Summary Complete Making The Offer PDF

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Summary complete 'Making the Offer'.pdf
Commercial Law (Monash University)
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Making The Contract: Offer and Acceptance

Overview
Offer
Has an offer been made?
An offer exists where one person indicates to another a willingness to enter into a
binding agreement on certain terms.
Distinguished from: Harvey v Facey
An offer or statement of present intention?
Indication of possible future contract
Harris v Nickerson: advertising at an auction was not an offer, but a statement of
intention.
An offer or an invitation to treat?
Advertisements: Partridge v Crittenden
Retails: Fisher v Bell
Catalogues: Grainger & Sons V Gough
Ecommerce: Smythe v Thomas (pg 174)
Withdrawing the offer
Can be revoked prior to acceptance: Routledge v Grant
Must tell offeree about revocation: Bryne v Van Tienhoven
Cannot unilateral offer until offeree has had opportunity to complete: Carhill v
Carbolic Smoke Ball
Rejecting the offer
Counter offer acts as a rejection: Hyde v Wrench (pg 180)
A request to clarify the terms is not a counter offer: Stevenson Jacques v Mclean.
A reasonable person test is used to determine whether an offerees response ought
to be regarded as a counter offer or as a mere request for clarification.
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Overview
Acceptance
Accepting the offer
Only offeree may accept (Expressly/by Implication)
Must be final and unqualified (bound by agreement): Masters v Cameron
Battle of the forms: Butler Machine Tool v Ex-Cell-O-Corp
Courts determine how the offeree determine intention by an objective standard.
Has acceptance been communicated?
Method must confirm to offerors requestments
Timing of acceptance must confirm to offerors requrements
The contract has not been made until acceptance has been communicated to the
offerer: Tallerman V Nathans Merchandise (pg 186)
Postal Acceptance Rule
Only applies where post is a valid method of acceptance.
Acceptance occurs when the letter is posted.
Lapse of Offer
Death of a party terminates an offer: Fong v Cilli (pg. 189)
Where no time is mentioned, the offer remains open for a reasonable time:
Ramsgate Victoria Hotel v Montefiore
Lapse due to failure of condition precedent
The agreement must be certain
General rule: For agreement to be binding, it must be sufficiently certain in all its
essential elements (not ambiguous or contradictory), otherwise it is void.
An agreement to agree is not binding because it is uncertain.
An agreement to negotiate in good faith is unenforceable.
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Making The Contract: Offer and Acceptance

Types of Contract
3 Questions to ask when analysing contracts

1. Does a contract exist?
2. What does the contract say and has it been breached?
3. What remedies are available to the innocent party?
What is a contract?
A contract is essentially an agreement between two or more persons which will be
enforced by a court of law.
Contracts generally maybe entirely in writing, entirely oral or party written and partly oral.
(Some contracts such as land sales and guarantees are required to be in writing under
statute)
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The 4 Essential Elements of a Contract
Contracts Overlap with Other Law

1. Unconscionable Conduct
Amadio
2. Misleading Conduct
Collins v Henjo
3. Negligent Misrepresentation
Esso v Mardon
Remedies
1. Damages (Most common Remedy)
2. Termination - (If serious breach)
3. Specific performance orders
4. Injunction
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Offer
An offer is an indication by one person that they are prepared to enter into a binding
contract based on certain terms
makes offer to
Offeror
Offeree
There must be an intention to make an offer (Harvey v Facey)

If not an offer, then what else might a statement be?
a. Merely indicating a possible course of future conduct. (Harvey v Facey)
b. Merely indicating a present Intention (Harris v Nickerson)
c. Conduct that is merely part of the negotiations
d. An invitation to treat.
Not all proposals or statements are considered offers. In many common commercial
situations, statement or conduct are regarded as mere invitations to treat. This means that
the party making the statement is inviting others to make an offer, which the first person
may then reject or accept. Decisions in cases have made it clear what is an offer and who is
making the offer in a number of scenarios.
Advertising
Generally ads would be an invitation to treat (Partridge v Crittenden, Carlill v
Carbolic Smoke Ball Co)
Ads can be offer when there is clear evidence showing intention to made an
offer (Carlill V Carbolic Smoke Ball Co p.g 159)
Retailing display with price tag (Fisher v Bell, Pharmaceutical Society of Great Britain v
Boots Cash Chemists (Southern) Ltd)
Catalogues (Grainger & Sons v Gough)
Auctions
Tenders (Hughes Aircraft Systems International v Airservices Australia, Harvela

Investments Ltd v Royal Trust Co of Canada Ltd)
Generally, the tenders makes the offer , not the person calling for tenders:
Spencer V Harding
Because the tender makes the offer, the tenders is free to choose whichever
tender is wished
It is not bound to accept the lowest tender or any of the tenders
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However, if there is clear evidence show the intention to accept the lowest
tender, the contract is bound (Harvela Investment V Royal trust of Canada)
The tender document setting out terms and procedure should be complied
(Hughes Aircraft system International V Airservices Australia )
Revoking (or withdrawing) an offer (See 4.25 - 4.31 in your book.)
The offer can be revoked any time before acceptance (Routledge V Grant).
However, revocation must be communicated to the offeree, otherwise the offer stand
and revocation will not be effective until it has actually been communicated to the
offeree (Byrne & Co v Van Tienhoven & Co)
Revocation of the offer must be communicated to the offeree. However, it does not
necessarily to be communicated by the offeror in person (Dickinson V Dodds).
Certain offers (Options) may not be revoked. (Goldsborough Mort & Co Ltd v Quinn)
An option is effectively a contract to keep the offer open. It exits where the
offeree has given sth of value to keep the offer open.
The option must be exercised strictly in accordance with its terms. If the
options has to be exercised within five days, it cannot be accepted on the 6
day
Unilateral offer
The offer has acted on the promises, the offeror will normally be prevented
from withdrawing the offer until the offeree has had a reasonable
opportunity to complete.
Rejection of an offer (See paragraphs 4.32 - 4.34 in your book.)
An offer may be rejected expressly or by implication. The importance of rejecting an

offer is that the offer is terminated on rejection and cannot subsequently be accepted:
Hyde v Wrench
Offerees Conduct: Rejection may be done by the offerees conduct, doing sth that is
inconsistent with an intention to accept
Counter Offer: An offer is rejected by the offer making a counter offer
Counter offer by asking for lower price (Hyde V Wrench)
counter offer by adding new terms & conditions in the contract (Turner,
Kempson & Co V Camm)
A counter-offer also rejects the initial offer and becomes a new offer that can
then be accepted or rejected.
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Asking for clarification of the terms of an offer is not a counter offer

(Stevenson Jacques & Co V Mclean)
Acceptance of an offer (See paragraph 4.36 - 4.38 in your book.)

Acceptance of the offer by the offeree creates the agreement. Again, there are a number of
rules to be applied:
Only the offeree may accept the offer;
Acceptance must be final and unqualified; Masters v Cameron

The offerree must intend to be bound by the agreement without reserving right
the change the terms or mind.
If the offeree made his acceptance subject to being approved by my solicitors ,
there would be no contract because the offeree is reserving the right to change
the terms or mind.
Acceptance must generally be communicated to the offeror: Felthouse V Bindley

The contract is not made until acceptance has been communicated to the offeror
: Tellerman & Co V Nathans Merchandise
Silence does not amount to acceptance (Felthouse V Bindley)
The offeror cannot force acceptance upon the offeree: (Felthouse V Bindley)
Communication to a large company
the acceptance occurs when the relevant letter or other communication is
opened
If the acceptance is received in the middle of the night. The contract is probably
not made until the office opens for business the next morning
Communication over the internet
An electronic communication is received when it enters an information system

designated the addressee as the system for the receipt of electronic
communication or if no system is designated, when it comes to the attention of
the addressee
When express communication of acceptance is not necessary

-
Parties have dealt regularly with one another in the past, it reasonable to conclude
on the basis of those past dealing that a contract exist even though the offeree has
not formally accepted.
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Where the parties in the same industry and the custom within that industry suggests
that formal acceptance is not necessary
Acceptance may be indicated by conduct
In the case of unilateral contracts,
The postal rule
The postal rule

-
Actual communication of acceptance is not necessary where the offeror has

expressly or impliedly accepted the ordinary post as the mean of communication
between the parties: (Tellerman & Co V Nathans Merchandise)
The acceptance occurs when the letter is posted: (Tellerman & Co V Nathans
Merchandise)
The postal rule is not apply to the mode of communication to be said to be

instantaneous (face to face, telephone conversation, private fax, private telex) nor
will it apply to communication by email or internet (Brinkibon V Stahag Stahl and
Stahlwarenhandelsgeellschaft mbH p.175)
For the postal rule to apple, there must be evidence that the offoror has accepted
the post as the method of acceptance. The evidence may be express where the
offoror states that post is the only mean of communicating the acceptance. The
evidence may be implied where there is no other evidence to indicate that the post
was not an appropriate method of communicating acceptance
Lapse of Offer
Due to times
Time limit
-
The offer lapsed at the time of limited time. Ex: Friday midnight
No time limit
-
When no time limit is mentioned, the offer remain open for a reasonable time:
Ramsgate Victoria hotel V Montefiore
If the offer stated that acceptance was expected by mail, offer would remain open for as
long as it would take, in the normal course of event. For return mail to reach the offeror.
Due to the failure of a condition precedent
An offeror may take an offer conditional on the happening of a particular event. If the
condition is not satisfied, the offer lapses and cannot
be accepted.
The Rules of Offer and Acceptance
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Making the Contract: Intention and Consideration

Overview
Intention
Did the parties intend to contract?
The courts use the reasonable persons test to decide whether parties intended to
contract: Taylor v Johnson
Social or domestic agreements?
Balfour v Balfour (pg. 203): Domestic agreement had not intended to be legally binding.
Commercial Agreements
Courts try to enforce commercial agreements (presumably legally binding)
Rose and Frank v Crompton: Bo contract due to clear intention to not create legal
relations.
Letters of comfort or support
Kleinwort Benson v Malaysian Mining Corp (Pg. 206)
The standard letter of comfort is unlikely to be binding.
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Overview
Consideration
(Parties must provide something of value does not have to be equal)
(Consideration is something of value provided for a promise)
Two types of enforceable agreements:
Simple contracts, which require consideration: Rann v Hughes
Deeds (contracts under seal), which do not require consideration.
Examples of consideration
A promise to do something.
A promise not to do something.
Doing something: Carlill v Carbolic Smoke Ball
Refraining from doing something.
Only parties to the contract can sue
Privity of contract rule.
If the promise is made by the promisor or two or more persons jointly, only one of those
persons needs to provide consideration: Coulls v Bagots Executor
Consideration may not be past
Warranties must be sought and given prior to the making of the contract: Roscorla v
Thomas (pg 215)
Consideration may be present or future but cannot be past.
Consideration must be sufficient
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Renegotiating contracts
Mitchell v Pacific Dawn (pg 220)
Traditional View: A promise to perform contractual duty already owing will not be good
consideration unless there is something in addition: Stilk v Myrick
Modern Development: Williams v Roffey Bros & Nciholls Roffey was ordered to pay
Williams agreed extras.
Exception from Stilk v Myrick rule remains unclear.
Renegotiating a debt
Rule in Pinnels case: As the parties agreed that the debt was to be repaid prior to the
due date this amounted to something extra.
Foakes v Beer (pg 244): refused to overrule principle.
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Intention
Without proving that parties intended an agreement to be legally enforceable, a contract

does not exist.
The court use the reasonable person test to decide whether the parties intended to
contract: Taylor V Jonhnson
Generally, courts begin answering this question by assuming that

parties to social or domestic agreements did not intend to contract: Balfour v Balfour
Todd V Nicol (have intention in domestic agreement)
parties to commercial agreements did intend to contract: Rose and Frank Co v J R
Crompton & Bros Ltd
These presumptions can be rebutted if it can be shown that a reasonable person present
at the time would have concluded that the arrangement was contractual.
Intention in common commercial situations (See paragraphs 5.4 - 5.9 in your

book.)
Trade promotions
Trade promotion had intention to be legal binding with those who are matched with
their explicit advice (Esso Petroleum Ltd v Commissioners of Customs and Excise)- free
coin
Letters of comfort or support

Kleinwort Benson Ltd v Malaysia Mining Corporation Bhd (not binding case)
Used in support of a loan application where a formal guarantee cannot be given.
The letters are provided where the provider does not which to give a formal guarantee.
Letter of comfort shows intention not to be legal binding
Heads of Agreement and Letters of Intent

Whether the parties intended to be bound by their document depends on the
circumstances of the case.
(binding) Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd and (not binding) Coal
Cliff Collieries Pty Ltd v Sijehama Pty Ltd
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Agreements subject to contract

Generally, the courts regard tthe agreement that is subject to a contract that to be
created later or made subject to contract is not binding : (Masters V Cameron)
contract to masters case, it could be binding (Plastyne Products Pty Ltd v Gall
Engineering Co Pty Ltd)
Agreement made without prejudice

It depends on the facts that whether the parties intended to be bound
Tallerman & Co V Nathans Merchandise (binding), Gregory V Philip Morris (not
binding)
Consideration (See paragraphs 5.10 - 5.33 in your book.)

Consideration is a legal terms that means something of value provided or promised by the
parties to a contract.
Where the agreement was not executed in a deed, in other words, if it is a simple
agreement, there must be sufficient consideration (Rann V Hughes). Otherwise, there will
be not remedy
Consideration may be
A promise to do something Carlill V Carbolic Smoke Ball Co
A promise not to do something
Doing something.
Refraining from doing something
A benefit flowing to the promisor
A benefit flowing to a third person at the promisors direction
A detriment to the promisee.
Consideration may be present or future, but it cannot be past.

Past consideration is where you offer an act or forbearance that took place before the
promisors promise as valid consideration for the current transaction. (Roscorla v
Thomas p.g 199)
Any warranties must be sought and given prior to the making of the contract. Once
the contract is made, t is too late unless fresh consideration is provided.(Roscorla v
Thomas p.g 199)
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An exception to Roscorla V Thomas

If the agreement involve in providing service. It is common for service providers to
be hired without discussion of price until the service has been provided. Therefore,
the promise of fixed amount then related back to the request to perform the
services and was part of a single transaction. Caseys Patents : Stewart V Casey p.g
200
Consideration must be sufficient, but it doesnt have to be equal in value to the

promisors promise (Thomas V Thomas)
Consideration must be sufficient

Illusory promises are not consideration Dunton v Dunton (was too uncertain and
illusory to constitute consideration )
The courts has generally reject as enforceable promise made in consideration

of natural love and affection (Eastwood V Kenyon)
A promise made in return for a sons promise not be bore his father is not
consideration (White V Bluett)
Forbearance to sue or Giving up a legal claim is good consideration in

appropriate circumstance (Wigan v Edwards p.g 203)
Renegotiated contract requires new consideration (Mitchell v Pacific Dawn Pty
Ltd p204)
Renegotiated contract- promising to perform an existing contract is not good
consideration (Stilk V Myrick p 205)
Renegotiating a debt
The debtor has to provide sth extra (Pinnes Case)- give money back before due
time
If there is not fresh consideration(sth extra), the agreement is not bound

(Foakes v Beer)
An exception to Foakes V Beer
With creditor: pay $25 to each creditors- they cannot not sue for the other
$25
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With third party (father pay debt for daughter in lesser amount of debt )creditor cannot sue for the balance with daughter, as it would amount to
fraude on the third party (Hirachand Punamchand V Temple)
Simple contracts (See paragraph 5.12 in your book.)

Contracts that require consideration from both parties are called simple contracts. If there is
no consideration from both parties, there is generally no contract. The majority of contracts are
simple contracts, and all simple contracts require consideration. There is no special form for a
simple contract. A simple contract may be:
totally oral;
totally written; or
partly oral and partly written.
Formal contracts/deeds (See paragraph 5.11 in your book.)

A deed is a type of formal contract. It has a special signing or execution clause, which must
state that the maker of the deed signs, seals and delivers the document. It must be dated and
witnessed. A deed does not require consideration by both parties.
Promissory estoppel
The common law estoppel is used in appropriate circumstances to prevent a person from
denying an assumption of the fact which he or she has represented to another person and
upon which that other person has relied.
It does not deal with the assumption of the fact, but with representations or promises as
to future matter.
Agreement subject to contract cannot be used to make them binding.
Silence in pre-contractual negotiations may operates as an estoppel (Waltons Stores V
Masher)
Promissory estoppel is important where no contract exists as:
No consideration exists, particularly in the context of renegotiated agreements (Je
Maintiendrai Pty Ltd v Quaglia)
The formalities of making a contract have not been satisfied (Waltons Stores v Maher)
Step for apply promissory estoppel
Assumption the promiseors representation or other conduct must be sufficiently
precise and unqualified before the promisee, on the reasonable grounds, assumed that
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the legal relationship exit (Je V Quaglia) or would exist (Waltons V Masher) between the
promisor and promise. Mobi Oil australia V lyndel Nominees(To general in nature to
support promissory estoppel)
Induce - induce into a contract by express terms, implied term, being silent despite being
aware the promise had made the assumption
Reliance the promisee acted on the faith of the assumption
Intent- the promisor knew or intended the promise to rely on the assumption.
Detriment the promisee will suffer a detriment if the promisor is permitted to renege on
the promise
Remedy for promissory estoppel
The court will frame the remedy on the basic of the minimum order required to remove
the detriment (Commonwealth V Verwayen)
Once the detriment has been removed (ex: adequate compensation), the promisor is no
longer estoppel from going back on the promise.
Other requirements for a contract to be valid

A contract with a minor (anyone under the age of 18) for Sale of goods is not
enforceable unless the goods sold are necessaries: Nash v Inman
A person who is suffering from a mental disability or from intoxication by alcohol or
other drugs may be able to escape from a contract
Who can create a contract?

Generally any legal person may create a contract:
Companies, partnerships and adult humans may create contracts. A contract may be created by
an agent on behalf of someone else.
Only parties to the contract can sue for breach of contract this principle is called privity of
contract.
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Express Terms of the Contract

Overview
Express Terms
Relevant Evidence
Patrol Evidence Presumption: The courts are reluctant to permit one of the parties to
subtract form, add to, vary or contradict the language of the written instruments.
Post-Contractual Statements are not terms: A party cannot be bound by statements,
promises or representations made after the contract has been formed, unless fresh
consideration is provided: Roscorla v Thomas
1. Was anything signed?
A person who signs a document that has a contractual appearance about it is bound by
the contents of the document, even if they did not read the document: Toll v
Alphapharm p.g 248
Are there any factors that prevent the party from being bound?
1. The document didnt appear to be contractual: No reasonable person would be
realized the document they signed was a contract: Le mans Grand Prix Circuit v Iliadis
2. Misrepresentation: Misleading or deceptive conduct: Curtis v Chemical Cleaning that
found that although innocent, a false impression was created.
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3. Condition Precedent: (Subject To) bound only if a particular event occurs

4. The document does not accurately record the agreement.
2. Anything Unsigned?
Statements in unsigned documents may be terms of the contract.
Unsigned terms may be incorporated in to contract by reasonable notice: whether
document is contractual in nature, whether term was unusual, whether parties
discussed matter.
If reasonable notice has been given, it does not matter whether the other party read the
clause or not: Parker v South Eastern Railways
3. Are there any oral representations, which were intended to be terms?
Oral statements must be promissory in nature to be binding (classified as term of
contract)
The reasonable bystander test

If an intelligent bystander would reasonably infer that a terms was intended, that will
suffice.
Purpose: To determine which oral statement are promissory: As demonstrated in Oscar
Chest v Williams
Collateral Warranties (Promises)
Operates in conjunction with a main context.
Must be promissory: JJ Savage & Sons v Blakney
Must not contradict main contract: Hoyts v Spencer
What is the meaning of a term? (Reasonable person test)
Test determines whether a reasonable person in a similar situation would have
interpreted the meaning of the terms in the same way: Reardon Smith Line v HansenTangen
If the contract is in writing, the parties cannot introduce evidence to show that the
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contract meant something other than its literal meaning. Extra evidence is permitted if
ambiguities need to be clarified or if errors need to be corrected.
Exemption Clause
A form of a term
Limits or excludes liability
When examining step 1, Is a clause a term of a contract? (Same as deciphering other
terms (e.g. binding signatures, bystander test) Step 2, If it is term of contract, does it
cover the breach that has occurred?
Rules for interpreting exemption clauses
General rule for interpreting exemption clause: To be understood according to their
natural and ordinary meaning.
Guidelines in applying general rules:
Ambiguity Rules: Has to be specific or clear for breach to be covered: Photo

Production v Securicor Transport
Negligence Rules: Exemption doesnt cover breach if person is careless: White v
John Warwick
Four Corners Rule: Exemption clause can only cover an event that occurs within the
boundary of the actual contract: As seen in Sydney Corporation v West
Deviation Rule: If carrier strays from authorized route, they are liable and
exemption clause does not cover breach
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Express Terms
Is the conditions could be regarded as a term of the contract?
The three tests for establishing the express terms of a contract
1. Was anything signed? Signed docs are normally binding
(Toll V Alphapharm)
2. Is there any unsigned writing which has been incorporated into the contract?
Reasonable notice test (Parker V Sth Easter Railway)
3. Are there any oral representation which the parties intended to be terms?
Reasonable bystanders test (Oscar Chess V Williams)
1. Is the term made before or after the contract?
When contract is formed? This depends on the rules of acceptance
If Before: Bound
If After: not bound
A party cannot be bound by statement, promise or representations made after
the contract has been formed unless fresh consideration provided: (Roscorla V
Thomas)
As in the case (Thornton v Shoe Lane parking) where the contract was made
prior to the ticket being issued via the vending machine. The term is not bound.
Terms contain within sealed packing product are not bound unless they are
brought to the buyers attention prior to sale: (Hardchrome Engineering V
Kambrook)
2. Is it a signed contract?
Yes: Bound
In general rule, a person who signed a document that has a contractual appearance about it is
bound by the contents of the document (Toll V Alphapharm). The fact that person has signed a
document is strong evidence that that person has agreed to be bound by it.
Did the party read the contract before signing?

Yes/No: Bound
Even though they did not read the contract if the contract has a contractual
appearance, they will be bound by the contents of the document ( LEstange v F
Graucob)
Would a reasonable person would realize the documant is a contract?
No: Not Bound
If no reasonable person would have realized the document they signed was a contract,
they are not bound by his/ her signature/contract (Mans Grand Prix Circuits V Lliadis)
D J Hill And Co V Walter H Wright Not aware that the delivery docket contained
term and should be contractual agreement
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Was the party been induced into a contract?

Yes: Not Bind
Where a person has misrepresented the contents of the singed document, that person
will not be able to rely on the contents that have been misrepresented ( Curtis V
Chemical Cleaning and Dyeing)
Is it condition precedent?
Yes: Not bound
The signed contract will not be binding if the parties have made it subject to a
condition precedent
No (Answer the following questions)
Is there a reasonable notice was given before the party enter into a contract?
Unsigned documents or notices only become terms of the contract the other
party has been given reasonable notice of the terms by the party seeking to rely
on them
If a reasonable has been given , it does not matter whether the other party read
the clause or not (Parker V south Easter Railway)
In Maxitherm Boiler V Pacific Dunlop - Dunlop had been given reasonable notice
of the existence of the terms and conditions and must be taken to have agrees
to them
A reasonable notice test: it would be reasonable notice if
I.
Whether the document containing the term was contractual in nature

(would a reasonable person expect the document to contain terms and
condition? Oceanic Sun Line Special Shipping Co Inc v Fay
It is not sufficient merely to include an exemption clause in an
unsigned document where the document could not reasonably
supposed to contain contractual term, for example in a drycleaners
receipt (Causer V Browne)
II.
Whether the term is unusual for that type of contract

Yes: Binding/ No: Not binding
If the unsigned term is particularly unusual, extra notice will have
to be given
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd.
The contract was not formed until the good and the delivery note
had been delivered, and S retained the goods with making any
objection to the conditions on the note. However, this did not
mean that all the condition contained in the note were terms of
the contract. As the condition was wholly different to normal
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industry practice (charging for $5 instead of $3.5), I should have

drawn the Ss attention to the over-holding.
There were no unusual terms in the standard terms and
conditions (Maxitherm Boilers V Pacific Dunlop)
If yes: could the incorporation of the term be subject to any
oral statement to the contrary?
The parties was to contract on the basic of the oral
representation and not the basic of the conditions set out
in the catalogue. Therefore, the oral representation was
intended to be a warranty and prevailed over the written
terms (Couchman V Hill)
III.
Whether the parties discussed the matter.
3. Is it an oral statement or representation? And when the oral statement binding?

Only those statements which are promissory became terms. All other statement are
regards as mere representations.
In order to determine whether the oral statement are promissory or not, it is necessary
to apply the reasonable bystander test (Oscar Chess V Williams). The statement does
not have to be informed of a promise to become promissory., but the ultimate question
is whether the person making statement is to be taken to have warranted its accuracy,
that is, promised to make it good (Ellul V oakes). They were intended to be promissory.
Effectively, Blackman had promised that he would devote his best effort to building up
sales of USSC and that would not deal in a competing product.
In Hospital products V United states Surgica Corporation. They were intended to be
promissory. Effectively, Blackman had promised that he would devote his best effort
to building up sales of USSC and that would not deal in a competing product.
Reasonable Bystander Test:
1. Was there a written document?
Was the oral statement included in any written document?
YES:
If the statement was included in any written document drawn up the parties,
this is good evidence that the parties was treating the statement as sufficies
importance to be a term.
NO:
If the statement is left out of the document that suggest that the parties did not
intend it to be contractual binding.
Was it conflict with the written contract?
YES: where the term is conflict with the written contract, it will often be
difficult to convince a court that an oral statement should be added to the
written terms. This is the effect of the parole evidence rule, where the
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courts will favour the written document: Equuscrope V Glengallen

Investment
No: Where there us no conflict the courts are sometimes prepard to regard
the contract as partly written and party oral, that is, an oral representation
can added to written terms if the evidence sugguests that this is what the
parties intended(Van Den Esschert v Chappell)- white ant
2. How much time elapsed between statement and contract?
If the statement was made only once in the early days of negotiation before the
parties had really settled down to fashion their deal, it is doubtful that it would
be regarded as a term.
If the statement was made as the final inducement, it might very well be a term
as in case of Van Den Esschert V Chappell, but probable not if the oral term
conflicts with the written document: Equuscrope V Glengallen Investment
3. How important was the statement to the deal as a whole?
4. What words were used? (Were they clear and promissory?)
The more precise the language the more likely it is to be promissory
5. Did either party have special knowledge?
Oscar Chess Ltd v Williams p 243 - the statement was a mere representation
Ross V Allis Chalmer Australia p244 the agents statement was not a warranty,
it was merely a statement of opinion which in the circumstances was not
intended to be promissory.
Collateral Warranties
A collateral warranties operates in conjunction with a main contracts ( in order to make the
party into the contract, other party give sth to them)
To be a collateral warranty, a representation must be
Must be promissory by testing reasonable bystander test : JJ Savang and Sons V
Blakney (the boat speed p 245)
Must not contradict the main contract: Hoyts V Spencer
What is the meaning of the term?
Once statements are found to be terms, their meaning must be ascertained courts use
reasonable person test to interpret the meaning of terms (Taylor V Jonhson). If the contract is
in writing, the parole evidence rule will preclude the use of outside evidence to add to or vary
the written contract (Hope v RCA Photophone of Australia Pty Ltd) unless outside evidence is
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required to clarify an ambiguity, correct a mistake or to establish the background of the

contract.
Will the party protect by the term?
Exemption clauses include clauses which exclude liability (exclusion clauses) and clauses which
limit liability (limitation clauses). In examining an exemption clause, there are two basic
questions to be asked:
1. Is the exemption clause a term of the contract? The rules governing whether exemption
terms enter into a contract are essentially the same as for other terms.
2. What does the exemption clause mean?
1. The Ambiguity Rule
The rule state that any ambiguity in the exemption clause will be resolved against the
person seeking to rely on the clause and in favour other party: Photo Production V
Securicor Transport
An exemption clause that excludes liability for breach of warranty will not be sufficient
to protect liability for breach of condition: Wallis , Son & Wells B Pratt & Haynes
An exemption clause that excludes liability for breach of expressed condition or
warranty would not cover breach of an implied term and vice versa: Andrews Brothers
V Singer & Co
2. The Negligence Rule
If the person wishes to exclude liability for his/her own negligence, the exclusion clause must
do so clearly.
The rule apply by the courts is as follow:
Liability for negligence may be expressly or implicitly exclude, but
If the words of exclusion clause could reasonably be applied to protect against ground of
liability other than negligence, the negligence will not be covered.
White v John Warwick & Co Ltd p252 - Could not escape from liability, however, if the
clause stated that Nothing in this agreement shall render the owners liable for any
personal injuries tot eh riders of the machine hired, whether such liability arise from
negligence or otherwise or for any personal injuries of whatever kind of however
caused or all loss however caused or garaged at owner risk and the car park would
not be responsible for loss or damages of any description?
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In construing the exemption clause, the courts will presume that the parties did not intend to
exempt liability for breach of the fundamental terms or obligations of the contract.
Photo Production Ltd v Securicor Transport Ltd-protect by the clause- the security
negligently burnt down the building
3. The Four Corners Rule
Sydney Corporation V West dont cover authorized acted.
4. The Deviation Rule
Thomas National Transport V May & Baker outside the route
Unenforceable contracts (See paragraphs 6.39 - 6.41 in your book.)

Some contracts are unenforceable because they are contrary to law. For example, an
unauthorised gambling contract is void by statute. The Competition and Consumer Act 2010
(Cth) Pt IV prohibits price fixing contracts, resale price maintenance contracts, contracts
containing unlawful boycotts, unlawful mergers and unlawful exclusive dealing arrangements.
A contract to commit a crime is illegal at common law, as are the following:
Contracts for an immoral purpose;
Contracts to oust the jurisdiction of the courts;
Contracts tending to promote corruption in public life
Contracts prejudicial to the safety of the state.
In some cases the law declares a term to be enforceable without necessarily making the whole
contract void.
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Implied Terms in Contracts

Overview
Implied Terms
Terms implied by courts and by statue
Corporation
Term that is reasonably necessary to enable the other party to have the benefit of the
contract
Good Faith
Relational Contracts: Concerned with establishing ongoing relations (Rather than oneoff transaction)
Important amongst franchising agreements.
Burger King v Hungry Jacks: BK breached its implied obligation of good faith when it
withheld approval for the new Australian restaurants (Part of franchising agreement)
Specific types of contract
Professional person and clients: There is an implied term that the professional person
carries out contractual duties with reasonable care and skill (Service Contract)
Work and Materials: Implied terms that are contractor use reasonable care in
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performing the work; the service is reasonably fit for the purpose. Helicopter Sales v
Rotor-Word p.g 293
Hire Contracts: Goods are hired with implied obligation to ensure that the goods are
reasonable fir for purpose for which they are hired.
Landlord/Tenant
Employment: Employer has to provide safe system of work
Implied as a matter of fact
Court will imply term if it reflects the intention of parties.
Cannot be in conflict with express terms, or general tenor of contract
Past Dealings: Henry Kendall & Sons v William Lillico & Sons: Consistent course of past
dealings. D. J Hill v Walter H Wright: Court refused to imply a term based on past
dealings (one or two dealings not sufficient)
Custom or Trade: So well-known and widespread throughout industry that all contracts
of the same type can be said to have that term: Bell Group v Herald & Weekly Times
Necessary to make contract effective: what the parties via their actions and words
intended: The Moorcock (p.g 298)
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Implied Terms
Terms implied by courts generally (paragraphs 7.2 - 7.3)
It is risky to rely on the courts to fill in a gap in the contract. The courts will only do this in
limited circumstances. Primary responsibility is on the parties to make sure they get the
contract they intend. Courts will only imply terms where they believe the term reflects the
intention of the parties. Any implied term cannot be in conflict with an express term of the
contract, or with the general nature of the contract
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd
Generally courts will imply terms of:
a. Cooperation
b. Good faith Burger King Corp v Hungry Jacks Pty Ltd
Terms implied into specific types of contracts (paragraphs 7.4 - 7.9)

Professional Persons
Courts will imply a term that contractual duties are carried out with reasonable care and skill.
The standard of care is the same as that required of a professional person under the tort of
negligence (see Chapter 2)
Contracts for work and materials
Where reasonable, courts will usually imply terms that:
the contractor use reasonable care in performing the work;
the service be reasonably fit for the purpose for which it was acquired; and
any materials supplied in relation to the work be of good quality and fit for the
purpose for which they were supplied
Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd
Helicopter Sales (Aust) Pty Ltd v Rotor-Work Pty Ltd
Service Contracts:
The service provider is generally under an implied obligation to take reasonable care and skill in
providing the service and to ensure that the service is reasonably fit for the purpose for which it
was acquired.
Costa Vraca Pty Ltd v Berrigan Weed & Pest Control Pty Ltd
Hire Contracts:
Where goods are hired out, the party hiring out the goods is under an implied obligation to
ensure that the goods are reasonably fit for the purpose for which they are hired
Employment Contracts:
The employer has an implied (and statutory) duty to provide a safe workplace and to not to
require the employee to do any unlawful act. The employee has an implied duty to obey all
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reasonable instructions, to carry out work with an appropriate level of skill and competence,
act in good faith and keep the employers trade secrets confidential.
The Basis for Implying Terms (paragraphs 7.10 - 7.14)

Courts may rely on a number of factors in deciding whether to imply terms, or what terms to
imply. (see paragraphs 7.10 -7.14 in the text for more details)
Past Dealings - Henry Kendall & Sons v William Lillico & Sons Ltd
Custom or trade usage - British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd
To make a contract effective - The Moorcock, Codelfa Construction Pty Ltd v State Rail Authority
of New South Wales
Terms implied by statute (paragraphs 7.14 - 7.39)

Goods Act 1958 (Vic) (equivalent statute in other states) applies to a number of contract
including:
Sale of component parts to a manufacturer
Sale of raw materials
Sale of finished goods
Sale of industrial goods
International sales of goods
Terms implied into these contracts under the Goods Act include
Warranties:
Seller has the right to sell
Buyer will enjoy quiet possession of the good
Sale free from encumberances
Conditions:
Correspondence with description
Varley v Whipp
Beale v Taylor
Re Moore & Co Ltd and Landauer & Co
Correspondence with sample
Merchantable quality
Frank v Grosvenor Motor Auctions Pty Ltd
B S Brown & Sons Ltd v Craiks Ltd
H Beecham & Co Pty Ltd v Francis Howard & Co Pty Ltd
Bartlett v Sidney Marcus Ltd
Grant v Australian Knitting Mills
Fitness for a particular purpose
David Jones Ltd v Willis
Atkinson v Hastings Deering (Qld) Pty Ltd
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Griffiths v Peter Conway Ltd

Godley v Perry
Teheran-Europe Co Ltd v S T Belton (Tractors) Ltd
See 7.16 - 7.32 in the text for more detail on the Goods Act implied terms.
The Australian Consumer Law places similar terms (called consumer guarantees) into consumer
contracts.
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Remedies in Contract Cases

Overview
Remedies
Terms implied by courts and by statue
Terminating the Contract
By performance (Obligations have been met)
By agreement (Agree to discharge obligations)
By a term of the contract (If event/term occurs)
By frustration
Terminating by frustration
When an even occurs that makes it impossible to perform the contract as contemplated
by the parties. (Example Law Change, Injury or Illness, Destruction, Natural Disaster,
Property taken by the Government, unforeseeable delay)
Taylor v Caldwell: Hall Burnt down, destruction, neither parties fault.
Davis Construction v Farenham Urban Council: Not frustrated contract, because
commercial disappointment and delay was foreseeable.
Breaching term of contract
Examples of terms in a contract:

Time clauses in mercantile/commercial contracts
Tie clause in other contracts
Terms referring to quality
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When is a term a condition?

Because statute says so
Because the parties have expressly provided that the term be condition: L Schuler AG v
Wickman Machine Tool Sales
Goes to the heart of the contract: Associated Newspapers v Bancks
Determined by essential tests: Tramways Advertising v Luna Park
Termination for Repudiation
Occurs when one part indicates they will not perform contractual obligations. Entitles
the innocent party to terminate the contract: Penola Trading v Sunny Springs p.g 343
Termination of Anticipatory Breach
Form of Repudiation Before the time for performing the contract is due: National
Engineering v Chilco Enterprises
Process and Consequences of termination
Election to terminate must be unequivocal (Clear)
Not reversible
Party Terminating must prove ready, willing and able to perform process
Parties relieved of all future obligations
Affirmation means the contract is proceeding and gives other party the chance to rectify
breach: Foran v Wright
Damages
Purpose: Compensate the innocent party for losses suffered: Addis v Gramaphone;
Tabcorp Holdings v Bowen Investments
Losses must be caused by breach: Reg Glass v Rivers Locking Systems
Agreed Damages: Must be genuine estimate of damages and not a punishment.
Duty to mitigate losses (Plantiff must take reasonable steps to limit losses)
Not be too remote: Hadley v Baxendale: Two Limb Rules
Losses which flow from breach: Koufos v C Czamikow

If loss not in usual course of things, damages can only be claimed within reasonable
contemplation of parties at time contract is made: Victoria Laundry v Newman
Industries
Damages may be claimed for:

Expectation Losses: Commonwealth v Amann Aviation
Personal Injuries
Disappointment, distress, discomfort: Jarvis v Swans
Specific Performance (Discretionary Remedy)
An order by the court requiring one party to carry out contractual duties
Only ordered if damages are not an adequate remedy, as seen in Dougan v Ley
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Not available if it requires ongoing supervision by the courts.

Not available where such an order would require the defendant to undertake some
personal services: Lumley v Wagner
Injunction (Discretionary Remedy)
An order restraining a person from doing something
Not to be granted unless necessary
Other Remedies
Ratification: Altering the contract an error
Restitution: Separate Body of Law: Pavey & Mathews v Paul
Rescission
Nature of rescission in equity

Return parties to position prior to contract
Cancels contract from beginning, whereas termination for breach cancels contract from
moment of termination
Innocent party may make binding election to proceed
Rescission is act of innocent party
Court will imply term if it reflects the intention of parties.
Cannot be in conflict with express terms, or general tenor of contract
Substantial restitution not always possible
Academy of Health & Fitness v Power

Not permitted if legal rights of innocent third party adversely affected.
Car & Universal Financial Co Ltd v Caldwell
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Remedies in Contract Cases

Terminating (or ending) a Contract (paragraphs 8.2 - 8.23)
By performance, parties have done what they promised to do under the contract
Hoenig v Isaacs
By agreement between the parties
By a term of the contact - the contract may contain a requirement that, if not met, will
mean the contract is at an end. For example, a contract for the sale of a house may be
conditional upon the purchaser selling their existing home. If the purchasers home
does not sell, the contract is terminated
By frustration - where an intervening event, not contemplated by the contract nor the
fault of either party, makes performance of the contract impossible or radically
different to that originally contemplated Taylor v Caldwell and Davis Contractors Ltd v
Fareham Urban District Council
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Termination for a breach of a term of the contract (paragraphs 8.5)
We must work out if the term in dispute is a condition or a warranty. This is very important,
because if a condition is breached, the innocent party can end the contract and/or sue for
damages, but if a warranty is breached, the injured party can only sue for damages, not end the
contract. Warranties can be thought of as lesser terms.
How do we recognize that a term is a condition?

Because a statute says so; or
Because the term goes to the very heart of the contract Associated Newspapers Ltd v
Bancks
Because the parties have expressly provided that a term is a condition L Schuler AG v
Wickman Machine Tool Sales Ltd.
Common Terms
Terms about timing - these terms are generally presumed to be conditions in contracts
between merchants (those in the business of buying and selling goods) and warranties in other
contracts.
Bunge Corporation New York v Tradax Exports SA Panama
Bettini v Gye
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Intermediate Terms (Paragraph 8.15.)

Sometimes it can be difficult to determine if a term is a condition or a warranty. Courts can
decide in these cases that terms are intermediate. This means that the seriousness of the
breach will determine the remedy available to the innocent party.
Serious breach provides innocent party with same rights as if a condition was breached.
Minor breach-provides innocent party with the same rights as a warranty was breached.
Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd
Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord)
Repudiation (Paragraph 8.16)

Repudiation occurs where one party to the contract indicates that he or she will not perform
(or will not substantially perform) his or her contractual obligations. It applies whether the
repudiating party is unwilling to perform or unable to perform. Repudiation entitles the
innocent party to terminate the contract.
Penola Trading Co Pty Ltd v Sunny Springs Pty Ltd
Termination for an Anticipatory Breach (Paragraphs 8.17 - 8.19)

Anticipatory breach occurs where one party indicates to the other party before the time for
performing the contract is due that they will not be able to perform their side of the contract
(either wholly or in part). Anticipatory breach is a form of repudiation.
The threat must be clear and unequivocal
Both parties remain bound by their contractual obligations
National Engineering Pty Ltd v Chilco Enterprises Pty Ltd
The procedure for termination (paragraphs 8.20 - 8.22.)
If innocent party decides to terminate, this must be unequivocal and communicated

to other party.
The terminating party cant change their mind.
Party terminating must prove that they were ready, willing and able to perform their
part of the contract.
Parties are relieved of all future obligations.
If innocent party decides not to terminate the contract, this means the contract is
affirmed as still proceeding and gives the other party an opportunity to rectify the
breach.
Foran v Wright
Damages (paragraphs 8.25 - 8.37.)
Damages are: a monetary payment calculated to compensate the innocent party for
the loss caused by the breach of contract. Damages are available for every breach of
contract terms. If the term breached is a condition, the innocent party may also choose
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(elect) to end the contract as well as seek damages.
Damages are calculated to put the plaintiff in the position he or she would have been
in if the contract had been properly performed.
Addis v Gramophone Co Ltd
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd
Plaintiff can only obtain damages for those losses which were caused by the breach
of contract Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd
Plaintiff has a duty to mitigate their losses. This means that the plaintiff must take
reasonable steps to limit the losses flowing from the breach.
The harm caused by the breach must not be too remote.
There are two limbs to the remoteness rule as explained in Hadley v Baxendale:
1. The party in breach will be liable for losses which flow according to the usual
course of things from the breach Koufos v C Czarnikow Ltd
2. Otherwise, the party in breach is only liable for losses that were within the
reasonable contemplation of the parties at the time the contract was made Victoria
Laundry (Windsor) Ltd v Newman Industries Ltd
Damages can be awarded for;
Expectation losses Commonwealth v Amann Aviation Pty Ltd
Personal injuries, and disappointment
Distress and discomfort
Jarvis v Swans Tours Ltd.
Baltic Shipping Co (The Mikhail Lermontov) v Dillon
Specific performance
A specific performance order is an order by the court requiring one party to carry out
his or her contractual obligations.
Specific performance is a discretionary remedy (the court is not required to grant it courts are required to grant damages), it is only ordered if an award of damages would
not be an adequate remedy
Not available where such an order would require ongoing supervision by the courts
Not available where such an order would require the defendant to undertake some
personal service.
Dougan v Ley
Lumley v Wagner
Injunctions (Paragraphs 8.39.)

An injunction is a court order, usually restraining a person from doing something.
Injunctions are also a discretionary remedy like specific performance orders
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An injunction will not be granted unless it is necessary, ie where there is evidence that the
breach will continue or will occur again.
An injunction will generally not be granted where it amounts to an order for specific
performance of a personal services contract.
Rescission (Paragraphs 8.43 - 8.62.)

Rescission is the act of bringing a contract to an end. The parties are restored as far as possible
to the position they occupied immediately prior to the contract. A contract may be rescinded
for:
Misrepresentation;
Duress North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd
Undue influence; OSullivan v Management Agency & Music Ltd, Lloyds Bank Ltd v
Bundy
Mistake; Taylor v Johnson, Cundy v Lindsay
Unconscionable conduct. Blomley v Ryan
Some statutes also allow for the rescission of contracts.
Rescission is not the same as termination. Rescission wipes out the contract. Termination
merely stops any further performance of the contract. There are restrictions applying to the
right to rescind.
Rescission is not permitted if substantial restitution is not possible the purpose is to return
the parties substantially to the position they occupied prior to the contract.
Academy of Health & Fitness Pty Ltd v Power
Rescission is not permitted if the legal rights of an innocent third party will be adversely
affected. Car & Universal Finance Co Ltd v Caldwell
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Consumers' Rights and the Supply of Goods and Service

Overview
ACL (Australian Consumer Law)
The buyer of a good has certain rights against suppliers.
Necessary to understand
Step 1: What is meant by a consumer

Step 2: What the guarantees are.
Step 3: What the remedies are.
Section 3(1): Defines Consumer (Step 1)

(a) The amount paid did not exceed $40,000
(b) Goods were ordinarily acquired for personal, domestic or household consumption.
Not proven in: Crago v Multiquip or
(c) A vehicle or a trailer acquired for use principally to transport goods on the public
road.
Section 3(2): Defines what is not a consumer contract.
(a) Acquired good for purpose of re-supply
(b) Acquired for purpose of using them up or transforming them in trade or commerce:
i. In Course of production manufacture
ii. In the course of repairing or treating other goods or fixtures on land
Trade or Commerce:
Goods must be supplied in trade or commerce for guarantees to apply (s 54-59)
Can include second hand goods: Atkinson v Hastings Deering: not a consumer contract
Can include online auction (Like eBay)
Traditional auctions excluded: Defined by s(2)
Section 54: Guarantee of acceptable quality:
(2) Goods are of acceptable quality
(3) Supplier is not responsible for all defects (if pointed out to consumer before sale):
Grant v Australian Knitting Mills: not merchantable quality.
Section 55: Guarantee of fitness for any disclosed purpose:
(2) The goods are fit for any disclosed purpose, and for any purpose in which the
supplier represents that they are reasonable fit for
(a) Consumer must make known purpose
Does not apply if the consumer has no reliance: Carpet Call v Chan
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Section 56: Guarantee that goods correspond with description

Consumer has action against supplier if the good do not correspond with the description
by which they are sold: Beale v Taylor p.g 394: Car did not match description.
Section 57: Guarantee that goods respond with sample
Consumer has action against supplier if the good do not respond with the sample or
demonstration model in quality, state or condition.
Section 64: Guarantees may not be excluded
Attempt to do so is void
Section 64A(1): Liabilities may be limited in certain circumstances
Seller can limit liability if contract for the sale of a good was not purchased for personal,
household or domestic purposes.
Limited liability:
(a) Replacement of goods
(b) Repair of goods
(c) Paying for replacement of goods
(d) Paying for repair of goods
Limitation must be fair and reasonable: 64A(3):
The relative bargaining strengths

Did buying having opportunity to acquire without limitation clause
Whether the buyer knew of term
Whether the goods were specifically adapted for the buyer
Remedies for breach of statutory guarantees

Major Failure: s260
The goods depart significantly from the description or sample or model by when they
were sold.
The goods are substantially unfit for normal purposes or any disclosed purpose, and
cannot be fixed (fit for purpose) at all or easily or in a reasonable time.
Goods are not accepted quality because they are unsafe
Minor Failures: s259 (2)

If failure to comply with guarantee can be remedy within a reasonable time and is not a
major failure.
Time limits on the right to reject goods
Starts: When goods are bought. Finishes: When defect has become apparent.
Factors that determine when defect should have become apparent, set out in s262(2)
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Remedies for major failure (ss 259, 261, 263)
Reject or return good (within a reasonable time)

Seek refund (s 261)
Seek replacement
Seek compensation for reductions of price paid
Seek damages for any reasonably foreseeable losses caused by the failure of guarantee
Remedies to minor failures
Repairing the goods

Replacing the good with goods of an identical type.
Providing consumer with refund (s 261)
Retailers right of indemnity: s274

When the manufacturer is at fault, they are liable.
Manufacturer can limit liability (limitation clause) to replacing or repairing goods: s276A
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Consumers' Rights and the Supply of Goods and Service

Consumers rights against the suppliers of goods (Paragraphs 9.2 - 9.20)
The ACL provides the buyer of goods with certain rights against the supplier of those goods
provided the buyer is a consumer. Those rights are called guarantees.
To understand those rights it is necessary to understand:
What is meant by a consumer;

What the guarantees are; and
What the remedies are.
What is meant by a consumer (paragraph 9.3)

Section 3 of the ACL sets out who is a consumer.
There are two parts to the consumer test.
a) The goods MUST be;
Less than $40,000, OR

Of a kind ordinarily acquired for personal, domestic or household use or
consumption, OR
Vehicle or trailer acquired for use principally in the transport of goods on public
roads.
b) The goods MUST NOT have been acquired for
The purpose of re-supply; or

The purpose of using them up or transforming them, in trade or commerce:
(i) In the course of a process of production or manufacture; or
(ii) In the course of repairing or treating other goods or fixtures on land.
So, must have one of the points under part a) and none of the points under part b)
Atkinson v Hastings Deering (Qld) Pty Ltd
If these provisions do not apply to a transaction, the implied terms of the Goods Act, discussed
in Chapter 7 may apply.
What are the statutory guarantees? (See paragraph 9.4 in your book.)
Where a person supplies goods to a consumer, the supplier guarantees that:
The supplier has a right to transfer ownership the goods: s 51;

The buyer has the right to undisturbed possession of the goods: s 52;
The goods are free from any security, mortgage, charge or encumbrance: s 53.
The goods are of acceptable quality: s 54;
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The goods are fit for any disclosed purpose, and for any purpose for which the
supplier represents that they are reasonably fit: s 55;
Where the goods are sold by description, the goods match the description: s 56;
Where goods are sold from a sample, the goods match the sample: s 57; and
The supplier will comply with any express warranty they give: s 59(2).
It is possible, of course that goods acquired by a consumer might fail to comply with more than
one of the statutory guarantees.
Except as provided by s 64A, suppliers are not permitted to exclude, restrict or modify the
statutory guarantees. Any attempt to do so is void: s 64.
Guarantee the goods are of acceptable quality: s 54 (paragraph 9.7)

Goods are of acceptable quality if they are as:
Fit for all the purposes for which goods of that kind are commonly supplied; and
Acceptable in appearance and finish;
And free from defects;
And safe;
And durable;
As a reasonable consumer would regard as acceptable.

The supplier is not responsible for defects pointed out to the consumer before sale. Where the
consumer examines the goods prior to sale, the supplier is not responsible for any defects that
the examination ought reasonably to have revealed.
Grant v Australian Knitting Mills
Guarantee off fitness for any disclosed purpose (See paragraph 9.8)
If the consumer makes known the purpose for which goods are required and the consumer
relies on the sellers skill in choosing the appropriate goods, then the consumer has an action
against the supplier if the goods are not reasonably fit for that purpose.
The guarantee does not apply if the circumstances show that the consumer did not rely on, or
that it was unreasonable for the consumer to rely on, the skill or judgment of the supplier or
the manufacturer or other person.
Carpet Call Pty Ltd v Chan
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Guarantee that goods correspond with description (See paragraph 9.9)

The consumer has an action against the supplier if the goods do not correspond with the
description by which they are sold.
Beale v Taylor
Guarantee that goods correspond with sample (See paragraphs 9.10)

Where goods are sold by reference to a sample or demonstration model, the consumer has an
action against the supplier if the goods do not correspond with the sample or demonstration
model in quality, state or condition. This guarantee also ensures that the buyer has a
reasonable opportunity to inspect the goods supplied, to compare them with the sample.
Liability may be limited where goods not normally bought for personal etc use
(See paragraphs 9.12-9.13.)
Although the statutory guarantees may not be excluded, the supplier is entitled in certain
circumstances to limits its liability. This only applies to goods not normally bought for personal,
household or domestic use.
Under s 64A(1), the seller is permitted to limit its liability to:
(a) replacement of the goods; or
(b) repair of the goods; or
(c) paying for the cost of replacing the goods; or
(d) paying for the cost of repairing the goods.
Remedies for goods (See paragraphs 9.14-9.19 in your book.)

Major failure if;
the goods would not have been acquired by a reasonable consumer aware of the
nature and extent of the failure; or
the goods depart significantly from the description or sample by which they were
sold; or
the goods are substantially unfit for either their normal (or any disclosed) purpose,
and they cannot, easily and within a reasonable time, be remedied to make them fit
for such a purpose; or
The goods are not of acceptable quality because they are unsafe.
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If the breach of statutory guarantee is not a major one, the supplier may remedy 9.18 the
breach by:
Repairing the goods; or

Replacing the goods with goods of an identical type; or
Providing the consumer with a refund: s 261.
Where a supplier (for example, a retailer) incurs damages or costs as a result of 9.20 a failure to
comply with the statutory guarantees and the failure is due to the manufacturer, the supplier is
entitled to be indemnified by the manufacturer for those damages and costs: s 274
Consumers action against the manufacturers of goods (See paragraphs 9.219.24)

The ACL requires manufacturers to provide similar guarantees as those imposed on suppliers.
Manufacturer includes growers, producers, importers (where the actual manufacturer is
located overseas), assemblers, own branders and component part makers: s 7
The ACL gives the consumer a right to sue the manufacturer directly in certain situations.
This is in addition to the right to sue for safety defects: see Chapter 2.
Obligations on manufacturers (See paragraphs 9.21 in your book.)

A consumer may sue the manufacturer for damages where the goods:
Are not of acceptable quality (s 271(1)); or

Do not correspond with the description applied to the goods by or with the consent
of the manufacturer: s 271(3).
The consumer may also sue the manufacturer for damages where:
The manufacturer fails to comply with its obligations to provide repair facilities and
spare parts under s 58: s 271(5). Section 58 requires the manufacturer to guarantee
that it will take reasonable action to ensure that facilities for repair of the goods, and
parts for the goods, are reasonably available for a reasonable period after the goods
are supplied; or
The manufacturer fails to comply with an express warranty given by the
manufacturer: s 271(5).
As with suppliers, manufacturers are not permitted to exclude these rights: s 276.
Graham Barclay Oysters Pty Ltd v Ryan
Medtel Pty Ltd v Courtney
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Consumers rights against the suppliers of services (See paragraphs 9.25-9.37 in

your book)
There are parallel provisions in the ACL for services supplied to consumers in trade or
commerce.
Consumers are defined under Section 3 are transactions less than $40,000 or where the
services were of a kind ordinarily acquired for personal, domestic or household use or
consumption.
Services is broadly defined in s 2 and includes any rights (including rights in relation 9.27 to,
and interests in, real or personal property), benefits, privileges or facilities that are, or are to
be, provided, granted or conferred in trade or commerce.
E v Australian Red Cross Society
Some services excluded (See paragraph 9.28 in your book.)

There are certain other services not covered by the ACL consumer guarantees. These include:
Financial services, which are covered by the Australian Securities and Investments Commission
Act 2001 (Cth);
Employment contracts;
Insurance contracts;
Contracts for or in relation to the transportation or storage of goods for the purposes
of a business, trade, profession or occupation carried on or engaged in by the person
For whom the goods are transported or stored;
Supply of a telecommunication service; and
Supply of gas or electricity services.
Statutory guarantees relating to services (See paragraph 9.30-9.34)

There are three guarantees relating to the provision of services:
a guarantee of due care and skill: s 60;

a guarantee as to fitness for particular purpose: s 61; and
where no time for the supply of services is fixed, a guarantee that they will be
supplied within a reasonable time: s 62.
Read v Nerey Nominees Pty Ltd
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Remedies for services (See paragraph 9.35-9.37 in your book.)

Read 9.35 (p.g 407)
As with goods, the statute provides a distinction between major failures and other failures.
These provisions are contained in Section 268 and are generally similar to those that apply to
goods.
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Partnerships
Overview
Types of business organisations:
Sole Trader
Partnership
Companies
Trustee
Main types of business:
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Advantages and Disadvantages:
Business Names:
May need to be registered
Business name register is a public record
Some names restricted (Example - Bank)
Does a partnership exist?
The creation of a partnership requires no formalities whatsoever. The existence of a
partnership depends on the true relationship between the persons.
Elements of an existing partnership:
Two or more people
Carrying on a business: Goudberg v Herniman Associates (Planning a partnership or
carrying on a partnership), Ferguson v Federal
Commissioner of Taxation (business or hobby)
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Mutual rights and obligations (in common): Momentum Productions v Lawarne,

Checker, Taxicab Co v Stone
With a view of profit
Are there any issues between partners?

The rights and liabilities of the partners with respect to each other are determined by
three factors:
The contract between the partners. Contract supreme in determining rights and
liabilities of the partners between themselves. There are certain terms normally
implied into trading partnership agreement. Terms included:
- A partner has the right to buy stock
- A partner has the right to receive payments owing to the partnership
- A partnership has the right to make, accept and issue cheques
The Partnership Act. The Partnership Act 1958 (Vic) contains rules that will apply to
the partnership if the partners have not agreed amongst themselves.
Partners duties of good faith. The relationship between partners is one of trust and
good faith; partners owe fiduciary duties to each other.
Chan v Zacharia
United Dominions Corp v Brian
Partnership Property?
According to s 24, partnership property includes:
Items bought into partnership Harvey v Harvey
Items acquired on the account of the firm
Items acquired for the purpose of and in the course of the partnership business
A partner has beneficial interest in each and every asset of the partnership. FCT v Everett,
Canny Gabriel Castle Jackson Advertising v Volume Sales (Finance)
Liability to third parties:
In a normal partnerships, each partner is:
Jointly for debts and obligations Young v Lamb
Jointly and severely for wrongful acts Walker v European Electronics
Jointly and severally for misapplication of money or property
Assignment of a partnership interest:
A partner cannot sell a partnership interest
A partner may assign his/her right to the profits or, on dissolution, the assets of the
partnership
Assignment of a partnership interest does not give the assignee rights to participate
in the management of the partnership or to inspect the books of the partnership.
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A partnership maybe terminated by:

Partners by agreement (s 30) or expiration of agreed fixed term (s 36)
Operation of law, a partnership is dissolved by the death or bankruptcy of any partner (s
37)
Supervening illegality; any event which makes it unlawful for the business of the firm to
be carried on (s 38)
The courts (s 39)
- Insanity of a partner
- Permanent incapacity of one partner
- Prejudicial conduct of a partner
- Willful or persistent breach of the partnership
- Partnership can only be carried on at a loss
- If it is equitable that the partnership ne dissolved
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Partnerships
Business organisations - Features (See paragraphs 11.2 - 11.6)
Business organisations - Relative advantages / disadvantages (See paragraphs

11.4 - 11.6 in your book)
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What is a partnership? (See paragraph 11.10 in your book.)

A partnership is defined in the Partnership Act s 5(1). A partnership is the relation which exists
between persons carrying on business in common with a view of profit. So there are three
elements to the partnership relationship:
The carrying on of a business;

In common;
With a view of profit.
If all these elements are not present, then a partnership will not exist.
The agreement to form a partnership is not required to be written. If a partnership agreement
is not written down, or if it is written but does not contain details of keys aspects of the
relationship, then the default provisions of the Partnership Act apply.
Carrying on of a business (See paragraphs 11.11 - 11.14 in your book.)

In analysing the meaning of carrying on business the courts have found it necessary to draw
some distinctions:
Between carrying on business and carrying on a hobby; Ferguson v Federal
Commissioner of Taxation
Between carrying on a business and preparing to carry on a business; Goudberg v
Herniman Associates Pty Ltd
Between carrying on business and carrying out a single venture Canny Gabriel Castle
Jackson Advertising Pty Ltd v Volume Sales
In common (See paragraphs 11.15 - 11.22 in your book.)

Whether two or more persons are carrying on business in common is often a very difficult
factual question. A and B will only be in partnership if it can be said that B is carrying on the
business for and on behalf of both A and B. If a mutuality of rights and obligations exists the
parties cannot declare that a partnership does not exist.
Re Ruddock
Checker Taxicab Co Ltd v Stone
There are a number of provisions in section 6 the Partnership Act, which help to clarify
whether two parties are carrying on a business in common.
6 (1) co-ownership of property does not of itself indicate partnership.
6 (3) (a) creditors may take proportion of profit to secure repayment, and may
require powers of control and inspection. Cox v Hickman
6 (3) (b) offer of share in profits as incentive does not in itself create a partnership.
Plummer v Thomas
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6 (3) (c) payment of annuity to family of deceased partner does not create a
partnership.
6 (3) (d) creditor may finance a project for share in profit Re Megevand; Ex parte
Delhasse
6 (3) (e) securing payment for a business sale. Monthly repayments does not
constitute a partnership.
With a view of profit (See paragraph 11.23 in your book.)

A partnership must aim to make a profit. This does not mean that it cannot make a loss. In fact,
a partnership might never make a profit. The important thing is that making a profit was its
original purpose
Rules governing partners relationship with each other (See paragraphs 11.25 11.27)
Rights and liabilities of the partners with respect to each other are determined by three factors:
Any contract creating the partnership (this is not required to be in writing);
the Partnership Act; and
A fiduciary relationship exists between partners.
If partners have no agreement on key matters, then the default provisions in ss 28 and 29 of
Partnerships Act apply.
1. All the partners are entitled to share equally in the capital and profits of the
business and must contribute equally towards the losses whether of capital or
otherwise sustained by the firm.
2. The firm must indemnify every partner in respect of payments made and personal
liabilities incurred by him
(a) in the ordinary and proper conduct of the business of the firm; or
(b) in or about anything necessarily done to preserve partnership business or
property.
3. A partner making payment beyond the amount of capital which he has agreed to
subscribe is entitled to interest at Seven per cent per annum
4. A partner is not entitled to interest on the capital before profits are calculated.
5. Every partner may take part in managing the partnership.
6. No partner is entitled to remuneration for acting in the partnership.
7. No person may be introduced as a partner without the consent of all partners.
8. Any difference arising may be decided by a majority of partners but no change may
be made in the nature of the partnership business without the consent of all
existing partners.
9. The partnership books are to be kept at the place of business and every partner
may have access to and inspect and copy them.
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Partners fiduciary duties to each other (See paragraphs 11.28 - 11.32 in your
book.)
The fiduciary duties owed by partners to each other are similar to those owed by agents to
principals. These duties have been expressly incorporated into the Partnership Act by ss 32, 33
and 34.
Duty to make disclosure s32

Duty to account for benefits derived from dealings with partnership s33
Duty to account for use of partnership assets s33
Duty not to compete with partnership s34
Chan v Zacharia
United Dominions Corp Ltd v Brian Pty Ltd
Partnership property (See paragraphs 11.33 - 11.34 in your book.)

If any property is partnership property, then it is held for the partnership, and on dissolution of
the partnership it must be apportioned according to the agreement between the partners; or if
no agreement exists, according to the Partnership Act.
According to s 24, partnership property includes items:
Brought into the partnership property as partnership property;
Acquired on account of the firm; and
Acquired for the purposes of and in the course of the partnership business.
Items bought with partnership money are deemed to have been bought on account of the firm
unless a contrary intention appears: s 25
Harvey v Harvey
Liability of partners to third parties for debts and obligations (s 9 / s13) (See
paragraphs 11.35 - 11.43 in your book.)
Joint liability for partnership debts means that all debtors are sued together, and the resulting
court order makes them all liable for the whole amount of partnership debts.
This means that a partner will bind his or her partners where he or she transacts a deal which is
within the scope of:
The kind of business carried on by the partnership; and
The transaction is within the usual way that partnerships of that kind conduct
business; unless
The partner had no authority to so act and the third party knew this or did not know
or believe that the partner was a partner.
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So a partnership will be bound by the acts of one of its partners where that partner is acting
within their actual or ostensible authority or when the actions are ratified.
Young v Lamb
Goldberg v Jenkins
Seiwa Australia Pty Ltd v Beard
Re Oppenheimer
Under s 9, a partnership will not be bound where:
the partner had no authority to act; and
(i) the third party knew the co-partner had no authority; or
(ii) the third party did not know or believe that the partner was in fact a partner.
Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd
Mercantile Credit Co Ltd v Garrod
Joint and several liability of partners to third parties for wrongful acts (See
paragraphs 11.44 - 11.47 in your book.)
Partners are jointly and severally liable for wrongful acts (including torts such as negligence or
breaches of the ACL) committed by a partner in the ordinary course of the business. This is the
combined effect of ss 14 and 16.
Important to determine the kind of activities the partnership might undertake as a normal part
of its business.
Polkinghorne v Holland & Whittington
Walker v European Electronics Pty Ltd (in liq)
Several liability means that each partner can be sue individually (or in groups) for the entire
amount of any claim.
Joint and several liability for misapplication of money or property (See

paragraphs 11.48 in your book.)
For misapplication of money or property, all partners are jointly and severally liable: s 15 / s 16.
Liability to third parties by holding out (estoppel) (See paragraphs 11.49 - 11.52
in your book.)
Even non-partners may be liable for partnership debts if they have acted in such a way that
people dealing with the partnership reasonably believe him or her to be a partner: s 18.
Stekel v Ellice
D&H Bunny v Atkins
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Partnership by holding out may be a problem when a partner leaves the partnership.
Tower Cabinet Co Ltd v Ingram
Elders Pastoral Ltd v Rutherfurd
Resigning partners should avoid allowing themselves to be held out as still being a partner:
Give actual notice to all existing clients: s 40(1)
Advertise resignation in Government Gazette and newspaper(s) circulating in area of
business to notify new clients (s 40(2))
Alter Business Names Register (if relevant), destroy old stationery, business cards etc.
Resigning partners remain liable for debts incurred before their resignation (s 21(2)) unless they
receive a release from creditors and remaining partners.
Termination of a partnership (See paragraphs 11.54 - 11.60 in your book.)

A partnership may be terminated by:
The partners
By agreement (s 30)
By expiration of agreed fixed term of partnership (s 36).
Operation of law (s 37)
Supervening illegality (s 38)
The courts (s 39).
Partners remain jointly liable for debts even after dissolution of a partnership.
Distribution of assets on dissolution is governed by the Partnership Act (see s 48).
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Introduction to Company Law

Overview
The nature of a company:
A company is an independent legal entity with rights and powers of its own.
Characteristics of a company
The powers of a company: s124(1) provides that from the date of registration, a
company has the full legal capacity of a natural person.
The types of companies
1. Proprietary Company
2. Public Company
The notion of a companys separate identify
Principle of a separate identity
Salomon v Salomon: Case established the principle that control and management of a
company remains distinct from its ownership.
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Lee v Lees Air Farming: Strictly applies principle established in Salomons case that a
company is a separate legal entity with independent existence from its shareholders.
How do companies create contract?

Companies have full legal capacity to contract
Company Constitution s125(1 & 2)
How does a company sign?
Section 127: Provides manner in which company may execute a document, including a
contract.
1. May execute a document without using a common seal
2. May execute a document using a common seal
Third Parties
Section 126: Situations where a person has actual authority to act on behalf of the company.
Section 128: People having dealings with a company are entitled to make a number of
assumptions about the company and its officers, unless they know or suspect that
the particular assumptions are not correct.
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1. Person is entitled to make assumptions in s129 in relation to dealing with a

company.
2. Person is entitled to make assumption in s129 in relation to dealing with
another person who has entitled property from a company.
3. Assumption can be made even if officer from the company acts fraudulently.
4. A person is not entitled to make an assumption in section 129 if at any time of
the dealings they knew or suspected that the assumption was incorrect
Section 129: Lists assumptions that persons dealing with the company may undertake.
1. A person may assume that the companys constitution have been complied
with
2. A person may assume that anyone who appears to be a director or a company
secretary
a. Has been appointed
b. Has authority to exercise powers: Brick & Pipe Industries v Occidental Life
Nominees, Panorama Developments v Fidelis Furnishing Fabrics p.g 521
3. A person may assume that anyone who is held out by the company to be an
officer or agent of the company has
c. Has been appointed
d. Has authority to exercise powers: Freeman & Lockyer v Buckhurst Properties
p.g 432
4. Assume that agents and officers properly perform their duties.
5. Document duly executed with seal in accordance with 127(2)
6. Officer or agent of company with authority to warrant that document is genuine
or a true copy
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Introduction to Company Law

What is a company? (See paragraphs 12.3 - 12.14 in your book)
A company is an independent legal entity with rights and powers of its own. This distinguishes a
company from a partnership. Unlike a partnership, a company must be registered. In fact, its
very existence derives from registration.
Humans are natural persons, whereas companies are artificially created persons. Both humans
and companies are legal persons, meaning the law recognises them as individuals in their own
right. The lifespan of the company is not affected by the death of its members or officers (as a
partnership is).
Companies are controlled by the Corporations Act. All section numbers in this chapter refer to
this Act.
A companys powers (See paragraphs 12.4 - 12.5 in your book)

Section 124(1) gives a company the legal capacity of an individual, this means a company has
the legal capacity to do anything that a natural person may do, plus it has additional powers,
such as the power to sell off ownership in itself by issuing shares.
A company is liable in tort (for example, negligence) for the actions of its employees where they
are acting in the course of their employment. This is called vicarious liability.
Proprietary companies (See paragraph 12.7 in your book)
May be formed by one person (the same individual may be the only shareholder and
the only director and the only employee);
Membership (number of shareholders) is limited to 50 persons (excluding employees
who hold shares in the company);
Has some restrictions on how it can raise funds from investors
It must have share capital; and
It includes the word proprietary, or an abbreviation thereof, in the company name
(for example, Melbun Pty Ltd or Sidni Pty).
Public companies (See paragraph 12.8 in your book)
Needs a minimum of one member and three directors to be formed;

No limit on number of members;
May invite the public to subscribe for any shares in the company and it may be
required to prepare disclosure documents; and
Are often limited liability company, so includes the word limited or an abbreviation
thereof, after the name of the company (for example, Bizlaw Ltd).
Public companies may be listed on the Australian Securities Exchange (ASX). These companies
are known as listed companies and their shares are bought and sold through the ASX
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Types of member liability (See paragraphs 12.9 - 12.13 in your book)

In addition to being either public or proprietary, every company must be one of four types
(classified according to the liability of its members):
Limited by shares
Limited by guarantee
Unlimited liability
No liability
Companies limited by shares are the most common and this chapter will focus of this type of
liability.
The principle of separate Identity (See paragraph 12.14 in your book)

A company is recognised as a separate legal entity with independent existence from its
members and shareholders. It owns property in its own right and its property is not the
property of its directors or members and shareholders. A company can incur debts, create
contracts and commit torts in its own name and these debts, contracts or torts are not the
responsibility of its members and shareholders.
Salomon v A Salomon & Co Ltd
Lee v Lees Air Farming Ltd
Only in very rare instances have courts been prepared to treat the person in control of a
company as if he or she were the company itself. These cases have involved attempts to use a
corporate structure to avoid existing contractual or fiduciary duties.
Pioneer Concrete Services Ltd v Yelnah Pty Ltd
How does a company create contracts? (See paragraphs 12.20 - 12.28 in your
book)
Section 127 provides the manner in which a company may execute a document, including a
contract, specifying the number of directors required to sign documents. A common seal - a
type of special stamp may be used by some companies. A company also can write its own
rules, called a constitution, that may set out requirements for signing documents and aspects
of the company.
However, failure to follow the method set out in the constitution is not fatal to third parties
who deal with the company. Provided the company executes a document in accordance with s
127 (even though not in accordance with its constitution), people who have dealings with the
company will still be able to rely on the assumptions contained in s 129
Directors as agents for the company (See paragraph 12.22 in your book.)
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Company directors are a good example of agency, as covered in Chapter 10. Their acts will
generally bind the company legally. Section 126 covers situations where a person has actual
authority to act on behalf of the company.
126(1) A companys power to make, vary, ratify or discharge a contract may be exercised by an
individual acting with the companys express or implied authority and on behalf of the
company.
The concepts of actual authority (express and implied) and ostensible authority applicable to
agents (and partners) also apply to company directors and there are provisions in the Act
dealing with these, including ss 126 -129.
Third parties dealing with a company are entitled to make certain assumptions. Section 128
describes when the assumptions may be made, and s 129 lists the possible assumptions,
including;
that companys constitution and replaceable rules are being complied with
that director/secretary listed were properly appointed and had the normal powers of
that position as in similar companies Panorama Developments (Guildford) Ltd v
Fidelis Furnishing Fabrics Ltd
that a person held out by company as officer or agent was properly appointed and
had normal powers of that type of officer/agent as in similar companies Brick & Pipe
Industries Ltd v Occidental Life Nominees Pty Ltd
A person is not entitled to make an assumption contained in s 129 if, at the time of the
dealings, he or she knew or suspected that the assumption was incorrect: s 128(4).
Sunburst Properties Pty Ltd (in liq) v Agwater Pty Ltd
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Duties of Company Directors and Other Officers

Overview
Functions of a director
Policy and strategy
Monitors companys performances
Accountable to members
Elects, evaluates, dismisses executive officers
Statutory Functions (Example Financial Reports)
Source of directors duties
Fiduciary duties
Act with reasonable care and diligence: s180 as seen in South Australia v Clark
Section 181: The duty to act in good faith and for proper purpose
Section 182: The duty not to misuse position
Section 183: Duty not see information improperly
Company owned information includes:
- Invention
- Innovation
- Customer/Supplier Information
- Financial
- Marketing Information
Green v Bastobell: Breached fiduciary obligation not to use inside information
for personal gain
Section 184: Criminal Consequences
Section 191: Disclose Interests
What sections have been breached?
Consequences of breach
Civil consequences: Breach of ss 180, 181, 182, 183
- Civil penalty order up to $200,000
- Prohibition from managing companies in the future
- Orders to compensate the company
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Criminal consequences: Breach of ss 184

- Involves recklessness or intentional dishonesty
- Fine up to $220,000 and/or five year imprisonment for each offence
s 588G
Company is insolvent at time of incurring debt, or becomes so by incurring that debt
Reasonable grounds for suspecting company insolvent, or would become so
S 95A
Defenses to insolvent trading s588G
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Duties of Company Directors and Other Officers

Functions of a director (See paragraph 13.2 in your book)
Although a company may exist with only one director, this chapter will generally consider the
situation where there are a number of directors, this group is called a board of directors. The
board of directors of a large company is generally regarded as having the following functions:
To set policy and formulate strategy this will involve being properly informed;
To monitor the implementation of policy this will also require being informed;
To review, at reasonable intervals, the firms progress towards attaining its goals;
To provide accountability to members;
To elect, evaluate and, where appropriate, dismiss the principal executive officers;
and
To carry out any statutory functions, such as presenting duly attested financial
reports at the annual general meeting.
Directors of a company includes a director or secretary of the company, shadow directors (for
example, management advisers), administrators, receivers and liquidators: s 9.
Sources of directors duties (See paragraph 13.3 in your book)

These duties are owed to the company and not to the members as individuals. The duties arise
from a number of sources, including:
The Corporations Act 2001 (Cth)
The fiduciary nature of the relationship between a director or officer and the
company
The common law duty to act with reasonable care
The rules of the company.
Sections 180184 of the Corporations Act impose certain duties upon directors. Section 180
imposes a duty of care and diligence. Sections 181, 182 and 183 impose duties concerning good
faith and conflict of interest.
Reasonable care and diligence (See paragraph 13.5 in your book)

Section 180 of the Corporations Act sets out the duty of company directors and officers to
exercise a reasonable degree of care and diligence.
South Australia v Clark
Circle Petroleum (Qld) Pty Ltd v Greenslade
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The business judgment rule in s 180(2) of the Corporations Act provides a defence 13.6 for
actions that may otherwise be in breach of s 180(1). Under this rule, a director is assumed to
have acted with appropriate care and diligence if all the factors contained in s 180(2) below are
satisfied. To be protected by this rule, directors must;
(a) Make the judgment in good faith for a proper purpose; and
(b) Not have a material personal interest in the subject matter of the judgment; and
(c) Inform themselves about the subject matter of the judgment to the extent they reasonably
believe to be appropriate; and
(d) Rationally believe that the judgment is in the best interests of the corporation.
A director does not have to have any particular skill, but he or she ought to be capable of
understanding the affairs of the company,
Directors are expected to attend board meetings and take an active interest in the companys
affairs.
A director is entitled to rely on information or professional or expert advice prepared by
another director or an employee of the company or a professional adviser provided the director
acted in good faith and made any inquiries that seemed warranted by the circumstances.
Act in good faith and for a proper purpose (See paragraphs 13.11 - 13.13 in your
book)
Covered by section 181 of the Corporations Act and under common law.
This means that directors must act honestly in the interests of the company (or members) as a
whole. The duty is owed to the company as a whole and not to individual members.
Walker v Wimborne
Directors must exercise their powers for the proper purposes of the company (for the benefit of
the company as a whole) and not for any improper purpose, such as thwarting a takeover offer
or affecting the balance of voting rights through share issues etc.
Duty not to misuse the position (See paragraphs 13.14 - 13.16 in your book)
Under s 182, company officers must not improperly use their position for personal gain, gain by
a third party or to cause detriment to the company. This duty is also owed at common law.
Cummings v Claremont Petroleum NL
There is clearly potential for conflict whenever a director, either directly or indirectly, has
commercial dealings with the company of which he or she is a director.
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Under s 191, a director must disclose to the other directors any material personal interest in a
matter that relates to the affairs of the company, such as when a company might contract with
that directors personal company.
The duty not to use information improperly (See paragraphs 13.17 - 13.18 in
your book)
Under section 183 a director or other officer or employee of a company must not improperly
use inside information they receive as part of their role as company officer.
Information covers a wide variety of material, including, in appropriate circumstances,
inventions and innovations, customer and supplier information, marketing strategies, certain
financial information and information concerning the companys current negotiations.
Cranleigh Precision Engineering Ltd v Bryant
Green v Bestobell Industries Pty Ltd
Consequences of a breach of statutory duty (See paragraph 13.19 in your book)

Civil Consequences
For breach of ss 180, 181, 182 or 183 of the Corporations Act the court may order a civil
penalty in the nature of a fine up to $200,000.
Possible other consequences include:
The court may prohibit the person from managing a company.

The court may order the person to pay compensation to the company.
If the breach of ss 181, 182 or 183 involves recklessness or intentional dishonesty,
then criminal sanctions may apply.
It is a defence to show that the person acted honestly and that, having regard to all the
circumstances of the case, the person ought to be excused from the contravention.
Criminal Consequences
Section 184 provides that intentional or reckless breaches of duty amount to a criminal offence.
The penalty is a fine up to $220,000 and/or imprisonment for up to five years for each offence.
s 184(1): If they are reckless or intentionally dishonest
s 184(2): If they use their position dishonestly
s 184(3): If they use information dishonestly
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Directors duties at common law (See paragraph 13.22 in your book)

Directors owe duties at common law and in equity to their company. The duties are similar to
those owed under ss 180183 of the Corporations Act. They are also similar to those owed by
all fiduciaries, including partners and agents. The common law duties apply not only to
directors, but also to employees of the company by virtue of the employment contract. Even if
there is no express term, the law will imply such terms.
The business judgment rule defence contained in s 180(2) also operates as a defence to to the
common law.
Kinsela v Russell Kinsela Pty Ltd (in liq)
Insolvent trading (See paragraphs 13.23 - 13.24 in your book)

In companies which are unable to pay their existing debts, directors owe a duty to prevent any
further debts being incurred. This is known as the duty to avoid insolvent trading.
The duty to avoid insolvent trading in s 588G applies where there were grounds to suspect
current or impending insolvency.
Indicators of insolvency include;
Inability of the company to observe the terms of its overdraft facility;
Failure to pay trade creditors according to the terms of trading;
Inability to provide funds to cover even small cheques; and
Failure to meet demands for payment of the most essential services.
Section 588H contains four possible defences for directors who have breached the s 588G duty
to avoid insolvent trading;
The person had reasonable grounds to expect, and did expect, that the company was
solvent at that time and would remain solvent even if it incurred that debt
The person had reasonable grounds to rely on information from a competent and
reliable person that was responsible for providing to the director adequate
information about whether the company was solvent
Because of illness or for some other good reason, the person did not take part at that
time in the management of the company
The person took all reasonable steps to prevent the company from incurring the
debt.
Metropolitan Fire Systems Pty Ltd v Miller
ASIC v Plymin, Elliott & Harrison (No 1)
Tourprint International Pty Ltd (in liq) v Bott
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Who will sue the directors for a breach of duty? (See paragraphs 13.34 - 13.36)
For breaches of the Corporations Act including ss 180184 and s 588G, the ASIC (the
government regulator) generally decides whether or not to take legal action.
For breaches of common law duties, the company may seek redress in its own right. The duties
are owed to the company and not to the shareholders. Therefore, the proper plaintiff is the
company. Generally, the company, as opposed to individual shareholders, must sue.
The Corporations Act provides that members, directors and officers (including former
members, directors and officers) may apply to the court for permission to sue on behalf of the
company: ss 236 and 237. The court will grant permission only if:
The company is unlikely to act;
The member, director or officer bringing the proceedings does so in good faith;
There is a serious question to be tried; and
It is in the best interests of the company: s 237.
Possible legal action against a third party is presumed not to be in the best interests of the
company if the directors who decided the company should not proceed:
Acted in good faith for the proper purpose;
Had no material interest in the decision
Were reasonably informed about the matter; and
Rationally believed the decision was in the best interest of the company
It is sufficient to say that a shareholder may have the right to bring an action where the
directors conduct has interfered with the shareholders rights.
The courts have power under the Corporations Act 2001 (Cth) to make a wide variety of orders,
including an order for the winding up of a company (s 233(1)(a)) where the affairs of the
company are being conducted in a way that is oppressive to, or unfairly prejudicial or
discriminatory against, the company itself or some of the companys shareholders: s 232
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Introduction to Trusts
Overview
What is a trust?
Legal agreement splitting the legal ownership (to trustee) and the benefit (to
Beneficiaries) of property.
Essential elements of trust
The trustee; Natural person or body corporate. Law recognizes the trustee as the
legal owner of the trust property.
The trust property; Real property (Land), Personal property (Money, Accounts
Receivable), Intellectual property
The beneficiary; The person for whose benefit was created
Parties to creation of express trust:

Settler - Person who creates trust
Trustee(s) - Carry out settlers instructions and hold the property for the beneficiary.
Beneficiary (Or Beneficiaries)
- Or trust may be created for a purpose (Example - Charity)
Duration of a trust
May be stated in or implied from trust deed
Cannot last indefinitely
Cannot exceed 80 years
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Trust compared with other entities

Merely a legal arrangement; not separate legal identity
Unlike partnerships, dont involve contractual relationships between parties.
The trustee owns trust property, contrast to company and partnerships.
Type of trust
Fixed (Unit)
Discretionary
Trustees Powers
Source of powers:
Express powers; Trust deed usually lists power of trust, could be broad or narrow.
Implied powers; The power to do anything and everything that is required to realise,
protect or administer the trust property. Cannot contradict express powers
Statutory powers; Trustee has various powers conferred by the Trustee Act 1958 (Vic).
Statutory powers are:
- Power to invest funds s5
- Power to mortgage trust property s20
- Power to insure any insurable trust property s23
- Power to employ agents s28
- Power to give receipts for money or securities received in relation to the trust
s18
Trustees duties, rights and liabilities
Trustee has a duty to act diligently, prudently, honestly and in accordance with the
terms of the trust.
Fiduciary duties
Express duties
Statutory duties;
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Be familiar with and observe the terms of the trust

To make only authorized investments
To exercise care and skill Bartlett v Barclays Bank Trust Co
Trustee is liable for trust debts

Trustee liable for breach of duties
Trustee has the right to indemnity
Although trustee is reliable for debts of a trust, trustee can argue that the transactions
that gave rise to the liabilities were authorized by the trust deed.)
Beneficiaries rights and liabilities
Personal rights of action against trustee for:
Breach of duty
Wrongful distribution of funds
Proprietary action against trust property:
Used to recover misapplied trust property.
The trust property must still exist, although it may exist in a different form
Beneficiaries may be reliable to creditors Hardoon v Belilios
Termination of trust:
Beneficiaries consent (Beneficiaries must all be full age and legal capacity)
Court Order
Distribution of trust property (One trust property distributed, trust no longer exists)
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Trusts
What is a trust? (See paragraphs 14.2 - 14.7 in your book.)
A trust is a structure that separates the legal ownership and the beneficial ownership. This is
best illustrated with the example of a house. Bill owns the house, there is a tenant in the house
that pays rent, and this rent is a benefit that goes to Bill.
For tax reasons, Bill might not want the benefit to come to him as income. For asset protection
reasons, Bill might not want the house to be in his name. So Bill could create a trust and place
the house into the trust. The legal owner of the house is now the trustee and the benefit (the
rent) is distributed by the trustee to beneficiaries, for example Bills family members.
A trust is not a separate legal entity. It is a relationship in which one person (the trustee) holds
an asset of some type on behalf of another (the beneficiary). It is the trustee who sues or is
sued.
There are three essential elements of a trust:
The trustee - appointed to carry out the settlors instructions and hold the trust
property for the benefit of the beneficiary. A trustee may be a natural person or a
body corporate. The law recognises the trustee as the legal owner of the trust
property. A trustee has fiduciary duties in relation to his or her dealings with the
trust property, similar to the duties owed by partners, directors and agents.
The trust property - The trust property is to be used or applied in accordance with
the terms of the trust for the benefit of the beneficiaries. The trust property may be
real property (land), personal property (for example, money, chattels or accounts
receivable) or intellectual property.
The beneficiary (or beneficiaries) - the person (or persons) for whose benefit the
trust was created. If the trust property is the subject of the trust, then the
beneficiaries may be seen as the object of the trust. The beneficiaries may be
specific (named) people, a defined group of people (for example, all children and
grandchildren of Jane Doe), or a charitable purpose (for example, cancer research).
Companies can be beneficiaries as they are considered legal persons
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Discretionary trusts (See paragraph 14.12 in your book.)

These trusts are called discretionary because the trustee has the discretion to decide which
beneficiaries receive income and how much income each beneficiary receives. These decisions
about distribution of income can be changed as required, so it is a very flexible arrangement.
Under a typical discretionary trust, the beneficiaries have a mere expectancy all they can do
is hope that the trustee will give them something
The discretionary trust is a reasonably popular device for operating a small trading business,
enabling the business income to be divided between a numbers of persons (the beneficiaries)
so as to lessen the total amount of income tax payable. In particular, it is often an effective
structure for a family business.
Fixed trusts (See paragraphs 14.13 - 14.15 in your book.)

In a fixed trust, all the beneficiaries have a fixed proportion of the trust property and income. A
commonly used type of fixed trust is the unit trust.
Unit trusts see the trust property divided into a fixed number of units and these units are held
by the unit holders, in a similar way to which shareholders hold shares.
They have become a popular structure for investment schemes for three main reasons:
Negotiability of the units;
Fixed annual entitlements to income; and
Fixed entitlements to capital (the value of the units).
Unit trusts are also a popular method of structuring a business.
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Trustees powers (See paragraphs 14.16 - 14.19 in your book.)

Express Powers
In an express trust, the deed will usually list the powers of the trustee. These express powers
may be very broad or very narrow, depending on the wording of the deed.
Implied Powers
While the trust deed may not specifically state this, a trustee will generally be given the
(implied) power to do anything and everything that is required to realise, protect or administer
the trust property.
Statutory Powers
Each of the Australian states has legislation governing trustees, in Victoria this is the Trustee
Act 1958. Powers under this Act include:
Power to invest trust funds, unless the trust deed stipulates otherwise: s 5
Power to mortgage trust property, where the trust deed expressly empowers the
trustee to pay or apply capital money ... for any purpose or in any manner. This
entitles the trustee to, for example, mortgage any part of the trust property: s 20
Power to insure any insurable trust property: s 23
Power to employ agents: s 28.
Trustees duties, rights and liabilities (See paragraphs 14.20 - 14.23 in your
book.)
Much like the relationships that director, partners and agents have, the trustee owes special
fiduciary duties.
To act bona fide in beneficiaries interests
To exercise their powers for proper purposes
To avoid any actual (or potential) conflict of interest.
Trustees are the most trusted of fiduciaries, as they legally own the trust property, yet hold it
for the benefit of the beneficiaries.
A trustees duties are often set out explicitly in the trust deed and are also imposed under the
Trustee Act, including:
To be familiar with and observe the terms of the trust
To obey and carry out the settlors instructions
To distribute trust property only to those entitled under the trust deed
To make only authorised investments 6
To act impartially between beneficiaries
To keep proper accounts and provide full information when required
To act personally 7
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To not take profit 8

To exercise care and skill.
Bartlett v Barclays Bank Trust Co Ltd (No 1)

A trust is not a separate legal entity. This means that a trustee enters into contracts with third
parties in the trustees own name, rather than as an agent contracting on behalf of a principal.
The trustee of a (trading) trust is personally liable for the business debts incurred in carrying on
the trust business. A Trustee does have a right of indemnity (to be repaid) for debts out of the
trust property where the transactions that gave rise to the liabilities were authorised by the
trust deed.
Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq)
Beneficiaries rights and liabilities (See paragraphs 14.24 - 14.28 in your book.)
A beneficiary under a discretionary trust does not have a right to any trust income or any trust
assets, they may bring an action against the trustee if the trustee has breached any of his or her
duties as trustee.
A beneficiary under a fixed trust has a right to trust income and assets based on the proportion
of their benefit.
Foskett v McKeown
It is highly unlikely that creditors to a discretionary trust will have any right of recourse directly
against the beneficiaries.
Beneficiaries under a fixed trust (for example, a unit trust) may be vulnerable by creditors if
they are entitled to trust property.
Hardoon v Belilios
Termination of a trust (See paragraph 14.29 in your book.)

A trust may be terminated in the following ways:
Revocation. If a settlor included a power for the settlor or trustee to revoke and
terminate the trust in the settlement deed, this may be exercised. This is rare.
Beneficiaries consent. If the beneficiaries are all of full age and legal capacity, they
may consent to terminate the trust. This applies to both fixed and discretionary
trusts.
Court order. The court has the power inherently and pursuant to the state Trustee
Acts.
Distribution of trust property. Ultimately, there will come a time when all trust property has
been distributed, according to the terms of the trust. Once the trust property has been
distributed, the trust no longer exists.

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Summary complete 'Making the Offer'.pdf

Commercial Law (Monash University)

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Making The Contract: Offer and Acceptance

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Making The Contract: Offer and Acceptance

3 Questions to ask when analysing contracts

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The 4 Essential Elements of a Contract

Contracts Overlap with Other Law

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There must be an intention to make an offer (Harvey v Facey)

Catalogues (Grainger & Sons v Gough)

Tenders (Hughes Aircraft Systems International v Airservices Australia, Harvela

It is not bound to accept the lowest tender or any of the tenders

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Revoking (or withdrawing) an offer (See 4.25 - 4.31 in your book.)

Rejection of an offer (See paragraphs 4.32 - 4.34 in your book.)

An offer may be rejected expressly or by implication. The importance of rejecting an

Counter Offer: An offer is rejected by the offer making a counter offer

Counter offer by asking for lower price (Hyde V Wrench)

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Asking for clarification of the terms of an offer is not a counter offer

Acceptance of an offer (See paragraph 4.36 - 4.38 in your book.)

Only the offeree may accept the offer;

Acceptance must be final and unqualified; Masters v Cameron

Acceptance must generally be communicated to the offeror: Felthouse V Bindley

An electronic communication is received when it enters an information system

When express communication of acceptance is not necessary

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Acceptance may be indicated by conduct

In the case of unilateral contracts,

The postal rule

The postal rule

Actual communication of acceptance is not necessary where the offeror has

The postal rule is not apply to the mode of communication to be said to be

The Rules of Offer and Acceptance

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Making the Contract: Intention and Consideration

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Without proving that parties intended an agreement to be legally enforceable, a contract

Generally, courts begin answering this question by assuming that

Intention in common commercial situations (See paragraphs 5.4 - 5.9 in your

Letters of comfort or support

Heads of Agreement and Letters of Intent

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Agreements subject to contract

Agreement made without prejudice

Consideration (See paragraphs 5.10 - 5.33 in your book.)

Consideration may be present or future, but it cannot be past.

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An exception to Roscorla V Thomas

Consideration must be sufficient, but it doesnt have to be equal in value to the

Consideration must be sufficient

The courts has generally reject as enforceable promise made in consideration

Forbearance to sue or Giving up a legal claim is good consideration in

If there is not fresh consideration(sth extra), the agreement is not bound

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