Principles of Thornton Case: Exclusion Clause and Misrepresentation

The assignment is divided into two parts. Part one deals with the contract between Qantas and Airbus, while part two focuses on the legal position of Frank in relation to a situation involving misrepresentation.

Running head: BUSINESS LAWS
Business Laws
Name of the student
Name of the university
Author note

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BUSINESS LAWS
QUESTION 1
Issue
The issue in this case is to determine the legal position of Qantas Airlines Ltd (Qantas) with
respect to their contract with Airbus Corporation Ltd (Airbus).
Rule
For an agreement to be legally binding a valid offer and acceptance has to take place between the
parties as provided in the case of Wakeling v Ripley1
The parties to the contract have to agree to the terms of the contract in the same sense as the
other party as provided in the case of Riches v Hogben2
Once a contract has been signed by a party it is legally binding on it even if the parties did not
have knowledge about the terms of the contract as provided in the case of L’Estange v Graucob3
The acceptance when made by a party must not contain an additional term which was actually
not present in the original offer. In case any term contrary to the offer or in addition to it has
been added by the offeree the acceptance would not be considered as a valid acceptance and
would be regarded as a counter offer as provided in the case of Hyde v Wrench
A party to the contract has the right to limits its contractual liability be including an exclusion
clause but not a legal liability as stated by Chapelton v Barry Urban District Council4. A contract
1 (1951) 51 SR (NSW) 183
2 [1986] 1 Qd R 315
3 (1923) 2KB 394
4 (1940) KB 532

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to be binding does not have to sign expressly the acceptance of a contract in any form makes it
legally valid.
A contractual term which is not usually expected on a contract has to be brought to the attention
of the other party by the original party in order to be valid as stated in Causer v Browne5
As provided in the case of Thornton v Shoe Lane Parking Ltd6 if a term is not brought to the
notice of the other party which is actually to the detriment of such party the term cannot be
legally valid
Once a contract has been formed an additional term cannot be added to it as provided in the case
of Interphoto Picture Library v Stiletto Visual Programmes Ltd7
A condition is a term of the contract if breached the parties have the right to repudiate the
contract as well as claim damages for any loss suffered due to the violation by the other party.
A warranty is a term which does not itself provide an authority to the aggrieved party to
discharge itself from the liability to the contract. They are less significant terms in relation to a
particular contact as they do not form the subject matter of the contract. In case the warranties in
a contract are not complied with the aggrieved party nevertheless has the right to claim
compensation for the loss of contract.
According to the principals related to damages in contract law, the court provides damages to the
aggrieved party in form of compensation. The compensation which is determined by the court
has to be just enough to restore the position of the aggrieved party in case the terms have not
been violated. This includes any loss which the aggrieved party may have faced because of the
5 (1952) VLR 1
6 (1971) 2 QB 163
7 (1988) 2 WLR 615

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BUSINESS LAWS
violation of the terms of the contract whether a warranty or a condition as provided by Tabcorp
Holdings Ltd v Bowen Investments Pty Ltd8.
Application
For the purpose of determining the contractual position of Qantas with that of Airbus. It has to be
determined that a valid offer and acceptance took place between the parties or not.
It has been provide in the scenario that both the parties to the contract had agreed on 545 terms
which had been incorporated into the agreement. This denotes that the contract had been formed
between the parties through the proper completion of an offer and acceptance. This denotes that
they agreed on the same terms in the same sense as compared to each other. All terms of the
contract are thus binding on both the parties as it has been formed.
However, it has been provided in the scenario that after the contract has been formed a large
number of documents are sent by Airbus to Qantas which included the contract, Color Schemes
along with a limitation of liability clause which was not the part of the original contract. The
clauses stated that the liability of the company would only be restricted to $300000.
As discussed above a party to the contract has the right to incorporate an exclusion clause to
limit its contractual liability.
However as per the principals of the Causer case it would have been the duty of Airbus to bring
such exclusion clause to the knowledge of Qantas. As per the principals of Thorton case as the
exclusion clause was not brought to the notice of the Qantas expressly the term would not be a
part of the contract. In addition for a term to be a part of the contract after the contract is formed
consent of both parties are required. Therefore the attempt of Airbus to incorporate the exclusion
8 [2009] HCA 8

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clause into the contract with Qantas by placing it along with other documents in a big box and
not notifying the same to Qantas would not be successful and legally invalid.
The subject matter of the contract in this case is that a good quality plane would be provided by
Airbus to Qantas along with additional accessories such as a video entertainment system having
36 channels. However due to technical failure Airbus is only able to provide 34 channels.
Referring to the subject matter of the contract it can be said that this is a breach of warranty
which would entitle Qantas to compensation but to repudiate the contract.
According to the principals of damages in contract the compensation which can be claimed by
Qantas would be the loss suffered by it due to the mistake on the party of Airbus. Even if the loss
is more than $300000 which actually is as the new system would require a week to be installed,
Airbus is liable to pay it as the exclusion clause is not valid.
Conclusion
Qantas can claim compensation for Airbus even over $300000 if the losses are more.

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QUESTION 2
Issue
In this scenario the legal position of frank in relation to the situation has to be determined
Law
A false statement of facts which are stated to induce an individual to get into a legally binding
agreement is known as misrepresentation as provided by the case of Edgington v Fitzmaurice9.
However there is a difference between Misrepresentation and puffery. A puffery is self-evident
exaggerations which are used for the purpose of advertising. They have no legal significance and
cannot be claimed against as provided in Dimmock v Hallett10.
As provided in the case of Hill v Rose11 misrepresentation can be established by a party to the
contract of it is established that a false statement of fact had been made by the other party and
that particular fact has been relied upon by the other party to enter into the contract.
As provided in the case of Lockhart v Osman12 a claim for misrepresentation cannot be made if
the other party did not know about its existence or its untrue nature and thus their judgment is not
affected by it. Thus in fact a misrepresentation has to induce or persuade the other party to enter
into the contract. Silence cannot consider as misrepresentation, however any statement made in
relation to the product has to be totally true.
For instance – if a seller provides the buyer that a product has been tested but did not provide
that what was the result of such test it would account to misrepresentation.
9 (1885) 29 Ch D 459.
10 (1866) LR 2
11 [1990] VR 129
12 [1981] VR 57

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In case of Derry v. Peek13 the court ruled that fraudulent misrepresentation takes place when the
part making it knew or had belief of it being false. In case if fraudulent misrepresentation the
parties to it are entitled to rescission added with recovery of any consequential damages.
According to the rule of agency the principal is bound by the actions of his agents as provided in
the case of Pioneer Mortgage Services Pty Ltd v Columbus Capital Pty Ltd14. The concept is only
applicable if the agent has an apparent, implied or expressed authority provided by the principals.
In case of Cropper v Cook 1867 it was ruled by the court that even if authority has not been
provided by the principal to the agent if the third party believes that there is an implied authority
it would be deemed that the principal is bound to the acts of the agent in relation to third party.
In the case of Watteau v Fenwick15 it was ruled by the court that even if there was no authority
provided by the agent as the relationship between the agent and principal ceases to exists, if a
third party enters into a contract with the agent without knowing about such cessation of
authority it would make the principal bound to the contract with the their party.
Application
In this case it has been provided that Gamma is employed by Frank as a sales person in his
appliances shop. A second hand dishwasher is present in the shop which is priced at $350. Tom a
customer after seeing the dishwasher informed Gemma that he would let him know about buying
it at the same price. Gemma who had the knowledge that Frances needed a dishwasher told her
that she would convince frank to sell it for $300. In the given circumstances she told Frank that
the dishwasher will never sell for $350 in order to induce him to sell it to Frances. Frank induced
13 (1889) 14 App Cas 33
14 [2016] FCAFC 78
15 [1983] 1 QB 346

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by Gemma as she is a salesperson authorizes her to sell it for $300. Gemma then sells it to
Frances at $300. It had been latter found that tom would have easily paid $350 for it.
Thus in this case as per the above rules of misrepresentation it can said that as Gemma frovided a
wrong fact to frank which she had knowledge to be wrong and in addition as frank was induced
by such fact to give authority to her to sell it for a less price Gemma has committed fraudulent
misrepresentation. In this case frank has the option to make a claim against Gemma and obtain
compensation of $50 from her as she has committed fraudulent misrepresentation.
Bob had also been a sales person for frank and was associated with negotiating frequently with
Angela for the sale of washing machines as she owned a laundry chain. He has been suspended
from work as he comes late frequently and is drunk at work. He had been fired by Frank for this
reason and was ensured by Frank that he leaves the premises.
Bob than enters into a contract with Angela who did not have the knowledge that he has been
fired by Frank and his authority ceases to exist. The contract was for the sale of 10 washing
machines for a price of $1000 each. Angela transfers $1000 to Bob’s account with respect to the
contract. However Bob takes out the money from the Home Appliance Specialists bank account
and goes oversees. In this case as Angela had no knowledge that the authority of Bob had been
stopped by Frank according to the principals of the Watteau case Frank will be bond to the
contract and has to give the washing machines to Angela. However he can make a claim for the
damages against Bob.
Conclusion
In this case it can be concluded that Gemma has done fraudulent misrepresentation against Frank
by inducing him into a contract with less price.

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Frank has the liability to be bound to the contract which Bob had with Angela and supply her
with the washing machines in relation to contract. He can claim damages from Bob.

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References
Causer v Browne (1952) VLR 1
Chapelton v Barry Urban District Council (1940) KB 532
Derry v. Peek (1889) 14 App Cas 33
Dimmock v Hallett (1866) LR 2
Edgington v Fitzmaurice (1885) 29 Ch D 459.
Hill v Rose [1990] VR 129
Interphoto Picture Library v Stiletto Visual Programmes Ltd (1988) 2 WLR 615
L’Estange v Graucob (1923) 2KB 394
Lockhart v Osman [1981] VR 57
Riches v Hogben [1986] 1 Qd R 315
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8
Thornton v Shoe Lane Parking Ltd (1971) 2 QB 163
Wakeling v Ripley (1951) 51 SR (NSW) 183
Watteau v Fenwick [1983] 1 QB 346