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Contracts Notes

Law Notes > LAWS1075 - Contract Law Notes

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LAWS1075 - Contracts
INTRODUCTION TO EXPRESS TERMS_______________________________________________________________- 3 WRITTEN TERMS AND SIGNATURE_____________________________________________________________________- 3 FROM NOTICE__________________________________________________________________________________- 3 IDENTIFYING TERMS IN AN ELECTRONIC CONTRACT__________________________________________________________- 4 BREAKDOWN___________________________________________________________________________________- 4 IDENTIFYING EXPRESS TERMS____________________________________________________________________ - 4 PAROL EVIDENCE RULE____________________________________________________________________________- 4 FROM STATEMENTS MADE__________________________________________________________________________- 6 INCORPORATION BY A COURSE OF DEALING_______________________________________________________________- 6 INTERPRETATION OF THE EXPRESS TERMS__________________________________________________________- 7 THE USE OF EXTRINSIC MATERIAL______________________________________________________________________- 7 PAROL EVIDENCE RULE AND CONSTRUCTION______________________________________________________________- 8 THE PROCESS OF INTERPRETATION_____________________________________________________________________- 8 EXCLUSION CLAUSES______________________________________________________________________________- 9 IMPLIED TERMS_______________________________________________________________________________ - 9 IN LAW OR IN FACT OR FROM CUSTOM_________________________________________________________________- 9 IMPLIED BY CUSTOM (IMPOSSIBLE TO PROVE)_____________________________________________________________- 10 IMPLIED BY FACT (BYRNE V AUSTRALIAN AIRLINES; FREW V AUSTRALIAN AIRLINES)___________________________________- 10 IMPLIED BY STATUTE/LAW__________________________________________________________________________- 10 AUSTRALIAN CONSUMER LAW__________________________________________________________________ - 11 COMPETITION AND CONSUMER ACT 2010 (CTH) SCHED 2___________________________________________________- 11 TERMINATION_______________________________________________________________________________ - 13 BY AGREEMENT________________________________________________________________________________- 13 TERMINATION BY SUBSEQUENT AGREEMENT______________________________________________________________- 13 Express agreements___________________________________________________________________________- 13 Termination inferred from subsequent agreement___________________________________________________- 14 Termination by abandonment___________________________________________________________________- 14 BREACH______________________________________________________________________________________- 14 FOR BREACH OF A CONDITION______________________________________________________________________- 14 FOR BREACH ON AN INTERMEDIATE TERM______________________________________________________________- 15 FOR REPUDIATION______________________________________________________________________________- 16 TERMINATION FOR FAILURE OF A CONTINGENT CONDITION___________________________________________________- 17 TERMINATION FOR DELAY_________________________________________________________________________- 19 1 RESTRICTIONS ON TERMINATION________________________________________________________________ - 20 CONSEQUENCES OF AFFIRMATION/TERMINATION_________________________________________________________- 20 READY AND WILLING_____________________________________________________________________________- 21 ELECTION_____________________________________________________________________________________- 21 ESTOPPEL AND WAIVER___________________________________________________________________________- 22 OUTLINE OF AN ANSWER ON TERMINATION_____________________________________________________________- 22 FRUSTRATION________________________________________________________________________________ - 23 FRUSTRATION__________________________________________________________________________________- 23 LAW AGAINST UNFAIR AND UNJUST CONTRACT TERMS_____________________________________________________- 23 DAMAGES FOR BREACH OF CONTRACT___________________________________________________________ - 26 TYPES OF DAMAGES_____________________________________________________________________________- 26 MAP OF THE GENERAL PRINCIPLES___________________________________________________________________- 27 THE COMPENSATION PRINCIPLE_____________________________________________________________________- 27 EXPECTATION DAMAGES - COMPENSATION_____________________________________________________________- 27 LOSS OF CHANCE________________________________________________________________________________- 28 RELIANCE DAMAGES_____________________________________________________________________________- 28 GAIN-BASED DAMAGES___________________________________________________________________________- 28 LIMITATIONS TO RECOVERING DAMAGES_________________________________________________________ - 29 CAUSATION AND REMOTENESS______________________________________________________________________- 29 MITIGATION___________________________________________________________________________________- 29 ISSUES WHEN ASSESSING DAMAGES___________________________________________________________________- 29 AGREED REMEDIES AND PENALTIES______________________________________________________________ - 30 ACTIONS FOR DEBT___________________________________________________________________________ - 33 VITIATING FACTORS___________________________________________________________________________ - 34 VITIATING FACTORS AND RESCISSION__________________________________________________________________- 34 MISTAKE_____________________________________________________________________________________- 37 GENERAL LAW MISREPRESENTATION__________________________________________________________________- 38 MISLEADING OR DECEPTIVE CONDUCT UNDER STATUTE_____________________________________________________- 40 DURESS______________________________________________________________________________________- 42 UNDUE INFLUENCE______________________________________________________________________________- 43 GENERAL LAW UNCONSCIONABLE DEALING_____________________________________________________________- 43 STATUTORY PROHIBITIONS ON UNCONSCIONABLE CONDUCT__________________________________________________- 44 THIRD PARTY LIABILITY___________________________________________________________________________- 44 SPECIFIC PERFORMANCE_______________________________________________________________________ - 44 -

2 Introduction to Express Terms
Written Terms and Signature---Terms of a contract determine what the parties have agreed to do by way of performance to their contract
The objective approach in assessing parties' intentions:
o "the intention which reasonable persons would have had if placed in the situations of the parties"
(Reardon Smith Line v Hansen-Tangen)
What are the terms of a contract?
o The provisions and obligations of the contracts - find them

The scope of the performance that is necessary

What damage was caused by the breach of contract
Express terms may be incorporated:
o By signature

By adequate notice

By a course of dealing

Under the principle established in the ticket cases
Statements made orally during negotiations may also be incorporated into a contract
Written terms and the effect of signature

General rule (L'estrange v Graucob; Toll (FGCT) v Alphapharm)
 A party will be bound by the terms contained in a contractual document which they have signed, irrelevant of if they've read the document

The agency issues
 A method of overcoming the requirements of privity in a commercial context
Circumstances in which the effect of signature may be avoided

The rule in L'estrange v Graucob does not apply where the signature was induced by misrepresentations of the nature or scope of obligation, or fraud, or in some cases of mistake

Also, where the document cannot reasonably be considered a contractual document, for instance if it appears to have another function, like a receipt (Curtis v Chemical Cleaning & Dyeing)
o Nonesfacto (latin: this is not my document) - it is clear that someone cannot read a document

From Notice-3

Incorporation of terms by notice

It is not uncommon for one party to allege that the contract contains terms which have been displayed or delivered before or at the time of the transaction

Whether or not the party will be bound depends upon whether:
 The terms were available to the party to be bound by those terms before the contract was made
 Reasonable steps were taken to bring the terms to the notice of the party to be bound

For delivered or displayed terms to form part of a contract they must be available to the party to be bound before the contract is made (Oceanic Sun Line Special Shipping Company v Fay)
Knowledge or Notice (Thornton v Shoe Lane Parking) If the timing requirement is satisfied, a party will be bound by delivered or displayed terms if they have either knowledge or reasonable notice of the terms

If a party knows that the relevant document contains contractual terms, they will be bound by those terms

In the absence of knowledge, a party will be bound by delivered or displayed terms if they had reasonable notice of the terms

Reasonable notice depends on the type of contract
Was notice given? Was it adequate timing before formation?
oIdentifying terms in an electronic contractElectronic Transaction Act 2000 (NSW)
o Signatures
 A method is used to identify if a person and to indicate the persons intention in respect of the information communicated
 The method used was either:
 As reliable as appropriate for the purposes for which the electronic communication was generated or communicated
 Proven to the fact to have fulfilled the functions described in paragraph A
 The person to whom the signature is required to be given consents to that requirement being met by the way of the use of the method mentioned in paragraph a


Identify the terms

Express terms  written document, displayed terms of use

Implied terms 
Written documents

Consider the method of incorporation of terms?
 By signature
 Is it a contractual document?
 By notice (if the document is not contractual)
 Is the notice sufficient?
o Timing - For delivered or displayed terms to form part of a contract they must be available to the party to be bound before the contract is made
(Oceanic Sun Line Special Shipping Company v Fay)
o Knowledge - a party will be bound by delivered or displayed terms if they have either knowledge or reasonable notice of the terms (Thornton v Shoe Lane Parking)
o Includes reference of other terms
 Oral agreements, additional documents, advertising promises

Is the contract conclusive?
 No  oral statements and extrinsic material is included

Identifying Express Terms 4 Parol Evidence Rule----5

What is meant by parol evidence  everything that is not the document
What is the rationale of the rule?  to give effect to the intentions of the parties
What is the parole evidence rule?  a circle statement

If the contract is whole in writing, then extrinsic material cannot be used

Therefore, the PER does not apply (State railway Authority)
Statements made during negotiations

Parties negotiating a contract may make statements about matters relating to the contract

If one of the statements is false, the party to whom it was made can seek legal remedy

Promissory: and this a term of the contract, then there will be a remedy for breach of contract

Representation: not part of the contract, relief must be sought under the law relating to misrepresentation

To determine if a statement proves part of a contract:
 Consider whether evidence of the purported term is admissible to the court
 Parole evidence rule limits the extent to which extrinsic evidence is available to
"add to or vary" the terms of a contract
 Courts must determine if parties would have intended the statement to form part of the contract.
Entire agreement clauses

Parties may expressly clarify their intention for a contract to be wholly in writing through a merger or entire contract clause

Which states that the written contract contains the entire agreement of the parties

Therefore, the PER does not apply because all the terms are in the contracts written document and cannot rely on extrinsic material
The parol evidence rules

The evidence available to the court will be important in identifying the terms that form part of the contract and the construction given to those terms

Common law: regards contracts that the parties have reduced to writing as being in a special category, and severely limits the kind of evidence outside the written document

Consists of two parts:
 It prevents extrinsic evidence being given to add to, vary or contradict the terms of the contract - the ambit of the contract
 Limits the evidence that might be given to explain the meaning of those terms
Evidence included

Any evidence extrinsic to the contract

In writing

Oral conversation


Early drafts
Can extrinsic evidence be used to determine whether a contract is wholly in writing? (Corbin on contracts; state railway authority of NSW v Health Outdoor)
o The parol evidence rule only applies to contracts wholly in writing

Therefore, will not apply to exclude evidence of the oral terms of a contract that are only partly in writing
Exceptions to the parol evidence rule in identifying terms - Cases in which extrinsic material is admissible o



Collateral contracts
 What is a collateral contract?
 A collateral contract is a contact the consideration for which is entry into another contract (Mann v Nunn)
 Specific type of contract that is the entry into another agreement
 EG looking for an apartment but the oven is broken and the guy showing the apartment says that hell fix it if you sign the contract, so you do but he never does - the oral agreement is not a part of the main contract
 EG if you sign this then ill give you $100
 Contract made when one party makes a promise, connected to but independent of a main contract
 Parol evidence rule does not work to exclude evidence of a collateral contract
Requirements for establishing a collateral contract (Heilbut Symons & Co v Buckleton)
 Must be strictly proven
 Lighter burden if alleged contract deals with a subject matter that one would not naturally expect in the main contract (Shepperd v Municipality of Ryde)
 Must be made as a promise
 Must be intended to induce entry into the contract (JJ Savage & Sons Pty Ltd v Blakney)
 Must be consistent with the terms of the main contract (Hoyt's Pty Ltd v Spencer)
 Divided to if the PER precludes the admission of extrinsic material for the purpose of establishing an estoppel
 (Saleh v Romanous) yes to estoppel
 (Australian Co-operative foods v Norco Co-operative) no to estoppel

From Statements Made6

When is a statement a term of a contract?
o Oral statement  prove intentions objectively
 Promises/terms/warranties (incorporated into contract)
 D  a binding promise
 Legal Effect  promissory statements are incorporated into the contract
 Remedies  damages in tort
 Mere representation (not binding, have no legal affect in contract law)
 D  statements which induce entrance into a contact but are not guaranteed by their maker
 Remedies  recession, damages in tort, remedies under the ACL
 Legal Effect no contractual effect - it may give rise to an estoppel or be tortious
 Puffs - making something seem better than it is - advertising (does not induce entry into a contract)
 D  laudatory statements which are not intended to be taken seriously
 Legal Effect no contractual effect

Judged objectively by the courts

Potentially relevant factors: (Equuscorp v Glengallen Investments; JJ Savage & Sons v Blakney;
Oscar Chess v Williams; Dick Bentley Productions v Harold Smith (Motors)) 

Significance of a written contract
Language used (Oscar Chess v Williams; Dick Bentley Productions v Harold Smith
Relevant expertise of the parties (JJ Savage & Sons v Blakney; Oscar Chess v Williams)
Importance of the statement
Timing of the statement
Form of the written contract

Incorporation by a course of dealing--

A term can be incorporated by a course of dealing if there are enough facts to establish that a course of dealing has been established enough time that it is incorporate (Renaldo)
Therefore, if a you walk past a sign every day, then 30 days later there is a storm and the sign is washed away, the sign has been incorporated into a course of dealing enough time to count criteria:
o Regular

o Was sufficient notice given?
o Objective test: reasonable person would have had notice

Interpretation of the Express terms
The use of extrinsic material7

Construction (contractual interpretation)
o  the process by which a court determines the meaning and legal effect of the terms of the contract agreed by the parties - this is with the presumption that the parties intended to say that which they have said

Meaning of words assessed objectively: - what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean" (Chartbrook Ltd v Persimmon Homes Ltd)
 Pacific Carriers Ltd v BNP Paribas - highlights the implications with adopting the objective approach

How is the intention of the parties determined?
 The intention of the parties is ascertained from the words they have used or their contract
 The question is not what the parties meant to say or what the other party actually understood to have been intended. It is what the meaning of what the parties have said

Courts will have regard to: (Arnold v Britton)
 The natural and ordinary meaning of the clause
 Any other relevant provisions of the contract
 The overall purpose of the clause and the contract
 The facts and circumstances known or assumed by the parties at the time the document was executed - to the extent that these surrounding circumstances are admissible

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