Contract Law Exam Notes

An offer is an expression to another of a willingness to be bound by the stated terms Australian Woollen Mills Pty Ltd v The Commonwealth

Bilateral Contracts
Under Bilateral Contracts each party undertakes to the other party to do or to refrain from doing something, and in the event of his/her failure to perform his/her undertaking, the law provides the other party with a remedy. United Dominions Trust Ltd v Eagle Aircraft Services Ltd

Unilateral Contracts
Under unilateral contracts the promisor undertakes to do or to refrain from doing something if another party, the promisee, does or refrains from doing something, but the promisee does not at the time of the offer undertake to do or to refrain from doing that thing. United Dominions Trust Ltd v Eagle Aircraft Services Ltd The position in such cases is simply that the consideration on the part of the offeree on the part of the offeree is completely executed by the doing of the very thing that constitutes acceptance of the offer. Australian Woollen Mills Pty Ltd v The Commonwealth

Offers to the Public at Large
An offer can be made to the public at large. Carlill v Carbollic Smoke Ball Company
 The defendant (the company) was the manufacturer of a product called the Carbolic Smoke Ball, which was designed to prevent the user of the smoke ball from contracting the flu. To promote its product, the Company advertised in a newspaper to pay 100 pounds to any person who contracted the flu after using one of their smoke balls in the specified manner for a specified period. The plantiff relied on the advertisement, purchased one of the smoke balls, and used it in the prescribed period. The plantiff contracted the flu and sued the Company to recover 100 pounds. The English Court of Appeal held that the plantiff was entitled to recover the money from the Company. The court rejected the Company’s argument that the promise was not binding because it was not made with anyone in particular. As stated by lindley


LJ, ‘in point of law this advertisement is an offer to pay 100 pounds to anybody who will perform these conditions, and the performance of the conditions is the acceptance of the offer’

In Carlill’s case the offer made to the world at large formed the basis of a unilaterial contract. This will not always be the case. Depending on the terms of the advertisement to the general public, the advertisement may constitute an offer which, if accepted, forms a bilateral contract.

Offers made through the Internet
In recent times, there has been an enormous increase in the extent to which commerce is transacted through the Internet. The expansion of electric commerce has also highlighted a number of difficulties, particularly in relation to issues of contract formation. Given the transnational transactions and processes difficult legal problems can arise- such as establishing the place and time of contract formation, and the appropriate legal regime to govern the transaction. Some of the traditional contractual concepts will continue to be relevant. For example offers made to the public at large still abide by the principals set about in Carlill’s case.

What is not an Offer?
Mere Puff
Sometimes statements can be regarded only as ‘mere puffery’- the claims are made only for advertising purposes and mean nothing. In years gone by, it is particularly common practise to make exaggerated or perhaps unsustainable claims about products. Carlill v Carbollic Smoke Ball Company  Not all statements made in advertising, however, can be dismissed so lightly. The case of Carlill provides such an example. In that case, it was held that the statement was more than mere puffery. The deposit of £1,000 in the bank was an indication of the manufacturer’s intention that the offer was genuine.

Supply of Information
The supply of information is not an offer. A request for information must be discerned from a contractual offer. A clearer indication of a preparedness to enter into a contract, than merely providing terms or information upon which a party maybe prepared to enter into such a contract, is needed. Harvey v Facey


One party was anxious to purchase property of another, the property being known as ‘Bumper Hall Pen’. The prospective purchasers sent a telegram to the owners in the following terms: Will you sell us Bumper Hall Pen? Telegraph lowest cash price.’ The owners responded: ‘Lowest price for Bumper Hall Pen £900’. The final communication was by the purchasers to say: ‘We agree to buy Bumper Hall for £900 asked by you...’ The purchasers later brought an action for specific performance when the owners refused to complete the purchase. The Privy Council did not grant the relief sought because a contract had not been formed. The plaintiff made two enquiries of the owners: Whether they were willing to sell; and what the lowest price of the sale would be. The owners responded only to the second question by supplying the information. It could not be implied that they responded to the first question by agreeing to sell.

Invitation to Treat
An invitation to treat is an indicator of a party’s willingness to negotiate entry into a contract. It is a technique used by a party who desire another party to make an offer and cannot be construed or the terms be accepted as if it were a valid legal offer in itself. Carlill v Carbollic Smoke Ball Company   Bowen LJ described an invitation to treat in the following terms: Cases in which you offer to negotiate, or you issue advertisements that you have got a stock of books to sell, or houses to let, in which case there is no offer to be bound by any contract. Such advertisements are offers to negotiateoffers to receive offers- offers to chaffer, as, I think, some learned judge in one of the cases has said. Bowen LJ pointed out that advertisements for sale, such as those appearing in advertisements or display of goods on shelves will generally be regarded as an invitation to treat. They are not offers by themselves, but ‘offers to receive offers’. They are designed to generate offers by others. Therefore an invitation to treat cannot be accepted by the other person and bind the person who advertised the product.

The display of goods in a store is an invitation to treat. Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd  Pharmaceutical Society GB v Boots Cash Chemists appellant argued display of drugs in pharmacy (with prices attached) infringed a statute prohibiting sale of drugs except where registered pharmacist in attendance. Did display constituted an offer so contract of sale at the moment that the customer selected drug when pharmacist not in attendance?


It is in no sense an offer for sale the acceptance of which constitutes a contract. the customer made an offer at check-out and offer accepted by ringing up on cash register in presence pharmacist. unless they indeed come from manufacturers. are regarded as invitations to treat. Circulars. If it were regarded as an offer and the manufacturer ran out of stock. Categorizing Transactions Advertisements Most advertisements are considered invitations to treat but some may be regarded as offers depending on language used in the advertisement and other relevant factors. "when one is dealing with advertisements and circulars. Partridge v Crittenden    Appellant charged with statutory offence of unlawfully offering for sale wild live bird (a "Bramblefinch hen") in a periodical.    Court of Appeal held display was an invitation to treat. Held advert an invitation to treat not “offering for sale” in statute. These are also considered invitations to treat unless the advertisement is couched in terms which indicate the retailers willingness to be bound if the specified terms are accepted (eg. Grainger v Gough b) Advertisements in Newspapers and Magazines. which provide information about items for sale and their prices. The advertising material must be an offer for the legislation to apply but not if it is an invitation to treat. 4 . there is a promise (Carlill) rather than a mere invitation (Partridge v Crittenden). Charged with offering for sale flick-knife contrary to statute Held ” display of an article with a price on it in a shop window is merely an invitation to treat.” per Lord Parker CJ.” Lord Parker An advertisement that gives information about goods for sale and their price will generally be an invitation to treat rather than an offer. Does this make sense? Right not to sell floor stock/window display stock? Fisher v Bell shopkeeper displayed a flick-knife in window with price ticket. they would be in breach of contract for anyone who accepted such an offer as they could not provide stock However common legislation also regulates the sale of certain types of products such as fauna and flora that may be offered for sale. there is business sense in their being construed as invitations to treat and not offers for sale. a) Advertisements in a catalogue or in a curricular.

AGC Ltd v. which the auctioneer may reject or accept. the bidder can withdraw a bid (offer) before this time. Auctions a) Advertisement of Auctions The advertisement of an auction is considered an invitation to treat on the part of the auctioneer. even if the price is attached. The auctioneer may withdraw items from the auction or cancel the auction all together without incurring any liability from potential bidders. are regarded as an invitation to treat. Acceptance of an offer occurs. d) Display of Goods. and an agreement is formed. Items appearing in retail outlets. Harris v Nickerson b) Auctions with Reserve Each bid represents an offer. Pharmaceutical Society of Great Britain v Boots Cash Chemists. The application of the same principle as newspapers and magazines is used. Because the agreement is not formed until the bid is knocked down.c) Advertisements appearing on the Internet. McWhirter 5 . A customer who selects the item and takes it to the counter for payment makes the offer. when the auctioneer knocks down the property to the successful bidder. each bid represents an offer that could be accepted or rejected by the auctioneer.  The display of an article together with its price constitutes an invitation to treat. Payne v Cave c) Auction without a Reserve Even in an auction without a reserve. Harris v Nickerson The auctioneer may withdraw various lots from the auction or cancel the auction altogether without incurring any liability from potential bidders. It is then open to the retailer to accept the offer to form an agreement or reject it.

As the bid was not accepted. By listing the Aircraft on Ebay’s site with an effective disclosed reserve of $150. Another registered eBay user made a bid in accordance with the Ebay rules for $150. not the highest bidder. often described as ‘online auctions’. The court did not differentiate between the legal character of bids at an auction on the basis of whether or not there was a reserve price.the contract having been formed when they made the highest bid. The court held that the caveat should be removed. even in an acution without a reserve. Internet Auctions Recent years have seen a proliferation of Internet auctions. each bid represents an offer that could be accepted by the auctioneer. listed the aircraft on eBay with a notation of a minum bid of $150. The legal status of bids made at the auction arose because the auctioneer knocked the property down to the second highest bidder. Before participating in an online auction. Importantly Rein AJ accepted that online auctions were simply a species of auction: In circumstances where both the buyer and the seller agree to accept the terms and conditions on eBay I see no difficulty in treating the parties as having accepted that the online auction will have features that are both simular and different to auctions conducted in other 6   . Acceptance of the stipulated terms and conditions will normally be constituted by the parties clicking on an accept button. According to the court. parties will typically first become a registered user of the online site. the owner of the aircraft denied any contractual obligations to sell on the basis that the owner had contracted with eBay and not the party bidding for the aircraft. 000.000. the owner offered to sell the aircraft to that bidder who was the highest bodder of any others. a registered eBay user. The position is well illustrated by the result in: Smythe v Thomas  The owner of a Wirraway Australian Warbird Aircraft. As part of becoming a registered user.  The auction was originally advertised as being with a reserve. parties will accept relevant terms and conditions appearing on the online site. but ultimately procedded without one. Bothe parties received a notification from Ebay to the effect that the bidder had now ‘won’ the aircraft.000. The sellers then brought an action against the highest bidders removal of the caveat. as the sellers had not entered into a contract with them. Notwithstanding that both parties had agreed to Ebay’s terms and conditions which required a seller to honour winning bids at the selller’s minim bid. a contract had not been formed. This contention was not accepted by Rein AJ who found that a binding contract has been formed between the parties. The Higest bidder then lodged a caveat over the property on the basis that the purchasers of the property. The significance of the terms and conditions being accepted by all registered users is that those terms and conditions will govern any contractural relationship arising from an online auction.

The Parties have agreed to allow eBay. Each tender will be considered an offer. Witham An offeror may withdraw the offer. If the goods are not delivered or are refused the offending party will be in breach of contract. or its computer to automatically close the bidding at a fixed time and the generation of an eBay advice headed ‘won’ appear to have been accepted by the parities to an eBay auction as the equivalent of the fall of the hammer. A standing offer is accepted every time an order is placed. Therefore no liability will be incurred if the person does not accept any of the tenders or even consider them in a bona fide way. Further.forums. Tendering An advertisement for tenders will generally be the same as an advertisement for an auction. the offeree may choose not to accept the standing offer) Colonial Ammunition Co v Reid Options The standing offer may be revoked at anytime before acceptance by the offeree. before acceptance of the offer is made in the form of an order. the offer cannot be withdrawn during this period. Routledge v Grant Purchase of Tickets prior to carriage Page 47 Tickets from automatic vending machines Page 47 7 .. (eg. However. which is akin to an invitation to treat. unless the parties agree to the contrary. Harding Standing Offers A standing offer is an indication by one party of his/her willingness to provide goods over a specified period of time. there is no obligation of the offeree to order goods only through the offeror.. Great Northern Railway Co v. if the offeree provides consideration (eg paying money) to the offeror to keep the offer open for some period. which can be accepted or rejected. anytime. Spencer v.

the Court of Appeal considered that generally for vending machines ‘ the offer is made when the proposition is slightly different in the car park context. and no contract comes into existence. Tinn v Hoffman & Co 8 . and entry into car park. The question was whether the terms referred to on the ticket issued automatically by the machine as the car approached formed part of the contract. They are commonly used for the automatic issue of snack food. Once the car approached the machine a ticket was issued to the customer automatically.the offer is contained in the notice. Acceptance occurs when the care process to the machine and the ticket is taken by the driver. In finishing that they did not. there is no agreement. tickets to public transport. After the offer is accepted it is too late to impose additional terms. Cole v Cottingham An offer becomes effective once it is communicated to the offeree Taylor vLaird Acceptance must take place in reliance upon an offer. If a notice is displayed.  The timing of contract formation in such transactions was considered by the English Court of Appeal in Thorton v Shoe Lane Parking Ltd. Owners of vending machines may sometimes attempt to impose terms on the other contracting party. and serve a variety of functions. or someone authorised by the prices and stating that cars are parked at owners own risk.Purchase of tickets for transport Page 47 Automatic vending machines Automatic vending machines are in widespread use. so it may be important to determine precisely when the contract is formed.a case involving an automatic ticket vending machine that allowed access to a car park.   Communication of an Offer For an offer to be valid it must be communicated to the offeree by the offeror. If the offeree performs a particular act that corresponds to the terms of the offer without knowledge of the offer.

subject to cable reply by 15th Oct. the offer could be accepted by any fulfilling the requirements of the offer. 1000 boxes tin plates. P received letter 11th Oct and accepted same day. once an offer is accepted it becomes irrevocable. Lindley J "If the defendant's contention were to prevail no person who had received an offer by post and had accepted it would know his position until he had waited such a time as to be quite sure that a letter withdrawing the offer had not been posted before his acceptance of it.. supported by consideration or under seal. in Cardiff. offered to sell to P. However. made and accepted by letters sent through the post. Routledge v Grant A revocation will only be effective once it has been communicated to and received by the offeree Bryrne v Leon Van Tien Hoven  Byrne and Co v Van Tienhoven and Co. Before acceptance.If it is an offer to the world at large. Carlill v Carbolic Smoke Company Termination of an Offer An offer may be terminated at any time before it is accepted. Goldsbrough Mort & Co Ltd v Quinn An offer may be terminated by a) Revocation by the offeror Revocation is the formal withdrawal of the offer by the offeror. on 1st October..A person who has accepted an offer not known to him to have been revoked shall be in a position safely to act upon the footing that the offer and acceptance constitute a contract binding on the parties. Held withdrawal of an offer. in New York. On 8th Oct. by the offeror to keep it open for a fixed period. D. an offer can be freely revoked Goldsbrough Mort & Co v Quinn Veivers v Cordingly Unless there is a promise.”   Dickson v Dodds 9 . D wrote to P revoking offer by letter (received 20 Oct). is inoperative if notice of withdrawal does not reach the person accepting until after the letter of acceptance has been posted.

Once rejected. the offer cannot be withdrawn after the offeree has begun to perform the necessary conditions of acceptance of the offer and completion of the contract. Ps sued for damages for non-delivery. at the same moment of time. At 1. What constitutes a reliable source is a question of fact that must be established in each case. Offer stipulated open until following Monday. prior to D's telegram.34pm. Ds offer still open at time  10 . The Chancery Division held that the offer to sell to the offeree had been validly withdrawn. If an offeree attempts to accept the offer but introduces new terms. The original offeree was advised of the sale by another party who was not authorised by the offeror. On the facts of Dickson v Dodds. Ps telegram accepting Ds’ offer. the offeree is rejected the offer and is deemed to be making a counter offer Stevenson Jaques & Co v McLean  D wrote to the P offering to sell warrants for iron for 40s. That the offeree was advised that the offer was withdrawn by a third party did not alter this fact. The offeree subsequently purported to accept the original offer. Abbot v Lance b) Rejected by the offeree The rejection must be communicated to the offeror before it is effective. notifying Ps at 1.25pm.  The owner offered to sell his property and advised the offeree that he would keep the offer open until 5 January. There is no requirement for there to be an express or actual withdrawal of the offer. The only requirement is that the offeree be informed about the withdrawal from a reliable source. The focus of the courts in determining the validity of an agreement is whether the two minds were at one. D at liberty to revoke offer at any time before close on Monday but not effectual until it reached Ps. the owner sold to another third party. this was not the case. if not. D no answer and sold warrants to another. Before this date. Monday morning Ps sent telegram inquiring whether D would accept 40s for delivery over two months or. Withdrawal in Unilateral contracts In unilateral contracts. Held Ps first telegram not rejection of Ds’ offer. the longest limit D would give. an offer cannot be later accepted. but inquiry whether D would modify offer. For this reason.

• While the legal basis for this rule would generally not alter an assessment of what constitutes a reasonable time. 2) If the offeree does not accept the offer within a reasonable time. Coulthart v Clementson Nor can a representative of the offerors estate accept the offer on their behalf therefore the offer lapses 11 . Under the first approach. this could influence the outcome. it is withdrawn or. the offer will lapse. what is reasonable must be determined at the date of the offer based on the circumstances existing at the time of circumstances reasonably likely to arise during the continuance of the offer. allowing him to take into consideration the conduct of the offeree subsequent to the making of the offer. the offer must be accepted within a reasonable time. If the offeree has been notified of the death he/she cannot accept the offer. P had no notice of withdrawal of offer and entitled to treat offer as continuing and acceptance was binding c) Lapse of time An offeror may stipulate that his or her offer must be accepted within a certain period of time. Buckley J favoured the second approach. • d) Failure of a condition subject to which the offer was made If a condition upon which the offer is made is not fulfilled the offer will lapse. If no time is prescribed. the condition has not been satisfied and the offer cannot be accepted McCaul Pty Ltd v Pitt Club Ltd e) Death If the offeror dies and the offeree has not been notified of that death. the offeree must be regarded as having refused it. If the second approach is adopted it would be appropriate to consider the actual conduct of the offeree after the offer is made.  Buckley J considered two possible basis for the rule that an offer would lapse within a reasonable time 1) It is implied into the offer that if it is not accepted within a reasonable time. it is still possible for the offeree to accept the offer. and if the offeree fails to accept. If the stock has deteriorated. thus binding the offeror’s estate.Ramsgate Victoria Hotel Co v Montefiore In Manchester Dioceasan Council for Education v Commercial & General Investments Ltd. Buckley J considered that in some instances.Ps accepted it.

This information must be communicated to the offeror. by words or conduct. In an action for specific performance by the buyer. Tinn v Hoffman A Counter Offer is not Acceptance If a counter offer is made. Once a counter offer is made and the original offer rejected. Wrench  A seller offered to sell his farm for £1.000. the Master of the Rolls held that no contract existed between the parties. The acceptance must be unqualified. Acceptance is not valid if two identical offers are made or if a party performs the act of acceptance without knowledge of the offer. Thus acceptance may be expressed or implied HBF Dalgety v Morton There are two requirements to satisfy for valid acceptance to occur: 1. and there must not be an attempt to induce new terms.000. the original offer is rejected and the counter offer can then itself be accepted or rejected.Reynolds v Atherton Acceptance: Requirements of Acceptance Acceptance of an offer is the expression. The offeree must agree to accept the terms of the offer 2. Offeree must have knowledge of and act in reliance to an offer The offeree must have knowledge of the terms of the offer at the time of purported acceptance. of assent to the terms of the offer in the manner prescribed or indicated by the offer. The buyer later purported to accept the sellers original offer to buy the farm for £1. Acceptance must correspond to Offer The offeree must assent to the terms of the offer. The seller refused. By making the counter offer  12 . the offeree can no longer accept the original offer Hyde v. The buyer replied that he would buy it for 950. It is implicit in the notion of acceptance that the offeree must have knowledge of and responding to that offer.

there is a binding contract and this would be considered unqualified acceptance of the offer. with approximately ten days between each delivery.  The Australian and English Courts operate in rather inflexible ways in determining whether a new term by the offeree will constitute a rejection of the original offer. Butler machine Tool Co ltd v Ex-cell o Corperation ltd  The seller of machinery quoted a price on a standard form. the buyer rejected the sellers original offer.offer was accepted when the seller returned the acknowledgement. The form contained a clause entitling the seller to vary that price.for 950. and the parties intend to be bound immediately. a contract was held not to exist because the offeree purported to add a term requiring the delivery in three separate lots. Masters v Cameron Mere Inquiry does not Constitute Acceptance After receiving an offer. The buyers order constituted a counter offer because it contained terms different from the sellers original offer. an offeree may want further clarification of one or more terms. but they still want a formal agreement drawn up. Where the offeree purported to accept an offer to sell a quantity of raspberry pulp at a stated price. The original offer cannot later be revived by the buyers purported acceptance. The order form contained different standard conditions. This inquiry can at most. The buyer placed an order for the same machinery on its own order form.  The English court of Appeal held that the seller was not entitled to rely on the price of variation clause as it did not form part of the contract. Stevenson Jaques v McLean Cooke J in Pwierza v Daley 13 . Turner Kempson v Camm  A purported acceptance that departs from the terms of the offer but only in a minor non-material way may be effective and not amount to a counter offer. That counter. only communicate interest but not acceptance nor rejection of an offer. The seller acknowledged the order by returning the acknowledgment form (which formed part of the buyers order form) to the buyer. Acceptance must be Unqualified If there is an agreement on all terms of the offer.

to the address given and… shall be deemed to have been received in due course of post. Powell v Lee Method of Acceptance What is an appropriate method of acceptance in any given situation will depend on each situation. then the acceptance will be valid. but the basic test is the effect on a reasonable person in the shoes of the offeror.” Deposit of 10% within 7 days. Whether acceptance has occurred depends on whether the offeree has complied with the requirements for the method of acceptance for the particular situation. the offeree may be interested to know whether the seller would be prepared to accept credit. this may not be the only method of acceptance that will be effective Manchester Diocesan Council for Education v Commercial & General Investments Ltd  P sought to sell by tender school property. if the offeree accepts in a manner that is more advantageous for the offeror.. the performance of an act. if the method of acceptance was inserted for the convenience of the offeree. or if it is not stipulated. Notification to the Offeror of the Fact of Acceptance The offeree must communicate acceptance of the offer to the offeror and agreement is not complete until such communication is affected.). the appropriate method of acceptance will depend on the intention of the parties as derived from the particular facts. a) Method of Acceptance Stipulated by Offeror The offeror may stipulate how acceptance should take place (eg. if a person offers to buy stock for sale at a particular price. If acceptance does not occur in this way. P's surveyor 14 . on the true construction of the terms in the offer. return post etc. the offeree may wave the benefit of the clause and accept in a different way Or even if a manner of acceptance is prescribed in the offer. whether the offeror has outlined a specified method of acceptance with in the offer.  The line between rejecting an offer and merely inquring as a to a possible variation is a fine one. Tinn v Hoffman Also. For example. Although. Conditions of tender ”person whose tender is accepted… shall be informed of the acceptance… by letter sent…by post . generally there is no agreement.

On15th. letter sent by P’s surveyor confirming the sale approved would write when Minster consented (23 Dec ). the buyer will be taken to have agreed to buy the product on the stated terms is now prohibited by statute. The property developer preferred not to sign contracts.52 & s. Nevertheless. Although the offeror indicated that the acceptance should be effected  15 . the offeree should perform stipulated acts waiving the need to communicate acceptance.65 Fair Trading Act 1989 (qld) s. P accepted offer and would write when had formal instructions ( from Minister). It was held by the NSW Court of Appeal that a contract existed between parties. Acceptance can be express or implied. Empirnall Holdings Pty Ltd v Machon Paull Partners  A property developer engaged an architect to undertake a property development. In a claim for payment of outstanding fees. Brogden v The Director of the Metropolitan Railway Company  Although there has been no formal recognition of the agreement in terms by the one side. b) Acceptance by Silence The offeror cannot stipulate silence to constitute consent under any circumstances. yet the course of dealing and conduct of the party to whom the agreement was propounded has been such as legitimately to lead to the inference that those with whom they were dealing were made aware by that course of dealing. D’s letter of the 14 Sept asked for acceptance to be sent to their solicitor’s address (rather than tenderer’s address ). 64 & s. Felthouse v Bindley The technique of delivering a product with a notice stating that unless the goods are returned within a stated period (or rejection communicated in a different way). The architect forwarded a printed contract to the property developer. building work proceeded and a number of progress claims were paid by the property developer to the architect.53 c) Acceptance by Conduct An offeror may stipulate the manner of acceptance by advising the offeree that if he/she wishes to accept the offer. Trade Practices Act 1974 (cth) s. P tried to avoid the purchase. that the contract which they had propounded had been in fact accepted by the persons who so dealt with them. and the architect was told this. wrote on 1 Sept. the property developer denied the existence of a contract.

the post might be used as a means of communicating the acceptance of an offer. telephone conversations and telex messages are all considered forms of instantaneous communication. a) Statement of the rule Where the circumstances are such that it must have been within the contemplation of the parties signing and returning the formal document. c) To what communication does the rule extend 16 . Entores L D v Miles Far East Corporation Brinkibon Ltd v Stahag Stahl und Stahlwarenhandels-Gesellshaft mbH b) Meaning of instantaneous Communication Face to face communication. the acceptance is completed as soon as it is posted. Entores L D v Miles Far East Corporation Reese Bros Plastics Ltd v Hammon-Sabelco Australia Pty Ltd Postal Acceptance Rule The postal acceptance rule is the exception to the general rule that acceptance occurs when it is communicated to the offeror. the general rule of law is that the contract will be formed when acceptance of the offer is communicated to the offeror and that communication is received. according to the ordinary usages of mankind. Henthorn v Fraser The rule operates only where the post is an acceptable method of communication between the two parties (eg. Instantaneous Communication: Acceptance must be communicated a) General Rule When the mode of acceptance is instantaneous communication. the offer was made by post or it is stipulated in the offer that the post is an acceptable method of communication) Adams v Lindsell b) Policy behind the rule The postal rule promotes contractual certainty. the conduct of the offeree indicated acceptance of the terms of the offer.

The NSW supreme court held that the postal acceptance rule did not apply in the circumstances of the case.  e) Revocation of the acceptance prior to receipt The offer is formed when the letter of acceptance is posted. only early New Zealand dicta that’s suggests that it cannot be withdrawn in this way and an even earlier Scottish authority to suggest that it can!! Weinkheim v Arndt (NZ) Dunmore (Countess) v Alexander (Scottish) Acceptance in Unilateral Contracts Acceptance commonly by conduct The requirement for acceptance to be communicated is often impliedly waived. A subsequent purported withdrawal of that acceptance will be ineffective. Coot Pty Ltd v Admin Management Pty Ltd d) Where is the rule displaced? The rule is displaced if the court decides that it was not within the contemplation of the parties that the post was an accepted method of communication. If the offeror says or implies that actual notification is required before an agreement if formed the postal acceptance rule will be displaced. within the time stipulated by the offeror. There is still no definitive Australian authority on the issue. The offeree argued that the postal acceptance rule applied and occurred on 18 December. This requirement was not fulfilled by simply posting a letter of acceptance. Acceptance is affected by the offeree by performing the requirements that are specified by the offeror. Bressan v Squires  A buyer was given an option to buy land. Carlill v Carbollic Smoke Ball Company 17 . even if that communication bears some similarities to communication by post. 1972’. The wording of the option implied that the seller required actual notice by the specified date.The postal acceptance rule applies to forms of communication that are akin to mail but does not extend to any form of instantaneous communication. The option was to be exercised ‘by notice in writing addressed to me at any time on or before 20 December. Notice was posted by the offeree on 18 December but not received until December 21. Whether the postal rule is displaced turns the intention of the offeror.

while many people may have the information which qualifies them for the reward. Abbot v Lance Who may accept an offer? An offer can only be accepted by the person to whom it was made. in the case of a reward.Withdrawal of an offer after acceptance has commenced Generally. Hampstead Meats Pty Ltd v Emerson & Yates Pty Lty Entores L D v Miles Far East Corporation Post If the postal acceptance rule applies. Reynolds v Atherton Acceptance may be communicated only by the offeree or his or her agent Powell v Lee If an offer is made to the public at large it can sometimes be accepted by a number of people. it is likely to be too late for the offeror to withdraw the offer and claim there has been no contract formation. Carlill’s case Contract formation: time and place Instantaneous communication A contract is formed when and where the offeror receives and accepts the acceptance communicated. Henthorn v Fraser The Postal Rule can be excluded {Covered earlier in “The postal Acceptance Rule” at (d)} Holwell Securities Ltd v Hughes Bressan v Squires 18 . however. only the first person to come forth will be eligible). anyone who purchased a smoke ball. once an offeree has begun to accept the offer by performing the acts stipulated. the contract is formed when. and at the place that. In Carlill’s Case the offer was capable of acceptance by anyone who qualified under the terms of their offer (eg. the letter of acceptance is posted.

Statement of the Rule In order to constitute a valid contract the parties must so express themselves that their meaning can be determined with a reasonable degree of certainty.. it may indicate that the parties lack intention. G Scammell and Nephew v HC & JG Ouston  O agreed to buy a new van from S stipulating “this order . It is plain that unless this can be done it would be impossible to hold that the contracting parties had the same intentions. standing by itself. House of Lords (now Supreme Court) held sentence “so vaguely expressed that is cannot.. if the terms of the offer are vague and uncertain. If an offer is so vague that the respective obligations of the parties on acceptance are unclear. it is unlikely to be a valid offer in legal terms. Lord Wright..Court needs to be able to attribute contractual intention 19   . it requires further (emphasis added) agreement to be reached between the two parties before there would be a complete consensus ad idem”. in other words the consensus ad idem would be a matter of mere conjecture G Scammell and Nephew Ltd v HC and JG Ouston Facets to the principal There are a number of facets to this principle: • A contract containing language that is 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 will be unenforceable The uncertainty may relate to one of the pivotal terms of the agreement or may go to the very heart of the agreement. on the understanding that the balance of . Similarly. Viscount Maugham -reasonable degree of certainty. be given a definite meaning.Certainty and Completeness: Concepts of uncertainty or vagueness are relevant to a determination of whether there has been an offer made which is capable of acceptance. price can be had on hire-purchase terms over a period of two years”. and whether the parties could have had the requisite intention to enter into legal relations.. not having yet reached the stage of negotiations at which each intends to be legally bound to the other party.

A meaningless clause is one to which a meaning cannot be attributed and will be treated the same way as an uncertain clause. The majority of the High Court held that the clause was uncertain.• Even where uncertain or ambiguous language is not used. On part of the land. The contract required the purchaser to grant a lease of a portion of the land sold. the contract will be unenforceable. 20  . The modern approach appears to emphasise the courts willingness to uphold an agreement entered into by the parties. A number of different terms have been used to describe clauses that are struck down for want of certainty. An illusory clause has an identifiable meaning but will be treated as uncertain as it promises an illusory term. a petrol service station business was being conducted. ambiguous or uncertain matters little. Whitlock v Brew  The parties entered into a contract for the sale of land. This is an example of an illusory agreement as the lessor’s unfettered discretion sets the tent. if the parties have not agreed on all of the essential terms of the agreement.’ The contract went on to provide for an arbitrator to resolve any disputes that arose in relation to the interpretation of the agreement. as it did no prescribe the term of the lease or the rent. • A contract will be unenforceable if it reserves a discretion for one party not to carry out his or her obligations Thorby v Goldberg Ambiguity and Uncertainty Individual Terms There can be no contract unless what the parties agreed can be determined objectively with a reasonable degree of certainty. Sometimes the court will label a term meaningless or illusory. the clause is void. Loftus v Roberts    An option to renew a lease “at a rental to be agreed upon by the lessor” created no contractual obligations This option relied not upon agreement but upon unfettered discretion of the lessor. Whether the clause is said to be vague. particularly where the circumstance indicate that the parties intended to be bound by the agreement. ‘to the Shell Co of Australia Ltd upon terms that the said land leased as aforesaid be used by Shell or their sub-tenant or licensee for sale of products and upon such reasonable terms as commonly govern such a lease.

the tenant agreed to ‘pay a proportion based on the area of the tenancy to include airconditiong and electricity costs’. The seller was given an option to repurchase the property at a sum of 3. A majority of the High court held that the option to purchase was void because the price was not stated with sufficient certainty. 157 4s 0d to which shall be added the value of all additions and improvements to the sum property since the date of purchase by the purchaser and from which shall be subtracted the value of all definciencies of chattel property and reasonable sum to cover depreciation of all buildings and other property on the land’.  The QLD Court of Appeal held that this clause was sufficiently certain and ordered specific performance of the lease agreement. a senior research scientist was given the option to partake in the Company’s senior staff equity sharing scheme. At the time of the contract was entered into and at the time of termination. an expert nominated by a person named in the Annexure.  The NSW court of appeal held that the reference to the scheme did not give rise to an enforceable contractual obligation. if they did not agree. As there were no common hire purchase terms. 21 .  The NWS supreme court held that this clause was void for uncertainty.  The house of lords held that the agreement was too uncertain to be enforceable. No such person was named. Fitzgerald v Masters  The parties agreed to the sale of an interest in a farm.  The High court held that this clasuse was meangless and therefore void.  G Scammel and Nephew Ltd v HC & JG Ouston  The parties agreed on the sale of a van. no such scheme hd been established.Hall v Busst  The parties entered into a contract for the sale of land. Lend Lease Financial Planning Ltd v Southcap Pty Ltd  The parties entered into an agreement for lease. ‘ on the understandin that the balance of the purchase price can be had on hire-purchase terms over the period of two years’. In fact no such set of conditions exsisted. State of New South Wales v Banabelle Electrical  A clause in construction contract provided that disputes that arose between the parties would be resolved by an expert as agreed between the parties or. In relation to ‘outgoings’. The final clause in the contract purported to embody a set of conditions of sale ‘so far as they are inconsistent’ with the terms of their agreement. Biotechnology Australis v Pace  As part of an employment contract. the agreement required further agreement of the parties.

Recourse may also be made to external standards. One mechanism to make an agreement to negotiate more certain. would be to include a provision referring matters in dispute to a third party. that in appropriate circumstances. incorporating standard hire purchase terms used by the particular hiring company. He concluded that if the parties provided good consideration and the terms of the agreement to negotiate were sufficiently certain. it to will be unenforceable Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd However. Hillas and Co Ltd v Arcos Ltd Specifications agreed in the original contract could be regarded as an external standard. machinery or formula designed by the parties to take the place of their own agreement”. Saving Ambiguous. may be enforceable if a meaning can be given to it by reference to an external standard. Sometimes. therefore it is incomplete and will not be enforced. the contract may provide for one or more terms to be inserted by a third party. instead agreeing to finalise such matters at a later time. on its face. this is also a link to an external standard). The parties may provide for “a standard. an agreement to negotiate could be enforceable. it was contemplated by Kirby P (in Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd). If such a set of standard hire purchase terms exists. Hawthorn Football Club v Harding The reference may be made in a direct way for example. it was suggested. appears uncertain. such agreement might be enforceable. uncertain or meaningless contracts Link to External Standard A clause in a contract. even where the contract itself does not expressly provide such a link. 22 . Booker Industries Pty Ltd v Wilson Parking Qld Pty Ltd If an agreement to negotiate is regarded as an agreement to agree. the clause will be valid.Agreements to Agree If parties do not reach final agreement on essential terms. which. (In a fashion. the contract is an agreement to agree.

if the parties would have intended to be bound in the absence of an uncertain clause. but is drafted in such vague terms as to make it void. in some circumstances. ‘The implication of what is just and reasonable to be ascertained by the court as a matter of machinery where the contractual intention is clear but the contract is silent on some detail’ Hillas and Co Ltd v Arcos Ltd Severance The invalidity of one term will not necessarily mean that the whole contract will be unenforceable. Booker Industries Pty Ltd v Wilson Parking Qld Pty Ltd Agreement contains mechanism to complete It may suit the needs of contracting parties not to finalise various aspects of their agreement. that party can choose to waive the benefit of the clause and have the remainder of the contract specifically enforced. Whitlock v Brew Incomplete agreement The courts will not lend their aid to the enforcement of an incomplete agreement. the clause can be severed and the remainder of the contract is enforceable Fitzgerald v Masters If the offending clause forms a pivotal part of the contract.Hawthorn Football Club v Harding Godecki v Kirwan Link to reasonableness standard The court may be willing. to adopt principles of reasonableness to make certain something that. is not. on its face. In some circumstances the invalid term can be severed and the remainder of the contract will be enforceable. Whitlock v Brew Waiver or Removal of Uncertainty If a clause is inserted in a contract for the benefit of one party only. severance of the particular clause is not possible. Generally. but rather to insert in a mechanism for determining one or more terms at a later date for example external standard or third party. so that without out it the parties could not have intended to be bound. being no more than an agreement for the parties to agree at some time in the future. 23 .

The vendor refused to complete the sale and claimed on a number of grounds that the contract was unenforceable. Breakdown of Mechanism to Complete If the parties a mechanism for determining a term and that mechanism fails. Godecke v Kirwan Hawthorn Football Club Ltd v Harding b) Discretion retained by a contracting party It is uncertain that a contract that leaves minor terms to be determined by one of the contracting parties is enforceable. Milnes v Gery If the disputed issue is one of something such as the “price” of something (eg. appointed solitors containing the foregoing and such other convents and conditions as they may reasonably require’. A contract that leaves essential matter for later determination by one of the contracting parties will be unenforceable as it is either incomplete or uncertain or because the promises contained in the agreement are illusory. a court may be prepared to determine a fair and reasonable price. and not to regard that determination as completing the agreement for the parties. if a subsidiary matter was left to the determination of one of the parties such as how the contractual obligations are carried out by that party. it may be enforceable.. Booker Industries Pty Ltd v Wilson Parking Qld Pty Ltd 24 . even essential terms.a) Reference to a third party Parties to a contract may leave terms of the contract to be decided by a third party. The clause 6 expressed the view that there was ‘no reson in principal for holding that there cannot be any binding contract of some matter is left to be determined by one of the contracting parties. Clause 6 of the agreement provided that ‘ if required by the vendor the purchaser shall execute a further agreement to be prepared.  The high court held that the contract was binding. the court will not substitute it’s own view and complete the agreement. Godecke v Kirwan  The parties entered into an agreement relating to the sale of land. by the vendor.. Rent). Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd However.

   The parties entered into a lease of agreement under which the lease was given an option to take a further term. suggested that a court would be more inclined to substitute its own objecteice determination of a reasonable price or rent and uphold the agreement. except insofar as there are appropriate implications of law. completion of the contract would be conditional ipon determination of ther price or rent in the manner specified. The greater the number of terms not finally agreed upon by the parties. A contract could only be regarded as concluded if the parties agreed on the three essential elements: “the parties”. and a clasue where the mechanism was simply one by which the parties could ascertain a reasonable price or rent. Saving Incomplete Agreements Implication of Terms There is a willingness of the courts to imply terms into an agreement. While in the former case. The high court held that the option constituted a valid agreement. drew a distinction between a clause for deterininmg price or rent where the manner of calculation as set out in the clause was essential to the parties. there are two other factors that may be relevant in the courts determination. Sudbrook Trading Estate Ltd v Eggleton  Court was prepared to enforce its own machinery if the contractraul machinery broke down. The contract did not specify quality or price of the timber nor the dates of delivery. It is not for the court to make the contract for the parties. F the parties simply wish to establish a reasonable price or rent and the mechanism stated failed Brennan j. 25 . The rental for that further term was ‘to be agreed with the lessor or failing agreement to be determined by an arbitrator’. Ion his judgment Brennan J. the same could not be said of the later case. Hillas v Arcos  This is a case involving the enforcablity of an option to sell Russian softwood timber. as for instance. the implication of what is just and reasonable to be ascertained by the court as matter of machinery where the contractual intention is clear but the contract is silent on some details. “the subject matter” and “the price” and if these elements have been agreed upon with sufficient certainty the court will provide the rest. Hall v Busst In addition. the less inclined the court will be to exercise its discretion to imply a term. to establish an appropriate value of the house. the court may not rewrite the agreement for parties where the parties themselves have failed to agree on essential terms. or to go outside the words they have used. However.

it is unlikely to be upheld) and will be treated as such matters which are silent on price. if the contract is to sell land.First. where the contract is partly executed and property in the goods has passed. and related to the first. This intention is demonstrated for example. the court will seek to imply a term necessary for the validity of the agreement Hall v Busst Failure to specify price a) Contract silent on price The general principle is that a contract will only be regarded as valid if the parties to it agree on price (as this is one of the essential terms). Stocks &Holdings Pty Ltd v Arrowsmith 26 . if it is clear that the parties have gone beyond the state of negotiation and intend to be contractually bound. the court will be more minded to imply a term and enforce the agreement. and would not be upheld by the court. property has been delivered and title has passed. for example in a contract for the sale of goods. in contracts for the sale of goods the court may imply a reasonable price and the contract will be upheld. A court will not imply a term for payment at a reasonable price into a contract for the sale of land Hall v Busst b) Contract provides for parties to agree in future An agreement to agree in the future also offends against the general principle of completeness. Hillas v Arcos Secondly. this means that if there is no agreement on price stipulated in the contract. or on rental in an option to renew a lease. Hall v Busst However. there are exceptions. However. in some instances. if the contract has between partly executed. For the sale of goods. the court is sometimes prepared to imply a term that the purchaser will pay a reasonable price for the goods. There is a distinction between the sale of land and sale of goods with respect to the implication of terms by a court. Foley v Classique Coaches Ltd However. then the contract is not complete.

the court can assess the price to be attributed to the goods. If one party breaches the agreement. British bank of Foreign Trade Ltd v Novinex Ltd However. It is not uncommon for such a mechanism to be used in relation to setting a price. Godecke v Kirwan d) Contract provides for payment of a reasonable price Whether the agreement is upheld as being sufficiently certain may turn on the nature of the subject matter in dispute.” High Court held clause to be sufficiently certain. Sale of Goods Act 1896 (Qld) Reasonable price is an objective standard that can be determined without further agreement between the parties. Meehan v Jones  Sale of land that included a clause “subject to…the purchaser or his nominee receiving approval for finance on satisfactory terms and conditions in an amount sufficient to complete the purchase. subject to cautionary remark Gibbs CJ (at 578) “that every case must depend on the particular words of the  27 . In these circumstances parties may decide to enter into agreements subject to the happening of a particular event.c) Contract makes provision for mechanism to complete A contract that contains a mechanism for setting a term at a later time is likely to be valid. The contract is immediately binding on the parties but will come to an end if the purchaser is unable to obtain finance and terminates the contract pursuant to its terms. A contract for the sale of goods at a reasonable price is likely to be valid. and damages can be awarded accordingly. Subject to finance agreements Contracts for sale may contain a clause stating that the contract is subject to the purchaser receiving approval for finance on satisfactory terms and conditions. clauses to attribute reasonable price to the sale of land will generally be uncertain or for the sale of goods if they are unique or of very special character eg original painiting Hall v Busst Subject to agreements: Sometimes parties may be ready to sign a contract but not able or not prepared to commit to one or more aspects of the agreement.

the determination of whether the finance was satisfactory was left to the purchaser Meehan v Jones b) Steps to be taken to obtain finance The finance clause in most standard land contracts imposes an obligation on the purchaser to take all steps reasonably necessary to obtain finance approval. in construing the contract. New South Wales generally struck these down whereas Queensland Courts preferred to uphold their validity where possible. the buyer paying a deposit to the seller. there will be no uncertainty” at 578 per Gibbs CJ Comment This case resolved a gulf between New South Wales and Queensland Courts in their attitudes during the 60s and 70s with respect to “subject to finance” contracts for the sale of land. The High Court disagreed. The parties have reached finality in arranging all terms and intend to be immediately bound to perform those terms. Meehan v Jones Subject to Contract For agreements that are formed subject to contract. The parties intend to be bound immediately thus a binding contract is formed. “The fact that opinions may differ as to which of two meanings is given to the clause does not mean that the clause is uncertain. can decide which of the two possible meanings is that which the parties intended (emphasis added). 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.    contract in question. the case could fall into one of three categories: Masters v Cameron 1. drawn up by a 28 . Branca v Corbarro  The parties agreed to the sale of a mushroom farm. The agreement contained a clause stating that the agreement ‘was a provisional agreement until a fully legalized agreement. a) Satisfactory Finance It has been argued that a clause that provided for finance to be obtained on ‘satisfactory terms’ is either to uncertain to be valid or gave the purchaser such a wide discretion that it was illusory. and stated that as the clause was inserted for the benefit of the purchaser. If the court. Until this case. and that it is not profitable to compare with each other cases decided under different contractual provisions”. The High Court is essentially imposing some obligations as to reasonable conduct on the parties when construing the words “subject to”.

An offer in such a case is not expressed to be subject to or conditional upon a formal execution of a contract and all essential terms have been agreed upon thus a binding contract is formed. made some minor structural alterations to the property. and held that a binding agreement had not been entered into. The English Court of Appeal held that the parties intended to be bound immediately. The purchaser subsequently claimed that a binding contract had not been entered into The high Court agreed. Parties in such a case do not intend to be bound until they entered into a formal document thus no binding contract is formed. is signed’. that amount should be treated as a deposit and. The category a particular case falls into turns on the intention of the parties. The parties have completely agreed upon all terms and intend no departure from or addition to those terms. Masters v Cameron   The parties agreed to the sale of a farm. the contract will fall into one of the first two categories. The intention of the parties is not to make a concluded bargain at all. if such an agreement were not entered into. 29 . The agreement was stated to be ‘subject to the preparation of a formal contract of sale which shall be acceptable to the vendor’s solicitors on the above terms and conditions’. Masters v Cameron. Also relevant was payment by the purchaser to be made by a date before the formal agreement was to be executed 2. among other things. should be returned to the purchaser. The parties had not intended to be bound until they signed a formal document. The purchaser agreed to the purchase in these terms. Relevant to this determination was the use of the words ‘provisional’ and ‘until’. Masters v Cameron Niesmann v Collingridge  Page 110 3. The payment of the deposit to the seller was made on the basis that if a formal contract should be executed. Note: Fourth Catagory of Masters v Cameron talks about heads of agreement can be found on 109-110 Case book. unless and until they execute a formal contract. If the parties intend the agreement to be binding on them even before entry into the final contract. but have made performance of one or more of those terms conditional upon the execution of a formal document. paid a deposit to the vendor’s agent and. solicitor and embodying all the conditions herewith stated.

Balfour v Balfour Jones v Padavatton $200 per month if divorced daughter (34 years of age) came from Washington to London to read for Bar (mother in Trinidad so. Later offer to buy house and let rooms in place of the $200. Rose and Frank Co v JR Crompton & Bros Ltd The courts use an objective test in making a determination about the intention of the parties.  30 . “family arrangements which depend on good faith. binding agreements”per Danckwerts LJ (Balfour v Balfour)  But Salmon LJ special circumstances. Merritt v Merritt Domestic and social relationships Presumption The presumption is that domestic and social agreements are not intended to have legal force. the court looks at the surrounding circumstances and asks if a reasonable person would regard the agreement as intended to be binding.promises. County Court judgment for daughter. neither could have intended that “no legal right to …pay the allowance”.majority not intended to be enforceable binding agreement.not intended to be rigid. No rent sent to mother but used for mortgage.  Mother sought possession and daughter counter-claimed for money spent.Intention to create legal relations: Statement of the Rule To create a contract there must be a common intention of the parties to enter into legal obligations. Trinidad or US dollars?).. mutually communicated expressly or impliedly. Appeal  Held . In making an objective determination of the parties intention..

the presumption that may otherwise have arisen may be rebutted. ‘ one of the most usal forms of agreement which does not constitute a contract appears to me to be the arrangements which are made between husband and wife.Heslopv Burns Rebutting the presumption The presumption can be easily rebutted for example if parties who are in a familial relationship are contracting in a business context or if a husband and wife enter into an agreement in circumstances in which they are no longer living in harmony. the negotiation do not take place in the context of natural love and affection therefore there is no room left for the application of such a presumption and the court will generally find that the requisite contract intent existed. if the words used in the contract indicate a legal intention. Before the husband left for Ceylon. They returned to England in 1915 for a holiday. All of the Lord Justices considered the agreement to be unenforceable on the basis that the parties were in a domestic relationship and did not intend legal consequences to flow from their arrangement. separated. Merrit v Merrit  After the parties to the marriage separated ( but before their divorce) they agreed that the wife would contune to pay off the morgage over the former 31 . Balfour v Balfour  After the parties were married in England in 1900 they moved to and lived in Ceylon where the husband had a government posting. will generally not have intended legal consequences to follow their arrangement thus a contract will not be enforceable.  b) Separated husband and wife Where parties are divorced. When the wife late sued on the agreement. Case Examples: a) Husband and Wife Parties involved in a domestic relationship. or in the process of separating. the same presumption should apply where an agreement is entered into between a couple living in a de facto relationship. his wife remained in England for health reasonas. the husband would pay the wife 30 per month. Similarly. they entered an agreement that if the wife supported herself and sis not call on the husband for any further maintence. As Atkin LJ put it. an issue before the court was wherher the parties intended the agreement to have legal consequences. Given many couples now choose to cohabit without marrying. Although the husband went back to Ceylon in 1916.

Subsequently. The English Court of Appeal found for the mother on the basis that there was no leggaly binding agreement between the parties regarding the provison of maintence (and later the offer to live in the mother’s house). matrimonial home (in which she still lived). as it normally has when the marriage has broken up. one or more of the following factors are often relevant • The seriousness of the conduct involved (such as moving countries or giving up full time employment) • The expense involved. and when that had been fully paid. binding arragmnets. instead of being paid. but the husband refused to transfer his interest to the wife. the mother and daughter altered their arragmnets so that. The daughter agreed. to move to England to study for the Bar. the English court of appeal held that the parties possessed the requiste legal intention when agreeing on the arrangements for the house. A dispute arose. especially if the relevant party is not wealthy • Whether there is or has been a degree of hostility in the relationship • The closeness of the family ties • Whether the subject matter of the agreement is business or commercial in nature Examples Jones v Padavatton  A mother. The bond of natural love and affection is likely to weaken according to the remoteness of the tie and will subsequently be easier to rebut. In the words of Widgery LJ. the daughter was able to live in her mother’s house. who lived and worked in the United States. and it is presumed that they do not intend to cerate legal relationships as the agreements made in this context are based on natural love and affection. there is no room at all for the application of such a presumption’. those cases where the court finds that the presumption has been rebutted. In finding for the wife. redident in England invited her daughter. and the mother brought an action to evict the daughter from the house. ‘once that natural love and affection has gone. The wife paid off the mortgage. it was held that it was merly one of those family arrangements which depend on the good faith of the promises which are made and are not intended to be rigid. The Mother promised to procide her with maintence of $200 a month to do so. The husband also signed a document to that effect. Jones v Padavatton In fact. c) Other familial relationships Parties in other familial relationships are considered the same as married or de facto couples. Thiswas the case notwithstanding the seriousness of the  32 . the husband would transfer his interest in the house to her. Relyiong on the presumption that family members do not intend to enter legal relations.

Heslop v Burns However. While this is fair. even when the arrangement is clearly made between friends or a relative in a social setting. and to leave them his property on his death. The New South Wales Court of Appeal found in favour of the plantiffs. Mr Rufos drove the Brewsters truck to Adeleade for repairs. and not domestic or social. the agreement was something very much more than a mere family or social agreement. As the setting of the agreement was commercial. a court will not always find that the parties lacked legal intention. He invited his sister and her husband to come to Australia to live with and care for him until his death. 33 . The truck was involved in an accident on the way back. the cout held that the paritres had entered a binding contract. It was held that. in circumstances of the case. It was agreed between them that if Roufos could arrange for someone to drive the truck back to Coober Pedy. The plantiffs agreed. action can be brought to force that person to share the winnings with the other members of the groups. Roufos could transport goods for his business back on the truck. it is doubtful that parties who participated in syndicate intended their action to have legal consequences).  d) Social Relationships The presumption of lack of legal intent can extend beyond familial relationships to agreements entered into in a social context. In consideration of this the defendent promised to provide them with an income for life. (eg.  Roufos v Brewster  Mr and MRs Brewster owned a motel at Coober Pedy. Wakeling v Ripley  The defendent was an elderly man of considerable wealth who lived in Australia. ran a small store. The court may be more likely to uphold such a decision if large amounts of money are involved. or agreements made between friends.actions of the daughter taken in reliance on the mother’s promise and the obvious expense involved in moving from the United States. the husband giving up secure employment in England. if the person wins. namely the husband giving up his salaried position and pension. Although the Brewsters were unsuccseful in their action. Therefore. mr Roberts. A dispute arose and the plantiffs sued the defendent for breach of contract. parties who pool funds to enter a competition in one person’s name may intent that arrangement to have legal consequences. Relevent to this finding was the seriuous consequences of the arrangement for the plantioffs. and both of them moving permanently to Australia. a legal relationship had been created between the parties. while their son in law. and the Brestwers sued Roufos for the cost of repairing the truck.

. the party alleging that an agreement relating to business matter is of no legal effect has the heavy onus of demonstrating that to be the case. For example. but each featured one of the members of the English Soccer team. a broad approach to what constitutes a business setting must be adopted. the agreement may contain an express clause that no legal consequences flow from the document. the promotion took place in a business context. Edwards v Skyways It can sometimes be difficult determining whether a transaction has taken place in a business setting. Lord Simon provided a number of grounds for this conclusion. Esso Petrolum distributed millions of coins to petrol stations that sold Esso petrol. Central to his lordship’s argumernt was that ‘the offer of the gift of a free coin’ could not properly be regarded as a business matter that attracted the presumption of legal intention. it is assumed that the parties intended the agreement to have legal consequences. One of the issues crucial to the court’s determination was whether the parties had the necessary intention to form a contract of sale. It was advertised to the public that for every 4 gallons of Esso petrol they bought. The advertisements indicated that these coins were a ‘gift’ and were being given ‘free. The House of Lords was split 3:2 on this point. The contracy view was reached by Viscount Dilhorne. It was intended that sales would be promoted as a result of the cpins. or the overall tenor of the particular document may indicate that the parties had no intention to enter into legal relations. The coins were of little intrinsic value. The matter before the court was wheter the coins were being ‘sold’ and therefore liable to be assessed for purchase tax. Rose and Frank Co v JR Crompton & Bros Ltd 34 . Esso Petroleum Co Ltd v Customs & Excise  For the promotional purposes. Secondly. this scheme had a potentially large commercial benefit to Esso. Thirdly this view was supported by authority. Three of the Lords held that the parties possededd the requise legal intent in raltion to the provison of the coins upon a customer buying 4 gallons of petrol. Therefore. There were 30 coins in the series.Simpkins v Pays Commercial Agreement Presumption Where parties negotiate and agree in a business setting. they would receive one of these coins.   Rebutting the Presumption The intention not to create legal relations may be evident in a number of different ways. First.

Coogee Esplanade Surf Motel Pty Ltd v Commonwealth of Australia Policy Initiatives Where the government activity relates to a policy initiative a court may be less likely to find that the parties intended to enter contractual relations. Rose and Frank Co v JR Crompton and Bros Ltd Jones v Vernon’s Pools Ltd 35 . Cameron v Hogan The parties could possess requisite legal intent if the member has a proprietary interest in the club. It is however. For other types of contracts. the rules adopted for their governance would not be treated as amounting to an enforceable contract. for example the order of stationary or contracts to purchase vehicles. open for the parties to form a contrary.Government Activities Commercial Agreements If a government contract arises out of the commercial need for the operation of government. the usual contractual principles apply to determine whether a contract has been formed. The presence of an honour clause in contracting parties agreements will indicate by express words that they did not intend the agreement to have legal consequences. increased formality may be required to demonstrate the necessary legal intent when one of the contracting parties is the government. Australian Woollen Mills v The Commonwealth Administration of PNG v Leahy Voluntary associations Unless there was some clear positive indication that the members contemplated the creation of legal relations inter se. Cameron v Hogan Circumstances indicating absence of intention Honour Clauses The presumption that arises in a commercial context is that the parties intended to create legal relations by entering the agreement.

the courts look at the construction of the document and the circumstances surrounding its sending. Esso Petroleum Co Ltd v Customs & Commissioners of Customs & Excise Similarly. the court will look not only at the words used. it would have legal consequences. a party is certainly not seeking to include the legal enforceability of the settlement itself by describing the contemplated payment as ex gratia. implication that the agreement is to be without legal effect . Edwards v Skyways. but also at the entire context in which the advertising takes place. there may be a tendency to think that a person who acts in response to the advertisement may not intend legal consequences to follow. . • Intention is deduced from the document as a whole seen against the background of the practices of the particular trade or its financial obligations . These financial obligations include all loans made by your Bank. The following points were considered by the authority in assigning legal intent to the letter of comfort: • On a construction of the letter. .that our affiliate Spedley Securities will at all times. the terms were sufficiently promissory in nature. To determine this. if the language used conveys intention.. • The letter was part of a commercial transaction in which there is a presumption that legal relations were intended. Letter of Comfort Central to the determination of whether a letter of comfort gives rise to legal intent is whether the parties intended to create legal obligations by the giving and receiving of the letter. or even a probably. The words ex gratia do not carry a necessary. To determine whether the requisite intention exists. are still seen to posses the intention to create legal relations.mentioned in this letter” Document as whole assessed and practices of industry  36 . or an apparently extravagant claim is set out in an advertisement. Carlill v Carbolic Smoke Ball Co Ex gratia payments and without prejudice offers Parties who offer to make an ex gratia payment or who write a ‘without prejudice’ letter which is accepted... such as the deposit of $1000 in a bank for the purpose of payment. Edwards v Skyways. Banque Brussels Lambert SA v National Industries Ltd  “confirm our practice..Promotional puff and free gifts Where language such as ‘free gift’ is used.

under which a promise that has been relied upon to another’s detriment may be enforced by that other despite the lack of consideration. whether the promisee has given consideration for the promise. A related issue arises in the area of letters or documents of intent. or the promise there of. which may arise orally or be put in writing. is the price for which the promise of the other is bought. Coogee Esplande Surf Motel v Commonwealth Milner & Son v Percy Bilton Ltd Consideration: Whether or not a promise that is part of an agreement can be enforced depends on. among other things.Bank within 30 days” Letter of intent and understandings Parties sometimes conduct their affairs on the basis of an understanding between them. Dunlop Pneumatic Tyre Company v Selfridge & Company Ltd Australian Woollen Mills Pty Ltd v Commonwealth  Comm announced subsidy for purchasers of wool for 37 . The common law will only enforce a promise for which a price is paid.Commonwealth Bank v TLI Management Pty Ltd   Cheques from customer “confirm.will complete take-over arrangements…include the injection of sufficient capital to repay temporary [credit] facility by the .. Question about its contractual standing may arise where one party no longer wishes to be bound. a letter of intent or an understanding will represent something short of an intention to enter a concluded agreement. Waltons v Maher Nature of Consideration An act or forbearance of one party.. and the promise thus given for value is enforceable. Generally. Dunlop Pneumatic Tyre Co v Selfridge & Co The development of the Doctrine of Promissory Estoppel. Consideration is perhaps best understood as an act or promise of an act which is the price paid for the other's promise.

 domestic use by Aust manufacturers. as a price which is to be paid for the doing of an act. the act or forbearance itself. “It is impossible to find anywhere anything in the nature of a request or invitation to purchase wool. United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd Executed and executory consideration In bilateral contracts.” (Emphasis added. Only one party will make the promise and an obligation will only arise if the other party carries out the specified acts. the consideration is considered executory. Scheme discontinued. we cannot find such a promise. The only promise is the one made by the promisor to do or refrain from doing an act if the other party does or refrains from doing an act. constitutes the consideration. United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd Consideration in Unilateral Contracts Unlike bilateral contracts. consideration must move from the promisee. would pay a subsidy. AWM alleged promise by Commonwealth. Each party promises to do an act or refrain from doing an act. This means that the obligation to perform has not yet fallen due. or anything which suggests that the payment of subsidy was put forward in order to induce any manufacturer to purchase wool…If we ask whether there is a promise offered in consideration of the doing of an act. Consideration in Bilateral Contracts A bilateral contract is formed where the parties exchange promises. at 461). in consideration that AWM purchase wool for domestic consumption. In unilateral contracts the parties do not exchange promises. 38 . the consideration is “executed”. therefore the consideration is “executory”. Calculated as difference between present (Aug 1946) and average market price but amount determined by Aust Wool Realisation Commission. a unilateral contract does not constitute an exchange of promises. The price paid for that promise – the consideration – is the other party’s promise. Thus. In bilateral contracts each party exchange promises with the other to do or refrain from doing an act. At the time agreement is reached. Consideration for the promise is not executory because the act has not been promised by the promisee. each party makes a promise. No relation of quid pro quo between the promise and an act can be inferred. If the promisee chooses to and does perform the specified acts. Rules governing consideration Consideration must move from the promisee For there to be a contract between the promisor and the promisee. rather than the promise.

Viscount Haldane LC in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd that only a person who has given consideration may enforce a contract not under seal represented part of the “fundamental law of England”. Thus if A promises to pay B $100 if C will fix A's car, B cannot enforce A's promise because she has given no consideration (at 853).

Dunlop Pneumatic Tyre Company v Selfridge & Company Ltd  Dunlop sold some products to a third party at a discount price. In consideration for the discount price, the third party agreed that if it on sold for a discount price it would require an undertaking by that purchaser not to sell at less than the list price. The third party sold to Selfridge did not honour this undertaking and was sued by Dunlop for breach of contract. The House of Lords found in favour of Selfridge. Even if it could be considered that an agreement was entered into between Dunlop (the third party acting as agent for Dunlop, an undisclosed principal) and Selfridge, Dunlop could not be regarded as having provided consideration for Selfridge’s promise not to sell at less than the list price. Consideration for this promise moved only from the third party.

Trident General Insurance Company Ltd v McNiece bros Pty Ltd Tweddle V Atkinson a) Benefit need not move to promisor It will generally be the case that consideration moves from the promisee to the promisor, whether the promisee promises to pay money, or do or forbear from doing an act. However, it is sufficient if consideration moves from the promisee to a third party at the direction of the promisor. b) Joint promisees 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. Coulls v Bagot’s Executor & Trustee Co Ltd  C granted right to quarry, remove stone and right of way to a company for £5 and royalties. Agreement to pay C and his wife as joint tenants. Wife survived and sought to enforce the contract. Majority of High Court construed contract as one between Coulls and company. Mrs C was not a party to the contract, so could not enforce it under privity. On issue of consideration (obiter), Barwick CJ & Windeyer J (dissenters on privity), and Taylor & Owen JJ considered that merely because Mrs C had not provided consideration did not affect enforceability of contract.


c) Overlap with doctrine of privity The doctrine of privity provides that only a person who is a party to a contract can sue on it. A promisee is only able to sue on a promise if the promisee has given consideration for the promise. Tweddle v Atkinson  A man the plaintiff and a women were engaged to be married. The plaintiff’s father and the deceased (the womens father) agreed for each to pay specified amounts to the plaintiff upon the marriage. The deceased died without paying the agreed sum. The plaintiff sued the deceased’s estate to recover the amount. It was held that the plaintiff could not succeed. The reason provided was that an action could not be brought upon a promise where the plaintiff is a stranger to the consideration.

Consideration must be bargained for
The act of forbearance must be done in reliance of the promise and at the request of the promisor and not done for other reasons (that are unrelated to the contract in question). Combe v Combe  After a married couple separated, the husband promised to pay the wife 100 per year. This husband failed to pay the money as prmied and the wife brought action to recovert he payments. The English court of Apeal found in favour of the husband. The parties had not entered a contract for the payment of 100 per year as the wife had not provided consideration for the husbands prmise. The wifes forbearance from bringing an action for maintanice did not constitute consideration because it was done at the express or implied request of the husband.

Australian Woollen Mills Pty Ltd v The Commonwealth  The Commonwealth implemented a subsidy scheme to lower the purchase price of wool for local manufactures. Upon discontinuances of the scheme, a local manufacturer sued the Commonwealth for breach of contract to recover the outstanding subsidy. The manufacturer claimed that a contract was in existence between it and the Commonwealth, the manufacturer buying quantities of wool in consideration for the Commonwealth’s promise to provide a subsidy. In finding in favour of the Commonwealth, the high court was not persuaded that a contract had come into existence. There was no indication that the commonwealth’s promise was made to induce the manufacturer to purchase wool, nor that the manufacturer purchases the wool because of the commonwealth’s promise.


Consideration must be sufficient
a) General principle To be valid, consideration must be sufficient in that it is ‘something which is of value in the eyes of the law’. Consideration may be valid although it cannot be given monetary equivalent. Thomas v Thomas b) Consideration need not be adequate but must be sufficient Consideration must be sufficient but need not be adequate. The court will not enquire into the adequacy or value of the consideration. Chappell & Co v Nestle Co Ltd  Nestle manufactured chocolate. To promote the chocolate sales, Nestle promised to give a record to any member of the public who sent in 1s 6d plus three chocolate wrappers. The issue before the court was whether the three chocolate wrappers did form part of the sale price. Consideration for the record was both money pas and three chocolate wrappers. The sending in of the wrappers was of value to Nestle. Given the large number of records sold, there would be a large number of wrappers sent in. This was of commercial benefit to Nestle. The fact that chocolate wrappers could not be reconverted into money was irrelevant.

Sufficiency: (a) A promise to perform a duty imposed by law  This does not constitute sufficient consideration (eg subpoena). If promisee that does more than required pursuant to public duty, can sue for amount promised.  Glasbrook Bros Ltd v Glamorgan County Council  Miners' strike, colliery manager applied for police to provide a live-in garrison. Superintendent agreed on condition colliery pay £2,200. Order restored, colliery refused to pay, as police performing what legally bound to do.  Held supply of garrison beyond protection which police bound to provide so constituted sufficient consideration.  Ward v Byham £1 per week for maintenance of exnuptial child “provided you can prove that she will be well looked after and happy and also that she is allowed to decide for herself whether [to] live with you”. CA promise of mother to adequately care for child was sufficient consideration. Lord Denning MR “a promise to perform an existing duty… should be regarded as good consideration, because it is a benefit to the person to whom it is given.” at 319. Morris and Parker LJJ mother’s obligation exceeded statutory duty to maintain child, and was sufficient consideration.


Argued there was an enforceable contract. the seller promised that the horse was free from vice.  b) Past consideration distinguished from executed consideration If the act. 42 . and the buyer sued the seller for breach of his promise that the horse was free from vice. The horse was vicious.Popiw v Popiw  Mr & Mrs P separated. Mr P then promised Mrs P title of matrimonial home in joint names if returned to live with him. Held there was good consideration for Mrs P’s promise. Chief Justice Lord Denman dismissed the buyers action as he did not provide any consideration for the sellers promise. Note evidence about domestic violence. Now Family Law Act. order for sale and division of proceeds. forbearance or promise that is claimed to be consideration has already occurred or been given before the agreement is entered into. Mrs P sought declaration of interest in home. no consideration and agreement not evidenced in writing. After the sale. (Eg. then separated within 3/4 weeks. Token gesture) Thomas v Thomas Lennox v Cameron Niesmann v Collingridge Consideration must not be past a) General Principle The consideration will be regarded as being past if it has already flowed from the promisee to the promisor prior to the agreement being entered into.   A moral obligation or worthy motive does not constitute consideration. Agreement to buy the horse could not be regarded as consideration because the sale had already taken place. Mrs P returned. Mr P argued no intention to create legal relations. the consideration is past not executed. Eastwood v Kenyan Thomas v Thomas White v Bluett c) Consideration can be nominal Consideration will be regarded as valid even if it is nominal only. Roscorla v Thomas  A buyer bought a horse from a seller.

The plantiff brought an action to claim his portion of the wages. They proceded to do so. Consideration: specific examples Moral Consideration A promise made because of a sense of moral obligation to the promisee will not be sufficient consideration to support that promise. Wigan v Edwards Where the plaintiff is bound by an existing contractual duty to the defendant. 43 . or that the promisor has for the promisee is not legally recognized (without consideration) White v Bluett Performance of existing duties a) Performance of existing contractual duties Generally a promise by one party (the promisee) to perform an existing contractual duty owed to another party (the promisor) does not constitute good consideration for the promisor’s promise. performance of that duty will not amount to sufficient consideration to support a further promise made by the promisor. Because the captain was unable to replace these men. and are more commonly referred to as deeds. Simple agreements are agreements other than formal agreements. the common law has recognized these agreements as valid even if consideration has not been provided. but the captain refused to distribute the wages of the deserters.Consideration and formal agreements Deeds Formal agreements are signed under seal. Eastwood v Kenyon A promise made because of the love and affection that the promisor and promisee have for each other. Because of the solemnity or seriousness of the manner of execution of such documents. he entered an agreement with the rest of the crew to distribute the wages of the two deserters qually among them if they continued to work the ship back to London. Stilk v Myrick  The plantiff was a seaman who was employed as a crew member to work a ship from London to the Baltic and back. In the course of the voyage. two of the seaman deserted. unless the duty is exceeded. which are oral or written and require consideration to be valid.

they did not provide consideration for the captains promise. An English court found in favour of the plantiff. Williams v Roffey Bros  Page 157 b) Performance of a public duty Where a public duty is imposed upon the plaintiff by law. I will pay you £150 yearly during my life. To induce the remaining crew to complete the voyage. and until your annual income …. the English court finding the agreement to share the wages void for want of consideration. to perform the duty owed to B. as I promised to assist ….  If A owes duty to B. The plantiff was unsuccessful. As the crew members were merly performing what they were originally bound to do under the exsiting contract. some of the seaman deserted. This operated to release the orginal crew from their contracts. The plantiff later brought an action against the captian to recover the additional money prmised.  The court may be willing to accept performance of an existing contractual duty as good consideration where it provides a benefit to the promisor. may be good consideration for a promise by C to do something for A. Therefore.[as] a chancery 44  . Hartley v Ponsonby  The plantiff was a seaman who was part of a crew of 19 employed to work a ship from Australia to Bombay. the plantiff agreeing to remain on the ship for the rest of the voyage was consideration for the captains prmise to pay additional money. While the ship was in harbour. performance of that duty is insufficient consideration for the defendants promise unless the duty is exceeded. and. a promise made to C by A. the master promised to pay them a sum of money in addition to their wages. requiring payment of $1000. The desertion of part of the crew was such an emergency. it was dangerous to life for the ship to go to sea. Shadwell v Shadwell . As part of the orginal agreement. the crew had undertaken to do all that they could under all the emergencies of the voyage.Uncle wrote to nephew : “ glad to hear of your intended marriage with Ellen Nicholl. After the desertions. A court may be prepared to find that the parties have agreed to abandon their original agreement and enter a new one. Glasbrook Bros v Glamorgan County Council c) Where promise is made to a third party A promise to perform an existing contractual duty owed to another party can be good consideration for a promise.

 Privy Council on appeal NZCA. require. found that the consideration to support the promise exempting them from liability for any damage caused by negligence was the unloading of the ship. and those parties enter into a subsequent agreement that the creditor will accept a lesser amount in full satisfaction of the amount.barrister shall amount to 600 guineas. Held marriage at uncle's request.  Part Payment of Debt a) Rule in Pinnel’s Case A promise to pay part of a debt cannot constitute consideration for a creditor’s promise to forgo the balance (commonly referred to as the ‘rule in Pinnel’s case’). Bill of lading stated any carrier. P action v personal representatives who refused to pay claiming no consideration. for specialty agreements (formal agreement under seal). detriment to P (altering his position?) and benefit to the uncle (?). If the parties enter into a deed under which the creditor forgoes part of 45 . Therefore. so on arrival. sued for damages to cargo being discharged caused by negligence of D’s stevedores. of which your admission shall be the only evidence that I shall . Ds engaged as independent contractors. however. Foakes v Beer b) Circumstances in which the rule will not operate • Parties enter into a deed Consideration is not required. After uncle’s death. followed this case and held consideration existed in the performance of a contractual duty owed to a third party. No arrangements for unloading ship. servant.  HCt Australia Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd (The New York Star) (1978) 139 CLR 231. Pao On v Lau Yiu Long New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd P holder of a bill of lading. even if the debtor acts on this agreement by paying the lesser sum agreed – and the sum is accepted by the creditor – the creditor will generally be able to sue the debtor for the balance due. Not all instalments paid.. the later amount agreement will generally not be binding because the debtor has not provided consideration for the creditor’s promise to forgo the balance due. Pinnels case If an amount of money is owing by a debtor to a creditor.” P married EN and never earned 600 guineas. agent or independent contractor would not be sued by the holder of the bill for negligence.

they may wish to enter into a compromise agreement. This is good consideration even if the creditor is in fact correct and the amount claimed by the creditor is actually due. • Amount owing is disputed The rule in Pinnel’s case will only operate when there is no dispute between the parties as to the amount owed. H B F Dalgety LTd v Moreton • Payment by a third party If a debtor is unable to meet his debt to the creditor and obtains assistance from a third party to do so. the third party to placate the creditor may offer a lesser some than the full amount owed to bring the matter to an end. If the parties cannot agree on an amount owing. the creditors all agree to accept payment of something less than the full amount owing by the debtor. Pinnel’s rule will not apply. that arrangement will be enforceable despite the absence of consideration. Hirachand Punamchand v Temple • Composition with creditors Under a composition with creditor’s agreement. • Accommodation to benefit the creditor If a debtor provides consideration for the creditor’s promise. The debtor has agreed to pay an amount more than the debtor believes to be due. the debtor has provided consideration for the creditor’s promise. As the third party is not indebted to the creditor.the amount owing. in exchange for 46 . although the creditor promises to accept an amount less than what the creditor contends is the account of the debt in full settlement of the debt. his/her promise to pay an amount should be good consideration for the creditor’s promise to forgo the balance of the debt. In the case of a compromise. The fact that payment is by a third party and not the debtor takes the case outside the operation of the rule in Pinnel’s case. Van Burgen v St Edmonds Properties Examples of how the arrangement could be altered by the creditor: • Payment on an earlier than scheduled date • Payment at a location more convenient to the creditor • Payment in a currency more desirable to the creditor Payment made at a different place for the debtor's convenience does not evade the rule.

An estoppel may arise from pre-contractual negotiations 47 .giving the debtor a full release. provided: . payment. and a subsequent promise merely fixes the amount of payment. the parties must have understood that the act was to be remunerated either by payment or the conferment of some other benefit 3. even if the plaintiff would have been unsuccessful in the original claim. Re Casey’s Patents Lampleigh v Braithwaite Pau On v Lau Yiu Long In all cases where a promisee seeks to enforce a promise made after the provision of the services. or other conduct relied upon. or the conferring of the benefit. the act must have been done at the promisor’s request: 2.The claim was reasonable and not frivolous or vexatious .The plaintiff did not conceal from the defendant any facts that to the plaintiff’s knowledge might affect the validity of the claim. must have been legally enforceable had it been promised in advance Pau On v Lau Yiu Long Equitable Estoppel The Doctrine of Equitable Estoppel states that a promise not supported by consideration could give rise to rights in circumstances where it would be unconscionable conduct for the promisor to renege on the promise. In some cases it is possible to infer that a certain sum would be paid. Hercules Motors Pty Ltd v Schubert Bargain for conduct already performed The exception to the rule that past consideration will be ineffective to support a promise is that if the services would only have been provided on the basis of payment. the promisee must be able to demonstrate that 1. Creditors may agree to such an arrangement if it appears that this is the most likely avenue to recover any amount from the debtor In the Estate of Whitehead Forbearance to sue A forbearance to sue or to refrain from exercising some legal right may constitute consideration.The plaintiff honestly believed the claim would succeed .

Waltons Stores (Interstate) Ltd v Maher      In Waltons Stores (Interstate) Ltd v Maher H Ct modified this original formulation in three important respects. court’s jurisdiction based on “unconscionability”. “the laws will not permit an unconscionable…departure by one party [the representor] from the subject matter of an assumption which has been adopted by the other party [the representee] as the basis of some relationship. promissory estoppel as a cause of action (a sword) rather than merely a defence (a shield). act or omission which would operate to that other party’s detriment if the assumption be not adhered to for the purpose of the litigation. a different result may apply where the parties subsequently execute a formal contract that is expressed to constitute the whole of the contract between the parties. course of conduct. Secondly. Thirdly.Waltons Stores (Interstate) Ltd v Maher For equitable estoppel to apply there must be unconscionable conduct by one party. Waltons Stores (Interstate) Ltd v Maher Clear and unambiguous 48 .” Commonwealth v Verwayen at 444 per Deane J Milchaus Investments Pty Ltd v Larkin However. First. but where one party asserts that the other is estopped from relying on rights created by the written contract due to an assumption formed during negotiations Skywest Aviation Pty Ltd v Commonwealth The elements of estoppel must be positively proved and will rarely if ever be inferred Chellaram & Co v China Ocean Shipping Co Elements of Estoppel Assumption or Expectation There must be a clear and unambiguous assumption or expectation by Party A that a contract will come into existence or that a promise will be fulfilled. (Unconscionable conduct denotes a creation or encouragement by the defendant in the other party of an assumption that a contract will come into existence or a promise will be performed and for the other party to have relied upon that assumption to his or her detriment to the knowledge of the first party). abandoned requirement of parties’ pre-existing legal relationship.

Legione v Hateley. reliance and detriment).  Sale of land completion July 1. Gibbs CJ and Murphy J considered Miss W’ statement “ intended and likely to induce a belief in the mind of the Ps’ solicitors that the Vs would not enforce their strict legal rights ” (at 422). Failed to complete July 1. settle on Aug 17. If a party acts upon mere hope rather than a belief induced or encouraged by the other party. Corpers (No. Contract provided. time of essence. Aug 9. Aug 14 Vs’ solicitors advised Ps’ contract rescinded. Non-compliance . where there was a duty to speak.bridging finance obtained. ( Note elements of representation. a failure to deny the statement is in fact authorized and may reasonably be relied upon by the other party. intention to enforce rights unless default made good within 14 days. or from enforce rights. On estoppel . HCt recognised promissory estoppel as part of Australian law.  Majority held relief against forfeiture. promisee relies on promise. purchasers’ (P) solicitors phoned Vs’ solicitors . Ps could “ disregard the time allowed for settlement by the notice of rescission” (at 440 per Mason and Deane JJ).contract “rescinded” on expiry of period. Encouraged or Induced A clear and unambiguous representation may be implied from words used or be adduced from a failure to speak. promisor not permitted to withdraw where would place representee in a position of material disadvantage at 436-437 per Mason and Deane JJ. Thompson v Palmer Waltons Stores (Interstate) Ltd v Maher Representation must be clear and unequivocal.silence can constitute a representation. Miss Williams at Vs’ office. “I think that’ll be all right but I’ll have to get instructions”. written notice specifying default. Miss Ws’ statement not a in clear and unequivocal to the effect that. it will not be sufficient grounds for estoppel Lorimer v State Bank of New South Wale Chellaram & Co v China Ocean Shipping Co If an unauthorized statement is made to the knowledge of the principle in circumstances where the principal knows or ought to know that the statement is being relied upon.A concept shared by both common law estoppels in pais and equitable estoppels is that the assumption or expectation acted upon by the plaintiff must have been clear and unambiguous. Ps sought specific performance.promissory estoppel where existing legal relationship.  HCt . promise in clear and unequivocal terms not to exercise strict legal rights. vendors (V) gave notice expiring Aug 10. 664) Pty Ltd v NZI Securities Australia Ltd 49 . Brennan J secretary could not countermand rescission.

are relevant.. (Eg. …. courts should be careful to conserve relief so that they do not.. Australian Securities Commission v Marlborough Goldmines Ltd The parties reliance upon an assumption must be reasonable. and reliance on that by the [P].At least in circumstances such as the present.” at 585-6 FS had refrained from entering into lease for good commercial reasons ” to avoid preliminary agreement on rent." at 620 per Rogers AJA...” at 610 per Priestley JA Kirby P.. Waltons Stores (Interstate) Ltd v Maher The characteristics of the plaintiff in assessing the reasonableness of the reliance.   Capital Market Brokers Pty Ltd v Hamelyn UPC Ltd Knowledge or Intention 50 . Nor were the parties lacking in advice either of a legal character or of technical expertise. “We are not dealing here with individuals invoking the protection of equity from the unconscionable operation of a rigid rule of the common wary lest they distort the relationships of substantial.The deliberate gamble that the [P] has embarked on failed and it is not for equity to put the [P] in the position it would have been in had it never embarked on its gamble. if the parties are stockbrokers and merchant banker experienced in commerce with the intention of their solicitor to prepare formal documentation or are large commercial entities represented by solicitors).. Austotel Pty Ltd v Franklins Selfserve Pty Ltd  For equitable estoppel “there must be the creation or encouragement by the [D] in the [P] of an assumption that a contract will come into existence or a promise be performed or an interest granted to the plaintiff by the defendant. well-advised corporations in transactions by subjecting them to the overly tender consciences of judges..[C]ourts should. Court should be slow to allow promissory estoppel in clear contradiction to the intention of the parties..Reliance The party claiming estoppel must act or abstain from acting in reliance upon the assumption or expectation. but had misjudged the sway it had over Austotel. in commercial matters. in circumstances where departure from the assumption by the [D] would be unconscionable. Nor are we dealing with parties which were unequal in bargaining power. and where relative equality in bargaining positions of parties. substitute lawyerly conscience for the hard-hearted decisions of business people.

to prevent the person who has relied upon an assumption as to the present.  Brennan J Commonwealth v Verwayen : “relevant detriment in…equitable estoppel is detriment occasioned by reliance on a promise..  Example A represents to B that will enter a contract with B. it is difficult to see where any injustice or loss arises.000. Terms of Contract: A to pay B $100. Detriment suffered?  Narrow: The relevant detriment is that which has been suffered in reliance on the representation . Terms of Contract: A to pay B $100. The relevant detriment does not consist in a loss attributable merely to non-fulfilment of the promise” at 429.$30. B reasonably relies upon the representation and starts construction of the road. The relevant detriment does not consist in a loss attributable merely to non-fulfilment of the promise” at 429..000.that is not fulfilled.  Example A represents to B that will enter a contract with B.  Rationale if representee suffers no detriment from reliance.000  Broad: -The relevant detriment is that which would be suffered if the promise/representation is not fulfilled .  Courts struggle with detriment flowing from reliance on assumption (“narrow view”) and detriment result from non-fulfilment of promise (“broad view”).000  Mason CJ “.000  Broad: -The relevant detriment is that which would be suffered if the promise/representation is not fulfilled . past or future 51 . ….000 for the construction of a road.  Courts struggle with detriment flowing from reliance on assumption (“narrow view”) and detriment result from non-fulfilment of promise (“broad view”). …. B reasonably relies upon the representation and starts construction of the road. Waltons Stores (Interstate) Ltd v Maher Detriment Detriment must arise from reliance on the representation. expending an initial $30.000 for the construction of a road.$30. Detriment suffered?  Narrow: The relevant detriment is that which has been suffered in reliance on the representation . which provides that a court of common law or equity may do what is required. it is difficult to see where any injustice or loss arises. expending an initial $30.$100.  Brennan J Commonwealth v Verwayen : “relevant detriment in…equitable estoppel is detriment occasioned by reliance on a promise.$100.that is not fulfilled.  Rationale if representee suffers no detriment from reliance. but not more.there is but one doctrine of estoppel.The party who induced the adoption of an assumption or expectation must know or intend the other party to act or abstain from acting on reliance on the assumption or expectation.000 Commonwealth v Verwayen Detriment must arise from reliance on the representation.

The apparent reliability of the representations does not enlarge the nature or scope of the detriment. if the assumption or detriment goes unfulfilled . not the defendant. Gobblers Inc Pty Ltd v Stevens Australia & New Zealand Banking Group v PA Wright & Sons Pty Ltd Re Ferdinando The party claiming estoppel must suffer detriment in the sense that ‘as a result of adopting the assumption as the basis of action or inaction. will be suffered by the party who has been induced to act or to abstain from acting on it Waltons Stores (Interstate) Ltd v Maher 52 .... An essential element of that doctrine is that there must be proportionality between the remedy and the detriment which is its purpose to avoid.. The relevant detriment is that of the plaintiff. the plaintiff will have placed himself in a position of material disadvantage if departure from that assumption is permitted Thompson v Palmer The detriment is determined as at the date the defendant seeks to resile from the assumption or expectation he or she has encouraged or induced. as a sufficient and proportional relief for detriment suffered by V. and upon which the othe party has acted Lorimer v State Bank of NSW Failure to avoid detriment The object of the equity (equitable estoppel) is not to compel the party bound to fulfil the assumption or expectation. from suffering detriment in reliance upon the assumption as a result of a denial of its correctness.. it is to avoid the detriment which. thereby depriving it of defences which were available ..” at 412-7 His Honour made order for costs for V.would be a disproportionate response to the detriment suffered by the respondent in reliance upon the assumption that the defences would not be pleaded. Gobblers Inc Pty Ltd v Stevens There must be a link between the assumption or expectation created and the detriment suffered..which assumption to the party estopped has induced him to hold.  state of affairs..” On detriment: To hold Com “to its representations..

Waltons Stores (Interstate) Ltd v Maher Depending on the circumstances. be a prima facie entitlement to have the expectation made good where the relief to reliance would exceed what could be granted by enforcing the expectation. it may be necessary in the interest of justice that the assumption be made good to avoid the possibility of detriment. by failing to fulfil the assumption or encouragement. however. Normally this will be reliance loss rather than expectation loss. Also. Commonwealth v Verwayen There may. 53 . in some circumstances the enforcement of a promise may be the only means of avoiding the detriment. Waltons Stores (Interstate) Ltd v Maher The remedy should be proportionate to the unconscionability. the defendant may be required to do no more than warn the plaintiff that the assumption or expectations mistaken before the plaintiff incurs irreversible detriment Lorimer v State Bank of NSW It may be possible to show the relevant detriment where the defendant has made an attempt to avoid detriment being suffered by the plaintiff but the attempt proves to be inadequate. compensation for loss incurred in reliance on the assumption rather than making good the expectation of the parting invoking estoppel).The party encouraging or inducing the assumption must fail to avoid the detriment suffered by the party claiming estoppel. where the nature or likely extent of the detriment cannot be accurately or adequately predicted. (Eg. Silovi Pty Ltd v Barbaro Remedies The object of equitable estoppel is not necessarily to enforce promises but to avoid the detriment suffered by a party who relies on a promise. Therefore the remedy for equitable estoppel is the minimum equity to do justice between the parties Commonwealth v Verwayen However.

Giumelli v Giumelli Privity General rule A third party to a contract is unable to acquire rights or benefits under the contract. the promise is not binding upon a new party who merely stands in the shoes of the promisor who makes the promise. where the promise is made by a trustee of a trust who. Wilson v Darling Island Stevedoring Co Price v Easton Tweddle v Atkinson Statutory Abrogation of Privity Queensland The Property Law Act 1974 (Qld) s55 (1) provides that: A promisor who. is subsequently replaced by a new trustee. be subject to a duty enforceable by the beneficiary to perform that promise. in turn. promises to do or to refrain from doing an act or acts for the benefit of a beneficiary shall. 54 . upon acceptance by the beneficiary. (Eg. for a valuable consideration moving from the promisee. if the enforcement of the expectation is shown to be too great a remedy it will not be enforced. In the absence of an assignment.Conversely. the promise will not be binding on the new trustee). (a) Promisor The relevant promisor under the statue is the party who actually makes the promise for the benefit of the beneficiary.

Re Davies Provided the beneficiary’s assent purports to accept the promise. it is immaterial if in fact the purported acceptance precedes the promise to benefit the beneficiary thus an anticipatory acceptance may suffice. Re Burns Philp Trustees Northern Sandblasting Pty Ltd v Harris (c) Promise Promise is defined in s55 (6) as being a promise: • Which is or appears to be intended to be legally binding and • Which creates or is intended to create a duty enforceable by a beneficiary A contractual term that merely regulates the relationship between promisor and promisee will not be enforceable by a third party if it does not amount to a promise to benefit the third party and create an enforceable duty Davis v Archer Park Newsagency Rockhampton (d) Acceptance Section 55(6) defines ‘acceptance’ as an assent by words or conduct communicated by or on behalf of the beneficiary to the promisor – or to a person authorised on his or her behalf – in the manner (if any) specified in the promise and within the time specified in the promise. Re Davies It may be sufficient if the promise comes to the notice of the beneficiary’s solicitor. It seems that an acceptance must on its face be an assent.Re Davies (b) Beneficiary For the purpose of s55. Hyatt Australia Ltd v LTCB Australia Ltd (e) Defences 55 . a party is clearly a beneficiary if they are expressly named in a contract as receiving the benefit of performance of work under a contract Re Burns Philp Trustees A person who is not named in the promise but is incidentally benefited by the promise generally cannot enforce the promise in reliance of s55. It is insufficient for there to be words or conduct that is merely consistent with acceptance.

misrepresentation. which may be available to the promisor against the promisee are also available to the former against the beneficiary. the common law still does. as a person to whom the insurance cover provided by the contract extends. s 55(3) provides that after acceptance. Entitlement of named persons to claim Where a person who is not a party to a contract of general insurance is specified or referred to in the contract. voidable or unenforceable will be available by way of defence in proceedings for the enforcement of a duty under s 55.Section 55(4) provides that any matter that would otherwise be relied on as rendering a promise void. Section 48 of the Insurance Contracts Act 1984 has provided a third party with a right to recover directly from an insurer the amount of his or her loss. Section 48 of the Insurance Contracts Act 1984 56 . An obligation may be imposed upon the beneficiary but only as part of a promise that confers a benefit upon him/her. that person has a right to recover the amount of the person's loss from the insurer in accordance with the contract notwithstanding that the person is not a party to the contract. (h) Common Law Still Applicable Section 55(7) saves the common law so that where the statue cannot be applied. whether by name or otherwise. before acceptance. the parties to the contract may vary or rescind the promise. Commonwealth Insurance Contracts Act 1984 (Cth) s48 Today in Australia. The intended object of this subsection provides that defences such as mistake. Stature of Frauds and Statue of Limitations etc. (f) Variation or Rescission of Promise Under s 55 (2). a beneficiary who is unable to make out a case under the statute would be left to rely on an exception to the privity doctrine if one were available in the circumstances. Consequently. insurance cases are the subject of legislation to overcome the Privity rule. their terms of the promise and the duty of the promisor or beneficiary may be varied or discharged only with consent of the promisor and the beneficiary. (g) Imposition of Burdens Section 55(3)(b) states that the beneficiary will be bound by any promise or duty that is imposed as part of the promise that benefits him or her. fraud. However.

So called exceptions at common law Agency Agency is a legal relationship between two people where one of them. or stevedores who are entrusted with loading and unloading the goods. agents or independent contractors in relation to an exemption of liability for loss or damage to the goods. Sea Carriage Documents Act. Carriage of Goods by Sea Act 1991 (b) Consignees and indorsees All rights in the original contract of carriage are transferred to a third party buyer as from the time of consignment or indorsement. such act will bind the principal: that is the principal can take action in his or her own name to enforce the 57 . The clause has been held effective to exempt from liability third parties to the contract of carriage such as the master. all outstanding liabilities under the original contract of carriage are transferred to a third party buyer when he or she demands or takes delivery of the goods. This has. a consignee or indorsee may now enforce rights under a contract to which he or she was a third party. for example. the authority to create legal relations between the principal and the third party. either express or implied. in the past. Now by force of law rather than by provisions in a contract. Effectively. therefore. the principal. crew. Thus.Maritime contracts of carriage (a) Servants or agents of sea carriers If the privity rule were to be applied. If the agent acts within his or her actual authority. then the usual exemption from liability that appear in contracts of carriage exempting the carrier from liability to the owner of goods for loss or damage to the goods could be simply evaded by. or within his or her ostensible authority. Such a clause makes the carrier the agent for its servants. it is possible to impose a burden on a consignee or indorsee despite the fact that he or she was a third party to the original contract of carriage. parties such as the master and crew – but not individual contractors such as Stevedores – may now rely on the exemptions contained in a contract entered into between the carrier and the owner of the goods shipped by sea. suing instead the servants or agents of the carrier. give to the other. the agent. been avoided by the inclusion of a bill of lading evidencing the contract of carriage a provision known as a ‘Himalaya Clause’. Sea Carriage Documents Act Secondly.

and 4. Harvester Co of Aust Pty Ltd v Carrigans Hazeldene Pastoral Co The principles of agency may also apply where the agent does not disclose to the other contracting party that he or she is acting on behalf of a principal if the other party is willing to contract with anyone on whose behalf the agent acts. Trident General Insurance Co Ltd v McNiece Brothers Pty Ltd Teheran Europe Co Ltd v St Belton Ltd Definition The principal is not a stranger to a contract made by the agent. he is one of the parties. A liable to lessee C (the assignee) in respect of covenants in the A/B lease affecting the land. lessor (A). the agent being the medium by which the contract is made. any difficulties concerning consideration moving from the stevedores are overcome. 2. the bill of lading must also make it clear that the carrier is contracting not only on its own behalf but also as agent for the stevedores in relation to the exemption. 3. If these four conditions are satisfied. 2. Teheran – Europe Co Ltd v St Belton (Tractors) Ltd Exceptions to Privity – Land contracts  Leases. can nevertheless rely on an exemption from liability contained in that contract. 58 .contract made by the agent or become personally liable should the contract be breached. although later ratification by the stevedores will do. Restrictive covenant the sale of land by A to B can be enforced by A against later purchasers where they have notice of it. such willingness may be assumed by the agent. the carrier-promisor effectively contracts as agent for the stevedore-beneficiary. the relevant bill of lading must make it clear that the stevedore is intended to be protected.  Exemption clauses and third parties The issue of whether a party who is not party to a contract. the carrier was so authorised by the stevedores. particularly for the carriage of goods. An exclusion clause in a document like a bill of lading may be drafted so at to effectively protect third parties such as stevedores if four conditions are met: 1. lessee B assigns lease to C with A’s consent.

death of or bodily injury to or illness of any person not being a person who at the time of the occurrence is engaged in and upon the service of the Assured under a contract of service or apprenticeship. including the commercial necessity of the arrangement. Mason CJ and Wilson J “The injustice which would flow from [applying the privity doctrine to policies of insurance] arises not only from its failure to give effect to the expressed intention of the person who takes out the insurance but also from the common intention of the parties and the circumstance that others. associated and related companies.Scruttons v Midland Silicones Trusts A trust is created where a trustee holds property on behalf of a beneficiary. will order their affairs accordingly.”  “Assured” defined to include the company. A promisee will be regarded as a trustee of a promise if it was the clear intention of that party at the time of the contract was entered into. Trident v McNiece • Indemnity Clause  “The Insurance. all subsidiary.. Re Schembsman Trident v McNiec Whether a trust is created will depend on a true construction of the terms of the contract and the intention of the parties....indemnifies the Assured against all sums which the Assured shall become legally liable to pay in respect of.This argument has even greater force when it is applied to an insurance against liabilities which is expressed to cover the insured and its subcontractors. aware of the existence of the policy. the courts will be reluctant to infer such a trust exists...” (at 515)     Toohey J Similar grounds to Mason CJ and Wilson J Gaudron J Unjust Enrichment Deane J Trust Dissent . Unless an intention to create a trust is clearly to be collected from the language used and the circumstances of the case... subcontractors and suppliers.. In deriving intention from the language that the parties have employed the courts may look to the nature of the transaction and the circumstances. all contractors.. It stands to reason that many subcontractors will assume that such an insurance is an effective indemnity in their favour and that they will refrain from making their own arrangements for insurance on that footing. The trustee holds the legal title to such property subject to the interest of the beneficiary in such property.Brennan and Dawson JJ 59 .

if the doctrine of privity should be overthrown in its application to policies of liability insurance. I can find none. Indeed. it is sufficient if the promisee alone holds the intention. But this issue remains whether the benefit retained by the defendant is the premium paid or the promised benefit. some criterion must be found to distinguish the exception from the general rule.” per Brennan J at 516 The intention required to create a trust need not be held by both parties. “To hold that policies of liability insurance are an exception to the doctrine of privity. no reason either of policy or logic is advanced for retaining the doctrine for application to other contracts. 60 .. Trident v McNiece Unjust Enrichment If an insurer is paid and refuses to offer benefit to a third party on the ground that they are not party to the contract. Trident v McNiece The key element of unjust enrichment is the unconscionability of the defendant’s conduct in retaining a particular benefit at the expense of the plaintiff. An argument could be made that the defendant has been unjustly enriched only to the extent of the premium paid to it.. the third party may take action on the principles of unjust enrichment.

and signed by the party to be charged. Guarantees A contract of guarantee must be in writing and signed by the party to be charged in order to be enforceable. a) Contracts of indemnity 61 . or by some other person by the party lawfully authorised”. or some memorandum or note of the promise. Notwithstanding this general proposition however. default or miscarriage of another who is primarily liable to the promisee. action can usually be brought to enforce a verbal contract. Yoeman Credit Ltd v Latter Transactions which are not guarantees Transactions that are not guarantees ‘will not’ have to comply with the statutory requirements of formalities. “No action may be brought upon any promise to guarantee any liability of another unless the promise upon which such action is brought. a limited number of contracts must be evidenced by writing for them to be enforceable.Formalities Provided a contract is validly formed and there are no vitiating factors. is in writing. Section 56(1) of the Property Law Act 1971 (Qld) Nature of Guarantee A contract to answer for the debt.

unless the agreement upon which such action is brought. Frequently the issue is whether there was an intention by the parties. upon any contract for the sale or other disposition of land. or any interest in land.”(also CLPA s 60(2)) 62 . Gray v Pearson d) The agreement imposes no personal liability on the person If a person does not undertake personal liability. the surety undertakes primary liability. Dunlop & Co Ltd e) Letters of comfort Whether the letter of comfort is binding as a contractual document. the contract is not one of guarantee Eastwood v Kenyon c) Person agrees to take over the debt of another Where a debtor and creditor have entered into a contract of loan. but instead proffers his or her property as security to the promisee under the principal transaction it is not a guarantee. is in writing. rather than secondary liability. that he or she will pay the debt of the debtor. s 36 (1):“No action. Harvey v Edwards. so that he third party may be called upon to pay. Such an arrangement is not a contract of guarantee and therefore need not comply with the statutory requirement of formality. to create legal relations. or memorandum or note thereof.In an indemnity. Banque Brussels Lambert SA v Australian National Industries Ltd   Statute of Frauds-equivalents in all jurisdictions Conveyancing and Law of Property Act 1884 (Tas).. rather than the creditor. namely the third party and the lender. meaning that the surety will be liable notwithstanding that the principal transaction is unenforceable Yeoman Credit Ltd v Latter b) Promise of guarantee made to the debtor It is possible for a person to promise the principal obligator (the debtor). and signed by the party to be charged or by some person thereunto by him lawfully exercised. depends on the construction of the document. As the promise is not made to the person with whom the principal obligor contracts. it could occur that a third party agrees with the creditor to take over the debt of the debtor.

or some memorandum or note thereof is required in writing and signed in respect of agreements relating to:  Personal liability of an executor/administrator  Answering the debt of another  Agreements not to be performed within one year  Contracts for sale of land. s 9(1) contract for sale of goods of value of twenty dollars or more not enforceable unless buyer accept part of goods. Mr P then promised Mrs P title of matrimonial home in joint names if returned to live with him. s 6 Agreement. then separated within 3/4 weeks.  Does memorandum require recognition of legal obligation? Two views  (1)writing contains terms and recognises contract entered into or  (2)writing refers to terms but no need to refer to contract existence Pirie v Saunders  May be immaterial when memorandum evidencing agreement is made as long as it was intended to recognise the terms of the binding agreement. or some ‘memorandum or not’ of the promise is to be in writing. Mrs P returned. Sylvania Heights” Held did not constitute a memorandum because it could not relate to an existing contract. Princes Highway. or in part payment. Property Law Act 1974 (Tas) Guidance from case law. or “unless some note or memorandum in writing of the contract be made and signed by the party to be charged or his agent in that behalf. provides that the document must contain ‘all essential terms of the agreement’. order for sale and division of proceeds. or give something in earnest. (High Court took narrower view ie (1) above). here. The provision does not. Query why should instructions not be “indicative of…any binding contract”?   On time that memorandum comes into existence? Popiw v Popiw  Mr & Mrs P separated.  Held good consideration but no sufficient memorandum (Query. in Harvey v Edwards Dunlop & Co. Mrs P sought declaration of interest in home.” Mercantile Law Act 1935 (Tas). elaborate on precisely the information that must be contained in the writing to satisfy the statutory requirement. Argued there was an enforceable contract. argument that affidavit was a sufficient memorandum though after agreement) 63 . Mr P argued (no intention to create legal relations. however. tenements or hereditaments (intestacy) Requirement of writing: content For a contract of guarantee to be enforceable the relevant statutory provision requires either the promise is to be in writing. a solicitor’s notes of instructions from client referred to “part of Lot B. no consideration) agreement not evidenced in writing.  Sales of Goods Act 1896 (Tas).

‘the relevant terms of the guarantee must be stated’. upon any contract for the sale or other disposition of land. ‘a description of the party will be sufficient if the description used can be explained by extrinsic evidence without having to resort to evidence to prove the intention of the author. If the guarantee is given of the amount advanced by the lender together with interest on that amount. the nature of that consideration will not be required to be contained in the guarantee. there may be limited circumstances in which the guarantee will still be enforceable against the guarantor for example. ‘the guarantee must contain the names of the relevant parties: the lender. It may happen that the guarantee makes reference to a party without expressly identifying them. Now Family Law Act a) Information particular to the guarantee First. This would generally require the amount of debt being guaranteed must be specified. the interest payable by the debtor should also be specified. and signed by the party to be charged or by some person thereunto by him lawfully exercised. First. Property Law Act 1884 (Tas). There are two other important caveats to the general proposition that a guarantee must contain all of these essential terms. or any interest in land. while the lender must provide valuable consideration to the guarantor for a valid contract of guarantee to be formed.”(also CLPA s 60(2)) Second. or memorandum or note thereof. A waiver to collect interest on the amount owed if details of the interested are omitted) Hawkins v Price b) Acknowledgement of the agreement The writing must contain an acknowledgement of a concluded agreement. s 36 (1) :“No action. is in writing. if the term is for the benefit of the lender. the debtor and the guarantor’. Authorities suggest that even if a party is not expressly identified. the lender will be entitled to waive the benefit of the oral term not reduced to writing to enforce the guarantee as modified (Eg.. where a material term has been omitted from the guarantee. Pirie v Saunders Tiverton Estates Ltd v Wearwell Ltd 64 . Rosser v Austral Wine & Spirit Co Secondly. unless the agreement upon which such action is brought.

and signed by the party to be charged. (Upon the debtor’s default. or by some person by the party lawfully authorised. or by some other person by the party lawfully authorised’. the promise or note or memorandum of the promise must be ‘signed by the party to be charged. is in writing.Requirement of writing: signed by party to be charged or agent To satisfy the statutory provision. Twynam Pastoral Co v Anburn 65 . the guarantee must be signed by the guarantor). if the guarantor’s name appears on the guarantee. Durrell v Evans Contracts relating to land No action may be brought upon any contract for the sale or other disposition of land or any interest in land unless the contract upon which such action is brought. To satisfy the formalities requirement. therefore. Harvey v Edwards. is also relevant to land. and it is the guarantor’s intention that the name authenticates the document. Property Law Act (Qld) s 59 Requirement of writing: content As was the case for guarantees the document must contain ‘all the essential terms’. Dunlop & Co a) Information particular to the contract There are four matters that must be recorded to satisfy the statutory requirement in a contract involving land. it will be sufficient to satisfy the statutory requirement. the lender will seek to enforce the guarantee against the guarantor. it is the guarantor who is the party to be charged within the meaning of the provision. or some memorandum or note of the contract. Therefore. Property Law Act 1974 (Qld) To apply this principle in the context of a guarantee. Property Law Act (Qld) s 59 Nature of contract needing writing The requirement of formality applies to a contract for the sale of land or any interest in land as well as a contract for the other disposition of land or any interest in land.

(Eg. if freehold property is sold subject to an existing leasehold and the leasehold interest is known to the purchaser. Timmins v Moreland Street Property Co 3.1. Such acknowledgement may be expressed or implied in the writing. Failure to include in the document all essential terms might not necessarily be fatal to the plaintiff. If the parties require time to be of the essence. The principal terms of the contract must be disclosed. Petrie v Jensen b) Acknowledgment of agreement The writing must contain an acknowledgment of agreement as well as the terms of the agreement. The property must be adequately described. Pirie v Saunders In contrast. Pirie v Saunders South Coast Oils v Look Enterprises If the property the subject of the sale is part only of a particular lot. Pirie v Saunders Tiverton Estates Ltd v Wearwell Ltd 66 . namely the price. extrinsic evidence may be introduced to establish the identity of the parties. as long as the intention of the parties is clear. that condition should be included in the contract). care must be taken to specifically identify the portion being sold. there is authority to suggest that the property is sufficiently described even if there is no reference to the lease. must be recorded Burgess v Cox Wain v Walters 4. if the term omitted is for the benefit of the plaintiff they may waive the benefit of clause and seek enforcement of the contract without it. Rosser v Austral Wine & Spirit Co 2. The consideration for the promise. The document must contain the parties to the contract Williams v Byrnes As with guarantees.

Tonitto v Bassal As the document joined in this way is referred to in the document signed by the defendant. the buyer will be the party charged). the seller will be the party to be charged for the purposes of any action brought. Tiverton Estates Ltd v Wearwell Ltd Darter v Molloy Requirement of writing: signed by party to be charged or agent The document must be signed by the party to be charged. to another document or to a transaction. it follows that the joined document will be in existence at the same time the document is signed by the defendant. joinder of that document is permitted. Pirie v Saunders Joinder of documents It is possible to satisfy the statutory requirement of writing even if all of the relevant information is not contained in the one document. Similarly. express or implied. Property Law Act (Qld) (If there is purported contract for the sale of the land and the seller claims not to be bound by the agreement.There will be insufficient writing where a contract is made ‘subject to contract’ in the sense of a condition made before the formation of the contract. Harvey v Edwards. if the buyer claims not to be bound. It is sufficient if a person who is duly authorised by the party to be charged signs the document. There are two exceptions to this general position. a) Documents that are physically connected 67 . A document may be able to be joined if there is a reference. A person may have been taken to sign a document if the signature is absent as long as the name of the party is placed on the document and that party expressly or impliedly indicates that he or she recognizes the writing as being an authenticated expression of the contract. Dunlop and Co Reference to a document Where the document signed by the defendant makes reference to another document.

on a minute investigation of the order of events at the meeting. the court will allow the envelope to be joined to the letter. so that they may fairly be said to have been to all intents and purposes contemporaneously signed.A document physically connected to the document signed by the defendant may be joined. if a contract fails to comply with statutory provisions ‘no action can be brought’. is found to have come second in the order of preparation and signing. the document signed by the party to be charged should not be treated as incapable of referring to the other document merely because the latter. Pearce v Gardner b) Documents that are executed at the same time . Fauzi Elias v George Sahely & Co Effect of statutory non-compliance: common law Under common law principles. contain the necessary information. there will be a note or memorandum of the information on the envelope. Timmins v Moreland Street Property Co Reference to a transaction. ‘Where two documents relied on as a memorandum are signed and exchanged at one and the same meeting as part of the same transaction. Timmins v Moreland Street Property Co 68 . In this way. on its own. Therefore if one of the parties refuses to complete a contract. but the letter does not. Where the writing signed by the party to be charged refers to a transaction (rather than a document). M’Ewan v Dynon Where a letter is signed by the defendant and sent to the plaintiff. namely the name of the plaintiff. Joinder is allowed and parol evidence may be given to explain the transaction. no action can be taken by the other party to enforce the contract… Property Law Act (Qld) …Action cannot be brought for specific performance… Tiverton Estates Ltd v Wearwell Ltd …Or for damages for breach. and to identify any document relating to it.

Fullbrook v Lawes b) Recovery of amount more than deposit If the purchaser breaches the contract and refuses to complete the purchase. where the consideration for which it was paid is the conveyance or transfer that has not taken place. This means that. Maywald v Riedel Recovery of money paid under unenforceable contract a) Recovery of deposit A deposit paid by a buyer is considered to be ‘an earnest to bind the bargain’. if the contract is performed by the parties. Oral contract with P to carry out building work. it is likely that any amount over and above that which is deemed to be the deposit could be recovered. Freedom v AHR Constructions Other restitutionary claim may still be available If the contract is unenforceable.Contract valid to pass title Although a contract failing to comply with statutory requirements will be unenforceable. The action is one brought in restitution. it will be a valid contract. the deposit is recoverable by the buyer as money had and received upon a total failure of consideration. However. it will not usually prevent a claim in restitution for recovery on a quantum meruit (so much money as the plaintiff deserves to have) basis. 69 . though work satisfactory. Freedom v AHR Constructions Where an enforceable contract for the sale of land is not completed because of the seller’s default. any deposit paid may be forfeited. This is the position if the contract is one that complies with or fails the statutory requirements of formality. the deposit is liable to forfeiture to the vendor. Pavey & Mathews Pty Ltd v Paul  P and M were builders licenced under NSW Builders Licencing Act. P paid part of the amount. P declined to pay the balance and argued builder not complied with formalities of S 45 Act (contract not in writing and signed by the parties). If the sale is not completed due to the buyer’s default. not on the contract. it will be effective to pass good title.

relying on that contract. The payment of money alone cannot be regarded as a sufficient act of part performance. “If the effect of…quantum meruit was simply to enforce the oral contract…all the plaintiff [would have ] to prove was that he had fully executed the contract on his part and that he had not been paid the contract price. but also on the defendant’s acceptance of the work without paying the agreed remuneration. the courts may be prepared to grant that person specific performance of the contract if four conditions are satisfied. Steadman v Steadman Cooney v Burns Giving instructions and the ensuing preparation of documents are unlikely to be considered sufficient acts of part performance. not only on the plaintiff proving that the did the work. However. Steadman v Steadman b) Acts done in reliance on the agreement and with knowledge of other party 70 . when success on a quantum meruit depends. Maddison v Alderson.   Effect of statutory non-compliance: equity Doctrine of part-performance If parties enter into an oral contract for the sale of land and. it is evident that the court is enforcing against the defendant an obligation that differs in character from the contractual obligation had it been enforceable. a) Acts are unequivocally referable to some such contract The acts relied upon by the plaintiff must unequivocally referable to some such agreement as is alleged between the parties. HCt allowed quantum meruit as Act did not expressly exclude restitutionary (quasi contract) claim. Regent v Miller Maddison v Alderson. one party does certain acts.” per Mason CJ and Wilson J at 228 “The consequences of [P’s] interpretation are so draconian that it is difficult to suppose that they were intended. An interpretation that serves the statutory purpose yet avoids a harsh and unjust operation is to be preferred” per Mason CJ and Wilson J at 229.

HCt concluded that 1895 promise did not constitute a contract and occupancy by Mrs. Here part performance could not be unequivocably referred to the arrangement. Promise made in exchange for certain undertakings. Mrs. lease expired and McB claimed possession. McBride v Sandland It is not necessary that the acts be required by the contract but the fact that they were done voluntarily is sufficient. S continued to occupation under a lease with McBride.These requirements must be satisfied before the actual terms of the alleged agreement are allowed to be deposed to. Mrs. Further. The agreement must be concluded and satisfy the usually contractual requirements for enforceability. and further the other party must have permitted it to be done on that footing… (5) It must be done by a party to the agreement. S refused on the ground that she had an interest under the 1895 promise. S and husband to occupy a farming property during his lifetime and to transfer it to them upon his death.. Mrs. S’s death. Regent v Miller c) Acts done by the party seeking to enforce the contract The acts of part performance must be by the party who is seeking to enforce the contract. McBride v Sandland  In 1895.…       71 .The plaintiff must show that the acts were done in reliance on the agreement and with the knowledge of the other parties. S did not constitute part performance (also part performance by payment of land tax and improvements). King v Grimwood d) Oral contract must be otherwise enforceable The plaintiff must be able to show that the contact would have been enforceable had it satisfied the statutory requirement of writing. In 1916. when those terms are established.. “(1) The act relied upon must be unequivocally and in its own nature referable to “some such agreement as that alleged”… (3) The proved circumstances in which the “act” must be considered in order to judge whether it refers unequivocally to such an agreement as is alleged… (4) It must have been in fact done by the party relying on it on the faith of the agreement. it still remains to be shown:(6) That there was a completed agreement. The Ss occupied the land and after Mr.. M promised to allow daughter.

. cannot be  72  . (7) That the act was done under the terms of that agreement by force of that agreement. statement or warranty. It is immaterial whether the signing party has read the document or not.the plaintiff. in the absence of fraud or misrepresentation. a person can claim an interest in land on the basis of creation of a constructive trust although there is no writing.. having put her signature to the document and not having been induced to do so by any fraud or misrepresentation. the party signing the document is bound by its terms. the crucial issue is whether the parties can be regarded as having assented to the written terms. Olly v Marlborough Court Ltd Incorporation by Signature a) General Rule When a document containing contractual terms is signed.. statutory or otherwise. and any express or implied condition. P claimed return under sale of goods legislation. in appropriate circumstances a party may be estopped from relying on the Property Law Act Walton Stores v Maher Constructive trust In an appropriate situation. some in small print: “This agreement contains all the terms and conditions under which I agree to purchase the machine specified above. not stated herein is hereby excluded.. L’Estrange v F Groucob Ltd L’Estrange v Graucob P purchased automatic cigarette vending machine with “sales agreement” with terms.” (Isaacs and Rich JJ at 78-79) Estoppel Alternatively.” P did not read this and machine did not work satisfactorily. Baumgartner v Baumgartner Establishing Contractual Terms: In determining whether written terms form part of the contract the parties.. Scrutton LJ : “.

(This is a question of fact). b) When the Rule is Displaced The party may not be bound by the terms even though the contract is signed if the circumstances indicate that the signature does not signify assent. (The person relying on the defence must show that the document is radically different from the one he/she thought they were signing. notice of the existence of the term. Usually used for blind or illiterate people).not only the text. Petelin v Cullen Incorporation by Notice: Unsigned Document A person is likely to be bound the terms in a written document (not signed by him or her) if reasonable notice of the existence of the terms has been given. and this notice was given before or upon contract formation. This may be the case if: • The person relying on the clause misrepresented its effect. heard to say that she is not bound by the terms of the document because she has not read them. but also the surrounding circumstances know to the parties. Curtis v Chemical Cleaning & Dying Co • The document signed is thought to have no contractual effect. 73 . and the purpose and object of the transaction” (at 179). a) Reasonable Steps must be Taken by Defendant Reasonable steps must be taken to give the class of person to which the recipient belonged.” (at 404) Toll v Alphapharm “The meaning of the terms of a contractual document is to be determined by…. Deposited luggage received ticket excluding liability for “package” over value of £10 Mendelssohn v Normand Ltd In determining whether reasonable steps were taken it may be relevant whether the document was one that would be assumed by a reasonable person to be contractual in nature. Parker v The South Eastern Railway Co  Parker v South Eastern Railway Co. DJ Hill & Co Pty Ltd v Walter H Wright Pty Ltd • The person signing can plead non est factum (The mind did not accompany the signature…no intent).

Held terms referred to in ticket not incorporated because contract concluded when customer took irrevocable step of causing machine to operate. Thompson v London Midland & Scottish Railway Co. contract formation. or at the time of. but as a contractual document. ie prior to issue of ticket. Frock damaged.Causer v Browne  Causer v Browne -P’s husband took frock for dry cleaning and received ticket with terms excluding claims for negligence. Causer v Browne b) Reasonable steps taken before or upon contract formation Reasonable steps must be taken to bring terms to the attention of the plaintiff before. providing the issuer took reasonable steps to bring that fact to the notice of people in general. Automatic ticket “issued subject to the conditions.. Here a “voucher” for collecting frock not exemption clause Mendelssohn v Normand Ltd If reasonable steps are taken it does not matter if the recipient of the notice did not read the terms or that he or she were unable to read them. and does not know that a particular document will contain contractual terms. Parker v The South Eastern Railway Co Incorporation by Course of Dealing  Henry Kendall & Sons v William Lillico & Sons Ltd Brazilian ground nuts to Suffolk Agricultural Poultry Producers Association with “sold notes” confirming prior oral contracts and clause with responsibility for latent 74 . Where one party makes an offer to contract on terms stated on or referred to in a document (usually no more than a ticket) received by the other party. P accident in parking station and sought damages. Thornton v Shoe Lane Parking Ltd  Thornton v Shoe Lane Parking Ltd . Effect of Person not being able to Read or Understand Terms A person who is particularly unworldly. will still be bound by those terms. displayed on the premises”. that party’s decision to keep the document indicates assent to a contract on the terms stated or referred to.Multi-storey car park with notice: “All Cars Parked at Owner’s risk”. The onus will be on the defendant to demonstrate that the document was not delivered to the plaintiff as a voucher or receipt.

Parker v The South Eastern Railway Co 75 . Balmain New Ferry Co Ltd v Robertson Olly v Marlborough Court Ltd If reasonable steps are taken it does not matter if the recipient of the notice did not read the terms or that he or she were unable to read them. 3 or 4 transactions per month in previous three years. In order to rely on a course of dealing as incorporating need not show that the other party had actual knowledge of terms Compare DJ Hill & Co Pty Ltd v Walter H Wright Pty Ltd Oral contract to carry machinery. P used D’s services and on 2 signed invoice. or at the time of. Thompson v London Midland & Scottish Railway Co. b) Reasonable steps taken before or upon contract formation Reasonable steps must be taken to bring terms to the attention of the plaintiff before. and this notice was given before or upon contract formation. which was damaged. Held “course of dealing” consisted only of three or four transactions in the course of five years. will still be bound by those terms. Incorporation by Notice: Signs A person is likely to be bound the terms in a sign if reasonable notice of the existence of the terms has been given. Held form presented when goods delivered and oral contract before form presented Hollier v Rambler Motors Vehicle destroyed by fire. • defects. Thornton v Shoe Lane Parking Ltd Effect of Person not being able to Read or Understand Terms A person who is particularly unworldly. notice of the existence of the term. and does not know that a particular document will contain contractual terms. a) Reasonable steps taken by the defendant Reasonable steps must be taken to give the class of person to which the recipient belonged. D relied on exclusion term on invoice. On arrival two documents presented with exclusion of liability. (This is a question of fact). and not sufficient for incorporation of “invoice” term. Evidence that carried goods on some ten occasions with similar documents signed each occasion. On 3 or 4 occasions in previous five years. providing the issuer took reasonable steps to bring that fact to the notice of people in general. contract formation.

Incorporation by Reference Terms contained elsewhere can be incorporated into a contract by reference to those terms.if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act upon it.court influenced by the following factors: (a) time of the statement. D aware manufacturers kept complete record of their cars so mileage easily checked... failure to record statement in writing?)  Dick Bentley Productions v Harold Smith (Motors) D. that is a prima facie ground for inferring that it was intended as a warranty. motor vehicle dealer. told P that Bentley had covered only 20. and actually inducing him…. Reasonable steps must still be taken and these steps must have occurred prior to or upon contract formation. There is no common law consequences that arise from such sales talk. Objective standard. However. Smith v South Wales Switchgear Co Ltd Incorporating oral Terms Mere Puff A “puff” is an exaggerated claim about the subject matter that is not intended to be taken seriously. by entering into the contract.000 miles since replacement engine and gearbox. an excessive or exaggerated claim/s can now be a breach of statute.But .. (c) knowledge and expertise of the parties (Also matter within the control of statement maker. (b) content of the statement (precise? important?). A statement will be promissory in nature if the statement maker warrants its truth.Incorporation by Notice: Website The issue is yet to be encountered by the courts by it is likely it will apply the same principles as the incorporation of terms in an unsigned document or on a sign.. regardless of whether the document incorporating those terms is signed by the parties or is a ticket or a sign.can rebut this  76 ..000 miles  Denning MR :“. Trade Practices Act 1974 (Cth) Representation or Term A statement will be a term of a contract if it is intended to be promissory in nature. Statement about miles “palpably wrong” – car travelled nearly 100.

it is probably a term.” at 627-628 Oscar Chess Ltd v Williams Hospital Products Ltd v United States Surgical Corporation a) Words and conduct of the parties The words and conduct of the parties can give an indication of intention. Failure to reduce an oral statement to writing is not determinative of the matter. Harling v Eddy b) Knowledge or expertise of the statement maker If the party who made the statement is in a better position than the other party to ascertain the accuracy of the statement. Hospital Products Ltd v United States Surgical Corporation d) Oral statement not reduced to writing A statement that is made orally but not included when the contract is reduced to writing may be an indication that the parties did not intend it to be contractual in nature. in that he was in fact innocent of fault in making it. it is likely it was intended to form part of the contract.inference if he can show that it really was an innocent misrepresentation. Oscar Chess Ltd v Williams e) Interval of time 77 . Routledge v Mckay All of the previous factors are indicators of intention only.…. As illustrated in: Hospital Products Ltd v United States Surgical Corporation If an oral statement later becomes part of the written contract. (It is relevant whether the words are promissory in nature as well as the conduct of the parties that indicate the importance of the statement). Mihaljevic v Eiffel Tower Motors Pty Ltd c) Statement maker has control in relation to information A person who has control over the subject matter will be in the position to guarantee the truth of the statements.

Routledge v Mckay 1 Terms v Representations (d) Consumer contracts ACL Part 3-1—Unfair practices Division 1—False or misleading representations etc. Hercules Motors v Schubert b) Bipartite and tripartite collateral contracts A collateral contract is bipartite where the parties to it are the same as those who enter the main agreement. of land 31 Misleading conduct relating to employment 32 Offering rebates. gifts. 33 Misleading conduct as to the nature etc. Heilbut Symons & Co v Buckleton De Lassalle v Guildford Three elements must be established: • • • A statement must be made to induce entry into the contract The statement must be relied upon The statement relied upon must be promissory in nature. it is probably not a part of the contract.If there is a long interval between making the statement and the conclusion of a contract. JJ Savage & Sons Pty Ltd v Blakney Where the main contract precedes the collateral contract there can be no contract as past consideration is not good consideration. prizes etc. 29 False or misleading representations about goods or services 30 False or misleading representations about sale etc. Shepperd v The Council of the Municipality of Ryde 78 . of goods 34 Misleading conduct as to the nature etc. of services (recall 35 Bait advertising) Collateral contracts a) Nature of a collateral contract A collateral contract is one in which the consideration for a promise is the making of another contract.

However. it is presumed that the writing contains all the terms of it and evidence will not be admitted of any previous or contemporaneous agreement. the interpretation of contracts…Here the rule applies to the content). and the contract appears in the writing to be entire. Mercantile Bank of Sydney v Taylor (The rule applies to two aspects: 1. P sought injunction for subdivision plans alleging a collateral contract. Waltons Stores v Maher Parole evidence rule Statement of the rule When a contract is reduced into writing. as a park. collateral contract established. A collateral contract may be tripartite where the parties to it are different from the parties in the main contract. D subsequently decided to subdivide park for housing project. Courts reluctant to give effect to alleged collateral contracts because “too often the collateral warranty put forward is one that you would expect to find its place naturally in the principal contract. Consideration for promise was P’s contract. which would have the effect of adding to or varying the contract in any way. High Court -whether a collateral contracts exist is question of fact. the content of the contract and 2.” at 13 per Dixon. P would not have entered into the contract but for the statement of D to maintain land as a park. McTiernan. here common intention that P would rely upon the representation and proceed to contract to buy land. Hoyt’s Pty Ltd v Spencer (There has been criticism of this rule as it does not give effect to the actual intention of the parties) In an appropriate case estoppel may apply. Fullagar and Kitto JJ.    P and D contract for sale of land after D said would maintain land located opposite. 79 . therefore.. Wells (Merstham) Ltd v Buckland Sand & Silica Co Ltd c) Consistency with the main contract The courts will only recognise a collateral contract if it is consistent with the terms of the main contract.

how does construction of those expressions. help on the construction of the contractual words?.  “The reason for not admitting [evidence as to prior negotiations] is. indeed... Did “profits” refer to profits of company or contract “aggregate profits” of company and subsidiaries. vary or contradict the writing.When the rule applies The rule does not apply when the parties intend a contract to be partly in writing and partly oral.. If the previous documents use different expressions.. 2. Exclusion of subsequent conduct  L Schuler AG v Wickman Machine Tool Sales Ltd distributorship agreement made visits by the latter to German company customers “condition” of contract. parole evidence is not admissible to add to.. Couchman v Hill Regarding the content of the contract: If the parties intended the contract to be wholly in writing. relying on evidence that during contract parties had conducted themselves on basis not an essential promise. Negotiations showed “profits” meant “consolidated profits”.  Prenn v Simmonds -meaning “profits” in contract for acquisition of shares when “profits” reached a specified figure.” at 1384-1385 per Lord Wilberforce Document in question had to be construed without the aid of such evidence. 80 .simply that such evidence is unhelpful. Robertson v Kern Land Pty Ltd The intention of the parties is construed objectively.contract must be construed at time of entry not at subsequent time. Couchman v Hill 1..It is only the final document which records a consensus. be most misleading to let in subsequent conduct without reference to these other matters… subsequent conduct is equally referable to what the parties meant to say as to the meaning of what they said … the practical difficulties involved in admitting subsequent conduct as an aid to interpretation are only marginally.  HL evidence not admissible . itself a doubtful process. less than are involved in admitting evidence of prior negotiations” (at 268-269 per Lord Simon). if at all. Some visits missed and the S sought to terminate.  “ … subsequent conduct is of no greater probative value in the interpretation of an instrument than prior negotiations or direct evidence of intention: it might.... WM argued “condition” meant simply “term”. Exclusion of Prior Negotiations  Can pre-contractual comments or discussions be adduced in evidence to explain the contractual “context” ? such evidence regarded as superseded by written agreement.and [at the negotiation] stage there is no consensus of the parties to appeal to.

unless they were known to both parties … ” (Codelfa Construction at 352 per Mason J). c) Proof of collateral contracts Exceptions to the rule a) Evidence of a collateral contract The collateral contract is a separate contract. scrutinised. De Lassalle v Guildford b) Evidence that the written contract is not yet in force Evidence that the contract has not yet commenced operation is admissible. 4. Factual matrix: Terms should be construed with regard to context of agreement  Where matter cannot be fully resolved by reference to written words.  Effect of admitting evidence of surrounding circumstances is to establish facts indicating the “reasonable” intentions of parties. in this case the plan.3. Pym v Campbell c) Evidence that the written contract was later varied or discharged 81 . admission of extrinsic evidence possible to ascertain intention of parties.  “The true rule is that evidence of surrounding circumstances is admissible to assist the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. therefore the rule preventing evidence being led to effect the main contract does not apply to it. Exceptions to Parole Evidence Rule a) Ambiguity/uncertainty in contract (see interpretation of contracts)  White v Australian and New Zealand Theatres Ltd D to stage revue (“Thumbs Up”) for P. Contract D engaged “sole professional services” of P for specified period  Hope v RCA Photophone of Australia Pty Ltd lease “electrical sound reproduction” equipment but did not specify whether equipment to be “new”.  Giliberto v Kenny Extrinsic evidence to show Mrs Kenny acting as agent for her husband and herself.” Extrinsic evidence. where this cannot be conclusively discovered from the written document. even if the parties have signed the agreement. b) Implied terms  Shepperd v Council of the Municipality of Ryde contract sale of land described “part of the vendor’s Housing Project No 4” -“ reference to the project makes it both legitimate and necessary to resort to evidence to ascertain what is the project and what are its constituent parts or features. theatrical artists. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction. But it is not admissible to contradict the language of the contract when it has a plain meaning.

• • • • The implication must be reasonable and equitable. Maralinga v Major Enterprises NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd Implied Terms Terms implied to give effect to the presumed intention of the parties a) Term implied on the basis of business efficacy A term that is either so obvious there was no need to express it. The implication must be necessary to give business efficacy to the contract so that no term will implied if the contract is effective without it. Summers v The Commonwealth e) Evidence necessary for rectification Extrinsic evidence may be allowed to rectify a contract where the agreement can not be regarded as reflecting the common intention of the parties or a mistake in the writing of the contract (such as the wrong price recorded unintentionally). d) Evidence to imply a term The court may hear evidence regarding a term that is one that is implied by the common law. Narich Pty Ltd v Commissioner of pay-roll Tax (The parole evidence rule prevents the introduction of evidence regarding what happened “before” the agreement was reduced to writing. The Moorcock The following elements must be satisfied before a court will imply a term on the basis of business efficiency. The term must be so obvious that “it goes without saying”.Evidence can be led demonstrating that the agreement has been varied or discharged. 82 . not evidence that the parties “later” agreed to change or end it). (This will depend on why the term is sought to be applied). The term must be capable of clear expression. or not thought of by the parties may be implied by the courts in order to successfully carry out the contract.

Sagar v Ridehalge Con-Stan Industries of Australia Pty Ltd v Norwich Winterhur Insurance (Aust) Ltd The following elements must be satisfied before a court will imply a term on the basis of custom or usage: . The implication of such a term was necessary to give the contract business efficacy. Henry Kendall & Sons v William Lillico & Sons Ltd Relevant to the assessment are . Horrier v Rambler Motors (AMC) Ltd Henry Kendall & Sons v William Lillico & Sons Ltd Chattis Nominees Pty Ltd v Norman Ross Homeworks c) Term implied from custom or usage A term can be implied if there is existence of a particular custom or usage that is recognised as giving effect to the intentions of the parties. BP Refinery (Westernport) Pty Ltd v Shire of Hastings Codelfa Constructions Pty Ltd v State Rail Authority of NSW  Codelfa Construction Pty Ltd v State Rail Authority of New South Wales contract to build a portion of the eastern suburbs railway in Sydney (from Edgecliff to Bondi Junction) within 130 weeks.  If the parties have gone to some length to reduce their agreement to writing and to ensure it reflects their intentions. and then they make another without expressly without expressly referring to those conditions it may be that those conditions ought to be implied.The number of dealings between the parties. the additional costs thereby incurred must be the responsibility of the rail authority. that if the contractor was prevented from working 24 hours a day. 83 . seven days a week. it is difficult to suggest that the term omitted is so obvious that it goes without saying. and if necessary. C costed on the understanding of three 8 hour shifts continuously. six days a week. Ansett Transport Industries v Commonwealth b) Terms implied from previous consistent course of dealings If two parties have made a series of similar contracts each containing certain conditions. Rail authority immunity for nuisance to extend to C but could not claim an immunity and prevented from working between 10pm and 6am.The consistency of the dealings between the parties. C argued term.The existence of the custom or trade usage is a question of fact. and .• The term must not contradict any express term of the contract.

Argument of Appellant“. Hillas (WN) & Co Ltd v Arcos Ltd   Term implied Irrespective of parties intention e) Term implied as a legal incident of a particular class of contract Terms may be implied as a matter of law in contracts of a particular class.. d) Term implied to complete an agreement A court may attempt to construct the contract by implying the necessary term in order to fill in the gaps and complete an agreement. evidence of a number of insurers seeking a second payment from the assured notwithstanding that they had already paid brokers. Eg. as a matter of law. (Examples of some of these classes are given at p256 of text).there is an implied term in the contract of insurance. B is wound up and N claims second payment from CS (that not sent by B to N). bailment contracts and contracts for work and materials. However. CS argues paid B. Argument that implied term. therefore no need to pay second payment to N. usually because of nature of contract and because same term applied in the past.” High Court did not imply term not well known practice that only paid brokers. Con-Stan Industries of Australia Pty Ltd v Norwich Winterhur Insurance (Aust) Ltd Con-Stan Industries  CS pays insurance broker (Bedford) who pays N. arising by virtue of custom or usage in the industry. or alternatively there is an implied term that payment of the premium to a broker discharges the assured’s obligation to the insurer.- The custom or trade usage must be so well known that all parties can reasonably be assumed to have imported that term into the contract.. The term will not be implied if it is contrary to the express terms of the agreement. A person may be bound although they had no knowledge of the term provided the requirements of the second element are established. that a broker alone is liable to an insurer for payment of the premium. 84 . Liverpool City Council v Irwin Samuels v Davis Derbyshire Building Co Pty Ltd v Becker  Where term implied. employment contracts.

Butt v McDonald The parties may expressly agree to the contrary. Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd • There is a duty not to impair the basis of the contract. Similarly. Butt v McDonald Examples: • There is a duty to comply with reasonable requests. Adelaide Petrolium v Poseidon g) Implication of duties of good faith. fair dealing and reasonableness It has been suggested that the courts may be prepared to imply a duty for the parties to act in good faith in preforming a contract.  Term requiring employee to exercise proper and reasonable care usually implied. RDJ International Pty Ltd v Preformed Line Products • There is a duty to do all thing necessary to enable the agreement to be completed. the parties may expressly agree to the contrary. bailment contract obligation not to convert and to exercise reasonable care Liverpool City Council v Irwin HL held term implied into lease to effect that council obligation to maintain stairs and lifts in such a condition as to enable them to be used for access to and from the flats. Although terms of this kind are implied through necessity. Byrne v Australian Airlines Ltd Gemmel Power Farming Co Ltd v Nies Derbyshire Building Co Pty Ltd v Becker f) General duty of co-operation It is an implied term of all contracts that each party agrees to do all things necessary to enable the other party to have the benefit of the contract. Renard Constructions v Minister for Public Works  JA suggestion that time may be right to impose “in all contracts of a duty upon the parties of good faith and fair dealing in its performance” (compare 85 .

Butt v McDonald h) Terms implied by statute A term may be implied into a contract by a relevant statute. and that in the case of an agreement to sell he will have a right to sell the goods at the time when the property is to pass S 18 sale of goods by description there is an implied condition that the goods shall correspond with the description. and (c) free from defects. Guarantee as to acceptable quality ACL. However these terms may be negatived or varied by express agreement. and (e) durable. Sale of Goods Act 1896 (Tas). and 86 . s54 (1) there is a guarantee that the goods are of acceptable quality. and the goods are of a description which it is in the course of the seller’s business to supply (b) a condition relating to merchantable quality of the goods is implied where the goods are bought by description from a seller who deals with goods of that description s 20 sale by sample there is an implied condition that (a) the bulk shall correspond with the sample in quality. (3) The matters for the purposes of subsection (2) are: (a) the nature of the goods. and if the sale be by sample as well as by description it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description s 19 (a) a condition relating to fitness for purpose is implied where the buyer makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller’s skill or judgment.(b) the buyer shall have a reasonable opportunity of comparing the bulk with the sample NOTE the conditions and warranties implied by the Sale of Goods Act can be excluded or the liability of the seller can be limited by the terms of a contract 1. s 17 (a) an implied condition on the part of the seller that in the case of a sale he has a right to sell the goods. Guarantee as to title ACL s51 (1) there is a guarantee that the supplier will have a right to dispose of the property in the goods (2) Subsection (1) does not apply to a supply of limited title or (3) a supply by way of hire or lease. 2. (2) Goods are of acceptable quality if they are as: (a) fit for all the purposes for which goods of that kind are commonly supplied. and (d) safe. and (b) acceptable in appearance and finish.Meagher JA). Case dealt with exercise of contractual powers on default by contractor. namely exclusion from site and take over of work to be completed. as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects of the goods)… having regard to the matters in subsection (3).

or (c) any liability of a person for a failure to comply with a guarantee that applies under this Division to a supply of goods or services. restricting or modifying: (a) the application of all or any of the provisions of this Division. s64A on limitations of liability for non-compliance with these guarantees (1) a) the replacement of the goods or the supply of equivalent goods . and in particular to: (a) the strength of the bargaining positions…. 3. 4. and (d) goods. s59 guarantee that manufacturer of goods will comply with any express warranty given or made by the manufacturer and guarantee that supplier will comply with any express warranty given or made by the supplier. guarantee services will be rendered with due care and skill. GUARANTEE TERMS NOT TO BE EXCLUDED Terms to exclude or limit the guarantees on goods and services in the ACL are void. 87 . 62 guarantee that services will be supplied within a reasonable time. Guarantee as to description and supply sample ACL. or has the effect of excluding. (b) whether the buyer received an inducement to agree to the term. and for any purpose for which supplier represents. ss60-63 60 If person supplies services. and product from services. (c) the payment of the cost of replacing the goods or of acquiring equivalent goods. trade. Guarantee as to express warranties ACL. taking into account. among other things. and if goods supplied by reference to sample—the consumer has reasonable opportunity to compare goods with sample 5. and (e) the price of the goods (if relevant).(b) (c) the goods. (3) This section does not apply in relation to a term of a contract if the person to whom the goods or services were supplied establishes that it is not fair or reasonable for the person who supplied the goods or services to rely on that term of the contract. and any statements made about the goods on any packaging or label on any representation made by the supplier or manufacturer of the any other relevant circumstances relating to the supply of the goods. restrict or modify. 63 No application to the transportation or storage of goods for the purposes of a business. or (b) the exercise of a right conferred by such a provision. profession or contracts of insurance. s56 and also S 57 guarantee that goods correspond with the sample or demonstration model in quality. Guarantee as to fitness for any disclosed purposes ACL. will be reasonably fit for that purpose. Guarantee as to the supply of services ACL. s55 there is a guarantee to this effect. the availability of equivalent goods or services and suitable alternative sources of supply. a court is to have regard to all the circumstances of the case. 61 guarantee that services. (4) In determining for the purposes of subsection (3) whether or not reliance on a term of a contract is fair or reasonable.(b) the repair of the goods. s64 (1) A term of a contract (including a term incorporated) is void to the extent that the term purports to exclude. state or condition. (d) the payment of the cost of having the goods repaired.

Life Insurance Co of Australia Ltd v Phillips A document is read as a whole. among other things. Secondly. determining the legal effect of those words (Question of law). (d) … whether the goods were manufactured. to any custom of the trade and any previous course of dealing between the parties). Hillas & Co Ltd v Arcos Ltd Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd The court will steer clear of meanings that are commercially unworkable or inconvenient. Hume v Rundell Lloyd v Lloyd The court does its best to give effect to the parties’ bargain. processed or adapted to the special order of the buyer. 88 . George v Cluning Amalgamated Television Services Pty Ltd v Television Corporation Ltd The purpose is to construe the document as to produce what it was ultimately intended for. ascertaining the meaning of the words used (Question of fact). REMEDIES RELATING TO GUARANTEES ACL ss259-273 Construction of Terms Interpreting the meaning of terms General approach Construction of contracts may be seen as involving two activities. Firstly. Hillas & Co Ltd v Arcos Ltd York Airconditioning & Refrigeration (Australasia) Pty Ltd v Commonwealth In giving effect to the agreement: The court will endeavour to be neither to astute nor too pedantic.(c) whether the buyer knew or ought reasonably to have known of the existence and extent of the term (having regard.

the interpretation of contracts…Here the rule applies to interpretation). and the contract appears in the writing to be entire. the court may take into account not only the words recorded in the document but also the evidence of the surrounding circumstances Allen v Carbone DTR Nominees Pty Ltd v Mona Homes Pty Ltd The evidence of the surrounding circumstances must be known to both parties. although if facts are notorious the court may presume knowledge of them. Mercantile Bank of Sydney v Taylor (The rule applies to two aspects: 1. and the context and market in which in parties are operating. When a formal document is conclusive of a contract. Gordon v McGregor Allen v Carbone b) Factual matrix When determining the parties intentions. its background. which would have the effect of adding to or varying the contract in any way. it is presumed that the writing contains all the terms of it and evidence will not be admitted of any previous or contemporaneous agreement. its meaning can only be determined by reference to words in that document. rather than the subjective or actual intentions of the parties. Hospital products Ltd v United States Surgical Corporation Taylor v Johnson Admissible evidence a) The Parole Evidence rule When a contract is reduced into writing. Reardon Smith Line Ltd v Yengvar Hansen-Tangen Codelfa Construction Pty Ltd v State Rail Authority of NSW 89 .Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd The court takes an objective approach to interpretation as that of a reasonable third parties view point. which in turn presupposes knowledge of the way the transaction started. the content of the contract and 2. Codelfa Construction Pty Ltd v State Rail Authority of NSW In a commercial contract it is appropriate for the court to have reference to the commercial purpose of the contract.

industry or region). Hope v RCA Photophone of Australia Pty Ltd • Identification of parties or their relationship Extrinsic evidence is admissible to resolve an ambiguity concerning the identity of the parties of the agreement. Edwards v Edwards GR Securities Pty Ltd v Baulkham Hills Private Hospital It may also be used to resolve an ambiguity concerning the capacity or the relationship between the parties. Summers v Commonwealth Thornley v Tilley • Rectification 90 . even if there is no patent ambiguity.c) Exceptions to the parole evidence rule • Ambiguity Cases of obvious or underlying ambiguity. White v Australian & New Zealand Theatres Ltd Cf. evidence of that meaning is admissible. By custom or usage in a particular trade. White v Australian & New Zealand Theatres Ltd Hope v RCA Photophone of Australia Pty Ltd • Identification of subject matter Extrinsic evidence is admissible to resolve ambiguity about the subject matter of the contract. Gilberto v Kenny • Identification of real consideration Extrinsic evidence is admissible in order to prove/identify the real consideration under a contract. It may not always be safe to assume that the words of a document will simply carry their plain or ordinary meaning. Pau On v Lou Yiu Long Yaroombe Beach Development Co v Coeur De Lion Investments Pty Ltd • Custom or Usage Where the language used has a particular meaning (eg.

Prenn v Simonds Cf. taking into account their words and conduct. Bowes v Chaleyer Associated Newspapers Ltd v Bancks a) Conditions 91 . that party will have breached the term. a warranty. Maralinga v Major Enterprises Bacchus Marsh Concerntrated Milk Co Ltd v Joseph Nathan & Co Ltd Inadmissible Evidence In particular the following extrinsic evidence is inadmissible: a) Subjective intention Evidence of the actual. The effect of the breach depends upon whether the term is classified as a condition. Determination of the appropriate term is an objective test of the parties intention. or an intermediate term.Extrinsic evidence may be admitted to show that a parties’ intention was not accurately recorded in the written instrument. subjective intentions of the parties is not admissable Life Insurance Co of Australia Ltd v Phillips DTR Nominees Pty Ltd v Mona homes Pty Ltd b) Prior negotiations The negotiations that preceded the agreement are not permitted as it is only the final document that properly reflects a consensus between the parties. In the appropriate circumstances the document may be rectified so that it accords with the parties’ actual agreement. If the party fails to carry out the promise. c) Subsequent conduct Anything that the parties’ say or do after the contract can not be used in order to aid in the construction of the contract Administration of Papua & New Guinea v Daera Guba Codelfa Construction Pty Ltd v State Rail Authority of NSW Legal effect of words: types of terms Promissory terms A promissory term is one pursuant to which a party makes a promise to another party regarding events that will or will not occur in accordance with the agreement. Codelfa Construction Pty Ltd v State Rail Authority of NSW per Mason J.

L Schuler AG v Wickman Machine Tool Sales Ltd The fact that a term is described in an agreement as a condition. it is implicit in the drafting that a breach of condition in a contract for the sale of goods will have the same effect as a breach of condition under the common law. Ankar Pty Ltd v National Westminster Finance (Australia) Ltd Associated Newspapers Ltd v Bancks (Regarding essentiality) The courts may be influenced to construe a term as a condition if a particular construction leads to an unreasonable result.A condition is a term that is essential to the performance of the contract. a breach of which only entitles the innocent party to damages. Sale of Goods Act 1896 (Qld) s. Associated Newspapers Ltd v Bancks Any breach of this type of term will allow the innocent party to terminate further performance of the contract and to claim damages for the breach.14 (2) b) Warranties A warranty is a term that is subsidiary to the main purpose of the contract. In legislation relating to the sale of goods. L Schuler AG v Wickman Machine Tool Sales Ltd If damages alone seem to be an inadequate remedy. The promise is of such importance to the promisee that he would not have entered into the contract without assurance of the performance of the promise. Bettini v Gye Ellul v Oakes  The statutory position. the courts may be persuaded to construe a term as a condition. and this ought to have been apparent to the promisor. the breach of which gives rise 92 . L Schuler AG v Wickman Machine Tool Sales Ltd Associated Newspapers Ltd v Bancks (Regarding essentiality)  The statutory position. is persuasive not conclusive. An agreement with reference to goods which are the subject of a contract of sale but collateral to the main purpose of such contract.

then the innocent party will be entitled to terminate the contract. If the court decides it is an intermediate term it then determines the gravity of the breach Bunge Corporation New York v Tradax Export SA (Panama) In order to determine the seriousness of the breach a number of matters may be taken into account: The degree of performance up to the breach compared to the performance required under the contract. 93 . Sale of Goods Act 1896 (Qld) s. If the breach deprives the innocent party of substantially the whole of the benefit of the contract. Bunge Corporation New York v Tradax Export SA (Panama) The remedy for the breach of an intermediate term varies according to the severity of the breach. some serious some trivial. Ankar Pty Ltd v National Westminster Finance (Australia) Ltd Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd It may be defined as a term capable of a variety of breaches. Associated Newspapers Ltd v Bancks c) Intermediate or innominate terms An intermediate term is once that stands between a condition and a warranty and cannot be satisfactorily classified as either. the innocent party will only be able to claim damages Associated Newspapers Ltd v Bancks Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd The court must first ascertain the intentions of the parties in order to categorise the a claim for damages but not the right to reject the goods and treat the contract as repudiated. If the effect of the breach is not significantly serious. Whether damages will adequately compensate the lost expectations of the innocent party.3 It has also been suggested that this test might also apply at common law.


Whether the expectations of the party in breach would be unfairly prejudiced by terminating the contract. Attitude and conduct of the party in breach including the likelihood of the breach persisting

Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd The decision in Hong Kong Fir Shipping case also applies to a contract for sale of goods. Cehave NV v Bremer Handelgesellschaft mbH

Since a contingency clause may be able to be construed as either a condition precedent or a condition subsequent the essential question is what effect does the contingency have on the contract. Perri v Coolangatta Investments Pty Ltd Under appropriate circumstances a party may be estopped from relying upon a contingency.

Condition precedent
A condition precedent is a condition that will prevent a contract from coming into existence until such time as the condition is fulfilled. Perri v Coolangatta Investments Pty Ltd

Condition subsequent
A condition subsequent is a condition within a contract that has taken effect. However the performance of the contract is prevented until the condition is fulfilled. Meehan v Jones Clauses such as “subject to finance”, “subject to rezoning” or “subject to town planning approval” are conditions subsequent. Meehan v Jones A party may waive a condition subsequent that is solely for their own benefit Meehan v Jones If the clause is for the benefit of both parties, either may be able to terminate. Such a clause may only be waived with the consent of both parties.


Raysun v Taylor Where a clause provides for the a contract to be rendered void on the occurrence or non-occurrence of an event, and the event is out the control of both parties, the contract may be automatically ended if the event occurs. Carpentaria Investments Pty Ltd v Airs A clause such as “subject to contract” is usually categorised as a condition precedent but it will depend on the intention of the parties

Exemption clauses
There are three main types of exemption clauses: 1. A complete exclusion of a parties liability

Eg. Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty Ltd 2. A limitation to the extent of liability to a particular maximum amount. Eg. Darlington Futures Ltd v Delco Australia Pty Ltd 3. Liability may be subject to certain preconditions, such as the commencement of any suit or the giving of notice of a default within a certain time. Eg. New Zealand Shipping Co Ltd v A N Satterthwith & Co Ltd The court must apply the same rules of interpretation regardless of the kind of exclusion. Darlington Futures Ltd v Delco Australia Pty Ltd Exemption clauses may involve the determination of two separate issues: • Whether the clause forms part of the contract

(This is covered earlier in “Incorporating Written Terms”). • Whether, on the true construction of the clause it covers the liability that has arisen.

An exemption clause is determined by construing the clause according to its natural and ordinary meaning, read in light of the contract as a whole. Darlington Futures Ltd v Delco Australia Pty Ltd

Specific rules of construction


There are also a number of specific rules of construction that help to interpret an exemption clause. Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty Ltd a) The Contra Proferentem rule An exemption clause will be construed according to which parties benefit the clause was inserted for in case of ambiguity. Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty Ltd Darlington Futures Ltd v Delco Australia Pty Ltd b) Attempts to exempt negligence A clause will relieve a party of liability for negligence of their own or the servants or agents, if it expressly or impliedly covers such liability. A term will cover such liability if there can be no ground of liability other than negligence to which it could refer. Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty Ltd • Rules regarding attempts to exempt negligence

The Privy Council in stated the following rules in: Canada Steamship Lines Ltd v The King i) Express exclusion is effective. ii) Where the “only” possible cause of action against the defendant is an action for damages based on negligence, then the court will interpret a “wide” clause to cover the defendant’s liability for negligence.

Alderslade v Hendon Laundry Ltd iii) If the words used in the clause are wide enough to cover negligence, but there is some other ground of liability other than negligence, the clause will be read as applying only to that other ground of liability and will not operate to exclude the claim for negligence. White v John Warwick & Co Ltd For the first rule to apply it there would have to be the use of the word negligence or a close synonym. Smith v South Wales Switchgear Ltd c) The four corners rule


A person can only rely on the conditions of a contract. Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty Ltd Council of the city of Sydney v West Davis v Pierce Parking Station Pty Ltd In Queensland the court has no power to disallow an exemption clause on the basis that it is unreasonable. that were intended to protect them. Faramus v Film Advertises’ Association Misrepresentation 97 . if they have carried out the contract in the way that they had contracted to do.

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