5.6 implied terms (generic) (slides)-1 (1).pptx

Principles of Business Law TOPIC 5: TERMS OF A CONTRACT IMPLIED TERMS: GENERIC TERMS – COMMON LAW AND STATUTORY Generic terms: terms implied into classes of contracts  Terms implied into particular classes or categories of contracts are called generic terms.  By ‘particular classes...

Principles of Business Law TOPIC 5: TERMS OF A CONTRACT IMPLIED TERMS: GENERIC TERMS – COMMON LAW AND STATUTORY Generic terms: terms implied into classes of contracts  Terms implied into particular classes or categories of contracts are called generic terms.  By ‘particular classes of contracts’ we mean, for example:  a sale of goods contract;  a lease;  an insurance contract; or  a contract between a doctor and patient.  Generic terms can be implied:  at common law  by statute (eg, Goods Act 1958 (Vic) Generic terms: common law At common law, a term will be implied by law into a particular class of contract if the enjoyment of rights conferred by the contract would or could be rendered nugatory, worthless, or perhaps, seriously undermined unless the term is implied  Breen v Williams Generic terms: common law Breen v Williams FPBCL p 321 Facts  W was B’s doctor.  B asked W to hand over her medical records.  W refused to hand over the medical records unless B indemnified him against potential liability.  B argued that the refusal to hand over the medical records (without insisting upon the indemnity) amounted to a breach of contract.  The contract did not include an express term that dealt with this issue. Issue  Do doctor/patient contracts include an implied generic term that required the doctor to act in the best interests of the patient? Generic terms: common law Breen v Williams (ctd) Decision  There is no implied term in a doctor/patient contract that requires the doctor to act in the best interests of the patient.  Doctor/patient contracts include an implied generic term that requires the doctor to exercise due care and skill. Reason  As the contract included an implied obligation that required the doctor to act with due care and skill, it was not necessary to imply a term that obliges the doctor to act in the best interests of the patient. Generic implied terms: legislation  The Goods Act 1958 (Vic) implies terms into particular types of sales contracts.  You will only be examined on the following:  Sale of goods by description  s 18 and 19(b)  Sale of goods by sample  s 20  Sale of goods: fit for purpose  s 19(a)  Section 61  which allows parties to exclude the terms that would otherwise by implied Correspond with description s 18 Goods Act 1958 (Vic) When there is a contract:  for the sale of goods by description there is an implied condition that the goods shall correspond with the description … Example of breach of term implied by s 18 Varley v Whipp FPBCL p 432 Facts  V and W entered into a contract under which V promised to supply a “a nearly new reaping machine”.  The machine was very old and had obviously been broken and repaired. Issues  Did the contract include an implied condition that the goods will correspond with the description?  If so, was the term breached? Example of breach of term implied by s 18 Varley v Whipp (ctd) Decision/reason  The contract contained an implied condition that the goods will correspond with the description.  The machine was bought unseen and was identified by description.  The implied term was breached  The machine was not nearly new (and had obviously been broken and repaired). Sale of goods by description s 19(b) Goods Act 1958 (Vic) If:  goods are bought by description; AND  the seller deals in goods of that description, a term is implied into the contract that the goods will be of ‘merchantable quality’ UNLESS  the buyer has examined the goods in a way that ought to have revealed the defects complained of. What does ‘merchantable quality’ mean? Goods are of 'merchantable quality' if other buyers, knowing of any defects in the goods, would buy those goods for about the same price as the original buyer.  Australian Knitting Mills v Grant What does ‘merchantable quality’ mean? Australian Knitting Mills v Grant FPBCL p 311 Facts  G purchased underwear manufactured by AKM.  After wearing the underwear, G developed acute dermatitis.  G sued AKM for negligence.  G also sued the retailer that sold him the underwear (our focus), alleging breach of an implied promise that the goods were of ‘merchantable quality’. Issue  Was the underwear of ‘merchantable quality’? What does ‘merchantable quality’ mean? Australian Knitting Mills v Grant (ctd) Decision/Reason  Even if familiar with the fault, most people would buy the underwear for about the same price as G paid.  This is because most people who wore the underwear would not develop acute dermatitis.  Thus, the underwear was of ‘merchantable quality’. What does ‘merchantable quality’ mean?  Goods are not of ‘merchantable quality’ if they are of no use for any purpose for which such goods are normally used.  David Jones v Willis What does ‘merchantable quality’ mean? David Jones v Willis FPBCL p 342-3 Facts  W purchased shoes from DJ.  W told the sales assistant she wanted ‘comfortable walking shoes’.  The third time W wore the shoes, the heel came off.  W fell and was seriously injured.  W sued DJ, arguing that the shoes were not of ‘merchantable quality’. Issue  Were the shoes of ‘merchantable quality’? What does ‘merchantable quality’ mean? David Jones v Willis (ctd) Decision  The shoes were not of ‘merchantable quality’. Reason  Shoes that broke so quickly were of no use for the purpose for which such goods are usually used (walking).  Thus, the shoes were not of ‘merchantable quality’. Sale by sample Section 20 Goods Act 1958 (Vic)  This section applies when it is agreed that the quality of the goods will be determined by reference to the sample.  Under section 20:  if a sale is by sample a term is implied into the contract that:  the bulk of the goods must correspond with the sample; and  be free of any defect not reasonably apparent in the sample that makes them ‘unmerchantable’. Implied term as to suitability s19(a) Goods Act 1958 (Vic)  Section 19(a) applies if:  a buyer makes known to a seller the purpose for which goods are required; and  the buyer shows reliance on the seller's skill or judgment; and  the goods are of a description that it is in the course of the seller's business to supply  Where these conditions are met, a term is implied into the contract that the goods will be fit for such a purpose. Implied term as to suitability s19(a) Goods Act 1958 (Vic) Expo Aluminium v WR Pateman FPBCL p 351 Facts  EA asked WP to supply aluminium windows.  EA planned on installing the windows at a client’s house.  EA told WP ‘there is nothing between this house and the north pole’ (an informal way of saying that the house would be exposed to strong winds and rain).  The windows WP supplied leaked.  EA argued that the contract contained an implied that the goods would be suitable for purpose and that this term had been breached. Issues  Does the contract include an implied term implied under s 19(a)?  Had EA sufficiently indicated the purpose for which the windows were required?  If so, had the term been breached? Implied term as to suitability s19(a) Goods Act 1958 (Vic) Expo Aluminium v WR Pateman (ctd) Does the contract include an implied term implied under s 19(a)?  “Makes purpose known”  EA had sufficiently indicated the purpose for which the windows were required, despite the informal language used.  “Reliance”  EA had relied on WP’s skill or judgment.  “Ordinary course of seller’s business”  WP’s business ordinarily supplied windows.  Thus, the contract included an implied term that required the windows to be fit for purpose. Implied term as to suitability s19(a) Goods Act 1958 (Vic) Expo Aluminium v WR Pateman (ctd) Had the implied term been breached?  The implied term required that the windows be weatherproof to withstand strong winds and heavy rain.  The windows were not weatherproof nor able to withstand strong winds and heavy rain.  The implied term was breached. Section 19(a) Goods Act 1958 (Vic) Proviso  A proviso at the end of section 19(a) provides that there is no implied condition as to the fitness of the goods for any particular purpose if specified articles are bought under a patent or trade name.  This proviso applies if, when purchasing goods by reference to their trade name, it is clear that  the buyer is not relying on the seller's skill and judgment to supply suitable goods; or  when it is clear that the seller is disclaiming any such skill or judgment. Section 19(a) Goods Act 1958 (Vic) Proviso Baldry v Marshall FPBCL p 313 Facts  M purchased a Bugatti car from B, a car dealer.  M explained that he wanted a car that was fast, easily managed, comfortable and suitable for touring.  The car delivered proved defective and M argued that the car was not fit for purpose.  B argued that the contract did not include an implied term that required that the car be fit for purpose (based on a proviso of the kind contained in s 19(a)). Issue  Did the proviso apply? Was no term implied because the car had been bought under its trade name (“Bugatti”)? Section 19(a) Goods Act 1958 (Vic) Proviso Baldry v Marshall (ctd) Decision  The contract included an implied term that the car be fit for purpose.  That term had been breached. Reason  The mere fact that goods are described by trade name does not necessarily exclude the implied term.  If the purchaser relies on statements by the seller then the term will be implied. Section 61 Goods Act 1958 (Vic): Exclusion of implied terms Section 61 of the Goods Act 1958 (Vic) provides that the parties may agree to exclude or vary liability arising under the Goods Act, including under the terms implied in sections 18, 19 and 20.  We saw an example of a clause that effectively excluded such liability in L’Estrange v Graucob (week 4)