PART 1: INTRODUCTION

Freedom of contract___________________________________________
Why enforce contracts?

Source: Brian Coote, ‘What is a Contract?’, Paper presented at the Ninth Commonwealth Law
Conference

- Traditional definition
o Enforceable agreements
o Agreements are not the only form of contract
o Sir Frederick Pollock – promise or set of promises which the law will enforce.
- Secret paradox
o Sir William Anson 1878 on consideration for an executory bilateral contract:
consideration has to be found within the exchange of promises but the promises
themselves do not qualify since they are mere words and give rise to no obligation
unless/until the contract is formed. Obligations resulting from formation cannot be
consideration either, because consideration is a pre-condition of formation and you
cannot have, as a pre-condition of formation, an obligation which results from it.
- Answer to the paradox
o A promise, if it is genuine, is never a mere mouthing of words and, in the
understanding of most comentators, neither is it just a statement of intent.
o What distinguishes promise from other statements is that it involves an acceptance
or an assumption of some sort of obligation.
o Attachment of legal contractual obligation and its assumptions are inherent within
each other. Reciprocal exchange of the assumptions of legal contractual obligations
(occurring simultaneously at the point of formation) brings an executory bilateral
contract into being.
o Each party is seen to have bargained for is the assumption, by the other, of
reciprocal legal obligation to him/her.
o Problem: perception that contractual obligation is something incurred rather than
assumed.
- Definition: The Essence of Contract – a contract is a promise or undertaking in respect of
which legal contractual obligation has been assumed by means which the law recognises as
effective for that purpose.
PART 2: AGREEMENT
A. Offer and acceptance________________________________________
Offer

- Objective approach: offer must normally be interpreted in the sense in which it would
reasonably be understood by an ordinary person, even though the offeror’s actual meaning
was otherwise.
- Definition: indication by one person to another of his or her willingness to enter into a
contract with that person on certain terms. The ‘offer’ must indicate a willingness by the
offeror to be bound without further negotiation as to the terms of the proposed contract.
- Offer creates in the offeree a power to create a contract by their unilateral action.
- Whether a statement is an offer depends on whether the person to whom it is addressed
would reasonably interpret it as such.

Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd [1953] 1 QB 401

- Display of goods in a store is an invitation to treat rather than offer.

- Somervell LJ
o 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.
o No reason for implying from this self-service arrangement any implication other than
that it is a convenient method of enabling customers to see what there is and
choose, and possibly put back and substitute, articles which they wish to have, and
then to go up to the cashier and offer to buy what they have so far chosen.
- Birkett LJ
o 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 accept your offer’.
o The mere fact that a customer picks up a bottle of medicine from the shelves in this
case does not amount to an acceptance of and offer to sell.
o 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.

Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424

- Facts
o 1946 Commonwealth government introduced scheme whereby wool purchased by
manufacturers for local use was subsidised by the government.
o AWM purchased large quantities of wool over the next two years.
o June 1948, the government discontinued the subsidy scheme.
 o Because AWM’s wool stocks were so high, it required AWM to repay some of the
money it had received.
o AWM claimed this breached a unilateral contract between it and the government.
- Issue: Did the Commonwealth’s conduct amount to an offer to be contractually bound?
- Resolution: Judgment for the defendant (commonwealth).
- Reasoning
o Between the statement, 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, so to speak, the relation of a quid pro
quo (fair exchange).
o Test: ask whether there has been a request by the alleged promisor that the promise
shall do the act on which the latter relies. Such a request may, of course, be
expressed or implied. This is the same as asking whether the ‘offer’ was made in
order to induce the doing of the act.
 The alleged promise must be made in return for the act performed.
 Test: did the offeror expressly/impliedly request the doing of the act by the
offeree?

Offers can be made to the whole world or a more limited group

Difference between an invitation to treat and offer is the offeror’s intention to be bound by any
potential acceptance.

Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256

- The specificity of the offer and the deposit of money into the account are sufficient evidence
of an intention to be contractually bound.
- An acceptance of an offer made ought to be notified to the offeror, in order that the two
minds may come together.
o As notification of acceptance is required for the benefit of the offeror, the offeror
may dispense with notice to himself if he thinks it desirable to do so, and I suppose
there can be no doubt that where the offeror, expressly or impliedly intimates a
particular mode of acceptance as sufficient to make the bargain binding, it is only
necessary for the offeree to follow the indicated method of acceptance; and if the
offeror, 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 many cases notification of acceptance is not required; in the advertisement cases it seems
to me to follow as an inference to be drawn from the transaction itself that a person is not
to notify his acceptance of the offer before he performs the condition, but that if he
performs the condition notification is dispensed with.
- It follows from the nature of the thing that the performance of the condition is sufficient
acceptance without the 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.
Communication of acceptance is generally required

- Until acceptance is communicated, the offeror can withdraw the offer.

- Normally when the offeror knows the proposal has been accepted that the parties have
reached agreement.
- Offeror may dispense with need for communication since the requirement is primarily in the
interests of the offeror.
- Method of acceptance can be prescribed by the offeror, and in some cases an acceptance in
any other manner is not an effective acceptance. Alternative methods of acceptance which
is no less advantageous to the offeror than the prescribed method will suffice ( Tinn v
Hoffman & Co). If offeror wishes the prescribed method to be the only method permissible,
the intention must be quite clear.

Acceptance

Correspondence with offer

Butler Machine Co Ltd v Ex-Cell-O Corporation (Eng) Ltd [1979] 1 All ER 965

- Facts:
o 23 May 1969 plaintiff offered to manufacture, sell and deliver product at a price of
75535 GBP. Price variation clause in terms and condition stated that prices may rise
subject to change in price of materials.
o Defendant replied 27 May 1969 with separate terms and conditions. There were
differences between these terms and conditions and the sellers.
o 5 June 1969 seller signs the contract subject to the terms and condition of
defendant.
- Reasoning:
o The order of 27 May purported to be an acceptance only in respect of the fact that it
was an agreement to purchase the same machine – however it contained additions
such as date of delivery and so forth, it amounted to a counter offer.
o Letter of acceptance dated 5 June was an acceptance of the counter offer.
- Dictum:
o When there is a ‘battle of forms’ there is a contract as soon as the last of the forms
is sent and received without objection being taken to it.
o Though plaintiff’s clause that “these terms and conditions shall prevail any t+c in the
buyer’s order” may have continued through all subsequent dealings (i.e. counter
offers etc.), however 5 June reply is decisive. It makes it clear that the contract was
on the buyers’ terms and not on the sellers’ terms: and the buyers’ terms did not
include a price variation clause.

Knowledge of offer required for acceptance?

- Mere fact that a person by chance happens to perform that act while ignorant of the offer
will not result in a binding contract.
 - Where an offer calls for acceptance by the performance of an act; it may be that a person
commences performance in ignorance of the offer but becomes aware of it before
completing performance. In such a case, continued performance would be assumed to be at
least partly motivated by the offer.

R v Clarke 1927) 40 CLR 227

- Issue: Did Clarke, who after seeing the reward notice, admit into evidence the identity of the
murderers in order to clear his name only or to clear his name as well as claim the reward?
- Reasoning:
o Clarke, on the suggestion of Inspector Condon, for the first time thought of the
reward and decided to claim it. 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.
o Clarke did not act on the faith of, in reliance upon, the proclamation; and that
although the exact fulfilment of the conditions stated in the proclamation would
raise a presumption that Clarke was acting on the faith of, in reliance upon, the
proclamation, that presumption is rebutted by his own express admission.
o Unless a person performs the conditions of the offer, acting upon its faith or in
reliance on it, he does not accept the offer and the offeror is not bound to him. Any
person knowing of the offer who performs its conditions establishes prima facie an
acceptance of that offer.

Revocation

- Offer may be revoked prior to acceptance if it is communicated to the offeree.

- It is effected by the offeree (or someone authorised by the offeree to receive such
communications) being informed that the offeror does not want to proceed with the
contract. Any clear indication of this intention is sufficient. Communication by offeror is not
essential.
- Postal acceptance rule only applies to acceptances – never to revocation or anything else.
- Where an offer of reward was made published by a public notice, that offer could be
withdrawn by a similar notice.

Dickinson v Dodds (1876) 2 Ch D 463

- Issue: If an offer has been made for the sale of property, and before the offer is accepted,
the offeror enters into a binding agreement to sell the property to somebody else, and that
the first offeree receives notice in some way that the property has been sold to another
offeree, can he after that make a binding contract by the acceptance of the offer?
- Reasoning:
o No. The law may be right or wrong in saying that the offeror who has given the
offeree a certain time within which to accept the 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 some one time, that is, at the time of the
 acceptance, how is it possible that when the offeree 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?

Rejection, lapse, non-occurrence of condition and death

- Offeror may reject counter-offer, but in terms which indicate that the original offer is still
open. In such a case the offeror has renewed the original offer and the offeree may accept,
but only because the offeror chose to repeat the offer.

Stevenson, Jaques & Co v McLean (1880) 5 QBD 346

- Offer is terminated once rejected by the offeree.

- Counter-offer amounts to a rejection of an offer.

Uncertainty

The rights and obligations of the parties must be sufficiently certain to be enforceable. Also, there
may be no contract if some contractual obligation has yet to be agreed on. But the courts strive to
give effect to contracts if possible.

- Difficulty of interpretation must be distinguished from absence of meaning.

- As long as it is capable of a meaning, it will ultimately bear that meaning which the court, or
in an appropriate case, and arbitrator decides its proper construction.
- Question becomes one of construction, of ascertaining the intention of the parties, and of
applying it.

Upper Hunter Country District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429

- Facts:
o Clause 5 in supplier’s contract, “Supplier’s costs shall vary…provided the Supplier
shall have the right to vary maximum demanded charge and energy charge…”
o NSWSC held clause 5 was meaningless and void for uncertainty.
- Issue: Was the concept of ‘Supplier’s costs’ certain?
- Reasoning (High court):
o Appeal allowed – clause 5 was held to be sufficiently certain.
o So long as the language employed by the parties, to use Lord Wright’s words in G
Scammell & Nephew Ltd v Ouston 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’, the contract cannot be held to be void or uncertain or
meaningless.
o But to my mind, generally speaking, 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 by
the courts.

Incompleteness
 - A contract will fail for incompleteness where some essential or important part of the bargain
is yet to be agreed.
- Where parties agree to 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.
- A seemingly incomplete agreement may be enforced because the courts will imply in the
contract terms relating to essential matters which the parties themselves have not expressly
dealt with.
o Greater the number of important matters not expressly dealt with the more likely it
is that the court will conclude that the parties had not finally agreed on a bargain.

Severance

- Courts will attempt to ‘sever’ the void part of a contract that is either too vague or
incomplete. Then the void clause is ignored and the rest of the contract enforced.
- If severance not possible the whole contract must fail.
- Test: to ask whether the parties intended that, if the clause in question could not for any
reason take effect, the whole contract must fail. If the answer is ‘no’, then even a clause
relating to a quite important matter will be severable.

Whitlock v Brew (1968) 118 CLR 445

- Facts:
o Whitlock sold land to Brew on the condition that Brew would grant a lease of part of
the land to a third party (Shell) ‘on such reasonable terms as commonly govern such
a lease’.
o Brew declined to complete the purchase, Whitlock terminated the contract and kept
Brew’s deposit.
- Issue: Was there a contract between Brew and Whitlock? If not, then Brew is entitled to a
return of his deposit.
- Reasoning:
o 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.
 ‘upon such reasonable terms as govern such a lease’ is not apt to refer to
either the period for which the contemplated lease is to subsist or the rent
to be payable thereunder.
 ‘as to the interpretation or operation’ does not cover a dispute as to either
of those matters.
 Clause is therefore uncertain in that it neither specifies nor provides a
means for the determination as between the parties of the period for which
the contemplated lease shall be granted or the rent which shall be payable
thereunder.
 o If the offending clause forms a pivotal part of the contract, so that without out it the
parties could not have intended to be bound, severance of the particular clause is
not possible.
o If a clause is inserted in a contract for the benefit of one party only, but is drafted in
such vague terms as to make it void, that party can choose to waive the benefit of
the clause and have the remainder of the contract specifically enforced.
o Special Condition 5 is foundational to the agreement; if it is uncertain (and it is), it is
not possible for the term to be severed.
 To do so would mean enforcing a contract materially different from that
which was in contemplation of the parties.

Agreements to negotiate

Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1

- Facts:
o Heads of Agreement: ‘(the parties) will 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 which when approved and executed will take the place of these heads of
agreement’.
o Coal Cliff withdrew from negotiations.
- Issue: was the heads the heads of agreement a contract to negotiate a joint venture
agreement in good faith?
- Reasoning:
o Unanimously allowed appeal – the heads of agreement was incomplete, contract
void therefore not liable for breach of contract and not entitled to pay damages.
However there were differing opinions.
o Kirby P and Waddell A-JA
 The notion that a contract to negotiate in good faith is unknown to the law
is incorrect – such a promise would in some cases, depending on its terms
and conditions, be enforceable.
 If the parties provided good consideration and the terms of the agreement
to negotiate were sufficiently certain, such agreement might be enforceable.
One mechanism to make an agreement to negotiate more certain, it was
suggested, would be to include a provision referring matters in dispute to a
third party such as an arbitrator.
 In small number of cases courts can refer to readily ascertainable external
standards to add flesh to a provision which is otherwise unacceptably vague
or uncertain or apparently illusory. In many cases the promise to negotiate
in good faith will occur in the context of an ‘arrangement’…which is too
illusory or too vague and uncertain to be enforceable.
o Handley JA
  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.
 If the law does not recognise a contract to enter into a contract, it seems to
me that it cannot recognise a contract to negotiate.
 These considerations demonstrate that a promise to negotiate in good faith
is illusory and therefore cannot be binding.

Conditional Promises

- ‘subject to…’ clauses

- 3 cases where parties have reached agreement and agree that the matter of their
negotiation be dealt with by a formal contract.
1. Where 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.
2. Where parties have completely agreed upon all the terms of their bargain 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.
3. Where the intention of the parties is not to make a concluded bargain at all,
unless and until they execute a formal contract.

Masters v Cameron (1954) 91 CLR 353

- Facts:
o Cameron agreed to sell to Masters a farming property on certain terms: ‘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’.
o On the same day Masters paid the deposit; Masters subsequently refused to
continue with the purchase.
o Both claimed the money.
- Issue:
o Was there a binding contract of sale?
o Should the deposit be returned to Masters?
- Reasoning:
o Appeal allowed – document was not a binding contract and deposit should be
returned.
o Where the intention of parties is not to make a concluded bargain at all – the parties
may not intend any further negotiation about the terms of their bargain but want
the flexibility to withdraw until that later stage.
o They wish to reserve to themselves a right to withdraw at any time until the formal
document is signed.
 o 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.

Meehan v Jones (1982) 149 CLR 571

- Facts:
o Subject to finance clauses
o Contract for the sale of land contained a clause stating that the contract was
executed subject to ‘the purchaser or his nominee receiving approval for finance on
satisfactory terms and conditions in an amount sufficient to complete the purchase’.
- Reasoning:
o The finance clause meant that the purchaser could decide whether the terms on
which finance was available were satisfactory.
o Not necessary to test whether his satisfaction was subjective (finance which he
honestly considered satisfactory) or objective (finance which ought reasonably to
satisfy him).
o In NSW the view has been taken that a subject to finance clause is void, whether it
imports an objective or a subjective test.

B. Consideration______________________________________________
Consideration is something of value (including a promise) given as the price of a promise by he
promisee.

Bilateral contracts – two parties each of whom is both promisor and promisee. There are executory
promises on both sides. Each party’s promise is consideration for the other party’s promise. If A and
B sign a written contract for the sale and purchase of land, A’s promise to convey title is
consideration for B’s promise to pay the price. Similarly, B’s promise to pay the price is consideration
for A’s promise to convey title to B.

Unilateral contracts – at its inception, consideration is executory on one side only (e.g. owner of a
lost dog promising reward). The consideration on the other side (the finder) is executed at that time
when they find and return the dog. There is only one promisor; if consideration is raised as an issue
it need only be asked whether the promisee has provided consideration. Because the promise is
made in return for an act, the consideration ‘executed’. In Carlill, consideration was only relevant
only from Ms Carlill’s perspective. She provided it by purchasing the smoke ball and using it as
directed.

What promises are legally enforceable?

- Contractual promises are supported by consideration, and consideration must move from
the promisee.
- There is good (recognised in law) and bad (not recognised) consideration.
 - Consideration must be ‘sufficient’ to justify the enforcement of a promise.
- Dunlop Pneumatic Tyre Co v Selfridge & Co
o Whether or not a promise that is part of an agreement can be enforced depends on,
among other things, whether the promisee has given consideration for the promise.
Consideration is perhaps best understood as an act or promise of an act which is the
price paid for the other's promise. The common law will only enforce a promise for
which a price is paid.
- 4 misconceptions cleared up:
o Do not conceive consideration as a single succinct concept.
o Do not regard consideration as the sole criterion of enforceability. Frequently
promises without consideration are enforced (though they may not be contractual in
nature).
o In majority of cases consideration does not pose any real difficulties.
o Considerations are made in return for something – therefore promises are not made
‘in the air’.

Difference between conditional gift promises and contracts with consideration

- The question in each case is whether the event stipulated for is the ‘price’ of the promise or
merely a condition precedent on fulfilment of which the promise, still gratuitous (and
therefore not enforceable as a contract), was to operate.
o I will pay $20 to the first person who returns my lost dog to me = consideration.
o I will give $20 to the first member of the class who raises his or her hand =
conditional promise.
o I will pay $20 to the first person who removes a load of rubbish from my house =
consideration.
- If A says to B ‘I will give you that television set if you switch it on for me’, B’s switching on of
the television is a detriment which looks to count as consideration under the benefit-
detriment definition. But because it is unrealistic to conceive of A agreeing to sell the TV for
the ‘consideration’ provided by B, a court would interpret the promise as gift promise,
condition on the television set being turned on.

Consideration must be referrable to the promise

- A good motive for making a promise does not amount to consideration for the promise. Each
party to a contract enters into it in the hope and expectation of deriving some benefit from
it.
- There must be some connection between a promise which is sought to be enforced and the
consideration which is alleged to support the promise.

Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424

- Issue: Whether the announcement of the subsidy plan was an offer and whether the plaintiff
had provided consideration by purchasing wool. Because of the requirement of referability,
it had to be considered whether there was a sufficient connection between the
announcement and purchases by the plaintiff. The contract put forward was unilateral –
 accordingly, the issue of consideration arises in respect of an act rather than a promise put
forward as consideration.
- Reasoning:
o In order that a contract may be established, 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 the act was really done in
consideration of a potential promise inherent in the statement or announcement.
o Impossible to find anywhere anything in the nature of a request or invitation to
purchase wool.
o Nor was there anything to suggest ‘that the payment of subsidy was put forward in
order to induce any manufacturer to purchase wool’.
o No evidence ‘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’.

Consideration must move from the promisee but not necessarily to the promisor

- Promisee is the person to whom a contractual promise is made.

o e.g. Seller (promisor) promises a buyer (promisee) to deliver goods on a certain date.
Since the contract is bilateral, the buyer is also a promisor. The seller’s promise to
deliver is binding because it is supported by consideration moving from the buyer
(promisee).
- A might make a promise to deliver goods to B in return for a promise by B to pay the price to
C.
o The consideration by B (made to A) is the promise pay C.

Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460

- Reasoning:
o Not a promise by A with B for consideration supplied by B to pay C.
o It was a promise by A made to B and C for consideration to pay B and C.
 ‘A’ cannot question whether the consideration which he received for his
promise moved from both B and C, or only from one of them.
o When a promise is made to joint promisees, it is enough if consideration is given by
one on behalf of all because it is then deemed to have moved from all.

Consideration must be sufficient, but need not be adequate

- Test: ask whether what is put forward can, as a matter of law, be regarded as consideration.
This approach not only serves to exclude from the concept anything contrary to public policy
or statute (e.g. a promise to commit a crime), it also assists with the creation of sub-
principles (which are not to be dealt with this far into the course).

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

- Facts:
 o Chappell, copyright owners of their musical work ‘Rockin’ Shoes’ sued for breach of
copyright against Nestle who had manufactured their records and sold them to
members of the public who supplied money and 3 wrappers in return.
o Purpose of record sales was to promote sales of the chocolate bars.
o Chappell argued Nestle breached copyright legislation by offering to pay royalties on
the basis that 1s 6d was the retail price of the records when in fact it was greater
(i.e. the wrappers).
- Issue: whether the chocolate bar wrappers were part of the consideration for the sale of the
records.
- Reasoning:
o Court decided that wrappers were part of the consideration for the sale of the
records. Accordingly, Nestle had not complied with the copyright legislation.
o Unrealistic to divorce the buying of the chocolate from the supplying of the records.
 If a person accepts an offer to supply goods if he
a. Does something of value to the supplier and
b. Pays money
o The consideration is both (a) and (b).
o Lord Reid did not see why the possibility that in some cases the acquisition of
wrappers did not directly benefit the Nestle Co should require the court to exclude
from consideration the cases where it did.
 The acquisition of wrappers are at least in many cases, of direct benefit to
the Nestle Co, and required expenditure by the acquirer which he might not
otherwise had incurred.
o 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.
o As the whole object of selling the record, if it was a sale, was to increase the sales of
chocolate, it seems to me wrong not to treat the stipulated evidence of such sales as
part of the consideration.

Past consideration is not consideration

Roscorla v Thomas (1842) 3 QB 234

- Facts:
o Roscorla (plaintiff) alleged that ‘in consideration that the plaintiff, at the defendant’s
request, 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 They went on to complain that the horse was not sound and free from vice.
- Issue: What consideration did the plaintiff provide for the promise (that it was free from
vice)?
- Reasoning: The buying of the horse preceded the giving of the ‘warranty’, therefore it was
held to be a past consideration, or more accurately, no consideration. Therefore Roscorla
failed.

Re Casey’s Patents; Stewart v Casey

 - Facts: Owners of patent rights agreed to give their manager a 1/3 share in the patents in
consideration of his services in working the patents.
- Reasoning:
o 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 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.
So that here for past services there is ample justification for the promise to give the
third share.

Executed consideration versus past consideration

- Executed consideration – the act/forbearance supplied is a part of the same transaction as

the promise sought to be enforced.
o If B advertised a reward for the return of the goods and A had returned the goods
relying on the advertisement, A would have provided an executed consideration.
- Past consideration – the promise is made after an independently constituted and concluded
transaction.
o A finds and return’s B’s goods and B then promises A reward, the return of the
goods is a past consideration for B’s promise.

Executed consideration versus executory consideration

- Executory consideration – a promise is exchanged for a promise to act.

- Executed consideration – a promise is exchanged for an act.

Consideration must not be illusory

- Illusory consideration is no consideration, e.g., promise to perform a contractual duty

already owed, promise to do something illegal, promises to be binding in honour only and
not at law, promises exclusion of all liability for any breach.
- Illusory promises mainly apply to executory considerations, not executed consideration.

Placer Developments Ltd v Cth (1969) 121 CLR 353

- Facts:
o Agreement between Placer and Commonwealth…
o ‘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 into Australia of an amount or at a rate
determined by the Commonwealth from time to time, but the amount of subsidy
paid shall not exceed the amount of customs duty paid but not remitted’.
- Reasoning:
o 3 to 2 majority said the agreement did not oblige the Commonwealth to determine
an amount or rate of subsidy.
 o It is that 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.
 ‘a subsidy…of an amount or at a rate determined by the Commonwealth
from time to time’.
 A promise of a governmental subsidy is meaningless in the absence of a
specification of some amount or some basis of calculation. No general
standard of ‘reasonableness’ with respect to the quantum of a subsidy.
o Dissenting judgment
 Alternative interpretation of the clause: it does create an obligation when
the conditions stated are fulfilled
 To determine a subsidy within the limit and
 To pay the subsidy determined.

Performing existing legal duties – duties imposed by law

- 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 promise under that
contract, and it is to do no more than the promisor is bound to do under that contract.

Collins v Godefroy (1831) 1 B & Ad 950

- Facts: Plaintiff sued to recover compensation for his loss of time in attending court under
subpoena as a witness for the defendant.
- Reasoning: Since the law imposed a duty on a person subpoenaed to attend at the court
from time to time to give evidence, a promise to remunerate him for doing so was without
consideration.

Glasbrook Bros Ltd v Glamorgan County Council [1925] AC 270

- Facts:
o Strike at the plaintiff’s mine and the manager requested that the defendant council
provide a resident garrison of 70 policemen in order to ensure the protection of the
‘safety men’.
o Police thought this was unnecessary and that adequate protection could be
provided in other ways.
o But at the manager’s insistence, the council agreed and the manager promised to
pay the cost of the garrison.
- Issue: Whether the council had agreed to exceed its public duty.
- Reasoning:
o Appeal dismissed – contract binding and council to recover the promised payment.
o The supply of the garrison was a superfluous measure and the council appears to
have only acceded to Mr James’ request with a view to meeting his wishes.
o It is counted as a special duty – it should be charged.
o Promise to exceed duty is good consideration (i.e. doing more than what that duty
calls for).
Popiw v Popiw [1959] VR 197

- Facts:
o Wife leaves husband after argument breaks out.
o In order to entice her back, husband orally promised that if she did return he would
put the title to the home in their joint names.
o Wife returns, stays for several weeks, they quarrel again and then she leaves again.
- Issue: Whether she was entitled to enforce the husband’s promise as a contract.
- Reasoning:
o In returning to the home, the wife had provided valid consideration. Judgment in
favour of wife.
o What the husband was getting in exchange for his promise was something far more
advantageous to him than the right of cohabiting with his wife which he had no
means of enforcing.

Performing existing legal duties – contractual duties

- Promise to perform existing contractual duty is not consideration

- Exceptions:
o Promises with different contents.
o Termination of the contract.
o Factual benefit to promisor – see Williams v Roffey Bros
- Part payment of a debt is not consideration for a promise to discharge the debt.

Stilk v Myrick (1809) 2 Camp 317

- Facts:
o Two sailors deserted their ship in the course of a voyage and the captain, being
unable to find replacements, promised the remaining eight members of the crew
(including plaintiff) that he would divide wages which the two deserters would have
earned among them upon their working the vessel home.
o They didn’t receive their extra share.
- Reasoning:
o No consideration for the promise since the position resulting from the desertion of
the sailors was as much ‘an emergency of the voyage’ as their deaths would have
been.
o The plaintiff was already bound by his contract to do all that he would to work the
ship hope, his promise to do this was no consideration for the promise of extra
payment.

Hartley v Ponsonby (1857) 7 El & Bl 872

o Facts and result: Shortage of crew made it perilous to continue the voyage with the
result that the remaining crew were not bound to continue to serve and a contract
for additional payment if they did so was held binding. Extra payment awarded.

Foakes v Beer (1884) 9 App Cas 605

 - Facts:
o Foakes owed Beer 2090 pounds; agreement to pay 150 pounds twice a year.
o Foakes ended up paying the principal amount, however Beer ended up suing for an
extra 360 pounds, interest on the debt.
o Foakes pleaded the agreement was not binding for lack of consideration.
- Reasoning:
o Even if there was a promise by Beer to forgive the whole debt including interest,
there was no consideration to support the promise.
o Part payment of a debt is not consideration for an agreement to forgive the whole.
o Beer successful.

Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1

- What makes Williams an exception from the existing legal duty rule is that B obtains a
practical benefit (or obviates a disbenefit) by inducing A to complete his obligations.
- Facts:
o Williams contracted to do carpentry work on 27 flats in a block which Roffey had
contracted to refurbish.
o To avoid inconvenience, Roffey agreed to pay Williams an additional 575 per flat
completed; in doing so, Roffey derived a benefit by not being penalised for late
completion of the flats or having to hire another contractor.
o Williams substantially finished work on 8 flats but stopped work when Roffey
refused the additional amount it had promised.
o Roffey engaged another carpenter to complete the work; Williams sued in respect of
the promised additional sum of 4600 (575 additional per flat x 8 completed flats)
- Issue: Did Williams provide consideration for Roffey’s promise to pay additional money for
each flat?
- Reasoning:
o Existing legal duty rule does not apply – consideration provided by Williams for
Roffey’s promise of extra money and additional payment is recoverable.
o Benefits which the defendants were said to have obtained were a measure of
protection against the risk that as a result 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.
o Despite William already being obliged to build the flats as part of performing his
contract and no consideration was provided for the new promise by Roffey to pay
more, there is an exception to the existing legal duty rule:
 A has entered into contract with B
 B has reason to doubt that A will be able to complete their side of the
bargain.
 B therefore promises an additional payment.
 B obtains a practical benefit, or obviates a disbenefit.
 Benefit to B is capable of being consideration for B’s promise, so that the
promise will be legally binding.
Forbearance to sue or compromise of a disputed claim is good consideration

Wigan v Edwards (1973) 47 ALJR 586

- Facts:
o Edwards contracted to buy a house from Wigan; however they were concerned
about defects in the house and refused to complete the contract unless the defects
were fixed.
o Wigan promised to rectify listed defects and repair major defaults within five years
from date of purchase.
o Wigan then refused to fix other defects.
o Edwards sued for breach of contract.
o Wigan argued that no consideration had been provided to support his promise to
rectify the defects in the house.
- Issue: Was consideration provided by Edwards for Wigan’s promise to fix the defects?
- Reasoning:
o Respondents honestly believed that, having regard to the defective condition of the
house, they were not bound to complete. The respondent’s claim that they would
not complete without the defects being fixed cannot be described as a frivolous or
vexatious claim.
o Despite consideration made by Edward formed part of an existing legal duty (i.e.
completing the contract of sale), the existing legal duty rule does not apply where a
bona fide compromise is made by the promisee
 Edward forewent what he thought was a valid claim against Wigan for
defects.
 It is not necessary to actually give up a legitimate claim.
 It only matters that, subjectively, the party suffering the ‘detriment’ thought
honestly (and reasonably) that it was a legitimate claim.

C. Estoppel and its effect on consideration_________________________

Estoppel: 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 actually false.

Common law estoppel is estoppel in relation to a matter of fact.

Promissory estoppel arises where a person is precluded from denying that a promise or
representation in relation to a future matter was made. The promise or representation may be
express or implied.

Proprietary estoppel is estoppel arising from an assumption that an interest in property will be
conferred.

Representation is a statement of fact made by one person (representor) to another person

(representee) to induce reliance by the representee.
 - 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.

Walton Stores (Interstate) Ltd v Maher (1968) 164 CLR 387

- Facts:
o Walton negotiated to lease land from Maher.
o Maher was required to demolish buildings and construct a new building to Walton’s
specifications – they were to be completed by 5 February 1984.
o 21 October 1983 draft agreement for lease sent to the Mahers’ solicitors.
o 7 November 1983 the Mahers’ solicitors informed Waltons’ solicitor that the
agreement had to be completed within the next day or two – otherwise it would be
impossible for the new building to be completed in time.
 The Mahers did not want to demolish a new part of the building until it was
clear that there were no problems.
o Walton’s solicitors told Mahers’ solicitors that they would inform them the next day
if any of the amendments were unacceptable.
o 11 November 1983, the Mahers’ solicitors forwarded to Waltons’ solicitors ‘by way
of exchange’ the documents executed by the Mahers.
o The Mahers began to demolish the new portion of the old building and Waltons
became aware of this on 10 December.
o Because of a projected alteration in its retailing policy, and advice that since
documents had not been exchanged, Waltons was not contractually bound –
Waltons instructed its solicitors to ‘go slow’.
o In early January 1984 Mahers had completed 40% of construction.
o 19 January 1984, Waltons’ solicitors informed the Mahers’ solicitors that Walton did
not intend to proceed with the lease.
- Issue: Could Mahers recover the costs of construction through an action in estoppel? If so,
define the particular estoppel and its characteristics.
- Reasoning:
o Despite there being no pre-existing legal relationship between Waltons and the
Mahers, Waltons was estopped from denying a promise to grant a lease to the
Mahers.
o Promissory estoppel applied – there was an implied promise to complete the
transaction which Waltons was estopped from denying.
o Mason CJ and Wilson J
 Was Walton entitled to stand by in silence when it must have known that
the respondents were proceeding on the assumption that they had an
agreement and that completion of the exchange was merely a formality?
 Two things must be considered:
 Element of urgency.
 Mahers executed the counterpart deed and it was forwarded to the
Waltons’ solicitor on 11 November.
  In light of these considerations, Waltons was under an obligation to
communicate with the respondents within a reasonable time after receiving
the executed counterpart deed (‘by way of exchange’) and certainly when it
learnt on 10 December that demolition was proceeding. It had yet to choose
whether to complete the contract or to warn the respondents that it had
not yet decided upon the course it would take.
 It was not entitled to retain the counterpart deed and do nothing – their
inaction constituted clear encouragement or inducement to the
respondents to continue to act on the basis of the assumption which they
had made.
 Sufficient to infer an assumption that a legal relationship did (or would) exist
between the parties such that it would be unconscionable for Walton to
ignore their obligations.
 The appellant is estopped in all circumstances from retreating from its
implied promise to complete the contract.
o Brennan J
 Assumptions could be made on the facts that…
 Walton would duly complete construction (promissory estoppel –
future).
 Assumption by Maher that Walton had duly completed the
exchange (common law estoppel – present).
 Assumption by Maher that there was a binding contract in existence
whether or not exchange had been completed (common law
estoppel – present).
o Deane and Gaudron JJ
 Estoppel granted based on common law estoppel (present).
 Because Mahers did not hear back within a day from Waltons, there arose
the assumption of a contract being signed.
 The assumption was induced by Walton, and detriment is suffered as a
result.
 All the elements of common law estoppel are made out, and a contract is
treated as having been formed.
o Conflicting views on estoppel elements
 Mason CJ and Wilson J (promissory estoppel) – assumption, detrimental
reliance, unconscionable conduct.
 Departure from the basic assumptions underlying the transaction
between the parties must be unconscionable conduct.
 Creation or encouragement by the estopped party of an assumption
that a contract will come into existence or a promise will be
performed and that the other party relied on that assumption his
detriment to the knowledge of the estopped party.
 Brennan J outlines further requirements of promissory estoppel –
knowledge of reliance, failure to avoid detriment, departure from
assumption.
  Deane and Gaudron JJ (common law estoppel) at bottom of page 174 © –
assumption, inducement and detrimental reliance.

William A Drennan v Star Paving Co (1958) 333 P 2d 757

- Facts:
o Drennan was preparing a bid for the construction of a school (Monte Vista School
Job).
o Potential sub-contractors telephoned in their tenders for particular parts of the job.
o Defendant’s estimator (Hoon) phoned in a tender and his was lowest at $7131.60 –
they won.
o However defendant refused to do the work for less than $15,000.
o Drennan engaged another sub-contractor who did the work for $10948.60
o Drennan sued to recover damages and awarded $3817 (the difference between
$7131.60 and $10948.60).
- Reasoning:
o An offer of a unilateral contract may give rise to an implied subsidiary promise not to
revoke the offer which serves to preclude the injustice that would result if the offer
could be revoked after the offeree had acted in detrimental reliance thereon.
o Star Paving had reason to not only expect plaintiff to rely on its own bid but to want
him to. Clearly Star Paving had a stake in plaintiff’s reliance on its bid.
o Despite the defendant claiming that it was an error, plaintiff had no reason to know
that there was a mistake.

D. Intention to create legal relations

E. Contracts requiring written evidence

(i) Contracts requiring writing

Conveyancing Act 1919 (NSW) s54A

1. No action or proceedings may be brought upon any contract for the sale or other disposition
of land or any interest in land, unless the agreement which such action or proceedings is
brought, or some memorandum or note thereof, is in writing, and signed by the party to be
charged or by 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. The 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.

Statute of Frauds 1677 s4

 - (no action shall be brought regarding…unless the agreement 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 authorized)

What functions are served by such rules?

1. Evidentiary function – preventing perjury and ensuring that reliable evidence is received.
2. Cautionary function – forcing parties to think carefully about the transaction before signing
the document.
3. Channelling function – parties may be forced to use a particular form, and similar
agreements are given a similar form.

(ii) Requirement of writing s54A

Contents of the document (note or memorandum)

1. All the terms of the contract (Sinclair Scott & Co Ltd v Naughton), or at least all the essential
terms (Harvey v Edwards Dulop & Co Ltd). Parties to the contract must be identified.
2. Statement of the consideration for the promise sought to be enforced (Burgess v Cox).
3. Sufficient description of the subject matter of the contract (Pirie v Saunders).
- Although note/memorandum will usually come into existence after the contract has been
agreed on, this is not always the case. E.g. a written offer may be orally accepted
(Heppingstone v Stewart) and the offer, by its subsequent acceptance (Pirie v Saunders),
becomes the note or memorandum. Although the document must recognise the existence
of the contract sued on, there is no requirement that it be made for that purpose.
o Popiw v Popiw – an affidavit sworn by the respondent in proceedings which sought a
determination of the question whether the applicant was entitled to an interest in
the matrimonial home was held to be, in form, a sufficient memorandum of a
contract to dispose of an interest in land. Principle: document must have been in
existence at the time of the proceedings.

Signature

- A loosely interpreted concept.

- Signed by the party to be charged under the contract or by that person’s agent, ‘lawfully’
authorised.
- Alternative view: Thomson v McInnes Griffith CJ promotes 3 modes of signature
1. By a person with his own hand.
2. By an amanuensis signing the name of the another person in that other person’s
presence by his direction.
3. By an agent.

Joinder of documents

- No requirement that a single document contain all the evidence (Tonitto v Bassal).
- Thomson v McInnes – sufficient if the note refers to some other document in such a way to
incorporate it with the document signed, so that they can be read together. The whole
 contract must be shown by the writing. The reference in the document must be to the other
documents which form the contract.
Harvey v Edwards Dunlop & Co Ltd (High Court) overrides Thomson – reference to some
other transaction is sufficient if the transaction contains all the terms in writing. Direct
reference in one document to another is therefore not essential.

(iii) Effect of non-compliance

Common law

Contract unenforceable but not void

- Contract is not void, but unenforceable. Their effect is procedural, preventing any action on
the contract but not denying its existence.
o Action for breach of contract is not possible (as this concerns substantive law).
- Where a contract contains several promises, some but not all of which are required to be
evidenced by writing, the absence of a written note or memorandum renders the whole
contract unenforceable unless the promises are severable.

Claims dehors the contract

- Can a party who has done work under an unenforceable contract sue on a quantum meruit
for reasonable remuneration? Yes.
- Plaintiff who is unable to sue on a contact because of noncompliance (e.g. no signature) with
the formal requirements is not always precluded from obtaining relief on a claim which is
independent of the contract.
- Horton v Jones (NSW) – 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
benefits of those acts, an action in restitution to obtain reasonable remuneration will be
available.
- Pavey & Matthews Pty Ltd v Paul (High Court – agrees with Horton above) –
o Facts: P&M (builder) sued P to recover a reasonable sum for work done and
materials supplied at her request. Defence was that s45 of Builders Licensing Act
provided building contracts to be in writing and signed by each of the parties. It
declared unenforceable against the other party to the contract any contract which
did not comply with s45.
o Decision: the appeal allowed.
o Obiter Dicta: the claim was not brought ON the contract (this is prohibited). Rather,
the action was a restitutionary claim for ‘reasonable remuneration’ (i.e. ‘quantum
meruit’). Obligation to remunerate was not a contractual obligation, it was imposed
by law, and s45 was held not to apply to such a claim.
o Principle: a plaintiff is 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 (Horton v Jones).
o Disclaimer: 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.

Equity

Part performance

- Equity developed to counter the protection of fraudulent persons.

- Doctrine of part performance – where P establishes sufficient acts of part performance to
justify equitable intervention regardless of whether the contract is oral or not, the
defendant is ‘“charged” upon the equities resulting from the act done in execution of the
contract, not upon the contract itself’ (Maddison v Alderson).
- Rationale for equitable intervention: in the face of statutory provisions, unconscionable for
the defendant to plead the statute as a bar to the plaintiff’s claim for acts or part
performance.
- Uncertainty: still remains as to the requirements of the doctrine.
- Three issues are dealt below.

Issue 1: Referability – to what extent must the acts relied upon as part performance be referable
to the contract sued on?

- Maddison v Alderson [Lord Shelbourne LC] – ‘acts relied upon as part performance must be
unequivocally and in their own nature, referable to some such contract as that alleged’.
o Aspect 1: Requirement that the acts be ‘unequivocal’. Although this has been
generally insisted on, it is doubtful whether the word has been literally interpreted
(McBride v Sandland).
o Aspect 2: Requirement of referability to ‘some such contract’, not simply ‘a
contract’. Insisted on in many High Court cases, but rejected by House of Lords
(Steadman v Steadman), therefore indicating the impossibility to keep the two
aspects of referability distinct from one another. Nonetheless Steadman is not
approved by High Court. The traditional approach, is taken, i.e. that the acts must be
referable to some such contract as that alleged, that is (broadly) a contract relating
to land.

Issue 2: Performance of the contract – to what extent must the acts relied on be performance of
the contract?

- JC Williamson Ltd v Lukey – the acts must have been done in ‘actual performance’ of the
contract which in fact existed between the parties.
- This excludes acts which have been done but were not part of the contract. E.g. preparation
of the assignment of a lease is not sufficient.
- It also excluded acts which might otherwise be unequivocal (e.g. taking of possession of land
where the contract does not require this).
o Regent v Millett (High Court) – overriding, said that the taking of possession was a
sufficient act even though the contract did not require it. Equitable doctrine notions
that it would be pointless for the acts to be ‘in compliance with a requirement of the
 contract’. It may be sufficient for the act to be done pursuant to the contract even
though the act is not ‘required’.

Issue 3: Scope of the doctrine – does the doctrine apply beyond land contracts?

- Most cases on the doctrine of part performance involve contracts relating to land – mainly
to contracts and s54A Conveyancing Act 1919. This is because the remedy of specific
performance has its main application to such contracts.
- It has been discussed, and applied in some cases, in the context of other types of contracts
(JC Williamson Ltd v Lukey).
- There is no reason, in principle, for not applying the doctrine outside the context of land if
specific performance is available (Meagher, Gummow and Lehane’s Equity: Doctrines and
Remedies, 4th ed, 2002, para 30-215).
- One important limitation with doctrine of part performance – it cannot be used to found an
action for common law damages for breach of contract (McMahon v Ambrose).

Discharge of contracts required to be evidenced in writing

When variation must be written

- Where a contract is not required to be evidenced by writing (but is written nevertheless),

any variation of the terms of the contract may be made by a purely oral agreement.
However, where there is such a requirement the variation must also be so evidenced
because the writing must contain all the terms. If it is purely oral it cannot, subject to the
doctrine of part performance, be enforced and the ‘original contract in writing stands
unaffected’ (Tallerman & Co Pty ltd v Nathan’s Merchandise).
o British & Benningtons Ltd v North Western Cachar Tea Co Ltd
 Facts: agreement of tea transaction. Several delays in delivery. Oral
agreement was then made – where buyers agreed to take delivery, in
return for a reduced price (this is an oral variation of the original written
contract that was enforceable under Sale of Goods Act).
 Decision: Contracts had to be forced in their original, unaltered, form.

Variation distinguished from rescission

- Variation of a contract must be in writing, whereas the contract may be rescinded by an oral
agreement.
- However, fresh agreements (which replace the obligations = similar to variation) that follow
the rescission must be evidenced in writing.
- Rescission may be express or implied.

Morris v Baron & Co 1918 (House of Lords)

Facts

- 24 September 1914: M agreed, in writing, to sell to B 500 pieces of moss blue serge. 223
pieces were delivered.
- March 1915: M sued to recover price of goods supplied. B counterclaimed for damages for
non-delivery.
- 22 April 1915: they reached agreement, in writing, to withdraw proceedings and B’s promise
to pay 30 pounds. The accounts payable was left open for 3 months – to give B enough time
to sell the goods supplied.
- February 1916: M claims for recovery of amount still due on 1914 contract.

Issue

- Whether the 1914 contract was intended to be rescinded by the 1915 agreement and
whether that rescission was effective.
- Whether the 1915 agreement complied with the requirement of writing in s4 of the Sale of
Goods Act.

Resolution

- Appeal allowed. The 1914 contract was rescinded by the new agreement.
- 1915 agreement was unenforceable for lack of written evidence.

Ratio/obiter

- Parties intended not merely to vary the original contract but to set it aside and substitute
another for it giving a mere option to take delivery of the parcel undelivered.
- All that Noble v Ward suggests is that it was a mistake to say (as a matter of law) the original
contract was rescinded, the variation being oral.
- Difference between variation and rescission:
o Case 1: there are no such executory clauses in the April 1915 (second) arrangement
as would enable you to sue upon that alone if the first did not exist.
o Case 2: you could sue on the second arrangement alone, and the first contract is got
rid of either by express words to that effect. (You can still refer to the first
arrangement).
- Lord Atkinson
o Quite impossible to reconcile first and second agreement – with exception to price,
they are in conflict with all those material and fundamental provisions. Clear
intention of both the appellant and respondent to put aside the original agreement,
and to treat it thenceforth as abandoned or non-existent.
o Second contract is not an invalid contract, since it could be enforced in its entirety
against B, but it must rescind the original contract over which it is to prevail and with
which it is in conflict.

Variation distinguished from forbearance and related concepts

- Fact that an oral variation of a contract required to be evidenced by writing is unenforceable

has given rise to some artificial distinctions designed to prevent the statutory requirement
causing obvious injustice.
- Hartley v Hymans
 o Facts: Contract for sale of goods – delivery to be made, a specific rate per week,
starting in the month of September, completed by 15 November. In fact deliveries
began 29 November. Buyer, nonetheless, urged the seller (despite complaining) to
proceed with the delivery, and accepted two deliveries in December and following
February. March – buyer cancelled the contract on the grounds of late delivery and
the seller sued to recover damages for the buyer’s refusal to accept the balance of
the goods.
o McCardie J: Time is the essence of the contract – the buyer could have terminated
the contract when the delivery was not made by the required date. But the buyer
had ‘waived’ the right to insist that the contract period ended on 15 November, that
is, elected not to terminate.
 Seller succeeds. The contract is valid.
o Alternate view McCardie J:
 (1) Buyer is estopped
 (2) new agreement could be implied, from the letters exchanged between
the parties, extending the period for delivery.
 However a party’s election in favour of a right will be effective even if oral,
as it does not involve a variation of the contract.

PART 3: TERMS AND PARTIES

A. EXPRESS TERMS
Pre contractual statements

- Puffs – statements not intended to be taken seriously. E.g. ‘best on the market’.
- Representations – Factual statements which induce the representee to enter into the
contract but which are not guaranteed by their maker. Does not give rise to a claim for
breach of contract; if anything, negligence.
o If it is an innocent representation, no liability in damages. Only remedy = rescission.
- Terms – distinguished from a mere representation dependant on the intention of the maker
of the statement to guarantee its truth.

(i) Terms and mere representations

Deciding whether a statement is a term

- Intention of parties
o Court applies objective test: what conclusion would a reasonable person in the
position of the person to whom the statement make?
o Term if ‘maker of the statement intended to guarantee its truth’
o Representation if ‘there is no necessary intention’.
- Factors to determine intention:
 o Time of statement – In Harling v Eddy D put heifer up for auction. There were no
bids, so D stated there was nothing wrong with the animal and that he would
absolutely guarantee her in every respect and said he would take heifer
baccontractif no good. P bid for the heifer after – within 4 months it died of disease.
D was held liable in damages as it was a term of the contract. Close proximity
between statement and contract justified this.
o Content of the statement (Important statement  intended to be a term).
Couchman v Hill – Before C purchased heifer from H, C asked whether the heifer had
been served. H and auctioneer said it was unserved (this was very important as the
heifer was young) however this turned out to be false after C purchased it and it
died from tuberculosis. It was held H’s statement was a term of the contract.
o Written memorandum: easier to show it was a term if in a written memorandum.
o Knowledge and expertise of the parties to distinguish a mere statement of opinion
from a statement of fact guaranteed by its maker.
 Ellul v Oakes – P claimed breach, based on a pre-contractual statement by
D that the property which P purchased was sewered. This was made in
several advertising materials which the court concluded that D had
intended to guarantee the truth of the statement. It was within the
knowledge of D whether his property was sewered.
 Oscar Chess v Williams - D sold mother’s car to P, with the genuine belief
that it was a 1948 model confirmed by the registration book. Car was in
fact a 1939 model and P claimed damages for breach. The statement was
important, however the court concluded the statement was not a term as
there was nothing to indicate that Williams was guaranteeing the year of
the manufacture. All he did was repeat information stated in a registration
book: he had no expertise in the matter.
 DiccontractBentley v Harold Smith – Prior to the contract, D (motor car
sellers) said the vehicle was fitted with a replacement engine and gearbox
and had travelled only 20,000 miles since they were fitted. P purchased it
in reliance on the statement and found later that it was fake (it travelled
100,000 miles). Distinguished from Oscar Chess because the seller in that
case honestly believed on reasonable grounds that the statement made
was true. In this case, D was in a superior position.

Collateral contract

- Elements
c. Statement was intended to be relied upon.
d. Reliance by the party alleging the existence of the contract.
e. Intention on the part of the statement maker to guarantee its truth.
- Two types of collateral contracts (the consideration for the promise in the collateral
contract is entry into the main contract).
1. A enters into contract with B (main contract) because of a promise by B which
induces A to enter into a collateral contract.
 2. A enters into 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.

- 3 practical virtues of collateral contracts

1. Where main contract is illegal, collateral contract may still be subject to a claim.
2. Where a contract is required to be evidenced by writing the collateral contract may
not need to be so evidenced.
3. In case of 2nd collateral K, the privity of contract rule is avoided.
- Hoyts v Spencer – a collateral contract must be consistent with the main contract.
o Unjust decision: A leases to B a parcel of land for $500. Prior to signing contract, B
tells A she will keep her dog with her (which is inconsistent with the main contract).
A agrees and proceeds to sign, promising not to exercise his right to terminate. C
comes along and offers $1000 to A. A terminates contract with B on the basis that B
has a dog in the house. B will fail to establish a collateral contract with A containing
a promise to allow her to keep pets, even if the court is convinced there was a
promise and that she entered into the lease in reliance on the statement.
- JJ Savage v Blakney – P purchased vessel from D; during negotiations D recommended that
the vessel be fitted with a particular type of engine, and said it would have an estimated max
speed of 15mph. An itemised specification and quotation later provided no reference to the
speed of the vessel. After purchase, P found it was incapable of 15mph – claimed breach of a
warranty, saying he would not have purchased vessel had the statement not been made.
- Shepperd v Ryde Corp – P purchased land from D after D said that it would maintain adjacent
land as a park. Later D defaulted on its statement and then began residential development in
that land. High Court held that P would not have entered into contract but for the statement
made by D. The consideration for this promise was P’s entry into the contract of sale and a
collateral contract was therefore established.
B. INCORPORATION OF TERMS
Signature

- L’estrange v Graucob – provided the offeror did not misrepresent/fraudulently induce the
signature, a party who signs the K is presumed bound regardless of whether they
understood or read the K.
- To get around ‘signature’ consider:
o It has to be a contractual document: Le Mans Gran Prix v Iliadis – a document
headed “To help with our advertising” had an exemption clause. However it was
not contractual. There was clearly a contract between the parties; however it was
not the written document, but rather an oral agreement.
o Effect of the term misrepresented: Curtis v Chemical Cleaning – Curtis took her
dress to dry cleaners and was given a receipt to sign. She asked “why do I have to
sign this?” They replied it was to exclude liability for damage to beads and
sequins. In fact the liability went much further. The clause could not be relied
upon in that way because the sales assistant had (innocently) misrepresented the
scope of the receipt (despite her not knowing).

Notice
 - Reasonable notice must be given.
o Causer v Browne – P’s husband took P’s frock to B for dry cleaning, which was
damaged on return. D sought protection of exclusion clause printed at foot of
docket given to P’s husband when he left the frock. Court held that D must show
that the person receiving docket was aware that it was not delivered to him
merely as a voucher or receipt, but also that it was intended to convey to him the
knowledge of such special conditions. Because a reasonable person would have
viewed the docket as a mere receipt, more effort should have been made to bring
the exclusion clause to Ms Causer’s attention. D failed to do so.
- Time of notice. Olley v Marlborough Court – Notice must be given prior to moment of
contract; it is not effective if presented after the contract was formed.

Ticket cases

- McCutcheon v David MacBrayne – Where one party makes an offer to contract on terms
stated on or referred to in a document given to the other party, the party’s decision to keep
the document indicates assent to a contract on the terms stated or referred to.
- Parker v South Eastern Railway
o If the person knew there was writing on the ticket; not bound.
o If the person knew there was writing and knew/believed that the writing
contained conditions; bound.
o If the person knew there was writing, but did not know or believe that the writing
contained conditions, they will be bound if the party relying on the terms brought
reasonable notice of the existence of the terms sought to be incorporated.
- Thornton v Shoe Lane – document relied on as a ticket incorporating contractual terms
issued by an auto machine. Ticket case did not apply because they could not reject the
ticket and thus terms were not incorporated.
- Interfoto Picture Library v Stiletto Visual Programmes – D asked P to send some photographs
to consider; with the photos came a delivery note which required them to return the photos
within 14 days or else a fee will be charged. D, not knowing the conditions, retained the
photos for nearly a month. It was held that P had not done all that was reasonable to bring
the terms to their awareness.

Course of dealing

- Criteria
o Course of dealing must be consistent and sufficiently long.
o Assent to the terms (failure to object to the terms)
- Henry Kendall v William Lillico – a long and consistent course of dealing and failure to object
to the terms previously implied assent to the incorporation of the terms contained in ‘sold
notes’ as terms of the contract. No actual knowledge of the terms required.
- Hardwick Game Farm v SAPPA – 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 the offeror to believe that the offeree intended to K
on these terms. Whether the offeree ever read the conditions is immaterial.
 - DJ Hill v Wright – a document received after the contract has been performed cannot be
contractual in nature and that it is only in respect of contractual documents that the course
of dealing basis for incorporation can apply. Warning: this is inconsistent with Henry and
Hardwick.
o The nature of the document (whether contractual or not) is irrelevant if each
party has led the other to believe that their rights and liabilities are regulated by
the written terms.
o As incorporation by course of dealing is oral, the document is merely the place
where the terms are set out. It is sufficient for a party to be on notice that terms
exist.

C. IMPLIED TERMS
- Admissible evidence – regarding implication by law, the court is not limited to surrounding
circumstances; extrinsic evidence may be admissible, even if the parol evidence rule
otherwise applies. The law is not so clear with terms implied in fact – the main consideration
is the construction of the contract.
- Implied legal duties
o Term  usually create a legal duty. Sale of goods contract attracts the term
requiring the goods to be fit for the buyer’s purpose which imposes a legal duty on
the seller.
o Independent of terms  e.g. a customer owes a duty to exercise reasonable care in
drawing cheques on an account with its banker.

(i) Terms implied in fact

- BP Refinery v Shire of Hastings – 5 requirements of implying in fact:

1. Be necessary to give business efficacy to the contract so that no term will be implied if
the contract is effective without it.
2. Be so obvious that ‘it goes without saying’.
3. Capable of clear expression.
4. Be reasonable and equitable (so rarely determinative, it may be ignored).
5. Not contradict any express term of the contract (universal, it may be ignored).

Reasonable and equitable

- Peters American Delicacy v Champion – in a contract ‘prices are subject to alteration on

giving customer seven days’ notice in writing’. It was argued that the clause was governed by
an implied term entitling the manufacturers to fix ‘reasonable’ prices, however it was held
unreasonable for manufacturer to enter into a full examination of manufacturing costs and
expenses in order to justify a ‘reasonable’ price. Also, it would be unfair for retailers to pay
any price considered reasonable.

Necessary to give business efficacy

- If the contract is effective without the term, the court will not imply it.
 - Byrne v Australian Airlines – ‘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 circumstances of the case.’
- The Moorcock – P reached an agreement with D (wharfingers) for the discharge and loading
by D of a vessel owned by P. The vessel was moored alongside a jetty at D’s wharf; it
suffered damage when at low tide the centre of the vessel settled on a ridge of hard ground
beneath the mud.
o Term had to be implied into the contract which imposed an obligation on the
defendants to see that the bottom of the river was reasonably fit, or to exercise
reasonable care in finding out its condition, and to advise the plaintiff of its
condition.
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.

Obviousness

- Luxor (Eastbourne) Ltd v Cooper – P sought to recover the payment alleged to be due under
a contract with D which provided for the payment of a commission on ‘completion’ of the
sale. P eventually found a purchaser, however D found another purchaser afterwards. P
alleged that a term should be implied that the defendants would do nothing to prevent
completion of a sale and deprive the P of commission (without ‘reasonable cause’). Court
held it could not be implied; it would have interfered with D’s right to deal with their own
property. No contract to begin with.
- Contrary, Alpha Trading v Dunnshaw - D agreed to pay P’s commission out of the proceeds
of a contract for a sale if a purchaser was introduced by P. Likewise, P introduced a
purchaser. However, due to default of D under the contract, it was not completed and no
proceeds were received. Court implied a term to the effect that the defendants would not
do anything which would prevent the plaintiffs receiving commission. As there was an
established contract, it was obvious that D could not have complete freedom in the matter,
and could not deprive P of the benefits of their labour.
- Codelfa Construction v SRA – court refused to imply a term because it was not obvious that
any particular term would have been agreed to by the parties. That is, it was impossible to
say, with certainty, what the term would have said.

Consistency

- Two aspects
1. The term sought to be implied must not contradict the express terms of the K and
2. The term must not deal with a matter already sufficiently dealt with by the K.
- Shepherd v Felt and Textiles of Australia – term was implied into an agency contract
requiring the agent to render faithful and loyal to his principal. However, there was already
an express term requiring the agent to use his ‘best endeavours’ to obtain orders for the
principal.
Informal contracts – Hawkins v Clayton – imply a term by reference to the imputed intention of the
parties only if necessary for the reasonable effective operation of the contract.

(ii) Terms implied in law

- Contracts that are entered into on a daily basis are often oral in which attention is often
paid to price only; so that terms are implied to deal with matters such as quality and
standard or care.
- Liverpool City Council v Irwin – If one rents a flat but there is no express promise by the
landlord to keep the common parts of the building (lifts, stairs etc.) in good condition it may
be appropriate, and necessary, to impose an obligation on the landlord.

Distinguishing from factual implication

- Byrne v Australian Airlines – terms implied in fact are unique to the particular contract,
depending on its construction, the express terms and the surrounding circumstances. Terms
implied in law are implied in all contracts of a particular class.
- Liverpool City Council v Irwin - ‘Reasonableness’ is more important to legal implication. A
term may be implied by law on the basis of reasonability; even though it is inconsistent with
the criteria for factual implication.

Unjust or unreasonable terms not implied

- Gloucestershire County Council v Richardson – R contracted to complete a building job for G.

The concrete supplier was nominated by G, for R to use in completing the job. Subsequently
it turned out to be defective and G would not compensate R for the costs and delays due to
the work. Court held it would be unjust to imply ‘quality’ (which is normally present in
work/materials contracts). R had no right to reject the nomination and was bound by the
terms which restricted R’s right in respect of defective supply.

Consistency and concurrent duties

- Requirement of consistency between express and implied terms also applies where the term
is the subject of legal implication.

(iii) Terms implied by custom/trade usage

- The term must be ‘notorious, certain, legal and reasonable’. However, establishing a course
of conduct in a given market is not conclusive that a term should be given contractual effect
by implication. 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.
- Sagar v H Ridehalgh – D, who employed P as a weaver, made deductions from P’s wages in
respect of cloth which had not been properly woven. Despite fact that some mill-owners did
not make such deductions, there was evidence that over 85% of mills in the county made
such deductions. It was implied.

D. CONSTRUCTION OF CONTRACTS
Status of a document

- Option 1: Document as the written contract if it is executed/adopted as such; does not have
to be signed.
- Option 2: Document may evidence an oral contract; the terms of the oral contract are set
out in the document.
- Option 3: Document may state part of a contract; this is a partly oral and partly written
contract. Strictly speaking – if it is only evidencing a contract, then it is an oral contract.
- When dealing with a written document that purports to be a contract; you need to
determine which option it is.

Integration

- Look for entire agreement clause (Hope v RCA Photophone of Australia – the parties
expressly intended that this document was the contract)
- Wholly integrated: if all the terms of the contract are contained in the document(s).
- Partly integrated: if only a distinct part is contained.

Principles of construction

- Primary object of construction: to determine and give effect to the intention of the parties.
o ‘Actual’ intention: subjective.
o ‘Expressed’ intention: intention disclosed in the words. Presumption that expressed
intention is their actual intention.
o ‘Implied’ intention: intention which is attributed to the parties when no intention
has been expressed.
- Two main issues:
o Determining the linguistic meaning of words used to express terms in the contract
(dictionaries).
o Determining its legal effect.
- Once meaning and legal affects are known, effect is given to the parties’ intention by
applying the contract to the facts.
- Aspects of commercial construction:
o Reasonable results – presumption that parties did not intend the terms to operate
in an unreasonable way. J Kitchen & Sons v Stewart’s Cash & Carry Stores.
o Universal approach – same construction rules apply no matter what the form or
nature of the contract. The Hansa Nord.
o Common sense prevails – lack of clarity can be ignored in favour of a broad
approach that uses common sense. Corumo Holdings v C Itoh.
o Construe contract as a whole – in order to determine legal meaning. Bowler v Hilda.

(i) Parol Evidence Rule

- Definition Inglis v John Buttery – extrinsic (raw) materials not to be referred to in order to
construe the legal meaning of a term in written contracts.

Application
 - Require a proper sequence of events in applying parol evidence rule.
o Rationale: to reject the view that a document which looks to express the contract is
intended to state the whole bargain; it is wrong because it excludes extrinsic
evidence without first inquiring whether the parties intended statements during
negotiations to take effect as contractual terms.
o First be sure of what the bargain is before concluding that extrinsic evidence cannot
be given.
 Hope v RCA Photophone – exceptional cases where parties have not
expressed all terms in writing, and parol evidence is admitted to complete
the written contract.
 SRA of NSW v Heath Outdoor – parol evidence rule has no operation until it
is first determined that all the terms of the contract are in writing.
 LG Thorne v Thomas – The writing must be compared with negotiations,
which must be provisionally received in evidence, before it can be safely said
what was covered by the suggested final writing. The applicability of the
rule and effect of the rule are distinct.

Evidence excluded

- Actual intention
o When interpretation of construction is in issue – the express intention prevails over
direct evidence of actual intention. Prenn v Simmonds.
- Prior negotiations (Prenn v Simmonds).
o The bargain is taken to supersede what was said in negotiations.
o Reason: unhelpful because of the difficulty of extracting a clear meaning from
divergent views. It would prolong litigation etc…
o Prenn v Simmonds
 Facts: S provided services under company A, which was owned by company
B, which was owned by company C. P purchased both B and C in order to
secure services of S. P and S agreed that S would remain working for A; this
was conditional to “aggregate profits of company B…shall have amounted to
300,000 pounds after payment or provision for income tax and profits tax…”
 Issue: whether aggregate profits means profits of company B or the
consolidated profits of company B and its subsidiaries? S wanted to
construe the word by reference to exchanges during negotiations (it was
pro-consolidated profits).
 Obiter: Extrinsic material cannot be relied on…it is unhelpful evidence; the
parties’ positions, with each passing letter, are changing and until the final
agreement, though converging, still divergent. It is only the final document
which records consensus.
o Gordon v Macgregor – the purpose of a formal (written) contract is to put an end to
the disputes which would inevitably arise if the matter were left upon (whoolly or
partly) verbal negotiations.
- Subsequent conduct
 o The subsequent conduct of the parties cannot be used for the purpose of construing
the terms of a written contract ex post facto (L Schuler AG v Wickman Machine Tool
Sales).
o Although subsequent conduct cannot help construe a contract, it can be used to:
 Prove variation – meaning can change over time if the contract is varied.
 Determine whether a contract was concluded – if the issue is whether the
parties had in fact concluded a contract.
 Prove estoppel.

Factual matrix

- Can be considered in all cases.

- When construing a contract, it is legitimate to have regard to factual context. Prenn v
Simmonds – court must place itself in the factual matrix in which the parties were when
contracting.
- Factual matrix includes (but not limited to):
o Surrounding circumstances: Bacon v Purcell – K for the sale of cattle to be delivered
on/before 26 April. Court held, in light of the surrounding circumstances…
considering the quantity of cattle involved, and the place and conditions, the parties
could not have intended to deliver all on one day.
o Aim or object of the contract
 All parties have some aim/object in mind when contracting, and entry into K
is no doubt motivated by the view that their particular aim will be achieved.
 Though often difficult to attain direct evidence of the aim of the contract,
the circumstances surrounding the K will frequently provide evidence.

(ii) Exceptions to parol evidence rule

- Exceptions necessary when extrinsic evidence is relied on:

1. To prove an additional term in relation to an agreement otherwise integrated in
a document.
2. As an aid to the interpretation of a document.

Operation of the contract – Such evidence is concerned with the ability of a party to enforce the
document, or rights arising from the document, not the meaning of the terms. E.g. Subsequent
conduct and negotiations (so long as it doesn’t relate to the interpretation of the contract).

Identifying subject matter

- In cases of genuine ambiguity, parol evidence rule can be excepted.

o Patent ambiguity: when it is apparent on the face of the document. Matthews v
Smallwood – a clause mentioned ‘the covenant hereinbefore contained’…there was
more than one covenant. Ambiguity was apparent on the face of the document. This
allowed the court to refer to extrinsic evidence.
o Latent ambiguity: a description referring to only one person/thing, which is found to
be equally applicable to more than one person/thing. White v Australian and NZ
theatres – K between theatrical artists and a theatre company stated the ‘sole
 professional services’ are engaged on certain terms, but did not define what they
‘sps’ were. Court admitted extrinsic evidence which included work in producing a
revue to be staged by a theatre company.

Implied terms

- For a term to be implied in fact the party relying on the term must prove its existence (i.e.
rebut the presumption that the contract is complete without it).
- For a term to be implied in law; may have regard to extrinsic evidence for the purpose of
supporting a presumption that a term should be implied.
o Gillespie Bros v Cheney Eggar – issue was whether an implied term existed that the
goods ‘would be fit for the buyers’ purposes. This depended on whether there had
been communication of purpose. Evidence of a pre-contractual conversation could
be relied on to show that the buyers had communicated purpose for which the
goods were required so as to show reliance on the sellers’ skill/judgment.
o Mears v Safecar Security – implication that wages are payable by way of sick pay in
cases where the employee was off work through illness, was not made. This was
because the conduct of the parties (revealed by extrinsic evidence) showed that the
term was not part of the contract.
o Codelfa Construction v SRA of NSW – contractor said the contract contained an
implied term which required SRA to pay extra money if delay was caused by
circumstances which conflicted with common assumption of the parties. Prior
negotiations could be used for the purpose of obtaining background evidence; not
as negotiations about terms of the contract.

Custom, usage and course of dealing – Custom must be certain, notorious, legal and reasonable.
The custom must be consistent with the express terms of the contract.

Rectification – when the final agreement is wrong; courts can refer to parol evidence to rectify the
document.

E. CLASSIFICATION OF TERMS
(i) The Tripartite Classification

- Classification into conditions, warranties and intermediate terms (discussed later).

(ii) Promises and contingencies

- A promises B ‘I will pay you $20 if you find my lost dog’ combined with a term in a contract
for services requiring the customer to pay $100 per month for the services. Finding the lost
dog is the condition (‘contingency’) which must be fulfilled by B to claim $20.
o Fulfilment of the contingency is not part of a promise, whereas the services contract
includes a promise.
- Maynard v Goode
o Facts: G agreed to buy land from C. Agreement subject to a proviso that the transfer
of land owned by Goode went through in a ‘reasonable time’. Shortly after, C
 purported to sell the land to M. Later, G sold his land to A. G sought damages and
specific performance of contract with C; M and C were restrained from proceeding
with their transfer.
o Proviso as to the transfer within a ‘reasonable time’ cannot be treated as a condition
precedent.
o No words to indicate that the completion of this transfer was to be prior in order of
time to the operation of C’s contract to sell.
- Lewes Nominees v Strang
o Facts: S granted L an option to purchase property. Consideration for the option was
payment of $500. Price of the property was $410,000. Cl 3 addressed the exercise of
the option: ‘…such notice shall be accompanied by payment of such further amount
as shall together with the amount or amounts paid as consideration of this option
and any extensions thereof equal 10% of the purchase price and if sent by post shall
be deemed to be delivered in due course of post’. The option was due expire on 11
November; on that day a written notice with a bank cheque were placed in an
envelope and posted via registered mail. It was received 12 November. A photocopy
of the notice and the bank cheque were also delivered to the respondent at his
home at 6pm 11 November.
o Issues:
 Whether payment of the amount mentioned in cl 3 was essential to the
exercise of the option. YES.
 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 be delivered before 11 Nov.
o The requirements of clause 3 suggest that payment as well as notice is a condition
of the exercise of the option…Notice was given personally to the respondent 11 Nov,
but it was not accompanied by payment. The notice sent by post which was
accompanied by payment was not posted at a time when, in the ordinary course of
delivery, it would have reached the respondent before expiry date; it was given too
late.

F. EXCLUSION CLAUSES
(i) Construction of exclusion clauses

- Even if there is no liability, does not mean there is no breach!

Photo production v Securicor transport – S agreed to provide night patrol service at P’s factory under
a standard form contract, cl 1 which said that ‘under no circumstances would S be responsible for
any injurious act or default by any employee…unless such act or default could have been foreseen
and avoided by the exercise of the due diligence’ on its part. Also, ‘ not responsible for any loss
suffered by P through fire or any other cause, except in so far as such loss is solely attributable to
negligence’. S’ employee deliberately started a fire, not with the intention of causing damage, but
the fire got out of control.
 - ‘The primary obligation is modified by the exclusion clause. Securicor’s obligation to do this
is not to be absolute…to procure that the persons shall exercise reasonable skill and care for
the safety of the factory.’
- The effect of the exclusion clause prevented the events from constituting a breach of
contract. Securicor’s liability excluded.
- Breach so serious that the contract can be terminated…however still excluded liability.

Primary Rule

- Exclusion clause depends on the intention of the parties.

- Darlington Futures v Delco Australia – can scarcely be supposed that the parties intended to
exclude liability for losses arising from activity when they had no authority to do so.
- Darlington Futures v Delco Australia – according to its natural and ordinary meaning, read
in light of the contract as a whole, thereby giving due weight to the context…

Secondary Rules

Construction contra proferentem

- Applies only to ambiguous clauses; exclusion clause is construed against the party relying
on the clause.
- Application of contra proferentem rule
1. Darlington Futures v Delco – Construe the clause in accordance with ordinary
construction principles, and only if ambiguity is then found should apply the contra
proferentem rule.
o Consequence: no need to apply strict rules of construction.
2. Suggestions that contra proferentem rule should not be vigorously applied to clauses
which merely limit liability, are not relevant in Australia. Various types of exclusion are
subject to the same rules.

Four corners rule

- Gibaud v Great Eastern Railway – if you have breached contract by not doing the thing
contracted for in the way contracted for, you cannot rely on the exclusion clause.
- Sydney Corporation v West – W parked his car at SC’s carpark. When he returned to collect
that car, it was stolen. Terms on ticket ‘no liability for damage to the vehicle…(and) ticket
has to be presented before taking vehicle’. A thief, pretending to be W, said he lost his
ticket and got a new ticket. Court held that SC had been negligent and his behaviour was
unauthorised by dealing with the property in a way which was outside the four corners of
the contract.

Main purpose rule

- Exclusion clause is not intended to operate in a way which will defeat the main purpose of
the contract.
- Identify the main purpose by looking at the whole document. If exclusion clause is
inconsistent with the main purpose, reject it.
 - Glynn v Margetson – contract for carriage of cargo included a ‘deviation clause’ which
allowed carrier to ‘proceed to and stay’ at a series of ports ‘for the purpose of delivering
coals…or for any other purpose whatsoever’. The vessel deviated from the usual journey,
and the voyage took so long that the goods arrived in poor condition. Deviation clause
couldn’t apply because it defeated the main purpose of the contract; delivery of perishable
goods.

Deviation rule

- Carrier of goods will lose benefit of exclusion clauses if it deviates from the agreed course of
carriage.
- Must first determine whether there is an agreed course of carriage, and if so, what is it?
- Thomas National Transport (Melbourne) v May & Baker
o Facts: TNT deviated from route! There was exclusion clause – ‘M&B have to accept
responsibility for any damage or loss of any goods’ while in TNT’s custody and ‘no
responsibility’ was accepted by the carrier ‘for any loss of, or damage to’ the goods
‘either in transit or in storage for any reason whatsoever’.
o Decision: exclusion clause did not apply because TNT deviated from the agreed
course of carriage.

Negligence

- If there is no reference to negligence, use the primary and secondary rules.

o If negligence the only basis for liability that will suffice for saying that the clause
must apply to cases of negligence.
o You can infer that the exclusion clause will apply to negligence.

Canada SS rules for negligence

1. Express exclusion: of liability for negligence will suffice.

2. Implied exclusion: Where there is no express reference to negligence, the court must consider
the words in their ordinary meaning to determine if negligence is covered; if doubt arises,
resolve contra proferens.
3. **Controversial** (If 2 fails) If words are wide enough to cover negligence, but there exists
possibility grounds other than negligence can be covered; the clause may be restricted to that
other ground.
o Even if the clause applies to negligence, it should be treated as restricted to liability
bases which are independent of negligence. White v John Warrick – P hired a bike;
clause excluded liability for personal injury to riders. P was injured due to the saddle
on the cycle shifting forward which raised two breaches of (1) contractual duty to
supply a non-defective bicycle and (2) negligence; duty of care. Court held that
although the exclusion clause protected from liability in contract, it did not protect
from claim in negligence.
- Canada SS rules do not apply where an indemnity clause (When A, providing service to B; A
is entitled to compensation from B if A’s negligence causes loss) is relied on as a defence to
liability in contract or tort (Schenker v Maplas).
Statutory limitations

- Limited to contracts for the supply of goods or services.

- Apply only where the goods or services are supplied to a consumer.
- Does not protect rights under express contractual terms in contracts for services; the ability
of the supplier to rely on the term is governed by the common law principle of construction.

G. PRIVITY
(i) General rule

- Only parties to a contract are legally bound by and entitled to enforce it (Coulls v Bagots)
- Rationale:
o Avoid double recovery (from 3rd party as well as promisee suing).
o Protects promissor from liability to a large number of plaintiffs.
o Limit the right of the 3rd party to affect the freedom of action between promisor and
promisee.

(ii) Exceptions to the rule

Trident General Insurance v McNiece Bros

- Facts: Trident provided insurance to Blue Circle; the contract defined the persons insured to
include contractors (among a list of others), of which McNiece Brothers fell under that
category. One of the workers sued McNiece for damages; McNiece sought indemnity under
the insurance contract. But they weren’t parties, so could not receive compensation.
- Decision: McNiece is entitled to succeed.

Agency

- Contract between A and B; B could be appointed by C as C’s agent. C has capacity to sue and
be sued; but B (agent) cannot be sued. Only way B can sue is in C’s capacity (agent).
- Consider:
o Is there consideration moving from 3rd party?
o Was there an express appointment of B as agent for 3 rd party?

Trust (Deane J)

- Person (trustee) holds property on behalf of (and for benefit of) another (beneficiary). The
real (beneficial) owner of the property is the beneficiary. Benefit of the contract is intangible
property – chose in action.
o A (trustee) may hold benefit of a contract with B on trust for C (beneficiary). Under
this contract, the parties are then A and B, but A’s enforcement of the contract must
be for C’s benefit.
 If B breaches the contract, A may sue for damages.
 If A recovers damages, A will hold the award on trust for C.
 If A refuses to make the claim, C (as beneficiary) can sue in A’s name.
- Determining whether there is a trust
 o Usually likely if the parties expressly created a trust.
o Intention of promisee that the 3rd party would be entitled to insist on performance;
it would suffice, however, if it were promisee’s alone.
o Only when trust is the appropriate legal mechanism.

Unjust enrichment (Gaudron J)

- A promisor who has accepted an agreed consideration for a promise to benefit a third party
is unjustly enriched if the promise is unfulfilled and the non-fulfilment does not attract
appropriate legal consequences.

Statute

- Section 36C Conveyancing Act 1919 (NSW) – person may take interest in land/property, or
benefit of any condition although they are not party to the assurance…can sue and be
entitled to rights as if they are a party to the assurance.
- Section 11(2) Property Law Act 1969 (WA) – a contract which expressly purports to confer
benefits directly on a 3rd party not named in the contract is enforceable by the 3 rd party.
- Section 55 Property Law Act 1974 (QLD) – promisor is subject to a duty, enforceable by the
beneficiary, to perform the promise once there has been ‘acceptance’ by the beneficiary.
o Prior to acceptance, the contract may be varied/discharged without beneficiary’s
consent.
o Following acceptance, beneficiary may enforce the promise and beneficiary’s
consent is necessary for any variation/discharge.
- Under ACL consumers are entitled to sue manufacturers.

(iii) Contracts for the benefit of a third party

Damages

- B promises A to confer benefit to C. B fails to do so.

- View that A (as party) suffers no loss, and therefore is entitled to nominal damages only, is
rebuttable when:
o A, for example, owes $500 to C. Then there is an actual loss – damages in this case
should be substantial (see Coulls below)

Coulls v Bagots – if B is in breach of a contract with A under which B has promised to pay C $500, ‘I
can see no reason why in such cases the damages which A would suffer upon B’s breach of his
contract to pay C would be merely nominal. In accordance with rules for assessment of damages for
breach of contract, they could be substantial. Not necessarily $500.’

Beswick v Beswick

- Facts: Uncle transferred business to nephew who promised to pay uncle while he was alive
and then to pay aunt after he had died. Aunt was appointed administratix of uncle’s estate
and she sued in that capacity as well as in her personal capacity.
- Issue:
o Was aunt entitled to enforce nephew’s promise in her personal capacity?
 o Could aunt enforce nephew’s promise in her capacity as adminstratix?
- Resolution: aunt was entitled to specific performance in her capacity as administratix.

(iv) Contracts that attempt to burden a third party

- If A promises B for consideration supplied by B that C will confer a benefit on B, B cannot sue
C for not performing even though C is obliged under another contract with A to confer the
benefit on B.

(v) Third parties and the benefit of exclusion clauses

A contracts with B to deliver goods subject to exclusion of liability for damage to the goods. Assume
A contracts C as subcontractor, to deliver the goods. What if the exclusion clause in the contract
between A and B states that it protects any 3 rd person (including C) who actually carries the goods? C
will be indemnified if:

1. Contract makes it clear that C [purported agent] is intended to be protected.

2. A [party to contract], in addition to contracting as party in its own capacity, must have
contracted as agent for C [purported agent] that these provisions apply to C.
3. A must have been authorised by C to do so (can be ratified b C later).
4. Consideration must move from C.
a. Consideration given by C delivering the goods.
b. Or C may be a party by means of A being C’s agent to contract with B.

PART 4 – BREACH AND FRUSTRATION

A. THE ORDER OF PERFORMANCE
Timing

- Express provision
o By stipulation of specific date or time period.
o Time may be fixed by reference to an event.
- Implied: reasonable time
o Determination of reasonable time: question of fact to be determined at the time
when performance is alleged to be due rather than at the moment of contractual
formation (Postlethwaite v Freeland).

Order of performance

- Relation between obligations – question (of construction) is whether one party’s obligation
to perform is dependent on or independent of the other party’s obligation to perform.
- Independent obligations – Order is immaterial – so long as they perform within a reasonable
time. A cannot refuse to perform because B has not performed.
- Dependent obligations – A dependent promise is one which becomes due for performance
on the occurrence of a condition precedent. A can refuse to perform if B has not performed.
- Concurrent performance
 o The parties’ obligations are dependent.
o Dependency, in this context, does not refer to actual performance. It refers to the
obligation of the parties to be ready, willing and able to perform. In a sale contract…
 Seller must be ready and willing to give possession of goods for a price
 Buyer must be ready and willing to pay the price in exchange for possession
 If Seller is not ready and willing, buyer is not obliged…and vice versa.

B. PREVENTION OF PERFORMANCE
- Stirling v Maitland - 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.
- Where B prevents A from performing an obligation for the benefit of B (Mackay v Dick), A
will simply have a claim for damages for breach of contract.

C. DISCHARGE BY PERFORMANCE
(i) Entire contracts

- One in which parties agree that complete performance by the promisor is a condition
precedent to enforcement of the contract e.g. lump sum payments.
- A’s complete or substantially complete performance of their promise a condition precedent
to recovery of the contract price (or other form of performance).

Cutter v Powell (outdated)

- Facts: D agreed to pay Cutter ‘provided he proceeds, continues and does his duty’ on the
ship for a voyage from Jamaica to Liverpool. Payment to be due 10 days after arrival of the
vessel; but Cutter died before the vessel’s arrival at Liverpool. Cutter’s administratix did not
claim full price, rather the proportionate amount.
- Decision: Cutter did not serve entire voyage; the contract was entire so no damages
awarded. Fulfilment of his duty was a condition precedent.

Sumpter v Hedges

- Facts: P contracted to build for D for lump sum. Progress payments were made, but P
abandoned work before completion.
- Decision:
o Condition precedent to D’s obligation was not fulfilled; no contractual liability.
o D had no choice but to accept the benefit of the work as it had been done on his
land – hence justification for the progress payments.

(ii) Substantial performance

- Unless parties expressly agreed to the contrary, contract price is recoverable if the plaintiff
has substantially performed the contract.

Hoenig v Isaacs (cost of cure and ‘root of the contract’)

 - Facts: P sued to recover balance due under a contract to decorate and supply furniture for D.
D complained of faulty design and bad workmanship.
- Decision:
o P is successful for substantial performance, less defects.
o Test: cost of curing defects and…does it go to the root of the contract?
o Root of the contract: if the breach isn’t serious enough to terminate, then the
service provider has performed substantially.
o Cost of remedying defects was relatively small in proportion to the contract price;
the performance is substantial enough to justify the payment of the balance.

Bolton v Mahadeva (cost of cure)

- Facts: P sued to recover 636 as the balance alleged to be due for work done and materials
supplied pursuant to a contract. D refused to pay, alleging that P failed to complete the
work. First instance judge, after deducting for deficiencies etc, gave judgment for 431.5 to be
payable.
- Obiter:
o Test: Consider nature of defects and the proportion between the cost of rectifying
and the contract price.
o Performance was not substantial because the work was ineffective for its ‘primary
purpose’.

Jacob & Youngs v Kent (difference in value)

- Facts: P built house for D. Of $77,000 contract price, a sum of $3483 remained unpaid. D
alleged contract was not complied with – all wrought iron pipe was to be of ‘Reading
Manufacture’. Some of the pipe was not of ‘Reading Manufacture’ and the architect directed
P to do the work again. P refused. Note the only difference between Reading manufacture
pipes and the ones used were that the company’s logo was stamped on it.
- Decision:
o In most cases the cost of replacement is the measure…promisee is entitled to the
money which will permit him to complete; unless cost of completion is grossly and
unfairly out of proportion to the good to be attained.
o Appropriate test to this case: the difference in value.

(iii) Severable contracts

- Contracts in which the parties have divided the contract price into a number of instalments,
each corresponding to a definite proportion of the other party’s performance.

Government of Newfoundland v Newfoundland Railway

- Facts: Government agreed, under a railway construction contract, to grant the Railway Co
title to 5000 acres of land for each mile of railway constructed, on completion of each 5-mile
section. Only completed 17 5-mile sections.
 - Decision: 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 completed.

Steele v Tardiani

- Facts: P sought to recover price for work done in splitting 1500 tons of timber under a
contract which promised them 6 shillings per ton. Steele, their employer, complained that
the timber was not cut to correct dimensions.
- Decision:
o Contract was not an entire contract; it was ‘infinitely divisible’.
o Each divisible application of the contract is entire and is only satisfied by
performance, not partial, but substantially complete.
o In order to recover payment, it is essential that the timber be substantially in
accordance with the contract.

D. DISCHARGE FOR BREACH OF A TERM

Tripartite classification – What is the nature of the term?

- Condition – Essential term – if term is breached, promisee can terminate no matter how
slight.
- Warranty – unimportant: no breach would entitle right to terminate (only nominal
damages).
- Intermediate/innominate term – can vary from serious to minor.

How to classify a condition

- Expressly made: “this is a condition of a contract” is not a condition; it is too loosely used.
o “Time is of the essence” probably the only established express condition.
- Implied
o (Primary Test) Motivation for entry test: Associated Newspapers v Bancks – the
promisee would not have contracted but for the strict performance of that term.
o Intention of parties test: Ankar v National Westminster Finance – look at the
contract in light of surrounding circumstances and decide on the parties’ intentions.
o Form and structure: Luna Park v Tramways – the essential character of the clause
appears from its own terms and from the circumstances in which the contract was
formed.
o Consequences of breach: Ankar v National Westminster Finance – if every breach
would deprive the innocent party of substantially the whole benefit it was to obtain
“root of the contract”.

(i) Late performance

Common Law Rule – Time was essential, unless the parties had expressed a contrary agreement.

Equitable Rule – Time not essential.

Statute (favourable to equitable rule) – Section 13 Conveyancing Act.

Holland v Wiltshire

- (The statute) only applies to securing the contractual rights of a party by reason of a failure
on his part to perform the contract in precise accordance with its provisions as to time.
o This doesn’t relieve plaintiff from liability in damages in respect of the breach.
o It does permit plaintiff in breach to obtain damages for breach of contract.

(ii) Defective performance

Principle

1. Defective performance depends on standard of contractual duty

a. Technique 1: distinguish situations where a party has promised to bring about a result
(strict) and situations where a party has merely promised to use care (proof of
negligence).
b. Technique 2: Implication of a term stating the standard of duty.
2. Onus of proving a breach rests with the promisee.

Greaves v Baynham Meickle

- Facts: Engineers designed the structure of a factory at contractor’s request that “one of the
floors had to be strong enough to withstand the pressure of heavy forklift trucks carrying
drums of oil”. The design was flawed and cracks started to appear.
- Issue: strict duty to ensure no cracks (issue of fact) or merely exercise of reasonable care to
come up with a design (issue of law)?
- Obiter:
o Implied in law that a professional exercises reasonable care; but given the
circumstances, there was a term implied in fact that the design had to work for the
purpose of driving forklift trucks. Insufficient to say “we did our best”.
o Outcome of professional services such as doctors/lawyers difficult to foresee
whereas engineers are paid to realise a specific outcome.
o Even if reasonable care was sufficient, they failed to exercise it in any case.

Derbyshire Building v Becker

- Facts: Work involved P using a circular saw which was unsafe due to a defective guard.
- Obiter:
o Foundation for implying condition as to fitness is proof that the person to whom the
goods are supplied brought home to the mind of the supplier that he was relying on
him in such a way that the supplier can be taken to have contracted on that footing.
o Common law rules: contract for purchase/hire-purchase/hire it is correct to imply
that the goods shall be reasonably fit for a specified purpose.
 The above is a prerequisite to the implication that a buyer had bought on
the seller’s judgment that the goods would answer a particular purpose.

(iii) Effect of failure to perform – termination for breach

Nature of the right to terminate – which flows from breaches of contract and a repudiation of
obligation, is a right to terminate the obligation of the parties to perform their contractual duties.

Associated Newspaper v Bancks

Facts: Bancks agreed to supply AN cartoon drawings weekly. AN agreed to publish the cartoon on
the front page of the comic section of its newspaper; ‘in the course of his employment to prepare
and furnish’ to the company weekly a full page drawing of ‘Us Fellers’. ‘Each weekly full-page
drawing will be presented on the front page of the comic section’. AN breached this term by
publishing the cartoon on another page in 3 consecutive weeks. Bancks’ drawings were fairly
popular. Bancks then terminated for breach of contract.

Issue: is the company’s undertaking to present D’s drawings on the front page of the comic a
condition of the contract?

Obiter:

- Motivation for entry test: whether it appears from the general nature of the contract…that
the promise is of such importance to the promisee that he would not have entered into the
contract but for the assurance of a strict or a substantial performance of the promise.
- The term is really a composite undertaking comprising three ingredients: (1) Present a full
page drawing (2) to present it weekly and (3) to present it on the front page of the comic
section….P would not have employed D unless it had been assured that D would perform his
promise, and D would not have made the promise unless he was assured that his work
would be published in a particular manner.
- Given the importance of Bancks’ reputation, a reasonable person in the position of AN
should have anticipated that Bancks would not have entered into the contract but for an
implicit assurance of strict compliance with the obligation.

Hongkong Fir Shipping v Kawasaki Kisen Kaisha

Facts: Ship was chartered to D by P for a period of 2 years. Clause 1 described the vessel as ‘being in
every way fitted for ordinary cargo service’ – a.k.a. seaworthiness clause. Clause 3 created
obligation for the owners to maintain the vessel in a ‘thoroughly efficient state in hull and machinery
during service’. Breach of seaworthiness caused delay in carrying goods with the vessel – while the
vessel was being repaired, the vessel could not be used to earn money by carrying cargo. The main
reason for the delay was the incompetent crew and the replacement of the chief engineer meant
that further delay was likely to occur. This amounted a delay of 22 weeks in a 104 week contract. D
purported to terminate the contract for breach of seaworthiness.

- ‘In every way fitted for…’ – contrary to common sense to suppose that parties contemplated
that D would be entitled to treat the contract as at end for such trifling breaches (such as a
nail missing from one of the timbers etc…)
- Insufficiency and incompetence of the crew (the only alleged unseaworthiness) 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 changed and augmented.
- When do we have a right to determinate for a breach of an intermediate term? When is it
serious enough?
  The level of seriousness is the same as that for the contract to be frustrated
(this is a very high level of seriousness)
 Does the breach deprive the innocent party of substantially the whole
benefit it was to obtain under the contract?
o Classifying the term happens at the time of the contract.
o Once you conclude it’s an intermediate term, you then look at the subsequent
circumstances and conduct in assessing the seriousness of the breach.

Cehave NV v Bremer Handelgesellschaft

Facts: C agreed to buy goods from BH for contract price of 100,000. The market price was 86,000.
Clause provided that ‘shipment to be made in good condition’. On arrival goods were found to be
damaged by spontaneous combustion. C rejected good and claimed return of the contract price
(which had been paid). Sellers refused to pay, and the after, the goods were sold to a bidder
(deviously) sent by C for 33,720. He then resold the goods to C for the same price, even though, it
appears that their value (after damage) was about 65,000.

Decision: was the damage caused during delivery serious enough to breach?

Reasoning

- If a small portion arrived a little unsound, it should be met by a price allowance.

- ‘Shipped in good condition’ – not a strict condition, nor a warranty. It is an intermediate
term which gives no right to reject unless the breach goes to the root of the contract.
- Seriousness of breach is implied in fact: The market value is 86,000 pounds; even though
they were damaged, they could have sold it for 65,000 pounds. A difference of 25%? Change
in market value wasn’t great, and wasn’t a serious breach.

Luna Park v Tramways Advertising

Facts: P (Tramways) sued D (Luna Park) for not paying them for putting up advertisements on their
trams. D, in a cross-action, claimed damages for breach by P. Clause: ‘We guarantee that there
boards will be on the tracks at least eight hours per day throughout your season’ for a minimum
period of 52 weeks.

Obiter:

- It was a term of the contract which went so directly to the substance of the contract 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’. Breach of such a term not
only enables one to attain damages, but also to refuse to perform at all.
- ‘We guarantee’ are written by laymen to emphasise the importance of the clause which
they introduce….the clause was a condition.
- If understood literally, the clause was too onerous – amounted to a promise that every tram
would be on the tracks for at least 8 hours per day.
o Given that Tramways did not control the movement of the trams, and that some
trams were likely to be off tracks for repairs etc…it is difficult understand why the
promise was made in the first place.
 - Luna Park alleged that the term was a condition – High court agreed notwithstanding the
onerous nature of the obligation. A relevant factor was the use of the word ‘guarantee’…

E. DISCHARGE FOR REPUDIATION

Function: if the promisor is not ready and willing, or will not, at the earliest date for performance, be
ready and willing to perform, the promisee is entitled to terminate the performance of the contract
under the doctrine of repudiation. The party asserting the right to terminate must show that the
repudiation by the other party is sufficiently serious.

- Anticipatory breach occurs for repudiations that occur prior to the time appointed for
performance by the promisor.
- If a buyer fails to pay for delivery/seller delivers goods differing from requirements of the
contract, repudiation may occur if the circumstances lead to the inference future breaches
will occur. This does not mean that where the promisee reasonably infers (from the
existence of a breach) that further breaches will occur, there is necessarily a repudiation.
They need to be sufficiently serious!!!

Proving repudiation

(1) Reference to the promisor’s words and conduct

(2) Reference to the promisor’s actual position (question of fact)

Bowes v Chaleyer********

Facts: Silk seller agreed to contract on 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 seller shipped goods in 3 lots between October and December 1920. More pieces were
tendered by the seller in 19 January 1921 and 25 January 1921; the buyer rejected it.

Issue:

(1) Construction of the contract – whether the term was a condition.

(2) Consequences of the buyer’s attempt to cancel the contract in June

Decision: Majority decision – decision in favour of buyer.

Reasoning

- The buyer’s decision to reject the goods is upheld on the ground that by failing to ship the
goods in accordance with the contract the seller had breached a condition. The buyer’s
repudiation did not preclude his later rejection of the goods because the seller had elected
to continue with the contract.

Universal Cargo Carrier Corporation v Citati

Facts: Citati chartered a vessel from UCC to load cargo. 12 July 1951 the vessel arrived, but Citati had
difficulty finding a cargo. Time within which Citati was obliged to load a cargo would expire 21 July.
The charterer would then be obliged to pay a ‘demurrage’, an agreed sum, by way of liquidated
damages for detention of the vessel. On 18 July, UCC, having decided Citati was unable to perform,
chartered the vessel to a 3 rd person. This amounted to a termination of the contract by UCC. The
cargo could not have been loaded between 18 July and 21 July and Citati could not have performed
within a reasonable time after 21 July.

Issue: are the shipowners entitled to terminate the charterparty on 18 July?

Decision: Citati performed anticipatory breach.

Reasoning

- The innocent party is relieved from his obligations when the delay becomes so long as to go
to the root of the contract, amounting to a repudiation
- 6000 tonnes could not have possibly been loaded in the time remaining
- On 18 July the lay days had not expired, but the charterer had by his dilatoriness put it out of
his power to comply with the term that he must complete the loading by 21 July.
- A party should not do an act which would put it out of his power to perform his
obligationsif this is right, Citati had committed an actual breach.
- ‘A profession by words or conduct of inability is by itself enough to constitute renunciation’.

F. DISCHARGE FOR DELAY AND TIME STIPULATIONS

Conveyancing Act 1919 (NSW) section 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 and
effect as they would have heretofore received in such court.

Bunge Corporation New York v Tradax Export SA Panama

Facts: T agreed to sell to B; the June shipment, which was for 5000 long tons, was to be shipped
from one US port to be nominated by T. Clause ‘Period of Delivery. During June 1975 at buyers’ call.
Buyers shall give at least 15 consecutive days’ notice of probable readiness of vessels, and of the
approximate quantity required to be loaded…’ The clause required the notice to be given at least 15
days before the end of June, however buyers nominated on 17 June. The sellers thus refused to go
on with the contract.

Issue: was clause 7, as the sellers had claimed, a condition?

Decision: the sellers had validly terminated the contract.

Reasoning

- Lord Wilberforce
- Halsbury’s Laws of England
(1) The court will require precise compliance with stipulations, as to time wherever
the circumstances of the case indicate that this would fulfil the intention of the
parties
 (2) Broadly speaking time will be considered of the essence in ‘mercantile’ contracts
- It is a condition – Bremer Handelsgesellschaft v Rayner, Peter Turnbull v Mundas
Trading
o (In this context) it is essential that both buyer and seller should know precisely
what their obligations are, especially because the sellers ability to fulfil his
obligation may well be totally dependent on the punctual performance of the
buyer.
- Lord Scarman (agreeing with Wilberforce)
o Seller needed sufficient notice to enable him to choose the loading port; the parties
agreed that the notice to be given him was 15 days…
- Lord Roskill
o Main question: are the buyer’s obligation of such a character that a breach (which
undoubtedly did take place) would entitle the sellers to rescind and claim damages?
i.e. are the buyer’s obligations to give the required 15 days’ notice a condition or
not?
o (Repeating the principles he stated in Hongkong Fir Shipping)
(1) Stipulations as to time are not regarded as ‘conditions precedent’ if a
party’s failure to perform that promise did not deprive the other party
of substantially the whole benefit.
(2) When delay by one party in performing a particular promise becomes so
prolonged as to deprive the innocent party of substantially the whole
benefit it would discharge the innocent party from obligation.
(3) Whether a stipulation as to time is of the essence of the contract
depends upon whether even a brief postponement of it would deprive
the other party of substantially the whole intended benefit of the
contract.
o Halsbury’s Laws of England – Time will not be considered of the essence
(1) Parties expressly state conditions as to time must be strictly complied
with
(2) Nature of the subject matter or the surrounding circumstances show
that time should be considered to be of the essence
(3) A party who has been subjected to unreasonable delay gives notice to
the party in default making time of the essence

G. TERMINATION
(i) Process of termination

Tropical Traders v Goonan

Facts: G purchased land from TT. Payable by (1) Deposit 10,000 (2) four annual instalment payments,
each of 5,000 due on 6 January 1959-1962 and a final payment of 17,500 due on 6 January 1963.
Interest also payable. Clause 11: “if the respondents fail to pay deposit or the balance of the
purchase money ‘at the respective times herein before appointed’, all ‘moneys actually paid by
them’ were to be ‘absolutely forfeited’ to the seller. Clause 12: 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. G paid the deposit; the first 3 instalments were each a few days late and the 4 th a few
days early. Interest was paid on 7 th January 1963 (for the year up to 6 th January 1963) and an
extension of time requested for the final payment of 17,500. 8 January 1963 sellers informed of their
right to rescind, but would not exercise the right until 11 January. They sent a ‘grace’ letter which
said they will not take action until 14 th January, which is an ‘act of grace…and without prejudice to
and in no way varying the Company’s right to the strict enforcement of the contract’. The final
payment was not received and thus appellant rescinded.

Issue: by allowing further time to perform, did the seller affirm the contract and thereby lose the
right to terminate? Or otherwise did they ‘waive’ the benefit of the right of termination?

Decision: in favour of seller. Allowance of further time to perform was not an affirmation of the
contract. (Normally, if time is extended a promisee is taken to have affirmed the contract).

Reasoning:

- (In response to previous judge saying that by voluntarily accepting late payments in the first
3 years, the seller induced the buyers to believe that clause 12 would not be enforced
against them) – from the bare fact of acceptance of late payments of 3 out of 4 does not
follow that in respect of the final payment that the seller was allowing the buyer to
understand that they might safely rely upon its treating clause 12 as no longer enforceable.
Each acceptance of a late payment was an election by the appellant not to rescind the
contract. Not a valid proposition that wherever some instalments are accepted late without
demur the party accepting them is precluded in respect of alter instalments from insisting
upon the agreement that time shall be of the essence.
- Main issues…regarding the extension
1. Did it amount to a binding election not to rescind for non-payment of the 17,500?
2. If it did, was it ineffectual to fix 13 January as a date in respect of which time was of the
essence?
- The letter by which the sellers agreed to an extension of time for payment was ‘only a
qualified and conditional waiver of the original stipulation’.
- Time being of the essence…the seller was entitled (after 6 January) to elect for or against
rescinding the contract…
o The appellant was not bound to elect at once – it might keep the question open, so
long as it did nothing to affirm the contract and so long as the buyer’s position was
not prejudiced in consequence of the delay…
- Seller did no more than promise that it would not elect to rescind the contract before 14
January. If 17,500 + the additional 50 were paid before then, the contract would stand
affirmed…this was not a stipulation postponing the time for completion, but merely
limiting the exercise of a consequential power.
- Far from constituting an election by seller to affirm the contract, it was an announcement of
an intention to refrain from electing either way until either the final payment has been paid
or 14 should have arrived.

White and Carter v McGregor

Facts: When WC’s (advertising contractors) advertising contract with M (garage business owner)
ended June 1957, M’s manager signed a new contract on M’s behalf. On the same day M repudiated
the contract. WC ignored the repudiation and proceeded to advertise M’s business; they did not
terminate the contract for repudiation. Clause 8: ‘if any payment was outstanding for a period of
four weeks the total amount due for the 156-week period would immediately become due’. When
M refused to pay, WC sued to recover the total sum due.

Issue: whether sellers’ had earned the right to recover the liquidated sum represented by the
contract price.

Decision: majority 3-2 in favour of seller. Sellers were entitled to payment of the price.

Principle: P may elect to continue with the contract so as to claim a liquidated sum such as the
contract price, rather than damages.

Reasoning

- Repudiation does not automatically terminate the contract, nor is there obligation on the
innocent party to do so. P can ignore the repudiation and affirm the contract.
- Principle has 2 limitations
o Position where co-operation is required:
 If the co-operation of D (buyer) is necessary in order to enable P (seller) to
complete performance, the principle does not apply.
 Failure of D to co-operate will prevent P earning the contract price: damages
must be claimed.
 E.g. sale contract – unless seller has already performed the K by transferring
ownership, the buyer is not liable to pay the price of the goods if delivery is
refused by the buyer.
 E.g. if A agrees to work for B, but B repudiates the K and refuses to allow A
to do their work, there is no point in refusing to accept B’s repduation. A
must claim damages and the mitigation rules must apply.
o Absence of legitimate interest (consistent with good faith requirement)
 If P had ‘no legitimate interest’ in completing performance.
 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. If a party has no interest to enforce a stipulation,
he cannot in general enforce it.
 i.e. if seller had no legitimate interest in pursuing the contract price, their
election to claim the contract sum will be ineffective.
 E.g. if A engages B to go overseas and prepare a report, what is B’s position
if A discovers prior to B leaving that the report will be a waste of time,
perhaps because the purpose of the report is no longer relevant to A? If A
repudiates the contract, and offers to pay compensation to B, it may be that
B will be unable, on returning with the report, to recover the contract price.
But A will need to show that B had no legitimate interest in ignoring the
 repudiation. Since her interest need not be financial, A would need to show
that there would be no professional advantage to B in going overseas and
preparing the report. That would be difficult.
- Controversy surrounds this decision because it looks to deny the very basis for the
decision that if the contract price has been earned the court cannot deny that remedy to
the plaintiff.

Rawson v Hobbs (FREAKING CONFUSING CASE)

Facts: Rawson agreed 7 July 1958 to purchase grazing property from Hobbs (the vendors). Price of
property payable by way of deposit and 3 instalments. Deposit was paid. Section 143(1) of Land Act:
transfer of the lease would not be valid until the approval in writing of the Minister of Lands. Such an
approval could not lawfully be given if the transfer infringed section 47: that transferring a total area
of land larger than that allowed. Section 151: registration of at transfer was necessary and the
transfer of excessive quantity of land could not be registered. Clause 12 of contract: “Rawsons to
obtain the consent of the Minister” and conferred an option on both parties to ‘annul’ the sale if the
Minister refused consent. Rawsons took possession and spent money on it (e.g. built a house and
worked on property). 16 March 1959 they purported to ‘annul’ the sale on that basis that Under-
Secretary for Lands indicated that the Minister would refuse his consent. 6 May Hobbs responded
that they would ‘rescind’ the contract unless certain breaches were remedied.

Issue:

- Did the Rawsons annul the contract pursuant to the contract?

- Did the Minister refuse consent?
- If Rawsons could not prove that they had validly exercised the express right…the issue would
become whether the Rawsons could justify their conduct by reference to a common law
right of termination or rescission.
- Whether the Hobbs were unable to perform the contract.

Resolution: order that the contract be rescinded.

Reasoning:

- Rawsons’ case: Minister had refused his consent to the transfer of land so that they are
entitled to annul the sale and recover all moneys they had paid to the vendors.
- Clause 12 appears to be directed to an existing transfer which completes the contract and
not to a refusal de future at some intermediate stage.
- If Hobbs were disabled from lawfully performing their part the purchasers were justified in
renouncing the contract.
- Regarding a party who is wholly and finally disabled from performing essential terms of the
contract altogether – a party in that situation cannot recover from the opposite party of to
the contract if the latter at that point renounces the contract on his side.
- Erroneous contention: that if A renounces a contract when B accepts the renunciation and
sues ‘cannot require B to prove his readiness and willingness to perform any of his
obligations under the contract thus repudiated’.
- Question: capacity of Hobbs (as lessee-wtf?) to convert the lease into a ‘fee simple’.
 o No one but Hobbs can convert…he had to do so by complying with the conditions.
o Lay upon Hobbs to secure somehow fulfilment of the condition.
o Hobbs in March 1959 (when Rawson purported to annul) had no intention of doing
any of the abovementioned things…
o It was impossible for Hobbs to put himself in a position to obtain a title to the fee
simple as of right or to do so within any reasonable time thereafter…

(ii) Estoppel as a restriction on the right to terminate

Legione v Hateley

Facts: Hately (purchasers of land) did not perform on time. Legione (vendor) served a valid notice on
26 July advising purchasers that the contract would terminate if the price was not paid by 10 August.
9 August, the purchaser’s solicitor asked for further time (until 17 August) – vendor’s solicitor’s
secretary said ‘I think that’ll be all right, but I’ll have to get instructions (from the vendor
themselves)’. Nothing further was heard until they received a letter on 14 August to terminate the
contract. Purchasers contended that they were estopped from relying on the notice of the
statement.

Issue: Whether Legione were estopped from relying on the right to terminate.

Decision: Legione was not estopped from relying on termination.

Principle: although a particular right or remedy (e.g. to terminate a contract) may exist, estoppel
precludes the party in question from invoking it. It is possible to remove effects of estoppel by
service of a notice. Elements are: promise (clear+unequivocal), induced reliance (detrimental) and
unconscionable conduct.

Reasoning:

- The secretary’s reply was not an unequivocal promise or representation that more time had
been allowed.
- A representation that a particular right will not be asserted for at least ‘x’ days is not
rendered unclear or equivocal merely because the words used are equivocal as to whether
the relevant period is x days, x+1 days or x+2 days. If what is said or done amounts to a clear
and unequivocal representation that the particular right will not be exercised for a period of
at least x days, a representation to that effect can be relied on to found an estoppel.

(iii) Effect of termination

McDonald v Dennys Lascelles

Facts: Dennys had benefit of a K for sale of land, under which R agreed to purchase land from B. The
price was to be paid by deposit, 3 instalments and the balance due January 1931. Only the deposit
and first 2 instalments were paid. In fact B was the purchaser under a contract with J, who was the
owner. June 1931 the K was terminated. Now it was impossible for B to convey the land to R; since R
would not receive title, it informed Dennys that it proposed to treat the K as repudiated. Dennys
then sued McDonald who was the guarantor of R.
Issue: In order to decide whether McDonald was liable to pay, is R (as purchaser under the K) obliged
to pay the money?

Decision: Appeal allowed.

Reasoning

- A vendor of land cannot have the land and the purchase price. If K is terminated before
conveyance of title, the vendor cannot retain payments except for the deposit.
- If K says nothing about the right of the vendor to retain payments (other than deposit), the
purchaser is entitled to restitution on the basis of total failure of the agreed return.
- If the K says that the vendor can keep the money, the purchaser cannot claim restitution on
the basis of failure of the agreed return. Instead, reliance must be placed on the concept of
relief against forfeiture.
- These principles apply even if K has been terminated for the purchaser’s wrongful conduct.

Heyman v Darwins

Facts: Darwins (steel manufacturers) appointed Heyman to be their agents in the western
hemisphere. The contract contained an arbitration clause ‘if any dispute shall arise (regarding the
agreement) – shall be referred for arbitration in accordance with Arbitration Act etc…’ A dispute
arose and the appellants (Heyman) alleged respondents (Darwins) repudiated their obligations.
King’s Bench Division issued a writ seeking a declaration to this effect, and also claiming damages.
The respondents applied for a stay of these proceedings pursuant to s 4 of Arbitration Act.

Issues

- Whether arbitration clause was intended to apply to a dispute in relation to repudiation

- Whether the allegation of valid termination meant that the respondents could not rely on
that clause (as a provision in a terminated contract)

Decision: the arbitration clause was intended to apply to the dispute. Appeal dismissed.

Reasoning

- Definition of repudiation
o Anticipatory breach of a contract where the party by words/conduct evinces an
intention no longer to be bound and the other party accepts the repudiation and
rescinds the contract.
o If the repudiation is wrongful and the rescission rightful  contract is ended by the
rescission only so far as future performance is concerned.
o It remains alive for the awarding of damages either for previous breaches.
- No reason why, if at the time of contract formation they foresee the possibility of such 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…
although difficult, Lord Porter does not see why it should not be done.
- Effect of a repudiation (if accepted)
 o Sue on the contract whether the time for performance is due or not (here the
innocent party is acting under the contract).
o If repudiating party has wholly/partially performed their obligation, the innocent
party may in certain cases neglect the contract and sue upon a quantum meruit – he
is proceeding on a quasi-contract (i.e. not dependent on terms in contract).
- Strictly speaking, incorrect to say that on acceptance of renunciation the contract is
rescinded; the innocent party may accept the renunciation as a breach going to the root of
the whole consideration. By accepting, he is discharged from further performance and may
bring an action 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 desires to do so.
o At most the party repudiating is not ‘approbating and reprobating’ the contract –
but only his future liabilities under it. The contract itself is still in existence and with
it the arbitration clause.

H. DISCHARGE BY FRUSTRATION
(i) The Rule

Davis Contractors v Fareham UDC – frustration occurs whenever the law recognises that without
default of either party a contractual obligation has become incapable of being performed because of
the circumstances in which performance is called for would render it a thing radically different from
that which was undertaken by the contract.

Frustrating events (there must be a radical change)

- Not merely alter the circumstances in which performance is called for; there must be a
radical change.
- An event which would make further performance a thing different in substance from that
contracted for
- An event which creates a ‘fundamentally’ different situation
- An even which deprives a party with further obligations to perform of ‘substantially the
whole benefit which it was the intention of the parties as expressed in the contract that he
should obtain’ from performing those obligations.
(a) Impossibility of performance
- Cases where performance by either parties is physically impossible as well as cases where
performance is not literally impossible, but is ‘impracticable’ in a commercial sense.
- It is important to identify the subject matter of the contract; Turner v Goldsmith – D
employed P to sell goods ‘manufactured or sold’ by them. K was not frustrated by the
destruction of D’s factory because the subject matter was not confined to goods which they
manufactured.
- When subject matter remains in existence, K may be frustrated if it ceases to be available to
the parties; Hirji Mulji v Cheong Yue – charterparty entered into K to hire a boat for 10
months. Shortly before the date, the boat was requisitioned by the government and used by
them until February 1919.
- Death and incapacity will frustrate contracts e.g. employment contracts.
 - Contemplated method of performance not possible e.g. Cornish v Kanematsu – contract for
shipment of goods made ‘per P&O steamer sailing from Japan…’ However, no such vessel
was despatched and so the mode of performance contemplated become impossible.
Contract FRUSTRATED.
- Increased burden of performance – e.g. Codelfa – work had to be completed within a
specific period of time.

(b) Frustration of purpose Krell v Henry

Principle: D hired a flat during the day for 2 consecutive days; the purpose of which was to enable D
to view the Royal Coronation procession of a king. The procession was cancelled due to the king’s
illness and the court held that this frustrated the contract. The basis for this was that the procession
was ‘regarded by both parties as the foundation of the contract’. The decision does not depend on
impossibility, but rather, performance was rendered ‘pointless’.

(c) Frustration of the commercial venture

Davis Contractor v Fareham

Facts: D contracted to build 78 houses over 8 months for F. For a number of reasons, but mainly
because of a lack of skilled labour, the work took 22 months. In arbitration, D sought payment for
increased costs on the basis that the contract had been frustrated. The parties anticipated a
sufficient labour force and materials supply would be available, there was a ‘serious shortage’ of
labour and the increased cost to the D was more than 17,500.

Decision: appeal dismissed in favour of F. Contractor has no recourse to frustration.

Reasoning

- Lord Reid
o D contracted to work for a definite sum; he takes on the risk of the cost being
greater or less than he expected. Delays may be contemplated in 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
such delay.
o Delay was greater in degree than expected – not caused by any new/unforeseeable
factor: the job probed to be just more onerous but never became a job of a
different kind from that contemplated in the contract.
- Lord Radcliff
o It is not hardship or inconvenience or material loss which calls frustration into play;
there must be a change in the significance of the obligation which would produce a
different thing from that contracted for.
o 2 things which prevent frustration
 Cause of the delay was not any new state of things which the parties could
not reasonably be thought to have foreseen. ‘Possibility of enough labour
and materials not being available was before their eyes and could have been
the subject of special contractual stipulation.’
  Though timely completion was no doubt important to both sides, it is not
right to treat the possibility of delay as having the same significance for each
party
 Owner – draws up his conditions in detail, specifies the time within
which he requires completion etc…protection by penalty clause and
deposit of a guarantee bond
 Contractor – takes into account the margin of profit that he hopes to
obtain and in that any appropriate allowance for the obvious risks of
delay.
- Lord Somervell
o Contracts to be performed in futuro are based on expectations. Their equally well
informed idea of the data, that is, the expectations, is the ‘basis’ on which the
contract is made. It is absurd to suggest that if such expectations are not realised the
‘basis’ has gone and contract is frustrated.
o No one can tell how long a spell of commercial depression may last…but contracts
are made for the purpose of fixing the incidence of such risks in advance, and their
occurrence only makes it the more necessary to uphold a contract and not to make
them the ground for discharging it.
o The contractors took the risk under the contract, it is quite impossible to maintain
that the contract did not apply in the situation as it remained.

Codelfa Constructions v State Rail Authority of New South Wales (distinguished from Davis…)

Facts: C contracted to excavate tunnels for SRA; agreed to complete work within 130 weeks.
Although work would be noisy and would produce a lot of complaints from local residents, the
parties assumed C would be immune from injunction. However, local residents soon obtained
injunctions – C could not carry out construction 10pm-6am and none at all on Sundays. This
increased the cost of the work to C. C alleged that they were entitled to receive more payment from
SRA because (1) A term should be implied into the contract or (2) the contract was frustrated.

Decision: appeal allowed in favour of C, frustration established.

Reasoning:

- Davis Contractors v Fareham UDC (Radcliffe) – a frustration occurs whenever the law
recognises that without 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 contract.
- To objections may be urged, but rebutted…
1. Common assumption must be found in the contract itself…
a. It is legitimate to look to extrinsic evidence in the form of relevant surrounding
circumstances to assist us in the interpretation of the contract, unless it is
pointless and would contradict the terms of the contract.
b. Denny Mott v James Fraser – the data for decision are, on the one hand, the
terms and construction of the contract, read in light of the then existing
circumstances, and on the other hand the events which have occurred.
 2. Does not acknowledge the fact that the event which generally works a frustration, is an
event which supervenes after the making of the contract
a. No reason why a mutual assumption arising from a mistaken view that an
activity is immune from injunctive relief should not allow the principle of
frustration.
b. Despite it being unusual that the parties showed no reservations about the
correctness of the legal advice regarding that there will be no injunction
sought…the findings do not reflect the existence of any reservations.
- Critical issue: whether the situation resulting from the injunction is fundamentally different
from the situation contemplated by the contract on its true construction in the light of the
surrounding circumstances
o The contract required construction to be completed within 130 weeks – assuming
that work cannot be disturbed by the grant of an injunction.
o Contract could not be carried out as contemplated once injunctions were granted.
- C was obliged to complete work within a specified time, subject only to extensions granted
by SRA or its ‘Engineer’ in accordance with the terms of the contract…
o The grant of the injunction produced frustration…it had become unlawful to perform
the work in a manner which would have complied with the requirement of the
contract.

Bank Line v Arthur Capel

Facts: B (owners of ship) contracted to charter it to AC (charterers). Clause 26: “The steamer shall be
delivered…not before 1 April and should the steamer not have been delivered before (including) 30
April, charterers have option of cancelling…if the steamer, through unforeseen circumstances,
cannot be delivered by the cancelling date, charterers, if required, shall within 48 hours after
receiving notice declare whether they cancel or not.” Clause 31: “Charterers to have option of
cancelling this charterparty should steamer be (requisitioned) by Government during this charter.”
Ship was not ready by 30 April (cancelling date), but AC did not exercise option to cancel, nor were
they invited to by B. 11 May the vessel was requisitioned by government. July a 3 rd party offered to
purchase ship, conditional to her release from requisition and by September it was released. AC sued
for breach of contract; B argued that the contract was frustrated.

Decision: appeal in favour of B (owners).

Reasoning

- Clause 31 doesn’t care about frustration – if Government requisitions it, then so be it.
- Clause 26 (problematic) – it can be interpreted as that after 30 April and until the ship is
delivered for the chartered service, however long the interval may be, the charterers can at
any moment spring on the owners a cancellation of the contract, and can hold them bound
so long as they choose to hold their own tongues.
o Both clauses did not deal completely with the event relied on as frustrating the
contract; Clause 26 was not inconsistent with the owners being automatically
discharged by an event which produced a radical change in the nature of the
contract.
 o Clause 31, as it only dealt with the position of the charterers, did not exclude the
possibility of a radical change resulting from a requisition of the vessel. It gave
charterers the option to cancel in the event of requisition
 For owners to rely on frustration, they had to prove more than requisition.
- Many possibilities within contemplation of the contract of charterparty which were not
actually present to the minds of the parties at the time of making it…when one of them
become a reality, the meaning of the contract must be taken to be…not what the parties
intended, but what the parties, as fair and reasonable men, would presumably have agreed
upon if, having such possibility in view, they had made express provision as to their several
rights and liabilities in the event of its occurrence.

(ii) Application in various circumstances

(a) Leases and contracts for the sale of land

- Courts reluctant to extend doctrine of frustration to contracts involving land

o Such contracts are so common – incidence of risk was worked out long ago
o Land is much more permanent than the subject matter of most other contracts
o When frustration occurs, discharge is automatic – frustration may effect a transfer
irrespective of the knowledge of the parties
- In the absence of a specific provision dealing with the event, a purchaser is taken to have
assumed the risk of not being able to develop or use the land in a particular way.
- Australian courts are in a confused state as to leases…
(b) Frustration foreseen but not provided for in the contract
- Usually said that the event relied upon as frustrating must not have been foreseen by the
parties.
- Not much authority…however 3 common factors among the cases
o The fact that the parties foresaw the possibility of the cause of the frustrating event
occurring is insufficient.
o It would seem that a fairly strict standard of foreseeability applies – parties must be
found to have foreseen the occurrence of the event as a serious possibility.
 Simmond v Hay- employers knew P (employee) was ill, but not to the point
of him suffering a disease that would permanently incapacitate him.
o The fact that the parties have foreseen the possibility that performance might be
interfered with or interrupted does not necessarily prevent the contract being
discharged by frustration.
 WJ Tatem v Gamboda – D chartered a ship to P during Spanish Civil War for
30 days. It was assumed that the parties contemplated the possibility of the
vessel being seized and detained…but the occurrence of this event was
nevertheless held to frustrate because it was detained for a period longer
than anything contemplated.
(c) Where contract provides for the consequences of frustration
- If K contains express provisions which indicate sufficiently the consequences of the
(frustrating) event, the parties’ rights will be regulated by the express terms, providing no
room for the doctrine.
Simmons v Hay

Facts: S employed H, knowing at the time he was not in perfect physical condition. Clause 6 provided
that he show evidence of illness which prevented him from performing his duties. H was sick for 6-7
weeks May-July 1961 and was again ill 27 Nov 1961. He never returned to his work – S paid until
June 1962 and then notified H that contract was terminated.

Issue: whether the parties had provided for, or foreseen, the illness of H.

Decision: appeal allowed in favour of S (employers).

Reasoning

- The clauses are not uncommon in employment contracts…they are no more than ordinary
clauses which apply to small illnesses which interrupt, for the time being only, the continuity
of H’s performance of duties.
- Cannot say the incapacitating illness was not a ‘new state of things which the parties could
not reasonably be thought to have foreseen’…if absence of foreseeability is an essential
condition, ‘I am unable to say that there was not such an absence of foreseeability…’
- This illness was such as in a business sense to put an end to the contract and frustrate the
object of H’s employment…the unfitness was permanent…no longer able to perform the
agreed services….thereby discharged.
(d) ‘Self-induced frustration’

Maritime National Fish v Ocean Trawlers

Facts: Respondents in a charterparty contract with appellants (charterers), claimed it was frustrated.
The ship was used in the fishing industry; since it was fitted with an otter trawl, it required a licence
from the Minister. Appellants operated a total of 5 trawlers, all which required licences; however
minister granted licence to only 3 and appellants decided to apply the licences to trawlers other than
the trawler subject to the contract. Afterwards, appellants asked respondent to take vessel back on
the ground that the charterparty had been ‘frustrated’ by impossibility. Respondents refused to do
so.

Issue: whether contract had been frustrated because it was impossible to perform. Basis for
impossibility was that the vessel could not legally be employed in the fishing industry without the
licence.

Decision: dismissed appeal – appellants liable to pay damages for breach of contract. There was no
frustration.

Reasoning

- It was the act and election of the appellants which prevented the trawler from being
licenced for fishing with an otter trawl.
- They could have got a licence for the trawler if they intended…
- Frustration – it should not be due to the act or election of the party…without any default of
either party
(iii) Consequences of frustration

- Discharges the whole contract automatically and either may rely upon it.

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour

Facts: Polish company (FSA), the appellants, purchased machinery from FL. July 1939 appellants
made part payment. War was declared in September. Appellants sought the return of payment, to
which the respondents raised the defence that the contract had been frustrated by the occupation
of Gdynia (place of delivery) by German forces.

Issue: whether Chandler v Webster (with regards to contracts being frustrated by supervening
events “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”) was correctly decided

Decision: overruled Chandler v Webster and allowed the appeal; appellants therefore entitled to
restitution of the initial payment.

Reasoning

- The Chandler decision would render the party that has paid money and not received
consideration, in a situation where frustration has taken place, without any remedy.
- Chandler suggests that if the contract remains good and valid up to the moment of
frustration, money which has already been paid under it cannot be regarded as having been
paid for a consideration which has wholly failed.