Contract Law

Interpretation & Actions

Integrating
Business
Perspectives
4 May 2014 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
4 May 2014 3
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 tort
Not applied to contracts of insurance
4 May 2014 4
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
4 May 2014 5
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
4 May 2014 6
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
4 May 2014 7
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
4 May 2014 8
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
4 May 2014 9
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)
4 May 2014 10
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
4 May 2014 11
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
4 May 2014 12
Exemption Clauses
Contracts may include clauses which
attempt to restrict a partys 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)
4 May 2014 13
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
4 May 2014 14
Duress
At common law
actual or threatened violence
forces you to enter into the contract
maybe economic
North Ocean Shipping v Hyundai
4 May 2014 15
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
4 May 2014 16
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
LEstrange 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)
4 May 2014 17
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
4 May 2014 18
Discharge by Agreement
Contracts my be discharged by
mutual discharge
release
substituted agreement
4 May 2014 19
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
4 May 2014 20
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.
4 May 2014 21
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
4 May 2014 22
Discharge by Law
The operation of the law, may
automatically discharge a contract

bankruptcy
personal insolvency

illegality
4 May 2014 23
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
4 May 2014 24
Classes of Damages
There are six classes of damages:
ordinary
nominal
exemplary
liquidated
unliquidated
penalty
not a genuine pre-estimate of loss
4 May 2014 25
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
4 May 2014 26
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.
4 May 2014 27
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
4 May 2014 28
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
4 May 2014 29
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) injunctions
final injunctions
may be granted under statute, as well as
equity
4 May 2014 30
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 law
recovery of reasonable remuneration for work done
(quantum merit) - for as much as earned