Revision
Copyright Guy Harley 2008
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Terms
 Terms can be
 Express
 In writing
 Oral
 Partly in writing and partly oral
 Implied
 By the Courts
 By legislation
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Reasonable Bystander Test
 Which statements and representations would a
reasonable bystander, aware of the
circumstances of the case, regard as
promissory?
 The test is objective
 Parties actual intention is irrelevant
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Reasonable Bystander Test - Guidelines
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Timing of Statement
Was the statement in writing
Did one party have special skill or knowledge
How objectively important is the representation
to the whole deal
 What words were used
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Parol Evidence Rule
 Courts presume that written formal contracts that
appear to be a complete record of the
agreement, contain the whole agreement
 Exceptions
 Parties did not intend written document to record
whole of the agreement
 Written document inaccurately records the parties
agreement
 Terms must be implied to make the agreement
workable
 Collateral contracts
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Implied Terms
Terms implied by Statute
Terms implied by the Courts
Implied as a matter of law
Trade Custom
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Implied as a matter of fact
Business efficacy
Past Dealings
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Exemption Clauses
 Courts adopt a 2 step process
 Has the exemption clause become a term of
the contract?
 If so, does it cover the breach in question?
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Does the Clause Cover the Breach?
 Courts will examine the clause carefully to
determine its effect and limit its scope where
possible
 Generally, the Courts will give effect to the
parties intentions as evidenced by the natural
and ordinary meaning of the words
 There are 3 rules that courts use to limit
exemption clauses:
 The Contra Preferendum rule
 Negligence Clauses
 The Four Corners Presumption
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Void and Voidable Contracts
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Void, Voidable & Unenforcable
 Void
 Where one or more of essential elements of
contract are missing
 There is no contract
 Voidable
 Parties have option to avoid contract
 Equitable remedy of rescission
 Valid & enforceable until one party rescinds
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Void, Voidable & Unenforceable
 Unenforceable
 Valid contracts
 Legislative or procedural requirement not
satisfied
 E.g. Sale of Land must be in writing (s26 Law
of Property Act)
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Rescission
 Effect
 Contract is terminated ab initio (i.e. it is as
though there never was a contract)
 cancels the contract from the point of
termination
 Procedure
 Innocent party rescinds by giving notice to the
other party
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Notice of Rescission
 Innocent party must give notice of rescission
to other party
 Notice can be implied from conduct
 Academy of Health & Fitness v Power
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Rescission
 Available for:
 Misrepresentation
 Undue influence
 Unconscionable conduct
 Duress
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Bars to Rescission
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Third Party rights adversely affected
Substantial restitution not possible
Innocent party affirms contract
Party wishing to rescind does not have “clean
hands”
 Lapse of time
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Third Party Rights
 Rescission is not permitted if the legal rights
of an innocent third party will be adversely
affected
 For example, where goods have been on sold
in good faith and for value to a purchaser
 But, rescission will be effective where it
occurs before the third party gains an interest
 Car & Universal Finance Co v Caldwell
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Restitution
 The parties must be capable of being restored to
substantially the position they were in before the
contract was entered into
 Known as “Restitution”
 Court can make consequential orders
 Precise restitution is not necessary
 Alati v Kruger
 Brown v Smitt
 Not possible where services already supplied
pursuant to a contract of service
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Affirming the Contract
 Rescission is not permitted if the contract has
been affirmed
 After discovering misrepresentation,
innocent party does any act which
indicates that he is treating contract as still
running
 A delay in rescinding can amount to an
affirmation
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Clean Hands
 Rescission will not be permitted if party seeking
to rescind has also done something wrong under
the contract
 E.g.
 One party makes misrepresentation
 Other party has breached the contract by not
carrying out their obligations
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Lapse of Time
 Lapse of time will not normally deprive innocent
party of right to rescind except if long period
 Leaf v International Galleries (Graw 12.8.4)
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Duress, Undue Influence,
Unconscionable Conduct and
Mistake
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Duress
 A contract entered into due to coercion or
force can be rescinded
 Coercion can be:
 To the person;
 To goods; or
 Economic duress
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Duress (cont.)
 Duress to the Person
 Threats of physical punishment or
imprisonment to the person, his family or
friends
 Duress to Goods
 Threats that are made against a person’s
property
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Economic duress
 An economic threat that is not “legitimate”
 No rule that that commercial parties have to
be fair to one another
 A threat to break a contract can be economic
duress
 North Ocean Shipping v Hyundai
 A lawful threat may be illegitimate
 Cockerill v Westpac
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Undue influence
 The unconscionable use by one person of
power possessed by him over another in
order to induce the weaker party to enter into
a contract
 Mitchell v Pacific Dawn
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Undue influence
 Presumed in pre-existing special
relationships where one party is in a position
of trust and confidence
 Called a “fiduciary relationship”
 Cases
 O’Sullivan v Management Agency
 Lloyd’s Bank v Bundy
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Fiduciary Relationships
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Parent & Child
Guardian & ward
Principal & Agent
Trustee & Beneficiary
Doctor & Patient
Lawyer & Client
Religious advisor & Follower
More
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Where No Special Relationship
 Weaker party must show that there is a
relationship of dependence, trust &
confidence
 Stronger Party exerted undue influence to the
extent that the weaker party could not
exercise an independent judgment
 There must be more than mere reliance or
influence
 Weaker party must show that the contract
would not have been made without the undue
influence
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Where no Special Relationship
 Court will look at:
 The equality of the bargain
 The weaker party’s ability to make free and
independent choices
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Domination by one party
Dependency on another
Need for guidance, advice and support
Low intelligence, weak mindedness, illiteracy
Age & Health
 Lack of independent financial or legal advice
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Rebutting Undue Influence
 Party in weaker position made an independent
decision of their own free will
 No pressure or influence as weaker party
encouraged to seek independent advice
 Weaker party was paid market price
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Unconscionable Conduct
 One party takes advantage of the other
parties special disability to the extent that the
contract is unfair or unconscionable
 Blomley v Ryan (S&OR p219\261)
 Commercial Bank v Amadio (S&OR p61\86)
 Elements
 Special disability
 Absence of any equality between the parties
 Disability evident to other party
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Mistake
 A party cannot get out of a contract because they
made a mistake
 Exceptions:
 Mistake due to other party’s misrepresentation,
unconscionable conduct etc.
 Common mistake
 Mutual mistake
 Unilateral mistake
 Mistake as to nature of document
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Mistake
 Mistake at Common Law makes contract void
 Mistake at equity makes contract voidable
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Common Mistake – Common Law
 Both parties make the same mistake
 Res Extincta
 Subject matter of contract has ceasd to
exist
 Res Sua
 Subject matter of contract already owned
by purchaser
 Cooper v Phibbs
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Common Mistake – Equity
 A common misunderstanding
 An important but not fundamental
mistake
 Mistake through no fault of either party
 Unconscionable for one party to benefit
from mistake
 No bar to rescission
Solly v Butcher (Graw 11.3.5)
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Mutual Mistake
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Parties are talking about different things
Both are mistaken
Difficult to work out what parties intended
No “meeting of the minds”
Raffles v Wichelhaus
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Unilateral Mistake - Equity
 One party is mistaken as to a
fundamental term; and
 Other party is aware, or should be
aware, of the mistake
 Mistaken party will suffer detriment if not
allowed to rescind
Taylor v Johnson
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Unilateral Mistake – Common Law
 Mistake as to Identity
 If Third Party rights involved, identity must
be important
 Ingram v Little (Graw 11.5.4)
 Mistake as to nature of document
 Non est factum
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Mistake as to nature of document
 Radical difference between what was signed
and what party believed they were signing
 Mistaken party relied on others for advice
because unable to
 read document
 Understand document
 Mistaken party not careless
Saunders v Anglia Building Society
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Rectification
• Correction of document that does not
accurately record parties’ intention
• Nobleza v Lampi
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