Week 9 - Contract Law

Question 1

What does it mean by terms of a contract?

Answer 1

The specific details of the agreement, like each party’s rights and obligations

Question 2

What are the two types of contractual terms?

Answer 2

• Express terms
• Implied terms, which include
• terms implied by the court (not covered in BSB111)
• any relevant statutory terms

Question 3

What are express terms? (A type of contractual terms)

Answer 3

The terms explicitly agreed upon by parties They can be written or verbal. If terms are not followed, it’s said to be breached.

Question 4

How do you determine the terms of a contract?

Answer 4

If the parties reduce their contract into writing, and the contract is signed, then the terms are what is in the written contract - they are binding even if one of the parties has not actually read the written contract (L’Estrange v Graucob).

Question 5

What are the 4 circumstances where a person who signs a contract is not bound by it?

Answer 5

• Mistake
• Duress
• Undue Influence
• Unconscionability

Question 6

Are all verbal statements made considered terms of the contract?

Answer 6

No, the courts make the following distinction:

• Representation vs term
• Sales puffs

Question 7

What are representations? (in contrast to terms)

Answer 7

Statements of fact made by one party before at the time of making a contract to induce an offeree to enter the contract.

They’re not considered terms, so if you breach it, no action can be taken for breach of contract but an action may lie in misrepresentation or under the ACL or a breach of a collateral contract.

Question 8

What are sales puffs?

Answer 8

When suppliers or retailers make claims when selling their products that aren’t meant to be taken seriously by buyers. e.g. “cheapest prices in town” or “the best car money can buy”. These claims are called puffery and aren’t actionable under contract law.

Question 9

How do courts test if a statement is a term or a representation?

Answer 9

They question what a reasonable person, aware of the circumstances, would believe to be the parties intention having regard to (Dick Bentley Productions Ltd v Harold Smith Motors Ltd):

• time lapse between statement and final agreement (the longer it is, the more likely it won’t be treated as a term) and
• the importance attached to the statement and
• whether the parties had special skill or knowledge (then that’s more likely a term)

Question 10

What is the case Dick Bentley Productions v Harold Smith Motors Ltd about? (Pertains to express terms)

Answer 10

They were negotiating for DB to buy HS’s car, and HS said that the vehicle had only been driven 20,000 miles. This was actually untrue but HS didn’t know that. When DB discovered that 100,000 miles had been driven, he sued for breach of contract.

HELD - the statement about the distance traveled by the car had become a term of the contract. Given that HS had special knowledge and skill and DB relied on the statement, a reasonable person would find that the parties intended the statement to be a binding contractual term.

Question 11

What is the parol evidence rule?

Answer 11

When a contract is in writing, and so it’s assumed that all the terms are written, and there are no verbal terms.

So if there is an inconsistency between a written term of an apparently complete contract and a verbal representation or promise, the court will favour the written term and disregard the verbal representation or promise.

The parol evidence rule only applies if the written contract appears to be a complete record of the agreement. It can be argued that the contract consisted of both written and verbal (Van den Esschert v Chappell)

Question 12

What is the case of Van den Esschert v Chappell about? (Parol evidence rule)

Answer 12

Before signing written contract, buyer asked seller if the house was free of any infestation of white ants. Seller assured buyer that it was, which turned out to be untrue.

HELD - PER did not apply, so the statement was a term of the contract. The contract being the written contract plus the verbal assurance.

Question 13

What are the options available if someone breaches representation?

Answer 13

• Breach of a collateral contract
• Misrepresentation
• Contravention of the Australian Consumer Law

Question 14

What is a collateral contract?

Answer 14

A secondary contract, the consideration for which is the entry into the main contract. If the representation turns out to be untrue, the other party can sue for breach of collateral contract. (De Lasalle v Guildford)

Since it is the collateral contract that is breached, not the main contract, the other party cannot terminate the main contract. The other party can obtain damages for breach of collateral contract.

Question 15

What is the case De Lasalle v Guildford about?

Answer 15

DL is going to lease a house from G and before signing the lease, DL asked if drains were working and G said yes. DL signed the contract, which didn’t mention drains and later found out that they were blocked.

HELD - court decided that although (due to PER) G’s verbal assurance was not a term of the lease, the assurance did amount to a collateral contract: in return for G’s promise about the drains, DL entered into the lease. G breached the collateral contract and DL was entitled to compensation.

Question 16

What is a disclaimer?

Answer 16

Common terms in a contract. It’s a statement that a party will not be in breach despite failing to perform one of more of their contractual obligations.

e,g. no liability for loss or injury

also known as exclusion clauses, exemption clauses or limitation of liability clauses

Question 17

A disclaimer will effectively protect the party from liability for breach of contract if:

Answer 17

1. The disclaimer is incorporated into the contract
2. The disclaimer is interpreted as wide enough to cover the breach
3. The nature and extent of the disclaimer is not misrepresented to the innocent party
4. The disclaimer doesn’t exclude certain statutes

Question 18

Is the disclaimer part of the contract?

Answer 18

Yes, if:
* it is set out in a WRITTEN CONTRACT that has been signed by the party

• it is brought to the attention of the other party by REASONABLE NOTICE given before the contract was formed, or
• it is implied into the contract as a result of PRIOR DEALINGS between the parties

Question 19

What is reasonable notice? (in reference to disclaimers)

Answer 19

If the disclaimer is not contained in a written and signed contract then it will only be part of the contract if:

(i) a reasonable person would have regarded the document as one that would contain contractual terms (Causer v Browne) and
(ii) reasonable steps have been taken to give sufficient notice of the term before the contract was concluded (Thornton v Shoe Lane Parking Ltd).

Question 20

What is the case Causer v Browne about? (pertains to reasonable notice)

Answer 20

Dry cleaner relied on their dockets that had a disclaimer saying they aren’t responsible for any loss or injury to any articles. Customer did not read or see the statement.

HELD - that it was not reasonable to expect the customer to have thought the docket was anything more than something he needed to produce to collect the dress, it wasn’t contractual in nature. Dry cleaner didn’t give the customer any indication that the docket contained such a term, therefore cannot rely on the disclaimer

Question 21

What is the case Thornton v Shoe Lane Parking Ltd about?

Answer 21

Thornton parked his car at a new automatic cark park owned by SL. At the automatic ticket machine, T paid money and received a ticket in return. The ticket stated in small print ‘subject to conditions…displayed on the premises’.

HELD - SL cannot rely on the disclaimer because SL had not done what was reasonably sufficient to bring it to his notice. The contract was formed when T paid at the ticket machine.

If the T had used the car park before then it might have been possible for SL to argue that the disclaimer is part of the contract through incorporation by prior dealings.

Question 22

Can disclaimers be incorporated into the contract by prior dealings?

Answer 22

Yes (Balmain New Ferry Co Ltd v Robertson). The case is about how R missed his ferry. There was a sign stating that you have to pay one penny to enter and leave the wharf, whether the passenger has travelled by the ferry or not. R refused to pay.

HELD - while the sign was not reasonable notice because it could not be seen by a passenger before the contract was formed. But because R had caught the ferry many times before, he was deemed aware of the terms on the sign - incorporation by prior dealings.

Question 23

What is the four corners rule?

Answer 23

If it is not clear whether the disclaimer protects the business in all circumstances or only if the conduct falls within the ambit (four corners) of the contract, then the court will prefer the narrower interpretation.

Question 24

What is misrepresentation? (in reference to disclaimers)

Answer 24

When the disclaimer cannot be relied on because it has been misrepresented (Curtis v Chemical Cleaning & Dyeing Co). This case is about a shop assistant asking a customer to sign a document headed ‘receipt’ and said that the document exempted CCD from liability for damage of beads and sequins. In fact, the disclaimer exempted CCD from liability for ‘any damage howsoever arising’.

HELD - that because the assistant misrepresented the effect of the disclaimer, CCD was unable to rely on it.

Question 25

What does s64 of the Australian Consumer Law state?

Answer 25

Exclusion clauses cannot be used to exclude the operation of ACL consumer guarantees.

Question 26

What a condition?

Answer 26

A condition is a term of the contract of fundamental importance. In the absence of such a term, the party favoured by the term would not have entered into the contract in the first place. Breach of a condition gives the other party the right to:

• Confirm the contract and recover damages or
• Terminate the contract and recover damages

Question 27

What is a warranty?

Answer 27

A warranty is a term of lesser importance. In the absence of such a term, the party favoured by the term would have entered into the contract anyway (Bettini v Gye).

If a warranty is breached, the injured party must still perform the contract but have the right to sue for damages for loss suffered because of the breach. The only remedy is damages for breach (the contract remains valid) (Bettini v Gye).

Question 28

What are damages?

Answer 28

A remedy. The other party will be entitled to damages in the event of:
any breach of contract, whether total or partial, actual or anticipatory, condition or warranty,
breach of a collateral contract, or
misrepresentation.

The objective of the court in making an award of damages is to restore the other party to the position they would have been in if the breach or misrepresentation had not occurred, that is, if the contract has been performed properly.

Question 29

What are the other alternative equitable remedies other than damages?

Answer 29

• Specific performance - a court order directing the party in breach to fulfil their contractual obligations
• An injunction - a court order forbidding someone from engaging in particular conduct that will be a breach of the law or infringe the legal rights of another