Contracts 1015 Notes

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Very detailed notes for the whole semester and course.

Including lecture, tutorial and textbook notes. HD student.
Contracts (University of Sydney)
Distributing prohibited | Downloaded by Vivian Lee (lee.vivian98@gmail.com)

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CONTENTS PAGE

PART 1 – INTROUDCTION

A. INTRODUCTION
B. FREEDOM OF CONTRACT?
I. Why enforce contracts?
II. Capacity
III. Public policy and illegality
IV. Other vitiating factors

PART 2 – AGREEMENT

A. OFFER AND ACCEPTANCE
I. Offer
II. Offers can be made to the whole word or a more limited group
III. Acceptance
i. Communication of acceptance is generally required
ii. Correspondence with offer
iii. Postal acceptance rule
iv. Knowledge of offer required for acceptance?
IV. Duration offers
i. Revocation
ii. Rejection, lapse, non-‐occurrence of condition and Death
V. Uncertainty and incompleteness
i. Generally
ii. Severance of unenforceable clause
iii. Agreements to negotiate
iv. Conditional promises
B. CONSIDERATION
I. What promises are legally enforceable?
II. Consideration must be referable to the promise
III. Consideration must move from the promisee (but not necessarily to the promisor)
IV. Consideration must be sufficient, but need not be adequate
V. Past consideration is not consideration
VI. Consideration must be illusory
VII. Performing existing legal duties
i. Duties imposed by law
ii. Contractual duties
VIII. Forbearance to sue or compromise of a disputed claim – good consideration
IX. Should we keep the doctrine of consideration?
C. ESTOPPEL AND ITS EFFECT ON CONSIDERATION
D. INTENTION TO CREATE LEGAL RELATIONS
I. Family and social situations
II. Commercial situations
III. Letter of comfort
E. CONTRACTS REQUIRING WRITTEN EVIDENCE
I. Contracts requiring writing
II. Requirement of writing
III. Effect of non-‐compliance
i. Common law
ii. Equity
IV. Discharge of contracts required to be evidenced in writing

PART 3 – TERMS AND PARTIES

A. EXPRESS TERMS
a. Terms and Mere Representations
i. Deciding whether a statement is a term
ii. Deciding whether a statement forms part of a collateral contract

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B. INCORPORATION OF TERMS

a. Signed contracts
b. Incorporation of unsigned documents – tickets and notices
c. Incorporation by course of dealing
d. Incorporation by reference
C. IMPLIED TERMS
a. Terms implied in fact
b. Terms implied in law
c. Terms implied by custom/trade usage
d. Good faith
D. CONSTRUCTION OF CONTRACTS
a. Parol evidence rule
b. Exceptions
E. CLASSIFICATION OF TERMS
a. The tripartite classification
b. Promises and contingencies
F. EXCLUSION CLAUSES
a. Construction of exclusion clauses
b. Statutory control of exclusion clauses – consumer protection
G. PRIVITY
a. General
b. Exceptions to the rule
c. Contracts for the benefit of a third party
d. Contracts that attempt to burden a third party
e. Third parties and the benefit of exclusion clauses
f. Legislation and reform

PART 4 – BREACH AND FRUSTRATION

A. THE ORDER OF PERFORMANCE
B. PREVENTION OF PERFORMANCE
C. DISCHARGE BY PERFORMANCE
a. Entire contracts
b. Substantial performance
c. Severable contracts
D. DISCHARGE FOR BREACH OF A TERM
a. Late performance
b. Defective performance
c. Effect of failure to perform – termination for breach
E. DISCHARGE FOR REPUDIATION
F. DISCHARGE FOR DELAY AND TIME STIPULATIONS
G. TERMINATION
a. Process of termination
b. Estoppel as a restriction on right to terminate
c. Effect of termination
H. DISCHARGE BY FRUSTRATION
a. The rule
i. Impossibility (eg Destruction of subject matter of the contract
ii. Frustration of purpose (e.g Non-‐occurrence of an event which is the basis
of the contract)
iii. ‘Frustration of the commercial venture’
iv. Others
b. Application in various circumstances
i. Leases and contracts for the sale of land
ii. Where frustration was foreseen but not provided for in the contract
iii. Where the contract provides for the consequences of frustration
iv. ‘Self-‐induced frustration’
c. Consequences of frustration
I. DISCHARGE BY AGREEMENT


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LECTURE 1: INTRODUCTION

A. INTRODUCTION
What is the objective theory of contract?

• Parties reflect what a reasonable person in the position of the parties would think regarding the contract based on the words and
actions
o External manifestation rather than an internal intention
• The formation, construction and interpretation of contracts in NSW is OBJECTIVE, NOT SUBJECTIVE
• We ask questions such as: would a reasonable person in the position of the two parties believe there were legal relations?
o Problem arises when a reasonable person in the position of the parties may not have seen the parties reach an agreement
• There must be a meeting of minds to have a legal agreement
• There must be a mutual intention to create legal relations
• There is a need to construe words of a contract in the way that a reasonable person hearing them would construe them

CLASSIC CONTRACT LAW THEORY
Will theory
• Contract is an expression of human will
• Two minds meet in agreement, there will be a contract, will be enforced
• This is because people intended or have a will for that contract to exist

Atiyah: Paradigm of modern contract
• Bilateral executory agreement
o Sequence here – negotiations, agreement, performance
o Contract remains to be performed (executory)
o GIVING EFFECT TO INTENTIONS
• Contract is binding because the parties intend to be bound: it is their will or intention which creates the liability
• Important elements are offer and acceptance and intention
o Offer: expression of willingness to be bound on certain terms without further negotiation
o Acceptance: of terms as offered
• Downplays consideration: mutual exchange of promises sufficient
o Law enforces promises
• Binds parties to performance or damages in lieu
• Whole model suffused with idea that purpose of contract law is to give effect – within limits of course – to intentions of parties
***Agreement and performance seem to happen simultaneously, but in theory we treat them as separate steps – problems**

Bargain theory
• Contract is a bargain that arises because of parties’ agreement and consideration they give
o Takes will theory a step further as emphasizes consideration (brought the promise of your performance)
o Consideration given has been bargained for

Reliance
• Contracts should be upheld whenever a promisee (who has the benefit of a promise) has relied upon a promise in the way that
would cause detriment if the promise was not kept
• Estoppel – law stops a party from resigning from a promise
o Reliance theory uses this as the basis for upholding a contract

Reasonable expectations
• Obligation to perform a contract depends on reasonable expectations induced by a promise and the disappointment that results
when expectations are unfulfilled due to a breach of contract
• Lord Justice Steyn CA: “Reasonable expectation of honest men”
• Damages awarded to put the party in position they expected to be in had the contract been performed

B. FREEDOM OF CONTRACT
CAPACITY
• Contracts may only be made by those on whom the law confers a power to do so (presumption however that anyone who enters
into a contract has the capacity to do so)
• The contractual incapacity of minors is regarded as a protection against the consequences of minors’ own actions and presumed lack
of discretion and judgement
• Unsoundness of mind (mentally incapable persons/intoxication) is a good defence to an action to enforce a contract
o Incapacity referring to incapacity to understand what he/she is doing and to understand the transaction when explained
o There must be sufficient awareness by other party to transaction
o Mentally incapable person bound to pay for necessaries supplied
• Corporations are creatures of statute, so their capacity to contract derives from the statute
o Contractual capacity: where an entity’s legal capacity is limited, a purported contractual assent beyond that capacity is an
ultra vires act (therefore a nullity)
o Decision to contract must be made by or through a person who has authority to bind the corporation à technique for
applying this involves application of law of agency

PUBLIC POLICY AND ILLEGALITY
• There are many heads of public policy considered by courts in relation to contracts such as: contracts to commit a legal wrong,
contracts injurious to public life, immoral contracts, contracts in restraint of trade
o If contracts infringe some types of public policy the contract will be considered illegal (e.g. to commit a legal wrong), other
K’s/ clauses will be unenforceable or void (e.g. in the restraint of trade)

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• Immoral Contracts – Marriage and Sexual Morality

o Although public policy is meant to prohibit anything against good morals the law has been concerned primarily with sexual
morality

Andrews v Parker [1973] Qd R 93 per Stable J

• 1966 plaintiff, 55-‐year old widower, met the defendant who was 41 years old. De-‐facto relationship commenced in 1968 and they
lived together and known as man and wife
• In August, in response to pressure from the d, the plaintiff agreed to transfer title to his house to the defendant. This was subject to
three conditions: (1) that the p would have a place to live for the rest of his life, (2) that the defendant would leave the house in her
will to the p’s children, (3) that if she went back to her husband the defendant would on principle ‘deed the house back’ to the p
• Few months later p signed document transferring title to the d. This expressed a consideration of $6000 but d paid nothing.
• By Christmas 1968 the d was seeing a lot of her husband and growing cold towards p. In Feb 1969 d said her husband was coming to
live in house. Asked when p would be leaving as three could not live altogether.
• She proposed to pay p $4000 by $10 installments but no money paid and p later went to live in SA
• Referring to the sexual misconduct/affair: “…the court’s task is to express what is the law on the subject as appropriate to current
times in Australia…[If] the plaintiff’s hands are by the standards of today a little soiled the defendant’s hands are by comparison
filthy”
• “It surely cannot be in accord with the public interests or public policy that she should retain property which she obtained through a
deceitful course of conduct designed to get a home for her husband”

• Restraint of trade à common practice in employment contracts
o CL must sometimes balance two principles: freedom of contract of individuals to agree to contracts and the public interest
in freedom of competition and trade
§ Is the restraint agreed to in contract reasonable in the circumstances of the case?
§ Promise at time of commencement of employment that when you leave: not work in physical distance or
industry or both for a particular period of time
• Cascading clause – less restrictive as go on
o Not enforceable unless reasonable
o Some agreements that restrict competition are prohibited by the Competition and Consumer Act 2010 (Cth) irrespective of
whether or not those agreements would be enforceable at common law

OTHER VITIATING FACTORS
• Some K’s wont’ be enforced as they are not considered ‘fair’ because they are affected by undue influence, duress or
unconscionability
• Other clauses may be held unenforceable on public policy grounds e.g. harsh exclusion clauses (clauses excluding liability) and
penalty clauses


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LECTURE 2: AGREEMENET PART 2: AGREEMENT

A. OFFER AND ACCEPTANCE
Formation elements of agreement, certainty, consideration and intention to create legal relations in contract.
• Parties must objectively reach an agreement
• Agreement must be sufficiently certain/complete
• Must be consideration – something of value in eyes of law given in exchange for a promise
o Cant’ be illusory: i.e. when see consideration there isn’t actually anything at all
• Objectively parties have to intend to create legal relations
What might impact on the enforcement of contract?
• Capacity: person has the legal capacity to contract
• Formalities: writing requirements – does the contract need to be in writing or evidenced by writing?
• Privity: only the parties to contract can enforce the contract
o Contracts intend to benefit third parties but ONLY PARTIES CAN ENFORCE THE CONTRACT.
The stylized contracting process

• A contract ends because all obligations become discharged
• T1-‐T2 agreement period, T3-‐T4 performance issues
• Between T2-‐T3: ANTICIPATORY BREACH
o Before one party performs they indicate can no longer perform
• Illegality can come up at any stage
• Just because contract formed at T2 does not mean no obligations cannot rise at the time before that i.e. at T2 agreement is reduced
to writing but this does not mean that a pre-‐contractual oral statement will not be a term in the contract even though it has been
discussed to be so
• Statements you make in T1 can have legal consequences if they are misleading/deceptive
o Statute law: provides avenue for redress against corporations

If the formation elements are present (agreement, certainty, consideration and intention) and no capacity/formality/privity problems: contract
can be enforced. The nature of the transaction is also highly relevant: rule of thumb states that the more complex the transaction and the more
unique it is the more will need to be agreed upon before the parties reach agreement. However: although the existence of agreement is
essential, it is not of itself sufficient, for an agreement may fail to take effect as an enforceable contract because other essential element is
missing such as contractual intention.

I. OFFER
NB: May not need offer if things are already agreed such as signed document. May be artificial to do an offer/acceptance analysis.
• Provided that the other requirements are met, contractual agreement exists when an offer made by one party is accepted by
another party
o Contract comes into existence when acceptance has been communicated to the offeror from the offeree
§ Up until that moment the party is free to withdraw without any contractual obligations
• An offer is a statement of a willingness by one party to be bound to the terms stated immediately on acceptance without further
negotiation
o Whether or not you have an offer can be determined objectively according to the outward manifestations of the offeror’s
intention
§ This depends on the interpretation of what has been said by the parties: OBJECTIVE
o Just because the document/statement uses the word offer is not conclusive that it is the offer
o Justice of Appeal Heydon in Brambles Holdings v Bathurst City Council: “An offer must take the form of a proposal for
consideration which gives the offeree the opportunity to choose between acceptance and rejection”
§ City council had language of command rather than proposal which could accept
o Australian Woollen Mills Pty Ltd v Cth: whether an offer has been made is a question of fact determined on a case by case
basis
• Invitation to treat, provision of information and a declaration of intention are NOT OFFERS
• An offer can be made to the whole world or to a more limited group (in ordinary transactions it is made to one person)
• Offer may be withdrawn at any time prior to acceptance if this is communicated to the offeree
o Applies even if the offer was stated to be open for a certain time – unless the other party has given consideration for that
promise (option contract)
§ Computer example: $1 clause. Are there two contracts?
o No express words required, revocation be inferred from conduct

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§ Dickinson v Dodds: What constitutes consideration of an offer? Don’t need personal communication to revoke
an offer/no special form of words is needed
• Unilateral contract/withdrawing offers: a unilateral contract is an offer you accept by performing
o General principle: offer made can be revoked any time before acceptance. But if accept by performance – is it enough to
start to perform or do I fully have to perform to be accepted?
o Abbott v Lance: Lance agreed to sell ship stations to Abbott (lived far away in 1860). Term of 2 months for Abbott to inspect
properties. Subsidiary term: if within 2 months Lance sold to someone else, Abbott entitled to 200 pounds as was intending
to purchase in that period. Abbott half way there when Lance said he had sold properties. Abbott neither inspected/made
an offer
§ Still entitled to 200 pounds
o Veivers v Cordingley: if acceptance requires the doing of an act/acts, then acceptance takes place when the offeree elects to
do the acts and the offer becomes irrevocable once the acts have been partly performed
§ Wise J at 1285: “…the general proposition [is] that an offer may be retracted before acceptance, because we
consider that the part-‐performance of the journey constituted a sufficient consideration to give the plaintiff a
right in the events that have happened’
o Alternative view – Mobil Oil v Lyndel Nominees (may be possible to revoke a contract)
• Rejection and counter-‐offers kill the original offer (but be sure it is really a rejection or counter offer): MUST LOOK AT WORDING.
Must be a complete rejection which can then lead to counter offer.

What is not an offer?
• Display of goods in a shop (invitation to treat)
o PBS Society of GB v Boots Cash Chemists Ltd (self-‐service stores)
o If the seller has only issued an invitation to treat, a reply to the invitation will at most be an offer (even if phrased in terms
of acceptance) which the seller has option to accept/rekect
§ Whether a statement is an offer depends on the interpretation reasonably to be placed upon it by someone in
the position of the receiver
o Question: can statement be taken as indicating an intention by the alleged offeror to be bound, without further discussion
or negotiation, on acceptance of the terms set out by the offeror?
• Since offering goods for sale is interpreted as being merely an invitation to treat, consumers will normally have no contractual
protection where there is ‘bait advertising’ à offeror does not intend to sell more than minimal quantities so may not even be
available
• A statement of government policy
o Australian Woollen Mills v Commonwealth

What constitutes an offer?
nd
• Leonard v Pepsico Inc 88 F Supp 2d (SDNY 1999), affirmed 210 F 3d 88 (2 Cir 2000)
o Plintiff sued PepsiCo Inc in an effort to enforce an ‘offer’ to redeem 7 000 000 Pepsi Points for a AV-‐8 Harrier II jump jet,
which PepsiCo had shown in a portion of a televised commercial that PepsiCo argued was intended to be humorous
§ Did the tv commercial with words 7 million pepsi words constitute an offer capable by acceptance of
performance?
• Statement of price: statement made by a seller in answer to an inquiry of the price at which he/she is prepared to sell goods may be
an offer if the seller indicates he/she is prepared to be bound without further negotiations and law will imply terms of issues such as
delivery time
o Yet the more valuable the subject matter of the transaction and the more complex the contemplated transaction the less
likely it is that a mere agreement on price will bind the parties
• An auctioneer who puts property up for sale is not offering to sell but is issuing a request for bids: EACH BID AT THE AUCTION =
OFFER and no contract formed until auctioneer accepts the highest bid
• Companies wanting to purchase bulk supplies of goods over a lengthy period of time will often advertise requesting tenders from
potential suppliers: contracts for carrying out of building/engineering works are frequently entered to in this way, as are ones with
govt bodies
o Person calling for tenders will usually give instructions (specifications) as to the form which the tender is to take and the
matters to be covered by the tender
• Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 -‐ advertisement
• PBS Society of GB v Boots Cash Chemists Ltd
o Offer made by customer (ie offer to purchase for stated price), not by Boots displaying items for sale on its shelves
• AWM v Cth
Offer is ineffective until it is communicated to the offeree. Kay LJ: “an offer to sell is nothing until it is actually received”. B may hear from C that A
intends to make an offer to him/her, and even though A may express an intention to make an offer to B, no power of acceptance is created in B
until A’s offer is communicated to B by A or someone acting with A’s authority.

How do you distinguish between an invitation to treat, provision of information, a declaration of intention and an offer?
Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd [1953] 1 QB 401
Facts:
• The defendants (respondents) conducted a retail pharmacy shop organized on a ‘self-‐serve’ basis. In one part of the shop drugs were
displayed on the shelves. This was described as ‘Chemist’s Dept’
• When the shop was open for the sale of drugs a pharmacist employed by the defendants was stationed at the Chemist’s Department
and was in view of the cash desks. Customers wishing to make a purchase selected goods from the shelves and presented them at
one of the cash desks situated at the exits. In every case involving the sale of a drug the pharmacist supervised the transaction at the
cash desk and was authorised by the defendants to prevent at that stage any customer from removing a drug from the premises
o S 18 of the Pharmacy and Poisons Act 1933 (UK) provided it was unlawful for a person to sell certain drugs unless ‘the sale
is effected by, or under the supervision of a registered pharmacist’
• The plaintiff’s (appellants) brought an action for a declaration that certain sales of drugs effected in the manner described
contravened s18
• CJ decided in favour of the defendants and on appeal it was affirmed
o Display of items on a ‘self-‐service basis’ was not an offer

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Held per Somervell LJ:

• There is a difference if supervision can only be exercised at a time when the contract is completed
o Is the contract to be regarded as being completed when the article is put into the receptacle, or is this to be regarded as a
more organized way of doing what is done already in many types of shops (customers free access to goods and choosing)
• In the case of an ordinary shop, although goods are displayed and it is intended that customers should go and choose what they
want, the contract is not completed until, the customer having indicated the articles which he needs, the shopkeeper, or someone on
his behalf, accepts that offer. Then, the contract is completed
• The transaction is in no way different from the normal transaction in a shop which there is no self-‐service scheme…it would be wrong
to say that the shopkeeper is making an offer to sell every article in the shop to any person who might come in and that that person
can insist on buying any article by saying ‘I will accept your offer’
o The mere fact that a customer picks up a bottle of medicine from the shelves does not amount to an acceptance of an offer
to sell. It is an offer by the customer to buy and there is no sale effected until the buyer’s offer to buy is accepted by the
acceptance of the price
§ The offer, the acceptance of the price and therefore the sale take place under the supervision of the pharmacist

Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424
What is put forward as consideration by the promisee must be referable to the promise sought to be enforced. There must be
sufficient connection between consideration and the promise which it is said to support.
Where reciprocal promises are exchanged for one another this creates no problems. However, in the case of unilateral
contracts, difficulties sometimes arise because it may be unclear whether the act was requested as the price of the promise
which the promisee seeks to enforce.
Consideration is a substantive requirement because it is a criterion for validity, not enforceability à so promises which we
might regard as attracting a moral obligation to perform do not become binding on that basis alone.

Facts:
• The P was a manufacturer of worsted cloth. Purchased large quantities of raw wool between 1939-‐1948. Claimed from the Cth sum
of 198871 pounds said to be due under a series of alleged contracts under which the Cth had promised to pay a subsidy. Claim
brought to original jurisdiction of HC and referred by Kitto J to Full Court
• WW2: British Govt purchased Australian wool clip with exception of wool needed for local manufacture. Purchase under the National
Security (Wool) Regulations (Cth) acquired all Australian wool. Any local manufacturer (such as P) which required wool therefore
forced to purchase from government rather than growers.
• Wartime arrangement was for wool to be purchased from the Central Wool Committee, for most part at prices less than those paid
to growers. Growers then received a subsidy and local manufacturers benefitted from the lower prices
• Envisaged normal wool sale prices – July 1947. But market forces would push prices up to disadv of local manufacturers like the P
and payment of a subsidy to local manufacturers = stockpiling of subsidized wool
• June/August 1946: Prices Commissioner announced Commonwealth subsidy plan with aim to maintain price of wool purchased by
Australian manufacturers for domestic use and amount of subsidy to be calculated by difference between current basic price of wool
for domestic production and average market price for each auction series
• 1947: Printed form sent to manufacturers asking for info on purchases for which a subsidy was claimed – made clear would be
refundable in respect of any wool used for the manufacture of goods not ‘eligible’ or ‘subsidised’ goods
o In response to P’s info the commission paid subsidies in 1946-‐47 and 1947-‐48 seasons
• Early June 1947: announced subsidy scheme would be discontinued as from the end of that month, after which time wool sales and
price regulation would be controlled by states. Government was concerned to see that wool on which a subsidy had been paid was
being used for manufacture of eligible goods
o Estimated stocks would be exhausted by Dec 1948 and manufacturers who had excess stocks would be asked to refund
subsidy payments à so Govt would only pay a subsidy in respect of wool actually used for eligible goods in this period
• Jan 1949: more forms sent to manufacturers, including the P. Forms from P disclosed had used wool from 1948-‐49 season after June
1948. No subsidy was payable in respect of such wool so deduction was made from amount of subsidy for which the P was eligible to
extent of 176153 pounds. Sum of 108871 credited, representing subsidy due but not paid and balance of 67282 ponds demanded
from P and eventually paid
• In statement of claim: P alleged promise by Govt that in its consideration that the P would purchase wool for domestic consumption,
Govt would pay a subsidy. Alleged P made purchases of wool ‘in pursuance of the said agreement’ and 108871 was due
• Issue for HC: whether the announcement of a Cth subsidy plan in 1946 was an offer and whether the P had provided consideration
by purchasing wool. Because of the requirement of referability, had to be considered whether there was a sufficient connection with
the announcement and purchases by the plaintiff
o The contract put forward was unilateral
o The issue of consideration arose in respect of an act (rather than a promise) put forward as consideration
Held by the Court:
• In [unilateral cases] it is necessary, in order that a contract may be established, that it should be made to appear that the statement
or announcement which is relied on as a promise was really offered as consideration for the doing of the act, and that act was really
done in consid of a potential promise inherent in statement/ announcement
o Between the statement or announcement which is put forward as an offer capable of acceptance by the doing of an act,
and the act which is put forward as the executed consideration for the alleged promise, there must subsist the relation of a
quid pro quo
• [Consideration] is essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable
duty
o In order that a contract may be created by offer and acceptance, it is necessary that what is alleged to be an offer should
have been intended to give rise, on the doing of the act, to an obligation
§ In the absence of such an intention, actual or imputed, the alleged ‘offer’ cannot lead to a contract
• It is impossible … to hold that any contract was constituted at any stage binding the Commonwealth to pay a subsidy to the plaintiff,
or to any manufacturer, in consid of a purchase of wool for local manufacture
• It is impossible to suggest that the Government ever contracted with manufacturers to sell them appraisement wool at less than
cost. The Government simply acquired wool and sold it to manufacturers at a price lower than it paid for it
• It is public moneys that are involved … if there was an intention on the part of the Government to assume a legal obligation, one
would certainly have expected statutory authority to be sought

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• [With documents] it is impossible to find anywhere anything in nature of a request or invitation to purchase wool , or anything which
suggests that the payment of subsidy and the purchase of wool were regarded as related in such a way that one was a consideration
for the other
o If we ask whether there is a promise offered in consideration of the doing of an act, as a price which is to be paid for the
doing of an act, we cannot find such a promise
• If we ask whether there is an implied request or invitation to purchase wool, we cannot say that there is. If we ask whether the
announcement that a subsidy would be paid was made in order to induce purchases of wool no such intention can be inferred
• Judgement for the defendant: P did not get subsidy payment
o HC considered claim could be resolved by reference to offer/acceptance or consideration but preferred to decide the case
on the basis no consideration had been provided

B Seppelt & Sons Ltd v Commission for Main Roads (1975) 1 BPR 9147
• Plaintiff negotiated with the defendant for the sale of land which the defendant needed in connection with the construction of a
proposed freeway. Number of letters passed between the parties and attention focused on a letter from the Commissioner dated 5
March 1974 which referred to a possible sale on terms set out in the letter
o Ended with the statement: it will be noted that the Department’s offer is in agreement with the valuation furnished to your
Company by Jones Lang and Wootton, which valuation was based on the assumption that the property is unaffected by any
proposals by the Department of Main Roads
• Mahoney JA: “…In my opinion, there are a number of matters which lead to the conclusion that the parties did not, by the letters in
question, have the relevant intention then to create a binding contract of sale … First it is inherently unlikely that they would have
done so … It would normally be expected that parties would not enter into a binding contract [for a sale] otherwise than by some
formally drawn contract”
o “Reliance was placed for the company upon the [word ‘offer] in the concluding paragraph of the letter … [T]he term
is…primarily directed to the tender of a consensus as to price, rather than the making of a contractual offer. The
significance of the term ‘offer’ is … to be assessed in the light of what had previously passed between the parties
concerning the formula for the ascertainment of the price to be paid;
• “The fact that the parties contemplated the transaction being dealt with by lawyers is not conclusive but it provides some basis in the
circumstances of this case for the inference that the parties intended the transaction to be dealt with by a formally-‐drawn contract of
sale”
• “It has been held in a case concerning a written contract, that what the parties have subsequently done is not material to be referred
to in construing the terms of that contract … However, in determining whether a contract has in fact been made by certain
correspondence, it has been held that subsequent acs of the parties can be referred to”

II. OFFER CAN BE MADE TO THE WHOLE WORLD OR A MORE LIMITED GROUP
Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256
Facts
• Defendants (appellants before CA) were proprietors and vendors of a pseudo-‐medical preparation called ‘The Carbolic Smoke Ball’.
Inserted in a number of newspapers an advertisement stating that an 100 pound rewards would be paid by the company to anyone
contracting epidemic influenza, colds or any disease caused by taking cold after having used the ball three times daily for 2 weeks
according to printed directions
o 1000 pounds deposited with Alliance Bank to show sincerity
• P bought a smoke ball at a chemist’s shop on the faith of advertisement and used it as directed for over 8 weeks. She contracted
influenza
• She sued the defendants to recover the 100 pounds and Hawkins J held she was entitled to succeed
• The defendants appealed the decision but it was dismissed
Defendant’s arguments:
• No promise was intended and advertisement was a ‘mere puff’ which meant nothing
• No offer made to any particular person
• Plaintiff had not notified acceptance of the offer
• Agreement was uncertain because it failed to stipulate a period within the disease must be contracted
• Plaintiff had not supplied any consideration for defendant’s promise
Held
Per Lindley LJ:
• The deposit called in aid by the advertiser as proof of his sincerity in the matter, that is his sincerity of his promise to pay the 100
pounds in the event which he has specified … there is a promise
• The words are offers to anybody who performs the conditions named in the advertisement and anybody who does perform the
condition accepts the offer. In point of law this advertisement is an offer to pay 100 pounds to anybody who will perform these
conditions and the performance of the conditions is the acceptance of the offer
• Is notice of acceptance required? This is a continuing offer …. And if notice of acceptance is required, the person who makes the offer
gets the notice of acceptance contemporaneously with his notice of the performance of the condition
o The true view in a case of this kind is that the person who makes the offer shows by his language and from the nature of
the transaction that he does not expect and does not require notice of the acceptance apart from notice of the
performance
• Is the language too vague and can it be construed as a promise? The true construction of the advertisement is that 100 pounds will
be paid to anybody who uses the smoke ball three times daily for two weeks according to the printed directions, and who gets the
influenza or cold or other diseases caused by taking cold within a reasonable time so after using it; and if that is the true construction
it is enough for the plaintiff
• Is it nudum pactum? If the public uses the advertisers’ remedy, and get the public to have enough confidence to use it, this will react
and produce a sale beneficial to them. The advertisers get out of use an advantage which is enough to constitute a consideration
• The defendants must perform their promise, and if they have been so unwary as to expose themselves to a great many actions, so
much the worse for them
Per Bowen LJ:
• The document is not a contract at all but only an offer made to the public. Does the vagueness of the document show no contract
was intended?

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• The intention was that the circulation of the smoke ball should be promoted and the use of it should be increased
• The immunity is to last during the use of the ball
• The 1000 pounds offer was intended to be understood by the public to be acted upon
• If a person chooses to make extravagant promises of this kind he probably does so because it pays him to make them, and if he has
made them, the extravagance of the promises is no reason in law why he should not be bound by them
• This is not a contract made with the world. It is an offer made to the world and why should not an offer be made to the world which
is to ripen into a contract with anyone who comes forward and performs?
o The contract is made with the limited portion of the public who come forward and perform the condition on the faith of the
ad
• If this is an offer to be bound, then it is a contract the moment the person fulfills the condition
• As an ordinary rule of law, the acceptance of an offer made ought to be notified to the person who makes the offer, in order that the
two minds may come together. Unless this is done the two minds may be apart, and there is not that consensus which is necessary …
to make a contract
o But there is this clear gloss to be made upon that doctrine, that as notification of acceptance is required for the benefit of
the person who makes the offer, the person who makes the offer may dispense with notice to himself if he thinks it
desirable to do so
o There can be no doubt that where a person in an offer made to him by another person, expressly or impliedly intimates a
particular mode of acceptance as sufficient to make the bargain binding, it is only necessary for the other person to whom
the offer is made to follow the indicated method of acceptance
§ If the person making the offer, expressly or impliedly intimates in his offer that it will be sufficient to act on the
proposal without communicating acceptance of it to himself, performance of the condition is a sufficient
acceptance without notification
• In advertisement cases: a person is not to notify his acceptance of the offer before he performs the condition, but if he performs the
condition notification is dispensed with
o Performance of the condition is sufficient acceptance without notification of it and a person who makes an offer in an
advertisement of that kind makes an offer which must be read by the light of that common sense reflection
o He does therefore in his offer impliedly indicate that he does not require notification of the acceptance of the offer
• Inconvenience sustained by one party at the request of the other is enough to create consideration
• It is consideration enough that the plaintiff took the trouble of using the smoke ball. Also the defendants received a benefit from this
user, for the use of the smoke ball was contemplated by the defendants as being indirectly a benefit to them because the use of the
smoke ball would promote their sale
SUMMARY:
• UNILATERAL CONTRACT: offer took the form of a promise in return for the doing of an act rather than a counter
promise
• Acceptance needs to be communicated, but in cases of this kind there is an exception. There only needed to be
ACCEPTANCE OF PERFORMANCE
• Ad didn’t specify time which could claim the award à use REASONABLE TIME. Do we gap fill as there is no specified
time in the advertisement?

III. ACCEPTANCE
• Acceptance is an unqualified assent to the terms of an offer
o Offeree is saying yes and cannot introduce new terms
o Acceptance must precisely correspond with the offer and any departure from the offer will result in purported acceptance
as being ineffective
§ Counter-‐offer can be formed and if accepted, contract
• Where a series of offers are put and rejected and replaced by counter-‐proposals, it will be a matter of pure chance as to which of the
parties is ultimately seen as offeror and which is offeree
• Acceptance must be communicated to the offeror (consider silence) but can be inferred from conduct
o Until acceptance communicated offeror can withdraw offer
§ Offeror may have authorised an agent to receive notification of acceptance and notice to the agent is treated as
equivalent of notice to offeror personally
§ The fact that the offeree has not yet informed the other party of a decision to accept will usually imply that the
offeree has not yet finally made a commitment
o It is sufficient if there is a clear indication that he/she is treating the offer as accepted, e.g. by informing the offeror that
good or materials have been ordered to commence performance
o The fact that an offeree has not yet informed the other party of a decision to accept will usually imply that the offeree has
not yet finally made a commitment
o Offeror may prescribe a method of acceptance and purported acceptance in any other manner is not effective
o An offeror cannot specify silence as a method of acceptance BUT silence by the offeree could be conduct indicative of
acceptance (as can take actions consistent with acceptance)
§ Silence is refraining to speaking and in particular circumstances failure to speak has consequences
§ Not signing is like a ‘silence’ yet if you have continued to perform and performance is consistent with accepting
contract this resembles acceptance
§ Seller without previous request sends goods to a person with a statement that the recipient will be assumed to
have agreed to buy the goods are not returned, recipient will be bound if goods are used or dealt with e.g. gift
• Acceptance must correspond with the offer i.e. parties must be of one mind to have an agreement and language used must clearly
convey a decision by the offeree to be bound by the terms of the offer
• Postal acceptance rule and whether it applies in the case of instantaneous communications/e-‐communications?
o Rule: at the time of acceptance, but does this apply in instantaneous communications or email?
• Knowledge of offer is required for acceptance
o Idea: words of conduct have to be indicated that saying yes to offer (trying to show objectively that parties have reached
agreement)
o R v Clarke
• ‘Battle of the forms’ : derived from standard forms

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o Buyer and seller may each use their own printed forms in negotiations for sale setting out the terms on which they propose
to deal, yet each party’s form will be drafted to protect its own interests so the forms will almost inevitably conflict
§ If a buyer accepts a seller’s form with a specific clause acting as a counter-‐offer which the buyer accepted, he is
bound to the seller’s terms and must accept conduct
AN OFFER MAY ONLY BE ACCEPTED BY THE OFFEREE.
1. IF AN OFFER DOES NOT STATE THE TIME LIMIT FOR ACCEPTANCE THE OFFER MUST BE ACCEPTED WITHIN A ‘REASONABLE
TIME’ – WILL LAPSE WHEN THAT TIME EXPIRES.
2. IN THE CASE OF DEATH OF AN OFFEROR – ACCEPTANCE ONLY EFFECTIVE IF MADE BEFORE THE OFFEREE RECEIVES NOTICE
OF THE DEATH.
3. OFFER CAN BE MADE SUBJECT TO A CONDITION THAT IT IS TO BE OPEN ONLY FOR LONG AS A CERTAIN STATE OF AFFAIRS
CONTINUES TO EXIST. CONDITION MAY BE EXPRESS OR IMPLIED.

Method of acceptance
• A person who makes offer can stipulate particular method of acceptance
• Acceptance must comply with such requirements in order to be effective
o However, acceptance if communicated in a way more favourable because it is quicker can be accepted
• Generally a contract cannot be forced on the offeree simply by stating that unless the offeror hears something to the contrary it will
take the offer as accepted: Felthouse v Bindley
• This general rule is qualified in Empirnall Holdings

(A) COMMMUNICATION OF ACCEPTANCE IS GENERALLY REQUIRED
Felthouse v Bindley (1862) 142 ER 1037
Principal of law: Establishes that the general ability to stipulate what constitutes acceptance does not mean that the offeror may impose a
contract on the offeree. An offeror cannot deem an offer to be accepted by mere silence.
Facts:
• J Felthouse was about to sell farming stock by auction. He discussed the sale of a particular horse to his uncle (the P). Following a
misunderstanding as to the price, the P wrote to his nephew on 2 Jan 1861 offering to buy the horse and saying ‘If I hear no more
about him, I consider the horse mine at 30 pounds 15 shillings.’
o Nephew did not reply but instructed the auctioneer (the D) that the horse had been sold
o At the auction sale the D by mistake sold horse to a third party
• The P sued the defendant in tort for conversion, alleging that prior to the auction the property in the horse had passed to him by
virtue of a contract of sale with his nephew. In effect, the plaintiff claimed that the defendant had without authority sold his property
o At the trial a verdict was found for the plaintiff
o The defendant obtained a rule nisi to enter a non-‐suit
• The issue for the Court of Common Pleas was whether the rule nisi should be confirmed. That would occur if appeal was dismissed
o Had the horse been sold to the plaintiff?
§ Depended on whether the plaintiff’s statement meant that a contract would arise if the nephew remained silent
§ Nephew was happy with the price, so subsidiary issue was whether decision to accept offer was sufficient
Held:
• Per Willes J: “It is clear therefore that the nephew in his own mind intended his uncle to have the horse at the price which he (the
uncle) had named – but he had not communicated such his intention to his uncle, or done anything to bind himself. Nothing,
therefore had been done to vest the property in the horse in the plaintiff down to 25 February, when the horse was sold by the
defendant
o There had been no bargain to pass the property in the horse to the P and therefore that he had no right to complain of the
sale
• Keating J: “As between the uncle and the auctioneer, the only question we have to consider is whether the horse was the property of
the plaintiff at the time of the sale … nothing had been done at that time to pass the property out of the nephew and vest it in the
plaintiff…”
• Order of Court of Common Pleas was ‘rule absolute’ – trial judge’s decision was confirmed and appeal dismissed
o D not liable in tort because he had not sold a horse which belonged to the plaintiff

(B) CORRESPONDENCE WITH OFFER
Illustrates: an acceptance conform to the offer, and content of that requirement.
Butler Machine Tool Co Ltd v Ex-‐Cell-‐O Corporation (Eng) Ltd [1979]
• Plaintiff sellers (respondents) sued the defendants to recover the additional sum of 2892 pounds for a machine they had delivered –
contract included a price variation clause. Defendant’s denied this, saying the contract made no such provision for price variation
• 23 May 1969: sellers offered to deliver a machine for 75,535 pounds. “Delivery: 10 months. Other terms and conditions are on the
reverse of this quotation” (16 on reverse) – ‘All orders are accepted only upon and subject to the terms set out in our quotation and
the following conditions. These terms and conditions shall prevail over any terms and conditions in the buyer’s order
o Clause 3: price variation. “Prices are based on present day costs of manufacture and design … we have no alternative but to
make it a condition of acceptance of order that goods will be charged at prices ruling upon date of delivery”
• 27 May 1969: buyers replied in order – “please supply on terms and conditions as below and overleaf”. Differences with those of
buyers and sellers such as cost of installation, delivery date, cost of carriage. Tear-‐off slip at the bottom: “Acknowledgment: please
sign and return to … We accept your order on the Terms and Conditions stated thereon and undertake to deliver by …”
• 5 June 1969: Sellers sent letter to buyers – “We have pleasure in acknowledging receipt of your official order … This is being entered
in accordance with our revised quotation of 23 may for deliver in 10/11 months. We return … your acknowledgement of order form”
• Machine ready Sep 1970 but the buyers could not accept delivery until Nov 1970 à sellers invoked price increase clause between 27
May 1969 and 1 April 1970
Held per Denning MR:
• Sellers rely on their general conditions and on their last letter. The buyers rely on the acknowledgment signed by the sellers which
accepted the buyers’ order ‘on the terms and conditions stated thereon’
o Quotation of 23 May was an offer by the sellers to the buyers containing terms and conditions. The order 27 May
purported to be an acceptance of that offer in that it was for the same machine at the same price, but it contained such
additions as to cost of installation and date of delivery: rejection of offer, counter offer

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o Letter of 5 June was an acceptance of the counter-‐offer, as is shown by the acknowledgment which the sellers signed and
returned
• ‘Battle of the forms’ à there is a contract as soon as the last of the form is sent and received without objection being taken to it
o Difficulty is to decide which form or which part of which form is a term or condition of the contract
o The terms and conditions of both the parties must be construed together: if they can be reconciled as to give harmonious
result, all is good. If differences are irreconcilable, so that they are mutually contradictory, then the conflicting terms may
have to be scrapped and replaced with a reasonable implication
• Sellers order: “terms and conditions shall prevail over any terms and conditions in the buyers order” à emphatic, buyer must have
agreed but documents have to be considered as a whole: June 5 showed that it was on the buyers’ terms without a price variation
clause
Lawton LJ:
• Return of the printed slip had the sentence: “This is being entered in accordance with our revised quotation … that refers to the
quotation as to the price and the identity of the machine, and it does not bring into the contract the small print conditions on the
back of the quotation. Those small print conditions had disappeared from the story
• That was when the contract was made: fixed price contract
• By the time they took physical delivery of the machine, they had made it clear by correspondence that they were not accepting that
there was any price-‐escalation clause in any contract which they had made with the P’s
• English CA – sale on the buyer’s terms. Appeal successful
BATTLE OF THE FORMS: If no contradictions = ok. If put them side by side and there are conflicting terms: examine them, take
them out, imply something to fill the gap. Undertake offer/acceptance analysis i.e. who made offer/who accepted.

(C) POST ACCEPTANCE RULE
This rule only applies to acceptance, NOT revocations of offers or acceptances.
Henthorn v Fraser [1892]: “Where the circumstances are such that it must have been within the contemplation of the parties that, according to
the ordinary usages of mankind, the post might be used as a means of communicating acceptance of an offer, the acceptance is complete as soon
as it is posted.”
• Acceptance is effective immediately a properly pre-‐paid and addressed letter is posted: contract is formed on posting even if the
offeror is then ignorant of that fact, and even though the letter is delayed in transmission, or may be lost in the post and never
delivered
o However: just because acceptance is made by post does not mean that the postal acceptance rule applies
RULE ONLY APPLIES WHEN PARTIES CONTEMPLATED THAT ACCEPTANCE WOULD BE COMMUNICATED BY POST.
• In most cases the parties will be ignorant of the rule and the relevant question is whether it can reasonably be inferred that the
parties contemplated the likelihood of acceptance by post rather than whether they contemplated the legal effect of such a method
of acceptance
• Become increasingly common for business communications to be conveyed by means of courier services and it may be that, where
communication in this manner is shown to have been contemplated by the parties, the manner of transmission of the offer or from
practice in previous dealings between them a letter of acceptance: effective once handed to the courier
• Where delay is caused by the offeror giving a wrong/incomplete address it would seem that at least where the error is not one which
would have been obvious to the offeree, the acceptance will be effective on posting even though delivery is delayed because of use
of incorrect address
o The rule also protects the acceptor against the risk of it being lost in the post and never reaching the offeror (Household
Fire and Carriage Accident Insurance Co (Ltd) v Grant (1879))
• If it is contemplated that acceptance will be by post, it may well be that an acceptance, though not effective on posting, will
nonetheless take effect on delivery to the offeror’s address even if not read until later
THE RULE PROTECTS THE OFFEREE AGAINST RISK OF DELAY/LOSS IN TRANSMISSION OF A LETTER AND AGAINST REVOCATION OF AN OFFER
ONCE ACCEPTANCE HAS BEEN POSTED.
• Consider: can a phone call/fax revoke an offer?
• This rule applies to telegrams from post office

Bressan v Squires [1974] 2 NSWLR 460
• All that needs to be in contemplation of the parties is the post as a made, indeed as a possible or permitted mode, for the law to
impose the consequence that the contract is concluded by the action of posting
• It is not required that it should be within the contemplation of the parties that action of posting should have the consequence of
concluding the K
• Courts in more recent times and in the light of the modern means of communication have shown no disposition to extend the
exception
Can an offeree who has posted an acceptance withdraw it, by phone, fax or email before it arrives?

Brinkibon v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34
Facts
• The appellants wished to sue the respondents for a breach of contract for the sale by the respondents to the appellants of a quantity
of steel bars
• Respondents had no place of business in England: appellants had to apply for leave to issue a writ and to serve notice of it on the
respondents out of the jurisdiction à was it made in England?
• Relevant communications between the parties:
o Telex dated 3 May 1979 from respondents in Vienna
o Telex from appellants in London, 4 May 1979
• Argued that telex (1) amounted to counter-‐offer but telex (2) acceptance
• Did telex (2) give rise to a contract formed in England?
Held
Lord Wilberforce:
• The question is whether an acceptance by telex from London but received in Vienna causes a contract to be made in London/Vienna
• General rule: contract is formed when acceptance of an offer is communicated by the offeree to the offeror and the contract is
formed where acceptance is communicated to the offeror

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o With postal acceptance rule: the place and the time of acceptance should be where the acceptance put into charge of post
office
• The present case is the simple case of instantaneous communication between principals and in accordance with the general rule,
involves that the contract (if any) was made when and where acceptance was received. This was on 4 May 1979 in Vienna
Lord Fraser of Tullybelton:
• An acceptance sent by telex directly from the acceptor’s office to the offeror’s office: treated as if it were instantaneous
communication between principals, like a telephone conversation
• Once the message has been received on the offeror’s telex machine, it is not unreasonable to treat it as delivered to the principal
offeror because it is his responsibility to arrange for handling of messages
• A party (acceptor) who tries to send a message by telex can generally tell if his message has not been received on the other partys’
machine
• HL dismissed the appeal: any contract formed by the exchange of telexes was formed in Vienna

(D) KNOWLEDGE OF OFFER REQUIRED FOR ACCEPTANCE?
R v Clarke (1927) 40 CLR 227
Facts
• Govt of WA (defendant, appellant before HC) offered a reward of 1000 pounds for ‘such information as shall lead to the arrest and
conviction of the person or persons who commited the murders’ of two named policemen’ – Governor would be advised to also
extend a free pardon to ‘any accomplice not being the person who actually committed the murders who shall first give the required
information’
• Clarke and another man Treffene were arrested in connection with one of the murders à Clarke made a statement to the police
concerning the two murders and so Treffene and another man in Clarke’s statement were convicted for the murder of one of the
policemen
o Clarke subsequently released from custody
o No charge was ever brought in connection with other policeman
• Clarke claimed the reward and at trial he gave evidence in accordance with his statement. SC of WA found in favour of the Crown.
Clarke appealed and won, then Crown appealed to HC
• Was the Full Court correct? Could Clarke establish a contract? Could Clarke say he had done the acts stipulated in the offer of reward
as acceptance? Looked to be the case
• Appeal was allowed – Clarke not entitled to reward
Held:
Isaacs ACJ
• [Clarke] was acting with reference to a specific criminal charge against himself, and not with reference to a general request by the
community for information against other persons
o It is true that without his information and evidence no conviction was probable, but it is also abundantly clear that he was
not acting for the sake of justice or from any impulse of conscience because he was asked to do so but simply and solely on
his own initiative
• He has, in my opinion, neither a legal nor moral claim to the reward
• Clarke never accepted or intended to accept the offer in the proclamation, and unless the mere giving of the information without
such attention amounted in law to an acceptance of the offer or to performance of the condition there was neither ‘acceptance’ nor
‘performance’ and therefore there was no contract
• Motive, though not to be confused with intention, is very strong evidence of that state of mind, both in civil and criminal matters
• It is unquestionable that to create a contractual obligation there must be both offer and acceptance. It is the union of these which
constitutes the binding tie. The present type of case is no exception
• It is not true to say that since such an offer calls for information of a certain description then provided only information of that
description is in fact given, the informant is entitled to the reward. That is not true unless the word ‘given’ is interpreted as ‘given in
exchange for the offer’
o Performance in that case is the implied method of acceptance, and it simultaneously effects double purpose of accept/
performance
• The controlling principle then, is that to establish the consensus without which no true contract can exist, acceptance is as essential a
offer, even in the present case where the same act is at once sufficient for acceptance and performance. But acceptance and
performance of condition … involve that the person performing and accepting must act on the offer
Higgins J
• Clarke gave false information in order to screen the murders … these statements of Clarke show clearly that he did not intend to
accept the offer of the Crown, did not give the information on the faith of or relying on the proclamation. He did not mentally assent
to the Crown’s offer
o There was no moment of time at which there was till after the information was given as between Clarke and the crown a
consensus of mind
• There cannot be assent without knowledge of the offer, and ignorance of the offer is the same thing whether it is due to never
hearing of it or due to forgetting it after hearing
• Clarke did not act on the faith of, in reliance upon, the proclamation: and although the exact fulfillment of the conditions stated in
the proclamation would raise a presumption that Clarke was acting on the faith of, the reliance upon the proclamation, that
presumption is rebutted by his own express admission
Starke J
• Unless a person performs the conditions of the offer, acting upon its faith or in reliance upon it, he does not accept the offer and the
offeror is not bound to him
• As a matter of proof any person knowing of the offer who performs its conditions establishes prima facie an acceptance of that offer
.. it is an inference of fact and may be rebutted by evidence
• Findings of the Chief Justice show that he did not act on the faith of or in reliance upon the offer and we are unable to disturb that
finding

IV. DURATION OF OFFERS
A purported acceptance may fail to create a contract because the offer has ceased to be effective. This may have occurred for a number of
reasons including:

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• Lapse of time

• Positive withdrawal by the offeror
• Rejection
• Failure of a condition

(A) REVOCATION
An offer may be withdrawn at any time prior to acceptance if it is communicated to the offeree. This is even if it is expressly stated to be open for
a certain period. However, options must be kept open for the agreed time because consideration has been paid. Revocation is made effective by
the offeree being informed that the offeror does not want to proceed with the contract. Any clear indication of this intention is sufficient.
Revocation is not effective until communicated to the offeree (or someone who is authorised by the offeree to receive such communications) à
where the postal acceptance rule applies an acceptance will be effective on positing even though before that time the offeror has sent a letter
revoking the offer. There can be no contract if the offeree has received the letter of revocation before posting an acceptance

Although a revocation of an offer is ineffective unless communicated to the offeree it is not essential that the communication be made by the
offeror:
Dickinson v Dodds (1876) 2 Ch D 463
Facts:
• On Wed 10/06/1874: Dodds (one of the two defendants in the appeal) delivered to the plaintiff (respondent) a document which
stated ‘I hereby agree to sell to Mr George Dickinson (a certain property described in the document) for the sum of 800 pounds”
o To the document was added a signed postscript: “This offer to be left over until Friday 9 o’clock am 12 June 1874”
• On Thursday afternoon Dickinson was told by one Berry that Dodds had been offering or agreeing to sell the property to Allan (other
D). That evening, Dickinson went to the house where Dodds was staying and left with Dodd’s mother-‐in-‐law a formal written
acceptance
o Dodds replied it was too late as he had sold the property
o It appeared that on the previous day Dodds and Allan had in fact entered into a formal contract for the sale of the property.
Dickinson sought specific performance
• Bacon VC held that there was a binding contract for the sale by Dodds of the property to Dickinson. He ordered specific performance
and made a declaration that Allan had no interest in the property. Both Dodds and Allan appealed to the English Court of Appeal
o Issue in appeal: whether Dickinson had agreed to purchase the property. That depended on whether his acceptance of
Dodds’ offer was given in time. That depended on whether Dodds had effectively revoked the offer
• The appeal would be allowed if Dodds had communicated revocation. However, there was no direct communication so the critical
issue was whether his revocation was effective because Dickinson got to know of it
Held:
• (James LJ): The document was nothing but an offer and was only intended to be an offer for the plaintiff required time to consider
whether he would enter into an agreement or not
o There was no consideration given for the undertaking or promise, to whatever extent it may be considered binding, to keep
the property unsold … but apparently Dickinson was of opinion, and probably Dodds was of the same opinion, that he was
bound by that promise and could not in any way withdraw from it, or retract it, until 9 o’clock on Drisay morning
• This promise, being a mere nudum pactum, was not binding, and at any moment before a complete acceptance by Dickinson of the
offer, Dodds was as free as Dickinson himself
• It must be an express and actual withdrawal of the offer…it must, to constitute a contract, appear that the two minds were at one, at
the same moment of time, that is, that there was an offer continuing up to the time of the acceptance. If there was not such a
continuing offer, then the acceptance comes to nothing
o The plaintiff knew that Dodds was no longer minded to sell the property to him as plainly and clearly as if Dodds had told
him in so many words ‘I withdraw the offer’
• Before there was any attempt at acceptance by the plaintiff, he was perfectly well aware that Dodds had changed his mind, and that
he had in fact agreed to sell the property to Allan. It is impossible therefore to say that there was ever the existence of the same mind
between the two parties which is essential in point of law to the making of an agreement
• (Mellish LJ): The law might be right or wrong in saying that a person who has given to another a certain time within which to accept
an offer is not bound by his promise to give that time; but, if he is not bound by that promise, and may still sell the property to
someone else, and if it be the law that, in order to make a contract, the two minds must be in agreement at … the time of the
acceptance, how is it possible that when the person to whom the offer has been made knows that the person who has made the offer
has sold the property to someone else, and that, in fact, he has not remained in the same mind to sell it to him, he can be at liberty to
accept the offer and thereby make a binding contract?
• Appeal allowed

Goldsborough Mort & Co Ltd v Quinn (1910) 10 CLR 674
Facts
• The defendant gave the plaintiffs an opinion dated 8 Feb 1909 in the following terms:
“I, quinn, in consideration for the sum of five shillings paid to me hereby grant to GM&C the right to purchase the whole of my
freehold…lands…within one week from this date at the price of 1 pound 10 shillings per acre, calculated on a freehold basis and subject to the
usual terms and conditions of sale relating to such lands, and upon the exercise of this option I agree to transfer the whole of the said lands to
GM&C or its nominee”
• The defendant said that before the expiration of the week, and before acceptance of the offer by the plaintiffs, he informed the P’s
solicitors that he revoked the offer, alleging it had been made under a mistake
o Plaintiffs accepted the offer within a week
• P sought specific performance in SC of NSW: Claim dismissed. Appealed to HC. Was the defendant entitled to revoke the offer?
Held
Griffiths CJ:
• All agreements consist of an offer made by one party and accepted by the other. The offer and acceptance may be contemporaneous
or the offer be made under such circumstances that it is to be regarded as a continuing offer subsisting at the moment of acceptance.
At the moment when there is consensus ad idem, that is, a contract
o OFFER -‐ WITHDRAWN AT ANY TIME BEFORE ACCEPTANCE
• Mere promise to keep it open makes no difference, because there is as yet no agreement and the promise, if made without some
distinct consideration, is not binding. But if there is consideration for the promise it is binding

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• A contract for valuable consideration to sell the property upon the condition that the other party shall within the stipulated time
bind himself to perform the terms of the offer embodied in the contract
• If the only promise were a promise not to withdraw the offer, there is difficulty in saying that a breach of it could not be properly
compensated for in damages
O’Connor J:
• It is an agreement to sell on a condition subsequent, the condition being the acceptance of the other party within the time named
o The appellant’s right under contract is to accept within one week, and having fulfilled the condition they were entitled to all
benefits under the contract. The respondent’s refusal to perform his part by withdrawing his undertaking and preventing
the appellants from accepting was a breach which entitled them to make an action for damages at the law or decree for
that relief
• BUT DOCUMENT CAN BE SEEN AS: if it was an offer to sell on the terms embodied in the contract. The respondent on the face of it
undertakes for valuable consideration to keep it open for a week. During that he cannot lawfully withdraw it à established in
contracts
• The respondent having withdrawn the offer during the week is liable at law to an action depriving the appellants of their right of
acceptance
• Nothing in the form to disentitle the appellants from obtaining a decree for specific performance of the whole agreement to as full
an extent as if the option was still subsisting at the date of acceptance
Isaacs J:
• Contract 8 Feb 1909: option: promise founded on valuable consideration to sell land on stated terms within a given time
• Feature which distinguishes an option from a mere offer is the consideration à that does not alter the nature of the offer, it merely
ensures its continuance, by creating a relation in which the law forbids the offeror retracting it
• He has parted with the right to alter his mind for the period limited, and he cannot in breach of his contract be heard to say the
contrary. His offer must therefore be deemed not to stand
o To hold otherwise: equivalent to saying he had not sold to the promisee an option but only the promise to give an option
• The interest which the optionee possesses is not the same as that of a purchaser, but it is something real and substantial, and
beyond the power of the grantor of the option to withdraw
• The offer is irrevocably fixed for the period agreed upon
o Consequence is that: in contemplation of law the offer was not withdrawn and when linked with the acceptance, the
necessary mutual contractual obligation to sell and purchase the land on the stipulated terms was created
• Parties: two separate contracts. The first was a unilateral contract that a certain offer should last for a week, and in this contract
consideration was five shillings. The appellants had no obligation beyond the consideration, the respondent none but to continue
offer for the stipulated time à had there been any attempt by the respondent to dispose of the land to another during that period he
may have been restrained by injunction because the affirmative promise to the appellants necessarily implied an undertaking not to
sell to another
• In the absence of such an attempt the remedy was in the appellants’ own hands. They could at any moment before the expiration of
the period agreed upon by simple acceptance convert their position of optionees into that of absolute vendees with mutual
obligations
o Change of position has been effected by the act of the party entitled and therefore the remedy of specific performance of
the primary agreement is not only unnecessary and inappropriate but impossible – thereis nothing in that agreement to
perform
o Its terms must be looked at but only to ascertain the offer, which with acceptance constituted the latter and distinct
contract
• Appeal allowed – appellants entitled to an order for specific performance
Griffiths: one contract (specific performance – perform your promises). O’Connor had the same view.
Isaacs: two separate contracts. There is a right for breach of the first contract. But before accepting the second contract, Quinn revoked offer –
Isaacs would not have given specific performance.
WHAT OBJECTIVELY WAS THE INTENTION OF THE PARTIES?
If option is part of one contract with the other offer, then breaching the option breaches that contract if the other party accepts.

If a contract is a ‘unilateral’ contract (promise to be made in return for the performance of an act) and the act has been performed, can the offer
be revoked?
• Abbott v Lance: an offer of unilateral contract should be read as containing an implied subsidiary promise that the offer will not be
revoked once performance has commenced

Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) 153 ALR 198
• It has been suggested to be unjust that an offeror should be at liberty to revoke the offer once performance of the act, which is at
once the act of acceptance and the executed consideration has commenced
• The respective positions of offeror and offeree vary greatly from one case of one unilateral contract to another
o The offeror may/not know offeree has commenced performance
o The offeree may/may not have an understanding that the offeror is at liberty to revoke and that any incomplete
performance of the act of acceptance by the offeree will be at his/her own risk
o Notion of ‘commencement of performance of the act of acceptance’ or embarking upon the act of acceptance is
problematical and can lead to a result which is unjust to the offeror
o The act called for by the offer may be detrimental to the offeree, or of some benefit to the offeree and the offeror
o Although the offeree is not obliged to perform or continue performing, the act of acceptance and is at liberty to cease
performance at any time, the offeror remained bound, perhaps over a lengthy period .. to keep its offer open for
completion of the act of acceptance without knowing whether the offeree will choose to complete or not to complete that
act
o The circumstances of the particular case may or may not by reference to the conventional criteria suggest that the parties
intended that the offeror should not be at liberty to revoke once the offeree had performed the act of acceptance to some
extent
• A juristic basis which has been suggested to support the general proposition is that of an implied ancillary unilateral contract by which
the offeror promises not to revoke once the offeree commences the act of acceptance of the principal offer
o But even if such an ancillary contract should be implied in all cases, it is one thing to say that there is a contractually binding
promise not to revoke and another to say that a purported revocation wil be ineffective

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• Normal remedy for revocation of the breach ancillary contract would be an award of damages, the amount of which would be
assessed, by reference to the prospect that the act of acceptance would have been completed and by the same act, the offered
promise ‘duly paid for’
• It might be possible for the offeree to seek specific relief in the form of an injunction restraining the offeror from revoking the offer
and preventing the offeror from providing the executed consideration
• It should not be thought that the absence of a universal rule is unjust. In the circumstances of a particular case, it may be
appropriate to find that the offeror has entered into an implied ancillary contract not to revoke or that the offeror is estopped
from falsifying an assumption, engendered by it, that the offeree will not be deprived of the chance of completing the act of
acceptance

(B) REJECTION, LAPSE, NON-‐OCCURRENCE OF CONDITION AND DEATH
• Rejection: an offer is terminated once rejected by the offeree
o The offeror can assume that the offer is no longer open to acceptance and that there is no need to revoke: a counter-‐offer
is treated as impliedly rejecting an offer
§ Any subsequent attempt by the offeree to accept: counter-‐offer which the original offeror is free to accept or
reject
o Rejection would operate to terminate an offer only when received by the offeror – there is no authority about the situation
where an offer is rejected by letter and then a letter purportedly accepting is subsequently posted
• Lapse of time: an offer will sometimes lapse because time has passed, even though the offeror has not revoked the offer – the
stipulation of a time period where an offer can be revoked, while not preventing earlier revocation by offeror, has the effect that
offer automatically lapses on the expiry of that period, with the result that a later acceptance is ineffective
o Where no time for acceptance is prescribed in the offer, the offer must be accepted within a ‘reasonable time’ (Ballas v
Theophilos (No 2) (1957)) – what is reasonable depends on circumstances
§ This is generally accepted to be an implied term in the offer (Meynell v Surtees (1855)) but it has more recently
been held that a better explanation is that if the offeree does not accept within a reasonable time he or she
must be treated as having rejected it (Manchester Diocesan Council v Commercial & General Investments Ltd
[1970])
• This allows courts to consider facts as they existed at time the offer was made and facts occurring
later
o Where acceptance made too late: usually be possible to regard the purported acceptance as a counter-‐offer which the
original offeror may choose to accept
• Conditional offers: an offer may be made subject to an express/implied condition that the offer is to be open only for so long as a
certain state of affairs continues to exist: if the state of affairs ceases to exist, the offer automatically lapses i.e. where a person
makes an offer for the purchase of goods, often proper to infer that the offer was made conditionally on the goods remaining in
substantially the same condition until accepted
• Death of offeror/offeree: little authority
o Sometimes stated without qualification that an offer may not be accepted after the offeror’s death (Dickinson v Dodds),
acceptance will be effective if the offeree accepts before receiving notice of the death of the offeror (Fong v Cilli (1968))
o An offer is not capable of acceptance by the executor or personal rep of a deceased offeree, on the basis that the offer is
intended to be made to a living person (Reynolds v Atherton (1921))

Stevenson, Jacques & Co v McLean (1880) 5 QBD 346
Facts:
• Seller offered to sell goods for cash
• Buyer telegraphed asking whether the seller would consider credit terms
• Although the seller treated this as a rejection, and sold the goods elsewhere, before the seller communicated this fact the buyer
purported to accept the offer by telegram
o Was the buyer’s first telegram a rejection? Held as no
Held:
• There is nothing specific by way of offer or rejection, but a mere inquiry, which should have been answered and not treated as
rejection

V. UNCERTAINTY AND INCOMPLETENESS
(A) GENERALLY
Uncertainty: The court may be unable to give the parties’ language a sufficiently precise and clear meaning in order to identify the scope of the
rights and obligations agreed to. In such a case there is in fact no concluded agreement and the alleged contract will be held to be void for
uncertainty.
Incompleteness: Even though the language is perfectly clear in its meaning, if some important part of the transaction is yet to be agreed upon
there is no completed agreement and the alleged contract will fail for incompleteness.
• Generally: the courts strive to give effect to contracts wherever possible
• Many important business agreements made informally and will often use language which may seem adequate to the commercial
parties
o Courts try to uphold agreements, especially commercial ones (Hillas & Co Ltd v Arcos Ltd (1932) per Lord Tomlin at 512)
• The courts are faced with a conflict between the desire, on the one hand, to avoid making efforts to enforce an uncertain/incomplete
agreement so that what is enforced is something that the parties did not agree to and on the other hand to uphold reasonable
expectations of parties who believe they had a contract to avoid ‘the reproach of being the destroyer of bargains’ (Hillas & Co Ltd v
Arcos Ltd (1932))

• Contract must be
o Sufficiently certain (if terms are uncertain: can support finding that parties have not reached an agreement or no intention
to create legal relations. Principles used separately, but with overlap)
§ Can the terms be given a meaning? Upper Hunter
§ Note ‘subject to’ clauses may raise issues here
o Sufficiently complete
§ If gaps can court imply a term? Not an essential term

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§ If machinery in clause of essential term: does it work?

§ Note preliminary agreements: Masters v Cameron
o No illusory promises – consideration/certainty
§ Party does not retain the discretion as to whether or not they will perform the promise
• Relevant to issue of certainty/consideration

1. CONTRACT MUST BE SUFFICIENTLY CERTAIN
The key principle is that in order to be enforceable as a contract an agreement must be sufficiently certain, that is not too vague or uncertain that
no meaning can be given to it. The issue is one of construction. In practice the technique for applying this principle is to draw two distinctions:
(1) between uncertainty and difficulty in interpretation/application;
(2) between material (or essential) terms and non-‐material terms
Materiality is a relative concept and the question depends on the intention of the parties. If the term is not a material/essential term it is
severable.
Certainty is a question of degree
• Parties do not need to dot every “I” and cross every “t”
o Courts can fill in gaps
o Courts can resolve ambiguities
o Courts will endeavour to uphold the validity of agreements: Hillas & Co Ltd v Arcos Ltd
• But there is a limit to what courts will do
o Courts will interpret the language used broadly and fairly, especially when approaching a document drafted by laypersons
(Hillas v Arcos) à place a reasonable meaning on language unless ‘utterly impossible’ (Brown v Gould [1972] at 57)
§ As long as it is capable meaning, it will ultimately bear that meaning which the court or in an appropriate case,
an arbitrator decides is its proper construction
§ So long as the language is not ‘so obscure and incapable of any definite or precise meaning that the court is
unable to attribute to the parties any particular contractual intention’ (G Scammell & Nephew Ltd v Ouston
[1941]) the contract cannot be held to be void, uncertain or meaningless
o Courts are reluctant to write K for parties: Biotechnology Australia Pty Ltd v Pace per Kirby P
§ This means have not yet reached agreement
• Provisions which are apparently vague or uncertain can frequently be given substance if there is some external yardstick or standard
which will give the content of the agreement a more precise definition (Placer)
• Reasonableness standard can be brought in i.e. Hillas v Arcos

Judicial attitudes differ
• Courts should not resolve issues parties have failed to resolve: Fullagar J in Hall v Busst
o “The three essential elements are the parties, the subject matter and the price. If, but only if, these are fixed with certainty,
the law will supply the rest”
• Filling in a gap by reference to what is reasonable is going too far: Kirby P in Biotechnology Australia
• Some judges are prepared to uphold uncertain K: Barwick CJ in Upper Hunter District Council: “As long as it is capable of a meaning
…”

Language is uncertain
• A term of the contract is expressed in vague/uncertain language
• Courts cannot enforce contract if they cannot identify the obligations of the parties with some degree of precision
• Courts do not take a narrow or pedantic approach to this requirement and will attribute a meaning unless it is impossible to do so,
especially in the case of commercial agreements : Upper Hunter
• Hall v Busst?????
• ‘Reasonable’ depreciation???
o Many methods of depreciation all of which are ‘reasonable’ -‐ clause is therefore uncertain
• In many cases the exact implications of a phrase will be uncertain in the sense that its exact implications in a given situation may only
be seen when certain unascertained facts have been ascertained
• Language is uncertain when the operation of the agreement is unclear either because there is no set of facts upon which it can
operate or because there is more than one set of facts and the agreement does not indicate which set of facts it should operate
• Arrangement where P looks after elderly person for the rest of their life in return for a vague promise/future reward?
o Vague: uncertain to be contractual
o Wakeling v Ripley: husband and wife asked by wife’s brother to come to Australia and live with him in return for promise to
leave them with all his property on his death and provide with home and ‘living’ à performance, and serious steps (sold
home in England and husband resigned job) – intended to be legally enforceable

Upper Hunter County District Council v Australian Chilling Freezing Co Ltd (1968) 118 CLR 429
Facts
• Upper Hunter District Council (appellant before the HC) entered into an agreement for the supply of bulk electricity to the
respondent-‐purchaser
• The agreement stated the price to be paid per kilowatt hour, with the provision for that rate to be increased/decreased according to
certain formulae set out in the agreement, for variations in certain wage rates and prices for coal. Clause 5 provided:
o “It is agreed that during the term of this agreement if the Supplier’s costs shall vary in other respects than as has been
herein before provided the Supplier shall have the right to vary the maximum demand charge and energy charge by
notice in writing to the Purchaser giving not less than 14 days before the commencement of any month after the data
hereof such varied rates to take effect from the commencement of that month”
• Clause 18: provided for arbitration ‘in the event of any dispute or difference arising’ between the parties ‘in regard to the construction
of this Agreement or any other question matter or thing arising hereunder’
• Council: served on the purchaser a notice varying its charges
o Purchaser required the matter to be referred to arbitration under c18 and arbitraror stated a case to the NSWSC: saying cl 5
was meaningless and void for uncertainty
Held (per Barwick CJ):

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• A contract of which there can be more than one possible meaning or which when construed can produce in its application more than
one result is not therefore void for uncertainty
o As long as it is capable of a meaning, it will ultimately bear that meaning which the courts or in an appropriate case an
arbitrator decides its proper construction … and application
o The question becomes one of construction: of ascertaining the intention of the parties and applying it
• So long as the language is not ‘so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to
the parties any particular contractual intention’ (G Scammell & Nephew Ltd v Ouston per Lord Wright) contract cannot be held to be
void/uncertain/meaningless
o In search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial
arrangements
• The concept of a cost of doing something is certain in the sense that it provides a criterion by reference to which the rights of the
parties may ultimately and logically be worked out, if not by the parties then courts
• In this case the contract itself provided the means of any resolution of any question as to what items constituted the suppliers’ costs,
namely by the decision of an arbitrator whose judgement as to whether or not there had been variation in terms of expenditure
which were embraced in what he found to be the suppliers’ costs was agreed to be final/binding
• No doubt a list of items of cost and of the means of determining whether or not a variation of an item has taken place or even a
formula for determining what fraction of the variation of an item of expenditure should be included as an addition to the charges
would make the application of the expression ‘variation in suppliers’ costs’ both easier and less controversial
o But if parties are unable or unwilling to engage in such particularity, the expressions chosen in cl 5 to my mind clearly
indicate what they intend
• Appeal allowed
Principles:
• A contract of which there can be more than one possible meaning or which when construed can produce in its application more than
one result is not therefore void for uncertainty
• As long as it is capable of a meaning, it will ultimately bear that meaning which the courts in an appropriate case, or an arbitrator will
decide in its application
• The question becomes one of construction of ascertaining the intention of the parties (nb: objectively) and of applying it
• In examining the meaning of words in a contract courts do not take a narrow or pedantic approach to this requirement and will
attribute a meaning unless it is impossible to do so

Hillas v Arcos Ltd (1932) 147 LT 503
• Buyers agreed to buy from Russian sellers ‘22000 standards of Russian softwood goods of fair specification over the season 1930’
• Agreement also contained an option for the buyers to take a further ‘100,000 standards for delivery during 1931’
• Option clause did not specify what kinds, sizes or qualities of timber were supposed to be supplied nor did it define the dates and
ports of shipments and discharge
• HL: option must be read as requiring the standards to be ‘of fair specification’ and that in the case of the parties disagreeing the
courts would ascertain what quality, times of delivery etc would be reasonable in the circumstances
o Court was influenced by the fact that the parties believed they had reached agreement
o Fact that the parties themselves had, by their actions in carrying out the sale and purchase under the initial part of the
contract attributed meaning to the agreement
• Where an agreement has been partially performed: courts reluctant to hold it as void for uncertainty

2. CONTRACT MUST BE SUFFICIENTLY COMPLETE
Contract must be sufficiently complete
• No contract unless parties have reached agreement on all essential terms: Thorby v Goldberg
o E.g in a contract of sale – price is a vital element and therefore there will be no contract if the parties provide that price is to
be agreed upon at some future date
• Where parties have agreed to the essential terms and other matters are left to be determined by one side’s solicitors, the contract is
valid, at least where it is expressly or impliedly provided that the solicitors must act reasonably (Sweet & Maxwell Ltd v Universal
News Services Ltd [1964])
• A seemingly incomplete agreement may be enforced because the courts will imply in the contract terms relating to essential matters
which the parties have not expressly dealt with: implied from law/facts
o On the other hand, ‘the law does not permit a court to imply a term into a bargain between parties for the purposes of
making their bargain an enforceable contract’ (Australia and New Zealand Banking group v Frost Holdings Pty Ltd [1989])
§ If contract is one with lawyerly familiarity courts may feel confident enough in their ability to fill in the gaps
which the parties have left, but they may be reluctant to imply a term if the contract is a novel or complex
commercial undertaking dependent on factors ‘incapable of being readily valued according to pre-‐existing or
reasonable ascertainable standards’ (Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992))
o In May & Butcher Ltd v R: agreement for the sale of tentage at prices to be agreed upon was held unenforceable because
price was a vital term that still had to be agreed upon between parties
• Three sub-‐issues:
o Is the term an essential term?
o Why has the term been left out?
§ Because not yet negotiated? (no agreement)
§ Some parties will only contract when essential terms are included in a contract
o Wholly executory K cf contract partially/fully performed by one of the K parties?
“It is an objection to a contract if one party is left to choose whether he will perform it but it is an entirely different matter if there is an obligation
to do a specified thing of a general description but it is left to the party who is to perform it to choose the particular thing that he will do in
performance of it. An arrangement with an artist that he should for a specified fee paint a portrait of a particular person if the artist, upon seeing
the proposed sitter, should decide to do so would be no contract to paint a portrait whereas an arrangement that the artist would for a specified
fee paint a portrait of such person as he, the artist, should choose would be a contract” (Thorby v Goldberg per Menzies J)

Certainty requirement only applies to the essential terms of contract
• What is an essential term?

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o The more complex/unique the transaction, the more parties would have to come to an agreement with those clauses
specified
§ If an essential term is omitted with a transaction of that nature à would suggest agreement not reached
o Depends on the nature of the contract and the circumstances of the case: Vroon BV v Fosters Brewing Group Ltd
o There is no general rule about essential terms
• THINK ABOUT WHAT THE CONTRACT IS FOR
• Examples:
o Lease: commencement date, rent, property to be leased
o Sale of land: parties, land, price: Hall v Busst
o Sale of goods: pay reasonable price for goods if no price specified

Omission of an essential term
• Where a contract appears incomplete but has been largely performed by one or both parties, the courts are much more likely to
imply terms in order to avoid the injustice which would arise if a party who had performed was unable to enforce the contract against
the other party
o York Air Conditioning and Refrigeration (A/sia) Pty Ltd v The Commonwealth (1949) 80 CLR 11 at 53-‐4 per Latham CJ:
§ ‘ … where the parties have already applied provisions containing a term and have agreed upon the result a court
would be departing from all business reality if it were to hold that such a clause was so uncertain as to either
make the whole contract … void or at least to be void itself’
o “In commercial agreements the further the parties have gone on with their contract, the more ready are the courts to imply
any reasonable term so as to give effect to their intentions” (F & G Sykes (Wessex) Ltd v Fine Fare Ltd [1967])
o A similar approach applies to uncertainty
§ “When the parties have shown by their conduct that they understand and can apply the terms of a contract
without difficulty, a court should be very reluctant indeed to pay no attention to such conduct by holding that
the terms of the contract are unintelligible by reason of uncertainty” (York)
§ In these situations: the courts uphold the contract on the basis that by their actions in performance the parties
have supplied the elements which were previously absent
• No contract when essential part of agreement left to future agreement and when the party retains discretion as to whether to
perform because this amounts to illusory consideration: if they have a wide discretion to perform this is not void as long as nothing
left for future agreement for the parties and area of choice is clear: Thorby v Goldberg (1965):
o “It is an objection to contract if one party is left to choose whether he will perform but it is an entirely different matter if
there is an obligation to do a specified thing of a general description but it is left to the party who is to perform it to choose
the particular thing that he will do in performance of it” (per Menzies J)
• Sale of land: can make an ‘open K’ – i.e. specific parties, subject matter and price (per Hall v Busst) but leave other terms unspecified
(e.g. date of settlement, obtaining registration of necessary plans or documents)
o The court will imply obligations relating to each step necessary to complete the transaction: because court has knowledge
of conveyancing t/as: Cavallari v Premier Refrigeration Co Pty Ltd (1952) 85 CLR 20,25
o Where t/as is not so routine or is more complex, court is unlikely to be able to do so

Summary: The rights and obligations of the parties must be sufficiently certain to be enforceable (i.e. a contract is sufficiently complete when
all essential terms are specified). Also, there may be no contract if some contractual obligation has yet to be agreed upon. But the courts strive
to give effects to contracts if possible.

(B) SEVERANCE OF UNENFORCEABLE CLAUSE
Key principle: Term may be severed only if that would be consistent with the intention of the parties. The technique for applying this principle is
the construction of the contract to distinguish between terms, the elimination of which would affect the substance of the bargain and therefore
may not be severed from the severance of other terms.
• Severance: the term is severed i.e. cut out of the agreement and the rest of the agreement is enforced. Not always possible because
term is an essential term of the agreement and this means agreement falls over
• Where a provision relating to some inessential or incidental matter is meaningless there will usually be little difficulty in deciding the
provision may be severed: the test is whether the parties must have taken for the offending provision to be severable
• Two aspects:
o Is the term an essential term? Is it too vague or incomplete?
o Is the contract divisible?
§ If the promises and price to pay for those promises are separately specified i.e. contract to build this building, fit
it out as a series of teaching spaces: one contract to build it and one to pay or total contract price and divide
costs – promises and prices to paid are specified, it is divisible
§ Look at what is the intention of the parties as disclosed in the agreement, can look at extrinsic evidence only
when necessary to aid in the interpretation of the written instrument
o Whitlock v Brew: Taylor, Menzies and Owen JJ – SC 5 was definitive of the ultimate rights thus essential and cannot sever
• Waiver: the party who is the beneficiary of the promise waives the need for the other party to perform that promise
• Third option: not clause party was trying to enforce

Whitlock v Brew (1968) 118 CLR 445
Facts
• The P (Brew – respondent in HC) agreed to purchase certain land from the D (appellant). Special condition 5 of agreement provided:
o ‘Portion of the land sold is used for the sale of petroleum, oils and greases and petroleum products of the Shell Co of
Australia Ltd. The purchaser covenants that he will immediately upon taking possession hereunder grant a lease of that
portion of the land sold as is now used for the sale of the abovementioned products to the Shell Co of Australia Limited
upon terms that the said land leased as aforesaid be used by Shell or their sub-‐tenant or licensee for the sale of such
products and upon such reasonable terms as commonly govern such a lease. In the event of any dispute between the
parties as to the interpretation or operation of this clause such dispute shall be referred to an arbitrator to be appointed
failing agreement as to an arbitrator by the President for the time being of the …”

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• The D: purported to terminate the contract and forfeited the deposit which had been paid under it by the plaintiff. P sued in the
Supreme Court of Victoria to recover the deposit. Gillard J: gave judgement for the defendant. P appealed to Full Court which allowed
appeal: said that special condition 5 was void for uncertainty because the lease did not specify a term of the lease
o Also held term was not severable from the rest of the agreement so the agreement was totally invalid and D had to give
back deposit
• Defendant appealed to HC but majority dismissed the appeal
Held (per Taylor, Menzies and Owen JJ):
• Language of the clause does not permit the view that it is certain – the lease is to be ‘upon such reasonable terms as commonly
govern such a lease’ and in the event of a dispute ‘as to the interpretation or operation’ of the clause the dispute is to be referred to
arbitration
o The expression ‘upon such reasonable terms as govern such a lease’ is not in the context in which it appears apt to refer to
either the period for which the contemplated lease is to subsist or to the rent to be payable thereunder
o Nor is the expression ‘as to the interpretation or operation’ of this clause sufficient to cover a dispute to either of those
matters
• Clause is uncertain in that it neither specifies nor provides a means for determination as between parties of the period for which
contemplated lease shall be granted or the rent which shall be payable thereunder
• Knox CJ in Life Insurance Co of Australia Ltd v Phillips: “When a contract contains a number of stipulations one of which is void for
uncertainty, the question whether the whole contract is void depends on the intention of the parties to be gathered from the
instrument as a whole. If the contract be divisible, the part which is void may be separated from the rest and does not affect its
validity”
• Observations make it clear that in seeking to ascertain the intention of the parties to a written contract extrinsic evidence may not be
resorted to except where such evidence may be called in aid in the interpretation of the written instrument
• Cases may arise where a vague, uncertain or meaningless clause in a contract may simply be ignored ... but special condition 5 does
not fall into any such category, nor can it be said to be a clause inserted solely for the benefit of one of the parties and capable of
being waived by him
o Definitive of the ultimate rights which it is contemplated the purchaser is to get under his contract
• Case resembles Duggan v Barnes – A agreed to sell land to B for a stated price and B undertook to grant a lease to any person who
should purchase A’s business: court had no difficulty in holding that B’s undertaking was a material and inseverable part of the
consideration for A’s promises: SAME CONCLUSION IN THIS CASE
o Here it is the purchaser, and not the vendor who is asserting the invalidity of the contract is of no consequence
• Appeal dismissed
Provision of an agreement is void for uncertainty or incompleteness: necessary to ask whether the clause is severable. Decision may have been
different if parties had provided sufficient machinery to resolve the uncertainty – arbitration clause is not sufficient. On the other hand, if a lease
contains an option for the lessee to enter into a renewal of the lease, and that in default of agreement between the parties the terms may be
determined by a third party, the clause may be valid.

(C) AGREEMENTS TO NEGOTIATE
Agreement to agree
• An A2A is where parties agree to agree on a term at some future date
o Unenforceable? -‐ lack of certainty or that consideration is illusory
o Booker Industries v Wilson Parking: “It is established by authority, both ancient and modern, that the courts will not lend
their aid to an incomplete agreement, being no more than an agreement by the parties to agree at some stage”
• Godecke v Kirwan
o Cl 3: “Possession … upon signing and execution of a formal contract within 28 days of acceptance of offer”
o Cl 6: “if required by the Vendor/s, I/we shall execute a further agreement to be prepared at my costs by his appointed
Solicitors containing the foregoing and such other covenants and conditions as they may reasonably require”
§ Held that words in bold not an A2A
• The mere fact that parties have not expressly agreed to all the terms of a bargain does not of itself render an agreement incomplete
as nearly all contract include some implied terms
o The technique of term implication has its limitations but the mere fact that a term must be implied to make a contract work
does not signify a failure to agree
• On the other hand, if the parties clearly express an intention to agree to a term dealing with a particular matter, but are unable to do
so, the agreement is necessarily incomplete and the importance of the term must be investigated
THREE CATEGORIES OF INCOMPLETENESS:
(1) Agreement which parties considered to be complete but is incomplete because it omits a term which is essential as a matter of point
of law
(2) Where negotiations break down before all parties agree on the terms to which they intend to agree
(3) The parties may enter into a preliminary agreement on term of which is a promise to negotiate a contract which is intended to replace
the PA

Agreements to negotiate
• Until recently, an agreement to negotiate in the future on some fundamental matter was not enforceable, either on the basis that
the agreement was uncertain or consideration was illusory

Coal Cliff Colleries v Sijehama Pty Ltd (1991) 24 NSWLR 1
Facts
• Negotiations for a joint venture were undertaken between Coal Cliff Collieries Pty Ltd, a wholly owned subsidiary of Kembla Coal and
Coke Pty Ltd (two defendants, appellants in appeal) and Bulli main Colliery Pty Ltd and its major shareholder, Sijehama Pty Ltd
(plaintiffs/respondents)
• In Oct 1981, the 4 companies executed a ‘heads of agreement.’ This envisaged the execution of a joint venture agreement between
the parties. The opening words of the heads of agreement were
o This document will serve to record the terms and conditions subject to and upon which Coal Cliff Collieries Pty Ltd,
Sijehama and Bulli Main agree to associate themselves in an unincorporated Joint Venture … the parties will forthwith
proceed in good faith to consult together upon the formulation of a more comprehensive and detailed joint venture
agreement (and any associated Agreements) which when approved and executed will take the place of these heads of

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agreement, but the action of the parties in so consulting and in negotiating on fresh or additional terms shall not in the
meantime in any way prejudice the full and binding effect of what is not agreed
• October 1985 after many drafts of joint venture the appellants withdrew
• Respondents treated this as a breach by repudiation of the heads of agreement and purported to terminate
• Clarke J held that the heads of agreement was an enforceable contract
o Obligation to negotiate a joint venture agreement in good faith had been breached and Sijehama was entitled to pay
damages
o He ordered a separate trial of the issue of the damages payable to Bulli – both defendants appealed
§ Was the heads of agreement a contract to negotiate a joint venture agreement in good faith?
• NSW CA allowed the appeal: the defendants were not liable in damages for breach of contract because the promise in the heads of
agreement was void for incompleteness

Held
Per Kirby P
• Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd: “It is established by authority, both ancient and modern, that the courts will
not lend their aid to the enforcement of an incomplete agreement, being no more than an agreement of the parties to agree at some
time in the future”
• [Kirby discusses the features of the heads of agreement p 101] – Above all, the heads of agreement shows that even the subject
matter of the proposed lease had not been determined between the parties when the heads of agreement were executed
o Parties in large commercially risky enterprises quite frequently incur expense and waste months of executive time paying
consultants and others in a project that comes to nothing. This is an inescapable aspect of commercial negotiation ..
• In the heads of agreement the parties passed the Rubicon of discussion and committed themselves to the agreement – ‘to negotiate
in good faith’
o The document’s title speaks of an ‘agreement’ – it is a formal document whereby the parties record their agreement ‘to
associate themselves’ and ‘proceed in good faith and consult’
o Promise of consultation directed to another agreement but it is described as a ‘more comprehensive and detailed
agreement’ which suggests that the present heads of agreement were adequately comprehensive and detailed to evidence
that agreement which had to that stage been reached
o Heads of agreement was not wholly executory – conceded that certain of the provisions were immediately enforceable
o Section 12 excluded legal relationship of partnership or agency between parties to the heads of agreement: if no legal
relationship had been intended it would not seem necessary to provide as s12
o Serious intention of the parties: reference to the business they had in mind, the drafts which preceded and followed and
the heads of agreement and the detailed activity which the heads of agreement set in train including the specific
negotiation over ensuing 3 years
o Most important indication of agreement in opening words:
§ ‘But the action of the parties in so consulting and negotiation on fresh or additional terms shall not in the
meantime in any way prejudice the full and binding effect of what is now agreed’
• Heads of agreement went beyond a mere recording of the stage of negotiation at the time of their execution
• Courts will not enforce an agreement to agree
• Arguments against enforcing a contract to negotiate in Hillas per Lord Wright – “ There is … no bargain except to negotiate, and
negotiations may be fruitless and end without any contract ensuing, yet even then, in strict theory, there is a contract (if there is good
consideration) to negotiate, though in the event of repudiation by one party the damages may be nominal, unless a jury thinks that
the opportunity to negotiate was of some appreciable value to the injured party …”
o BUT IF PARTIES HAVE BOUND THEMSELVES TO NEGOTIATE OR CONSULT IN GOOD FAITH – SHOULD BE HELD TO IT
§ It is not uncommon for courts to provide damages for the loss of a chance, and in assessing damages courts
regularly have to contemplate the future and evaluate probabilities on hypotheses founded in evidence of what
transpired
o It is for the party suing for breach of the promise to negotiate in good faith to prove the loss caused by that breach
• Are courts not well placed to determine what parties might do in fulfillment of a promise to contract in good faith: Biotechnology per
McHugh JA: “Where the contingency is dependent upon the way in which a party in breach of a contract would perform the contract,
the settled rule is that damages are assessed on the basis that the wrongdoer would have performed the contract in the way most
favourable to himself”
o Depending upon the nature of the matter to be negotiated, the extent to which negotiation has advanced, the issues
remaining for resolution and nature of those issues a court may be able to derive from past resoln of differences a
reasonable/fair resolution of those remaining upon posited assumption of GF negs
• The very exercise of the right to contract which has bound the parties to the negotiation in good faith that they promised à to
enforce that obligation is not to interfere in the freedom of contract but to uphold it
• Provided there was consideration for the promise, in some circumstance, a promise to negotiate in good faith will be enforceable,
depending upon its precise terms: depends on construction of contract
o In many contracts it will be plain that the promise to negotiate is intended to be a binding legal obligation to which parties
held à clear when third party to resolve ambiguities
§ But even in such cases: court may regard failure to reach agreement on a particular term such that the
agreement should be classified as illusory/unacceptably uncertain i.e. Whitlock/Godecke: court will not enforce
it
o In a small number of cases: court provide flesh to provision which is otherwise unacceptably vague/uncertain/illusory:
Meehan
o In many cases, the promise to negotiate in good faith will occur in the context of an ‘arrangement’ which by its nature,
purpose, context, other provisions or otherwise makes it clear that the promise is too illusory or too vague/uncertain to be
enforceable
§ Contract should be so classified: this was not a case where external arbitrator nominated to resolve differences
§ Many differences at the time of the HOA and number remain even three years later – court will be ill equipped
to fill remaining blank spaces and resolve questions which solicitors/parties failed to remove
§ Court cannot appeal to own objective standards/experience
Kirby ended: even if was enforceable obligation to negotiate in good faith, appellants had not breached obligation. Considered that in
circumstances damages would be nominal.

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Per Handley JA

• Only those provisions of the HOA which contemplated/required performance in period before the joint venture agreement was
entered into were ‘now agreed’ and intended to be fully binding in the meantime
• HOA – no arbitration clause or any other provision which a third party could settle the terms if the parties failed to do so
o No submission was or could have been made that the HOA settled all the necessary terms of a joint venture agreement and
that any remaining terms could be supplied by legal implications based on the nature of such an agreement in relation to a
coal mine
• Parties had not previously been associated in a mining joint venture and had not commenced performance of the contemplated joint
venture prior to the question of contractual uncertainty arising. Accordingly implications derived from their past business association
were not available to flesh out the terms of the HOA and supply missing terms
• Agreements to negotiate: the only Australian decision directly in point, Carr v Brisbane City Council decides that an agreement to
negotiate is not a legally enforceable promise
• Agreements to agree: It is established law both in England and Australia that agreements to agree or contracts to make contracts
containing terms which have not yet been ascertained are not legally enforceable: Masters v Cameron, Godecke v Kirwan
• Courtney & Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd per Lord Denning: “ If the law does not recognize a contract to enter into a
contract (When there is a fundamental term yet to be agreed) it seems to me that it cannot recognize a contract to negotiate. A
mere promise to negotiate in good faith does not purport to bind the promisor to act reasonably or to compromise in order to reach
agreement”
o But: obligations can be inherent in agreement to agree i.e. Mackay v Dick per Lord Blackburn: “…where in a written
contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless
both concur in doing it, each agrees to do all that is necessary to be done on his part for the carrying out of that thing,
though there may be no express words to that effect”
§ On this basis, every ‘contract’ to make a contract would import an obligation on both parties to ‘do all that is
necessary’ to reach agreement – each promisor obliged to use best endeavors to reach agreement with other
§ The promisor would be bound to act reasonably and in good faith: Meehan v Jones
o If despite these implications contracts to make a contract are not recognised, contracts to negotiate in good faith -‐ no
better position
• Parties negotiating for a contract are free to pursue their own interests as they see fit .. negotiations are conducted at the discretion
of the parties. They may withdraw or continue, accept …. To my mind these considerations demonstrate that a promise to negotiate
in good faith is illusory and therefore cannot be binding
o The content of the promise was uncertain and the promise was itself illusory à THE PROMISE TO NEGOTIATE IN GOOF
DAITH IN THE HOA WAS NOT ENFORCEABLE, BINDING ONLY IN HONOUR
• Arrangement in the HOA, apart from clauses ‘binding in the meantime’ was subject to contract – HOA had two subject to contract
clauses, the more significant one provided for the joint-‐venture agreement to be ‘approved and executed’
o This implied that parties might also disapprove
• Intention of the parties: successful negotiations should not result in a binding contract unless and until it had been approved and
executed
APPEALS ALLOWED.
A2N in the heads of agreement was void for uncertainty – but agreement to negotiate in good faith is in principle a binding contract (Kirby P,
Waddell A-‐JA) and in some cases, depending on the terms and construction, would be enforceable. In many cases however a plaintiff even if
successful will have difficulty in recovering more than nominal damages. The majority in this case however held that on the facts of this case the
promise was unenforceable and that even were that not so, there were too many imponderable factors ‘to venture what might have been
achieved in good faith negotiations had they continued’ and that as a result the plaintiff would in any event not been able to recover more than
nominal damages.
Agreement to conciliate (or mediate) is distinguishable from an agreement to negotiate and may be binding.
Summary:
• If certainty difficulties arise with term or terms
o Can the parties sever the clause or is it an essential term?
o Will the party for whose benefit the clause was inserted waive the requirement for performance by the
other party?
o Either needs to be severed and struck out of agreement, or party for whose benefit it was put in can waive
it or can determine that it is not a relevant issue between the parties
§ Whitlock v Brew: clause was uncertain but couldn’t be severed as was an essential term of
agreement the whole agreement fell over

(D) CONDITIONAL PROMISE
Subject to … clauses
• An agreement made ‘subject to’ some event usually makes the contract, or part of the contract, conditional on the occurrence of the
event
Where an agreement is expressed to be ‘subject to’ the occurrence of a contingency, the key principle is that the effect of the ‘subject to’ clause
depends on the intention of the parties. It is therefore a question of contract construction. If the parties have not expressly agreed on the effect
of the clause, we must determine the parties’ intention.
Three questions must be asked:
• What is the purpose of the clause? Did the parties intend that there would be no binding agreement until the condition occurs? Or
have the parties agreed that only performance is delayed until the satisfaction of the conditions?
• What is the content of the clause? When will the condition be taken to be fulfilled?
• What is the position if the condition is not fulfilled? What are the consequences of the non-‐fulfillment of the condition?

Preliminary agreements/’Subject to contract’
• Parties sign a document (PA) which contains a set of promises but one of the promises refers to the execution of a subsequent
document (contract) that is yet to be written and signed
o Are any of the promises in first existing agreement able to be enforced as a contract?

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§ Can be an issue if one party refuses to sign the subsequent contract or subsequent contract never made but one
party wants to enforce terms in PA
• Issues of intention

Masters v Cameron (1954) 91 CLR 353
Facts
• Case arose out of an originating summons by a property agent for the court to determine who should receive a deposit paid in respect
of a proposed sale of land
• On Dec 6 1951 the vendor (respondent before the court) signed a document by which she agreed to sell to the appellants (purchasers)
a farming property on certain terms. The document stated
o This agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on
the above terms and conditions and to the giving of possession on or about 15 March 1952
• On the same day the appellants paid the deposit to Dalgety (property agent). The appellants subsequently refused to continue with
the purchase à both appellant/respondent claimed money held by P
• In the WASC Wollf J held that the document was a binding contract and gave judgement for the respondent. Appellants appealed to
HC
• Issue: whether there was a binding contract of sale, and whether the deposit should be returned to appellants
• APPEAL ALLOWED
Held
• P/D agreed there should be a sale and a purchase and the parties, the property, the price and the date for possession were all clearly
settled between them. All essentials of a contract are there
• Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of
their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases

First case: parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of
those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect.
Branca v Cobarro: written agreement for the sale of a mushroom farm was stated to be a ‘provisional agreement’ until a fully legalized agreement
was drawn up and signed. Provisional agreement fully effective until further agreement drawn up and signed, so no party could withdraw.
• ‘As soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal arrangement have
not the power to vary the terms already settled, I think the contract is completed’ (Rossiter v Miller)
• In cases of this type people have often drawn up initial agreements but want it to be put into a more ‘formal and professional shape’
(Rossiter)
• Latter agreement could not, as a purely grammatical matter have precisely the same effect as the original agreement and the more
formal agreement, once entered into, discharges and replaces the earlier agreement’ (Branca v Cobarro)

Second case: may be a case in which the parties have completely agreed upon all the terms of their bargain [like 1 – intend to be bound
immediately] and intend no departure from or addition to that which their agreed terms express or imply but nevertheless have made
performance of one or more of the terms conditional upon the execution of a formal document.
Niesmann v Collingridge: Option provided that the defendant granted the plaintiff ‘the firm offer’ of certain land at a stated price, part to be
payable ‘on the signing of the contract’ part three months afterwards and the balance three years after the signing of the contract. There was not
an immediately binding contract à execution of formal contract not a condition of the existence of the binding contract, but obligation to pay
price of instalments conditional on that execution.
• Fourth category under this banner? Where the parties intend to be bound immediately but expect to make a later more formal
document containing by agreement additional terms (GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1996))

Third case: Intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract, in which case, the
terms of the agreement are not intended to have any binding effect.
Where parties contemplate the subsequent execution of a formal contract but do not express their agreement to be subject to or conditional
upon the execution of a formal contract: question of construction of parties want to be immediately bound. Did prior dealings give rise to a
contract? If there is no binding contract and a deposit paid: inferred that payment was an anticipatory one pending the execution of the formal
contract and until this occurs: may be recovered. Subject to contract clauses create INTENTION not certainty problems. Parties may do a
document of this case: right to not go through with bargain.
• Most cases where there is no binding agreement until execution of a formal contract have been in agreements relating to land

• In each of the first two cases: binding contract
o First case: contract binding the parties at once to perform the agreed terms whether the contemplated formal document
comes into existence or not, and to join in settling and executing the formal document (most common)
o Second case: contract binding the parties to join in bringing the formal contract into existence and carry it into execution
o Rossiter v Miller per Lord Blackburn: “ … as soon as the fact is established of the final mutual assent of the parties so that
those who draw up the formal agreement have not the power to vary the terms already settled, I think the contract is
completed”
§ “…I think the parties ought to be held not bound until they execute the formal agreement/’
• Case of the 2nd category: Niesmann v Collingridge: Where all the essential terms of a contract have been agreed upon, and the only
reference to the execution of a further document was the term as to price, which stipulated payment should be made on the signing
of the contract
o Condition of the obligation to pay and carried a necessary implication that each party would sign a contract in accordance
with the terms of agreement
• Cases of the third class are fundamentally different. They are cases in which the terms are not intended to have, and therefore do not
have, any binding effect of their own. Parties may have so provided either because they have dealt only with major matters and
contemplate that others will or may be regulated by provisions to be introduced into the formal document as in Summergreene v
Parker or simply because they wish to reserve themselves a right to withdraw before document is signed
o No enforceable contract -‐ condition is unfulfilled or because the law does not recognize a contract to enter into a contract
o Qn depends on intention disclosed by language the parties have employed, and no special form of words is essential to be
used in order that there shall be no contract binding upon the parties before the execution of their agreement is in its
ultimate shape

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§ Crossley v Maycock: “if the agreement is made subject to certain conditions then specified or to be specified by
the party making it, or by his solicitor, then until those conditions are accepted, there is no final agreement such
as the court will enforce”
• Subject to contracts: it has been recognised throughout the cases that such words prima facie create an overriding condition so that
what has been agreed upon must be regarded as the intended basis for a future contract and not as constituting a contract
o The intention of the parties is that neither of them is to be contractually bound until a contract is signed in the usual way
• The formal contract, it is true, is to be ‘on the above terms and conditions’ but it is to be acceptable to the vendor’s solicitors and the
meaning is sufficiently evident that the contract shall contain, not only the stated terms and conditions expressed in a form
satisfactory to the solicitors but also whatever else the solicitors may fairly consider appropriate
• Deposit should be repaid: nothing in the circumstances to displace the inference stated in the following passage in Chillingworth v
Esche: “The parties were not agreeing that they would enter into a reasonable contract, but that they would enter into such a
contract, if any, as they may ultimately agree and sign. I look on the whole payment as being sufficiently explained as being an
anticipatory payment intended only to fulfil the ordinary purpose of a deposit and when the contemplated agreement should be
arrived at. I see no sufficient reason for thinking that it was also made to secure the intermediate purpose contended for by the
vendor”
• APPEAL ALLOWED
Start with rule 3 first, then choose between 1/2.
*****JUST BECAUSE USE THE WORDS ‘SUBJECT TO CONTRACT’ DOES NOT MEAN THEIR PA IS NOT SUBJECT TO CONTRACTUAL FORCE.******

Subject to finance
• Agreement for the sale of land will sometimes state it is subject to finance being obtained – object of such a provision is to give the
purchaser a way to avoid being liable if unable to obtain the needed loan, while protecting the vendor by preventing the purchaser
from resiling for some reason unrelated to the availability of the finance
o Contains element of personal satisfaction
o Financial institutions will not commit themselves to granting a loan until inspected the property and the process of granting
final approval of loan can take time
o If purchasers do bind themselves and loan refused – the purchasers will usually be forced to breach the contract and will be
liable to forfeit to the vendor any deposit they have paid on entering into the contract
• This kind of clause -‐ attempt to balance the interests of both parties

Other conditional contracts
• Other cases of contract being expressed to be subject to specified event or condition – in each case the question arises whether the
parties are not bound unless and until that event occurs or condition fulfilled
o Presumption that parties intend to be bound immediately: another eg of operation of good faith in construction, as courts
more likely to hold that the parties must act within terms of agreement and only walk away from contract for a reason
contemplated at outset
• Contrasted with the situation where parties not immediately bound and can walk away for any reason: but this may be rebutted

Meehan v Jones (1982) 149 CLR 571
Facts
• Defendants (respondents) agreed to sell to the plaintiff-‐purchaser certain land on which an oil refinery had been built. Special
condition 1:
(A) The Purchaser or his nominee entering into a satisfactory agreement or arrangement with Ampol Petroleum Ltd for the supply of a
satisfactory quantity of crude oil … (B) The Purchaser or his nominee receiving approval for finance on satisfactory terms and conditions in an
amount sufficient to complete the purchase hereunder; and should either of the above conditions not be satisfied on or before the Thirty-‐first
day of July 1979 (or such extended times as the parties may agree upon) then this Contract (other than for the provisions of this Clause) shall be
null and void and at the end of all monies paid hereunder by the purchaser shall be refunded in full’
• By a letter of 13 July 1979 the vendors’ solicitors gave notice to the purchaser’s solicitors that the contract was void for uncertainty
• 23 July the vendors entered into a contract to sell the land to a third party
• 30 July the solicitors for the purchaser and his nominee sent a telex to the vendors giving them notice that the nominee had entered
into a satisfactory agreement with Ampol Petroleum Ltd for the supply of a satisfactory quantity of crude oil and had arranged
finance on satisfactory terms and conditions to enable them to complete purchase
• Purchaser sued vendors for specific performance of the contract
• Defences/issues in the HC:
o Was the clause void for uncertainty
o Did the cl condition formation of the contract or its performance?
o Did word ‘satisfactory’ attract an objective/subjective standard?
• Appeal allowed by HC: ORDER FOR SPECIFIC PERFOMANCE MADE so vendors were required to complete the contract of sale
Held
Per Gibbs CJ
• Submission on behalf of the vendors/second respondent: inclusion of special condition 1 had the result that no binding contract
• Submission rested on a number of alternative propositions
o First: word ‘satisfactor’ refers to satisfaction of vendors as well as that of the purchaser and nominee so that the clause
leaves vital matters to be agreed between the parties: there is no more than an agreement to agree
o Clause is so imprecise and indefinite that it is not possible for courts to say what events would satisfy conditions described
o Clause leaves it to the discretion of the purchaser whether he will perform the obligations the contract purports to describe
so what appears to be a contract is really illusory
o Any concluded bargain? Because the contract left a vital matter to the determination of the parties – is contract was
illusory?
• Every contract depends on particular words in question
• When the words of a condition states a contract is subject to finance, or to suitable finance, or to satisfactory finance, the question
immediately arises as to whether the test which is required to be applied is a subjective or objective one
o On one hand, the contract may be conditional upon the purchaser obtaining finance which he finds sufficient or satisfactory
– such finance he honestly thinks he needs to complete purchase

lOMoARcPSD|1414388
o On the other hand, the condition may be fulfilled if finance is available which the purchaser ought to find sufficient, or
which ought reasonably to satisfy him, even though he honestly but unreasonably regards it as insufficient/unsatisfactory
o The fact that opinions may differ as to which of these two meanings is given to the words of the cl: doesn’t mean uncertain
§ Only if the court is unable to put any definite meaning on the contract that it is said to be uncertain (Upper
Hunter)
o If the words of the condition are understood to import a subjective test – if the condition is fulfilled if the purchaser
honestly thinks that the finance is satisfactory – it is impossible to regard the condition as uncertain: if a purchaser thinks
finance satisfactory, he will normally seek to complete the contract, whereas if he does not think it satisfactory, usually he
will not attempt to complete
• Whether purchaser satisfied: question of fact
• However if test is purely subjective: qn whether any binding agreement has in fact been made at all
• If the test is an objective one and the question is whether the finance ought reasonably to be regarded as satisfactory – clause is not
too indefinite for the courts to be able to attribute any particular contractual intention to the parties
o Court with evidence of financial position of purchaser, amount required to complete contract and the prevailing rates and
conditions on which loans are made should not find it difficult to decide what finance a reasonable man in the position of
the purchaser would regard as satisfactory
• In NSW: view that subject to finance clause IS VOID
• Unless a clause of this kind makes a clear indication to the contrary, its natural effect is to leave it to the purchaser to determine
whether or not the available finance is suitable to his needs
o It would hardly seem likely that the parties would intend that a purchaser should be bound to complete if he honestly
regarded the terms and conditions on which finance was available as unsatisfactory, notwithstanding court may take diff
view
• Condition prevents a purchaser from being obliged to go through with a sale when he does not believe he can raise funds: protection
of purchaser
o It does not seem to me necessary, in order to give business efficacy to a contract, that a condition should be implied that
the purchaser will make reasonable efforts to obtain finance
• Kitto J in Placer: “wherever words which by themselves constitute a promise are accompanied by words showing that the promisor is
to have a discretion or option as to whether he will carry out that which purports to be the promise, the result is that there is no
contract on which an action can be brought at all”
• The fact that the condition is one whose performance lies wholly or partly within the power of one of the parties to the contract does
not mean that there is no binding contract once the condition is fulfilled
o Concluded agreement as to the terms of the contract which if the condition is satisfied, leaves no discretion in either party
as to whether he shall carry them out
o Once the condition is fulfilled, within the time allowed by the contract for its fulfillment, the contract is completely binding
• Condition in special condition 1(b) is not a condition precedent to the formation of the contract. Certain obligations under the
contract attached immediately the contract was signed although the condition had not been fulfilled – e.g. provisions with regards to
the deposit and giving/answering of requisitions on title became immediately effective
o Whether contract described as a condition precedent to completion or as a condition subsequent: depends on words
Per Mason J
• Respondents’ case: (1) a contract which is expressed in language ‘so obscure and incapable of any definite or precise meaning that th
court is unable to attribute to the parties any particular contractual intention’ is void for uncertainty, (2) a contract which reserves to
a party a discretion or option whether he will carry out what appears to be a promise on his part is also void for uncertainty and (3)
there can be no concluded bargain if a vital matter has been left to the deter. Of one of the parties
• Concept of ‘finance on satisfactory terms and conditions’ à too uncertain and indefinite to admit of a precise meaning?
o Absence of agreement as to the amount to be borrowed, term of the loan and rate of interest – impossible for a court to
decide what finance is contemplated by the contract being ‘satisfactory’
• Context of a contract for the sale and purchase of real estate which contains a condition that the purchaser/his nominee receives
approval for such finance so that the deposit is to be refunded to the purchaser if the condition is not satisfied – no doubt that the
‘satisfactory’ ordinarily means ‘satisfactory to the purchaser or his nominee’
• Object of the clause is to benefit/protect the purchaser by ensuring that he is not under a binding obligation to complete if unable to
get finance
o Sensible to treat it as stipulating for finance that is satisfactory to the purchaser or his nominee, subject to an implied
obligation that he will act honestly, or honestly and reasonably, in endeavoring to obtain finance and deciding whether to
accept/reject proposals
• I NSW contract made ‘subject to finance being arranged on $1000 deposit’ was void for uncertainty (Moran v Umback) and in Grime v
Bartholomew: contract with clause ‘subject to finance being arranged’ void because it was silent as to ‘amount, term of the loan, rate
of interest, conditions of repayment …’
o To say clauses of this kind are void for uncertainty: ignore the traditional doctrine that courts should be astute to adopt a
construction which will preserve validity of the contract
o Problems of uncertainty avoided by drafting a clause which specifies the details of finance to be sought, but such a clause
by reason of greater precision may be too inflexible
• To say ‘subject to finance’ or ‘subject to finance on satisfactory terms and conditions’ clause denotes finance which is satisfactory to
the purchaser is not to say that he had an absolute/unfettered right to decide what is satisfactory: would protect him at the expense
of the legitimate expectations of the vendor by enabling the purchaser to escape from the contract on a mere declaration he could
not obtain suitable finance
• There is in this formulation no element of uncertainty – limitation that the purchaser must act ‘honestly, or honestly and reasonably’
takes the case out of the principle that – ‘where words by which themselves constitute a promise are accompanied by words which
show that the promisor is to have a discretion or option as to whether he will carry out that which purports to be the promise, the
result is that there is no contract on which an action can be brought’
o Judgement of the purchaser as to what constitutes finance on satisfactory terms is not an unfettered discretion – must be
reached honestly, or honestly and reasonably
• Here the expressed intention of the parties was that the purchaser would obtain finance; his obtaining of finance on satisfactory terms
was necessary to give the transaction its intended efficacy

lOMoARcPSD|1414388
o Make for greater consistency to say that if the purchaser is bound to act reasonably in seeking to obtain finance he is bound
to act reasonably as well as honestly in deciding whether the finance was satisfactory à so understood the special
condition would preserve even a balance between vendors and the purchaser
§ Here makes no difference
• Binding words of special condition suggest that its effect is to make the existence of the contract conditional: more sensible to regard
the provision as one which provides for the determination of a valid and binding contract in the event that the purchaser or his
nominee is unable to obtain approval for satisfactory finance on/before the specified date
• Each party has the right to avoid the contract on the non-‐performance of the condition, notwithstanding that non-‐performance may
occur without default on the part of the purchaser, that is he may fail to procure finance despite every endeavour on his part
o Although the primary object of the condition is to protect the purchaser, it is difficult to assert that the clause is for his
benefit exclusively when it states that the result of non-‐performance is that the contract shall be null and void
• Whether the condition is precedent/subsequent: artificial and theoretical. In one sense performance of the condition or non-‐
avoidance of breach of it is precedent to the right of a party to call for the performance of a contract. In the other sense there is a
valid and binding contract which may be determined for non-‐performance of the condition à IN THIS CASE CONDITION SUBSEQUENT
NOT PRECEDENT.
• Subject always to the construction of the contract in the case, the court will imply no greater obligation on the purchaser than he is
obliged to act honestly in determining whether available finance is satisfactory
Murphy J:
• In relation to the satisfaction requirement: such clauses leave satisfaction with the finance to the purchaser’s discretion
o Implication of the word ‘honest’ as qualifying the satisfaction adds nothing. Also there is no justification for implying that
the purchaser must act reasonably
APPEAL ALLOWED. Overall: held that the finance clause meant that the purchaser could decide whether the terms on which finance was
available were satisfactory. It was not necessary on the facts to decide whether the test as to his satisfaction was subjective (finance which he
honestly considered satisfactory) or objective (finance which ought to reasonably satisfy him). Whichever interpretation is correct, such a
clause will not be void for uncertainty.

‘Subject to finance’ is an uncertain proposition; but it seems now that normally where a contract for the sale of land contains a clause stating
that the contract is ‘subject to finance’ or some similar phrase, the contract will be valid.


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LECTURE 3 and 4: CONSIDERATION
B. CONSIDERATION
“An act or forebearance of one party, or the promise thereof, is the price for which the promise of the other is bought and the promise thus given
for value is enforceable” Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co ltd [1915] AC 847 at 855 per Lord Dunedin.

AGREEMENT à CERTAINTY à CONSIDERATION à INTENTION (Capacity, formalities and privity might impact on the enforcement of
contract).

I. WHAT PROMISES ARE LEGALLY ENFORCEABLE?
Level of consideration not of interest to contract law but may be to other areas of law such as equity, statute (because I’m a consumer and not
fair transaction). The party seeking to enforce the contract is the promisee and want consideration to flow from the promisee.

Several possible rationales:
1. Means of distinguishing between fair and unfair transactions
2. Ensure that only transactions that enhance economic efficiency are enforced by the courts
3. Operates to limit the involvement of the state (courts) in voluntary undertakings
4. Fulfils the same function as formalities requirements i.e. provide evidence that a promise has been made and was intended to be
legally binding
5. Protects impulsive/inadvertent promisors

The concept does not determine whether a promise has been made: it determines whether the promise should be recognised as creating an
obligation capable of being described as contractual. Therefore, while some promises are merely gratuitous, for example, a promise to make a
gift of money, a contractual promise is made in return for something of value, for example, a promise to pay money may be made in return for a
promise to deliver goods. That ‘something of value’ is consideration.

• Many contracts involve a bundle of promises on the part of each party to be performed at different times: some promises may fall
due for performance concurrently, others may not, some may be due for performance immediately, others later: but PROMISES
represent consideration for those of the other
o Promise of a party becomes binding at the time it was made rather than when it is performed: this means consideration is
executory
§ Contracts are bilateral because the agreement is formed by an exchange of mutual/reciprocal promises i.e.
contracts of employment or sale of land – payment/deliver postponed

Motive and consideration are different: a good motive for making a promise does not amount to consideration for the promise. Consideration
must be referable to the promise which is sought to be enforced: CONNECTION.

Consideration principles/1
• Definition from Restatement of Contracts: ‘any performance which is bargained for’
• Definition from Currie v Misa: A valuable consideration, in the sense of the law, may consist in some right, interest, property or
benefit accruing to the one party, or some forebearance, detriment, responsibility, given suffered or undertaken by the other …
o Must bargained for (‘quid pro quo’) (AWM v Cth)
o Must satisfy the benefit/detriment requirement (Currie v Misa)
§ Promisee must confer a benefit or a detriment on the promisor
• Must satisfy the benefit, need not be adequate (something valuable in the eyes of the law) (Chappell & Co ltd v Nestlé & Co Ltd)
o Consideration was money and three wrappers of chocolate bars
o Sufficient consideration: ‘good or valuable’ à anything which is not unlawful may count as consideration
o Janice: sells her car to Fred for $1000, promise to sell is sufficient consideration for Fred’s promise to purchase even though
car has value of $500 à Janice consid is sufficient but inadequate
o Adequacy becomes relevant with specific performance, undue influence or unconscionable conduct is established
• Must move from the promisee but need not move to the promisor
o I.e. consideration of mowing the lawn (Wayne – for $100): but Wayne says pay to Greg – does so, this shows that given
consideration as fulfilled what was asked
§ Does it look at benefit/detriment requirement and has it been bargained for?
• Only one of the joint promisees need provide consideration on behalf of the joint promises (Coulls v Bagots)
o Wayne and Greg – both don’t need to mow the lawn, and Wayne’s doing so fulfills the contract
• Cases such as Carlill: demonstrate that a promisee may provide consideration for doing an act which was not promised

NB: A promise given under seal in a DEED does not required consideration. Deed is considered to be a formal contract à is the document actually
a deed? When McGuinnes resigned: deed of settlement/release, agreeing set of promises.

A person is bound to perform a promise only if consideration was given for it.
• An agreement to buy and sell: seller provides consideration for the buyers’ promise to pay the price by promising to transfer
ownership. Similarly the buyers’ promise to pay the price constitutes consideration for the sellers’ promise to transfer ownership
• A partnership agreement between solicitors – promises of a partner under agreement are consideration for promises by the other
partners.
• A pays an architect in exchange for promise to design a house the consideration is payment to the architect
Executory Executed
Many contracts involve a bundle of promises on the part of each party to be performed at different times. The promises, or some of them,
furnished by the contracting parties may fall due for performance concurrently. On the other had, there may be no concurrence of performance
between the promises or between any two of the promises between respective parties. Some promises may be due for performance almost
immediately after the making of the contract, others later: but each party’s promises are consideration for the other.
Promise of the party binding at the time it was made rather upon
Person
performance:
has bargained for an act or forbearance itself as consideration of the

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THIS IS CONSIDERATION IN FORM OF A PROMISE. Contracts promise are bilateral:

i.e. lost dog example: no-‐one contractually bound to search for it but if
agreement is formed for exchange of mutual/reciprocal promises the e.g.
finder
sale returns
of the dog accepting offer, entitled to a reward. This is
land unilateral.

II. CONSIDERATION MUST BE REFERRABLE TO THE PROMISE
Australian Woollen Mills v Cth (refer to Agreement notes)
‘In cases of this class it is necessary, in order that a contract may be established, that it should be made to appear that the statement or
announcement which is relied upon was really offered as consideration for the doing of an act, and that the act was really done in consideration
of a potential promise inherent in the statement or announcement … “
• AWM claimed a unilateral contract had arisen out of the Cth govt wool subsidy scheme introduced after WW2 and that by
purchasing wool it provided consideration for the Cth’s promise to pay the subsidies
• Court held no: Act of purchasing wool: satisfied benefit/detriment requirement, didn’t satisfy of bargain requirement: that Cth was
to pay the subsidy by purchasing the wool
• As this is a unilateral contract: ‘between statement or announcement, put forward as an offer capable of acceptance by doing an act,
and the act which is put forward as the executed consideration for the alleged promise, there must subsist a relation of a quid pro
quo’
o ‘It is impossible … to suggest that the payment of subsidy and the purchase of wool were regarded as related in such a way
that the one was a consideration for the other … if we ask whether there is a promise offered in consideration for the doing
of the act, as a price which is paid for the doing of the act, we cannot find such a promise. no relation of quid pro quo
between a promise and an act can be inferred…”
• Note also: ‘A test which has not seldom been applied in such cases … it to ask whether there has been a request by the alleged
promisor that the promisee shall do the act on which the later relies. Such a request may, of course, be expressed or implied …”

Consideration MUST BE BARGAINED FOR – quid pro quo between promisor and consideration of promisee.

III. CONSIDERATION MUST MOVE FROM THE PROMISEE (BUT NOT NECESSARILY FROM THE PROMISOR)
• The person to whom the promise is made must provide consideration
• It is not enough that a promise was made to the person seeking to enforce it’ it is also required that that person (and not some third
party) should have given consideration for the promise
• Thereis no rule that the promisor must receive the benefit of consideration provided from the promisee
• Where A makes a promise to B and C as ‘joint’ promisees: single promise is made to them both
o In such a case, Coulls v Bagots decides it is sufficient that one of the joint promisees has provided consideration
§ Case: exception to rule above
§
Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460
Facts
• Arthur Coulls owned a property known as ‘Watergully’. In 1959 he granted O’Neill Construction Pty Ltd the right to quarry and
remove stone from an area of the quarry. Company paid 5 pounds and promised to pay royalties. The document expressing
agreement ended:
“I authorise the above company [O’Neill Construction Pty Ltd] to pay all money connected with this agreement to my wife, Doris Sophia Coulls
and myself, Arthur Leopold Coulls as joint tenants (or tenants-‐in-‐common?)(the one which goes to living partner). The agreement is effective
st
from 1 July 1959.
à signed by Arthur, Doris and O’Neill.

• 1960 Arthur died and left a will which appointed Bagots as his executors and trustees. In 1961 Bagot’s took out an originating
summons to determine what interest Doris had in the royalties being paid by O’Neill
• Supreme Court of SA held that Doris was entitled. Appeal to HC
o Majority of HC: contract as a mere permission (mandate) to pay the royalties to Doris which lapse on Arthurs’ death. On
this view, Doris was not a part to the contract
§ Appeal allowed because Bagot’s entitled to the royalties as Arthur Coulls’ executor
Held
Barwick CJ (dissenting)
• She was intended to be a party to the document
• There is nothing in the writing to indicate expressly to whom the promise of the company was given
• Not only was the promise to pay a promise to pay the deceased and the respondent during their joint lifetime and thereafter the
survivor of them but it was a promise given to both of them to make those payments
• It was a promise made by A to B and C for consideration to pay B/C à cannot lie in the mouth of A in my opinion to question
whether the consideration which he received for his promise moved from both B/C or as between themselves, only from one of them
o His promise was not a gratuitous promise as between himself and the promisees: it was a promise in respect of which there
was privity between A on one hand and B and C in the other
Taylor and Owen JJ
• Correct conclusion is that the widow was a party to our contract is clear that she is entitled to receive the royalties payable after her
husband’s death notwithstanding that she, personally, gave no consideration for the company’s promise à we do not accept this
o If one of two joint promises provides the consideration for a promisor’s promise the other promisee cannot sue to recover
monies payable according to the promisee
• It is apparent that in such circumstances at common law an action to recover must have been brought by both promisees and that it
would fail if it were brought by one alone
Windeyer J (dissenting)
• Last clause be read as part and parcel of a contract by which in consideration of the grant by the deceased of the sole right to take
stone from the land, construction company promised to pay in way provided
• Transaction can then be analysed in terms of contract in two ways:
o One is that company by its agent O’Neill promised Coulls and his wife for valuable consideration that it would pay royalties
to them for their joint lives and afterwards to the survivor: CORRECT
o Other: company promised Coulls alone for consideration moving from him alone that it would pay the royalties to him and
his wife for their joint lives and afterwards to the survivor

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• Promise is made to them collectively à must be supported by consideration but that does not mean considerations furnished by
them separately: MEANS CONSIDERATION GIVEN ON BEHALF OF THEM ALL AND MOVING FROM ALL OF THEM
o In such cases the promise of the promisor is not gratuitous, and as between then and the joint promisees, it matters not
how they were able to provide the price of his promise to them
§ The promise of the promisor is not gratuitous and as between him and joint promisees: matters not how they
were able to provide the price of promise to them
• On this view (that they were joint promisees): an action against the construction company during their joint lives have had to be
brought in the names of both. Therefore Mrs Coulls on the basis that she is a surviving joint promisee could now bring an action on
the contract, and in respect of moneys becoming due and payable under it since the death of her husband recover them for herself
alone
Privity rule: only a party to the contract can enforce a contract. Is Doris not a party? à she was not written as ‘I.’ Majority saw this as a
mandate, a direction on how to pay. Windeyer/Barwick à consideration from both.

IV. CONSDIERATION MUST BE SUFFICIENT, BUT NEED NOT BE ADEQUATE
Thomas v Thomas (1842) 2 QB 851: “Motive is not the same thing with consideration. Consideration means something which is of some value in
the eye of the law, moving from the plaintiff; … Now that which is suggested as the consideration here, a pious respect for the wishes of the
testator, does not in any way move from the plaintiff; it moves from the testator, therefore legally speaking, it forms no part of the consideration.
Then it is said that if that be so, there is no consideration at all, it is a mere voluntary gift; but when we look at the agreement we find that it is
not a mere proviso that the donee shall take the gift with the burthens; but it is an express agreement to pay what seems to be a fresh
apportionment of a ground rent, and which is made payable not to a superior landlord but to the executors.”

Chappell & Co Pty Ltd v Nestlé Co Ltd [1960] AC 87
Facts
• Chappell (Ps, appellants before the HL) sought an injunction to restrain breach of copyright held by them in their musical work
‘Rockin Shoes’
• Second defendants had manufactured recordings of the work, consisting of thin films of cellulose acetate mounted on cardboard for
Nestlé
o Nestlé sold these records to members of the public who supplied 1s 6d and three wrappers from their sixpenny chocolate
bars
• Once received the wrappers were thrown away. The purpose of the record sales was to promote sales of the chocolate bars
• Chappell alleged that Nestlé had not complied with the copyright legislation in that they had offered to pay royalties on the basis that
1s 6d was the retail price of the records when it was in fact greater (Wrappers)
• Judgement for Chappell, English CA reversed decision, HL allowed appeal by majority on basis that wrappers were consideration for
the sale of the records and accordingly Nestlé had not complied with copyright legisla.
Held
Per Lord Reid
• It is quite unrealistic to divorce the buying of the chocolate form the supplying of the records. It is a perfectly good contract if a
person accepts an offer to supply goods if he (a) does something of value to the supplier and (b) pays money; the consideration is
both (a) and (b)
• Acquisition of the wrappers did directly benefit Nestlé à I did not see why the possibility that in some cases the acquisition did not
benefit nestle Co and why we should exclude from consideration where it did
o Even where no direct benefit from acquisition of wrappers there was indirect by way of advertisement
• Respondents: delivering wrappers was a condition which gave a qualification to buy and not part of consideration of sale
o But where qualification is the doing of something of value to the seller and where the qualification only suffices for one sale
and must be acquired before another sale, I find it hard to regard the repeated acquisition of the qualification as anything
other than parts of the consideration for the sales
• Purchaser had to send three wrappers for each record so he first had to acquire them: direct benefit to Nestle, and required
expenditure by the acquirer which he might not otherwise have incurred
Per Lord Keith of Avonholm (dissenting)
• To Nestlé pieces of paper worthless: wrappers represent an obligation on Nestlé rather than an extra consideration
• The offer they have made is being accepted by the public
• In the present case there is no reason for assuming that the price paid by the purchaser is paid for anything but the chocolate
• There is ample profit to Nestlé in the sale of the record alone and no reason to attribute something extra in the sale of the
chocolate
Per Lord Somervell of Harrow
• A contracting party can stipulate for what consideration he chooses
• A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away
the corn
• As the whole object of selling the record, if it was a sale, was to increase the sales of chocolate, it seems wrong not to treat the
stipulated evidence of such sales as part of the consideration
May order as many records as you like à but need to satisfy condition.
Was consideration paid by a person to take up Nestlé’s offer? 1s 6d pair OR 1s 6d + 3 wrappers from Nestlé chocolate bars?
Nestlé argued that consideration of wrappers was a condition of supply. But they received indirect/direct benefits à people paid for the
chocolate, benefitted the supplier so is not a condition of supply. Also increased advertising.

CONSIDERATION NOT JUST A PRICE – PRICE + SOMETHING ELSE. IS SOMETHING ELSE PART OF CONSIDERATION OR CONDITION OF SUPPLY?

V. PAST CONSIDERATION IS NOT CONSIDERATION
• Roscorla v Thomas: plaintiff’s pleadings alleged that ‘in consideration that the plaintiff, at the request of the defendant, had bought of
the defendant a certain horse, at and for a certain price, the defendant promised the plaintiff that the said horse was sound and free
from vice’
o Went on to complain that the horse was not sound and free from vice, it was ungovernable and ferocious
o The buying of the horse: D sold horse to P for 30 pounds before the P requested that the horse be sound and free from vice
§ The buying of the horse preceded the giving of the warranty: it was past consideration

lOMoARcPSD|1414388
§ The warranty as to soundness and freedom of vice was not an implied term of the contract itself , the
consideration for which would have been the plaintiff’s promise to accept the goods and pay their price
o No fresh consideration given to promise i.e. horse sold from T1-‐T2 and party goes back to T1 and asks for vice: no
consideration

“It must be taken as a general rule … that the promise must be coextensive with the consideration. In the present case, the only promise that
would result from the consideration as stated, and be coextensive with it, would be to deliver the horse upon request. The precedent sale,
without a warranty, though at the request of the defendant, imposes no other duty or obligation upon him. It is clear therefore that the
consideration stated would not raise an implied promise by the defendant that the horse was sound or free from vice.”

Executed consideration – Is consideration merely past/executed?

Executed consideration à promise is exchanged for an act (Carlill).
Executory consideration à a promise is exchanged for a promise.

• If A finds and returns B’s goods and then B promises A a reward, the return of goods is past consideration for B’s promise
• If the plaintiff has performed services as the request of the defendant, who subsequently promises to pay, the promise will be
enforceable if it was assumed at the time of the request the services would be paid for: this is regarded as good consideration
• Lampeigh v Braithwait: Braithwait, who had been found guilty of a murder, asked Lampleigh to do his best to obtain a pardon from
the King. Lampleigh was active and incurred expense to his end, and later Braithwait promised to pay him 100 pounds. He did not pay
o In Lampleigh’s action in assumpsit, Braithwait argued his promise to pay had been gratuitous and only consideration to be
found being past à but court rejected this argument
§ Promisee did not spontaneously provide the services but did so in response to the promisor’s request: request,
response, promise and payment all the same
o “A meer voluntary curtesie will not have consideration to uphold an assumpsit. But if that curtesie were moved by a suit or
request of the party that gives the assumpsit, it will bind, for the promise, though it follows, yet it is not naked, but couples
it self with the suit before, and the merits of the party procured by that suit which is the difference”
• A promise given at the request of the defendant prior to the rendering of services and on the understanding that the promisor is to
be ‘paid’ will support a subsequent promise by the requesting party to pay for the services rendered

• Past consideration rule does not apply to unilateral contracts i.e. Carlill Smoke Ball – performance of the act that is the consideration

• Existing legal duty rule (ELD) and how case law provides exceptions
o Duties imposed by law: good consid if duty is exceeded
o Contractual duties to third parties
o Part payment of a debt: Rule in Pinel’s case

Re Casey’s Patents; Stewart v Casey [1892] 1 Ch 104
Facts
• In 1887 letters patent were granted to J Steward and T Carlton in respect of their invention. They arranged for the defendant (Casey,
respondent before the English CA) to promise their invention in the commercial world, which he did
o Later the inventors by letter promised to give the defendant a one-‐third share of the patents ‘in consideration’ of his
‘services as the practical manager in working’ the patents
• After Stewart’s death, two of the plaintiffs became executors. The third plaintiff was Carlton. Claimed the return of the letters
patent, which were in the defendant’s possession, and the removal of the defendant’s name from the register of the patents, on
which the letter had been entered
• Held in favour of defendant, P’s appealed, and appeal dismissed à court found that Casey provided an executed consideration and
the promise to Casey was legally binding
Held per Bowen LJ:
• Consideration is stated such as it is à it is ‘in consideration for your services as the practical manager in working with the patents,
we hereby agree to give you a one third share of the patents’
• The consideration is not the rendering od the services, the consideration is the promise to render them which those words imply,
that constitutes the consideration, and the promise to render future services, if an effectual promise, is certainty good consideration
• Look at the document and see if the promise cannot receive a proper effect in some other way
o The fact of a past service raises an implication that at the time it was rendered it was to be paid for, and if it was a service
which was to be paid for, when you get in the subsequent document a promise to pay, that promise may be treated either
as an admission which evidences or as a positive bargain which fixes the amount of that reasonable remuneration on the
faith of which the service was originally rendered
• Here for past services there is amply justification for the promise to give the third share

VI. CONSIDERATION MUST NOT BE ILLUSORY
• Consideration must not be illusory
o Relates to the issue of certainty: sufficiently complete, clauses must have sufficiently certain meaning and no illusory
promises
§ A promise which is no more than a promise to perform a pre-‐existing contractual duty
§ A promise to do something illegal
§ A promise agreed to be binding in honour only and not law
§ Promise accompanied by execution of all liability for breach
§ Uncertain and incomplete promises
§ Discretionary promises
o Executory rather than executed contracts usually illusory

• A promise is illusory if the promisor has an unfettered discretion ins relation to performance
o I.e. the promisor (one giving the promise) decides how when, where to perform

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• Whenever words which by themselves constitute a promise are accompanied by words showing that the promisor is to have a
discretion or option as to whether he will carry out that which purports to be the promise, the result is that there is no contract at all
(Placer Development v Commonwealth per Kitto J)

Placer Development v Commonwealth (1969) 121 CLR 353
Facts
• The ‘New Guinea Timber Agreement’ between Placer (P) and the Cth was entered into in 1952: Cl 1 said that the Agreement had no
effect until approved by Parliament
o Agreement provided for the formation by Placer of a timber company to produce plywood and other timber products in the
Territory of Papua and NG
• Cl 14: If customs duty is paid upon the importation into Australia of the plywood, veneers, logs and other products of the Timber
Company, and is not remitted, the Commonwealth will pay to the Timber company a subsidy upon the exportation of these products
from the Territory for entry in Australia of an amount or at a rate determined by the Cth from time to time, but the amount of
subsidy paid shall not exceed the amount of customs duty paid but not remitted
• The Agreement was subsequently approved by the New Guinea Timber Agreement Act 1952 (Cth)
• Timber company was not paid any subsidy on timber products imported between 1959-‐63 even though customs duty was paid and
not remitted
o Parties to agreement: special case for the opinion of the HC
• Q1 withdrawn, Q2/3 asked whether the Cth was obliged to reimburse all the customs duty paid à all these questions in the negative.
Qn 4: was the Cth nevertheless obliged to pay the timber company a subsidy and if so the basis on which the amount or rate of
subsidy should be calculated
• Cth argued this clause was void because it was uncertain
Held
Per Kitto J:
• Wherever words which by themselves constitute a promise are accompanied by words showing that the promisor is to have a
discretion or option as to whether he will carry out that which purports to be the promise, the result is that there is no contract on
which an action can be brought at all: “Promissory expressions reserving an option as to the performance do not create a contract”
rd
(Leake on Contracts, 3 ed. P3)
• A promise of a governmental subsidy is meaningless in the absence of a specification of some amount or some basis of calculation
o Carries no implication that at least a reasonable subsidy shall be paid – no general standard of reasonableness with respect
to the quantum of a subsidy
o A governmental/legislative determination of quantum is the essence of a subsidy
• Commonwealth’s promise is a promise to pay such subsidy if any as may be decided upon from time to time by or under the authority
of the appropriate repository of Clth power, namely Parliament à NO CONTRACTUAL OBLIGATION
Per Taylor and Owen JJ:
• The clause amounts to no more than a promise to pay what, in all the circumstances, the Commonwealth in its discretion thinks fit
and as such is wholly unenforceable
Per Menzies (dissenting):
• Does cl 14 impose a contractual duty upon the Cth to fix a subsidy in the circumstances stated so that the obligation to pay thus arises
à problem is one of interpretation, question is yes
o Do not regard it as a promise by the Cth to determine a subsidy, not exceeding the specified amount, if and when certain
events occur, as illusory – whole point of clause is to require the Cth to determine what subsidy it will pay in circumstances
stated
Per Windeyer J (dissenting):
• The expression illusory promise is not, as I understand it, here used to mean an illusion that there was a promise: it means a real
promise but one which is devoid of legal consequence. It is illusory, not because it is not a promise but because it deceptively creates
the illusion of a contract where there is none
o By an illusory contract, on the other hand, what is meant by a bilateral transaction having some semblance to a contract,
but not in truth a contract because not capable of creating legally enforceable rights and obligations
• Cl 14 does not reserve to the Cth any option as to whether it will perform the promise it there made: to determine what should be the
amount of subsidy it should pay – but its promise was to determine and amount and pay it, had no discretion to do or not to do this
• When an agreement produces a liability to pay some sum of money and amount is not determined by the agreement: no obstacle to
saying that a reasonable sum was intended
o Principle depends upon there being some criteria by which some reasonableness can be measured/tested
• No trade/business, market/experience to refer difficulty arises … A court could not say whether any sum which the Cth determined to
pay the timber company was not/was a reasonable subsidy: NO OBJECTIVE CRITERIA FOR A REASONABLE SUBSIDY – but because the
court cannot take over the discretion which the Cth undertook to exercise, the Cth is released from its undertaking
• Provisions in Cl 14 amount to a contract: Contractual obligation of the Cth to the plaintff was to decide what sum in its discretion it
considered, having regard to all considerations which weighed with it, commercial/political, would be reasonable to pay the timber
company by way of subsidy and having decided to pay it

• Majority of HC: Qn4 à decided that the Cth was not contractually bound to determine a subsidy. Timber company was not entitled to
any subsidy
o Promise by the Cth was entirely discretionary: consideration was not in issue, but the case shows that where a
discretionary promise is made it cannot be put forward as consideration
Questions from Placer
• Qn 4(a): if the answer to q2 and 3 is no, was the defendant obliged in terms of the agreement to pay to the plaintiff a subsidy?
o Majority = no, Menzies J and Windeyer J = yes
• Qn4(b): if the answer to (a) is ‘yes’ has the defendant an absolute discretion to determine the amount of the subsidy including a
discretion to determine a subsidy of a nominal amount or rate?
o Menzies J = yes, but -‐ no reason to let them not perform promise
o Windeyer J = yes, it has discretion and court cannot take over that discretion (no trade or business, market or experience to
which to refer – i.e. court cannot gap fill by implying a term that Cth pay a reasonable subsidy) but that shouldn’t let Cth off
from its promise
• Qn4(c): if the question to (a) is yes and to (b) is no, on what basis should the amount or rate be calculated?

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o Menzies = up to them to determine

o Windeyer J = discretion, having regard to all the considerations which weighted with it, commercial/political, would be
reasonable to pay the timber company by way of subsidy and pay it
Court could not imply a term here because cou
• ldn’t determine what a reasonable subsidy would be

SUMMARY:
• Always start at agreement. Sometimes do not need to analyse this in depth because it has been already à move to
certainty/consideration
o Maybe not clear they reached agreement so take offer/acceptance analysis as first step
• Contract can be made to one person/whole world
• In case of unilateral contract: PERFORMANCE is how you accept
• Look at revoking offers but also exceptions if paid for promise to keep the offer open to an offeree
• Principles of acceptance must be communicated/comply with terms of offer/method of acceptance/silence
• Certainty: sufficiently complete, sufficiently certain, no illusory promises
• Check for severance
• Check for conditional promises

• Meehan v Jones (REFER PREV NOTES): not an illusory promise
• A promise which is no more than a promise to perform a contractual duty already owed to the other party and a promise to do
something which the law declares to be illegal: illusory considerations
o Other illustrations – agreed to be binding in honour only and not at law, promises accompanied by an exclusion of liability
for breach
• If promisor has complete discretion as to whether they have performed or not à not really promising anything at all. Because of the
reservation of discretion, the promise cannot be regarded as sufficient consideration for another promise
• Executory rather than executed considerations are illusory
• Just as the defendant’s promise must be sufficiently certain in meaning to be enforceable, so must the plaintiff’s own promise which
is put forward
• Dunton v Dunton: Louisa Dunton (P) sued John Dunto to recover 6 pounds alleged to be due under a written maintenance
agreement. Agreement receited dissolution of their marriage and stated that John Dunton was desirous of making provision for
Louisa ‘so long as she …shall conduct herself with sobriety, and in a respectable, orderly and virtuous manner.’ Promised to pay 6
pounds a month subject to proviso he could terminate the agreement if Louisa committed an act whereby she/John might be
subjected to hate, contempt or ridicule
o Majority held that John’s promise was binding: Louisa had provided consideration by making a promise not illusory
o Higinbotham CJ: “it was said that this was only a promise to do that which the plaintiff was already bound to do … and does
not constitute good consideration. In the present case the plaintiff was released by the decree for the dissolution of
marriage from her conjugal obligation to the defendant to conduct herself … and conduct of an opposite character would
not necessarily involve a breach on her part …”
§ “She was legally at liberty … to conduct herself in these respects as the might think fit, and her promise to
surrender her liberty and to conduct herself in the manner desired by the defendant constituted a good
consideration”

Love and affection is not valid consideration
• This is considered to be a motivating actor for why someone acts
• R v Clarke: intention for giving information about the murders was motivated by getting himself off the hook
• White v Bluett: D sued by his late father’s executor on a promissory note which he had given to his father in respect of a loan. D
borrowed money from father and when father died debt still outstanding. Executors sued for payment and son argued that dad had
promised he would forgive the debt in consideration for son to stop complaining that brothers had received preferential treatment
o Court held that this agreement was wholly attributable to father’s desire not to suffer any further annoyance
§ Since the son had no legal right to challenge the father’s distribution, ‘the son’s abstaining from doing what he
had no right to do can be no consideration’
o Since anyone can complain about anything, a contrary holding would mean that a consideration would always be ready to
be fabricated and called into service to support any promise
o Promises with fam members: not intended to create legal relations

Illegal promise is not valid consideration: public policy reason
• If illegality enters the picture only by reason of the manner of performance which the plaintiff has chose, contract is valid but public
policy may prevent the plaintiff from enforcing it

VII. PERFORMCING EXISITNG LEGAL DUTIES
“Promise to perform an ELD is not valid consideration at least when the promise is made to a party of a pre-‐existing contract. When it is made
to the promisee of the contract, and it is to do no more than they were bound to do under the contract. The new promise, indistinguishable of
the old, is an illusory consideration” (Wigan and Edwards per Mason J).
• Promise to perform an existing legal duty is not consideration à contract law recognizes as valid only promises supported by
consideration, so that requirement applies to promises by parties to existing contracts in the same way as it applies to promises by
persons not contract bound
• Comes up with a variation of the contract i.e. at T3
o To vary a contract: must be fresh consideration because changing the promise à so there is a NEW PROMISE which is
binding only if there is consideration
§ Difficulty arises when one of parties to existing contract says I will not be able to perform unless you pay me
more money: i.e. Roffey Bros or Musumeci v Winadell
• One party changes, other stays the same – is the latter party having good consideration?
• This rule also applies when a person agrees to accept paymet in part for a debt – contractual or otherwise
• Consideration is required for all simple contract, including those which vary an existing contract

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• Is a promise to perform public duty consideration? In general courts have treated the promise to perform a public duty as not being
sufficient consideration (Collins v Godefroy); but this was rejected in Ward

Performance of existing legal duty is not sufficient consideration unless:
• The performance of a legal duty where the legal duty is exceeded
• Performance of a contractual duty where the performance by beneficiary of the promise confers a practical benefit on the other
party (party modifying the contract): Roffey Bros; Musumeci v Winadell
• Performance of the existing contractual duty represents a bona fide compromise of a legal claim against the other party: Wigan v
Edwards

Stilk v Myrrick (1809) 2 Camp 317
• Two seamen deserted a voyage while at sea. The P was employed as a seaman at 5 pounds a month
• Captain promised the crew that he would share the wages of the deserters with the remaining seamen if they worked the vessel
back to London. They did so. However – held that the captain’s promise not enforceable because the seamen had merely performed
an existing duty
• Since the P was already bound by his contract to do all that he could do to work the ship home, his promise to do this was no
consideration for the promise of extra payment – “Before they sail from London, they had undertaken to do all under the
emergencies to the voyage [when two crew deserted this was such an emergency]”
• If captain had capriciously dismissed the two men might have been different – but these two people walked off

Hartley v Ponsonby
• Facts similar, in that Ponsonby was a captain who promised to may the plaintiff (a mariner) 40 pounds provided that he assisted in
taking a vessel to Bombay with a crew of 19
• When the promise was made the vessel was berthed at Port Phillip and 17 of the crew refused to work and were sent to prison
o The proper complement of crew for the vessel was 36
• In the circumstances that the plaintiff had exceeded his duty and the 40 pounds was payable – fresh consideration had been given
because the shortage of crew made it perilous to continue the voyage with the result that the remaining crew were not bound to
continue to serve
• “This was a free bargain, but here it was not reasonable to expect the seamen to go on because it was dangerous. Thus they became
free to make any new contract that they like”

(A) DUTIES IMPOSED BY LAW: CONSIDERATION ONLY EXISTS IF DUTY IS EXCEEDED
Ward v Byham [1956] 2 All ER 318

• Unmarried parents of a child separated and the mother became housekeeper to a man who with the mother, was ready to let the
child live with them. The mother wrote to the father asking that she have the child and he pay her the 1 pound per week he was
already paying a neighbour to maintain the child
• Father wrote agreeing ‘providing you can prove that she will be well looked after and happy and also that she is allowed to decide for
herself whether or not she wishes to come and live with you’
• Child went to live with the mother to whom the father paid the 1 pound until some seven months later, the mother married,
whereupon the father ceased paying
• In the father’s appeal against a judgement based on failure to perform the agreement à judges held that by the terms of the letter
the mother’s obligation was to prove something to the father
o Because this went beyond her statutory duty to maintain the child, the father’s promise was supported by consideration

Lord Denning MR: “I approach the case … on the footing that looking after the child, the mother is only doing what she is legally bound to do.
Even so, I think that there was sufficient consideration to support the promise. I have always thought that a promise to perform an existing duty,
or the performance of it, should be regarded as good consideration because it is a benefit to the person to whom it is given. Take this very
case. it is as much a benefit for the father to have the child looked after by the mother as by a neighbour. If he gets the benefit for which he
stipulated, he ought to honour his promise, and he ought not to avoid it by saying that the mother was herself under a duty to maintain the
child.”
(This approach was followed in Popiw , but is hard to reconcile with Glasbrook).

****** LEADING CASE***** Glasbrook Bros Ltd v Glamorgan County Council [1925] AC 270
Facts
• Glasbrook (Ds, appellants before HL) owned a group of collieries in Glamorganshire. During 1921 national coal strike crowds of
miners manned pickets at the collieries and these were sometimes violent
• Glasbrook’s rep, Mr James, insisted on extra police protection. The council was responsible for the local police service
o Seventy men were placed on special duty pursuant to a written agreement under which Glasbrook promised to make
specified payments. The men remained at the collieries until the disputes settled. Police thought this was unnecessary and
adequate protection would be provided in other ways
• Glasbrook refused to pay. Judgement given for the council, decision affirmed by majority of English CA and appeal in HL was
dismissed
o HL considered the issue to be whether the council had agreed to exceed its public duty: because contract with Glasbrook
was binding, they had to pay the 2200 pounds to police
Held
Viscount Cave LC
• Where individuals desire that services of a special kind which, though not within the obligations of a police authority, can most
effectively be rendered by them, should be performed by members of the police force, the police authorities may ‘lend’ the services
of constables for that purpose in consideration of payment
• On 9 July 1921, did the police authorities, acting reasonably and in good faith, consider a police garrison at the colliery necessary for
the protection of life and property from violence?
o If in the judgement of the police authorities, formed reasonably and in good faith, the garrison was necessary for the
protection of life and property, then they were not entitled to make a charge for it, for that would be to exact a payment
for the performance of a duty which they clearly owed to the appellants and their servants,

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o But if they thought the garrison a superfluity and only acceded to Mr James’ request with a view to meeting his wishes,
then in my opinion they were entitled to treat the garrison as a special duty and to charge for it

Popiw v Popiw [1959] VR 197
Facts
• Helga Popiw (appellant) left her husband in Feb 1957. In order to entice her back to the matrimonial home the husband orally
promised that if she did return he would put the title to the home in their joint names
• Helga returned and stayed for several weeks, until she and her husband quarreled. She then left again
• Was she entitled to enforce the husbands’ promise as a contract?
Held
Per Hudson J
• The objection that the act of the appellant in returning to cohabitation did not amount to valid consideration for the respondent’s
promise was founded on the view that the applicant was already under a duty as the wife of the respondent to return to cohabitation
and this being so it could not be said that by the act of the applicant she suffered any detriment or that the respondent gained any
advantage in exchange for his promise
• What the respondent was to get in exchange for his promise was something which must be regarded as far more advantageous to
him for the right of cohabiting with his wife which he had no means of enforcing and the applicant in returning was submitting to a
detriment in placing herself in a position which she could not have been compelled to occupy
• Though the applicant has established a contract by the respondent to transfer the property in question into the joint names of
himself and the applicant such contract cannot be given effect to in the present proceedings for the lack of the necessary written
evidence
• Held that she had provided consideration for her promise by doing the requested act
(Exercise of her free will to return, not her duty).
Consideration exists if duty is owed to a third party, but not if owed to other contracting party.

If A already owes a contractual duty to X, and B promises to pay A a specified sum in consideration for A’s promise to perform (or actual
performance of) the duty owed to X, B is bound by the promise since A is regarded as having provided consideration in the promise to perform (or
the performance of) the duty owed to X OR where A owes a duty to B, the promise to perform that duty will constitute consideration for a
promise made by C.

(B) CONTRACTUAL DUTIES
Consideration exists if duty is owed to a third party, but now if owed to other contracting party

Part Payment of a debt
• Part payment of a debt is NOT CONSIDERATION for a promise to discharge the debt

A-‐B Contract. A perform services for B and B pay A $100 à A performs and B says cant pay $100, will you take $80? A says yes, but still entitled to
$20.

Rule in Pinnel’s Case: “that payment of a lesser sum on the day in satisfaction of a greater, cannot be any satisfaction for the whole because it
appears to the judges that by no possibility, a lesser sum can be a satisfaction to the plaintiff doe the greater sum: but the gift of a horse, hawk or
robe etc might be more beneficial to the plaintiff than the money, in respect of some circumstance or otherwise the plaintiff would not have
accepted it in satisfaction.”

Foakes v Beer (1884) 9 App Cas 605
Facts
• In 1875 Julia Beer (P, respondent before the HL) recovered judgement against John Foakes for 2090 pounds 19 s.
• Foakes requested time to pay and paid 500 pounds in part satisfaction of the debt under an agreement dated 21 December 1876.
The agreement stated that ‘on condition of’ Foakes paying 150 pounds twice a year until the total debt had been fully paid, Beer
would not enforce the judgement
• Plaintiff took out a summons to enforce the judgement for 2090 19s and a trial was ordered on the issue of what amount was due for
payment on 1 july 1882. By that day the 2090 19s had been paid, but the plaintiff claimed interest on the judgement debt
• Cave J held that the 1876 agreement barred any action on the judgement, including interest. The decision was reversed by the
English CA which entered judgement for the accured interest as it considered the proper construction of the agreement to be that
Beer had agreed to give up her right to interest. D appealed to HL and majority held that Beer did not appear to give up her right to
interest: appeal dismissed
o Held also that even if Julia had promised to give up her right to interest, she was not bounded by the promise because it
was not supported by consideration
Held
Lord Blackburn:
• The Court of Appeal based their judgement on the ground that accepting and taking 500 pounds in satisfaction of the whole 2090 19s
subject to the condition that unless the balance of the principal debt was paid by instalments, the whole might be enforced with
interest
o If instead of 500 pounds in money it had been a horse valued at 500 pounds or a promissory note for 500 pounds the
authorities are that it would have been a good satisfaction but it is said to be otherwise as it was money
• There are two things here: First that where a matter paid and accepted in satisfaction of a debt certain might by any possibility be
more beneficial to the creditor than his debt, the court will not inquire into the adequacy of the consideration
o If the creditor, without any fraud, accept it in satisfaction when it was not a sufficient satisfaction it was his own fault and
that payment the day before the day might be more beneficial, and consequently the plea was in substance good and this
must have been decided in the case
• What principally weights with me in thinking that Lord coke made a mistake of fact is my convction that all men of business, whether
merchants or tradesmen do every day recognize and act on the ground that prompt payment of a part of their demand may be more
beneficial to them than it would be to insist on their rights and enforce the payment of the whole. Even where the debtor is perfectly
solvent, and sure to pay at last, his often is so
• Where the credit of the debtor is doubtful it must be more so

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Lord Watson said Beer had not promised to give up her right to interest. But on the assumption that he was wrong in his construction of the
agreement said there was no consideration for such a promise.

Practical benefit exception to ELD (contracts)
• Party modifying the contract obtains a practical benefit from the beneficiary’s promise to perform an existing legal duty
• Williams v Roffey Bros: Glidewell LJ’s 6 factors
o Performing ELD is not valid consideration unless your promise of continued performance confers a practical benefit from
this
• Musumeci v Winadell: Santow J extends Williams to situations where modifying party agrees to accept less $$

Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1
Facts
• Roffey had contract with housing company to refurbish 27 of 28 flats on a block. That contract contained a liquidated damages clause
for late performance: each day late in performing set amount has to be paid
• Roffey Bros contracted Mr Williams to do the carpentry work for them. He agreed to do the labour and work for a fixed price of 20
000 pounds. Nothing to imply this was to be paid by installments
o Crew began work and completed one task, started on all flats and substantially completed 9 flats – ran out of money
• A substantial part of the agreed price (16 200 pounds) had been paid when the plaintiff’s financial difficulties prompted the
defendants to promise to pay an extra sum payable at an agreed rate per flat
o Common ground that the contract had been underpriced and Williams had failed to adequately supervise his workmen
o Clear to Roffey Bros: risk that Williams would not complete work on time to RB promised to pay Williams an extra sum of
10, 300 pounds payable at the rate of 575 pounds per flat in respect of which the carpentry work was completed – promise
to complete
• Williams continued to work for months then ceased work on all flats. Between the making of the extra sum agreement and the
plaintiff’s abandonment some 8 extra flats had been substantially completed.
• Subject to a deduction for certain defects in the work, the court held that the plaintiff was entitled to recover 4600 pounds
o Objection to this decision: p did less than contractual duty in performing the work
• The work which was done could nevertheless have been regarded as sufficient consideration had the second agreement been in the
form of a termination of the old and substitution of the new, but the trial judge held this was not the intention of the parties
o No consideration by Williams to support the promise of 575 pounds per flat: only RB had benefitted from the variation
• Plaintiff thus entitled to recover agreed sum for the flats
• The benefits which the defendants were said to have obtained (and disbenefits they avoided) were a measure of protection against
the risk of the main contract to refurbish they would be liable to pay liquidated damages for delay, and the avoidance of the trouble
and expense of finding a replacement for the plaintiff
Held
Glidwell LJ:
A= Williams, B = Roffey Bros
1. If A entered into K with B to work for, or to supply goods and services to B in return for payment by B
2. Before A completely performs obligations, B has reasons to doubt whether A will perform his side of the bargain
3. B thus promises A additional payment in return for A’s promise to perform
4. As a result of giving this promise (Williams to perform), B obtains in practice a benefit or obviates a disbenefit
5. B’s promise is not a result of economic duress or fraud on A’s part
a. If my consent to contract has been tainted by your fraud or duress – my consent wasn’t freely given, it was vitiated by your
conduct
6. Benefit to B is thus capable of being consideration for B’s promise

Williams promised to keep performing the contract was valid consideration and conferred a practical benefit on RB.

Musumeci v Winadell (1994) 34 NSWLR 723
Musumeci’s leased a shop in a shopping centre run by Winadell. Winadell subsequently leased another shop in the centre to a competing business.
Musumeci’s asked for a rent reduction to compensate for this and Winadell agreed. When a dispute later arose Winadell sought to terminate the
lease and Musumeci sought damages for breach, relying in part on Winadell’s promise to charge a reduced rent.

Have the tenants given consideration for the landlord’s promise to accept a reduced rent?
Benefit to lessor: here the lessor had greater assurance of the lessees staying in occupation and maintaining viability and capacity.
Detriment to lessee: Risking their capacity to survivie against much stronger competitor, by staying in occupancy under their lease, rather than
walking away at the cost of damages.
• (1) If A (e.g. Musumeci) has entered into a contract with B to do work for, or to supply goods or services to, B in return for the
payment by B, and
• (2) At some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or be
able to, complete his side of the bargain and
• (3) B thereupon promises A an additional payment or other concession (such as reducing A’s original obligation) in return for A’s
promise to perform this contractual obligation at the time, and
• (4)(a) As a result of giving his promise B obtains in practice a benefit, or obviates a bisbenefit provided that A’s performance having
regard to what has been so obtained, is capable of being viewed by B as worth more to B than any likely remedy against A (allowing
for any defences/cross-‐claims), taking into account the cost to B of any such payment or concession to obtain greater assurance of A’s
performance
• (4)(b) as a result of giving his promise, A suffers a detriment (or obviates a benefit) provided that A is thereby foregoing the
opportunity of not performing the original contract in circumstances where such non-‐performance, taking into account B’s likely
remedy against A (and allowing for any defences or cross-‐claims) is capable of being viewed by A as worth more to A than performing
that contract
• (5) B’s promise is not given as a result of economic duress or fraud or undue influence or unconscionable conduct on the part of A
nor is it induced as a result of unfair pressure on the part of A, having regard to the circumstances, then, [extends to other possible
kinds of pressure]

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• (6) The benefit to B or the deteriment to A is capable of being consideration for B’s promise, so that the promise will be legally
binding

VIII. FORBEARANCE TO SUE OR COMPROMISE OF A DISPUTED CLAIM – GOOD CONSIDERATION
The courts strive to give effect to contracts intended to settle contractual disputes. In such cases two contracts exist: the contract intended to
settle the dispute is separate from the contract in which the dispute arose. As such this contract of compromise must be supported by separate
consideration.
It is the agreement to compromise the contractual dispute itself which is the source of the fresh consideration as opposed to what the parties
have agreed to do under the the compromise.
• Promise to not sue for a limited period, indefinite or definite, is valid consideration where the substantive claim is one for which the
other party is liable – i.e. if A owes B $10,000 on 1 March, on that day A may ask B not to sue for the debt
o An agreement might be reached, providing that in consideration of B not suing until e.g. 1 June A agrees to grant B a
mortgage of A’s house à promise by b may still be enforced by A
• Where the promise to forbear is not for a fixed time, a reasonable time is implied, but where the agreed consideration is simply
actual forbearance, the notion of forbearance for a reasonable period is apparently not implied, ‘some degree of’ or a ‘certain
amount of’ forbearance being sufficient
• It is in no part of the law that contracts involving this consideration must be express, or that these forms of consideration must have
been identified by the parties expressly
o HOWEVER: a forbearance not requested expressly or by implication or requested but given without being induced by that
request is no consideration

Wigan v Edwards (1973) 47 ALJR 586
Shows that it is the agreement to compromise the dispute which is the source of the fresh consideration – rather than what the parties have
agreed to under the compromise. For that reason, even if one party has – in performing the compromise agreement – in fact done exactly what it
was contractually bound to do there is still consideration.

Facts
• The plaintiffs (Mr and Mrs Edwards, respondents) agreed to purchase land from the D for $15000. On the land was a house, built by
the defendant. prior to completion of the contract of sale, the plaintiffs found defects in the house and told the defendant they
would not go on with the purchase. In return for their promise to go on, the defendant have a written promise dated 22 April 1969:
“I, Steve Wigan, owner and builder of lot 137 Longridge St Mimosa Downs Mt Gravatt. Minor defects set out hereunder I will rectify one week after
finance is approved. Any major faults in construction 5 yrs from purchase date I will repair.”
• Settlement later took place but the plaintiffs alleged (and gave particulars of) minor defects in the building. After the action was
commenced they gave particulars of a major fault. They claimed $6000 damages in DC for breach of defendant’s promise to repair
o Judgement given for the plaintiffs on the basis that the promise by the defendant was given for good consideration –
namely the P’s compromise of their claim
• Appeal to Full Court of QLDSC dismissed, and defendant appealed to HC
• Issue for HC: was there a contract of compromise, and did the major fault have to be brought to defendant’s attention before action
commenced?
o HC agreed there was a binding contract of compromise
o However a majority of the court considered that the promise by the D related to defects which were brought to his
attention. As the particulars furnished before the action was commenced did not disclose the main defect in respect of
which the plaintiffs sought compensation they failed in their claim
§ Matter remitted to DC to determine damages the P’s entitled to in respect of the defects specified
Held (per Mason J):
• Was there valuable consideration for the appellant’s promise?
o A promise to perform an existing duty is no consideration, at least when the promise is made by a party to a pre-‐existing
contract, when it is made to the promisee under that contract and it is to do no more than the promisor is bound to do
under that contract
o New promise, indistinguishable from the old, is an illusory consideration and gives no comfort to a party who by merely
threatening a breach of the contract seeks to secure an additional contractual benefit from the other party on the footing
that the first party’s new promise of performance will provide sufficient consideration for that benefit
• Important qualification to the general principle: promise to do precisely what the promisor is already bound to do is a sufficient
consideration, when it is given by way of bona fide compromise of a disputed claim, the promisor having asserted that he is not
bound to perform the obligation under the pre-‐existing contract or that he has a cause of action under K
o Qualification recognizes that for the court itself to determine and examine the correctness of the promisor’s claim would be
a pointless exercise when the new bargain indicates that the promisee regarded the fresh promise as a benefit, presumably
viewing the promise of performance as more advantageous than the remedies available to him for breach of contract
• But the law, by insisting that the claim in dispute is one which was honestly or bona fide made, prevents the qualification from
assisting the party who would seek to gain an unfair advantage by threatening unscrupulously to withhold performance under a
contract
• It is no objection to the existence of a bona fide compromise of a dispute that the court considers that the claim made by the
promisor that was not bound under the former contract would not have succeeded had the issue been litigated
o But it is open to question whether a bona fide compromise of a dispute is sufficiently established by showing that the
promisor honestly believed that his claim was well founded: there must also be shown that claim was not
vexatious/frivolous
• Respondents honestly believed that having regard to the defective condition of the house, they were not bound to complete.
Although the majority of the defects on which the respondents relied would have not justified a refusal to complete the contract,
there were many defects. In addition, the water had not been connected and the fence had not been erected à in these
circumstances the respondents’ claim that they would not complete cannot be described as a frivolous/vexatious claim
o The respondents merely asserted that they would not complete until the matters of which they complained were set right.
They did not threaten to bring an action or to defend a suit for specific performance. However a threat to bring an action or
enter a defence is not an essential element of a bona fide compromise: it is enough if there is a claim that the contracting
party is not bound to perform the contract: respondent’s claim of this kind
• Appeal allowed (by majority) à VALUABLE CONSIDERATION

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Bona fide compromise of a legal claim: Mason J in Wigan v Edwards (Mason J)
• When it is a bona fide compromise
• Have I got a legal claim?
• Promisor (E) asserts
o He is not bound to perform obligation under existing K or that he has a cause of action under that K AND
o This claim is not vexatious or frivolous
• The promise of performance by B is more advantageous to W than remedies available to him for breach of K
o You always need to analyse this aspect on the facts of your case if bfc is an issue


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LECTURE 5: ESTOPPEL

C. ESTOPPEL AND ITS EFFECT ON CONSIDERATION
If certain requirements are met, a person is precluded from taking a certain step or not permitted to deny that a particular fact is true when it is
in fact false. To say that a person is ‘estopped’ is to say that a person is ‘precluded.’

Common Law Estoppel
• Estoppel is concerned with inconsistent conduct by A which causes harm to B as a result of B relying (detrimental reliance) on A’s
promise
A promises to pay B $10 000 next week. B books a holiday with non-‐refundable deposit of $5000. Next week comes and A does not pay. A’s
conduct is inconsistent. A’s promise wouldn’t constitute a contract: no consideration (as no bargain can be seen NOR the benefit/detriment
requirement).
• This principle prevents a party from asserting a contrary position i.e. precludes them from saying something, most likely a denial
• If you find your contract does not fulfill contractual obligations/is breached: can uphold estoppel. The effect of estoppel will be to
determine the outcome based as if the representation is true
• The object of estoppel is “to prevent an unjust departure by one person from an assumption adopted by another as the basis of
some act or omission which, unless the assumption be adhered to, would operate to that other’s detriment” (Thompson v Palmer per
Dixon J at 547).
There is a contrast between object of estoppel and the object of consideration. The purpose of the concept of consideration is to mark off those
promises the breach of which gives rise to contractual remedies. The purpose of the concept of estoppel is to prevent unjust departures from
justified assumptions. Estoppel does operate as a substitute for consideration. The purpose is not to make promises or representations binding in
the same ways as contracts.

Estoppel by representation
BASED ON EXISTING FACT.
When:
• A (the representor) makes a representation as to an existing state of affairs; and
• B (relying party) takes detrimental action on the faith of that statement
Then
• A (the representor) is ‘estopped’ from denying the truth of that statement
ESTOPPEL THOUGHT TO OPERATE MERELY AS A SHIELD, NOT A SWORD.

Equitable Estoppel
• This is enforced when it relates to promises in the future i.e. “I will pay you money” à NOT a representation of existing fact

Equitable ‘exceptions’ to the rule in Jorden v Money
In Jorden v Money, the HL held that only a representation of fact, not a promise, can give rise to an estoppel, and the principle of ‘promissory’
estoppel has nothing in common with estoppel in its original sense.

Proprietary estoppel:
• A induces or encourages an assumption that B has or will be given an interest in A’s land; and
• B acts to his or her detriment on the faith of the promise,
Then
• This raises an ‘equity’ (i.e. prima facie entitlement to relief) against the promisor

Promissory estoppel (all future promises that don’t relate to land)
• A leads B to believe that certain contractual rights won’t be enforced; and
• B acts on that promise
Then
• A is prevented from enforcing those rights

[PROMISE/REASONABLE AND DETRIMENTAL RELIANCE/UNCONSCIONABLE].
The traditional view was that although promissory estoppel may be used as a defence, the promise does not give rise to a cause of action.
Metaphorically, it was thought to operate merely as a shield but not as a sword.

Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
Facts
• Mr and Mrs Maher (respondents in HC) negotiated with Waltons for Waltons to lease property owned by the Mahers in the business
district of Nowra. It was contemplated that an old building on the site would be demolished and that the Mahers would erect a new
building (to specifications approved by Waltons)
• On 21 Oct 1983 Waltons’ solicitors sent a draft lease to the Mahers’ solicitors. Certain proposed amendments were discussed and
Waltons’ solicitors were informed that Mahers had begun to demolish the old building. New building was said to be completed by 5
Feb 1984. On 7 Nov 1983 the Mahers’ solicitors informed Waltons’ solicitors that the agreement had to be completed in the next day
or two otherwise it would be impossible for the new building to be completed in time
o They said the Mahers did not want to demolish a new part of the old building until it was clear there were no problems
• On the same day Waltons’ solicitors sent to the Mahers’ solicitors fresh documents incorporating the agreed amendments and
stating:

“We have not yet obtained our client’s specific instructions to each amendment requested, but we believe that approval will be forthcoming. We
shall let you know tomorrow if any amendments are not agreed to”

• On 11 Nov 1983 the Mahers’ solicitors forwarded to Waltons’ solicitors by ‘way of exhcnage’ the documents executed by the
Mahers. The Mahers then began to demolish the new portion of the old building. Waltons became aware of this on 10 December.

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• Because of a projected alteration in its retailing policy and advice that since documents had not been exchanged Waltons was not
contractually bound, Waltons decided not to commit itself and instructed its solicitors to ‘go slow.’ In early Jan 1984 the Mahers
commenced construction of the new building, which was almost 40% complete when on 19 Jan Waltons’ solicitors informed the
Mahers’ solicitors that Waltons did not intend to proceed with the matter. At no time prior to this letter was there any indication that
the amendments were unacceptable or that the Waltons would not exchange contracts
• In the Supreme Court of NSW Mahers awarded damages, holding that Waltons was estopped from denying that a concluded contract
by way of exchange existed. Waltons appealed, the CA affirmed the judgmeent
• Waltons appealed to HC but the appeal was dismissed
Held
Mason CJ and Wilson J
• Respondents assumed that exchange of the contracts would take place as a matter of course, not that exchange had taken place
• In Australia there is an obvious interrelationship between the doctrines of consideration and promissory estoppel, promissory
estoppel tending to occupy the ground left vacant due to the constraints affecting consid
• The proposition, by making enforcement of the promise conditional on (a) a reasonable expectation on the part of the promisor that
his promise will induce action or forbearance by the promisee and (b) the impossibility of avoiding injustice by other means, makes it
clear that the promise is enforced in circumstances where departure from it is unconscionable. Note that the emphasis is on the
promisor’s reasonable expectation that his promise will induce action or forbearance, not on the fact that he created or encouraged
an expectation in the promisee of the performance of the promise
o Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other
party to ignore the assumption
• A failure to fulfill a promise foes not of itself amount to unconscionable conduct, mere reliance on an executory promise to do
something, resulting in the promisee changing his position or suffering detriment does not bring promissory estoppel into play –
something more
o This may be found if at all in the creation or encouragement by the party estopped in the other party of an assumption that
a contract will come into existence or a promise will be performed and that the other party who relied on that assumption
to his detriment to the knowledge of the first party
• Was the A entitled to stand by in silence when it must have been known that the respondents were proceeding on the assumption
that they had an agreement and that completion of the exchange was a formality?
o The element of urgency that pervaded the negotiation of the terms of the proposed lease was the first factor
o The second factor was that the respondents executed the counterpart deed and it was forwarded to the appellant’s
solicitor. The assumption on which the respondents acted thereafter was that completion of the necessary exchange was a
formality
• The appellant was under an obligation to communicate with the respondents within a reasonable time after receiving an executed
counterpart deed and certainly when it learnt on 10 December that demolition was proceeding. It was not entitled simply to retain
the counterpart deed by the respondents and do nothing … The appellant’s inaction, in the circumstances, constituted clear
encouragement of inducement to the respondents to continue to act on the basis of the assumption which they had made. It was
unconscionable, knowing that the respondents were exposing themselves to detriment by acting on the basis of a false assumption,
to adopt a course of inaction which encouraged them in the course they adopted
o The appellant is estopped in all the circumstances from retreating from its implied promise to complete the contract
Brennan J
• Waltons made no contract with the Mahers that Waltons would execute and deliver the original deed. It seems likely that on and
immediately after 11 November, Waltons intended to do so… It seems clear from the passage of Mr Maher’s evidence that the
Mahers expected an exchange would be complete
• Sometimes it is necessary to decree that a party’s expectation to be specifically fulfilled by the party bound by the equity, sometimes
it is necessary to grant an injunction to restrain the exercise of legal rights either absolutely or on condition, sometimes it is necessary
to give an equitable lien on property for the expenditure which a party has made in it … However in moulding its decree, the court, as
a court of conscience, goes further than what is necessary to prevent unconscionable conduct
• A promissory or proprietary estoppel may arise when a party, not mistaking any facts, erroneously attributes a binding legal effect to
a promise made without consideration. But, if the part raising the estoppel is induced by the other party’s promise to adopt an
assumption or expectation, the promise must be intended by the promisor and understood by the promisee to affect their legal
relations
• It is essential to the existence of an equity created by estoppel that the party who induces the adoption of the assumption or
expectation knows or intends that the party who adopts it will act or abstain from acting in reliance on the assumption or expectation
o When the adoption of an assumption or expectation is induced by the making of a promise, the knowledge or intention
that the assumption/expectation will be acted upon may be easily inferred
• The concern that a general application of the principle of equitable estoppel would make non-‐contractual promises enforceable as
contractual promises can be allayed. A non-‐contractual promise can give rise to an equitable estoppel only when the promisor
induces the promisee to assume or expect that the promise is intended to affect their legal relations and he knows or intends that the
promisee will act or abstain from acting in reliance on the promise, and when the promisee does so act or abstain from acting and the
promisee would suffer detriment by his action or inaction if the promisor were not to fulfill the promise (almost looks like contract:
consideration)
o A contractual obligation is created by the agreement of the parties, an equity created by estoppel may be imposed
irrespective of any agreement by the party bound
• Waltons knew the belief under which Mr Maher was labouring when Waltons became aware that Mr Maher was doing the work
specified in the deed. Waltons deliberately refrained from correcting what Waltons must have regarded as an erroneous believe
o Silence will support an equitable estoppel only if it would be inequitable thereafter to assert a legal relationship different
from the once which, to the knowledge of the silent party, the other party assumed or expected
• The retention of the counterpart deed and the absence of any demur as to the schedule of finishes or terms of the deed was
tantamount to a promise by Waltons that it would complete the exchange
• Waltons remained silent in order to have the benefit of the proposed contract if and when Waltons should decide to execute and
deliver the original deed. Waltons’ silence induced Mr Maher to continue either on the assumption that Waltons was already bound
or in the expectation that Waltons would execute and deliver the original deed as a matter of obligation: it was UNCONSCIONABLE for
Waltons to seek to withdraw after a substantial part of the work was complete

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• As the Mahers would suffer loss if Waltons failed to execute and deliver the original deed, an equity is raised against Waltons. That
equity is to be satisfied by treating Waltons as though it had done what it induced Mr Maher to expect that it would do, namely by
treating Waltons as though it had executed and delivered the original
Deane J
• Waltons was precluded from denying the existence of a binding agreement for lease
• In so far as estoppel by conduct is concerned, that statement is generally true only in the very limited sense that such an estoppel
operates negatively to preclude the denial of/ departure from the assumed or promised state of affairs does not constitute
independent cause of action
• The Waltons had by its conduct led the Mahers to assume mistakenly that the exchange of contracts was a mere formality which
would be satisfied by Waltons as a matter of course and subsequently knowing that that assumption had become false, remained
silent
• Once regard is made to substance, the principles of estoppel by conduct can be applied as effectively to a representation or induced
assumption of future conduct as they can to one of existing fact
• Notions of good conscience and fair dealing, enforced by the rationale of legal doctrines precluding unjust enrichment, point towards
a conclusion that, in such circumstances, the prospective lessee should be precluded from departing from the mistaken assumption
about his future conduct
SUMMARY:
• Effect of estoppel: stopped Waltons denying the existence of a binding agreement with them and the Mahers
• HC: difference of opinion on the basis of estoppel
• Deane/Gaudron: assumption of existing fact
• Mason and Wilson/Brennan: Maher’s acted on the basis that the Maher’s would complete: promissory estoppel
• Mason/Wilson: (1) – Urgency driven by Waltons who knew that Mahers were relying on statements which encouraged them to act,
(2) Believed that Maher’s assumed that exchange was a mere formality, (3) Not just that Mahers relied on Walton’s promise – they
knew and did nothing

William A Drennan v Star Paving Co (1958) 333 P 2d 757
Facts
• In 1955 the P (Drennan) was preparing a tender (bid) for the construction of a school (the Monte Vista School Job). Potential sub-‐
contractors telephoned the plaintiff, giving their tenders for particular parts of the job. The defendant’s estimator phoned in a tender
for paving work and his tender ($7131.60) was the lowest
• The lowest tenders (including the defendant’s) for the various components were used by the plaintiff in preparing his tender. The
plaintiff was awarded thre construction contract. However, the defendant refused to do the paving work for less than $15000
o P engaged in another contractor, who did work for $10 948.60
• Plaintiff sued to recover damages in the Supreme Court of California and was awarded $3817 [the difference he paid]
• The defendant appealed to the HC and the appeal was dismissed. Held that even though there was consideration to support the
promise to do the work – the fact that the offer to do the work was withdrawn prior to acceptance – defendant liable for breach of
the promise
Held
• Defendant had a reason to expect that if its bid proved the lowest it would be used by the P. it induced action …. Of a definite and
substantial character on the part of the promisee
• Reasonable reliance serves to hold the offeror in lieu of the consideration ordinarily required to make the offer binding
• Whether implied in fact or law, the subsidiary promise services to preclude the injustice that would result if the offer could be
revoked after the offeree had acted in detrimental reliance thereon
• It was reasonable to suppose that the defendant submitted its bid to obtain the sub contract. It was bound to realize the substantial
possibility that its bid would be the lowest, and that it would be included by the plaintiff in his bid. It was to his own interest that the
contractor be awarded the general contract: the lower the sub-‐contract bid, the lower the general contractor’s bid was to be and
greater chance of acceptance
• Defendant had reason not only to expect plaintiff to rely on his bid but to want him to. Clearly D had a stake in P’s reliance in his bid
o Given this interest and the fact that P is bound by its own bid, it is only fair that P should have at least an opportunity to
accept D’s bid after general contract has been awarded to him
• P had no reason to know that D had made a mistake in submitting his bid, since there was usually a variance of 160 percent between
the highest and lowest bids for paving in the desert around Lancaster. He committed himself to performing the main contract in
reliance on defendant’s figures. Under these circumstances defendant’s mistake, far from relieving it of its obligation constitutes an
additional reason for enforcing it, for it misled plaintiff as to the cost of doing the paving
• Judgement affirmed

Austotel v Franklins (1989) 16 NSWLR 582
• Letter of intent given by Franklins to enter into a lease for the purpose of opening a supermarket in Mosman. For two reasons this
was not a K
o Franklins said on a number of occasions that entry into a formal contract would have to wait until other projects completed
§ Franklins did however say that it would honour the letter of intent save in ‘extenuating circumstances’
o Increase in the floor area of the supermarket so the rent for the lease of never agreed
• Austotel was under pressure from financiers to provide evidence of commitment on the part of Franklins: given in the form of letters
from Franklins to the financiers, and one said that Franklins had entered into a lease. Ultimately Austotel discontinued negotiations
and leased supermarket to another party: Franklins sought order for grant of lease
o Although lease not signed, Franklins incurred substantial costs and had communicated commercially significant info to
Austotel about the setting up of a supermarket
• Kirby P: emphasized the relative equality in bargaining position between the parties and said court should be slow to allow
promissory estoppel to operate in clear contradiction to the intentions of the parties
o Franklins consciously refrained from entering into the lease for good commercial reasons, but it misjudged hold it had over
A
o No substantial detriment/unconscionability
• Rodgers AJA: said that for Franklins to succeed a combination of encouragement would be entered into and Austotel standing by
while expenditure was incurred, was necessary: it wasn’t present because Franklins had intentionally refrained from entering contract

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o Franklins wasn’t encouraged to proceed: took a deliberate gamble that the contract would not materialize
HC has never agreed on a set source of elements for estoppel

Brennan J’s elements of estoppel (p 172 CASE BOOK)
1. Assumption that a legal relationship exists or will exist or expected that a particular legal relationship would exist and the defendant
would not be free to withdraw from it
2. Inducement
a. D induced the P to adopt the assumption
3. Action in reliance
a. P acts or abstains from acting
4. Knowledge of reliance or intention to induce reliance
a. D knew or intended the P do so
5. Detriment arising from reliance if assumption not fulfilled
a. P arising/inaction: detriment if assumption not fulfilled
6. Failure to avoid detriment
a. D failed to act to avoid the detriment

Priestly JA’s formulation
Used more frequently than Brennan’s à yet HC still has not decided on one.
From Silovi Pty Ltd v Barbaro & Ors, and Austotel Pty Ltd v Franklins Self-‐Serve:

• Assumption by plaintiff
o That K will come into existence
o A promise will be performed
§ BOTH OF THESE HAVE KNOWN CONTENT
o An interest will be granted to P by the D
• Created or encouraged by def
• Reliance by pl
• Departure from assumption by defendant in the circumstances would be unconscionable

Elements of equitable estoppel – The Essential 3
1. Assumption: relying party has adopted an assumption
2. Inducement: assumption must have been induced by conduct of representor
3. Detrimental reliance (action and harm): relying party has acted on the assumption in such a way that he or she will suffer detriment if
the representor does not adhere to the assumption

Other 3 elements that will vary in importance, depending on the facts
• Reasonableness (conduct of the person to whom promise made)
o Of reliance
o Of action taken in reliance
• Unconscionable conduct
• Departure/threatening departure

Assumption
• Not every statement gives rises to estoppel
• IDENTIFY THE RELEVANT ASSUMPTION
o Existing Fact à common law estoppel
o Future conduct à equitable estoppel
o What did the representor say/do? This must be clear so that this is the only assumption you could have adotped
• Must it be about an existing legal relationship?
o Brennan J from Waltons Stores – must be about a legal relationship, either existing or future relationship ‘and defendant
would not be free to withdraw from the relationship’
o Existing or future legal interest: Giumelli v Giumelli
• Priestly JA in Austotel Pty Ltd v Franklins Self-‐Serve extends nature of assumption and adopts a broad view
o Look at W v G from a broad view: questions whether assumption must relate to a legal relationship or interest
• Representation on which assumption made must have a definite or certain element to it: Mobil Oil v Wellcome
• Promise must be both clear and unequivocal: Legione v Hatley

W v G (1996) 20 Fam LR 49
• W and G lived together in a lesbian relationship for several years
• W wanted children and G agreed to share responsibility for the welfare of the children with W
• During the relationship W conceived and gave birth to two children through a process of artificial insemination in which G assisted
• W and G later separated
• W instituted proceedings seeking child support and won
o Promise was not contractual/legal relationship, but a promise that would be performed i.e. “I will provide you with child
support”

Inducement
• Usually express but need not be
o Waltons – inaction or silence
• Where no express representation is made
o Some other factor must make it unconscionable or unjust for representor to act inconsistently with the assumption (Deane
J in Cth v Verwayen)
• LOOKING FOR SOMETHING SAID OR DONE BY REPRESENTOR/DEF TO ESTABLISH THAT PERSON CAUSED THE ASSUMPTION TO ARISE

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Detrimental reliance
• ESSENTIAL REQUIREMENT: Thompson v Palmer per Dixon J
• Identify the acts of reliance on the facts
• What is the result of the acts if representor/def acts inconsistently to the assumption made?
o B adopted an assumption induced by statement/conduct by A. then B acts à what does he do? The detriment occurs later
when A tries to withdraw from the original statement
§ In Waltons, the Mahers – demolishing and building a new building looked detrimental in the end
• Expectation loss: loss resulting from the denial of the relevant assumption or breach of the promise (i.e. the loss of the expected
benefit) per Mason CJ in Verwayen – detriment in broad sense
• Reliance loss: detriment suffered as a result of reliance on relevant assumption: this is detriment in the narrow sense
• Detriment must be ‘material’ or ‘substantial’: Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd
• Assess detriment at the time the representor seeks to resile from the relevant assumption: Je Maintiendrai Pty Ltd v Quaglia
Types of detrimental reliance
Wasted expenditure of money Waltons Stores
Relying parties circumstances Je Maintiendrai v Quaglia
Commencing or continuing litigation Commonwealth v Verwayen
Conceiving and bearing 2 children W v G
Foregoing other careers to work in parents farm Giumelli v Giumelli

• Detriment be not purely financial

Reasonableness
• Focus on the representee (person on who representation was made)
• Did the relying party act reasonably in adopting the relevant assumption?
• Did the relying party act reasonably in taking the relevant detrimental action on the faith of the assumption?
• It might be reasonable to adopt the assumption and take action but only in a limited way …
o I.e. has the person’s reliance gone too far?
th
Equity and Trusts in Australia, 4 Edition: Dal Pont and Chalmers. These points are a way of providing some framework for an analysis of whether
the plaintiff’s reliance on the assumption induced by the defendant was reasonable.
1. Who makes the representation on behalf of the representor?
a. Relevant if dealing with company as is an artificial legal person:
i. Statements those people make on behalf of the company are different – who makes representation?
2. Context in which it is made – Mobil Oil
a. Sales convention, comments that induced sale were a social event
3. Nature and bargaining strength of the parties – Kirby in Austotel v Franklins: two commercial parties of equal bargaining strength,
estoppel shouldn’t come in to help
a. If the parties of equal bargaining strength
b. Imbalance that might be relevant to the reasonableness of reliance on the assumption
i. Waltons more powerful bargaining company: made it more likely that could overcome reasonableness
4. Written contract that is inconsistent with pre contractual negotiations

Unconscionable conduct
• Focus on the representor
• What needs to be unconscionable is the representator’s departure or threatened departure from the representation

Commonwealth of Australia v Verwayen (1990) 170 CLR 394
• 1964: Mr V suffers injuries including psychiatric harm as result of collision of 2 navy vessels engaged in combat exercises
• Mr V didn’t institute proceedings against Cth for some 20 years …
o In the interim: he incurred legal expenses/psychological damage as he thought he would get a remedy
• 1982: HCA decision cast doubt on assumption that Cth did not owe a DOC to members of armed forces during combat exercises
(Groves v Cth)
• 1984: Mr V institutes proceedings
o Cth didn’t plead LAA defence
o Cth didn’t deny it owed Mr V a duty of care
o Cth made representations that a policy decision was basis for this
• 1986: Cth changes policy and sought leave to amend its defences to plead these two defences
• Deane J: “ultimately the question whether departure from the assumption would be unconscionable must be resolved not by
reference to some preconceived formula framed to serve as a universal yardstick but reference to all the circumstances of the cases,
including the reasonableness of the conduct of the other party in acting upon the assumption and the nature and extent of the
detriment …”

A reliance-‐based expectation-‐based approach to relief for estoppel?
• Brennan J “minimum equity” from Waltons Stores was endorsed by Mason CJ, Dawson J, Brennan J, Toohey H and Mchugh J in
Verwayen
• Deane J ‘make good the relevant assumption’ unless unjust to representor
• Gaudron J agreed with Mason J but also felt that usually should make good the relevant assumption unless it can be shown that no
detriment will be suffered that cannot be compensated by some other remedy

Constructive trust as a remedy
Giumelli v Giumelli (1999) 73 LAJR 547

• Giumelli’s had a farm and said to son to stay and work the farm
• Made promises to son but when he married and received an offer from his father-‐in-‐law to work for him, parents tell him Robert stay

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with us and we will transfer the land on which the house stands to you (subdivide the land to create a new lot where the house
stands)
• Acting in reliance upon this assumption: turned down in-‐law offer
o Yet fortunately he separated from this wife
• Meets someone new but Giumelli’s don’t like new wife: do not want to transfer the land anymore
• Brother (Stevens) comes in and makes substantial improvements so he too develops an interest
• Robert given up a lot over the years: tries to bring case in estoppel in that they need to divide the lot and give it to him

From Giumelli:
• It is a ‘remedial response to a claim for equitable intervention made out by the plaintiff’ i.e. it is one way of fulfilling an equity. Other
ways are compensation (as here), injunction or specific performance of contract
• It obliges the legal owner to surrender the property in question i.e. to hold it for and transfer it to the plaintiff
• It is sometimes granted in respect of property that is no longer in the hands of the defendant i.e. if a company director
misappropriates company property and transfers it to her spouse who then sells it, the spouse may be liable to account as a
constructive trustee
• Here the trust did attach to a particular property and was akin to the order for conveyance made in Dillwyn v Llewelyn

I.e. the court said that the parents were estopped. In the interim Stevens had an interest in the land because he was living there and made
improvements to it and due to these interests not as easy to transfer the lost. With constructive trust, the parents held the legal title to the land on
trust for Robert. If they had not done this and held it in their own right, they wouldn’t have had to consider for him. But because they were
trustees, they had to make decisions for the benefit of all the trustees: so no longer free to dispense with it. Therefore the equitable compensation
was awarded because of Stevens’ interest.

The unification of estoppel
• Judgments supportive of unification
o Deane J in Waltons and Verwayen
o Mason CJ in Verwayen
• Some judges, however, treat CL and equitable estoppel as discrete and separate doctrines on the basis that these estoppels serve
different purposes (Gaudron J in Waltons Stores and Brennan J, Dawson J and McHugh J in Verwayen)
• The continued existence of a separate doctrine of CL estoppel, restricted to representations of existing fact, received majority
support in Waltons and was further supported in Verwayen
• The view that the doctrines of estoppel should be treated as a unified doctrine has not yet been accepted by the HC

D. INTENTION TO CREATE LEGAL RELATIONS
ITCLR assessed objectively on the external manifestation of intention. Intention must be neutral and not based on subjective intentions or
internal motivations. The court is not concerned with whether they ACTUALLY INTENDED to do so (i.e. subjective intentions), but if it objectively
looks like it.
• Linked closely to consideration

FAMILY AND SOCIAL SITUATIONS
• In agreements in family settings/social situations there is a rebuttable presumption of no ITCLR à to argue that an inter-‐family
contract does not ITCLR then that party bears the onus of proof to prove this fact
• Experience of life shows that close relatives do not usually intend the various arrangements which they make to create legal relations
and that they prefer to rely on ‘family ties of mutual trust and affection’ (Jones)
o Rebuttable presumptions (between husband/wife) include
§ Written partnerships
§ Agreement to pay and accept a stipulated weekly amount for maintenance and to indemnify as part of a
compromise of litigation comprising cross-‐summonses for assault
§ Agreement by the wife to return to live with her husband in consideration for the husbands’ promise to transfer
title to the matrimonial home in both names
• Cases with promises i.e. for elderly/disabled to devise or make over title to property to a friend/relative in consideration of the
promisee’s taking up residence with the promisor and/or rendering or promising to render household/and or personal services to the
promisor à there is requisite ITCLR at least where the implementation of arrangement requires promisee to give up or dispose of
existing advantages such as advantageous existing place of residence some distance away

Balfour v Balfour [1919] 2 KB 571
• Husband promised to pay 30 pounds per month to his wife in England while the husband returned to Ceylon where he was employed
• Even though the wife had stayed in England on doctor’s advice the English CA held that she could not sue for breach of contract
because the presumption was not rebutted in relation to the maintenance agreement

Atkin LJ at 578-‐9: “…There are agreements between parties which do not result in contracts within the meaning of that term in the law. The
ordinary example is where two parties agree to take a walk together, or where there is an offer and an acceptance of hospitality. Nobody would
suggest in ordinary circumstances that those agreements result in what we know as a contract, and one of the most usual forms of agreement
which does not constitute a contract appears to be the arrangements which are made between husband and wife. It is quite common, and it is
the natural and inevitable result of the relationship of husband and wife, that the two spouses should make arrangements between themselves
…. Those agreements, or many of them, do not result in contracts at all, and they do not result in contracts even though there may be what as
between other parties would not constitute consideration for the agreement … it constantly happens, I think, that such arrangements made
between husband and wife are arrangements in which there are mutual promises, or in which there is consideration in form within the definition
that I have mentioned. Nevertheless they are not contracts and they are not contracts because the parties did not intend that they should be
attended by legal consequences….”

Atkin LJ at 579-‐80 in relation to agreements between spouses: “They are not sued upon, not because the parties are reluctant to enforce their
legal rights when the agreement is broken, but because the parties, in the inception of the arrangement, never intended to be sued upon.
Agreements such as these are outside the realm of contracts altogether. The common law does not regulate the form of agreements between

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spouses. Their promises are not sealed with seals and sealing wax. The consideration that really obtains for them is that natural love and affection
which counts for so little in these cold courts … I think the onus was upon the plaintiff, and the plaintiff had not established any contract.”
• Approved by HCA in Cohen v Cohen (1929) 42 CLR 91: arrangement between an intending husband and wife as to a dress allowance
to the latter not a contract – per Dixon J:
o “But these matters only arise if the arrangement which the plaintiff made with the defendant was intended to affect or give
rise to legal relations or to be attended with legal consequences. I think it was not so intended. The parties did no more in
my view, than discuss and concur in a proposal for the regular allowance to the wife of a sum which they considered
appropriate to their circumstances at the time of marriage”

Jones v Padavatton [1969] 2 All ER 616
Facts
• The defendant (Ms Padavatton, respondent before Eng CA) was a divorced woman aged 34 years and living in Washington in 1962.
She had a good job and salary and pension rights. Her mother, the plaintiff, said that if the defendant went to London to read for the
bar she would pay her an allowance of $200 per month
• In response to this suggestion the D went to England to live (with her son) and her tuition fees at the bar were paid by the plaintiff,
along with 42 pounds per month. However there was no agreement to duration
• In 1964 the plaintiff proposed that she purchase a house in which the D could live – large house was purchased by the P so that
rooms could be let to tenants. None of the rental payments were paid to the P who was paying off a substantial mortgage. In 1965
the D remarried
• In 1967: P sought possession of the house and the D counterclaimed for 1655 pounds 16s 9d which she had spent on the house
o The Country Court judge gave judgement for the D on both claims
o P then appealed to the CA – where the issue was whether the arrangements between the mother/daughter entered into
the realm of contract (so what was the relationship/was it rebutted)
• Appeal was allowed
Held
Danckwerts LJ
• Present case is one … family arrangement which depend on the good faith of promises made and not intended to be rigid, binding
agreements
• The operation about the house was, in my view, not a completely fresh arrangement, but an adaptation of the mother’s financial
assistance to the daughter due to the situation which was found to exist in England. It was not a stiff contractual operation anymore
than the orig arrangement
Salmon LJ
• Did the parties intend the arrangement to be legally binding? In these circumstances apply the objective test
• In such circumstances consider what the parties said and wrote
• Then decide whether the true inference is that the ordinary man and woman, speaking or writing thus in such circumstances, would
have intended to create a legally binding agreement
• When arrangements are made between close relations, there is a presumption against an intention of creating any legal relationship
• Presumption is one of fact, not of law
o Derives from the experience of life and human nature which shows that in such circumstances men and women usually do
not intend to create legal rights and obligations, but intend to rely solely on family ties of mutual trust and affection
• I cannot think that either intended that if, after the daughter had been in London say for 6 months, the mother dishonoured her
promise and left her daughter destitute, the daughter would have no legal redress
• The true inference must be that neither the mother nor the daughter could have intended that the daughter should have no legal
right o receive, and the mother no legal obligation to pay, the allowance
• There was a clear implication that the [studies] were to be completed within a reasonable time … It follows that on no view can she
now in November 1968 be entitled to anything further under the contract which the learned county court judge held that she made
with mother in 1962
• There is no evidence that the mother bargained away her right to dispose of her house, or to evict the daughter whenever she
wished to do so. The evidence shows that all the arrangements in relation to the house were very vague and made without any
contractual intent
Fenton Atkinson LJ
• The problem is difficult, because though one would regard a promise by a parent to pay an allowance to a child during the course of
study as no more than a family arrangement, on the facts of this case the particular daughter undoubtedly gave up a great deal on
the mother’s promise
• Subsequent history gives guide to the parties’ intention
o Daughter thought her mother was promising her US$200 a month which she regarded as the minimum necessary for her
support, the mother promised $200 West Indian in her mind and that is what she paid from 1962-‐64
§ Those payments accepted by the daughter without any sort of suggestion at any stage that the mother had
legally contracted for the larger sum
o When arrangements for the purchase of the house were being discussed, and new arrangement made for maintenance to
come out of the rents, material matters left open
o Daughters’ evidence : “I didn’t open the door because a normal mother doesn’t sue her daughter in court. Anybody with
normal feelings would feel upset about what was happening”
• Those answers and the daughters’ conduct on that occasion provide a strong indication that she had never for a moment
contemplated the possibility of the mother or herself going to court to enforce legal obligations, and that she felt it quite intolerable
that a purely family arrangement should become the subject of proceedings in a court

Other non-‐commercial transactions
• Other agreements in non-‐commercial settings – Ermogenous – question of construction (although trad approach is that no ITCLR
presumed
• Note earlier comments criticizing this approach in Ermogenous
o Could harden into a rule of law that such agreements will not give rise to legally enforceable obligations
• Following Ermogenous, don’t look at relationships such as family relationship to classify contract and thus whether intention exists
• Relationship is one of the factors to be taken into consideration to determine whether the intention requirement exists

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Ermogenous v Greek Orthodox Community of SA (2002) 209 CLR 95 à P190
• Ermogenous archbishop for more than 23 years and he resigned and claimed money for accrued annual long service leave
o If he was an employee he would get these amounts
§ Argued he was employed by the church as the church paid him a salary and they had a right to control his duties
• Series of precedents: minister of religion was not an employee and hence no ITCLR with a minister/church (à principles for
exercising care when using presumptions)
• Search for ITCLR requires an objective assessment of state of affairs between the parties
• It is not a search for the uncommunicated subjective motives of parties
• Circumstances which might be taken into account are so varied, little scope for prescriptive rules such as presumptions
• Consider à can these help rebut the family relations?? (I.e. if its in relation to the sale of a business)
o The subject-‐matter of the agreement
o The status of the parties to the agreement
o The relationship of the parties to one another
o Other surrounding circumstances

Gaudron, McHugh, Hayne and Callinan JJ at 106: “In this context of intention to create legal relations there is a frequent reference to
‘presumptions.’ It is said that it may be presumed that there are some ‘family arrangements which are not intended to give rise to legal
obligations and it was said in this case that it should not be presumed that there was an intention to create legal relations because it was a matter
concerning the engagement of a minister of religion. For our part, we doubt the utility of using the language of presumptions in this context. At
best, the use of language does no more than invite attention to identifying the party who bears the onus of proof…..In this case where issue
was joined about the existence of a legally binding contract between the parties, there could be no doubt that it was for the appellant to
demonstrate that there was such a contract. Reference to presumptions may serve only to distract attention from that more basic and important
proposition.”

COMMERCIAL SITUATIONS
• There is an assumption that parties intend to create legal relations
o Remember the rule of thumb re complex transactions
§ If more complex, the more things the parties must have to have negotiated/agreed upon before you can
objectively say that they ITCLR
o Consider evidence that might confirm the presumption and evidence that might rebut the presumption – construction
§ Successful rebuttals are few and fair
§ Onus of establishing that a commercial agreement was not intended to create legal relations rests on party
contending
o Parties can expressly exclude the intention: Rose & Frank Co v JR Crompton & Bros Ltd
§ This becomes clear from the writing
o Can also infer that parties did not ITCLR: Esso Petroleum Ltd v Commissioners of Customs and Excise

Esso Petroleum Ltd v Commissioners of Customs & Excise [1976] 1 All ER 117
Facts
• Question arose whether there was ITCLR in respect of ‘World Cup’ coins distributed at Esso service stations
• Coins, advertised as being ‘Free from Esso’ were medals of insignificant intrinsic value bearing likenesses of England’s squad for the
1970 World Cup. Millions were produced and the sale of petrol was promoted by an ‘offer’ of ‘one free coin with every 4 gallons’
• In the course of deciding a tax issue, was an ITCLR present?
o Some reliance made on the facts that the coins had little/no intrinsic value – but frequently happens that promotional
coins, posters, cards etc acquire a substantial value to collectors not too many years after the promotion had finished
Held
Dilhorne at 121:
• If what was described as being a gift which would be given if something was purchased was something of value to the purchaser,
then it could readily be inferred that there was a common ITCLR. But here, whatever cost of production, it is clear that the coins were
of little intrinsic value
• I [do not] see any reason to impute to every motorist who went to a garage where the posters were displayed to buy four gallons of
petrol any ITCLR for the supply to him of a coin
o On the acceptance of his offer to purchase four gallons of petrol there was no doubt a legally binding contract for the
supply to him of that quantity of petrol, but I see again no reason to conclude that because such an offer was made by him,
it must be held that, as the posters were displayed, his offer included an offer to take a coin
• The facts in this case negative any contractual intention on his part and on the part of the dealer as to the coin and suffice to rebut
any presumption that there may be to the contrary

Russell at 127:
• The incentive for the garage proprietor to carry out the scheme was such as to make it quite unnecessary to invest, or for Esso to
intent to invest, the transaction with the additional compulsion of a contractual obligation and in all the circumstances of the case I
am unable to regard that the scheme which took place … as something which would be intended to or regarded as creating a legal
contractual relationship
• I regard the minimal intrinsic value of a medal as important
Simon at 121:
• In the first place, Esso and the garage proprietors put the material out for their commercial advantage and designed it to attract the
custom of motorists. Whole transaction took place in a setting of business relations
• In second place, it seems to me in general undesirable to allow a commercial promoter to a claim that what he has done is a mere
puff, not intended to create legal relations
• The coins may have been of little intrinsic value, but all the evidence suggests that Esso contemplated that they would be attractive
to motorists and that there would be a large commercial advantage to themselves from the scheme, an advantage which the garage
proprietors also would share

Rose and Frank Co v JR Crompton & Bros Ltd [1923] 2 KB 261

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Facts
• Rose Frank and Co (P, respondents before English CA), a NY company, dealt in carbonizing tissue paper. The appellants were Eng
manufacturers. After a series of agreements between 1907 and 1911 they entered into an agreement in July 1913
o This gave the plaintiff’s the exclusive selling rights in certain areas
o The defendants were required to sell exclusively to the plaintiffs
• The agreement provided, in part:

“This arrangement is not entered into, nor is this memorandum written, as a formal or legal agreement, and shall not be subject to legal
jurisdiction in the Law Courts either of the US or England, but it is only a definite expression and record of the purpose and intention of the three
parties concerned to which they each honourably pledge themselves with the fullest confidence, based on past business with each other, that it
will be carried thought by each of the three parties with mutual loyalty and friendly cooperation”

• Disputes arose and it was alleged by the P’s that the D’s had repudiated their obligations. They claimed damages. Bailhache J held
that the 1913 agreement was legally binding and awarded damages. D’s appealed
• Court allowed the appeal à did the ‘honourable pledge’ clause deprive the agreement of contractual intent?
o Prior agreements were terminated by mutual agreement
o Though the 1913 agreement did not have the status of a contract, it was held that the D’s were liable for non-‐delivery on
the basis that a contract of sale arose when P’s ordered goods
Held
Bankes LJ
• It is essential to the creation of a contract that the parties shall have intended that it shall have legal consequences and be legally
enforceable. In the case of agreements regulating business engagements it equally follows almost as a matter of course that the
parties intended legal consequences to follow
• The question in the present case resolves itself into a question of construction. I see nothing in the surrounding circumstances which
could justify an interpretation of the language used by the parties in the document of july 1913 other than its ordinary meaning
• Once it is established that the language of the clause is the bona fide expression of the intention of the parties, the matter is in my
opinion concluded, and it becomes manifest that no action can be maintained upon the agreement contained in the document of
1913
Scrutton LJ
• I can see no reason why, even in business matters, the parties should not intend to rely on each other’s good faith and honour, and
to exclude all idea of settling disputes by any outside intervention with the accompanying necessity of expressing themselves so
precisely that outsiders may have no difficulty in understanding what they mean
• If they clearly express such an intention I can see no reason in public policy why effect should not be given to their intention
Atkin LJ
• There must be a common intention of the parties to create legal relations, mutually communicated expressly or impliedly
• If the intention may be negatives impliedly it may be negatived expressly
• In this document construed as a whole, I find myself driven to the conclusion that the clause in question expresses in clear terms the
mutual intention of the parties not to enter into legal obligations in respect to the matters upon which they are recording their
agreement
o I see nothing necessary absurd in business men seeking to regulate their business relations by mutual promises which fall
short of legal obligations, and rest on obligations of either honour or self-‐interest, or perhaps both
• The approach to take is NOT one of repugnancy – the document is otherwise a contract but for that provision – read contract as a
whole

LETTERS OF COMFORT
• Corporate entities are on their own recognized as their own legal persons– own rules/guidelines etc
• Companies can act in corporate groups because they have share interests in each other
• Company in a group may seek a ‘letter of comfort’ from the parent company: this letter is a letter issued to a lending institution by
the parent company acknowledging the approval of a subsidiary company’s attempt for financing
o Does a letter of comfort show ITCLR?
§ Just because a document is called a letter of comfort does not mean it cannot create a contract but also does
not mean that the parties objectively speaking ITCLR

Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502
• Spedley Securities wanted a loan facility from the bank. Bank wanted some kind of insurance from ANI which owned 45% of
Spedley’s parent company, Spedley holdings
• Letter of comfort provided by ANI to the bank
• ANI sold its shareholding in Spedley without giving the bank notice and Spedley then went bust. The bank then tried to enforce the
LOC

“Not our intention to reduce our shareholding in SHL [2(a)]. We would, however, give you 90 days’ notice of any subsequent decisions by us to
dispose of this shareholding [2(b)]…’
• This can be seen as a binding promise – ITCLR
“We … confirm it is our practice to ensure our affiliate SSL will at all times be in a position to meet its financial obligations …[3]”
• Worded in similar language to Kleinwort/Benson

Rogers CJ at 523: “There should be no room in the proper flow of commerce for some purgatory where statements made by businessmen, after
hard bargaining and made to induce another business person to enter into a business transaction would, without any express statement to that
effect, reside in a twilight zone of merely honorable engagement.”


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LECTURE 6: CONTRACTS REQUIRING WRITTEN EVIDENCE

TO HAVE BINDING CONTRACT: AGREEMENT, CERTAINTY, CONSIDERATION, INTENTION. THREE PRINCIPLES CAN IMPACT ON THIS: FORMALITIES,
CAPACITY AND PRIVITY.

Capacity
Two different issues re capacity:
Does the party understand the contract to be able to say he or she freely consented [value of freedom of contract]
• Minors, intoxicated, prisoners, mental illness, nationals of foreign countries, married women, bankrupts

Does the party have the legal capacity to enter into contracts because it is an artificial legal person or because as a legal person its rights are
somehow restricted?
• Corporation: artificial legal person created by the process of registration – have a right to shares, be sued in their own name, right to
contracts
• Eg company: note s 124, Corporations Act 2001 (Cth)
o Corporations have the legal powers of a person and legal powers of a body corporate
• Corporations made up of shareholders, directors and employers – but two key decision making bodies are the board of
directors/shareholders in general meeting
o Artificial person who runs it: need people to make decisions/rules. These are called internal governance rules (can be called
the company’s constitution)
• If a company claims in its object clause it deals with jeans retailing, and it engages in mining activities, these activities -‐ deemed ultra
vires
o That has changed s 125 of the Corporations Act (which abolishes doctrine of ultra vires in Australia) -‐ “The exercise of a
power by the company is not invalid merely because it is contrary to an express restriction or prohibition in the company’s
constitution”
§ The merely because: shows this doesn’t apply in each and every circumstance
• Constitution may impose restrictions on certain powers i.e. with a company as a trustee limitations on what trustees can do
o S125: If a company has a constitution, it may set out the company’s objects. An act of the company is not invalid merely
because it is contrary to or beyond any objects in the company’s constitution
Even though object clause and restrictions on powers may be trying to limit the acts of the company – s125 says it wont. The acts are still valid.
Merely because they are outside constitution doesn’t make the acts invalid. So s124 about contractual capacity à can be challenged in very
limited circumstances (when trip off the merely because).
• A separate issue which may arise with companies is the authority of the (natural) person you are dealing with to be able to commit
the company to transaction (dealt with by diff legal principles!!) – Corp Authority, not corporate capacity [because these are more
important]
o Who of the natural people can commit a company to a contract?
o Who can sign the contracts?
• Bankrupt
Forming a contract: contractual capacity. Enforcing a contract against a company: problem if the person who allegedly has signed doesn’t have
authority to commit the company to the contract.

Formalities (Does contract have to be in a particular form?
• Does the contact need to be in writing to exist
o Purely oral/written, partly oral or partly written Ks
o With some: if not in writing: no contract, void from the beginning
o E.g. transfer of shares in a corporation
§ Under Corporations Act
o Bills of exchange, promissory notes, cheques
• Does the contract need to be in writing or evidenced by writing to be enforced?
o Electronic Transactions Act (2000) NSWà electronic contracts
§ S7 transaction is not invalid because conducted completely or partly via electronic communications
• But if signature required: can provide signature electronically provided other party happy to accept
o National Consumer Credit Code
§ Provides that consumer credit contracts must be in a certain form (with information), signed by debtor and the
credit provider [s14]
§ But the act does not clearly state what the consequences are of not fulfilling those requirements – in terms of
contract it becomes an offence, but nothing that says that the contract is not invalid – so it will stand?
• In contrast to a guarantee of a consumer credit contract under the statute must be in writing to exist:
statute states if its not, not enforceable
§ Overall à contract may not exist, contract may be an offence but still stand, or if you don’t satisfy requirements
the contract is unenforceable
o “Statute of Frauds” (requires some contracts to be signed in writing by all parties to be bound by the contract) à in NSW
requirement is that contract for a disposition of an interest in land (lease, mortgage, sale contract) must be in writing,
signed by the party to be charged s54A of the Conveyancing Act 1919 (NSW)

E. CONTRACTS REQUIRING WRITTEN EVIDENCE
I. CONTRACTS REQUIRING WRITING
Requirements of writing have three main functions:
1. Evidentiary function: way of preventing perjury and ensuring that reliable evidence is received
2. Cautionary function of forcing parties to think carefully about transaction before signing the document

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3. Channeling function: parties may be forced to use a particular form, and similar agreements are given in a similar form
th
Statute of Frauds 1677, s4 And be it further enacted that from and after the said 24 day of June no action shall be brought
whereby to charge any executor or administrator upon any special promise, to answer damages
out of his own estate; or whereby to charge the defendant upon any special promise to answer
for the debt, default or miscarriages of another person, or to charge any person upon any
agreement made upon consideration of marriage, if upon any contract of sale of lands,
tenenments or herditaments, or any interest in or concerning them; or upon any agreement that
is not to be performed within the space of one year from the making thereof, unless the
agreement upon which such action shall be brought, or some memorandum or note thereof shall
be in writing, and signed by the party to be charged therewith, or some other person thereunto
by him lawfully authorised”
Conveyancing Act 1919 (1) No action or proceedings may be brought upon any contract for the sale or other disposition
(NSW) s 54A of land or any interest in land, unless the agreement upon which such actions or proceedings is
brought, or some memorandum or note thereof, is in writing, and signed by the party to be
charged or some other person thereunto lawfully authorised by the party to be charged.
(2) This section applies to contracts whether made before or after the commencement of the
Conveyancing (Amendment) Act 1930 and does not affect the law relating to part performance,
or sales by the court.
(3) This section applies and shall be deemed to have applied from the commencement of the
Conveyancing (Amendment) Act 1930 to land under the provisions of the Real Property Act 1900.
This extends to contracts for the sale of a block of land (With or without a house) and means that
if purchasor and vendor orally agree to a contract, the contract will not be enforceable unless
there is a document providing sufficient evidence of the contract.
In terms of sale/other disposition: a lease, which confers a proprietary interest in the land, must
be evidenced by writing, as must an option or mortgage in relation to an interest in land.
In terms of mere license to occupy/access: does not extent. Where a house owner licenses a
builder to enter land for building purposes, this need not be evidenced by writing because there
is no disposition of any interest in the land.

Note or Memorandum
• The concept of a memorandum or note of the contract: raises the issue of the information which must be contained in the document
o Generally speaking: contain all the terms of the contract, or at least all the ‘essential’ terms
o The parties to the contract must be identified
§ ‘Naming’ of a party is sufficient if he is joined or nominated in the instrument by a sufficiently identifiable
description
• Note or memorandum must state the consideration for the promise sought to be enforced
• Note or memorandum must sufficiently describe subj matter of contract
• Although note or memorandum will usually come into existence after the contract has been agreed, this is not always the case. E.g. a
written offer may be orally accepted and the offer, ‘by its subsequent acceptance’ becomes the note or memorandum
o Although the doc must recognize the existence of the contract sued upon, there is no requirement that it be made for thar
purpose
o Popiw v Popiw: affidavit sworn by the respondent in proceedings which sought determination of qn whether applicant was
entitled to an interest in matrimonial home was held to be a sufficient memorandum of a contract to dispose of an interest
in land
§ Oral promise
§ A note or memorandum of a contract for the purposes of the Statute of Frauds must in order to be available to
an action on the contract have been in existence when the action was commenced (coming into existence after
the action brought is insufficient)
§ A party resisting the enforcement of a contract is entitled to rely upon the statute in an appropriate case
provided he raises it at the proper time
§ Since affidavit was sworn after commencement, fresh proceedings by the applicant were required

II. REQUIREMENT OF WRITING
a) Section 54A does not require the contract itself to be in writing, but that there merely be written evidence of it. The “note or
memorandum” can come into evidence after the contract was made and need not have been intended to provide evidence of the
contract.
b) The document must be ‘signed,’ but this is loosely interpreted
a. Requirement is that signature by the party is to be charged under the contract or by that person’s agent, ‘lawfully’
authorised
b. Griffith CJ in Thomson v McInnes: three different modes of signature, first by a person with his own hand, secondly by an
amanuensis signing the name of another person in that other persons presence by his direction, and thirdly by an agent
[e.g. solicitor – will bind agreement if has authority to sign]
c. Where the name of a party to be charged appears on the alleged note or memorandum, e.g. because it was typed in by the
other party, the so called ‘authenticated signature fiction’ may apply
i. If the party to be charged expressly or impliedly acknowledges the writing as an authenticated expression of the
contract the typed words will be deemed to be his/her signature à but this principle has no application to a doc
‘which is not in some way or other recognizable as a note or memorandum of a concluded agremeent’
c) A number of documents can together constitute the note or memorandum, but there must be some internal reference between them.
The cases do not provide coherent rules. For example, it is unclear how specific the reference must be
a. Thomson v McInnes Griffith CJ: “It is well known that the note or memorandum which the statute requires need not be
contained in one piece of paper. It is sufficient if the note signed by the party to be charged refers to some other document
in such a way to incorporate it with the document signed, so that they can be read together. That has been settled for a
long time. But the whole contract must be shown by the writing. The reference, therefore, in the document signed must be
to some other document as such and not merely to some transaction or event in the course of which another document
may or may not have been written

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b. Harvey v Edwards Dunlop & Co Ltd per Knox CJ, Gavan Duffy and Starke JJ at 307: “They may be connected by reference
one to the other, but further, ‘if you can spell out of the document a reference in it to some other transaction, you are at
liberty to give evidence as to what other transaction is, and if that other transaction contains all the terms in writing, then
you get a sufficient memorandum within the statute by reading the two together’
i. I.e. a reference to some other transaction is sufficient if the transaction contains all the terms in writing
c. Elias v George Sahley & co (Barbados) Ltd: once the required memorandum contains some reference, express or implied, to
some other document or transaction, evidence may be given to identify the other document or explain the other
translation and to identify any document relating to it
i. If oral evidence leads to another document which, when placed side by side with the latter document indicates a
connection between them then that is sufficient
d) The note must contain at all the material terms of the contract, and the failure to include a material term in the oral contract will
mean the note is insufficient. Essential terms include: parties’ names, subject matter, price not required (court able to work out the
price of the contract: may be examples where a price is not known at the time of the contract [i.e. market price on a specific day after
the contract has been signed])

Pirie v Saunders (1961) 104 CLR 149
• Saunders (P, respondent before the HC) claimed damages in the NSWSC for the alleged breach by Pirie and another (Cripps) of an
agreement to grant a lease of shop premises by the defendants
o The claim was unsuccessful, but an appeal to the Full Court resulted in an order for a new trial. Defendants appealed to HC
• Main defence raised was that s54A required written evidence. In seeking to prove a memorandum or note, the plaintiff relied on
notes prepared by the defendants’ solicitor (Hargraves). In this document the property to be leased was described as ‘Lot B Princess
Highway, Sylvania Heights.’
o Certain terms were specified, but such as the rent and duration of the lease, but there was no statement of when the lease
was to commence, and the document contemplated the formulation of further terms
• Did the document contain sufficient information/Was the document ‘signed’ in accordance with the statute?
• Appeal allowed, claim for damages failed. The description of the property was insufficient
Held
• The Full Court by majority took the view that the solicitor’s notes of his instructions were capable of being regarded as sufficient note
or memorandum of an earlier concluded agreement. This view was based upon the so called ‘authenticated signature fiction.’ …
• It is not necessary that the written note must always appear to have been made after the making of the contract for it is clear that a
written proposal or an offer may by its subsequent acceptance become by the conduct of the parties recognizable as a sufficient note
or memorandum of the resulting contract
o Here there is an allegation of prior concluded contract and the solicitor’s notes are said to constitute a note or
memorandum of this contract – but they purport to be and are nothing more or less than a brief notation of his instructions
for the preparation of a draft lease for submission to the respondent’s solicitor
§ Neither the existence of the document nor its contents are indicative of the existence of any binding contract
• Nothing in the evidence to suggest that Cripps had any knowledge of what was being written down – no inference adverse to the
appellants can be based on the so called ‘standing by’
• Even if Cripps can be said to have ‘stood by’ there is no room for the inference that he impliedly recognised the writing as an
authentic record of any prior oral bargain
o Both the character and the contents of the document and the circumstances in which it was composed tell conclusively
against any such inference
o The document of the nature was such as to render any inquiry concerning the solicitor’s authority to make it inappropriate
• There are several reasons why the document could not be regarded as a sufficient note of memorandum. In the first place it does not
specify the property to be leased beyond describing it as part of a Lot. This alone is a fatal objection. Secondly it is clear that the
document does not contain all the terms of the proposed lease for it contemplates formulation of special conditions after
ascertainment of the requirements of Board of Health
• Appeal allowed
OVERALL à NSW ONLY CONTRACTS FOR SALE OR TRANSFER OF INTERESTS IN LAND EVIDENCED BY WRITING. OTHER STATES RETAIN DIFFERENT
RULES. OTHER LEGISLATION MIGHT ALSO INTROUDCE REQUIREMENTS OF WRITING FOR SOME TYPES OF CONTRACTS E.G. NATIONAL CREDIT
CODE.
o If not in writing: can you rely on doctrine of part performance?
Options if cannot enforce written K
Does statute law require my K to be in a particular form?
Look to statute which underlines what consequences are of not satisfying.
With Conveyancing Act: contract or memorandum of it must be signed by the party to be charged (party trying to enforce it against).
• Can documents be joined?
• Is the actual signature needed or is an authenticated signature fiction? (printed name)
• Can I pull together document, parties, signatures: and say yes I have written contract/memorandum. If I don’t have this – PP

III. EFFECT OF NON-‐COMPLIANCE
A. COMMON LAW
A contract not complying with S54A is not void, but unenforceable. Can a party who has done work under an unenforceable contract sue on a
quantum merit for reasonable remuneration?
• Prevents any action on the contract but does not deny its existence
• Damages for breach of contract not possible because such an action is brought directly on the contract
o The plaintiff would be seeking to ‘charge’ D on the contract
• Also true that if money has been paid under a contract which does not comply with the requirement of writing and is therefore
unenforceable, the ‘payee must rely upon such contract to protect his position against a plaintiff seeking to establish some
countervailing claim’
• Where a contract contains several promises, some but not all of which are required to be evidenced in writing, the absence of a
written note or memorandum renders the whole contract unenforceable unless the promises are severable
o The P must show that the promise being enforced is not one required to be evidenced by writing, and that the form of the K
is such that the consideration for the promise is separate from the consideration supporting the unenforceable promises

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• A plaintiff who is unable to sue on a contract because of noncompliance with the formal requirements applicable is not necessary
precluded from obtaining relief on a claim which is independent of the contract
• In Horton v Jones, ‘if a person does acts for the benefit of another in the performance of a contract which is unenforceable, by
reason of the statute, and the other ‘accepts the benefit of those acts,’ an action in restitution to obtain ‘reasonable remuneration’
will be available
o Affirmed in Pavey & Matthews

Pavey & Matthews Pty Ltd v Paul (1987) 69 ALR 577
Facts
• The appellant (Pavey, the P) sued the respondent in restitution to recover $26,945.50 as the reasonable sum for work done and
material supplied at the request of the respondent (Mrs Paul). Section 45 of the Builders Licensing Act 1971 (NSW) provided:
A contract (in this S referred to as a building contract) under which the holder of a license undertakes to carry out, by himself or by others, any
building work or to vary any building work in the manner of carrying out any building work, specified in a building contract is not enforceable
against the other party to the contract unless the contract is in writing signed by each of the parties or his agent in that behalf and sufficiently
describes the building work the subject of the contract.
• S45 was also put forward as a defence to the claim for reasonable remuneration. NSWSC – consent order that the defence be tired as
separate preliminary issue. Defence was tried on facts:
o Appellant held a license under the Act
o Work carried out on the respondent’s land
o Work was ‘building work’ within the Act
o Work done had been requested by the respondent who had agreed to pay a reasonable sum calculated by reference to
prevailing rates of payment in the building industry
o No written contract
• Clarke J held in favour of appellant and appeal to CA was allowed. Appellant then appealed to HC. Was s45 applicable to the claim for
reasonable remuneration?
o Appeal allowed by majority
Held
**Claim was not brought on the contract. The action was a restitutionary claim for reasonable remuneration, so the HC held on unjust
enrichment. The obligation to pay a reasonable sum was not contractual in nature, it was an obligation imposed by law, and s 45 was held not to
apply to such a claim. Thus, although no action on the contract was available, an action to recover the reasonable value of the services rendered
was available.
The HC did not see this decision as frustrating the purpose of the section to provide protection for a building owner.
Deane J: “The building owner remains entitled to enforce the contract. He cannot, however, be forced either to comply with its terms or to
permit the builder to carry it to completion. All that he can be required to do is to pay reasonable compensation for work done of which he has
received the benefit and for which in justice he is oblige, to make such a payment by way of restitution. In relation to such work, he can rely on
the contract, if it has not been rescinded, as to the amount of remuneration and the terms of payment. If the agreed remuneration exceeds what
is reasonable in the circumstances, he can rely on the unenforceability of the contract with the result that he is liable to pay no more than what is
fair and reasonable.’
This case shows: P entitled to recover in respect of a fully performed but unenforceable contract. The action is for restitution and the price
specified in the contract is evidence of the plaintiff’s entitlement. However, if performance is only partial, recovery will not usually be possible.
Recovery of the reasonable value of work done as restitution is, however open where the defendant has accepted the benefit of the work and the
contract has been rescinded or discharged. The usual situation is where the P validly terminated the contract e.g. because of serious
breach/repudiation by the d.
Conclusion: STATUTORY REQUIREMENT OF WRITING DO NOT EXTEND TO A CLAIM IN RESTITUTION.**

B. EQUITY
In order to mitigate the hardship often caused by the Statute of Frauds, equity developed the doctrine of part performance.
• Part performance (equitable doctrine, applies to Conveyancing Act)
o Someone who can’t enforce K because of formalities requirements
o Equity will grant specific performance of an oral contract if there are sufficient acts of part performance
o What court is doing is not enforcing the written contract but ‘is charging the defendant upon the equities arising from the
acts performed by the plaintiff in execution of the contract
§ This equitable intervention makes it unconscientious for the defendant to plead the statute as a bar to the P’s
claim
o To what extent must the acts relief upon as part performance be referable to the contract sued on? To what extent must
the acts relied upon be performance of the contract?
• Constructive trust
o Equitable remedy with interest in land: declare a trust over land
• Equitable estoppel
• Restitution/Unjust enrichment
o Contract that cannot enforce because supposed to be writing and signed: but one of the parties has performed the contract
§ I.e. builder erects a building but there is no written contract – benefit/detriment. Not fair for builder to get
nothing
• Severance

IV. DISCHARGE OF CONTRACTS REQUIRED TO BE EVIDENCED IN WRITING
• Where a contract is not required to be evidenced by writing any variation of the terms of the contract may be made by a purely oral
agreement
o However, where there is such a requirement the variation must also be evidenced because the writing must contain all
terms
o If the variation is purely oral it cannot, subject perhaps to the doctrine of part performance, be enforced and the original
contract in writing stands unaffected
o Variation generally involves concessions relating to how contract is performed, rather than its substantive terms: e.g. buyer
of goods delaying delivery at the request of the seller

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• Although a variation of a contract required to be evidenced by writing must be similarly evidenced, the contract may be validly
rescinded by an oral agreement. An agreement to rescind discharges the parties from their duty to perform their contractual
obligations
o It may replace the obligations with a new set of obligations – in which case that contract will probably need to be evidenced
by writing. If there is no such fresh agreement, or it is unenforceable because it is not in writing or evidenced by writing, the
parties are still discharged and the consequences which flow from recission are implied by law
o Recission may take place by reason of express/implied agreement
• The fact that an oral variation of contract required to be evidenced by writing is unenforceable: artificial distinctions designed to
prevent the statutory requirement causing obvious injustice
• Distinguishing between variation and recission not easy: basis must be the intention of the parties. This is determined objectively. In
cases where no intention is expressed, the parties’ intention must be inferred

Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 at 112-‐3 Dixon CJ: “The argument thus tended to centre
around the distinction drawn between ‘recission’ and ‘variation’ … a distinction is drawn for the purposes of the Statute of Frauds, between a
mere parol variation of an original contract in writing on the one hand and on the other hand a parol recission of an original contract in writing:
the parol recission may or may not be accompanied or followed by a new substituted parol contract. In the former case the parol variation cannot
be enforced, and the original contract in writing stands unaffected. In the latter case the original contract in writing it is discharged, it is not a
satisfactory distinction. It appears to be a matter of degree’

Phllips v Ellinson Bros Pty Ltd (1941) 65 CLR 221 at 243-‐4 Williams J: “It is clear law that a contract required to be in writing .. cannot be varied
orally but a distinction has been pointed out and recognised between an alteration of the original contract in such cases, and an arrangement as
to the mode of performing it. If the parties have attempted to do the first by words only, the court cannot give effect, in favour of either, to such
attempt; if the parties make an arrangement as to the second, though such arrangement be only made by words it can be enforced …. It does not
matter whether the request comes from one side or another, whether it is a matter which is convenient to one side or both. What is importance
is whether it is a mere forbearance or a matter of contract…If an arrangement amounts to a parol variation of the original contract it is ineffective
either to enable the contract to be enforced as so varied or to prevent the original contract being enforced in its unaltered form. And even if the
original contract as varied is subsequently wholly performed by the plaintiff there does not appear to be any reason why the defendant, by the
application of some doctrine of waiver or estoppel, should be prevented from relying on the statute, when he could do so where the plaintiff has
wholly performed an original contract required to be in writing b the statute. ..The only case therefore in which a subsequent parol arrangement
can be effective is where it relates to the mode and manner of performance of an existing obligation and is not intended to substitute one
agreement for another.”

Morris v Baron & Co [1918] AC 1
Facts
• On 24 September 1914 the appellant (Morris, P’s) agreed in writing to sell to the respondents 500 pieces of moss blue serge. Some
223 pieces were delivered. In March 1915 the appellant sued to recover the price of goods supplied. The respondents counterclaimed
for damages for non-‐delivery and when the action came on for hearing the parties reached an agreement, expressed in a letter dated
22 April 1915.
• This recited an agreement to withdraw proceedings and the appellant’s promise to pay 30 pounds. It also said that the account was
to be ‘left over’ for three months, to give the respondents the opportunity to sell the goods delivered. The goods not delivered were
to be kept for the respondents to decide whether they required them.
• The letter ended: “We [the respondents] have the option of taking up the balance of pieces to complete the order, giving time to
make.” The letter was signed on behalf of the respondents
• In Feb 1916 the present proceedings were commenced by the appellant to recover the amount still due on the 1914 contract. The
claim was admitted by the respondents, subject to their counterclaim for non-‐delivery. This counterclaim was based, alternatively, on
the 1914 contract and the 1915 agreement.
• Bailhache J: judgement for appellant on counterclaim, but decision reversed in English CA. In appeal to HL issues over
o Whether the 1914 contract was intended to be rescinded by the 1915 agreement and whether that recission was effective;
and
o Whether the 1915 agreement complied with the requirement of writing in s4 of the Sale of Goods Act 1893 (UK)
• Appeal allowed: held that 1914 was rescinded by the 1915 agreement (in the speeches described as the ‘new agreement) and the
1915 agreement was unenforceable for lack of written evidence
Held
Lord Finlay LC
• It was contended on behalf of the respondents that the new agreement was not an agreement for the sale of goods, but for the
settlement of an action. It was no doubt the settlement of an action but a part, and a very material part, of that settlement appears
to me to have been an agreement for the sale of goods. It is an agreement that the respondents should have an option of taking the
balance of goods undelivered, and it was implied that they were to pay for them on the terms of the original agreement. Surely this is
an agreement for the sale of goods. This part I agree with the CA would be enough to defeat the counterclaim
o But CA went further: held that arrangement of 22 April 1915, not being enforceable, must be wholly disregarded and the
parties relegated to their rights under the original contract
• The present is not a case in which there has been a mere attempt to vary the written contract by parol, the situation of the parties
being otherwise unchanged …It seems out of the question to hold that merely because the option is not enforceable on the account
of the fourth section of the Sale of Goods Act the rights of the parties are to be regarded as still governed by the original contract
under which the respondents were bound to take delivery of the balance
• To go back to the default in making delivery before the first action would be to ignore the settlement for 30 pounds for that claim,
and to give damages for a subsequent default would be to treat the respondents as having been willing after the settlement to
perform the original contract, which they certainly were not
• The evidence in the present case: the parties intended not merely to vary the original contract but to set it aside and substitute
another for it fiving a mere option to take delivery of the parcel undelivered
o This is the effect of the memorandum of 22 April 1915 and it was on this assumption that all the subsequent dealings and
correspondence of the parties proceeded
Lord Dunedin
• The difference between variation and recission is a real one: in the first case there are no such executory clauses in the second
arrangement as would enable you to sue upon that alone if the first did not exist, in the second you could sue on the second

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arrangement alone, and the first contract is got rid of either by express words to that effect or because the second dealing with the
same subject-‐matter as the first but in a different way, it is impossible that the two should both be performed
Lord Atkinson
• Well-‐established rule that a contract which the law requires to be evidenced by writing cannot be varied by parol
• There is a clear distinction however between cases such as these and cases where one party at the request and for the convenience
of the other forbears to perform the contract in some particular respect strictly according to its letter
o As for instance where one party, bound to deliver goods sold upon a certain day, at the request of and for the convenience
of the other postpones delivery to a later day: contract is not varied at all, but the mode and manner of performance is
altered. Moreover, recission of a contract, whether written or parol need not be express. It may be implied and it will be
implied legitimately where the parties have entered into a new contract entirely or to an extent going to the very root of
the first inconsistent with it
• It is quite impossible to reconcile the agreement of 22 April 1915 with that of 24 September previous…impossible to arrive at any
rational conclusion as to the meaning aim, and effect of this new arrangement other than that it was the clear intention of both the
appellant and the respondents to put aside, in their future dealings, the original agreement, and to treat it henceforth as
abandoned/non-‐existent
• The contract of 22 April 1915 is not an invalid contract, since it could be enforced in its entirety against the respondents, who have in
their signed letter of that date provided a memorandum of its contents sufficient, but if so, it must rescind by implication that the
earlier contract over which it is to prevail and with which it is in conflict
o The fact that the respondents if they desired to enforce it in a court of law against the appellant would not have the written
evidence necessary to prove it cannot prevent its operating as an implied recission of the earlier agreement
o All the correspondence of the parties subsequent to its date so treats it. The earlier agreement was never referred to as
regulating their respective rights and obligations. It seems to be treated as abrogated and abandoned
• The new agreement is an agreement for the sale of goods within the meaning of s4 … for these reasons appeal allowed
***Contract which does not comply with the requirement of writing is effective but not enforceable. But inability to enforce is selective. Fact that
only appellant was entitled to enforce the 1915 agreement as a sale of goods à impact of the limitation of the requirement of signature of the
‘party to be charged***

PART 3 – TERMS AND PARTIES
Privity
• ONLY PARTIES TO K CAN ENFORCE THE K
rd rd
• Does not prevent a K conferring a benefit on a 3 party but the 3 party may not be able to enforce K
• If a party is a joint promisee: consideration need only move from one of joint promisees on behalf of all (Coulls v Bagots)
o If appears as three parties: can B/C be joint promisees? If this is the case, then I can rely on joint promisee rule?
• Privity has been harsh: so courts have sought to circumvent rule
o Promisee made K as agent of beneficiary
§ A and B are entering into a contract for the benefit of C, and C is connected somehow with A
§ Can show that A entered into contract as agent of C? And if this is the case, the contract is with B/C
§ Contract to carry goods between shipping company & customer, and clause in contract to exclude liability for
damages caused by shipping company or Stevedors (unloads) à Stevedors in the position of C: Agency
o Promisee may hold rights under K on trust for the beneficiary
o Beneficiary may be entitled to an estoppel against promisor
§ You’re not a party, but if A made a statement and induced you to believe assumption, you relied on it to your
detriment à estoppel
o Beneficiary may entitled to claim damages for M&D conduct
o Beneficiary may be entitled to a claim for damages in tort

A. EXPRESS TERMS
I. TERMS AND MERE REPRESENTATIONS
Terms
Contracts can consist of express and implied terms. Written contract can be a record of the contract and it has express promises. Contract may
be wholly oral, or partly oral and partly written. The word ‘term’ describes any clause or provision in a contract, whether written or oral. ALWAYS
LOOK – ARE THERE EXPRESS TERMS AND IMPLIED TERMS?
• A statement which is not a term has no contractual term: hence in this context the word ‘term’ amounts to a contractual statement
which amounts to an undertaking or guarantee (warranty) by the maker of the statement, of its truth or that the maker had
reasonably grounds for making it. In most cases the promisor is strictly liable on the undertaking to guarantee the truth of the
statement, liability in damages does not depend on whether reasonable care was exercised
• Is the statement of term? Important to classify because a statement which is not a term has no contractual force, if the statement is
false the remedies for breach of the term are different to misrepresentation
o Puffs: laudatory statements not intended to be taken seriously i.e. ‘sales talk’ or ‘puffery’ on behalf of seller of goods e.g.
that a motor vehicle is the ‘best on the market’ does not have contractual force
o Representations: between puffs and terms – factual statements which induce the representee into the contract but are not
guaranteed by their maker. Falsity does not give rise to a claim for damages for breach of contract
o Terms: what distinguishes term from mere representation is the intention of the maker of statement to guarantee its truth
• Express terms à NOT JUST WRITTEN
o Is your (pre-‐contractual) oral statement a term of the contract, a ‘mere’ representation to induce A to enter into contract
but not part of contract (is this rep innocent/negligent/fraudulent – different consequences attach), a puff (Carlill/Pepsico),
or does it give rise to a collateral contract?
§ Got a contract with A/B in writing, but contract that A wants B to account for isn’t in the final contract
o Consider terms incorporated in the contract (i.e. visit website) by
§ Signature
§ Reasonable notice
§ The acceptance of an offer made on a ‘ticket’
§ Course of dealing
• Assuming that a pre-‐contractual statement is a term of the contract, it takes effect as an express term. Most of the cases concern
statements of fact, and when such a statement is a term it is usually referred to as a ‘warranty’ – this is merely a conventional

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expression and when classified under the tripartite classification may be more accurately be described as a ‘condition’ or an
‘intermediate’ term
o The fact that a statement is a term means that its breach gives rise to a claim for damages. Therefore necessary to consider
whether it is a condition, a warranty or intermediate term only if promisee claims to be entitled to terminate the
performance of the contract
• Implied terms (consider consistency issues with express terms) à gap filling by the courts [this can make the contract sufficiently
complete]
o Term implied in law (always in this type of K)
§ Based on CL principles: Liverpool City Council v Irwin
o Terms implied in fact (ad hoc basis for this K)
§ BP Refinery (Westernport) Pty Ltd v Hastings Shire Council – 5 factors – written contract
§ Byrne v Australian Airlines Ltd – informal contract
o Terms implied by statute (always in this type of K; may be precluded from excluding cause)
§ Eg warranties in Sales of Goods Act 1923 (NSW); Australian Consumer Law, ss51-‐56 (goods), and ss 60-‐61
(Services)
§ Warranties in Australian Consumer Law
• Relevant factors to consider include:
o Intention: although the basis upon which pre-‐contractual statements are classified is the intention of the parties, court
must be objective: if a reasonable person would have concluded that the maker of a statement intended to guarantee its
truth, it is a term whether or not there was an intention to accept contractual resp
o Time of statement: proximity between statement made and entry into contract: if brief it can be presumed it induced entry
into the contract YET this factor is not conclusive
o Content of the statement: the more important the content, the more likely it is that the parties intended it to be a term but
it depends on the circumstances of the case (Couchman)
o Existence of a written memorandum: if the parties execute a memorandum of the terms of the K which does not include a
pre-‐contractual statement later relied on as a term, the representee will find it difficult to establish it was a term
§ Failure of the parties however to execute a written memorandum is no evidence whether the statement relied
on was a term of the contract
o Knowledge and expertise of the parties: most important factor

Parties
• Only a party to the contract can enforce the contract
rd rd
o Does not prevent a K conferring a benefit on a 3 party but the 3 party may not be able to enforce K
• Circumventing the privity rule
o Promisee made k as agent of beneficiary
o Beneficiary may be entitled to claim for damages for M&D conduct

Construction of contractual terms (interpreting)
• Construe intention objectively: a reasonable person in the position of the party to whom the words were addressed
• If need to infer intention: construe the contract as a whole in light of the admissible evidence
• If contract is reduced to writing (contract, express terms, implied terms), the writing is the contract and cannot introduce extrinsic
evidence to show what the terms mean: parol evidence rule
o Actual intention
o Prior negotiations (consider rectification; entire agreement and no reliance clauses)
o Subsequent conduct
o Evidence of terms not set out in the contract
• Evidence of the factual matrix (the surrounding circumstances) is admissible

Pre-‐contractual oral statements
• Question of intention of the parties, determined objectively
o Is a statement made at T1 before T2 a pre-‐contractual statement?
Is the statement promissory in nature? -‐ Savage v Blackney OR
Statements e.g. it was 1948 model, 1 past owner of the car… look at Ellul v Oakes: has B warranted the statements’ accuracy for those
statements?
Oscar Chess Ltd v Williams per Denning LJ: “Whether a warranty was intended, depends on the conduct of the parties, on their words and
behaviour, rather than on their thoughts...decide it objectively from the position of an intelligent bystander.”
• In Australia: reasonable person in the position of the parties (Hospital Products Ltd v United States Surgical Corp)
o If this reasonable person to whom statement was made said A saying it to guarantee truth of statement – term of contract
o If such a person would have concluded that the maker of the statement intended to guarantee its truth, it is a term
whether or not there was actual intention to accept contractual responsibility
§ Where the necessary intention is not established, the statement takes effect as a representation
• Did the person making the statement guarantee the truth of it, expressly?
• Did person making the statement guarantee the truth of it by inference
o When the statement was made
o Content of the statement
o Whether a written memorandum of the contract exists
o Relative knowledge and expertise of the parties
Warranty = using the term in the broader sense to say “it’s true.”

Ellul v Oaks per Zelling J (pp 222-‐223)
BASIC ISSUE – OBJECTIVELY WHAT WAS CONTRACTUAL INTENTION OF THE PARTIES? These are guides that can help to decide it was/wasn’t
promissory.

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• Time elapsed between time of making the statement and the final manifestation of the agreement
o If T1-‐T2 is short, might lead to inference that it is a term
o Yet because there is delay does not indicate that a statement was not to have contractual force
• How important this statement is in the minds of parties
o If important: term of contract
• If the statement was followed by the execution of a formal contract in writing, it will probably be regarded as a representation
should it not be incorporated in the written document
o Oral statement T1, written contract T2, oral statement not in contract à why isn’t it? This suggests not meant to be
promissory
o If the parties execute a memorandum of the terms of the contract which does not include a pre-‐contractual statement later
relied on as a term, the representee will find it difficult to establish that the statement was a term. As a matter of common
sense, the failure to include the statement – some indication not intended to be a term
§ On the other hand, the failure of the parties to execute a written memorandum is no evidence of whether the
statement relied on is a term of the contract
§ If a statement is made and later recorded in writing, that is ‘good evidence’ that the statement was intended to
be a term in the sense that its truth was guaranteed
• Where the maker of the statement, vis-‐à-‐vis the other party is in a better position to ascertain the accuracy of the statement, the
courts will tend to regard it as a contractual term -‐ EXPERTISE
o Oscar Chess Ltd v Williams
o Dick Bentley Productions Ltd v Harold Smith Ltd
o Couchman v Hill

A. DECIDING WHETHER A STATEMENT IS A TERM
“The agreement and lease as herein set forth contains the entire understanding of the respective parties with reference to the subject matter
hereof and there is no other understanding agreement warranty or representation express or implied in any way binding extending defining or
otherwise relating to the equipment or the provisions hereof on any of the matters to which these provisions relate” – Clause in Hope v RCA
Photophone of Australia Pty Ltd
• What is in writing is the only contract

Couchman v Hill [1947] KB 554
Facts
• The Plaintiff (Couchman, appellant before the CA) sought to recover damages from the defendant for breach of a term in a contract
made at an auction. The subject matter of the contract was a red and white stirk heifer. Prior to the heifer being put under the
hammer the defendant had inquired whether the heifer was unserved, to which both the defendant and the auctioneer replied ‘Yes.’
The sale catalogue also described the heifer as ‘unserved’
o In fact, the heifer was in calf and later died from the strain of carrying a calf at too young an age
• Count court judge: held in favour of the D because sale catalogue said:
o That the seller of goods at the auction did not guarantee the accuracy of information contained in the catalogue; and
o ‘All lots must be taken subject to faults or errors of description (if any), and no compensation will be paid for the same’
• P appealed to the En CA and they held that it was a term of the contract sale that the heifer was unserved. Appeal was therefore
allowed. The p was entitled to recover damages for breach of contract
Held
• In so far as the plaintiff relied on the statement in the catalogue to support his claim for damages for breach of warranty, he failed
• The real question is what did the parties understand b the question addressed and the answer received from both vendor and
auctioneer?
• In the present case, the only inference that could properly be drawn by the judge or jury charged with the duty of finding the facts –
and this is a question of fact to the intention of the parties – is that the question was asked and answered with the meaning that ‘I am
frightened of contracting on your published terms, but I will bid if you will tell me by word of mouth that you accept full responsibility
for the statement in the catalogue that the heifers have not been served, or in other words, give me a clear warranty. That is the only
condition on which I will bit’
o That this is so follows: conclusively from the plaintiff’s evidence which was accepted by the judge, taken in conjunction with
the admissions of both defendants that the words if used -‐which they denied –would have bound them
• It is obvious that stipulations prompted the question
• The plaintiff knew what he wanted and he got it: so did the vendor, and he gave it. What the plaintiff wanted was to know where he
stood before he made an offer which the fall of the hammer would turn into a contract
• Appeal allowed

Oscar Chess V Williams [1957] 1 WLR 370
Facts
• In 1955 the defendant (Williams, appellant before Eng CA) sold his mothers’ car to the plaintiffs with her authority. The registration
book showed that it was a morris car, first registered in 1948. Prior to the sale he described the car as a 1948 model and a price of
290 was agreed on this basis. In fact the vehicle was a 1939 model for which the plaintiffs would have paid only 175 pounds
• The county court judge awarded the P’s 115 pounds for breach of contract and the D appealed to the CA.
• Majority of the CA considered that the county court judge was wrong to hold the D intended to guarantee the year of make of the
vehicle
o APPEAL ALLOWED – P not entitled to damages
Held (Denning LJ)
• Both parties assumed that the Morris was a 1948 model and this was essential to the contract
• The judge did not ask himself: Was the representation (that it was a 1948 Morris) intended to be a warranty? He asked himself, ‘Was
it fundamental to the contract?’ He answered by saying it was fundamental and therefore it was a condition and not a warranty
o By concentrating on whether it was fundamental he missed the crucial point of the case: whether it was term of the
contract at all
• Was it a binding promise or an innocent misrepresentation?
• The question whether warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than their
thoughts

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o If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice. And this, when the facts
are in dispute, is a question of law
• This case depends on the words – if the seller says ‘I believe it is a 1948 Morris. Here is the registration book to prove it’ there is no
warranty. It is a statement of belief, not a contractual promise. But if he says ‘I guarantee it is a 1948 Morris. This is borne out by the
registration book, but you need not rely solely on that. I give you my own guarantee that it – there is a warranty. He is making himself
contractually responsible
• It must have been obvious to both that the seller had himself had no personal knowledge of the year when the car was made. In
these circumstances, the intelligent bystander would, I suggest, say that the seller did not intend to bind himself so as to warrant that
it was a 1948 model. If the seller was asked to pledge himself to do it, he would at once have said ‘I cannot do that. I have only the
logbook to go by, same as you’
• If an oral representation is afterwards recorded in writing, it is good evidence that it was intended as a warranty. It is is not put into
writing, it is evidence against a warranty being intended. But it is by no means decisive
o But when purchase is not recorded in writing at all it must not be supported that every representation made in the course
of the dealing is to be treated as a warranty
o The question then is still: was it intended as a warranty
• Appeal allowed

Dick Bentley Productions Ltd v Harold Smith Ltd [1965] 1 WLR 623
Facts
• Dick Bentley (respondent before Eng CA) sued Harold Smith claiming damages for breach of a term in a contract for the sale of a
Bentley motor car for 1850 pounds. The alleged term was based on a statement by Smith during negotiations, namely that the car
had travelled only 20,000 miles since being fitted with a replacement engine and gearbox
• The county court judge decided in favour of Bentley. He found that Smith was a car dealer and in a position to find out the history of
any quality car, such as the Bentley. The judge also found the statement to have been ‘palpably wrong’ and had no doubt that the car
had travelled nearly 100,000 miles. He held that the statement about the engine and gearbox intended to be a term of the contract
o Therefore, Smith had breached the contract and was liable to pay damages, which he assessed 400 pounds. Smith appealed
• The question for the CA was whether an award of damages was justified. That depended on whether the county court judge was
correct to infer an intention that Harold Smith guaranteed the truth of the statement made during negotiations
• Appeal was dismissed – English CA agreed with the conclusion that the statements made took effect as the terms of the contract
Held
Lord Denning MR
• The question whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than
their thoughts
o If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice. What conduct then? What
words and behaviour lead to the inference of a warranty?
• If a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act upon it, and
actually inducing him to act upon it, by entering the contract, that is prima facie ground for inferring that it was intended as a
warranty
o It is not necessary to speak of it as being collateral. Suffice that it was intended to be acted upon and was in fact acted on
o But the maker of the representation can rebut this inference if he can show that it really was an innocent
misrepresentation, in that he was innocent in fault in making it, and it would not be reasonable in the circumstances for
him to be bound by it
• When the history of this car was examined, his statement turned out to be quite wrong. He ought to have known better. There was
no reasonable foundation for it
• Judge: found representations were not dishonest. Smith was not guilty of fraud. But he made the statement as to 20,000 miles
without any foundation – there was a warranty: Smith stated a fact that should be within his own knowledge. He had jumped to a
conclusion and stated it as a fact. A fact that a buyer would act on (ample ground for the inference of a warranty)

B. DECIDING WHETHER A STATEMENT FORMS PART OF A COLLATERAL CONTRACT
Collateral contract: A contract, the consideration for which is the making of some other contract.
Gone to court, tried to argue that statement was in main contract and failed. So can plead a collateral contract.

Two forms: A enters into a contract with B because of a promise by B in relation to the subject matter of the main contract, or otherwise by way of
inducement to enter into that contract. The promise by B has effect as a promise in a contract between A and B which is collateral to the main
contract between the same parties. The second form operates where A enters into a contract with C after a statement by b which takes effect as a
contract between A and B which is collateral to the main contract between A and C. In each case, the consideration for the promise in the
collateral contract is entry into the main contract.

“It is evident, both on principle and on authority, that there may be a contract the consideration for which is the making of some other contract.
‘If you will make such and such a contract I will give you one hundred pounds’ is in every sense of the word a complete legal contract. It is
collateral to the main contract, but each has an independent existence, and they do not differ in respect of their possessing to the full character
and status of a contract’ (Heilbut Symons & Co v Buckleton per Lord Moulton at 47).
• Where the main contract is illegal, the collateral contract may be the subject of a claim even though the main contract is not
enforceable
• Where a contract is required to be evidenced in writing the collateral contract may not need to be so evidenced
• Assuming a collateral contract of the second type, the privity of the contract rule is avoided
• NB: A STATEMENT WILL NOT TAKE EFFECT IN A COLLATERAL CONTRACT IF IT IS INCONSISTENT WITH THE MAIN CONTRACT

1. Statement is promissory in nature
2. The statement was intended to be relied upon
3. Reliance by the party alleging the existence of the contract; and
4. An intention, on the part of the maker of the statement, to guarantee its truth: (JJ Savage & Sons v Blakney)
5. Terms in collateral contract must not be inconsistent with terms in the main contract: Hoyt’s Pty Ltd v Spencer (Isaacs J)
a. Consistency: only when A/B parties to main contract and alleging a collateral contract with A/B
b. Does NOT APPLY for a collateral contract between A and C, where main contract is between A and B

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i. Shanklin Pier Ltd v Detel Products Ltd (1951) 2 KB 854

1. Shanklin retained contractors to paint a pier. Shanklin directed contractors to use Detel paints (as
they represented that paints would last for 7 years)
2. Lasted for 3 months. No contract – as contract to supply paint with contractors and Detel
3. Pier argued there was a contract with the Pier and Detel which included that would last for 7 years,
and consideration that Shanklin gave for that contract was entering a term with the contractors
6. Collateral contract must come into existence before the main contract or be contemporaneous with it, so that entry into the main
contract is ‘consideration’ for the collateral contract that A seeks to enforce: Hoyt’s
a. Cannot be inconsistent with the main contract
7. Is the collateral ‘warranty’ one that you would expect to find in the ‘head agreement’ – if so, why has it be excluded: Sheppherd v The
Council of the Municipality of Ryde

Shepperd v Ryde Municipal Council (1952) 85 CLR 1
Facts
• The P (Sheppard, appellant before the HC) purchased land (Lot 85) from the defendant council. This land was part of Housing Project
no 4, a building scheme comprising land within the Municipality of Ryde. The plaintiff alleged that prior to entering into the contract
he was informed by the defendant that the Project would be completed in accordance with certain plans and specifications which he
was shown. The P further alleged that the defendant had said that an area of land designated as parkland which was substantially
opposite Lot 85 would be created and maintained by the defendant as a park
• When the P heard the defendant intended to subdivide the area opposite Lot 85, and to build dwlling houses on the parkland, he
sought an injunction to restrain it from proceeding with its plan to subdivide and build. The NSWSC dismissed the motion
• The P appealed to the HC. Issue: was there a contract with the D/P collateral to the sale contract (main contract?)
o Appeal allowed: HC considered that the P had at least made out a prima facie case in favour of there being a collateral
contract on the terms alleged. On that basis the D was restrained from subdividing and building on the land
Held
• The P has made out a prima facie case of a collateral promise or warranty that the areas in question shall be used as a park or parks
and not otherwise … The question is very much one of fact
• The reluctance of courts to hold that collateral warranties or promises are given or made in consideration for the making of a
contract is traditional. But a chief reason: too often the collateral warranty put forward is one you would expect to find its place
naturally in the principal contract. IN A CASE LIKE THIS – OTHERWISE
o Main contract may have included a clause by which the Council undertook not to depart from the housing scheme: but
seems to be not unnatural that the parties should treat the contract as devoted to the purchase of the lot which the
individual purchaser acquired, the existence and stability of the project of which the transaction was an outcome being
presupposed as something antecedent upon which the purchaser might implicitly rely
• Common intention: he would so rely upon it and on that basis proceed to contract to buy the particular lot allocated to him. It is
because of this that the assurance which is embodied in the plan when it is read in the light of the pamphlet, obtains its effect as a
collateral promise
• Appeal allowed

JJ Savage & Sons Pty Ltd v Blackney (1970) 119 CLR 435
Facts
• The plaintiff (Blackney) sought damages for breach of a collateral contract which he alleged had been entered into
contemporaneously with a contract for the purchase of a cabin cruiser fitted with single 4/53 series GM diesel marine engine. The
substance of the collateral contract alleged that in consideration of the plaintiff entering into the contract of purchase, the defendant
promised that the vessel’s ‘estimated speed’ was 15 mph. In fact, its maximum speed was 12 mph
• During negotiations the defendant had stated the vessel would have an estimated speed of 15 mph. However, Gillard J in the SC of
Vic said there was no promise to this effect. That decision reversed by the Full Court which said that the ‘proper conclusion’ to be
drawn from the facts was that the plaintiff ‘would not have entered into the contract … without the statement that the estimated
(approximate) speed would be 15 mph’
• D appealed to the HC. Issue was whether there was a promise in relation to the estimated speed of the vessel
o HC held: no promise in relation to the estimated speed of vessel, and so appeal was allowed and P not entitled to contract
damages
Held
• The actual words used by the appellant in the letter should be considered – ‘estimated speed of 15 mph’ indicates in our opinion, an
expression of opinion as a result of ‘approximate calculation based on probability’
o The words in themselves tend against the inference of a promise that the boat would in fact achieve the nominated speed
• The circumstance is insufficient to support the conclusion that a warranty was given. So much can be said of an innocent
representation inducing a contract. The question is whether there was a promise by the appellant that the boat would in fact attain
the stated speed if powered by the stipulated engine, the entry into the contract to purchase the boat providing consideration to
make the promise effective
o Collateral warranty: the statement so relied on was promissory and not merely representational
• The only conclusion upon the evidence was that the respondent accepted the appellant’s estimate of what the boat could do to
under the power of the 4/53 GM diesel as sufficient to found his own judgement as to the powering of the vessel
• Trial judge was wrong in refusing to draw the conclusion that the appellant made a promissory statement as to the attainable speed
of the cruiser we are satisfied he took the only course permitted by the material before him – appeal therefore allowed

Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133 (requirement of consistency)
Facts
• The plaintiffs (Hoyt’s, appellant before HC) leased premises from the d. A term of the lease entitled the defendant, ‘at any time
during the currency’ of the lease to terminate it on giving four weeks’ notice in writing
• P alleged that prior to the lease being signed the defendant promised that he would not exercise his right to terminate unless
required or requested to do so by his head lessors; and the defendant had exercised his right and terminated lease even though there
was no such direction/ request
• P – claimed damages for breach of contract on the basis that the promise had been given in consideration for its entry into the lease

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• Full Court of the NSWSC: judgement for the defendant. P appealed to the HC. Should the Full Court’s decision be affirmed because
the collateral contract relied on was inconsistent with the main contract?
o Appeal dismissed – the alleged term was inconsistent with the other terms in the contract
Held
Knox CJ
• When parties negotiate an agreement by parol and subsequently reduce it to writing, the writing constitutes the contract, subject to
right of either party to proceed for its rectification or recission on sufficient grounds
• A distinct collateral agreement, whether oral or in writing, and whether prior to or contemporaneously with the main agreement is
valid and enforceable even though the main agreement be in writing, provided that the two may consistently stand together so that
the provisions of the main agreement remain in full force notwithstanding the collateral A
• May be a contract consideration for which is the making of another contract: this does not say that any contract the alleged
consideration for which is the making of another contract is necessarily valid and enforceable – depends on the nature/contents of
the two contracts
• Impossible to maintain that the agreement on which present action is founded would not, if valid and enforceable, modify/vary the
agreement contained in the lease executed by the parties in regard to a matter expressly dealt with by a provision of the lease – the
right to determine it during the currency of the term for which it was granted
o If this be so – clear that the two agreements are inconsistent and cannot stand together
• The agreement on which this action is founded does not fulfill the requirement of a collateral agreement … that being so the
agreement though admittedly made in fact cannot be sued by either party as the foundation of proceedings against the other
Isaacs J
• The parties here are bounded by the terms of the bargain personally, as well as in point of interest in the property, and the terms of
the contract regulate and define their respective rights with reference to the property
• When two parties are entering into contractual relations with respect to a given subject matter they may elect to conclude their
bargain without writing, or they may elect to record it in writing, and if in writing, they may decide to have it under seal. But in
whatever form they determine to leave their bargain, they may further agree to have one contract only, or to have separate and
distinct contracts
• But if the parties agree to commit their agreement to writing, then what is written is the conclusive record of the terms of their
agreement, and unless it can be shown that the document was not intended as the complete record of their bargain, no oral evidence
can be admitted to alter or qualify it
• To the extent to which the parties have deliberately agreed to record any part of contract that record stands unimpeachable by oral
testimony
• The claim is on te basis that there was no mistake in framing the main contract of lease, that that contract s complete in itself and
correctly recorded, and that its only function now is as the sole consideration for the independent collateral agreement sued on
• No question arises here as to admissibility of evidence, or evidence of any kind to affect a deed, or evidence proper to found a claim
for rectification for the lease or in any other way
o The contract contained in the lease is complete in itself … but though complete in itself as a contract it might well play
another part as consideration for another promise
• The main contract here, when utilized to form the consideration for the collateral contract, must be taken exactly as it is. Its
provisions do not change according as it is considered as an independent contract or as a consideration for the collateral contract
o A principle for a bargain of a contractual promise made in consideration of entering into the main contract: parties shall
have and be subject to all of the respective benefits and burdens of the main contract. When the collateral promise is truly
consistent with the main promise, the principle has full play
o The collateral contract alters the contractual relations of the parties; but it does not alter and from the simple statement of
the bargain is not intended to alter the contractual relations which are established by the main contract
§ When both worked out: final outcome the parties are in the same position as if those contractual relations were
varied
• A collateral contract, which may be either antecedent or contemporaneous … being supplementary only to the main contract, cannot
impinge on it, or alter its provisions or the rights created by it, consequently where the main contract is relied on as the consideration
in whole or in part for the promise contained in the collateral contract it is a wholly inconsistent and impossible contention that the
other party is not to have the full benefit of the main contract as made and the appellant’s first contention is therefore unsound
• The very agreement on which the claim is founded is that but for the additional promise the respondent had the power by virtue of
the proviso to do what he did. And the plaintiff’s case is that that power was cut down by the further promise
o Conflict with 2: result that the appellant, though in one breath conceding the full extent of the proviso as a consideration,
yet in the next, cuts it down almost to the point of rendering it nugatory

NB: SPECIFIC PERFORMANCE à The performance of contractual duty, as ordered in cases where damages would not be adequate remedy.


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LECTURE 7: INCORPORATION OF TERMS/IMPLIED TERMS

Recap on pre-‐contractual statements
• What are the terms of the contract? Legal principle which allows us to figure out what terms are
• Contracts do not need to be in writing to be enforceable

B. INCORPORATION OF TERMS
Signature
Reasonable notice
Ticket cases
Course of dealing

Problems arise when a party tries to include a written term in an oral contract by way of notice, such as signs in carparks. Many of these terms are
exclusion clauses, such as ‘While all care is taken, cars parked here are the owner’s own risk and no responsibility will be taken for loss or
damage.”

Positive answer to the question: would a reasonable person in the position of the party who denies that the term has been incorporated into the
contract understand the other person as intending to contract only on the basis that the term is a party of the contract? (Golden Rule)

I. SIGNED CONTRACTS
A party who signs a contract is presumed to be bound whether they understood or read the contract, unless there is fraud/misinterpretation (or
non est factum).
• By including on the card ‘see terms and conditions’ – indicates there is more to the contract than what is in your hand
o Knowledge of the terms need not be established
• Document needs to be considered to be a contractual contract
• Signature will bind the party to the terms of the contract even if they have not read the contract: L’Estrange v Graucob (p229-‐231)
• To sign a document known and intended to affect legal relations is an act which itself ordinarily conveys a representation to a
reasonable reader of the document: Toll v Alphapharm
o The rep is that the person who signs either has read and approved the contents of the doc or willing to take the chance of
being bound by its contents, as Latham J put it, whatever they might be
§ That representation is even stronger where the signature appears below a perfectly legible request to read the
document before signing it

To get around a ‘signature’ consider:
• Difficulty occurs when documents, although signed, are not contractual in nature e.g. in Curtis; if the shop assistant had not said
anything, the plaintiff could have argued that the document headed ‘receipt’ did not express contractual terms: Is a document a
‘contractual’ document?
o Le Mans Gran Prix v Iliadis (1998) 4 VR 661
§ Iliadis injured when driving go-‐kart. Sought to enforce exclusion clause to exclude them from liability. When
Iliadis went to Gran Prix: handed a document ‘to help with our advertising’ and he was asked to sign
§ Held that he could not have been bound by a contract as the document was clearly not a contractual document,
so signature did not bind him to terms of the contract
§ The fact that signed document did not mean that the terms were incorporated by signature
• In many contracts T2 is an oral contract and the writing comes later: so we look in writing to see if
that is the ENTIRE CONTRACT
o “Knowledge or assumed knowledge of how people do business and this will change over time”
• Effect of the term has been misrepresented: Curtis v Chemical Cleaning and Dyeing Co
o Company relied on exclusion clause for ANY DAMAGE ARISING, and they lost because the effect of the exclusion clause was
misrepresented: “exclude liability for damage to the sequins”
o “Any behaviour by words or conduct is sufficient to be a misrepresentation if it is as such sufficient to mislead the other
party of the existence or the extent of the exemption”

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• When was the doc signed? i.e. was it signed after the terms of the contract have been orally agreedà usually it is appropriate to
regard the document as replacing the oral terms, but what if the document is signed after the contract has been performed? DJ Hill &
Co
o If oral contract then document, can you argue not incorporated by signature? If yes, consider if other methods apply (e.g.
C.O.D.)

L’Estrange v Graucob [1934] 2 KB 394
Facts
• The plaintiff (Ms L’Estrange, respondent before the Divisional Court) purchased an automatic cigarette vending machine from the
defendants
• She signed a printed form titled ‘Sales Agreement’
• Machine proved unsatisfactory: the plaintiff sued to recover damages, alleging breach of an implied term that the machine would be
fit for its purpose; the defendants relied on a term signed in the K which said:
o “This agreement contains all the terms and conditions under which I agree to purchase the machine specified above and
any express or implied condition, statement or warranty, statutory or otherwise not stated herein is thereby excluded”
• The term was one of a number described by Maugham LJ (at 405) as being ‘in regrettably small print but quite legible.’ Another
document, called ‘order confirmation’ was subsequently sent to the plaintiff by the defendants. At the trial, it was established that
the plaintiff had signed but not read the document
• County court judge held the machine was not reasonably fit for its purpose and its inadequate notice of its terms has been given to P
so defendants could not rely on the printed form: P awarded damages
• Defendants appealed: even if the machine was not reasonably fit for its purpose, the plaintiff would fail in her claim if the D’s were
entitled to rely on the term quoted above: was the term effectively incorporated?
o Appeal allowed
Held per Scrutton LJ
• Quoted Mellish LJ in Parker (as above)
• In cases in which the contract is contained in a railway ticket or other unsigned document, it is necessary to prove that the alleged
party was aware, or ought to have been aware, of its terms and conditions
o 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
• The plaintiff put her signature to the document not having been induced to do so by fraud or misrepresentation, cannot be heard to
say that she is not bound by the terms of the document because she has not read them
Held per Maugham LJ
• In my opinion the contract was concluded not when the brown order form was signed by the plaintiff but when the order
confirmation was signed by the defendants. If the document signed by the plaintiff was a part of the contract in writing, it is
impossible to pick out certain clauses from it and ignore them as not binding on the plaintiff
o If that is then so, then, subject to certain contingencies, there is no doubt that it was wholly immaterial whether the
plaintiff read the small print or not ..
• There are however two possibilities to be kept in view. The first is that it might be proved that the document though signed by the
plaintiff, was signed in circumstances which made it not her act, that is the case of non est factum ….
o In this case it is irrelevant that the plaintiff did not read or hear of the parts of the sales document which are in small print
and that document should have effect according to its terms

Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805
• P (Mr Curtis) took a dress to the defendant’s shop for dry cleaning and was asked to sign a document headed ‘Receipt.’ On inquiring
into the reason for this, the shop assistant said that the defendants would not accept liability for certain risk, namely, damage to the
beads and sequins with which the dress was trimmed
o In fact, the receipt contained a much wider exclusion which was relied on in the present action for damages based on
negligence
• The court held that the document could not be treated as incorporating the wide exclusion clause because of the misrepresentation
• Somervell LJ said that ‘owing’ to the misrepresentation the exclusion clause ‘never became part of the contract’
• However, Denning LJ said that the conduct of the defendants merely disentitled them from relying on the exclusion except in
relations to beads and sequins; and that a failure to draw attention to the existence or extent of the exclusion clauses might in some
cases preclude reliance
o However; because of the absence of any general duty of disclosure in the contract, this could only be true in the case of an
unusually wide exclusion of liability
Denning LJ: “In my opinion, any behaviour, by words or conduct, is sufficient to be a misrepresentation if it is such as to mislead the other party
about the existence or extent of the exemption. If it conveys a false impression, that is enough. If the false impression is created knowingly, it is a
fraudulent misrepresentation; if it is created unwillingly, it is an innocent misrepresentation, but either is sufficient to disentitle the creator of it to
the benefit of the exemption.”

II. INCORPORATION OF UNSIGNED DOCUMENTS – TICKETS AND NOTICES
Summary of principles re express terms incorporated into the contract: reasonable notice
Two issues per Causer v Browne (Herring CJ)
When is contract formed (T2) and
o Are special conditions relied on by the offeror treated as contained in the offer so communicated and
accepted? Question OF FACT!!!!
Was term contained in the offer so communicated/accepted?
• Consider circumstances in which offeree contracted
• Nature of the transaction
• Document in which the terms are contained
o ‘Person seeking to rely on term in document must show (bears onus of proof) that the person receiving it
was aware (or ought to be treated as aware) that it was not merely delivered to him as a voucher or
receipt, but that it was intended to convey to him the knowledge of such special conditions and that
the person delivering it intended to modify the effect of the ordinary contract thereby’

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§ Contract is not will you dry clean yes I will, terms and conditions are what is specified on the
receipt
§ Here they failed because the document handed to Mr Browne might reasonably be seen as a
voucher to hand over when collecting the goods
• Chappelton v Barry UDC
• It is difficult to state the legal requirements here beyond saying that the notice must be ‘reasonable’ that is the
party relying on the terms must show that, in the circumstances, reasonable steps were taken to bring the terms to
the attention of the other party

If the offeree knows that special conditions exist then they are bound. Problems are when they don’t know. Can you show that
though they didn’t know about the conditions on the document, they did know the offer was subject to conditions?
Second term: you have done all that is reasonably necessary in the circumstances to bring the conditions to the attention of the
offeree.

Causer v Browne [1952] VLR 1
Facts
• Mrs. Causer’s husband took her frock to the defendant’s dry cleaning business on the complainant’s behalf. It was
found to be damaged on its return and she sued the defendants claiming, alternatively, damages for breach of
contract or negligence. The defendants said they were protected by certain terms printed at the foot of a docket
received by the husband when he deposited the frock
• Before the magistrate the husband gave evidence that when the frock was handed in he told the defendant’s
employee that care had to be taken as it was one of his wife’s favourite dresses. Her reply had been ‘it will come
back all right, there is no need to worry’
o In cross-‐examination he said the only printing on the docket were the headlines ‘new Frankston Dry
Cleaners’ and the address; he did not recall there being any printing at the foot of the docket and as
prepared to swear there was none underneath the headline
• The defendant’s gave no evidence about the transaction. An employee of the defendants, Miss Pratt, was called,
but she did not remember whether it was she or another employee who had dealt with Mr Causer. However, the
only docket that had been issued for a considerable period of time contained the printed conditions on which the
D’s relied.
• In the Court of Petty Sessions: claim dismissed and complainant sought an order to review the decision
Held per Herring CJ
• The question is … what was the contract that was made, and this depends upon the offer that was communicated
to the offeror and accepted by him … this is a question of fact, and so the circumstances in which the offeree has
contracted and the nature of the transaction and the document in which the special conditions are contained must
be examined in each case in order to determine whether an inference of fact can be properly drawn that the
offeree did in truth enter into a contract containing such special conditions
• The difficulty arises when the offeror seeks to rely upon an estoppel and to maintain that, though the offeree did
not know such conditions in fact, he is nevertheless bound by them
o Thus it may be that, though he did not know what the conditions were, he did know that the offer was
subject to conditions and did accept it without making any further inquiry: this is a common case where
offeror will be held bound, but he may also be held bound in certain cases where the offeror is able to
show that he has done all that is reasonably necessary in the circumstances to bring the conditions he
relies on to the notice of the offeree
§ A great deal depends upon the nature of the transaction and whether in the circumstances in
which the doc is delivered to the offeree a reasonable person would suppose that the terms
and conditions on which the offeror is prepared to contract would be found printed or
recorded thereon
• In cases of this kind, before the person delivering the document can hold the person receiving it bound by any
conditions in his favour recorded thereon, he must show that the person receiving it was aware that it was not
delivered to him merely as a voucher or as a receipt, but also that it was intended to convey to him the knowledge
of such special conditions and that the person delivering it intended to modify the effect of the ordinary contract
thereby ….
• (NB: Ticket cases not applied because the document in question must be of a contractual nature: drycleaner ticket
is not considered a contractual document, therefore notice is required before K is formed)
• The docket handed to the complainant’s husband was one that might reasonably be understood to be only a
voucher for the customer to produce when collecting the goods, and not understood to contain conditions
exempting the defendants from their CL liability for neg
• On the evidence: cannot be held that the d’s have satisfied the onus resting upon them that the complainant’s
husband was aware (or ought to be treated as aware) that the docket was delivered to him for any purpose other
than that of a voucher for the complainant’s frock
o It was for the defendant’s to prove knowledge or information or good reason for belief on the part of the
complainant’s husband that there were upon the docket statements intended to affect the relative rights
of the parties, they fail for want of proof ..

Summary of principles re express terms incorporated into the contract: ticket

The acceptance of an offer made on a ‘ticket’:
• Principle of these cases is that where one party makes an offer to contract on terms stated on or referred to in a
doc (usually no more than a ticket) given to the other party, that party’s decision to keep the document indicates
assent to a contract on the terms stated/referred to in the ticket à acceptance of a written contract
• Acceptance of the ticket is assent to the contract on the terms stated or referred to: McCutcheon v David
MacBrayne Ltd
• Parker v South Eastern Railway Co (Mellish LJ)

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o 1. If person receiving the ticket did not see or know that there was writing on the ticket, he/she is not
bound
§ This question is hardly ever crucial
§ In cases where actual knowledge is lacking, knowledge of writing is a step towards proving
knowledge of terms
o 2. If he/she knew there was writing and knew or believed that the writing contained conditions, then
he/she is bound
o 3. If person knew that there was writing, but did not know or believe that the writing contained
conditions, he/she will be bound if the delivering of the ticket to him in such a manner that he/she could
see there was writing upon it … was reasonably notice that the writing contained conditions
• The ticket cases will not apply if the person who received the ticket did not know that the ticket referred to terms
and insufficient notice was given by the other party
• However, even if the person did not know or believe that the writing contained (or referred to) contractual terms,
the terms will be incorporated (and be contractually binding) if the ticket was delivered in circumstances indicating
that sufficient notice was given that the writing contained contractual terms
o Provided sufficient notice of the nature of the document is given, it does not matter that the recipient
did not in fact read the terms or was incapable of doing so
• The ticket cases apply: when the party relying on the ticket must also lead a reasonable person to believe the
ticket is a contractual doc
• The absence of an ability to reject the ticket and negotiate the terms of the contract will prevent this line of cases
applying i.e. automated ticketing machine: Denning LJ in Thornton v Shore Lane Parking: did customer know ticket
is issued subject to it or did company do what was reasonably sufficient to give him notice of it
o ‘When exclusion clause is so wide and destructive of rights … sufficient notice …it would need to be
printed in red ink with a red hand pointing to it or something equally startling’

Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163
Facts
• The plaintiff recovered damages in an action against the defendants for personal injuries suffered in an accident at
the defendant’s parking station. The defendants conceded that they were at fault but relied on certain exclusionary
clauses which they alleged were incorporated into the contract between the P and the D
• The carpark: multistory, and the P had not visited there previously. Outside the station was a notice saying ‘All Cars
Parked at Owner’s risk.’ At the entrance was a machine from which the plaintiff obtained a ticket which contained
a small print which said: ‘This ticket is issued subject to the conditions of issue displayed on the premises’
o The P noticed there was writing on the ticket but did not read it
o In order to read the ‘conditions of issue’ the P would have to leave his car and go to a pillar opposite the
ticket machine
• D sought to rely on term of the ‘conditions of issue’
• Mocatta J held that the ‘conditions of issue’ were not incorporated; English CA agreed with this decision
Held per Lord Denning MR
• Distinguished automatic machine from teller: in former times … if the customer took [a ticket] and retained it
without objection, his act was regarded as an acceptance of the offer … none of those cases has any application to
a ticket which is issued by an automatic machine
o The customer pays his money and gets a ticket. He cannot refuse it. He cannot get his money back … he is
committed beyond recall. He was committed at the very moment when he put his money in the machine.
The contract was concluded at the time
o The customer is bound by the terms (on the notice on or near the machine stating what is offered for the
money) as long as they are sufficiently brought to his notice beforehand, but no otherwise. He is not
bound by the terms printed on the ticket if they differ from the notice, because the ticket comes too late.
The contract has already been made (Olley). The ticket is no more than a voucher or receipt for the
money that has been paid (Chapelton v Barry Urban District Council) on terms which have been offered
and accepted before the ticket is issued
• Offer was accepted when Mr Thornton drove up to the entrance and, by the movement of his car, turned the light
from red to green and the ticket was thrust at him. The contract was then concluded, and it could not be altered by
any words printed on the ticket itself. In particular, it could not be altered as to exempt the company from liability
for personal injury due to their negligence …
• Even if the ticket cases did apply: the only condition that matters for this purpose is the exempting condition. It is
no use telling the customer that the ticket is issued subject to some ‘conditions’ or other, without telling more: he
may reasonably regard conditions in general as merely regulatory, and not as taking away his rights, unless the
exempting condition is brought to his attention …. The customer is bound by the exempting condition if he knows
that the ticket is issued subject to it; or, if the company did what was reasonably sufficient to give him notice of it
o The exempting condition is so wide and so destructive of rights that the court should not hold any man
bound by it unless it is drawn to his attention in the most explicit way .. in order to give it sufficient
notice, it would need to be printed in red ink with a red hand pointing to it, or something equally startling
….
• There was no evidence that Mr Thornton knew of the exempting condition … he is not therefore bound by it
Held per Megaw LJ
• The question here is of the particular condition on which the defendants seek to rely and not of the conditions in
general
• How much notice is required as being ‘reasonably sufficient to give the P notice of the condition’ depends upon
the nature of the restrictive cond.
o Where a particular condition relied on involves a sort of restriction that is not shown to be usual in that
class of contract, a defendant must show that this intention to attach an unusual condition of that
particular nature was fairly brought to the notice of the other party

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• In the present case what has to be sought in answer to the third question is whether the defendant company did
what was reasonably fair to bring to the notice of the plaintiff as or before the time when the contract was made,
the existence of this particular condition
o Before it can be said that a condition [which excludes statutory rights] has been fairly brought to the
notice of a party to a contract there must be some clear indication which would lead an ordinary sensible
person to realise, at or before the time of making the contract, that a term of that sort, relating to
personal injury, was ought to be included
• The defendants have not taken proper or adequate steps fairly to bring to the notice of the plaintiff at or before
the time when the contract was made that any special conditons wre sought to be imposed

Interphoto Picture Library Ltd v Stilletto Visual Programmes Ltd [1989] QB 433
• P ran a transparency library. On the request of D, P sent out some photographs for the possible inclusion in a client
presentation
o Enclosed in the sealed envelope containing the photographs was a delivery note which stated a ‘holding
fee’ of 5 pounds was payable for photographs retained for longer than 14 days after delivery
• The defendant who did not know that the term was present, contended that it did not govern the contract
• In fact, the P’s received 47 photographs and retained them for two weeks, for which the fee claimed was 3783.50
pounds
• Dillon LJ described this fee as ‘exorbitant’ and the court (applying Thornton) held that, having regard to the
onerous nature of the clause, insufficient notice had been given
o Contract contained a particularly onerous or unusual condition – the party seeking to enforce that
condition had to show that it had been brought fairly and reasonably to the attention of the other party,
given the nature of the clause
• In the result, 3.50 pound per transparency per week was allowed as a reasonable fee
Bingham LJ: “In many civil law systems, and perhaps in most legal systems outside the common law world, the law of
obligations recognises and enforces an overriding principle that in making and carrying out contracts parties should act in good
faith. This does not mean that they should not deceive each other, a principle which any legal system must recognise; its effect
is perhaps most aptly conveyed by such metaphorical colloquialisms as ‘playing fair,’ ‘coming clean’ or ‘putting one’s cards face
upwards on the table.’ It is in essence a principle of fair and open dealing’

III. INCORPORATION BY COURSE OF DEALING
If a document comes after formation and after performance have been initiated: so it is preceded by a series of
transactions/sufficient number of consistent contracts over a period of time à does this have the effect of incorporating terms
into a contract by the course of dealing? Beware, as ten times in twelve months may not make a course of dealing on the facts.
• For example, an oral contract may contain implied terms incorporated by the course of dealing à it is now
established that in order to rely on a course of dealing one party need not show that the other party had actual
knowledge of the terms
o In Henry Kendall & Sons v William Lillico & Sons [1969]: a long and consistent course of dealing, and the
failure to object to the terms was held to imply assent to the incorporation of the terms contained in
‘sold notes’ as terms of the contact, even though these were received after an oral contract agreed
between the parties
• Diplock LJ Hardwick Game Farm v SAPPA
o Objectively determine whether each party, by his words and conduct, reasonably led the other party to
believe that the acts which he was undertaking were a legal obligation to perform
o Not necessary to show that the other party has read the document
• Need evidence of a prior course of dealings
o DJ Hill: dealings must show that the parties mutually regarded the terms and conditions on the back of
the form as part of the contract between them
§ In other words: the other party had knowledge of terms
o Hardwick Game Farm: conduct of party in accepting written document in previous transactions as
recording the sale without making any comment, query or objection about conditions of sale – conduct
that would reasonably lead the other party to believe that [SAPPA] intended to enter into a contract on
these terms
• The degree of knowledge possessed by a party denying that terms have been incirporated by a course of dealing:
factor to be considered
• Dealings must be consistent and sufficiently long
o Sufficient long is a question of fact: J Spurling Ltd v Bradshaw
o Consistent: McCutcheon v David MacBrayne Ltd
§ Same terms in each contract, sometimes handed down in the document, sometimes not

DJ Hill & Co Pty Ltd v Walter H Wright Pty Ltd [1971] VR 749
Facts
• In Sept 1966 the defendant agreed to carry a valuable piece of machinery from the plaintiff’s premises at
Doncaster to its premises at Clayton. In the course of the carriage the machinery was damaged and the plaintiff
claimed damages for the damage
• The contract was made orally, by telephone. On arrival at Clayton two documents were presented by the
defendant’s employee and signed by the plaintiff’s employee. One of these conditions contained an instruction to
carry the goods ‘subject to the terms and conditions endorsed on the back hereof.’ At the bottom of the document
were the words: ‘see over for terms and conditions endorsed on the back hereof …’
o One clause purported to exclude the liability of the defendant for the ‘damage’ to the goods ‘whether
caused by any acts, defaults or negligence of the carrier or otherwise howsoever’
• There was evidence that between February and September the defendant had carried goods for the plaintiff or
one of its associated companies on about 10 occasions. The same, or similar documents signed on each occasion.
Some employees of the plaintiff were aware that terms were on the back of the documents; however there was no
evidence that any employee had ever read or knew the contents of ‘terms and conditions’

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• At the trial: jury returned general verdict for the D; but Gillard J held there was no evidence upon which the jury
could find that the conditions formed part of the contract: since it was conceded the defendant had been
negligent: Gillard J entered for the P
o Decision of Gillard J affirmed in the appeal
Held by The Court
• On each subsequent occasion the dealing between the appellant and the respondent followed precisely the same
course as on the first occasion: the contract was made orally, the appellant performed its part of the contract by
delivering the goods, and it was only at that stage that the form was presented to the respondent for signature
o We can see no justification for holding that that any of the subsequent contracts was in any different
position from the first, or that in any of them the form became a contractual D
• It is, on the facts, impossible to conclude that at any point of time in the earlier dealings between the parties the
form became a contractual document or was mutually treated by them as such. There was … no evidence of any
course of dealing prior in which the parties mutually regarded the terms and conditions endorsed on the back of
the form as part of the contract between them
• There was no evidence of a prior series of Ks containing terms or conditions of the kind Mr Sullivan now seeks to
import into the subject K
• McCutcheon v David MacBrayne per Lord Reid: “If two parties have made a series of similar contracts each
containing certain conditions, and then they make another without expressly referring to those conditions it may
be that those conditions ought to be implied. If the officious bystander had asked them whether they intended to
leave out the conditions this time, both must, as honest men, have said ‘of course not’
• Terms cannot be incorporated by a course of dealing unless at some point the document in which they are set out
becomes a ‘contractual document’ and therefore forms part of the contract between them
o K document required where rule in L’Estrange/ticket cases relied on; not required in incorporation by
notice/course of dealing

Hardwick Game farm V Suffolk Agricultural Poultry Producers Association Ltd [1966] 1 All ER 309
Facts
• Grimsdale & Sons Ltd (one of the two plaintiffs) sold quantities of Brazilian ground nuts to D (SAPPA). There were
several other parties.
• In each case, ‘sold notes’ were sent to SAPPA in relation to prior oral contracts. ‘Conditions of sale’ were contained
on the back of each note. Grimsdale alleged that these terms, including cl 9 which dealt with responsibility for
latent defects in the goods, were part of the contract
• Havers J found that there had been frequent prior transactions between the parties, three or four a month during
the previous three years. The practice was for sold notes to be sent on the day of the oral contract, or the day
following
o One Mr Golden, who acted for SAPPA, knew there were terms but he had never read them
• Havers J held that terms had not been incorporated. He relied on McCutcheon v David MacBrayne Ltd [1964] in
which Lord Devlin said:
o “Previous dealings are relevant only if they prove knowledge of the terms, actual, and not constructive,
and assent to them. If a term is not expressed in a contract, there is only one other way in which it can
come into it and that is by implication. No implication can be made against a party of a term which was
unknown to him. If previous dealings show that a man knew of and agreed to a term on 99 occasions
there is a basis for saying that it can be imported into the hundredth contract without an express
statement. It may or may not be sufficient to justify the importation – that depends on the
circumstances, but at least by proving knowledge the essential beginning is made. Without knowledge
there is nothing”
• Eng CA: evidence shows that terms f sold notes were incorporated
Held per Diplock LJ
• The learned judge à held that the fact that Mr Golden had never read the conditions on the back of the sold notes
issued in respect of the previous transactions was, in itself, sufficient to prevent any of those conditions from being
a term of the oral contract sued on …
o Think’s that Lord Devlin’s above speech is wrong: the task of ascertaining what the parties to a contract
of any kind have agreed shall be their legal rights and liabilities to one another as a result of the contract
is a familiar one in all systems of law…it is accomplished not by determining what each party actually
thought those rights and liabilities should be, but by what each part and his words and conduct
reasonably led the other party to believe were the acts which he was undertaking a legal obligation to
perform …
• In offering to enter into a contract of a particular kind a partly leads the other party reasonably to believe that he
undertakes a legal obligation to perform all those acts which a person entering into a contract of that kind usually
performs unless his words or conduct are such as would make it reasonably clear to the other party that this is not
so and also makes it clear which of those acts he does not intend to undertake to perform and which of them he
intends to undertake to perform only in some other and specified manner …
o Any party to a contract by agreeing that its terms shall be embodied in a written document so conducts
himself as to lead the other to believe that he intended the written document to set out all the rights and
liabilities of each party toward the other which do not arise by implication of law from the nature of the
contract
• This is the relevant distinction between contracts which the parties have agreed should be embodied in a written
document and other kinds of contracts … the ticket cases are examples of the former. The only question there is
whether the party proffering the ticket has so conducted himself as to lead the other party reasonably to believe
that the written term on which he seeks to rely formed part of the terms on which alone he was willing to contract
… he may fail because he has not taken reasonable steps to draw the term to the attention of the other party, but
if he has taken such reasonable steps it matters not that the other party has never read the terms and would not
have entered into the contract if he had have read it … his acceptance of the ticket without demur as embodying
the terms of the contract is conduct which would lead the other party reasonably to believe that he intends to
contract on his terms, and not otherwise ….

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• The only question [in the present case] is whether each party has led the other reasonably to believe that he
intended that the rights and liabilities towards one another which would otherwise arise by implication of law from
the nature of the contract, namely a contract for the sale of goods, should be modified in the manner specified in
the written document
o On the facts, the issue of sold notes by Grimsdale containing the ‘conditions of sale’ in respect of all
previous sales to SAPPA should have led SAPPA to reasonably believe that Grimsdale were willing to
agree to sell goods to SAPPA only on the terms set out in the ‘conditions of sale’
o The conduct of SAPPA in accepting such sold notes in previous transactions as recording the sale without
making any comment, query or objection about the ‘conditions of sale’ was conduct which would lead
Grimsdale reasonably to believe that SAPPA intended to enter into a contract on these terms
o Actual knowledge of terms is immaterial … the relevant conditions set out in the ‘conditions of sale’
formed part of the contract

IV. INCORPORATION BY REFERENCE
If you are not constrained by writing: what pre-‐contractual oral statement that are made make their way into writing??? Then
we can consider how terms are actually interpreted (signature, reasonable notice etc): actual agreement.

• In commercial contracts it is common to record the bare essentials of the contract in the document and for the
document to refer to, and incorporate, a set of terms, such as the standard form of a trade association, the
standard terms of one of the parties or the terms of another contract related to the transaction
o Not limited to commercial contracts
§ Parties to sale of land: might incorporate the terms stated in a standard contract approved or
issued by a body such as the law society or real estate institute
§ Also used in insurance contracts

C. IMPLIED TERMS
There are many reasons for implying terms into a contract. Terms implied in fact are derived from the need to give business
efficacy to a contract. Terms implied in law are from the nature of the contract itself or the obligations it creates or by statute.
Key principle: where it is alleged that a term should be implied into a contract the basis for implication must be identified.
The applicable legal rules include an element of consistency: if a term contradicts the express terms, it cannot be implied.

Firstly, draw a distinction between ‘formal’ (complete on their face) and ‘informal’ contracts.
For formal contracts, there is a presumption that the term should not be applied unless rebutted according to the BP test
below. For informal contracts, a term may be implied where ‘it is necessary for the reasonable or effective operation of a
contract of that nature in the circumstances of the case’

Issues of law cf fact and proof
• Whether a term should be implied into a contract is a issue of law
o Question of construction
o Parol evidence rule re admission of evidence
• Implying terms is to gap fill: parties have not dealt with an issue and to deal with it we want to imply it in the
contract
• If term is implied, it is implied from the moment of formation
• Onus of proof
o Implied in fact: on party asserting it
o Implied by custom or usage: on party asserting it
o Implied by statute: check statute to see if it can be excluded
§ Look at contract as written: have the parties tried to exclude the term
o Implied in law (to a particular class of contract e.g. an employment contract): presumed to be implied –
onus on party asserting it should not be in contract to prove

I. TERMS IMPLIED IN FACT
BP Refinery (Westernport) Pty Ltd v Shire of Hastings
Terms implied in fact are unique to the particular situation, but terms implied in law are implied in all contracts of a particular
class (Byrne).
1. Must be reasonable and equitable

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2. Must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective
without it
3. Must be so obvious that ‘it goes without saying’
4. Must be capable of clear expression
5. Must not contradict any express term of K

The principles of BP are for a formal contract in writing: for implied terms in fact. In relation to informal contracts which are not
complete on their face, use Hawkins/Codelfa Construction. The HC in Byrne approved the following statement of Deane J in
Hawkins v Clayton:
“Where it is apparent that the parties have not attempted to spell out the full terms of their contract, a court should imply a
term by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the particular
term is necessary for the reasonable or effective operation of a contract of that nature in the circumstance of the case. That
general statement of principle is subject to the qualification that a term may be implied in a contract by established mercantile
usage or professional practice or by a past course of dealing between the parties.”
*****A court cannot be implied into an informal contract if it is unnecessary to do so and the term must also be consistent
with express terms *****

• Presumption that the contract is ineffective without the term
• Onus of proving that a term should be implied rests on party alleging
• Any term which is sought to be implied must operate reasonably and equitably between the parties
• At the heart of factual implication is the idea that a term should only be implied if it is necessary to make the
contract effective in a business sense: if the contract is commercially ineffective without the term, the court will
not imply it; but a term will be implied if without it the contract would be unworkable
• Does it need to be obvious? ‘Of of course’ argument
• It must be capable of clear expression and reasonably certain in its operation to be implied
• It must be consistent in that it does not contradict the express terms of the contract and must not deal with a
matter already sufficiently dealt with by the contract

Informal K
• Hawkins v Clayton (Deane J)
o Court should imply a term by reference to the imputed intention of the parties
o Only if the implication necessary for reasonable/effect operation of the contract of that nature in the
circumstances of the case
o May also be implied by established mercantile usage or professional practice or by a past course of
dealing
• Byrne v Australian Airlines (McHugh and Gummow JJ)
o Consider the evidence and find the relevant express terms
o Can terms be inferred from the evidence of a course of dealing
o Can some terms be implied by custom or usage

Other cases on implied in fact
• The Moorcock
o In business transactions such as this, what the law desires to effect by the implication is to give such
business efficacy to the transaction as must have been intended at all events by both parties who are
business men ... (Bowen LJ)
• Codelfa Construction v SRA (NSW) (Mason J)
o Not a case in which an obvious provision was overlooked by the parties and omitted from the contract
§ Term could not be implied in the contract
o Was a case in which the parties have made a common assumption which masked the need to explore
what provision should be made to cover the event that occurred
o Negotiation might have yielded any one of a number of alternative provisions, ach being regarded as a
reasonable solution
• Breen v Williams (Brennan CJ)
o Term is not implied if the contract is effective without it

The Moorcock (1889) 14 PD 64
Facts
• In November 1887 the plaintiff reached an agreement with the defendants who were wharfingers: for the
discharge and loading by the defendants of the Moorcock, a vessel owned by the P
o The vessel was moored alongside a jetty at the D’s wharf and suffered damage when at low tide the
centre of the vessel settled on a ridge of hard ground beneath the mud
• Butt J held the defendants liable for the damage; their appeal dismissed
Held per Lord Esher MR
• Honest business could not be carried on between such a person as the respondent and such people as the
appellants unless the latter had impliedly undertaken some duty towards the respondent with regard to the
bottom of the river at this place …
• Since they cannot honestly earn what they are desiring to earn without mapping the seabed through sounding, it is
implied that they have undertaken to see that the bottom of the river is reasonably fit, or at all events that they
have taken reasonable care to find out that the bottom of the river is reasonably fit for the purpose for which they
agree that their jetty should be used, that is, they should take reasonable care to find out in what condition the
bottom is, then either have it reasonably fit for the purpose or inform the persons with whom they have
contracted that it is not so … this is the least that they can be implied as their duty
Held per Lord Bowen LJ
• A court will imply a term for the object of giving efficacy to the transaction and preventing such a failure of
consideration as cannot have been within the contemplation of either side … in business transactions such as this,

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what the law desires to effect by the implication is to give such business efficacy to the transaction as must have
been intended at all events by both parties who are business men … to make both parties promise in law as such at
all events, as it must have been in the contemplation of both parties that he should be responsible for those perils
or chances …
o The business of the jetty could not be carries out unless some care had been taken to see that the
ground was safe
o I think if they let out their jetty for use they at all events imply that they have taken reasonable care to
see whether the berth, which is the essential party of the use of the jetty is safe, and if it is not safe, and
if they have not taken such reasonable care..their duty to warn persons with whom they have dealings
that they have not done so
o Business could not have been carried out unless there was an implication as such

Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 [SEE LATER NOTES]

Byrne v Australian Airlines (1995) 185 CLR 410
Facts
• The appellants before the HC (Byrne and Frew) were employed by the respondent as baggage handlers at Sydney
Airport. In March 1989 they were dismissed from their employment for pilfering
• They sought relief in the Federal Court, claiming that their dismissal was harsh, unjust or unreasonable in breach of
cl 11 (a) of the Transport Workers (Airlines) Award 1988
• The relief sought included orders under the Industrial Relations Act 1988 (Cth) for the payment of the statutory
penalty to the appellants (max penalty was $1000); also sought damages for breach of contract
• Trial judge: found that termination of the appellant’s employment was not harsh, unjust or unreasonable and
dismissed the claims; on appeal, the Full Federal Court found to the contrary but held that the appellants were not
entitled to damages for breach of contract; appellants appealed to HC against the rejection of claims for damages;
the HC dismissed the appeal and allowed cross appeal
Held per Brennan CJ, Dawson and Toohey JJ
• The cases in which the criteria in BP have been applied in this court are cases in which there was a formal contract,
complete on its face. A rigid approach should be avoided in cases, such as the present, where there is no formal
contract: in those cases the actual terms of the contract must first be inferred before any question of implication
arises. That is to say, it is necessary to arrive at some conclusion as to the actual intention of the parties before
considering any presumed/imputed intention
o The test to be then applied is that of Deane J in Hawkins
• Not necessary to imply a term in the form of cl 11(a) for the reasonable or effective operation of the contract of
employment
• There is no reason to presume that any alteration was intended by the parties to form a term of their contract, nor
any reason to impute such an intention to them … the fact that the inclusion of such a term would, if it were
breached, support an action for damages by the employee is no ground for saying that the term is necessary for
the reasonable and effective operation of the contract ….
o The contract is capable of operating reasonably and effectively in the absence of such a term and in the
presence of an award provision offering limited remedies in the event of breach
Held per McHugh and Gummow JJ
• This is not the same as BP: whether a term should be implied in a formal contract written which is complete upon
its face
o First, this species of implication is concerned with the circumstances of the particular case…
o Secondly, where the contract is not in writing and is oral or partly oral or it appears that the parties
themselves did not reduce their agreement to a complete written form, caution must be required against
an automatic or rigid application of the cumulative criteria identified in BP Refinery …
§ If the contract has not been reduced to complete written form, the question is whether the
implication of the term is necessary for the reasonably or effective operation of the contract
in the circumstances of the case, only where this can be seen to be true will the term be
implied
o The term propounded by the appellants would operate in a partisan fashion …it would favour the
interests of the employee at the expense of those of the employer .. it would also qualify what otherwise
has been understood to be the general law of the employment contract
• There is no reason why an employee might not be engaged upon terms and conditions including some or all of the
terms of an award under the legislation .. but this does not render it more likely that the importation into the
contract of a provision such as clause 11(a) of the Award was so obvious it went without saying, or that it was
necessary for the effective operation of the contract …
• While the employee might have agreed that the terms of cl 11(a) be expressly included in the contract of
employment, the employer in all probability would be of the contrary view
• In contracts of this nature, apparently lacking written formality and detailed specificity, it is still necessary to show
that the term in question would have been accepted by the contracting parties as a matter so obvious it would go
without saying … that cannot be postulated here
o Nor could it be said that the implication into the contract of employment of a term to the effect of cl
11(a) of the Award would be necessary for their reasonable or effective operation …
§ The term for which the appellants contend is not to be implied as a matter of business efficacy
in its contracts of employment with the appellants
• The two species of term considered above à concerned with giving effect to the objective intentions of the
parties. There is a basic distinction: terms implied by the application of what one might call the business efficacy
test are unique to the particular contract in question, depending upon the form of the contract, the express terms
and the surrounding circumstances … by contrast, terms implied by law are, in general, implied in all contracts of a
particular class or which answer a given description (Esso Australia resources Ltd v Plowman (1995))
o As pointed out by Hope JA in Castlemaine Tooheys v Carlton and United Breweries (1987): there are many
cases which have been long established … typical classes are contracts between master and servant, for

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the sale of goods, for the provision of work and materials and between landlord and tenant … however,
the classes of contract in which the law will imply terms are not closed …
• Many of the terms now said to be implied by law in various categories of case reflect the concern of the courts
that, unless such a term be implied, the enjoyment of the rihts conferred by the contract would be rendered
nugatory, worthless, or perhaps seriously undermined – hence the reference in the decisions of ‘necessity’
o Notion of necessity ‘crucial’ where a new term is implied for the first time as a matter of law
o In this case, implying the provisions of cl 11(a) lacked the necessity present in Scally v Southern Health
Board or Liverpool City Council v Irwin
§ This is not a case where the provision such as cl 11 (a) is a necessary lest the contract be
deprived of its substance, seriously undermined or drastically devalued in an important
respect
**This case wanted to make the requirements for basic term implication more flexible outside the context of ‘formal
contracts.’***

II. TERMS IMPLIED IN LAW
Two bases for implication: the contract is one in which the term is usually implied (string of authority?) or because of
circumstances peculiar to the contract (term must be necessarily implied).
Not implied on an ad hoc basis.
• Difference between legal and factual implication:
o Difference on onus of proof: where term is implied in fact the onus of proof is on the party alleging the
implication; the onus is on the other party when term implied in law
o ‘Reasonableness’ is more important to legal implication and term may be implied in law if it is reasonable
to do so; and terms may be implied in law even though lacks necessary precision of a term implied in fact
o Possible distinction: presumed intention of parties is rationale for term implied in law; actual intention
for terms implied in fact?
• Terms implied in law: employment contracts, bailment contracts, contracts for works and materials
• Term will not be implied in law if, in the circumstances of the case, it is unjust or unreasonable to imply it
• The requirement of constituency between express and implied terms

Liverpool City Council v Irwin [1977] AC 239
Facts
• The defendants were lessees of a maisonette located in a tower block housing estate erected by the plaintiffs, who
were the lessors (landlord)
• The tower block was part of a slum clearance programme à the defendants refused to pay rent because of
defects in the parts of the building such as continual failure of the lifts, absence of lighting on the stairs etc: the
plaintiffs sought possession of the premises and the defendants counterclaimed for damages for the breach of an
alleged implied term (‘covenant’) that the plaintiffs would keep the common parts in repair
• The lease was informal, and did not expressly confer (demise) any interest in land on the lessees: however a
document headed ‘Liverpool Corporation, Liverpool City Housing Dept’ described certain ‘Conditions of Tenancy’
à this was simply a list of tenant’s obligations, including special provisions relating to multistory flats
o Under ‘Further special notes’ were included obligations not to obstruct staircases and passages, and not
to permit children under 10 to operate the lifts
o At the end there was a form for signature by a tenant, accepting the tenancy: the lessors did not sign the
document
• County court held plaintiffs in breach of implied term; Eng CA reversed that decision, the defendants were
successful in the HL in the sense that the leases were to include an implied term to keep the common parts in
repair, but the appeal was dismissed because no breach of term had been proved (so defendants liable to pay rent
Held by Lord Wilberforce:
• Where there is, on the face of it, a complete bilateral contract, the courts are sometimes willing to add terms to it,
as implied terms … the present case represents a fourth category .. the court here is simply concerned to establish
what the contract is, the parties not having themselves fully stated the terms … the court is searching for what
must be implied
• There must first be implied a letting, that is, a grant of the right of the exclusive possession of the tenants … the
difficulty is when we reach the common parts … the demise is useless unless access is obtained by the staircase,
the demise would be useless without a lift service …
• Term can be implied on the basis of necessity … otherwise would render the whole contract absurd and would not
work
o Here, the lifts and chutes were found to be ‘essentials of the tenancy without which life in the dwellings
as a tenant is not poss’
o The test of existence of the term is necessity of the standard must not exceed what is necessary having
regard to the circumstances
§ To imply an absolute obligation to repair would go beyond what is a necessary legal incident
and would indeed be unreasonable: an obligation to take reasonable care to keep in
reasonable repair and usability is what fits the requirements of the case
§ Such a definition involves recognition that the tenants themselves have their responsibilities
§ What is reasonable to expect of a landlord has a clear relation to what a reasonable set of
tenants should do for themselves …
o There has not been a breach of obligation
• ‘Reasonableness’ is not a sufficient basis for implication of a term

Byrne v Australian Airlines (1995) 185 CLR 410 [SEE ABOVE].
• Where a K is informal, Byrne decides that a term may be implied in fact if it is ‘necessary for the reasonable or
effective operation of a contract of that nature in the circumstances of the case’

III. TERMS IMPLIED BY CUSTOM/TRADE USAGE

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The parties are regarded as having contracted on the basis of any custom or usage application and the term is applied in
accordance with custom/usage.
• The phrase ‘custom or usage’ includes established mercantile usage or professional practice
• For a term to be implied the custom or usage must be proved to be ‘notorious, certain and reasonable’
• Evidence of actual market practices is crucial: in Con-‐Stan -‐à the appellants before the HC failed to establish a
term alleged to be implied into contracts between themselves and their insurers on the basis of commercial
custom or usage
• A term inconsistent with express terms of contract will not be implied even if the custom or usage is established
• Establishing a course of conduct in a given market does not indicate that a term giving contractual effect to that
course of conduct can be implied:
o It is necessary for the course of conduct to have a binding effect in the market, that is to say, the
merchants who operate in the market must regard themselves as bound by the usage unless it has been
expressly excluded

Con-‐Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia)
• The existence of a custom or usage that will justify the implication of a term into a contract is a question of fact
• There must be evidence that the custom relied on is so well known and acquiesced in that everyone making a
contract in that situation can reasonably be presumed to have imported that term into the contract
o However, it is not necessary that the custom be universally accepted, for such a requirement would
always be defeated by the denial by one litigant of the very matter that the other party seeks to prove in
the proceedings
• A term will not be implied into a contract on the basis of custom where it is contrary to an express term of the
contract
o It has sometimes been said that the implication of a term into a contract does not depend on the parties’
intention, actual or presumed, but on broader considerations ….
• The general notoriety of the custom makes it reasonable to assume that the parties contracted on the basis of the
custom, and that it is therefore reasonable to import such a term into the contract
• A person had to be bound by a custom notwithstanding the fact that he had no knowledge of it
o Nothing turns on the presence or absence of actual knowledge of the custom, that matter will stand or
fall with the resolution of the issue of the degree of notoriety which the custom has achieved

IV. GOOD FAITH
Good faith is implicit in contractual law principles. There is a growing interest in the notion of ‘good faith’ in contract law.
Sometimes ‘good faith’ is incorporated by legislation. Furthermore, many contractual doctrines can be seen to incorporate
ideals that parties co-‐operate, act fairly and reasonably. Recently there has been some acceptance of implied good faith
obligations.

• Express term
o Negotiate in GF: Coal Cliff Collieries
§ Term was uncertain as the agreement the parties signed at that stage had no arbitration
clause
o But: Strzelecki Holdings Pty Ltd v Cable Sands [2010] WASCA 222
§ Express clause: the parties are, while this MOU remains in effect to at all times deal with each
other in good faith
• Implied term
o Is it a legal incident of a commercial contract (term implied in law) or a term implied in fact?
o Renard Constructions (ME) Pty Ltd v Ministry for Public Works
§ Show cause procedure: party in breach of the contract asked by the party in breach to show
cause as to why the contract should not be terminated
o Burger King Corporation v Hungry Jack’s Pty Ltd
§ HJ engaged in getting more franchises; BK imposed a target on HJ to get so many franchisees,
but under the agreement BK had the right to knock back franchisee applications
• Not making performance of the contract possible – was this acting in good faith?
• They were exercising the power capriciously or for an extraneous purpose
• What is ‘good faith’
o Cooperation in performance of contract
o ‘Reasonableness’
o Not exercise a contractual power ‘capriciously’ or for an extraneous purpose (Burger King)
o Party is allowed to exercise contractual powers to protect their legitimate interests (Gary Roger Motors v
Subaru)
§ Subaru – new marketing strategy and Gary Rogers didn’t want to take part in it. Subaru gave
notice it didn’t want to be in partnership so Gary Rogers said they would comply. Subaru went
to continue to terminate
• Parties can expressly exclude implied term of good faith: Vodafone pacific Ltd v Mobile Innovations Ltd [2004]
NSWCA 15

Casebook Chapter 2
• Principles of commercial construction illustrate that good faith is inherent in contract law and how good faith
solutions are achieved without overt reliance on good faith as a distinct concept
o Commercial construction is a process, not a rule
o It is best seen as a set of aspects or ‘incidents’ including:
§ Proper use of the context of the K as aid to construction
§ Assertion of common sense approach under which lack of clarity may be ignored for the
purpose of giving effect to a commercially sensible construction
§ Rejection of literal or strict approaches to construction

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§ Preference to rationalize conclusions by reference to the meaning and effect of the express
terms of the contract
§ Where a choice must be made between two or more constructions of a contract: use of
specific construction rules and preferences to achieve a construction that is reasonable and
sensible
• Good faith is the reason behind the objective approach to contract law and in particular the specific rule that
words should be construed as a reasonable person would understand them

J W Carter and Elisabeth Peden, ‘Good Faith in Australian Contract Law’ (2003) 19 JCL 155

• Australian contract law moving towards three propositions
o In most contracts: requirement of good faith must be implied, at least in connection with termination
pursuant to an express term of the contract, but perhaps more generally
o Second, where it is present, the source of the implied requirement of good faith is an implied term of the
contract
o The implied requirement of good faith is satisfied by a party who has acted honestly and reasonably
• Our thesis is that good faith is not an independent concept so much as something which is inherent in contract law
itself and should be taken into account when interpreting a contract, determining the scope of contractual rights
and so on …
• One reason why the law is currently in such a confused state is in our view because of a failure to appreciate that
‘honesty’ means much more than a requirement that parties not act fraudulently:
o Not acting arbitrarily or capriciously
o Not acting with intention to cause harm
o Acting with due respect for the intent of bargain as a matter of substance, not of form
• Depending on the term in question good faith may include: acting for a proper purpose, consistency of conduct,
communication of decision, cooperation with other party, consideration of interests of other party
• Offeror must act in good faith: an offer does not create any legal obligations, the justification for the requirement
revocation must be communicated is good faith
• In ‘subject to’ contracts: if the parties have not expressly dealt with the matter the condition precedent will be
interpreted as qualifying the parties’ performance obligations … the effect of adopting this approach is to prevent
withdrawal from negotiations on a ground not related to the agreed event … this is good faith pure and simple
• We would not have a doctrine of implied terms if good faith were not an essential ingredient of contract law …
there is a min level of obligation
o In the context of the incorporation of terms by notice it is well-‐established that ‘reasonable’ notice must
be given … good faith is a good test for determining the precise form or content of ‘reasonable notice’
• The modern rationalization of the established fact that interpretation is an objective process is a concern to
insulate each contracting party from the other’s subjective intention: good faith justifies this approach
• Vitiating factors: ‘misrepresentation’ and ‘unconscionable conduct’ à common sense tells us that if one party has
by is conduct signaled bad faith it is likely that the law will permit rescission of the contract
• Frustration … parties should not be required to perform come hell over high water, instead good faith requires
that parties’ obligations should be interpreted by reference to realities
• Turning to remedies … because it is rooted in the ‘contemplation’ of the parties, the parties may only recover
damages as may reasonably be supposed to have been in the contemplation of both parties, at the time they made
the contract, as the probable result of the breach of it: this limitation on damages recovery = good faith

Implied term of good faith?
• Many recent cases: judges have held that the requirement of good faith and reasonableness in the exercise of
rights arises from an implied term in the contract …. In our view, the cases implying a term of ‘good faith’ should be
seen as engaging in subterfuge …
o One reason why good faith should not be implied is that it is otiose: in the vast majority of cases the
implication infringes the consistency rule as it deals with a matter already dealt with

Renard Constructions v Minister for Public Works (1992) 26 NSWLR 234: Good faith means reasonableness. Interpretation of
the K was enough to show that the principal was not entitled to act in the way he acted.
Alcatel Australia Ltd v Scarcella (1988) 44 NSWLR 349: Construction of a contract based on a principle of good faith is sufficient
without resort to the implied term rationale à Sheller JA held that an obligation to exercise contractual rights in good faith
may be implied in commercial contracts.

Burger King Corporation v Hungry Jack’s Pty limited [2001] NSWCA 187: NSW CA decided there was one term of ‘good faith and
reasonableness.’ But this raises confusion: do we assume that both the two are necessary??? A requirement that a party must
act reasonably: is more onerous than a requirement that a part not act unconscionably, yet the anomaly still exists. The courts
said that they had for the ‘most part proceeded on the assumption’ that an obligation of good faith and reasonableness in the
performance of a contractual obligation or the exercise of a contractual power may be implied as a matter of law as a legal
incident of a commercial contract … ‘


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LECTURE 8: CONSTRUCTION OF CONTRACTS AND CLASSIFICATION OF TERMS
• Express terms: 2 issues
o Pre-‐contractual oral statement
o Can they be incorporated by signature/reasonable notice/ticket / course of dealing/reference (i.e. bus to website – which
can be used in commercial contracts)
• How can a term be implied into the contract?
o Whole reason parties want to imply a term is to gap fill as express terms don’t deal with issue that’s come up
§ May not be possible to imply a term
§ Different requirements for implying a term in fact (informal or informal), law, statute, custom/usage
• Motivating factor to mount an argument to incorporate a term: want to include the benefit of an exclusion clause (2 x drycleaning
cases, Shoe Lane parking, Marlborough Hotel)

D. CONSTRUCTION OF CONTRACTS
We have express terms and implied terms, but what is the status of a document? May be the bargain between two parties or it may not be (oral
terms). Contracts are interpreted or construed by:
• Technicalities>Parol Evidence Rule
• Common Sense> Commercial construction

Construction means two things: determining the meaning of words used to express the terms of the contract and the means by which
particular legal effects are ascribed to the terms which make up a contract. In most cases the determination of meaning requires no more than
reading of the K in context.

Construction is an issue of law, not of fact.
We have a written document which purports to be a K: is it in any of the below categories? We are concerned with how a reasonable person in
the position of the parties would construe a contract. The question is to ask: ‘What is the meaning of what the parties have said? NOT What did
the parties mean to say?
1. A document is a written contract if it is executed or adopted as such
a. A written offer not signed but accepted is still a written contract as acceptance is unconditional acceptance of the terms of
offer (yes), not adding anything new to the contract
2. A document may evidence a contract if it has not been adopted as the contract but the terms of an oral agreement are set out in the
document
a. T2 moment of formation can be oral, and pretty soon after that there can be a document
3. A document may state or evidence part of a contract. This is a partly oral partly written contract
a. If its only evidencing the contract, then the K is an oral K

This is a question of construction, and objectively determining the intention of the parties. Thus when a court construes a contract it does so to
determine and give effect to the intention of the parties. Intention may be actual (subjective), expressed (stated) or implied (attributed to
matters on which no intention expressed). Intention refers to what a reasonable person in the position of the parties to whom the words were
addressed would regard as the other party’s intention. Did the parties intend this document was the contract? We can achieve this through
entire agreement clauses e.g.:

Construction is concerned with three main areas:
1. The raw material which may be sued to construe a contract
2. The classification of contractual terms
3. The construction of exclusion clauses

The courts want to give effect to a bargain à where a particular construction would achieve an unreasonable result the court will be reluctant to
accept that this was intended by the parties.

Principles of commercial construction
In the context of commercial contracts, courts strive to give effect to the principles of ‘commercial construction’ which includes the proper use
and context of the contract (factual/legal matrix) and a preference for constructions which are reasonable or sensible and not
unreasonable/absurd/inconvenient.

Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-‐913 (Hoffman LJ)
1. Interpretation = the ascertainment of the meaning which the document would convey to a reasonable person having all the
background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of
the contract
a. Construe the contract in context
2. Matrix of fact (shorthand for background) = absolutely anything which would have affected the way in which the language of the
document would have been understood by a reasonable man.
a. At time T2
3. Law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They
are admissible only in an action for rectification
a. Rectification: what you seek of the document didn’t record the bargain correctly between the parties – need evidence of
prior negotiations to prove contract is wrong
i. Problem with this: as a matter of practical policy “legal meaning differs from the utterances in ordinary life” and
when parties are in negotiation – use these utterances, but it is supposed to reflect legal language
b. Could also be rejected because no probatory (evidenciary) value
4. The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of
its words. The meaning of the words is a matter of dictionaries and grammars (linguistic meaning) and the meaning of the document is
what the parties using those words against the relevant background would reasonably have been understood to mean
a. Words can be ruled as ambiguous or incorrect

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5. The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not
easily accept that people have made linguistic mistakes, particularly in formal documents
a. Look at factual background, and parties used a wrong word: case to rectify the document
b. If trying to do detailed analysis and come up with a conclusion that doesn’t make sense in the context of the contract you
don’t go for detailed meaning, only ordinary natural meaning

REASONABLENESS = Reflects objective view of contract law and that working our principles for construction at T2 requires additional rules.
Because if we must bring in factual matrix to understand contract, where are the limits?
• We do this as party has breached party between T3-‐T4, and we are going back T1-‐T2 to figure out what it means: don’t look at
subsequent conduct
I. PAROL EVIDENCE RULE
Because of the objective approach to construction and the need for certainty in the interpretation of documents, extrinsic evidence (evidence
outside the contract) is not generally admissible in the interpretation of a document. This rule arises in the context when the document is the
actual contract (option 1). Gordon v Macgregor per Isaacs J: prima facie legal presumption that where the parties agree that the document is the
contract, that is the record of the contract and nothing can displace it (i.e. an entire agreement clause).

“Now, I think it is quite fixed – and no more wholesome or salutary rule relative to written contracts can be devised – that where parties agree to
embody, and do actually embody, their contract in a formal written deed, then in determining what the contract really was and really meant, a
court must look to the formal deed and to that deed alone. That is only carrying out the will of the parties.

Exception: evidence of the factual matrix is not regulated by the parol evidence rule.

There concept of extrinsic evidence depends on the purpose for which evidence is sought to be used. Where the question is whether extrinsic
evidence may be used to prove the terms of the bargain, extrinsic evidence refers to evidence to prove terms additional to those stated in the
document which is put forward as the contract. However, evidence is extrinsic only where the contract has been ‘integrated’ into the document.
Whether or not the document integrates the bargain there are three categories of extrinsic evidence which may not be used as an aid to the
interpretation:
• Evidence of the actual intention of the parties: not admissible
o Prenn v Simmons per Wilberforce LJ
• Evidence of the prior negotiations of the parties: NOT admissible
o Prenn v Simmons per Wilberforce LJ
o Gordon v Macgregor per Isaacs J: formal contract supersedes all loose and preliminary negotiations
§ “The very purpose of a formal contract is to put an end to the disputes which would inevitably arise if the matter
were left upon verbal negotiations or upon mixed communings partly constituting of letters and partly consisting
of conversations”
• You look to document of CONTRACT
• Evidence of the subsequent conduct of the parties (after T2): not admissible in the interpretation of a document, but is admissible as
to whether there is a contract
o L Schuler AG v Wickman Machine Tool Sales Ltd: the rule applies when the instrument to be construed is unambiguous ..
the court is entitled to have recourse to the subsequent conduct of the parties under the contract to resolve the ambiguity
described therein …
• In the case of a contract integrated into a document (document is the contract), evidence of terms not set out in the document
o Gordon v Macgregor per Isaacs J: No, but can lead evidence to show that it was not intended to be the record of the
contract by showing fraud or that by mistake the contract has not recorded the bargain properly
o But: Herron J in LG Thorne & Co Pty Ltd v Thomas Borthwick & Sons (Australasia) Pty Ltd
§ First thing need to work out: is my document the contract?

Factual Matrix
The court must receive evidence of the circumstances surrounding the K, and the aim, object or commercial purpose of the K on the basis that it
forms part of the factual matrix against which the parties contracted.
Lord Wilberforce in Reardon Smith Line v Yngvar Hansen-‐Tangen: When construing a contract, the court must place itself in thought in the same
factual matrix as that in which the parties were when the contract was made. Therefore, notwithstanding the parol evidence rule, the court must
receive evidence of the circumstances surrounding the contract, and the aim, object or commercial purpose of the contract on the basis that it
forms part of the factual matrix against which the aprties contracted.

• Admissible in construing a contract – some different views
o Per Mason J in Codelfa Construction Pty Ltd v SRA (NSW) – Admissible to assist in interpretation where the language is
ambiguous or susceptible of more than one meaning
• But cf re need for ambiguity: now no need. So what do we mean by the factual matrix?
o Franklins Pty Ltd v Metcash Trading Ltd (2009) NSWCA 407 at [239-‐292], [298]-‐[305] (Campbell JA)
§ No need for ambiguity before looking at factual matrix: [49] Gilles JA
o Pacific Carriers v BNP Parribas (2004) 218 CLR 451: consideration of the text of the documents and the surrounding
circumstances known to parties and purpose and object of the transaction
o Per Gleeson CJ in Toll v Alphapharm – commercial purpose of the transaction calls for an understanding of the genesis of
the transaction, the background and the market
o Aim or object of the contract and entry into contract is motivated by the view that particular aim will be attained (Reardon)
• Even though position of now HC à ambiguity is not a pre-‐condition to admitting evidence of actual matrix. What if we have
document which is a contract and there is ambiguity (i.e. word is ambiguous)?
o Law defines ambiguity as PATENT and LATENT ambiguity
§ Patent: it is what it is (Gilliberto v Kenny)
§ Latent: a description evidently meant to apply to one person/thing is shown to be equally applicable to more
than one person/thing (Hope v RCA Photopone)

Parol Evidence: what the contract is – establishing terms of bargain:


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LG Thorne & Co P/L v Thomas Borthwick & Sons (A’Asia) Ltd (1956) 56 SR (NSW) 81
Facts

• Sale of oil. Parties signed written document with no reference to sample. Prior to signing, there had been negotiations which
involved certain samples. P alleged a term that the sale was by sample
Held by the majority
• Majority -‐ Where a complete contract is contained in a written agreement, the court will not, subject to certain exceptions, allow
evidence to be given to establish an additional term omitted from writing
o Exceptions: Incomplete Ks, cases where subject matter unclear
o Here, although the sample was a salient feature of negotiations, the fact that there was no mention of it in the written
contract meant that it could not be incorporated as a term
o An exception does exist where the full agreement is not contained in one written document and the contract may be found
partly in the written document and partly in the oral or written communications of the parties leading up to the written
document
§ If the written document is clear and contains all terms appropriate to transaction, then exception does not apply
• Another majority held that the rule did not operate to prevent the reception of extrinsic evidence establishing that the buyers entered
into a collateral K with promise that goods would be equal to sample supplied.
• This conclusion lacked logic, and the dissenting judgment of Herron J should be applied:
Dissenting (Herron J)

• Parol evidence rule cannot be applied until it is found that the written document embodies the entire agreement between the parties
o The writing must be compared with the negotiations, which must be provisionally received in evidence, before it can safely
be said what was covered by the suggested final writing. Thus, the applicability of the PER and the effect of the rule are
distinct things
§ ‘It is not always the last statement of agreement that contains the only evidence of contract, even though
confirmed by the other party. The court must look at the intention of the parties. If this is not clearly stated in
the supposed formal contract, the intention must be gathered form their language, conduct and surrounding
circumstances. In particular the question must be asked: Was the particular element of the alleged extrinsic
negotiations dealt with at all in writing?’
o There may be partial integration where a certain part of the transaction has been embodied in a simple writing but another
part has been left in some other form
NB: Dissenting judgment matches the view today closest – judges apply the PER much less stringently in this respect.
NB: Lord Moulton (Symons v Buckleton) – Courts are very reluctant to find the existence of a collateral contract as they are seen as undermining
the authority of written contracts. Therefore, the test applied is a strict one.
Per Street CJ at 88: “If the written agreement in question, signed after due consideration, contains on its face a complete contract with provision
for all matter relevant to the particular transaction involved, then the court will not, in general, allow evidence to be given for the purpose of
establishing that some additional term agreed upon between the parties has been omitted. There are of course exceptions to this rule … where it
is claimed that the full agreement is not contained in writing … but if the written document is clear on its face and contains all terms appropriate
to the transaction, and is signed by the parties as the record of their agreement, then further evidence is not admissible.

Gordon v Macgregor (1909) 8 CLR 316
Facts
• The plaintiff (McGregor, respondent before the HC) was a timber merchant. He sued on a contract to supply a quantity of log timber.
He proved that a document had been signed by the parties which said that the logs were to be drawn for an average girth not less
than 10 ft 6 in
o No time for delivery was stated
o The defendant said two essential terms not included in writing
§ That delivery was to commence three months after date of the contract
§ That a minimum girth of six feet had been agreed upon
• QLDSC: judgement for the D on the basis that the contract included all the alleged terms; this was reversed by the Full Court, the HC
dismissed an appeal by the defendant à plaintiff judgement for 2500 pounds in damages for breach of contract
Held per Isaacs J
• There is a presumption that the parties agreed that the document should be the record of their bargain and I can find no scrap of
evidence to displace that assumption
o Wake v Harrop per Baron Bramwell: “A written contract, not under seal, is not the contract itself but only evidence – the
record of the contract. When the parties have recorded their contract, the rule is that they cannot alter or vary it by parol
evidence. They put on paper what is to bind them, and so make the written document conclusive evidence between them.
But it is always open to the parties to show whether or not the written document is the binding record of the contract..”
• The legal presumption – is that the prima facie presumption – that this is a binding record of the contract and there is nothing to
displace it
o Inglis v John Buttery & Co: “Where the parties agree to embody and do actually embody, their contract in a formal written
deed, then in determining what the contract really was and meant, a court must look to the formal deed and that deed
alone …. The very purpose of a formal contract is to supersede all loose and preliminary negotiations and put an end to the
disputes which often arise if the agreement rested on such communications….”
• Once that position is established, the defendant, in order to escape from the effect of the document, would have to show that it was
not intended to be the record of the contract – he would have to show some reason for defeating the plaintiff, either by showing
fraud, or by showing that by mistake the contract was not properly recorded, but neither of those things has been attempted to be
shown here

Parol Evidence: What the contract means – Factual Matrix:
Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982)

Prenn v Simmonds [1971] 1 WLR 1381
According to this case: evidence of the factual matrix is admissible in all cases as part of the process of commercial construction.
Facts

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• Simmonds (the p, respondent before the HL) was employed as a managing director and the leading technician of a company (Airmec
Ltd) owned by RTT Ltd. Crompton Parkinson Ltd owned RTT and the defendant purchased Airmec and ATT to secure the services of
the P for his group of companies
• Under cl 1 of the agreement dated 6 July 1960 the P was entitled to acquire from the d a 4% interest in RTT. However the P’s right
was subject to provisos set out in clause 2. Clause 2(a) required a debt to Crompton Parkinson to have been paid out of the profits of
RTT
• Clause 2(b) stated: “The aggregate profits of RTT earned during the four years ending 19 August 1963 and available for dividend on
the ordinary stock units for the time being issued whether declared or not shall have amounted to 300,000 pounds after payment or
provision for income tax and profits tax …
• The defendant contended that as less than 300,000 pounds profits were available for dividend over the relevant period, cl(2)(b) was
not satisfied
o D based his contention on the profits of RTT alone
• P argued that the required amount had been exceeded because ‘profits’ meant the consolidated profits of a group of companies
consisting of RTT and its subsidiaries. In order to support that: he sought to rely on extrinsic evidence, namely prior negotiations of
the parties
• Trial judge: in favour of the P. Appeal to the EngCA dismissed. HL rejected an appeal by the defendant
Held per Lord Wilberforce
• We must inquire beyond the language and see what the circumstances were with reference to the words that were used, and the
object, appearing from those circumstances, which the person using them had them in view
• Evidence of the factual matrix (or factual context) is always admissible as part of the process of commercial construction
o It may be sad that the previous documents may be looked at to explain the aims of the parties or the ‘genesis of the
contract: in a limited sense this is true; the commercial, or business object of the transaction, objectively ascertained, may
be a surrounding fact à per Cardozo J in Utica City National Bank v Gunn (1918)
o If it can be shown that one interpretation completely frustrates that object, to the extent of rendering the contract futile,
that may be a strong argument for an alternative interpretation
§ But beyond that it may be difficult to go: it may be a matter of degree, or judgement, how far one interpretation
or another gives effect to a common intention: the parties indeed may be pursuing that intention with differing
emphasis and hoping to achieve it to an extent which may differ and in different ways
• The only course then can be to try to ascertain the ‘natural’ meaning – it is dangerous to admit evidence of one party’s objective:
even if this is known to the other party. However strongly pursued this may be, the other party may only be willing to give it partial
recognition
• Evidence of negotiations, or of the parties’ intentions ought not to received, and evidence should be restricted to evidence of the
factual background known to the parties at or before the date of the contract, including evidence of the ‘genesis’ and objectively the
‘aim of transaction
• As to the circumstances and the object of the parties, there is no controversy in the present case. the agreement on its face supplies
enough without the necessity to supplement it by outside ‘evidence’
II. EXCEPTIONS
• Identification of the subject matter of the contract (White v Australian and New Zealand Theatres Ltd)
• Ambiguity may be ‘patent’ (apparent on the face of the doc) or ‘latent’ (because a word or description, superficially referring to one
person or thing is found to be equally applicable to more than one person/thing) – in either case extrinsic evidence used to resolve
the ambiguity
• Evidence of the factual matrix may be used to determine whether a term should be implied: but how far should evidence go?
o In considering whether a term should be implied in law the court may have regard to extrinsic evidence for the purpose of
supporting or rebutting presumption that term should be implied
• For custom, usage and course of dealing: if there is a contract which does not express the custom or usage, and if the common
meaning of the words stated is relied on, no evidence of custom/usage may be adduced: if the document refers to custom but does
not explain = extrinsic
• Consideration: extrinsic evidence can be used to prove the real consideration (Pao On v Lau Yin Long)
• Identity of the parties or their relationship where this is not clear
• Rectification of a written document is sought: extrinsic evidence of the parties’ intention – including indirect evidence of intention –
is admissible to rectify the document so it expresses that intention

L G Thorne & Co Pty Ltd v Thomas Borthwick & Sons (A/Asia) Ltd (1995):
“If the written agreement in question, signed after due consideration, contains on its face a complete contract with provision for all matters
relevant to the particular transaction involved, then the court will not, in general, allow evidence to be given for the purpose of establishing that
some additional term agreed upon between the parties has been omitted. There are, of course, exceptions to this rule … [An] exception exists in
cases where it is claimed that the full agreement is not contained in the writing but the document in question only contains part of the contract
between the parties. In such cases the contract may be found partly in the written document and partly in the oral or written communications of
the parties leading up to the written document. But if the written document is clear on its face and contains all terms appropriate to the
transaction, and is signed by the parties as the record of their agreement, then further evidence is not admissible.”

E. CLASSIFICATION OF TERMS
Look at the terms (express/implied) and then give meaning to them. After constructed, classify. There are different consequences of breach i.e.
condition serious, intermediate term that is serious breach treated like condition/sometimes trivial, warranty is less serious, only right for
damages.

Why classify terms?
• Distinguish express from implied
• Whether they survive termination
• Substantive v Procedural
• Whether they are capable of being breached

I. TRIPARTITE CLASSIFICATION


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Condition Intermediate term Warranty

Breach entitles claim for damages and right Can to terminate.
be breached in a number of ways: serious/trivial.
No right to terminate for breach, still damages.

Classification must be made on the basis of the intention of the parties. It is therefore an issue of construction.
• Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd: test of essentiality per Jordan CJ: -‐ Whether it appears from the general nature
of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee
that he would not have entered into the contract unless he had been assured of a strict [exact] or substantial performance of the
promise, as the case may be, and this ought to have been apparent to the promisor
o Clause: display advertising banner on trams from 10m-‐8pm, and it is a condition, 10-‐7 breached the contract (strict
performance)
• Endorsed by HCA in Associated Newspapers v Bancks
o Bancks: prepare and furnish weekly a full-‐page drawing of US Fellers (Featuring Ginger Meggs)
o AN: would publish each weekly full-‐page drawing on the front page of the comic section
§ 3 times did not publish on front page, Bancks sought breach of contract and damages: only would succeed if
condition
o Construed as ‘concurrent and correlative promises’
• Hong Kong Fir Shipping: Breach goes to the root of the contract. Diplock LJ: “occurrence of the event deprived the party who still has
further undertakings to perform of substantially the whole benefit which the parties intended he/she should obtain”
• Words used by parties are not conclusive when giving effect to intention so must construe clause of the contract as a whole: L
Schuler AG v Wickman Machine Tool Sales Ltd

The classification: conditions
• Very important: party not in breach can elect to terminate/seek damages
• A promisee who establishes that the promisor has breached a condition is both entitled to terminate the performance of the
contract and to claim damages for its breach
• The definition of condition stated in the sale of goods legislation is of general application: but
• Jordan CJ in Tramways: distinguished the two types
o Those requiring strict compliance and
o Those requiring substantial compliance
o In view of the emergence of IT concept: refinement unnecessary?

The classification: warranty
Narrow legal meaning: promise, the breach for which only sounds in damages.
Wider meaning: guaranteeing truth of a statement.
A minor term of the contract, breach of which renders the contract different, but not substantially different.
• Bettini v Gye
o Gye hired Bettini to work in London as a singer for 3 months, and undertook would be in London 5 days before singing
engagements began for rehearsals. He turns up 2 days before hand.
o Gye refused to proceed with the contract, so Bettini sued for breach and won. Turning up late for rehearsals was not vital
to the contract. It was a breach, but did not deprive Gye substantially of the benefit of the contract.
• Damages is an appropriate remedy.

The distinction between conditions/warranties must be applied to each obligation contained in a contractual term, rather than term as a
whole.
Be careful of ‘condition’ or ‘warranty’ meaning other things legally:
‘Condition’ > L Schuler AG v Wickman Machine Tool Sales Ltd
‘Warranty’ > Hongkong Fir Shipping v Kawasaki

Originally: classification was bilateral, but the concept (not terminology) of the IT originated in HK Fir Shipping. Tripartite classification adopted in
Australia in Ankar v National Westminster Finance:

The classification: inominate or intermediate term
• Definition: Hong Kong Fir Shipping v Kawasaki Kisen Kaisha Ltd
o Term can be breached in a number of ways, some serious and some trivial
• Consequences: Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord)
o Serious breaches: right to terminate and seek damages
o Trivial breaches: no right to terminate, only right to damages

Repudiation: Party to a contract evinces an intention to no longer be bound by the contract. This is a risk for a party who terminates without the
right to do so. Gives the other party right to expect repudiation so they terminate the contract and the damages can shift.

Weaknesses with the terms
• Simplistic nature: idea that all terms are so straightforward they can be classified as either important or unimportant
• Inflexibility: because a term must be classified at the moment or formation, on the basis of construction, no regard can be had to any
actual breach, at best the court can consider possible breaches

II. PROMISES AND CONTINGENCIES
Promise: a voluntary assumed obligation.
Contingency: an event that is not certain to occur.

Contrast the situation between A says to B ‘I will pay you $20 if you find my lost dog’ with a term in contract for services requiring the customer to
pay $100 a month for the services. Finding the lost dog is the condition (‘contingency’) which must be fulfilled by B to claim the $20. The fulfillment
of the contingency not part of a promise, whereas services contracts will include a promise to provide the services.
• Obvious distinction: a contingency à does not provide a basis for damages if the contingency is not fulfilled

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• A term which expresses a promise that an event will occur (or will not occur) or an undertaking as to the truth of a present (or past
fact) is treated as embodying a contractual obligation, the breach of which gives rise to a claim for damages
o Such a term is distinguishable from one which qualifies the obligation of a party by providing for a contingency e.g. if a
contract for the sale of goods provides that the obligation of the parties to perform is subject to the issue of an export
license, but neither party undertakes to obtain the license, the issue of the license is merely a contingency on which the
obligation of the parties to perform depends
• Term may embody both a promise and a contingency: if the sales of goods contract between A and B not only makes A’s obligation
to perform dependent on the issue of the licence, but also contains a promise by B to obtain the export licence by a specific date, the
condition (contingency) is of a promissory kind because B has promised to see if it is fulfilled
o If B fails to obtain the licence by the specified date, not only is B unable to enforce A’s obligations but B is also liable in
damages for breach of contract à the former consequence arises from the contingent nature of A’s obligation; the latter
consequence from the fact that B has promised to fulfill the contingency
§ Tripartite classification then applicable

A contract that is bilateral may contain a unilateral promise in which the obligation of one party to perform might be subject to a contingency
(condition precedent) e.g. Prenn v Simmonds. Whether the failure of the event to occur means there is no contract, or simply no obligation to
perform depends on the intention of the parties. Formation – ‘subject to finance clause:’ – obtaining the finance before formation. Here no
formation issues but is a party obliged to perform? Before they perform, event/condition must happen. Unless something happens – alternatively
contract could be brought to an end.
A condition subsequent: when occurs, brings the contract to an end or terminates the obligations. E.g. the parties to a sale of goods contract
might provide that neither is obliged to perform if an export licence is not obtained by the specified date. The occurrence of the event – failure to
obtain the licence by the specified date – terminates the obligation of the parties to perform.

• A contract which is otherwise bilateral may contain a unilateral obligation: the obligation of one party to perform may be the subject
to the fulfillment of a contingency (condition precedent) which the other party has not promises will occur
• The onus of proof proving the fulfillment of a condition precedent rests on the plaintiff in the action whereas the defendant bears the
onus of proving that a condition subsequent has occurred
• There exists confusion between promises and contingencies
o Although it is reasonable to refer to a term classified as a condition as a ‘condition precedent’ it is not necessary for a
condition precedent to be stated in a contractual term e.g. the phrase ‘subject to approval by X’ may operate to indicate
the existence of a condition precedent to the formation of a contract
• It is difficult to say this type of condition precedent is a term when there is no contract until the event occurs: more accurately the
statement describes the event (approval by X) which must occur before K is formed

Maynard v Goode (1926) 37 CLR 529
Facts
• By a K dated 1 Feb 1924, Goode, the P, one of the respondents before the HC agreed to buy land, known as ‘Cairnton’ from one
nd
Crosby (2 R)
• The land comprised about 1455 acres of soldiers settlement land. The price as 4 pond 2 shilling 6 dimes per acre. The agreement was
subject to a proviso that the transfer of land owned by Good would go through in a ‘reaosnable time’
o This was necessary because of a statutory restriction on the amount of land he could hold
• Shortly afterwards Crosby purported to sell the land to Maynard (the appellant). Crosby also refused to join with Goode for the
consent of the Minister for Public Lands to the transfer (required by statute). Goode managed to sell his land to one Angel, transfer
registered in June
• Goode sought damages and specific performance of the K with Crosby in the NSWSC which was upheld. In addition, Maynard and
Crosby were restrained from proceeding with their transfer. Maynard appealed
o Appeal was dismissed: the transfer of land owned by Goode went through in a ‘reasonable time’ as a condition subsequent
– since the transfer went through in a reasonable time, Crosby could not argue that the contract came to an end on the
basis of the proviso
Held per Isaacs J
• The stipulation of ‘reasonable time’ -‐ Crosby was entitled to insist upon as a condition subsequent, the non-‐fulfillment of which
would, in strict law, as I interpret it, also in equity, entitle him to be discharged from further obligations under the contract: the
stipulation was fulfilled
o The question of what is ‘reasonable time’ is always relative
• Construction of the contract is not affected by circumstances subsequent, but only by those which are contemporaneous with its
creation …. The fact that the stipulation was left indefinite in point of time strongly indicates the absence of special importance being
attached to time
o Both parties knew that official procedure was necessary, with possibly unexpected delay
• [Thus] the words ‘in reasonable time’ should be interpreted as meaning within such time as might enable the purchaser with
ordinary dispatch to comply with any possible requirements of the law and administration of the Crown Lands Acts, but not such
delay as to cause or threaten prejudice to the position of the vendor under the contract
o The proposition must be held to have been substantially performed … it follows that at no time could the vendor repudiate
• We must ask the question – precedent to what? If it is precedent to the agreement being the operative as a contract, it is of the
nature urged by the counsel for Maynard; but it may be a condition precedent to the performance of a particular term of the
contract, which is of common occurrence: in one sense the stipulation is of that nature, because there was no obligation on Crosby to
transfer unless Goode first transferred his holding in reasonable time
o But in another sense it is … a condition subsequent in relation not to a particular term, but to the whole contract, as a
binding obligation, that is, as a defeasance, because failure of the stipulation entitled the purchaser, if he had chosen, to
retire from the transaction altogether ….
Held per Higgins J
• The proviso as to the transfer of the purchaser’s block going through in reasonable time cannot be treated as a condition precedent.
In this contract there are no words to indicate that the contemplation of this transfer was to be prior in order of time to the operation
of Crosby’s contract to sell: and the proviso in question requires something to be done which will necessarily take time which is
always treated as a strong indication against a condition precedent …

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o I do not see any justification for saying that this completion was not within a reasonable time … a right to put an end to the
contract or to refuse to perform it would not arise thereunder automatically without some warning notice from the vendor,
fixing a reasonable limit of time for completion

Lewes Nominees Pty Ltd v Strang (1983) 49 ALR 328
Facts
• The respondent (Strang) granted the appellant an option to purchase a property. The consideration for the option was payment of
$500. The price of the property was $410 000 gross. Clause 3 dealt with the exercise of the option, and stated:
o This option shall be exercised by notice in writing signed by or on behalf of the proposed purchaser addressed to the owner
and delivered personally to or sent by prepaid letter post to the owner at the owner’s address aforesaid, at any time prior
to the expiration of this option or any extension thereof. Such notice shall be accompanied by payment of such further
amount as shall TOGETHER with the amount or amounts be paid as consideration of this option and any extension thereof
equal 10 per cent of the purchase price and if sent by post shall be deemed to be delivered in due course of post
• Option due to expire on 11 November 1980. On that day a written notice of exercise, together with a bank cheque for the amount
payable under c 13 were placed in an envelope addressed to the respondent and forwarded to him by registered mail. This was
received 12 November. In addition, a photocopy of the notice and the bank cheque were delivered to the respondent at his home at
6pm on 11 November.
• The Supreme Court of WA held the option had been exercised in accordance with cl 3. That decision reversed by the Full Court; and
an appeal on that decision by the appellant was dismissed
o Condition precedent had failed
Held per Gibbs CJ
• Whether payment of the amount mentioned in cl 3 of the option agreement was essential to the exercise of the option and if the
notice exercising the option was sent by post, whether it was necessary that it should have been posted at a time which would have
enabled it to have been delivered in the ordinary course of post before the expiration of the stipulated date, 11 November
• The Full Court were right in holding that cl 3 made payment a condition of the exercise of the option in the present case
• The words ‘sent by post’ are ambiguous – a document may be sent by post within the meaning of those words either when it is
posted or when it would, in the ordinary course of post, reach its destination – it all depends on context. In the present agreement,
the words ‘sent by post …’ indicate that the notice is ‘sent’ within the meaning of cl 3 not when it is posted but when it is deemed to
be delivered
o They can only mean that a notice, if sent by post, is deemed to have been delivered in due course of post and that if the
notice is not in fact received on or before the expiry date it must have been posted in sufficient time for the deemed
delivery to take place on or before the expiry date if it is to be effective
• It follows there was no valid exercise of the option: notice was given personally on 11 November but it was not accompanied by
payment

F. EXCLUSION CLAUSES
I. CONSTRUCTION OF EXCLUSION CLAUSES
Exclusion clauses commonly come up with incorporation of terms. Not all people are prepared to accept full liability or contractual responsibility
in the event of breach on their party. Therefore, it is common to find terms in contracts which reduce a party’s common law liability. Three main
types:
• Those which exclude liability altogether
• Those which limit party’s liability to a specific sum of $ (limitation cl)
• Those making liability subject to certain requirements e.g. any action must be brought within 12 months of breach
Note: even if the parties intended the clause to apply, effect may not be given if the clause is prohibited by statute.

Whether an exclusion clause applies depends on the intentions of the parties, so technique is construction of the K, this technique has been applied
by reference to specific construction rules:
• Strict construction
• Contra proferentem rule (when ambiguity on face of document, ECs interpreted narrowly and against the party seeking to rely)
• Four Corners rule (Aus law – liability is only exluded for acts authorised/within the four corners of the K)
• Main purpose rule
• Deviation rule (applies often to bailment – if goods are lost or damaged during carriage where carrier deviates from specified route)
carrier cannot rely on EC
• Rules applicable to negligence (Canada SS)

“The interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in light
of the contract as a whole, thereby giving weight to the context in which the clause appears including the nature and object of the contract, and,
where appropriate, construing the clause contra proferentem in case of ambiguity” (Darlington)

Wallis v Pratt [1911] AC 394
Facts: A term in a contract for the sale of goods provided: ‘Sellers give no warranty expressed or implied as to growth, description or any other
matters. The contract required the delivery of seed described as ‘common English Sainfoin’ but the sellers delivered, and the buyers accepted
‘giant sainfoin’, inferior to that provided for by the contract. P sued for breach of an implied term by s12 of the Sale of Goods Act (UK) that
implied a condition which required the goods to correspond with their contractual description.
Ruling: House of Lords
• “Warranty” = ambiguous term, court read the EC against the party seeking to rely so it didn’t apply for a breach of condition, so didn’t
cover them
à Illustration of the contra proferentem rule
Note: the English courts developed the principle of ‘fundamental breach’ for which parties could not exclude breaches. Never adopted in
Australia (confirmed in Darlington Futures.

Exclusion Clauses/1
• Darlington Futures: A clause which restricts or partially excludes the liability of a party by limiting it to a specific sum is governed by
the same rules as total exclusion
• An exclusion clause: operates for the benefit of one party only

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• Traditionally, given a strict construction [construe NARROWLY]

o But see Photo Production Ltd v Securicor Transport Ltd for a more commercial view (note doctrine of fundamental breach
not adopted by Australian courts)
o Construe in its natural and ordinary meaning, read in light of the contract as a whole, thereby giving weight to the context
in which the clause appears including the nature and object of the contract and, where appropriate, construing the clause
contra proferentum [against the party who has put it in (proferee)] in cases of ambiguity: HCA in Darlington Futures Ltd v
Delco Australia Pty Ltd
• Construe the meaning contra the proferens – only when ambiguity exists on the face of the document: Wallis v Pratt
o The proferens is the party who drafted and is relying on clause
o This rule is only relevant in cases of ambiguity of construction; in the context of exclusion clauses the courts have tended to
create ambiguity artificially, by a process of strict construction
o This rule should not be vigorously applied to clauses which merely limit liability
• The more serious the breach of contract the less likely the parties to the contract would have intended an exclusion clause to apply
• “Four Corners Rule” – Look only to the four corners of the document to understand whether liability exempted only if you carried out
the contract in the way in which you had contracted to do so: Scrutton LJ in Gibaud v Great Eastern Railway Co;
o Council of City of Sydney v West: West went to carpark. Given ticket, told needed ticket to get out of carpark. When
returned to collect his car it was gone. Someone else had come in, pretended to be him (said lost ticket can you give me
another) and used that ticket to get out of the carpark
§ Carrying out contract in way you contracted to do may not cover situation where gave ticket to party that wasn’t
the owner of the car
o Main applicaton in bailment contracts
Contract with A and B. A deliver goods to B. Exclusion clause to exclude liability for A’s acts (B only pays). If clause is ambiguous if it applies to
circumstances, read it so it doesn’t (against person who put it in = A). If there is no ambiguity, contra the proferens rule does not work.
Four Corners Rule: If A contracted to deliver goods to B, and in the process of performing that contract the contract was breached and caused
B loss – this rule would say that carried out contract in the way you had contracted to do so it will cover to.
• Main purpose rule: looking at the whole of the instrument and see what one must regard … as its main purpose, one must reject
words, indeed whole provisions, if they are inconsistent with what one assumes to be the main purpose of the contract: Halsbury LJ in
Glynn v Margetson & Co
o Glynn v Margetson & Co: delivery by sea of perishable goods. When there was a deviation that delay occurred in delivery of
the goods, the goods perished
§ Clause didn’t exempt liability for the loss
§ Speed is important for delivery, taking deviation is not really permitted in the circumstances
o Photo Production Ltd v Securicor Transport Ltd: contract must still retain character of a legal contract. Suspicious if a clause
allowed party to do anything and would not be in breach if anything happened (no liability for breaching?)
o If the breach by the promisor is so serious that application of the exclusion clause to the breach would defeat the main
purpose of the contract, the court will presume that the parties did not intend the exclusion clause to apply
• Deviation rule: a carrier of goods by sea who deviates from the route of the agreed voyage loses the benefit of exclusion clauses
which would otherwise apply, but
o Also applies to goods delivered in other contexts such as contracts of carriage, land or rail: Thomas National Transport
(Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd
§ Driver who picked up goods stored them in shed and shed burnt down. Deviation à “you said you would collect
and store and deliver them, didn’t anticipate would be storing them at home.” So what was promised?
§ What did the parties agree to? Was a route expressly stipulated? (Windeyer J)
§ Was departure a deviation – is this departure a radical breach of the contract? (Windeyer J)
o The preferable view: based on construction of contract

The Council of the City of Sydney v West (1965) 114 CLR 481
Facts
• In December 1961 the plaintiff (West, respondent before the HC) parked his car in Sydney’s Domain Parking Station, which was
owned and operated by the defendant. He received a ticket which contained three clauses headed ‘Parking Conditions.’ The first
stated:
o The Council does not accept any responsibility for the loss or damage to any vehicle or for loss or damage to any article or
thing in or upon any vehicle or for any injury to any person howsoever such loss, damage or injury may arise or be caused
• Beneath these clauses was a clause headed ‘Important’ which said: this ticket must be presented for time stamping and payment
before taking delivery of the vehicle
• When the P returned to collect his car it could not be found – the vehicle had been delivered to a thief who had tricked the
defendant into issuing a duplicate ticket. When the car was later found it had been damaged. The plaintiff sued for damages, alleging,
alternatively: (1) the breach of an implied promise of safe keeping and (2) a cause of action in detinue
• NSW DC à verdict for the defendant. appeal to the Full Supreme Court was successful; the defendant appealed to the HC who
dismissed
o Applying the Four Corners Rule – the exclusion clause did not apply and accordingly the defendant was liable in damages
Held per Barwick CJ and Taylor J
• There has been a breach of the contract of bailment and that being so, the appellant was not entitled to rely on the exemption clause
• The clause clearly appears as one which contemplates that, in the performance of the council’s obligations under the contract of
bailment, some loss or damage may be caused by reason of its servants’ negligence but it does not contemplate or provide an excuse
for negligence on the part of the Council’s servants in doing something which is neither authorised nor permitted to do by the terms
of the contract
o Whether the loss in the circumstances: was a loss resulting merely from the failure on the part of the appellant to use
reasonable car to keep the car safely whilst it was in its possession as a bailee or whether by some positive acts the
appellant can be said to have delivered possession of the car to the thief
§ If it did then, this constituted an unauthorized act performed by the appellant in relation to the respondent’s car
and he is entitled to recover
o ‘The act of the attendant in permitting the thief to proceed after handing over the duplicate ticket which he had obtained
constituted an unauthorised delivery of possession by him to the thief and not a mere act of negligence in relation to some
act authorised by the contract of bailment’

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Held per Kitto J (dissenting)

• Kitto J dissented, showing opinions may differ over what is and isn’t authorised.
o NB: It may be difficult to decide whether an act is authorised by the contract without first bringing the exclusion clause into
account to determine what is, in fact, authorised by the contract
Held by Windeyer J
• The contract was breached because D did not do what it had contracted to do in the way which it had contracted to do it
o It had obtained possession of the vehicle and undertook to release it only on presentation of the ticket, but had in fact
released the vehicle without the ticket being produce

Photo Production Ltd v Securicor Transport Ltd [1980] AC 827
Facts
• The defendants (Securicor, appellants) before the HL agreed to provide a night patrol service at the plaintiff’s factory for a price. So
far as material the contract provided the following clause:
o ‘Under no circumstances shall the company be responsible for any injurious act or default by any employee of the company
unless such act/default could have been foreseen and avoided by exercise of due diligence on the part of the company as
his employer
• On 18/19 Oc 1970 the defendant’s employee deliberately started a fire
• As a result of the fire the plaintiffs suffered loss at 615 000 pounds. Their action for this sum of damages was dismissed by the trial
judge. Plaintiffs appealed to CA: was successful, the defendants appealed to HL à was trial judge correct in his construction of the
contract?
o HL allowed the appeal
Held per Lord Wilberforce [House of Lords]
• Consider whether the breach was ‘fundamental’
• As expressed by Lord Denning MR in Harbutt’s ‘Plasticine Ltd’ v Wayne Tank & Pump Co Ltd [1970] – issue of true construction of K
• At the stage of negotiation as to the consequences of a breach, there is everything to be said for allowing the parties to estimate
their claims according to the contractual provisions they have themselves made, rather than for facing them with a legal complex so
uncertain as the doctrine of fundamental breach must be à
o If a breach is ‘fundamental’ the court deprives the part of the benefit of an exemption clause: overruled for two reasons
§ 1. In Suisse Atlantique, their Lordships held that ‘the question whether an exceptions clause was applicable
where there was a fundamental breach of contract was one of the true construction of the [whole] contract’….
Thereby rejecting suggestions for a rule of law
§ 2. Inconsistent with true effect of termination – ‘when one speaks of ‘termination’, what is meant is no more
than that the innocent party or, in some cases, both parties, are excused from further performance. Damages, in
such cases, are then claimed under K, so what reason in principle can there be for disregarding what the
contract itself says about them?’… it is not the case that, upon termination, ‘all or (arbitrarily) some of the
clauses of the contract lose, automatically, their force, regardless of intention’
• Nobody could consider it unreasonable, that as between these two equal parties the risk assumed by Securicor should be a modest
one, and that the respondents should carry the substantial risk of damage/destruction
• The duty of Securicor was to provide a service … there must be implied an obligation to use due care in selecting their patrolmen, to
take care of the keys and I would think to operate the service with due and proper regard to the safety and security of the premises
o The breach of duty of Securicor lay in a failure to discharge this later obligation …
• Does the exclusion clause apply? The exclusion clause must be read contra proferentum and that is in order to escape from the
consequences of one’s own wrongdoing, or that of one’s servant, clear words are necessary: words in question are clear, so liability is
excluded
Held per Lord Diplock
• Breaches of primary obligations give rise to substituted or secondary obligations on the part of the party in default, and, in some
cases, may entitle the other party to be relieved from further performance of his own primary obligations: these secondary
obligations of the contract breaker and any concomitant relief of the other party from his own primary obligations also arise by
implication of law
o The contract is however just as much the source of secondary obligations as it is primary obligations, and secondary
obligations can be modified by agreements between the parties but they cannot be totally excluded
• Every failure to perform a primary obligation is a breach of contract
• Where there is a breach that has the effect of depriving the other party of substantially the whole benefit… of K, the party not in
default may elect to put an end to all primary obligations of both parties not yet performed.
o In such cases, the anticipatory secondary obligation (the unperformed primary obligations are discharged) arises… by
implication of the common law; except to the extent excluded or modified by the express words of the contract
• Where there has been a fundamental breach or breach of condition, the coming to an end of the primary obligations of both parties
to the contract at the election of the party not in default is referred to as the ‘determination’ or ‘rescission’ of the contract
• An exclusion clause is one which excludes or modifies an obligation, whether primary, general secondary (pay damages) or
anticipatory secondary, that would otherwise arise under K by implication of law
o Parties are free to agree to whatever exclusion or modification of all types of obligations as they please within the limits
that the agreement must retain the legal characteristics of a contract, and must not offend against the equitable rule
against penalities
• Since the presumption is that the parties by entering into the contract intended to accept the implied obligations, exclusion clauses are
to be construed strictly and the degree of strictness appropriate to be applied to their construction may properly depend upon the
extent to which they involve departure from the implied obligations
• Since these implied obligations, in a commercial contract, are those which have been regarded as obligations which a reasonable
businessmen would realise that he was accepting when he entered into a contract, the court’s view of the reasonableness of any
departure from the implied obligations which would be involved in construing the express words of an exclusions clause is a relevant
consideration in deciding what meaning the words were intended by the parties to bear
• However, the unreasonableness of the departure from the implied obligations of the parties is not relevant if the exclusion clause is
expressed in clear language and capable of only one meaning
• In commercial contracts…. It is wrong to place a strained construction upon words in an exclusion clause which are clear and fairly
susceptible of one meaning only even after due allowance has been made for he presumption in favour of the implied primary and
secondary obligations

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o Natural and ordinary meaning

• Applying these principles to the case, the absence of the exclusion clause … a primary obligation of securicor under the contract,
implied by law, would include an absolute obligation to procure that the visits by the night patrol to the factory were conducted by
natural persons who would exercise reasonable care and skill for the safety of the factory
o The primary obligation is modified by the exclusion clause: Securicor’s obligation to do this is not to be absolute but is
limited to exercising due diligence in its capacity as employer of the natural persons by whom the visits are conducted to
procure that those persons shall exercise reasonable care and skill ….
• The apportionment of the risk of the factory being damaged by the injurious act of an employee of Securicor while carrying out a visit
to the factor is one which reasonable businessmen in the position of the parties might well think was the most economical
o This was a misfortune risk – something which reasonable diligence of neither party to the K can prevent.

Darlington Futures Ltd v Delco Australia (1986) 161 CLR 500
Facts
• Darlington (defendant in the action and appellant before the HC) was a commodity broker. By a contract dated 12 June 1981
Darlington was instructed to engage on Delco’s behalf in ‘tax straddles’, a species of commodity futures dealings
o The purpose of these dealings was to enable a loss made by Delco in one financial year to be offset by a corresponding
profit in the next financial year: to achieve this result contracts to sell commodities must be matched with contracts to buy
commodities
• Question on the K asking whether Delco wished the account to be traded at the discretion of Darlington was answered ‘no.’ And a
provision authorizing the appellant to operate a discretionary account on behalf of the respondent was crossed out. Darlingon
engaged in dealings by way of ‘day trading’ which involved leaving Delco exposed to the market for one day in the hope of making
profits
o Without authority from Delco, some contracts were left open for periods in excess of one day: heavy losses sustained by
Delco
• When sued by Delco for $279,715 damages for the losses suffered in the unauthorized trading, Darlington relied on following
exclusion clauses
o Cl 6: Delco acknowledges that Darlington will not be responsible for any loss should Delco follow any of Darlington’s trading
recommendations or suggestions, not for any loss, in the case of Discretionary Accounts, arising from trading by Darlington
on behalf of Delco. Delco finally acknowledges that Darlington will not be responsible for any loss arising in any way out of
any trading activity undertaken on behalf of Delco whether pursuant to this Agreement or not …
o Cl 7(c) : Any liability on Darlington’s party or on the part of its servants or agents for damages for or in respect of any claim
arising out of or in connection with the relationship established by this agreement or any conduct under it or any order or
any instructions given to Darlington by Delco other than liability which is totally excluded by paragraphs (a) and (b) hereof
shall not in any event (and whether or not such liability results from or involves negligence) exceed $100
• SASA: found in favour of Darlington; decision reversed by the Full Court and Darlington appealed to the HC where he was successful
so is liability was limited to $2500 ($100 in respect of each unauthorized contract)
o Decision: strong indictment of commercial approach in Securicor
Held by the court
• We do not understand the statements to deny the legitimacy, indeed the necessity, of construing the language of such a clause inn
the context of the entire contract of which it forms part à it is upon the language of the particular clauses rather than the context in
which they appear
• ‘The interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning,
read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature
and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity.
o Upon such construction of the exclusion clause (6) , its words plainly refer to trading activity undertaken whether pursuant
to the agreement or not but he a D for the P with the P’s authority… it can scarcely be supposed that he parties intended to
exclude liability on the part of the D for losses arising from trading activity in which it presumed to engage on behalf of the
P when the D had no authority to do so
o Upon proper construction of the limitation clause (cl 7), it is expressed to comprehend claims arising out of or in connection
with the relationship established by this agreement. A claim in respect of an unauthorised transaction may nonetheless
have connection, indeed a substantial connection with the relationship of broker and client established by the agreement
§ We are unable to discern any basis on which cl 7© can be construed so as to not apply to such a claim à the
present case is one in which the respondent’s claim arises in connection with the relationship of broker and
client established by the contract between the parties, not withstanding the finding that the relevant
transactions were not authorised

Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd (1966) 115 CLR 353
• May and Baker (the plaintiff, respondent before the HC) contracted with TNT for the carriage of goods from Victoria to other
Australian states. One Pay was engaged by TNT to collect the foods (and those of other consignors) for transport to TNT’s depot to be
sorted for onward movement. Pay collected the goods from May and Baker, but by the time he had collected the other consignor’s
goods TNT depot was closed and Pay took the goods to his home
o This was in accordance with TNT’s practice
o Unfortunately, the shed in which the goods were stored overnight caught fire and the goods were damaged. The damage
was agreed at $8622. May and Baker (the consignor) sued TNT (the carrier) for breach of contract and/or negligence. An
action was also brought in tort against Pay
• TNT relied on cll 3 and 6 of a printer order form as a defence to the action
o 3:The Consignor must accept responsibility for any damage or loss of any goods whilst in the Carrier’s custody during
storage or in transit by road, rail, steamship, air freighting or other means due to civil commotions, act of God, Govt
intervention, war, strikes, seizure under legal process, accident misadventure, fire or water
o 6:Unless otherwise expressly agreed in writing, no responsibility will be accepted by the Carrier for any loss of, or damage
to, or misdelivery or non-‐delivery of goods, parcels, packages, crates or cases etc or the contents thereof either in transit or
in storage for any reason whatsoever …
• Supreme Court of Victoria: judgement was given in favour of the P against both defendants; they appealed to the HC. The HC
dismissed the appeal: applied the deviation rule and held that the parties did not intend the clauses quotes to apply if TNT (the
carrier) deviated from the agreed course of carriage

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Held by Barwick CJ, McTiernan, Taylor and Owen JJ

• A carrier of goods who deviates from the agreed voyage thereby loses the benefit of exclusion clauses in the contract which would
otherwise apply
• Deviation was made necessary, but nevertheless held to be a beach
• TNT impliedly undertook to exercise reasonable care for the safety of the goods at all stages of the various journeys upon which it had
undertaken to carry them … it seems to us that it must have been taken to have been implicit in the contract which TNT made with
the respondent that its goods would be taken to TNT’s depot and that the depot would be available for their reception at the
conclusion of the pick-‐up round
o It is to our minds unthinkable that it was within the contemplation of parties that an extremely valuable consignment of
goods was to be kept overnight by TNT’s servant or sub-‐contractor in the yard of a suburban college….only conclusion
consistent with its primary obligation was that they would be taken to and received in the depot at the conclusion of the
‘pick up’ round
• TNT cannot protect itself by seeking to rely upon the exemption clauses and in such circumstances as the present, it must be held
liable for the damage which occurred whether or not it can be said to have resulted from lack of care or to have been directly caused
by TNT’s unauthorized
Held by Windeyer J (dissenting)
• The deviation cases are simply examples of the general principles of construing exclusion clauses
• Confined the deviation rule to deviations from a carrier’s geographical route to the exclusion of departures in method (whilst
admitting that deviations in method (FB?) could have the same consequences as geographical deviations
o This implies that the law treats deviations (however slight) as radical breaches – Hain Steamship v Tate
• There is a presumption that a deviation clause will absolve liability in the event of a loss occurring afterwards… this is rebutted if it can
be shown that the same loss would have occurred if there had not been a deviation

• On the facts, there was no express route and no customary or implied route, distinguishing the present case from previous deviation
cases such as Hain Steamship, where there was a set route
• TNT merely undertook to procure the carriage of the goods from the premises of the consignor to the place of delivery and reserved
itself a wide discretion as to the means it should adopt to this end
• Pay’s failure to obtain express instructions did not constitute a breach of K and certainly not a radical breach equivalent to the effect of
a deviation
o Therefore, exclusion clause applies
• In light of the wide discretion of carriage, the goods did not cease to be ‘in transit’ for the purposes of the exclusion clause when they
were taken to Pay’s garage for the night, even if that was a negligent performance of the transit (excluded by the point above)

On the agent’s negligence
• Whether or not an exclusion clause absolves a party form liability for the consequences of a breach of duty, or whether its effect is to
define substantively the limits of his duty by negativing obligations that the law would otherwise imply, depends on the actual words
of the contract
o In theory, the effect of a contract that goods are to be at owner’s risk and that the contractor will accept no responsibility
for their loss or damage ‘for any reason what soever’, defines the terms on which the goods are accepted for carriage and
negates an implied obligation for due care
§ Exception clause would determine the total content of the contractual obligation not the effect of a breach

Excluding Liability for Negligence
• Because negligence frequently results in personal injury or property damage rather than mere economic loss, it is usually said that
the intention to exclude liability for negligence: clearly expressed; however a clause does not expressly exclude negligence unless it
actually uses that word or a synonym
o In cases where there is no express reference to negligence: issue is whether an intention to exclude liability should be
imputed to the parties on the basis of the words used
• If only way can breach a contract is via negligence, then clause will cover: Alderslade v Hendon Laundry Ltd
• Canada SS Lines v The King [1952] principles
o If the clause contains language which expressly exempts the person in whose favour it is made (the proferens) from the
consequence of the negligence of his own servants, effect must be given to that provision …
§ If expressly refers to negligence: must give it that interp
o If there is no express reference to negligence, the court must consider whether the words used are wide enough, in their
ordinary meaning to cover negligence on the part of the servants of the proferens. If a doubt arises at this point, it must be
resolved against the proferens
§ Expressions i.e. “exclude all liability and all loss” are INSUFFICIENT to include negligence
§ If it is “any loss howsoever caused”: this is more doubtful – then work with rule 3
o If the words used are wide enough [to cover negligence] the court must then consider whether ‘the head of damage’ may
be based on some other ground other than negligence … the other ground must not be so fanciful or remote that the
proferens cannot be supposed to have desired protection against it
§ Can have a claim in contract AND negligence: doesn’t mean that the exclusion clause wont cover negligence.
Have to look to see that the contractual duty and duty in negligence are different i.e. contractual obligation to
maintain machine in working order but negligence arising from particular part in the machine

II. STATUTORY CONTROL OF EXCLUSION CLAUSES – CONSUMER PROTECTION
• One feature of contract law in recent years: amount of legislative intervention against exclusion clauses
• Some statutory provisions prohibit the use of exclusion clauses and make no allowance for ‘reasonable’ operation i.e. s 68 of the
Trade Practices Act 1974 (Cth) prohibits the use of clauses which ‘exclude, restrict or modify’ the applications of provisions of Div 2 Pt
v of the Act
• Although it will be necessary to construe the contract to see whether the clause in issue excludes, restricts or modifies, once this is
established it is unnecessary to consider whether or not parties intended clause to apply
• Statutory provs which prohibit use of ‘unreasonable’ exclusion clauses impliedly permit the use of exclusion clauses which are not
unreasonable

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• Legislative provisions do not apply to all contracts: Trade Practices act 1974 à restricted to contracts for supply of goods/services for
a ‘consumer’ as is defined
• Generally, prohibitions in relation to the use of exclusion clauses apply only to terms implied by the Acts in which the prohibitions are
contained
o S 64(1) of the Sale of Goods Act 1923 (NSW) – renders provisions in a consumer sale void, but only so far as they purport to
exclude or restrict the terms implied by the act or any liability of the seller for the breach of a term

Competition and Consumer Act 2010 (Cth), Sch 2 (Australian Consumer Law) ss 64, 64A.

How important are these rules -‐ do suppliers abide by them in their dealing with you? Should the law permit less scope for exclusion causes in
consumer transactions? To what extent?


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LECTURE 9: PRIVITY
G. PRIVITY
I. GENERAL RULE
• Only a party to the contract can enforce the contract for which they have provided consideration for the promises in the bargain
rd rd
o Does not prevent a K conferring a benefit on a 3 party but the 3 party may not be able to enforce K
In Coulls v Bagots Executor and Trustee Co Ltd per Barwick CJ: “It must be excepted that, according to our law, a person not a party to a contract
may not himself sue upon it so as directly to enforce his obligations. For my part, I find no difficulty or embarrassment in this conclusion. Indeed, I
would find it odd that a person to whom no promise was made could himself in his own right enforce a promise made to another.”
• A third party may be benefited or burdened in fact by performance of the contract, but according to the privity doctrine only the
contracting parties are benefitted and burdened in law by making of the contract
Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847
Facts:
• Dunlop – Drew – Selfridge – Buyer
• Contract #1 was between Dunlop and Drew (a wholesaler) : Agreement contained condition that Drew couldn’t sell a product to a
retailer for less than a certain price
• Contract #2 was between Drew and Selfridge and contained the same clause from #1 – couldn’t sell to a consumer for less than a
certain price
• Selfridge breached contract by selling to someone for below the agreed amount
• Dunlop sued Selfridge directly
Ruling:
• Court enforced a strict application of privity and held that, because Dunlop was not a party to the contract between Selfridge and the
buyer, it could not sue on that contract: the same principles as Couls v Baggots

II. EXCEPTIONS TO THE RULE
• Agency (See below)
• Trusteeship: a trustee holds properly upon trust for beneficiaries – the implication of the trust concept for property consisting of
contractual rights must now be considered
o “One distinction between agency and trusteeship is that ‘the trustee does not bring his cestuis que trust into any
contractual relationship with third parties while it is the normal function of an agent to do so’ (Construction Engineering v
Hexyl Pty Ltd (1985))
o A trustee contracts as principal for the benefit of a beneficiary; an agent contracts for a principal or principals of which he
or she may himself be one; a contracting party may be trustee for a third party of that chose in action which is consisted by
the benefit of the K
§ In such a case, the third party beneficiary, not being a party to the contract, cannot directly exercise the
remedies or obtain the relief available to a party, but may compel the trustee to enforce the contract
§ Where promisee holds the benefit of promisor’s promise on trust for the third party beneficiary, the promisee,
as trustee, may sue for the loss suffered by the beneficiary: however, as a trustee, the promisee must hold any
damages recovered on trust for the beneficiary under the trust
• Sometimes a third party that is benefited by a contract, but is not a party to that contract may have a remedy against the party who
promised to confer the benefit
• Trident v Mcniece Brothers
o Practical issues [that the rule is maintained]
rd
§ Possibility of double recovery if the 3 party and the promisee sue
§ Rule protects the promisor from exposure to liability from a large number of plaintiffs
rd
• This only applied when 3 parties were numerous
§ Entitlement of third party to enforce a K might constrain the freedom of action of the promisor and the
promisee
o A and B parties to contract, but under contract benefit conferred onto C. If we allow C to directly enforce the contract: may
mean that A and B are not free to change their bargain (vary K)
rd
§ Statutory provisions/exceptions to rule: until 3 party has accepted the contract/benefit, then parties are free to
change their bargain
• Circumventing the privity rule
o Promisee made K as agent of beneficiary
o Beneficiary may be entitled to claim damages for M&D conduct

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
Facts
• Blue Circle Southern Cement Ltd entered into a K of insurance with Trident General Insurance Co Ltd (the defendant, appellant in the
HC)
• The policy cover included liability to the public for accidents occurring during construction work
o The policy defined ‘the assured’ as including in addition to Blue Circle, all its contractors and subcontractors
• Following the issue of the policy, McNiece Bros Pty Ltd (the respondent) became the principal contractor for construction work
carried out at the plant of Blue Circle. A worker who was seriously injured at the plant recovered judgement against McNiece.
McNiece claimed under the policy for the amount of the judgement. Trident denied liability
• McNiece sued Trident in the NSWSC: gave judgement for McNiece and held that through Blue Circle had provided consideration for
the premium paid to Trident. Trident appealed; held that McNiece was not a party to the contract of insurance and provided no
consideration to Trident and also refused to allow McNiece to amend its pleadings to base its case on the existence of a trust
o The court nevertheless held in favour of McNiece on the ground that at common law a beneficiary under a policy of
insurance can sue on the policy even though it is not a party to the contract and provides no consideration

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• Trident appealed to the HC: issue was whether McNiece could succeed even though it was not a part to the contract à appeal
dismissed
Held per Mason CJ and Wilson J (criticisms, proposed alterations):
• There should be a genuine exception to the rule of privity in the circumstances (concerning a policy of insurance); (Was this strictly
confined to insurance cases?)
o ‘It is the responsibility of this court to reconsider in appropriate cases CL rules which operate unsatisfactorily and unjustly’
o ‘the injustice which would flow from [an application of the old rules to a policy of insurance] arises not only from its
failure to give effect to the expressed intention of the person who takes out the insurance but also from the common
intention of the parties and the circumstance that others, aware of the existence of the policy, will order their affairs
accordingly’
§ Estoppel shouldn’t be relied upon because ‘the rights of persons under a policy of insurance should not be made
to depend on the vagaries of such an intricate doctrine’
§ ‘the likelihood of some degree of reliance on the part of the third party in the case of a benefit to be provided
for him under an insurance policy is so tangible that the common law rule should be shaped with that likelihood
in mind’
• ‘…that many subcontractors will assume that such an insurance is an effective indemnity in their
favour … they will refrain from making their own arrangements for insurance on that footing’
• Their honours outline the arguments for upholding privity as well as the problems with trusts. In doing this they review the various
responses that have been proposed to such problems and settle on suggesting that they would allow an action by a third party
whenever there is a contractual intention to benefit the third party, subject to the preservation of the right of the contracting parties
to vary or rescind the contract (unless the third party had relied on the contract to his or her detriment) and subject also to the
availability in an action by the third party of defences against a contracting party.
à ‘the principled development of law requires that is be recognised that McNiece was entitled to succeed in the action’
NB: Carter et al suggest that ‘While their Honours only had to decide whether the old rules continue to apply to a policy of insurance, it seems
they would have applied the same approach no matter what sort of third party beneficiary contract had been before them’
Held per Toohey J
rd rd rd
• If K is for benefit of a 3 party, and 3 party orders affairs on this basis, 3 party can enforce promise directly despite absence of
consideration
o Wanted to confine the exception expounded in judgement of Mason and Wilson to cases of insurance
Held by Gaudron J: unjust enrichment
• When BC approached Trident for insurance cover, Trident priced it accordingly and set premiums at a certain level. So unjust that
they could set premiums and not indemnify
o A promisor who has accepted an agreed consideration for a promise to benefit a third party is unjustly enriched to the
extent that the promise unfulfilled and the non-‐fulfillment does not attract proportional legal consequences
• The right of McNiece was a right (based on principles of restitution) independent of, but not ordinarily corresponding in content and
duration with the obligation owed under the contract by the promisor to promisee
Held per Deane J: trust of a contractual promise
• Did not decide that a third party has a right of action on the contact – instead suggesting the use of a trust in such circumstances
• The criticism of the privity doctrine (as expounded in the judgment of Mason and Wilson JJ) has often been flawed by an incomplete
perception of the extent to which its practical effect is confined and qualified by the application of the principles
• Stated that in some cases, injustice could be avoided by the application of the principles of estoppel or unjust enrichment
• Found it difficult to understand the reluctance which courts have often shown to infer a trust in a third party beneficiary cases and
considered that this had often been caused by a failure to appreciate the flexibility of the law of trusts
• Considered that the requisite intention to create a trust should be inferred if
o It clearly appears that it was the intention of the promisee that the third party should be entitled to insist upon
performance of the promise and receipt of the benefit
o If trust is, in the circumstances, the appropriate legal mechanism for giving effect to that intention
• On the facts, the prima facie effect of the policy was to create a trust for McNiece and it was difficult to conceive of the circumstances
which would change that conclusion. However, as the case had not been argued on the basis of a trust, McNiece should be given leave
to join Blue Circle in the proceedings and Trident should be allowed, if it could, to give the court evidence showing that there were
circumstances precluding or modifying the trust which the policy would otherwise have created
NB: There are no true exceptions to the rule of privity; what is commonly referred to as exceptions are merely applications of other legal
principles to the contractual relationship of promisor and promisee; these other legal principles are unhindered by privity
Held per Brennan J
Uphold privity – no criterion to distinguish insurance Ks, no policy reasons not to, can use estoppel, trusts, damages to address any injustices
arising on facts of case
• The appropriate path of legal development lies in the areas of trusts, estoppel and damages, not in the admission of a third party’s
right to sue; could see no conceptual basis on which such contracts should be treated differently from other types of contracts
o ‘There is no reason to think that a system of law under which a third party’s (equitable) right to sue depends on the
existence of a trust is less likely to do justice than a system under which a jus quaesitum tertio is admitted
o ‘The field of jus quaesitum tertio may look greener, but the brambles are no fewer’
§ ‘To admit a third party’s right to sue in into the common law, it would be necessary to postulate a new source of
legal rights and obligations arising independently of contract and equity and to create a new set of rules
prescribing the availability of the rights and the limits of the obligations to which the third party promise gives
rise’
§ ‘to postulate the creation of a legal right in C to enforce a third party promise against A is to postulate the
creation of legal relps between three parties which the doctrines of our legal system are not presently able to
define’
• Problems include double recovery, the loss of a barrier to liability to a vast range of potential
plaintiffs, circumscription of the freedom of action of the parties, particularly the promisee
Held per Dawson J
Uphold privity – insurance K is no reason to reject privity, too established in law, policy issues too complex for court
Notes
• Whilst the majority decided that McNiece could recover, they were not unanimous in favouring the abolishing of the privity rule; on
one view, a majority in favour of a special exception in relation to liability insurance

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• If the case were run today, McN could recover from trident because of s48 of the Insurance Contracts Act 1984 (Cth)
• A trust is where a trustee owns property for the benefit of the beneficiary. A right under a contract is an item of property. The
beneficiary, not being a party to the contract, cannot directly exercise the remedies or obtain the relief available to a contracting
party, but the beneficiary may compel the trustee to enforce the contract
o Enforcement by the trustee must be for benefit of the beneficiary – e.g. a damages award will beheld on trust for that
person
• Agency – where one person (agent A) enters into a contract with B on behalf of another (principal (P)) the contract burdens and
benefits P. The parties are B and P: A is not a party to the contract
o Undisclosed principle (UP) is anomalous – existence and identity of P is unknown. Either A or UP can sue and be sued on K
§ Key difference between agency and trusts: consid must move from P but not from beneficiary

III. CONTRACTS FOR THE BENEFIT OF A THIRD PARTY
• If A promises B, in return for consideration supplied by B, that A will pay $1000 to C, C cannot enforce the promise under the strict
privity doctrine
• B could enforce the contract against A. But what remedy?
o Remedy: specific performance is available if the party to the contract where damages are an inadequate remedy
• Beswick v Beswick: Transfer of business. Pay annuity to uncle while uncle alive. When uncle dies pay smaller amount as annuity to the
widow. Uncle dies, nephew stops making payments. She sued for payment in personal capacity (c) and then in capacity as
administratix of her late husband’s will (b).
o Mrs Beswick became a party to contact by virtue of her position as the administratix of her late husband’s will
• If we go on about expectation loss: B doesn’t have any loss
• Beswick sought for specific performance. Given when damages are an inadequate remedy (usually something special about it)
• Are damages only nominal?
o Lord Reid: only nominal as she is suing in capacity of administratrix of B’s will but this is unjust in this case so SP would be
an appropriate remedy
o Lord Pearce: do not accept that damages must be nominal [see Windeyer J from Coulls v Bagots]
o Lord Uphojn damages nominal, but award specific performance as justice demands that he pay price
o
If Alice promises Bella, in return for consideration supplied by Bella, that Alice will pay $1000 to Cate, Cate cannot under the strict privity doctrine
sue Alice if she does not pay.
Bella could enforce the contract against Alice, BUT

(A) Can Bella claim damages/obtain specific performance of promise to pay Cate?
Beswick v Beswick [1968] AC 58
Facts
• On 14 March 1962 Peter Beswick agreed to transfer his coal merchant’s business to his nephew John Beswick (the appellant,
defendant in the action). In return, John undertook to pay 6 pounds 10 s per week to Peter for the remainder of his life and thereafter
to pay Peter’s wife (the respondent, plaintiff in the action) 5 pounds per week (the annuity)
o Peter’s wife was not a party to this contract
• Peter died in November 1963. Only one 5 pound payment was made to his wife. She sued to recover 175 pound arrears and for
specific performance. Peter’s wife had been appointed administratrix of Peter’s estate and she sued in that capacity (for the benefit
of the estate) as well as in her personal capacity. The EngCA discharging the order of Burgess V-‐C, decided in favour of Peter’s wife;
appellant appealed to HL
• The appeal was dismissed in HL: Peter’s wife was entitled to specific performance in her capacity as administratrix
Held per Lord Reid
• Aunt has no right to sue in her own capacity – not a party to the contract; but she has a right as administratrix of her husband’s estate
to require the appellant to perform his obligation under the agreement
• Uncle’s estate could sue D for breach of contract but would only receive nominal damage as the D did not personally suffer damage as
result of the non-‐performance
• If that were the only remedy, the result would be grossly unjust… to produce a just result… specific performance ought to be ordered
Held per Lord Pearce
• Damages, if awarded in this case, would be substantial
• On recovering nominal damages – ‘such a result would be wholly repugnant to justice and common sense. And if the argument were
right it would show a very serious defect in the law’
o Specific performance is more convenient than an action for arrears of payment followed by separate actions as each sum
falls due
• Additionally, Lord Pearce argued that damages awarded for non-‐performance to a third party where no damage is occasioned to the
second contracting party need not necessarily be nominal, concurring with Windeyer J in Coulls v Bagot’s – there is mixed authority
regarding this issue –
o Coulls – not necessarily nominal – e.g. creditors affirmed in Trident
o Jackson v Horizon – awarded damages based on whole family’s loss, extreme view and contravenes doctrine of privity
• Agreed with the statement in Coulls that contracts to pay money or transfer property to a third person are always, or at all events
very often, contracts of breach of which damages would be an inadequate remedy and where specific performance is much more
adequate
Held per Lord Upjohn
• Agreed that on the facts, this is a case for specific performance – esp. b/c of annuity; damages would be nominal for it appears that A
died without any assets save and except the agreement which he hoped would keep him and then his widow for their lives
• ‘Equity will grant specific performance when damages are inadequate to meet the justice of the case. But in any event quantum
(nominal/substantial) seldom affects the right to specific performance’
• In this case the court ought to grant a specific performance order all the more because damages are nominal …
Notes
• Beswick should be treated as good law as it was discussed in Trident without exception. However, in a similar factual situation, an
Australian court could, in reliance on Trident, infer a trust
• The contracting parties can rescind or modify the clause concerning the third party without the third party’s consent

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(B) Can Alice/Bella rescind their contract by agreement without Cate’s consent?

(C) Can the contract be construed as containing a promise made to Bella and Cate jointly in return for Bella’s consideration? If so could Cate
enforce Alice’s promise?
Coulls v Bagots (1967) 119 CLR 460

Mrs C not a party to the contract
• McTiernan’s analysis (p 482-‐484)
o Heading of document: doesn’t mention Mrs C
o Clauses re amount of royalty (cl 3): agreement between Mr C and the Company of the amount of royalties and the period of
the right to quarry
st
o 1 party of document doesn’t mention Mrs C
o Mr C’s statement “I authorise the company to pay all money connected to mr Mrs C and myself as joint tenants (or tenants
in common?)
§ Not an effective assignment à able to assign the contractual right to someone else, but there are rules
governing this and he did not assign to them
• What Mr C has is a chose in action, a proprietary right. He is able to assign this right to someone else,
but must comply with certain requirements for it to be effective
• Not an immediate transfer of the entire interest of Mr C in the royalties; mrs C’s rights depends on
Mr C pre-‐deceasing her
rd
• Mandate: direction by creditor to debtor to pay his debt to himself and a 3 party, communicated to such party
Taylor and Owen JJ’s analysis
• Last paragraph of agreement cannot operate as an equitable assignment: terms in it and also not supported by consideration
• Only last paragraph of K can give rise to a conclusion Mrs C was a party to the contract
• Factors against this conclusion
o No express promise by company to pay royalties to Mrs C
§ Not possible to imply a promise to do so
o K was written out by Mrs C, and her signature may have been to seek to include her as a party but the fact Mrs C signed
does not made her a party to K
§ Question to be resolved by considering written doc
o K purports to be expressly between Mr C and O company
o Mr C alone was entitled to demand royalties under K
Yes: Mrs C is a party (Barwick CJ)
• Look at construction of K against the background of the then situation and the known attitudes of the parties
• It involves a search for what the parties by their expressions really meant
• Not to be answered by any narrow view of the customary legal significance of a particular word (refers to use of “I authorise”)
o Mrs C’s signature was on K explicable only on the basis that she was intended to be a party to K
o Company’s promise to pay royalties made to Mr and Mrs C jointly while they both lived and thereafter to the survivor
• Factors of relevance
o 3 people signed: company, Mrs C and Mrs C
o Company paid royalties by cheque drawn to ‘Mr and Mrs C’
o Insistence of a minimum amount of royalty was for Mrs C’s security
o Words ‘living partner’
o Length of options: initial 10 years plus 2 x 10 year extensions (i.e. 10 + 10 + 10) Mr C was 75 years old at the time signed;
Mrs C was 60 years old
§ Was K trying to provide income for his and her life?

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o “All money connected with this agreement” – indicates deceased considered himself to be then determining the
destination of his grant of the rights to quarry for the whole period dyring which the right might exist (i.e. 30 years)
Yes: Mrs C is a party: Windeyer J
Mrs C signed. If she wasn’t a party, why would she sign?
• Promise was made by company to Mr and Mrs C as joint promisees
o Consideration from Mr C is sufficient
o Does not need to be consideration furnished by them separately
o Consideration must be given on behalf of them all and is therefore moving from all of them
• Mrs C was present when agreement made: she wrote it out as it was dictated
• Mr C, Mrs C and company rep all took part in discussion of how an arrangement for payment to Mr C and Mrs C jointly and then to
the survivor solely could be worded
o “I authorise” : Lat clause must be read as party and parcel of a K that in consideration of grant of right to quarry company
promised to pay in the way provided

IV. CONTRACTS THAT ATTEMPT TO BURDEN A THIRD PARTY
Contracts that attempt to burden a third party will not be enforceable with respect to that third party. If Alf promises Barbara for consideration
supplied by Barbara that Cliff will confer a benefit on Barbara, Cliff cannot be sued by Barbara for not performing even if Cliff is obliged under
another contract with Alf to confer the benefit on B.

There are exceptions in relation to real property and the chartering of ships.
• Does ‘privity’ of estate also qualify the operation of the general doctrine of privity of contract in relation to personal property?
o The Privy Council in Lord Strathcona Steamship Co Ltd v Dominion Coal Co Ltd upheld an injunction obtained by the
charterer under an existing charterparty whose existence and terms were known to the buyer at the time of the purchase
• In Shell Oil Co of Australia Ltd v McIlwraith McEacharn Ltd Jordan CJ explained it as depending upon the ‘peculiar value’ of a ship to a
charterer, and would have limited recognition of the Strathcona principle by reference to the remedy of an injunction
• The Courts have consistently rejected attempts to cause contracts to maintain selling prices to be ‘attached’ to the goods so as to
force subsequent buyers to act in accordance with original seller’s wishes

V. THIRD PARTIES AND THE BENEFIT OF EXCLUSION CLAUSES
Agency
• Agent is a person who has power to enter into a contract on behalf of another person – when an agent enters into a contract for a
principal, the principal will be benefited and burdened by the contract
o This is not a qualification of the general privity rule since the agent contracts ‘on behalf of’ the principal; what is clearly
exceptional is the agency doctrine of ‘the undisclosed principal’ – an undisclosed principal is a person for whom another
acts as an agent, where that person’s existence and identity is not disclosed to the other contracting party
• A acts as C’s agent: A [principal] appoints C [agent] to enter into a contract on A’s behalf with B, the contract is between A and B
• A makes K with B
o Has A made K on C’s behalf as C’s agent? If yes: then K is between B and C and privity rule isn’t an issue
o This is not necessarily straight forward
• The agent or the undisclosed principal, but not both, can sue and be sued on the contract: if the agent sues, the damages are for the
loss suffered by the agent, on the footing that the agent was principal
• Used in limitation of liability clauses in contracts for carriage of goods (Midland Silicones v Scruttons)
o Lord Morris observed that there is no difference in principle between A’s promises to B (in each case for good
consideration) that A will make a gift to A will not claim form C that which C ought to pay A
§ The House held that the term ‘carrier’ did not include the stevedores, that the bill did not, expressly or by
implication, purport to extend the benefit of the limitation on liability provision to stevedores, and that the
carrier did not contract as an agent for the stevedores
• Agency important legal concept: used extensively in exclusion clauses (who does it cover and what does it cover)
• In Trident: was BC acting as McNiece brothers’ agent? BC never expressly appointed as the agent, McNiece brothers unknown at BC
at that time.
o No actual authority to enter into contract on McNiece brothers’ behalf, but after KI entered into à when they make a
claim, that is ratifying the contract
§ Means there is a contract with Trident/McNiece

Scruttons Ltd v Midland Silicones Ltd per Lord Reid
RD
THESE PRINCIPLES MAKE IT CLEAR WHEN 3 PARTY CAN HAVE BENEFIT OF AN EXCLUSION CLAUSE:
• K makes it clear that intention was to protect the third party stevedores
• The contract also makes clear that the carrier was contracting as agent for the stevedores in regard to the exemption clause
• The carrier was authorised to act by the stevedores or the carriers’ actions were subsequently ratified by them
• Any difficulties with consid moving from the stevedores were overcome
o The Eurymedom: requirement satisfied [whether the bill of lading in question (which was in a form in use prior to Scruttons
and had not been drawn in light of that case) satisfied Lord Reid’s requirement] because the stevedore provided
consideration by performing a duty owed to a third party (the carrier)
§ Some judges see it as unilateral contract: names a stevedore but no promise by a stevedore that they will
stevedore
§ Barwick CJ sees it differently

Barwick CJ in Port Jackson Stevedoring
• Consignor and stevedore were ad idem through the carrier’s agency upon acceptance by the consignor of the bill of lading
• BUT Stevedore makes no promise to stevedore cargo under bill of lading
• Thus consideration is given when stevedore stevedored
o “The performance of the act or acts at the one moment satisfied the need for consideration and attracted the agreed
terms”


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2. It is expressly agreed that no servant or agent of the Carrier (including every independent contractor from time to time employed by the Carrier)
shall in any circumstances whatever be under any liability whatsoever to … for any loss, damage or delay of whatsoever kind arising or result
directly or indirectly from any act, neglect or default on his party while acting in the course of or in connection with his employment ….
Every exemption, limitation, condition and liberty herein contained and every right, exemption from liability, defence and immunity of whatsoever
nature applicable to the Carrier or to which the Carrier is entitled hereunder shall also be available and shall extend to protect every such servant
or agent of the Carrier acting as aforesaid and
For the purpose of all the foregoing provisions of this clause the Carrier is or shall be deemed to be acting as agent or trustee on behalf of and for
the benefit of all persons who are or might be his servants or agents from time to time …
• Express condition: carrier acting as agent/trustee
o Himalaya Clause
Scruttons Ltd v Midland Silicones Ltd [1962] AC 446
Facts:
Consignor enters into a contract with a carrier. Carrier usually likes to exclude their liability for dropping goods, having them stolen, etc.
nd
2 contract exists between carrier and stevedores (those who unload the boat belonging to the carrier, for example)
• If the stevedores damage the goods whilst they are being loaded or unloaded, consignor may try to sue stevedores directly (not for
breach of contract, but for negligence, for example)
st rd
• In many cases, exclusion clause in 1 contract tried to exclude 3 parti (i.e. stevedores) from liability
• Qualification developed in a number of cases (rule of privity still applies but the idea of agency is used as a way to solve such problems
– therefore not really an exception)
Issue regarded whether or not the protection of an exclusion clause in a bill of lading extended to the stevedores (a third party)
Lord Reid’s rules
• (1) the bill of lading makes it clear that the stevedore is intended to be protected by the provisions in it
• (2) It is clear that the carrier enters into the contract as an agent of the stevedores
• (3) Carrier must have authority from the stevedores to be their agent
• (4) the stevedores are providing consideration or there are no problems in respect thereof
à If these four elements are met, the privity rule does not apply because the third party is party to a contract derived from the bill of lading. (4) is
usually the hardest

NB: Agency doesn’t actually break/change the privity rule; the agent instead actually makes the principal a party to the contract – i.e. the
stevedore would be considered to have a contract with the consignor, it would simply have been made through an intermediary party

New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd (‘The Eurymedon’) [1975] AC 154
• A negligent stevedore obtained the benefit of the exclusion clause because Lord Reid’s requirements were met because the
stevedore provided consideration by performing a duty owed to a third party (the carrier)
• From the HCA (Barwick CJ) NOT the Privy – there was a contract between consignor and stevedore but it lacked consid, there was no
promise to stevedore but yet it was not an offer capable of acceptance – ‘To agree with another that, in the event that the other acts
in a particular way, that other shall be entitled to stated protective provisions only needs performance by the doing of the specified
act or acts to become a binding contract… Here the act was done. The performance of the at or acts at the one moment satisfied the
need for consid and attracted the agreed terms’

Broken Hill Pty Co Ltd v Hapag-‐Lloyed Aktiengesellschaft [1980] 2 NSWLR 572
• Under the Property Law Act 1969 (WA), until the beneficiary has ‘adopted’ the contract, expressly or by conduct, the persons named
as parties can agree to eliminate all benefit to the third party. The beneficiary’s unilateral ‘adoption’ of the contract crystallises the
position. After adoption, cancellation or modification of the agreement requires the third beneficiary’s consent
• The Property Law Act 1974 (Qld) states that prior to acceptance the consent of the beneficiary is not required to a variation or
discharge of the contract where ‘acceptance’ means assent by words or conduct. Following acceptance, consent is required
• For the Qld legislation to apply, there must be a promise to do or refrain from something for the benefit of a beneficiary and the
promise must be one that the parties appeared to intend to be legally binding and intended to create a duty enforceable by a
beneficiary. In WA especially, the contract must expressly and directly confer a benefit on the third party

Trust of a contractual promise
• Contractual promise is a “chose” in action
o Legal system likes property: so identity things as property rights
• When A (promisor) in contract with B (promisee) makes a promise to confer benefit on C (beneficiary), court may discern an
intention on part of B to hold on trust for C the contractual right to enforce promise
• C doesn’t become a party to K
• Obligation on B to enforce promise on behalf of C
• Issue: did B intend to create a trust?
o Inferred: Deane J in Trident
o Express words: Mason CJ & Wilson J (pg 352 – ‘divining intention’)
o Either need EXPRESS or IMPLIED/INFERRED INTENTION

Problem: may not have an intention. Trust creates problems for B, if B is the party holding the contract on trust (Brennan J pg 356).
Therefore not the best way to get around the privity rule.

Estoppel
Difficulty: person trying to enforce estoppel not party to contract but beneficiary.
• A induces B to make an assumption
• B in reliance on the assumption, takes some action that will be detrimental to B if the assumption is untrue
• A purports to deny the assumption is the true state of affairs
• Court estopps A from doing so
o Some argue that B also needs to show that A’s conduct in seeking to depart from the assumed state of affairs is
unconscionable
S18 of Australian Consumer Law: Misleading/Deceptive conduct. Accounting Systems 2000 v CCH Australia (1993) 42 FCR 470.

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• AS 2000 warranted had a copyright to a program and could assign that copyright. This claim was untrue
o When Castle Douglas/CCH entered into a contract involving licensed use of the software: CCH had a problem
• Warranty about the ownership of copyright was in another contract, so they couldn’t enforce the problem against Castle Douglas as
didn’t make that representation à AS has
• Misleading/Deceptive conduct: AS 2000, in making the warranty with its contract with Castle Douglas: engaging in
misleading/deceptive conduct
Claim for damages in tort: Hill v Van Erp.

VI. LEGISLATION AND REFORM
Conveyancing Act 1919 (NSW) s 36, Persons taking who are not parties
(1) A person may take an immediate or other interest in land or other property, or the benefit of any condition, right of entry, covenant or
agreement over or respecting land or other property, although the person may not be named as a party to the assurance or other
instrument.
(2) Such person may sue, and shall be entitled to all rights and remedies in respect thereof as if he or she had been named as the party to
the assurance or other instrument.

The effect of this section is unclear: only that it does not abolish privity rule
What is the contract? Express/implied/incorporated terms.
What does it mean? Principles of construction.
Who are the parties? Privity rule.
TOPIC IV: Breach and Frustration
• What do we mean by ‘performance’
• Discharge by performance (at time T4 à FULLY PERFORMED)
o Entire contracts and strict cf substantial performance
o Severable contracts
• Discharge for breach of a term
o Late performance
o Defective performance
o Fail to perform and the right to terminate for breach
o Repudiation
§ NEED TO BE CLEAR ON RIGHT TO TERMINATE à don’t want to risk repudiation
• Discharge for delay and time stipulations
• Process of termination
o Estoppel can restrict right to terminate
o Effect of termination
• Discharge by frustration
• Discharge by agreement


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LECTURE 10 – PART 4: BREACH AND FRUSTRATION
One of the most important issues in K law is whether a party has discharged its performance obligation. That issue can arise in two contexts:
• Where a party may claim that it is entitled to enforce the other party’s performance obligation
o Typically arises where a plaintiff sues to recover the K price: it can be approached from two perspectives
§ The order of performance required
§ Quality of performance required
• Where a party may claim that the other has breached the K
1. What did the party have to do?
a. When did the party have to do it? (timing issue)
b. “Standards issue” – to what standard did they have to do it?
If answer is that they did not perform (if you have breached):
2. Consequences of them not having performed:
a. Right to payments
b. Right to terminate the contract
Timing
• ‘Absolute issue of timing’: two elements
o If the contract states time of performance must perform then
§ The time of performance may be fixed by a term (time stipulation) by reference to a specified date/time period
§ Time may also be fixed by reference to a specific event such as arrival of goods the subject of a contract of sale
at the buyer’s place of business
o If contract fixes no time, you must perform within a reasonable time (Canning v Temby)
§ Always depends upon the circumstances
§ Question of fact to be determined at the time when performance is alleged to be due rather than at the
moment of contractual formation
Standards issue
• ‘Strict standard’: don’t care if you did your best and failed, still breach so the usual position is strict
o A promises to paint B’s house by Friday but A does its best, unfortunately paint brushes aren’t right etc or a bigger job than
A expected: we don’t care, didn’t do what was required
• In some cases standard is ‘reasonable’: some contracts for professional services such as doctors or lawyers
o Go to a doctor about an embarrassing lump à does the doctor promise to cure you or exercise reasonable care in treating
you?
§ Expect the doctor to exercise reasonable care/professional judgement for giving advice and treatment
o Same with a lawyer – promising to get you off or to exercise reasonable care in lifting the charge?
• Refer to Greaves & Co v Baynham Meikle: is an engineer a professional?

A. THE ORDER OF PERFORMANCE
The question of the order in which the parties must perform their obligations is a question of the construction of the contract.
• Always depends upon interpreting the contract but generally accepted interpretations that are used: it depends on the INTENTION of
the parties, determined by construction and application of presumption
o They are thus issues of law, and not of fact
• Three ways of relating parties’ obligations
o Obligations are independent (easiest): look at timing – i.e. when did they perform [contracts traditionally interpreted like
this]
o One obligation ore more dependant on another obligation. This is a ‘condition precedent’ contingency i.e. if a party’s
obligation to perform is dependent on prior performance by the other party, full performance by that party is fulfillment of
condition precedent
§ B’s obligation to perform X depends on A’s performance of Y or B is not obliged to perform X unless and until A
does Y
§ Automatic Fire Sprinklers v Watson
o Concurrent relationship: people have to do thing at the same time i.e. A/J have a contract to sing a song together, sale of
goods/land where prima facie rule for selling goods is that payment and delivery of goods is concurrent
§ Both parties need each other to perform
§ What we require: each side willing/worthy
§ If a person refuses to hand over goods: only reason they can subscribe is that you weren’t ‘worthy or willing’
• Think about timing: look at absolute time, whether it depends on somebody else (i.e. not in breach for not performing for
dependence)
• In many contracts the ability of one party to perform will depend on the cooperation of the other: an express term requiring
cooperation may be present; if there is no such term, the duty may be inferred from the nature of the parties’ performance
obligations, as where the contract requires concurrent performance
o In other situations, the requirement of cooperation may be established by the implication of terms
o Failure to cooperate where a term requires active cooperation, or creates an obligation not to prevent the other party
performing the contract can lead to further consequences (Depends on the case)
§ Sometimes promisor can be treated as having performed
§ Where cooperation is essential to performance: a promisor who does not perform because of other party’s
failure to cooperate will have a valid excuse for not performing
§ Third, unless cooperation may be compelled by an order for specific performance, as where the court orders a
purchaser to sign a document required for the performance of a contract of a sale of land, the plaintiff will
generally be restricted to a claim for compensation

Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435
Facts: Watson was wrongly dismissed. Nevertheless, he said he was ready, willing and able to perform (indeed he turned up to work) and argued
that was sufficient to enable him to be paid wages.
Issue: Could the dismissed claim his full wages for the year?

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Ruling:
• The D’s prevention of P’s completion of performance is irrelevant -‐ it was held that the rights and obligations of the parties were fairly
well settled:
o The paying of the wages was dependent on him actually doing the work, not enough just being ready, willing and able –
consid was for actual performance
o Watson cannot sue for his whole remuneration as a debt due to him in respect of complete performance of the agreement
on his part relying on his readiness/willingness to complete the agreement
§ He may elect to treat the agreement as rescinded and sue immediately on a quantum meruit for services
actually rendered or he may sue immediately on the agreement for the breach thereof in wrongly dismissing
him from employment
• Under a lump sum employment contract, the employee must perform first because the courts now apply a presumption of
dependency of obligation between the employer’s obligation to pay wages and the employee’s obligation to work
o If obligations were ordered such that he was paid in advance, he would have had a much better chance of recovering

B. PREVENTION OF PERFORMANCE
Where a party cannot perform without the co-‐operation of the other, a tender (or offer of performance) is sufficient to make the other party
liable. The offer to perform is treated as equivalent to performance to the extent that the party refusing to cooperate will be liable in damages.
Griffiths CJ in Butt v McDonald: it is a general rule applicable to every K that each party agrees, by implication, to do all such things as are
necessary on his part to enable the other party to have the benefit of the K.
Thus, where a contract between A and B requires A to perform first, A will usually have an excuse for not performing if B has prevented A from
performing.

What happens when events intervene?
• AFS v Watson: employee wasn’t entitled to wages as didn’t do work but did employer prevent employee from performance as didn’t
give employee work to start with?
• Engage builder to renovate bathroom but become unsatisfied: lock house, put a dog outside: builder prevented from performing, but
you have prevented the performance?

Would this intervention stop the other party from performing??
• A is the person preventing B from performing: B has an excuse against any claim by A for breach of contract by B
• Conduct of intervening and disrupting B’s performance might be a breach by A itself: in some contracts, express or implied condition
to cooperate
• What is B had to do something (ob 1) and A had to do something (ob 2) which depended on B doing something – A interferes and
stops B from doing ob 1: if ob 2 depends o ob 1, and ob 1 hasn’t been performed: B can’t say A must so ob 2
o AFS: Ob 1 was to do work, ob 2 was to pay money – because ob 1 had not been performed: court held not obliged to pay
wages
o If A is homeowner, B is builder: need to finish ob 1 (job) to pay (on 2): by locking the builder but of the house, homeowner
is not obliged to pay as the builder hasn’t finished work
§ But B has the right to remedy: A’s interference might give B an action in damages/quantum meruit

In such cases the court may be prepared to imply a term in accordance with the principle stated by Cockburn CJ in Stirling v Maitland: “If a party
enters into an arrangement which can only take effect by the continuance of a certain existing state of circumstances, there is an implied
engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the
arrangement can be operative.
• It follows that a party who claims that the other has not performed must in the pleadings put performance in issue in order to oblige
the other party to provide evidence of performance
o Similarly, if a plaintiff (or a D) relies on some excuse for a failure to perform, such as prevention of performance, this should
be stated
§ If it is claimed that a breach of contract has occurred this must be alleged and if disputed, proved

C. DISCHARGE OF PERFORMANCE
What performance is sufficient to discharge the parties? For a party to be discharged by performance, the performance must correspond exactly
to the requirements of the K. However, minute failures/insignificant defects excused.
Where both parties have fully performed their contractual obligations, the contract is discharged by performance.
• Once performance is due there is no requirement that the promisee demand performance from the promisor, and so a promisor
(debtor) must pay a debt due under the contract even though the promisee (creditor) has made no demand for payment
o Whether or not demand is required, performance cannot be demanded prior to the time specified by the contract
• The promisor must tender performance, that is, offer it to the promisee, within the time of the contract unless the promisee has
dispensed with the requirement. The dispensation may be express or implied
o A request not to perform is an example of the former and a repudiation of obligation may be treated as implied
dispensation
• Promisee = not obliged to accept an early tender. However, since the promisor has until the expiry of the time specified by K to
tender performance, the fact that a bad tender is made prior to the expiry of the time for performance, for example, of goods which
do not conform with K does not prevent a fresh tender being made of goods which do conform à promisee must accept this tender
unless first tender was repudiation of obligation which has been accepted as an anticipatory breach
• Where a contract requires payment in cash, the promisee (creditor) is not bound to accept a negotiable instrument, such as the
promisor’s personal cheque since this is not payment in cash
• Where a contract can be performed in two or more different ways the contract may or may not provide who has the power to make
the choice
o If it does so provide the party entitled to make the choice does so by electing in favour of one method
Where the contract price is sought the courts have generally treated the nature of the contract as crucial, and drawn a distinction between entire
and severable contracts [Contract Price = the benefit which one party agrees to confer in return for the other party’s performance: usually a
money sum]. Generally, a party who has been discharged by reason of termination of the performance of the contract for breach or
repudiation by the other party will not be liable to pay the contract price (same with frustration).


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I. ENTIRE CONTRACTS
Where A’s obligation to perform is dependent on B completely performing his or her obligations, B will not be discharged until he or she has
completely performed, and cannot call upon A to perform i.e. complete performance is a condition precedent for the payment of a lump sum.
Main example of this is a building contract.
• A contract may be entire if it provides for the payment of a lump sum and ‘no provision is made for setting off a portion of this
consideration against a portion of the performance’
• However, the fact that the contract provides for a lump sum is not conclusive: it will not be entire unless the parties have agreed that
the sum is to be payable only in the event of complete performance
• Where a contract is entire, and the condition precedent has not been fulfilled, the contract price will not be recoverable. However,
substantial performance by the promisor is usually sufficient to enable recovery of the contract price
• Recovery will be refused even if the promisor has an excuse in respect of the failure of the condition precedent
o On the other hand, where the condition precedent fails because the promisee has prevented the promisor performing, the
doctrine does not apply and the promisor may bring an action to recover the value of any work done, or an action in
damages if the conduct of the promisee was a breach of contract
Agree to paint house by Friday and ‘time is of the essence.’ You agree upon me painting your house – pay me $1000. Friday 9am: breach as only
95% done. I terminate the contract without paying (links back to dependency).
Can work quite harshly – you get the benefit of 95% painted house for no money.
• Law was strict: when services before payment, job had to be finished completely before the person provided anything

Cutter v Powell (1795) 6 TR 320
Facts
• The defendant (Powell) agreed to pay one Cutter, as second mate on the Governor Parry, 30 guineas ‘provided he proceeds,
continues and does his duty’ on the ship for a voyage from Jamaica to Liverpool
o Payment became due 10 days after the arrival of the vessel but Cutter died before the vessel’s arrival at Liverpool: served
for about seven weeks at that time
• The plaintiff, who was Cutter’s administratrix did not claim the 30 guineas, rather she sought to recover a reasonable sum 9quantum
meruit) in respect of Cutter’s work
• Court found in favour of the defendant
Held per Lord Kenyon CJ
• If there had been no contract between the parties, all that the intestate could have recovered on a quantum meruit for the voyage
would have been eight pounds; whereas here the defendant contracted to pay 30 guineas provided the mate continued to do his
duty as mate during the whole voyage, in which case the latter would have received nearly four times as much as if he were paid for
the number of months he served
o He stipulated to receive the larger sum if the whole duty were performed, and nothing unless the whole of the duty were
performed, it was a kind of insurance
Held per Ashhurst J
• As the contract is entire, and as D’s promise depends on a condition precedent to be performed by the other party, the condition
must be performed before the other party is entitled to receive any thing under it
• Wherever there is an express contract the parties must be guided by it and one party cannot relinquish or abide by it as it may suit
his advantage: here the intestate was by the terms of his contract to perform a given duty before he could call upon the D to pay him
anything
o It was a condition precedent
• The intestate did not perform the contract on his part; he was not indeed to blame for not doing it, but still as this was a condition
precedent and as he did not perform it, his representative is not entitled to recover
The only way to make sense of the cases in this area of law (after SP doctrine established) is to say that the doctrine of SP is applicable to
entire contracts and the true condition precedent is substantial performance.

Sumpter v Hedges [1898] 1 QB 673
Facts
• P was a builder, contracted to build two houses and stables for the defendant for 565 pounds. Although progress payments were
made, the plaintiff ran out of money and was unable to complete the work
o The value of the work done was about 333 pounds
• After the plaintiff abandoned the work the defendant himself finished the buildings. In doing that he used certain loose building
materials left by P
• There was no contractual right to payment for the work done. Therefore, the plaintiff sued to recover the reasonable value of work
done (And materials supplied) à the trial judge held the plaintiff could not recover but a small sum was allowed for the value of the
loose materials; the P then appealed to the EngCA
• Appeal was dismissed: no evidence that the defendant had accepted the benefit of the work and the court therefore held that no
claim for reasonable remuneration (a quantum meruit) was available because it was not possible to imply a contract to pay for the
work done
Held per Collins LJ
• The plaintiff had abandoned the contract
• There are cases in which although the plaintiff has abandoned the performance of a contract, it is possible for him to raise the
inference of a new contract to pay for the work done on a quantum meruit from the defendant’s having taken the benefit of that
work, but in order that that may be done, the circumstances must be such as to give an option to the defendant to take or not to take
the benefit of the work done
o It is only where the circumstances are such as to give that option that there is any evidence on which to ground the
inference of a new contract
• Where, as in the cases of land, the circumstances are such as to give the defendant no option whether he will take the benefit of the
work or not, then one must look to other facts than the mere taking the benefit of the work in order to ground the inference of a new
contract
o There are no other facts on which such an inference can be grounded in the present case
o The mere fact that the defendant is in possession of what he cannot help keeping, or has even done work upon it affords no
ground for such an inference: he is not bound to keep unfinished a building which in an incomplete state would be a
nuisance

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• The plaintiff was not entitled to recover the work which he had done

II. SUBSTANTIAL PERFORMANCE
Can a party who has substantially performed enforce the other party’s promise to pay?
Boone v Eyre (1777) per Lord Mansfield: “The distinction is very clear, where mutual covenants of to the whole of the consideration on both sides,
they are mutual conditions, the one precedent to the other. But where they go only to a party, where a breach may be paid for in damages, there
the defendant has a remedy on his covenant and shall not plead it as a condition precedent.”
• Modern idea: shift away from strict dependency in contracts where have services in return for payment
o Courts: don’t have to go through all way performing exactly to claim payment. Enough the person performed substantially
§ You are still in breach, but earned the K price
§ Doctrine cannot be applied if parties agreed performance must be exact
§ Only relevant to getting paid for work done
• What is less clear is when the doctrine applies and how we figure out whether performance is substantial or not?
o Depends upon interpretation of the contract
o Does it apply to entire contracts? Does it apply to severable contracts? (Steele v Tardini)
o Except in that limited class of cases where substantial performance is the extent of performance required by the contract,
substantial performance will not discharge the promisor
§ Moreover, if there is no excuse for the failure to perform, the promisor will be in breach of contract and liable in
damages: however unless the promisor has breached a condition, the promisee cannot terminate performance
• Under this doctrine the promisee may be held liable to pay the contract price i.e. Hoening v Isaacs
• In all three cases below: builder doing work and the lump of money at end not paid as owner says there are defects, and reading the
contract strictly: I’m not obliged to pay. So can the builder get paid?

Hoening v Isaacs [1952] 2 All ER 176
Facts
• The plaintiff (respondent before the EngCA) sued to recover the balance alleged to be due under a contract to decorate the
defendant’s flat and to supply certain furniture. The price was 750 pounds
o This was to be paid ‘net cash, as the work proceeds; and the balance on completion.’
• The defendant paid two sums; each 150 pounds. However, when the plaintiff claimed the balance the defendant complained of
faulty design and bad workmanship. She paid a further 100 pounds and the plaintiff sued to recover 350 pounds
• The official referee held that the door of a wardrobe required replacing and that a bookshelf would have to be remade. He further
held that as there had been substantial compliance with the contract the plaintiff was entitled to recover 294 pounds 1 s 10 d. The
sum: deducting from the 350 pounds due 55 pounds 18s 2d to cover the cost of remedying the defects in the work
o The defendant appealed; the appeal was dismissed
Held per Somervell LJ
• There was substantial compliance (i.e. ruling rests on this qn of fact)
Held per Denning LJ
• It was a lump sum contract but that does not mean that entire performance was a condition precedent to payment
o When a contract provides for a specific sum to be paid on completion of specified work, courts lean against a construction
of the contract which would deprive the contractor of any payment at all simply because there are some defects or
omissions
• The promise to complete the work therefore: construed as a term of the contract but not a condition – it is not every breach of that
term which absolves the employer from his promise to pay the price; but only a breach which goes to the root of the contract such as
the abandonment of the work which is only half done
• It is of course open to the parties by express words to make entire performance a condition precedent
• This contract should be regarded as an ordinary lump sum contract. It was substantially performed. The contractor is entitled,
therefore, to the contract even less a decision for the defects
• Balance could not be regarded as retention money (usually 10-‐15%; whereas this balance was more than 50%)
• In these cases the question of quantum meruit only arises where there is a breach or failure of performance which goes to the very
root of the matter: on any lump sum contract, if the work is not substantially performed and there has been a failure of performance
which goes to the root of it as for instance when the work has only been half done or is entirely different in kind from that contracted
for, then no action will lie for the lump sum
o The contractor will only succeed in getting paid for what he has done if it was the employer’s fault that the work was
incomplete or there is something to justify the conclusion that the parties have entered into a fresh contract or the failure
of performance is due to the impossibility of frustration

He draws together a standard for termination for breach and standard for performance: says one of the same (or the obverse) – if the customer
could terminate for serious breach, then by definition, the service provider has not performed substantially. If the breach isn’t serious enough that
customer could terminate then by definition the service provider has performed substantially.
NB: Here, the contractor would have much rather preferred substantial performance rather than quantum meruit as there is evidence to
indicate that the price charged was exorbitant.
NB: SP doctrine applies to cases of defective or incomplete performance.

Bolton v Mahadeva [1972] 1 WLR 1009
Facts
• The plaintiff (Bolton, respondent before the EngCA) sued to recover 636 pounds as the balance alleged to be due for work done and
materials supplied pursuant to a contract to install a combined heating and domestic hot water system and to supply and fit a
bathroom suite
o The defendant refused to pay, alleging the plaintiff had failed to complete the work
• The deputy court judge found the contract price for the hot water system was 560 pounds but that there were certain deficiencies in
the performance of the work. He deducted 174.50 pounds to cover these deficiencies and awarded an additional 61 pounds for extra
work done at the request of the defendant
o From the total then due (446.50 pounds) he deducted 15 pounds representing damages for inconvenience and gave
judgment for 431. 50 pounds

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• Defendant appealed to the CA and the appeal was allowed: the defendant was ordered to pay 46 pounds. That was arrived at by
deducting the amount for extras and the damages for inconvenience
Held per Cairns LJ
• In considering whether there was substantial performance I am of the opinion that it is relevant to take into account both the nature
of the defects and the proportion between the cost of rectifying them, and the contract price. If would be wrong to say that the
contractor is only entitled to payment if the defects are so trifling as to be covered by the de minimis rule (this implied that the
application of the doctrine of SP should be limited to cases where cost of rectification is small)
o The trial judge was wrong in saying this contract had been substantially completed; and the plaintiff was not entitled to
recover under that contract
o The cost of remedying the defect (27%) was too much for substantial performance
Held per Sachs LJ
• Plaintiff could not recover unless there was ‘substantial performance’ à the performance was not substantial because the work was
ineffective for its primary purpose
o ‘It was entirely the fault of the contractor … that he has placed himself in a difficulty by his refusal … to remedy defects of
which complaint was being made”
This result has been criticized: encourage unjust enrichment? The result was that the defendant paid nothing for the labour; and effectively
rd
obtained the system for 174 pounds, the sum payable to a 3 party to remedy the defects. The principle of unjust enrichment is the better
approach to problems which arise on partial (but not substantial) performance of a K.
Asking here: the performance is not substantial as such a great proportion of the price would go to fixing the defects à is the work
satisfactory for its primary purpose?

Jacob v Youngs Inc v Kent 129 NE 889 (1921)
Facts
• The Plaintiff built a country residence for the defendant. Of the contract price ($77 000) a sum of $3483 remained unpaid. The
defendant alleged that as the contract had not been complied with the plaintiff was not entitled to be paid that sum
• One specification in the contract was that all wrought-‐iron pipe was to be of ‘Reading Manufacture.’ Some of the pipe used by the
plaintiff was not of ‘Reading Manufacture’ and the architect directed the plaintiff to do the work again. The work was not redone. The
evidence established that there was merely an oversight by the plaintiff’s subcontractor
o The evidence also established that the reading pipe was distinguished from the pipe used only by the name of the
manufacturer, which was stamped on it at various intervals
• Verdict entered for the defendant at the trial; decision reversed by the Supreme Court’s Appellate Division; the defendant then
appealed to the Court of Appeals (and the order for a new trial was affirmed by a majority of the court so the appeal was dismissed)
o Presumably if there was a new trial the conclusion was that the contract had been substantially performed
Held per Cardozo J
• An omission, both trivial and innocent, will sometimes be atoned for by an allowance of the resulting damage, and will not always be
a breach of a condition to be followed by a forfeiture
o The distinction is akin to that between dependent and independent promises, or between promises and conditions: some
promises are so plainly independent that they can never by fair construction be conditions of one another; others are so
plainly dependent that they must always be conditions. Others, though dependent and thus conditions when departure in
point of substance, will be viewed as independent and collateral when the departure is insignificant
• In deciding whether something is a condition or a warranty, considerations of fairness are relevant – a court may lean towards a strict
approach if the defective product is easy to hand back e.g. a small toy but is more inclined to use the ‘substantial’ test if the work is
not easy to hand back e.g. a skyscraper
• In the circumstances of this case, we think the measure of the allowance is not the cost of replacement, which would be great, but the
difference in value, which would be either nominal or nothing … it is true that in most cases the cost of replacement is the measure …
the owner is entitled to the money which will permit him to complete, unless the cost of completion is grossly and unfairly out of
proportion to the good to be attained. When that is true, the measure is the difference in value
o The rule that gives a remedy in cases of substantial performance with compensation for defects of trivial/inappreciable
importance has been developed by the courts as an instrument of justice: the measure of the allowance must be shaped to
the same end
NB: Diff between this case and Bolton: here, the dim in value was calculated whereas in Bolton, the cost of rectification of the work – Bolton
illustrates the usual approach aka a ‘cost-‐cure’ approach
Factor to think about it whether you can take back what you’ve done i.e. tailor making a suit for customer and don’t make suit exactly as
promised -‐ is customer still obliged to pay for the suit?
• Cardozo says if the person who does the services can take back what they did more inclined for strict performance (unreasonable
to force the person to pay money subject to defects)
o But if you can’t take it back: that can operate harshly for strict performance (customer has benefit of work)
o Think about the amount payable, can the service provider take it back or not
In this case: silly to talk about the cost of rectifying as brands were the same. Look at difference in value as being the yardstick à and that was 0.
• Even where substantial performance complies; still clearly a breach by the service provider as they did not do what the promised:
this just says we won’t let this breach stop from performing

Substantial performance contracts: BASED ON CONSTRUCTION.
• Automatic Fire Sprinklers v Watson: Watson employed by AFS and they sack him. He was persistent, continued to turn up for work
for most of the rest of the year and employer refused to give him any work
o Watson sued for his wages
o Contract wasn’t necessarily ended when the employer fired him
o But way lawyers think about this – issue: did the employer have to pay and then mr Watson do the work or did he have to
do the work and then the employer pay? Who went first
§ Employment contract: employee has to perform before employer to pay wages: obligation to pay wages
dependant upon the obligation to do work
o Because Mr Watson had not done the work, he had not satisfied the contingency and so not entitled to be paid

III. SEVERABLE CONTRACTS

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Where a contract contains a number of obligations the question will arise whether those obligations are severable from one another. If they are
then a party who has performed the severable obligation will be entitled to sue for the performance promised in respect of that obligation. For
example, often a seller is entitled to receive payment in respect of goods delivered, even though the contract has not been completed.
• When a contract is not entire
• Most appropriately used to describe contracts in which parties have divided the K price into a number of instalments, each
corresponding to a definite proportion of the other party’s performance (as opposed to Sumpeter where the payments fell on
nominated dates)
o The mere fact that a contract provides for progress payment for a lump sum price does not make the contract severable
• Each severable part may be an entire obligation
• Where a contract is severable, a promisor may be able to recover in respect of a severable part of the contract, notwithstanding a
failure to discharge obligations under the contract
Does the doctrine of substantial performance apply to contracts containing severable obligations?

Government of Newfoundland v Newfoundland Railway Co (1888) 13 App Cas 199
Facts
• The government of Newfoundland (defendant; appellant to the privy council) entered into a contract with the Newfoundland
Railway Co (one of the plaintiffs, referred to as the ‘syndicate company) which was incorporated for the purpose of constructing and
working a railway
• The contract, which was embodied in an Act of the Newfoundland legislature, provided that the railway was to be completed in 5
years. It provided that in consideration of the ‘due and faithful performance by the said syndicate company of all and singular the
covenants and agreements herein contained on their part to be performed’ the Government agreed:
o To pay $180,000 subsidy per annum upon the construction and continuous efficient operation of the line and ‘to attach in
proportionate parts and form part of the assets of the company as and when each five-‐mile section is completed and
operated;’ and
o To grant title to 5000 acres of land to the syndicate company for each one mile of railway completed, on the completion of
each five-‐mile section
• In 1882 the Railway Co assigned to the other plaintiff the southern division of the railway and whatever rights it had to receive grants
of land and subsidy payments in respect of the 100 miles of railway
• The railway ought to have been constructed on 20 April 1886. At that time however only 35 miles had been constructed and it was
clear that no more would be constructed
• Was the Railway Co entitled to receive title to the land? Supreme Court: held for the plaintiff; government appealed to the Privy
Council and their appeal was dismissed so the plaintiffs were entitled to subsidies and land grants in respect of the completed parts of
the railway
o Government succeeded in a counterclaim to set off the damages for which the plaintiffs were liable against the subsidy
which the Govt was required to pay à the order was complex
Held per Lord Hobhouse
• It is argued for the Government that the contract is for the whole railway as an entire thing; that it is to serve the travel and shipping
interests of the whole tract of country in contemplation … that under the express words of the contract the construction of the entire
line is a condition precedent to the payment of the subsidy and the efficient operation of the line is a condition precedent to the
payment of each instalment, that the subsidy is also treated as an entire thing and that on 20 April 1886 the condition was broken
and nothing was payable
• The contract assumed throughout that the railway will ultimately be completed … if the subsidy is so entire a thing that it cannot be
severed, the whole must begin and end at the same time
• The provision with regard to five-‐mile sections has the effect of relaxing the extreme stringency with which the rest of the contract
would bear upon the company and that on the completion of each section; one sixty-‐eighth part of the whole subsidy became
payable as a separate subsidy, beginning at the next day of payment and continuing for 35 years, though subject to the condition of
continuous efficient cooperation
Therefore: held that the Government was bound to grant title to 25,000 acres once each section was completed, because each claim to a grant
was independent or severable and earned when each section of the railway was competed.

NB: If A wishes to claim the money from B when they haven’t preformed the contract properly, when A demands the price from B, B is allowed
to deduct damages at an amount for what A has not done

Steele v Tardiani (1946) 72 CLR 386
Facts
• The plaintiffs (Tardiani and other, respondents before the HC) were Italian internees released during the war for employment by the
defendant, a solicitor and registered firewood producer. He employed the plaintiffs to cut firewood six feet in length and six inches in
diameter
• Payment was originally agreed at 6 shillings per ton but after three weeks this was raised to eight shillings. The plaintiffs cut 1500
tons of timber split in diameters ranging from 6 – 15 inches. D refused to pay
• QLDSC à found that although the work did not conform to the contract the defendant had raised no objection, allowed the plaintiffs
to continue cutting the wood to various diameters and allowed the plaintiffs to leave their employment without informing them they
would have to split again that firewood which was in excess of 6 inches in diameter
o There was also evidence that he promised to pay for the firewood if and when it was delivered to a buyer
• The judge delivered 320 pounds, 13s and 4d as a fair estimate of the plaintiff’s work. The full court varied this decision by holding
that on the evidence the plaintiffs had substantially performed their contracts and were entitled to be paid 447 pounds under the
contract
o The defendant appealed to the HC which restored the QLDSC decision: held that because the firewood cut was not
substantially of the diameter required by K it should not have been disturbed
Held per Dixon J
• The doctrine of substantial performance applies to severable contracts.
• An employment contract, which provided for remuneration of employees per ton of firewood cut by them, was construed as a
severable contract requiring substantial performance in respect of ‘each divisible application of the contract’.
o Although the Ps cut 1500 tons of timber, their performance was not substantial and recovery on the contract was not
possible

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• To recover under a quantum meruit for wood split to substantially different widths from that required, the plaintiffs must show
circumstances removing their right to remuneration from the exact conditions of the special contract
o For, if no more appears, the fact of such a contract open and to that extent unperformed, excludes any implied obligation
on the part of the defendant to pay a reasonable remuneration for the work done by the plaintiffs in cutting his timber to
dimensions outside those allowed by the contract. It is not enough that the work has been beneficial to him by turning his
standing timber into the more valuable form of firewood
• The P’s could recover quantum meruit as the D could be regarded as ‘taking the benefit of the work and so, as involving either a
dispensation from precise performance or an implication at law of a new obligation to pay the value of the work done.’ The proper
(modern) rationalisation of this decision is that because the D had accepted the benefit of the P’s work, he was unjustly enriched
o P supervised them and made no complaint until the end of the day, well after they had done their work
• D did not base his refusal or failure to pay the plaintiffs on their failure to split the wood to the specified width or at all events, did
not express to the plaintiffs his insistence or desire that they should so cut it
o On the other hand; on the evidence it would be open to conclude that the defendant considered that the plaintiffs were
bound by the restrictions imposed upon them to go on working for him and that it was for this reason that he did not pay
them regularly, that he allowed them to continue cutting the timber and raised no objection to the splitting
• It would be proper to treat the failure in complete performance as possessing little importance to the defendant and as acquiesced
by him, with the consequence that the subsequent sale of the firewood might rightly be regarded by the learned judge as taking of
the benefit of the work and so, as involving either a dispensation from precise performance or an implication at law of a new
obligation to pay the value of the work done

D. DISCHARGE FOR BREACH OF A TERM
How do we decide if a breach has occurred? Provisions of the contract must be construed to see whether there has been a failure to act as
required. Usually liability is ‘strict’, that is, negligence and intention are irrelevant unless provided by the contract. The law will overlook
insignificant failures/shortcomings i.e. if the matter is very minor, the court will not care if you have performed at all.
• Where a promisee alleges that the promisor has breached the contract the onus of proof rests on the promisee
• The failure to perform concept embraces three types of breach
o Non performance
§ Promisor who makes no attempt to perform OR promisor who does perform but provides a different article i.e.
seller who sends beans when the contract requires beans
o Defective performance
§ A promisor’s performance is defective where it is not of the quality or quantity required by the contract, or not
fit for the purpose required i.e. if a builder agrees to build a house and does the work negligently, so that repair
work is needed, the breach arises from defective performance
o Later performance
§ Where performance is tendered late and not accepted, valid termination by the promisee means the promisor’s
breach amounts to non performance
§ Differences with CL rule/statute
If you fail to perform without a legal excuse, you are in breach of contract. This activates several consequences in law:
• Haven’t performed and don’t have excuse: breach
o Every time there is a breach the other party gets damages payable by the contract breaker to the innocent party
• Sometimes breach means party who isn’t in breach has a right to end the contractual relationship: terminating contract
• Other consequence relates to obtaining payment for work that has already been done: entire vs. substantial performance
Consequences of breach: right to damages; but no automatic termination.

I. LATE PERFORMANCE
Where performance is tendered late and not accepted, valid termination by the promisee (e.g. because timely performance was of the essence)
means that the promisor’s breach amounts to non-‐performance.
Holland v Wiltshire (1954) 90 CLR 409
Facts
• Herbet and Thelma Holland (purchasers, defendants in action and appellants before the HC) agreed to purchase a property from
Wiltshire. The price was to be paid by a deposit of 2 pounds and the balance on 14 January 1952, the day fixed for completion
• The contract conferred on the vendor the right to re-‐sell the property and forfeit any money paid ‘if default shall be made in due
payment of the … purchase money and interest or any part thereof respectively at the respective times aforesaid’
• Deposit was paid. On 14 Jan the purchasers requested an extension of time and this was granted. However, in the second week of
March the purchasers said they would not proceed with the contract. The vendor then served a notice that if the purchasers did not
settle by 28 March proceedings for breach of contract would be taken
o Nothing further was heard from the purchasers and the vendor resold the land for 3103 pounds on 10 June 1952
• The Local Court of Adelaide awarded 645 pounds damages to the vendor. The sum was arrived at by deducting the amount received
on the re-‐sale from the contract price and allowing a further 2 pounds for the deposit
o Decision affirmed by the Full Court of the SASC
o Purchasers appealed to the HC: did the vendor breach the contract by selling the land? The re-‐sale of the land would not be
a breach if time was of the essence of the contract with the purchasers or the purchasers repudiated the contract
§ Appeal dismissed
Held per Dixon CJ
• On whether equitable rule could apply
o Since the purchasers were never ready and willing to perform their contract and eventually renounced performance, they
could never have invoked the equitable remedies for the purpose of which the equitable rule obtained, therefore statute
doesn’t apply
Held per Kitto J
• Time was not of the essence of the contract
• At CL, such a stipulation would have been regarded as of the essence, treated as a condition of the contract in the sense that failure
of one party to adhere to it would be held to entitle the other to put an end to K
• The qualification thus made upon the rule to be applied in the exercise of CL jurisdiction is, however, of limited application. It applies
only in cases which are appropriate for the granting of equitable remedies by way of relief against the loss by a party of his
contractual rights by reason of a failure on his part to perform the contract in precise accordance with the provision as to time. This is

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so because only in such cases do the rules of equity treat as not of the essence of the contract stipulations which are of the essence
according to the traditional view of the CL
o Doesn’t apply where parties intend stipulation to go to the root of the contract: where circumstances over and above the
disregard of the stipulated time make it unjust to relieve the party in default from the consequences of his failure in precise
adherence to the agreed time, equity has no occasion to differ
• It is clear that the purchasers’ conduct in the face of the vendor’s demands for performance, including their explicit refusal through
their solicitor to go on with the contract, a court of equity considering the matter at the date when the case came before the Local
Court could not possibly have thought it just to decree specific performance at the instance of the purchasers
o Court of equity would not give a result different to common law so time stipulation treated as being of the essence
This case proceeds on the basis that equity/CL do not differ in K construction.
NB: Even if time is not of the essence. A failure to perform is a breach of contract (warranty?), and damages may awarded

Canning v Temby (1905) 3 CLR 419
Facts
• The plaintiff (Ms Canning) was a vendor under a contract for the sale of land dated 19 August 1902. The contract specified no date
for completion (that is, payment of the price and transfer of the property) but the purchaser knew that if completion did not take
place on or before 1 September 1902 the vendor would be unable to discharge a mortgage and would therefore not be in a position
to convey title to the land
• Completion did not take place on 1 September. On 5 September the plaintiff wrote to the purchaser requesting assistance to save
the property. When none was provided she sued for damages in the WASC
o Judgement was given for the purchaser; the plaintiff appealed to the Full Court which affirmed that decision; she then
appealed to the HC where the appeal was dismissed (P failed to recover damages on basis that failure to complete on 1 Sep
not a breach)
Held per Griffith CJ
• Where no time for completion is specified in a contract, the law implies that it is to be completed within a reasonable time (depends
on the circumstances of the case)
o It cannot be said that 1 September was a reasonable time and therefore it cannot be said that there was an absolute breach
of contract by the mere failure to pay on 1 September
• A party asking for specific performance of a contract, notwithstanding that he himself was in default, could only obtain that relief on
doing what was fair to compensate the other party for any loss by reason of his default – when time was not originally of the essence
of the contract, either party desiring to fix a definite time for completion so as to entitle himself to rescind the contract on failure to
complete within the time was required to give notice to the other party to complete by a named day which was required to be
reasonable (at not too short an interval)
o The effect of this notice however was not to confer an offensive right or complete a cause of action but to confer a
defensive right in equity as well as at law to take advantage of the other partys’ fault: I do not think therefore that the
plaintiff’s failure to give a notice appointing a day for payment of the purchase money is material to her claim for damages
for breach of contract except so far as such a notice, if given and not attended to, would have been an element in
considering whether the purchaser had failed to perform his contract within a reasonable time
• Time is not of the essence in a case where a reasonable time is implied – ‘In one sense, of course, time is always of the essence of a
contract to be performed within a reasonable time. But that is not the sense in which the term ‘of the essence’ is used’
o Where an essential term – in the sense defined – is to be performed within a reasonable time, there being no stipulated
day for performance and that time passes without performance, the innocent party does not acquire a right to rescind
unless the defaulting party repudiates or has repudiated his obligation to perform – Brennan J, Laurina v Capalaba Park
On equity courts
• The equitable rule only applied in relief of a party who is himself technically, but not substantially, in default, so as to allow him to
claim specific performance in a proper case, although at law he could not maintain action. It does not mean that the one defaulting is
not liable for damages for the breach, but merely that the stipulation as to time should be treated as an independent term not as a
condition
• Equity makes a distinction between ... a matter of substance and … a matter of form. If by insisting on form, the substance will be
defeated, it holds it to be inequitable to allow a person to insist on such a form
o That doctrine has no application here though, because no specific date stated or notified, and the resulting reasonable time
stipulation not satisfied
Held per O’Connor J
• The ‘time is of the essence’ doctrine can only be applied to two sets of circumstances – (1) where a specific date for completion is
stated in the contract; (2) although no specific date is mentioned in the contract, a notice has been given by the party who wishes to
insure completion within a specified time that the completion must take place within the period notified otherwise the contract will be
rescinded
o As neither of these sets of circumstances arise here, the doctrine is inapplicable and the case then that of a contract which
must be completed within a reasonable time
• There is no time fixed for completion in the contract, nor has a notice been given fixing the time for completion
• A court of equity and a court of law construct a contract in exactly the same way… the court of equity will no more permit an
unreasonable delay in carrying out the contract than will a court of law; the case therefore stands in the same position as if this were
an action at common law for failing to complete a contract within a reasonable time
o The P has failed, in my opinion, to establish that, under all the circumstances of the case, a reasonable time for completion
means on or before 1 September

II. DEFECTIVE PERFORMANCE
Whether or not a party’s performance is defective depends on the standard of contractual duty. This is an issue of intention, which must be
resolved by the construction of the K, but this only provides a clear answer when the parties have expressly dealt with the matter. Where they
haven’t 2 techniques used:
1. Distinguish
a. Situations where parties have promised to bring about a result (duty = strict/absolute) and
i. Prormisee can make out a prima facie case simply by proving that the performance contracted for has not been
received: applies most commonly in commercial contracts

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b. Situations where a party has merely promised to use care or skill to bring about a result (proof of breach depends on proof
of negligence/whether the requisite degree of skill has been used)
i. Nature of the ordinary employee’s duty: proper or reasonable care must be exercised
ii. With doctors, solicitors etc: the degree of care expected of the ‘ordinary skilled person exercising and professing
to have that special skill’
2. Implication of a term stating the standard of contractual duty (informal contracts)
Several rules:
• A promise to pay money is assumed to attract a strict duty
• An employee or professional person is assumed to have agreed to use reasonable care or skill
• A seller of goods is strictly liable for defects in the goods
• Standard applicable depends on the construction of the contract: but usually the contract will not contain an express statement of
standard

Derbyshire Building Co Pty Ltd v Becker (1962) 107 CLR 633
Facts
• The plaintiff (Becker, respondent before the HC) sought damages for personal injury from the defendant. although the plaintiff was
employed by the defendants, the injuries were suffered during weekend work done under a separate contract requiring the
performance of services as an independent contractor rather than as an employee
o These services required that the plaintiff had to work with timber and the defendant lent the plaintiff a circular saw (the
Black and Decker) for this purpose à it was in an unsafe condition when used because a guard was defective and failed to
retract when the saw was engaged in cutting
• Action was heard in NSWSC: verdict in P’s favour for $3700
• Appeal to the Full Court was dismissed so D appealed to HC: issue was whether he had breached the contract
Held per Kitto J
• Standard of duty determined by use of implied terms i.e. that the defendant would keep the saw maintained and that it would not be
when he took it so affected by lack of maintenance as to be more dangerous than it was at the date of the contract
• The plaintiff’s case on breach of an implied term was that his injuries resulted from a failure of the guard on the saw to function
properly … which had been caused by a defective condition of the spring due to faulty maintenance, including cleaning, by the
defendant
o It was a defective condition of which the D ought to have known, especially as the plaintiff gave uncontradicted evidence
that before the weekend in which he suffered his injuries he complained to the defendant’s works manager, that the guard
was jamming
• If the recipient stipulates that he is to be supplied with a particular specified article, this may be a may be a material factor in
showing that an implication of fitness ought not to be made, as where it goes to show that he was relying on his own judgement
• In the situation the plaintiff almost certainly would have been relying upon the defendant to hand over the saw on each occasion in
at least as well maintained a condition as it was in when they were making their contract about it: although the plaintiff did
maintenance on the saw, the person ultimately responsible for the maintenance was works manager
o The natural inference of the plaintiff’s reliance: he relied on the defendant to do, through the works manager, whatever
might be proper for remedying defects from time to time, so that whenever he took the saw at a weekend pursuant to the
contract it would be a saw which was not allowed to become unsafe
Held per Taylor J
• Prerequisite to the implication of a general condition at CL that it should appear in effect that the buyer had bought on the seller’s
judgement that the subject goods would answer a particular purpose
• Respondent’s case: at the time of accident it was a dangerous condition
• Problem is to ascertain what relevant condition, if any, ought to be imported into an agreement which provided for an indefinite
number of future successive bailments of the same article
o The saw was in a defective condition when respondent accepted the loan of it on the occasion when injuries ascertained
• The obligations of the appellant would not be discharged if, the saw being in an unexceptionable condition at the time of the
agreement, on some future occasion it delivered the saw to the respondent in an obviously useless or dangerous condition
• The guard became defective the knowledge of the appellant some months after the agreement was said to have been made: the
defect introduced a real element of risk and the saw was delivered to the respondent in this condition on the occasion when he was
injured: a clear breach to deliver the saw to the respondent in the minimal standard condition

Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners [1975] 1 WLR 1095
Facts
• Plaintiffs (‘the contractors’) were engaged by building owners to construct a factory. They employed a firm of structural engineers
(the defendants) to design the structure (including a warehouse), in particular its first floor
o They were told that the floors had to take all the weight of the forklift trucks which would carry drums of oil
o It was alleged that the defendants had not designed a structurally sound building with the result that the floor was subject
to serious vibration, cracks had opened and further damage was likely
§ The plaintiffs claimed damages for breach
• Primary judge: plaintiffs had suffered loss; defendants were liable to plaintiffs because their design was defective, the D’s appealed
• Issue before the CA was whether the defendants had breached the contract – depended on the standard of duty applicable to the
design: was it strict or did it merely require the exercise of care?
o Appeal dismissed: D’s had breached the contract
• They relied on the contractors’ skill and judgement: it was therefore a duty of the contractors to see that the finished work was
reasonably fit for the purpose which they knew it was required
o The contractors were obliged to ensure that the work was reasonably fit for the purpose
• It is a term implied by law that the builder will do his work in a good and workmanlike manner; that he will supply good and proper
materials and that it will be reasonably fit for human habitation
• Necessary to distinguish between a term implied in law and a term implied in fact: a term implied in law is said to rest on the
presumed intention of both parties; term of fact rests on their actual intention

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o Term implied in law: what is the duty of an engineer/architect? An implied warranty that his design will be reasonably fit
for its purpose? Or a duty to use reasonable care and skill?
o Question will be answered someday, not today because both parties were of one mind on the matter – their common
intention was that the engineer should design a warehouse which would be fit for the purpose for which it was required.
That common intention gives rise to a term implied in fact
• There was implied in fact a term that if the work was completed in accordance with the design it would be reasonably fit for the use of
loaded stacker trucks – the engineers failed this design = liable
• If there was however, no such absolute warranty of fitness, but only an obligation to use reasonable care and skill what is the degree
of care required? It is to use reasonable care and skill in the course of his employment; of an ordinary competent man exercising that
art
o Didn’t do so here, because didn’t take into account dangers of vibration which he ought to have done – therefore breached
the duty to use reasonable care and skill – fails on both grounds
• Plaintiffs entitled to recover on declaration of liability/indemnity

Denning favoured a strict standard (because of the circumstances of the case), he thought there was a term implied in the contract holding B to
a strict contract -‐ Generally in contract, when promises are made, there is a strict standard of performance.

III. EFFECT OF FAILURE TO PERFORM – TERMINATION FOR BREACH
We need to consider the type of term that has been breached and the seriousness of the breach. A party will be discharged by the failure of the
other party to perform if the breach is of an important promise or serious consequences. Some defaults may be serious/justify you leaving, some
may not be serious at all: for some clauses it might depend on the circumstances.

Whether a contract expressly confers a right to terminate for breach depends on the construction of the contract. A right to terminate may be
general, and arise on a breach of any term of the contract, or specific, and arise only on the breach of a particular term or a particular kind of
breach. The courts try their best to arrive at an interpretation which corresponds with the parties’ intentions.

Step 1: Look at the contract and the time the parties entered it. Don’t look after.
Step 2: look at the clauses and put it into the three categories:
• Condition: important/serious term
o If other party breaches a condition: innocent party has a right to immediately terminate
• Warranty: unimportant term
o No breach would entitle person to terminate
• Intermediate term
o The consequences of breach vary in seriousness e.g. can be serious OR minor (insulting partner’s family to end a
relationship)

How do you know the term is a condition?
• The parties say it is a condition: ‘this is a condition’ doesn’t necessarily make it a condition as people can be loose with language
o Usually happens when want someone to perform on time i.e. ‘time is of the essence’: if you don’t perform on time =
breach, I have a right to terminate
• If the parties have not expressly stated (implied) it is a condition can use several perspectives to try and figure it out:
o 1. ‘Motivation for Entry’ test: Associated Newspapers v Bancks
§ At this time: IT not developed so asked: ‘What would a reasonable person in that position have done’?’
• ‘A term is a condition if the promisee would not have entered the contract unless assured of strict
performance of that term’ per Jordan CJ in Luna
• Was it really important that promise be performed EXACTLY because of the contractual
arrangement?
o 2. What are the likely consequences of breaching it? If use this test to see if it is a condition: term might be a condition if
every breach were to have serious consequences (Bettini v Gye)
§ “A term is a condition if every breach would go to the root of the contract”
§ “A term is a condition if every breach would deprive the innocent party of substantially the whole benefit it was
to obtain under the contract” (Hong Kong)
o 3. Look at the language of the contract and the contract structure i.e. Luna Park v Tramways
• Where a term states the promisor’s obligation in clear and precise words it is more likely to be a condition than a term couched in
general words
o The term in issue must be construed as a whole and even a promise expressed in definite terms may not be construed as a
condition if it expressly confers a right on either or both parties to terminate in defined circumstances which is inconsistent
with the existence of a right in respect of any breach of the term
§ The structure of the contract may be relevant to the issue and there is a need to construe the whole contract
when considering whether a particular term is a condition; this may indicate an interrelation between obligation

How do you know the term is an intermediate term?
• Cases such as the Hansa Nord justify the general proposition that if an express term is not intended to be a condition it will be
presumed to be intermediate in character and construed as such unless the parties have clearly expressed the intention that the term
is a warranty
• Why do we classify something as an intermediate term? Condition/warranty becomes too inflexible
o Some breaches very serious, some cases seriousness depends on the circumstances: term is not a condition
• When do we have a right to terminate for breach of intermediate term?
o Level of seriousness is the same as that for the contract to be frustrated: high standard. The test to describe that standard:
does the breach deprive the innocent party of substantially the whole benefit it was to obtain under the contract? To
answer:
§ Look at what has actually happened so far
§ Look at what can be foreseen into the future
o Once you have concluded it is IT (in the vacuum) à then look at the circumstances to see seriousness of the breach i.e. the
effect of the breach of contract as a whole

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o The assessment of consequences of the breach: essentially factual

o Link with doctrine of frustration: commercial contracts, the degree of seriousness required is the same as that applied
under the doctrine of frustration
• In cases where the promisee relies on the actual consequence of the breach to establish substantially different performance, the
court will concentrate on the detriment actually suffered by the promisee as a consequence of the breach
• Even if the actual consequences of the breach of an intermediate term are not sufficiently serious, the promisee may be able to
establish a right to terminate by reference to the foreseeable consequences of the breach; and can combine actual and foreseeable
consequences and the promisor’s breach may, in some cases, achieve the significance required only as the result of the combined
consequences
o Promisee must establish that any foreseeable consequences relied on were reasonably foreseeable at the time of
termination
§ I.e. if the breach is likely to cause physical injury to the promisee because a repairer has negligently repaired a
motor vehicle so that it is dangerous to drive consequences can be regarded as serous; if the only likely
consequence id delay you must consider effect on the entire contract
§ Look at the conduct of the promisor if informed of breach? If he is informed of the consequences which are
likely to occur as the result of the breach: may offer to remedy by doing repair work again
§ Promisee is not obliged to terminate in respect of foreseeable events and does not lose the right to terminate by
waiting for them to occur

SO: IS THE BREACH SUFFICIENTLY SERIOUS? Then can terminate.
How do you know the term is a warranty?
• Not that many terms classified as warranties these days

TRAP: Dogs have four legs; that animal has four legs therefore it is a dog. People will say clause can be breached in a variety of ways,
intermediate terms can be breached in a variety of ways therefore intermediate term.
SOME TERMS: still regarded as conditions even though seriousness of breach may vary. Seriousness is only one perspective for seeing if it is a
condition.
****Ask: should it be a condition for the reasons discussed? If not, it is probably an intermediate term*****

Associated Newspapers Ltd v Bancks (1951) 83 CLR 322
Facts
• Plaintiffs referred to as ‘the company’ sought an injunction in the NSWSC to restrain the D from breaching his contract of
employment. The contract was made on 22 September 1946 for a period of 10 years
• By cl 5 Bancks agreed ‘in the course of his employment to prepare and furnish’ to the company weekly a full page drawing of ‘Us
Fellers’ (a comic strip featuring a character known a ‘Ginger Meggs’) or such other subject as might be agreed upon from time to time
• The P undertook, by the same clause ‘that each weekly full-‐page drawing will be presented on the front page of the comic section of
the Sunday Sun & Guardian, a newspaper published by the company
• On 11 Feb 1951 the comic section was published in such a way that Bancks’ drawing appeared as the third page, although it was
headed ‘Sunday Sun Comics.’ Prior to that production Bancks had protested as to its form. The comic section was produced in the
same manner on 18 and 25 February. Bancks then gave notice that K was terminated. He signed a contract with Consolidated Press
Ltd to supply comic to that company
• Primary Judge: he was entitled to assume that the breaches would continue and he was justified in terminating. The injunction
refused, the plaintiff appealed to HC who dismissed the appeal
Held per the Court (Dixon, Williams, Webb, Fullagar and Kitto JJ)
• Approved Jordan CJ’s test in Tramways: ‘would not have entered into the contract unless he had been assured of a strict or
substantial performance of the promise as the case may be, and that this ought to have been apparent to the promisor. If the
innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in
general treat himself as discharged upon any breach of the promise, however slight …’
o It is clear that the obligation of the D to supply a weekly-‐full page drawing … and the plaintiff’s undertaking to present the
drawing each week on the front page of the comic section .. are concurrent and correlative promises … the obligation of the
D is a condition
§ He was not an ordinary employee of the plaintiff
• It is impossible to attach different values to the defendant’s obligation and the plaintiff’s undertaking: the plaintiff would not have
employed the defendant unless it had been assured that the defendant would perform his promise and the defendant would not
have made the promise unless he was assured that his work could be published in a particular manner
• The undertaking of the plaintiff company that each weekly full-‐page drawing would be presented on the front page of the comic
section formed a condition the substantial failure in the performance of which would enable the D to treat the contract as at an end
o P committed three successive breaches of this condition: thereupon D was certainly entitled to treat K as discharged
§ Such a failure of the P to perform the contract went to the root of the contract and gave the defendant as the
injured party the right immediately to treat K as at an end

Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26
Facts
• By a charterparty dated 26 Feb 1956, the Hongkong Fir was chartered to the defendants (appellants before the EngCA) by the
plaintiffs (owners of the vessel and respondents) for a period of a 24 calendar month
• Clause 1 of the K described the vessel as being in every way ‘fitted for ordinary cargo service.’ This is referred to as the seaworthiness
term
• Cl 3 of the charter created an obligation on the owners to ‘maintain’ the vessel in a thoroughly efficient state in hull and machinery
during service
• On 13 Feb 1957: the vessel was placed at the disposal of the charterers. During the next three months they experienced considerable
difficulties with the vessel. Due to an inefficient and insufficient engine room crew the vessel was ‘off hire’ for about 57 days. This
meant that no money (‘freight’) was being earned by the charterers by carrying goods
o The charterers purported to terminate the contract for breach of the seaworthiness term in June
o This was repeated on 27 July and formally confirmed on 11 September: during this period the vessel was also off-‐hire for
repairs for many weeks; however the vessel’s engine crew was replaced in September

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• The owners contended that the termination was wrongful, and therefore a repudiation: they sued to recover damages for loss of the
charter and the charterers counterclaimed for damages
o Salmon J held that breaches of cll 1 and 3 did not justify termination: gave judgments for the shipowners and dismissed the
charters’ counterclaim; the charterers appealed
• Decision of Salmon J was affirmed, termination of contract by charterers was held to be wrongful; shipowners were entitled to
damages for the loss of the charter and the charterers’ counterclaim for damages failed
Held per Upjohn LJ
• See whether the stipulation, on its true construction, is a condition so strictly called: condition = any and every breach goes to the
root of K
o Seaworthiness clause not to be treated as a condition as it can be breached by the slightest failure to be fitted in ‘every
way’ for service: if a nail is missing from one of the timbers – it is against commonsense to suppose that in such
circumstances the parties contemplated that the charterer should be at once entitled to treat the contract as at an end for
such trifling breaches
• It is open to the parties to a contract to make it clear either expressly or by necessary implication that a particular stipulation is to be
regarded as a condition which goes to the root of the contract; so that it is clear that the parties contemplate that any breach of it
entitles the other party at once to treat the contract as at an end .. that matter has to be determined as a question of the proper
interpretation of the contract
• The remedies open to the innocent party for breach of a stipulation which is not a condition strictly so called, depend entirely upon
the nature of the breach and its foreseeable consequences … breaches of stipulation fall into two classes
o First there is the case where the owner by his conduct indicated that he considers himself no longer bound to perform his
part of the contract … the charterer may accept the repudiation and treat the contract as at an end
o The second class of case is the more usual one and that is where, due to misfortune such as the perils of the sea, engine
failures, incompetence of the crew and so on the owner is unable to perform a particular stipulation precisely in accordance
with the terms of the contract try he never so hard to remedy it
• The question to be answered is: does the breach of the stipulation go so much to the root of the contract that I makes further
commercial performance of the contract impossible, or in other words, is the whole contract frustrated? If yea, the innocent party
may treat the contract as at an end. If nay, his claim sounds in damages only
o So did the seaworthiness do so? The only unseaworthiness alleged, serious though it was, was the insufficiency and
incompetence of the crew, but that cannot be treated as going to the root of the contract for the parties must have
contemplated that in such an event the crew could be charged and augmented
• Where there have been serious and repeated delays due to the inability of the owner to perform his part of the contract, is the
charterer entitled to treat the contract as repudiated after a reasonable time or can he do so only if delays are such to amount to a
frustration of the contract?
o Test is if they amount to frustration of commercial purpose of the K and they didn’t here
Held per Diplock LJ
• The test whether an event will allow a party to be relieved of his contractual undertaking is: does the occurrence of the event deprive
the party who has further undertakings still to perform of substantially the whole benefit which it was the intention of the parties as
expressed in the contract that he should obtain as the consideration for performing those undertakings?
o Where the event occurs as the result of the default of one party, the party in default cannot rely upon it as relieving himself
of the performance of any further undertakings on his party and the innocent party, although entitled to, need not treat
the event as relieving him of the further performance of his own undertakings
o Where the event occurs as the result of the default of neither party each is relieved of the further performance of his own
undertakings and their rights in respect of the undertakings previously performed are now regulated by the Law Reform
(Frustrated Contracts) Act 1943
• Once it is appreciated that it is the event and not the fact that the event is a result of a breach of contract which relieves the party
not in default of further performance of his obligations, two consequences follow:
o (1) The test whether the event relied upon has this consequence is the same whether the event is the result of the other
party’s breach of contract or not (Citati)
o (2) The question whether an event which is the result of the other party’s breach of contract has this consequence cannot
be answered by treating all contractual undertakings as falling into one of two separate categories; ‘conditions’ the breach
of which give rise to an event which relieves the party not in default of further performance of his obligations and
‘warranties’ the breach of which does not give rise to such an event
• There are many simple contractual undertakings, sometimes express but more often because of their very simplicity to be implied, of
which it can be predicated that every breach of such an undertaking must give rise to an event which will deprive the party not in
default of substantially the whole benefit which it was intended that he should obtain from the K. and such a stipulation, unless the
parties have agreed that breach of it shall not entitle the non-‐defaulting party to treat the contract as repudiated is a ‘condition.’ So
too there may be other simply contractual undertakings of which it can be predicated that no breach can give rise to an event which
will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract,
and such a stipulation, unless the parties have agreed that breach of it shall entitle the non-‐defaulting party to treat the contract as
repudiated, is a ‘warranty’
o There are, however, many contractual undertakings of a more complex character which cannot be categorized as being
‘conditions’ or ‘warranties …’ of such undertakings all that can be predicated is that some breaches will and others will not
give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that
he should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for
expressly in the contract depend upon the nature of the event to which the breach gives rise and do not follow
automatically from a prior classification of the undertaking as a ‘condition’ or a ‘warranty’
• The shipowners’ undertaking to tender a sea worthy ship has, as a result of numerous decisions as to what can amount to
‘unseaworthiness’ become one of the most complex of contractual undertakings … it embraces obligations with respect to every
party of the hull and machinery, stores and equipment, and the crew itself. It can be broken by the presence of trivial defects easily
and rapidly remediable as well as by defects which must inevitably result in the total loss of the vessel
• It is like so many other contractual terms an undertaking one breach of which may give rise to an event which relieves the charterer
of further performance of his undertakings if he so elects and another breach of which may not give rise to such an event but entitle
him only to monetary compensation in the form of damages
• The question which the judge had to ask himself was whether or not at the date when the charters purported to rescind the
contract, namely 6 June 1957, or when the shipowners purported to accept such recission, namely 8 August 1957, the delay which

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had already occurred as a result of the incompetence of the engine-‐room staff and the delay which was likely to occur in repairing the
engines of the vessel and the conduct of the shipowners by that date in taking steps to remedy these two matters were, when taken
together, such as to deprive the charterers of substantially the whole benefit which it was the intention of the parties they should
obtain from further use of the vessel under the charterparty … in my view the judge arrived at the right answer for the right reasons
Boat was out of action for 22 weeks or less – out of 104. Couldn’t say of applying the test that this deprived the charterer of substantially the
whole benefit: there had been a breach, and it was a breach of intermediate term it wasn’t sufficiently serious to justify the charter’s terminating.

Cehave NV v Bremer Handelgesellschaft mbH (The Hansa Nord) (1976) QB 44
Facts
• By two contracts dated 24 and 28 September 1970 Cehave NV (the buyers, respondents before the EngCA) agreed to buy a quantity
of citrus pulp pellets from the sellers. The contract price of the goods was a little over 100,000 pounds
• The buyers intended to use the goods as an ingredient in animal feed. The terms were set out in a standard form of the London Gran
and Feed Trade Association; GAFTA form 100. Cl 7 provided in part : “Shipment to be made in good condition”
• On arrival in Rotterdam the goods were found to have been damaged by spontaneous combustion. Significant damage had occurred
in relation to 1260 metric tons and minor damage (2-‐5%) to 2053 metric tons. The buyers rejected the goods and claimed the return
for the price which had already been paid. The market price of the sound good was then about 86,000 pounds. The sellers refused to
repay the money and pursuant to an order of the Rotterdam County Court the goods were sold to Mr Baas for 33,720 pounds. He
then resold the goods to the buyers (Cehave) for the same price, even though, it appears their value was about 65,000
o The buyers used the goods as an ingredient in cattle feed
• The dispute was heard by an umpire who found for the sellers. The buyers appealed to a GAFTA board of appeal which held they
were entitled to reject the goods – board’s award used in a case heard by Mocatta J who held that cl 7 had been breached and the
buyers’ rejection was justified as cl 7 was a condition à sellers then appealed
• EngCA held in favour for the sellers, Mocatta’s decision was reversed
Was the buyer entitled to terminate the contract for serious breach because the goods were not in promised condition??
• Affirmed Upjohn J’s judgement in Hongkong Fir
• Stipulation of this case: ‘Shipped in good condition’: was this a condition strictly so called, so that any breach of it entitled the buyer
to reject the goods? Or was it an intermediate stipulation?
o If a small portion of the whole cargo was not in good condition and arrived a little unsound, it should be met by a price
allowance: the buyers should not have a right to reject the whole cargo unless it was serious and substantial. This is borne
out by the difficulty which often arises on a cif contract as to whether the damage done before shipment or took place after
shipment: in the latter case the buyer would have no claim against the seller but would be left to his claim against the
insurers
• The term ‘shipped in good condition was not a condition nor a warranty. It was one of those intermediate stipulations which gives no
right to reject unless the breach goes to the root of the contract
• I do not think the buyer was entitled to reject the instalments of the K – the board only said that ‘not all the goods in hold No 1 were
shipped in good condition.’ That does not say how many wee bad. In any case, their condition cannot have been very bad, seeing that
all of them were in fact used for the intended purpose. The breach did not go to the root of the contract. The buyer is entitled to
damages but not to rejection
**Intermediate because could have handful of citrus fruits rotting; or only 1***
Held per Roskill LJ
• By suitable language in a contract the parties may provide that the seller’s obligation regarding the condition of the goods at any
stage and whether on shipment or on delivery shall be treated as of such paramount importance that any breach of that obligation
shall automatically entitle the buyer to rescind …
• In my view, the court should not be over ready, unless required by statute or authority to do so to construe a term in a contract as a
‘condition’ any breach of which gives rise to a right to reject rather than as a term any breach of which sounds in damages – in
principle contracts are made to be performed and not to be avoided according to the whims of market fluctuation and where there is
a free choice between two possible constructions I think the courts should tend to prefer that construction which will ensure
performance
• A sufficiently serious breach is one which ‘deprived them of substantially the whole benefit which it was intended that they should
obtain from the contract’ (Diplock LJ in Hongkong Fir)
o Also ‘went to the root of the contract’ or ‘destroyed the consideration which the buyers gave’
• Extended to sales of goods contracts
• Since the buyers can only rely upon the breach of cl 7 if they can show that breach ‘deprived them …’ or ‘went to the root’ or
‘destroyed the consideration which the buyers gave’ … there is no finding that the sellers’ breach of cl 7 had this effect
o The buyers could only reject the goods
How serious was this particular breach? Look at the facts: when look at figures, the market price for the goods had fallen and the evidence was
that even though goods were damaged, the prevailing market could have sold them for less (86,000 pounds vs. 65,000 pounds à difference
only 20%). In those circumstances: degree of difference wasn’t great, breach not serious.
This shows that very high degree of seriousness is required.

Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938( 61 CLR 286
Facts
• Tramways Advertising Pty Ltd (plaintiff, respondent before the HC) sued Luna Park (Defendant and Appellant) to recover money
alleged to be due under a contract to advertise the amusement park. By a cross-‐action the defendant claimed damages for breach by
the plaintiff
• The contract provided for the display of advertising boards on Sydney’s trams for a minimum of 52 weeks. A term of the K stated
o “We [Tramways] guarantee that these boards will be on the tracks at least eight hours a day throughout your season”
• The defence to the action was that since the P had breached the action for not displaying each board for 8 hours a day, nothing was
due under the contract. Counsel for the plaintiff admitted that each board was not on the road for 8 hours per day
• Trial judge: judgement for the defendant. On the cross claim damages assessed at 300 pounds. By majority the Full Court of the
Supreme Court of NSW allowed the plaintiff’s appeal and entered judgement for the P in both actions. The D appealed to the HC
o Had the D earned its fee? No money was due if the term breached was a condition
o Majority of the HC allowed the appeal: but only nominal damages were awarded against the plaintiff
Held per Latham CJ

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• It is an undertaking that each board will be on the tracks for at least 8 hours every day throughout each season … the plaintiff must
fail upon the claim because the plaintiff sues upon the special contract and has not performed the contract in accordance with its
terms
• Extent of the breach is quite uncertain
o The letter from the advertising company contains the statement that their system ensures that each car in the various
depots the same time on the track except in cases of overhaul and repair which are required periodically in the case of all
cars
o It is quite impossible to ascertain from the evidence the number of days upon which particular boards were not shown or, if
show, were shown for less than 8 hours: extent of breach undetermined
• In this case there has not been a complete but a partial failure to perform the contract … thus the evidence which the defendant was
content to put before the court does not make it possible to reach any estimate of the damage suffered: D must thus be content with
nominal damages
• Question of condition v warranty unimportant for first two season, but crucial to third, since D could not claim damages unless he
was entitled to terminate the contract.
• The defendant was entitled to determine the contract for 2 reasons
o P’s actual breaches of the contract
o Reason of the P’s evident intention to continue to perform the contract in the future in the same manner as in the past
§ In the past: displayed it of an average of 8 hours a day per board and the P intended to continue in the same way
• Guarantee clause was a condition: it was a term of the contract which went directly to the substance of the K or was ‘so essential to
its very nature that its non-‐performance may fairly be considered by the other party’ as a substantial failure to perform the contract
at all’ – the breach of such a term by one party entitles the other party not only to obtain damages but also to refuse to perform any
of the obligations
• The words ‘we guarantee’ are suited, in a contract by laymen, to emphasise the importance of the clause which they introduce’ the
payment of 20 pounds per week was not to begin until the complete number of roof boards (53) were to be displayed at the same
time à parties regarded the completeness of the display contracted for as an essential element in the contract: clause was a
condition
• The words ‘eight hours per day’ should be understood as meaning substantially eight hours per day and not measured to exact
second
o The clause would not, in my opinion, be broken by small occasional deficiencies
o The clause should be read as a condition but interpreted as if the word ‘substantially’ had been introduced into them
§ The admission by P that the boards were not exhibited for at least 8 hours per day was found to mean that each
board was not exhibited for substantially eight hours per day
• Defendant entitled to terminate on another ground: plaintiff was prepared to continue to perform the contract only upon the basis
of the P’s construction of the contract, by giving an average daily eight hours’ display of the roof boards
o The position was therefore that the P had given the D the right to believe that the contract would not be performed
according to its true construction: breaches which had been committed were to be committed in the future
o Plaintiff: renouncing the contract which it had made, even though it was contended by P that it would be properly
performed
McTiernan J held that the term was an ‘essential condition’ of the contract.
Held per Jordan CJ
Test for essentiality: whether the promise is of such importance to the promisee that he would not have entered into the contract unless he had
been assured of a strict or a substantial performance of the promise, and this ought to have been apparent to the promisor. (An objective test
because prior negotiations of the parties are not usually admissible as evidence on the construction of a contract)
Applied in Bancks
• Even allowing for insertion of ‘substantially’ – K doomed from start
• Contrast with The Hansa Nord: court concerned to promote performance of contracts rather than their termination

Dixon J dissented on construction of the term – could mean average.


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LECTURE 11: DISCHARGE FOR REPUDIATION/DISCHARGE FOR DELAY AND TIME STIPULATIONS

E. DISCHARGE BY REPUDIATION

A party who states he or she will not or cannot perform obligations is repudiating the contract. It will be an ‘anticipatory’ repudiation if it occurs
before the time for performance. A renunciation after the arrival of the time for performance may also entitle the other party to terminate the
contract.

The party asserting the right to terminate must show that the repudiation by the other party is sufficiently serious.

• Having an attitude problem towards the contract: one party rejecting/throwing off/renouncing the contract
• This doctrine focuses on the readiness and willingness of a promisor to perform his contractual duties: this is a question of fact
o If a promisor is not R/W or will not, at the appointed time, be R/W to perform, the law treats the promisee as possessing
the tight to terminate the performance of the contract under the doctrine of repudiation, provided that the absence or
readiness or willingness satisfies a requirement of serious
o The extent of readiness and willingness is determined by the terms of the contract: the promisor has to be ready and willing
to perform in accordance with the standard of contractual duty imposed by the contract at the time when performance is
due
o Proof that a promisor was not ready and willing to perform at the time when performance was due: sufficient proof of a
breach of contract by failure to perform à however proof that a promisor will not be ready and willing when performance
falls is not sufficient of an anticipatory breach
• Anticipatory breach of contract: occurs if a repudiation AND exercise of right to terminate take place prior to the time appointed for
performance by the promisor. Ready and willing means ready, willing and able
• The idea of refusal in Freeth v Burr does not exhaust what the law regards as repudiation: if a promisor is factually unable to perform,
that inability may be treated as repudiation
• The doctrine of repudiation can be excluded by the parties: must be expressly stated or arise by necessary implication of terms of K

How to prove: By reference to the promisor’s words and conduct OR by reference to whether or not the reputation in factual inability.

The commonality between these: requirement of seriousness. The yardstick we use to measure how serious repudiation is the same as
repudiation for breach: will the party allegedly repudiating not perform a condition of the contract?
• If so: the innocent party has a right to repudiate for termination: serious renunciation of the contract
OR we can ask is the party allegedly repudiating not performing the contract in a way that would amount to a serious breach of an intermediate
term: it is good enough to terminate: party might say not going to perform at all (good enough).
TO SUMMARIZE, The promisee must prove either:
• That the absence of readiness or willingness relied on extends to all the promisor’s obligations; or
• That it clearly indicates that the promisor will breach the contract in a way that gives rise to terminate for breach
o Various bases have been suggested for this:
§ Repudiation is an ‘offer’ of a breach that the promisee is entitled to accept
§ That repudiation is a present breach which gives rise to a right to terminate
§ The existence of an implied term prohibiting repudiation
§ Impossibility of prevention of performance
§ Protection of the promisee’s expectations
§ Convenience
§ The existence of an inevitable breach of contract

In order to explain the existence of a right to terminate in cases where the repudiation precedes the time of performance, the courts rely on the
inevitable breach theory. Thus, if it is clear that the promisor will (or cannot) perform, the right to terminate exists because the law permits the
promisee to anticipate a breach which is inevitable. In cases where the promisor is wholly and finally disabled from performing contractual
obligations it would be pointless to require the promisee to wait, so the law treats the promisor’s breach as inevitable in that situation as well.
• Damages are assessed on the basis of a breach at the time when the performance would have been due rather than at the time of
the promisor’s repudiation or the promisee’s election to terminate
o Because the breach is regarded as inevitable, the promisor is not permitted to defeat the promisee’s claim by proving that
he or she would have been able to perform had there been no repudiation, or that the contract would have been
frustrated, or that a contractual right to terminate would have been exercised
• This theory has been criticized: explains the consequences of termination rather than the right to terminate

The problem of classification
• When an absence of readiness or willingness involves a breach of condition: no need to invoke the repudiation concept
o On the other hand, if the promisor has merely breached a warranty the repudiation concept will be relevant since no right
to terminate will accrue to the promisee unless it can be established that the absence of readiness or willingness is so
serious as to amount to a repudiation of substantially the whole K
• If an absence of readiness or willingness causes the promisor to breach an intermediate term and a right to terminate arises, the
distinction between termination for breach and termination for repudiation is admittedly subtle: right to terminate should be seen as
stemming from the breach if the consequences are sufficiently serious
o However a right to terminate may arise under the repudiation doctrine even though the consequences are not serious if it
is ‘unjust’ or ‘unfair’ to hold the promisee to the contract e.g. because of the absence of readiness or willingness implies a
fundamental disregard of the contract
§ Two concepts merge if it is established that the foreseeable consequences of a promisor’s breach are further
breaches on the promisor’s part and accumulation of breaches would be seriously detrimental to the promise:
the concepts merge because the consequences of the promisor’s breach are synonymous with the focal point of
the intermediate term concept, namely a serious absence of readiness or willingness to perform on the part of
the promisor

lOMoARcPSD|1414388

Anticipatory breach
• For breach to be anticipatory: there must be a prospective element
o Clearest case: where a promisor repudiates obligations at a time which precedes the earliest date for performance on the
promisor’s part as where a seller, obliged to deliver by 1 March repudiates on 1 February
• It is nevertheless fairly common for a breach to be described as anticipatory even though performance by the promisor has
commenced, and notwithstanding that he or she may have committed an actual breach by failure to perform
• For an anticipatory breach to occur: promisee must terminate the performance of the contract and repudiation alone does not have
this effect (because of requirement of termination) à so it is not strictly speaking correct to describe a repudiation as an anticipatory
breach of K

The acceptance requirement
• Acceptance of a repudiation (promisee’s election to terminate performance of the K) is necessary if the promisee wishes to
terminate the performance of the contract
o Acceptance is also required to complete the promisee’s cause of action for damages in cases where the repudiation
precedes the time for performance
• Generally, a promisor may retract a verbal repudiation which has not been accepted and call upon the promise to perform
o Therefore, acceptance by the promisee will prevent the promisor retracting the repudiation: however the promisor’s power
to retract a repudiation at any time prior to acceptance is subject to – if the repudiation has been relied upon by the
promisee e.g. not performing obligations because of the belief, induced by the promisor’s repudiation that performance
would be futile, the promisor must give notice of retraction and allow the promisee time to perform
• The consequences of acceptance do not differ from those attributable to an election to terminate for breach by failure to perform
• Where the promisor’s repudiation is not accepted: whether, and to what extent the promisee is discharged by the unaccepted
repudiation??
o Repudiation continues until it has been retracted by the promisor
o There will however be cases in which repudiation is nullified by the promisee’s actions notwithstanding the absence of
retraction by the promisor (Bowes v Chaleyer)
o Unaccepted repudiation is not without legal effect: it may absolve a promisee from the consequences which would
otherwise attach to a failure on the promisee’s part to discharge K obligations

Unilateral and partially executed contracts
• Where a unilateral K exists: only one promisor and issue of breach/repudiation only arises with respect to his or her part
o One situation where right to terminate may exist is where the promisor becomes unable to perform the promise
• Where one party to a bilateral contract has performed his/her contractual obligations the K is ‘partially executed’: resembled
unilateral contract in the respect that one of the parties has outstanding (executory) obligations: promisee has no further obligations
to be discharged from

Repudiation by words or conduct
Lord Coleridge CJ in Freeth v Burr: “whether the acts or conduct … amount to an intimation of an intention to abandon and altogether to refuse
performance of the contract’. Such an intimation: established if the words or conduct of the promisor make it ‘quite plain’ that the promisor will
not perform in accordance with the contract; seriousness is needed.

• Based on what a party does or says
o Depends upon the reasonable person in the position of the innocent party (how would a reasonable person interpret
words/conduct of the allegedly repudiating party): in theory, a person’s intention to repudiate or not is irrelevant
§ What is important: would a person in B’s perspective understand A to be repudiating?
• Breach cannot be regarded as inevitable as the promisor can change his conduct and actually perform??? But the doctrine of
repudiation permits the promisee to take the promisor at his or her word, and the promisor cannot retract the repudiation once
performance of the K is terminated
• Repudiation needs to be clear, unambiguous and unequivocal: ‘I’m not selling the car’ vs. ‘I’m not sure about selling the car’
• Objectivity v Intention
o Assessment is objective based on reasonable person
§ Some repudiations happen because allegedly repudiating party thinks it is right and has adopted certain conduct
because it believes it has a right to do so
o Party A thinks means one thing, party B thinks it means something else: if A sticks to its interpretation and this relates to a
serious condition of repudiation of a term, and it B was correctly interpreting contract and A was interpreting it incorrectly:
A can be held to be repudiating even if it misinterpreted in thinking it was right. B only interested in: what impression do I
get from A?
o A engaging in minor infractions of the K, B thinks they’re serious, cracks it and says ‘I’m terminating’: case goes to court
§ Court decides B misjudged the situation therefore B did not have a right to terminate: what you are doing is
telling A you wont be bound by the contract, B is repudiating and party A is in the right they are entitled to
terminate for party B being in the wrong
• Don’t need to ask would the party repudiating have followed through with what they said
• Where a promisor adopts an erroneous construction of K a repudiation may occur if the promisor acts on the construction by
breaching one or more terms or by evincing an intention to perform only in accordance with his or her construction
o Performance in accordance with erroneous construction will not discharge the promisor and will amount to a breach, but a
repudiation will not occur unless the requirement of seriousness is satisfied (promisor is not ready and willing to perform)
o If the promisor evinces an intention to perform in accordance with an erroneous construction the promisor may be found
to have refused to perform in accordance with the K, even though not actually intending to repudiate: Federal Commerce v
Molena Alpha
• Wrongful termination: constitutes a repudiation à since the promisor’s ‘termination’ is wrongful it is not effective as such, and the
promisee is not obliged to accept it by terminating performance of the K

Bowes v Chaleyer (1923) 32 CLR 159
Facts

lOMoARcPSD|1414388
• The respondent (plaintiff in the action) agreed to sell 89 pieces of tie silk containing 1780 years to the appellant by a contract dated 8
March 1920
• It provided for shipment ‘by sailer/steamer. Half as soon as possible. Half two months later.’ In June the buyer purported to cancel
the contract
• Nevertheless, the seller shipped the goods in three lots between October and December 1920. Nineteen pieces were tendered on 19
January 1921 and 30 pieces (containing 600 yards) were tendered on 25 Jan 1921. These were rejected by the buyer
o An offer to tender the balance of the goods on the expiration of two months was declined and the seller claimed damages
for non-‐acceptance of the goods
• In the VSC: gave judgement for the seller. Appellant appealed to the HC. Appeal was allowed by majority

Held per Knox CJ
• Not necessary to consider what ‘two months later’ meant
• The admitted facts show that neither the first shipment taken alone, nor the first and second shipments taken together consisted
even approximately of one-‐half of the goods ordered, and that the third shipment did not comprise even approximately half of the
goods and was not made two months later than the second shipment:
o Clear that the seller did not comply with it
• The general rule is that a stipulation in a contract for the sale of goods that the goods shall be shipped at a given time is at least,
prima facie, a condition precedent … I can find nothing in the terms of the K or the circumstances of this case which requires that this
stipulation should be considered otherwise than as a condition precedent, the breach of which would justify the appellant in rejecting
goods when tendered
• The repudiation by the appellant was never accepted by the respondent, who elected to proceed with the performance of the
contract notwithstanding the repudiation
• ‘A repudiation, or, more properly, a breach by anticipation, of the contract by one party gives the other party the option of treating
the contract as at an end or of waiting till the time for performance has arrived before making any claim for breach of contract. If he
elects to wait – as the respondent did in this case – he remains liable to perform his part of the contract and enables the party in
default to take advantage of any supervening (means unexpected) circumstance which would justify him in refusing to perform it’
o Here, Chalayer insisted on performance of the contract – therefore, A finding that Chalayer did not perform the contract
because he was relieved from doing so by Bowes or that he was always ready and willing, ‘disposed and able to complete’
the contract, if it had not been renounced by Bowes, cannot, I think, be made or justified upon these facts… neither is there
any solid basis for concluding the parties did not regard the stipulation as a condition, or that they agreed to reduce it, or to
treat it as reduced, to the level of a warranty (application to facts taken from the judgment of Starke J)

Held per Isaacs and Rich JJ (dissenting)
• The supreme function of the court is to see that the real intention of the parties is enforced so far as that can be ascertained or
deduced from the language they have used with reference to the circumstances in which they have used it … the court must be
careful to maintain the spirit of the bargain so far that is consistent with the language employed
• There cannot be a doubt that the respondent in all substantial respects has faithfully carried out his part of the transaction: the right
goods were procured, the prices are correct, there was no delay and the only fault ascribed to him is a too speedy performance
o No potential damage or actual damage is suggested by the fault ascribed, the defence is purely formal

Held per Starke J
• A stipulation for shipment in half parts does not warrant a piecemeal shipment of those parts, the shipment of the half parcel must
be done in one parcel …
• The vendor did not comply with the stipulation of the K as to shipment
• Was the stipulation of the essence of the contract so that its breach entitled the opposite party to be discharged from his liabilities
under the contract? Question is one of intention
• The arrival of the goods is quite uncertain: they might be shipped either by sailer or by steamer, yet clearly it is shipment as soon as
possible, not arrival, which is the important stipulation of the K … the court has no real means of estimating the importance and value
of the stipulation, and it is safer to treat as conditions substantial and important provisions in a mercantile contract relating to the
time, place or mode of shipment of goods the subject matter of the contract, unless the contrary intention is manifest …. The case
depends upon the proper conclusions of fact to be drawn from the evidence rather than upon any rule/principle of law
• No doubt if a party repudiates a contract and the repudiation is accepted and acted upon by the other party, then the latter is
relieved from proving readiness and willingness on his part to perform the contract
• Chaleyer insisted that the contract was not cancelled, but had all its original force and effect and must be performed by the parties
according to its terms: he would not accept Bowes’ renunciation of the K but insisted upon its performance when he was never in a
position to fulfill on his part the obligation of the contract relating to shipment

NB: Like Bunge, Bowes v Chaleyer is authority for the treatment of time stipulations in commercial contracts as essential time stipulations –
‘The general rule is that a stipulation in a contract for the sale of goods that shall be shipped at a give time is, at least prima facie, a condition
precedent’

Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1979] AC 757
HOL
• Concerned 3 charterparties. Owners threatened to instruct the masters to not sign any bill of lading endorsed ‘freight prepaid’
• The charterers’ right to terminate would rely on the consequences which would flow from the breach which the owners had
threatened: had the owners actually breached, consequences would have been very serious
o Eg CIF trade was essential to the charterers
• There was, therefore a repudiation by the shipowners, based on proof of a sufficiently serious breach of an IT
• Sufficient for it to be ‘clear’ that the breach will occur, provided the prospective breach is of a kind that would, on its occurrence, give
rise to a right to terminate for breach
• If a party’s conduct is such as to amount to a threatened repudiatory breach, his subjective desire to keep the contract on foot cannot
prevent the other party from drawing the consequences of his actions.


lOMoARcPSD|1414388
NB: Had cl9 been a condition, the charterers could have justified their termination without proving that serious consequences would have
resulted from the breach, on the basis that where a term is classified as a condition any (prospective) breach of it is sufficient justification for
termination.

Acceptance
There needs to be acceptance of the repudiation to terminate the performance of the contract. Where repudiation is not accepted, contract
continues on foot.

An unaccepted repudiation is not without legal effect:
Peter Turnbull v Mundus Trading: Buyers were not fully discharged until they had accepted sellers’ repudiation, but in the meantime were
absolved from any adverse consequences which would otherwise have attached to their failure to nominate a vessel: it is a little misleading to
say, as is commonly said, that a repudiation has no effect until acceptance has occurred.
• Careful – this view is contrary to Foran v Wight
• Braithwaite and Turnbull should now be considered as irrelevant to modern law instead look to equitable solution in Foran

Lord Wilberforce: “A threat to commit a breach, having radical consequences, is nonetheless serious because it is disproportionate to the
intended effect. It is [also] irrelevant that it was in the owners’ real interest to continue the charters rather than to put an end to them. If a party’s
conduct is such as to amount to a threatened repudiatory breach, his subjective desire to maintain the contract cannot prevent the other party
from drawing the consequences of his actions. The two cases relied on b the appellants … do not support a contrary proposition, and would only
be relevant here if the owners’ action had been confined to asserting their own view –possibly erroneous – as to the effect of the contract. They
went, in fact, far beyond this when they threatened a breach of the contract with serious consequences.”

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 85 ALR 183
Facts: P and D entered into a lease. D was obliged, after execution, to fill in certain details left blank in the lease, something that was never
properly done, leaving the lease in an unregisterable form. P sent a letter to D demanding a receipt of the completed copy within 13 days. D’s
solicitors gave a totally unresponsive reply and the appellant purported to rescind.

HCA
• On repudiation -‐ The respondent’s conduct in all the circumstances showed an intention only to perform the contract in a manner
substantially inconsistent with its obligations and thus amounted to a repudiation of the agreement entitling the appellant to treat the
agreement as at an end
o ‘Although the matter is finely balanced, the unjustified delay on the part of Capalaba between March and 3 September
1986, accompanied by incorrect statements and unfulfilled assurances sustained the inference of repudiation… Based on
Capalaba’s unwillingness to deliver a registrable lease to Laurinda, it seams to me that Capalaba’s intention was only to
perform K in a manner substantially inconsistent with its obligations, such as would allow Laurinda to treat Capalaba as
having repudiated the contract’
o ‘In some situations the intention to carry out the contract as and when (not only if and when) it suits the party may be
taken to such lengths that it amounts to an intention to fulfil the contract only in a manner substantially inconsistent with
the party’s obligations and not in any other way’ (there is a difference between evincing an intention to carry out a contract
only if and when it suits the party to do so and evincing an intention to carry out a contract as and when it suits the party
to do so… It is much easier to say of the first than of the second that there is repudiation)

Brennan J
On the relationship between time stipulations and repudiation – ‘The difference between a contract which contains a stipulated delay for
performance of an essential term and a contract which, expressly or impliedly, requires performance within a reasonable time is important when
the question is whether, on failure to perform within the time limited by the contract, the innocent party is entitled to rescind. In the former case,
a right to rescind arises at law when the stipulated day passes; in the latter, that right does not necessarily arise when the reasonable time expires
but only when repudiation is clearly to be inferred form the circumstances in which the delay occurs. Delay will amount to repudiation if the
defaulting party “evinces an intention no longer to be bound by the contract… or shows that he intends to fulfil the contract only in a manner
substantially inconsistent which is obligations and not in any other way’… if the inference to be drawn from the circumstances is that the
defaulting party intends to perform an essential promise after some minor delay, repudiation cannot be inferred; but the inference is that the
defaulting party intends so to delay performance that the promisee will be substantially deprived of the benefit of the promise, repudiation can
be inferred.’

NB: On notices – in order to justify termination for breach of a non-‐essential time stipulation one of the following must be shown
§ 1. Repudiation
§ 2. Fundamental breach
§ 3. Failure to comply with a valid notice
This implies the view that the purpose of a notice is offensive (to make out a claim) rather than defensive (to rule out specific performance)

Repudiation by actual position/factual inability
• Very hard to prove
• Promisor expressly declares that it is unable to perform all contractual obligations: need not be express, may be inferred from
conduct
• Where the K relates to a specific subj matter/there is personal element in performance, a disabling act by promisor will amount to a
repudiation
• Promisee must establish eleemnt of seriousness is satisfied

Universal Cargo Carrier Corporation v Citati [1957] 2 QB 401
Facts
• Pedro Citati (the charterer) chartered a vessel from UCCC (the shipowners) to load a cargo of scrap iron at Basrah and carry it to
Buenos Aires. It was therefore a ‘voyage’ charterparty
• On 12 July 1951: vessel arrived at Basrah, but the charterer had difficulty finding a cargo. Lay time (the time within which the
charterer was obliged to find a cargo) would expire on 21 July. The charterer would then be obliged to pay ‘demurrage’: an agreed
sum, by way of liquidated damages for detention of the vessel

lOMoARcPSD|1414388
• On 18 July the shipowners, having decided the charterer was unable to perform, chartered the vessel to a third person. This
amounted to termination of the contract with the charterer.
• The facts found by the arbitrator included:
o The charterer never at any time nominated a shipper (person prepared to ship scrap iron on board the vessel) or berth for
the vessel at Basrah;
th
o Reasonable time for nominating the Berth not expired by 18 July;
o The cargo could not have been loaded between 18 and 21 July.
o The charterer was always willing to perform if he could
st
o The charterer could not have performed within a reasonable time after the 21 of July and
o The charterer could have performed before the delay became so long as to frustrate the contract
• Arbitrator concluded that shipowners had repudiated the contract. The award was in the form of a special case
• Devlin J held that the arbitrator was wrong to conclude there was no anticipatory breach: gave judgement for the shipowners : he
considered that the arbitrator should not have concluded that the charterer could have performed before the delay became so long
as to frustrate the contract so he upheld the arbitrator’s award but remitted the case for a further finding: his order affirmed by the
court of appeal
o After remission: Devlin J gave judgement in shipowner’s favour
o However in the EngCA it was held that the charterer’s inability to perform was an irresistible inference from arbitrator’s
award which Devlin J should have drawn

Held per Devlin J
• Where time is of the essence of the K (where delay is only a breach of a warranty) how long must the delay last before the aggrieved
party is entitled to throw up the contract?
o The aggrieved party is relieved from his obligations when the delay becomes so long as to go to the root of the contract and
amount to a repudiation of it
• Owners justify their action in cancelling before the lay days had expired by saying that on or before 18 July the charter had
committed an actual or anticipatory breach of his obligation under the charter
o The nomination of the berth and the provision of the cargo must be made in sufficient time to enable the vessel to be
completely loaded within the lay days
§ 6000 tons could not have been loaded within 3 days of laytime remaining: so by 18 July the time for providing a
cargo and nominating a berth had expired
• The obligation to load within the lay days is a warranty only and not a condition: its breach does not entitle the owner to rescind but
gives a claim for damages only [we are measuring Citati’s inability to perform]
• A party to a K may not purchase indefinite delay by paying damages and a charterer may not keep a ship indefinitely on demurrage
o When delay becomes so prolonged that the breach assumes a character so grave as to go to the root of the K the aggrieved
party is entitled to rescind … the yardstick for this length of delay that is to be measured it:
§ The conception of a reasonable time, and secondly
§ Such delay as would frustrate the charterparty: this is the correct one by a long line of authorities
• Connection with frustration: the doctrine that a commercial K is dissolved upon the happening of a supervening event which
frustrates the object of the venture now plays such an important part in law that reference to frustration is likely to be taken as
reference to that doctrine
o To bring a K to an end by breach of a warranty there had to be a failure of consideration, that the breach had to be such as
to deprive the plaintiff in effect of the benefit of his K
§ Various metaphors in use for describing the character of such a breach: ‘going to the whole root and
consideration’ of the K and ‘frustrating the object of the voyage’
• Not every frustrating event brings a K to an end
• For the purpose of measuring the period of delay the yardstick is the same whether what is involved in dissolution/repudiation
• There is nothing wrong in using reasonable time as a yardstick provided you determine what is reasonable by considering whether or
not there has been unreasonable delay in light of the obj the parties had in mind
• A renunciation can be made either by words or conduct, provided it is clearly made: the party renunciating must ‘evince an intention’
not to fo on with the contract. The intention can be evinced either by words or conduct. The test of whether such an intention is
sufficiently evinced by conduct is whether the party renunciating has acted in such a way as to lead a reasonable person to the
conclusion that he does not intended to fulfill his part of the contract
o Since a man must be both ready and willing to perform, a profession by words or conduct of inability is by itself enough to
constitute renunciation: but unwillingness and disability sometimes difficult to disentangle
§ Inability: lies at the root of unwillingness to perform; willingness in this context means an intent to perform – to
say “I would like to but I cannot” negatives intend just as much as “I will not”
§ If a man says ‘I cannot perform’ he renounces his contract by that statement and the cause of inability
immaterial
• Two forms of anticipatory breach: common characteristic have a common characteristic that is essential to the concept: the injured
party is allowed to anticipate an inevitable breach
o If a man renounces his right to perform and is held to his renunciation, the breach will be inevitable in fact – or practically
inevitable, for the law never requires absolute certainty and does not take account of bare possibilities
o So anticipatory breach: party is in breach from the moment the actual breach becomes inevitable
§ Breach which he anticipates is of just the same character as the breach would actual occur if he waited
• Charterer on July 18 had ‘become wholly and finally disabled’ from finding a cargo and loading it before delay frustrated the venture:
he is entitled to succeed
• An anticipatory breach must be proved in fact and not in supposition
o If one party to a K were to go to another and say that well-‐informed opinion on the market was that he would be unable to
fulfill his obligations when the time came, he might get answer from his adversary that the latter did not care to have his
affairs discussed on the market and did not choose to give any info about them except the assurance he would fulfill his
obligations
o If that assurance was rejected and the contract rescined before time for performance came and assurance turned out to be
well-‐founded it would be intolerable if the rescinder was entitled to claim that he was protected because he had acted on
the basis of well-‐informed opinion


lOMoARcPSD|1414388
So: Citati was not in breach of actual contract – had to rely on an anticipatory breach; rely on the idea of factual inability.
It is possible to terminate for delay, even if it is breach of a warranty: as long as it goes on for a long period of time (‘frustrating delay’) as it
frustrates/defeats the purpose of the K. Enough to show Citati would engage in a frustrating delay.
How clear/probable/likely is breach in future? Is it absolutely certain or a mere possibility? Devlin à inevitable/practically inevitable OR Citati was
wholly and finally disabled from performing without a frustrating delay (inevitable that there would be a frustrating delay). This is a very high
standard = hard to show.

What evidence can you use to assess there would have been a serious breach that was inevitable?? This case – can use all evidence, whether or
not it was known to the parties at the time. Don’t just assess from what would a reasonable person have thought – INSTEAD YOU MUST ASK with
all the evidence and the facts was the person wholly and finally disabled from performing???

A says to B: I can’t deliver because the car has been stolen etc. Can treat as words/conduct OR factual inability but words/conduct is easier:
based on what A was saying, it was indicating intention to no longer perform (much easier to argue on the whole).

Sale of Goods Act 1923 (NSW) s 34
34 Instalment deliveries
(1) Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by instalments.
(2) Where there is a contract for the sale of goods to be delivered by stated instalments which are to be separately paid for, and the seller makes
defective deliveries in respect of one or more instalments, or the buyer neglects or refuses to take delivery of or pay for one or more instalments,
it is a question in each case depending on the terms of the contract and the circumstances of the case whether the breach of contract is a
repudiation of the whole contract or whether it is a severable breach giving rise to a claim for compensation but not to a right to treat the whole
contract as repudiated.

What happens when someone repudiates? Fact that one party is repudiating does not immediately bring the party to an end: the innocent party
has choice to terminate or to continue on with it, and we say the innocent party has an ‘election’ to terminate or to ‘affirm’ the contract: NO
MIDDLE GROUND.

F. DISCHARGE FOR DELAY AND TIME STIPULATIONS
At common law time was of the essence of the contract, unless there was a contrary intention. In equity, the presumption was the opposite.

Delay may be relevant in two ways: the promisor does not perform at the appointed time, or there may be a delay as a consequence of breach
(Hongkong Fir). In the first situation the delay involves the breach of a time stipulation, in the second it is a consequence of the breach of some
other type of term.

Essential time stipulations are conditions, non-‐essential time stipulations are warranties/intermediate terms: whether or not time is essential
depends on the construction of the contract.

Where performance is tendered late and not accepted, valid termination by the promisee (because timely performance was of the essence)
means that the promisor’s breach is equivalent to non-‐performance.

The law confers a termination for delay in four cases:
1. Where the right is expressly conferred
2. Where time is of the essence
3. Where time – not being of the essence – the promisor has failed to comply with a notice to perform given by the promisor
4. In any other case where the actual or prospective delay amounts to a fundamental breach or repudiation of the contract

Whether a promisee may terminate a K for the promisor’s failure to perform on time depends on the intention of the parties. It is therefore a
question of construction, with two techniques to be applied:
1. Is time of the essence? Is this expressed? If not
a. What is the nature of the K
i. Commercial contracts: time is presumed to be of the essence to promote certainty. The basis is the presumed
intentions of the parties, not a rule applicable to all time stipulations in commercial Ks. Also perishable,
fluctuating or wasting nature of subject matter: time is of the essence
ii. Non-‐commercial contracts has always been reluctance to treat time stipulations of conditions (Bettini v Gye –
opera singer had failed to breach his K to arrive ‘without fail at least 6 days before the commencement of his
engagement – term not a condition despite emphatic words, did not go to the root of the matter?
b. What is the nature of the term?
i. Promises to pay money – time hardly of the essence
2. If it is concluded time is not of the essence and there has been an unreasonable delay ask:
a. Has the promisor failed to comply with a notice to perform given by the promisor? (Louinder v Leis)
b. If no notice has been served;
i. Has the promisor repudiated the contract
ii. Committed a fundamental breach (frustrating delay, where delay is so serious as to frustrate the commercial
purpose of the k)? In context of commercial Ks ‘means delay sufficient to frustrate the performance of the K’
(HK)

At common law time was of the essence of the contract, unless there was a contrary intention. In equity, the presumption was the opposite.

• In England in 1872 before the passing of the Judicature Acts: courts of CL and the courts of equity
• In CL courts: if you were late, other party let off. Time as ‘of the essence’ of the K unless the parties had expressed a contrary
agreement
o Failure by a promisor to perform at the appointed time meant that the promisor had to pay damages and that enforcement
of the promisee’s obligations was not permitted

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o Timely performance was therefore a condition precedent to the promisor’s ability to enforce the promisee’s obligations
• Courts of equity were much more flexible about timing and had certain limitations – time was not essential, and a promisor’s failure
to perform at the appointed time was not a bar to the enforcement of a K in the equity court although promisor was liable to pay in
damages
o First limitation: seeking a special remedy that equity may give you (specific performance/injunctions): tend not to be used
very much.
§ Specific performance is used in performance of one class of contract – i.e. land
o Second limitation – looked at how important time was in the contract. If it was clear time was important, would not help
you. If the parties had said ‘time is of the essence’ -‐ equity not help
o Third limitation – equity not help where it would be unjust to help. Court of equity is court of justice and conscience

The purpose of s13 of the Conveyancing Act 1919: is to resolve the conflicts between CL/Equity. Most of the time this is irrelevant: the only time
to worry about them is to look at a situation where court of equity might have gotten involved (would have been just for the court to help) i.e.
sale of land.
• Statutory provision is relevant to both legal and equitable proceedings, the scope of the provision in respect of the former is narrow
• It does not operate to relieve the plaintiff from liability in damages in respect of breach: but one impact is to permit the P in breach
to obtain damages for breach of contract
o Prior to enactment: plaintiff would have been unable to enforce the claim by reason of the breach; failure to perform a
time stipulation is a breach of contract and in this respect the statutory provision does not alter the legal construction of
the K

S13 – Stipulations not of the essence of contracts

Stipulations in contracts, as to time or otherwise, which would not before the commencement of this Act have been deemed to be or have
become the essence of such contracts in a court of equity, shall receive in all courts the same construction and effect as they would have
heretofore received in such court.

• Holland v Wiltshire: end result was that when have a contract which falls in scenario where equity would help out need to be careful
in concluding what type of term it is: might have been situation where equity would have intervened and plaintiff could have sued
where they were late
o Per Kitto J: “The qualification thus made upon the rule to be applied in the exercise of CL jurisdiction is, however, of limited
application. It applies only in cases which are appropriate for the granting of equitable remedies by way of relief against the
loss by a party of his contractual rights by reason of a failure on his part to perform the contract in precise accordance with
its provisions as to time. This is so because only in such cases do the rules of equity treat as not of the essence of the
contract stipulations which are of the essence according to the traditional view of the cl ..

You have a right to terminate expressly if the other party is late and you interpret the term as a condition, if it is an intermediate term look at
the seriousness of the breach. But what do you do if the term is a warranty?
1. Use ‘frustrating delay’ idea (Citati) – cheat solution
a. Breach will go on for so long that it will frustrate the purpose of the K so how do we resolve that problem?
i. Whether a delay is unreasonable is a question of fact
b. Treating it as repudiating a contract, lets other party repudiate
2. ‘Notices to perform’ or ‘notices to complete’
a. A is the party not performing on time, B is the other party. B waits until A in actual breach then issues A with a notice: B
gives A a reasonable time extra to perform the obligation in notice, and if B says don’t perform on time will terminate
i. If A does not perform: does B have a right to terminate?
ii. Logical problem: if obligation is a warranty, cant let B terminate for a warranty: B can terminate because A’s
failure to perform in those circumstances indicates that A is repudiating (Lounder v Leis)

When can you terminate because the other party delays in performance?
1. The contract says ‘if A does not perform b may terminate’ – express contractual provision: not uncommon
• Doesn’t necessarily make performance on time a condition

2. If no express right to terminate that the term is a ‘serious term’ (condition) – when A doesn’t perform on time. Many considerations:
• Parties might have agreed performance on time = condition (express agreement)
• What is more usual: parties don’t expressly state time is of the essence: need to figure out what they implicitly agreed upon
o Interpret K to see whether timing was a condition or not i.e. look at the nature of the subject matter and the circumstances
surrounding the contract i.e. time may be regarded as essential because of the perishable, fluctuating or wasting nature of
the subject matter (yet this does not mean that the factors referred to in discussion for termination for breach of condition
irrelevant)
§ Was it an important term? Motivation for entry test/would withdrawal by A have serious consequences for B?
o Bunge Corporation v Tradax

Doctrine of IT has not had much impact on time stipulations in commercial contracts (because only one breach ‘to be late) à but a time
stipulation may be treated as intermediate in character, at least in the sense that a gravity of breach may depend on the length of delay
• IT terminology is applied to cases where, although there is only one form of breach, the degree of seriousness depends on how long
the delay lasts

Mason ACJ, Wilson, Brennan and Dawson JJ in Ankar: “Whether provisions of the kind found in [the clauses at issue] are provisions which, if they
cannot be described as conditions, can be described accurately as inominate terms is a question of some difficulty. In Bunge, Lord Wilberforce
suggested that a time clause is not susceptible of treatment as an inominate clause because it can give rise to one kind of breach only – to be late.
If this suggestion be well founded, and we would not wish to be taken as implying it is, there might be a problem in treating the provisions [at
issue] as inominate terms.”
• Subsequent cases support the view that a time stipulation may operate as an intermediate term


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• An implied time stipulation may be essential i.e. K for sale of goods specifies no time for delivery, or for the opening of a letter of
credit and the court implies a term requiring delivery within a reasonable time or a term requiring the opening of the credit by the
beginning of the shipment period. On the other hand, where a contract for a sale of land specifies no time for settlement and the
court implies that settlement must occur within reasonable time: time unlikely to be essential

Bunge Corporation New York v Tradax Export SA Panama [1981] 1 WLR 711
Facts
• By a contract concluded 30 January 1974 and incorporating the terms of GAFTA form 119, Tradax (sellers) agreed to sell to Bunge 15
000 long tons of soya bean meal on FOB terms. The June shipment, which was for 5000 long tons, was to be shipped from one US Gulf
port to be nominated by the sellers. Clause 7 provided, in part:
o Period of delivery: During June 1975 at buyers’ call. Buyers shall give at least 15 consecutive days’ notice of probable
readiness of vessel(s) and of the approximate quantity required to be loaded
• The buyers’ nomination pursuant to cl 7 was given at 08.46 hours on 17 June 1975. Since cl 7 required the notice to be given at least
15 days before the end of June, buyers had breached cl 7. Sellers refused to go on with the contract
• Dispute referred to arbitration and umpire awarded the sellers damages. Appeal to the GAFTA Board of Appeal was dismissed but
stated as a special case which came before Parker J who found for the buyers à decision reversed by the English CA. The HL granted
leave to appeal
o Principal issue: whether as the sellers claimed cl 7 was condition – since the contract did not state time was of the essence,
issue was whether an intention to make time of the essence be inferred
• HL: affirmed the decision of the EngCA and the sellers had validly terminated the contract

Held per Lord Wilberforce
• Time clauses should not be considered as intermediate in nature as there is only one kind of breach possible, to be late, and the
questions that have to be asked are first, what importance have the parties expressly ascribed to this consequence, and secondly, in
the absence of expressed agreement, what consequence ought to be attached to it having regard to the contract as a whole
• In suitable cases, the courts should not be reluctant, if the intentions of the parties as shown by the contract so indicate, to hold that
an obligation has the force of a condition, and that indeed they should do so in the case of time clauses in mercantile contracts
o To such cases the ‘gravity of the breach’ approach of Hongkong case would be unsuitable
• Looking at Halsbury’s Laws of London: the court will require precise compliance with stipulations, as to time wherever the
circumstances of the case indicate this would fulfill the intention of the parties, and (2) broadly speaking time will be considered of
the essence in ‘mercantile’ contracts: therefore time was a condition in this K, buyers breached it

Held per Lord Scarman
• Unless the contract makes it clear, either by express provision or by necessary implication arising from its nature, purpose and
circumstances (the factual matrix) that a particular stipulation is a condition or only a warranty, it is an inominate term, the remedy
for a breach of which depends upon the nature, consequences and effect of the breach
o Clause in question was intended as a term, the buyer’s performance of which was the necessary condition to performance
by the seller of his obligations: term is a condition

Held per Lord Lowry
• The ‘wait and see’ method or as Lord Wilberforce has put it, the ‘gravity of the breach’ approach is not the way to identify a condition
in a contract
o This is done by construing the contract in light of the surrounding circumstances
• In mercantile contracts: time is presumed to be of the essence. To treat time limits thus means treating them as conditions, and he
who would do so must pay respect to the principle enumerated in The Hansa Nord by Roskill LJ that contracts are made to be
performed
o Treatment of time as conditions: practical expedient founded on and dictated by the experience of businessmen
• Term should be construed as a condition for practical reasons
o Enormous practical advantages in certainty
o Most members of the string will have many ongoing contracts simultaneously and must be able to do business with
confidence in the legal results of their actions
o Decisions would be too difficult if the term were inominate: litigation rife and years might elapse
o Difficulty of assessing damages: favour of condition
o Recent litigations: provided term is a condition
o To make ‘total loss’ the only test of condition is contrary to authority and experience when one recalls that terms as to date
of sailing, deviation and date of delivery: conditions, but that failure to comply with them does not always have serious
consequences
o Not need implied condition pass total loss test
o If the consequences of breach of condition turn out to be slight innocent party may treat condition as inominate/warranty
o Sellers could have made time of essence if it were not so already this would require reasonable notice: might not be
practical

à Doesn’t matter that the breach didn’t deprive the P of substantially the whole benefit of the contract! The time clause should still be a
condition for certainty reasons! Don’t look at the consequences to decide how to classify the term!

Held per Lord Roskill
• ‘I would emphasise in this connection the need for certainty in this type of transaction and sometimes may well be a determining
factor in deciding the true construction of a particular term in such a contract
o Parties to commercial transactions should be entitled to know their rights at once and should not, when possible, be
required to wait upon events before those rights can be determined’
• In a mercantile contract when a term has to be performed by one party as a condition precedent to the ability of the another party to
perform another term, especially an essential term such as the nomination of a single loading port, the term as to time for the
performance of the former obligation will in general fall to be treated as a condition
• By 1873: but to read this passage of universal application and in particular as of application as to stipulation as to time in mercantile
contracts would be to misread it

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o Stipulations as to time at which party was to perform a promise on his part were among contractual stipulations which
were not regarded as ‘condition precedent’ if his failure to perform that promise punctually did not deprive the other party
of substantially the whole benefit which it was intended that he should obtain
o When the delay in one party has become so prolonged to deprive the other party of substantially the whole benefit which it
was intended that he should obtain from the contract it did discharge that other party from the obligation to continue to
perform any of his own promises which as yet were unperformed
o Similar principles applicable to determine whether parties’ duties to one another to continue to perform mutual obligations
were discharged by frustration of the adventure that was the object of the contract. A party’s ability to perform might
depend upon the prior occurrence of an event which neither he nor the other party had promised would occur. The
question whether a stipulation as to the time at which the event would occur was of the essence of the contract depended
upon whether even a brief postponement of it would deprive one or other of the parties of substantially the whole benefit
it was intended he should gain from the contract
th
• In Halsbury’s Laws of England, 4 ed. Vol 9, 1974: “The modern law, in the case of contract sof all type may be summarised as
follows. Time will not be considered to be of the essence unless (1) the parties expressly stipulate that conditions as to time must be
strictly complied with, or (2) the nature of the subject matter or the surrounding circumstances show that time should be considered
to be of the essence; or (3) a party who has been subject to unreasonable delay gives notice to the party in default making time of
essence … (para 482): Apart from express agreement or notice making time of the essence, the court will require precise compliance
with stipulations as to time wherever the circumstances of the case indicate this would fulfill the intention of the parties. Broadly
speaking, time will be considered to be of the essence in mercantile contracts and in other cases where the nature of K or the subject
matter or the circumstances of case require precise compliance
• Until 15 consecutive days notice had been given, the respondents could not know for certain which loading port they should
nominate so as to ensure that the contract goods would be available for loading on the ship’s arrival at that port before the end of
the shipment period

Therefore: ruled as a condition as important for certainty. Only a few days late (does this mean intermediate à HL rejected this. If it is
intermediate, look at seriousness of the breach or conclude that time is a warranty.

Failure to comply with notice
• Where the promisor breaches a non-‐essential time stipulation the law usually permits the promisee to serve a notice the effect of
which is expressed by saying time becomes essential
• The promisee, to rely on the notice procedure, must establish that the promisor has breached the contract: in cases where there is
no express time stipulation there is no delay until reasonable time has expired because the law requires promisor a reasonable time
to perform
o On the other hand, where an express time stipulation is present: mere fact of breach is sufficient
• The notice must
o Inform the promisor of obligation to be performed
o Fix a period of time which is in the circumstances a reasonable time for performance and
o Clearly indicate either that it makes time essential or failure to comply with notice will give right to terminate
• Strictly speaking: the requirement is that the person serving the notice be ready and willing to perform in accordance with the
contract
• Promisor is bound by the notice and in many cases the promise may too be bound: where a vendor of land serves a notice to
complete, both the purchaser and the vendor are bound by the notice
o A purchaser who is ready and willing to perform at the time specified in the notice may rely on a failure by the vendor to
comply with its terms
• Where a promisor fails to comply with a notice to perform: the failure gives rise to a right to terminate because this can generally be
regarded as a repudiation of obligation

Lounder v Leis (1982) 149 CLR 509
Facts
• By a contract dated 1 November 1979, Louinder agreed to sell a property to Leis. Clause 4 of the contract obliged the purchaser to
tender a form of transfer to the vendor within 28 days from the delivery of the vendor’s statement of title
o The contract did not fix any date for completion and did not make time of the essence
• Statement of title delivered on 2 November 1979. No form of transfer was tendered by the purchaser and on 8 February the vendor
served notice on the purchaser requiring completion of the contract within 21 days. On 4 March he purported to terminate the
contract on the ground that the notice had not been complied with
• The purchaser sought specific performance in the NSWSC and the vendor applied for a declaration that the contract had been
‘rescinded’ i.e. terminated for breach. The judge made an order for specific performance and dismissed the vendor’s summons
o Appeal to the Court of Appeal dismissed the vendor appealed to the HC: was the notice to perform valid?
§ Appeal was dismissed à the notice to perform must relate to the obligation which has not been performed on
time. The notice was to complete the contract but the delay related to tender of the form of transfer

Held per Mason J
• The general rule that a breach of a non-‐essential term entitles the innocent party to give a notice having the effect of making time of
the essence in respect of that term only (and not the whole contract) is qualified so as to permit the giving of a notice having the effect
of making time of the essence of the contract in respect of completion when the breach of the particular stipulation amounts to a
breach of the obligation to complete or has the practical effect of making it impossible to complete the contract within the time
stipulated or contemplated by the contract’
• If time is not of the essence, failure to perform on time is still a breach of K
o Delay beyond the stipulated date will give rise to a liability in damages but because equity treats the time stipulation as
non-‐essential, mere breach of it does not justify recission by the innocent party and will not par specific performance at the
suit of the party in default
o Unreasonable delay in complying with the stipulation in substance amounting to a repudiation is essential to justify
recission

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• The promisee, in order to rely on the notice procedure, must establish that the promisor has breached the contract. Where there is no
express time stipulation, there is no delay until a reasonable time has expired, because the law allows the promisor a reasonable time
to perform. The promisee must wait for that period to expire before serving the notice
o In the event the appeal fails. There was no foundation for the vendors giving a notice to complete on 8 Feb as the contract
did not fix a time for completion. The existence of unreasonable delay on the part of the purchaser was an essential
qualification for the giving of such a notice. The finding of fact made by the primary judge negated the existence of such a
delay

Brennan J: “A notice to complete does not alter the time fixed for performance by the contract. It affects the exercise of a legal right to rescind
and then only if the case is ‘appropriate for the granting of equitable remedies by way of relief against the loss by a party of his contractual rights
by reason of a failure on his part to perform the contract in precise accordance with provisions as to time’ (per Kitto J in Holland v Wiltshire).

G. TERMINATION
PROCESS OF TERMINATION
If a promisee has a right to terminate the contract because one party is in actual breach or that party is repudiating (renouncing contract in
serious way/actually unable to perform), that right must be exercised before the contract can be said to have terminated. In many cases
repudiation is anticipatory and no breach, or sometimes breach and repudiation occurring at same time. Three main types of restrictions
exercising the right to terminate:
1. Restrictions may be imposed by the K
2. CL requirements
3. Statutory requirements

Election
• Just because party is seriously breaching/repudiating does not bring the contract to an end immediately: party has to elect to
continue or end
• ‘Election’: party faced with two inconsistent rights and with an appropriate amount of knowledge adopt a course choosing one of
those
o Once you have elected, no going back (substantive) even if the promisor has not in any way relied in the promisee’s
election
o At common law the requirements of election involve unequivocal and clear words or conduct evincing an election to
terminate the performance of the contract
o Usually need to tell other party for example by saying that the contract is being terminated on the ground of the promisor’s
breach or by issuing and serving a writ alleging termination
§ Communication need not be by the promisee personally and in some cases an act may be regarded as
unequivocal even though there is no communication as where a vendor of land resells to a third party after
repudiation by the purchaser of his or her obligations under the contract
§ Where the right to terminate is expressly conferred by the terms of the contract it will frequently require the
promisee to give notice to the promisor
• Although the promisee must justify termination by reference to a legal right to do so the promisee is not usually required to justify it
on any ground given at the time of election, provided that a valid ground then existed (Rawson v Hobbs); if no ground was stated then
the promisee may generally rely on any available ground
• Election does not mean have to terminate straight away if there is a breach: try to keep options open for as long as you can
o However unless the contract/statute provides to the contrary: the promisee may terminate at once, there is no obligation
to allow the promisor further time in which to perform or to afford the promisor an opportunity to remedy the breach
• If you have discovered you have terminated for the wrong reason but there is another reason for termination which exists you can
change the basis of your termination: Rawson v Hobbs
• Lord Atkin in United Australia Ltd v Barclays Bank Ltd:” If a man is entitled to one of two inconsistent rights it is fitting that when with
full knowledge he has done an unequivocal act showing that he has chosen one he cannot pursue the other, which after the first
choice is by reason of the inconsistency no longer his to choose”
o Suggests that promisee must have knowledge (at least knowledge of circumstances which in law give rise to right to
terminate) and also do some unequivocal act indicating a choice

Tropical Traders Ltd v Goonan (1964) 111 CLR 41
Facts
• The respondents agreed to purchase certain land in Perth from the appellant in a contract dated 6 January 1958. The price (47 500
pounds) was payable by a deposit of 10,000 pounds, four instalment payments (each of 50 000 pounds) due on 6 Jan in 1959, 1960,
1961 and 1962 and a final payment (17 500 pounds) due on 6 Jan 1963. Interest was also payable by the respondents
• Clause 11 provided that if the respondents failed to pay the deposit or the banace of the purchase money ‘at the respective times
herein before appointed’ all ‘moneys actually paid by them’ were to be ‘absolutely forfeited’ to the appellant. This clause also
allowed the appellant to ‘rescind’ (terminate) the contract without prior notice and to take or retain possession of the property
• Clause 12 of the contract made time of the essence ‘in all respects’
• Clause 14 stated that title to the property was to be transferred on payment in full of the purchase price
• Respondents took possession of the property and paid the deposit. The first three instalments were each a few days late and fourth a
few days early. The final payment fell due on Sunday, 6 Jan 1963. Interest was paid on the day following and an extension of time
requested. On 8 Jan the appellant informed the respondents of the right to ‘rescind’ for breach but said it would not be exercised
until 11 January
o Confirmed by a letter which read in part: “subject to the payment of an additional 50 pounds … the [appellant] company
will not take action under the contract until Monday 14 January but this must not be regarded as an act of grace … and
without prejudice to and in no way varying the Company’s right to the strict enforcement of the contract”
• Final payment was not received and on 15 January the appellant wrote advising the respondents that the moneys paid by them were
forfeited and the agreement was ‘rescinded’
• Appellant issued writ in WASC seeking declaration that it was lawfully ‘rescinded’ and claiming possession of land; respondents
counterclaimed for specific performance: appellant’s claim dismissed and made an order for specific performance; appellant
appealed to the HC
o HC allowed the appeal

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Held per Kitto J
• The learned judge: the appellant indicated to the respondents and induced them to believe that the clause of the contract as to time
being of the essence would not be enforced against them (accepting late payments) and thus neither ‘waived’ the clause or created
an equitable estoppel against relying on it: but no evidence as to late payments
o Each acceptance of a late payment operated as an election by the appellant not to rescind the contract for non-‐payment of
the relevant amount on its due date but to read into the acceptances, considered either separately or as a whole,
something promissory or some inducement to a belief in relation to future payments is I think to take an unwarranted step
• It is not a valid general proposition that wherever some instalments are accepted late without demur the party accepting them is
precluded in respect of later instalments from insisting upon the agreement that time shall be of the essence
• The extension of time was granted with a plain intimation, both in the telephone conversation and in the letter of the following day
that the appellant was insisting upon it strict rights under the contract except to the extent of the indulgence it was offering
• The real questions which arise in relation to the granting of the extension are first whether it amounted to a binding election not to
rescind for non-‐payment of the 17 500 pounds on 6 January and secondly if it did amount to such an election whether it was
ineffectual to fix 13 January as a date in respect of which time was of the essence
o Kilmer v British Orchard Lands Ltd [1913]: a stipulation making time of the essence may be rendered no longer applicable by
the granting of an extension of time in particular circumstances but it is not authority for proposition that every grant of an
extension of time deprives such a stipulation of effect for the future
• Time being of the essence the appellant became entitled, as soon as 6 Jan 1963 had passed to elect for or against rescinding the
contract. Any act done by it and consistent only with the continuance of the contract on foot the law would hold to constitute an
election against rescinding, and an election once made could not be retracted
o But the appellant was not bound to elect at once: it might keep the question open, so long as the respondents’ position was
not prejudiced in consequence of the delay
• ‘This was not a stipulation postponing the time for completion generally but merely limiting the exercise of a consequential power”
• The granting of the extension of time therefore, far from constituting an election from the appellant to affirm the contract was the
announcement of an intention to refrain from electing either way until the 17,500 should have been paid or 14 January should have
arrived: election is an effect which the law annexes to conduct which would be justifiable only if an election had been made one way
or the other
• The right to interest on unpaid purchase money is correlative with right to possession: did the acceptance of interest on 7 Jan
considered as election to affirm the contract? If it had included interest for any period beyond 6 Jan acceptance of the payment
would have implied the existence of the K after that date and would have constituted an election not to rescind but the sum
consisted only of interest for the year ended 6 Jan 1963: respondents had possession of premises for that year and by cl 2 of the K the
interest was made payable at the end of it
o Accordingly, being interest in respect of a completed period of possession would have been recoverable by the appellant
even after an election to rescind: by accepting payment of it therefore the appellant did not elect against terminating the
contract
• The case is not one in which equity will decree specific performance notwithstanding the recission – declaration that contract was
validly rescinded by the appellant on 15 Jan 1963 should be made

Held per Menzies J
• Upon the main point: a vendor becoming entitled to rescind for non-‐payment of purchase money upon the stipulated date for
payment, who does nomore than give the purchaser the opportunity within a limited time thereafter is not thereby electing not to
rescind for non-‐payment on the due date nor is he representing that time is not of the essence, rather he is initimating that he
intends to exercise his right to rescind unless payment is made within the time of grace

HC SAYING: Perfectly open to seller to keep choice open for a while as long as it was careful to act in a way that was not clearly on one path or the
other so when the 7 days expired they hadn’t made a choice: only delayed by 7 days, at that point entitled to choose to terminate the contract.

Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 [Previous]
Per Lord Diplock
The effect of a breach/termination and exclusion clauses
• Breaches of primary obligations give rise to substituted or secondary obligations on the part of the party in default, and, in some cases,
may entitle the other party to be relieved from further performance of his own primary obligations
• Where there is a breach that has the effect of depriving the other party of substantially the whole benefit… of K, the party not in
default may elect to put an end to all primary obligations of both parties not yet performed
o In such cases, the anticipatory secondary obligation (the unperformed primary obligations are discharged) arises… by
implication of the CL; except to the extent excluded or modified by the express words of the contract
• An exclusion clause is one which excludes or modifies an obligation, whether primary, general secondary (pay damages) or
anticipatory secondary, that would otherwise arise under K by implication of law

White & Carter Councils Ltd v McGregor [1962] AC 413
Facts
• White and Carter Ltd (plaintiffs, the ‘pursuers’) were advertising contractors. The respondent carried on a garage business in
Clydebank. When the advertising contract between the parties expired in June 1957 the respondent’s sale manager signed a new
contract on the respondent’s behalf. On the same day the respondent purported to cancel the contract. This was a repudiation
• The appellants did their advertising on litter receptacles and the contract, which was for a period of 156 weeks required the
respondent to pay 2s per week per advertising plate together with 5s per annum towards the cost of each plate. Control of the
advertising matter was vested in the appellants and cl 8 of the contract provided that if any payment was outstanding for a period of
four weeks the total amount for the 156-‐week period would immediately become due
• The appellants did not terminate the contract for repudiation: the advertising plates were prepared and exhibited. When the
respondent refused to pay the appellants sued to recover the total sum due for the 156 week period. Initially they relied on cl 8 but
by the time the case reached the HL the contract had been fully performed and cl 8 was not relevant. The appellants failed before the
Sheriff-‐Substitute and an appeal to the Scottish Court of Session, Second Division was dismissed
o Appellants appealed to the HL: had they earned the right to recover the liquidated sum represented by the contract price?
§ Majority allowed the appeal and so appellants were entitled to payment for the price

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• Central to the case is the idea that a party is not required to act reasonable when deciding whether or not to terminate a contract for
reason of breach or repudiation

Held per Lord Reid
• If one party to a contract repudiates it in the sense of making it clear to the other party that he refuses or will refuse to carry out his
part of the contract, the other party, the innocent party has an option
o He may accept that repudiation and sue for damages for breach of contract, whether or not the time for performance has
come or
o He may if he chooses disregard or refuse to accept it and then the contract remains in full effect …
• The respondent points out: in most cases the innocent party cannot complete the contract himself without the other party so doing,
allowing or accepting something, and it is purely fortuitous that the appellants can do so in this case
o In most cases by refusing cooperation the party in breach can compel the innocent party to restrict his claim to damages.
Then it was said that, even where the innocent party can complete the contract without such cooperation it is against the
public interest he should be allowed to do so
• It has never been the law that a person is only entitled to enforce his contractual rights in a reasonable way and that a court will not
support an attempt to enforce them in an unreasonable way: this is because it would create too much uncertainty to require the
court to decide whether it is reasonable or equitable to allow a party to enforce his full rights under a contract …
o The other ground: there is some general equitable principle or element of public policy which requires a limitation on the
contractual rights of the innocent party: if it can be shown that a person has no legitimate interest, financial or otherwise,
in performing the contract rather than claiming damages, he ought not to be allowed to saddle the other party with an
additional burden with no benefit to himself
o If a party has no interest to enforce a stipulation he cannot in general enforce it: so if a party has no interest to insist on a
particular remedy he ought not to be allowed to insist on it and so he ought not to be allowed to penalize the other party
by taking course when another is equally advantageous to him
• Here the respondent did not set out to prove that the appellants had no legitimate interest in completing the contract and claiming
the contract price rather than claiming damages, there is nothing in the findings to support such a case: it is impossible to say that the
appellants should be deprived of their right to claim the contract price merely because the benefit to them, as against claiming
damages and re-‐letting their advertising space might be small in comparison with the loss of R
• CL can only relieved parties from improvident/oppressive contracts in very limited circumstances: I am unable to avoid the
conclusion that this appeal must be allowed and case remitted so decree can be pronounced as craved in the initial writ

Held per Lord Morton of Henryton (dissenting)
• If the appellants are right: must follow that the expert is entitled to incur the expense of going abroad, and tow rite his unwanted
report, and then to recover the fee and expenses, even if the other party has plainly repudiated the contract before any expense had
been incurred
• What is the remedy if the repudiating party persists in repudiation and refuses to carry out his party of the contract? It has been
broken. The innocent party is entitled to be compensated by damages for any loss which he has suffered by reason of the breach and
in limited cases the court will allow the decree of specific performance
o The present case: specific performance could not be decreed since only obligation of the respondent under the K was to
pay a sum of money for services to be rendered by the appellants: appellants’ only remedy was damages and they were
bound to take steps to minimize their loss according to well-‐established ROL

Held per Lord Keith of Avonholm (dissenting)
• No authority: once of breach a contract has occurred the offended party can go on as if the contract still continued to be fully
operative
• It has been said that where an anticipatory breach has not been treated as a cause of action the contract remains alive: it does so
until the contract would become operative, when the repudiation, if still maintained, then becomes a cause of action and all pleas
and defences then existing are available to the respective parties
o The party complaining of breach also has duty to minimize the damage he has suffered: further reason for saying that after
the date of breach he cannot continue to carry on his part

Held per Lord Hodson
• The true position is that the contract survives and does so not only where specific impelement is available: when the assistance of
the court is not required the innocent party can choose whether he will accept repudiation and sue for damages for anticipatory
breach or await the date of performance by the guilty party
o Then if there is failure in performance: rights preserved
• May be unfortunate that appellants have saddled themselves with unwanted contract: waste of time and money – there is no duty
laid upon a party to a subsisting contract to vary it at the behest of the other party so as to deprive himself of the benefit given to him
by the contract
o To hold so otherwise: introduce a novel equitable doctrine that a party was not to be held to his contract unless the court in
a given instance thought it was reasonable to do so
• In this case: action for debt a claim in discretionary remedy: introduce into the field of K uncertainty which does not appear to be
supported by authority in English/Scottish law

Rawson v Hobbs (1961) 107 CLR 466
Facts
• By an agreement dated 7 July 1958 the Rawsons (the purchasers, plaintiffs in action and appellants before the HC) agreed to
purchase a grazing property from the Hobbs (the vendors). The price of the property was payable by way of deposit and three
instalment payments. The deposit was paid by the Rawsons
• The land was held under Pt V of the Land Act 1933 (WA) which governed the conditional purchase of leases of grazing property.
Section 143(1) provided that a transfer of the lease would not be valid or operative until the approval in writing from the Minister of
Lands. Such an approval could not be lawfully given if the transfer infringed s 47, by vesting in the transferee a total area of land
larger than that allowed
• Under s 151, registration of a transfer was necessary and the transfer of an excessive quantity of land could not be
registered

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o As husband and wife the Rawsons could not become transferees of the leases without the consent of the Minister
o Clause 12 of K provided for the Rawsons to obtain the consent of the Minister to the instrument of transfer and conferred
an option on both parties to ‘annul’ the sale if Minister refused consent
• The Rawsons took possession of the property. They spent money on it, for example by erecting a house and worked the property, for
example by selling stock. On 16 March 1959 they purported to ‘annul’ the sale pursuant to cl 12 on the basis that information from
the Under-‐Secretary for Lands indicated that the Minister would refuse his consent to the transfer. On 6 May 1959 the Hobbs
responded by a notice that they would ‘rescind’ the contract unless certain breaches were remedied
o In the WASC the Rawsons sought a declaration that the K had been annulled and they also claimed damages, by
counterclaim the Hobbs sought orders on the basis they had validly given ‘recission’ – judge ordered the contract be
rescinded
§ The full court set aside the judgement and dismissed the claim and the counter-‐claim
o Rawsons appealed and Hobbs cross-‐appealed to the HC – had the Rawsons annulled the contract pursuant to the contract?
§ Full Court’s decision was affirmed

Held per Dixon CJ
• Cl 12 appears to be directed to an existing transfer which completes the contract and not to a refusal de futuro at some intermediate
stage: the notice cannot therefore be regarded as an effective exercise of the special power given by cl 12
o It was however a clear intimation of the intention of the purchasers, the Rawsons, no further to perform the contract on
their part but to treat it as annulled or rescinded
• Once there has been a renunciation of a contract or of future performance of an essential obligation thereof by one contracting
party, the other if he elects to threat that as an anticipatory breach discharging the contract is relieved from all further obligation to
perform on his side and in consequence need not thereafter be ready and willing to do what would otherwise be his part à but what
is the question is whether up to that point he must not be ready and willing to proceed with the contract and as when the time comes
to do his part, so far as it is of the essence, to perform the contract on his side
• One must be very careful to see that nothing but a substantial incapacity or definitive resolve or decision against doing in the future
what the contract requires is counted as an absence of readiness and willingness, on the other hand it is absurd to treat one party as
tied to the performance of an executory contract although the other has neither the means nor intention of performing his party
when his turn comes because his incapacity to do so is necessarily final/logically complete
• The question is the capacity and readiness of the defendant Hobbes as lessee to convert [the lease] into a fee simple: the necessity
rested on him
o As he was a lessee no one but he could convert and he could not do it except by complying with the necessary conditions
and if that was the way in which as vendor he might fulfill his contract he must do it à it seems on the facts that the
defendant Hobbs in March 1959 had no then present intention of doing any of the foregoing things: he did not look upon
them as incumbent upon him but as belonging to Rawson
§ It was impossible for the defendant Hobbs within time before completion on 1 July 1961 to put himself in a
position to obtain a title to the fee simple as of a right to do so within any reasonable time thereafter, nor had
he any present intention of taking for himself the steps necessary for the purpose of obtaining a Crown grant
• The question arises whether to sell the sheep and chattels before leaving the land might not preclude the plaintiffs from setting up
the fact that they had already treated themselves as discharged: no practical alternative remained to the plaintiffs unless it were to
abandon the sheep and chattels in that not very thickly inhabited country
o The discharge could not amount to a recission ab initio with complete restituttio in integrum: the question becomes one of
the conditions of equitable relief
• Purchasers had in fact occupied the land for about 10 months and if equitable relief were to be granted it would be necessary in
ordering a return of the purchase money paid to the Rawsons as purchasers to allow whatever might be found to be proper for
occupation and to that would be added the value of the chattels

Held per Kitto J: Agreed Rawsons were entitled to succeed but disagreed with the other members of the court by holding that they could rely on
cl 12 even though the Minister had not actually refused consent because it was clear that consent would ultimately be refused.

Held per Windeyer J: Cl 2 could not be exercised in anticipation of ministers’ refusal. The Rawsons could rely on the inability of Hobbs to make
title to the land and refused to treat Rawsons’ notice as restricted to express power so agreed with Dixon CJ that relief could be given according
to equitable principles.

Are there any restrictions on principle applied in Rawson? In Carter on Contract, six situations are listed:
1. A statutory provision may preclude reliance on alternative ground
2. If the promisee is seeking to invoke a contractual right, that right may not be available if its requirements have not been complied with
3. If the promisee has failed to allow the promisor an opportunity to perform in accordance with the contract, where this is required by
the circumstances, the promisee will not be permitted to justify the election by reference to the alternative ground
4. Principles of estoppel
5. The conduct of the promisor may amount to a ‘waiver’ on the right to terminate on any ground other than that put forward
6. Good faith or the operation of restrictions on unconscionable conduct may in particular cases prevent reliance on alternative ground

ESTOPPEL AS A RESTRICTION ON RIGHT TO TERMINATE
• Estoppel may operate as a restriction on the right to terminate by precluding the promisee from setting up an election to terminate
as a ground for discharge
o The representation need not be express: can be implied from the promisee’s conduct
• In the present context effect of estoppel is procedural: it does not result in loss of the right to terminate – may be purely temporary
o Estoppel can be avoided by notice on the promisee, advising promisor of an intention to insist on strict legal rights
o Assuming it has been validly given but the requirements of the notice are not complied with the promisee can insist on the
right of termination in reliance on promisor’s original breach/repudiation
• Estoppel does not require knowledge of the right or the circumstances which give rise to the right to terminate
• Detriment to the promissor, although essential to estoppel – not an element of election
• Estoppel can rely on a factual representation to the party in breach coming from the promisee and inconsistent with exercise of right
to terminate: representation must be unequivocal in nature and reasonably relied upon by the promisor to its detriment; injustice

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must also be established by the promisor who must show that departure from the promisee from assumption generated by the
representation in the circumstances be unjust, unfair or unconscionable
• Estoppel: representation as to future conduct (promissory) less common
o Words to give rise to estoppel must be clear/unequivocal
o Element of inequity is also essential à unconscionable conduct
• In Tropical Traders: party could have terminated several times in past
o Didn’t pay on time and continued many times, so stopped from terminating the next time we pay late
§ HC rejected that argument: just because you continue with past breaches doesn’t create an estoppel preventing
you from terminating the next breach: not enough
• Legione v Hatley: clear and unequivocal

There are several bases for the claim, including:
1. Entitlement to restitution of a payment under a contract – in circumstances where there is an express or implied right for the payee to
forfeit the money;
2. That the right of forfeiture is to secure a stated result and the object of the contract may be obtained even thought there has been
default’
3. Application for ‘special heads’ of relief, namely fraud, accident, mistake or surprise, and
4. At least on one view of the law, to preserve an interest in property obtained on entry into a contract where ‘forfeiture’ of that interest
is a consequence of termination for breach of an essential term of the contract

****We are concerned with: category 4 exists independently of category 3. If it does: need to consider whether the person asserting the right
of forfeiture has acted unconscionably.*****

Legione v Hatley (1983) CLR 406
Facts
• The appellants (Mr and Mrs Legione, defendants in action) agreed to sell land to Mr and Mrs hateley (the purchasers) for $35000. A
deposit ($6000) was paid and the purchasers entered into possession. The balance fell due on 1 july 1979. The contract made time of
the essence and provided (by special condition 5) that in the event of default, the ‘liberty of either party to enforce a right or
remedies’ was subject to the giving of a written notice specifying the default and stating that person’s intention. A period of no less
than 14 days was to be allowed by the notice for remedy of the default
• Under the provision, a failure by the purchasers to remedy a default would effect a termination (termed ‘recission’ in the clause) of
the contract and permit the appellants both to forfeit the deposit and to recover possession of the land
• Although the purchasers built a house they did not pay the balance on 1 July. On 26 July the appellants served a notice allowing 15
days i.e. until1 0 August to complete the purchase. On 9 August a conversation took place between the purchsers’ solicitor and
secretary of the partner in the appellants’ solicitors’ office. The purchasers’ solicitors gave the following evidence of the conversation:
o “I told Miss Williams that my client had arranged bridging finance from the ANZ Bank in Pakenham. I told her that the bank
required approximately a week in which to carry out their usual title searches but they would be ready to settle on the
following Friday -‐which was 17 August. Miss Williams said to me ‘I think that’ll be alright, but I’ll have to get instructions’
and that’s the substance of the conversation as far as I recollect it’
• On 14 august a letter was delivered saying the contract had been terminated. A tender of the purchase money on following day
refused
• The purchasers sought specific performance in the VSC and the appellants counterclaimed for a declaration that the contract had
been rescinded (terminated). Murray J held the recission valid. Mr Hateley had died and Mrs Hately appealed to the Full Court which
by majority allowed; then it was taken to the HC
o HC held that the appellants were not estopped form relying on termination. On that basis, the Victorian Full Court’s
decision was reversed and the appeal allowed. But the HC also held that the purchasers were entitled to have their claim
for relief against forfeiture considered (case sent back to VSC for that issue)
• HC: held there needs to be a clear, unequivocal and unambiguous promise or representation made

Held per Gibbs CJ and Murphy J
• When the solicitors selected or permitted Miss Williams to speak on their behalf, in their capacity, her words bound the vendors …
the statement by Miss Williams was in our opinion both intended and likely to induce a belief in the mind by the purchasers’ solicitors
that the vendors would not enforce their strict legal rights until they indicated intention to do so
• It was submitted: no evidence that the purchasers’ solicitors believed that the matter was left in abeyance and the vendors’ rights
would not be enforced until some further communication was made and purchasers were given opportunity to make payment: but
the facts lead to the inference that the solicitors had such a belief and acted on it
o Funds were available on 9 August and it is impossible to suppose that purchasers’ solicitors would not have made payment
on that or on the following day, if they had thought that the vendors intended to insist on their legal right to treat the K as
rescinded if payment had not been made within the time specified in notice
o The terms of the letter sent on 9 August support this view
• The inaction of the purchasers, which altered their position was because they believed, on the faith of the conversation, that the
matter was in abeyance. It would be inequitable to allow the vendors to treat the contract as rescinded without first informing the
purchasers they must complete forthwith and giving them reasonable opportunity to do so
• A court of equity will grant specific performance notwithstanding a failure to make a payment within a time specified by the contract
if there is nothing to render that an order is inequitable. The fact that time for the performance of the stipulated obligation is of the
essence of the contract generally makes the grant of specific performance inequitable in such a case: however, if it is just to relieve
against the forfeiture which is incurred when the vendor retains payments already made under the contract, it is difficult to see why
it would be unjust to relieve the purchaser against the forfeiture of the interest in the property that results in the same circumstances
o On principle: no reason why such an order should not be made if it will not cause injustice but on contrary prevent injustice
o If relief against the forfeiture is granted the objection to the grant of specific performance is removed
• In the present case: it would be unjust for the vendors to insist on the forfeiture of the purchasers’ interest in the land; already built
a house, the money tendered only four days after expiry and the late payment was explained: to enforce the legal rights of the
vendors – harsh and excessive penalty for a comparatively trivial breach

Held per Mason and Deane JJ

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• Estoppel in pais: includes the CL estoppel which precludes a person from denying an assumption which formed the conventional
basis of a relationship between himself and another of which he has adopted against another by the assertion of a right based on it
and estoppel by representation which was of later development
• The requirement that a representation must be clear before it can be found an estoppel is applicable to any doctrine of promissory
estoppel
o A person will not be estopped from departing from an assumption or a representation unless ‘as a result of adopting it as
the basis of action or inaction the other party would have placed himself in a position of material disadvantage if departure
from the assumption be permitted…’ (Thompson v Palmer)
• Miss Williams did not, either by her words or conduct, make to Mr Gardiner on behalf of Mr and Mrs Hately any clear and
unequivocal representation to the effect suggested as basis for promissory estoppel
• Respondent: seeks relief against forfeiture of her equitable interest as purchaser for a binding contract for sale….such a forfeiture is
to be distinguished from contractual forfeiture which is designed to endure performance of a principle obligation
• Unavailability of specific performance? Relief against forfeiture of the purchaser’s interest under a contract for sale ordinarily
involves an order for specific performance of the contract against the vendor, subject to compensation – that is to the imposition of
such terms as will fairly compensate him for insistence on completion of the contract in the altered circumstances occasioned by the
purchaser’s breach
• Should specific performance ever be ordered when the purchaser is in breach of an essential condition? Argument in favour of
negative is forceful – if the parties expressly or impliedly stipulate that performance of a term is essential to their bargain it would be
unjust to the innocent party to require him to complete notwithstanding breach of term
o But fraud, mistake, surprise or other element which would make it unconscionable or inequitable to insist of forfeiture of
the purchaser’s interest under the contract because he has not performed in strict accordance with terms: no injustice to
the innocent party in granting relief against forfeiture by means of specific performance with or without compensation
o Only in exceptional circumstances specific performance granted in the instance of a purchaser who is in breach of essential
condition
• Although secretary’s statement was not sufficiently clear and unequivocal to grant estoppel against appellants – it created the
impression in Mr gardiner’s mind that settlement would take place on 17 August or such earlier date, being a reasonable time …
• Mr Gardiner acted in reliance on the statement as he understood it: consequence was that the purchaser’s breach was inadvertent
and not willful. In this context the breach was not a serious breach but its impact on the vendor’s position remains to be ascertained
o Forfeiture: loss by the respondent and the acquisition by the appellant of the value of the dwelling house
o In the absence of countervailing circumstances this consequence might tend to suggest that the recission was, in the
circumstances of the inadvertent breach, unconscientious and the appellants are acting unconscionably in suggesting
recission should stand
§ However: evidence is deficient: problem in deciding whether respondent should be allowed to argue for or
against forfeiture
• Court has jurisdiction to relieve against forfeiture in this case à remit the case to the Supreme Court for determination of
respondent’s claim to be relieved from forfeiture of her interest under the contract

In what circumstances will a person be estopped from relying on a right of termination?
Legione v Hateley: conservative decision – difficult to see why the words of the employee were not sufficiently clear – how is it that although Miss
Williams’ statement was not sufficiently unequivocal for the purposes of promissory estoppel, the reliance by Mr Gardiner on the statement was
important for the purposes of relief against forfeiture?
What are the differences between estoppel and affirmation?
o Whether the promisor has relied on the promisee’s words or conduct in such a way as to make it unjust or inequitable for the
promisee to contradict his or her word of conduct is essential to estoppel, reliance is not essential to affirmation
o Estoppel is not necessarily final and promisee may sometimes by appropriate notice resume the earlier position and so rely on the
right to terminate. But affirmation is final and cannot be removed by notice

Foran v Wight (1989) 168 CLR 385
Facts
• The appellants were the purchasers in a contract for the purchase of land at Ebenezer from the respondents for $75,000. The
contract made settlement on 22 June 1983 an essential term, and required that the vendors register a plan containing a right of way
affecting the property.
• On 20 June the purchaser's solicitor was told by the vendors’ solicitor that they could not settle on 22 June because the right of way
was not registered. No further communications took place concerning settlement, and neither party tendered performance on
22 June. The purchasers purported to rescind the contract on 24 June upon the ground of the vendors’ failure to complete on 22
June.
• In proceedings in the Supreme Court of New South Wales, the trial judge found that, although the purchasers had a loan for $56,000,
they had not established that they had the whole of the purchase price and were able to complete on 22 June.
o However, he held that they had validly rescinded the contract and were entitled to the return of the deposit.
o His orders were set aside by the Court of Appeal, and the appellants appealed to the High Court of Australia.
Held, per Brennan, Deane, Dawson and Gaudron JJ (Mason CJ dissenting), allowing the appeal: The purchasers were entitled to rescind and to a
return of the deposit, since:
Per Brennan J: If an executory contract creates obligations which are mutually dependent and concurrent and, before the time for performance
of the obligations arrives, one party, A, gives the other party, B, an intimation that it will be useless for B to tender performance and B abstains
from performing his obligation in reliance on A's intimation, B is dispensed from performing his obligation and A's obligation is absolute provided
that B had not repudiated the contract and he was ready and willing to perform his obligation up to the time when the intimation was given.
Per Brennan and Dawson JJ: On 20 June the purchasers were not substantially incapable of raising the needed finance to tender on 22 June, and
were ready and willing to complete up to the time when the vendors intimated that they could not complete the contract.

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Per Deane and Dawson JJ: The vendors were estopped from departing from their intimation that it was unnecessary that the purchasers tender
performance or be ready and able to perform on the day fixed for completion, because the purchasers had been induced to lose the benefit of a
real chance that they would have actually tendered performance.
Per Deane J: Absence of actual or potential readiness or willingness to perform a contract will prima facie preclude a successful action against the
other party for specific enforcement of the contract or for the recovery of damages for its breach, but does not of itself preclude rescission of the
contract by acceptance of the other party's repudiation.
Per Gaudron J: By their intimation, the vendors waived any benefit accruing to them from the essentiality of the settlement date and freed the
purchasers from the obligation to tender settlement on that day. Since it could not be inferred that the purchasers waived the benefit of that
essentiality and there was no consensus to support a variation of that term, the contractual obligations came to an end once the settlement date
had passed.
EFFECT OF TERMINATION

You terminate with serious breach/repudiation, you terminate with unequivocal conduct (choosing two options), and the consequences of
termination.

Strictly speaking, the impact of termination of contract depends on the intention of the parties. Unless the parties have agreed to the contrary, it
is expressed in three rules:

1. Both parties are discharged from obligation to perform (and be ready and willing to perform)
2. The promissory terms of the contract are not enforceable following termination. However, procedural terms and terms intended to
regulate the liabilities of the parties on breach remain enforceable
3. The accrued rights of the parties are not affected. Thus the promisee’s right to claim damages is not divested by termination. Similarly
if the promisee (or promisor) was entitled to receive money under the contract because of performance on his or her part, the money
may be recovered after termination

• Terminating contract like pressing the stop button: freeze things as they are at the relevant time of termination (Heyman v Darwins)
o Everything at that point that is not performed is discharged
§ BUT: don’t forget about stuff happened until then
• Upon termination: parties discharged from performance of any unperformed obligations at that point, sometimes said such an
election ‘rescinds’ or ‘terminates’ the contract
o Termination affects the parties’ duties rather than K itself
o But any rights that have accrued unconditionally remain
o Finality of discharge (i.e. cannot go back on election) unless the court in granting relief against forfeiture orders specific
performance notwithstanding the promisee’s election to terminate the performance of the contract
• Termination agrees upon the intention of the parties
• Discharge of a contract by the promisee’s election to terminate takes effect from the time of the promisee’s election: not
retrospective to the time of promisor’s breach or repudiation
• ‘As to the future’: things supposed to do and haven’t done, and things going to fall due in the future: obligations are discharged
o Occasionally: clauses that apply after termination e.g. exclusion clauses and arbitration clauses
• Whether a term operates after termination is a question of construction: if they expressly provide so there is no difficulties, but if the
courts must imply it they ask if the term operates in favour of the party whose breach/repudiation led to termination was the
intention of the parties contingent on that party not being in breach of contract? Is the term unenforceable, by legal restriction based
on pub policy/statute?
o Some terms like exclusion clauses/agreed damages clauses
o Term regulating liability like exclusion clause in Port Jackson
o Some primary contractual obligations e.g. term requiring employee not to disclose confidential information or restraining
an employee from competing with his/her employer

“To say that the contract is rescinded or has come to an end or has ceased to exist may in individual cases convey the truth with sufficient
accuracy but the fuller expression that the injured party is thereby absolved from future performance of his obligations under the contract is a
more accurate description of the position. Strictly speaking to say that on acceptance of the renunciation of a contract the contract is rescinded is
incorrect. In such a case the injured party may accept the renunciation as a breach going to the root of the whole consideration. By that
acceptance he is discharged from further performance and may bring an action for damages, but the contract itself is not rescinded” (Heyman v
Darwins per Lord Porter)

Rights that have accrued conditionally
Buy tickets to a lady gaga concert on the start of June. Paid for ticket today. Contract is with lady gaga. Then discover a few days before concert
that she undergoes some operation/gets wiped out on drugs and renders herself unable to perform in advance, and a clause in our contract
which said she must conduct herself with sobriety etc.
• She is in breach: am I going to terminate? She is not conducting herself with sobriety/anticipatory breach and she is repudiating
• She says: already paid money so I’m entitled to keep it: that is a right that has already been accrued unconditionally (entitled to it in
future)
• If termination comes in the way of stopping something coming in the future: affects the obligation that has happened already
o In this case: obligation to pay money and then termination à but the obligation to pay connected to concert, which came
after termination occurred
§ Look carefully at some obligations: were they unconditional or was there are link and termination severed this?
Doing this: need to reverse original termination
• Termination kills everything so no concert, but paid for concert so do we need to make an
adjustment for to hand over the money : so accrued it conditionally

“When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no
longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the

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contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the
partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded
because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored so far as they may be to the
position they occupied before the contract was made. But when a contract which it not void or voidable at law, or liable to be set aside in equity,
is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root,
the contract is determined so far as it is executory only and the party in default is liable for damages for its breach” (McDonald v Dennys Lascelles
Ltd per Dixon J).

• Two types of rights that may survive termination
o Right to damages
o Right to receive performance of contractual obligation
• If an accrued right exists, it is not divested by termination even if it exists for the benefit of the party whose breach/repudiation led
to termination
• Because termination discharges the unperformed obligations of a promisor the promisor may be held liable to pay damages
o In respect of the obligations which fell due for performance prior to termination and
o In respect of obligations which would have fallen due for performance after termination
• When it is said that the right to receive performance of a contractual obligation may survive termination: reference usually to
obligations to pay sums fixed by the contract which may be enforced by a way of action in the nature of debt
o Other types of obligations may be enforceable by way of injunction but specific performance is not available
• However, the fact that money should have been discharged prior to termination does not necessarily imply that an accrued right
exists in respect of the obligation to pay: Dixon J in McDonald – the right must have been ‘unconditionally’ acquired by reason of the
‘partial execution’ of the contract

McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457
Facts
• The plaintiff (Dennys, respondent before the HC) sued to recover 1000 pounds. The sum was payable under a contract for the
purchase of land by Ryde Ltd. The action was brought against McDonald and another (the defendants) who were guarantors of the
performance by Ryde Ltd
• Ryde Ltd had agreed (with another) to purchase land from Besley and others (the vendors) under a contract of sale dated 23 June
1927. This provided for the payment of a total price, with a 6000 pound deposit, three yearly instalments of 1000 pounds and the
balance on 24 January 1931. Although the deposit was paid with the first two instalments neither the final instalment nor the balance
were paid
• On 14 August 1929 the benefit of this K was assigned to the plaintiff, with the result that the plaintiff became entitled to receive
payments
• In fact the vendors were purchasers under a contract of sale dated 9 March 1925 from the Johnson Brothers, the registered
proprietors of the land. In June 1931 the contract was terminated, thus making it possible for the vendors to convey the land to Ryde
Ltd. Since Ryde Ltd would not receive title to the land it informed the vendors that it proposed to treat the contract as repudiated
• VSC gave judgement for the plaintiff; the defendants appealed to HC. Issue was whether the obligation to pay the 100 pounds
claimed had unconditionally accrued due
o The HC assumed the contract had been terminated for repudiation by the defendants
• Appeal was allowed by majority of HC: claim to recover the overdue payment was disallowed

Held per Starke J
• The recission of the contract … did not operate to extinguish it ab initio but in futuro so as to discharge obligations under it
unperformed
• I apprehend that a purchaser who is not himself in any default is discharged from further performance of the contract and is entitled
to recover any money payed or property transferred by him thereunder, he is entitled to take proceedings in equity to assert his right
and to secure restitution or to sue at law
o On the other hand a vendor who is not himself in default is discharged from further performance of the contract and is
entitled to the return of his land the subject matter of the contract or his interest therein but is bound to restore any
moneys paid or property transferred o him thereunder: the vendor cannot have the land and its value too
• A deposit paid as security for the completion of the contract stands in an exceptional position because the intent of the parties is that
if the contract goes off by default of the purchaser the vendor shall retain it. On the other hand stipulations providing for forfeiture of
instalments of purchase money in the case of default have been treated as in the nature of penalty and relief given against them
• But in the case of a recission of a contract of sale of land by a vendor, moneys paid under the contract by a purchaser in default that
are not forfeited can be recovered at law
• After the recission of the contract, an action or proceeding for the recovery of the instalment, the payment of which had been
extended to 24 January and of the balance of purchase money would not have succeeded for vendors were not entitled to both
land/purchase money

Held per Dixon J
• Whether the collapse or failure of the second contact did entirely relieve the purchasers from paying the instalment of 1000 pounds
• Ruddenklau v Charlesworth [1925] NZLR 161 at 164-‐5, Sir John Salmond
o “As a general rule, on the failure or refusal or a purchaser to complete an executory contract for the purchase of land the
vendor is not entitled to the sue for the purchase money as debt. He is entitled to sue merely for specific performance or
for damages for the loss of his bargain. It is only when the contract has been completed by the execution and acceptance of
a conveyance that unpaid purchase money may become debt and recovered accordingly … the general rule however that in
an executory contract for the sale of land the vendor cannot sue for the price is excluded whenever a contrary intention is
shown by the express terms of the contract … In all such cases the purchase money or such part thereof becomes, on the
day so fixed for its payment a debt immediately recoverable by the vendor irrespective of the question whether a
conveyance has been executed and notwithstanding the fact that the purchaser may have repudiated the K.
notwithstanding such repudiation the vendor is not bound to sue for damages or specific performance but he may recover
the agreed purchase money …”

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• When a party to a simple contract upon breach by the other contracting party of a condition of the contract elects to treat the
contract as no longer binding upon him the contract is not rescinded from the beginning. Both parties are discharged from the further
performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired
o Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from
its breach alike continue unaffected
• When a contract is rescinded because of matters which affect its formation i.e. fraud the parties are to be rehabilitated and restored,
so far as may be, to the position they occupied before the K was made
• But when a K not void or voidable at law or liable to be set aside in equity is dissolved at the election of one party because the other
has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is
executory only and the party in default is liable for damages for its breach
o It does not however follow from these principles that when under an executory contract for the sale of property the price
or part of it is paid or payable in advance the seller may both retain what he has received or recover overdue instalments
and at the same time treat himself as relieved from the obligation of transferring the property to the buyer
• When a contract stipulates for the payment of part of the purchase money in advance the purchaser relying on the vendor’s promise
to give him a conveyance the vendor is entitled to enforce payment before the time has come for conveying the land yet his title to
retain the money has not considered to be absolute but conditional upon the subsequent completion of the contract
• Where there is no express agreement in excluding the implication made at law, by which the instalments become repayable upon
the discharge of the obligation to convey and the purchaser has a legal right to the return of the purchase money already paid which
makes it needless to resort to equity and submit to equity as a condition of obtaining relief, the vendor appears to be unable to
deduct from the amount of the instalments the amount of his loss occasioned by the purchaser’s abandonment of the contract. A
vendor: counterclaim for damages in the action in which the purchaser seeks to recover the instalments
• In the present case: the contract of resale contains no provision for the retention or the forfeiture of the instalments
o If the instalment originally due in Jan 1930 had been paid by the purchasers to the vendors they would have been entitled
to recover it from the vendors
o The fact that the contract was assigned does not increase or vary the purchaser’s liabilities under it and I think the
purchasers upon the sub-‐sale ceased to be liable for the instalment guaranteed

I.e. once the contract was terminated the finishing of the transaction disappeared and since you wont hand over the land why should I hand you
installments?
1. Normally: look at rights that have accrued prior to termination, and you have a right to enforce them. But in this case: instalments
going to buying ownership of the land.
2. Step 2: contract was terminated, by definition this means everything after termination not already done discharged
3. Step 3: therefore actual transfer of land and final payments discharged (disappeared as fell due after termination)
4. Step 4: buyer would never actually get the land
Look at steps 1 and 4 – once the transaction fell over the seller’s rights to demand payment fell over.
ALTHOUGH INSTLAMENT AROSE BEFORE TERMINATION: SELLER WAS NOT ENTITLED TO IT.

Did termination make all the difference?
• The HC said that the instalment would have been payable had the contract not been terminated – termination therefore made ‘all
the difference’ à because the ‘vendor cannot have the land and its value too’

Shevill v Builders Licensing Board (1982) 149 CLR 620
Facts
• The appellants (Shevills, defendants) were guarantors of Shevill Trucks Sales & Service Pty Ltd which was lessee from the Builders
Licensing Board (the respondent) of land at Milperra. The lease was for 7 years from 7 March 1976. Rent was payable by monthly
instalments
• Clause 9(a) of the lease conferred on the respondent a right to re-‐enter the land if rent remained unpaid for 14 days. Other events
were referred to as conferring a right of re-‐entry. Not all of these events would involve breach by the lessee. Clause 9(a) said that the
right of re-‐entry was ‘without prejudice to any action or other remedy which the respondent might have for arrears of rent or breach
of covenants or for damages’
• Between April and August 1977 rental payments: constantly late
• On 3 August 1977, two months’ rent was outstanding and the respondent took proceedings for possession of the land and sued the
appellants for the overdue rent and for damages. The lessee paid the overdue rent and gave up possession
• NSWSC awarded $41 261 loss of bargain damages to the respondent: calculated by deducting from the total rent for the remainder
of the lease the amount received by the lessor on re-‐letting the premises
o Appeal to the CA was dismissed; appellants appealed to HC
o Issue for HC: whether the fact that the respondent was entitled to terminate the lease for breach was sufficient justification
for assessment on a loss of bargain basis
§ HC allowed the appeal

Held per Gibbs CJ
• It is clear that a covenant to pay rent in advance at specified times would not, without more, be a fundamental or essential term
having the effect that any failure, however slight, to make payment at the specified times would entitle the lessor to terminate the
lease
• However the parties to a contract may stipulate that a term will be treated as having a fundamental character although itself it may
seem of little importance, and effect must be given to any such agreement
• In my opinion it does not follow from the fact that the contract gave the respondent the right to terminate the contract that it
conferred on it the further right to recover damages as compensation for the loss it will sustain as a result of the failure of the lessee
to pay the rent and observe the convenants for the rest of the term
• It would require very clear words to bring about the result which in some circumstances would be unjust that whenever a lessor
could exercise the right given by the clause to re-‐enter he could also recover damages for the loss resulting from the failure of the
lessee to carry out all of the covenants of the lease – covenants which in some cases the lessee might have been both willing and able
to perform had it not been for re-‐entry
• Nothing in cl 9 to indicate any intention to give to a lessor who exercises the right to re-‐enter the same rights as would have been
available to him if he had accepted a repudiation of the contract or had rescinded it on the ground that the lessee had committed a

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breach of an essential term à rights of the lessor limited to the recovery of arrears of rent and damages for breaches and other
events that occurred before re-‐entry
• The evidence in the case made it possible to infer that the lessee would have continued to find it difficult to make prompt payments
of rent, but it did not show how long the difficulties of the lessee were likely to last or whether financial position were likely to
deteriorate
o Did not show that rent would not be paid
o It is in my opinion not possible to conclude there had been fundamental breach of the contract which would have entitled
the respondent to rescind it under general law and to recover damages for total breach

Held per Wilson J
• The intrinsic nature of the obligation in question: no support to an inference of essentiality carrying in the event of default and
termination a right to damages for the loss of contract
• It is one thing to be able to rid oneself of an unsatisfactory tenant but it is quite another requiring a clear expression of intention to
be able to hold the evicted tenant liable for whatever damages might be suffered as a result of the premature termination of the
tenancy
• Although the lessee’s failure to pay the rent promptly was a serious breach of contract which the Board should not have been
obliged to tolerate indefinitely, it was aware that it might have difficulty in finding another tenant if it were to re-‐enter and terminate
the lease
• Re-‐entry was a drastic step which the Board ought to have taken not only if it desired to be relieved of an unsatisfactory tenancy but
provided it had another one to take its place

Case holds that: the loss suffered by the lessor (respondent) was caused by the fact that it terminated the contract – rather than the breach
which led to its termination – sounds illogical. Has been criticized.

When will a loss of bargain damages be recoverable?
If a party terminates a K on reliance on express right to do so, bargain damages are recoverable in two cases:
1. As Shevill explains – if the P can prove that it would have been entitled to terminate at CL, for example on basis of repudiation and
2. If the contract includes a liquidated damages provision which liquidates damages on a loss of bargain basis

Is it open to the parties to deem any breach to be serious?
• In Shevill Gibbs CJ seemed to agree that it is open to the parties to deem any breach which it activates an express termination right
to be serious
• However, he said it would be ‘inequitable’
• There is no authority which suggests a court would refuse to enforce such an agreement

Heyman v Darwins [1942] AC 356
Facts
• In 1938 Darwins Ltd (respondent before the HL) who were manufacturers of steel, appointed the appellants (Heyman and another) to
be their agents in the W Hemisphere, Australia, NZ and India. The contract contained an arbitration clause in the following terms
o “If any dispute shall arise between the parties hereto in respect of this agreement or any of the provisions herein contained
or anything hereout the same shall be referred for arbitration in accordance with the provisions of the Arbitration Act 1889,
or any then subsisting statutory modification thereof”
• Dispute arose and the appellants alleged the respondents to have repudiated their obligations. A writ was issued by them in the
King’s Bench Division seeking a declaration to this effect, also claiming damages
• The respondents applied for a stay of these proceedings pursuant to s 4 of the Arbitration Act 1889 (UK). This was refused by Cassels
J but granted by the EngCA. The appellants appealed to the HL
o It was held that as a matter of construction the arbitration clause was intended to apply to the dispute. The HL held that
the CA was correct to reverse Cassel J’s decision. Appeal was dismissed

Held per Lord Wright
• Repudiation: one party, though not denying there was the appearance of assent might claim the assent was vitiated by fraud or
duress or mistake or illegality: often said that he repudiates the contract
o There it would be a question of construction whether collateral arbitration caluse could be treated as severable and could
be invoked for settling such a dispute
• There is a form of repudiation where the party who repudiates does not deny there is a contract was intended between the parties
but claims it is not binding because of the failure or some condition or the infringement of some duty fundamental to the
enforceability of the contract, it being expressly provided by the contract that the failure of the condition or the breach should
invalidate the contract
• Another case to which repudiation applied: when the party, though not disputing the contract declares unequivocally that he will not
perform it and admitting the breach leaves the other party to claim damages
o May be a dispute in the contract not to liability but damages
• Commonest application: anticipatory breach of a contract where the party by words or conduct evinces an intention to be no longer
bound and the other party accepts the repudiation and rescinds the contract – in such a case the repudiation is wrongful and the
recission rightful and the contract is ended by the recission but only as far as concerns future performance: remains alive for the
awarding of damages either for previous breaches or for the breach which constitutes repudiation
• There is no difference for this purpose between a refusal to take further instalments under a contract for the sale of goods by
instalments and a refusal to take the entire contract quantity where the tender is to be a single delivery: I need scarcely add that one
party to a contract cannot put an end to it. To produce that effect – must be recission
• Intention is to be judged by the party’s conduct
• The difference between repudiating a contract and repudiating liability must not be overlooked: it is thus necessary in every case in
which the word repudiation is used to be clear in what sense it is being used
• Parties may submit to arbitration any or almost any question
o But in general the submission is limited to questions arising on or under or out of a contract which would, prima facie,
include questions whether it has been ended, and if so, whether damages are recoverable and what is the amount


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Held per Lord Porter

• See no reason why at the time when they purport to make the contract they foresee the possibility of a dispute arising they should
not provide in the contract itself for the submission to arbitration of a dispute whether the contract ever bound them or continues to
do so
o Might say that if a dispute should arise where there had been fraud/misrepresentation – submitted to arbitration
o May require very clear language to effect this result and may be true to say that such a contract is really collateral to the
agreement supposed to have been made: don’t see why this should be done
• What is the effect of repudiation if accepted? In such a case the injured party may sue on the contract forthwith whether the time for
performance is due or not, or if he has wholly or partially performed his obligation, he may in certain cases neglect the contract and
sue upon a quantum meruit – in the former case he is still performing under the contract; in the latter case he is not preceding under
it but a quasi contract, the obligations he incurs and the sum he recovers may differ from this provided in the contract and not
dependent on its terms
• Where the contract itself is repudiated in the sense that its original existence or its binding force is challenged, for example, where it
said that the contract is voidable ab initio (fraud, misrepresentation or mistake) and that it has been avoided, the parties are not
bound by any contract and escape the obligation to perform any of its terms including the arbitration clause unless the provisions of
that clause are wide enough to include the question of jurisdiction
o Where however the existence of the contract is acknowledged but one of its terms is relied on as disentitling the claimant
to recover the arbitration clause is effective
• What result follows where the original existence and efficacy of the contract is not in dispute but one party has, or claimed he has,
refused to be bound by its terms and has disregarded in tot and the other party has accepted his repudiation? The question of
damage has still to be determined and the question whether there has been repudiation is still in issues-‐ are these disputes under the
contract? Yes
o K must be adverted to in order to arrive at their solution
o To say that the contract is rescinded or has come to an end or has ceased to exist may in individual cases convey the truth
with sufficient accuracy but fuller expression that the injured party is thereby absolved from future performance of his
obligations under the contract is a more exact description of position
§ Strictly speaking: to say that on acceptance of the renunciation of a contract the contract is rescinded is
incorrect-‐ in such a case the injured party may accept renunciation as a breach going to the root of the whole of
the consideration; by that acceptance he is discharged from further performance and bring an act for damages
but the contract itself is not rescinded
• The injured party may rely on the contract and apply to have the action stayed if he requires to do so
• The wrongdoer – does he say ‘I have broken the contract but it is still in existence though you are
excused from further performance, damages are to be ascertained from the contract?
• Repudiating party not approbating and reprobating the contract but only future liabilities under it: contract still in existence with the
arbitration clause – in these circumstances do not see why even the court in its discretion will not let him take advantage of a clause
in a contract which he has refused to carry out
• In this I think the right to insist on arbitration differs from the claim to require the further performance of the right terms and
conditions of the contract: in respect of these latter the injured party may be excused from further performance after essential
breach and acceptance of that breach as a renunciation of the contract

Does Heyman apply to other types of arbitration clause?
• Would be absurd to treat a mere allegation of termination of depriving the other party of the right o have an arbitrator decide the
issue –even if it is clear the termination is valid, if the parties have agreed to have their disputes decided by an arbitrator must
logically extend to (e.g.) assessment of damages
• Heyman concerned what an ‘ordinary’ submission to arbitration

How does Heyman help when dealing with a clause which is not an arbitration clause?
• Heyman does not decide all clauses in contract survive termination
• Statement by lord Porter beginning ‘to say that the contract is rescinded or comes to an end’ is accepted as classic statement of the
law: not restricted to arbitration clauses
• The reasoning therefore is applicable to other types of clauses – the impact is whether a term continues to apply following
termination always depends on the intention of the parties
o Look at the nature of the clause
§ Clauses regulating with rights and liabilities e.g. exclusion clauses: presumed to apply
§ Subsidiary and procedural promises such as arbitration clauses, force majeure clauses and the like – where it can
be presumed the clauses intended to apply
§ Substantive promises to perform -‐where clear words must be used if the parties intend the clause (promise) to
apply following termination

What is the position where recission – rather than termination – is at issue?
• Dicta in Heyman: dealt with rescinded contract
• Some judges expressed view that arbitration clause cannot be relied upon where contract is alleged to be rescinded
o But if a clause says that disputes arising ‘in connection’ with the contract must be arbitrated this will be held to extend to a
dispute as to whether contract has been rescinded
• Even a dispute as to whether any contract was entered into may be resolved under such a clause
• Subsequent cases confirm: matter of construction, broad approach


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LECTURE 12: DISCHARGE BY FRUSTRATION/AGREEMENT

H. DISCHARGE BY FRUSTRATION
THE RULE
Historically there was a strict rule that people contracting were absolutely liable and supervening and unforeseen events preventing performance
were no excuses. In modern times, we recognise that circumstances change so much that it is no longer appropriate to hold people to contract;
so we relieve people of contract in remarkable circumstances. Frustration relaxes this rule and may arise when there is:
• Impossibility
• Frustration of purpose
• ‘Frustration of the commercial venture’
• Others

Frustration occurs when the law recognises that without the fault of either party, a contractual obligation has become incapable of being
performed because the circumstances in which performance is called for would render it a thing ‘radically different.’ There is a
fundamental/radical change that affects contract: Lord Radcliffe in Davis v Fareham, picked up by HC in Codelfa.

Unforeseen circumstances (beyond the parties’ control, arising after formation); resulting in a radical change to either parties’ obligations under
the K; neither party accepted the risk of this change. Change must be ‘radical.’ Other expressions of this include:
• Event made the performance a ‘thing different in substance’ from that contracted for
• Event creates a ‘fundamentally’ different situation
• Event deprives a party with further obs to perform of ‘substantially the whole benefit which it was the intention of the parties as
expressed in the K that he should obtain’ from performing those obligations

Exceptions: a party may be found to have taken risk of such an eventuality or “undertaken an absolute promise to perform (promisor must
perform and if that is physically impossible – pay damages for breach of contract”.

• Frustration about interpreting parties: what did the parties promise to do and did they promise to do it in these changed
circumstances?
• Counterbalancing idea that circumstances change, parties to K accept risks i.e. prices go up/down, costs might go up
o What is the allocation of risk??
o Were these events something one party really bore the risk of, or did neither party accept responsibility?
• This doctrine applies to construction contracts, contractual licences, employment contracts, contracts for the sale of goods, voyage
and time charter parties, trading agreements

THE CONTEXT FOR FRUSTRATION IS AUTOMATIC.
Impossibility: physical inability/commercial impossibilities.

Evidence of frustration:
• Data for reaching a decision on alleged frustration
o The terms and construction of K
o Events which have occurred

If the parties have dealt with the event then the position is governed by the express terms. The purpose of evidence of the event is to show that
the K cannot be performed in the way contemplated by the parties.

Where a party to the K has acted on the basis that the K was frustrated, and behaved as an ‘informed’ person would, that party is generally
permitted to invoke the doctrine even though subsequent events show K would not have been frustrated.

• Where a court concludes contract has been frustrated: the conclusion is one of law i.e. involves a consideration of the terms of the
contract; and the application of the concept of frustration to the circumstances relied upon as frustrating involves applying legal
principle
o In reaching conclusion – due regard must be had to the evidence relied upon as frustrating the contract
o Sometimes the factual element of frustration will be extremely important i.e. in cases where an event has caused delay in
performance
§ Because of the factual element the relevant conclusion of law will in many cases be almost ‘completely
determined’ by what the judge or arbitrator determines as the commercial significance of the event relied upon
as frustrating the contract
• If the parties have dealt with the event relied upon as frustrating the contract then the position is subject to consideration of public
policy in the case of illegality governed by the express terms
• When it is not referred to in the express terms the contract must be construed in the light of the circumstances existing at the time in
which it was made à can look at the ‘factual matrix’ to enable the court identify a common assumption of the parties which was
essential to the contract or the foundation, substance or basis of the contract
• Evidence of the event relied upon as frustrating the contract is not admitted for the purpose of construing it and the parol evidence
rule has no relevance: the purpose of the evidence is to show the contract cannot be performed in the way contemplated by the
parties
o The question of frustration considered at the time when the event relied upon as frustrating the event occurred
• May be helpful when considering whether a given event has frustrated a type of contract to look at impact of similar events on
similar types of contracts: but each fact situation considered on own merits

(a) Impossibility (e.g. destruction of subject matter of the contract)

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• Most cases of frustration have element of impossibility à where performance by either or both of the parties is physically impossible
e.g. because of the subject matter of the K has been destroyed
• The legal concept of impossibility also encompasses situations where performance is not literally impossible by ‘impossible in a
commercial sense’ (Horlock v Beal [1916])
• The fact that the subject matter has been destroyed will not amount to frustration if either party has agreed, expressly or impliedly
to bear the risk of destruction or guaranteed to subject matter will remain in existence e.g. under the Sale of Goods Act 1923 NSW
s12 i.e. ‘Where there is an agreement to sell specific goods and subsequently the goods, without any fault on the part of the seller or
buyer perish before the risk passes to the buyer the agreement is thereby avoided’ -‐ frustrated
o Although the risk of destruction is frequently passes at the time when the property in the goods is transferred to the buyer
this is not necessarily the case however once the risk has passed destruction of the goods does not frustrate the contract
and the buyer will be liable to the seller
• Important to identify the subject matter of the contract
o Turner v Goldsmith: defendants employed the plaintiff to sell goods ‘manufactured or sold’ by them; the contract was not
frustrated by the destruction of the defendants’ factory because the subject matter was not confined to goods which they
manufactured
• Even if the subject matter remains in existence the contract may be frustrated if it ceases to be available to the parties (Hiriji Mulji v
Cheong Yue SS Co Ltd)

Taylor v Caldwell (1863) 3 B&S 826
• Defendants agreed to allow the plaintiffs to use the Surrey Gardens and Music hall for four days in July and August 1861 for the
purpose of concerts and fetes
• On 11 June the Music Hall was destroyed by fire. The court held the contract was discharged by the event as the Music Hall was
essential to their performance of the contract
• Three potential answers law could give
o 1. Lessor in breach: said we would supply, we didn’t – but this is not satisfactory as hall burnt down with no fault from
lessor
o 2. Contract still goes ahead and the buyer pays rent for a non-‐existent hall
o 3. Contract cancelled without either party being held liable
• Court says neither party held risk for the hall burning down à options 1 and 2 were not proper interpretations of the contract
o What happened: something essential for K to be performed had ceased to exist (implicit it was essential)
§ This change in circumstances: fundamental/radical
§ SO BOTH PARTIES RELIEVED: NEITHER AT FAULT

The Court held: “where, from the nature of the contract, it appears that the parties must from the beginning have known that it could not be
fulfilled unless when the time for the fulfillment of the contract arrived some particular specified thing continued to exist, so that when entering
into the contract, they must have contemplated such continuing existence as the foundation of what was to be done, there, in the absence of any
express or implied warranty that the thing shall exist, the contract is not to be construed as a positive contract but as the subject to an implied
condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without
default of the contractor.”

(b) Frustration of purpose (e.g. non-‐occurrence of an event which is the basis of the contract)
• Mere fact that the event was not contemplated by the parties when they entered into the contract does not amount to frustration
o The purpose of the contract must be frustrated à has to go to the root of the contract and essential to its performance
o Herne Bay Steam Boat Co v Hutton:
§ Ps agreed to hire D a vessel ‘for the purpose of seeing the naval review and for a day’s cruise around the fleet’
§ Review cancelled, court held review wasn’t the foundation of the K, not frustrated, K not pointless, could still
cruise around fleet
• Events frequently occur which cause expectations of contracting parties to be disappointed however disappointment is not
synonymous with frustration merely because the benefits which a party expected to obtain from its performance are not realised in
full
o Scanlan’s New Neon Ltd v Tooheys Ltd
§ Ks for hire of neon signs not frustrated by governmental orders prohibiting illumination of neon signs during
WW2.
§ Hirers’ expectations were somewhat disappointed, but they still had advertising use, so no frustration

Krell v Henry [1903] 2 KB 740
• ‘Coronation Case’
• The P hired a flat in Pall mall to the defendant for 26 and 27 June 1902. Although not mentioned in the contract, its purpose was to
enable the defendant to view the Royal Coronation procession of Edward VII, a point reflected by the fact that the hire was for the
days ‘but not the nights’
o Factual matrix to see the purpose of the contract and when that purpose failed the contract failed also
§ Look at extrinsic material to show this material was essential to purpose of K: as sometimes person doesn’t get
benefit they wanted out of K à can’t say the purpose of it is frustrated and the whole thing falls over
• The procession was cancelled owing to the King’s illness and the court held this frustrated the contract
o The basis for decision: procession was ‘regarded by both contracting parties as the foundation of the contract’
• Decision did not depend on impossibility
• There was nothing impossible in doing what the parties had agreed to do. Performance was rendered ‘pointless’
o Radical change had rendered it frustrated à court extended principle from being the existence of something is essential to
the contract to being the existence of a state of affairs (doesn’t need to be tangible like a car/boat/cow exists)

Per Vaughan Williams LJ at 749: “I think that you first have to ascertain, not necessarily from the terms of the contract but if required from
necessary inferences drawn from surrounding circumstances recognised by both contracting parties what is the substance of the contract and
then to ask the question whether that substantial contract needs for its foundation the assumption of the existence of a particular state of things.
If it does, this will limit the operation of the general words, and in such a case if the contract become impossible of performance by reason of the

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non-‐existence of the state of things assumed by both contracting parties as the foundation of the contract there will be no breach of the contract
thus limited.”

(c) ‘Frustration of the commercial venture’
Davis Contractor Ltd v Farehem UDC [1956] AC 696
Facts
• The appellants (Davis Contractors, claimants in the arbitration) submitted a tender to the respondents in connection with a building
scheme. That tender was accepted and a contract was entered into under which the appellants agreed to build 78 houses in a period
of 8 months
• For a number of reasons, but mainly because of a lack of skilled labour, the work took 22 months. In arbitration proceedings the
appellants sought payment for their increased costs on the basis that the contract had been frustrated
• The arbitrator stated a special case for the opinion of the court. The findings of that fact included that
o The parties anticipated that a sufficient labour force and materials supply would be available
o There was a ‘serious shortage’ of labour and
o The increased cost to the appellants was more than 17 500 pounds (the contract price was about 95,000 pounds)
• House of Lords held that the appellants were not entitled to the additional payment claimed

Held per Viscount Simmonds: The contract had not been frustrated. The ‘disappointed expectations’ do not lead to frustrated contracts and it
was not sufficient to say that ‘in the event of something unexpected happening some term must be implied.’

Held per Lord Reid
• Construction of a contract and the implication of a term are question of law whereas the question of whether the basis of a contract
is overthrown, if not dependent on the construction of the contract might seem to be largely a matter for the judgement of a skilled
man comparing what was contemplated with what happened
• Frustration depends on, at least in most cases, not on adding any implied term but on the true construction of the terms which are in
the contract read in light of the nature of the contract and of the relevant surrounding circumstances when the k was made. The
question is whether the contract they did make is, on its true construction, wide enough to apply to the new situation: if it is not then
it is at its end
• In a K of this kind the contractor undertakes to do the work for a definite sum and he takes the risk of the cost being greater or less
than he expected if delays occur through no one’s fault that may be in the contemplation of the contract and there may be provision
for extra time being given: to that extent the other party takes the risk of delay, but he does not take the risk of the cost being
increased by that delay
o In my opinion: the most that could be said is that the delay was greater in degree than what was expected
§ It was not caused by any new and unforeseeable factor or event: the job proved to be more onerous but it never
became job of different kind from that contemplated

Held per Lord Radcliffe
• Frustration is not to be lightly invoked as dissolvent of a K
• If the matter is to be approached by way of an implied term, the solution of any particular case is not to be found by inquiring what
the parties themselves would have agreed on had they been forewarn. It is not merely that no one can answer that hypothetical
question: it is also that the decision must be given ‘irrespective of the individuals concerned, their temperaments and failings, their
interests and circumstances’
• Frustration occurs whenever the law recognises that without the default of either party a contractual obligation has become
incapable of being performed because the circumstances in which performance is called for would render it a thing radically different
from that which was undertaken by the K … it was not this that I promised to do
• Data for decision: the then existing circumstances, the events which have occurred … no room for elaborate inquiry. The court must
act upon a general impression of what its rule requires
o It is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as
well such a change in the significance of the obligation that the thing understaken would, if performed, be a different thing
from that which was contracted for
§ On the facts: no frustration

Held per Lord Somervell of Harrow
• The shortage of skilled labour was very substantial: evidence was called to show that the expectations were based on behalf of the
Govt as to the probable availability of skilled labour
o A party contracting in the light of expectations based on data of that or any other kind must make up his mind whether he
is prepared to take the risk of those expectations being disappointed
• Appellants took risk under the contract and they must bear the consequences on which estimate based for not having realised

HL: Risk that was if not predictable at least foreseeable. When you have a building job: expect difficulty of labour. If the risk was
foreseeable/predictable and you quoted a fixed price, you the builder have taken on the risk/assumed the risk of the event happening. I those
circumstances where you have accepted the risk, frustration cannot operate: only operates if you go beyond what was expected in the K. What
happened here: you would bear the risk as this was foreseeable and you chose to quote the price anyway. Fell short of frustration.

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149
Facts
• As part of the construction of the E Suburbs Railway, the State Rail Authority (respondent before the HC) engaged Codelfa (the
appellant) to excavate tunnels. Codelfa was obliged to complete the work within 130 weeks from 7 March 1972. Although the work
would be noisy and local residents were likely to complain, and might seek an injunction to restrict the working hours, the parties
assumed Codelfa would be immune from injunction. However this proved to be an erroneous assumption and after work
commenced: local residents got injunctions
• These prevented Codelfa from carrying out construction work between the hours of 10pm and 6am or at all on Sundays: increased
the cost of work to Codelfa
• Codelfa claimed that increased costs from the Authority which refused to meet the claim because there was nothing in the contract
to oblige them to pay more money. Codelfa argued it was entitled to the increased payment because

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o Term should be implied in the contract

o Contract was frustrated
• Dispute went to arbitration: the award of the arbitrator was in the form of special case of the opinion of the court
• Para 14: the parties entered the K on the common and mutual understanding and on the basis that
o Works would be carried out by the contractor on a three-‐shift continuous basis six days per week and without Sunday
restriction
o The work to be performed was inherently of a noisy and disturbing nature and to be carried out in close proximity to areas
of residential neighbourhood and
o No injunction could be or would be granted against Codelfa in relation to nuisance arising out of carrying the works
• Paragraph 15: said that para 14(c) was represented by the principal to Codelfa and was accepted as the situation prior to and at the
time of entering the context
• Para 16: finding that the works in fact could not be carried out as agreed by the parties and in accordance with the contractual
stipulations as to time except on basis in para 14(a)
• Para 18: injunctions were issued by the court on grounds of noise and other nuisance arising out of the carrying out of the works by
Codelfa as stated in 14a). It included a finding that the impact of the injunctions was to prohibit the works from being carried out by
Codelfa in that way thereby causing Codelfa to incur additional costs
• Arbitrator: implied a term obliging Authority to grant Codelfa a reasonable extension of time for the completion of work
• HC decided that it was impossible to formulate an appropriate term with clarity and precision (implication of term) and in terms of
frustration that the contract was frustrated and the award remitted to arbitrator for decision on whether the contract was frustrated

Held per Mason J
• Approval of Lord Radcliffe in Davis v Fareham
• The common assumption must be found in the K itself: the answer to this objection is that, granted that the assumption needs to be
contractual, in the case of frustration, as with implication of a term, it is legitimate to look to extrinsic evidence in the form of
relevant surrounding circumstances to assist us in interpretation of the contract unless language is so plain that recourse to
surrounding circumstances would amount to no more than an attempt to contradict/vary terms
• The event which generally, if not universally works a frustration is an event which supervenes after the making of the contract
• Unusual feature of the case: that the parties received, accepted and acted on erroneous legal advice that contract work could be
completed and not impeded by the injunction
• The critical issue is whether the situation resulting from the grant of the injunction is fundamentally different from the situation
contemplated by the contract on its true construction in light of the surrounding circumstances: the K itself did not require that the
work be carried out on a three shift continuous basis six days a week without restrictions as to Sundays, but it required completion
within 130 weeks
• The situation WAS fundamentally different
o Contract could not be carried out as contemplated conce the injunctions were granted: performance by means of a two-‐
shift operation, necessitated by the grant of the injunctions was different from that contemplated by the K

Held per Aickin J
• The contract was frustrated by the injunction
• The situation became one in which it was impossible to perform the contract in accordance with its terms because court orders
restrained the mode of performance, which was held to constitute a nuisance but which was critical to the completion of the works
within time allowed
• In this case Codelfa was obliged to perform the work within a specified time, subject to extensions only from the Authority/its
Engineer
• The grant of the injunction produced frustration: had become unlawful to perform the work in a manner which complied with
requirement of the K, a requirement of both parties
• Different conclusion from Davis

Held per Brennan J (Dissenting)
• Injunction was not a supervening alteration
• The circumstances were no different
• The injunction limiting working hours did no more than enforce judicially a limitation by which Codelfa was already legally bound

HC by majority: it was frustrated (now free to renegotiate to cover costs). Go to the factual matrix, know the context of the K whether it is
frustrated. Here: assumption about particular state of affairs that they could work around the clock (foundation of the K) and nature of the
assumption meant that couldn’t say one party or another had assumed the risk of the assumption being wrong. Assumption failed, it was
essential, therefore contract frustrated.

Ends up being different from Davis: no assumption about labor supply but in Codelfa both parties share assumption of working around the clock,
neither party sees the risk of an injunction. In Codelfa they could still build railway: take longer and cost more. In these cases people are saying it
is ‘commercially not workable now that this event has risen’ which has frustrated commercial basis/venture.

Bank Line Ltd v Arthur Capel & Co [1919] AC 435
Facts
• The appellants (Bank Line, d’s in the action) were the owners of SS Quito. They chartered the vessel to the respondents (the
charterers) under a 12-‐month charter party.
• Clause 26: That the steamer shall be delivered under this charter not before 1 April, 1915 and should the steamer not have been
th
delivered latest on 30 day of April 1915, charterers to have the option of cancelling this charter. That should it be proved that the
steamer, through unforeseen circumstances cannot be delivered by the cancelling date, charters, if required, shall within 48 hours
after receiving notice thereof declare whether they cancel or will take delivery of the steamer.
• Clause 31: Charterers to have the option of cancelling this charterparty should steamer be commandeered by Government during
this charter.
• Vessel not ready by 1 April 1915 (cancelling date) but charterers did not exercise their option to cancel nor were they invited to say
whether they could cancel or not. On 11 May 1915 the vessel was requisitioned by the British Government. In July 1915 the

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shipowners received from third parties an offer to purchase the Quito which (on 11 August) they accepted, subject to their being able
to procure her release from the requisition. On 2 September the vessel was released
• The shipowners did not put the vessel at the charterers’ disposal and the charterers’ claimed damages for breach of contract. The
defence that contract had been frustrated was upheld by Rowlatt J. his decision was reversed by the EngCA
o Shipowners appealed to the HL: did cll 26 and 31 exclude the operation of the doctrine of frustration? Clearly the parties
had not expressly done so; therefore issue was whether an intention that the doctrine should not be applied could be
inferred from clauses
• Majority from HL allowed the appeal

Held per Lord Summner
• During all the months of the Quito’s service for the Admiralty the charterers would not in the least know when, if ever, they would
have her on their hands (i.e. full employment or make provisions for the necessities of their trade without counting upon her)
• Would the September to September employment in substance the same as that of April to April? It would not and the uncertainties
of the intervening period in time of war both emphasise the difference between the two and add to the gravity of the lapse of time
taken by itself
• Rights ought not to be left in suspense or to hang on the chances of subsequent events. The contract binds or it does not bind, and
the law ought to be that the parties can gather their fate then and there
• A contingency might be provided for but not in such terms as to show that the provision is meant to be all the provision for it. A
contingency may be provided for only for the purpose of dealing with one of the effects and not all …
• Delay even of a considerable length and of wholly uncertain duration is an incident of maritime adventure, which is clearly within the
stipulation of the parties, such as delay caused by ice or neaping, so much so as to be often the subject of express provision. Delays
such as this can seriously affect the commercial object of the adventure
o Nonetheless this is not frustration: the delay is ordinary in character and in most cases the charterer is getting use of the
chartered ship even though it is unprofitable to him
o The doctrine is one which ought not to be extended though to cases that really fall within the decided rule it must be
applied as a matter of course even under novel circumstances
• I am of the opinion that the requisioning of the Quito destroyed the identity of the chartered service and made the charter as a
matter of business a totally different thing. It hung up the performance for a time which was wholly indefinite and probably long. The
return of the ship depended on considerations beyond the ken or control or either party
o Both thought its result was to terminate their contractual relation by the middle of June and as they must have known
much more about that than I do -‐ no reason why I should not think so too

In May because it was wartime, the government came and commandeered the ship and wasn’t going to return it until 8 months later. Wasn’t
that ship didn’t exist; was going to come back at some point but parties couldn’t determine when it would come back etc – basis of the
contract, workability was undermined.

(d) Others

• Death/incapacity for personal service of a party in K of personal service
o This may frustrate its performance e.g. death of an employee frustrates a contract of employment or artist engaged to
prepare a drawing is ‘attacked with blindness’
o In cases of contemporary incapacity the issue of frustration will depend on the kind of contract, extent of incapacity and
expected duration e.g. pianist is unable to give a concert because of illness the contract will be discharged only if one
concert anticipated
§ Pianist is not liable to pay damages for the breach and the employer is entitled to cancel the contract
o Where the contract does not envision a specific task but a long-‐term relationship it will be more difficult to establish that
the contract has been frustrated by contemporary incapacity
o If the contract is frustrated the parties are discharged and e.g. employee is not regarded as in breach of contract by not
turning up for work: but it should not be assumed that a conclusion that contract has not been frustrated necessarily means
incapacitated party is liable in damages
§ Almost invariably the party in question e.g. an incapacitated employee is temporarily excused from performance
• Where parties contract on the basis that their contract will be performed in a particular way and that method of performance is not
possible the contract may be discharged under frustration
• The fact that an event not contemplated by the parties causes some delay in performance or renders impossible performance at the
appointed time need not amount to frustration: in order for the delay to give rise to frustration it must be such as to radically alter
the performance of the K
o Jackson v Union Marine Insurance Co Ltd
§ Charter party provided the vessel would proceed with all possible dispatch from Liverpool to Newport for the
purpose of loading a cargo of iron rails which were to be transported to San Francisco: on its way to Newport the
vessel ran aground. The delay involved in repairing the vessel would have been prolonged
• The jury found that the time taken would have been so long as to make it unreasonable to require
the charterers to supply the agreed cargo
• The Exchequer Chamber held that this finding justified a decision that the contract was frustrated
because the delay would have made the venture one entirely different from that completed by K
o Although court in this case spoke in terms of ‘unreasonable delay’ it is now accepted in commercial contracts at least that it
is preferable to speak of a ‘frustrating delay’ – qn of fact
o The general rule of frustration that the impact of an event relied on a frustrating event must be assessed at the time of its
occurrence is relevant to cases of delay. However this gives rise to difficulty since it will be rarely be certain how long the
interruption to performance will last
§ In commercial contracts where certainty is essential the parties must be entitled to act when they come to know
of the delay e.g. Scrutton J in Embiricos v Sydney Reid & Co:
• “Commercial men must not be asked to wait till the end of a long delay to find out from what in fact
happened whether they are bound by a contract or not; they must be entitled to act on reasonable
commercial probabilities at the time when they are called upon to make up their minds”

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o This statement indicates that a party is entitled to consider itself discharged by an event
which has caused delay before the delay actually frustrates the contract: indicates the
relevance of prospective delay
o Jackson and Embiricos show that a contract may be treated as discharged by frustration on the account of delay before the
frustrating delay actually occurs; however there will be cases n which it is necessary to wait upon events in order to see
whether cases will be radically different e.g. where a strike delays the performance of a K the court may hold that parties
should wait to see how long the strike is likely to last and to determine the prospects for an early settlement of the labour
dispute
• War: capable of frustrating itself a contract as cases of trading with the enemy demonstrate – however the fact that a declaration of
war impinges on performance does not necessarily indicate that frustration has occurred e.g. effect ma be to make performance
more onerous without making it radically different
• The fact that the performance of a contract has become more onerous because of the occurrence of an event not completed by the
parties to the contract generally does not amount to frustration
o Ocean Trump Tankers Corp v V/O Sovfracht (The Eugenia) the closure of the Suez Canal did not frustrate a charter party
even though a voyage from Odessa to India the Cape would have taken 138 days and voyage through canal some 30 days
less
o However: in Codelfa it was held that it did
• Supervening legal impossibility

APPLICATION IN VARIOUS CIRCUMSTANCES
(A) Leases and contracts for the sale of land
• Contracts dealing with land have their own rules around frustration and that has to do with the fact that courts are
reluctant to find the contract of sale of land has been frustrated – so there are all sorts of property law that have
grown up around this issue and serve to determine where the risk lies, it is its own little world to an extent

(B) Where frustration was foreseen but not provided for in the contract
• Usually said that in order for an event to amount to frustration it must be unforeseen
• If it was foreseen that is it is is something that could happen, but no provision was made for it in the contract it is
usually inferred that the parties have agreed to bare the risk of that event occurring -‐ in other words it is likely to
happen, we have not put express terms in the contract to set out what will happen if it happens, so the court draws
an inference that we let the loss fall where it lies
• No frustration à just a circumstance where one or another falls
• Textbook has a good section on this
• When a foreseen event occurs, and when it is argued to amount to frustration
• Essentially, where there isn’t an express term providing for this foreseen event the contract needs to be construed
regarding the obligations of the respective parties, they look at, as always objectively speaking, the intention of the
parties – did the parties intend to bare the risk of that happening
• If that is the true construction then that party suffers the loss – if on that process of construction, neither party
objectively speaking, has undertaken to bare the risk of that thing happening, then even though it was foreseen it
may amount to frustration
• This process takes into account just how foreseen or foreseeable the event was in terms of its likelihood to happen
• Are we talking about bad weather, or worst hurricane in 100 years, those things will be taken into account – the
likelihood and extent of frustrating event, as well as who will bare the risk

(C) Where the contract provides for the consequences of frustration
• Depends upon the construction of the contract
• If a contract contains express provisions which indicate sufficiently the consequences which are to result from the occurrence of the
event the parties’ rights will be regulated by the express terms and there will be no room for operation of the doctrine
• More frequently; courts have found contractual provisions to be incomplete/insufficient e.g. Bank Line
• A contractual provision which would otherwise be effective to exclude the operation of the doctrine of frustration is not enforceable
if contrary to public policy, e.g. when trading with the enemy
• Even if the occurrence of an event does not frustrate a contract under the CL the event may bring into play an express term providing
for the discharge of the parties e.g. contract for the sale of goods might provide for its cancellation in the event of shipment of the
goods bring impossible during the contract period by reason of a government prohibition
o An event under such a clause provides a defence for failure to perform irrespective of whether the event would have
frustrated K
• Where an express term merely protects one of the parties, the doctrine of frustration, if applied, will excuse/discharge the other e.g.
Jackson v Union Marine Insurance Co Ltd the failure of the vessel to arrive in time for the voyage was caused by an expected peril and
the charterers therefore had no cause of action against the shipowner
o The court held that the charterers were discharged not by express term of the contract but by frustration

Foreseeability/risk/frustration
• If the K expressly allocated the risk of the event to one of the parties, and properly construed, the K covers that risk, no room for
frustration to operate in that context
• Where the parties have not said anything about the event it is possible that one or other of the parties bears the risk of the event
happening
o How do we figure that out? Depends on nature of the K, but we can ask: was that risk foreseeable?
• Where the contract doesn’t expressly outline the risk it might implicitly do so because it might be foreseeable/predictable OR if the
risk happens and that event fundamentally changes things: say the K is frustrated, as that event hasn’t impliedly/expressly been
implied by parties

Bank Line Ltd v Arthur Capel & Co [1919] AC 435
* Held that these provisions did not deal completely with the event relied on (by the owners) as frustrating the contract. Cl26 was not inconsistent
with the owners being automatically discharged by an event which produced a radical change in the nature of the contract. And, since it deal only

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with the position of the charterers, cl31 did not exclude the possibility of a radical change resulting from a requisition of the vessel. Cl31 gave the
charterers an option to cancel in the event of requisition. For the owners to rely on frustration they had to prove more than requisition. It was also
necessary for the requisition to be such as radically to change the nature of the contract.

Simmonds Ltd v Hay (1964) 81 WN (Pt 1) (NSW) 358
Facts
• The plaintiff (Hay, respondent before the Full Court) was employed under an employment contract with the defendant for three
years from 19 December 1960, subject to three months’ notice on either side
• The plaintiff’s employment was as a printery engineer and cl 14 required P to attend personally during the defendant’s usual hours
‘except in the case of illness when the provisions of cl 6 shall be applicable’
o Cl 6 provided that if the plaintiff should at any time ‘be prevented by illness or accident from performing his duties he was
required,’ to furnish satisfactory evidence of the incapacity and cause thereof
• The plaintiff was ill for six or seven weeks between May and July 1961. He again became ill on 27 November `1961 and was unable to
attend at the defendant’s premises. He never returned to his work and the District Court judge found the illness was such as to
permanently incapacitate P
• It was therefore impossible for him to carry out his duties under the K of employment: in fact the P had suffered from (and had been
treated for) a heart condition for some years before the employment contract
o Although the D continued to pay the P his salary and allowance until June 1962 D then notified the P that K was terminated
• In the District Court the plaintiff received a verdict for damages for wrongful dismissal. The defendant appealed against this verdict.
Before the Full Court the defendant sought either a verdict in his favour or a new trial: the argument of the D was that the K had been
frustrated
o If the K had been frustrated: the P would not be able to claim damages for wrongful dismissal. Frustration = principal issue
• In order to decide that issue account had to be given to terms of the K and knowledge of the parties of the state of the P’s health.
The question was whether the parties had provided for, or foreseen illness of the P
• Appeal was allowed: judgement given for the D and P lost damages
o In Bank Line: provisions are quite specific; provisions in this case: standard terms of a type in any employment K

Held per Sugerman J
• The present case: within the principle stated by Lord Reid in Davis
• The plaintiff’s incapacitating illness: there did emerge a situation fundamentally different from what existed at the outset of the K for
employment … this was a case of illness such as in a business sense to put an end to the contract and to frustrate the object of the
plaintiff’s employment by the defendant
• Cl 6 no more than an ordinary clause, shouldn’t extend to illnesses or accidents of such a nature as to permanently incapacitate the P
from working and prevent him from carrying out any further duties which he had undertaken
o Relate to illnesses expected to occur from time to time and interrupt for the time being only the continuity of the plaintiff’s
performance of his duties
• Notwithstanding I find it impossible to say that the subsequent and permanently incapacitating illness was not a ‘new state of things
which the parties could not reasonably be thought to have foreseen’
o Be unreasonable to attribute to the company, merely because it was aware of the existence of some unspecified continuing
condition – but at the evidence shows, not an incapacitating condition – foresight of the occurrence of a state of affairs in
which the P would suffer a disease of a totally and permanently incapacitating character
• Therefore, if absence of foreseeability is an essential condition of the operation of the doctrine of frustration I am unable to say that
there was not such an absence of foreseeability or any reasonable contemplation when the contract was made of the changed state
of affairs which afterwards occurred
• K was discharged by frustration on the occurrence of the supervening illness occurring on 27 November 1961 which produced P’s
incapacity

Although not specifically referred to by Lord Radcliffe in Davis, it is usually said that the event relied upon as frustrating the K must not have been
foreseen by the parties. In fact, he said that one reason why a shortage of labour did not frustrate the K considered was that the ‘possibility of
enough labour and materials not being available was before their eyes and could have been the subject of special contractual stipulation.’
If the event is foreseen, and the K contains no provision covering the event, the inference will usually be drawn that the parties agreed to bear the
risk of the occurrence of the event. – The K will not be frustrated.
Fairly strict standard of foreseeability applies-‐ ‘serious possibility’. ‘Reasonably foreseeable’ is not enough to exclude the doctrine.
Not enough foreseeability to exclude doctrine in Simmons Ltd v Hay, employers could not even reasonably, let alone serious possibility, have
contemplated that Hay would suffer a permanently incapacitating disease.
Employer does not promise to be healthy. There was no limit on the days off.
• Hay makes two arguments:
o Argument 1: the contract covers the risk as it makes provision for me being sick, and I have unlimited days off as long as I
give you my medical certificate: employer’s risk that I fall sick, frustration has no role to play we have dealt with issue
§ Court says when we apply stage 1 we need to look at what K was dealing with: provisions about falling ill were to
deal with temp illness, not intended to cover perm incapacity
o Stage 2: did the employer impliedly cover the risk? Employee said: you knew before we entered contract I had health
problems, you could foresee I might become ill
§ In this case, the employer would not have foreseen it to the standard of being a real risk, real
danger/impossibility so they did not impliedly cover the risk
o Stage 3: was this a fundamental change in circumstances? Yes – person employed to do a job can’t do a job

So connected with: did someone accept risk of frustration???

(d) ‘Self-‐induced frustration’
Can’t create a mess yourself and say that the contract is frustrated so I’m entitled to get out of it:
• Lord Radcliffe’s statement of frustration concept posits the absence of ‘default’ by either of the parties: where the event relied on as
frustrating the contract occurs because of the ‘blame’ ‘fault’ or ‘default’ the contract is not frustrated because reliance cannot be
placed on self-‐induced F

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• Although there is no doubt that a deliberate act by one of the parties is sufficient to constitute a self-‐inducted frustration it is
doubtful whether this is necessary i.e. in Joseph Constantine SS Line Ltd v Imperial Smelting Corp Ltd Viscount Simon LC said that
‘default’ is a much wider term and in many commercial cases dealing with frustration is treated as equivalent to negligence
o However he left open the question whether in a contract for personal services personal incapacity arising from want of care
would be insufficient
• Clearest case of frustration: party’s default not only causes the frustrating event but amounts to breach; however a delib act which
frustrates the contract by preventing performance is usually within the ambit of the ‘default’ concept even if not a breach of express
term of K
• Joseph Constantine SS Line Ltd v Imperial Smelting Corp Ltd : onus of proof is on the party who makes the allegation that frustration is
self-‐induced
o Usually the allegation for self-‐induced frustration is made to support a claim for damages for breach of contract and since
the onus of proving existence of a breach is on the party who makes the allegation it is logical to require that party to prove
the existence of default where the defence of frustration is raised
§ Notoriously difficult to prove a negative, and therefore satisfactory that the party who relies on frustration
should not be required to prove absence of default
o Doubtful whether the Constantine case supports the view that an allegation of frustration is of itself sufficient to require
the other party to prove that frustration was self-‐induced à in some cases a prima facie cases of breach will be established
simply by proving that a promisor has not been performed
§ In these cases the promisor must produce evidence of frustration in order to require the other party to prove
that any ‘frustration’ was self-‐induced
• Most descriptions of the concept of frustration refer to the absence of default by either party: if the onus were on the party invoking
the doctrine to prove that frustration was not self-‐induced there would, logically, be a need to prove not only the absence of default
by that party but also by the other party: this would be unreasonable/restrictive
• A party may rely on frustration even if the other party is at fault where the claim is to be discharged from the contract – proof of the
existence of fault should be required only if a claim for damages is also made, in which case it is necessary to establish that default
amounted to breach
• Must be an element of causation between the default of the promisor and the ‘frustration’ of the contract i.e. in The Eugenia the
charterers could not rely on the closure of the Suez Canal even if it had frustrated the contract as they had ordered the vessel to
enter it and breached a term of the K in doing so: it is clear however that default need not be the sole cause of the frustration
o Where there is no causal connection between default of promisor and the frustration of the contract frustration cannot be
regarded as self-‐induced: both parties discharged
• If both parties are in default, because each has contributed to the occurrence of the event relied on as frustrating the K, neither may
rely on it and the contract is not frustrated

Note-‐ ‘self-‐induced frustration’ is a contradiction. If the contract has been terminated it is because the other party was entitled to terminate for
breach or repudiation. Close connection between breach and self-‐induced frustration.

Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524
Facts
• The respondents before the Privy Council (Ocean Trawlers plaintiffs in the action) claimed hire alleged to be due under a charterparty
which the appellants – charterers of the vessel – claimed had been frustrated
• The vessel the subject of the charterparty (the St Cuthbert) was to be employed as agreed in the contract in the fishing industry only
• By statute the vessel required a licence from the Minister as it was fitted with an otter trawl: the appellants operated a total of five
trawlers all of which required licenses
o However the Minister granted licences for only three of the vessels and the appellants decided to apply the licences to
trawlers other than the St Cuthbert
o Afterwards, they asked the respondents to take the vessel back on the ground that the charterparty had been frustrated by
impossibility: the respondents refused to do so
• The principal issue: whether K had been frustrated because it had become impossible to perform: the basis for impossibility was that
the vessel could not legally be employed in fishing industry without license
• The Privy Council: whether the alleged frustration was ‘self-‐induced’ that is brought about by the decision of the appellants not to
allocate a license to St Cuthbert
o They dismissed the appeal: the appellants were liable to pay for damages for breach of contract to the respondents

Held per Lord Wright
• It was the act and election of the appellants which prevented the St Cuthbert from being licensed for fishing with an otter trawl
• It is clear that the appellants were free to select any three of the five trawlers they were operating and could had they willed have
selected the St Cuthbert as one in which event a licence would have been granted to her: what was material was that they could have
gotten a license for the St Cuthbert if they had so intended
• The essence of ‘frustration’ is that it should not be due to the act or election of the party
• The withholding of the licence happened in consequence of the appellants’ election – if it be assumed that the performance of the K
was dependent on a licence being granted, it was that election which prevented performance and on that assumption it was the
appellants’ own default which frustrated the adventure: the appellants cannot rely on their own default to excuse them from liability
under the contract

MNF had a choice: 5 boats, 3 licences to use: 2 boats were to miss out; it was MNF’s choice which ones to use. They didn’t use the one
chartered by OT but too bad: this did not frustrate the contract.

J Lauritzen AS v Wijismuller BV (Super Servant Two) [1990] 1 Lloyd’s Rep 1
Contract for the carriage of a large and heavy drilling rig provided for carriage by either SS1 or SS2. They committed the SS1 to another job, and
then afterwards the SS2 became a total loss. Although there had been no intimation to the plaintiffs of the intention to use the vessel (the
carriers option was not exercised) the defendants contended that the loss of the SS2 and the unavailability of the other vessel due to argument
was rejected by the court since the contract did not oblige them to use SS2. Their inability to use the other vessel was, for the purposes of self-‐
induced frustration, their own fault.

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The EngCA treated negligence as sufficient to prevent reliance on frustration at least where it is a cause of the event alleged to constitute
frustration.

CONSEQUENCES OF FRUSTRATION
Frustration discharges the whole contract automatically and either party may rely upon it, except in cases of self-‐induced frustration (as opposed
to discharge following breach or repudiation, which requires an election by the promisee to terminate the performance of the K.

• Sometimes parties can be excused from performance: interpret K, is change fundamental/radical: what did parties want to do, their
implicit or express risk allocation and if neither bore risk of fundamental change
• Frustration similar to termination: press stop button
o So: it discharges the obligations in futuro (as to the future), not ab initio (from the beginning)
o Accrued rights remain (unconditional ones), parties discharged from performing as to future beyond frustrating event
§ For example, if a vendor agrees to convey title to land but terminates the performance of the contract for
breach or repudiation after the time for payment has passed, the vendor cannot recover the price of the land
because the right is conditional on transfer of title. In such cases the purchaser is permitted to rely on the total
failure of consideration, which would occur if the obligation to pay were enforced as a defence to the vendor’s
claim as to avoid circularity of action
o Never say that parties are put back into pre-‐contractual position: contract not to be regarded as if never existed
§ Operates for the ‘good or ill’ of both parties i.e. one party alone cannot reinstate the K

What does it mean for things happened until that point?
• Law used to work in absolute terms: unless you have done your work and earned your money cannot get the money back if the
contract was frustrated: too bad (Cutter v Powell)

There is no restitution for partial performance in frustration; at common law, partial performance of the contract prior to frustration does not
give rise to a restitutionary claim in respect of that performance, and so a plaintiff cannot recover, as on quantum meruit the reasonable value of
such performance (Appelby v Myers). [Contrast with Cutter v Powell].
Where benefits are conferred after frustration the plaintiff is more likely to be entitled to recover the reasonable value (or price) of the benefits
conferred. Thus the contractors in Codelfa were assumed to be entitled to recover in respect of the work done after the contract had been
frustrated.

• From other perspective: law was B/W – if you paid in advance, and frustration happened after: couldn’t get money back unless
consideration had ‘totally failed’
o Got absolutely no part of what you bargained for
However, where money is paid prior to the frustration of the contract, the right to recover restitution of the amount paid depends on the terms
under which the money was paid and the effect of frustration.
The terms of the contract (express and implied) may indicate that no matter what transpires, the money may be retained by the payee. On the
other hand, payment may be made on the terms that it is recoverable unless the payer is in default under the contract. For example, a deposit
payment made under a contract for the sale of land may be made on terms that it is to be repaid if the contract does not proceed to completion
unless the purchaser defaults. If the contract is frustrated prior to completion, and the purchaser is not in default, the purchaser can recover the
payment, either on the basis of the parties’ intention or by application of the unjust enrichment principle.
The time and effect of frustration may be important. Frustration of the contract will not have any impact on a payment made under the contract
if it was earned prior to frustration (Re Continental C & G Rubber Co Pty Ltd).
On the other hand, if the impact of frustration is to cause a total failure of consideration the payer will be entitled to restitution (Fibrosa).
There is an intermediate case: frustration may result in a failure of consideration which is merely partial. Although unsatisfactory, the law is (at
present) clear that on partial failure there is no restitution of payments made. For example, assume A pays in advance for services to be rendered
by B. frustration of the contract after the services have been rendered in part results in only a partial failure of consideration. Therefore A cannot
recover any portion of the payment made. However, the fact that the payee has incurred expensed for the purpose of performing a contract does
not prevent the failure of consideration being total. In other words, the restitutionary principle depends on proof that the payer has not obtained
a benefit and is irrelevant whether payee has sustained a loss.

• Unless you have expressly stated in a contract that terms will operate after frustration, it is assumed the terms of the contract cease
to operate and neither party may claim to enforce its terms
o However in some cases can infer an intention e.g. usually be inferred that a term requiring the parties to submit a dispute
under the contract to arbitration or an employee’s promise not to divulge confidential information in the course of
employment is intended to operate after frustration
§ In all cases: question of construction
o This principle does not apply to a term stating liability which accrued prior to frustration. For example, where a contract for
the sale of goods is discharged by frustration after deliveries made under the contract, the seller will be entitled to payment
in respect of the deliveries made if payment was due prior to frustration unless payment by the buyer to the seller has
become illegal
§ And there is no reason why an accrued liability should not be enforced after frustration even if payment would
have fallen due after frustrating event
• However, an event which does not frustrate the K may effectively suspend the performance of an obligation. E.g. supervening
illegality, not amounting to frustration, may suspend performance
o The parties may expressly provide that the occurrence of a particular event is to suspend performance. Force majeure
clauses are used to suspend performance on the occurrence of event for which neither party is responsible e.g. act of God
affecting a building contract between two parties
§ Because it is an express clause: don’t need to consider whether the event in question would operate to suspend
performance under the common law
• In NSW there is legislation: however statutory provisions do not apply to all Ks and their consequences
• Where frustration is self induced, the parties are not discharged, although the default of one of the parties may give rise to a right to
terminate the performance of the contract for example because the default amounts to repudiation
o If the fact that frustration is self-‐induced does give rise to a right to terminate, and the promisee terminates the contract,
the consequences are governed by the principles applicable to termination for breach or repudiation

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Since frustration, where it does operate, discharges the whole contract, a party cannot rely on frustration as a ground for partial discharge. There
are however four exceptions to this rule:
1. Where the contract was partially executed prior to frustration, discharge extends only to the executory part of the K.
2. Assume that a contract relates to a specific subject matter or subject matter from a particular source: if the contract is frustrated
because the subject matter substantially perishes, or the source substantially fails, the promisor is discharged to the extent that the
subject matter has perished, or the source has failed, but not as to the balance
3. Where an event occurs which does not frustrate the performance of the contract, but provides the promisor with an excuse for not
performing. For example, where a lessee’s obligation to build under a building lease is affected by a government order prohibiting
building, the lessee may be able to rely on the order as an excuse for not performing the obligation to built but may remain liable to
pay the rent reserved by the lease
a. Since the excuse may be only temporary and not amount to discharge, the defence is not based on the doctrine of
frustration. Thus the lessee is excused because of illegality in performance
4. Partial frustration will occur if part of the contract is so distinct from the remainder as to be, for all practicable purposes, a separate
contract. For example, a submission to arbitration may be frustrated even though contract in which it is contained is not. However, the
mere fact that a contract contains severable obligations need not imply that part of the contract can be discharged by frustration
although parties can expressly provide for such discharge

A paid B money to be B’s apprentice for 5 years. Unfortunately for A, B dies 1 year in so apprentice has no master: A wants money back, court
says yes it is a frustrating event but you got a little bit of what you paid for: paid for 5 years, you got 1 of that: not totally 0 so we wont intervene.
Paying for a holiday cruise where the ship sunk halfway through. Could the customer get money back for the second half of trip? Court says no –
frustrating event, but you have already performed some of it.
• As soon as you got a little bit of what you bargained for: hardly upheld. If got nothing at all: maybe

The occurrence of an event which frustrates a contract does not give rise to any right to claim damages. The fact that damages may be
recoverable where ‘frustration’ is self induced, because the default in question amounted to a breach of contract, does not constitute an
exception because self-‐induced frustration does not automatically discharge the parties’ obligations.
However, if a cause of action in damages accrued prior to the frustrating event, this is not divested by frustration. There must of course be an
accrued right. For example if a seller delivers defective goods under an instalment goods contract which is subsequently frustrated, the buyer will
possess an accrued right to claim damages which is not divested by frustration. But in some cases frustration will prevent the right accruing e.g. if
prior to the time for performance, a promisor repudiates contractual obligation, but the promisee does not accept this as an anticipatory breach
of contract, frustration of the contract will prevent the promisee from claiming damages.
Where a cause of action in damages exists at the time of frustration, the fact of frustration may be relevant to the assessment of damages
because it may decrease the plaintiff’s loss. Moreover, the fact that the contract has been discharged for breach or repudiation prior to the
occurrence of the event which would have frustrated the contract does not prevent the court having regard to later events when assessing
damages. Thus, if the evidence shows that the contract would have been frustrated the court may take this into account and reduce the plaintiff’s
damages. But even if frustration of the contract (or the fact that it would have been frustrated) indicates the plaintiff has suffered no loss at all by
reason of the defendant’s breach the plaintiff retains a right to claim nominal damages.

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32
Facts
• The respondents (Fairbairn, defendants) agreed to supply machinery to the appellants, who were a Polish company, for 4800
pounds. In July 1939 the appellants paid 1000 pounds on account of an initial payment of 1600 pounds due under the contract
• War declared in September
• In the proceedings the appellant sought the return of the 1000 pounds paid to which the respondents raised the defence that the
contract had been frustrated by the occupation of Gdynia (place of delivery) by German forces. Tucker J dismissed action and his
decision was affirmed by the English Court of Appeal
o Appellants appealed to the HL
• By the time the case was heard in the HL the town of Vilna, where the appellants had carried on business was occupied by the
German forces. The contract was held to have been frustrated
• The HL overruled Chandler v Webster and allowed the appeal. The appellants were therefore entitled to restitution of the 1000
pounds which they had been paid

Held per Viscount Simon LC
• The claim of a party, who has paid money under a contract to get the money back on the ground that the consideration for which he
has paid has totally failed is not based on any provision in the contract but arises because in the circumstances that have happened
the money must be regarded as received to the plaintiff’s use
o It is true that the effect of frustration is that while the contract can no longer be performed, it remains a ‘perfectly good
contract up to that point and everything previously done in pursuance of it must be treated as rightly done’ (Chandler v
Webster) but it by no means follows that the situation existing at the moment of frustration is one which leaves the party
that has paid money and has not received the stipulated consideration without any remedy
• To claim the return of the money paid on the ground of total failure of consideration is not to vary the terms of the contract in any
way
• The claim arises not because the right to be repaid is one of the stipulated conditions of the contract but because in the
circumstances that have happened, the law gives the remedy
• Overruled Chandler v Webster (where a K has been frustrated by such a supervening event as releases from further performance,
‘the loss lies where it falls’ with the result that sums paid or rights accrued before that event are not to be surrendered, but all
obligations falling due for performance after that event are discharged)
o While this result obviates the harshness with which the previous view in some instances treated the party who had made a
repayment, it cannot be regarded as dealing fairly between the parties in all cases and must sometimes have the result of
leaving the recipient who has to return the money at a grave disadvantage
o He may have incurred expenses in connection with the partial carrying out of the contract which are equivalent, or more
than equivalent to the money which he prudently stipulated should be prepaid but which he now has to return for reasons
which are no fault of his. He may have to repay the money though he has executed almost the whole of the contractual
work which will be left on his hands

lOMoARcPSD|1414388

Held per Lord Atkin

• With great respect to Chandler v Webster I do not agree with that part of it which refused to give effect to the plaintiff’s claim for
return of the sum which he had paid on the ground of total consideration
• It was pointed out that the consideration for the part payment by the appellants was the promise by the respondents to deliver the
goods at Gdynia, and the promise was always effective until further performance was excused. I personally agree with that statement
of what the consideration was and I do not think it necessary to use the word ‘consideration’ in two senses
o I understand by the phrase that the promise to deliver goods totally failed because no goods were or could be delivered,
and that therefore a cause of action accrued to the appellants
• I should add that if it was wrong in Chandler v Webster to refuse the P relief on his claim it was also wrong to give the defendant
judgement on his counterclaim. It is true that the right to receive the balance had accrued before frustration but if the money had
been paid it could have been recovered back as the 100 pounds could and the principles relating to circularity of action would afford
a defence to the counterclaim

Held per Lord Russel of Killowen and Lord Macmillan
In separate speeches they agreed that there had been a total failure of consideration and that this was the basis for recovery by the appellants.
They also agreed that Chandler v Webster was wrongly decided.

Held per Lord Right
• The defendant has the plaintiff’s money. There was no intention to enrich him in the events which happened
• The claim for repayment is not based on the contract which is dissolved on the frustration but on the fact that the defendant has
received the money and has on the events which have supervened no right to keep it
• The same event which automatically renders performance of the consideration for the payment impossible, not only terminated the
contract as to the future but terminates the right of the payee to retain the money which he has received only on the terms of the
contract performance….the right in any such case to claim repayment of money paid in advance must in principle in my judgement
attach at the moment of dissolution. The payment was originally conditional. The condition of retaining it is eventual performance
o Accordingly, when that condition fails the right to retain the money must simultaneously fail. It is not like a claim for
damages for breach of the contract which would generally differ in measure and amount, nor is it a claim under the
contract
• In the present case, the payment is not made irrecoverable by any custom or rule of law, or by any express or implied terms of the
contract. It was paid on account of the price. It was not paid out and out for the signing of the contract. When the sellers were
disabled to perform the contract by the shipment to Gdynia becoming illegal the ordinary rules of law and the authorities … show the
sum of 1000 pounds paid in advance of the price was recoverable by the appellants in the present action

What is the status of Fibrosa in Australia?

The decision is difficult to reconcile with Re Continental. In that case, the HC accepted the view that money paid under a contract which is
subsequently frustrated is not recoverable because frustration is not retrospective. In a footnote to his judgement in Baltic, Mason CJ said
(according to Fibrosa): “To the extent that it is necessary to say so, this decision correctly reflects the law in Australia and to the extent that it is
inconsistent should be preferred to the decision of this Court in Re Continental.

Baltic Shipping Co v Dilion (The Mikhail Lermontov) (1993) 176 CLR 344

• Mrs Dillon paid Baltic Shipping upfront for a cruise
• Although the cruise began as planned, it was dramatically cut short when it struck a shoal off Cape Jackson on the NE tip of the South
Island of Nz, was holed and sank
o Mrs Dillon: suffered physical injuries and emotional truma and lost items of property in the shipwreck
o She was distressed, and disappointed that what was to be an enjoyable holiday experience ended in catastrophe
• Baltic paid her a “full refund of the unused portion of the passage money.” Subsequently, Baltic paid further money by way of
‘settlement’ of her claims against Baltic. When accepting that amount, she agreed (by a deed of release) not to make any further
claim
o She nevertheless sued for damages in the NSWSC where Baltic admitted negligence
o The release was set aside and judgement entered for Dillon where she received $51396: $1417 (restitution of a proportion
of the fare); $44265 (damages) and $10500 (interest) less the $4786 paid to her in the settlement
• Appeal to the AC and then to the HC. On hearing the appeal, leave was given to Mrs Dillon to raise the contention that, if the order
for $1417 ought not to have been made, the verdict should not be disturbed since the sum so awarded was recoverable as damages.

Was she entitled to the restitution?
Was she entitled to damages for disappointment and distress for the loss of entertainment and facilities for enjoyment which had been
promised?

• Appeal was dismissed, so she retained her damages award

Per Mason CJ: “As a matter of ordinary experience, it is evident that, while the innocent party to a contract will generally be disappointed if the
defendant does not perform the contract, the innocent party’s disappointment and distress are seldom so significant as to attract an award for
damages on that score. For that reason, if for no other, it is preferable to adopt the rule that damages for disappointment and distress are not
recoverable unless they proceed from the physical inconvenience caused by the breach or unless the contract is one the object of which to
provide enjoyment, relaxation or freedom from molestation. In cases falling within the last-‐mentioned category, the damages flow directly from
the breach of contract, the promise being to provide enjoyment, relaxation or freedom from molestation. In these situations the courts is not
driven to invoke notions such as ‘reasonably foreseeable’ or ‘within the reasonable contemplation of the parties’ because the breach results in a
failure to provide the promised benefits. In my view, the approach to the problem is to be preferred to the artificial expedient of saying that
damages of the kind under consideration will be awarded for breaches of non-‐commercial contracts but not for commercial contracts. That

lOMoARcPSD|1414388
expedient requires a distinction between commercial and non-‐commercial contracts, that distinction is not easy to draw and it is not a distinction
which should be necessarily decisive in determining whether such damages were available or not.
In the present case, K which was for what in essence was a ‘pleasure cruise’ must be characterized as a contract the object of which was to
provide for enjoyment and relaxation. It follows that the respondent was entitled to an award of damages for disappointment and distress and
physical inconvenience flowing from that breach of contract. Indeed, an award for disappointment and distress consequential upon physical
inconvenience was justified on that account alone.

Frustrated Contracts Act 1978 (NSW)
• Replaces the CL in NSW in relation to contracts covered by it
• Provides series of fixed rules for the adjustment of the parties’ rights
• Applies to most contracts in NSW but does not affect law that decides when a contract is frustrated: deals with consequences of
frustration
o Doesn’t affect the fact that contract ends automatically but changes the old CL all or nothing rule
• Tries to allocate benefits and losses of frustration and share them between the parties
However, the legislation is so complex that it is largely unintelligible.

I. DISCHARGE BY AGREEMENT
A contract may be discharged by the agreement of the parties, provided there is consideration for the agreement to discharge.
An oral discharge or variation of written contract is effective and does not conflict with the parole evidence rule. With respects
to contract requiring evidence in writing see PART 2E above.
• Parties can agree to end the contract, and as long as there is valid consideration to discharge that contract


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LAWS 1015 NOTES
PART 1 -‐ INTRODUCTION
§ Contract = a contract is a legally binding promise or agreement. The person (or persons) who makes a promise is termed the ‘promisor’.
The person (or persons) to whom the promise is made is termed the ‘promisee’.
§ in contracts à breach = loss = loss of expectation

Types of Contracts
§ contract may be expressed in a sealed instrument called a deed à ‘special’ contract/‘contract under seal’
§ all other contracts = ‘simple’ contracts
§ distinctive feature of a simple contract = must be supported by consideration
§ consideration not required for deed to be enforceable as a contract
§ simple contract may be wholly written, wholly oral or partly written & partly oral
§ modern law applies an ‘objective theory of contract’ -‐ depends more on external manifestation (relates to what each party has led other to
believe) than subjective intention

A) Introduction
Perspectives That Criticise the State of the Law:
§ Realist View -‐ in practice courts focus on policy objectives to decide in whose favour a legal rule should be applied
§ Critical Legal Studies Approach -‐ contract law is indeterminate & used to legitimise both the system & the decisions of those
who wield power
§ Contract as Promise Thesis -‐ promise alone is the basis of contract enforcement
§ Feminist Approach -‐ gender issues should be considered in critically evaluating existing legal doctrine
§ Relational Approach -‐ contract is unsuitable to the resolution of contract disputes b/c it gives insufficient emphasis to the
relational interests & social conditions to contracts
§ Law & Economics Approach -‐ the law is incomplete without an economic perspective
§ Sociological Approach -‐ business people do not generally consult lawyers when planning contractual r/ships or even when a
contract dispute arises

2 Criteria of Contract Law:
• just & certainty

• indebitatis assumpsit = if you promise to do something & you try but fail & cause loss à action can be brought against you in assumpsit
(misfeasance)
• can be extended to areas of nonfeasance (promise to do something but not done at all)
• unilateral contract = a promise for an act (i.e. -‐ I promise to give you $100 if you come Saturday to mow my lawn)
• counter-‐promises (I promise to give you $100 if you promise to mow my lawn) = contract
• transfer theory = promise -‐ exchanged promise becomes property of other person (transfer promise)
• need to give something for the promise (part of original negotiation) = no past considerations
• consideration of my promise for your promise has to occur at same time
• role of contract law = consistency, certainty, dispute resolution

Obligations
• imposed tort
• conducive contract, trusts
• unjust enrichment
• other

Themes in Contract Law
• good faith -‐ when you have a contract you must perform it in good faith

Death of Will Theory à The Objective Theory of Contracts
• generally 2 ways you can go about objective tests: (1) fly on wall objectivity (written contract, dispute about clause 13 -‐ interpreting
rd
contract how a completely detached 3 party would construe it), (2) how a reasonable person in position of parties interpret a statement
(ONE WE USE IN CONTRACTS)

The Will Theory
• contract comes into being when there is a subjective meeting of the minds

Is There a Contract?
nd
• reasonable person = attributes of person in position i.e. -‐ 2 year law student etc… not completely objective
• times where you will look at subjective -‐ if reliable evidence that you knew there wasn’t an offer because of information that you knew
(particular knowledge to know offer wasn’t a contract)
• Fundamental Breach = of a contract, sometimes known as a repudiatory breach, is a breach so fundamental that it permits the distressed
party to terminate performance of the contract, in addition to entitling that party to sue for damages.

Formation: Have I got a Contract?
• (1) parties must have reached an agreement
• NB: It is an offer when the airline gives you a ticket and you accept it when you board the plane.
• NB: despite an offer acceptance there is no agreement. Classic example is a contract for the sale of land. Saturday inspection, I’ll give y ou
1.5 million for it, and the other party says yes. That contract is by custom that the parties have not reached an agreement until they sign a
contract and give a copy to the other side.
• absence of agreement = no contract

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B) Freedom of Contract?
• not all contracts concluded b/w parties enforced by courts
• legislation & common law doctrines severely limit extent to which parties can behave ruthlessly in business deals
• Freedom of Contract -‐
(1) freedom to choose content of the contract
(2) power to enter any contract you like
(3) clear separation of a tort

I. Why Enforce Contracts?
II. Capacity
Minors -‐
§ age of majority = 18 in all Aussie states

Mental Disability/Intoxication -‐
§ unsoundness of mind & intoxication are good defences to an action to enforce a contract, so long as it can be shown that:
1. the defendant was not of capacity to contract; and
2. plaintiff knew this

Companies -‐
§ Corporation = an individual or group of individuals invested with legal personality.

The Crown -‐
§ the Crown as litigant
§ can be made liable in respect of contractual undertakings

Bankruptcy -‐
§ doesn’t affect contractual capacity
§ timing of contract relative to bankruptcy = important
(1) Effect of Bankruptcy on Pre-‐Bankruptcy Contracts = upon bankruptcy, contracts previously entered into do not come
to an end
(2) Effect of Bankruptcy on Post-‐Bankruptcy Contracts = bankrupt can continue to incur contractual obligations subject
to trustee’s right to intervene & disclaim

Married Women -‐
§ married woman now has full contractual capacity

III. Public Policy & Illegality
Immoral Contracts -‐
§ contract entered into with object of committing an illegal act will not be enforced
§ contract is void & illegal if sexually immoral
§ contract is not to be regarded as contrary to public policy merely b/c parties to contract are living together in de facto r/ship
Restraint of Trade -‐
§ selling your butcher shop, purchaser wont want you selling butcher shop and next door opening up business again -‐ can agree
restraint of trade promise
§ must be reasonable
§ scope & duration of restraint important
§ 3 things to be considered: (1) geographical area covered by restraint clause, (2) acts covered by restraint, (3) duration
Public Policy -‐
§ contract may be void &/or illegal if it infringes public policy

IV. Other Vitiating Factors

PART 2 -‐ AGREEMENT
• written contract, or,
• conduct e.g. -‐ Clark v Dunraven (yachtsmen sign contract with club to compete in race, agreed to abide by rules, but one rammed boat into
another yacht, damage yacht sues for breach of contract) -‐ “but I don’t have a contract with other boat” -‐ yes you do, b/c of rules of
contract
• indicated by conduct that they did in fact intend to contract
• offer & acceptance
• Offer = an indication by one person of their willingness to contract on certain terms without further negotiation.
• Offer = indication by one person to another of their willingness to enter into contract with that person on certain terms.
• ^ inherent in definition = parties’ requirement of intent to contract & terms are certain

A) Offer & Acceptance

I. Offer
§ whether or not statement is an offer is determined by a reference to reasonable person in position of offeree

Leading Case of Whether/Not You Have an Offer -‐ Wool Contracting Case
• Australian Woollen Mills Pty Ltd v Cth
• principle reason = government had no commercial interest -‐ only giving effect to gov. policy (helping wool industry survive after
nd
2 world war)

Ways Offers Can Come to an End

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• lapse
• retraction
• counter-‐offer
• death
• revocation

A) Invitation to Treat
• NB difference b/w invitation to treat & offer
• Invitation to Treat = idea that someone (1) expresses willingness to negotiate or (2) where someone invites offers to be made.
• Invitation to Treat = a request to others to make offers or to engage in negotiations with a sale in mind.
• must always start off with principle of what reasonable person in position of party would construe particular statement

1. Circulating Merchant Pricelists
Ø invitation to treat
Ø e.g. -‐ Coles flyers in letterbox
Ø reasonable consumer in position would construe as invitation to treat b/c seller/vendor doesn’t have infinite supply
of goods
Ø mere statement of price in reply to a query does not necessarily constitute an offer
Ø just because you have agreement on price, doesn’t necessarily mean you have a contract
2. Auctions
Ø advertisement to hold auction to sell houses, rugs etc… is an invitation to treat
Ø the offer is made by you going to auction & bidding
Ø once you bid = offer (either accepted or not by auctioneer letting hammer fall)
Ø auctions advertised without reserve -‐ if you are highest bidder & hammer doesn’t fall, you have a breach of contract
Ø ^ waiting for decision
3. Call for Tenders
Ø invitation to treat
Ø often seen in construction industry
Ø buried within advertisement may be offer to consider each tender that is sent in
4. Goods on Display in Self-‐Serve Shops
Ø when you walk into store & goods on shelf, goods there with price = invitation to treat
Ø offer made when you take goods to cashier & effectively (expressly/impliedly) say “I’ll have these”
Ø ^ principle comes from Pharmaceuticals Society of Great Britain v Boots Cash Chemists
Ø even if you personally ask shop assistant price of clothes and they tell you the price, it is still an invitation to treat
NOT an offer (rule of law) -‐ i.e. still have to make offer when you go to cashier

II. Offers Can be Made to Whole World or Limited Group

• Unilateral Contract = promise is made in return for performance of an act (constituted by an offer of a promise for an act, the
offer being accepted by doing of the act), rather than a counter-‐promise.
• ^ NB: only one promisor
• Example of Unilateral Contract -‐ Carlill v Carbolic Smoke Ball Company

Offers to Unascertained Persons: to Public at Large
§ offer can be made to public at large

III. Acceptance
a) Communication of Acceptance is Generally Required
§ offers must be communicated to be binding
§ offer may be accepted only by offeree
§ NB: offer ineffective until communicated to offeree

1) Acceptance must be communicated to offeror (doesn’t take effect until communicated) -‐ prior to communication, offeror can
always withdraw offer
2) Only people who can accept offer are those to whom it is addressed
3) Offeree is not bound if someone who is not authorised communicates their acceptance
4) Offeror can prescribe a method of acceptance (if method is exclusive you must follow it, anything less will not do) -‐ practical
reality, courts don’t likely come to conclusion that offeror has dictated exclusive method of acceptance (have to be really clear if
that’s what you want), terms of offer can do away with need for communication (e.g. -‐ Carlill’s case)
5) Silence is not acceptance (Felthouse v Bindley) involved uncle & nephew (“If I hear no more, ill assume horse is mine for said
price” -‐ uncle wants to sue auctioneer in action for conversion (must have right to immediate possession of goods) -‐ thus uncle
had to try prove contract b/w him and nephew but he loses b/c nephew didn’t communicate acceptance of offer)
6) Conduct can be acceptance (can communicate acceptance through conduct), can be bound by your conduct
7) acceptance must correspond with offer (mirror-‐image rule) if you come back with changed set of terms (kills offer), but if varied
set of terms also satisfies test for offer (counter-‐offer) -‐ in strict doctrinal terms, all about how reasonable person in position of
party hearing your statement would interpret it… if you do make a counter-‐offer, communicates that at that moment you are
not willing to pay that price (offer dies) -‐ NB: mere inquiry will not kill an offer (classic inquiry = credit)

b) Correspondence with Offer
§ offer & acceptance must precisely correspond
§ acceptor (offeree) must have accepted all terms of offer
§ any departure from offer à purported acceptance = ineffective (‘counter-‐offer’)

Battle of the Forms -‐

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§ seller has standard form contract

§ person in business of buying goods will have standard form contract
§ leading case = Butler Machine Tool Co Ltd v Ex-‐Cell-‐O Corporation (Eng) Ltd
§ NB: cannot have contract or offer without terms

• can have offer simply accepted time to time, e.g. -‐ commodities dealing (put in order every couple of weeks for those terms and
conditions and at that price)
• can think of credit card as standing offer, bank makes offer on credit to you which you accept, on certain terms, every-‐time you use
your credit card

c) Postal Acceptance Rule
§ when you accept offer by post
§ either letter of acceptance effective when it lands in offeror’s letterbox (i.e. -‐ you don’t know when contract comes
into being) or takes effect when offeree puts stamped addressed letter in postbox
§ law = acceptance by post effective at that time when you put properly addressed stamped letter of acceptance in
Australia Post letterbox
§ practical ramification = that’s when contract comes into being, but offeror knows nothing about it yet
§ contract formed at that place where acceptance is effective & the governing law becomes contract law of that place
but if you call overseas and accept offer over phone, governing law becomes that of overseas country where the
acceptance is communicated!
§ within your power as offeror to negate postal acceptance (if you don’t do this, run risk that other party may have
sent)
§ not necessary for parties to contemplate postal acceptance rule
§ general assumption that offer by post = acceptance by post
§ if offeror gives you wrong address, doesn’t matter
§ if you put wrong address, then rule doesn’t apply
§ will not apply if acceptance to give rise to absurd situation e.g. -‐ contract for sale of land
§ only applies when parties contemplated that acceptance would be communicated by post
§ rule protects acceptor against risk of delay & risk of acceptance being lost in post
§ contract made where acceptance posted

d) Knowledge of Offer Required for Acceptance?
§ in order to accept an offer, you must have knowledge of it
§ Aussie law = must also act in pursuance of offer

e) Acceptance Must Be Unequivocal
§ nothing further left to be negotiated b/w parties & language used must clearly convey decision by offeree to be
bound by terms of offer

IV. Duration of Offers
a) Revocation
§ offer may be withdrawn at any time prior to acceptance if it is communicated to the offeree -‐ even if is expressly
stated to be open for a certain period
§ ^ exception to rule = options contracts
§ Option = like a unilateral contract in that the optionee, that is, the person to whom the option is granted, does not
promise to exercise it. The optioner’s obligation to perform becomes enforceable on the fulfilment of a contingency,
namely, exercise of the option.
§ however, options must be kept open for agreed time b/c consideration has been paid
§ offer can be revoked anytime prior to acceptance as long as revocation is communicated
§ revocation made effective by offeree being informed that offeror doesn’t want to proceed with contract
§ communication doesn’t need to come from authorised person, as long as you hear about revocation (‘grapevine’)
still fine
§ in America = must be reliable source but doesn’t have to be authorised person
§ offer to sell property -‐ kept offer open until Friday, offeror allowed to revoke that any time as long as they
communicated revocation
§ different if entering into option agreement -‐ then you can no longer revoke offer
§ conditional contract & irrevocable offer = options
§ irrevocable offer = make offer to sell pen for $100, next to it is a contract with single promise (promise not to revoke
offer) -‐
§ conditional contract theory -‐ actual contract for sale of pen but condition in contract that allow sale to go ahead
depending on whether/not you elect for it to go ahead
§ most commercial offers drafted as irrevocable offers
§ unilateral contracts -‐ you can revoke offer any time until acceptance
§ likely that to revoke offer to public can be withdrawn by public notice

b) Rejection, Lapse, Non-‐Occurrence of Condition & Death
Rejection -‐
§ offer terminated once rejected by offeree
§ rejection operate to terminate offer only when received by offeror

Lapse -‐
§ offer will sometimes lapse b/c time passed, even though offeror hasn’t revoked offer
§ “I keep offer open until _____” ß lapses at that point
§ if no time on offer (indefinite duration), offer lapses at ‘reasonable time’ (depends on circumstances of case)


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Conditional Offers -‐

§ offer may be made subject to express or implied condition that offer is to be open only for so long as certain state of
affairs continues to exist
§ if that state of affairs ceases to exist à offer automatically lapses

Death -‐
§ can accept offer after death of offeror as long as you accept it before hearing of death
§ if offeree dies, then estate of offeree cannot accept offer

V. Uncertainty & Incompleteness
§ Uncertainty = the court may be unable to give the parties’ language a sufficiently precise & clear meaning in order to
identify the scope of the rights & obligations agreed to. In such a case there is in fact no concluded agreement & alleged
contract will be held to be void for uncertainty.
§ Incompleteness = even though language is perfectly clear in its meaning, if some important part of transaction is yet to be
agreed upon, there is no completed agreement & alleged contract will fail for incompleteness.
§ may be elements of both

a) Generally
§ rights & obligations of parties must be sufficiently certain to be enforceable
§ may be no contract if some contractual obligation is yet to be agreed on
§ courts strive to give effect to contracts if possible
§ you are not going to be held to have agreement if that agreement is uncertain or incomplete
§ whether or not something essential to contract is decision for parties to make, what court decides is whether or not
it can enforce what has been agreed
§ idea of uncertainty from legal perspective = if you take contract to court, court will be asking is there sufficient
agreement on terms that we can fashion an order for the enforcement or are the gaps so huge/unclear that it is non-‐
understandable …
§ if question is one of construction (term’s meaning), if court agrees its ambiguous à court will never say that contract
is void for uncertainty but rather pick which meaning they think best fits
§ ‘void for uncertainty/incompleteness’ means court cannot give it meaning
§ provisions which are apparently vague or uncertain can frequently be given substance if there is some external
standard which will give content of agreement a more precise definition
§ external standard -‐ courts can have regard to external standard in order to solve uncertainty or what otherwise
would be an incomplete contract:
1) external standard has to actually exist
2) have to incorporate external standard into contract by words or conduct
§ standard of reasonableness -‐ do what is reasonable in circumstances
§ implied terms -‐ court can imply terms to fill gap in a contract (e.g. -‐ contract for sale of goods -‐ where price left blank,
court will imply term that you pay reasonable market price for those goods) ßNOT done for contract of sale of land
§ may be implied in law or from particular facts
§ ‘effect of provision not immediately ascertainable’ -‐ e.g. -‐ selling entire crop for 5/bushel, unsure of how many
bushels at present moment à contract still enforceable

Incompleteness -‐
§ contract will fail for incompleteness where some essential/important part of bargain yet to be agreed
§ fine if formula for price provided
§ where parties have agreed to essential terms & other matters left to be determined by one side’s
solicitors, contract valid, where it is expressly/impliedly provided that solicitors must act reasonably

Executed Contracts -‐
§ where contract appears incomplete but has been largely performed by one or both parties, courts much
more likely to imply terms in order to avoid injustice which would arise if party who had performed was
unable to enforce contract against other party
§ ^ same approach used for uncertainty

b) Severance of Unenforceable Clause
§ get rid of part of contract that is incomplete
§ can be done by court
§ only done if what is left represents intention of parties
§ Whitlock v Brew -‐ wanted to sever lease but not allowed because whole purpose of contract was for sale & lease-‐
back

c) Agreements to Negotiate
§ seen in joint venture type agreements
§ agreement to negotiate ‘in good faith’ (igf = provides standard)
§ some cases, depending on facts, = enforceable contract

d) Agreements to Agree
§ generally agreements to agree are illusory -‐ cannot be upheld, void for uncertainty b/c court simply can’t enforce
it

e) Conditional Promises
Phrase ‘Subject to Contract’ may have 1/3 effects -‐ (Masters v Cameron)

(1) may be a concluded contract & purpose of document is simply formal -‐ contract is NOT conditional

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(2) although there is a concluded contract, that contract is conditional in sense that there is no obligation to perform until
document is signed
(3) clause may postpone formation of contract -‐ neither party is bound to proceed with transaction since formation of
contract is conditional on execution of document

B) CONSIDERATION
http://auslaw.wikispaces.com/Consideration

§ contractual promise is made in return for something of value -‐ ‘something of value’ = consideration
§ e.g. -‐ a promise to pay money may be made in return for promise to deliver goods (goods delivery = consideration)
§ Consideration = some act or forbearance involving legal detriment to the promisee, or the promise of such an act or forbearance,
furnished by the promise as the agreed price of the promise.
§ inclusion of detriment is enforceable enough for consideration
§ agreement is NOT a contract unless consideration present

I. What Promises are Legally Enforceable?
§ contracts in the form of deeds do NOT require consideration
§ to enforce a promise you must always provide consideration for that promise
§ gratuitous promises = the performance of which is contingent on the occurrence of the event

II. Consideration Must Be Referable to the Promise
§ consideration must be referable to a promise
§ need a request or some sort of invitation for referability
§ no consideration to refrain from course of conduct that you never intended to engage in anyway

III. Consideration Must Move From the Promisee (but not necessarily to the promisor)
§ you as promisee must prove that you provided consideration for other person’s promise
§ does not necessarily need to move to promisor

IV. Consideration must be Sufficient, but need not be Adequate
§ requires that what is put forward as consideration must reach a threshold of legal recognition
§ just need to promise something legal

V. Past Consideration is NOT Consideration
§ need to distinguish b/w: (1) executor consideration (promise exchanged for a promise), (2) executed consideration
(promise exchange for an act)
§ if plaintiff has performed services as request of defendant, who subsequently promises to pay, promise will be
enforceable if it was assumed at time of request that services would be paid for
VI. Consideration Must Not Be Illusory
§ a promise which is no more than a promise to perform a contractual duty already owed to other party & a promise to do
something which law declares to be illegal could be illusory considerations
§ can be promises accompanied by exclusion of all liability for any breach
VII. Performing Existing Legal Duties
§ Duties imposed by law -‐ if you are under an existing legal duty to do something, & in return for that existing legal duty, you
are promised a sum of money from someone, then performance of that existing legal duty is not good consideration for
that sum of money e.g. -‐ subpoena
§ general rule = promise to perform existing duty is no consideration, at least where promise made by party to a pre-‐existing
contract
rd
§ 2 exceptions to rule: doesn’t apply when promise made to 3 party & consideration is present where plaintiff’s existing
legal duty is exceeded
§ promise to perform public duty generally not sufficient consideration
§ promise to exceed duty = good consideration
§ ^ if person subject to public duty promises to do more than what duty calls for
a) Duties Imposed by the Law
§ consideration only exists if duty is exceeded
b) Contractual Duties
§ promise to perform contractual duty not consideration
§ consideration exists if duty is owed to a third party, but not if owed to other contracting party
§ precedent = Stilk v Myrick
§ part payment of a debt is not consideration for a promise to discharge the debt
§ if you are under an existing contractual duty to do something, then promise to perform that duty in return for some
extra consideration from other party is NOT good consideration
§ part-‐payment of debt is not good consideration for payment of debt
rd
§ exceptions: composition with creditors & part-‐payment of debt by 3 person is good consideration

rd
VIII. Promise to Perform a Duty to 3 Party Consideration
§ if A already owes a contractual duty to X, & B promises to pay A a specified sum in consideration for A’s promise to
perform (or actual performance of) the duty owed to X, B is bound by the promise since A is regarded as having
provided consideration in the promise to perform (or the performance of) the duty owed to X
IX. Forbearance to Sue or Compromise of a Disputed Claim -‐ Good Consideration
§ allows people to settle actions without going to Court
§ forbearance to sue: a promise not to sue for a limited period, definite or indefinite, is a valuable consideration where the
substantive claim is one for which the other party is liable
§ forbearance from acting in a specified way is generally a valid consideration


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Compromise of a Disputed Claim

§ A looks at contract and says on their reading, their obligation is to do x
§ on B’s reading of contract, your obligation is to do y
§ ‘dispute’ as to meaning of contract & A’s obligations
§ compromise = lets agree that A does z
§ à becomes enforceable agreement/contract
§ even if it later shows that B was right

X. Should we Keep the Doctrine of Consideration?
YES!!

Exclusion Clauses
§ 2 types: (1) I promise to do x, but if I don’t, I don’t have to pay you any damages, (2) looks like promise to do x, but reading contract as
whole, it is a promise to do x-‐y (actually re-‐work what you’re actually promising)

C) ESTOPPEL & ITS EFFECT ON CONSIDERATION
§ NB: only promises supported by consideration are enforceable as contracts
§ estoppel may operate if, at the time when the promisor seeks to go back on a promise, the circumstances are such that it would be
unjust, unconscionable or inequitable to allow promisor to go back on the promise
§ different from contract, which is about protecting expectation
§ interacts w contract law -‐ you may have matter where contract doesn’t provide you with remedy but law of estoppel might
§ Estoppel = to be precluded (from saying something or resiling from situation).
§ object of estoppel in law = to prevent the unjust departure by one person of an assumption that they have created in another person
§ main/distinguishing feature = it protects reliance
§ idea of it = if I make a representation to you that you rely on to your detriment & if certain requirements are satisfied, I am prevented
from resiling from that agreement
§ contractual promise is made in return for something of value -‐ ‘something of value’ = consideration
§ Promissory Estoppel = a promise which the promisor should reasonably expect to induce action or forbearance on the part of the
promise or a third person & which does induce such action or forbearance is binding if injustice can be avoided only be enforcement of
the promise. The remedy granted for breach may be limited as justice requires.
§ requirement for estoppel is a clear & unambiguous representation & reliance on representation must be reasonable

Elements of Estoppel
§ 2 approaches
§ Brennan judgment = 7 elements
§ Verwayen’s case = feeling that Mason & Wilson judgment in Waltons = majority judgment
§ Mason & Wilson test = 3 elements
1) has to be a promise (must be clear & unequivocal), silence can still give rise to a representation (Walton v Maher),
representation can be as to future or a present fact
2) reliance & detriment -‐ have to rely on representation & if you want a remedy you must/will suffer some detriment as a reason of
that reliance
3) unconscionability -‐ has to be unconscionable for other party to resile from representation -‐ in Aussie Law 9/10 times means
unconscionable conduct (not unfair!) -‐ what constitutes unconscionable conduct depends on what equitable doctrine you are
applying
§ have to go to judgment & see what Mason & Wilson mean by unconscionable conduct here -‐ i.e. -‐ a failure to fulfill a promise doesn’t in
itself amount to unconscionable conduct….to knowledge of first party
There is no universal agreement on the necessary elements to establish an estoppel. However, three elements have been established as essential and
a further three in some cases should also be considered.
1. Assumption
2. Inducement
3. Detrimental reliance
4. Reasonableness
5. Unconscionability
6. Departure or threatened departure

Estoppel in the Context of a Pre-‐Existing Legal Relationship
Central London Property Trust v High Trees House
§ where promissory estoppel was invented
§ plaintiff leased block of flats to defendant on 29 Sep 1939
§ idea being that defendant was going to sub-‐lease property
§ lease property for 99 years
§ lessee having trouble renting apartments
§ landlord said he would reduce rent by ½
§ war ends à landlord wants to rise rent to contractual rate & wanted defendant to pay arrears that accrued from 1939-‐1945
§ Denning takes view that landlord is estopped from going back on representation that it had made to tenant & which had been clearly
relied on by tenant
§ perfectly fine to raise rent back to normal after
§ only estopped during war years
(1) applies to negative promises (i.e. -‐ promises not to enforce contractual rights)
(2) only operated to suspend contractual rights
(3) required reliance
(4) was an equitable doctrine

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(5) it is a defence

Legione v Hateley (1983)
§ HC decided that promissory estoppel = recognised in Aus
§ contract for sale of land
§ time is of essence
§ day of settlement came & purchaser didn’t turn up
§ vendor issued notice to complete -‐ gave purchaser another 14 days
§ purchaser having trouble finding finance -‐ talked to solicitors to ring up vendor’s solicitors & see if extension possible
§ phone call made but only got through to receptionist & asked receptionist if extension possible à she replied, I think that’s ok, ill have to
get instructions
§ on that statement, they decided they had extension & didn’t turn up to new settlement date, upon which vendor terminated contract
§ purchaser came back & said you cant do that, you’re estopped from doing that -‐ secretary made a representation to us that we relied upon
to our detriment
§ HC adopts this element of promissory estoppel into Aussie law
§ Gibbs & Murphy took view that estoppel was proven on this case
§ majority -‐ Brennan -‐ you cannot rely on a statement via secretary that you have an extension on a contract, she doesn’t have authority &
purchaser’s solicitor should have known that -‐ vendor’s solicitors don’t have authority either, need instructions from client
§ Mason & Dean accepted estoppel but said it wasn’t proven in this case b/c fundamental requirement for estoppel is a clear &
unambiguous representation -‐ “I think that’ll be ok…” = not clear & unambiguous enough to form basis of estoppel

Estoppel in the Context of no Pre-‐Existing Legal Relationship
§ Waltons Stores (Interstate) Ltd v Maher (1988) -‐ HCA adopts estoppel -‐ b/c of estoppel there is an implied promise on part of Waltons to
complete the transaction, which they are prevented from resiling from
§ NB: estoppel used as sword -‐ i.e. -‐ a cause of action (actually suing Waltons on basis of estoppel)
§ HC said if you prove all requirements of estoppel, then an equity arises in your favour & when court turns it mind to a remedy, it will do
‘the minimum equity’
§ gives court broad discretion to fashion remedy according to facts of case

Austotel v Franklins (1989)
§ Kirby: estoppel is about whether a representation was made & you relied on it -‐ here there are 2 commercial parties of equal bargaining
power (very well advised parties -‐ both knew exactly what they were doing) -‐ made a commercial decision to not sign lease when there
was one on the table -‐ i.e. -‐ not influenced by anything said/done by other party -‐ therefore, estoppel fails

Delaforce v Simpson Cook (2010) NSWCA 84
§ response of court must be proportionate & must take into account all circumstances when dictating a remedy for estoppel cases

D) INTENTION TO CREATE LEGAL RELATIONS
ii) Family & Social Situations
• there is a rebuttable presumption that such agreements are not meant to be legally enforceable
• Wick presumption that parties do not intend to contract
• NB: difference b/w intention to contract & intention to be bound
• consideration & intention to create legal relations = interrelated
rd
• law requires that in addition to agreement & consideration, 3 elements necessary to contract -‐ intention to create
legal relations
• test of intention = objective
• intention may be express or implied
• family situations & friends = more easily inferred that agreement & consideration not accompanied by contractual
intent
• presumption that family, social & domestic agreements not binding
• some cases where agreements b/w husband & wife upheld as contracts:
o written partnership
o agreement to pay & accept stipulated weekly amount for maintenance & to indemnify as part of a
compromise of litigation comprising cross-‐summonses for assault; &
o agreement by wife to return to live w husband in consideration of husband’s promise to transfer title to
matrimonial home into both names
• not difficult to infer requisite intention -‐ esp. where implementation of arrangement requires promise to give up or
dispose of existing advantages
iii) Commercial Situations
• strong presumption is such contracts are intended to be binding
• onus of establishing that commercial agreement not to create legal relations rests on party contending
• where express exclusion of intention alleged, words used must be clear & unambiguous
• ‘honour clauses’ -‐ declare that agreement not to be legally binding à agreement is ‘binding in honour only’
• may be mere promotional puff -‐ ‘foolproof’ & ‘required no maintenance’ (not in Carbolic b/c of money deposited)
• where family businesses x 2 à commercial r/ship
iv) ‘Letters of Comfort’
• can contain a promise -‐ which can be enforced

STOP FOR ASSIGNMENT !!!

E) CONTRACTS REQUIRING WRITTEN EVIDENCE
i) Contracts Requiring Writing
• Conveyancing Act 1919 (NSW), s 54a

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• ^ effect of Statute of Frauds is that in NSW today only contracts for the sale or transfer in land need to be evidenced
in writing
• 3 main functions: (1) evidentiary -‐ way of preventing perjury & ensuring reliable evidence received, (2) cautionary -‐
forcing parties to think carefully about transaction before signing doc, (3) -‐ channelling -‐ parties may be forced to
use particular form & similar agreements given similar form
• other states retain different rules e.g. -‐ Tas & WA still regarding certain sale of goods
• other legislation might also introduce requirements of writing for some types of contracts, such as the National
Credit Code
• need seal of company if they are signing contract
• can have agent sign contract
• authenticated signature fiction
• not necessary for contract to be all in one document -‐ all you need is some reference in reach document that leads
you to another document
• courts will insist that documents you rely on as evidence your contract must contain all essential terms &
conditions: (1) the parties, (2) the subject matter of the property
ii) Requirement of Writing
• Section 54A Conveyancing Act doesn’t require contract itself to be in writing, but merely that there be written evidence of
it
• Statute of Frauds required either contract to be in writing or existence of written ‘memorandum or note’ of contract
• Statute of Frauds -‐ required no. of listed contracts to be evidenced in writing
• the “note or memorandum” can come into evidence after the contract was made & need not have been intended to
provide evidence of the contract
• note or memorandum must contain all terms of contract or at least ‘essential’ terms
• parties to contract must be identified
• note or memorandum must state consideration for promise sought to be enforced
• note or memorandum must sufficiently describe subject matter of contract
• document must be ‘signed’ -‐ loosely interpreted -‐ requirement = signature by party to be charged under contract or by
that person’s agent, ‘lawfully’ authorised
• number of documents together can constitute the note or memorandum, but there must be some internal reference b/w
them
• the cases don’t provide coherent rules -‐ unclear how specific reference must be
• note must contain all the material terms of the contract & failure to include a material term in oral contract will mean
note = insufficient
• document you rely on as evidence in your contract does not have to come into existence with the intention of
evidencing your contract
• document you rely on can come into existence before/after contract entered into, but not after proceedings have begun
to enforce contract

iii) Effect of Non-‐Compliance
a) Common Law
• a contract not complying w s54A is not void, but unenforceable
• NB: doesn’t mean there isn’t a contract, it exists à just unenforceable
• contract containing several promises, not all of which are evidenced by writing, absence of written note or
memorandum renders whole contract unenforceable unless promises are severable
• ^ plaintiff must show that promise being enforced is not one required to be evidenced by writing & that the form of
contract is such that the consideration for this promise is separate from the consideration supporting the
unenforceable promises
• plaintiff who is unable to sue on a contract b/c of noncompliance w formal requirements applicable is not
necessarily precluded from obtaining relief on a claim which is independent of the contract
b) Equity
• in order to mitigate the hardship caused by the Statute of Frauds, equity developed the doctrine of part
performance
• idea of part performance = if one of parties has carried out significant acts then court is not going to allow other
party to rely on technicality (like Statute of Frauds) to get out of its obligations
• equity polices unconscionable use of rights
iv) Discharge of Contracts Required to be Evidenced in Writing
• if you have contract that must be evidenced in writing, parties can orally agree to discharge it
• an oral discharge of contract is effective
• however, oral variation of a contract requiring writing causes difficulties
• variation MUST be evidenced in writing
• where a contract is not required to be evidenced by writing, any variation of terms of contract may be made by a
purely oral agreement
• however, where there is such a requirement the variation must also be evidenced b/c writing must contain all terms

PART 3 -‐ TERMS & PARTIES
A) EXPRESS TERMS
• a contract may be written or oral or partly oral & partly written
• express does not mean ‘written’
• can have express terms in an oral contract
• to work out whether/not statement made forms part of a contract à have to reference statement

i) Terms & Mere Representations

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• Representation = a statement of fact that is made to induce entry into a contract and which does induce entry into a contract,
but person who makes statement does not guarantee its truth. It doesn’t form part of a contract, but if it is wrong, there are
remedies (fall under law of misrepresentation).
• Term = a statement of fact that is made to induce entry into a contract and which does induce entry into a contract, but maker
of statement guarantees its truth.
• need to distinguish b/w these types of statements, b/c if statement is false the remedies for breach of term are different to
those for the law of misrepresentation
• how do you determine whether/not someone has guaranteed truth of a statement? -‐ reasonable person test
• ^ Court takes into consideration:
o timing of statement (shorter the period b/w statement beign made & entry into contract, the more likely
it is that a court will construe it as a term)
o importance of statement (the more important a statement, the more likely it is to be a term)
o knowledge & expertise of parties (court more likely to assume that statement made by expert is one
where that person guarantees truth of that statement, particularly where inequality b/w parties -‐ one
knows a lot/one knows little)
o existence of a written memorandum (term you both agree on & it was important, but not written in
document = very hard to prove à may mean (a) it didn’t induce you to go into contract/(b) other party
never guaranteed truth of statement even if it was important )
• terms may be express of implied
• statement which is not a term has no contractual force
• puffs = laudatory statements not intended to be taken seriously
• representations = b/w puffs & terms -‐ factual statements which induce representee to enter into contract but which are not
guaranteed by their maker
• ^ a.k.a. -‐ ‘mere representation’ -‐ absence of contractual intent
• falsity of representation doesn’t give rise to claim for damages for breach of contract

a) Deciding Whether a Statement is a Term
• court must be objective & ask what conclusion of reasonable person in position of person to whom statement made
would have reached
• if such person would have concluded that maker of statement intended to guarantee its truth, it is a term
whether/not there was actual intention to accept contractual responsibility
• proximity b/w statement made & entry into contract may be relevant to intention of the parties
• if period = brief à can be presumed that statement induced entry into contract
• ^ not sufficient to establish statement = term
• the more important the content of a statement, the more likely it is that the parties intended it to be a term of the
contract
• knowledge & expertise of parties = relevant
• expertise of party may be important in distinguishing a mere statement of opinion from a statement of fact
guaranteed by its maker
b) Deciding Whether a Statement Forms Part of a Collateral Contract
• parties create a ‘collateral contract’ when one party’s consideration is the entry into another contract
• (1) collateral contract b/w A & B
• (2) main contract b/w A & B, collateral contract b/w A &C
• NB: consideration for collateral contract = entry into main contract
• e.g. -‐ buying a toaster from Bing Lee & having a collateral contract w manufacturer
• in J J Savage & Sons Pty Ltd v Blakney, HC held that in order to establish a collateral contract in respect of a statement of fact, 3
elements must be established:
(1) statement was intended to be relied on;
(2) reliance by party alleging existence of contract; &
(3) an intention, on the part of the market of the statement, to guarantee its truth
• according to HC decision in Hoyts v Spencer a statement will not take effect as a collateral contract if it is inconsistent w the
main contract
• principle that where collateral contract contains same parties, principle that collateral contract must be consistent w terms
of main contract (Hoyts v Spencer)
• ^ if not à collateral contract falls (Hoyts v Spencer)

3 Simple Principles Every Case on the Law of Restitution is Based on -‐
1. Defendant is enriched
2. That enrichment happens at expense of plaintiff
3. Unjust factor

• money = always enrichment
• unjust = doesn’t simply mean unfair

B) INCORPORATION OF TERMS

§ problems arise when a party tries to include a written term in an oral contract by way of notice, such as signs in carparks. Many of these
terms are exclusion clauses, such as “While all care is taken, cars parked here are the owner’s own risk and no responsibility will be taken
for loss or damage”

There are a number of ways that terms can become part of a contract:
• notice

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• signature -‐ if you sign a contract, you are bound by the terms of that contract, whether you read it or not -‐ only exception = you have to be
aware that you are signing a contract
• ticket

i) Signed Contracts
• A party who signs a contract is presumed bound whether they understood or read the contract, unless there is fraud or
misrepresentation (or non est factum, discussed in Mistake).

Incorporation of Terms by Signature -‐
• by parties signing document
• if execution occurs à knowledge of terms need not be established

ii) Incorporation of Unsigned Documents -‐ Tickets & Notices
• Adequate notice must be given of clauses before entry into the contract.

Incorporation of Terms by Notice -‐
• notice must be ‘reasonable’
• party relying on terms must show that, in circumstances, reasonable steps taken to bring terms to attention of other party

Number of rules to satisfy:
(1) in order to incorporate by notice, you must supply that notice at or before time of formation
(2) must give reasonable notice of terms (‘reasonable notice’ depends on facts of case)

The Ticket Cases -‐
• where one party makes an offer to contract on terms stated on or referred to in a document given to other party, that
party’s decision to keep the document indicates assent to a contract on the terms stated
• if established that person who received ticket didn’t know there was writing on it à writing cannot be relied on as
incorporating contractual terms
• provided sufficient notice of nature of document given, doesn’t matter that recipient didn’t read terms or was incapable
of doing so
• party relying on ticket must lead reasonable person to believe that ticket is contractual document
• when you contract on the basis of a document & practice is that you simply take document (no signature) à generally,
you are bound by terms on that document
• document you’re dealing w has to be contractual in nature i.e. -‐ has to contain a promise (express/implied) e.g. -‐ (theatre
ticket = promise of right to entry)
• if you’re in a situation where you have no legal opportunity to negotiate terms à does not apply

Principles -‐ Questions to Ask:
(1) Did person who received ticket know there was writing on it? (if yes à to question 2)
(2) Did the person know the ticket referred to terms? (if yes à bound, if no à question 3)
(3) Did the person relying on the terms do what was reasonable to bring to the notice of the other party, the
existence of the terms?

iii) Incorporation by Course of Dealing
• a course of dealing occurs when the contract at issue b/w parties is preceded by a series of transactions over time
• ^ may have effect of incorporating terms into a contract
• regard must be had to extent of dealing b/w parties & steps taken
• if inconsistency in course of dealings b/w parties, court may conclude there is no course of dealing
• although in a single transaction a document may come too late, the existence of a course of dealing implies that even a
document receive after formation may be incorporated
• series of contracts
• taken to have consented to terms on which other party does business b/c of course of dealing
• once you have dealt w other person for sufficient period of time, if you want to change anything à have to speak up
• doesn’t breach any doctrinal rule b/c course of dealing existed prior to date of formation, so terms existed prior to
formation

iv) Incorporation by Reference
• common for parties to record bare essentials of contract in a document & for document to refer to, & incorporate, a set of
terms, such as the standard form of a trade association
• not limited to commercial contracts
• often seen in construction industry
• refer to another document which has terms of contract

C) IMPLIED TERMS

Reasons for Implication -‐
• 3 main reasons for implying terms into a contract:
1. Terms Implied in Fact -‐ the need to give business efficacy to a contract
2. terms may be implied by nature of contract itself or obligation it creates
3. Terms Implied by Statute
• 2 & 3 à ‘Terms Implied by Law’
• implication in fact
• implication in law
• implication by custom

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Onus of Proof -‐
• implied in fact -‐ presumption = contract is effective without term à onus of proving that a term should be implied rests on
party so alleging
• implied in law = once contract has been shown to be of nature in which there is a history of implication, term presumed to be
part of contract à up to party who alleges term shouldn’t be implied to prove this

Issue of Law -‐
• whether a term should be implied into a contract is an issue of law to be decided by court on basis of the other terms of
contract & evidence admissible on the issue

Admissible Evidence -‐
• where it is alleged that term should be implied by law à court not limited to a consideration of contract & its surrounding
circumstances
• extrinsic evidence may be admissible to support/rebut implication
• construction of contract & circumstances surrounding -‐ ‘factual matrix’ against which parties contracted
• evidence of parties’ negotiations = not admissible for implied terms

Implied Legal Duties -‐
• where term implied in contract à creates legal duty
• failure to discharge duty à breach of contract

i) Terms Implied in Fact
• a.k.a. -‐ implication ad hoc
• implied term based on facts of individual case

For a Term to be Implied, the Following Conditions Must be Satisfied (BP Refinery (Westernport) Pty Ltd v Shire of Hastings) -‐
• must be reasonable & equitable
• must be necessary to give business efficacy to contract so that no term will be implied if contract is effective without it
• must be so obvious that ‘it goes without saying’
• must be capable of clear expression
• must not contradict any express term of the contract (& term must not deal w matter already sufficiently dealt with by
contract)s

BP Refinery Western v Shire of Hastings
5 Point Test to Imply a Term into a Contract -‐
(1) must be reasonable & equitable
(2) must be necessary to give business efficacy to contract -‐ contract will not work in a business sense without it
(3) must be so obvious that it goes without saying -‐ court only going to imply straightforward, simple terms
(4) must be capable of clear expression -‐ court only going to imply straightforward, simple terms
(5) must not contradict an expression

ii) Terms Implied in Law
• usually implied b/c of nature of contract -‐ same term implied in contracts of this nature in past
• presumed intention = rationale for terms implied in law, whereas actual intention = rationale of terms implied in fact
• where certain terms are implied in standard, recognised r/ships
• test of necessity to imply term that court has never thought of -‐ so necessary that contract wont work without it

iii) Terms Implied by Custom/Trade Usage
• ‘custom or usage’ incl. established mercantile usage or professional practice
• parties regarded as having contracted on basis of any custom or usage applicable & term is implied in accordance w the
custom/usage
• for term to be implied, custom/usage must be proved to be ‘notorious, certain, legal & reasonable’

Con-‐Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) -‐
1. existence of custom or usage that will justify the implication of a term into a contract is a question of fact
2. must be evidence that custom relied on is so well known & acquiesced in that everyone making a contract in that situation
can reasonable be presumed to have imported that term into the contract
3. term will not be implied into a contract on the basis of custom where it is contrary to the express terms of the agreement
4. a person may be bound by a custom notwithstanding the fact that he had no knowledge of it

iv) Good Faith
• There is a growing interest in the notion of ‘good faith’ in contract law. Sometimes ‘good faith’ is incorporated by
legislation. Furthermore, many contractual doctrines can be seen to incorporate ideals that parties co-‐operate, act fairly &
reasonably. Recently there has been some acceptance of implied good faith obligations.
• debate over whether/not good faith is part of Aussie contract law
• most of courts have incorporated good faith into contracts by using implied terms in fact
• under BP test, some judges believe good faith to be implied by facts into contracts
• some have used implied in law -‐ need to narrow class to enable court is happy with it
• to satisfy test, it must be necessary so that contract will not work without it, but contracts work without it
• do have to perform obligations in good faith, but it is not an implied term in a contract but rather a principle that
underpins contracts
• good faith = appropriate test for determining precise form of ‘reasonable notice’ in incorporation of terms
• GF means honesty -‐ doesn’t include reasonableness

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Elements of GF -‐

• not acting arbitrarily or capriciously
• not acting w intention to cause harm
• acting w due respect for intent of bargain as a matter of substance not form
• acting for proper purpose
• consistency of conduct
• communications of decisions
• cooperation w other party
• consideration of interests of other party
• unconscionable conduct shows lack of GF

D) CONSTRUCTION OF CONTRACTS

§ questions of construction = questions of law
§ once you agree a contract, it represents agreement of both parties -‐ how would parties construe the document?
§ commercial construction -‐ try to give every contract ability to operate reasonably & commercially
§ construction: (1) determining meaning of words used to express terms in contract & (2) means by which particular legal effects are
ascribed to terms which make up contract
§ reading contract in context
§ primary object of construction = to determine & give effect to common intention of parties
§ intention may be actual, expressed or implied
§ actual = subjectively held by parties
§ expressed = expressly stated in contract
§ implied = intention attributed to parties in relation to matters on which no intention expressed
§ intention refers to what reasonable person in position of party to whom words addressed would regard as other party’s intention
(objective)

i) Parol Evidence Rule
• rule of construction
• when you have reduced your contract to writing then you may not have regard to parole evidence in order to determine
the meaning & legal effect of your contract
• rule which restricts use of extrinsic evidence
• focus on -‐ what does my contract mean?
• strictly doesn’t apply when trying to work out terms of contract
• concept of extrinsic evidence depends on purpose for which evidence is sought to be used
• extrinsic evidence need not be oral
• 3 Categories of Extrinsic Evidence which May Not be used as Aid to Interpretation -‐
o direct evidence of actual (subjective) intentions of parties;
o evidence of parties’ prior negotiations; &
o evidence of parties’ subsequent conduct
• excludes direct evidence of actual intention of parties (Prenn v Simmonds)
• excludes evidence of prior negotiations b/c construction process tries to work out intention of parties at time of
formations (Prenn v Simmonds)
• factual matrix established by consideration of setting of contract
• to what extent do you consider the factual matrix when you construe a contract -‐ factual matrix will have evidence which
provides information as to the purpose of a contract

ii) Exceptions to when you can look at Extrinsic Evidence -‐
i) to identity subject matter of content
ii) if there is an ambiguity
iii) to imply a term
iv) to prove a course of dealing
v) to identify parties to a contract
vi) to get an order for rectification of a contract

• evidence relating to validity or enforceability of contract is unaffected by PER
• evidence of matters -‐ incapacity, misrepresentation, mistake & illegality -‐ outside scope of PER
• where description of subject matter of contract uncertain à subject matter may be identified by extrinsic evidence
• ‘patent’ ambiguity = apparent on face of document
• ‘latent’ ambiguity = word or description found to be equally applicable to more than one person or thing

E) CLASSIFICATION OF TERMS
i) The Tripartite Classification
• The classification of terms into conditions, warranties & intermediate terms is important for breach of contract & is
considered in more detail later.

ii) Promises & Contingencies
• in contracts, contingency = event that is not certain to occur
• condition subsequent = (event which does/doesn’t occur à contract automatically lapses or is discharged unless condition
waived) (Meehan v Jones)
• a condition precedent = condition upon which very existence of contract is contingent (i.e. -‐ if it doesn’t happen, there is
NO contract) (Masters v Cameron)
• purely question of construction as to which one ^ occurs


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F) EXCLUSION CLAUSES
3 Types:
(1) Classic Exclusion Clause -‐ denies liability
i. ones that recognise there has been a breach of contract but limit damages payable (limitation
clauses)
ii. ones that prevent there being a breach of contract in the first place

1. excludes rights which party would otherwise possess under contract
2. restricts rights of one party without necessarily excluding liability of other
3. qualifies rights by subjecting them to specified procedures

§ Darlington Futures v Delco Australian = leading case in exclusion clauses
§ words given ordinary & natural meaning
§ must be read in light of contract as a whole
§ give due weight to context (where clause appears in contract & nature & object of contract)
§ in case of ambiguity, construe clause contra proferentum (if there is an ambiguity -‐ 2 meanings both possible à construe it
against person who is trying to take advantage of it)

Fundamental Breach Rule
§ can exclude liability for anything except fundamental breach of contract
§ finally died death in Photo Productions v Securior Transport

Four Corners Rule
i) from Council of City of Sydney v West
ii) rule of construction NOT a rule of law!
iii) presume that party did not intend to exclude liability for damage that occurs while carrying out acts not authorised by contract
iv) can draft clause for anything (authorised/unauthorised) -‐ rebut 4 corners

i) Construction of Exclusion Clauses
• Exclusion clauses are generally interpreted narrowly & against the party for whose benefit they are included (known as the
contra proferentem rule). However, this interpretation only applies if there is ambiguity on the face of the document.
• the English courts developed a principle known as ‘fundamental breach’. It was said that it was not possible for a party to
exclude fundamental breaches. This principle is now considered a rule of construction -‐ never adopted in Australia as a
rule of law

Deviation Cases
§ carrier of goods by sea who deviates from agreed voyage thereby loses benefit of exclusion clauses in the contract which would otherwise
apply
§ if you deviate from bailment, you are liable as an insurer & you may not have regard to exclusion clauses
§ e.g. -‐ Captain required to adopt particular route, if they deviate from route à you become liable as insurer (if goods are damaged, you are
liable) à can only get out of it if you prove damage was inevitable

Negligence Exclusion Clauses
§ whether exclusion clause applies to protect party from liability for negligence = question of construction
§ usually said that intention to exclude liability for negligence must be clearly expressed
§ if you sue them for negligence & they want to rely on exclusion clause excluding their liability
§ Canada SS Rules:
1. Does clause expressly exclude negligence? (if yes à liability for negligence excluded)
2. Are the words used in the clause wide enough to capture negligence? (question of construction à if no, then doesn’t exclude
negligence, if yes à 3)
3. Is the person liable, liable for any other cause of action other than negligence?

ii) Statutory Control of Exclusion Clauses -‐ Consumer Protection
§ some statutory provisions prohibit use of exclusion clauses & make no allowance for ‘reasonable’ operation
§ ACL

Sellers
§ into every sale of goods contract you enter into à imposed consumer guarantees
§ limits to extent to which seller can exclude liability (essentially they cant)

G) PRIVITY
i) General Rule
§ only persons who are parties to a contract may enforce benefits or be subject to burdens arising under it
§ only parties to a contract are legally bound by & entitled to enforce it
§ principle from Dunlop case
§ in Aussie law = Aussie law says requirements of consideration & privity are two separate things
§ NB: need to provide consideration to be a party to a contract

ii) Exceptions to the Rule
§ exceptions have arisen mainly b/c of dissatisfaction with the rule
rd
§ most jurisdictions (USA, Canada, Singapore, UK) have legislation in place that allows person who is 3 party beneficiary of
contract to enforce that contract
§ no one general piece of legislation in Oz that creates exceptions to privity


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Agency -‐
• strictly speaking, an agency is not an exception to privity

Assignment -‐
• a contractual right = a piece of property
rd
• as long as not personal, you can agree to assign property to 3 party
• when you assign a debt, assignee can enforce it against other party to contract
• not exception to privity, b/c it doesn’t make person assigned debt a party to contract

Collateral Contract -‐
• Shanklien Pier case
• A owns pier and wants to get it painted
• B = painter
• B purchases paint from C
• paint = poor quality
• A wants to sue C
• evidence that C had promised A quality of paint
• in return for that promise, A instructed B to get paint from C (collateral contract)

rd
iii) Contracts for the Benefit of a 3 Party
§ if Alice promises Bella, in return for consideration supplied by Bella, that Alice will pay $1000 to Cate, Cate cannot under
the strict privity doctrine sue Alice if she does not pay.
§ can Bella claim specific performance of contract? à Beswick v Beswick
rd
§ can Alice & Bella rescind their contract by agreement without Cate’s consent? Yes -‐ doesn’t matter that 3 party has
relied on it!
§ can the contract be construed as containing a promise made to Bella & Cate joining in return for Bella’s consideration? if
you can construe it as a joint promise, then either party can enforce it
§ consequence of privity doctrine that A & B can, by agreement b/w themselves & without reference to C, vary their
contract by reducing amount of payment to C or eliminating provision for payment entirely
§ A not entitled to unilaterally vary contract by substituting himself or someone else as payee in lieu of C
§ Privity Doctrine Insists that a Contracting Party alone is entitled to exercise any remedies provided by contract itself, that
is:
• to terminate for breach or repudiations;
• to sue for damages or specific performance;
• to choose b/w rights or remedies; &
• to choose not to enforce contract at all
rd
§ historically, 3 party gets nominal

iv) Contracts that Attempt to Burden a Third Party
§ if Alf promises Barbara for consideration supplied by Barbara that Cliff will confer a benefit on Barbara, Cliff cannot be
sued by Barbara for not performing even if Cliff is obliged under another contract w Alf to confer the benefit on Barbara.
§ courts have consistently rejected attempts to cause contracts to maintain selling prices to be ‘attached’ to goods so as to
force subsequent buyers to act in accordance w original seller’s wishes
rd
§ generally you cant enter into a contract that places a burden on a 3 party
§ exceptions in land law -‐ restrictive covenants

v) Third Parties & the Benefit of Exclusion Clauses
§ sometimes people have succeeded in obtaining the benefit of an exclusion clause contained in a contract made b/w
other parties
§ need to understand shipping law language
§ when you put goods on board a ship, enter contract w carrier (can be ship owner or charterer)
§ people who put goods on board ship = consigner (seller/shipper)
§ consignee = buyer of goods
§ contract entered into b/w consignor & carrier = bill of lading
§ bill of lading special b/c once consignor hands it over to consignee à as if there is a contract b/w carrier & consignee
§ stevedore = in charge of taking goods off ship
§ if Stevedore drop goods à then consignee will seek to sue carrier
§ carrier will have resort to exclusion clause in bill of lading (will exclude all liability for loss & damage howsoever caused)
§ if you try to sue stevedore
§ stevedore will attempt to have regard to exclusion clause in bill of lading
§ if stevedore seeks to have recourse to exclusion clause in bill of lading à stevedore loses b/c not party to contract

vi) Legislation & Reform
§ one exception is created by Conveyancing Act 1919 (NSW) s 36c -‐ however, its effect is unclear

Doctrine of Bailment on Terms
§ in a bailment,
§ (e.g. -‐ may take car to garage for service, garage calls you to send to brake specialist)
§ in sub-‐bailment b/w garage & specialist à there will be exclusion clause that excludes specialist for all damage etc…
§ if specialist negligently works on breaks & you sue them à doctrine of bailment on terms dictates that if you authorised the sub-‐bailment
then specialist can use that exclusion clause in that contract (b/w specialist & garage) to defend against any action brought by you

PART 4 -‐ BREACH & FRUSTRATION (Exam Question on this)


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A) THE ORDER OF PERFORMANCE

§ question of construction
§ the question of the order in which parties must perform their obligations is a question of construction of the contract
§ time & order of performance under a contract are decided by reference to intention of parties as expressed in the
contract
§ dependent obligation = requires someone else to perform before you do
§ NB: condition precedent/condition subsequent
§ independent obligation = you have to perform regardless of whether other party performs or not (rare)
§ action in debt = independent
§ intention = issue of construction
§ assuming contract in writing à issues of law, not fact
§ time may be expressly provided or in reference to a specified date or time period or event
§ Time: failure to perform on time if set time, otherwise ‘reasonable period of time’ = breach
§ reasonable period of time = question of fact
§ NB: event need not be element of either party’s performance
§ generally, where no time specified, obligation in question must be performed within a ‘reasonable’ time (question of fact)
-‐ to be determined at time when performance alleged to be due
§ order of performance depends on relation b/w parties’ obligations (decided by construing the contract)
§ where parties’ obligations independent of one another à order of performance = immaterial
§ where contract b/w A & B makes A’s obligation to perform dependent on B’s performance, B must perform first unless it
has been agreed that parties are to perform at same time
§ generally obligations presumed to be dependent
§ usually parties must perform obligations at same time à obligations concurrent
§ if you have concurrent obligations, and 1 party is refusing to perform, how do you as the party ready & willing to
perform, deal with not wanting to breach contract?
§ what constitutes readiness, willingness & ability to perform = depends on facts of case
§ employer’s obligation to pay you a wage is dependent on you doing work (Automatic Fire Sprinklers v Watson)

B) PREVENTION OF PERFORMANCE
§ when you have a contract, there is an obligation on the party to cooperate
§ if your obligation is dependent on cooperation of other party, they cannot hold you in breach of contract if your failure to
perform is b/c of their lack of cooperation
§ where a party cannot perform without the cooperation of the other, a tender (or offer of performance) is sufficient to
make the other party liable. The offer to perform is treated as equivalent to performance to the extent that the party
refusing to cooperate will be liable in damages.
§ even if contract doesn’t involve active cooperation b/w parties, one party’s ability to perform may depend on other not
preventing that performance
§ e.g. -‐ enter into building contract, w time period of 2 weeks, but you decide to go away & lock door so builder cannot get
inside à cannot sue builder for breach of contract

C) DISCHARGE BY PERFORMANCE
• obvious way that contract may be discharged is if parties perform obligations of contract
• in order to be discharged from a contract, your perform must EXACTLY correspond w what you promised to do
• any deviation constitutes breach of contract à can be particularly harsh esp. in entire contracts (you don’t earn cent until you
have entirely performed your contract)
• for party to be discharged by performance, that performance must correspond exactly to the requirements of the contract
• minute failures & insignificant defects in performed will be excused
• where both parties have fully performed their contractual obligations, the contract is discharged by performance
• rule above excluded if parties have expressed intention that performance which is not exact is nevertheless to discharge a party
• ^ can be implied by nature of obligations
• promisor must offer performance to promisee within time required by contract unless promisee has dispensed the requirement
-‐ dispensation may be express/implied
• where contract may be performed in 2 or more different ways, contract may/may not provide who has power to make the
choice
rd
• promisor performs a contract vicariously where it performs through a 3 party (e.g. -‐ subcontracting)
• Aleatory Contracts = promisor’s obligation to perform becomes enforceable on occurrence of a fortuitous event (fortuitous b/c
neither party desires it to occur & neither makes any promise that it will occur).

Termination of Performance (termination of promisor’s obligation to perform contractual duties) May Occur:
§ as result of an express agreement;
§ on the exercise of a right to terminate for breach of repudiation;
§ on the exercise of a statutory right; or
§ (automatically) by reason of the ‘frustration’ of a contract.

i) Entire Contracts
§ refer to entire OBLIGATIONS
§ where A’s obligation to perform is dependent on B completely performing his or her obligations, B will not be discharged
until he or she has completely performed, & cannot call upon A to perform.
§ Entire Contract = one in which the parties have agreed, expressly or impliedly, that complete performance by the
promisor is a condition precedent to enforcement of the contract.
§ depends on construction of contract
§ may be entire if it provides for payment of lump sum
§ where contract entire & condition precedent not fulfilled, contract price will not be recoverable


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ii) Substantial Performance

§ doctrine of substantial performance
§ in order to earn contract price, you only have to substantially perform the contract
§ substantial performance will not discharge promisor
§ if you promise X, but only perform substantial X, still get contract price
§ however, since you haven’t done X, you are still in breach of contract
§ if no excuse for failure to perform, promisor in breach of contract & liable in damages
§ unless promisor breached a condition, promisee not entitled to terminate performance of contract
§ under doctrine of substantial performance, promisee may be held liable to pay contract price
§ read all 3 cases, express own view or work out what is common & what you should do: Bolton, Jacobs & Hoenig

iii) Severable Contracts
§ say severable OBLIGATIONS
§ where a contract contains a number of obligations the question will arise whether those obligations are severable from
one another. If they are then a party who has performed the severable obligation will be entitled to sue for the
performance promised in respect of that obligation. For example, often a seller is entitled to receive payment in respect
of goods delivered, even though contract has not been completed.
§ work under contract can be divided into components
§ Severable Contract = a contract which is not entire (a.k.a. -‐ divisible).
§ where contract severable, promisor may be able to recover in respect of a severable part o contract, notwithstanding
failure to discharge obligations under the contract

D) DISCHARGE FOR BREACH OF A TERM
§ How do we decide if a breach has occurred? Provisions of the contract must be construed to see whether there has been
a failure to act as required. Usually liability is ‘strict’, that is, negligence & intention are irrelevant, unless provided by the
contract.
§ in order to decide if breach has occurred:
(1) must know what breach of contract is (define & identify) -‐ either failure to perform on time or failure to
perform to standard of the contract

2 Forms of Breach of Contract:
1. Failure to Perform (occurs if promisor, without lawful excuse, fails to discharge a contractual obligation)
2. Anticipatory Breach (arises where, prior to time appointed for performance by promisor, promisee justifiably terminates
performance of contract)

§ failure to perform can only occur after time for performance has expired
§ anticipatory breach precedes time of performance

§ sometimes performance not in good faith will constitute breach of contract (only if expressly requires good faith or
contracts of fiduciary nature which create r/ship under which one party expected to act in good faith towards other)
§ where promisee alleges that promisor has breached contract, onus of proof rests on promisee

§ intermediate term = a term of which any breach gives rise to damages -‐ but only gives rise to a right to terminate if the consequences of
breach are sufficiently serious

Failure to Perform Concept
Embraces 3 Types of Breach -‐
1. non-‐performance (promisor who makes no attempt to perform);
2. defective performance (promisor’s performance is not of quality or quantity required by contract -‐ not fit for purpose required à must
identify standard of performance); and
3. late performance

Standards of Contractual Duty
Types of Standards -‐
1. Standard of absolute or strict liability; and
2. Standard of requiring exercise of care, skill or diligence.

§ standard applicable depends on construction
§ NB: breach of contract doesn’t automatically terminate performance unless parties have clearly expressed intention that this is to be the
result

§ breach of a term that allows the innocent party of contract to electively terminate the contract w effect that contract is
discharged

i) Late Performance
ii) Defective Performance
iii) Effect of Failure to Perform -‐ Termination for Breach
§ need to consider type of term that has been breached & seriousness of the breach -‐ a party will only be discharged by
failure of the other party to perform if the breach is of an important promise or has serious consequences.
§ after termination à parties discharged from obligation to perform contractual duties
§ whether right to terminate = issue of law
§ have to classify breach as a condition, warranty or intermediate term
§ condition: a term in a breach that gives rise to a right to damages & a right to terminate the contract

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§ warranty: only gives you a rise to a right for damages

§ work out whether you have a condition or warranty by…
§ cannot take into account actual consequence of breach as it was not known at that time
§ need to show you understand that that’s the point of construction

Onus of Proof -‐
§ onus of proving existence & exercise of right to terminate for breach rests on party who claims that right existed

§ either right to terminate expressly conferred by contract (‘contractual’ right) or right to terminate conferred by law
(‘implied’ right)

Situations for Right to Terminate Implied -‐
1. for breach of condition;
2. for a sufficiently serious breach of an intermediate term; &
3. in respect of an absence of readiness or willingness to perform constituting a repudiation or capable of being treated as
an anticipatory breach of contract.

§ Repudiatory Breach = any breach which gives rise to a right to terminate the performance of a contract, on the basis that any
such breach may be treated by the promisee as a repudiation of the whole contract.
§ no Aussie statute confers general right to terminate for breach or repudiation
§ are statutes which confer right to terminate in specified situations

Bunge Corporations of NY v Tradax Export
§ principle = time provision can not be a term -‐ can only be breached in 1 way: either perform on time or not (lots disagree)

E) DISCHARGE FOR REPUDIATION
§ a party who states that he/she will not or cannot perform contractual obligations is repudiating the contract. It will be an ‘anticipatory
repudiation’ if it occurs before the time for performance. A renunciation after the arrival of the time for performance may also entitle the
other party to terminate the contract.
§ The party asserting the right to terminate must show that the repudiation by the other party is sufficiently serious.
§ if promisor is not ready & willing, or will not, at appointed time, be ready & willing to perform, the law treats promisee as possessing right
to terminate performance of contract under doctrine of repudiation
§ provided that absence of readiness or willingness satisfies a requirement of seriousness
§ whether promisor is ready & willing to perform = ? of fact
§ doctrine of repudiation can be excluded by parties
§ clearest case of repudiation of obligation = express refusal to perform
§ promisee may establish repudiation if a refusal can be inferred from promisor’s words or conduct
§ general rule = wrongful termination of the performance of a contract = repudiation

§ Concept of Repudiation = by words or conduct, person no longer considers themselves bound by contract
§ but in order to terminate, can only terminate if it satisfies a requirement of seriousness
§ requirement of seriousness satisfied in 2 ways:
1. if other party to contract says they wont do anything/constant threat to breach of warranty
2. if by words/conduct, they insinuate they will not perform term, which if breached, would give rise to right to terminate
§ Repudiation -‐ within doctrine = anticipatory breach (Federal Commerce Navigation Case)
§ anticipatory breach -‐ may allow innocent person to terminate

(Federal Commerce Navigation Case)
§ 3 charter parties
§ someone who owns ship, charters ship to particular person
§ lots of people wanting to charter ships
§ person locked into 3 year charter party (contract)
§ person wanted out
§ every week/month, freight (rent) due
§ every time party would pay less than full freight, complaining something wrong w ship
§ ^ owner annoyed to point where they rang solicitor for legal advice
§ solicitor out so client asked for someone else on same level
§ ended up with banking lawyer à advice was to tell charterer that he would tell captain not to execute bills of lading, freight pre-‐paid
§ ship = grain ship so charterer was trying to sell space on ship to sellers & buyers of grain
§ CIF basis -‐ ‘cost insurance freight’ -‐ means seller pays all costs, insurance & freight costs (not buyer)
§ threat = would freeze charter out of grain trade
§ threat = enough, by words/conduct, to show they didn’t consider themselves to be bound by contract
§ charterer allowed to terminate contract & walk away from deal

Breaches of Warranty
§ breach of warranty à all you get is damages
§ continuous breaches of warranty

Types of Repudiation
1. Express Refusal to Perform
2. Impliable Repudiation
§ e.g. -‐ continuous breach of warranties
3. Erroneous Construction of a Contract
§ Luna Park v Tramways
4. Wrongful Termination of Contract

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§ if advised to terminate contract, but your advice = wrong, then their termination of contract in itself = repudiation
5. Repudiation Based on Factual Inability
§ hard to prove
§ essentially have to prove that other side was wholly & finally disabled from performing contract
§ e.g. -‐ if you advise client to terminate based on words/conduct & they sue other side for damages, could turn out that one of
defences = there wasn’t enough evidence of words/conduct to constitute repudiation à may find evidence that they were
factually unable to perform anyway (can rely on this)
doesn’t matter what you terminate for, as long as at time you elect to terminate there existed a right to terminate

Ways of Proving Repudiation
1. by reference to promisor’s words & conduct; and
2. by reference to promisor’s actual position
§ (2) depends on promisor in fact being unable to perform
§ (1) doesn’t require promissee to prove promisor in fact unable to perform

Requirement of Seriousness
§ promisee must prove either:
o that absence of readiness or willingness relied on extends to all the promisor’s obligations; or
o that it clearly indicates that the promisor will breach the contract in a way which gives rise to a right to terminate for breach

Repudiation Based on Inability
§ declared inability
§ factual inability -‐ where promisor’s inability results from words or conduct promisee need not prove that promisor was in fact unable to
perform
§ inferred inability -‐extent to which promisee is permitted to rely on is uncertain

The Acceptance Requirement
§ ‘Acceptance’ of repudiation = in context to describe promisee’s decision to terminate performance of the contract

F) DISCHARGE FOR DELAY & TIME STIPULATIONS
§ at common law time was of the essence of the contract, unless there was a contrary intention. In equity, the presumption was
the opposite.
§ the equitable rule has been adopted by legislation: Conveyancing Act 1919 (NSW) s 13

Discharge for Time Stipulations
1. Generally, at common law, time is of the essence of a contract (time = condition, breached à other party has right to terminate)
2. Where #1 is not the case, time can be made of the essence à wait until breach of time provision, then issue notice calling upon other
party to perform & give them reasonable time à when new date failed, then you can terminate
3. If no time set in contract, performance must be within ‘reasonable time’ (question of construction)
4. Equity takes view that time is not essential but performance is
5. If there is a conflict b/w law & equity, equity prevails
6. There will only be a conflict b/w law & equity, if equity would provide a remedy in the situation.
7. Equity also has a principle that follows the law -‐ means that if you go to trouble of making a time provision a condition, then equity will not
contradict you
8. Equity also recognises the notice of procedure

Late Performance
§ when performance is tendered late & not accepted, valid termination by promisee means that promisor’s breach amounts to non-‐
performance
§ original rule at common law = time is of the essence of contract unless parties had expressed a contrary agreement
§ failure by promisor to perform at appointed time à promisor liable to pay damages & enforcement of promisee’ obligations not permitted
§ timely performance = condition precedent to promisor’s ability to enforce promisee’s obligations

Equitable Rule
§ general rule in equity was that time was not essential
§ statutory resolution of conflict b/w law & equity is in favour of equitable rule
§ s13 of Conveyancing Act

Delay in Performance
§ may be delay in sense that promisor doesn’t perform at appointed time
§ delay may be consequence of breach

Breach of Essential Time Stipulation
§ express/implied agreement
§ in commercial contracts -‐ to promote certainty, time stipulations dealing w substantive obligations are usually treated as conditions

Breach of Non-‐Essential Time Stipulation
§ generally, no right to terminate without notice
§ promisor’s failure to perform on time doesn’t give rise to a right to terminate unless promisee first serves a notice requiring performance
within a reasonable time
§ 2 Exceptions to Rule -‐
o unreasonable delay in performance may amount to a repudiation or frustrate the commercial purpose of the contract; or
o the promisee may be entitled to anticipate failure to comply w a notice to perform

Failure to Comply w Notice

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§ where promisor breaches a non-‐essential time stipulation, the law usually permits the promisee to serve a notice the effect of which is
expressed by saying that time becomes essential
§ promisor bound by notice, many cases promisee also bound
§ where promisor fails to comply w notice to perform, failure gives rise to a right to terminate b/c this can generally be regarded as a
repudiation of obligation
§ Requirements of Notice:
1. inform promisor of obligation which is to be performed;
2. fix a period of time which is, in the circumstances, a reasonable time for performance; &
3. clearly indicate, either that it makes time essential, or that failure to comply w notice will give rise to a right to terminate.

*********************************************************************
Conveyancing Act 1919 -‐ S 13
Stipulations Not of the Essence of Contracts

Stipulations in contracts, as to time or otherwise, which would not before the commencement of this Act have been deemed to be or to have become
of the essence of such contracts in a court of equity, shall receive in all courts the same construction & effect as they would have heretofore received
in such court.

*********************************************************************

G) TERMINATION

§ innocent party has right to elect to terminate contract
§ election requires choice b/w inconsistent legal rights
1. Termination of a contract is not automatic -‐ does require innocent party to make election.
2. That election requires unequivocal words or conduct suggesting that innocent party is terminating or unequivocal words or conduct
showing that they are affirming contract.
3. The election must be communicated to other party.
4. Once you have made an election à final à can never go back.

§ if you terminate a contract & sue other party for damages, other party can point to your conduct that affirms contract
§ election is a question of fact not a question of law

i) Process of Termination
§ the innocent party must elect to terminate the contract, it is not automatic. This right is lost if there is an election to
continue.
§ generally election by promisee, whether to terminate or continue performance, is final

ii) Estoppel as a Restriction on Right to Terminate
§ may operate as a restriction on right to terminate by precluding promisee from setting up an election to terminate as
a ground for discharge
§ general purpose of estoppel = to prevent an unjust departure by one person from assumption adopted by another as
the basis of some act or omission which, unless the assumption be adhered to, would operate to that other’s
detriment

iii) Effect of Termination
2 Basic Rules
§ As long as you have a right to terminate, you can rely on that right even if that was not the original reason you gave
to terminate.
§ If you do elect to affirm a contract, you must remain ready, willing & able to perform.

§ all accrued rights & obligations survive discharge
rd
§ e.g. -‐ contract for sale of land, $1m instalments, time of essence, 3 instalment not paid, innocent party terminates contract
§ ^ can they sue you for $1m?
§ thought process = must ask whether/not innocent party has done what they had to do to earn that payment
§ on its face, would say they haven’t b/c you are paying for land & they haven’t given it to you b/c you only get it after you pay $5m
§ ^ technically right, but reasoning incorrect b/c this is an unconditionally accrued obligation b/c when we did consideration, some contracts
formed for offer for act & some are promise for promise, but some entered into where you bargain for nothing other than other party’s
promise to do something
§ except for last instalment, every other instalment is only you bargaining for other person’s promise to do something
§ when you enter into this contract, you exchange promises (promise to sell land, promise to pay $5m in $1m instalments) so at instalment 3
when you don’t pay à at that point you only bargained for seller’s promise
§ seller has given you that promise at beginning, so in respect of instalment 3 you have everything you’ve bargained for, but you still cant sue
for $1m b/c you cannot engage in conduct that is inconsistent w your election to terminate contract
§ need 3 things: termination, unconditionally accrued right in order for it to survive termination & in order to enforce it, must not be
inconsistent w your election to terminate

§ an election to terminate performance of a contract, whether for breach or repudiation, discharges parties from
obligation to perform their respective contractual duties
§ discharge of a contract, by a promisee’s election to terminate, takes effect from time of promisee’s election
§ once promisee has exercised right to terminate & parties have been discharged, promisee cannot go back on
election
§ 2 types of rights may survive termination: (1) right to damages & (2) right to receive performance of contractual
obligation
§ whether/not contractual term operates after termination = question of construction

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Interplay b/w Election & Estoppel

Foran v Wright
nd
§ settlement date set for 22 June
§ time = condition
§ prior to settlement, vendors under obligation to register right of way over property
th
§ 20 June = vendors called purchasers & said they wouldn’t be able to get it registered by settlement date
§ settlement date arrives & nobody turns up
th
§ purchasers terminate contract on 24 & ask for deposit back
§ HC via majority, held that purchaser had right to terminate contract
§ argument for vendors = cant terminate contract b/c you are not ready, willing & able to perform yourself (evidence purchasers didn’t have
money)
th
§ majority of HC said vendor estopped from arguing that buyer not ready, willing & able to perform b/c on 20 June (when they said they
cant register) = representation to purchaser of pointlessness of them to continue to get ready for settlement date (they relied upon this)
§ vendor cant resile from this statement à estopped
§ when vendor said you cant register à gives rise to election for purchaser

Termination in Australian Law
§ in Aussie law, if you have right to terminate for breach, there are no controls over your exercise of that discretion, you are free to affirm
contract & free to terminate it
§ ^ printer from Whiting Carter Councils v McGregor
§ someone owned garage who engaged council to have advertising campaign throughout shire on their bins
§ garage proprietor repudiated contract
§ council faced w election to terminate or affirm contract
§ council continued to advertise business & then said “Pay fee”
§ at that point, other party said council should have terminated contract b/c he closed business
§ court said council is free to elect to affirm or terminate so if they do work, they get price
§ customer says when you sue for damages in contract law, you have an obligation to mitigate your loss (e.g. -‐ if you’re hired for a job &
employer sacks you, if new job opportunity comes through door & you don’t take it à you are required to take it or damages decrease)
§ Court says council not suing for damages but for debt (big difference)

H) DISCHARGE BY FRUSTRATION
§ Frustration = frustration occurs whenever the law recognises that without default of either party a contractual obligation has become
incapable of being performed b/c of the circumstances in which performance is called for would render it radically different from that
which parties agreed to.
§ to work out radical difference, essentially looking at what parties agreed to do under contract & compare to what they would have to do
after event
§ more often than not, event = unforeseen
§ event should occur after formation
§ always ask if one of the parties assumed the risk, then so be it, they are now lumbered with loss
§ categories below

Destruction
§ classic impossibility of performance = subject matter of contract is destroyed
§ also get things like cyclones destroying crops

Taylor v Caldwell
§ people hiring out hall for event
§ prior to event, hall burns down
§ contract now impossible
§ no one party assumed that risk
§ contract frustrated

Frustration of Purpose
§ b/c of unforeseen event, it becomes pointless to continue w contract
§ technically, may still be possible to perform but pointless

Carell v Henry
§ room wanted to watch coronation
§ clear that purpose of contract is to look at procession
§ procession cancelled = frustrating event since very purpose of contract is now pointless

Delay
§ can have a delay in a contract -‐ so long, that at some point it becomes a frustrating event
§ no fault of any party
§ different from other categories b/c other categories rely on event, whereas you don’t have to sit & wait for contract to be useless, can just
make commercial decision based on reasonable probabilities that delay will go on so long that there is no point waiting around any longer

War
§ war = frustrating event

Frustration of Commercial Venture
§ when circumstances are such to radically alter commercial contract & render it something different from what you actually agreed
§ difficult b/c it is not enough that something happens & your performance is rendered ____ à has to be radical change

Codelfa Constructions

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§ commercial nature of contract had so changed that is constituted a frustrating event
§ HCA: there is now a substantive delay in the work, there is a massive increase in the burden on Codelfa to perform, with no contractual
right to any increase in payment or costs
§ HCA thought that could be frustrating event & referred back to arbitrator to make that decision

Davis Contractors Case
§ contract to build 78 houses for fixed price in 8 months
§ b/c of weather conditions & war before à labour shortages, so only done in 22 months
§ builders claimed contract frustrated
§ builders trying to rid of contract in order to bring a restitutionary claim for work they have done
§ HoL said contract not frustrated -‐ said this was a completely foreseeable event (labour & material shortages etc.), took view that labour
shortages & weather conditions merely made contract more onerous & they thought contractor accepted risk (b/c when they quote price
they accept risk of labour shortages & weather)
§ ^ all 3 factors à no frustrating event
§ need to work out line b/w Codelfa & Davis

Death & Incapacity
§ death à frustrating event
§ incapacity à frustrating event

i) The Rule
§ Historically there was a strict rule that people contracting were absolutely liable and supervening and unforeseen
events preventing performance were no excuse.
§ since frustration depends on terms of contract & circumstances of case, it is not possible to define
§ clear that even must have severe consequences
§ must be a ‘radical’ change
§ mere fact that an event deprives a party to a contract of benefits which were expected from its performance
doesn’t imply that doctrine of frustration can be used as an excuse for not performing
§ if an obligation is absolute, promisor must perform & if not, pay damages for breach
§ whether/not party to contract has undertaken an absolute obligation depends on construction
§ Frustration relaxes this rule and may arise where there is:
a) Impossibility (eg Destruction of subject matter of the contract)
b) Frustration of purpose (eg Non-‐occurrence of an event which is the basis of the contract)
c) ‘Frustration of the commercial venture’
d) Others
§ Death or incapacity for personal service of a party in a contract of personal service. Supervening legal impossibility.
ii) Application in Certain Circumstances
a) Leases & Contracts for the Sale of Land
o an option to purchase or lease land is subject to the frustration doctrine
o doctrine of frustration is not likely to apply to many sale of land cases
o doctrine of frustration applies to agreement to execute a lease of land (no Aussie authority directly supporting this)
o argument that ultimately doctrine of frustration will be applied to leaseholds in Australia
b) Where frustration was foreseen but not provided for in the contract
o 3 questions you ask:
1. Was the event in fact foreseen? (if no à doctrine may apply to facts of case)
2. If parties foresaw event, then first ask if one accepted risk (if no à doctrine may apply to facts of case)
3. Ought it to have been foreseen as a likely consequence? (if yes à doctrine doesn’t apply)
o event must generally be unforeseen
o event relied upon as frustrating the contract must not have been foreseen by the parties
o Extent of Foresight Required -‐
1. fact that parties foresaw the possibility of the cause of the frustrating event occurring is not sufficient
2. fairly strict standard of foreseeability applies -‐ parties must be found to have foreseen occurrence of event
as a serious possibility
3. fact that parties have foreseen possibility that performance might be interfered w or interrupted, does not
necessarily prevent contract being discharged by frustration
c) Where the contract provides for the consequences of frustration
o whether or not contractual provision deals w event relied upon as frustrating contract depends on construction
o if contract contains express provisions which indicate sufficiently the consequences which are to result from
occurrence of event à parties rights will be regulated by express terms à no room for exercise of doctrine
o a contractual provision which otherwise woud be effective to exclude operation of doctrine is not enforceable if
contrary to public policy
o even if occurrence of event doesn’t frustrate contract under common law, the event may bring into play an express
term providing for discharge of the parties
d) Self-‐Induced Frustration
o no frustration when event self-‐induced
o deliberate act by one of parties is sufficient to constitute self-‐induced frustration
o doubtful whether deliberateness necessary
o onus of proof is on party who makes allegation that frustration was self-‐induced
o must be an element of causation b/w default of promisor & frustration of contract
o if both parties in default, b/c each party has contributed to occurrence of event relied on as frustrating contract,
neither may rely on it & contract is not frustrated

Maritime v Ocean Trawlers

§ OT hire boat to Maritime & sue them b/c they never paid hire fee

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§ 5 boats, 3 licenses
§ Maritime chose to allocate licenses
§ they could have given license to that specific boat
§ HoL said this is self-‐induced frustration

Super Servant II
§ defendant contracts to carry drilling rig from Japan à Rotterdam using Super Servant I or II
§ agreed to take oil rig using Super Servant of their choice
§ Super Servant II sinks prior to performance
§ D claimed frustrating event b/c after contract they had hired Super Servant I to someone else
§ Court says not a frustrating event = self-‐induced frustration b/c if you had choice to use Super Servant I

Frustration in Various Circumstances
Leases & Frustration in the Sale of Land
§ options to purchase/lease land = is subject to doctrine of frustration
§ contract for sale of land = in theory, subject to doctrine of frustration
§ leases = doctrine applies

iii) Consequences of Frustration
§ frustration is automatic, except for delay
§ automatically discharges a contract
§ effect of discharge = only unconditionally accrued rights survive & procedural terms (e.g. -‐ arbitration clause or liquidated
damages clause)
§ if you want remedy, have to look at law of restitution
§ Frustrated Contracts Act (NSW) -‐ attempts to alleviate some of harshness of frustration
§ Frustration discharges the whole contract automatically and either party may rely upon it, except in cases of self-‐induced
frustration.
§ The Frustrated Contracts Act 1978 (NSW) replaces the common law in NSW in relation to contracts covered by it. It provides a
series of fixed rules for the adjustment of the parties’ rights. Students are not expected to master the intricacies of the
adjustments in ss 9-‐11.
§ when frustration occurs, it automatically discharges parties from obligation to perform their contractual duties
§ distinguishable from discharge following breach or repudiation which requires an election to terminate performance of
contract
§ where frustration self-‐induced, parties not discharged
§ where performance of contract terminated for breach or repudiation, neither party is able, unilaterally, to reinstate obligations
of parties
§ frustration discharges whole contract -‐ party cannot rely on frustration as ground for partial discharge
§ occurrence of event that frustrates contract doesn’t give rise to any right to claim damages
§ once frustration has occurred, terms of contract cease to operate & neither party may claim to enforce its terms
§ partial performance of contract prior to frustration does not give rise to a restitutionary claim in respect of that performance
§ where money is paid prior to frustration, right to recover restitution of amount paid depends on terms under which money
was paid & effect of frustration
§ in NSW, consequences of frustration regulated by the Frustrated Contracts Act 1978 (NSW)
§ contracts to which Act doesn’t apply =
- contract made before 1 May 1979
- charterparty which is not a time or demise charterparty
- contract for carriage of goods by sea
- contract of insurance
- any other contract ‘in so far as the parties thereto have agreed’ that the Act is not to apply
§ at common law, discharge by frustration generally doesn’t affect any promise due for performance prior to frustration
§ s 7 of Act -‐ promise due for performance prior to frustration which was not performed before time of frustration is discharged
§ s 8 provides that, when damages are assessed in respect of a liability which accrued prior to frustration, regard must be had to fact that
contract has been frustrated
§ s 10 deals w situation where full performance, which doesn’t involve payment of money, is received prior to time of frustration
§ s 11 deals with partial performance
§ s 12 deals w return of money paid prior to frustration
§ expenditure prior to frustration is not recoverable at common law
§ where money is payable as a result of application of ss 9-‐13, it is recoverable as a debt in a court of competent jurisdiction

Where the Contract Provides for the Consequences of Frustration

§ deals w what would happen if such event occurs
§ courts do not likely construe contract as recognising parties as giving up one of their common law rights

Simmons v Hay
§ Hay employed by Simmons as a 3 year contract
§ Hay decides to give 3 months notice to terminate employment
§ Hay to turn up to business during normal hours & work except in case of illness
§ needed to provide satisfactory evidence of illness
§ fell sick for 7 weeks
§ came back to work & got sick again
§ eventually never came back à permanently incapacitated
§ Simmons wrote to say contract terminated by reason of frustration

lOMoARcPSD|1414388
§ Hays said it was not since express term in contract in case of illness, which only need to provide satisfactory evidence of illness (provided
doctor’s certificate)
§ Supreme Court said clause only, on construction, relevant to normal coughs/colds, not intended to deal w such a frustrating event as that,
hence parties have not contracted out of right to rely on frustration
§ not foreseeable as likely consequence, so Court can say employer ought to have foreseen it, so doctrine of frustration could apply to
particular case

Bankline Case
§ contract for charter of ship for one year
§ before ship given, British government requisitions ship
§ was contract frustrated?
§ charterer sues owner for failure to deliver & wants damages
§ owner of ship claims contract frustrated
§ owner wants out of contract b/c they have potential buyer
§ 2 notable clauses in contract
§ one clause gave charterer right to cancel contract for non-‐delivery
§ another clause allowed charterer to cancel contract if ship requisitioned by government
§ had owner contracted out of right to claim frustration? NO
st
§ 1 clause didn’t technically deal w requisition of ship & didn’t cover particular circumstance
nd
§ 2 clause = only dealt w charterer’s rights & didn’t necessarily mean that the owner had no rights
§ would be an uncommercial construction of contract for owner of ship to leave itself at whim of charterer for event that was completely out
of their control

I) DISCHARGE BY AGREEMENT
§ A contract may be discharged by the agreement of the parties, provided there is consideration for the agreement to discharge.
An oral discharge or variation of written contract is effective and does not conflict with the parol evidence rule. With respect to
contracts requiring evidence in writing see Part 2E above.


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Very detailed notes for the whole semester and course.

Contracts (University of Sydney)

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B. INCORPORATION OF TERMS

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LECTURE 1: INTRODUCTION

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• Immoral Contracts – Marriage and Sexual Morality

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LECTURE 2: AGREEMENET PART 2: AGREEMENT

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Held per Somervell LJ:

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• Lapse of time

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§ If machinery in clause of essential term: does it work?

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Per Handley JA

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THIS IS CONSIDERATION IN FORM OF A PROMISE. Contracts promise are bilateral:

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o Menzies = up to them to determine

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