BTF1010 Summary Notes.docx

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Business Research
Mark Bender

Chapter 4: Contract: Offer & Acceptance To determine if a contract exists: Step 1: Has an offer been made? [ Offer or Invitation to treat ] Step 2: Has the offer been accepted? [ Only valid when it is properly communicated ] Step 3: Did the parties intend to make a contract? [ Intended to be legally bound ] Step 4: Was consideration provided? [ Both sides must present something of value ] You‟ve got a contract  Note: A contract can be written or oral. No requirements for it to be in writing! 3 Things to consider: 1.) Offer or merely indication of a present intention? Harris v Nickerson pg154 2.) Offer or invitation to treat? Partridge v Crittenden pg156 3.) Offer or conduct that is merely part of negotiations? Harvey v Facey pg153  Displaying goods with price tag or displayed is an INVITATION TO TREAT not offer Fisher v Bell (1960) pg156 and Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd (1953) pg157  Catalogues are usually is an INVITATION TO TREAT, not an offer Grainger & Sons v Gough (1896) pg157  Advertisements can be offers Carlill v Carbolic Smoke Ball Co (1893) pg159  Auctions- Auctioneer calling for bids, bidder makes the offer.  Tenderers are the offer makers, not the person calling for tenders Spencer v Harding (1870) pg161 Hughes Aircraft Systems International v Airservices Australia (1997) pg161  Standing offers – Offers always standing, turns to contracts only when order is placed Colonial Ammunition Co v Reid (1900) pg155 The fate of the offer Offer  Offeror may withdraw the offer  Offeror may accept the offer = agreement  Offeror may reject the offer  Offer may lapse due to passing of time  Offer may lapse due to death of offer/offeree  Offer may lapse due to the failure of a conditional precedent 1). Withdrawing the offer - An offer cannot be revoked after acceptance, otherwise breach of contract. - An offer can be revoked before acceptance even if the offeror has promise not to revoke it. (This rule only applies when the offeree give no option to offeror to keep the offer open.) - Revocation must be communicated to the offeree, otherwise it is ineffective - The communication of revocation does not have to be made by the offeror personally - Special problems exist with unilateral offers - Certain offers called options may not be revoked 1  Can an offer be revoked after acceptance? – A contract is formed when an offer is accepted (provided intention and consideration are satisfied). The offer cannot be revoked once accepted. Any refusal to carry out the terms of the offer would be a breach of contract.  Can an offer revoked before acceptance?- An offeror may revoke an offer at any time prior to the offer being accepted even if the offeror has promised not to revoke it. Routledge v Grant P165 (Grant offered to buy Routledge‘s house, G kept the offer open for 6 weeks and withdrew it before expiration. Held that G was entitled to revoke the offer at any time before acceptance. Routledge had given some consideration in return for Grant‘s promise to keep the offer open for six weeks)  Is it necessary to tell offeree about the revocation?- An offer is not withdrawn until the revocation has actually been communicated to the offeree. Byrne & Co v Van Tienhoven & Co P165 (Revocation is too slow therefore acceptance is valid, revocation is not effective until it is received by the offeree.)  Who must tell the offeree that the offer has been revoked? – Revocation of the offer must be communicated to the offeree BUT revocation does not have to be communicated to offeree by offeror in person as it could be learnt by offeree in some reasonable reliable manner. Dickinson v Dodds pg166 (Communication for revoking an offer could be made by third party to offeree.)  Is it possible to revoke a unilateral offer? - Normally unilateral offer could not be revoked until the offeree has had a reasonable opportunity to complete his/her action. If the offer involves a unilateral promise and the offeree has acted on the promise, the offeror will normally be prevented from withdrawing the offer until the offeree has had a reasonable opportunity to complete. Carlill v Carbolic Smoke Ball Co p159 (CSB would not have been permitted to revoke the offer prior to Carlill completing the course of medication in accordance with the advertisement.)  Options (Offers that cannot be revoked)- An offer which offeree has given an option to offeror to keep it open, cannot be revoked before acceptance. An option exists where the offeree has given something of value to keep the offer open. Routledge v Grant, p165 Goldsborough Mort & Co Ltd v Quinn P167 (G has given 5 shillings as an option to Q to keep the offer open, Quinn could not revoke the offer before G accept it, court ordered specific performance of the contract due to the sale of land.) 2). Rejecting an offer - An offer may be rejected expressly or by implication. - Offeree‘s conduct may indicate rejection. - An offer is terminated on rejection cannot be later accepted.  Offeree‘s conduct may indicate rejection- An offer can be rejected by the offeree by doing something that is inconsistent with an intention to accept  Counter offer amounts to a rejection – An offeror is rejected by the offeree making a counter offer. Any material alteration of the terms of the offer will be a counter offer. Need to be careful when restating the original offer as part of the purported acceptance. Hyde v Wrench P168 (W offered to sell property for 1000, H countered to buy for 950, W never accepted and refused to transfer the property to H. Held that W‘s original offer has been rejected by H‘s counteroffer, this counter offer has also been rejected by W. W has no obligation to sell the property.) Turner Kempson & Co Pty Ltd v Camm P168 (Turner offers to supply fruit, Camm‘s acceptance has added new terms which amounts to counter offer, Turner never accepts the counter offer. Turner won.)  Asking for clarification of terms of the offer is not a counter offer. (Needs reasonable person test to determine if it is a request for clarification or a counter offer.) Stevenson Jacques Co v McLean pg169 3). Acceptance of the offer - If an offer has not been withdrawn or rejected, it may be accepted - Only the offeree may accept the offer 2 - Acceptance must be final and unqualified. (Sometimes offeree does not intend to be bound by the agreement, he/she is reserving right to change mind or terms, eg. ―subject to contract‖) - Acceptance must be communicated to the offeror, unless one of the exceptions applies  Only the offeree may accept  Acceptance must be final and unqualified- The offeree must intend to be bound by the agreement. However, if there is an arrangement made ‗ subject to contract‘ is presumed not to be a contract Masters v Cameron P170 (Masters signed memorandum of agreement ―subject to contract‖. Held that ―subject to contract‖ is normally presumed not to be a contract as it is normally not a final and unqualified acceptance. Thus, the deposit belonged to Master. Contrast to Masters v Cameron, Plastyne Products Pty Ltd v Gell Engineering Co Pty Ltd P193 (Buyer sent letter to seller, one term said that formal contract will be prepared, so clear intention to contract.)  The problem of battle of forms. (Two parties fire documents at one another containing contradictory terms.) Butler Machine Tool Co Ltd v Ex- Cell- O Corp (England) Ltd P172 (offer, counter offer, acceptance. The counter offer has been accepted when the seller return the acknowledgement slip, held that there is contract.) Reese Bros Plastics Ltd v Hamon-Sobelco (Australia) Pty Ltd P172 (Hamon offered, Reese accepted by replying in fax but gave some different confirmation from Hamon‘s original offer. Held that there was a contract when Hamon‘s offer had been accepted by fax, subsequent confirmation containing new terms was irrelevant.)  Acceptance must be communicated to the offeror. 1.Silence does not amount to acceptance. Felthouse v Bindley (1862) p173 ( Felthouse sent a letter to his nephew offering to buy a particular horse and if F did not hear from his nephew, he would consider the horse his for 30.15. The court held that the nephew‘s silence could not be regarded as acceptance in these circumstances) 2. Communicating acceptance to a large company. (Acceptance occurs when the relevant letter or other communication is opened ―in the ordinary course of business or would have been so opened if the ordinary course were followed‖. It is the recipient‘s responsibility to arrange for prompt and efficient distribution of messages within the office and the company generally) 3.Communicating acceptance over the internet. (An electronic communication is taken to have been sent from the sender‘s place of business and to have been received at the addressee‘s place of business.) 4.Situation where express communication is not necessary possible exception rules:  where regular past dealings exist allowing the conclusion that a contract exists even without formal acceptance.  where the offeror‘s and the offeree‘s industry involve a custom that formal acceptance is not necessary.  acceptance maybe indicated by conduct rather than words.  In the case of unilateral contracts, Carlill v carbolic Smoke Ball Co , it is not necessary for the offeree to advise the offeror of acceptance  The postal rule. Acceptance and the postal rule  Acceptance occurs when the letter is posted; even it is lost in the post but must be properly addressed and stamped.  Offeror has expressly or impliedly accepted the ordinary post as the means of communication between the parties Henthorn v Fraser - Postal rule has been extended to public telegraph and public telex. Leach Nominees Pty Ltd v Walter Pty Ltd - The rule does not apply to instantaneous communication (face-to-face, telephone conversation, private fax), email, and internet. 3 Brinkibon Ltd v Stahag Stahlwarenhandelsgesellschaft mbH P175 (contract made by private fax, postal rule does not apply, so contract was made when acceptance is received in Australia.) What evidence is required for the postal rule to operate?  Offeror must have accepted the post as the method of acceptance either expressly (send your answer by mail) or impliedly(where an offer has been made by post, and there is no other evidence to indicate that the post was not an appropriate method of communicating acceptance). Bressan v Squires (Postal rule does not apply.) The method and timing of the acceptance  Offeree may choose any method of acceptance if the offeror does not stipulate a particular method as the only method of acceptance; if the offeror does, offeree must comply.  Offeree must conform to the method and time that offeror states. Can acceptance be communicated by TP?  Acceptance is valid only when that person has actual authority or reasonably appears to have such authority. Powell v Lee P187 (Committee member had no authority to communicate the decision to Powell as he was appointed as headmaster of a school. Held that telegram did not amount to an acceptance.) 4). Lapse of offer Due to the death of offeror or offeree  The death of either the offeror or the offeree terminates an offer: Fong v Cilli (1968)  The result would differ if an option was involved and the offer did not involve personal skill or service by deceased: Carter v Hyde Due to time  If no time limited is mentioned, offer remains open for a reasonable time: Ramsgate Victoria Hotel Co Ltd v Montefiore  If there is an offer to remain open/ return mail by the offeror, the offeree could not accept after the time given  What constitutes a reasonable time will depend on the circumstances such as: 1) The method by which the offer has been made 2) The nature of the transaction 3) The terms of the contract as a whole 4) The actions of the parties between the making of the offer and the purported acceptance 5) Any evidence that the offeror has intimated an appropriate time frame Due to the failure of a condition precedent.  An offeror may make an offer conditional on the happening of a particular event.  The the condition is not satisfied, the offer lapses and cannot be accepted. 5) The agreement must be “certain” The courts require certainly as to the parties, the subject matter of the contract and the price otherwise it is void. Whitlock v Brew P178 (Sale of land, clause 5 was uncertain, so agreement fail for uncertainty.) Is an ―agreement to agree‖ binding?  Usually an agreement to agree is not binding b/c of uncertainty, unless parties provided a mechanism for fixing price. Hawthorn Football Club v Harding 178 Is an agreement to negotiate binding?  An agreement to negotiate in good faith was not unenforceable. Probably not binding. Is an agreement made ―subject to contract‖ binding?  Presumed not to be binding, Master v Cameron  But ―subject to contract‖ may be displaced by evidence suggesting that the parties did intend to be bound. 4  Sale of land is not easy to displace the presumption Other conditional agreements  ―Subject to finance‖ or ―subject to buyer‘s approvals‖ are regarded as condition precedent and there is a contract.  However the parties have to act honestly and reasonably and thus, the contract will not proceed further 5 Chapter 5: Contractual Risks and Obligations: Forming contracts II – Intention & Consideration Intention to contract For an agreement to be legally enforceable as a contract, one of the conditions that must be satisfied at the formative stage is that the parties intended to create legal relations. Intention can be express (words, writing, or conduct) or implied but if it is not present, there can be no contract. The parties intend their agreement to be binding in the sense of being enforceable by a court. Step 1, Social/Domestic agreement or Commercial agreement? Step 2, Apply the relevant presumption. Step 3, Any evidence for rebutting? 1). Social/Domestic agreement  Presumption that parties did not intend to be legally bound by the agreement.  Can be rebutted by strong evidence, ―reasonable person test‖. (Whether a reasonable person would have concluded that the arrangement was contractual.)  Ones made between friends, acquaintances, family members or relatives Todd v Nicol P188 (Nicol invited the Todds (sister in law) and her family to come over to South Australia to stay with her and promised them free accommodation in her house for the rest of their lives or until their niece got married and alter her that the house would become theirs after she‘s dead. Todd quit her job, sold her furniture and moved with her daughter to Nicol. However, N asked T to leave her house after an argument developed. (Held that the agreement amount to contract, b/c the surrounding circumstances, and the effect of the agreement, and the manner in the parties conducted.) 2). Commercial agreement  (General rule) Presumption that parties intended to be legally bound by the agreement. Roufos v Brewster (B Owned a truck which was in need of repair and Roufus owned a semi trailer. B asked R to transport the truck to Adelaide and in return, R is allowed to fire a driver to drive the truck with R‘s goods. R agreed but in the return journey, the truck was damaged due to the negligence of the driver. Held that they had a binding commercial agreement, and there is a contract, although they are family.)  (Rebutting the presumption) Can be rebutted by clear words or stating the agreement is not legally enforceable, but it is difficult as any party not wishing a commercial agreement to be legally enforceable should state this clearly. Rose and Frank Co v J R Crompton & Bros Ltd P189 (Held that the agreement is not intended to create legal relations as the agreement has clearly stated that, therefore no contract.) Edwards v Skyways Ltd (―ex gratia‖ (payment made without the giver recognizing any liability or legal obligation) was inadequate to displace the presumption that the parties intended their agreement to be legally binding, a contract exists.) Esso Petreleum Ltd v Commissioners of Customers and Excise P190 (Each motorist who purchased 4 gallons of Esso petrol received a free coin. Esso argued that coins are not sold as part of any contract, but held that there was a contract for supply of coins as every petrol buyer has a contractual right to claim the ‗free‘ coins.) 3). Intention can be an issue in the following types of cases:  Letter of comfort. (Where the provider of the letter does not wish to give a formal guarantee, that is, one party wants to be bound and the other does not.) Kleinwort Benson v Malaysia Mining Corp Berhard p191 (Loan, letter of comfort was merely representation showing existing policy and not a promise about future conduct, so not legally bound.) Banque Bruless Lambert SA v Australian National Indystries Ltd P192 (Loan, letter of comfort was clearly intended to be binding and there is a legal relation.)  ―Heads of Agreement‖/‖Letters of Intent‖. (Whether parties are intended to be bound will depend on the circumstances of each case.) Air Great Lakes Pty Ltd v K S Easter(Holdings) Pty Ltd P192 (Document headed ―Terms of Agreement‖, containing ―proposed agreement‖, and some oral statements, held that there was a contract.) 6 Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd P193 (―Head of Agreement‖, document clearly stated not binding, held that no contract.)  Agreement ―subject to contract‖. (Generally not binding.) Masters v Cameron P193 (Masters signed memorandum of agreement ―subject to contract‖. Held that ―subject to contract‖ is normally presumed not to be a contract as it is normally not a final and unqualified acceptance. Thus, the deposit belonged to Master. Plastyne Products Pty Ltd v Gall Engineering Co Pty Ltd P193 (―Subject to contract‖, required to sign, there was a clear intention to contract.)  ―Without prejudice‖ agreements. Gregory v Phillip Morris Ltd pg 194 (―Without prejudice‖ was not legally binding in this case.) Consideration- The price you pay to buy the other person‟s promise and the concept if „price paid‟ - Formal contracts (deed- an instrument that has been signed, sealed and delivered) do not require consideration. - Simple contracts- a contract which is not special and do require consideration to be valid, otherwise no remedy under common law; Simple contracts maybe totally oral, totally written, or partly oral and partly written. Rules of consideration: 1) Consideration is essential in every contract 2) Should be present of future BUT no past 3) must move from the promisee 4) must have some value, although the court is not concerned with its adequacy 5) must be something more than the promise of an existing obligation 6) must be possible of performance 7) must be definite 8) must be legal 9) must be referable to the other party‘s promise 1). What is consideration? It does not have to be in the form of a payment or promise to pay money; it may be a benefit flowing to the promisor, a benefit flowing to a third person at the promisor‘s direction, or a detriment to the promise. 2). Examples of consideration.  A promise to do something. (Consideration has not yet been performed said to be executory.)  A promise not to do something. (Also called executory.)  Doing something. (Carlill v Carbolic Smoke Ball Co, Mrs Carlill provided consideration by following the instructions of the advertisement.)  Refraining from doing something. Consideration may be:  A benefit flowing to the promisor  A benefit flowing to a third person at the promisor‘s direction  A detriment to the promisee 3). Consideration must move from the promisee. Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd (Dunlop sell tyres to wholesaler who promised its retailers will not sell below price list, retailer Selfridge sold below price. Held that Dunlop has no consideration, it can not enforce retailer‘s promise, only wholesaler, the promisee can. 4). The joint promise rule. If a promise is made to 2 or more persons jointly, only 1 of those persons need provide consideration. The other party who has not provided the consideration can still enforce the promise because consideration is only necessary from one of the joint promises, not from each of them seperately. Coulls v Bagot‘s Executor and Trustee Co Ltd P209 (Agreement that pay all royalties to Mrs Coulls and Mr Coulls himself jointly. Husband died and the company stop paying the royalty to Mrs Coulls Held that the promise was made to 2 persons jointly as only Mr Coulls provided consideration.) 5). Privity of contract. 7 Similar to the rule that consideration must move from the promise. Dunlop Pneumatic Tyre Co v Selfridge (Dunlop was not the party to the contract that contained Selfridge‘s promise.) Rule of privity of contract applies to when third party are not allow to sue. - Exceptions: (The rule does not apply to contracts of insurance that benefits a 3 person.) Trident General Insurance Co Ltd v McNiece Bros Pty Ltd P210 (A member of McNiece was injured under McNiece during working and claimed compensation under the insurance. Held that McNiece was entitled the compensation, although it was not a party to that contract and provided no consideration.) Eg. Agent enters contract, principle can enforce it; Exemption clauses made specifically for 3rd party; Beneficiary and assignee can enforce the contract. 6). Consideration may not be past. (Cannot take place before the promisor‘s promise. Once the contract is made, it is too late unless fresh consideration is provided) Roscorla v Thomas P211 (Purchased a horse, assurance given after the contract of sale completed, consideration was invalid.) - Exception to this case (for service providers to be hired without any discussion of price until after the service has been provided.) Re Casey‘s Patents: Stewart v Casey P212 (Patents, service rendered, then promised to give 1/3 share of patent to Casey. Held that promise bound as it is treated as positive bargain which fix the amount of reasonable remuneration.) 7). Consideration may be of nominal value. (Does not have to be equal in value to the promisor‘s promise.) Thomas v Thomas ($1 consideration for rental payment per year.) 8). Consideration must be sufficient- Consideration does not have to be adequate but it must be sufficient. 9) llusory promises are not consideration. Dunton v Dunton P214 (Pay divorced wife money if her conduct is good. Held that the wife provided consideration, but that promise was too uncertain and illusory to constitute consideration.) Francis v South Sydney District Rugby League Football Club Ltd (Where provision of the agreement are so wide that the promises has not really agreed to be bound by anything and if the promisee agrees to be bound in honour only) 10) Settling disputes – giving up a legal claim may be consideration. (Forbearance to sue is good consideration in appropriate circumstances.) Wigan v Edwards P215 (Edwards signed a contract to purchase a house but list out a list of faults which need to fix to Wigan before proceeding the contract. Wigan promised in writing to remedy the listed faults or any major defects appearing within 5 years. Unfortunately, Wigan failed to carry out his promise AFTER Edwards completed the purchase and paid. Held that Edwards agreed to settle the dispute in return for Wigan‘s promise as they impliedly gave up the legal right to claim, so this is a good consideration.) 11) Renegotiating contracts- Promising to perform an existing contract is not good consideration. – Unless promisee has provided something additional to the existing duty as a fresh consideration. Stilk v Myrick P217 (On voyage, 2 seamen deserted, captain promised others would have the wages of that 2 seaman, after voyage, captain refused to pay. (Held that Stilk already under a contractual duty, and did not provide fresh consideration, so was not entitled extra money.) A development of Stilk v Myrick: different outcome due to traditional view. In many cases a renegotiated or modified contract will not be enforceable because one of the parties has not undertaken to do anything in addition to the original contract. Modern Development: Williams v Roffey Bros and Nicholls (Contractors) Ltd P139 (W did carpentry work for R(a builder) on a block of refurbishing flats, W underquoted the 575 per flat, R promises to pay, but after the completion, R refused to pay 8 of them.) (The court held that a promise to perform an existing contractual duty could amount to consideration if it conveyed a practical benefit to the promisor and there was no element of duress. Held that W has provided consideration to R as, (1) time and trouble to find another carpenter, (2) saving contractual losses for R as not completing the renovation on time. So R has to pay W.) 12) Terminating a contract- agreement to cancel the sale of business contract is a contract itself. 13) Renegotiating a debt- Special problems, Performance of less than contractual obligation 8 Pinnel‘s Case P207 (Debtor paid Pinnel less amount earlier, Pinnel accepted, and then sued for the balance.)(Held that Debtor has given consideration, as repaying before the due day amounts to something extra. Pinnel can not sue.) Foakes v Beer P208 (Court allowing the promisor to claim the remaining, as promisee did not give something extra.) - Exception to Foakes v Beer  Compositions with creditors. (When 2 or more creditors are involved.) – Creditors cannot claim for the remaining although nothing extra has been given.  Part payment by 3rd party. Hirachand and Punamchand v Tmple (Creditors cannot claim for the remaining, as this would amount to a fraud to the 3rd party.)  good consideration. (Promisee can claim for the amount.)  A promise to perform an existing public duty will not be good consideration unless the promise provides something in additional to the duty. Collins v Godefroy P221 (G promised to pay C for subpoena but then refused to pay.) (Held that a duty imposed by law to attend from time to time to give evidence, and promisor promises to pay any remuneration for loss of time for the attendance, such a promise is without consideration. And C did not give something extra, so cannot claim.) 14) Promissory Estoppel. (Applies when no consideration & no contract exists)  Promissory Estoppel will allow a promise to be enforced even though the promisee has not provided consideration for that promise. It operates where it would be inequitable, or unconscionable, for the promisor not to be held to their promise.  Promissory Estoppel may be used as a defence or to initiate a cause of action if the promisee‘s position has been altered in reliance of the promise.  To prevent a person from denying an assumption of fact which he or she has represented to another person and upon which that other person has relied. Central London Property Trust Ltd v High Trees House Ltd P222 (Plaintiff leased a block of flats to the defendant for 2500 on a 99 year lease. But during the war, the plaintiff agreed to reduce the rent to 1250 for the duration of the war. The defendant paid the reduced rental until the end of war but the palintiff want to claimed the rental arrears for the last two quarters of 1945) (Held that promissory estoppel applies although there was no contract and prevents P going back to the original contract because it is unfair for the defendant.)  Promissory Estoppel and contract law- not part of the law of contract but it performs a complementary function. It is an equitable rule by which a promisee can enforce another‘s promise.  Promissory Estoppel is important where no contract exists- If the promise is part of a contract, there is no need to resort to promissory estoppel. 2 situations exists which is: 1) Where no consideration exists, particularly in the context of renegotiated agreements 2) Where the formalities of making a contract have not been satisfied (Waltons stores v Maher) 15) The elements of promissory estoppel :  The assumption: The promisee, on reasonable grounds, assumed that a particular legal relationship existed or would exist between the promisor and the promisee  The promisor was responsible for the assumption: The promisor either induced the assumption or being aware that the promisee had made the assumption, deliberately remained silen in circumstances where the promisor could reasonable have been expected to speak.  Reliance: The promisee acted(Or refrained from acting) on the faith of the assumption  Promisor‟s intent: The promisor knew or intended the promisee to rely on the assumption  The detriment: The promisee will suffer a detriment if the promisor is permitted to renege on the promise 16) The Promisor‟s responsibility for the promisee‟s assumption:  The promisor‘s representation or other conduct must be sufficiently precise and unqualified before the promisee is entitled to assume that a particular legal relationship existed or would exist. Legione v Hateley P224 (Sale of land, The contract stated that the vendor could terminate the sale if the purchaser had no completed the purchaser by due date. The purchaser have some financial difficulties and called the vendor and tell the secretary that that finance will be available after 7 days. The secreatary replied: ―I think that‘ll be all right but I‘ll have to get instructions‘,However, the contract is terminated.) (Held that secretary‘s words were not sufficient clear or unequivocal to active promissory estoppel.) 9 17) Why is detrimental reliance important?  Because mere failure by the promisor to carry out the promise will not in itself amount to a detriment. The promisee must show that he or she acted in reliance on the promise and that as results will put he or she in a position which will suffer a material disadvantage if the promisor reneges on the promise. Je Maintiendrai Pty Ltd v Quaglia and Quaglia P225 (Leased shop, promisor accepted lower amount, but Quaglia decided to quite after awhile. Promisor later claimed for arrears.) (Held that the requirements to pay the arrears not a detriment, promissory estoppel not applied, Quaglia has to pay in lump sum rather than in instalments as required.) 18) Leading case: Waltons Stores ( Interstate) Ltd v Maher P226 (Held that 6 elements of establishment of promissory estoppel have satisfied.) 1) The promise reasonably assumed that a particular legal relationship existed (Legione v Hateley), orwould exist (Walton Stores (Interstate) Ltd v Maher). 2) The promisor induced the promisee‘s assumption or expectation. 3)The promisee acts or abstains from acting in reliance on the assumption or expectation. 4)The promisor was aware that the promise had made the assumption, and deliberately remained silent. 5) The promises‘s action or inaction will occasion detriment if the assumption or expectation is not fulfilled. 6) The promise will suffer a material detriment if the promisor is permitted to renege on the promise. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 pg 226 (Maher owned a property with a building on it. Waltons Stores wanted to lease it, tear down the old building and erect a new building to Waltons‘ specification. A draft agreement was then forward as Maher‘s solicitor sent Waltons‘ solicitors the letter of amended agreement. Waltons did not make any objections but didn‘t forwarded its part of the agreement. Maher tear down the remainder of the old building and construct the new. Waltons was aware of this. Waltons did not sign its part of the amended agreement and the solicitors told Waltons that it was not bound as it had not exchanged its part of the amended agreement. When Waltons refused to proceed with the deal, Maher sued for breach of contract) (There is no contracts had been formally concluded. However, by retaining the executed documents for 2 months and remaining silent when it was aware that M was acting on the assumption that the lease was proceeding, it was appropriate to apply the doctrine of promissory or equitable estoppel. Therefore, the court treated the matter as if there was a contract between the parties and awarded damages to Maher.) 10). Parties to the contract. Who can sue on the contract?  Minors- people who are under age 18. Contract with a minor for sale of goods is not enforceable unless goods sold are necessaries. Nash v Inman P228 (Minor bought waistcoat, refused to pay, contract was not contract for necessaries, minor is not bound by agreement.)  Persons with mental disabilities; intoxicated persons- may lack contractual capacity.  Agents – can make contracts on behalf of principle & bind them.  Partnership- 1 partner can make contracts that bind other partners.  Corporations- Will be binding provided the person who entered into the contract for the corporation had actual authority or ostensible authority to make that contractrd  Assignment of contractual rights- Assign contractual rights to a 3 person 10 Chapter 6: Construction of the contract I: Express Terms Terms of the contract  Express terms: Terms expressly agreed by the parties and can be wholly in writing , partly in writing and partly in oral and totally oral  Exemption clauses: These are a special type of express term designed to restrict liability  Implied terms by the courts: These are terms which the parties have NOT discussed but which the courts regard as an integral part of the deal  Implied terms- by statute Express terms 1). Ascertaining the evidence.  The parol evidence presumption.  Rule: - Assume the written contract is the completed record, and courts will not permit one of the parties to add or vary that written contract. - This presumption is rebuttable, if courts are convinced that the written document is incomplete or incorrect.  Statements made after contract is complete are not terms- contractual statements are not terms. A party cannot be bound by statements, promises or representations after the contract been formed unless fresh consideration is provided (Roscorla v Thomas) Olley v Marlborough Court Ltd P238 (The Olleys booked a room at M hotel and paid a week‘s board, exclusion clause put on the door after contract made at reception desk, furs were stolen.) (Held that the clause is not a term.)  Past dealings may be important in determining the terms because it may be different if Olley‘s visited the hotel for a few times. Past dealings can be important in commercial contracts where the parties deal with one another on a regular and consistent basis. 2). The importance of a signature.  A person is bound by their signature. A person who signs a document that has a contractual appearance about it is bound by the contents of the document. L‘ Estrange v F Graucob Ltd P239 (Mrs L‘Estrange bought cigarette machine, signed a document called a ―Sales Agreement‖ without reading, machine jammed.) (Held that L legally bound by the contract, L can‘t sue.) Exceptions: when is a person not bound by his or her signature?  The document didn‘t appear to be contractual. (―Reasonable person test‖, if no reasonable person would have realised the document they signed was a contract., a person is not bound by his or her signature) D J Hill and Co Pty Ltd v Walter H Wright Pty Ltd P241 (Have past dealings, contract made on phone, machine was damaged, employee signed a form containing exemption clause.) (Held that contract was made before the clause was presented, although they had past dealings, no one would have treated the form as contract instead of delivery docket.)  Promissory estoppel applies: If a party not to rely on a term, there should be no reason why the term can‘t be exercised from the document before signing.  Oral agreement to the contrary: A signed agreement may not be enforceable where it is at odds with terms expressly, but orally, agreed between the parties J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd P242 (M orally agreed machine would be stored in the hold, but stored on the deck, machine was damaged.) (Held that oral assurance was a term of the contract, Evan was entitled damages.)  Contents of the document was misrepresented. (Not binding as not able to rely on the contents.) See Curtis v Chemical cleaning and Dyeing Co P269  Condition precedent was not satisfied. (Not binding if the parties made it subject to a condition precedent.)  The document does not accurately record the agreement. (Not binding if there is a mistake made in recording the terms and one party is unfairly trying to take advantage of that mistake.) 11  Equitable doctrines (Courts will not enforce a contract because it would be inequitable to do so in certain situations. These situations include: Unconscionable conduct, duress, undue influence & unilateral mistake. 3). Incorporating unsigned terms into the contract by notice. Unsigned written statements - may be terms of the contract, if (1). Rules of offer and acceptance. (2). Is there reasonable notice? The reasonable notice test: Parker v South Eastern Railway Co p 244 (Parker left a bag at the railway and bought ticket , unsigned document, lost bag, clause said that company will not be responsible for package over $10.) (Held that reasonable notice must be given to the other party, If reasonable notice has been given, it doesn‘t matter if Parker has read it or not.) Determine whether reasonable notice has been given: Step 1, Is the document contractual in nature? D J Hill v Walter Wright p232 Oceanic Sun Line Special Shipping Co Inc v Fay P236 (Read brochure which containing reference about terms and conditions, paid fare for cruise, injured.) (Held that brochure not a document that could reasonably be regarded as contractual in nature, so reasonable notice not given, not term of contract.) Step 2, Is the term unusual?- If term is particularly unusual, extra notice needed.) Interfoto Picture Liabrary Ltd v Stiletto Visual Programmes Ltd P237 (Stiletto hired some transparencies, late return, charged $5 per day but others libraries charges $3.5 per week, extra notice will have to be given.) (Contract was not formed until the transparencies and the delivery note had been delivered. Held that follow normal industry practice $3.5 per week, implied term of contract.) Step 3, Were there any conflicting statement or promises?-Even sufficient notice has been given, the incorporation may be subject to any oral statement to the contrary.) Couchman v Hill P237 (Cattle auction, disclaimer on catalogue stated that the seller did not guarantee the accuracy of the information contained in the catalogue, sought assurance before biding.) (Held that oral representation as warranty so prevailed over written terms, Couchman won.) Example of Incorporation: Ticket cases p237- The relationship between the passenger and the railway company is one of contract. Are the terms and conditions given to the passengers by the railway? Purchase of train ticket will usually hold that sufficient notice has been given. Figure 6.3 Page 239!! Determining whether a written statement is a term 4). When are oral representations binding? – Only statements which are promissory become terms. Must indentify what legal status does the representation have:  Mere puff- Not binding, No remedy.  Mere representation- Possibly binding. If not, No remedy in contract, must rely on law of misrepresentation. (s 52, show reasonable reliance.)  Term of contract- Binding, remedy for breach of contract. Was the oral statement promissory? - Apply ―reasonable bystander test‖. Applying the reasonable bystander test: There are number of factual matters which the courts look to as a guide in determining whether a representation was intended to be promissory. It should conclude:  Was the representation included in a written document?  When in the negotiations was the representation made?  Did the representation sound promissory?  How objectively important is the representation to the overall deal?  Did either of the parties have special knowledge about the subject matter of the representation? 12 Step 1, Was there a written document?  Statement need to be included in any written document for good evidence that the parties were treating the statement as sufficiently important to be a term. However, if the statement is left out of the document, the parties did not intend it to be contractually binding  The written document should accurately reflects the deal between parties  Amendments can be made to the document before signing  Prevention is much cheaper and more certain than litigation cure State Rail Authority of NSW v Heath Outdoor Pty Ltd P250 (Prior signing the contract H asked about the term, S assured H, held that parol evidence rule applies, oral agreement to the contrary not applied.) An oral representation can be added to the written terms if the evidence suggests that this is what the parties intended. Rebutting the parol rule presumption: Van Den Esschert v Chappell P251 (C bought V‘s house, asked if there were any white ants prior signing contract, V said no, then signed, contract no mention of ants.) (Held that oral statement was made immediately prior signing document, it is reasonable that C would not have signed without V‘s assurance, regarded as term.) Step 2, How much time lapsed between statement and contract?  The longer the lapse of time, the more likely it is to be treated as an inducement and not intended to form part of the agreement.  If the statement was made as the final inducement, it might very well be a term. Van Den Esschert Chappell Step 3, How important was the statement to the deal as a whole?  If a reasonable person would regard it as important Step 4, What words were used?  The more precise the language, the more likely it is to be promissory. Step 5, Did either party have special knowledge? Oscar Chess Ltd v Williams P253 (W sell car to O who is a car dealer, wrong car model year, as O had no knowledge of the age so he relied on registration book.) (Held that W had no personal knowledge of the year of manufacture, so the statement was a mere representation.) Cases of reasonable bystander test: Ross v Allis-Chalmers Australia Pty Ltd P254 (Negotiating purchase of new harvester, A made representation that the machine would harvest about 90 acres per day based on his own experience, R then bought, harvested less than 90.) (Held that A‘s statement not contractual, merely an opinion, not intended to be promissory. It is important that sales staff and agents to be realistic in their appraisals of a product‘s performance.) Esso Petroleum Co Ltd v Mardon P254 (M lease petrol station from E, E estimated that sell 200,000 gallons but in fact less) (Held that E warranted the estimate as he had relevant information and necessary experience whilst M does not.) Hospital Produces Ltd v United States Surgical Corporation (P255) (U made surgical instruments for hospitals, B made oral statement that he would like to take over the distributorship in AUS, then cancelled contract and competed with USSC by copying USSC‘s goods and grabbed their customers.) (Held that oral statement amounted to contract, as it intended to be promissory, USSC won due to breach of contract.) 5). Collateral warranties Useful for some cases with difficulties/inconsistencies related to parole evidence presumption. De Lassalle v Guildford P256 (G signed a lease of premises, D orally assured drains were working, written document did not mention of the drains, P would not have enter the contract if drains did not work.) (Held that there was collateral contract, two contracts stand side by side. (1) main contract, the lease. (2) D promised drains were in order, P promised to enter the lease as consideration.) J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd, Van Den Esschert v Chappell L G Thorne & Co Pty Ltd v Thomas Borthwick & Sons (A‘asia) Ltd P257 (Sale of oil, seller provide a sample of oil, written document did not mention of the sample, oil did not conform to the sample.) 13 (Held that parol evidence rule applied to exclude the sample of oil from the contract, however sample of oil may be part of collateral contract.) When does a collateral contract apply? Step 1, A collateral warrant must be promissory. (Reasonable bystander test.) J J Savage and Sons Pty Ltd v Blakney P245 (B purchase cabin cruiser, S estimated speed to be 15 mph, however below 15.) (Held that representation is not promissory, B based on S‘s opinion, not collateral warranty, representation given not a term of contract. S won.) Step 2, A collateral warranty must not be inconsistent with the main contract. Collateral contract cannot exist if it conflicts with the main contract. Hoyt‘s Pty Ltd v Spencer Gates v City Mutual Life Assurance Society Ltd P127 (Gates took out an insurance policy, injured, unable to work as carpenter, claimed for insurance.) (Held that it is promissory, but no collateral contract b/c inconsistent with the written policy.) Maybury v Atlantic Union Oil Co P261 (Broadcast for advertising, M written stated A had total control, oral stated no competition.) (Held that inconsistent with main contract, no collateral warranty, A won.) 6). Meaning of terms. Once statements are found to be terms, their meaning must be ascertained.  Reasonable person test. - To determine what the parties mean.  Parol evidence rule. Hope v RCA Photophone of Australia Pty Ltd P248 (RCA hired sound equipment to H, H refused to pay b/c not new product, hire agreement did not mention about new.) (Held that parol evidence rule did not apply to vary its ordinary meaning, no implied term as it would conflict with express term in the document. RCA won.) Exception:  Clarify ambiguities (patent and latent) in the document. Bacchus Marsh Concentrated Milk Co Ltd v Joseph Nathan & Co Ltd P248 (Patent, document not specified about which patent is included.) (Held that parol evidence rule applies to clarify ambiguities. Glaxo patent is not included)  Correct errors made in recording the contract.  Establish necessary background facts so that the contract can be seen in context. 7). Importance of terms. – determined by ―reasonable bystander test‖.  Conditions (most important terms) – termination & damages.  Warranties (less important terms) – damages only.  Intermediate terms – damages, termination only if breach is very serious. 8). Unenforceable terms. (Illegal contracts such as:  Contracts for an immoral purpose  Contracts to oust the jurisdiction of the courts  Contracts tending to promote corruption in public life  Contracts prejudicial to the safety of the state Terms in restraint of trade: (All restraints of trade are unlawful unless they are reasonable as between the parties and in the public interest. A restraint of trade will be reasonable if it is no wider than is reasonably necessary to protect the legitimate interests of the party relying on it. ICT Pty Ltd v Sea Containers Ltd P265 (ICT build ferries for S, contract not allow ICT to sell similar ferry to its competitors within 100 miles, ICT did.) (Restraint was invalid, restraint was too wide, general and long, ICT won.) Peters (WA) Ltd v Petersville Ltd P266 (Sale ice-cream, 15 years is too long, restraint is unlawful, unreasonable.) 9). Exemption clauses. – free to restrict, limit or exclude liability. (Look at figure 6.9, p267) Considering exemption clauses: Step 1, is the exemption clause a term of contract? 14  Post-contractual: Exemption clause cannot be incorporated into the contract after the contract has been made. Olley v Marlborough Court Ltd pg228. A seller of packaged products cannot rely on an exemption clause that is contained within the sealed packaging unless it is brought to the buyer‘s attention prior to sale.  A course of past dealings between the parties may be relevant in ascertaining terms in the current contract.  An exemption clause contained in a signed document will often be binding. L‘ Estrange v F Graucob Ltd pg229 Exception: - If the signed document could not reasonably be regarded in the circumstances as likely to contain contractual terms. D J Hill and Co Pty Ltd v Walter H Wright Pty Ltd. - Where the party relying on the exemption term is estoppel from doing so. - Where the exemption term has been misrepresented. Curtis v Chemical Cleaning and Dyeing Co P233 (Wedding dress, Curtis was asked to sign a document which was called a receipt, assistant made her believe wrongly about the responsibility.) (Held that term not applied b/c of false impression, exemption clause in the receipt not regarded as a term.)  An unsigned exemption clause will be binding if ―reasonable notice‖ has been given. FOR CAR PARK CASES!! Exemption clause are binding if, 1. the innocent party was actually aware of the exemption clause prior to making the contract, 2. reasonable notice of the existence of the exemption clause has been given: Parker v South Eastern Railway Co pg 235  What amounts to taking reasonable notice?? - How the nature of unsigned document affects reasonable notice? Receipt, hiring ticket, delivery docket not reasonably contain contractual terms; Not sufficient for car park ticket to contain exemption clause; Exemption clause on train ticket is held sufficient. - How the nature of transaction affects reasonable notice? The court will take into account if the transaction is such that reasonable persons expect to find some restricting or limiting terms. - How the nature of the exemption clause affects reasonable notice? The broader the exemption clause, the greater notice required. Step 2, does the exemption clause cover the breach?  The ambiguity rule. - must use clear words. An exclusion clause that ―excluded liability for breach of express condition or warranty‖ would not cover breach of an implied term. Andrews Bros (Bournemouth) Ltd v Singer Car Co Ltd pg 251 (A purchased unused car from S, but it was not new as the term stated, contract had exemption clause as excluding all conditions, warranties implied…) (Held that S breached of express warranty and implied condition, however the exemption clause did not cover the breach of express warranty.) Alex Kay Pty Ltd v General Motors Acceptance Corp and Hartford Fire Insurance Co (Hiring motor cars, A took out insurance with G, has exemption clause that not liable for breach of contract…, TP hired cars, did not return and disappeared with car, A claim insurance, G refused.) (Held that the clause was ambiguous, there were 3 possible meanings, the case possible meant that the breach of A and G‘s contract, not A and TP‘s, given that A did not breach of contract with G, exemption clause invalid.)  The negligence rule. - If words could reasonably against others other than negligence, negligence would not be covered. If a person wishes to exclude liability for his or her own negligence, the exclusion clause must do so clearly.  The rule applies when: liability for negligence may be expressly or implicitly excluded but if the words of the exclusion clause could reasonably be applied to protect against some ground of liability other than negligence, then negligence will not be covered. White v John Warwick & Co Ltd pg251 (P hired tricycle from D, injured b/c of the seat slipping 15 forward, exemption clause excluded liability of negligence.) (Held that P had 2 possible claims for damage, breach of contract and negligence, the exemption clause will not cover negligence.) examples of statements holding sufficient to cover negligence: - ―not responsible for all loses however caused, whether arising through misconduct, negligence…‖ Tech Pacific Australia Pty Ltd v Air Pacific Ltd p252 - ―at owner‘s risk‖ and ―not responsible for loss or damage of any description‖ David v Pearce Parking Station Pty Ltd p252  General rules: - Exemption clauses are to be understood according to their nature and ordinary meaning. - Fundamental breach presumption. (Where parties did not intend to exempt liability for breach of the fundamental terms or obligation of the contract. Can be rebutted: Photo Production Ltd v Securicor Transport Ltd P253 (Night patrol as P‘s factory, S‘s employee caused a fire, contract had exemption clause that S would not be liable for any injurious act or default by employee unless such act or default could have been foreseen and avoided.) (Held that S would only be liable if the act of employee could have been foreseen by S, S won.)  Four corners rule. (Where clause was intended to cover only the matters contained within the four corners of the contract.) Sydney Corporation v West P254 (W parked his car to S‘s car park, ticket must be presented to attendant before leaving, ticket contained exemption clause that excluded liability for loss or damage to any vehicle, or any injury to any person…..W‘s car was stolen while parking in car park.) (Held that the exemption clause was a term of contract, but did not cover the deliberately acts of S, W won.)  Deviation rule – similar to four corners rule (An exemption term in a contract of carriage will not excuse the carrier from liability where the carrier deviates from the authorized route.) Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia)Pty Ltd P255 (TNT‘s employee driver collected M&B‘s goods, was unable to return to TNT‘s depot before it closed, then stored them at home, backyard, fire destroyed the goods, contract had exemption clause.) (Held that the parties must have contemplated the goods would be stored at depot, the event was beyond the contemplation of the contract- beyond the four corners of the contract, exemption clause was invalid.) Darlington Futures Ltd v Delco Australia Pty Ltd (Darlington and Delco had contracts for future exchange, had exemption clause 6 that Darlington would not responsible for any loss arising in any way out of any trading activity, Darlington engaged in unauthorised trading which costed Delco.) (Held that the unauthorised trading was beyond the contemplation of parties, exemption clause 6 was invalid.) 16 Chapter 7 : Construction of the Contract II: Implied Terms Implied terms Terms implied by the courts 1) As a matter of law  Into all contracts - Co-operation. In all contracts unless the parties expressly or by implication agree, there is an implied term that each party will do that which is reasonably necessary to enable the other party to have the benefit of the contract. - Good faith. Applied to the performance of obligation and the exercise of contractual rights in all relational contracts. Burger King Corp v Hungry Jack‘s Pty Ltd P 269 (Court held that BK had breached its implied obligation of good faith)  Contracts between professional persons and their clients. - There is an implied term that the professional person carries out his or her contractual duties with reasonable care and skill. Eg, accountants, auditors, lawyers, doctors, engineers etc. - The level of care: ordinary skilled person exercising and professing to have that special skill. - Engineers and architects are also under an implied warranty that the services supplied be reasonably fit for the purpose for which they were acquired  Contracts for work and materials - The contractors use reasonable care in performing the work - The service be reasonably fit for the purpose for which it was acquired - Any materials supplied to the work must be of ―good quality‖ and fit for the purpose. Reg Glass Pty Ltd v Rivers Locking System Pty Ltd P 270 ( Reg hired Rivers to supply and fit a steel sheeted locking system to his shop which descrived as borglar proof. Rivers fitted the door and buglars broke in one day) (Court held that there was an implied term that the door would be reasonably fit to keep the breakers out of the door. So RL breach of contract) Helicopter Sales Pty Ltd v Rotor Work Pty Ltd P271(Plaintiff owned a helicopter owned by Bell Corporation. Plaintiff had contract with Bell for service and repair. The manual required all spare parts to be acquired from the manufacturer‘s authorised distributor and comply to their designs. Bought the bolt and being replaced but helicopter crashed and kill many people since the bolt is a latent defect).(Court held that there is no reasonable implied term in this circumstance, both parties have no opportunity to test the material supplied to work is good quality and fit for the purpose.)  Other service contracts The service provider (eg, taxi services, operating car park, travel agency etc) is under an implied obligation to take reasonable care and skill in providing the service and to ensure that the service is reasonably fit for the purpose for which it was acquired. Costa Vraca Pty Ltd v Berrigan Weed & Pest Control Pty Ltd p 272 (C operate a farm growing tomatoes. Reianed B to spray the crops with insecticides, fungicides and a nutrient. B‘s spray content some sort of chemical and killed all C‘s crops. C sue B breach implied term) (Court held that B would carry out its services with the reasonable care and skill, but B didn't. So B breach of implied term of contract)  Hire contracts The party must ensure that the hired goods reasonable fit for the purpose. Derbyshire Building Co v Becker pg 272 Cottee v Franklins Self-Serve Pty Ltd pg272 (Breach of implied term that the trolley had to be reasonably fit for its pupose.)  Employment contracts Employer has an implied duty to provide a safe system of work.  Landlord/tenant The landlord impliedly warrants to give the tenant quiet enjoyment of the premises. 17 2) As a matter of fact- The term is implied when it reflects the intention of the parties as objectively ascertained  Past dealings- Continuing relationships where the parties rely on trust, goodwill and common sense as much as any formal documentation Prove there is implied terms on the basis of past dealings:  The term claimed to have been used in past dealings is clearly identifiable (written document).  The previous dealings were sufficiently numerous and consistent to constitute a regular course of dealing (1 or 2 is not sufficient)  The present dealing fits into that course of dealing to the extent that it can reasonably be said that the same terms should be included.  There is no conflict between the implied term and the express term. Henry Kendall & Sons v William Lillico & Sons Ltd (3 or 4 past dealings to send a sold note after each oral contract.) P 294 (Court held that the terms of sold note were implied terms of contract based on past dealings, and no express terms.)  Terms implied as a result of custom of trade usage Prove:  It is possible to state the term with precision.  Well known custom and all contracts of the same type can be said to have that term. (Even if one of the parties to the contract wasn't aware of the custom).  Custom is reasonable  There is no conflict between the implied term and the express terms. British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd p 275 (B &I both hired out cranes and time to time, one of them would hire a crane from each other. One day, I hired crane from B and no terms were discussed until B sent a hire form to I stating that I was liable for all costs incurred during the hire of the crane, but I didn‘t read it. Later on, accident occur and B sue I over damages but I said: 1) I had hired a crane from B on 2 precious occasions and the same hire form had been used both times 2) The hire form was almost identical to the hire form recommended by the industry association of which I and B were members and I use similar forms in fact. (Court held that B won, because of the custom of such industries, but not for past dealings. 2 dealings are not sufficient)  Terms implied in order to make the contract effective Prove:  Term is capable of clear and precise expression  Term is necessary to make the contract effective (may not be reasonable, there must be a gap to make the contract unworkable)  Term is so obvious that it ―goes without saying‖, (officious bystander test)  Term is fair and equitable to both parties  No conflict with the express term The Moorcock (1989) 14 PD 64 (English Court of Appeal) p276 (P gave money to D to dock his ship over to D‘s wharf. But there is a low tide and P and D are aware of this. P‘s ship ended up with damages due to low tide. P sued D for damaged for breach of contract. (Court held that the term is necessary to make contract work, if there was no term to take responsibility for the suitability of river bed, the contract was not effective. And D should warn P about the river bed being unsuitable. D breach of contract). Codelfa Construction Pty Ltd v State Rail Authority of New South Wales p 277 (C tendered the job from STA and promised to do the work in 130 days inclusive of 3 shifts a day for 7 days a week. Residents complain the the gov ordered C to work 2 shifts a day, 6 days a week. C was not immune and need to bear extra costs. (Court held that there is no implied term because the contract didn't have a gap which had to be filled in order to make the contract work. C made a mistake of the completion date.) Terms implied by statute – TPA- consumer services contracts Implied Terms At Common Law TPA Pt V Div 2 - implies a term with respect to the quality and suitability of services (s 4(1))where the services are provided to a consumer. 18 - is designed to provide some protection to consumers by implying into consumer contracts for the provision of services certain warranties (s 74) which can only be exempted in limited circumstances ss 68 and 68A. When does the Trade Practices Act Apply? Step 1: Is the service provider subject to TPA? P300  Service provider must be a corporation defined under TPA s 4 (trading, financial or foreign corporation) Ltd for public company or Pty Ltd for proprietary company  Service provider is operating in a territory of Aus  Contract involved interstate trade  Contract involved rade or commerce between Aus and another country  Contract involved the Commonwealth or one of its instrumentalities as part of carrying on a business Partnerships and sole traders generally are not caught by the TPA. Step 2: Does the acquirer of the service satisfy the definition of ―consumer‖ in TPA? P302, Figure 7.3 TPA Pt V is designed to protect consumers , TPA s 4B, definition of consumer.  The price of the service did not exceed $40,000. OR  The price of the service exceeds $40,000, and the service was of a kind ordinarily acquired for personal, domestic or household use or consumption. Step 3: Was the service supplied in the course of business? P302  The implied terms will only apply where the services are supplied ―in the course of a business‖. not private contract. What is the meaning of services? 4(1) Services includes any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade of commerce, and without limiting the generaility of the foregoing, includes the rights, benefits, privileges or facilities that are, or are to be, provided, granted or conferred under (a) a contract for or in relation to: (i) the performance of work (ii) the provision of or of the use or enjoyment of facilities for amusement, entertainment, recreation or instruction or (iii) the conferring of rights, benefits, or priveleges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction, (b) a contract of insurance (c) a contract between the banker and a customer of the banker entered into in the course of the carrying on by the banker of the business of banking or (d) any contract for or in relation to the lending of moneys but does no include rights or benefits being the supply of goods or the performance of work under a contract of service Is the contract one for the supply of services or goods?  Contracts usually require both the provision of services and the provision of goods  Goods provided as incidental to the provision of services, the contract will be regarded as a contract for the provision of services and not as a contract for the sale of goods.  Eg: Hiring a plumber to fix a leaking tap is part of contract of service E v Australian Red Cross society (1992) ATPR 41156 (Federal Court) Pg 368: ( A patient was supplied blood from receiving a treatment at a hospital and the patient developed AIDS. The blood was supplied by Red Cross. The patient sue the hospital for breach of contract (implied term of fitness for purpose) and negligence for Red Cross)( The court held that the contract was not a contract fotr the sale of a good buy a contract for the provision of services, Implied warranties under TPA P304  There is an implied warranty that any services provided to a consumer will be rendered with due care and skill and that any goods supplied with the service must be fit for the purpose for which they are required S74(1) 19  Where the buyer makes known to the service provider the purpose for which the serivce is required, the service must be reasonably fit for that purpose s74(2) S 74 (1), any services provided to a consumer will be rendered with due care and skill and that any goods supplied with the service must be fit for the purpose for which they are required S 74 (2), where the buyer makes known to the service provider the purpose for which the service is required, the service must be reasonably fit for that purpose. There is an implied warranty that ther services supplied under the contract for the supply of the services and any materials supplied in connexion with those services will be reasonably fit for that purpose or are of such a nature or quality that they might reasonably be expected to achieve that results, except where the circumstances show that the consure does not rely, or that it is unreasonable for him or her to rely, on the corporation‘s skill or judgement. S 74 (3), certain services are not included under TPA s 74. (a) transport contracts and storage services provided in the course of the buyer‘s business (b) service provided under an insurance contract. Read v Nerey Nominees Pty Ltd (1979) VR 47 (Surpreme Court of Victoria p 305 Facts: Read twice took his BMW car to Nerey Nominees Pty Ltd to have the transmission fixed. The BMW contained a switch which prevented the car from starting when the automatic transmission was engaged. That is, the car could only be started when it was in neutral. Nerey told Read that the switch was missing and that, until a new switch became available, Read would have to be careful when starting the car. In fact, the switch was not working because Nerey had wired it incorrectly. On one occasion, Read started the car and forgot to check the car was in neutral. The car shot forward and damaged Read’s garage. Read sued for breach of contract. Ratio: the TPA s 74 implied a warranty of reasonable care and skill into the contract. A similar warranty is also implied by the common law. Implied terms is breached even if the service provider has warned about the defect as it don’t necessarily mean that service provider’s breach has not caused the loss. Exemption clause for implied warranty is void under TPA s 68. Limitation clause  Applied under TPA s 68A (1), where the service is NOT normally acquired for personal, domestic and household use. (a) Supplying the services again, (b) paying to have the services supplied again.  Not applied under TPA s 68 A (2), if the consumer can establish that it would not be fair or reasonable in the circumstances for the seller to rely on the clause.  Fair and reasonable circumstances are set out in TPA s 68A (3). (a) the strength of the bargaining positions, (b) the buyer received an inducement, (c) whether the buyer knew or ought reasonably have know of the existence and extent of the term, (d) the goods were manufactured to the special order of the buyer.  Providers of recreational services may limit their liability under TPA s 68B. eg, skiing. And providers must give reasonable notice of clause to the consumer of the service. (P 309) Remedy is only damages because the implied terms are warranties. Contract – sale of goods  Protect consumers buy goods from commercial sellers by impliying into consumer contracts for the supply of goods certain conditions which cannot be excluded, under TPA Pt V Div 2  Goods defined in TPA s 4, include lease and hire as well. Consumer contract---TPA When does TPA apply? P322 Figure 8.1 20 Step 1: is the seller subject to the TPA?  Seller must be a corporation defined in s 4.  If the seller is not corporation defined in s 4 TPA, Victoria Good Act applied, as a non consumer contract. Step 2: was the buyer a consumer within the meaning of s 4B of TPA?  Price of good ≤ $40,000 (i) And, not for resale (ii) And, not be used up or transformed in the course of: a process of commercial production or manufacture, or commercial repair or treatment of goods or fixtures on lands  Price of good ≥$40,000 (i) And, acquired for personal, domestic or household use, or Commercial road vehicle (ii) And, not for resale (iii) And, not be used up or transformed in the course of: a process of commercial production or manufacture, or commercial repair or treatment of goods or fixtures on lands  If buyer is not a consumer defined in s 4B TPA, VGA applied, as a non consumer contract. Atkinson v Hastings Deering (Queensland) Pty Ltd P 288, pg353 (A purchased a secondhand tractor from H, ≥$40,000, tractor defects and A sue P under TPA and the Sale of Good Act. (Court held that the contract b/t them was not a consumer contract, because the buyer was not a consumer defined in TPA s4B. Therefore, TPA didn't apply) Step 3: was the sale in the course of business?  Private contract isn‘t applied by TPA. (buyer is not working under the same course of business/ industry)  TPA applies when the seller sold the goods in course of business but not the buyer. Step 4: was the sale at auction?  TPA does not apply to sales by auction. What Terms Are Implied By The Trade Practices Act? TPA Pt V Div 2 contains:  An implied condition tht the seller has a right to sell s69 (1)(a)  An implied warranty that the buyer shall have and enjoy quiet possession of the goods: s69(1)(b)  An implied warranty that the goods are free from encumbrance not disclosed before the contract was made: s 69(1)©. This means the goods are not mortgaged or charged in any way Implied conditions concerning the identity and quality of the goods:  Where the goods were sold by description, an implied condition that the goods match the description: s70  An implied condition that the goods are of merchantable quality: s71 (1)  Where the buyer expressly or implicitly made known to the seller the purpose for which the goods were being purchased in such circumstances that the seller knew, or ought to have known, that the buyer was relying on his or her skill or judgement, an implied condition that the goods are fit for the said purpose: s71(2)  Where the goods were sold by sample, an implied condition that the goods match the sample: s72 Correspondence with the description (check 70(1) and 70(2) p327 If a consumer alleging a breach of contract on the basis that the goods do not correspond with the description by which they were sold would have to prove that:  The contract was for the supply of goods  The contract was not an auction contract  The supplier was a corporation or other person to whom the TPA applied  The supplier supplied the goods in the course of a business  The buyer was a consumer within the meaning of s4B  The goods were sold by description  The goods do not match that description 21 Merchantable Quality : Look at 71(1) pg 328  Defined in s66(2) : Whether goods are of merchantable quality depends on whether they are as fit for their normal purpose or purposes as is reasonable to expect having regard to any description applied to them, the price and all other relevant circumstances. When Consumer alleging a breach of contract on the basis that the goods are NOT of merchantable quality would have the following:  The contract was for the supply of goods  The contract was not an auction contract  The supplier was a corporation or other person to whom the TPA applied  The supplier supplied the goods in the course of a business  The buyer was a consumer within the meaning of s4B  The goods were not as fit for their normal purpose or purposes as is reasonable to expect having regard to the price and other circumstances  The consumer was not aware of the defect prior to sale  Any inspection made by the consumer prior to sale woul not have revealed the defect Fitness for a particular purpose (P 328 71 (2) )  Defined: If the buyer makes known the purpose for which goods are required and the buyer relies on the seller‘s skill in choosing the appropriate goods then the goods must be reasonably fit for that purpose. When consumer alleging a breach of contract on the basis that the goods are not fit for the purpose for which they were acquired would have to prove:  The contract was for the supply of goods  The contract was not an auction contract  The supplier was a corporation or other person to whom the TPA applied  The supplier supplied the goods in the course of a business  The buyer was a consumer within the meaning of s4B  The consumer expressly or impliedly made known to the seller the purpose for which the goods were required  The consumer relied on the seller‘s skill and judgement  It was reasonable for the consumer to rely on the seller‘s skill and judgement  The goods are not reasonably fit for the specific purpose Carpet Call Pty Ltd v Chan (1987) ATPR (Digest) 46025 (p.357) Facts: Chan sought a number of quotes for the supply of carpet for his nightclub. Eventually, Carpet Call’s quote for $68,839 was accepted. During negotiations, Chan explained to Carpet Call that he wanted a carpet of good quality, grey in colour, capable of withstanding heavy human traffic and generally suitable or a big nightclub catering for young upmarket patrons. The carpet supplied was rated as heavy duty domestic. Chan refused to pay the full amount of the purchase price aftercertain areas of the carpet became unsightly as a result of cigarette burns, stains and extraordinary customer abuse. Chan would have been better to buy a patterned carpet as the strains and burns would not have been so obvious. Carpet Call had failed to advise Chan of this. Carpet Call used for the unpaid purchase price while Chan argue Carpet Call was in breach of contract (TPA s 71(2)) Ratio: According to TPA, implied team will breach if the contract is a consumer contract within the meaning of the TPA s 4B and service provider had breached the implied term of fitness for purpose especially when the consumer relies on the service provider’s skill. (2(b) implied term slide 18) Carpet call succeeded in its claim for the full purchase price) Correspondence with sample (P 330  Define: When there is an express or implied term in the contract that goods are sold by reference to a sample, the goods must correspond with the sample and must be free of defect that would render the goods unmerchantable. 22 A consumer alleging a breach of contract on the basis that the goods do not correspond with the sample by which they were sold would have to prove the following:  The contract was for the supply of goods  The contract was not an auction contract  The supplier was a corporation or other person to whom the TPA applied  The supplier supplied the goods in the course of a business  The buyer was a consumer within the meaning of s4B  There was an express or implied term in the contract to the effect that the goods were supplied by reference to a sample  The goods do not match that sample, or the goods have a defect that makes them unmerchantable, or the buyer was not given a reasonable opportunity to compare the goods with the sample Other Implied Terms by TPA & VGA Ownership of the goods:  S 69(1) (a), s 17, an implied condition that the seller has a right to sell.  S 69(1) (b), s 17, an implied warranty that the buyer shall have and enjoy quiet possession of goods.  S 69(1) (c), s 17, an implied warranty that the goods are free from encumbrance not disclosed before the contract was made. Eg, the goods are not mortgaged or charged in any way. Quality of the goods:  S 70, s 18, where the goods were sold by description, an implied condition that the goods match the description. Varley v Whipp (1900) 1 QB 513 p291 (Buyer bought a reaper without inspection, described as a new reaper but in fact old when delivered) (Court held that buyer had a right to refuse the accept the goods as there had been a breach of the implied condition of correspondence with description) Beale v Taylor (1967) 1 WLR 1193 p291 (Buyer purchased a car with inspection, was described as a good car but in fact was un-roadworthy) (Court held that although with inspection, it was still a sale by description. As the car didn't match that description, contract was breached) Re Moore and Co Ltd v Landauer and Co (1921) 2 KB 519 p292 (Packing for tins was wrong. Contract contained 30 tins, but actually 24 tins. Buyer refused to accept delivery of any of the consignment) (Court held that the requirement that the goods be packed 30 tins to the case was part of the description by which the goods were sold. Therefore, breach of implied condition) The buyer must rely on the description Harlingdon and Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd (1990) 1 All Er 737 p292 (purchase painting, seller described that he knew nothing about the painting which the purchaser want. Purchaser still bought the painting and the painting turned out to be forgery) (Court held that the sale was not sold by description, because buyer didn't rely on any description.)  S 71 (1), s 19 (b), an implied condition that the goods are of merchantable quality - MQ is defined in s 66(2), the goods are ―as fit for their normal purpose as is reasonable to expect have regard to any descriptions applied to them, price and other circumstances.  VGA S 19 (b) applied when the goods sold by description, and the supplier dealt in goods of that description. But not sufficient in TPA s 71 (1).  Not apply to the following circumstances: S 71 (1) (a), s 19 (b), the consumer was not aware of the defect prior to sale S 71 (1) (b), s 19 (b), any inspection made by the consumer prior to sale would not have revealed he defect. (Means if examined goods prior to sale, defects examination ought to reveal) B S Brown & Son Ltd v Craiks Ltd (1970) 1 WLR 752 p285 (the seller sells woven cloth – for dress making or industrial purpose. The buyer bought from the seller without telling which one he wanted. After the goods delivered, the buyer found that the goods complied with the contract description, but not suitable for dress making.) (Court held that the seller didn't breach the implied condition – MQ, because the goods delivered was suitable for industrial purpose and the given contract price, the seller couldn't know the buyer want the cloth suit for dress making purpose.) 23 H Beecham & Co Pty Ltd v Francis Howard & Co Pty Ltd (1921) VLR 428, p285 ( Buyer want to buy some spruce timber for making pianos. The seller was a timber merchant. The parties agreed that the buyer would select the wood from the seller‘s yard but wood contained latent defect which is not suitable for making pianos buy boxes) (Court held that breach MQ due to the price given, although it was suitable for making box) Bartlett v Sidny Marcus Ltd (1965) 2 All ER 753 p286 ( B purchased a secondhand Jaguar motor car from S and found something wrong with the clutch nd the oil pressure during trial testing. S say he can fix it with 575 and if B ix it himself, it will cost him 550. B chose to buy and fix it himself. After purchasing and fixing it, it‘s found that he need to pay more by 45 from what he expected and sued S for breach of the implied conditions of MQ and fitness for purpose. (Court held that the second hand car was fit for its purpose if ―it is in a roadworthy condition, fit to be driven along the road in safety even though not as perfect as a new car‖. And such car was of MQ if it was in a usable condition, it didn't have to be in perfect condition. The buyer drove the car for 4 weeks without trouble. So the car was MQ and fitness for purpose.) Grant v Australian Knitting Mills (1933) 50 CLR 387 (High Court) P287(Dr G bought woolen underwear manufactured by AKM and he contracted dermatitis the day after first wearing the underwear and the illness was quite serious which costs him a year.)(Court held that the goods sold by description, so was not of MQ. Seller breached the implied condition. Although the buyer didn't wash it prior to use, it was not a normal procedure.)  S 71 (2), s 19 (a), where the buyer has expressly or implicitly made known to the seller the particular purpose for which the goods were being purchased in such circumstances that the seller knew, or ought to have known, that the buyer was reasonably relying on his or her skill or judgment (must make known for special purpose for which the goods are required to the seller), and implied condition that the goods are fit for the said purpose. and, VGA s 19 (a) applies when the seller was in the business of supplying goods of that type. not applied to the following circumstances: - no reliance on seller‘s skill or judgment - unreasonable to rely Fitness for a particular purpose David Jones Ltd v Willis (1934) 52 CLR 110 p288 (defective shoes bought by buyer caused damages) (Court held that the shoes were not of MQ and not fit for purpose specified by buyer) Buyer must rely on the seller‟s skill and judgement Griffiths v Peter Conway Ltd (1939) 1 All ER 685 P289 (buyer bought coat from tailor. The cloth used by tailor would have not affected a normal person. Buyer had abnormally sensitive skin, but didn't tell the tailor.) (Court held that the particular purpose was that the coat be suitable for a person with abnormally sensitive skin. Such purpose had not been made known to seller, so the seller didn't breach the implied condition) Buyer‟s purpose may be a matter of inderence Godley v Perry (1960) 1 All ER 36, p289 (6 year old boy purchased a toy catapult and it broke and lost his eye.) (Court held that te catapult was not of merchantable quality. and was not fit for the purpose for which it had been purchased. As the goods were being bought for normal purpose, the buyer was entitled to rely upon the seller‘s skill and judgment in the selection of his stock.) The buyer‟s reliance must be reasonable Teheran-Europe Co Pty Ltd v S T Belton (Tractors) Ltd (1968) 2 All ER 886 P290 ( B supplied 12 mobile air compressors to Richard Marketing as agent for TE. TE aargued that because of these circumstances there was an implied condition that the tractors be suitable for reslate in Iran but it didn‘t satisfy the Iranian import requirements.) (Court held that the implied condition of fitness for purpose only applies where it can be said that the buyer has made the particular purpose known to the seller in such a way that the seller knows that he or she is being relied upon. The buyer‘s reliance must be reasonable. The seller ought not to known the import requirement of Iran. So not liable)  S 72, s 20, where the goods were sold by sample, an implied condition that the goods match the samples.  There must be a term in contract expressly or implied to the effect of goods are supplied by reference to a sample. Exclusion clause  Void under TPA s 68. seller is liable.  Seller is excluded from (or not liable for) breach under VGA s 61. not liable. 24 Limitation clause  TPA s 68A (1), if the goods are acquired not for P.H.D use, seller is permitted to limit its liability to:  a)Replacement, b)Repair, c)Paying for the cost of replacement, d)Paying for the cost of repairing. Seller‘s liability is limited.  If the goods are acquired for P.H.D use, Limitation clause is void under TPA ss68, 68A. seller is liable.  Seller may limit its liability in non consumer contract under VGA s 61. seller‘s liability is limited. Remedies  If the exclusion/limitation clauses are void, seller is liable for breach of condition of consumer contract, - TPA s 75A, rescission.(Buyer can return the goods and get refund) - TPA s 82, sue for damages under rule in Hadley v Baxendale.(refer to Remedies)  If the limitation clause permitted under TPA s 68A, seller is liable for breach of condition of consumer contract, - With no rescission - Damages limited to repair or replacement if there is a properly incorporated limitation clause.  If the limitation clause stated in non consumer contract under VGA s 61, seller is liable for breach of condition of contract -with no discharge, (can‘t return the goods once the goods have been accepted under VGA s 16 (3), only can sue for damages). Under VGA s 41, acceptance occurred when the acceptance indicated by the buyer, or the goods are sold to TP by the buyer. - Damages limited as stated in relevant limitation clause. Remedies for breach of implied terms  Damages : Buyer entitled to damages for breach of contract whenever the implied terms are breached. Damages are calculated according to the normal rules of contract law.  Returning of goods: Consumer are entitled to return the goods where there has been a breack of the implied consitions: s 75 (A) P 331. The goods must be returned within a reasonable time after the buyer has had a reasonable opportunity to inspect them: s75A(2). 25 Chapter 8: Ending a Contract through Discharge and Seeking Remedies Terminating the Contract Contract may be  Discharged by actual performance  Discharged by agreement  Terminated by virtue of a term of the contract (condition precedent or condition subsequent)  Terminated by operation of law- such as bankruptcy  Discharged by frustration  Terminated for breach of contract  Breach of condition  Serious breach of an intermediate term  Repudiation  Anticipatory breach 1)  When parties wholly or substantially perform their obligations under the contract. Hoening v Isaacs  Partial performance: General rule is that part performance of an entire contract or of a severable obligation in a divisible contract confers no rights on the part performer.  Substantial performance: The part performance rule would work injustice in some circumstances, so the courts have adopted the view that substantial performance may entitle the performer to payment, Cutter v Powell (1795)  It seems the doctrine will only be applied when: —The ‗guilty‘ party has n
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