2105AFE

INTRODUCTION TO BUSINESS LAW

Lecture 4
• Module 1 (Part 4) - The Essential Elements of
Contract (Continued)

• Covers: Contents and Interpretation, Termination

and Remedies
1
Objectives
• On completion of this lecture, you should be able to
understand and explain:
1. The types of terms found in a contract and how they
apply:
a) express terms
b) exclusion clauses
c) implied terms
2. The different ways in which a contract can be
terminated
3. The remedies available for breach of contract

2
PART 1: TYPES OF TERMS
(a) Express Terms

3
Contents and interpretation of the contract
• Assuming that a contract has been created and there are
no elements that affect its validity – the next question to
be considered is:
• What is the extent of the rights and obligations, to which the
parties have entered into?
• The answer is found in the:

Terms

Express Implied

Common Custom
Condition Warranty Statute
Law or Usage
4
Statements – Term or Representation?
“If you buy that car it
comes with a 5 year
guarantee as to….”
Term
If a party promises the truth of a
statement and makes it part of
the contract, it is a TERM of the
contract
Breach of a term allows the other
not a term of the contract, it may
party to take action for breach of
contract
“In my experience, the
best fuel consumption that
this car would have is
probably about 10km per
litre.”
Representation
Does not form part of the
contract
A representation as to a fact is
be one of the factors that
induces the contract
5
Statements – Term or Representation?
When will a statement form part of the/a contract?
• A statement that WILL form part of the contract:
• A term - creates contractual obligations between the parties
• A collateral contract - a preliminary agreement (contract) on which
the main contract is entered into
• Both, if breached will result in the injured party being able to sue for
damages

• A statement that WILL NOT form part of the contract:

• A (simple) representation that induces an offeree to enter into the
contract, but is not part of the contract (not making a guarantee)
• Remember, however: if a representation is misrepresented, then it becomes
a misrepresentation and remedies for breach may be available
• A remedy may also lie under the Competition and Consumer Act 2010 (Cth)
• A sales puff is not intended to have any legal effect and no remedy is
available 6
Express Terms
• Express Terms: Those specifically identified and agreed
upon
• In trying to ascertain the intentions of the parties from the
particular facts before it, the courts will take into account the:
• Time lapsed between the making of the statement and the final
agreement;
• Importance attached to the statement;
• Whether innocent party was asked to verify the statement;
• Whether statement was made with the intention of preventing other
party from looking for/finding defects and whether it succeeded; and
• Whether one of the parties had special skill or knowledge.
• Oscar Chess v Williams [1957] - Morris Minor 1948/1939
• c/f Dick Bentley Productions v Harold Smith [Motors] Ltd [1965] –
100,000km not 20,000km

7
Collateral Contracts
• Collateral Contract:
• A preliminary contract on which the main contract is entered into, a
breach of which may result in the injured party being able to sue
• It must not be inconsistent with the terms of the main contract

• Oral promises made by the parties prior to entering into the main
contract may have contractual effect as a collateral (preliminary)
contract on which the main contract is based
• Hoyt’s Pty Ltd v Spencer (1919) - sublease required 4 weeks notice -
verbal agreement unenforceable as terms were inconsistent with main
contract
• Crown Melbourne Ltd v Cosmopolitan Hotel [Vic] Pty Ltd [2016] – 5
year lease not renewed – “looked after at renewal time”

If it is important, put it in writing! 8

Express Terms – Condition or Warranty?
• It is important for the courts to decide whether a term is a
Condition or Warranty, as this will effect remedies
available to the injured party

• Conditions:
• Terms fundamental (essential) to the contract
• If breached, the injured party will be allowed to rescind the
contract and/or sue for damages
• Associated Newspapers Ltd v Bancks (1951) - cartoon character
• A stipulation which “goes to the root of the matter; a failure to
perform it would render the performance of the rest of the contract
… different in substance from what the defendant has stipulated
for.”
• As quoted from Bettini v Gye [1876]

9
Express Terms – Condition or Warranty?
• Warranties:
• A term of the contract that is regarded as subsidiary to the main purpose of
the contract
• Are less important terms which if broken, allows the contract to proceed but
the injured party can sue for damages because of financial loss
• Bettini v Gye [1876] - experienced opera singer agreed to appear 6 days in
advance but fell ill and only arrived two days before

Compare the importance of:

1) A supplier will deliver a retail store eggs on the 1 st Dec) (then delivers on the
2nd)
2) A supplier will deliver retail store eggs on the 1 st dec (and then delivers
bread)
- The 1st example might cause a loss (e.g maybe the store ran out of eggs to
sell and therefore lost sales) – but the can still sell eggs in the future.
- The 2nd example changes the contract altogether (maybe they don’t sell
bread, or they already have a bread supplier), you can’t just decide to supply
something different. 10
Express Terms – Conditions Precedent and Conditions
Subsequent

• A term may also be classified as a:

• Condition Precedent:
• a term that prevents an agreement turning into a contract until the
happening of a stated event; or
• Something must happen ‘before’ a contract occurs
• Condition Subsequent:
• a term in the contract which can terminate it on the occurrence of some
external event
• A contract will end ‘after’ something happens.

11
Express Terms – Parol Evidence Rule
• The Parol Evidence Rule excludes oral (extrinsic) evidence that
will ‘add to, vary or contradict’ the written document
• “[W]here a contract is reduced into writing, [and]…appears…to be entire, it is
presumed that the writing contains all the terms of it, and evidence will not be
admitted of any previous or contemporaneous oral agreement which would
have the effect of adding to or varying it in any way”
• Mercantile Bank of Sydney v Taylor (1891)

• Exceptions to the Parol Evidence Rule:

a) Where language is ‘ambiguous’ or susceptible of more than one meaning
b) (Oral) Evidence may be given to identify the parties
• Gilberto v Kenny (1983) - house contract
c) If Custom or trade usage demands otherwise
d) A collateral contract - verbal agreement relating to the subject matter and not
inconsistent with written contract
• Van Den Esschert v Chappell (1960) - white ants
e) A document was not intended to embody all the terms (receipt etc.)
f) When fraud, duress etc., has occurred 12
PART 1: TYPES OF TERMS
(b) Exclusion/Exemption Clauses

13
Exclusion/Exemption Clauses
• An exclusion/exemption clause: a term that attempts to
limit or exclude a party from liability for breach of
contract or for negligence
• Their effectiveness is a matter of construction of the contract as a
whole, taking into account the bargaining position of the parties

• Steps to be followed when examining exclusion clauses:

1. It must form part of the contract; and
2. Interpretation of it must be sufficiently wide enough to
comprehend (encompass/cover) the breach; and
3. It must not have been limited by legislation. –e.g ACL

14
Step 1: The exclusion clause must form part of the
contract
Signed Documents
• If document is signed, the exclusion clause will form part of the
contract, regardless of whether it has been read or not
• L’Estrange v F Graucob Ltd [1934] - Sales agreement limiting liability - not
read - still binding
• Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) - application for credit
agreement not read - still binding

• But a person will NOT be bound by an exclusion clause in a contract

they have signed where:
• There was a misrepresentation or fraud on the part of the sales person,
regarding the effect of the document
• Le Mans Ltd v Iliadis [1998] - ‘to help out with advertising’
• Curtis v Chemical Cleaning & Dyeing [1951] - wedding dress - sequin beads
• There is a harsh, onerous or unusual term that has not be brought to their
attention
• Interfoto Picture Library Ltd v Stiletto Visual Programs Ltd [1989] - penalty clause
15
Step 1: The exclusion clause must form part of the contract

Unsigned Documents
• In the case of unsigned documents, it must be shown that
the document is an integral part of the contract:
a) Would a reasonable person have regarded the document as
containing contractual terms or regarded it as a mere receipt?
and
• Causer v Browne (1952) - terms on back of receipt, stained dress from dry
cleaning
b) Have reasonable steps been taken to give sufficient notice of the
term? and
c) Were the terms included after the contract was completed? (this
will also apply to signed documents)
• Thornton v Shoe Lane Parking Ltd [1971] - injured in car park – terms were
subject to conditions, displayed on premises
• Olley v Marlborough Court Ltd (1949) - conditions on back of door
16
Step 2: Interpretation of the Exclusion Clause
• Once it is established that the exclusion clause has been
incorporated into the contract, there are two possible ways of
interpreting the clause:

1. Contra Proferentum Rule

• The courts will resolve any ambiguity against the party relying on the clause
(strict construction against the party relying on the clause)
• Clear and unambiguous words are needed
• Elder Smith Goldsbrough Mort Ltd v McBride [1976] - “all lots are available for
inspection previous to the commencement of sale, the same are sold with faults if
any.”

2. Four Corners Rule

• An exclusion clause will not apply to actions outside the contract
• Therefore, an exclusion clause will not apply to situations involving deliberate
breaches or for conduct that is outside the purpose of the contract
• Council of the City of Sydney v West (1965) - stolen car
17
Step 3: The Exclusion Clause has not been limited by
legislation

• Sections in the ACL imply or guarantee terms into all

consumer contracts (for goods and services of less than
$40,000) with corporations
• These terms cannot be excluded
• s64(1) Competition and Consumer Act 2010 (Cth) (“ACL”)
• Any contract which purports to exclude any or all liability
cannot exclude ACL protections

18
Online Contracting
• General principles of contract apply
• Terms must be incorporated (agreed upon) before or at
time of entering into contract
• Seller must ensure that the customer agrees to terms

19
Online Contracting
Clickwrap agreements
• Generally present the terms
of contract that are offered,
and ask website user to
indicate that they
acknowledge and agree to
the website provider’s terms
by clicking an online “button”,
usually with words such as “I
agree” on the button.
Browsewrap agreements
• Similar to clickwrap agreements, except
that terms of contract are not on the
page where the website user indicates
their agreement
• Their terms of contract are on another
webpage or website and the website
user is able to access those terms
through visiting, or linking, to that other
page or site.
• Key issue is whether reasonable notice
has been given and whether customer
was aware of terms.
20
PART 1: TYPES OF TERMS
(c) Implied Terms

21
Implied Terms
• Implied terms are terms that are not expressly stated by the
parties but may be implied to give ‘business efficacy’ to the
contract

• Terms can be implied:

• By the courts
• The Moorcock (1889) - moored ship damaged while being unloaded on low tide
• From custom or trade usage
• Statute, eg., consumer protection legislation
• Sale of Goods Act 1896 (Qld)
• Competition and Consumer Act 2010 (Cth) implies certain conditions into
every contract for goods and services
• Correspondence with description
• Fitness for particular purpose
• Acceptable quality
• Services will be rendered with due care and skill
• We will cover ACL later in the trimester
22
PART 2: TERMINATION OF CONTRACT

23
Overview – Termination/Discharge of Contract

Performance
Performance

Lapse
Lapse of
of Agreement
Agreement
Time
Time

Termination
Termination

Operation
Operation of
of Breach
Breach
Law
Law

Frustration
Frustration

24
Termination/Discharge by Performance
• Types of Performance:
• Actual (Exact) Performance
• Parties must carry out as closely as practicable the terms of the contract
• Cutter v Powell (1795) – died on journey

• Entire and Divisible Performance

• Capstone payments in a building contract or variable qualitive based
payments in government contract (can award upto 110-115% of contract price)

• Substantial (Partial) Performance

• Generally, payment for partial performance does not automatically follow,
unless the contract is divisible as a matter of construction
• Although there are exceptions:
• If there has been free and willing acceptance of partial performance by the party
receiving the benefit; or
• There has been substantial performance and cost of rectification is small ; or
• Hoenig v Isaacs (1952) – interior decorator
• If one party is prevented from performing
25
Termination by Agreement
• Parties can agree to discharge obligations:
• Under the original contract
• Express power to terminate (eg. happening of event or time period)
• Implied right to terminate (eg. reasonable notice)

• By subsequent agreement
• Cancellation of original contract
• Mutual termination
• Release (eg. release under seal or by giving some other form of consideration)
• Accord and satisfaction (eg. release involves the giving of some further
consideration)
• By substituted agreement

• Contingent conditions
• Condition precedent
• Condition subsequent
26
Termination by Breach
• Where one party fails to perform their obligations as
agreed, they are liable for breach of contract
• The effect of breach depends on the importance of the term that is
broken (ie. condition or warranty)
• The remedies available to the injured party will depend
on the nature of the breach
• Actual breach (repudiation for non-performance); or
• Anticipatory breach

Note – Very important to establish solid grounds for termination. If a

party terminates when they haven’t got a right to, THEY have
repudiated the contract

27
Termination by Frustration
• Frustration can only arise where:
1. An unforeseen event outside the control of the parties has
significantly changed the obligations of the parties; and
2. Neither party caused the supervening event; and
3. Neither party contemplated the supervening event; and
4. It would be unjust to hold the parties to their original contract.
• Taylor v Caldwell (1863) - hired concert hall destroyed
(destruction of subject matter)

• The effect of frustration is to discharge the contract but

only as to the future
• Codelfa Constructions Pty Ltd v State Rail Authority of NSW
(1982) - restrained from working at night (radically or fundamentally
different)
28
Termination for Other Reasons
• Termination due to supervening illegality (law renders
performance impossible) – i.e was legal, then law passed.
– Gelblasters in SA
• Termination due to common objective no longer
obtainable, including death or illness
• Krell v Henry [1903] - coronation ceremony postponed
• Termination by operation of law (governmental
intervention
• Bankruptcy
• Merger
• Sub-lease situation
• Termination by lapse of time at common law

29
PART 3: REMEDIES

30
Remedies for Breach of Contract

Remedies

Common
Law Equity
Damages

Specific
Damages Termination Injunction Restitution
Performance

Breach of
All breaches
condition

31
Remedies for Breach of Contract
Remedies

Common
Law Equity
Damages

Terminatio
Damages
n

All Breach of
breaches condition

32
Common Law Damages
• Damages:
• A monetary amount to place the injured party, back, as close as
possible to the position they would have been in, had the breach
never occurred (i.e had the contract been completed successfully)
– unusual in the sense that it is forward looking.
• Recoverable for provable economic loss as well as:
• Expectation losses
• Reliance losses
• Commonwealth of Australia v Amann Aviation Pty Ltd (1991) - agreement
terminated early

• Mitigation of Damages:
• The plaintiff must take reasonable steps to mitigate, that is to
minimise their loss that resulted from the breach of contract.
Failure to do so can result in a reduced damages or no damages
awarded. 33
Common Law Damages
• Difficulty in calculating loss is not a ground for
disallowing a claim
• Howe v Teefy (1927) - racehorse taken back after 6 months not 3
years

• Damages are sometimes, but not normally, recoverable

for distress and disappointment
• Jarvis v Swan Tours (1972) - few statements in brochure proved
accurate
• Baltic Shipping Co Ltd v Dillon (1993) - ship sunk 8 days into
cruise & passenger injured - part recovery

• Assessed on a once and for all basis at the date of

breach
34
Types of Common Law Damages
• The type of damages awarded will depend on:
• The seriousness of the breach; and
• Whether the contract has specified the amount of damages to be
paid (in the event of a breach)

Ordinary Nominal Exemplary

• Damages flowing • Where the plaintiff • Awarded to
from the breach to can’t show any compensate the
compensate the actual loss plaintiff and to
innocent party for punish the
the actual loss defendant because
suffered of the intentional or
flagrant nature of
the breach
• Only awarded in
exceptional
circumstances
35
Types of Common Law Damages
Where the contract provides for Where there is no fixed
an amount to be paid in the amount provided in the
event of a breach: contract:

Liquidated Damages Unliquidated Damages

• Where the contract provides that • Where there is no fixed sum in
the plaintiff can sue for a the contract, it is left to the
specified/fixed sum in the event court to decide the amount of
of a breach
• Must be a genuine pre-estimate damages
of the actual loss that will flow
from the breach

Penalty
• A threat to ensure performance is
not enforceable because it is not
a genuine pre-estimate of the
damage that will result from the
breach
Equitable Remedies for Breach
• Injunction
• Court order restraining a person from doing a wrongful act
• Discretionary (equitable) remedy, normally aimed at enforcing
negative promises
• Normally not granted where damages are an adequate remedy

• Specific Performance
• Court order for specific performance requires breaching party to
perform her/his obligations under the contract.
• Discretionary (equitable) remedy, normally aimed at enforcing
breached positive promises
• Not available in contracts where:
• Damages are an adequate remedy (eg. unique goods)
• It is for personal services
• Ryan v Mutual Tontine Westminster Chambers Assoc. (1893) - porter to be
constantly in attendance 37
Equitable Remedies for Breach
• Restitution
• Is based on the concept of unjust enrichment and sometimes
referred to as a quasi-contract
• The plaintiff must establish:
a) The defendant obtained a benefit or enrichment at plaintiff’s
expense; and
b) It would be unjust to allow the defendant to keep benefit or
enrichment; and
c) The defendant has no defences available to them.

• Court can require defendant to pay the plaintiff a sum of money

equal to the sum received from the plaintiff
• May arise where there has been money paid for goods and
services received from the plaintiff, if there has been a total
failure of consideration
• Pavey & Mathews v Paul (1987) - oral contract should have been in writing

38
Statutes of Limitations
• The Statutes of Limitations of the States and Territories
determine the time limits within which an injured party
must take action

• Under the Limitation of Actions Act 1974 (Qld) an

injured party can lose their right to an action in contract
unless they act within a certain time period:
• 6 years for simple contracts
• 12 years for deeds under seal

39
Reminders:
• We have now finished Contract Law, we will begin
discussing Tort Law in the next lecture

• Mid Tri Exam – 11TH of December – 8-9pm – 40 mins only

(module 1 examinable) – week 1 + contracts

• Assignment out 12th December

40