Contracts terms - express, implied, incorporation

Contracts 200011
Terms of Contracts: Incorporation of
Terms, Express Terms, and Implied
Terms
Lecturer: Francois Brun

1

Overview of Contractual Terms
• L’Estrangev F Graucob Ltd [1934] 2 KB 394
[10.46C]
• Oscar Chess Ltd v Williams [1957] 1 WLR 370
[10.30C]
• Dick Bentley Productions Ltd v Harold Smith
(Motors) Ltd [1965] 1 WLR 623 [10.10C]
• JJ Savage & Sons P/L vBlakney (1970) 119 CLR
435 [10.06C]
2

Overview (cont.)
• Hospital Products Ltd v United States Surgical
Corporation (1984) 156 CLR 41 [11.09], [11.10]
• Toll (FGCT) P/L vAlphapharm P/L (2004) 219
CLR 165 [10.71]
• Curtis v Chemical Cleaning & Dyeing Co [1951]
1 KB 805 [10.73]
• Thornton v Shoe Lane Parking Ltd [1971] 2 QB
163 [10.55C]
3

Overview (cont.)
• Oceanic Sun Line Special Shipping Company
Inc v Fay (1988) 165 CLR 197
• Baltic Shipping Co v Dillon (1993) 176 CLR 344
[34.25]
• Balmain New Ferry Co Ltd v Robertson (1906)
4 CLR 379

4

Overview (cont.)
• CodelfaConstruction v State Rail Authority of
NSW (1982) 149 CLR 337 [11.12]
• Con-Stan Industries of Australia v Norwich
Winterthur Insurance Ltd (1986) 160 CLR 226
[11.13]
• BP Refinery (Westernport) Pty Ltd v Hastings
Shire Council (1977) 180 CLR 266

5

L’Estrangev F Graucob Ltd [1934]
• General rule that a party is bound to a contract
they sign: L’Estrange.
• Defendant provided a cigarette vending machine
with the terms supplied on a brown paper form.
It contained terms that excluded any express or
implied warranty. Both parties signed.
• Machine didn’t work. Plaintiff succeeded at trial
on the grounds of a breach of implied warranty.

6

L’Estrange (cont.)
• Maugham LJ, on appeal, held that the brown
paper form “may well constitute a contract in
writing… the written document admittedly
related to the purchase of the machine by the
plaintiff…even if she did not know its
contents.”

7

Oscar Chess Ltd v Williams [1957]
• Express terms require an objective test:Oscar
Chess Ltd
• Defendant sold a car that was a 1948 model to
Oscar but actually ten months later, they
found out that is was a 1939 model.
• Even despite the logbook identified it as a
1948 model Morris. At trial it was found that
this was an express term of the contract that
the car was a 1948 model.
8

Oscar Chess (cont)
• On appeal, Denning LJ held “If the seller says, ‘I
guarantee that it is a 1948 Morris…there is a
clearly a warranty…the seller is making himself
contractually responsible.”
• Objective test applied, “the intelligent bystander
would, suggests, say that the seller did not intend
to bind himself so as to warrant that it was a
1948 model, there is only the log-book to go by.”
• The warranty was not binding.
9

Dick Bentley v Harold Smith
• Distinguish Dick Bentley v Harold Smith,where
warranty was binding.
• Car dealer (Mr Smith) sold a car to Bentley
and said that there was 20,000 mileage on the
car, and this was later found to be untrue.
Bentley sued for breach of warranty.

10

Dick Bentley (cont.)
• Held: Lord Denning MR: “Warranty intended
depends on the conduct of parties, on their
words and behaviour, rather than on their
thoughts….Mr Smith was in a position to
know, or at least find out, the history of the
car…his statement turned out to be quite
wrong. He ought to have known better. There
was no reasonable foundation for it.”
11

JJ Savage & Sons P/L vBlakeney
• Blakeneypurchased a boat JJ Savage with an
estimated speed of 15 miles per hour.
• The contractual document between the parties
made no reference to the capacity of the boat to
attain any particular speed. It was then found
that the boats’ speed was only 12 miles per hour.
• At trial, it was not held to be a term or warranty.
On appeal to the Full VSC, held to be a collateral
warranty by way of representation.
12

JJ Savage (cont.)
• BarwickCJ, Kitto, Menzies, Owen and Walsh JJ,
held: “When the letter was written, the
negotiations for the construction and delivery
of the boat were incomplete”
• There is nothing in the evidence to support
the view that the respondent (Blakeney)
included any requirements as to the speed of
the motor boat.
13

JJ Savage (cont.)
• Consider: Timing of statement and reducing
contract to writing or Special skill and
knowledge of a party: Oscar Chess Ltd v
Williams; or Importance of statement:
Couchmanv Hill [1947] 1 All ER 103.

14

Hospital Products vUSSC
• Hospital Products contracted to distribute goods
for USSC, however began selling in competition.
Whether the representation creates a binding
contractual obligation depends on the intention
of the parties.
• A representation made in the course of
negotiations which result in a binding agreement
may be a warranty: [1] it may become a term of
the agreement itself, or [2] may be a separate
collateral contract.
•
15

Toll (FGCT) P/L vAlphapharm P/L
• The credit application form, representative of RT
signed without reading the conditions of
contract.
• Clause 6 provided that the carrier be responsible
to the customer for loss and damage in relation
to the goods.
• The Court held that where, as had occurred, a
person signed a document, which was intended
to affect legal relations and knew that it
contained contractual terms, that person was
bound by those terms.
16

Curtis v Chemical Cleaning [1951]
• Curtis, Plaintiff/respondent had a dress
cleaned by Chemical Cleaning Co the
defendant/appellant.
• The Plaintiff was asked by the Defendant to
sign a receipt to exempt any liability for
damage to beads or sequins.
• A stain was later left by the appellant.

17

Curtis (cont.)
• Denning LJ: Held that “by failing to draw
attention to the width of the exemption clause,
the assistant created the false impression that
the exemption only related to beads and
sequins.”
• The receipt was “only a voucher for the customer
to produce when collecting the goods” and “ not
to contain conditions exempting the cleaners
from their common law liability.”
18

Thornton v Shoe Lane Parking Ltd
• Mr Thornton parked his car at a multi-storey
automatic car park owned by the defendant.
• Express terms were on a notice before he paid,
“All cars parked at owner’s risk”.
• Mr Thornton then had a car accident and sought
damages.
• Lord Denning MR: The customer is bound by
those terms as long as thy are sufficiently brought
to his notice beforehand. Reasonable steps were
made to bring notice prior to contract formation.
19

Oceanic Sun Shipping v Fay (1988)
• Brennan J: Qld man entered into travel
agreement to Greece, subject to cl. 13 “exclusive
jurisdiction to the laws of Greece”.
• Following injury on the trip, sued for negligence.
• Held: “The contract of carriage was made when
the exchange order was issued and the exclusive
jurisdiction clause was not known to Dr Fay and
was not incorporated in the contract of carriage”.
It was not part of the contract.
20

Baltic Shipping v Dillon (1991)
• Baltic (D/A) operated a cruise liner, which sank
and caused Dillon (P/R) to have nervous shock
and trauma. Dillon sued successfully for damages.
Baltic appealed on the grounds that terms in the
contract limited liability.
• Kirby P: “the limitation of liability for damage
expressed not in dollar sum but in terms of the
‘units of account’… there was more, before the
time fixed, that the carrier could have done to
bring the unusual provisions to the notice of the
passenger.
21

Balmain New Ferry Co Ltd v Robertson
• Robertson paid and entered a turnstile for a
ferry service operated by Balmain Ferry.
• After trying to walk out he was required to pay
to leave.
• O’Conner J: There was no express contract,
and the terms must therefore be implied from
the circumstances.

22

Balmain New Ferry Co (cont.)
• The company undertook to carry him from the
wharf.
• The only contractwhich could be implied from
those circumstanceswere that the plaintiff was
permitted to enter the wharf for the purpose
of that contract being performed.
• The company was entitled lawfully to impose
the condition of a penny payment on all who
used the turnstiles.
23

Balmain New Ferry Co (cont.)
• The company, therefore, being lawfully
entitled to impose that condition, and the
plaintiff being free to pass out through the
turnstile at any time on complying with it.
• The Plaintiff had only himself to blame for his
detention, and there was no imprisonment of
which he could legally complain.

24

Con-Stan v Norwich Winterthur
Insurance
• Terms may be implied in Custom.
• Con-stan issued insurance premiums through
a company called Bedford, but Bedford did not
pass on the premiums to Norwich.
• Norwich then sued to recover the premiums.
• Court held: Appeal by Con-Stan dismissed, no
implied terms by custom.

25

Con-Stan v Norwich Winterthur
Insurance
• Implied terms by custom must meet the indicia
of:
– [1] A justification that the implication of a term into a
contract is a question of fact, that it must be
something that the industry engages in:Nelson v Dahl
(1879) 12 Ch D 581.
– [2] Custom must be well known so as to acquiesce a
reasonable person making a contract
– [3] Must not be contrary to an express term
– [4] No knowledge of the custom is necessary to the
individual.
26

Codelfa Construction v State Rail
Authority of NSW
• Facts: SRA contracted with Codelfa to build a rail
line through the Eastern Suburbs. Codelfa
commenced work operating three shifts a day.
Considerable noise, dust and vibration were
caused by the work operating three shifts a day.
An injunction was granted.
• Codelfaclaimed for additional costs for loss of
profit from the injunction.
• The claim was also submitted on the grounds that
there was an implied warranty that should
provide for the breach.
27

Codelfa Construction v State Rail
Authority of NSW
• The court had to determine whether an
injunction should be implied in a contract, and
whether the injunction frustrated.
• Mason J: The terms were determined by the
SRA in advance and there is some force in the
argument that the SRA looked to Codelfa to
shoulder the responsibility for all risks not
expressly provided for in the contract.
28

Implied Terms by fact
• Mason J set out test in BP Refineries v
Hastings (1977) 180 CLR 266:
– Implication of the term must be reasonable and
equitable between the parties.
– The term must be necessary to give business
efficacy to the contract. If a contract is
commercially effective without the term, the court
will not imply it. A term will be implied if the
contract is unworkable: (Byrne v Australian
Airlines Ltd (1995) 185 CLR 411
29

BP Refineries (cont.)
– The term must be so obvious that implication goes
without saying.
– The term must be capable of clear expression and
reasonably certain in its operation. (In Codelfa, the
High Court refused to imply a term into the
contract because it was impossible to say with any
certainty what that term would have said.)
– The implied term must not contradict an express
term of the contract nor deal with a matter
already sufficiently dealt with by the contract.
30

Objective test of intention
• Objective test of intention isto determine
what the parties’ intended.
• Consider reasonable party expectations, and
Commercial convenience.
• Determine whether the terms are
unreasonable or absurd, the courts choose to
avoid the ‘capricious, unreasonable
inconvenient, or unjust’:Westpac vTanzone Pty
Ltd[2000] NSWCA 25.
31

Contracts terms - express, implied, incorporation

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