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Contracts 2 LAWS1072

Chapter 12: Identifying Express Terms

Introduction- Express terms are expressly agreed between the parties- Implied terms are implicit terms in the contract or recognised as a matter of law- Express terms are found in communications, negotiations, signed or unsigned documents, notices, course of dealings- The courts adopt the objective approach to assess the parties’ intentions; the intention of the reasonable person in the parties’ position- Courts seek to give effect to the intentions of the parties concerned by identifying the terms and construing their meanings

Standard Form Contracts (Hillman NYU Law Review)- There are few basic terms to be filled in by the parties and the remaining terms are already drafted, take it or leave it basis- Customer would not understand much of the language of the ‘boilerplate’ (contract)- Competitors employ comparable terms- Remote risks are unlikely to eventuate- Business seeks to maintain good reputation- Consumer expects the law to enforce the contract with the exception of offensive terms- Businesses standardise their risks to reduce bargaining costs by offering one set of terms to all consumers. Careful allocation of these risks minimises the costs of goods and services businesses offer- However hidden risks allow businesses to exploit a gap in the consumer’s knowledge about the product’s risks

Statements Made During Negotiations- If the statement was promissory it is a term of contract and there will be remedy for the breach of contract if the statement was false- If the statement was a mere representation and not part of a contract, relief is sought relating to misrepresentation- Factors that distinguish a promise from a mere representation include: language used, relevant expertise of the parties, importance of the statement, timing of the statement, form of written contract- A statement is a mere representation without legal consequences if it is only an expression of opinion evident by the language used; a statement of opinion is not a binding term of the contract based on the language used i.e. ‘estimated speed’ (Savage v Blakney)- A disparity in the bargaining powers or expertise of the parties can give rise to an innocent misrepresentation that is not a binding promise (Oscar Chess)- If a representation without foundation is made by an expert during a course of dealings for the purpose of inducing the other party to enter into a contract, it is prima facie ground for inferring that the representation was intended as a warranty (Dick Bentley)

Written Terms and the Effect of Signature- A party will be bound by the terms contained in a contractual document which she or he has signed,


whether or not she or he has read the document (L’Estrange v Gaucob)- However this will not apply where the signature was induced by misrepresentation or fraud, mistake or if the document would not be reasonably considered a contractual document but rather has another function e.g. a receipt (L’Estrange v Gaucob)- Where there is no disparity in knowledge or bargaining power; no misrepresentation, fraud, duress, a conclusive signature will make the terms of contract enforceable (Toll v Alphapharm)- Signature is usually a very strong indication of intention to be bound but does not exclude consideration of facts and circumstances which may show it was not (Toll v Alphapharm)- Misrepresentation, whether fraudulent or innocent is sufficient to disentitle the creator the benefit of an exemption (Curtis v Chemical Cleaning)- A document considered to have another function, e.g. receipt cannot be expected to contain legally binding terms (Curtis v Chemical Cleaning)

Incorporation of Terms by Notice- Notice of terms must be given before the contract was formed and reasonable steps must be taken to bring the terms to the notice of the parties to be bound> Timing- For delivered or displayed terms to form a part of a contract they must be made available before the contract is made (Oceanic Sun v Fay)- If a contract is made and an unknown clause is later inserted by incorporation in a ticket issue pursuant to the original contract, the clause does not form part of the contract. The carrier cannot rely on the clause unless at the time of the contract the carrier had done all that was reasonably necessary to bring the exemption clause to the passenger’s notice (Oceanic Sun v Fay)> Knowledge or Notice- A party will be bound by delivered or displayed terms if he or she has either knowledge or reasonable notice of the terms, that is he or she knows that the relevant document contains contractual terms and will be bound regardless of whether he or she has read them (Thornton v Shoe Lane Parking)- Reasonable notice depends on type of contract, nature of the terms and circumstances of the case- The onus lies on the party that is seeking to enforce the condition to prove that the other party had knowledge of the condition (Thornton v Shoe Lane Parking)- If one party is unable to withdraw from the contract e.g. exit parking, he or she is not given reasonable notice to consider the terms displayed. Furthermore there is something irrevocable about the process where a ticket is issued by an automatic machine (Thornton v Shoe Lane Parking)> Unusual or Onerous Terms- A party has the responsibility to bring unusual conditions to the notice of another party before they would be bound by them (Baltic Shipping Co v Dillon)- Reasonable opportunity to see and agree to the terms and conditions must be provided before the contract is made, and not delivered in a later document (Baltic Shipping Co v Dillon)

Incorporation by a Course of Dealings- Where parties have a history of dealings, contractual terms introduced in earlier contracts may be incorporated into subsequent contracts (Balmain New Ferry Co v Robertson)- Where reasonable notice is given and where the conditions are reasonable and fair, actual knowledge of the terms can be inferred through a course of dealings (Balmain)- For a term to be incorporated by a course of dealings, that course of dealings must be regular and


uniform (Kendall v Lillico)- In addition the document relied upon in previous transactions must also reasonably be considered a contractual document rather than a mere receipt or docket (Rinaldi v Precision)- If the document is not considered to be a contractual document, and no more than a delivery document, one would not expect to see conditions and thus no knowledge of the conditions can be inferred from a course of previous dealings (Rinaldi)


Chapter 14 Extrinsic Evidence

Parol Evidence Rule> Extrinsic Evidence- The Parol Evidence Rule prevents extrinsic evidence being given to add to, vary or contradict the terms of a contract as they appear in the written document (State Rail Authority of NSW) – including oral conversations, letters or early drafts- It limits the evidence which might be given to explain the meaning of those terms- Applies only to contracts wholly in writing, will not exclude evidence of oral terms of a contract which is only partly in writing (State Rail Authority of NSW)> Collateral Contracts- A collateral contract is where one party makes a promise connected to but independent to the main contract, and as consideration for the promise, the other party agrees to enter into the main contract (Hoyt’s v Spencer)- The parol evidence rule will not apply to exclude evidence of a collateral contract (Hoyt’s v Spencer)- The main contract can be the consideration for the collateral contract, only when the terms of the collateral contract do not reduce or alter the rights created by the main contract (Hoyt’s v Spencer)- Collateral contracts are rare and must be strictly proven; the burden of proof is eased if the subject matter with which the main contract deals is more unusual (Heilbut v Symons)- Collateral contracts may be antecedent (preceding) or contemporaneous (simultaneous) and can prevail if it is not inconsistent, contradicts or impinges on the main contract (Hoyt’s v Spencer)- Parties have the right to make an agreement and the right to modify the terms of the agreement; the courts should follow the intentions of the parties (Hoyt’s – Ferguson dissenting)> Estoppel- Courts remain divided as to whether the parol evidence rule applies to exclude extrinsic evidence for the purpose of establishing estoppel- Clear and convincing proof is necessary to establish estoppel, material giving rise to estoppel can arise pre-contract negotiations (Whittet v State Bank of NSW)- The written document should be final and conclusive, using extrinsic evidence will lead to extensive, discursive, inconclusive results and thus trying to find pre-contractual estoppels is wasteful and uncertain (Australian Co-op Foods v Norco)> Construction- Extrinsic evidence is only admissible to make certain ambiguities, to complete gaps, or to correct injustices (by way of operation of the law, rather than intention of the parties)- An ambiguous clause invites the court to permit extrinsic evidence to determine the scope of the clause (Royal Botanic Gardens and Domain)- Evidence surrounding the circumstances can be admitted to resolve ambiguities in the meaning of the words, and aid the construction of contract (Codelfa Constructions)- Language with special meaning to a particular trade or industry may be clarified by extrinsic evidence if the trade meaning is well known, uniform and certain (Homestake Australia)


Chapter 13 Construing the Terms

> Construction- Construction is the process where the court determines the meaning and the legal effect of the terms of the contract; the intentions of the parties are considered objectively and the meaning of the terms are considered as understood by the reasonable person (Pacific Carriers)- The court will give the words their plain and ordinary meaning, even if this leads to unreasonable results (Australian Broadcasting Commission)- However if the ordinary meaning leads to an absurd result, the terms should be construed so as to avoid the absurdity (Westpac Banking)> Exclusion Clauses- An exclusion or exemption clause is a term which modifies the principal obligations; or limits or excludes the liability of a party that would otherwise result in a breach of that party’s primary obligations- An indemnity clause similarly seeks to exclude the liability of one party by imposing on the other a duty to indemnify the former in respect of any loss incurred- Before a party can rely on the protection of an exclusion clause it must be shown the clause was incorporated into the contract and can be constructed to exclude or restrict liability in relation to the dispute- Interpretation relies upon the language of the particular clause rather the context in which they appear (Darlington Futures)- Contra proferentum – in a case of ambiguity, an exclusion clause is to be construed according to its natural and ordinary meaning, in light of the contract as a whole, giving due weight to the context (nature and objective of the clause), and construed strictly against the proferens (the parties seeking to rely on the clause) (Darlington Futures) > Trade Practices Act 1974- An exclusion clause may be void under statute- Sections 68 – any term that purports to exclude, restrict or modify the applications of any provision of the Division is void- Section 68A – exceptions(1) terms regarding the supply of goods and services (other than the kind ordinary acquired for personal or domestic use) is not void under 68 if it deals with the replacement, repair, payment of cost of replacement/repair of goods; or the re-supply or payment of cost of re-supply of services (2) ss1 does not apply if it is unfair or unreasonable to rely on the clause (3) ss2 is determined by considering the circumstances of the case, the relative bargaining power, inducement, knowledge, special order- Section 70 – the goods supplied do not correspond to the description in the contract or the sample

- Section 71 – quality and fitness(1) there is an implied condition that he goods supplied are of merchantable quality except: (a) if defects are drawn to the customer’s attention or (b) reasonable time to inspect or examine(2) the goods are reasonably fit for the particular purpose for which the goods are acquired(3) this includes supply by an agent, except where it was brought to the customers notice- Section 72 – where supply is by sample, there is an implied condition that (a) the bulk will correspond with the sample in quality;


(b) reasonable opportunity is given for comparison;(c) the goods are free from defects rendering the unmerchantable, that would not be apparent on reasonable examination - Section 74 – warranties in relation to supply of services(1) implied warranty that the services will be rendered with due care and skill and any materials supplied in connexion with those services will be reasonably fit for the purpose for which they are supplied(2) when a service is supplied (other than professional services of a architect or engineer), there is an implied warranty that the services supplied and any materials supplied in connexion with those services are of nature and quality that they might reasonably expected to achieve the result expressly desired by the consumer EXCEPT where the consumer does not rely, or it is unreasonable to rely on the skill and judgement of the corporation(3) this section does not include services that are provided under (a) a contract in relation to the transportation or storage of goods for the purposes of business, trade, profession or occupation (b) a contract of insurance


Chapter 15 Implied Terms

- Terms may be implied in law or fact, and by custom or statute e.g. Trade Practices Act> Terms Implied in Law- Implied conditions of reasonable fitness and merchantable quality on a contract for sale of goods, for concurrent payment and delivery, implied warranty of seaworthiness, letting of a furnished house that is reasonably fit for habitation- Terms are implied only if they are expressly agreed on or reasonably inferred by the parties and necessary to make a contract business efficacious (Byrne and Frew v Australian Airlines)- A contract may be workable or effective without the introduction with provisions from statute, unless without the provision the contract is deprived its substance, seriously undermined or drastically devalued in an important respect> Terms Implied by Fact- Traditionally based on presumed intentions of the parties and unique to the contract in question- In formal contracts for a term to be implied it must be (BP Refinery):1) Reasonable and equitable2) Necessary to give business efficacy to the contract3) So obvious that it goes without saying4) Capable of clear expression5) Not contradict any express term of the contract- For informal contracts a term may be implied by reference to the imputed intention of the parties, but only if it is necessary for the reasonable and effective operation of the contract in the circumstances of the case (Hawkins v Clayton)-Where a dispute involves an assumption of risk, a term cannot be implied to shift the risk from one party to another – someone has to take on the risk (Codelfa)- The more detailed (specific) the contract the less room there is for implication (Codelfa)- When a complex factual matrix exists, the dispute should be resolved without implication, however in the event of ambiguity, the terms may be clarified by implication using extrinsic evidence (Codelfa)- Facts surrounding the circumstances can be admitted if they were known by both parties, notorious or knowledge of them will be presumed (Codelfa)> Terms Implied by Custom- Circumstances in which trade, custom of usage may form the basis of implication of terms have established the following propositions (Con-Stan Industries):1) The existence of custom or usage is a question of fact2) There must be evidence that the custom relied is so well known and acquiesced that it can be reasonably presumed to have imported that term, however it is not necessary for the custom to be universally accepted3) Uniformity – a term will not be implied if it is contrary to the express terms4) A person may be bound by a custom although he had no knowledge- The objective test must be applied, is the custom reasonable, complete, fair?- Circumstances include the complexity of the contract, the relationship between the parties, their relative bargaining power, pre-contractual negotiations, trade/industry


Textbook Chapter 19 Termination by Agreement

Categories of Agreement to Terminate- An express term within the existing contract can cover the termination of a contract- A subsequent agreement (mutual agreement) can be made to terminate a contract (requires fresh consideration)- Termination of a contract can also be found to be implied within an existing contract or subsequent contract (by usage of trade, custom, course of dealings)- Termination via breach or abandonment

Termination Under the Original Contract> Express Powers to Terminate- A term in a contract could specify a fixed period of time the contract is to be active, after which, the contract is set to expire- Or the passing of the specified time period does not put the contract to an end but rather would allow one or both parties the option to terminate the contract; ‘termination at will’- A term may allow a party to terminate after a specified period of notice- A party may be given the right to terminate after certain specified events, e.g. breach of contract or non-fulfilment of a contingent condition- Precise compliance with specified termination procedures can be required (Lintel v Pines, 1991 VR)- However the HCA has expressed the contrary view; that requirements should not be construed in an overly technical or restrictive manner, termination is to be allowed if the strict procedures weren’t followed as long as it did not prejudice the other party in a substantial way (Pan Foods v ANZ, 2000)> Implied Right to Terminate a Contract of Otherwise Indefinite Duration- Where a contract’s duration is not specified, courts may imply a right for one or both parties to terminate a contract (Crawford Fitting v Sydney Valve, 1988 NSW)- The right is dependent on an inference that the parties would not have intended for the contract to continue indefinitely, reasonable notice is also required to be provided by the terminating party (Crawford Fitting)- The period of time for reasonable notice depends on the circumstances of the case (Crawford Fitting)

Termination by Subsequent Agreement> Express Agreements- An agreement outside of the existing contract may be formed to terminate that contract, and must also comply with the normal rules of contract formation> Partly Performed Contracts and the Issue of Consideration- A party who has performed contractual obligations can give good consideration by agreeing to release the non-performing party from contractual obligations- However, the non-performing party cannot provide a release, unless the performing party executes a deed to terminate the contract- Alternatively, the non-performing party can provide ‘fresh’ consideration; ‘accord

Crawford Fitting v Sydney ValveSydney Valve, a distributor of Crawford Fitting agreed to exclusively sell Crawford Fitting products.- At some stage, Sydney Valve purported to terminate the contract by giving 6 months notice in advance


and satisfaction’ which is a “purchase of a release from obligation... by means of any valuable consideration, not being the actual performance of the obligation itself” (British Russian Gazette v Associated Newspapers, 1933 KB)- Fresh consideration can be in the form of a promise or the doing of a promise act (McDermott v Black, 1940)- Whether consideration for accord and satisfaction is a promise or an act is a matter of interpretation (McDermott)- Courts are inclined to interpret accord and satisfaction as requiring performance of the promised act and not merely the promise if the matter is ambiguous> Formal Requirements- Certain contracts are required to be in writing, however termination of such contracts is not required to be in written form (Tallerman v Nathan’s Merchandise, 1956)- Writing is required if the subsequent contract purports to vary the existing contract rather than terminate (Suttor v Gundowda)> Termination Inferred from Subsequent Agreement- There may be an absence of an express term explaining the relationship of a subsequent contract to a previous contract- Subsequent agreements can be interpreted to either replace and thus terminate a previous contract, or simply just vary it – depending on the parties’ intentions based on the terms and circumstances as construed by the courts (Tallerman v Nathan’s)- The distinction between the two possibilities is a ‘matter of degree’, e.g. if the obligations in the subsequent agreement are inconsistent with those of the original contract, they would be construed as to replace the original contract (Tallerman v Nathan’s)- If the parties cannot be presumed to have abandoned the previous rights, termination of the original contract is unlikely to be inferred (Tallerman v Nathan’s)- If a subsequent contract substitutes existing parties with new parties, even if it does not alter obligations, it is deemed to have replaced the original contract; ‘novation’ (Vickery v Woods, 1952)> Termination by Abandonment- Can be by mutual agreement or an inferred agreement to discharge the contract (Fitzgerald v Masters, 1956)- Abandonment may be inferred where:1) Neither party considers the contract to be further performed (DTR Nominees v Mona Homes, 1978)2) An ‘inordinate’ period of time has elapsed where neither party has performed or had called the other party to perform (Fitzgerald v Masters)- However if the contract was partially performed it is unlikely courts will arrive at this conclusion, because the performing party is unlikely to walk away (Fitzgerald v Masters)

McDermott v BlackContract for the purchase of shares where the purchaser alleged he was fraudulently induced into the agreement.- The purchaser made complaints but later withdrew them and agreed to complete the contract on the condition of a time extension grant- Time extension was granted but purchaser still did not want to complete, seller rescinded the contract and purchaser sued

Fitzgerald v MastersContract for the purchase of an interest in a farm.- The farm owner had deceased and the will written in the defendant’s name- Much time had passed before the purchasers wanted to uphold the contract- Vendors argued the contract had been abandoned


Textbook Chapter 20 Failure of a Contingent Condition

Contingent Conditions- The performance of the contract depends on the fulfilment of contingent conditions- Performance can be conditional upon an event not occurring- May qualify the performance of a single obligation, a few obligations or all obligations under a contract

Different Uses of the Word ‘Condition’> Contingent and Promissory Conditions- Contract can be terminated if the contingent condition is not fulfilled, but there will be no breach because neither party had promised the condition to be fulfilled (voidable)- However sometimes the condition may be promissory and non-fulfilment will result in a breach for the other party to claim damages- Whether a condition is contingent or promissory depends on the language of the contract (McTier v Haupt, 1991)> Contingent Conditions to Performance and Formation- A contingent condition may ‘suspend’ performance of obligations under a contract but it still binds the parties (and prevents them from performing inconsistently with contractual obligations) even before the contingent condition is fulfilled- A contingent condition may be required to qualify the formation of a contract, e.g. “this agreement is subject to the preparation of a formal document” (Masters v Cameron)- Courts tend to treat a contingent condition as qualifying performance rather than formation (Perri v Coolangatta)> Contingent Conditions Precedent and Subsequent to Performance- A contingent condition precedent to performance is one that must be fulfilled before the parties are bound to the agreement (Meehan v Jones) - A contingent condition that is subsequent will render the parties’ obligation to perform to come to an end should the condition occur (Suttor v Gundowda)- It is more important to identify the effects of the condition rather than identify it as ‘precedent’ or subsequent (Perri v Coolangatta)

The Duty to Co-operate- Parties may be under an implied duty to co-operate (with the contingent condition); but reasonable steps need to be taken to ensure fulfilment of the contingent condition (Perri v Coolangatta)- Where the implied duty to co-operate is breached, the party in breach cannot rely on the failure of the condition as a reason for termination of the contract (Suttor v Gundowda)- If a party fails to co-operate, the contingent condition may be treated as fulfilled (Mackay v Dick, 1881), probably on the ground of estoppel- However the condition may not be treated as fulfilled even if the implied obligation to co-operate is breached, in Newmont v Laverton, the Privy Council reasoned that the parties did not have the power to dispense with the performance of the condition

McTier v HauptContract for the sale of a house with furniture included.- At one stage before the transaction was complete the house was broken into and furniture burnt-The purchasers refused to complete the contract until the property was restored- The contract stipulated the purchaser’s were only entitled to compensation

Suttor v GundowdaContract for the sale of pastoral property on the condition that consent of the treasurer was obtained before the expiry date.- The consent was obtained, but a few days after the expiry date

Perri v CoolangattaContract for the sale of land where time was not of the essence.- The vendor issued a notice to complete which was not complied by in time- The vendor then gave notice rescinding the contract- The purchaser sought to complete the contract but was found the contract to


Non-Fulfilment> When will a Contingent Condition not be Fulfilled?- If the specified condition does not occur- Or if it does not occur within the specified time period- If no time is specified, courts will implement a ‘reasonable’ period of time the condition would have had to be fulfilled based on the circumstances of the case (Perri v Coolangatta)- If a date is specified for the completion of a contract but not for the fulfilment of the contingent condition, the deadline for the fulfilment of the contingent condition will usually be deemed to be the completion date for the contract (Aberfoyle v Cheng)> Objective or Subjective Test?- Use of objective or subjective test depends on the language of the contract- Contingent conditions can depend on a discretionary judgement, e.g. one party would have to be ‘satisfied’, the party making the judgement would have to act honestly but not necessarily ‘reasonable’ (Meehan v Jones)- There is still some support for the standard of reasonableness in making such a judgement (Renard Constructions v Minister for Public Works)

The Consequences of Non-Fulfilment of a Contingent Condition> Void or Voidable- Consequences vary depending on the language of the contract- Voidable means one or both parties have the option to void the contract but in the event that they choose not to, the contract remains on foot- If a contingent condition relates to only a single obligation of the contract, then only that obligation will be set aside, but if it relates to the whole contract then the whole contract will be generally voidable (Perri v Coolangatta)- If the intentions of the parties are clear in terminating a contract upon non-fulfilment of the contingent condition, courts will deem the contract to be terminated or void automatically (Rudi’s Enterprises v Jay)- Courts are likely to render a contract terminated if neither party has control over the event, e.g. ‘it not raining’ (New Zealand Shipping v Societe des Atelier)- If a party is at fault for non-fulfilment of a contingent condition, i.e. they did not take reasonable steps or weren’t co-operative, then the innocent party will generally be granted the right to void the contract (Suttor v Gundowda)- If the default of the contingent condition occurs without either party at fault, then both parties reserve the right to terminate the contract (Suttor v Gundowda)> Notice- A notice is not required to terminate a contract where its contingent condition has not been fulfilled (Perri v Coolangatta)

> Who Can Elect to Terminate?- The party that was at fault for not fulfilling the contingent condition cannot rely on it to terminate the contract (Suttor v Gundowda)

be already rescinded


Waiver of a Contingent Condition- A contingent condition may be waived by one or both parties, if this happens the parties may not terminate the contract on the ground of non-fulfilment of the contingent condition- One party may have the option to waive the contingent condition if it was ‘primarily’, ‘wholly’ and ‘solely’ for the benefit of that party (Perri v Coolangatta)- If both parties benefit from a contingent condition then neither party can waive it without the consent of the other (Gough Bay Holdings v Tyrwhitt-Drake, 1976 VR)- Even if a contingent condition was for the benefit of a single party, the other party may still terminate the contract for non-fulfilment of the contingent condition in the absence of waiver (Perri v Coolangatta)- Additionally the waiver would only be effective if it was done before termination of the contract under non-fulfilment of the contingent condition (Perri v Coolangatta)

Restrictions on the Right to Terminate for Non-Fulfilment of a Contingent Condition- A party who waives the right to rely on non-fulfilment of a contingent condition, is bound by the decision


Chapter 21 Termination for Breach

- By common law, in the occurrence of a breach, regardless whether or not aggrieved party decides to terminate the contract, he or she will have the right to damages to compensate for the loss caused by the breach- The other party may argue that the right to terminate (by the aggrieved) has been lost by the conduct on the part of the aggrieved party

Breach of Contract- A breach occurs when a party fails to perform at the time or by the standard required by the contract- Whether or not there is a common law right to terminate for breach depends on the classification of the term breach:1) If the term is a condition, the aggrieved can terminate, regardless of the gravity/consequences of breach2) If the term is a warranty, the aggrieved can only recover damages3) If the term is intermediate (innominate), the aggrieved party’s right to terminate depends on the gravity and consequences of the breach, if the breach is serious the aggrieved party can terminate and claim damages

Termination for Breach of a Condition- In the absence of classification by statute or express statement, whether a term is a condition is a matter of construction (Associated Newspapers v Bancks)- Construction depends on the intention of the parties, the nature of the contract, or particular terms of such importance to the promisee that he would not have entered into the contract unless he had been assured of strict or substantial performance of the promise, and this was apparent to the promisor (Luna Park)- If a party who becomes entitled to terminate by reason of breach of an essential promise does not exercise this right when he becomes aware of the breach he loses his right and is remitted to remedy by way of damages only (Luna Park):1) He proceeds to do some act which infers that the contract subsists2) If a party in default proceeds to carry on with the performance of the contract at the request or permission of the innocent party (express or tacit)- If a contract is not validly terminated by reason of breach, that termination itself is a breach of the contract (Luna Park)- An essential term exists where the failure to perform the condition went to the root of the contract (Luna Park)

Termination for Breach of Intermediate Term- Right to terminate depends on the nature of the breach &foreseeable consequences- A breach of an intermediate gives rise to rights to terminate if it is so serious that it deprives substantially the whole benefit that was intended by the contract (Hongkong Fir Shipping v Kawasaki)- The courts will not expressly acknowledge contributory fault, however the loss to the aggrieved party may be attributed to the actions of both parties to reduce the severity of the breach where a term is intermediate (Hongkong Fir)

Tramways v Luna Park- Tramways agreed to display ad for at least 8 hours a day - Luna Park alleged Tramways did not meet that obligation- Tramways argued it had displayed it for an average of 8 hours a day for the seasons- Luna Park wanted damages for breach - Tramways sued for the recovery of the payment

Hongkong v KawasakiContract for the charter of a ship.- Charterer claimed ship was not properly fitted for the purpose for the first 5 months of the charter and purported to terminate


Chapter 22 Termination for Repudiation

- Repudiation is the refusal by, or inability of one party to carry out its obligations to the extent the aggrieved is justified in discharging the contract- Anticipatory breach occurs when one party repudiates his or her obligation prior to the time set for those obligations. In such a case the aggrieved is entitled to terminate and sue for damages even though the date for performance by the repudiating party has not arrived- Termination for anticipatory breach does not affect the measure of damages available, but gives rise to the duty of the aggrieved to mitigate his or her damages (Hochester)- If the aggrieved party chooses not to accept a repudiation before the time set for performance, the contract will continue and there will be no right to damages until and unless an actual breach occurs (Carr v Berriman)

Absence of Willingness or Ability- If anticipatory breach amounts to repudiation, whether an essential term or otherwise, goes to the root of the contract (Laurinda v Capalaba Park)

Conduct Amounting to a Repudiation- Either unwillingness or inability will suffice- Whether conduct amounts to repudiation does not depend on the subjective intention of the party, deliberate blameworthy or otherwise, it covers all breaches that are bound to happen (Universal Cargo Carriers)- Repudiation may be by express statement or indicated by the words and conduct of the repudiating party> Conduct Showing Inability or Unwillingness to Perform- An objective test is applied to determine if the reasonable man can infer that the repudiating party intended to take the contract seriously or rather was prepared to carry out his part of the contract only when it suited him (Carr v Berriman)- If one breach is not sufficient, two breaches together can have a combined significance (Carr v Berriman)- If the aggrieved party allows a breach or an ongoing series of breaches, they must live with the consequences (Carr v Berriman)> Repudiation Inferred from a Combination of Events- A combination of breaches can amount to termination and damages by repudiation although each single breach is not sufficient (Progressive Mailing House)> Instalment Contracts- In a case of defective instalments, it must be determined from the circumstances of the case if the breach is a repudiation of the whole contract or a severable breach giving rise to claim for compensation (Maple Flock)- The test is not the subjective mental state of the defaulting mental party, but an objective test of the impact on the whole purpose of the contract (Maple Flock):

Universal Cargo v CitatiContract for the charter of a ship, the charterer had failed to nominate an effective shipper on time.- Owners cancelled the charter 3 days before due date and re-chartered the ship- The charterer’s efforts to find cargo failed and the owners refused to accede to the charterer’s demand to detain the ship

Progressive v TabaliTabali leased factory premises to Progressive, the agreement held that certain breaches would allow the lessor to re-enter the premises.- The agreement also held the lessor had complete certain work on the premises which the lessee alleged was not satisfactorily carried out- The lessee ceased paying rent, lessor purported to terminate and sue for arrears

Maple Flock v Universal FurnitureContract for the sale of 100 tons of rag flock, where it was stipulated 30 parts of chlorine for 100,000 parts of flock.- The 16th delivery exceeded 30 parts per 100,000- Buyer purported to terminate contract


1) Qualitative test – the breach as proportion of the whole contract2) The degree of probability that the breach will be repeated> Repudiation and Erroneous Interpretation of the Contract- Erroneous interpretation itself is not a fundamental breach (DTR Nominees v Mona Homes)

DTR Nominees v Mona HomesContract for the sale and subdivision of a block of land.- The vendor misinterpreted the agreement and lodged plans for only lots 1-9 when he had to lodge plans for 35 lots- Purchaser purported to terminate, vendor viewed purchaser’s action as a repudiation and also purported to terminate

Chapter 23 Termination for Delay

At What Time is Performance Required?- Specified precisely, if not then law will imply a period of ‘reasonable time’ (Louinder v Leis)Where Time is of the Essence- Where the time for performance of that obligation is described as essential and the time stipulation construed as a condition, then a breach of the time stipulation will entitle the aggrieved party the right to terminate > When is Time of the Essence- When expressly designated the with the words ‘time is of the essence’> Where time is not of the essence - failure by one party to perform on time, while givin rise to damages for breach of contract, does not itself give rise to a right of the aggrieved party to terminate- A right to terminate may arise if the delay should continue for so long or in such circumstances as to amount to repudiation (Laurinda Pty Ltd v Capalaba)- That means the delay must be ‘gross’ or ‘protracted’ (Neeta in Louinder) - The delay may be combine with other conduct to indicate a repudiation (Laurinda) eg deliberate unreasonable delay

> Construing Time Stipulations of Being of the Essence- Courts are most likely to interpret time stipulations to be essential in commercial contracts for the sale of goods (United Scientific Holdings v Burnley Borough Council)- Time stipulations for shipments or delivery of goods are also typically construed to be essential (Harrington v Browne)- However, where the time stipulation is left silent in relation to being essential, then it is treated as not essential (Sale of Goods Act 1954)

Louinder v LeisLouinder sold property to Leis, the agreement had no essence of the time stipulation.- However, execution of transfer was required to be due after 28 days of the receipt of the vendor’s statement of title- The vendor agreed to extend to period to 3 months but then decided to give only 1 week- After 1 week, vendor gave notice to complete within 21 days- After that, vendor purported to terminate contract


Notice- Where time is not of the essence, aggrieved party can terminate by notice procedure. - A valid notice must: (Louinder v Leis)a) specify a time for performanceb) allow reasonable time c) clearly convey that time is of the essence or one will b entitled to termination if notice is not complied with - If a contract does not fix a time for completion, there is no foundation to give notice to complete, the existence of unreasonable delay is an essential qualification for the giving of notice. (Louinder v Leis) (A contract for the sale of land did not specify a completion date and time was not described to be of the essence) - When an innocent party makes time of the essence by effective notice, it is effective for both him and the defaulting party (Laurinda v Capalaba)

The Effect of an Extension of the Time for Performance- If time was originally of the essence, then a time extension which specifies the new date for the obligation to be performed will still regard time to be of the essence; breach of the time extension will give right to the aggrieved party to terminate for delay (Mehmet v Benson)- If time was originally of the essence but the time extension does not specify the new date, but rather merely indicates willingness to accept late performance, then time will be longer of the essence (Ogle v Comboyuro)

Laurinda v CapalabaParties entered into a contract of lease.- Laurinda wanted a copy of the lease and Capalaba promised but did not deliver- After many months Laurinda terminated the contract for repudiation


Chapter 24 Consequences of Affirmation or Termination

The Right to Elect- In the occurrence of a breach, aggrieved party can elect to affirm (condone the breach) or elect to terminate (Foran v Wright)- The aggrieved cannot take up two inconsistent positions: “a door must be either open or shut; a contract must either subsist or be at an end” – Higgins J (Bowes)

Consequences of Affirmation> Damages- If the aggrieved party affirms the contract, the aggrieved party loses the right to terminate but may still claim for damages caused by the breach- However if the breach is anticipatory, and if the aggrieved party elects to affirm, the aggrieved party may not claim damages until an actual breach has occurred (Foran v Wight)- If the aggrieved party affirms, should an event occur that frustrates the contract, the contract will be terminated without liability on part of either party (Avery v Bowden - txtbk)- That is the aggrieved party may only claim for damages from previous breaches, not damages for the loss of the whole contract > Right to rely on subsequent events- If the aggrieved party affirms the contract, he gives the party in default an opportunity to terminate for a future breach (Bowes v Chaleyer) - buyer cancelled the silk contract but the seller affirmed the contract

Where the Contract is Terminated> Consequences of Terminating for the Aggrieved Party- Termination ends future obligations but does not rescind a contract from the beginning; parties may still recover for accrued breaches and rights - For example: payment for any part of the contract which has been performed, and have the right to claim damages for any breaches occurring up until the time the contract was terminated- Arbitration clauses in the contract will still remain binding after termination (Codelfa)> Alternative Grounds for Termination- An aggrieved party who has terminated a contract on an invalid ground may still rely on another ground that was in existence of the time for a termination, even if the aggrieved party was not aware of its existence at the time (Shepherd v Felt & Textiles of Australia)

Bowes v ChaleyerPlaintiff ordered silk ties from defendant.- Plaintiff sought to cancel the order, effectively repudiating- But defendant delivered them anyway, however, they were delivered not according to agreement which had put the defendants in breach of contract- The plaintiffs claimed for damages


Chapter 25 Restrictions

Restrictions on right to terminate include: - exclusion clauses- statute- performance of obligations- election/affirmation to continue the contract- aggrieved party must be ready and willing to perform

Readiness and willingness - To be entitled to terminate for breach or repudiation, an aggrieved party must show that he or she was able and perform the contract (Foran v Wright)- ‘Willing and able’ should be interpreted at a low threshold, and should be assessed at the date of performance, rather than the date of termination (Foran v Wright)

Election- An aggrieved party when faced with an event which entitles him or her to terminate the contract has a choice between terminating and affirming the contract (Tropical Traders)- Two requirements of election to affirm a contract are (Tropical Traders): 1. Knowledge of right to terminate2. Unequivocal conduct consistent only with a choice to continue with the contract- An election once made cannot be retracted, but the aggrieved party is not bound to elect at once; it may keep the question open so long as it did nothing to affirm the contract and so long as the other party’s position was not prejudiced by the delay (Tropical Traders)- The acceptance of a series of late payments can be considered as conduct condoning the breach (Tropical Traders)- A continuance of a contract based on a mistaken assumption does not constitute an election to proceed (Immer)- If the event giving rise to an election has not yet occurred, affirmation cannot be forced, the party is entitled to exercise the right to terminate when/if the event occurs (Immer)

Estoppel- An aggrieved party may be estopped from terminating a contract where he or she has induced the other party to believe that the contract will not be terminated in the circumstances, and the other party relied on that assumption (Legione v Hateley)

Waiver- The aggrieved party is sometimes said to waive a breach and indicates an intention to continue performance- However, it is the doctrine of election that operates in such circumstances to deprive the aggrieved party the right to terminate

Foran v WrightContract for the sale of land where a 10% deposit was paid.- Neither party tendered performance- The purchasers sought to rescind the contract to claim back deposit

Tropical Traders v GoonanContract for the sale of land where time was of the essence.- Purchaser was late on payments- Vendor sought to ‘rescind’ the contract and keep deposits and other instalments that were paid

Immer v Uniting ChurchUniting Church had airspace rights which it agreed to sell to Immer on the condition that the Council was satisfied with the refurbishment.- Immer’s solicitor mistakenly believed the Council had approved the transfer and sent the relevant documents to Uniting Church- The transfer went ahead but Immer sought to rescind


Relief Against Forfeiture- Termination of a contract may lead to one party suffering forfeiture of a proprietary interest (interest in estate). In equity the court may order specific performance of the contract in favour of the party in breach to provide relief against forfeiture (Legione v Hateley)- Equity is used to ameliorate the rigors of common law, forfeiture may provide relief against conscionable dealings- Factors in deciding relief against forfeiture include (Legione v Hateley):1) Did the aggrieved party contribute to the breach2) Was the breach trivial, accidental, unintentional3) What damages were suffered by reasonable breach4) What was the magnitude of the purchaser’s loss and vendor’s gain if the forfeiture is to stand5) Is specific performance with or without compensation an adequate safeguard for the vendor- However, equitable relief against forfeiture should be used restrictively (Stern)- It may only be used to ameliorate unconscionable conduct, and should not be used to marginalize common law principles (Tanwar)- Equity will not relieve where the possibility of the accident was within the reasonable contemplation of the parties (Tanwar)

Legione v HateleyContract for the sale of land where time of the essence.- The purchasers had built a house on the land prior to finalizing the purchase of the land- Plaintiff did not meet time stipulations and contract was terminated, plaintiff lost house on the land

Tanwar v CauchiContract for the sale of land where time was of the essence.- Purchaser was a day late in finalizing the payment and vendor purported to terminate the contract


Chapter 26 Measure of Damages

The Compensation Principle- Damages for breach of contract are compensatory, types of damages include (Amann):1) Expectation – puts the party in the position they would have been in if the contract had been fulfilled, compensates for the part of the contract that is unfulfilled2) Reliance – damages incurred in reasonable reliance, money already spent3) Restitution – puts the party back in the position had there been no contract

Expectation Damages- If the breach involves defective work the issue arises of whether the difference between the current market value and the value had the contract been properly performed, or the cost of remedying the work should be awarded (Belgrove v Eldridge)- The argument of economic wastage suggests that the economically efficient cost of modification must be weighed with the fairness of the situation

Reliance Damages- Where a plaintiff is unable to prove the value of the expected benefit gained from the performance of contract, damages may be recovered to compensate plaintiff for wasted expenditure incurred in reasonable reliance of the contract being performed (McRae)- The benefit obtained can be assumed to at least equal to the detriment sustained in order to perform the contract (Amann)- A BoP test may be applied to reflect the possibility of alternative future events and the proportional chance of the benefit obtained from contract. This should be distinguished from a breach where it is impossible to estimate returns (Amann)- The fairest method of assessing damages, or the most appropriate compensation method in circumstances of uncertainty is to balance contingencies (Amann)

Damages for Loss of Chance- Damages capable for assessment are not too remote; the presence of contingencies does not render the damages incapable of assessment, although the calculation of the loss may not be certain or precise (Howe v Teefy)- Damages for loss of a chance may be awarded for a loss of chance to win prizes (where the past expenditure is too little to cover expectation losses) (Howe v Teefy)

Restitutionary Damages- It is damages awarded based on the gain made by the defendant in breaching the contract, where the defendant may have received benefit without providing reciprocal performance. The damages give back gain made at the expense of plaintiff- Restitutionary damages have not been recognized in Australian Contract Law, typically the plaintiff may recoup the value of the benefit through ordinary expectation damages

Commonwealth v AmannAmann entered into agreement with Cth to provide coastal surveillance services.- Cth repudiated- Vast damages were granted to Amann- Cth appealed

Bellgrove v EldridgeThe defendant built house for plaintiff.- House was not properly built- Plaintiff sought to recover damages for demolition and rebuilding of the house

Howe v TeefyDefendant leased a racehorse to plaintiff for 3 years but repudiated after 3 months.- Plaintiff made claim for damages for loss of opportunity


Date for Assessing Damages (Johnson v Perez)- There is a general rule that damages for breach of contract are assessed at the date of breach, but this rule is not universal, in exceptional cases it must be adapted to provide damages which will most fairly compensate the plaintiff for the wrong suffered - Damages must consider inflation and convert the value of the injury into nominal terms- Once the injured party learns on the breach, he is obliged to mitigate his loss by notions of fairness to the party at fault

Johnson v PerezRespondent sued appellant, a solicitor, for failing to prosecute a case which led to losses.- It was accepted the respondent would have won the case the solicitor failed to prosecute

Chapter 27 Limitation on the Award of Damages

Causation- The plaintiff must show a cause or link between the defendant’s breach and the loss suffered. This cause or link may be determined by the ‘but for’ test tempered with common sense (March v Stramare)

Remoteness of Damage- The plaintiff must show the loss to be compensated is not too remote- The general rule laid down in Hadley v Baxendale is:1) Damages for breach of contract should be fairly and reasonably considered as naturally arising from the usual course of things from the breach itself2) Or reasonably in the contemplation of both parties at the time they made the contract as the probably result of such a breach- The ‘but for’ test is not applicable where there is a novus actus interveniens, e.g. credit crisis beyond anyone’s control and remote from the breach. Thus the ‘but for’ test should not be strictly applied but viewed from a common sense perspective (Alexander v Cambridge)- A breach merely has to be a cause of the damage and not the sole cause, a cause will be sufficiently proximate if it was in the contemplation of the parties when they contracted (Alexander)- The damage must be a general sum rather than a specific amount if only a general loss of business could have been contemplated (Victoria Laundry)

Mitigation of Damages- There are three rules of mitigation (McGregor):1) The plaintiff cannot recover for avoidable loss2) The plaintiff can recover for loss incurred in reasonable attempts to avoid loss3) The plaintiff cannot recover for avoided loss- The aggrieved must take all reasonable steps to mitigate losses upon discovery of breach. Mere impecuniosities does not relieve a duty to mitigate (Burns v Auto)> Attempts at Mitigation which Increase Loss

Alexander v CambridgeAuditors who failed to qualify provisions for doubtful debts.- As a result the value of the company was overstated- Company eventually went into receivership- It was argued if the reports were done correctly, company would have only owed $10m rather than $115m

Victoria Laundry v NewmanDefendants sold a boiler to plaintiff which was delivered 20 weeks late.- Plaintiffs claimed lost revenue due to late arrival- Plaintiffs also claimed for a special lucrative contract that was also lost

Burns v MAN AutoDef warranted that the prime mover’s engine was to be reconditioned.- The engine was defective later but defendant could not pay to fix


- A party who commits a breach is liable for additional losses incurred during reasonable attempts by the aggrieved party to mitigate their loss (Simonius v Holt)

Limitations Relating to Specific Types of Claim> Disappointment, Distress and Loss of Reputation- Damages are not generally awarded to compensate non-pecuniary damages- In exceptional cases, damages for disappointment and distress may be recovered if they proceed from physical inconvenience caused by the breach or the object of the contract was to provide enjoyment, relaxation and freedom from molestation (Balton Shipping)> Loss of Bargain Damages- There will generally be no right to damages if the ‘aggrieved’ party exercises a contractually defined termination right, as opposed to a right to terminate under the common law (Shevill v Builders)- Reliance on an express term in a contract to terminate provides a remedy and does not allow for performance of the remainder of the contract, thus damages are available for arrears but not for loss of bargain> Contributory Negligence- Contract allows one to extend upon heads of damages to expectation and reliance (can only recover for Restitution in Torts)- A wrong is a breach of contractual duty that is concurrent and co-extensive in a duty of care in Torts, contributory negligence does not defeat a claim of damages, damages must be reduced to an extent which is just an equitable regarding the claimant’s share of responsibility for the damage (Wrongs Act 1984 (VIC))

Simonius v HoltDefendants were auditors working for the plaintiff’s company.- Plaintiff lost alot of money due to their improper operations not being discovered by the defendants

Balton Shippping v DillonPlaintiff went on a cruise provided by defendant.- Ship sank and plaintiff lost possessions and suffered personal injuries

Shevill v BuildersShevill was the guarantor of due performance of lessee who was under a contract with the lessor, Builders.- Lessee failed to make due paymentsand hence property was re-entered by the lessors

Chapter 28 Liquidated Damages and Penalties

Rule Against Penalties- Amount payable in the event of a breach may be specified in the contract- Whether such clauses are enforceable as liquidated or agreed damages rather than invalid as a penalty, depends on the relationship of the sum specified and the damages likely to be suffered from breach of contract- Rule against penalties provides that if the sum is not a genuine pre-estimate of damage, the clause will be a penalty and not be enforceable (AMEV v Austin)- If the clause is held to be a penalty, damages for breach is recovered in lieu of the penalty (AMEV v Austin)- The nature of the sum as either a genuine pre-estimate or a penalty is a matter of construction. Signals of penalty include lump-sum payments, extravagant payment, lack of relationship with the loss sustained, or lack of effort or method to estimate expected damages (Dunlop)- If the damages are a reasonable estimate rather than an arbitrary measure, they are more likely to be classed as liquidated damages (Esanda Finance v Plessnig)- Resale price maintenance is prohibited by TPA 1974 (Cth)

Dunlop v New GarageDunlop supplied to retailer, New Garage, products which were agreed to be sold at a certain price.- The retailer sold them below the prescribed price- The agreement covered this breach of contract with liquidated damages, $5 compensation per item- The Court of Appeal reduced the compensable amount to $2 per product, Dunlop appealed


Chapter 29 Actions for Debt

Debts and Liquidated Sums- A debt or liquidated sum is something separate and distinct and more tangible than a mere action for damages in breach (Young v QLD Trustees)- An action for debt will only arise upon an executed consideration or performance of the contract- An entire obligation is where the plaintiff’s complete performance is precedent to the defendant’s obligation to pay- Divisible obligations is where the plaintiff is entitled to payment for each segment or part of the work that has been fully performed- Where work is done outside the contract, and the benefit of the works is taken, a contract may be implied to pay for the work so done at the current rate of remuneration (Steele v Tardiani)- Payment on a quantum meruit (unjust enrichment) basis is only available if the payments and the corresponding consideration are entire, divisible units> Payments may be Affected by Legislation, e.g. Apportionment Act, Property Law - Rent like interest accrues from day to day, thus payment shall be apportioned by considering the accrued rent calculated as a fraction of the period (Nemeth v Bayswater)> Substantial Performance- The doctrine of substantive performance may allow recovery of the contract price less a payment of damages as compensation for incomplete work (Hoenig v Isaacs)- Only when a breach goes to the root of the contract is a substantial defect found and the employer absolved from his liability for payment (Hoenig v Isaacs)- General ineffectiveness for a primary purpose consists of a substantial non-performance, however a party may be unjustly enriched if they are not required to pay (Bolton v Maheva)> Payment Independent of Performance- Such a payment is owed as debt when the time for payment arises- When a contract stipulates payment in advance of performance, the vendor is entitled to enforce payment before the time of performance, yet his title to retain the money is not absolute but conditional upon subsequent completion of the contract (McDonald v Dennys)> Deposits- Deposit is a percentage of the overall purchase price paid in return for the vendor entering into the transaction- If the vendor breaches the contract, the purchaser will be entitled to recover the deposit. If the purchaser defaults, the vendor will retain the deposit- The vendor’s right to retain the deposit is not conditional upon the subsequent completion of the contract (Bot v Ristevski)- Although the due deposit has not actually been paid, and contract is terminated for reason of purchaser’s breach, a right to recover and retain deposit arises before the contract is discharged as consideration for the vendor to enter into the contract (Bot)

Steele v Tardiani- Defendant accepted the wood but declined to pay for the wood not cut to specified dimensions

Nemeth v Bayswater- The aircraft crashed in middle of a month - Appellants sought to pay for hire for only part of the month expended

Hoenig v IsaacsPlaintiff decorated defendant’s home, with minor defects- Upon completion, held that the defendant was to pay the remaining balance less remedying costs

Bolton v MahevaPlaintiff installed a defective hot water system

McDonald v Dennys- Plaintiff guaranteed the first installment to him in order to save the initial agreement- Defendant did not make payment, plaintiff sued for the guarantee

Bot v Ristevski- The defendant repudiated and the plaintiff sought to recover the remaining balance on the deposit promised


Chapter 17 FrustrationFrustrated Contracts Act 1978 (NSW)- Section 6 provides that the Act does not apply to contracts before the commencement of the Act, for the carriage of goods by sea, of insurance, a contract governed by another Act such as the Corporations Act. (3) where a contract is severable into parts, the Act only applies to the parts that have been frustrated and not the whole contract- Section 7 provides that if a promise is due for performance before the frustrating act, which had not been performed after the frustrating act, it would be discharged except if was necessary to support a claim of damages for a breach of contract that occurred before the frustrating act- Section 8 provides that liability of damages for breach accrued before the time of frustration shall be not be ignored- Section 10 provides where whole performance has been received before time of frustration, the performing party shall be paid an amount equal to the value of the agreed return for the performance- Section 11 provides where part performance has been received before the time of frustration, the performing party shall be paid (2)(a) an amount equal to the attributable value of the performance or (2)(b) where the attributable cost of the performance exceeds its attributable value, the sum of the attributable value and one half of the amount by which the cost exceeds the value must be paid- Section 12 provides where money has been paid as an agreed return for performance, it shall be returned- Section 13 provides where the performing party has suffered a detriment, the performing party shall be paid an amount equal to one half of the amount that would be fair compensation for the detriment suffered- Section 15 provides where divisions 1 one and 2 are manifestly inadequate, inappropriate, unjust, excessively difficult or expensive to apply, the court may by order substitute adjustments in money or otherwise as it considers proper

Mistake and Frustration- Pacta sunt servanda – there is no remedy to escape from obligations in contract if something happens (Paradine v Jane)- Mistake arises from a shared erroneous assumption before the formation of the contract- The contract is frustrated if circumstances beyond control arise after consent has been given

Frustration as an Excuse for Non-performance- Frustration occurs when, without default of either party, contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it to be radically different from that which was undertaken in the contract (Davis Contractors approved in Codelfa)- Non haec in foedera veni - it was not this that I promised to do

Destruction of Subject Matter- If the existence of an object was the foundation of performance, in the absence of express or implied warranty that the thing shall exist, performance becomes impossible from the perishing of the object without the default of the contractor. The contract is not construed as a positive contract, but as subject to an implied condition

Coldelfa v SRA NSWCodelfa was contracted to do rail-work for SRA.- Much of the work occurred in residential areas- Legislation protected the work from being stopped by an injunction- However an injunction was granted to residents


that the parties shall be excused before breach (Taylor v Caldwell)

Disappearance of the Basis of the Contract- If something is regarded by both parties as the basis, foundation or purpose of the contract, and could not have reasonably be supposed in the contemplation of the contracting parties when the contract was made, and both parties are discharged from further performance of the contract (Krell v Henry)- It is not hardship or inconvenience or material loss itself which caused the principle of frustration into play, but termination on the emergence of a ‘fundamentally different’ situation which results in a change of obligations (Brisbane City Council drawing on decisions of Lord Reid and Lord Radcliffe in Davis Contractors)- In deciding whether a contract is frustrated, it is possible to look to extrinsic evidence of the relevant surrounding circumstances . The assumption that some particular thing or state of affairs essential to its performance will continue to exist or be available must be found in the contract itself (Codelfa)- Events working a frustration are generally caused by a supervening impossibility owing to a change in the law (Codelfa)- The High Court favours the Davis approach as opposed to the implied term theory, as it offers greater flexibility and is applicable to a wide range of circumstances (Codelfa)- An ordinary change in the method of performance should be distinguished from a fundamental change as to bring about frustration, especially in a case where there is no fixed time for completion (Codelfa distinguishing from Suez Canal cases)

Limitations on the Doctrine of Frustration1) The risk of the frustrating event must not have been provided for by the parties in their contract (Codelfa)2) The purported and pursuited must not have been one which the parties could have reasonably foreseen (Davis Contractors)3) Frustrating events must have occurred without fault by the party seeking to rely on frustration (Bank Line)

The Consequences of Frustration- When frustration occurs the “loss lies where it falls” as the contract comes to an end immediately. Any sums paid or rights accrued before the event are not to be surrendered, but all obligations due for performance after the frustrating event will be discharged (Fibrosa v Fairbarn)- The party that has made payment and has not received the stipulated consideration is not without any remedy after the contract has been frustrated (Fibrosa v Fairbarn)- It does not follow that because the plaintiff cannot sue ‘on the contract’, he cannot still sue dehors (outside) the contract for recovery of the payment in respect which the consideration has failed (Fibrosa v Fairbarn)- Generally speaking, it is not the promise that is referred to as the consideration but the performance of the promise. The money was paid to secure performance and if the performance fails the inducement which brought about the payment is not

to stop their work- Coldelfa wanted compensation from SRA because it would now take longer to complete their work

Taylor v CaldwellDefendants agreed to allow plaintiffs use their premises.- The premises was destroyed by fire before it could be used by the plaintiffs

Krell v HenryThe defendant booked rooms to see an event.- The event was postponed- The defendant declined to pay the balance

Brisbane CC v Group ProjectsBrisbane CC agreed to have land rezoned as residential in consideration of Group Projects, Brisbane CC secured a $200k bond from Group Projects as security for the performance of its obligations.- The land was resumed by the Crown for schooling purposes- Brisbane CC contended the obligations and obligations on the bonds of Group Projects remained in force

Fibrosa v FairbarnA Polish company made an order to


fulfilled (Fibrosa v Fairbarn)- Although expenses may be incurred in connection with the partial carrying out of the contract, the English common law does not undertake to apportion a prepaid sum in such circumstances (Fibrosa v Fairbarn)

purchase machinery from an English company and paid 1/3 of its price as a deposit.- Germany invaded Poland before the Polish company could make full payment- Polish company sought to recover the deposit


Chapter 31 Mistake

Law and Equity- At common law if a mistake is recognised, a contract which appears valid is void at ab initio, that is, there was never any contract between the parties, thus it interferes with partially or completely performed contracts and the interests of third parties (Solle)- In equity a contract affected by operative mistake is voidable rather than void ab initio. A voidable contract is one that may be rescinded or set aside, and the parties restored to their original positions before the contract was made. The contract may be rescinded on fair terms, and specific performance may be granted or refused even though the contract is valid at common law (Solle)- Remedy of rectification may be available for agreements mistakenly recorded- Where a mistake relates not to facts existing at the time the contract was formed but to subsequent events, the issue is one of frustration rather than mistake

Categorization of Materials1) The parties are in agreement but they both erroneously assume some fundamental matter to be true, mutual mistake2) The parties are so much at cross purposes that it can be said they are not in actual agreement. If they misunderstand one another, the mistake is mutual, but if one party knows the other’s error or is objectively right in his or her interpretation, the mistake is unilateral

Parties in Agreement- Where there is a mutual false assumption in respect of a fundamental matter, the question is whether such a contract should stand; or whether it is void or voidable for mistake; or whether the document in which the contract was recorded should be rectified- In a case of total failure of consideration, the question is whether the risk should be shifted completely onto one party. If the mistake is fundamental, the contract is void, or a constructionist device relieve the parties of the obligations by an implied condition precedent in the contract- If the contract is void there is no contract and performance can be avoided by mutual mistake (Couturier in McRae)- It is impossible for a party who caused the mistake to argue that the contract is affected by mistake (McRae)- A party cannot rely on common mistake where the mistake consists of a belief which was entertained by him without reasonable grounds for such belief (McRae)- Australian courts try to find some solution other than resolve to the doctrine of mistake, for example negligent misrepresentation or misleading conduct (McRae)

Mistake as to Quality of Subject Matter> Common Law- Mistake must nullify or negative consent of the parties in order for the agreement to be void. The parties may be mistaken about the identity of the contracting parties, the existence of the subject matter, the date of contract, the quality of the subject matter (Bell)

McRae Plaintiff purchased the right from the defendant to salvage an oil tanker which did not exist.- The defendant made a reckless and irresponsible mistake in assessing the existence of a tanker- Plaintiff incurred considerable expense preparing and attempting a salvage expedition

Bell v LeverPlaintiff entered into an agreement to terminate an employment contract.- It was discovered that the employee had previously breached his employment contract and his employment contract could have been terminated without renumeration


- The question is whether the erroneous assumption must be of such a "fundamental character as to constitute an underlying assumption without which the parties would not have entered into the agreements", or whether it was only a common error to a material element but not one going to the root of the matter and not affecting the substance of the consideration (Bell)- A mistake will not affect consent unless it is the mistake of both parties, and the identity of the subject is destroyed (Bell)- It would be wrong to decide that an agreement to terminate a contract is void if it turns out that the agreement had already been broken and could have been terminated otherwise (Bell)- Bell set a higher standard on the finding of common mistake (mutual mistake), this was later criticized in Solle where Denning LJ reduced the standard by enumerating an equitable remedy to render the agreement voidable. Subsequently Great Peace Shipping purported to overturn Solle and set a standard for common mistake in line with the original Bell decision> Equity- Equity can set aside a contract that was good at law provided that the misapprehension was fundamental and the party seeking to set it aside was not himself at fault (Lansdowne in Solle)- A contract will be set aside if the mistake of one party has been influenced by a material misrepresentation of the other even though if it was not fraudulent or fundamental, or if one party knowing the other is mistaken but allows him to remain under his delusion rather than pointing out the mistake (Solle)> Reversal of Solle and Reinstatement of Belle- There is no jurisdiction to grant rescission of a contract of a contract on the ground of common mistake where the contract is valid and enforceable on ordinary principles of contract law (Great Peace Shipping)- Contracts for sale of personal property have been void for mistake where the property has ceased to exist at the date of the contract. However, after the contract has been concluded by the execution of the conveyance and the payment of the purchase money, the purchaser has no remedy at law or in equity in respect to any defects either in the title to or the quantity or quality of the estate (Svanosio v McNamara)

Mistake in Recording the Agreement- Courts have an equitable power to rectify a contract in writing where the writing does not express the parties’ common intention- The party seeking rectification must establish that the alleged intention continued concurrently to the minds of all parties down to the time of its execution, and must show exactly and precisely the form to which the deed ought to be bought (Maralinga v Major)- The purpose of the remedy is to make the instrument confirm to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately (Maralinga v Major)- If one party to a transaction knows that the instrument contains a mistake in its

Solle v ButcherDefendant leased to plaintiff a flat for 7 years at $250 pre annum, the flat was previously rented at $140.- Both parties made the mistake of believing the flat was not subject to rent control when it in fact a notice had to be given to the tenant to raise the rent- Plaintiff sought to recover excess payment

Great Peace ShippingTsavliris agreed to hire the Great Peace ship from the respondents in the belief that the ship was close to their desired destination.- The ship was in fact much farther away but the mistake was on the part of Tsalviris- Tsalviris sought to cancel the agreement to hire Great Peace when they found a closer ship

Maralinga v Major Major Enterprises sold a property to Maralinga subject to a condition that gave the purchaser the option to demolish and obtain finance from the vendor- However the draft agreement did not contain a provision for any part of the price to remain on mortgage for 3 years


favour but does nothing to correct it, he will be precluded from asserting that the mistake is unilateral and not common (Maralinga v Major)- Equitable relief is not available to set aside conveyance of land made under a written contract except for fraud or total failure of consideration or what practically amounts to total failure of consideration (Pukallus v Cameron)

Parties Not in Agreement- The mistake may relate to the terms of the contract or the identity of the parties- One party may sign a document believing it has fundamentally different character from what in fact has or what mistake has been made in the actual recording of the agreement

Mistake as to Terms- A subject inquiry can be made into the intentions of the parties to reveal that they were not ad idem in respect to the terms of contract and there was no coincidence of offer and acceptance- If the parties as not ad idem, there is no contract, unless the circumstances are such as to preclude one of the parties from denying that he has agreed to the terms of the other (Smith v Hughes)- Whatever a person’s mere intention may be, if he conducts himself so that a reasonable man would believe that he was consenting to the proposed terms and a contract is formed, the person is equally bound if he had intended to agree to the other party’s terms (Smith v Hughes)- If by any means a promisee knows that there was no real agreement between him or her and the promisor, he/she is not entitled to insist that the promise shall be fulfilled in a way which the mind of the promisor did not consent (Smith v Hughes)- A party that enters into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware of that mistake and deliberately set out to ensure that the first party does not become aware of the existence of his or her mistake (Taylor v Johnson)

Mistake as to Identity- Innocent third parties are protected by holding the original contract not void at common law but voidable in equity. In equity the vesting of property in third parties is a bar to rescission> Parties not Face to Face- There is no consensus between plaintiff, the rogue (the impersonator) or the third party, the property remains as the property of the plaintiff and no title can be transferred to the rogue or the third party (Cundy v Lindsay)- However, if the rogue uses the name of a non-existent entity, the third party is not liable for conversion and the contract of property can be passed to the rogue and then the third party (King’s Norton Metal)- No contract can be formed using a stolen identity without authority because there was no consensus ad idem (Shogun Finance)

Smith v HughesDefendant agreed to buy oats from plaintiff believing the sample was of old oats rather than new oats- The mistake was on the part of the defendant

Taylor v Johnson- The price as stipulated in the contract was much lower than what Johnson thought she was selling it for- Mr Taylor probably knew of Johnson's mistake but remained silent on the matter

Shogun Finance v HudsonHudson unknowingly bought a stolen vehicle from a crook who stole it from Shogun Finance.- Hudson's right to retain the vehicle depends on whether he can establish that the crook acquired possession of the vehicle under the written hire-purchase agreement between the finance company

Lewis v Averay

Petelin v Cullen


> Parties Face to Face- If one party is mistaken as to the identity of the other, it does not mean that there is no contract, or that the contract is a nullity and void from the beginning. It only means the contract is voidable or liable to be set aside at the instance of the mistaking person so long as he does so before third parties in good faith acquire rights (Lewis v Averay)

Mistakenly Signed Documents: Non Est Factum- It is not his deed, the rule is that if a person proves he or she signs a document without carelessly and believes it to be a document fundamentally different to what it was, (s)he is not bound by the signature. Non est factus is narrowly confined to protect innocent third parties who may have relied on the existence of a contract- The injustice of holding a person to a bargain to which he has not bought consenting mind must be weighed against the necessity of holding the person who signs a document to that document and to protect the innocent person who relies on that signature (Petelin v Cullen)- Defence is only available to those who are unable to read and must rely on others as to advice to what they have signed or those who are unable to have any understanding of the document. Furthermore there is a heavy onus on the defendant who seeks to establish the defence (Petelin v Cullen)- To make out the defence, the defendant must show that he signed the document in the belief it was radically different to what it was in fact and his failure to read and understand is not due to carelessness on his part (reasonable precautions in ascertaining a document before signing it)

Mistake in Recording Agreement- A contractual document could be rectified where one party mistakenly enters into a contract in writing which does not express her or his intention and the other party enters the contract knowing of the first party’s mistake (Thomas Bates v Wyndham)

- Rectification of a contract on the ground of unilateral mistake depends on (Leibler v Air New Zealand Ltd):1) A enters a contract under misapprehension of a particular provision2) B knows of the omission, and of A’s mistake 3) B lets A remain under misapprehension and concludes the agreement on the mistaken basis, where equity requires B to take steps to bring the mistake to A’s attention4) B would be precluded from relying upon A’s execution of the agreement to resist A’s claim for rectification to give effect to A’s intention

Petelin signed a document giving Cullen the option to purchase his property upon payment of $50, Cullen wanted an extension of that option so he drew up another document and paid Petelin another $50.- Petelin could not read English- When Petelin exercised the option, Petelin refused because he thought he was signing a mere receipt


Chapter 32 Misrepresentation

- During pre-contractual negotiations, statements may be made by a representor that induces a representee to enter into the contract. A statement may be a term of the contract or a collateral contract in which case the statement has contractual force, and a false statement can give rise to damages for breach of contract- If the statement does not acquire contractual status and proves to be false, the representee may obtain rescission of the contract on the basis of misrepresentation (TPA and Fair Trading Acts)

Misrepresentation of Fact- A representation must be a statement of existing fact, written or implied by conduct- No relief is available for mere puffs, statements of opinion or future intent- A statement of opinion may also be a statement of fact (Smith v Land & House)- Where the facts are equally well known to both parties, what one says to the other is nothing but an expression of opinion (Smith v Land & House)- But if the facts are not equally known to both sides, then a statement of opinion by one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion (Smith)- In a case breach of warranty, honest belief in the truth of the warranty is no defence, while it is a complete answer to a charge of false representation (Fitzpatrick v Michel)- If a statement is the honest expression of an opinion honestly entertained, it cannot be said that it involved any fraudulent misrepresentation of fact (Fitzpatrick v Michel)> Misrepresentation of Law- The same rights and consequences should flow from the making of a fraudulent misrepresentation of law and from the making of a fraudulent misrepresentation of fact (Public Trustee v Taylor)- Contrary to traditional belief that both parties have equal access to the law, it is unconscionable to permit a party to gain from a fraudalent misrepresentation of law. The representee should be entitled both to rescind a contract and resist the enforcement of it by specific performance (Public Trustee)

Positive Misrepresentation- Generally there is no duty of disclosure, one party cannot claim relief for failure of the other party disclosing material fact- Exceptions include a duty to disclose where a statement is literally true but gives rise to a false impression or when a statement is true when made but is later rendered false to a change of circumstances (Davies v London)- Where one party is in a better position to know the material facts, a duty of disclosure exists in respect of contracts uberrimae fidei such as a contract of insurance (but not contracts of guarantee) (Davies v London)- Unless a duty to disclose exists, a party may remain silent even in regards to facts which he believes would be operative upon the mind of the other, and the party who claims that there was a duty to disclose must show that the duty existed (Davies v

Smith v Land & HousePlaintiffs leased a hotel to Mr Fleck for 27.5 years on the representation that he was a desirable tenant.- In fact, Mr Fleck was in arrears at the time of sale- Plaintiffs argued they would not have agreed to lease but for the misrepresentation

Fitzpatrick v MichelPlaintiffs entered into a lease for a block of flats as an intermediary.- Defendant’s agent had misrepresented a unit in the block of flats had rented out for 6 guineas & 5 of the flats would bring no less than $6

Public Trustee v TaylorPlaintiff entered into a contract with defendant to sell property that was misrepresented to be subject to road widening.- Defendant refused to complete contract because he would


London)- If there be pre-existing relationship between the parties, such as that of agent and principal, solicitor and client, guardian and ward, trustee cestui que trust, implies a duty of entire disclosure (Davies v London)- Full disclosure is also imposed on fiduciaries (McKenzie v McDonald), and may also arise in unilateral mistake as to a fundamental term (Taylor v Johnson), and unconscionable dealing (CBA v Amadio)- The primary obligations of a fiduciary are to avoid a conflict of interest between the duty to the beneficiary and the interests of the fiduciary, and not to profit from the position of trust enjoyed by the fiduciary. If the fiduciary is entering into a contract with the beneficiary, a fusll diclousre of all material facts to the beneficiary will be demanded (Casebook)- An agent who occupies a s position of confidence towards the principle is not prevented from purchasing from his principal, but shall deal with him only afta a full disclosure of all he knows with respect to the subject (McKenzie v McDonald)

not have entered into the contract but for the misrepresentation

Davies v LondonEvans embezzled $$$ from an insurance company, later the arrest was withdrawn.- The plaintiff agreed to return the $$$, the defendant did not disclose the withdrawal of the arrest

McKenzie Plaintiff entered into an agreement to swap her farm for defendant's suburban property.- The defendant, the Plaintiff's agent, misrepresented the true value of her farm.- Defendant then sold farm for substantially higher than what he had acquireed it for- Plaintiff wants rescission and damages for deceit and negligence


Chapter 39 Rescission

- The purpose and effect of rescission is to restore the parties to the positions they occupied before the contract was made, the contract is set aside from the beginning (ab initio) and the parties restored to their original positions (restitutio in integrum)- Restitution is available to victims of the following vitiating factors: mistake, misrepresentation, breach of fiduciary duty, duress, undue influence, unconscionable dealing

- Common law allows precise restitution in cases of fraud, duress or total failure of consideration- Equity allows substantial restitution by appropriate orders and decrees (Alati v Kruger)- Equity also provides remedy for innocent representation and undue influence. Common law awards damages for fraudulent or negligent misrepresentations but not purely innocent misrepresentations. Equity cannot award damages for innocent misrepresentations but can grant rescission or award indemnity- Where one party has been induced to a contract by an innocent misrepresentation (Alati):(1) He might sue for damages for breach of the warranty(2) He might sue to recover as damages for fraud the difference between the price paid and the fair value(3) Provided that both parties may be restored to their original position, he might avoid the purchase and sue to recover his purchase money back, with interest and also with damages for any loss which he may have suffered through carrying on the business in the meantime- In common law, it might have been argued that at the date he was not entitled to rescind the purchase, because he was not then in a position to return to the appellant the thing that which he had received under the contract, in the same plight as that in which he had received it (Clarke v Dickson in Alati)- However, equity has always regarded as valid the dis-affirmance of contract induced by fraud even though precise restitution in integrum is not possible. By the exercise of its powers, including the power to take accounts of profits and to direct inquiries as to allowances proper to be made for deterioration, it can do what is practically just between the parties, and by so doing restore them substantially to the status quo (Eralanger v New Sombrero Phosphate Co in Alati)- Equity accounts for any benefit derived from the use of the property before rescission, and compensates for deterioration during the interval (Brown v Smitt)- Replacing them in a status quo does not involve replacing them in the same position in all respects, but only in respect of the rights and obligations created by the contract which is rescinded (Brown v Smitt)- A party in case of rescission, cannot ask the court to award him compensation for all collateral losses which he may have sustained by reason of the fact that he entered into the contract, such as losses incurred in carrying the business, but only such compensation as will restore the status quo ante in relation to the subject matter of the contract (Brown v Smitt)

> Equity recognizes the possibility of partial rescission (Vadasz v Pioneer Concrete)- Equity did not require complete restitution of the position which existed before the contract but allowed its remedies, particularly an order for monetary accounts, to be utilized to achieve practical restitution and justice (Alati v Kruger)- He who seeks equity must do equity (Vadasz)

Alati v KrugerPlaintiff was induced into buying fruit business that was warranted to make $100 a week and claimed rescission of the contract, the return of the purchase money and damages

Brown v SmittSmitt was induced into a contract to buy farm by false representations- The farm was not as good as described- Smitt sought to recover the purchase cost and balance of expenses incurred over income- Trial judge compensated Brown for losses incurred upon return of prop

Vadasz v Pioneer ConcretePioneer sued Vadasz on a guarantee for $357,427, representing the


- Unconscionability provides the justification for setting aside a transaction, not necessarily in its entirety, so as to prevent one party obtaining an unwarranted benefit at the expense of the other (Vadasz)- If it appears that the other party would not have entered into the contract at all if the true position were known, the contract would have been set aside in its entirety as in Amadio (Vadasz)

Bars to Rescission1) Contract for sale of goods is governed solely by the common law, thus equitable rescission for innocent misrepresentation does not apply (Watt v Westhoven)2) Contrary to prior rulings (Seddon’s case), in the absence of fraud contracts can be rescinded if they have been executed (Vimig v Contract Tooling)3) Rescission will be barred if the contract has been affirmed by the representee, however the election to affirm must be unequivocal and not because the representee was unaware of his right to rescind (Coastal v Melevende)4) Elapse of time may be relevant to the courts’ exercise of discretion (JAD International v International Trucks Australia)5) The right to rescission for misrepresentation may survive if the representation becomes a term of contract (Academy of Health and Fitness v Power)6) Intervention of third party rights may also bar rescission, although a monetary guarantee may then be granted7) A non-fraudulent representor may be protected by a contractual provision such as a no representations clause (Byers v Dorotea)8) Rescission will not usually take effect until the representee has notified the representor of the election to rescind (Car & Universal Finance v Caldwell)9) Rescission for misrepresentation may be claimed for a defence to an action of contract (Academy of Health v Power)

total indebtness of Vadipile.- Vadasz defended the claim on the basis that the guarantee was unenforceable because the agreement was to guarantee future indebtness and not past indebtness


Chapter 33 Misleading and Deceptive Conduct

Trade Practices Act 1974

> Part V Consumer protectionS51A – where a corporation makes a representation with respect to a future matter without reasonable grounds, the representation shall be taken to be misleading (or likely to misled), unless evidence can be adduced on the contraryS52 – a corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or likely to mislead or deceive (common law requires misrepresentation to have intent of inducing or misleading or deceiving – not required by TPA)

> Part VI Enforcement and remediesS75B – a person is defined as one who has aided, induced, knew directly or indirectly or conspired to the contravention of Part IVA, IVB, VS80 – the court may grand, rescind or vary an injunction restraining a person whether or not it appears the person will engage in the conduct again, has previously engaged in the conduct, or if imminent danger of substantial damage exists relating to the conductS82 – (1) a person who suffers loss or damage by the conduct may recover the amount of the loss of damage caused by the action against the person/s who was/were involved in the contravention S82 (1B) – if the claimant makes a claim in relation to economic loss or damage to property, and the loss was suffered partly as a result of the claimant’s failure to take reasonable care AND the defendant did not intend to or fraudulently cause the loss the damages may be reduced to the extend to which the court thinks just and equitable having regard to the claimant’s share in the responsibility for the loss or damageS82 (2) – action must be commenced within 6 years of the conductS87 – (1A) orders may compensate a person who has made the application, or prevent or reduce the damage suffered or likely to be suffered (the court may void the contract or modify the terms)S87 (2) – orders may:

(a) declare whole or part of a contract or a collateral arrangement to be void ab initio at any time on before or after a date as specified by the order

(b) vary a contract on before or after a date as specified by the order (ba) refusing to enforce any or all of the provisions of such a contract

(c) refund property or money (d) pay for loss or damage suffered(e) repair, provide parts for goods that have been supplied(f) supply specified services(g) vary or terminate and instrument creating or transferring an interest in land

S87AB – liability may be limited by occupational liability legislation S6 of the Act extends the Act’s application beyond corporations, to individuals (however the provision cannot apply to FS s51AF)S87AC – the commisison may intervene S87CA – a claim may be aportionable between concurrent wrongdoers (with the exception of an excluded concurrent wrongdoer who intended to or fraudulently caused the economic loss S87CC)


In Trade or Commerce Limitation- The reference to ‘in trade or commerce’ should be construed to refer only to conduct which is itself an aspect or element of activities which of their nature bear a trading or commercial character (Concrete Constructions v Nelson)- Internal communication by employees cannot constitute conduct ‘in trade or comm’- The statutory prohibitions to misleading conduct that induces a contract are not applicable in a non- commercial context (O’Brien v Smolonogov)- An arrangement which is private in character is not conduct in trade or commerce, unless done in the course of a business activity (O’Brien)- Facilities commonly employed in commercial transactions cannot transform a dealing which lacks any business character into something done in trade or commerce and thus falls outside of the scope of Division 5 TPA (O’Brien)- Statements made by a person not himself or herself engaged in trade or commerce may answer the statutory expression if they are designed to encourage other to invest or to continue investments in a partiuclar trading entity (Fasold v Roberts in Houghton v Arms)

The relevant audience- It is necessary to identify the effect of the misrepresentation on the audience to whom the conduct is directed (CSL v Nike)- Where representations are made to the public at large or to a sevction thereof such as prospective retail purchasers, the effect on reasonable memebers of the class is contemplated (Puxu in CSL v Nike)- No conduct can mislead or deceive unless the representee labours under some erroneous assumption, such as: worthy of credence, use of well known trade names, and the mere fact that a person selling goods has manufacturered them (CSL v Nike)- A company which does nothing more than pass on information supplied by another does not engage in misleading or deceptive conduct if it is clear from all the circumstances that the company is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing the information on “for what it is worth” (Yorke v Lucas in Butcher v Lachlan)- An agent is not liable because he had merely communicated the vendor’s representations without adopting or endorsing them, especially if (Butcher): 1) the purchasers are intelligent, self-reliant and had the means to seek expert advice2) the property was expensive and the purchasers had professional advisors3) it was sufficiently clear that the brochure was not produced by the agent, and4) a disclaimer existed to suggest the quality of the information is not guaranteedMisleading conduct- S52 is not limited to positive misrepresentations of fact, but also statements of law and specific sale puffs, however difficulties arise in its application to silence, opinions, predictions and promises > Silence- Silence would be misleading where there was a duty to disclose the relevant information (Henjo v Collins)- The reasonable expection of disclosure is a matter of context (EK Nominees v Woolworths) - Although generally it not necessary to show that the party intended to mislead the other party, silence must be deliberate if it is to contravene the section (Demagogure v Ramensky)

Concrete ConstructionsEmployee was injured due the misleading conduct of a fellow employee in the company

O’BrienRespondents purported to rescind the contract on grounds that they were induced by misleading statements found in an advertisement

Houghton v ArmsArms set up a web-based business in reliance on misreps by Houghton about extent of documentary obligations & made losses

CSL v NikeCSL sold a sports fragrance under the trade mark NIKE, displaying the product next to adidas perfumes- Nike alleged this was likely to mislead/ decieve the public into thinking the fragrance was related to Nike itself

Butcher v Lachlan- Butcher won an auction for a property planning to redevelop it based on a survey diagram in a brochure which was inaccurate- The brochure contained an exclusion clause


Chapter 34 Duress

- Categories of cases in which one of the parties enjoyed an ascendant position vis-à-vis the other party and abused that position by subjecting the other to threats (duress) or undue pressure (undue influence) or by taking advantage of the other’s special vulnerability (unconscionable dealing)‘Unfairness’ is concerned with the ‘procedural unfairness’ aspect of a contract rather than the ‘substantive unfairness’ in the contract itself

Basic Elements of Duress- The governing principles are the common law principles of duress and compulsion and the equitable principles of coercion; main remedy = rescission- Duress negates, vitiates, destroys consent and renders the victim’s actions non-voluntary; the victim’s will is so overborne that he or she cannot act as a free and independent party:1. A contract procured by duress is voidable not void 2. It is necessary to distinguish between legitimate and illegitmate pressure applied in the deflection of freedom- For duress to succeed there must be pressure of which the practical effect is compulsion or absence of choice for the victim (Universe Tankships v International Transport)- Compulsion is not the lack of will to submit but the victim’s intentional submission in the realisation there is no other practical choice available; a choice between two evils, e.g. harm inflicted on oneself or incurring an alternate loss (Universe v International)- For the argument of duress to succeed ‘the pressure (and the demand) must be one of a kind which the law does not regard as legitimate’; many acts in commerce and finance are done under pressure but not necessarily under duress (Barton v Armstrong in Universe)- If a pressuring action is unlawful, the argument of duress will succeed without the need to consider the nature of the demand which the pressure is applied to support. However, if the action is lawful, then the nature of the demand which the pressure is applied to support will need to be considered (Universe v International)- If the nature of the demand is unlawful, duress will succeed and vice-versa (Universe v International)

Duress and Coercion of the Person- ‘Duress’ as originally conceived, was narrow in scope. It was limited to threats of violence to the person or unlawful imprisonment. The onus of proof is on the party who exerted the duress to disprove that duress was a factor of the contract (Barton)- Equity provides relief not only where a promise or undertaking was induced by a threat of violence, but also by a threat of lawful prosecution of the promisor or his family (Barton v Armstrong)- Absence of choice does not negate consent in law when a person is under overwhelming pressure to make a decision, the pressure must be one of a kind which the law does not regard as legitimate (Barton v Armstrong)- Illegitimate means of persuasion must be found to be used, and it must be the

Universe TankshipThe ship owners acceded to demands by the ITF Union to get lift the ‘blacking’ and prevent the ship from being stranded in port- The ship owners claimed economic duress- ITF conceded but claimed immunity by the provisions of the Trade Union Act 1974

Barton v ArmstrongBarton entered into commercial agreement under threats of death- It was not established but for the threats he would have executed the deed


reason why the victim gave consent, for his argument of duress to succeed (Barton)- However it is not necessary for the victim to prove the illegitimate action was the sole reason for him entering into the contract, he only has to prove it contributed to him entering into the contract (Crescendo Management v Westpac Banking)

Chapter 35 Undue Influence

- As distinct from duress, undue influence contains no element of wrongful threat, rather a weaker party, by virtue of reliance on and confidence in a stronger party, suffers from impaired judgment as to her or his own best interests.- The main remedy available to victims of undue influence is rescission

Relationships of Influence- An important element in proving undue influence is one party’s ascendency over the other produced a relationship of influence; in such a circumstance there is a presumption that undue influence was exercised by the stronger party over the weaker- Equity deems certain relationships to be relationships of influence: parent child, guardian and ward, religious advisor and disciple, solicitor and client, doctor and patient- Fiduciary relationships not necessarily relationships of influence, although many are- However, if a relationship is not deemed to be one of influence, a party may still prove it to be by presenting evidence that he or she placed trust and confidence in the other, and relied on guidance by the other- If a relationship of influence is not proved, then the person seeking to avoid the contract has the burden of proving ‘actual’ undue influence- An antecedent relationship between the parties can lead to undue influence if there is found to be trust and confidence in the relationship to support a presumption (Barton v Armstrong)- In cases where the person seeking to avoid the contract is much weaker than the other, the onus of proof is on the other party to prove that the consent given by the first party was of free exercise of that person’s will (Johnson v Buttress)- There may be more emphasis on the limitations of one party to act with voluntary consent than on the pressure applied on the other (Johnson v Buttress)- Once a relationship of ascendency is established, the onus is on the ascendant party to demonstrate that they did not exercise undue influence (Johnson v Buttress)- For a presumption of undue influence to be raised, the party seeking relief must prove that the transaction was ‘manifestly disadvantageous’ to that party (National Westminster v Morgan)- In Australia, the view that there should be no such requirement is preferred (Blomley v Ryan)

Johnson v ButtressEasily influenced who was illiterate and unstable transferred property to Johnson so son argued that the man did not understand the transaction and the transfer should be set aside- The man and the son had a feud- Johnson was a friend who took care of Buttress and Buttress re-evaluated his will several times


Chapter 36 Unconscionable Dealing

Basic Elements and Background- Equity would intervene without proof of duress, coercion or actual undue influence, and without proof of a special relationship of influence giving rise to a presumption if one party has exploited or taken unconscientious advantage of the special disability of another- The court may give relief against contracts characterised by exorbitant terms entered into by impecunious, sick, weak-minded or inexperienced persons who lack the advantage of independent advice- Main remedy is rescission

Applications- The circumstances which place a person in a position of special disability, vulnerable to exploitation are many and varied including:1) Drunkeness and mental disorder – a person who is unable to appreciate the general nature of the transaction due to mental disabilities and drunkeness will be able to avoid the transaction provided the other party was aware of the or suspected the impaired mental capacity (Blomley v Ryan)2) Lack of knowledge and education (CBA v Amadio)3) Emotional dependence – atmosphere of crisis, deliberate manufacture, position of influence, manipulation (Louth v Diprose)

Unconscionable Dealing- The common characteristic of unconscionable dealing is that they have the effect of placing one party at a serious disadvantage vis-a-vis the other: (Blomley v Ryan in CBA v Amadio)1) one party to a transaction has a special disability so that there is an absence of any reasonable degree of equality between the parties2) the disability is sufficiently evident to the stronger party to make it prima facie unfair or unconscientious that he procure, or accept, the weaker party’s assent to the impugned transaction in the circumstances- A disabling condition is one where seriously affects the innocent party to make a judgment as to his own best interest, as the other party knows or ought to know of the existence of that condition and circumstance of its effects (CBA v Amadio)- Instead of having actual knowledge of the situation being aware of the possibility that the situation may exist, in the mind of the reasonable person is sufficient (CBA v Amadio)- Unconscionable conduct is distinguished from undue influence, in the latter the will of the innocent party is not independent or voluntary because it is overborne. In the former, the will of the innocent party is independent and voluntary but the result of his or her disadvantageous position and the other party unconscientiously taking advantage of that position (CBA v Amadio)

Amadio v CBAThe Amadio’s gave security over a property they owned to allows their son to increase the overdraft limit. Son asked for a guarantee for $50k for 6 months, however there were no such limits- Elderly, no formal education or English- Son was an important customer of the bank- Signature obtained by bank rep- Document was not discussed or explained


Chapter 37 Impropriety by Third Parties

Third-Party Situation- A victim of conduct which is recognised by the law as improper may obtain relief from a contract induced by such impropriety even though the impropriety emanated from a third party, the victim will often be the guarantor for the third party debtor- The two questions that arise are:1) Was there a vitiating factor in the relationship between the debtor and the guarantor such as misrepresentation, duress, undue influence and unconscionable dealing2) Did the creditor know of the impropriety or have reason to believe impropriety had occurred, and then relied on the debtor to obtain guarantor’s agreement to the transaction, was the debtor who committed the impropriety acting as the lender’s agent

Rule in Yerkey v Jones- If a married woman consent to become a surety of her husband’s debts is procured by the husband and without understanding its effects in essential respects, without dealing with the creditor personally, she has prima facie right to have it set aside- Principle also applies if the wife understood the transaction but if her consent was obtained by her husband’s undue influence- The wife must not benefit from the transaction- If the debtor is a company controlled by the husband in which the wife has no substantial interest, the principle still applies- The lender is obliged to take steps to ensure that it can reasonably believe that the consent of the guarantor was fairly obtained and adequately informed with the benefit of independent advice- The issues of social and economic equality as well as its application to other intimate relationships and the effect of Amadio is discussed in Garcia v NAB- The principle draws not on the subserviance inferior economic position of the woman and their vulnerability to exploitation in an emotional relationship but is based the trust and confidence between marriage partners (Garcia)- An explanation of a particular transaction may be imperfect, incomplete or wrong without bad faith, deception or imbalance of power between the parties (Garcia)- There are at least two kinds of circumstances:1) Undue influence applied by the debtor to secure the contract; in this situation explaining the effect of the document will not protect the creditor, “nothing but independent advice or relief from the ascendency of her husband over her judgement and will suffice” (Bank of NSW v Rogers in Garcia)2) A failure of the debtor to explain adequately and accurately the transaction, not concerned with imbalances of power but rather the lack of proper information about the purport and effect of the transaction (Garcia)- In the latter, it is sufficient if the creditor takes adequate steps to inform the guarantor and reasonably supposes that he or she has adequate comprehension of the obligations she is undertaking (Garcia)- Therefore the amount of reliance placed by the creditor upon the debtor for the purpose of informing the guarantor must be of great importance

Garcia v NABThe Appellant signed a guarantee of debts owed by her husband’s company, which he assured her to be risk proof. She did not understand that guarantee was secured by her all moneys mortgage- Fool v Expert- No benefit to bank- No unconscionability