Formation/Terms

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Contracts Law 204 List of Authority – Notes

Contracts Topics
Major Topic I: Formation of a Contract .......................................................................... 3
Agreement-Offer/Acceptance ........................................................................................... 3
Offer ........................................................................................................................................................................................... 3
Circulars, catalogues and advertisements ................................................................................................................. 3
Puffery ...................................................................................................................................................................................... 3
Acceptance .............................................................................................................................................................................. 4
Postal Acceptance Rule: ..................................................................................................................................................... 4
Tenders ..................................................................................................................................................................................... 4
Termination of Offers: Rejection/Lapse of Time ....................................................................................................... 4
Revocation ............................................................................................................................................................................... 4
Subject To Contract .............................................................................................................................................................. 5
Auctions ................................................................................................................................................................................... 5
Consideration ................................................................................................................... 5
Only a Party Providing Consideration can Enforce a Promise .............................................................................. 5
The Rule In Pinnels Case .................................................................................................................................................... 6
Sufficient Consideration – Consideration Provided Twice ..................................................................................... 6
Past Consideration ................................................................................................................................................................ 6
Equitable Estoppel ............................................................................................................ 7
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 ............................................................................. 7
Intention ........................................................................................................................... 8
Certainty and Completeness ............................................................................................. 8
Contracts with Property or Land (The Requirement of Writing) .................................... 9
Conveyancing Act 1919 (NSW) S. 54 A ...................................................................................................................... 9
reference to signed document to another transaction is sufficient for a contract if the plaintiff can
prove: ......................................................................................................................................................................................... 9
The Doctrine of Part Performance – Enforcement of Oral Contracts .................................................................. 9
The Three Requirements for Part Performance ........................................................................................................ 10
Conveyancing Act S 54 A Cannot be Used to Perpetuate Fraud – Enforcement of Oral Contracts ...... 10
Capacity .......................................................................................................................... 10
Minors .................................................................................................................................................................................... 10
Major Topic II: Terms of a Contract ............................................................................. 11
Express Terms ................................................................................................................ 11
Terms vs. Representations .............................................................................................................................................. 11
Collateral Contracts ........................................................................................................................................................... 11
Entire Agreement Clause ................................................................................................................................................. 12
Parol Evidence Rule .......................................................................................................................................................... 12
Exceptions to the Parol Evidence Rule: ...................................................................................................................... 13
Incorporation of Terms by Signature – The Signature Rule ................................................................................ 13
Exclusion of Liability Clauses (Regarding Signature) .......................................................................................... 13
Exceptions to The Signature Rule Regarding Exclusion Clauses ................................... 14
Exclusion Clauses .............................................................................................................................................................. 14
1.) When the signing of the document occurs after the terms of the agreement have been performed,
the additional terms will generally not be terms of the contract. .................................................................... 14

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2.) Where an oral agreement has been reached and the document containing additional terms is
subsequently signed, but before performance of the oral agreement takes place .................................... 15
Misrepresentation in an Exclusion Clause .............................................................................................................. 15
Incorporation of Terms by Notice ................................................................................................................................ 15
Incorporations of Prior Terms by Prior Dealings .................................................................................................... 16
Implied Terms ................................................................................................................ 16
Implied by Fact ................................................................................................................................................................... 16
Implied term of Good Faith ............................................................................................................................................ 17
Construction of Contractual Terms ............................................................................... 17
Meaning of Terms .............................................................................................................................................................. 17
Legal Effect of Terms ....................................................................................................................................................... 17
Conditions Precedent ........................................................................................................................................................ 18
Conditions Subsequent ..................................................................................................................................................... 18
Construction of Exclusion Clauses ................................................................................. 19
Exclusion Clauses and Negligence ............................................................................................................................... 19
Other Principles to Exclusion Clauses ........................................................................................................................ 19
Deviation Cases .................................................................................................................................................................. 19
Four Corners Rule ............................................................................................................................................................. 19

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Major Topic I: Formation of a Contract

Agreement-Offer/Acceptance
Offer
• Banks v Williams (1912) 12 SR (NSW) 382 at 390-1 à if the offer is made by one
who has no authority to do so ie. The offeror does not own the item, then there is no
offer to be accepted

• Gibson v Manchester City Council [1917] 1 All ER 972 à established the distinction
between an invitation to treat and an offer. Specifically, an invitation to treat is not
binding

• Storer v Manchester City Council [1974] 3 All ER 824 à Contrast to Gibson v

Manchester; contract was found to exist. Storer sent council application to purchase
house, Council responded w/ letter w/ contract for sale attached. Storer signed and
returned, but heard nothing back from council. Court upheld that letter was an offer
and Storer had accepted – not an invitation to treat but was a genuine offer.
• Established that if there is intention to be legally bound in the offer, then it is binding

• Harvey v Facey [1893] AC 552 à Generally, quoting a price is not an offer where
property or land of high value is concerned
Circulars, catalogues and advertisements
General principle: circulars, catalogues and advertisements setting out price lists or promoting
the sale of products are seen as invitations to treat.

Carlill v Carbolic Smoke Ball Co [1892] 2 QB 484

Facts: Placed an add in the papers awarding anyone who used their product 100 pounds if
they still contracted influenza. Ad further stated that company had deposited 1000 pounds
in the bank in preparation for anyone who contracted the disease.

Issue: Mrs. Carlill used the smoke ball and still contracted the influenza. She sued to
recover the 100 pound reward. The issue was whether or not the advertisement was an
offer. Carbolic Smoke Ball submitted that it was not an offer, but rather an invitation to
treat.

Ratio: The courts found that the necessary will or intention that transformed the
advertisement to an offer from a ‘mere puff’ was that the company had put away the
thousand pounds in safe keeping for a claimant.
Puffery
Representation, statement or conduct that clearly over-exaggerates the attributes or
characteristics of some product or service and is not intended to be an offer to be relied upon.
The non-specific language of a puff fails to satisfy the criteria of contractual obligations for
the reason that no contract was intended: Carlill v Carbolic Smoke Ball Co
A promotional statement that no reasonable person would believe to be a statement of fact.

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Acceptance
• R v Clarke (1927) 40 CLR 227 at 231àAcceptance of an offer must be upon reliance
of the offer.
• Tinn V hoffman & Co (1873) 29 LT 271 at 278à Acceptance must be
communicated to the offeree, as a general rule.
Postal Acceptance Rule:
Is invoked if it is, reasonable, contemplated, or authorized.
Letter/Telegram must be properly addressed, appropriate postage or other fees paid and
actually have been deposited at the post office.
• Henthorn v Fraser [1892] 2 Ch 27 at 33à When post is used as a method of
communication in accepting an offer, acceptance is complete once the letter is posted

• Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vic) Pty Ltd (1957) 98 CLR 93
at 111-112à Two parties were engaged in highly contentious negotiations. ‘Because
of the highly contentious nature of the correspondence’ (from text) it was found that
the postal acceptance rule did not apply.

• Household Fire & Accident Insurance Company Ltd v Grant (1879) LR 4 Ex D 216
at 223, 227à If the offeror stipulates that actual communication is required ie. “to let
me know in writing”, then the postal acceptance rule cannot apply.

• Bressan v Squires [1974] 2 NSWLR 460 at 462-3à the offeree was to accept the
offer by “…notice in writing addressed to me”, exempted the postal acceptance rule as
this constituted a request for actual communication.
Tenders
• Meudell v Mayor of Bendigo (1900) 26 VLR 158à established that invitor can
accept or reject any tendor

• Blackpool and Fylde Aero Club v Blackpool Borough Council [1990] 3 All ER
25àDefendant called for tenders (offers) in very specific manner. Plaintiff met these
specifications, however due to an administrative error, was not considered for the
position because it was believed they had not met requirements. Found that defendant
had made an offer to consider all applications and breached this in not considering the
plaintiff. Damages were awarded to plaintiff for a loss of chance. Established that a
call for tenders can be an offer.
Termination of Offers: Rejection/Lapse of Time
• Powierza v Daley [1985] 1 NZLR 588 at 346à Cooke J: ‘the line between rejecting
an offer and merely inquiring to a possible variation is a fine one, but the basic test is
the effect on a reasonable person standing in the shoes of the offerror’
Revocation
• Dickinson v Dodds (1876) 2 Ch D 463 at 472à Established that an offer can be
taken off the table at any time by the offeror, even if the offeror promised to keep it
open. This is so because the offeree has not given consideration for it to be kept on the
table.
• If consideration (the offeree promises to give the offeror something in turn for keeping
it open) is present, then an option contract has been created
• Also established that a reliable 3rd party can inform an offeree that there is no more
offer

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Subject To Contract
• Masters v Cameron (1954) 91 CLR 353àEstablished 4 situations involving
agreements subject to contract:
I. Parties have reached agreement on essential terms, intend to be bound but suggest
they draft the contract later. This is an enforceable agreement.
II. Agreed on all terms don’t intend any departure but make performance on terms.
Enforceable agreement.
III. Parties have agreement but intend that agreement only be enforceable when a formal
contract has been entered into. Not enforceable agreement.
IV. Parties are content to be bound immediately but expected a formal contract agreed to
by consent. Enforceable agreement.
Auctions
• Payne v Cave (1789) 100 ER 502à established that an offer during an auction has
been accepted at the fall of a hammer.
• A bidder can withdraw before acceptance at any time, as is standard with an offer
which has yet to be accepted
Consideration
Must be provided by both parties in a bilateral agreement – can be promise for a promise or
promise for an act. Typically in a unilateral contract consideration is provided by one party in
form of a promise, while it is provided by the other via act.
Can be provided through a promise for a promise. Where there is a conferment of a benefit or
detriment between the parties.
It must be sufficient, but not adequate.
• Attorney General for England and Wales v R [2002] 2 NZLR 91 at
106àEstablished the two options for which parties may provide consideration in an
agreement: Promise or an Act. Promise is of a benefit in law and an act provides a
benefit in fact.

• Balfour v Balfour [1919] 2 KB 571 at 578à Benefit/detriment definition of

consideration. The promissee must confer a benefit or suffer a detriment. One party
must be ‘worse off’ as a result of providing consideration.

• Attorney General for England and Wales v R [2002] 2 NZLR 91 at

107àEstablished that consideration must be sufficient not necessarily adequate.
Adequate in the context of commercially. Eg. Promise to buy a dog worth 1000 for
900 is sufficient, though not commercially adequate. As it is sufficient – still binding.

Only a Party Providing Consideration can Enforce a Promise

• Pico Holdings Inc v Wave Vistas Pty Ltd (2005) 214 ALR 392 at 407à If A promises to
mow B’s lawn and in return B promises to pay C $100.00, consideration has moved from
A to B, but not to C, as C is a third party to the promise. As such, C cannot enforce B’s
promise to A for the $100.00, only A can.

Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460
Facts: Mr Coulls owned land and entered into an agreement whereby O’Neil Construction
Pty Ltd would quarry stone from his land. Mr. and Mrs. Coulls were to be paid as joint
tenants.

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Issue: Mr. Coull died and the issue was whether the royalties were to be paid to Mrs. Coulls
or to the executor of Mr. Coull’s estate.

Ratio: It was held that Mrs. Coull’s would not get the royalties. This stemmed from the fact
that the promise from O’Neil Construction was not made to Mr and Mrs. Coull’s jointly. In
the minority judgment, the promise was to Mr and Mrs Coull jointly and that in such cases as
long as one of them provided consideration, that was enough for the other to be able to
enforce the contract. Two of the three majority judges agreed with this point of law but said
that it was not relevant to this circumstance.

Established: That for joint promisees, only one has to provide consideration for the promise
to move from both of the promisees.
The Rule In Pinnels Case
General principle: Part payment of a debt is not sufficient consideration for a promise to
discharge the whole debt.
Sufficient Consideration – Consideration Provided Twice
Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 1 All ER 512à

Facts: Roffey Brothers, after entering into the ‘head contract’, to renovate a block of 27 flats
subcontracted the carpentry work to Williams for a price of 20 000 pounds. Williams
experienced financial difficulties and told Roffey Bros that he could not finish the job. Under
the ‘head contract’, if Roffey Bros did not finish the head contract in time, they would owe
damages for late completion of the work.

Thus, Roffey Brothers offered to vary the contract by offering Williams an increase in the
money paid. Williams agreed. Did some more work, but did not finish the job. Roffey Bros
refused to pay Williams for the work he had done. Roffey brothers submitted that Williams
had undertaken no more than what he had agreed to do under the ‘Head Contract’. As such,
he had not provided consideration for the second contract as it was the same consideration (to
build the flats) as the first.

Issue: Was there sufficient consideration for the second sub-contract to be enforced by
Williams?

Ratio: The English Court of Appeal unanimously held that Williams had sufficiently
provided consideration for the second contract. This stemmed from the practical benefit that
Roffey Brothers gained in his acceptance. Specifically, the potential for them not to be liable
for damages for late completion of work.

Past Consideration
• Attorney General for England and Wales v R [2002] 2 NZLR 91 at
106àestablished that an act done with out reference to a promise does not satisfy
consideration. Eg. Giving ‘A’ a dog from B. A then promises to give B $100. Since A
made the promise after the act, B cannot hold A liable for the money.

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Equitable Estoppel
Estopped means precluded or prevented. The general principle is: that a promisor is precluded
from going back on his or her promise even though the promise is not supported by
consideration moving from the promisee.
Equity now recognises other forms of estoppel.
Many of these arise from situations where it would be unconscionable for a plaintiff’s action
against a defendant to be denied and that these situations broadly fall into the definition of
equitable estoppel.
The most important case in Australia that outlines the elements that must be met to meet
equitable estoppel:
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
Facts: Mahers owned a commercial business in Nowra which Walton’s was interested in
leasing. Walton wanted to relocate its business in Nowra. The agreement reached was:
Mahers would demolish the existing premises and erect a new building to meet specifications
of Waltons. A draft of the lease agreement was sent to the solicitors of Mahers. Some
amendments were discussed. Walton’s solicitors indicated that Walton would agree to the
amendments and would let Maher’s know if they were unacceptable.
The Mahers sent the amended lease to the Waltons. The Waltons did not acknowledge the
letter until two months later. Mahers began demolishing the building - time was critical as
they had to complete demolition to start reconstruction to comply with the agreement.
Waltons was found to know that the Mahers were doing this.
A few months later, Waltons reconsidered its position and wrote to the Maher’s saying that
the lease had not been excecuted and that the Walton’s were not going to proceed with the
agreement.
Issue: Could Mahers sue the Waltons for a breach of contract on the basis of estoppel?
Ratio: The High Court found in favour of Mahers and held that Waltons was estopped from
not carrying out the contract. The majority recognised that there was no preexisting contract
and that the Mahers could use estoppel as a basis for action (not merely a shield). The
underlying rationale was firmly based on the notion of unconscionability.
“…the principle that equity will come to the relief of a plaintiff who has acted to his detriment
on the basis of a basic assumption in relation to which the other party to the transaction has
“played such a part in the adoption of the assumption that it would be unfair or unjust if he
were left free to ignore it” Grunt v Great Boulder Pty Gold Minds Ltd…Equity comes to the
relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of
the other party to ignore the assumption.”
Obiter: Brennan J set out the elements required to establish equitable estoppel:
1.) Assumption of a Legal Relationship: Plaintiff assumed a particular legal relationship
existed or expected a relationship would exist between them. In the second case, the
defendant wouldn’t be free to withdraw from the expected relationship.
2.) Inducement: The defendant induced the plaintiff to adopt the assumption or
expectation or promise

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3.) Reliance: The plaintiff acted in reliance to the assumption or expectation

4.) Knowledge: The defendant knew or intended that the plaintiff was acting in reliance to
the assumption
5.) Detriment: The plaintiff suffered a detriment or loss as a result
6.) Avoidance of the Detriment: The defendant failed to avoid the detriment
OR
Obiter: Brennan set out the following requirements for a claim in estoppel

1) Preexisting legal relationship, including pre-contractual relationship -

representation
2) Promise raises an expectation in a party
3) Reliance by the other party on the promise that translates into behavior induced
by the expectation
4) An element of detriment because of the reliance on the promise
5) An element of unconscionability

Intention
The intention to enter into legal relations.
Parties must intend to engage in legal relations. Presumptions: Agreements between
family members or close friends, it is presumed that intention is nonexistent.
Commercial agreements are presumed to have intention. In cases, the facts and situation must
otherwise prove or disprove the assumptions. In essence, identifying if their was intention.
• Presumptions versus Ermogenous approach: Both require that proof be provided.
Under presumptions it is to vindicate or disprove the assumptions made under this
approach. Under the Ermogenous approach it is to prove contractual intent:
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95
• In practicality not much has changed, both require proof.
• Heslop v Burns [1974] 3 All ER 406à despite fitting the family presumptions model,
it was found that there was no contract on grounds supporting the ermogenous
approach – that there was no contractual intent
• Balfour v Balfour [1919] 2 KB 571 at 578à Supports the family presumption
• Roufus v Brewster (1971) 2 SASR 218à Nature of the agreement is what is
important ie. Family, social or domestic. Just because the parties are related does not
mean the presumption stands as the nature of the agreement in this case was clearly
commercial.
Certainty and Completeness
Law requires that contract must be sufficiently concise and clear (certainty) and all key parts
of the contract are set out (completeness): Thorby v Goldberg (1964) 112 CLR 597 at 607

• Australia & New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695
(FC)à Essential terms include: the parties, the subject matter, the price and the principal
promises made

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Contracts with Property or Land (The Requirement of Writing)

Conveyancing Act 1919 (NSW) S. 54 A
• (1) Sale or disposition of land must only be brought about with some memorandum or
note in writing signed by one party
• Requires: Parties, Price, Property Parties to the extent that there is sufficient evidence
to identify each. Property described so that it is specified to a reasonable extent of
which it is clear which property is being referred to.
• Signature *see authenticated signature fiction

• Sun World Inc v Registrar, Plant Variety Rights (1977) 148 ALR 447 at 458 à sale
is defined as the exchange of property for money

• Harvey v Edwards Dunlop & Co (1927) 39 CLR 302 at 307 à

reference to signed document to another transaction is sufficient for a contract if the
plaintiff can prove:
1.) The existence of a document signed by the defendant
2.) A sufficient reference, express or implied, in that document either, a second
document or another transaction that was reduced in writing
3.) A sufficiently complete memorandum when the 2 are read together
• Established that a contract of sale of property must include: Parties, Price, Property

• Tourret v Cripps (1879) 48 LJ Ch 567 à document headed ‘Memorandum for

Richard Cripps’ was held to be a signed memorandum. In doing this, judgment
recognised the ‘authenticated signature fiction’ – that something like ‘Memorandom
for Richard Cripps’ can count as a signature

• Ferrelly v Hircock (no 1) [1971] Qd R 341 at 356-7 à authenticated signature

fiction cannot be utilized if it is clear that persons actual signature is necessary

• Thirkell v Cambi [1919] 2 KB 590 à Set precedent that letter passing between
parties constitutes a note or memorandum as defined by the Conveyancing Act 1919
The Doctrine of Part Performance – Enforcement of Oral Contracts
Doctrine is to protect parties who have acted on an oral contract regarding property. If
invoked, the oral contract will become enforceable.
• Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 432 à establishment
of the doctrine of part performance in Australia

• Steadman v Steadman [1974] All ER 977 at 980-1à’If one party of the agreement
stands by and lets the other party incur expense or prejudice his position on the faith
of the agreement being valid he will not then be allowed to turn around and assert that
the agreement is unenforceable’

• Millet v Regent (1975) 2 NSWLR 63 at 65-66àPart performance applies when the

order for specific performance will relieve the plaintiff of losses incurred due to
following an oral agreement

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The Three Requirements for Part Performance

1. McBride v Sandland (1918) 25 CLR 69 at 79à The acts must be done by the
plaintiff seeking to invoke part performance
2. Regent v Millet (1976) 133 CLR 679 at 683à Acts done by plaintiff were permitted
by the contract (but not necessarily required)
3. Mcbride v Sandlandà see above. Established that the acts must be unequivocally
referable to the type or nature of the contract
Conveyancing Act S 54 A Cannot be Used to Perpetuate Fraud – Enforcement of Oral
Contracts
• Wakeham v MacKenzie [1968] 2 All ER 783 à Ball made an oral agreement with
Wakeham saying if she moved in and took care of him, she would inherit the house
when he died. She acted on this though Ball never put it into writing. He died and
Wakeham did not inherit the house. The court ruled in favour of Wakeham; the
property had to be transferred back into her name. S. 54 A, requiring written proof
cannot be used to perpetuate fraud.
Capacity
Minors
• The Minors (Property and Contracts) Act (NSW) 1970 à presumptively binds
minors to civil acts in accordance to section 6 of this act
• Section 9 suggests that a minor is under 18 years of age in NSW
• Section 18 stipulates that a minor who lacks or appears to lack an understanding
(because of age) of the contract is not bound to a civil act
• Section 19 demands a test of validity of the contract by its nature, if it is beneficial the
minor. Generally include contracts of tuition, education, necessities (food, clothing,
shelter)

• Roberts v Gray [1913] 1 KB 520 à Contracts where minors receive tuition or

instruction are binding on the minor as it is deemed a “necessaries”. The case
establishes this by implementing it. ***for Commonwealth Law, NSW has slightly
differing law
• Where it is to the minors advantage and the contract does not contain unusual or
prejudicial clauses outweighing the beneficial terms

• De Francesco v Barnum (1890) 45 Ch D 430; [1886-90] All ER 414 à Contracts so

one sided and unreasonable that the contract does not benefit the minor overall cannot
be considered a valid contract. The minor (association w/ the defendant) in this case
was unable to leave the contract at anytime, whereas the plaintiff was, and there was
no obligation for the plaintiff to provide the minor w employment despite the minor
providing service for 7 years.

• Hamilton v Lethbridge (1912) 18 ALR 222 à contrasts the De Francesco v Barnum

case in that court ruled against the minor saying that the minor was not allowed to
practise in a 50 mile area of his mentor as stipulated by the contract. It was found that
the contract was beneficial to the minor as it was one of tuition and education, thus
binding to the minor despite the ‘unfair’ clause.

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Major Topic II: Terms of a Contract

Express Terms
Terms that are explicitly included in the contract by either parties. They are what set out the
parties’ obligations.

Terms vs. Representations

Terms in a contract are sometimes ambiguous as to whether or not they should be considered
“Terms” or merely “Representations.” Therefore, we must classify each term in order to
ascertain if there has been a breach of a contract in many of the scenarios.

• Ellul & Ellul v Oakes (1972) 3 SASR 377à Set out a number of factors that can be
used in determining if a term is indeed a term or merely a representation:
1. The importance of the statement, the more important, the more likely it is a term à
The Intention
2. The time elapsed between statement and agreement – the longer the time the less
likely it is a term à The time
3. Whether the party which made the statement, made it with regard to putting the party
in a better position to ascertain the truth of the statement. If the party did, the more
likely it is to be a term. à The knowledge or expertise of the party who made the
statement
4. Whether statement was subsequently omitted when agreement was put into a formal
written contract. If it was omitted, it is more likely to merely be a representation.
• The intention is to be determined by an objective analysis of the facts

• Oscar Chess Ltd v Williams [1975] 1 All ER 325à Williams traded in a car and
Chess valued it during negotiations at 290 pounds based on it being a 1948 model. It
was found to actually be a 1939 model. Chess sued, English Court of Appeal (Lord
Denning inc.) found that statement was not a term – the court must look at the totality
of the evidence in determining if it is a term or not. Specifically, what parties said and
did, not uncommunicated thoughts. Indeed, Williams was only relying on registration
papers, Chess could have checked rather he did not. Objective analysis seems to
support an innocent misrepresentation (1856).

• Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 2 All ER 65à
Plaintiff purchased second hand motor vehicle. Smith stated vehicle had traveled only
20000miles, had not. Plaintiff sued for breach of contract (damages.) English court of
appeal held that milage was a term because:
• If a representation made is made for the reason of inducing other party to engage in a
contract, it is prima facie ground for inferring that the representation was intended to
be part of the contract and is thus a term…the maker of the statement can rebut this if
he can show that he was innocent in fault of making it and it would be unreasonable
given the circumstances to be bound to it. Eg. Smith claimed it was the best car in the
world
Collateral Contracts
A contract that is separate but directly referable to the main contract. They must meet two
requirements:
1.) The statement must be promissory in nature
2.) It cannot be inconsistent with the main contract

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• JJ Savage & Sons v Blakney (1970) 119 CLR 435 at 442à Blakney sold a boat to
Savage saying that it would reach a speed of atleast 12mph. It did not, Blakney claimed
that it was a term of the agreement, courts found that it wasn’t, it was only an opinion.
• Savage could have requested the speed be put into contract, sought a promise from
Blakney, or nothing.
• Case established that: It is insufficient for a fact to be considered a term even if it’s proven
that the party would never have entered into the contract had the statement of fact NOT
been made. Ie.) that the boat could reach a speed of atleast 12mph.

• Heilbut Symons & Co v Buckleton [1913] AC 30 at 47à Established that the

consideration for a collateral contract is provided via the parties entrance into the main
contract

• De Lassalle v Guildford [1901] 2 KB 215àA collateral contract was found: contract that
is separate but directly referable to the main contract.
• Guildford guaranteed working drains in the property De Lassalle purchased property on
verbal confirmation that the drains worked. They did not. De Lassalle sued. Courts found
that a collateral contract had been formed – De Lassalle’s consideration for the promise
was his entry into the contract (act) and Guildford’s was the promise.

• Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133à Established that a collateral contract
cannot be inconsistent with the main contract. Sub-Lease stated, that spencer could
terminate the lase at any time. Spencer gave verbal assurance would terminate only on
specific circumstances. Terminated lease and Hoyt’s sought that there was a collateral
contract. High Court ruled that it was not due to inconsistency.
Entire Agreement Clause
If main contract contains an express term stating that the contract contains all terms of the
agreement and that no other pre-contractual agreements affected this contract, an entire
agreement clause exists
• DKB Investments Pty Ltd v Belcote Pty Ltd (1991) 105 FLR 429 at 431à Estbalished
that where an entire agreement clause exists, any statement or assurance not expressed in
the contract, is inconsistent with the main contract. Thus, it precludes the possibility of the
existence of a collateral contract.
Parol Evidence Rule
‘Finality in written instruments meant to be final’ pg123
When in effect, it has two rules:
i.) “The exclusion of extrinsic evidence that would add or subtract from or vary the terms of a
written contract”
ii.) “The exclusion of extrinsic evidence that would otherwise have assisted the court in
interpreting or construing the contract.”
Pg 123 of textbook!

• Is only relevant to entirely WRITTEN contracts: Hospital Products Ltd v United States
Surgical Corporation (1984) 156 CLR 41 at 61

• Applies to all extrinsic evidence.

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• Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149
CLR 337 at 337à Authority for the parol evidence rule. Established that extrinsic
evidence which may add, subtract, vary or contradict the language of the entirely existing
contract cannot be introduced.
• LG Thorne & Co Pty Ltd v Thomas Borthwick & Sons (A/Asia) Ltd (1955) 56 SR
(NSW) 81 at 88à Established that oral evidence which relates to establishing whether or
not the contract was intended to be entirely written or partially oral is acceptable evidence
and is not to be exempted by the parol evidence rule.
Exceptions to the Parol Evidence Rule:
1.) Establish that the operation of the contract cannot occur until happening of a certain
event: Pym v Campbell (1856) 119 Er 903
2.) Establish existence of an implied term
3.) Establish that the written contract incorrectly records the agreement. Thus, extrinsic
evidence can apply for the court to rectify the written contract.
4.) Establish existence of a collateral contract - only if the main contract does not have an,
‘entire agreement’ clause. De Lassale v Guildford and L G Thorne v Thomas
Borthwick and Son was found to have collateral contracts. The parol evidence rule
applied to the main contract. Since collateral contracts are separate to the main
contract, it has not breached the rule.
Incorporation of Terms by Signature – The Signature Rule
The Signature Rule: The general rule is that a signature will bind the signatory to the terms on
the contract regardless if he/she read or understood them: L’Estrange v Graucob Ltd [1934] 2
KB 394

Many of the issues that arise from this involve whether or not an exclusion clause contained
in a signed document is incorporated into a contract.
Exclusion of Liability Clauses (Regarding Signature)
The leading case regarding the signature rule and exclusion of liability clauses is:

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) CLR 165à (Court of Appeal)

Facts: Concerned a signature of a printed form with writing on both the front and back. The
Signatory did not read the relevant terms nor were they mentioned to the relevant parties. The
conditions contained an exclusions clause.

Issue: Was the exclusion clause part of the contract?

Ratio: The test that must be applied is whether or not the party relying on the exclusion
clause gave sufficient notice of the exclusion clause to the other party. On the facts of Toll it
was found then, that the signed document did not incorporate an exclusion clause.

This approach was rejected by the High Court of Australia

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) CLR 185à (High Court of Australia)

Ratio: Only if there was an issue of misrepresentation, intention OR if the contract were
merely a memorandum, receipt OR a claim of equitable or statutory relief, may it be relevant
to know if the person was given sufficient notice. THUS, assuming no vitiating factors, a

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signed document by someone who knows that the document contains contractual terms, is
bound to the terms of the contract. It is irrelevant that the person did not read the document.

Toll consequently, re established the signature rule as used in L’Estrange

High Court Concluded in reaffirming L’Estrange: “If there is a claim of

misrepresentation, or non est factum, or if there is an issue whether a document was intended
to affect legal relations or whether, on the other hand, it was tendered as a mere memorandum
of a pre-existing contract, or a receipt, or if there is a claim for equitable or statutory relief,
then even in the case of a signed document it may be material to know whether a person who
has signed it was given sufficient notice of its contents. The general rule, which applies to the
present case, is that there is no suggested vitiating element, and no claim for equitable or
statutory relief, a person who signs a document which is known by that person to contain
contractual terms, and to affect legal relations, is bound by those terms and it is immaterial
that the person has not read the document.”

Exceptions to The Signature Rule Regarding Exclusion Clauses

The high court recognised that there are exceptions to the signature rule

Vitiating factors such as, misrepresentation, duress, unconscionability, and statutory

provisions as in the Contracts Review Act may be considered to be exceptions to the
Signature Rule or in fact, render contracts with a signature as void or voidable.

From Toll (above) Essentially: Misrepresentation non est factum, an issue of intention to
affect legal relations, equitable or statutory relief, it may be material to know whether or not
the person was given sufficient notice of the clause.

Exclusion Clauses
Generally, the main issue with exclusion clauses is whether or not they are considered to be a
term of the contract.
Difficulties may arise where parties have an agreement but later sign a document that includes
terms not previously agreed upon.

1.) When the signing of the document occurs after the terms of the agreement have been
performed, the additional terms will generally not be terms of the contract.

DJ Hill & Co Pty Ltd v Walter H Wright Pty Ltd [1971] VR 749 at 753
Facts: An exclusion clause was signed after the goods had been transported. The oral
agreement did not include such a clause.

Issue: Was the exclusion clause part of the contract?

Ratio: Since the oral contract was made before the form was presented and since the
performance of the contract had already been done, the exclusion clause was not part of the
contract.

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2.) Where an oral agreement has been reached and the document containing additional
terms is subsequently signed, but before performance of the oral agreement takes place

In these cases, the subsequent signed document may act as a variant to the original document
ONLY if it can be established that in signing the document, the parties intended to vary the
document.

Warming’s Used Cars Ltd v Tucker [1956] SASR 249:

Facts: The signed document stated that used car that was the subject in an earlier oral
agreement was not encumbered. The previous oral agreement did not include this term.

Issue: Was the term part of the contract?

Ratio: The court held that it was not as there was no intention that it was to effect a variation
of the earlier oral agreement.
Misrepresentation in an Exclusion Clause
Curtis v Chemical Dry Cleaning & Dying Co ltd [1951] 1 All ER 631
Facts: Curtis took a wedding dress to get dry cleaned. The dry cleaner asked her to sign a
document labeled ‘Receipt’. She asked why the signature was necessary and the cleaner
responded that there was a clause excluding liability for damaged to the beads and sequins of
the dress. Curtis signed document. The clause actually excluded liability for ANY damage to
the dress, not only the beads and sequins.
When the dress was stained, the dry cleaner purported to use the exclusion clause as a defence
and stipulated that Curtis’ signature bound her to the exclusion clause.
Issue: Did the signature rule apply – was the exclusion clause part of a contract?
Ratio: Lord Denning LJ said, when a party puts forth a document for signature and does not
draw attention to the existence or extent of the exemption clause, this may in some
circumstances convey the impression that there is no exemption at all, or at any rate, not so
wide an exemption as that which is in fact contained in the document. This present case is a
good example
Therefore, Denning LJ held that because the clerk did not draw attention to the extent of the
exclusion clause (though in other circumstances it could be the existence), it conveyed to
Curtis that there was not a wide exemption and this amounted to an innocent
misrepresentation. The exclusion clause did relate to a wide exemption.
Since the clerk did not draw attention to the size of the exclusion clause – it amounted to a
misrepresentation. Thus, the exclusion clause did not apply and Curtis was awarded damages.

• Contracts Review Act (1980)à stipulates factors that will vitiate the signature rule i.e.
misrepresentation, mistake, duress etc See Statutory Unconscionability – as this act relate
to the exclusion clauses!
Incorporation of Terms by Notice
In cases where there was not a signed document, the i.) timing and ii.) the reasonableness of
the notice, must be considered in determining if the fact is indeed a term of the contract. This
applies mostly to signs etc. stipulating exclusion clauses.

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• Olley v Malborough Court Ltd [1949] 1 KB 532à Exclusion clause was not a term
because the sign was outside and the contract would therefore would have been entered
into before Olley had even set foot in the room.

See other notes for:

• Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 at 169
Incorporations of Prior Terms by Prior Dealings
• Henry Kendall & Sons v William Lillico & Sons [1969] 2 AC 31 at 113à whether or
not it is reasonable to include terms from prior dealings if they have not been stipulated in
the most recent dealings
• Found that in 3 -4 contracts per month over a 3 year period was enough to establish a
consistent course of dealings in which prior terms were found to apply

• Henry Kendall v William Lillico [1972] 2 QB 71à found that 3-4 contracts over a 5 year
period was not sufficient for an establishment of prior dealings (contrasts Henry Kendall v
William)
Implied Terms
3 Categories i.) Implied by facts/circumstances of case ii.) Implied by law iii.) Implied by
custom
Implied by Fact
The leading case on this issue is:
BP Refinery (Westenport) Pty Ltd –v- Shire of Hastings (1977) 180 CLR 266
Jurisdiction: HCA
Facts: BP bought up a refinery under the name of BP Australia Ltd. In exchange for using
their land, the council offered them cheap council rates. Because of a corporate reshuffle, the
property was transferred from BP Australia Ltd to another subsidiary of BP. The Council was
informed of this and attempted to imply a term into the contract under which on transferrance
to another company the rate contract would be void.
Issue: Was there an implied term that voided the contract on transference of property.
Ratio: The court set out the 5 tests for implying a term into a contract. These were;
For a term to be implied it must;
1. be reasonable and equitable
2. be necessary to give “business efficacy” to the contract, so that no term will be
implied if the contract is effective without it
3. be so obvious it “goes without saying”
4. be capable of clear expression
5. it must not contradict any express term of the contract
The court eventually found that they could not imply a term terminating the contract, but they
could imply an assignment clause to move the property another company. They found that
business efficacy required that BP be able to reshuffle their corporate organization, and that
this would not end the contract. Furthermore, they found that since the contract went for 40
years, it “went without saying” that the contract should have contained an assignment clause
for BP to be able to move the property across.

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In support of this:
Must be:
1.) Reasonable and Equitable
2.) Necessary to give business eficacy the contract so that no term will be implied if the
contract is effective without it
3.) So obvious that “it goes without saying”
4.) Capable of clear expression
5.) Cannot contradict any express term of a contract

1.) Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422à here court rejected
suggestion of implied term because it would work in a partisan (biased) fashion
2.) State of New South Wales v Banabelle Electrical Pty Limited (2002) 54 NSWLR
503 at 521-2à Established that (2.) does not mean that without the alleged implied
term, the contract would be ineffective. Rather, term is necessary to keep contract
effective and workable according to presumed intention of the parties.
3.) ***See Codelfa in other notes
4.) Shell (UK) Ltd v Lostock Garage Ltd [1977] 1 All ER 481à Lostock agreed to only
get petrol from Shell. When Lostock bought petrol from elsewhere, they argued Shell
had an implied term not to discriminate against who they supplied (as they only
supplied others during a price war, not Lostock.) Court found that it breached (2.) and
this implied term was not capable of being clearly expressed.
5.) Self explanatory
Implied term of Good Faith
• Burger King Corporation v Hungry Jacks Pty Ltd [2001] NSWCA 187 at [171]à HJ
was to build 4 restaurants/year in SA, WA and QLD. BK had franchised their name out to
HJ. HJ, could only build the restaurants if BK gave them permission on every restaurant.
BK, wanting to expand elsewhere in Australia stopped giving permission and then
terminated the contract on account of breach b/c HJ was not building 4/year in the said
states. The court then: ruled in favour of Hungry Jacks saying that Burger King had
breached an implied obligation to act in good faith. (pg142)
Construction of Contractual Terms
Meaning of Terms
Court is primarily concerned with the intention of the parties: Australian Broadcasting
Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99
• Re Parol Evidence Rule, to the extent that prior negotiations provides objective
background facts known to both parties and the subject matter of the contract – this
extrinsic evidence is admissible: Codelfa Construction Pty Ltd v State Rail Authority of
New South Wales (1982) 149 CLR 337 at 337
• HOWEVER, any evidence that may affect the intention of the parties in the terms is not
admissible as stipulated by ii.) of the rule
Legal Effect of Terms
In finding that a part of the contract is a term, whether implied or expressed, to determine it’s
effect when breached we must consider if it is: a.) Condition b.) Warranty c.)
Intermediate Term

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1. Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) NSWLR 633 at 641-
2à Tramways took action against Luna Park for terminating contract. Tramways was
supposed to have trams advertising Luna park atleast 8 hours a day. Only did for an
average of 8. Court ruled in favour of Luna Park by employing the essentiality test:
• Suggested the essentiality test for when a term is a condition. For a term to be a
condition it must go to the root of the contract. It was essential to the very nature
of the contract that its non performance may fairly be considered by the other
party as a substantial failure to perform the contract at all.
• If the promise was so important that, had it not been made the innocent party
would NOT have entered into the contract, the promise is a condition.
• “If he contracted in reliance upon a substantial performance of the promise, any
substantial breach would ordinarily justify a discharge.”

a.) DTR Nominees Ltd v National Westminister Finance (Australia) Limited (1987) 162
CLR 549 at 556-7à Commented on Tramways: “emphasises that the quality of essentiality
depends for its existence on a judgment which is made of the general nature of the contract
and its particular provisions, a judgment which takes close account of the importance which
the parties have attached to the provision as evidenced by the contract itself as applied to the
surrounding circumstances.”

b.) If it is not a condition, it is a warranty. This does not give a right to terminate: Bettini v
Gye [1876] 1 QBD 183 at 188

c.) Hongkong fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26à Diplock
said: If it is a breach of a term that will leave the innocent party substantially deprived it is a
condition. Contrastingly, if it may or may not substantially deprive the innocent party then it
is an intermediate term.

Conditions Precedent
No contract until an event occurs. Not an actual “condition” to a contract, as in if it were
breached the innocent party cannot necessarily terminate unlike a normal condition in which
the party can. Two types:
i.) Conditions precedent to formation (or existence) of a contract
ii.) Conditions precedent to performance of an obligation by one of the parties

• Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 551à Conditions
precedent to performance of an obligation. Perri was supposed to complete a sale of
property before Coolangatta would enter into a contract with Perri. After a reasonable
amount of time Perri had not sold the property, Coolangatta terminated the contracted.
Court upheld that this termination was allowed.

• George v Roach (1942) 67 CLR 253à Condition precedent to existence of a contract.

Agreement to sell news agency provided a valuer valued the property. Valuer refused to
value the agency. High Court held that valuation by named valuer was a condition
precedent to contract.
Conditions Subsequent
On occurrence of an event, the contract comes to an end or both parties of the option to
terminate.

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• Head v Tattersall (1871) LR 7 EX 7à Seller said horse had hunted with hounds. It had
not. Buyer returned the horse and court found he was entitled to the purchase price as it
was a condition subsequent.
Construction of Exclusion Clauses
Typically must consider three factors:
1.) Whether the defendant owes the plaintiff a liability
2.) Whether the exclusion clause is part of the contract
3.) Given the circumstances and facts, does the exclusion clause apply
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500à
1.) The exclusion clause should be construed ‘according to its natural and ordinary
meaning, read in the light of the contract as a whole, thereby giving weight to the
context in which the clause appears including the nature and object of the contract’

2.) The contra proferentum principle will be applied so that in cases of ambiguity the
clause will be construed against the person relying on the exclusion clause

Facts: Darlington traded on commodities market on behalf of Delco. Darlington traded on the
futures market, in breach of its contract with Delco. Darlington consequently lost some of
Delco’s money. Darlington had an exclusion of liability clause stipulating that anything it
does it is not liable for.

Issue: Does the exclusion of liability clause apply?

Ratio:
i.) The court found that because Darlington had no authority to trade on the futures market on
behalf of Delco its exclusion of liability clause did not apply to when it was doing something
which the contract gave it no authority to.

ii.) Found that the second exclusion of liability clause did not apply regarding conduct that
was outside the scope of the agreement.

Exclusion Clauses and Negligence

• Canada Steamship Lines Ltd v The King [1952] AC 192 at 208à Established Rules that
must be met for an exclusion clause to exclude liability of negligence:
i.) Express exemption of liability for negligence
ii.) If no express exemption, courts determine if the words of the exclusion clause are
wide enough by applying contra proferentum principle
Other Principles to Exclusion Clauses
Deviation Cases
If a carrier deviates from the agreed voyage or route, he or she loses the benefit of an
exclusion clause. This is not an absolute rule, it is still a matter of construction of the contract.
Pg 162 of text book
Four Corners Rule
If the defendant causes a loss to the plaintiff by an act that has not been authorised or
contemplated by the contract, then an exclusion clause cannot protect the defendant from
liability of damages flowing from that act.

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Council of the City of Sydney v West (1965) 114 CLR 481

Facts: West left his car in a council car park. He was given a ticket that had to be presented
later to collect the car. A thief, calling himself Robinson presented himself to the car park and
claimed West’s car. The car was found later damaged and abandoned. West sued for the
damages to his car. The council relied upon an exclusion clause printed on the ticket.
Issue: Was the exclusion clause part of the contract and could the exclusion clause be relied
on?
Ratio: While the court found that the exclusion clause was part of the contract, they ruled that
it could not be relied on. It did not apply as the council had acted outside the scope of the
contract by releasing the car to a person without a ticket, that is, in a way not authorised or
contemplated by the contract.

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