Contract Law Exam Notes

Step 1. Determine whether the meaning of the representation is false or not – objective test Step 2. Three possibilities of a misrepresentation: 1) It is a term of the contract; 2) It constitutes a collateral contract; 3) Does not acquire contractual status at all. Step 3. Results: 1) Rescission of the contract; 2) Damages in tort (if the tort of deceit or the tort of negligence can be made out) Smith v Lane & House Property Corp This case deals with the situation that a statement of opinion leads to a misrepresentation.

Two possibilities: 1) If the facts are equally well known to both parties – expression of opinion; 2) If the facts are not equally known to both parties – could be misrepresentation (material fact). Fitzpatrick v Michel This case deals with the difference between the statement of existing facts and statement of future. Edgington v Fitzmaurice A statement of future intention can in some circumstances constitute a representation of fact. Public Trustee v Taylor.

Misrepresentation of law (distinction between law and fact is probably no longer supportable in Australia) If the law is fraudulently misstated, the representor would be held liable. It would be unconscionable to permit the plaintiff to gain from a fraudulent misrepresentation of law. The consequences and rights (results) should be the same between the making of fraudulent misrepresentation of law by which a party was induced to enter into a contract and from the making of a fraudulent misrepresentation of fact.

(supported cases: West London Commercial Bank v Kitson) Positive misrepresentation; Silence; duty of disclosure General rule: A contracting party cannot claim relief for the failure of the other party to disclose a material fact. In other words, there is no duty of disclosure and silence is not a basis for relief. Exceptions to this rule: 1) A statement is literally true but gives rise to a false impression; 2) A statement is true when made but is later rendered false by change of circumstances. Davies v London & Provincial Marine Insurance Co.

Misrepresentation by non-disclosure Normally there is no duty of disclosure. Exceptions: 1) If there is a pre-existing relationship between the parties (agent & principal, solicitor & client, guardian & ward), they can only contract after the most ample disclosure of everything; 2) Contract uberrimae fidei (where one party is in a much better position to know the material facts than the other party, a duty to disclose those facts is imposed in respect of certain types of contracts) 3) Changes in circumstances lead to false.

McKenzie v McDonald Pre-existing relationship & duty of disclosure Exception 1. Rescission Common Law v. s. Equity Set aside the contract from beginning (ab initio) and restore the parties o their original positions (restitution in integrum). Possible situations: mistake, misrepresentation, breach of fiduciary duty, duress, undue influence, unconscionable dealing. If restoration is impossible, the remedy of rescission is not available. In common law, restitution is only allowed if precise restitution is possible.

In equity, restitution is allowed if substantial restitution is possible. In common law, restitution is NOT allowed for purely innocent misrepresentation. In equity, restitution is allowed for innocent misrepresentation. Alati v Kruger In equity, precise restitution is not necessary for restitution. In this case, the position cannot be restored to the original. In common law, this is not allowed for restitution (it must be precise restitution). In equity, it is ok. Brown v Smitt Can they get allowances of the improvements made on the properties if restitution occurs?

Answer is yes in this case. Vadasz v Pioneer Concrete Practically justice should be achieved, although it cannot restore the parties precisely to the original state; unconscionability Although the guarantee is induced by misrepresentation, it is practically just (justice to both parties) to hold the debt (occurring after the guarantee) liable to the appellant. Bars to rescission 1) Contract for the sale of goods: Watt v Westhoven.

The debate in this case is that whether the innocent misrepresentation upon contracts for the sale of goods leads to rescission. In common law, the answer is no since an innocent misrepresentation is not a ground for rescission, unless it was such that there is a complete difference in subject matter between the thing bargained for and that obtained, so as to constitute a failure of consideration. Equitable rules of rescission cannot apply to this case. The Sale of Goods Act excluded equitable rules of rescission: “apart from the statutory provisions of the Act itself the sale of goods is solely governed by ‘common law’”.

2) Executed contract: Seddon v North Eastern Salt Co Ltd Seddon states that a contract has been executed by performance prevents rescission for misrepresentation. In Australia, the rule in Seddon’s case only applies to land transactions. Vimig Pty Ltd v Contract Tooling Pty Ltd: the rule in Seddon’s case applies. 3) Affirmation: Coastal Estates Pty Ltd v Melevende Actual knowledge of right to elect. Misleading & deceptive conduct TPA s52; the misleading or deceptive conduct must occur ‘in trade or commerce’: Concrete Constructions (NSW) v Nelson

The mere use, by a person not acting in the course of carrying on a business, of facilities commonly employed in commercial transactions, cannot transform a dealing which lacks any business character into something done in trade or commerce: O’Brien v Smolonogov Although they are employees, they are still liable within the FTA: Houghton v Arms When assessing misleading or deceptive conducts, two approaches can be used to identify its likely effect on the audience to whom the conduct is directed: Approach 1: When the conduct is directed to the public at large: Campomar Sociedad Limitada v Nike International Limited: Objective test.

Approach 2: When the conduct is directed to specific individuals: Butcher v Lachlan Elder Realty Pty Ltd: The context in which the representation is made will be important to determining the appropriate level of analysis expected of the reasonable class of persons or reasonable person to whom the conduct was directed. (eg. TV ad is assessed on an impressionistic basis) Section 52, unlike the general law of misrepresentation, is not in terms limited to positive misrepresentations of fact.

Accordingly, statements of law are caught by the section. So too are sales puffs, if reasonably specific. Silence would be misleading where there was a duty to disclose the relevant information: Henjo Investments v Collins Marrickville. Reasonable expectation (of disclosure) test was stated in Kimberley NZI Finance Ltd v Torero Pty Ltd. The issue of whether or not silence must be deliberate is yet to be resolved by the courts. Duress Common law (very narrow): duress; compulsion Equity: coercion Remedy: rescission

Under duress, the plaintiff’s will needs to be inhibited or deflected, rather than destroyed or overborne; he or she is not deprived of choice, but must choose between two evils, albeit unwillingly: 1) A contract procured by duress is voidable not void (except perhaps in extreme cases) 2) It is material how and why the deflection of freedom occurred. To prove duress, two elements to prove:

Universe Tankships of Monrovia v ITWF 1) Pressure amounting to compulsion of the will of the victim; (to prove pressure, need to prove there is no other practical choice open to the party) 2) The illegitimacy of the pressure exerted. (to prove illegitimacy, consider two elements: 1. nature of the pressure; 2. nature of the demand which the pressure is applied to support. ) Barton v Armstrong (it is ok that duress is not the only reason of agreement, but part of it) It is not necessary for the appellant to prove that he would not have made the agreement but for the respondent’s threats. The only thing needs to be proved is that the threats and unlawful pressure in fact contributed to his decision to sign them.

Crescendo Management Pty Ltd v Westpac Banking Corp: it is unnecessary for the victim to prove that the illegitimate pressure was the sole reason for him entering into the contract. It is sufficient that the illegitimate pressure was one of the reasons for the person entering into the agreement. Once the evidence establishes that the pressure exerted on the victim was illegitimate, the onus lies on the person applying the pressure to show that it made no contribution to the victim entering into the agreement. Undue influence.

Presumption: undue influence was exercised by the defendant over the plaintiff. So it is the onus of the defendant to prove that the contract (or gift) was not the result of abuse of influence but was entered into only after full free and informed thought: Johnson v Buttress Prove a relationship of influence (no need to prove actual undue influence) Remedy: rescission Equity deems certain relationships to be relationships of influence: parent and child, guardian and ward, religious advisor and disciple, solicitor and client, doctor and patient. Unconscionable dealing.

One party has knowingly exploited or taken unconscientious advantage of the special disability or disadvantage of another. Onus of proof: the person who obtained the benefit of the bargain has the burden of showing the fairness of the transaction. Remedy: rescission Lack of knowledge and education Commercial Bank of Australia v Amadio Difference between ‘unconscionable conduct’ and ‘undue influence’ Unconscionable conduct: the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position.

Undue influence: the will of the innocent party is not independent and voluntary because it is overborne. Statutory unconscionable conduct, unjust and unfair terms Impropriety by third parties The rule in Yerkey v Jones A special principle to protect wives who guaranteed their husbands’ debts under specific situations. The rule applies in the following situations: 1) She does not understand the contract and the creditor accepts without dealing with her personally; 2) She understands the transaction but her consent was obtained by the husband’s undue influence. She must not benefit from the transaction.

3) The debtor is not the husband but a company controlled by him, and the wife does not have a substantial interest in that company. To avoid the principle: A lender may be obliged to take steps to ensure that it has reasonable grounds for believing that the consent of the guarantor or charger was fairly obtained and that that consent, with the benefit of independent advice, was adequately informed. kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk- kkkkkkkkkkkkkkkkkk Representation Is an oral statement made in negotiations a term of a subsequent written contract? 1.

Test of term: 1) Parol evidence rule (see specific paper): whether there is ‘entire contract clause’ (such clauses will generally be taken as conclusive evidence that the writing represents the entire agreement between the parties and that any statements made in negotiations do not form part of the subsequent written contract) I have a small penis. 2) Whether the statement was intended by the parties to be a term of the contract? (objective test: whether the statement would reasonably be considered a contractual promise by a reasonable person). Factors to consider: a) The words used (eg.Promise; agree; guarantee; warrant):

JJ Savage & Sons Pty Ltd v Blakney; b) The relative expertise of the parties (a statement made by a party with expertise to a person who is inexperienced is more likely to be promissory than a statement made by a party known to be inexperienced): Oscar Chess Ltd v Williams; c) Importance of the statement: Van den Esschert v Chappell. d) Where the written contract replaces an earlier oral agreement: 2. Rebut: 1) Mere representation (eg. An expression of opinion); 2) Innocent misrepresentation: Oscar Chess Ltd v Williams (honestly believe on reasonable grounds that the representation is true) effect of signature.

The rule in L’Estrange v Graucob 1. Definition: A party will be bound by the terms contained in a contractual document that he or she has signed. Signature will bind a party to the terms of a contractual document regardless of whether or not the party has read or understood the terms. 2. Rebut: 1) The document could not reasonably be considered a contractual document: Curtis v Chemical Cleaning and Dyeing Co 2) The consent has been vitiated by factors (such as misrepresentation, mistake, duress, undue influence or unconscionable dealing): Curtis v Chemical Cleaning and Dyeing Co By notice.

1. Test of delivered or displayed terms: 1) I have a small penis. Notice of the terms was given before the contract was formed: Oceanic Sun Line Special Shipping Company v Fay 2) Reasonable steps were taken to bring the terms of the notice of the party to be bound: Thornton v Shoe Lane Parking Ltd. Where there are unusual terms, attention must be given: Baltic Shipping Co v Dillon (The Mikhail Lermontov). In other words, the party must have either knowledge or reasonable notice of the terms. Whether the party has actually read the terms is not a problem. Course of dealings 1. Definition: I have a small penis.

Where parties have had a history of dealings, contractual terms introduced in earlier transactions may be incorporated into a subsequent contract even though the ordinary requirements for the incorporation of terms have not been met in relation to that subsequent contract: Balmain New Ferry Co Ltd v Robertson. 2. Test of course of dealings: 1) That course of dealings must have been regular and uniform; 2) The document relied upon in previous transactions must also reasonably be considered a contractual document, rather than having the appearance of a mere receipt or docket: Rinaldi & Patroni Pty Ltd v Precision Mouldings Pty Ltd.

Extrinsic evidence Parol evidence rule 1. Definition: If there be a contract which has been reduced into writing, verbal evidence is not allowed to be given of what passed between the parties, either before the written document was made, or during the time that it was in a state of preparation , so as to add to or subtract from, or in any manner to vary or qualify the written contract: State Rail Authority of NSW v Heath Outdoor 2. Effect of parol evidence rule: 1) The rule prevents extrinsic evidence being given to add to, vary or contradict the terms of a contract as they appear in a written document

(identifying the terms of a contract). 2) The rule limits the evidence that can be given to explain the meaning of the terms of a written contract (construing a contract). 3. Rebut: 1) The contract is only partly in writing. 2) Collateral contract. (A buyer of property signs a formal written contract of sale which says nothing about drains after the seller makes a verbal promise that the drains on the property are in good order. I have a small penis. The buyer may avoid the parol evidence rule by showing that there were two separate contracts.

One will be the main contract of sale. The other will be a collateral contract, consisting of the seller’s promise that the drains are in good order, given in return for buyer’s entry into the main contract. I have a small penis. NOTE: for a statement to give rise to a collateral contract, the statement must be made as a promise, must be intended to induce entry into the contract and must be consistent with the terms of the main contract: Hoyt’s Pty Ltd v Spencer) 3) Estoppel: Whittet v State Bank of NSW. Estoppel is not restricted by the requirement of consistency.

4) Rectification. Courts have an equitable power to rectify a contract in writing where a mistake is made in recording the parties’ agreement. 5) Condition precedent. 6) True consideration. 7) Implied terms. Surrounding circumstances is useful in construing a contract when there is ambiguity. Construing the terms Objective test: Courts do not consider what the parties privately intended the terms of their contract to mean, but rather what the words used would convey to a reasonable person in the position of the parties. Factors help construe the terms:

1) The surrounding circumstances; 2) Clear express words will prevail: Australian Broadcasting Commission v Australian Performing Right Association Ltd (NOTE: In cases of ambiguity in the express terms of a contract, courts will favor an interpretation which produces a reasonable commercial result on the ground that this is what the parties probably would have intended; However, where the words used by the parties are quite clear, effect will be given to those words even where the result may appear unreasonable. ) Exclusion clauses (exemption/exception clauses) 1.

Definition: aim to reduce or exclude a party’s liability for conduct that would otherwise be in breach of contract or constitute a tort, such as negligence. 2. Test of exclusion clauses: 1) whether or not the exclusion clause was properly incorporated into the contract; 2) the width of the exclusion clauses. 3) in case of ambiguity, an exclusion clause may be construed contra proferentem: (in case of ambiguity, an exclusion clause may be construed strictly against the interest of the proferens, the party seeking to rely on the clause. ): Wallis Son & Wells v Pratt & Haynes 3. Rebut:

1) Legislative restrictions on exclusion clauses: Trade Practices Act 1974 (Cth) renders void terms which purport to exclude, restrict or modify terms implied and certain rights conferred under that legislation: ss 68, 68A 2) Four corners rule: an exclusion clause is unlikely to have been intended to apply to acts that are unauthorized or outside the ‘four corners’ of the contract or fundamentally breaching the contract: Darlington Futures Ltd v Delco Australia Pty Ltd 3) Clear words are necessary to exclude liability for negligence: ‘howsoever caused’; ‘under no circumstances’: Davis v Pearce Parking Station.

Implied terms 1: Test of implied terms: 1) Terms implied in law: Byrne v Australian Airlines Ltd 2. Rebut: 1) Terms will not be implied in law, in fact or by custom where they are expressly excluded by the parties or are inconsistent with the express terms of the contract. However, an implied term will not necessarily be excluded by an entire contract clause. Also, where a statute implies terms into a contract, the statute may limit the extent to which the parties may exclude those implied terms: TPA ss 68, 68A. Termination by agreement 1) Fixed-term contract (eg. A lease for a specified period) 2) Termination ‘at will’.

3) Termination by express term: the term should be construed practically to give effect to presumed commercial purpose: Pan Foods Company Importers & Distributors Pty Ltd v Australia and New Zealand Banking Group Ltd 4) Termination by implied term: assume not indefinite; reasonable notice of termination by terminating party; objective test: Crawford Fitting Co v Sydney Value & Fitting Pty Ltd 5) Termination by subsequent agreement: consideration is necessary; determine whether it is termination or variation: an intention to terminate the original contract will be inferred where, because the obligations in the subsequent agreement are inconsistent with those in the original contract, the two agreements cannot be supposed to have been intended to co-exist.

Conversely, the parties are unlikely to have intended to terminate the original contract where the subsequent agreement cannot stand alone as a new and independent contract, then variation: Concut Pty Ltd v Worrell 6) Termination by abandonment: abandonment may be inferred where the parties to a contract indicate that neither considers the contract should be further performed: DTR Nominees Pty Ltd v Mona Homes Pty Ltd However, if the party has partly performed the contract, it is unlikely to be abandonment. For failure of contingent condition 1.

Definition: Parties may make the performance of their contract conditional upon the occurrence/no-occurrence of a specified event that neither party promises to ensure will (not) occur (eg. A buyer may undertake to buy the seller’s car subject to the buyer obtaining a loan or a mechanic’s approval of the car – contingent condition). The term is contingent in the sense that neither party undertakes to ensure that the event specified in the condition will occur. 2. Promissory condition v. s. Contingent condition Whether a condition is promissory or contingent depends on the construction of the contract in the circumstances of the case. Promissory condition: right to damage (eg. A contract for the sale of land fixing a date of settlement); Contigent condition: no right to damage. 3. Performance v. s. Formation.

Where a contingent condition qualifies the performance of a contract, the parties will not be obliged to perform the contract until the condition is fulfilled (eg. A contract for the sale of land subject to the purchaser obtaining finance to complete the sale. Neither party will be obliged to perform the contract unless and until the purchaser obtains finance or the condition is waived. However, the vendor would breach the contract by selling the property to someone else). Where a contingent condition qualifies the formation of a contract, the parties are not bound by the contract unless and until the condition is fulfilled (eg. A contract for the sale of land subject to the preparation of a formal contract.

The parties will have no contractual obligations until a formal contract is prepared; either party may withdraw from the agreement prior to that time). 4. Condition precedent v. s. Condition subsequent Condition precedent (eg. A contingent condition in a contract for the sale of goods providing that performance of the parties’ obligations is subject to the vendor obtaining an import licence) Condition subsequent (eg. A condition that performance of the contract is subject to the vendor’s import licence not being revoked) 5. Duty to co-operate A duty to co-operate (express or implied) will require the parties to do everything reasonably within their power to see that the contingent condition is fulfilled: Butts v O’Dwyer

If a contingent condition is not fulfilled due to a breach of the implied duty to co-operate (not do everything reasonably to fulfill the contingent condition), the party in breach will not be entitled to rely on the failure of the condition as a reason for terminating the contract: Mackay v Dick; damages will usually be available to the other party. It is possible that the damages will be discounted to take account of the fact that, even if the party in breach had co-operated, the condition might not have been fulfilled. 6. Non-fulfilment Objective test Subjective test 7. Remedy 1) if relates to a particular obligation only, the performance of that obligation is excused.

2) if relates to the performance of the whole contract, the contract is generally voidable. If electing to void, no party is liable for anything except there has been a breach of the implied duty to co-operate. 3) if express terms in the contract allow automatic termination after failure of contingent condition, by default party’s failing to take reasonable steps to co-coperate in fulfilling the condition, the contract may still be voidable rather than void at the choice of the party not in default 8. Waiver of a contingent condition One party alone will have a right waive compliance with a contingent condition where the condition is for the benefit of that party.

In the absence of waiver, the other party may still be entitled to rely on non-fulfilment of the condition as a reason for terminating the contract. 9. Restrictions on the right to terminate for non-fulfilment of a contingent condition 1) Prevention; 2) Other restrictions. Termination for breach 1. Common law right to terminate for breach of contract 1) If a term is a condition, there will be a common law right to terminate in respect of any breach of that term. The right to terminate arises regardless of the gravity of the breach. 2) If a term is an intermediate/innominate term, the right to terminate depends on the gravity of the breach and its consequences.

In the absence of a clearly expressed intention to the contrary, a term will only properly be classified as a warranty if it is such that no possible breach could give rise to an event which would deprive the aggrieved party of substantially the whole of the benefit which it was intended he or she should receive from the contract: Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd. 3) If a term is a warranty, a breach of the term will not of itself give rise to a right to terminate the contract, only a right to damages.

In the absence of classification by statute or by an express statement by the parties, whether or not a term is a condition is determined by a matter of construction of the contract in question: Tramways Advertising Pty Ltd v Luna Park Ltd: ‘The question whether a term in a contract is a condition or warranty, that is, an essential or inessential promise, depends upon the intention of the parties as appearing in or from the contract.

The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promise that he would not have entered into the contract unless he had been assured of a strict or substantial performance of the promise… and this ought to have been apparent to the promisor. ’ (objective test) Associated Newspapers Ltd v Bancks agrees with this idea. 2. Test of condition 1) Previous decisions;

2) Promoting certainty; 3) Language used (eg. Guarantee, promise, etc); 4) Other terms of the contract; 5) Likely character of the breach (serious or could be minor); 6) Whether damages would be an adequate remedy. 3. Breach of intermediate term v. s. Repudiation The focus of the repudiation doctrine is on the intention and acts (conduct) of the promisor; The focus of the intermediate term doctrine is on the consequences of the breach (detriment, loss suffered by the promise). 4. Remedy

An actual breach of a term does not automatically terminate a contract: 1) If a warranty is breached, the innocent party has the right to claim damages or specific performance; 2) If a condition is breached, the innocent party has the right to terminate the contract or keep performing the contract. Termination for repudiation 1. Definition: Traditionally, the party who is unwilling or unable to perform the contract has been said to have repudiated the contract. A repudiation of a contract by one party (the repudiating party) will entitle the other party (the aggrieved party) to elect to terminate the contract. 2. Test of repudiation: There are two ways to prove repudiation:

1) By reference to the promisor’s words and conduct (easier; objective test; inference by words or conduct that he/she is not ready and willing to perform): Carr v J A Berriman Pty Ltd; Progressive Mailing House Pty Ltd v Tabali Pty Ltd Or 2) By reference to the promisor’s actual position (factual test; lack of ability to perform). Note: in both cases, the promise must establish that the promisor’s lack of readiness and willingness to perform is, or will be, a serious matter. In other words, to amount to a repudiation, the absence of willingness or ability to perform must relate to the whole of the contract, or relate to a condition of the contract, or relate to a term which is ‘fundamental’. An absence of willingness or readiness to perform will be fundamental where it would deprive the aggrieved party of substantially the whole of the benefit of the obligations remaining to be performed under the contract. 3.

Anticipatory breach – occurs when one party repudiates his or her obligations under the contract prior to the time set for performance of those obligations. An aggrieved party may, by accepting the repudiation, elect to terminate the contract and claim damages. However, if an aggrieved party chooses not to accept a repudiation occurring before the time set for performance, not only will the contract continue on foot, but also there will be no right to damages unless and until an actual breach occurs. 4. Repudiation v. s. Breach of contract Sometimes it is hard to distinguish. The main distinguishing feature of repudiation is that it may occur before the time set for performance and give rise to a right to terminate before an actual breach has occurred: Anticipatory breach. 5.

Express statement of unwillingness or inability If a repudiating party makes an express statement of unwillingness or inability and the repudiation has been accepted, the aggrieved party is required to mitigate his or her loss 6. Instalment contracts Two relevant elements: Maple Flock Co Ltd v Unversal Furniture Products (Wembley) Ltd 1) The quantitative ratio the breach bears to the contract as a whole; 2) The degree of probability or improbability that such a breach will be repeated. 7. Repudiation and an erroneous interpretation of the contract A party may be found to have repudiated the contract by acting on or asserting an erroneous interpretation of the contract.

Two principles may reduce the likelihood of repudiation: 1) The ground which an aggrieved party has relied for terminating is invalid. 2) The repudiating party honestly believes the incorrect interpretation: DTR Nominees Pty Ltd v Mona Homes Pty Ltd 8. Wrongful repudiation An aggrieved part who wrongfully attempts to terminate a contract on the basis of the other party’s repudiation may then be liable in damages for wrongful termination. Termination for delay 1. Definition: Where a term governing the time for performance has the status of a condition – so that breach gives rise to a right to terminate – it is said that time is of the essence under the contract. 2.

Test of essence: 1) Express designation; 2) If there is no express designation: In equity, time would only be considered of the essence where it could be concluded that the parties had intended this result (matter of construction of the contract). In common law, the court will imply an obligation to perform within a reasonable time and it is highly unlikely that time will be viewed as being of the essence, unless failure to perform within a reasonable time will have serious consequences for the aggrieved party. 3) Courts are most likely to construe time as being of the essence in commercial contracts. But this is not absolute. 3. Right to terminate:

1) If time is of the essence (a condition), an aggrieved party has the right to terminate the contract; 2)