Contracts Notes Semester 1 2011 Agreement A valid agreement based on offer and acceptance can exist between two

wo or more parties. o Clarke v Dunraven [1847] AC 59 It may, though, be necessary to look at the whole of the relationship in order to determine whether there has been agreement, rather trying to isolate an "offer" and an "acceptance". o Empirnall Holdings v Machon Paul Partners (1988) 14 NSWLR 523 per Kirby P Offer An indication of a willingness to be bound on certain terms without further negotiation. o Carter and Harland The expression to another of a willingness to be bound by stated terms. o Willmott, Christiensen, Butler and Dixon A mere statement of the price of which someone would contract if they decided to sell does not amount to an offer. o Harvey v Facey [1893] AC 552 One factor the courts will consider in determining whether an advertisement is an offer or an invitation to treat is its likely effect upon the potential customer. o Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 An offer can be made to the whole world. o Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 An offer is effective when and not until it is communicated to the offeree. o Taylor v Laird (1856) 25 LJ Ex 329 Termination of offer An offer can be terminated at any time before it has been accepted. Once an offer has been accepted, the offer is irrevocable. o Great Northern Railway Co v Witham (1873) LR 9 CP 16 Before acceptance, an offer can be freely revoked unless a promise by the offeror to keep it open for a fixed period is supported by consideration or under seal. o Routledge v Grant (1828) 130 ER 920 Revocation of an offer is ineffective until communicated to and received by the offeree o Byrne v Van Tienhoven (1880) 5 CPD 344 In the case of certain unilateral contracts, an offer may not be withdrawn after the promisee has begun to perform the necessary conditions to enable acceptance of the contract to be completed. o Abbott v Lance (1860) Legge 1283 Acceptance Acceptance of an offer is the expression, by words or conduct, of assent to the terms of the offer in the manner prescribed or indicated by the offer (Anson's Law of Contract, p 32). Thus acceptance may be express or implied. o HBF Dalgety v Morton [1987] 1 NZLR 411 A person cannot accept an offer which has not been communicated. o Taylor v Laird (1856) 156 ER 1203 An acceptance must be unqualified and must correspond to the terms of the offer. It appears that there is no contract if two offers identical in terms, cross in the post o Tinn v Hoffman & Co (1873)) 29 LT 271 The acceptance must be in reliance of the offer rather than for some other reason. o R v Clarke (1927) 40 CLR 227 Where a person purports to accept an offer but introduces new terms (not in the offer), no contract is made; the offeree, in effect, refuses the offer and makes a counter-offer of his or her own. o Brogden v Metropolitan Railway (1877) 2 App Cas 666 A counter-offer is not an acceptance but causes the original offer to terminate. Therefore, the original offer cannot be accepted unless it is renewed. o Hyde v Wrench (1840) 49 ER 132 A counter-offer is not an acceptance but causes the original offer to terminate. Therefore, the original offer cannot be accepted unless it is renewed. o Hyde v Wrench (1840) 49 ER 132 The general rule is that an acceptance has no effect until it is communicated to the offerer. o Byrne & Co v Leon Van Tienhoven & Co (1880) 5 CPD 344 Acceptance may be communicated only by the offeree or his or her agent. o Powell v Lee (1908) 99 LT 284) However an offeror may waive the need for acceptance to be communicated.

Contracts Notes Semester 1 2011 o Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 Certainty There can be no contract unless what the parties agreed can be determined objectively with a reasonable degree of certainty. o Scammell Ltd v Ouston [1941] AC 251 o Whitlock v Brew (1968) 118 CLR 445 o Hall v Busst (1960) 104 CLR 206 at 222 However, the law is anxious to uphold a contract whenever possible and will make certain that which is able to be made certain so that the mere fact that an agreement is capable of more than one meaning does not make it void or uncertain. o Hillas & Co v Arcos Ltd (1932) 147 LT 503 Whether an agreement to negotiate is regarded only as an agreement to agree and therefore unenforceable will depend on its terms. If the terms are sufficiently certain, an agreement to negotiate may be enforceable. o Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 A contract that is uncertain or contains uncertain terms may be upheld if the court is able to use some mechanism to give meaning, or if severance is possible. o As to severance, see Fitzgerald v Masters (1956) 95 CLR 420. An agreement to agree in the future is incomplete. o May & Butcher v The King [1934] 2 KB 17 o Biotechnology Aust v Pace [1988] 15 NSWLR 130 An agreement whereby terms are to be determined by a third person is complete. o Godecke v Kirwan (1973) 129 CLR 629 It is not certain whether an agreement whereby one of the parties to the contract is empowered to insert further terms in the contract is complete. o Godecke v Kirwan (1973) 129 CLR 629 o Yaroomba Beach v Coeur de Lion Investments [1982] 18 NSWLR 398 An agreement made "subject to finance" is certain. o Meehan v Jones (1981-82) 149 CLR 571 Intention To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly. o Rose and Frank Co v JR Crompton & Bros Ltd [1923] 2KB 261 at 293 The test of whether the parties intended to create legal relations is objective. The court does not look into the minds of the parties, but whether a reasonable person would regard the agreement as intended to be binding. o Merritt v Merritt [1970] 1 WLR 1211 o ABC v XIVth R Comm Games Ltd (1988) 3 Broadcasting Reports 227 The following factors are relevant in making an objective determination of the parties intention: o The subject matter of the agreement o The status of the parties to the agreement o The parties relationship to one another (if any) o The language used by the parties o The subsequent conduct of the parties o The context in which the agreement was made The correct approach is to look at all of the circumstances and assess whether, from an objective perspective, the parties intended their agreement to have legal consequences. o Ermogenous v Greek Orthodox Community of SA Inc (2002) 187 ALR 92 The position regarding government contracts depends upon whether the transaction is in furtherance of a government policy or is more commercial in nature. o Administration of PNG v Leahy (1960) 105 CLR 6 "Letters of comfort" do not always give rise to binding promises. Ultimately it is a question of construction of the agreement. o Kleinwort Benson v Malaysia Mining [1989] 1 All ER 785 o Commonwealth Bank v TLI Management [1990] VR 510 o Banque Brussels Lambert SA v National Industries Ltd (1989) 21 NSWLR 502

Contracts Notes Semester 1 2011 Consideration Consideration is perhaps best understood as an act or promise of an act which is the price paid for the other's promise. o Dunlop Pneumatic Tyre Co v Selfridge & Co [1915] AC 847 Consideration must move from the promisee, although it need not move to the promisor. o Tweddle v Atkinson (1861) 121 ER 762 o Dunlop Pneumatic Tyre Co v Selfridge & Co [1915] AC 847 o Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 Where a promise is made to joint promisees, it is enough if consideration is given by one on behalf of all because it is then deemed to move from all. o Coulls v Bagot's Executor & Trustee Co Ltd (1967) 119 CLR 460 The act or forbearance must be done in reliance of the promise and not done for other reasons. o Combe v Combe [1951] 2 KB 215 o Australian Woollen Mills Pty Ltd v The Commonwealth (1954) CLR 424 To be sufficient, the consideration must be something of value in the eyes of the law. o Thomas v Thomas (1842) 2 QB 851 at 859 The court will not enquire into the adequacy or value of the consideration. o Chappell & Co v Nestles [1960] AC 87 A moral obligation or worthy motive does not constitute consideration. o Eastwood v Kenyon (1840) 113 ER 482 o Thomas v Thomas (1842) 114 ER 330 o White v Bluett (1853) 23 LJ (Exch) 36 The general rule is that past consideration is not good consideration. o Roscorla v Thomas (1842) 3 QB 234 Where a public duty is imposed upon the plaintiff by law, performance of that duty is insufficient consideration for the defendant's promise unless the duty is exceeded. o Collins v Godefroy (1831) 109 ER 1040 o Cf. Glasbrook Bros v Glamorgan County Council [1925] AC 270. Where the plaintiff is bound by an existing contractual duty to the defendant, performance of that duty will not amount to sufficient consideration to support a further promise made by the promisor, unless the duty is exceeded. o Stilk v Myrick (1809) 170 ER 1168 o Cf. Hartley v Ponsonby (1857) 119 ER 1471. o Williams v Roffey Bros [1990] 1 All ER 512 Performance of an existing contractual duty owed to a third party, is sufficient consideration for the defendant's promise. The promise of such performance is also sufficient. o Pao On v Lau Yiu Long [1980] AC 614 o New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1975] AC 154 Part-payment of a liquidated debt cannot in itself be consideration for a simple promise to forgo the balance. o Pinnel's Case (1602) 77 ER 237 o Foakes v Beer (1884) 9 App Cas 605 There are exceptions to the rule: (1) Composition with creditors. o In the Estate of Whitehead [1984] 44 SASR 402 (2) Payment by a third party. o Hirachand Punamchand v Temple [1911] 2 KB 330 (CA) (3) Introduction of a new element by the plaintiff, such as payment different in kind or at a different place or time, not at debtors convenience (place). o Pinnel's Case (1602) 77 ER 237 o Van Burgen v St Edmonds Properties [1933] 2KB 223 A forbearance to sue or to refrain from exercising some legal right may constitute consideration, even if the plaintiff would have failed in the original claim, provided: (1) The claim was reasonable and not vexatious or frivolous; (2) The plaintiff honestly believed the claim would succeed; and (3) The plaintiff did not conceal from the defendant any facts that to the plaintiff's knowledge might affect the validity of the claim. o Hercules Motors Pty Ltd v Schubert (1953) SR (NSW) 301 In some cases however it is possible to infer that a certain sum would be paid, and a subsequent promise merely fixes the amount of payment. o Re Casey's Patents [1892] 1 Ch 104 o Pao On v Lau Yiu Long [1980] AC 614

Contracts Notes Semester 1 2011 Estoppel For equitable estoppel to apply there must be unconscionable conduct by one party. Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 Elements (1) The Pl assumed that the particular legal relationship existed with the Def. (2) The def induced to the pl to adopt the assumption or expectation (3) The pl acts or doesnt act in reliance of the expectation (4) The def knew or intended the pl to do so (5) The pls action or inaction will cause them detriment if the promise is not fulfilled (6) The def failed to act to avoid that detriment Waltons Stores v Maher Effects The remedy for equitable estoppel is the "minimum equity to do justice between the parties". Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 Commonwealth v Verwayen (1990) 170 CLR 394

Privity A third party to a contract is unable to acquire rights or benefits under the contract. Wilson v Darling Island Stevedoring Co (1955) 95 CLR 43 rd Benefits on 3 parties Beneficiary or agent must accept by words or conduct to the promisor or agent within the time and manner specified in the contract, or a reasonable time of the promise coming to beneficiarys attention. o s 55(1) of the Property Law Act 1974 (Qld) A beneficiary must be sufficiently named and described. o Re Burns Philp Trustees Acceptance must be prima facie assent. Acting consistent with acceptance will not suffice. Re Davies It may be sufficient if the promise comes to the notice of the beneficiarys solicitor Re Davies An anticipatory acceptance may suffice Hyatt Australia Ltd v LTCB Australia Ltd A person not party to a general insurance contract, if referred to by name or otherwise as being covered by an extension of the insurance recover in accordance with the insurance contract Insurance Contracts Act 1984 (Cth) s 48 There are four so called exceptions to the general rule under common law (1) Agency (2) Trust (3) Estoppel (4) Unjust Enrichment o Trident v McNiece An exemption clause for a bill of lading can cover an independent contractor if (1) The relevant contract makes it clear the person is to be covered by it (2) the carrier is contracting on behalf of the contractor as agent in relation to exemption (3) The carrier was authorised by the stevedore/contractor though later ratification will suffice (4) Issues concerning consideration from the contractor/stevedore are waived o NZ Shipping Co v AM Satterthwaite & Co Ltd (the Eurymedon) rd Remedies for the promisee if the promisor fails to confer benefit onto 3 party are nominal damages only o West v Houghton Promisee may be entitled to specific performance o Beswick v Beswick rd Liabilities on 3 parties rd A contract cannot impose a liability on a 3 party under common law o Tulk v Moxhay The rule in Tulk v Moxhay has been applied to the charter of a ship and conuld be analogy include say an aircraft o Lord Strathcona SS Co v Dominion Coal Co

Contracts Notes Semester 1 2011 Formalities Contracts to be made or evidenced in writing Guarantee Contracts of guarantee are unenforceable unless made in writing and signed by the party to be charged o PLA s 56 A guarantor has secondary liability o Yeoman Credit Ltd v Latter Contracts of guarantee are not contracts of indemnity (indemnity is primary liability not secondary) o Lakeman v Mountstephen Does not include promises of guarantee to the debtor not the creditor o Eastwood v Kenyon does not include situation where one agrees to take on debt of another o Gray v Pearson Or where agreement/arrangement imposes no personal liability on the guarantor o Harvey v Edwards Dunlop Or some letters of comfort o Banque Brussels Lambert SA v Australian National Industries Ltd Sale of Land No action can be brought on a contract for sale or disposition of land unless contract is signed or a memorandum is in writing and signed by the party to be charged o PLA s 59 Requirements of writing Content For a guarantee to satisfy s 56 the promise to guarantee or a memorandum of the promise must contain the essential terms (Harvey v Edwards Dunlop & Co): (1) Sufficient identification of parties (Williams v Byrnes) (2) The terms of the contract of guarantee, including the debt which is to be repayed (3) Any special terms which are essential For a contract for sale of land to satisfy s 59 the contract or written memorandum must contain the essential terms of the contract which are (1) Sufficient identification of the parties (Williams v Byrnes) (2) Sufficient description of the property (Pirie v Saunders) (3) Consideration for the promise ie. Price (Burgess v Cox) (4) Time for completion if essential (5) Any other essential terms The writing should also contain acknowledgement of a concluded agreement o Pirie v Saunders or Tiverton Estates v Wearwell Ltd Signed A signature may be handwritten or signed or typed (Authenticated signature fiction) if it is intended to signify the authentication of the whole document o Durrell v Evans Real estate agent, solicitor or joint tenant can sign if EXPRESSLY authorised o Nowrani Pty Ltd v Brown Joinder Several documents can be joined together when one expressly or impliedly refers to the others o Timmins v Moreland Street Property Co A note recording a transaction can also be joined o Harvey v Edwards Dunlop & Co Ltd When the document signed by the PTBC refers to another document, it can be joined to the signed document o Tonitto v Bassal Effects If writing not met, contract is unenforceable but may be valid to pass title o Maywald v Riedel The deposit may be forfeited if purchaser reneges o Freedom v AHR Constructions Pty Ltd Equity A Pl can obtain specific performance of a contract not fulfilling s 59 if they can show sufficient acts of part performance if the following is true (1) The acts must be done by the pl (2) The acts relied upon must unequivocally point to the contract that is alleged (Regent v Millet)

Contracts Notes Semester 1 2011 (3) The acts must be done in reliance on the agreement with the knowledge of the def (4) The agreement must have been concluded (McBride v Sandland) in appropriate circumstances a party may be stopped from relying on the PLA o Waltons Stores Ltd v Maher However the assumption that must be that an enforceable contract exists o Powercell v Cuzeno In appropriate circumstances a person can claim an interest on land on the basis of a constructive trust without writing eg. Unconscionable conduct in joint ownership where title is held by one party o Baumgartner v Baumgartner Establishing contractual terms In determining whether written terms form part of the contract between the parties, the crucial issue is whether the parties can be regarded as having assented to the terms. o Olley v Marlborough Court Ltd [1949] 1 KB 532 at p 549. Incorporation written terms Where a party signs a document, that party is generally bound by its terms. The signature indicates agreement to the terms contained in it. o L'Estrange v Graucob [1934] 2 KB 394, recently confirmed by the High Court in o Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 The party may not be bound by the terms even though the document is signed if the circumstances indicate that the signature does not signify assent. This may be the case in the following circumstances (i) The person relying on the clause misrepresented its effect o Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805 (ii) The document signed is thought to have no contractual effect o DJ Hill and Co Pty Ltd v Walter H Wright Pty Ltd [1971] VR 749 (iii) The person signing can plead non est factum o Petelin v Cullen (1975) 132 CLR 355 In the case of written terms on a contract not signed, Reasonable steps must be taken to give the class of person to which the recipient belonged, notice of the existence of the term. o Parker v The South Eastern Railway Co (1877) 2 CPD 416 o Mendelssohn v Normand Ltd [1970] 1 QB 177 In determining whether reasonable steps were taken, it may be relevant whether the document was one which is assumed by a reasonable person to be contractual in nature. o Causer v Browne [1952] VLR 1 If reasonable steps are taken, it does not matter that the recipient of the notice did not read the terms or that he or she was unable to read. o Thompson v LM & S Railway Co [1930] 1 KB 41 Steps must be taken before or when the contract was made o Thornton v Shoe Lane Parking Ltd [1971] 2 QB 16 In the case of written terms being incorporated by a sign, Reasonable steps must be taken to give the class of person to whom the recipient belonged, notice of existence of the term. o Balmain New Ferry Co Ltd v Robertson (1906) 4 CLR 379 (per Griffith CJ) o Olley v Marlborough Court Ltd [1949] 1 KB 532 It does not matter that the recipient of the notice did not read the terms or that he or she was unable to read. o Thompson v LM & S Railway Co [1930] 1 KB 41 Steps taken before or when the contract was made o Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 Incorporating oral terms Whether a statement made in the course of negotiations is or has become a term of the contract depends on the intention of the parties, ascertained objectively o Oscar Chess Ltd v Williams [1957] 1 WLR 370 at p 375 The words and conduct of the parties can give an indication of intention. It is relevant, for example, whether the words are promissory in nature. Conduct of the parties that indicate the importance of the statement may also be relevant. o Harling v Eddy [1951] 2 KB 739 If the party who made the statement is in a better position than the other party to ascertain the accuracy of the statement, it is probably a term. o Oscar Chess Ltd v Williams Statement maker has control in relation to information o Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41

Contracts Notes Semester 1 2011 If the statement is made orally and it is not included when the contract is reduced to writing, it is probably not a term. If there is a long interval between the making of a statement and the conclusion of the contract, it is probably not a term of the contract. o Routledge v McKay (1954) 1 WLR 615 Collateral Contract A collateral contract is one in which the consideration for a promise is the making of another contract. o Heilbut Symons v Buckleton [1913] AC 30 The remedy for breach of a collateral contract is damages only. The innocent party will not be entitled to terminate the main contract. Three elements must be established: (a) An intention that the statement be relied upon; (b) Reliance; and (c) An intention by the statement maker to guarantee the truth of the statement. o Savage v Blackney (1970) 119 CLR 435 There will be no collateral contract where there is only past consideration (that is, where the main contract precedes the purported collateral contract). o Hercules Motors v Schubert (1953) 53 SR (NSW) 301 Collateral contracts may be bipartite o *Shepperd v The Council of the Municipality of Ryde (1952) 85 CLR 1 or tripartite o *Wells (Merstham) Ltd v Buckland Sand & Silica Co Ltd [1965] 2 QB 170 There is authority that a collateral contract must be consistent with the main contract. o Hoyts Pty Ltd v Spencer (1927) 27 CLR 133 However, in an appropriate case estoppel may apply. o Waltons v Maher (1988) 164 CLR 387 Parol evidence rule (PER) Where a contract is reduced into writing, where the contract appears in the writing to be entire, it is presumed that the writing contains all the terms of it and evidence will not be admitted of any previous or contemporaneous agreement which would have the effect of adding to or varying it in any way. o Mercantile Bank of Sydney v Taylor The rule does not apply where the parties intend a contract to be partly in writing and partly oral. o Couchman v Hill [1947] KB 554 if the parties intended the contract to be wholly in writing, parol evidence is not admissible to "add to or vary or contradict" the writing. o Robertson v Kern Land Pty Ltd (1989) 96 FLR 217 The intention of the parties is construed objectively. o Couchman v Hill [1947] KB 554 Exceptions to PER (a) Evidence of a collateral contract o De La Salle v Guildford [1901] 2 KB 215 (b) Evidence that written contract is not yet in force o Pym v Campbell (1815) 119 ER 903 (c) Evidence that written contract was later varied or discharged (d) Evidence to imply a term o Summers v The Commonwealth (1918) 25 CLR 114 (e) Evidence necessary for rectification o Maralinga v Major Enterprises (1973) 128 CLR 336 Implied terms o The following elements must be satisfied before the court will imply a term on the basis of business efficacy (a) Implication must be reasonable and equitable; (b) Implication must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (c) Term must be so obvious that it goes without saying; (d) Term must be capable of clear expression; and (e) Term must not contradict any express term of the contract. o Codelfa Construction Pty Ltd v State Rail Authority of New South Wales

Contracts Notes Semester 1 2011 The test of whether a term can be incorporated on the basis of a course of dealing is based on reasonableness. Is it reasonable to hold that the parties contracted on the basis of terms set out in previous contracts? For this test to be satisfied, the previous course of dealings must have been sufficient. Relevant in this assessment are The number of dealings between the parties; and The consistency of dealings between the parties. o Henry Kendall & Sons v William Lillico & Sons Ltd The rules governing the implication of terms by custom or trade (a) The existence of custom or trade usage is a question of fact; (b) The custom or trade usage must be so well known that all parties can reasonably be presumed to have imported that term into the contract; (c) The term will not be implied if it is contrary to the express terms of the agreement; and (d) Person may be bound although he/she had no knowledge of the term. o Summers v The Commonwealth (1918) 25 CLR 144 Court may attempt to construct the contract by implying the necessary term to complete the contract. o Hillas (WN) and Co Ltd v Arcos Ltd Terms may be implied as a matter of law in contracts of a particular class Liverpool City Council v Irwin [1977] AC 239 A duty to co-operate is implied into all contracts. o Butt v McDonald Statutory Implied Terms ACL s 3 defines a consumer. ACL s3(1) provides that: A person is taken to have acquired particular goods as a consumer if, and only if: (a) They paid no more than $40 000 for the goods (or a greater amount that may be prescribed in the future); or (b) The goods were of a kind ordinarily acquired for personal, domestic or household use or consumption; or (c) The goods consisted of a vehicle or trailer acquired for use principally in the transport of goods on public roads. Also refer to ACL s3(3) for the circumstances when services are acquired as a consumer. failure of a statutory consumer guarantee by a supplier can be directly enforced as a breach of the CCA. A failure to comply with the standard is no longer a breach of a term which has been implied into the contract under the CCA; the consumer guarantees stand independently of the contract. Part 3.2 Div. 1 ACL S54 provides that goods must be of acceptable quality fitness for purpose, appearance, presence of defects and its safety and durability S55 provides that the goods must be reasonably fit for any purpose that a consumer, expressly or by implication, makes known to the supplier or manufacturer. Section 64 states that a term which purports to exclude, restrict or modify the consumer guarantees is void. Construing contracts (interpreting terms) The court does its best to give effect to the parties bargain. o Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503 The court will endeavour to be neither too astute nor too pedantic. o Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503 It will steer clear of meanings that are commercially unworkable or inconvenient. o Hide & Skin Trading Pty Limited v Oceanic Meat Traders Limited The court takes an objective approach to interpretation. o Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 o Taylor v Johnson (1983) 151 CLR 422 PER when a formal document is conclusive of a contract, its meaning may only be determined by reference to the words in that document. o Gordon v McGregor (1909) 8 CLR 316 o Allen v Carbone (1975) 132 CLR 528 extrinsic evidence of: Antecedent negotiation, o Prenn v Simonds [1971] 1 WLR 1381 Subjective intentions of the parties, o Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 Subsequent conduct, o Administration of Papua & New Guinea v Daera Guba

Contracts Notes Semester 1 2011 is inadmissible. Exceptions to the general rule where extrinsic evidence is allowed include: Cases of patent or latent ambiguity o White v Australian and New Zealand Theatres Ltd Identification of subject matter o White v Australian and New Zealand Theatres Identification of parties or their relationship o Edwards v Edwards Custom or usage o Summers v Commonwealth In order to rectify o Maralinga v Major Enterprises Promissory terms classification of a promissory term is as either a condition, warranty or intermediate term. conditions are also known as essential terms while warranties and intermediate terms are examples of inessential terms. the relevant classification depends upon the intention of the parties, ascertained objectively, at the time when the contract was made. o Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 at p 337 A breach of an essential term entitles the innocent party to terminate the contract and or sue for damages. o L Schuler AG v Wickman Machine Tool Sales Ltd The accepted test for condition is the test of essentiality one party would not have entered into the contract unless assured of the strict or substantial performance of the term and the other party knows or ought to know of this. o *Associated Newspapers Ltd v Bancks The fact that a term is described in the contract as a condition, is persuasive not conclusive. o L Schuler AG v Wickman Machine Tool Sales Ltd It may also be significant if damages are not an adequate remedy. o Ankar Pty Ltd v National Westminster Finance (Australia) Ltd The risk of an unreasonable result may also be significant. o *Associated Newspapers Ltd v Bancks A subsidiary term or intermediate term may be elevated to the status of condition. o L Schuler AG v Wickman Machine Tool Sales Ltd In legislation relating to the sale of goods, it is implicit in the drafting that a breach of condition in a contract for the sale of goods will have the same effect as a breach of condition under the common law. In this regard, see s 14(2) of the Sale of Goods Act 1896 (Qld). A warranty is an inessential term that is subsidiary to the main purpose of the contract. And a breach of warranty only entitles the innocent party to damages. o Bettini v Gye (1876) 1 QBD 183 A consistent approach to the meaning of "warranty" is taken in the sale of goods legislation: "an agreement with reference to goods which are the subject of a contract of sale but collateral to the main purpose of such contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. o s 3 of the Sale of Goods Act 1896 (Qld It has been suggested that this test might also apply at common law. o Associated Newspapers Ltd v Bancks An intermediate term is an inessential term which is capable of a variety of breaches, some with serious consequences and some with only trifling consequences. o Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd The test for deciding the seriousness of the breach is whether the breach deprived the innocent party of substantially the whole of the benefit of the contract o *Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd A range of factors may be taken into account when determining this test of seriousness, eg: (1) Degree of performance up to the breach compared to the performance required under the contract; (2) Whether damages would adequately compensate the lost expectations of the innocent party; (3) Whether the expectations of the party in breach would be unfairly prejudiced by terminating the contract; (4) Attitude and conduct of the party in breach including the likelihood of the breach persisting. o *Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd A serious breach of intermediate term allows the innocent party to terminate and/or claim damages while a trifling breach only yields a remedy in damages. o *Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd

Contracts Notes Semester 1 2011 Apply the test of essentiality to determine whether the term is a condition, If not, it is an inessential term. Is the term capable of a variety of breaches? If so, it is an intermediate term. You should then consider the seriousness of the breach. If the inessential term is not capable of a variety of breaches, then it is a warranty o Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd Contingencies A condition precedent will prevent a contract from coming into existence until such time as the condition is fulfilled. o Perri v Coolangatta Investments Pty Ltd A party may waive a condition subsequent that is solely for his/her benefit. o Meehan v Jones (1982) 149 CLR 571 Clauses such as subject to finance and subject to rezoning or subject to town planning approval are conditions subsequent. o Meehan v Jones Exemption clauses The general rule is that an exemption clause is determined by construing the clause according to its natural and ordinary meaning, read in light of the contract as a whole. o Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at p 510 Contra proferentum rule; The clause will be read contra proferentem in case of ambiguity. o TNT (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd (1966) Express exclusion from negligence is effective o Canada Steamship Lines Ltd v The King Where the only possible cause of action against the defendant is an action for damages based on negligence, then the court will interpret a "wide" clause to cover the defendant's liability for negligence. o Alderslade v Hendon Laundry Ltd Where the head of damage may be based on some ground other than negligence, a "wide" clause must be confined to the heads other than negligence. o White v John Warwick & Co Ltd The "Four Corners" rule o *Council of the City of Sydney v West Unfair terms A term of a contract is VOID if the term: (1) Is in a consumer contract (2) Is an unfair term; and (3) The contract is a standard form contract However, the contract will continue to bind the parties if the contract can still operate without the unfair term o ACL s 23(2) Section 23(3) A consumer contract means a contract for the supply of goods/services or the sale/grant of an interest in land, to an individual who is acquiring the goods, service or interest wholly or predominantly for personal, domestic or household use or consumption An unfair term is one which, on the balance of probabilities: (a) Causes a significant imbalance in the parties rights and obligations under the contract; and (b) Is not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and (c) Would cause detriment (financial or otherwise) if it were applied or relied on. o See ACL s 24 An action for damages is available under ACL s 236. The void term can be severed from the main contract, provided severance is possible. If the term is not severable, the court may declare the whole contract to be void. See ACL s 243. Other terms Note the other types of terms such as: Arbitration clauses Agreed damages clauses Best endeavours clause Clause in restraint of trade Force majeure clause Law of contract clause

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