Contracts I - Components

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1 Contracts I - Components Index Contracts I - Components... 1 Overview... 4 Terminology in contract law... 4 What is a contract?... 5 Essential elements of a binding contract:... 5 Types of Contracts... 5 Types vary according to nature:... 5 Types vary regarding seal... 5 Simple contracts... 5 Formal contracts... 5 Formalities and contracts... 6 The contents, breach and ending of a contract... 7 Contents of a contract... 7 Breach of a contract... 7 Ending a contract... 7 Agreement: offer and acceptance... 8 Agreement may be reached when:... 8 Why offer and acceptance?... 8 The rules of offer and acceptance... 8 What is an offer?... 8 What is not an offer?... 9 A request for information... 9 An invitation to treat... 9 Communication of the offer and terms... 9 Cross-offers Battle of forms Monumental case (Carbolic Smoke Ball) Termination of an offer Revocation Lapse of time Condition in offer not fulfilled Death of a party Change of circumstances, for example, a stolen car Rejection by the offeree The offeree s response Seek more information Make a counter offer Accept the offer Reject the offer Ignore the offer Offer/Acceptance Analysis What is an acceptance? Requirements Rules about the acceptance : pg. 1

2 Intention not to create legal relations commercial agreements Where there is a contract of a commercial or business nature, it is assumed that the parties did intend to create legal relations. Edwards v Skyways Ltd [1964] 1 WLR 349 Need clear expression not to be bound; there are two main ways by which it can be shown that legal relations are not intended in a commercial agreement: o o An express stipulation in the agreement that it was not intended to be enforceable in a commercial arrangement Rose and Frank Co v Crompton and Bros Ltd AC 445 not formal or legal agreement, therefore no intention. The wording of the agreement itself Souter v Shyamba Pty Ltd (2002) 11 BPR Jones v Vernon Pools Ltd [1938] 2 All ER 626 honour clause = no intention Letters of comfort - just what is being promised A letter of comfort is a statement of intention often given to a creditor by a third party as a substitute for a guarantee and is generally intended to be non-binding. Kleinwort Benson Ltd v Malaysia Mining Corporation Bhd [1988] 1 WLR 799 policy statement no intention Banque Brussels Lambert SA v Australian National Industries Limited (1989) 21 NSWLR 502 practice statement intention Administrative arrangements where a government department or authority takes some action required of it by law or under some government scheme, this does not necessarily mean that an enforceable agreement exists between it and the other party o contractual obligation only arises if there was a clear intention that the agreement is to be enforceable in a court of law o Administration of Territory of Papua and New Guinea v Leahy (1961) 105 CLR 6 Other statements of intension, but do not show an agreement that is to be legally binding: Letter of intent Memorandum of Understanding Proposal for Dealing Strategic Alliance Preferred Dealer Proposal Ambiguous language If ambiguity arises from the words used by the parties in their agreement, the courts can disregard the words used and ascertain the intention on the parties from the general circumstances surrounding the transaction o Edwards v Skyways Ltd [1964] 1 WLR 349 pg. 17

3 Capacity Principles Contracts may not be enforceable because one of the parties is considered incapable of entering into the contract because of some physical, mental or legal disability. Thus, incapacity of a party makes the contract void. Incapacity circumstances Minors Legislation in all States and Territories provides that natural persons have full contractual capacity at the age of 18 years. In NSW, the Minors (Property and Contracts) Act 1970 provides that: o Minors are bound if they understand the contract and it is for their benefit (i.e. for necessaries reasonable comfort according to lifestyle e.g. mobile phone contracts) o Contracts with minors are presumptively binding if: For benefit of the minor: s 19 For sale or purchase of property: s 20 o Torts: A minor is generally liable for any tort they commit unless the action would be an indirect means of enforcing the agreement. Three categories that may be entered into by minors: Valid Contracts Voidable Contracts Void Contracts Those contracts for necessaries and beneficial contracts of service, e.g. mobile phone contracts. Valid contracts are those contracts that will maintain the minor in reasonable comfort according to their lifestyle. For goods to be considered necessaries, the plaintiff must be able to establish: o That the unpaid goods or services are capable of being necessaries for a person in the particular circumstances Bojczuk v Gregorcewicz [1961] SASR 128 Beneficial contracts of service contracts of employment, apprenticeship, training or education. 1. Enduring contracts Contracts under which the minor will obtain a lasting benefit. Binding unless repudiated by the minor during their infancy or within a reasonable time of turning 18. Minor will remain liable for any obligations that might have accrued up until the time of repudiation unless the minor received no benefit at all Steinberg v Scala (Leeds) Ltd [1923] 2 Ch 452. If the minor does receive benefit under an agreement that is voidable, they lose the right to claim back any moneys already paid. 2. Temporary contracts Not of a continuing nature Require express ratification of the minor, after attaining 18 years of age to make them binding. A minor is not liable on a bill of exchange or contracts providing security to repay moneys. A minor cannot contract to give an undertaking of security to repay an advance of moneys, even if the money was to purchase necessaries. pg. 23

4 Classification of terms of the contract Conditions Warranties Intermediate/Innominate Essential term major term Breach? Innocent party can affirm the contract and claim damages OR can terminate the contract and claim damages Not essential term; minor/ancillary term Breach? Innocent party can claim damages only (cannot terminate contract so must still perform any remaining obligations) Either essential term or nonessential term Breach? Damages only if consequences of breach are not serious Damages and termination of the contract if consequences of breach are serious condition or warranty? The question whether a term in a contract is a condition or a warranty, i.e. an essential or a non-essential promise, depends upon the intention of the parties as appearing in or from the contract. The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict, or a substantial, performance of the promise, as the case may be, and that this ought to have been apparent to the promisor. Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) CLR 633 Test of essentiality - is it an essential promise? Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) CLR 633 Luna park Summary: Amusement park rented advertising space on trams in Sydney for period of 3 years. Advertisements on 53 boards were to be displayed on the roofs of the tram cars. Clause in contract: "We guarantee that these boards will be on the tracks at least eight hours per day throughout your season." After the second season Luna Park objected that the display contracted for was not being provided Issue: Is it a condition? Held: Yes Luna Park could terminate contract (and not have to pay advertising fees for the third year of the contract) [a condition is] a stipulation [which] goes to the root of the matter, so that a failure to perform it would render the performance of the rest of the contract a thing different in substance from what the defendant has stipulated for. Bettini v Gye (1876) 1 QBD 183 at 188 per Blackburn J Late for rehearsal, B&G Summary: Contract for B to sing in an opera/concerts over 3 months. Term in contract that B had to arrive in London 6 days before first concert for rehearsals. B arrived 2 days before concert. G tried to terminate the contract (only breach of a condition in the contract would entitle G to treat contract at an end). Issue: Arriving late for rehearsal Is it a condition or warranty? Held: Warranty damages only (not termination). Contrast Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 newsprint shortage Summary: Contract for B to supply Newspaper with a cartoon each week. Newspaper agreed to publish cartoon on front page of the comic section. Due to newsprint shortage, comic appeared on page 3 for 3 consecutive weeks. B sought to terminate contract for breach of condition. Issue: Condition (termination + damages) or Warranty (damages only)? Held: Condition B would not have entered contract on that basis. pg. 11

5 Tort of negligence Index Tort of negligence... 1 What is a tort?... 3 What are the different types of torts?... 3 What is the relationship between torts, crimes and liability in contract?... 4 Liability in Contract civil action... 4 Torts civil action... 4 Crimes criminal action... 4 Overlap?... 4 Tort of negligence... 4 Negligence is a form of carelessness, recognized by law and it carries legal consequences Elements of a negligence action... 4 Duty of Care... 4 Breach of duty of care... 5 Causation and Remoteness... 5 Donoghue v Stevenson [1932] AC Facts... 5 Issue... 5 The generic test for tortious liability the duty of care question... 5 Lord Atkin s neighbour principle... 5 Element 1 Duty of Care... 6 The question of law... 6 Reasonable foreseeability... 6 Established categories of duty of care... 6 The recognised cases duty of care owed by:... 6 Salient features Test:... 8 Element 2-Breach of duty of care... 9 What is the foreseeable risk of harm?... 9 Element 3 - Causation Element 4 - Remoteness Sources of the law of torts Momentum for changes Reasonable Foreseeablility Vicarious Liability The main thrust of the Civil Liability Act 2002 (NSW) Defence to Negligence claims Contributory negligence Voluntary assumption of risk Civil liability reform L No liability for harm suffered from obvious risks of dangerous recreational activities I No liability for materialisation of inherent risk Wide accepted competent practice O Standard of care for professionals Civil Liability Act 2002 (NSW) Duty of Care B General principles G Injured persons presumed to be aware of obvious risks pg. 1

6 What is a tort? A tort is a wrongful act that leads to civil liability and civil wrong. Torts - civil (private) wrongs which give a remedy to a person injured by an act or omission of another Wrongdoer - known as tortfeasor Injury - may be physical, proprietary or economic Usual remedy - compensation in the form of damages What are the different types of torts? All torts involve unlawful interference with the interests of others. Unlawful interference may be: Intentional or unintentional Personal Rights Property Rights Economic Interests Trespass to person Assault threat of direct force to another Battery unauthorized physical contact False Imprisonment unlawful detention Defamation damage to personal reputation Trespass to goods wrongfully interfering with another s possession of goods Conversion wrongfully dealing with another s goods Detinue wrongfully detaining another s goods Trespass to land unauthorized entry to another s property Nuisance interference with another s use and enjoyment of land Passing off misrepresenting that goods/services/business have some connection or association with the business of another Procuring breach of contract inducing a party to a contract to breach their obligations under the contract Injurious falsehood words spoken or written or conduct intentionally disparaging another s goods or business Deceit fraudulent untruth/misrepresentation A tort is a breach of duty imposed by law, as opposed to duty imposed by agreements the main objective [of torts law] is to discourage unnecessarily harmful behaviour by the imposition of compensation liability on the person who commits a tort Lipton et al pg. 3

7 Misleading or deceptive conduct/ Unconscionable conduct/unfair terms ACL ss18-25 Index Misleading or deceptive conduct/ Unconscionable conduct/unfair terms... 1 ACL ss Misleading or deceptive conduct... 2 Which provision?... 3 s18: Elements... 4 Person... 4 in trade or commerce... 4 engage in conduct... 4 engage in conduct - Silence?... 4 engage in conduct - Conduct or conduit?... 4 engage in conduct - Disclaimers... 5 engage in conduct - Conduct aimed at identified persons?... 5 engage in conduct - Predictions, opinions, forecasts... 5 Misleading or deceptive... 5 Misleading or deceptive - Intent?... 6 Example of Applying the elements... 6 Liability issues Unconscionable Conduct ss Definition... 7 s20 Common law unconscionability... 7 ss21,22 Statutory unconscionability... 7 s Why s21?... 8 ACCC v Coles (not a case because of consent orders)... 8 ACCC v Lux Pty Ltd [2004] FCA Test for Unconscionability... 9 s ACCC v Simply No Knead (Franchising) Pty Ltd Unfair Contract Terms S23 - Consumer Contract S27 - Standard form contract S24 - Unfair contracts S25 - What might be unfair terms? ACCC v Bytecard (consent orders) ACCC Review Future Directions Reference Lecture slides of CLAW1001 by University of Sydney Terry, A. and Giugni, D Business and the Law 6e pg. 1

8 Intellectual Property [IP] Types of Property What is intellectual property? Intellectual property [IP] refers to a variety of rights conferred by law for the protection of creative effort and the economic investment that underlies it. Intellectual property represents the property of your mind or intellect. In business terms, this also means your proprietary knowledge. IP Australia IP rights allow creators, or owners, of patents, trademarks or copyrighted works to benefit from their own work or investment in a creation. Types of Intellectual Property pg. 2