Construction Notes

Terms and Contract In determine the meaning and effect of clauses in a contract, the courts take an objective approach in finding the 'intention' of the parties. Intention can be: Express Term Whether a pre-contractual statement is promissory in nature, the court will have reference to: * Intention of the party * The courts try to ascertain the objective intention of the parties, and ask whether a reasonable person would interpret the statement as being promissory in nature: Oscar Chess v Williams Time of the statement * * The proximity between when the statement was made and entry into the contract may help to determine intention: Harling v Eddy * Content of the statement * The more important the content of the statement, the more likely it is intended to be a term: Couchman v Hill * Knowledge and expertise of the parties * Where a party has expertise, they should be able to distinguish between mere statement of opinion and statements of fact accompanied by guarantee from its maker, then that is a prima facie ground for inferring the statement is intended to be a warranty: Dick Bentley Productions Ltd v Harold Smith Ltd * However, where a party has no expertise in the matter, the statement might amount to an innocent representation, which does not constitute a guarantee: Oscar Chess v Williams Whether a statement is a collateral contract? * Consideration for the collateral contract is the entry into the main contract. * Cannot have consideration as entry into the main contract if the main contract was agreed to prior to the collateral contract. In such a case, consideration would be past consideration. * A collateral contract cannot be inconsistent with the main contract, as it would undermine the main contract: Hoyt's Pty Ltd v Spencer * The onus for establishing a collateral contract is a heavy one. The case will be easier to make out where the subject matter deals with something quite different to the main contract: Shepperd v Ryde Municipal Council. * However, where there is a statement of opinion, it may be hard to prove the existence of a collateral contract, both the actual reliance on the part of the promisee and the intention to guarantee the truth of the statement on the part of the promisor must be proved: JJ Savage & Sons Pty Ltd v Blakney Incorporation of Terms Contract once signed, it is bound, irregardless of knowledge: L'Estrange v Graucob * However, when there is a misrepresentation about the content of the signed document, the signature may not be bound even if the misrepresentation is innocently made: Curtis v Chemical Cleaning & Dyeing Co Ticket case, sufficient notice has to be given: Parker v South Eastern Railway * Reasonable steps must be taken to bring the attention of the other party: Causer v Browne * Notice should be given before the acceptance: Thornton v Shoe Lane Parking Ltd * The more onerous the conditions, the more sufficient notice should be given: Interphoto Picture Library Ltd v Stilletto Visual Programmes Ltd Previous course of dealing may verify a term, the party alleged the existence of the term need not show that the other party had actual knowledge of the terms, however, they are still required to prove that sufficient efforts have be made to bring the relevant terms to the attention of the other party: DJ Hill & Co Pty Ltd v Walter H Wright Pty Ltd * The notice must have been sufficiently given (previous dealing times, how they was given) and without the other party's objection or comments: Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association Ltd Incorporation by reference: Terms may also be included by referring to a secondary document. Implied Term Terms implied in fact * Terms implied in fact will be construed strictly, which requires "reasonable and equitable", "necessary to give effect to business efficacy", "so obvious that it goes without saying", "clear expression" and finally, "not to contradict any express term of the contract". The test is set in BP Refinery Pty Ltd v Hasting Shire Council; and applied in Codelfa Constructions Pty Ltd v State Rail Authority of NSW * In terms of an informal contract, for example, employment contract, only a term that is necessary for the reasonable or effective operation of a contract will be imposed by courts: Byrne v Australian Airlines * The usually practice is, that the more detailed and comprehensive a contract is, the more difficult it will be imply a term into it: Codelfa Constructions Pty Ltd v State Rail Authority of NSW Terms implied in law * A term will only be implied by law if it is necessary for business efficacy: Liverpool City Council v Irwin * In terms of the range of parties, the courts are more willing to impose implied term when the affected range of party is a relatively small one: Reid v Rush Tompkins cf. Scally v Southern Health Board Terms implied in custom/trade usage: Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur (Australia) Ltd * The existence of a custom or usage that will justify the implication of a term into a contract is a question of facts. * There must be evidence that the custom relied on is so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract. * A term will not be implied into a contract on the basis of custom where it is contrary to the express term of the agreement.. * A person may be bound by a custom notwithstanding the fact that he had no knowledge of it. Parol Evidence Rule The general rule of is that where a contract is contained entirely in writing, extrinsic evidence cannot be used to determine the meaning or the legal effect of words which the parties have adopted as the basis of their contract: Codelfa Constructions Pty Ltd v State Rail Authority of NSW * However, there are two exceptions that extrinsic materials can be used in interpreting a contract: * When the language is ambiguous or susceptible of more than one meaning, examining the factual matrix is necessary in determining either the identification of the parties or the identification of the negotiation: Mason J in Codelfa Constructions Pty Ltd v State Rail Authority of NSW * When there is necessary for equity to intervene for rectification. The rule only applies where the contract is wholly in writing, and will not apply where the contract is part writing, part oral: Couchman v Hill Classification of Terms Condition Warranty Intermediate term Exclusion clauses Main rule: exclusion clauses must operate for the benefit of one party only --- usually imposed by the stronger party on the weaker, the application of exclusion clauses at common law depends on the intention of the parties: TNT Ltd v May & Baker Ltd. It is therefore a question of construction: Darlington Futures Ltd v Delco Australia Secondary rules: Contra proferentem rule: exclusion clauses were ordinarily construed strictly against the party relying on the clause: Wallis v Pratt , nevertheless the contemporary approach in Australia is where the meaning is clear, the courts will give the clause its natural and ordinary meaning; and contra proferentem rule will only be applied if there is ambiguity on the face of the document, i.e., the exclusion clauses: Darlington Futures v Delco Other approaches: * Fundamental breach: it is not possible for a party to exclude liability when there is a fundamental breach of the contract. However, this approach was never adopted in Australia as a rule of law: Photo Production Ltd v Securicor Transport Ltd * Four corners rule: who breaches the contract by stepping outside the "four corners" of the contract will generally lose the protection of the exclusion clause: Sydney City Council v West * Concept of deviation: whenever there is a departure of the way the goods should be taken, the exclusion cannot be relied on (bailment contract): Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd * An express exclusion of liability for negligence will exclude liability; and if there is no express exclusion for negligence, the clause may still be effective if the words are broad enough to cover negligence: Canada SS Lines Ltd v The King; Davis v Pearce Parking Station Doctrine of Privity The general rule is that only parties to a contract may enforce benefits or be subjected to the obligations arising from it: Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd Exceptions: * The main exception concerns insurance contracts: Triden General Insurance Co Ltd v McNiece Bros Pty Ltd, saying that a third party could be subject to the conditions of an insurance contract. Now the rule is enshrined in s 48 of the Insurance Contracts Act 1984 (Cth). * A third party can enforce a contract in their capacity as administrator of the interests of a party that has died: Beswick v Beswick * Jointly promisees can sue the promisor because the consideration moves from all of the joint promisees: Coulls v Bagot's Executor and Trustee Co Ltd As to the contracts that attempt to burden a third party, a third party cannot be sued for its nonperformance of an obligation owned in a non-contractual relationship; exceptions are real property and the chartering of ships. Some times third parties have succeeded in obtaining the benefit of an exclusion clause contained in a contract made between other parties, however the term must be clear and unambiguous: New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd ("The Eurymedon"); the test is set in: Scruttons Ltd v Midland Silicones Ltd General A term can be understood as any clause within the contract, whether written or oral. Terms of contract may be express or implied. Subject to statutory limitations, a contract may be wholly written, wholly oral or partly written and oral. Statements made prior to the contract may be incorporated as terms of the contract if they are sufficiently promissory in character. Implied terms may be made out on the basis of implied intention. Terms may also implied by law in particular class of contracts. Express Term: Pre-contractual Statement Terms and Mere Representation Express Terms: those pre-contractual statements which are sufficiently promissory in character. Mere Representations: induce the representee to enter into the contract, but which are not guaranteed by the promisor, and hence have no contractual force. General Principle: If a pre-contractual statement is a term, it is considered as an express term of the contract, which means that breach of the term gives rise to claim for damages. If the statement is merely a representation, the plaintiff may have recourse to misrepresentation under the Australian Consumer Law. In determine whether a pre-contractual statement is promissory in character, the courts will have reference to: * the intention of the party: Oscar Chess v Williams * the time of the statement : Harling v Eddy * the content of the statement: Couchman v Hill * the knowledge and expertise of the parties: Dick Bentley Productions Ltd v Harold Smith Ltd Importantly, contracts often include a clause which provides that the contract, as executed by the relevant parties to it, is their 'entire agreement'. Such a clause has the effect of making the document an exhaustive statement of the express terms which the parties are subject to under their agreement. The intention of the parties The court will try to ascertain the objective intention of the parties, and ask whether a reasonable person would interpret the statement as being promissory in nature: Oscar Chess v Williams * Where the necessary intention is not established, the statement takes effect as a representation. * If it was false the representee is entitled to rescind the contract for misrepresentation if it induced entry into the contract. The representee may also be entitled to damages in tort or under statute, but cannot claim damages for breach of contracts. * Where there are reasonable grounds to believe that the promisor believed that his statement was true, then this amounts to innocent representation and is not considered a term: Oscar Chess v Williams 1. The defendant sold his mother's car to a car dealer. 2. Evidenced by a registration book, the car was a 1948 model. 3. It was subsequently disclosed that the car was actually a 1939 model. 4. The car dealer sued the defendant for the difference of the payment. Oscar Chess v Williams [1957] The question whether a warranty was intended depends on the conduct of the parties, on their words and behavior, rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice. * Based on the facts, it must have been obvious to both that the seller had himself no personal knowledge of the year when the car was made. He must have been relying on the registration book. It is unlikely that such a person would warrant the year of manufacture. The most he would do would be to state his belief, and then produce the registration book in verification of it. In these circumstances the intelligent bystander would, I suggest, say that the seller did not intend to bind himself so as to warrant that it was a 1948 model. The timing of the statement The proximity between when the statement was made and entry into the contract may help to determine intention: Harling v Eddy The content of the contract If the statement is of great significance to the contract, this evidences a clear intention to be bound. 1. The plaintiff Couchman purchased at an auction sale a heifer belonging to the defendant which was described as "unserved". 2. The catalogue contained an exemption clause which exclude the liability of the sellers of any fault by stating that the lots were sold "with all faults, imperfections and errors of description". 3. At the sale, the plaintiff asked both the defendant and the auctioneer whether they could confirm the heifer in question was unserved and received from both the answer "yes". 4. Later the heifer was found to be in calf and died as a result of carrying a calf at to young an age. Couchman v Hill [1947] There is no doubt that the plaintiff did make some attempt of the kind in order to protect himself from the risk of buying an animal that was not of the kind described. The real question is, what did the parties understand by the question addressed to and the answer received from both vendor and auctioneer. Thus, the court's task is to try to ascertain the objective intention of the parties. The more important the content of the statement, the more likely it is that the parties intended it to be a term. * In the circumstances the answer of the defendant and the auctioneer to the plaintiff 's question amounted to an offer of an warranty overriding the conditions of sale; that such offer was accepted by the plaintiff 's bid for the heifer; and that the description amounted to a condition on the breach of which the plaintiff was entitled to treat it as a warranty and recover damages. 1. Dick Bentley purchased a second hand car from Harold Smith. 2. Before the transaction, the defendant wilfully cheated the plaintiff that the car had done only 20,000 miles since being fitted with a replacement engine and gearbox. 3. Later when Bentley found the truth he sought damages for breach of warranty. Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] If a representation is made in the course of dealing for a contract for the very purpose of inducing the other party to act on it, and it actually induces him to act on it by entering into the contract, that is prima facie ground for inferring that the representation was intended as a warranty. ... But the maker of the representation can rebut this inference if he can show that it really was an innocent misrepresentation, in that he was in fact innocent of fault in making it, and that it would not be reasonable in the circumstances for him to be bound by it. (this situation is Oscar Chess case) The knowledge and expertise of the parties Where a party has expertise, they should be able to distinguish between mere statement of opinion and statements of fact accompanied by guarantee from its maker: Dick Bentley Productions Ltd v Harold Smith Ltd However, where a party has no expertise in the matter, the statement might amount to an innocent representation, which does not constitute a guarantee: Oscar Chess v Williams Statement and collateral contract Statements made in pre-contractual negotiations, while promissory in nature, may not form the main part of the contract. However, such statements may form a collateral contract, separate to the main contract. * Bipartite contract: where the parties make a separate contract to enter into the main contract * Tripartite contract: where a third party who is not involved in the contract makes the statement which promise the contract. (e.g., A enters into contract with C, after statement made by B) General Rule * Consideration for the collateral contract is the entry into the main contract. * Cannot have consideration as entry into the main contract if the main contract was agreed prior to the collateral contract. In such a case, consideration would be past consideration. * A collateral contract cannot be inconsistent with the main contract, as it would undermine the main contract: Hoyt's Pty Ltd v Spencer * The onus for establishing a collateral contract is a heavy one. The case will be easier to make out where the subject matter deals with something quite different to the main contract: Shepperd v Ryde Municipal Council. * However, where there is a statement of opinion, it may be hard to prove the existence of a collateral contract: JJ Savage & Sons Pty Ltd v Blakney Main advantages to a collateral contract * Where the main contract is unenforceable, the collateral contract may still be enforceable, as it is separate to the main contract. * Collateral contracts can be used to avoid the parole evidence rule, because its existence does not require writing. * In tripartite collateral contracts, privity of contract can be avoided. Whether the promise made by the defendant was capable of being regarded as a collateral contract? 1. Spencer (defendant/respondent) was himself a lessee of a house and leased the house to the Hoyt's Pty Ltd (plaintiff/appellant) for a period of four years. 2. The lease provided that the defendant might at terminate the lease by giving to the plaintiff notice at least four weeks beforehand. 3. Spencer later give notice in pursuant to the lease agreement to terminate the contract. 4. The plaintiff brought an action against the defendant alleging that in consideration of its taking the lease, the defendant agreed that he would not terminate the lease unless requested and required to do so by the head lessor. 1. The plaintiff purchased a house from the defendant's corporation by relying on the information contained in the pamphlet and also the defendant's promise that the opposite area would be built into a park. 2. The contract itself made no reference to the park area. 3. One year later the defendant decided to sub-divide the area that was supposed to be the park. 4. The plaintiff sought an injunction. 1. The respondent contemplated to buy a motor boat from the appellant's company. 2. In the letter the appellant made recommendation in favour of one engine, of which the "estimated speed" was to be 15 miles per hour. 3. The respondent placed an order according to the recommendation. 4. In the contract, there was no reference to the capacity of the boat to attain any particular speed. 5. Evidence showed the boat supplied was not capable of moving faster than 12 miles per hour. 6. The respondent sued the appellant for breach of warranty. Elements of a collateral contract Three elements must be established in order to establish a collateral contract: JJ Savage & Sons Pty Ltd v Blakney 1 that the statement was intended to be relied upon 2 there was reliance by the party alleging the existence of the contract 3 an intention, on the part of the maker of the statement, to guarantee its truth Hoyt's Pty Ltd v Spencer (1919) The truth is that a collateral contract, which may be either antecedent or contemporaneous, being supplementary only to the main contract, cannot impinge on it, or alter its provisions or the rights created by it; consequently, where the main contract is relied on as the consideration in whole or part for the promise contained in the collateral contract, it is a wholly inconsistent and impossible contention that the other party is not to have the full benefit of the main contract as made....in that case, it is not collateral, but dominant... Shepperd v Ryde Municipal Council (1952) The reluctance of courts to hold that collateral warranties or promises are given or made in consideration of the making of a contract is traditional. But a chief reason for this is that too often the collateral warranty put forward is one that you would expect to find its place naturally in the principle contract. In this case, the rule is, the subject matter of the collateral contract was something separate to the main contract, and made it easier to establish the claim. * It is the common intention that he would so rely upon it and on that basis proceed to contract to buy the particular lot allocated to him. It is because of this that the assurance which is embodied in the plan, when it is read in the light of the pamphlet, obtains its effect as a collateral promise. JJ Savage & Sons Pty Ltd v Blakney (1970) In consideration of whether there is a collateral contract, except for the promisee's reliance on the promise, the intention of the promisor, i.e., the representation is intended to be promissory and not merely representational, is also important. Thus, where there is a statement of opinion, it may be hard to prove the existence of a collateral contract. * The expression that without the statement the contract would not have been made does not provide an alternative and independent ground on which a collateral warranty can be established. Such a fact is but a step in some circumstances towards the only conclusion which will support a collateral warranty, namely, that the statement so relied on was promissory and not merely representational. * So far from being a promissory expression, "estimated speed 15 miles per hour" indicates, in our opinion, an expression of opinion as the result of "approximate calculation based on probability". Incorporation of Terms * Contract once signed, it is bound, irregardless of knowledge: L'Estrange v Graucob * Ticket case, sufficient notice has to be given: Parker v South Eastern Railway * Previous course of dealing may verify a term: Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association Ltd

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