Transcript Slide 1
Revision
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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
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
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
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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