Explain how agreed terms may be used to exclude liability;
Contracts commonly contain terms called- exclusion, exemption or limitation clauses that operate exclusively to benefit one party
- exclude all liability for breach
- limit liability for breach of contract or wrongful conduct
- exempt a party from obligation to perform as promised
- limit the redress available to the other party where there is a failure to perform
For a term excluding liability to be given legal effect, it must be;
◦ Clear and precise in its wording and the aspects of liability that are being excluded or limited ;
◦ Property brought to the attention of the other party prior to them entering the agreement (so as to be incorporated into it)
Olley v Marlborough Court Ltd (1949) 1 All ER 304
• Facts; couple booked into hotel room
◦ Furs and jewellery were stolen from the room during their stay
◦ Couple wanted compensation from the hotel
◦ Hotel denied liability directing couples attention to an exclusion clause detailed on a sign on the back of the couples room door- ‘The hotel would not be responsible for articles lost or stolen’.
- Issue; had the exclusion clause behind the door been incorporated into the contract between the couple and the hotel
- Decision; no, it was only brought to the attention of the couple after they checked in. For the clause to be effective, it needed to be brought to their attention at the time when the contract was formed.
Sydney City Council v West (1965) 114 CLR 481
• Facts; West parked car in Sydney council car park, obtaining ticket from machine, car gone when returned
◦ Third party approached parking attendant claiming to have lost ticket and attendant provided duplicate ticket without doing any checks. Third party proceeded to take car
- Issue; West sued for damages, the council denied liability on the basis of express statement on ticket; “The council does not accept any responsibility for the loss or damage to the vehicle…”
- Decision; the exclusion clause had become a term of the contract but properly interpreted it did not apply to this situation as it was outside the scope of the contract.
Know how and when terms are put into contract by fact;
- Not expressed but intended to be part of the contract
- For a term to be implied by fact it must be obvious from the circumstances that the parties must have intended to include such a term as part of their agreement
- The court applies the officious bystander test to determine if the requisite intention is present
The Officious Bystander Test:
- “What would the parties have replied if an officious bystander had asked them at the time of their agreement whether the suggested term was part of their contract?”
- If the court can infer that the parties would have answered ‘of course’ the necessary intention is established
For a term to be implied by fact
‣ The suggested term must be reasonable and equitable
‣ It must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it
‣ It must be so obvious that “it goes without saying”
‣ It must be capable of clear expression
‣ It must not contradict any express term of the respective contract
Sales of Goods Act 1985 (WA)
Regulates business to business contracts for the sales of goods
Contains statutory implied terms regarding quality of goods sold
Section 13: Sale by description
- “Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description…”
- Goods are sold by description when they are described as belonging to a particular class or type of good
- Note; this section does not make any implied guarantees as to the quality of goods.
s13 Varley v Whipp (1900) 1 QB 513
- Facts; Whipp, would you like to buy my second hand reaping machine for 21 pounds?
- The machine is in the town of Upjohn, it is 1 year old and has only cut 50 or so acres of crops
- Sounds good!
- The machine is old and obviously broken so he refuses to pay for it
- Issue; can the seller enforce the contract?
- Decision; the court decided that the buyer does not have to purchase the machine as the description and actual quality of the goods were very different.
Section 14; Implied conditions as to quality or fitness
- “Where the buyer, expressly or by implication makes known to the seller the particular purpose for which the goods are requires, so as to show that the buyer relies on the seller’s skill or judgement and the goods are of a description which it is”
- It becomes a condition of the contract that the seller will supply goods in a state reasonably fit for the buyers purpose
- Otherwise the buyer may treat the contract as terminated and reject the goods.
- If you are shown a defect you cannot complain afterwards
- The seller is obliged to deliver goods that are at least of merchantable quality unless the buyer has examined the goods in a way ought to have revealed the defects complained of
s14 case David Jones Ltd v Willis (1933) HCA 47
- Facts; Willis went to shoe section in DJ’s and said to attendant she wanted comfy walking shoes
- Shown potential options, tried one of the pairs on and bought them
- Third time she wore them one of the heels came off when she was walking down some stairs and she fell and broke her leg
- Sued DJ’s for damages on the basis of breach of a contractural warranty (to supply shoes of a merchantable quality)
- Issue; was it a term of the contract that the shoes be of merchantable quality and were the shoes of that standard?
- Decision; they were not of merchantable quality which was required
Section 15; Sale by sample
- A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied to that effect
- In the case of a contract for sale by sample
a. There is an implied condition that the bulk shall correspond with the sample in quality
b. There is an implied condition that the buyer shall have a reasonable opportunity of comparing the bulk with the sample
• Under section 15 it becomes a condition of the contract that the bulk of the goods must correspond with the sample
• The buyer must have reasonable opportunity after delivery to compare the bulk with the sample
◦ Statutory implied terms can be excluded
‣ Section 54- Exclusion of implied terms and conditions
Terms put into a contract by operation of law
The law operates to fill gaps in contracts with terms that clarify the contractural obligations of the parties and assist in the contracts functioning.
Perri v Coolangatta Investments Pty Ltd (1982) HCA 29; (1982) 149 CLR 537
- Facts; Perri agreed to buy a property from Coolangatta Investments (CI)
- Performance was subject to condition that Perri had to sell another property he owned
- Perri couldn’t find purchaser for that property because he was asking for too much money
- CI terminated contract
- Issue; had CI validly terminated further performance of their contract with Perri?
- Decision; yes, Perri did not do all that was reasonable in the circumstances to sell his other property
Terms put into all contracts by common law
To cooperate and do what is reasonable (see Perri v Coolangatta)
To act in Good Faith (use contractural powers honestly and reasonably) (see Burger King Corp v Hungry Jacks Pty Ltd)
Terms put into contract by statute
Competition and Consumer Act 2010 Cth
Competition and Consumer Act 2010 Cth
Adds statutory guarantees to business to consumer contracts
The sale of goods is regulated by both, however, if there is a clash C&C act overrides S of G Act
