Contract Law: Case of Oscar Chess v Williams - Assignment Example

TUTORIAL 6 1) What was the decision of Denning LJ in Oscar Chess v Williams? Why did the car dealers sue for breach of contract (a warranty rather than a misrepresentation)? Denning LJ’s decision in Oscar Chess v Williams was focused on the relevant criteria for determining whether a representation constituted a warranty that was enforceable under contract law. Directly related to this was the consideration of the appropriate test for determining contractual intention of the parties. With regard to sales contracts, in considering whether or not a statement constituted a contractual warranty, Lord Denning distinguished between statements made by sellers based on their actual knowledge and statements made by sellers made in belief of information held. In the former scenario, Lord Denning asserted that a warranty could be implied and in the latter situation, Lord Denning commented that such representations were effectively the seller passing on information held and therefore did not constitute contractual warranties. Additionally, as the seller in the case was passing on information they held, it was determined that the seller’s statement was a statement of belief and not a statement of fact, which is why the car dealers sued for breach of contract and not misrepresentation. In considering the test for contractual intention of the parties, Denning LJ highlighted that the relevant test was a subjective test based on a consideration of the evidence, which includes a consideration of the conduct of the parties. 2) In considering whether or not a statement constituted a contractual warranty, Lord Denning distinguished between statements made by sellers based on their knowledge and statements made by sellers passing on information. In the former Lord Denning asserted that a warranty could be implied. To this end, Lord Denning argued that there was a difference between statements that someone believes something to be the case, (in which case there is no warranty); as opposed to a case where an individual guarantees someone that something is the case, which is a warranty. Denning LJ asserted that in the latter scenario, the “seller is making himself contractually responsible even though the registration book is wrong”. 3). In order to advise S with regard to his legal position, it is necessary to consider whether the pre-contractual statement regarding the model of the sports car constituted a warranty under contract, or alternatively whether the statement constitutes a misrepresentation. Firstly, with regard to pre-contractual statements, classification of the representation made is vital to determining whether the representation constitutes a term of the contract. Generally, pre-contractual statements are classified as follows: 1) a statement is a mere “puff” and therefore has no legal effect (subject to mandatory consumer legislation); 2) if the statement constitutes a representation, then S will have legal remedies under the law of misrepresentation depending on whether the representation was fraudulent, innocent or negligent; and 3) If the statement is contractual, S’ remedy against T will depend on whether the term was a condition, warranty or intermediate term. In considering whether a statement forms part of the contract, the content of the statement will be a relevant factor. If the content of the statement is important to the subject matter of the contract, it is more likely to be intended to be a term of the contract1. For example, in Couchman v Hill2 the defendant made a statement that the heifer was without calf prior to the plaintiff’s purchase. The heifer was actually pregnant and died. It was held that the statement was clearly important to the subject matter of the contract and therefore was incorporated into the contract. Additionally, as highlighted in the case of Oscar Chess Ltd v Williams3the objective intention of the parties will be vital to S’ legal position with Lord Denning’s assertion that “if an intelligent bystander would reasonably infer that a term was intended, that will suffice”4. If we apply this by analogy to the current scenario, it is evident S’s question regarding the year of the model was clearly important to the subject matter of the contract and the objective test would appear to be satisfied regarding contractual intention. However, in order for S to succeed in a claim for breach of contract against T, it will be necessary to demonstrate that T had relevant knowledge and expertise. For example, in the Oscar Chess case where the facts are analogous to the current scenario, the statement by the defendant was held to be an innocent misrepresentation made by a non-expert to an expert. In the current scenario, whilst S is not an expert, T runs a second hand dealership and appeared to be unsure of the year of the model, which may point to an innocent misrepresentation in which case S will not be able to sue for breach of contract. Alternatively, in the case of Dick Bentley Productions Limited v Harold Smith Motors Limited5 whilst the misrepresentation by the car dealer had been made innocently, Lord Denning asserted that the statement still constituted a term of the contract as “the dealer was in a position to know, or at least find out, the history of the car”6. If we apply this to the current scenario, the objective test appears to be satisfied with regard to the contractual intention of the parties in respect of the pre-contractual statement. Additionally, whilst T’s statement appears to have been made innocently, as a second hand dealer, it is likely that T should have known the history of the car and therefore in line with the rationale of the Dick Bentley case, the representation will constitute a contractual warranty, entitling S to claim for breach of contract. 4. With regard to Martin’s legal position, it is evident that the contract he signed constituted a completely different arrangement to what Martin had envisaged at the interview. It is important to note that section 52 of the Trade Practices Act will not be applicable as this applies to trade and commerce contracts. Therefore, with regard to Martin’s position the general rule regarding pre-contractual statements is that if the statement is not included in the parties’ contract, it is unlikely that the term was intended to become a contractual term7. Additionally, Martin has signed the contract and the general principle under the parol evidence rule is that the parties to a written contract are prevented from adducing extrinsic evidence to contradict the terms of the contract. For example, in the case of Mercantile Bank of Sydney v Taylor8, Innes J asserted that “where a contract is reduced into writing…. It is presumed that the writing contains all the terms of it9”. Furthermore, in the case of Bacchus Marsh Concentrated Milk Co Limited v Joseph Nathan Co10, Higgins J commented that the parol evidence rule prevented the written words in a contract being qualified “by the uncertain testimony of slippery memory11”. Therefore, on this basis, the written terms of Martin’s contract will prima facie override the subjective intentions expressed at the interview. Additionally, with regard to the negotiations in Martin’s interview regarding commission, this has not been reflected in the contract and the parol evidence rule dictates that pre-contractual negotiations will be superseded by a signed agreement. For example, in the case of Nemeth v Bayswater Road Pty Limited12 (1988), a plaintiff entered into a written contract to hire an aircraft to the defendant. The contract included a specific assertion that “all terms of the agreement are contained in this document” and the plaintiff attempted to sue for additional hire charges due under an oral contract agreed before the written contract was signed. However, the claim failed as it was held that the written contract contained all relevant terms and that evidence pertaining to another alleged oral contract was inadmissible under the parol evidence rule. On this basis, it would appear that Martin will be bound by the terms of the written agreement pertaining to commission. Nevertheless, in the case of Codelfa Construction Pty Limited v State Rail Authority of NSW 13(1982) determined that evidence of discussions between the parties to a contract prior to signature was admissible for the purpose of establishing common understanding of the parties in relation to a matter of fact. Therefore Martin may able to rely on the rationale in this case to adduce evidence of the discussions at the interview. Alternatively, Martin may be able to rely on the fact there was an innocent misrepresentation and that as the contract is an employment contract and based on mutuality of obligations and the implied term of good faith, the contract cannot be specifically enforced. However, ultimately, the general legal position is that the legal agreement that is signed will constitute the agreement between the parties. 5) If the general rule was that the rate of commission given on government sales was 10% and Martin assumed that Remy would pay the industry rate, the contract would not be void on grounds of common mistake however Martin may be able to set aside the contract on grounds of unilateral mistake. For example, in the case of Smith v Hughes14 it was held that where one party is mistaken to the terms of the subject matter then the contract will be upheld unless it can be determined that the non mistaken party was aware of the mistake and tried to take advantage of the mistake by failing to point out the mistake. Accordingly, Martin may be able to set aside the contract on grounds of unilateral mistake however the onus will be on Martin to establish this. 6) With regard to the enforceability of the guarantee, the bank may be negated from succeeding on grounds of unconscionability due to its stronger bargaining position vis-à-vis Pierre. The leading case in this area is Commercial Bank of Australia Limited v Amadio15 where an elderly couple with poor English became guarantors of their son’s debts arising from his failing business. The couple were not aware of the extent of their son’s problems and thought that the guarantee was for $50,000 and for six months only. However, the mortgage guarantee was not for six months and was not limited to $50,000. Additionally, the couple did not receive independent legal advice before executing the documents analogous to the current scenario with regard to Pierre’s guarantee. Additionally, in the current scenario the bank have not explained the guarantee to Pierre and he did not read the guarantee properly due to his limited understanding of English. Furthermore, in Amadio, it was held that where there is inequality of bargaining power and the weaker party suffers from a “special disadvantage”; if the bank is aware of this and then failure to notify them of the extent of their liabilities and recommend the securing of independent legal advice is unconscionable. Deane J further commented that “unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so”16. In the Amadio case, the limited understanding of written English was held to constitute a weakness. If we apply this by analogy to the current scenario, it is evident that Pierre had very limited English and thought that his guarantee was solely for the sum of $500 and therefore it is highly likely that the bank will fail in a claim against Pierre as guarantor on grounds of unconscionability. 7) With regard to the claim that there is no binding contract it is necessary to evaluate the law relating to formation of contract. The law of contract stipulates three fundamental requirements to establish a legally enforceable contract; namely offer, acceptance and consideration (it is important to note that parties entering into a contract must also have legal capacity to do so and it is presumed from the facts given that capacity is not an issue in this case). Lord Wilberforce asserted the rule for formation of contract in New Zealand Shipping Co Limited v A M Satterthwaite, The Eurymedon17: “English law having committed itself to a rather technical….. doctrine of contract, in application takes a practical approach…… into the marked slots of offer, acceptance and consideration”18. An “offer” in the context of contract law has been described as “an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed, the “offeree.19” The “expression20” may take different forms the agreement that C Ltd would buy all petrol from F “at prices to be agreed upon in writing from time to time” appears to satisfy this requirement. The intention element is an objective consideration and the case of Smith v Hughes 21emphasised the relevant consideration as being a focus on how a reasonable person would view the situation. Therefore, whilst the prices were to be determined from time to time, this nevertheless was part of the contractually agreed terms between C Ltd and F. Furthermore, valid acceptance in law follows a valid offer and the formation of a contract follows immediately. Moreover, a valid acceptance is a final and unqualified acceptance of an offer as demonstrated in the case of Peter Lind Limited v Mersey Docks & Harbour Boar,22 highlighting the “mirror image” rule, where acceptance must be unequivocal and unconditional, therefore acceptance must “mirror” the offer. With regard to the current scenario, the arrangement whereby C bought the petrol from F continued for three years and as the prices varied throughout, the issue in contention is whose terms are applicable to the contract. Contractual negotiations particularly in the context of quotations and bids for, will often involve several exchanges between the commercial parties involving offers and counter offers23. The case of Hyde v Wrench24 established that a counter offer brings an end to the original offer. However, the “battle of the form” creates real problems in practice25. The difficulty with this as evidenced with the current situation is determining the exact terms of the eventual contract. Despite the possibility of conflict in the current situation as to the exact terms of the contract, there is clearly a contract between F and C Limited for the purchase of petrol via course of conduct26. Additionally, the contract between the parties clearly specified that petrol was to bought by C Limited from F and that the prices were to be agreed. Coupled, with the fact that C Limited has been acting on the agreement for three years clearly points to acceptance and a binding contract in law. Moreover, in the case of Henry Kendall & Sons v William Lillico & Sons Limited27 the seller had sold the product to the buyer and similar to the current arrangement, the contract between the parties had been agreed but was followed the next day by dispatch of a document and a sold note containing an exemption clause on each transaction. The conclusion of the oral contract in this manner had been the common practice between the parties over a three year period, during which time there had been three or four transactions In this case the House of Lords further propounded a test regarding contract formation from previous dealings and referred to Lord Diplock’s extrapolations in the case of Hardwick Game Farm v Suffolk Agricultural and Poultry Producer’s Association Limited as follows28: “What each party by his words and conduct reasonably led the other party to believe were the acts he was undertaking a legal duty to perform”29. Additionally, in the case of Petrotrade Inc v. Texaco Limited30 on the basis of five previous transactions on the same terms and conditions for the same commodity over a 13 month period, Clarke LJ concluded that “given the course of dealing…. Both parties will have made the oral agreement on the basis that the contract would be subject to the same terms as before31”. The situation would be different if one party indicated by words or actions that the particular transaction would not be on the same basis as previous transactions. As such the test is objective and Hoffman et al posit that “it is possible to formulate the test for incorporation from a course of dealings. The test should be whether, at the time of contracting, each party, as a reasonable person, is entitled to infer from the past dealings and the actions and words of the other in the instant case, that the standard clauses are part of the instant contract.32” Accordingly, in the current scenario the course of dealings pursuant to the agreement clearly points to a binding contract. TUTORIAL 7 1a). In traditional legal theory, the exemption clause if included in a signed contract will be binding if the exemption clause has been incorporated and is clear and unambiguously expressed. Additionally, the general rule is that an exclusion clause will not have effect unless it satisfies the following requirements: 1) It was incorporated into the contract; 2) As a matter of interpretation, the wording of the clause is effective to exclude liability which otherwise the seller would incur; and 3) The clause is not rendered invalid by statutory provisions. With regard to incorporation, In the House of Lords decision in the Henry Kendall case33, Lord Wilberforce agreed with Lord Diplock and formulated a general test on similar grounds: “The court’s task is to decide what each party to an alleged contract would reasonably concluder from the utterances, writings or conduct of the other34”. Additionally, in respect of signed documents, a party will be bound by their signature provided there is no fraud or misrepresentation precluding enforceability under section 52 of the Trade Practices Act 1974. Finally it is important to note that even if an exemption clause is validly incorporated, there may be statutory limitations on enforceability. For example, section 68 of the Trade Practices Act 1974 prevents exclusion of the mandatory implied terms in consumer contracts. 1b) With regard to unsigned documents, in order for an exemption clause to be incorporated and binding it must be brought to the attention of the party. This was highlighted in the leading case of Thornton v Shoe Lane Parking.35 For example, with regard to exemption clauses in unsigned contracts such as ticket purchases, in the case of Thornton, the dispute involved an automatic ticket machine for a car park and it was highlighted that the customer could not refuse the ticket and the contract was effectively concluded at the time he put the money into the machine and therefore the customer was bound by the terms and conditions at this time. This meant that exclusion clauses referred to after the agreement was concluded could not be validly incorporated into the contract as they had not been brought to the other party’s attention. To this end, the Thornton decision affirmed the proposition in Olley v Marlborough Court36, that representations made by one party could not be included as a term of the contact if made after the agreement. Additionally, in the Thornton case it was highlighted, that a customer would be bound by an exemption clause in the ticket and unsigned document if they knew of the exemption clause beforehand and that the ticket was issued subject to it. Therefore if a person does not know of the conditions, they cannot be bound by it37. Additionally, as established in the case of Sydney Council v West, even if the clause forms part of the contract, it will not be binding unless the wording is clear and unequivocal. 2) In the Thornton’s case the plaintiff was a trumpet player on his way to an engagement with the BBC at Farringdon hall. The plaintiff parked at the multi-storey automatic car park, which had a notice stating the price of the car park and a notice that all cars were parked at the owners’ risk. When the plaintiff arrived at the car park there was no car park attendant and the plaintiff got a ticket from the machine and left the car there. Upon return, the plaintiff paid for the car parking at the office and the car was brought down from the upper floor. An accident occurred where the plaintiff was severely injured and the judge determined contributory negligence on the part of both the plaintiff and defendant. On appeal, the defendant did not challenge the finding of negligence however argued that liability was negated by the exemption clause in the ticket that was issued to the plaintiff by the machine. It was found that the ticket issued stated that “the ticket is issued subject to conditions of issue as displayed on the premises”, however there were no other terms on the ticket. The plaintiff said he did not read the terms on the ticket and that had he read it, he would have looked around the premises to see where the conditions were displayed. Therefore, the plaintiff won on grounds that the terms were not communicated to him and he was not aware of the exemption and therefore the exemption clause was not incorporated into the contract. 3) If the plaintiff had been a regular user of the car park, it is arguable that the decision may have been different on grounds that the exemption clause was incorporated by the course of dealings in the contract and therefore binding, provided the plaintiff had notice of the exemption clause. 4) Whether or not L is bound to pay the charge will depend on whether the clause has been incorporated into the contract. On the basis of the decision in Thornton it is arguable that as the term was not communicated to L the term was not incorporated into the contract and therefore L is not bound by the term to make payment of the fee. 5a) The initial problem for Harry is to establish breach of contract as the work was completed and Fred was taking the car for a test drive. Whilst Fred may have been reckless in leaving the car, the fact that the car was stolen renders it difficult for Harry to point to an actual breach of contract to claim for damages. Alternatively, as Fred is employed by Fixit, then Fixit will be vicariously liable for Fred’s negligence. It is a general rule of tort law that the very fact of employment gives rise to vicarious liability irrespective of whether employer itself is blameless38. In Rose v Plenty39 the Court of Appeal established the following criteria for vicarious liability: 1) the company workers were “servants” of the defendant; 2) the company workers were acting in the course of the defendant’s business40. If we apply this to the current scenario, there does not appear to be any issue that Fred was employed by Fixit and the issue will be whether Fred was acting in the course of employment and not “on a frolic of his own”41. If the latter is found to be the case, the appropriate defendant will be Fixit. The case law demonstrates a strong presumption in favour of vicarious liability whenever the employee is at “work”, however in the case of Keppel Bus Company v Saad Bin Ahmad42 it was held that deliberate wrongdoing by the employee will negate vicarious liability. On the one hand it is arguable that Fred was on a “frolic of his own” in taking a detour from his route to get food. However, it is also evident that Fred was taking a test drive. The principle requirements under the tort of negligence is that the Fixit owed Harry a duty of care, it breached this duty of care and the breach caused damage which was not too remote. The test for whether or not there is a legal duty of care was established in the case of Donoghue v Stevenson43. Moreover, in the case of Caparo v Dickman44, the House of Lords confirmed the following three stage test to determine whether a duty of care exists: 1) Whether the consequence of the defendant’s actions were reasonably foreseeable; 2) Whether there was sufficient proximity to impose a duty of care; and 3) Whether it is fair, just and reasonable to impose a duty of care45. Furthermore, the proximity text set out in the case of Anns v Merton London Borough46 is established as Fred is clearly a member of a group to whom the company owed a duty of care. However, in claiming for negligence Harry will only be entitled to claim direct loss. 5b) With regard to the defective part fitted into the car, this gives rise to product liability issues. The primary legislative measures are governed by the Trade Practices Act 1974 (TPA), which implies certain rights and warranties into commercial contracts. The TPA 1974 applies to “manufacturers” and the statutory definition of manufacturers is extremely wide and includes suppliers, distributors and licensees. Additionally, under the TPA the Fixit will be strictly liable for loss or damage caused by a defect in a product supplied. Additionally, Fixit may have potential liability in negligence to Harry for failure to exercise reasonable care in supplying products causing loss or damage was highlighted in the decision in Fisher v Harrods47. Moreover, under section 74J of the TPA retailers are strictly liable to persons who have suffered loss or damage due to a defective product. Under the sales of good legislation, distributors attract strict liability to purchasers for loss or damage caused by a defect in a product sold or supplied by them. Damages for personal injury will be assessed under the general principle of law that a tortfeasor is only liable for damage that is of a kind that is the natural and probable consequence of his wrongful act and must not be too remote48. The injury in the current scenario clearly satisfies this test and Harry will be able to recover damages under two heads of recovery; namely general and special damages49. Therefore there is a strong likelihood Harry succeeding in a claim for special damages for any loss of earnings to the date of trial in any action against the company50. With regard to general damages, the most likely heads of recovery applicable to Harry will be recovery for pain, suffering and loss of amenity, and potentially future loss of earnings51. Whilst there is no specific mathematical calculation when calculating general damages; with regard to pain and suffering, the award of damages is designed to compensate a claimant for the pain and suffering attributable to the injury both immediately after the accident and in the future if the injury is serious52. It covers both physical injury and psychological injury and the award is made on a subjective basis in asking “what was the pain and suffering of this particular claimant?53” 6) With regard to Harry’s purchase, he did not purchase the computer as a consumer and therefore this will not constitute a consumer contract under the TPA 1974, which specifically prohibits exclusion of liability for the mandatory implied terms. Alternatively, Campbell comments that Australian law permits limitation of contractual liability for defective products in very narrow circumstances54 and additionally as established in the Sydney v West case, the contra proferentum rule will apply against the supplier in attempting to enforce the exemption clause. Read More