Contract Law

Interpretation & Actions

Integrating Business Perspectives

May 3, 2023 2

Essential Elements of a Contract There are SIX essential elements of a valid

contract: Agreement (offer & acceptance) Intention Consideration Capacity Consent Legality of object

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Privity of Contract

The doctrine of privity means that as a general rule you can only sue or be sued in contract IF you are a PARTY to the contract.

Beswick v Beswick compare to Donoghue v Steveson in tortNot applied to contracts of insurance

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Before the Contract

Once a contract has been created, the basis of the contract (the details) are called terms

Most statements that are made BEFORE the contract has been entered into cannot be terms of the contract mere “representations”

• may be able to sue for misrepresentation

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Misrepresentation A statement of fact that induces a person into

making a contract.

If a term in the contract, sue for BREACH of contract. Oscar Chess Ltd v Williams

If a representation, sue for misrep or s52 TPA

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Misrepresentation If the statement is NOT a term then the

contract will not be VOID, but maybe VOIDABLE.

There are different types of misrep: Fraudulent misrep

• Derry v Peek Negligent misrep

• Hedley Byrne Ltd v Heller & Partners Ltd Innocent misrep

Maybe statutory actions and remedies

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Terms Terms in a contract can be classified in a

variety of ways: Express or Implied Conditions or Warranties

Watch out for collateral contracts a subsidiary contract to the main contract:

• Van den Esschert v Chappell• JJ Savage & Sons Pty Ltd v Blackney

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Express Terms

The actual terms which were expressly (explicitly stated) by the parties

If oral, the words that were used court can determine

If the contract is in writing court will interpret

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Implied Terms The terms may be implied from various

sources: court to give “business efficacy”

• The Moorcock• Codelfa Contruction v NSW State Rail Authority

by custom or trade usage by statute

• ss17-20 SGA 1893 (NSW) • Consumer Guarantees ss 51-64 Australian

Consumer Law (ACL) (Cth)

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Parole Evidence Rule Where a contract is reduced into writing

and it is the entirety, it is presumed that all terms are included and evidence of other statements are not terms. Mercantile Bank of Sydney v Taylor

Exceptions: trade custom, local usage, technical terms,

identity of the parties, to show fraud/duress etc

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Conditions & Warranties All contractual terms can be divided into

conditions• essential term of the contract• breach entitles the innocent party to rescind

(terminate) the contract immediately and sue for damages

warranties• all the other terms• innocent party can ONLY sue for damages

Associated Newspapers v Bancks

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Exemption Clauses Contracts may include clauses which

attempt to restrict a party’s right to sue for breach of contract and to exclude or limit all liability.

Must be part of the contract Shoe Lane Parking Ltd

Strictly construed against the party using it Consumer protection under TPA and

Contracts Review Act 1980 (NSW)

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Lack of True Agreement If a contract was entered into by a fraud or

misrepresentation, the contract maybe avoided.

Generally bound by mistakes unless: common mistake

• McRae v Cth Disposals Commission• Leaf v International Galleries

mutual mistake unilateral mistake

• non est factum Petelin v Cullen

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Duress

At common law actual or threatened violence

forces you to enter into the contract maybe economic

North Ocean Shipping v Hyundai

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Undue Influence Under equity improper use of a superior position, to

influence someone in a contract Examples:

parents to children and guardian to ward trustee to beneficiary or doctor to patient solicitor to client or religious adviser to devotee

Geelong Building Society v Thomas

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Unconscionable Conduct General rule that there is no relief if a contract is unfair

or harsh against one party even signing it without reading the contract

• L’Estrange v Graucob

But where there is a superior bargaining power to impose harsh terms, the court may set aside a contract for unconscionability Commercial Bank v Amadio ss51AA, 51AB & 51AC TPA 1974 (Cth) Contracts Review Act 1980 (NSW)

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Termination of Contract

Contracts can be terminated in a number of different ways normally this process is called “discharge”

The most common method for a contract to be terminated is performance

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Discharge by Agreement

Contracts my be discharged by mutual discharge release substituted agreement

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Discharge by Frustration

An event outside the parties control may cause the contract to be frustrated so that it cannot be performed. Davis Contractors Ltd v Fareham Council

• “Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because of the circumstances..”

Frustrated Contracts Act 1978

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Discharge by Breach If there is a breach of a condition, the

contract can be terminated immediately and sue for damages. The innocent party MAY chose to treat the

breach as a warranty rather than a condition If there is a breach of a warranty, then the

contract must continue BUT damages may be paid.

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Discharge by Breach

The contract needs to be repudiated anticipatory breach

• where the contract is unperformed and one party renounces the contract, the innocent party can treat the contract as discharged and sue for damages.

The innocent party may elect to continue the contract

• this might result in higher damages

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Discharge by Law

The operation of the law, may automatically discharge a contract

bankruptcy• personal insolvency

illegality

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Remedies in Contract If there is a breach of contract, there are a

variety of common law, equitable and statutory remedies.

The main remedies are: damages specific performance injunctions restitution

There are time limitations on legal actions

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Classes of Damages

There are six classes of damages: ordinary nominal exemplary liquidated unliquidated penalty

• not a genuine pre-estimate of loss

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Damages

Damages, as far as money can, is to put the innocent party in the same position as if the contract had been performed. Compensation for the loss of benefits

• onus of proof on plaintiff if cannot prove loss of profit may recover

expenses

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Damages Damages must not be too remote

Hadley v Baxendale (1854) Victoria Laundry (Windsor) Ltd v Newman

Industries (1949) Parsons v Ingham (1978)

Duty to mitigate loss

Damages not available for disappointment, inconvenience or injured feelings.

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Limitations of Actions

Limitations Act 1969 (NSW)

6 years for simple contracts & torts 12 years for formal contracts & recovery of land 30 years for recovery of Crown land

Time runs from date action can commence

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Specific Performance a court order requiring a party to perform

the obligations under the contract discretionary equitable remedy mostly used for land or unique goods will not be granted if

damages are adequate for personal services where supervision would be needed

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Injunctions a court restraining a person from doing a

wrongful act, such as breaching a contract a discretionary equitable remedy court limits use if will not be effective

interlocutory (interim) injunctionsfinal injunctions

may be granted under statute, as well as equity

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Restitution a remedy imposed independently of the contract based upon the concept of “unjust enrichment”

so the defendant must restore money or benefits to the innocent party

examples: where money paid and total failure of consideration money paid under mistake of lawrecovery of reasonable remuneration for work done

(quantum merit) - for as much as earned