Chapter 2 Defective goods- Common law (Negligence)

A person is negligent if he fails to take reasonable care to prevent loss or injury that is foreseeable. Liability of negligence A buyer of a defective good who suffered a loss can only sue the retailer rather than the manufacturer unless: Product is dangerous and manufacturer should had been aware: Donoghue v Stevenson pg21 3 Steps in establishing damages for negligence: Step 1: Owe duty of care Step 2: What standard of care is owed? Step 3: Causation (Dmgs caused by actions)

Step 1: Does the Defendant owe a duty of care to the plaintiff?

Duty of care owed by: Manufacturers: Donoghue v Stevenson pg38 Distributors: McPhersons Ltd v Eaton & Ors pg42 Service providers: Stennet v Hancock and Peters pg43 2.7 Commercial property owners: Australian Safeway Stores Pty Ltd v Zaluzna pg43 Road users: March v Stramare Pty Ltd pg44 2.9 Duty of care Failing to take action 1.) Duty when special relationship exists: Club Italia (Geelong) Inc v Ritchie pg45 Doctor to non patient: Bt v Oei pg44, 2.10 School must take steps to protect students: Victoria v Bryar pg44, 2.10 2.) No duty Modbury Triangle Shopping Centre Pty Ltd v Anzil pg44

Duty of care Psychological harm 1.) None if it is mere embarrassment, annoyance, alarm or despondency Tame v New South Wales pg47 2.) Exist if it is shock from fear for ones life or fear for the life and safety of close relative Jaensch v Coffey pg46 Arnetts v Australian Stations pty Ltd pg47 Duty of care Pure economic loss (No physical damage or mental harm, just profits lost) Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad pg49 Hill (t/a R F Hill and Associates) v Van Erp pg50 Consider if... 1.) Are the damages reasonably foreseeable? a.) Not foreseeable (Too fanciful/far-fetched): Levi v Colgate Pty Ltd pg41 b.) Unsure if foreseeable: McPhersons Ltd v Eaton and Ors pg42 c.) Forseeable: Perre v Apand Pty Ltd pg51, ODwyer v Leo Buring Pty Ltd pg58

2.) How proximate is the relationship between defendant and plaintiff? 3.) How much victim depended on other party (vulnerabilirty) -Agar v Hyde pg52 -Johnson Tiles Pty Ltd v Esso Australia Pty Ltd pg53 4.) Did offender know victim is dependent? -Caltex Oil (Australia) Pty Ltd v The Dredge Willenstad pg52 -Perre v Apand pg52 -Rasbora Ltd v J C L Marine Ltd pg59

Step 2: What standard of care is owed?

Was a proper standard of care exercised? Yes- Romeo v Conservation Commission of the Northern Territory pg61 No- Adelaide Chemical and Fertiliser Co v Carlyle pg61 Design of goods ODwyer v Leo Buring Pty Ltd pg58 (Need to take reasonable care to all users especially to first time users.) Rasbora Ltd v J C L Marine Ltd pg59 (D owed duty of care to P to take reasonable care to designing and installing.) Production of goods Manufacturers must check & monitor the process of designing to prevent reasonably foreseeable injury of people. Grant v Australian Knitting Mills Packaging of products Adelaide Chemical and Fertiliser Co v Carlyle Proper labelling of products If manufacturer has given reasonable label (notice), then is not liable. Norton Australia Pty Ltd v Street Ice Cream Pty Ltd Holmes v Ashford Distributor/ Retailer Fisher v Harrods (If the retailer is aware of a defect, the retailer would be expected to exercise reasonable care to avoid damage) Delivery of services Woods v Multi- Holdings Pty Ltd

Step 3: Causation (Are the damages a cause of negligence?)

Causation: to obtain damages, P must establish that the negligence directly caused the damage. Chapel v Hart Plaintiff will not receive anything for damages that are too remote Remoteness: The damage suffered must have been reasonably foreseeable and as a direct consequence. Overseas Tankship (UK) Ltd v The Miller Steamship Co Pty Ltd (The wagon Mound No.2)

ONCE IT HAS BEEN DETERMINED IF DEFENDANT IS LIABLE........... CHECK IF THEY HAVE ANY DEFENCE TO REMOVE OR REDUCE LIABILITY Defences:

Contributory negligence: If P also has contributed to the losses or damages due to his own negligence, this leads to reduction of damage. It must be proven that: 1.) P knew of the danger 2.) P appreciated the risk of injury created by the danfer 3.) P voluntarily agreed to accept the risk

March v Stramare Pty Ltd (Both held responsible for negligence, 30% v 70%) The P assumed to risk: P is willing to take the risk. Moore vWoodforth (Held there was contributory negligence, but no voluntary assumption of risk.) Liability for another persons acts:

Employer is responsible if both of the criteria are satisfied: a.) The defendant is his employee b.) The defendant, his employee, acted within the scope of his or her employment Hollis v Vabu Pty Ltd pg72, Burnie Port Authority v General Jones Pty Ltd pg73 (Liable) Sweeney v Boylan Nominees Pty Ltd pg72 (Not liable)

The Trade Practices Act Part VA- damages for defective goods
TPA Part VA (Liability of corporations manufacturing/importing etc defective goods t hat cause loss/injury) - Action must be brought within 3 years after awareness - Action must be carried out within 10 years of the supply

Manufacturer pay for defective goods:

Corporation (in trade or commerce) is liable to pay compensation if: Defendant must be a corporation The goods are manufactured by it The goods are defective (s 75AC : Defective = safety is not what someone generally are entitled to expect Thomas v Southcorp Australia Pty Ltd pg78) As a result of defectiveness: A person suffers injury (s 75AD) Another person suffers loss because of the first persons injury ( s 75AE) Domestic or household use goods are destroyed/damaged due to defective goods ( s 75AF) Land, buildings or fixtures for personal use are damaged/destroyed due to defective goods (s 75AG) Maximum plaintiff may be awarded for non-economic loss: $25 000

Defenses for manufacturer: 1.) Manufacturer NOT liable under s 75AK if : a.) Defect in goods were not present during time of supply (hands of manufacturer) b.) Defect existed ONLY because of compliance with a mandatory standard applicable to the goods c.) Manufacturer did have enough scientific or technical knowledge to detect defects Graham Barclay Oysters Pty Ltd v Ryan pg79 3

d.) Goods were comprised in other goods (finished goods) and the defect is attributable only to: The design of finished goods Markings on or accompanying the finished goods Instructions or warnings given by the manufacturer of the finished goods (eg Choking harzards)
P/S: Goods can include (s4): All vehicles, animals, minerals, trees and corps and gas and electricity 2.) Manufacturers, according to s 75AP of TPA cannot exclude or modify the provisions of Pt VA 3.) Contributory acts or omissions: Amount of damages awarded will reduce if person is caused partly by the act or omission of that person himself (s 75AN)

Chapter 3 Liability for Misrepresentation and Unfair Commercial Conduct

FRAUD:
Step 1: Did defendant make false representation of fact? Step 2: Did it induce plaintiff to act in some way? Step 3: Did defendant act dishonest/reckless? Step 4: Did plaintiff suffer losses due to misrepresentation?

Step 1: Did defendant make false representation of fact?

Determine what the alleged misrepresentation IS and find out if it is a STATEMENT or something else Possibilities: Option 1: Statement of fact or opinion? Smith v Land and House Property Corporation pg105 Decision: Not opinion, but a statement Option 2: Statement of fact or mere puff? Expressions such as best in the world and finest quality are not facts but mere advertising exaggerations Option 3: Silence as a statement of fact 1. Half-truths: Hiding information but cleverly making it look like telling truth = DECEIT Example: Vendor telling purchaser he is in financial difficulty but didnt add that he is bankrupt Re Hoffman; Ex parte Worrell v Schilling pg105 3.11 Altered circumstances: Where something is true during time of telling but stops ceases to be true, it is misrepresentation if the representor does not mention this fact Lockhart v Osman pg106 Decision: Misrepresentation, did not made buyer aware of changes Statement that is true but conveys false message: Purchaser was interested in property where rent was an important factor. Vendor knew this and showed purchaser a yearly rent receipt between him and a tenant as requested (true statement). Vendor didnt reveal his tenant had 3 months free hence rent appearing on receipt is lower than it would usually be. Krakowski v Eurolynx Propterties Ltd pg106

2.

3.

Step 2: Did representation induce plaintiff to act in some way?

For misrepresentation: Innocent party must had been induced to act in some way and It must be reasonable for them to rely on that representation Holmes v Jones pg107 Decision: NOT misrepresentation as plaintiff did not rely upon misrepresentation

1.) Plaintiff should had known better if they exercised reasonable care or diligence is NOT a defense: Redgrave v Hurd pg107 Gould v Vaggelas, Gipps v Gipps pg107 Decision: Misrepresentation, as there is no obligation for plaintiff to investigate the truth

2.) Person may not sue if fraudulent misrepresentation was NOT directed at him/her and was NOT intended to induce him/her. Peek v Gurney pg108 Decision: May not sue. Plaintiff did not fall within the class of persons whom prospectus was directed 3.) Person may sue EVEN if fraudulent misrepresentation was not directed at him/her but intended for it to be passed on to plaintiff to induce him/her. Commercial Banking Co of Sydney Ltd v R H Brown & Co pg108 3.13

Step 3: Did defendant act dishonestly/reckless?

Yes. Point out where. Move to Step 4

Step 4: Did misrepresentation cause plaintiff to suffer loss?

Plaintiff must establish casual connection between fraud and loss. If it is successful, defendant generally cannot rely on disclaimers to exclude liability for fraud : Boyd v Glasgow Railway pg111

NEGLIGENT MISREPRESENTATION
Step 1: Did defendant owe a duty of care? Step 2: Did the defendant exercise require standard of care? Step 3: Were the losses caused by defendants negligence and were the losses reasonably foreseeable? Step 1: Did defendant owe a duty of care? A duty of care can be owed: a.) When giving advice or information: Rule: When giving advice or information for serious matters where speaker ought to realise he is being trusted for information for the basis of action, he is under duty to exercise reasonable care L Shaddock and Associates Pty Ltd v Parramatta City Council pg112 Decision: Council owe duty of care Esso Petroleum Co Ltd v Mardon pg114 Decision: Mardon successfully counter claimed for negligent misrepresentation Professional advisers (ie, lawyers, accountants, engineers) owe duty of reasonable care in providing services to their clients in both contract and tort. Auditors owe duty of care in tort and a contractual duty to the company, and may owe a duty of care to the shareholders, investors and lenders. Essanda Finance Corporation Ltd v Peat Marwick Hungerfords pg116 Decision: Auditor prepared financial reports to the company but owed no duty of care to Essanda To consider whether the duty of care is owed: Show auditors intention was to induce the plaintiff to act on the advice or information. Ex: The audit or financial reports were prepared for the purpose of inducing the plaintiff to act in a particular way ---- special relationship exists. R Lowe Lippman Figdor and Franck v AGC (Advances) Ltd pg117 Decision: No evidence that auditors misrepresentation was intended to induce

Disclaimerremove a duty of care Representor may remove a duty of care through suitable and well worded disclaimer Hedley Byrne & Co Ltd v Heller and Partners Ltd p118 Decision: No special relationship exists because the advice was provided under a disclaimer

Step 2: Did defendant exercise reasonable amount of care? Professional persons are reasonably expected to provide standard of care based on what the community reasonably expects from a person of those qualification Rogers v Whitaker pg120 Step 3: Were the losses caused by negligent misrepresentation and were they foreseeable? THINK: As plaintiff, Would I have done that if I had known the truth? Defendant will be liable to plaintiff for all damages caused by the breach, provided that such damage was not too remote. Kenny &Good v MGICA Ltd pg121 Decision: Damage is not too remote if defendant could reasonable foresee that his actions or representations would cause the lose CALCULATING DAMAGES: Position victim would had been if the tort had not occurred

MISLEADING OR DECEPTIVE CONDUCT

s52 TPA: A corporation shall not, in trade or commerce, engage in conduct thi s is misleading or deceptive or
is likely to mislead or deceive. Elements for breach of s52: Step 1: Is representor a corporation? Step 2: Was the representation made in trade or commerce? Step 3: Was the representation misleading or deceptive Step 4: Did person suffer loss as a result? Step 1: Corporation? State governments are not subject to TPA. Nor are most state government enterprises, including state-owned rail authorities, state banks and state owned power generating and distribution authorities. s84 (2)(a): Corporation is responsible for conduct of its director, employees and agents if they act within the scope of their actual or apparent authority S84 (2)(b): Corporation is also responsible for any person who acts under direction of a real employee acting within their scope of authority If representor is not a corporation, Fair Trading Act, FTA s9 applies pg124

Step 2: Trade or commerce? Page124 of textbook: Following representations would be in trade or commerce: Product claims Statements made during course of sale of business Statement made during any business negotiations Statement made by real estate agent during sale of a house Advice given by any professional person

Following representations would not be in trade or commerce:

Contents of a political speech (Unilan Holdings Pty Ltd v Kerin pg124) Statements made by an owner during the sale of a private house ( OBrien v Smolonogov pg124)

Step 3: Was conduct misleading or deceptive? 1.) Half truth Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd pg125 Decision: Seller exceeded seating capacity for a day to make restaurant like more appealing for buyer 2.) Breaching s52 of TPA does not require intent and negligence. Even purely innocent misrepresentation is a breach and can be sued for damages Yorke v Ross Lucas Pty Ltd pg126 (Even though agent was not aware that info was inaccurate, he had engaged in misleading conduct) 3.) Silence In some unusual & unexpected circumstances, there must be an explanation. Demagogue Pty Ltd v Ramensky pg127 Decision: Demagogue failed reveal about the driveway being in development and remained silent Forwood Products Pty Ltd v Gibbett pg127 Decision: Defendant didnt reveal that his products would kill plaintiffs fishes but sold them anyway Metalcorp Recyclers Pty Limited v Metal Manufacturers Limited pg128 Decision: Remained silent and hence misled General Newspapers Pty Ltd v Telstra Corporation pg129 Decision: Telstra keep silence about negotiation with another printer but court held that there was no obligation to disclose confidential matters, hence no breach of s 52 4.) Opinion : Generally if wrong would not amount to misleading or deceptive conduct UNLESS: a) Not genuinely held the person lied. b) An opinion given by an expert in his field but may be a statement of fact rather than opinion c) Given honestly, but totally unsupported by facts. (Talking shit without substance) I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd pg135 Henville v Walker pg130 RAIA Insurance Brokers Limited v FAI General Insurance Co Limited pg130 Decision: Court held that RAIAs opinion not based on reasonable ground, so RAIA was liable

5.) Promises & predictions Wheeler Grace & Pierucci Pty Ltd v Wright pg131 Decision: W advised public members to invest for mining company, W didn't explain the difficulties of the mining company have, but asserted that premium would be returned in 6 months. However, statement was unqualified S51A (1)(2) making representation about the future matter without reasonable ground is a breach of s52 EXCLUSION CAUSES AND DISCLAIMERS

Not effective for breach of s 52. Bateman v Slatyer pg133 Decision: The disclaimer was not effective against misleading or deceptive conduct -- breach of s 52

Step 4: Plaintiff suffers a loss which is caused by the misleading or deceptive conduct.
Remedies Damages are only awarded for breach of s52 under s 82 and s 87 if the loss was caused by the misleading and deceptive conduct. Loss was NOT caused by conducts: Sweetman v Bradfield Management Services Pty Ltd pg134 Loss was CAUSED by conducts: I & L Securities Pty Ltd v HTW Vahers (Brisbane) Pty Ltd pg135 (Court held that HTW to be breach of s 52, and IL take less care on valuation of property. These two reasons caused the losses of IL. So the damages for IL was reduced due to contributory negligence (s 82 (1)) The role of reliance in obtaining damages for deceptive conduct Sometimes it is not necessary to prove reliance in order to obtain damages under s82 This is when: Plaintiff argues he lost sales because of plaintiffs false advertising Hill v Tooth & Co Limited pg135

Calculation of damages under TPA Damages are calculated by determining the position the representee is in and the position he would had been in but for the breach of s52

Damages may be awarded against companys employees or agents: Person can sue company and the directors or CEO (of the company who provide the misleading or aware of the false made by company) for misleading.

1.) Declaration that the contract may void under s 87 for a breach of s52 Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd pg138 Demagogue Pty Ltd v Ramensky Decision: Purchase home unit, not revealed about the driveway in contract and remain silent on it hence court held that the declaration made by D was void, and should repay the deposit

2.) Court may vary the terms of contract under s 87 Bateman v Slatyer pg138 Decision: Court ordered the franchise agreement to be varied so as to cancel all future payments still owing by the franchisee Mr Figgins Pty Ltd v Centrepoint Freeholds Pty Ltd pg138 Decision: Shopping centre, wrong statements hence court varied the rent payment for tenant

3.) Injunctions: Court has power to order injunction under s 80, usually for false advertising Use when youre a business owner and want to stop the competitor from advertising!! 4.) Criminal misrepresentations. S 75 AZC makes specific misrepresentation in commercial criminal offences which covered by s 52. - Company may be fined up to $ 1 m - Person may be fined up to $ 200,000.

Unconscionable Transactions When one of the parties is vulnerable and the other party took unfair advantage of that The Commercial Bank of Australia v Amadio pg141 (Bank took advantage of parties old age and lack of English language proefficiency)

Remedies: s51 AA of TPA awards damages for unconscionable conduct Failed to get damages: ACCC v CG Berbatis Holdings Pty Ltd pg142 Decision: Court held that from applying Amadios case, not enough evidence to prove tenant was in a position of special disadvantage

Successful in getting damages: Astvilla Pty Ltd v Director of Consumers Affairs Victoria pg143 Decision: Court held that ms Brown was under special disability and that company had taken advantage of that

10

Chapter 4: Contract: Offer & Acceptance

To determine if a contract exists:

Step 1: Has an offer been made? [ Offer or Invitation to treat ] Step 2: Has the offer been accepted? [ Only valid when it is properly communicated ] Step 3: Did the parties intend to make a contract? [ Intended to be legally bound ] Step 4: Was consideration provided? [ Both sides must present something of value ] Youve got a contract

Note: A contract can be written or oral. No requirements for it to be in writing! 3 Things to consider: 1.) Offer or merely indication of a present intention? Harris v Nickerson pg165 2.) Offer or invitation to treat? Partridge v Crittenden pg167 3.) Offer or conduct that is merely part of negotiations? Harvey v Facey pg164

Displaying goods with price tag or displayed is an INVITATION TO TREAT not offer Fisher v Bell (1960) pg167 and Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd (1953) pg168 Catalogues are usually is an INVITATION TO TREAT, not an offer Grainger & Sons v Gough (1896) pg168 Advertisements can be offers Carlill v Carbolic Smoke Ball Co (1893) Auctions- Auctioneer calling for bids, bidder makes the offer. Tenderers are the offer makers, not the person calling for tenders Spencer v Harding (1870) pg172 Hughes Aircraft Systems International v Airservices Australia (1997) pg172 Standing offers Offers always standing, turns to contracts only when order is placed Colonial Ammunition Co v Reid (1900) pg173

11

The fate of the offer

Offer Offeror may withdraw the offer Offeror may accept the offer = agreement Offeror may reject the offer Offer may lapse due to passing of time Offer may lapse due to death of offer/offeree Offer may lapse due to the failure of a conditional precedent 1). Withdrawing the offer - An offer cannot be revoked after acceptance, otherwise breach of contract. - An offer can be revoked before acceptance if the offeror has promise not to revoke it. (This rule only applies when the offeree give no option to offeror to keep the offer open.) - Revocation must be communicated to the offeree, otherwise it is ineffective - The communication of revocation does not have to be made by the offeror personally - Special problems exist with unilateral offers - Certain offers called options may not be revoked Can an offer be revoked after accpetance? A contract is formed when an offer is accepted (provided intention and consideration are satisfied). The offer cannot be revoked once accepted. Any refusal to carry out the terms of the offer would be a breach of contract. Can an offer revoked before acceptance?- An offeror may revoke an offer at any time prior to the offer being accepted even if the offeror has promised not to revoke it.

Routledge v Grant P175 (Grant offered to buy Routledges house, G kept the offer open for 6 weeks and withdrew it before expiration. Held that G was entitled to revoke the offer at any time before acceptance. Routledge had given some consideration in return for Grants promise t o keep the offer open for six weeks) Is it necessary to tell offeree about the revocation?- An offer is not withdrawn until the revocation has actually been communicated to the offeree. Byrne & Co v Van Tienhoven & Co P176 (Revocation is too slow therefore acceptance is valid, revocation is not effective until it is received by the offeree.) Who must tell the offeree that the offer has been revoked? Revocation of the offer must be communicated to the offeree BUT revocation does not have to be communicated to offeree by offeror in person as it could be learnt by offeree in some reasonable reliable manner. Dickinson v Dodds (Communication for revoking an offer could be made by third party to offeree.) Is it possible to revoke a unilateral offer? - Normally unilateral offer could not be revoked until the offeree has had a reasonable opportunity to complete his/her action. If the offer involves a unilateral promise and the offeree has acted on the promise, the offeror will normally be prevented from withdrawing the offer until the offeree has had a reasonable opportunity to complete. Carlill v Carbolic Smoke Ball Co (CSB would not have been permitted to revoke the offer prior to Carlill completing the course of medication in accordance with the advertisement.) Options ( Offers that cannot be revoked)- An offer which offeree has given an option to offeror to keep it open, cannot be revoked before acceptance. An option exists where the offeree has given something of value to keep the off open. Routledge v Grant, p175 Goldsborough Mort & Co Ltd v Quinn P177 (G has given 5 shillings as an option to Q to keep the offer open, Quinn could not revoke the offer before G accept it ,court ordered specific performance of the contract due to the sale of land.) 2). Rejecting an offer - An offer may be rejected expressly or by implication. - Offerees conduct may indicate rejection. - An offer is terminated on rejection cannot be later accepted.

12

Offerees conduct may indicate rejection- An offer can be rejected by the offeree by doing something that is inconsistent with an intention to accept

Counter offer amounts to a rejection An offerr is rejected by the offeree making a counter offer. Any material alteration of the terms of the offer will be a counter offer. Need to be careful when restating the original offer as part of the purported acceptance. Hyde v Wrench P178 (W offered to sell property for 1000, H countered to buy for 950, W never accepted and refused to transfer the property to H. Held that W s original offer has been rejected by Hs counteroffer, this counter offer has also been rejected by W. W has no obligation to sell the property.) Turner Kempson & Co Pty Ltd v Camm P179 (Turner offers to supply fruit, Camms acceptance has added new terms which amounts to counter offer, Turner never accepts the counter offer. Turner won.) Asking for clarification of terms of the offer is not a counter offer. (Needs reasonable person test to determine if it is a request for clarification or a counter offer.) Stevenson Jacques Co v McLean 3). Acceptance of the offer - If an offer has not been withdrawn or rejected, it may be accepted - Only the offeree may accept the offer - Acceptance must be final and unqualified. (Sometimes offeree does not intend to be bound by the agreement, he/she is reserving right to change mind or terms, eg. subject to contract) - Acceptance must be communicated to the offeror, unless one of the exceptions applies Only the offeree may accept Acceptance must be final and unqualified- The offeree must intend to be bound by the agreement. However, if there is an arrangment made subject to contract is presumed not to be a contract

Masters v Cameron P181 (Masters signed memorandum of agreement subject to contract. Held that subject to contract is normally presumed not to be a contract as it is normally not a final and unqualified acceptance. Thus, the deposit belonged to Master. Contrast to Masters v Cameron, Plastyne Products Pty Ltd v Gell Engineering Co Pty Ltd P205 (Buyer sent letter to seller, one term said that formal contract will be prepared, so clear intention to contract.) The problem of battle of forms. (Two parties fire documents at one another containing contradictory terms.) Butler Machine Tool Co Ltd v Ex- Cell- O Corp (England) Ltd P182 (offer, counter offer, acceptance. The counter offer has been accepted when the seller return the acknowledgement slip, held that there is contract.) Reese Bros Plastics Ltd v Hamon-Sobelco (Australia) Pty Ltd P113 (Hamon offered, Reese accepted by replying in fax but gave some different confirmation from Hamons original offer. Held that there was a contract when Hamons offer had been accepted by fax, subsequent confirmation containing new terms was irrelevant.) Acceptance must be communicated to the offeror. 1.Silence does not amount to acceptance. Felthouse v Bindley (1862) p184 ( Felthouse sent a ltter to his nephew offering to buy a particulat horse and if F did not hear from his nephew, he would consider the horse his for 30.15. The court held that the nephews silence could not be regarded as acceptance in these circumstances) 2.Communicating acceptance to a large company. (Acceptance occurs when the relevant letter or other communication is opened in the ordinary course of business or would have been so opened if the ordinary course were followed. It is the recipients responsibility to arrange for prompt and efficient distribution of messages within the office and the company generally) 3.Communicating acceptance over the internet. (An electronic communication is taken to have been sent from the senders place of business and to have been received at the addressees place of bus iness.)

13

4.Situation where express communication is not necessary possible exception rules: where regular past dealings exist allowing the conclusion that a contract exists even without formal acceptance. where the offerors and the offerees industry invo lve a custom that formal acceptance is not necessary. acceptance maybe indicated by conduct rather than words. In the case of unilateral contracts, Carlill v carbolic Smoke Ball Co , it is not necessary for the offeree to advise the offeror of acceptance The postal rule. Acceptance and the postal rule Acceptance occurs when the letter is posted; even it is lost in the post but must be properly addressed and stamped. Offeror has expressly or impliedly accepted the ordinary post as the means of communication between the parties Henthorn v Fraser - Postal rule has been extended to public telegraph and public telex. Leach Nominees Pty Ltd v Walter Pty Ltd - The rule does not apply to instantaneous communication (face-to-face, telephone conversation, private fax), email, and internet. Brinkibon Ltd v Stahag Stahlwarenhandelsgesellschaft mbH P186 (contract made by private fax, postal rule does not apply, so contract was made when acceptance is received in Australia.)

What evidence is required for the postal rule to operate? Offeror must have accepted the post as the method of acceptance either expressly (send your answer by mail) or impliedly( where an offer has been made by post, and there is no other evidence to indicate that the post was not an appropriate method of communicating acceptance). Bressan v Squires (Postal rule does not apply.) The method and timing of the acceptance Offeree may choose any method of acceptance if the offeror does not stipulate a particular method as the only method of acceptance; if the offeror does, offeree must comply. Offeree must conform to the method and time that offeror states. Can acceptance be communicated by TP? Acceptance is valid only when that person has actual authority or reasonably appears to have such authority. Powell v Lee P187 (Committee member had no authority to communicate the decision to Powell as he was appointed as headmaster of a school. Held that telegram did not amount to an acceptance.) 4). Lapse of offer Due to the death of offeror or offeree The death of either the offeror or the offeree terminates an offer: Fong v Cilli (1968) The result would differ if an option was involved and the offer did not involve personal skill or service by deceased: Carter v Hyde Due to time If no time limited is mentioned, offer remains open for a reasonable time: Ramsgate Victoria Hotel Co Ltd v Montefiore If there is an offer to remain open/ return mail by the offeror, the offeree could not accept after the time given What constitutes a reasonable time will depend on the circumstances such as: 1) The method by which the offer has been made 2) The nature of the transaction 3) The terms of the contract as a whole

14

4) The actions of the parties between the making of the offer and the purported acceptance 5) Any evidence that the offeror has intimated an appropriate time frame Due to the failure of a condition precedent. An offeror may make an offer conditional on the happening of a particular event. The the condition is not satisfied, the offer lapses and cannot be accepted. 5) The agreement must be certain The courts require certainly as to the parties, the subject matter of the contract and the price otherwise it is void. Whitlock v Brew P189 (Sale of land, clause 5 was uncertain, so agreement fail for uncertainty.) Is an agreement to agree binding? Unsually an agreement to agree is not binding b/c of uncertainty, unless parties provided a mechanism for fixing price. Hawthorn Football Club v Harding 189 Is an agreement to negotiate binding? An agreement to negotaite in good faith was not unenforceable. Probably not binding. Is an agreement made subject to contract binding? Presumed not to be binding, Master v Cameron But subject to contract may be displaced by evidence suggesting that the parties did intend to be bound. Sale of land is not easy to displace the presumption Other conditional agreements Subject to finance or subject to buyers approvals are regarded as condition precedent and there is a contract. However the parties have to act honestly and reasonably and thus, the contract will not proceed further

15

Chapter 5: Contractual Risks and Obligations: Forming contracts II Intention & Consideration
Intention to contract For an agreement to be legally enforceable as a contract, one of the conditions that must be satisfied at the formative stage is that the parties intended to create legal relations. Intention can be express (words, writing, or conduct) or implied but if it is not present, there can be no contract. The parties intend their agreement to be binding in the sense of being enforceable by a court. Step 1, Social/Domestic agreement or Commercial agreement? Step 2, Apply the relevant presumption. Step 3, Any evidence for rebutting? 1). Social/Domestic agreement Presumption that parties did not intend to be legally bound by the agreement. Can be rebutted by strong evidence, reasonable person test. (Whether a reasonable person would have concluded that the arrangement was contractual.) Ones made between friends, aquaintances, family members or relatives Todd v Nicol P198 (Nicol invited the Todds (sister in law) and her family to come over to South Australia to stay with her and promised them free accomodation in her house for the rest of their lives or until their niece got married and alter her that the house would become theirs after shes dea d. Todd quit her job, sold her furniture and moved with her daughter to Nicol. However, N asked T to leave her house after an argument developed. (Held that the agreement amount to contract, b/c the surrounding circumstances, and the effect of the agreement, and the manner in the parties conducted.) 2). Commercial agreement (General rule) Presumption that parties intended to be legally bound by the agreement. Roufos v Brewster P199 (B Owned a truck which was in need of repair and Roufus owned a semi trailer. B asked R to transport the truck to Adelaide and in return, R is allowed to fire a driver to drive the truch with Rs goods. R agreed but in the return journey, the truck was damaged due to the negligence of the driver. Held that they had a binding commercial agreement, and there is a contract, although they are family.) (Rebutting the presumption) Can be rebutted by clear words or stating the agreement is not legally enforceable, but it is difficult as any party not wishing a commercial agreement to be legally enforceable should state this clearly. Rose and Frank Co v J R Crompton & Bros Ltd P200 (Held that the agreement is not intended to create legal relations as the agreement has clearly stated that, therefore no contract.) Edwards v Skyways Ltd P200 (ex gratia (payment made without the giver recognising any liability or legal obligation) was inadequate to displace the presumption that the parties intended their agreement to be legally binding, a contract exists.) Esso Petreleum Ltd v Commissioners of Customers and Excise P201 (Each motorist who purchased 4 gallons of Esso petrol received a free coin. Esso argued that coins are not sold as part of any contract, but held that there was a contract for supply of coins as every petrol buyer has a contractual right to claim the free coins.) 3). Intention can be an issue in the following types of cases: Letter of comfort. (Where the provider of the letter does not wish to give a formal guarantee, that is, one party wants to be bound and the other does not.) Kleinwort Benson v Malaysia Mining Corp Berhard p202 (Loan, letter of comfort was merely representation showing existing policy and not a promise about future conduct, so not legally bound.) Banque Bruless Lambert SA v Australian National Indystries Ltd P203 (Loan, letter of comfort was clearly intended to be binding and there is a legal relation.) Heads of Agreement/Letters of Intent. (Whether parties are intended to be bound will depend on the circumstances of each case.) Air Great Lakes Pty Ltd v K S Easter(Holdings) Pty Ltd P204 (Document headed Terms of Agreement, containing proposed agreement, and some oral statements, held that there was a contract.)

16

Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd P128 (Head of Agreement, document clearly stated not binding, held that no contract.) Agreement subject to contract. (Generally not binding.) Masters v Cameron P181 (Masters signed memorandum of agreement subject to contract. Held that subject to contract is normally presumed not to be a contract as it is normally not a final and unqualified acceptance. Thus, the deposit belonged to Master. Plastyne Products Pty Ltd v Gall Engineering Co Pty Ltd P205 (Subject to contract, required to sign, there was a clear intention to contract.) Without prejudice agreements. Gregory v Phillip Morris Ltd (Without prejudice was not legally binding in this case.) Consideration- The price you pay to buy the other persons promise and the concept if price paid - Formal contracts (deed- an instrument that has been signed, sealed and delivered) do not require consideration. - Simple contracts- a contract which is not special and do require consideration to be valid, otherwise no remedy under common law; Simple contracts maybe totally oral, totally written, or partly oral and partly written. Rules of consideration: 1) Consideration is essential in every contract 2) Should be present of future BUT no past 3) must move from the promisee 4) must have some value, although the court is not concerned with its adequacy 5) must be something more than the promise of an existing obligation 6) must be possible of performance 7) must be definite 8) must be legal 9) must be referable to the other partys promise 1). What is consideration? It does not have to be in the form of a payment or promise to pay money; it may be a benefit flowing to the promisor, a benefit flowing to a third person at the promisors direction, or a detriment to the promise. 2). Examples of consideration. A promise to do something. (Consideration has not yet been performed said to be executory.) A promise not to do something. (Also called executory.) Doing something. (Carlill v Carbolic Smoke Ball Co, Mrs Carlill provided consideration by following the instructions of the advertisement.) Refraining from doing something. Consideration may be: A benefit flowing to the promisor A benefit flowing to a third person at the promisors direction A detriment to the promisee 3). Consideration must move from the promisee. Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd (Dunlop sell tyres to wholesaler who promised its retailers will not sell below price list, retailer Selfridge sold below price. Held that Dunlop has no consideration, it can not enforce retailers promise, only wholesaler, the promisee can. 4). The joint promise rule. If a promise is made to 2 or more persons jointly, only 1 of those persons need provide consideration. The other party who has not provided the consideration can still enforce the promise because consideration is only necessary from one of the joint promises, not from each of them seperately. Coulls v Bagots Executor and Trustee Co Ltd P209 (Agreement that pay all royalties to Mrs Coulls and Mr Coulls himself jointly. Husband died and the company stop paying the royalty to Mrs Coulls Held that the promise was made to 2 persons jointly as only Mr Coulls provided consideration.)

17

5). Privity of contract. Similar to the rule that consideration must move from the promise. Dunlop Pneumatic Tyre Co v Selfridge (Dunlop was not the party to the contract that contained Selfridges promise.) Rule of privity of contract applies to when third party are not allow to sue. - Exceptions: (The rule does not apply to contracts of insurance that benefits a 3 person.) Trident General Insurance Co Ltd v McNiece Bros Pty Ltd P210 (A member of McNiece was injured under McNiece during working and claimed compensation under the insurance. Held that McNiece was entitled the compensation, although it was not a party to that contract and provided no consideration.) Eg. Agent enters contract, principle can enforce it; Exemption clauses made specifically for 3rd party; Beneficiary and assignee can enforce the contract. 6). Consideration may not be past. (Cannot take place before the promisors promise.Once the contract is made, it is too late unless fresh consideration is provided) Roscorla v Thomas P211 (Purchased a horse, assurance given after the contract of sale completed, consideration was invalid.) - Exception to this case (for service providers to be hired without any discussion of price until after the service has been provided.) Re Caseys Patents: Stewart v Casey P212 (Patents, service rendered, then promised to give 1/3 share of patent to Casey. Held that promise bound as it is treated as positive bargain which fix the amount of reasonable remuneration.) 7). Consideration may be of nominal value. (Does not have to be equal in value to the promisors promise.) Thomas v Thomas ($1 consideration for rental payment per year.) 8). Consideration must be sufficient- Consideration does not have to be adequate but it must be sufficient. 9) llusory promises are not consideration. Dunton v Dunton P214 (Pay divorced wife money if her conduct is good. Held that the wife provided consideration, but that promise was too uncertain and illusory to constitute consideration.) Francis v South Sydney District Rugby League Football Club Ltd ( Where provision of the agreement are so wide that the promises has not really agreed to be bound by anything and if the promisee agrees to be bound in honour only) 10) Settling disputes giving up a legal claim may be consideration. ( Forbearance to sue is good consideration in appropriate circumstances.) Wigan v Edwards P215 (Edwards signeda contract to purchase a house but list out a list of faults which need to fix to Wigan before proceeding thecontract. Wigan promised in writing to remedy the listed faults or any major defects appearing within 5 years. Unfortunately, Wigan fauled to carry out his promise AFTER the edwards completed the purchse and paid. Held that Edwards agreed to settle the dispute in return for Wigans promise as they impliedly gave up the legal right to claim, so this is a good consideration.) 11) Renegotiating contracts- Promising to perform an existing contract is not good consideration. Unless promisee has provided something additional to the existing duty as a fresh consideration. Stilk v Myrick P217 (On voyage, 2 seamen deserted, captain promised others would have the wages of that 2 seaman, after voyage, captain refused to pay. (Held that Stilk already under a contractual duty, and did not provide fresh consideration, so was not entitled extra money.) A development of Stilk v Myrick: different outcome due to traditional view. In many cases a renegotiated or modified contract will not be enforceable because one of the parties hasnot undertaken to do anything in addition to the original contract. Modern Development: Williams v Roffey Bros and Nicholls (Contractors) Ltd P139 (W did carpentry work for R(a builder) on a block of refurbishing flats, W underquoted the 575 per flat, R promises to pay, but after the completion, R refused to pay 8 of them.) (The court held that a promise to perform an existing contractual duty could amount to consideration if it conveyed a partical benefit to the promisor and there was no element of duress. Held that W has provided consideration to R as, (1) time and trouble to find another carpenter, (2) saving contractual losses for R as not completing the renovation on time. So R has to pay W.)

18

12) Termintating a contract- agreement to caoncel the sale of business contract is a contract itself. 13) Renegotiating a debt- Special problems, Performance of less than contractual obligation Pinnels Case P219 (Debtor paid Pinnel less amount earlier, Pinnel accepted, and then sued for the balance.)(Held that Debtor has given consideration, as repaying before the due day amounts to something extra. Pinnel can not sue.) Foakes v Beer (Court allowing the promisor to claim the remaining, as promisee did not give something extra.) - Exception to Foakes v Beer Compositions with creditors. (When 2 or more creditors are involved.) Creditors cannot claim for the remaining although nothing extra has been given. Part payment by 3rd party. Hirachand and Punamchand v Tmple (Creditors cannot claim for the remaining, as this would amount to a fraud to the 3rd party.) ill be good consideration. ( Promisee can claim for the amount.) A promise to perform an existing public duty will not be good consideration unless the promise provides something in additional to the duty. Collins v Godefroy P221 (G promised to pay C for subpoena but then refused to pay.) (Held that a duty imposed by law to attend from time to time to give evidence, and promisor promises to pay any remuneration for loss of time for the attendance, such a promise is without consideration. And C did not give something extra, so cannot claim.) 14) Promissory Estoppel. (Applies when no consideration & no contract exists) Promissory Estoppel will allow a promise to be enforced even though the promisee has not provided consideration for that promise. It operates where it would be inequitable, or unconscionable, for the promisor not to be held to their promise. Promissory Estoppel may be used as a defence or to initiate a cause of action if the promisee s position has been altered in reliance of the promise. To prevent a person from denying an assumption of fact which he or she has represented to another person and upon which that other person has relied. Central London Property Trust Ltd v High Trees House Ltd P222 (Plaintiff leased a block of flats to the defendant for 2500 on a 99 year lease. But during the war, the plaintiff agreed to reduce the rent to 1250 for the duration of the war. The defendant paid the reduced rental until the end of war but the palintiff want to claimed the rental arrears for the last two quarters of 1945) (Held that promissory estoppel applies although there was no contract and prevents P going back to the original contract because it is unfair for the defendant.) Promissory Estoppel and contract law- not part of the law of contract but it performs a complementary function. It is an equitable rule by which a promisee can enforce anothers promise. Promissory Estoppel is important where no contract exists- If the promise is part of a contract, there is no need to resort to promissory estoppel. 2 situations exists which is: 1) Where no consideration exixsts, particularly in the context of renegotiated agreements 2) Where the formalities of making a contract have not been satisfied (Waltons stores v Maher) 15) The elements of promissory estoppel : The assumption: The promisee, on reasonable grounds, assumed that a particular legal relationship existed or would exist between the promisor and the promisee The promisor was responsible for the assumption: The promisor either induced the assumption or being aware that the promisee had made the assumption, deliberately remained silen in circumstances where the promisor could reasonable have been expected to speak. Reliance: The promisee acted( Or refrained from acting) on the faith of the assumption Promisors intent: The promisor knew or intended the promisee to rely on the assumption The detriment: The promisee will suffer a detriment if the promisor is permitted to renege on the promise 16) The Promisors responsibility for the promisees assumption: The promisors representation or other conduct must be sufficiently precise and unqualified before the promisee is entitled to assume that a particular legal relationship existed or would exist. Legione v Hateley P224 (Sale of land, The contract stated that the vendor could terminate the sale if the purchaser had no completed the purchaser by due date. The purchaser have some financial difficulties and called

19

the vendor and tell the secretary that that finance will be available after 7 days. The secreatary replied: I think thatll be all right but Ill have to get instructions,However, the contract is terminated.) (Held that secretarys words were not sufficient clear or unequivocal to active promissory estoppel.) 17) Why is detrimental reliance important? Because mere failure by the promisor to carry out the promise will not in itself amount to a detriment. The promisee must show that he or she acted in reliance on the promise and that as results will put he or she in a position which will suffer a material disadvantage if the promisor reneges on the promise. Je Maintiendrai Pty Ltd v Quaglia and Quaglia P225 (Leased shop, promisor accepted lower amount, but Quaglia decided to quite after awhile. Promisor later claimed for arrears.) (Held that the requirements to pay the arrears not a detriment, promissory estoppel not applied, Quaglia has to pay in lump sum rather than in instalments as required.) 18) Leading case: Waltons Stores ( Interstate) Ltd v Maher P226 (Held that 6 elements of establishment of promissory estoppel have satisfied.) 1) The promise reasonably assumed that a particular legal relationship existed (Legione v Hateley), orwould exist (Walton Stores (Interstate) Ltd v Maher). 2) The promisor induced the promisees assumption or expectation. 3)The promisee acts or abstains from acting in reliance on the assumption or expectation. 4)The promisor was aware that the promise had made the assumption, and deliberately remained silent. 5) The promisess action or inaction will occasion detriment if the assumption or expectation is not fulfilled. 6) The promise will suffer a material detriment if the promisor is permitted to renege on the promise. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 pg 226 (Maher owned a property with a building on it. Waltons Stores wanted to lease it, tear down the old building and erect a new building to Waltons specification. A draft agreement was then forward as Mahers solicitor sent Waltons solicitors the letter of amended agreement. Waltons did not make any objections but didnt forwarded its part of the agreement. Maher tear down the remainder of the old building and construct the new. Waltons was aware of this. Waltons did not sign its part of the amended agreement and the solicitors told Waltons that it was not bound as it had not exchanged its part of the amended agreement. When Waltons refused to proceed with the deal, Maher sued for breach of contract) (There is no contracts had been formally concluded. However, by retaining the executed documents for 2 months and remaining silent when it was aware that M was acting on the assumption that the lease was proceeding, it was appropriate to apply the doctrine of promissory or equitable estoppel. Therefore, the court treated the matter as if there was a contract between the parties and awarded damages to Maher. ) 10). Parties to the contract. Who can sue on the contract? Minors- people who are under age 18. Contract with a minor for sale of goods is not enforceable unless goods sold are necessaries. Nash v Inman P228 (Minor bought waistcoat, refused to pay, contract was not contract for necessaries, minor is not bound by agreement.) Persons with mental disabilities; intoxicated persons- may lack contractual capacity. Agents can make contracts on behalf of principle & bind them. Partnership- 1 partner can make contracts that bind other partners. Corporations- Will be binding provided the person who entered into the contract for the corporation had actual authority or ostensible authority to make that contract Assignment of contractual rights- Assign contractual rights to a 3rd person

20

Chapter 6: Construction of the contract I: Express Terms

Terms of the contract Express terms: Terms expressly agreed by the parties and can be wholly in writing , partly in writing and partly in oral and totally oral Exemption clauses: These are a special type of express term designed to restrict liability Implied terms by the courts: These are terms which the parties have NOT discussed but which the courts regard as an integral part of the deal Implied terms- by statute Express terms 1). Ascertaining the evidence. The parol evidence presumption. Rule: - Assume the written contract is the completed record, and courts will not permit one of the parties to add or vary that written contract. - This presumption is rebuttable, if courts are convinced that the written document is incomplete or incorrect. Statements made after contract is complete are not terms- contractual statements are not terms. A party cannot be bound by statements, promises or representations after the contract been formed unless fresh consideration is provided (Roscorla v Thomas) Olley v Marlborough Court Ltd P238 (The Olleys booked a room at M hotel and paid a weeks board, exclusion clause put on the door after contract made at reception desk, furs were stolen.) (Held that the clause is not a term.) Past dealings may be important in determining the terms because it may be different if Olleys visited the hotel for a few times. Past dealings can be important in commercial contracts where the parties deal with one another on a regular and consistent basis. 2). The importance of a signature. Person is bound by their signatureA person who signs a document that has a contractual appearance about it is bound by the contents of the document. L Estrange v F Graucob Ltd P239 (Mrs LEstrange bought cigarette machine, signed a document called a Sales Agreement without reading, machine jammed.) (Held that L legally bound by the contract, L cant sue.) Exceptions: when is a person not bound by his or her signature? The document didnt appear to be contractual. (Reasonable person test, if no reasonable person would have realised the document they signed was a contract., a person is not bound by his or her signature) D J Hill and Co Pty Ltd v Walter H Wright Pty Ltd P241 (Have past dealings, contract made on phone, machine was damaged, employee signed a form containing exemption clause.) (Held that contract was made before the clause was presented, although they had past dealings, no one would have treated the form as contract instead of delivery docket.) Promissory estoppel applies: If a party not to rely on a term, there should be no reason why the term cant be exercised from the document before signing.

Oral agreement to the contrary: A signed agreement may not be enforceable where it is at odds with terms expressly, but orally, agreed between the parties J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd P242 (M orally agreed machine would be stored in the hold, but stored on the deck, machine was damaged.) (Held that oral assurance was a term of the contract, Evan was entitled damages.) Contents of the document was misrepresented. (Not binding as not able to rely on the contents.) See Curtis v Chemical cleaning and Dyeing Co P269 Condition precedent was not satisfied. (Not binding if the parties made it subject to a condition precedent.) The document does not accurately record the agreement. (Not binding if there is a mistake made in recording the terms and one party is unfairly trying to take advantage of that mistake.)

21

Equitable doctrines (Courts will not enforce a contract because it would be inequitable to do so in certain situations. These situations include: Unconscionable conduct, duress, undue influence & unilateral mistake.

3). Incorporating unsigned terms into the contract by notice. Unsigned written statements - may be terms of the contract, if (1). Rules of offer and acceptance. (2). Is there reasonable notice? The reasonable notice test: Parker v South Eastern Railway Co p 244 (Parker left a bag at the railyway and bought ticket , unsigned document, lost bag, clause said that company will not be responsible for package over $10.) (Held that reasonable notice must be given to the other party, If reasonable notice has been given, it doesnt matter if Parker has read it or not.) Determine whether reasonable notice has been given: Step 1, Is the document contractual in nature? D J Hill v Walter Wright Oceanic Sun Line Special Shipping Co Inc v Fay P245 (Read brochure which containing reference about terms and conditions, paid fare for cruise, injured.) (Held that brochure not a document that could reasonably be regarded as contractual in nature, so reasonable notice not given, not term of contract.) Step 2, Is the term unusual?- If term is particularly unusual, extra notice needed.) Interfoto Picture Liabrary Ltd v Stiletto Visual Programmes Ltd P246 (Stiletto hired some transparencies, late return, charged $5 per day but others libraries charges $3.5 per week, extra notice will have to be given.) (Contract was not formed until the transparencies and the delivery note had been delivered. Held that follow normal industry practice $3.5 per week, implied term of contract.) Step 3, Were there any conflicting statement or promises?-Even sufficient notice has been given, the incorporation may be subject to any oral statement to the contrary.) Couchman v Hill P246 (Cattle auction, disclaimer on catalogue stated that the seller did not guarantee the accuracy of the information contained in the catalogue, sought assurance before biding.) (Held that oral representation as warranty so prevailed over written terms, Couchman won.) Example of Incorporation: Ticket cases p247- The relationship between the passenger and the railway company is one of contract. Are the terms and conditions given to the passengers by the railway? Purchase of train ticket will usually hold that sufficient notice has been given. Figure 6.3 Page 248!! Determining wheter a written statement is a term 4). When are oral representations binding? Only statements which are promissory become terms. Must indentify what legal status does the representation have: Mere puff- Not binding, No remedy. Mere representation- Possibly binding. If not, No remedy in contract, must rely on law of misrepresentation. (s 52, show reasonable reliance.) Term of contract- Binding, remedy for breach of contract. Was the oral statement promissory? - Apply reasonable bystander test. Applying the reasonable bystander test: There are number of factual matters which the courts look to as a guide in determining whether a representation was intended to be promissory. It should conclude: Was the representation included in a written document? When in the negotiations was the representation made? Did the representation sound promissory? How objectively important is the representation to the overall deal? Did either of the parties have special knowledge about the subject matter of the representation?

22

Step 1, Was there a written document? Statement need to be included in any written document for good evidence that the parties were treating the statement as sufficiently important to be a term. However, if the statement is left out of the document, the parties did not intend it to be contracually binding The written document shoud accurately reflects the deal between parties Amendments can be made to the document before signing Prevvention is much cheaper and more certain than litigation cure State Rail Authority of NSW v Heath Outdoor Pty Ltd P250 (Prior signing the contract H asked about the term, S assured H, held that parol evidence rule applies, oral agreement to the contrary not applied.) An oral representation can be added to the written terms if the evidence suggests that this is what the parties intended. Rebutting the parol rule presumption: Van Den Esschert v Chappell P251 (C bought Vs house, asked if there were any white ants prior signing contract, V said no, then signed, contract no mention of ants.) (Held that oral statement was made immediately prior signing document, it is reasonable that C would not have signed without Vs assurance, regarded as term.) Step 2, How much time lapsed between statement and contract? The longer the lapse of time, the more likely it is to be treated as an inducement and not intended to form part of the agreement, the more likely it is to be treated as an inducement and not inteded to form part of the agreement If the statement was made as the final inducement, it might very well be a term. Van Den Esschert Chappell Step 3, How important was the statement to the deal as a whole? If a reasonable person would regard it as important Step 4, What words were used? The more precise the language, the more likely it is to be promissory. Step 5, Did either party have special knowledge? Oscar Chess Ltd v Williams P253 (W sell car to O who is a car dealer, wrong car model year, as O had no knowledge of the age so he relied on registration book.) (Held that W had no personal knowledge of the year of manufacture, so the statement was a mere representation.) Cases of reasonable bystander test: Ross v Allis-Chalmers Australia Pty Ltd P254 (Negotiating purchase of new harvester, A made representation that the machine would harvest about 90 acres per day based on his own experience, R then bought, harvested less than 90.) (Held that As statement not contractual, merely an opinion, not intended to be promissory.It is important that sales staff and agents to be realistic in their appraisals of a products performance.) Esso Petroleum Co Ltd v Mardon P254 (M lease petrol station from E, E estimated that sell 200,000 gallons but in fact less) (Held that E warranted the estimate as he had relevant information and necessary experience whilst M does not.) Hospital Produces Ltd v United States Surgical Corporation (P255) (U made surgical instruments for hospitals, B made oral statement that he would like to take over the distributorship in AUS, then cancelled contract and competed with USSC by copied USScs goods and grabbed their customers.) (Held that oral statement amounted to contract, as it intended to be promissory, USSC won due to breach of contract.) 5). Collateral warranties Useful for some cases with difficulties/inconsistencies related to parol evidence presumption. De Lassalle v Guildford P256 (G signed a lease of premises, D orally assured drains were working, written document did not mention of the drains, P would not have enter the contract if drains did not work.) (Held that there was collateral contract, two contracts stand side by side. (1) main contract, the lease. (2) D promised drains were in order, P promised to enter the lease as consideration.) J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd, Van Den Esschert v Chappell

23

L G Thorne & Co Pty Ltd v Thomas Borthwick & Sons (Aasia) Ltd P257 (Sale of oil, seller provide a sample of oil, written document did not mention of the sample, oil did not conform to the sample.) (Held that parol evidence rule applied to exclude the sample of oil from the contract, however sample of oil may be part of collateral contract.) When does a collateral contract apply? Step 1, A collateral warrant must be promissory. (Reasonable bystander test.) J J Savage and Sons Pty Ltd v Blakney P259 (B purchase cabin cruiser, S estimated speed to be 15 mph, however below 15.) (Held that representation is not promissory, B based on Ss opinion, not collateral warranty, representation given not a term of contract. S won.) Step 2, A collateral warranty must not be inconsistent with the main contract. Collateral contract cannot exist if it conflicts with the main contract. Hoyts Pty Ltd v Spencer Gates v City Mutual Life Assurance Society Ltd P260 (Gates took out an insurance policy, injured, unable to work as carpenter, claimed for insurance.) (Held that it is promissory, but no collateral contract b/c inconsistent with the written policy.) Maybury v Atlantic Union Oil Co P261 (Broadcast for advertising, M written stated A had total control, oral stated no competition.) (Held that inconsistent with main contract, no collateral warranty, A won.) 6). Meaning of terms. Once statements are found to be terms, their meaning must be ascertained. Reasonable person test. - To determine what the parties mean. Parol evidence rule. Hope v RCA Photophone of Australia Pty Ltd P263 (RCA hired sound equipment to H, H refused to pay b/c not new product, hire agreement did not mention about new.) (Held that parol evidence rule did not apply to vary its ordinary meaning, no implied term as it would conflict with express term in the document. RCA won.) Exception: Clarify ambiguities (patent and latent) in the document. Bacchus Marsh Concentrated Milk Co Ltd v Joseph Nathan & Co Ltd P263 (Patent, document not specified about which patent is included.) (Held that parol evidence rule applies to clarify ambiguities. Glaxo patent is not included) Correct errors made in recording the contract. Establish necessary background facts so that the contract can be seen in context. 7). Importance of terms. determined by reasonable bystander test. Conditions (most important terms) termination & damages. Warranties (less important terms) damages only. Intermediate terms damages, termination only if breach is very serious. 8). Unenforceable terms. (Illegal contracts such as: Contracts for an immoral purpose Contracts to oust the jurisdiction of the courts Contracts tending to promote corruption in public lide Contracts prejudical to the safety of the state Terms in restraint of trade: (All restraints of trade are unlawful unless they are reasonable as between the parties and in the public interest. A restraint of trade will be reasonable if it is no wider than is reasonably necessary to protect the legitimate interests of the party relying on it. ICT Pty Ltd v Sea Containers Ltd P265 (ICT build ferries for S, contract not allow ICT to sell similar ferry to its competitors within 100 miles, ICT did.) (Restraint was invalid, restraint was too wide, general and long, ICT won.) Peters (WA) Ltd v Petersville Ltd P266 (Sale icecream, 15 years is too long, restraint is unlawful, unreasonable.)

24

9). Exemption clauses. free to restrict, limit or exclude liability. (Look at figure 6.9, p267) Considering exemption clauses: Step 1, is the exemption clause a term of contract? Post-contractual: Exemption clause cannot be incorporated into the contract after the contract has been made. Olley v Marlborough Court Ltd. A seller of packaged products cannot rely on an exemption clause that is contained within the sealed packaging unless it is brought to the buyers attention prior to sale. A course of past dealings between the parties may be relevant in ascertaining terms in the current contract. An exemption clause contained in a signed document will often be binding. L Estrange v F Graucob Ltd

Exception: - If the signed document could not reasonably be regarded in the circumstances as likely to contain contractual terms. D J Hill and Co Pty Ltd v Walter H Wright Pty Ltd. - Where the party relying on the exemption term is estoppel from doing so. - Where the exemption term has been misrepresented. Curtis v Chemical Cleaning and Dyeing Co P269 (Wedding dress, Curtis was asked to sign a document which was called a receipt, assistant made her believe wrongly about the responsibility.) (Held that term not applied b/c of false impression, exemption clause in the receipt not regarded as a term.) An unsigned exemption clause will be binding if reasonable noticehas been given. FOR CAR PARK CASES!! Exemption clause are binding if, 1. the innocent party was actually aware of the exemption clause prior to making the contract, 2. reasonable notice of the existence of the exemption clause has been given: Parker v South Eastern Railway Co What amounts to taking reasonable notice??

- How the nature of unsigned document affects reasonable notice? Receipt, hiring ticket, delivery docket not reasonably contain contractual terms; Not sufficient for car park ticket to contain exemption clause; Exemption clause on train ticket is held sufficient. - How the nature of transaction affects reasonable notice? The court will take into account if the transaction is such that reasonable personsexpect to find some restricting or limiting terms. - How the nature of the exemption clause affects reasonable notice? The broader the exemption clause, the greater notice required. Step 2, does the exemption clause cover the breach? The ambiguity rule. - must use clear words. An exclusion clause that excluded liability for breach of express condition or warranty would not cover breach of an implied term. Andrews Bros (Bournemouth) Ltd v Singer Car Co Ltd (A purchased unused car from S, but it was not new as the term stated, contract had exemption clause as excluding all conditions, warranties implied) (Held that S breached of express warranty and implied condition, however the exemption clause did not cover the breach of express warranty.) Alex Kay Pty Ltd v General Motors Acceptance Corp and Hartford Fire Insurance Co (Hiring motor cars, A took out insurance with G, has exemption clause that not liable for breach of contract, TP hired cars, did not return and disappeared with car, A claim insurance, G refused.) (Held that the clause was ambiguous, there were 3 possible meanings, the case possible meant that the breach of A and Gs contract, not A and TPs, given that A did not breach of contract with G, exemption clause invalid.)

25

The negligence rule. - If words could reasonably against others other than negligence, negligence would not be covered. If a person wishes to exclude liability for his or her own negligence, the exclusion clause must do so clearly. The rule applies when: liability for negligence may be expressly or implicitly excluded but if the words of the exclusion clause could reasonably be applied to protect against some ground of liability other than negligence, then negligence will not be covered. White v John Warwick & Co Ltd P272 (P hired tricycle from D, injured b/c of the seat slipping forward, exemption clause excluded liability of negligence.) (Held that P had 2 possible claims for damage, breach of contract and negligence, the exemption clause will not cover negligence.) General rules: - Exemption clauses are to be understood according to their nature and ordinary meaning. - Fundamental breach presumption. (Where parties did not intend to exempt liability for breach of the fundamental terms or obligation of the contract. Can be rebutted: Photo Production Ltd v Securicor Transport Ltd P274 (Night patrol as Ps factory, Ss employee caused a fire, contract had exemption clause that S would not be liable for any injurious act or default by employee unless such act or default could have been foreseen and avoided.) (Held that S would only be liable if the act of employee could have been foreseen by S, S won.) Four corners presumption. (Where clause was intended to cover only the matters contained within the four corners of the contract.) Sydney Corporation v West P277 (W parked his car to Ss car park, ticket must be presented to attendant before leaving, ticket contained exemption clause that excluded liability for loss or damage to any vehicle, or any injury to any person..Ws car was stolen while parking in car park.) (Held that the exemption clause was a term of contract, but did not cover the deliberately acts of S, W won.) Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia)Pty Ltd P278 (TNTs employee driver collected M&Bs goods, was unable to return to TNTs depot before it closed, then stored them at home, backyard, fire destroyed the goods, contract had exemption clause.) (Held that the parties must have contemplated the goods would be stored at depot, the event was beyond the contemplation of the contract- beyond the four corners of the contract, exemption clause was invalid.) Darlington Futures Ltd v Delco Australia Pty Ltd P275 (Darlington and Delco had contracts for future exchange, had exemption clause 6 that Darlington would not responsible for any loss arising in any way out of any trading activity, Darlington engaged in unauthorised trading which costed Delco.) (Held that the unauthorised trading was beyond the contemplation of parties, exemption clause 6 was invalid.)

26

Chapter 7 and 8: Construction of the Contract II: Implied Terms

Implied terms Terms implied by the courts 1) As a matter of law Into all contracts - Co-operation. In all contracts unless the parties expressly or by implication agree, there is an implied term that each party will do that which is reasonably necessary to enable the other party to have the benefit of the contract. - Good faith. Applied to the performance of obligation and the exercise of contractual rights in all relational contracts. Burger King Corp v Hungry Jacks Pty Ltd P 289 (Court held that BK had breached its implied obligation of good faith) Contracts between professional persons and their clients. - There is an implied term that the professional person carries out his or her contractual duties with reasonable care and skill. Eg, accountants, auditors, lawyers, doctors, engineers etc. - The level of care: ordinary skilled person exercising and professing to have that special skill. - Engineers and architects are also under an implied warranty that the services supplied be reasonably fit for the purpose for which they were acquired Contracts for work and materials - The contractors use reasonable care in performing the work - The service be reasonably fit for the purpose for which it was acquired - Any materials supplied to the work must be of good quality and fit for the purpose. Reg Glass Pty Ltd v Rivers Locking System Pty Ltd P 290 ( Reg hired Rivers to supply and fit a steel sheeted locking system to his shop which descrived as borglar proof. Rivers fitted the door and buglars broke in one day) (Court held that there was an implied term that the door would be reasonably fit to keep the breakers out of the door. So RL breach of contract) Helicopter Sales Pty Ltd v Rotor Work Pty Ltd P291(Plaintiff owned a helicopter owned by Bell Corporation. Plaintiff had contract with Bell for service and repair. The manual required all spare parts to be acquired from the manufacturers authorised distributor and comply to their designs. Bought the bolt and being replaced but helicopter crashed and kill many people since the bolt is a latent defect).(Court held that there is no reasonable implied term in this circumstance, both parties have no opportunity to test the material supplied to work is good quality and fit for the purpose.) Other service contracts The service provider (eg, taxi services, operating car park, travel agency etc) is under an implied obligation to take reasonable care and skill in providing the service and to ensure that the service is reasonably fit for the purpose for which it was acquired. Costa Vraca Pty Ltd v Berrigan Weed & Pest Control Pty Ltd p 292 (C operate a farm growing tomatoes. Reianed B to spray the crops with insecticides, fungicides and a nutrient. Bs spray content some sort of chemical and killed all Cs crops. C sue B breach implied term) (Court held that B would carry out its services with the reasonable care and skill, but B didn't. So B breach of implied term of contract) Hire contracts The party must ensure that the hired goods reasonable fit for the purpose. Employment contracts Employer has an implied duty to provide a safe system of work. Landlord/tenant The landlord impliedly warrants to give the tenant quiet enjoyment of the premises. 2) As a matter of fact- The term is implied when it reflects the intention of the parties as objectively ascertained

27

Past dealings- Continuing relaitonships where the parties rely on trust, goodwill and common sense as much as any formal documentation

Prove there is implied terms on the basis of past dealings: The term claimed to have been used in past dealings is clearly identifiable (written document). The previous dealings were sufficiently numerous and consistent to constitute a regular course of dealing (1 or 2 is not sufficient) The present dealing fits into that course of dealing to the extent that it can reasonably be said that the same terms should be included. There is no conflict between the implied term and the express term. Henry Kendall & Sons v William Lillico & Sons Ltd (3 or 4 past dealings to send a sold note after each oral contract.) P 294 (Court held that the terms of sold note were implied terms of contract based on past dealings, and no express terms.) Terms implied as a result of custome of trade usage

Prove: It is possible to state the term with precision. Well known custom and all contracts of the same type can be said to have that term. (Even if one of the parties to the contract wasn't aware of the custom). Custom is reasonable There is no conflict between the implied term and the express terms. British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd p 295 (B &I both hired out cranes and time to time, one of them would hire a crane from each other. One day, I hired crane from B and no terms were discussed until B sent a hire form to I stating that I was liable for all costs incurred during the hire of the crane, but I didnt read it. Later on, accident occur and B sue I over damages but I said: 1) I had hired a crane from B on 2 precious occasions and the same hire form had been used both times 2) The hire form was almost identical to the hire form recommended by the industry association of which I and B were members and I use similar forms infact. (Court held that B won, because of the custom of such industries, but not for past dealings. 2 dealings are not sufficient) Terms implied in order to make the contract effecitve Prove: Term is capable of clear and precise expression Term is necessary to make the contract effective (may not be reasonable, there must be a gap to make the contract unworkable) Term is so obvious that it goes without saying, (officious bystander test) Term is fair and equitable to both parties No conflict with the express term The Moorcock (1989) 14 PD 64 (English Court of Appeal) p296 (P gave money to D to dock his ship over to Ds wharf. But there is a low tide and P and D are aware of this. Ps ship ended up with damages due to low tide. P sued D for damaged for breach of contract. (Court held that the term is necessary to make contract work, if there was no term to take responsibility for the suitability of river bed, the contract was not effective. And D should warn P about the river bed being unsuitable. D breach of contract). Codelfa Construction Pty Ltd v State Rail Authority of New South Wales p 297 (C tendered the job from STA and promised to do the work in 130 days inclusive of 3 shifts a day for 7 days a week. Residents complain the the gov ordered C to work 2 shifts a day, 6 days a week. C was not immune and need to bear extra costs. (Court held that there is no implied term because the contract didn't have a gap which had to be filled in order to make the contract work. C made a mistake of the completion date.) Terms implied by statute TPA- consumer services contracts Implied Terms At Common Law

TPA Pt V Div 2 - implies a term with respect to the quality and suitability of services ( s 4(1))where the services are

28

provided to a consumer. - is designed to provide some protection to consumers by implying into consumer contracts for the provision of services certain warranties (s 74) which can only be exempted in limited circumstances ss 68 and 68A. When does the Trade Practices Act Apply? Step 1: Is the service provider subject to TPA? P300 Service provider must be a corporation defined under TPA s 4 (trading, financial or foreign corporation) Ltd for public company or Pty Ltd for proprietary company Service provider is operating in a territory of Aus Contract involved interstate trade Contract involved rade or commerce between Aus and another country Contract involved the Commonwealth or one of its instrumentalities as part of carrying on a business Partnerships and sole traders generally are not caught by the TPA. Step 2: Does the acquirer of the service satisfy the definition of consumer in TPA? P302, Figure 7.3 TPA Pt V is designed to protect consumers , TPA s 4B, definition of consumer. The price of the service did not exceed $40,000. OR The price of the service exceeds $40,000, and the service was of a kind ordinarily acquired for personal, domestic or household use or consumption. Step 3: Was the service supplied in the course of business? P302 The implied terms will only apply where the services are supplied in the course of a business. not private contract. What is the meaning of services? 4(1) Services includes any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade of commerce, and without limiting the generaility of the foregoing, includes the rights, benefits, privileges or facilities that are, or are to be, provided, granted or conferred under (a) a contract for or in relation to: (i) the performance of work (ii) the provision of or of the use or enjoyment of facilities for amusement, entertainment, recreation or instruction or (iii) the conferring of rights, benefits, or priveleges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction, (b) a contract of insurance (c) a contract between the banker and a customer of the banker entered into in the course of the carrying on by the banker of the business of banking or (d) any contract for or in relation to the lending of moneys but does no include rights or benefits being the supply of goods or the performance of work under a contract of service Is the contract one for the supply of services or goods? Contracts usually require both the provision of services and the provision of goods Goods provided as incidental to the provision of services, the contract will be regarded as a contract for the provision of services and not as a contract for the sale of goods. Eg: Hiring a plumber to fix a leaking tap is part of contract of service E v Australian Red Cross society (1992) ATPR 41156 (Federal Court) Pg 304: ( A patient was supplied blood from receiving a treatment at a hospital and the patient developed AIDS. The blood was supplied by Red Cross. The patient sue the hospital for breach of contract (implied term of fitness for purpose) and negligence for Red Cross)( The court held that the contract was not a contract fotr the sale of a good buy a contract for the provision of services, Implied warranties under TPA P304

29

There is an implied warranty that any services provided to a consumer will be rendered with due care and skill and that any goods supplied with the service must be fit for the purpose for which they are required S74(1) Where the buyer makes known to the service provider the purpose for which the serivce is required, the service must be reasonably fit for that purpose s74(2)

S 74 (1), any services provided to a consumer will be rendered with due care and skill and that any goods supplied with the service must be fit for the purpose for which they are required S 74 (2), where the buyer makes known to the service provider the purpose for which the service is required, the service must be reasonably fit for that purpose. There is an implied warranty that ther services supplied under the contract for the supply of the services and any materials supplied in connexion with those services will be reasonably fit for that purpose or are of such a nature or quality that they might reasonably be expected to achieve that results, except where the circumstances show that the consure does not rely, or that it is unreasonable for him or her to rely, on the corporations skill or judgement. S 74 (3), certain services are not included under TPA s 74. (a) transport contracts and storage services provided in the course of the buyers business (b) service provided under an insurance contract. Read v Nerey Nominees Pty Ltd (1979) VR 47 (Surpreme Court of Victoria p 305
Facts: Read twice took his BMW car to Nerey Nominees Pty Ltd to have the transmission fixed. The BMW contained a switch which prevented the car from starting when the automatic transmission was engaged. That is, the car could only be started when it was in neutral. Nerey told Read that the switch was missing and that, until a new switch became available, Read would have to be careful when starting the car. In fact, the switch was not working because Nerey had wired it incorrectly. On one occasion, Read started the car and forgot to check the car was in neutral. The car shot forward and damaged Reads garage. Read sued for breach of contract. Ratio: the TPA s 74 implied a warranty of reasonable care and skill into the contract. A similar warranty is also implied by the common law. Implied terms is breached even if the service provider has warned about the defect as it dont necessarily mean that service providers breach has not caused the loss.

Exemption clause for implied warranty is void under TPA s 68. Limitation clause Applied under TPA s 68A (1), where the service is NOT normally acquired for personal, domestic and household use. (a) Supplying the services again, (b) paying to have the services supplied again. Not applied under TPA s 68 A (2), if the consumer can establish that it would not be fair or reasonable in the circumstances for the seller to rely on the clause. Fair and reasonable circumstances are set out in TPA s 68A (3). (a) the strength of the bargaining positions, (b) the buyer received an inducement, (c) whether the buyer knew or ought reasonably have know of the existence and extent of the term, (d) the goods were manufactured to the special order of the buyer. Providers of recreational services may limit their liability under TPA s 68B. eg, skiing. And providers must give reasonable notice of clause to the consumer of the service. ( P 309)

Remedy is only damages because the implied terms are warranties. Contract sale of goods Protect consumers buy goods from commercial sellers by impliying into consumer contracts for the supply of goods certain conditions which cannot be excluded, under TPA Pt V Div 2

30

 Goods defined in TPA s 4, include lease and hire as well. Consumer contract---TPA When does TPA apply? P322 Figure 8.1 Step 1: is the seller subject to the TPA? Seller must be a corporation defined in s 4. If the seller is not corporation defined in s 4 TPA, Victoria Good Act applied, as a non consumer contract. Step 2: was the buyer a consumer within the meaning of s 4B of TPA? Price of good $40,000 (i) And, not for resale (ii) And, not be used up or transformed in the course of: a process of commercial production or manufacture, or commercial repair or treatment of goods or fixtures on lands Price of good $40,000 (i) And, acquired for personal, domestic or household use, or Commercial road vehicle (ii) And, not for resale (iii) And, not be used up or transformed in the course of: a process of commercial production or manufacture, or commercial repair or treatment of goods or fixtures on lands If buyer is not a consumer defined in s 4B TPA, VGA applied, as a non consumer contract. Atkinson v Hastings Deering (Queensland) Pty Ltd P 325 (A purchased a secondhand tractor from H, $40,000, tractor defects and A sue P under TPA and the Sale of Good Act. (Court held that the contract b/t them was not a consumer contract, because the buyer was not a consumer defined in TPA s4B. Therefore, TPA didn't apply) Step 3: was the sale in the course of business? Private contract isnt applied by TPA. (buyer is not working under the same course of business/ industry) TPA applies when the seller sold the goods in course of business but not the buyer. Step 4: was the sale at auction? TPA does not apply to sales by auction.

What Terms Are Implied By The Trade Practices Act? TPA Pt V Div 2 contains: An implied condition tht the seller has a right to sell s69 (1)(a) An implied warranty that the buyer shall have and enjoy quiet possession of the goods: s69(1)(b) An implied warranty that the goods are free from encumbrance not disclosed before the contract was made: s 69(1). This means the goods are not mortgaged or charged in any way Implied conditions concerning the identity and quality of the goods: Where the goods were sold by description, an implied condition that the goods match the description: s70 An implied condition that the goods are of merchantable quality: s71 (1) Where the buyer expressly or implicitly made known to the seller the purpose for which the goods were being purchased in such circumstances that the seller knew, or ought to have known, that the buyer was relying on his or her skill or judgement, an implied condition that the goods are fit for the said purpose: s71(2) Where the goods were sold by sample, an implied condition that the goods match the sample: s72 Correspondence with the description (check 70(1) and 70(2) p327 If a consumer alleging a breach of contract on the basis that the goods do not correspond with the description by which they were sold would have to prove that:

31

The contract was for the supply of goods The contract was not an auction contract The supplier was a corporation or other person to whom the TPA applied The supplier supplied the goods in the course of a business The buyer was a consumer within the meaning of s4B The goods were sold by description The goods do not match that description

Merchantable Quality : Look at 71(1) pg 328 Defined in s66(2) : Whether goods are of merchantable quality depends on whether they are as fit for their normal purpose or purposes as is reasonable to expect having regard to any description applied to them, the price and all other relevant circumstances. When Consumer alleging a breach of contract on the basis that the goods are NOT of merchantable quality would have the following: The contract was for the supply of goods The contract was not an auction contract The supplier was a corporation or other person to whom the TPA applied The supplier supplied the goods in the course of a business The buyer was a consumer within the meaning of s4B The goods were not as fit for their normal purpose or purposes as is reasonable to expect having regard to the price and other circumstances The consumer was not aware of the defect prior to sale Any inspection made by the consumer prior to sale woul not have revealed the defect Fitness for a particular purpose (P 328 71 (2) ) Defined: If the buyer makes known the purpose for which goods are required and the buyer relies on the sellers skill in choosing the appropriate goods then the goods must be re asonably fit for that purpose. When consumer alleging a breach of contract on the basis that the goods are not fit for the purpose for which they were acquired would have to prove: The contract was for the supply of goods The contract was not an auction contract The supplier was a corporation or other person to whom the TPA applied The supplier supplied the goods in the course of a business The buyer was a consumer within the meaning of s4B The consumer expressly or impliedly made known to the seller the purpose for which the goods were required The consumer relied on the sellers skill and judgement It was reasonable for the consumer to rely on the sellers skill and judgement The goods are not reasonably fit for the specific purpose
Carpet Call Pty Ltd v Chan (1987) ATPR (Digest) 46025 (p.329) Facts: Chan sought a number of quotes for the supply of carpet for his nightclub. Eventually, Carpet Calls quote for $68,839 was accepted. During negotiations, Chan explained to Carpet Call that he wanted a carpet of good quality, grey in colour, capable of withstanding heavy human traffic and generally suitable or a big nightclub catering for young upmarket patrons. The carpet supplied was rated as heavy duty domestic. Chan refused to pay the full amount of the purchase price after certain areas of the carpet became unsightly as a result of cigarette burns, stains and extraordinary customer abuse. Chan would have been better to buy a patterned carpet as the strains and burns would not have been so obvious. Carpet Call had failed to advise Chan of this. Carpet Call used for the unpaid purchase price while Chan argue Carpet Call was in breach of contract (TPA s 71(2)) Ratio: According to TPA, implied team will breach if the contract is a consumer contract within the meaning of the TPA s 4B and service provider had breached the implied term of fitness for purpose especially when the consumer

32

relies on the service providers skill. (2(b) implied term slide 18) Carpet call succeeded in its claim for the full purchase price) Correspondence with sample (P 330 Define: When there is an express or implied term in the contract that goods are sold by reference to a sample, the goods must correspond with the sample and must be free of defect that would render the goods unmerchantable.

A consumer alleging a breach of contract on the basis that the goods do not correspond with the sample by which they were sold would have to prove the following:

The contract was for the supply of goods The contract was not an auction contract The supplier was a corporation or other person to whom the TPA applied The supplier supplied the goods in the course of a business The buyer was a consumer within the meaning of s4B There was an express or implied term in the contract to the effect that the goods were supplied by reference to a sample The goods do not match that sample, or the goods have a defect that makes them unmerchantable, or the buyer was not given a reasonable opportunity to compare the goods with the sample

Other Implied Terms by TPA & VGA

Ownership of the goods: S 69(1) (a), s 17, an implied condition that the seller has a right to sell. S 69(1) (b), s 17, an implied warranty that the buyer shall have and enjoy quiet possession of goods. S 69(1) (c), s 17, an implied warranty that the goods are free from encumbrance not disclosed before the contract was made. Eg, the goods are not mortgaged or charged in any way. Quality of the goods: S 70, s 18, where the goods were sold by description, an implied condition that the goods match the description. Varley v Whipp (1900) 1 QB 513 p347 (Buyer bought a reaper without inspection, described as a new reaper but in fact old when delivered) (Court held that buyer had a right to refuse the accept the goods as there had been a breach of the implied condition of correspondence with description) Beale v Taylor (1967) 1 WLR 1193 p347 (Buyer purchased a car with inspection, was described as a good car but in fact was un-roadworthy) (Court held that although with inspection, it was still a sale by description. As the car didn't match that description, contract was breached) Re Moore and Co Ltd v Landauer and Co (1921) 2 KB 519 p348 (Packing for tins was wrong. Contract contained 30 tins, but actually 24 tins. Buyer refused to accept delivery of any of the consignment) (Court held that the requirement that the goods be packed 30 tins to the case was part of the description by which the goods were sold. Therefore, breach of implied condition) The buyer must rely on the description Harlingdon and Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd (1990) 1 All Er 737 p348 (purchase painting, seller described that he knew nothing about the painting which the purchaser want. Purchaser still bought the painting and the painting turned out to be forgery) (Court held that the sale was not sold by description, because buyer didn't rely on any description.)

S 71 (1), s 19 (b), an implied condition that the goods are of merchantable quality - MQ is defined in s 66(2), the goods are as fit for their normal purpose as is reasonable to expect have regard to any descriptions applied to them, price and other circumstances. VGA S 19 (b) applied when the goods sold by description, and the supplier dealt in goods of that description. But not sufficient in TPA s 71 (1).

33

Not apply to the following circumstances: S 71 (1) (a), s 19 (b), the consumer was not aware of the defect prior to sale S 71 (1) (b), s 19 (b), any inspection made by the consumer prior to sale would not have revealed he defect. (Means if examined goods prior to sale, defects examination ought to reveal) B S Brown & Son Ltd v Craiks Ltd (1970) 1 WLR 752 p341 (the seller sells woven cloth for dress making or industrial purpose. The buyer bought from the seller without telling which one he wanted. After the goods delivered, the buyer found that the goods complied with the contract description, but not suitable for dress making.) (Court held that the seller didn't breach the implied condition MQ, because the goods delivered was suitable for industrial purpose and the given contract price, the seller couldn't know the buyer want the cloth suit for dress making purpose.) H Beecham & Co Pty Ltd v Francis Howard & Co Pty Ltd (1921) VLR 428, p342 ( Buyer want to buy some spruce timber for making pianos. The seller was a timber merchant. The parties agreed that the buyer woud select the wood from the sellers yard but wood contained latent defect which is not suitable for making pianos buy boxes) (Court held that breach MQ due to the price given, although it was suitable for making box) Bartlett v Sidny Marcus Ltd (1965) 2 All ER 753 p343 ( B purchased a secondhand Jaguar motor car from S and found something wrong with the clutch nd the oil pressure during trial testing. S say he can fix it with 575 and if B ix it himself, it will cost him 550. B chose to buy and fix it himself. After purchasing and fixing it, its found that he need to pay more by 45 from what he expected and sued S for breach of the implied conditions of MQ and fitness for purpose. (Court held that the second hand car was fit for its purpose if it is in a roadworthy condition, fit to be driven along the road in safety even though not as perfect as a new car. And such car was of MQ if it was in a usable condition, it didn't have to be in perfect condition. The buyer drove the car for 4 weeks without trouble. So the car was MQ and fitness for purpose.) Grant v Australian Knitting Mills (1933) 50 CLR 387 (High Court) P343(Dr G bought woolen underwear manufactured by AKM and he contracted dermatitis the day after first wearing the underwear and the illness was quite serious which costs him a year.)(Court held that the goods sold by description, so was not of MQ. Seller breached the implied condition. Although the buyer didn't wash it prior to use, it was not a normal procedure.) S 71 (2), s 19 (a), where the buyer has expressly or implicitly made known to the seller the particular purpose for which the goods were being purchased in such circumstances that the seller knew, or ought to have known, that the buyer was reasonably relying on his or her skill or judgment (must make known for special purpose for which the goods are required to the seller), and implied condition that the goods are fit for the said purpose. and, VGA s 19 (a) applies when the seller was in the business of supplying goods of that type. not applied to the following circumstances: - no reliance on sellers skill or judgment - unreasonable to rely

Fitness for a particular purpose David Jones Ltd v Willis (1934) 52 CLR 110 p344 (defective shoes bought by buyer caused damages) (Court held that the shoes were not of MQ and not fit for purpose specified by buyer) Buyer must rely on the sellers skill and judgement Griffiths v Peter Conway Ltd (1939) 1 All ER 685 P345 (buyer bought coat from tailor. The cloth used by tailor would have not affected a normal person. Buyer had abnormally sensitive skin, but didn't tell the tailor.) (Court held that the particular purpose was that the coat be suitable for a person with abnormally sensitive skin. Such purpose had not been made known to seller, so the seller didn't breach the implied condition) Buyers purpose may be a matter of inderence Godley v Perry (1960) 1 All ER 36, p345 (6 year old boy purchased a toy catapult and it broke and lost his eye.) (Court held that te catapult was not of merchantable quality. and was not fit for the purpose for which it had been purchased. As the goods were being bought for normal purpose, the buyer was entitled to rely upon the sellers skill and judgment in the selection of his stock.) The buyers reliance must be reasonable Teheran-Europe Co Pty Ltd v S T Belton (Tractors) Ltd (1968) 2 All ER 886 P346 ( B supplied 12 mobile air compressors to Richard Marketing as agent for TE. TE aargued that because of these circumstances there was an implied condition that the tractors be suitable for reslate in Iran but it didnt satisf y the Iranian import requirements.) (Court held that the implied condition of fitness for purpose only applies where it can be said that

34

the buyer has made the particular purpose known to the seller in such a way that the seller knows that he or she is being relied upon. The buyers reliance must be reasonable. The seller ought not to known the import requirement of Iran. So not liable) S 72, s 20, where the goods were sold by sample, an implied condition that the goods match the samples. There must be a term in contract expressly or implied to the effect of goods are supplied by reference to a sample.

Exclusion clause Void under TPA s 68. seller is liable. Seller is excluded from (or not liable for) breach under VGA s 61. not liable. Limitation clause TPA s 68A (1), if the goods are acquired not for P.H.D use, seller is permitted to limit its liability to: a)Replacement, b)Repair, c)Paying for the cost of replacement, d)Paying for the cost of repairing. Sellers liability is limited. If the goods are acquired for P.H.D use, Limitation clause is void under TPA ss68, 68A. seller is liable. Seller may limit its liability in non consumer contract under VGA s 61. sellers liability is limited. Remedies If the exclusion/limitation clauses are void, seller is liable for breach of condition of consumer contract, - TPA s 75A, rescission.(Buyer can return the goods and get refund) - TPA s 82, sue for damages under rule in Hadley v Baxendale.(refer to Remedies) If the limitation clause permitted under TPA s 68A, seller is liable for breach of condition of consumer contract, - With no rescission - Damages limited to repair or replacement if there is a properly incorporated limitation clause. If the limitation clause stated in non consumer contract under VGA s 61, seller is liable for breach of condition of contract -with no discharge, (cant return the goods once the goods have been accepted under VGA s 16 (3), only can sue for damages). Under VGA s 41, acceptance occurred when the acceptance indicated by the buyer, or the goods are sold to TP by the buyer. - Damages limited as stated in relevant limitation clause. Remedies for breach of implied terms Damages : Buyer entitled to damages for breach of contract whenever the implied terms are breached. Damages are calculated according to the normal rules of contract law. Returning of goods: Consumer are entitled to return the goods where there has been a breack of the implied consitions: s 75 (A) P 331. The goods must be returned within a reasonable time after the buyer has had a reasonable opportunity to inspect them: s75A(2).

35

Chapter 9: Ending a Contract through Discharge and Seeking Remedies

Terminating the Contract Contract may be Discharged by actual performance Discharged by agreement Terminated by virtue of a term of the contract (condition precedent or condition subsequent) Terminated by operation of law- such as bankruptcy Discharged by frustration Terminated for breach of contract Breach of condition Serious breach of an intermediate term Repudiation Anticipatory breach 1) When parties wholly or substantially perform their obligations under the contract. Hoening v Isaacs Partial performance: General rule is that part performance of an entire contract or of a severable obligation in a divisible contract confers no rights on the part performer. Substantial performance: The part performance rule would work injustice in some circumstances, so the courts have adopted the view that substantial performance may entitle the performer to payment, Cutter v Powell (1795) It seems the doctrine will only be applied when: The guilty party has not abandoned the job; The defects in question are minor; and The cost of rectification is insignificant when compared with the contract price. 2)By agreement. (Parties agree to discharge their obligations.) New agreement will replace the old one. May agree to terminate their relationship A contract created by agreement can be undone by agreement: -Mutual Discharge: where both parties abandon their original agreement while the contract is still executory; Waiver where one party leads the other party to reasonably believe that strict performance will not be insisted upon; Substitution where the parties wish to continue with a contractual relationship but on terms differing from those in the original agreement, a new agreement can be substituted; Accord and Satisfaction where one party has performed their obligations and the defaulting party is relieved of their obligations by doing something different to that which they were bound to do under the original contract; - Release : where one party has performed their obligations and there is a unilateral discharge of the agreement 3) By a term of the contract. (Conditional contract.) Contract would be terminated on the happening or non-happening of a particular event. Terms may be included in the contract that will have the effect of either preventing the contract from coming into force (condition precedent), or that can bring the contract to an end on the occurrence of a certain event (condition subsequent). 4) Discharge by operation law Types of Discharge by Operation of Law Bankruptcy Material Alteration Merger

36

Death (if personal service) Limitation Legislation 5) By frustration. (Without a fault of either party, it has to be event that nobody has thought about it.) Examples: - A contract may become impossible to perform b/c there has been a change of law. - A contract for personal services may become impossible b/c of the death, injury or illness of one of the parties. - A contract for the delivery of goods may become frustrated by destruction of the goods without fault of either party. - The hire of a ship may become frustrated by the loss of the ship through an act of God.(eg. A typhoon.) - The hire of any property may be frustrated where the property has been compulsorily acquired by the government. - A contract may become frustrated through unforeseen delay. Taylor V Caldwell (1863) 3B S 826; 122 ER 309 p366 (Concert hall was burnt down before performance. Held that contract was discharged, for frustration T could not claim for damages.) Davis Contractors Ltd v Fareman Urban District Council (1956) AC 696 P367 (P built houses for D in 8 months, but shortage of labour caused P completing the job in 22months with extra expenses.) (Held that the delay caused by the labour shortage was foreseeable, a contract is not frustrated just b/c one party is commercially disappointed with the outcome.) Frustration will not apply where: - The contract makes specific provision for the supervening event. - The party seeking to rely on frustration foresaw the event - The event was caused by the party seeking to rely on frustration. Court may order refund of moneys paid under a frustrated contract. (Frustrated Contract Act)

6) Due to breach When is a term a condition? (Where a term goes to the essence or heart of the contract. Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd) Where one party fails to perform their obligations as agreed, they are liable for breach of contract. Breach may be: Actual breach where a party fails to perform at the time required by the contract; or Anticipatory breach where a party threatens not to perform prior to the time required by the contract: Foran v. Wright (1989) The effect of breach depends on the importance of the term that is broken. The remedies available to the injured party will depend on the nature of the breach. Tests: - The way in which the term is expressed - The likely consquences of a breach - The ojective importance of the term to the overall contract - Whether damages are likely to provide adequate compensation. Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 , p369 (Comic on front page, regarded as condition as the heart or essence of contract, so allowed terminating contract.) 6 (a) Terms expressly made a condition by the parties A term may be made a condition by the words used. (Where the parties have made it clear that a particular term was an essential part of the contract, eg sale of land, uses time is of the essence of the contract.) Merely calling a term a condition will not necessarily make it condition, the court must look at the meaning that the parties intended. Wickman Machine Tool Sales Ltd v L Schuler AG (1974) AC 235, P371 (S agreed to give W sole selling rights in the UK. W committed some minor breaches of this clause and S attempted to terminate for breach of condition) (Clause is called condition. Held that the word condition can have more than one meaning, so termination not allowed until more details are provided.)

37

Statutory implied conditions. (eg merchantable quality, fitness for purpose.) Time clause in mercantile contracts. (Presumption is that a time stipulation (other than time of payment) is a condition.) Bunge Corp of New York v Tradax Export SA Panama (1981) 1 WLR 711 P372 (Selling soya bean, buyer failed to notice about the readiness, failed to comply with time stipulation. Held that time stipulation generally regarded as condition in mercantile contracts, allowed seller to terminate.) Time clauses in other contracts. (Presumption is that a time stipulation is warranty, but can be rebutted by specific words.) Bettini v Gye (1874) All ER Rep 242; 1 QBD 183 P372 (Tenor had to sing at concert, non-mercantile contract, late arrival for rehearsals) (Held that need to consider whether parties intended that time stipulation as a heart of the contract, as contract for extensive period so not as important as to amount to a condition, no termination.) Time can be made a condition by serving a notice. (Where time is a warranty and one party is in breach, the other party may make time of the essence by serving a notice requiring the defaulting party to remedy the default within a stated period, period must be reasonable. Terms referring to quality are normally warranties. Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd Where damages are an adequate remedy, the term is often a warranty. (Where damages would adequately compensate the injured party, the courts are likely to refuse termination.) Shevill v The Builders Licensing Board.

6(b) Termination for serious breach of an intermediate term. (Where terms are impossible to characterise as conditions or warranties, serious breach of intermediate term give the innocent party same rights as condition breached.) When is a breach of an intermediate term a serious breach? Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (1962) 2 QB 26 p 373 (Shipping, delayed, intermediate terms, terms were breached.) (Held that breach was serious so K was allowed to rescind contract.) Cehave NV v Bremer Handelsgessllschaft mbH (The Hansa Nord) (1976) QB 44, P374 (B sell goods for animal feed, requirement is in good condition.)(Held that intermediate term but breach was not so serious, therefore not allowed to terminate contract.) 6(c) For repudiation. (Where repudiating party is unwilling or unable to perform.) Innocent party may terminate if the other party substantially repudiates his or her obligations under the contract. Hoenig v Isaacs 6(d) For anticipatory breach. (Anticipatory breach is a form of repudiation. Can terminate contract only if a serious breach of condition or a repudiation is involved. AB occurs where one part indicates to the other party before the due time for performing the contract due ) The threat to breach must be clear and unequivocal - Innocent party will not be permitted to terminate just b/c the other party has expressed some difficulty about meeting their contractual obligations. The terminating party must be able to prove that the other party was wholly and finally incapable of performing. National Engineering Pty Ltd v Chilo Enterprises Pty Ltd (2001) NSWCA 291 P376 (Hiring a crane from C, N was aware C was having difficulty in arranging the hire, N terminated for anticipatory breach.) (Held that N failed to prove C was wholly and finally disable from performing its contractual obligations, N wrongfully terminated and this amounted to a repudiation of contract. C was entitled damages.) Anticipatory breach- no termination. (Where innocent party decides not to terminate, both parties are still bound by the contractual obligations, innocent party must remain in a position to carry out the contract.)

Termination- Process and consequences (1) The procedure of termination.

38

- Terminating party must not affirm the contract; otherwise contract is treated still running. - The election to terminate must be unequivocal and generally speaking must be communicated to the other party. Foran v Wight (1989) 168 CLR p385 (Buying property, F had financial difficulties, W also had difficulties and advised F 2days before settlement, F stopped searching finance, on settlement day both were not ready to settle, F terminated contract and claimed for deposit.) (Held that Ws failure to settle was a breach of condition as settlement day was essence of the contract, F was entitled to terminate the contract and get the deposit back.) (2) The effect of an election to terminate. (Termination has no effect on those rights or obligations which have already accrued.) (3) The effect of an election to affirm the contract. (Innocent party must continue to perform his or her obligations.) Damages What is the purpose of damages? Damages are compensatory not punitive. (Damages is to compensate the innocent party, not to punish the defaulting party. Addis v Gramophone Co Ltd (1909) AC 488 P381 (Company employed A as branch manager, company terminated contract and replaced another manager, no commission for A, jury awarded more than suffer. Court overturned the decision b/c purpose of damages was to compensate for losses actually suffered, not to punish defaulting party.)

Losses must be caused by a breach of the contract. (Plaintiff can only obtain damages for those losses which were caused by the breach of contract, losses must not too remote. Hadley v Baxendale) Reg Glass Pty Ltd v River Locking System Pty Ltd 1968) 120 CLR 516 (p.382)

Facts: Reg Glass hired Rivers to supply and fit a particular steel-sheeted door and locking system to his shop. The door was described as burglar-proof. River fitted the door to the existing wooden door frame. Burglars broke in by forcing the door from the frame. Ratio: In contracts for work and materials, there is an implied term that any material supplied in relation to the work be of good quality and fit for the purpose for which they are supplied. Rivers breached its contract.

Agreed damages- Any damages clause must be a genuine pre estimate of damages and not a penalty clause. A penalty clause is unenforceable. (Plaintiff is not permitted to claim losses which he or she has allowed to mount up if there were reasonable steps that could have been to stem or reduce the losses)

Damages must not too remote- the rule in Hadley v Baxendale P384 Damages will only be awarded if the losses fall within one of these two limbs. 1st limb: The defaulting party will be liable for losses which flow according to the usual course of things from the breach. Koufos v C Czarnikow Ltd (1969) 1 AC 350, p384 (K ships sugar, delayed, price dropped in Basrah, K losses foreseeable which flowed in the usual course of event from breach, no damage for C.) Hadley v Baxendale (1854) 9Ex 341; 156 ER 145 p384 (Bronken crankshaft, new crankshaft delayed, foreseeable that the mill could have a spare shaft, so not usual course of things that the mill would stop together b/c of broken shaft,It is reasonably possible that the mill would have a spare shaft or acquire one. no damages for P.) 2nd limb: Where the loss does not occur in the usual course of things, the plaintiff will only be able to claim a damage if the loss was within the actual contemplation of the parties at the time the contract was made. Victoria Laundry (Windsor) Ltd v Newman Industries Ltd (1949) 1 All ER 997 (Installing a boiler for V delayed. Held that (1) the loss of profits occurring in the ordinary course of things, fell within 1st

39

limb, N was liable for it. (2) the loss of the Ministry of Supply contracts were outside the ordinary course of things as N was not aware of the losses at the time of making contract, didnt fall within 2nd limb, N was not liable for to pay damages for their lost.) Calculating the amount of damages. - Damages for expectation losses. (Loss of profit, loss of promised chance or commercial opportunity, but cannot be too remote.) McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 p387 (Purchased tanker, tank actually not existed, M incurred expense in order to tender successfully, fit within the 2nd limb of Hadley v Baxendale, losses foreseeable- expectation losses, so court award damages for M.) Commonwealth of Australia v Amann Aviation Pty Ltd(1991) 174 CLR 64 P 387 (Contract from providing aerial surveillance, An incurred expense for purchasing and adopting suitable aircraft, C did not terminated contract properly and amounted to wrongful repudiation. Held that A was entitled the damages for expected profit based on presumption.) - Damages for personal injuries. (Must be caused by the breach and not too remote.) Baltic Shipping Co v Dillon - Damages for disappointment, distress, discomfort etc. Jarvis v Swans Tours Ltd (1973) 1 QB 233, P389 (Skiing holiday, awarded damages for loss of enjoyment.) Baltic Shipping Co v Dillon (1983) 111 ALR 289 P390 (Cruise sank, awarded damages for I njuries, not for fare restitution.) 3). Specific performance. (Used where things as compelling a vendor of land to sign a transfer of land so that the purchaser can obtain good title, or where goods are unique.) Dougan v Ley (1946) 71 CLR 142, P391 (Agreed to sell taxicab with licence but then refused, numbers of licence are limited. Held that damages not sufficient therefore court granted specific performance.) Specific performance will never be ordered to enforce a contract for the provision of personal services.) Lumley v Wagner (1843-1860) All ER Rep 368, p391 (Singing at theatre, L breached contract and to sing at TPs theatre instead. Court refused to grant specific performance to enforce W to sing at Ls place, but granted injunction to stop Lumley performing at Gyes theatre.) 4). Injunction. (An order restraining a person from doing something.) Must have evidence that the breach will continue or will occur again. Courts may grant injunction where specific performance is refused. 5). Rectification of the contract. (Where both parties signed a contract, terms have been mistakenly written down, courts may rectify the document.) 6). Restitution. Pavey & Mathews Pty Ltd v Paul (1987) 162 CLR 221 p393 (Unenforceable contract of building, Pavey done but Paul refused. Held that even though unenforceable, quantum meruit allowed.) Quantam Meruit and Partially Performed contracts- A person is only entitled to claim the contract price if he or she has substantially performed his or her contracual obligations. Sumpter v Hedges (1898) 1 QB 673 P 394 (Building, unable to complete the work. Held that quantum meruit not allowed.)

40

Chapter 10: Agency

Agent or Independent dealer International Harvester Co of Australia Pty Ltd v Carrigans Hazeldene Pastoral Co (1958) pg416 (Franchisee is not an agent for making contracts on behalf of principal. Franchisee is a principal in his/her own right.) Indicators of an agent: (1) Agent passes profit through to the principal (2) Agent is more likely to be paid a commission. (3) Agent has an obligation to account to the principal for sales, as one of agents duties. Potter v Customs & Excise Commissioners (1985) pg418 Decision: Self declared independent agents, however, it was held that it cannot be decided on the basis of what parties called themselves, but rather looking at the circumstances. Court held that the dealers were not agents. 1.) Functions of an agent An agent may make contracts on behalf of the principal An agent may receive moneys on behalf of the principal (exception: estate agent) Petersen v Moloney (1951) pg419 Decision: Court held that 1. The third party failed to establish that the estate agent had express or implied authority t receive the purchase moneys. 2. Principal didn't ratify the agents act or holdout the estate agent as having the authority to receive the money An agent may pay moneys on behalf of the principal An agent may make representation on behalf of the principal An agent may receive representation on behalf of the principal (Principal can enforce representations made to his/her agent)

Commercial relationship and agency - Employees/ employers - The hirer/ independent contractor - Bailor/ bailee - Partners/ partnership (each partner is an agent for partnership) - Supplier/ buyer (Dealer does not act as an agent for a supplier) International Harvester Co of Australia Pty Ltd v Carrigans Hazeldene Pastoral Co pg421 - Franchisor/ franchisee (Normal goods or services franchise, franchisee usually acts independently) Potter v Customs & Excise Commissioners p421

41

2.) How is an agency created? a.) By express agreement (Unlike contract, does not need consideration) b.) By implied agreement Only if it is reasonable to infer from all circumstances that they have conducted themselves in such a way that a principal-agent relationship exists Norwich Fire Insurance Society Ltd v Brennans (Horsham) Pty Ltd (1981) pg423 c.) By estoppels Step 1: A representation has been made by the supposed principal to the effect that the supposed agent is the principals agent. (Principal holds out the agent as his/her agent) Step 2: The third party has relied on the representation. Step 3 :It was reasonable in the circumstances that the third party rely on the representation. Step 4: There has been an alteration in that third partys position as a result of reliance upon the representation. Pole v Leask (1861) pg421 (Agent was fired, not informed to third party; third party paid money to agent, held that principal is estopped from denying that the agent was not his agent, so principal is liable.)

d.) By necessity The power will only arise where the agent has no opportunity to communicate with the owners. China Pacific SA v Ford Corp of India (The winson) (1981) pg425 (The agent of necessity must act reasonably and prudently in the emergency circumstance.) Sims&Co v Midland Rail Co (1931) pg425 (Carrier has not opportunity to get instruction s form the owners. So he/she deemed to have power to sell goods.) Sachs v Micklos (1948) pg425 (In this case, agent has no power to sell the principals furniture that stores in agents room because of lack of communication, due to there was no emergency ie, house has been destroyed etc) e.) By cohabitation A woman has power to pledge the credit of the man with whom she is living for necessaries. 3.) Agencys authority a.) Actual authority - Actual express authority The power expressly invested in the agent by the principal - Actual implied authority Authority is inferred from the conduct of the parties and the circumstances of the case. Eg: A manager of a business will have implied authority to purchase goods (of type normally purchased) necessary to carry on the business. Watteau v Fenwick (1891) pg427 10.27

42

Past dealings Hely-Hutchinson v Brayhead Ltd (1967) pg428 (Agent signed document without consent, normally directors acquiesced agents decision, held that no actual authority but implied authority as there was a course of past dealings) To give effective operation to the agency ANZ Bank Ltd v Ateliers de Constructions Electriques de Charleroi (1966) p429 (Agent received the cheque from customer of principal in Australia; however the amount of cheque exceeds the sum permitted to be exported and the Principal doesn't have a bank account in AUS, therefore agent put cheque in its own account, held that implied authority was necessary for effective operation, agent acted in the usual manner.) b.) Ostensible/Apparent authority It exists where agent appears to have authority. Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964) pg430 (Purchase land, agent acted as managing director but not formally appointed, held that agent had no actual authority but ostensible authority based on holding out, reasonable for third party to assume agent has authority.)

Holding out: acts that P makes TP reasonably assume A has power. Cases on ostensible: Director of Posts and Telegraphs v Abbott (1964) pg432 (Agent made representation about date of telephone connection, however the date was late, and court held that agent didn't act within actual authority, so P wasn't liable) First Energy (UK) Ltd v Hungarian International Bank Ltd (1993) pg433 (agent entered contract to provide credit facility without approval of bank, bank rejected, court held that agent acted within ostensible authority, third party relied on agents representation expectation of parties, bank bound)

Someone with ostensible authority to act in a way on behalf of principal CANNOT give someone else the power to act on behalf of principal also. The third party must have been induced by such holding out to act upon it. (NB it is not applied where the 3rd party aware of the limits of agents actual authority.)

4.) Ratification Principal will not be liable if agent acts outside its actual and ostensible authority, unless P ratifies As actions. Once P has ratified, he cant withdraw the ratification. Rules before ratification is considered effective: 1) Agent must contract as an agent, third party must be aware that A is acting as an agent only and principal is named in such contract. Keighley, Maxted & Co v Durant (1900) pg435 (Buy wheat, third party was not aware of principal undisclosed principal, held that ratification not applicable, P was not liable) 2) Only P can ratify, and the ratification must occur within a reasonable time. 3) P must have been in existence and capable of being ascertained at the time when the contract was made. 4) P must have had contractual capacity at the time of As conduct. (Certain classes of persons like minors or bankrupts have restricted capacity to make contracts)

43

5) P can only ratify if he/she is aware of all the facts. (Not just certain parts) 6) Ratification must apply to the whole contract. 7) Ratification can be inferred from the Ps conduct, and need not be express. 8) Ratification will be ineffective where the original transaction is void. Bedford Insurance Co Ltd v Institutio De Resseguros Do Brasil (1985) pg436 9) Ratification is held at the time of P ratifying.

Time to SUE !!!!!

WHEN CAN PRINCIPAL BE SUED BY THIRD PARTY? 1.) When his agent acted within actual authority or 2.) When agent acted within ostensible authority or 3.) Principal has ratified agents action

WHEN CAN THIRD PARTY BE SUED BY PRINCIPAL? 1.) When agent acted within actual authority or 2.) Principal has ratified agents action WHEN CAN AGENT BE SUED BY THIRD PARTY? REMEMBER: THIRD PARTY can only sue agent OR principal. Not both !! 1.) When agent is KNOWN to BE an agent by third party, he cannot be sued UNLESS: a.) Principal did not exist at the time of making the contract. Kelner v Baxterr (1866) b.) Agent executed a deed or bill of exchange in his own name c.) Custom or trade usage makes the agent liable (Book doesnt explain further ) d.) The terms of contract make the agent liable 2.) Agent acted without authority a.) Fraud b.) Thinks he can convince principal to accept deal after he made it c.) Genuinely mistaken the extent of his own power d.) Genuinely mistaken of the existence of agency (Maybe principal died or bankrupt?) - In such situations, third party can either sue for misrepresentation or sue for breach of warranty of authority Third party can get damages from agent for breach of warranty of authority. It is NOT needed to be proven that agent acted fraudulently or negligently. Collen v Wright (1843) pg439 Decision: Agent warranted he had authority when he did not. Hence, it is a breach of his warranty of authority To succeed in action for breach of warranty of authority, third part must establish: a.) Agent asserted his authority. (He wont be liable if he made it clear he did not warrant his authority or contract excludes any action for breach of warranty of authority) b.) Third party was induced to enter due to this assertion, regardless of its accuracy

44

c.) Third party would not otherwise have entered into transaction

5.) Undisclosed Principal Definition: Undisclosed principal is the principal that the agent is acting for but third party thinks the agent is the principal himself because he did not disclose that he is merely an agent.

The undisclosed principal may be sued if: a.) Agent was acting within actual authority (Ratification DOES NOT apply to undisclosed principal) b.) Terms of contract do not exclude the possibility of there being a principal c.) Identity of principal is not critical to third party Said v Butt (1920) pg440 d.) Third party can raise any defence against him that could had been raised against agent (Ex: Third party argue that he rescinded contract because of agents misrepresentation)

Either agent or principal can be sued, NOT both. 6.) Duties of agent Duty to perform what he/she has undertaken to perform. Duty to obey instructions. Duty to exercise due care and skill. Duty to act personally. Fiduciary duties: Duty to account honestly; Duty to avoid a conflict of duty and interest (rule against self dealing); Duty not to make secret profits, accept secret commissions or take bribes; Duty not to use principals property or information for personal gain.

7. ) Duties of the principal to agent Duty to remunerate the agent according to the agreement between them. The agent has a lien over the principals goods for debts owed by the principal to the agent. This means that the agent may withhold the goods until the debt is paid. (DONT PAY ME, U NO GET UR SHIT) Duty to indemnify (to secure, protect or make compensation) the agent, except for: unauthorised actions (unless subsequently ratified); or losses caused by the agents own default or negligence. 8.) Termination of Agency The agency relationship may be terminated in a number of ways: by agreement between agent and principal; by revocation of the agents authority; by expiry of the period of the agency agreement; upon the death of the principal or agent; upon the bankruptcy of the principal or agent; upon the insanity of the principal or agent; if the agency agreement becomes illegal or impossible to perform. To avoid agency by estoppel and apparent authority continuing after the termination, the principal may need to notify third parties of the termination.

45

Chapter 11: Partnerships

Partnership Act s5(1): A partnership is one that has the following elements: a.) The carrying on of a business b.) In common c.) With a view of profit

a.) Carrying on of a business:

Distinguish between business and carrying on a hobby Ferguson v Federal Commissioner of Taxation (1979) pg454 Decision: Court held he was carrying on a business, not hoppy because the operation had a commercial flavour about it (Intention to make profit, repetition and systematic organisaiton) Distinguish between business and preparing to carry on a business Goudberg v Herniman Associates Pty Ltd (2007) pg455 Decision: Acting in common but not carrying a business Distinguish between business and carrying out a single venture Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) pg456 Decision: Court held they were partners as they had a view of profit and agreed to make joint decisions Television Broadcasters Pty Ltd v Ashtons Nominees Pty LTd (1979) pg457 11.13 Decision: Joint venture set up to promote and exploit a tour did not create a partnership

b.) Carrying on in common:

1.) In most cases, it is clear that the parties only intend one person to run the business. Non-active partners are called dormant or silent partners. Mutuality of rights and obligations: However, ALL partners have a right to a say in management

2.) Sharing profits does NOT always indicate partnerships. Sometimes sharing is a merely a way of ensuring repayment of loan Re Ruddock (1879) pg458 Decision: Even though sharing profits just to repay debt (expressed), Ruddock treated Mrs Bear as partner, hence the court held she was a partner. Actions > Words 3.) To be carrying on a business in common, the partners must be engaged in the same business. Checker Taxicub Company Ltd v Stone (1930) pg459 Decision: Taxicab, driver agreed to pay percentage and all running costs, whether C was responsible for Ss negligence. Held that not mutuality of rights, driver was neither an employee nor a parent, parties ware carrying on separate businesses.) 4.) Partnership Act s6- The statutory rules. (Whether partnership exists) s6(1), Co-ownership of property does not by itself indicate that the co-owners are in partnership. s6(2), Sharing gross returns does not by itself indicate a partnership. s6(3), Receipt of a share of profit of a business does make a person a partner, but receipt of such a

46

share of a payment contingent on or varying with the profit does not make a person a partner. (a), Receipt of debt or other liquidated amount by instalment does not create a partnership. Cox v Hickman (1860) pg460 Decision: Cox and others were creditors of a business, all profit of the partnership were shared by them as paying off its debts. Held that they were not partners even though they shared in profits, s6(3)(a) applies. (b), Remuneration of a servant or agent of a person does not create a partnership. Plummer v Thomas (2002) pg461 Decision: Arrangement of open up a workshop, sharing profits, T carried the management. Held that no suggestion that P had agreed to share losses despite P had agreed to share profits, therefore no partnership. (c), Widow or child of a deceased partner receiving annuity does not create a partnership. (d), Creditor financing a project in return for a share of profit does not create a partnership. Re Megevand; Ex parte Delhasse (1878) pg462 Decision: Lent money for setting up business partnership, money was only capital for partnership, written agreement, expressly that D was a creditor not a partner, agreement stated that loan not repaid until partnership was dissolved. Held that it was a partners capital contribution rather than a loan, therefore D was partner, s6(3)(d) applies (e), Receiving annuity or profits in consideration of the sale by a person of goodwill does not create a partnership.

3.) With a view of profit

Partnership must aim to make profit as its original purpose Commercial relationship, not including non-profit associations and clubs

Partnerships are contractual relationships: a.) Contracting parties cannot avoid being partners just by agreeing not to be partners, Re Ruddock (1879) pg458 b.) Describing a person as a partner does not necessarily make him of her a partner. Steckel v Ellice (1973) pg463 Decision: Chartered accountants S was described as salaries partner, agreement that S had no interest in or right to the capital, all profits and losses belonged to E. Held that calling a person salaries partner does not make him a partner, however in this case S was a partner. Rules governing partners relationship with each other 1.) The contract between the partners. PA s23: the mutual rights and duties of partners should be either expressly or impliedly (Provided no express terms to the contrary) a.) A partner has the right to sell the firms trading stock; b.) A partner has the right to buy stock of a kind usually used or traded by the business; c.) A partner has the right to receive payments owing to the partnership and to give a valid discharge; d.) A partner has the right to make, accept and issue cheque and other negotiable instruments; e.) A partner has the right to pledge the firms credit for the purchase of stock.

47

2.) The Partnership Act. (For when matters were not decided prior to forming partnership) If partners have no agreement on these matters, then s28 and s29 apply: S28: interest of partners in partnership property and rights and duties shall be determined subject to any agreement express or implied between the partners by the following rules: (1), All partners are entitled to share equally of profit and contribute equally for losses. (2), The firm must indemnify every partner in respect of payments made and personal liabilities incurred by him(a), in ordinarily and proper conduct. (b), about anything to preserve business. (3), A partner makes any actual payment advance beyond the amount of capital, was entitled to interest at 7%pa. (4), A partner is not entitled before the ascertainment of profits to interest on the capital subscribed by him. (5), Every partner may take part in the management of the partnership business. (6), No partner shall be entitled to remuneration for acting in the partnership business. (7), No person may be introduced as a partner without the consent of all existing partners. (8), any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners but no change may be made in the nature of the partnership business without the consent of all existing partners. (9), the partnership books are to be kept at the place of business of the partnership and every partner may when he thinks fit have access to and inspect and copy any of them. S29: No majority of the partners can expel any partner unless a power to do so has been conferred by express agreement between the partners. 3.) Partners duties of good faith. (Fiduciary duties they owe each other) a.) To not act in partners disadvantage Kak Loui Chan v John Zacharia (1984) pg466 Decision: Dissolving partnership, C renewed the lease before wound up so that he could stay at the same address. Held that C held the lease on trust for both himself and Z. United Dominions Corp Ltd v Brian Ltd (1985) pg466 Decision: UD owed a fiduciary duty to Brian. It had breached that by taking a mortgage that advantage itself while disadvantaging Brian without his consent b.) Duty to make disclosure S32: Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representative. c.) Duty to account for benefits derived from dealings with partnership. S33: (1). Every partner must account to the firm for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership or from any use by him of the partnership property, name or business connection. d.) Duty to account for use of partnership assets. S33(1). A partner must not keep a benefit which belongs to the partnership. e.) Duty not to compete with partnership. S34: If a partner without the consent of the other partners carries on any business of the same nature as and competing with that of the firm he must account for and pay over to the firm all profits made by him in that business.

48

Partnership property. S24: partnership property includes: a.) Items brought into the partnership property as partnership property; b.) Items acquired on account of the firm; and c.) Items acquired for the purposes of and in the course of the partnership business. S25: Items brought with partnership money are deemed to have been bought on account of the firm unless a contrary intention appears. Harvey v Harvey (1970) pg469 Decision: Was a partnership, some expenses incurred for the cost of improvements of the land. Held that land not partnerships property b/c of the intention that the land would be preserved for HHs son, HH was under no obligation to pay for improvements had been made to other partners. - Partners have no title to specific property owned by the partnership, but they each have a beneficial interest in every asset of the partnership. - Partners have the right to use partnership property for partnership business. - If partners obtain private use or benefit from partnership property without co-partners consent, this will be in breach of partners duties. Liability of partners to third party. 1). Jointly liability for debts and obligations. S9: a partner will bind co-partners where he/she transact a deal which is within the scope of : a.) The kind of business carrying on by the partnership; and b.) The transaction is within the usual way that partnerships of that kind conduct business; unless c.) The partner had no authority to so act and the third party knew this or did not know or believe that the partner was a partner Borrowing money has been held not to be within the normal scope of a partner in a stock and station agency (Commercial Bank v Lakeman (1890) pg474) Even if borrowing is within the scope of a partnership, it must be the usual way of borrowing in that kind of business. Goldberg v Jenkins (1889) pg475 Decision: Partner borrowed money with too high interest rate. Held that borrowing money within normal scope of conducting partnership but too high interest rate not within the usual way, so other partners not bound.) The partner had no authority to so act and (1) the third party knew this or (2) did not know or believe that the partner was a partner. Young v Lamb & Ors (2001) pg474 Decision: Partnership, Mrs N did most of the lease negotiations, she negotiated a further lease with Ys agent and stated the partnership intended to exercise to option, other partners argued that she had no actual authority. Held that Mrs Ns act was relating to the business of the firm, done in the firms name, revealing an intention to be bound., therefore partnership was bound.) Ratification Even if partner acts beyond actual and ostensible authority, the partnership may still be liable if the other partners ratify the act. Re Oppenheimer (1872) pg475 Decision: Parisian partner buying stocks in Melbourne. Held that not within usual way, but he had ratified his co-partners action, so liable. Proviso to s9 states that the firm will not be bound by actions of partner where: a.) Partner had no authority to act, and b.) (i) The third party knew the co-partner had no authority; or

49

(ii) The third party did not know or believe that the partner was infact a parter

Construction Engineering (Aust) Pty Ltd V Hexyl Pty Ltd (1985) pg476 Decision: The high court found Tambel did not have actual authority to make contracts on behalf of the partnership Merchantile Credit Co Ltd v Garrod (1962) pg77 Decision: Although P had no authority to sell cars, the firm would still be liable if P was acting within the scope of his authority. This depended on whether selling cars was a normal function of this type of business

2). Joint and several liability for wrongful acts. (Negligence, misrepresentation, misleading and deceptive conduct.) S14: Where by any wrongful act or omission of any partner acting in the ordinary course of business of the firm or with the authority of his co-partners loss or injury is caused to any person not being a partner in the firm or any penalty is incurred the firm is liable therefore to the same extent as the partner so acting or omitting to act. Polkinghorne v Holland & Whittington (1934) pg480 (Partners conducted a solicitors office, Harold advised a P to sell government bonds and invest in a company. Held that although solicitor had no special skill with regard to investment in securities, it is within the ordinary course of business as making inquiries for the client when consulted, therefore all partners were liable.) National Commercial Banking Corp of Australia v Batty (1986) pg480 Decision: Held that a partner in an accountancy practice was not acting in the ordinary course of business of the firm when he banked the cheques payable to a 3rd party in the partnerships account and then withdrew the proceeds for his own use.) Walker v European Electronics Pty Ltd (1990) pg481 Decision: Partners, chartered accountants, one of them misappropriated money from a trust account. Held that he was acting in the ordinary course of business, other two partners were jointly and severally liable.) S16: If a partner is liable for a wrongful act under s14, that liability is joint and several. Joint and several liability for misapplication of money or property. S15: (a). where one partner acting with the scope of his apparent authority receives the money or property of a third person and misapplies it; and (b).where a firm in the course of its business receives money or property of a third person and the money or property so received is misapplied by one or more of the partners while it is in the custody of the firm- the firm is liable to make the loss. S16: if the firm is liable under s15, then each partner is jointly and severally liable for the misapplication of monies/property. Liability by holding out (estoppel) Even non-partner may be liable for partnership debts if they have acted in such a way that people dealing with the partnership reasonably believe him or her to be a partner. S18: (1), every one who by words spoken or written or by conduct represents himself or who knowingly suffers himself to be represented as a partner in a particular firm is liable as a partner to any one who has on the faith of any such representation given credit to the firm whether the representation has or has not been made or communicated to the person so giving credit by or with the knowledge of the apparent partner making the representation or suffering it to be made. (2), where after a partners death the partnership business in continued in the old firm -name the continued use of that name of the deceased partners name as part thereof shall not of itself make his executors or administrators estate or effects liable for any partnership debts contracted after his

50

death. Steckel v Ellice (1973) pg463 Decision: Calling him/herself a salaried partner and appearing on the firms letterhead as a partner, is holding out him/herself out as a partner.) D & H Bunny Pty Ltd v Atkins and Naughton (1961) pg483 Decision: A & N interviewed, told Bunny that they were partners, actually not, bought goods on credit using joint named accouts. Held that they were either holding themselves our or allowing themselves to be held out as partners.

Leaving the Partnership When quitting a partnership, the retiring partner should send circular letter to all those who have had dealings with the partnership - s40(1): persons who dealt with the partnership before the partners retirement are entitled to treat all apparent partners as still partners of the firm unless that person receives notice of the retirement. - S40 (2): the retiring partner should take advantage of the notice provisions, eg advertising resignation in Government Gazette and newspapers circulating in area of business to notify new clients. 1.) Even if a retiring partner fails to give actual notice, he/she will not be liable in some circumstances: a.) The 3rd party was aware, from whatever source, that the retiring partner was no longer a partner; or b.) The 3rd party was never aware that the outgoing partner was a partner. S40(3): a partner who has not been known by 3rd party before the retirement, is not liable for the partnerships debts.(also for death & bankruptcy) The outgoing partner did nothing to hold himself or herself out as continuing partner. Tower Cabinet Co Ltd v Ingram (1949) pg485 Decision: Christmas and Ingram were partners, dissolved, C changed letterheads, used one of old letterheads to order goos from T. Held that I had not held himself out or allowed himself to be held out, s40(3) applies, I was not known to be a partner by T until after he has retired, therefore I was not liable.) Elders Pastoral Ltd v Rutherfurd (1990) pg486 (R retired from partnership and failed to give notice, E had never known R was partner is number of years, when the partnership incurred debts, E tried to make R liable. Held that R was not liable for debts incurred by the partnership to E after she had retired, s40(3) applies.)

Debts incurred after death or bankruptcy of partner S40(3). Debts incurred before resignation or admission of a new partner.

S21(1): incoming partner is not liable for debts incurred before resignation. S21(2): resigning partners remain liable for debts incurred before their resignation, unless s21(3) they receive a release from creditors and remaining partners.

Assignment of a partnership interest. a.) A partner cannot sell a partnership interest. b.) A partner may assign his/her right to the profits or, on dissolution, the assests of the partnership. c.) Assignment of a partnership interest does not give the assignee rights to participate in the management of the partnership or to inspect the books of the partnership. S35: the assignee does have right to an account on dissolution of the partnership.

51

Termination of a partnership 1.) A partnership may be terminated by: - The partners. By agreement (s30); By expiration of agreed fixed term of partnership (s36). Operation of laws (s37) Supervening illegality (s38) The courts (s39) Partners remain jointly liable for debts even after dissolution of a partnership. Distribution of assets on dissolution is governed by the Partnership Act. S43: on dissolution, the partnership property is to be applied to pay off the debts of the partnership and, if there is any surplus, to be distributed to the partners.

52

Chapter 12: Introduction to Company Law

The nature of a company under Corporation Act 2001 (Cth) - A company is an independent legal entity with rights and powers of its own. - A company must be registered. 1.) The powers of a company S 124(1), company has the full legal capacity of a natural person, from the date of registration. The company may engage in any legal act or transaction without limitation like a legal person. (Eg, may sue or be sued, and may acquire, hold and disposed of property in its own right. And other powers listed on page 350.) S 126, allows authorised agents of a company to make, vary, ratify or discharge a contract on behalf of the company, using express or implied actual authority. S 127, recognises that the agents of a company are also able to execute documents on its behalf by either using its common seal with the witnesses signatures or signatures of appropriate company officers. A company remains a legal person with full legal capacity until it is finally deregistered: s601 AD(1) 2.) The types of companies a.) General classification Proprietary company - Pty Ltd - May be formed by one person -Limited to 50persons (excluding employees who hold shares) -Prohibited from doing anything that would require lodgement of a disclosure document -Must have share capital Pubic company - Ltd - Minimum of 1member and 3 directors -Unlimited number of members -May invite public to subscribe for any shares -Limited liability company b.) 4 times of companies which may be registered 1.) Company limited by shares (Either Pty Ltd or Ltd) - Proprietary or public - Liability of shareholders to company is limited, but not the liability of company to creditors. 2.) Companies limited by guarantee - Public only - No share capital - Suitable for clubs - The guarantors undertake to guarantee the payment of a guaranteed amount, cannot increase or decrease. 3.) Unlimited companies - Proprietary if have share capital, public if have no share capital - No limitation on members liability - Unsuitable for trading 4.) No liability companies - Public - Suitable for mining company

53

3.) Separate legal identity of companies Rule in Salomon case established the principle that control and management of a company remain distinct from its ownership. The companys liability cannot become the behind persons personal liability. Salomon v A Salomon and Co Ltd (1897) pg505 Decision: Court held that the company was a separate entity from its shareholders. It had conducted business in its own right and was not just an alias of Salomon. So Salomon was not liable. Lee v Lees Air Farming Ltd (1961) pg506 Decision: Court held that the company is a separate legal entity with independent existence from its shareholders, Lee was regarded as an employee and the widow was therefore able to claim the compensation. Pioneer Concrete v Yelnah Pty Ltd (1987) pg507 Decision: Court held that the holding company and its subsidiary were separate legal entities, the holding company was not acting as agent for the subsidiary. This is a good reason to separate legal entities. So rejected 4.) Steps for registering a company S 117 involves the company registration process. Application to Register s117 must include: a.) Type of company b.) Details of initial members, directors and the company secretary c.) The addresses of the registered office and the principal place of business d.) Details of issued shares e.) The proposed company name: s117 (2) f.) May choose to reserve a name prior to applying: s152 g.) May use its Australian Company Number (ACN) or (ABN) instead of a name 5.) Companys Constitution and Rules The Corporations Act contains a series of replaceable rules that will apply unless the companys members have voted to exclude or modify those rules in the companys constitution 6.) Implications of the Certificate of Registration -Operates as the birth certificate -Section 1274 (7A) deems the certificate to be conclusive evidence that all: a.) Requirements under the law has been complied with b.) The company is registered c.) It is registered from the date of certificate 7.) Managing a company - Management is in the hands of directors - Where a company has shareholders, shareholders will normally elect the directors - Comparison between company and partnership with regards to business structure : Refer to Oreily and Sweeny page 509, 12.19. 8.) How does a company create contracts? Vicarious liability: Where company is liable for tort for the actions of its employees who are acting in the course of their employment

54

Hollis v Vabu Pty Ltd (2001) pg72 Determining if a company is bound by a contract 1.) Understand that actions of a company are NOT invalidated just because they happen to be contrary to the powers and purposes set out in the company constitutions, s125 2.) Manner in which a company may execute a document, including a contract, s127 a.) S127(1) A company executing document without using common seal is allowed if the document is signed by: 2 Directors of the company, or A director and a company secretary of the company, or For a proprietary company that has a sole director who is also the company secretary the director

b.) S127(2) A company with a common seal may execute the document if the seal is fixed to the document and the fixing is witnessed by: 2 directors of the company or A director and a company secretary of the company or For a proprietary company that has a sole director who is also the company secretarythat director

3.) Failure to follow method set out in the constitution is not fatal to third parties who deal with company, provided that a.) Company executes documents in accordance with s127 4.) People who have dealings with company will still be able to rely on the assumptions: a.) Ss129(5) Where common seal is not used b.) Ss129(6) Where common seal is used -Unless they know or suspect that this assumption is incorrect 9.) When is a company BOUND by the actions of its AGENTS? 1.) A company may be bound by contracts entered into by agents acting on its behalf Section 126: A person has actual authority to act on the behalf of the company: S126(1) : A companys power to make, vary, ratify or discharge a contract may be exercised by an individual acting with the companys express and implied authority and on behalf of the company. The power may be exercised WITHOUT using the common seal 2.) A company will also be liable for acts of its officers, employees acting within apparent authority - Authority the agent would reasonably the expected to have in the circumstances, given the companys holding out on the third party

55

To check if company is bound to something: a.) Did the person act within his or her actual authority? b.) Did they act within their apparent authority? c.) Did the company ratify his or her actions? 10.) Assumptions people can take when dealing with a company Section 128 S128 (1): A person is entitled to make the assumptions in s129 (2): A person is entitled to make assumptions in s129 with another person who has, or purports to have, directly or indirectly acquired title to property from a company (3) The assumptions may be made even if an officer or agent of the company acts fraudulently, or forges a document, in connection with the dealings (4) A person is not entitled to make assumptions in section129 if at the time of the dealings they knew or suspected that the assumption was incorrect Sunburst Properties Pty Ltd (in Liq) v Agwater pty Ltd (2005) pg516

S129 of Corporation Acts Assumptions: S129(1): A person may assume that the companys constitution and any provisions of this Act that apply to the company has been complied with S129(2): A person may assume that someone who appears to be a director or company secretary: (a) Has been duly appointed and (b) Has authority to exercise the powers and perform duties customarily exercised or performed by that position of a similar company

S129(3): A person may assume that anyone held out by company to be an officer or agent Conditions: 1.) The person holding out must have actual authority, not just appears to have or s129(3) will not apply. Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1992) pg515 2.) Customary powers: Individual directors do not have power to bind company contractually with third parties A managing director has customary authority to do all those things in the ordinary management of the company and that the board of directors has, including hiring staff and contractors and borrowing money for ordinary purposes of company Company secretary is regarded as having customary authority to make contracts concerning the internal administrative matters of the company Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabris Ltd (1971) pg516

56

(a) Has been duly appointed and (b) Has authority to exercise the powers and perform duties customarily exercised and performed by that kind of position in a similar company S129(4): A person may assume that the officers and agents of the company properly perform their duties to the company S129(5): A person may assume a document has been duly executed by the company if it appears to have been signed in accordance with s127(1). They can also assume the signers are legit S129(6): A person may assume that a document has been duly executed by the company if: (a) The companys common seal appears to have been fixed to document in accordance with s172(2) and (b) The fixing of the common seal appears to have been witnessed in accordance with s172(2). They can also assume the witnesses are legit S129(7): A person may assume than an officer or agent of the company who has authority to issue a document or a certified copy of a document on its behalf also has authority to warrant that the document is genuine or a true copy S129(8): Without the limited generality of this section, the assumptions that may be made under this section may apply for the purpose of this section

57

Chapter 13: Duties of Company Directors and Other Offices

1.) Board of directions functions: To set policy and formulate strategy To monitor implementation of policy To review the firms progress towards attaining its goals To provide accountability to members To elect, evaluate and where appropriate, dismiss the principal executive officers To carry out any statutory functions such as presenting duly attested financial reports at the annual general meeting Director may also be an executive officer, in which he is called an executive director Director + Executive officer = Executive Director! 2.) The source of directors duties: The Corporations Act 2001; The fiduciary nature of the relationship between a director or executive officer and the company The common law duty to act with reasonable care; and The rules of the company 3.) Reasonable care and diligence Section 180(1) A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) Were a director or officer of a corporation in the corporations circumstances, and (b) Occupied the office held by, and had the same responsibilities within the corporation as, the director or officer Example: Director purchase large quantities of stock when they were not required and company on top of that is facing financial difficulties is considered to have breach his duty of care Mistmorn Pty Ltd (in liq) v Yasseen (1996) pg525, 13.5 State of South Australia v Clark (1996) pg526 Decision: Court held that Clark breached his duty of care to the bank Circle Petroleum (Qld) Pty Ltd v Greenslade (1998) pg527 Decision: Court held that Greenslade had failed to exercise the degree of skill and care which could be reasonably be expected from a person of his knowledge and experience Business Judgement Rule s180 (2) (provides defence for actions that may be in breach of s180(1) ) S180(2) A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of s180 (1), and their equivalent duties in respect of the judgement if they: (a) Make the judgement in good faith for a proper purpose (b) Do not have material personal interest in the subject matter of the judgement and (c) Inform themselves about the subject matter of the judgement to the extent they reasonably believe to be appropriate and (d) Rationally believe that the judgement is in the best interests of the corporation

58

The directors or officers belief that the judgement is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold S180(3) In this section: business judgment means any decision to take or not take action in respect of a matter relevant to the business operations of the corporation 4.) Expectations for a director a.) A director does not need to have any particular skill but he is ought to have capable understanding of the affairs of the company, at least to the extent of being able to reach a reasonably informed opinion of its financial capacity. b.) If director has a particular skill or experience, he will be expected to use them when making decisions c.) Directors are expected to attend board meetings and take active interest in affairs unless having good reason not to d.) Pay attention during board meetings e.) Cannot hide behind ignorance or absolve from responsibility by arguing that he left the running of company to another director. Statewide Tobacco Services ltd v Morley (1990) pg529, 13.9 f.) S189 dictates a directors reliance on info or advice is reasonable if the provider is another director or an employee of the company or a professional adviser as long as director acted in good faith and made any inquiries that seemed needed by circumstances Failure to meet expectations = Court may view as breach of duty! 5.) The duty to act in good faith and for a proper purpose S181 (1): A director or other officer of a corporation must exercise their powers and discharge their duties: (a) In good faith in the best interests of corporation and (b) For a proper purpose S181 (2): A person who is involved in a contravention (violation) of s181(1) contravenes this subsection Walker v Wimbourne (1976) pg531 Decision: Breach of duty as directors owed their duty to particular company not to the group as a whole Directors duty to exercise power for PROPER PURPOSES Directors must exercise their powers for the proper purposes of the company and not for any extraneous purpose

Directors duty not to misuses the position S182 imposes on a director or other officer or employee not to improperly use his position for personal gain S182(1): A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a) Gain an advantage for themselves or someone else, or (b) Cause detriment to the corporation S182(2) A person who is involved in a contravention of s182(1) contravenes this subsection

59

Cummings v Claremont Petroleum NL (1993) pg532 Decision: Cummings and Fuller had breach their duty of cares as well as their duties to act honestly and not misuse their position Contracts with the company and duty imposed to disclose certain interests S191: Director must disclose to other directors any material personal interest in a matter that relates to the affairs of the company Say Bob is a director of X and a shareholder of Y. If Bob, as a director of X makes a deal with Y, he benefits as well cause he is a shareholder. So he MUST disclose such interest to the other directors of X if not hell liable EVEN if he acted in Xs best interests. S194: If he does before contract is formed, he may retain benefits derived from the contract The duty not to use information improperly S183: Director, other officers or employees of a company is under duty not to improperly use inside information S183(1) A person who obtains information because they are, or have been, a director or other officer or employee of corporation must not improperly use the information to: (a) Gain an advantage for themselves or someone else; or (b) Cause detriment to the corporation S183(2) A person who is involved in a contravention (violation) of ss183(1) contravenes this subsection What kind of information MUST NOT be used? Must not reveal: Trade secrets of one company for the advantage of another enterprise Cranleigh Precision Engineering Ltd v Bryant (1965) pg534 Decision: Bryant utitilized confidential info without permission Confidential information

It is NOT needed to prove that the company suffered a loss as a result of information leak The mole will still be liable and may have to pay for damages Green and Clara Pty Ltd v Bestobell Industries Pty ltd (1982) pg535 Decision: Even though the other company wouldnt had lost anything, but because his info got stolen, the other person was liable and had to pay for what company might have had earned if they did lose The CONSEQUENCES of a breach of statutory duty Either civil consequences or criminal sanctions a.) Civil Consequences For breach of ss180, 181, 182 or 183 the court may order a civil penalty in the nature of a fine up to $200 000 Possible consequences: Court may prohibit person from managing a company Court may order the person to pay compensation If the breaches of ss180-183 involves recklessness or intentional dishonesty, criminal sanctions may apply

60

ASIC would need to prove that the section(s) had been breached on the balance of posibilites

b.) Criminal Consequences: S184 Intentional or reckless breaches of duty amount to criminal offence: s184 Penalty: Fine up to $220 000 and/or imprisonment for up to 5 years for EACH offence ASIC would need to prove beyond a reasonable doubt that s184 has been breached

S184(1) A director or other officer of a corporation commits an offence if they: (a) Are reckless or (b) Are intentionally dishonesty and fail to exercise their powers and discharge their duties in good faith in the best interests of corporation or for a proper purpose S184(2) A director, other officer or employee of a corporation commits an offence if they use their position dishonestly: (a) With the intention of directly or indirectly gaining an advantage for themselves, or someone else, or causing detriment to the corporation or (b) Recklessly as to whether the use may result in themselves or someone else directly or indirectly gaining an advantage, or in causing detriment to the corporation S184(3) A person who obtains information because they are, or have been, a director or other officer or employee of a corporation commits an offence if they use the information dishonestly: (a) With intention of directly or indirectly gaining an advantage for themselves or someone else or causing detriment to the corporation or (b) Recklessly as to whether the use may result in themselves of someone else directly or indirectly gaining advantage or causing detriment to company Directors duties at common law Common law duties apply not just to directors, but also to employees of the company by virtue of the employment contract Where the company is experiencing financial difficulties, the directors also have a common law duty to consider the interest of creditors Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) pg537 Decision: When company is insolvent, directors owe a duty to creditors not to prejudice the interests of creditors. Russell Kindelas directors breached this duty

The Insolvent trading rule Section 588M of the Corporation Act: In the circumstances of s588G, liquidator of company may bring action to recover company debt from directors personally 588G(1): This section applies if: (a) A person is a director of the company at the time when the company incurs a debt and (b) The company is insolvent at that time and becomes insolvent by incurring that debt, or by incurring at that time debts including that debt, and (c) At that time there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be 588G(2): By failing to prevent the company from incurring debt, the person violates this section if: (a) The person is aware at that time that there are such grounds for so suspecting or

61

(b) A reasonable person in a like position in a company in the companys circumstances would be so aware If director in circumstances of s 588G(1) fails to prevent company from incurring debt, then he violates the section if: Was are aware that there were grounds to suspect the company of being or becoming insolvent or A reasonable person in a like position in the companys circumstances would have been aware of grounds to suspect such insolvency

When is a company insolvent? S95A(1): When they cannot pay debts when they fall due According to Mullenger v Dana Australia Pty Ltd (1998) these factors were indicators of insolvency: 1.) 2.) 3.) 4.) Inability of the company to observe the terms of its overdraft facility Failure to pay trade creditors according to the terms of trading Inability to provide funds to cover even small cheques Failure to meet demands for payments of the most essential services

REMEDIES or SANCTIONS that may apply Violation by a director of s588G will result in: Fine up to $220,000 or 5 year imprisonment Both Entitles liquidator to bring an action to recover amount of the debt

DEFENCES 4 Defences to s588G are set out in s588H: At the time when the debt was incurred the director must establish: 588H(2)reasonable grounds to expect (and the director did expect) that the company was solvent and would remain solvent even with the new debt(s); 588H(3)reasonable grounds to rely on info provided by a competent and reliable person that the co. was solvent; 588H(4)s/he did not take part in management owing to illness or other good reason (NB mere ignorance of the cos operations is not a defense); 588H(5)s/he took all reasonable steps to prevent the co. from incurring the debt.

S588G and S588H in action !! Metropolitan Fire Systems Pty Ltd v Miller and Others (1997) pg541 ASIC v Plymin, Elliott and Harrison (2003) pg542 Tourprint International Pty Ltd (in liq) v Bott pg544

62