W11, L2

Incorporation by Signature: Modern Developments

• The fundamental principle of incorporation by signature, established in cases like L'Estrange v Graucob, holds that when a party signs a document known to contain contractual terms, they are bound by those terms regardless of whether they have actually read the document.

• Toll (FCPT) Pty Ltd v Alphapharm Pty Ltd (High Court of Australia):

  • Context: This case involved a shipping contract for the transportation of influenza vaccine.
  • Facts: The shipper provided a credit application signed by a representative of Alphapharm. The document explicitly stated, "please read conditions of contract overleaf prior to signing." The reverse side ("overleaf") contained various contractual clauses, including exclusion of liability and indemnification clauses.
  • The Issue: The vaccine was spoiled because it was stored at too low a temperature. Alphapharm sued, and the court had to determine if the terms on the back of the credit application were successfully incorporated.
  • Objective Approach: The High Court emphasized that contractual relations are governed by the objective words and conduct of the parties, not their subjective beliefs. The court seeks to determine what a reasonable person in the position of the other party would believe based on those expressions of agreement.
  • Legal Representation of Signature: The court held that signing a document intended to affect legal relations conveys a representation to a reasonable reader. This representation is that the signer has either read and approved the contents or is willing to take the chance of being bound by them. This representation is particularly strong when the signature is placed below a legible request to read the document.
  • Ruling: Where there is no initiating element (such as fraud or misrepresentation) and no claim for equitable or statutory relief, a person who signs a document known to contain contractual terms and to affect legal relations is bound by those terms. The exclusion and indemnification clauses were successfully incorporated.

Incorporation of Unsigned Written Terms: Notice

• When written clauses are not signed, they can be incorporated into a contract by notice. For this to be legally successful, the notice must satisfy two primary requirements:
  1. The notice must be timely.
  2. The notice must be reasonably sufficient.

Requirement $1$: Timeliness of Notice

• The Principle: For terms to be incorporated by notice, the notice must be given prior to or at the exact moment the contract is formed. If notice is given after the contract is reached, it is too late and the terms do not apply.

• Olley v Marlborough Court Ltd (English Court of Appeal):

  • Facts: The Olleys stayed at Marlborough Court, a residential hotel. They paid a week's rent in advance at the reception desk. Later, after they were already guests, they saw a notice in their bedroom stating that the proprietors would not be responsible for lost or stolen articles unless handed to the manageress for safe custody. Valuables were to be deposited in sealed packages with a receipt obtained. A third party stole valuables from their room after stealing their key from the reception desk.
  • Ruling: Lord Justice Denning held that the notice in the bedroom was not incorporated. The contract was formed at the office/reception beforehand (when they paid the advance rent). Notice of terms given in the room occurs after formation and is therefore too late. "The hope [that guests are bound] is vain unless they clearly show that he agreed to be bound by them."

• Thornton v Shoe Lane Parking (English Court of Appeal):

  • Facts: Mr. Thornton, a trumpet player, parked his car in an automated parking building. A sign outside stated, "all cars parked at owner's risk." He drove up to a machine, a ticket was issued, and the light changed to green. After he had parked and was returning to his car, he was injured in a serious accident. The ticket issued by the machine stated it was subject to conditions "as displayed on the premises." Those internal notices included an exclusion of liability for personal injury.
  • Denning’s Analysis: The "ticket cases" of the past (where a contract was formed after a ticket was received) do not apply to automatic machines. Using an automatic machine, the customer is "committed beyond recall" the moment money is put into the slot.
  • Offer and Acceptance: The machine's presence is the offer; putting money into the slot is the acceptance. The contract is concluded then.
  • Ruling: The notice inside the building regarding personal injury was too late because the contract was already formed at the machine. However, the sign outside ("parked at owner's risk") was visible before entry and thus successfully incorporated.

Requirement $2$: Reasonably Sufficient Notice

• General Rule: Notice must be reasonably prominent and available. For example, using size $8$ font in an obscure corner would not be sufficient.

• Onerous or Unusual Terms: If a clause is particularly unusual, unreasonable, or onerous, a higher level of notice is required.

  • The "Red Hand" Rule: In J Spurling Ltd v Bradshaw, Lord Justice Denning noted that some clauses would need to be printed in red ink with a red hand pointing to them to be held sufficient.

• Interphoto Picture Library Ltd v Stiletto Visual Programmes Ltd:

  • Facts: Stiletto ordered $47$ transparencies (stock images) from Interphoto. The transparencies were delivered with a note stating a late fee of $£5$ per day per transparency. Stiletto returned them late and was charged $£3,783.50$.
  • Issue: Was the late fee timely and sufficiently noticed?
  • Timeliness: The court found the notice was timely because the contract was not actually formed until a confirmation phone call occurred after the note had been delivered with the images.
  • Sufficiency: Lord Justice Bingham looked at the nature of the transaction and the fairness of holding a party bound. The court compared the $£5$ per day fee to the standard borrowing cost (roughly $£3.50$ per week). Because the late fee was $10$ times higher than a reasonable fee, it was deemed "onerous."
  • Outcome: Because the term was onerous, it required additional, special notice. Since this was not provided, the term was not incorporated.

Online Contracting: Clickwrap and Browsewrap

• These are generally categorized under incorporation by notice.

• Clickwrap: Requires a positive action (clicking "I agree") to demonstrate acceptance.

  • Feldman v Google Inc: Feldman, a lawyer, used Google AdWords. He had to click "Yes, I agree" below a scrollable box of terms to activate his account. The court applied ordinary common law rules; because there was a visible instruction to read the terms and a required positive click, the notice was reasonable, and the forum selection clause was validly incorporated.

• Browsewrap: No positive affirmation/click is required for the terms; they are simply made available via a link on the website.

  • Nguyen v Barnes & Noble Inc: This concerned an arbitration clause for the purchase of a NOOK e-reader. The "Terms of Use" link was placed in the bottom left corner of every page and during the checkout process, but no click was required to proceed. The court held the notice was not sufficient because the design and prominence of the link did not reasonably bring the terms to the customer’s attention. Thus, the terms were not incorporated.

Modern E-commerce Practices and Contract Formation

• Standard Online Formation: Conventionally, a contract is formed once payment (e.g., credit card) is successful.
• Redefining Formation: Online sellers often include terms that delay formation to protect against automated pricing errors or stock issues.
  • Contracts may only be formed upon confirmation by the seller (manual approval).
  • Contracts may be formed upon dispatch/delivery of goods.
  • These terms are generally effective in New Zealand if there is reasonable notice of them, allowing sellers to refund money and void a transaction before dispatch if necessary.

Practical Application: Time and Form of Acceptance (Case Study)

• Scenario: Gerald attempts to accept an offer via email. The offer (quotation) states: "nothing in this quotation designates an information system for the purposes of the Act."

• Governing Law: Contract and Commercial Law Act (CCLA), Section $214$.

• Designation of Information Systems:

  • Prescribed Mode vs. Designation: These are distinct. Prescription is about the method required; designation is about the time of receipt under Section $214$.
  • Time of Receipt Rules:
    1. If system is designated: Receipt occurs when the email enters the system.
    2. If system is not designated: Receipt occurs when it comes to the attention of the addressee.

• Analysis of Gerald's Attempts:

  • First Attempt: Sent to a non-designated address. Because the quotation specifically excludes designation, and there is no evidence of historical use (as per Peterson v Gothard), the default rule applies. Receipt occurs on May $15$ when Manaia actually reads the email. Since the offer expired on May $14$ at $5$ PM, the first attempt is likely too late.
  • Second Attempt: Gerald signs the form and returns it to the "sales" email as requested. This satisfies the prescribed form. However, without designation, it is only effective when read. Manaia reports reading it on the morning of May $15$. Because this is still after the May $14$ expiry, a contract was likely not formed.

Questions & Discussion

• Question: In Olley v Marlborough Court, does it matter if the guest stayed for weeks and paid rent multiple times? Would they have notice after the first week?

• Response: In this specific case, it was treated as one continuous contract. If it had been a series of new contracts every week, the notice in the room would have been timely for the second and subsequent weeks. Since it was one ongoing contract, the notice remained too late.

• Question: What if the guest viewed the room beforehand and saw the notice?

• Response: From an objective perspective, if they viewed the room and the notice was there before the contract was formed, those terms could potentially be incorporated, provided the requirement for reasonably sufficient notice was also met.

• Question: Does New Zealand use electronic signatures?

• Response: Yes, there are statutory rules legitimizing electronic signatures in the Contract and Commercial Law Act. While physical signatures remain common in some services, offer and acceptance only require conduct that shows a reasonable person has agreed.