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Contracts Map

TOPICS 1, 2,3 and 4 – FORMATION

The five elements of contract formation are:

• The requirement of writing;

• Capacity;
• Intention to create legal relations;
• Agreement (Offer and Acceptance); and
• Consideration

Intention to create legal relations

• In family and domestic agreements, the presumption is no intention to create

legal relations

Jones v Padavatton

• In business agreements, there is a presumption of legal intent, unless it is an

honour clause.

Rose and Frank v Crompton & Bros

Offer and Acceptance

• Distinguish unilateral from bilateral contracts.

Mobill Oil v Lyndell Nominees

Carlill v Carbolic Smoke Ball

• An offer is different from an invitation to treat

Gibson v Manchester City Council

• Display of goods is an invitation to treat

Pharmaceutical Society v Boots Cash Chemist

• In an auction, the bidder makes the offer, and the auctioneer doesn't have to
AGC Advances v McWhirter

• A tenderer makes an offer in a tender situation, though the party calling for
tenders is obliged to consider each proper tender.

Blackpool & Fylde Aero v Blackpool BC

Termination of an offer

• An offer is terminated if rejected. A request for information is not a rejection.

Stevenson, Jacques & Co v McLean

• An offer is terminated if revocation reached the offeree before acceptance

Dickinson v Dodds


• You need to know of the offer, and act on the faith of it

R v Clarke

• Acceptance must correspond with the offer

Dunlop v Higgins

• Acceptance can be express or implied

Empirnall Holdings v McMahon Paul

• Silence can't be the specified means of acceptance

Felthouse v Bindley

• Postal Rule

Henthorn v Fraser

• Postal rule can be excluded

Bressan v Squires

• Contract commences where and when acceptance takes place

Brinkibon v Stahag Stahl

Certainty and Completeness

• Contracts must be complete or have machinery to complete them

Booker Industries v Wilson Parking

• Contracts must be sufficiently certain

Whitlock v Brew


• Consideration is the price given in return for the promise

• Consideration must be bargained for

Australian Woolen Mills v Commonwealth

• Only a party providing consideration can enforce a promise

Coulls v Bagots Executor

• Past consideration is no consideration

Roscorla v Thomas

• Past consideration can be good consideration if the promise is acknowledged

as the price of the consideration

Re Casey's Patents

• Consideration cannot be illusory

Placer Development v Commonwealth

• Consideration need not be adequate but must be sufficient

Woolworths v Kelly

• A promise to perform a public duty is not good consideration

Glasbrook v Glamorgan
• A promise to perform an existing duty is not good consideration unless:

o It obviates a disbenefit

Williams v Roffey Bros

o It confers a benefit

Musumeci v Winadell

o It is a bona fide settlement of a disputed claim

Wigan v Edwards

• Pinnels Case: Part payment of a debt is not good consideration for full
discharge of the debt

Pinnel's Case
Foakes v Beer

Promissory Estoppel

• Elements of promissory estoppel:

o There must be an assumption
o It must be induced by the promisor
o The promisee must act on the faith of the promise
o The promisor must know they are doing so
o The promisee must incur a detriment
o The promisor must fail to avoid the detriment

Waltons v Maher

• Relief in estoppel is equitable relief, to avoid the detriment

Waltons v Maher
Commonwealth v Verwayen

• Sometimes relief for an estoppel may satisfy the expectations of the promisee

Giumelli v Giumelli

Topic 5 – Privity
• Only a person who is a party to a contract is entitled to enforce it.

Trident v McNiece
Dunlop v Selfridge

• Common law damages where the promisor is in breach to a third party will
usually only obtain nominal damages, because the promisee suffers no loss.

Coull's v Bagot's Executor

• Specific Performance (in equity) may provide a more appropriate solution

Beswick v Beswick

• The High Court has moved towards abandoning the doctrine of privity but has
not done so.

Trident v McNeice

• Implying a trust can be one way to get around the issue of privity.

Trident v McNiece per Deane J

• Agency allows a defence in privity cases

The Eurymedon
LifeSavers v Frigmobile

• A third party might use estoppel to estopp the promisor

Waltons v Maher

• If the promisor is unjustly enriched, then the 3rd party may seek quantum

Pavey & Matthews v Paul

Topic 6 – Terms of a Contract

Parol Evidence Rule

• Generally Speaking, you can't introduce oral evidence to add to, subtract from
or vary the written terms of a contract

Thorne v Borthwick
• Parol Evidence rule only applies where the contract is entirely in writing

Hospital Products vs USSC

Express Terms

• Need to distinguish between terms and representations. There are four


o Time elapsed between statement and agreement

o Importance of the agreement
o Was the statement included in the written agreement
o Is the maker of the statement in a better position to know the truth?

Ellul & Ellul v Oakes

Oscar Chess v Williams
Dick Bentley v Harold Smith

Collateral Contracts

• Collateral contracts can be formed. A collateral contract is one where the

promisee's consideration is the entry into the main contract.

• The collateral contract cannot contradict the main contract.

Hoyts v Spencer

• The statement forming the collateral contract must itself be promissory and
not just representational.

Savage v Blakney

Incorporation by signature

• If you sign a term you are bound by it even if you don't read it.

L'Estrange v Graucob
Toll v Alphapharm

• This is not so if the document is not of a type which you'd expect to contain

Curtis v Chemical Cleaning and Dyeing

Incorporation by notice

• Incorporation by notice has two limbs: timing, and reasonable notice

• Notice must be given prior to the contract's formation

Thornton v Shoe Lane Parking

• Notice must be reasonable. If a party kows a document contains terms, they

may be bound even if they don't read them.

Parker v South Eastern Railway

• If a document is not the sort which normally contains terms, the party
proferring the terms must do enough to bring the terms to the attention of the
other party

Causer v Browne

Incorporation by prior dealing

• If terms have been part of the parties' previous dealings on a regular basis,
they may be incorporated if it is reasonable to do so.

Kendall v Lillico

Exclusion Clauses

• Exclusion clauses will be construed contra proferentum

Wallis v Pratt & Hayes

• They are more likely to be accepted in business cases

Photo Production v Securicor

• Most of the principles are set out in

Darlington Futures v Delco Australia

Glebe Island Terminals v Continental Seagram

• Exclusion of Neglience must be spelt out plainly

Davis v Pearce Parking

• Deviation will undo the effect of an exclusion clause

TNT v May & Baker

Implied Terms
• Terms may be implied in fact, in law, and by custom.

• A term implied in fact must meet the following elements:

BP Refinery v Shire of Hastings

Codelfa construction v State Rail Authority

o Must be reasonable and equitable

o Must be needed to give business efficacy to the contract
o Must be so obvious it goes without saying
o Must be capable of clear expression
o Must be consistent with express terms

• A term implied by law may be implied in statute or at common law

Peters v Petersville Ltd

• A term may be implied by custom if it is:

o Notorious
o Certain
o Legal and
o Reasonable

Con-stan v Norwich

Topic 7 – Damages

• Damages are always available when there is a breach. The idea is to restore
the parties to their position if the contract had been carried out.

Robinson v Harman

• There are four types of damages:

o Expectation: the profit legitimately expected from the contract

o Reliance: recovery of expenditures made on the faith of the contract

McRae v Commonwealth Disposals

Commonwealth v Amann Aviation

o Indemnity: recovery of expenditure caused by the breach, if reasonable

Ruxley v Forsyth
Harbutt's Plasticene v Wayne

o Restitution: recovery of benefit conferred on the defendant where there

is a total failure of consideration

Baltic v Dillon

• You must show causation between the breach and the loss

Alexander v Cambridge Credit

• Damages must not be too remote. They must wither arise naturally from the
breach, or have been in the contemplation of the parties at the time of
formation, as a likely outcome of the breach.

Hadley v Baxendale
Koufos v Czarnikow

• You must take reasonable steps to mitigate your loss

British Westimghouse v Underground Electric

• Usually only economic losses are recoverable

Hamlin v Great Northern Railway

• You can obtain damages for non-economic loss where the point of the contract
was to provide pleasure or relief from stress

Baltic v Dillon

• You can obtain damages for non-economic loss if there is physical


Watts v Morrow

• Contributory negligence is not a factor in contract, only in tort. An act may be

both a breach, and tortious.

Astley v Austrust

• Liquidated damages clauses are OK so long as they are not a penalty

Dunlop Pneumatic Tyre v New Garage

Topic 8 – Specific Performance and Injunctions

Specific Performance

• Purpose is to make the defendant do what they promised to do.

Williamson v Lukey & Mulholland

• There must be a binding contract for valuable (not nominal) consideration.

• Damages at common law must be an inadequate remedy

Dougan v Ley

Discretionary factors for refusing specific performance

• Personal services (e.g. employment) contracts will generally not get specific

Giles v Morris

• Where constant court supervision is needed, specific performance won't be


Co-operative Insurance v Argyll Stores

• Where specific performance would result in unconscionable hardship, it won't

be given

Patel v Ali

• Where there is a substantial breach, or the plaintiff is not ready, willing or

able, specifi performance won't be given

Mehmet v Benson

• Where there is too much delay laches will operate and specific performance
will be denied

Lamshed v Lamshed

• Both parties must have the remedy available (mutuality)

Price v Strange


• A remedy to enforce a negative stipulation – i.e. to stop someone from doing


Lumley v Wagner

• Conditions much the same as for specific performance


• Quantum Meruit: An action to recover a reasonable sum for the work done.

Pavey & Mathews v Paul

• Account of profits: You must pay the money you made from the breach.

Topic 9 – Vitiating Factors – Misrepresentation

• Misrepresentation has three factors:

o There must be a statement of fact

o It must induce the hearer to enter into the contract
o It must be false
o The hearer must rely on the statement

Redgrave v Hurd
Holmes v Jones

• The main remedy for misrepresentation is recission. Recission makes a

contract voidable. If voided, the endeavour is to get the parties to the point
where they are substantially Restitutio in Integrum

Alati v Kruger

• Recission is limited by a number of factors:

o Affirmation (if you affirm the contract you can't then rescind it)
Coastal Estates v Melevende

o Rights of third parties

o Lapse of time

o Seddons Rule – no right to recission if the misrepresentation is

innocent and the contract is executed. Rule heavily criticised.
• There are three types, and the remedy available for each is different if
recission can't be done:

o Fraudulent, for which you get damages in deceit

Derry v Peek

o Negligent, for which you get damages in negligence. There must be a

duty of care, the duty must not be met, and damage must be caused as
a result.

Shaddock v Parramatta

o Innocent, for which there are no damages

Oscar Chess v Williams

Topic 10 – Mistake

• There are 4 types of mistake: Common, mutual, unilateral, and non est factum

o Common mistake, where both parties make a mistake as to the subject

matter. Solle v Butcher makes the contract voidable. Great Peace
makes it void. McRae's case dealt with the issue as one of

Solle v Butcher
Great Peace v Tsavliris
McRae v Comm Disposals Comm

o Mutual mistake, where the parties make different mistakes. Were they
ever ad idem?

Raffles v Winchelhaus

o Unilateral mistake, as to terms. Only one party is mistaken. Generally

they are binding unless it would be unconscionable for the correct
party to take advantage of the mistake, and they took deliberate steps
to stop the other party from learning of the error.
Taylor v Johnston

o Unilateral mistake, as to identity. If the contract is made at a distance,

it is void. Parties were never ad idem and there was never a contract
(Cundy v Lindsay). If the contract was made face to face, it is not
voided and damages must be sought against the rogue (Lewis v Avery).

Cundy v Lindsay
Lewis v Avery

o Non est factum – it was not my act. A fundamental error about the
nature of the contract, by e.g. an illiterate.

Saunders v Anglia, quoted in Petelin v Cullen


• Was illegitimate pressure applied to induce the contract?

Crescendo v Westpac

• Three types:

o Personal duress (threats to your person)

o Duress of goods (threats to your goods)

o Economic duress (threats to your business)

North Ocean v Hyundai

Crescendo v Westpac

• Primary remedy is recission

Misleading and Deceptive Conduct

• Trade Practices Act Outlawed in s.52, damages in 80 (injunction) 82

(damages) and 85 (ancillary)

• Fair trading Act ss 42, 65, 68, 72

Topic 11, 12 – Discharge

Discharge by performance
• Obligations are mutually dependent.

Automatic Fire Sprinklers v Watson

• Entire contracts must be discharged fully, or they are not discharged at all

Cutter v Powell
Sumpter v Hedges

• If an entire contract has been substantially performed, the contract may be

discharged then the aggrieved party can sue for damages.

Hoenig v Isaacs

• If an entire contract has been substantially performed so that the defendant

would be unjustly enriched, plaintiff can sue for quantum meruit.

• Opposite of an entire contract is a severable contract.

Discharge by Breach

• What sort of term is it? A condition, an intermediate term, or a warranty?

• If it's a condition, then termination plus damages are available. If it's a

warranty, only damages are available

Tramways v Luna Park

Associated Newspapers v Bancks

• An intermediate term is one which is capable of being broken in several ways,

some important and some trivial

Hongkong Fir Shipping Co

• Time clauses are neve intermediate, they are either a condition or a warranty,
depending on whether time is of the essence

• You don't have to wait for a breach to occur, if it is sufficiently serious and the
other party is not ready, willing and able to perform. If that is the case they
have repudicated the contract and you can terminate and get damages

Heyman v Darwins

Discharge by frustration
• 3 main types of frustration:

o Destruction of the subject matter of the contract

Taylor v Caldwell

o Non-occurrence of an event forming the basis of the contract

Krell v Henry

o Frustration of a commercial venture

Codelfa v State Rail

• In contract law, when a contract is frustrated, losses lie where they fall, unless
there is a total failure of consideration, in which case restitution may apply

Fibrosa v Fairbairn

• NSW Frustrated Contracts Act 1978 allows for adjustment of outcomes if

frustration causes manifest injustice.

Illegal contracts

• Contracts may be illegal if they do not comply with express provisions of a


Re Mahmoud and Ispahani

• Prohibition in a statute may also be implied, especially if the statute contains a


Yango v First Chicago

• A contract to commit an illegal wrong is illegal

Alexander v Rayson

• A contract injurious to public life is illegal

Wilkinson v Osborne

• A contract which results in restraint of trade is illegal if it is unreasonable

Papastravou v Gavan
Amoco v Rocca
Orton v Melman

• A court will not enforce an illegal contract. Losses lie where they fall.
However, causes of action may be possible under other areas of law (e.g. tort)

Bowmaker v Barnet