Transcript Slide 1

Revision
Copyright Guy Harley 2008
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Consideration
 Consideration
 What is it?
 Value of consideration
 Past Consideration
 Part Payment of a debt
 Promise to perform an existing contract
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Terms of the Contract
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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
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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
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Reasonable Bystander Test - Guidelines
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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)
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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
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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
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Implied Terms
Terms implied by Statute
Terms implied by the Courts
Implied as a matter of law
Trade Custom
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Implied as a matter of fact
Business efficacy
Past Dealings
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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
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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
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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
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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
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Terms Implied as a Matter of Fact
 Past dealings
 Custom or trade usage
 To make the contract effective
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Past Dealings
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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
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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
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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
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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
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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
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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
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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
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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
If Serious
Damages and\or
Termination
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Warranty
Not Serious
Damages
Only
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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
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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”
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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
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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
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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
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