past consideration is no consideration (Roscorla v Thomas) Promise to perform and existing duty is not consideration (Stylk v Myrick), Part payment of a debt is not good consideration (Foakes v Beer) o Exceptions Fresh Consideration (Glasbrook, Hartley V Ponsonby) Practical Benefit (Williams v Roffey Bros; Musemeci v Winadell) Does not apply to part payment of a debt (Re: Selectmove) Promises made to third parties (Shadwell v Shadwell; Pau On v Lau Yiu Ling) Compromise and Forbearance to sue (Wigan v Edwards)

3 3 Intention to Create Legal Relations Presumptions should be treated with caution (Ermogenous v Greek Orthodox Community of SA) Social/Domestic/Family arrangments outside realm of contracts law (Placer Development Ltd v Commonwealth (1969) 121 CLR 353 at 367); simply because the parties to them must be regarded as intending that the mutual promises whether kept or broken are not to land them in court. Scoial/Family/Domestic agreement have no intention (Balfour; Cohen; Jones v Padvaton) Social/Family/Domestic presumption easy to rebut (Todd v Nicol; Merrit v Merrit; Wakeling v Ripley; Dunton v Dunton) Commercial Agreements have intention (Edwards v Skywards Ltd; Esso Petroleum; Barque Brussels Lambert) Commercial Agreement intention presumption difficult to rebut (Rose and Frank Co v Crompton; Masters v Cameron) Weighing nature of context (Rofous v Brewster) Presumption to be bound can be displaced in favour of gentleman s clauses (Rose and Frank Co v J R Crompton & Bros Ltd); agreement not formal but carried through in mutual loyalty and friendly co-operation. As formal agreement displaced in a specific clause, courts must respect this as the intention of both parties. Government Schemes (The Administration of the Territory of Papua New Guinea v Leahy; Australian Woollen Mills) Generally held that government schemes are not contractual obligations Certainty Overall two competing principles Courts try to uphold agreements (should adopt reasonable interpretation or insert terms by implication) or Only terms which parties voluntarily agree to should be enforced (should not impose terms on parties unless clearly adopted by them). However wide discretion held with courts Completeness An Agreement must contain all the essential terms o Essentiality of terms missing - Familiar Contracts Conveyance of land, sale of goods etc essential terms have been identified by courts Sale of land parties, land, price Lease commencement date, rental Sale of goods price not essential Unfamiliar Contracts The threshold question is not whether the expressly agreed terms are sufficient in themselves to constitute a contract, but whether the parties have specifically agreed all the terms that only the can decide. o Why are the essential terms omitted - Parties may attempt to agree to agree not enforceable Parties may have overlooked an issue court may supply a term by implication, but with reluctance Parties may have failed to agree on the issue not enforceable o Is the contract wholly executory, partially executed or wholly executed

4 4 Wholly executory courts will be reluctant to read in missing terms Partially executed courts will be more read to read in missing terms by implication Wholly executed what s the problem guy s? The contract is finished. Certainty o Imprecise, vague or meaningless term Upper Hunter Country District Council v ACR Language is deficient in expression, semantic or conceptual difficulties, language is clear by application to facts doesn t make sense. Eg no facts fit description or more than one set of facts fit. Subject to finance (Mehan v Jones); Upon reasonable terms as commonly govern such a lease (Whitlock v Brew); Value of land fixed but less depreciation (Hall v Burst); Option to participate in company equity sharing scheme but no such thing existed (Biotechnology v Pace). o Terms Upheld promises to pay Handsomely, a substantial sum, a substantial cut on workd done, a bonus, a fair and equitable price, current bank overdraft rates, supplier s cost. o Terms not upheld- promise to o o o o Well reward (employee) Reasonableness Operates as a standard by which courts can interpret vague or imprecise terms Cannot help if there are several reasonable interpretations of the term (Whitlock v Brew; Hall v Busst) Illusory Promises (Mehan v Jones; Biotechnology v Pace; Placer Developments v Cth) Agreements to negotiate Can be enforced as has been (Coal Cliff Collieries v Sijehama; Alton v Transfield) Severance If a contract contains an uncertain term which is not essential, court may sever the term from the contract and enforce the balance. This is only available if the severance does not change the nature of the agreement overall

5 5 Formalities Week 4 Is there a binding agreement? Yes Is that type of agreement required to be in writing under a statute? Yes Is the agreement in writing as required by statute? No Yes Is there a memorandum of the agreement? No Yes Is the agreement for memorandum signed by the party to be charged or an authorised agent No Yes Has there been any part performance? No Yes Unenforceable contract Enforceable contract

6 6 Note s541a Convenycing Act 1919 (Nsw) is what designates that sale of land contracts must be in writing Do any documents contain details of the agreement? If more than one document can they be joined? o Do they refer to each other? o Physically connected Do they contain the essential terms o Sale of land - Price (Burgess v Cox), parties (first and last name), property (Price v Saunders) Part Performance o Performance Must be unequivocally and by their nature referable to a contract of that kind (Ogilvie v Ryan, Regant v Millet, McBride v Sandland) o Referability Electronic Transactions Act s 9 name on is enough for a signature. Contracts of Guarantee o In New South Wales, such contracts are not required to be in writing o However, many other Australian jurisdictions require such contracts to be in writing (e.g. the Property Law Act 1974 (QLD)) Contracts in Consideration of Marriage o Such contracts deal not with the promise to marry, but the promise to do something in consideration of marriage e.g. to pay a sum of money as an allowance in consideration of marriage o This is not required to be evidenced in writing in New South Wales Contracts for the Sale of Land or an Interest in Land o All Australian jurisdictions require such contracts to be evidenced in writing o Conveyancing Act 1919 (NSW), s 54A: No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action or proceedings is brought, or some note or memorandum thereof, is in writing, and signed by the party to be charged or by some other person thereunto lawfully authorised by the party to be charged Sale of Goods o This generally concerns s 17 from the Statute of Frauds o In Tasmania and Western Australia, a contract for the sale of goods above a certain value must be reflected in writing o In New South Wales however, this provision has been repealed by the Sale of Goods (Amendment) Act 1988 (NSW) s3 and Sch 1, Cl 2 Compliance with the Requirements o Recall s 54 of the Conveyancing Act 1919 (NSW) No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action or proceedings is brought, or some note or memorandum thereof, is in writing, and signed by the party to be charged or by some other person thereunto lawfully authorised by the party to be charged These are the elements to be satisfied in meeting the requirements Note or Memorandum o Essential terms of the contract The parties The property - Pirie v Saunders The price - Burgess v Cox

7 7 Signed by the Party to be Charged o Signed by the party to be charged ie the person against whom the contract is alleged. o Name can appear anywhere on document, as long as it has been authenticated o Does not need to be an actual signature may be printed, handwritten, digital. o See Electronic Transactions Act NSW (2000) s9 Joinder of Documents o physically connected eg a letter and the envelope in which it is posted; or o a reference in one document to the other document. o Harvey v Edwards Dunlop & Co Ltd Oral contract was reflected in a number of letters. Effect of Non-Compliance o A contract which fails to comply with the requirement of writing is not void But it is unenforceable o Parties cannot sue or be sued upon it o Severance? This is probably of limited use in most cases what else can be done to avoid injustice? Effect of Non-Compliance o Claim dehors(foreign too, or outside the agreement) the contract Pavey & Matthews v Paul The builder completed the work, and also supplied materials but Mrs Paul refused to complete the contract However, there was nothing preventing a claim dehors the contract, or claim independent of the contract o The builder was able to bring a claim in restitution, known as a quantum meruit o A quantum meruit is a claim for reasonable remuneration for work done and materials supplied, on the basis that the other party would be unjustly enriched if the party who had performed their obligations was not compensated Effect of Non-Compliance o Doctrine of Part Performance Equity will intervene to allow a plaintiff who has partially performed their obligations under a contract to enforce the contract An equitable remedy at the court s discretion If proved, the court will enforce the contract may be a better option than restitution Two key elements : Referability o To what extent is the part performance being claimed actually in reliance of the contract? o Maddison v Alderson (1883) 8 App Cas 467 o acts relied upon as part performance must be unequivocally and in their own nature, referable to some such contract as that alleged o Contrast with Steadman v Steadman [1976] AC 536 Performance o Ogilvie v Ryan o McBride v Sandland

8 8 o The Acts must be done by the party to the contract seeking to rely on the doctrine or their agent. o Preparatory acts are not sufficient o The acts done by the plaintiff must be permitted by the contract but not necessarily required by it. o In New Zealand acts done in reliance on the contract cannot be taken into account. Variation o Variation Where a contract is not required to be in writing, any variation to the terms need not be reflected in writing. However, where a contract is required to be evidenced in writing, any variation to the terms must also be written Capacity Minors o Can a minor enter into an agreement? Minors (Property and Contracts) Act 1970 (NSW) Age of majority is 18 s9(1) S19 minor can enter for their benefit- civil acts - burden of proof on minor (is the minor getting what they want?) o S6(1) civil acts include contracts Do any other presumptions apply? o S18 Age of Understanding when a minor participates etc in a contract while lacking by reason of youth, the understanding necessary for their participation in the act o S20 if too expensive or they do not receive enough consideration o S21 Gifting if a minor gifts property, thought must be given to whether it is reasonably, if so it is binding on the minor. Can they repudiate? o S31 can repudiate any time they are a minor before they turn 19. Only if the civil act was not for benefit of minor S33 (proper notice of repudiation) and 35 (restriction on repudiation) requirements Intoxication/Mental Disability o Moulton v Camroux (1849) 4 Ex 17 2 factors The degree of influence on the mind The knowledge thereof of the other party Ratio stemmed from Beverly s Case (1603) 4 Co Rep 123b; 76 ER impossible for a person of full age to establish capacity; the same principle applied to unsoundness of mind o Gibbons v Wright (1954) 91 CLR 423 o Parties must have such soundness of mind as to be capable of understanding the general nature what he is doing by his participation Void or Voidable? Non est factum - signature on the contract was signed by mistake, without knowledge of its meaning, but was not done so negligently.

9 9 The Common Law Position o Necessaries Nash v Inman [1908] 2 KB 1 Peters v Fleming (1840) 6 M & W 42 o Benefit alone is insufficient Bojczuk v Gregorcewicz [1961] SASR 128 o Necessaries are displaced where there is no benefit De Francesco v Barnum (1890) 45 Ch D 430 o What if a minor borrows money in order to purchase goods or services which are necessary? o Contracts not for necessaries voidable and binding unless repudiated

10 10 Week 6 Estoppel Central London Property Trust v High Trees o First major case to establish the principle of estoppel Tenant relied on promise of landlord that they didn t have to pay full rent for duration of the war Tenant relied on the promise Landlord did not try to deviate from his promise but if he did he would have been estopped o Principle adopted in Australia by Walton v Maher Types of Estoppel o Common Law Estoppel (in pais) applies where representation is about an existing fact (since Jordan v Money). party A leads party B to adopt an assumption of fact party B relies on the assumption the reliance means that B will suffer detriment if A subsequently denies the truth of the assumption party A tries to deny the truth of the assumption party A is estopped. o Equitable Estoppel Proprieotry Estoppel Can apply to representations about future conduct Only applies to transfers of interest in land o party A leads party B o to adopt an assumption that A will transfer interest in land to B o party B relies on the assumption o the reliance means that B will suffer detriment if A subsequently denies the truth of the assumption o party A tries to deny the truth of the assumption o party A is estopped. Promissory Concernced exclusively with promises not to enforce legal rights Parties must be in a pre-existing legal relationship Current Elements of Estoppel Post Waltons v Maher o Brennan J sets out a list of criteria in Waltons v Maher (Prove all 6, but last 2 are not as necessary) An assumption by the rely party (Assumption) Traditional Approach o Existing Fact Common Law o Future Conduct Equitable Post Waltons v Maher o Distinction between the two blurred but not abandoned o If future conduct, no longer confined to pre-existing legal relationship or transfer of land. The assumption is induced by the representor s conduct (Inducement) Does not have to be express But does need to be clear and unambiguous Can be by silence (all Waltons v Maher)

11 11 The relying party relies on the assumption and will suffer detriment if the assumption is not fulfilled (Reliance and Detriment) Central Element Detriment must be serious, more than a mere inconvenience (Je Maintiendrai v Quaglia) Detriment must be more than just acting on the promise or representation Detriment can be alleviated by adequate notice of intention to depart from assumption The relying party has been reasonable in adopting and acting on the assumption (Reasonableness) Did party act reasonably in adopting the assumption? Did party act reasonably in incurring detriment by relying on the assumption Murphy v Overton not reasonable to act on the assumption and incur detriment It would be unconscionable for the representor to depart from the assumption (Unconscionability) Mostly discussed in contracts II The use of or insistence upon legal entitlement to take advantage of another s special vulnerability or misadventure in a way that is unreasonable and oppressive to an extent that affronts ordinary minimum standards - Grundt v Great Boulder Mine Reasonableness focuses on conduct of representee Unconscionability focuses on conduct of representor The representor threatens to depart or does depart from the assumption. (Departure). Unless assumption departed from, nothing unconscionable in representor s conduct Remedies o Traditional approach Common law estoppel - expectation approach Enforce the assumption Akin to enforcing the promise in contract person in fault must put the injured party in the position they would have been in if the promise had been fulfilled. Associated with common law estoppel Waltons v Maher - enforce the lease, or damages to the amount of full rental Equitable estoppel - reliance approach Identify detriment caused by reliance Compensate only to prevent the detriment Waltons v Maher - costs of demolishing old building and constructing new building Often will be less than expectation damages o Practical impact may be the same o Expectation approach impinges on contract doctrines o Commonwealth v Verwayen Assumption - Commonwealth would not plead the defences. Inducement - The Commonwealth had induced that by stating its policy and by not pleading the defences at the outset.

12 12 Detrimental Reliance Mr Verwayen had relied on the assumption and had commenced proceedings. The detriment suffered was at least the cost of the proceedings to date. In addition, Mr Verwayen argued he had also suffered increased stress and anxiety, which exacerbated his medical condition. Reasonableness - It was reasonable for Mr Verwayen to act on the assumption. Unconscionability - It would be unconscionable to allow departure from the assumption without further redress for the detriment. Departure - The application to amend the defence indicated an intention to depart from the assumption. o Guimelli v Guimelli Parents estopped from denying promise to transfer land to son Argued decisions in Verwayen required reliance approach - monetary compensation rather than transfer of land Court rejected the argument BUT ordered monetary compensation rather than transfer of land Expectation approach would not do justice re third parties Reliance approach not necessarily correct ie do not have to limit remedy to minimum necessary o The extent of unification of the different categories of estoppel is not yet settled. Adopting an expectation approach tends to support the innocent party as it places them in the position they were before o Important to remember it can be used as a sword and a shield W v G can be used to found a cause of action in the absence of any other recognised legal right (lesbian relationship)

13 13 Privity of Contract Contract between A and B B to pay C A B C is not a party C cannot sue B if B fails to pay C The Privity Doctrine o Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 Only a person who is a party to a contract can sue on it Dunlop contracts with Dew, Dew contracts with Selfridges, Dunlop cannot sue Selfridges o Coulls v Bagot s Executor and Trustee Co Ltd (1967) 119 CLR 460 Australian acceptance of Dunlop - A person not a party to a contract may not himself sue upon it so as directly to enforce its obligations o Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 Trident therefore established that in insurance contracts, a third party who was an intended beneficiary can have a contractual remedy against one of the contracting parties if a benefit promised to the third party was not conferred. Follows s48 Insurance Contracts Act 1984 (Cth) but the facts arose before the legislation had been enacted Exception to the doctrine of privity Exceptions o Agency the contracting party acts as an agent for the beneficiary. The beneficiary is legally a party to the contract. o Trusts - If there is evidence of intention to create a trust, the third party beneficiary may compel the trustee in equity to enforce the contract. (Trident) o Estoppel o Unjust enrichment o o Assignment of Contractual Rights Choses in action Ownership of the right to sue someone could not be transferred until Judicature Act 1873 (UK) Now a chose in action is a transferrable right, and the recipient can sue directly on a contract. o Misleading and Deceptive Conduct Will consider in more detail in LAW272 Legal Effect of contracts for the Benefit of third Parties o Contracts for third party benefit alone Beswick v Beswick [1968] AC 58 Privity doctrine is firm

14 14 Third party beneficiary cannot sue, the other benefactor of the contract can sue however as they are part of the contract o Contracts for benefit of joint promisees Coulls v Bagot s Executor and Trustee Co Ltd (1967) 119 CLR 460 Joint promisee can sue (minority judgment Barwick CJ and Windeyer J) Plurality of parties Exclusion Clauses o Elder Dempster & Co v Patterson Zochonis & Co [1924] AC 522 If the third party is part of the contract containing the exclusion clause, then they are immune from suit they are a part of the contract and PROTECTED by the privity doctrine o Wilson v Darling Island Stevedoring & Lighterage Co Ltd (1956) 95 CLR 43 The plaintiff sued the stevedores, and the stevedores claimed that they were the agents of the carrier and therefore protected by the exemption clause. The High Court held however that the clause protected the carrier but not the stevedoring company, as it had not been a party to the contract and could therefore not take the benefit of it. o Scruttons Ltd v Midland Silicones Ltd [1962] AC 446 If the third party is not a party to the contract then they cannot rely on the exclusion clause privity PREVENTS them from relying on it It was held by Lord Reid in Midland Silicones that if the stevedores had been clearly expressed as an intended party in the bill of lading, and that the carrier had been clearly expressed as an agent for the stevedores, then the protection would apply. As this was not made clear in both cases the stevedores were found not to be parties or agents. Agents can benefit from exclusion clauses if: Lord Reids Test The contract of carriage makes it clear that the clause was intended to protect third parties it was clear that the carrier was contracting not only on its own behalf but as an agent for third parties the carrier had authority from the third parties to make the contract on their behalf any difficulties about consideration moving from the third party was overcome (in other words, that the third party is paying fresh consideration for the promise of exemption before it is enforced) o New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd (The Eurymedon) [1975] AC 154 Cargo was damage due to defendants negligence Barwick CJ Agent was defined

15 15 In the bill of lading the carrier claimed exemption for itself and its agents from liability for any loss or damage or delay of whatsoever kind. All persons working for the carrier (including independent contractors) were classed as agents and were thus deemed to be parties to the contract.(what they call a Himalaya Clause ) IN relation to the fourth element of Lord Reid s test, the unloading of the goods was said to amount as consideration for the clause in other words, they were doing something for the promise of exemption. Thus they could take the benefit of the clause. o Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd (The New York Star) (1978) 139 CLR 231 a lengthy exclusion clause was held to cover the stevedores, when goods were stolen while being stored by the stevedore. The Privy Council approved the decision in The Eurymedon, and applied Lord Reid s test from Midland Silicones, which was held to be satisfied. In both cases that the carrier company had the authority to act in such a manner where the stevedore was concerned. In The Eurymedon, the stevedore was in fact a wholly owned subsidiary of the carrier, and in The New York Star, the stevedore had worked closely with the carrier for many years and was aware of the contents of the bill of lading. In both The issue of consideration was satisfied through the performance of the contemplated act that is, the delivery of goods in return for the protection under the clause. As in both cases the stevedore was held to be a principle contracting party, with the contracting party acting as agent. Attempts to Impose Contractual Burdens on Third Parties o Land Tulk v Moxhay (1848) 41 ER 1143 In certain circumstances, a restrictive covenant may bind third parties who later acquire the land it was held that if a purchaser knows of a restriction imposed by covenant before purchasing land from a vendor (which they would know through title searches), they would be bound by that restriction and therefore liable Third party knowledge of the covenant is required o Goods Lord Strathcoma SS Co v Dominion Coal Co [1925] All ER Rep 87 Restrictive covenants can be applied to goods the plaintiffs chartered a ship from the owners, and the owners subsequently sold it to the defendant. The Privy Council upheld the validity of an injunction preventing the new owners from using the ship in such a way that impacted upon the charter company s use of the ship. What was significant here is that the new owner knew of the charter party s requirements when they bought the ship.

16 16 The key issue is whether the purchaser, whether it be of goods or land, knows of the covenant or obligation at the time of purchase. Remedies o Damages Contract between A and B. B to pay money or do work for C B fails to pay or do the work C cannot sue because of privity rule A can sue What is A s loss? Arguably nothing, because it is C who has suffered loss nominal damages Can A recover C s loss? If so, does A have to give the damages to C? o Specific Performance Very rare for courts to order specific performance there is a presumption that damages are sufficient except in extraordinary circumstances third party beneficiaries would be that kind of excpetion Beswick v Beswick When looking at questions of privity therefore, your task is to determine whether the third party in question is one that can be readily construed as an actual party to the contract, and if not, whether any of the apparent exceptions to the privity doctrine apply, such as agency, trust, or one of the special situations we explored like joint promisees, or bill of lading exclusion clauses. Also bear in mind that as a result of Trident, the need to establish a direct contractual relationship may not be required. Remember that commercial necessity and intention was sufficient in Trident to create a link for the third party to be able to recover. If you are analysing a privity problem, be sure to note the growing flexibility to displace the privity doctrine by reference to either the exceptions or other legal relationships.

17 17 Express Terms Terms of the contract 4 Essential Elements o Terms o Identification o Constuction o Implied terms Express Terms o Oral o Written Intention of the Parties o Objective approach to intention Bramble Holdings Ltd v Bathurst City Council general commercial waste does this include liquid waste? Both parties believed it did not Court said both were wrong, looked at what an onlooker would think the parties intended. Express Terms 4 Areas of Special concern o Pre- contractual negotiations this topic o Standard form contracts not covered o Parol evidence rule next topic o Exclusion clauses this topic and next Pre-contractual negotiations o Puffery o Misrepresentation o Contractual Term Dependant on intentions of parties Determined objectively (Dick Bentley Productions) If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice. (Dick) Everyone knows what a man [sic] means when he says I guarantee it or I warrant it or I give you my word on it. He means that he binds himself to it - Oscar Chess v Williams Timing (Ellul and Ellul v Oakes) short lapse / long lapse Language - Promissory v Opinion (JJ Savage & Sons v Blakney) Importance Objective Importance (Couchman v Hill) statement was important to contract Term Knowledge/Expertise Relates to knowledge of the parties (Oscar Chess v Williams, Leaf v International Galleries) Both parties expert less likely to be a term One party holds more expertise or knowledge more likely to be a term Written Memorandum Expectation that all the terms included Statement not included - less likely to be a term. Statement included - more likely to be a term

18 18 If an oral representation is afterwards recorded in writing, it is good evidence that it was intended as a warranty. If it is not put in writing, it is evidence against a warranty being intended. But it is by no means decisive - Oscar Chess v Williams o Collateral Contracts In a collateral contract the statement or promise made during precontractual negotiations is supported by consideration in the form of the other party entering into the main contract. Good things about collateral contracts - Where the main contract is illegal. Where the main contract must be evidenced in writing. Where the privity rule (see week 9) prevents someone from enforcing the main contract. Where the parol evidence rule excludes evidence of an oral statement or promise a collateral contract may be formed Criteria JJ Savage v Blakney That the statement was intended to be relied on Reliance by the party alleging the existence of the contract An intention, on the part of the maker of the statement, to guarantee its truth. Cannot be inconsistent with any term of the main contract Hoyt s v Spencer Collateral can be with a third party to the main contract - Wells (Merstham) Ltd v Buckland Sand and Silica Breach of collateral contracts is damages only, no specific performance not necessarily breach of main contract if collateral is breached. Incorporation of Express Terms o Incorporation by Signature a signature will bind a party to the terms of a contractual document, regardless of whether or not the party has read and understood the terms L Estrange v Graucob. Objective Approache Exceptions Misrepresentation of the terms - Curtis v Chemical Cleaning and Dyeing - Assistant told Mrs. Curtis that her signature was required on the receipt to exclude liability for damage to beads and sequins on dress terms not included Non Contractual Document - Le Mans Grand Prix Circuit v Iliadis - Document appeared to be a registration form rather than one that would contain contractual terms Document signed after the contract terms have been orally agreed DJ Hill v Wright more likely to apply exception if the contract has been performed at the time the terms are signed Onerous or unusual terms o Incorporation by notice Where terms not signed the party can incorporate them by giving other party sufficient notice has the party taken reasonable steps to bring the terms to the attention of the other party. Timing notice must precede agreement Olley v Marlborough Court Unlike incorporation by signature, notice after the contract is agreed will not result in incorporation of terms.

19 19 o Knowledge actual knowledge of the terms OR knowledge that the document contains terms OR knowledge that the document contains writing and a reasonable person would expect that sort of document to contain terms Parker v SE Railway Co o The railway company, as it seems to me, must be entitled to make some assumptions respecting the person who deposits luggage with them: I think they are entitled to assume that he can read, and that he understands the English language, and that he pays such attention to what he is about as may be reasonably expected from a person in such a transaction as that of deposition luggage in a cloakroom. The railway company must, however, take mankind as they find them, and if what they do is sufficient to inform people in general that the ticket contains conditions, I think that a particular plaintiff ought not to be in a better position than other persons on account of his exceptional ignorance or stupidity or carelessness. Is the document contractual in nature? Causer v Brown document was dry-cleaner s docket Could be assumed to be a voucher needed to claim clothing not widely understood to be contractual in nature Not sufficient notice to incorporate as a term. Chapelton v Barry - We respectfully request the public to obtain a receipt for their money. Onerous or unusual clauses Interfoto Picture Library v Stiletto Visual Programmes - term was very onerous not enough notice In order to give sufficient notice, it would need to be printed in red ink with a red hand pointing to it or something equally startling Thornton v Shoe Lane Parking Ticket Cases A specific category When a party accepts a ticket without demur (raise objection or show reluctance), then that indicates assent to the contractual terms written on the ticket - Parker v SE Railway ticket must be of a kind that is usually contractual in nature o Otherwise, party must take extra steps to draw it to attention of other party - Chapelton v Barry The customer pays his money and gets a ticket. He cannot refuse it. He cannot get his money back. He may protest to the machine, even swear at it. But it will remain unmoved. He is committed beyond recall. Thornton Raises some issues with tickets. Incorporation by Course of Dealing Balmain New Ferries v Robertson Criteria Regularity and Uniformity

20 20 o Documents relied on from previous transactions must obviously be contractual (such as incorporation by notice (timing) means that for course of dealing, the previous documents must have always been correctly timed, tut 18.) Consistency in the dealings Incoporation by Reference Parties seek to incorporate standard terms in every contract refer to the terms in a memorandum of a contract, or other document Terms may be drafted by party or may be developed by trade or professional associations etc.

21 21 Week 9 Construction of Terms and Extrinsic Evidence Parol Evidence Rule o Two main criteria (i) the exclusion of extrinsic evidence that would add to, subtract from or vary the terms of a written contract; and (ii) the exclusion of extrinsic evidence that would otherwise have assisted the court in interpreting or construing the contract. o Two main reasons for the rule The very purpose of a formal contract is to put an end to the disputes which would inevitably arise if the matter were left upon verbal negotiations or upon mixed communing partly consisting of letters and partly of conversations. where there is a dispute about the terms on which the contract was made the application of the rule narrows the issues and keeps the dispute within reasonable bounds. o Only applies to contracts wholly in writing o How can we tell if a contract is wholly in writing? Applying the law re pre-contractual statements etc and finding that there are no oral terms Clause stating that it is wholly in writing o P.E.R. does not apply when identifying the terms o P.E.R. is mainly used to limit evidence when interpreting the terms o What Does it Exclude? Oral Evidence and Documentary Evidence eg letters, memoranda, conversations, s, earlier drafts of the written contract, correspondence between the parties, evidence about the commercial purposes of the contract or any of its terms. o Prior Negoatiations Prenn v Simmons If the previous documents use different expressions, how does construction of those expressions, itself a doubtful process, help on the construction of the contractual word? If the same expressions are used, nothing is gained by looking back. Codelfa Constructions v SRA Prior negotiations can be admitted to establish the contract s surrounding circumstances o Subsequent Conduct Also not admissible Carter - an affirmation of the rule that a contract must be determined once and for all at the time of agreement. Exceptions to the Parol Evidence Rule o Unclear whether exceptions will only apply if there is ambiguity o Codelfa Mason CJ - The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. (emphasis added) o Maggbury v Hafele; court quoted from a leading UK Case (UK always allow external evidence as relevant to construing a contract)

22 22 o o Interpretation of a written contract involves, as Lord Hoffman has put it: the ascertain-ment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. Consequently, it is unclear whether and to what extent a court can admit extrinsic evidence to prove the background knowledge or factual matrix if there is no ambiguity to open the door to that. International Air Transport Association v Ansett Gleeson CJ the court looked at the surrounding circumstances in the absence of any noted ambiguity. 5 Major Exceptions Ambiguity must be something more than mere theoretical ambiguity Patent Ambiguity o Ambiguity or uncertainty apparent on the face of the document o MacDonald v Longbottom - your wool - did that mean wool from the buyer s farm only, or could it include wool acquired by buyer from another source? o Cameron v Slutzkin - Matchless not a phrase used in the industry. o Matthews v Smallwood - of the covenant hereinbefore contained - there were multiple covenants - the scribe forgot to add an s. Latent Ambiguity o Ambiguity that appears due to extrinsic facts or evidence o Hope v RCA Photophone - did equipment include both new and used? - court said there was no latent ambiguity o Eg - my nephew John where testator had more than one nephew called John. o Raffles v Wichelhaus - two ships called Peerless o Bacchus Marsh Concentrated Milk Co Ltd (in Liquidation) v Joseph Nathan - patents for dried milk formula. Did they include Glaxo - dried milk infant formula? To Identify Parties or Subject Matter Gilbert v Kenny - contract referred to party as Mrs Kenny, and later as Mr Kenny extrinsic evidence showed it was Mrs Kenny was contracting for herself and as an agent for her husband White v ANZ Theatres - sole professional services - does that include producing a revue for the stage? Factual Matrix The contract must be interpreted by adopting the perspective of the parties within the factual matrix of the contract In other words, the court should receive evidence which will help them to construct the background against which the contract was made.

23 23 In Codelfa, Mason J suggests that evidence of factual matrix may only be admitted to resolve ambiguity i.e. when the expression or word in issue is susceptible of more than one meaning, but the cases seem to suggest that the factual matrix evidence is admissible even where there is no overt ambiguity. In Codelfa parties had adopted a common assumption that the work would be able to proceed on the basis of three eight-hour shifts per day. Royal Botanic Gardens v South Sydney Council o Trustee wished to increase rent as rental prices in the area had risen significantly since lease was signed, the council (the tenant). Clause in their lease which stated additional costs and expenses which they may incur in regard in relation to increasing the rent. Majority of HC found clause to be ambiguous. Accordingly, the court looked at the surrounding circumstances the nature of the parties, the purposes of the transaction, and so on. They then interpreted the clause to mean that only the matters outlined in clause 4(b)(iv) could be taken into account when determining annual rental. Pacific Carriers v PNB Paribas Reardon Smith v Yngvar Hansen-Tangen o extrinsic evidence was used to show the purpose of the contract, which in turn was relevant because it showed that an expression used in the contract for charter of a ship, that the ship would be one to be built by Osaka Shipbuilding Co, had no particular significance to the purpose of the contract, and therefore it did not take effect as a contractual term. Trade Usage Exclusion Clauses Construing o 3 Main forms of exclusion clauses Excludes the legal rights of one party to sue the other party extent of exclusion defined eg all negligence, or for loss caused by any means etc. Restricts the legal rights of one party eg by providing that only specific type of breach will give right to terminate. Qualifies a party s rights by providing eg time limits or specific procedure to be followed. o 3 Main Factors Contra Proferentum This expression means that a term will be construed against the party by whom it was formulated. an exclusion clause which party A incorporated into the contract should be construed so that any ambiguity is resolved in favour of the customer, Party B

24 24 However, in Darlington v Delco, the court noted that construction of an exclusion clause will involve a contra proferentem approach only where appropriate. John Dorahy s Fitness Centre v Buchanan, a clause which excluded liability for personal injury and provided that a customer used the premises entirely at his own risk was held to be ambiguous as to whether it covered liability in tort or contract or both. It was read to cover only liability in tort. Wallis Son & Wells v Pratt & Haynes - the sellers give no warranty express or implied as to growth, description or any other matters. - deemed not to extend to conditions, but only to warranties. 4 Corners Rule - loss etc incurred while they were acting within the 4 corners of the contract - i.e. for conduct which the contract authorised. Council of City of Sydney v West o Exclusion clause - The council does not accept any responsibility for the loss or damage to any vehicle or for loss of or damage to any article or thing in or upon any vehicle or for any injury to any person however such loss, damage or injury may arise or be caused. o rogue obtained duplicate ticket and used it to take Mr West s Car o Exclusion clause only excludes liability for loss etc caused by conduct authorised by the contract. TNT v May & Baker - driver deviated from agreed delivery route - parked truck containing goods in his garage, which caught on fire - exclusion clause did not apply. Negligence Gillespie Bros v Roy Bowles Transport - clear words are necessary to allow a party to exclude liability for negligence Canada SS Lines v The King - term likely to cover negligence if: o Term expressly excludes liability for negligence. o The language used is wide enough to extend to negligence. howsoever caused and whatever its cause all liability and all loss o There are no other possible grounds for liability.

25 25 Week 10 Implied Terms and Duty of Good Faith Parties can expressly exclude terms being implied into the contract. Where the parties want to avoid any terms being implied into their contract, they can do so by expressly stating that in the contract itself. This will prevent the courts from implying any extra terms into the contract either in common law or under statute. Implied Terms Terms can be implied by law, fact or custom o LAW Statute Precedent Two primary issues when new implied term adopted Term must be applicable to definable class of contractual relationship o such as employment contracts, bailment contracts, insurance contracts, contracts for the sale of goods or contracts for work and materials, leases. The term must be suitable the courts use the criteria of Necessary o Liverpool City Council v Irwin [such facilities as lifts and stairways] are essentials of the tenancy without which life in the dwellings, as a tenant, is not possible. Term implied that landlord responsible for maintaining them. o Helicopter Sales v Rotor-Work - term implied by law into contracts for work and materials was excluded from this contract. o FACT Where a term is implied in fact, this is a term which is specific to that contract i.e. not to all contracts of that kind. As the textbook notes, terms implied in fact are tailored to the circumstances of the individual contract. The criteria for implying terms in fact differ depending on the level of formality of the express contract. Formal Contracts 5 criteria identified by Privy Council It must be reasonable and equitable o Not enough that a term is reasonable, must be equitable as well o If a term would impose a significant detriment on one party and benefit the other, then it would not be deemed equitable to imply the term - BP v Shire of Hastings It must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it o The Moorcock court implied a term that the Jetty owners were required to take reasonable care to ascertain the conditions of the berth and ensure it was fit for that purpose, or inform the other party if not.

26 26 o Codelfa is the leading Aus Case- court did not imply term in this case but raised points as to implying terms into contracts. The courts will be slow to imply a term The more detailed and comprehensive the express contract the less grounds to imply terms. The fact that an assumption was a matter of common contemplation between the parties is not enough to justify the implication of a term. Where the contract is a contract of adhesion it will be more difficult to imply a term. A contract of adhesion is one where the terms are not negotiated, except for the price, but are provided in a standard form contract. The court can not add a clause just because it thinks it would be reasonable or fair or prudent. It must be so obvious that it goes without saying o In Codelfa, Justice Mason found that the term proposed was not so obvious it goes without saying. Therefore the terms should not be implied: o This is not a case in which an obvious provision was overlooked by the parties and omitted from the contract. Rather, it was a case in which the parties made a common assumption which masked the need to explore what provisions should be made to cover the event which occurred. Codelfa (Mason J) o Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common Oh, of course! Shirlaw v Southern Foundries (Mackinnon LJ) It must be capable of clear expression o In BP Refinery v Shire of Hastings one criterion the court adopted was that an implied term must be capable of being expressed in a clear or precise manner. This criterion is also alluded to in Mason J s judgement in Codelfa: In ordinary circumstances negotiation about the matter might have yielded any one of a number of alternative provisions, each being regarded as a reasonable solution. It must not contradict any express term o Consistency as a rule was clearly established in BP Refinery. Informal Contracts Essential test for implying term in an informal contract In a case where it is apparent that the parties have not attempted to spell out the full terms of their contract, the court should imply a term by reference to the imputed intention of the parties if, but only if, it

27 27 o can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case. Hawkins v Clayton (Deane J) In Byrne v Australian Airlines, McHugh and Gummow JJ indicated that obviousness is also an important element in implied terms in informal contracts. CUSTOM The criteria for implying terms by custom were authoritatively stated in Con- Stan Industries of Australia v Norwich Winterthur Insurance: The existence of a custom or usage justifying the implication of a term is a question of fact. There must be evidence that the custom is so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into their contract The term can not be inconsistent or contrary to the express terms of the contract A person may be bound by the custom even if he or she had no knowledge of it. In Nelson v Dahl, it was said that the custom must be notorious, uniform, reasonable and certain. The requirements are applied strictly, and so there are few examples where terms have been implied by custom. Duty of Good Faith As is apparent on even a cursory reading of the materials on this topic, there is little consensus on the nature or extent of the duty of good faith. A common thread is that the duty of good faith is less concerned with procedural fairness in the formation of contract or substantive fairness of the terms agreed between the parties. Good faith is focussed on the way in which parties perform the contract and exercise powers conferred by the terms of the contract. Two Major content aspects of Duty of Good Faith: Cooperation and Fairness o Cooperation Butt v M Donald (1896) 7 QLJ 68, It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract A duty to cooperate is well-established in Australian contract law. The duty requires that parties must go beyond adherence to the strict letter of the contract. They must take whatever steps are necessary in performing the contract to advance the intended purpose of the contract. In his 1993 Cambridge Lecture Mason J described this as loyalty to the promise itself. o Fairness Wesoky v Village Cinemas International Pty Ltd [2001] FCA 32. The duty of cooperation can be seen to operate in an employment contract whereby the employer should not exclude an employee from activity which might increase their remunerations Exercise of contractual power should be undertaken honestly and reasonably