#7417 - Contracts 2 Introductory - Contract Law

Contracts 2

Note:

• Blue and red font is what the teacher said in class. The red font is what the teacher said was important.

Identifying the express terms of the contract:

What are terms?

• Promissory statements.

  • A promise is a statement to which the statement maker commits himself to. This can be related to a future deed but not always.

  • E.g. “I will pay you a hundred dollars if my horse wins on Friday”. If I ask if this is a promise and the person says “no” then it is only a present commitment. They must intend to bind themself and give a commitment.

  • This intention is judged objectively. Would a reasonable person believe that that person intended to commit themselves?

  • E.g. “This is a 2008 model car” you are told when you buy the car. This is a promise in the present (not the future). It is a statement of existing fact. Whether it is a promise depends on whether the seller commits to the statement and assures you of this fact.

• The statements that the parties are prepared to bind themselves to. They can be expressed or implied terms.

What are express terms?

• The parties actually made the promissory statement. A reasonable bystander must consider them promissory. They are binding.

• Implied terms are implicit in other things that have been said or in the context in which things have been said (chapter 15).

Where do you find the express terms of the contract?

• In a formal document signed by both parties. They are bound by the terms in the document.

  • Signatures make a contract binding, it is the L’Estrange v Graucob rule.

  • This rule will not apply where the document cannot be considered a contractual document.

  • It will also not apply where there is misrepresentation, duress, mistake, unconscionable dealing...etc.

  • In ‘clickwrap’ contracts, ticking a box will amount to a signature.

• A standard form contract or contract of adhesion where the document is prepared by one party and used by that party in similar transactions (e.g. mobile phone contracts).

  • These contracts give restricted consent to the consumer- they are take-it-or-leave-it contracts. The Trade Practices Act 1974 (Cth) is designed to protect them.

  • Consumers do not read the contract terms and this makes the market increase the number of unfair terms. Courts need to protect them from exploitation.

• In an informal document that is not signed by both parties. However the party exhibited conduct which proved that they were willing to be bound by the terms.

  • A party cannot seek to be exempted from a liability and simply receive the benefit of the agreement.

• Statements made during negotiations. Not all statements are included in the written contract.

  • If the statement was a warranty then there is a legal remedy.

  • If the statement was a mere representation, there is no remedy (in this case a remedy can be found in misleading or deceptive conduct or estoppel).

  • There is no express term if the contract has a clause saying that the written document contains the whole agreement.

• Oral statements made in negotiations that are intended to be binding or promissory.

  • If they use the word “promise”, “agree”, “warranty” or “guarantee” it is promissory.

  • It is not promissory if it is an opinion. For example, “I estimate”.

  • In Oscar Chess Ltd v Williams Williams offered his 1948 model car to a car dealer (the date was shown in the registration book) when it was really a 1939 model. Williams won because he could not have known the real date.

• Parties initially agree orally and then enter into a contract with different terms.

  • The written document is considered to represent all of the party’s terms.

• In a gesture or in a party’s conduct.

  • E.g. If you are buying a car and you say, “I will only be willing to buy this car if it is brand new” and the car dealer smiles and allows the transaction to be concluded, it becomes an express term.

• When A and B have had many previous dealings of a similar nature and have always used the same terms.

  • If on this occasion the terms are not repeated then the regular customers conduct in returning to make the same deal can be regarded as an acceptance of the usual express terms.

• When one party incorporates terms by notice.

  • Notice must be given. They must be made available before the contract is made.

  • Reasonable steps must be taken to bring the terms to the notice of the party that is to be bound. If the other party knows there are additional terms, they will be bound whether or not they read them.

  • If the terms to be incorporated are unusual, there must be special notice given to the party intended to be bound.

Only promissory statements are express terms (the party intends to give a commitment- you need to look at the things that are not a promise to find out if it is a promise).

When are terms not promissory?

• They may be mere puffs:

  • A mere puff is an extravagant statement that no one would take seriously

  • Carlill v Carbolic smoke ball said that it was a ‘puff promise’. The 1000 pounds deposit was designed to show that they were serious about the offer.

• Statement of opinion:

  • E.g. “This car is good as the royal family’s car.”

• Statement of law:

  • You may say the “law does not require this condition”. This might not be true. If it is inaccurate, under judge made law, there is no remedy available.

• Statement of present existing intention:

  • E.g. “I am confident that the breaks on this car are in good working order. I will replace them if they are not.”

  • Statements made during the course of negotiations will have no remedy under judge made law.

  • If it is a mere representation of future conduct, it doesn’t lead to a legal remedy.

• Statement of existing fact.

  • E.g. “This is a 1948 Morris car” when really it is a 1939 model. In Oscar Chess v Williams the date was fraudulently changed. At the time it has been made it can be objectively seen that the fact is wrong. It is an opinion but also a fact. The court thought it was not a promise but it was an actionable misrepresentation of fact. If the plaintiff had asked whether he could give an assurance, he would have said no because he only knew what was written in the registration book.

  • The judge made law has “actionable misrepresentation of fact” as a remedy in this case. It has to be a statement of existing fact, false at the time it was made and must have induced entry into a contract. Not assessed in assignment.

  • Whether they are negligible or dishonest or entirely innocently there is a prima facie right of rescission.

    • The limits are the parties seeking to rescind (withdraw):

      • Must have money/property.

      • It cannot affect innocent third parties.

      • The parties seeking to rescind must not have affirmed the contract after discovering the true facts

      • Rescission is an equitable remedy, is denied where a person does not come with clean hands.

      • A party who has delayed rescission may be denied it.

Our focus:

• For assignment we are only considering liability for breach of contract.

• You must look at statute and judge made lawn in the real world. But in this course we just look at whether the statement is promissory. Forget statutory remedies for the time being. With pre contractual statements in judge made law they give remedies for statements made during negotiations when they are promises or actionable misrepresentations of fact.

Cases

Page 346

JJ Savage and Sons Pty Ltd v Blakney (1970) - statements made during negotiations: Very different approach to Dick Bentley where Denning was wrong.

Facts:

• Blakney contemplated buying a boat from the Savage motor boat company.

• Blankney asked the manager of Savage how fast the boat went and the manager recommended a boat with an ‘estimated’ speed of 15 miles per hour.

• Blankney ordered the boat and signed a contract in which there was no reference to the boat having a particular speed.

• The speed of the boat was 12 m/h.

Remedy sought:

• Blakney sued for breach of warranty.

Prior proceedings:

• Blakney lost in trial.

• Blakney won in the Full Court of the Supreme Court.

• Savage appealed to the High Court.

Arguments of parties:

• Blakney argued that the contract was not entirely written but contained oral terms that were written down in another contract. In either case the term must be promissory- that is the issue.

• Savage said it was only an estimate, he used the word estimate.

Legal issue:

• Are statements made in negotiations before the drafting of a contract which contains different terms binding?

• Is the word “estimate” a promissory statement?

Outcome:

• Savage won. Appeal allowed.

Legal reasoning:

• Barwick CJ, Kitto, Menzies, Owen and Walsh JJ reasoned that there was no warranty made. For a warranty to be made, Blakney had to require the speed to be inserted as a condition into the contract or sought from the manager a promise. Instead he decided to trust the estimate and his own judgment as to the speed. It is not enough that the statement induced the contract. To decide if it is a promise, you need the reasonable bystander to judge if it was a promise- that the party intended to commit themselves to. The Full Court ignored the language.

• The statement about the speed of the boat was not a promise but a mere representation. The words were an expression of opinion only.

Ratio decidendi:

• Words such as “estimate” are not promissory statements.

• In negotiations prior to the drafting of a contract, a term is only promissory if the term is inserted as a condition into the contract or the other party gives a promise on the oral term.

Page 348

Oscar Chess v Williams (1957) – When is a statement promissory and when is it merely representational?...