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Contract Formation Offer Page 2 Acceptance .Page 3 Consideration Page 4 Reliance .

ce .Page 7 Intention Page 7 Certainty Page 8 Privity Page 9 Contract Terms Express & Incorporated TermsPage 11 Construction & Exclusion Clauses.Page 12 Extrinsic Evidence Page 13 Termination Frustration Page 14 Agreement Page 15 Breach .Page 16

Contents - Notes

Repudiation .Page 17 Delay .Page 18 Vitiating Factors Mistake Page 21 Misrepresentation Page 22 Misleading/Deceptive ConductPage 23 Duress Page 24 Undue Influence.P age 24 Unconscionable Conduct.Page 24

16784563 Contracts Final Exam Notes (Autumn 2010) Contract Formation: Offer Offer: An expression of willingness of one person to another to enter into a contract on certain terms Whether a reasonable person in the position of the offeree that an offer was intended, and that a binding agreement would be made upon acceptance Actual Intention of the offeror is irrelevant. The Court will determine intention objectively according to outward manifestations ( Carlill v Carbolic Smoke Ball Co) The terms of an offer are determined objectively An offer must be more than a mere puff An offer can be made to all the world An offeror can prescribe the mode of acceptance A contract cannot be formed unless there is a firm offer Unilateral The offeree accepts the offer by performing his or her side of the bargain. The consideration on the part of the offeree is completely executed by the doing of the very thing which constitutes acceptance of the offer ( Australian Woollen Mills Pty Ltd v Commonwealth) For example, a reward is posted for a lost dog In unilateral contracts, commonly understood that offer cant be revoked once acceptance has commenced, but this is not a universal rule and depends on the facts Bilateral At the time of formation, the obligations of both parties remain to be performed. The obligations of both parties are executory at the time of formation. (Gibson v Manchester City Council) Invitations to treat An invitation to others to make offers or enter into negotiations. It is not an offer. For example, a wine merchant circulating a price list. If this was to be considered an offer the merchant would have to supply any amount of demand. (Pharmaceutical Society of Great Britain v Boots Cash Chemists) Tickets If notice of terms is given after the point of contracting, then those terms are not binding. (MacRobertson Miller Airline Services v Commissioner of State Taxation) Where there is no promise contained on the ticket, the ticket for carriage is an offer Acceptance does not occur when ticket is purchased, but at some time afterwards (depends on the facts of the case) Termination of an offer An offer will cease to be available for acceptance when: 1. It is withdrawn by the offeror;

2. 3. 4. 5. 6. 7.

The offer lapses; The offeree rejects the offer; Change of circumstances; Failure of a condition; Death of a party; and Supervening incapacity.

1. General rule - An offer may be revoked at any time before it is accepted. (Goldsbrough Mort & Co Ltd v Quinn) Where there is consideration for an offer, it cannot be withdrawn 2. An offer which is expressed to be available for acceptance for a particular period of time will lapse at the end of the period. 3. Once an offer has been rejected, there can be no acceptance. Making of a counter-offer is treated as a rejection of the original offer and will extinguish it (Harris v Jenkins, Hyde v Wrench) 4. An offer may be withdrawn circumstances of have changed 5. Offers may be subject to express or implied conditions that must be fulfilled before the offer can be accepted. 6 and 7 Self explanatory

Acceptance Subjective approach - no contract is formed unless there was a real consensus between the parties. Objective approach - looks only to the external manifestations of consent, disregarding the offeree actual state of mind. (R v Clarke) - A unilateral contract will be made only where the acts require for acceptance are performed on the faith of the offer. Acceptance must be on the faith of / in reliance upon the offer An acceptance generally has effect only when communicated to the offeror. Acceptance must be in response to an offer Communication The offeror may expressly or impliedly dispense with the need for actual communication in two ways: 1. The offeror may agree to treat the doing of an act as an effective acceptance; and 2. The offeror may treat the dispatch of an acceptance by a particular method as effective, whether or not the acceptance is received by the offeror. Postal rule / Postal acceptance rule The common law has recognised the Postal rule as an exception to the General Rule. Time and Place - Acceptance is effective as soon as it is posted ( Adams v Lindsell ) and the contract formed where it is posted. The rule will bind the offeror without the offeror knowing it. The offeror bears the risk upon posting. Does not apply to instantaneous forms of communication such as telephone or telex (Entores v Miles Far Eastern Corp)

Electronic Communications Fax is a form of instantaneous communication and governed by General Rule where acceptance is effective upon receipt by offeror ( Reese Bros v Hamon-Sobelco). Email is instantaneous and not analogous (similar) to the post as acceptance will be effective only when received by the offeror. Method of acceptance Offer may prescribe an exclusive method for the communication of acceptance which must be used (Carlill v Carbolic Smoke Ball Co). Silence cannot be the mode of acceptance for an offeree ( Felthouse v Bindley) Mere silence is not sufficient to accept an offer Inferred from conduct - Courts may accept an agreement has been formed even where the offeree has not effectively communicated acceptance to the offeror. The ultimate issue is whether a reasonable bystander would regard the offerees conduct, including the offerees silence, as signaling acceptance of the offer (Empirnal Holdings v Machon Paull ) Acceptance is determined objectively Silence, in connection with other circumstances, can indicate acceptance Correspondence between offer and acceptance A response to an offer containing a variation is not acceptance, but a counter-offer (Hyde v Wrench) Conflict approach - treats the exchange of terms as a battle and requires the court to determine which set of terms has prevailed. Synthesis approach - requires the Court to build a contract from two sets of terms consisting of consistent terms and terms which appear to have been accepted. Any gaps to be filled with terms implied by the Court. In most cases, there is a contract as soon as the last of the forms is sent and received without objection being taken to it Indication that possibly synthesis approach may also be adopted Non-contractual obligations The modern law recognises numerous non-contractual obligations between negotiating and contracting parties which are owed even if a contract is never formed. Estoppel has developed to protect pre-contractual reliance. Restitution may require payment for work done in anticipation of a contract which fails to form. TPA/FTA - impose numerous obligations on parties engaged in negotiations (no bait advertising, no misleading and deceptive conduct et cetera). Consideration Consideration is the second element in contract formation. The doctrine of consideration requires that something be given in return for a promise in order to make it binding. A contract (with common consideration) may involve: (a) Exchange of things (money for goods); (b) Exchange of a thing for a promise; and

(c) Exchange of a promise for a promise. A has made a promise to B. B wants to enforce the promise. However, has B (the promisee) given consideration for that promise? Nudum pactum (bare promise) An agreement unsupported by consideration on both sides is said to be a naked agreement and this label carries with it the idea that the agreement is unenforceable. Benefit / Detriment The first aspect of valuable consideration is that it must consist of a detriment to the promisee or a benefit to the promisor. The promisee must either confer a benefit on the promisor, or must incur a legal detriment, in the sense of giving something up or undertaking an obligation.

The bargain requirement The second aspect of the doctrine of consideration is that the benefit conferred on the promisor or the detriment suffered by the promisee must be given in return for the promise, that is, quid pro quo. A promise to pay someone money if they perform an act is a conditional gift. A promise to pay someone money in return for performance of the act is capable of giving rise to a contract. (Australian Woollen Mills v Commonwealth) An act performed in reliance on a promise will not constitute good consideration but may give rise to an estoppel. Acts performed in reliance on a promise will not constitute consideration for that promise unless those acts can be regarded as having been performed in return for the promise (Beaton v McDivitt). Consideration must move from the promisee Consideration may move from the promisor, but it is a fundamental principle that consideration must move from the promisee. Where two or more parties to a contract are regarded as joint promisees, consideration may be provided by one of them on behalf of both or all of them. (Coulls v Bagots Executor and Trustee Co Ltd) Consideration must be sufficient, but need not be adequate ( Woolworths v Kelly) Courts do not look at the intrinsic value of the consideration The requirement of sufficiency means that consideration must be something the law regards as valuable. Part payment of a debt Rule in Pinnels case - Part payment of a debt does not constitute good consideration for an agreement to discharge the debt. This rule will not apply where the debtor pays before the due date or in a different form. Sufficiency of consideration Past consideration is not sufficient. Ie. Something given before a promise is made is not sufficient consideration for the promise (Roscorla v Thomas)

A promise to perform an existing legal duty is not sufficient consideration (Foakes v Beer) Exception to this rule there may be sufficient consideration where one party obtains a practical benefit from the other partys promise to perform an existing obligation (Williams v Roffey Bros & Nicholls (Contractors) Ltd) (Musumeci v Winadell Pty Ltd) Promises made to third parties may be sufficient consideration (Pao On v Lou Yiu Long) A compromise of a disputed claim may be sufficient consideration (Wigan v Edwards) The existing legal duty rule General rule - Neither a promise to perform an existing legal duty, nor the performance of an existing legal duty, is regarded as sufficient consideration to support a contract. Public officials must not be influenced by promises of extra rewards for discharging their responsibilities. (Stilk v Myrick) There are five exceptions to this rule: 1. The rule will not apply where the beneficiary is providing fresh consideration; 2. The beneficiarys promise to perform confers a practical benefit on the modifying party (Williams v Roffey, Musumeci v Winadell Pty Ltd); 3. The promise to perform an existing contractual duty is made by the beneficiary to a third party; 4. A promise made by way of a bona fide compromise of a legal claim will not be covered by the rule (Wigan v Edwards); and 5. The original contract is terminated by agreement and replaced with a new contract. Promises under seal Deeds are commonly used in Australia to ensure the enforceability of promises where there is some doubt as to whether consideration is being provided by the promisee. Estoppel (by conduct) An estoppel may arise when one person (the representor) induces another person (the relying party) to adopt and act upon an assumption of fact (common law estoppel) An estoppel may arise when one person (the representor) induces another person (the relying party) to adopt and act upon an assumption as to the future conduct of the representor (equitable estoppel) Estoppel recognises detrimental reliance on a promise as a basis for enforcing the promise. Estoppel operates where non-contractual promises have been relied upon so that A will be estopped from acting inconsistently with As promise OR will take steps to ensure B does not suffer harm as a result of Bs reliance on As promise. Common law estoppels - Occurs where A tells B that they have actually done something which they, in fact, have not. B relies and acts upon this assumed fact.

Equitable estoppels - Operates where the relying party acts to its detriment on the faith of the assumption it will be granted an interest. (Waltons Stores (Interstate) Ltd v Maher) Essential elements of Estoppel Assumption - relying party must have adopted an assumption; Inducement - That assumption must have been induced by the conduct of the representor; Detrimental reliance - relying party must act on the assumption in a way that it will suffer detriment if representor does not adhere to the assumption; Reasonableness The relying partys reliance must be reasonable; and the representors departure from the relevant assumption must be unconscionable. Unconscionability - it must be unconscionable for representor to depart from assumption; Departure - Representor must depart or threaten to depart from assumption adopted and acted upon by relying party. Reliance-based relief The court may grant relief to ensure the relying party does not suffer loss as a result of the reliance on a promise. (Crabb v Arun District Council) A direct means is to order monetary compensation or granting a lien or charge over representors property to the value of the expenditure incurred in reliance. Expectation-based relief Alternatively, the court can protect the claimant's expectation interest, by providing a remedy which puts the claimant in the position it would have been in had the relevant promise been fulfilled. ( Giumelli v Giumelli) A direct means is specific performance or damages in lieu of specific performance.

Reliance (Kirksey v Kirksey) Here, a man invited his widowed sister-in-law and her family to his property and said hed provide a home and land for them. Initially he did this, but he moved them twice; they eventually ended up in a place slightly better than a shack that was located in the woods. The court said that there wasnt consideration, but one judge, in his dissent, said that the sister-in-laws reliance on the brother-inlaws promise should be sufficient consideration. Because courts started thinking this way, they found ways to get around the question of reliance as consideration. The first way is estoppel in pais or equitable estoppel. Here, if A makes a statement of fact to B and B has foreseeably relied on the statement, A is prevented from denying the truth of the statement. So, using Kirksey as an example, the brother-in-law said hed take care of his sister-in-law, and since the sister relied on that statement, the brother couldnt deny hed made the statement.

The second way is promissory estoppel, also known as detrimental reliance. Promissory estoppel occurs when a promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. (Res. 2d. 90). Basically, if someone makes you a promise and you act on that promise, then the promise is binding. Thus, reliance is a form of consideration.

Intention The third requirement for the formation of a contract is the manifestation of an intention to create legal relations Intention is an objective standard. The court is not interested in whether the parties actually intended to contract. ( Emogeneous v Greek Orthodox Community) The question is whether a reasonable person would regard the agreement as intended to be binding A court may look at: (Terms of the contract) (Relationship of the parties to each other) (Subject matter of the agreement) (Status of the parties) (Surrounding circumstances). (Balfour v. Balfour) Court ruled not intention to be legally bound (Merritt v. Merritt) Court ruled there was an intention to be legally bound Presumptions Commercial agreements are presumed to be made with an intention to create legal relations. (Banque Brussels Lambert SA v Australian National Industries Ltd). Agreements made in other contexts are not presumed to be made with such an intention. Onus of proof Commercial - The onus is on the person denying the enforceability of a transaction. Non-commercial - The onus rests on the person seeking to enforce such an agreement to convince the court that the parties did manifest an intention to be bound. Presumption and letters of comfort Letters given to a financier in place of a guarantee. Usually given to a bank by a parent company on behalf of a subsidiary in place of a guarantee as a guarantee would affect its balance sheet. (Australian European Finance Corporation v Sheahan ; CBA v TLI Management Pty Ltd) Agreements between family members Domestic and social agreements have traditionally been approached on the basis that the parties are presumed not to intend legal obligations (not the case anymore)

In deciding whether the parties have manifested an intention to create legal relations, the court will take all the circumstances of the transaction into account, and these will vary from case to case (Todd v Nicol) Government agreements Whether a court will conclude that an agreement entered into by a government is intended to be binding depends in part on whether the transaction is a commercial agreement or an arrangement involving the implementation of government policy ( Administration of Papua and New Guinea v Leahy) Preliminary agreements Parties often negotiate the principle terms and enter into a preliminary written agreement with the intention of recording the entire agreement at a later stage. (Masters v Cameron) If one of the parties wishes to pull out prior to the formal agreement, the courts must determine whether there was an intention to be bound upon signing the preliminary agreement. Certainty The fourth requirement of contract formation is that an agreement between the parties must be certain and complete The agreed terms must be sufficiently certain and clear so that the parties can understand their rights and obligations and the court can enforce them. The contract must be sufficiently complete so that there is agreement on all terms. The promises made must not be illusory The court will endeavour to uphold the validity of the agreement, but will not do so where the court is asked to spell out to an unacceptable extent terms on which the parties have failed to agree. Per Kirby P in (Biotechnology Australia Pty Ltd v Pace) A contract may fail because a term is so vague and imprecise that the Courts cannot attribute a meaning to it. Reasonableness The standard of reasonableness can often be employed to provide completeness and certainty that would otherwise be lacking. ( Hall v Busst) In Australia, the Court accepted that a promise to negotiate in good faith may be enforceable: (Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd) per NSWCA majority. Completeness No contract is concluded until the parties negotiating are agreed on all the terms of their bargain (or have provided some mechanism by which the terms will be determined) (Milne v Attorney-General) Essential terms The more novel or complex an agreement, the less likely it is that the Court will be competent to fill gaps in the agreement: ( Milne v Attorney-General) The law does not permit a court to imply a term into a bargain between parties for the purposes of making their bargain an enforceable contract: (ANZ v Frost Holdings Pty Ltd) per Kaye J. Agreements to agree

Courts will not enforce agreements where the parties agree to reach agreement in the future on a certain term. Executed contracts Courts less likely to find an agreement incomplete where it has been wholly or partly performed: (F&G Sykes (Wessex) Ltd v Fine Fare Ltd) Illusory promises Wherever a promisor has a discretion as to whether he or she will carry out that promise (at all), the result is that there is no contract on which an action can be brought at all. Per Kitto J in ( Placer Development Limited v The Commonwealth of Australia) In some cases there may be an implied obligation to act honestly or reasonably in carrying out the condition. Mason J in ( Meehan v Jones) A promise will be illusory if the promisor has an unfettered discretion in relation to performance: (Placer Development Ltd v Cth) A promise may also be rendered illusory by an exemption clause which is so sweeping in its effect that it effectively deprives the promise of any force: (MacRobertson Miller Airline Services v Commissioner of State Taxation) A contract will not be regarded as illusory if important matters are left to be determined by a third party, or if subsidiary matters are left to be determined by one of the parties: (Godecke v Kirwan) Waiver It may be possible for an uncertain, incomplete or illusory provision in a contract to be waived by the party for whose benefit that clause was inserted. A party cannot waive an uncertain clause that is essential to the contract because the uncertainty means the parties failed to reach an agreement at all. Since there is not contract, no right of waiver can arise: ( Grime v Bartholomew) Privity General rule is that only the parties to a contract are entitled to enforce it & legally bound(Coulls v Bagots Executor and Trustee Co Ltd ) A person who is not a party to a contract can neither enforce the contract nor incur any obligation under it. Privity does not apply in cases of agency and assignment The privity rule is distinct from the requirement that consideration must move from the promisee. Benefits A and B enter into a contract where A agrees to pay money to C in return for B performing services for A. - C cant sue A to recover the money if unpaid; - B may enforce contract on Cs behalf but the remedies available to B may not be adequate to ensure C obtains the benefit of As promise; and - If A sues C in respect of negligent work, C could not rely on the contract as a defence Burdens

A contract between a Manufacturer and Wholesaler cannot restrict the terms on which the goods may be sold by the Retailer who purchases the goods from the Wholesaler. There is an exception to rule that a contract between A and B cannot impose obligations on C. For example, a restrictive covenant affecting land can bind subsequent owners of the land (Tulk v Moxhay).

Circumventing There are 5 main circumstances under which the privity rule may be circumvented 1. The promisee may be seen as having made the contract as agent of the beneficiary; 2. The promisee may hold rights under the contract on trust for the beneficiary; 3. The beneficiary may be entitled to assert an estoppel against the promisor; 4. The beneficiary may be entitled to claim damages for misleading or deceptive conduct. 5. The beneficiary may be entitled to claim damages in tort. Agency If A, acting an agent of C, makes a contract with B, then C is a party to that contract. The privity rule is circumvented if a person promised a benefit under a contract can show that one of the contracting parties entered into the contract as its agent. Trust Where A (promisor) contracts with B (promisee) whereby A promises to confer a benefit on C (beneficiary), the court may discern an intention on the part of B to hold on trust for C the contractual right to enforce that promise. (Trident v McNiece at 147 per Deane J) Estoppel Estoppel will prevent injustice arising from a party relying to its detriment on an expected benefit or entitlement arising from a contract to which it is not a party. Beneficiary induced by a promisor + reliance on that promise to its detriment if promise not fulfilled = entitlement to estoppel Tort Where the contractual duty in question is a duty to take care to avoid harm to the beneficiary, and there is a relationship of proximity between the promisor and beneficiary, a duty of care under the law of negligence will arise. (Hill v Van Erp) Remedies Remember that B can sue A for not paying C

Damages B is entitled to the amount that would be the difference between what they would have had had the contract been performed, and the position they were actually in o o o The practicality of this is that Bs situation is basically unchanged money was going to be paid to C This in mind, B may suffer a real loss in certain circumstances, and then they can recover Coulls There are a couple of exceptions where B can sue to recover Cs loss

Specific Performance The court MAY use this to make A pay C, but this is discretionary often then wont o One of the most important hurdles one has to pass is showing that damages is an inadequate remedy must be unjust if specific performance is not performed cant let A get let of scott free

However, in many cases B will not put them through court to get a nominal amount from damages or the ordeal of trying to get specific performance

Contract Terms Express & Incorporated Terms Express terms: These are agreed by each of the parties and communicated either verbally or in writing. There are two types - Conditions, these are the main terms of the contract and a breach of these terms would entitle the injured party to repudiate the contract and claim damages. Warranties, these are the minor terms which would allow claims for damages only. General rule is that in order to be a part of a contract, a statement must be promissory in nature rather than a mere representation. The test is an objective one. A statement will only form part of a contract if it is promissory and not a mere representation (determined objectively) Where a document is signed, a party is generally bound by the terms of the document (unless misrepresentation or fraud) Where a document is not signed, terms can be incorporated by reasonable notice Effect of a Signature A signature will bind a party to the terms of a contractual document regardless of whether or not the party has read or understood the terms: (LEstrange v F Graucob Ltd)

The rule in LEstrange v F Graucob Ltd may not apply where a signature was induced by misrepresentation or fraud: ( Curtis v Chemical Cleaning & Dyeing Co) The rule in LEstrange v Graucob will not apply where a document could not reasonably be considered a contractual document. Timing (Oceanic Sun Line Special Shipping Co Inc v Fay ): Fay booked a Greek cruise and was given an exchange order which stated he would be given a ticket upon boarding. The ticket contained terms that the Greek courts had exclusive jurisdiction in actions against the owner Knowledge or notice Knowledge - A party who actually knows of delivered or displayed terms before or at the time of contract will be bound by the terms - regardless of whether they are read. Reasonable notice - If a document is one that a reasonable person in the circumstances would expect to contain the terms of a contract, the mere presentation of the document will be sufficient notice of the terms in the document. Unusual or onerous terms Some courts have suggested that where the terms to be incorporated are unusual or onerous, special notice must be given. (J Spurling Ltd v Bradshaw), Denning LJ at 446: [Some] clauses which I have seen would need to be printed in red ink before the notice could be held to be sufficient. Regularity and uniformity For the term to be incorporated by a course of dealing, it must be regular and uniform. The document relied upon must be a contractual document - rather than having the appearance of a receipt or docket. (DJ Hill and Co Pty Ltd v Walter H Wright Pty Ltd) Consumers and standard form contracts There is a concern that these contracts may arise from an inequality of bargaining power between the parties - disparity in information, experience, expertise and resources. Consent - There may be little real or informed choice on the part of the consumer due to the presence of an inherent inequality between the parties. Trade Practices Act 1974 (Cth): Implies conditions of fitness and quality which cannot be excluded by supplier; and Misleading and deceptive conduct prohibited; Unconscionable dealing prohibited. Fair Trading Acts of each jurisdiction Terms implied by law Terms implied in law are implied in all contracts of a particular class ( Byrne v Australian Airlines Ltd) Fitness for purpose Merchantable quality Rule that payment and delivery for goods are concurrent conditions

Implied warranty of seaworthiness Terms implied in fact Must be reasonable and equitable Must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it Must be so obvious that it goes without saying Must be capable of clear expression Must not contradict any express term of the contract ( BP Refinery (Westernport) Pty Ltd v Hastings Shire Council) Terms implied by custom The existence of a custom or usage is a question of fact The custom must be so well known that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract A term will not be implied into a contract where it is contrary to the express terms of the agreement A person may be bound by a custom notwithstanding the fact that they had no knowledge of it In order to establish a custom, it is necessary to establish a clear course of conduct. For example, establish that insurers do not look to the assured for payment of the premium. Business efficacy test (Breen v Williams) clarified this test to state that the term must be necessary for the reasonable or effective performance of the contract. Construction and Exclusion Clauses In construing the contract, the parties intentions are construed objectively Intention Courts aim to give rise to the intention of the parties to the contract. Natural or ordinary meaning not the privately intended meaning. By reference to what a reasonable person would understand the terms to mean Text of the document Surrounding circumstances Purpose and object of the transaction (Pacific Carriers Ltd v BNP Paribas) Unreasonable, un-commercial, absurd Where there is ambiguity, if plain and ordinary meaning leads to an uncommercial, unreasonable or absurd result Courts favour an interpretation which produces a reasonable commercial result as it probably reflects intention of parties. Where words are clear, then effect will be given to those words even if the result appears unreasonable ( ABC v Australasian Performing Right Association) Exclusion clauses An exclusion clause is to be construed according to its natural and ordinary meaning (Darlington Futures Ltd v Delco Aust Pty Ltd) Principles of strict construction

Where the words of an exclusion clause have a clear meaning there should be no scope for a restrictive interpretation. Four corners rule Courts unwilling to construe an exclusion clause as excluding liability for acts that are not authorised by the contract. (Gibaud v Great Eastern Railway Co) The deviation rule A carrier is unlikely to be able to rely on an exclusion clause to exclude liability for loss occurring during a deviation from the contractually agreed voyage. In Thomas National Transport, the court said the effect of a clause must be resolved by construing the language that the parties used, read in its context with any necessary implications based upon presumed intention. Negligence It is inherently improbable that one party to a contract should intend to absolve the other from the consequences of his own negligence: ( Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd) Deliberate breach Courts have tended to require clear words before an exclusion clause will exclude liability for a deliberate breach of contract ( Photo Production Ltd v Securicor Transport Ltd) The Parole Evidence Rule When identifying the terms of a contract the courts aim to give effect to the parties presumed intention. Presumed intention is objectively interpreted Oral contracts Court may consider all relevant evidence including: industry practice; and what parties said during negotiations. Written contracts Court must consider evidence which is admissible Usually considered to have 2 parts: 1. The rule prevents extrinsic evidence being given to add, vary or contradict the terms as they appear in written form; and 2. The rule limits the evidence that can be given to explain the meaning of the terms of a written contract. Purpose - preserve integrity of written agreements. Premise - parties intended written form to be final expression of their agreement. Exception - the rule does not forbid a resort to parole evidence where consistent with the matters stated in the writing. Extrinsic Evidence 1. Identify the terms of a contract; and Construe the terms of a contract. Rule only applies where contract is wholly in writing. Entire Agreement clauses - suggest that the written agreement consists of all the contractual terms. Clause will exclude all oral and written material (Harris v Sydney Glass & Tile Co). Stricter approach Rule attracted where written document produced which appears on its face to be the complete record. ( Hoyts v Spencer). Broader approach Rule has no application until determined that parties intended written document to form the whole of the agreement. ( SRA v Heath).

Although unsettled, the broader approach is favoured in Australia. Extrinsic evidence will be allowed to establish whether written document was intended to be: the entire agreement; or supplemented. Exceptions to the rule - A collateral contract is where a promise is made, and the consideration for that promise is the making of another contract: ( Heilbut Symons & Co v Buckleton) - Estoppel raised to give relief to one party where other party seeks to depart from assumption that it would modify or not enforce certain terms: (SRA v Heath) - Rectification Equitable power to rectify written contract where a mistake made in the recording of the agreement. - Condition precedent - Extrinsic evidence will be admitted to show that the written contract was not to become effective until a condition precedent was satisfied. - Implied terms Courts may have regard to extrinsic evidence when considering whether to imply a term into a contract. - Extrinsic evidence may be admissible to prove the real consideration under a contract where: 1. No consideration is expressed in the contract; 2. Consideration is vague or ambiguous; or 3. Additional consideration exists which is not set out in the written contract. Extrinsic evidence will be admissible in the following circumstances of: Ambiguity; (Hope v RCA Photophone of Australia Pty Ltd) Identifying parties or subject matter; and Eliciting evidence of trade usage. Termination Frustration Frustration occurs when some disaster overtakes the contract which cannot be said to be any ones fault. Rights and liabilities cease to apply in the future but those already fallen are enforceable Implied term - Courts declare contract to be frustrated by implying a term into the contract. Construction - Construing the obligations of the contract and limiting them to normal circumstances (ie the foundation of the contract). Total failure of consideration Frustration occurs where performance becomes Impossible (Taylor v Caldwell), or Commercially unfeasible Codelfa Mere hardship, inconvenience or material loss are not sufficient to frustrate a contract (Davis Contractors v Fareham UDC) Delay Delay which seriously affect the intended performance of the contract may lead to frustration (Bank Line Ltd v Arthur Capel and Co)

Destruction of subject matter (Taylor v Caldwell) Music hall hired for the purpose of concerts but hall was destroyed by fire Disappearance of the basis of the contract Rooms hired on 2 particular dates in Pall Mall for viewing coronation procession of King Edward VII. Coronation postponed by Kings illness ( Krell v Henry) (Codelfa v State Rail Authority of New South Wales ) Frustration succeeded Three important limitations 1. The risk of the frustrating event must not have been provided for by the parties in their contract (Codelfa) 2. The frustrating event must not be one which the parties could reasonably be thought to have foreseen (Brisbane City Council) 3. The frustrating event must have occurred without fault by the party seeking to rely on it (Codelfa) Self-induced frustration A person cannot argue frustration if he or she caused the frustrating event eg Negligence by the party Can be avoided if it can be shown by the person who caused the frustration can show it was not his or her fault. ( Josephine Constantine Steamship) Consequences of frustration Contract once frustrated is automatically brought to an end and neither party is required to terminate. Future obligations under the contract are discharged Common law - Paying party will be entitled to restitution/repayment of money they have paid under a frustrated contract where there is a total failure of consideration. consideration here refers to performance of the promise Money paid in advance of frustration Fibrosa Spolka Akcyjna - The House of Lords applied a restitutionary principle which dictates that where there is a total failure of consideration, then any money paid in advance can be recovered. Work done in advance of frustration If a right of payment exists (specified in the contract) for any work provided prior to frustration, then payment is recoverable as rights which accrue prior to frustration remains effective. Where no right of payment is specified in the contract, a party may have a contractual right to payment only where the work required has been fully performed and not in the case of partial performance. (Cutter v Powell) Statutory modifications Frustrated Contracts Act 1978 (NSW) Agreement By express term must be exercised in accordance with the clause By implied right to terminate a contract of otherwise indefinite duration: (Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd) By agreement between the parties As a result of the parties entering into a new contract concerning the same subject matter Subsequent agreement

Parties may provide for an express agreement regarding release from the original contract This subsequent agreement must comply with ordinary rules of contract, ie offer/acceptance, consideration, etc. Intention to terminate original contract likely where subsequent agreement is inconsistent with original contract and that the 2 contracts cannot stand together Termination unlikely where subsequent agreement cannot stand alone as an independent contract or where parties cannot be presumed to have intended to abandon their rights under the original contract Parties can terminate by conducting themselves as to constitute a mutual abandonment of the contract (Fitzgerald v Masters) Failure of a condition A contingent condition is a condition that must or must not occur eg purchase of car subject to obtaining loan or purchase of land subject to pest inspections, sale of goods subject to sellers licence not be revoked Non-fulfilment of contingent condition excuses performance ( Perri v Coolangatta Investments Pty Ltd) Failure of a contingent condition relating to performance of the whole contract makes the contract voidable and not void ( Suttor v Gundowla) Whether the failure of a condition makes the contract void or merely voidable depends on the language of the contract ( MK & JA Roche v Metro Edgley Pty Ltd) Contingent v Promissory condition Contingent conditions are terms where performance of the contract is conditional upon events occurring or not occurring. If the condition does not occur, parties may terminate but there is no breach of the contract and no damages can be claimed Promissory conditions are terms which are essential in nature that violation is a breach of the contract and the other party may terminate and sue for damages Duty to co-operate Parties may be under an implied duty to co-operate to do everything reasonably within their powers to see condition is fulfilled Breach of this duty means the party in breach will not be entitled to rely on the failure of the condition as a reason for terminating the contract Damages would be awarded to the other party for breach of this duty Objective or subjective test Whether fulfilment of the condition is judged objectively or subjectively depends on the language of the condition, eg objective fact that finance is obtained Subjective determination may occur where one party must satisfy/approve whether the condition has been fulfilled. The party making this judgment may be required to act reasonably, eg satisfactory/reasonable finance ( Meehan v Jones, and Renard) Waiver of contingent condition (Perri v Coolangatta) contract for the sale of land subject to sale of purchasers own property was for the benefit of the purchaser alone and they could waive the condition. Benefit for purchaser in that prevented them from

being committed to 2 properties and vendor had no interest in the sale of the purchasers property Vendor may still terminate in the absence of a waiver and the waiver would be ineffective if vendor had terminated for non-fulfilment of the condition Breach The aggrieved party has a right to terminate the contract if there is a breach by the party in breach and Damages are available for all breaches of the contract Whether or not there is a right to terminate for breach depends on the classification of the term that is breached. If a term is a condition the aggrieved party is entitled to terminate for any breach of that term, regardless of the gravity or consequences of the breach If a term is a warranty, the aggrieved party will not be entitled to terminate merely by reason of a breach of the term by the party (although damages are available) If a term is an intermediate or innominate term, the aggrieved partys right to terminate depends on the gravity or consequences of the breach of the term. Breach of a condition A condition is an Essential term which goes to the root of the contract Parties must clearly express their intention for a term to be classified as a condition. Determination of whether a term is a condition is a question of construction of the contract Courts have suggested to apply this question of construction narrowly as courts should prefer a construction which encourages continued performance rather than avoidance of the contract (as finding of a condition allows termination, even for a trivial/insubstantial breach that causes no real loss) (DTR Nominees) Consider whether parties would only have entered into contract on understanding that there be strict compliance with the particular term (Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd) The term of the contract was considered a condition so LP had the right to terminate because it was not being met. Types of breaches that will entitle party to terminate: Grave Serious Fundamental Going to the root of the contract Gives rise to events frustrating the commercial purpose of the contract Deprive aggrieved party of substantial part of the benefit for which it contracted Repudiation Where one party manifests an inability or unwillingness to perform his or her contractual obligations under the contract, the other party may have a right to terminate

Only a repudiation of a promise or promises of which an actual breach would found a right to discharge will give rise to a right for the aggrieved party to terminate the contract: (Foran v Wright) Absence of willingness or ability to perform must relate to the whole of the contract, to a condition of the contract or be fundamental Anticipatory breach occurs when one party repudiates their obligation under the contract prior to the time set for performance of those obligations. Aggrieved party may accept the repudiation and elect to terminate the contract and claim damages Doctrine of repudiation is based on the breach of an implied term not to render future performances futile Aggrieved party should not be bound to a contract that the other party has indicated they will not/cannot perform. Aggrieved party should be able to rely on the repudiating partys intimation of non performance and be given the power to enter into alternative arrangements Repudiation may overlap significantly with other grounds for termination, such as termination for breach of condition/warranty/intermediate term Repudiation will only occur where a partys absence of willingness or ability to perform duties relates to: The whole of the contract a condition or essential terms of the contract Fundamental ie where it would deprive the aggrieved party of substantially the whole of the benefit of the obligations remaining to be performed under the contract (DTR Nominees v Mona Homes) (Carr v JA Berriman Pty Ltd) (Progressive Mailing House Pty Ltd v Tabali Pty Ltd) Delay If no time is specified, the law implies an obligation to perform within a reasonable time If a time is specified and is specified to be an essential term (or of the essence), a failure to perform entitles a party to terminate If a time is specified with nothing more, generally considered not to be an essential term When time is of the essence Express terms + Breach = Right to terminate. However, some argue that express right to terminate for delay does not conclusively prove that time is of the essence and an inquiry of the issues is still required: (Hewitt v Debus) Where time is not of the essence Breach alone will not permit termination. Termination will be permitted where: - possibly, a serious breach of an intermediate term. - it amounts to repudiation; or Even where time is not of the essence, a right to terminate will exist where there is conduct that amounts to repudiation of the contract.

This requires a party to indicate an intention to no longer be bound by contract: (Carr v Berriman) It must be gross, protracted or frustrate commercial purpose of contract: (Neeta v Phillips); (Universal Cargo Carriers v Citati ) It may also be combined with other conduct to indicate a repudiation of the contract: (Laurinda v Capalaba Park Shopping Centre) Notice Where, no automatic right to termination arises, a party may terminate by giving reasonable notice to perform even where: - Time is not of the essence; - Delay is not a serious breach; and - There is no repudiation. (Louinder v Leis) Notice should be given as soon as delay is evident. Notice must set out reasonable time for performance and failure to perform contract within reasonable time will lead to a right by the aggrieved party to terminate. Failure to comply with notice gives a party a right to terminate the contract This ground for termination is explained by courts as failure to comply with a notice setting a reasonable time for performance will amount to unreasonable delay from which repudiation can be inferred. This then would give the aggrieved party a right to terminate Often been said that notice makes time of the essence for performance although this is incorrect (Louinder v Leis) A valid notice to perform an obligation must specify: - The new time deadline to perform; - This time must be reasonable; and - The new deadline is of the essence and that termination will result if unsatisfied. Reasonable time for compliance? Reasonable time depends upon circumstances of particular case which may include: Subject matter of obligation; What remains to be done at the date of notice; Whether aggrieved party has been continually pressing for performance; and Any unnecessary delay in complying Expert evidence regarding time required to perform obligation Affirmation Affirmation of the contract means electing to continue with it ( Foran v Wright) Rationale behind affirming the contract: Attempt to resolve problems to avoid inconvenience involved in termination Otherwise would require alternative arrangements Continued business relationship is more important than termination for this contract Seller could not rely on estoppel as there was nothing the buyer had said or done that induced the seller to not comply with the terms of delivery, ie no detrimental reliance by the seller on buyers repudiation (Bowes v Chaleyer) Termination Termination of a contract brings to an end both parties future obligations to perform but rights that already have been performed are not discharged.

For example: - right to recover payment for performance of contract already rendered - Damages for breaches leading up to termination - Arbitration/confidentiality clauses Readiness and willingness Aggrieved party must show that they were ready (ie, able) and willing to perform. Otherwise the aggrieved party do not have a right to terminate (Foran v Wright) With regards to actual breach, the aggrieved party must show that they were ready and willing to perform obligations at the time of the breach (Foran v Wright) Where concurrent performance (ie simultaneous performance) is required then aggrieved party must have tendered (offered performance) of their obligation before termination can occur (Mahoney v Lindsay) This requirement can be satisfied by showing that at the time of the other partys repudiation, they were not substantially disabled or incapacitated from performing at the time set for performance (Foran v Wright) This principle is based on estoppel in that the repudiating party will be estopped from insisting on performance by the aggrieived party (or even readiness and willingness), due to their repudiatory conduct. Aggrieved party must show detrimental reliance on the assumption induced by the repudiating party as the reason of failure to be ready and willing. A minor breach of the contract by the aggrieved party (which would not warrant termination) will not prevent them from terminating a contract for a more serious breach by the other party which would justify termination (Hongkong Fir Shipping) Where both parties have repudiated the contract, neither parties will be able to terminate due to a failure by both parties to be willing and able to perform and the parties are treated as having abandoned the contract ( DTR Nominees) Election Aggrieved party faced with event which allows for termination has a choice between affirming the contract or terminating the contract. Termination ends the rights for further performance for both parties Affirmation prevents the aggrieved party the right to terminate in respect of the event which gave rise to the right to terminate Aggrieved partys decision to affirm a contract will not preclude them from terminating at a later time if the breach relates to a continuing breach (Larking v Great Western (Nepean) Gravel) Once and for all breach definite acts and party omits to do that within the time allowed - party has broken covenant finally and continued failure to do act is nothing but a failure to remedy past breach but not the commission of a further breach. Affirming a once and for all breach prevents the aggrieved party from terminating with respect to that breach Continuing breach failure to maintain a state or condition of affairs, eg maintain building in a state of repair. Further breach arises in every successive moment in time during which the state or condition is not as

promised. Aggrieved party can terminate at any time despite initially affirming the contract (Larking v Great Western (Nepean) Gravel) Aggrieved party must have some knowledge in respect of the right to terminate. Where right to terminate is conferred by the contract itself, knowledge of those facts is enough to warrant termination ( Sargent v ASL Developments) Estoppel Estoppel will prevent aggrieved party from terminating where they have induced the other party to believe the contract will not be terminated and the other party has relied on that assumption to their detriment (Walton Stores v Maher) Estoppel by convention will apply where parties have conducted themselves on the basis that a failure of a condition will not bring about automatic termination (Waterman v Gerling Australia Insurance) Prior acceptance of late payment and practice of issuing notices where payment was late established assumption that punctual payment of premium installments was not essential, despite clause saying that time is essential in payment estoppel by convention applied to prevent insurance company from terminating the contract Waiver The term waiver is often understood as an umbrella term. It encompasses the legal principles when rights under a contract may be waived (Agricultural and Rural Finance Pty Limited v Gardiner) Relief against forfeiture Under Australian law, relief may be granted where a sale of land contract is terminated, in order to prevent the forfeiture of the purchasers equitable interest in the land. (Legione v Hateley) (Tanwar Enterprises Pty Ltd v Cauchi) Good faith Acting in good faith means that a party should not pretend to rely upon breaches of no importance to achieve a collateral but desired result of bringing the contractual relationship to an end ( Mangrove Mountain Quarries) (Coal Cliff Collieries v Sijehama) There should be some proportionate or legitimate business reason for an aggrieved party to exercise right to terminate ( Burger King Corporation v Family Dining (US Case) (KMC v Irving Trust) Contractual restrictions Rights to terminate can be restricted under terms in the contract Clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of contract arising by operation of law (Wallace-Smith v Thiess Infraco (Swanston))

Vitiating Factors Mistake Two category of mistake cases

1. Parties are in agreement but erroneously assume some matter to be true referred to as a common or mutual mistake 2. Parties are not in agreement due to the mistake by one party known as a unilateral mistake (Taylor v Caldwell) If concert hall burned down before contract was entered into then the issue is one of mistake. If the contract was entered into and then the concert hall was destroyed then the issue becomes one of frustration. Following Great Peace,(Australian Estates v Cairns City Council [2005] QCA 328) has held (in obiter) that there is no equitable jurisdiction to set aside, on the ground of common mistake, an agreement which is valid and enforceable at common law A court will give relief by way of rectification if the person seeking rectification: - Clearly establishes that both parties intended that the document would be written in a particular way, and both parties had that intention up until the time of its execution; and - can show exactly and precisely the form to which the deed ought to be brought (Maralinga Pty Ltd v Major Enterprises Pty Ltd) Mistake in recording agreement The plaintiff must be able to advance convincing proof that the written contract does not embody the final intention of the parties ( Pukallus v Cameron) Mistake as to terms A unilateral mistake will occur if on an objective interpretation, one of the parties is wrong and the other right or if one party knows of the others mistake To determine whether the parties have formed an agreement (notwithstanding different intentions) apply an objective test ( Smith v Hughes) (Taylor v Johnson) Mistake as to identity Parties not face to face largely UK decisions Difference in outcome between (Cundy v Lindsay) and (Kings Norton Metal Co v Edridge Merrett & Co) involving dishonest rogues purchasing goods (Shogun Finance v Hudson) held that in such a scenario contract was void and 3rd party could not obtain title from rogue Mistakenly signed documents If a person proves that he or she signed a document, without carelessness and believing it to be a document fundamentally different from what it was, he or she is not bound by the signature non est factum (it is not his/her deed), due a complete absence of consent to the contractual obligations The class of persons who can avail themselves of the defence is limited: Those who are unable to read owing to blindness or illiteracy Those who, through no fault of their own, are unable to have any understanding of the document (Petelin v Cullen), eg migrant with no English or person suffering from mental infirmity: (PT v Maradona) Signer must sign the document in the belief that it was radically or fundamentally different from what it was in fact: ( Petelin v Cullen)

Failure to read and understand the document must not be due to carelessness on the part of the signer: ( Petelin v Cullen) Heavy burden exist on person seeking to rely on this defence: ( Petelin v Cullen) Misrepresentation Misrepresentation is a false statement made expressly or impliedly by the representor to the representee that acts as an inducement to enter into a contract Representee may rely on misrepresentation as a defence if the representor sues and eg seeks specific performance Parties may be silent to disclose material facts unless there is a duty to disclose (Davies v London & Provincial Marine Insurance) Representee to succeed in action based on misrepresentation, representation must be a statement of existing or past fact: (Given v Pryor) Representee cannot rely on statements made with regard to: Puffs sales talk and not to be taken seriously Opinion unless it is given contractual force Future intention

Statements of the law maybe similar to opinion or that everyone should have access to lawyers

Puffs and opinions A statement of fact is to be distinguished from sales talk or a statement of belief (opinion) A statement of opinion is a statement of belief especially where the representor, to the knowledge of the representee, has no personal knowledge of the facts upon which the belief is based: ( Bisset v Wilkinson) Statement as to the future Statement that something will happen in the future is not a misrepresentation just because the thing doesnt happen (Balfour v Hollandia Ravensthorpe NL) (Edgington v Fitzmaurice) False impressions Duty to disclose exists where: 1. Statement of a half-truth, ie representation is correct but subject to qualifications: (Dimmock v Hallett 2. Subsequent to representation, representation becomes false ( Jones v Dumbrell) Special contracts Contract of insurance is a contract uberrimae fidei (of utmost good faith) duty exists to disclose all material facts known to the applicant The insured's duty of disclosure s21 INSURANCE CONTRACTS ACT (1984) Fiduciary relationships Fiduciary relationship gives rise to a duty to disclose by the fiduciary in favour of the beneficiary (person to whom fiduciary obligation is owed) e.g. trustee/beneficiaries, partners, principal/agents, director/company (shareholders), master/servant, solicitor/client, tenant for life/remainderman: (Hospital Products v United States Surgical Corp) If a fiduciary enters into a contract with the beneficiary, a most ample disclosure of everything will be demanded: ( Davies v London & Provincial Marine Insurance) Fraudulent misrepresentation

Fraud is proved when false representation has been made ( Derry v Peek): Knowingly, or Without belief in its truth, or Recklessly/careless whether it is true or not It is a valid defence to fraudulent misrepresentation to state there is an honest belief in its truth In the case of ambiguity, question to determine whether representation was fraudulent is the sense in which the representor intended the representation to be understood (Krakowski v Eurolynx Properties Ltd) Negligent misrepresentation Plaintiff may claim in negligence that the defendant owed him a duty of care to provide accurate information/advice and that breach of this duty caused the plaintiff damage: (Hedley Byrne v Heller) Duty extend to persons who, on a serious occasion, give considered advice or information concerning a business or professional transaction Shaddock & Assocs v Parramatta City Council) Misleading or deceptive conduct Trade Practices Act 1974 (Cth) s52 A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive Person who has suffered loss in accordance with s52 is able to claimed damages under s82
Court is also allowed to grant any other order it thinks fit to prevent loss being suffered under s87

Conduct must have occurred in trade or commerce within that meaning under s52 (Concrete Constructions (NSW) v Nelson) What is conduct that is misleading or deceptive? The words misleading and deceptive do not mean the same thing. They must be given their ordinary meaning (Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd) Conduct will only be misleading or deceptive if it induces, or is capable of inducing error (Parkdale Custon Built Furniture v Puxu Pty Ltd) It is not sufficient for the conduct to cause confusion or wonderment (Campomar Sociedad, Limitada v Nike International Ltd) The intent of the defendant is not relevant. All that is relevant is whether, tested objectively, the conduct was misleading or deceptive (Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd) Examples The Federal Court held that the phrase worlds longest lasting battery in high powered devices was misleading ( Gillette Australia Pty Ltd v Energizer Australia Pty Ltd) Federal Court held that the everywhere advertisement did not convey the impression that Telstra Next G services were available everywhere (Australian Competition and Consumer Commission v Telstra Corporation Limited) Who is the audience to whom the conduct is directed?

Conduct may be directed towards the public at large, or to private negotiations between two parties. Public at large or Determine the class of people to whom the conduct was directed and isolate a representative member of that class. The test is an objective one (Campomar Sociedad, Limitada v Nike International Ltd ) Individuals - The analysis of the relevant conduct is undertaken by considering whether a reasonable person in the position of the party (taking into account that they knew) would have been misled or deceived by the conduct (Butcher v Lachlan Elder Realty Pty Ltd) Remedies
Damages are available under s82 Court is given power to grant any other orders it thinks fit to prevent loss or likely loss being suffered as a result of a contravention, including a declaration that a contract is void, or is to be varied, or a person should refund money/return property under s87 Require plaintiff to establish the following: Breach of s52 Loss or damage has been or is likely to be suffered Causal connection between loss and breach

Duress, undue influence, unconscionable conduct and remedies Duress, Undue Influence and Unconscionable Conduct deal with the situation where contractual assent is affected by pressure Duress To establish duress, it must be established that there was illegitimate pressure, and that this was at least one of the inducements to enter the contract (Crescendo Management v Westpac Banking) Duress to the person (eg. threats of violence: ( Barton v Armstrong) Wrongful refusal to perform a contract: Re Hooper and Grass Contract To Goods - Threatened detention or seizure of goods, or threatened damage to goods is within the scope of duress ( Occidental Worldwide Investment Corps v Skibs A/S Avanti) Economic - Arises when defendant threatens to breach a contract unless the plaintiff enters into a modified or new contract on terms more favourable to the defendant (North Ocean Shipping v Hyundai Construction) Remedies Main remedy is to have the contract rescinded Rescission may be impossible if substantial restoration is impossible or if the plaintiff has affirmed the contract If the stronger party claims specific performance, it will be denied Restitution may be available in the case of unjust enrichment Alternatively s51AA TPA prohibits corporations from engaging in conduct which is unconscionable within the meaning of the unwritten law of the States and Territories. Undue influence Undue influence is concerned with the exploitation of a relationship of influence Undue influence allows the contract to be set aside (rescinded) Undue influence may also emanate from a third party such as a wife guaranteeing the debts of her husband ( Yerkey v Jones) affirmed in (Garcia v National Australia Bank)

Necessary for plaintiff to prove affirmatively that defendant exerted undue influence on them to enter into the particular transaction which is impugned (Barclays Bank plc v OBrien) Presumed undue influence Parent and child. Solicitor and client. Physician and patient. Religious adviser and advisee Onus of proof on the person asserting that there was no undue influence (for example, by showing that the person received legal or financial advice) If a relationship of influence existed between the parties prior to the contract, then there is a presumption recognised in equity that the plaintiff was unduly influenced by the defendant shifts the onus of proof on the defendant to disprove undue influence (Johnson v Buttress) Rebuttal requires proof that the plaintiff exercised free and informed consent (Union Fidelity Trustee Co v Gibson) Actual undue influence Onus of proof on the person asserting that there was undue influence must show actual influence over the mind at the time of signing the contract Actual undue influence was proved in husband who had a long history of brutal violence against the wife which ended in him murdering her ( Farmers Co-op Executors & Trustees v Perks) Unconscionable Conduct Looks to the conduct of the defendant in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so (Commercial Bank of Australia v Amadio) Must have a Special disability Lack of assistance or explanation, Amadios who: had limited understanding of written english Mental disorder, where person suffering mental disorder is incapable of understanding the contract if the other party was aware or suspected the disorder (Gibbons v Wright) Drunkeness, purchaser contributed to a habitual drinkers habit by bringing bottle of rum to negotiations. Mere drunkeness is not enough, must be to the knowledge of the other party and that they were induced to drink ( Blomley v Wright) Emotional dependency, person who is emotionally dependent on another may be vulnerable to exploitation or abuse ( Louth v Diprose) (total infatuation with a woman who was manipulative) Inequality of bargaining power (not a special disability) (ACCC v CG Berbatis Holdings) Unconscionable conduct requires knowledge by the defendant of the special disadvantage of the plaintiff and in the face of this knowledge Once the element of special disability and knowledge are proved, the onus is on the defendant to prove that the transaction was fair = rebuttable presumption that the transaction was unfair Remedies under the TPA s51AA: This section applies to unconscionable conduct to the extent that it is recognised by the common law or equity.

s51AB: This section applies to consumer transactions. A corporation, in trade or commerce, in connection with the supply of goods or services to a person, must not engage in conduct which is unconscionable. Injunctions: s80 Damages: s82 (Gates v City Mutual Life Assurance Society) (Henville v Walker) Other orders: s87-Ordering refunds - Declaring transactions void -Varying the terms of a contract Illegality Some contracts are illegal based on public policy ground of anti-social effects Contracts prohibited by statute and Contracts prohibited at common law contracts that violate public policy (basic community standards) are prohibited Consequences of illegality 1. Contract is void 2. Restitution may be available Contracts prohibited by statute Question of construction when a contract is not expressly prohibited whether the contract is impliedly prohibited by statute consider whether conduct to be penalised or whether legislature intended to deprive such contract of legal effect Even where contract is prohibited contract may still be enforceable ( ACCC v Baxter Healthcare) (rare occurrence) General rule that if a particular class of sale is prohibited by statute, purported sale in breach of that prohibition is void ( Bradshaw v Gilberts) Contract is likely to be unenforceable on grounds of public policy if it could only be performed in contravention of a statute or was intended to be performed illegally or for an illegal purpose ( Fitzgerald v FJ Leonhardt) Contracts prohibited by common law Courts may refuse to give effect to a contract if its terms or operation infringes a recognised principle of public policy, done so for the sake of the community at large However courts in considering any particular head of public policy will need to evaluate any opposing public interests in the balance (Hardy v Motor Insurers Bureau) Contracts relating to commission of a crime, tort or breach of statute May be regarded as void/voidable on the basis that it is contrary to public policy, depends on the seriousness of the wrong and the consequences of declaring the contract unenforceable (North v Marra Developments Ltd) Generally knowledge of illegal conduct is required although contract may be void even where both parties had no knowledge of the illegality ( JM Allan (Merchandising) v Cloke) If a party performs the contract in an illegal manner, where the contract allows for performance in a legal manner, then the innocent party can rely on illegality but not the party who has conducted themselves illegally (Archbolds (Freightage) v S Spanglett) Contracts prejudicial to the administration of justice

Means an agreement to stifle a prosecution in respect of an offence of a public nature, eg perjury, assault, theft or forgery (Callaghan v OSullivan) money paid to police officers to prevent prosecution could not be recovered as the contract was a violation of the general principles of public policy If offence is of private nature, then such contracts would not be considered against public policy Contracts in restraint of trade Contracts in unreasonable restraint of trade are prima facie void and unenforceable but will be enforced if the promisee (person receiving the benefit) has a legitimate interest to protect and the scope and duration of the restraint and reasonable Exception is if the restraint is reasonable, ie reasonable with regards to interests of parties concerned and interest of the public ( Nordenfelt v The Maxim Nordenfelt Guns and Ammunition Company Limited) Employer cannot legally preclude employee from competition after termination of employees employment. Employer may be able to protect information attained by the employee during course of employment (Lindner v Murdocks Garage) Independent actions Plaintiff induced to enter into an illegal contract by the defendants false statement may be able to recover damages in action for: Tort of deceit Tort of negligence Misleading or deceptive conduct under s52 TPA Tort to goods trespass to goods, detinue and conversion ( Nelson v Nelson) Severance Contract terms could be severed as a clause is severable if its elimination changes the extent only (gems were recoverable but not gold), but not the kind of contract (Thomas Brown and Sons v Fazal Deen) Illegal conduct became an integral element in the stockbrokers performance of services under the contract, there was no basis for treating the illegality as collateral only or severable from the remainder of the work undertaken (North v Marra Developmenets) Repentance by the plaintiff Plaintiff can retrieve property transferred under illegal contract if they can show that they repented before the illegal purpose was substantially achieved public policy best served by this method Notice of repudiation must be given May not be available in respect of contracts prohibited by statute (George v Greater Adelaide Land Development)