Contract Law
Matters affecting Formation
Privity
Formalities
Elements of Formation
Offer
Acceptance
Intention
Consideration
Content: Terms
Express
Implied
Offer
If requirements are met
Expression to another of a willingness to be legally bound by the stated terms
Australian Woollen Mills v Commonwealth
Requirements
1.
Statement to offeror containing stated terms
If requirements not met
2.
Statement is made to another person
3.
Offeror indicates a preparedness to be bound
Bilateral
“Under [bilateral contracts] each
Unilateral
party undertakes to do/ref. From
A uni. Contract involves an
doing something and in the event that
offer made by offeror to act/ref.
either fails to perform, the law
Act if someone performs as
provides other party a remedy
requested. Offeree not bound to
Lord Diplock, United Dominions
do so. Acceptance is also
Trust v Eagle Aircraft Services
consideration
Carlill v Carbolic Smoke Ball
Company
Special issues
Tickets for transport
Exemption/exclusion clauses only
incorporated before formation
Prior to carriage
Prominent notices can
be incorporated
See incorporation of
terms
Options
Revokable at any time
unless consideration is
provided to keep open
Mere Puff
Test: RM
How would RM
interpret Ad. In
position of offeree?
Manufacturers
Material Insurance
v John Boardman
Insurance Brokers
Standing offers
Indication of willingness
of one party to provide
goods/services over a
specified period
May be revoked at any
time before acceptance
Great Northern Railway
v Whitham
Machine
Offer is machine ready to accept $
Acceptance is placing in $
Terms cannot be introduced after this
point except where reasonable time to
view terms before carriage.
Thornton v Shoe Lane Parking
Auctions without reserve
Early English – offer
Warlow v Harrison
OR each bid represents an
offer that can be accepted or
rejected by auctioneer
AGC Advances v McWhirter
Supply of Info
Test: Categorisation
Supplying information
is not an offer.
Harvey v Facey
Ambiguous
Invitation to treat
Advertisement
Test: (TOF) Language &
circumstance
Anything that states an
intention to be legally
bound is an offer
RE Mt Tomah Blue
Metals
Display of Goods
No test. Does not
constitute an offer
Taking goods to counter
is
Fisher v Bell
Advertisement for
Auction
Not an offer
Harris v Nickerson
Auctions w/reserve
Invitation to treat
Payne v Cave
Tender
Usually invitation to treat
EXCEPT: Offer when highest bid accepted
Harvela Investments v Royal Trust Company
of Canada
Must consider all tenders
Hughes Aircraft Systems International v Air
Services Australia
Termination
Withdrawal by Offeror
Can be withdrawn at any time before
acceptance
Goldsbrough Mort & Co v Quinn
There needs to be actual communication to
offeree
Bryne & Co v Leon Van Tien Hoven & Co
Communication by reliable source other than
offeror or agent acceptable
Dickinson v Dodds
Unilateral Contracts
Cannot withdraw offer
once acceptance
commenced
Abbott v Lance
Offers to World at Large
Less than actual
communication
acceptable
Use same medium to
withdraw offer
Shuey v United States
Rejection by Offeree
Rejection = termination
Stevenson Jacques & Co v McLean
Must be communicated to offeror
If offeree responds with new terms
= counter offer
Hyde v Wrench
Lapse of Time
Once time limit expires, offer
unable to be accepted
When not stated, time is set to
reasonable
Manchester Diocesan Council
for Education v Commercial
& General Investments
Failure of condition
If offeree fails to comply with
condition of conditional offer,
it is terminated
Financings v Stimson
Death
Death of offeror
Offer cannot be
accepted after death
Exception: Property
which can be completed
by deceased estate
Dickinson v Dodds
Death of Offeree
If offeree dies, no offer.
Exception: Sale of property
Reynolds v Atherton
Options
If offer involved personal services, option will
not enforce offer
Property may apply:
If conditional contract – enforceable
If irrevocable offer - unenforceable
Acceptance
Agreements is formed once an offer is accepted
Requirements
Offeree must intend to accept terms of offer
Intention must be communicated to the offeror
(Consensus Ad Idem)
Acceptance must correspond to offer
Offeree must have knowledge
and act in reliance on offer
Crown v Clarke
Acceptance must be unqualified
If ‘subject to’ exists, TOI to determine
whether acceptance is unqualfied
Masters v Cameron
Exceptions
Counter offer is not acceptance
Hyde v Wrench
Exceptions
Acceptance couched in different
language may be acceptable
(IE different forms)
•Agreement not prevented if
offeree seeks concession for
performance before formation
•Request for alternate
mode of acceptance not
prevent contract
formation
Clive v Beaumont
•If offerees conduct more
favourable than terms of offer,
agreement exists
Ex Parte Fealey
Mere inquiry not acceptance
Stevenson Jacques & Co v
McLean
Acceptance in Unilateral Contract
See notes pp. 09
Notification of Acceptance
Method of acceptance
Method of acceptance stipulated by offeror
•Offeror can stipulate how communication
is affected
•If accepted in manner more advantageous
to offeror – offer valid
Tinn v Hoffman & Co
Method for benefit of offeree
If method is for offerees benefit, they may
chose to accept in another method
Manchester Diocesan Council for Education
v Commercial & General Investments
Multiple methods
Prescribed method may not be only
effective method on construction of terms
Conduct may constitute acceptance
Empirnall Holdings v Mark Machon
Paull Partners
Instantaneous Communication
Contract will be formed when acceptance of the
offer is communicated to the offeror. The contract
is formed when and where the offeror receives
that communication. Entores L D v Miles Far
East Corporation
Postal Acceptance Rule
Where circumstances are such that it must
have been within the contemplation of the
parties that, according to the ordinary uses
of mankind, the post might be used as a
means of communicating the acceptance
of an offer, the acceptance is complete as
soon as it is posted.
Lord Hershell, Henthorn v Fraser
•Contract formed when letter is posted
Adams v Linsell
•Some argument about precisely when this
takes place
Powel v Lee
•If takes longer than usual to reach, risk is
upon offeror
Household Fire and Carriage Insurance v
Grant
Displacement of Rule
Can be displaced by offeror stipulating in
contract that acceptance is not affected until
actual receipt
Revocation prior to acceptance
Contract is formed even if offer is notified
of rejection before receipt of acceptance
Nunin Holdings v Tullamarine Estates
Multiple technologies
A offeree can use multiple technologies to
accept an offer
Express Airways v Port Augusta Air Services
Ambiguity and Uncertainty
Ambiguous, Uncertain or Meaningless Contracts
Incomplete Agreement
Agreement contains mechanism to
complete
•If the parties do not finalise all the
terms of the agreement but provide a
mechanism for doing so, the
agreement may be enforceable.
Reference to 3rd party
even essential terms may be decided
by 3rd party
Godecke v Kinwan
Breakdown of mechanism to complete
Court will not substitute its own view if
mechanism to complete fails
Milnes v Gery
Breakdown RE Sales of Goods
If price is determined by third parties,
governed under sales of goods act
(1896) s.12(1)
•If prevented from making decision by
party, the other may sue for damages
s.12(2)
•If goods have been delivered and
appropriated, they must pay for them
ss.12(1a)
Agreements to Negotiate
If parties to agree on terms at later time, not enforceable
– Agreement to agree.
Booker Industries v Wilson Parking
If terms are sufficiently certain and consideration is
provided, may be enforceable
Coal Cliff Collieries v Sijehama
Method of increasing certainty – ref. 3rd party
Individual Terms
•Vague, ambiguous and uncertain terms are
void
•Meaningless clauses = uncertain clauses
Fitzgerald v Masters
•Court will try to uphold an agreement where
parties show intention to be bound
Lend Lease Financial Planning v Southcap
Saving Ambiguous, Uncertain or Meaningless
Contracts
Saving Incomplete Agreements
Implication of Terms
Courts have shown a willingness to imply terms
Hillas & Co v Arcos
More likely when willing to be bound
Hillas & Co v Arcos
More likely when contract partially executed
Hall v Busst
No agreement on price, parties and subject
matter no implication
Hall v Busst
Sale of Goods
•More likely to imply
•Will imply reasonable price if contract is silent
Foley v Classique Coaches
•Likely to uphold agreement in future
•Likely to infer price if contract makes reference to
• payment at reasonable price
Sale of Land
•Will not imply price
•Likely to uphold future agreement
•Not likely to imply price when contract refers
to reasonable price. (except rent, which they
may determine via their own mechanism).
Also applies to unique goods.
Link to external standard
Uncertain clause may be enforceable if
referenced to an external standard
Hawthorn Football Club v Harding
Link to reasonableness standard
Courts will apply principle of
reasonable ness (RM) to make terms
certain
Severance
Invalid term may be severed from contract
and the remainder is enforceable
Fitzgerald v Masters
Divisible Obligations
If uncertainty arises in one area due to
multiple types of obligations, it can be
severed and save the contract
Life Insurance Company of Australia v
Phillips
Waiver of Removal of Uncertainty
If clause is entered into for sole benefit of one
party, it may be waived and contract saved
If uncertainty removed before commencement,
specific performance may be granted
MacAulay v Greater Paramount Theatres
‘Subject to’ Agreements
Subject to Finance
Contracts for sale of land may include a
clause stating that the contract is subject to
the ‘purchaser receiving approval for
finance on satisfactory terms and
conditions.’
TEST: Likely to use objective RM test
Subject to Contract
Intention of parties can fall into three categories
Test: Test of intentions. Language & conduct taken into account
Masters v Cameron
1.
Issues
Satisfactory finance
A clause inserted for the benefit of the purchaser
that allows the purchaser alone to determine what
is satisfactory is not uncertain, however, the
purchaser is required to act honestly.
Meehan v Jones
Parties have finalised all terms and intend to be
immediately bound to perform those terms but
propose to have the same terms restated in a form
that is fuller or more precise but no different in effect
BINDING
Branca v Corbarro
2.
Steps taken to obtain finance
Finance clauses impose obligation on the purchaser
to take all steps reasonably necessary to obtain
finance approval.
Meehan v Jones
The parties have completely agreed upon all
terms and intend no departure from or
addition to those terms, but have made
performance of one or more of the terms
conditional upon the execution of a formal
document.
BINDING
Niesmann v Collingridge (1921)
3.
The intention of the parties is NOT to make a
concluded bargain at all, unless and until they
execute a formal contract
NOT BINDING
Masters v Cameron
Intention to create legal relations
Agreement
Intention Test:
A common intention of the parties to enter into legal obligations, mutually communicated, expressly or impliedly.
Rose and Frank Co v JR Crompton & Bros
Test: Merritt v Merritt
Domestic/Social
Presumption:
No legal force
Balfour v Balfour
Easily Rebutted:
Legal force
Merritt v Merritt
Considerations
•Seriousness of conduct
•Relative Expense of conduct
•Hostility in relations
•Closeness of ties
•Nature of agreement
Commercial
Government
Activities
Policy
Not Binding
Australian Woolen Mills v
The Commonwealth
Annoucements of policy
are not unilateral offers
and policy while
important, is not common
in nature
Presumption is binding:
Requires more formality
Cogee Esplanade Surf Motel v
Commonwealth of Australia
Commercial
Agreement
Hard to rebut
Specific tone
Strong presumption
of legal force
Is it in a business context?
Esso Petroleum v
Commissioners of Customs
and Excise
Consideration (General)
Consideration is ‘An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for
value is enforceable.’
Lord Dunedin, Dunlop Pneumatic Tyre Company Ltd v Selfridge & Company Ltd [1915]
Consideration in Bilateral Contracts
At the time of the agreement each party makes a
promise. The price paid for that promise – the
consideration – is the other party’s promise. Each party
promises to do an act or refrain from doing an act.
Diplock LJ, United Dominions Trust (Commerical) v
Eagle Aircraft Services)
Executory Consideration
the obligation to perform has not yet fallen due.
(Bilateral contracts)
Offers to the world at large
Form of Unilateral Contract
Carlill v Carbolic Smoke Ball Company
Consideration in Unilateral Contracts
It is the absence of an obligation undertaken by the
promisee that distinguishes a unilateral contract from
a bilateral contract. The act or forbearance itself –
rather than a promise—constitutes the consideration.
Diplock LJ, United Dominions Trust (Commerical) v
Eagle Aircraft Services)
Executed Consideration
If B chooses to and does perform the specified
acts, consideration is said to be executed.
(Unilateral contracts)
Consideration (Rules)
Consideration is ‘An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for
value is enforceable.’
Lord Dunedin, Dunlop Pneumatic Tyre Company Ltd v Selfridge & Company Ltd [1915]
Rules of Consideration
1. Consideration must move from promisee
Dunlop Pneumatic Tyre Company v Selfridge &
Company Ltd
•Join promisees – Consideration need only
come from one promisee
Coulls v Bagot’s Executor and Trustee
Company
Does not have to move to promisor
Dunlop Pneumatic Tyre Company v
Selfridge & Company Ltd
•Promisee may be party to a contract
(doctrine of privity) but may not be able to
sue on the promise if no consideration
given
Tweedle v Atkinson
2. Consideration must be bargained for
The act/forbearance must be in reliance of the
promise (at request of promisor)
Australian Woolen Mills v The Commonwealth
3. Consideration must be sufficient
•Must be ‘something of value in eyes of the law
Thomas v Thomas
•May be valid although no monetary equivalent
Chappell & Co v Nestle
•Consideration needs not be adequate
Woolworths v Kelly
•Consideration can be nominal
Lennox v Cameron
4. Consideration must not be past
Consideration will be regarded as past if it has
already flowed from promisee to promisor
Roscorla v Thomas
5.
If work was done on the assumption that there
was a promise to pay it may be sufficient. (see
further on)
Distinct from executed/executory consideration
(see pp. 149 text)
Special Considerations
Moral consideration not sufficient
Eastwood v Kenyon
Peformance of existing duties is not sufficient consideration
Wigan v Edwards
Does not apply when promise is to do more than originally
contracted to do
Hartley v Ponsonby
Courts may find original contract abandoned and new one
formed
Hartley v Ponsonby
Promisory estoppel may prevent promisor
reneging on subsequent promise
Performance of public duties
Performance of an act required by law is not sufficent
Glasbook Brothers v Glamorgan County Council
This may be changing
Ward v Byham
Promise made to a third party
‘An agreement to do an act which the promisor is under an
existing obligation to a third party to do, may quite well
amount to valid consideration and does so in the present
case: the promisee obtains a benefit of a direct obligation
which he can enforce.’
New Zealand Shipping Co v A M Satterthwaite & Co;
Port Jackson Stevedoring v Samond & Spraggon (Aust)
Part Payment of Debt
Rule in Pinnel’s Case:If an amount of money is owing by a
debtor to a creditor, and those parties enter into a subsequent
agreement that the creditor will accept a lesser amount in full
satisfaction of the amount owing, the later agreement will
generally not be binding.
Exceptions:
•Parties enter into a deed
•Accomodation for benefit of creditor
•Amount owing is disputed (HBF Dalgety v Moreton)
•Payment by 3rd party (Hirachand Punamchand v Temple)
•Composition with creditors
Forbearance to sue
•Settlements between parties likely to be
upheld
•Whether parties would win/lose not
relevant
•Not all compromises may be considered
consideration
Requirements
•Parties must act in good faith
•Must have honest belief claim
would be successful
•Must be a genuine dispute
Wigan v Edwards
•Claim must not be vexatious or
frivolous
Hercules Motors v Schubert
Rules or special
considerations
allow for
consideration
Rules or special
considerations
don’t allow for
consideration
Consideration
exists
Consideration
doesn’t exist
Equitable Estoppel
REQUIRES unconscionable conduct by one party
Waltons Stores (Interstate) v Maher
Unambiguous expectation by A
Legione v Hately
Encouraged/Induced by B
Mere Hope provides no
equity
Lorimer v State Bank of
New South Wales
Normative
Chellaram & Co v China
Ocean Shipping Co
Silence
Thompson V Palmer
Unauthorised representation
Corpers (No. 664) v NZI Securities Australia
Action or abstainment by A
Reasonableness
Waltons Stores (Interstate) v Maher
Knowledge/Intent of B
Plaintiffs characteristics
Ausotel v Franklins Self-Serve
A suffers detriment
(material disadvantage)
Thompson v Palmer
B Fails to avoid detriment
(ie. Disabuse A pre-detriment)
Lorimer v State Bank of New South Wales
‘Minimum equity to do justice’
Waltons Stores (Interstate) v Maher
Must be:
•Proportionate to the unconsciobility
•Reliance rather than expectation (Cth v Verwayen)
•Prima facie entitlement for expectation unless proved to great
Giumelli v Giumelli
Privity of Contract
Contract affect a 3rd party (benefits only)
Wilson v Darling Island Stevedoring Company
Common law
Collateral Contract
Promise by/to 3rd part
contract
Restraint of Trade
Clubs affect members
Torts
3rd Party can sue for
a negligent breach of a
duty of care
Use of Land
People with an interest in
the land can enforce
benefits like
repair/maintenance or
limits to usage
Tulk v Moxhay
Exceptions
Statutory Exemption
Trade Practices Act
•Misleading/deceptive conduct
Insurance Contracts Act 1984
•Beneficiaries can recover
•Only general insurance
Exceptions at Common Law
Property Law Act 1974, ss. 55
•Consideration moves as normal
•3rd party benefit
•Beneficiary must accept
•Beneficiary must be named/described
•Re Burns Philip Trustees; Rob & Jones
•(363 Adelaide Street) v 1st Abbot Corp
•Consistent actions not sufficient
•Re Davies
•Anticipatory acceptance may suffice
•Hyatt AustraliaLtd LTCB Australia Ltd
Agency
Test: Intention
3rd party gets
equitable interest in
the contract
Equity
3rd party must act
in contemplation
See Equitable
Estoppel
Trust
Test: Intention
3rd party gets equitable
interest in the contract.
Unjust Enrichment
Formalities 1
Guarantees
Property Law Act 1974 ss. .56
Rule: Contracts of guarantee are unless written and signed
Definition: A contract to answer for a debt, default or miscarriage by another who is primarily liable to the promise
Yeoman Credit v Latter
Debtor can pay
•Guarantors liability is secondary
•Yeoman Credit v Latter
Contracts of indemnity
Identifies liability is primary
Yeoman Credit v Latter
No personal liability
Harvery v Edwards Dunlop
Non-guarantee
Acceptance of debt
Gray v Pearson
Requirements
•Name of parties
•Terms of guarantee
•Consideration for guarantee
Letters of Comfort
Dependant on intention
to create legal relations
Promise made to debtor
Eastwood v Kenyon
Formalities 2
Contracts relating to land
Land Deals must be written
ss. 59 Property Law Act
The following needs to be contained in this type of contract
Contains party ID
Williams v Brynes
Contains property
ID
South Coast Oils v
Look Enterprises
Consideration ID
Wain v Walters
Principle terms disclosed
Not always fatal to plaintiff
Petrie v Jensen
If part of a lot, portion must be described
Rosser v Austal Wine & Spirit Co.
Freeholds – no need to describe lease
Timmins v Moorland Street Property Co
Joinder
Multiple document joined to form
A single memo where one expressly/
Impliedly refers to others
Timmins v Moreland Property Co.
Direct reference – Tonitto v Bassal
Physical connection – McEwan v Dynon
Reference to transaction – Fauzi Elias v
George Sachely & Co (Barbados)
Constructive Trust
Protect parties with interest
In land. IE De-facto couples.
Baumgartner v Baumgartner
Contract
•Requires acknowledgement of agreement – Pirie v Saunders
•Express or implied acknowledgement
•Requires signature – Handwritten if intended to authenticate – Purrell v Evans
•Authority need not be expressed – Nowraniv Brown
•Electronic sig. – ss. 56, 59 & 14 Electronic Transactions Bill 2001
Compliance
Non-Compliance
Equity – Estoppel of reliance on written contract
Walton Stores v Maher
Part Performance
Act points to agreement as alleged
Regent v Millet
Acts don in reliance & with knowledge
Acts done by parties seeking to enforce contract
Agreement concluded though not in writing
McBride v Sandland; Cooney v Burns
Unenforceable
Gray V Ellis
Valid to pass title
Watson v Royal Permanent
Business Society
Recover amount paid – deposit
under monies had and received
Freedom v AHR Constructions
Written Terms
Incorporation by Notice
(pp. 25)
Incorporation by Signature
(pp. 24)
Assumed to be bound regardless of
awareness/understanding of terms
L’Estrange v F Graucob Ltd
Exceptions (pp. 24)
Signature does
not signify
assent
L’Estrange v F
Graucob Ltd
Misrepresentation
of effect of clause
Curtis v Chemical
Cleaning &
Dyeing Co
Non Est Factum
DJ Hill & Co v
Walter H Wright
Document not
believed
contractual in
nature
Curtis v
Chemical
Cleaning &
Dyeing Co
Unsigned document
(pp. 25)
Reasonable Person
(Onus on Defendant to
prove) Parker v South
Eastern Railway Co.
Not contractual
No extra steps taken
– NOT INCORP.
Reasonable steps taken
by defendant to inform
plaintiff:
TEST OF FACT
Yes: Incorp.
No: Not incorp.
Reasonable Man Parker
v South Eastern Railway
Co.
Contractual
Assumed to be bound
by terms
Mendelssohn v
Normand
Exception:
Unusual terms for
contract
Test: Reasonable Man
(Parker v South
Eastern Railway Co.
Incorporation by reference
(pp. 26)
Sign
(pp. 25-26)
Website
(pp. 26)
Notice given before
formation Olly v
Marlborough Court
Yes – Possible Incorporation
Reasonable Person
(Onus on defendant to
prove) Balmain New
Ferry Company v
Robertson
Notice sufficient
Incorporation
Notice insufficient
No incorporation
No – No incorporation
Traditional
principles
relevant
Terms can be
incorporated by
reference to another
document
Smith v New South
Wales Switchgear Co
Reasonable Person
(Onus on defendant
to prove)
Theoretically
Test: Reasonable
Man inc.
circumstances
Notice sufficient
(IE Doc. inc. terms)
Incorporation
Pass: Term
Incorporated
Notice insufficient Fail: Term not
(IE: No doc. inc.
incorporated
terms)
No
incorporation
Oral Terms (Terms 1 & 2)
Mere Puff
Term
No common law remedy
Trade Practices Act
may provide one
Collateral Contract
Representation
Test:
1. Test of intention Oscar Chess v Williams
2. Words or conduct of partiesHarling v Eddy
3. Knowledge & expertise of statement maker Oscar Chess v Williams
4. Statement maker has control of info Hospital products v US Surgical
5. Oral statement not reduced to writing Routledge v McKay
6. Interval of time Routledge v McKay
Criteria
Savage v Blackney
•Intention to be relied upon
•Reliance upon term
•Intention to guarantee
•truth of statement
Must preclude main
contract
Hercules Motors
If a term
1. Consider parol evidence rule
(Doesn’t apply to part oral/written)
2. Objective test of intention
Must be consistent with
main contract
Hoyts v Spencer
If a rep.
•Possible damages for
innocent misrepresentation
•Possible brach of Trade
Practices Act
Conditions met?
Condition
Test of Essentiality
Associated Newspapers
& Bancks (pp. 34)
Intermittent Term
1. Intention of parties
2. Consequences of Breach
(Was party deprived of contract)
Major breach
Terminate and/or damages
Warranty
Subsidiary to main purpose
Bettini v Grye
Minor breach
Damages only
Yes
No
Remedy to sue for breach
of collateral contract (not
main contract)
No remedy to
sue for breach of
collateral
contract
Implied Terms #1 – Presumed intention of parties
Business efficacy
Whether the implication of term is necessary to give
business efficacy to the transaction
Five Tier Test
BP Refinery (Westernport) v Shire of Hastings
reasonable and equitable
•Necessary to give business efficacy to contract
•Interpreted strictly
•Must be so obvious that it goes without saying
•Must be capable of clear expression
Must not contradict any express term in contract
Parol evidence rule won’t apply
Mason J
More formal, less chance of implication
Previous consistent course of dealings
Reasonable to hold parties contracted based on
& knowledge that terms in previous contracts
Henry Kendal & Sons v William Lillico & Sons
Test: Reasonable man
Have parties virtually assented to terms
•Must not expressly have inconsistent terms
•Relevant terms are part of prev agreements
•Evidence of previous consistent dealings
•(Consider both # and consistency)
Parties need actual knowledge of the terms
Lord Devlin, McCuthcheon v David Macbrayne
Not in writing thus parol evidence rule N/A
Henry Kendall & Sons v William Lillico & Sons
Custom or Usage
Test of Fact
•Term is known and acquiesced to.
•Everyone assumes it part of contract.
•Consistent with express terms
Knowledge of implied term not required
Not likely to be implied cf. other grounds
Parol evidence rule N/A
To Complete Agreement
When all terms are not finalised,
terms may be implied to complete agreement
Hillas & Co v Arcos
Applicability of parol evidence rule: Uncertain
Implied Terms #2 – Terms implied regardless of intent
Class of contract
Courts will imply terms based on policy grounds
Australis Media Holdings v Telstra Corporation
Test: Policy Decision
Categories where terms will be implied
•Goods & services
•Must fit purpose for which they were supplied
Sammuels v Davis
•Professional services
•Reasonable care must be taken
Greaves & Co (Contractors) v Baynham
•Employment
•Safe place of work
•Inform employees of rights in particular period
Scally v Southern Health and Social Services Board
•Building
•Fit for habitation
•conduct professional and workmanlike
Perry v Sharon Developments Co
•Franchise agreements
•Good faith and fair dealing
Far Horizons v McDonald’s Australia
Parol evidence rule N/A
Statute
Statutory implication of terms in contracts
•Provision of consumer credit
Consumer Credit Code 1994
•Sale of Goods/Services (pp. 266 for detail)
Sale of Goods Act 1894
•Hire Purchase
Hire Purchase Act 1959
•Insurance
Insurance Contracts Act 1984
Good faith, fair dealing and reasonableness
Duty to act in good faith etc. in ALL
contracts not fully settled issue in
Australia
Yes, it exists: Renard Constructions (ME)
v Minister for Public Works
Parol evidence rule: N/A
Duty of Cooperation
•Parties must do all things necessary to ensure parties
have benefit of contract
•Applied to ALL contracts, regardless of necessity
Butt v McDonald
Test: Reference to specific terms and overall
substance of contract
RDJ International v Preformed Line Products (Australia)
To find:
•Common intention of parties
•Extent to which the duty of cooperation will require
action
Parol Evidence Rule
General Rule: Parol evidence rule will prevent an oral term from being introduced when a contract is brought down to writing
Application:
•Applies to contract solely in writing
Gordon v MacGregor
•Only when the parties intend written document to represent the entire agreement
•Express clause stating above is not necessarily enough to exclude oral terms (See
construction of terms)
Hope v RCA Photophone of Australia
Does the Parol Evidence Rule apply?
No
Exceptions:
•Evidence of collateral contract
De Lassalle v Guilford
•Written contract not yet in force
Pym v Campbell
•Written contract later varied or discharged
Narich v Commissioner of Payroll Tax
•Implied terms available (see implied terms)
•Evidence is needed for rectification
NSW Medical Defence Union v Transport Industries
Insurance Co
Yes
Do exceptions Apply?
No
Extrinsic evidence is not permitted
Yes
Extrinsic evidence is permitted
General Rules
TWO THINGS MUST BE DONE
1. Ascertain the meaning of words
2. Determine the legal effects of the words
REMEMBER:
•Documents constructed as a whole
•Court will attempt as far as possible to give
effect to a bargain
Hillas & Co v Arcos
•Tests are made objectively through the
eyes of the Reasonable Man
Inadmissible Evidence
Evidence of subjective intentions
Because its an objective test
Life Insurance Company of Australia v
Phillips
Prior negotiations
Because its not useful
Prenn v Simmonds
Subsequent Conduct
People may tailor their postcontract behaviour to reflect the
case they believe they may have to
present in court
Kirby J, Hide & Skin trading v
Oceanic Meat Traders
Interpreting the meaning of Terms
Admissible Evidence
Factual Matrix
When construing a document the
court must place itself in the ‘same
factual matrix as that in which the
parties were.’
Reardon Smith Line v Yengvar
Hansen Tangen
Court make take into account
surrounding circumstances.
Allen v Carbone
Surrounding circumstance must
have been known to BOTH parties.
Notorious, court may presume
knowledge
Codelfa Construction v State Rail
Authority of New South Wales
In commercial contracts, purpose of the
contract should be considered
Reardon Smith Line v Yengvar HanseTangen
Suggested that surrounding evidence
should only be used if language is
ambiguous or capable of multiple
meanings and cannot be used to
contradict language that is plain
Mason J, Codelfa Construction v
State Rail Authority of New South
Wales
Parol Evidence Rule
•The objective of the rule is to preserve the sanctity of the
written document and to avoid the process of construction
being muddled by ‘uncertain testimony of slippery memory’.
•ONLY applies to fully written contracts – extrinsic eviddence
permissible to aid interpretations in other circumstances
Exceptions
Ambiguity
Extrinsic evidence may be used to resolve ambiguities
Identification of Subject Matter
Extrinsic evidence admissible to resolve abiguity
White v Australian and New Zealand Theatres
Identification of parties
Extrinsic evidence abmissible to resolve ambiguity
about identity, relationship or capacity
Edwards v Edwards
Identification of real consideration
Extrinsic evidence admissible where:
•No consideration is expressed
•Is expressed ambiguously or generally
•Additional consideration exists with stated
consideration (must not be inconsistent with stated)
Yaroomba Beach Development Co v Coeur De Lion
Investments
Custom or Usage
Extrinsic evidence may be used where language has
different contextual meanings even though the
wording itself is not ambiguous
Thornley v Tilley
Rectification
Extrinsic evidence may be used to show parties
intentions were not properly recorded
Bacchus Marsh Concentrated Milk Co v Joseph
Nathan & Co
Legal effect of words – types of terms
Promissory Terms
see Oral Terms
Other Clauses
Definition clauses – not capable of breach
Contingencies
A contingency is when the parties wish to make a
provision for the existence or the continued operation
of the contract, or of an obligation in the contract,
conditional upon the occurrence or non-occurrence
of an event.
•Courts interpret contingencies as requiring a
election to terminate by one or both parties
Grange v Sullivan
Condition Precedent
an event that must
occur before a contract
comes into existence or
an obligation under the
contract arises. If the
event fails to occur,
there will either be no
contract or the
obligation will not
arise.
Condition Subsequent
an event whose
occurrence may give
rise to a right to
terminate further
performance of the
contract
Where the contingency is for
the benefit of one of the
parties, it may be waived by
that party, with the effect that
the other party is unable to
rely on the non-occurrence of
the event as terminating the
contract.
Perri v Coolangatta
Investments Pty Ltd (1982)
Generally the party for
whose benefit the
condition subsequent
was inserted will be the
party who has the right
to terminate on nonoccurrence.
Duty of Good Faith
Extent of breach determined by classification of term
Best Endeavours
•Test: Reasonable cons. Circumstances
Mason J, Transfield v Arlo International
•Does not require party to go beyond the bounds of reason
Sheffield District Railway v Great Central Railway Co
Entire Contract Clause
•Excludes extraneous terms and non-fraudulent
representations at common law
Life Insurance Co of Australia v Phillips
•Does not prevent introduction of extrinsic evidence
for purpose of rectification
MacDonald v Shinko Australia
Agreed Damages Clause
•Provides for payment of an amount that is a genuine
pre-estimate of the loss resulting from any breach.
•Validity of such clauses is governed by the law
related to penalties.
Termination Clause
Confers a contractual right to terminate the
contract for breach.
Force Majeure Clause
Disposition of a contract in the event of
circumstances beyond the control of the
parties
Restraint on Trade
Generally void unless proven reasonable
Dispute Resolution Clause
Failure to comply may give rise to injunctions or damages
CSR v Cigna Insurance; The Jay Bola
Law of contract
Parties can chose jurisdiction contract governed under
Merwin Pastoral Co v Moopla Pastoral Co
If not stated, presumed intention of parties
Moonlighting International v International Lighting
Exemption Clauses
‘Interpretation of an exemption 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 the case of ambiguity.’
Darlington Futures Ltd v Delco Australia PtyLtd (1986)
Statute
•The extent of protection offered by an exemption
clause may reflect the degree of inequality of
bargaining power between the parties.
•At common law, the court has no absolving power
and cannot refuse to enforce a valid exemption clause
even where it operates unreasonably. This position has
been altered by two statutes:

Contracts Review Act 1980 (NSW)

Trade Practices Act 1974 (Cth)
Must determine
•Whether clause forms part of
contract
•Whether on construction it
covers the arisen liability
Contra-preferentum rule
An exemption clause will be
ordinarily construed strictly
against the preferens – the
party for whose benefit it is
inserted.
Eimco Corporation v Tutt
Bryant Ltd [1970]
If all tests pass, Exemption clause will operate
If any test fails, Exemption clause WILL NOT operate
Rules
Exclusion of Negligence
•An exemption clause will relieve a party of liability for
his/her negligence, or that of his/her servants or agents, if it
expressly or impliedly covers such liability.
•Will cover such liability if there can be no ground of liability
other than negligence to which it could refer.
•Canada Steamship Lines Ltd v The King [1952]
•an express exemption of liability for negligence must be
given effect and is sufficient to exclude liability
•where there is no express reference to negligence, the
court must decide whether the ordinary meaning of the
words used in the clause are wide enough to exclude
negligence.
Rules of excluding negligence
•Must pass contra preferentum rule
•If language covers multiple heads of liability and negligence,
negligence is excluded – word negligence or syn. Must be
used Smith v NSW Swtichgear
Four Corners Rule
•An exemption clause will only operate to exclude
liability arising within the ‘four corners’ of the contract.
•A proferens can only rely on conditions that were
intended to protect him/her if he/she carried out the
contract in the way he/she had contract to do it. It will
NOT be effective where the proferens acts in a way
‘quite alien to the contract’.[1]
Davis v Pierce Parking Station Pty Ltd
•An exemption clause will NOT apply where the loss or
damage results from conduct that is not authorised or
permitted by the contract
The Council of the City of Sydney v West