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Contract Law Matters affecting Formation Privity Formalities

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1 Contract Law Matters affecting Formation Privity Formalities
Elements of Formation Offer Acceptance Intention Consideration Content: Terms Express Implied

2 Offer Expression to another of a willingness to be legally bound by the stated terms Australian Woollen Mills v Commonwealth Requirements Statement to offeror containing stated terms Statement is made to another person Offeror indicates a preparedness to be bound If requirements not met If requirements are met Bilateral “Under [bilateral contracts] each party undertakes to do/ref. From doing something and in the event that either fails to perform, the law provides other party a remedy Lord Diplock, United Dominions Trust v Eagle Aircraft Services Unilateral A uni. Contract involves an offer made by offeror to act/ref. Act if someone performs as requested. Offeree not bound to do so. Acceptance is also consideration Carlill v Carbolic Smoke Ball Company Mere Puff Test: RM How would RM interpret Ad. In position of offeree? Manufacturers Material Insurance v John Boardman Insurance Brokers Supply of Info Test: Categorisation Supplying information is not an offer. Harvey v Facey Invitation to treat Advertisement Test: (TOF) Language & circumstance Anything that states an intention to be legally bound is an offer RE Mt Tomah Blue Metals Display of Goods No test. Does not constitute an offer Taking goods to counter is Fisher v Bell Advertisement for Auction Not an offer Harris v Nickerson Auctions w/reserve Payne v Cave Special issues Tickets for transport Exemption/exclusion clauses only incorporated before formation Options Revokable at any time unless consideration is provided to keep open Standing offers Indication of willingness of one party to provide goods/services over a specified period May be revoked at any time before acceptance Great Northern Railway v Whitham Ambiguous Prior to carriage Prominent notices can be incorporated See incorporation of terms Machine Offer is machine ready to accept $ Acceptance is placing in $ Terms cannot be introduced after this point except where reasonable time to view terms before carriage. Thornton v Shoe Lane Parking Tender Usually invitation to treat EXCEPT: Offer when highest bid accepted Harvela Investments v Royal Trust Company of Canada Must consider all tenders Hughes Aircraft Systems International v Air Services Australia Auctions without reserve Early English – offer Warlow v Harrison OR each bid represents an offer that can be accepted or rejected by auctioneer AGC Advances v McWhirter

3 Termination Withdrawal by Offeror
Can be withdrawn at any time before acceptance Goldsbrough Mort & Co v Quinn There needs to be actual communication to offeree Bryne & Co v Leon Van Tien Hoven & Co Communication by reliable source other than offeror or agent acceptable Dickinson v Dodds Rejection by Offeree Rejection = termination Stevenson Jacques & Co v McLean Must be communicated to offeror If offeree responds with new terms = counter offer Hyde v Wrench Death Death of offeror Offer cannot be accepted after death Exception: Property which can be completed by deceased estate Dickinson v Dodds Death of Offeree If offeree dies, no offer. Exception: Sale of property Reynolds v Atherton Lapse of Time Once time limit expires, offer unable to be accepted When not stated, time is set to reasonable Manchester Diocesan Council for Education v Commercial & General Investments Options If offer involved personal services, option will not enforce offer Property may apply: If conditional contract – enforceable If irrevocable offer - unenforceable Unilateral Contracts Cannot withdraw offer once acceptance commenced Abbott v Lance Offers to World at Large Less than actual communication acceptable Use same medium to withdraw offer Shuey v United States Failure of condition If offeree fails to comply with condition of conditional offer, it is terminated Financings v Stimson

4 Acceptance Agreements is formed once an offer is accepted Requirements
Offeree must intend to accept terms of offer Intention must be communicated to the offeror (Consensus Ad Idem) Acceptance in Unilateral Contract See notes pp. 09 Acceptance must correspond to offer Notification of Acceptance Offeree must have knowledge and act in reliance on offer Crown v Clarke Method of acceptance Postal Acceptance Rule Where circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary uses of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted. Lord Hershell, Henthorn v Fraser Method of acceptance stipulated by offeror Offeror can stipulate how communication is affected If accepted in manner more advantageous to offeror – offer valid Tinn v Hoffman & Co Acceptance must be unqualified If ‘subject to’ exists, TOI to determine whether acceptance is unqualfied Masters v Cameron Method for benefit of offeree If method is for offerees benefit, they may chose to accept in another method Manchester Diocesan Council for Education v Commercial & General Investments Exceptions Contract formed when letter is posted Adams v Linsell Some argument about precisely when this takes place Powel v Lee Counter offer is not acceptance Hyde v Wrench Exceptions Multiple methods Prescribed method may not be only effective method on construction of terms Acceptance couched in different language may be acceptable (IE different forms) If takes longer than usual to reach, risk is upon offeror Household Fire and Carriage Insurance v Grant Conduct may constitute acceptance Empirnall Holdings v Mark Machon Paull Partners Agreement not prevented if offeree seeks concession for performance before formation Instantaneous Communication Contract will be formed when acceptance of the offer is communicated to the offeror. The contract is formed when and where the offeror receives that communication. Entores L D v Miles Far East Corporation Request for alternate mode of acceptance not prevent contract formation Clive v Beaumont Displacement of Rule Can be displaced by offeror stipulating in contract that acceptance is not affected until actual receipt Revocation prior to acceptance Contract is formed even if offer is notified of rejection before receipt of acceptance Nunin Holdings v Tullamarine Estates If offerees conduct more favourable than terms of offer, agreement exists Ex Parte Fealey Multiple technologies A offeree can use multiple technologies to accept an offer Express Airways v Port Augusta Air Services Mere inquiry not acceptance Stevenson Jacques & Co v McLean

5 Ambiguity and Uncertainty
Ambiguous, Uncertain or Meaningless Contracts Incomplete Agreement Agreements to Negotiate Individual Terms Agreement contains mechanism to complete If the parties do not finalise all the terms of the agreement but provide a mechanism for doing so, the agreement may be enforceable. Vague, ambiguous and uncertain terms are void Meaningless clauses = uncertain clauses Fitzgerald v Masters Court will try to uphold an agreement where parties show intention to be bound Lend Lease Financial Planning v Southcap If parties to agree on terms at later time, not enforceable – Agreement to agree. Booker Industries v Wilson Parking If terms are sufficiently certain and consideration is provided, may be enforceable Coal Cliff Collieries v Sijehama Reference to 3rd party even essential terms may be decided by 3rd party Godecke v Kinwan Method of increasing certainty – ref. 3rd party Saving Ambiguous, Uncertain or Meaningless Contracts Breakdown of mechanism to complete Court will not substitute its own view if mechanism to complete fails Milnes v Gery Saving Incomplete Agreements Link to external standard Uncertain clause may be enforceable if referenced to an external standard Hawthorn Football Club v Harding Implication of Terms Courts have shown a willingness to imply terms Hillas & Co v Arcos Breakdown RE Sales of Goods If price is determined by third parties, governed under sales of goods act (1896) s.12(1) If prevented from making decision by party, the other may sue for damages s.12(2) If goods have been delivered and appropriated, they must pay for them ss.12(1a) More likely when willing to be bound Hillas & Co v Arcos Link to reasonableness standard Courts will apply principle of reasonable ness (RM) to make terms certain More likely when contract partially executed Hall v Busst No agreement on price, parties and subject matter no implication Hall v Busst Severance Invalid term may be severed from contract and the remainder is enforceable Fitzgerald v Masters Sale of Goods More likely to imply Will imply reasonable price if contract is silent Foley v Classique Coaches Likely to uphold agreement in future Likely to infer price if contract makes reference to payment at reasonable price Divisible Obligations If uncertainty arises in one area due to multiple types of obligations, it can be severed and save the contract Life Insurance Company of Australia v Phillips Sale of Land Will not imply price Likely to uphold future agreement Not likely to imply price when contract refers to reasonable price. (except rent, which they may determine via their own mechanism). Also applies to unique goods. Waiver of Removal of Uncertainty If clause is entered into for sole benefit of one party, it may be waived and contract saved If uncertainty removed before commencement, specific performance may be granted MacAulay v Greater Paramount Theatres

6 ‘Subject to’ Agreements
Subject to Finance Subject to Contract Intention of parties can fall into three categories Test: Test of intentions. Language & conduct taken into account Masters v Cameron Contracts for sale of land may include a clause stating that the contract is subject to the ‘purchaser receiving approval for finance on satisfactory terms and conditions.’ TEST: Likely to use objective RM test Parties have finalised all terms and intend to be immediately bound to perform those terms but propose to have the same terms restated in a form that is fuller or more precise but no different in effect Issues Satisfactory finance A clause inserted for the benefit of the purchaser that allows the purchaser alone to determine what is satisfactory is not uncertain, however, the purchaser is required to act honestly. Meehan v Jones BINDING Branca v Corbarro 2. The parties have completely agreed upon all terms and intend no departure from or addition to those terms, but have made performance of one or more of the terms conditional upon the execution of a formal document. Steps taken to obtain finance Finance clauses impose obligation on the purchaser to take all steps reasonably necessary to obtain finance approval. Meehan v Jones BINDING Niesmann v Collingridge (1921) 3. The intention of the parties is NOT to make a concluded bargain at all, unless and until they execute a formal contract NOT BINDING Masters v Cameron

7 Intention to create legal relations
Agreement Intention Test: A common intention of the parties to enter into legal obligations, mutually communicated, expressly or impliedly. Rose and Frank Co v JR Crompton & Bros Test: Merritt v Merritt Domestic/Social Government Activities Commercial Presumption: No legal force Balfour v Balfour Easily Rebutted: Legal force Merritt v Merritt Presumption is binding: Requires more formality Cogee Esplanade Surf Motel v Commonwealth of Australia Policy Commercial Agreement Considerations Seriousness of conduct Relative Expense of conduct Hostility in relations Closeness of ties Nature of agreement Not Binding Australian Woolen Mills v The Commonwealth Annoucements of policy are not unilateral offers and policy while important, is not common in nature Hard to rebut Strong presumption of legal force Specific tone Is it in a business context? Esso Petroleum v Commissioners of Customs and Excise

8 Consideration (General)
Consideration is ‘An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.’ Lord Dunedin, Dunlop Pneumatic Tyre Company Ltd v Selfridge & Company Ltd [1915] Consideration in Bilateral Contracts Offers to the world at large Form of Unilateral Contract Carlill v Carbolic Smoke Ball Company Consideration in Unilateral Contracts At the time of the agreement each party makes a promise. The price paid for that promise – the consideration – is the other party’s promise. Each party promises to do an act or refrain from doing an act. Diplock LJ, United Dominions Trust (Commerical) v Eagle Aircraft Services) It is the absence of an obligation undertaken by the promisee that distinguishes a unilateral contract from a bilateral contract. The act or forbearance itself – rather than a promise—constitutes the consideration. Diplock LJ, United Dominions Trust (Commerical) v Eagle Aircraft Services) Executory Consideration the obligation to perform has not yet fallen due. (Bilateral contracts) Executed Consideration If B chooses to and does perform the specified acts, consideration is said to be executed. (Unilateral contracts)

9 Consideration (Rules)
Consideration is ‘An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.’ Lord Dunedin, Dunlop Pneumatic Tyre Company Ltd v Selfridge & Company Ltd [1915] Rules of Consideration Special Considerations Consideration must move from promisee Dunlop Pneumatic Tyre Company v Selfridge & Company Ltd Moral consideration not sufficient Eastwood v Kenyon Forbearance to sue Settlements between parties likely to be upheld Whether parties would win/lose not relevant Not all compromises may be considered consideration Join promisees – Consideration need only come from one promisee Coulls v Bagot’s Executor and Trustee Company Does not have to move to promisor Dunlop Pneumatic Tyre Company v Selfridge & Company Ltd Peformance of existing duties is not sufficient consideration Wigan v Edwards Does not apply when promise is to do more than originally contracted to do Hartley v Ponsonby Requirements Parties must act in good faith Must have honest belief claim would be successful Must be a genuine dispute Wigan v Edwards Claim must not be vexatious or frivolous Hercules Motors v Schubert Courts may find original contract abandoned and new one formed Hartley v Ponsonby Promisee may be party to a contract (doctrine of privity) but may not be able to sue on the promise if no consideration given Tweedle v Atkinson Promisory estoppel may prevent promisor reneging on subsequent promise Performance of public duties Performance of an act required by law is not sufficent Glasbook Brothers v Glamorgan County Council This may be changing Ward v Byham 2. Consideration must be bargained for The act/forbearance must be in reliance of the promise (at request of promisor) Australian Woolen Mills v The Commonwealth Promise made to a third party ‘An agreement to do an act which the promisor is under an existing obligation to a third party to do, may quite well amount to valid consideration and does so in the present case: the promisee obtains a benefit of a direct obligation which he can enforce.’ New Zealand Shipping Co v A M Satterthwaite & Co; Port Jackson Stevedoring v Samond & Spraggon (Aust) 3. Consideration must be sufficient Rules or special considerations allow for consideration Rules or special considerations don’t allow for consideration Must be ‘something of value in eyes of the law Thomas v Thomas May be valid although no monetary equivalent Chappell & Co v Nestle Consideration needs not be adequate Woolworths v Kelly Consideration can be nominal Lennox v Cameron Part Payment of Debt Rule in Pinnel’s Case:If an amount of money is owing by a debtor to a creditor, and those parties enter into a subsequent agreement that the creditor will accept a lesser amount in full satisfaction of the amount owing, the later agreement will generally not be binding. Consideration exists Consideration doesn’t exist 4. Consideration must not be past Consideration will be regarded as past if it has already flowed from promisee to promisor Roscorla v Thomas If work was done on the assumption that there was a promise to pay it may be sufficient. (see further on) Distinct from executed/executory consideration (see pp. 149 text) 5. Exceptions: Parties enter into a deed Accomodation for benefit of creditor Amount owing is disputed (HBF Dalgety v Moreton) Payment by 3rd party (Hirachand Punamchand v Temple) Composition with creditors

10 Equitable Estoppel REQUIRES unconscionable conduct by one party
Waltons Stores (Interstate) v Maher Unambiguous expectation by A Legione v Hately Encouraged/Induced by B Mere Hope provides no equity Lorimer v State Bank of New South Wales Normative Chellaram & Co v China Ocean Shipping Co Silence Thompson V Palmer Unauthorised representation Corpers (No. 664) v NZI Securities Australia Action or abstainment by A Reasonableness Waltons Stores (Interstate) v Maher Plaintiffs characteristics Ausotel v Franklins Self-Serve A suffers detriment (material disadvantage) Thompson v Palmer Knowledge/Intent of B B Fails to avoid detriment (ie. Disabuse A pre-detriment) Lorimer v State Bank of New South Wales ‘Minimum equity to do justice’ Waltons Stores (Interstate) v Maher Must be: Proportionate to the unconsciobility Reliance rather than expectation (Cth v Verwayen) Prima facie entitlement for expectation unless proved to great Giumelli v Giumelli

11 Privity of Contract Contract affect a 3rd party (benefits only)
Wilson v Darling Island Stevedoring Company Common law Collateral Contract Promise by/to 3rd part contract Restraint of Trade Clubs affect members Torts 3rd Party can sue for a negligent breach of a duty of care Use of Land People with an interest in the land can enforce benefits like repair/maintenance or limits to usage Tulk v Moxhay Exceptions Statutory Exemption Exceptions at Common Law Trade Practices Act Misleading/deceptive conduct Property Law Act 1974, ss. 55 Consideration moves as normal 3rd party benefit Beneficiary must accept Beneficiary must be named/described Re Burns Philip Trustees; Rob & Jones (363 Adelaide Street) v 1st Abbot Corp Consistent actions not sufficient Re Davies Anticipatory acceptance may suffice Hyatt AustraliaLtd LTCB Australia Ltd Agency Test: Intention 3rd party gets equitable interest in the contract Trust Test: Intention 3rd party gets equitable interest in the contract. Insurance Contracts Act 1984 Beneficiaries can recover Only general insurance Equity 3rd party must act in contemplation See Equitable Estoppel Unjust Enrichment

12 Formalities 1 Guarantees Property Law Act 1974 ss. .56
Rule: Contracts of guarantee are unless written and signed Definition: A contract to answer for a debt, default or miscarriage by another who is primarily liable to the promise Yeoman Credit v Latter Debtor can pay Non-guarantee Requirements Name of parties Terms of guarantee Consideration for guarantee Guarantors liability is secondary Yeoman Credit v Latter Contracts of indemnity Identifies liability is primary Yeoman Credit v Latter No personal liability Harvery v Edwards Dunlop Acceptance of debt Gray v Pearson Letters of Comfort Dependant on intention to create legal relations Promise made to debtor Eastwood v Kenyon

13 Formalities 2 Contracts relating to land Land Deals must be written
ss. 59 Property Law Act The following needs to be contained in this type of contract Contains party ID Williams v Brynes Contains property ID South Coast Oils v Look Enterprises Consideration ID Wain v Walters Principle terms disclosed Not always fatal to plaintiff Petrie v Jensen If part of a lot, portion must be described Rosser v Austal Wine & Spirit Co. Freeholds – no need to describe lease Timmins v Moorland Street Property Co Contract Requires acknowledgement of agreement – Pirie v Saunders Express or implied acknowledgement Requires signature – Handwritten if intended to authenticate – Purrell v Evans Authority need not be expressed – Nowraniv Brown Electronic sig. – ss. 56, 59 & 14 Electronic Transactions Bill 2001 Joinder Multiple document joined to form A single memo where one expressly/ Impliedly refers to others Timmins v Moreland Property Co. Direct reference – Tonitto v Bassal Physical connection – McEwan v Dynon Reference to transaction – Fauzi Elias v George Sachely & Co (Barbados) Compliance Non-Compliance Equity – Estoppel of reliance on written contract Walton Stores v Maher Part Performance Act points to agreement as alleged Regent v Millet Acts don in reliance & with knowledge Acts done by parties seeking to enforce contract Agreement concluded though not in writing McBride v Sandland; Cooney v Burns Unenforceable Gray V Ellis Valid to pass title Watson v Royal Permanent Business Society Constructive Trust Protect parties with interest In land. IE De-facto couples. Baumgartner v Baumgartner Recover amount paid – deposit under monies had and received Freedom v AHR Constructions

14 Incorporation by Notice
Written Terms Incorporation by Signature (pp. 24) Incorporation by Notice (pp. 25) Incorporation by reference (pp. 26) Assumed to be bound regardless of awareness/understanding of terms L’Estrange v F Graucob Ltd Unsigned document (pp. 25) Sign (pp ) Website (pp. 26) Terms can be incorporated by reference to another document Smith v New South Wales Switchgear Co Notice given before formation Olly v Marlborough Court Reasonable Person (Onus on Defendant to prove) Parker v South Eastern Railway Co. Traditional principles relevant Exceptions (pp. 24) Yes – Possible Incorporation Reasonable Person (Onus on defendant to prove) Theoretically Test: Reasonable Man inc. circumstances Not contractual Signature does not signify assent L’Estrange v F Graucob Ltd Reasonable Person (Onus on defendant to prove) Balmain New Ferry Company v Robertson No extra steps taken – NOT INCORP. Notice sufficient (IE Doc. inc. terms) Reasonable steps taken by defendant to inform plaintiff: TEST OF FACT Yes: Incorp. No: Not incorp. Reasonable Man Parker v South Eastern Railway Co. Notice sufficient Misrepresentation of effect of clause Curtis v Chemical Cleaning & Dyeing Co Incorporation Incorporation Pass: Term Incorporated Notice insufficient (IE: No doc. inc. terms) Notice insufficient Fail: Term not incorporated No incorporation No incorporation Non Est Factum DJ Hill & Co v Walter H Wright No – No incorporation Contractual Assumed to be bound by terms Mendelssohn v Normand Document not believed contractual in nature Curtis v Chemical Cleaning & Dyeing Co Exception: Unusual terms for contract Test: Reasonable Man (Parker v South Eastern Railway Co.

15 Oral Terms (Terms 1 & 2) Mere Puff Term Representation
Collateral Contract No common law remedy Trade Practices Act may provide one Test: Test of intention Oscar Chess v Williams Words or conduct of partiesHarling v Eddy Knowledge & expertise of statement maker Oscar Chess v Williams 4. Statement maker has control of info Hospital products v US Surgical Oral statement not reduced to writing Routledge v McKay Interval of time Routledge v McKay Criteria Savage v Blackney Intention to be relied upon Reliance upon term Intention to guarantee truth of statement Must preclude main contract Hercules Motors Must be consistent with main contract Hoyts v Spencer If a rep. If a term 1. Consider parol evidence rule (Doesn’t apply to part oral/written) 2. Objective test of intention Possible damages for innocent misrepresentation Possible brach of Trade Practices Act Conditions met? Condition Test of Essentiality Associated Newspapers & Bancks (pp. 34) Intermittent Term Intention of parties Consequences of Breach (Was party deprived of contract) Warranty Subsidiary to main purpose Bettini v Grye Yes No Remedy to sue for breach of collateral contract (not main contract) No remedy to sue for breach of collateral contract Major breach Minor breach Terminate and/or damages Damages only

16 Implied Terms #1 – Presumed intention of parties
Business efficacy Custom or Usage Whether the implication of term is necessary to give business efficacy to the transaction Test of Fact Term is known and acquiesced to. Everyone assumes it part of contract. Consistent with express terms Five Tier Test BP Refinery (Westernport) v Shire of Hastings reasonable and equitable Necessary to give business efficacy to contract Interpreted strictly Must be so obvious that it goes without saying Must be capable of clear expression Must not contradict any express term in contract Knowledge of implied term not required Not likely to be implied cf. other grounds Parol evidence rule N/A Parol evidence rule won’t apply Mason J To Complete Agreement More formal, less chance of implication When all terms are not finalised, terms may be implied to complete agreement Hillas & Co v Arcos Previous consistent course of dealings Applicability of parol evidence rule: Uncertain Reasonable to hold parties contracted based on & knowledge that terms in previous contracts Henry Kendal & Sons v William Lillico & Sons Test: Reasonable man Have parties virtually assented to terms Must not expressly have inconsistent terms Relevant terms are part of prev agreements Evidence of previous consistent dealings (Consider both # and consistency) Parties need actual knowledge of the terms Lord Devlin, McCuthcheon v David Macbrayne Not in writing thus parol evidence rule N/A Henry Kendall & Sons v William Lillico & Sons

17 Implied Terms #2 – Terms implied regardless of intent
Class of contract Good faith, fair dealing and reasonableness Courts will imply terms based on policy grounds Australis Media Holdings v Telstra Corporation Duty to act in good faith etc. in ALL contracts not fully settled issue in Australia Test: Policy Decision Categories where terms will be implied Goods & services Must fit purpose for which they were supplied Sammuels v Davis Professional services Reasonable care must be taken Greaves & Co (Contractors) v Baynham Employment Safe place of work Inform employees of rights in particular period Scally v Southern Health and Social Services Board Building Fit for habitation conduct professional and workmanlike Perry v Sharon Developments Co Franchise agreements Good faith and fair dealing Far Horizons v McDonald’s Australia Yes, it exists: Renard Constructions (ME) v Minister for Public Works Parol evidence rule: N/A Duty of Cooperation Parties must do all things necessary to ensure parties have benefit of contract Applied to ALL contracts, regardless of necessity Butt v McDonald Parol evidence rule N/A Statute Test: Reference to specific terms and overall substance of contract RDJ International v Preformed Line Products (Australia) To find: Common intention of parties Extent to which the duty of cooperation will require action Statutory implication of terms in contracts Provision of consumer credit Consumer Credit Code 1994 Sale of Goods/Services (pp. 266 for detail) Sale of Goods Act 1894 Hire Purchase Hire Purchase Act 1959 Insurance Insurance Contracts Act 1984

18 Parol Evidence Rule General Rule: Parol evidence rule will prevent an oral term from being introduced when a contract is brought down to writing Application: Applies to contract solely in writing Gordon v MacGregor Only when the parties intend written document to represent the entire agreement Express clause stating above is not necessarily enough to exclude oral terms (See construction of terms) Hope v RCA Photophone of Australia Does the Parol Evidence Rule apply? No Exceptions: Evidence of collateral contract De Lassalle v Guilford Written contract not yet in force Pym v Campbell Written contract later varied or discharged Narich v Commissioner of Payroll Tax Implied terms available (see implied terms) Evidence is needed for rectification NSW Medical Defence Union v Transport Industries Insurance Co Yes Do exceptions Apply? No Yes Extrinsic evidence is not permitted Extrinsic evidence is permitted

19 Interpreting the meaning of Terms
General Rules TWO THINGS MUST BE DONE Ascertain the meaning of words Determine the legal effects of the words REMEMBER: Documents constructed as a whole Court will attempt as far as possible to give effect to a bargain Hillas & Co v Arcos Tests are made objectively through the eyes of the Reasonable Man Admissible Evidence Parol Evidence Rule The objective of the rule is to preserve the sanctity of the written document and to avoid the process of construction being muddled by ‘uncertain testimony of slippery memory’. ONLY applies to fully written contracts – extrinsic eviddence permissible to aid interpretations in other circumstances Factual Matrix When construing a document the court must place itself in the ‘same factual matrix as that in which the parties were.’ Reardon Smith Line v Yengvar Hansen Tangen Exceptions Court make take into account surrounding circumstances. Allen v Carbone Surrounding circumstance must have been known to BOTH parties. Notorious, court may presume knowledge Codelfa Construction v State Rail Authority of New South Wales Ambiguity Extrinsic evidence may be used to resolve ambiguities Inadmissible Evidence Identification of Subject Matter Extrinsic evidence admissible to resolve abiguity White v Australian and New Zealand Theatres Evidence of subjective intentions Because its an objective test Life Insurance Company of Australia v Phillips Identification of parties Extrinsic evidence abmissible to resolve ambiguity about identity, relationship or capacity Edwards v Edwards Prior negotiations Because its not useful Prenn v Simmonds In commercial contracts, purpose of the contract should be considered Reardon Smith Line v Yengvar Hanse-Tangen Identification of real consideration Extrinsic evidence admissible where: No consideration is expressed Is expressed ambiguously or generally Additional consideration exists with stated consideration (must not be inconsistent with stated) Yaroomba Beach Development Co v Coeur De Lion Investments Subsequent Conduct People may tailor their post-contract behaviour to reflect the case they believe they may have to present in court Kirby J, Hide & Skin trading v Oceanic Meat Traders Suggested that surrounding evidence should only be used if language is ambiguous or capable of multiple meanings and cannot be used to contradict language that is plain Mason J, Codelfa Construction v State Rail Authority of New South Wales Custom or Usage Extrinsic evidence may be used where language has different contextual meanings even though the wording itself is not ambiguous Thornley v Tilley Rectification Extrinsic evidence may be used to show parties intentions were not properly recorded Bacchus Marsh Concentrated Milk Co v Joseph Nathan & Co

20 Legal effect of words – types of terms
Other Clauses Definition clauses – not capable of breach Promissory Terms Contingencies see Oral Terms Duty of Good Faith Extent of breach determined by classification of term A contingency is when the parties wish to make a provision for the existence or the continued operation of the contract, or of an obligation in the contract, conditional upon the occurrence or non-occurrence of an event. Courts interpret contingencies as requiring a election to terminate by one or both parties Grange v Sullivan Best Endeavours Test: Reasonable cons. Circumstances Mason J, Transfield v Arlo International Does not require party to go beyond the bounds of reason Sheffield District Railway v Great Central Railway Co Entire Contract Clause Excludes extraneous terms and non-fraudulent representations at common law Life Insurance Co of Australia v Phillips Does not prevent introduction of extrinsic evidence for purpose of rectification MacDonald v Shinko Australia Condition Precedent an event that must occur before a contract comes into existence or an obligation under the contract arises. If the event fails to occur, there will either be no contract or the obligation will not arise. Condition Subsequent an event whose occurrence may give rise to a right to terminate further performance of the contract Agreed Damages Clause Provides for payment of an amount that is a genuine pre-estimate of the loss resulting from any breach. Validity of such clauses is governed by the law related to penalties. Where the contingency is for the benefit of one of the parties, it may be waived by that party, with the effect that the other party is unable to rely on the non-occurrence of the event as terminating the contract. Perri v Coolangatta Investments Pty Ltd (1982) Termination Clause Confers a contractual right to terminate the contract for breach. Force Majeure Clause Disposition of a contract in the event of circumstances beyond the control of the parties Restraint on Trade Generally void unless proven reasonable Generally the party for whose benefit the condition subsequent was inserted will be the party who has the right to terminate on non-occurrence. Dispute Resolution Clause Failure to comply may give rise to injunctions or damages CSR v Cigna Insurance; The Jay Bola Law of contract Parties can chose jurisdiction contract governed under Merwin Pastoral Co v Moopla Pastoral Co If not stated, presumed intention of parties Moonlighting International v International Lighting

21 Exemption Clauses ‘Interpretation of an exemption clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears, including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in the case of ambiguity.’ Darlington Futures Ltd v Delco Australia PtyLtd (1986) Exclusion of Negligence An exemption clause will relieve a party of liability for his/her negligence, or that of his/her servants or agents, if it expressly or impliedly covers such liability. Will cover such liability if there can be no ground of liability other than negligence to which it could refer. Canada Steamship Lines Ltd v The King [1952] an express exemption of liability for negligence must be given effect and is sufficient to exclude liability where there is no express reference to negligence, the court must decide whether the ordinary meaning of the words used in the clause are wide enough to exclude negligence. Statute The extent of protection offered by an exemption clause may reflect the degree of inequality of bargaining power between the parties. At common law, the court has no absolving power and cannot refuse to enforce a valid exemption clause even where it operates unreasonably. This position has been altered by two statutes: ·         Contracts Review Act 1980 (NSW) ·         Trade Practices Act 1974 (Cth) Must determine Whether clause forms part of contract Whether on construction it covers the arisen liability Rules Contra-preferentum rule An exemption clause will be ordinarily construed strictly against the preferens – the party for whose benefit it is inserted. Eimco Corporation v Tutt Bryant Ltd [1970] Rules of excluding negligence Must pass contra preferentum rule If language covers multiple heads of liability and negligence, negligence is excluded – word negligence or syn. Must be used Smith v NSW Swtichgear Four Corners Rule An exemption clause will only operate to exclude liability arising within the ‘four corners’ of the contract. A proferens can only rely on conditions that were intended to protect him/her if he/she carried out the contract in the way he/she had contract to do it. It will NOT be effective where the proferens acts in a way ‘quite alien to the contract’.[1] Davis v Pierce Parking Station Pty Ltd An exemption clause will NOT apply where the loss or damage results from conduct that is not authorised or permitted by the contract The Council of the City of Sydney v West If all tests pass, Exemption clause will operate If any test fails, Exemption clause WILL NOT operate

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