 Monash Law Students’ Society
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STUDENT TUTORIAL
PROGRAM 2015
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Contracts A
SKETCH NOTES
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NOTES
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Tutor Name: Anthony Hadjiantoniou. !
Year of study: 2012, Semester 1. !
Cases not on the 2015 reading guide: • Maddison v Alderson HL 1883
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Cases/Legislation/Journals not on the 2012 reading guide: ! •
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CISG, Article 16 [enacted by Goods Act 1958 (Vic), sch to section 85]
CISG, Article 19 [enacted by Goods Act 1958 (Vic), sch to section 85]
Guide to Enactment of the UNCITRAL Model Law on Electronic Commerce (1996)
E Jenks, The History of the Doctrine of Consideration in English Law (Cambridge University Press, London, 1892), pages 81-82
Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57
Popiw v Popiw [1959] VR 197
Pavey & Matthews v Paul (1987) 162 CLR 221
Interfoto Picture Library Ltd v Stiletto Visual Programs Ltd [1989] QB 433
Corbin on Contracts, 1950, vol. 3, pp. 215-216
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1. Offer: • An offer is an indication of a party’s willingness to enter into a contract on
specific terms. • The offer itself must be sufficiently clear for it to be capable of giving rise
to legally binding obligations. The obligation itself can be both an
obligation to do something and an obligation to reframe from doing
something. Invitation An invitation to treat is an invitation to others to make offers
to treat:
or enter negotiations. Unlike offers, an invitation to treat does
not contain obligations (Pharmaceutical Society of Great
Britain v Boots Cash Chemists). For example, goods found
in a supermarket.
Puffery:
A statement will be a puff when the obligations are uncertain
or the parties did not intend to create a legally binding offer.
For example “if you are unsatisfied, we’ll give you the
store”. !
In Carlill the ct found that a pledge to give 100 dollars if the
customer was not satisfied with their product was not a puff.
There is overlap with this element and intention to create
legal relations (parties do not intend puffs to be legally
binding). Unilateral A unilateral offer is an offer that is ‘made to the world’. The
Offer:
offer is accepted through performance (therefore, acceptance
and consideration are satisfied simultaneously). !
Note: Government subsidies do not constitute offers
(Australian Woollen Mills v Commonwealth).
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1.1.Is there still a live offer? • If the plaintiff successfully establishes that there is an offer, the court will
inquire as to whether the offer was still live and therefore, capable of
being accepted. The following may be relevant: Rejection:
When a party rejects an offer, they remove their ability to
accept the offer in the future.
Counter
offer:
Counter offers attempt to modify the initial offer. For
example, “I’m not willing to pay 10 dollars, but I’ll pay
5”. A counter offer has the same effect as rejecting an
offer. Contrast to “would you consider any price below
10 dollars” (which would be a ‘mere inquiry’ and keep
the offer alive). Complex situations may arise where there have been
several offers and counter offers. Therefore, making the
actual terms of the contract unclear. The court will
resolve this issue through the ‘battle of the forms’ where
the ‘last shot fired’ aka the latest offer will form the basis
of the contract. Contrast to synthesis approach.
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Revocation:
An offer can be revoked at any time before the offeree
accepts. So long as the mode of communication is
appropriate. Generally, acceptance of a unilateral contract will take
place when obligations have been performed, there may
however, be grounds for an equitable estoppel in
circumstances of part performance (see Mobil Oil and
later discussion). An offer will be irrevocable if the offeror has been given
consideration to keep the offer alive (Goldsborough
Mort).
Death:
The death of the offeror will nullify the offer as soon as
the offeree becomes aware of said death (Fong v Cilli).
Change in
Fundamentally changed circumstances will serve to kill
circumstance: an offer (Dysart).
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2. Acceptance: • Acceptance of an offer is an unqualified assent to the terms of the offer. • Acceptance is viewed objectively. Therefore, arguing that you did not
subjectively understand the terms of the contract, or did not read it will
not absolve you of your obligations under the contract (Fitness First
Australia & Smith v Hughes). • The court takes a very common sense orientated approach to assessing
whether assent has taken place. Therefore, Acceptance can be inferred
through conduct (Felthouse). For example, in Felthouse, accepting the
benefit of the contract without formally signing the contract, constituted
acceptance. In Brambles, Heydon JA concluded that agreeing to pay
additional costs (without reserving the right to sue in the future) for liquid
waste constituted acceptance (despite initial protest). • Circumstances where the court will not be satisfied that there has been
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acceptance:
❖ Acceptance cannot be inferred from silence (Empirnall). Silence,
when accompanied with actions, may be valid consent. ❖ Acceptance must be in response to the offer (or in reliance of the
offer). For example, in Crown v Clarke, the P made statements to
clear his name. His acceptance was not in reliance of the offer
(having no knowledge of the offer). Therefore, acceptance did not
take place, as he never intended to give the information to
demonstrate acceptance. 2.1.Method of Acceptance: • Generally, acceptance does not take place until acceptance has been
communicated.
• The postal rule is an exception to this rule. Acceptance takes place as
soon as the letter enters the mailbox (Brinkibon Ltd v Stahag Stahl).
The postal acceptance rule is not necessarily justified by logic. It does
however, provide a solution, to the question “who bares the risk in
contracts where acceptance takes place via post”? • If contract explicitly acknowledges email as a mechanism for
communicating acceptance, acceptance will take place when the email
enters the ‘information system’. If the contract is silent on the matter,
acceptance will take place when the email has been read. !
3. Consideration
• In layman terms consideration is payment. Given this simple definition,
it is no surprise that ordinarily payment will be money (but can also be the
exchange of goods/services). • In legal terms, consideration is a ‘detriment or liability voluntarily
incurred by the promisee or a benefit conferred on the promisor by the
promisee for the exchange of a promise as evidence of a bargain’. • The consideration requirement will still be met if the obligation has not
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been executed. For example, a contract for the payment of money will
satisfy this requirement even if the money has not passed to the other
party (hence consideration is “the exchange of promises”). • A contract that is not supported by consideration is unenforceable or
“Nudum Pactum”
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3.1.The elements: • Consideration does not need to be adequate, but it must be valuable. In
other words, the contract must contain something considered valuable in
the ‘eyes of the law’, but it is not the courts job to consider whether there
has been a ‘fair transaction’ (Woolworths v Kelly). • The “quid pro quo” requirement must be met. “This for that”. There
must be an exchange of obligations.
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3.2.The Exceptions: • Past Consideration: If Party A performs tasks for Party B, Party A cannot
impose obligations on Party B to pay (Roscorla v Thomas). The best
example would be if someone gave someone else a gift and then
retrospectively required payment for the gift. • Performing an existing legal duty will not constitute “good
consideration”. For example, in Stilk v Myrik, the captain of the crew
offered additional money to sailors as the ship was understaffed. This was
not an enforceable obligation as the sailors were already bound by
contract to complete their duties as sailors. Therefore, it was impossible
to demonstrate an additional benefit conferred to the Captain (benefit/
detriment element left unsatisfied). • Part Payment of a debt will not be considered good consideration. This
follows from the existing legal duty rule, as part payments of debt, will
never confer an additional benefit on the person receiving the money
(Pinnel’s case). Note: if the debt is paid earlier (at the request of the
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loaner) the benefit/detriment requirement will be satisfied. This is
because money has a time value (the sooner it is paid, the more valuable it
is). !
3.3.Exceptions to Existing Legal Duty Rule: • Practical Benefit: 1. The benefit derived from modifying the contract is worth more than the
remedy available. 2. The modification is not a result of economic duress. Consider: Does the
person threatening breach have knowledge of the economic hardship that
will be caused by the breach and is that evidence enough to create an
inference of economic duress? Most likely not, but should definitely be
mentioned in an exam to demonstrate analysis. 3. The benefit/detriment is capable of being regarded as consideration. !
3.1.Explanatory Structure: 1. State whether there is adequate consideration. 2. State whether there is an existing legal duty to perform
obligations. 3. Consider whether any of the exceptions apply. !
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4. Intention to Create Legal Obligations: • Both parties to the contract must manifest an intention to be legally
bound. The presence of this intention is demonstrated objectively based
on the conduct of the parties (“It is not a search for uncommunicated
subjective motives or intentions of the parties.” – Ermogenous per
Gaudron, McHugh, Hayne, and Callinan JJ”).
4.1.Presumptions: (Presumptions have the effect of placing the burden of proof
on the party disproving the presumption). • Traditionally, there has been a presumption against an ICLO in the context
of social relationships. • The most favorable reading of Ermogenous suggests that this presumption
no longer exists. • Traditionally, there has been a presumption towards an ICLO in the
context of business relationships. It is unclear whether Ermogenous has
affected this presumption, irrespective of whether it has these are both
factors that should be considered in an exam (whilst they may no longer
create a presumption, they certainty contextulise the nature of the
transaction and can be used as evidence to demonstrate intent or a lack of
intent). Note: Banque Brussels, Kleinwort Benson suggests that the
presumption exists in Commercial transactions. • Traditionally, the courts have found that government policy
announcements do not demonstrate an ICLO. Per Kitto in PNG, binding
governments to policy announcements would create a disincentive for
governments to be generous and could unnecessarily bind successive
governments. Consider: o Has the government established a statutory authority for
making payment? !
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o Does the Cth have a commercial interest? o Has the Cth expressly reserved the right to vary the amount of
the subsidy or revoke the policy? (If such is the case, the
promise is illusory as it was in PNG). • Consider: There is a distinct difference between relationships formed as a
consequence of policy announcements and formal contracts entered into
by the government and members of the public. The latter will be like any
commercial transaction and more than likely demonstrate an ICLO. Note:
On one hand, a policy announcement could be characterised as a
‘unilateral offer’ whereas, a contract between the Cth and a contracting
party would be a bilateral contract and almost definitely binding. !
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4.2.Factors to be considered: Ct will consider the “Salient Features”
• Actions and words of the parties. In Carlill, the court drew attention to
the D’s action of putting 1,000 dollars in the bank, to pay unsatisfied
customers. This demonstrated a willingness to pay and in-turn, suggested
an ICLO. • The subject matter of the agreement and its substance. In Shahid, the
obligation imposed on the P was onerous (upwards of 1,000 dollars) and
the guide itself was comprehensive. • The status of the parties to the agreement.
• The relationship between the parties. • In Shahid, the ct considered the ‘administration fee’ (consideration
provided) and the college had a handbook (worded legalistically) that
provided for an appeal mechanism. In an exam, outline the contract price
and how it is unlikely parties would pay substantial amounts if the
obligations were unenforceable. !
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4.3.Structure: • Outline nature of relationship. • Discuss whether the presumptions still exist. Err on the side of safety and
say they do not. That being said, the Pratt case, implicitly suggests the
presumption does exist (this might be an error by the judge as he fails to
discuss Ermogenous). • Consider the aforementioned factors or “salient features”. !
5. Certainty Requirement: • A contract must be sufficiently certain and sufficiently complete:
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5.1.Completeness: A contract must contain all essential terms to be
enforceable: • Importance or essentiality (An essential term is a term of without which,
the contract cannot be enforced) of the term. o Leases: parties, subject matter, commencement date, price payable.
o Sale of land: parties, subject matter, price.
o Sale of goods: parties, subject matter.
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• Why the term has been left out i.e. did the parties fail to reach agreement
on the issue, deliberately defer agreement or simply fail to put their minds
to the issue? • Where the agreement remains wholly executory or has been wholly or
partly performed on one side (executed). !
5.2.Certainty (must be certain and clear in meaning): !
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• A contract must be expressed in sufficiently clear and precise language.
Unclear language will not necessarily be fatal given the prevalence of
poorly drafted contracts (especially given the prevalence of contracts
drafted by the layman). • The term “reasonableness” is not necessarily ambiguous. For example “a
reasonable time to perform obligations” would be sufficiently certain in
most circumstances. In Whitlock v Brew, reference was made to terms that
would ‘ordinarily and reasonably govern a lease’. The ct found this to be
ambiguous and unsalvageable as there is no standard for assessing
reasonableness in that instance. If faced with a clause that uses the word
“reasonable” say at a prima facie level, it could be valid. Then consider
whether the court has established criteria for assessing ‘reasonableness’ (in
the context of the clause). If it does not, the clause will be unsalvageable. !
5.3.Illusory promises • An illusory promise is a clause that gives one party an option, or sole
discretion as to whether they perform. o In PNG, the ct found that the government’s ability to vary the
subsidy (with the ability to make the subsidy zero) was illusory). • The court may import a reasonableness standard to give the illusory clause
meaning (Meehan v Jones). !
5.4.Remedying Uncertainties:
• After going through whether the term is sufficiently certain students will
then discuss whether the fault can be remedied. • Remember, the courts aim to preserve the doctrine “pacta sunt servanda”.
That is agreements are made to be kept. Therefore, courts will do all that
they can to keep the contract alive. This includes removing non-essential
terms. • Sophisticated answers will consider whether the ambiguous term benefits
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the party seeking to enforce the contract. If it does, they will recommend
waiver as a solution that could keep the contract alive. Alternatively, if one
party is arguing for a favorable reading (and your client is happy to make a
concession to keep the contract alive) you might offer to amend the contract
so the ambiguity is resolved against you (the other party gets their clause,
you get your contract). !
6. Capacity • Minors are people who are younger than 18 years old (Age of Majority act
1977 s(3)(1)). • There are four categories of contracts with minors:
6.1.Prima facie, contracts with minors are ‘voidable’. The exception is
‘necessities’. Necessities are assessed on a case-to-case base and are
determined by reference to the minors living style. An accompanying
adult must ratify other contracts entered into by minors. 6.2.Void Contracts: S49 makes certain contracts voidable • Contracts for the repayment of a loan
• Contracts for goods
• Accounts stated !
7.Doctrine of Privity • In layman terms, privity simply means that if you are not a party to a contract
then you cannot incur liability and you cannot enforce obligations under the
contract. • Privity will be an issue in an exam if you have someone who is not a party to
the contract, but wishes to enforce obligations (because the contract is
specifically designed to benefit them). The classic example is an insurance
contract, or something analogous. !
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• Whilst a signature will generally demonstrate that an individual is a party to
the contract, it will not necessarily be conclusive (Coulls v Bagot). 7.1.Exceptions to Doctrine of Privity
• In an exam, don’t be afraid to offer a common sense solution, for example
Party A should ask Party B to sue on his/her behalf. Or alternatively, assign
him/her his rights and liability under the contract. 7.1.1.Insurance Contracts: In Trident Mason CJ & Wilson J made an
exception for insurance contracts. They were also unconvinced that there
was any practical justification for the doctrine. Gaudron, Toohey, and
Dean JJ all arrived at similar conclusions with slightly different reasoning
(Gaudron on the basis of unjust enrichment, Dean JJ on the basis of
trusts). Note: The original exception was for transportation contracts, this
case seems to demonstrate a wiliness to expand the doctrine further. 7.1.2.Agency: if an agent enters into a contract for a principle, the principle is a
party to the contract. The following test must be made out: 1. The contract makes it clear that a benefit is to be conferred on the
beneficiary. 2. The contract makes it clear that a benefit is to be conferred on the
beneficiary. 3. The promisee has the authority from the beneficiary to act as an agent. 4. The beneficiary has provided consideration. Sophisticated answers
would consider whether consideration could be attached to some other
obligation (for example, if it is a transportation contract limiting
liability, the act of paying for the transport could potentially be
consideration for the clause limiting liability). Compare analysis in
Salmond to analysis in Scruttons. • Agency can be inferred from circumstance.
• Policy Flag: In Trident the ct dentified the following: o Preventable double recovery
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o Limits the chain of liability o If you have not given consideration you have not bought the right to
enforce the contract. Conversely, if the purpose of the contract is to
benefit you, then your inability to enforce the contract undermines the
intent of the parties. o Conclusion: Reform privity to allow beneficiaries to sue (widen
agency rule) – very similar model to WA where parties who are
conferred a benefit can enforce contracts. 5. Formalities: • By this stage of the course, it is well and truly evident that there is no
requirement at common law for contracts to be in writing. There are
however, certain exceptions. Contracts pertaining to land (lease, sale or
mortgage) and guarantees (not indemnities). • S126 of the instruments act establishes the following requirements: 1. The contract must outline the Price, Parcel of land, Parties and the time of
settlement. 2. The contract must be signed for it to be enforced against that party. A
written signature is not necessary, nor is it a requirement for the signature
to be written/typed by the person who is “signing”. For example, I can
ask my brother to write my name and that would suffice. !
2.1.Joinder of documents • In circumstances where all of the aforementioned requirements cannot be
found on one document it may be possible to join(der) the documents
together so they can be read as one (in turn, satisfying the elements
necessary). 2.1.1.Physical Joinder: !
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• Documents, which are physically attached, make the joinder process
extremely easy. 2.1.2.Documents which refer to one another:
• There is a strict and broad approach. The strict approach requires explicit
reference to the other document.
“This document refers and
incorporates…signed on the 6th of January” (Thompson v McInnes). • The broad approach requires ‘mere reference’ to the earlier document
(Harvey v Edwards). • Two conflicting HC cases – make a decision about which is more
preferable. As a matter of commercial efficiency, the broad approach
seems to afford the courts greater flexibility, which is preferable. In an
exam, reach your own justifiable conclusion. !
2.2.Contract enforceable in Equity: • The first step is to explore whether the contract is enforceable at common
law. The second step is to explore whether the contract is enforceable in
equity. Equity will enforce the contract if there are “sufficient acts of
part-performance that are unequivocally referable to the existence of a
contract”. • This is an extremely high threshold test. For example, in Maddison v
Alderson the ct found that personal care could not satisfy this requirement
because the person performing the acts may have been doing it out of love
(despite there being evidence of a defective will that would have entitled
her to the land). Compare to the Broad Approach in UK: Acts, “if they
pointed on a balance of probabilities to some contract between the parties,
and either showed the nature of, or were consistent with, the oral
agreement alleged, then there was sufficient part performance.”—House
of Lords in Steadman v Steadman.
• Note: Payment can never be unequivocally referable to the existence of a
contract. This is because money can theoretically be given for any
number of things. That being said, in an exam if Person A hands Person B
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500,000, suggest that it is highly unlikely that it payment would be for
any reason other than purchasing the property (and question the basis for
this long standing rule). !
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3.Estoppel: • In layman terms, the word estoppel can be replaced with ‘stop’. It is used
to stop parties from departing from common assumptions or denying facts. • After attempting to establish a claim in contracts students are encouraged to
establish a claim in Equity. There are two different kinds of estoppel: Common Law Estoppel:
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Equitable Estoppel:
• Common law operates in
r e l a t i o n
t o
representations or
assumptions about
existing facts.
For
example, “I signed the
contract” (According to
the minority in Walton
Stores the D’s actively
induced such an
assumption).
• Promissory estoppel operates in
relation to representations or
assumptions as to future conduct. As
opposed to “I signed the contract”
Equitable estoppel would operate if
the D induced the P into believing the
contract would be signed in the future. • Acts as a shield.
Therefore, it can only be
u s e d d e f e n s i v e l y.
Estoppel in the example
used above, would be
used to “estopp” the
other party from denying
the existence of the
signature itself. In the
context of Walton stores
it would only affect
damages.
• Acts as a sword.
• This was a point of divergence in
Walton Stores, the majority believed
that the D had been induced to believe
that the contract would be signed in
the future. In contrast, the minority
made their decision on the basis of
common law estoppel because they
believed that the assumption was that
the contracts had already been signed.
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3.1. Elements of Estoppel:
1. Assumption
• The relying party must have adopted an assumption. This requirement is
straightforward. For example “The assumption in this instance was that
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the contract was going to be signed”
2. Inducement • The relying party must have been induced into relying on the assumption.
In Walton Stores the D used ambiguous correspondence and silence to err
the P into the belief that the contracts they had dropped off to their office
had been signed. In this instance, the D did similar acts of…. 3. Detrimental Reliance • The relying party must have suffered. In an exam, point to financial
suffering (and in some circumstances psychiatric). In Walton Stores the D
had already begun construction of the shopping center. In this instance,
the D had already begun preparing the report/etc, therefore it is similar… 4. Reasonableness • The assumption must be reasonable. Very similar inquiry when assessing
whether an offer is a puff. Consider: Who made the representation? If for
example, the secretary induced the assumption, would be unreasonable to
rely on the assumption? What language was used? Were there explicit
statements, or vague comments? What is the relationship of the parties
involved? If for example, there had been past dealings that induced the
assumption, it would be far more reasonable to rely on said statements. 5. Unconsionability
• It must be unconscionable to depart from the promise. In layman terms,
what they did must be must be really bad/immoral. The best way to
structure this is to refer to previous factual scenarios that have been
considered unconscionable. For example, Walton Stores where they
waited for construction to occur, despite changing their strategic direction
purely to keep the option open (to their commercial advantage). 6. Departure or threatened departure • This should always be present. If there is no departure or threatened
departure there is no need to litigate. !
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6.1.Remedies: • “Minimum equity to do justice”. • The court can calculate damages in two ways: o Reliance loss aims to place parties in the position they would in had
the assumption never been relied on. o Expectation loss aims to place the parties in the position they would
be in had the promise been fulfilled. o In Walton Stores reliance loss would have been the cost of building
the property itself. Expectation loss would have been the contract
price itself (the profit, as opposed to the money spent). In most
circumstances, expectation loss will out value reliance loss (except
for unprofitable contracts).
• Remember: Equity is discretionary. !
7.Express Terms
• Express terms are terms that have been explicitly stated either orally or in
writing.
7.1.Statements made in Negotiation - The following questions will be asked:
• The language of the term and whether it is promissory (JJ Savage
“estimations” are vague and not promissory). • The importance of the term (JJ savage & Son)
• The relative expertise of the person making the representation (Dick
Bentley). Or the relative expertise the person holds himself or herself out
as having. !
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7.2.The Rule in L’Estrange Case
• If you sign a contract, you are bound by the contract – irrespective of
whether you have read it. Unless you have been mislead into signing the
contract (Curtis Cleaning). !
7.3.Incorporating Terms by Notice: • Term must be delivered in a way that is accessible. The promisee must
have actual knowledge of the terms or a reasonable time to access the
terms. The level of notice requires increases if the term is particularly
onerous. • NB: Consider when offer and acceptance took place the terms must be
available before the contract is formed. In Thorton Denning noted that
the contract was established upon purchasing the ticket (the sign itself was
in the car park). Therefore, any sign in the car park could not be
incorporated as the contract had already been formed. 7.4.Incorporation of terms by dealings: • Where parties have had a history of dealings, contractual terms introduced
in earlier transactions may be incorporated into a subsequent contract
even though the ordinary requirements for the incorporation of terms have
not been meet in relation to that subsequent contract. • The course of dealings must however be frequent and uniform, and the
document in question must be capable of reasonably being considered a contractual document
(Rinaldi & Patroni v. Precision Mouldings). !
7.5.Construing the terms: • The court will always construe terms objectively, disregarding subjective
intent (Heydon JA in Brambles). • The parole evidence rule limits the extrinsic evidence that may be brought
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to add or vary the terms of the written contract. • Where there is one plain interpretation, the courts are bound to follow it,
even if it is clearly not what the parties intended (Brambles).
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7.6.Can Extrinsic Evidence be tendered? • The Parole Evidence rule only applies in circumstances where the parties
intended the contract to contain all terms. Agreements that are only partly
in writing will require extrinsic evidence to be given proper meaning.
Consider: How comprehensive is the agreement? Is there a clause
specifically stating the contract is wholly in writing? Is the absence of
such a provision telling? • In an exam identify the relevant extrinsic evidence and who it benefits.
The party seeking to rely on the extrinsic evidence will argue in favor of
the broad approach discussed below. Broad Approach:
Narrow Approach:
The flexible approach utilises
extrinsic evidence in determining
whether the contract is wholly or
partly in writing (State Railway
Authority). Under the narrow approach
evidence extrinsic evidence can
only be tendered in circumstances
of ambiguity. In Brambles for example, extrinsic
Therefore, allowing greater evidence demonstrated that they
flexibility in adding terms that are never contemplated the sale of
not expressly written in the ‘liquid waste’. The contract stated
contract. to the contrary, but as a
consequence of the PE rule the
meaning of the contract could not
be varied.
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• Estoppel cannot be relied on if there is an entire agreement clause in the
contract (at least according to Saleh v Romanous). In an exam discuss the
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tension that exists between Saleh v Romanous and Walton Stores. Does
Saleh narrow the ratio of Walton Stores? Does it ignore Walton Stores? Or
is it simply a different factual scenario that was not considered in Walton
Stores. !
7.7.Exceptions to PE rule: Collateral Contracts: JJ Savage v. Blakney:
1. A statement made with an intention it would be relied upon.
• Consider: When was the statement made? If it was made just before the
contract was signed, the P will argue that it was being used as inducement.
Moreover, it is likely to prove that it was relied on. 2. Reliance on the statement. • A classic argument is “the D would have always entered the contract as it
was a good deal”. Particularly pertinent if the good was sold under
market value. 3. An intention to guarantee the truth of the statement.
4. The collateral contract cannot conflict with the terms of the main
contract. • Do not be too quick to find conflict. Also offer creative arguments like
“the collateral contract could be construed narrowly as to avoid conflict”.
Analysis is everything. • A collateral contract is an independent contract (finding its origin in the
original contract). Therefore, it is not bound by the PE rule (uniquely,
consideration is linked with the original contract). !
4.1.Construing Clauses: • Parties frequently use exclusion clauses to limit tortious liability. There
used to be two approaches used by the courts. The “four corners rule” and
the “contra proferentum rule”. !
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• The contra proferentum rule is simple. In circumstances of ambiguity, the
clause should be construed against the person relying on the clause. In an
exam begin by discussing why the clause is ambiguous (provide two
separate readings of the contract) and then use this rule to demonstrate
how it would benefit one of the parties (in turn, resolving the ambiguity). !
5. Implied Terms: • Implying terms is an issue that could easily be missed in an exam. That is
why it is essential to always turn your mind to the question of whether
you can imply a term, to the advantage of your client. • It is important to acknowledge that parties cannot contemplate every term;
therefore, the court may need to imply terms to make the contract
functional. !
5.1.Terms implied in Fact: • These are terms that are implied ad hoc to improve/promote business
efficacy. The following elements must be made out:
1. Reasonable and equitable: It does not create imbalance.
2. It must be necessary to give business efficacy to the contract. No term will
be implied if the contract is effective without the addition of that implied term. It must
be essential for the contract to function. NB Codelfa seems to
demonstrate that merely running the contract at a loss will not be
sufficient, especially if contractual obligations can still be performed (but
simply at a loss). This is part and parcel of the risk allocation inherent in
all contracts. In an exam distinguish between an unworkable contract
and a commercially unviable contract. 3. It must be so obvious that it goes without saying. This is an extremely
high threshold test. 4. It must be capable of clear expression. In an exam, state the obligation in
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a clear and concise way. In Codelfa Mason J notes that there could have
been any number of remedies to the issue at hand. Therefore, it was
unclear which ‘remedy’ the parties would have chosen. Therefore the
court would have effectively been writing the contract for the parties. 5. It must not contradict any express term of the contract (Codelfa
Construction v. State Rail Authority of NSW). !
5.1.Terms implied by Custom or Usage: • Everyone in the industry (of that category) or trade must know (or ought
to know) that there are certain trade assumptions. • The term must be so well known that it is ‘notorious’. This is an
extremely high threshold test and will not be satisfied by ‘mere trends’. • The term must not conflict with the contract. • A person can be bound by custom despite not having knowledge of the
custom. !
5.2. The Role of Good Faith: Should a duty of good faith be recognised?
• Under a duty of goof faith or reasonableness, a party exercising a
contractual discretion must act in an unbiased way and perhaps also make
an attempt to verify the information on which the decisions is to be based
(Renard Constructions v. Minister for Public Works). • What does good faith require?
o Good faith is a general rule applicable to every contract that each
party agrees, by implication, to do all such things as are necessary
on his part to enable the other party to have the benefit of the
contract (Secured Income Real Estate v. St Martins Investments). o A franchisor’s discretion in relation to approvals for the franchise is
subject to an implied duty of !
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good faith, which precludes the franchisor from exercising
discretion for a purpose extraneous to the contract (Burger King
Corporation v. Hungry Jack’s). o A duty of good faith will not operate to restrict the legitimate
interests of the supplier (Garry Rogers Motors v. Subaru). Acting
opportunistically should not be conflated with acting in bad faith. !
6.Australian Consumer Law: Unfair Terms • The ACL is designed to provide a degree of balance to an otherwise
inequitable distribution of bargaining power between consumers and
businesses. • The ACL cannot be contracted out of: o Contract clauses which purport to exclude, restrict, or modify
guarantees under the ACL are void, per s 64.
o Liability under consumer guarantees in ss 51-53 cannot be limited
by contract, per ss 64 and 64A.
6.1.Who is a consumer?
• The first step is to establish whether the legislation is applicable. A
consumer contract is a contract for the supply of goods or services ‘to an
individual whose acquisition…is wholly or predominately for personal,
domestic or household use or consumption’. Therefore, a commercial
oven used in a fancy house, could theoretically come within the scope of
this definition. 6.2.What is an unfair term? • This is an assessment of a series of different factors (s24). o Is there an imbalance in bargaining power? Consider the size of the
company and the amount it produces. If it is a large company the
consumer has virtually zero negotiating power (consider whether
there was negotiation on price). !
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o Is the term reasonably necessary to protect the producer’s
legitimate interests? o Would it cause financial detriment if applied?
• What is the effect of a term being unfair? o The unfair term is void per s 23(1).
o Remedies available to the consumer (per Part 5-2):
▪ Injunction (s 232).
▪ Compensation order in favour of injured party (s 238).
▪ Order to redress loss suffered by non-party consumers (s
238).
o The contract will continue to be binding if it can operate without
the unfair term s 23(2).
▪ If it cannot operate, it will become void.
7.Australian Consumer Law: Consumer Guarantees
• Note: consumer is defined differently in schedule 3. • Price of goods/services is 40, 000 or
• Goods/services are of a kind ordinarily acquired for personal, domestic
and household use or consumption or
• Vehicle or trailer is acquired for use principally in the transport of goods
on public roads. 7.1.Having established the individual is a consumer. Consider whether the good
was ‘rendered with due skill and care (s60)’, whether it was ‘fit for
purpose (s61)’
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