LAWS 1072: CONTRACTS

LAWS1072- CONTRACTS 2- EXAM NOTES: LAWS 1072: CONTRACTS 2 Semester 2 2010 1

LAWS1072- CONTRACTS 2- EXAM NOTES: 2

LAWS1072- CONTRACTS 2- EXAM NOTES: CONSTRUCTION: 1. Express terms: a. Statements made during negotiations b. Written terms + signature c. Terms incorporated by notice d. Incorporation by a history of dealings 2. Extrinsic evidence: a. Parol evidence b. Extrinsic evidence in identifying the terms c. Extrinsic evidence in construing a contract 3. Implied terms: a. Implied in law b. Implied in fact c. Implied by custom d. Implied by statute. 4. Construing the terms: a. TPA b. Construction CASE NOTES STATUTE c. Exclusion clauses 3

LAWS1072- CONTRACTS 2- EXAM NOTES: 4

LAWS1072- CONTRACTS 2- EXAM NOTES: 1. Express terms: CONSTRUCTION - Terms of a contract are fundamental to determining what the parties have agreed to do by way of performance of their contract. - Use an OBJECTIVE APPROACH- Courts do not inquire into what the parties actually intended, rather courts consider the intention which reasonable persons would have had if placed in the situation of the parties - Reardon Smith Lane v Hansen-Tangen 1976: a. Statements made during negotiations To determine whether oral or other statements form part of a contract, the courts must consider the parties intentions as to the status of the statement; this includes analysis of: (1) The language used.- Codelfa (2) The relevant expertise of the parties. (asymmetry of knowledge)- Oscar Chess v Williams (3) The importance of the statement. Couchman v Hill (4) The timing of the statement.- Harling v Eddy (if the period between the statement and contract formation is brief that it can be assumed that the statement induced entry) (5) The form of the written contract. Statements Promissory or Mere Representation? The common law distinguishes three classes of statements in negotiations: (1) Puff - No legal impact Carlill (2) A Representation- NOT a contractual promise JJ Savage (3) A Contractual Promise- Dick Bentley Dick Bentley Productions v Harold Smith (Motors) 1965 - If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice. - If a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act on it, and it actually induces him to act on it by entering into the contract, that is prima facie ground for inferring that the representation was intended as a warranty. - OPINION promise- So far from being a promissory expression an expression of opinion tend against the inference of a promise. JJ Savage & Son v Blakney 1970 - Reliance does not mean that the term is promissory. JJ Savage & Son v Blakney 1970 - Innocent misrepresentation that does not amount to a promise or guarantee that the information was accurate does not qualify as a promissory term. Oscar Chess v Williams 1957 5

LAWS1072- CONTRACTS 2- EXAM NOTES: b. Written terms + signature - Given the objective approach to the determination of rights and liabilities of contracting parties signature of a contractual document is irrefragable evidence of agreement. - A signature is widely recognised by the general public as a formal device and its value would be greatly reduced if it could not be treated as conclusive ground of contractual liability at least in all ordinary circumstances. Toll (FGCT) v Alphapharm - General rule= that a party will be bound by the terms contained in a contractual document which has been signed by them, whether or not they have read the document. Signature Binding: Unless Misrepresentation. - a written agreement which is signed by the defendant, the agreement is proved by providing a signature, and, in the absence of fraud, it is wholly immaterial that he has not read the agreement or does not know its contents. - Where no misrepresentation or fraud can be found; Signature is always binding. L Estrange v Graucob 1934 Circumstances in which the effect of signature may be avoided: - The binding nature of a signature is not applicable where the signature was induced by misrepresentation, fraud or mistake. - The rule will also not apply where the document cannot reasonably be considered a contractual document as it has another function- i.e. a receipt. - Any behaviour, by words or conduct, is sufficient to be a misrepresentation if it is such as to mislead the other party about the existence or extent of the exemption- If it conveys a false impression whether it be knowingly (fraudulent misrepresentation) or unwittingly (innocent misrepresentation). Curtis v Chemical Cleaning & Dyeing 1951 6

LAWS1072- CONTRACTS 2- EXAM NOTES: c. Terms incorporated by notice - Parties may allege that the contract contains terms which have been displayed or delivered before or at the time of the transaction. Whether a party is bound depends upon: (1) Whether notice of the terms was given BEFORE the contract was formed (2) Whether reasonable steps were taken to bring the terms to the notice of the party to be bound. (1) Timing of Notice: - Tickets are generally regarded as an offer and the contract is only made through the subsequent acceptance of that offer by the passenger. - Any conditions must be made aware BEFORE the formation of the contract- NOT AFTER - New clause cannot be used UNLESS at the time of the contract the carrier had done all that was reasonably necessary to bring the exemption clause to the passengers notice. Oceanic Sun Line Special Shipping Company v Fay 1988 (2) Knowledge of notice: - If a party knows that the relevant document contains contractual terms, they will be bound regardless of whether they have read them. - In the absence of knowledge, a party will be bound by delivered or displayed terms if they had reasonable notice of the terms. - Reasonable notice is dependants upon the type of contract, nature of the terms and circumstances of the case. Ticket cases: - Conditions thus cannot be printed on ticket as the acceptance has already happened (taking the ticket out of the machine). This is distinguished from ticket cases as it is a machine so the person cannot dispute the terms once they have taken the ticket. Thornton v Shoe Lane Parking 1971: (1) Did the person know there was printing on the ticket? (2) Did they know that the ticket contained or referred to conditions? (3) Did the defendants do what was reasonably possibly in the way of notification of terms and conditions? McCutcheon v David MacBrayne Ltd: Unusual Terms: - It was the appellants responsibility to bring unusual and unexpected terms and conditions at least to the notice of passengers before they were to be bound to them. - The mere presentation of the ticket does not fix acceptance of the terms and conditions if the passenger hasn t had reasonable opportunity to see and agree to them. Baltic Shipping v Dillon (The Mikhail Lermontov) 1991: 7

LAWS1072- CONTRACTS 2- EXAM NOTES: d. Incorporation by a history of dealings - Where parties have had a history of dealings, contractual terms introduced in earlier contracts may be incorporated into a subsequent contract. - For a term to be incorporated by a course of dealing, this course of dealing must have been regular and uniform. Henry Kendall & Sons v William Lillico & Sons Ltd 1969 - The document relied upon in previous transactions must also be reasonably considered a contractual document; nor merely a receipt or docket. Rinaldi & Patroni v Precision Mouldings 1986 - If there is no express contract, the terms must therefore be implied from the circumstances Balmain New Ferry v Robertson 1904 8

LAWS1072- CONTRACTS 2- EXAM NOTES: 2. Extrinsic evidence: - Extrinsic evidence may be used to show: 1. A contract exists 2. The parties agreed on the integration of the contract 3. The contract is void or voidable because of illegality, fraud, mistake or any other reason. a. Parol evidence - Parol Evidence Rule= Limits to the kind of evidence outside the written document that may be admitted. - When it is proved or admitted that the parties to a contract intended that all the express terms of their agreements should be recorded in a particular document, evidence will be inadmissible (because irrelevant) if it is tendered only for the purpose of adding to, varying, subtracting or contradicting the express terms of that contract.- Codelfa v State Rail NSW RULE:& Only applies to WRITTEN contracts. 1. Extrinsic evidence cannot add to, vary or contradict what is written in the document 2. Evidence which might explain the meaning of terms is limited to only if there is ambiguity. b. Extrinsic evidence in identifying the terms - Presumption that the written document= entire agreement: unless it can be shown that the document was not intended as the complete record of their bargain, Hoyt s v Spencer 1919 - The mere production of a contractual document, however complete it may look, cannot as a matter of law exclude evidence of oral terms if the other party asserts that such terms were agreed. - The written contract= merely evidence of a contract wholly in writing. - MUST determine whether or not a contract is wholly contained in writing. TEST: 1. Is the contract wholly contained in writing? a. Does the document provide evidence for this? b. What are the extrinsic factors that may provide evidence to show that the contract is/ is not wholly contained in writing? State Rail Authority of NSW v Heath Outdoor 1986 9

LAWS1072- CONTRACTS 2- EXAM NOTES: Exceptions to the Parol Evidence Rule: Exceptions to the parol-evidence rule: (1) Collateral contracts (2) Identify the subject matter (3) Identify the parties (4) Relevant to implied terms (5) Rectification (6) Is there in fact a contract at all/ what is its nature (7) Evidence of the matrix of facts + surrounding circumstances Collateral Contracts: - The Parol Evidence Rule does not apply to exclude evidence of a collateral contract. - Collateral contract= Those statements that are clearly intended to have some significant contractual significance, but that for some reason have been precluded as terms of a contract. - The consideration for this promise/ term is connected to but independent of a main contract and as a consideration for that promise the other party agrees to enter into the main contract. 4 elements: (1) Statement was intended to be relied upon and induce entry into the contract. JJ Savage & Sons v Blackney (2) Reliance by the party alleging the existence of the contract (3) An intention on the part of the maker of the statement to guarantee its truth. (4) The collateral contract must be consistent with the main contract unless it is with a third party Hoyt s Pty Ltd v Spencer. Employment manuals= a common form of collateral documents- the use of one is fairly normal as not every detail of the contract can be dealt with in an interview- Riverwood v McCormick Estoppel: - There are 2 key cases which illustrate the debate as to whether PER excludes the admission of extrinsic evidence for the purpose of establishing an estoppel. Whittet v State Bank of NSW 1991: (a) In order to establish such estoppel it is necessary that there should be clear and convincing proof. (b) The material giving rise to such an estoppel can arise from pre-contract negotiations must give rise to such proof. Australian Co-operative Foods v Norco Co-operative 1999: - The evidence offered to prove estoppel is extensive, discursive and inconclusive and where it is of any value at all it is of less value than written expressions. 10

LAWS1072- CONTRACTS 2- EXAM NOTES: c. Extrinsic evidence in construing a contract - Parol Evidence Rule limits the meaning of terms of the contract to be ascertained solely by the words that the parties have used. - Evidence of the meaning subjectively intended by the parties will generally not be admitted. Evidence of the surrounding circumstances: - Evidence of surrounding circumstances is only admissible to assist in the interpretation of a written contract if the language be ambiguous or susceptible to multiple meanings- Codelfa v State Rail NSW. - Construction requires consideration not only of the text of the documents, but also the surrounding circumstances known to the parties and the purpose and object of the transaction- Pacific Carriers Ltd v BNP Paribas 2004. - Necessary to consider the factual matrix in which the contract was made.- Reardon Smith Line v Hansen Tangen. - The law excludes previous negotiations of the parties and their declarations of subjective intent from what may be considered as admissible background information. - The meaning of a written contract may be illuminated by evidence of facts to which the writing refers. Royal Botanic Gardens and Domain Trust v South Sydney City Council 2002: 11

LAWS1072- CONTRACTS 2- EXAM NOTES: 3. Implied terms: a. Implied in law Terms may be implied into a contract: As a matter of law As a matter of fact By Course of dealing By reason of custom By statute - Terms implied in law are terms implied as a legal incident of all contracts of a particular class; eg implied conditions of fitness and merchantable quality on a contract for sale of goods or an implied promise by a banker not to reveal customer s details. - Implication by law can only occur if the term is NOT: o excluded by express provision made by the parties Byrne v Autralian Airlines o inconsistent with the terms of the contract TEST: (1) Is the implication of a particular term necessary for the reasonable or effective operation of the contract? (2) It must be necessary to imply the term because otherwise the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or, perhaps, be seriously undermined Byrne v Australian Airlines; Frew v Australian Airlines 1995 12

LAWS1072- CONTRACTS 2- EXAM NOTES: b. Implied in fact - Terms in fact are traditionally said to be based on the presumed intentions of the parties concerned and accordingly are unique to the contract in question. Formal Contracts: - If a contract is wholly in writing for a court to imply a term in a contract it must fulfil 5 conditions: (1) It must be reasonable and equitable (2) It must give business efficiency to the contract (i.e. it will not be implied if the contract is efficient without it.). (3) The term must be so obvious it goes without saying (4) It must be capable of clear expression (5) It must not contradict any express term. BP Refinery (Westernport) v Hastings Shire Council 1977 (3) To prove- it goes without saying P must prove that contracting parties would assent to it- Byrne v Australian Airlines - In order to justify the importation of an implied term it is not sufficient that it would be reasonable to imply the term...it clearly must be necessary - A common assumption is not equivalent to the implication of a term. Codelfa Construction Pty Ltd v State Rail Authority of NSW - There is often reluctance to imply terms in non-negotiated contracts. Informal Contracts: - Requirements for an implied term in informal contracts are less strict. - In a case where it is apparent that the parties have not attempted to spell out the full terms of the contract, the court should imply a term by reference to the impute intention of the parties, if, but only if, it 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 13

LAWS1072- CONTRACTS 2- EXAM NOTES: c. Implied by custom - A term may be implied on the basis of custom where the custom is well known and acquiesced in then everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract. - The custom must be relatively unvariable. The circumstance in which trade, custom or usage may form the basis for the implication of terms into a contract include: (1) The existence of custom is a question of fact (2) There must be evidence that the custom is so well known and acquiesced that everyone in that situation can be presumed to know the term (3) Cannot be contrary to the express terms (4) Don t need knowledge of a custom for it to be implied. Con-Stan Industires of Aus v Norwich Winterthur Insurance d. Terms implied by statute See Trade Practices Act ss69-74: 14

LAWS1072- CONTRACTS 2- EXAM NOTES: 4. Construing the terms: a. TPA i. Ss68 and 68A as they apply to ss 69-74 b. Construction - Construction= Process by which a court determines the meaning and legal effect of the terms of the contract agreed by the parties. - Parties intentions are considered objectively and the meaning of the terms is what would be understood by a reasonable person in the position of the parties. - Court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating. Pacific Carriers v BNP Paribas 2004 c. Exclusion clauses Clause attempts to: (1) Modify the principal obligation(s) arising under a contract of that particular type or; (2) To limit or exclude the liability of a party which would otherwise arise as a result of a breach. - An indemnity clause is similar in that it seeks to exclude the liability of one party by imposing on the other a duty to indemnify the former in respect of any loss incurred. To rely on the protection of an exclusion clause: (1) Clause must be incorporated into the contract. (2) Does the clause apply to exclude/ restrict liability in relation to the issue in dispute? - Exclusion clauses may be construed contra proferentum (against the interests of the party seeking to rely on the clause) where there is ambiguity. - Exclusion clauses must be interpreted by construing the clause according to its natural and ordinary meaning, read in light of the contract as a whole.... - The effect of an exclusion clause must be resolved by construing the language that the parties used, read in its context and with any necessary implications based upon their presumed intentions. Darling Futures v Delco Aust SEE: Trade Practices Act ss 68 + 68A 15