Contract Law

Matters affecting Formation Privity Formalities

Elements of Formation Offer Acceptance Intention Consideration

Content: Terms Express Implied

Offer
Expression to another of a willingness to be legally bound by the stated terms Australian Woollen Mills v Commonwealth Requirements 1. Statement to offeror containing stated terms If requirements not met 2. Statement is made to another person 3. Offeror indicates a preparedness to be bound

If requirements are met

Bilateral Under [bilateral contracts] each Unilateral party undertakes to do/ref. From A uni. Contract involves an doing something and in the event that offer made by offeror to act/ref. either fails to perform, the law Act if someone performs as provides other party a remedy requested. Offeree not bound to Lord Diplock, United Dominions do so. Acceptance is also Trust v Eagle Aircraft Services consideration Carlill v Carbolic Smoke Ball Company Special issues

Mere Puff Test: RM How would RM interpret Ad. In position of offeree? Manufacturers Material Insurance v John Boardman Insurance Brokers

Supply of Info Test: Categorisation Supplying information is not an offer. Harvey v Facey

Tickets for transport Exemption/exclusion clauses only incorporated before formation

Options Revokable at any time unless consideration is provided to keep open

Prior to carriage Prominent notices can be incorporated See incorporation of terms

Machine Offer is machine ready to accept $ Acceptance is placing in $ Terms cannot be introduced after this point except where reasonable time to view terms before carriage. Thornton v Shoe Lane Parking

Standing offers Indication of willingness of one party to provide goods/services over a specified period May be revoked at any time before acceptance Great Northern Railway v Whitham

Ambiguous

Invitation to treat Advertisement Test: (TOF) Language & circumstance Anything that states an intention to be legally bound is an offer RE Mt Tomah Blue Metals Display of Goods No test. Does not constitute an offer Taking goods to counter is Fisher v Bell Advertisement for Auction Not an offer Harris v Nickerson Auctions w/reserve Invitation to treat Payne v Cave

Auctions without reserve Early English offer Warlow v Harrison OR each bid represents an offer that can be accepted or rejected by auctioneer AGC Advances v McWhirter

Tender Usually invitation to treat EXCEPT: Offer when highest bid accepted Harvela Investments v Royal Trust Company of Canada Must consider all tenders Hughes Aircraft Systems International v Air Services Australia

Termination
Withdrawal by Offeror Can be withdrawn at any time before acceptance Goldsbrough Mort & Co v Quinn There needs to be actual communication to offeree Bryne & Co v Leon Van Tien Hoven & Co Communication by reliable source other than offeror or agent acceptable Dickinson v Dodds Rejection by Offeree Rejection = termination Stevenson Jacques & Co v McLean Must be communicated to offeror If offeree responds with new terms = counter offer Hyde v Wrench Death

Unilateral Contracts Cannot withdraw offer once acceptance commenced Abbott v Lance

Offers to World at Large Less than actual communication acceptable Use same medium to withdraw offer Shuey v United States

Lapse of Time Once time limit expires, offer unable to be accepted When not stated, time is set to reasonable Manchester Diocesan Council for Education v Commercial & General Investments Failure of condition If offeree fails to comply with condition of conditional offer, it is terminated Financings v Stimson

Death of offeror Offer cannot be accepted after death Exception: Property which can be completed by deceased estate Dickinson v Dodds

Death of Offeree If offeree dies, no offer. Exception: Sale of property Reynolds v Atherton

Options If offer involved personal services, option will not enforce offer Property may apply: If conditional contract enforceable If irrevocable offer - unenforceable

Acceptance
Agreements is formed once an offer is accepted Requirements Offeree must intend to accept terms of offer Intention must be communicated to the offeror (Consensus Ad Idem)

Acceptance in Unilateral Contract See notes pp. 09

Acceptance must correspond to offer Offeree must have knowledge and act in reliance on offer Crown v Clarke Acceptance must be unqualified If subject to exists, TOI to determine whether acceptance is unqualfied Masters v Cameron Exceptions Counter offer is not acceptance Hyde v Wrench Exceptions Acceptance couched in different language may be acceptable (IE different forms) Agreement not prevented if offeree seeks concession for performance before formation Request for alternate mode of acceptance not prevent contract formation Clive v Beaumont If offerees conduct more favourable than terms of offer, agreement exists Ex Parte Fealey Mere inquiry not acceptance Stevenson Jacques & Co v McLean

Notification of Acceptance Method of acceptance Method of acceptance stipulated by offeror Offeror can stipulate how communication is affected If accepted in manner more advantageous to offeror offer valid Tinn v Hoffman & Co Method for benefit of offeree If method is for offerees benefit, they may chose to accept in another method Manchester Diocesan Council for Education v Commercial & General Investments Multiple methods Prescribed method may not be only effective method on construction of terms Conduct may constitute acceptance Empirnall Holdings v Mark Machon Paull Partners Instantaneous Communication Contract will be formed when acceptance of the offer is communicated to the offeror. The contract is formed when and where the offeror receives that communication. Entores L D v Miles Far East Corporation Postal Acceptance Rule Where circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary uses of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted. Lord Hershell, Henthorn v Fraser Contract formed when letter is posted Adams v Linsell Some argument about precisely when this takes place Powel v Lee If takes longer than usual to reach, risk is upon offeror Household Fire and Carriage Insurance v Grant Displacement of Rule Can be displaced by offeror stipulating in contract that acceptance is not affected until actual receipt Revocation prior to acceptance Contract is formed even if offer is notified of rejection before receipt of acceptance Nunin Holdings v Tullamarine Estates Multiple technologies A offeree can use multiple technologies to accept an offer Express Airways v Port Augusta Air Services

Ambiguity and Uncertainty

Incomplete Agreement Agreement contains mechanism to complete If the parties do not finalise all the terms of the agreement but provide a mechanism for doing so, the agreement may be enforceable. Reference to 3rd party even essential terms may be decided by 3rd party Godecke v Kinwan Breakdown of mechanism to complete Court will not substitute its own view if mechanism to complete fails Milnes v Gery Breakdown RE Sales of Goods If price is determined by third parties, governed under sales of goods act (1896) s.12(1) If prevented from making decision by party, the other may sue for damages s.12(2) If goods have been delivered and appropriated, they must pay for them ss.12(1a) Ambiguous, Uncertain or Meaningless Contracts

Agreements to Negotiate
If parties to agree on terms at later time, not enforceable Agreement to agree. Booker Industries v Wilson Parking If terms are sufficiently certain and consideration is provided, may be enforceable Coal Cliff Collieries v Sijehama Method of increasing certainty ref. 3rd party

Individual Terms
Vague, ambiguous and uncertain terms are void Meaningless clauses = uncertain clauses Fitzgerald v Masters Court will try to uphold an agreement where parties show intention to be bound Lend Lease Financial Planning v Southcap

Saving Ambiguous, Uncertain or Meaningless Contracts Saving Incomplete Agreements Implication of Terms Courts have shown a willingness to imply terms Hillas & Co v Arcos More likely when willing to be bound Hillas & Co v Arcos More likely when contract partially executed Hall v Busst No agreement on price, parties and subject matter no implication Hall v Busst Sale of Goods More likely to imply Will imply reasonable price if contract is silent Foley v Classique Coaches Likely to uphold agreement in future Likely to infer price if contract makes reference to payment at reasonable price Sale of Land Will not imply price Likely to uphold future agreement Not likely to imply price when contract refers to reasonable price. (except rent, which they may determine via their own mechanism). Also applies to unique goods. Link to external standard Uncertain clause may be enforceable if referenced to an external standard Hawthorn Football Club v Harding Link to reasonableness standard Courts will apply principle of reasonable ness (RM) to make terms certain Severance Invalid term may be severed from contract and the remainder is enforceable Fitzgerald v Masters Divisible Obligations If uncertainty arises in one area due to multiple types of obligations, it can be severed and save the contract Life Insurance Company of Australia v Phillips Waiver of Removal of Uncertainty If clause is entered into for sole benefit of one party, it may be waived and contract saved If uncertainty removed before commencement, specific performance may be granted MacAulay v Greater Paramount Theatres

Subject to Agreements
Subject to Finance
Contracts for sale of land may include a clause stating that the contract is subject to the purchaser receiving approval for finance on satisfactory terms and conditions. TEST: Likely to use objective RM test Subject to Contract Intention of parties can fall into three categories Test: Test of intentions. Language & conduct taken into account Masters v Cameron

1.

Issues
Satisfactory finance A clause inserted for the benefit of the purchaser that allows the purchaser alone to determine what is satisfactory is not uncertain, however, the purchaser is required to act honestly. Meehan v Jones Steps taken to obtain finance Finance clauses impose obligation on the purchaser to take all steps reasonably necessary to obtain finance approval. Meehan v Jones

Parties have finalised all terms and intend to be immediately bound to perform those terms but propose to have the same terms restated in a form that is fuller or more precise but no different in effect BINDING Branca v Corbarro

2.

The parties have completely agreed upon all terms and intend no departure from or addition to those terms, but have made performance of one or more of the terms conditional upon the execution of a formal document. BINDING Niesmann v Collingridge (1921)

3.

The intention of the parties is NOT to make a concluded bargain at all, unless and until they execute a formal contract NOT BINDING Masters v Cameron

Intention to create legal relations

Agreement

Intention Test: A common intention of the parties to enter into legal obligations, mutually communicated, expressly or impliedly. Rose and Frank Co v JR Crompton & Bros Test: Merritt v Merritt

Domestic/Social

Government Activities

Commercial

Presumption: No legal force Balfour v Balfour

Easily Rebutted: Legal force Merritt v Merritt

Policy

Commercial Agreement

Presumption is binding: Requires more formality Cogee Esplanade Surf Motel v Commonwealth of Australia

Considerations Seriousness of conduct Relative Expense of conduct Hostility in relations Closeness of ties Nature of agreement

Not Binding Australian Woolen Mills v The Commonwealth Annoucements of policy are not unilateral offers and policy while important, is not common in nature

Hard to rebut

Strong presumption of legal force

Specific tone

Is it in a business context? Esso Petroleum v Commissioners of Customs and Excise

Consideration (General)
Consideration is An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable. Lord Dunedin, Dunlop Pneumatic Tyre Company Ltd v Selfridge & Company Ltd [1915]

Consideration in Bilateral Contracts At the time of the agreement each party makes a promise. The price paid for that promise the consideration is the other partys promise. Each party promises to do an act or refrain from doing an act. Diplock LJ, United Dominions Trust (Commerical) v Eagle Aircraft Services)

Offers to the world at large Form of Unilateral Contract Carlill v Carbolic Smoke Ball Company

Consideration in Unilateral Contracts It is the absence of an obligation undertaken by the promisee that distinguishes a unilateral contract from a bilateral contract. The act or forbearance itself rather than a promiseconstitutes the consideration. Diplock LJ, United Dominions Trust (Commerical) v Eagle Aircraft Services)

Executory Consideration the obligation to perform has not yet fallen due. (Bilateral contracts)

Executed Consideration If B chooses to and does perform the specified acts, consideration is said to be executed. (Unilateral contracts)

Consideration is An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable. Lord Dunedin, Dunlop Pneumatic Tyre Company Ltd v Selfridge & Company Ltd [1915] Rules of Consideration 1. Consideration must move from promisee Dunlop Pneumatic Tyre Company v Selfridge & Company Ltd Join promisees Consideration need only come from one promisee Coulls v Bagots Executor and Trustee Company Does not have to move to promisor Dunlop Pneumatic Tyre Company v Selfridge & Company Ltd Promisee may be party to a contract (doctrine of privity) but may not be able to sue on the promise if no consideration given Tweedle v Atkinson 2. Consideration must be bargained for The act/forbearance must be in reliance of the promise (at request of promisor) Australian Woolen Mills v The Commonwealth 3. Consideration must be sufficient Must be something of value in eyes of the law Thomas v Thomas May be valid although no monetary equivalent Chappell & Co v Nestle Consideration needs not be adequate Woolworths v Kelly Consideration can be nominal Lennox v Cameron 4. Consideration must not be past Consideration will be regarded as past if it has already flowed from promisee to promisor Roscorla v Thomas 5. If work was done on the assumption that there was a promise to pay it may be sufficient. (see further on) Distinct from executed/executory consideration (see pp. 149 text)

Consideration (Rules)

Special Considerations Moral consideration not sufficient Eastwood v Kenyon

Peformance of existing duties is not sufficient consideration Wigan v Edwards Does not apply when promise is to do more than originally contracted to do Hartley v Ponsonby Courts may find original contract abandoned and new one formed Hartley v Ponsonby Promisory estoppel may prevent promisor reneging on subsequent promise Performance of public duties Performance of an act required by law is not sufficent Glasbook Brothers v Glamorgan County Council This may be changing Ward v Byham Promise made to a third party An agreement to do an act which the promisor is under an existing obligation to a third party to do, may quite well amount to valid consideration and does so in the present case: the promisee obtains a benefit of a direct obligation which he can enforce. New Zealand Shipping Co v A M Satterthwaite & Co; Port Jackson Stevedoring v Samond & Spraggon (Aust) Part Payment of Debt Rule in Pinnels Case:If an amount of money is owing by a debtor to a creditor, and those parties enter into a subsequent agreement that the creditor will accept a lesser amount in full satisfaction of the amount owing, the later agreement will generally not be binding. Exceptions: Parties enter into a deed Accomodation for benefit of creditor Amount owing is disputed (HBF Dalgety v Moreton) Payment by 3rd party (Hirachand Punamchand v Temple) Composition with creditors

Forbearance to sue Settlements between parties likely to be upheld Whether parties would win/lose not relevant Not all compromises may be considered consideration Requirements Parties must act in good faith Must have honest belief claim would be successful Must be a genuine dispute Wigan v Edwards Claim must not be vexatious or frivolous Hercules Motors v Schubert

Rules or special considerations allow for consideration

Rules or special considerations dont allow for consideration

Consideration exists

Consideration doesnt exist

Equitable Estoppel
REQUIRES unconscionable conduct by one party Waltons Stores (Interstate) v Maher Unambiguous expectation by A Legione v Hately Encouraged/Induced by B

Mere Hope provides no equity Lorimer v State Bank of New South Wales

Normative Chellaram & Co v China Ocean Shipping Co

Silence Thompson V Palmer

Unauthorised representation Corpers (No. 664) v NZI Securities Australia

Action or abstainment by A

Reasonableness Waltons Stores (Interstate) v Maher

Plaintiffs characteristics Ausotel v Franklins Self-Serve

Knowledge/Intent of B

A suffers detriment (material disadvantage) Thompson v Palmer

B Fails to avoid detriment (ie. Disabuse A pre-detriment) Lorimer v State Bank of New South Wales Minimum equity to do justice Waltons Stores (Interstate) v Maher Must be: Proportionate to the unconsciobility Reliance rather than expectation (Cth v Verwayen) Prima facie entitlement for expectation unless proved to great Giumelli v Giumelli

Privity of Contract
Contract affect a 3rd party (benefits only) Wilson v Darling Island Stevedoring Company

Common law

Collateral Contract Promise by/to 3rd part contract

Restraint of Trade Clubs affect members

Torts 3rd Party can sue for a negligent breach of a duty of care

Use of Land People with an interest in the land can enforce benefits like repair/maintenance or limits to usage Tulk v Moxhay

Exceptions

Statutory Exemption Trade Practices Act Misleading/deceptive conduct Insurance Contracts Act 1984 Beneficiaries can recover Only general insurance

Exceptions at Common Law

Property Law Act 1974, ss. 55 Consideration moves as normal 3rd party benefit Beneficiary must accept Beneficiary must be named/described Re Burns Philip Trustees; Rob & Jones (363 Adelaide Street) v 1st Abbot Corp Consistent actions not sufficient Re Davies Anticipatory acceptance may suffice Hyatt AustraliaLtd LTCB Australia Ltd

Agency Test: Intention 3rd party gets equitable interest in the contract Equity 3rd party must act in contemplation See Equitable Estoppel

Trust Test: Intention 3rd party gets equitable interest in the contract.

Unjust Enrichment

Formalities 1
Guarantees

Property Law Act 1974 ss. .56 Rule: Contracts of guarantee are unless written and signed Definition: A contract to answer for a debt, default or miscarriage by another who is primarily liable to the promise Yeoman Credit v Latter

Debtor can pay Guarantors liability is secondary Yeoman Credit v Latter

Non-guarantee

Requirements Name of parties Terms of guarantee Consideration for guarantee

Contracts of indemnity Identifies liability is primary Yeoman Credit v Latter

No personal liability Harvery v Edwards Dunlop

Acceptance of debt Gray v Pearson

Letters of Comfort Dependant on intention to create legal relations

Promise made to debtor Eastwood v Kenyon

Formalities 2
Contracts relating to land Land Deals must be written ss. 59 Property Law Act The following needs to be contained in this type of contract

Contains party ID Williams v Brynes

Contains property ID South Coast Oils v Look Enterprises

Consideration ID Wain v Walters

Principle terms disclosed Not always fatal to plaintiff Petrie v Jensen

If part of a lot, portion must be described Rosser v Austal Wine & Spirit Co. Freeholds no need to describe lease Timmins v Moorland Street Property Co Contract Requires acknowledgement of agreement Pirie v Saunders Express or implied acknowledgement Requires signature Handwritten if intended to authenticate Purrell v Evans Authority need not be expressed Nowraniv Brown Electronic sig. ss. 56, 59 & 14 Electronic Transactions Bill 2001

Joinder Multiple document joined to form A single memo where one expressly/ Impliedly refers to others Timmins v Moreland Property Co. Direct reference Tonitto v Bassal Physical connection McEwan v Dynon Reference to transaction Fauzi Elias v George Sachely & Co (Barbados)

Non-Compliance

Compliance

Constructive Trust Protect parties with interest In land. IE De-facto couples. Baumgartner v Baumgartner

Equity Estoppel of reliance on written contract Walton Stores v Maher Part Performance Act points to agreement as alleged Regent v Millet Acts don in reliance & with knowledge Acts done by parties seeking to enforce contract Agreement concluded though not in writing McBride v Sandland; Cooney v Burns

Unenforceable Gray V Ellis

Valid to pass title Watson v Royal Permanent Business Society

Recover amount paid deposit under monies had and received Freedom v AHR Constructions

Written Terms
Incorporation by Signature (pp. 24) Assumed to be bound regardless of awareness/understanding of terms LEstrange v F Graucob Ltd Unsigned document (pp. 25) Reasonable Person (Onus on Defendant to prove) Parker v South Eastern Railway Co. Not contractual No extra steps taken NOT INCORP. Reasonable steps taken by defendant to inform plaintiff: TEST OF FACT Yes: Incorp. No: Not incorp. Reasonable Man Parker v South Eastern Railway Co. Contractual Incorporation by Notice (pp. 25) Sign (pp. 25-26) Notice given before formation Olly v Marlborough Court Yes Possible Incorporation Reasonable Person (Onus on defendant to prove) Balmain New Ferry Company v Robertson Notice sufficient Incorporation Notice insufficient No incorporation No No incorporation Website (pp. 26) Traditional principles relevant Reasonable Person (Onus on defendant to prove) Theoretically Notice sufficient (IE Doc. inc. terms) Incorporation Pass: Term Incorporated Incorporation by reference (pp. 26) Terms can be incorporated by reference to another document Smith v New South Wales Switchgear Co Test: Reasonable Man inc. circumstances

Exceptions (pp. 24) Signature does not signify assent LEstrange v F Graucob Ltd Misrepresentation of effect of clause Curtis v Chemical Cleaning & Dyeing Co Non Est Factum DJ Hill & Co v Walter H Wright Document not believed contractual in nature Curtis v Chemical Cleaning & Dyeing Co

Notice insufficient Fail: Term not (IE: No doc. inc. incorporated terms) No incorporation

Assumed to be bound by terms Mendelssohn v Normand

Exception: Unusual terms for contract Test: Reasonable Man (Parker v South Eastern Railway Co.

Oral Terms (Terms 1 & 2)

Mere Puff Term Representation
Collateral Contract

No common law remedy Trade Practices Act may provide one

Test: 1. Test of intention Oscar Chess v Williams 2. Words or conduct of partiesHarling v Eddy 3. Knowledge & expertise of statement maker Oscar Chess v Williams 4. Statement maker has control of info Hospital products v US Surgical 5. Oral statement not reduced to writing Routledge v McKay 6. Interval of time Routledge v McKay

Criteria Savage v Blackney Intention to be relied upon Reliance upon term Intention to guarantee truth of statement Must preclude main contract Hercules Motors

If a term 1. Consider parol evidence rule (Doesnt apply to part oral/written) 2. Objective test of intention

If a rep. Possible damages for innocent misrepresentation Possible brach of Trade Practices Act

Must be consistent with main contract Hoyts v Spencer

Conditions met?

Condition Test of Essentiality Associated Newspapers & Bancks (pp. 34)

Intermittent Term 1. Intention of parties 2. Consequences of Breach (Was party deprived of contract)

Warranty Subsidiary to main purpose Bettini v Grye

Yes

No

Major breach

Minor breach

Remedy to sue for breach of collateral contract (not main contract)

No remedy to sue for breach of collateral contract

Terminate and/or damages

Damages only

Implied Terms #1 Presumed intention of parties

Business efficacy
Whether the implication of term is necessary to give business efficacy to the transaction Five Tier Test BP Refinery (Westernport) v Shire of Hastings reasonable and equitable Necessary to give business efficacy to contract Interpreted strictly Must be so obvious that it goes without saying Must be capable of clear expression Must not contradict any express term in contract Parol evidence rule wont apply Mason J More formal, less chance of implication Previous consistent course of dealings Reasonable to hold parties contracted based on & knowledge that terms in previous contracts Henry Kendal & Sons v William Lillico & Sons Test: Reasonable man Have parties virtually assented to terms Must not expressly have inconsistent terms Relevant terms are part of prev agreements Evidence of previous consistent dealings (Consider both # and consistency) Parties need actual knowledge of the terms Lord Devlin, McCuthcheon v David Macbrayne Not in writing thus parol evidence rule N/A Henry Kendall & Sons v William Lillico & Sons Custom or Usage

Test of Fact Term is known and acquiesced to. Everyone assumes it part of contract. Consistent with express terms Knowledge of implied term not required Not likely to be implied cf. other grounds Parol evidence rule N/A

To Complete Agreement When all terms are not finalised, terms may be implied to complete agreement Hillas & Co v Arcos Applicability of parol evidence rule: Uncertain

Implied Terms #2 Terms implied regardless of intent

Class of contract Courts will imply terms based on policy grounds Australis Media Holdings v Telstra Corporation Good faith, fair dealing and reasonableness Duty to act in good faith etc. in ALL contracts not fully settled issue in Australia Yes, it exists: Renard Constructions (ME) v Minister for Public Works Parol evidence rule: N/A

Test: Policy Decision Categories where terms will be implied Goods & services Must fit purpose for which they were supplied Sammuels v Davis Professional services Reasonable care must be taken Greaves & Co (Contractors) v Baynham Employment Safe place of work Inform employees of rights in particular period Scally v Southern Health and Social Services Board Building Fit for habitation conduct professional and workmanlike Perry v Sharon Developments Co Franchise agreements Good faith and fair dealing Far Horizons v McDonalds Australia Parol evidence rule N/A Statute Statutory implication of terms in contracts Provision of consumer credit Consumer Credit Code 1994 Sale of Goods/Services (pp. 266 for detail) Sale of Goods Act 1894 Hire Purchase Hire Purchase Act 1959 Insurance Insurance Contracts Act 1984

Duty of Cooperation Parties must do all things necessary to ensure parties have benefit of contract Applied to ALL contracts, regardless of necessity Butt v McDonald Test: Reference to specific terms and overall substance of contract RDJ International v Preformed Line Products (Australia) To find: Common intention of parties Extent to which the duty of cooperation will require action

Parol Evidence Rule

General Rule: Parol evidence rule will prevent an oral term from being introduced when a contract is brought down to writing

Application: Applies to contract solely in writing Gordon v MacGregor Only when the parties intend written document to represent the entire agreement Express clause stating above is not necessarily enough to exclude oral terms (See construction of terms) Hope v RCA Photophone of Australia Does the Parol Evidence Rule apply? No

Yes

Exceptions: Evidence of collateral contract De Lassalle v Guilford Written contract not yet in force Pym v Campbell Written contract later varied or discharged Narich v Commissioner of Payroll Tax Implied terms available (see implied terms) Evidence is needed for rectification NSW Medical Defence Union v Transport Industries Insurance Co

Do exceptions Apply?

No

Yes

Extrinsic evidence is not permitted

Extrinsic evidence is permitted

General Rules TWO THINGS MUST BE DONE 1. Ascertain the meaning of words 2. Determine the legal effects of the words REMEMBER: Documents constructed as a whole Court will attempt as far as possible to give effect to a bargain Hillas & Co v Arcos Tests are made objectively through the eyes of the Reasonable Man

Interpreting the meaning of Terms

Admissible Evidence Factual Matrix When construing a document the court must place itself in the same factual matrix as that in which the parties were. Reardon Smith Line v Yengvar Hansen Tangen Court make take into account surrounding circumstances. Allen v Carbone Surrounding circumstance must have been known to BOTH parties. Notorious, court may presume knowledge Codelfa Construction v State Rail Authority of New South Wales In commercial contracts, purpose of the contract should be considered Reardon Smith Line v Yengvar HanseTangen Suggested that surrounding evidence should only be used if language is ambiguous or capable of multiple meanings and cannot be used to contradict language that is plain Mason J, Codelfa Construction v State Rail Authority of New South Wales Parol Evidence Rule The objective of the rule is to preserve the sanctity of the written document and to avoid the process of construction being muddled by uncertain testimony of slippery memory. ONLY applies to fully written contracts extrinsic eviddence permissible to aid interpretations in other circumstances Exceptions Ambiguity Extrinsic evidence may be used to resolve ambiguities Identification of Subject Matter Extrinsic evidence admissible to resolve abiguity White v Australian and New Zealand Theatres Identification of parties Extrinsic evidence abmissible to resolve ambiguity about identity, relationship or capacity Edwards v Edwards Identification of real consideration Extrinsic evidence admissible where: No consideration is expressed Is expressed ambiguously or generally Additional consideration exists with stated consideration (must not be inconsistent with stated) Yaroomba Beach Development Co v Coeur De Lion Investments Custom or Usage Extrinsic evidence may be used where language has different contextual meanings even though the wording itself is not ambiguous Thornley v Tilley Rectification Extrinsic evidence may be used to show parties intentions were not properly recorded Bacchus Marsh Concentrated Milk Co v Joseph Nathan & Co

Inadmissible Evidence Evidence of subjective intentions Because its an objective test Life Insurance Company of Australia v Phillips Prior negotiations Because its not useful Prenn v Simmonds Subsequent Conduct People may tailor their postcontract behaviour to reflect the case they believe they may have to present in court Kirby J, Hide & Skin trading v Oceanic Meat Traders

Legal effect of words types of terms

Promissory Terms see Oral Terms
Contingencies A contingency is when the parties wish to make a provision for the existence or the continued operation of the contract, or of an obligation in the contract, conditional upon the occurrence or non-occurrence of an event. Courts interpret contingencies as requiring a election to terminate by one or both parties Grange v Sullivan Other Clauses Definition clauses not capable of breach Duty of Good Faith Extent of breach determined by classification of term Best Endeavours Test: Reasonable cons. Circumstances Mason J, Transfield v Arlo International Does not require party to go beyond the bounds of reason Sheffield District Railway v Great Central Railway Co Entire Contract Clause Excludes extraneous terms and non-fraudulent representations at common law Life Insurance Co of Australia v Phillips Does not prevent introduction of extrinsic evidence for purpose of rectification MacDonald v Shinko Australia Agreed Damages Clause Provides for payment of an amount that is a genuine pre-estimate of the loss resulting from any breach. Validity of such clauses is governed by the law related to penalties. Termination Clause Confers a contractual right to terminate the contract for breach. Force Majeure Clause Disposition of a contract in the event of circumstances beyond the control of the parties Restraint on Trade Generally void unless proven reasonable Dispute Resolution Clause Failure to comply may give rise to injunctions or damages CSR v Cigna Insurance; The Jay Bola Law of contract Parties can chose jurisdiction contract governed under Merwin Pastoral Co v Moopla Pastoral Co If not stated, presumed intention of parties Moonlighting International v International Lighting

Condition Precedent an event that must occur before a contract comes into existence or an obligation under the contract arises. If the event fails to occur, there will either be no contract or the obligation will not arise.

Condition Subsequent an event whose occurrence may give rise to a right to terminate further performance of the contract

Where the contingency is for the benefit of one of the parties, it may be waived by that party, with the effect that the other party is unable to rely on the non-occurrence of the event as terminating the contract. Perri v Coolangatta Investments Pty Ltd (1982) Generally the party for whose benefit the condition subsequent was inserted will be the party who has the right to terminate on nonoccurrence.

Exemption Clauses
Interpretation of an exemption clause is to be determined by construing the clause according to its natural and ordinary mea ning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears, including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in the case of ambiguity. Darlington Futures Ltd v Delco Australia PtyLtd (1986) Statute The extent of protection offered by an exemption clause may reflect the degree of inequality of bargaining power between the parties. At common law, the court has no absolving power and cannot refuse to enforce a valid exemption clause even where it operates unreasonably. This position has been altered by two statutes: Contracts Review Act 1980 (NSW) Trade Practices Act 1974 (Cth) Must determine Whether clause forms part of contract Whether on construction it covers the arisen liability Exclusion of Negligence An exemption clause will relieve a party of liability for his/her negligence, or that of his/her servants or agents, if it expressly or impliedly covers such liability. Will cover such liability if there can be no ground of liability other than negligence to which it could refer. Canada Steamship Lines Ltd v The King [1952] an express exemption of liability for negligence must be given effect and is sufficient to exclude liability where there is no express reference to negligence, the court must decide whether the ordinary meaning of the words used in the clause are wide enough to exclude negligence. Rules of excluding negligence Must pass contra preferentum rule If language covers multiple heads of liability and negligence, negligence is excluded word negligence or syn. Must be used Smith v NSW Swtichgear

Rules

Contra-preferentum rule An exemption clause will be ordinarily construed strictly against the preferens the party for whose benefit it is inserted. Eimco Corporation v Tutt Bryant Ltd [1970]

If all tests pass, Exemption clause will operate

If any test fails, Exemption clause WILL NOT operate

Four Corners Rule An exemption clause will only operate to exclude liability arising within the four corners of the contract. A proferens can only rely on conditions that were intended to protect him/her if he/she carried out the contract in the way he/she had contract to do it. It will NOT be effective where the proferens acts in a way quite alien to the contract.[1] Davis v Pierce Parking Station Pty Ltd An exemption clause will NOT apply where the loss or damage results from conduct that is not authorised or permitted by the contract The Council of the City of Sydney v West