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Offer
For an agreement to be formed, there needs to be an identifiable offer made by one party,
and an acceptance of that offer by the other party.
An offer is an expression of willingness to enter into a contract on certain terms. It is an
unequivocal declaration that the Offeror will be bound immediately upon the Offerees
acceptance.
To determine whether an offer has been made, two elements must be satisfied:
1. Outward intent this means the intent of the Offeror to make an offer.
However, intent is measured objectively, which means the outward
2. Finality that the offer is final and requires no further communication bar
acceptance. In other words, that the acceptance of the offer would initiate an
immediate binding agreement.
Thus, the crucial issue in determining an offer is whether it would appear to a reasonable
person in the position of the Offeree that an offer was made, and that his acceptance of the
offer would entail a binding agreement.
Unilateral Contracts
Usually, a unilateral contract is a contract where there is a promise in return for an act,
whereas a bilateral contract is one where there is a promise in return for another promise.
A unilateral is one in which the Offeree accepts the offer by performing his or her side of the
bargain. By performing a specific act, the Offeree:
This means that by the time of the formation of the contract, one party has already fulfilled
all its obligations under the contract, and only the other party is now is under further
contract obligations. That is why it is called a unilateral contract.
B finds and returns the ipod, thus accepting the contract and fulfilling his
obligation simultaneously
Both A and B now have obligations to fulfil (transfer the property, pay the agreed
price)
The nature of unilateral contracts is discussed further in Carlil v Carbolic Smoke Ball
Co and Australian Woollen Mills Pty Ltd v Commonwealth. The AWM case illustrates the holy
trinity of offer and acceptance, consideration, and intention to create legal relations.
Shop Sales
Items displayed for sale in shops are regarded as invitations to treat, not offers.
This issue was discussed in Pharmaceutical Society of Great Britain v Boots Cash Chemists
Ltd', in which the plaintiff claimed that the display of items for sale should be viewed as an
offer, which is then accepted when the Offeree takes them off the shelf.
Since customers are allowed to return items to the shelf, the mere display
cannot constitute an offer.
Rather, when the customer presents the item to the cashier, he makes an offer
which is then accepted when the cashier charges him money.
Ticket Cases
Ticket cases are examples of the need to ascertain when and where the contact has been
formed, for purposes of jurisdiction or whether written conditions are a part of the contract.
The problem with usual transport tickets is that the written conditions are viewed by the other
party only after he has bought the ticket. This defies the usual offer and acceptance rules:
since the immediate assumption is that the contract is made when the ticket is bought,
doesnt this entail that the conditions are not a part of the contract?
The view held after MacRobertson Miller Airline Services v Commissioner of State Taxation
(WA) is that the ticket only represents an offer made to the passenger, which he accepts by
presenting himself for travel. No contract is formed by the purchase of the ticket alone.
For example, A promises to pay B $100 to not eat for a whole day.
This seems unfair, as B already supplied partial consideration. The general rule is that an
offer cannot be revoked if the act made in exchange for it has been partly performed.
There is an implied condition in the agreement that the offer will not be withdrawn
once the Offeree begins to perform.
However, this general rule was not followed in Mobil Oil Australia Ltd v Wellcome International
Pty Ltd, in which it was established that an An offer made in return for performance of an act
is, like any other offer, revocable at any time.
Such an offer can only be secured against revocation when there is an implied
contract not to revoke, or an estoppel.
Revocation of offer also discussed in Goldsborough Mort & Co v Quinn where the
offer can be retracted if gratuitous but contractually bound because of
consideration
Acceptance
Acceptance is an unqualified assent to an offer.
There is a debate whether acceptance is dependent upon actual consensus between the
parties (a meeting of the minds or ad idem). In other words, if the Offeree accepted the
offer, but did not understand the terms of the offer, has he really accepted the offer and
entered the agreement?
With unilateral contracts, it is possible that a person would perform the act necessary to
accept the contract without actually being aware of an offer or contract.
For example, a person returning a lost dog without knowing there is a reward for
it.
The courts have decided in Crown v Clarke that the performance of a requested act will not
form a unilateral contract when it is clear that the Offeree was not performing the act on the
faith of the offer.
The court held that the Subjective approach should govern unilateral contracts in
which the communication of acceptance is dispensed with.
In these cases, the evidence of subjective intention should be taken into account.
Methods of acceptance
The Offeror is allowed to prescribe exclusive methods of communication of acceptance. If he
does so, acceptance can only be communicated via those methods. Similarly, the Offeror may
dispense with the communication, as is impliedly done in unilateral contracts.
Silence as acceptance
An Offeror cannot stipulate silence as a method of communication of acceptance. Similarly,
silence cannot constitute acceptance. This was decided in Felthouse v Bindley.
When the Offeree takes the benefit of services which he knows are in accordance
to the offer, and had a reasonable time to reject the offer, it signals acceptance.
In Brambles Holdings v Bathurst City Council, it was held that there was no rejection in the
terms of negotiation of the contract, and therefore the contract cannot be revived if the offer
was rejected, constituting no acceptance.
Communication of Acceptance
The general rule
Acceptance has effect when it is received by the Offeror. This was established in Latec
Finance Pty Ltd v Knight:
However, the Offeror may expressly or impliedly dispense with the need for actual
communication of acceptance. This can be done in two ways:
However, there have been judgments indicating that the postal rule only applies
when the Offeror intended that the offer could effectively be accepted by the act
of posting a letter of acceptance (Tallerman & Co Ltd v Nathans Merchandise (Vic)
Pty Ltd)
It should be noted that the courts havent yet addressed the question of communication over
the internet (interactive websites/email). However, it follows from other instant
communications that the postal rule will not apply, and formation will take place when and
where it is received by the Offeror.
Regardless, in Australia, the Electronic Transactions Acts have been enacted to govern such
cases. The acts distinguish between:
Information systems which are not expressly designated for such purposes.
Conflict approach:
Either by who had the last shot (the last say), or the party who is most
persistent in insisting that their own set of terms should prevail.
Synthesized approach:
Make up a contract from consistent terms, along with terms from one set that
appeared to be accepted by the other party.
Any gaps in the synthesized contract could be filled with terms implied by the
court.
Consideration
The court examines consideration in order to decide which promises should be enforced.
The consideration requirement entails that something must be given in return for a promise
in order to make it binding. Namely, a person seeking to enforce a promise must show that
he has given consideration for that promise.
If B wants to enforce that promise, he must have shown that he has given
consideration for that promise, for example, $200.
Benefit/Detriment
Valuable consideration must constitute of a detriment to the Promisee or a benefit to the
Promisor. This was discussed in Currie v Misa
In most cases, consideration works both ways both a benefit to the Promisor and
detriment to the Promisee.
Bargain
The Benefit/Detriment must be given specifically in return for the promise or as
the agreed price for the promise. This is called the relationship of quid pro quo (this for
that), which means there needs to be an exchange. This requirement was discussed
in Australian Woollen Mills Pty Ltd v Commonwealth:
AWM bought wool and then said that was the consideration to enforce the
Commonwealths promise to pay subsidies.
Therefore, the act of buying wool was not in return for a request or promise, and
therefore failed the bargain requirement and therefore could constitute
consideration.
This is to be distinguished for giving something in return for an act, which would
constitute a contract.
Adequacy of Consideration
Adequacy of consideration refers to its intrinsic value. However, generally, the courts do not
inquire into the adequacy of consideration. Thus a nominal consideration will be adequate
consideration, as discussed in Woolworths v Kelly.
Sufficiency of Consideration
Consideration must be sufficient, but not necessarily adequate. This means it must be
something of value. However, consideration doesnt need to be proportionate value to the
promise. This is because:
The courts cant ascertain the value each person places on each
consideration/promise.
Rather, the courts only ensure that a bargain has been made. This means
that nominal consideration (i.e., $1 for a house) is legal, which means parties can avoid real
consideration.
Sometimes, courts take into account inadequate consideration when reviewing whether a
party has acted unfairly.
Discretion as to performance
If a party is not specifically bound to perform, or retains an unfettered discretion as to
performance, it will not constitute consideration and will be counted as illusory
consideration.
In other words, if the one party has the option to choose the extent to which he carries out
the promise, it is not consideration and there is no contract. This was established in Placer
Development Ltd v Commonwealth.
Past consideration
Past consideration is not sufficient. If something was given before the promise, it is therefore
not a part of the promise (not in return for) and is not consideration.
After the transaction, Roscorla promises that the horse will be well behaved.
Thomas cannot sue Roscorla for breach of contract, because the promise that the
horse is well behaved had no consideration (was made after the contract), and
therefore there was no a contract.
Executed Consideration
This is a promise to pay for a service after the service has been performed
Example: a promise to pay $50 for whoever finds a dog. When the dog is found
and returned, that is executed consideration, and now the promise to pay is
executory.
The request to find the dog gave rise to a unilateral contract, where the Promisee
returns the dog in return for $50.
Obviously, he can only receive his benefit after he performs the service; therefore
it is an executed consideration.
Example: A undertakes to paint a house for B, for $1000. After the contract has
been made, A wants additional benefit (more money, $5000) to finish the
performance. B agrees. Despite the fact that B agreed, B is not obliged to give
that extra benefit, as A did not undertake to do anything it did not already have an
existing legal duty to do.
We label A the Beneficiary as it simply benefits from the new promise and
does not undertake any extra obligations it was not already bound to perform.
We label B the Modifying Party as it has to modify its own consideration and
incur further detriment.
The Beneficiarys promise to perform the already undertaken obligation does not
constitute consideration, and therefore the second contract does not exist.
This was decided in cases such as Wigan v Edwards and Stilk v Myrick, and extends to public
duties (e.g. giving evidence after being subpoenaed).
The Exiting Legal Duty Rule is often criticised because it doesnt accommodate for common
business situations.
3. Where the promise to perform the existing duty is made to a third party.
This means that the Promisor has a legal right not to consider themselves
bound to perform their consideration, and that this claim was honestly
made Wigan v Edwards
Intention
The intention requirement indicates that the parties must manifest an intention to create legal
relations. (legal relations = be legally bound). This is determined objectively.
Presumptions
Commercial Context
Agreements made in a commercial context or of a commercial nature are automatically
presumed to be made with legal intention.
The burden falls on the person denying enforceability to disprove the intention.
Exceptions:
Non-Commercial Context
On the other hand, agreements made in other (non-commercial) contexts are
presumed not to be made with legal intention.
The burden falls on the person seeking enforceability to prove the intention.
It should be noted that in Ermogenous v Greek Orthodox Community of SA Inc, the court
decided that there should not be a general rule or presumption. Rather, each case must be
decided on its own facts.
Facts: husband promised his wife to pay her 30 per month while they were
separated due to her health conditions. Further on, they agreed to remain apart
and the husband subsequently stopped paying.
Held: the agreement was not intended to be enforceable, it was not intended to be
a contract.
Exceptions
An exception to this rule of thumb is an agreement between spouses who are separating or
are about to separate, in which case the courts have been willing to find legal intention. Part
VIII(A) Family Law Act 1975 (Cth) deals with financial agreements after separation.
Agreements are legally binding if:
1. The parties express that the agreement is made under this section.
2. The agreement is signed by both parties.
3. The agreement includes a certificate that both parties received independent
legal advice.
Another exception is made in cases involving a promise with relation to housing. This was
demonstrated in Todd v Nichol:
Facts: Nichol invited overseas family members to come live with her, promised them her
house would be theirs until they died. The Relationship broke down, Todd sought to enforce
the contract.
This suggests that if there are serious consequences for the party taking invitation, then
the agreement could be viewed as being made with intent to be legally binding. Lastly, even if
a party cant seek remedy via contract law, he can try an Estoppel.
Government Agreements
The Commonwealth sought no statutory authority for the making of the payments.
The scheme was invoked by persons without the authority to obligate the Crown
into any expenditure.
The scheme expressly provided that the Commonwealth could vary the subsidy.
Held: the Administration didnt enter into a contract, but was providing gratuitous
assistance the execution of its policy to exterminate ticks is a social service.
Preliminary Agreements
Parties who have negotiated the major terms of an agreement may write up a preliminary
agreement, with the intention of writing a formal agreement at a later date. If one of the
parties wants to withdraw before the formulation of the formal contract, it will be necessary to
determine whether the parties intended to be bound by the preliminary agreement, or if they
wanted to defer legal commitment until it was formalised.
As was discussed by the High Court in Masters v Cameron, there are three different categories
for cases involving preliminary agreements.
1. Parties have finalised everything and want to reiterate the terms in a clearer
way, but to the same effect.
In Masters v Cameron the court held that the effect of a preliminary agreement depends on
the intention displayed by the language of the parties. The case fits into the third category.
The purchaser ran into financial difficulties and backed out of the deal.
The vendor sought to enforce the agreement outlined in the preliminary document
(memorandum).
However, the memorandum stated the formal contract was to be written in a way
acceptable to the vendor's solicitors, suggesting that it was thought to be subject
to the preparation of a formal contract.
It was held that the language of the parties in the preliminary agreement could
not give rise to legally binding relations; the purchaser was free to withdraw from
the transaction prior to its formalisation.
A Fourth Category
A fourth category has been suggested: parties agree to be immediately bound on the
preliminary terms, although those terms are expected to be modified by a future formal
contract.
Certainty
An offer will only be effective if it spells out the terms of the contracts with sufficient certainty.
This doesnt mean that every detail needs to be identified so clearly that there is only one
possible interpretation. The contract simply needs to be sufficiently certain certain to a
degree.
When interpreting contracts, the courts attempt to give effect to the clauses rather than
interpret them in such a way that will declare them void.
Difficulties with certainty resolutions:
Judges are reluctant to write contracts (or fill in gaps). However, they are more inclined to do
so today than in the past.
Things to consider:
Subject matter
3 aspects to certainty:
1. The contract must be sufficiently completethe parties must at least reach
agreement on all terms that they intended to fix by agreement, rather than
have someone else set for them, and also on all matters the court cannot
simply resolve by implication.
2. The agreed terms must be sufficiently certain and clear that the parties can
understand their rights and obligations and the courts can enforce them.
3. Promises must not be illusory a promise is illusory if it is an unfettered
discretion as to performance of a promise.
This means that if a party has a choice whether or not to perform a promise.
Questions of incompleteness, uncertainty and illusory depend on whether they
are integral to the contract.
If the problematic part can be severed, remaining part will remain binding
If the problematic part confers a benefit to one party, that party can waive it and
enforce the rest.
Completeness
No contract is made unless all the essential terms have been agreed upon. Factors that must
be taken into account are:
1. How important is the term?
Essential Terms
An essential term, for the purpose of this area of contract law, is a term without which the
contract cannot be enforced and without which the parties would not have not intended to
enter the contract.
For example, commencement date and rental price are essential to lease
agreements
In transfer of land agreements, subject matter and price are essential, and
most other details can be filled in by the courts.
In Trollope & Colls Ltd v Atomic Power Constructions Ltd, Megaw J said the parties
must agree upon terms which are essential in order to make the contract
commercially workable.
Australia and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd.
The more complex the case is, the less likely the courts will fill in implied gaps.
Agreements to Agree
Usually, it makes no difference whether the agreement is silent on an essential term, or
provides that the essential term will be agreed upon in the future. In both cases the
agreement is incomplete.
The second type is an Agreement to Agree, which is important in a case where a court
might otherwise have implied a term. The court will only imply a term (namely, the obligation
to pay a reasonable price) in cases of a contract is silent in relation to an agreed term. This
rule will not apply to an agreement to agree.
May and Butcher Ltd v The King, the court established that when parties have
agreed to defer price negotiations, this indicates that they want to set the price
themselves, and the court imposing a reasonable price would be inconsistent with
their intentions.
Objective mechanism
Agreements to agree will also be valid if the parties provide an effective mechanism for
determining the term if they fail to reach an agreement. The court recognises mechanism for
the expediency of commerce.
However, if this mechanism fails, the agreement will be void George v Roach:
Court held that the courts determining the price would be inconsistent with the
intention of the parties
Agreement void
Certainty
A term may be too vague' or imprecise so that the courts cannot attribute a meaning to
it. The courts cannot enforce an agreement if they are unable to discern the obligation with
sufficient certainty. Once again, the courts are less inclined to deem a contract incomplete if it
has been wholly or partly performed.
In Council of the Upper Hunter County District v Australian Chilling and Freezing,
courts will try to find certainty. Here, they provided an arbitrator to resolve
disputes, the objective mechanism.
Reasonableness
Standard of reasonableness can sometimes be applied in cases where there is no
completeness or certainty. However, the standard of reasonableness cannot extend to all
circumstances.
Biotechnology Australia v Pace terms were too uncertain, there was no scheme
in existence uncertain, illusory?
Hall v Busst - standard of reasonableness does not extend to land, protects the
vendor, price adjustment was unenforceable
Agreements to Negotiate
In England, agreements to negotiate or agreements to negotiate in good faith cannot be
binding they lack the certainty which is required to form an enforceable obligation.
The refusal to recognize an agreement in good faith has been criticised, as the law should
respect those intentions.
United Group Rail Services Ltd v Rail Corporation NSW nominated mediator from
a non-existent organisation, must negotiate in good faith
Illusory Promises
A promise will be illusory if the Promisor has an unfettered discretion in relation to
performance.
The Promisor has a free choice how much (if it all) to perform.
A promise which contains an exemption clause which effectively deprives the promise of
any force is also illusory.
MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) clause which allows Plaintiff to cancel flights without incurring liability entails that
the airline practically has no obligation.
If only illusory promises were made in return for another promise, the contract
will collapse for want of consideration
Exemptions
Contracts will not be considered illusory if:
Godecke v Kirwan accepted that a contract can leave even essential terms to
be determined by a third party.
Severance
If the court can infer an intention that the agreement should be valid in the absence of the an
uncertain, incomplete, or illusory provision, than that provision can be severed and the
remaining agreement will still be enforceable.
Whitlock v Brew - an example of how the problematic clause could not be severed
the parties had no intention of agreeing upon a sale which would entitle the
purchaser to a vacant possession without having to grant any lease to the Shell
Co.
Privity
The doctrine of privity of contract states that only a person who is a party to a contract can
enforce the contract (gain a benefit) or incur obligations (burdens) under it. Thus, a plaintiff
must be a Promisee and a party to the contract.
Benefits
Privity is in place to prevent third parties from enforcing contractual promises that benefit
them. Applied in:
Coulls v Bagots Executor and Trustee Co Ltd - The court ruled against the ability
of a third party to enforce a contract.
Also ruled that simply signing a contract doesnt make you a party.
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd - The court allows
exception in insurance cases third parties can enforce contracts.
Burdens
Privity also prevents contracts from imposing legal burdens upon third parties.
The exception to this is a restrictive covenants regarding land namely, contracts which bind
future owners of the land.
One of the parties to the contract acts as an agent for a non-involved party
One of the parties to the contract transfers contractual benefits for the noninvolved party by way of an assignment or novation of the contract
In these scenarios, the non-involved party is considered a party to the contract and the privity
rule does not apply.
Agency
An agent is a person who has power to enter into a contract on behalf of another person
If the non-involved party can prove that one of the parties to the contract acted as its agent,
it will be considered a party to the contract as well. To prove an agency relationship:
The agent needs to prove that, with respect to this particular scenario, it was
acting on behalf of the Principal as well (namely, that the agent relationship
applied to this particular case).
2. Bill of lading states that the carrier was acting as an agent for the stevedore.
3. Carrier had authority to enter contract as agent of the stevedore/ stevedore
ratified.
4. Stevedore provided consideration.
This test was discussed in Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty
Ltd (The New York Star)
Assignment
A party assigns its rights a under a contract to another party. The original party to the
contract now cannot enforce those rights.
Novation
A party assigns both its rights and obligations to another party. This is effectively the
termination of the original agreement and formation of that exact agreement with the new
party.
Trust
A contractual right is a form of property, which can be held on trust for a beneficiary.
The court may discern an intention on the part of the Promisee to hold on trust for the
beneficiary the contractual right to enforce a promise. This creates an obligation on behalf of
the Promisee to enforce the contractual right.
In practice, the beneficiary can then sue the Promisor if the Promisee joins as codefendant.
Trust should be inferred if it clearly appears that the Promisee intended the third
party to insist on the performance of the promise; and
This uncertainty has invited criticism as to whether trust is an adequate tool to circumvent
the privity rule.
Estoppel
Equitable Estoppel
Equitable Estoppel will prevent injustice arising from the application of the privity rule when a
beneficiary relies (to its detriment) to an expected entitlement from the contract.
This doctrine also entails that it is possible for a non-involved party to incur a burden
(contractual obligation) under a contract.
Estoppel by convention
Operates where parties adopted a particular set of affairs as the basis of their relations. The
beneficiary needs to show that all parties shared an assumption that the beneficiary will gain
benefits under the contract, and that it relied on this assumption to its detriment.
Tort
Sometimes a beneficiary can enforce an obligation imposed on the Promisor by the law of
tort. This is possible when all of the following conditions are satisfied:
High Court accepted that a Promisor may owe a duty of care to a non-involved
party.
In the breach of that duty of care, the non-involved party can sue for damages
under tort.
Court ordered damages for the third party under statutory law.
the misleading conduct is found in the making of a contractual provision, and the
complainant does not have contractual privity with the defendant
The statutory rights to damages sometimes overlap with equitable estoppel in the case of
future conducts.
Damages
Contract damages are in place to compensate the damages suffered by the Promisee. So
when the beneficiary is the one suffering the damages, and not the Promisee, the Promisee
will only receive nominal damages.
The Promisee will be able to obtain full or substantial compensation only when he
holds the relevant contractual rights on trust for the beneficiary.
Specific performance
Specific performance is the best remedy available for a beneficiary because it ensures he
obtains the promised benefit. However, specific performance is only available when:
1. Privity rule thwarts intentions of the parties. Third parties cant sue even if
parties manifested intention to allow this. Privity is a constraint on freedom of
contract.
2. Privity rule causes injustice to the third party.
3. Third party who suffered damages not allowed to sue, whilst Promisee who
suffered no damages is this is unfair. Remedies available to the Promisee
suing for a third party are limited and unjust.
4. Even when adequate compensation is possible, this depends on the will and
ability of the Promisee to sue.
5. The ways to circumvent privity demonstrate that it is unjust. None of them
really resolve the injustice though.
6. Those exceptions make the law uncertain and complex
7. Privity doctrine has been abolished by civil-law systems and increasingly
modified and eroded in many common-law jurisdictions too.
8. The inconvenience of this rule has been long recognised.
9. Creates difficulty in many particular commercial situations.
However, this can be easily solved by requiring joinder of all parties i first
action or creating a law against double recovery.
Promisee usually enjoys ability to modify the agreement etc. This would be
jeopardised by the abolition of the privity doctrine.
Theoretical Considerations
According to Kincaid, there are theoretical arguments against the abolition of the privity
doctrine:
The third party has not participated in this bargain and has not given
consideration
Contract law should balance private interests of the parties, not public interests.
Giving intention to parties intention does not in itself justify the imposition of an
obligation
If reliance is the justification, then remedies lie outside contract law anyways
(estoppel)
The privity doctrine has been modified by statutes in some places. Burrows pointed out five
issues which need to be resolved:
Variation and rescission - to what extent should the Promisee still be able to
vary rescind or terminate the contract?
Promisees right to sue - should the Promisee retain the right to sue, as well as
the beneficiary?
Preservation of the third partys other rights - should the other remedies
available to the beneficiary, namely, estoppel or trust, still be available?
Property
Introduction to Property
Property:
The distinction between ownership in a physical sense (I am holding a pen)
2.
3.
Right to alienate.
1.
2.
Licenses are contracts which allow a person to use another's land without
committing trespass. Licenses confer personal rights and not
proprietary rights (which are necessary to sue in others trespass).
The main dichotomy is between property as a physical thing to which various legal
rights are attached, and the legal interest pertaining to a physical object. The latter
is the current preferred view in legal academia.
The legal meaning of property has three aspects, which is known as the bundle of
rights. None of them are pre-requisites and all of them can be subject to qualifications:
1. The right to use or enjoy.
2. The right to exclude others.
3. The right to alienate.
Right to Use
This is very fundamental, but can be subject to restrictions such as:
Zoning laws and building regulations restricting the use of a fee simple.
Easements
Right to Exclude
In basic terms, the right to prohibit others from using something.
It applies even though a trespass does not interfere with the owners
enjoyment of his property
An exception to this rule is when planes fly over property (at a high enough
height).
Right to Alienate
In basic terms, the right to sell, gift or otherwise assign proprietary rights (selling ones
right, not the thing itself).
The extent of ones right to alienate depends on the nature of ones interest:
Fee simple - biggest interest in land, can sell the rights completely.
Leasehold - a leaseholder can only sell the rights that he has (ie, he can
only sublet).
Life tenant (family & personal trusts: A gives property to B as life tenant;
when B dies, their interest in property extinguishes; passes to C
Licences
3 types of licences:
Bare licence not associated with a contractual relationship, can be revoked at will
damages
Not entitled to a remedy of injunction, which is a critical remedy
However, equity may treat a contractual licence as irrevocable and determine the rights of
the parties accordingly:
Borough Council
NSW Rifle Association Inc v Commonwealth contractual licence in the form of a deed,
relocation notice, breached obligation of taking care of buildings revocation?,
granted injunction
A license is really a contract - ie, buying a movie ticket means you enter a
contract, and receive a license to watch the movie and not be trespassing.
As mentioned, property rights are enforceable against the whole world whilst licenses are
contractual rights that are enforceable against specific persons. However, property rights
can often arise from such personal (contractual) rights.
Thus, the licensee has some limited property right in the contract.
However, this does not confer a full proprietary interest: the correct measure
is whether the proprietary interest is independently enforceable against third
parties.
A proprietary interest could have been created through clear wording in the
contract as a lease shows importance of construing the document.
However, the remedy is based on that interest, not the contractual right.
In other words, a license only grants a right in personam which means a
licensee can only sue the person who gave him that right if his right is
breached. He cannot sue the rest of the world for trespassing etc, (he would
need to have a lease, or a right in rem to do that). If one wishes to exclude
others, he needs to do it on the basis of an interest.
Notice that things like licenses do not fall within this ambit (no proprietary
rights).
In Victoria Park Racing and Recreation Grounds Co Ltd v Taylor, courts held that a
spectacle (horse race) cannot be claimed as property. Defendant would not have
caused nuisance to affect the enjoyment of land and therefore did not interfere with
property right.
In ABC v Lenah Game Meats Pty Ltd, the plaintiff was not entitled to an injunction. An
award of an injunction is not at large but can only be awarded in support of a
recognised legal, equitable or statutory right. While the plaintiff would be entitled to
obtain an injunction the trespasser, it had no such right exercisable against the ABC
which was not a trespasser and had not committed any other legal or equitable wrong.
In Grosse v Purvis, the defendant was liable in tort for the invasion of privacy.
Dorman v Rogers right to practise is a property right and work capacity value is a
Classification of property
Traditional Classification and terminology
The basic and traditional distinction in property is as follows:
Real Property: Land. Divided into two sub-categories:
Chattels real - a hybrid between personal and real property. For example,
leaseholds (right in property, but not complete ownership).
Chattels personal - all other chattels. These can also be divided into:
The legal ramifications of the distinction between real and personal property are:
Real property:
Personal property:
The distinction shows how the law considers ownership over land as different to ownership of
other things (because land is immovable).
The above distinction between real and personal (land and chattel) are, as always, not fixed.
Often, the distinction between land and chattel is very difficult to distinguish. Thus, courts
tend to rely on policy arguments to make the distinction.
Doctrine of fixtures
The doctrine of fixtures provides that personal property may become real property if it is
annexed (attached) to land.
This means that the doctrine resolves disputes contesting title, in the
absence of an agreement.
It applies especially to tax and stamp duty law where ownership can determine
liability for stamp duty and tax payments.
2. Intention: after the presumption has been raised, the party seeking to refute it
has the onus of proving that the intention (of the party which affixed/didn't
affix the object) was that the object be a fixture/chattel despite being
unattached/attached respectively.
1.
2.
3.
(c) the mode of annexation (how well attached was it); and
4.
Facts:
A gas engine was let out on a hire and purchase system. The agreement in
writing provided that the engine will not become the hirers property until the
payment of all instalments.
The hirer went into liquidation and defaulted on his instalments. He also
defaulted on his payment to his mortgagee, who came in and repossessed the
hirer's land, including the affixed engine (claiming it was a fixture).
The Plaintiff [Hobson] tried to get his engine back, since the agreement
specifies that it did not become the hirer's property, and therefore the mortgagee
[the Defendant, Gorringe], cannot repossess it as a fixture.
Held:
The hire-purchase agreement was an incidental agreement made without the
knowledge of the mortgagee. It is unfair for a third party (such as the Defendant)
with an interest in the land, and therefore does not bind a third party.
Since the engine was sufficiently annexed to the land to become a fixture, it is
therefore a fixture which can be repossessed by the Defendant.
In RT, two printing presses attached by bolts to the building were held not to
be fixtures, as the purpose of the bolts was merely for efficient operation of the
press.
2. Reid v Smith
In Reid, a lessee built a house that rested on its own weight on brick piers.
Upon termination of the lease, the landlord sought to restrain the lessee from
removing the house as he claimed it had become a fixture. The house was held to
be a fixture. Even though it was intended to be a temporary dwelling, the building
was held to be intended to be part of the freehold. However, Griffith CJ clearly
pointed out this was not to become a general rule. An unattached house was not
necessarily a fixture; in most other circumstances, a temporary dwelling might
remain a chattel.
Facts: A practice had developed in mining areas, that lessees would build and
inhabit houses on land. The houses would become their own property, while the
land remained the property of the original owner. In this case, May acquired a
mining house, and formed an arrangement with Ceedive to pay a weekly rent for
the land. Ceedive increased the rent, and May refused to pay.
Held: The house was a fixture on the land as per the objective standard of the law,
notwithstanding subjective intentions of the parties to the contrary.
Upon looking at all the surrounding circumstances, the presumption that the
house is a fixture has not been rebutted.
The agreement evincing an intention for the house to remain a chattel was
between the parties, and not the builder who affixed the house. The intention
which matters is not the parties', but the one who originally affixed the house.
The fact that the house would have to be demolished to be removed strongly
indicates that it is a fixture (chattels are movable!)
The purpose for which the house was built was a residential dwelling house
and it was affixed with the intention that it remain in position permanently.
Facts: Ms Taylor was a life tenant. She affixed expensive tapestries to the wall.
After her death, the remainderman claimed the tapestries were a fixture, as they
were affixed to the wall with wood, nails and screws.
Held: The tapestries were fixed for the purpose of ornament in the only way
possible for their use and enjoyment. They could also be removed fairly easily,
without causing damage to the house. Thus, they did not become a fixture the
property of the remainderman, but were removable by the executor of the tenant
for life.
This case highlights the underlying rationale for the doctrine of fixtures: originally,
it was to prevent people from removing chattels from freehold that would
physically destroy part of the freehold. These days, it is possible to remove
chattels without destroying the actual realty. Thus, it makes it difficult to
determine cases that are at the margins of the rule.
It is thus apparent that recent authority strongly favours the objective standards of the law, as
opposed to subjective intentions. At any rate, courts are required to look at all the
surrounding circumstances in deciding whether a particular item is a chattel or a fixture.
Nonetheless, it is unclear where the line is to be drawn despite the statements in Ceedive, it
is apparent that cases are decided on their own facts.
Policy Decisions
The following are policy decisions with regards to what equipment is or isn't a fixture:
Mining equipment has been held to be a chattel due to the temporary nature of
mines and the transportability of the equipment.
Irrigation equipment has been held to be a chattel where damage is would not be
caused upon their irrigation. However, where its removal would cause damage,
irrigation equipment has been held to be a fixture.
Houseboats have been held to be a chattel, again because they can be moved
without damage. However, if moored securely on a permanent basis, a boat can
be a fixture.
Tenants Fixtures
In certain circumstances, affixed chattels can be removed by the affixer, despite the fact they
are fixtures. The most common example is tenants fixtures.
Tenants may install many fixtures on their leased property during their tenancy,
but it would be economically unjust to forbid them from taking it with them at the
end of their tenancy.
Tenants fixtures include shelves and counters and domestic and ornamental
fixtures.
DArcy v Burelli Investments Pty Ltd tenant can claim a right to remain under
colour of right
Today, if the tenant has installed (from his own pocket) any fixtures, he may remove them any
time up to termination of the lease. Upon termination, the situation is less clear.
Tenancy at Will
In cases of tenancy at will and where specified in the lease, the tenant usually has a
reasonable time to remove their fixtures. This right does not apply where the lease is
forfeited or surrendered.
If this lease ends and the tenant remains in possession because of a new lease, he
is still allowed to remove the fixtures.
This was the case in Chateau Douglas Hunter Valley Vineyards Ltd v Chateau
Douglas Hunter Valley Winery and Cellars Ltd, where the owner of one vineyard
planted vines on a neighbouring vineyard without either partys knowledge. The
vines were held to be a fixture on the neighbouring property.
Similarly in Brand v Chris Building Society, the defendant mistakenly built a house
on the plaintiffs land. The plaintiff sought a restraining order to demolish the
house, but the defendant claimed that the plaintiff knew about the mistake at the
beginning of construction, but took no steps to stop it, and undertook to give the
plaintiff the choice to either (a) have the property removed, or (b) keep it for
2145p.
Hudson J entered judgment for the plaintiff, holding that in the absence of
something in the nature of fraud of the plaintiffs part, there was no equitable
principle upon which the defendant could rely to defeat his claim.
Doctrine of accretion
Land may have either artificial or natural boundaries. The doctrine of accretion governs where
the legal boundaries of a property of land will change after a period of being subject to the
natural processes of accretion and erosion.
South Centre of Theosophy Inc v South Australia the test for accretion covers
changes to natural change to boundaries over a period of time, '...accretion may also
occur where the deposits are carried by the wind, if they become settled and extend
the boundary of the land into the water...'
Remedy is damages.
2. Conversion - where the owner of goods is deprived from his right to
possession, or that right is impaired: Penfolds Wines Pty Ltd v Elliott.
The mere fact that one physically possesses chattel gives him sufficient
property rights to sue anyone in conversion except for someone with a superior
title: Jeffries v The Great Western Railway Co.
A finder can still sue in conversion. Although he did not have absolute
possession, he has a better right than all but the true owner: Armory v Delamirie.
Strict liability
This chapter considers personal property (ie, chattel) and the remedies available for a
wrongful interference with personal property. The three main actions for such interference
are:
1. Trespass.
2. Conversion.
3. Detinue.
These actions will be discussed in detail below. In order to understand the explanations and
cases below, it is necessary to understand the following concepts:
The jus tertii defence - a claim is barred if there is a third party with superior
rights.
1.
There is some confusion as to when one can plead jus tertii, because it failed in
all of the cases below.
2.
Maybe this is because of the principle that jus tertii will not aid a
wrongdoer - ie, a trespasser or a person who converts property cannot rely
on jus tertii to bar a claim.
Trespass
Trespass is where there is an interference with the plaintiffs actual possession, such as the
wrongful taking of goods.
Actual possession means that the goods were physically at the possession of the
plaintiff at the time.
Damages.
In some cases, the equitable remedy of specific restitution (return of the chattel
itself).
Self-help is also available (ie, a person is allowed to use reasonable force and
retrieve the chattel itself).
Conversion
Conversion occurs where the owner of goods is deprived from his right to possession, or
that right is impaired.
For examples, a person taking and selling or modifying goods which belong to
another (he is thus depriving him from his right to possess the goods).
Theft is conversion.
The plaintiff has to prove that the defendant was using or "employing
the goods as if they were ones own".
Damages (the market value of goods at the time of conversion plus consequential
losses).
Self-help.
Detinue
Detinue is where a defendant wrongfully retains the goods of the plaintiff following the
plaintiffs lawful demand their return (in other words, withholding one's goods).
Detinue and conversion may often overlap - detinue is simply conversion but
where the owner asked for the chattel back.
Since this is a common law remedy, one does not have to prove that damages
are inadequate to receive delivery up of goods (as is required with the equitable
remedy of specific restitution) - it is a standard remedy.
Damages (assessed at the date of judgment and not the date of refusal to return).
Facts: a yacht which was promised to the plaintiff was not delivered by the
defendant. Meanwhile, the defendant made several improvements to the yacht.
The mere fact that one physically possesses chattel gives him some property
rights.
These rights mean that he can still bring actions against anyone else trying to
dispossess him.
Of course, these rights originating from mere physical possession will yield
against the actual owner of the chattel in law (person with the title).
The law goes further to say that a person who steals goods can still bring
actions against subsequent thieves. A title arising from mere possession
(and even wrongful possession) is good against the whole world, save
someone with a better title.
The Winkfield
Conversion is also discussed in The Winkfield, which deals with whether bailee's are allowed
to bring an action in conversion:
A wrongdoer must treat a bailee as the owner of the goods for all purposes
irrespective of the rights and obligation as between him and the bailor.
The bailees here could recover the full value of the chattel from the wrongdoer as
if they were the owner, even though (a) their personal loss fell short of the of the
full amount recovered, and (b) they were not liable to the bailor for the loss.
This is a big exception to the compensatory rule of tort and contract that the
function of damages is merely to restore the party to the original position.
It also appears that the wrongdoers, after paying the bailee, would still be liable to
an action by the bailor.
This was changed in the UK by statute. There, once either bailor or bailee has
recovered in full from the third party, the other is debarred from suing the third
party.
The rule in Winkfield does not apply where the plaintiff was not in actual possession of goods
at the time of the wrong and there exists a legal arrangement between the plaintiff and
defendant.
Damages in such a case are strictly compensatory. The plaintiff can only recover
the true loss sustained, not the full market value.
The proper question is always whether the plaintiff is being placed in the position
he would have been in had the tort not been committed.
The above was the topic of Butler v The Egg and Pulp Marketing Board:
Facts: Egg pulp was a single-desk marketing board. The Marketing Board got
property in the eggs as soon as they were laid. Instead of handing the eggs over
to the Board to be sold, Butler sold the eggs themselves. In essence, they
converted the property (by selling the eggs) of the Egg Board.
Prior proceeding: At trial, the Egg Board got the market value of the chattels at
the time of conversion. This wasnt satisfactory, as the Egg Board usually only got
nominal profits. This was gross over-compensation to the Egg Board.
Held: The High Court overturned the trial decision, giving the Egg Board the
difference between the retail price and the price they would have to repatriate to
the egg farms.
Others
Another case discussing bailments and conversion is Anderson Group Pty Ltd v Tynan Motors:
Facts: the appellant entered into a hire-purchase agreement with a third party
company to purchase a car. The appellant subsequently left the car with the
respondent to sell, in contravention of the hire-purchase agreement. The car was
stolen from the respondent. The appellant sued.
The respondent disputed the appellants right to sue, as the appellant was in
contravention of the hire-purchase agreement with the third party company. Thus,
they claimed, only the third-party company had immediate right to possession.
The breach in this case of the hire-purchase agreement was not serious
enough to amount to a disclaimer. The appellant had title to sue.
Detinue was and the bailee's title to possession was discussed in City Motors (1933) Pty Ltd v
Southern Aerial Super Service Pty Ltd:
Facts: the seller (defendant; appellant) reached an agreement with the buyer
(plaintiff; respondent), whereby the buyer would get a brand new vehicle in
exchange for trading in his old truck and 1250p under a hire-purchase agreement.
Whilst the hire-purchase agreement was ongoing (installments), the old truck
broke down. The seller retook possession of the new truck from the buyer against
its will. The buyer gave the seller the 1250p owing and demanded possession of
the new vehicle. This was refused. The seller was asked to return the new truck.
Held: The buyer was held to have an exclusive possessory right to the truck, which
could not be terminated except if he defaulted. This title of the buyer could found
an action in detinue against the seller.
Where a bailor reaches an out-of-court settlement with a third-party wrongdoer, the bailee is
precluded from claiming against the third-party wrongdoer. The bailee has to look to the bailor
for satisfaction.
Wilson was a controversial case: in support of the ratio mentioned above, the Court
quotes USA & France v Dollfus where it was held that where the bailor can at any moment
demand return of the object bailed, he still has possession.
However, in the very next sentence, Lord Porter (judge in Dolfus) confines this
statement to cases of 'gratuitous bailment.
The bailment from the plaintiff to Haven Garage was not gratuitous it is called
a bailment for reward.
Armory v Delamirie
The rights of a finder of an object were discussed in Armory v Delamirie:
Facts: the Plaintiff found an expensive jewel and went to the Defendant (a jeweler)
to have it valued. The Defendant (his apprentice actually) took out the stones from
the jewel and refused to give them back.
Held: A finder can still sue in conversion. Although he did not have absolute
possession, he had a better right than all but the true owner.
The Defendant was ordered to give back the stones, or else he has to pay the
price of a stone of the highest value that will fit the jewel.
Possession of Land
To bring a claim for the recovery of land, the plaintiff does not have to prove he has absolute
title, he only needs show that he has a better title than the defendant. This can be done in
various ways:
1. By showing title. This can be done by either:
an adverse possessor. This will happen when the adverse possessor satisfies all
of the following conditions:
The adverse possessor has done the above for the time prescribed
by law without being challenged by the true owner (currently 12
years).
If the plaintiff successfully proves that his title is superior to the defendant's, he is allowed to
recover the land.
In order to understand the principles governing possession of land (and the remedies to those
who are dispossessed) it is necessary to first understand the legal history of this area of the
law.
The Seisin
In medieval times, 'Seisin' meant a freehold title (when one has seisin, he has ownership).
Having seisin allowed an owner to protect his rights to possession - he could bring
'real' actions (whereby the court allows specific performance and not just
damages).
Leaseholders did not have seisin and therefore could not bring real actions.
Ejectment
Ejectment was an action which could be brought by leaseholders against a dispossessor
despite not having seisin. Ironically, the action of ejectment was much more efficient and
speedy in comparison to the complex 'real' actions allowed by the seisin.
Because of this, freeholders (who had seisin) also wanted to use ejectment.
They set up pretend leases just so they can have access to this remedy of
ejectment.
Today, ejectment has been abolished by the Civil Procedure Act 2005 (NSW), s
20. The action for those who have been dispossessed is a claim for possession
of land.
It should be mentioned that a significant aspect of Lord Dennings reasons in McPhail turned
on the Rules of Court RSC O 113 and CCR O 26 (in England). The outcome might well be
different in Australian jurisdictions.
Miscellaneous judgments
The following cases or observations flow on from McPhail:
Macintosh v Lobel:
s 18 of the Imperial Acts Application Act 1969 (NSW) does not
extinguish the CL remedy of self-help in regaining possession of land with the enactment of the Imperial Acts Application Act 1969 (NSW) (specifically,
ss 18-20), forcible entry became a statutory offence. Despite this, the above rule
regarding forcible entry remains - a landlord is entitled to self-help using
reasonable force.
Adverse possession
Adverse possession is where one occupies another's land with the intention of using it as his
own (ie, taking over someone's land). An adverse possessor can obtain full title (also called a
squatters title) over the land if he satisfies all of the following conditions:
1. The adverse possessor must be in possession of land as its owner.
2. The adverse possessor must be exercising peaceably the ordinary rights of
ownership.
Both of these factors must be evidenced by the use of the land (such as
building something or cultivating it).
3. The adverse possessor has done the above for the time prescribed by law
without being challenged by the true owner (currently 12 years, used to be
20).
Adverse possession, and how an adverse possessor may bring an action for the recovery of
possession of land is discussed in Asher v Whitlock:
The concept of adverse possession was also discussed in Doe d Carter v Barnard:
Facts: the titleholder gave possession to his son in 1815. The son occupied the
premises until his death in 1834, upon which time the sons widowed wife
occupied the premises until her ejectment in 1848. The ejector claimed the land
under a mortgage from the titleholder.
Held: since more than 20 years had passed from 1815, the son had adverse
possession. This means that the ejector doesn't have title, but it also means that
the widow can't eject the ejector because she doesn't have title (the title rests
with the son's heir, who was not a party to the proceedings. The widow was only in
adverse possession for 13 years, so title has not moved to her.
Note: This case means that a jus tertii defence exists in relation to land despite the fact that she has possession of the land, the widow was barred from
bringing an action because there is a third party with superior rights (the son's
heir).
However, Doe d Carter v Barnard has been overruled in Australia, by the ruling in Perry v
Clissold:
A jus tertii defence does not apply to land. The existence of a third party with
superior rights has no effects on the ability of a party with only a possessor title to
bring actions against dispossessors.
The debate dealing with the defence of a jus tertii is really a debate of what title is necessary
to bring a claim in ejectment/recovery of land (ie, does the existence of someone with a
better title bar one from bringing a claim). This is debate is discussed in the next section.
Relativity of titles
According to the theory of relativity of titles (advanced by Hargreaves), a plaintiff can bring a
claim for the recovery of land as long as he can prove that he has a superior title to that
of the defendant
The theory of relativity of titles is centred around the question of what sort of title
is required to bring a claim to recover land.
In one side (the wrong one) of the debate, Holdsworth argued that one needs to
show absolute ownership - ie, prove that he is the sole owner of the land
through documentation evincing an unbroken chain of ownership, or through
having been in adverse possession for 20 years (now 12).
Note that this view allows the use of a jus tertii defence - as long as a thirdparty has superior rights to the plaintiff, the plaintiff could not sue to recover land.
On the other hand, Hargreaves argued that what Holdsworth wants is very hard
to prove, and rather, titles are relative. Some titles are superior to others, and all
one has to do in order to maintain a claim is to prove that his is superior to his
opponents. The relativity of titles is the accepted position.
The purchaser does not need to investigate the title beyond the register, because
the state guarantees the accuracy of the register.
This means that Hargreaves argument of the difficulty of determining true title
becomes less appropriate, since it is now possible to determine the true title with
ease.
However, the relativity of titles continues to apply because disputes may occur
between people who don't have the best title.
Under the Real Property Act 1900 (NSW), Part 6A, a person who satisfied the
requirements of adverse possession may apply to be registered as the proprietor
of that land in the registry of the Torrens system.
Possession gives rise to rights, including the right to defend possession or to sell
or to devise the interest. A defendant in possession acquires seisin even if
possession is tortiously acquired.
However, the Crown did not have a better claim to possession. Their claim of
possession rested on the fallacy of equating annexation with possession. Actually,
annexation only gave rise to radical title. Thus, they did not have possession.
The Crown argued that the Indigenous peoples occupation was by Crown grant in
1882, and they were thus not in possession. There is no documentary evidence to
prove this. Even if there was, this did not abrogate the Indigenous peoples
possession, as they still had enjoyment of the land and it remained with them.
41.
performance.
Delivery.
deed).
Under the Torrens system transfer and registration (governed by the Real
Chattel
There are no formal requirements to transfer legal title in chattels (ie, simply to exchange
money and chattel, receive a receipt). However, all states have adopted a Consumer Credit
Code, which governs contracts for the sale of goods, when the chattels are bought on credit.
The code specifies maximum interest rates, and prohibits or caps other fees.
s 66 specifies that if a debtor has a reasonable cause for default (eg, illness) but
could meet modified terms, then they may apply to the credit provider to modify
the agreement.
s 68 specifies that if the parties cannot agree on the modified terms, then the
s 70 specifies that a court may re-open any contract that is deemed 'unjust'.
Land
Due to the high value of land transactions, there is frequently a longer time lapse and greater
deliberation in the passing of title. At this stage, it is only necessary to be aware of the formal
requirements.
The main requirement is that sale of land can only be effected through a written
agreement or memorandum signed by both parties (ie, no oral agreements).
A memorandum must include the description of (a) the subject matter, (b) the
signature of the parties and (c) a reference to the transaction.
A plaintiff cannot use the vendor's insurance to pay for damages after the vendor
no longer has insurable interest in the land: Ziel Nominees Pty Ltd v VACC
Insurance Co Ltd.
Note, this no longer applies - the Insurance Contracts Act 1984 (Cth), s
50 specifies that the purchaser is deemed to be insured under the vendors
contract of insurance.
Where there is a conditional contract for purchase, the purchaser does not get an
equitable interest until condition is met: Shanahan v Fitzgerald.
The Conveyancing Act 1919 (NSW), ss 66J-66O offers protection in such cases where the
property has been damaged in that in-between period.
s 66K - The risk of damage to land should not pass to the purchaser until the
transaction is completed or until the time stipulated by the parties.
s 66L- In case of substantial damage to property after contract for sale, but before
passing risk to the buyer, the buyer may rescind the contract.
s 66M- If buyer wants to proceed despite the substantial damage, the purchase
price is to be reduced to such an amount as it just and equitable.
s 66N - court allowed to refuse to enforce the contract if it is deemed unfair in the
wake of damage in in the in-between period.
The formalities for deed transfer are now regulated by legislation. No particular
form of words is required to render an instrument a deed.
In NSW, the deed must be attested by a third party. All signatures must be
witnessed by the third party.
A deed may be delivered in escrow, in which case it will only take effect upon
satisfaction of a condition. Once delivered it cannot be recalled by the person
executing it, although if the condition on which the deed is to operate is not
performed it will never take effect.
Equitable Title
Whilst there is a requirement that land be conveyed/transferred and registered before title
passes in law, a contract for sale of land which doesn't abide by those standards still has
some effect - it passes equitable title to the purchaser.
The vendor holds the title on a constructive trust for the purchaser.
Once a contract for sale of land is entered into, the purchaser acquires an
equitable fee simple. The vendor still has the legal fee simple title, but it is held on
a constructive trust for the purchaser.
For this to apply, the contract must be capable of specific performance (ie, if a
court may grant specific performance in such a case).
If the property has been transferred to a third-party, than the profits made by the
vendor (who is the trustee of the purchaser now) off that sale were therefore held
on trust for the purchaser, and belong to the purchaser.
Equitable Leases
The idea that a contract for sale of land transfers an equitable fee simple interest to the
purchaser (before it is made a legal fee simple through registration) also applies to leases.
There are three types of leases:
1. A legal interest is conferred through the use of a deed.
An equitable lease, where the court would grant specific performance on the
agreement, should be respected as if it a legal lease.
The lessee acquires an equitable interest in the property, and accordingly, the
lessor acquires some protections in return for that interest.
Example of a case where an equitable lease was distinct from a legal one are:
Chan v Cresdon, where a guarantor under an equitable lease was held to be free
of his guarantee, because the guarantee operated only in respected of a legal
lease.
McMahon v Ambrose:
Facts: Ambrose was under a lease, but assigned it orally to McMahon. When
the lessor was suing Ambrose for failure of payments, Ambrose tried to get
McMahon to indemnify him.
Held: Because the assignment was oral, McMahon was not liable at law to
indemnify Ambrose.
In Foster v Reeves, lower courts which had no equitable jurisdiction were held to be incapable
of enforcing equitable leases. However, this was eroded by later decisions, and reforms in
Traditionally, the common law was not allowed to recognise equitable rights and
titles as mentioned above. In the common law courts, the trustee, not the
beneficiary, was the owner of the trust property.
Equity had could not decide disputed legal rights and titles.
Equity could not award damages (only specific performance and injunctions).
Common law courts could not grant interlocutory relief, specific performance,
injunctions or make declarations.
The Judicature Act fused only the administration of the principles of common law
and equity, not the principles themselves.
All branches of the court have the power to administer equitable remedies.
Equitable defences can be pleaded in all branches of the court and the
appropriate relief given.
All branches of the court must recognise equitable rights, titles and interests.
All branches of the court have a general power to determine legal rights and titles.
Where the rules of equity and the rules of common law conflict, the rules of equity
shall prevail.
Fusion Fallacies
Some judges initially erroneously thought that the judicature act conferred a fusion of
the principles of common law and equity (ie, that the 'bodies of law have merged'), which
was not the case.
This is known as the fusion fallacy the fallacious notion that the fusion of the
administration of common law and equitable principles equates to a fusion of
common law and equitable principles themselves.
A good example of a court falling victim to the fusion fallacy is presented in Walsh v Lonsdale,
where Jessel MR states:
'There are not two estates as there were formerly, one estate at common law by
reason of the payment of the rent from year to year, and an estate in equity under
the agreement. There is only one Court, and the equity rules prevail in it'.
Taken literally, the judgment would remove all distinctions between common law and equity.
This is not the case trusts still exist.
The rules of equity only prevail in case of conflict not upon any consideration.
The equitable estate, thus recognised, endures until the contract on which it is
founded is avoided or dissolved.
Cases in which damages have been awarded against mortgagees found to have breached
their duty to their mortgagors in exercising their power of sale (ie, the award of a common law
remedy for an equitable wrong) have also been categorised as examples of fusion fallacies.
Part Performance
According to the doctrine of part performance, a contract for sale of land which fails to meet
the requirement for written signed contracts (eg, an oral contract) will raise an equitable
title if it has been partly performed. When determining whether part performance applies,
the court examines (: McBride v Sandland):
1. Whether the acts imply the existence of an agreement?
2. If so, what are the terms of the agreement?
In this inquiry, the following requirements must be satisfied (: McBride v Sandland):
The acts relied on must unequivocally, and in their own nature, be referrable to
(indicative of) some agreement of the general nature of that alleged.
This requires that the acts could only have been done for the purposes of
fulfilling the alleged agreement - there can be no other reason why they were
performed.
The party performing the acts must have been doing so in reliance on the
alleged agreement (ie under the assumption that the agreement exists), and the
other party must have permitted the acts to be done also because of the
agreement.
The acts must have been done by a party to the alleged agreement.
The acts must have been done in compliance with the terms of the oral
agreement.
If these requirements are satisfied, the court may rule that, since the agreement has been
partly performed, it is binding despite the failure to meet the requirement that a contract for
sale of land must be in writing. This will transfer an equitable title to the purchaser.
Despite the requirement for written signed contracts for the sale of land, contracts that fail to
meet the requirements may still bind the parties in equity under the doctrine of part
performance.
This means that if there is evidence that an oral agreement to sell or lease land
has been partly performed, it may be enforced by the courts.
A quick example of how the doctrine of part performance is applied is the case
of Mason v Clarke:
Facts: An oral agreement to allow hunting rights and profit-aprendre a lessor and
an individual named Mason. The lessee (Clarke) tried to prevent Mason from
exercising these rights on the claim that there was no written agreement.
Held: Although there was no sufficient memorandum for the oral agreement, the
acts done by Mason (preparing and actually hunting rabbits) constituted acts of
part performance. He has thus acquired his relevant interest in the land, and can
take actions the lessee who tried to deprive him of them.
The acts relied on must unequivocally, and in their own nature, be referrable to
(indicative of) some agreement of the general nature of that alleged.
This requires that the acts could only have been done for the purposes of
fulfilling the alleged agreement - there can be no other reason why they were
performed.
The partying performing the acts must have been doing so in reliance on the
alleged agreement (ie under the assumption that the agreement exists), and the
other party must have permitted the acts to be done also because of the
agreement.
The acts must have been done by a party to the alleged agreement.
The acts must have been done in compliance with the terms of the oral
agreement.
Application
The test set out above in McBride is a pretty narrow approach - Australian courts are more
reluctant in determining that acts constitute part performance.
A good demonstration of the strict approach, and when acts do constitute part performance in
Australia is ANZ v Widin:
'The acts of the bank, seen in this context, lead to the conclusion that they are
unequivocally and in their own nature referable to a contract of the general nature
of that alleged by the bank; namely, that there was an oral agreement between
the bank and the bankrupt that the bankrupt would grant a mortgage to the bank
over the Bellevue Hill property to secure to the bank its right of indemnity. In
rendering itself liable on the bills, the bank altered its position on the faith of the
oral agreement'.
Facts: Defendant claimed that she had orally agreed with testator that, in return
for her looking after him, shed be able to live in the house for as long as she
wished.
Held: The Defendant's actions of changing house and providing unpaid care were
not unequivocally referable to a promise to give her an interest in land. They were
also consistent with a voluntary association maintained through love and
affection, perhaps with an element of greed.
Facts: a life tenancy was created pursuant to an oral agreement. The landlord
supplied the tenants a weekly tenant rent book, and eventually gave the tenant
notice to quit as if they had a weekly tenancy. The tenants claimed that they had a
life tenancy according to the oral agreement.
Held: the sole fact of going into possession amounted to part performance. Once
there is some evidence of part performance, it is enough to allow the admission
of parole evidence to prove the exact terms.
Facts: a divorcing couple reached an oral settlement (one of the clauses stating
the husband makes a payment to the wife). When the agreement was drafted, the
wife refused to sign. The husband, who already made a payment, claimed part
performance; the wife countered that his acts could not be unequivocally referable
to an agreement of the kind alleged.
Held: the husbands actions of payment to his wife and forwarding the transfer
deed amounted to part performance of the oral agreement.
However, in ANZ v Widin, it was stated by the court that these cases are not followed in
Australia.
For contracts for sale of land, mere payment of purchase money is insufficient.
Estoppel
The principle of estoppel is in place to protect a person against a loss suffered as a result from
a reliance on a promise or representation.
The doctrine of Consideration fails to protect detrimental reliance. As long as there was no
consideration, there was no contract, and thus a person who suffered from a reliance on a
promise will not be able to receive remedies under contract law. Rather, he can seek remedies
in estoppel.
Estoppel will operate when the Relying Party has acted on assumption (or reliance) on a
representation made by the Representor, and will suffer detriment if the Representor will act
inconsistently with his representation.
For example, the Relying Party acts on the assumption that the Representor has
signed/will sign a contract for sale of goods.
It is then revealed that the Representor has not signed the contract, or will not do
so in the future.
Namely, the Representor induced the Relying Party to believe he has signed a
contract.
The effect of Common Law Estoppel is to prevent the Representor from denying his
representation when in court. The contractual rights and obligations will be determined as if
the Representors representation was true.
This means that the Representor will be estopped from denying he has signed
the contract. For all intents and purposes, the contract will be deemed as signed,
and therefore enforceable.
Equitable Estoppel
Equitable Estoppel or representation of future conduct occurs where the Relying Party acted
upon an assumption as to the future conduct of the Representor.
Namely, the Representor induced the Relying Party to believe he will sign the
contract in the future.
The effect of Equitable Estoppel is to prevent the Representor from acting inconsistently with
his representation without taking steps to ensure the Relying Party does not suffer detriment
as a result of his inconsistent conduct.
This means the Representor will need to give reasonable notice of its intention to
act inconsistently with the representation, and in the case damages will still be
suffered by the Relying Party, compensate the Relying Party for those damages.
Equitable Estoppel can be divided into Proprietary Estoppel (representation deals with
interest in land) and Promissory Estoppel (all other Equitable Estoppel which doesnt relate
to land).
Proprietary Estoppel
Proprietary Estoppel operates where the Representor is an owner of land who induces the
Relying Party to believe that the Relying Party has or will have an interest in the land.
If the Relying Party then acted to his detriment in reliance of being granted that
interest in the land, the Representor will be required to either make good of that
assumption (give the Relying Party interest in the land) or compensate him
accordingly.
Promissory Estoppel
Promissory Estoppel operates where the Representor induces the Relying Party to believe that
certain contractual rights within their contracts will not be enforced.
If the Relying Party changed his position in reliance on that representation, the
Representor will not be allowed to enforce those rights.
This is a very narrow view of Promissory Estoppel. It has developed over the years:
Landmark case, departure from the idea that consideration is needed and
reliance does not matter.
A decision was made in Jordan v Money that a promise or representation as to future conduct
could only be binding by way of contract this meant that Estoppel was now limited only to
reliance on existing fact and not future conduct.
This decision was made to promote sanctity of bargains and ideals of self-reliance.
This decision continues to apply within the Common-Law. However, Proprietary and
Promissory Estoppel are the two exceptions within equity.
Elements of estoppel
There is no universal agreement on the necessary elements to establish an estoppel.
However, three elements have been established as essential and a further three in some
cases should also be considered.
1. Assumption
2. Inducement
3. Detrimental reliance
4. Reasonableness
5. Unconscionability
6. Departure or threatened departure
Assumption
The Relying Party must have adopted an assumption.
Initially, it was held that it was necessary that the Representor encouraged an assumption
that a legal relationship would ensue. This was discussed in Mobil Oil Australia Ltd v Wellcome
International Pty Ltd:
However, this has since been expanded into a broader view, that the creation of an
assumption of a promise to be performed also satisfies the assumption element. This was
established in Austotel v Franklins Selfserve, and later held in W v G.
In conclusion, it is now not necessary that the defendant has created or encouraged an
assumption that a particular legal relationship would arise.
Inducement
The assumption adopted by the Relying Party must have been induced by the conduct of the
Representor.
Legione v Hateley
This is inconsistent with later decisions. High Court does not require
clear or unequivocal promises.
Preferred approach is to ask whether the Relying Party was induced to adopt an
assumption as to the future conduct of the Representor, rather than whether an
equivocal promise or representation
Detrimental reliance
The relying party must have acted on the assumption in such a way that he or she will suffer
detriment if the Representor is allowed to depart from the assumption.
There are two types of loss:
1. Expectation loss - loss of the benefit the Relying Party expected to receive.
2. Reliance loss - loss suffered because of reliance on the assumption when the
Representor acts inconsistently with it.
In Australia, it is held that the Relying Party must have suffered a Reliance loss in order to
establish estoppel.
The entrance into a contract may prove a detrimental loss when the Representor
acts inconsistently (i.e. exclusivity agreement)
Inactivity wont count when the Relying Party couldnt have done anything
anyway
This is because estoppels lack the bargain element (or the acceptance and
mutuality)
However, it should be noted that there is no requirement that the detriment has already been
suffered by the time the estoppel is sought. The prospect of a future detriment is sufficient.
Reasonableness
The scope of Estoppel is limited by the mechanism of reasonableness. The reasonableness
requirement is concerned with whether the Relying Party deserves protection. It is broken
into two parts:
1. Reasonableness of the assumption
This depends on the nature of the action taken by the Relying party, in the
context of the relationship between the parties and the other
circumstances of the case.
Unconscionable conduct
The scope of Estoppel is also limited by the mechanism of unconscionableness. The
requirement of unconscionable conduct is concerned with whether the Representor deserves
blame.
Essentially, estoppel is sometimes seen as about stopping or granting relief for
unconscionable conduct. It is therefore sometimes seen as a positive requirement rather than
just a justification for granting relief. This was held in Silovi Pty Ltd v Barbaro.
Effects/Reliefs of estoppel
Common Law Estoppel
The effect of Common-Law Estoppel is to prevent the Representor from departing from the
representation/denying it. The rights of the parties are determined as if the representation
was true by reference to the assumed or represented state of affairs.
Common-Law Estoppel may be used both defensively and offensively:
Equitable Estoppel
Satisfying the equity
The effect of Equitable Estoppel is to raise equity in favour of the Relying Party. Equity in this
context means an entitlement to some equitable relief.
Reliance interest:
Expectation interest:
Receiving the benefit he expected to receive or was led to believe that he had.
It is true that these interests usually overlap, and the protection of the expectation interest
will ensure the protection of the reliance interest since the Relying Party will receive the
benefit it was counting on when suffering the detriment.
indefinite, a clean break between the parties is required or the enforcement of the
assumption may cause detriment to a third party
That being said, the courts usually enforce the promise. This is because it is usually hard to
quantify the detriment with precision and replace it with a monetary compensation. McHugh J
noted in Commonwealth v Verwayen: Often the only way to prevent the promisee suffering
detriment will be to enforce the promise.
However, the minimum equity principle does play an important role in at least
three scenarios:
1. Where the detriment can be quantified accurately
2. When the detriment cannot be quantified, however it would be
disproportionate to the expected benefit.
3. When detriment can be prevented by other means.
Cause of Action
There is a question as to whether estoppel can create independently enforceable rights or
whether it can only be relied upon when it supports another cause of action, such as actions
in contract or tort law. In Commonwealth v Verwayen, there are conflicting opinions both
against estoppel as a cause of action (Deane J) and for it (Brennan & McHugh JJ).
There are three reasons why estoppel has been accepted an independent cause of action.
1. Previous cases - Equitable Estoppel has been accepted as a cause of action
frequently by the courts already.
2. Future conduct - Since Equitable Estoppel is not confined to assumptions of
fact (also extends to future conduct), it logically cannot simply establish an
assumed state of affairs.
3. Remedial flexibility - the discretion exercised by the court in granting relief
entails that it is the estoppel itself to which the court is giving effect.
These three reasons will be explained further below:
The court cant logically prevent A from denying he transferred the car this
makes no sense.
Rather, the court either orders A to transfer the car or to provide monetary
compensation to B.
Remedial flexibility
If estoppel was simply a support to another cause of action, then the remedies provided
would be generated according to that cause of action. However, estoppel has its own remedy
and therefore is its own cause of action. Examples:
The principle of Equitable Estoppel is not a part of contract law, and is not contractual in
nature. In Giumelli v Giumelli the court gave three reasons why Equitable Estoppel does not
undermine the law of contract, even without a strict reliance-interest based approach:
1. Courts discretion means that consideration is not being undermined breach
of contract gives rise to compensatory damages, Equitable Estoppel merely
gives rise to equity in favour of the Relying Party.
2. In contract, obligation is derived from the promise of the Promisor. Estoppel is
concerned with the assumption or expectation of the Relying Party (Promisee).
3. Estoppel doesnt arise because of an unperformed promise, but the
detrimental reliance.
Thus, the courts see Estoppel as a form of obligation which operates alongside contract
distinguishable in the determination of questions of liability and remedy. It is often pleaded as
an alternative to contract.
Representor induces the Relying Party to believe an offer will not be revoked, and
the Relying Party suffered a detriment in reliance on this assumption.
In Australian law, this offer will not become irrevocable. However, it will raise
equity, which may be satisfied through other relief.
Equitable Estoppel raises equity, which may be given effect by enforcing the
contract.
Privity (Estoppel)
Estoppel can be raised when a contractual right has been denied because of the privity rule.
A non-party who has been led to believe that they are a party (or will receive a
benefit under the contract) may be able to establish an estoppel
Of course, the estoppel will only be raised if the Relying Party acted to its detriment on the
faith of this assumption as per the usual laws of estoppel.
Formalities
Equitable estoppel may also provide relief where a contract is unenforceable because it fails
to comply with formal requirements laid down by statute.
Contract Variations
Estoppel often operates when a Representor induces the Relying Party to believe that a
contract has or will be varied, or that a certain term will not be enforced.
Pre-contractual variations
Sometimes, a party only enters a contract under the assumption that a particular term will
not be strictly enforced (or be interpreted in a particular way), and will suffer detriment of the
other party is able to enforce the contract as per the written terms. In such a case, an
Equitable Estoppel will arise. For example, Anaconda Nickel Ltd v Edensor Nominees Pty Ltd.
Estoppel by convention
Estoppel by convention holds parties to the assumed facts agreed upon for the purposes of
the transaction in question. The estoppel may operate by virtue of an express term of a
contract (which indicates they take certain facts to be true), or sometimes merely on the
basis of a common assumption which has been adopted as to the factual basis of the
contract.
A Relying Party, who has entered into the contract based on an assumption
induced by the Representor, is estopped from claiming it was relying on an
assumption, by virtue of the entire agreement clause.
However, since breaching a contract is an unlawful act, a party is not entitled to breach it,
even on offering to pay damages. Therefore, there is no such thing as the opportunity to
breach the contract, and a party cannot claim to have suffered a detriment for forfeiting it.
This was established in Coulls v Bagots Executor and Trustee Co Ltd.
It has also been said that reliance shows that the promise was serious, and
Estoppel is a way to enforce serious promises.
Other suggestions are that Estoppel provides is a deterrent against harm caused by
detrimental reliance on promises. The protection provided by Estoppels also encourages
efficient reliance on promises.
Promissory estoppel is justified because it encourages beneficial reliance on promises by
providing protection against the harm that can result from reliance.
Economic efficiency
Economic efficiency is also used by commentators as a guide with regards to how Estoppel
should operate.
Another opinion is that liability should be imposed on the party who is best placed
to ensure that reliance occurs at the optimum time, in order to balance the
benefits of early planning against the pitfalls of relying too early.
Proprietary estoppel
Proprietary estoppel will operate to restrict the unconscionable assertion of legal title. It
is based on the inducement of an assumption by the legal title holder, which leads to the
relying party suffering detrimental reliance. For proprietary estoppel to arise, the following
conditions must be fulfilled (: Inwards v Baker):
1. The legal title owner must have requested or allowed the relying party
to expend money on the land;
2. The legal title owner must have created or encouraged an assumption that
the relying party would be entitled to remain in the land; and
3. The relying party must have suffered a detriment from relying on this
assumption.
There is clearly some overlap between proprietary estoppel and constructive trusts, as they
are both based on the notion of the unconscionable assertion of legal title.
Constructive trusts are a more severe form of remedy, and should be used
sparingly. Equity is supposed to do the minimum necessary to achieve
fairness: Crabb v Arun District Council
Proprietary estoppel seeks to prevent a party from unconscionably asserting legal rights over
property. It does not require a contract to be in place, and usually arises when the legal title
holder induced a belief in other party (which caused detrimental reliance).
The distinction is not clear. They are often argued as alternate grounds.
If the owner of land requests or allows another to expend money on the land
under an expectation created by the landlord that he will be able to remain there,
that raises an equity in the licensee such as to entitle him to stay.
A court should use proprietary estoppel rather than impose a constructive trust if
the situation doesn't necessitate such an extreme remedy as a constructive trust.
Facts: A father signed a memorandum letting his son could build a house on his
farm which the son did. He forgot to include that house in the will, and the son
sought conveyance of that house to him.
Held: if a donee relies upon a donors promise with the donors knowledge,
expending money in furtherance, the donee acquires a right to call upon the donor
to complete the imperfect donation. The son was just given a life estate, but a fee
simple.
The Inwards v Baker principle has been approved in Australia in Olsson v Dyson, although it
was not actually put to use there:
Facts: a husband had not satisfied the legal requirements for assigning a debt,
owed to him, to his wife before his death. The widow argued that she had not
taken certain money in reliance on the assignment, and therefore the Inwards v
Baker principle applied.
Held: The High Court recognised the principle as a part of Australian law, but
refused to apply it in this case. There was no evidence that the husband thought
the wife would not take money in reliance on the assignment. Further, she could
not establish that she acted in detrimental reliance on her expectation of the
effectiveness of the gift. Thus, the High Court decided against her.
By erecting the gates and failing to correct his belief, the Defendants encouraged
the Plaintiff to act to his detriment in selling part of his land without reservation
over it, giving rise to an equity in the Plaintiffs favour.
Equitable estoppel
Equitable estoppel used to be split up into different forms (eg, promissory
estoppel and proprietary Estoppel). These were all merged into 'equitable estoppel' in the
prolific case Waltons Stores (Interstate) Ltd v Maher:
Despite the decision in Austotel against equitable estoppel in commercial situations, the court
showed in S & E Promotions v Tobin Brothers that it may still operate in some commercial
contexts (it did not address the issue directly or set any principles). Some other quick
examples of equitable estoppel are as follows:
This principle arises because, whilst the notion of equitable estoppel rests
on unconscionablility, it would sometimes be unconscionable to order specific
performance or such big equitable remedies in the scenario.
For example, where a person told another that he can have his million dollar
property, and the person expends a few hundred dollars fencing it.
Clearly, whilst the action of the first person was unconscionable and it brought
about loss to the other, it would be even more unconscionable to compensate the
expenditure of a few hundred dollars with a million dollar property.
In Verwayen, Deane J correctly noted that equity is a tool of flexibility, and it would
defeat its purpose if it were used to become an instrument of injustice and
oppression. Whilst the 'normal' remedy of estoppel is to 'estopp' rather than to
provide compensation, some cases call for the operation of the minimum of
equity idea (in the form of equitable compensation etc).
Interestingly though, Deane J still noted that 'estopping' is still the normal
The court estopped the Commonwealth from resiling on the agreement, because it
was deemed the normal function and the best possible way to avoid a
detriment (which Verwayen identify as the role of equitable estoppel).
The principle of minimal detriment was applied in Yeomans Row Management v Cobbe:
Held: the property developer was entitled to half the increase in value of the land
attributable to the grant of a permission.
Finally, these issues, and in particular Deanje J's discussion and the discretion of the court to
mold a suitable form of equitable relief, were discussed in Giumelli v Giumelli:
Held: Before a constructive trust is imposed, the court should first decide whether,
having regard to the issues in the litigation, there is an appropriate equitable
remedy, which falls short of the imposition of a trust.
In this case, the family claimed that the Full Court should not have granted
relief going beyond the reversal of the detriment suffered, relying on Verwayen.
However, the court here said that sometimes the remedy is calculated according
to the expectation of the party and not just the detriment suffered. The court left
this fairly open, and said that different scenarios require different remedies.
Agency
Capacity required of principal and agent
Principal must have legal capacity to perform the act which he is performing through
an agent.
Infant can appoint an agent to do an act on his behalf which the infant could lawfully
do himself
An agent does not need contractual capacity himself to act as the agent for another
occurs, the conduct will be unlawful and the solicitor/agent may incur statutory
penalty but the agents act will not be invalid.
Actual authority
Actual express authority
May take the form of a written or oral contract, or a power of attorney or a scribble on
a piece of paper
If an agency has arisen by way of a contract then the scope of the agents authority
will be determined by construing the terms of the contract
It is prudent when addressing the issue of authority first to ask whether there is
actual, express authority
Actual implied authority in an agent to enter a particular transaction cannot exist where there
are express directions from the principle to the agent to the contrary.
Ostensible authority
Ostensible authority does not result directly from the consent of the principal, express or
implied, to the agent, but from the words or conduct of the principal towards a third party. It
involves the principal intentionally or negligently holding out (or representing) another to be
his agent. The words or conduct of the principal lead a third party to believe that the agent is
authorised when, in reality, the agent has no authority at all or the agent has exceeded his
authority. Where the third party acts to his detriment in reliance upon the holding out, the
principal will be bound notwithstanding the fact that the agent had no actual authority to
perform the act.
Extent of ostensible authority will depend upon the width of the representation made.
If the agent knows of an actual limitation of authority in the agent, there can be no
ostensible authority because the third party will not have relied upon the
representation
If the principal has defined with the agent the extent of that which the agent has
authority to do, this will not stand in the way of ostensible authority, it is irrelevant
that the extent of the authority represented to the third party conflicts with an actual
limitation of authority placed upon the agent where the principal knows that the agent
was acting as though their authority was unlimited
If a transaction is within the ostensible authority of the agent then it is irrelevant that
the agents purpose was to act for his own benefit and to defraud the principal unless
the third party had notice
This form of authority can be difficult at times to distinguish from actual implied authority,
particularly where the basis of the representation alleged is the conduct of the principal in
acquiescing to a particular course of dealing by the agent.
The manner in which the representation was made: representation can be made by
words or conduct, may be made by the principal appointing the agent to a particular
position known to the third party or describing the agent in a particular way, course of
dealings between third party and principal, or by the principal standing by mute while
someone deals with a third party apparently on behalf of the principal. A
representation of ostensible authority will often flow from the principal equipping an
officer with a certain title, status and facilities: Pacific Carriers. The representation
itself must be fairly narrowly focused, must be directed to a particular person or class
of people
Entrusting indicia of title to an agent does not itself create any ostensible
authority to dispose of or mortgage the land, neither does it prevent the true
owner from denying the supposed agents authority to do so, Egan v Ross:
held that principal had been negligent in giving signed memoranda in blank to
his agent
Possession of property for the purposes of sale whether a third party who
purchases goods in good faith from an agent should get good title
notwithstanding that the agent lacked express authority form the owner to
sell the property to the third party, mere possession of the property of another
will not in the event of a sale to a third party, divest the owner of his rights
against the third party. However, different if property is held for the purposes
of sale
Peter McWilliam (PM) was not an actual agent, there was no express delegation of
authority and no implied authority
Bruce Jnr (BJ) had ostensible authority because he was designated as managing
director
Can BJ confer actual or ostensible authority to PM? No, because only actual authority
can do that, ostensible authority cannot confer
The central thesis of this article is that equitable estoppel is, and should be, a doctrine
which is organised around the concept of detrimental reliance and which is part of the
law of wrongs. The doctrine stems from a duty to prevent harm resulting from reliance
on one's conduct. A person who breaches that duty commits an equitable wrong.
Plaintiff from suffering loss as a result of his or her reliance or which compensates the
plaintiff for such loss. Equitable estoppel can, therefore, be seen as a reliance-based
doctrine which is properly situated within the equitable branch of the law of civil
wrongs
Historical Theories
Classical Contract Theory: Theory of Consideration does not take into
account Estoppel (Unbargained-for representation)
It is well accepted that the general common law principles of promise enforcement
through contract in existence today were mainly developed in the 19th century, under
the influence of free market economics and the philosophy of individualism. The
moral, political and social context in which modem contract law developed favoured
individualism and free will over government intervention and reliance on others.
Perhaps the most significant of the principles of contract law developed in the 19th
century was the bargain theory of consideration, which holds that a promise will
only give rise to contractual obligations if the promisee has provided a benefit or
suffered a detriment which can properly be regarded as the agreed price of the
promise. That theory of consideration denies any contractual obligations arising out of
detrimental reliance upon promises where such detrimental reliance cannot be seen
as the agreed price of the promise (no estoppel provision).
Greig and Davis have suggested that "[t]he Victorian age saw itself as the age of selfreliance. The logic of classical contract law required that reliance could never be
reasonable, and accordingly could never be actionable, unless the promisee had
actually concluded a bargain with the promisor by giving something in exchange for
the promise. For much of the 19th century, reliance was protected only "as part of the
general protection of expectations which was accorded by recognition of the executory
contract." Unbargained-for reliance, therefore, went largely unprotected.
principles into the domain of contract. An important indicator of that trend, according
to Gilmore, was the rise of liability under section 90 of the Restatement of Contracts,
based on detrimental reliance on a promise. Gilmore suggested that detrimental
reliance even threatened to overtake the bargain theory of consideration as the
primary basis on which promises were enforced.
Gilmore argued, in other words, that the demise of classical contract law and the rise
of a reliance-based promissory estoppel evidenced the "growth of a more
interdependent, community-oriented moral climate."
Atiyah points to the recognition of the independent tort of negligent
misrepresentation, the advent of consumer protection laws and developments in
estoppel as the principal areas in which the resurgence of reliance-based liability has
been manifested in England.
In essence, the promise theory of estoppel holds that the doctrine is fundamentally
concerned with the enforcement of promises and should, therefore, be seen as, or
adapted to become, part of the law of contract.
Is Estoppel based on Promise?
The only connections between equitable estoppel and contract are: first, that liability
in estoppel can, like contractual liability, arise from a promise; and, secondly, that the
remedies provided by equitable estoppel and contract mirror each other in terms of
purpose and effect. Although the purpose of equitable estoppel relief is to protect the
representee's reliance interest, the relief granted to give effect to an estoppel will
often have the effect of protecting the representee's expectation interest. Conversely,
although the purpose of contractual relief is to protect the promisee's expectation
interest, the reliance interest will occasionally be protected instead.
Barbara Mescher's solution to the intrusion of equity into the realm of contract is to
abolish the doctrine of consideration. The requirement of an intention to create legal
relations would then be left to perform alone the important task of determining which
promises to enforce. 134 Abolishing the doctrine of consideration, Mescher says,
would "place most of the fact situations found in equitable estoppel cases within the
province of contract."' Mescher argues that the abolition of consideration is necessary
to solve the problem of equity's intrusion into the area of promise enforcement, which,
she says, should belong exclusively to the law of contract.
A more fundamental problem with Mescher's proposal is that it leaves the central
question, which is when liability should be imposed, to be decided according to the
arbitrary criterion of whether the promisor intended to create legal relations. As Atiyah
has argued, the intention to create legal relations requirement is quite unsuited for
this role, since courts arrive at the conclusion that no such intention exists by means
of "fictitious reasoning". In most cases where the intention is denied, the courts are
really saying that the promise in question is one that ought not to be enforced. That
approach is inevitable because, as a reading of any estoppel case shows, parties
making informal promises or representations simply do not indicate whether they
intend to create legal relations or intend to assume any responsibility for their actions.
The essence of the problem, as Dalton has explained in some detail, is that a
subjective approach to determining the intent of a party leads us to basing
liability on an unreliable assertion of intention.
Yorio and Thel describe as "reliance theorists" those commentators who hold that the
objective of promissory estoppel is to protect promisees from loss caused by reliance
on a promise, and that issues of liability and remedy should turn on reliance.
That discussion outlined three aspects of the Australian doctrine which clearly
establish its reliance basis: first, the strict requirement of detrimental reliance by the
representee in the establishment of liability; secondly, the relative weakness of the
requirement that the representee's assumption must be induced by the conduct of the
representor; and, thirdly, the recent adoption by the High Court of a reliance-based
approach to relief. To that list can be added the requirement that the representee's
reliance upon the relevant assumption must be reasonable.
Randy Barnett has criticised reliance theory as a basis for imposing promissory
obligations, on the basis that a focus on reliance does not present us with a clear
choice as to which promises should be enforced. 209 He draws on Morris Cohen's
comment that not all cases of reliance on the words or conduct of another are
actionable, and reliance theory offers no clue as to what distinguishes those that are
enforceable from those that are not. The way in which actionable reliance is
distinguished from non-actionable reliance is by reference to the question whether the
representee's reliance was, in the circumstances, reasonable.
Barnett does, however, show us that the reliance basis for equitable estoppel does not
tell us when reliance by one party on an assumption induced by another should give
rise to an obligation in equity to prevent detriment resulting from that reliance. By
focussing on reliance, we can determine whether an assumption has been induced by
the conduct of another party, we can establish the fact of reliance on that assumption,
we can determine what detriment has resulted from reliance, and we can fashion a
remedy accordingly. But the only answer to the question: "when should reliance be
protected?" is "when it is reasonable."
The aim of this article is to explore the nature of the requirement of reasonable
reliance, and the role it plays in common law and equitable estoppel. This article helps
to define the reliance-based theory of estoppel, which is based on the idea that the
founding principle of estoppel by conduct, and the essential element in the
establishment of an estoppel, is reasonable reliance.
Definition of Estoppel
An estoppel by conduct arises where one person (the representor) induces another
(the representee) to adopt and act upon an assumption of fact (common law estoppel)
or an assumption as to the future conduct of the representor (equitable estoppel).4 An
estoppel will only arise where the representee has acted on the assumption in such a
way that he or she will suffer detriment if the representor acts inconsistently with the
assumption. At common law, the estoppel prevents the representor from denying the
truth of the assumption in litigation between the parties, so the rights of the parties
are determined by reference to the assumed state of affairs. In equity, the estoppel
prevents the representor from acting inconsistently with the assumption, without
taking steps to ensure that the departure does not cause harm to the representee.
Those steps might include compensating the representee for any financial loss, or
giving the representee reasonable notice of the intention to depart from the
assumption, so that the representee can resume his or her original position. If the
representor acts inconsistently with the assumption without taking any such steps,
then the court must fashion relief by which to give effect to the estoppel.
Elements of Estoppel
The starting point in establishing an estoppel by conduct is that the representee must
show that he or she was induced by the conduct of the representor to adopt an
assumption.
Equally, it can be said that the movement has a tendency towards unifying common
law and equitable estoppel, since it renders less important the distinction between
promissory conduct and representational conduct. After Waltons Stores and Verwayen,
it is clear that both the equitable and common law doctrines are founded on the
adoption of an assumption by the representee, rather than on a particular type of
conduct being engaged in by the representor.
Reasonableness
There are two reasons why the reasonableness requirement should be preferred to
unconcionability as the limiting factor. First, estoppels by conduct are plaintiff-sided
doctrines which, although based on fault, are more concerned with the plight of the
representee than the misconduct of the representor 5 4 Consistent with this approach,
the limiting factor should be considered from the point of view of the representee,
rather than the representor. The reasonableness requirement focuses the court's
attention on the circumstances of the factual core of the estoppel, which is the
representee's detrimental reliance. Secondly, as will be explained below, the
reasonableness requirement is a more sophisticated and more precisely defined twopart inquiry than the question of unconscionability:
The distinction between the two aspects of the reasonableness requirement may well
be important. The first question involves a consideration of the conduct engaged in by
the representor, and the impression it would have on a reasonable person in the
representee's situation. The second question involves a consideration of the action
taken by the representee, and whether it was reasonable for the representee, having
adopted the relevant assumption, to have taken the (ultimately detrimental) action
which was taken.
Justice as Mean
the gains and losses were independent, the losses and gains could be restored by two
independent operations. However, because the plaintiff has lost what the defendant
has gained, a single liability links the particular person who gained to the particular
person who lost.
This criticism exploits the fact that the corrective and distributive justice of Aristotle's
account are formal categories, not substantive prescriptions. Aristotle's outline of
distributive justice, for example, does not present an ideally just set of arrangements
against which all distributions can be measured. His representation of distributive
justice as an equality of proportions under a criterion of merit suggests neither the
relevant indicia of equality nor the optimal criterion of merit. As Kelsen rightly
remarks, given the inevitable existence of differences of age, sex, wealth, and so on,
"[T]he decisive question for social equality is: Which differences are relevant? To this
question Aristotle's mathematical formula of distributive justice has no answer.