Contract Law

1
Contract Law
Matters affecting Formation Privity Formalities
Elements of Formation Offer Acceptance Intention C
onsideration
Content Terms Express Implied
2
Offer

• Expression to another of a willingness to be
  legally bound by the stated terms
• Australian Woollen Mills v Commonwealth
• Requirements
• Statement to offeror containing stated terms
• Statement is made to another person
• Offeror indicates a preparedness to be bound

If requirements not met
If requirements are met
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 remedy Lord Diplock,
United Dominions Trust v Eagle Aircraft Services
Unilateral A 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 consideration Carlill v
Carbolic Smoke Ball Company
Mere Puff Test RM How would RM interpret Ad. In
position of offeree? Manufacturers Material
Insurance v John Boardman Insurance Brokers
Supply of Info Test Categorisation Supplying
information is not an offer. Harvey v Facey
Invitation to treat Advertisement Test (TOF)
Language circumstance Anything that states an
intention to be legally bound is an offer RE Mt
Tomah Blue Metals Display of Goods No test. Does
not constitute an offer Taking goods to counter
is Fisher v Bell Advertisement for Auction Not an
offer Harris v Nickerson Auctions w/reserve
Invitation to treat Payne v Cave
Special issues
Standing offers Indication of willingness of one
party to provide goods/services over a specified
period May be revoked at any time before
acceptance Great Northern Railway v Whitham
Options Revokable at any time unless
consideration is provided to keep open
Tickets for transport Exemption/exclusion clauses
only incorporated before formation
Ambiguous
Machine Offer 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 carriage Prominent notices can be
incorporated See incorporation of terms
Tender Usually invitation to treat EXCEPT Offer
when highest bid accepted Harvela Investments v
Royal Trust Company of Canada Must consider all
tenders Hughes Aircraft Systems International v
Air Services Australia
Auctions without reserve Early English
offer Warlow v Harrison OR each bid represents an
offer that can be accepted or rejected by
auctioneer AGC Advances v McWhirter
3
Termination
Withdrawal by Offeror Can be withdrawn at any
time before acceptance Goldsbrough Mort Co v
Quinn There needs to be actual communication to
offeree Bryne Co v Leon Van Tien Hoven
Co Communication by reliable source other than
offeror or agent acceptable Dickinson v Dodds
Rejection by Offeree Rejection
termination Stevenson Jacques Co v McLean Must
be communicated to offeror If offeree responds
with new terms counter offer Hyde v Wrench
Death
Death of offeror Offer cannot be accepted after
death Exception Property which can be completed
by deceased estate Dickinson v Dodds
Death of Offeree If offeree dies, no
offer. Exception Sale of property Reynolds v
Atherton
Lapse of Time Once time limit expires, offer
unable to be accepted When not stated, time is
set to reasonable Manchester Diocesan Council for
Education v Commercial General Investments
Options If offer involved personal services,
option will not enforce offer Property may
apply If conditional contract enforceable If
irrevocable offer - unenforceable
Unilateral Contracts Cannot withdraw offer once
acceptance commenced Abbott v Lance
Offers to World at Large Less than actual
communication acceptable Use same medium to
withdraw offer Shuey v United States
Failure of condition If offeree fails to comply
with condition of conditional offer, it is
terminated Financings v Stimson
4
Acceptance
Agreements is formed once an offer is
accepted Requirements Offeree must intend to
accept terms of offer Intention must be
communicated to the offeror (Consensus Ad Idem)
Acceptance in Unilateral Contract See notes pp. 09
Acceptance must correspond to offer
Notification of Acceptance
Method of acceptance
Postal Acceptance Rule Where 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
Offeree must have knowledge and act in reliance
on offer Crown v Clarke

• Method of acceptance stipulated by offeror
• Offeror can stipulate how communication is
  affected
• If accepted in manner more advantageous to
  offeror offer valid
• Tinn v Hoffman Co

Acceptance must be unqualified If subject to
exists, TOI to determine whether acceptance is
unqualfied Masters v Cameron
Method for benefit of offeree If method is for
offerees benefit, they may chose to accept in
another method Manchester Diocesan Council for
Education v Commercial General Investments
Exceptions

• Contract formed when letter is posted
• Adams v Linsell
• Some argument about precisely when this takes
  place
• Powel v Lee

Counter offer is not acceptance Hyde v Wrench
Exceptions
Multiple methods Prescribed method may not be
only effective method on construction of terms
Acceptance couched in different language may be
acceptable (IE different forms)

• If takes longer than usual to reach, risk is upon
  offeror
• Household Fire and Carriage Insurance v Grant

Conduct may constitute acceptance Empirnall
Holdings v Mark Machon Paull Partners

• Agreement not prevented if offeree seeks
  concession for performance before formation

Instantaneous Communication Contract 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

• Request for alternate mode of acceptance not
  prevent contract formation
• Clive v Beaumont

Displacement of Rule Can be displaced by offeror
stipulating in contract that acceptance is not
affected until actual receipt
Revocation prior to acceptance Contract is formed
even if offer is notified of rejection before
receipt of acceptance Nunin Holdings v
Tullamarine Estates

• If offerees conduct more favourable than terms of
  offer, agreement exists
• Ex Parte Fealey

Multiple technologies A offeree can use multiple
technologies to accept an offer Express Airways v
Port Augusta Air Services
Mere inquiry not acceptance Stevenson Jacques
Co v McLean
5
Ambiguity and Uncertainty
Ambiguous, Uncertain or Meaningless Contracts
Incomplete Agreement
Individual Terms
Agreements to Negotiate

• 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.

• Vague, ambiguous and uncertain terms are void
• Meaningless clauses uncertain clauses
• Fitzgerald v Masters
• Court will try to uphold an agreement where
  parties show intention to be bound
• Lend 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
enforceable Coal Cliff Collieries v Sijehama
Reference to 3rd party even essential terms may
be decided by 3rd party Godecke v Kinwan
Method of increasing certainty ref. 3rd party
Saving Ambiguous, Uncertain or Meaningless
Contracts
Breakdown of mechanism to complete Court will not
substitute its own view if mechanism to complete
fails Milnes v Gery
Saving Incomplete Agreements
Link to external standard Uncertain clause may be
enforceable if referenced to an external
standard Hawthorn Football Club v Harding
Implication of Terms Courts have shown a
willingness to imply terms Hillas Co v Arcos

• Breakdown RE Sales of Goods
• If 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 damages
• s.12(2)
• If goods have been delivered and appropriated,
  they must pay for them
• ss.12(1a)

More likely when willing to be bound Hillas Co
v Arcos
Link to reasonableness standard Courts will apply
principle of reasonable ness (RM) to make terms
certain
More likely when contract partially executed Hall
v Busst
No agreement on price, parties and subject matter
no implication Hall v Busst
Severance Invalid term may be severed from
contract and the remainder is enforceable Fitzgera
ld v Masters

• Sale of Goods
• More likely to imply
• Will imply reasonable price if contract is silent
• Foley v Classique Coaches
• Likely to uphold agreement in future
• Likely to infer price if contract makes reference
  to
• payment at reasonable price

Divisible Obligations If uncertainty arises in
one area due to multiple types of obligations,
it can be severed and save the contract Life
Insurance Company of Australia v Phillips

• Sale 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.

Waiver of Removal of Uncertainty If clause is
entered into for sole benefit of one party, it
may be waived and contract saved If uncertainty
removed before commencement, specific performance
may be granted MacAulay v Greater Paramount
Theatres
6
Subject to Agreements
Subject to Finance
Subject to Contract Intention of parties can fall
into three categories Test Test of intentions.
Language conduct taken into account Masters 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

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

Issues
Satisfactory finance A 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
BINDING Branca 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.
Steps taken to obtain finance Finance clauses
impose obligation on the purchaser to take all
steps reasonably necessary to obtain finance
approval. Meehan v Jones
BINDING Niesmann 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 BINDING Masters v Cameron
7
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
Commercial
Government Activities
Presumption No legal force Balfour v Balfour
Easily Rebutted Legal force Merritt v Merritt
Presumption is binding Requires more
formality Cogee Esplanade Surf Motel v
Commonwealth of Australia
Policy
Commercial Agreement

• Considerations
• Seriousness of conduct
• Relative Expense of conduct
• Hostility in relations
• Closeness of ties
• Nature of agreement

Not Binding Australian Woolen Mills v The
Commonwealth Annoucements of policy are not
unilateral offers and policy while important, is
not common in nature
Hard to rebut
Strong presumption of legal force
Specific tone
Is it in a business context? Esso Petroleum v
Commissioners of Customs and Excise
8
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 Contracts
Offers to the world at large Form of Unilateral
Contract Carlill v Carbolic Smoke Ball Company
At the time of the agreement each party makes a
promise. The price paid for that promise the
consideration is the other partys promise.
Each party promises to do an act or refrain from
doing an act. Diplock LJ, United Dominions Trust
(Commerical) v Eagle Aircraft Services)
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
promiseconstitutes the consideration. Diplock
LJ, United Dominions Trust (Commerical) v Eagle
Aircraft Services)
Executory Consideration the obligation to perform
has not yet fallen due. (Bilateral contracts)
Executed Consideration If B chooses to and does
perform the specified acts, consideration is said
to be executed. (Unilateral contracts)
9
Consideration (Rules)
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
Rules of Consideration
Special Considerations

• Consideration must move from promisee
• Dunlop Pneumatic Tyre Company v Selfridge
  Company Ltd

Moral consideration not sufficient Eastwood v
Kenyon

• Forbearance to sue
• Settlements between parties likely to be upheld
• Whether parties would win/lose not relevant
• Not all compromises may be considered
  consideration

Peformance of existing duties is not sufficient
consideration Wigan v Edwards

• Join promisees Consideration need only come
  from one promisee
• Coulls v Bagots Executor and Trustee Company
• Does not have to move to promisor
• Dunlop Pneumatic Tyre Company v Selfridge
  Company Ltd

Does not apply when promise is to do more than
originally contracted to do Hartley v Ponsonby

• Requirements
• Parties must act in good faith
• Must have honest belief claim would be successful
• Must be a genuine dispute
• Wigan v Edwards
• Claim must not be vexatious or frivolous
• Hercules Motors v Schubert

Courts may find original contract abandoned and
new one formed Hartley v Ponsonby

• Promisee may be party to a contract (doctrine of
  privity) but may not be able to sue on the
  promise if no consideration given
• Tweedle v Atkinson

Promisory estoppel may prevent promisor reneging
on subsequent promise
Performance of public duties Performance of an
act required by law is not sufficent Glasbook
Brothers v Glamorgan County Council This may be
changing Ward v Byham
2. Consideration must be bargained for
The act/forbearance must be in reliance of the
promise (at request of promisor) Australian
Woolen Mills v The Commonwealth
Promise 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)
3. Consideration must be sufficient
Rules or special considerations allow for
consideration
Rules or special considerations dont allow for
consideration

• Must be something of value in eyes of the law
• Thomas v Thomas
• May be valid although no monetary equivalent
• Chappell Co v Nestle
• Consideration needs not be adequate
• Woolworths v Kelly
• Consideration can be nominal
• Lennox v Cameron

Part Payment of Debt Rule in Pinnels CaseIf 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.
Consideration exists
Consideration doesnt exist
4. Consideration must not be past
Consideration will be regarded as past if it has
already flowed from promisee to promisor Roscorla
v Thomas If 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.

• 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

10
Equitable Estoppel
REQUIRES unconscionable conduct by one
party Waltons Stores (Interstate) v Maher
Unambiguous expectation by A Legione v Hately
Encouraged/Induced by B
Normative Chellaram Co v China Ocean Shipping Co
Silence Thompson V Palmer
Mere Hope provides no equity Lorimer v State Bank
of New South Wales
Unauthorised representation Corpers (No. 664) v
NZI Securities Australia
Action or abstainment by A
Plaintiffs characteristics Ausotel v Franklins
Self-Serve
Reasonableness Waltons Stores (Interstate) v Maher
A suffers detriment (material disadvantage) Thomp
son v Palmer
Knowledge/Intent of B
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 Maher
• Must be
• Proportionate to the unconsciobility
• Reliance rather than expectation (Cth v Verwayen)
• Prima facie entitlement for expectation unless
  proved to great
• Giumelli v Giumelli

11
Privity of Contract
Contract affect a 3rd party (benefits
only) Wilson v Darling Island Stevedoring Company
Common law
Collateral Contract Promise by/to 3rd part
contract
Restraint of Trade Clubs affect members
Torts 3rd Party can sue for a negligent breach
of a duty of care
Use of Land People with an interest in the land
can enforce benefits like repair/maintenance or
limits to usage Tulk v Moxhay
Exceptions
Statutory Exemption
Exceptions at Common Law

• Trade Practices Act
• Misleading/deceptive conduct

• 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

Trust Test Intention 3rd party gets equitable
interest in the contract.
Agency Test Intention 3rd party gets equitable
interest in the contract

• Insurance Contracts Act 1984
• Beneficiaries can recover
• Only general insurance

Equity 3rd party must act in contemplation See
Equitable Estoppel
Unjust Enrichment
12
Formalities 1
Guarantees
Property Law Act 1974 ss. .56 Rule Contracts of
guarantee are unless written and
signed Definition A contract to answer for a
debt, default or miscarriage by another who is
primarily liable to the promise Yeoman Credit v
Latter
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 indemnity Identifies liability is
primary Yeoman Credit v Latter
No personal liability Harvery v Edwards Dunlop
Acceptance of debt Gray v Pearson
Letters of Comfort Dependant on intention to
create legal relations
Promise made to debtor Eastwood v Kenyon
13
Formalities 2
Contracts relating to land Land Deals must be
written ss. 59 Property Law Act The following
needs to be contained in this type of contract
Contains party ID Williams v Brynes
Contains property ID South Coast Oils v Look
Enterprises
Consideration ID Wain v Walters
Principle terms disclosed Not always fatal to
plaintiff Petrie v Jensen
If part of a lot, portion must be
described Rosser v Austal Wine Spirit
Co. Freeholds no need to describe lease Timmins
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

Joinder Multiple document joined to form A single
memo where one expressly/ Impliedly refers to
others Timmins v Moreland Property Co. Direct
reference Tonitto v Bassal Physical connection
McEwan v Dynon Reference to transaction Fauzi
Elias v George Sachely Co (Barbados)
Compliance
Non-Compliance
Equity Estoppel of reliance on written
contract Walton Stores v Maher Part
Performance Act points to agreement as
alleged Regent v Millet Acts don in reliance
with knowledge Acts done by parties seeking to
enforce contract Agreement concluded though not
in writing McBride v Sandland Cooney v Burns
Unenforceable Gray V Ellis
Valid to pass title Watson v Royal Permanent
Business Society
Constructive Trust Protect parties with
interest In land. IE De-facto couples. Baumgartner
v Baumgartner
Recover amount paid deposit under monies had
and received Freedom v AHR Constructions
14
Written Terms
Incorporation by Notice (pp. 25)
Incorporation by Signature (pp. 24)
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 terms LEstrange v F
Graucob Ltd
Terms can be incorporated by reference to another
document Smith v New South Wales Switchgear Co
Notice given before formation Olly v Marlborough
Court
Reasonable Person (Onus on Defendant to prove)
Parker v South Eastern Railway Co.
Traditional principles relevant
Exceptions (pp. 24)
Yes Possible Incorporation
Test Reasonable Man inc. circumstances
Reasonable Person (Onus on defendant to prove)
Theoretically
Not contractual
Signature does not signify assent LEstrange v F
Graucob Ltd
Reasonable Person (Onus on defendant to prove)
Balmain New Ferry Company v Robertson
No extra steps taken NOT INCORP.
Notice sufficient (IE Doc. inc. terms)
Reasonable steps taken by defendant to inform
plaintiff TEST OF FACT Yes Incorp. No Not
incorp. Reasonable Man Parker v South Eastern
Railway Co.
Notice sufficient
Misrepresentation of effect of clause Curtis v
Chemical Cleaning Dyeing Co
Pass Term Incorporated
Incorporation
Incorporation
Notice insufficient (IE No doc. inc. terms)
Fail Term not incorporated
Notice insufficient
No incorporation
No incorporation
Non Est Factum DJ Hill Co v Walter H Wright
No No incorporation
Contractual
Assumed to be bound by terms Mendelssohn v Normand
Document not believed contractual in
nature Curtis v Chemical Cleaning Dyeing Co
Exception Unusual terms for contract Test
Reasonable Man (Parker v South Eastern Railway Co.
15
Oral Terms (Terms 1 2)
Collateral Contract
Mere Puff
Term
Representation
No common law remedy Trade Practices Act may
provide one

• Test
• Test of intention Oscar Chess v Williams
• Words or conduct of partiesHarling v Eddy
• Knowledge expertise of statement maker Oscar
  Chess v Williams
• 4. Statement maker has control of info Hospital
  products v US Surgical
• Oral statement not reduced to writing Routledge v
  McKay
• Interval of time Routledge v McKay

• Criteria
• Savage v Blackney
• Intention to be relied upon
• Reliance upon term
• Intention to guarantee
• truth of statement

Must preclude main contract Hercules Motors
Must be consistent with main contract Hoyts v
Spencer
If a rep.
If a term 1. Consider parol evidence
rule (Doesnt apply to part oral/written) 2.
Objective test of intention

• Possible damages for innocent misrepresentation
• Possible brach of Trade Practices Act

Conditions met?
Condition Test of Essentiality Associated
Newspapers Bancks (pp. 34)

• Intermittent Term
• Intention of parties
• Consequences of Breach
• (Was party deprived of contract)

Warranty Subsidiary to main purpose Bettini v
Grye
Yes
No
No remedy to sue for breach of collateral contract
Remedy to sue for breach of collateral contract
(not main contract)
Major breach
Minor breach
Terminate and/or damages
Damages only
16
Implied Terms 1 Presumed intention of parties
Business efficacy
Custom or Usage
Whether the implication of term is necessary to
give business efficacy to the transaction

• Test of Fact
• Term is known and acquiesced to.
• Everyone assumes it part of contract.
• Consistent with express terms

• Five Tier Test
• BP Refinery (Westernport) v Shire of Hastings
• reasonable 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 expression
• Must not contradict any express term in contract

Knowledge of implied term not required
Not likely to be implied cf. other grounds
Parol evidence rule N/A
Parol evidence rule wont apply Mason J
To Complete Agreement
More formal, less chance of implication
When all terms are not finalised, terms may be
implied to complete agreement Hillas Co v Arcos
Previous consistent course of dealings
Applicability of parol evidence rule Uncertain
Reasonable to hold parties contracted based on
knowledge that terms in previous
contracts Henry Kendal Sons v William Lillico
Sons

• Test Reasonable man
• Have 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 terms Lord
Devlin, McCuthcheon v David Macbrayne
Not in writing thus parol evidence rule N/A Henry
Kendall Sons v William Lillico Sons
17
Implied Terms 2 Terms implied regardless of
intent
Class of contract
Good faith, fair dealing and reasonableness
Courts will imply terms based on policy
grounds Australis Media Holdings v Telstra
Corporation
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

• Test Policy Decision
• Categories where terms will be implied
• Goods services
• Must fit purpose for which they were supplied
• Sammuels v Davis
• Professional services
• Reasonable care must be taken
• Greaves 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 dealing
• Far Horizons v McDonalds Australia

Parol evidence rule N/A
Duty of Cooperation

• Parties must do all things necessary to ensure
  parties have benefit of contract
• Applied to ALL contracts, regardless of necessity
• Butt v McDonald

Parol evidence rule N/A
Statute

• Test Reference to specific terms and overall
  substance of contract
• RDJ International v Preformed Line Products
  (Australia)
• To find
• Common intention of parties
• Extent to which the duty of cooperation will
  require action

Statutory implication of terms in contracts

• Provision of consumer credit
• Consumer Credit Code 1994
• Sale of Goods/Services (pp. 266 for detail)
• Sale of Goods Act 1894
• Hire Purchase
• Hire Purchase Act 1959
• Insurance
• Insurance Contracts Act 1984

18
Parol Evidence Rule
General 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 writing
• Gordon 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

Does the Parol Evidence Rule apply?
No

• Exceptions
• Evidence of collateral contract
• De Lassalle v Guilford
• Written contract not yet in force
• Pym v Campbell
• Written contract later varied or discharged
• Narich v Commissioner of Payroll Tax
• Implied terms available (see implied terms)
• Evidence is needed for rectification
• NSW Medical Defence Union v Transport Industries
  Insurance Co

Yes
Do exceptions Apply?
No
Yes
Extrinsic evidence is not permitted
Extrinsic evidence is permitted
19
Interpreting the meaning of Terms
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

Factual Matrix When 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
Exceptions
Ambiguity Extrinsic evidence may be used to
resolve ambiguities
Court make take into account surrounding
circumstances. Allen v Carbone Surrounding
circumstance must have been known to BOTH
parties. Notorious, court may presume
knowledge Codelfa Construction v State Rail
Authority of New South Wales
Inadmissible Evidence
Identification of Subject Matter Extrinsic
evidence admissible to resolve abiguity White v
Australian and New Zealand Theatres
Evidence of subjective intentions Because its an
objective test Life Insurance Company of
Australia v Phillips
Identification of parties Extrinsic evidence
abmissible to resolve ambiguity about identity,
relationship or capacity Edwards v Edwards
Prior negotiations Because its not useful Prenn v
Simmonds
In commercial contracts, purpose of the contract
should be considered Reardon Smith Line v Yengvar
Hanse-Tangen

• Identification of real consideration
• Extrinsic 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

Subsequent Conduct People may tailor their
post-contract behaviour to reflect the case they
believe they may have to present in court Kirby
J, Hide Skin trading v Oceanic Meat Traders
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 plain Mason J,
Codelfa Construction v State Rail Authority of
New South Wales
Custom or Usage Extrinsic evidence may be used
where language has different contextual meanings
even though the wording itself is not
ambiguous Thornley v Tilley
Rectification Extrinsic evidence may be used to
show parties intentions were not properly
recorded Bacchus Marsh Concentrated Milk Co v
Joseph Nathan Co
20
Legal effect of words types of terms
Other Clauses
Definition clauses not capable of breach
Contingencies
Promissory Terms
see Oral Terms
Duty of Good Faith Extent of breach determined by
classification of term

• 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 parties
• Grange v Sullivan

• Best Endeavours
• Test Reasonable cons. Circumstances
• Mason J, Transfield v Arlo International
• Does not require party to go beyond the bounds of
  reason
• Sheffield District Railway v Great Central
  Railway Co

• Entire Contract Clause
• Excludes extraneous terms and non-fraudulent
  representations at common law
• Life Insurance Co of Australia v Phillips
• Does not prevent introduction of extrinsic
  evidence for purpose of rectification
• MacDonald v Shinko Australia

Condition Precedent an 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 Subsequent
an event whose occurrence may give rise to a
right to terminate further performance of the
contract

• 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.

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)
Termination Clause Confers a contractual right to
terminate the contract for breach.
Force Majeure Clause Disposition of a contract in
the event of circumstances beyond the control of
the parties
Restraint on Trade Generally void unless proven
reasonable
Generally the party for whose benefit the
condition subsequent was inserted will be the
party who has the right to terminate on
non-occurrence.
Dispute Resolution Clause Failure to comply may
give rise to injunctions or damages CSR v Cigna
Insurance The Jay Bola
Law of contract Parties can chose jurisdiction
contract governed under Merwin Pastoral Co v
Moopla Pastoral Co If not stated, presumed
intention of parties Moonlighting International v
International Lighting
21
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)

• 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.

• Must determine
• Whether clause forms part of contract
• Whether on construction it covers the arisen
  liability

• 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)

Rules
Contra-preferentum rule An 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

• 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 contract
• The Council of the City of Sydney v West

If all tests pass, Exemption clause will operate
If any test fails, Exemption clause WILL NOT
operate