Contract Law PDF

Contracts Definition: a legally enforceable agreement between 2 or more persons or corporate entities/parties - When a contract is made, the parties are legally obliged to honour promises contained in the contract - They keep their promises by fulfilling their commitments voluntarily...

Contracts Definition: a legally enforceable agreement between 2 or more persons or corporate entities/parties - When a contract is made, the parties are legally obliged to honour promises contained in the contract - They keep their promises by fulfilling their commitments voluntarily - When a contract is made, it creates legally enforceable rights and duties - If someone doesn’t meet the obligations they are in breach of the contract. They can be brought before a court, and if the case against them is proved, they can be ordered pay for any losses caused, or, in some circumstances, be required to fulfil their promises as originally agreed Importance of contracts: - There are legally enforceable commitments - Allows business to plan Not every agreement is a contract! Many agreements are not legally enforceable (eg. social agreements between friends or domestic agreements between family members. It is the enforceability of agreements at law that distinguishes contracts from these other ‘non-contractual’ agreements. The importance of enforceable agreements - When people enter into legally enforceable agreements, they are likely to carry out their promises because it is usually better to perform voluntarily than to be taken to the court for breach of contract - They are useful when doing business with people you are unfamiliar with and whom you have no other relationship that might encourage them to keep their promise - They are important when agreements involve carrying out promises over time (leasing premises or hiring employees) or when promises are to be carried out in the future (when goods and services are to be delivered) - WHETHER A CONTRACT HAS BEEN FORMED IS DETERMINED ON AN OBJECTIVE BASIS (not just based on what the parties personally intended) - When determining if the parties intended to create a legally binding agreement, we consider whether a reasonable person would believe, based on the parties’ actions and words, that they intended to be legally bound - Therefore, even if someone didn’t personally mean to create a contract, they might still be bound by it if their actions and words suggest otherwise Carlill v Carbolic Smoke Ball Co (1893): Carlill was entitled to the 100 pounds as there was sufficient evidence that the promise was meant to be contractually binding. Carbolic Smoke Ball Co stated that they had deposited 1000 pounds for the purpose of making the promised statement Agreements between family members are normally inferred to not be legally binding  - Balfour v Balfour: Mrs Balfour was unsuccessful in her action against Mr Balfour to enforce the promise to pay maintenance as the agreement was not legally enforceable because in these circumstances it could not be inferred that the couple at the time meant for the agreement to be legally enforceable. - Cohen v Cohen: The promise to pay a dress allowance was not intended to create a legally enforceable agreement as the parties did no more than discuss and concur in a proposal for the regular allowance to the wife of a sum which they considered appropriate to their circumstances at the time of marriage. For there to be a legally binding agreement between family members, additional circumstances must be proven which indicate the necessary intention. Agreement between friends are not generally inferred as legally binding. The same inference exists in the case of agreements to provide volunteer or charitable services. But depending on the facts there may be additional circumstances from which an intention to be legally bound can be inferred. - Ermogenous v Greek Orthodox Community of SA Inc (2002): the agreement was entitled to be legally binded as an agreement with a minister of religion does not in itself mean the agreement is not intended to be legally binding if other circumstances indicate otherwise, such as when an incorporated non-religious body makes the agreement and provides monetary and economic benefits to the minister Agreement reached in a commercial context will usually be inferred that the parties intend to be legally bound. If a party wishes to argue that the agreement was not legally binding, they must convince the court by proving facts to establish this (ie by showing that the agreement was intended to rely only on feelings of honour or friendship) - Esso Petroleum Co Ltd v Commissioners of Customs and Excise (1976): The issue was whether this free gift of a coin should be subject to a purchase tax and the decision was that the terms of the promotion were intended to be a legally binding promise and the coins were therefore subject to purchase tax. The offer of the commemorative coins was a commercial promotion from which Esso and its station operators stood to gain, Although the offer of the coins was described as a ‘gift’, it could be inferred from the commercial circumstances that it was a promise made with an intention to be legally bound. Executory/Bilateral Contract: performance remains to be completed by both parties after acceptance of the offer - At least 2 parties are needed to negotiate, agree and act upon a promise - The exchange of promises is sufficient to provide the necessary consideration for a binding contract to arise (eg. a contract of employment where the employer promises to pay an agreed wage to the employee and the employee promises to do the agreed work for the employer) Unilateral Contracts : only one party’s performance remains to be completed after acceptance of the offer (in exchange for a specific action from other party)  - One party promises to be bound to do something only if the other party carries out a specific task - Relies on one party to create a contract (only 1 party is legally bound) Capacity to Contract -> recognised power or ability to enter into legally binded agreement and subject themselves to obligations that are enforceable at law Adult persons of sound mind have full capacity to enter contracts (must be over age 18) Section 124 of the Corporations Act 2001 (Cth) gives corporations (and other artificial persons) the same legal capacity and powers as a natural adult person Government bodies may also have the capacity to enter contracts to the same extent as a natural person *People with cognitive disabilities are bound by agreements unless at the time the agreement was reached, their disability prevented them from understanding what they were doing (cognitively impaired at the time), and the other party was aware of this or ought to have been aware *A person who is insolvent (bankrupt) has a restricted capacity to enter contracts and those who are under the influence of intoxicating drugs may also be so unaware of what they are doing that they cannot bind themselves contractually For minors, they only have a limited power to bind themselves by contract. In certain situations, a contract with a minor will be binding - Minors may be bound to pay a reasonable price for goods acquired pursuant to contracts for ‘necessities’ Scarborough v Sturzaker (1905) -> Scarborough’s purchase of a new bicycle was considered a necessity as he lived for away such that he needed a bicycle and he had already traded in his old one and thus no longer had a bicycle. - “Beneficial” contracts of employment can also be enforced against a minor or for other benefits such as education  Hamilton v Lethbridge (1912) -> Lethbridge was bound by the restraint clause that he couldn’t practise as a solicitor within 50km of the town even though he signed the contract when he was a minor. This is because the contract for articled clerkship (a form of apprenticeship) that he signed at the time was substantially for his benefit, even though it contained clauses that may be regarded as prejudicial to his interests This limit on their capacity protects young people from the dangers of entering contracts that may disadvantage them. Some Australian states have also enacted legislation that affects the extent to which minors may not be bound by various types of agreement When a minor enters a contract that gives them a permanent interest in property or when it involves a continuing obligation, the contract can be avoided if the minor so chooses at a time before they turn 18 or within a reasonable time after turning 18. If the minor does not decide to avoid the contract within this time, they are considered to have decided to continue with it and it becomes an enforceable agreement Conditional Agreement: an event or situation on which some other thing depends Making an agreement subject to a condition does not always have the same effect. Depending on the circumstances, the facts may show one of the following situations 1. The parties intended to be immediately bound by the agreement and required to perform it, so that the written contract would only restate the agreed terms more fully or precisely 2. The parties intended to be immediately bound by the agreement, but to suspend any performance until formal documents are signed 3. The parties did not intend to be legally bound by the agreement at all unless and until the formal documents are prepared and signed - Masters v Cameron: it was clear that Cameron had intended not to be legally bound until a formal contract was prepared and signed Pre-contractual phase or process takes place before a binding contract is made. This is the ‘negotiation’ phase during which the parties exchange information and explore possibilities to see if they can reach an agreement to which they are prepared to bind themselves. The fundamental question to be decided is: Was a contract finally made and if so, what promises does it contain? Contracts only come into existence when: - The parties intended to be legally bound by their agreement - The agreement was made (executed) in a document called a ‘deed’ or each party gave to the other ‘something of value’ at the time the agreement was made - There was sufficient agreement between the parties on the terms necessary for a workable transaction/ Agreement must be reached on all things needed for a workable transaction A contract is formed when the following formation requirements are met 1. Agreement: it must be shown that there was a meeting of the mids 2. Certainty  3. Consideration/deed 4. intention Agreement - Courts identify an offer made by one party that is accepted by another party - Contractual offer - an offer is the manifestation of willingness to enter into a bargain, so as to justify another person in understanding that his assent to that bargain is invited and will conclude it - when someone whos they want to make a deal, hoping that the other person will agree and complete the deal - To accept an offer, the person must agree to all the terms exactly as they were proposed. The acceptance has to match the offer perfectly - An offer must be - 1. Promissory: it must involve an undertaking to do or refrain from doing something (specified amount) - - 2. Sufficiently certain: considered later as a separate formation requirement - 3. Intended to result in a contract if accepted An offer is a clearly stated proposal to enter into a legally binding contract with specific terms and conditions An invitation to treat is an invitation to negotiate or make an offer, without the express intention to form a binding agreement Acceptance must: - Evidence unqualified assent to the term of the offer - Not be subject to a condition - Occur while the offer is still in existence - Comply with requirement specified by the terms of the offer * at common law, an offeror is entitled to withdraw to offer at any time before the offer has been accepted, unless they have made a contractual commitment to keep the offer open for a particular period of time - A promise to keep the offer open is only enforceable where, amongst other things, the promisee has provided consideration to the promisor - To prevent an offeror to withdraw the offer at any time, a person who wants time to consider would need to obtain an ‘option’. An option is a separate binding contract which obliges the person making an offer to keep it open for a specified period of time. If an offeree indicates that they are willing to contract, but on different terms to those contained in the offer, this amounts to rejecting the original offer and making a counter-offer The general rule is that a contract is not formed until acceptance of the offer has been communicated by the offeree to the offeror  - Speaking directly to each other, same time and place is acceptance when it is heard and understood by the offeror - Exceptions: postal acceptance rule, electronic communications, unilateral contracts Postal acceptance rule - Eg. acceptance occurs via post if the offeror intendended that the offer would be accepted by post. Therefore, the offer will be treated as accepted as soon as the acceptance is posted Henthorn v Fraser (1892): Acceptance of the effer was effective as soon as the letter of acceptance was posted by Henthorn, which was before Fraser attempted to withdraw the offer. Acceptance by post need not be specifically authorised for it be effective as soon as the letter is posted. * acceptance via email or other electronic means are instantaneous, post acceptance rule will not apply The place of receipt defines where the contract was formed as outlined in Section 13b Acceptance by fax - The contract is made when are where is acceptance is received, not when are where it is sent Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH (1983): The acceptance took effect when the telex was received by Stahag in Vienna. The contract was therefore made in Vienna Acceptance by conduct  - When an offeror invites the offeree to accept proposed terms by performing a specified act or acts, an offeree who responds to the offer by performing the required acts will be held to have validly accepted the offer Carlill v Carbolic Smoke Ball Co (1893) - An act can only be effective as accepted of an offer if the person acting knows of the offer and performs the specified act in the expectation of receiving what was promised Consideration/deed - Consideration can consist of giving something or doing something that is of some value to the other party, or that is burdensome or detrimental to the person giving it. However, the thing given in exchange for another person’s promise cannot consist of something already given for some other reason Stilk v Myrick (1809): The captain made a promise to the remaining crew that they would share the deserters’ pay if they worked extra hard, however, when the crew fulfilled their end, the shipowner refused to honour the captain’s promise. However, the crew had given nothing of value in exchange for the captain’s promise as in their original agreement, the crew had made a promise to do whatever was necessary in case of any emergencies to bring the ship home safely. Therefore, when the captain promised extra pay, the crew promised nothing in return beyond what they were legally bound to do, - However, because of this rule in Stilk v Myrick (1809), there can be some strict decisions. The court has developed the idea that if the promisor has obtained some ‘practical benefit’ or that the promisee has undertaken ‘practical detriment’, this particular practical benefit or detriment may be treated as sufficient consideration. Musumeci v Winadell Pty Ltd (1994): The promise to reduce the rent was properly supported by consideration and therefore legally binding. The  consideration obtained by Winadell was the practical benefit of keeping Musumeci as a tenant and the mall full of operating shops Unless the promise is included in agreement that is recorded as a deed, a promise must, amongst other things, be supported by consideration to be enforceable under contract law When it is recorded in a deed it will be enforceable whether or not both parties have provided consideration A deed is an instrument that has been signed, sealed and delivered (executed in a particular way) A deed must be witnessed by a person who is not a party to the agreement The doctrine of consideration requires some element of exchange between the parties The consideration requirement means that one-sided promised are generally unenforceable How to provide consideration - Promising to do an act/refrain from doing an act (both parties to an executory/bilateral contract or one party to a unilateral contract) - Doing an act, or refraining from doing an act (one party to a unilateral contract) Adequacy of Consideration - Must be sufficient but need not be adequate (there must be some identifiable benefit/detriment but its magnitude is not important) - Often referred to as the peppercorn principle - The magnitude of the benefit provided is not relevant Past consideration - Past consideration is not good consideration - The rule is most often invoked where, after the contract has come into existence, one of the parties makes an additional promise which the other seeks to enforce In this scenario, A cannot enforce the 12-month warranty because there is no new consideration given by A in exchange for the warranty promise. Here's a breakdown of why A cannot enforce the warranty: 1. Lack of Consideration for the Warranty: Consideration is a fundamental requirement for a valid contract. It involves a party giving something of value in exchange for a promise. In this case, A's promise to buy the goods and B's promise to supply them form the initial contract, with each promise serving as consideration for the other. However, the 12-month warranty was introduced after the initial agreement without any new consideration from A. Since A did not provide anything additional in exchange for the warranty, there is no new consideration supporting B's promise to provide the warranty. 2. Past Consideration is Not Valid: A cannot argue that her initial promise to buy the goods serves as consideration for the warranty because this promise was already made in exchange for B's promise to supply the goods. This is considered "past consideration,"  which generally is not sufficient to enforce a new promise made after the original contract was formed. 3. Payment Does Not Constitute New Consideration: A's payment to B is simply the fulfilment of her obligation under the original contract. It does not constitute new consideration because it is a performance of an existing legal duty under the contract terms. The payment was for the goods, not for the additional promise of a 12-month warranty. If there is a genuine disagreement about existing legal obligations and the parties negotiate a compromise, the compromise is sufficient benefit and/or detriment to be good consideration making the agreement enforceable Existing legal duty rule - Performance of an existing legal duty, or a promise to perform an existing legal duty is not good consideration - The existing legal duty rule typically states that a promise to perform an act that one is already legally obligated to perform does not constitute valid consideration. - There is no consideration if one party was already initially legally obligated to perform the task, but there is consideration given for the party that adds an extra condition - Exception: the existing legal duty rule does not apply where the person making the fresh promise obtains a practical benefit from other party’s promise to perform an existing legal duty -  - Intention - Parties are free to expressly indicate whether they intend their agreement to have contractual force - In many instances, this issue needs to be resolved by making inferences about the parties’ intention from their conduct, their relationship to one another and the subject matter of the agreement - Traditionally, the courts made presumptions about intention based on the relationship between the parties -> presumptions were also used to resolve disputes about the enforceability of commercial contracts Intention: commercial agreements - Traditionally, the courts assumed that agreements reached in a business or commercial context were intended to be binding Privity of contract - The doctrine of privity determines who is entitled to enforce a contract - The common law position is that only parties to the contract are bound by, and entitled to enforce, the rights and obligations that the contract imposes Caoulls v Bagot’s Executor and Trustee Co Ltd (1967): O’Neil owed no contractual obligation to Mrs Coulis because she is not a party to the contract. Although she was present and put her signature on the contract when it was made, she had not signed as a party to the agreement because she had not provided any consideration to make the agreement contractually binding between  herself and O’Neill. Therefore, she had no right to sue on or enforce the terms of the contract, The royalties should therefore be paid to Mr Coulls’ estate, to be distributed to his beneficiaries - A person who wishes to enforce a contract must establish that he or she is a party to the contract - Anyone else is a stranger to the contract and is referred to as a ‘third party’ and does not acquire enforceable rights even if the performance of the contract would benefit that third party Price v Easton (1833): Estoppel - Relieves against harm resulting from reliance on people who behave inconsistently - May create rights when non-contractual promises and representations are relied upon Rule for Estoppel- a non-contractual promise can give rise to an equitable estoppel only when all these apply: 1. A promisor induces the promisee to assume or expect that the promise is intended to affect their legal relations (the induced assumption requirement) 2. The promisor knows or intends that the promisee wil act or abstain from acting in reliance on the promise (the knowledge/intention requirement) 3. The promisee does so act or abstain from acting (the reliance requirement) 4. The promisee would suffer detriment by his actions or inactions if the promisor were not to fulfil the promise (the detriment requirement) Waltons Stores (Interstate) Ltd v Maher (1988): The court held that Maher had relied on a non-contractual promise to his detriment, He did this because Maltons encouraged Maher’s belief that the contract would be completed because Waltons knew that Maher was acting on that belief. It would be unconscionable in these circumstances to allow Waltons to rely on the true facts of the case (that no contract had been completed). Therefore, Waltons was estopped from denying the existence of the lease and was accordingly liable to pay damages to Maher for breach of this contract Illusory Promises: When the details of a promise are left to be fixed later at the discretion of the promisor alone, the supposed promise may be illusory because, on analysis, nothing of substance has actually been agreed and therefore such illusory promises cannot be enforced  Placer Development LTD v Commonwealth (1969): The subsidies the government promised for imported timber was not legally enforceable as it was an unspecified amount of money and thus it is treated as an illusory promise. However, the courts will do their best to give effect to what has been agreed, even if the agreement is open to different interpretations. For this purpose, a court can take account of relevant industry standards or past dealings between the parties to ascertain details not expressly included in the agreement. Offer - Consists of an indication by the offeror that they are ready to contract on the stated terms - If, in response, the offeree response by indicating a readiness to contract on those terms, this is called acceptance - Advertisements and displays are generally not considered offers because the courts tend to presume, as a matter of policy, that advertisements are not intended to signal a readiness to be bound. Advertisements are likely to be construed as an invitation to negotiate, asking potential customers to make an offer to buy Partridge v Crittenden (1968): Partridge was not deemed as unlawfully offering wild birds for sale because the court decided that the advertisement did not amount to an offer in the full legal sense, capable of acceptance to create a binding contract. It was only an invitation to enter into negotiations with interested buyers who might themselves offer to buy the advertised birds. In general, unless they indeed come from manufacturers, there is business sense in their being construed as invitations to treat and not offers for sale Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd (1953): The drugs and medicines selected by customers were not sold to the customers before the customer took them to the cashier. At the cashier, the customer made an offer to buy the goods at the set market price and the cashier would accept the offer, which is then when the contract came into existence. The display of goods in a shop, even at stated prices is not to be construed as an offer to sell, rather it is an invitation to treat. The contract of sale is only made when the customer’s offer to buy is accepted by the seller. - - Approaching Short Answer Questions IRAC Issue - The introduction should identify the contentious legal issue Rule - Identify the relevant legal rule to be applied to resolve the issue identified Application - Apply the legal rule to the factual scenario Conclusion - Reach a conclusion (need not be definite) Terms of a contract = the entire contents of a legally enforceable agreement - Term = particular agreed undertaking or promise -> define the rights and obligations of the parties -> provide the yardstick by which performance of the contract is measured Terms can become part of a contract either: - By agreement (express term/implied) - Because they are put into the contract by operation of law (common law or legislation) Freedom of contrast - Generally, the law allows contracting parties that freedom to negotiate and agree to the terms of their contract that serves their own interests - This doctrine works best when contracting parties have roughly equal bargaining power and can negotiate effectively in their own interests - There are some limits to which freedom of contract operates (eg. illegal undertakings are not enforceable)  - Some statutory intervention displaces the principle of freedom of contract (unfair terms regime in the Australian Consumer Law) Terms are final once the contract is formed - Then no longer possible for terms to be added unilaterally by one party - If the parties want to terminate or vary their contract, they must enter into another contract Terms are expressly agreed when they have been declared or expressly stated, either in writing or orally - In a signed document - Referred to on a ticket, notice or other unsigned document - Promises made during negotiations Handbury v Nolan (1977): The announcement of the test result was not a mere opinion. It was a statement of fact that the cow had been tested and was pregnant. In deciding whether this statement was intended to be contractually binding as a promise, the court took account not only of the statement itself, but also of the circumstances in which it was made. In particular, the statement was made just before bids were invited. These circumstances all suggested that the statement was intended to be a legally binding promise and it therefore became an express term of the contract. - Signed document A person who: - Signs a document - That a reasonable person would understand to contain contractual terms is - In the absence of fraud or misrepresentation Bound by the terms set out in that document, even if they have not read the document and has no knowledge or understanding of its contents L’Estrange v F Graucob Ltd (1934): L’Estrange was bound by the terms of the document she had signed. When a person signs what is clearly a contractual document, and they have not been induced to do so by any fraud or misrepresentation, they cannot later say that they did not agree to be bound by the terms of that document, even if they did not read them before signing. The reasonable inference in these circumstances is that they agreed to be bound by the terms contained in the document they signed. Unsigned document - Will form part of the contract if the following 2 requirements are met: The knowledge/notice requirement: the party said to be bound by the term has actual knowledge of the term or the party seeking the term gave reasonable notice of the term to the person said to be bound The timing requirement: must have been met before the contract was formed  - In cases where reasonable notice of express terms is given, they may be regarded as incorporated into a contract even when those terms are not immediately available to reach, such as when additional terms are referred to in a ticket or on a notice (it is common knowledge that terms are contained on such tickets) Express terms contained in non-contractual documents - If express terms are on a document that is not generally expected to contain contractual terms, then the person receiving it cannot reasonably be expected to read what is printed on it. As a result, it will not be inferred that they have assented to the terms,  unless those terms are drawn to their attention (or a reasonable attempt is made to do so) Causer v Browne (1952): In the circumstances, the statement had not become a term of the contract, The document (the docket) handed to Causer did not appear to be a contractual document, or a document that was likely to contain contractual terms. It was reasonable in the circumstances for Causer to assume that the document was only an identifying docket, which he would have to produce to collect the goods after cleaning. It could not be inferred, therefore, that Causer was agreeing to exempt Browne from liability for negligence. The result would have been different if Causer’s attention had been drawn to the fact that the docket constrained contractual terms. - Eg, they weren’t able to see the notice until after they signed the contract/checked in  - Terms cannot be added to a contract after it has been made. Any additional undertakings would have to be incorporated in a new contract, which would itself ned to meet all the essential requirements of formation - Terms will not become part of the contract if they only become visible or are communicated to the buyer after the contract has already been created When are (oral) promises made during negotiations enforceable? - For a statement made during negotiations to be enforceable as a contractual promise, the parties must have intended (determined objectively) to enter either a partly-written, partyle-oral contract or a wholly oral contract - AND the statement must be sufficiently promissory in nature Where the contract was intended to be wholly written, promises made during negotiations not contained in the written document are not contractually enforceable Where the contract was intended to be partly written, partly oral or wholly oral, only promissory statement made during negotiations will be enforceable Van den Esschert v Chappel (1960): The court was of the view that, taking all the circumstances into account, the contract was partly written and partly oral. In such circumstances, the parol evidence rule does not exclude evidence of additional orally agreed terms. In this case, Chappel asked immediately before signing a contract and makes a specific request to be informed about that matter and gets an affirmative answer. In this circumstance, it is reasonable to assume that this answer was intended to be made part of the contract and was to be regarded as a term. The promise requirement - Only promissory statement can become contractual terms - It depends on the language used and the circumstances in which the statement was made - A statement made during negotiations may fall into one of 3 categories 1. Puffery or statement of opinion (opinions do not become part of the contract as they should not be relied on) 2. Representation of fact Oscar Chess Ltd v Williams (1957): Denning and Hodson LJJ held that the statement as to the age of the car was a mere representation rather than a contractually binding promise 3. Promise -> only this one will result in contractual liability Implied terms (by operation of law) into all or particular classes of contracts - Universal implied terms (implied into all contracts) Common law: duty of cooperation -> all contracts contain an implied duty to cooperate with the other party so as to allow the other party to receive the fundamental benefits promised under the contract -> the duty requires contracting parties to act reasonably - Generic implied terms (implied into contracts of a particular class) Common law: doctor/patient contracts * Generic terms: terms implied into classes of contracts - Particular classes of contracts = a sale of goods contract, a lease, an insurance contract, a contract between a doctor and patient - Can be implied at common law or by statute At common law, a term will be implied by law into a particular class of contract if the enjoyment of rights conferred by the contract would or could be rendered nugatory, worthless or perhaps seriously undermined unless the term is implied In common law, a term can be implied by law into a contract to ensure that the rights and benefits agreed upon are meaningful and not useless or severely weakened. This happens when, without the implied term, the contract would not work properly, and one party's rights would be significantly undermined. 1. What are Implied Terms by Law? These are terms that courts add to certain types of contracts to ensure they are fair and effective, even if the terms aren’t written in the contract. 2. Why are Terms Implied by Law? To make sure that the contract works as intended and that both parties get what they expected. For example, an implied term in an employment contract might be that the employer must provide a safe working environment. 3. When are Terms Implied by Law? ○ When a term is necessary for the contract to make sense. ○ When fairness requires adding a term. ○ When it’s obvious both parties would have agreed to the term if they had considered it. 4. Examples of Implied Terms: ○ Employment contracts: The employer must ensure a safe working environment. ○ Lease agreements: The landlord must keep the property fit to live in. ○ Sale of goods contracts: The goods must be of satisfactory quality. 5. Case Examples: ○ Liverpool City Council v Irwin: The court implied a term requiring a landlord to maintain common areas because, without it, tenants could not fully enjoy their homes. ○ Scally v Southern Health and Social Services Board: The court implied a term that employers must inform employees of certain rights, ensuring the employees could benefit from their contract. In short, courts imply terms by law to make sure contracts are fair and that the rights given by the contract are not rendered meaningless. Generic implied terms: legislation - The Goods Act 1958 (Vic) Sales of goods by description s18 and 19(b): there is an implied condition that the goods shall correspond with the description Sale of goods by sample s20 Sale of goods: fit for purpose s19(a)  Section 61 (which allows parties to exclude the terms that would otherwise be implied) Sale of goods by description - If goods are brought by description - AND the seller deals in goods of that description A term is implied into the contract that the goods will be of merchantable quality (if buyers, knowing of any defects in the goods, would buy those goods for about the same price as the original price) Varley v Whipp (1900): The seller had not delivered what had been promised. The object was bought unseen and it was identified by description, however, the machine delivered did not match the description. The court held that it was not in the same class or category of goods as had been described. This was a breach of the condition, implied into the sales contract by law, that a seller must deliver the goods as identified by description in the contract. Whipp was entitled to reject the machine and was not obliged to pay for it. Goods are not of merchantable quality if they are of no use for any purpose for which such goods are normally used. There is a test for this Test 1: Goods are of merchantable quality when it can be inferred that a buyer who knows all the facts, including any hidden defects in the goods, would buy them at the price such goods would fetch when in reasonably sound order Australian Knitting Mills Ltd v Grant (1933): The court held that the underwear was merchantable as this same underwear was being sold as underwear in the market in large quantities to people who were not affected by the sulphur. Therefore, despite the ‘defect’, the goods were merchantable as underwear Test 2: Goods are not of merchantable quality if it is established that they are of no use for any purpose for which such goods are normally used, and therefore are not saleable under that condition David Jones Ltd v Willis (1934): The shoes were found to be not of merchantable quality as the buyer has a right to expect, not a perfect article, but an article that would be saleable in the market under that description. In this case, the shoes were of no use for any purpose in which shoes are normally used and hence are not saleable under that description, Test 3: Goods are of merchantable quality if they are of a quality and in such a condition that a reasonable person would, after examining them fully accept delivery of them, whether buying them for personal use or to sell again UNLESS - The buyer has examined the goods in a way that ought to have revealed the defects complained of Sale by sample - If a sale is by sample term is implied into the contract that the bulk of goods must correspond with the sample AND be free of any defect not reasonably apparent in the sample that makes them unmerchantable  - Under the provisions of the legislation, a sale is only be sample when the circumstances indicate objectively that the parties have agreed to define the quality of the goods by reference to a sample - When such agreement can be inferred, the sale of goods legislation requires that the bulk of the goods must not have any defect that was not apparent in the sample Sale of goods: fit for purpose s19(a) is applied if - A buyer makes known to a seller the purpose for which the goods are required - AND the buyer shows reliance on the seller’s skill or judgement - AND the goods are of a description that it is in the course of the seller’s business to apply Proviso at the end of section 19(a) provides that there is no implied condition as to the fitness of the goods for any particular purpose if specified articles are bought under a patent or trade name Proviso applied if, when purchasing goods by reference to their trade name, it is clear that the buyer is not relying on the seller’s skill and judgement to supply suitable goods OR when it is clear that the seller is disclaiming any such skill or judgement Whether a buyer has sufficiently communicated their purpose and reliance to the seller will depend on the circumstances of each case Expo Aluminium (NSW) Pty Ltd v WR Pateman Pty Ltd (1990): This implied term (that the windows needed to be weatherproof in an exposed situation) had been breached by supplying windows that leaked. The buyer had sufficiently indicated the purpose for which the goods were required by saying “There is nothing between this job and the South Pole” and this statement could only have meant that the windows would need to be sufficiently weatherproof to withstand harsh weather, The buyer’s reliance on the seller to supply suitable goods can often be established by inference, and the necessary inference can often be drawn from the buyer having stated his or her purpose If the goods were purchased by reference to their trade name and the buyer has explained their purpose to the seller and the buyer has indicated a reliance on the seller to provide something suitable, then there is an implied term that the goods are suitable for that purpose, regardless of the use of the trade name Baldry v Marshall (1925): It was clear on the facts that the buyer had relied on the seller to supply suitable goods and thus gave rise to an implied term requiring the car to be suitable for the buyer’s purpose, regardless of the use of the trade name to describe the goods. The mere fact that goods are described by trade name does not necessarily exclude the implied term regarding suitability of purpose Section 61 - Provides that the parties may agree to exclude or vary liability arising under the Goods Act, including under the terms implied in sections 18,19 and 20 Terms implied Ad hoc - Tailored to the particular contract in question  - For a term to be implied ad hoc, the court must first decide that it was obvious in the circumstances that this is what the parties must have intended when they contracted - Officious bystander test: it must be obvious that the parties would have included such a term as part of their agreement had they turned their minds to the issue at the time of formation. Tested by asking “What would the parties have replied if an officious bystander had asked them at the time of their agreement whether the suggested term was part of their contract. If the parties would have replied “of course” the necessary intention is established - BP Refinery sets out 4 additional requirements that must be met in addition to the officious bystander test. The implied term must be: Necessary to give business efficacy Reasonable and equitable Capable of clear expression Consistent with the express terms of the contract - BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977): In a majority decision the Privy council held that no such term was implied ad hoc into the contract Breach - When a party fails to perform as promised - When there is a breach of contract, the legal obligations remain undischarged. These undischarged obligations provide the basis for the non-defaulting party to bring legal action to enforce the agreement Discharge by performance - Contractual obligations are normally discharged by the parties carrying out their contractual promises - When all the obligations created by the contract have been discharged, we say that the contract itself is discharged - A contract may also be discharged when remedies have been imposed in relation to a break - Contractual obligations can also be discharged through the frustration of the contract. If, after a contract is made, circumstances change in a way that the parties had not contemplated and which makes performance impossible to carry out, then the law treats the contract as if it has been discharged, Contractual Interpretation Test: what would the words mean to the reasonable person in the position of the parties? - An objective approach is adopted - Starting point is that words should be given their ordinary and natural meaning - The courts aim to give words a meaning that accords with the purpose of the contract (whether or not they now deviate from their ordinary and natural meaning) When words are ambiguous, the courts will prefer an interpretation that avoids commercial inconvenience or nonsense  Does not that mean that the court can interpret language contrary to its ordinary meaning solely because the court thinks that it would be more fair/reasonable -> they cannot “improve upon” the contract 1. Give words their ordinary, natural meaning 2. Determine the intention of the Parties 3. Take account of commercial realism -> in the event that the terms of a commercial contract remain ambiguous, the courts will choose a meaning that is not commercially inconvenient, unrealistic or nonsensical Post-formation conduct - Contractual obligations should not be defined on the basis of what that parties do after the contract is formed because a party’s behaviour reflects their subjective interpretation of the contract and a party may be consciously breaching the contract Exclusion or limitation clauses - Where an exclusion clause is clear and excludes liability, the courts will give effect to the exclusion clause (freedom of contract) - Where an exclusion clause is ambiguous, the term will be interpreted contra proferentem (against the party who stands to benefit) - If a contract contains a clause which excuses the seller from liability for breach of terms implied ad hoc, the exclusion clause will not be interpreted to cover the breach of other kinds of terms Types of breaches - Non-performance -> where the time for performance arrives and nothing at all is done or what is done bears no relation to what was undertaken Eg. Varley v Whipp (1900) - Partial performance (substantial performance and less than substantial performance) -> anything less than complete performance  Steele v Tardiani: Although performance was incomplete, Steele did not choose to reject the work done (he had allowed Tardiani to finish working without requiring him to split the thicker logs properly). Accordingly, the court decided that Steele had chosen not to exercise his right to insist on complete performance and had also accepted the benefit of partial performance. He was therefore bound to pay the woodcutters on a quantum meruit basis (payment for the actual value of the work they had done). Substantial performance examples-> where the non-defaulting party substantially receives the benefits they expected to get from the contract, albeit to a lesser extent than was due -> this affects the available remedies Hoenig v Issacs (1952): Although Hoenig had not performed perfectly, the faults in his work were easily fixed at modest cost and thus he had performed substantially. While there was still a breach of contract, this will be treated as a breach of a warranty rather than a condition (unless the parties had expressly agreed otherwise). Isaac therefore was not obliged to pay the full price, but was only entitled to deduct the actual cost of the necessary repairs Connor v Stainton (1924): Stainton had not substantially performed the contract and therefore was not entitled to claim the agreed payment. It is not sufficient to do something that is materially different, even if it can be argued that what was done is just as good as what was promised. The fence that was erected was and would always be of an entirely different character from the one that was promised and putting droppers in would not make the fence the same as that agreed to in the contract, Late performance -> failure to perform on time (even if the obligation is performed at a later date) Holland v Wiltshire (1954): There were two breaches of contract by Holland. The first occurred when Holland failed to perform at the agreed (extended) time. On the facts of this case, the court held that the time of performance was agreed to be of essential importance. This meant that Holland’s failure to perform on time amounted to a breach of condition and entitled Wiltshire to terminate the contract immediately. Wiltshire chose not to end the performance of the contract immediately. It was only after a second breach occurred, when Holland said he would not proceed with the sale at all, that Wiltshire gave him a deadline for performance and then terminated the contract when that deadline passed. Wiltshire then resold the property to a third party, but at a lower price. He was entitled to claim as damages the difference between the lower price on resale and the original contract price Anticipatory breach/ Repudiation -> when a party indicates before the time for performance that they are unable/unwilling to perform the contract Hochester v De La Tour: The court held there had been an anticipatory breach of contract by De la Tour on 22 May and that Hochster was immediately entitled to sue. When the time for performance of a contract has not yet arrived, but one party expressly announces that they are not going to perform their future obligations, the non-defaulting party is entitled to accept this repudiation of the contract and sue immediately for damages on grounds of anticipatory breach Divisible Contracts - Each of the separate contracts stands alone, to be performed and enforced independently of each other - Contracts are indivisible when what was contracted for was a single thing in a business sense, or when the agreement was made dependent or conditional on something otherwise unrelated - - Need to be able to identify when it is a divisible contract or a single, indivisible contract (like an employment contract) - Can decide if for example goods are purchased separately and for separate purposes - When parties reach a series of agreements, each relating to the performance of one singular contract Phillips v Ellinson Brothers Pty Ltd (1941): Phillips was not entitled to claim payment under the contract because he had not performed his obligations as specified under the contract Government of Newfoundland v The Newfoundland Railway Co (1888): The company was entitled to the grants of land for each of the seven completed sections as the wording of the contract made it clear that the grants of land were dependent only on the completion of each 5-mile section of the railway and not on the completion of the entire railway. This decision appears to be based on the concept of divisible contracts. Frustration -> a frustrating event renders circumstances radically different from those contemplated by the parties Common law rules determine whether a contract has been frustrated and legislation provisions determine the effect of finding that a contract has been frustrated. - If the contract does not include a provision where for example one party bears the risk of the event occurring (if a party does not perform the contract, they will be in breach), there are 2 options 1. The parties may be happy to release each other from their respective contractual obligations 2. The doctrine of frustration may render the contract void - 3 main issues to consider 1. Does the contract provide for the event?  2. What amounts to a ‘frustrating event’? 3. What effect does frustration have on the rights and obligations of the parties Maritime National Fish Ltd v Ocean trawlers Ltd (1935); The plaintiff was not entitled to rely on frustration in these circumstances. It was Maritime National’s own decision not to allocate one of their available licences to the St Cuthbert. In seeking to avoid the contract, Maritime National was not entitled to rely on a situation they had deliberately brought about. For frustration to discharge the contract, the changed situation must arise without any fault or deliberate act by the party who is seeking relief - The party that has caused the frustrating event cannot rely on the doctrine of frustration to avoid the contract - - Remedies for Breach Common law remedies are most often termination and damages - The party suing is entitled to specify what relief they want (sometimes this is a combination of remedies) - Remedies include terminating the contract and also claiming damages - Sometimes a plaintiff asks for alternative remedies (specific performance or if the judge is not willing to grant this, then damages) - Agreed remedies are those that are explicitly stated in the contract regarding how breaches will be handles - Statutory remedies, such as those under the Sale of Goods legislation and the Consumer Law, provide additional protections Damages = an award of money paid by the breaching party to the non-breaching party - Where breach gives rise to a right to terminate the contract - Not intended to be punitive - Supposed to be compensatory (compensate for a loss suffered by the non-breaching party because of the breach of contract) - Aim to put the non-breaching party in position (not just financial, but also the same actual position) they would have been in had the contract been properly performed - The causation of loss due to the breach often determines a party’s entitlement to damages for breach of contract - The breach must have a quantifiable loss - The court will compare their financial position after the breach with what their financial position would have been if no breach had occurred Radford v de Froberville (1978): Radford was entitled to claim damages equal to the cost of actually constructing the wall. The objective of an award of damages is to put the non-defaulting party in the position that would have been occupied had the breach of contract not occurred. If de Froberville had performed the contract, the wall would have been built and it was the cost of this that Radford was entitled to claim Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009): The appropriate measure of damages was the cost of restoring the foyer to its previous state. When a party suffers a loss because of a breach of contract, damages may be claimed to put that party in the same situation as if the contract had been performed. This also means actual position (not just financial). Direct/Immediate loss - A party who suffers direct loss because of the breach is entitled to recover that loss from the party in breach - A direct loss arises naturally from the breach (eg. given the fluctuation in market prices, a delay in shipment could result in a loss of income for non-breaching company and therefore the loss is a natural consequence of the breach) Koufos v C Czarnikow Ltd (The Heron 2) (1969): There was a breach of contract (delayed performance) and the damages can be claimed to compensate for direct (immediate) losses suffered by Czarnikow. Therefore, Damages could be claimed to compensate for the loss caused by the drop in price. Consequential loss - A party who suffers consequential loss because of a breach is entitled to rover that loss from the party in breach - More remote than direct loss - A loss that may reasonably be supposed to have been in contemplation of both parties (at the time of formation) as a probable result of a breach - Can often be claimed if the consequential loss of reasonable and foreseeable by both parties  Hadley Baxendale (1854): Hadley was not entitled to such damages. The court decided that Hadley’s loss of profits was not direct loss because normally it would be expected that a mill would have, or could acquire, a spare shaft and so it was not reasonably foreseeable that a broken shaft would cause a complete halt of productions. The court also decided that the lost profits could not be claimed as consequential loss because Baxendale had not been told that the mill would remain completely out of operation until the shaft was replaced. This meant that the loss of profits was not something both parties would have contemplated at the time of contracting. Wasted expenses - Damages can be claimed for expenses reasonably incurred in anticipation of the other party performing his or her obligation - Damages will not be payable if the breaching party can prove that the expenses would have been wasted even if there had been no breach of contract - The non-defaulting party cannot claim damages for expenses that would have been incurred even if the contract had been properly performed (sunk costs?) McRae v Commonwealth Disposals Commission (1951): McRae was entitled to claim the wasted expenses. The parties must have known when contracting that expenses would be incurred searching for the tanker. Mcrae had a right to claim these as damages, unless the commission could prove that the expenses would have been wasted even if the contract had not been breached. Stress and disappointment - Generally, damages cannot be sought to compensate for disappointment or distress caused by the breach - However, there is one assessment: where a contract is for the provision of services designed to confer enjoyment, entertainment or pleasure, damages can be recovered where the breach causes disappointment or distress Baltic Shipping Company v Dillon (1993): The damages should be awarded as the defaulting party (Baltic Shipping Company) expressly and/or impliedly agreed to provide pleasure, relaxation and entertainment and to prevent molestation or vexation. The damages of this type are recoverable following a breach Duty to mitigate - A plaintiff is under a duty to mitigate (minimise) the losses that flow from a breach of contract - A plaintiff cannot claim damages from a defendant if the loss could have been avoided by the plaintiff taking reasonable steps to avoid it - A party is entitled to recover money, reasonably spent on mitigation attempts flowing from the breach  - - - The plaintiff’s duty to mitigate his damage does not require him to do what is unreasonable and it would seem unjust to prevent a plaintiff from recovering in full damages caused by a breach of contract simply because he lacked the means to avert the consequences of the breach Agreed penalty clauses - Within limits, parties are free to define the scope of the remedies that will be available in the event of a breach - Penalty clauses do not estimate the likely loss, instead, they attempt to encourage proper performance by threatening punishment for a breach - Parties may agree in advance what losses are likely to be suffered in the event of breach and insert a ‘liquidated damages’ clause into the contract which defines the quantum of damages that will be paid in the event of breach  - Liquidated damages clauses must not penalise (impose damages that bear no relationship to any loss likely to be suffered) - If the clause is a genuine pre-estimate of the likely losses, the court will enforce it, even if the losses suffered are less/more Termination - In addition to seeking damages for breach, the non-breaching party may also be able to terminate the contract - This depends on the type of term breached and the nature of the breach. The following breaches of a condition give rise to the right to terminate: non-performance of a condition, less than substantial performance of a condition, late performance, anticipatory breach Associated Newspapers Ltd v Bancks (1951): The term (to be on the front page) was a condition and Bancks was therefore justified in terminating further performance. This promise was of such importance to the promisee that he would not have neutered into the contract unless he had been assured of a struct or a substantial performance of the promise and that this ought to have been apparent to the promisor. - Types of contractual terms include conditions, innominate/intermediate terms, warranties Conditions - A term is a condition where it can be inferred from the circumstances that the promise was so important to the promisee that they would not have entered the contract if the promise had not been made - If the anticipatory breach is of the whole contract, or a condition, the non-defaulting party may terminate the contract A term that does not meet the Tramways Test (conditions test) will either be a warranty or an innominate/intermediate term Innominate/intermediate term -> breach of a term that is not a condition may cause substantial loss - A breach of an intermediate/innominate term will permit termination if the breach is serious and deprives the non-breaching party of the substantial benefit for which they entered the contract - The term ‘intermediate’ means that the term can be breached in a minor or a serious way, with the outcomes differing based on the severity of the breach Cehave NV v Bremer Handelsgesellschaft mbH (1976): Although delivering pellets that were not in good condition was a breach of contract, Cehave had no right to reject the delivery as it was not a breach that that substantially deprived the non-defaulting party of the benefit for which they entered the contract, Cehave entered the contract for animal feed and the pellets were good enough for the buyer’s purpose. Cehave was therefore obliged to accept and pay for  them an he would only have a claim for damages to the extent that they were worth less than pellets of the promised quality Warranty -> breach of a term that is not a condition will not cause substantial loss - A breach of warranty only permits termination if it amounts to repudiation (rejection of a proposal or an idea and demonstrating intent to not fulfil the contract) - The only common law remedy that can be imposed for breach of warranty is damages, unless the breach amounts to repudiation - Otherwise, there is no right to terminate the contract for a mere breach of warranty Bettini v Gye (1876): Gye was not entitled to terminate further formance of the contract in response to Bettini’s breach. The term to attend rehearsals was a warranty, not a condition as the requirement did not go to the root of the contract because, in view of the number of performances over a long period of time, attendance at initial rehearsals would not vitaly affect the whole contract. Electing to terminate - Termination is not automatic - Termination does not invalidate, rescind, cancel or make void the entire contract. It simply puts a end to any further performance of outstanding obligations - A non-breaching party with the right to terminate the contract must choose/elect whether or not to exercise this right - The decision to terminate must be communicated to the party in breach - If a non-defaulting party decides not to terminate performance despite knowing the fact of the serious breach, this decision is binding. This is so regardless of whether the non-defaulting party had sought legal advice and whether they knew of their legal right to terminate A party can also lose the right to terminate by election not to terminate (affirming the breach) - If a party knows of the facts that gave rise to the right to terminate and still continues on with the contract, there has been an affirmation and the right to terminate what is lost Writing a response Prompt: Andre would like to reject the entire order and terminate the contract with Bundings? Does the fact that only 90 of the 100 sheets of plasterboard were delivered allow him to do so? Introduction Delivering only 90 sheets of plasterboard, Bundings has breached a contractual obligation owed to Andre. Whether this allows ANdrew to reject the entire order will depend on whether the sales contract is divisible, the nature of the term breached and the seriousness of the breach Issue (divisible contract) If the goods were supplied under a single, indivisible contract, it is possible that the breach will allow Andrew to reject the entire order. However, if there are four separate contracts, then at best the breach will allow Andrew to reject the 90 sheets of plasterboard delivered Rule (divisible contract) In the event that goods purchased together could also have been purchased separately and have separate purposes, the court is likely to find that the contract is divisible Application (divisible contract) This contract is likely to be considered divisible because the goods could have been purchased separately and have separate purposes. The sale by Bundings thus resulted in four separate contracts, one of which required 100 sheets of the plasterboard to be supplied for $2000. Conclusion (divisible contract) Andre cannot rely on the fact that only 90 sheets of plasterboard were delivered to reject the cement, floorboards or bathtub. He will be able to rely on the breach to reject the 90 sheets of plasterboard delivered if the promise to deliver the plasterboard is a condition and there has been less than substantial performance. Issue/Introduction (right to terminate) To determine whether the breach gives Andrew the right to terminate, we need to identify the term breached and the nature of the term Rule (nature of term) A term is classified as a condition if the promisee (Andre) would not have entered into the contract had the promise not been made (Associated Newspapers, applying the Tramways test) Application/Conclusion (nature of term) The term is a condition. If Bundings did not promise to deliver the plasterboard, Andre would not have entered into the divisible, plasterboard contract Rule (right to terminate) Unless breach of a condition amounts to substantial performance, the non-breaching party can terminate for breach Application (right to terminate) It is likely that delivering 90 out of 100 sheets amounts to substantial performance as Andre has received most of what he contracted for Conclusion (right to terminate) It is likely that despite the breach, Andre is not entitled to reject the 90 plasterboards delivered. In response to a breach, a court may award a combination of remedies Equity - Administration of common law and equity in England was merged by the judicature act passed in 1873 - Was petitioned to the King regarding injustice arising from strict common law - The reforms were aimed at avoiding the inconvenience of two separate court systems and the confusion stemming from incomplete division between the two courts. - However, it was the administration of these laws, not their principles of law that were merged - In Victoria, where the Supreme Court was established in 1852, it was given both common law and equitable jurisdiction The Courts of Equity developed remedies that could be awarded where common law remedies of damages or termination would be inadequate - Equitable remedies are not available ‘as of right’ - they are only available at the discretion of the court, where the common law remedies are inadequate - Where the common law outcome and the equitable outcome conflict, the equitable outcome prevails - Indirect enforcement refers to the attempt to enforce a contractual promise that is not typically enforceable through standard legal mechanisms - A court will not provide equitable relief to a party who comes to court with ‘unclean hands’ (guilty of some behaviour related to the case, of which the court disapproves, such as conduct that is unconscionable or unethical) There are 2 relevant equitable remedies 1. Specific performance -> requires the party in breach to perform their contractual obligations. - Specific performance would be inappropriate for a contract requiring personal services (such as those of a hairdresser, tailor or advisor) because such services depend on the goodwill of the service provider. This is because even if a court  were to order such performance, it might be carried out badly, leading to further dispute - Specific performance will not be ordered if a contract requires performance that will continue over an extended period and where there is no guarantee that both parties will perform as required without ongoing supervision by the court JC WIlliamson v Lukey (1931): the deterioration of the parties’ relationship led to the conclusion that specific performance was not suitable due to the need for ongoing court supervision - Specific performance would be inappropriate if the item is widely available, as claiming damages could suffice Dougan v Ley (1946): Ley was entitled to an order of specific performance. This is because what was bought was not just a car, but a specially adapted car together with the operating licence. At the time, taxi licences were issued in limited numbers and were not readily available on the market. Accordingly, an award of damages was not an adequate remedy for breach of contract and an order of specific performance was appropriate, 2. Injunctions -> requires a person to do something (mandatory injunction) or not do to something (prohibitory injunction) - They can be used to prevent a threatened breach of contract (or stop a continuing breach) - It will not be ordered if damages are an adequate remedy - An injunction will not be granted if it has the indirect effect of enforcing a contractual promise that a court would not enforce by way of an order of specific performance. An injunction cannot enforce a positive contractual promise that a court would not uphold through specific performance - The question of whether the reasoning for granting injunctions is outdated reflects concerns about changing societal norms Injunction to enforce negative promises. - Although the courts will not order specific performance of positive undertakings to perform personal services, they might be prepared to issue an injunction to enforce a promise not to perform such services. Such orders are relatively easy to enforce because it will not be difficult in future to establish whether the court’s order has been contravened.  - - If an injunction would indirectly produce the same result as specifically enforcing a promise to perform personal services, the courts will not issue the injunction Lumley v Wagner (1852): In the circumstances, the court would issue an order/injunction to stop Wagner singing elsewhere for that period as the court was satisfied in this case that the injunction would not indirectly force Wagner to sing in Lumley’s theatre. This was because she was able to make a living in other ways for the period in question, Invalidating a transaction - The law does not allow certain types of conduct (eg. behaviour that is contrary to good conscience) - An agreement can satisfy the formation requirements (capacity, agreement, certainty, intention and consideration/deed) even if such behaviour took place during the formation process - If a transaction (such as a contract) is entered into in such circumstances, the innocent party may be able to escape her obligations (the contract may be rescinded) Affirmation - Delay in exercising a right to rescind (cancel) the contract can result in the right being lost Other limits to reversing performance - Relief, including restitution will not be granted to persons who have themselves engaged in improper conduct, because the rules of equity require that a party seeking relief have clean hands - The rights to avoid a transaction and seek restitution will also be lost if after discovering the facts, the party seeking to have the transaction made void has done something inconsistent with an intention to seek relief - A transaction will not be made void if a third party has, in good faith, already acquired legal rights that would be affected by invalidating the transaction Vitiating Factors: factors that spoil the contract, rendering it imperfect  - Where a vitiating factor is made out, a party can be released from what would otherwise be binding contractual obligations Duress - When one party uses, or threatens to use, illegitimate pressure to obtain the other party’s consent (eg from physical harm or economic harm) - Contracts can be set aside where a recognised form of duress caused the innocent party to enter into the contract - The victim of duress must act reasonably soon to have the contract set aside, once the influence/pressure/threat has subsided, or they will be treated as having affirmed the contract Barton v Armstrong (1973): On appeal, the Privy Council held that the threats had contributed to Barton’s decision to enter into the contract, This was sufficient for the contract to be set aside as void. The court found that even though there were other reasons for agreeing to buy the shares, Armstrong had been unable to show that his treats had not contributed to Barton’s decision. Therefore, once there is proof that threats were made, it is upon the defendant to show that the threats did not contribute to decision making (in which Armstrong could not do) and thus the contract could be set aside on the grounds of duress. - The infliction of threat or economic harm may also constitute duress. However, the courts distinguish carefully between illegitimate compulsion and behaviour that usually is in the harsh and cutthroat nature of business activity. The critical question is whether the threatened act was, in some way, unlawful North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (1979): NOS had agreed to pay the higher price because of unlawful threats of economic harm and this amounted to duress. The threat by Hyundai to terminate the original contract was unlawful and it was this unlawful threat that compelled NOS to agree to Hyundai’s demands. Therefore, NOS’s consent was not given voluntarily, but rather under duress. The contract was voidable. However, NOS had delayed unreasonably in seeking to set aside the agreement and therefore could not recover the additional 10% they had paid (damages). Therefore, relief was denied.  - Inflicting or threatening illegitimate harm to another’s person’s property, to compel that person to consent to a transaction, may justify treating the transaction as voidable on ground of duress - Undue Influence - Exists when, because of some relationship between the parties to a transaction, one of them can influence the other’s decision-making and uses that influence improperly - The dominant party may be able to influence the decisions of the weaker party - Undue influence may permit the weaker party to avoid the contract - The victim of undue influence must act reasonably soon to have the contract set aside once the influence has subsided, or they will be treated as having affirmed the contract Active undue influence: requires proof that the transaction was the result of undue influence -> If relying on actual undue influence, the ‘weaker’ party must prove that the transaction was the outcome of actual influence exercised over the mind of the weaker party - Examples are often spouses, principal and agent, accountant and client, banker and customer, dentist and patient and employer and employee - This presumption can be rebutted by the stronger party proving that the weaker party’s decision to enter the transaction was in fact made independently and not because of undue influence Johnson v Buttress (1936):  The visit to the lawyer did not constitute independent legal advice to Buttress because it was Johnson’s lawyer they had visited Presumed undue influence: because of the difficulty in proving actual undue influence, the courts will make presumptions of undue influence in certain circumstances -> where under influence is presumed, then the onus of proof shifts, The ‘stronger’ party must prove that the weaker party was freed of the deemed undue influence. Presumed Undue Influence - The courts will presume that entry into a contract was the result of undue influence where 1. Parties are in a relationship that comes within the traditional categories of presumed influence (where there is a presumption of a general controlling interest) -> eg. parent/child, guardian/ward, solicitor/client, doctor/patient 2. Where the relationship falls outside these categories, but the nature of the relationship is such that the weaker party can be shown to have reposed special trust and confidence in the stronger party (where a general controlling influence is proven)  - The onus then falls on the controlling party to rebut this presumption by showing that the other party made the decision independently - - - The fact is that Allcard left the order in 1879 and 5 years later she wanted to recover the property she had given away. Therefore, although the circumstances have rise to a presumption of undue influence. Alcard had affirmed the transaction after ceasing to be under that influence and so could not recover her property, - If Allcard had sought to recover the gift while she was still a member of the order or shortly after leaving it, the presumption would have applied and, unless the order could prove that the transaction was not the result of undue influence, the contract would have been set aside as void. Unconscionable dealing - Exists when one party to a transaction is in circumstances that puts them at a disadvantage and the other, knowing of this, acts contrary to good conscience to obtain their consent - To prove unconscionable dealing:  1. The weaker party suffered from a ‘special disadvantage’ in that they were unable to properly judge what was in their best interest. It is important how these circumstances affect the party’s ability to assess their own best interests 2. The stronger party is aware, or ought to have been aware, of the ‘special disadvantage’. This puts the stronger party on inquiry, The stronger party cannot simply ignore the weaker party’s disadvantage if they were aware of it or if they should have been aware of it in the circumstances. 3. The stronger party takes unfair advantage of the circumstances eg. to extract unconscionable terms or to obtain consent that would not otherwise have been provided - A contract is not void for unconscionable dealing just because it is unfair or one-sided - Instead, the equitable doctrine of unconscionable dealing is concerned with procedural unconscionability - Equity recognises that unconscionable dealing may exist when one contracting party suffers from a special disadvantage and so enjoys no reasonable equality of bargaining power - The disadvantage may arise in different circumstances (eg. sickness, age, illiteracy, emotional dependence, lack of education, lack of independent assistance or advice) - The victim must act reasonably soon to have the contract set aside, once they are no longer suffering from a special disadvantage or they will be treated as having affirmed the contract Commercial Bank of Australia v Amadio (1983): The mortgage was set aside. Their age, background and reliance on their son added to their inability to judge what was in their best interest, Furthermore, the bank knew enough about these circumstances to be put on inquiry and should have taken steps to ensure that the amadios appreciated the nature and extent of the mortgage and the risk before deciding to enter into the security agreement, perhaps by obtaining independent advice. A range of factors contributed to the Amadio’s special disadvantage including, their inability to speak english, their heavy reliance on their son, they had a false understanding of the financial position of their son’s business, they were elderly, they lacked business expertise and they lacked legal advice. It is rare that a court would conclude from a single factor that a party is suffering from a special disadvantage. For example, their limited english would not have been a problem if they had been explained on the matter by a lawyer who spoke their language,  - Mistake - May be a vitiating circumstance when a party to a transaction gives their consent while believing something of importance that is not true - Once again, the right to set a contract aside on the basis of mistake can be lost if the mistaken party affirms the contract Common/bilateral mistake -> both parties make the same mistake (eg. assume the subject matter exists when it does not or mistaken about the identity or quality of the subject matter of the contract) - The test of ‘objective conditionality’: If the consent or agreement to the transaction was intended to be conditional on the truth of the mistaken belief, then the mistake makes the transaction void. If it cannot be inferred from the known facts that the transaction was conditional on the truth of the parties’ mistaken assumption, the contract remains valid, despite the mistake. Lead v International Galleries (1950): The mistake did not justify setting the contract aside as void as the subject matter of the contract was agreed simply as ‘this painting of Salisbury Cathedral’, not ‘a painting by John Constable’. Therefore, the error of the artist was irrelevant and the contract was binding despite the common error. Therefore, the agreement between Lead and International Galleries was not objectively conditional on the truth of their belief that the artwork was painted by John Constable - If there is a common mistake regarding the quality of a thing transacted (as opposed to its identity, existence or ownership), the common law is reluctant to treat the transaction as void. It will do so only if the common error ‘makes the thing contracted for essentially different from the thing it was believed to be’.  - - - The Great peace was close enough to perform the task it was engaged to do (rescue the crew) and was therefore not something ‘essentially different from the thing that it was believed to be’. - Mutual mistake -> both parties have different subjective understandings of their contractual rights/obligations but it is not possible, on the basis on an objective interpretation of the term of the contract to determine which party is correct - The agreement lacks the requisite degree of certainty and thus, in the eyes of the law, no enforceable contract was every formed (certainty formation requirement is not met) - The dispute reveals that the agreement was insufficiently certain, and thus not contractual in nature - If a reasonable person who is made aware of the true facts would infer that, because of the mutual mistake, an essential aspect of the transaction was not satisfied, then the transaction is void - If, despite each party being mistaken, it can be inferred from the circumstances that the requirements of the transaction were sufficiently met, the transaction is valid and will not be set aside as void  Raffles v Wichelhaus (1864): No binding contract existed. Because two ships had the same name, the word Peerless was latently ambiguous and could be a reference to either ship. It could not therefore be said that, objectively judged, the parties had reached agreement on which ship was to be used. If there was no objective agreement because of mutual mistake, the contract will be void in common law. Unilateral Mistake -> both parties have different subjective understandings of their contractual rights/obligations but one party’s understanding of the contract is correct (consistent with the objective interpretation) - The contract will be voidable in equity if it would be contrary to conscience for the other party to take advantage of the mistake - Taylor v Johnson (1983): The contract should be set aside as Taylor must have been aware that Johnson made a serious mistake in relation to a fundamental term and he deliberately set out to ensure that Johnson did not discover this error until it was too late. These actions are contrary to good conscience and the court found that Taylor had acted in this way. It would be unconscionable to enforce a transaction in such circumstances. Misrepresentation - If a representation (a statement of a fact) is false, made with the intention of inducting another party to enter a transaction - If a misrepresentation induces entry into a contract, the contract may be set aside - The right to set a contract aside on the basis of misrepresentation can be lost if the innocent party affirms the contract - Deliberate misrepresentation is also known as deliberate fraud and deceit. Deceit provides the legal basis for an action in tort for damages. If a transaction is entered into because of deceit, the common law allows the party who was deceived to have the transaction set aside as void and the parties are then restored to their pre-transactional position - When one person makes a misrepresentation to another and this is in breach of a duty of care, this amounts to the tort of negligence and damages can be claimed. If a transaction is entered into because of a negligent misrepresentation, equity allows the transaction to be set aside as void and the parties are then restored to their pre-transactional position. Alati v Kruger (1955): Kruger was entitled to avoid the contract and recover the purchase price. The court held that it would be unfair to deprive Kruger of the remedy he wanted, even though he was no longer in a position to restore the operating business he had taken over from Alati. Because the deterioration and failure of the business was not Kruger’s fault and because Alati had taken no action to prevent this from happening, Kruger could avoid the contract even though restoration of an operating business was no longer possible. Illegality  - Contracts may be set aside on public policy grounds or on the basis that they are expressly or impliedly prohibited by statute - Public policy: a ground on which a contract may be invalid The courts have attempted to create some basic rules by establishing a number of ‘heads’ of public policy which identify contracts that are prima facie illegal Where a contractual term imposes an unreasonable restraint of trade, that term will be void on the grounds of public policy The restraint of trade doctrine applies in the following manner: 1. A person seeking to enforce a restraint must demonstrate that the restraint is reasonable as between the parties 2. Even if the restraint is reasonable as between the parties, a person will be released from the restraint if they are able to show that the restraint is unreasonable having regard to the public interest Linder v Murdock’s Garage (1950): The court found that the restraint clause was unenforceable. Under contract law, restraint of trade clauses must be reasonable in terms of geographic scope and duration. The clause in this case was overly restrictive because it applied to a location where Linder had never worked, unnecessarily limiting his ability to work. For a geographical limitation on employment to be reasonable, it must relate to the information (customers, their creditworthiness, peculiarities, etc) that the employee is likely to learn. The restraint clause here extended to two towns, whereas Lindner had been employed in only one. He was unlikely to have contact with or acquire information about customers in the other. Therefore, the extent of the restraint was therefore unreasonable. Courts often strike down such broad restraints if they are not necessary to protect legitimate business interests. The restraint of trade doctrine applies in the following manner: 1. A person seeking to enforce a restraint must demonstrate that the restraint is reasonable as between the parties 2. Even if the restraint is reasonable as between the parties, a person will be released from the restraint if they are able to show that the restraint is unreasonable having regard to the public interest Whether a restraint is reasonable is determined by looking at its geographical and temporal reach - In Quiz 7, Boonie’s original restraint clause would be unenforceable but if they strike out the word Geelong, it would be enforceable Express Statutory Illegality: directly prohibited by statute (eg. a legislative provision may prohibit the making of a particular type of contract) Section 45 of the Competition and Consumer Act 2010 (Cth) prohibits the making of a contract that has the purpose, effect or likely effect of substantially lessening competition - Implied Statutory Illegality  Generally, courts are reluctant to find an implied statutory intention to invalidate a transaction, particularly if a statutory penalty to provided that appears to be a sufficient sanction Many statutes prohibit conduct without making any reference to the legality of contracts which involve such conduct Determining whether a contract impliedly prohibited by statute is an exercise in statutory construction - did the legislature intend to prohibit such contracts? The penalties alone appeared sufficient to achieve the purposes of the Act Simplified version: Express vs Implied Prohibition - The Water Act 1992 (NT) expressly prohibited the conduct of drilling without permits but did not expressly prohibit the contract for drilling. - The court reasoned that just because certain conduct was illegal under the Act, it didn’t automatically mean that any contract relating to such conduct was also illegal or unenforceable Implied Prohibition -> whether the law would also render the contract void due to its association with illegal conduct - The court concluded that penalties imposed by the act were intended to act as a disincentive to the illegal conduct and the law didn;t go so far as to invalidate contract related to that conduct - The court found there was no need to “punish” FJL by refusing to enforce their contractual rights against F for payment. The penalty under the Act was seen as sufficient to address the illegal conduct, without also rendering the contract unenforceable