Contract Law in Two Hours

[Music] [Music] get everyone my name's Anthony Merrick I'm a legal practitioner admitted in New South Wales and I've taught law at CQ University in Queensland for a little over five years welcome to my to our contract course the idea is that in the space of two hours I want to take you through an entire university course in contract law now a couple of things before we get started first this video is great if you're soon to study contract law and you want to get an overview it's also pretty good if you're studying business saw one of those degrees and your interest in contract law is general finally it's pretty good as a way of reviewing your work however fair warning if you're a Bachelor of law student you've done no work at all all term and you're hoping this video can make up for it well it will help but there's no way that a two-hour video can make up for our whole terms missed opportunities now every time I mention a case or a statutory provision the citation will come up along the bottom of the screen you'll need those the law cited is Queensland law that contract law is pretty much the same throughout Australia I understand the law to be correct as at the 31st of March 2018 okay so can we do this in two hours let's give it a crack start the clock the first thing we need to think about is what a contract actually is now there are a few different theoretical models but my favorite is what's called promise theory the idea here is that a contract involves two or more parties let's say two to make it easy exchanging promises you promise to mow my lawn and I promise to pay you 50 bucks when it's done a contract is more than just an exchange of promises though the special thing about contracts is that if one of the parties doesn't on they're promised well then the other party can take them to court and get her remedy so the court will enforce those promises this means a contract is an exchange of prices where those promises are enforceable by the court now like I say there are other theoretical models but if you keep this idea of promises in mind the rest of these two hours is likely to make a lot more sense we know however that not all promises are enforceable I mean people make all sorts of promises all the time and people are notoriously unreliable if your partner promises to pick up Indian food on the way home from work that forgets to do so well it's a broken promise but it's not one you can go to court over so how do we tell which promises are enforceable and which promises are not to do this we look at the topic of contract formation to make a contract five elements have to be sorted first you have to have the capacity to make a contract second you must intend to create legal obligations third there must be agreement on the terms of the contract fourth there must be what we call consideration which means you give something to get something and finally the contract must be sufficiently certain and complete let's look at each of those in turn will start with capacity now the laws starting position is that everybody is assumed to have the capacity to enter a contract however there are a few exceptions the first and most obvious of these relates to minors so people aged less than eighteen the rule isn't that young people can't make contracts at all I mean that'd be silly it would mean that children couldn't buy a packet of chips or a can of drink instead the rule is that a contract made by a child is voidable that is it can be enforced by the child but it can't be enforced against the job let me be clear if I make a contract with my 15 year old neighbor to mow my lawn for 50 bucks and he mowed the lawn well he could sue me for the 50 bucks if I fail to pay sounds fair however if we made that same contract and I paid him but then he never got around to mowing the lawn I wouldn't be able to sue to get my 50 bucks back the law basically says if you make a contract with a child you do so at your own risk the reason for this is that children obviously lack maturity and so often they won't be able to really consider the nature of the obligations they're taking on so it's a rule that stops young people from being exploited there are a few situations however where contracts can be enforced against a child the first of these is when the child is making a contract for what we call necessaries these are things that a young person in their circumstance would ordinarily need however you can't even enforce a contract for necessaries if the child already has a good supply of those necessaries now how is the merchant supposed to know that I've never quite known however the rule is that you can't enforce a contract for necessaries if the child already has a good supply finally contracts can be enforced against children if they are what are called beneficial contracts of employment or education Sarge for children what about people with diminished mental capacity again there's no rule against such people entering into contracts however the contracts will only be enforceable by them not against them the contracts are avoidable a warning though this rule only applies if the other party knew or ought to have known that they had a mental incapacity finally a very similar rule is in place if a person is so intoxicated by drugs or alcohol that they don't understand the nature of the contract that they're entering into the thing with these types of incapacity though is that they're often not permanent children become adults drunk people sober up people with mental incapacity are orphans restored to full mental capacity what happens then well if a person makes a contract while they don't have full capacity but then they later obtain capacity they have the choice to either repudiate the contract which means pull out of it or they can ratify the contract which means they've now agreed to it while they've had capacity so it becomes fully binding okay so let's assume that our contract is being made between two people who have full legal capacity the next thing to ask is whether they are actually intending to create a legal relationship in other words do they intend for their agreement to be a contract that can be enforced by the courts to work this out the law makes two presumptions the first is that agreements between family members and others in close relationships are what we call social agreements and that social agreements are not enforceable by the courts this makes sense if you think about it because families make all sorts of promises and agreements within themselves and it's not the laws intention to jump in every time there's a family squabble a second presumption is that an agreement which happens in a commercial or trading context between people who are not family and not in a close relationship is a commercial agreement and the commercial agreements are intended to be enforceable both of these presumptions can be rebutted so it's possible for family members to make business arrangements and enforceable contracts among themselves it's also possible for commercial agreements to contain what is called an honour clause which states that the agreement is merely an agreement of honor and is not enforceable in the courts okay so let's now assume we have two parties they both have capacity and they both intend to create legal relations with one another the next thing we need to look for is agreement which has two elements offer and acceptance the idea is pretty simple one party makes an offer which means that they indicate a set of obligations that they're willing to be bound by and they say what they want in return they can either make that offer to another specific person or to the whole world at large we need to be careful though because there are a few things that look like offers but are not actually offers first and advertisement looks like an offer but it's not actually an offer and advertisement is what we call an invitation to treat in other words an advertisement invites you to make an offer to the store to buy their goods or services sounds weird right in the same way if you go into a store and there are groups on display with price tags attached those aren't offers either you make the offer when you take the goods to the checkout and the store accepts your offer when they ring up the sale there are other weird situations for instance what about a few using a ticket machine or a vending machine well in that case the machine itself makes the offer strictly speaking the owner or the operator of the machine makes the offer and you accept the offer by putting your money in the machine same sort of situation with options in an option the offer is made by the person making the bids and the offer is accepted when the hammer Falls or when the auction period ends this includes auctions conducted in environments like eBay once that offer is made a number of things can happen for one thing the party receiving the offer might make a counteroffer this often happens in situations where you are bartering or bargaining it's very common in house and car sales in that case if a person receives an offer and they make a counteroffer their counteroffer extinguishes the previous offer and they become the one making the offer this can bounce back and forwards as many times as necessary another thing that can happen is that the party receiving the offer can make a request for more information a request for more information is different to a counteroffer because they're not saying hey I reject your offer but here's my counteroffer rather they're saying I need more information in order to help me to decide whether to accept your offer finally offers can be withdrawn to withdraw an offer though the person making the offer has to communicate that withdrawal to the other party before it's accepted once it's accepted it's too late to withdraw the offer because once it's accepted you got yourself a contract offers can also be withdrawn if there's a time limit set for acceptance and that time expires and offers are also withdrawn if the person making the offer dies before it's accepted now let's say none of those things happen an offer is made there's no counteroffer no request for information and the offers not withdrawn what happens then well if the person receiving the offer agrees with it in its entirety then the parties are as we say add edom that's Latin for of one mind at that point the offer disappears in a magic puff of law and becomes a contract the acceptance of the offer becomes valid when it is communicated to the person making the offer but there's a bit more to it than that there are a few different ways in which acceptance can and can't be communicated first up acceptance can't be communicated by silence so you can't say to someone well here's my offer if I don't hear back from you rejecting the offer by 5:00 p.m. Friday then I will assume you have accepted the offer however beyond that parties can choose how the offer will be accepted perhaps the most obvious way is by signature another way in which an offer might be accepted is by conduct this is how most offers are accepted in the retail world by accepting your money giving you a receipt and bagging up the goods the store assistant is accepting your offer and at the same time that executing the contract now back in the days when snail mail was still king the rule used to be that if parties allowed for acceptance to be mailed then acceptance occurred and the contract became binding when the acceptance was actually mailed this was called the postal acceptance rule these days snail mail is almost a relic of history and communication is far more likely to be instantaneous communication goodbye email or via a website the Parliament has established specific rules for when acceptance occurs basically acceptance has been communicated when the message becomes available for retrieval on the recipients server one final thing you need to know about acceptance the acceptance has to be made with knowledge of the offer you can't just inadvertently accept an offer that you never knew existed this happened when a murderer confessed his crime this is the case of the crown and Clark the murderer confessed his crime and then sought to be paid the reward for information on that crime it's absurd but what tripped him up was not the absurdity of the request but rather the fact that he didn't actually know about the reward when he made his confession so he hadn't acted in acceptance of the offer with knowledge of the offer crazy case okay so now we have two parties with capacity they intend to create legal relations and there's been an offer and acceptance of that or fun do we have a contract yet you see there's a difference between a contract and a gift a gift occurs when a person gives something or does something for another person without agreement that they'll get anything in return the courts won't enforce a gift a contract on the other hand is always an exchange you give something and you get something in legal terms whatever you give in order to obtain something from the other side is your consideration this is one of those odd occasions where a word has a completely different legal meaning to its normal English meaning so to make a contract both sides have to give consideration what sorts of things can be consideration well the most obvious types of consideration are money and goods but there are other types of consideration too first up conduct can be consideration if I agree to pay you money and you agreed to mow my lawn well then my consideration is the money and your consideration is the conduct of mowing second promises can be consideration so I might pay you money in return for your promise to stop smoking cigarettes in that case my consideration is the money and your consideration is the promise third what we call forbearance can be consideration in other words you can give consideration by refraining from doing something that you had otherwise intended to do the most common time you see this in the cases is what we call forbearance to sue so if you're going to sue me for $25,000 I might make you an offer of $15,000 provided you do not sue me in that case my consideration would be the $15,000 and your consideration is your refraining from suing me so you can see there are various types of consideration the next thing to consider is how much consideration is required the rule is that consideration needs to be sufficient but need not be adequate what on earth does that mean really well it means that the consideration has to have some type of value so it's referred to as valuable consideration however when we say the consideration need not be adequate we mean there doesn't need to be equal value on each side if you want to sell me your car for 20 bucks you can the law of consideration isn't interested in making sure the contract is fair the Lord just wants to make sure that each side is giving some sort of real and valuable consideration in the extreme case there's what we call nominal or peppercorn consideration even a single peppercorn can be good consideration for a contract provided both sides agree sometimes and this is a bit complicated entering into one contract can be consideration for another contract sounds like gobbledygook right well let's say I was now heavily encouraging your new lawn mowing business I learned that my mother was offering you fifty dollars to do her lawns once every fortnight too but I also learned you were contemplating saying no I really want you to get into that contract I might say listen I will pay you an extra ten dollars every time you mow my lawn provided you agreed to enter into that contract with my mom can you see how in this new ten dollar contract your consideration is actually your promise to enter into the contract with my mum in this situation my ten dollar contract with you is called a collateral contract a collateral contract is one where one party's consideration is their agreement to enter into another contract called the main contract now that's the fundamentals but I've got to admit I always found collateral contracts to be a little bit mind-bending this is probably one area where I would suggest that you really need to go beyond this lecture and read a little bit further there's one last rule you'll need to know about consideration though we call that the rule in pinellas case basically this rule only affects contracts of debt and it says that the payment of a lesser amount is not good consideration to discharge the debt then we translate that if I have a contract with you when you've loaned me $5,000 and I've agreed to pay it back by say December the 31st then we can't agree that by paying you back three thousand dollars I will have discharged the debt you'd still be able to sue for that other two thousand dollars no matter what we'd agreed it's easy to see why because if I can use three thousand dollars to pay off or five thousand dollar debt then in effect you'd be making me a gift of two thousand and we know that gives the different two contracts there are some exceptions to the rule in Pinellas case let's say you needed money in a hurry I might agree to pay you back three thousand dollars by December the thirtieth in order to discharge the debt in that case both sides have given consideration your consideration is to give up the $2,000 I would have otherwise paid and my consideration is to make my payment much earlier than I otherwise would have see how it works okay we're nearly there we now have two parties with capacity they intend to create legal relations there's offer an acceptance and both sides of given consideration the final thing we need to check is whether the contract is sufficiently certain and whether the contract is sufficiently complete let's start with certainty a contract is uncertain when the words of the contract are too vague to enable the court or indeed the parties to understand their obligations under the contract the key case is a good example where one party agreed to buy a motor vehicle on hire-purchase terms for two years there were really no more details nobody really knew what on hire-purchase terms meant nobody knew when payments would have been made or how much those payments would be or when ownership of the vehicle was transferred the court was really unable to enforce the contract because the court was unable to understand the contract it's thankfully pretty rare for the court to walk away from a contract because of uncertainty the court will make every effort to try to read some sense into the contract this is particularly so in the case of executed contracts which are contracts where one party has already fully completed their obligation under the contract a second strategy the court can use is to refer to some external to standard so it might be that the contract itself uses words that are pretty vague but overall it describes a situation that's pretty common in that particular industry if there's a standard way of doing things or a standard set of understandings the court is quite likely to look at those as a way of filling in the gaps finally in some cases it may be possible to sever the uncertain terms from the rest of the contract now obviously this doesn't work if the uncertain terms go to the very heart of the contract but if the contract can work without them the court may be inclined to just cut them away and to enforce the rest of the contract ultimately though it's really up to the parties and up to their legal advisers to make sure that the contract is sufficiently certain finally the contract needs to be sufficiently complete the difference between certainty and completeness is that an uncertain contract covers everything but uses words that really can't be understood an incomplete contract leaves out important things so if I made a contract with you to mow my lawn in return for payment but we didn't specify what that payment would be well that's an incomplete contract a contract which is incomplete may not be a properly formed contract at all there are a couple of tricks with completeness first sometimes parties will make an agreement to agree so if we made a contract that you would mow my lawn and that after you'd done so we would agree to a price well that's really just the same as leaving the price all together isn't it that contract is incomplete if on the other hand we made an agreement to negotiate that would be fine if we make the contract that you will mow my lawn and that I agree that after you've done so we will negotiate in good faith to determine the price well that's fine because my consideration for that contract is not my promise to pay but rather my promise to negotiate so an agreement to agree is not okay but an agreement to negotiate is sounds with a - you realize that if there's an unsuccessful negotiation well we've fulfilled our agreement to negotiate but we wouldn't have fulfilled an agreement to agree you never know whether that second agreement will even be possible the difficulty with all this is that sometimes especially when a contract is ongoing it can be really hard to nail down a price or some other provision that both parties will be happy with how can parties handle this without the contract becoming incomplete well one way is to give the parties discretion in terms of their promises so we might make an agreement that for 50 bucks you will mow my lawn every fortnight at 9 a.m. on Saturday unless I specify another time on the weekend you can see that gives me a discretion the only rule with discretion though is that it can't be too broad a discretion will not be allowed if it makes one parties promise illusory what does that mean well and the illusory promise is a promise that isn't really a promise at all it's an illusion so if we agree that you will mow my lawn and that I will have a discretion as to whether to pay you depending on whether I'm happy with the job that's an illusory discretion because I could just choose to pay a zero in which case I'm not making a promise or giving any consideration so there's no contract see how it all comes together finally parties can agree to refer out certain aspects of their contract to a third party source either some other person or some external source of reference so we might make an agreement that for 50 bucks you will mow my lawn to an adequate standard and we might insert a provision that if we disagree as to whether the job is adequate we will jointly pay for the honor Chief Comptroller and inspector of garden maintenance to determine whether the job has been done properly when you think about certainty and completeness can you see what contracts are sometimes written in a painfully detailed way it can be really important to have that detail in there so that everyone knows exactly what they're promising all right that's the first big chunk of the course done we now know how to form a contract we know that you need to have capacity and we know what happens when contracts are made by someone without capacity we know that you need to intend to create legal relations and that agreements between family members usually don't intend to create legal relations we know that there needs to be an author and there needs to be acceptance of the exact terms of that offer and acceptance needs to be communicated to the person who's making the offer we know that both sides need to give consideration but the consideration doesn't have to result in a fair deal finally we know that the contract has to be sufficiently certain and sufficiently complete but we know that the court will work hard to avoid uncertainty and that there are ways to build in flexibility without the contract being incomplete so now we've got ourselves a contract the next thing we need to learn is how the courts will read and interpret those contracts in other words what rules does the court use to attach meaning to the words of the contract generally speaking in this second part of the two-hour course we're going to assume that we're dealing with a written contract all the same rules apply in the case of an oral contract but the rules of evidence are a lot more tricky because you haven't gotten anything in writing to bring before the court so assuming a written contract the first thing to understand is that every sentence or every paragraph of the written contract is a term we call those express terms because they're expressed in the contract and we divide those terms into three categories according to their level of importance we call them conditions warranties or intermediate terms conditions are those terms which are so important that if they were not delivered the innocent party might as well have never entered the contract at all these are the terms which really do go to the heart of the contract so if we made a contract where you mow my lawn and I agree to pay you 50 bucks we can straightaway swap two conditions in the contract your promise to mow my lawn as a condition because if you didn't mow the lawn there'd be no point me enter in the contract in the same way my promise to pay you is a condition because if I didn't pay you there'd be no point you entering into the contract so if a condition is breached that contract as a whole loses its value to the innocent party the opposite of the condition is called a warrantee now be careful this is another one of those situations where the legal meaning of the word is very different to its usual meaning in English in normal language when we talk about a warranty we're talking about a guarantee that if something goes wrong the seller will fix it in contract law however a warranty is a term of the contract that is just a little less important a warranty is not so important that the contract would lose all of its value if the warranty wasn't completed so for instance let's say that our lawn mowing contract included a term that when you mow the lawn you'll take away all the clippings and dispose of them but on the third time you came and mowed my lawn you forgot to take out the last lot of clippings and they were left in a pile along the side of my house now obviously that's not great you haven't completed your side of the contract but we could hardly say the contract lost all its value to me I still gotta freshly mowed lawn after all so why does this distinction matter in the real world well in contracts more serious than worn nine contracts if a condition is breached the cord is more likely to allow the innocent party to get out of the contract together however if a warranty is breached the innocent party will still be required to keep their promises under the contract but they might be paid damages well they might get up some other similar remedy to make up to them the fact that they didn't get what they paid for finally we have what we call intermediate terms these are terms which sometimes act like a condition and sometimes act like a warranty depending on the circumstances so let's say I made two different law buying contracts with you on two different occasions each contract included a term that the mine had to be complete by midday on the Saturday exactly the same term in each contract now let's say on education you weren't finished mowing the lawn to 1:30 p.m. on the first occasion it was a perfectly normal Saturday nothing particular happening I was sitting around waiting for the bombers to smash war thorn in the foot yes yeah there was a breach of the contract but it hardly matters really in that case the timing provision was acting like a warranty on the second occasion however I decided to sell my house and I had an open house scheduled for 12:30 and instead of potential buyers turning up to a freshly mowed lawn they turned up to the sound of the mower and a front yard that looked like jungle can you see how in this case the term really was acting more like a condition if the mug lawn hadn't been mowed by midday it might as well not have been mowed at all that's an intermediate term the same term is sometimes acted like a condition and sometimes acted like a warrantee okay so now we know the different types of turn the next thing we need to think about is how we can tell whether a term is actually part of the contract at all we call these the rules of incorporation obviously the easiest and clearest way to incorporate words into a contract is by signature if you sign a contract and you acknowledge that you've done so then in general terms you'll be bound by what you have signed this is the case even if you haven't actually read or understood as long as you knew it actually was a contract and as long as you signed it well you'll be bound by those terms unfortunately not all contracts are nearly as simple as that there are other ways in which terms can be incorporated one obvious one is by notice I'm sure you've all been in this situation where you show up to a commercial car park and next to the ticket booth is a big sign showing a bunch of words which they call terms and conditions now that's a bit of a nonsense of course because they're all religious terms but terms and conditions has become the customary form of words so can you incorporate terms into a contract by a notice where you can but there are a couple of rules the first of these is that the notice must be reasonable so for instance a notice board containing a thousand words of text which is intended to be read by a driver entry in the car pocket peak hour might not be considered to be reasonable you can imagine the chaos which would ensue if every driver stopped to read all the terms of the notice in the same way think about some of those ads you see on TV where there are terms written at the end of the ad but they're written in text so small that it's virtually impossible to see second notice has to be given before the contract is formed so for instance let's imagine that you booked a hotel room and you pay for the hotel room and then when you get into the room there's a card showing terms which the hotel wishes to impose on you during your stay now those terms won't actually be effective because the contract has already been formed or for an acceptance occurred when you pay for your hotel room finally if there are particularly onerous terms in the contract well they will require special notice in the key case of Sperling and Bradshaw or the court said the more unreasonable are clauses the greater the notice which must be given of it some clauses which I have seen would need to be printed in red on the face of the document with a red hand pointing to it before the notice could be held to be sufficient however if reasonable notice is given and the notice is given in time and the notice is appropriate to the content of the clause well then the terms in the notice will be part of the contract there are some additional special considerations around what we call exclusion clauses an exclusion clause is a clause which limits the liability of the party who suggests the clause so in our Lord mine contract and exclusion clause might provide that you are not required to mow the lawn if it has been raining in the previous six hours and that a failure to mow the lawn under those circumstances will not be regarded as a breach of the contract now there's nothing inherently wrong with exclusion clauses they can be a sensible thing to include in contracts to ensure that risks are appropriately apportioned between the parties however exclusion clauses can also be used in an evil or tricky way where one party tries to basically exclude all possible liability which might fall on them if things went wrong as a result the more looks at exclusion clauses very carefully some of the rules are quite similar to express clauses generally for instance if you sign a contract which contains an exclusion clause the exclusion Clause is likely to be effective in a similar way if an exclusion clause is put forward by notice the notice has to be given before the contract is formed special rules apply if a party puts forward an exclusion clause but they misrepresent the nature of the exclusion clause now if they do that the exclusion clause is likely not to be valid so if for instance somebody shows you a page of contract provisions and then they try to play down the contents by saying don't worry about that stuff it's just standard boilerplate well that may well be enough to invalidate any exclusion clauses in the contract now even if the exclusion clause does become part of the contract the court will read the clause contra proffer Wrentham this is a Latin phrase meaning against the person who profits so if one party is seeking to rely on an exclusion clause the court will give that clause its minimal meaning if there's any doubt as to whether the exclusion will apply or not in a particular situation the court will read the clause against the person relying on the clause and the exclusion clause won't be effective so they have to be written very carefully finally exclusion clauses are bound by what we call the four-corners rule so the exclusion clause will only apply to conduct which is within the four corners of the contract anything that happens between the parties and which happens outside the four corners of the contract won't be subject to the exclusion clause this sounds more complicated than it really is let's go back to our lawn-mowing contract and let's imagine that contract included a clause which says that you will not be liable for any damage caused to the lawn or the garden or the house regardless of how that damages is caused now if I agreed to that contract and one you were mowing the lawn Navas spat out a rock which broke my window it's pretty clear the exclusion clause would protect you because that's happened within the four corners of the contract it's a mowing contract and you were mine but now imagine that you were walking past my house one afternoon and for some reason you decided to pick up a rock and throw that rock at the window and the window broke the exclusion clause wouldn't help you in that situation because that conduct throwing a rock at my window while walking past is pretty clearly outside the four corners of the contract okay so much for written terms we also have a range of unwritten terms can be included in a contract these are still expressed terms because they're clearly spoken they're just unwritten unwritten terms often occur when there are verbal negotiations between the parties particularly in sales situations so how could we tell whether words spoken in the course of negotiation are intended to be binding provisions of the contract well there are a few things to consider the first of these is the actual words used the law distinguishes between words which are used to give information and words which are used to make promises you see in any negotiations before a contract is signed it's very likely that information will be exchanged that exchange of information is not necessarily an exchange of promises so for instance let's say that we're negotiating our lawn-mowing contract you tell me that you have a large high-quality professional standard lawn mower well that information might impress me but it's just information on the other hand if you said if you give me this work that I will use a large high-quality professional standard lawn mower that sounds much more like a promise something that I can hold you to a second thing the court will consider is the relative expertise of the parties words which are spoken by a person who has with claims to have specific expertise are more likely to be considered binding this is particularly important in sales situations where the seller is likely to have much more expertise than the buyer in that case if the seller makes promises about the product those promises are much more likely to be considered binding third the court will consider whether either party attached any specific importance to the statement the more importance that was attached to the statement the more likely it is to be binding so for instance let's say we were making our lawn mowing contract and I said to you it's really important to me that my lawn is mowed by somebody using an electric mower I don't want anyone using a petrol and then let's say your answer was well it sounds like I can definitely keep your walls in great need for you can you see how I've attached great importance to the electric mower you haven't actually promised to use one but your answer combined with the importance I've attached to my statement will likely mean that you are bound by a requirement to use an electric mower finally if words are spoken in the formation of a contract but later on those words are reduced into writing even if this happens after the contract is signed well that'll be great evidence that both parties intended the words to be binding all along so if after the contract was signed I sent you an email and said remember that discussion we had about the motors and you said yeah I remember that discussion that will be great evidence that we intended those words to be binding finally we need to consider a rule called the parole Evidence Rule this rule says that if there are negotiations between two parties and then after those negotiations the parties produce a written contract which they agree is the entire contract well then they have obviously chosen which bits of their discussion to put into writing and only those things which have been written in the contract will be binding so under the parole Evidence Rule if there's a full written contract you can't go back to something that was said in the negotiations but they're not included in the contract and claimed that the words spoken in those negotiations were binding the court will take the view that if you considered those words to be so important you should have made sure they went into the contract one way to put the parole Evidence Rule beyond all doubt is to include what's called an entire agreement clause an entire agreement Clause quite simply says that the signed and written contract contains the entire agreement between the parties this will stop any suggestion that any other words spoken or any other words included in emails or anything like that as somehow part of the agreement between the parties next lots of contracts include what is called a force majeure clause this is a special type of clause that says in the event of an unforeseen event which is beyond the control of either party and which causes a party not to be able to complete their obligations there'll be no liability so in our Lord mine contract the force majeure clause might operate so that if my home and yard were affected by a bushfire so there was no grass to cut anymore well then both parties would be relieved of our obligations you wouldn't have to mow and I wouldn't have to pay you any more money the last type of special cause I want to talk about is what's called a choice of law clause now you see these all the time especially on the internet if you're buying something from an overseas website let's say one located in Japan well which laws should apply is the contract governed by Australian law or by Japanese law if you actually read the T's and C's before clicking accept you'll find that most of these international contracts include a choice of law clause stating that the contract is agreed by the parties has been subject to the laws of some particular country in this case most likely either Australia or Japan so now we know how to work out what the express content of our contract is it includes everything written down in the contract but it might also include provisions incorporated by notice or unwritten terms provided they meet the criteria now let's say there's a dispute about the meaning of those terms when lawyers talk about the construction of a term they mean the process of determining its true meaning when the court is undertaking the construction of a contract its purpose is to try to figure out what the parties actually meant when they made the contract however in a dispute that's always going to be difficult because the likelihood is that if the parties agreed on the meaning of the contract there probably wouldn't be a dispute so the court starts with the view that if there are clear Express words in the contract those will prevail so if the words themselves clearly say one thing but one party says they mutually intended to say something else well then in the case of a dispute the court will begin by enforcing the clear written words of the contract what if the words in the contract are ambiguous well then the court will look to the matrix of surrounding circumstances to work out what the court what the words mean but it does so in a very interesting way the court doesn't look at the matrix of surrounding circumstances that ask what the parties themselves intended rather the court looks at those circumstances and asks what a reasonable person in the situation of the parties would have meant by the words so in the case of our lawn-mowing contract let's say the contract was for you to mow quote my lawn end quote you came along and mowed the lawn within my boundary fence but then you refused to mow the nature strip without extra money because in your view that was not my lawn and if you knew that I'd wanted that mode you would have quoted me extra money my view of course is that the price is fair and that it always included the nature strip the court would consider the circumstances of our negotiation and would consider whether a reasonable person would consider that the words my lawn included the nature strip most likely the court would find that when most people mow their lawn they don't distinguish between their Lord and the nature strip and that it would have been unreasonable for me to make a contract to get the lawn within my boundaries mode while allowing the worn on my nature strip to become overgrown see how it works so now we know how to identify the expressed terms of a contract and how to read them there's an entirely different category of terms though these are called implied terms now as you might guess these are not written into the contract and they're not even spoken about they're just assumed to be there or else they're in there because the Lord demands that they be there let's spend some time looking at implied terms the first set of implied terms comes from what we call a consistent course of dealing in other words if you're in business and over a long period of time you've developed a business relationship with a supplier and you've always done things a certain way and you've come to understand their policies and ways of doing things then it might eventually reach the point where you're no longer writing everything into a detailed contract for every transaction well in that situation if a dispute later took place the court might well take a look at the way the consistent course of dealing between you and your supplier had taken place and the court might determine that there was an implied term in your agreement that you would both continue to operate that way another type of implied term comes from the standard way that things are done in a certain business or industry if things had done that way universally the court might be ready to accept evidence that a specific contract between the two parties impliedly assumed that things would be done in the same way however to imply this requirement into a contract the court has to be really sure it has to be so well known in the industry or situation that everyone entering into a contract in that industry would know of the customer a third type of implied term is implied into a contract to give it what we call business efficacy you see no contract is so detailed that it covers off on every single possibility or every single possible fact that can be relevant to the contract sometimes a contract will be sufficiently certain that it actually qualifies as a contract but then a dispute will happen and the dispute will be based on things that the parties just simply never turned their mind to so for instance let's say you and I made our Boeing contract and then the first time you came round to mow the lawn the moment you started the mower I came out to complain about the noise and my complaint was this we never said in the contract that you'd be allowed to make so much noise that I couldn't hear my TV and your response would be well that's the noise make and I might say we don't use a lawnmower they don't get an old-fashioned scythe or a manual push mower your answer would be well mowing the lawn that way would take ages and I would weigh more than 50 bucks can you see the dilemma well in a situation like that the court would most likely employ into the contract a term that you were allowed to use a mechanical now there's a danger in this isn't there because by employing terms in this way the court might actually end up binding people to things they never really agreed to to prevent that happening the court has established five rules for terms which are going to be implied into a contract for business efficacy the first rule is that the term must be reasonable and equitable in other words the courts are thinking about what's fair in the situation second the term must be necessary if the contract works arcade without the term then the court will be much less likely to employ a term into the contract third the term must be so obvious that it goes without saying that's actually the words of the rule it needs to be blindingly obvious fourth the term has to be capable of clear expression so the court has to be able to say exactly what the term should have said if the parties had stop to think about it finally the term must not contradict any express terms in the tract so these implied terms they fill gaps in the contract they don't overturn things which are already in the contract now the implied terms that we've talked about so far are really all about fixing problems with the contract there's an entirely separate category of implied terms and these are what we call terms implied by law so these are terms which the law sticks in your contract whether you like it or not the first one I want to talk about is the implied duty to cooperate what this means is that you have to do everything reasonable to allow the other party to have the benefit of the contract for instance let's imagine there was a contract for a house sale and some inspections needed to be done as part of the pre-sale process well if this wasn't written into the contract there would be an implied term that the seller would allow the inspectors onto the premises at an appropriate time so they could carry out their inspections a second implied Duty is the implied duty of good faith now this one's a bit more controversial but I've never quite understood why the implied duty of good faith says essentially that when you make a contract you have to do so with the honest intention of keeping your own side of the bargain and allowing the other side of the fact of the bargain to keep theirs you can't prevent the other party from keeping their side of the bargain and then complain about it so if you came along to mow my lawn and I locked you out of my yard well I could hardly then argue that you were in breach of the contract because you hadn't made the lawn in fact you could sue me for the fifty bucks that you should have received on the basis that it was my bad faith that stopped you from mowing the lawn next there are a bunch of terms which are implied into consumer contracts under the Australian Consumer Law the Australian Consumer Law operates throughout Australia by agreement between the Commonwealth and all the state governments we find the Australian Consumer Law as a schedule to the Competition and Consumer Act to thousand and ten the consumer lore makes a bunch of rules that only apply to consumer contracts somebody is a consumer in a transaction if the goods they're buying are worth less than forty thousand dollars or if the goods they're buying are normally bought for personal domestic or household use and there are consumer providing they're not planning to use those goods in their own business activities now provided you're a consumer there are some great protections the first one is that unfair provisions in standard form contracts won't be enforced unfair terms cause or take advantage of significant imbalances in the obligations of the parties and they cause a detriment to the person with the greater obligations standard form contracts of course are the sort of thing you might normally see as a consumer where you don't really have any opportunity to negotiate it's a standard form however even in standard form contracts unfair terms might still be enforced if they are reasonably necessary to protect a legitimate business interest of the trader the classic example is a contract provision in a gym membership which enables the gym to toss members out in this case they did actually toss someone out after he repeatedly breached the etiquette of the gym now the court found that this was reasonably necessary for the gym to protect their legitimate interest because other members would withdraw their membership if the benches were drenched in sweat because all might hadn't used to tell elsewhere in the Australian Consumer Law we find what I call Consumer Guarantees now if you've never heard of these they're really worth a look basically there are three broad categories of guarantee and then there's a bunch of detail to flesh those out the first broad category is that there has to be a guarantee of title for any which is being solved so when a trader sells you something they are impliedly guaranteeing that they have titled in that object if they don't for instance if it turns out to be stolen where you can rely on that guarantee to get your money back the second broad category is that goods are guaranteed to be of an appropriate quality they must be appropriately fit for the normal purpose those goods are used for and they must be appropriately fit for any purpose which the buyer has disclosed to the trader before the sale finally services are guaranteed to be of appropriate quality conducted by somebody of appropriate skill and they're guaranteed to be fit for whatever purpose lay behind the service if these guarantees are breached the consumer law contains a range of things you can do about it we'll talk more about those later on in this video when we get to breach and remedy all right suddenly we're halfway there at this point we know what you need for contract formation capacity intention to create legal relations or for an acceptance consideration certainty completeness and now we know how to read the actual terms we know how expressed terms work including exclusion clauses we know how unwritten Express terms work we know that when the court looks at Express terms they'll implement the clear words first good look to surrounding circumstances to resolve any ambiguity we know that sometimes terms are implied into a contract in order to make the contract work sensibly and finally we know that sometimes the law itself implies terms into the contract mostly to keep things fair and try to prevent disputes in the first place what all of this means is that we now know everything we need to know for a contract to go right but if contracts always went right well there'd never be any legal disputes in this third section of the video we're going to talk about what happens when things go wrong we'll look at mistake misrepresentation misleading and deceptive conduct we'll look at a thing called estoppel we'll look at unconscionable dealing at duress and finally we'll look at illegality do you remember when we were talking about offer and acceptance I said that offer and acceptance result in the two parties being ad edom of one mind well what if one of the parties has made some sort of a mistake what if for instance you and I had been discussing our lawn mowing contract and I told you that my place was that eighteen University Drive but you misheard and you heard a T University Drive now to be on the safe side you swung by the University and you saw that the yard at 80 University Drive was really quite small so in fact quoting me 50 bucks felt like it was a bit cheating turns out though that my yard at 18 University Drive is huge and it'll take you three times as long tomorrow the contract itself doesn't include the address it just says you will mow my yard this is what we call a unilateral mistake because only one party you have made the mistake you got mixed up about the address but I knew the right address all along generally speaking if you make a unilateral mistake the law won't allow you to rely on that mistake to get out of the contract the law will say that the person making the mistake should have been more careful some unilateral mistakes are a bit more complicated dog particularly where it's a mistake as to identity now I'm blessed with a fairly unusual surname but let's pretend my name was Anthony Smith and let's pretend you watched this video and then you had to get some more tutoring from Anthony Smith you signed up for it straight away and when you were signing up you said to the organizer this is going to be great I saw Anthony's to our contract law video on YouTube and it was really helpful getting cheated by him it's too good an opportunity to miss now let's imagine that it turned out to be a completely different Anthony Smith well you might have signed up and you might have paid as much if you knew that would be the case now that's a unilateral mistake isn't it I mean only one party's made a mistake there however when the identity of the other party is a material factor so when it's an important element of the contract and when you intended to make a contract with a completely different person and where the other party ought to know that the identity was important the contract will be void when we say a contract is void it is as though the contract had never been now just to make things slightly more complicated if two parties are face to face when they make a contract even if you're mistaken about the identity of the person standing opposite you the law will still assume that you intended to make a contract with that person the person standing right there you've got plenty of opportunity to work out who they are so a mistake as to identity a unilateral mistake as to identity will only save you if the parties are not face to face and if their identity is an important aspect of the contract and if you intended to make a contract with someone else and if the other party knew that there's one other type of mistake that the law will protect you from it's a very particular type of mistake we call non nest factor that means it was not done or more commonly it's translated as it was not my deed this occurs if you've made a mistake about the actual nature of the document that you've signed so let's say the document was had an expression of interest and you signed it believing that what you were doing was expressing your interest in potentially making a contract at some time in the future as far as you were concerned all you were doing was handing over your details in most cases the law won't help you you've had your chance to read past the headline and to realize the document was in fact a contract however if you are from a special class of people you will be protected if you're unable to read through blindness illiteracy or a lack of understanding of the English language and you have to rely on somebody else to explain the document tooth to you or if for some other reason with no fault of your own you are unable to understand the nature of the document well then the contract will be void now these are pretty serious barriers to overcome so really we come back to the basic rule that in the event of a unilateral mistake it's very likely that the person making the mistake will be held to the contract despite their mistake now there's a second type of mistake called common mistake it might be called a common mistake but it's a pretty rare situation a common mistake occurs when both parties make a mistake as to the existence of some object or some state of affairs which is crucial to the contract and where neither party has actually taken on responsibility for the statement that that thing exists so for instance let's say that I had ordered a book from an overseas book seller on the internet while I was waiting for it to arrive I read some reviews and decided that actually I didn't really want to read that book at all so I put it on eBay and you purchased the book before I'd even received it so the idea was that when I got it I wouldn't even open it I just forwarded on to you little did we know that two days before you agreed to purchase the book it was destroyed in a fire at the overseas mail handling center so I saw you a book that didn't exist you bought a book that didn't exist it wasn't either of our fault and we both made the same mistake in that situation the contract would be void you'd get your money back and we'd go our separate ways finally there's a type of mistake called a mutual mistake this confuses the heck out of my students because a mutual mistake is different to a common mistake even though the words common and mutual mean virtually the same thing a mutual mistake occurs when the parties are completely at cross-purposes so let's say I owned a white sedan and a white ute and you offered to buy my white car for $10,000 now I assumed that you meant the white sedan because if you'd meant by the ute you would have said I want to buy a ute you on the other hand didn't even know that I had the white sedan and you were only interested in buying the ute neither of us discover the confusion so we make a contract for the sale of my white car I'll give you the keys to the sedan and suddenly we have a dispute can you see how both sides have made a mistake but they've made different mistakes my mistake is that I've misunderstood the car that you wanted to buy your mistake is that you've misunderstood which car I wanted to sell it's not a unilateral mistake because it's impossible to look at the contract and say one of us is right and the other one is wrong in a situation like this the truth is that the parties have never actually been at edom at all so the contract will be void so those are our three types of mistake can you see how the one thing that unites them all is that all of these mistakes are innocent the person making the mistake can't really be blamed and neither can the party who's not making the mistake now we're going to get a bit more sinister and look at misrepresentation this happens when one party is actually trying to lead and the other party into a mistake or misunderstanding to prove that misrepresentation has occurred you need to show five things first you need to show that there has been a false statement about some past or present fact now that generally means that statements about the future can't be misrepresentations but if I'm selling you a car and I tell you it's never been in an accident when I know that's not true then I'm making a false statement about a past or present fact second the statement must be made by one contracting party to another or by their agent which means somebody speaking with their authority so if a friend of mine says to you you should buy Anthony's car it's never been in any accidents well that won't be a misrepresentation because I'm not the one who said but if you asked me whether that was true and I didn't set you straight well then there be a problem third the statement has to be made at or before the time the contract was made so if you agree to buy the car and after we've already made our agreement I say you won't regret this this is a great car and it's never been in an accident then even if I'm lying it's not a misrepresentation because the contract was already in place when I said it finally the statement has to be intended to induce you into entering the contract and it has to actually have that effect so if I can see that you want the car but you're balking at the price and I tell you falsely that it's never been in an accident my intention is pretty clearly to convince you to pay the price if that lie pushes you over the line well that's a misrepresentation so let's say we've met all of those requirements what is the effect of a misrepresentation well it depends you see there are three types of misrepresentation innocent fraudulent and negligent innocent misrepresentation happens when the party doesn't know that what they're saying is untrue they may in fact believe that they're telling the absolute truth they've just got it wrong if the other party proves that this misrepresentation occurred well the innocent party will be able to rescind the contract that means that they will be able to set the contractor side and get their money back but nothing more than that it's not like the law would want to punish someone who was not actually trying to tell lies next we come to fraudulent misrepresentation now this occurs when someone who's just dead set lying now making a misrepresentation and they're doing so either knowingly or without actually believing in what they're saying or they're doing it recklessly that is without checking in to what they're saying and without caring if it's true or not if a fraudulent misrepresentation occurs the innocent party can rescind the contract but they can also potentially obtain damages for any harm they might have suffered as a result of the fraud finally we come to negligent misrepresentation this happens when one party is under a special duty to make sure that what they are telling the other party is the truth this is most obvious when the contract is actually for the provision of advice if you go to say a financial advisor then they're under a special duty to make sure that the statements they make prior to the contract are accurate because they have access to knowledge you don't and the whole purpose in going to see them is to obtain access to that knowledge so if the person making a statement is under a special duty to be reliable and tell the truth and they fail in that duty and that failure results in the other party suffering loss or damage well then the innocent party can rescind the contract and they can also obtain damages to undo the harm now under the Australian Consumer Law and before 2010 under the old trade practices act 1974 there are in fact statutory provisions which prohibit corporations from making false or misleading statements about a whole bunch of aspects of goods and services those provisions being statutory provisions carry with them the potential for what's called a pecuniary penalty that's a fancy way of saying a fine and in addition to that a range of other orders might be made under the legislation now mistake and misrepresentation and misleading and deceptive conduct do all great but they really only apply in a situation where there is a contract they're also limited to statements about the past and present and finally they're limited in terms of their remedies it comes down to basically rescission or damages or both there's another doctrine that comes out of what we call equity law which is a bit more flexible it doesn't require that a contract is ever actually formed and it allows for a wider range of potential remedies this doctrine is called promissory estoppel the idea of estoppel is deceptively simple if you make a statement to someone about a state of affairs including a future state of affairs and you intend them to rely on that statement well you know they're going to and the statement turns out not to be true and they do rely on that statement and some harm comes as a result well then you should be responsible for that harm even if you're never actually concluded of contract so if I was to tell you look I'll make a contract with you to mow my lawn but I want it done well so you have to go out and buy this particular thousand dollar mower and then we can make our contract and if you did go out and buy the mower but I changed my mind then and said no actually I'm just gonna make myself you can see that my statement is about a future state of affairs it turned out to be wrong you've suffered loss as a result and it's only fair that I should be responsible for that even though we never actually contract at all there are five elements of promissory estoppel first there has to be an assumption or expectation which ultimately turns out to be wrong or invalid or unwisely held in some way second the assumption has to be encouraged or induced by the person against whom the estoppel is being taken now at this point we need to distinguish between expressing hope and encouraging or reducing an expectation if I'm encouraging you to buy that and while lawnmower and I say I know three friends who'll also want you to mow their lawn so you'll make back the cost of the mower in no time well that's a representation however if I just said once you've bought the mower well I hope other people might get you to mow their lawns too that's not the same is it so a mere expression of hope is not enough third the innocent party has to actually rely on the statement so if you thought well I don't really believe Anthony when he says that stuff about other people getting me to mow their lawns but I'll be wanting to upgrade my mower anyway so I might as well do it now in that case you haven't really relied on my representation have you fourth the party making the statement must intend for the other party to rely on their statement or alternatively they have to know that the other party is relying on their statement finally the innocent party must actually suffer some harm as a result of relying on the representation now if all of those elements have met then the court actually has a great degree of flexibility in how it might undo the detriment sometimes the person making the statement will be required to make the statement come true so the court might theoretically order me to produce neighbors and friends who want their lawns mowed now that's not really practical in a lot of situations so instead the court might order compensation or it might be the order or forbid some other form of conduct with the intention of making it up to the innocent party all right now we go to start getting into the really evil stuff we're going to start with what's called unconscionable conduct or unconscionable dealing this is conduct which is so contrary to good conscience that the court just won't allow it to occur unconscionable conduct occurs when one person is under a special disadvantage and the other person knows or ought to know about that disadvantage and they take advantage of their superior position now in some cases as we mentioned right back at the start of these two hours some disadvantages will prevent a contract from being enforceable at all against a child against a person under a mental incapacity and sometimes a person who is intoxicated but there are a lot of other types of disadvantage so for instance in the cases there's a case called commercial Bank of Australia and Ammar do in that case the bank knew that the ahmadi has spoke no English and the contract was being explained to them by their son that sounds fair enough but it was a contract for them to put their house up as collateral for that son's line see the problem the bank knew they're Mario's were at a disadvantage but the bank proceeded anyway then there's a case called laugh and dip rise laugh was utterly infatuated with mr. prose she was indifferent to him that she exploited his infatuation to the tune of many thousands of dollars despite his relatively low income you'd have to think that a pub which encouraged problem gambler to keep playing the pokies might end up in a similar situation when the Court finds unconscionable conduct the usual remedy is what we call rescission which seeks to take the parties back as far as possible to the position they were in prior to the contract being formed so their objective then is to deny the unconscionable party any benefit flowing from their unconscionable conduct next I want to discuss what we call undue influence this is pretty much what it sounds like it occurs when a person might have entered into a contract without actually agreeing to the terms of the contract but rather they've been talked into the contract by the improper influence of some other person now there's a difference between proper and improper influence a difference between proper influence and undue influence there's no problem for instance with a parent doing everything they can to persuade their child to sign some beneficial agreement or persuade them not to sign some dangerous one the influence becomes undue when there is an ulterior motive when the person holding the influence seems to be taking advantage of it now there are two types of undue influence the first is what we call actual undue influence this is the simplest it occurs when there is actual evidence of a person abusing their influence over someone else to persuade them to make some decision the second type of undue influence is what we call presumed undue influence this happens when two parties are involved in some type of relationship and the nature of that relationship is such that the law will begin but presuming there is undue influence so there's a range of these types of relationships for instance parent and child doctor and patient lawyer and client religious advisor and worshipper you can see that in all these cases there's the person with the upper hand and that person is expected to advise and care about the interests of the other person you can see how it would look if the person with the upper hand made a contract to their own great advantage with the other person don't for a moment though think that you have to fall into one of these recognized relationships for presumed undue influence to occur whenever the nature of the relationship is such that one person has assumed responsibility for advising and guiding someone vulnerable the law will presume that undue influence is occurring now if undue influence is presumed the person with the upper hand will not be able to enforce the contract however this is another one of those presumptions that can be rebutted so if the person with the upper hand can bring evidence to show that they were not taking advantage of their position and if they can show that the other person had independent advice and they knew and fully understood what they were agreed to well in those circumstances the court may enforce the contract but the starting position will be that if undue influence is shown or even presumed the court will not allow the influential person to take advantage one step worse the mere undue influence is what we call duress duress is where an actual threat is used to secure a contract this can be a threat of physical harm to a person it can be a threat of harm to property and it can be an unlawful threat to a person's economic interests you have to remember though that some economic threats are actually lawful if a shopper says give me a refund or I'll never shop here again that's a threat to the economic interests of the store isn't it but it's really part of the normal cut and thrust of commercial activity if duress has been used again rescission is the likely remedy although in some cases the innocent party might be entitled to what's called restitution which is basically a repayment to them of any money they might have paid the contract finally let's talk about illegality right at the start of this presentation I said that the unique thing about contracts is that they are promises which the law will enforce well we hardly expect the law to enforce contracts which were the illegal would we so for starters any contract to commit a crime commits a tort which is something like negligence or civil assault or any contract to commit a fraud will be void it's never a contract at all it's not enforceable by anyone for anything next there used to be a rule that contracts which were contrary to sexual morality couldn't be enforced for a long time we thought that rule had died off but then there was a case called Ashton and Pratt mr. Pratt an extremely wealthy man entered into an agreement where he promised extraordinary wealth to an ex-prostitute if she would give up prostitution and be available to him he then died and she sought to enforce the contract the judge at First Instance ruled in part that the contract could not be enforced because it was for a sexually immoral purpose that of meretricious sex or sex for money now when that case was appealed to the Court of Appeal it was decided on other grounds so we still don't really know what the Court of Appeal thought about the morality argument so it may be that contracts which are sexually immoral are still unenforceable next the courts won't enforce contracts which seek to defeat the administration of justice so if I found out that while you were mowing my lawn you'd also stolen some items from me I can't make a contract with you that say if you return those items and pay me a thousand dollars I won't report them out of the police that's a contract the courts just won't enforce in a similar vein to protecting the administration of justice courts won't enforce a contract which seeks to ask the jurisdiction of the court so if we made our Lord mine contract and one of the provisions said although this contract is intended to be justiciable neither party to this contract may commence legal action against the other party with respect to anything in the contract well that part of the contract would be invalid it's easy to see why the more is superior contracts because what makes something a contract is your ability to enforce it in the courts now we have to be careful here because provisions where two parties agreed to try mediation or arbitration before going to court will they're fine at a contract where the consideration is forbearance to sue well that's fine too because in that case the person forbearing to sue is choosing not to go to court themselves they're not enforcing that on anyone else similarly if a contract contains an honor clause remember we discussed those back at the start well the honor Clause is likely to be valid finally some contracts may be invalid because there are specific provisions in law which invalidate them so let's say for instance a license was required in order to mow lawns commercially and you didn't have that license well that means the law says you can't make a contract with me to mow mow lawns unless you have that license if you do make that contract well you may suffer the penalties under the Act and you also might be liable to me under the contract okay there's one other type of contract clause that I want to discuss it's always discussed along with the illegal contracts but it's slightly different I'm talking about restraint of trade clauses so let's say I actually had a lawn mowing business and I hired you to be one of my mowers and in the contract there was a provision saying that if the contract ended you were not allowed to take any of my customers with you and you were not allowed to mow lawns commercially within 20 kilometres of the business of Central Depot for six months after the end of the contract now sometimes restraint of trade clauses are fair and reasonable and sometimes they're over the top the court won't enforce them if they're over the top how we tell the difference well the court looks at whether the restraint is reasonably in the interests of the parties and reasonably in the interests of the public so for the parties the court will consider things like the scope of the restraint how long how far the activity is restrained so if I stop you mowing that's one thing but if I extended that to all landscaping and gardening well that might be something completely different and the court will also consider the bargaining power of the parties in terms of the public interest the court will consider things like whether it's going to make it hard for the public to access the service if a service provider is restrained from trading if the restraint of trade clauses reasonably any interests of both the parties and the public it will be enforceable after all it's pretty reasonable for me not to want you to take all my customers if we part ways it's time now for us to think about how the contract might end and what happens when it does we're going to look at four ways in which contracts might end they might end by performance by agreement by frustration and by breach now if the contract is breached we'll need to look at remedies so we're going to look at various types of remedies damages the equitable remedies and remedies under the Australian Consumer Law once we've done that we can stop the clock and you'll have completed my two hour contracts course the first and most obvious way for a contract to end is by performance and really this is how most contracts end you may my lawn I pay you the fifty bucks and we both walk away happy there are millions of consumer transactions every day and every one of them is a contract and virtually all of them go off without a hitch and they're performed immediately there are some rules to know about discharge by performance though like everything in contract law it's never quite as easy as it seems the basic rule which is known as the rule in Qatar and Powell or or it's sometimes called the doctrine of exact performance that rule says that for a contract to be discharged by performance each party has to absolutely and exactly satisfy their promises now in the case of Qatar and Powell a sailor died on the voyage home and didn't complete his promise to help sail a tall sailing ship from Jamaica to England the court found that his widow was entitled to nothing because he hadn't fully completed his promise now it seems to me that the rule in Qatar and Powell is a good place to start I mean as a general principle what you promised you want to do however it's not too hard to imagine situations in which the rule in Qatar and power could result in some real injustice so the law has developed some exceptions to rub off some of the sharp edges of the rule the first one of those is what we call the divisibility exception so if a promise can neatly and realistically be divided up then the person might be paid for those bits which they did complete so if you and I made a contract where you agreed to mow my lawn five times for $50.00 each time that's pretty clearly divisible so if you were only able to do it three times you could still ask for 150 dollars now if we made a contract for you to mow my lawn five times for 250 dollars that's slightly murkier can you see the difference but it did still probably be divided if however we made a contract for you to maintain my lawns for three months for 250 dollars that's much less easy to divide see how it works a second way around the rule in Qatar and power is expressed in two closely related ways it's sometimes called the de minimis rule and it's sometimes called the doctrine of substantial performance de minimis comes from the Latin saying de minimis non curat Lex which means the law does not care about trifling things in other words if a party's obligations really have been substantially performed you can't just go out and nitpick some ridiculously tiny failing and use that as the basis to deny them the whole of their payment now you might still be able to seek damages depending on how truly trivial the failing is however if a contract has been substantially performed the court is going to overlook some trifling failing rather than allow the ruling Qatar and Powell to operate unjustly a third way around the rule in Qatar and Powell is called the doctrine of park performance now this is a bit different to divisibility or substantial performance because it relies upon the agreement of the innocent party essentially the innocent party can accept park performance of the contract as long as they do so freely and doesn't stop them from relying on the rule in Qatar and power so let's say we had our contract for you to mow my lawn five times for 250 dollars and our practice had been that I pay you $50 every time you mow the lawn this happened three times and then you called me and said Anthony my studies are getting a bit overwhelming and I'm really not sure I can keep my on the law in return and I said fair enough thanks for your help thus far now if the rule in Qatar and Powell applied I'd be able to demand my hundred and fifty bucks back I mean you haven't completed your total promise therefore you get nothing under the doctrine of park performance though I've volunteered for this so you get to keep what you've earned to this point now one last thing about discharge by performance and this goes back to a concept we mentioned earlier about the duties of cooperation and good faith you can't obstruct the other side's performance of their obligations under the contract and then try and rely on the rule in Qatar and Powell to relieve yourself of the duty to pay them in fact if that happened it would be very likely that they would have an action against you for breaching the implied good faith term in the contract so if a party absolutely completes their contractual obligations or if one of the other exceptions to the rule in Qatar and power apply then the contract will be discharged by performance and everyone goes away happy a second way that a contract might be discharged is by agreement there are a few ways in which discharge by agreement might work the first is where the contract itself contains an agreement about when and how the contract might end this is actually pretty familiar to most of us if we sign up to rent a house the lease has an expiry date if we sign up to a gym or an online dating service or a phone contract well these all have expiry dates so after the expiry date is met either party can pull out of the contract usually with some notice a second way in which a contract can be discharged by agreement is by what we call the failure of a condition precedent sounds more complicated than it is in this situation the parties have agreed that their obligations to one another so their contract will commence if and only if some prior event occurs so let's say you're living in Sydney and I'm here in Rockhampton but I know your intention is to move to Rockette I might say to you look let's make a contract for you to mow my lawn every three weeks for $50.00 but your move to rockhampton will be a condition precedent so if you don't move to Rocky the contract won't come into being but if you do move to Rocky then the contract will be established see how it works now the most common place that you'll find these condition precedent clauses is any contract which relies on Finance so you might agree to a contract to buy a house but the contract will be subject to Finance if you don't get the line you don't have to buy the house the loan in that case is a condition precedent a third way in which a contract can be discharged by agreement is called a condition subsequent so we have a condition precedent and a condition subsequent now if a condition subsequent occurs then that will end the contract so let's say when we make our lawn-mowing contract you say to me look Anthony I really appreciate the work but I'm also applying for other weekend work and if I get one of those jobs I won't be able to keep my on the walk so we put in the contract a condition subsequent saying that if you get other employment on the weekends the contract will be terminated if you do get work the contract is over and we're all happy if you don't get work well then you keep mowing the lawns and we're all happy now it's easy to get confused between conditions precedent and conditions subsequent because they work in opposite ways a condition precedent is something that must happen if we want the contract to continue a condition subsequent is something that must not happen if we want the contract to continue finally of course parties can simply agree to end their contract this is called termination by accord or release and the type of termination by agreement so now we know two ways for contracts to be terminated by performance and by agreement next we're going to turn to termination by frustration now frustration of course is an emotion which most law students know well but in contract law it has a particular me frustration occurs when some external event happens something outside the control of either party but the effect of that is to completely change the nature of the bargain so that now the party's obligations under the contract means something completely different to what the parties understood when the contract commenced this is one of those concepts that's a lot easier to understand once you see some examples so let's look at a few the first one is the destruction of the subject matter the classic case here was called Taylor & Caldwell which was a contract for the hire of an amusement Hall Taylor and his compatriots went to some expense to prepare an advertise a range of events at the Music Hall from which they intended to make money but through no fault of court balls the music hall burned to the ground a week before the event Taylor then sued Caldwell for failing to provide the venue but the court found that the contract was frustrated promising to hire out an amusement Hall becomes a completely different type of promise when the amusement hall burns to the ground another case Morgan and man saw was a case where a musical performer received a contract to perform but then he was called up for service in the second world war as a result the contract was brushed grated it was neither parties fault and the contract became impossible to perform a third case is one of the famous coronation cases it's called Crowell and Henry Henry least two rooms and balconies from which somebody could watch the Kings coronation procession but the procession was then cancelled because the King got sick now the the renter could have still used the balconies there was nothing to see the whole basis of the contract had been destroyed and it was neither party's fault see how it works now there are a couple more things to know about frustration first up a contract doesn't become just because honoring the contract turns out to be a lot more inconvenient or expensive than was initially expected it has to be rendered a different contract well the performance has to become performance of a completely different type second frustration only affects future obligations under the contract any obligations which filled you before the frustrating event are still enforceable so if we think about Morgan and Mansur if the contract had been for ten performances and he received his call-up to join the army after the third performance well both parties obligations in relation to those first three would be enforceable the second thing to ask is what the consequences are if a contract is for is frustrating now it all depends on whether there has been what we call a total failure of consideration in other words has either side given consideration for something and got absolutely nothing back in return in that case they may be able to recover their consideration however if there has been some form of consideration in return any sort of consideration at all then the losses will wide where they form the parties just walk away from the contract in whatever circumstances they happen to be in at the time of the frustrating event now this of course can result in injustice and in New South Wales South Australia and Victoria the parliament has made laws allowing the court to try and find a fair outcome in the case of frustrated contracts finally it's time for us to talk about a breach in the discharge of a contract how does a contract end when someone just doesn't keep their promise well in the first case if there's a failure to perform we have to look way back to the second part of this lecture and think about whether it's a condition or a warranty or an intermediate term that's been breached if it's a condition or an intermediate term that's acting like a condition then a breach will give the innocent party the capacity to end the contract if it's a warranty or an intermediate term which is acting like a warranty well then the contract will continue but another remedy such as damages so how do we know when there's a failure to perform well that very much turns on the contents of the individual contract if the promises are delivered on will there's no bridge if promises are broken there's a bridge the party alleging the breach will need to prove that it occurred it's not the more interesting bridge cases involved what are called repudiation an anticipated breach repudiation occurs when a party simply turns around and says I'm not going to be bound by my promise anymore so it's different to a normal breach where a party just hasn't completed their obligations if Saturday came along and there was no sign of you and your mower and I called to say hey where are you and your answer was look you can keep your money I'm not mowing your lawn it's hot and dirty and it's creeping on the TV well you would have repudiated the contract now if you repudiate the contract there's a number of things I can do about it I can terminate the contract of course but I don't have to I can leave the contract on foot if I want and demand that you either meet your promise or pay me damages for failing to do so a third type of breach is a special breed of repudiation which we call anticipate or eBridge this happens where the time hasn't yet come for someone to deliver on their promise but it's clear to you that they're not going to well in that case you can terminate the contract for breach and sue for damages immediately you don't actually have to wait for the breach to occur this happened in the great yoyo case hammer and barrow against coca-cola hammer and Barrow Manufacturing those cool coca-cola yo-yos which used to be all the rage back when I was at school coca-cola ordered 200,000 the first batch of 85,000 was delivered and from those 60,000 were defective coca-cola didn't have to wait for the other 115,000 to be delivered before ending the contract and suing for damages otherwise heaven knows how many defective yo-yos that have had on their hands okay so we've got a breach what sort of remedies can we get as a result of the bridge during this video you've heard me talk from time to time about damages and damages are the primary form of remedy under the common law damages are essentially the payment of money which seeks to compensate the other party for the harm caused by the breach now how is the damages calculated well in some ways that's a matter for the court and a matter for the evidence which each side brings to the court about what the extent of the lost was but there are four key principles first damages are calculated at the date of the breach not at the date of the trial this is important because sometimes it can take a long time for a matter to come to trial and if we're talking about something like real estate or commodities then the value of those might change quite considerably between the time of the breach and the time of the judgement second damages are calculated on a once-and-for-all basis so if a party gets an award of damages the award of damages will completely settle the liabilities between the parties in relation to that bridge if it later turns out that the damage was worse than expected you can't go back for more damages are a one-off once-and-for-all award however when calculating those damages parties are in fact allowed to claim for what I call expectation damage so for instance if a party is unable to make the expected profit because of a breach well they can claim damages for that loss profit if they've missed out on other opportunities because they invested their resources in the breached contract they can potentially claim for those lost opportunities finally the parties don't need to leave it to the court to decide what the damages are going to be in fact many contracts actually set out what the damages are going to be in the event of a breach these are known as liquidated damages and there's nothing wrong with this the court will enforce that liquidated damages cause even if it results in different damages to what the court would have chosen the only time that the court won't enforce that liquidated damages Clause is if it's so outrageous that it becomes what we call a penalty so it functions more as a punishment than merely as a form of compensation now this might sound obvious but you can only get damages for the harm which is actually caused by the breach how do we tell how do we distinguish harm which was caused by the breach from other sorts of harm that might have other causes this issue is called causation and we apply a rule called the rule in Hadley and Baxendale it has two main questions which are known as the two limbs first it asks whether the harm arose naturally from the bridge in the normal course of things in other words if it's self-evidently obvious that the harm arose from a breach then causation is proven second it asks whether the harm is a type of harm which was reasonably within the contemplation of the parties at the time of the contract and if it was well then the harm can be considered to have been caused by the breach let me give you an example let's say I had received a letter from my local council telling me that my lawn required work and then if I didn't have it by the 1st of June well then I'd be fined under the bible's and so I contact you and we make a contract for you to mow my lawn no later than the 31st of May and I tell you that the reason I'm hiring you is that the council is threatening to find me if I don't mow the lawn by the 1st of June now let's imagine that for one reason or another you didn't mow the lawn until the 4th of June and I've got a fine can you see that your breach has caused me to be fined and the possibility of that fine was within our contemplation at the time of the contract I'd most likely be successful in suing you to recover the amount of the fine now there are a couple of things to consider on the other side of this whole equation you see even the innocent body might have some obligations in the event of a breach the first obligation is what we refer to as mitigation of loss so someone else's breach has caused you a loss but there are reasonable things that you can do in order to minimize that loss then you may not be able to claim for the whole loss so let's go back to the scenario we used a moment ago and let's say that on the 27th of May you contacted me and said Anthony I'm not going to be able to complete our contract before the 1st of June let's say the fine was going to be $400 what can I do to mitigate my loss well I could go out immediately and ask another mowing company to come around the next day and do the mowing but because of the short notice they're going to charge me 120 dollars under contract law what I should do is pay the hundred and twenty dollars and then seek damages from you of 120 dollars because by doing that I have mitigated or reduced and in this case removed the risk of the $400 fine so I'm obliged to take those steps to mitigate my loss but the costs of that mitigation can be recovered in damages in the same way if I pay money to repair or rectify something that was damaged or left undone by your breach well then I can generally recover the money which was properly spent on that rectification or repair provided it was reasonable and necessary all right the clock's ticking on us now but I reckon we'll get there the other thing that might affect the innocent party in terms of damages is what we call contributory negligence this occurs when something done negligently by the non-breaching party causes an increase in the harm from the bridge the classic case was called lex mead and lewis where a farmer bought a defective towing hitch and continued to use it even after he knew it was defective when the hitch broken caused an accident resulting in two deaths part of the fault rests with the supplier of the defective hitch but the farmers contributory negligence also counted because the farmer continued to use that hitch even after he knew was defective so can you see if your own negligence contributes to the harm you can't get damages for all of the harms okay so much for damages a second type of remedy is what we call restitution restitution is based on the idea that if a person is unjustly enriched by their breach of a contract they may have to pay restitution to the other party to offset that enrichment so let's say you came around and mowed my lawn but then I discovered that the contract was actually illegal because let's imagine to mow lawns for a profit you need an Australian business number a license that are paid up insurance policy and you didn't have those now on that basis the contract would not be enforceable so I could wait until after you've mowed the lawn and then refused to pay because the contract is unenforceable you wouldn't be able to do anything right well under the principles of restitution you might be able to claim the payment for the work that you have done because otherwise I would be unjustly enriched it would be against good conscience for me to keep the money now let's look at some of the equitable remedies that might be available to a court remember it's a basic principle of law that equity follows the law so if damages are going to be reasonably capable of compensating a party for harm well then damages will be the remedy ordered by the courts however if damages are not an appropriate remedy the court may consider a number of remedies in equity the first one to mention is called specific performance this is where the court orders the breaching party to fulfill one or more of its obligations under the contract the most common example occurs in real estate sales if a party refuses for one reason or another to sign the transfer in the sale then the other party the plaintiff can seek an order for specific performance where the court would order them to sign the transfer now to make an order of specific performance a couple of requirements have to be met first the court has to be able to set out very precisely the performance to be specified and that in turn means it has to have been set out very clearly in the contract second it has to be a single one-off obligation to be performed the court will not order specific performance of any obligation which would then require ongoing supervision by the court to see whether the order was being fired a second equitable remedy is almost the polar opposite of specific performance this is called an injunction generally an injunction is an order by the court that a party must not do something but it can also sometimes be an order that a party must do something even if it's something not specifically set out in the contract so for instance let's say we made our ward money contract and as part of that contract you agreed that you would not contract to mow anyone else's lawn on Saturday Links and then I found out you were doing so well I might seek an injunction to stop you from mowing that other persons laws quite often injunctions are used on what we call an interlocutory basis which means the court might make an injunction at the very start of a proceeding well before the matter comes to trial in order to stop the harm from growing in the time that it will take to get to the actual trial so for instance a person who was alleged to have been telling trade secrets might find an interlocutory injunction prohibiting them from making blog posts about the industry until such time as the court can work out whether they really have breached the contract by telling trade secrets the final type of equitable remedy that I want to discuss is called precision rescission is an equitable remedy which seeks to bring the parties back to their positions prior to the contract so it tries to undo the contract from the very beginning so imagine a contract for the sale of a defective product well rescission would occur if the court ordered me to give back the product and the store to give back my money in many cases of course rescission is not practically possible because under the contract people may have done things that can't be undone so for instance in our Ward mowing contract you can't unload my lawn so rescission is not practically possible now once upon a time that would have been the lot for remedies however earlier in this video I talked a little bit about the Australian Consumer Law particularly in relation to misleading and deceptive conduct and also in relation to the consumer guarantees that are implied into consumer contracts if the Australian Consumer Law is broken then the consumer law itself as its own remedies any breach of those consumer guarantees will be classified as either a major or a minor failure a failure is major if it means that the goods or services are unsafe or if they depart substantially from the description which was initially promised or if there is a failure so substantial that the consumer wouldn't have purchased the goods or services if they've known of the failure now if the failure isn't major if it doesn't meet those descriptions that's minor in the case of a major failure the consumer can reject the goods or services or alternatively they can take legal action under the Act to recover any lost value so that is the difference in value between the product as it is if the failure is minor then it's the supplier who gets the options they have the option of replacing the product repairing it or refunding the cost price now those are the remedies that the individual consumer can go after under the Australian Consumer Law in addition there are some remedies that can be sought by the Australian Competition and Consumer Commission on behalf of consumers of that product generally these measures can include pecuniary penalties so financial penalties they can include a compensation order that compensation be paid to customers they can include an injunction to prevent the supplier from continuing to breach the Australian Consumer Law and they can include what's called an enforceable undertaking where the supplier agrees to some course of action which is intended to rectify the harm caused by a product and where the a Triple C can take further action against the supplier if the undertaking is not to live it on oh my goodness here we are we've looked at how our contract is formed by two or more parties with capacity who intend to create legal relations who have offered acceptance to give consideration his contract is sufficiently certain and complete we've looked at expressed terms including exclusion clauses and unwritten Express clauses we've looked at implied terms whether they're implied to fill in gaps in a contract or whether they're implied as a matter of law we've looked at factors like mistake misrepresentation undue influence unconscionable conduct and illegality all of which can make a contract void and we've looked at contracts ending by performance agreement frustration and breach and if there's a breach we've looked at the common law remedy of damages we've looked at the equitable remedies and the remedies under the Australian Consumer Law stop the clock I really do hope this has been helpful to you there is a brief overview and introduction to contract law or as a basis of revision if you've studied this material already if you've found it to be useful please keep an eye out for future to our courses because I'm hoping this one won't be the last and please do think about clicking on those pesky ads from time to time I'd love to be able to get some better cameras and mics and give you all a better learning experience for now may all your contracts be fruitful you

Channel: Anthony Marinac

Views: 264,421

Rating: 4.9174995 out of 5

Keywords: contracts, contract law, contract formation, consideration, ad idem, express terms, implied terms, estoppel, promissory estoppel, common mistake, mutual mistake, unilateral mistake, pinnel's case, misrepresentation, duress, frustration, frustrated contract, restraint of trade, substantial performance, exact performance, australian consumer law, repudiation, anticipatory breach, damages, restitution, specific performance, law school, law study

Id: pVT_fpz-6KM

Length: 122min 13sec (7333 seconds)

Published: Mon May 28 2018