2007.01 - Contract Law - Exam Notes (FINAL)

Offer p.39 28/5/07 9:12 AM

Definition of offer: A promise to do, or refrain from doing something (by the offeror) upon condition that the other party (the offeree) agrees to do or refrain from doing something else.

Intention to be bound by an agreement: Offer need not always be readily & separately identifiable, something must clearly indicate that the parties intended to deal on (& be bound by) particular, clearly defined terms. Parties must have a ‘meeting of the minds’. Courts will look @ surrounding circumstances TEST:

• Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153

• Heydon JA o “It relevant to ask, can agreement be inferred? Can Mutual

assent manifested? would reasonable person in the position of plaintiff/defendant think there was a concluded bargain?”

Intention to deal can be implied from conduct… Clarke v Dunraven [1897] AC 59 COURT:

• House of Lords (on appeal) FACTS:

• Yachts entered in club regatta • Sent letters before regatta to be bound by club sailing rules • Rules stated “liable for all damages arising therefrom” • D (Clarke)’s yacht fouled & sank P (Dunraven) • D denied any contract ∴ no liability

HELD: • D liable • There was a contract (hard to discern offer/acceptance) • Parties had clear intent to create contractual obligation

Peter Sadler Contract Law 2

ANZ Banking Group v Frost Holdings [1989] VR 695 COURT:

• Supreme Court of Victoria FACTS:

• D agreed to purchase calendars subject to redesign by P (no signed contract yet)

• After redesign = change in $, size and paper to be used • D changed mind, P sued for breach

HELD: • No contract, there was still negotiations over essential terms • No ‘meeting of minds’ between parties • Courts distinguished this case from case where parties left one

essential term out to be decided at a later date (and took steps towards deciding = contract

No formal language is needed to make an offer…

• Provided language clearly shows intention • Fitzwood v Unique Goal (2001) 188 ALR 566

What constitutes an offer? 1. Must be distinguished → ‘supply of information’ 2. Must be distinguished → ‘invitation to treat’

3. Can be made to a person, class of people or ‘offer to the world @ large’

4. Must be communicated to persons intended 5. Must not be a counter/cross offer 6. May be revoked anytime prior to acceptance (Termination of Offer) 1. Supply of Information The mere supplying of information requested or otherwise is not an offer to deal…


Harvey v Facey [1893] AC 552 COURT:

• Privy Council FACTS:

• P (Harvey) telegrammed D (Facey) “Will you sell us Bumper Hall Pen? Telegraph lowest cash $.”

• D → “Lowest cash $ for Bumper Hall Pen £900” • P → “We agree to buy Bumper Hall Pen for £900 asked by you…”

• D did not reply and refused sale, P sued HELD:

• No contract • Second telegram and supply of information not an offer • 3rd telegram (sent by P) was an offer

2. Invitation to Treat Invitation to treat is an invitation to others to come forward and make me an offer. It signals a readiness to receive offers. Situations of invitation to treat:

• Advertising, circulars & newspapers o Advertising goods for sale not an offer o Grainger & Sons v Gough [1896] 2 All ER421

• Displays of goods in shops o Display on shelves ϖ prices marked ↓

Pharmaceutical Society (GB) v Boots Cash Chemists (Southern) Ltd [1952] 2 QB 795 COURT:

• UK Court of Appeal FACTS:

• Self service pharmacy • P brought action against D (Boots) under Pharmacy & Poisons

Act 1933 (UK) → selling of certain poisons was unlawful unless

taken place under pharmacists supervision HELD:

• Display constituted an invitation to treat, customers offered to buy goods when they took them to the counter

• Boots decided to accept the offer at the counter

• Display of goods in window of shop ϖ prices marked


o Treated as invitation to treat o Fisher & Bell [1961] 1 QB 394 o Lord Parker:

“It is perfectly clear that according to the ordinary law of contract the display of an article with a price on it in a shop window is merely an invitation to treat. It is in no sense an offer for sale, the acceptance of which constitutes a contract.”

• Auctions

o Auctioneer’s call for bids is just an invitation to treat o Bid is an offer, accepted at the fall of the hammer

Payne v Cave (1789) 100 ER 502 British Car Auctions v Wright [1972] 1 WLR

1519 o Auctions ‘without reserve’ are still yet to be established in

common law. Obiter dicta of Martin B in Warlow v Harrison (1859) 1 E&E 309 suggests that it does constitute an offer. This was followed in:

o Ulbrick v Laidlaw [1924] VLR 247

• Tenders o Call for tenders is an invitation to treat not an offer… o Spencer v Harding (1870) LR 5 CP 561 o unless stated in the call to tender that they would accept

the highest option↓

o Harvela Investments Ltd v Royal Trust Co of Canada Ltd [1986] 1 AC 207

3. Offers to the ‘World @ Large’ Only the person or class of person to whom an offer is intended may accept it. An offer may be intended for the world @ large, creating separate contracts for every individual who accepts. This most commonly appears in:

• reward cases, where the reward is offered for whomever performs the act; or


• prove me wrong cases, where the reward is offered for anyone that can prove a extravagant pitch about something↓

Carlill v Carbolic Smoke Ball Co. [1983] 1 QB 256 COURT:

• UK Court of Appeal FACTS:

• D (Carbolic) advertised £100 compensation for anyone who contract influenza after using our product. Advertisement went on to say £1000 has been deposited into an account to show sincerity of offer.

• P (Mrs Carlill) bought and used smoke ball as directed and caught influenza. Her £100 claim rejected, so she sued D

• D stated that advertisement, not an offer but ‘salesman puff’ o Obviously far-fetched statement to induce contract but not

intended to form part of the contractual obligation. See: o Leonard v PepsiCo Inc 88 F Supp (SDNY 1999), aff’d 210 F

3d 88 (2nd Cir 2000) [7,000,000 pts = Harrier Jet case] • D also stated P had not accepted offer

HELD: • Offer to the world @ large, acceptance is buying smoke ball,

consideration is using it ∴ contract

• Not ‘salesman puff’ because of statement deposit of £1000 Limiting offers to the world @ large

• Terminology o The term ‘offer’ does not always mean offer in a legal

sense… i.e. ‘Today’s Special Offer’ would be an invitation to treat

• Limiting possible acceptors o ‘one per customer / ‘first 20 customers’ o ‘while stocks last’

Lefkowitz v Great Minneapolis Surplus Store 86 NW 2d 689 (Minn. 1957)

Fur Coat Case: Man tries to buy one of three $1 fur coats (limited to first come first served when store opens 9pm Sat). Store told man coats only for women, he sues and wins


because newspaper advertisement offer not invitation to treat.

4. An Offer must be Communicated to Persons Intended An offer cannot be accepted unless it has been communicated. The existence of the offer must be clear in the offeree’s mind at the time of acceptance. This problem comes up a lot in ‘offer for information’ cases.

• Cannot later try to enforce the contract at a later date when you gain knowledge of its existence:

o Fitch v Snedaker 38 NY 248 (1868) o Gave information without knowledge of reward but then

tried to claim reward at a later date. The plaintiff sued for reward → failed: actions were not referable to the offer

• Motive for acceptance is immaterial if knowledge of offer is clear in the mind of the offeree at time of acceptance:

o Williams v Carwadine (1833) 5 Carr & P 566, 172 ER 1101

o Plaintiff gave information of a murder. Knew of offer for reward but gave information in remorse of her own conduct and to ease conscience not for the $. She stated this fact. → She was entitled to $

• Although knowledge is essential, it is not enough. The existence of the offer must be clear in the mind of the offeree at acceptance. Acceptance must be a result of, and in response to the offerors offer.

o R v Clarke (1927) 40 CLR 227 o WA police gave information for reward of two policemen.

Clarke gave information after he was arrested, he knew of reward but gave information to save himself from the murder charge. → Not entitled to $. The offer was not clear

in his mind at the time of acceptance, he had forgotten about the $ and was giving information to save himself.

• Offers are expected to be made with some care so they are not bound to obligations they cannot meet. The offerors liability will depend upon the way in which the terms of the offer are construed:

o Patterson v Dolman [1908] VLR 354


o Defendant offered 1 pile of hay to 2 parties, there was nothing in the contract about first to come forward. Both parties accepted on the same day and he was found liable to supply both parties.

5. Cross-Offers & Counter-Offers Cross-Offer

• Occur when two parties send each other offers to one another at the same time. These offers are exactly or substantially the same. This does not result in a contract.

o Tinn v Hoffman & Co (1873) 29 Lt 271 o Parties wrote an offer to one another on same day with

exactly same terms. P tried to enforce → no contract

Counter-Offer

• Occur when a party indicates a willingness to deal on slightly different terms than the original offer but still in respect of the same subject matter. The original offer is rejected, and substituted with the new offer. The original offer cannot be accepted after a counter-offer is made.

o Hyde v Wrench (1840) 3 Beav 334; ER132 o D (Wrench) offered to sell farm for £1000. P replied with

an offer for £950 which D refused. P then said he would pay £1000. D refused to sell & P sued → original offer had lapsed ∴ no contract

The Battle of the Forms

• Each new form is viewed as a counter-offer. The terms of the offer are contained in the last form submitted

o Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd [1979] 1 WLR 401

o P form had a clause that they could raise price of machine tool. D returned form that did not have clause. P signed D’s form, then raised price. D refused to pay → did not

have to pay, last offer was D’s and that did not have clause.


6. Termination of Offers Revocation

• Revocation by the offeror before acceptance is absolute even when they promise to keep offer open

o Routledge v Grant (1828) 4 Bing 653; 130 ER 920 o D offered to buy P house. Gave P 6 weeks to think about it

but revoked offer. P sued → failed: D entitled to revoke

• Unless there is consideration provided to keep the promise. In this case a separate contract is formed to keep the offer open

o Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674

o D offered P land with an option to buy it within the week. D paid 5 shillings to keep option open. P accepted within the week however D withdrew offer. P sued → was a contract

for offer (because consideration), court ordered specific performance

• Communication of revocation o No specific law → just the offeree must become aware of it

even if that is via a third party o Dickinson v Dodds (1876) 2 Ch d 473 o D offered to sell P some houses with the option open until

Friday. During the week D sold houses to a third party. P heard of this from another source but tried to enforce contract → Failed, offeree can become aware of revocation

from a reliable source other than the offeror o Offers to the world @ large are revoke in the same way

they are advertised: i.e. newspaper advert Rejection

• If an offer is rejected it cannot, at a later date, be accepted. • If acceptance is communicated by a faster medium than

rejection, the acceptance will stand (and vice versa). Lapse of time

• Time can terminate offers: o Where the offeror imposes a time limit in an express

stipulation…


Dickinson v Dodds (1876) 2 Ch d 473 (see above)

o An implied time consideration: Once a ‘reasonable time’ for acceptance has expired Cite: Ramsgate Victoria Hotel v Montefiore

(1866) LR 1 Ex 109 What constitutes a ‘reasonable time’:

Consider a create of tomatoes? When it goes off the offer will no longer me good...

• look at what the item is • look at the way it was expressed

o Both questions of fact Cite: Manchester Diocesan Council for

Education v Commercial & General Investments [1970] 1 WLR 241

Change of circumstances

• Circumstances where the offer no longer become viable • See ‘frustration’:

o Can be quite complicated if the contract did not clearly stipulate ‘use’ of the frustrating

Failure of a (pre) condition

• ‘subject to finance’ • ‘subject to legal advice’ Cite: Commonwealth of Australia v Antonio Giorgio Pty Ltd (1986) 26 ALR 244

Death of a party

• Death of the offeror o If the offeree receives notice of the death before

acceptance → offer is terminated

Cite: Fong v Cili (1968) 11 FLR 495 o If the offeree does not receive notice the estate of the

offeror can be bound: Cite: Bradbury v Morgan (1862) 158 ER 877


o NB: The contract will have to be one that does not require personal performance by the offeror → i.e. if the offeror

had some unique skill the contract will not be enforceable • Death of the offeree

o Offers are regarded as being personal in nature… ∴ if the

offeree dies then the offer lapses Cite: Reynolds v Atherton (1921) 125 LT 690

o If the contract clearly not ‘personal’ then it can be accepted by the deceased estate:

Cite: Carter v Hyde (1923) 33 CLR 115 Supervening incapacity = offer will lapse

• Accident • Loss of capacity

Acceptance p.71 28/5/07 9:12 AM

Definition of accepted: Acceptance is the final unqualified assent to the terms of the offer, made in the manner specified or indicated by the offeror. It can either be made by action or by some implication of conduct.

Qualifications: Acceptance must be communicated to be effective.

• Silence can not be form of acceptance o Felthouse v Bindley (1862) 11 CB (NS) 869; 142 ER

1037 “If I hear noting more I will assume the horse is

mine” (actually suing the auctioneer that went on to sell the horse)

Acceptance must be communicated by the acceptor or an authorised agent.

• In other words… An offer can only be accepted by the person to whom the offer is made. Unless a third party is considered in the contract:

o “X or his nominee” o “X or his lawful assignee”

• Others who accept contracts not made to them have no legal rights ↓

Boulton v Jones (1857) 2 H & N 564; 157 ER 232 FACTS:

• Jones, who had previously dealt with Brocklehurst, sent him an order for 50 feet of leather hose. Unknown to Jones, Boulton had taken over Brocklehurst’s business that very day.

• Boulton filled the order without telling Jones about the change of owners.

• Jones had only placed the order to reclaim a debt with Brocklehurst and refused to pay

• Boulton demanded payment HELD:


• Jones was not liable; he only intended to contract ϖ Brocklehurst

and never contemplated dealings with Boulton

Conduct can constitute acceptance. • If conduct indicates that a mutual belief that a contract has

arisen • Brogden v Metropolitan Railway Co (1877) 2 App Cas 666

o Brogden had been supplying coal for years to Metro & asked for a written contract to be constructed. A draft was written up by Metro and sent to Brogden who changed it and sent it back. And it was filled @ Metro.

o The parties then began to deal on the terms of that contract (debatable whether by law they had a formal contract but the parties intended it to be). Brogden disavowed contract because there was no formal acceptance to his offer.

o Courts found there was a contract → intention of parties to

be bound to those terms. The offeror may stipulate the method of communication of acceptance.

• If a method is stipulated as the ‘only way’ then it is the only way that will be binding

• If not stipulated as the only way, and way no less advantageous may be used (usually determined by speed of communication).

o George Hudson Holdings Ltd v French (1973) 128 CLR 387; French personally delivered an acceptance of a share offer rather than mail → was acceptance.

• If no method is stipulated the method must be reasonable & advantageous to the offeror.

• POSTAL ACCEPTANCE RULE o Where the parties contemplate acceptance by mail,

acceptance occurs when the letter is properly posted, not when the offeror receives the letter.

o Cite: Adams v Lindsell (1818) 1 B & Ald 681; 106 ER 250

o Contemplate = If offer sent by mail. Postal rule not applicable if it would create absurdity.


British & American Telegraph Co v Colson (1871) LR 6 EXCH 108

o Negation of Rule – Clause: “I must receive your acceptance for it to be affective” OR clear intention of actual communication.

Holwell Securities Ltd v Hughes [1974] 1 All ER 161

“by notice in writing to the intended vendor at any time within 6 months” → interpreted to be implied actual communication ∴ no contract

o If acceptance was not received through some fault of the acceptor the postal rule will not apply. i.e.

Mis-addressed Mis-stamped Incomplete address Getreide-Import GmbH v Contimar SA

Compania Industrial, Comercial y Maritima [1953] 1 WLR 207

Acceptance cannot occur before an offer is made. An act done in ignorance of an offer cannot constitute an acceptance of that offer.

• Fitch v Snedaker (1868) 38 NY 248 (see Offer) • The offer must be present in the mind of the acceptor when

acceptance occurs o R v Clark (1927) 40 CLR 227 (see Offer)

What may be accepted: Only what is offered may be accepted. Any addition, deletion or qualification will be viewed as a collateral contract. An exception to this rule is agreements expressed to be ‘subject to contract’. Determining ‘subject to contract’ is a matter of establishing finality. Agreements ‘subject to contract’.


Three categories discussed in Masters v Cameron (see below) 1. Where parties have reached final agreement on the terms of the

agreement, intend to be immediately bound to those terms, but want those terms to be set out in more precise, but not materialistically different form

• Godecke v Kirwan (1973) 129 CLR 629 o Statement in the contract (document headed offer &

acceptance) to provide for extra terms in contract so long as they are not inconsistent with those already agreed.

2. Where the parties have reached final agreement on the terms of the agreement & do not intend to alter their agreement, but want to defer performance until it has been incorporated into a formal document

• Niesmann v Collinridge (1921) 29 CLR 177 o Appellant agreed to give respondent the ‘firm offer’ to sell

his farm for £1000. £500 upon signing the contract and the remainder within 3 years. Finality had been reached in the oral ‘firm offer’ and the formal contract did not change alter what the parties had already agreed. (contract stands)

3. Where the parties do not intend to make a concluded bargain unless and until they sign a formal contract↓


Masters v Cameron (1854) 91 CLR 353 FACTS:

• The parties signed a memorandum whereby Cameron agreed to sell to Masters his farm for £17,500. Masters paid a 10% deposit. The memorandum contained the clause “This agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to my (Cameron’s) solicitors on the above terms and conditions”. The sale did not eventuate.

HELD: • The parties had not reached finality and the contract was not

enforceable. It still had to pass Cameron’s solicitors and presumably they would have altered it quite substantially.

Finality. Whether parties have reached finality (arrived at the final agreement on which they wish to be bound) is decided by examining on the parties intention – either by their language and/or inferred from their conduct. Kirby P summarised this in Geebung Investments v Varga Investments (1995) 7 BPR 14,551

• Fact that parties contemplate execution of formal contract does not mean informal agreement is not presently binding.

• Fact that parties contemplate execution of formal contract may lead to the conclusion that no present agreement is binding until that formal contract is executed.

• Existence of important matters on which the parties have not reached consensus make it less likely that they intended to be bound by the informal agreement.

• Conduct can be examined to determine whether parties had reached final agreement. If correspondence between the parties makes mention of terms and conditions not included in the informal agreement likely = preliminary negotiations rather than binding agreement.

• The higher the complexity of the issue → (its likely) the higher the complexity of the agreement. ∴ a simple informal agreement

is unlikely to final for a complex issue.


• A large consideration/transaction will probably have a significant agreement

• Complexity of subject matter and use of solicitors to draft contract is also a consideration.

• Correspondence must be examined as a whole. Must not isolate one section of correspondence to prove or disprove the existence of informal contract.

• Essentially: o As the Queensland Supreme Court stated in Commercial

Bank of Australia v G H Dean & Co Pty Ltd [1983] 2 Qd R 204

Presumption is that no contract exists Unless the parties have agreed on all matters which

in law amount to a concluded contract; and They intend the execution of a written contact to be

a mere formality.

Acceptance of vague or incomplete contracts: If a contract is to vague or uncertain and the courts cannot clearly do justice they will not enforce the contract.

• Whitlock v Brew (1968) 118 CLR 445 o Whitlock to sell land to Brew on condition that he lease a

portion of his land to Shell (3rd Part) “upon such reasonable grounds that usually govern such a lease”. Brew had put a deposit down. Brew changed his mind and sued for his deposit back.

o The courts found that the contract was to vague and would not enforce it as to do so would mean they would have to write a lease for Shell. → Brew could get his deposit back.

• Cite also: G Scammell & Nephew Ltd v H C and J G Ouston [1941] AC 25; Ouston to buy a van and pay balance on “hire purchase terms”

HOWEVER: The courts will uphold contracts if possible… They will always try to do justice by seeking out the intention of the parties and upholding the


contract. Courts will look at ‘prior course of dealings’ to ascertain missing information.

• Hillias & Co v Arcos Ltd (1932) LT 503 • Contract to buy 22,000 standards of softwood goods. Arcos

reneged and stated contract to vague because it didn’t have shipment or type of wood.

• Prior course of dealings used by court to ascertain missing detail so upheld contract against Arcos.

Incomplete Contracts

• Same notion as above, courts will seek justice for the parties but will not add essential terms.

• The courts ability to imply missing terms is limited to a few minor terms that are needed to make the contract work as it was intended to work.

• Courts can infer a ‘reasonable price’ if price is missing from a contract → Sale of Goods Act 1985 (WA)

• ANZ Banking Group v Frost Holdings [1989] VR 695 (at 702)

o Kaye J: “The law does not permit a court to imply a term into a bargain between the parties for the purposes of making their bargain an enforceable contract.”

o → Terms will only be implied to give commercial effect to

contract that are already legally enforceable. Agreements to Agree

• Generally not enforceable → nothing to enforce

• Are circumstances where substantial agreement has been reached bust the parties have elected to leave one or more of the terms to be decided later (either by themselves of a third party) → can be binding

o If missing terms can fairly & objectively be ascertained or there is some mechanism proved for in the contract to resolve missing terms

o The intention of the parties is to be immediately bound • Hawthorn Football Club v Harding [1988] VR 49

o Harding agreed to play for Hawthorn 1987, 1988 & 1989 under the term “as agreed between the parties as being


fair and reasonable” & any dispute would go to arbitration. Hardin disavowed the agreement claiming it was incomplete and unenforceable. Hawthorn sued.

o Contract enforceable. Clear mechanism to resolve incomplete contract & parties intended to be bound.

• Cite also: Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600; Vague rental provision of car park with provision to go to arbitration. Contract upheld against Booker.

Meaningless Statements

• A well-constructed clear contract can sometimes contain a clause(s) that are meaningless & vague when the contract is read as a whole.

• An action to dismiss the contract in regards to this contract will fail if the meaningless clause can be severed without affecting the substance of what was agreed.

• TEST: if the parties intended that if the clause, for whatever reason, could not take effect, would the whole contract fail?

o Fitzgerald v Masters (1956) 95 CLR 420 o South Coast Oils Pty Ltd v Look Enterprises Pty Ltd

[1988] 1 Qd R 680

Revocation of Acceptance Acceptance can be revoked provided the revocation is communicated to the offeror before acceptance. Revocation & The Postal Rule

• Revocation by a faster means is not possible in this situation. • Revocation of acceptance would be treated as recision. • Offeror can chose to either accept the recision, or enforce the

contract based on the postal acceptance (should they know of its existence).

• The offeror would not be disadvantaged by the court if they relied on the recision, but then were challenged by the offeree enacting the postal acceptance.


• Conversely the courts would no let the offeror act on the recision and then later try to enforce the postal acceptance.

Intention to Contract p.97 28/5/07 9:12 AM

Lead-In… (A) & (B) were married, and subsequently split. During the marriage (A) promised (B) a seaside villa in Tuscany if (B) promised to park on the left side of the garage. (B) did this and now wishes to enforce the contract for the seaside villa in Tuscany. Advice (B)?

TEST: NB:

• Courts aren’t concerned about commercial equity between consideration parties provided.

• Courts are very loathed to get involved on the domestic sphere. • A deed, signed, sealed and witnessed, needs no consideration

and will always be viewed by the courts as a contract. The test of intention is objective:

• The court does not discover intention by looking in the minds of the parties.

• Courts use a ‘Reasonable Person Test’ • It looks at the situation in which the parties are placed and asks:

‘Would reasonable people regard the agreement as one in which was intended to be binding’.

• Determined upon o What was decided; o Surrounding circumstances; o Wording of the agreement; o Effect of the agreement upon parties; and o Have parties acted as though bound by the agreement Merritt v Merritt [1970] 1 WLR 1211

Mr Merritt and his wife had split. He agreed to transfer property into her name after she finished paying the mortgage. Mrs Merritt finished paying and Mr refused to transfer property.

Courts held this was a commercial contract and enforced it.

Presumption of Social & Domestic Agreements


= no intention of agreement to be legally enforceable → courts will refuse

to get involved • E.g. Husband & Wife | Other Family Relationships | Social Clubs,

Societies, Interest Groups & Political Parties Social & Domestic Agreements = ‘Consensual Contract’ Agreements that are binding in conscience but lacking in any contractual force

• Husband & Wife o Balfour v Balfour [1919] 2 KB 571

£30 p/month allowance while she was in England until she returned (he was in Ceylon). She never returned, he stopped payment, she sued

Domestic agreement ∴ courts will not enforce

o Cohen v Cohen (1929) 42 CLR 91 £100 annual dress allowance, paid quarterly to wife.

Husband/Wife split and she sued (inter alia) for dress allowance.


• Other Family Relationships o Murphy v Simpson [1958] VR 598

Simpson (senior) died leaving his house to his daughter. Administration of estate handled badly (took a long time) & in the mean time his son moved in to look after house. Daughter sought to evict brother as administrator. Brother agrued that they had contract that he could live there so long as he paid all outgoings.


• Social Clubs etc o Cameron v Hogan (1934) 51 CLR 358

Hogan, ex-Labor Premier of Victoria was refused re-endorsement by the party’s state executive and was expelled from party. Hogan stated that this breached a contract he had with the party.


Rebutting the Presumption of Social & Domestic Relationships


To establish: “Would reasonable people think that this agreement was intended to be legally binding?” courts look at:

• If the relationship between the parties involves property or economic entitlements, such as salary, the ‘consensual contract’ may have evolved into a contract. Facts as to the intention of the parties and nature of the consideration is examined↓

Ermogenous v Greek Orthodox Community (2001) 209 CLR 95 © COURT:

• High Court of Australia (on appeal from full SA Supreme Court), Gaudron, McHugh, Kirby, Hayne & Callinan JJ

FACTS: • Former Archbishop of Greek Orthodox Church in Australia. • Resigned and asked to be paid out for unused annual service

leave & long service leave. • Refused by church ≈ no contract

HELD: • Relationship, although pre-eminently a spiritual one, had clear

economic entitlements. There was no reason to presume that there had been no intention to enter into legal relations.

o Also cite: o Roufos v Brewster (1971) 2 SASR 218

Mr & Mrs Brewster ran motel business in Coober Pedy. In the same town there son-in-law, Mr Roufos ran a general store. Mrs Brewster organised with her daughter, Mrs Roufos, for Mr Roufos to take their truck on the back of his semi-trailer to Adelaide for repairs with the provision that he may engage a driver to bring it back to Cooper Pedy filled with his own goods. On the way back the truck was damaged.

Courts (Bray CJ) held that this was a commercial arrangement.

o This case highlights the courts changed presumed stand point for commercial and domestic arrangements (also Ermogenous). Courts now morel likely to sit in the middle and consider objectively commercial or domestic.


• Intention to create legally binding agreements often occur in

normal domestic spheres when parties attempt to finalise relationships when marriage or relations break down…

o See Merritt v Merritt [1970] 1 WLR 1211 above ↑

o McGregor v McGregor (1888) 21 QBD 424 Husband, in splitting from his wife, and in prevention

of a assault summons, promised wife weekly maintenance sum.

It was not a day-to-day arrangement but a way to facilitate separation, and the parties intention was for it to be binding.

o Another way the courts objectively examine intention of the parties is to look at the consequences of acting in reliance of the agreement↓

Wakeling v Ripley (1951) 51 SR (NSW) FACTS:

• Defendant, a bachelor, lived alone in Sydney. • 1946 wrote a letter to sister & her husband, a Cambridge

University Lecturer (in UK) to come live with him. • In consideration of this he would provide them with a place to

live and leave his property to them in his estate. • He left job, they sold house and moved to Sydney. • A year later they quarrelled and defendant reneged on his

promise claiming it was a domestic agreement. HELD:

• Seriousness of consideration, i.e. moving to Australia, made this a binding legal contract rather than a domestic arrangement.

Presumption of Commercial Arrangements: Presumption is parties intended to be legally bound. Successful rebuttal of this presumption requires clear evidence that this was not the intention. Courts will not uphold contracts that are clearly puff:

• Leonard v PepsiCo Inc 88 F Supp (SDNY 1999), aff’d 210 F 3d 88 (2nd Cir 2000)


o Promotional gimmick whereby Pepsi offered a range of products for points (obtained by buying Pepsi products or paying 10c a point). In the advertisement the final scene was Harrier Jump Jet = 7,000,000 Pepsi points.

o Leonard acquired points & after claim being rejected sued o Held it was clearly intended to inject humour into

advertisement. No reasonable person would ever imagine that Pepsi would, or could, supply a Harrier Jump Jet.

Courts will not uphold contracts that are clearly jokes: • Keller v Holderman (1863) 11 Mich 248

o Keller gave Holderman a cheque (that was not honoured) for $300 for a watch worth $15.

o It is clear in consideration that neither party intended this to be binding.

• Nyulasy v Rowan (1891) 17 VLR 663 o Defendant verbally offered to purchase shares from

plaintiff. Defendant later refused to buy them stating it was all a joke. Evidence was adduced showing the plaintiff and a number of others had taken him seriously.

o Held that there was a legally binding contract…

Honour Clauses [Expressly Excluding Intention]: Express stipulation that agreement is not meant to be legally binding. Accepted by the court of law:

• Rose & Frank Co v Crompton (JR) & Bros Ltd [1925] AC 445

o English and American companies made a record of expression to deal with each other for 3 years, giving 6 months termination notice should agreement fail within 3 years. There was a statement that this was binding in honour only. English company terminated agreement without notice.

o Held there was no intention of expression being binding. English company was not bound to give notice of termination.

Must be careful in wording of honour clause:


• “This agreement does not give rise to any legal relationship, nor does it intended by the parties that legal consequences shall flow from it.”

o ✓ This clause denies the existence of a contract and will be upheld by a court.

• “No court shall have power or jurisdiction to arbitrate in respect of any matter arising out of this agreement or any breach thereof.”

o ✗ This clause acknowledges existence of contract but attempts to exclude the jurisdiction of the courts to adjudicate in respect of it.

The clause must be clear, although one or both of the parties may intend to make it an agreement in honour, this must be manifestly apparent by their words. Courts will disregard words used and look at surrounding circumstance to ascertain intention if any ambiguity. (no adequate citation)

Consideration p.111 28/5/07 9:12 AM

Lead-In… When (A) makes a promise to (B), (B) MUST do something in return. Otherwise that promise will not be enforceable. Definition: Lord Dunedin adopted Pollock’s definition (from Pollock on Contracts, 8th ed, p.175) in Dunlop v Selfridges [1915] AC 847

• “An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, & the promise thus given for value is enforceable.”

Consideration can take the form of either:

• A benefit to the promisor • A detriment to the promisee incurred at the promisor’s request:

o Hamer v Sidway 124 NY 538, 27 NE 256 (1891) William Story I promised to pay William Story II

(nephew) $5,000 if he refrained from drinking, smoking, gambling & swearing until he was 21. Nephew complied, & upon reaching 21 Story I said he wished to pay when nephew was older (+ interest) as it was a lot of money for a young man to have. Story I died without paying, Louise Hamer (on assignment) sued Story I executor Franklin Sidway. Sidway argued Story II had not provided good consideration, courts decided forbearance is good consideration.

• Examples of valid consideration (acts or forbearances): o Money (goods or chattels) | Forbearance of a Right (legal

or otherwise) | Forbearance of an action | Interest payable | Required inconvenient Action | An Undertaken Responsibility/Obligation.

A failure to provide good consideration can be seen in:

• Parastatidis v Kotaridis [1978] VR 449 where:


o The plaintiff lent $9,000 interest free to the defendant & promised not to seek repayment for two years. Before the period was up he demanded the return of the money. Defendant refused.

o It was held the plaintiff was entitled to be repaid. Defendant had not given any consideration for the promise.

Features of ‘Good’ Consideration: Consideration must move from the Promisee… OR From someone acting as the promisee’s agent cite:

• Fleming v Bank of New Zealand [1900] AC 577 o Agent of Fleming arranged for 4 cheques to be honoured

by bank. 2250 of Fleming’s sheep as consideration. Bank did not honour because consideration came from agent. Bank lost.

But it need not move to the promisor. Conferring a benefit on a third party, at the request of the other party to the agreement is valid consideration cite:

• Bolton v Madden (1873) LR 9 QB 55 o The parties were members of a charitable organisation. He

would sponsor a particular child if the other sponsored another particular child. Madden did not sponsor & claimed consideration gave him no benefit. Madden had to pay.

Joint Promisees:

• B & C agree that A may use B’s resources • A is paying consideration to B & C • C may still enforce the contract even though consideration only

comes from B • Doctrine of Privity presents no problem as outlined by Barwick CJ

& Windeyer J in the High Court case: o Coulls v Bagot’s Executor & Trustee Co Ltd (1976)

119 CLR 460 (on appeal from SA Supreme Court)


Mr Arthur Coulls allowed O'Neil Construction Proprietary Ltd to quarry stone from his land for £5 + royalties of £12 p/week paid to him or his wife Dorris Coulls (as joint tenants) whoever is the living partner. After he died they stopped paying. → HC

say she was joint provider of consideration. Consideration in Unilateral contracts:

• i.e. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 = offers to the world at large

o The act of forbearance itself constitutes consideration; Mrs Carlill had put herself to some inconvenience at the companies request.

Timing of Consideration Consideration may be executory, executed but not past:

• Executory: act of forbearance still to be completed • Executed: party has done what was promised • Consideration cannot be past:

o Consideration pre-dates agreement↓

Eastwood v Kenyon (1840) 11 Ad & El 438; 113 ER 484 FACTS:

• Sutcliffe died, leaving his infant daughter Sarah as his sole heiress. Eastwood her guardian spent considerable sums of his own money for her maintenance & benefit. When Sarah came of age she promised to reimburse him for her upkeep. She later married the defendant Kenyon. After marriage, when the Sutcliffe estate vested in him, Kenyon reneged on Sarah’s promise to Eastwood. Eastwood Sued.

HELD: • Sarah’s promise of reimbursement had been made after

Eastwood had performed ∴ it was past consideration (and not

consideration at all). Sarah’s promise was a moral obligation, ✗ enforceable at law.

• Also cite:

o Roscorla v Thomas (1842) 3 QB 234; 114 ER 496


Roscorla bought a horse from Thomas. After the sale R demanded & received a promise that the hose was “sound and free from vice”. The horse was vicious and R sued for breach & failed. → Roscorla had not

provided consideration for the promise. It was made after the sale of the horse (so there was no collateral contract).

Exceptions to ‘past consideration’ rule.

• Past consideration will be considered good consideration if the promise is only a later confirmation of the inferred or implied promise contained in the initial promise.

• TEST: o The act was done at the promisor’s request; o The parties understood that the act was to be remunerated

by the conferring of a benefit (such as a subsequent payment) in exchange for it; and

The performance cannot be explained as an act of friendship or out of generosity.

o The benefit (payment), if it had been promised in advance, would have been legally recoverable.

• Cite: Lampleigh v Braithwait (1615) Hob 105; 80 ER 255 o Thomas Braithwait killed Patrick Mahume. He asked

Anthony Lampleigh to intercede on his behalf for a royal pardon. After he did so, Braithwait promised to pay him £100 for his trouble & expenses. He did not and Lampleigh sued → he succeeded, Hobart LCJ stated that both parties

had understood there was to be some payment. • Adopted Australia: Bluebird Investments v Graf (1994) 13

ACSR 271 The Concept of Value Consideration must be something of value in the eyes of the law →

“Consideration needs to be sufficient but it need not be adequate.” Sufficient?

• Must be a ‘real’ benefit or ‘real’ detriment


• Not limited to intrinsic value, courts will also consider significance, however most things that have significance also have intrinsic value.

• Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87 o Nestlé ran a promotion giving away records of ‘Rocking

Shoes’ for 1s 6d + 3 Nestlé wrappers. This was legal so long as Nestlé paid the copyright holder 6.25% of the ‘ordinary retail selling price’. (s 8. Copyright Act 1956 (UK)) The offered to pay Chappell (copyright holder) 6.25% of 1s 6d but Chappell asserted that the 3 wrappers = increased sales profit & wanted more. → House of Lords

rejected that consideration was just 1s 6d, but also implied revenue from increased sales from promotion.

Forbiddance to Sue is Good Consideration There is potential [benefit to the promisor / detriment to the promisee] in not being sued and this will equate to valid consideration if:

• TEST: o The claim on which the action was based was reasonable.

Bowen LJ considered in Miles v New Zealand Alford Estate Co (1886) 32 Ch D 266 at 283 that claim cannot be:

✗ Vexatious: ‘bringing an action for annoyance’ ✗ Frivolous: ‘not having purpose or value’

o The promisee honestly believed that the case had a good chance of success

o The promisee had not concealed from the defendant any fact that could affect the validity of the claim

It does not matter that the action may not have succeeded:

• Callisher v Bischoffsheim (1870) LR 5 QB 449 o Plaintiff honestly believed he was owed money by the

government of Honduras. He was about to commence legal action, when the defendant handed over £6,000 worth Honduras Railway Loan Bonds provided he stop the action. The plaintiff agreed, but when the bonds were not forthcoming he sued for them. The defendant argued that since the government did not, in fact, owe him money that


he did not have to turn over the bonds. → plaintiff

succeeded. • Adopted in Australia: Wigan v Edwards (1973) 1 ALR 497;

47 ALJR 586

Features of Bad Consideration: Acts or Forbearances in Performance of an Existing Duty Existing Public Duty ≠ Good Consideration

• Ordered society bestows upon citizens unalienable duties & benefits that ≠ good consideration.

• Collins v Godefroy (1831) 1 B & ad 950; 109 ER 1040 o Collins had been subpoenaed to give evidence in a case in

which Godefroy was a litigant. He alleged that Godefroy agreed to pay him for his testimony. → Subpoena imposes

a public duty, did not have to pay. • Applied, at least in part, to Jamieson v Renwick (1891) 17

VLR 124 • Not all public duties are 24x7 obligations: • Glasbrook Bros v Glamorgan Country Council [1925] AC

270 o Police protecting coal mine during strike. For £2200 they

would protect coal mine while ‘off duty’. Company later refused to pay and when sued pleaded absence of consideration. → Police won, House of Lords: extra work

not public duty but discretionary = good consideration. Existing Duty to the Promisor ≠ Good Consideration

• CLASSIC RULE: o If all the promisee has undertaken to/not to do, is what

they were already under a pre-existing obligation to the promisor to/not to do then the act or forbearance cannot be good consideration.

o Stilk v Myrick (1809) 2 Camp 317; 170 ER 1168 While ship was in a foreign port 2 crew had deserted.

The ship’s captain had promised the reaming crew


(Stilk) that if they worked the ship back to London they could divide up the deserters’ wages between them. → failed, in working the ship back he had not

done anything he was ✗ already contractually bound to do.

• Limitations to ‘classic’ rule:

o Where an existing agreement is terminated by the parties and a new one is substituted for it;

o Where an additional payment is promised in compromise of a bona fide dispute; and

o Where additional risks are undertaken or where the promisee provides some additional act or forbearance.

Hartley v Ponsonby (1857) 7 El & Bl 872; 119 ER 1471

Ship’s (Mobile) complement was 36. On a voyage from Liverpool to Port Phillip 17 crew refused to work and were sent to prison. From the remaining 19 only five were able seamen. Master decided to sail to Bombay & promised £40 on top of normal pay. Captain reneged on promise and Hartley sued. → Promise made for

additional risks was not made under coercion & landscape of agreement has changed beyond the contractual obligation. Extra consideration is enforceable.

• Recent UK developments:

o 1991 UK Court of Appeal: Williams v Roffey Bros & Nicholls (Contractors) [1991] 1 QB 1

D (Roffey) subcontracted the carpentry work on a series of flat renovations to P (Williams) for £20,000. During the course of this work the P got into financial difficulty and could not finish the job unless he was paid an extra £575 per flat. D, knowing that he would suffer a significant penalty for late completion if he was to find another carpenter agreed. D reneged on this agreement and P sued. → P entitled


to extra money, D had secured a ‘practical benefit’ from promise, by obviating dis-benefit of penalty.

o This case is yet to be cemented in Australian common law; was applied in Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 (NSW Supreme Court)

P leased a fruit shop in a shopping centre operated by D. D then leased another part of the shopping centre to a large retailer who also sold fruit. The Musumeci’s claimed they could not compete & in consideration Winadell reduced their rent by a third. After a large amount of acrimonious correspondence, Winadell sort to evict them. → Santow J applied the

‘practical benefit’ test from Williams v Roffey Bros & Nicholls. Court held that in consideration for the reduced rent, Winadell had received ‘practical benefit’ of maintaining a fully let shopping centre.

o The reasoning behind the old ‘existing duty’ rule in Stylk & Myrick was a concern about giving in to parties who used threats of non-performance to extract payments & benefits additional to those provided for under the original terms of the contract. This can now be largely dealt with in economic duress.

Acts or forbearances in discharge of an existing duty: (A) owes (B) $1,000, to be paid on the 10th May for a spirited lute performance. On the 10th May (A) pays (B) $800 in full payment of the debt. (B) accepts because he needs the money. Can (B) later sue for outstanding amount?

• Yes… The rule in Pinnel’s case:

• “Payment of a lesser sum on the day in satisfaction of a greater, cannot be satisfaction for the whole…”

o Cite: Pinnel’s Case (1602) 5 Co Rep 117a; 77 ER 237 o Cite: Foakes v Beer (1884) 9 App Cas 605

NB: • Consideration can be payment earlier than was due


• Doesn’t matter if its by cheque, or if the cheque says “in full payment”.

o Cite: Ferguson v Davies [1997] 1 All ER 315 • Acceptance of a lesser sum from a third party IS binding.

o Cite: Hirachand Punamchand v Temple [1911] 2 KB 330

Promissory Estoppel p.135 28/5/07 9:12 AM

Lead-In… (A) has made a promise to (B) with ✗ consideration & ∴ not typically

enforceable at law. (B) has relied on (A)’s promise to their detriment. • The courts will apply doctrine of ‘promissory estoppel’ • The promisor (A) will be held to the consequences of their

promise. • The court will award promisee (B):

o Probable remedy is damages = minimum amount required to restore (B) to former position.

o Rare remedy is award of specific performance to make good (B)’s expectation.

Definition of Estoppel: Lord Denning in Moorgate Ltd v Twitchings [1976] QB 225 at 241:

• “It comes to this: when a man, by his words or conduct, has led another to believe in a particular state of affairs, he or she will not be allowed to go back on it when it would be unjust or inequitable for him to do so.”

Dixon J in Thompson v Palmer (1933) 49 CLR 507 at 547: • Explained the object of estoppel “is to prevent an unjust

departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other’s detriment”.

Promissory Estoppel ✗ a doctrine applied easily (although its application is being widened). The promisee relying on the courts to enforce the ‘equity’ of a promise made without consideration must clearly show that not to do so would be very unjust.


Classic / Originating Case: Central London Property Trust v High Trees House Ltd [1947] KB 130 © COURT:

• Denning J, UK Court of Appeal FACTS:

• P leased a block of flats from D for 99 years ϖ annual rent of

£2500. • In 1940, due to war, they could not sublet many flats ∴ P agreed

to reduce rent to £1250 annually. • In 1945 the situation returned to normal an the flats were fully

let. P sued the D, claiming the full rent for the future and for the last 2 quarters of 1945.

HELD: • Action succeeded. • Parties had intended reduced rent to be temporary while the flats

could not be sublet. • Promissory Estoppel was born out of Lord Denning’s obiter

dictum: o If the P had sued for the full amount between 1940 & 1945

the courts would estop (prevent) them.

Australian Adoption:

• Legione v Hateley (1983) 152 CLR 406; 46 ALR 1 o This case confirmed the principle at the highest level, the

High Court. o Later expanded to situations where there was no pre-

existing legal relationship in ↓ (use this case as authority)


Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 © COURT:

• Aus High Court dismissed on appeal from NSW Supreme Court FACTS:

• Maher’s owned a commercial property in Nowra with old buildings on it. Waltons and Maher stated negotiations that stated Maher would demolish and rebuild the property to Waltons specification by 5th February 1984 if Waltons agreed to leased it.

• On the 21st October 1983 a draft agreement for lease was sent to the Maher’s solicitors. Amendments to this agreement were discussed, and Walton’s solicitors were advised that Maher had started to demolish the old buildings.

• 7th November Walton’s solicitors were told that it would be impossible for the new buildings to be completed on time unless the agreement was completed in the next day or two. The Maher’s did not wish to demolish a newer section of the old buildings until the it was clear the agreement was forthcoming. That same day Walton’s solicitors sent to the Maher’s solicitors fresh documents incorporating the amendments discussed, but stated that they had not obtained their clients approval to the amendments, but believed it to be forthcoming.

• 11th November forwarded the executed documents to Walton’s solicitors and began to demolish the newer section of the old buildings.

• Walton, with full knowledge that Maher was demolishing the old buildings, advised their solicitors to ‘go slow’ on exchanging contracts.

• On the 19th January 1984 Walton informed the Maher’s that it had no intention to sign the lease. The new building was about 40% complete.

HELD • Maher sued and was granted damages as Walton was estopped

from going back on their promise. Appeals to NSW Supreme Court and the High Court by Walton were dismissed.


Test: Brennan J outlined a test for promissory estoppel in Waltons Stores v Maher (↑):

• P assumed that a particular legal relationship then existed between the P & D or;

• Expected that a particular relationship would exist between them;

• P expected that D would not be free to withdraw from the expected legal relationship;

• D has induced the P to adopt assumption of legal relationship. • P acts on/abstains from acting in reliance on this assumption. • D knew of P action/abstention, or intended P to act/abstain. • P will suffer a detriment if the expectation of a legal relationship

is not enforced. • D has failed to act to avoid detriment, including being silent on

the matter → D had acted unconscionably.

NB:

• As with all equitable doctrines, the person relying on it must come with clean hands. It follows that…

• Promissory Estoppel must be used as a shield not a sword. o First proposed by Denning LJ in Combe v Combe [1951]

2 KB 215 and referred to in Waltons Stores v Maher. o This means that promissory estoppel can not be used to

create a ‘independent, new cause of action’.

Remedies/Relief available:

• The court will not enforce the promise. • The courts will award the minimum required to rectify what the

courts identify as the detriment the promisee has suffered. o The courts will identify which form of relief is more

appropriate: Relief equivalent to enforcement of the promise; or Relief equivalent to the damages suffered.


o Appropriateness is decided on which better rectifies the promisee’s detriment.

In extreme cases (such as Waltons Stores v Maher) the promisor will be held to his promise if this is the only way that courts feel justice can be done.

o This notion is supported by Commonwealth of Australia v Verwayen (1990) 170 CLR 394 & Giumelli v Giumelli (1999) 196 CLR 101.

Defence against a party using Promissory Estoppel: Before action is brought against you…

• Give notice of your intention to rescind the promise: o Notice need not be formal but must be reasonable. o It must be possible for parties to resume their former

positions. After action is brought…

• Show that the promisee acted on a gratuitous promise even though they knew you had no intention for it to be legally binding.

o This infers that they are now using estoppel as a sword. • Show that the promisee unconscionably induced you to make the

promise with a false representation of affairs. • In the case of estoppel being used where there is no pre-existing

legal relations… show clear intention that the promise made, express or implied, was never meant to be final and absolute.

o Kirby P said in Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 at 585:

“The court should be slow to allow promissory estoppel to operate in clear contradiction to the intention of the parties”.

Privity p.178 28/5/07 9:12 AM

Lead-In… (B) enters a contract to paint (A)’s fence in consideration for (A) paying (C) $1,000. (B) paints (A)’s fence then leaves town. (A) refuses to pay (C). Can (C) enforce the contract between (A) and (B)?

• No!

Definition: The Doctrine of Privity Only an original party to a contract may sue, or be sued on it.

Attempting to confer benefits on a 3rd party A 3rd Party cannot enforce benefits from a contract... Using our example above:

• (C) cannot sue (A) for the money o Cite: Tweedle v Atkinson (1861) 1 B & S 393; 121 ER

762

• (B) can sue (A) for specific performance o i.e. (A) will be ordered to pay (C)

• (B) can sue (A) for any damages suffered

o If (C) had loaned (B) money, which (A) was supposed to pay off, (B) would be entitled to any interest that was incurred.

Cite: Trident General Insurance v McNiece Bros (1988) 165 CLR 107

o If (C) incurred some loss as a result of not being paid, it is unclear if (B) could recover (C)’s losses from (A).

o (C) has no claim to any money (B) recovers from (A). If (B) gives (C) the recovered damages it would be an act of grace.

Attempting to impose restrictions on a 3rd party


A 3rd Party cannot be made subject to liabilities or restrictions under a contract…

• Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co [1915] AC 847

o Dunlop entered into a contract to sell tyres to Dew Co. A provision of this contract was that they would not sell tyres for less than the contract price. If they on-sold to trade customers they must enforce the price restriction upon them. Dew sold to Selfridges, who agreed to the price restrictions, but then sold the tyres for cheaper. Dunlop attempted to sue Selfridges.

o Action failed, Dunlop not privy to the contract.

Limitations on the Doctrine Joint Promises (B) & (C) both paint (A)’s fence. The consideration came from both so both can enforce the contract even if (A) is only paying (C).

• Cite: Coulls v Bagots Executor & Trustee Co Ltd (1967) 119 CLR 460

Exclusion Clauses Exclusion Clauses can be constructed to protect a 3rd party. Test:

• Cite: Lifesavers (A/Asia) v Frigmobile Pty Ltd [1983] 1 NSWLR 431

o The contract made it clear the subcontractor was protected o The contract made it clear that the carrier had not only

contracted for the exemption in his own behalf, but also on behalf of the subcontractor.

o The contract under which the subcontractor had take the goods was drawn in such a way that it appeared to protect him. It had to be assumed that he accepted the goods for carriage on the basis that he was protected by the clause.


o The performance of ‘carriage of the goods’ constituted good consideration for the consignor’s promise of exemption from liability.

Others (very generally covered) “qui facit per alium facit per se”

• He who acts through another acts as himself • Applies to

o Trusts o Agency o Assignments

Terms (Express) p.216 28/5/07 9:12 AM

Lead-In… (A) breeches a term of the contract they have with (B). The court will establish if the breeched term is a condition, warranty or innominate term by looking at its essentiality.

Test of Essentiality: Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641:

• “The question whether a term in a contract is a condition or a warranty depends upon the intention of the parties as appearing in or from the contract.”

Conditions Conditions are terms that go to the heart of the contract. If breeched, render the performance of the contract substantially different from what was agreed.

• Poussard v Spiers & Pond (1876) 1 QBD 410 o P was to play lead role in new opera. Opera to open 28th

November. Poussard rehearsed until 23rd November when she became ill. D found a replacement on the 25th November. On the 4th of December, P, having recovered, offered to sing. D refused, P sued.

o She failed, P performance from opening night went to the very heart of the contract.

• Remedy o Innocent party can terminate contract (& be released from

any further contractual obligations) o Damages

Warranties A warranty is a minor term of the contract, a breech of this does not render the contract substantially different.

• Bettini v Gye (1876) 1 QBD 183 o D contracted to use P (Bettini) a singer for 3 months. P

undertook (inter alia) to be in London 6 days before the


contractual start time. P arrived 2 days before start time. D refused to proceed, P sued.

o Rehearsal clause not vital to the contract, term was a warranty. Bettini was entitled to damages for wrongful repudiation.

• Remedy o Only remedy available is damages for any loss or

inconvenience o ✗ right to terminate

Innominate / Intermediate Terms. It is a term capable of being breeched in both minor & major ways.

• Time constraints are often innominate terms because they can have both minor and major breeches.

• Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 ©

o P chartered the defendants a ship for 24 months. Ship was to be ‘in every way fitted for ordinary cargo service’. Engine room staff were incompetent and ship’s engine was ancient. D lost 20 weeks sailing due to this and repudiated.

o D should not have repudiated, but sought damages. D found to be in breech for repudiating. P awarded damages.

NB: • Just because the parties call a term a condition, doesn’t mean it

is. The term must be stated by both parties to be fundamental to the heart of the contract.

o L Shuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235

Shuler, a manufacturer of presses agreed to give Wickman sole selling rights. Their contract provided ‘it shall be a condition of this agreement that … Wickman shall send its representatives to visit (certain UK motor manufacturers) at least once in every week’.

Wickman committed a number of breeches, including the condition stated. Shuler attempted to repudiate.


Court found it ✗ = condition ∴ Shuler had no right to

repudiate repudiation

Terms (Implied) p.200 28/5/07 9:12 AM

Lead-In… (B) is disputing a contract with (A). Although the contract is reduced to writing, (B) is arguing that what was written and signed is not a true reflection of their agreement & a statement was left out. (B) must prove the following:

• Missing statement must be: ✓ term | ✗ representation. o Courts will look @ the intention of the parties in regards to

the statement. → sub-rules to assist ascertaining intention:

Time. Reduction to writing. Special knowledge or skill. Importance.

AND • To be incorporated into contract statement will have to negate

the ‘parol evidence rule’ by proving 1/4: o Contract is partly written, partly oral. o Term is implied (by some trade usage, custom or prior

dealings). o Term is implied (by statute). o Contract is ambiguous or uncertain.

ALTERNATIVELY

o (B) can show that (A)’s statement created a ‘collateral contract’ to induce (B) to enter the primary contract.

Effect of ‘Entire Agreement’ Clauses: This is a clause entered by the parties ostensibly to avoid any subsequent dispute about what they agreed. It acts much in the same way as the Parol Evidence Rule. The clause will not completely remove any cause of action for implying terms, but will ‘raise the bar’ on the proof required by the party attempting to imply one in, especially if the contract is written specifically for the deal and not just a standard form agreement.

Term or Representation:


Definition • A term is something that has contractual significance & is

binding. o see Terms (expressed).

• A Representation ≈ ‘salesman’s puff’ or factual statements not guaranteed by the promisor & not binding, but to induce the contract.

o Statement could have legal consequences, see Misrepresentation.

TEST: The courts apply an objective contractual intention test:

• Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41

• Would a reasonable person in the position of the parties have understood from the parties’ words and behaviour that the statement would become an enforceable obligation on acceptance?

Sub-rules for ascertaining intention (outcome of sub-rules are weighed against each other):

• Time of statement o Time lapsed between statement being made and contract

being finalised can be relevant o Routledge v McKay [1954] 1 All ER 855

In course of negotiations for sale, D told P motorcycle was 1942 model. 7 days later they contracted, no mention of age was made. P discovered 1930 model → sued for damages.

Failed, time between statement & contract + no mention of age in contract = representation.

o See Van den Esschert v Chappell (↓) for converse

• Reduction to writing o As in Routledge v McKay (↑), after the statement was

made, a contract was drawn up. The more certain and complete the contract, and the addition of an entire agreement clause (↓), the less likely the statement is to be

a term. This is even more so if the contract is purpose written and not just a standard form agreement.


• Reliance on special knowledge or skill (A) makes a statement about X… term or representation? o If (A) has knowledge about X than (B), then (A)’s

statements is more likely to be a term. o If (B) has more knowledge than (A) about X, or they have

= knowledge, then (A)’s statement is more likely to be a representation

o Oscar Chess Ltd v Williams [1957] 1 All ER 325 D offered to buy a new Hillman Minx from P (car

dealers), trading in his Morris. Trade in value dependent on age, Morris rego book stated 1948 = £290. 8 months later P discovered rego fraudulent (previous owner) & car manufactured in 1939 = £175. P sued for difference of £115.

Failed → D ✗ have special knowledge or skill required

to ascertain cars true age. D answered to the best of his knowledge.

• Importance of statement o If the representee makes it known that a particular fact is

of great importance and of the representor then asserts that the statement is true, the statement will probably be considered a contract.

o Bannerman v White (1861) 142 ER 685 D asked P in the course of negotiations for sale if

hops had been treated with sulphur. D added that if they had he would not even bother asking a price. D informed him that they had not. On delivery D found they had indeed been treated with sulphur and repudiated the contract. → P sued for price.

Failed, court found that sulphur was a term, D had right to repudiate.

o However: If representor does not guarantee accuracy of statement, or tells the representee to get the statement independently checked, it is likely to be a representation:

Cite: Ecay v Godfrey (1947) 80 LI L R 286 o Naturally if representor states that no independent

consultancy is necessary, statement is likely to be a term. Cite: Schawel v Reade [1913] 2 IR 81


Parol Evidence Rule (definition) Parol Evidence: Butterworths Australian Legal Dictionary:

• any extrinsic evidence of the res gestae (surrounding circumstances) to ascertain the factual matrix.

Parol Evidence Rule: Rule formulated in Goss v Lord Nugent (1833) 110 ER 713 at 716 and adopted by Innes J, in Mercantile Bank of Sydney v Taylor (1891) 12 LR (NSW) 252 at 262:

• “Where a contract is reduced to writing, where the contract appears in the writing to be entire, it is presumed that the writing contains all the terms of it ad evidence will not be admitted of ant previous or contemptuous agreement which would have the effect of adding to or varying it in any way.

Parol Evidence Rule (exceptions) The contract is partly written partly oral

• This exception only comes into effect when it is, or should have been, clear to both parties that the express terms were not complete.

• This exception runs along the same lines as the contractual intention test (and subsequent sub-tests) as a contractually important (yet omitted) statement is more likely to be a term and part of an oral contract.

• Van den Esschert v Chappell [1960] WAR 114 o Just before signing a contract to buy a house, the

purchaser asked if the house was affected by white ants. Seller assured her it was not. Several months later she discovered white ants and had to pay £10 10s to have them destroyed and house repaired. → Buyer sued the

seller for the cost of the repairs. o Succeeded, the courts ruled that it was a partly written,

partly oral contract, and the falsity of the statement constituted an actionable breech.


• However, when the parties’ contract is purpose written there is less scope for argument (& contains an entire agreement clause)

o Cite: Nemeth v Bayswater Road Pty Ltd [1988] 2 Qd R 406 Term is implied by a Trade Usage, Custom or Prior Dealings

• When the contract is subject to some well-known trade usage or custom, it cannot be ruled out by the parol evidence rule.

o Showing ‘prior course of dealing’: The course of the dealings would have to be

significantly long. There must be multiple instances of dealings. Dealings must be consistently patterned with reliance

on the statement. Cite: Henry Kendall v William Lillico

[1968] 2 All ER 444 – ✓ 3 transactions p/month for 3 years

Cite: Hollier v Rambler Motors [1972] 2 QB 71 - ✗ 3 transactions over 5 years

o Showing ‘trade usage and custom’: Always a question of ‘fact’ Custom or usage needs to be so notorious that

everyone in the trade enters into a contract with that usage

Cite: Jessel MR in Nelson v Dahl (1879) 12 Ch D 568 (at 575)

Must not be contrary to legislation or the normal course of market conduct

Term must not be inconsistent with express terms of the agreement

Cite: Summers v Commonwealth (1919) 25 ALR 141

• Hutton v Warren (1836) 1 M & W 466; 150 ER 517 o P, a tenant who had been given notice to quit his leased

farm claimed that it was custom for him to be reimbursed by the landlord for both the seed and labour spent on the farm in the last year of his tenancy.

o Succeeded, the contract had to be read in the light of the established custom.


Term is implied by statute

• Not covered in detail in this course. o E.g. Sales of Goods Act s.70 → Goods must match their

description Contract is ambiguous or uncertain

• Courts are not destroyers of agreements. If a contract is vague they will consider parol evidence to add a term if:

o The term must be reasonable and equitable o It will give the contract business efficacy o The term must almost go without saying (‘officious

bystander’ test) o The term must be capable of clear expression and

formulated with a sufficient degree of precision o It must not contradict any express terms of the contract

• However as stated by Mason, J in Codelfa Construction v

State Rail Authority NSW (1982) 149 CLR 337 © approved by High Court in Royal Botanic Gardens & Domain Trust v South Sydney Council (2002) 186 ALR 289:

o “The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning.”

• Cite: Akot v Rathmines Investments [1984] 1 Qd R 302 →

✓ extrinsic evidence (brochure) showed which apartment was the one they bought

• Cite: Hope v RCA Photophone of Australia (1937) 59 CLR 348 → ✗ salesman demonstrated them new equipment which

they agreed to buy. No mention of it being new equipment in contract, so when supplied old equipment buyer sought to have evidence of demonstration. Contract clear, not allowed evidence.

Collateral Contracts


To address statements that lie in the grey area between terms and representations the courts treat such statements as collateral contracts. It is a contract entered into to induce a party to enter the main contract.

• The courts are generally reluctant to find existence. o The promise must be clear and ambiguous as it will be

treated strictly by the court o As stated by Lord Moulton in Heilbut Symons v

Buckleton [1913] AC 30 The statement must be factual in nature and not representational

• A statement of opinion cannot constitute the basis of an agreement

• JJ Savage & Sons v Blakney (1970) 119 CLR 435 © o Blakney (B) entered into a contract to buy motor cruiser

from Savage (S). During negotiations B asked S about engine specifications, to which S outlined 3 different types, their specifications and his recommendations. In the outline P stated “GM 4/53 estimated speed 15mph”.

o B selected GM 4/53 based on estimated speed specification. When B got boat it could not do 15mph →

sued for breach of term, or alternatively, for breach of collateral contract.

o Failed, Court stated that only statements made as firm promises can give rise to collateral contracts.

Privity and collateral contracts A collateral contract can be made whereby: (A) induces (B) into a contract by promising also to enter into a contract with (C).

• Cite: Shanklin Pier v Detel Products [1951] 2 KB 854 Or whereby: (A) induces (B) into a contract by promising to do something for (C).

• Cite: Charnock v Liverpool Corp [1968] 1 WLR 1498 Collateral contract must be consistent with main contract It cannot vary or contradict the terms of the main contract in any way.

• Hoyts Pty Ltd v Spencer (1919) 27 CLR 133 ©


o Hoyts agreed to sub-lease premises from Spence on terms that (inter alia) allowed Spencer to terminate the sublease at any time by giving four weeks notice.

o Hoyts alleged that they had only signed the agreement because Spencer has also verbally promised not to exercise the termination right unless required to by his own head lessors.

o Spencer terminated the lease without any direction from head lessors. → Hoyts sued for breach of collateral

contract. o Failed, Court ruled that statement that formed collateral

contract was inconsistent with the main contract and they could not stand together.

NB: Innocent party can use promissory estoppel to negate this apparent unfairness in collateral contracts. Breach of a Collateral Contract Innocent party only entitled to damages to a diminished value of the main contract. ✗ entitled to specific performance.

Terms (Exclusion) p.229 28/5/07 9:12 AM

Lead-In… (A) has breached a contract with (B). (A) is now relying on an exclusion clause to limit/exclude their liability. How can (B) negate the exclusion clause? This issue appears a lot in dry-cleaning cases…

Definition of Exclusion clauses: NB: Terminology exclusion clause = exemption clause → totally excludes liability limitation clause → limits liability

They both have the same legal tests / definitions etc. Proferens = Party (A), the one relying on the clause


Test: Courts have traditionally treated exclusion clauses with dislike. Before enforcing…

• exclusion clause has actually become a term of the contract o Party (B) has to have had adequate notice

Non-Contractual documents → actual notice Contractual documents → constructive notice

• on its true construction it has become wide enough to cover the breech

o contra proferentem rule

Adequate Notice: A document will be ‘contractual in nature’ if:

• Members of the public generally regard such documents as contractual.

o A reasonable person would feel obliged to read it ✗ ticket, voucher, claim check, receipt ✓ deeds, standard form agreements, contracts

• The party that receives the document knows that it is contractual OR that it contains terms that govern his or her dealings with the proferens.

o A reasonable person would expect it to contain contractual terms

Non-Contractual Documents → Require ‘actual notice’ before effective

‘actual notice’ = the proferens specifically brings the existence of the clause AND its contents to the attention of the other party. This is done prior to contracting.

• Causer v Browne [1962] VLR 1 o Dry-cleaning: Dress stained and thread pulled out. Clause

on docket. P sued, D sought to rely on clause. o Succeeded, no actual notice, no reasonable person would

think dry-cleaning docket contractual.


• Burnett v Westminster Bank Ltd [1966] 1 Qb 742 o P got cheque book form bank that could only deduct from

1 account (he had 2 accounts at different branches). Exclusion clause on front of cheque book stated that money will be directed from that account only. P did not read. P wrote a cheque that he wanted to deduct from other account (and then he wanted to stop it), neither happened and it deducted from wrong account. P sued, D sought to rely on clause.

o Succeeded, normal people no not expect to find clauses on cheque book covers. Bank ✗ actual notice.

Contractual Documents → Require either ‘constructive notice’ or ‘actual notice’

‘constructive notice’ = the proferens takes ‘reasonable steps’ to bring the existence of the clause AND its contents to the attention of the other party. This is done prior to contracting.

• ‘reasonable steps’ → question of fact.

o Must do what is necessary to give notice to the class of persons you are contracting with. If the proferens is aware of any disabilities of the other party he must make adequate extra steps.

• The fact of a ticket with a clause must notify party of clause on back. Clause, or notice of clause must be readable before given to other party.

o Cite: Sugar v London, Midland & Scottish Railway Co [1941] 1 All ER 172

• The notice must be given before entering contract otherwise there is no consideration for it.

o Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197

Fay booked a Greek Island cruise via a NSW travel agent. Given an ‘exchange order’ which could be redeemed for physical ticket at ferry terminal in Athens. Physical ticket had exclusion clause (also gave jurisdiction to Greek courts). Fay injured & sued


in NSW, D sought to use clause to exclude NSW jurisdiction.

Fay succeeded, exclusion clause was on ticket given after he had entered contract. NSW courts had jurisdiction.

Effect of Signature Documents that require signature a generally contractual in nature and the courts will rarely help someone that has signed a document they have not read. As Scrutton LJ said in L’Estrange v Graucob [1934] 2 KB 394:

• “When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound and it is wholly immaterial whether he has read the document or not.”

Exceptions to this rule:

• If the document appears to have no contractual effect o Document they are signing appears to be for a non-

contractual purpose, like a pretend licence at a go-cart track.

Cite: Le Mans Grand Prix Circuits v Iliadis [1998] 4 VR 649 ©

• If the contents of the document (namely the clause) are misrepresented

o If the clause or its effect is misrepresented by proferens (or their servant or agent) its full protection will be lost.

Cite: Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805

• Pleas of ‘non est factum’ → hard to show!

o The document signed must be radically different from what the person thought they were signing.

o The signer was not careless in signing without checking the documents contents.

Cite: Petelin v Cullen (1975) 132 CLR 355 Prior Course of Dealings

• A exemption clause can be implied into a contract.


o The other party was, or should have been aware, of its existence from the prior course of dealings.

o The other party would or should have been aware that the proferens only ever contracted on the basis that the clause would be included.

↑ Same standards as incorporating terms into contracts!

o In the originating contracts the proferens had done what was reasonable sufficient to give notice

• Cite: o ✓ Henry Kendall & Sons v William Lillco & Sons Ltd [1969]

2 AC 31 o ✗ McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125

Assessing the scope of exclusion clauses Courts interpretation Exclusion clauses are construed strictly against those trying to enforce them: ‘verba chartarum fortius accipiuntur contra proferentem’ the ‘contra proferentem rule’ → the words of a written document are more forcefully

construed against the person inserting them. • Cite: Alex Kay Pty Ltd v General Motors Acceptance Corp

and Hartford Fire Insurance Co [1963] VR 458

Misrepresentation p.279 28/5/07 9:12 AM

Lead-In… In the course of pre-contractual negotiations for a block of land (A) told (B) that the block is “very fertile and improvable”. (B) bought the block of land and discovered that it was not very fertile at all. The statement does not fit the requirements to be implied as a term in the contract, what is (B)’s next course of action? Dimmock v Hallet (1866) LR 2 Ch App 21


Try to show that the representation was more than salesman’s puff or a statement of opinion but = actionable misrepresentation… must show:

• That a false statement was made. • The statement was one of fact. • It was addressed to the party mislead before the contract was

entered into. • It was intended to induce the misled party to contract.

Contingent on degree the factual matrix fits these criteria one of the following actionable misrepresentations will be triggered:

• Innocent Misrepresentation o Rescission

• Negligent Misrepresentation o *Damages in the tort of negligence o Rescission

• Fraudulent Misrepresentation o *Damages in the tort of deceit o Rescission

* Damages are not sought in tort law because the representation has not been incorporated as a term in the contract. Since the representation is not part of the contract there is no breach, and subsequently no cause for action in contract law. And if you can’t prove any of this whack them with s.52 of the Trade Practices Act… in fact it might be better to do that first!

Criteria of Actionable Representation: A False Statement was made General Rule = Caveat Emptor (let the buyer beware):

• The seller is under no obligation to disclose defects in the items being sold. The buyer must take care to discover them before they buy.

• Silence does not constitute misrepresentation – but there are exceptions:


• Cite: Griffiths CJ (at 577) & Isaacs J (at 584) in W Scott Fell & Co Ltd v Lloyd (1906) 4 CLR 572

5 Exceptions:

• There is a distortion of a positive representation (a half-truth)… o Cite: Krakowski v Eurolynx Properties (1995) 183

CLR 563 Organise a ‘strong tenant’ before I buy case.

• Subsequent discovery that the representation was misleading… o Cite: Lockhart v Osman [1981] VR 57

Cattle in “excellent condition” and “well suited for breeding purposes” case.

• The representation becomes untrue because of a change in circumstance…

o Cite: With v O’Flanagan [1936] 1 Ch 575 The £2000 medical practice that became worthless

case. • Parties are in a fiduciary relationship: partnerships, trusts and

beneficiaries… o Cite: Hill v Rose [1990] VR 129

$250,000 stake in a worthless seafood business case.

• Contract ‘uberrimae fidei’: one party has all the information (insurance contracts)

o Cite: Gordon v Gordon (1821) 3 Swan 400; 36 ER 910 The bastard child’s inheritance case.

Statements of Fact The representation must be a statement of fact:

• ✗ a statement of opinion • ✗ a statement of intention or a promise as to the future

o Bisset v Wilkinson [1927] AC 177 While negotiating a contract for the sale of his farm,

the owner stated that it could carry 2,000 sheep. Both vendors were aware that the owner had never run sheep on his property. The purchaser found it could not carry that number of sheep and sought to rescind the contract.


Courts found the statement was not a misrepresentation, it was a honest statement of opinion.

4 Exceptions

• where the representor never held the opinion in the first place (i.e. where they lied)

• where, although the representor did hold the opinion, no reasonable person would

• where, although the statement was clearly couched as an opinion, the representor implied that he or she knew the FACTS that justified the opinion

• where the facts were not equally known by the parties AND an opinion was given by one who should have known the facts or who was in a far stronger position to assert the facts. See:

o Esso Petroleum v Mardon [1976] QB 801 Esso built a servo and induced Mardon to lease it by

assuring him that it was likely to have a throughput of 200,000 gallons a year. Mardon thought this was high, but because of Esso professed expertise in estimating petrol sales he accepted it. The throughput was only 78,000 gallons a year. Esso sued for possession of the premises and moneys / profit owed. Mardon countersued for negligent misrepresentation.

Esso claimed it was a statement of opinion but Lord Denning found them negligent. Their statement was one on which no reasonable person would have relied.

• Where the representor made a statement of opinion on law and o Wilfully misrepresented the law o Made statements of mixed law and fact o Made representations as to the nature or effect of private

rights (as opposed to common law or statutory given rights)

o Statements of law where the representor knows, or should suspect that the representee will rely on the representor’s superior knowledge of the law.


Addressed to the party misled The plaintiff must be the intended recipient of the misleading statement:

• ✓ if it is communicated directly to you • ✓ if it is indirectly communicated to you

o Cite: Commercial Banking Co (Sydney) v R H Brown & Co (1972) 126 CLR 337

The bank’s assessment of the wool dealers case. • ✗ if you otherwise become aware of it

o Cite: Peek v Gurney (1873) LR 6 HL 377 The misleading prospectus case.

Intended to induce the contract The statement must induce the contract, that will not happen in the following circumstances:

• Where the representee is not aware of the representation… o Cite: Re Northumberland and District Banking Co; Ex

Parte Bigge (1858) 28 LJ (Ch) 50 Bigge had not read the misleading finical reports.

• Where the representee knows the representation to be false… o Cite: Redgrave v Hurd (1881) 20 Ch D 1

Hurd was induced by a grossly overstated profit to purchase into party. However, he was entitled to look over books where he would have clearly seen that they were grossly overstated. He did not look however and was entitled to rescind the contract.

• Where the representee does not act on the representation… o The representee make their own investigation:

Cite: Attwood v Small (1838) 6 Cl & Fin 232; 7 ER 684

o The second way is if one party makes an inaccurate claim but then corrects it before the final agreement is made:

Cite: Holmes v Jones (1907) 4 CLR 1692 • Where the representation is not material to the contract..

o To be material, the statement need not directly relate to the subject matter of the contract.

o It just has to have played some part in bringing about the contract → influenced the representee


The representation need not be the sole inducement.

Fraudulent Misrepresentation TEST: Lord Herschell in Derry v Peek (1889) 14 App Cas 337:

• Fraud is proven when it is shown that a false representation has been made…

o Knowingly, o Without belief in its truth, o Recklessly, careless whether it be true or false (gross,

reckless disregard for the truth) Remedies

• Damages in the tort of deceit • Rescission (↓ for rescission discussion)

Negligent Misrepresentation (recent development) TEST: UK → Hedley Byrne Ltd v Heller & Partners [1964] AC 465 Aus → MLC Assurance Co v Evatt (1968) 122 CLR 556

• If a person is held out as competent to give information or advice, AND

• If he or she realises or ought to realise that the are being trusted to give correct statements, AND

• It is reasonable in the circumstances for the other party to rely on that information or advice…

The representor will be liable. Remedies

• Damages in the tort of negligence • Rescission (↓ for rescission discussion)

Innocent Misrepresentation Usually occurs when a representor makes a honest, but misleading statement


Remedies

• Rescission

Rescission Rescission aims to put the party back exactly (under common law) or a close as possible (in equity) to their previous positions.

• The party hoping to rescind the contract must give notice to the other party of their intentions to do so…

o If the other party absconds notice is no required Cite: Car & Universal Finance v Caldwell [1965]

1 QB 525 o Can apply to the court for a formal rescission when the

other party refuses to return property transferred under the contract OR where the other party is seeking specific performance.

• Restitution must be possible o If the parties can’t substantially be restored to their former

positions rescission will not be available o Compensation will be awarded instead

• If you elect to affirm the contract, when your are entitled to rescind, you cannot later try to rescind.

• Lapse of time (won’t usually remove the right to rescind) unless: o Representee is aware of the right to rescind and elects not

to o An inordinate period of time passes

Cite: Leaf v International Galleries [1950] 2 KB 86

• If a 3rd party takes good title of the consideration in a contract rescission will not be possible.

s.52 of The Trade Practices Act 1974 (Cth) TEST: Misleading & Deceptive Conduct 3 elements that need proving:

• The section must apply to the party breaching s.52 o Corporations


o Overseas or Interstate trade or commerce o Trade or commerce between territories o Use of post o A telephone, radio or television broadcast o Governed by some international treaty

• The conduct complained of must have happened in ‘trade & commerce’

o Anything that occurs in, or relates directly to normal business activity

Cite: Concrete Constructions (NSW) v Nelson (1990) 169 CLR 594

• The conduct must be ‘misleading or deceptive’ OR ‘likely to mislead or deceive’

o Question of fact… Remedies

• Damages • Anything listed under Section87

see Text book for more detail…

Mistake p.253 28/5/07 9:12 AM

Lead-In… (A) agrees to sell (B) their car. (A) has two cars, a Ferrari and a Volvo. (B) pays the money and goes to collect the Ferrari, but finds that he has bought the Volvo. What can (B) do?


This is known as a mistake in common law…

Definition: Mistake When a contract has been entered into because one or more of the parties are under a misapprehension about something forming the basis of their agreement, it can be argued that there is no true consent (mutuality), and consequently no binding contract.

• The contract is deemed ‘void ab initio’ or ‘void from the beginning’.

Mistakes can be:

• ✓ a mistake of fact • ✓ a mistake of law

o Cite: David Securities v Commonwealth Bank of Australia (1992) 175 CLR 353

• ✗ a mistaken motive o Cite: Bell v Lever Bros Ltd [1932] AC 161

There are 3 categories of mistake: 1) Common Mistake

• The parties make the same mistake. • This is extended to common mistake in reducing the contract to

writing. [Rectification] 2) Mutual Mistake

• The parties deal at cross purposes (they misunderstand each other).

3) Unilateral Mistake • One party is mistaken and the other party knows, or ought to

know of that mistake yet purports to proceed with the contract anyway.

Common Mistake Res Extincta → the thing has perished


If the subject matter of the contract ceased to exist at the time the contract was entered into, there can be no contract.

• Cite: Couturier v Hastie (1852) 8 Ex 40; 155 ER 1250 Res Sua → the thing was already his

One party agrees to buy something that was already theirs. • Cite: Cooper v Phibbs (1867) LR 2 HL 149

Common Mistake … when reducing a contract to writing (Rectification by the courts) If parties reach an agreement, draw up a contract, but then mistakenly forget to include a term the court can write one in.

• Statement could be implied in as a term? ✗… o It has to be clear that it was mistakenly left out by

showing: A prior complete agreement OR continuing common

intention Both parties must believe in the mistake, one party

cannot honest believe that the contract is complete There must be a literal disparity between what was

recorded in the contract and what was agreed Must be capable of clear expression No other remedy/bar to the order must be sought

o Cite: Pukallus v Cameron (1982) 180 CLR 447

Mutual Mistake TEST:

• The parties must clearly be contracting at cross purposes. o The courts will ascertain as objectively as possible ‘the

sense of the promise’. o Cite: Raffles v Wichelhaus (1864) 2 H&C 906; 159 ER

375 The Oct/Dec cotton ‘ex peerless from Bombay’ case.

• If the court finds against the mistaken party, and some sense

can be read into the contract, it will be upheld.


o However, equity can step in to prevent an order of specific performance.

Cite: Denny v Hancock (1870) LR 6 Ch App 1

Unilateral Mistake (I see it as negligent/fraudulent misrepresentation of a term of a contract as opposed to a statement in negotiations of a contract) Unilateral mistake as to the terms of an offer TEST:

• The parties must clearly be contracting at cross purposes AND • The true meaning of the agreement ✗ reasonably ascertained by

a third party overhearing the negotiations. Cite: Taylor v Johnson (1983) 151 CLR 422 ©

Unilateral mistake as to the identity of the other party Common law rarely assists in declaring such contracts void. However: TEST:

• The party (B)’s offer was only intended for party (A) and that (A)’s identity (for quality, trade relations) was of vital importance

• That party (B) took reasonable steps to ensure that party (A) was the person being dealt with.

o Failure usually occurs in face to face transactions where the presumption is greatest you intended to deal with the person you dealt with.

• That (B) was aware, or should have been aware, of the offeror’s true intentions

Cite: • ✓ Cundy v Lindsay (1878) 3 App Cas 459

o Handkerchiefs with the fraudulent label case. • ✗ Phllips v Brooks Ltd [1919] 2 KB 243

o The rogue called ‘North’ claiming to be Sir George Bullough, jewellery store & pawn broker case.


Remedies / Relief Available for Mistake Common Law

• Iff (if and only if) the mistake goes to the heart of the contract (something fundamental), it will be declared void ab initio.

• The parties are treated as if there is no contract between them; any money or property transferred between them must be returned.

• The contract is insufficient to pass title. • The rights of a third party who has acquired an interest in the

subject matter of the contract will be defeated. In Equity

• Where a contract cannot be declared void in the common law sense:

o There must be a common misapprehension o It must be of a fundamental nature o The party seeking to have the contract set aside must not

be at fault o It must be unconscionable to let the other party benefit

from the mistake o There must be no possibility of a 3rd parties rights being

prejudiced Cite: Taylor v Johnson (1983) 151 CLR 422

THEN: o The contract is voidable not void. o The contract may be rescinded by the mistaken party or

the contract may be set aside by a court on such terms as it sees fit.

o This right is limited where it is not possible to put the parties back in the position they were in

where an innocent 3rd party has acquired in interest in the subject matter for value,

affirmation, or lapse of time

o Rectification of the written contract may be ordered; o The court may refuse a grant of specific performance

DUiU p.313 28/5/07 9:12 AM

D → Duress,

Ui → Undue Influence,

U → Unconscionability.

Lead-In… (A) threatens to ‘get fresh’ on (B)’s cousin unless (B) enters a contract to buy (A)’s potatoes. → Duress…

(A) had been given a cottage by (B). (B) was uneducated and heavily dependent on (A) for help. (B) now seeks to rescind the contract and give the cottage to his son instead of (A). → Undue Influence…

(B) has entered into a contract with (A) in which there is an extremely harsh and onerous clause. (B) is a migrant with poor English and business skills. → Unconscionability…

DURESS Duress in law must consist of such pressure as would cause a reasonable person, exercising that ordinary degree of firmness that the law demands of us all, to do something that he or she would not do otherwise.


• Pressure should be illegitimate • Pressure must be irresistible • Must be present at the time of contracting • Can come from a third party:

o By proving that the other party was aware of actions + associated in some way.

o Prove that the outsider was that other parties duly appointed agent for the purpose for making the contract.

• Cite: Magnacrete Ltd v Douglas-Hill (1988) 48 SASR 567 o NB: this case ≠ 3rd party duress!

Duress to the Peron In general terms, duress to the person will arise through: Actual Physical Violence

• To the person being coerced OR • To someone they are associated

Threat of Violence

• Of death, bodily harm or imprisonment, AND • Calculated to cause fear, AND • May actually cause fear.

o To the person being coerced OR o To someone they are associated

Threat of Imprisonment

• Common Law o ✗ Threats of warranted imprisonment o ✓ Threats of unwarranted (malicious) prosecution

• Equity (softer line) o ✓ Threats of warranted imprisonment o ✓ Threats of unwarranted (malicious) prosecution

To the person being coerced


OR To someone they are associated

Cite: Barton v Armstrong [1973] 2 NSWLR 598 later approved on appeal to the privy council: Barton v Armstrong [1976] AC 104

NB: Duress to the person need only be a factor, not the primary reason for contracting → however if the person would have contracted anyway

the contract will be valid and enforceable. • Cite: Barton v Armstrong (↑)

Remedies

• Contract is voidable o ∴ Binding on both until he coerced party elects to bring it

to an end o Restitution of all money and goods transferred under the

contract • Damages

o There has been no breach? o Most likely use Tort…

Tort of Intimidation Tort of Fraudulent Misrepresentation

Duress of Goods

• One party unlawfully sizes, detains, damages or destroys another’s goods,

OR • Threatens to do so.

Originally duress of goods conferred no rights on the person coerced →

Resistance should be possible: Goods can be replace and the person sued… what about burning down someone’s house with photo’s, art and the family dog? ∴ modern view

• Cite: Hawker Pacific v Helicopter Charter (1991) 22 NSWLR 298 Same remedy as duress to the person…


Economic Duress Economic Duress is a new & developing legal avenue…

• The test for economic duress is the same as duress to the person except the pressure exerted is ‘economic’ rather than ‘physical’.

o The questions the court asks are Did any pressure induce the contract? (if it did, all

that needs to be shown is that the pressure was one of the reasons the victim entered into the contract)

AND Did that pressure go beyond what was legitimate?

(which it will if it consists of unlawful threats or if it amounts to unconscionable conduct)

Question of fact: ‘normal commercial pressure’ or ‘illegitimate pressure’?

• Ambit of this is still unclear… • See (↓) for a good guideline of the courts thinking

North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705 FACTS:

• The parties contracted for the construction of a ship, The Atlantic Baron, with the price fixed in $USD.

• After payment of the first instalment the $USD devalued by 10%, so the defendant ship builder demanded a 10% increase in the price as compensation.

• There were not contractual entitlements to the increase but Hyundai stated that they would not continue unless it was granted.

• P had negotiated a particularly profitable charter dependent on the ship being completed in time so it capitulated to D’s demands.

• After delivery P sought to regain extra payments from D. HELD:

• This payment COULD have been set aside for economic duress • P had taken too long (9 months after completion of ship) to bring

action ∴ affirmed the duress


UNDUE INFLUENCE The courts have been very careful not to set defined limits to the situations in which undue influence can be pleaded. TEST:

• The contract that the influenced party wishes to set aside resulted from an abuse of influence by the other party.

o (A) influence (B) to contract… (A) benefits OR • The influencing party is an agent of the person who benefits from

the contract. o (A) influences (B) to contract… (C) benefits, (A) & (C) are

in cahoots. • Do not need to show why the intention of the servant party

entering the contract. Presumption: Cases which indicate that requisite undue influence can originate are (2): 1) A relationship of trust and influence (automatic presumption of influence)

• ‘Special Relationships’ or relationships of trust & influence o ✓ Parent & Child o ✓ Guardian & Ward o ✓ Doctor & Patient o ✓ Solicitor & Client o ✓ Trustee & Cestui Que Trust (Beneficiary) o ✓ Religious Advisor & Disciple NB: o ✗ Husband & Wife

Cite: Yerkey v Jones (1939) 63 CLR 648 o ✗ Brothers

Cite: Armstrong & Armstrong (1873) 8 Ir Eq R1 • Other Relationships

o Just have to show a relationship with a high level of trust… Johnson v Buttress (1936) 56 CLR 113


Johnson had been given a cottage by Buttress’s father. At the time of the gift, the father was elderly, illiterate, recently widowed and heavily dependant on Johnson – a long time family friend. On his fathers death, Buttress sought to have the gift set aside.

Johnson could not rebut the assumption ∴ the

gift was set aside. • Rebutting the assumption…

o By proving access to independent advice Cite: Inche Noriah v Shaik Allie Bin Omar

[1929] AC 127 o By showing that independent advice would have been

disregarded Cite: Linderstam v Barnett (1915) 19 CLR 528

o By proving the donor’s ability to form an independent judgement

Cite: Re Brocklehurst’s Estate [1978] Ch 14 2) Some express influence of actual coercion or general domination of the will.

• Most likely will fall under actionable duress BUT o Cases usually arise when someone joins a cult…. o See: Morley v Loughanan [1893] 1 Ch 736

• If I get an exam question about someone who tries to get out of a contract because they joined a cult then I will be upset that I didn’t put this in more detail... p.331 Graw

Remedy for Undue Influence

• Rescission o Contract set aside in equity and the parties restored to the

positions they occupies before the contract. o Must bring the action within a reasonable amount of time.

UNCONSCIONABILITY The common law will not come to ad of someone that freely enters into a bargain hoping or expecting that its harsher terms will not be activated.


• Particularly onerous or unusual clauses are required to be brought to the attention of the other party. This = ‘reasonable notice’ or exclusion clauses.

o Cite: Interfoto Picture Library v Stiletto Visual Programmes Ltd [1989] 1 QB 433

The doctrine of ‘inequality of bargaining power’

• ✗ common law • ✓ equity!

Equity & Unconscionability Deane J’s judgement in Commercial Bank of Australia v Amadio (↓)

• 1) The weaker party must have been under ‘special disability’ vis-à-vis the stronger party so that there was no real equality between them.

AND • 2) The stronger party must have been aware of that ‘special

disability’’ AND • 3) It must have been unfair or ‘unconscientious’ for the stronger

party to procure agreement in the circumstances in which is was procured

Commercial Bank of Australia v Amadio (1983) 151 CLR 447 COURT:

• Deane J, in HC of Australia FACTS:

• Respondents were elderly migrants with poor English and business skills.

• They were induced to execute mortgage and guarantee in favour of the appellant bank to secure an overdraft facility that had been granted to their son’s building company.

• At the time of execution they believed the company was in a solid financial position & that their liability was limited to $50,000 for a duration of 6months only.

• To the knowledge of the bank these beliefs were incorrect.


• The company subsequently failed ad the bank made demand under the guarantee.

HELD: • The guarantee was set aside, it had been entered into as a direct

result of the bank’s unconscionable conduct ∴ could not be

enforced. Definition: ‘Special Disability’ ‘special disadvantage’

• ≠ Mere disadvantage • Weaker parties interest have become particularly susceptible to

control or influence by the other party because of the nature of the relationship.

o Cite: Garcia v National Australia Bank Ltd (1998) 194 CLR 395

• Examples of susceptibility: o Age, Poverty, Need, Sickness, Infirmity, Drunkenness,

Illiteracy, Lack of Education… Remedy for Unconscionability Equity usually renders the contract voidable at the instance of the weaker party However:

• As in Amadio’s case (↑) this need not be the case the courts

may just limit the liability rather than extinguish it totally. Limits:

• Ratification • Affirmation • Acquiescence • Intervention by a 3rd Party • Innocent party not having ‘clean hands’ → Unconscionability is a

equitable remedy!

Illegality p.349 28/5/07 9:12 AM

Lead-In… (A) enters a contract to do backyard plastic surgery to (B). Plastic surgery is express forbid by legislation. (A) botched the job, but it still asserting that (B) pay. (A) & (B)’s contract is illegal, does (B) have to pay?

Definition: Illegality An illegal agreement is invalid and unenforceable. Principal based on maxim: ‘ex turpi causa non oritur actio’ (no action arises from a base cause). How do you know if a contract is illegal?

• Statute Law will prevent the contract. OR • There will be precedent’s of similar cases being struck down, i.e.

Common Law will prevent the contract.

Contracts Illegal by Statute This can be complicated… put simply there are 2 sets of considerations… The statute makes an express OR implied prohibition that…

• Makes the formation of the contract illegal: o The contract may be to do something the statue forbids. o The contract may be one that the statute details &

prohibits. • Makes the performance of the contract illegal:

o The contract, although lawful on its face, may have been made to effect an unlawful purpose.

o The contract, although totally lawful, may have been performed in a unlawful manner.

Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410

o First Chicago lent Yango $132,600 secured by a mortgage and a number of personal guarantees. Yango defaulted and First Chicago sued. Yango argued that the loan contracts


were illegal as s.8 of Banking Act 1959 (Cth) prohibited any banking business operating in Aus without authority to do so. First Chicago had no such authority.

o s.8 did not make the act illegal: There was penalty provision per day rather than per

transaction = not preventing lending of money but unauthorised banking.

What is worse, un-authorised banking or Banks not being able to recover loans to pay depositors? Public interest…

What does this all mean?!? → illustrated using the hypothetical situation involving

• “Bootlegged Booze Act 2007 (WA) s.12”, • Party (A) who sells stills that can be used for bootlegging booze. • Party (B) who wants to buy a still.

ASK… What was parliament trying to achieve with this Act? What is trying to stop, the contract or the performance of? Does it render ‘this’ contract illegal? Or is there just a penalty? Consideration sets from above (2): 1)

• Express prohibition OR implied prohibition? o Express prohibition:

s.12: No one shall engage in the selling of stills for the purposes of making bootlegged booze.

∴ It is illegal for (A) & (B) to create a contract.

Cite: Re Mahmoud & Ispahani [1921] 2 KB 716 Defence of Realm → Linseed Oil case.

o Implied prohibition: ASK: what was the act trying to prevent? s.12: It is illegal for a person to own a still for the

purposes of making bootlegged booze. ∴ It could be illegal for (A) & (B) to create a

contract. Cite: Cope & Rowlands (1836) 150 ER 707

London unlicensed brokers fee of £25 case.


2) • Illegal as formed OR illegal as performed?

o Illegal as formed: s.12: No one shall engage in the selling of stills for

the purposes of making bootlegged booze. ∴ It is illegal for (A) & (B) to create a contract.

Cite: both cases above… o Illegal as performed

s.12 A person shall not sell a still to another if that person is going to use it for making bootlegged booze.

∴ It is illegal when (B) uses the still to make

bootlegged booze. Cite: Ashmore, Benson, Pease & Co v A V

Dawson [1973] 1 WLR 828 Contract = 2x25tonne trucks, 2x20tonne

trucks provided case.

Contracts Illegal by Common Law There are 6 types of contract that are illegal for public policy: 1. Contracts to Commit Crimes, Torts or Frauds

• Everet v Williams (1725) no citation o The highwaymen who fell out over division of their takings

case. 2. Contracts promoting sexual immorality

• Upfill v Wright [1911] 1 KB 506 o Lady of the night & unpaid rent case.

• Andrews v Parker [1973] Qd R 93 o Contract must induce morality, it must not already be

present o ‘Immorality’ a fluid thing to community standards

3. Contracts promoting corruption in public life

• Wilkinson v Osbourne (1915) 21 CLR 89 o 2 NSW ministers, bribe for Gov’n land buying case.


4. Contracts prejudicial to the administration of justice

• Public Services Employees Credit Union v Champion (1984) 75 FR 131

o Dad guaranteeing loan repayments for misappropriation of funds, fraud squad case.

5. Contracts prejudicial to the public safety

• Contracts that harm national interest… • Contracts that harm international relations…

6. Contracts to defraud the revenue

• Contract to exploit loopholes in tax system…

Effect of Illegality If the contract is illegal as formed… The contract is void (ex turpi rule)

• No party can sue on it o Unless there was a fraudulent misrepresentation to induce

it o Cite: Burrows v Rhodes [1899] 1 QB 816

• Money paid or property transferred under the contract ✗ recoverable

o Exceptions (4): ‘Bowmaker rule’ = if only possession has passed

under the contract then property can be returned provided the plaintiff does not rely on rights conferred by that contract.

Bowmaker v Barnet Instruments [1945] KB 63

• P had lent certain machine tools to D under three hire-purchase agreements. This contravened defence regulations. D sold some of the machine tools in breach of the hire-purchase agreements and refused to return others. P sued, D relied on illegality.


• Defence of illegality failed. P could bring the action outside of the illegal contract as they had property rights outside the scope of the contract. (The machine tools were never the D to sell).

Parties ✗ ‘In pari delicto’ (✗ = guilty) One party ignorant/mistaken of illegality OR One party is the person the statute/common

law is trying to protect • i.e. rent protection statute cannot be

relied on against tenants suing for exorbitant rents!

• Cite: Kiriri Cotton v Dewani [1960] AC 194

Plaintiff, after paying money or transferring property, repents illegality before the contract has been substantially performed.

• Related transactions, including those involving a 3rd party, can also be void.

o Cite: Spector v Ageda [1973] Ch 30 If the contract has been illegal as performed… If illegality only comes about because an otherwise lawful and enforceable contract is performed for an unlawful purpose or in an unlawful way, it may not be necessary to find that it is completely void and unenforceable.

• First, the courts look at the (4) exceptions provided for contracts illegal as formed

• Second, the court look at the appropriateness to upholding the contract, if doing so will provide justice:

o The sanction of refusing to enforce the contract is disproportionate to the seriousness of the unlawful conduct → courts WILL come to the aid of innocent parties with

clean hands… illegality is not to be used as a sword. UNLESS:

Parliament clearly (specifically) indicated that the contract should always be unenforceable.


The sanction is necessary to protect the statues objects or policies.

It does not appear that the prescribed sanctions and remedies were intended to be the only legal consequences of breaching its prohibitions.

o Cite: Fitzgerald v Leonhardt (1997) 189 CLR 215 The NT driller & landowner permit case.

o Cite: Nelson v Nelson (1995) 184 CLR 538 Mother put house in daughters name case.

Void Contracts Certain contracts are simply not allowed…

• Gaming Contracts o Illegal bookkeepers seeking to uphold debts.

• Contracts to oust the jurisdiction of the courts • Contracts prejudicial to the status of marriage

o Contracts to find someone a marriage partner o Contracts to marry someone o Contracts not to marry anyone/someone o Contracts by a married person to marry a third person

• Contracts in restraint of trade o Unless they have reasonable, defined, geographical and

time stipulations

Breach p.407 28/5/07 9:12 AM

Lead-In (A) and (B) have a valid contract to paint a wall. (A) paints the wall with only one coat and the underlying colour is still showing through. Does (B) have to pay?

Discharge by failure of performance When both parties complete their obligations under the contract it has been ‘performed’ & consequently is discharged. Performance must be exact Performance must not fall short of what was required in the agreement. Failure or performance = breech of contract

• This can generate unjust results as in: • Cutter v Powell (1795) 6 TR 320; 101 ER 573

o Cutter signed on as second mate on a ship travelling from Jamaica to Liverpool for 30 guineas. Contract states he must continue & do his duty to port of Liverpool. ¾ way through journey he dies. P (his wife) sued for his share of wages on a quantum meruit. → Her actions failed, he had

not performed as required. EXCEPTIONS TO THE RULE: Severable Contracts

• Cutter v Powell was ‘entire contract’ ∴ could not be severable.

Often contracts allocate payment structures to stages of performance. → courts will utilize to make appropriate payments

De Minimis Rule

• “De minimis non curat lex”: The law does not concern itself with trifles.

• Shipton, Anderson & Co v Weil Bros & Co [1912] 1 KB 574 o Contract was for cargo of wheat, 4,500 tonnes, 2% more

or less (+ could tender for an additional 8%) (total allowable 4,950 tonnes). Shipment was 4,950.55 tonnes so D refused delivery, even thought they were only charged for 4,950. → Courts made D pay.


Substantial Performance

• Where the has been performance, not enough to = de minimis, but substantial, the court will not allow the innocent party to terminate, but will award damages for an actual losses flowing from the breach.

• Hoenig v Isaacs [1952] 2 All ER 176 o P was to redecorate and furnish D’s flat for £750. Only

£400 was actually paid on the grounds that the work had been done poorly & needed rectification. → Court found

substantially done, P entitled to contract price - £55 18s 2d deduction.

• Bolton v Mahadeva [1972] 1 WLR 1009 o P (Bolton) agreed to install a heating system in D home for

£560. D refused to pay as it gave out offensive fumes & did not heat the house properly. Remedial work would cost £174.50. → Courts rules object of contract faulted ≠

Substantial Performance. ✗ recover. Acceptance of Partial Performance

• The parties agree to abandon their original contracts (& with it their mutual rights and obligations) and substitute for it a new agreement under which one party accepts partial payment in full satisfaction. The other party agrees to accept a lesser reciprocal performance.

Obstruction of Performance

• Prevention of Performance occurs when one party denies the other party the ability to perform their obligations.

o The ‘prevented’ party may regard the contract as at an end.

o They will be released from further obligation & may sue for damages or on a quantum merit (if performance of an entire contract had commenced but had not been completed at the point of obstruction).

• Refusal of tender of performance o One party is not prevented from performing, → the other

party simply refuses to accept the proffered.


o “tender of performance is equivalent to performance” o ∴ if payment is dependant on delivery, & delivery is

wrongfully refused, the seller need make no further attempt at delivery & may sue immediately for the non-acceptance.

Startup v Macdonald (1843) 6 Man & G 593; 134 ER 1029

P contacted to sell 10 tonnes of oil to be delivered “within the last 14 days of March”. He delivered 8.3pm on Saturday 31st March, but D refused because of the lateness of the hour. →

Liable for damages for non-acceptance. NB: Statutory Influence (now)… Sale of

Goods Act 1895 (WA) s 29(4) → “tender of

delivery may be treated as ineffectual unless made at a reasonable hour”

o Extension… If one party intimates to the other that it is pointless

to tender performance the performance need not actually be tendered before the rule takes effect.

• Tender of Payment o Where one party is required to pay money, tender occurs

by the debtor offering the exact amount due. If that offer is refused the debtor is NOT released from further obligation.

o If they are subsequently sued, they need only file a defence of tender, pay the money into the court and the creditor will have to bear all costs of the action.

Time effect on Performance

• Under common law time stipulations constitute a breach & allow automatic termination; this is not so in equity which will award specific performance.

o Unless time ‘of the essence’: Contract expressly makes time ‘of the essence’ Subject matter makes time ‘of the essence’ i.e.

perishable goods Party served a ‘notice to complete’ performance


Recipient party already in default Party giving notice, ready, willing and able to

complete. Time stipulation reasonable. Notice must be clear that performance is

required & outline potential consequences of failure.

Charles Rickards Ltd v Oppenhaim 1 KB 616

Discharge by breach of a term Determining if Breach? Innocent party entitled to…

• Damages if… o Breach of term: warranty, intermediate term or condition. o Discharge of contract.

• Damages & Discharge if… o Breach of term: condition or serious intermediate term. o Time Clause o Discharge of contract.

Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632

• Test of essentiality Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 ©

• Wrongful repudiation (see express terms) Ankar Pty Ltd v National Westminster Finance (Aust) (1987) 162 CLR 549 ©

• Discharge of obligations via breech.. Bunge Corp New York v Tradax Export SA Panama [1981] 1 WLR 711

• 15 days notice required to seller that ship was coming to port →

Ship came early. Seller terminate contract for breach. Time clause is a condition ∴ ok to terminate.

Types of breach (2): 1) Actual Breach

• A failure to perform when performance is due.


• Defective performance whereby a term is breached. • An underlying term of the contract is proven to be untrue.

2) Anticipatory Breach (one party indicates non-performance)

• Explicitly: o One party clearly informs the other that they will not do

what is required… Hochster v De La Tour (1853) 2 El & Bl 678;

118 ER 922 D engaged P as a courier on the 1st of June. 3

weeks before appointment was supposed to take place, D wrote to P stating that his services would not be needed. Hochster sued. → D repudiation clear anticipatory breach.

• Implicit: o One party acts in a manor… implying that they will breach,

or precluding possible performance of the agreement Lovelock v Franklyn (1846) 8 QB 371; 115 ER

916 Dell agreed to sell a parcel of land to Lovelock

provided he pay £140 within 7 yrs. Before payment Dell sold the land to Williamson. Lovelock sued Dell’s executors. → Sale to

Williamson implicit anticipatory breech because performance is no longer possible.

Universal Cargo Carriers v Citati [1957] 2 QB 401 at 431

Reasonable person test for determining anticipatory breach

• Innocent party must make an election…

o Accept the breach and bring the contract to an end; or o Reject the breach & keep the contract on foot. o Specific performance may be sought immediately.

Hasham v Zenab [1960] AC 316 Zenab agreed to sell Hasham a 2-acre plot of

land in Nairobi. Within minutes of signing the contract, Zenab repudiated it on the grounds


that she had intended to sell only half an acre. Settlement must have been within 6 months of signing the contract. 4 months or so later Hasham sued for performance. → Specific

performance was ordered. Zenab could not demand that Hasham wait for actual non-performance after 6 months. D anticipatory refusal gave P immediate right to seek performance.

o Performance may continue notwithstanding the anticipatory breach…

An innocent party may ignore the anticipatory breach and continue with the contract. When it comes time for performance they may sue for full contract price. Innocent party must have a legitimate reason for ignoring the breach or the courts may not award contract price.

White & Carter (Councils) Ltd v McGregor [1962] AC 413

McGregor’s sales manager entered into a contract for litter bin advertising for three years. Almost immediately McGregor wrote repudiating the agreement on the grounds that his sales manager had made an error. White & Carter refused to accept the repudiation and constructed the advertising as agreed. When payment was not forthcoming they sued for the full three years. → They were entitled to the

money. They were not required to accept the repudiation because McGregor could complete performance.

Clea Shipping Corp v Bulk Oil International Ltd (“The Alaskan Trader”) [1984] 1 All ER 129

When the Alaskan Trader broke down & required extensive repairs the ships charterers informed the ships captain that they no longer needed wanted it and repudiated the contract of charter. Despite this the owners repaired the


ship and had it fully crewed ready to go for nearly nine months (the balance of the charter period), even though they knew that it would not be used. The owners sued the charterers for the hire fee for the time they had the ship ready. → Although innocent parties normally

have an unfettered right to elect whether to accept or reject repudiation, the court can, in exceptional cases, refuse to allow them to continue a contract where they have no legitimate interest in doing so.

o The contract remains enforceable.. The contract remains enforceable by both parties –

subject to the rules that govern contracts generally. This can have adverse effects:

Avery v Bowden (1855) 5 El & Bl 714; 119 ER 647

Bowden chartered Avery’s ship to load cargo at Odessa – the loading to occur within 45 days. When the ship arrived, Bowden’s agent, who had no cargo, advised the captain to go elsewhere. The captain refused and remain in port hoping that the cargo would be found. Before 45 days was up was declared and Odessa became an enemy port ∴ the contract

was frustrated. The captain should have elected to repudiate the contract.

Renard Constructions PL v Minister for Public Works (1992) 26 NSWLR 234 (CA)

Defendant terminated contract for a breach of a term. No entitlement to breach ∴ Plaintiff

terminated. Court awarded damages that exceeded the contract price. This overturned the notion that the ceiling for damages was the contract price.

Remedies DAMAGES:


• Actual & Anticipatory breach can entitle the innocent party to sue for damages (at least where he or she has performed or is ready, willing and able to perform his or her part of the contract).

• With anticipatory breach the contract can be terminated immediately, the innocent party need not wait for actual breach.

DISCHARGE:

• Both parties are released from future performance and the innocent party may sue for damages.

• With anticipatory breach (& election)… o If the breach makes future performance impossible

discharge is automatic and election is not required. o If the innocent party elects to accept the breach and

terminate the contract, it must be made in clear & unequivocal words OR conduct that would evidence such an election (i.e. entering into another contract).

o If the innocent party elects to keep the contract on foot the breaching party is given a second chance to go through with the contract.

If the breach continues the innocent party can terminate and get damages.

If the innocent party fully completes their required performance they can sue for contract price (assuming the court aggress that they had a legitimate interest in continuing the contract.. see above↑).

o What obligations live on after termination: Exclusion clauses Confidentiality clauses Agreed damages clauses Arbitration clauses

Frustration p.394 28/5/07 9:12 AM

Discharge Through Frustration Paradine v Jane (1647) Aleyn 26, 82 ER 897

• Parties who voluntarily enter into a contract must perform all their obligations under that contract irrespective of what happens.

o Doctrine of ‘Absolute Liability’ o Justified because parties can always provide for

contingencies when they are negotiating their contract. • Paradine v Jane Overturned in ↓

Taylor v Caldwell (1863) 3 B & S 826; 122 ER 309 FACTS:

• Caldwell hired a concert hall called Surrey Gardens and Music Hall to Taylor. Before Taylor’s first performance the hall burnt down. There was no provision in the contract for such an event. Taylor claimed damages for breach of the agreement.

HELD: • Destruction of the hall had occurred without fault of either party,

both were excused from future performance. The contract was subject to an implied term that if performance was impossible because of some supervening event, without default by either party, both parties would be discharged from future obligation. This lead to…

Doctrine of ‘Frustration’ ‘Non haec in foedera veni’ = it was not this that I agreed to Frustration cannot be established where:

• Performance not impossible → just more onerous or

inconvenient. • Where specific provision for the event is made in the agreement. • Where the frustrating event should have been foreseen &

provided for by the party relying on it against the other. • Where the frustrating event is self-induced • Where the contract is merely delayed or interrupted.

Performance of contract is ‘impossible’ for both parties through no fault of their own:

• Impossibility = ‘absolute impossibility’


o Subject matter of the contract is destroyed (as in Taylor v Caldwell)

o Death or serious illness to uniquely skilled persons subject to the contract

• Impossibility = ‘commercial impossibility’

o Contract is discharged not because its physically impossible to complete but because it is a commercial impossibility.

o Jackson v The Union Marine Insurance Co Ltd (1874) LR 10 CP 125

Contract to transport cargo. Ship had run aground and could not transport cargo for 6 months with another ship. Cargo transported with another company, Jackson (ship owner) claims on insurance for lost cargo. → On appeal, the court found that a

condition was implied into contract that the ship would arrive in a time to transport cargo. Contract commercially impossible & could be frustrated.

• Impossibility = ‘radical difference’

o The ‘landscape’ in which the contract was negotiated has fundamentally changed…

o Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337

Codelfa contracted by Rail to excavate underground railway. The work had a strict timeframe of 130 weeks – both parties knew this required Codelfa to work 3 shifts a day, 7 days a week.

Construction created a lot of noise. An interlocutory injunction was brought by residents to prevent Codelfa from working between 10pm & 6am. Residents & Codelfa reached a more lenient compromise to work at reduced noise levels between those hours and not at all on Sundays.

This resulted in additional costs & loss of profit + Codelfa could never hope to complete the work within the specific time restriction.


Codelfa argued that the original contract had been frustrated by the injunctions & they were entitled to quantum meruit rather than the originally agreed price. → Court agreed.

• Impossibility = ‘radical difference’ → via ‘delay’ or ‘interruption’

o Mere delay or interruption ✗ enough to render contract radically different. However, if performance is ‘radically different’ than contemplated, the delay or interruption can be a frustrating event…

o NB: When event occurs the party looking to discharge the contract must anticipate how long the delay will be & decide whether it will frustrate the contract. Frustration is based on anticipated length, not actual length of delay.

o National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675

D leased warehouse from P for 10 years. 5 years in local council closes only access road because a building opposite was in a dangerous condition. Road was estimated to be closed for 12 months, but it ended up being 20 months. P sued for unpaid rent, D claimed frustration of lease. → Held not frustration,

20 months in 120 months does not make performance radically different (D had to pay).

o F C Shepherd & Co Ltd v Jerrom [1987] QB 301 Appellants hired Jerrom as a apprentice plumber

under a 4yr apprenticeship. Less than 2 years later Jerrom was convicted of affray and conspiracy to assault and was sentenced for 6 months to 2 years in Borstal prison. On release, the appellants refused to take him back, Jerrom sued for unfair dismissal. →

He had not been unfairly dismissed. Contract frustrated, employment ‘radically different’ because Jerrom could not be taught all the skills needed in the remaining time.

• Impossibility = ‘supervening illegality’


o A perfectly legal contract when entered into but has become unlawful because of some event arising thereafter.

o Metropolitan Water Board v Dick, Kerr & Co Ltd [1918] AC 119

D contracted to build a reservoir for P and complete it within 6 yrs. 2 yrs in the Minister for Munitions ordered them to cease construction so their labour force / plant could be utilized to manufacture munitions. Despite this the water board contended that the reservoir contract still on foot and had to be completed (ϖ an appropriate time extension). D claimed frustration. → Held the Ministers order had

frustrated the contract. Critical was condition that it be completed ϖin 6 yrs. At time of hearing already

delayed 2 yrs & did not look like resuming until after war.

Aus case: Lindsay-Owen v Associated Dairies Pty Ltd [2000] NSWSC 1095

D selling ‘milk business’ including all farm, equipment & milk quota. Milk quotas were deregulated by NSW government. → Held

contract frustrated.

• Impossibility = ‘futility’ o Performance, although possible, is futile, because the

mutually understood purpose of the contract can no longer be achieved. The frustrating event must render the entire underlying purpose of the contract.

o Krell v Henry [1903] 2 KB 740 Contract to lease a flat overlooking the Kings

coronation. This was implicit in the contract. After the King took sick and delayed the coronation. D no longer wanted the flat for the period, but P sought to enforce contract.

Courts found that contract had lost it purpose, contract was predicated by a primary purpose to watch the procession ∴ frustration.


Consequences of Frustration WA is still bound by common law in regards to the effect of frustration while other states have legislation. Consequences @ Common Law Up until the time frustration take effect the contract can still be enforced. There are ‘accrued’ rights & obligations.

• “The losses lie where they fall”: o Money paid is not recoverable unless there is a total failure

of consideration. o Services Rendered (to total performance) before or after

point of frustration will receive quantum meruit. o Services Rendered (to partial performance) either before or

after the point of frustration can not be recovered.

Remedy p.419 28/5/07 9:12 AM

Exam lead in: (A) has breached a contract with (B) what can (B) expect in terms of compensation. NB: Mitigation is only talked about after a breach has been established.

Definition:

• A contract exists between the parties. • There is a breach of this contract. • The courts will award damages (3 general categories)…

o Actual Damages o Exemplary Damages

Given not so much to compensate, but to punish wrongdoer.

Cite: Ruxley Electronics v Forsyth [1994] 3 WLR 118

o Nominal Damages Small token sums of money to acknowledge a

breach, & to express the courts disapproval (can often be less than courts cost = expensive victory)

Baron Parke in Robinson v Harman (1848) 1 Ex 850 (at 855); 154 ER 363 (at 365):

• “Where a party sustains a loss by reason of a breach of contract, he is so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”

• Approved by High Court in Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64

Torts: • Remedy will put the innocent party in a position they would have

been in before the tortuous action was inflicted. Contract Law:

• Remedy will put the innocent party in a position they would have been in if the contract had been completed → ‘the expectation

principle’. o Robinson v Harman (1848) (↑)


Principals of Damages (4): 1) Damages ✗ be too remote: Damages recoverable are limited to those that are not too remote. The principal was first enunciated in:

• Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145 © o BUT/FOR Test:

• ∴ in law damages are only recoverable for those losses that:

o Arise naturally from the breach… ‘natural consequence’ OR ‘usual course of things’

✗ Victoria Laundry v Newman Industries [1949] 2 KB 528 ©

• Boiler during the war case. ✓ H Parsons (Livestock) v Uttley Ingham

[1978] QB 791 © • Mouldy pigs nuts case.

o Are actually contemplated as a probable result of the breach…

D will be liable if special circumstances are brought to the attention at the time of contracting.

Does not necessarily require a formal term in the contract just notice.

2) Damages are only compensatory:

• Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 ©

o C’wealth had wrongfully terminated the contract o How do you quantify the losses of Amann Aviation?

• Damages are assessed at the time of breach

o Lord Wilberforce in Johnson v Agnew [1980] AC 367 (at 401)

“This is not an absolute rule; if to follow it would give rise to injustice, the court has the power to fix such other date as may be appropriate in the circumstances.”


• Damages are quantified using the market rule.

• Damages for Distress & Disappointment…

o General rule is that damages for distress and disappointment consequent upon a breach of contract are not recoverable…

Addis v Gramophone Co Ltd [1909] AC 488 Employee wrongfully dismissed in a humiliating

manner, courts adjusted his damages from the jury allotted amount.

o Distress is adjunct to physical injury cased by the breach. Physical inconvenience and distress resulting from

this. o Where there was a breach of contract which had, as its

whole objective, the aim to provide relaxation, enjoyment or relief from molestations → Holiday Cases

Jarvis v Swan Tours [1973] 1 QB 233 Baltic Shipping v Dillon (1993) 111 ALR 289

Cruise liner sank of New Zealand case. • Damages are ✗ available for loss of reputations, unless:

o Traders can recover damages for injury to their business reputation

Cite: Flamingo Park v Dolly Dolly (1986) 65 ALR 500

Jenny Kee in what appears to be an IP case!

• Damages for Loss of Chance o Howe v Teefy (1927) SR (NSW) 301 ©

Horse Racing o Chaplin v Hicks [1911] 2 KB 786 ©

Beauty Contest o Fink v Fink (1947) 74 CLR 127

Divorce Arrangements 3) Damages must be mitigated:

• Innocent party has a duty (✗ requirement) to try and rectify/limit losses.


o Dunkirk Collery Co v Lever (1878) 9 Ch D 20 o If P doesn’t mitigate D won’t be liable for losses court

deems to be self-inflicted. o Onus is on D to show that P could have mitigated losses.

Hasell v Bagot Shakes & Lewis Ltd (1911) 13 CLR 374

o What if attempt to mitigate is unsuccessful or it increases the total loss?

Total loss (including increase) may be recoverable. Simonius Vischer & Co. v Holt & Thompson

[1979] 2 NSWLR 322 © Party v Auditors that controlled wool futures

contracts o P need not mitigate if it will injure their commercial

reputation by proceeding (A) produces screen prints on t-shirts for (B). They

are of inferior quality. (B) does not need to sell to mitigate.

o What if attempt to mitigate results in an extra benefit for the P?

British Westinghouse Electric v Underground Electric Railway [1912] AC 673


• The impecunious plaintiff

Burns v Man Automotive (Aust) Pty Ltd (1986) 161 CLR 653 COURT:

• High Court of Australia on Appeal FACTS:

• July 1977, P bought a truck that was guaranteed to have a reconditioned engine. P had lots of trouble with this truck.

• In July 1978 P discovers that truck ✗ reconditioned engine, approached D to fix, but they refused.

• P decides to change from intrastate to interstate haulage (this = ↓ profits)

• November 1979, P defaults on truck payments & Esanda repossesses.

• P has no $, he has contracts due, no truck to complete & cannot sell truck for same $ he bought because ✗ reconditioned engine. P made the best of a bad situation, but could show the lost profits.

• P sues D for: o Expectation damages - Loss of profit (4 years) o Actual Damages for mechanical repairs & towing etc o Nervous Stress

HELD: • On appeal, no nervous stress and no damages awarded after

July 1978. 4) Damages may be pre-agreed by the parties: Set damages, estimated & agreed to, at the time of contracting are called ‘liquidated damages’ or a ‘liquidated damages clause’. → entirely

enforceable.

Other Remedies Specific Performance

• Equitable remedy ∴ is entirely at the discretion of the court.

• ✗ available where damages will suffice


• ✗ available where it will cause undue hardship on the defendant • ✗ available where it will re-unite two unwilling parties ∴ create

absurdity (personal contracts etc.) ‘Equity does nothing in vain’ Injunction

• Equitable remedy ∴ is entirely at the discretion of the court.

• ✗ available when the breach is unlikely to occur again • Mandatory Injunction:

o Can enforce a term of the contract in isolation (Specific performance will enforce the whole contract)

o Cite: Warner Bros v Nelson [1937] 1 KB 209 Restitution

• It is restoring one party to a state prior to contracting. • Basis of Restitution is the concept of ‘unjust enrichment’. • Only available where:

o The D has received some form of benefit. o That benefit was at the expense of the P. o It would be unjust to allow D to keep benefit.

• So it follows that unjust enrichment will probably be an appropriate remedy where:

o There has been a total failure of consideration. OR o P is claming ‘reasonable remuneration’

‘Reasonable Remuneration’

• ‘Quantum Meruit’ → ‘as much as he has earned’

• Where Quantum Meruit will be awarded: o Quasi-Contract o Where ‘no contract’ ever came into being o Where an ‘entire’ contract was wrongfully discharged o For work done before frustrating event o For a partial-performance of contract (perhaps↓)

• No available where the contract stipulated ‘entire’ performance. o Cite: ✗ Sumpter & Hedges [1898] 1 QB 673 o Cite: ✓ Steele v Tardiani (1946) 72 CLR 386

2007.01 - Contract Law - Exam Notes (FINAL)

Documents

Transcript of 2007.01 - Contract Law - Exam Notes (FINAL)