Contracts A University of South Australia LAWS 1008

Contracts A- Study and Reading Guide

Week Three- Certainty and Consideration
Required Reading
Stewart, Swain and Fairweather, pp90-102, and Chapter 6
Key Cases
Meehan v Jones (1982) 149 CLR 571
Masters v Cameron (1954) 91 CLR 353
Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424

Certainty
General principles
An agreement must be expressed with sufficient certainty before it will be enforced by the courts.
The principal causes of uncertainty are vagueness and incompleteness. However, courts have shown
a reluctance to allow contracts to fail on the basis of uncertainty/incompleteness where the parties
have negotiated in good faith. Consider the approaches the courts have taken to upholding
agreements in these circumstances. Consider contrasting decisions where the court has refused to
uphold an uncertain agreement.
Consider the difference between the court ‘construing’ (or interpreting) the contract and the court
‘making’ a contract.
Examples of indefiniteness of expression/incomplete agreements
 Scammell Ltd v Ouston Ltd [1941] 1 All ER 14 (purchase of motor lorry ‘on hire-
purchase terms’)
 Bishop & Baxter Ltd v Anglo-Eastern Trading and Industrial Co Ltd [1944] 1 KB 12
(contract for sale of goods ‘subject to war’)
 Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326
(purchase of jack mackerel at a price producing a ‘reasonable commercial profit’)
 Whitlock v Brew (1968) 118 CLR 445 (granting of a lease ‘upon such reasonable
terms as commonly govern such a lease’)
Terms to be agreed in the future
Loftus v Roberts (1902) 18 TLR 532 (contract for employment at a salary ‘to be mutually
arranged between us’). Vaughan Williams LJ at 534- when the words used show that the
promisor was to have ‘discretion or option as to whether he would carry out that which
purported to be the promise, the result was that there was no contract.’
Court will look at the nature of the agreement and may take a commercial approach (Meehan v
Jones (1982) 149 CLR 571)
Open terms
Hoadley v M’Laine (1834) 10 Bing 482 (court implied a ‘reasonable price’ where no price
specified)

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Kier & Co Ltd v Whitehead Iron and Steel [1939] 1 All ER 591 (court implied term to supply
each party’s ‘good faith needs’ where no quantity specified)
Court approaches
Court’s approach to uncertain terms- can the void part be severed from the rest of the contract? If
not, the whole contract is void (Whitlock v Brew (1968) 118 CLR 445). Does this represent a more
conservative approach than other courts? What is the prevailing approach in Australia?

Conditional Promises
Contracts ‘subject to’ a formal contract
Case will belong to one of three classes. If it belongs to the first or second class, the contract is
binding from the outset. If it belongs to the third class, the contract is not binding unless and until
the parties actually enter into a formal contract (Masters v Cameron (1954) 91 CLR 353)
Contracts ‘subject to’ finance
The performance of the contract, rather than its existence, is conditional upon finance being
obtained (Meehan v Jones (1982) 149 CLR 571). Note the obligations of the parties during this
period.
Contracts ‘subject to’ planning permission
Valid contract from the time of the agreement, so long as the term is sufficiently certain.

Consideration
Consideration is the exchange of promises. Often, it will involve the payment of money in exchange
for a good or service. The key is for the consideration (promise to pay) to be given in return for the
promise to perform.
Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424 (no consideration in a
unilateral agreement)

Consideration must move from the promisee

Does not need to move to the promisor
Joint promisees
Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460. Consideration must move
from the promisee OR one of joint promisees.

Consideration need not be adequate but must be sufficient

Adequacy
Sufficiency
Chappell & Co v Nestle & Co Ltd [1960] AC 87 (chocolate bar wrappers)
A promise to perform a duty already imposed by law
Glasbrook Bros Ltd v Glamorgan County Council [1925] AC 270
Ward v Byham [1956] 2 All ER 318
Popiw v Popiw [1959] VR 197
A promise to perform a contractual duty already owed to the other contracting party
Stilk v Myrick (1809) 170 ER 1168

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Hartley v Ponsonby (1857) 119 ER 1471

A promise to perform a duty owed to a third party
Shadwell v Shadwell (1860) 142 ER 62
Extended to commercial cases such as Scotson v Pegg (1861) 158 ER 121 and New Zealand Shipping
Co Ltd v AM Satterthwaite & Co Ltd [1975] AC 154, and by the High Court of Australia in Port Jackson
Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd (The New York Star) (1978) 139 CLR
231.
Compromise and forbearance to sue
Exception to the rule that a promise to perform a contractual duty already owed is not consideration
(Wigan v Edwards (1973) 47 ALJR 586)
Part payment of debt
Part payment in satisfaction of a larger debt is not consideration (Pinnel’s Case (1602) 77 ER 237)
Foakes v Beer (1884) 9 App Cas 605
Sundell (TA) & Sons Pty Ltd v Emm Yannoulatos (Overseas) Pty Ltd (1955) 56 SR (NSW) 323
Exception is creditors under Bankruptcy legislation

Illusory consideration

Consideration may be ‘executory’ or ‘executed’, but not ‘past’

Re McArdle [1951] Ch 669
Re Casey’s Patents (1892) 1 Ch 104