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Offer p.

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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

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

Peter Sadler

Contract Law

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 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 prices marked

Peter Sadler

Contract Law

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 Auctioneers 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

Peter Sadler

Contract Law

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), affd 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. Todays 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

Peter Sadler

Contract Law

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 offerees 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

Peter Sadler

Contract Law

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
Ds form, then raised price. D refused to pay did not
have to pay, last offer was Ds and that did not have
clause.

Peter Sadler

Contract Law

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

Peter Sadler

Contract Law

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:

Peter Sadler

Cite: Bradbury v Morgan (1862) 158 ER 877

Contract Law

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

Peter Sadler

Contract Law

10

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 Brocklehursts 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 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.

Peter Sadler

Contract Law

12

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.

Peter Sadler

Contract Law

13

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

Peter Sadler

Contract Law

14

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 (Camerons) 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 Camerons 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.

Peter Sadler

Contract Law

15

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

Peter Sadler

Contract Law

16

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 didnt 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

Peter Sadler

Contract Law

17

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.

Peter Sadler

Contract Law

18

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

Peter Sadler

Contract Law

19

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 arent 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.
Domestic agreement courts will not enforce

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.


Domestic agreement courts will not enforce

Social Clubs etc


o Cameron v Hogan (1934) 51 CLR 358

Hogan, ex-Labor Premier of Victoria was refused reendorsement by the partys state executive and was

expelled from party. Hogan stated that this breached


a contract he had with the party.
Domestic agreement courts will not enforce

Rebutting the Presumption of Social & Domestic Relationships

Peter Sadler

Contract Law

21

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.

Peter Sadler

Contract Law

22

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), affd 210 F


3d 88 (2nd Cir 2000)

Peter Sadler

Contract Law

23

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:

Peter Sadler

Contract Law

24

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)

Peter Sadler

Contract Law

25

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 Pollocks 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 promisors 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 promisees 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 Flemings 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 Bs 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 Bagots Executor & Trustee Co Ltd (1976)
119 CLR 460

Peter Sadler

(on appeal from SA Supreme Court)

Contract Law

27

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 Sarahs
promise to Eastwood. Eastwood Sued.

HELD:

Sarahs promise of reimbursement had been made after


Eastwood had performed it was past consideration (and not
consideration at all). Sarahs promise was a moral obligation,
enforceable at law.

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

Peter Sadler

Contract Law

28

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 promisors 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

Peter Sadler

Contract Law

29

Not limited to intrinsic value, courts will also consider


significance, however most things that have significance also
have intrinsic value.

Chappell & Co Ltd v Nestl Co Ltd [1960] AC 87


o Nestl ran a promotion giving away records of Rocking
Shoes for 1s 6d + 3 Nestl wrappers. This was legal so
long as Nestl 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

Peter Sadler

Contract Law

30

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 ships captain had promised the reaming crew

Peter Sadler

Contract Law

31

(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

Ships (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

Peter Sadler

Contract Law

32

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
Musumecis 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 Pinnels case:

Payment of a lesser sum on the day in satisfaction of a greater,


cannot be satisfaction for the whole
o Cite: Pinnels 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

Peter Sadler

Contract Law

33

Doesnt 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

Peter Sadler

Contract Law

34

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 others
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 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 Dennings 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 preexisting legal relationship in (use this case as authority)

Peter Sadler

Contract Law

36

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


COURT:

Aus High Court dismissed on appeal from NSW Supreme Court

FACTS:

Mahers 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 Mahers solicitors. Amendments to this agreement were
discussed, and Waltons solicitors were advised that Maher had
started to demolish the old buildings.

7th November Waltons 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
Mahers did not wish to demolish a newer section of the old
buildings until the it was clear the agreement was forthcoming.
That same day Waltons solicitors sent to the Mahers 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 Waltons


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 Mahers 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.

Peter Sadler

Contract Law

37

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.

As with all equitable doctrines, the person relying on it must

NB:
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.

Peter Sadler

Contract Law

38

o Appropriateness is decided on which better rectifies the


promisees 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.

Peter Sadler

Contract Law

39

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.

Peter Sadler

Contract Law

41

o The performance of carriage of the goods constituted


good consideration for the consignors 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

Peter Sadler

Contract Law

42

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 ships 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, doesnt 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.

Peter Sadler

Contract Law

44

Court found it = condition Shuler had no right to


repudiate repudiation

Peter Sadler

Contract Law

45

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

salesmans 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.

Peter Sadler

Contract Law

47

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.

Peter Sadler

Cite: Schawel v Reade [1913] 2 IR 81

Contract Law

48

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.

Peter Sadler

Contract Law

49

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.

Peter Sadler

Contract Law

50

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

Peter Sadler

Contract Law

51

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

Peter Sadler

Contract Law

52

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.

Peter Sadler

Contract Law

53

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.

Peter Sadler

Contract Law

55

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

Peter Sadler

Contract Law

56

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 LEstrange 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 noncontractual 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.

Peter Sadler

Contract Law

57

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

Peter Sadler

Contract Law

58

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 salesmans 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 cant 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:

Peter Sadler

Contract Law

60

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 OFlanagan [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 childs 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.

Peter Sadler

Contract Law

61

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 representors
superior knowledge of the law.

Peter Sadler

Contract Law

62

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 banks 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

Peter Sadler

Contract Law

63

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

Peter Sadler

Contract Law

64

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 cant 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 (wont 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 3

rd

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

Peter Sadler

Contract Law

65

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

Peter Sadler

Contract Law

66

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

Peter Sadler

Contract Law

68

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.

Peter Sadler

Contract Law

69

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 offerors
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.

Peter Sadler

Contract Law

70

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

Peter Sadler

Contract Law

71

Peter Sadler

Contract Law

72

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

Peter Sadler

To the person being coerced

Contract Law

74

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


anothers 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 someones house with photos, art and
the family dog?
modern view

Cite: Hawker Pacific v Helicopter Charter (1991) 22 NSWLR 298

Same remedy as duress to the person

Peter Sadler

Contract Law

75

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 Ds
demands.

HELD:

After delivery P sought to regain extra payments from D.


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

Peter Sadler

Contract Law

76

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

Peter Sadler

Johnson v Buttress (1936) 56 CLR 113

Contract Law

77

Johnson had been given a cottage by Buttresss


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 donors ability to form an independent
judgement

Cite: Re Brocklehursts 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
didnt 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.

Peter Sadler

Contract Law

78

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 Js judgement in Commercial Bank of Australia v Amadio ()

1) The weaker party must have been under special disability


vis--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 sons 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.

Peter Sadler

Contract Law

79

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 banks 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 Amadios 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!

Peter Sadler

Contract Law

80

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 precedents 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

Peter Sadler

London unlicensed brokers fee of 25 case.

Contract Law

82

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 Govn land buying case.

Peter Sadler

Contract Law

83

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.

Peter Sadler

Contract Law

84

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.

Peter Sadler

Contract Law

85

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

Peter Sadler

Contract Law

86

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. 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 Ds 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.

Peter Sadler

Contract Law

88

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 nonacceptance.

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

Peter Sadler

Party served a notice to complete performance

Contract Law

89

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.

Peter Sadler

Contract Law

90

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 Dells 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

Peter Sadler

Contract Law

91

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 nonperformance 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

McGregors 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

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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 Averys ship to load cargo at


Odessa the loading to occur within 45 days.
When the ship arrived, Bowdens 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:

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93

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:

Peter Sadler

Exclusion clauses

Confidentiality clauses

Agreed damages clauses

Arbitration clauses

Contract Law

94

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 Taylors 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.

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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

Peter Sadler

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97

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 ( an appropriate time extension). D
claimed frustration. Held the Ministers order had
frustrated the contract. Critical was condition that it
be completed in 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.

Peter Sadler

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98

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.

Peter Sadler

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99

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 Cwealth 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.

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101

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.

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102

o Dunkirk Collery Co v Lever (1878) 9 Ch D 20


o If P doesnt mitigate D wont 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

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103

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

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104

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

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