CONTRACT FORMATION Tenders:
Elements:
 Offer & Acceptance, Certainty and Completeness,
Consideration, Intentions to Enter Legal Relations (IELR)
OFFER
GENERAL RULE: An expression by one party to the other party
of a willingness to be bound by certain terms if the other party is
prepared to accept those terms Carlill v Carbolic Smoke Ball Co
How to test for an offer?
Objective Test: look at words and conduct as a whole and in the
circumstance/how would the reasonable addressee interpret the
statement Gibson v Manchester CC (No offer parties were still
negotiating)
Distinguishing offers from:
1. Puffs – wild praises of the product
2. Supply of information – no intended assumption of a legal
contractual obligation Harvey v Facey (“$900 is lowest price
…must say you will sell for lowest price for there to be
offer)
3. Invitation to treat (or negotiate) – newspaper ads, brochures,
catalogues, shop displays, marked prices
Offers v Invitations to Treat:
Invitations to treat = is an attempt to induce offers (lacks legal
commitment) The following do not constitute offers:
 Brochures, catalogues, circulars, periodicals, newspaper
advertisements Partridge v Crittendon
 Priced goods on display Pharmaceutical Society v Boots
Cash Chemists
EXCEPTION to invitation to treat (ads, brochures, etc):
If any of these things objectively demonstrated legal intention, then
perhaps offer Carlill v Carbolic Smoke Ball Co
Offer was clear, definite, and explicit, and leaves nothing open for
negotiation – first come, first serve Leftkowitz v Great Minneapolis
Surplus Store 86 (Refuse to sell to the man but did not state women
only in ad)
Auctions:
Call for bids is only an invitation to treat, buyers bid is an offer,
auctioneer accepts or rejects the bid Payne v Cave
 Can sometimes be a – two contract analysis (i.e., selling to
highest/lowest bidder – when the process is specified
Usually an invitation to treat, submitting a tender is the offer,
receiver of tenders can accept any, or none (Harvela
Investments) look below for referential bid.
 If tenders process is specified (i.e., selling to highest/lowest
bidder) – two contract analysis
Two Contract Analyses – Refer to Booklet #2 “Party A is
making an invitation to treat offers and at the same time they
have made a willingness to be bound to the process” (Contract
for the process + contract for subject matter)
 Auction: Promise to sell to highest bidder – a binding
unilateral contract – but separate from contract of sale
Warlow v Harrison, Barry v Davis (Binding unilateral contract
– separate from contract of sale)
 Tender: call for tender is an offer when there is a process
contract (awarded to highest/lowest bidder) –Referential
Bids are not valid or acceptable because they are unfair and
they would deadlock the process if more than one party
makes one. If they are stated as being confidential, a party
that makes a referential bid would never really know how
much they have bid and what amount they are bound by.
Result = tender will not be accepted. Harvela Investments
Ltd v Royal Trust Co of Canada Ltd
 Ballot: If the tender is disposed by ballot, you are bound by
ballot and the process contract Markholm Construction Co
Ltd v Wellington CC
Ticket Cases
Sometimes difficult to apply offer and acceptance model
MacRobertson Miller Airline Services v Commissioner of State
Taxation
Duration of an offer
Offer terminates
1) Lapse of time
2) A rejection or counter-offer
3) By failure of condition
4) Offers can be revoked by offeror
5) By death of offeror or offeree
1) Lapse of time
The nature and character of the transaction can affect the period
of reasonableness – look at the circumstances of the offer and
the conduct of the parties during negotiations Barrick v Clark
 Offer automatically expires after stated period.
 If indefinite duration – must be accepted within a
reasonable time. Reasonable time depends on
circumstances. If not accepted in reasonable time –
implied withdrawal of offeror OR implied rejection of the
offeree.
2) A rejection or counter-offer
 An offer is terminated once the offeree rejects it; a counter-
offer is treated as impliedly rejecting the original offer Hyde v
Wrench
 Asking for clarification does not terminate the offer – Supply
of information.
Counter-offer v Request for Info
 A request for clarification or information is not a counter-
offer and does not terminate offer Stevenson Jacques & Co
v McLean
 Basic test is the effect on a reasonable person standing in
the shoes of the offeror Powierza v Daley
3) Failure of Condition
 An offer lapses automatically upon failure of the condition
(i.e., only while stocks last)
4) Revocation of offer (withdrawal of offer)
 An offer may be revoked by the offeror provided it is
communicated to the offeree before acceptance. Byrne v
van Tienhoven
o Except if there is an ‘option’ contract
 Un-communicated revocation is no revocation Byrne v van
Tienhoven
EXCEPTION:
Options are exception to the normal revocation rule
 Option = a binding offer to keep offer open for a specified time
(this is irrevocable) Goldsbrough Mort & Co Ltd v Quinn
Problems with Revocation
 Revocation can be communicated by third party and it is still
reliable Dickinson v Dodds (3rd party revocation)
 Revocation needs to be communicated through the same
means the offer was published through Shuey v US (Offer to
the world ONLY)
 Once a party has started the act of performance you cannot
revoke the offer Mobil v Wellcome International
Unilateral v Bilateral
 Unilateral – (an ‘if” contract) – a promise in return for a
requested action. One party assumes an obligation and is
bound, but not until the requested action is performed by the
promise Carlill v Carbolic Smoke Ball Co (Offer to the world)
 Bilateral – Each party assumes an obligation and both are
bound immediately upon exchange of promises.
1
 Acceptance
Refer to Booklet #2 – Postal Acceptance Rule
GENERAL RULE: An unqualified assent to the terms of an offer,
which brings the contract into existence (i.e., consensus ad idem
“meeting of the minds”)
 Must be communicated to the offeror. Carlill v Carbolic
Smoke Ball Co
o Can be waived (expressly or impliedly) Carlill v
Carbolic Smoke Ball Co
o Generally clear language required Latec Finance v
Knight
Must be in reliance (or on the faith) of the offer, cannot accept in
ignorance of the offer R v Clark (Murder case)
EXCEPTION:
Postal Acceptance Rule (PAR)
GENERAL RULE: Where it was contemplated by the parties that
post may be used as a means of communicating the acceptance
of an offer, the acceptance is complete as soon as it is posted
Henthorn v Fraser
 Australia confirms British rule applies in Wardle v
Agricultural and Rural Finance Pty Ltd
 Applies to telegrams but does not apply to any
instantaneous means of communication.
Methods of Acceptance
If no method explicitly stated – can accept by any method
objectively intended Manchester Diocesan Council for Education
v C&G Investments
 Silence – NO ACCEPTANCE
o Mere silence and inactivity do not generally
constitute acceptance, something must be done
from which an intention to accept may reasonably
be inferred Felthouse v Bindley
 Conduct – POSSIBLE ACCEPTANCE
o Acceptance by conduct or implied acceptance
Empirnall Holdings Pty Ltd v Machon Paull
Partners Pty Ltd – the man who never signed
contracts and took the benefit of the performance.
 “Mirror-image rule”
o Acceptance must be unqualified and correspond
with the offer
 Battle of the Forms
o In battle of the forms, generally the last shot wins,
an objective look at the documents as a whole
should determine whose terms prevail Butler v Ex-
Cell-O Corp

POSTAL ACCEPTANCE RULE EXCEPTION:

 If expressly or impliedly stated that acceptance is to be
received by notice, acceptance occurs once notice
received, not when posted Holwell Securities v Hughes

POSTAL ACCEPTANCE PROBLEMS:

 Offeror bound even though they did not know of acceptance
Household Fire & Carriage Accident Insurance v Grant (offer
lost in mail)
 Offeree cannot revoke acceptance by a speedier means
because acceptance occurs when posted.

POSTAL ACCEPTANCE RULE Does Not Apply

 Where communication is virtually instantaneous as these
are assimilated to face-to-face negotiations Entores Ltd v
Miles Far East
 Postal Acceptance Rule does not apply when
Communication is instantaneous Brinkibon v Stahag Stahl
Mbh (Telex)

2
 Sufficiently Complete and Certain
Refer to Booklet #2 for Machinery
GENERAL RULE: In order to be valid and binding, an agreement
must be complete and sufficiently certain, at least in its
ESSENTIALS…parties, subject matter, principal undertakings and
price. Biotechnology Australia Pty Ltd v Pace (Option to participate in
the companies senior staff equity sharing scheme)
Parties have to express themselves with certainty &
completeness- “in order to constitute a valid contract, parties
must so express themselves that their meaning can be
determined with a reasonable degree of certainty, .unless this
can be done it would be impossible to hold that the contracting
parties had the same intentions. G Scammell and Nephew Ltd v HC
and JG Ouston
Essential Term = a term without which the contract cannot be
enforced. Ex) Parties, subject matter, principle undertaking, and
price – a delivery date is generally not an essential term unless
otherwise communicated.
Burden of proof: the party seeking to rely on a contract/clause needs
to show its validity
An agreement may be:
 UNCERTAIN: term is vague, ambiguous or meaningless
language is used –
o Uncertain essential term = unenforceable contract
o Uncertain nonessential term = may be enforceable
 INCOMPLETE: missing an essential term = contract is void
ex) an agreement to agree
Courts Not Destroyers of Bargains
 Meaning of agreement must be determined objectively
 Courts seek to give effect to contract, not to change parties
intentions
 Courts can enforce the contract in the absence of a
nonessential term.
 More likely to enforce where there has been performance by
one or both parties
Agreement to Agree
 Not binding if it relates to an essential term = contract
incomplete.
o Eg. ‘We’ll agree on the price when we know how much
the import duty will be’
Methods Used to Render Contract Complete and Certain Meehan v Jones – SUBJECT TO SATISFACTORY FIANCE
 Machinery Refer to booklet #2
o Parties can leave terms to be agreed later, if there is an
effective mechanism determining those terms if they fail Agreement to Negotiate
to reach agreement (i.e., determined by specified valuer  A promise to negotiate in good faith can be enforceable if
or arbitrator) there is enough certainty Coal Cliff Colls v Sijehama
 BREAKDOWN OF MACHINERY: Severance
o Contract will be rendered incomplete where machinery  Where severance is possible, the uncertain part is ignored
fails (i.e., valuer or arbitrator is unavailable/dead) and the rest of the contract is enforced
o UNLESS the machinery is ‘subsidiary (supplementary)’  Severance possible if:
and ‘non-essential’ o Agreement on all substantial terms, and
o If ‘subsidiary’ and ‘non-essential’ the court can adopt or severance leaves basis of contract intact, and
substitute any means of ascertaining value for the parties (objectively) intended to be bound whether
purpose of fulfilling the parties expressed intention clause operated or not
Sudbrook Trading v Eggleton & Booker Industries Pty  Clause not severable, to severe would be to change the
Ltd v Wilson Parking (Qld) Pyt Ltd nature of the agreement Whitlock v Brew (upon such
reasonable terms as commonly govern such a lease)
 Formula
o Parties may also agree on a formula for settling a term
or terms of their agreement (i.e., renew a lease at X
price per annum – to be CPI indexed)
 External Standard
o i.e., “party x must pay a “reasonable price”
o the standard of ‘reasonableness’ can often be
employed to provide completeness and certainty but
only if courts can determine ‘reasonableness’
objectively.
Illusory Promises
May result in contract being void because one party has
unfettered discretion or choice that renders the contract
incomplete or uncertain.
 Discretion as to whether performance occurs (i.e., ‘I’ll mow
your lawn if I feel like it’)
 Discretion as to how performance occurs
o i.e., ‘I’ll pay as much as I believe is appropriate’
o EXCEPTION – 1) Stating payment range ($700 to $1000)
2) If a condition on which performance depends NOT
illusory.
3
 Consideration
Refer to Booklet #2
GENERAL RULE: An act or forbearance of one party, or the
promise thereof, is the price for which the promise of the other is
bought, and the promise thus given for value is enforceable
Dunlop v Selfridge
Consideration must comprise of a detriment to the promisee or a
benefit to the promisor. The person to whom the promise is made
must ‘give something up or undertake an obligation’ Thomas v
Thomas
The bargain requirement
Consideration must be bargained for: must be given in return for the
promise, must be the ‘quid pro quo’ (‘this for that’) Australian Woollen
Mills v Cth
Conditional Gifts (Not good consideration)
 A promise to transfer property subject the occurrence of an
event or condition will not enforceable even if the event or
the condition occurs.
 Acts in reliance on a promise will not constitute good
consideration for that promise unless those acts can be
regarded as having been performed in return for the promise
Beaton v McDivitt (Held: Good Consideration)
General Requirements of Consideration:
1) Must move from the promisee, but need not move to the
promisor. Payment/benefit to 3 party= good consideration.
rd
(Scotson v Peg)
 Promisee must give consideration
 “I will tutor you if you pay Red Cross $1000”
EXCEPTION: Joint Promisee’s – party to contract who has not
provided consideration will be able to enforce a promise only if he/she
can be regarded as a joint promisee with the person that has provided
good consideration. It is possible to be a party to a contract, which a
promise is made, but still be a stranger to the consideration given in
return for that promise (Coulls v Bagots Executor).
2) Consideration need not be adequate but must be sufficient need
not be of equal value – nominal consideration is enforceable
(Woolworths Ltd v Kelly) ($1 for a Ferrari = Good Consideration) –
must be real not illusory
3) Must not be illusory, one party must not have unfettered
discretion. MacRobertson Miller Airlines v Comm of Taxes WA
(way too many exclusions)
4) Other Valueless Consideration: Promise to do the
impermissible (if you do this, I wont kill someone), ‘Natural love an
affection’ (give sister car – because I love you).
PAST CONSIDERATION
GENERAL RULE: Consideration may be executor or executed, but
NOT PAST – promise on account of something that happened in the
past. Roscorla v Thomas (after sale of horse, seller promised buyer
it was ‘sound and free from vice’ – held not binding)
 Executory: yet to be preformed, promise for promise (bilateral)
 Executed: promise for act or forbearance (usually unilateral) EXCEPTION to Existing Legal Duty Rule:
 Past: promise on account of something that happened in past
EXCEPTION to PAST CONSIDERATION:
An act done before a promise to confer some benefit in
exchange for it can be good consideration for that promise
A) Was done at the promisor’s request Re Casey’s Patents;
B) The parties understood the act was to be renumerated by the
conferring of a benefit Re Casey’s Patents
C) The payment (or benefit) would have been legally recoverable
if had been promised in advance Pao On v Lau Yiu Long
Lamleigh v Barthwait (Got him off death row – had traveled to do
so, promise to pay coupled itself with earlier request = Valid cons
Part-payment of a Debt
 Rule in Pinnel’s Case - Payment of part of a debt NOT
consideration for promise of release from balance.
 Foakes v Beer applied Pinnel’s rule and stated that a part
payment of a debt on or after the debt due date is not good
consideration for the creditors promise not to claim the
balance.
EXCEPTION TO PINNEL’s RULE:
 Practical benefit- Can argue Roffey Bros in Pinnel’s as a
practical benefit because “something is better than nothing”
(Williams v Roffey + Musumeci)
 Enshrine settlement in deed
 Presence of something extra will change position (Debtor
pays before due day)
 Where several creditors agree to forego part of each of their
debt (known as composition)
 Payment is made to creditor by third party
 Debtor gives up something other than money (physical
possession)
Existing Legal Duty
 The promise to perform an existing public duty = generally not
a good consideration. Collins v Godefroy (under subpoena as
expert witness, wanted to get $)
 Promise to perform existing contractual duty = generally not a
good consideration Stilk v Myrick – existing contractual duty. (2
sailors deserted, captain promised to divide extra pay between
remaining if ship back to London. Claim failed, sailor s were
already obliged to do this under contract)
Fresh Consideration
Hartley v Ponsonby – 17 out of 36 crew deserted ship, captain
promised to pay extra to sailors after desertion. Valid consideration, as
performance went beyond what was originally agreed
Practical Benefit
 Where modifying party obtains a practical benefit from
beneficiaries promise to perform existing obligation Williams
v Roffey Bros (benefit of having flats completed on time –
avoid fines)
 Williams v Roffey has not been adopted in Australia thus
far, only one judge at the supreme court level has made a
judgement to this, Musumeci v Winadel (benefit of having
full shopping centre) practical benefit must be measurable,
tangible, and more than party could have got if they sued for
breach of contract.
Existing duty to third party
An agreement to do an act which [A] is under an existing obligation to
a third party [B] to do, may quiet well amount to valid consideration if
[C] obtains the benefit of a direct obligation (Eurymedon)
Compromise and Forbearance to Sue
 Promise not to sue is good consideration
 Bona fide (good faith) compromise of disputed claim is good
consideration Wigan v Edwards (settling cases)
Termination and Replacement
 Generally no consideration for existing duty BUT:
 There is good consideration where contract is significantly
changed, it is seen as being terminated and replaced with
another contract. New arrangement with fresh consideration.
(Hartley v Ponsonby)
4

Intention to Enter Legal Relations (IELR)
Refer to Booklet #2
GENERAL RULE: The parties must manifest (or appear to
manifest) an intention to create legal relations Balfour v Balfour
 OBJECTIVE TEST: Look at the words and conduct of the
parties and ask: would a reasonable person believe that the
parties intended to be legally bound, having regard to the
circumstance in which the statements and actions
happened? Merritt v Merritt
The Traditional Presumptions
Business or Commercial dealings
Presumption = parties intend to create legal relations
 The burden to disprove an IELR in commercial/business
dealing is a heavy one Edwards v Skyways Ltd (Company
refused to pay pilot redundancy payments)
 Esso Petroleum v Comm of Customs & Excise – same as
above
EXCEPTION TO THE PRESUMPTION:
 Parties can expressly exclude an intention to be legally
bound Rose & Frank Co v J R Crompton & Bros Ltd
(Written in agreement)
Family or Domestic Dealings
Presumption = Parties within a family setting do NOT intend to create
legal relations.
 Jones v Padavatton (Mother daughter relationship) –
daughter had a good job with pension and a son. Mother
wanted her to do law school, agreed to pay her 200
pounds per month. Daughter relocated and mother bought
her house. Family problems occurred and mother would
not continue paying daughter
HELD: no intention.
 Balfour v Balfour (Husband wife relationship)- While
together husband and wife made an agreement for
allowance. Did not want to be with the wife and stopped
making allowance payments. At the time of the agreement
Mr. Balfour did not intend to be legally bound.
EXCEPTION TO PRESUMPTION:
 Merritt v Merritt (Husband wife relationship)– Husband left Preliminary Agreements
his wife for another women. Promised to make payments to
the wife and transfer the house to her if she paid mortgage  Masters v Cameron – look at the language used by the
off. After the wife paid the house off he decided not to give parties in the circumstances
her the house. Courts decided he intended to be legally
bound because at the time the agreement was made they o 1) The parties may have finalised all the terms of
were already split (made in an atmosphere of distrust). their bargain and intend to be bound immediately,
but propose to restate the terms in a form which is
 Todd v Nicol – (Extended family) Widow invited relatives to fuller or more precise (but not different in effect)
move and live with her in Australia. The agreement was for RESULT = bound whether or not a formal K is
the family members to look after her if she became ill. She signed
promised to alter her will. Family quit job and sold
belongings and moved. Held: there was IELR, look at o 2) The parties may have completely agreed upon
circumstances and actions as a whole. all the terms of their bargain and don’t intend to
vary those terms but have made performance of
Dealings with Government one or more terms, conditional upon the execution
of a formal document
Presumption: Policy reasons make it difficult to assume that the RESULT = bound to bring the formal K into
parties intended to create legal relations. This was a scheme to existence
promote the industry not an IELR.
 Subsidy to wool manufacturers cut off by the o 3) The parties may not intend to make a binding
government due to change in policy. Australian Woollen agreement at all unless they execute a formal
Mills Pty Ltd v Cth contract
RESULT = NOT bound unless a formal K is
Recent Approach (In addition to presumptions) signed
 GENERAL RULE: Look at parties, relationships,
surrounding circumstances, and what the agreement
was about. Should not rely on presumptions.
Acknowledge presumptions, but focus on the facts.
Ermogenous v Greek Orthodox Community of SA Inc
(objectivity test) what would reasonable person would
consider….
 Some General Principles
o Facts tending to favour IELR
 Substantial mutual sacrifice
 Symbolic consideration
 Formal contracts with lawyers involved
 Made in atmosphere of distrust
o Facts tending to count against IELR
 Closeness of relationship
 Informal contract; not reduced to writing
 Atmosphere of trust
5

PRIVITY
Refer to Booklet #2
GENERAL RULE: Under the doctrine of privity third parties
cannot take advantage of provisions of the contract. Scruttons v
Midland
Only a person who is a party to a contract can sue on it [or be sued on
it] Dunlop Pnuematic Tyre Co v Selfridge
Benefits and Burdens
 Non-parties are prevented from enforcing contracts stated to
benefit them Coulls v Bagot’s Executors and Trustee Co Ltd
 Cannot impose a contractual burden (an obligation) on a
non-party
EXCEPTION: AGENCY:
Rule does not apply if ‘third party’ beneficiary contracted via an agent
who is a party
 If A and B enter into a contract with B was acting as C’s
agent, then C can enforce against A
…………………………………………………………………………..
LORD REIDS FOUR TEST:
An ‘agency’ arrangement exists in ‘third party’ (TP) enforcement of
exclusion clauses in contracts for the carriage of goods – valid if Lord
Reid’s test satisfied Scruttons v Midland Silicone
1) Clear that clause intended to cover TP
(Must be explicitly written)
2) Clear that carrier acting as agent for TP and for self
(Must be explicitly written)
3) Carrier had authority to act for TP
(Must have a prior relationship or has to be explicitly in the
contract)
4) Consideration problem overcome
(Unloading goods usually good consideration here)
……………………………………………………………………………
Himalaya Clause – (protects TP from liability as long as Lord Reid’s
test is satisfied)
“No servant, agent or independent contractor employed from
time to time shall be liable for any loss or damage to the
goods or delay, … and the carrier is deemed to be acting as
agent or trustee on behalf of all persons who are or might be
his servants or agents, … and such persons shall be
deemed to be parties to the contract”
‘The Eurymedon’ – (NZ Shipping v Satterthwaite) – machinery sent
from Liverpool to Wellington
 Damaged by stevedore
 Satisfied Lord Reid’s test in Scruttons v Midland Silicone
 Clause clearly intended to cover stevedore
 Carrier acting as agent for stevedore
 Carrier had authority – carrier was wholly owned subsidiary
for stevedore who always acted for them
 Unloading the goods was consideration
The New York Star’
 Port Jackson v Salmond & Spraggon – razor blades sent
from Canada to Sydney, disappeared after unloading –std
Himalaya clause
o Not owner/subsidiary, but normally acted for
carrier
o Applied Satterthwaite held carrier was an agent
EXTENDED APPLICATION
 Applied to contracts for carriage of goods by road Life
Savers (Australasia) Pty Ltd v Frigmobile Pty Ltd
 Can extend to exclusion clauses benefitting third parties
outside of carriage context Dyck v Manitoba Snowmobile
Association
o P suing third party of D for negligence
o Third party covered under Himilaya Clause
________________________________________________________
ESTOPPEL
Refer to Booklet #2
Apply ALL the elements in Walton Stores to determine Estoppel.
Elements from Waltons Stores
1. Assumption/expectation about existing or future legal
relationship
2. Induced by one party (first party)
3. Other party (second party) acted or abstained in
reliance
4. That reliance is foreseen or intended by the first party
(objectively?)
5. Second party acts to his/her substantial detriment
6. First party did nothing (reasonable) to avoid detriment,
whether by fulfilling assumption/expectation or
otherwise
Estoppel in Equity
 Promissory estoppel – if parties…so conduct themselves as
to induce one of the parties to suppose that the strict rights
arising under the contract will not be enforced or will be kept
in suspense … the person who otherwise might have
enforced those rights will not be allowed to enforce them
when it would be inequitable having regard to the dealings
which have taken place - Lord Cairns in Hughes v
Metropolitan Railway
 Central London Property Trust v High Trees House - 99 year
lease – in 1939 landlord promised rent would be reduced by
half during hard times, in 1945 landlord wanted full rent
again, treated as waiver – cd be reinstated, Denning J – if
landlord sued for rental in arrears, would be estopped – their
promise extinguished the right, despite lack of consideration
 Accepted in Australia
o Early Australian cases accepted the doctrine Je
Maintiendrai v Quaglia; Legione v Hateley
A Significant step further…
 Waltons Stores v Maher P negotiated to lease land from D
on the terms that D would demolish building and make new
one. When negotiations complete Ps solicitors sent Ds a
copy of lease which included amendments and told them to
let them know next day. D heard no more from P on the
issue. Lease was signed by D and sent to P. P told solicitors
to go slow on transaction. P became aware of demolition but
delayed signing. When 40% complete P informed D that P
didn’t intend to proceed with lease= NO contract because P
didn’t execute lease. D acted on assumption. Estoppel
established to prevent P from denying that they signed
lease, no damages. |R: common link between promissory
and proprietary estoppel is that equity will come to the relief
of a P who has acted to his/her detriment on the basis of an
assumption induced
Case’s After Walton
 Austotel v Franklins Selfserve Austotel in midst negotiations
to lease its premises to Franklins. Terms of the lease were
not finalised – Franklins refused to finalise because some
other leases were more important. Parties agreed to further
area increase, but did not agree to how much extra rent is to
be paid. Meanwhile, store is being built as per Franklin’s
specifications and Franklins incurring other liabilities.
Austotel sought to withdraw from transaction. HELD –
estoppel not granted
 Commonwealth v Verwayen proportionality between
detriment and remedy (awarded reliance costs only-what
lost relying on promise- not expectation costs-what wanted)
 Giumelli v Giumelli Son and parents were partners in family
business. Son lived in a house he built on property for
business that was owned by parents. Parents promised that
if he stayed on land it would be subdivided and given to him.
On the faith of that promise he gave up other career
aspirations and continued to work the property. When he
married woman his parents didn’t approve of the rel went
6
 down and his parents refused to give him the promised land.
Remedy = compensation paid to son.
TERMS
Two Initial Inquiries:
o Identification – discovering the terms of the contract
o Construction/Interpretation – interpreting those terms: what
do they mean and what is their legal effect
Contractual terms may be expressed or implied
o Express – these are identified by looking at what the parties
said and wrote
o Implied – are non-expressed terms that are “read in” to the
parties’ contract
PRE-CONTRACTUAL STATEMENTS
Refer to Booklet #2
Puff: Intend to praise, and thus induce contract but not intended to be
relied on literally. No legal consequences if untrue… i.e., Redbull
gives you wings
Opinion: No promise as to its truth. No legal consequences if
untrue i.e., “I think”
Representation: Positive statement of past or existing fact induces
entry into the contract. It is intended to be relied on but not part of the
contract. if false, no remedy for breach of contract, but
misrepresentation (action in torts).
Contractual term: Embodies contractual undertakings. Enforceable in
positive terms and promissory intention.
o OBJECTIVE TEST: What would a reasonable intelligent
bystander, in the shoes of the addressee, infer from the
statement-maker’s words, and conduct in the circumstances:
that an assumption of legal contractual commitment for the
content of the statement-maker’s statement was intended, or
not
Steps to determine term vs. Representation
 Always start by assessing language
 Consider circumstances:
1. importance of the statement in the minds of the parties
2. relative position of the parties – who is in a better position to
know the truth
3. proximity between the statements and entry into the contract
4. reduction to writing
Terms v Representations
 Oscar Chess v Williams D had acquired a Morris from his
mother, as a part of a hire purchase arrangement, D traded
in his Morris to P. Reg book said and D described Morris as
1948 model and provided registration book which noted
Morris first register in 1948. Morris was in fact a 1939 model
– worth less. HELD: Not a term – not promissory. Denning
J – looked at words of parties and looked at various ‘helpful’
factors. Language not promissory and D not an expert. D
passing on info, merely statement of honest belief.
 Dick Bentley Productions v Harold Smith In discussions prior
to sale of vehicle, motor dealer said vehicle had replacement
engine and gear box and detailed the miles travelled since
replacement. In fact actual miles since replacement were 5
times that detailed. HELD: statement was a term of the
contract – relevant that D was a motor dealer and in a better
position to know or ascertain the truth of the statement.
 JJ Savage & Sons v Blakney B claimed damages for breach
of collateral contract for the sale and purchase of a cabin
cruiser. Separate statement regarding estimated speed of
vessel. Objectively P would not entered into contract but for
the statement – so clearly important. HELD: Despite
presence of other ‘helpful factors’. Language of estimation
tended against the inference of promise. Not a term.
(language used “I estimate…”
Parol Evidence Rule
 GENERAL RULE: Where a contract is reduced to writing
and is complete on the face of it, oral evidence cannot be
used to add to, vary or contradict the written document Goss
v Nugent
 Rule only applies where the document is intended or
recognised by the parties to comprise the entire agreement
between them
 Rule doe NOT apply to oral terms where the contract is only
“partially integrated” (i.e., partly written/partly oral)
 State Railway Authority (NSW) v Heath Outdoor Pty Ltd
HELD: entire agreement (fully integrated, wholly in writing,
full record of undertaking) therefore parol rule applies
 Equuscorp v Glengallan Investments if there is a verbal
statement and a written document that contradict one
another, the written document takes precedent if it is signed
by both parties
EXCEPTIONS - PER Does Not Apply
 Couchman v Hill Heifer sold at auction – terms of auction in
catalogue and sign but insistent purchaser obtains a verbal
assurance. HELD: partially integrated contracted because
of verbal statement (was contractual) made by seller
 J Evans & Son v Andrea Merzario Shipping machinery –
standard trade conditions allowed machinery to be stored
above deck but verbal assurance that machinery would be
stored below deck. HELD: partially integrated document,
therefore verbal statement would be accepted.
Collateral Contract
 A “lawyer’s device” to get around various difficulties
(including with PER)
 Party entered into main contract on basis of a collateral
statement (contract), and in reliance on it
 Collateral contract must satisfy all requirements of a contract
o Consideration for the collateral contract is entry
into the main contract
 For there to be a collateral contract, collateral statement
must:
o Induce entry into main contract
o Be relied upon
o Be promissory in nature JJ Savage & Sons v
Blakney
o Must not contradict the main contract
 Extrinsic evidence admitted because it is being used for
purpose of establishing another contract
 De Lassalle v Guildford P entered into a lease in return for
verbal assurance that the drains are in good condition.
HELD: Assurance separate collateral contract –
consideration for entry into this collateral contract was
tenant’s entry into main (written) contract
COLLATERAL CONTRACT CANNOT CONTRADICT
 Hoyts v Spencer Under Head Lease Landlord leased to
Spencer. Under Sublease Spencer leased to Hoyts,
terminable on Spencer giving 4 wks notice. Spencer gave
such notice. Hoyts sued for damages. Claimed oral
promise that Spencer would not give notice unless Landlord
under Head Lease required him to. HELD: entering main
contract could be consideration for promise in collateral
contract BUT collateral contract cannot be inconsistent with
main contract.
EXCEPTIONS
 Shepperd v Ryde Municipality Before buying land S
confirmed with RM that they would stick to plan and have
part on land opposite. S sought injection when bulldozers
arrive on land opposite to develop land. HELD: collateral
contract – S relied on RM promise not to develop land when
buy lot 85 (main contract)
o HC noted that this promise is one you would
expect to see in main contract.
7

INCORPORATED TERMS
Refer to Booklet #2
Ticket cases – party becomes bound upon objective assent, assent
can be prove by signature or, where there is no signature, in some
other way
Rules:
1. Party who signs or knows of term is generally bound
 Caveat subscriptor – let the signer beware
 Except where fraud or misrepresentation, (and duress,
undue influence, mistake, etc)
2. Party who does not sign and does not know of term is not
bound, unless
 1. Term was presented/incorporated before contract
was finalised, and
 2. Either (a) a reasonable person would know it was a
document of contractual significance or (b) reasonable
steps were taken to give notice of term before contract
was entered into
1. Signed Contractual Documents
GENERAL RULE: the usual rule is that a party is bound by his or her
signature to a contractual document, regardless of whether that
document has been read or not L’Estrange v F Graucob Ltd
o Sale of automatic cigarette vending machine
o Mrs L signed pre-printed sales agreement without
reading/machine was defective
o L sued arguing breach of implied term/there was an exclusion
clause in small print
o HELD: if sign a document containing contractual terms, in the
absence of fraud or misrepresentation, is bound by signed
contract
o signature = objective assent to terms in document
EXCEPTION:
1. Reasonable Person would not have known it was of
contractual significance. Delivery docket, ticket, receipt?
 Nalder & Biddle v C & F Fishing work on a vessel – signed
job cards – signatures on cards were merely to express
approval of work described on the card – applied reasonable
person test HELD: Individual didn’t know they were signing
to terms, thought signing to work described.
2. Misrepresentation as to effect/content of document
 Curtis v Chemical Cleaning & Dyeing Mrs C was asked to
sign ‘receipt’ for satin wedding dress – asked why must sign
and told exclusion covered damage to beads + sequins
(MISREPRESENTION) – in fact it covered all damage
 HELD: effect/content of clause had been misrepresented – 2.2(a) Reasonable person would know Contractually Significant
prevented CC&D from relying on provision except to the
extent of the representation – if receipt merely handed over,
still not binding if not expected to contain contractual clause
– here ‘receipt’
Unsigned Documents
Tickets, receipts or notices etc.
 often involved an exclusion or limitation of liability
 assent comes from having notice of the terms and not
objecting to them
o REMEMBER – Party who does not sign and does not know
of term is not bound unless… (Incorporation of terms)
o Term was presented or incorporated before contract was
finalized. Either a) Reasonable person would know it was a
document of contractual significance OR b) reasonable stops
were taken to give notice of term before contract was entered 2.2(b) Reasonable Steps Taken to give them notice
into.
2.1 Presented Before Contract Finalised
 Olley v Marlborough Court O paid for week and went up to
hotel room – notice behind the door said hotel “not
responsible for loss or theft unless goods handed to
management” – Mrs O locked door and handed key to
reception – someone used a key, and stole her furs – HELD:
mere display after contract not effective incorporation of
term – had to present at time or before contract formation
 Thorton v Shoe Lane Parking On entry notice saying “All
cars parked at owner’s risk” – ticket from automatic machine
said ‘Please present this ticket to cashier to claim your car’ –
small print said issued subject to conditions displayed on
premises – T parked (hadn’t been there before) – did not
read ticket or displayed notice – suffered personal injuries –
def’s fault HELD: 50/50 liability because sign out front is too
vague and the signs insides the premise were not read until
after the contract finalised therefore exclusion clause did not
apply to personal injuries.
 Oceanic Sun Line v Fay F booked and paid for cruise at
NSW travel agent – given an ‘exchange order’ – redeemed
this for a ticket when he boarded the ship in Athens –
Clause on ticket gave Greek courts jurisdiction re disputes –
F was injured and sued in NSW – HELD: exclusion clause
did not apply because at the time of purchase the conditions
of carriage were not available (printed on unavailable
passenger ticket). Cannot subsequently issue a ticket
effectively adding the clause.
Previous course of dealings
 Knowledge can be inferred if sufficient consistent course of
dealings between parties J Spurling Ltd v Bradshaw
Document
 A reasonable person (traveller) in modern day ought to have
known the ticket, receipt, sign, brochure, etc was a
document of contractual significance Mendelssohn v
Normand
EXCEPTION:
 Not all tickets, receipts, signs, brochures, have been said to
have contractual significance to a reasonable person
 Chapleton v Barry UDC beach chairs taken with ‘respectful
request’ to take ticket – no more than just a receipt – a
reasonable person would not infer this is contractual
 Causer v Brown dry cleaning case, dry cleaning document
wasn’t of contractual significance – not understood to
incorporate terms (*modern day dry cleaning does have
exclusion clauses*)
 Parker v SE Railway plaintiff left bags at luggage counter –
large sign in cloakroom limiting liability – ticket with # and
opening times and said “see back”, on back was a clause
limiting liability to max of £10 – bags disappeared – HELD: P
or reasonable person must known contractual document or
given reasonable notice. It could be reasonable notice
What are reasonable steps?
 Sugar v London, Midland & Scottish Railway Ticket had
words: “For conditions, see back” – but date stamp
obliterated these words – HELD: not bound – no proper
notice
o Discussion of principle that – terms on back ticket
must be referred to on front
o Words on front should stand out and guide
recipient to back
Mere display may be sufficient?
 Balmain New Ferry v Robertson Notice over entrance said
one penny payable by all persons entering or leaving,
whether or not they travelled on ferry – R paid a penny to
enter, but missed the ferry and refused to pay another penny
on way out – When apprehended, sued for assault and false
imprisonment – Mere display could be sufficient but case
decided on previous course of dealings
Onerous terms – ‘a red hand pointing to it’
 Interphoto Picture Library v Stiletto Visual Programmes IPL
sent 47 transparencies and delivery note-£5 per day per
photo after 14 days – S returned them some 4 weeks later –
IPL sent account for £3,783 – HELD: the more onerous the
term, the more effort you need to bring to party’s attention
(special notice) £3.50 per transparency per week was
awarded
‘red hand pointing to it’–DOESN’T APPLY WHERE SIGNED
8
  Toll (FGCT) v Alphapharm A was Australian distributor of flu 
vaccine – T transported refrigerated goods – Agreed that T
would store and distribute to A’s customers – Entire batch
damaged in transit, T denied liability on basis of onerous
exclusions – Agent for A had signed “Account application”
w/o reading terms on reverse – HELD: A bound by agent’s
signature – no necessity for reasonable steps other than
statements on written document
Construction of Contractual Terms: Construing Exclusion
Clauses
 An “exclusion”, “exemption” or “exception” clause is the
generic label that lawyers use to describe a clause that
excludes, qualifies or limits the liability of a party for breach
of contract (or any other legal wrong) on his or her party
 No distinction is drawn among the various types of exclusion
clauses – the principles of construction apply uniformly
Darlington Futures Ltd v Delco Australia Pty Ltd
3 Questions to ask:
1. Is the relevant clause properly incorporated?
2. Who is[are] the person[s] seeking to rely on the clause? Are
there privity issues? (if yes, Lord Reid test)
3. As a matter of construction, does the clause apply to
exclude or limit liability in relation to the issue in dispute?
Rules for Construing Exclusion Clauses
1. Natural and ordinary meaning
 Insight Vacations Pty Ltd v Young The clause should be given its
ordinary meaning
o The words “[w]here the passenger occupies a motorcoach
seat fitted with a safety belt” limits the times to which the
clause applies to the times when the passenger occupies a
seat
o If word “seat” omitted – exemption clause applied to any
occasion when passenger aboard a motorcoach fitted with
seat belts, regardless of whether and why passenger got out
of the seat.
2. Contra proferentem
 Where ambiguous, interpret Contra proferentem against party
who proffered the term
 Wallis Son & Wells v Pratt & Haynes vendor contract to sell
“common English sainfoin” – vendor gave “no warranties express
or implied” including as to description – vendor supplied “giant
sainfoin” – Clause interpreted contra proferentem because
warranty was ambiguous so court read warranty as – with the
most limited application
3. Not exclude negligence (unless intended)
 Negligence gives rise to tortious (fault based) liability
 Special rules apply when construing a clause to determine
whether it excludes liability for negligence
There are 3 rules (of thumb) here: Canada SS Lines Ltd v R parties’ intentions are clear, liability for fundamental breach
1. An express exclusion of liability for negligence will be can be excluded
effective
2. Even if there is no express reference, the clause will be
effective if, as a matter of construction, that was the parties’ 5. Deviation principle
intention  If carrier deviates from agreed route, generally losses
a. Eg: “all liability, whatever its cause” – “any loss, benefit of exclusion clause
howsoever occasioned” – or where the defendant’s  TNT (Melbourne) v May & Baker (Australia) TNT was to
liability can only rest on negligence Eg. Davis v Pearce transport M&B’s goods from Melbourne to Sydney – TNT
Parking Station Pty Ltd (a bailee is not liable apart from subcontractor collected but when came to store at TNT store
negligence) facility found facility shut – stored instead in his own garage
 Davis v Pearce Parking Station Pty Ltd D parked at garage – “at overnight – destroyed by fire – TNT sought to rely on
owners’ risk…[P] not responsible for loss or damage of any exclusion clause – HELD: exclusion clause did not extend to
description” – Car stolen through negligence of P’s servants – protect unauthorised deviation – not an absolute rule; matter
HELD: general words used which were wide enough; bailment, of construction
no prospect of liability outside of negligence – General words 6. Four corners rule
thus cover negligence, so not liable  If act which occasions loss is not authorised or contemplated
3. Even if the words are wide enough, they will not be by the contract = generally cannot rely on exclusion clause –
effective if the plaintiff can show that his or her claim could act is outside the “four corners of the contract”
be based on some other head of liability than negligence  Not an absolute rule; matter of construction
(eg, strict liability for breach of contract)  Council of the City of Sydney v West W left car in CCS car
a. White v John Warrick & Co. If there are two possible park – CCS handed W with ticket which required
head of liability, the exception clause will be construed presentation of ticket upon collection – CCS gave care to a
as exempting the defendant from strict liability but not thief who claimed to own W’s car and claimed to have lost
negligence his ticket – car was damaged and abandoned – CCS sought
 White v John Warwick JW to supply/maintain newspaper to rely on exclusion clause – HELD: exclusion did not extend
delivery tricycles – ‘[N]ot liable for any personal injuries to to protect release of car not authorised or contemplated (if
riders’ – seat slipped forward and W injured – claimed JW thief stole the car different story, however they gave the car
had been negligent, or alternatively breach of contract by to thief without seeing a ticket for the vehicle)
supplying defective cycles – HELD: two potential heads of
liability- contractual liability (strict) and liability in negligence; Words that would constitute as covering negligence include:
clause only applied to contractual liability
4. Fundamental breach
 A breach that goes to the root of the contract – substantially
deprives the plaintiff of the benefits that he or she was to
enjoy under the contract
 The more serious the breach sought to be excluded, the less
likely it is that the parties intended the exclusion to protect
the defendant
 It is in every case a matter of construction whether or not the
clause in question extends to cover liability for “fundamental
breach”
 Photo Production Ltd v Securicor Transport Ltd D to provide
security service to P – D employed a security guard who
deliberately lit a fire which got out of control; he then tried to
put it out – D vicariously liable and attempted to rely on
exception clause – exclusion clause was in very strong and
clear terms – this case makes it clear that, provided the
9

TERMINATION
Refer to Booklet #2
1. By termination (for breach/repudiation/delay)
2. By performance
a. Including recovery of the contract price in debt
3. By agreement
4. By frustration
5. By failure of contingent condition
6. By Law
BREACH OF A CONDITION
Breach – right to terminate will depend on the classification of the
term breached:
o Condition – can elect to affirm or terminate (if a major or
essential term) - right to damages
o Warranty – not entitled to terminate (not an essential term) –
but still right to damages
o Intermediate – depends on the gravity and the
consequences of the breach (if serious treat like condition,
not serious treat like warranty) – right to damages
Test of Essentiality (for condition)
“ Promise is of such importance for the promisee that he or she would only give you a claim in damages despite importance of it.
not have entered into the contract unless he or she had been assured
of a strict or substantial performance of the promise, … and that this
ought to have been apparent to the promisor” Tramways Advertising v
Luna Park
Cases Dealing with Conditions
 Luna Park v Tramways Advertising TA to advertise on 53
tams/8hrs per day – Luna Park not satisfied & terminated for
breach of condition– TA kept advertising and sued for
contract price – HELD: 8hrs per day was a condition – LP
had right to terminate – TA’s claim for contract price failed –
LP could not prove damages awarded 1s
 Associated Newspapers v Bancks Ginger Meggs comic strip
to be on front page of comic section for 10 years – AN failed
to do so on 3 occasions; instead printed on page 3 – B
terminated for breach of condition – HELD: promise to
publish on front page was condition
Third Category Develops
 Classification must away extent of loss that follows after
breach
 Normally only damages claimable (like a warranty), but if
consequences serious enough, can terminate (like a
condition)
 ‘wait and see’, innominate or intermediate term
 Hong Kong Fir Shipping v Kawasaki Kisen Kaishu ship
chartered for two years – contract required ship to be
seaworthy – unavailable for a period of time – owner sued
for 20 months of lost profits – HELD: intermediate term,
minor breach that did not justify termination
 Ankar v National Westminster Finance HC obiter
unanimously expresses tentative approval of intermediate
term analysis
 Koompahtoo Local Aboriginal Land Council v Sanpine Pty
Ltd joint venture arrangement – K to contribute land – S to
manage development – JVA imposed an obligation on S to
maintain JV books and deal with funds in a particular way
which S breached – HELD: Intermediate terms, breaches
went to the root and termination valid
INTERMEDIATE TERM
 TEST: Can terminate if “deprives the innocent party of “a
substantial part of the benefit for which it contracted””
Koompahtoo Local Aboriginal Land Council v Sanpine Pty
 A Serious breach resulting in serious consequences
If you have a breach for a collateral contract you cannot
terminate the main contract, only the collateral. Breach of CC will
REPUDIATION
 Where one party manifests an unwillingness or inability to
perform
 Must relate to the whole of the contract, to a condition… or
be “fundamental”
 Repudiation can occur:
o When or after performance is due
o Before performance is due – anticipatory breach
 Can be expressed or implied from words or conduct
 Universal Cargo Carriers v Citati the allegedly repudiating
part acted in such a way as to lead a reasonable person in
the others shoes to believe that he does not have a contract Terminate by Giving Notice
or the substantial benefit of performance
o C did not have cargo ready to load UCC waited 6
days – contract said would be loaded within 9
days, but impossible to load in 3 days – UCC re-
chartered to someone else for less, and sued for
damages.
DANGERS INVOLVED:
 If innocent party cannot prove alleged repudiation, i.e., other
party could still perform?
 ‘innocent’ party then in breach for premature termination –
becomes guilty party
 Maple Flock v Universal Furniture Prod MF to supply
uncontaminated flock for furniture – UFP tested after 16th
delivery – UFP withdrew after accepting 2 more deliveries –
HELD: depends on objective intent; here no implied
renunciation by MF – 3 delivers does not communicate
repudiation of contract instead UFP became the repudiating
party by terminating contract
DELAY
 Contract may stipulate time
 Where time is not stipulated – implied “reasonable time”
 If time is “of the essence” (i.e., a condition) – innocent party
may terminate upon breach
 When will time be “of the essence”:
o Common law – always
o Equity – not unless parties intended
o Now Property Law Act 1974 (Qld) s 62 (reinforces
equity)
 Bunge Corp v Tradax Seller to deliver 3 loads of 5000 tons of
soya beans to buyer’s ship; May, June, July – Buyer to give 15
days notice when ship ready, and seller to nominate which of
the agreed ports to use – notice given on 17 June; not enough
days – seller purported to terminate, resold soya beans at a lost
and claimed £317,000 – buyer argued time clause was not a
condition – must expressly make time of the essence – HELD: it
was impliedly a condition
o String contracts, one contract is dependant on the
performance of another, typically seen in shipping
contracts – because of the nature of contracts where
one contract is dependant on another court will find
time stipulation is essential
Delay and Repudiation
 Where time is NOT of the essence
o May terminate if delay is serious breach of
intermediate term; OR constitutes a repudiation –
“[m]ust evidence an intention to no longer be bound”
 Can terminate contract by giving notice
 Notice must:
o Stipulate a REASONABLE time for performance
o Clearly convey that the time stipulated for
performance is “of the essence” or that termination
will be the consequences of a breach of that time
stipulation
 Laurinda Pty Ltd v Capalaba Park Shopping Centre Limited
Contract for the lease of a shop – lessor to register lease or
10
 deliver registrable lease to lessee – lessor delayed – lessee
gave notice to lessor requiring they complete registration within
14 days and reserved rights – lease not registered within notice
period – HELD: not valid notice because time period was not
sufficient time
 Louinder v Leis buyer to tender land transfer form within 28
days – 3 months later, seller served notice to complete the
purchase within 21 days – 24 days later seller purported to
terminate – orbiter comments: it was a non-essential time
clause – non-compliance was a breach and plaintiff could claim
damages – to terminate, must prove repudiation, or
fundamental breach or failure to comply with a valid notice to
deliver transfer form
o Problem with the notice – wording – “tender the land
transfer within 21 days” should have been said
Nature and Effect of Termination
 Termination for breach is not automatic – must elect whether to
terminate or not (if elected, cannot change back)
 Unconditionally acquired or accrued rights remain on foot; any
future obligations are brought to an end
Accrued Obligations
 McDonald v Dennys Lascelles Ltd (seller terminated contract;
land not conveyed until the final payment; seller required to
refund payments) sued for payment of 3rd instalment of £1,000
– claim was for debt due; had accrued at time of termination, so
can sue for it – but where total failure of consideration, refund of
money received, subject to claim for damages
Continuing with the Contract
 Innocent party can elect to continue
o Can claim damages for breach
o Even after repudiation, may be able to complete
contract and claim contract price
 White & Carter (Councils) v McGregor M agreed to advertise for
3 years on litter bins – repudiated contract same day
(anticipatory breach) – W&C continued with the contract for 3
years – claimed the price as a debt due (not damages) – M
argued failure to mitigate, but HELD: mitigation not relevant
Restrictions on the Right to Terminate
 Readiness and willingness
 Foran v Wight an innocent party has to be ready, willing, and
able to perform their obligations for their right to terminate a
contract – party not entitled to take advantage of other party’s
breach or repudiation merely because it came first in time
2. Discharge by Performance
 Where both parties have fully performed their contractual
obligations, the contract is discharged by performance
TWO TYPES OF PERFORMANCE:
1. Exact
2. Substantial
 Only exact and literal performance can discharge the contract,
unless, as a matter of construction, all that the parties
contracted for was “substantial performance” by the promisor
Tramways Advertising v Luna Park
Claim for Contract Price (McDonald case)
 To recover contract price as a debt:
o ‘the contract must impose an obligation to pay a
certain or ascertainable sum of money; and
o the right to payment of the sum must have accrued
McDonald v Dennys Lascelles Ltd
 Where the parties make the payment independent of
performance – debt owing at time stipulated
 Where the parties make the payment dependent on
performance – debt owing when the performance is rendered
as required
 Obviously, the promisor who has discharged his or her
performance obligations exactly can claim the contract price
 However, even the promisor who has rendered an imperfect Substantial Performance
performance may, in certain circumstances, claim the contract
price
Exact Performance
 There must be exact and complete performance by the
promisor of his or her part of the contract
 ENTIRE CONTRACT:
o where the obligation to pay contract price depends
on entire or complete performance by other as a
condition precedent
o eg. Agreement to pay lump sum when other’s
obligation complete, with no provision for partial
performance Cutter v Powell
 Cutter v Powell C hired as second mate, from Jamaica to
Liverpool – for lump sum of 30 guineas – payment to be made
10 days after arrival – died 2 days out of Liverpool – wife sued –
Failed (lump sum contract, requiring exact and literal
performance, therefore he and his estate entitled to nothing)
 Sumpter v Hedges S agreed to build a house & stable for £560
– S completed half and ran out of money – H finished it using
materials left by S – S sued for reasonable sum for work done – Quantum Meruit
HELD: lump sum contract – entire contract so not able to claim
– unjust enrichment only claimable if H accepted the benefit of
the word done – here H had no option to accept or reject – but
H had to pay for materials used (wasn’t voluntary acceptance of
work, attached to land – voluntary acceptance of material,
picked off ground and used)
CAN CLAIM FOR PARTIAL PERFORMANCE IF:
1. Contract is divisible
2. Doctrine of substantial performance
3. Quantum Meruit available where defendant has voluntarily
accepted the benefit
Divisible Contract
 GENERAL RULE: Govt. of Newfoundland v Newfoundland
Railway Co Government entered into contract w/ the plaintiff for Consideration Issues
construction of a railway – contract required the railway be
completed in five years – HELD: Divisible, payable as subsidy
when completed railway
 Where consideration and the payment for it are
apportioned…according to work done
 Where ‘parties intend the contract price and performance be
divided into corresponding parts
 Divisible Contract – Substantially Performed Steele v
Tardiani substantial performance can apply to each divisible
part
o Employed to cut firewood to 6” diameter – payment
was 6s per ton – T cut wood in diameters ranging
from 6-15” – divisible contract into each ton (not
entire) – doctrine of substantial performance applied
to each ton – quantum meruit could not apply to
everything cut, but could apply to any wood sold
 Parties intended substantial performance to be the condition
precedent to payment
 Modern courts prefer to construe contract so as to allow
operation of substantial performance doctrine if possible
 Courts will infer substantial performance unless parties say
exact/entire performance
 Hoenig v Isaacs contract to redecorate flat £750 – paid £300,
offered another £100 – refused to pay rest due to shoddy
workmanship – shelf and wardrobe needed replacing £58 –
contracted sued for payment – HELD: contract not intended to
be strictly entire – breach did not go to root and not serious; i.e.,
there was substantial performance – entitled to payment less
costs of defect (90% work completed)
 Bolton v Mahadeva Central heating for £560 – gave out fumes
and did not heat properly – defects requiring £175 – HELD:
need to look at ‘nature of the defects and proportion between
the cost of rectifying them and the contract price’ – not
substantial performance, so did not recover contract price (70%
of work done)
 Claim that other is unjustly enriched – they accepted benefit
(voluntarily)
 Claim for reasonable value of work performed
 Must be able to prove D took benefit at expense of P =
unjustness
3. Discharge by Agreement
 Ability to terminate by reasonable notice may also be implied in
indefinite contracts
 At any time after a contract the parties can agree to terminate –
discharge ‘at will’
 Evidence of oral discharge/variation of written contract does not
breach parol evidence rule
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  Agreement to terminate – all elements of a binding agreement Non-occurrence of Event
must be present  non-occurrence of an event which is the basis of the contract
 Consideration – if both parties still have obligation/s to perform Krell v Henry – D hired flat in Pall Mall to watch coronation
(mutual release is the consideration) procession of Edward VII – coronation postponed due to illness
o If only one has obligation/s still to be performed of King – HELD: contract frustrated.
(requires separate consideration)
ACCORD AND SATISFACTION: Commercial Venture
 Accord is the release agreement  Codelfa Construction v NSW State Rail Authority – C to
 Satisfaction is the necessary condition complete tunnels within 130 weeks – common assumption that
 If the agreement is to accept the promise in satisfaction, the would be able to work night shifts and weekends; wrong advice
discharge of liability is immediate; if the performance, then there – injunction by locals to stop noise after hours – HELD: HC said
is no discharge until it is performed McDermott v Black not implied term – but injunction made performance of
4. Discharge by Frustration obligations something radically different from what was
Early Development contemplated, i.e., frustration – foresight of event did not
 Common law position of ‘absolute’ or ‘strict liability’ matter, as long as extent of risk and damage not foreseen
o If not liable for a breach, contract should say so Foreseeable Events
EXCEPTIONS:  If foreseeable and provided for, contractual provisions take
 Where physically impossible Taylor v Caldwell precedence
 Where commercial venture frustrated Jackson v Union Marine  Claude Neon v Hardie – neon sign hired to H for 5 years – if
 Taylor v Caldwell Licence to use music hall for 4 days at £100 lease of premises ‘extinguished or transferred’, remaining rent
per day – before time, hall burnt down in a fire – licensee sued for sign was immediately payable – 2 years later, premises
for breach of contract – HELD: action failed because subject resumed and demolished – when sued for rent for sign, H
matter of contract had ceased to exist, so contract was argued the resumption had frustrated the contract – HELD: no
discharged (for sale or lease buyer purchases cover note for frustration – event foreseen and provided for
insurance) EXCEPTION:
 Jackson v Union Marine J owned a ship – chartered to a hirer to  If radical change compared with intent of clause, frustration may
collect cargo ‘with all possible dispatch, perils of the sea still apply
excepted’ – ship ran aground on way, towed away and  Codelfa Construction (above); Simmonds v Hay – S employed
eventually sold – J claimed from UM insurance for loss of H for 3 years; salary to continue if H provided satisfactory
freight – UM agued hirer was still obliged to pay under the evidence of illness – H had a heart condition, and eventually
charter contract, so no loss of freight – HELD: hirer released became permanently incapacitated – S paid salary for 7 months
from obligation to pay because frustrating event occurred before terminating – H sued for breach – HELD: S could rely on
(collected from UM) frustration (illness was radically different from expected ones
Current Scope under contract)
Following categories now recognised: Foreseen, but not in Contract
1. destruction of physical subject matter  If foreseen, but contract does not provide for it
2. frustration of commercial venture o Assumed to have taken the risk
3. death or incapacity of one party to a contract for personal  Walton Harvey v Walker & Homfrays – D owned hotel; P
service allowed to advertise on it for 7 years – local authority resumed
4. supervening legal impossibility & demolished hotel – P sued for breach, D argued frustration –
5. non-occurrence of an event which is the basis of the contract evidence that D knew of possibility of compulsory acquisition,
(couldn’t predict it ahead of time, could not deal with it under the contract but did not provide for it – HELD: liable for damages – no
– supervening legal impossibility) frustrated and must be assumed to have taken this risk into
Elements: OF FRUSTRATION account
1. NOT reasonably foreseeable Not Foreseen, but Should Have Been
2. Obligations RADICALLY different from what the parties  The Eugenia – ship entered Suez canal when gunfire around –
intended trapped in canal for 2 months – HELD: per Denning MR:
3. No fault of either party [reasonable person] should have foreseen these events, so
4. Incapable of performance frustration was self-induced and the doctrine did not apply
Self-induced Frustration
 If self-induced, you cannot rely on frustrating event
 FC Shepard v Jerrom – S hired J as apprentice plumber for 4
years – J convicted of assault and sentenced to 6 months, 2
years in Borstal – When released S refused to take him back,
arguing the contract had been frustrated – J replied, was self-
induced, so doctrine n/a – HELD: S could rely on it.
o If self-induced, other party can rely on frustrating
event
Modern Requirements
 Where a reasonable person would recognise that, with default
of either party, a contractual obligation has become incapable
of being performed, because the circumstances in which it is
called for would render it a thing radically different from that
which was undertaken in the contract – per Lord Radcliffe Davis
Contractors Ltd v Fareham UDC
 Davis Contractors
o DC contracted with UDC to build 78 houses in 8
months for £95,000 – shortage of labour because of
problems with demobilisation after the war –
eventually took 20 months at cost of £115,000 – DC
sued on basis of implied term to recover actual cost
of building (failed) – alternatively frustration and
quantum meruit – HELD: not radically different
 It is not easy to persuade a court that performance is radically
different
 Tsakiroglou v Noblee Thorl – groundnuts to be transported from
Sudan to Hamburg in Nov or Dec 1956 – War blocked the Suez
Canal – seller argued frustration as Cape route took 3 times
longer – HELD: not radically different (different if perishable, or
date for delivery fixed)
Effect of Frustration
 Terminates contract automaticallyD
 Loss lies where it falls
o No damage payable
o Codelfa Construction – quantum meruit successful
 Parties remain liable to all accrued obligations, discharged from
future obligations, cannot claim future damages
5. Discharge by Failure of a Contingent Condition
 Matter of construction, look at the intention of parties
 Contingent conditions to performance and formation
o Contract is binding but the performance of the parties
is conditional upon the particular event occurring or
not occurring depending on language parties use
o Parties do not intend to be bound at all to the
contract until the condition is satisfied
 Contingent conditions precedent and subsequent to
performance
o Not to perform until the condition has occurred
o Obliged to perform immediately but if the condition is
not satisfied the performance obligations terminate
 Non-fulfilment and consequences
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  Meehan v Jones
 Generally court accepts K was binding between the parties
 But come to an end if the condition not satisfied (i.e., securing
satisfactory finance)
 Contract came to an end when they did not secure satisfactory
finance.
Discharge by Law
Unauthorised alteration or cancellation of a written instrument:
Pigot’s Case: If a deed or written contract after execution is altered by
party/agent/3rd party without consent of other party, the deed/written
contract becomes void and have potential claim for fraud. [does not apply
if there are signs that are left blank which is required to be filled in]
Bankruptcy:
Bankrupt not personally responsible after bankruptcy, clerk will decide:
(a) Creditor must prove claim with clerk, and will be treated in
priority of secured credited and unsecured creditors based on
size of the estate.
(b) Bankrupt estate may disclaim troublesome contracts, parties to
the contract will have claim for damages
(c) Company that becomes insolvent and is being liquidated is not
automatically discharged and liquidator may decide to allow the
contract to carry through completion. May also leave the
contract and have it discharged with the assistance of the court.
Limitation period:6 years to claim from date of breach. Contracts under
seal have longer limitation period.
Illegal Contracts
Contract is illegal if:
- It breaks the law
- Object of the contract is not permitted
- Purpose is not socially acceptable
- Performance of the contract is not permitted
i. It breaks the law (statutorily void):
- Laws forbid the contract, laws regulate behaviour, law
create penalties for behaviour.
a. Cafferky v Nepan: if statute specifically prohibits the
performance or the essential terms of the contract
then it will be deemed illegal (expressed)
b. Cope v Rowlands: Implied penalties was set to
protect public.
c. Yango pastoral v First Chicago Australia: courts
determined that a contract is void if a statute
impliedly prohibited a contract.
ii. Illegal as formed or performed
- Ashmore, Benson, Pease v AV Dawson: if both parties are
involved in illegality there is no remedy, must come to
equity with clean hands.
iii. Contracts illegal at common law:
- Contracts to commit: crime, tort, fraud (Evert v Williams)
- Contract promoting sexual immorality
- Contracts promoting corruption in public life (Parkinson,
gave 10k for knighthood)
- Contracts prejudicial to administration of justice (Public
service credit union ltd v campion)
- Contracts prejudicial to public safety/national interest
- Contracts to defraud revenue (not pay tax is illegal and
defraud revenue)
Consequences of illegality
i. Where illegal as formed (against statue)
- Contract is void and neither party can sue, money paid or tort had not been committed (Livingstone v Raywards Coal co)
property transferred cannot be recovered (parties equally
at fault remedy in equity is not available)
ii. Where illegal as performed
- Contracts not enforceable due to public policy issue
iii. Where illegal as performed courts have discretion to
enforce contract despite illegality
- If necessary to do justice in equity
- Nelson v Nelson: contract illegal and for illegal purpose, to determine value of work done under contract. Principal of reasonable
allow contract to be carried through, money was recovered payment for the work done, to prevent unjust enrichment by 1 party.
and used to pay back government + interest + fines, family
did not gain enrichment
VOID CONTRACTS
Statute may not mean contract is illegal but declare it void, contract may
be void at common law for:
i. Ousting the jurisdiction of the courts (Baker v Jones)
fundamental rights of parties to seek remedy
ii. Contract prejudicial to status of marriage
iii. Contracts in restraint of trade
Consequences of void
i. Severing the offensive clause if contract can still be able to (i) the price of the goods/services did not exceed $40,000; or
be performed.
ii. If severing will render the contract unworkable or forms
major part of the contract then usually void.
Remedies
Specific performance: Directs a party to an agreement or transaction to
perform their obligations under that agreement or transaction, not
permitted if there is undue hardship, not available if the contract is
defective. Can amend claim to discharge contract and seek damages, not treating other goods or fixtures on land.
acceptable for personal service. USED ON: breach, threatened breach of
contract
Damages in Equity: primary remedy in common law. Courts have ability
to award monetary compensation (Equitable compensation) in respect of
purely equitable wrongs (i.e: Breach of fiduciary relationship and trust).
Equitable compensation is subjected to discretionary considerations i.e:
unconscionable conduct, unfairness to [P2], laches, hardship, delay,
unclean hands.
Contract damages: monetary award compensating plaintiff for the
defendant’s wrong; where a party suffers loss by breach money is
awarded to place him in place as if the contract has been performed
(Robinson v Harman)
Damages in Tort: an award of money intended to place the plaintiff, so
far as money can, in the position that would have been occupied had the
Restitution: not a compensation, but restoration of money/property to the
plaintiff, to place in situation P was in before entering the contract. Used
on: paid in error, to avoid unjust enrichment of 1 party, mistake, duress,
undue influence, supervening illegality, or failure of consideration
Quantum Meruit: Degree of uncertainty in contract, could get court order
Injunction: equitable remedy, court ordered, breach must be ongoing
nature, not available where other party will be forced to do something they
did not had to.
Mitigation: parties must take reasonable steps to reduce the loss of the
other party.
Australian Consumer Law
Consumer s3
A person is taken to have acquired goods/services as a consumer if, and
only if:
(ii) where the price exceeded that amount – the goods/services were of a
kind ordinarily acquired for personal, domestic or household use or
consumption, or the goods consisted of a vehicle or trailer acquired for
use principally in the transport of goods on public roads;
And the person did not acquire the goods, or hold them self out as
acquiring the goods, for the purpose of re-supply; or for the purpose of
using them up or transforming them, in trade or commerce, in the
course of a process of production or manufacture, or of repairing or
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Bunnings Pty Ltd v Laminex Group Ltd: Ordinary use of item
that was above $40,000
Unconscionable conducts
s20: A person (corporation) must not, in trade or commerce, engage in
conduct that is unconscionable, within the meaning of the unwritten law
(case law) from time to time
s23 unfair terms of consumer contracts
(1) A term of a consumer contract is void if:
(a) the term is unfair; and
(b) the contract is a standard form contract.
Misleading and Deceptive behaviour
s18(1) A person must not, in trade or commerce, engage in conduct that
is misleading or deceptive or is likely to mislead or deceive
s 29(1) A person must not, in trade or commerce, in connection with the
supply or possible supply of goods or services or in connection with the
promotion by any means of the supply or use of goods or services:
(a)make a false or misleading representation that goods are of a
particular standard, quality, value, grade, composition, style or model or
have had a particular history or particular previous use
(b) make a false or misleading representation that services are of a
particular standard, quality, value or grade
Repairs and Services
s 58(1) Person supplies, in trade/commerce/ goods to a consumer, and
supply does not happen via auction the manufacturer takes reasonable
action to ensure that facilities for the repair of the goods
Express Warranties
s 59(1) There is a guarantee that the manufacturer/supplier of the goods
will comply with any express warranty given or made by the
manufacturer/supplier in relation to the goods
Fitness for Purpose
s55(1) There is a guarantee that the goods are reasonably fit for any
disclosed purpose, and for any purpose for which the supplier represents
that they are reasonably fit
Acceptable Quality
s 54(1) there is a guarantee that the goods are of acceptable quality

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