Copyright Guy Harley 2008 1 Revision. Copyright Guy Harley 2008 2 Terms Terms can be Express In writing Oral Partly in writing and partly oral

1Copyright Guy Harley 2008

Revision


Terms

Terms can be Express

In writing Oral Partly in writing and partly oral

Implied By the Courts By legislation


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


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


Parol Evidence Rule

Courts presume that written formal contracts that appear to be a complete record of the agreement, contain the whole agreement

Exceptions 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 Collateral contracts


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


Exemption Clauses

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?


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


Void and Voidable Contracts


Void, Voidable & Unenforcable

Void Where one or more of essential elements of

contract are missing There is no contract

Voidable Parties have option to avoid contract Equitable remedy of rescission Valid & enforceable until one party rescinds


Void, Voidable & Unenforceable

Unenforceable Valid contracts Legislative or procedural requirement not

satisfied E.g. Sale of Land must be in writing (s26 Law

of Property Act)


Rescission

Effect Contract is terminated ab initio (i.e. it is as

though there never was a contract) cancels the contract from the point of

termination Procedure

Innocent party rescinds by giving notice to the other party


Notice of Rescission Innocent party must give notice of rescission

to other party Notice can be implied from conduct Academy of Health & Fitness v Power


Rescission

Available for: Misrepresentation Undue influence Unconscionable conduct Duress


Bars to Rescission

Third Party rights adversely affected Substantial restitution not possible Innocent party affirms contract Party wishing to rescind does not have “clean

hands” Lapse of time


Third Party Rights Rescission is not permitted if the legal rights

of an innocent third party will be adversely affected

For example, where goods have been on sold in good faith and for value to a purchaser

But, rescission will be effective where it occurs before the third party gains an interest Car & Universal Finance Co v Caldwell


Restitution The parties must be capable of being restored to

substantially the position they were in before the contract was entered into Known as “Restitution” Court can make consequential orders Precise restitution is not necessary

Alati v Kruger Brown v Smitt

Not possible where services already supplied pursuant to a contract of service


Affirming the Contract Rescission is not permitted if the contract has

been affirmed After discovering misrepresentation,

innocent party does any act which indicates that he is treating contract as still running

A delay in rescinding can amount to an affirmation


Clean Hands

Rescission will not be permitted if party seeking to rescind has also done something wrong under the contract

E.g. One party makes misrepresentation Other party has breached the contract by not

carrying out their obligations


Lapse of Time

Lapse of time will not normally deprive innocent party of right to rescind except if long period

Leaf v International Galleries (Graw 12.8.4)


Duress, Undue Influence, Unconscionable Conduct and

Mistake


Duress A contract entered into due to coercion or

force can be rescinded Coercion can be:

To the person; To goods; or Economic duress


Duress (cont.) Duress to the Person

Threats of physical punishment or imprisonment to the person, his family or friends

Duress to Goods Threats that are made against a person’s

property


Economic duress An economic threat that is not “legitimate” No rule that that commercial parties have to

be fair to one another A threat to break a contract can be economic

duress North Ocean Shipping v Hyundai

A lawful threat may be illegitimate Cockerill v Westpac


Undue influence The unconscionable use by one person of

power possessed by him over another in order to induce the weaker party to enter into a contract Mitchell v Pacific Dawn


Undue influence Presumed in pre-existing special relationships

where one party is in a position of trust and confidence

Called a “fiduciary relationship” Cases

O’Sullivan v Management Agency Lloyd’s Bank v Bundy


Fiduciary Relationships Parent & Child Guardian & ward Principal & Agent Trustee & Beneficiary Doctor & Patient Lawyer & Client Religious advisor & Follower More


Where No Special Relationship Weaker party must show that there is a

relationship of dependence, trust & confidence

Stronger Party exerted undue influence to the extent that the weaker party could not exercise an independent judgment

There must be more than mere reliance or influence

Weaker party must show that the contract would not have been made without the undue influence


Where no Special Relationship Court will look at:

The equality of the bargain The weaker party’s ability to make free and

independent choices Domination by one party Dependency on another Need for guidance, advice and support Low intelligence, weak mindedness, illiteracy Age & Health

Lack of independent financial or legal advice


Rebutting Undue Influence

Party in weaker position made an independent decision of their own free will

No pressure or influence as weaker party encouraged to seek independent advice

Weaker party was paid market price


Unconscionable Conduct One party takes advantage of the other

parties special disability to the extent that the contract is unfair or unconscionable Blomley v Ryan (S&OR p219\261) Commercial Bank v Amadio (S&OR p61\86)

Elements Special disability Absence of any equality between the parties Disability evident to other party


Mistake A party cannot get out of a contract because they

made a mistake Exceptions:

Mistake due to other party’s misrepresentation, unconscionable conduct etc.

Common mistake Mutual mistake Unilateral mistake Mistake as to nature of document


Mistake Mistake at Common Law makes contract void Mistake at equity makes contract voidable


Common Mistake – Common Law Both parties make the same mistake Res Extincta

Subject matter of contract has ceasd to exist

Res Sua Subject matter of contract already owned

by purchaser Cooper v Phibbs


Common Mistake – Equity A common misunderstanding An important but not fundamental

mistake Mistake through no fault of either party Unconscionable for one party to benefit

from mistake No bar to rescissionSolly v Butcher (Graw 11.3.5)


Mutual Mistake

• Parties are talking about different things

• Both are mistaken

• Difficult to work out what parties intended

• No “meeting of the minds”

• Raffles v Wichelhaus


Unilateral Mistake - Equity One party is mistaken as to a

fundamental term; and Other party is aware, or should be

aware, of the mistake Mistaken party will suffer detriment if not

allowed to rescind

Taylor v Johnson


Unilateral Mistake – Common Law Mistake as to Identity

If Third Party rights involved, identity must be important

Ingram v Little (Graw 11.5.4)

Mistake as to nature of document Non est factum


Mistake as to nature of document Radical difference between what was signed

and what party believed they were signing Mistaken party relied on others for advice

because unable to read document Understand document

Mistaken party not careless

Saunders v Anglia Building Society


Rectification

• Correction of document that does not accurately record parties’ intention

• Nobleza v Lampi

Documents

Copyright Guy Harley 2008 1 Revision. Copyright Guy Harley 2008 2 Terms Terms can be Express In writing Oral Partly in writing and partly oral