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LEGT 1710

Business and the Law

Lecture 5

Contract Law (Contd)Capacity/Privity/Vitiating elements

Lecturer: Dr Leela Cejnar

2013 The University of New South Wales

Sydney 2052 Australia

The original material prepared for this guide is copyright. Apar t from fair dealing for the purposes of private study, research, criticism or

review, as permitted under the Copyright Act, no part may be reproduced by any process without written permission.

Enquiries should be addressed to the Head of School, Taxation and Business Law, UNSW, Sydney

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ASSIGNMENT 2

On Blackboard from today

Contract law, problem question

See Guidelines to Students (attached to the assignment)

DUE Monday 23 September, 2013

See Course Outline (paragraph 4.4) for details about how to

submit your Assignment

ONLINE SUBMISSION ONLY

- Check your plagiarism score, amend and re-submit as

required

- FINAL VERSION MUST BE SUBMITTED BY 5pm on

MONDAY 23 SEPTEMBER 2013 on Blackboard (via

Turnitin)

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ASSIGNMENT 2

Research materials:

Your starting point:

- Reading materials on Blackboard (PDFs)

- Paul LatimersAustralian Business Law, 31st edn, 2012 or

32ndedn, 2013

Do some independent research beyond the Blackboard

readings and beyond the textbook using other research tools:

Look for Cases/Journal articles/Other materials from legal

publishers that are available online through UNSW

Library database

Focus your research on ONLINE materials Do NOT bother the UNSW librarians unnecessarily

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ASSIGNMENT 2

Do not plagiarise be careful to acknowledge all

source materials that you use

References source materials appropriately: see

Appendix A of the Course Outline for how to footnote

your references

Provide full names for cases AND full case citations

Include a bibliography at the end of your

Assignment

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Plan your answer

Identify relevant facts

What are the main problems in the problem?

What key issues do these facts raise?

Identify relevant legal principles:

What legal principles apply to the facts you have identified?

What relevant cases do you know that deal with these legal principles?

What additional research can you do to find other cases/journal articles etc

about these legal principles?

Weigh up the evidence and come to a conclusion:

Apply the evidence (that is, the case law, including any additional research

you have found) to the relevant facts of the assignment problem

Remember to reference appropriately: do not plagiarise

Provide a tentative conclusion based on your evidence/research

Provide a bibliography (list of all research materials you have used) at the

end of your assignment

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How to answer a legal problem

1. Identify relevant facts

What are the key facts that are relevant to the problem?

2. Identify key, relevant statutory provisions and case lawprinciples

Ask:

(a) does a statutory provision apply to this situation and does itprovide a specific answer to the problem?

(b) are there any cases which have dealt with a similar factsituation to the one you are considering and/or which haveinterpreted any relevant statutory provisions?

NOTE: you should provide the name/section of any relevantlegislation and the names of any relevant cases in your

answer

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3. Note similarities to (follow) or differences from (distinguish)prior cases

Jot down the names of cases that you have studied, where thefacts were similar, if not identical to the ones in the problem youare considering

Note any factual differences from previous cases and statewhether or not you consider that the differences matter to yourproblem

Often the facts of a problem may be similar to but a littledifferent to those in a decided case: think about whether anyfactual differences matter

Whether or not any differences matter will depend on the scopeof the legal principle that the relevant case stands for

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4. Apply the relevant statutory provisions and case lawprinciples to the facts

Key aspect of answering legal problem question

After identifying the relevant facts, and referring to the relevantstatutory provisions and case law, you then have to apply therelevant statutory and/or case law principles to the factsof your problem

This step involves saying what the legal principles you haveidentified mean to the facts of your problem and what theeffect of these legal principles will be on the rights andobligations of the parties in your problem

Key part of the process of reasoning that leads to a conclusionboth in a legal problem question and in an actual court case

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5. Reach a conclusion based on the application of the

statutory provisions and case law principles to the facts

You need to reach a conclusion

The fact that a subsequent court can overrule the decision of a

previous court demonstrates that there is no absolutely correct

answer to legal problem questions

More important than the conclusion you reach is the process of

reasoning that led you to that conclusion

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Remember:

In your discussion/answer, you must include

references to relevant case names and in time,

also to statutory provisions (legislation name and,

where possible, section numbers)

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Sample Answer

On Blackboard

THIS IS A GUIDE for FORMAT AND STYLE OF

WRITING ONLY

DO NOT COPY the content of the sample answer

the facts are completely different from your

assignment problem!

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Legal Research

1. Primary resources - cases and legislation

2. Secondary sources (journals, textbooks,commentaries, annotators) Legal encyclopedias

- eg: Halsbury's Laws of Australia (Butterworths); the Lawsof

Australia (LBC)

Textbooks

Journals

Commentaries/loose-leaf services

Statute annotators

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Legal Research

Always rely on primary resources, and use secondaryresources to support your argument.

Refer to UNSW library electronic database

Hard copies of legal resources are also available in

the UNSW Law School Library

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Legal Research

For the Assignment, also refer to:

RESEARCH GUIDANCE NOTES ONBLACKBOARD, UNDER ASSESSMENTS

APPENDIX A - Style Guide and Written

Submission Guidelines in Part B of the CourseOutline

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Useful Legal Websites

The Library Website and the Law subject guide has links to:

Legal encyclopedias;

Law Reports;

Legal Journals;

Commentaries & loose-leaf services

Other useful websites:

www.austlii.edu.au

www.comlaw.gov.au

www.lawlink.nsw.gov.au

www.fedcourt.gov.au/legalinks/links.html

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Statutory research

Locate the relevant Acts and the relevant sections

within those Acts

Law libraries

Online

Check whether the Act has been amended

Make sure you are using current legislation

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Case law research

Case law is published in authorised reports

Each court has its own report series

High Court: Commonwealth Law Report

Various legal publishers also publish their own law report

series dedicated to particular areas of law

CCH AustraliaAustralian Torts Reporter; Australian

Trade Practices Reporteretc

Consult textbooks, legal encyclopaedias, current law

publications, case digests

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The case report

Mabo v Queensland(1992) 175 CLR 1

The v is read as and

Date is usually the year of the trial or appeal

Letters are abbreviation for the law report series

Number after the round brackets is the volume

number of the law report series

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Implied Terms

Case:

The Moorcock

See Latimer at 6-110

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Implied Terms

For terms to be implied into a contract, they must:

be reasonable and equitable

be necessary to give business efficacy

be so obvious it goes without saying

be capable of clear expression

not contradict an express term of the contract

See Latimer at 6-110 at footnote 16: BP Refinery Case

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Statutory Implied Terms

Some statutes imply (add) terms to contracts where consumers

are involved

For example, concerning fitness for purpose, merchantable

(acceptable) quality, compliance with description/sample etc

See:

Australian Consumer Law, which is Schedule 2 of the Competition

and Consumer Act, 2010 (Cth)

Sale of Goods Acts (different States)


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Types of terms

1. Condition

an essential term going to the root of the contract

allows injured party option of rescinding (ie ending) thecontract and/or suing for damage

2. Warranty

a non-essential term of lesser importance

allows the injured party only to recover damages (andrequires continued performance of the contract)

See Latimer at 6-050 to 6-090

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Condition or Warranty

Cases:

Bettini v Gye

Poussard v Spiers

(Compare these two decisions)

Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market


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Uncertain terms

If there have been prior dealings, courts may imply

appropriate terms

Where there are no past dealings, courts may be

forced to find contract void for uncertainty


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Meaningless terms

If the term has no meaning, the courts will sever it if

possible and leave the rest of the contract valid

If this is not possible, the contract will be void for

uncertainty


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Ambiguous terms

If a term has more than one meaning, the contract

will not necessarily be void for uncertainty, so long as

the term can be given a meaning


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Terms and collateral contracts

Collateral contract: a promise in the main

contract that gives rise to a separate contract

This promise is NOT a term of the main

contract; it has an independent existence to

the main contract

It co-exists side by side with the main contract

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Collateral contracts

Example:

In consideration of the manufacturers

promise that his product will do X

You (the customer) will contract with the

retailer to buy it

Main contract: between you and the retailer

Collateral contract: manufacturerscontractual promise to retailer

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Changing the terms of a contract

Terms of an existing contract may be changed by:

Completely discharging existing contract and substituting

with new contract.

Leaving existing contract in place but adding new terms or

changing some of the terms: BUT this can only happen with

the full agreement of all the parties.


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Todays lecture

Exclusion clauses

Requirements for a valid contract (contd)

Capacity

Consent

Proper form

Privity of contract

Agency: the exception to Privity

Vitiating elements

Mistake

Misrepresentation

Illegality

Inequality between the parties

Unconscionable conduct (Commercial Bank v Amadio)

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Overview - Lecture 5Capacity/Privity/Vitiating Elements

On completion of this lecture you should be

able to:

9 Identify and explain what exclusion clauses are

9 Explain what it means to have capacity (or toconsent) to enter into contractual relations

9Explain the doctrine of privity of contract

9 Explain the concept of agency

9 Identify different vitiating elements and their effect ona contract (eg mistake, misrepresentation,unconscionable conduct etc)

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Exclusion clauses

Also known as exception or exemption clauses or no

liability clauses

Their purpose is exclude or limit the liability of the

person inserting them

Their effectiveness will depend on the construction

of the contract as a whole, taking into account thebargaining position of the parties


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Exclusion clauses

Notice of exclusion clause must be given BEFORE

contract is made (not afterward)

Cases:

Thompson v London, Midland & Scottish Railway Co

eBay International AG v Creative Festival Entertainment Pty Ltd


Olley v Marlborough Court Ltd

Balmain New Ferry Co Ltd v Robertson


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Exclusion clauses

BE CAREFULyou are bound by what you sign,

even if you do not know what you have signed

READ what you sign BEFORE you sign it

Signing = evidence you intend to be bound!

Case: LEstrange v Graucob Ltd


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Exclusion clauses

Terms, including exclusion clauses, may not be

binding unless properly incorporated into a contract

Cases:

Parker v South Eastern Railway Co

Curtis v Chemical Cleaning and Dyeing Co

Causer v Browne


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Exclusion clauses

How to interpret exclusion clauses:

The ambiguity rule (or the contra proferentem rule):

The negligence rule

The four corners rule

Look at what the main contract says

Cases:

White v John Warwick & Co Ltd

Bright v Sampson and Duncan Enterprises Pty Ltd

Sydney County Council v West

Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty Ltd

Darlington Futures Ltd v Delco Australia Pty Ltd

See Latimer6-240

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Exclusion clauses

Statutory modifications

Some statutory provisions may render an

exclusion/exemption clause ineffective, particularly

legislation dealing with:

Consumer Protection

Sale of Goods

Insurance


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Capacity

Presumption that everyone has full legal

capacity

Lack of capacity will invalidate the contract

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Capacity

Classes of persons subject to incapacity:

Minors

Mentally ill

Intoxicated

Corporations


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Consent

Is there genuine consent?

Ask what have the parties agreed to?

There must be genuine agreement between

the parties to a contract as to its nature and

scope

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Proper Form

Consider - are there any statutory procedural

requirements that need to be satisfied?

A lack of compliance with the required formalities

may make the contract void or unenforceable

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Privity of contract

Means part of

Only a party to the contract has any rights under the

contract

Similarly, the contract only imposes obligations on

the parties to the contract

Case: Beswick v Beswick


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Agency

Exception to doctrine of privity

An agent: person who is authorised to enter intocontracts on behalf of another person, called theprincipal

The contract is between the principal and the thirdparty, and is generally not enforceable against theagent

Doctrine of privity not relevant in agency situation

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Agency: definition

The legal relationship between one person, the AGENT

(A) having authority to act, and having consented to

act on behalf of another person, the Principal (P),

places the Principal in a contractual relationship with a

Third Party (TP)

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Principal P grant of

authority

Agent A

Third Party TP

negotiates

contract on

behalf of P

The contractual

relationship

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Agency: how it is created

By agreement (express or implied)

By operation of law under the doctrine

of agency of necessity

Retrospectively by ratification of the agents acts

done on behalf of the principal but without prior grant

of authority

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Agency: some examples

Real estate agent

Travel agent

Insurance broker

Share broker

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Vitiating elements

Vitiate means:

to corrupt

to damage

to reduce value

Vitiating elements include:

Mistake

Misrepresentation

Illegality


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Vitiating elements

A vitiating factor operates to render a contract

voidable or void retrospectively (ie void ab

initio)

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Voidable vs void

If a contract is bad because of a vitiating

element, it can be:

VOIDABLE: the contract will continue on foot unless

the injured party elects to rescind (ie cancel) or avoid

the contract

or VOID: void back to the moment of formation, as if it

never existed (void ab initio)

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Mistake

If a mistake operates, it often renders a contract void

ab initio (from the very beginning)

Places the parties in the same position as if no

contract had ever been made

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Types of mistake

Common mistake: both parties make the samemistake as to the existence or identity of the subjectmatter

Mutual mistake: parties are at cross-purposes both parties have made a mistake but each partyhas made a different mistake

Unilateral mistake: only one of the parties ismistaken, and the other is, or should be, aware of

this and does nothing to correct the mistake


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Representation

A representation is a statement of fact made

by one party to another, either before or at the

time of contracting, relating to an existing fact

or a past event, which induces the contract

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Misrepresentation

In contract

In tort

Misrepresentation legislation

Australian Consumer Law


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Misrepresentation

Statement of fact

Communicated to another

An inducement

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Misrepresentation

Minor misrepresentation: non-contractual or mere misrepresentation

no remedy for breach of contract but may be remedies under

other heads of law (such as tort/Australian Consumer Law)

Major misrepresentation: Actionable misrepresentation

Voidable: allows innocent party to cancel/rescind the contract


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Misrepresentation Fraudulent Misrepresentation:

intention to induce a person to enter into a contract

voidable: rescission (and/or damages)

Innocent Misrepresentation:

misstatement of a material fact

lack of intentional deceit

not known to be false

rescission

Negligent Misrepresentation:

statement made innocently but carelessly

right to damages


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Misrepresentation and legislation

Australian Consumer Law, see Schedule 2 to

the Competition and Consumer Act, 2010

(Cth)

s 18: misleading or deceptive conduct

s 29: false representations

See Latimer at 5-705 at section (3)

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Illegal contracts

Contracts will be illegal if they involve illegal

conduct

Contracts can be illegal or void:

- by statute

or

- at common law

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Examples of Illegal Contracts

Contracts to commit a crime, a tort or a fraud on a third party

Contracts that are immoral

Contracts to the prejudice of public safety, or of good relations withother countries

Contracts prejudicial to the administration of justice

Contracts which tend to promote corruption in public life: Contracts to defraud the revenue

Contracts that involve a breach of duty

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Duress

Undue influence

Unconscionable conduct

Statute law dealing with unfairness or

unconscionability:Australian Consumer Law, see Sch 2 to Competition and

Consumer Act 2010 (Cth)

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Duress

Duress involves use of violence or illegal threats

against a person, their goods or economic interest to

force them to enter into a contract against their will

Lack of voluntary agreement

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Duress

To the person

Actual or threatened violence to one contracting party, or

their immediate family or near relatives

To goods

Wrongful threats to seize, damage or destroy the goods

of one contracting party

Economic duressEconomic pressure beyond normal acceptable

commercial practice

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Undue influence

Involves the improper use of a position of influence or

power possessed by one person over another in

order to induce that other person to act for their

benefit

Lack of genuine consent to the agreement

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Unconscionable or Unfair Contracts

Contract will be set aside as unconscionable (unfair)

where the defendant has abused their superior

bargaining position in their dealings with the plaintiff

Case: Commercial Bank of Australia v Amadio


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Unconscionable contracts

The plaintiff has to establish:

They were in a position ofspecial disability orspecial disadvantage

That substantially affected their ability to protectthemselves

The defendant knew, or ought to have known, ofthe plaintiffs disability/disadvantage and should nothave taken advantage of it

AND

The actions of defendant were unconscionable

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Unconscionable contracts

Examples ofspecial disability/specialdisadvantage include:

age

financial needs

illness

ignorance

inexperience

inability to understand the language

inability to read


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Restraint of trade clauses

Clauses in restraint of trade are found in:

Contracts for employment

Contracts for sale of business

Contracts between manufacturers and traders

Clauses in contracts in restraint of trade will generally

be void as being contrary to public policy unless therestraint is reasonable

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Restraint of trade clauses

What is reasonable is determined by:

The geographic extent

The time period involved

The nature of the business and the activity being

restrained

Whether the restraint is reasonable, both in the

interests of the parties and the public

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Next lecture

Breach of contract

Termination for breach

Remedies for breach of contract

Read: Latimer Ch 6 6-280- 6-510

REMEMBER: DOWNLOAD ASSIGNMENT 2,

READINGS AND RESEARCH GUIDANCE

NOTES FROM BLACKBOARD

legt 1710_wk_5_semester 2_2013

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