Week 2 commercial law

Introduction to sales of goods

Governed by the sales of goods act

o The goods act applies to contract of sale exixsts
o Property passes from seller to buyer
o For monetary consideration
Regulates a number of aspects of conduct associated with the supply of
goods and services including misleading or deceptive conduct,
unconscionable conduct and unfair contract terms.

Application of state and territory sale of good legislation

6.2 in order for a sale of goods act to apply there must be

o A contract of sale
o Of goods
o As a result of which property in the goods pass
o For a money consideration
Contract of sale
o 6.3 a contract for the sale of goods is defined as a contract whereby
the seller transfers or agrees to transfer the property in goods to
the buyer for a money consideration called the priced
o Does not need to be in writing oral contracts
o Monetary consideration section 13
Fixed, if not fixed a reasoble price is needed
o Time of transaction is when the goods are transferred
o In agreement ofr sales the property of the goods is to be transferred
in the future
o Once transferred the agreement to sell becomes a sale s4(4)
o Defining = agreement to sell + sale
Sale
o Property of good is transferred form the seller to the buyer at the
time of the transaction
o Goods are all chattels personal that are in choses
Agreement for sale
o The property of the goods is to be transferred in the future or is
conditional s4(3)
o Once transferred the agreement to sell becomes a sale section 6 (4)
under tehe goods act
Whether a contract is a sale or an agreement to sell affects the remedies
available where a breach occurs
o Where a contract is a contract of sale and property is passed to the
buyer if the buyer refuse to pay for tem they may be sued for the
price agreed to pay for the goods s50(1)
o If the contact is an agreement to sell and the buyer defaults the
sellers remedy is damages, may or may not be the contracted price
s51(1)

Different types of goods

Specific
o Eg mobile phone

Ascertained goods goods sold x bulk form a fixed source seller chooses
good transferred to buyer ( unless contract states otherwise)
o Ascertained goods
Unascertained goods no specific defining in the goods act
o Eg grain or rice in a cycle
Future goods goods manufactured or acquired by the seller after the
contract f sale is made, include god that are not yet made
o Goods to be manufactures after making the contract of sale s 3
o A present sale of future goods constitutes an agreement to sell the
goods s 8

Remedies sale

Seller can sue or recover the price s55

Remedies for an agreement to sell

Seller can sue for damages only s56

Specific goods

At the time of contract

Identify of the goods

Sale needs to be distinguished for other transactions that may not be

covered by the sales of goods act
A gifted goods will not constitute a sale because there is no money
consideration for the transfer of property in the goods
Whether a barter or pure exchange of goods can be constituted a sale
depends upon whether the element of a price can be made out
o Did the parties agree on a money price
o Value the respective goods and transfer te goods
o If necessary making a cash adjustment one way?
A contarct for work and incidental aterials is not a contarct of sale of goods
o It can be difficult to distigush from the two
o Whether or not a sales of goods act applies depends on the
characterisations of the contarct a one of sales of goods
Although the characterisation of a transaction will effect the realaionship
between the parties, it chould not affect the outcome where the goods are
defective
Realation to contarcts for supply of services by a person to a consumer
o S 60 of the ACL provides that there is a garentee that the services
will be rendered with due care and skills
o These contarcts may include contracts for work and materials
Tests
o There are some differences of views as to the tests to be applied in
determining whther the contract is for the sale of goods of for work
o When unclear the court should decide the isure by having regard to
the substance of the contract

The test requires the court to assess the relative importance of the
work done or the goods supplied
o Difficulties arise however, where all the work goes into producing
goods to be sold so that two comonents, the work don and the
goods suppled, are inseparable
o A different approach has been adopted in lee v griffin the court
held that if a contarct results into a sale of a chattel, it shpuld be a
sale of goos
o In robinson v graves at 57 this test was qualifred by the refferene to
the substance of the contract oral cntarct to be one of work and
labour there for not need to ocomply with the writing requiremtns
Other examples include
o A contract to supply and install plant and equiptment to improve a
carrot processing plant was held to be a contarcts for work and
matrials
o A contract to bild and install cocktail cabinents
o Th making of a set of dentures
Plianly enough the outcomes are hoghly dependent on the circumstance
o

Property

Definsion to mean the general property in goods as opposed to

some special or limited interest for example such as the interest of
a bailee or a security interest s 3(1)
Property means in effect ownership
The passing to property in goods being held on the basis of being
framed as the equitable or legal title

Goods

Is defined to include all chattels personal other than things in action and
money and also include embelments and things attached or to forming
pat of the land which are agreed to be served before sale or under the
contarct of sale s3(1)
The term chattels originally ncluded physical objects, the term now
includes not only physical objects but also intangiblae choses such as
depts, rights of action ans patents
Emblemnts are crops of the soil which are annulaly produced by
agriculture labour, this does not include things growing naturally on land

Different categories of goods

Differnent good mena different remidies

Specific goods
Unascertained goods
Ascertained goods
Future goods

The significance of the proper classification of goods

Price

The goods must be transferred for a money consideration called the price
The price can be determined in accordance with th methods prescribed in
s 11
o S11 provides that the price in a contaract of sale may me be fixed
by the contarct or may be left to be fied in a manner thereby agreed
or may be determined by the course of dealig between the parties
o When the price is not determined in accordance with s11(1) the
buyer must pay a reasonable price
o What is a reasonable price is a question of fact dependent on the
circumstance of each particular case

Performance of the contract

It is the duty of the seller to deliver the goods and of the buyer to accept
and pay for them in accordance with the terms odf the contarct of sale s
29
Unless the parties have agreed otherwise, ths obligatios are concurrent in
so far as the seller must be ready and willing to giv possesio of the goods
to the buyer in exchange for the price and vice versa s 30
The act sets out a number of general rules as to the delivery ss31,39
There are also special rules which apply in relation to delivery to a carrier s
34

General rules of delivery

The geral rules are as follows

o Whether it is for the buyer to tale possession of the goods or for the
seller to send them to the buyer is a question deendng in each case
on he contarct, express or implied between the parties
o If no agreemt the place of deleviery is the sellers place of vusiness
o Where the contarct s made then that place is the place of delivery
o

Special rules of delivery relating to carriers

Unconscionable conduct

I theory, agreements as entered into following informed negotiations

between parties of equal or similar bargaining power
Realty parties are often not equal in bargaining power of information
giving one party an advantage over the other party
Is not defined in the ALC
In asic v ne conduct that attracts sufficient critism form judges to
support the curt granting equitable relif in the equitable
Boomley v ryan kitto j
Court can set aside a transaction where
One party to a transaction is at a special disadvantage in
dealing with the other party
Illness
Ignorance

Inexperience
Impaired faculties
Financial need
Other circumstances affecting ability to conserve your own
interests
The other party unconscientiously takes advantage of the
opportunity

Very broad provision

Applies to business to business transaction, consumer, any type of
transaction for the supplying of goods

Elements
1. One party ,u be under a special disadvantage
2. There must be an absence of any reasonable degree of equality between
the parties
3. The other party must exploit that special disadvantage in a manner that is
regarded as unconscionable
o Louth v Diprose (1992) 175 CLR 621
o Diprose Solicitor infatuated with a Carol Louth whom he met in Tasmania.
Louth was indifferent. He provided her with numerous gifts and at one
time proposed however she refused. In one of the trials, the judge stated
his willingness to devote himself to her and to lavish her with gifts,
notwithstanding that she did not return his love, is quite pathetic. T he
degree of his emotional dependence upon her and his susceptibility to her
wishes is obvious on the evidence and was obvious to her. Louth later
informed Diprose she was depressed and was going to be evicted from her
home (owned by her soon to be ex brother in law) and if this happened
shall commit suicide. This was mostly incorrect. Disprose purchased a
house but her and her insistence, placed in her name. Three years later
the relationship deteriorated and Diprose requested Louth transfer the
house back into his name. She refused. It was held Louth manufactured
an atmosphere of crisis which did not really exist. Diproses purchase of
the house was explicable only on the footing that he was so emotionally
dependent upon, an influenced by Louth, as to disregard entirely his own
interests. Louths conduct was unconscionable; calculated to induce an
actually introducing an improvident transaction conferring a benefit upon
her. Louth was unsuccessful in overturning the original decision.
Australian consumer law of unconscionable conduct

section 20 A persons must not in trade or commerce engage in conduct

that is uncon- conduct with the meaning of the unwritten law from time
to time this section does not apply to the conduct that is prohibited
Section 21 has its origins in section 51AB of TPA
General duty to trade fairly with consumers by establishing a norm of
conduct prohibiting unconscionable conduct supply of goods and
services
Section 22 provides considerations a Court may have regard to, for the
purpose of determining if a corporation has engaged in unconscionable
conduct

1) Section 22 considerations a Court may have regard to for the

purpose of determining if a corporation has engaged in
unconscionable conduct
2) Relevant strengths of bargaining positions of the parties
3) Whether consumers are required to comply with conditions not
reasonably necessary to protect a suppliers legitimate interests
4) If the consumer can understand the documentation
5) Whether undue influence or pressure exerted or unfair tactics used
6) The price for alternative, identical or equivalent goods or services
Remedies
If found in breach of Part 2-2 (unconscionable conduct sections), civil pecuniary
penalties apply and are set out in section 224 of the ACL
Section 24 if a court is satisfied a body corporate or person is in breach of Part
2-2 it may order that party to to pay a civil pecuniary penalty of up to:
$1.1m for a body corporate
$220,000 for other persons
Undertakings (s224)
Substantiation notices (s219)
Public warning notices (s223)
Infringement notices (s134A, CCA)
Injunctions (s232)
Damages (s236)
Compensatory orders (s237)
Orders for non-party consumers (s239)
Non-punitive orders (s246)
Adverse publicity orders (s247)
Orders disqualifying a person from managing corporations (s248)
Orders for the preservation of property (CCA, s137F)
Commercial Bank of Australia v Amadio (1983)
Facts

The Amadios son and the bank asked the Amadios to provide a guarantee
by executing a mortgage over their property in order to secure the sons
companys overdraft. The bank was aware at the time of the request the
sons company was in financial difficulty and had been selectively
dishonouring cheques prior to the request

The Amadios were elderly, not fluent in English, had limited formal
education and limited command of written english, inexperienced in
commercial matters and highly dependent on their son

The son informed his parents that the mortgage was limited to $50,000
and was only for a period of 6 months when in reality the mortgage was
unlimited

At the time of signing the mortgage, the Amadios believed their sons
business was flourishing and only temporarily in need of funds.

The manager of the bank had knowledge of these circumstances and still
secured their signature

The company went into liquidation and the bank sought to enforce the
mortgage

The bank succeeded in the first instance but lost on appeal to the South
Australian Full Court. The bank appealed to the High Court.

Outcome

All three elements of unconscionable conduct were present:

Special disadvantage The Amadios were elderly, had poor English,
commercially inexperienced and highly dependent on their son
Special disadvantage known by other party The bank manager
was well aware of the Amadios circumstances and their sons
predicament should have informed them of state of the business
to enable the Amadios to make their own
judgement call and to seek independent legal advice
The Amadios were taken advantage of unconscientiously

Kakavas v Crown Melbourne Limited (2013)

Facts

Kakavas lost $20.5 million at Crown playing baccarat from June 2005 to
August 2006

He sought to recover these losses from Crown on the basis that Crown had
enticed him, a well known gambler to the casino by various incentives unconscionable conduct (s51AA of the Trade Practices Act, now replaced
by s20 of the ACL s20 is on substantially the same terms)

Kakavas was professionally diagnosed with a pathological gambling

addiction, later a psychologist reported he had overcome his addiction was
now a recreational gambler

At one point Crown withdrew his licence to enter Crown premises as he

had been charged with armed robbery those charges were later
dismissed

Crown formally restored his licence to enter Crown in 2005.

He claimed Crown exploited his abnormal and pathological interest in

gambling by luring him to gamble through incentives such as rebates on
losses, free accommodation and the use of the companys private jet

Outcome

A full bench of the High Court unanimously rejected the claim

Although Kakavas had a gambling problem, he was able to choose the

times at which he would gamble, the amounts he wagered and refrain
from gambling when he wanted to

Therefore, he did not have a special disadvantage

Additionally the Court found that Crowns incentives were only to

accommodate the risky business its high-rolling client liked to engage in

ACCC v Lux Distributors Pty Ltd (2013)

Facts

Lux used a standard selling method telephone call from one of its
representatives to a randomly selected customer from their database or a
telephone directory

The representatives were given a script to follow during the call

Consumers were offered to have a free maintenance check done on their

vacuum cleaner at their home by a Lux representative

The consumers were unaware that Luxs intention was to attempt to sell a
new Lux vacuum cleaner

The representatives were not qualified or equipped to conduct anything

more than a cursory maintenance check

The elderly women they visited agreed to purchase a new vacuum cleaner
at a price of $1,999 or more

Outcome

Lux had failed to meet societal norms which required honest and fair
conduct free of deception by failing to disclose their primary objective of
attempting to sell a vacuum cleaner by offering free maintenance check

The women were subtly pressured by Lux by remaining in their homes for
a long period of time (1.5 2 hours). This was considered a pressure sale
tactic as the representatives did not disclose their primary objective to the
women

Bargaining strength was created through entering and remaining in

someones home which was obtained through deception

The cooling off period does not ameliorate or lessen what has gone
before

Unfair Practices - Harassment and Coercion

Section 50 Part 3-1 ACL
(1) A person must not use physical force, undue harassment or coercion, in
connection with:
a) The supply or possible supply of goods or services; or

b) The payment for goods or services; or

c) The sale or grant, or the possible sale or grant, of an interest
in land; or
d) The payment for an interest in land.
(2) Subsections (1)(c) and (d) do not affect the application of any other
provision of Part 2-1 or Part 3-1 in relation to the supply or acquisition, or
the possible supply or acquisition of interests in land.
UNFAIR TERMS
Section 23
(1) A term of a consumer contract is void if:
(a) The term is unfair; and
(b) The contract is a standard form contract
(2) The contract will continue to bind the parties if it is capable of operation
without the unfair term.
(3) A Consumer Contract, is a contract for the supply of goods or services or a
sale or grant of an interest in land, to an individual whose acquisition of the
goods, services or interest is wholly or predominantly for personal, domestic or
household use or consumption
Section 24
Definition
(1) A term of a consumer contract is unfair if:
a) It would cause a significant imbalance to the parties rights
and obligations arising under the contract; and
b) it is not reasonably necessary in order to protect the
legitimate interests of the party who would be advantaged
by the term; and
c)

it would cause detriment (whether financial or otherwise) to

a party if it were to be applied or relied on.

All three limbs must be satisfied for a term to be unfair

Considerations s24(2)
When determining whether term is unfair under s24(1) a court may have regard
to any matters it think are relevant, but must consider:
(a) The extent to which the term is transparent;
(b) The contract as a whole
Contract as a whole
A term may seem unfair when read on its own, however, it may be reasonable
when read with other terms in the contract

Transparency s24(3) ALC

o
o
o
o

Expressed in reasonably plain language

Legible
Readily available to ay party affected by the term
Presented clearly

Section 24 Rebuttal presumption

(4) For the purposes of section 24 (1) (b), the term of a consumer contract is
presumed not to be reasonably necessary in order to protect the
legitimate interests of the party who would be advantaged by the term,
unless that party proves otherwise
Section 25 Examples of terms that may be unfair
o
o
o
o
o
o

avoid or limit performance of the contract

terminate the contract
Penalise for a breach or termination of the contract
vary the terms of the contract
renew or not renew the contract
vary the upfront price payable under the contract without the other party
being able to terminate the contract

Prescription of terms
Section 25(2) provides:
Before the Governor-General makes a regulation for the purposes of subsection
(1)(n) prescribing a kind of term, or a kind of effect that a term has, the Minister
must take into consideration:
(a) The detriment that a term of that kind would cause to consumers;
and
(b) The impact the impact on business generally of prescribing that
kind of term or effect; and
(c) The public interest.
Standard from of cotarct factors
o
o
o
o
o

Barginig power
preparation of a ctarct
Opportunity to negotiate
Terms of the contacrt
Any other matter prescribed by the regulators

Rebuttable presumption section 27 (1)

If a party to a proceeding alleges that a contract is a standard form
contract, it is presumed to be a standard form contract unless another
party to the proceeding proves otherwise
The following factors must be considered by the court in deciding whether a
contract is a standard form contract s27(2):

a) does one of the parties has all or most of the bargaining

power relating to the transaction
b) was the contract prepared by one party before any discussion
relating to the transaction occurred between the parties
o

The following factors must be considered by the court in deciding whether

a contract is a standard form contract s27(2):

c)

Was one party, in effect, required to either accept or reject the

terms of the contract in the form in which they were presented

d)

Was one party given an effective opportunity to negotiate the terms

of the contract

e)

Did the terms of the contract take into amount the specific
characteristics of another party or the particular transaction

f)

Any other matter prescribed by the regulations

Effect of term being unfair

Only terms in a standard form contract can be rendered void by s23(1)(b)
A void term cannot create rights or impose obligations on either of the
contracting parties
Whether a contract is a standard form contract is a question of fact
rebuttal presumption s27(s)
Terms excluded
It is provided by s26 that s23 does not apply to a term to the extent, but only to
the extent, that the term:
(a) Defines the main subject of the contract; or
(b) Sets the upfront price payable under the contract; or
(c) Is a term required, or expressly permitted, by a law of the Commonwealth,
a State or Territory
FALSE or misleading representationS
Representations about goods and services
Standard, quality, value, grade or composition of goods s29(1)(a)
False or misleading representations that goods are of a particular
standard, quality, value, grade composition, style or model
Credence claims s29(1)(a)
Representation of a premium or special characteristic about a
product e.g. free range eggs
Standard, quality, value or grade services s29(1)(b)

 False or misleading representation about a services standard,

quality, value or grade
Representing that goods are new s29(1)(c)
False or misleading endorsements, testimonials or performance claims
Endorsement s29(1)(d) (h) prohibition of different forms of
conduct which may result in a false or a misleading statement about
an endorsement
Testimonials s29(1) False or misleading representation that
purports to be a testimonial by any person relating to goods or
services, or making a false or misleading representation concerning
a testimonial by any person or a representation that purports to be
such a testimonial
Performance claim s29(1)(g) False or misleading
representation regarding performance characteristics, accessories,
uses or benefits of goods or services
Price s29(1)(i)
Price a charge of any description s2(1)
False or misleading representation in regards to the price of goods
or services
Two-price advertising
Companys previous pricing products must be sold at the specified
previous price for a reasonable period of time before the
commencement of the sale
Cost or wholesale price
Competitors price
Recommended retail price (RRP)
Repairs and spare parts s29(1)(j)
False or misleading representation concerning the availability of
facilities for the repair of goods, or of spare parts for goods
Place of origin claims s29(1)(k)
False or misleading representation concerning the place of origin of
goods
A representation about the place of origins of goods may constitute
a representation as to the past history of the goods therefore s29(1)
(a) can become relevant
Part 3-5 ACL provides defences for these claims
Claims about the need for goods or services s29(1)(l)

 False or misleading representation concerning the need for any

goods or services
Must be in relation to goods or services where the judgement of a
specialist expertise is required e.g. motor services
Warranties, rights and remedies s29(1)(m)
False or misleading representation concerning the existence,
exclusion or effect of any condition, warranty, guarantee, right or
remedy
Misrepresenting the existence of effect of a condition
Requirement to pay for a contractual right
False or misleading representations in trade or commerce concerning a
requirement to pay for a contractual right that:
(1) Is wholly or partly equivalent to any condition, warranty, guarantee, right
or remedy (including a guarantee under Div 1 of Pt 3-2); and
(2) A person has under a law of the Commonwealth, a State or a Territory
(other than an unwritten law)
will contravene s29(1)(n) of the ACL
Misleading conduct concerning land s30
(1)A person must not, in trade or commerce, in connection with the sale or grant,
or the possible sale or grant, of an interest in land or in connection with the
promotion by any means of the sale or grant of an interest in land:
(a) Make a false or misleading representation that the person making the
representation has a sponsorship, approval or affiliation; or
(b) Make a false or misleading representation concerning the nature of the
interest in the land; or
(c) Make a false or misleading representation concerning the price payable for
the land; or
(d) Make a false or misleading representation concerning the location of the
land; or
(e) Make a false or misleading representation concerning the use to which the
land is capable of being put or may lawfully be put; or
(f) Make a false or misleading representation concerning the existence or
availability of facilities associated with the land
False or misleading representation in regards to land:
(a) Make a false or misleading representation that the person making the
representation has a sponsorship, approval or affiliation; or
(b) Nature of the interest in the land; or
(c) Price payable for the land; or

(d) The location of the land; or

(e) The use to which the land is capable of being put or may lawfully be put;
or
(f) The existence or availability of facilities associated with the land
Interest
Both legal and equitable estates and interests, as well as rights, powers or
privileges over or in connection with the land: s2(2)
Misleading conduct concerning employment opportunities s31
A person must not, in relation to employment that is to be, or may be, offered by
the person or by another person, engage in conduct that is liable to mislead
persons seeking the employment as to:
(a) The availability, nature, terms or conditions of the employment; or
(b) Any other matter relating to the employment

Misleading conduct concerning the nature of goods s33

A person must not, in trade or commerce, engage in conduct that is liable to
mislead the public as to the nature, the characteristics, the suitability for their
purpose or the quantity of any goods.
Misleading conduct concerning the nature of services s34
A person must not, in trade or commerce, engage in conduct that is liable to
mislead the public as to the nature, the characteristics, the suitability for their
purpose or the quantity of any services.
Misleading conduct concerning business opportunities s37
Contains two prohibitions:
False or misleading representation about a business activity that the
representee is invited to participate in by making investments
therein, or performing work
False or misleading representation about a business activity to be
conducted from home
Commission arrangements are regulated by s37(2)

Insurance
Definition
Payment of a premium to an insurer by the insured, on the basis
that should an identified event occur, where the occurrence of that
event is uncertain, the insurer will make a payment back to the
insured
Essential requirements

o
o
o
o

Consideration
Unceratitiy is to the occurance of the specified event
Person who has the benefit of the insurance must have an insurable
interest
A duty of utmost good faith
o Legal obligation on the parties to the contract to reveal to the other
parties any and all information that might influence the other
partys decision to enter into the insurance contract and this
obligation to reveal all relevant information affecting the policy
continues throughout the policy term
o Statutory in nature; set out in s13 of the Insurance Contracts Act
1984 (Cth)
o Exceptions:
o Reinsurance contracts
o Health insurance contracts
o Insurance contracts entered into by friendly society
o Marine insurance contracts; and
o Workers compensation contracts

Categories of insurance
1) Indemnity insurance
2) Non-indemity insurance
Regulatory bodies
General Insurance Reform Act 2001
Substantially amended the Insurance Act introduced in 1973
Regulates the conduct of general insurers
Life Insurance Act 1995
Regulates the conduct of life insurance
Australian Securities & Interests Commission (ASIC)
Regulates insurance brokers and intermediaries under laws set out in parts 7.6 to
7.9 of the Corporations Act 2001 (Cth
Australian Prudential Regulation Authority (APRA)
Established in 1998 to ensure bodies in the financial sector follow the
Commonwealth laws set out in the Acts mentioned previously
Develop their own administrative practices and procedures to be applied
when performing the regulatory role
Roles of APRA
1. Regulation of the finance industry
Includes the insurance industry
Balancing the following objectives:
Financial safety and efficiency

 Competition
Stability; and
Competitive neutrality
2. Advisory role to the Federal Government Minister
If APRA becomes aware that a body it regulates is having financial
difficulties, APRA has a specific obligation to inform the minister as soon as
practicable
3. Prudential standards for insurers
Prudential standards are standards that the insurers must meet on issues
such as capital adequacy requirements, which sets the limit general
insurers must meet:
For holding adequate liquid funds and appropriate types of assets to
meet their potential claim obligations
Risk Management
Governance
Reinsurance requirements
Audit requirements
Matters enabling actuaries to perform their role
4. Investigations into insurers
APRA has broad powers and can compel general insurers, auditors and
actuaries who act for general insurers to provide them with various types
of information on request
If APRA becomes aware that a body it regulates is having financial
difficulties, APRA has a specific obligation to inform the minister as soon as
practicable
Australian privicy principles
Set out in Privacy Act 1988 (Cth)
Compliance required for general insurers with a turnover of more than $3
million per annum
Assignment
Assignor
o

Owner of Property being transferred

Assignee
o

Person to whom the property is being transferred to

Property

All property can be assigned

Real property
Freehold land and the structures affixed to it
Personal property
Anything other than real property that can be owned
It covers any right or interest in property that can be moved
Chattels
Chattels real
Associated with real estate but is not real property eg leasehold interest
Chattels personal
Things you can touch and see - tangible physical items
Also covers intangible items such as interests in debts, shares, intellectual
property rights, rights under a trust and rights under contracts
Choses
Means Things
Choses in Possession
A tangible object in ones physical possession
Can be visually inspected and evidence of transfer of physical possession
is easy to determine
Choses in Action
Covers everything that is no a chose in possession - Intangible property
Originally created to cover a right against a particular individual such as a
debt
Effective transfer of the legal and/or equitable rights of a chose in action is
dependent on drafting effecting the assignment
Examples of Choses in Action
The benefit of contracts
Intellectual property rights
Insurance policies
Shares in companies and the rights associated with them
Rights of beneficiaries under trusts
The right to sue under torts, breaches of contract, and under legislation
such as the Competition and Consumer Law and Corporations Act

Transferability
Some choses in action are not transferable or can only be transferred
through prescribed procedures
May not be transferable where:
The contract giving rise to the chose in action is silent on assignment; or
Expressly states it is not assignable
Example of a prescribed procedure
Shares in a company
Shareholders having signed a shareholders agreement
Shareholders agreement contains procedures followed to effect the
transfer of those shares
Practical Enforceability
Whether or not the assignee will have the ability to enforce the chose in
action following assignment without involving the assignor
Does the assignee have the capacity to enforce the rights transferred without the
involvement of the assignor?
Assignment of a Chose in Action
The assignor cannot unilaterally transfer its obligations and contract out of
the right held by a third party
Therefore
An assignee receives an assignment subject to the equitable rights any
parties may have against the assignor
Consent of Parties
Deed of Novation
Requires the consent of all parties to the original contract and the new
party
Assignment
May not require the consent of all the parties
When to prepare
Deed of Novation
One party wants to assign both its obligations and rights under the
contract to a third party
Brings the original contract to an end and creates a new contract between
the parties, where the assignee steps into the shoes of the assignor and
the assignor is released from all obligations it owes under the original
contract

1) There must be clause in the contract between A and B that allows A to

assign its rights and obligations under the contract
2) C will require A to assign its rights and obligations under the contract with
B to C
3) This will then allow C to take over the supply of goods to B
4) A will then be released from all future obligations under the existing
contract with B as it will no longer have any involvement in the business
Assignment
Where the party assigning their rights will continue performing their
obligations under the original contract but want to dispose of some or all
of their rights under the original contract to a third party
Assignment Clauses
Contracts often contain an assignment clause but it may be qualified requiring A to obtain Bs prior written consent before it can assign
Contracts may also specifically prohibit the assignment of rights and
obligations
Personal services contract
Contracts that do not have an assignment clause
No clauses dealing with the right of assignment
No prohibitions on A from assigning its rights and obligations to C so the
rights could be assigned without seeking the consent of B
However, A would still require the consent of B to an assignment of rights
and obligations
Assignments under Statutes
Property Law Act 1958 (Victoria)
s134 the assignment of an existing debt or legal chose in action must be
in writing and express notice given to the person liable for the debt or
legal chose in action
On the date of the notice, the assignment will effect the transfer of:
The legal rights to the assignee
All legal and equitable remedies available to the assignor for the
debt or legal chose in action to the assignee; and
The power to discharge the debt or legal chose in action without the
agreement of the assignor
Consideration is not required if transferring under this section
Guarantees

Definition
A contract that creates an obligation on the Guarantor to satisfy
liability owed by another party to a third person
A collateral contract where one party agrees to answer the debt,
default or miscarriage of another, who is or is contemplated to
become liable to a third party to whom the guarantee is given:
Mason CJ, Sunbird Plaza Pty Ltd v Maloney (1988) 77 ALR 205.
A contract that creates an obligation on the guarantor to satisfy
liability owed by another person to a third person
The Guarantors obligations under the guarantee are:
Considered to be a secondary obligation ancillary and based upon
the Principal Debtors present or future liability
Dependent on the continued existence and enforceability of the
Principal Debtors obligation to be the Guarantor In McDonalds
Case Justice Starke described this concept as the essence of the
guarantors obligation without a primary obligation there is no
guarantee
Obligation under the guarantee ends when principal obligation is
extinguished or no longer exists
Liability of the Guarantor and the Principal Debtor must be
coextensive: Yeoman Credit Ltd v Latter [1961] 1 WLR 828
The Guarantor will not be held liable if the principal debtors obligation has been:
Discharged
Significantly changed
OR
Otherwise has come to an end
If you are acting for a Creditor include in the guarantee:
Guarantors obligations do not come to an end where the principal
debtor becomes:
Bankrupt
Wound up (liquidation)
Placed into receivership or administration
Enters into a scheme of arrangement with its Creditors