Académique Documents
Professionnel Documents
Culture Documents
Contracts ‘A’
Offer Page 9
- Bilateral contracts
- Unilateral contracts
- Offers to the public at large
Acceptance Page 14
1
- A counter offer is not acceptance - Bre
- Acceptance must be unqualified akd
- Mere enquiry does not constitute acceptance own
of
Notification to the offerer of the fact of acceptance mec
- Method of acceptance hani
a) Method of acceptance stipulated by offer sm
b) Acceptance by silence to
c) Acceptance by conduct com
- Instantaneous communication: Acceptance must be plet
communicated e
a) General rule
b) Meaning of instantaneous communication
- Postal acceptance rule
a) Statement of the rule
b) Policy behind the rule Page 16
c) To what communication does the rule
extend
d) Where is the rule displaced
e) Revocation of acceptance prior to receipt
2
Page 21 Circumstan
ces
indicating
absence of
intent
- Hon
Page 22 our
clau
se
- Pro
moti
Saving incomplete agreements onal
- Incompletion of terms puff
- Failure to specify a price and
a) Contract silent on price free
b) Contract provides for parties to agree in the gifts
future - Ex
c) Contract make provisions for mechanism to grati
complete a
d) Contract provides for payment of a pay
reasonable price men
- Subject to agreements ts
Subject to finance agreements and
a) Satisfactory finance with
b) Steps to be taken to obtain finance out
Subject to contract prej
udic
e
Intention to create legal relations offe
rs
Statement of rule - Lett
er
Domestic and social relationships of
- Presumption com
- Rebutting the presumption fort
a) Husband and wife - Lett
b) Separated husband and wife er
c) Other family relationships of
d) Social relationships inte
nt
Commercial agreement and
- Presumption und
- Rebutting the presumption erst
andi
Government activities ng
- Commercial agreements
- Policy initiatives
Consider
Voluntary associations ation
3
Nature of consideration Page 32
- Consideration in bilateral contracts
Page 23 - Con
side
ratio
n in
unil
ater
al
cont
ract
s
- Exe
cute
d
and
exec
utor
Page 27 y
cons
Page 27 ider
atio
Page 27 n
Rules
governing
considerati
on
- Con
side
Page 29 ratio
n
mus
t
Page 30 mov
e
fro
m
Page 30 the
pro
Page 30 mis
ee
Page 32
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a) Benefit need not move to the promisor
b) Joint promises Page 33
c) Overlap with Doctrine of privity
- Consideration must be bargained for
- Consideration must be sufficient
a) General principal
b) Consideration need not be adequate
c) Consideration can be nominal
- Consideration must not be past
a) General principal
b) Past consideration distinguished from
executed consideration
Equitable Estoppel
Page 38
Elements of estoppel
- Assumption of expectation Page 39
- Encouraged or induced
- Reliance
- Knowledge or intention
- Detriment
- Failure to avoid detriment
Remedies
Page 41
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Privity - Nat
ure
General rule of
cont
Statutory abrogation of rights ract
- Queensland nee
a) Promisor ding
b) Beneficiary writ
c) Promise ing
d) Acceptance - Req
e) Defences uire
f) Variation and rescission of promise men
g) Imposition of burdens ts of
h) Common law still applicable writ
- Commonwealth ing:
- Insurance Contracts Act 1984 (Cth) s 48 cont
Entitlement of a named person to ent
claim
- Maritime contracts of carriage Page 42
a) Servants or agents of sea carriers
b) Consignees and endorsees Page 42
Formalities
Guarantees
- Nature of guarantees
- Transaction which are not guarantees
a) Contracts of indemnity
b) Promise of guarantee made to the debtor
c) Person agrees to take over the debt of
another Page 45
d) The agreement imposes no personal
liability on the person
e) Letters of comfort
- Requirements of writing: content
a) Information particular to the guarantee
b) Acknowledgement of the agreement
- Requirements of writing: signed by party to be charged or
agent Page 47
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Establish
ing
contr
actua
l
terms
Incorporati
on by
signature
a) Gen
eral
rule
b) Wh
Page 50 en
the
a) Information particular to the guarantee rule
b) Acknowledgement of the agreement is
- Requirements of writing: signed by party to be charged or disp
agent lace
d
Joinder of document
- Reference to a document Incorporati
a) Documents that are physically connected on by
b) Documents that are executed at the same notice:
time unsigned
- Reference to a transaction document
a) Rea
Effect of statutory non-compliance: common law sona
- Contract valid to pass title ble
- Recovery of money paid under unenforceable contract step
a) Recovery of deposit s
b) Recovery of amount more than deposit take
- Other restitutionary claim may still be available n by
the
Effect of statutory non-compliance: equity defe
- Doctrine of part performance nda
a) Acts are unequivocally referable to some nt
such contract
b) Acts done in reliance on the agreement and
with knowledge of the other party
c) Acts done by the party seeking to enforce
the contract
d) Oral contract must be otherwise enforceable
- Estoppel
- Constructive trust
7
b) Reasonable steps must be taken on or before contract
formation
Page 56
Page 56
Page 57
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b) Knowledge and expertise of statement
maker
c) Statement maker has control in relation to
information
d) Oral statement not reduced to writing
e) Interval of time
- Collateral contracts
a) Nature of a collateral contract
b) Bipartite and tripartite collateral contracts
c) Consistency with the main contract
Implied terms
- Terms implied to give effect to the presumed intention of Page 62
the parties
a) Term implied on the basis of business
efficiency
b) Term implied from previous consistent
course of dealings
c) Term implied from custom or usage
d) Term implied to complete an agreement
- Terms implied irrespective of parties intentions
e) Term implied as a legal incident of a
particular class of contract
f) General duty of co-operation
g) Implication of duties of good faith, fair
dealings and reasonableness
h) Term Implied by statute
9
c) Exceptions to the parole evidence rule
Ambiguity
Identification of subject matter
Identification of parties and their
relationship
Identification of the real
consideration
Custom or usage
Rectification
- Inadmissible evidence
a) Subjective intention
b) Prior negotiation
c) Subsequent conduct
Contingencies Page 69
- Conditions precedent
- Conditions subsequent
Exemption clauses
- Specific rules of construction
a) The contra proferentem rule
b) Attempts to exempt negligence
The rules regarding attempts to Page 72
exempt negligence
c) The four corners rule
Page 73
Offer:
An offer is an expression to another of a willingness to be bound by the stated terms
10
Bilateral Contracts
Under Bilateral Contracts each party undertakes to the other party to do or to refrain
from doing something, and in the event of his/her failure to preform his/her
undertaking, the law provides the other party with a remedy.
Unilateral Contracts
The position in such cases is simply that the consideration on the part of the offeree
on the part of the offeree is completely executed by the doing of the very thing that
constitutes acceptance of the offer.
Mere Puff
Sometimes statements can be regarded only as ‘mere puffery’- the claims are made
only for advertising purposes and mean nothing.
Supply of Information
Harvey v Facey
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Invitation to Treat
An advertisement that gives information about goods for sale and their price will
generally be an invitation to treat rather than an offer.
Partridge v Crittenden
Categorizing Transactions
Advertisements
Most advertisements are considered invitations to treat but some may be regarded as
offers depending on language used in the advertisement and other relevant factors.
Circulars, which provide information about items for sale and their prices, are
regarded as invitations to treat. If it were regarded as an offer and the manufacturer
ran out of stock, they would be in breach of contract for anyone who accepted such an
offer as they could not provide stock
Grainger v Gough
d) Display of Goods.
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Items appearing in retail outlets, even if the price is attached, are regarded as an
invitation to treat.
Auctions
a) Advertisement of Auctions
Harris v Nickerson
The auctioneer may withdraw various lots from the auction or cancel the auction
altogether without incurring any liability from potential bidders.
Harris v Nickerson
Each bid represents an offer, which the auctioneer may reject or accept. Acceptance
of an offer occurs, and an agreement is formed, when the auctioneer knocks down the
property to the successful bidder.
Because the agreement is not formed until the bid is knocked down, the bidder can
withdraw a bid (offer) before this time.
Payne v Cave
Even in an auction without a reserve, each bid represents an offer that could be
accepted or rejected by the auctioneer.
Tendering
Spencer v. Harding
Standing Offers
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A standing offer is an indication by one party of his/her willingness to provide goods
over a specified period of time.
A standing offer is accepted every time an order is placed. If the goods are not
delivered or are refused the offending party will be in breach of contract.
An offeror may withdraw the offer, anytime, before acceptance of the offer is made in
the form of an order.
Further, unless the parties agree to the contrary, there is no obligation of the offeree to
order goods only through the offeror, (eg. the offeree may choose not to accept the
standing offer)
Options
The standing offer may be revoked at anytime before acceptance by the offeree.
However, if the offeree provides consideration (eg paying money) to the offeror to
keep the offer open for some period, the offer cannot be withdrawn during this period.
Routledge v Grant
Communication of an Offer
For an offer to be valid it must be communicated to the offeree by the offeror, or
someone authorised by the offeror.
Cole v Cottingham
Taylor vLaird
Acceptance must take place in reliance upon an offer. If the offeree performs a
particular act that corresponds to the terms of the offer without knowledge of the
offer, there is no agreement, and no contract comes into existence.
If it is an offer to the world at large, the offer could be accepted by any fulfilling the
requirements of the offer.
Termination of an Offer
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An offer may be terminated at any time before it is accepted. However, once an offer
is accepted it becomes irrevocable.
Revocation is the formal withdrawal of the offer by the offeror. Before acceptance,
an offer can be freely revoked
Routledge v Grant
A revocation will only be effective once it has been communicated to and received by
the offeree
In unilateral contracts, the offer cannot be withdrawn after the offeree has begun to
perform the necessary conditions of acceptance of the offer and completion of the
contract.
Abbot v Lance
c) Lapse of time
An offeror may stipulate that his or her offer must be accepted within a certain period
of time, and if the offeree fails to accept, the offer will lapse. If no time is prescribed,
the offer must be accepted within a reasonable time.
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If a condition upon which the offer is made is not fulfilled the offer will lapse
McCaul Pty Ltd v Pitt Club Ltd
e) Death
If the offeror dies and the offeree has not been notified of that death, it is still possible
for the offeree to accept the offer, thus binding the offeror’s estate. If the offeree has
been notified of the death he/she cannot accept the offer.
Coulthart v Clementson
Nor can a representative of the offerors estate accept the offer on their behalf
therefore the offer lapses
Reynolds v Atherton
Acceptance:
Requirements of Acceptance
Acceptance of an offer is the expression, by words or conduct, of assent to the terms
of the offer in the manner prescribed or indicated by the offer. Thus acceptance may
be expressed or implied
The offeree must have knowledge of the terms of the offer at the time of purported
acceptance. Acceptance is not valid if two identical offers are made or if a party
performs the act of acceptance without knowledge of the offer.
Tinn v Hoffman
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If a counter offer is made, the original offer is rejected and the counter offer can then
itself be accepted or rejected. Once a counter offer is made and the original offer
rejected, the offeree can no longer accept the original offer
Hyde v. Wrench
A purported acceptance that departs from the terms of the offer but only in a minor
non-material way may be effective and not amount to a counter offer
If there is an agreement on all terms of the offer, and the parties intend to be bound
immediately, this would be considered unqualified acceptance of the offer.
Masters v Cameron
After receiving an offer, an offeree may want further clarification of one or more
terms. This inquiry can at most, only communicate interest but not acceptance nor
rejection of an offer.
Powell v Lee
Soares v Simpson
Method of Acceptance
The offeror may stipulate how acceptance should take place (eg. the performance of
an act, return post etc.). If acceptance does not occur in this way, generally there is
no agreement.
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Although, if the offeree accepts in a manner that is more advantageous for the offeror,
then the acceptance will be valid
Tinn v Hoffman
Also, if the method of acceptance was inserted for the convenience of the offeree, the
offeree may wave the benefit of the clause and accept in a different way
b) Acceptance by Silence
The offeror cannot stipulate silence to constitute consent under any circumstances.
Felthouse v Bindley
Empirnall Holdings Pty Ltd v Machon Paul Partners Pty Lty
Braund v Mutual Life & Citizens’ Assurance Co Ltd
The technique of delivering a product with a notice stating that unless the goods are
returned within a stated period (or rejection communicated in a different way), the
buyer will be taken to have agreed to buy the product on the stated terms is now
prohibited by statute.
c) Acceptance by Conduct
An offeror may stipulate the manner of acceptance by advising the offeree that if
he/she wishes to accept the offer, the offeree should perform stipulated acts waiving
the need to communicate acceptance. Acceptance can be express or implied.
a) General Rule
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Entores L D v Miles Far East Corporation
Brinkibon Ltd v Stahag Stahl und Stahlwarenhandels-Gesellshaft mbH
Face to face communication, telephone conversations and telex messages are all
considered forms of instantaneous communication.
The postal acceptance rule is the exception to the general rule that acceptance occurs
when it is communicated to the offeror.
Where the circumstances are such that it must have been within the contemplation of
the parties that, according to the ordinary usages of mankind, the post might be used
as a means of communicating the acceptance of an offer, the acceptance is completed
as soon as it is posted.
Henthorn v Fraser
The rule operates only where the post is an acceptable method of communication
between the two parties (eg. the offer was made by post or it is stipulated in the offer
that the post is an acceptable method of communication)
Adams v Lindsell
The postal acceptance rule applies to forms of communication that are akin to mail
but does not extend to any form of instantaneous communication, even if that
communication bears some similarities to communication by post.
The rule is displaced if the court decides that it was not within the contemplation of
the parties that the post was an accepted method of communication. Whether the
postal rule is displaced turns the intention of the offeror. If the offeror says or implies
that actual notification is required before an agreement if formed the postal
acceptance rule will be displaced.
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Bressan v Squires
The offer is formed when the letter of acceptance is posted. A subsequent purported
withdrawal of that acceptance will be ineffective.
There is still no definitive Australian authority on the issue, only early New Zealand
dicta that’s suggests that it cannot be withdrawn in this way and an even earlier
Scottish authority to suggest that it can!!
Generally, once an offeree has begun to accept the offer by performing the acts
stipulated, it is likely to be too late for the offeror to withdraw the offer and claim
there has been no contract formation.
Abbot v Lance
Reynolds v Atherton
Powell v Lee
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Carlill’s case
A contract is formed when and where the offeror receives and accepts the acceptance
communicated.
Post
If the postal acceptance rule applies, the contract is formed when, and at the place
that, the letter of acceptance is posted.
Henthorn v Fraser
The Postal Rule can be excluded {Covered earlier in “The postal Acceptance Rule” at
(d)}
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Facets to the principal
• Even where uncertain or ambiguous language is not used, if the parties have
not agreed on all of the essential terms of the agreement, the contract will be
unenforceable.
Loftus v Roberts
Thorby v Goldberg
There can be no contract unless what the parties agreed can be determined objectively
with a reasonable degree of certainty. A number of different terms have been used to
describe clauses that are struck down for want of certainty. Whether the clause is said
to be vague, ambiguous or uncertain matters little, the clause is void. Sometimes the
court will label a term meaningless or illusory. A meaningless clause is one to which
a meaning cannot be attributed and will be treated the same way as an uncertain
clause. An illusory clause has an identifiable meaning but will be treated as uncertain
as it promises an illusory term.
Agreements to Negotiate
If parties do not reach final agreement on essential terms, instead agreeing to finalise
such matters at a later time, the contract is an agreement to agree, therefore it is
incomplete and will not be enforced.
22
Booker Industries Pty Ltd v Wilson Parking Qld Pty Ltd
However, it was contemplated by Kirby P (in Coal Cliff Collieries Pty Ltd v
Sijehama Pty Ltd), that in appropriate circumstances, an agreement to negotiate could
be enforceable. He concluded that if the parties provided good consideration and the
terms of the agreement to negotiate were sufficiently certain, such agreement might
be enforceable. One mechanism to make an agreement to negotiate more certain, it
was suggested, would be to include a provision referring matters in dispute to a third
party.
The reference may be made in a direct way for example, incorporating standard hire
purchase terms used by the particular hiring company. If such a set of standard hire
purchase terms exists, the clause will be valid.
Recourse may also be made to external standards, even where the contract itself does
not expressly provide such a link.
Sometimes, the contract may provide for one or more terms to be inserted by a third
party. (In a fashion, this is also a link to an external standard).
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‘The implication of what is just and reasonable to be ascertained by the court as a
matter of machinery where the contractual intention is clear but the contract is silent
on some detail’
Severance
The invalidity of one term will not necessarily mean that the whole contract will be
unenforceable. In some circumstances the invalid term can be severed and the
remainder of the contract will be enforceable. Generally, if the parties would have
intended to be bound in the absence of an uncertain clause, the clause can be severed
and the remainder of the contract is enforceable
Fitzgerald v Masters
If the offending clause forms a pivotal part of the contract, so that without out it the
parties could not have intended to be bound, severance of the particular clause is not
possible.
Whitlock v Brew
Whitlock v Brew
Incomplete agreement
The courts will not lend their aid to the enforcement of an incomplete agreement,
being no more than an agreement for the parties to agree at some time in the future.
Parties to a contract may leave terms of the contract to be decided by a third party,
even essential terms.
Godecke v Kirwan
Hawthorn Football Club Ltd v Harding
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b) Discretion retained by a contracting party
It is uncertain that a contract that leaves minor terms to be determined by one of the
contracting parties is enforceable.
A contract that leaves essential matter for later determination by one of the
contracting parties will be unenforceable as it is either incomplete or uncertain or
because the promises contained in the agreement are illusory.
However, if a subsidiary matter was left to the determination of one of the parties
such as how the contractual obligations are carried out by that party, it may be
enforceable.
Godecke v Kirwan
Milnes v Gery
If the disputed issue is one of something such as the “price” of something (eg. Rent),
a court may be prepared to determine a fair and reasonable price, and not to regard
that determination as completing the agreement for the parties.
Implication of Terms
There is a willingness of the courts to imply terms into an agreement. It is not for the
court to make the contract for the parties, or to go outside the words they have used,
except insofar as there are appropriate implications of law, as for instance, the
implication of what is just and reasonable to be ascertained by the court as matter of
machinery where the contractual intention is clear but the contract is silent on some
details.
Hillas v Arcos
However, the court may not rewrite the agreement for parties where the parties
themselves have failed to agree on essential terms. The greater the number of terms
not finally agreed upon by the parties, the less inclined the court will be to exercise its
discretion to imply a term. A contract could only be regarded as concluded if the
parties agreed on the three essential elements: “the parties”, “the subject matter” and
25
“the price” and if these elements have been agreed upon with sufficient certainty the
court will provide the rest.
Hall v Busst
In addition, there are two other factors that may be relevant in the courts
determination.
First, if it is clear that the parties have gone beyond the state of negotiation and intend
to be contractually bound, the court will be more minded to imply a term and enforce
the agreement.
Hillas v Arcos
Secondly, and related to the first, if the contract has between partly executed, for
example in a contract for the sale of goods, property has been delivered and title has
passed, the court will seek to imply a term necessary for the validity of the agreement
Hall v Busst
The general principle is that a contract will only be regarded as valid if the parties to
it agree on price (as this is one of the essential terms), this means that if there is no
agreement on price stipulated in the contract, then the contract is not complete, and
would not be upheld by the court.
Hall v Busst
There is a distinction between the sale of land and sale of goods with respect to the
implication of terms by a court. For the sale of goods, the court is sometimes prepared
to imply a term that the purchaser will pay a reasonable price for the goods. This
intention is demonstrated for example, where the contract is partly executed and
property in the goods has passed. A court will not imply a term for payment at a
reasonable price into a contract for the sale of land
Hall v Busst
An agreement to agree in the future also offends against the general principle of
completeness. However, in some instances, in contracts for the sale of goods the
court may imply a reasonable price and the contract will be upheld.
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However, if the contract is to sell land, or on rental in an option to renew a lease, it is
unlikely to be upheld) and will be treated as such matters which are silent on price.
A contract that contains a mechanism for setting a term at a later time is likely to be
valid. It is not uncommon for such a mechanism to be used in relation to setting a
price.
Godecke v Kirwan
Whether the agreement is upheld as being sufficiently certain may turn on the nature
of the subject matter in dispute. A contract for the sale of goods at a reasonable price
is likely to be valid.
However, clauses to attribute reasonable price to the sale of land will generally be
uncertain or for the sale of goods if they are unique or of very special character eg
original painiting
Hall v Busst
Subject to agreements:
Sometimes parties may be ready to sign a contract but not able or not prepared to
commit to one or more aspects of the agreement. In these circumstances parties may
decide to enter into agreements subject to the happening of a particular event.
Contracts for sale may contain a clause stating that the contract is subject to the
purchaser receiving approval for finance on satisfactory terms and conditions. The
contract is immediately binding on the parties but will come to an end if the purchaser
is unable to obtain finance and terminates the contract pursuant to its terms.
Meehan v Jones
a) Satisfactory Finance
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It has been argued that a clause that provided for finance to be obtained on
‘satisfactory terms’ is either to uncertain to be valid or gave the purchaser such a wide
discretion that it was illusory. The High Court disagreed, and stated that as the clause
was inserted for the benefit of the purchaser, the determination of whether the finance
was satisfactory was left to the purchaser
Meehan v Jones
The finance clause in most standard land contracts imposes an obligation on the
purchaser to take all steps reasonably necessary to obtain finance approval.
Meehan v Jones
Subject to Contract
For agreements that are formed subject to contract, the case could fall into one of
three categories:
1. The parties have reached finality in arranging all terms and intend to be
immediately bound to perform those terms, but at the same time propose to
have the terms restated in a form which will be fuller or more precise but not
different in effect. The parties intend to be bound immediately thus a binding
contract is formed.
Masters v Cameron
Branca v Corbarro
2. The parties have completely agreed upon all terms and intend no departure
from or addition to those terms, but have made performance of one or more of
those terms conditional upon the execution of a formal document. An offer in
such a case is not expressed to be subject to or conditional upon a formal
execution of a contract and all essential terms have been agreed upon thus a
binding contract is formed.
Masters v Cameron
Niesmann v Collingridge
3. The intention of the parties is not to make a concluded bargain at all, unless
and until they execute a formal contract. Parties in such a case do not intend
to be bound until they entered into a formal document thus no binding
contract is formed.
Masters v Cameron
The category a particular case falls into turns on the intention of the parties. If the
parties intend the agreement to be binding on them even before entry into the final
contract, the contract will fall into one of the first two categories.
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Masters v Cameron.
The courts use an objective test in making a determination about the intention of the
parties. In making an objective determination of the parties intention, the court looks
at the surrounding circumstances and asks if a reasonable person would regard the
agreement as intended to be binding.
Merritt v Merritt
The presumption is that domestic and social agreements are not intended to have legal
force.
Heslopv Burns
Balfour v Balfour
Jones v Padavatton
The presumption can be easily rebutted for example if parties who are in a familial
relationship are contracting in a business context or if a husband and wife enter into
an agreement in circumstances in which they are no longer living in harmony.
Similarly, if the words used in the contract indicate a legal intention, the presumption
that may otherwise have arisen may be rebutted.
Case Examples:
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should apply where an agreement is entered into between a couple living in a de facto
relationship.
Balfour v Balfour
Where parties are divorced, separated, or in the process of separating, the negotiation
do not take place in the context of natural love and affection therefore there is no
room left for the application of such a presumption and the court will generally find
that the requisite contract intent existed.
Merrit v Merrit
Parties in other familial relationships are considered the same as married or de facto
couples, and it is presumed that they do not intend to cerate legal relationships as the
agreements made in this context are based on natural love and affection. The bond of
natural love and affection is likely to weaken according to the remoteness of the tie
and will subsequently be easier to rebut.
Jones v Padavatton
In fact, those cases where the court finds that the presumption has been rebutted, one
or more of the following factors are often relevant
• The seriousness of the conduct involved (such as moving countries or
giving up full time employment)
• The expense involved, especially if the relevant party is not wealthy
• Whether there is or has been a degree of hostility in the relationship
• The closeness of the family ties
• Whether the subject matter of the agreement is business or commercial in
nature
Examples
Jones v Padavatton
Wakeling v Ripley
Roufos v Brewster
d) Social Relationships
The presumption of lack of legal intent can extend beyond familial relationships to
agreements entered into in a social context, or agreements made between friends.
Heslop v Burns
However, a court will not always find that the parties lacked legal intention, even
when the arrangement is clearly made between friends or a relative in a social setting.
(eg. parties who pool funds to enter a competition in one person’s name may intent
30
that arrangement to have legal consequences. Therefore, if the person wins, action
can be brought to force that person to share the winnings with the other members of
the groups. While this is fair, it is doubtful that parties who participated in syndicate
intended their action to have legal consequences). The court may be more likely to
uphold such a decision if large amounts of money are involved.
Simpkins v Pays
Commercial Agreement
Presumption
Where parties negotiate and agree in a business setting, it is assumed that the parties
intended the agreement to have legal consequences. Therefore, the party alleging that
an agreement relating to business matter is of no legal effect has the heavy onus of
demonstrating that to be the case.
Edwards v Skyways
The intention not to create legal relations may be evident in a number of different
ways. For example, the agreement may contain an express clause that no legal
consequences flow from the document, or the overall tenor of the particular document
may indicate that the parties had no intention to enter into legal relations.
Government Activities
Commercial Agreements
If a government contract arises out of the commercial need for the operation of
government, for example the order of stationary or contracts to purchase vehicles, the
usual contractual principles apply to determine whether a contract has been formed.
For other types of contracts, increased formality may be required to demonstrate the
necessary legal intent when one of the contracting parties is the government.
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Policy Initiatives
Where the government activity relates to a policy initiative a court may be less likely
to find that the parties intended to enter contractual relations.
Voluntary associations
Unless there was some clear positive indication that the members contemplated the
creation of legal relations inter se, the rules adopted for their governance would not
be treated as amounting to an enforceable contract.
Cameron v Hogan
The parties could possess requisite legal intent if the member has a proprietary
interest in the club.
Cameron v Hogan
Honour Clauses
The presumption that arises in a commercial context is that the parties intended to
create legal relations by entering the agreement. It is however, open for the parties to
form a contrary. The presence of an honour clause in contracting parties agreements
will indicate by express words that they did not intend the agreement to have legal
consequences.
Where language such as ‘free gift’ is used, or an apparently extravagant claim is set
out in an advertisement, there may be a tendency to think that a person who acts in
response to the advertisement may not intend legal consequences to follow. To
determine whether the requisite intention exists, the court will look not only at the
words used, but also at the entire context in which the advertising takes place.
Similarly, if the language used conveys intention, such as the deposit of $1000 in a
bank for the purpose of payment, it would have legal consequences.
32
Ex gratia payments and without prejudice offers
Parties who offer to make an ex gratia payment or who write a ‘without prejudice’
letter which is accepted, are still seen to posses the intention to create legal relations.
Edwards v Skyways.
The words ex gratia do not carry a necessary, or even a probably, implication that the
agreement is to be without legal effect . . . a party is certainly not seeking to include
the legal enforceability of the settlement itself by describing the contemplated
payment as ex gratia.
Edwards v Skyways.
Letter of Comfort
Central to the determination of whether a letter of comfort gives rise to legal intent is
whether the parties intended to create legal obligations by the giving and receiving of
the letter. To determine this, the courts look at the construction of the document and
the circumstances surrounding its sending. The following points were considered by
the authority in assigning legal intent to the letter of comfort:
• On a construction of the letter, the terms were sufficiently promissory in
nature.
• The letter was part of a commercial transaction in which there is a
presumption that legal relations were intended.
• Intention is deduced from the document as a whole seen against the
background of the practices of the particular trade or industry.
Consideration:
Whether or not a promise that is part of an agreement can be enforced depends on,
among other things, whether the promisee has given consideration for the promise.
Consideration is perhaps best understood as an act or promise of an act which is the
33
price paid for the other's promise. The common law will only enforce a promise for
which a price is paid.
The development of the Doctrine of Promissory Estoppel, under which a promise that
has been relied upon to another’s detriment may be enforced by that other despite the
lack of consideration.
Waltons v Maher
Nature of Consideration
An act or forbearance of one party, or the promise there of, is the price for which the
promise of the other is bought, and the promise thus given for value is enforceable.
A bilateral contract is formed where the parties exchange promises. At the time
agreement is reached, each party makes a promise. The price paid for that promise –
the consideration – is the other party’s promise. Each party promises to do an act or
refrain from doing an act.
34
Consideration must move from the promisee
For there to be a contract between the promisor and the promisee, consideration must
move from the promisee.
It will generally be the case that consideration moves from the promisee to the
promisor, whether the promisee promises to pay money, or do or forbear from doing
an act. However, it is sufficient if consideration moves from the promisee to a third
party at the direction of the promisor.
b) Joint promisees
The doctrine of privity provides that only a person who is a party to a contract can sue
on it. A promisee is only able to sue on a promise if the promisee has given
consideration for the promise.
Tweddle v Atkinson
The act of forbearance must be done in reliance of the promise and at the request of
the promisor and not done for other reasons (that are unrelated to the contract in
question).
Combe v Combe
Australian Woollen Mills Pty Ltd v The Commonwealth
a) General principle
Thomas v Thomas
35
b) Consideration need not be adequate
Consideration must be sufficient but need not be adequate. The court will not enquire
into the adequacy or value of the consideration.
Eastwood v Kenyan
Thomas v Thomas
White v Bluett
Consideration will be regarded as valid even if it is nominal only. (Eg. Token gesture)
Thomas v Thomas
Lennox v Cameron
Niesmann v Collingridge
a) General Principle
The consideration will be regarded as being past if it has already flowed from the
promisee to the promisor prior to the agreement being entered into.
Roscorla v Thomas
Formal agreements are signed under seal, and are more commonly referred to as
deeds. Because of the solemnity or seriousness of the manner of execution of such
documents, the common law has recognized these agreements as valid even if
consideration has not been provided. Simple agreements are agreements other than
formal agreements, which are oral or written and require consideration to be valid.
36
Moral Consideration
A promise made because of a sense of moral obligation to the promisee will not be
sufficient consideration to support that promise.
Eastwook v Kenyon
A promise made because of the love and affection that the promisor and promisee
have for each other, or that the promisor has for the promisee is not legally
recognized (without consideration)
White v Bluett
Wigan v Edwards
Stilk v Myrick
A court may be prepared to find that the parties have agreed to abandon their original
agreement and enter a new one.
Hartley v Ponsonby
A promise to perform an existing contractual duty owed to another party can be good
consideration for a promise.
37
Pao On v Lau Yiu Long
Pinnels case
If an amount of money is owing by a debtor to a creditor, and those parties enter into
a subsequent agreement that the creditor will accept a lesser amount in full
satisfaction of the amount, the later amount agreement will generally not be binding
because the debtor has not provided consideration for the creditor’s promise to forgo
the balance due. Therefore, even if the debtor acts on this agreement by paying the
lesser sum agreed – and the sum is accepted by the creditor – the creditor will
generally be able to sue the debtor for the balance due.
Foakes v Beer
If a debtor provides consideration for the creditor’s promise, Pinnel’s rule will not
apply.
Payment made at a different place for the debtor's convenience does not evade the
rule.
38
The rule in Pinnel’s case will only operate when there is no dispute between the
parties as to the amount owed. If the parties cannot agree on an amount owing, they
may wish to enter into a compromise agreement. In the case of a compromise,
although the creditor promises to accept an amount less than what the creditor
contends is the account of the debt in full settlement of the debt, the debtor has
provided consideration for the creditor’s promise. The debtor has agreed to pay an
amount more than the debtor believes to be due. This is good consideration even if
the creditor is in fact correct and the amount claimed by the creditor is actually due.
If a debtor is unable to meet his debt to the creditor and obtains assistance from a
third party to do so, the third party to placate the creditor may offer a lesser some than
the full amount owed to bring the matter to an end. As the third party is not indebted
to the creditor, his/her promise to pay an amount should be good consideration for the
creditor’s promise to forgo the balance of the debt. The fact that payment is by a
third party and not the debtor takes the case outside the operation of the rule in
Pinnel’s case.
Under a composition with creditor’s agreement, the creditors all agree to accept
payment of something less than the full amount owing by the debtor, in exchange for
giving the debtor a full release. Creditors may agree to such an arrangement if it
appears that this is the most likely avenue to recover any amount from the debtor
Forbearance to sue
A forbearance to sue or to refrain from exercising some legal right may constitute
consideration, even if the plaintiff would have been unsuccessful in the original
claim, provided:
- The claim was reasonable and not frivolous or vexatious
- The plaintiff honestly believed the claim would succeed
- The plaintiff did not conceal from the defendant any facts that to the
plaintiff’s knowledge might affect the validity of the claim.
The exception to the rule that past consideration will be ineffective to support a
promise is that if the services would only have been provided on the basis of
payment.
39
In some cases it is possible to infer that a certain sum would be paid, and a
subsequent promise merely fixes the amount of payment.
Re Casey’s Patents
Lampleigh v Braithwaite
Pau On v Lau Yiu Long
In all cases where a promisee seeks to enforce a promise made after the provision of
the services, or other conduct relied upon, the promisee must be able to demonstrate
that
1. the act must have been done at the promisor’s request:
2. the parties must have understood that the act was to be remunerated either by
payment or the conferment of some other benefit
3. payment, or the conferring of the benefit, must have been legally enforceable
had it been promised in advance
Equitable Estoppel
The Doctrine of Equitable Estoppel states that a promise not supported by
consideration could give rise to rights in circumstances where it would be
unconscionable conduct for the promisor to renege on the promise. An estoppel may
arise from pre-contractual negotiations
However, a different result may apply where the parties subsequently execute a
formal contract that is expressed to constitute the whole of the contract between the
parties, but where one party asserts that the other is estopped from relying on rights
created by the written contract due to an assumption formed during negotiations
The elements of estoppel must be positively proved and will rarely if ever be inferred
40
Elements of Estoppel
Assumption or Expectation
Encouraged or Induced
Thompson v Palmer
Waltons Stores (Interstate) Ltd v Maher
If a party acts upon mere hope rather than a belief induced or encouraged by the other
party, it will not be sufficient grounds for estoppel
Reliance
The party claiming estoppel must act or abstain from acting in reliance upon the
assumption or expectation.
The characteristics of the plaintiff in assessing the reasonableness of the reliance, are
relevant. (Eg. if the parties are stockbrokers and merchant banker experienced in
commerce with the intention of their solicitor to prepare formal documentation or are
large commercial entities represented by solicitors).
41
Knowledge or Intention
The party who induced the adoption of an assumption or expectation must know or
intend the other party to act or abstain from acting on reliance on the assumption or
expectation.
Detriment
There must be a link between the assumption or expectation created and the detriment
suffered.
The party claiming estoppel must suffer detriment in the sense that ‘as a result of
adopting the assumption as the basis of action or inaction, the plaintiff will have
placed himself in a position of material disadvantage if departure from that
assumption is permitted
Thompson v Palmer
The detriment is determined as at the date the defendant seeks to resile from the
assumption or expectation he or she has encouraged or induced, and upon which the
othe party has acted
Lorimer v State Bank of NSW
The object of the equity (equitable estoppel) is not to compel the party bound to fulfil
the assumption or expectation; it is to avoid the detriment which, if the assumption or
detriment goes unfulfilled , will be suffered by the party who has been induced to act
or to abstain from acting on it
The party encouraging or inducing the assumption must fail to avoid the detriment
suffered by the party claiming estoppel, by failing to fulfil the assumption or
encouragement.
42
Depending on the circumstances, the defendant may be required to do no more than
warn the plaintiff that the assumption or expectations mistaken before the plaintiff
incurs irreversible detriment
It may be possible to show the relevant detriment where the defendant has made an
attempt to avoid detriment being suffered by the plaintiff but the attempt proves to be
inadequate.
Remedies
The object of equitable estoppel is not necessarily to enforce promises but to avoid
the detriment suffered by a party who relies on a promise.
Therefore the remedy for equitable estoppel is the minimum equity to do justice
between the parties
(Commonwealth v Verwayen
Commonwealth v Verwayen
There may, however, be a prima facie entitlement to have the expectation made good
where the relief to reliance would exceed what could be granted by enforcing the
expectation.
Also, where the nature or likely extent of the detriment cannot be accurately or
adequately predicted, it may be necessary in the interest of justice that the assumption
be made good to avoid the possibility of detriment.
Giumelli v Giumelli
43
Privity
General rule
A third party to a contract is unable to acquire rights or benefits under the contract.
The Property Law Act 1974 (Qld) s55 (1) provides that:
(a) Promisor
The relevant promisor under the statue is the party who actually makes the promise
for the benefit of the beneficiary. In the absence of an assignment, the promise is not
binding upon a new party who merely stands in the shoes of the promisor who makes
the promise. (Eg. where the promise is made by a trustee of a trust who, in turn, is
subsequently replaced by a new trustee, the promise will not be binding on the new
trustee).
Re Davies
(b) Beneficiary
For the purpose of s55, a party is clearly a beneficiary if they are expressly named in
a contract as receiving the benefit of performance of work under a contract
A person who is not named in the promise but is incidentally benefited by the
promise generally cannot enforce the promise in reliance of s55.
(c) Promise
44
Promise is defined in s55 (6) as being a promise:
• Which is or appears to be intended to be legally binding and
• Which creates or is intended to create a duty enforceable by a beneficiary
A contractual term that merely regulates the relationship between promisor and
promisee will not be enforceable by a third party if it does not amount to a promise to
benefit the third party and create an enforceable duty
(d) Acceptance
It seems that an acceptance must on its face be an assent. It is insufficient for there to
be words or conduct that is merely consistent with acceptance.
Re Davies
It may be sufficient if the promise comes to the notice of the beneficiary’s solicitor.
Re Davies
(e) Defences
Section 55(4) provides that any matter that would otherwise be relied on as rendering
a promise void, voidable or unenforceable will be available by way of defence in
proceedings for the enforcement of a duty under s 55.
The intended object of this subsection provides that defences such as mistake, fraud,
misrepresentation, Stature of Frauds and Statue of Limitations etc, which may be
available to the promisor against the promisee are also available to the former against
the beneficiary.
Under s 55 (2), before acceptance, the parties to the contract may vary or rescind the
promise. However, s 55(3) provides that after acceptance, their terms of the promise
and the duty of the promisor or beneficiary may be varied or discharged only with
consent of the promisor and the beneficiary.
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(g) Imposition of Burdens
Section 55(3)(b) states that the beneficiary will be bound by any promise or duty that
is imposed as part of the promise that benefits him or her. An obligation may be
imposed upon the beneficiary but only as part of a promise that confers a benefit upon
him/her.
Section 55(7) saves the common law so that where the statue cannot be applied, the
common law still does. Consequently, a beneficiary who is unable to make out a case
under the statute would be left to rely on an exception to the privity doctrine if one
were available in the circumstances.
Commonwealth
Today in Australia, insurance cases are the subject of legislation to overcome the
Privity rule. Section 48 of the Insurance Contracts Act 1984 has provided a third
party with a right to recover directly from an insurer the amount of his or her loss.
If the privity rule were to be applied, then the usual exemption from liability that
appear in contracts of carriage exempting the carrier from liability to the owner of
goods for loss or damage to the goods could be simply evaded by, for example, suing
instead the servants or agents of the carrier. This has, in the past, been avoided by the
inclusion of a bill of lading evidencing the contract of carriage a provision known as a
‘Himalaya Clause’.
Such a clause makes the carrier the agent for its servants, agents or independent
contractors in relation to an exemption of liability for loss or damage to the goods.
The clause has been held effective to exempt from liability third parties to the
contract of carriage such as the master, crew, or stevedores who are entrusted with
loading and unloading the goods.
46
Now by force of law rather than by provisions in a contract, parties such as the master
and crew – but not individual contractors such as Stevedores – may now rely on the
exemptions contained in a contract entered into between the carrier and the owner of
the goods shipped by sea.
All rights in the original contract of carriage are transferred to a third party buyer as
from the time of consignment or indorsement. Effectively, therefore, a consignee or
indorsee may now enforce rights under a contract to which he or she was a third
party.
Secondly, all outstanding liabilities under the original contract of carriage are
transferred to a third party buyer when he or she demands or takes delivery of the
goods. Thus, it is possible to impose a burden on a consignee or indorsee despite the
fact that he or she was a third party to the original contract of carriage.
Agency is a legal relationship between two people where one of them, the principal,
give to the other, the agent, the authority to create legal relations between the
principal and the third party. If the agent acts within his or her actual authority, either
express or implied, or within his or her ostensible authority, such act will bind the
principal: that is the principal can take action in his or her own name to enforce the
contract made by the agent or become personally liable should the contract be
breached.
Definition
The principal is not a stranger to a contract made by the agent, he is one of the parties,
the agent being the medium by which the contract is made.
The principles of agency may also apply where the agent does not disclose to the
other contracting party that he or she is acting on behalf of a principal if the other
party is willing to contract with anyone on whose behalf the agent acts, such
willingness may be assumed by the agent.
47
Teheran – Europe Co Ltd v St Belton (Tractors) Ltd
The issue of whether a party who is not party to a contract, particularly for the
carriage of goods, can nevertheless rely on an exemption from liability contained in
that contract.
1. the relevant bill of lading must make it clear that the stevedore is intended to
be protected;
2. the bill of lading must also make it clear that the carrier is contracting not only
on its own behalf but also as agent for the stevedores in relation to the
exemption;
3. the carrier was so authorised by the stevedores, although later ratification by
the stevedores will do; and
4. any difficulties concerning consideration moving from the stevedores are
overcome.
Trusts
The trustee holds the legal title to such property subject to the interest of the
beneficiary in such property.
Re Schembsman
Trident v McNiece
Whether a trust is created will depend on a true construction of the terms of the
contract and the intention of the parties. In deriving intention from the language that
the parties have employed the courts may look to the nature of the transaction and the
circumstances, including the commercial necessity of the arrangement.
Trident v McNiece
48
The intention required to create a trust need not be held by both parties, it is sufficient
if the promisee alone holds the intention.
Trident v McNiece
Unjust Enrichment
If an insurer is paid and refuses to offer benefit to a third party on the ground that they
are not party to the contract, the third party may take action on the principles of unjust
enrichment.
Trident v McNiece
Formalities
Provided a contract is validly formed and there are no vitiating factors, action can
usually be brought to enforce a verbal contract. Notwithstanding this general
proposition however, a limited number of contracts must be evidenced by writing for
them to be enforceable.
Guarantees
A contract of guarantee must be in writing and signed by the party to be charged in
order to be enforceable. “No action may be brought upon any promise to
guarantee any liability of another unless the promise upon which
such action is brought, or some memorandum or note of the
promise, is in writing, and signed by the party to be charged, or by
some other person by the party lawfully authorised”.
Nature of Guarantee
A contract to answer for the debt, default or miscarriage of another who is primarily
liable to the promisee.
49
Transactions that are not guarantees ‘will not’ have to comply with the statutory
requirements of formalities.
a) Contracts of indemnity
It is possible for a person to promise the principal obligator (the debtor), rather than
the creditor, that he or she will pay the debt of the debtor. As the promise is not made
to the person with whom the principal obligor contracts, the contract is not one of
guarantee
Eastwood v Kenyon
Where a debtor and creditor have entered into a contract of loan, it could occur that a
third party agrees with the creditor to take over the debt of the debtor. Such an
arrangement is not a contract of guarantee and therefore need not comply with the
statutory requirement of formality.
Gray v Pearson
If a person does not undertake personal liability, but instead proffers his or her
property as security to the promisee under the principal transaction it is not a
guarantee.
e) Letters of comfort
50
to be in writing. The provision does not, however, elaborate on precisely the
information that must be contained in the writing to satisfy the statutory requirement.
Guidance from case law, in Harvey v Edwards Dunlop & Co, provides that the
document must contain ‘all essential terms of the agreement’.
First, ‘the guarantee must contain the names of the relevant parties: the lender, the
debtor and the guarantor’. It may happen that the guarantee makes reference to a
party without expressly identifying them. Authorities suggest that even if a party is
not expressly identified, ‘a description of the party will be sufficient if the description
used can be explained by extrinsic evidence without having to resort to evidence to
prove the intention of the author.
Secondly, ‘the relevant terms of the guarantee must be stated’. This would generally
require the amount of debt being guaranteed must be specified. If the guarantee is
given of the amount advanced by the lender together with interest on that amount, the
interest payable by the debtor should also be specified.
There are two other important caveats to the general proposition that a guarantee must
contain all of these essential terms.
First, while the lender must provide valuable consideration to the guarantor for a valid
contract of guarantee to be formed, the nature of that consideration will not be
required to be contained in the guarantee.
Second, where a material term has been omitted from the guarantee, there may be
limited circumstances in which the guarantee will still be enforceable against the
guarantor for example, if the term is for the benefit of the lender, the lender will be
entitled to waive the benefit of the oral term not reduced to writing to enforce the
guarantee as modified (Eg. A waiver to collect interest on the amount owed if details
of the interested are omitted)
Hawkins v Price
Pirie v Saunders
Tiverton Estates Ltd v Wearwell Ltd
51
Requirement of writing: signed by party to be charged or agent
To satisfy the statutory provision, the promise or note or memorandum of the promise
must be ‘signed by the party to be charged, or by some other person by the party
lawfully authorised’.
(Upon the debtor’s default, the lender will seek to enforce the guarantee against the
guarantor. Therefore, it is the guarantor who is the party to be charged within the
meaning of the provision. To satisfy the formalities requirement, therefore, the
guarantee must be signed by the guarantor).
To apply this principle in the context of a guarantee, if the guarantor’s name appears
on the guarantee, and it is the guarantor’s intention that the name authenticates the
document, it will be sufficient to satisfy the statutory requirement.
Durrell v Evans
The requirement of formality applies to a contract for the sale of land or any interest
in land as well as a contract for the other disposition of land or any interest in land.
As was the case for guarantees the document must contain ‘all the essential terms’, is
also relevant to land.
There are four matters that must be recorded to satisfy the statutory requirement in a
contract involving land.
52
1. The document must contain the parties to the contract
Williams v Byrnes
As with guarantees, as long as the intention of the parties is clear, extrinsic evidence
may be introduced to establish the identity of the parties.
Pirie v Saunders
South Coast Oils v Look Enterprises
If the property the subject of the sale is part only of a particular lot, care must be
taken to specifically identify the portion being sold.
Pirie v Saunders
3. The consideration for the promise, namely the price, must be recorded
Burgess v Cox
Wain v Walters
4. The principal terms of the contract must be disclosed. (Eg. If the parties
require time to be of the essence, that condition should be included in the
contract).
Failure to include in the document all essential terms might not necessarily be
fatal to the plaintiff, if the term omitted is for the benefit of the plaintiff they may
waive the benefit of clause and seek enforcement of the contract without it.
Petrie v Jensen
b) Acknowledgment of agreement
The writing must contain an acknowledgment of agreement as well as the terms of the
agreement. Such acknowledgement may be expressed or implied in the writing.
Pirie v Saunders
Tiverton Estates Ltd v Wearwell Ltd
53
There will be insufficient writing where a contract is made ‘subject to contract’ in the
sense of a condition made before the formation of the contract.
(If there is purported contract for the sale of the land and the seller claims not to be
bound by the agreement, the seller will be the party to be charged for the purposes of
any action brought. Similarly, if the buyer claims not to be bound, the buyer will be
the party charged).
A person may have been taken to sign a document if the signature is absent as long as
the name of the party is placed on the document and that party expressly or impliedly
indicates that he or she recognizes the writing as being an authenticated expression of
the contract. It is sufficient if a person who is duly authorised by the party to be
charged signs the document.
Pirie v Saunders
Joinder of documents
It is possible to satisfy the statutory requirement of writing even if all of the relevant
information is not contained in the one document. A document may be able to be
joined if there is a reference, express or implied, to another document or to a
transaction.
Reference to a document
Where the document signed by the defendant makes reference to another document,
joinder of that document is permitted.
Tonitto v Bassal
As the document joined in this way is referred to in the document signed by the
defendant, it follows that the joined document will be in existence at the same time
the document is signed by the defendant. There are two exceptions to this general
position.
54
A document physically connected to the document signed by the defendant may be
joined.
M’Ewan v Dynon
Where a letter is signed by the defendant and sent to the plaintiff, but the letter does
not, on its own, contain the necessary information, the court will allow the envelope
to be joined to the letter. In this way, there will be a note or memorandum of the
information on the envelope, namely the name of the plaintiff.
Pearce v Gardner
Reference to a transaction.
Where the writing signed by the party to be charged refers to a transaction (rather
than a document), Joinder is allowed and parol evidence may be given to explain the
transaction, and to identify any document relating to it.
55
Contract valid to pass title
Maywald v Riedel
a) Recovery of deposit
A deposit paid by a buyer is considered to be ‘an earnest to bind the bargain’. If the
sale is not completed due to the buyer’s default, the deposit is liable to forfeiture to
the vendor. This is the position if the contract is one that complies with or fails the
statutory requirements of formality.
Where an enforceable contract for the sale of land is not completed because of the
seller’s default, the deposit is recoverable by the buyer as money had and received
upon a total failure of consideration, where the consideration for which it was paid is
the conveyance or transfer that has not taken place. The action is one brought in
restitution, not on the contract.
Fullbrook v Lawes
If the purchaser breaches the contract and refuses to complete the purchase, any
deposit paid may be forfeited. However, it is likely that any amount over and above
that which is deemed to be the deposit could be recovered.
If the contract is unenforceable, it will not usually prevent a claim in restitution for
recovery on a quantum meruit (so much money as the plaintiff deserves to have)
basis.
56
If parties enter into an oral contract for the sale of land and, relying on that contract,
one party does certain acts, the courts may be prepared to grant that person specific
performance of the contract if four conditions are satisfied.
The acts relied upon by the plaintiff must unequivocally referable to some such
agreement as is alleged between the parties.
Regent v Miller
Maddison v Alderson.
Maddison v Alderson.
Steadman v Steadman
Cooney v Burns
Steadman v Steadman
b) Acts done in reliance on the agreement and with knowledge of other party
The plaintiff must show that the acts were done in reliance on the agreement and with
the knowledge of the other parties.
McBride v Sandland
It is not necessary that the acts be required by the contract but the fact that they were
done voluntarily is sufficient.
Regent v Miller
The acts of part performance must be by the party who is seeking to enforce the
contract.
King v Grimwood
The plaintiff must be able to show that the contact would have been enforceable had
it satisfied the statutory requirement of writing. The agreement must be concluded
and satisfy the usually contractual requirements for enforceability.
57
McBride v Sandland
Estoppel
Constructive trust
Baumgartner v Baumgartner
Incorporation by Signature
a) General Rule
The party may not be bound by the terms even though the contract is signed if the
circumstances indicate that the signature does not signify assent. This may be the case
if:
• The person relying on the clause misrepresented its effect.
58
• The person signing can plead non est factum (The mind did not
accompany the signature…no intent). (The person relying on the
defence must show that the document is radically different from the
one he/she thought they were signing. Usually used for blind or
illiterate people).
Petelin v Cullen
Reasonable steps must be taken to give the class of person to which the recipient
belonged, notice of the existence of the term. (This is a question of fact).
In determining whether reasonable steps were taken it may be relevant whether the
document was one that would be assumed by a reasonable person to be contractual in
nature.
Causer v Browne
Mendelssohn v Normand Ltd
If reasonable steps are taken it does not matter if the recipient of the notice did not
read the terms or that he or she were unable to read them.
The onus will be on the defendant to demonstrate that the document was not delivered
to the plaintiff as a voucher or receipt, but as a contractual document.
Causer v Browne
Reasonable steps must be taken to bring terms to the attention of the plaintiff before,
or at the time of, contract formation.
59
A person who is particularly unworldly, and does not know that a particular document
will contain contractual terms, will still be bound by those terms, providing the issuer
took reasonable steps to bring that fact to the notice of people in general.
Reasonable steps must be taken to give the class of person to which the recipient
belonged, notice of the existence of the term. (This is a question of fact).
If reasonable steps are taken it does not matter if the recipient of the notice did not
read the terms or that he or she were unable to read them.
Reasonable steps must be taken to bring terms to the attention of the plaintiff before,
or at the time of, contract formation.
A person who is particularly unworldly, and does not know that a particular document
will contain contractual terms, will still be bound by those terms, providing the issuer
took reasonable steps to bring that fact to the notice of people in general.
Incorporation by Reference
60
Terms contained elsewhere can be incorporated into a contract by reference to those
terms, regardless of whether the document incorporating those terms is signed by the
parties or is a ticket or a sign.
A “puff” is an exaggerated claim about the subject matter that is not intended to be
taken seriously. There is no common law consequences that arise from such sales
talk.
Representation or Term
The words and conduct of the parties can give an indication of intention. (It is
relevant whether the words are promissory in nature as well as the conduct of the
parties that indicate the importance of the statement).
Harling v Eddy
If the party who made the statement is in a better position than the other party to
ascertain the accuracy of the statement, it is probably a term.
A person who has control over the subject matter will be in the position to guarantee
the truth of the statements.
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A statement that is made orally but not included when the contract is reduced to
writing may be an indication that the parties did not intend it to be contractual in
nature.
Routledge v Mckay
All of the previous factors are indicators of intention only. Failure to reduce an oral
statement to writing is not determinative of the matter. As illustrated in:
If an oral statement later becomes part of the written contract, it is likely it was
intended to form part of the contract.
e) Interval of time
If there is a long interval between making the statement and the conclusion of a
contract, it is probably not a part of the contract.
Routledge v Mckay
Collateral contracts
A collateral contract is one in which the consideration for a promise is the making of
another contract.
Where the main contract precedes the collateral contract there can be no contract as
past consideration is not good consideration.
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A collateral contract is bipartite where the parties to it are the same as those who enter
the main agreement.
A collateral contract may be tripartite where the parties to it are different from the
parties in the main contract.
The courts will only recognise a collateral contract if it is consistent with the terms of
the main contract.
(There has been criticism of this rule as it does not give effect to the actual intention
of the parties)
When a contract is reduced into writing, and the contract appears in the writing to be
entire, it is presumed that the writing contains all the terms of it and evidence will not
be admitted of any previous or contemporaneous agreement, which would have the
effect of adding to or varying the contract in any way.
(The rule applies to two aspects: 1. the content of the contract and 2. the interpretation
of contracts…Here the rule applies to the content).
The rule does not apply when the parties intend a contract to be partly in writing and
partly oral.
Couchman v Hill
Regarding the content of the contract: If the parties intended the contract to be wholly
in writing, parole evidence is not admissible to add to, vary or contradict the writing.
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Robertson v Kern Land Pty Ltd
Couchman v Hill
The collateral contract is a separate contract, therefore the rule preventing evidence
being led to effect the main contract does not apply to it.
De Lassalle v Guildford
Evidence that the contract has not yet commenced operation is admissible, even if the
parties have signed the agreement.
Pym v Campbell
Evidence can be led demonstrating that the agreement has been varied or discharged.
(The parole evidence rule prevents the introduction of evidence regarding what
happened “before” the agreement was reduced to writing, not evidence that the
parties “later” agreed to change or end it).
The court may hear evidence regarding a term that is one that is implied by the
common law. (This will depend on why the term is sought to be applied).
Extrinsic evidence may be allowed to rectify a contract where the agreement can not
be regarded as reflecting the common intention of the parties or a mistake in the
writing of the contract (such as the wrong price recorded unintentionally).
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Implied Terms
Terms implied to give effect to the presumed intention of the parties
A term that is either so obvious there was no need to express it, or not thought of by
the parties may be implied by the courts in order to successfully carry out the
contract.
The Moorcock
The following elements must be satisfied before a court will imply a term on the basis
of business efficiency.
• The term must not contradict any express term of the contract.
If the parties have gone to some length to reduce their agreement to writing and to
ensure it reflects their intentions, it is difficult to suggest that the term omitted is so
obvious that it goes without saying.
If two parties have made a series of similar contracts each containing certain
conditions, and then they make another without expressly without expressly referring
to those conditions it may be that those conditions ought to be implied.
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Horrier v Rambler Motors (AMC) Ltd
Henry Kendall & Sons v William Lillico & Sons Ltd
Chattis Nominees Pty Ltd v Norman Ross Homeworks
Sagar v Ridehalge
Con-Stan Industries of Australia Pty Ltd v Norwich Winterhur Insurance (Aust) Ltd
The following elements must be satisfied before a court will imply a term on the basis
of custom or usage:
- The existence of the custom or trade usage is a question of fact.
- The custom or trade usage must be so well known that all parties can
reasonably be assumed to have imported that term into the contract.
- The term will not be implied if it is contrary to the express terms of the
agreement.
Con-Stan Industries of Australia Pty Ltd v Norwich Winterhur Insurance (Aust) Ltd
A court may attempt to construct the contract by implying the necessary term in order
to fill in the gaps and complete an agreement.
Although terms of this kind are implied through necessity, the parties may expressly
agree to the contrary.
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Byrne v Australian Airlines Ltd
Gemmel Power Farming Co Ltd v Nies
Derbyshire Building Co Pty Ltd v Becker
It is an implied term of all contracts that each party agrees to do all things necessary
to enable the other party to have the benefit of the contract.
Butt v McDonald
Butt v McDonald
Examples:
Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd
It has been suggested that the courts may be prepared to imply a duty for the parties
to act in good faith in preforming a contract.
A term may be implied into a contract by a relevant statute. However these terms may
be negatived or varied by express agreement.
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Construction of Terms
Interpreting the meaning of terms
General approach
George v Cluning
Amalgamated Television Services Pty Ltd v Television Corporation Ltd
Hume v Rundell
Lloyd v Lloyd
The court does its best to give effect to the parties’ bargain.
Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd
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Admissible evidence
When a contract is reduced into writing, and the contract appears in the writing to be
entire, it is presumed that the writing contains all the terms of it and evidence will not
be admitted of any previous or contemporaneous agreement, which would have the
effect of adding to or varying the contract in any way.
(The rule applies to two aspects: 1. the content of the contract and 2. the interpretation
of contracts…Here the rule applies to interpretation).
Gordon v McGregor
Allen v Carbone
b) Factual matrix
When determining the parties intentions, the court may take into account not only the
words recorded in the document but also the evidence of the surrounding
circumstances
Allen v Carbone
DTR Nominees Pty Ltd v Mona Homes Pty Ltd
• Ambiguity
Cases of obvious or underlying ambiguity. It may not always be safe to assume that
the words of a document will simply carry their plain or ordinary meaning.
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White v Australian & New Zealand Theatres Ltd
Hope v RCA Photophone of Australia Pty Ltd
Extrinsic evidence is admissible to resolve ambiguity about the subject matter of the
contract.
Edwards v Edwards
GR Securities Pty Ltd v Baulkham Hills Private Hospital
Gilberto v Kenny
• Custom or Usage
Where the language used has a particular meaning (eg. By custom or usage in a
particular trade, industry or region), evidence of that meaning is admissible, even if
there is no patent ambiguity.
Summers v Commonwealth
Thornley v Tilley
• Rectification
Extrinsic evidence may be admitted to show that a parties’ intention was not
accurately recorded in the written instrument. In the appropriate circumstances the
document may be rectified so that it accords with the parties’ actual agreement.
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Inadmissible Evidence
a) Subjective intention
b) Prior negotiations
The negotiations that preceded the agreement are not permitted as it is only the final
document that properly reflects a consensus between the parties.
Prenn v Simonds
Cf. Codelfa Construction Pty Ltd v State Rail Authority of NSW per Mason J.
c) Subsequent conduct
Anything that the parties’ say or do after the contract can not be used in order to aid
in the construction of the contract
A promissory term is one pursuant to which a party makes a promise to another party
regarding events that will or will not occur in accordance with the agreement. If the
party fails to carry out the promise, that party will have breached the term. The effect
of the breach depends upon whether the term is classified as a condition, a warranty,
or an intermediate term. Determination of the appropriate term is an objective test of
the parties intention, taking into account their words and conduct.
Bowes v Chaleyer
Associated Newspapers Ltd v Bancks
a) Conditions
A condition is a term that is essential to the performance of the contract. The promise
is of such importance to the promisee that he would not have entered into the contract
without assurance of the performance of the promise, and this ought to have been
apparent to the promisor.
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Any breach of this type of term will allow the innocent party to terminate further
performance of the contract and to claim damages for the breach.
b) Warranties
A warranty is a term that is subsidiary to the main purpose of the contract, a breach of
which only entitles the innocent party to damages.
Bettini v Gye
Ellul v Oakes
An agreement with reference to goods which are the subject of a contract of sale
but collateral to the main purpose of such contract, the breach of which gives rise
to a claim for damages but not the right to reject the goods and treat the contract
as repudiated.
It has also been suggested that this test might also apply at common law.
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Associated Newspapers Ltd v Bancks
An intermediate term is once that stands between a condition and a warranty and
cannot be satisfactorily classified as either.
The remedy for the breach of an intermediate term varies according to the severity of
the breach.
If the breach deprives the innocent party of substantially the whole of the benefit of
the contract, then the innocent party will be entitled to terminate the contract.
If the effect of the breach is not significantly serious, the innocent party will only be
able to claim damages
The court must first ascertain the intentions of the parties in order to categorise the
term. If the court decides it is an intermediate term it then determines the gravity of
the breach
In order to determine the seriousness of the breach a number of matters may be taken
into account:
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The decision in Hong Kong Fir Shipping case also applies to a contract for sale of
goods.
Contingencies
Since a contingency clause may be able to be construed as either a condition
precedent or a condition subsequent the essential question is what effect does the
contingency have on the contract.
Condition precedent
A condition precedent is a condition that will prevent a contract from coming into
existence until such time as the condition is fulfilled.
Condition subsequent
A condition subsequent is a condition within a contract that has taken effect. However
the performance of the contract is prevented until the condition is fulfilled.
Meehan v Jones
Meehan v Jones
A party may waive a condition subsequent that is solely for their own benefit
Meehan v Jones
If the clause is for the benefit of both parties, either may be able to terminate. Such a
clause may only be waived with the consent of both parties.
Raysun v Taylor
Where a clause provides for the a contract to be rendered void on the occurrence or
non-occurrence of an event, and the event is out the control of both parties, the
contract may be automatically ended if the event occurs.
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Carpentaria Investments Pty Ltd v Airs
Exemption clauses
There are three main types of exemption clauses:
Eg. Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty Ltd
The court must apply the same rules of interpretation regardless of the kind of
exclusion.
• Whether, on the true construction of the clause it covers the liability that has
arisen.
There are also a number of specific rules of construction that help to interpret an
exemption clause.
Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty Ltd
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An exemption clause will be construed according to which parties benefit the clause
was inserted for in case of ambiguity.
Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty Ltd
Darlington Futures Ltd v Delco Australia Pty Ltd
A clause will relieve a party of liability for negligence of their own or the servants or
agents, if it expressly or impliedly covers such liability. A term will cover such
liability if there can be no ground of liability other than negligence to which it could
refer.
Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty Ltd
ii) Where the “only” possible cause of action against the defendant is
an action for damages based on negligence, then the court will interpret a
“wide” clause to cover the defendant’s liability for negligence.
iii) If the words used in the clause are wide enough to cover negligence, but there
is some other ground of liability other than negligence, the clause will be read
as applying only to that other ground of liability and will not operate to
exclude the claim for negligence.
For the first rule to apply it there would have to be the use of the word negligence or a
close synonym.
A person can only rely on the conditions of a contract, that were intended to protect
them, if they have carried out the contract in the way that they had contracted to do.
Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty Ltd
Council of the city of Sydney v West
Davis v Pierce Parking Station Pty Ltd
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In Queensland the court has no power to disallow an exemption clause on the basis
that it is unreasonable.
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