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Contracts 2 SummaryTerms can be expressed or implied

1) Express terms

a) Standard form contractsb) Statements made during negotiations

i. Promissory statement (see below)- Condition- Warranty- Innominate term

ii. Mere representation - Language and opinion (Savage v Blakney)- Disparity in bargaining power (Oscar Chess)- Degree of expertise (Dick Bentley)

iii. Misrepresentation (see below)- Fraudulent- Negligent- Innocent

c) Written termsi. Effect of signature

- Bound by the terms contained in a contractual document which (s)he has signed, whether or not (s)he has read the document (L’Estrange)- This will not apply if the signature was induced by misrepresentation, fraud, mistake, duress (Toll v Alphapharm)

ii. Document with another function- If the document is a receipt or a delivery document, it cannot be expected to contain terms (Curtis v Chemical Cleaning)

d) Incorporation by noticei. Timing

- Before the contract is made (Oceanic Sun)ii. Knowledge or notice

- A party will be bound by delivered or displayed terms if (s)he has either knowledge or reasonable notice of the terms, whether or not (s)he has read them (Shoelane Parking)

iii. Unusual or onerous terms- Must be brought to the notice of the other party before they will be bound and given reasonable opportunity to see and agree to the terms (Baltic Shipping Co)

e) Incorporation by a course of dealingsi. History of dealings

- Contractual terms introduced in earlier contracts may be incorporated into subsequent contracts (Balmain Ferry Co)

ii. Actual knowledge, fair conditions and reasonable notice (Balmain Ferry Co)iii. Regular and uniform (Kendall v Lillico)iv. Not a mere receipt or delivery notice (Rinaldi)

2) Implied terms

a) Law – e.g. TPA, business efficacy (Byrne v Australian Airlines)


b) Facti. Formal contracts (BP Refinery)

- Reasonable, equitable, business efficacy, goes without saying, clear expression, does not contradict express terms

ii. Informal contracts (Codelfa)- Intention of the parties, circumstances of the case, assumption of risk, factual matrix, extrinsic evidence

c) Custom (Constan Industries)i. Existence of custom is a question of factii. Well known acquiesced, not necessarily universally accepted

iii. Uniformity with express termsiv. No requirement of knowledge, objective reasonable test

3) Extrinsic Evidence

a) Parol evidence rulei. Extrinsic evidence cannot be given to add to, vary or contradict terms as they appear in

the written document where the contract is wholly in writing (State Rail Authority)b) Collateral contracts

i. A collateral contract is a promise connected to but independent from the main contract, and as consideration for the promise, the other party agrees to enter into the main contract (Hoyt’s v Spencer)

ii. Collateral contracts may be antecedent (preceding) or contemporaneous (simultaneous) and will not be excluded by the parol evidence rule if it is not inconsistent, contradicts or impinges on the main contract (Hoyt’s v Spencer)

c) Estoppeli. Material giving rise to estoppel can arise from pre-contractual negotiations (Whittet)ii. The written document should be final, extrinsic evidence will lead to extensive,

discursive and inconclusive results (Australian Co-op Foods)d) Construction

i. Admissible to make certain ambiguities fill gaps or correct injustices (Codelfa)

4) Exclusion clauses

a) Constructioni. Determines the meaning and legal effect of the terms by considering the intentions of

the parties objectively as understood by the reasonable person (Pacific Carriers)ii. Exclusion or exemption clauses modifies obligations, limits or excludes liabilities that

would otherwise result in breach of obligationsiii. Interpretation relies upon the language of the clause rather than the context in which

they appear and should be construed in its natural and ordinary meaning, contra proferentum in the case of an ambiguity (party seeking to rely on clause) (Darlington Futures)

b) TPA 1974i. Under ss 68 and 68A, an exclusion clause may be void under statute if it

- Is acquired for personal or domestic use- If it is unfair or unreasonable (where not for personal or ordinary use) depending on relative bargaining power, inducement, knowledge

ii. Under s 70, void if goods supplied do not correspond to description in contract or sample

iii. Under s 71, merchantable quality and fit for purposeiv. Under s 72, supplied by sample


v. Under s 74, implied warranty that services will be rendered with due care and skill and materials supplied are reasonably fit for purpose, except professional services of architect or engineer, insurance, transportation of goods

Termination can occur by mutual agreement, within the existing contract, or via breach

1) Mutual agreement

a) Express powers or implied right to terminate (Crawford Fitting)i. Where the duration is not specified, courts may imply a right to terminateii. Depending on the intention of the parties and reasonable notice

b) Subsequent agreementi. Fresh consideration may be given in a subsequent agreement to terminate (McDermott)ii. However writing is required to vary the existing contract rather than terminate (Suttor)

c) By abandonmenti. Neither party considers the contract to be further performed (DTR Nominees)ii. An inordinate period of time has passed without call for performance, unless the contract is

partially performed (Fitzgeral v Masters)

2) Failure of a contingent condition

a) Contingent conditioni. Performance of contract depends on fulfilment of a contingent condition, contract can be

terminated if contingent condition is not fulfilled (McTier v Haupt)ii. A condition may be precedent or subsequent (obligation ends should the condition occur)

(Suttor v Gundowda)b) Duty to co-operate

i. Reasonable steps must be taken to ensure fulfilment (Perri v Coolangatta)ii. Where an implied duty to co-operate is breached, party in breach cannot rely on the failure

of the condition as a reason for termination (Suttor v Gundowda)c) Non-fulfilment

i. Condition does not occur, condition does not occur within specified time periodii. Where no time is specified, courts will imply a reasonable period (Perri)

d) Consequencesi. Voidable in part or whole (Perri)ii. Void if the intentions of the parties is clear (Rudi v Jay)

iii. If neither party has control over the event, the contract is terminated (NZ Shipping)]iv. Where neither party is at fault, both parties reserve the right to terminate (Suttor)v. Notice is not required (Perri)

e) Waiveri. A party may waive a contingent condition if it was wholly and solely for the benefit of that

party (Perri)ii. Waiver is only effective if done before termination (Perri)

iii. A person who waives is bound by the decision

3) Breach

a) Breach of conditioni. The aggrieved can terminate regardless of gravity or consequences of breachii. An essential term goes to the root of the contract, and must be of such importance to the

promisee that (s)he would not have entered into the contract unless (s)he has been assured


of strict and substantial performance of the promise and this was apparent to the promisor (Luna Park)

iii. A term is considered to be a condition when it forms the fundamental basis of a contract (Hongkong Fir)

b) Breach of innominate termi. Right to terminate depends on gravity and consequences of breach (Hongkong Fir)

c) Breach of warrantyi. Aggrieved can only recover damages (Luna Park)

4) Repudiation

a) Unwillingness and inabilityi. Repudiation is the refusal or inability to carry out its obligations to the extent that the

aggrieved may terminateii. Anticipatory breach occurs where one party repudiates prior to the time set for

performance, gives rise to a duty of the aggrieved to mitigate his/her damages (Hochestor)iii. If party chooses not to repudiate, contract continues and there will be no right to damages

until actual breach occurs (Carr v Berriman)iv. Either unwillingness or inability will suffice (objective test) (Universal Cargo)

b) Combination of eventsi. May amount to termination and damages by repudiation where each single breach is not

sufficient (Progressive Mailing House)c) Instalment contracts

i. In a case of defective instalments the breach may be severable rather than repudiation of the whole contract, this is determined by: (Maple Flock)- Qualitative test of breach as a proportion of whole contract- Probability the breach will be repeated

5) Delay

a) Time is of the essencei. If not specified, law will imply a reasonable time (Louinder)ii. If the time stipulation is construed as a condition, breach will entitle a right to terminate, it

is designated with the words ‘time is of the essence’b) Time is not of the essence

i. Gives rise to damages but not right to terminateii. Right to terminate may arise if delay continues and amounts to repudiation (combined with

other conduct indicating deliberate and unreasonable delay) (Laurinda)c) Notice

i. Where time is not of the essence, the aggrieved can terminate by notice (Louinder)ii. A valid notice must specify time, allow reasonable time, convey time is of the essence and

intention to terminated) Extension

i. Where time is of the essence, a breach of a time extension will only give rise to termination if the time extension specifies time to be of the essence (Mehmet v Benson)

6) Election to terminate

a) Consequences of affirmationi. In the occurrence of a breach, the aggrieved party can elect to affirm or terminate (Foran)ii. A door must be either open or shut, a contract must either subsist or be at an end (Bowes)

iii. An aggrieved party who affirms loses right to terminate but may still claim damages


iv. If the aggrieved party affirms, it gives the party in default an opportunity to terminate for a future breach (Bowes)

b) Consequences of terminationi. Ends future obligations but does not rescind a contract, parties can recover for accrued

breaches and rights

7) Restrictions

a) Readiness and willingness (Foran)i. To be entitled to terminate for breach or repudiation, the aggrieved must show (s)he is able

and willing to performii. Assessed on the date of performance rather than the date of termination

b) Electioni. An aggrieved party can elect to affirm if: (Tropical Traders)

- Have knowledge of right to terminate (mere extension is not affirmation)- Unequivocal conduct consistent with a choice to continue is displayed

ii. An election cannot be retracted but a decision does not have to be made immediatelyiii. Series of late payments may be considered conduct condoning the delayiv. Continuance based on a mistaken assumption cannot constitute affirmation, and affirmation

cannot be forcedc) Estoppel

i. The aggrieved may be stopped from terminating where (s)he has induced the other party to believe the contract will not be terminated in the circumstances and the other party relied on that assumption (Legione v Hateley)

d) Relief against forfeiturei. Equity may order specific performance in favour of the party in breach to provide relief

against forfeiture (interest in estate) (Legione)- Where there is unconscionable dealing, the aggrieved party contributed to the breach, the breach was trivial, accidental or unintentional, reasonable breach

Damages may be awarded for expectation, reliance or restitution

1) Compensation principle

a) Expectation damages (Amann)i. Puts party in position they would have been in if contract had been fulfilled

b) Reliance damages (McRae)i. Awarded when plaintiff is unable to prove value of expected benefit, compensates for

wasted expenditure incurred in reasonable relianceii. Benefit obtained can at least be assumed to be equal to the detriment sustained in order to

perform the contract (Amann)c) Restitutionary damages

i. Gain made by defendant in lieu of breach without providing reciprocal performance is transferred to the aggrieved party, not recognised in Australia

d) Damages for loss of chance (Howe v Teefy)i. Presence of contingencies does not render damages incapable of assessmentii. May be awarded where past expenditure is too little to cover uncertain expectation losses

e) Date for assessing damages (Johnson v Perez)i. Damages for breach are assessed at the date of the breach, may be adapted for most fair

compensationii. Damages must consider inflation


iii. When aggrieved party learns of breach, (s)he is obliged to mitigate loss

2) Causation and remoteness

a) Causation (March v Stramare)i. Plaintiff must show a cause or link between the defendant’s breach and loss sufferedii. Determined by the but for test tempered with common sense

iii. But for test does not apply where there is a novus actus interveniens (Alexander v Cambridge)

iv. The breach merely has to be a cause of the damage and not the sole causeb) Remoteness (Hadley v Baxendale)

i. Damages should be fairly and reasonably considered as naturally arising from the ordinary course of things

ii. Reasonably in the contemplation (foreseeability) of both parties at the time they made the contract

3) Mitigation

a) The aggrieved must take all mitigating steps upon discovery of breachb) Mere impecuniosities does not relieve a duty to mitigate (Burns v Auto)c) Rules of mitigation (McGregor)

i. Plaintiff cannot recover for avoidable lossii. Plaintiff can recover for loss incurred in reasonable attempts to avoid loss (Simonius v Holt)

iii. Plaintiff cannot recover for avoided loss

4) Specific types of damages

a) Disappointment, distress and loss of reputationi. May be recoverable if they proceed from physical inconvenience caused by the breach or

the object of the contract is to provide enjoyment and relaxation and freedom from molestation (Balton Shipping)

ii. Cannot recover full damages and full restitution, e.g. full fare and loss of enjoymentb) Loss of bargain damages (Shevill v Builders)

i. No right to damages if the aggrieved exercises a contractually defined termination right, as opposed to a right to terminate under the common law

ii. Damages are available for arrears but not for loss of bargainc) Contributory negligence

i. Damages are apportioned to the extent of the claimants share of the responsibility for the damage (CLA)

5) Liquidated damages and penalties

a) Rule against penaltiesi. If a sum is not a genuine estimate of the damage, the clause will be a penalty and not

enforceable (AMEV v Austin)ii. Damages for breach is recovered in lieu of the penalty (AMEV v Austin)

iii. Signals of penalty include lump sum payments, extravagant payments, lack of relationship between loss sustained or lack of effort or measure to estimate damages (Dunlop)

6) Actions for debt

a) Debts and liquidated sumsi. Actions for debt will arise upon an executed consideration or performance of contract


ii. Entire obligation requires complete performanceiii. Divisible obligation is where the contract has been split up into segmentsiv. Where benefit is taken for work done outside of the contract, contract may be implied for

payment at the current rate of remuneration (Steele v Tardiani)b) Performance affected by legislation (Nemeth v Baywater)

i. Rent accrues from day to day, thus payment shall be apportioned as fraction of the periodc) Substantial performance

i. The contract price may be recovered less damages for remedying incomplete work (Hoenig)ii. When breach goes to the root of the contract, a substantial defect is found and an employer

is absolved from his liability for payment (Hoenig)iii. General ineffectiveness for primary purpose consists of a substantial non-performance,

however a party may be unjustly enriched (Bolton)d) Payment independent of performance

i. Payment owed when time for payment arises, vendor is entitled to enforce prepayment, yet his title to retain the moneys is not absolute but conditional upon subsequent completion of the contract (McDonald v Dennys)

e) Depositi. If vendor breaches the contract, purchaser can recover the depositii. If purchaser defaults, vendor retains deposit

iii. Vendor’s right to retain deposit is not conditional upon subsequent completion of the contract

iv. Vendor can claim for deposit due even if contract is terminated for reason of purchaser’s breach (Bot)

Frustration occurs if circumstances beyond control arise after consent has been given

1) Frustrated Contracts Act 1978 NSW

a) s 6, Act does not apply for carriage of goods by sea, insurance, contracts governed by another Actb) s 6(3), where the contract is severable into parts, the Act applies to the parts frustrated and not the

whole contractc) s 7, an unperformed promise due for performance before the frustrating act is discharged except

where necessary to support a claim for damages for breachd) s 8, liability for damages for accrued breach before frustration shall not be ignorede) s 10, where whole performance is received before frustration, performing party shall be paid

agreed return for performancef) s 11, where part performance is received before frustration, performing party is paid:

- (2)(a), attributable value of performance- (2)(b), sum of attributable value and half of amount by which the cost exceeds the value

g) s 12, pre-payments shall be returnedh) s 13, the performing party shall be paid one half of the amount of fair compensation for a

detriment sufferedi) s 15, the court may substitute adjustments in money or otherwise as it considers proper where the

above is manifestly inadequate, inappropriate, unjust, difficult or expensive to apply

2) Excuse for non-performance

a) Frustration occurs when, without default of either party, a contract cannot be performed because circumstances beyond control arising after consent has been given render it radically different from that which was undertaken in the contract (Davis Contractors in Codelfa)

b) Non haec in foedera veni – latin for: this is not what i promised to do


3) Destruction of subject matter

a) Where the existence of an object is the foundation, in the absence of express or implied warranty that the thing shall exist, the performance becomes importance from the perishing of the object without default of either contractor

b) Contract is subject to an implied condition that the parties shall be excused before breach (Taylor v Caldwell)

4) Disappearance of basis of contract

a) Where the basis, foundation or purpose is destroyed, and could not have reasonably been in the contemplation of the contracting parties when the contract was made, both parties are discharged from further performance (Krell v Henry)

b) Termination occurs on the emergence of a ‘fundamentally different’ situation which results in a change of obligation (Brisbane City Council)

c) In deciding whether a contract is frustrated, it is possible to look to extrinsic evidence (Codelfa)d) The assumption of a particular thing or state of affairs essential to performance will continue to

exist must be found in the contract itself

5) Limitations

a) Risk of frustrating event must not have been provided for by the parties in the contract (Codelfa)b) The frustrating event must not have been one the parties which could have reasonably foreseen

(Davis Contractors)c) Frustrating events must occur without fault by the parties seeking to rely on frustration (Bank Line)

6) Consequences

a) Loss lies where it falls, the contract comes to end immediately (Fibrosa)i. Sums paid or rights accrued before the event are not surrenderedii. Obligations due after the frustrating event will be discharged

b) Party that has made payment and not received consideration can obtain remedy after frustration

Mistake may be common, mutual or unilateral and render the contract void or voidable

1) Law and equity

a) Mistake arises from an erroneous assumption before the formation of contractb) Common law (Bell)

i. Contract is void ab initioc) Equity (Solle)

i. Contract is affected by operative mistakeii. Voidable, one that may be rescinded or set aside and the parties restored to their original

positionsiii. Specific performance may be granted or refused

2) Common mistake

a) A and B think that it is a cow but it is actually a goatb) If the mistake is fundamental, the contract is void (McRae)c) Impossible for the party who calls the mistake to argue that the contract is affected by mistaked) A party cannot rely on common mistake where the mistake consists of a belief which was

entertained by him without reasonable grounds for such a belief


e) Mistake as to quality of subject matter at common law (Bell)i. Mistake must nullify or negative parties in order for the agreement to be voidii. Parties may be mistaken about the identity of the contracting parties, the existence or

quality of the subject matter, the date of contractiii. The erroneous assumption must be of such ‘fundamental character’ as to constitute an

underlying assumption without which the parties would not have entered into agreementiv. A mistake will not affect consent unless it is the mistake of both parties

f) Mistake as to quality of subject matter at equity (Solle)i. Equity can set aside a contract good at law provided that the misapprehension was

fundamental and the party seeking to set it aside is not himself at faultii. The contract will be set aside if the mistake of one party has been influenced by a material

misrepresentation of the other even though it was not fraudulent or fundamentaliii. A contract may be set aside if one party, knowing the other was mistaken allows him/her to

remain under their delusiong) Mistake in recording agreement

i. Courts have equitable power to rectify a contract in writing which does not express the parties’ common intention (Maralinga)

ii. Party seeking rectification must establish the intention continued concurrently to the minds of all parties down to the time of its execution

iii. If one party knows the instrument to contain the mistake in its favour but does nothing to correct it, it cannot exert the mistake is unilateral

iv. Equitable relief cannot set aside conveyance of land made under a written contract except for fraud or total failure of consideration (Pukallus)

3) Mutual mistake

a) A thinks it is a cow, B thinks it is a horse, but it is actually a goat

4) Unilateral mistake

a) A thinks it is a cow, but B knows it is a goatb) Mistake as to terms

i. If the intentions of the parties reveal they were not ad idem in respect to the terms, there is no contract unless the circumstances prevent one party from denying he agreed to the terms of the other (Smith v Hughes)

ii. Objective test, regardless of subjective intention, a person is bound if a reasonable man would believe that the person’s conduct demonstrated he was consenting to the proposed terms

iii. A party that enters into a written contract under a serious mistake about a fundamental term would be entitled to rescind in equity if the other party is aware of that mistake and deliberately set out to ensure the first party does not learn of the his/her mistake (Taylor)

c) Mistake as to identityi. In equity, the vesting of property in third parties is a bar to rescissionii. Not face to face

- There is no consensus between the plaintiff, the rogue or the third party, the property remains the property of the plaintiff and no title can be transferred to the rogue or third party (Cundy v Lindsay)- If the rogue uses the name of a non-existent entity, the third party is not liable for conversion and the contract can be passed from the rogue to the third party (King Norton)- No contract can be formed using a stolen identity, no consensus ad idem (Shogun Finance)


iii. Parties face to face- If one party is mistaken as to identity of the other, the contract is voidable before third parties acquire rights in good faith (Louis v Averay)

d) Mistakenly signed documents: non est factum (Petelin v Cullen)i. This is not my deed, if a party proves he or she signed without carelessness and believed the

document to be fundamentally different to what it was, (s)he is not bound by the signatureii. Defence is available to those who cannot read and must rely on others as to advice to what

they have signed or those who are unable to understand the documente) Mistake in recording agreement (Thomas Bates)

i. Contractual documents may be rectified where one party mistakenly enters into a contract in writing which does express his or her intention and the other party knows the first party’s mistake

f) Rectification depends on (Leibler v Air NZ):i. A enters under a misapprehensionii. B knows of A’s mistake

iii. B allows A to remain under misapprehension, and takes no steps to bring the mistake to A’s attention

iv. B would be precluded from relying upon A’s agreement to resist rectification

Misrepresentation in pre-contractual statements induce the representee to enter into contracts

1) Types of misrepresentation

a) Fraudulentb) Negligentc) Innocent

2) Intention

a) To deceiveb) To induce

3) Consequences of misrepresentation

a) At common law- Rescission and damages

b) At equity- Damages in lieu of rescission or part performance

4) Misrepresentation of fact

a) A representation must be a statement of existing fact written or implied by conductb) No relief is available for mere puffs, statements of opinion or future intentc) Where the facts are equally known to both parties, statements made are no more than expressions

of opinion (Smith v Land)d) A statement of opinion by the party who knows the facts best may also be a statement of material

fact, it is implied that he knows the facts to justify his opinione) Honest belief is a complete defence to a charge of false representation (Fitzpatrick v Michel)

5) Misrepresentation of law


a) The same rights and consequences flow from the making of a fraudulent misrepresentation of law and from a fraudulent misrepresentation of fact (Public Trustee)

b) The representee should be entitled to rescission and resist enforcement by specific performance

6 ) Duty to disclose

a) There is no duty of disclosure, cannot claim for failure to disclose a material fact (Davis v London)b) Exceptions include a duty to disclose where a statement is true but gives rise to false impressions or

is later rendered false by a change of circumstancesc) Where one party is in a better position to know the material facts, a duty of disclosure exists and

the contract is uberrimae fideid) If there is a pre-existing relationship between parties such as principal and agent, solicitor and

client, guardian and ward, a duty of entire disclosure is impliede) Disclosure is also imposed on fiduciary (McKenzie v McDonald)

7) Misleading and deceptive conduct is governed by the TPA

a) s 6, extends the Act’s applications beyond corporations to individualsb) s 51A, where a corporation makes a representation with respect to a future matter without

reasonable grounds, the representation shall be taken as misleading or likely to misleadc) s 52, a corporation shall not in trade or commerce engage in conduct that is misleading or

deceptive or likely to deceive or mislead (no requirement of intent)d) s 82(1), a person may recover damagese) s 82(1B), if a claim is made in relation to economic loss or damage to property, and the loss is partly

the result of the claimant’s failure to take reasonable care and the defendant did not intend to or fraudulently cause the loss, the damages may be reduced to the extent in which the court thinks is just and effective regarding the claimant’s share in the responsibility

f) s 82(2), the action must be commenced within 6 years of the conductg) s 87(1A), orders may compensate a person or prevent reduce damage suffered or likely to be

sufferedh) s 87(2), orders may:

a. declare whole or part of the contract or collateral void ab initio at any date specified by the order

b. vary a contract or refuse to enforce any or all of the provisionsc. refund property or moneyd. pay for loss or damage sufferede. repair or provide parts for goods suppliedf. supply servicesg. vary or terminate an instrument transferring an interest in land

i) s 87AB, liability may be limited by occupational liability legislationj) s 87AC, the commission may intervenek) s 87CA, a claim may be apportioned between concurrent wrongdoers

8) Limitations of the TPA

a) In trade or commercei. The misleading conduct must bear a trading or commercial character (Concrete

Constructions)ii. Internal communications between employees cannot constitute activities in trade or

commerceiii. Facilities commonly employed in commercial transactions cannot transfer a dealing which

lacks business character into something done in trade or commerce (O’Brien v Smolonogov)


iv. Statements made by a person not involved in trade or commerce may answer the statutory expression if they are designed to encourage another to invest in a trading entity (Houghton v Arms)

b) Audiencei. Where representations are made to the public at large or to a section such as prospective

retail purchases, the effect on reasonable members of the class is contemplated (Nike)ii. A company which does no more than pass on information supplied by another does not

engage in misleading or deceptive conduct if it is clear that the company is not the source of information and expressly or impliedly disclaims any belief in its truth or falsity (Butcher)

iii. An agent is not liable because he merely communicated the vendor’s representation without adopting or endorsing them, especially if:- the purchasers are intelligent and self reliant and had the means to seek expert advice- it was sufficiently clear the brochure was not produced by the agent- disclaimer existed to suggest the quality of information was not guaranteed

c) Silencei. s 52, is not limited to misrepresentations of fact but also to statements of law and specific

sale puffs, however difficulties arise in its application to silence, opinions, predictions and promises

ii. Silence would be misleading where there is a duty to disclose the relevant information (Henjo v Collins)

iii. Although it is generally not necessary to show intentions, silence must be deliberate if it is to contravene the section (Demagogure v Ramensky)

Rescission restores the parties to the position they occupied before the contract set foot

1) Vitiating factors

a) Rescission is available to mistake, misrepresentation, breach of fiduciary duty, duress, undue influence and unconscionable dealing

2) Common law

a) Allows restitution in cases of fraud, duress or total failure of consideration, fraudulent or negligent misrepresentation

b) Cannot rescind purchase when the parties are unable to return to their original positions

3) Equity

a) Equity allows for substantial restitution and remedy for innocent representation and undue influence but not damages

b) Where one party has been induced to the contract by an innocent misrepresentation (Alati):i. Sue for damages for breach of warrantyii. Sue for damages for fraud

iii. Restitution, recover purchase money and interest and damages suffered for carrying on a business in the mean time

c) Equity accounts for benefit derived from the use of the property for before rescission and compensates deterioration during the interval (Brown v Smitt)

d) Equity recognises the possibility of partial rescission (Vadasz)e) He who seeks equity must do equity

4) Bars to rescission


a) Contract for sale of goods is governed solely by the common law (Watt)b) In the absence of fraud contracts can be rescinded if they have been executed (Vimig)c) Rescission is barred if the contract is affirmed by the representee, the affirmation must be

unequivocal and not because the representee was unaware of his right to rescind (Coastal)d) Lapse of time may be considered (JAD International)e) Right to rescission for misrepresentation may survive if the representation becomes a term

(Academy of Health and Fitness)f) Intervention of third party rights may bar rescissiong) Non-fraudulent misrepresentor may be protected by a no representations clause (Byers)h) Rescission does not take place until the representor has been notified of the election to rescind (Car

and Universal Finance)

Duress negates consent and renders the victim’s action non-voluntary

1) Unfairness

a) Procedural unfairness concerns how the contract was brought aboutb) Substantive unfairness concerns the contract itself

2) Basic elements of duress

a) The victim’s will is so overborne that (s)he cannot act as a free or independentb) Contract procured by duress is voidable but not voidc) For duress to succeed there must be pressure producing compulsion or the absence of choice

(Universe Tankship)d) The pressure must be one which the law does not regard as legitimate (Barton v Armstrong)e) If the pressure is unlawful, the argument of duress will succeed without considering the nature of

the demand (Universe Tankship)f) However it is not necessary for the victim to prove the illegitimate action was the sole reason for

him entering to contract, he only has to prove it contributed to him entering into the contract (Westpac Banking)

Undue influence occurs when one party’s ascendency produces a relationship of influence

1) Elements of undue influence

a) Imbalance of power between parties; one party’s ascendency over the otherb) Reliance of weaker party on stronger partyc) Weaker party suffers from impaired judgement through the guidance of the stronger partyd) Main remedy is rescission

2) Onus of proof

a) If a relationship is deemed to be one of influence, the onus of proof lies on the stronger party to disprove there was undue influence in the relationship

b) If a relationship is not deemed to be not as such, the ‘weaker’ party has the onus of proof in proving that trust, reliance and confidence was placed on the ‘stronger’ party; proof of ‘actual’ undue influence

c) However even without a presumption of undue influence, if one party is manifestly weaker than the other, the stronger party has the onus of proof the weaker party had free exercise of their will (Johnson v Buttress)


3) Deemed relationships of influence

a) Equity deems parent v child, guardian v ward, religious adviser v disciple, solicitor v client, doctor v patient, etc, as relationships of influence

b) Fiduciary relationships can be, but not necessarily are, relationships of influencec) A preceding relationship can be assumed to be one of undue influence if there strong was trust and

confidence in the relationship (Barton v Armstrong)

Unconscionable dealing involves exploitation of another party’s special disability

1) Elements of unconscionable dealing

a) A party must have some special disability or be vulnerable to exploitation, and can include:i. Drunkenness or mental disorder where the party cannot appreciate the general nature of

the transaction (Blomley v Ryan)ii. Lack of knowledge and education (CBA v Amadio)

iii. Emotional dependence – atmosphere of crisis, deliberate manufacture, position of influence and manipulation (Louth v Diprose)

b) The court may give relief against contracts characterised by exorbitant terms entered into by impecunious, sick, weak-minded or inexperienced persons who lack the advantage of independent advice

c) One party is placed at serious disadvantage vis-a-vis the other(CBA v Amadio):i. One party has special disabilities affecting his/her judgement of his/her best interest, so that

there is an absence of any reasonable degree of equality between the partiesii. The disability is sufficiently evident to the stronger party to make it prima facie

unconscientious that he accept the weaker party’s assent in the circumstancesd) Unlike undue influence, the will of the innocent party is independent and voluntary but the result

of a disadvantageous position which the other party unconscientiously takes advantage ofe) Main remedy is rescission

Impropriety by third parties can affect the legal integrity of a contract

1) Elements of impropriety by third parties

a) Was there a vitiating factor between the guarantor and third party debtor, e.g. misrepresentation, duress, undue influence and unconscionable dealing

b) Did the creditor know of the impropriety or ought to have known, and relied on the debtor to gain the guarantor’s consent, or did the debtor act as the lender’s agent

2) Rule in Yerkey v Jones

a) A married woman who has become a surety of her husband’s debts can have the agreement set aside if she does not understand the essential respects of the agreement or have not dealt with the creditor personally

b) Principle also applies if she understood the essential respects of the agreement if her consent was obtained by her husband’s undue influence

c) The wife must not benefit from the transactiond) If the debtor is a company controlled by the husband in which the wife has no substantial interest,

the principle still applies


3) Proper explanation to guarantor

a) It is not necessary for the debtor to explain adequately and accurately the transaction as long as the creditor took reasonable steps to inform the guarantor of the obligations she is taking and reasonably ensured she had adequate comprehension of the obligations (Garcia v NAB)

b) Proper explanation of the obligations to the guarantor will not protect the guarantor if it was found the guarantor’s consent was obtained by undue influence, “nothing but independent advice or relief from the ascendency of her husband over her judgement and will suffice” (Bank of NSW v Rogers in Garcia)

c) An explanation of a particular transaction may be imperfect, incomplete or wrong without bad faith, deception or imbalance of power between the parties (Garcia)

web viewcontracts 2 summaryterms can be expressed or implied1) express terms. standard form...

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