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1Copyright Guy Harley 2008
Revision
2Copyright Guy Harley 2008
Consideration
Consideration What is it? Value of consideration Past Consideration Part Payment of a debt Promise to perform an existing contract
3Copyright Guy Harley 2008
Terms of the Contract
4Copyright Guy Harley 2008
Terms
Statements that form part of the contract Promises which are intended to be kept Distinguish from
Puffs Exaggerated sales statement
Representations A statement of fact that induces another
person to enter into a contract
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Terms
Terms can be Express
In writing Oral Partly in writing and partly oral
Implied By the Courts By legislation
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Express Terms
The terms of the contract are ascertained by examining the evidence
Not all pre-contractual statements become terms of the contract
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Express Terms
Meaning of the terms may not be clear Where the parties have used language that is
incapable of any precise meaning the contract may be void for uncertainty
It is not the role of the Court to make a bargain for people
However, the Courts are reluctant to destroy a bargain
8Copyright Guy Harley 2008
Reasonable Bystander Test
Which statements and representations would a reasonable bystander, aware of the circumstances of the case, regard as promissory?
The test is objective Parties actual intention is irrelevant
9Copyright Guy Harley 2008
Reasonable Bystander Test - Guidelines
Timing of Statement Was the statement in writing Did one party have special skill or knowledge How objectively important is the representation
to the whole deal What words were used
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Timing of Statement
How much time elapsed between the representation and the making of the contract?
Statements made only once early in negotiations are less likely to become terms. Van Den Esschert v Chappel (Graw 9.1.5)
11Copyright Guy Harley 2008
Statement in Writing
If the statement was included in a document drawn up by the parties then this is good evidence that the parties regarded the statement as sufficiently important to be a term
Alternatively, if it is left out, that indicates that the parties did not intend it to be a term. Routledge v McKay
This is not conclusive of itself, it is merely one matter to be considered
12Copyright Guy Harley 2008
Special Knowledge
Did one party rely on the other’s expertise or special knowledge rather than form its own judgement Oscar Chess v Williams (Graw 9.2.5) Dick Bentley Productions v Harold Smith
Motors (Graw 9.2.5)
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Importance of Statement
Must be judged in the context of the negotiations Crouchman v Hill
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Words Used
The more precise the language, the more likely it is a term Ross v Allis-Chalmers Australia
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Parol Evidence Rule
Courts presume that written formal contracts that appear to be a complete record of the agreement, contain the whole agreement
Courts will not let a party ‘subtract from, add to or contradict the language of the written agreement’
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Parol Evidence Rule
Extrinsic evidence is permitted where it can be proved that: Parties did not intend written document to
record whole of the agreement Written document inaccurately records the
parties agreement Terms must be implied to make the
agreement workable Parol evidence rules is avoided if there is a
Collateral Contract
17Copyright Guy Harley 2008
Terms implied by the Courts
Implied as a matter of law Implied as a matter of fact
Past DealingsBusiness efficacyTrade Custom
Implied Terms
Terms implied by Statute
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Terms Implied by the Courts
Cannot conflict with express terms Must not be unreasonable or unjust in the
circumstances Implied as a matter of law
Common situations which are so settled that terms “go without saying”
Implied as a matter of fact Arise out of the particular facts of the case
19Copyright Guy Harley 2008
Terms Implied as a Matter of Law
Professionals and Clients Professional must use reasonable care and
skill Service Contracts
Provider must take reasonable care and skill in providing the service
Service must be reasonably fit for the purpose for which it was acquired
Costa Vraca v Berrigan Weed & Pest Control
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Terms Implied as a Matter of Law
Work and Materials Contractor must use reasonable care Services must be fit for the purpose for which
they were acquired Materials must be of good quality Reg Glass v Rivers Locking Systems Helicopter Sales v Rotor Work
21Copyright Guy Harley 2008
Terms Implied as a Matter of Law
Hire Contracts Goods are reasonably fit for the purpose for
which they are hired Landlord & Tenant
Landlord must give the tenant ‘quiet enjoyment’ of the premise
Tenant must Pay rent Act in “tenant-like” manner
22Copyright Guy Harley 2008
Terms Implied as a Matter of Law
Employment Contracts Employer must
Provide a safe system of work Not require employee to do an unlawful act
Employee must: Obey reasonable instructions Use reasonable level of skill and
competence Act in good faith to employer Keep employer’s trade secrets confidential
23Copyright Guy Harley 2008
Terms Implied as a Matter of Fact
Past dealings Custom or trade usage To make the contract effective
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Past Dealings
Term is clearly identifiable Previous dealings are numerous and consistent Present dealing fits into the course of dealing No conflict between implied term and an express
term Henry Kendall v William Lillico
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Custom or Trade Usage
Can state term with precision Custom is so well known & widespread that all
contracts can be said to have the term Custom is reasonable No conflict with an express term British Crane Hire v Ipswich Plant Hire
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To Make a Contract Effective
Term is capable of clear and precise expression The term is necessary to make the contract
effective not just reasonable The term is obvious (“officious bystander test”) The term is fair & equitable to both parties No conflict with an express term The Moorcock Codelfa Constructions v State Rail Authority
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Is It a Term of the Contract
The approach of the Courts can be demonstrated by reference to Exemption Clauses
Similar concepts apply to all clauses
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Exemption Clauses
A clause that limits or excludes the consequences of a breach of a party’s obligations
Courts are biased against them Bias is less noticeable in commercial contracts Courts adopt a 2 step process
Has the exemption clause become a term of the contract?
If so, does it cover the breach in question?
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Is the Exemption a Term of the Contract?
Essentially the same test as for all terms An exclusion clause cannot be incorporated after
the contract has been made (e.g. parking ticket) Past dealings may imply an exemption clause
Henry Kendall v William Lillico Hollier v Rambler Motors
30Copyright Guy Harley 2008
Is the Exemption a Term of the Contract?
Signed documents will usually be binding even if the party was unaware of the term unless Signed document could not reasonably be
regarded as likely to contain contractual terms Chapelton v Barry Causer v Browne
Estoppel exists Exemption clause has been misrepresented
See Curtis v Chemical Cleaning Co
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Is the Exemption a Term of the Contract?
Unsigned exemption clauses will be binding if The innocent party was aware of it; or reasonable notice of it has been given to the
innocent party (Interflora v Stiletto Visual Programs)
before the contract is made
32Copyright Guy Harley 2008
Reasonable Notice
What is reasonable notice depends on: The nature of the document; The nature of the transaction; and The nature of the exemption clause.
Would it be reasonable to expect the document to contain an exemption clause (e.g. a receipt)
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Reasonable Notice
Is the transaction one where you would expect an exemption clause to exist
The wider the exemption the greater the steps to be taken to bring it to the attention of the other party
Cases Thornton v Shoe Lane Parking Parker v South Eastern Railway Oceanic Sun Line Special Shipping v Fay DJ Hill & Co v Walter H Wright Pty Ltd
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Does the Clause Cover the Breach?
Courts will examine the clause carefully to determine its effect and limit its scope where possible
Generally, the Courts will give effect to the parties intentions as evidenced by the natural and ordinary meaning of the words
There are 3 rules that courts use to limit exemption clauses: The Contra Preferendum rule Negligence Clauses The Four Corners Presumption
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Contra Preferendum Rule
Any ambiguities in the exemption clause will be construed against the party seeking to rely on the clause Andrews Bros v Singer Car Co Alex Kay v General Motors Acceptance Corp
& Hartford Fire Insurance
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The Negligence Rule
Liability for negligence may be expressly or impliedly excluded but if the words could reasonably be applied to protect against some ground of liability other than negligence, then liability for negligence will not be excluded White v John Warick & Co
To exclude liability for negligence, clear words are required Tech Pacific v Air Pacific
37Copyright Guy Harley 2008
4 Corners Presumption
The exemption clause will only cover matters within the 4 corners of the contract
Whether an event falls outside the contract depends on the reasonable person test – would a reasonable person aware of the terms of the contract conclude that the parties must have had the relevant event in mind in drawing up the contract.
Sydney Corporation v West TNT v May & Baker Darlington Futures v Delco Australia
38Copyright Guy Harley 2008
Statutory Reforms
In many cases, it is Illegal to attempt to exclude terms implied by statute e.g. Trade Practices Act
Attempting to exclude statutory liability (where not permitted) may be misleading and deceptive conduct contrary to section 51 of the Trade Practices Act
39Copyright Guy Harley 2008
Conditions and Warranties
Not all terms carry the same importance A condition is a core term of the contract
Goes to the essence of the contract Tramways Advertising v Luna Park Associated Newspapers v Bancks
Warranties are non-core terms of the contract
40Copyright Guy Harley 2008
Conditions and Warranties
Intermediate terms will be conditions or warranties depending on the seriousness of the breach A breach so serious as to deprive the
innocent party of substantially the whole benefit of the contract
Hong Kong Fir Shipping Co v Kawasaki
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Termination by Breach Breach of a condition, or a serious breach of an
intermediate term, will allow termination
Condition Intermediate Term Warranty
Damages and\or Termination
Damages Only
If Serious Not Serious
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Conditions and Warranties
To determine if a condition, courts will examine The way in which the term is expressed The likely consequences of a breach The objective importance of the term to the overall
contract Whether damages are likely to be an adequate
remedy (Shevill v Builders Licensing Board) The use of the word “condition” is not conclusive
Wickman Machine Tool Sales v L Schuler AG Parties can expressly state that it is an essential
term
43Copyright Guy Harley 2008
Conditions and Warranties
Terms implied by statute are often expressly stated to be conditions or warranties
Time In a mercantile contract the presumption is
that it is a condition Bunge Corp of NY v Tradax Export SA Panama
In other contracts it is usually a warranty Bettini v Gye
Often made a condition by express words “time is of the essence”
44Copyright Guy Harley 2008
Collateral Contracts
A second contract that exists in addition to the main contract
The collateral contract contains the oral terms whilst the main contract contains the written terms
45Copyright Guy Harley 2008
Collateral Contracts - Types
Two types: Where the consideration for the collateral
contract is the party entering into the main contract Sheppherd v Council of Ryde
Where the consideration for the collateral contract is the party entering into a contract with a third party Wells v Buckland Sand
46Copyright Guy Harley 2008
Collateral Contracts - Requirements
The statement must be promisory E.g. “I guarantee”, “I assure you” Savage v Buckley
Promissory statement induced by the other party Not a term of the main contract Not contain terms inconsistent with main
contract