2-2.20 Reading Part A 10 marks, 15 minutes (1 1/5 pages, words 345)

2.20-3.20 Part A Part B 30 marks, 36 minutes (3 1/2 pages, words 1035)

3.20-4.50 Part B

Contracts B – LWZ009

EXAM NOTES

1.Problem Solving

2.Assessment of damages summary

3.Negligence clauses analysis

4.Contracts issues special discharge situations flow chart

5.Standard Exam Answers

6.Privity of contract

AStatutory requirements

BLegal effect of contracts for the benefit of a third party

CPlurality of parties

7.Exception to privity of contract

DAgency

ETrust

FPrivity of estate

GStatutory exceptions

HCovenants

INovation

8.Assignment of contractual rights

JNemo dat rule

KRestrictions on assignment

9.Identifying the terms to the contract

10.Express Terms

LPre-contractual statements

MCollateral contracts

11.Incorporation of terms

NIncorporation by signature

OIncorporation by reasonable notice

PTicket cases

QIncorporation by course of dealing

RIncorporation by reference

12.Implied terms

STerms implied in fact

TTerms implied in law

UTerms implied by custom or usage

VTerms implied by statute

WSale of goods

XLegislation comparison

13.Construction principles

YMeaning of the words

ZThe parol evidence rule

(i)Application of the parol evidence rule

(ii)Exceptions to the parol evidence rule

AALegal Effect or significance of the words

14.Classification of terms

15.Exclusion clauses

BBNegligence

CCOPERATION UNDER STATUTE

16.Discharge of contract

17.Discharge By Performance

DDEntitlement to contract sum

18.Discharge By Agreement

19.Discharge By Frustration

20.Consequences of frustration

EECommon law principles

21.Discharge By Breach

FFStandards of contractual duty

GGRestriction on the right to terminate

HHRelief against forfeiture

IIOther restrictions

JJConsequences of termination

KKDischarge by operation of law

22.Remedies

LLDamages

MMIdentifying the loss

(iii)Expectation loss

(iv)Reliance loss

(v)Loss of chance

(vi)Loss of chance – s 82 TPA

(vii)Non pecuniary loss

(viii)Reinstatement costs

(ix)Loss of bargain

NNRestitution

(x)Elements for restitution

(xi)Quantum meruit

(xii)Interest

(xiii)Taxation

(xiv)Inflation

(xv)Liquidated damages clauses

OOParticular issues in contract damage

23.Enforcement of the contract

PPSpecific Performance

QQInjunction

RREquitable damages

SSStatutory remedies

24.Legislation

25.Cases

26.Latin terms

1.Problem Solving

1. Parties to the contract

Privity of contract

Exceptions(Joint promisee, Co-promisee, partnerships, Agency [undisclosed principal], Trust, Privity of estate, Statutory exceptions [LPA s56; insurance], covenants, novation, assignment)

Assignment of contractual rights

Law of Property Act(NT) s 182

nemo dat rule

Operation of law (death, bankruptcy, corporate liquidation, merger, unauthorised alteration of instrument)

2. Terms of the contract

Incorporation of terms (express and implied)

  • Puff, mere representation, contractual term
  • Collateral contract (JJ Savage & Sons Pty Ltd v Blakney; Hoyts Pty Ltd v Spencer)

Express terms

Signature; Reasonable notice (actual knowledge, constructive knowledge, reasonable notice); Acceptance of a ticket; Course of dealing; Reference

Implied terms

  • Implied by fact (Contract complete on its face - BP Refinery (Westernport) v HastingsorContract not complete on its face - Byrne v Australian Airlines Ltd; Hawkins v Clayton (informal contracts))
  • Implied by general law (professional services, supply of goods, supply of services, supply or work materials, tenancy agreements, bailment)
  • Implied by custom or usage (Con-Stan Industries of Aust v NorwichWinterhur Insurance (Australia) Ltd)
  • Implied by statute (Trade Practices Act, CAFTA, Sale of Goods Act)

3. What do the contractual terms mean?

Construction issues

  • Meaning of the words - (i)natural, common or ordinary meaning, (ii) intended meaning
  • Parol evidence rule (LG Thorne & co Pty Ltd v Thomas Borthwick & Sons; State Rail Authority of NSW v Heath Outdoor Pty Ltd; Gordon v Macgregor)

Exceptions: subject matter, resolving ambiguity, foreign or technical words, identify parties and their relationship, evidence of implied terms, consideration, rectification, collateral contract, context of non-contractual remedies.

  • Factual matrix (Codelfa Construction P/L v State Rail Authority of NSW; Pacific Carriers Ltd v BNP Paribas)
  • Exclusion clause– exclude, restrict or qualify rights (Darlington Futures v Delco)

Construe by rules of thumb: Contra proferentem rule, seriousness of the breach, Four corners rule, Main purpose of the contract, Deviation rule, Specific rules concerning exclusion of negligence clauses, Reasonableness, Pre-contractual statements

  • Trade Practices Act ss 68, 68A; CAFTA s 68
  • TPA ss 52, 53; CAFTA ss 42,43; Uniform credit code, unconscionable conduct
  • Legal effect or significance of the words (Life Assurance Co of Australia Ltd v Phillips)

Classification of terms (Hongkong Fir case)

Warranty (damages only), intermediate term (damages and/or termination), condition (termination)

4. Discharge of contract

  • Performance (Exceptions: de minimis rule, severable contracts, substantial performance, prevention of further performance, acceptance of defective performance)
  • Agreement (unilateral, bilateral); termination or variation
  • Frustration (Davis Contractors v Fareham Urban District Council; Codelfa case)
  • Operation of law (death, bankruptcy, corporate liquidation, merger, unauthorised alteration of instrument)
  • Breachof a condition or a serious breach of an intermediate term(failure to perform [non-performance; defective performance; late performance],anticipatory breach)
  • Is there an exclusion clause?
  • Does the P elect to terminate or affirm and/or wish to seek damages?

5. Rights & obligations

Rights generally

  • Assignment (LPA s 182)
  • Rescission of the contract at common law – P must make substantial restitution for benefits obtained (restitutio in integrum) [vitiating factors: misrepresentation, mistake, non est factum, duress, undue influence, unconscionable conduct]

Rights after a ‘breach’ or ‘repudiation of obligation’

  • Termination for breach or repudiation of obligation
  • Affirmation
  • Wait – but this may imply a waiver or affirmation

Obligations generally

  • Contractual term requirements (eg. rent, payment of money)

6. Remedies

  • Statute of limitations
  • Equitable estoppel - Walton Stores (Interstate) Ltd v Maher
  • Concurrent liability in tort and contract
  • Damages (May recover in damages and restitution, but not recover twice)

A. Elements:

(a) Loss, (b) CausationReg Glass Pty Ltd v Rivers Locking Systems Pty Ltd, (c) RemotenessHadley v Baxendale.

B. Defences:

  • Duty to mitigate lossesBurns v MAN Automotive (Aust) Pty Ltd
  • Contributory negligenceLaw Reform (Miscellaneous Provisions) Act 1956 (NT) s 16

C. Heads of damage (see assessment of damages)

  • Action for money due (recovery of debts)
  • Enforcement of the contract (SP, I, equitable damages for threatened breach or in lieu of I or SP)
  • Restitution (Pavey and Matthews Pty Ltd v Paul) – either party may claim, including after frustration
  • Restitutionary quantum meruit
  • Relief against forfeiture - Restitutionary relief may be barred by a forfeiture clause (was time of the essence?, was the clause a penalty?)
  • Statutory remedies
  • Trade Practices Act – MDC, no intention to supply
  • CAFTA - MDC
  • Statutory demand (Corps Act s 459E); Wind up application (Corps Act s 459Q)

7. Conclusion

Additional, alternate or practical solution (ie accord and satisfaction, new contract)

2.Assessment of damages summary

Type of damages / Assessment / Notes
Nominal / Breach has caused no identifiable loss / Luna Park (NSW) v Tramways Advertising P/L; Shevill v Builders Licensing Board
Substantial / Assessed per bases of assessment / See ‘Basis of assessment’ below
Exemplary or punitive / In Australia - not available. Compensatory principle applies (Robinson v Harman) / Addis v Gramophone Co Ltd [1909] 1 AC 488

Basis of assessment

Basis of assessment / Assessment/types / Notes
Expectation loss/loss of bargain / Compensates for the loss of the contract / Progressive Mailing House Pty Ltd v Tabali Pty Ltd; Shevill v Builders Licencing Board; Maredelanto Compania Naviera S.A. v. Bergbau-Handel G.M.B.H. (The Mihalis Angelos) [ 1971] 1 QB 164
Hoffman v Cali – wrongful anticipatory repudiation
Reliance loss / Wasted expenditure in reliance of the promise / Commonwealth v Amann Aviation; McRae v Commonwealth Disposals Commission
Loss of chance /
  1. the plaintiff entered into the contract believing that a chance of obtaining a benefit was probable
  2. it is express or implied in the contract that they would obtain the chance/benefit
  3. a business opportunity is lost as a consequence of the defendant’s breach
/ (1) Chaplin v Hicks; Sellers v Adelaide Petroleum NL
(2) Cth v Amann Aviation P/L
(3) Howe v Teefy
McRae v Commonwealth Disposals Commission – no loss of chance since tanker did not exist
Loss of chance – s82 TPA / Confined to actual loss / Sellars v Adelaide Petroleum NL (1994) 179 CLR 332
Non pecuniary loss / Disappointment, distress, physical inconvenience / Jarvis v Swan Tours; Baltic Shipping Co v Dillon; Hobbs v London and South Western Railway Co; Silberman v Silberman
Reinstatement costs / Breach of promise to build or do repair work / Bellgrove v Eldridge
Loss of profit / Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528
Restitution / Either party may claim to recover funds / Pavey & Matthews Pty Ltd v Paul
Quantum meruit / Claim for reasonable value of work done / Pavey & Matthews Pty Ltd v Paul
Interest / Discretionary by the court / Hungerfords v Walker
Taxation / Must be taken into account / Cullen v Trappell
Inflation / Taken into account with increased building/repair costs / Perry v Sidney Phillips & Son
Liquidated damages clauses / overcome the requirement of proof of loss in a claim for damages. Genuine pre-estimate of the expected loss (otherwise an unenforceable penalty clause) / Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd; AMEV-UDC Finance Ltd v Austin; Esanda Finance Corporation Ltd v Plessnig

Defences

Type / Assessment / Notes
Mitigation of loss / Plaintiff’s steps in minimising the loss or damage
Plaintiff must not act unreasonably / Onus of proof is upon defendant: Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653
See British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673
See Lucy v Cth
Contributory negligence / Own failure to take reasonable care / Law Reform (Miscellaneous Provisions) Act 1956 (NT) ss 15(1), 16; Astley v Austrust Ltd

Anticipatory (inevitable) breach issues

Issue / Outcome / Assessment
Date for assessment / Date fixed for performance / Market price when performance due: Millet v Van Heck & Co
No date fixed for performance / Market price based on last day for reasonable notice: Tai Hing Cotton Mill Ltd v Kamsing Knitting Factory
Mitigation / No question of mitigation arises until the repudiation has been accepted as an anticipatory breach

3.Negligence clauses analysis

Words or expression / Case and outcome
negligence / sufficient to exclude liability (J Spurling v Bradshaw)
synonym for negligence / sufficient to exclude liability (Smith v South Wales Switchgear Co Ltd)
negligence only basis of liability? / Alderslade v Hendon Laundry Ltd
‘at owner’s risk’ and ‘for loss or damage of any description’ / Liability excluded
‘all liability’ / generally treated as insufficient (Rutter v Palmer)
‘any loss’ / generally treated as insufficient (Rutter v Palmer)
addition of words ‘whatever its cause’ / sufficient but not conclusive to exclude liability (Rutter v Palmer)
addition of words ‘howsoever caused’ / sufficient but not conclusive to exclude liability (Rutter v Palmer)
"Customers' cars are driven by your staff at customers' sole risk." / held to exclude liability (Rutter v Palmer)
The maximum amount allowed for lost or damaged articles is 20 times the chargemade for laundering / held to exclude liability (Alderslade v Hendon Laundry Ltd)
"Proprietors will not hold themselvesresponsible for articles lost or stolen, unless handed to manageress for safe custody.” / considered sufficient in Olley v Marlborough Court Ltd and supported in Hollier v Rambler Motors
"The contractors are not responsible for loss or damage caused by fire, aircraft or bombardmentto property in transit, in storage, or in process of being packed." / held sufficient (Turner v Civil Service Supply
Association Ltd.) but doubted in Hollier v Rambler Motors
"The company will not be responsible for fire ...” / Was held sufficient in Fagan v Green and Edwards Ltd, but was doubted in Hollier v Rambker Motors
‘...not responsible for damage caused by fire to
customer's cars on the premises’ / Not effective (Hollier v Rambler Motors)

Page 1 of 160

2-2.20 Reading Part A 10 marks, 15 minutes (1 1/5 pages, words 345)

2.20-3.20 Part A Part B 30 marks, 36 minutes (3 1/2 pages, words 1035)

3.20-4.50 Part B

4.Contracts issues special discharge situations flow chart

1. PARTIES TO THE CONTRACT – Privity of contract (Coulls v Bagot’s Executor and Trustee Co Ltd) and its exceptions (Joint promisee, Co-promisee, partnerships, Agency [undisclosed principal], Trust, Privity of estate, Statutory exceptions [LPA s56; insurance], covenants, novation, assignment - Law of Property Act (NT) s 182; nemo dat rule)

2. TERMS OF THE CONTRACT (express and implied terms; classification (Hongkong Fir case))

3. WHAT DO THE CONTRACT TERMS MEAN? ((a) the meaning of the words and (b) the legal effect or significance of the words (Life Assurance Co of Australia Ltd v Phillips))

4. DISCHARGE OF CONTRACTS (special situations in discharge which may infer a different legal outcome)

PERFORMANCE

AGREEMENT

ANTICIPATORY BREACH

FRUSTRATION (Davis Contractors v FarehamUrban

District Council; Codelfa case)

Page 1 of 160

2-2.20 Reading Part A 10 marks, 15 minutes (1 1/5 pages, words 345)

2.20-3.20 Part A Part B 30 marks, 36 minutes (3 1/2 pages, words 1035)

3.20-4.50 Part B

5.Standard Exam Answers

1. PRIVITY OF CONTRACT

A person not a party to a contract may not sue on the contract to enforce its obligations (Coulls v Bagot’s Executor and Trustee Co Ltd), unless it is made allowable under an exception to the rule in the common law or a statute. Thus a non-party cannot enforce a benefit notwithstanding they may be benefited or burdened by performance of the contract. (Wilson v Darling Island Stevedoring & Lighterage Co Ltd) [72]

A non-party who may be sued would thus seek to invoke the doctrine by establishing third party status as merely a beneficiary.

Exceptions to doctrine of privity of contract

Joint promisee

There is a legal presumption that a promise by two or more is made jointly, however the question is one of intention of the parties.(Levy v Sale; White v Tyndall) [31]

Co-promisee

Where consideration is furnished by one joint promisee, the contract is enforceable by all joint promisees (Coulls v Bagot’s Executor and Trustee Co Ltd)[24]

Partnership

Pursuant to section 6 of the Partnership Act, the obligation of the members of a partnership for debts and obligations incurred are joint and several (see generally Woodgate v Davis) not several. [32]

Agency

If an agent enters into a contract for a principal, the principal will be benefited and burdened by the contract (Wilson v Darling Island Stevedoring and Lighterage Co Ltd) even in circumstances where the principal is undisclosed (Teheran-Europe Co Ltd v ST Belton (Tractors) Ltd) [45]

Trust

Where the three requisite certainties are present, a trust will operate for the benefit of the beneficiaries by the trustee.(see generallyKnight v Knight; Milroy v Lord; Walker v Corboy) [31]

Privity of estate

Property law allows for third parties to be benefited and burdened by contractually created obligations.

Statutory modification – LPA s 56

The doctrine of privity has been abrogated by s 56 of the Law of Property Act 2000 (NT). This section enables a third party identified and in existence at the time of a written contract to enforce a benefit. (see s 56(6) and Re Eagle Star Trustees Ltd), whereas an incidental beneficiary will be unable to rely upon the section. (see Re Burns Philp Trustees; Robt Jones (363 Adelaide Street) P/L v First Abbott Corporation P/L) [76]

Covenants

A formal agreement or promise in a deed or under seal: Russell v Watts

Novation

One party can transfer all its obligations and benefits arising under a contract to a third party provided the other contracting party is left in the same position as they were prior to the novation. Novation requires the agreement of all three parties involved.

Assignment of contractual rights

An assignment isan immediate transfer of an existing proprietary right, vested or contingent from the assignor to the assignee (Norman v FCT).

Assignment is subject to the nemo dat rule and section 182 of the Law of Property Act.

The assignee of a contractual right does not become a party to the contract and is therefore not generally bound to perform any obligations under the contract and enforcement of the rights relies on the principles of property law.

Personal rights are not assignable, however declaring a trust of the benefit may be permitted (see Don King Productions Inc v Warren) and the parties may agree that right are not assignable (Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd)

It may be consensual or by operation of law (eg. deceased person to the personal representative; insolvent person to a trustee in bankruptcy)

2. TERMS OF THE CONTRACT

The express and implied terms of a contract regulate the rights, duties and obligations of the parties.

Pre-contractual statements – was it an opinion?

A pre-contractual statementmay become a contractual term. A term may be distinguished from a mere representation or puff by considering the intention of the maker of the statement to guarantee its truth (Ellul & Ellul v Oakes). The intention of the parties (Hospital Products Ltd v United States Surgical Corp)can be assessed by considering the time (Harling v Eddy) and content (Couchman v Hill)of the statement, the existence of a written memorandum (Oscar Chess Ltd v Williams) and the knowledge and expertise of the parties.(Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd). [97]

It may be an opinion which will not operate as a misrepresentation unless the opinion was never held (Edington v Fitzmaurice).

Collateral contract – was it an opinion?

A statement may become a term if it becomes collateral to the main contract (Heilbut Symons & Co v Buckleton), A collateral contract requires the statement to be consistent with the main contract unless it involves a third party (Hoyts Pty Ltd v Spencer) and it must be shown that the statement was intended to be relied on and was relied upon and the maker of the statement intended to guarantee the truth of the statement. (JJ Savage & Sons Pty Ltd v Blakney) [84]

It may be an opinion which will not operate as a misrepresentation unless the opinion was never held (Edington v Fitzmaurice).

Incorporation of express terms

Signature

Express terms will be incorporated into a document which appears to be contractual (Curtis v Chemical Cleaning and Dyeing Co)upon executionunless an oral agreement was performed and a written agreement signed after performance of the contract (DJ Hill & Co Pty Ltd v Walter H Wright Pty Ltd). Very wide exclusion clauses carry with them a duty of disclosure (Le Mans Grand Prix CircuitsPty Ltd v Iliadis). Actual knowledge of the terms need not been established (L’Estrange v F Graucob Ltd). A radical misapprehension, non est factum or mental incapacity will also modify the rule. [98]

Reasonable notice - unsigned

Notice must be given prior to or contemporaneously with entry into the contract (Olley v Marlborough Court Ltd).

Reasonable may be established by actual notice (The Balmain New Ferry Co Ltd v Robertson).

Constructive notice will occur when (a) the document or sign is such that a reasonable person would presume it to be contractual (Chapelton v Barry Urban District Council), and (b) the party relying on the clause must take reasonable steps to notify those against whom it is to be used of its existence and contents (Oceanic Sun Line Shipping Co v Fay) [62]