lOMoARcPSD|4318184

Contract Law cheat sheet 2018

Law of Contract (Auckland University of Technology)

StuDocu is not sponsored or endorsed by any college or university

Downloaded by Lilith Eurydice (minhbbm@yahoo.com)

Formation of Contract/OFFER
Under English law, contracts can be made by word of mouth,
although in absence of written record may be hard to prove or
make terms and conditions. Basic requirement of Contract law
is
1) Parties have reached an agreement which
2) INTENDED to be legally binding
3) Supported by consideration and
4) Sufficiently certain and complete to be enforceable. –
Blue v Ashley [2017] per Leggatt J
OFFER + ACCEPTANCE = Contract
Consideration + intention + certainty = LEGALLY ENFORCEABLE
Important that there is a meeting of the minds where “if two
persons enter into an apparent contract concerning a particular
person or ship, and it turns out that each of them, misled by a
similarity of name, had a different person or ship in his mind,
no contract would exist between them” – Smith v Hughes – per
Hannen J.
Contracts may come into existence, not as a result of offer and
acceptance but during and as a result of performance.
OFFER
Offer is expression of willingness by one person (offeror) to
contract with another (offeree) on the terms stated in the
offer. An offer must have clear terms which show intention to
be legally bound if accepted – Carlil v Carbolic Smoke ball.
A mere response to a query is insufficient to count as an offer.
– Harvey v Facey.
Invitation to treat
There is no rule that communications of a particular kind such
as newspaper ads are or are not offers, can be difficult to
distinguish between an offer and invitation to treat.
How would a reasonable person in the position of the person
to whom it was made would interpret the communication.
Pharmaceutical society of Great Britain v Boots cash chemists
advertisements are merely invitations to treat. Acceptance is
the goods being brought to the counter and charged.
Termination of OFFER
Rejection – outright refusal = offer extinguished Hyde v
Wrench
Revocation – offer may be revoked any time before it is
accepted and may be communicated through third party –
Dickenson v Dodds.
Lapse of Time – If no time is prescribed, offer will lapse after
reasonable amount of time nature of the commodity is
lOMoARcPSD|4318184
relevant to determine what is a reasonable time. Objectively
assessed. Barrick v Clarke.
Failure of a condition – Offer terminates if a particular
requirement is not satisfied e.g. if offer is subject to finance,
builders report.
Death- general rule is offer will terminate on the death of
either offeror or offeree.
Counter offer – A counter offer amounts to rejection of the
original offer therefore original offer may not be revived Hyde v
Wrench.
A mere inquiry will not extinguish a counter offer, the test
whether something is a counter offer or inquiry is the effect of
a reasonable person in the shoes of the offeror – Powierza A
counter offer is one which adds or changes the terms of the
offer – Repora stores v Treloar.
Acceptance
Acceptance brings the contract into existence, all terms in the
contract are agreed at that point and both parties are legally
bound. The failure to perform an obligation flowing from a
legally binding promise gives the innocent party a right to
damages.
Acceptance by conduct
If conduct indicates acceptance, binding. Offeror may stipulate
the manner of acceptance by advising the offeree that if he/she
wishes to accept the offer, the offeree should perform
stipulated acts waiving the need to communicate acceptance
Brogden v Metropolitan RLY CO
EXCEPTION – If the other party knows of intention to NOT
accept canr apply to conduct argument. Contract is meeting of
the mind. (didn’t agree to air fees by continuing normal
practice (necessity) – if one shows protest. A object to a term in
a proposed agreement & B is aware of this, B cannot claim A
accepted through conduct as they knew A objected the offer.
Acceptance ONLY by referee
Offeree is capable of accepting the offer, offer can be made to
persons, class of persons or to the world. As held in Lee v
Sayers doffer can only be accepted by the Person who the offer
is made to.
Unqualified assent
Agreement to all terms of the offer and parties intention to be
bound immediately  considered unqualified acceptance.
Cross offers
Cross offers are not an offer and acceptance. Both are offers.
Acceptance must take place in reliance upon a offer. If the
offeree performs a particular act that corresponds to the terms
of the offer without knowledge of the offeror, there is no
agreement.
Downloaded by Lilith Eurydice (minhbbm@yahoo.com)
Communication of acceptance
Acceptance must be communicated to the offeror for contract
to be performed. Kennedy v Thomassen. Exception – offer can
waive requirement that acceptance be communicated
expressly or impliedly.
Prescribed Mode of Communication Allbrite Industries v P & C
Gill Contractors 2002: Offeror can stipulate that acceptance
must be signified only in a specified manner. BUT a mere
indication does not preclude acceptance by other modes of
communication as long as they are not less advantageous to
the offeror.
Postal Rule Adams v Lindsell The rule operates only where the
post is an acceptable method of communication (eg. the offer
was made by post or it is stipulated in the offer that the post is
acceptable).
Exception: Holwell Securities v Hughes If offer precludes
acceptance by post, then this is the exception to the postal
rule. Instantaneous communication does not apply to postal
rule – generally contract will be formed when acceptance of
the offer is communicated. Estoppel: IF offeror’s fault he didn’t
receive the acceptance, he may be estopped in denying he
received it. Face to face communication, telephone
conversations and telex messages = Instantaneous
communication. Brinkibon v Stahag Stahl variations in how
instant com is sent. Postal rule does not apply to instantaneous
communication. Electronic Transactions Act 2002, s2, ss9-13
s11 main point – email, text messages: As soon as they enter
the system.
Unilateral Contracts
Acceptance by doing something. Acceptance by completion
(which is different than acceptance by conduct).
Carlill v Carbolic Smoke Ball Co: Requirement for acceptance to
be communicated often impliedly waived. Acceptance is
affected by the offeree by performing the requirements that
are specified by the offeror. Revocation of a Unilateral Offer
Mobil Oil Australia v Lyndel Nominees Part performance. No
universal rule that an offeror is not @ liberty to revoke once
the offeree commences performance of the sought act of
acceptance
Reliance on a Unilateral Offer R v Clarke: One has to act on
faith and reliance on offer | Merely knowing it is not enough |
one has to truly rely on the advert | Action must not be
accidental to the offer/award.
Beyond Offer and Acceptance
NZ Shipping Co v AM Sattherthwaite & Co Judiciary suggest to
look at the interactions between the parties as a whole.
Boulder Consolidated v Tangaere When it gets difficult we can

look at what is passed between the parties and decide if there
was a contract. View of the Reas man.
Intention and certainty
Certainty and Completeness
For there to be a binding agreement must be certain in parties,
principle undertaking, subject matter and price.
If a contract is uncertain it is void, uncertainty can be unclear,
vague or incomplete then there is no agreement.
Domestic and social agreements (family, friend)
Assuming that agreements not intended to have legal force in
social/domestic relationships  rely on the reasonable
bystander test (RB) to ascertain whether it Is binding.
Presumption against intention to create legal relations. Unless
words used in the contract indicate a legal intention – Jones v
Padavatton. Starting point – no presumption in NZ that social
agreements are legally binding. Must find legal intention. In
Fleming v Beevers court held there was a legal agreement –
each case turns on its FACTSCouch v Branch Investments
confirmed this in the NZ context.
Parker v Clark – More likely to find intention of creating legal
relationship if 1 party detrimentally affected by
cancellation/repudiation. Held: Proposal to leave party in a will
can be the subject of a binding contract.
Commercial Agreements
Honour Clauses
Rose and Frank v Crompton Intention not to create legal
relations may be evident: May contain express clause that no
legal consequences flow from the document, or the context of
the particular document may indicate that the parties had no
intention of legal relations.
Transactions of Negligible Value Esso Petroleum v Customs and
Excise Comrs Presume in business context intention (legal
relations) – Can be rebutted by evidence. Onus is on party
claiming there was no intention. Coins gifted with purchasing
petrol held commercial advantage NOT mere gift. Intention was
there.
Mere Puff Carlill v Carbolic Smoke Ball Co May think that a
person who acts in response to the advertisement may not
intend legal consequences to follow. To determine requisite
intention exists, look not only at the words used, but also at the
entire context in which the advertising takes place.
1. Not an offer to world, restricted to those who acted upon
terms of ad.
2. Using smoke ball const. as an offer.
3. Purch. or using ball = consideration found as more
ppl buying
product = benefit to Carbolic.
lOMoARcPSD|4318184
4. Deposit of 1000£ in bank NOT mere puff and shows intention
to be bound.
Intention to Be Bound on Certain Terms
Fletcher Challenge Energy v ECNZ
1) An intention to be immediately bound
2) An agreement, express or found by implication, or the
means of achieving an agreement on every term which: was
legally essential to the formation of such a bargain; or was
regarded by the parties themselves as essential to their
particular bargain.
Intention to Be Bound
Agreements Subject to (Written) Contract
Parties may decide to enter into agreements subject to the
happening of a particular event. Carruthers v Whitaker - No
intention to be bound until the formal agreement was signed.
Situation subject to contract. Contract was held to not be
binding as there was intention that contract was subj to the
execution of a formal agreement. i.e. pty reserves the right to
not sign. France v Hight: Held that agreement b/w 2 ptys
binding as it was understood that meeting was to not be subj
to contract. Contract was a mere formality of the agreement.
Agreements in Principle- Oracle NZ v Price Waterhouse
Administration No agreement of consent, all essential terms
must be agreed upon.
Certainty
Requires:
1. Intention to be immediately bound.
2. Must be agreement on all the essential terms.
CTs will try to make a contract work if intention exists.
Incompleteness
Fletcher Challenge Energy v ECNZ 2002: When parties
intend to be bound courts take a robust approach to
committed terms -willing to find a contract.
Vagueness
Scammell v Ousten 1941: Uncertainty may relate to one
of the pivotal terms of the agreement. Cl- was not
specific – so vague it wasn’t binding. Held: HoL held too
vague for C to be enforced, no obj standard. Nicolene v
Simmonds- When provision is vague or uncertain (not
usual conditions of acceptance) but clause not essential
to the contract the court can ignore it.
Fletcher Challenge v ECNZ Despite appearing vague, the
court could give meaning to it. The meaning of the clause
was sufficiently objective = was not completely vague.
Means of Reaching Agreement Attorney-General v
Downloaded by Lilith Eurydice (minhbbm@yahoo.com)
Barker Bros certainty can be fixed so long as there is
some means or standard which makes up for lack of
certainty in the terms – eg intention to be immediately
bound (courts gv effect).
Agreements to Agree R & D Construction Group Ltd v
Hallam Land Management Ltd “where terms which the
law treats as essential or which the parties have agreed
are essential for their bargain have not been agreed and
cannot be objectively ascertained, the contract is
unenforceable”
Consideration
Act or promise made by one party and accepted by the
other as the price for the others promise. (Moral
obligation or worthy motive does not constitute
consideration)
Eastwood v Kenyon Past consideration is not good
consideration = no contract.
Adequacy of Consideration
Thomas v Thomas Nominal consider is adequate – doesn’t need
to be the same or equal value as to what the other party gives.
Promise to do something is valid consideration.
Illusory Consideration
Clyne v Final Touch Consideration means something which is of
some value in the eye of the law. Where absolute discretion
exists / broad discretion – it is illusory, if illusory = no
consideration.
Valid and Invalid Forms of Considerations
Forbearance (refraining) to Sue Couch v Branch Investments
Giving up something as value – such as a right including a right
to sue or a claim to a right to sue, provided there is an honest
belief of a chance of success. Courts will not inquire into the
merits of the cause of action upon which the forbearance to
sue is based. It will be sufficient if the promise honestly
believes that he has a good cause of action.
Valid form: Executed (that is completed at the time the
contract is made) where the promise is an exchange for the
performance of an act (Hamer v Sidway). Executory (that is to
be completed in the future) where there is an exchange of
promises.
Past consideration Is not good consideration (service already
completed and in past)- Re McArdle. Will not be adequate
consideration for a new or later occurring promise -Roscorla V
Thomas These cases provide illustrations of the operation of
the rule against past consideration. Re Caseys- patents
demonstrate that the court will look at the time when a

promise was made to see whether that promise was “brought”
by good consideration at that time. Exception: The services
would only have been provided on the basis of payment or it
was the request of the other party Lampleigh v Braithwaite. In
some cases, it is possible to infer that a certain sum would be
paid and a subsequent promise merely fixes the amount.
A promise to perform an existing contractual duty owed to
another party can be good consideration for a promise – Pao
on v Lau Yiu Long
Stilk v Myrick – If someone promises to do no more than they
are already contracted to do under an existing contract, then
that promise cannot be good consideration for a new legal
obligation. Existing Public Duty Black White and Grey Cabs v
Reid If already under statutory/public duty = not valid
consideration. BUT from time to time, a meaning of their duty
is outside the reas public demand = valid consideration, which
is greater than the statutory requirement.
Existing Contractual Duty Owed to the Promisor
(TEST for if contract can legitimately be varied)
Williams v Roffey Bros & Nicholls (Contractors)
A promise to perform an existing contractual obligation will be
consideration if: (a) the promisor obtains some practical
benefit or avoids some detriment and; (b) the is no economic
duress or fraud.
“If the existing contract did not oblige X to carry out additional
work then by doing additional work he will have provided
something over and above his contractual obligations. X will
provide consideration for the extra $ Y promised to pay (eg:
avoiding financial penalties or having to get a new worker).”
Anton’s Trawling Co v Smith Where parties have acted upon an
agreement to a variation, in the absence of policy reasons to
the contrary they should be bound.
Existing Contractual Duty Owed to a 3rd Party
New Zealand Shipping Co v A M Sattherthwaite & Co promise
to perform an existing contractual duty owed to another party
can be good consideration for a promise. Part Payment of a
Debt Foakes v Beer Part-payment of a debt doesn’t discharge
the debtor’s liability to pay the full amount. Exceptions to this
in effect give some advantage to the creditor who agrees to
accept the exception. When accepting the smaller sum plus
one of the exceptions – cannot later turn around and say that
the balance of the debt is outstanding.
Homeguard Products v Kiwi Packaging where a creditor retains
and banks a cheque, then acceptance of the cheque is
conclusive of his assent to the conditions of A. So what really
matters is the conduct of the creditor.
lOMoARcPSD|4318184
Hirachand Punamchand v Temple A promise to accept a 1) 3rd party must have relied on the
smaller sum in full satisfaction will be binding on a creditor representation
where the part-payment is made by a third party on condition 2) 3rd party must have altered his position
that the debtor is released from the obligation to pay the full
although no necessarily to his detriment.
amount.
Judicature Act 1908 s 92
Contracting with Third Parties
Agency
Disclosed Principal Southwell v Bowditch Nothing in the
Person acting on behalf of another. i.e. Agent on behalf
contract to show that the agent intended to act
of principal.
otherwise than as broker.
Requires:
Undisclosed Principal Siu Yin Kwan v Eastern Insurance
1. Made professedly on behalf of principal.
Co (1) An undisclosed principal may sue and be sued on
2. Competent principal at time of formation.
a contract made by an agent on his behalf, acting within
3. Contract must not be void.
the scope of his actual authority. (2) In entering into the
Actual Authority - Hely-Hutchinson v Brayhead [1968] Ct
contract, the agent must intend to act on the principal's
looked at conduct and circumstances to establish
behalf. (3) The agent of an undisclosed principal may
whether or not there was authority. Held director of
also sue and be sued. (4) Any defense which the 3rd
Brayhead did have authority to make guarantee &
party may have against the agent is available against his
indemnity as the board allowed him to act. Actual
principal. (5) The terms of the contract may, expressly or
authority may be express (when stated in words, e.g. A
by implication, exclude the principal's right to sue, and
has authority to perform these acts) or implied (when
liability to be sued. The contract itself, or the
inferred through conduct/position, e.g. A is CEO,
circumstances surrounding the contract, may show that
therefore will have authority to perform these acts).
the agent is the true and only principal.
The Agency Relationship
Acting without Actual Authority
 Duties of Agent To carry out instructions // act
Apparent Authority Freeman v Buckhurst Park Properties
within the scope of authority // act with due care
Authority to enter on behalf of the principal within the
and skill // act in the principal’s interest // account
scope of the "apparent" authority, so as to render the
for any money received // Confidentiality // make
principal liable to perform any obligations imposed upon
no secret profit.
him.
 Rights of Agent receive a commission //
Savill v Chase Holdings it is the principal's representation
indemnified against liability Rama Corporation Ltd
that creates the auth; not the agent's assertion that he
v Proved Tin and General Investments Principal
has that authority.
must have represented to the 3rd party that the
Necessity China Pacific SA v Food Corporation of India
agent had auth to act on his behalf. This
Salvaged ship owners enter contract with salvor – ship
representation may be made by words/conduct
owners did not own the cargo. - In these circumstances
Person acting on behalf of another. i.e. Agent on
an agency arises by necessity, Cargo owner was bound
behalf of principal.
by salvage agreement.
Rama Corporation Ltd v Proved Tin and General
Ratification
Investments
Keighley, Maxsated & Co v Durant [1901]: contract
Principal must have represented to the 3rd party that
made by a person itending to contract on behalf of a
the agent had auth to act on his behalf. This
third party, but without his authority, cannot be ratified
representation may be made by words/conduct or may
by the third party so as to render him able to sue or
be implied by previous dealings between the parties or
liable to be sued on the contract, where the person who
from the principles conduct.
Downloaded by Lilith Eurydice (minhbbm@yahoo.com)

made the contract did. Must be intending to act as an
agent or else not able to ratify Boston Deep Sea Fishing v
Farnham - principal must have contractual capacity at
the date of the contract and at the time of the
ratification. The principal was an enemy alien, when the
contract was made by his agent. After the war the
principal sought to ratify the contract - Ratification
ineffective.
Warranty of Authority Collen v Wright a person, who
induces another to contract with him as the agent of a
3rd party is answerable to the person who so contracts -
where the agent had no authority to act, the agent can
be liable to damages caused to 3rd party. Companies Act
1993, ss 182 – 185
Termination of Agency
Termination by agreement// renunciation // operation of
law.
1. Vitiation – destroy or impair the legal validity.
1.1 Legality – illegal contracts – s3 ICA
Contracts rendered void, remain of no legal effect. Contracts
made illegal may fall under the court’s discretion to give them
effect under the Illegal Contracts Act 1970.
Contract made void: By public policy (CL): [1] Contracts that
oust the court’s jurisdiction – also protected in s11(1)(b) of the
ICA. [2] Unreasonable restraints of trade – reflected in 2 11(1)
(a)
Contract made illegal: By public policy: Criminal, tortious or
fraudulent behaviour; injury to good govt and public safety. By
statute: Direct power / Relief: s 7
Contracts contrary to statute s5 Fenton v Scotty’s Car Sales A
minor breach in contract does not make it illegal, however a
major breach that affects the whole contract will. (statute
prevails)
S5: illegal cos it has illegal provision whether or not that
provision is severable. (not every breach of the statute is illegal
and open to courts interpretation).Exercising the discretion
s7(3)
Contracts illegal at CL
Unlawful conduct or object Silver v Mitchell D sold overpriced
steel to P (trying to defraud), Held: Illegal contract. Beresford v
Royal Insurance Co Contract was legal in making, illegal in
performance. Interferes with the course of justice. Polymer
Developments Group v Tilialo Everybody has the right to
lOMoARcPSD|4318184
criminal proceedings and it was not right to be able to sign
(clause 14) them away.
Injurious to good government Parsons v Thompson right of
appointment belongs to the navy. Their agreement
undermined a GOVT process. Peters v Collinge You cannot limit
the right of a person to stand for an election. It interfered with
the democratic process. Held: Person cannot sign away his
rights (non-compete clause), hence contract not enforceable.
Prejudicial to the public interest Duncan v McDonald Illegal
contract called for illegal activity against foreigners.
Consequences of illegality ss6, 7
Tainting Hickman v Turner & Waverly Illegal contract can taint
another which will make that contract illegal as well → e.g. if
contract between A- -B illegal, it is possible to make B--C illegal
→ the two contracts must be involved and 3rd party (C) must
know of illegality involved.
Harding v Coburn The agreement omitted that it was subject to
the consent of the court.
Conduct of the parties National Westminster Finance NZ v
South Pacific Rent a Car Relief will be available where the other
party reas believed (mistaken) the contract was legal. Should
not profit from wrong doing.
Object of statute - s5&7 illegal contracts Act. Harding v Coburn
Requirement of the act had not been complied with. Contract
validated as it did not breach the purpose of the statute.
Lower Hutt City Council v Martin contract undermined the
balance of competing interests.
Re AIC Merchant Finance AIC financiers (took money from
subscribers & invested), one of those
subscriptions/investments undertaken without a prospectus
(contrary to Securities Act 1978 s37(4) “invalid & of no effect”),
went under, receivers concerned how to treat these given the
money was paid under an illegal C; court concluded could not
validate under s7 – statute subsequent to Illegal Contracts Act
1970, s4 Securities Act 1978 explicitly sets out it is to prevail
over other enactments – s 7 is subject to other enactments
1.1.2 Contracts void but not illegal s11
Bennett v Bennett Can make a provision invalid: -divorcing
couple
entered into A, one promised to transfer property & pay
maintenance, other agreed not to take the matter to court;
identified class of C that not illegal (not serious enough) but
offend public policy –consequence to call C/part/provision
void. invalid and unenforceable - law does not punish them -
just takes no notice.
Downloaded by Lilith Eurydice (minhbbm@yahoo.com)
Ouster of Jurisdiction - exclusion of judicial proceedings in
respect of any dispute (forbearance to sue practical &
legitimate, interfering with course of justice not)
Ouster of jurisdiction Scott v Avery had to go to committee and
go through arbitration process before ousting jurisdiction; held
to not oust jurisdiction as does not prevent going to court but
merely adds an extra step
Bennett v Bennett : held to oust jurisdiction of court (attempt
to prevent one gaining remedies from court they were legally
entitled)
Restraint of Trade s8 ICA (can’t contract away fundamental
right
to work, but reasonable to restrict competition for ex-
employees,
etc – reasonableness test)
1.2 Mistake – (can overlap with Misrep) – whatever is being
exchanged is not what the party/ies intend. – concerned with
matters of fact
Requirements:
(1) s2(3) contract except for mistake as described in s6(1)(a)
(2) There is a mistake s6(1)(a) 3 types
(3) Influences party
- Only applies to mistakes made before or at the point of the
parties entering into the contract
- A mistake of fact must be of a past or present fact
- An honest opinion which turns out to be wrong is not
covered by
the Act
In order for there to be a mistake the parties must have
turned
their minds to the matter in issue – ignorance of a matter
does
not constitute a mistake
- A mistake, in relation to that contract, does not include a
mistake
in the interpretation of the contract itself - s. 6(2)(a)
- Mistake need not be “fundamental”; it must “influence” the
decision to enter the contract but need not be the only, or
even
the main, reason
Answering a question:
- For each part identify the type of mistake made.
- Cite the relevant section that describes the type of
mistake.
- Identify if there has been an unequal exchange of
value.

- Has the party complaining of the mistake accepted the
risk of the
mistake?
When property has been transferred to a third party, apply s
8(1)(a). This states that when property is transferred by a
“rogue” to a third party, they will have good title as long as
the third party gives value and acts without notice of the
mistake.
Outline: Identify the mistake then the type of mistake, cite
relevant sec to that type, identify whether it was a particular
parties fault and which one. Has the complaining party
accepted the risk.
Definition “a mistake of fact or of law”-erroneous
beliefs/assumptions when entering into contracts. Section 5:
Act is a code; overrules CL and equity.
Qualifiers for Mistake
Re McSherry Export Kilns: To be given relief a person must
enter a contract.
Comcorp v Force Entertainment: Error was as to a future
expectation and that was not a qualifying mistake under the
act.
Ladstone Holdings v Leonara: A mistake has to be in regards to
a believed difference not an ignorance.
Shotter v Westpac Banking Corporation: Mistake will not be
based off the individuals understanding of the contract, but of
the proper meaning of the contract.
Mistake and Contractual Mistakes Act 1977: Section 6: three
requirements for relief: [1] 6(1)(a) 3 types of mistake (i)
unilateral mistake (ii) common mistake (iii) mutual mistake:
(a) Unilateral mistake: one party enters into contract
influenced by mistake and other party knows of the mistake.
Actual knowledge is required.
King v Wilkinson: Real Estate agent knew boundary fence was
not on boundary but did not inform purchaser, example of
Unilateral Mistake. Tri Star Customs: In pre-negotiations
specified rent + GST, but nothing next to purchase option price.
In final document added GST to it. Purchaser thought purchase
price did not included GST – no actual knowledge.
(b) Common mistake: both parties are influenced by the same
mistake. Ware v Johnson: Kiwi Fruit farm. Purchaser thought
crops would be healthy. Seller thought herbicide was safe to
use but it killed the crops. Mistake of both parties was the plant
survival. Mistake must materially affect consideration (money
purchaser would pay). As plants are not alive, value of the farm
is much less.
lOMoARcPSD|4318184
Phillips v Phillips: contract between separating partners worse
for wife than she could otherwise get, both thought she was
bound by it – the contract was set aside.
Dennis Friedman v Rodney District Council: Company
contracted for road works, water content much higher than
anticipated so harder to excavate, common mistake about the
nature of the material to be excavated.
(c) Mutual mistake: both parties make mistakes, but on
different matters.
Conlon v Ozlins: elderly woman selling land – held the different
mistake was her thinking selling 3 plots and buyer thinking
buying 4 plots.
[2]s6(1)(b): Consequence of either (i) substantially unequal
exchange of value; or (ii) disproportionate benefit/obligation
to the consideration.
Slater Wilmshurst v Crown Group: got $8m from deal, but lost
$1m – substantial.
[3] s6 (1)(c): Risk not allocated in contract - IF There WAS
assumption of Risk - no relief.
Dennis Friedman v Rodney CC: clause that builder to be
satisfied of conditions imposed risk on him if ground was bad.
Shotover Mining v Brownline: fraudulent party caused other
party to make mistake – can’t rely on allocation of risk in
contract. Tri-star Customs and Forwarding v Denning: you
cannot get relief if the contract assumes the RISK of a possible
mistake.
Relief: s 7(3): court has discretion; s 7(2): relief affected by
extent of party causation to relief.
Dundee Farms v Bambury Holdings: Rectification, Where what
is recorded in document was not what parties actually agreed
to, court changes contract
3rd Parties – s8(1)(a): relief cannot affect 3rd parties
1.3 Misrepresentation
Answering a question
· Has there been any false statements of fact?
· Statements of opinion?
· Statements of intention?
· What are the potential damages?
· Cancellation?
· CRA 1979
Outline: Are there any actionable misreps? Have the parties
done anything to affirm the contract? Are they entitled to
damages? Definition: Untrue statement of fact about an
existing or past matter – it is not about a future matter.
Downloaded by Lilith Eurydice (minhbbm@yahoo.com)
A statement of intention is a statement of fact and if untrue is a
misrep as to what that person’s intention was. (Edgington v
Fitzmaurice)
TEST #(1) Statement of past or present fact. OR Future*
Statements of opinion
Ware v Johnson A statement about the future that necessarily
implies a statement about a present fact may be a misrep. E.g.
kiwifruit will grow in 2 years (future fact) but they were
poisoned, hence misrep.
Bissett v Wilkinson – A statement of opinion is not a statement
of fact and if untrue is not misrep: “my idea was...” – not able
to do so; held it was opinion (based on fact property had never
been run as a sheep farm, known to purchaser). Said could run
2,000 sheeps, but it could not but this is opinion. Unless; The
speaker did not hold the opinion or a reas person in having that
person's knowledge could not have held that opinion. (Smith v
Land & House Property).
Statements of intention Edgington v Fitzmaurice Asking money
and telling ppl that it will be used for a particular purpose but
actually the intention is to do something else, if it can be
proved then it will be a statement of misrepresentation.
Statement of FALSE intention. ‘I’ll do this but really I intend
otherwise’.
Statements of law Solle v Butcher expression of an opinion
bona fide( without intention to mislead) held on a question of
law is not misrepresentation unless the maker of statement of
opinion of what the law is knows its wrong (Edgington v
Fitzmaurice)
Misrepresentation by conduct Spice Girls v Aprilia World
Service - going along with shoot amounted to a representation
that there was no reas ground to believe 1 member planned to
leave. (refer to CCC case below)
Misrepresentation by silence March Construction v
Christchurch City Council held: silence cannot lead to
misrepresentation unless there is a duty to disclose.
Dell v Beasley Silence can be seen to positively affirm a
misconception which the other has, that is, the failure to
remove a misconception amounts to the adoption of its truth.
Misrepresentation by Half-truths
Clarkson v Whangamata Metal Supplies - Positive statement
that is true, but misleading. Statement about quality was true
but location of assets was on another property.
Misrepresentation by Future fact
NZ Motor Bodies v Emslie - A acquired profit forecast for
company B. as in future can not claim in misrep in future, BUT
crt held: It was for future and present facts of company
because profit forecast is based off Previous/Present facts. If

representor is not an expert in that area then crt will most
likely take statement as an OPINION.
(2) Made on or behalf of another party
Mullens v Miller statement made within general kind of
statements that sort of agent could validly make, vendor held
responsible (if the agent would have authority to make the
statement had it been true – e.g. real estate agent, statement
about value of house: yes; but has no authority to explain
clauses of an agreement etc) s6 CRA
(3)Made to him
(4)Induced to enter into the contract
Savill v NZI Finance There is an inducement to enter into the
contract only where the person making the representation
intended it to induce, or where the language was used would
induce a normal person.
Smith v Chadwick The plaintiff did not rely on the misrep (no
inducement) - it failed under s6.
Buxton v The Birches Time Share Resort The plaintiff actually
knew or discovered the misrep was not true before the
contract was made → But wanted to get out of contract so told
it was mirep → As P was not induced into the facts, is not
misrep per s6 of CRA.
NZ Motor Bodies v Emslie - (1.) Must be a signifcant factor (2.)
Need not be the only factor (3.) No requirement to show it was
the only factor for entering into the contract.
Elements required to claim misrepresentation:
1) Must have a misrepresentation.
2) Made by/on behalf of the other party to the plaintiff.
3) Statement must have induced the other party to enter into
the contract.
Remedies: Damages: s6 CRA . Fair Trading Act 1986 s9 s2, s9 is
only
considered when both parties are doing a trade and one party
operates in a misleading way.
Misleading or deceptive or likely to mislead or deceive
Red Eagle Corporation v Ellis; no need to prove if actually
misled/deceived, if conduct objectively had the capacity to
mislead/deceive a reasonable person in the circumstances (if
actually misled/deceived that can show the requisite capacity
existed); held conduct here misleading, comment about
property wrong, representee relied on integrity of representor.
Relief s43
Red Eagle Corporation v Ellis claimant must actually have been
misled/deceived by the conduct breaching s9, that must have
been an operating cause of the claimant’s loss
CONTENT 2.0
lOMoARcPSD|4318184
2.1 Express terms
Case law on interpreting terms in NZ:
PAYNEW GOULD GUINESS LTF V MONTGOMERY WATSON:
1. Look at Ordinary/natural meaning – context of document
as whole.
2. Look at background ‘fact matrix’ then cross if any modified
meaning was intended.
Looking at signed documents, its likely that you will be bound
by all terms regardless of whether you have read them or not.
Oral contracts
Incorporation of written terms (signed documents)
L’Estrange v Graucob could not sue as had signed document
which excluded implied terms. Regardless whether read
contract.
Toll Pty Ltd v Alphapharm Pty Ltd signing a document ordinarily
conveys a representation to a reasonable reader; no suggested
vitiating factors or claim for equitable or statutory relief
- Incorporation by Notice (parties having notice to contained
terms,
unsigned documents; must be timely & reasonably sufficient)
- Time (must be before point of formation)
Incorporation by notice (term).
1) Notice of the term must be timely, prior to the point on
signing/entering into contract.
2) Notice must be reasonably sufficient. Here we are singling
out unreasonable terms, they may need special notice, has to
pointed out clearly. (Olley case)
Time
Olley v Marlborough Court At point of contractual formation
had not known of particular terms, not incorporated; *Notices
on receipts do not make Contract, too late to have notice after
formation.
Thornton v Shoe Lane Parking had to pay before receiving
ticket; sign outside building held to be incorporated. half his
fault and half building owner’s fault
Reasonably sufficient TEST O’Brien v MGN Ltd notice timely as
notified upon getting ticket; to be unreas had to be onerous or
unusual – underlying element of policy likely; held to be
incorporated - the more unreasonable a clause the greater
notice required. (J Spurling Ltd v Bradshaw)
Incorporation by prior dealing
J Spurling Ltd v Bradshaw The first time or first few times the
notice would not have been valid but because of the
continuous use and same terms they had prior notice of terms.
-McCutcheon v David MacBrayne Ltd Does not work when the
defendant departs from the same pattern as the prior dealings.
Conduct must remain consistent.
Downloaded by Lilith Eurydice (minhbbm@yahoo.com)
Mixed contracts (Oral and written)
Newmans Tours v Ranier Investments OBJ TEST-the objectively
expressed intentions of the contracting parties. - The more that
the written contract differs from the oral contract, it is less
likely to be found a term. Look at the exchanges, Whether the
proposed additional term was contrary to the written
document. IF yes very difficult to argue.
Tak and Co Inc v AEL Corporation It is contrary to the written
agreement, very hard for the party to show that the obj was
different. Interpretation of terms
General approach Reardon Smith Line v Hansen-Tangen THE
IMPORTANCE OF TAKING INTO ACCOUNT THE BACKGROUND
CIRCUMSTANCES, THE FACTUAL MATRIX
Investors Compensation Scheme v West Bromwich Building
Society TEST (1) ascertainment of meaning that the document
would convey to a reas person aware of context (key principle),
(2) extends beyond matrix of fact, if reas available to parties
covers anything which could have affected the way the
language of the document was understood by a reas person,
(3) excludes previous negotiations of parties & declarations of
subjective intent (reasons of practical policy), (4) contextual
rather than plain meaning of words (court can decide wrong
word/syntax used), (5) court can decide from background that
parties were mistaken in writing it down, & interpret it with
intention they must have had
Vector Gas v Bay of Plenty Energy (Leading case in factual
interpretation in NZ) issues of interpretation arise in
mistake/ambiguity (multiple possible meanings)/special
meaning (evident from objective context, specialised or
generally unfamiliar or possibly linguistically impossible
meaning, special understanding between parties)
Pre-contractual negotiations Vector Gas v Bay of Plenty Energy
opportunity to remove rule; suggestion that exclusion of
evidence of pre- contractual negotiations should be removed,
can’t say have gotten rid of exclusion rule in NZ, but possibly
moving in that direction.
2.2 Implied terms
Terms implied from custom or usage
Woods v N J Ellingham & Co TEST
(1) the term must have notoriety on the
market/industry/business,
(2) must have certainty & uniformity (must all understand it as
the same term); here some evidence of such a term but not
consistent enough for courts to be willing to imply it here

Terms implied by statute – s16, Sale of Goods Act 1908
Terms implied by the courts
Classes of contracts
Liverpool City Council v Irwin test of necessity – term must be
necessary to the= (use of common areas necessary to lease, no
absolute term/tenants have some responsibilities/confined to
reasonable repair & usability); tenant failed to show landlord
had breached this standard - IMPLIED TERM WAS the
maintenance as argued - not necessity and was therefore
unreas to impose standard.
Lynch v Thorne express terms of C negated what would
otherwise have been an implied term (any deviation from
specifications would have been a breach); implied term could
be partially negated so residual part would still operate; if C
explicitly negates what may be implied, it cannot be implied.
Good faith: some suggestion of courts implying a term of good
faith; disapproved by later decisions; no general implied term
of good faith in NZ C law – can arise in specific circumstances
Particular contracts
Answering questions: start with Dovey requirements, BP
Refinery to fall back on, Inca as example of successful, bring in
Belize & Dysart at end (threshold may become lower)
Business efficacy
BP Refinery (Westernport) Pty v Shire of Hastings requirements
for implied term (1) reasonable & equitable, (2) necessary to
give business efficacy to C/not implied if C effective without, (3)
so obvious that goes without saying (official bystander test), (4)
capable of clear expression, (5) not contradict any express
terms of C; (2) & (3) set a high standard Inca v Autoscript
limitation period exception if duty for supplier to disclose that
retailer not getting discount they were entitled to, argued this
an implied term.4
Dovey v Bank of New Zealand instructed bank to transfer
$748,000 to own account in BCCI (bank in Luxembourg),
transfer carried out, did not have such an account & later that
day BCCI went in liquidation, recovered 50% from them & sued
own bank for remainder; one argument was that term should
be implied (the bank should have known about the situation &
should bring it to the attention of account holder the risk of
dealing with them); term itself couldn’t even be effectively
formulated (unclear threshold), proper role of bank to question
& delay instructions? – Not necessary (c can take effect
without it) or obvious ( so obvious goes without saying).
A-G of Belize v Belize Telecom ; “business” efficacy – to take
into account practical consequences; necessary – not just
reasonable to include, what belive actually means; how c as a
whole to be understood (LOWER TEST) implication of the term
lOMoARcPSD|4318184
must be necessary “to give effect to the reasonable
expectations of the parties.”
Hickman v Turn and Wave Ltd [2011] What a reasonable
person would have understood the contract to mean, OBJTY
Construed by: “a notional reasonable person with knowledge
of the relevant background.”
Dysart Timbers v Nielson: mentions Belize;
2.3 Exclusion clauses
Exclusion/exemption/exception; exclude liability of a party or
particular aspect of potential liability - never exclude entire
liability– e.g. park at own risk, excluding liability for damage
but still must provide other obligations (parking space)
Interpretation
Courts must construe exclusion clauses strictly against person
trying to rely on it if ambiguous (tend not to give it that effect;
historically have been more hostile towards them; now strict
but sensible)
Strict construction
Dorchester Finance v Deloitte [2012] Must be clear and
unambiguous terms used to limit liability - If very clearly set
out, courts will take effect of the exclusion clause.
Boundaries of clause Milverton International Investment Ltd v
Watpat Nominees Ltd. Air conditioning problem tried to sue, Ct
found clause ineffective because it was written poorly.
Liability for negligence Kaniere Gold Dredging Ltd v The
Dunedin Engineering and Steel Co Ltd clause as a whole in its
context refers to no liability of any kind whatsoever, clearly
expressed even though no express relation to negligence;
softening of traditional approach; inequality of bargaining
power relevant but both commercial parties here. Up to them
to allocate risk, consumer transactions covered by statute.
Ineffective exemptions
Fraud Pearson & Son Ltd v Dublin Corporation exclusion clause
cannot operate in relation to a situation of fraud (one party
knowingly misleads another)
Non-performance and fundamental breach
Photo Production Ltd v Securicor Transport Ltd dismissed
concept of fundamental breach as too hard to distinguish from
other breaches; should allow parties to estimate their
respective claims according to provisions rather than this
uncertain doctrine; parties can exclude any liability as long as
not all (cannot exclude liability to something that is
fundamental to the contract)
DHL International (NZ) Ltd v Richmond Ltd limitation clause
held to be entirely valid & reasonable → entirely consistent
Downloaded by Lilith Eurydice (minhbbm@yahoo.com)
with the agreed allocation of risk, infer from this that clause
agreed to, by other parties as one term of overall A reflected in
other terms such as price; for commercial a risk often allocated
in a particular way to allow one party to insure, taken into
account. (limited exclusions clause to be construed lighter e.g.
liability limited to cost of material or liability to $1000).
Statutory intervention Consumer Guarantees Act 1990 s43 (No
contracting out except for business transactions)
Entire agreement and acknowledgement clauses
Incorporation, Vitiation s4, Contractual Remedies Act
1979//s5cd, ss9, 43, Fair Trading Act 1986.
Brownlie v Shotover Mining nothing inherently unfair in such a
clause as parties intended for it & it provides greater certainty
of obligations (latter considered favourable); looked into
circumstances for s4 Contractual Remedies Act 1979
Snodgrass v Hammington held not fair & reasonable for it to
have effect – Agreement on standard form and was negotiated
without legal advice and clause was in small print.
WaikatoLink v Comvita NZ liable under s43 FTA) – these clauses
will not prevent liability as cannot C out of FTA – may be
relevant if complainant’s behaviour an operative cause of loss,
damages apportioned
2.4 Discharge
2.4.1 Cancellation Failure by one party to perform his or her
contractual obligations will amount to a breach. A breach of
contract now contained in s 7 CRA: right of a party to cancel
the contract arises only in two types of case.
Circumstances giving rise to cancellation:
S 7(2): Repudiation: TEST: That the defaulting party has made
clear beyond reasonable doubt the intention no longer to
perform his or her side of the bargain:
May be express or implied: Cameron v Warboys: Two directors
selling shares. Warboys avoided obligations for two years -
Letter sent stating he would not admit the existence of the
agreement but if he was wrong then the valuation was bad
(and he would SEEK LEGAL ADVICE). NO REPUDIATION the Rep.
ended with the letter.
Oxborough v North Harbour Builders: builders doing a bad job
– cancel the contract on the basis the contractors refused to
remedy the problems. Held (1) no grounds for repudiation –
builders were not refusing outright, but by asking for
arbitration showed intention to fulfil obligations. (2) owners
cancellation = repudiation that builders can use to cancel and
get damages.

Not an honest but erroneous interpretation: Starlight
Enterprises v Lapco Enterprises Ltd: One could not draw the
inference from the letter (increase in price) that the
respondent was “unequivocally asserting its intention not to
perform the contract according to its true interpretation.”
Partial repudiation of a term with “serious” consequences:
Bentham v Margetts: statement of departure from literal
compliance = repudiation, unless it is of a term essential or of
serious consequences to the innocent party.
MacIndoe v Mainzeal Group: (1) Can use either s 7(4)(b): term
became important and failure to comply substantially
increased burden; or under s 7(2): failure to comply with a
term that is of essence = repudiation. (2) Not paying the
instalments on time fulfilled both these requirements because
the nature of the contract meant payment on time was of the
essence. And/or: s 7(3): Misrep, breach or anticipatory
repudiation/breach; s 7(4): essential to innocent party or
entails serious/substantial consequences. Anticipatory
repudiation/breach: Section 7(3)(c) goes beyond repudiation in
the normal sense where although one party professes to be
willing to perform the contract it is clear to any reasonable
onlooker that he or she is not going to be able to.
Jack v Guy TEST “whether a reasonable bystander, aware of all
relevant existing and future facts, would have believed that by
the time of the purported cancellation it was clear that there
would be a breach of the requisite essentiality or seriousness”
→ As there was no way he could meet the conditions required
(cut trees in time for consent). Reasonably clear there is going
to be a breach. Cancellation valid
Essentiality: s 7(4)(a): performance of term or misrep is
essential: judged at the time the contract is made, may be
express or implied.
Substantial breach: s 7(4)(b): Progeni Systems Ltd v Hampton
Studios effect of term or misrep is or will be to substantially
alter the nature of burden of the new contract, judged from
the innocent party’s pov.
Jolly v Palmer: (Wrong valuation) “it is enough to say that what
is required (substantiality) is something more than trivial or
minimal.” MacIndoe v Mainzeal Group Ltd: Substantiality in
that statutory context is a matter of fact, degree and
impression. It has the same flavour as “significantly” and
“considerably”.
Mana Property v James Developments [2010]: A term that is
not by itself essential but the breach might be so important to
the agreement it may entitle the innocent party to cancellation.
Time: time in mercantile contracts are normally to be regarded
as conditions. The Mihalis Angelos.
lOMoARcPSD|4318184
IN EXAM COVER THE AVENUES OF CANCELLATION THEN THAT
THEY COULD AFFIRM.
Election to cancel or affirm: s 7(5): not entitled to cancel if
reaffirmed with full knowledge of misrep or breach. Innocent
party has an absolute right to affirm, and if he chooses it the
contract is fully alive.
What amounts to affirmation:
Jolly v Palmer: Carried on trying to raise finance after
discovering the actual price = affirmation by behaviour.
Cancellation: s 8(1): Takes effect when other party knows; s
8(2): and can be made known by words or conduct –
ambiguous conduct does not amount to cancellation. Noble
Investments v Keenan
Contracting out: Section 5
MacIndoe v Mainzeal Group Ltd: For s 5 to apply, the contract
must make express provision for the remedy or other matter.
Ingham v Patcroft Properties [2011]: can end lease at this date
and enter premises, leasee defaults on payment and leasor
enters premise at day early. - leasee cancel lease? YES actions
of leasor amounts to substantial breach.
2.5 REMEDIES
2.5.1 Damages
Set out: Causation (Link between breach that occurred the
loss), remoteness (Hadley v Baxendale), measure of damages.
Usual remedy for breach is damages for loss suffered (Co-op
Insurance v Argill Stores)
Types of damages
Compensation for loss: Cost of cure / Loss of value: i-Health v
iSoft [2012]: Measurement of loss: Three ways: 1. Market value
2. Reinstatement 3. Cost of cure.
Nominal damages (when no $), Exemplary damages (intended
to reform or deter the def and others from engaging in conduct
similar to that which formed the basis of the lawsuit).
Paper Reclaim v Aotearoa International Put in the same
position had the contract been performed. Damages are for
breach not repudiation. Interest on damages s87, Judicature
Act 1908
Measurement of LOSS
Quantification Ruxley Electronics v Forsyth Plf may claim diff in
value between what was promised and what was supplied OR
cost of cure OR loss of Use/amenity. where no diff in value
under 1st two types and cost of cure excessive – award loss of
amenity.
Downloaded by Lilith Eurydice (minhbbm@yahoo.com)
Market value S51(3), s52(3), Sale of Goods Act 1908
Marlborough DC v Antimarloch JV [2012]: Lawyer told had
partial water rights → they didn't. Vines didn't have enough
water. Misrep s 6 CRA - normal measure of damages - claimed
1.06 million.
Williams v Kirk (Damages for Non-delivery):
WL Thompson v Robinson – Loss must result from the breach.
Loss resulting from breach Hamilton v Open Window Bakery
Damages relate only to what a party is bound to do not what
they could do – i.e being able to provide 3months to cancel
then if repudiated would only be liable for those 3months.
Date for measurement of damages Sterling v Poulgrain
Solicitor delay caused extra value in tax loss is calculated at
date of breach, unless justice requires otherwise - Damages
assessed from date of trial.
Loss of a chance Chaplin v Hicks The existence of a possible
future event (might not happen) which is dependent on the
volition of a 3rd person does not necessarily render the
damages for a breach of contract incapable of assessment. =
Plaintiff could recover on loss of chance Benton v Miller and
Poulgrain wouldn’t have signed doc without advice – on
balance of probabilities that the wife would have gone ahead
and signed transaction - dealt with on loss of chance
Remoteness
Foreseeability Hadley v Baxendale TEST 1) Damage is natural or
usual consequence of the breach. 2) what was in the
reasonable contemplation of the parties. = If damage is either
of the above. Should be recoverable. Koufos v C Czarnikow
Market prices fluctuate. Loss of value is foreseeable. Enough if
the loss is not unlikely.McElroy Milne v Commercial Electronics
reas foreseeability always in contemplation. Will always look at
knowledge. suggestion. A number of factors relevant to
remoteness. natural or likely the damage is relevant. No
approach just balance different factors.
Non-pecuniary loss Bloxham v Robinson Mental distress. Only
works where it is meant to provide relaxation, peace and stress
free. Purpose of contract must be for peace. Otherwise party
not responsible for mental distress.
Interest as damages Clarkson v Whangamata Metal Supplies
Interest as damages. deprivation for the use of money, ie
interest that could have been earned in bank. – Usual
remoteness.
 lOMoARcPSD|4318184

Specific Performance and injunction equitable remedy
secondary remedy forcing other party to carry out their
obligations under the contract. Prohibitive in injunction. Will
occur if there is an idea that the other party will breach the
contract.
Relevant Factors
General principles AG for England and Wales v R SP available
when damages and other financial relief are not available. SP
injunctions not available by right. HELD AGAINST- basis for
decision (freedom of speech). Conduct of the parties Clean
hands. fair and reasonable etc
Mutuality AG for England and Wales v R Only grant SP to one
party if it would have been available to the other party. May or
may not be a requirement.
Damages in lieu - s16A, Judicature Act 1908
(REPUDIATION) When talking about cancellation always start
with the Act. S7(2) of CRA, distinct and unqualified refusal to be
bound by terms of (X) int the future – Woodar v Starlight. If (X)
thinks he has a right to extend not a strong argument for
repudiation (needs to be unqualified refusal).
(ANTICIPATORY BREACH) s7(3)(c) then s(4)(a) essential term
and (b) substantial breach/consequences – Jack v Guy >> in this
case whether a reasonable bystander aware of all existing facts
about future events would have believed that by the time of
cancellation it was clear there would have been a breach of the
term.
Jolly v Palmer for substantial breach. Ware v Johnson for
influenced entry into contract. MISREP KEY TESTS: Incorrect
statement of past or resent fact – March Construction // Made
by the representor to the representee // induces entry into
contract – Savill. Even if misrep is satisfied s7(3)(a) still need to
establish it’s an essential term and substantial breach has
consequences. For misrep = damages, if you want to cancel
need to prove what’s above.
Outline: Policy that a wrong-doer is not responsible for all the
loss an injured party may result of a breach. If damage can be
brought under two limbs of Hadley v Baxendale it is not too
remote. Explain limbs. START: Causation, remoteness, loss of
chance or other measurements? then measure of damages (i.e
mitigation of loss – acted reas?). Application of causation and
remoteness to the loss. If loss cannot be proved – only get
nominal damages, if proved same position as b4 but show not
too remote.
Equitable remedies
Rescission happens when a previously existing contract was
retracted because it was breached. The contract can be re-
written in a different way so that both parties are satisfied with
the terms. An example will help make this concept clearer.
Marty and Sarah settled on a real estate contract for an
oceanfront condo. Marty drafts a contract that includes the
sale price, address and everything included in the price. After
thinking about it, Marty decided he wants to keep a few things
included in the price, like his favorite bird feeder, a shrub and
his mailbox.
When Sarah arrived at her new home, she noticed a few things
missing. Upset by this, she contacted Marty and demanded the
things be returned or a new contract be made excluding the
items from the price. What actually happened was the original
contract was rescinded because Marty breached it by taking
items that were included in the contract for the sale of the
condo. No harm was done. As long as both parties agree to the
rescission of the old contract, it's easy to make a new one.
Sometimes, the court will require specific performance from
the breaching party, making the party do everything promised
in the contract. In the condo sale between Marty and Sarah,
had Sarah really wanted those sentimental items Marty took,
the courts could require that Marty return them to the home
and place them in their original setting. In other words, Marty
would have to specifically perform what he promised to do in
the original contract.
Contract reformation is a bit more complicated. It requires that
there be an existing contract that needs to be re-written in a
more clear way. A few elements are necessary for a
reformation to occur:
 A valid contract exists.
 There are grounds for reformation, including a
mistake or misrepresentation.
 There is no other defense available to the parties.
This is worth further exploration. Contract reform simply
means re-doing the contract so that it is easier to understand.
This could happen for a couple of reasons. A mistake or an
error in the terms in the contract, like the wrong address in a
real estate contract, is definitely a reason for reformation. A
wrong address could create a world of other problems down
the road. Misrepresentation is a more important issue. This
includes deceitful or fraudulent distortion of terms in the
contract. It doesn't have to be intentional either.
When Marty created the contract for the condo sale, he never
mentioned that the condo taxes have not been paid in years.
After a title search came back showing $10,000 in taxes were
due, Sarah asked to reform the contract to exclude the taxes
from her balance due to Marty when they close on the house.
Don't be confused with a breach of contract. Marty did not
neglect to perform a promise. He neglected to include the back
taxes. He actually misrepresented the total cost of buying the
home by not including the past due taxes. A new contract will
be written to either include the back taxes or include a clause
stating that Marty must pay them from his profit.
There are a few other equitable remedies a court may use to
resolve a contract dispute.

Downloaded by Lilith Eurydice (minhbbm@yahoo.com)