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Revision
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Terms
Terms can be Express
In writing Oral Partly in writing and partly oral
Implied By the Courts By legislation
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Reasonable Bystander Test
Which statements and representations would a reasonable bystander, aware of the circumstances of the case, regard as promissory?
The test is objective Parties actual intention is irrelevant
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Reasonable Bystander Test - Guidelines
Timing of Statement Was the statement in writing Did one party have special skill or knowledge How objectively important is the representation
to the whole deal What words were used
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Parol Evidence Rule
Courts presume that written formal contracts that appear to be a complete record of the agreement, contain the whole agreement
Exceptions Parties did not intend written document to record
whole of the agreement Written document inaccurately records the parties
agreement Terms must be implied to make the agreement
workable Collateral contracts
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Terms implied by the Courts
Implied as a matter of law Implied as a matter of fact
Past DealingsBusiness efficacyTrade Custom
Implied Terms
Terms implied by Statute
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Exemption Clauses
Courts adopt a 2 step process Has the exemption clause become a term of
the contract? If so, does it cover the breach in question?
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Does the Clause Cover the Breach?
Courts will examine the clause carefully to determine its effect and limit its scope where possible
Generally, the Courts will give effect to the parties intentions as evidenced by the natural and ordinary meaning of the words
There are 3 rules that courts use to limit exemption clauses: The Contra Preferendum rule Negligence Clauses The Four Corners Presumption
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Void and Voidable Contracts
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Void, Voidable & Unenforcable
Void Where one or more of essential elements of
contract are missing There is no contract
Voidable Parties have option to avoid contract Equitable remedy of rescission Valid & enforceable until one party rescinds
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Void, Voidable & Unenforceable
Unenforceable Valid contracts Legislative or procedural requirement not
satisfied E.g. Sale of Land must be in writing (s26 Law
of Property Act)
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Rescission
Effect Contract is terminated ab initio (i.e. it is as
though there never was a contract) cancels the contract from the point of
termination Procedure
Innocent party rescinds by giving notice to the other party
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Notice of Rescission Innocent party must give notice of rescission
to other party Notice can be implied from conduct Academy of Health & Fitness v Power
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Rescission
Available for: Misrepresentation Undue influence Unconscionable conduct Duress
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Bars to Rescission
Third Party rights adversely affected Substantial restitution not possible Innocent party affirms contract Party wishing to rescind does not have “clean
hands” Lapse of time
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Third Party Rights Rescission is not permitted if the legal rights
of an innocent third party will be adversely affected
For example, where goods have been on sold in good faith and for value to a purchaser
But, rescission will be effective where it occurs before the third party gains an interest Car & Universal Finance Co v Caldwell
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Restitution The parties must be capable of being restored to
substantially the position they were in before the contract was entered into Known as “Restitution” Court can make consequential orders Precise restitution is not necessary
Alati v Kruger Brown v Smitt
Not possible where services already supplied pursuant to a contract of service
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Affirming the Contract Rescission is not permitted if the contract has
been affirmed After discovering misrepresentation,
innocent party does any act which indicates that he is treating contract as still running
A delay in rescinding can amount to an affirmation
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Clean Hands
Rescission will not be permitted if party seeking to rescind has also done something wrong under the contract
E.g. One party makes misrepresentation Other party has breached the contract by not
carrying out their obligations
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Lapse of Time
Lapse of time will not normally deprive innocent party of right to rescind except if long period
Leaf v International Galleries (Graw 12.8.4)
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Duress, Undue Influence, Unconscionable Conduct and
Mistake
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Duress A contract entered into due to coercion or
force can be rescinded Coercion can be:
To the person; To goods; or Economic duress
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Duress (cont.) Duress to the Person
Threats of physical punishment or imprisonment to the person, his family or friends
Duress to Goods Threats that are made against a person’s
property
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Economic duress An economic threat that is not “legitimate” No rule that that commercial parties have to
be fair to one another A threat to break a contract can be economic
duress North Ocean Shipping v Hyundai
A lawful threat may be illegitimate Cockerill v Westpac
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Undue influence The unconscionable use by one person of
power possessed by him over another in order to induce the weaker party to enter into a contract Mitchell v Pacific Dawn
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Undue influence Presumed in pre-existing special relationships
where one party is in a position of trust and confidence
Called a “fiduciary relationship” Cases
O’Sullivan v Management Agency Lloyd’s Bank v Bundy
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Fiduciary Relationships Parent & Child Guardian & ward Principal & Agent Trustee & Beneficiary Doctor & Patient Lawyer & Client Religious advisor & Follower More
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Where No Special Relationship Weaker party must show that there is a
relationship of dependence, trust & confidence
Stronger Party exerted undue influence to the extent that the weaker party could not exercise an independent judgment
There must be more than mere reliance or influence
Weaker party must show that the contract would not have been made without the undue influence
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Where no Special Relationship Court will look at:
The equality of the bargain The weaker party’s ability to make free and
independent choices Domination by one party Dependency on another Need for guidance, advice and support Low intelligence, weak mindedness, illiteracy Age & Health
Lack of independent financial or legal advice
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Rebutting Undue Influence
Party in weaker position made an independent decision of their own free will
No pressure or influence as weaker party encouraged to seek independent advice
Weaker party was paid market price
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Unconscionable Conduct One party takes advantage of the other
parties special disability to the extent that the contract is unfair or unconscionable Blomley v Ryan (S&OR p219\261) Commercial Bank v Amadio (S&OR p61\86)
Elements Special disability Absence of any equality between the parties Disability evident to other party
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Mistake A party cannot get out of a contract because they
made a mistake Exceptions:
Mistake due to other party’s misrepresentation, unconscionable conduct etc.
Common mistake Mutual mistake Unilateral mistake Mistake as to nature of document
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Mistake Mistake at Common Law makes contract void Mistake at equity makes contract voidable
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Common Mistake – Common Law Both parties make the same mistake Res Extincta
Subject matter of contract has ceasd to exist
Res Sua Subject matter of contract already owned
by purchaser Cooper v Phibbs
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Common Mistake – Equity A common misunderstanding An important but not fundamental
mistake Mistake through no fault of either party Unconscionable for one party to benefit
from mistake No bar to rescissionSolly v Butcher (Graw 11.3.5)
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Mutual Mistake
• Parties are talking about different things
• Both are mistaken
• Difficult to work out what parties intended
• No “meeting of the minds”
• Raffles v Wichelhaus
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Unilateral Mistake - Equity One party is mistaken as to a
fundamental term; and Other party is aware, or should be
aware, of the mistake Mistaken party will suffer detriment if not
allowed to rescind
Taylor v Johnson
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Unilateral Mistake – Common Law Mistake as to Identity
If Third Party rights involved, identity must be important
Ingram v Little (Graw 11.5.4)
Mistake as to nature of document Non est factum
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Mistake as to nature of document Radical difference between what was signed
and what party believed they were signing Mistaken party relied on others for advice
because unable to read document Understand document
Mistaken party not careless
Saunders v Anglia Building Society
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Rectification
• Correction of document that does not accurately record parties’ intention
• Nobleza v Lampi