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LEGT 1710 Business and the Law

Lecture 4 Contract Law (Contd)

Promissory estoppel, Intention, Terms of a Contract

In-Class Exercise on Lecture Topics 1 and 2

In tutorials this week Closed Book Worth 5%

Lecturer: Dr Leela Cejnar

2 0 1 4 The University of New South Wales Sydney 2052 Australia The original material prepared for this guide is copyright. Apart from fair dealing for the purposes of private study, research, criticism or review, as permitted under the Copyright Act, no part may be reproduced by any process without written permission. Enquiries should be addressed to the Head of School, Taxation and Business Law, UNSW, Sydney

Major Assignment
Available from Week 5 (next week) On Moodle Due 5pm, Monday 5 May (Week 9)

Discussion Forum
Available from this week Separate Discussion Forum for each tutorial Contributions to the Discussion Forum will be worth 5% of overall Course Participation Mark Tutors will provide details about how to use the Discussion Forum for your tutorial class

Discussion Forum
Marks will be awarded for the QUALITY of contributions over the semester. It is not just about the number of comments or contributions you have but: whether you have "engaged" or "collaborated" with peers online by commenting on their contributions, answering or attempting to answer a peer's query, directing a peer to some interesting case/website/article you have found etc how you have reflected on your learning
For example, tutors will consider how well you have thought about the issues by looking at the level of analysis in your contributions/comments

Discussion Forum
NOTE: This is NOT INSTEAD OF class participation, as there is still at 5% mark for participation in class discussions This mark will be awarded IN ADDITION TO YOUR IN-CLASS CONTRIBUTIONS .

Your Tutors
Make the most of your tutor! Work closely with your tutor and communicate with your tutor All queries should go to your tutor in the first instance Your tutor will let you know if your query needs to be referred to me or to a member of the administrative team

Tutorial Attendance
Reminder: you can only attend the tutorial you are enrolled in! Tutors will refuse your attendance in a class where you are not on the roll, unless prior arrangements have been made (eg: due to illness, unavoidable absence because of a job interview etc) Remember there is an 80% attendance requirementdont miss your tutorials!

Lecture 3: Summary
Essential elements of a contract: Intention to enter into a legally binding contract (to be covered today) Agreement Offer Acceptance Consideration (or price)

Lecture 3: Summary
Other elements for a valid contract: Legal capacity Genuine consent Legality of purpose Any formal/procedural requirements must be satisfied (See Latimer at 5-510 to 5-570)


Lecture 3: Summary
Essential elements of contract

Lecture 3: Summary
2. The Acceptance
Must be in response to Offer (R v Clarke) Communicated (note: silence is not acceptance: Felthouse v Bindley) Express or implied (eg by conduct: Brogden v Metrop Rw a y Corp; Empirnall Holdings) Absolute, unqualified Any conditions must be fulfilled Clear and certain Postal Rule/Instantaneous communications

1. The Offer
Must be Firm promise Communication: Notice of Offer (Carlill v Carbolic Smoke Ball) Revocation of offer to occur before acceptance Invitation to treat (Pharmaceutical Society of Great Britain v Boots): offer to make an offer Counter -Offers (Hyde v Wrench) Requests for Information (Harvey v Facey)



Lecture 3: Summary
3. Consideration
Must be: Essential Present or Future, NOT past (unless act done at promisor s request and parties understood act to be renumerated later: Lampleigh v Braithwait and Re Caseys Patents) Something of value but need not be adequate ( Chappell & Co Ltd v Nestle Co Ltd) Sufficient Possible of performance Definite Legal Referable to the other partys promise

Lecture 3: Summary
3. Consideration Can be: Practical benefit (Williams v Roffey; Musumeci v Winadell )



Lecture 3: Summary
Note: Consideration cannot be: Moral obligation (Eastwood v Kenyon) Part payment (Pinnels case; Foakes v Beer some exceptions, such as creditors)

Todays lecture
Consideration and promissory estoppel exception to the rule Intention to enter into legal relations Terms of a contract Representation vs terms Parol evidence rule Express vs implied terms Collateral contracts Conditions and warranties Uncertain terms Meaningless terms Ambiguous terms



Overview - Lecture 4 Terms of a Contract

On completion of this lecture you should be able to: Explain what is meant by promissory estoppel Clarify the roles of intention in contract law Set out the legal requirements for a valid contract Clarify the role of intention in contract law Explain the difference between terms and representations Explain what is a collateral contract Identify different types of terms (condition, warranty etc)

Consideration and Promissory Estoppel: the exception to the rule

Promissory estoppel will allow a promise to be enforced even though the promisee has not provided good consideration for that promise It operates where it would be inequitable, or unconscionable, for the promisor not to be held to their promise You cant go back on your word! See Latimer at 5-485


Promissory estoppel
Cases: Central London Property Trust Ltd v High Trees House Ltd Legione v Hateley Waltons Stores (Interstate) Ltd v Maher See Latimer at 5-485

Promissory estoppel
Brennan Js ( Waltons v Maher ) six- point test for when the promisor cannot go back on his/her word: Promisee (Maher = P) assumes existence of particular legal relationship Promisor ( Waltons = D) responsible for this assumption Promisee acted/did not act in reliance on that assumption Promisor knew what promisee would do or intended for promisee to act in this way Promisee will suffer loss or some detriment or harm if the assumption/expectation is not fulfilled Promisor did not take any steps to warn promisee s/he may not fulfil expectation etc

See Latimer at 5-485

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Promissory estoppel
The central principle of the doctrine is that the law will not permit an unconscionable or, more accurately, unconscientious departure by one party from the subject matter or an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to the other partys detriment if the assumption be not adhered to.
Deane J in Commonwealth of Australia v Verwayen [1990] HCA 39 See Latimer at 5-485

Intention to create legal relations

There must be evidence that the parties INTENDED to make a legally enforceable contract



Subject to contract
Expressly NO intention
Subject to contract clauses Document not in its final form Subject to preparation of written document Case: Masters v Cameron: see Latimer at 5-250

Implied intention
The courts have to determine objectively whether the parties intended the agreement to be legally enforceable To assist, consider two categories: Social, family, domestic, voluntary Commercial or business



Implied intention
Traditionally: Social, family, domestic, voluntary PRESUMED NO INTENTION Commercial or business PRESUMED INTENTION TO BE BOUND

Implied intention
Apply the relevant presumption The presumption could be rebutted by evidence



Intention: Non-commercial
Non-commercial agreements Three types: 1. Social agreements - ones made between friends or acquaintances 2. Domestic agreements - ones made between family members and relatives and 3. Voluntary agreements - where the parties may volunteer their services

Intention: Non-commercial
Under the traditional approach no intention is presumed to exist, though this is rebuttable by the evidence produced by the plaintiff


Intention: Non-commercial
Domestic - Agreements between husband and wife Traditionally in domestic situations: Where the husband and wife are living together at the time of the agreement, no intention:
Case: Balfour v Balfour

Intention: Non-commercial
Other domestic arrangements In the case of other domestic situations the courts may look at the words and conduct of the parties as well as the seriousness of the consequences: Case: Wakeling v Ripley See Latimer at 5-090

No intention to create legal relations

Case: Cohen v Cohen See Latimer at 5-090



Intention: Non-commercial
Voluntary agreements In cases of voluntary agreements, such as where a person volunteers their services, the parties do not normally intend to create legal relations: Cases: Teen Ranch Pty Ltd v Brown Ermogenous v Greek Orthodox Community of SA Inc See Latimer at 5-090

Intention: Commercial/Business
In business and commercial agreements the courts assume that there is an intention to create legal contractual relations The parties may agree that their agreement is binding in honour or in principle only Case: Rose & Frank Company v JR Crompton &Bros Ltd See Latimer at 5-060



Contents of a contract The contract

What have the parties agreed to? What is the extent of the rights and obligations that the parties have entered into? The answer is found in the contents of the contract
Contents of a contract can be classified into two categories: (1) a representation: non-contractual statement made pre -contract during negotiations not intended to be legally binding if false, it is a misrepresentation (2) a term: contractual statement intended to be legally binding breach of term gives rise to action for breach of contract


Importance of truth of the representation Reliance of innocent party on representation Time period between representation and final agreement Intention behind making of representation Omission of representation from contract Consider any special knowledge or skills of person who made representation See Latimer at 6-020

Cases: Oscar Chess Ltd v Williams Bentley (Dick) Productions Ltd v Harold Smith (Motors) Ltd (Compare these two decisions)

See Latimer at 6-020


Representations and the parol evidence rule

Parol = oral, spoken If a contract is in writing and if the writing appears to contain the whole contract, it is presumed that the writing contains all of the terms of the contract See Latimer at 6-015

Representations and the parol evidence rule

Courts are generally reluctant to admit evidence of words, acts or representations made prior to the execution of the contract that might add to, vary or contradict the written contract See Latimer at 6-015



Terms of the contract

Terms include both: express terms implied terms

Terms of the contract

(1) Express can be: oral written oral and written (2) Implied can be: to give the contract business efficacy ( ie: to help make sense of the contract) from custom or business usage from previous dealings by the intention of the parties by the courts ( ie: to define uncertain/meaningless/ambiguous terms)


Implied Terms
Case: The Moorcock See Latimer at 6-110

Implied Terms
For terms to be implied into a contract, they must: be reasonable and equitable be necessary to give business efficacy be so obvious it goes without saying be capable of clear expression not contradict an express term of the contract
See Latimer at 6-110 at footnote 16: BP Refinery Case



Statutory Implied Terms

Some statutes imply (add) terms to contracts where consumers are involved For example, concerning fitness for purpose, merchantable (acceptable) quality, compliance with description/sample etc See: Australian Consumer Law , which is Schedule 2 of the Competition and Consumer Act, 2010 (Cth)

Types of terms
1. Condition
an essential term going to the root of the contract allows injured party option of rescinding ( i e ending) the contract and/or suing for damage

2. Warranty
a non-essential term of lesser importance allows the injured party only to recover damages (and requires continued performance of the contract)

See Latimer at 6-140 See Latimer at 6-050 to 6- 090



Condition or Warranty
Cases: Bettini v Gye Poussard v Spiers (Compare these two decisions) Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market See Latimer at 6-050

Uncertain terms
If there have been prior dealings, courts may imply appropriate terms Where there are no past dealings, courts may be forced to find contract void for uncertainty See Latimer at 6-150



Meaningless terms
If the term has no meaning, the courts will sever it if possible and leave the rest of the contract valid If this is not possible, the contract will be void for uncertainty See Latimer at 6-160

Ambiguous terms
If a term has more than one meaning, the contract will not necessarily be void for uncertainty, so long as the term can be given a meaning See Latimer at 6-170



Exclusion Clauses
Limitation of liability clauses To be discussed next week

The FIVE STEP PLAN to answering a legal problem

1. Identify relevant facts What are the key facts that are relevant to the problem? 2. Identify key, relevant statutory provisions and case law principles Ask: (a) does a statutory provision apply to this situation and does it provide a specific answer to the problem? (b) are there any cases which have dealt with a similar fact situation to the one you are considering and/or which have interpreted any relevant statutory provisions? NOTE: you should provide the name/section of any relevant legislation and the names of any relevant cases in your answer
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The FIVE STEP PLAN to answering a legal problem

3. Note similarities to (follow) or differences from (distingui sh) prior cases Jot down the names of cases that you have studied, where the facts were similar, if not identical to the ones in the problem you are considering Note any factual differences from previous cases and state whether or not you consider that the differences matter to your problem Often the facts of a problem may be similar to but a little different to those in a decided case: think about whether any factual differences matter Whether or not any differences matter will depend on the scope of the legal principle that the relevant case stands for

The FIVE STEP PLAN to answering a legal problem

4. Apply the relevant statutory provisions and case law principles to the facts Key aspect of answering legal problem question After identifying the relevant facts, and referring to the relevant statutory provisions and case law, you then have to apply the relevant statutory and/or case law principles to the facts of your problem This step involves saying what the legal principles you have identified mean to the facts of your problem and what the effect of these legal principles will be on the rights and obligations of the parties in your problem Key part of the process of reasoning that leads to a conclusion both in a legal problem question and in an actual court case

The FIVE STEP PLAN to answering a legal problem

5. Reach a conclusion based on the application of the statutory provisions and case law principles to the facts You need to reach a conclusion The fact that a subsequent court can overrule the decision of a previous court demonstrates that there is no absolutely correct answer to legal problem questions More important than the conclusion you reach is the process of reasoning that led you to that conclusion

How to answer a legal problem

In your discussion/answer, you must include references to relevant statutory provisions (legislation name and, where possible, section numbers) and case names



Next lecture
Exclusion Clauses Collateral contracts Changing terms of a contract Capacity Privity Agency Vitiating elements (eg mistake, misrepresentation, unconscionabl e conduct etc) Read: Latimer Ch 5 5-610- 5-810; Ch 6 6-180- 6-275; Ch 11