Copyright Guy Harley 2008 1 Revision. Copyright Guy Harley 2008 2 Consideration Consideration What...

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1Copyright Guy Harley 2008

Revision

Consideration

Consideration What is it? Value of consideration Past Consideration Part Payment of a debt Promise to perform an existing contract

Terms of the Contract

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

Terms can be Express

In writing Oral Partly in writing and partly oral

Implied By the Courts By legislation

Express Terms

The terms of the contract are ascertained by examining the evidence

Not all pre-contractual statements become terms of the contract

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

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

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

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)

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

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)

Importance of Statement

Must be judged in the context of the negotiations Crouchman v Hill

Words Used

The more precise the language, the more likely it is a term Ross v Allis-Chalmers Australia

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’

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

Terms implied by the Courts

Implied as a matter of law Implied as a matter of fact

Past DealingsBusiness efficacyTrade Custom

Implied Terms

Terms implied by Statute

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

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

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

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

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

Terms Implied as a Matter of Fact

Past dealings Custom or trade usage To make the contract effective

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

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

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

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

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?

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

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

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

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)

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

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

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

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

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

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

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

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

Termination by Breach Breach of a condition, or a serious breach of an

intermediate term, will allow termination

Condition Intermediate Term Warranty

Damages and\or Termination

Damages Only

If Serious Not Serious

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

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”

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

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

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

Copyright Guy Harley 2008 1 Revision. Copyright Guy Harley 2008 2 Consideration Consideration What...

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