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Contract Law
Matters affecting FormationPrivityFormalities
Elements of FormationOfferAcceptanceIntentionConsideration
Content: TermsExpress Implied
Offer
Expression to another of a willingness to be legally bound by the stated termsAustralian Woollen Mills v CommonwealthRequirements1. Statement to offeror containing stated terms2. Statement is made to another person3. Offeror indicates a preparedness to be boundIf requirements are met
If requirements not met
Mere PuffTest: RMHow would RM interpret Ad. In position of offeree?Manufacturers Material Insurance v John Boardman Insurance Brokers
Supply of InfoTest: CategorisationSupplying information is not an offer.Harvey v Facey
Invitation to treatAdvertisementTest: (TOF) Language & circumstanceAnything that states an intention to be legally bound is an offerRE Mt Tomah Blue MetalsDisplay of GoodsNo test. Does not constitute an offerTaking goods to counter isFisher v BellAdvertisement for AuctionNot an offerHarris v NickersonAuctions w/reserve Invitation to treatPayne v Cave
UnilateralA uni. Contract involves an offer made by offeror to act/ref. Act if someone performs as requested. Offeree not bound to do so. Acceptance is also considerationCarlill v Carbolic Smoke Ball Company
Bilateral“Under [bilateral contracts] each party undertakes to do/ref. From doing something and in the event that either fails to perform, the law provides other party a remedyLord Diplock, United Dominions Trust v Eagle Aircraft Services
Standing offersIndication of willingness of one party to provide goods/services over a specified periodMay be revoked at any time before acceptanceGreat Northern Railway v Whitham
OptionsRevokable at any time unless consideration is provided to keep open
MachineOffer is machine ready to accept $Acceptance is placing in $Terms cannot be introduced after this point except where reasonable time to view terms before carriage.Thornton v Shoe Lane Parking
Prior to carriageProminent notices can be incorporatedSee incorporation of terms
Tickets for transportExemption/exclusion clauses only incorporated before formation
Special issues
Ambiguous
Auctions without reserveEarly English – offerWarlow v HarrisonOR each bid represents an offer that can be accepted or rejected by auctioneerAGC Advances v McWhirter
TenderUsually invitation to treatEXCEPT: Offer when highest bid acceptedHarvela Investments v Royal Trust Company of CanadaMust consider all tendersHughes Aircraft Systems International v Air Services Australia
Termination
Withdrawal by OfferorCan be withdrawn at any time before acceptanceGoldsbrough Mort & Co v QuinnThere needs to be actual communication to offereeBryne & Co v Leon Van Tien Hoven & CoCommunication by reliable source other than offeror or agent acceptableDickinson v Dodds
Unilateral ContractsCannot withdraw offer once acceptance commencedAbbott v Lance
Offers to World at LargeLess than actual communication acceptableUse same medium to withdraw offerShuey v United States
Rejection by OffereeRejection = terminationStevenson Jacques & Co v McLeanMust be communicated to offerorIf offeree responds with new terms = counter offerHyde v Wrench
Lapse of TimeOnce time limit expires, offer unable to be acceptedWhen not stated, time is set to reasonableManchester Diocesan Council for Education v Commercial & General Investments
Failure of conditionIf offeree fails to comply with condition of conditional offer, it is terminatedFinancings v Stimson
Death
Death of offerorOffer cannot be accepted after deathException: Property which can be completed by deceased estateDickinson v Dodds
Death of OffereeIf offeree dies, no offer.Exception: Sale of propertyReynolds v Atherton
OptionsIf offer involved personal services, option will not enforce offerProperty may apply:If conditional contract – enforceableIf irrevocable offer - unenforceable
Acceptance
Agreements is formed once an offer is acceptedRequirementsOfferee must intend to accept terms of offerIntention must be communicated to the offeror(Consensus Ad Idem)
Acceptance must correspond to offer
Offeree must have knowledge and act in reliance on offerCrown v Clarke
Counter offer is not acceptanceHyde v Wrench
Acceptance couched in different language may be acceptable(IE different forms)
Exceptions
•Agreement not prevented if offeree seeks concession for performance before formation
•If offerees conduct more favourable than terms of offer, agreement existsEx Parte Fealey
•Request for alternate mode of acceptance not prevent contract formationClive v Beaumont
Acceptance must be unqualifiedIf ‘subject to’ exists, TOI to determine whether acceptance is unqualfiedMasters v Cameron
Mere inquiry not acceptanceStevenson Jacques & Co v McLean
Exceptions
Notification of Acceptance
Method of acceptanceMethod of acceptance stipulated by offeror•Offeror can stipulate how communication is affected•If accepted in manner more advantageous to offeror – offer validTinn v Hoffman & CoMethod for benefit of offereeIf method is for offerees benefit, they may chose to accept in another method Manchester Diocesan Council for Education v Commercial & General InvestmentsMultiple methodsPrescribed method may not be only effective method on construction of termsConduct may constitute acceptanceEmpirnall Holdings v Mark Machon Paull Partners
Instantaneous CommunicationContract will be formed when acceptance of the offer is communicated to the offeror. The contract is formed when and where the offeror receives that communication. Entores L D v Miles Far East Corporation
Postal Acceptance RuleWhere circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary uses of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted.Lord Hershell, Henthorn v Fraser
•Contract formed when letter is postedAdams v Linsell•Some argument about precisely when this takes placePowel v Lee•If takes longer than usual to reach, risk is upon offerorHousehold Fire and Carriage Insurance v Grant
Displacement of RuleCan be displaced by offeror stipulating in contract that acceptance is not affected until actual receipt
Revocation prior to acceptanceContract is formed even if offer is notified of rejection before receipt of acceptanceNunin Holdings v Tullamarine Estates
Multiple technologiesA offeree can use multiple technologies to accept an offerExpress Airways v Port Augusta Air Services
Acceptance in Unilateral ContractSee notes pp. 09
Ambiguity and Uncertainty
Individual TermsAgreements to Negotiate
Saving Ambiguous, Uncertain or Meaningless Contracts
Saving Incomplete Agreements
•Vague, ambiguous and uncertain terms are void•Meaningless clauses = uncertain clausesFitzgerald v Masters•Court will try to uphold an agreement where parties show intention to be boundLend Lease Financial Planning v Southcap
If parties to agree on terms at later time, not enforceable – Agreement to agree.Booker Industries v Wilson Parking
If terms are sufficiently certain and consideration is provided, may be enforceableCoal Cliff Collieries v SijehamaMethod of increasing certainty – ref. 3rd party
Link to external standardUncertain clause may be enforceable if referenced to an external standardHawthorn Football Club v Harding
Link to reasonableness standardCourts will apply principle of reasonable ness (RM) to make terms certain
SeveranceInvalid term may be severed from contract and the remainder is enforceableFitzgerald v Masters
Divisible ObligationsIf uncertainty arises in one area due to multiple types of obligations, it can be severed and save the contractLife Insurance Company of Australia v Phillips
Waiver of Removal of UncertaintyIf clause is entered into for sole benefit of one party, it may be waived and contract savedIf uncertainty removed before commencement, specific performance may be grantedMacAulay v Greater Paramount Theatres
Incomplete Agreement
Agreement contains mechanism to complete•If the parties do not finalise all the terms of the agreement but provide a mechanism for doing so, the agreement may be enforceable.
Reference to 3rd party even essential terms may be decided by 3rd partyGodecke v Kinwan
Breakdown of mechanism to completeCourt will not substitute its own view if mechanism to complete failsMilnes v Gery
Breakdown RE Sales of GoodsIf price is determined by third parties, governed under sales of goods act (1896) s.12(1)•If prevented from making decision by party, the other may sue for damagess.12(2)•If goods have been delivered and appropriated, they must pay for themss.12(1a)
Implication of TermsCourts have shown a willingness to imply termsHillas & Co v Arcos
More likely when willing to be boundHillas & Co v ArcosMore likely when contract partially executedHall v BusstNo agreement on price, parties and subject matter no implicationHall v Busst
Sale of Goods•More likely to imply•Will imply reasonable price if contract is silentFoley v Classique Coaches•Likely to uphold agreement in future•Likely to infer price if contract makes reference to• payment at reasonable priceSale of Land•Will not imply price•Likely to uphold future agreement•Not likely to imply price when contract refers to reasonable price. (except rent, which they may determine via their own mechanism). Also applies to unique goods.
Ambiguous, Uncertain or Meaningless Contracts
‘Subject to’ Agreements
Subject to Finance Subject to ContractIntention of parties can fall into three categoriesTest: Test of intentions. Language & conduct taken into accountMasters v Cameron
1. Parties have finalised all terms and intend to be immediately bound to perform those terms but propose to have the same terms restated in a form that is fuller or more precise but no different in effect
BINDINGBranca v Corbarro
2. The parties have completely agreed upon all terms and intend no departure from or addition to those terms, but have made performance of one or more of the terms conditional upon the execution of a formal document.
BINDINGNiesmann v Collingridge (1921)
3. The intention of the parties is NOT to make a concluded bargain at all, unless and until they execute a formal contract
NOT BINDINGMasters v Cameron
Contracts for sale of land may include a clause stating that the contract is subject to the ‘purchaser receiving approval for finance on satisfactory terms and conditions.’TEST: Likely to use objective RM test
Issues
Satisfactory financeA clause inserted for the benefit of the purchaser that allows the purchaser alone to determine what is satisfactory is not uncertain, however, the purchaser is required to act honestly. Meehan v Jones
Steps taken to obtain financeFinance clauses impose obligation on the purchaser to take all steps reasonably necessary to obtain finance approval. Meehan v Jones
Intention to create legal relations
Agreement
Intention Test:A common intention of the parties to enter into legal obligations, mutually communicated, expressly or impliedly.Rose and Frank Co v JR Crompton & Bros Test: Merritt v Merritt
Domestic/Social
Presumption:No legal forceBalfour v Balfour
Easily Rebutted:Legal forceMerritt v Merritt
Considerations•Seriousness of conduct•Relative Expense of conduct•Hostility in relations•Closeness of ties•Nature of agreement
GovernmentActivities
Policy Commercial Agreement
Not BindingAustralian Woolen Mills v The CommonwealthAnnoucements of policy are not unilateral offers and policy while important, is not common in nature
Commercial
Presumption is binding:Requires more formalityCogee Esplanade Surf Motel v Commonwealth of Australia
Hard to rebut
Specific tone
Strong presumption of legal force
Is it in a business context?Esso Petroleum v Commissioners of Customs and Excise
Consideration (General)Consideration is ‘An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.’Lord Dunedin, Dunlop Pneumatic Tyre Company Ltd v Selfridge & Company Ltd [1915]
Consideration in Bilateral Contracts Consideration in Unilateral ContractsAt the time of the agreement each party makes a promise. The price paid for that promise – the consideration – is the other party’s promise. Each party promises to do an act or refrain from doing an act. Diplock LJ, United Dominions Trust (Commerical) v Eagle Aircraft Services)
Executory Considerationthe obligation to perform has not yet fallen due. (Bilateral contracts)
Executed ConsiderationIf B chooses to and does perform the specified acts, consideration is said to be executed. (Unilateral contracts)
It is the absence of an obligation undertaken by the promisee that distinguishes a unilateral contract from a bilateral contract. The act or forbearance itself – rather than a promise—constitutes the consideration.Diplock LJ, United Dominions Trust (Commerical) v Eagle Aircraft Services)
Offers to the world at largeForm of Unilateral ContractCarlill v Carbolic Smoke Ball Company
Consideration (Rules)
Rules of Consideration
1. Consideration must move from promiseeDunlop Pneumatic Tyre Company v Selfridge & Company Ltd•Join promisees – Consideration need only come from one promiseeCoulls v Bagot’s Executor and Trustee CompanyDoes not have to move to promisorDunlop Pneumatic Tyre Company v Selfridge & Company Ltd•Promisee may be party to a contract (doctrine of privity) but may not be able to sue on the promise if no consideration givenTweedle v Atkinson
The act/forbearance must be in reliance of the promise (at request of promisor)Australian Woolen Mills v The Commonwealth
•Must be ‘something of value in eyes of the lawThomas v Thomas•May be valid although no monetary equivalentChappell & Co v Nestle•Consideration needs not be adequateWoolworths v Kelly•Consideration can be nominalLennox v Cameron
Consideration will be regarded as past if it has already flowed from promisee to promisorRoscorla v ThomasIf work was done on the assumption that there was a promise to pay it may be sufficient. (see further on)Distinct from executed/executory consideration (see pp. 149 text)
5.
2. Consideration must be bargained for
3. Consideration must be sufficient
4. Consideration must not be past
Special ConsiderationsMoral consideration not sufficientEastwood v Kenyon
Peformance of existing duties is not sufficient considerationWigan v Edwards
Does not apply when promise is to do more than originally contracted to doHartley v PonsonbyCourts may find original contract abandoned and new one formedHartley v PonsonbyPromisory estoppel may prevent promisor reneging on subsequent promise
Performance of public dutiesPerformance of an act required by law is not sufficentGlasbook Brothers v Glamorgan County CouncilThis may be changingWard v ByhamPromise made to a third party‘An agreement to do an act which the promisor is under an existing obligation to a third party to do, may quite well amount to valid consideration and does so in the present case: the promisee obtains a benefit of a direct obligation which he can enforce.’New Zealand Shipping Co v A M Satterthwaite & Co;Port Jackson Stevedoring v Samond & Spraggon (Aust)Part Payment of DebtRule in Pinnel’s Case:If an amount of money is owing by a debtor to a creditor, and those parties enter into a subsequent agreement that the creditor will accept a lesser amount in full satisfaction of the amount owing, the later agreement will generally not be binding.
Exceptions:•Parties enter into a deed•Accomodation for benefit of creditor•Amount owing is disputed (HBF Dalgety v Moreton)•Payment by 3rd party (Hirachand Punamchand v Temple)•Composition with creditors
Forbearance to sue•Settlements between parties likely to be upheld•Whether parties would win/lose not relevant•Not all compromises may be considered consideration
Requirements•Parties must act in good faith•Must have honest belief claim would be successful•Must be a genuine disputeWigan v Edwards•Claim must not be vexatious or frivolousHercules Motors v Schubert
Rules or special considerations allow for consideration
Rules or special considerations don’t allow for consideration
Consideration exists
Consideration doesn’t exist
Consideration is ‘An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.’Lord Dunedin, Dunlop Pneumatic Tyre Company Ltd v Selfridge & Company Ltd [1915]
Equitable Estoppel
REQUIRES unconscionable conduct by one partyWaltons Stores (Interstate) v Maher
Unambiguous expectation by ALegione v Hately
Encouraged/Induced by B
NormativeChellaram & Co v China Ocean Shipping Co
SilenceThompson V Palmer Unauthorised representation
Corpers (No. 664) v NZI Securities Australia
Action or abstainment by A
Plaintiffs characteristicsAusotel v Franklins Self-Serve
ReasonablenessWaltons Stores (Interstate) v Maher
Mere Hope provides no equityLorimer v State Bank of New South Wales
Knowledge/Intent of BA suffers detriment (material disadvantage)Thompson v Palmer
B Fails to avoid detriment(ie. Disabuse A pre-detriment)Lorimer v State Bank of New South Wales
‘Minimum equity to do justice’Waltons Stores (Interstate) v MaherMust be:•Proportionate to the unconsciobility•Reliance rather than expectation (Cth v Verwayen)•Prima facie entitlement for expectation unless proved to greatGiumelli v Giumelli
Privity of Contract
Contract affect a 3rd party (benefits only)Wilson v Darling Island Stevedoring Company
Statutory Exemption
Property Law Act 1974, ss. 55•Consideration moves as normal•3rd party benefit•Beneficiary must accept•Beneficiary must be named/described•Re Burns Philip Trustees; Rob & Jones •(363 Adelaide Street) v 1st Abbot Corp•Consistent actions not sufficient•Re Davies•Anticipatory acceptance may suffice•Hyatt AustraliaLtd LTCB Australia Ltd
Insurance Contracts Act 1984•Beneficiaries can recover•Only general insurance
Trade Practices Act•Misleading/deceptive conduct
Common law
Collateral ContractPromise by/to 3rd part contract
Restraint of TradeClubs affect members
Torts3rd Party can sue for a negligent breach of a duty of care
Use of LandPeople with an interest in the land can enforce benefits like repair/maintenance or limits to usageTulk v Moxhay
Exceptions at Common Law
Exceptions
AgencyTest: Intention3rd party gets equitable interest in the contract
TrustTest: Intention3rd party gets equitable interest in the contract.
Equity3rd party must act in contemplationSee Equitable Estoppel
Unjust Enrichment
Formalities 1
Property Law Act 1974 ss. .56Rule: Contracts of guarantee are unless written and signedDefinition: A contract to answer for a debt, default or miscarriage by another who is primarily liable to the promiseYeoman Credit v Latter
Guarantees
Debtor can pay Non-guarantee Requirements•Name of parties•Terms of guarantee•Consideration for guarantee
•Guarantors liability is secondary•Yeoman Credit v Latter
Contracts of indemnityIdentifies liability is primaryYeoman Credit v Latter
No personal liabilityHarvery v Edwards Dunlop
Acceptance of debtGray v Pearson
Letters of ComfortDependant on intention to create legal relations
Promise made to debtorEastwood v Kenyon
Formalities 2
Contracts relating to land Land Deals must be writtenss. 59 Property Law ActThe following needs to be contained in this type of contract
Contains party IDWilliams v Brynes
Contains property IDSouth Coast Oils v Look Enterprises
Consideration IDWain v Walters
Principle terms disclosedNot always fatal to plaintiffPetrie v Jensen
If part of a lot, portion must be describedRosser v Austal Wine & Spirit Co.Freeholds – no need to describe leaseTimmins v Moorland Street Property Co
Contract•Requires acknowledgement of agreement – Pirie v Saunders•Express or implied acknowledgement•Requires signature – Handwritten if intended to authenticate – Purrell v Evans•Authority need not be expressed – Nowraniv Brown•Electronic sig. – ss. 56, 59 & 14 Electronic Transactions Bill 2001
JoinderMultiple document joined to formA single memo where one expressly/Impliedly refers to othersTimmins v Moreland Property Co.Direct reference – Tonitto v BassalPhysical connection – McEwan v DynonReference to transaction – Fauzi Elias vGeorge Sachely & Co (Barbados)
ComplianceNon-Compliance
UnenforceableGray V Ellis
Valid to pass titleWatson v Royal Permanent Business Society
Recover amount paid – deposit under monies had and receivedFreedom v AHR Constructions
Equity – Estoppel of reliance on written contractWalton Stores v MaherPart PerformanceAct points to agreement as allegedRegent v MilletActs don in reliance & with knowledgeActs done by parties seeking to enforce contractAgreement concluded though not in writingMcBride v Sandland; Cooney v Burns
Constructive TrustProtect parties with interestIn land. IE De-facto couples.Baumgartner v Baumgartner
Written Terms
Incorporation by Signature(pp. 24)
Incorporation by Notice(pp. 25)
Incorporation by reference(pp. 26)
Sign(pp. 25-26)
Unsigned document(pp. 25)
Website(pp. 26)
Assumed to be bound regardless of awareness/understanding of termsL’Estrange v F Graucob Ltd
Exceptions (pp. 24)
Misrepresentation of effect of clauseCurtis v Chemical Cleaning & Dyeing Co
Document not believed contractual in natureCurtis v Chemical Cleaning & Dyeing Co
Non Est FactumDJ Hill & Co v Walter H Wright
Signature does not signify assentL’Estrange v F Graucob Ltd
Terms can be incorporated by
reference to another document
Smith v New South Wales Switchgear Co
Test: Reasonable Man inc.
circumstances
Pass: Term Incorporated
Fail: Term not incorporated
Reasonable steps taken by defendant to inform plaintiff: TEST OF FACTYes: Incorp.No: Not incorp.Reasonable Man Parker v South Eastern Railway Co.
Not contractual
Reasonable Person (Onus on Defendant to prove) Parker v South Eastern Railway Co.
No extra steps taken – NOT INCORP.
Contractual
Assumed to be bound by terms Mendelssohn v Normand
Exception:Unusual terms for contractTest: Reasonable Man(Parker v South Eastern Railway Co.
Reasonable Person (Onus on defendant to prove) Balmain New Ferry Company v Robertson
Notice given before formation Olly v Marlborough Court
Notice sufficient
Notice insufficient
Yes – Possible Incorporation
No – No incorporation
No incorporation
Incorporation
Traditional principles relevant
Reasonable Person (Onus on defendant to prove) Theoretically
Notice sufficient(IE Doc. inc. terms)
Notice insufficient (IE: No doc. inc. terms)
No incorporation
Incorporation
Oral Terms (Terms 1 & 2)
Mere Puff
No common law remedyTrade Practices Act may provide one
Collateral Contract
CriteriaSavage v Blackney•Intention to be relied upon•Reliance upon term•Intention to guarantee •truth of statement
Must preclude main contractHercules Motors
Must be consistent with main contractHoyts v Spencer
Conditions met?
Yes No
Remedy to sue for breach of collateral contract (not main contract)
No remedy to sue for breach of collateral contract
Term Representation
Test: 1. Test of intention Oscar Chess v Williams2. Words or conduct of partiesHarling v Eddy3. Knowledge & expertise of statement maker Oscar Chess v Williams4. Statement maker has control of info Hospital products v US Surgical5. Oral statement not reduced to writing Routledge v McKay6. Interval of time Routledge v McKay
If a term1. Consider parol evidence rule(Doesn’t apply to part oral/written)2. Objective test of intention
If a rep.•Possible damages for innocent misrepresentation•Possible brach of Trade Practices Act
ConditionTest of EssentialityAssociated Newspapers & Bancks (pp. 34)
Intermittent Term1. Intention of parties2. Consequences of Breach(Was party deprived of contract)
WarrantySubsidiary to main purposeBettini v Grye
Terminate and/or damages
Major breach Minor breach
Damages only
Implied Terms #1 – Presumed intention of parties
Business efficacy
Previous consistent course of dealings
Whether the implication of term is necessary to give business efficacy to the transaction
Five Tier TestBP Refinery (Westernport) v Shire of Hastingsreasonable and equitable•Necessary to give business efficacy to contract
•Interpreted strictly•Must be so obvious that it goes without saying•Must be capable of clear expressionMust not contradict any express term in contract
Parol evidence rule won’t applyMason J
More formal, less chance of implication
Reasonable to hold parties contracted based on & knowledge that terms in previous contractsHenry Kendal & Sons v William Lillico & Sons
Test: Reasonable manHave parties virtually assented to terms•Must not expressly have inconsistent terms•Relevant terms are part of prev agreements•Evidence of previous consistent dealings•(Consider both # and consistency)
Parties need actual knowledge of the termsLord Devlin, McCuthcheon v David Macbrayne
Not in writing thus parol evidence rule N/AHenry Kendall & Sons v William Lillico & Sons
Custom or Usage
Test of Fact•Term is known and acquiesced to.
•Everyone assumes it part of contract.•Consistent with express terms
Knowledge of implied term not required
Not likely to be implied cf. other grounds
Parol evidence rule N/A
To Complete Agreement
When all terms are not finalised, terms may be implied to complete agreement
Hillas & Co v Arcos
Applicability of parol evidence rule: Uncertain
Implied Terms #2 – Terms implied regardless of intent
Class of contract
Statute
Good faith, fair dealing and reasonableness
Duty of Cooperation
Courts will imply terms based on policy groundsAustralis Media Holdings v Telstra Corporation
Test: Policy DecisionCategories where terms will be implied•Goods & services
•Must fit purpose for which they were suppliedSammuels v Davis•Professional services
•Reasonable care must be takenGreaves & Co (Contractors) v Baynham•Employment
•Safe place of work•Inform employees of rights in particular period
Scally v Southern Health and Social Services Board•Building
•Fit for habitation •conduct professional and workmanlike
Perry v Sharon Developments Co•Franchise agreements
•Good faith and fair dealingFar Horizons v McDonald’s Australia
Parol evidence rule N/A
Statutory implication of terms in contracts
•Provision of consumer creditConsumer Credit Code 1994•Sale of Goods/Services (pp. 266 for detail)Sale of Goods Act 1894•Hire PurchaseHire Purchase Act 1959•InsuranceInsurance Contracts Act 1984
•Parties must do all things necessary to ensure parties have benefit of contract•Applied to ALL contracts, regardless of necessityButt v McDonald
Test: Reference to specific terms and overall substance of contractRDJ International v Preformed Line Products (Australia)To find:•Common intention of parties•Extent to which the duty of cooperation will require action
Duty to act in good faith etc. in ALL contracts not fully settled issue in
Australia
Yes, it exists: Renard Constructions (ME) v Minister for Public Works
Parol evidence rule: N/A
Parol Evidence RuleGeneral Rule: Parol evidence rule will prevent an oral term from being introduced when a contract is brought down to writing
Application:•Applies to contract solely in writingGordon v MacGregor•Only when the parties intend written document to represent the entire agreement•Express clause stating above is not necessarily enough to exclude oral terms (See construction of terms)Hope v RCA Photophone of Australia
Exceptions:•Evidence of collateral contractDe Lassalle v Guilford•Written contract not yet in forcePym v Campbell•Written contract later varied or dischargedNarich v Commissioner of Payroll Tax•Implied terms available (see implied terms)•Evidence is needed for rectificationNSW Medical Defence Union v Transport Industries Insurance Co
Do exceptions Apply?
Does the Parol Evidence Rule apply?
Yes
No
Extrinsic evidence is not permittedExtrinsic evidence is permitted
YesNo
Interpreting the meaning of TermsGeneral RulesTWO THINGS MUST BE DONE1. Ascertain the meaning of words2. Determine the legal effects of the words
REMEMBER:•Documents constructed as a whole•Court will attempt as far as possible to give effect to a bargainHillas & Co v Arcos•Tests are made objectively through the eyes of the Reasonable Man
Admissible Evidence
Parol Evidence Rule•The objective of the rule is to preserve the sanctity of the written document and to avoid the process of construction being muddled by ‘uncertain testimony of slippery memory’. •ONLY applies to fully written contracts – extrinsic eviddence permissible to aid interpretations in other circumstances
ExceptionsAmbiguityExtrinsic evidence may be used to resolve ambiguities
Identification of Subject MatterExtrinsic evidence admissible to resolve abiguityWhite v Australian and New Zealand Theatres
Identification of partiesExtrinsic evidence abmissible to resolve ambiguity about identity, relationship or capacityEdwards v Edwards
Identification of real considerationExtrinsic evidence admissible where:•No consideration is expressed•Is expressed ambiguously or generally•Additional consideration exists with stated consideration (must not be inconsistent with stated)Yaroomba Beach Development Co v Coeur De Lion Investments
Custom or UsageExtrinsic evidence may be used where language has different contextual meanings even though the wording itself is not ambiguousThornley v Tilley
RectificationExtrinsic evidence may be used to show parties intentions were not properly recordedBacchus Marsh Concentrated Milk Co v Joseph Nathan & Co
Factual MatrixWhen construing a document the court must place itself in the ‘same factual matrix as that in which the parties were.’Reardon Smith Line v Yengvar Hansen Tangen
Court make take into account surrounding circumstances.Allen v CarboneSurrounding circumstance must have been known to BOTH parties.Notorious, court may presume knowledgeCodelfa Construction v State Rail Authority of New South WalesIn commercial contracts, purpose of the contract should be consideredReardon Smith Line v Yengvar Hanse-Tangen
Suggested that surrounding evidence should only be used if language is ambiguous or capable of multiple meanings and cannot be used to contradict language that is plainMason J, Codelfa Construction v State Rail Authority of New South Wales
Inadmissible Evidence
Evidence of subjective intentionsBecause its an objective testLife Insurance Company of Australia v Phillips
Prior negotiationsBecause its not usefulPrenn v Simmonds
Subsequent ConductPeople may tailor their post-contract behaviour to reflect the case they believe they may have to present in courtKirby J, Hide & Skin trading v Oceanic Meat Traders
Legal effect of words – types of terms
Promissory Terms Contingencies
Other Clauses
see Oral Terms A contingency is when the parties wish to make a provision for the existence or the continued operation of the contract, or of an obligation in the contract, conditional upon the occurrence or non-occurrence of an event. •Courts interpret contingencies as requiring a election to terminate by one or both partiesGrange v Sullivan
Condition Precedentan event that must occur before a contract comes into existence or an obligation under the contract arises. If the event fails to occur, there will either be no contract or the obligation will not arise.
Condition Subsequentan event whose occurrence may give rise to a right to terminate further performance of the contract
Where the contingency is for the benefit of one of the parties, it may be waived by that party, with the effect that the other party is unable to rely on the non-occurrence of the event as terminating the contract.Perri v Coolangatta Investments Pty Ltd (1982)
Generally the party for whose benefit the condition subsequent was inserted will be the party who has the right to terminate on non-occurrence.
Definition clauses – not capable of breach
Best Endeavours•Test: Reasonable cons. CircumstancesMason J, Transfield v Arlo International•Does not require party to go beyond the bounds of reasonSheffield District Railway v Great Central Railway Co
Duty of Good FaithExtent of breach determined by classification of term
Entire Contract Clause•Excludes extraneous terms and non-fraudulent representations at common lawLife Insurance Co of Australia v Phillips•Does not prevent introduction of extrinsic evidence for purpose of rectificationMacDonald v Shinko Australia
Agreed Damages Clause•Provides for payment of an amount that is a genuine pre-estimate of the loss resulting from any breach. •Validity of such clauses is governed by the law related to penalties.
Termination ClauseConfers a contractual right to terminate the contract for breach. Force Majeure ClauseDisposition of a contract in the event of circumstances beyond the control of the parties Restraint on TradeGenerally void unless proven reasonable
Dispute Resolution ClauseFailure to comply may give rise to injunctions or damagesCSR v Cigna Insurance; The Jay BolaLaw of contractParties can chose jurisdiction contract governed underMerwin Pastoral Co v Moopla Pastoral CoIf not stated, presumed intention of partiesMoonlighting International v International Lighting
Exemption Clauses
‘Interpretation of an exemption clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears, including the nature and object of the contract, and, where appropriate,
construing the clause contra proferentem in the case of ambiguity.’Darlington Futures Ltd v Delco Australia PtyLtd (1986)
Must determine•Whether clause forms part of contract•Whether on construction it covers the arisen liability
Rules
Contra-preferentum ruleAn exemption clause will be ordinarily construed strictly against the preferens – the party for whose benefit it is inserted.Eimco Corporation v Tutt Bryant Ltd [1970]
Exclusion of Negligence•An exemption clause will relieve a party of liability for his/her negligence, or that of his/her servants or agents, if it expressly or impliedly covers such liability.•Will cover such liability if there can be no ground of liability other than negligence to which it could refer.•Canada Steamship Lines Ltd v The King [1952]•an express exemption of liability for negligence must be given effect and is sufficient to exclude liability•where there is no express reference to negligence, the court must decide whether the ordinary meaning of the words used in the clause are wide enough to exclude negligence.
Rules of excluding negligence•Must pass contra preferentum rule•If language covers multiple heads of liability and negligence, negligence is excluded – word negligence or syn. Must be used Smith v NSW Swtichgear
Four Corners Rule•An exemption clause will only operate to exclude liability arising within the ‘four corners’ of the contract.•A proferens can only rely on conditions that were intended to protect him/her if he/she carried out the contract in the way he/she had contract to do it. It will NOT be effective where the proferens acts in a way ‘quite alien to the contract’.[1]Davis v Pierce Parking Station Pty Ltd•An exemption clause will NOT apply where the loss or damage results from conduct that is not authorised or permitted by the contractThe Council of the City of Sydney v West
Statute•The extent of protection offered by an exemption clause may reflect the degree of inequality of bargaining power between the parties. •At common law, the court has no absolving power and cannot refuse to enforce a valid exemption clause even where it operates unreasonably. This position has been altered by two statutes: Contracts Review Act 1980 (NSW) Trade Practices Act 1974 (Cth)
If all tests pass, Exemption clause will operate
If any test fails, Exemption clause WILL NOT operate