LAWS1072 – CONTRACTS II · 2 Table of Contents What is a contract? ..... 9

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UNIVERSITY OF NEW SOUTH WALES

LAWS1072  –  CONTRACTS  II SEMESTER II 2012

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Table of Contents What is a contract? ......................................................................................................................... 9

What are the terms of a contract? ................................................................................................. 9

Consent to incorporation of terms in a contract .................................................................................. 10

Signature ........................................................................................................................................... 10

Exceptions to the Signature Rule .................................................................................................. 12

Incorporating terms by notice (ticket cases – conduct without signature) ...................................... 14

Timing ............................................................................................................................................ 14

Knowledge or Notice ..................................................................................................................... 16

Incorporation of express terms by a course of dealings ................................................................... 19

Statements made during negotiations ................................................................................................. 22

When is a statement a term of a contract? ...................................................................................... 22

Determining whether a statement is promissory and thus a term of contract ............................ 22

The Parol Evidence Rule .................................................................................................................... 25

The first leg of the rule in identifying the terms ........................................................................... 26

Exceptions to the parol evidence rule .......................................................................................... 28

Estoppel ........................................................................................................................................ 29

Terms implied in fact ............................................................................................................................ 31

Formal Contracts ............................................................................................................................... 31

Reasonable and equitable ............................................................................................................. 31

Implied  to  give  the  contract  ‘business  efficacy’ ............................................................................ 32

Obviousness .................................................................................................................................. 33

Capable of clear expression and certain in operation .................................................................. 34

Must not contradict any express term ......................................................................................... 34

Informal Contracts ............................................................................................................................ 34

Terms implied in law ............................................................................................................................. 34

Terms of a definable class ............................................................................................................. 34

The  test  of  ‘necessity’ ................................................................................................................... 34

Terms implied by custom ...................................................................................................................... 36

The Primary Rule – Objective Intention of the Parties ...................................................................... 37

Second Leg of the Parol Evidence Rule ............................................................................................. 38

What  constitutes  “ambiguity”? .................................................................................................... 39

Construing Exclusion Clauses ................................................................................................................ 41

What is an exclusion clause? ........................................................................................................ 41

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The General Principle – Common law versus Legislative Restrictions .............................................. 41

(3) Does the clause apply to the issue in dispute? ........................................................................ 42

Problem Scenarios on Consumer Guarantees ...................................................................................... 46

Question 1 – Felicity ...................................................................................................................... 46

Question 2 – Jefferson .................................................................................................................. 46

Question 3 – Elizabeth .................................................................................................................. 46

Question 4 – Jake .......................................................................................................................... 47

What is the doctrine of frustration? ................................................................................................. 54

What circumstances do not lead to a contract being frustrated? ................................................ 55

Potentially Frustrating Events ........................................................................................................... 56

Destruction of subject matter ....................................................................................................... 56

Disappearance of the basis of the contract .................................................................................. 56

State of affairs essential to performance ..................................................................................... 58

Death or incapacity of a party to the contract.............................................................................. 59

Limitations to Frustration ................................................................................................................. 60

Consequences of Frustration ............................................................................................................ 60

Statutory response to frustration – the Frustrated Contracts Act 1978 (NSW) ........................... 61

Termination by Agreement ................................................................................................................... 63

Termination under the original contract .......................................................................................... 63

Express Powers ............................................................................................................................. 63

Implied Rights to terminate a contract of otherwise indefinite duration .................................... 63

Termination on the occurrence of a certain event ....................................................................... 64

Termination by a subsequent agreement......................................................................................... 64

Where the original contract is partly unperformed by both sides ............................................... 64

Where A has fully performed, but B has not ................................................................................ 64

Express agreements ...................................................................................................................... 64

Termination by abandonment ...................................................................................................... 65

Termination by failure of a (contractual) contingency ......................................................................... 66

Conditions in different contexts ....................................................................................................... 66

The duty of co-operate ..................................................................................................................... 66

Failure of condition ........................................................................................................................... 67

Waiting for condition fulfilment versus a failed condition ........................................................... 67

What constitutes failure of condition? ......................................................................................... 67

Consequences of failure of a condition ........................................................................................ 68

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Waiver of the condition ................................................................................................................ 68

Restrictions on termination for failure of condition ......................................................................... 69

Termination for breach ......................................................................................................................... 70

Breach of condition ........................................................................................................................... 71

Other factors leading to classification as a condition ................................................................... 72

Breach of an intermediate (innominate) term ................................................................................. 73

Breach of warranty ........................................................................................................................... 75

Termination for repudiation (anticipatory) .......................................................................................... 76

Repudiation from an erroneous interpretation of the contract ................................................... 77

Conduct showing an inability of unwillingness to perform .......................................................... 78

Contract for sale of goods by instalments .................................................................................... 79

Inability in fact............................................................................................................................... 79

Termination for Delay – “time  of  the  essence” .................................................................................... 80

Classifying time stipulation ............................................................................................................... 80

Where time is of the essence........................................................................................................ 81

Where time is not of the essence ................................................................................................. 81

Serving a notice ................................................................................................................................. 81

Extending the time for performance – waiver  of  ‘of  the  essence’  condition ............................... 82

Election ................................................................................................................................................. 83

Affirmation ............................................................................................................................................ 84

REQUIREMENTS OF THE RIGHT TO AFFIRM .................................................................................. 84

CONSEQUENCES OF AFFIRMATION .............................................................................................. 86

Termination ........................................................................................................................................... 88

REQUIREMENTS OF THE RIGHT TO TERMINATE ........................................................................... 88

CONSEQUENCES OF TERMINATION .............................................................................................. 88

Restrictions on termination .............................................................................................................. 89

Election.......................................................................................................................................... 89

Readiness and willingness ............................................................................................................. 89

Estoppel ........................................................................................................................................ 90

Relief against forfeiture ................................................................................................................ 92

Claims under common law ................................................................................................................... 94

Damages ........................................................................................................................................ 94

Actions for Debt ............................................................................................................................ 94

Date of assessment ....................................................................................................................... 96

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Expectation Damages............................................................................................................................ 97

(a) Where the contract is not terminated .............................................................................. 97

(b) Where the contract is terminated .................................................................................... 97

Direct v Consequential Loss .......................................................................................................... 98

Loss of chance ............................................................................................................................... 99

Damages for breach of an obligation to build or repair ............................................................... 99

Damages for disappointment, distress or loss of reputation ..................................................... 100

Reliance Damages ............................................................................................................................... 101

Reliance loss within expectation damages ................................................................................. 101

Restrictions on reliance damages – loss-making contracts ........................................................ 101

Loss of Chance..................................................................................................................................... 104

Loss of a chance to succeed in a contest or game ...................................................................... 105

Loss of chance to pursue a potentially successful commercial opportunity .............................. 105

Restitutionary/disgorgement damages ...................................................................................... 106

Causation ............................................................................................................................................ 108

Novus Actus ................................................................................................................................ 109

Remoteness ........................................................................................................................................ 111

Knowledge of the defendant ...................................................................................................... 112

Degree of likelihood of damage .................................................................................................. 112

Reasonable reliance .................................................................................................................... 113

Mitigation ............................................................................................................................................ 115

What if the plaintiff cannot mitigate due to impecuniosity? ..................................................... 115

The situation where action to mitigate increases damages ....................................................... 116

Specific Types of Claims ...................................................................................................................... 118

Disappointment, distress, loss of reputation .............................................................................. 118

Contributory negligence ............................................................................................................. 118

Loss of bargain damages and termination under a term ............................................................ 119

Liquidated Damages v Penalties ..................................................................................................... 121

Distinguishing liquidated damages clauses from penalty clauses .................................................. 122

Actions for Debt v Damages ........................................................................................................ 125

Requirements of an action for debt .................................................................................................... 125

Entire v Divisible Obligations .......................................................................................................... 126

Entire contracts ........................................................................................................................... 127

Divisible contracts ....................................................................................................................... 127

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The Effect of Legislation .............................................................................................................. 129

Exceptions to the need for full performance .................................................................................. 129

Substantial Performance ............................................................................................................. 130

Payment independent of performance: Performance NOT needed .................................................. 131

Deposits ...................................................................................................................................... 131

Mitigation in Actions of Debt .............................................................................................................. 133

Penalties and Accelerating Debt ..................................................................................................... 134

Positive Misrepresentation of Fact ..................................................................................................... 136

Has there been a positive misrepresentation? ............................................................................... 136

False impressions ........................................................................................................................ 136

Special contracts and relationships ............................................................................................ 138

Is the representation regarding actual fact? .................................................................................. 139

(1) Misrepresentation of fact ...................................................................................................... 140

(2)  ‘Puff’  or  opinions ................................................................................................................... 140

(3) Statements about the future ................................................................................................. 142

(4) Statements of law .................................................................................................................. 143

Culpability ....................................................................................................................................... 143

Fraudulent misrepresentation (Culpable) ................................................................................... 143

Negligent misrepresentation ...................................................................................................... 143

Innocent misrepresentation ....................................................................................................... 143

Reliance by the representee ........................................................................................................... 144

Actuality of reliance .................................................................................................................... 144

Materiality of misrepresentation ................................................................................................ 145

Reliance by the indirect representee .......................................................................................... 145

Relief for misrepresentation ............................................................................................................... 146

Scenario 1: Where the parties are in agreement but make an important common mistake ............ 148

Common law position ..................................................................................................................... 149

Equitable position – Rescission ....................................................................................................... 152

Scenario 2: Where the parties are not in agreement and there is a mutual mistake ........................ 155

Scenario 3: Where the parties are not in agreement and there is a unilateral mistake .................... 156

Common law position ..................................................................................................................... 156

Mistake as to terms (or perhaps subject matter) ....................................................................... 156

Mistaken signing of a contract: non est factum .......................................................................... 157

Mistake as to identity of the other party .................................................................................... 157

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Equity .............................................................................................................................................. 158

Mistake in recording a written agreement – equitable rectification ......................................... 159

The TPA v ACL.............................................................................................................................. 162

The  “in  trade  or  commerce”  limitation ............................................................................................... 163

Determining  whether  action  is  “in  trade  or  commerce” ................................................................ 163

Private  transactions  not  considered  “in  trade  or  commerce” .................................................... 163

“Trade  or  commerce”  on  behalf  of  someone  else ...................................................................... 164

Professional  activities  “in  trade  or  commerce” .......................................................................... 164

What type of conduct can potentially mislead? ................................................................................. 165

Puff .............................................................................................................................................. 165

Silence ......................................................................................................................................... 165

Representations as to future matters ......................................................................................... 166

Promises ...................................................................................................................................... 166

Statements of law ....................................................................................................................... 167

When will the conduct be misleading or deceptive? .......................................................................... 167

Conduct directed at the public at large ...................................................................................... 167

Conduct directed at individuals .................................................................................................. 168

Remedies under the Act ..................................................................................................................... 169

Duress ................................................................................................................................................. 170

Element 1: impaired consent ...................................................................................................... 170

Element 2: illegitimate pressure ................................................................................................. 170

Forms of duress ............................................................................................................................... 171

Duress of the person ................................................................................................................... 171

Duress of goods ........................................................................................................................... 171

Economic duress ......................................................................................................................... 172

Undue influence .................................................................................................................................. 172

Actual undue influence ............................................................................................................... 172

Presumed undue influence ......................................................................................................... 172

Unconscionable  dealings/advantage  of  another’s  disability .............................................................. 173

Element 1: Examples of disabilities ............................................................................................. 174

Element 2: Knowledge of the disability ...................................................................................... 175

Rebutting the presumption......................................................................................................... 175

Improper conduct by a third party ..................................................................................................... 176

The rule in Yerkey v Jones – wives and guarantees .................................................................... 176

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Relief for abuse of power/unjust contracts ........................................................................................ 177

Equitable relief ............................................................................................................................ 177

Statutory relief ............................................................................................................................ 177

Contracts Review Act 1980 (NSW) .................................................................................................. 178

Interpretation of the Act ............................................................................................................. 178

Restitutio in integrum – Method of rescission in common law and equity .................................... 179

Common law v equity approach to restitutio in integrum.......................................................... 180

Innocent misrepresentations – indemnities ............................................................................... 180

What does the process of rectification involve and what may be included? ............................. 180

Partial rescission ......................................................................................................................... 181

Bars to Rescission ................................................................................................................................ 182

Affirmation (same rules as election for breach) ......................................................................... 182

Intervening third-party rights ..................................................................................................... 182

Executed contracts ...................................................................................................................... 183

Sale of goods ............................................................................................................................... 183

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Identifying  Express  Terms What is a contract? It is a legally binding agreement between two parties whereby each party assumes responsibilities in return for a price as determined by each party.

What are the terms of a contract? The terms of the contract are the promises that the parties make to one another. Promises are those assumptions of responsibilities which the person who assumes them intends to be bound by. These are determined objectively.

When looking for the terms of the contract we look for:

1. Express terms a. Those terms which are expressly agreed upon b. Express statements that must be inferred to be promissory are still express

2. Implied terms a. Those promises which are not explicitly said

The express terms are those which have actually been made in the transaction provided that the statement is promissory. Implied terms are those which can be inferred from either the basic nature of the transaction or the factual context surrounding it, or by reading in between the lines of the express terms.

If we want to bind a party to the terms of a contract, we must prove that in some form of word or conduct, there is consent by the party to the terms. The most common way of proving this by conduct is through signing.

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Consent to incorporation of terms in a contract The express terms are those which have actually been made in the transaction provided that the statement is promissory. These can be found in written and oral statements or by specific pieces of conduct provided that there is evidence that the words and conduct indicate committal to the statement.

Signature

The most common form of consent to terms in a contract is through signature. Having a signature would lead a reasonable person in the position of the offeror that the signing party is willing to be bound to the terms of the contract as they are.

This principle was first laid down in L’Estrange  and was adopted in Australia in Toll.

L’Estrange  v  Graucob  [1924]  2  KB  394 Facts Held L’Estrange  decided  to  purchase a cigarette vending machine from Graucob. She signed a form  headed  “Sales  Agreement”  which  was  filled  in  by  Graucob’s  salesperson. When the vending machine arrived it did not operate properly. L’Estrange  tried  to  bring  an  action for breach of an implied warranty that the machine was reasonably fit for its purpose. The

1. The  trial  judge  held  for  L’Estrange  on  the  fact  that  the  exclusion  clause would only be binding if she had knowledge that a term of this kind was in the document or was given reasonable warning of this term, and that the signature is not necessarily binding. This was overturned on appeal.

2. Scrutton LJ discussed the ticket case. In such a case he held that where there is an unsigned document or written agreement between parties so that the writing constitutes the sole evidence of the agreement, there must be independent proof that the alleged party was or ought to have been aware of the terms. Therefore on this basis he agreed with the trial judge.

3. However this case was explicitly distinguished from a ticket case, and it was held that when a document containing contractual terms is signed (in the absence of fraud or misrepresentation), the party signing it is bound, irrespective of whether it was read or

General Rule

As per L’Estrange  v  Graucob and upheld in Toll (FGCT) v Alphapharm:

“Where  a  document  containing  contractual  terms  is  signed,  where  the  party  signing  knows  the  terms OR has knowledge that there are terms, then, in the absence of fraud or misrepresentation, the party signing it is bound, and it is wholly immaterial whether they have read  the  document  and  know  the  terms  or  not”

This principle is not limited to the signing party having actual knowledge that the document contained terms, even if a party is unaware of the terms it is their own fault. The test is whether a reasonable person in their position would have known the nature of the document in containing terms – if a reasonable person would not have been expected to know the document they signed was contractual, it will not apply.

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defendant relied on a clause in the contract which  said  that  “The agreement contains all terms  and  conditions…any  express or implied…warranty…are  hereby excluded”. L’Estrange  argued  that  she  was not given reasonable notice of the particular term and she did not have knowledge of the term, and further, that it was an order form, which was a misrepresentation of the contractual nature of the document with regard to exclusionary terms.

not. 4. The plaintiff contended that she was induced by misrepresentation

without knowing its terms because she was told it was an order form, which she assumed would only contain terms regarding the order itself, without exception clauses. Scrutton LJ held that whether the plaintiff was or was not told that the document was an order form, it was in fact an order form, which is a contractual document and a reasonable person in her position would have understood that it would contain terms other than innocuous order terms

5. In a contract for sale of goods, the general rule is cerebis paribus, and if the buyer is suspicious about quality, it is up to them to check that the goods are of sufficient quality, or to get an express promise of quality by the vendor. The law usually will not imply a term that the goods are of a certain quality. The Sale of Goods Act states this rule, but says that where the vendor deals in that type of good, there should be some implied obligations that the goods supplied by the vendor be reasonably fit for their purpose. In this case,  this  was  excluded  because  L’Estrange  signed the document waiving this right of implied warranty.

6. Graucob  has  the  onus  of  proving  that  L’Estrange  was  bound  to  their conditions rather than the traditional implied warranty as per the Sale of Goods Act.  “The person, who alleges, must prove”  rather than the other having to prove the negative.

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 Facts Held Richard Thomson was a subsidiary of EB, the Australian distributor of a flu vaccine. Alphapharm was a sub-distributor. RT agreed with Alphapharm to look after the vaccine with regard to storing and transport. The carrier of the vaccine was Finemores (the appellant) as decided by RT and accepted by Alphapharm, who had no direct dealing with Finemores. EB was liable for the costs of delivery into storage and Alphapharm was liable for the cost of delivery to customers. Finemores provided a quote which requested the completion of a credit application

1. The question was whether the exclusion clause on the back of the signed document was part of the contract; since the contract was signed by RT as a third party, rather than Alphapharm itself. Essentially, could RT act as an agent of Alphapharm?

2. RT  signed  the  “Application  for  Credit”  document  which invited them to read the terms and conditions before signing. They were not rushed, or tricked into signing or deceived in any way; they chose not to read it. Finemores had no way of knowing that RT did not read the document. Therefore, to sign a document, known and intended to affect legal relations, conveys a representation that the signee either has read and approved the contents or is willing to take the chance of being bound. This is even stronger when the signature is written below something requesting conditions to be read. Essentially in this commercial context, the

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and to assign a schedule accepting rates and conditions. The form, directly above the signature box said “please  read  ‘conditions  of  contract’  prior  to  signing”.  RT  did  not  read  and signed. Cl 5 held that RT would be an agent for Alphapharm who were defined as parties under Cl 3 (b). Cl 6 provided that Finemores would not be liable for loss or damage of the goods. The vaccine was damaged during transportation and Alphapharm sued.

reasonable party would have known that there were terms of contract in with regard to exemption clauses or other relevant clauses

3. “A  man  cannot  escape  the  consequences  of  signing  a  document by saying, and proving, that he did not understand  it…it  was  for  him  to  protect  himself  by  abstaining from signing the document until he understood  it  and  was  satisfied  by  it”  – Wilton v Farnworth (1948) 76 CLR 646.

4. To sign a document known and intended to affect legal relations is an act which ordinarily conveys a representation to a reasonable reader of the document.

5. Professor  Atiyah  has  said  that  “a signature is recognised even by the general public as being a formal device, and its value would be greatly reduced if it could not be treated as a conclusive ground of contractual liability at least in all ordinary circumstances

6. The conditions on the reverse constituted contractual terms, therefore RT was bound thus was Alphapharm

Exceptions to the Signature Rule

Both of these exceptions were held in the following case:

Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805 Facts Held Curtis took a white wedding dress to the Chemical Cleaning company. Curtis was handed  a  paper  headed  “Receipt”  which  she was asked to sign. Before doing so the customer asked why her signature was required and was told that it was because the cleaners would not accept liability for risk of damage to beads and sequins on the dress. Curtis signed the

1. The bailee (Chemical Cleaning) must prove the exemption clause since they allege that the terms are within the contract.

2. Where a document would not by its ordinary operation carry contractual force – such as, in this case a receipt, the terms may not be incorporated in the absence of express stipulation by the representor. If the receipt were considered a contractual document, a reasonable person in her

There are two cases where the rule in L’Estrange  will not apply:

1. Where the document in question could not reasonably be considered a contractual document (Curtis v Chemical Cleaning and Dyeing Co)

OR, assuming the document is contractual

2. Where the signature was induced by misrepresentation or deliberate fraud, or by a mistake.

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Incorporating terms by notice (ticket cases – conduct without signature) One party may allege that the contract contains terms which have been displayed/delivered before or at the time of transaction. Whether the other party will be bound depends on timing and knowledge/notice of the terms.

The party must have actual knowledge or reasonable notice of the particular term. However if the particular term is not unusual, then if a reasonable person would have some knowledge of the terms, and has had a chance to read it, then it will be binding.

Timing For the delivered terms to form part of the contract they must be made available to the party to be bound at a time before the contract is made.

Oceanic Sun Line Special Shipping Company v Fay (1988) 165 CLR 197 Facts Held Fay made a booking in NSW for a cruise in Greece. The travel agent supplied Fay with  an  “exchange  order”  which  was  then to be exchanged for  a  “Sun  Line  Ticket”  upon boarding in Athens. The ticket had a condition that the

1. General Rule – If a passenger signs and binds themselves to the terms of a contract of carriage containing a clause exempting the carrier from liability it is immaterial that the passenger did not discover the contents of the contract (L’Estrange). But in a ticket case, where an exemption clause is contained in a ticket or other document intended by the carrier to contain the terms, but the other party is not aware that an exemption clause is intended to be a term, the carrier cannot rely on that clause unless, at the time of contract, the carrier had reasonably sought  to  bring  the  clause  to  the  passenger’s  notice

a. It was held that the shipping line has not given reasonable notice of the condition of jurisdiction until after the contract

A party will be bound to terms alleged by another party if:

1. The terms were available to the party to be bound by those terms prior to the contract being made (Oceanic Sun v Fay)

AND

2. Reasonable steps were taken to bring the terms to the notice of the party being bound (Thornton v Shoe Lane Parking)

a. This  has  particular  significance  if  the  terms  are  deemed  “unusual”  (Baltic Shipping v Dillon)

Therefore, in cases of unsigned documents (ticket cases), then A will hold B to the terms of a contract if A can show consent; that is, B will be bound to the terms if they were made available to B to read, and B had time to read them and digest them (or if they were not read, B knew  they  contained  A’s  terms). The only exception to this is unusual terms

All A needs to show is that a reasonable person in the position of B would have had the terms available to them and would have known that the document contained terms of some kind of the contract and had the chance to know them.

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Greek courts would have full jurisdiction in any action against the owner; however the exchange order had no such condition. The plaintiff received serious injuries while taking part in an activity on the ship and sued in negligence in the Supreme Court of NSW. Sun Line applied for a stay of the action based on that clause limiting jurisdiction.

has already been made – the first real opportunity to give notice of this term is long after the contract has been made in Sydney

2. The first step in determining whether the contract of carriage contained the clause in question is to determine whether the contract was entered into in Sydney when it was paid for, or in Greece when the ticket was issued.

a. Oceanic argued that it was illusory because they reserved the “right  to  cancel  any  cruise”  (MacRobertson). However this exemption did not preclude the existence of any contractual obligation, it actually gave promises

b. If it were intended that no contract should come into existence before  the  issue  of  the  ticket  when  “boarding”,  no  consideration would have moved from Oceanic to support their right to refuse to refund the passage money, as was the case. The contract was made on payment and upon receipt of the exchange order so that Oceanic was bound to issue the ticket with the terms as agreed upon.

3. The second step is to determine whether the contract made after was the contract, and whether it contained the exclusion clause

a. The conventional analysis of the issue of the ticket as an offer as per MacRobertson could not be applied because it could not be seen as the parties’  intention to have the ticket be an offer of carriage, which would only be declined after travelling to Greece to see the conditions on the ticket.

b. It was found that the payment of the fare could be regarded as the price of an option to acquire a ticket representing a certificate of entitlement to be carried on the terms already agreed.

4. Denis Analysis a. The issue is whether the term got into the contract of carriage.

If the Greek company wants to hold Fay to that term, then they hold the onus of proof, even if they are the defendant! If the defence you put up is that the plaintiff was bound to the contract, then you must prove there was a contract with those terms.

b. In the brochure advertising the cruise, there is a statement saying “terms  of  the  cruise  are  available  for  inspection  in  the  offices  of  our  Sydney  agent”.  This  tells  where the terms are, but not what the terms are. The HCA said that this is still not reasonable notice of the terms, it does not bring the nature of the term to a reasonable person in the position of Fay, nor Fay himself. The carrier must bring the term to the attention of the person, not tell them to go look themselves.

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Knowledge or Notice

Notice must come in a form that is likely to come to the attention of the party being bound (Causer v Brown; Thornton). Whether there is reasonable notice depends on:

1. The type of contract – how serious would consequences be if particular terms were enforced 2. The nature of terms – unusual terms require more detailed notice 3. The circumstances of the case

a. This has regard to the above two factors as well as: i. Time and access

ii. Legibility/ease of understanding iii. Characteristics of the people to whom notice is being given

Note that this does not apply with signed contracts, as discussed in Toll v Alphapharm where the HCA rejected the need for special notice of unusual terms in a signed contract.

Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 Facts Held Thornton parked his car in a car park owned by Shoe Lane, which he was unfamiliar with. There was a notice on the outside which gave parking charges and a notice  saying  “all cars parked  at  owner’s  risk”. Upon driving in he received a ticket and then parked his car. The ticket made reference to additional terms which were to be found on a pillar near the ticket office. Thornton was severely injured upon coming to collect his car and sued. Shoe

1. In a case with an automatic ticket machine, the terms of the offer are contained in the notice placed on or near the machine stating what is offered for the money. The customer is bound by those terms as long as they are sufficiently brought to his notice before hand, but not otherwise. He is not bound by the terms printed on the ticket if they differ from the notice.

2. “It is no use telling the customer that the ticket issued is subject to some  ‘conditions’  or  other,  without  more:  for  he  may  reasonable  regard ‘conditions’  in  general…not  as  taking  away  his  rights,  unless  the  exempting  condition  is  drawn  specifically  to  his  attention’

3. The conditions were not displayed in a manner giving Thornton reasonable notice with which he could accept or reject the offer by his own choice. There was no evidence that Thornton knew of the exempting condition. Therefore the term did not become part of the contract.

4. Where  a  term  is  so  “wide  and  destructive  of  rights” they must be explicitly noted.

5. Denis Analysis a. When you go to a parking station, you have a contractual

licence to leave your property on their land. They are in effect

If the timing requirement is satisfied, the party will be bound to the delivered terms if:

1. They have knowledge (Parker v South Eastern Railway Co)

OR, in the absence of knowledge, if

2. The offeror was reasonable in giving the offeree notice of the condition (Thornton v Shoe Lane Parking; Baltic Shipping).

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Lane attempted to rely on an exclusion clause present on the additional terms.

offering permission to leave your car there in return for your promise to pay their advertised charges for as long as your car is left, and a promise to give them exemption from certain liabilities. If they bring it to your attention before the contract is concluded, and you still park there, your conduct can be deemed as consent to the terms.

b. Lord Denning – says that the contract is formed when the ticket is issued by the machine. IF that is the case, the only terms that can get in the contract are those which have been notified to the customer previous to that – i.e. on the notice near the machine.

c. Megaw LJ – the contract is formed after the ticket is given, and the driver takes it and drives in. In this case, there is still not reasonable notice, since once you take the ticket you cannot just stop and read the terms while other cars wait behind you

d. Sir Gordon Willmer – the ticket is an offer to do business on the terms according to the ticket. The contract is only formed once the party decides they will take the benefit of the service, by parking the car and leaving the car-park. The attempt to refer him to provisions set out elsewhere does not come too late, since he can go to the pillar and read the terms. However a reasonable person in his position would not look for pillars, and even if they did, they would wade through difficult language and still wouldn’t  have  had  reasonable  notice of the unusual term.

Unusual Terms

Baltic Shipping Co v Dillon (The Mikhail Lermontov) (1991) 22 NSWLR 1 Facts Held Dillon made a booking for a cruise with Baltic Shipping through a travel agent and then received a booking acknowledgment. Later Dillon received a booking form asserting a contract of carriage  would  be  made  “only at the time  of  issuing  of  tickets” which contained conditions. One month later Dillon paid the balance of the fair and then two weeks later received a ticket, which contained terms and conditions limiting the liability of Baltic for injury and damage to personal effects. On the tenth day, the ship sank and Dillon

1. The conditions in the booking form were given with reasonable notice; however the additional conditions on the ticket were not and therefore did not form part of the contract since the availability of these terms was not adequate.

2. Unusual terms require explicit attention to be drawn to  them.  “At the very least, Baltic Shipping could have drawn to attention, on its booking form, the fact of the limitation of liability for personal injury and damage  to  luggage…this  was  not  done”

3. The mere presentation of the passenger ticket with its terms and conditions would not fix Dillon with acceptance of those terms simply because she went on  the  cruise.  “She was entitled, in law, to take the

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suffered physical and psychological injury and the loss of her belongings. Baltic admitted fault, but argued that the provisions limited liability.

view that she would be issued with a ticket which would contain no unusual provisions, specifically no provisions of which she was not on notice limiting liability  to  her”.

“The  conventional  analysis  is  to  regard  the  ticket  as  an  offer,  the  contract  being  made  upon  acceptance of that offer [acceptance of the ticket without objection] by  the  passenger...”  (Stephen

J in MacRobertson Miller)

Case Facts Approach Significance Thornton v Shoe Lane Parking

The plaintiff wished to park his car in the defendant’s  car  park.  He  drove his car into the driveway; a green light indicated that he should proceed. He paid money into a machine and then received a ticket.

The offer is made when the proprietor of the machine holds it out as ready to receive the money. The acceptance takes place when the customer makes the payment.

The ticket could not be considered an offer – the customer had already paid and could not receive his moneys back. The customer is bound only by those terms displayed prior to the payment of money. He is not bound to terms on the ticket which differ from these.

Oceanic Sun Line Special Shipping Company v Fay

The plaintiff made a booking for a cruise. The travel agency had supplied him with an "exchange order" which was exchanged for a ticket upon boarding the ship. He received this upon reaching Athens.

It could not have been  the  party’s  intention that the ticket, received upon boarding, was the offer. It would not allow sufficient opportunity for the passenger to consider the terms and accept/decline.

As above, the ticket could not reasonably be considered an offer – the customer would not have sufficient time to consider the terms upon boarding. The customer is bound only to those terms presented to them in the exchange order. He is not bound to terms on the ticket which differ from these.

Baltic Shipping Co v Dillon

The plaintiff made a booking for a cruise. The travel agency provided an exchange form which stated that a contract would be formed upon the issuing of tickets.

The provisions in the exchange form were accepted. The contract was formed upon the issuing of the ticket.

Acceptance is not implied by the customer commencing the cruise, of terms other than those typical to such a contract.

Normally, if A wants to hold B to the terms of the contract, A must take steps to bring B the attention of the term by producing a document, displaying a notice on the occasion in question before the contract is concluded, or handing the document containing the terms before the transaction  is  made  even  if  B  didn’t  sign,  or  make  some  clear  statement  of  the  term  to  B.  Sometimes  A may not have taken specific steps to bring the term to the attention of B before the transaction. Sometimes  they  don’t  rely  on  the  specific  term  but  on  the  past  practice  of  the  two  parties.  If  A  can  

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show that he and B had a large number of previous dealings, always on the same nature, then sometimes that will be enough to show the regularity means that A always wanted to do business on particular terms. If the previous dealings can lead a reasonable person to believe a particular form of dealing, they would believe B knows the terms or methods that A wants from previous dealings.

A has to show that B or  a  reasonable  person  in  B’s  position  would by now have known that a term of a particular kind is one that A invariably wants to be the basis of goods and services. It is not enough that  the  dealings  give  the  “gist”  of  the  dealings,  it  must  give  wariness  of the nature of the particular term sought to be enforced. This is determined by the type of documents produced; how they have been given, the time of opportunity to read them etc. Naturally you would expect the person who wants to hold another to the term to draw the attention of the person to the particular term on the particular occasion.

Incorporation of express terms by a course of dealings Where parties have had a history of dealings, contractual terms introduced and kept by in earlier contracts may be incorporated into a subsequent contract, even if the ordinary requirements of incorporation of such a term has not be met.

This issue typically arises where:

1. There is no actual knowledge of the term 2. Incorporation by notice cannot be used because of the timing condition 3. There is no signed document, or there is not a ticket

General Rule

For a term to be incorporated by a course of dealings:

1. The dealings must be regular and uniform (the same every time) (Balmain New Ferry) a. This must be quite regular – in Balmain it was daily if not weekly or monthly. In

Hollier v Rambler Motors (1972) it was held that three courses of dealings over five years was not of sufficient regularity.

2. The document relied on to contain the term in question must reasonably be considered a document (Rinaldi & Patroni)

a. It must be clearly construed as a document

You must show that A had at least constructive knowledge that the particular term was always aimed at being enforced by B – if the previous dealings would have alerted the person to the term by now, then it will be there through course of dealings. Note that knowing that terms in general are in the document is not enough.

The justification is that the party to be bound has, by continuing the dealings as is, shown a willingness to be bound to the terms as they are (Hardwick Game Farm). This is the case even if they had known of the conditions and had not read them (Spurling v Bradshaw), actual knowledge of the incorporation is not necessary (Henry Kendall & Sons v William Lillico & Sons Ltd).

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Balmain New Ferry Co Ltd v Robertson (1904) 4 CLR 379 Facts Held Balmain New Ferry placed over the entrance to their private wharf a notice stating that a fare of one penny must be paid by all persons entering or leaving the wharf,  whether  they  had  travelled  by  the  company’s  boats or not. Robertson was aware of these conditions  “having  travelled  on  many  occasions  backward  and  forward  by  the  company’s  boats”.  He  paid the one penny and was admitted to the wharf; however he had missed his boat and attempted to leave the wharf via another turnstile. He refused to pay the second penny and squeezed through the gap while the guards attempted to forcibly detain him. He sued for assault and false imprisonment.

1. Contract formation can be appreciated with regard to the circumstances of the case. There need not be the ordinary requirements of actual knowledge or adequate notice. In this case, having travelled  many  times  on  the  company’s  ferries, Robertson was likely to have been  aware  of  Balmain  New  Ferry’s  way  of conducting business. The contract was thus implied from this.

2. The HCA said that Robertson had so many previous dealings with the company that he must have had at least constructive (in fact actual) knowledge of the nature of the term that Balmain Ferry sought to enforce.

Rinaldi & Patroni Pty Ltd v Precision Mouldings Pty Ltd (1986) WAR 131 Facts Held Precision Mouldings constructed fishing boats, and Rinaldi carted these to buyers of the boats for Precision. On one occasion due  to  the  negligence  of  Rinaldi’s  driver,  a  42 foot fishing boat was severely damaged. At this point, the boat was not in the ownership of the consignee, it was still owned by Precision. Very similar contracts to cart boats had been made between  the  parties  on  “nine  or  ten  previous  occasions”  and  the  practice  was  as follows:

1. The parties would agree orally on the telephone about the cartage of the boat, the day, the route, all the minor details etc. This involved the formation of the contract

2. The cost was worked out and entered  by  Rinaldi’s  driver  into  a  book  of  “cart  notes”  which  were  carbonised in triplicate for signature by the buyer of the boat to formalise the details of the

1. General Rule – “If it should appear that the parties had over a period of time been conducting business upon terms excluding liability, then it should be held on the occasion in question that they contracted  upon  that  basis” - if they had at least constructive knowledge that the particular term was always aimed at being enforced, it will be established by course of dealings.

2. To contend that the conditions in question ought to be implied according to the rule begs the question...[to] find an earlier contract or contracts containing that term

3. The  ‘cart  notes’  were  held  not to be contractual documents, which would take the form of a request to carry the  goods  “subject  to  terms  and  conditions”  which  would  be  signed  after  each  event (as per Wright v Hill). Rather, they were held to be mere requests to accept delivery, Thus the terms printed on the back could not lead to them being included in the contract by course of dealing.

4. Burt CJ – It is easy if in all the previous dealings, the term is introduced each time. However this cannot be said here as the term comes too late in

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Statements made during negotiations

When is a statement a term of a contract? If the parol evidence rule is overcome, a party can then attempt to show that an oral statement made in negotiations forms a term of contract.

Determining whether a statement is promissory and thus a term of contract

As mentioned, for a statement to be a term, it must be promissory and have been intended to be binding – to be judged objectively (would a reasonable person in the situation of the parties believe that statement-maker was willing to be bound?).

Significance of the written contract

It is very difficult to say that a statement will become a term of a contract, since written contracts are often binding in their form, unless it can be shown that there existed mistake as to the formation or interpretation of the agreement, or other vitiating factors.

Equuscorp v Glengallan Investments [2004] HCA 55 Facts Held Complicated facts

1. A  written  statement  of  the  parties’  agreement  must  be  accorded considerable significance

2. The parol evidence rule, the defence of non est factum and the equitable remedy of rectification all proceed from the premise that a party executing a written agreement is bound to it. Therefore, where parties enter a written

General Rule

For the oral statement to be considered a binding term as opposed to a mere representation (as per estoppel), the statement must have been intended by the party making it to be promissory and to form a binding part of the written contract. If not it may be mere puff or other statements:

1. A  mere  ‘puff’  is  an  extravagant  statement  that  no  reasonable  person  would  take seriously 2. A  ‘statement  of  fact’  is  a  statement  purely  telling  a  fact.  If  this  happens  to  be  false,  then  

there can be remedy against misrepresentation. However a statement, even if it induces the entering of a contract, may still not be considered as promissory.

Intention is to be judged independently (Oscar Chess v Williams) by considering the context of the case. Some relevant factors include:

1. The significance of the written contract and its form (Equuscorp v Glengallan Investments) 2. The language used in the statement (JJ Savage & Sons v Blakney) 3. The relative expertise of the parties (Oscar Chess v Williams) 4. The importance of the statement and the timing of the statement (Van den Esschert v

Chappell) 5. Whether there is a collateral contract