Johnny decided to order organic fruit for his restaurant from a new supplier, George. When he reads through the terms of the written contract given to him by George, he sees that while George guarantees that the fruit will be ‘fresh’, the contract says nothing about whether the fruit will be organic.
Johnny asks George about this, explaining that he tells his customers that his fruit is always organic. George assures him that the fruit will always be organically grown. Johnny then signs the contract without changing it.
The next three deliveries include fruit that is not organically grown. Can Johnny legally enforce George’s verbal promise about the fruit?
Issue 1: A term of the contract
- Issue 1: The legal issue at hand is whether the verbal promise by George is a term of the contract
- Rule: According to the parol evidence rule, ‘where a contract is reduced to writing, where the contract appears in the writing to be entire, it is presumed that the writing contains all the terms of it and evidence will not be admitted of any previous or contemporaneous agreement which would have the effect of adding or varying it in any way’.
- Application: The parole evidence rule does apply here because Johnny has signed a written contract with George. However, Johnny can argue the exception to the parol evidence rule because the written document is silent about the oral statement. So, both the parol evidence rule and the exception that the contract is partly written and partly oral needs to be discussed: Van den Esschert v Chappell.
- Conclusion: The verbal promise is a term of the contract.
- So the next question would be of what importance is the term – is it a condition (Associated Newspapers v Bancks) or a warranty (Bettini v Gye). This distinction must be discussed in order to determine the remedy available.
Issue 2: collateral contract
- Issue 2: The legal issue at hand is whether the verbal promise by George constitute a ‘collateral contract’.
- Although extrinsic evidence is not admissible under the parol evidence rule to add to, vary or contradict the terms of a written instrument, such evidence may be admitted to show the existence of a collateral contract.
- For a collateral contract to be enforceable it must be shown that the main contract would not have been entered into in the absence of the earlier statement, i.e. it has to be established that the main contract was made in consideration of the making of the promise in the collateral contract.
- De Lassalle v Guildford.
Issue 2: collateral contract – Application
- If Johnny can establish that he would not have signed the written contract in the absence of George’s verbal promise, an argument can be made that Johnny and George have created a collateral contract:
- in return for George’s promise Johnny has entered into the main contract. Importantly, collateral contract can be argued here because the written document is silent about the oral statement by George.
- If the written document had made a statement, such as “the fruit is not organic”, that statement would have contradicted the oral statement and collateral contract could not have been argued: De Lassalle v Guildford.
- George has breached the collateral contract and while Johnny is not entitled to terminate the main contract – since it has not been breached – Johnny is entitled to damages to compensate him for any losses arising as a result of breach of the verbal promise.
- Conclusion: The verbal promise does constitute a collateral contract.
Issue 3: misrepresentation
Issue 3: The legal issue at hand is whether the verbal promise by George is a misrepresentation.
- A misrepresentation is a false statement of fact made before the contract is entered to induce the other party to enter the contract and that doers induce that person to enter the contract: Edgington v Fitzmaurice.
- If the misrepresentation is fraudulent, the innocent party can terminate the contract and recover damages under the tort of deceit: Derry v Peek.
- If it is negligent, rescission is available under common law (Esso Petroleum v Mardon) and damages are available in the tort of negligent misstatement (Shaddock v Parrammatta City Council).
- If it is innocent, the innocent party can terminate the contract only: Whittington v Seale-Hayne.
Revision Question 1, Issue 3: misrepresentation (cont)
- If not for George’s statement, Johnny would not have entered into the written contract because it was crucial to Johnny’s entry into the main contract. Next, George did believe or had reason to believe in the truth of what he was saying.
- However, George may claim that what he said was a statement of opinion or intention as to the future, but not one as to fact. Even if it is an inducement, a misrepresentation is only actionable if it involves a statement of present fact.
- However, while George may argue it was a statement of opinion or intention, Johnny can claim that it was a statement by an expert (George) and George should have known that the product he is selling is organic and that George’s statement is therefore a statement of fact, not opinion or intention.
Conclusion: Johnny is entitled to terminate the contract and seek damages because of George’s assurances.
Issue 4: statutory rights
Issue 4: Johnny have any rights under statute
- Johnny is not a ‘consumer’ under s 3 of the ACL as he is buying the fruit for resupply. So, he cannot sue for breach of the ACL and its specific consumer guarantees.
- Johnny may claim that George engaged in misleading or deceptive conduct in breach of s 18 of the ACL (general provisions). Johnny may also argue that George gave false or misleading representations about the fruit in breach of s 29 of the ACL.
Issue 4: statutory rights (cont)
- ACL ss 18 and 29. Remedies that Johnny may claim for breach of s 18 and s 29 are damages (ACL s 236)
Revision Question 2
At an auction for the sale of a particular farm property of 1,000 acres, the auctioneer claimed that 700 acres were cleared and ready for agricultural use. Hank bought the property and signed a contract of sale, but later found out that only 300 acres were cleared. No mention of any clearing of the land was made in the contract.
Advise Hank of his common law rights.
Note: An auctioneer is the agent of the vendor, hence the vendor is normally liable for the auctioneer’s statements.
Revision Question 2: misrepresentation
Issue: Hank may claim that he has remedies against the auctioneer on the grounds of misrepresentation
Rule: To succeed in misrepresentation, the aggrieved party must show:
- There was a false statement of fact
- The false statement was addressed to the person misled
- The false statement was intended to induce and did actually induce the contract.
- Next, It is necessary to discuss whether the misrepresentation is fraudulent, negligent or innocent as this will determine the remedies available
Revision Question 2: breach of contract
Issue: the legal issue at hand is whether the statement is a mere representation or a contractual term?
- Consider the Oscar Chess v Williams criteria: the length of time between making the statement and entry into the contract, the special knowledge of the vendor, the importance of the statement, was the statement reduced to writing.
- However, there is the problem of the parol evidence rule under which oral evidence is not allowed where a contract is reduced into writing. However, there are two important exceptions to this rule:
- where the oral statement is a collateral contract, as was the case in De Lassalle v Guildford, or
- the contract is partly written and partly oral, as was the case in Van Den Esschert v Chappell.
Revision Question 2: breach of contract (cont’d)
Is it a condition or warranty?
- A condition goes to the root of the contract. It is a term of fundamental importance to the contract – without such term the party favoured by it would not have entered into the contract: Associated Newspapers v Bancks. Breach of condition entitles the aggrieved party to rescind the contract and claim damages.
- A warranty is of lesser importance – it is not critical to a party’s entry into the contract. Breach of warranty entitles the aggrieved party to damages only: Bettini v Gye. Rescission is not available.
Revision Question 2: conclusion
- Hank may be able to recover his damages by arguing breach of contract or misrepresentation.
- Potentially he could also argue that there was a mistake in the contract. Alternatively, he could argue a breach of statutory law (ACL) due to misleading and deceptive conduct (s 18 ACL).
Revision Question 3
Beryl decides to open a health food deli in the heart of the city and hopes to attract lunch-time crowds. She goes to Zap Pty Ltd the largest microwave dealers in the central business district. She advises the salesman that she requires a reliable and durable microwave for commercial purposes to be used exclusively in her deli. The salesman recommends the Duro Model 3000. Beryl returns to Zap Pty Ltd, the same day and purchases the Duro Model 3000 microwave. Within days of purchasing the microwave Beryl discovers the microwave either burns the food to charcoal, even on the lowest setting, or fails to heat the food altogether.
Advise Beryl of her statutory rights, if any, against Zap Pty Ltd.
Question 3: s 3 ACL
Issue: whether Beryl has access to the implied terms as expressed in the goods Act and ACL and can hold the supplier and or manufacturer liable for breach of these terms.
- Beryl is a “consumer” under ACL s 3 regardless of the price. Even if the microwave cost >$100K, it is goods of a kind ordinarily acquired for personal, domestic or household use and is not bought for resupply or to be used up in trade or commerce.
- She therefore has the benefit of the ACL consumer guarantees
Question 3 s 54 ACL: rule and application
Is the microwave of “acceptable quality” under ACL s 54?
- No, as it is not “fit for all the purposes for which goods of that kind are commonly bought” and is also not “free from defects” as the microware either “burnt” or “failed to heat” food
Question 3 s 55 ACL: rule and application
Is the microwave “fit for its disclosed purpose” under ACL s 55?
- Under s 55, where the consumer specifies the purpose for which they acquire the goods and the consumer relies on the skill or judgment of the supplier, there is guarantee that the goods are fit for the disclosed purpose.
- Zap is in breach of s 55 as the microwave is not fit for Beryl’s disclosed purposes and she relied on Zap’s recommendation.
Question 3: s 56 ACL: rule and application
Does the microwave correspond with its description under ACL s 56?
- Zap’s salesman recommends the Duro Model 3000. This is in response to Beryl’s explaining that she needs a reliable and durable microwave for commercial purposes to be used exclusively in her deli.
- Zap has breached s 56 as the microwave does not correspond with the description implied when the salesman recommends the Duro Model 3000.