Introduction to Business Law and Ethics

Question:

Background:

LST2BSL

Introduction to Business Law and Ethics Terms of a Contract

Outline of lecture

• Part I
  • Terms: overview
  • Puffs, representations, opinions, terms
  • Distinguishing terms and representations
  • Conditions, warranties and innominate terms
• Part II
  • Express and implied terms
  • Proving the existence of terms: parol evidence rule
• Part III
  • Incorporation of terms
  • Exclusion clauses
  • Summary of lecture

Part I

Terms of a contract

• The ‘terms’ of a contract refers to what has been agreed, ie the contents of the agreement.
• Freedom of contract
• Terms must be certain (able to be enforced)
• Sometimes difficult to tell what is part of the agreement, or whether or not something has effectively been included in the agreement.
• Different ways of classifying terms
• Some kinds of terms have special rules

Statements: are they terms?

• Often many things are said between the parties at the time they are negotiating and creating a contract.
• A term is a promise (promissory in nature)
• Statements which are not terms:
  • Puffery
  • Opinions
  • Representations: statement of fact which induces the other person to enter into the contract.

A term or a representation?

• To determine whether term or representation:
  • Language used
  • Context of statement (place/time)
  • Intention of person; any special skill/knowledge
  • Importance of the statement to the parties
    • eg Oscar Chess Ltd v Williams

Terms & representations

• If the statement is a term of the contract:
  • Breach of contract – damages
• If the statement was only a (mis)representation:
  • Tort: – deceit (intentional/reckless);

– negligence (careless);

– if innocent mispresentation: no remedy

• Misrepresentation can make a contract voidable
• Unconscionability (common law/consumer law)
• Misleading & deceptive conduct (consumer law)

Classifying terms by their importance

• Conditions
  • Essential part of the contract; party would not have entered contract without the term
  • eg Associated Newspapers Ltd v Bancks
  • Breach entitles other party to terminate performance
• Warranties
  • Less important
  • eg Bettini v Gye
  • Breach entitles other party to damages only
• Innominate terms
  • Intermediate
  • Importance depends upon severity of breach

Part II

Express and implied terms

• Express: words said/written
• Implied: parties are taken to have agreed to a term even if never discussed/written.
  • Implied by common law, or statute, or by custom/trade usage.
  • Universal implied terms (into all contracts)
    • eg duty to cooperate, do what is reasonable
  • Generic implied terms (into a genre of contracts)
    • eg terms implied into contracts for sale of goods
  • Term implied ad hoc: into 1 particular contract

Implied term ad hoc

• Court will only imply a particular term into a contract in very limited circumstances.
• 5 requirements. The term must:
  • be reasonable and equitable;
  • be necessary to give ‘business efficacy’ to the contract, to achieve what parties intended;
  • be so obvious that it ‘goes without saying’ (officious bystander test);
  • be capable of clear expression;
  • not contradict any express terms.
• Codelfa Construction Pty Ltd v State Rail Authority of NSW

Proving the existence of terms

• Oral contract:
  • question of fact as to what words were spoken
• Written contract:
  • Parol evidence rule: if a written contract appears complete, the parties cannot introduce other evidence about the meaning of words, or extra things agreed that were not included in the document (ie to vary, add to or subtract from the written document)

Exceptions to parol evidence rule

• Parties can lead outside evidence:
  • To clarify any ambiguity or unclear language in written contract;
  • To prove that the agreement was only partially written, and partially oral;
  • To rectify an error in the written contract;
  • To show that the agreement is invalid for some reason (eg duress);
  • To prove a collateral contract existed (an oral promise by 1 party, in return for which the other party entered into the main contract).

Part III

Incorporation of express terms

• Difficulty may be in determining whether an express term was effectively included (incorporated) in a contract.
• Signed document:
  • irrelevant whether party actually read it
  • L’estrange v Graucob
• Reasonable notice of terms accessible elsewhere

Incorporation of terms (cont.)

• Document containing terms must be a contractual document
  • Causer v Browne
  • Only terms to be expected on such a document (eg delivery note) – attention must be drawn to unusual terms.
• Terms cannot be added later, once contract is complete (eg a sign only visible once the contract is already created).

Exclusion clauses

• A term which limits or excludes liability
• Courts are hesitant:
  • Term must have been effectively incorporated into the contract
  • Term will be interpreted contra proferentum (where any ambiguity or way to limit scope, court will interpret term against interests of party relying on it)
  • ‘Four corners rule’: term only covers acts carried out within the 4 corners of the contract
    • eg Sydney City Council v West
  • Not all obligations/liabilities can be contracted out of

Summary/Revision

• Main topics or points from this lecture:
  • Puffs, opinions, representations and terms
  • Distinguishing terms and representations
  • Conditions, warranties and innominate terms
  • Express and implied terms; proving the existence of terms
  • Incorporation of express terms
  • Exclusion clauses
• Expand your glossary with new words:
  • parol evidence rule; contra proferentum; term implied ad hoc
• Expand your collection of case summaries:
  • Names, facts, question/issue, outcome, ratio decidendi
• Next lecture: performance and breach of contract

Extra support if you need it

• Subject Support Tutors Program (SSTP)
• For anyone who is finding the subject difficult and would appreciate extra assistance.
• Simply contact one of the SSTP tutors for this subject:
  • Engi Messih (Messih@latrobe.edu.au)
  • Mst Kanij Fatima (Fatima@latrobe.edu.au)

Week 5 seminar LST2BSL Intro to Business Law and Ethics

Terms of a Contract

Problem solving

Andy wants to start his own mobile dog-washing business. He goes to ‘Trailers Galore’ to see what kinds of trailers are available. There, he speaks to the manager of the business, Mei.

‘I’m looking to get a trailer that I can fix up for my new business. I’ll be using it for washing customers’ dogs,’ Andy explains.

‘Well, this TrailBlazer right here will be fine for that kind of thing,’ Mei replies. ‘It’s an excellent trailer – our best value model.’ She shows Andy an enclosed trailer available for $900.

‘It looks perfect. The dogs will love it!’ exclaims Andy. ‘I’ll take it.’

Mei presents Andy with a long document and asks him to sign at the bottom to complete the sale. Andy doesn’t bother to read the document. He signs it, pays, and takes the trailer home to begin fitting it out with all of his dog-washing equipment.

After Andy’s first week of dog-washing, he notices that there is water damage at the bottom of the trailer. It seems that the water from the dog-washing has been seeping into the frame of the trailer, and is causing it to rot. He calls Mei to complain.

‘There’s no point complaining to me. Check out the contract – we’re not liable,’ says Mei.

Andy looks at his copy of the sale contract. On the final page there is a term stating:

‘Trailers Galore is not liable for any breach of warranty under this agreement.’

Andy comes to you for legal advice. He says that the TrailBlazer is not excellent, and that this cannot be Trailer Galore’s best value model. He wants to sue Trailers Galore for breach of contract, for the trailer not being suitable for dog-washing because it is not waterproof.

1. Is it a term of the contract that the TrailBlazer is an excellent trailer, and/or that it is Trailers Galore’s best value model? Why or why not?
2. Is it a term of the contract that the trailer is waterproof? Why or why not?
3. Is the parol evidence rule relevant here? Why or why not? If it is relevant, does an exception apply?
4. If it is a term of the contract that the trailer is waterproof, what kind of term is it?
5. Will the exclusion clause prevent Andy from suing Trailers Galore for the water damage? Was it properly incorporated in the contract? How will it be interpreted?

Conclusion: would you advise Andy to pursue an action for breach of contract against Trailers Galore? Why or why not?

La Trobe University

LST2BSL: Introduction to Business Law and Ethics Semester 2, 2020

Common Law Assignment – Melbourne (Bundoora)

INSTRUCTIONS – Please read the instructions BEFORE you start writing your assignment!

1. This assignment is worth 20% of your final mark for this

2. Your assignment MUST be submitted by 11.59 pm (AEST) (midnight) on Sunday 30 August.

3. All questions MUST be answered.
4. With regards to formatting, your assignment must be typed with 5 or double spacing, and with margins of at least 2cm on all sides. Size 12 font MUSTbe used.
5. The task is a common law assignment, so you are NOT required to discuss any legislation at all. It is essential that you cite relevant authorities (cases) wherever possible to support your reasoning in each answer.
6. Your work MUST be appropriately referenced, using footnotes. Where you state a legal principle, which comes from a case, you must provide a citation to the relevant case. If you are stating a legal principle that is covered in the textbook or lecture and which does not have a relevant case provided in the textbook, you should cite the textbook. You are not expected to use any materials beyond the lectures and the set textbook. But if you do, you must provide appropriate citations. No separate bibliography is required. Format your citations according to the citation guide at the end of this document.
7. Your assignment must be 1,500 words or fewer, excluding all footnotes. You should not need the 10% leeway as a guide. You must state the word count on the front page of your assignment. (If you fail to provide this, the marker will be forced to estimate the word count, and this may lead to )
8. You must also state the details of your seminar on the front page of your assignment. This includes the day and time of your seminar, and the name of your seminar
9. Assignment submission is electronic only, via the link on LMS. Do NOTemail your assignment to your seminar leader or the subject coordinator. Your assignment will not be marked unless and until you have completed electronic submission. You should receive a digital receipt confirming your successful submission. You are responsible for ensuring submission is successful. Should any technical problems arise, if you cannot provide details of your digital receipt, we will assume that you never attempted to submit any
10. You can only submit your assignment once. Submission is final. You will not be able to access your Turnitin originality report. Teaching staff will be checking these reports
11. You MUST not plagiarise. To avoid plagiarism, make sure you acknowledge all your sources with appropriate citations. You may discuss the questions with other students, but all written work must be your own: do not show anyone your written work for this assignment, and do not view anyone else’s.Academic misconduct is taken extremely seriously at La Trobe University. Further information about plagiarism and academic misconduct is provided in the Subject Learning
12. You may use a bilingual dictionary, but you MUST NOT use any online tools for changing or translating text.
13. Further information about policies on late submission, applying for an extension, is available on the LMS, and in your Subject Learning Guide.

FACTS

Parker owns and runs ethical shoe shops, Ethletic Vegan Footwear (EVF), in Melbourne and Sydney. He sells ethically custom-made, cruelty-free and vegan shoes. He prides himself in producing footwear in a much more sustainable, less toxic and more compassionate way than using animal hides. Parker’s clients are vegans looking for high quality alternatives to animal leather. Parker has sourced the material for his vegan line of footwear from Vegan Shoes Supplies (VSS) for the last 10 years. Sadly, the owner of VSS retired recently and closed the business down. Parker had to find another supplier. Parker identified Cruelty-Free Cobbler Supplies (CFCS) as a potential new supplier of vegan leather. He rings the business to discuss the nature of the materials they sell and speaks to Margaret:

Parker: ‘Many of my vegan clients are environmentally conscious. They are looking to buy shoes that are manufactured from an eco-friendly, natural alternative to animal hide. Is the vegan leather you supply all- natural?’

Margaret: ‘Yes, of course!’

Parker informs Margaret of his intention to order 20 square metres black vegan leather. Later that afternoon, Margaret emails Parker an online order form with the type and amount of leather already entered. Parker adds his details to complete the online order form and emails it back to CFCS. The order form did not include specific instructions/details about the vegan leather.

Parker uses the vegan leather to craft a pair of bespoke black boat shoes for Sonia. Sonia calls Parker a couple of days later, threatening to sue him. Within minutes of putting on the shoes, the skin on her feet broke out in painful red patches and blisters. Sonia is allergic to synthetic colouring. It turns out that the synthetic tint CFCS use to colour the vegan leather they supply, and that has caused the reaction.

Although Sonia made it clear that she wanted vegan leather, she did not specify that the production process should not involve any synthetic materials. She now wants to sue Parker for breach of contract.

After the complaint about Sonia’s shoes, Parker makes a sign to display in his shop. He puts the sign up on the wall next to the counter where customers are served and it can be easily seen by his customers.

George comes to Parker’s shop to place an order for a pair of men’s sneakers. They discuss all the details: George orders a pair of white men’s sneakers in a size 10, with white rubber soles. While finalising the order George sees the sign, which says: ‘Ethletic Vegan Footwear (EVF) accept no responsibility for breach of any warranty’.

George returns a week later to pay for and collect the sneakers. After leaving with his new pair of sneakers, George discovers that the sneakers have brown coloured rubber soles when he gets home. George had the pair made to wear when he participates in lawn bowling league competitions, as participants must wear all- white shoes on the lawns. George wants to complain to Parker but isn’t sure whether the exclusion clause on the sign prevents him from doing so.

ANSWER ALL QUESTIONS

1. Was it a term of the contract between Parker and Cruelty-Free Cobbler Supplies (CFCS) that the vegan leather would be all-natural? (5 marks)

2. Was there an implied term in Sonia’s contract with Parker, that the shoes will be made with all- natural vegan leather with no synthetic material/ingredients involved? (5 marks)

3. Was the colour of the soles on the pair of George’s sneakers a condition or a warranty of the contract? (4 marks)

4. Is Parker still responsible for the soles on the pair of George’s sneakers being the wrong colour?

(6 marks)

Guide to citation for the common law assignment

Legal citation is different to other styles of citation, such as Harvard or other in-text citation. Legal citation involves providing the most relevant legal authority for any statement of legal rules or principles. Citations are provided in footnotes. (If you are working in MS Word, simply go to the ‘References’ tab and click on

‘Insert Footnote’.)

For the purposes of LST2BSL Introduction to Business Law and Ethics, we do not expect you to learn the Australian Legal Guide to Citation, which is the usual approach to legal citation in Australia. That Guide is incredibly complex. Instead, you can simply follow these instructions for citations in your common law assignment.

As stated above in the Assignment Instructions, where you state a legal principle, which comes from a case, you must provide a citation to the relevant case. You are not expected to read the cases themselves: as long as a case is summarised in the textbook, you can cite the case itself. An example of this would be if you said this in your assignment:

If a letter of comfort includes statements which are not promissory, then it probably was not intended to be legally binding.¹

Alternatively, you could mention the case name in the sentence of your assignment itself, and just put the case citation in a footnote, like this:

As in the case of Commonwealth Bank of Australia v TLI Management Pty Ltd² a letter of comfort with only non-promissory statements was probably not intended as legally binding.

Either way, we expect you to provide a citation to the relevant case for the legal principle you are stating.

If you are stating a legal principle that is covered in the textbook or lecture and which does not have a relevant case provided in the textbook, you should cite the textbook. An example of this would be:

If an agreement is executed as a deed, then there is no requirement for both parties to provide consideration.³

Please also note that you are not expected to use any materials beyond the lectures and the set textbook. But if you do, you must provide appropriate citations. No bibliography is required. Finally, remember that footnote citations do not count towards your word count, so don’t hesitate to provide citations for any statement of legal principle. If in doubt, provide a citation.

1 Commonwealth Bank of Australia v TLI Management Pty Ltd [1990] VR 510.

2 [1990] VR 510.

3 Michael Lambiris and Laura Griffin, First Principles of Business Law (Oxford University Press, 2017, 10^th edition) 83.