Lecture Fundamentals of business law (4th): Chapter 8 - Margaret L. Barron, Richard J.A. Fletcher

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2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

Copyright © 2000 McGraw-Hill Australia


Contract law
Part 2

Chapter 8
Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.


Limited capacity
(of either party)
• Minors
• Persons of unsound mind or
intoxicated (alcohol, drugs)
• Bankrupts
• Corporations

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2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

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Limited capacity
Minor
(i.e. <18 yrs)
Valid

Copyright

Voidable

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

Void

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Minors - valid contract
VALID
NECESSARIES
 Involves:
Food

Clothing
Shelter
Medicine
 Dependant on:
Lifestyle
Time of sale
Copyright

BENEFICIAL
 Re service:
Education
Employment
Instruction

CASH
TRANSACTIONS

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

8-5 Australia
Copyright © 2000 McGraw-Hill


Minors - voidable contract
VOIDABLE
VOID

VALID

(i.e. non binding)
If repudiated during
minority, or within a
reasonable time
of turning 18

(i.e. binding)
If ratified within a
reasonable time of
turning 18

Differs in States due to introduction of Statutes
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2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

8-6 Australia
Copyright © 2000 McGraw-Hill


Minors - void contract
VOID
Contracts for the
repayment of money
lent

Contracts for the payment of
goods supplied, or to be
supplied, other than necessaries

All “accounts stated”

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2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

8-7 Australia
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Limited capacity - persons intoxicated or
of unsound mind
Voidable contract if:
(a) One party did not understand what
they were doing because of the
condition,
and
(b) the other party in the contract knew
of the condition.
Voidable at the option of (a)
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2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

8-8 Australia
Copyright © 2000 McGraw-Hill

Restricted capacity
Bankrupts
• Disclosure if: - Credit in excess of $3 000
- Trading under a firm or under an
assumed name
Corporations
• Power to contract through individuals authorised to
contract on behalf of company.
(Contracts entered into prior to incorporation can
be ratified on incorporation - Corporations Law)
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2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

8-9 Australia
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Consent
Consent
Absent due to:
 Mistake
 Misrepresentation
 Duress
 Undue influence
 Unconscionable conduct
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Genuine
by both parties
Valid

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

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Consent
MISTAKE
OF FACT

OF LAW

Legal

rights or obligations

COMMON
 Includes both parties
 Same mistake

MUTUAL
 Includes both parties
 Different mistake

UNILATERAL

 Includes one party
 Other party knows

Void if:

Void if:

Void if:

 existence of subject
matter or fundamental
fact are mistaken.
contracting parties, or

 reasonable person  terms of contract,
agrees actual offer
identity of one of
and acceptance.
(Meeting of Minds)

mistaken.
Copyright

 nature of the
document are

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

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Copyright © 2000 McGraw-Hill


Mistake
Mistake as to identity
• Offer intended to be made to X (identity important).
• Reasonable steps taken to ensure actually dealing with X.
• Offeree was aware the other party wished to deal with X.
Common mistake
• Both parties to the contract make a mistake, but it is the
same mistake.
Mutual Mistake
• Both parties to the contract make a mistake, but it is a
different mistake.
Unilateral Mistake
• One party to the contract makes a mistake and the other
party knows or should have known a mistake has been
made.
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2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

8-12Australia
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Consent
MISREPRESENTATION
FRAUDULENT

 False statement of fact

INNOCENT (i.e. no intention
to  deceive)
 False statement of fact

 Knows false or indifferent

 Believes true

 Used to induce party into

 Used to induce party into

contract
 Party enters contract due to
statement

NEGLIGIBLE
 False statement of

fact/advice/opinion

contract

 Made by person with special

 Contract entered

 Contract entered

skill/expertise
 Contract entered

 Damage suffered

 Damage suffered

 Damage suffered

VOIDABLE – at option of
injured party

VALID

DAMAGES – if reasonable
care not taken (Tort of
Negligence)

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2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

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Duress
Actual/threatened violence to party of contract or

person with whom they have a close relationship

• Voidable - at option of injured party

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2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

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Duress
• Duress against a person
- enables contract to be made void.
• Duress against goods
- not able to be used to void contract.
• Economic duress
- enables contract to be made void.
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2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

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Undue influence

•

Person uses their influence over another to force the other to
enter a contract
Voidable - at option of weaker party

Special relationship

Other relationship

(stronger party shows
duress)
contract made volantarily)

•
•
•
•
•

(weaker party shows

Guardian and ward
Solicitor and client
Doctor and patient
Trustee and beneficiary
Religious adviser and devotee

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2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

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Unconscionable conduct

Trade Practices Act 1974 (Cwlth)
• One party to a contract, being in a position
of power with respect to another party,
forces this weaker party into the contract.
Voidable - at option of weaker party
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2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

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Disabilities involved
•
•
•
•

Copyright

Sickness
Poverty
Age
Illiteracy

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

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Legality of object
Illegal
Common Law

Statute

i.e. against public policy
 Void
commission of illegal act
 Illegal
 Defrauds Govt. of revenue
 Unenforceable
 Commit unlawful act
 Hinders administration of justice
 Prejudicial to the institution of marriage
 Sexually immoral
 Promotes corruption in public life

 Conflict of private interest with duty
 Unreasonable restraint of trade
Dependent on reasonableness of
- duration of restraint
- extent of restraint
- interests of parties to agreement and public
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2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

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Restraint of trade
• Reasonableness in protecting
goodwill
• Public interest

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2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

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Restraint of employment

(unequal bargaining power)
• Carrying on trade or profession in
competition with
their employer
- while in employment
- after termination of contract of
employment.
• To prevent employee from disclosing an
employer’s trade secrets
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2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

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Unequal bargaining power
• Using a confidential list of their
employer’s customers to solicit
business for themselves
• Disclosing a secret process
• Working for a competitor during their
current employment, or assisting the
competitor
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2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

8-22Australia
Copyright © 2000 McGraw-Hill


Blue pencil test
• Illegal portions are deleted with a
blue pencil

Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

8-23Australia
Copyright © 2000 McGraw-Hill