200011 Contracts
Week 2 – Agreement
(Offer and Acceptance)
PART A: Formation of Contract – Offer (Chapter 2)
Finding Agreement
Offer and acceptance analysis:
 Traditional approach to establishing an agreement between 2 parties is to identify an offer
made by one party and an acceptance of that offer by the other – is routinely applied when
the courts need to decide whether a contract has been formed e.g. Gibson v Manchester City
Council
 However, not all transactions follow a clear path and application of this analysis can tend to
be highly artificial (MacRobertson Miller Airline Services v Commissioner of State Taxation)
Identifying an Offer
What is an offer?
 Is a statement by offeror that he/she is willing to enter into a contract on particular terms
 A proposal only amounts to an offer if a person making it indicates that an
acceptance is invited and will conclude the agreement
 In determining whether an offer has been made, crucial issue is whether it would appear to
a reasonable person in the position of the offeree (person to whom the offer is made) that
an offer was intended and a binding agreement would be made upon acceptance i.e.
reasonable person test
 Does not matter whether offeror in fact intended to made an offer – court
determines intention objectively
Gibson v Manchester City Council [1979] 1 All ER 972
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In 1970, D adopted a scheme allowing tenants of council housing to purchase freehold title
to their homes. P made enquiries re cost of buying, D wrote a standard ltr in response that
said D may sell. D asked P to complete an application form if he wished to make the purchase
– P did, threw a counter offer which D rejected so P said to “carry on with purchase as per
application”. D abandoned scheme before formal contracts were prepared and denied there
was a binding contact with P, i.e. denied an offer was actually provided.
Trial judge held there had been an offer and acceptance so binding contract had arisen – in
favour of P
 Offer arose from D’s ltr saying may sell, P accepted with application and
correspondence explicitly saying to go ahead with purchase
D appealed to Court of Appeal– dismissed
D then appealed to House of Lords – in favour of D
 Held that D’s letter was not an offer as ltr stated it “may be prepared to sell the
house” and “if you would like to make a formal application to buy your council
house, please complete the enclosed application form and return it to me as soon as
possible”
 Ltr only set out the financial terms on which D may be prepared to consider a sale
and purchase in due course
 Lord Diplock concluded that judges in previous proceedings determined there was
an offer based on paragraph in ltr that detailed mortgage particulars, which P had
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asked for, and ltr stating “this ltr should not be regarded as a firm offer of a
mortgage”
Conclusion: A contract cannot be formed unless there is a firm offer and there can be no
acceptance without an offer
MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) (1975) 133 CLR 125
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Shows difficulty of applying offer and acceptance model
P was an airline company – practice was to quote fare and availability of seats on flight, then
issue a ticket in exchange for payment. Ticket contained condition which allowed P to cancel
flights without incurring liability. Question before court was whether ticket issued was
chargeable with stamp duty as an agreement or memorandum of agreement
Supreme Court said yes so P then appealed to HC – unanimously held ticket did not record
terms of an agreement but rather the terms of an offer which was subsequently accepted by
conduct (similar to unilateral contract – refer to notes below)
 Judges’ reasons differed
 Barwick CJ:
 Uncertainties of air travel precluded any promise to carry passenger inferred
from issue of ticket e.g. passenger being late and P having right to cancel
their seat
 Deemed passenger was making offer which could be accepted by conduct
i.e. via presenting themselves to travel – if P carried passenger then P would
be entitled to retain fare as a reward but if passenger was not carried, P
incurred no obligation other than to refund fare
 Stephen J adopted conventional analysis in ticket cases – ticket constitutes offer by
airline which is capable of acceptance/ rejection by passenger once passenger has
had reasonable opportunity to read conditions
 Contract formed thereafter would be an example of an ‘imposed contract’
(where there is no room to negotiate) – passengers would not be given
opportunity to negotiate terms and any attempt to would be deemed
pointless since carrier was willing to contract only on its standard terms
Conclusion: Did not accept that ticket created any obligations on P, instead was a mere
receipt for pre-payment of a fare which may or may not be performed. No contractual
obligations between airline and passenger until P provided passenger with a seat on plane.
Offer and Unilateral Contracts
A unilateral contract is one in which the offeree accepts the offer by performing their side of the
bargain
 Performance is all that contract requires of offeree (consideration is completely executed)
 Is only unilateral in the sense that because one party has performed all their obligations by
the time of formation, only one party is ever under a contractual obligation
 Distinguished from a bilateral contract where at the time of formation, the obligations of
both parties remain to be performed
 E.g. A agreeing to pay B a certain amount of money in exchange for their car
 At the time of formation, neither party has yet carried out their promises – at this
stage their promises are said to be executory
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
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D manufactured and sold a “carbolic smoke ball” device which was claimed to prevent colds
and flu; placed an ad which said a reward would be paid to any person who contracted a
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cold/flu after having used the device (ad read “1000 euros is deposited with the Allianz Bank
shewing our sincerity in the matter”). P purchased device, used it for several weeks and
contracted flu. D refused to pay reward to P – P’s claim that there was a contract between
the parties was met with 5 arguments by D:
1. D first argued no promise was intended and ad was a “mere puff” i.e. meant nothing
2. No offer had been made to any particular person
3. P had not notified her acceptance of any offer
4. Agreement was uncertain because it failed to stipulate a period within which the
disease must be contracted
5. P had supplied no consideration for D’s promise
Trial judge in favour of P recovering reward
D appealed – English Court of Appeal rejected D’s arguments and held unanimously that a
contract had been formed
 Rebutted D’s arguments on the following grounds:
 First argument – court held that the statement re bank deposit made it clear
that a promise was intended
 Court construed ad objectively via reasonable person test, rather
than by reference to what D actually intended
 Court held that the offer was made to the whole world and could be
accepted by any person who performed the conditions of ad
 An offer that calls for performance of particular conditions may be accepted
by person performing those conditions; notification not application to offers
of a reward
 Lindley LJ: “ … are an exception to that rule or, if not an exception,
they are open to the observation that the notification of the
acceptance need not precede the performance”
 Was possible to construe ad in 3 different ways, so that the reward would be
paid to any person who contracted the diseases during epidemic, while the
smoke ball was in use or within a reasonable time after using it – all clearly
satisfied by P
 Use of device constituted both a benefit to D and an
inconvenience/detriment to P – consideration established
 Consideration: “Any act of the plaintiff from which the defendant
derives a benefit or advantage, or any labour, detriment, or
inconvenience sustained by the plaintiff, provided such act is
performed or such inconvenience suffered by the plaintiff, with the
consent, either express or implied, of the defendant.” (Laythoarp v
Bryant (1836) 2 Bing (NC) 735; 132 ER 283)
Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424
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P (AWM) claimed a unilateral contract had arisen out of D’s wool subsidy scheme. D
announced via series of letters to manufacturers, including P, that it would pay a subsidy on
wool purchases by manufacturers. P purchased large quantities of wool, D discontinued
scheme and P had excess wool not covered by scheme. P argued D’s announcements
constituted an offer and P’s performance of buying wool constituted both an acceptance and
consideration for the promise to pay.
HC held that for a unilateral contract to arise, promise must be made in return for doing of
act i.e. must be a relation of qui pro quo (this for that)
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 Test to establish: whether offeror has expressly/impliedly requested doing of the act
by offeree, e.g. by stating a price which offeree must pay for promise/whether offer
was made induce doing of act
 In this case, P failed to establish there was a relation of qui pro quo between D’s
promises and P’s acts i.e. D did not request purchase of wool
Also failed to establish that, when viewed objectively, offer was intended to give rise to a
contractual obligation
Conclusion: There was no contract as all D had done was merely make a statement about
policy (the subsidy) – was a conditional gift. An offer is only effective if it identifies a valid
consideration and manifests an intention to create legal obligation.
Offer and Invitations to Treat
Offer should be distinguished from an invitation to treat – an invitation to others to make offers or
enter into negotiations e.g. an indication by owner of property that they might be interested in
selling at a certain price (such as auctions)
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401
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D (Boots) operated a self-service shop – let shoppers pick drugs off shelves and then pay for
them at till. Previously all medicines were store behind a counted and an assistant had to get
what was request. P objected – argued that under Pharmacy and Poisons Act 1933 (UK)
made it unlawful for a person to sell certain drugs unless sale is effect by or under
supervision of a registered pharmacist.
P argued display of goods were an “offer” and when shopped selected and put drugs into
their shopping basket, that was an “acceptance”. Because no pharmacist had supervised
transaction, argued D was in breach of Act. D argued sale was effected only at the till.
HC and Court of Appealed favoured D
 Held display of product in store with price attached is not sufficient to be considered
an offer but rather an invitation to treat
 Somervell LJ saw it as “a convenient method of enabling customers to see
what there is and choose”
 Rather, by placing goods into basket, it was the customer that made the offer to buy
goods – this could be either accepted or rejected by pharmacist at till; completion of
contract was at till in presence of supervising pharmacist so no breach
 Saw that if P was right then once good had been placed in basket then customer
would be bound to item and would have no right without paying for the first item to
substitute it with something else
 Birkett LJ: “… there is no difference merely because a self-service is advertised. It is
no different from normal transaction in a shop”
Conclusion: Invitation to treat is not an offer
Termination of an Offer
An offer lasts until a time specified in the offer, it is revoked or it is rejected
 If no period is stipulated, offer will lapse after a reasonable time has passed – reasonable
time to be determined by the court
 Revocation: Is when offer is withdrawn – may be revoked any time before acceptance,
provided it is brought to offeree’s notice beforehand
 Making of a counter-offer is treated as rejection of original offer and will therefore
extinguish it – courts will draw a distinction between a counter-offer and an inquiry
relating to alteration of terms depending on circumstances
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Offeror will not normally be bound to keep an offer open for a period of time unless that
promise is embodied in a deed or supported by consideration
 E.g. an option, which is an agreement between option holder and grantor where
holder is entitled to enter into contract with grantor either at a specified time or
within a specified period – holder is then free to choose whether to exercise option
at that time/within period (Goldsbrough Mort and Co Ltd v Quinn)
If offer is made to whole world, then offeror must use appropriate means to communicate
revocation of offer to all potential offerees (Mobil Oil Australia Ltd v Wellcome International)
Goldsborough Mort & Co Ltd v Quinn (1910) 10 CLR 674
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D (Quinn) gave P an option with regard to purchase and lease of land – option to last for 1
week. Before expiry of that time, D retracted option, saying it had resulted from a mistake. P
had accepted offer within the week – sought specific performance of sale. D claimed
contract for sale was not complete – agreement evidence by document containing the
option was an agreement to make another agreement and only damages were payable.
HC, after appeal from SC, held that D’s (grantor) attempt to revoke option was ineffective
and once P (option holder) had exercised option, a contract of sale enforceable by specific
performance subsisted between parties
Difference of opinion as to nature of an option:
 Griffith CJ and O’Connor J regarded an option to purchase a property as a contract
for sale of that property, conditional upon the option being exercised within the
specific period – preferred interpretation
 O’Connor J: “In Bruner v Moore [1904] 1 Ch 305, for instance, Farwell J takes
it to be settled law that an option for value is not revocable during the
period for which it is given. The respondent therefore having withdrawn the
offer during the week is liable at law to an action for depriving the appellants
of their right of acceptance.”
 Isaacs J regarded option as a preliminary contract to hold open an offer to sell
property, with exercise of option giving rise to a separate contract of sale
Mobil Oil Australia Ltd v Wellcome International (1998) 81 FCR 475
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At a convention for its franchises, Mobil announced that it wanted to implement an incentive
scheme whereby a franchise who achieves a score of 90% or better in any year would be
granted an extra year’s tenure (1-for-1 proposal) but that this was very difficult to achieve
under the Petroleum Retail Marketing Franchise Act 1980. Also stated:
 “We have more work to do and where we’re at the moment is that maybe the only
way to do this is to say that if you achieve 90% each year for the next 6 years then
we’ll guarantee you another 9 years as of right (9-for-6 proposal) … Now we’ve got a
lot more work to do on this but the commitment that we’re making to you here
today is that we will find a way to extend your tenure automatically no costs if you
consistently achieve 90% or better in Circle of Excellence judgings.”
Later, tenure scheme was discarded – Mobil would not grant renewals free of charge as
previously announced but would discount the renewal fees instead for any franchises who
had met the achievement.
At trial, Wilcox J:
 Held that Moil had made no offer in the 1-for-1 proposal – indicated that this could
not be done under the Act and that it was not a present offer (“where we’re at the
moment”, “maybe”)
 However, held that there was a contractual claim based on 9-for-6 proposal -
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had made an offer to enter into unilateral contract and was not entitled to revoke it once
franchises embarked on performance
 Held that once offer was made, requiring performance as act of acceptance, offeror
could not revoke offer once offeree has embarked upon acceptance
 On appeal – Federal Court disagreed with idea and held no offer
 Were numerous indications that scheme was only at a developmental stage and that
commitment to “find a way” to extend tenure was “simply too vague and uncertain
to be capable of giving rise to contractual obligation” (illusionary)
 Even if Mobil could be said to have made an offer, Mobil was free to revoke that
offer – no universal principle that offeror may not revoke once offeree embarks upon
performance of the act of acceptance
PART B: Formation of Contract – Acceptance (Chapter 2)
An offer by itself has no contractual force – to form a contract, an acceptance (an unqualified assent
to terms of an offer) must be unconditional and correspond to offer. Whether or not an offer has
been accepted is decided objectively i.e. via reasonable person test.
Knowledge and Compliance
Acceptance must be in reliance upon the offer i.e. offeree must have had knowledge of the offer
 Generally an offer can only be accepted by those persons to whom it is made
 An offeree must be aware of offer and its terms when acceptance occurs otherwise there is
no acceptance
R v Clarke (1927) 40 CLR 227
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Crown offered a reward ($) for information leading to the arrest and conviction of murderers
of 2 policeman. Also suggested that a pardon may be available to any accomplice not being
the person who actually committed the murders. Clarke and T were arrested and charged for
one of the murders. Clarke, who knew of the reward offer, made a statement/gave evidence
that led to another’s arrest/conviction. Clarke was then released and claimed $. R alleged by
way of defence Clarke’s statement was not made with view of obtaining reward but for his
own pardon. Clarke had admitted same.
SC found Clarke had not acted in reliance upon offer of $ by R, or with any intention of
entering into any contract, but rather that he acted to save himself from unfounded charge
of murder – i.e. SC found for R
Full C of SC WA upheld an appeal → R appealed to HC:
 Issue: Whether Clarke’s actions in satisfying the terms of the reward amounted to an
acceptance of the offer of the reward
 NB that this is a unilateral contract – performance of act required is the acceptance
 All the judges used “knowledge” or absence/presence of an “intention to respond to
the offer” as a key criterion in evaluating Clarke’s behaviour
 Stark J deemed Clarke did not act "in reliance upon the offer or with the
intention of entering into any contract". Agreed with SC’s judgment that
Clarke gave information solely to clear himself.
 Isaacs ACJ distinguished between motive and intention: “Whilst motive is
not relevant, intention is necessary, and intention presupposes (requires)
knowledge.”
 Higgins J: “Clarke's motive and intention in giving the evidence was to
protect himself … Only after arrest, did Clarke think of claiming the reward. It
wasn't that he didn't know of the existence of the reward before then, it was
just that he stated clearly in his evidence that he did not think about the
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reward at that time so clearly could not have given his evidence, intending to
obtain the reward, or to enter into a contract with those who offered.”
Conclusion: In favour of R – at the time Clarke gave the information, he did not have in his
mind to claim the reward; Clarke’s providing of information required by the reward was not a
valid acceptance of the reward and thus not entitled to claim.
Mode of Acceptance
To be effective, acceptance must be communicated to the offeror prior to termination of offer –
method by which acceptance is to be communicated is a matter for the parties
 If offeror has not prescribed a particular mode of acceptance, then offeree may
communicate their acceptance in any manner he/she wants provided that the acceptance
comes to the notice of the offeror before offer terminates
 Dispensing need for communication:
 Although offeror cannot prescribe silence as a method of acceptance (Felthouse v
Bindley), offeror can waive right to have acceptance communicated e.g. in a
unilateral contract
 Law requires some objective manifestation of acceptance and may be appropriate to
infer acceptance in some circumstances e.g. silence of an offeree in conjunction with
other circumstance may indicate acceptance (Empirnall Holdings v Machon Paull)
Felthouse v Bindley (1862) 142 ER 1037
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After some discussion, P (Felthouse) wrote to his nephew offering to buy his horse for a
stated sum. He also wrote “If I hear no more about him, I consider the horse mine at that
price”. Nephew did not reply but told auctioneer, who he directed to sell his farming stock, to
keep horse out of sale, saying it had already been sold. D, auctioneer, accidentally sold horse
and was then sued by P in conversion – converting the property of P to his own use.
P obtained verdict. D obtained a rule nisi to enter a nonsuit.
 Rule nisi (Latin for “unless”): A court order that does not have any force unless a
particular condition is met. Once condition is met, ruling becomes a rule absolute
and is binding.
At Court of Common Pleas:
 Willes J deemed action failed as nephew had not accepted P’s offer – there was no
notification of acceptance from nephew and P implied an acceptance by silence –
mere silence is not accepted
 “It did not matter that there was evidence that the nephew did in fact intend to sell
the horse to the uncle at that price – the fact remained that he had not
communicated such intention to his uncle, or done anything to bind himself. Nothing
therefore had been done to vest the property in the horse in P down to when the
horse was sold by D. It appears to me that there had been no bargain to pass the
property in the horse to P, and therefore he had no right to complain of the sale.”
Conclusion: An offeror cannot stipulate that no response to an offer will be treated as an
acceptance.
Empirnall Holdings v Machon Paull (1988) 14 NSWLR 523
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Empirnall, a property developer business, engaged Machon to do work as a project manager.
During the course of carrying out the work, M requested a progress payment and a written
contract between the parties. Were told to submit the progress claim but were informed E
“does not sign contracts”. M received progress payments and sent a 2nd letter stating “we are
proceeding on the understanding that the conditions of the contract are accepted by you”.
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By the time matter reached Court of Appeal of SC NSW, issue was whether there as a
contract in terms of draft agreement initially sent by M – E relied on statement that E “does
not sign contracts”
Held:
 McHugh JA:
 “The ultimate issue is whether a reasonable bystander would regard the
conduct of the offeree, including his silence, as signalling to the offeror that
his offer has been accepted …”
 “Silence is usually insufficient to create any contract – the objective
theory requires some external manifestation of consent. However, the
offeror can be bound if communication is dispensed with … The case is not
so much one of acceptance by silence, as of taking the benefit of an offer
with knowledge of its terms and of the offeror's reliance on payment being
made in return for the work being done.”
 Appeal dismissed – E did not object to the terms and conditions but to the manner
of acknowledging them. M clearly offered to perform work and since E had taken the
benefit of the work, with knowledge of the terms on which it was offered, an
objective bystander would conclude that E had accepted the offer.
Week 3 – Consideration and Capacity
PART A: Formation of Contract – Consideration (Chapter 3)
Consideration
 Definition: “A valuable consideration, in the sense of the law, may consist either in some
right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment,
loss or responsibility, given, suffered, or undertaken by the other…”(Currie v Misa (1875) LR
10 Ex 153) – is the price for the promise
1. Benefit/detriment requirement – consideration must consist of a detriment to
promisee or a benefit to promisor
2. Bargain requirement – benefit/detriment must be given in exchange for promise;
quid pro quo (Australian Woollen Mills Pty Ltd v Commonwealth)
 Only a person who has given consideration for other party’s promise may enforce a contract
 Although consideration need not move to promisor, it is fundamental that
consideration must move from promise (person to whom promise is made)
 E.g. bank agrees to lend $ to A if B acts as guarantor; means if A cannot
repay loan, bank can come to B for money – consideration for B’s promise to
the bank is lender’s promise/loan to A i.e. consideration moves from
promise, bank, but not to promisor, B
 Where 2 or more parties to a contract are regarded as joint promises, consideration
may be provided by one of them on behalf of both (Coulls v Bagot's Executor and
Trustee Co Ltd)
 Whether a person is regarded as a joint promisee, and therefore as a party to
consideration given by another, involves a question of interpretation
 An agreement that is not supported by consideration on both sides is said to be nudum
pactum (a naked agreement) and is unenforceable
Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460
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Mr Coulls entered into a contract to allow O’Neil Constructions to mine part of his land in
exchange for paying royalties to Mr Coulls and his wife as joint tenants. Following Mr Coulls’
death, his executor (Bagots) sought to determine whether O’Neil was required to pay the
royalties to the estate or to Mrs Coulls
Whether Mrs Coulls was entitled to receive payment depended on 2 issues:
1. Whether she was a party to the agreement, and
2. Whether she had given consideration for company’s promise to pay
Majority of court ruled she was unable to enforce agreement because (1) was not satisfied –
royalties payable only to estate
Barwick CJ and Windeyer J held that a promise made to 2 or more joint promises can be
supported by consideration provided by one of the promises on behalf of all
 However only applicable if Mrs Coulls had been a party to contract i.e. she did not
need to provide consideration if she could be regarded as a joint promise with the
person who has provided consideration
Bargains and Reliance
Important to distinguish between an act performed as agreed price of promise (bargain) and an act
performed in reliance on a promise – latter will not constitute good consideration but may give rise
to estoppel
Beaton v McDivitt (1987) 13 NSWLR 162
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Resp (McDivitt) owned land and expected it to be rezoned – would increase council rates
payable by Resp. Decided to minimse rates by subdividing land into lots – agreed with App
(Beaton) that they would occupy 1 lot and work rent free. To transfer land to App when
rezoning and subdivision took place. App took possession of land, built a house and road,
and farmed for many years. Rezoning/subdivision never eventuated. Dispute arose between
parties and Resp ordered App off land. App claimed there was a contract which entitled him
to transfer of land.
Young J initially held that although bargain requirement not satisfied, an exception could be
made – deemed P’s reliance on D’s promise amounted to consideration and gave rise to a
Dillwyn v Llewelyn type of contract
On Appeal, McHugh JA made it clear that there was no exception to bargain requirement –
said Dillwyn cases involved enforcement of promises by way of estoppel and not by way of
contract
 Kirby P confirmed no bargain requirement as Beaton made no promise which could
be regarded as a quid pro quo for a promise to transfer land
 Thus Beaton’s reliance on McDivitt’s promise did not constitute conideration
 McHugh and Mahoney JJA found Beaton had provided consideration by working the
land at McDivitt’s request – App’s performance gave rise to unilateral contract
App ultimately unsuccessful because Mahoney JA found contract had been brought to an
end by frustration
Case draws a clear line between contract and estoppel – a person who relies on a promise
should seek remedy in estoppel, not contract
Classification of Consideration
 Executory consideration – where promised acts is still yet to be performed and mere making
of a promise may be regarded as consideration
 Executed consideration – promise has been bargained for and provided so party is entitled to
enforce other party to perform their end of the promise; e.g. a unilateral contract where
consideration by offeree has been provided/executed by time contract is made, such as A
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offers $ to whoever finds and returns lost dog, B does just this and contract is formed when
B returns dog
The Sufficiency Rule
Consideration must be sufficient but need not be adequate
 Parties are presumed to be able to look after their own interest when negotiating a contract
thus consideration need not be adequate/fair, i.e. court does not look at comparative value
of D’s promise and P’s consideration for that promise – will not inquire whether it is
equal/proportionate
 E.g. in Thomas v Thomas (1842) 2 QB 851, a woman’s promise to pay £1 towards the
ground rent and to keep the house in good repair was held to be good consideration
for a promise by her husband’s executors to give her the right to occupy the house
for life
 However, consideration must be sufficient or real
Illusory or Vague Consideration
Consideration cannot be illusory (an “illusion”) or vague – a promise or apparent promise is not good
consideration if it is too uncertain to be enforced, or promisor has retained discretion on whether or
not to perform that promise
Placer Development Ltd v The Commonwealth (1969) 121 CLR 353
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Written agreement where Commonwealth promised to pay a subsidy “of an amount or at
the a rate determined by Commonwealth from time to time”
HC held by a majority of 3-2 that agreement imposed no obligations on Commonwealth to
pay any subsidy – promise was an illusory consideration
 Kitto J: “general principle … is that wherever words which by themselves constitute a
promise are accompanied by words showing that the promisor is to have a discretion
or option as to whether he will carry out that which purports to be the promise, the
result is that there is no contract on which an action can be brought at all”
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Past Consideration
Is when acts relied on as consideration pre-date promise – is not sufficient consideration
 E.g. A gives B a dog and B subsequently promises to pay A $ for it; A cannot rely on giving of
dog as consideration for B’s promise because is past consideration
 Exception: If act was done at request of promisor and was understood between parties that
some payment would be made (payment for past services)
 Important to distinguish from executed consideration (something given as part of the same
transaction as the promise)
Roscorla v Thomas (1842) 3 QB 234
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P bought a horse for £30 from D. Later, at P’s request, D promised that the horse was “sound
and free from vice”. P sought damages for breach of contract, claiming hose was not free
from vice but turned out to be “very vicious, restive, ungovernable and ferocious”.
Lord Denman CJ held that the promise was not enforceable because P had given no sufficient
consideration – payment of the purchase price was a past consideration which did not
support the later promise
Existing Contractual Duties
 As a general rule, neither a promise to perform nor the actual performance of an existing
legal duty is sufficient consideration
 Because promisor essentially gets nothing more than that to which he/she is already
entitled (Stilk v Myrick)
 However, where promisor obtains an additional/practical benefit from promisee's
continuing performance even though the promisee does no more than he/she was already
bound to do, this may be good consideration (Williams v Roffey Bros & Nicholls (Contractors),
Musumeci v Winadell Pty Ltd and Re Selectmove)
 A promise to perform an existing contractual duty already owed to a 3rd party may be
sufficient consideration for another's promise (Pao On v Lau Yiu Long)
Stilk v Myrick (1809) 170 ER 168



2 sailors deserted a ship on a voyage to Baltic. Because captain was unable to replace
deserters, he promised remaining crew that he would divide deserter’s wages among them if
they would sail the ship back to London short of staff. P was one of remaining crew and sued
to recover his share.
Crew were originally employed on basis that they would “do all that they could under
emergencies of voyage” – Ellenborough CJ found that desertion of small part of crew was
such emergency
 Remaining crew were bound by terms of original contract to complete voyage
regardless i.e. agreement to sail boat back was simply a promise to perform an
existing obligation and did not constitute good consideration for promise of extra
payment
Captain’s promise was unenforceable
Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1
Whether or not “practical benefit” is consideration
 D (Roffey Bros) subcontracted P (Williams) for carpentry work. P experienced financial
difficulties and informed D he could not complete the job on time. Under D’s head contract,
D was liable to pay liquated damages to owner of the block of flats if work was completed
11
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

late. D & P made an oral agreement whereby D was to pay P more $ for each completed flat
(to ensure work completed on time) – P accepted, did some more work but ceased when D
did not pay $ promised. D engaged other carpenters – finished one week late and D had to
pay penalty. P sued to recover outstanding amount.
Issue: Whether P provided consideration for D’s promise of the additional payment
Trial judge at County Court held in favour of P
At Court of Appeal – appeal dismissed; P wins
 Consideration was the benefit to D of work being completed on time and thus
relieving D from liability for damages
 This consequential practical benefit to D amounted to sufficient
consideration despite the fact this was never explicitly made subject of the
variation of agreement
 Following principles were set out:
..1. If A has entered into a contract with B to do work for, or to supply
goods/services to B, in return for payment by B, and
..2. At some stage before A has completely performed his obligations under the
contract, B has reason to doubt whether A will, or be able to, complete his
side of the bargain and,
..3. B thereupon promises A an additional payment in return for A’s promise to
perform his contractual obligations on time, and
..4. As a result of giving his promise, B obtains in practise a benefit, or obviates
a disbenefit, and
..5. B’s promise is not given as a result of economic duress (pressure) or fraud on
the part of A, then
..6. Benefit to B is capable of being consideration for B’s promise, so that the
promise will be legally binding
Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723



Musumeci’s rented a shop in a shopping centre run by Winadell. W leased another shop in
the centre to a competing business. M asked for a rent reduction to compensate for this and
W agreed. When a dispute later arose, W sought to terminate lease and M sought damages
for breach, relying in part on W’s promise to charge a reduced rent.
Santow J at SC NSW noted parties relied on Williams v Roffey Bros – however deemed that
unless M could rely on this exception, the Stilk v Myrick decision would apply and prevent
the establishment of consideration here
Considered whether Williams v Roffey should be followed in Australia. Noted there are 3
reasons why a contract to perform existing obligations should not be enforced:
.1.1.
To protect promisor from extortion (threatening breach to extract promise)

Here Santow J considered duress was sufficient protection
(combined with fraud, undue influence and unconscionable conduct) against
this sort of extortion
.1.2.
Because promisee suffers no legal detriment in performing what was already
due and promisor receives no legal benefit in receiving what was already due

Held the fact that a concession/discount was given to P without
extortion supports the implication that a real and practical consideration has
been provided for that concesion
.1.3.
Because a benefit which is merely the hoped-for end result of the
performance cannot constitute consideration

Santow J did not accept that – would be an argument against
consideration in any form
12
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

Santow J then indicated that he would add an element to Glidewell’s criteria in Roffey –
should make it a requirement that as a result of giving this promise, A suffers a practical
detriment (or obviates a benefit) “provided that A is thereby foregoing the opportunity of
not performing the original contract in circumstances where such non-performance, taking
into account B’s likely remedy against A (and allowing for any defences or cross-claims) is
being capable of being viewed by A as worth more to A than performing that contract, in the
absence of B’s promised payment or concession to A.”
 With those clarifications, Roffey “should be followed in allowing a practical benefit or
detriment to suffice as consideration”
In this case, applying Roffey, the practical benefit W gained by promising lower rent was said
to be the “enhanced capacity of [M] to stay in occupation, able to carry out their future
reduced lease obligations” notwithstanding the new competition – this enhanced the
capacity of W to keep a full shopping centre
Conclusion: There was a practical benefit to W and thus valid consideration for varying the
lease
Re Selectmove [1995] 1 WLR 474



Crown demanded ~£25,000 in tax from Selectmove Ltd as they had underpaid. Selectmove
agreed with a tax collector that payment could occur in £1000 monthly instalments. After
accepting 7 monthly instalments, Crown sought a winding up order of Selectmove as they
owed ~£18,000 in tax
Issue: Was there consideration in the agreement to pay in monthly instalments, as the Crown
obtained a practical benefit in that they would get paid
Held: No consideration → claim failed
 Reasoning: Although a practical benefit may be found as consideration where there
is a promise of extra money for existing duties, as per Williams v Roffey , such a
benefit cannot be found in the case of a part payment of a debt (see Foakes v Beer)
Pao On v Lau Yiu Long [1980] AC 614



P (Pao On) agreed to sell shares to Fu Chip (controlled by D, Long) in consideration for certain
shares. To protect the share value, P and D agreed that P would retain 60% of the acquired
shares until April 1974. In view of this restriction, P sought protection should prices of shares
fall during period in which they were unable to sell. In April 1973, P refused to proceed with
the contract unless D agreed to indemnity/guarantee him against the value of the retained
shares falling below a set level. D agreed, but only to ensure public confidence in the
company. Sale proceeded and P sought to enforce the indemnity.
Issue: Whether P had provided consideration for the guarantee by D or whether this was an
instance of “past consideration”
Privy Council at appeal from Court of Appeal of HK found in favour of P
 Held that where there has been the performance of an act followed later by a
promise to pay for the performance, the promise to pay will be supported by
consideration, and therefore enforceable, if:
..1. Earlier act was done at the promisor’s request
..2. Parties understood, at the time the act was done, it would attract some
payment or other form or remuneration; and
..3. If promise had been given in advance of the act, it would be legally
enforceable
Compromise of a Claim or Forbearance to Sue
13
If promisor asserts that they are not bound to perform obligation under an existing contract or
alleges that they have a cause of action under that contract, then the promise given way of a bona
fide compromise of that dispute may be good consideration – is exception to existing legal duty rule
Wigan v Edwards (1973) 47 ALJR 586


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
(Edwards) entered into a contract to buy house from D(Wigan). After contract made, Edward
became concerned about defects in house – gave D list of defects that required attention
before finalising transaction. Although P had no legal right to refuse to complete purchase as
contract had already been made, there were many defects and claim was made honestly. D
signed document agreeing to remedy minor defects within one week of finance being
approved and correct any major defects occurring within 5 years. Rectified some defects
before transaction was completed but nothing thereafter. P sued for breach of contract; D
argued P gave no consideration, that all P had done in return was implicitly agree to perform
existing legal duty to pay purchase price and complete transaction.
HC held that a promise made as part of a bona fide (honest) compromise constituted an
exception to existing legal duty
 Mason J:
 General rule is that a promise to perform an existing duty is no consideration
when:
o Promise is made by a party to a pre-existing contract
o When it is made to promisee under that contract,
o Does no more than promisor is bound to do under contract – new
promise is indistinguishable from the old i.e. is an illusory
consideration
 “An important qualification to the general principle is that a promise to do
precisely what the promisor is already bound to do is a sufficient
consideration, when it is given by way of a bona fide compromise of a
disputed claim, the promisor having asserted that he is not bound to
perform the obligation under the pre-existing contract or that he has a cause
of action under that contract.”
In order to fall within this exception, was not necessary for P to establish that they had a
valid legal entitlement to refuse to perform contract – was enough that they intimated that
they did not consider themselves bound to perform and that their claim was honestly made
i.e. not frivolous or vexatious
Requirement that dispute must be bona fide is said to prevent parties from seeking to obtain
an unfair advantage by withholding performance
Part Payment of a Debt
As a corollary (result) of the excising legal duty rule, part payment of a debt does not constitute good
consideration for an agreement to discharge the debt – known as the rule in Pinnel’s case
 The payer does not give the payee anything to which the payee was not already entitled
(Foakes v Beer) – i.e. in paying part of the debt, the debtor is simply performing (part of)
his/her existing legal obligation
Foakes v Beer (1884) 9 App Cas 605

Beer recovered judgment (in court) against Foakes for debt and costs. Parties signed an
agreement whereby F could satisfy the judgment by paying $ off in instalments in return for
Beer’s promise not to take any further action. F complied with the agreement – Beer then
sought to claim interest that had accrued on the judgment debt.
14


Issue: Whether agreement was enforceable
Court of Appeal in favour of B – appealed to House of Lords:
 Held that interest was payable
 F did not provide consideration in return for B’s promise not to take any further
action as F had a pre-existing legal obligation to pay the whole judgment debt, which
included any accrued interest
 Mere payment by instalments of the judgment debt, less the accrued
interest, was not sufficient consideration
PART B: Formation of Contract – Capacity (Chapter 7)
Not all persons have the capacity to make a binding contract – contracts in such instances may not be
valid or enforceable. The main bases of incapacity are:
 Minors (i.e. a person <18yo)
 In NSW, a contract that is not within the statutory provisions of the Minors (Property
and Contracts) Act 1970 (NSW) is not binding on the minor
 People with a mental incapacity (Gibbons v Wright)
 Person must show they were incapable of understanding contract at the time it was
made and that other party to the contract was aware or ought to have known
 Intoxication
 Capacity of an intoxicated person to make a contract is same as that of a person who
lacks mental capacity
Gibbons v Wright (1954) 91 CLR 423


Gibbons and her 2 sisters-in-law became owners of land as joint tenants. Sisters later
executed documents converting the joint tenancy (equal shares of property) into a tenancy
in common (where each holder has a distinct, separate ownership interests – not necessarily
equal). After sisters’ death, Gibbons claimed that these documents were ineffective because
sisters lacked mental capacity (if this was the case she would become sole owner).
Dixon CJ, Kitto and Taylor JJ held:
 There is no fixed standard of sanity – simply the requirement that each party be of
“such soundness of mind as to be capable of understanding the general nature of
what he is doing by his participation”
 I.e. capacity required is relative to the transaction being effected

Here, it was necessary to show that the 2 sisters were “capable of
understanding, if the matter had been explained to them, that by the executing the
mortgages … they would be altering the character of their interest in the properties
… so that instead of the last survivor … becoming entitled to the whole, each of them
would be entitled to a one-third share …”

This was not satisfied here

Their Honours then considered if the lack of capacity rendered the contract
void or voidable – concluded lack of capacity made a contract voidable only – so
unless the sisters, in their lifetime, sought to avoid the contract it remained valid and
enforceable
Lampropoulos v Kolnik [2010] WASC 193

Parties entered into a “memorandum of understanding” that gave P, an estate agent, option
to purchase house from an elderly man, who was suffering from some form of impaired
15

cognitive capacity/potentially dementia. P ought to have known of man’s reduced mental
capacity – could be inferred from a number of factors including age of man, fact that man
was prepared to enter into an agreement to sell house at a significant undervalue and from
general disorder of his home.
Transaction was also able to be avoided on grounds of unconscionable conduct
16
Week 4 – Intention and Certainty
PART A: Formation of Contract – Intention (Chapter 4)
Intention to Create Legal Relations
An agreement can only be enforceable if the parties intended by that agreement to create legal
relations i.e. whether parties intended to enforce contract through law as compared to elsewhere
 Intention is test objectively i.e. whether a reasonable person would think that this
agreement was intended to be legally binding
 An objective assessment would require consideration of various factors including:
 Closeness of relationship between parties
 Surrounding circumstances to agreement
 Nature of agreement (e.g. whether it is a preliminary agreement)
 Involvement of commercial interests
 Seriousness of consequences of acting on promise
Presumptions
Intention to create legal relations requirement has often been approached with the use of
presumptions – that certain types of agreements are presumed to be intended to be binding whilst
others are not
 If it is a commercial agreement, the law presumes that the parties intended to create a
legally enforceable contract (Banque Brussels Lambert SA v Australian National Industries
Ltd)
 For domestic or social agreements, law presumes that the parties did not intend to create
legal relations (Todd v Nicol)
 Use of presumptions rejected by HC in Ermogenous v Greek Orthodox Community of SA Inc –
care must be used when using presumptions
Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502




Spedley Ltd wanted to borrow $ from P (BBL), a bank. P wanted additional assurance that
loan would be paid off. Spedley was partly owned, through a holding company by D (ANI). D
provided P a letter of comfort – agreed to provide P 90 days notice of any decision to reduce
their holding (shares) in holding company and that their practice was to ensure Spedley
would at all times be in a position to meet its financial obligations. D sold its shares without
giving required notice to P. Spedley was unable to pay repay debt and went into liquidation –
D argued it was not liable to repay P in place of Spedley.
P argued there is a presumed intention to create legal relations in commercial transactions
and that onus was on D to prove absence of such. D rebutted – used Kleinwort Benson v
Malaysia Mining [1989] 1 All ER 785 which held that a statement in a letter of comfort did
not impose any legal obligation – only a moral responsibility which its repudiation was not a
matter for court.
Issue: Whether there was intention and whether terms of letter are of a sufficiently
promissory nature to be held contractual
Rogers CJ at SC examined terms of letter to determine intention
 D stated “it would not be our intention to reduce our shareholding in Spedley –
carries import of intention to rise to legal relations
 Statement re 90d notice was clearly intended to confer a benefit to P – to enable P
to obtain reimbursement
17

 “It is our practice to ensure that Spedley is at all times in a position to repay all loans
made to it by your Bank” evidenced promissory nature – same as saying “we
promise to ensure …”
Held D was in breach of 2 enforceable contractual promises – 90d notice and practice to
ensure Spedley’s obligations were met when fall due
Todd v Nicol [1957] SASR 72



D was lonely and invited Ps (D’s deceased husband’s sister, Margaret Todd, and niece Grace
Todd) to move from Scotland to Australia to share house. D proposed arrangement via letter
– promised to alter her will so that the house would be theirs until they died (or until Grace
married). P accepted offer and lived with D for years. Relationship deteriorated and D asked
P to leave house. P claimed they were entitled by contract to remain in house; D
counterclaimed for possession of house, either on basis that there was no contract (i.e.
proposal was in nature of a family/domestic expedient for mutual convenience or out of
social courtesy) or that had there been any contract, it was validly terminated.
Mayo J in SC:
 Summarised elements of enforceable contract (offer, acceptance and consideration)
and highlighted importance of intention
 Held, that although this was a social/domestic agreement often in which there is no
intention, in this case there was
 D’s letters was dithyrambic (passionate but irregular use of language) –
made it difficult to ascertain intention from letters alone
 SC referred to consequences of P giving up their Scottish home, belongings
and job, and paying for travel expense to Australia, as serious consequences
and unlikely P would make such a move unless they had expectation for
some type of certainty for an enforceable promise
 Intention sourced from language, context and consequences
However breach by P (as D had set up an implied term in contract that P should, whilst
residing in premises, “behave in a reasonable and decent manner”) allowed D to terminate
contractual relations and withdraw licence (for P to visit and remain)
 Mayo J identified home as a place of refuge and rest – “in the presence of persistent
disruptive influences the locality ceases to be a home, it ceases to have the qualities
of a home. As it is no longer a home the licence is ended. Such being the position D
was entitled to act and bring agreement to end.”
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95





App (Ermogenous) was a Greek Orthodox priest who had worked for Resp for many years –
upon resigning, sued for leave entitlements to be paid to him. Resp made defences that they
never went into contract with App because he was a priest and that did not form an
employment relationship thus no employment entitlements.
Issues as to whether there should be presumptions in this arrangement
Industrial magistrate found App was an employee
Resp appealed to FC, where appeal was allowed
 Ruled that parties had no intention to create legal relations – held that the only
arrangement/relationship App had was with a church and not Resp, and was a
spiritual, not contractual, relationship
App appealed to HC
 Intention to be deemed objectively
18

Gaudron, McHugh, Hayne and Callinan JJ: “It is not a search for the
uncommunicated subjective motives of intentions of parties”
 Agreed w/ FC that intention to enter contractual relationship about remuneration of
a minister of religion is not to be presumed – circumstances need to be taken into
account and can be so varied that prescriptive rules, i.e. presumptions, do not apply
 “For our part, we doubt the utility of using the language of presumptions in
this context. At best, [it] does no more than invite attention to identifying
the party who bears onus of proof (in this case, onus of proof was on App to
remonstrate there was a contract).”
 HC argues minister of religion should not necessary be in a specific category as such
propositions may ossify into a rule of law
 Looks at relationship between parties and finds it is not just a spiritual relationship –
based on industrial magistrate’s judgement that there was a contract relationship
and therefore could be enforced App
Administration of Papua and New Guinea v Leahy (1961) 105 CLR 6
Government agreement
 P experienced difficulty controlling cattle tick infestation on his property. Was provided
equipment and advice by Commonwealth Department of Agriculture as part of its tick
eradication program. P request further assistance – arranged with D that officers of
Department would take over spraying of P’s property. Officers failed to do so skilfully and
efficiently; P’s cattle became even more infected. P sued D for damages for breach of
contract.
 P succeeded at first instance
 At appeal in HC:
 Dixon CJ: “Appeal must be allowed on simple ground that facts in no way support
conclusion that D entered into any such contractual relation with P … there was no
intention on [D’s] part to enter into any contract, to undertake contractual
obligations or to do/undertake more than was considered naturally and properly
incident to carrying out their government/departmental function in the conditions.”
 McTiernan J held promises not enough to make a contract unless it was common
intention of parties to enter into legal obligation, mutually communicated
expressly/impliedly
 Conduct of parties constituted an administrative arrangement by which D
went by its agricultural policy and gave P assistance
 Work done by D was analogous to a social service “which generally does not
have [basis of] a legal relationship of a contractual nature and from which no
right of action would arise in favour of citizen who is receiving services if
Government acts inefficiently in performing them”
 Kitto J held D did no more than giving effect to a general policy of providing aid to
individual cattle owners such as P, as a means of copying with a recognised menace
to an important part of Territory’s economy
Masters v Cameron (1954) 91 CLR 353
Involves preliminary agreement – agreement/documents formed before final agreement is signed by
all parties
 Resp (Cameron) and App (Masters) signed a document whereby Resp agreed to sell and App
to buy Resp’s property – document contained the clause “this agreement is subject to the
preparation of a formal contract of sale which shall be acceptable to my solicitors (D’s) on
the above terms and conditions”. Deposit was made by App – later went through financial
19



difficulties and sought to recover deposit on grounds that they were not yet legally bound to
purchase property.
At appeal, HC identified 3 categories/possibilities of contracts arising from preliminary
agreements:
1. Parties have reached finality in arranging all terms of bargain and intend to be
immediately bound by those terms, but at the same time propose to have terms
restated in a form which will be fuller or more precise but no different in effect
 I.e. there is a binding contract at once, regardless of whether formal
documents comes into existence or not
2. Parties have completely agreed upon all terms and intend no departure from or
addition to more terms but nevertheless have made performance of one or more
terms conditional upon execution of a formal contract
 There is a contract binding parties to join in bringing formal contract into
existence and then carry it into execution
3. Intention of parties is not to make a concluded bargain at all until they execute
formal contract
Clause “[created] an overriding condition, so that what has been agreed upon must be
regarded as the intended basis for a future contract and not as constituting a contract” i.e.
category 3 was applicable in this case
Appeal allowed
Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622

Identified a 4th category further to Masters v Cameron: Where parties are content to be
bound immediately and exclusively by the terms which they had agreed upon whilst
expecting to make a further contract in substitution for the first contract, containing by
consent additional terms
PART B: Formation of Contract – Certainty (Chapter 5)
Requirement that contract be certain has 3 aspects:
1. Contract must be sufficiently complete, i.e. parties must have reached agreement on at least
all of the essential terms of contract
 Whether a term is essential/important is for the parties to decide, not the courts –
will depend on nature of contract and circumstances of case
2. Agreed terms must be sufficiently certain and clear that parties can understand their rights
and obligations and courts can enforce them
 I.e. cannot be vague or imprecise that courts cannot attribute a meaning to it
3. Promises made must not be illusory
No binding contract if terms are uncertain, agreement is incomplete or promise is illusory.
Uncertainty
The language has to be capable of meaning whereby the court can attribute a particular contractual
intention to the parties – even if the language is obscure, provided the court can interpret the words
to discern contractual intention, then the agreement is not uncertain
 If the language of a clause lacks meaning, then the contract might still be enforced if the
meaningless clause can be severed without affecting the substance of what was agreed
(Whitlock v Brew)
20
Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1968) 118 CLR
429




Council purchased electricity from a generating authority and agreed to supply ACF with
electricity at certain rates. Agreement provided for automatic changes in rates according to
changes in basic wage and cost of coal delivered to generating authority. Clause 5 stated "if
the Supplier's costs shall vary in other respects than has been herein before provided the
Supplier shall have the right to vary the maximum demand charge and energy charge ..."
Council sought to increase its charges pursuant to the clause; ACF alleged clause was void for
uncertainty (focusing on “supplier’s costs” and thus Council had no entitled to increase
charge.
SC agreed with ACF
Council appealed to HC – appeal allowed:
 No uncertainty even though there may be scope for disagreement about what
constituted supplier’s costs in individual cases, i.e. contract is not automatically void
for uncertainty just because it may be construed in more than one way
 Barwick CJ:
 “As long as it is capable of a meaning, it will ultimately bear that meaning
which the courts, or in an appropriate case, an arbitrator, decides is its
proper construction: and the court or arbitrator will decide its application.
The question becomes one of construction, of ascertaining the intention of
the parties, and of applying it.”
 “So long as language employed … is not ‘so obscure and so incapable of any
definite or precise meaning that the court is unable to attribute to parties
any particular contractual intention’ contract cannot be held to be
void/uncertain/meaningless”
 “A narrow or pedantic approach” to interpretation should not be taken but rather a
constructive approach
Conclusion: When trying to determine the meaning of the language used, it is important to
distinguish between obscurity and lack of meaning
Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130



Pace (resp) entered into a contact of employment with Biotechnology (App) which provided
(via ltr) “I confirm a salary package, a fully maintained company care and the option to
participate in the company's senior staff equity sharing scheme”. No such scheme existed at
time of offer. Resp sued App for failure to provide option (breach). App argued contract was
illusory/uncertain/incomplete regarding the shares.
Trial judge held App liable – appealed to Court of Appeal
Kirby P at appeal:
 Noted distinction between illusory and uncertain terms as described by HC in Placer
as: “… a promise to pay an unspecified amount of money is not enforceable where it
expressly appears that the amount to be paid is to rest in the discretion of the
promisor and the deficiency is not remedied by a subsequent provision that the
promisor will, in this discretion, fix the amount of the payment. Promises of this
character are treated … not as vague and uncertain promises – for their meaning is
only too clear - but as illusory promises ….”
 Where a third person is given power to (and does) resolve any ambiguities in an
agreement then the agreement will not be too uncertain – but that was not the case
here and term was far too uncertain to be enforced
21



Depended entirely on the decision of one of the parties (Biotech) to provide
an equity scheme and there was no 'external standard' the court could use
to try and resolve the ambiguity
 “The problem for a court of construction must always be so to balance matters that,
without violation of essential principle, the dealings of men may as far as possible be
treated as effective, and that the law may not incur the reproach of being the
destroyer of bargains.”
Even if the term was not illusory, it was uncertain – how many shares, what class of shares,
what options would exist, what rights would attach?
Conclusion: Even if the language is obscure, provided the court can interpret the words to
discern contractual intention, then the agreement is not uncertain. For the purposes of
ascertaining this intention, the courts may make reference to external standards or
mechanisms or reasonableness standard.
Incompleteness
An incomplete agreement is one where crucial details/essential terms have been omitted. The courts
will not in effect draft a contract where the parties have failed to stipulate the terms.
Whitlock v Brew (1968) 118 CLR 445



Concerned sale of large land that included a Shell petrol station. Land was sold on condition
that purchaser would grant a lease on part of the land to Shell Company of Australia Ltd
(third party) “on such reasonable terms as commonly govern such a lease”. Purchaser
claimed contract was void for uncertainty and sought to recover deposit.
No evidence that there were any terms for a lease that could be regarded as a
standard/reasonable but even if there were, parties had not agreed on essential terms of
rent – referred to neither period of lease or amount payable.
Conclusion: If the language of a clause lacks meaning, then the contract might still be
enforced if the meaningless clause can be severed without affecting the substance of what
was agreed.
Australia and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 696




Involved an agreement relating to an exhibition of paintings and their reproduction on
calendars.
Agreement held to be incomplete because parties had failed to reach agreement on the
design, style and content of the calendars, quality and size of paper and number to be
supplied (all essential terms)
Kaye J held “the law does not permit a court to imply a term into bargain between parties for
the purposes of making their bargain an enforceable contract”
Conclusion: A contract will be binding if parties have agreed all of the terms on which they
had intended that only they should agree, plus any other terms that court is incapable of
supplying by implication.
Hall v Busst (1960) 104 CLR 206

Busst entered into a written contract to sell to Hall a small island together with various
chattels (possessions) and improvements. Parties also executed a deed which required H or
successors to notify and obtain the consent of B, or his successors, of any subsequent
transfer/assignment/lease of property. Also granted B plus successors an option to
repurchase property for the same price but including the value of all additions and
22


improvements to the property since original sale less the value of all deficiencies of chattel
property and a reasonable sum to cover depreciation of all the buildings and other property
on the land. H sold land to third party without giving notice to B. B sought damages for
breach.
SC QLD in favour of B
Appealed to HC where judges held option re re-purchase not enforceable because price was
uncertain – appeal allowed
 Menzies J concluded there could be no binding contract for sale without agreement
as to price
Illusory Promises
A contractual promise is illusory where the performance required by the promise rests in the
discretion of the promisor (Meehan v Jones)
 Such a promise “is not enforceable … promises of this character are treated … not as vague
and uncertain promises – for their meaning is only too clear – but as illusory promises”
(Placer Development Ltd v Commonwealth)
 Exemptions → contracts will not be considered illusory if important matter are to be
determined by a third party e.g. in Godecke v Kirwan, was accepted that a contract can leave
essential terms to be determined by a third party (solicitors)
Meehan v Jones (1982) 149 CLR 571


Involved a contract for the purchase of property which was "subject to suitable finance being
available". Whether finance was sufficient was left to be determined by the purchaser –
purchaser told vendor they had found satisfactory finance but vendor refused to complete.
Purchaser sought specific performance but Resp/vendor claimed that contract was void for
uncertainty – illusory promise due to discretion. Argued on the following grounds:
1. That the condition left vital matters yet to be agreed – so what appeared to be a
"contract" was really no more than an agreement to agree
2. That the language was so imprecise that one could not say what actions would
satisfy it
3. That if purchaser retains discretion as to whether they will perform obligations, then
what appears to be a contract is really illusory
At HC (appealed from SC QLD) Gibbs CJ held that "satisfactory to the purchaser" clause
“leaves it to the discretion of the purchasers whether he will perform the obligations which
the contract purports to describe, so that what appears to be a contract is really illusory”.
Godecke v Kirwan (1973) 129 CLR 629



Godecke (purchaser) and Kirwan (vendor) entered into a written agreement for the sale of
land. Had a clause stating that if K required it, G would execute a further agreement
containing the terms of that agreement and any other as determined by K's solicitors (within
reason). K subsequently refused to proceed with the sale. G lodged a caveat (a statutory
injunction preventing registration of particular dealings with property) – K issued a summons
seeking removal of caveat.
Trial judge held the agreement was not binding – caveat be removed
G appealed to HC:
 Walsh J deemed parties had set out all the principal terms governing the sale of land,
including “an obligation to execute a formal contract” and a promise by G to
“execute, if required … a further agreement”. Walsh considered that requirement
should be “limited to permitting the insertion of covenants and conditions not
23
inconsistent with those contained in the offer” and such additional conditions
needed to be reasonable. This was not an “agreement to agree” on additional
provisions but an agreement by G to accept additional provisions if reasonably
required
 I.e. clause did not require a further agreement, only allowed K’s solicitors to
add terms unilaterally – solicitors could only add terms which are consistent
with original offer and reasonable in an objective sense
 This was, therefore, not a case “in which all the terms of the contract had not been
settled” – a binding agreement had been made
 Appeal allowed
24
Week 5 – Formalities and Privity
PART A: Formation of Contract – Formalities (Chapter 6)
Form of Contracts
There is no general requirement at common law that contracts must be in writing
 However, a statute may require that certain types of contracts must be in writing to be
enforceable e.g. cheques, bills of exchange and consumer credit contracts
 There may be statutory requirements that require particular types of contract to be
evidenced by writing e.g. contracts dealing with interests in land
If a contract is unenforceable, it does not mean it is void – a contract nonetheless exists but terms of
contract may not be legally enforced and there may be no action at common law for damages
Evidenced in Writing
 Statute of Frauds:
 Originated in 1677, providing that no action could be brought on contract of
particular types unless agreement via some memorandum/note of agreement was in
writing and signed
 Was designed to prevent fraudulent claims being made on false evidence – at the
time, P could pay a witness to give false testimony that a verbal agreement had been
made with D and D could not give evidence to deny
 One of the most important Statute of Frauds provisions are those affecting contracts relating
to land
 s54A(1) of Conveyancing Act 1919 (NSW): “No action or proceedings may be brought
upon any contract for the sale or other disposition of land or any interest in land,
unless the agreement upon which such action or proceedings is brought, or some
memorandum or note thereof, is in writing, and signed by the party to be charged or
by some other person thereunto lawfully authorised by the party to be charged.”
 Where contract is made in writing, P may rely on written contract but where contract is
made verbally, P may rely on a memorandum/note of agreement (a document that provides
evidence of existence of verbal agreement)
Material Terms
Whilst the writing does not have to be in a particular form or couched in legal language, it must
contain all material terms such as:
1. Parties must be identified
2. Subject matter of the contract must be sufficiently described (Pirie v Saunders);
3. Consideration must be identified; and
4. Special conditions must be identified
Acknowledgement by the Party Charged or Their Agent
Writing must be signed by the party charged i.e. the person sought to be made liable, though
concept of signature is somewhat loose
• Has been interpreted to mean that party’s name must be appended to the document with
the intention that it serves as an acknowledgement of the obligation
• If the party’s name is printed, written or signed anywhere on the document, this may suffice
as a signature (also known as the “authenticated signature fiction”) (Pirie v Saunders)
25
Pirie v Saunders (1960) 104 CLR 149
•
•
•
Saunders) bought an action for damages for breach of a shop lease by D (Pirie). Main
defence by Pirie was that Conveyancing Act required written evidence of lease. P relied upon
a note of Pirie’s instructions written by Pirie’s solicitors – claim that this satisfied the
statutory requirement of writing. Note described the property, set out term of lease and rent
to be paid. But did not indicate when the lease was to commence and also contemplated the
formation of further terms.
P sauanders unsuccessful at SC NSW. On appeal to Full Court:
 Held that note was capable of being regarded as a sufficient note/memorandum of
an earlier concluded agreement – based upon “authenticated signature fiction"
 If name of party being charged appears on the document, and such party
expressly/impliedly indicates that he recognises the writing as being an
authenticated expression of the contract, then parties’ written name is to be
treated as a signature for the purposes of the statute
Pirie appealed to HC:
 Held that solicitor’s notes did not constitute a sufficient memorandum under s 54A
→ no enforceable lease between the parties
 Note was merely a notation of instructions for the preparation of a draft lease of
submission to the other party – not indicative of the existence of any binding
contract
 There was no evidence that Pirie had any knowledge of what was written done, let
alone recognise writing as an authentic record of a prior oral bargain
 Material terms not identified – document incapable of being regarded as a
sufficiently complete record of the contract as fails to specify the property with
necessary precision and it contemplates the formulation of further special conditions
Doctrine of Part Performance
A contract for sale of land which fails to meet the requirement for written signed contracts (e.g. an
oral contract) will raise an equitable title if it has been partly performed i.e. court may rule that,
since agreement has been partly performed, it is binding despite not being in writing
• When determining whether part performance applies, court examines:
1. Whether the acts imply the existence of an agreement?
2. If so, what are the terms of the agreement?
• Following requirements must be satisfied (as set out by McBride v Sandland (1918) 25 CLR
69):
 Acts relied on must unequivocally (clearly), and in their own nature, be referrable to
(indicative of) some agreement of the general nature of that alleged
 Requires that acts must have been done solely for the purposes of fulfilling
the alleged agreement – no other reason they were performed
 Party performing the acts must have been doing so in reliance on the alleged
agreement (i.e. under the assumption that the agreement exists), and the other
party must have permitted the acts to be done also because of the agreement
 Acts must have been done by a party to the alleged agreement
 Alleged agreement must have been complete
 Acts must have been done in compliance with the terms of the oral agreement
Ogilvie v Ryan [1976] 2 NSWLR 504
•
D (Ryan) claimed that she had orally agreed with Ogilvie that if she lived with him and looked
after him until his death, she would have life tenancy of his house i.e. be able to live in the
26
•
house for as long as she wished. Ogilvie died without mentioning D in his will. P (executor of
Ogilvie’s estate) sought possession of house from D.
Held: D's actions of changing house and providing unpaid care were not unequivocally
referrable 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.
Regent v Millett (1976) 133 CLR 679
•
•


Regents' bought a house. Shortly afterwards via oral agreement, they sold it to their
daughter and son-in-law, the Milletts. Consideration involved making mortgage payments
and paying a lump sum of $1,000. M went into possession and began paying mortgage; also
made repairs to house with knowledge and consent of R’s. R refused to transfer house – M
sought specific performance. R relied on failure to comply with formalities.
M succeeded at first instance – argued that there was part performance by them via taking
of possession, repairs and renovations, and making mortgage payments
R argued that there was no part performance because:
 Acts were not unequivocally referrable to some such contract as alleged by M (they
also claimed that a narrower test should apply – that is, that ‘performance must
necessarily imply the existence of the contract’, but this was rejected)
 Acts must have been done under terms of the particular agreement alleged and “by
force of that agreement”
R appealed – at HC, Gibbs J (with whom rest of court agreed):
 Noted there are many cases in which taking possession, coupled with expending
money on the property with the permission of the other party have been held to
constitute acts of part performance
 In this case, entry into possession alone was a sufficient act of part performance: “if
a vendor permits a purchaser to take possession to which a contract of sale entitles
him, the giving and taking of that possession will amount to part performance
notwithstanding that under the contract the purchaser was entitled rather than
bound to take possession.”
 Appeal dismissed
PART B: Privity of Contract (Chapter 8)

Doctrine of Privity
Only parties to a contract can acquire rights and liabilities under that contract
• Means that a 3rd party who may be intended to benefit under contract but is not personally a
party to it, has no rights/liabilities under said contract (Coulls v Bagot’s Executor & Trustee Co
Ltd)
 3rd party would have to rely on promisee to take legal action to enforce the promise
(Trident General Insurance Co Ltd v McNiece Bros Pty Ltd)
Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460
Facts above under “Consideration”
 Majority opinion: Company owed no obligation to wife as she was not a party to the
agreement – contract was expressly between P and company, and wife signing did not make
her a party
27
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107

Blue Circle was conducting a building project and had an insurance policy with Trident, to
cover any injuries to BC employees and any other parties Blue Circle engaged to work on
project. Policy defined “assured” parties as including all BC’s contractors and subcontractors, which included McNiece. A McNiece employee became injured and sued
McNiece in a personal injury claim. McNiece sought indemnity from Trident under BC’s
insurance policy. Trident refused to pay – denied liability on grounds that McNiece was not a
party to the insurance contract.

Insurance Contracts Act 1985 (Cth) passed shortly after – allows a person who is covered by
insurance but not part to the contract to recover damages. However, did not apply to
contracts made before its commencement
McNiece succeeded at first instance at SC NSW
Went to Court of Appeal:
 Found there was no privity of contract and McNiece had not provided consideration
to Trident
 Nevertheless, in favour of McNiece on ground that under insurance policies,
beneficiaries can sue on policy despite no privity or consideration i.e. an exemption
to privity rule should be made in insurance agreements
Trident appealed to HC – dismissed:
 Majority held privity had outlived its purpose and should be abolished/reforms need
to be made – courts have responsibility to reform rules which operate
unsatisfactorily and unjustly
 Mason CJ and Wilson J concluded that McNiece was not a party to the contract and
thus, as a general rule the doctrine of privity, precluded from enforcing contract.
However, this was a special case – as McNiece was within the class of persons
expressed to be insured by a public liability policy, it could enforce the indemnity
provided for in the contract.
 Noted fundamental rules of privity of contract and requirement that
consideration move from the promisee have been “under siege”. In US,
subcontractors can sue insurers direct. But despite calls for reform,
traditional rules have survived in UK and by extension in Australia. There
have been some statutory reforms like the Insurance Contracts Act
1984 (Cth) but normally traditional rules still apply
 Whether the old rules apply to policies of insurance → their Honours
considered no. Noted that while an action based on estoppel might be
possible, the rights of a respondent should not depend upon its ability to
make out this claim.
 More generally (obiter) they indicated that they would be in favour of a
“simple departure from the traditional rules [which] would lead to third



28




party enforceability of such a contract [one made for benefit of third party],
subject to the preservation of a contracting party’s right to rescind or vary, in
the absence of reliance by the third party to his detriment, and to the
availability in an action by the third party of defences against a contracting
party.”
Toohey J of similar opinion re reforms
 Expressed concern that law was based on “shaky foundations” in “its widest
form, lacks support both in logic or in jurisprudence”. However, concluded
law was capable of some flexibility.
 Confined his reasoning to insurance contracts – held that where policies of
this nature were created for the direct benefit of a 3rd party, 3rd party may
sue directly upon the policy notwithstanding they are not a party to the
contract.
 “The proposition which I consider this Court should now indorse may be
formulated along these lines. When an insurer issues a liability insurance
policy, identifying the assured in terms that evidence an intention on the
part of both insurer and assured that the policy will indemnify as well those
with whom the assured contracts for the purpose of the venture covered by
the policy, and it is reasonable to expect that such a contractor may order its
affairs by reference to the existence of the policy, the contractor may sue the
insurer on the policy, notwithstanding that consideration may not have
moved from the contractor to the insurer and notwithstanding that the
contractor is not a party to the contract between the insurer and assured.”
Dawson J and Brennan J (both dissenting) held that privity doctrine precluded
McNiece from enforcing contract – Brennan J established “exceptions” to the rule
Deane J applied laws relating to trust to assist McNiece
Gaudron J deem McNiece unable to recover in contract due to privity but could
recover based on a claim of unjust enrichment
Circumventing Privity Rule
According to Brennan J in Trident General Insurance Co Ltd v Mc Niece Bros Pty Ltd, there are no
exceptions to the rule (other than those created by statute). What appear to be exceptions are, in
fact, devices created to circumvent (avoid) difficulties that result from the application of the privity
doctrine.
1. Agency
 Assume A and B negotiate a contract and A is acting as agent for C, then A is
contracting on behalf of C. C is the principal and a party to the contract (see also
“Himalaya clauses” below).
 Either agent A or principal C, or both, can sue to enforce contract
2. Assignment
 A enters into a contract with B. A (promisee) assigns or transfers rights under
contract to M – bundle of rights is referred to as a chose in action. The effect of the
assignment is to put M into the same position as A had been i.e. a party to the
contract.
 Right to assign is restricted if the right was personal to the promissee/assignor
(Pacific Brands Sport & Leisure v Underworks Pty Ltd (2006) 19 FCR 395).
3. Trust
 A and B enter into contract – B is promisee and holds contractual rights under the
contract on trust for H. H (beneficiary) has an equitable right to force B (trustee) to
take legal action to protect H's legal interests under the contract i.e. has effect of
compelling B to sue A on behalf of H
29
 Trustee: A person who holds property/authority/position of trust/responsibility for benefit of
another
4. Statutory provisions e.g. Insurance Contracts Act 1984 (Cth)
5. Exemption clauses intended to benefit an agent or employee
 Contracts for carriage of goods commonly contain clause exempting/limiting liab for
loss/damage to goods – typically extend to cover employees, agents and subcontractors of carrier e.g. stevedores engaged to load/unload goods
 Known as Himalaya clauses
 Requirements (4-stage test as laid down by Lord Reid in Scruttons Ltd v Midland
Silicones Ltd [1962] AC 446):
 Contract makes it clear that 3rd party is to be protected – that a benefit is to
be conferred on a beneficiary)
 A contracting party must have contracted on own behalf and that of the 3rd
party – contact makes it clear that promisee is acting as agent of beneficiary
 Contracting party must have authority of 3rd party i.e. promisee was
authorise to enter into contract on beneficiary’s behalf; and
 3rd party provides consideration (Port Jackson Stevedoring v Salmond &
Spraggon (Aust) (‘The New York Star’); see also New Zealand Shipping Co Ltd
v A M Satterthwaite & Co Ltd (‘The Eurymedon’) – discussed in Port Jackson
Stevedoring)
Port Jackson Stevedoring v Salmond & Spraggon (Aust) (The ‘New York Star’) (1978) 139 CLR 231


Re shipment of razor blades from Canada to Australia. Bill of lading/contract between parties
imposed a 1yr limitation period for proceedings re loss/damage to goods (cl 17). Cl 2 was a
Himalaya clause, extending benefit of limitation to subcontractors employed by carrier.
Goods were unloaded and kept in stevedore’s storage – some later stolen. Consignee (buyer
of goods) sued stevedore for negligence, outside limitation period. Stevedore relied on
Himalaya clause.
At HC, following appeal from Court of Appeal NSW:
 By majority of 3-2, held stevedore was entitled to protection under cl 17
 But by 4-1, held stevedore’s actions were not covered by cl 2
 In applying Lord Reid’s 4-stage test:
 Consignee conceded first 2 requirements was satisfied
 Barwick CJ held 3rd element was satisfied because carrier had acted with
authority of stevedore as its agent in contracting for stevedore’s protection
 Stevedore provided consideration by unloading the goods
New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd (‘The Eurymedon’) [1975] AC 154



Goods were damaged as result of the negligence of the stevedore’s unloading of the ship.
International rules of carriage of goods by sea discharged the carrier from liability if there
was no claim made within a year. The owners did not commence an action for negligence
within said period.
Issue: Did the stevedore have the benefit of the limitation and was he exempt from liability?
Clause satisfied the conditions laid down in Midland
 Consideration element was satisfied by the stevedore performing the service of
unloading the goods from the ship
Week 6 – Express Terms (i) and Consumer Contracts
30
PART A: Express Terms (i) (Chapter 9)
Incorporating Terms in a Contract
 Express terms are those explicitly included in contract by parties
 Even in situations where one party intends a statement to be a term of the contract,
questions may arise as to whether that party has done enough to have the term
incorporated into the contract
 Main methods of incorporation include signature, notice, acceptance of ticket and course of
dealing
Signature
If a party has signed the contract, in the absence of fraud, that party will be bound by the written
terms. Knowledge of the terms need not be established. (L'Estrange v F Graucob Ltd)

Exceptions to this rule:

Document signed was apparently a non-contractual document

Where the document signed is non-contractual in nature, the clause
will not be incorporated into the contract unless the clause contained in the
non-contractual document was brought to the actual notice of the other
party (Curtis v Chemical Cleaning and Dyeing Co)

Where doctrine of non est factum applies

Latin for “it is not [his] deed” – means where a party resists
incorporation of a term by pleading signature isn’t theirs

Party must belong to a class of persons who rely on others for
advice, e.g. may be blind, illiterate or suffer some intellectual disability, and
document signed is radically different in character/effect from what he/she
thought they were signing

See Petelin v Cullen

Clause is misrepresented to the party against whom the clause is being
enforced (Curtis v Chemical Cleaning & Dyeing Co)
L’Estrange v F Graucob Ltd [1934] 2 KB 394



P entered into a contract to buy a cigarette vending machine from D. P signed a form headed
“Sales Agreement”. When machine was delivered, it did not work satisfactorily. P sued for
breach of an implied warranty (that the goods were reasonably fit for purposes for which it
was required when actually otherwise). D relied on an exclusion clause in the Agreement
signed by P which excluded such implied warranties: “The agreement contains all the terms
and conditions under which I agree to purchase the machine specified above and any
express or implied condition, statement, or warranty, statutory or otherwise not stated
herein is hereby excluded”.
Trial judge held there had been a breach
 That when P signed form she had no knowledge about exclusion clause – typing was
unreasonable small
 Relied upon ticket cases to argue that notice of conditions had to be given – D did
not do what was reasonably sufficient to give P notice of exclusion clause
D appealed to Divisional Court – appeal allowed
 Scrutton LJ established signature rule: If a party has signed the contract, in the
absence of fraud, that party will be bound by the written terms. Knowledge of the
terms need not be established.
31
 “P having put her signature to document and not having been induced to do so by any fraud or
misrepresentation, cannot be heard to say that she is not bound by terms of document because she
not read them”
 Agreed with Mellish LJ in Parker v South Eastern Ry Co (1877) 2 CPD 416 “where an
action is brought on a written agreement which is signed … in the absence of fraud,
it is wholly immaterial that he has not read the agreement and does not know it
contents”
Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805




Curtis (P) took a white satin wedding dress to D for cleaning. D’s shop assistant handed P a
paper headed “receipt” which P was asked to sign. Before doing so, P asked why – was told
that it was because D would not accept liability for certain specified risks, including risk of
damage to beads and sequins with which dress was trimmed. P then signed “receipt”. In fact
paper contained a term excluding D from liability for any damage “howsoever arising”. Dress
returned with a strain, P sued for damages.
County Court judge held that onus was on D to show damage was not due to their
negligence, that they had failed to discharge that burden and that because of innocent
misrepresentation by shop assistant they could not rely on condition contained on receipt –
P awarded damages
D appealed against finding of misrepresentation – dismissed
 Denning LJ reasserted signature rule as per L'Estrange v F Graucob Ltd however
provided exception in this case due to the misrepresentation
 Deemed that any behaviour, by words or conduct, is sufficient to be a
misrepresentation if it is such as to mislead the other party about the existence or
extent of the exemption
 “If false impression is created knowingly, it is a fraudulent misrepresentation;
if it is created unwittingly, it is an innocent misrepresentation but either is
sufficient to disentitle the creator of it to the benefit of the exemption”
 Concluded that by failing to draw attention to width of exemption clause, assistant
created false impression that exemption only related to beads and sequins – was
done innocently but nevertheless created misrep
 Denning LJ also considered that P might reasonably have understood document only
to be a receipt to be presented when collecting dress and not understood to contain
contractual terms
 I.e. document signed was apparently a non-contractual document (was a
“receipt”)
Conclusion: Case where one party has been misled about nature/extent of contractual
terms, signature rule in L'Estrange v F Graucob Ltd does not apply and term in question is not
binding on parties
Toll (FGCT) P/L v Alphapharm P/L (2004) 219 CLR 165

Finemores (which was taken over by Toll, explaining the case name) entered into a signed
contract with Richard Thomson Pty Ltd (said to be acting for Alphapharm) to store and
transport goods for Alphapharm. It was alleged Finemores performed this contract
negligently, causing loss to Alphapharm. Finemores sought to escape liability by relying upon
an exclusion clause in its contract with Richard Thomson. Was argued that term was unusual
in type of contract and should not be binding in absence of notice of term being given to it
before signing.
32


Rejected by HC – did not consider term in question unusual and noted that document
“invited” person signing to read the terms it contained
Court strongly affirmed signature rule (signature is binding regardless of whether party
signing had read the relevant terms)
Petelin v Cullen (1975) 132 CLR 355
Doctrine of non est factum
 Resp (Cullen) wished to buy land from Petelin (App) who spoke little English and could not
read English. App signed a document believing it to be a receipt for $50 when in fact it gave
Resp an extension of option to purchase land which Resp then exercised. App refused to sign
contract of sale and Resp sough specific performance – App pleaded non est factum.
 App succeeded in his non est factum claim on appeal to HC – court held:
1. Petelin believed that what he had signed was merely a receipt
2. That App was not careless in this respect – he could not read English and
understanding the document was beyond his capacity
3. And even if he had been careless, Resp was not an “innocent person without
knowledge or reason to doubt the validity of App’s signature”
 Established that defence of non est factum only available to particular class of people –
“those who are unable to read owing to blindness or illiteracy and who must rely on others
for advice as to what they are signing” and “to those who through no fault of their own are
unable to have any understanding of the purport of a particular document”
 Party seeking to rely upon this defence has a heavy burden of proof and must show that:
1. He/she believed the document to be radically different from what it is (e.g. in this
case App thought it was a receipt)
2. That his/her failure to read and understand document was not due to carelessness
(careless = he/she failed to take “reasonable precautions in ascertaining the
character of [the] document before signing it”)
Notice
If there is no signature, the usual way that a term is incorporated is by giving the other party notice
of the term
 Person seeking to rely on the term must do everything reasonably necessary to bring the
term to the attention of a reasonable person (Oceanic Sun Line Special Shipping Company
Inc v Fay, Thornton v Shoe Lane Parking Ltd, eBay International AG v Creative Festival
Entertainment Pty Ltd)
 What amounts to reasonable notice? Notice must be in such a form that it is likely
to come to the attention of the party to be bound
 Reference to terms not readily available is not sufficient notice – where one party
seeks to incorporate terms by advising OS that contract is subject to terms
contained in another document in circumstances where said document is not
immediately available to party to be bound (Thornton v Shoe Lane Parking Ltd)
 Prominence of notice of terms must be proportionate to unusual nature of term, i.e. notice
is all the more necessary when party seeks to rely on unusual terms
Oceanic Sun Line Special Shipping Company Inc v Fay (1988) 165 CLR 197

Fay (P) made a booking in NSW for a cruise of Greek islands on a ship owned by D. Upon
payment of fare, P was handed an “exchange order” which stated that it would be exchanged
for a ticket when P boarded the ship. In Athens, P obtained his ticket – had a condition that
33



court of Greece would have exclusive jurisdiction in any action against owner. P got injured
on ship and sued D for negligence in SC NSW. D relied on clause on ticket.
Question was as to when contract was made
 If it was when P’s travel agent in Sydney paid P’s fare to D’s agent?
 Or when ticket was issued to P in Greece?
D claimed there was no contract made in Sydney because it reserved the right to cancel
cruises, making their promise illusory – relied upon MacRobertson Miller Airline Services v
Commissioner of State Taxation (WA)
 However, in MacRobertson the court regarded the exemption clause as showing that
the carrier "undertakes no executory obligation which creates rights in an oblige”
 This does not apply here – D does incur contractual obligations through the
exchange order
 Brennan J: "The exemption endorsed in the exchange order is not so wide as
to preclude the existence of any contractual obligation on the part of D
when the exchange was issued. To the contrary, the exchange order contains
promises to refund the fare if the cruise is cancelled and to exchange the
exchange order for a 'Sun Line ticket when boarding the vessel' if the cruise
is to proceed.”
 Exchange order also specified contractual rights of D e.g. refusing refunds in
case of a passenger cancellation – if no contract was made through exchange
order, then D could not rely on this right i.e. could not refuse refunds etc.
HC ultimately held that contract was entered into in Australia when cruise was booked –
conditions on ticket issued later, when passenger arrived in Greece, could not form part of
contract as P was not notified
 Brennan J: “Where an exemption clause is contained in a ticket or other document
intended by carrier to contain terms of carriage yet other party is not in fact aware
when contract is made that an exemption clause is intended to be a term, carrier
cannot rely on clause unless at time of contract carrier had done all that was
reasonably necessary to bring exemption clause to passenger’s notice.”
 Only step which D took to bring clause to P’s notice before fare was paid was a note
in a brochure
 Hollingworth v Souther Ferried Ltd (The “Eagle”) [1977] 2 Lloyd’s Rep 70 held
that a mere statement in a carrier’s brochure was not enough to make
condition part of contract terms
Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163


Thornton (P) parked his car at a car park owned by D – he had never gone there before. P got
injured on premises – D sought to exempt themselves from liability via exempting condition
issued on P’s parking ticket (the contracting document): “This ticket is issued subject to
conditions of issue as displayed on premises”. P did not read clause.
P awarded damages by trial judge – D appealed to Court of Appeal:
 Lord Denning MR first concluded that contract was established during when P drove
up to entrance and by movement of his car, caused auto ticket machine to thrust a
ticket at him
 Terms of offer were contained in notice placed on/near machine stating
what is offered for the money (how many hrs for $)
 Reaffirmed notice rule: “The customer is bound by those terms as long as
they are sufficiently brought to notice beforehand, but not otherwise. He is
not bound by terms printed on ticket if they differ from notice, because
ticket comes too late. The contract has already been made.”
34
o
I.e. ticket is no more than a voucher/receipt for money that has
been paid
 Reference to terms not readily available: Notice relied on by D referred to terms that
customers could not read without getting out of their cars and going into car park to
find sign containing terms
 Appeal dismissed
Interfoto Picture Library Ltd v Stiletto Visual Programs Ltd [1989] 2 QB 433


Interfoto ran library of photographic transparencies – sent some to and at Stiletto’s request.
In bag containing goods, there was a delivery note – bottom headed “Conditions” printed in
fairly prominent capitals. 1 condition was that goods must be returned within 14 days and
that a holding fee would be charged for each transparency retained longer than that period.
Stiletto trained transparencies for additional 2 weeks and was charged a big fee.
English Court of Appeal held Stiletto was not liable to pay fee
 Contract was not made until Stiletto opened bag containing photographs
 Once delivery note was taken out, Stiletto would have recognised it as a document
reasonably likely to contain contractual terms and would have seen terms printed
 However, Bingham LJ considered that Interfoto was under a “duty in all fairness” to
draw OS’s attention to high price payable outlined in conditions – this particular
condition was “unreasonable and extortionate” i.e. unusual
 Interfoto did not do what was reasonably necessary to draw OS’s notice/not
proportionate to unusualness of condition
Baltic Shipping Co v Dillon (‘The Mikhail Lermontov’) (1991) 22 NSWLR 1
Terms contained in ticket were, prior to issue of ticket, available to passengers at offices of cruise
provider “scarcely amounted to sufficient compliant with App’s responsibility to bring unusual
conditions at least to notice of passengers … before they would be bound by them”.
Acceptance of Ticket
 In Parker v The South Eastern Railway Co, the court found that, if a party knows that there is
writing on the ticket and it is a contractual document, then that party is bound by those
terms even if they are unread
 In cases where the clause that is sought to be incorporated by ticket is particularly onerous,
the party seeking to rely on this clause must take action to draw the other party's attention
to the particular condition (Thornton v Shoe Lane Parking Ltd)
Parker v The South Eastern Railway Co (1877) 2 CPD 416



Parker left bag in cloakroom of the railway station run by OS. Parker paid his money and
received a ticket, on front of ticket said “see back”, back contained a clause excluding OS
from liability for items worth £10 or more. Parker failed to read clause as he thought ticket
was only a receipt, but knew there was writing. Bags went missing and P sued. Company
relied on exemption clause.
Issue: Whether a person could be bound by an exemption clause if they had not read the
clause but had been aware of the writing on the ticket
Trial judge found in favour of Parker – deemed it was reasonable for him not to read ticket
 Issue of ticket was regarded as an offer by company – if customer took it and
retained it = acceptance of offer
35



Based on theory that customer, on being handed the ticket, could refuse it
and decline to enter into contract on those terms/could ask for his money
back
 Factually no customer would normally stop to read condition – if did, likely
they would have missed train/boat
At Court of Appeal – majority held there should be a retrial
 Mellish LJ: “If he knew there was writing on the ticket, but did not know or believe
that the writing contained conditions, nevertheless he would be bound, if the
delivering of the ticket to him in such a manner that he could see there was writing
upon it, was, in the opinion of the jury, reasonable notice that the writing contained
conditions.”
Conclusion: Individual cannot escape a contractual term by failing to read contact but a party
wanting to rely on exclusion clause must take reasonable steps to bring it to the other’s
attention
Incorporation by Course of Dealing
 Is when contract between parties is preceded by a series of transactions overtime – may
have effect of incorporating terms into contract
 Whether or not terms have been incorporated by a course of prior dealing depends upon the
extent of dealing between the parties and the steps taken to bring the clause to other party’s
attention – party, against whom the term is to be enforced, was or should have been aware
of its existence from the prior course of dealing (Rinaldi & Patroni Pty Ltd v Precision
Mouldings Pty Ltd)

Rinaldi & Patroni Pty Ltd v Precision Mouldings Pty Ltd (1986) WAR 131



Resp (Precision Mouldings) constructed fishing boats – App (Rinaldi) provided transportation
services for Resp’s goods/boats under a verbal contract. Boat was negligently damaged by
App during transport. Parties had a history of dealings with each other – performed same
services under same contract multiple times. In every previous dealing, a consignment note
would be signed, which had terms and conditions attached – condition 5 absolved App of
liability for losses during transport.
App argued history established “a course of dealings” – as Resp had accepted terms and
conditions on previous occasions, terms set out on consignment note could be incorporated
into original oral agreement
At SC WC (Full Court):
 Judgment for Resp
 Because consignment notes were not “contractual documents”. Rather, they were
characterised as documents to identify the act of delivery – this is because they were
received and signed by Resp after delivery. In order to incorporate terms based on a
course of dealings, documents would have to have been contractual documents.
Parol Evidence Rule
Extrinsic evidence: Evidence outside written contract that may be brought to add/vary terms of that
written contract
 2 parts:
1. Rule prevents extrinsic evidence being given to add to, vary or contradict the terms
of a contract as they appear in a written document
2. Rule limits evidence that can be given to explain meaning of the terms of the written
contract
36

 Existence of a formally written contract usually infers that if there were
statements made in negotiations not included in said written contract, then
they were not intended to be part of it (otherwise they would have included
them)
A party to a contract may allege that the written contract before the court does not contain
all of the terms of the contract – in such circumstances, that party may seek to present
evidence to the court of additional terms to written contract
 Issue is whether parties intended that the whole of their agreement to be recorded
in a particular document(s) – intention to be is determined objectively i.e. would a
reasonable person have understood the writing to contain the whole of the
agreement?
 Court is thus required to look at all of the evidence (including the surrounding
circumstances) to determine the intention of the parties
 Mason J in Codelfa Construction v State Rail Authority of New South Wales
(1982) 149 CLR 337 established that evidence of prior negotiations will be
admissible to “establish objective background facts which were known to
both parties and the subject matter of the contract”
 If the parties indeed intended that the written document was to contain the whole
agreement → no evidence can be accepted to vary, add to or contradict those
written terms
State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170



Health Outdoor (P) contracted with D (State Rail) relating advertising on D’s property. Cl 6
stated “The Authority (D) may terminate this contract at any time upon giving advertiser 1
month’s notice in writing of its intention to do so, but such action shall not give rise to any
claim for compensation whatsoever on the part of the advertiser”. P objected to this. D’s
representative informed P he had no authority to make changes to contract – also said "the
only time that the clause is ever invoked is for non-payment of rent or if somebody wants to
advertise objectionable advertising content". P said he would only proceed on that
assurance and representative assured this would not apply to him. Parties entered contract.
P later contracted with a cigarette manufacturer to display cigarette advertising on D’s
property for 5 years. NSW government later decided to disallow such advertising, dispute
arose between parties and D terminated agreement.
Issue:
 Whether contract was party oral and partly in writing
 If statements made by D’s rep re cl 6 were part of the contractual terms
At Court of Appeal of SC NSW in determining whether agreement was wholly in writing:
 Parol evidence rule doesn’t apply when determining whether contract is wholly in
writing or not, esp since P claimed agreement was party oral – court thus examines
extrinsic evidence to determine form of contract
 “The mere production of a contractual document, however complete it may
look, cannot as a matter of law exclude evidence of oral terms if the other
party asserts that such terms were agreed”
 Extrinisic evidence made it clear that P knew D’s rep had no authority to change
contract in any way, thus could not add terms
 As oral discussion did not add terms – contract entirely written
Week 7 – Express Terms (ii) and Implied Terms
37
PART A: Express Terms (ii) (Chapter 9)
When Is A Statement A Term of the Contract?
Whether or not a particular statement is a term or representation is determined objectively. The
court may take into account a range of factors including:
 Timing of statement and reducing contract to writing (Oscar Chess Ltd v Williams)
 Where parties have a formal written contractual document, any statements made by
parties during negotiations and not included in written contract suggests they were
not intended to be part of final contract
 I.e. if parties had intended those statement to form part of contract then
they would have presumably included same
 Notion will be even stronger where alleged oral terms are inconsistent with
those contained in written contract (Equuscorp Pty Ltd v Glengallan
Investments Pty Ltd)
 Importance of statement
 A statement that circumstances show was highly significant or important to one
party’s decision to enter into transaction is more likely to be regarded as a promise
than a statement of lesser significance (Van den Esschert v Chappell)
 Special skill and knowledge of a party (Oscar Chess Ltd v Williams)
Oscar Chess Ltd v Williams [1957] 1 WLR 370




D (Williams) traded in his car with P (Oscar Chess) for a new one. D told P that the car was a
1948 Morris – this was what appeared in car’s log book. On that basis, P gave it a trade in
value of $290. P later discovered that car was in fact a 1939 model with a trade in value of
only $175 – sued D for damages for breach of contract, claiming the statement was a term of
the contract. D was quite innocent – both parties were the victims of some unknown person
who had altered log book. P explained for however someone, even a dealer like themselves,
could mistake the car was because its model had not changed over the years.
Issue: Whether D’s assertion that car was a 1948 model amounted to an express term of the
contract and if it did, had the term been breached
Trial judge found model year was a condition – P would have rescinded contract if had
known of the falsity
At Court of Appeal:
 D had no personal knowledge of the model year. He was relying solely on the
registration book. Lack of expertise and personal knowledge of D, who was making a
statement to an expert and experienced P, indicate that it is less likely that his
statement intended to be binding
 "It is unlikely that such a person would warrant the year of manufacture. The most
he would do is state his belief, and then produce the registration book in verification
of it. In these circumstances the intelligent bystander would ... say that the seller did
not intend to bind himself.”
 Decision: Statement was not a term, but an innocent misrepresentation
Van den Esschert v Chappell [1960] WAR 114


Purchase of a house, before signing the written contract of sale, asked vendor whether or
not house had any white ants. Vendor assured purchaser there were none.
FC of SC WA held that statement was a term of the contract
 Wolff CJ: “I would think that on the purchase of a house in this country an inquiry
regarding the presence of white ants was not important: when (as in this case) the
38
prospective purchase immediately before signing a contract makes a specific request
to be informed about that matter and gets an affirmative answer such as the
purchase got in this case it was intended to be made a part and parcel of the
contract and was to be regarded as a term.”
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 271


Parties executed written loan contact. Borrowers then argued that transaction was governed
by earlier oral agreement made on different terms.
Argument dismissed by HC of Australia
 Court was highly influenced by fact that parties had executed a formal written
contract and that alleged oral terms contradicted those in written contract
 “It is enough to say that the oral evidence given by certain witnesses … was
evidence which, when examined in transcript, appears to have been far less
than definite about who agreed what, with whom.”
 Looked at parties’ presumed objective intentions, not actual subjective intentions
 Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ: “Having executed the document,
and not having been induced to do so by fraud, mistake, or misrepresentation, the
Resp cannot now be heard to say that they are not bound by agreement recorded in
it (L'Estrange v F Graucob Ltd).”
 Resp is bound unless able to rely on defence of non est factum or able to
have it rectified – attempted neither
 Held that execution of formal written contract discharged any prior oral agreement
Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623


Bentley bought a Bentley convertible from a dealer, Smith, who said it had done 20,000 miles
since being refitted with a replacement engine and gearbox. This was later found to be
untrue. Bentley claimed damages.
At Court of Appeal – in favour of B:
 Considering the words and conduct of the parties at the time of purchase, Smith’s
statement was intended and understood as a legally binding promise.
 Denning LJ (with whom Danckwerts LJ and Salmon LJ agreed):
 General principle: “If a representation is made in the course of dealings for a
contract for the very purpose of inducing the other party to act on it, and it
actually induces him to act on it by entering into the contract, that is prima
facie found for inferring that the representation was intended as a
warranty.”
 Exception: “But the maker of the representation can rebut this inference if
he can show that it really was an innocent misrepresentation, in that he was
in fact innocent of fault in making it, and that it would not be reasonable in
the circumstances for him to be bound by it.” (Oscar v Chess)
 However present case was different to Oscar v Chess – “Here we have a
dealer, Mr Smith, who was in a position to know, or at least to find out, the
history of the car. He could get it by writing to the makers. He did not do so
... When the history of this car was examined, his statement turned out to be
quite wrong. He ought to have known better. There was no reasonable
foundation for it.”
Construction of the Contract
39
Is the interpretation undertaken by courts to ascertain the rights and obligations arising under the
contract and the meaning of the language used by the parties
 In construing a contract, courts consider the meaning that an objective, reasonable person
would give to the contract, not the parties’ actual intentions
 Gibbs CJ in Australian Broadcasting Commission (ABC) v Australialasian Performing Right
Assoc Ltd (1973) 129 CLR 99 explained:
 Unambiguous language → courts have no power to amend even if it appears
capricious/unreasonable
 If language is open to 2 constructions, courts will avoid whichever that is capricious,
unreasonable, inconvenient or unjust, even if that construction is not the most
obvious or most grammatically accurate
Pacific Carriers v BNP Paribas (2004) 218 CLR 451


NEAT (seller) engaged P (Pacific) to transport a cargo of legumes to Royal (purchaser). NEAT
gave P a letter of indemnity for losses suffered in certain circumstances. D (BNP, NEAT’s
bankers) also signed the letter but disclaimed itself from liability – only signed to confirm
NEAT’s signature. P rejected letter because of the disclaimer. Demanded D’s representative,
Ms Dhiri (a bank officer who had the authority to verify customers’ signatures on letters of
indemnity but not the authority to bind the bank to any indemnity) to sign the letter
excluding disclaimer. Ms Dhiri did so despite not having authority. NEAT went bankrupt and
the circumstances for losses did eventuate. P sued D to indemnify it for damages.
At appeal from SC NSW – allowed and in favour of P:
 Was never communicated to P that Ms Dhiri had no authority to bind the bank to
any indemnity
 Reasonable person test applied: “There was nothing in the terms of the document
to indicate that D (BNP) was merely authenticating the execution by NEAT, and there
was nothing in the surrounding circumstances to suggest that P would accept such
authentication only. A reasonable reader in the position of P would have understood
the document as a bank endorsed absent bills of lading indemnity, and would have
understood that the bank was undertaking liability as an indemnifying party to
support the liability undertaken by NEAT.”
Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45




Dispute concerned the construction of cl 3 of a "Letter of Agreement" that involved the
franchising in Australia of Gloria Jean's Gourmet Coffee
TJ held that the provision would make more sense from a commercial point of view – that
deviating from the unambiguous language is permissible
Court of Appeal NSW held court is not justified in disregarding unambiguous language
App sought special leave to the HCA – refused:
 Issue: Is it possible to deviate away from unambiguous language to facilitate a more
commercial and businesslike operation?
 Gummow, Heydon and Bell JJ held that Macfarlan JA had not erred when his Honour
said “A court is not justified in disregarding unambiguous language simply because
the contract would have a more commercial and businesslike operations if an
interpretation different to that dictate by the language were adopted.”
 Proceeded to reiterate the rule set out in Codelfa Constructions Pty Ltd v State Rail
Authority of New South Wales which stated: “… evidence of surrounding
circumstances is admissible to assist in the interpretation of the contract if the
language is ambiguous or susceptible of more than one meaning. But it is not
admissible to contradict the language of the contract when it has a plain meaning.”
40
Collateral Contracts
Is a subsidiary contract which induces a person to enter into a main contract or which depends upon
the main contract for its existence
 In some cases, statements made (while not a term of the main contract) are clearly intended
to have commercial significance – such statements may amount to collateral contracts
 Consideration for a collateral contract is the entry of the party into the main contract
1. A collateral contract cannot exist where the main contract has been made prior to
the making of the statement that is allegedly the subject of the collateral contract.
This would be past consideration.
 Elements:
1. Representor (maker of the statement) must have intended that the promise be
legally binding (JJ Savage & Sons Pty Ltd v Blakney)
2. Representee (the person to whom statement made) must have entered into the
main contract on the basis of the statement and his/her reliance on it
3. Terms of collateral contract must not be inconsistent with the terms of the main
contract (Hoyts Pty Ltd v Spencer)
JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435





Blakney purchased a boat from JJ on the basis of a statement that the boat would have an
estimated speed of 15mph. No reference was made to this speed in subsequent written
contract. Boat did not go that fast. B sued for breach – claimed that the statement
constituted a promise, consideration for which was entry into of a contract to purchase boat.
Issue: Whether the pre-contractual statement about the boat’s estimated speed could
amount to a collateral contract
Trial judge in favour of JJ
 Statement re speed was estimate only and not an “unequivocal promise of a future
speed”
At Full Court VIC:
 Held there was a collateral contract and this was broken
 Blakney would not have contracted had the statement not been made – if it could be
shown that the main contract would not have been made without the statement,
then this is sufficient to establish that the statement is in fact a collateral contract
HC disagreed with Full Court’s reasoning – central question was whether there was a
promise that the boat would attain the stated speed i.e. if the statement was promissory
 If yes, then collateral contract would arise
 Whether or not the contract would have been made without the statement having
been made, is a fact to be considered in deciding if the statement was promissory
but is not sufficient in itself
 “That the statement actually made by the appellant was intended to have
some commercial significance upon a matter of importance to the
respondent can be conceded; that the respondent was intended to act upon
it, and that he did act upon it, is clearly made out. But those facts do not
warrant the conclusion that the statement was itself promissory.”

Blakney could have done 1 of 3 things:
1.
Require the speed provision to be incorporated in the specifications.
Then it would have been a term of the main contract.
2.
Sought a promise that the speed would be attained. If given, then
this would have been a collateral contract
41

3.
Formed his own judgment/opinion – statement then would not be
contractual. This is what had happened here – on the evidence, JJ’s
statement was not promissory.
o “So far from being a promissory expression, ‘estimated speed 15
mph’ indicates, in our opinion, an expression of opinion as a
result ‘of approximate calculation based on probability’ … The
words in themselves tend, in our opinion, against the inference
of a promise that the boat would in fact achieve the nominated
speed.
Decision: Statement was only an opinion, which, even though it was made with the
calculation of Blakney entering into the contract and was a matter of considerable
importance to Blakney, nevertheless did not constitute a collateral contract.
Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133


D (Spencer) leased premises to P (Hoyts). Lease was done through a registered
memorandum of lease. Contained a clause that enabled D to terminate the lease at any time
as long as it gave P 4 weeks’ notice in writing. Prior to executing lease, D assured P that he
would only terminate lease in certain limited and specified circumstances. D subsequently
terminated lease, but none of the circumstances specified in his earlier assurance to P had
occurred. P claimed that the assurance constituted a collateral contract and sought damages
– i.e. a collateral contract operated alongside the main contract which prohibited D from
terminating the agreement
HC ruled no collateral contract because assurance was inconsistent with the written term of
the main contract (lease) which permitted termination in any circumstances
 Collateral contracts by definition involve the entrance into a contract as
consideration for a promise
 However, this also means by definition that the "main contract, when utilised to
form the consideration for the collateral contract, must be taken exactly as it is ... the
parties shall have and be subject to all (not some only) of the respective benefits and
burdens of the main contract"
 I.e. collateral contract cannot contradict a contractual right or obligation in
the original contract – cannot be inconsistent to it
 In this case, it was obvious that the consideration for the promise was that the
plaintiff would "take a lease and become lessee for the term mentioned and 'upon
certain terms'". One of those terms was the ability of D to terminate at will.
 Accordingly, a collateral warranty cannot exist as to deprive D of this right, because
consideration for that promise is P's acceptance of all the terms of the contract,
including the ability to terminate at will
Exclusion Clauses
 May generally be one of 3 types:
1. The term may be drafted to exclude rights that a party might otherwise have under
the contract
2. Term may be drafted to limit or restrict the rights of one party
3. A party's rights under the contract might be qualified by subjecting them to specified
procedures
 According to common law, exclusion clauses will be construed according to their natural
and ordinary meaning (Darlington Futures Ltd v Delco Aust Pty Ltd)
 What is important is whether, properly construed, the clause is wide enough to
cover the breach complained of – will depend on parties intention also
42

 If there is ambiguity in the interpretation of the clause, exclusion clause be
construed against the person relying on the clause (i.e. contra proferentem)
(Darlington Futures Ltd v Delco Aust Pty Ltd)
Four corners rule: A contractor who breaches the contract by stepping outside the four
corners of the contract will generally lose the protection of the exclusion clause (Davis v
Pearce Parking Station)
Darlington Futures Ltd v Delco Aust Pty Ltd (1986) 161 CLR 500


P (Delco) hired D (Darlington) to trade for it in the stock market. Contract contained the
following exclusion/limitation clauses:
 Cl 6 excluded liability for “loss arising in any way out of any trading activity
undertaken on behalf of the client whether pursuant to the agreement or not”
 Cl 7 limited broker’s liability to $100 in respect to “any claim arising out of or in
connection with the relationship established by the agreement”
Without P’s authority, D traded in P’s name and P sustained heavy losses. P sued to recover
damages, D sought to rely on exclusions clauses.
At HC (appeal from SC NSW):
 D undoubtedly breached contract, question was whether above clauses protected D
even from consequences of breach
 Mason, Wilson, Brennan, Deane and Dawson JJ: “These decisions clearly establish
that the interpretation of an exclusion clause is to be determined by construing the
clause according to its natural and ordinary meaning, read in the light of the
contract as a whole, thereby giving due weight to the context in which the clause
appears including the nature and object of the contract, and, where appropriate,
construing the clause contra proferentem in case of ambiguity.”
 In this case, cl 6 only excluded liability for trading done on behalf of P – D had traded
without
 Cl 7, however, was deemed to be written in a manner that extended to unauthorised
transactions and therefore limiting D’s liab
 Decision: In favour of D due to cl 7
Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd (1966) 115 CLR 353



Resp had a contract for the transport of goods from Melbourne to Sydney. Goods were
collected by App’s subcontractor to be taken to App’s depot before being transported to
Sydney. Subcontractor was unable to deliver the goods to the depot before it closed –
therefore took the goods to his home and left them in his garage overnight. There the goods
were destroyed by fire. Resp sued App for damages for breach of contract – OS sought to rely
on an exclusion clause in the contract that exempted liability for loss/damage/misdelivery of
goods in transit or storage.
Barwick CJ and McTiernan, Taylor and Owen JJ in a joint judgement considered it was implicit
in the contract that the goods would be taken to the depot at night
 As the conduct of the subcontractor in taking the goods home was an unauthorised
way of performing the company’s obligations, company could not rely on the
exemption clause
Windeyer J (dissenting): “A contract must be read as a whole. If it provides that a party shall
not be liable for loss or damage and if upon its true constriction this provision extends to the
party’s own negligence in performing his contract, then it is impossible to rely upon the
obligation to use due care that would otherwise have been implied by law.”
43
Davis v Pearce Parking Station (1954) 91 CLR 642



P (Davis) parked her vehicle in the D’s parking station. Upon parking car and paying charges,
P received a printed document - held terms “garaged at the owner’s risk” and “the parking
station will not be responsible for loss or damage of any description”. P’s car subsequently
stolen due to negligence by D’s employees.
TJ held D had been negligent but exemption clause on doc was wide enough to protect D
against liability – judgment given for D
At HC – appeal dismissed:
 Court held that this negligent act was contemplated by the contract so the exclusion
clause was effective to deny liability of D towards P
 Dixon CJ, McTiernan, Webb, Full Agar and Kitto JJ:
 “The present case is a case in which general words are used, and there is no
special reference to any manner in which loss or damage may be caused. On
the other hand, the case is clearly one in which the bailee [a person to
whom goods are delivered for a purpose/D] would not … be liable for loss or
damage occurring without negligence. And there is, in our opinion, ample
authority to justify construing the exemption clause as excluding liability for
negligence.”
 “The point is made that in these cases (as in the present case) the bailee is
making a very small charge for taking the custody of goods which are or may
be of great value. He is likely to intend, and the bailor would reasonably
expect him to intend, to protect himself against (inter alia) a possible very
heavy liability arising from the negligence of a servant … such a clause may
be reasonably be taken by the bailor to mean that, if he wishes to be
protected against loss or damage at all, he must insure.”
Week 8 – Performance and Breach : Termination for the breach of the condition, failure of
contingent condition; Termination by agreement.
1. BREACH AND THE RIGHT TO TERMINATE
A breach of contract occurs where a party fails to perform his or her contractual obligations to the
standard required under the contract. The mere fact that one party has breached a term of the
contract does not necessarily mean that the other party, or the innocent party, has the right to
terminate the contract, although the innocent party has the right to damages arising from the
breach.
Subject to contract (there may be express terms that deal with breaches), if the term of the contract
breached is classified as a condition, then the innocent party may terminate the contract and sue for
damages. Similarly, if the breach is classified as a serious breach
of an intermediate term
( is the breach that deprive one party of substantially the whole of the benefit of the contract),
the innocent party may terminate the contract and claim damages. However, if the term breached is
a warranty, then the innocent party may only claim damages - he or she may not terminate the
contract for a breach of warranty.
The innocent party's obligation to perform future contractual duties is being terminated. After
termination, the parties are discharged from the obligation to perform future 46 contractual duties.
The onus of proof is on the party claiming the right to terminate the contract; this party is generally
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described as 'the innocent party' or 'the aggrieved party'. The right to terminate a contract is usually
available in the event of:
• A breach of condition (including essential time stipulations);
• A serious breach of an intermediate term;
• The operation of a term in the contract that provides this right
• Agreement;
2. • A statutory right; or
• The promisor's repudiation of a contractual obligation. If a party purports to terminate a contract
without a legal right to do so, this is wrongful termination and being wrongful, it will be ineffective. A
wrongful termination will amount to repudiation of the contract. Non-performance may also be
justified by the failure of a contingent condition to occur; in other words the performance by one
party is contingent on the occurrence for something neither party promises to occur – if the
condition fails, then the obligation to perform never arises.
1. CLASSIFICATION OF CONTRACTUAL TERMS
Contractual terms, whether express or implied, may be classified as conditions, warranties or
intermediate terms. The significance of such classification lies in the available remedies to an
innocent party following a breach of contract by the other party. The primary basis for classification
is the intention of the parties objectively determined.
1.1 DISTINGUISHING CONDITIONS AND WARRANTIES
Broadly, a 'condition' is a major term and a warranty is a minor term of the contract. Even if the
parties do not describe a particular term as a 'condition' a court may nonetheless construe a term as
a condition if it is an essential term of the contract. (Luna Park (NSW) Ltd v Tramways Advertising Pty
Ltd (1938) 61 CLR 286) The court will take a variety of matters into consideration (see Part B (below)
for more detail on these cases):
• Prior cases;
• Motivation for entry into the contract (Associated Newspapers Ltd V Bancks (1951) 83 CLR 322);
• Form and Structure of the term (Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR
286);
• Likely Consequences of a breach: the more prejudicial the consequences will be, the more likely
that the term will be construed as a condition. (Ankar Pty Ltd v National Westminster Finance Ltd
(1987) 162 CLR 549);
• Nature of the contract, the term and its subject matter;
• Justice and reasonableness: Courts may refuse to construe a term as a condition if that would
produce an unreasonable result (Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2
QB 26).
1.2 INTERMEDIATE TERMS
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Whether or not a term is an intermediate term depends upon the intention of the parties. There may
be terms in a contract that create or impose a whole variety of obligations. Such terms are capable of
both minor and major breaches. In the event of a major breach, the innocent party may terminate
the contract and sue for damages. If the breach is minor, the innocent party may only sue for
damages - there is no right to terminate the contract. The court looks at the significance of the
consequences to determine the remedy of the innocent party as follows. (Hongkong Fir Shipping Co
Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26)
Termination for the breach of intermediate term :
Where a term is intermediate, the right to terminate depends on the nature of the breach and its
foreseeable consequence. For a breach an intermediate term to give rise to a right to terminate, the
breach must be serious or deprive the the aggrieved party of “ substantially the whole benefit which
it was intended that he or her should obtain from the contract ( Ankar Pty Ltd v National
Westerminster Finance ( Australia) Ltd (1987) 162 CLR 549)
2. TERMINATION BY AGREEMENT
3.
2.1 TERMINATION PROVISION
There may be a termination provision in the contract. For example, in contracts for the sale of goods,
the subject goods may carry a notice to the effect that if the item proves unsatisfactory it may be
returned for a full refund. The consumer may terminate the contract in these circumstances.
2.2 TERMINATION BY SEPARATE AGREEMENT
Bilateral discharge means that the parties to a contract might discharge the agreement and
terminate their contractual relationship. Alternatively, the parties may terminate the contract and
substitute a new contract in its stead. The subsequent contract is itself contractual and must be
supported by consideration. In some cases, it may also have to comply with formalities (example,
contracts for the sale of land must be in writing). In the event of non-compliance with formalities,
the parties cannot rely on the original contract because it has been discharged. The parties may
partially discharge the existing contract through agreement to vary or modify its terms (McDermott v
Black (1940) 63 CLR 161).
2.2.1 Unilateral discharge/ ‘Promise not to enforce’/ Accord and Satisfaction This occurs where one
party has obligations that remain outstanding under the contract and the other party agrees not to
enforce performance of those obligations (‘promise not to enforce’). The promise to give up existing
rights must be supported by consideration to be enforceable otherwise it must be done by a deed –
accord and satisfaction. (McDermott v Black (1940) 63 CLR 161) 3. TUTORIAL EXERCISE
(Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286);
Fact: Luna Park and Tramways Advertising entered into a contract that Tramways agree to exbhibit
53 boards on the roof of the boards for at least 8 hours every day through 3 seasons.
2 after the contract being performance the Luan Park is not happy at the fact the their ad is not be
displayed as contract agreement. The Tramways offer the alternative to the form of the advertise,
but Luna park refused to discuss. Tramways continue display the adverstise but Luna protest against
the boards being display at all, refused to give instruction to Tramways to continue display the ad.
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The Tramway sue for the payment for the third season. The Luna used back to claime for the damage
of breach the contract.
Issue :How long the boards must to be displayed .
Court said minimum, 8 hourse which has been breach in the contract.
Whether a term in the contract is condition or a warrant?
Court held Whether a term in the contract is condition or a warrant that is an essential or a non
essential promise, depends upon the intention of the parties as appearing in or from the contract.
The test of sentimentality is whether it appears from the general nature of the contract considered
as a whole, or from some particular term or term. That the promise is of such importance to the the
promsee that he would not enter into the contact unless he had been assured of a strict or a
substantial performance of the promise as the case maybe and that this ought to have been
apparent
Court held that the certain amount of the ad must be on the tram is 8 hours every day which has
been breach. That Luna park would not enter to the contract if there was expectation the ad would
be on less than 8 hours. Therefore the add must be on the tram 8 hours everyday is essential.
Therefore it is condition. The failure of the tram do that means there is a breach the condition of the
contract and Luna Park can terminate the contract.
Associated Newspapers Ltd v Bancks (1951) 83 CLR 322
Associated Newspapers and Bancks entered into a contract that Bancks works for the New Papers
for 10 years. The News Parpers agreed to provide a full page drawing, weekly in the front page of
comic section. Because of of the printer issue the printer appears on third page instead od the front
page for 3 weeks without Bancks consent . Bancks wrote to the Newpapers that he is no longer
bound by the contract.
Issue: whether the Newspapers's undertaking to present Bancks drawingd on the front page of the
comic is a condition or essential term of the contract ( sue for damage and termination of the
contract) or mere warranty ( sue for damage but can not terminate the contract)?
Ankar v National Westermister Finance ( Australia )
Ankar ( A) and National Westminster Finance (B) entered into a contract that B guarantee the
performance of a hire General Energy ( Manufacturing) under contract for the hire of machinery.
Under clause 8 of the agreement B agreed to notify A if the Manufacturing proposed to sell or assign
its interest in the machinery . Under clause 9 B agreed to notify A if Manufacturing was in default
under the lease, whereupon A nad B con decision the action they should take following the the
default. Manufacturing defualted under the lease contract of hire therefore assign its interest in the
machinery. B did not notify A of Manufacturing 's proposal , B also failed to notify A before the
assignment of Manufacturing. None of any discussion what they should do . A took matter to court
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Issue : whether B breach of the Security Deposit Agreement discharged A from its obligation under
the agreement...?
Week 10 – Termination of Contract
PART A: Termination of Contract – Repudiation (Chapter 14)
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A promisor repudiates a contract when by their words or conduct, he or she:
 Demonstrates an absence of readiness/willingness to perform their contractual
obligation(s), or
 Was wholly and finally disabled from performing the contract
Reasonable person test applies – whether conduct of one part conveys
repudiates/renunciation either of the contract as a whole or of a fundamental obligation
under it
Repudiation does not bring an end to a contract – is necessary for innocent party to elect to
accept the repudiation
 Repudiatory conduct may be “cured” by the party in breach but only prior to
acceptance of repudiatory
Anticipatory breach: When one party repudiates their contractual obligations prior to time
set for performance of those obligations
 Innocent party has the right to terminate the contract before the actual breach has
occurred provided the absence of willingness or ability to perform relates to the
whole of the contract, a condition or is otherwise fundamental to the operation of
the contract (Progressive Mailing House P/L v Tabali P/L)
A party, who refuses to perform her obligations under a contract or will not accept
performance from another party except according to an incorrect interpretation of the
contractual obligations, may have repudiated the contract subject to the requirement of
seriousness (DTR Nominees P/L v Mona Homes P/L (1978) 138 CLR 423).
Carr v J A Berriman Pty Ltd (1953) 89 CLR 327
 Carr (P, building owner) hired Berriman (D, builder) to build a building for him. P was to make
certain preparations (excavations) by himself and then left D build on land from a set time. P
was to acquire steel and D was to fabricate it. P did not make preparations – also notified D
that he had found someone else, Acos, to fabricate steel for him, despite knowing that D
already accepted a tender for fabrication of steel. D considered P’s conduct as 2 breaches
and terminated contract. P brought action for wrongful termination.
 There were two breaches of the contract – the failure to make arrangements and
the deliberate decision to do the steel work with a third party despite what was decided in
the contract.
 P’s conduct in both cases amounted to repudiation – gave D “the right to believe
that the contract would not be performed according to its true construction” and
that "he did not intend to bound by the contract within the meaning of the
authorities"
 Thus D had right to terminate
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Week 11 – Estoppel
Estoppels by conduct create rights where promises and representations have been relied upon
 Original form was estoppel by representation – arises where one person (representor) leads
another (relying party) to adopt an assumption of fact and relying party acts on that
assumption in such a way that relying party will suffer detriment if representor subsequently
denies it is true
Je Maintiendrai Pty Ltd v Quaglia (1980) 26 SASR 101
 Resp (tenant) operated a hairdressing business in a shopping centre owned by App
(landlord). Both signed a 3 year lease fixing the rent for the shop at $278 p/m, to be
increased annually in accordance with rises in CPI. Later, App agreed to reduce rent for an
indefinite period – accepted payments until Resp sought to vacate premises. App then
claimed an accumulated arrears of rent i.e. difference between $ pai and $ payable under
initial written lease.
 Trial judge held App was estopped from claiming this amount. App appealed to SC of SA from
LC.
 Question was whether App, having told Resp that their rent was reduced, is estopped from
recovering the arrears
o King CJ held App’s promise to reduce rent had no contractual force because it was
made without consideration
Week 13 – Unconscionability and Illegality
PART A: Vitiating Factors – Unconscionability (Chapter 19)
Unconscionable conduct occurs where one party, the stronger party, takes unconscionable
advantage of a party burdened with a particular disability, the weaker party, to gain a contractual
advantage. (Commercial Bank of Australia v Amadio)
 3 elements to be established:
1. The weaker party suffers from a disability;
2. The stronger party knows of this disability or ought to know of it; and
3. The stronger party takes unfair and unconscionable advantage of that disability to
secure an unfair bargain and a benefit.
The contract is rendered voidable at the election of the weaker party. Given it is an equitable
remedy, this right may be lost through ratification, acquiescence and intervention by a third party.
Blomley v Ryan (1956) 99 CLR 362
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
P bought a property off D at a very low price. During transaction and negotiation, D was
heavily drunk and also very old and feeble minded. This was clear to P. D later realised how
he signed a disadvantageous contract – refused to perform. P sought specific performance, D
sought setting aside the contract.
Court can't rule that mere drunkenness is a defence to resist a contract, because then people
would abuse this defence
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 "Where, however, there is real ground for thinking that the judgment of one party
was, to the knowledge of the other, seriously affected by drink, equity will generally
refuse specific performance at the suit of that other, leaving him to pursue a remedy
at law if he so desires. And, where the court is satisfied that a contract
disadvantageous to the party affected has been obtained by 'drawing him in to
drink', or that there has been real unfairness in taking advantage of his condition,
the contract may be set aside."
 Means that a contract will be set aside for unconscionable dealing where:
 A party was aware of the of the other's mental incapacity and
 Party unfairly took advantage of that condition to procure a contract
Court acknowledges that "It does not appear to be essential in all cases that the party at a
disadvantage should suffer loss or detriment by the bargain."
However, "But inadequacy of consideration, while never of itself a ground for resisting
enforcement, will often be a specially important element in cases of this type. It may be
important in either or both of two ways - firstly as supporting the inference that a position of
disadvantage existed, and secondly as tending to show that an unfair use was made of the
occasion."
 In this case, the Plaintiff "took such an unfair advantage of that condition that a
court of equity could not allow the contract to stand."
Conclusion: P fails, contract set aside for unconscionable dealing.
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