Topic 1: Introduction to the law of contract ..................................................................................................................................... 2
Sources of contract law................................................................................................................................................................ 2
Theories of contract law .............................................................................................................................................................. 2
Topic 2: Contract formation.............................................................................................................................................................. 3
2(a) – Agreement: Offer ............................................................................................................................................................... 3
2(b) – Agreement: Acceptance .................................................................................................................................................... 6
2(c) – Consideration ..................................................................................................................................................................... 7
2(d) – Alternative enforcement of promises ................................................................................................................................ 8
2(e) – Intention to create legal relations ..................................................................................................................................... 9
2(g) – Formalities (necessity for writing) ................................................................................................................................... 10
Topic 3: Parties to the contract....................................................................................................................................................... 11
3(a) – Capacity ........................................................................................................................................................................... 11
3(b) – Privity ............................................................................................................................................................................... 12
Topic 4: Illegality ............................................................................................................................................................................. 13
Topic 5: Vitiating Factors ................................................................................................................................................................ 21
5(a) – Misrepresentation ........................................................................................................................................................... 21
5(b) – Mistake ............................................................................................................................................................................ 24
5(c) – Duress .............................................................................................................................................................................. 27
5(d) – Undue Influence .............................................................................................................................................................. 29
5(e) – Unconscionable conduct .................................................................................................................................................. 31
Topic 6: Terms of the Contract ....................................................................................................................................................... 33
6(a) – Express terms ................................................................................................................................................................... 33
6(b) – Extrinsic information and the Parol Evidence rule ........................................................................................................... 34
6(c) – Implied Terms .................................................................................................................................................................. 35
6(d) – Interpretation/construction of terms .............................................................................................................................. 36
6(e) – Exclusion clauses .............................................................................................................................................................. 37
Topic 7: Discharge of a contract ..................................................................................................................................................... 38
7(a) – Performance .................................................................................................................................................................... 38
7(b) – Agreement ....................................................................................................................................................................... 39
7(c) – Discharge by the operation of law ................................................................................................................................... 40
7(d) – Termination due to breach .............................................................................................................................................. 41
7(e) – Frustration ....................................................................................................................................................................... 42
Topic 8: Remedies ........................................................................................................................................................................... 43
8(a) – Contract remedies ........................................................................................................................................................... 43
8(b) – Fixed sums and debt ........................................................................................................................................................ 44
8(c) – Equitable remedies .......................................................................................................................................................... 45
8(d) – Other remedies ................................................................................................................................................................ 46
Appendix 1: Latin Maxims ............................................................................................................................................................... 48
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Topic 1: Introduction to the law of contract
A contract is an agreement supported by consideration that is legally binding upon the parties involved.
Sources of contract law
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

Common law
Legislation (Trade Practices Act, Fair Trading Act, Sale of Goods Act, etc.)
International law
o Vienna Convention on the international sale of goods
o UNIDROIT Principles of International Commercial Contracts
Theories of contract law
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Classical contract theory:
o That each individual is free to enter into any agreement and should be bound by this
agreement.
Promise theory:
o That the moral basis for each contract is a promise.
Consent theory:
o That each party consents to the transfer of entitlements.
Economic theory:
o Contracts as a vehicle for economic exchange, central to the market’s confidence in
trade.
Critical legal scholarship:
o Criticises contractual formalism that contract law is valueless and universally applicable.
Feminist theory:
o That contract law should be gender neutral; or,
o That contract law should take into account the difference between men and women; or,
o That contract law should observe the difference of power between genders.
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Topic 2: Contract formation
This topic covers the creation of a valid simple contract:
2(a) – Agreement: Offer
The nature of agreements
Agreement is based on the notion of consensus ad idem – a meeting of the minds between all parties of
the contract – Smith v Hughes.
Type of contract (unilateral v bilateral)
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
A unilateral contract is between one person and the world – Carlill v Carbolic Smoke Ball.
A bilateral contract is an offer between distinct parties.
What is an offer?
An offer is the final statement by the offeror to the offeree to which the offeror is content to be
contractually bound. It is only acceptable if it shows a definite consideration, an intention to be bound
and certainty in its terms – Australian Woollen Mills v Commonwealth.
An offer must be communicated/knowledge of the offer is essential
An offer must be communicated by the offeree – Fitch v Snedaker.
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
An offer must be in the mind of the acceptor when he accepts the offer – R v Clarke.
Offeree must be aware of the offer – Fitch v Snedaker.
An offer must be definite
An objective test is used to see whether the offer was intended – John Howard v JP Knight.

Acceptor’s motivation is irrelevant – Williams v Cowardine.
What is not an offer?
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Mere puffs – Leonard v Pepsico Inc.
A request for more information – Harvey v Facey.
An invitation to treat – Partridge v Crittendon.
o Display of goods for sale – Pharmaceutical Society of Great Britain v Boots Cash
Chemists.
o Advertisments – Grainger v Gough.
 Unless they show “bona fides” – Carlill v Carbolic Smoke Ball.
Special offers
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Auction with reserve
o Each bid is an offer, the auctioneer accepts or rejects them – Payne v Cave | Sale of
Goods Act s60.
Auction without reserve
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o
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Auctioneer may be liable to highest bidder – Hughes Aircraft Systems International v
Airservices Australia.
Sale by Tender
o Invitation to send in offers (not an offer in its own right) – Spencer v Harding.
 May be subject to conditions of fairness – Hughes Aircraft Systems International
v Airservices Australia
o If joined by guarantee that it will be awarded to the lowest bidder, it may be a unilateral
offer – Harvela Investments Ltd v Royal Trust Company of Canada.
Tickets
o May be offers but are not evidence of a contract – Macrobertson Miller Airline Services v
Commissioner of State Taxation.
o When given automatically, ticket is offer, taking it is acceptance. Conditions must be
brought to offeree’s attention before acceptance – Thornton v Shoe Lane Parking Ltd.
Trade Practices Act
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S52 – misleading and deceptive conduct
Ss53, 53A-C – false representations
S54 – offering gifts without meaning to provide them
S56 – bait advertising
Terminating an offer
An offer can be accepted until it is revoked, rejected or it lapses.
Revocation
 Before acceptance, you’re good – Byrne and Co v Leon Van Tienhoven and Co.
o Must be communicated (Postal Rule does not count for revocation) – Byrne and Co v
Leon van Tienhoven and Co.
o Can be indirect – Dickinson v Dodds.
o For unilateral offers, revocation must be in the same form as the offer – Shuey, Executor
v United States.
 Where there has been substantial performance, generally, can’t be revoked (should be given
reasonable opportunity to complete) – Errington v Errington.
o Except where performance is in accepting, not in completing the contract – Mobil Oil
Australia Ltd v Lyndel Nominees Pty Ltd.
Rejection
 Terminates the offer.
o Rejection need not be explicit (a counter offer is a rejection) – Hyde v Wrench.
 Last shot v Synthesis approaches – Butler Tool Co v Ex-Cell-O Corp.
o Request for further information is not a counter-offer – Stevenson, Jaques and Co v
McLean.
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Lapse
 Effluxion of time.
o If a reasonable amount of time expires, the offer does too – Ramsgate Victoria Hotel Co
Ltd v Montefiore.
 Death of the offeror generally causes the offer to lapse – Reynolds v Atherton.
o Unless the offeree does not know of the death and the contract does not require the
personal services of the deceased offeror – Carter v Hyde.
 Failure of a condition precedent will lapse an offer – Gilbert J McCaul (Australia) Pty Ltd v Pitt
Club Ltd.
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2(b) – Agreement: Acceptance
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2(c) – Consideration
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2(d) – Alternative enforcement of promises
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2(e) – Intention to create legal relations
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2(g) – Formalities (necessity for writing)
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Topic 3: Parties to the contract
3(a) – Capacity
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3(b) – Privity
Privity states that a contract is between the promisee and the promisor, and that no other person has
rights under this contract – Price v Easton.
Exceptions to the rule of Privity:
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Agency (the agent binds a third party to the principle)
Assignment (where rights are assigned to third parties)
Trusts (a trust is liable for the obligations of the trustee)
Exclusion clauses
o An exclusion clause may be designed to protect the servants and agents of a benefiting
party
Negotiable instruments are enforceable by whoever has them (i.e. cheques, etc.) unless
stipulated otherwise
Land covenants are annexed to the land and affect subsequent owners of the land
A person not a party to an insurance contract, but specified in it, may recover loss or benefit
from the insurer – Insurance Contracts Act s 48
Manufacturers are liable to third parties TPA s74A-74L, SoG.
Unjust enrichment
o Where a person entered into a contract, and received consideration to complete a
promise to benefit a third party
o The third party might be able to claim
There may be an action available in torts (negligent performance) – Bryan v Maloney | Hill v Van
Erp.
Where there is statutory misleading or deceptive conduct (s52 TPA), a third party may claim for
remedy under that – Accounting systems 2000 v CCH Australia.
Trident principle
Privity may no longer exist (building insurance covered contractors, sub-contractors sued)
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Mason | Wilson
o Privity may not apply to insurance, and insurance should cover relevant third parties
Toohey
o Privity did not apply to insurance
Gaudron
o Defendant was unjustly enriched, therefore third party should be able to claim
Dean
o Via equitable trust
Brennan and Dawson dissenting
o Privity should still exist, use available equitable concepts
Has had limited pick up (Jones v Bartlett), but is good law regarding insurance (Winterton v Hambros)
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Topic 4: Illegality
A court will not allow a cause of action based on an illegal act – ex turpi causa non oritur actio.
If a court finds illegality, there are four possible outcomes:
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
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The contract is void;
A term of the contract is void (i.e. severed);
The contract is void in certain circumstances (e.g. void against the ATO); or,
The contract is valid, but unenforceable subject to the rights of innocent third parties.
Contracts illegal at common law
Common law may invalidate certain contracts that are against public policy – Brooks v Burns Philip
Trustee Co Ltd. These may change with changing public opinion, but the grounds discussed below have
been established – Fitzgerald v FJ Leonhardt Pty Ltd.
Contracts to commit crimes or torts
If the central purpose of a contract is to commit a crime or a tort (including fraud), the contract is illegal
– Neal v Ayers | North v Marra Developments Ltd.
It has to be the central purpose of the contract (e.g. sold a pub with after-hours trading, purpose was to
sell hotel, not to trade after hours) - Neal v Ayers.
The court will look to the centrality of the crime to the contract, and to the crime’s severity.
Contracts to defraud the revenue
If the central purpose of a contract is to defraud the revenue (the tax service) the contract is illegal –
Alexander v Rayson.
Contracts promoting sexual immorality
Prostitution generally makes a contract illegal – Upfill v Wright. De facto relationships and same sex
partnerships are now sweet – Andrews v Parker | Property (Relationships) Act ss44-52. This is no longer
very important because of changing public opinion.
Contracts promoting corruption in public life
Contracts which prejudice the administration of a state or the nation may be held to be illegal, this
includes selling public offices – Wilkinson v Osborne. This category may also include selling honorifics –
Parkinson v College of Ambulance Ltd and Harrison.
Contracts prejudicial to the administration of justice
This section covers contracts to conceal criminal offences or stop investigations, etc. – Keir v Leeman.
This is only applicable to criminal matters, not to civil matters.
Contracts prejudicial to foreign relations or public safety
Any contract which:
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
Benefits an enemy country, or may seriously damage national security:
o And Australia was at war with the country when the contract was entered into
 The contract is illegal.
o And Australia declared war after the contract was formed
 Then the contract is suspended until the end of the war.
Jeopardises existing relations with another country, it is illegal – Regazzoni v KC Sethia.
Contracts void at common law
If a contract tries to oust the jurisdiction of the courts, if it prejudices the status of marriage or if it
constitutes an illegal restraint of trade, then it will be void at common law. These are seen as less
offensive to public policy then those illegal at common law.
Contracts to oust the jurisdiction of the court
A contract may not oust the jurisdiction of the courts; this =/ “honour only” terms – Baker v Jones.
It is ok if they allow for alternative dispute resolution as longs as that clause of action says that no action
may be taken until after ADR, not excluding it, just requiring an intervening step – Scott v Avery.
State commercial arbitration legislation, s55, says that a court will not be prevented from hearing a
matter because of ADR, but it has the discretion to wait for ADR to be completed.
Contracts are prejudicial to the status of marriage
A marriage brokering contract, a contract restricting the freedom to marry or a contract prejudicing the
stability of marriage are void against public policy.
As long as each person is advised before it is signed, pre-nuptial agreements are now ok, as allowed by
the Family Law Act s90A-90Q.
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Contract in restraint of trade
The court doesn’t like restraint of trade, because it may deprive society of skills or benefits of the
person. A restraint of trade is prima facie
Some of them are valid, if they follow Macnaughen’s rules in Nordenfelt v Maxim Nordenfelt Guns and
Ammunitions Co Ltd – they must be:


Reasonable in relation to the interest of the parties to the contract; and,
Reasonable in relation to the interests of the public
Reasonableness is construed strictly here so as to be no more than is necessary to protect the legitimate
interest of the party imposing the restraint. This is judged by geographical and time limitations.
The assessment of reasonableness is made at the time of agreement – Lindner v Murdok’s Garage.
NSW Restraints of Trade act s4(1) – restraints of trade are valid to the extent where they are no
against public policy. The court may make a non-reasonable restraint of trade reasonable s4(3).
Contracts regulating trade: “solus” clauses
A contract regulating trade is with regards to “solus” (or, exclusive dealing) clauses.
For a solus agreement to be valid, the above elements must be valid, as well as – Esso Petroleum Ltd v
Harper’s Garage (Stourport) Ltd:



The onus of establishing reasonableness is on the party benifitting (but this is easily discharged if
they had agreed to this term);
There is commercial justification for both parties to enter into the contract; and,
There is no obvious injury to the community.
15 years is a long time (longer than reasonable/necessary for stability and economic prosperity of the
benefiting party) – Amoco Australia Pty Ltd v Rocca Bros Engineering Pty Ltd.
Now, the court can read down the solus clause to a reasonable time.
TPA s45 prohibits agreements that substantially lessen competition except when it applies to
employment, partnership or sale of business (TPA s 51(2)).
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Sale of Business
A purchase of a business is a purchase of capital and goodwill, thus some restraint of trade is
reasonable.
But, it has to be reasonable in terms of the following – Butt v Long:
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Geographical area
Duration
Type of business (e.g. has to be limited, not “can’t engage in any competing business”
Nordenfelt v Maxim Nordenfelt Guns and Ammunitions Co Ltd)
Specific wording
Consideration paid for the restraint
Context of the agreement
The need for business certainty
Personal Service
E.g. If you get fired, you can’t work in this field for 6 months in my area.
This is commonly held not to be in the best interest of the person restricted or society at large.
BUT, they can be used to restrict freedom to use sensitive information where:


It is for the protection of trade secrets/confidential trade information – Forsters and Sons Ltd v
Suggett; or,
It is for the protection of trade/consumer connections (only current customers – Drake
Personnel Ltd v Beddison).
And they can be used to reasonably restrict work where working in that area might lure clients away –
Fitch v Dewes.
For contractors, restraint of trade is only ok where it is to ensure availability, not for disallowing others
to use expertise – Schroeder (A) Music Publishing Co Ltd v Macaulay.
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Contracts illegal by statute
A contract that statute prohibits is illegal and unenforceable.
A court will assess the seriousness of the contravention and whether the contravention was central or
incidental to the performance of the contract.
It may be:


Illegal as formed
Illegal as performed, where a factor associated with performance renders the contract illegal.
Express prohibition
A statute may declare a contract made in contravention of it illegal and unenforceable – Re Mahmoud
and Ispahni. Is the intention of parliament to absolutely prohibit this type of contract?
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Implied prohibition
Where a statute does not discuss the status of contracting in its regard, the court must look to the
parliament’s intention.
Court’s don’t like implying contractual prohibitions, but they can be found if the court finds that the
parliament did intend to interfere with the parties’ contractual rights. The court will look to:
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The primary aim of the statute
o If public safety or public interest is a statute’s main aim, it is likely to render a contract
illegal and unenforceable – Anderson Ltd v Daniel.
o If revenue collection is the purpose, it is unlikely to illegalise the contract – Smith v
Mawhood.
The penalty imposed by the statute
o The bigger the punishment, the more likely it is to render the contract illegal – Yango
Pastoral Co Pty Ltd v First Chicago Australia Ltd.
Whether or not it is commercially convenient
o If it is not commercially convenient to make contracting contrary to the law illegal (e.g. it
prevents depositors from withdrawing their deposits, or it creates commercial
uncertainty, etc.) then it might not be found to be illegal – Yango Pastoral Co Pty Ltd v
First Chicago Australia Ltd.
o Can be seen by punishment, number of days is commercially inconvenient, number of
transactions is more convenient.
o If a party is innocent, the punishment is discretionary and it would produce uncertainty,
then there a contract may not be illegal – Dalgety and New Zealand Loan Ltd v Imeson
Pty Ltd.
Where the transgression was a relatively minor transgression, and commercial inconvenience
would result otherwise, a contract may not be found to be illegal – St John Shipping Corporation
v Joseph Rank Ltd.
Where both parties are aware of the law, it is more likely to be found illegal and unenforceable
– Buckland v Massey.
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Consequences
Where it is illegal as formed, the contract will be void ab initio – Re Mahmoud and Ispahani – ex turpi
causa non oritur actio. This is subject to in pare delicto, property already transferred will not be returned
unless:
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
There is a mistake of fact – David Securities Ptry Ltd v Commonwealth Bank of Australia.
Where relief is available independent of the contract (via bailment) – Bowmakers
o Unless bailment itself is illegal – Thomas Brown v Fazel Deen.
Where there is an independent statutory cause of action – Ison v Australian Wheat Board.
Where restitution may be available
o A claim of quantum meruit.
Where false statements/duress are involved – George v Greater Adelaide Land Development Co
Ltd.
Where a contract is not illegal as formed, but illegal as performed – Marles v Philip Trant.
Exceptions to non-return by illegal party

Where the transferor repents before substantial performance occurs – Clegg v Wilson.
Now the high court is more liberal, saying that you can allow a claim of return of property unless –
Nelson v Nelson:
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
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The statute expressly indicates the intention of parliament is to make the contract
unenforceable at all times
Non-enforcement is proportionate to the seriousness of the unlawful act
Non-enforcement is necessary to protect the object of the legislation
The statute by implication discloses an intention that the sanction under statute is not to be
the sole sanction (i.e. a further punishment is allowed for)
I.e. if the punishment allotted in the legislation sufficiently protects the objective of the legislation,
the contract need not be illegal.
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Contracts void by statute
Statutes may declare a contract void, rather than illegal.
A statute may stipulate that a contract is only void when some persons are the other signatory, eg:


Income tax assessment act  void against the commissioner of taxation
Bankruptcy act  void against the trustee in bankruptcy, except when third parties are affected.
Or a statute may say a term is void i.e. s68 of TPA
When a contract is void, not illegal, it is as if it never existed, and, unless substantial performance has
occurred, transferred property is recoverable – Herman v Charlesworth.
Doctrine of severance
Where there is a term that is void, a court may find that it is severable if:
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
The illegality is minor and does not taint the whole contract;
The severed term is not a substantial part of the consideration – Waytt v Kreglinger;
And it does not leave the contract meaningless.
Severance is available to statutory voidness, and common law voidness.
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Topic 5: Vitiating Factors
Vitiating factors negate the consent of one of the parties of the contract.
5(a) – Misrepresentation
A misrepresentation is an untrue statement (occurring before or at the time of making the contract) that
induces the representee to enter the contract. The 5 elements are set out below and, though old
English cases are used to derive them, they were confirmed by the HC in Gould v Vaggelas.
Representation was made by the representor to the
representee either directly or indirectly.
The representation was a statement of fact, not a puff or
representation of opinion, future intention or the law.
The representation was false.
The representation was intended to induce the representee
to enter into the contract.
The representation acted as an inducement to enter the
contract.
Representation was made either directly or indirectly
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If direct, it is an evidentiary concern.
Indirect is a bit more complicated.
o Generally, silence is not a representation – Spooner v Eustace.
o There are exceptions:
 When an original statement becomes untrue, and the representor is aware of this,
he must take positive steps to correct the misrepresentation – With v O’Flanagan.
 When a statement is a half-truth (i.e. a positive representation distorts the truth) –
Dimmock v Hallett | Jennings v Zilahi-Kiss.
 When a representor actively conceals from the representee a crucial fact –
Schneider v Heath.
 When there is a duty of disclosure (cases where uberrimae fidei is required, e.g.
insurance) – Gordon v Gordon | Commonwealth Insurance Contracts Act s21.
 When there is a fiduciary relationship (e.g. parent/child, principal/agent,
solicitor/client, trustee/beneficiary)
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
When silence amounts to misleading/deceptive conduct (when someone
deliberately says nothing about a material element) – TPA s52 | FTA s41.
Representation is a statement of fact
A representation must be to a current or past fact.


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A statement of opinion cannot found an action in misrepresentation unless the representor
warrants the truth of it – Bisset v Wilkinson. It will not be a misrepresentation only if:
o The representor must actually hold the opinion stated; and,
o The representation must not be based on fact which only the representor knew and a
reasonable person would hold this opinion – Smith v Land and house Property
Corporation.
A statement of future intention does not found an action in misrepresentation – Civil Service
Co-operative Society of Victoria Ltd v Blyth. That is, unless:
o There was never an intention to do what they represented – Edgington v Fitzmaurice |
British Airways v Taylor.
o They never had reasonable grounds for making the representation – TPA ss51A, 53.
A statement of law is not different from a statement of fact – David Securities v CBA.
Representation is false
The statement must be false, but this is an evidentiary issue – Krakowski v Eurolynx.
Representation is intended to induce the contract
The representation must be intended by the representor to be acted on by the representee – Peek v
Gurney.
It does not be direct, may have the intention of the representation being passed on:


The representee is part of a class of people who may use the information – Commercial Banking
Company of Sydney v RH Brown and Co; or,
The representor knew that the information was likely to be passed on – Pilmore v Hood).
Representation induced the contract
The representation must actually induce the representee to enter into the contract.
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
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It doesn’t have to be the whole reason, as long as it is one of the factors that influenced the
decision of the representee, it counts – Edgington v Fitzmaurice.
It doesn’t matter if the defendant had an opportunity to discover the truth – Redgrave v Hurd.
o Unless they take that opportunity and rely on their own research rather than the
representation – Attwood v Small.
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Remedies
If the above is established, the contract is voidable and the representee has the right to rescind. It may
also be used as a defence against specific performance. Further damages are available in cases of
fraudulent and negligent misrepresentation, but not innocent misrepresentation.
Extra damages for fraudulent misrepresentation
A fraudulent misrepresentation is deliberate, has no belief in the truth of the statement, is knowingly
misrepresenting or is reckless as to the statements truth – Thomas Witter Ltd v TBP Industries Ltd |
Derry v Peek.
This allows the contract to be rescinded; or for tortious damages under “deceit” to be sought, with
damages amounting to the difference between the market value and the contract value plus
consequential loss – Toteff v Antonas. If the representee affirms (instead of rescinding) the contract,
they may still seek tortious damages – S Gormley and Co Pty Ltd v Cubit.
Extra damages for negligent misrepresentation
When the representor has a duty of care, which he breaches with a misrepresentation, further damages
may be sought against him via negligence – Hedley Byrne and Co Ltd v Heller and Partners Ltd.
Damages in cases of innocent misrepresentation
If the misrepresentation was innocent, no damages apart from a defence to specific performance or
rescission are available.
Statutory intervention
The trade practices and fair trading acts apply to change the rules of misrepresentation slightly (for
corporations and persons respectively).
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TPA s51; FTA s41(1): prohibits misleading representations as to a future matter.
TPA s52; FTA s42: prohibits misleading conduct.
TPA s53; FTA s44: prohibits false or misleading representations.
TPA S53A: prohibits false and misleading conduct regarding land.
TPA S53B: prohibits false and misleading conduct regarding employment.
TPA s55A, FTA s49: certain misleading conduct in relation to goods (“engage in conduct that is
liable to mislead the public as to the nature, the manufacturing process, the characteristics, the
suitability for their purpose or the quantity”).
TPA s55; FTA s50: certain misleading conduct in relation to services.
TPA s55A; FTA s54: misleading representations about certain business activities.
FTA s53: accepting goods without intending or being able to supply as ordered.
TPA s82; FTA s68: allows for damages.
TPA s87; FTA s72: any order the court thinks appropriate.
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5(b) – Mistake
The court is unlikely to grant relief on the grounds of mistake, since mistake is often subjective.
A mistake may be one of fact or law – David Securities Pty Ltd v Commonwealth Bank of Australia, as
allowed for in Classic International Pty Ltd v Lagos.
If a mistake is found in common law, the contract is void ab initio. If there is a mistake at equity, then
equity may refuse specific performance, declare the contract voidable or rectify the contract.
Common mistake
A common mistake occurs when both parties enter into a contract under the same mistaken belief that
a certain situation exists or that a relevant fact is correct – McRae v Commonwealth Disposals
Commission.
Common mistake at common law
For a contract to be void under common law, the mistake must be fundamental; via res extincta, res sua
(the subject matter does not exist, or the purchaser already owns the property) or a mistake as to the
subject matter.
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

Res Extincta (the subject matter no longer exists)
o There cannot be agreement where the subject matter has ceased to exist before the
contract was entered into – Scott v Coulson | Couturier v Hastie | SoG s11.
 One may be held liable for warranting the existence of a subject matter, even
when there is common mistake – McRae v Commonwealth Disposals
Commission.
Mistake as to subject matter
o A common mistake can only be made as to the substance, and not the quality or
attributes of the subject matter – Bell v Lever Bros Ltd | Leaf v International Galleries.
o Where the contract is one for land, there is a higher burden, since the purchaser may
inspect the property prior to transfer of title – Svanosio v Macnamara.
Res Sua (the subject is already owned by the purchaser)
o You can’t sell something to someone who already owns it – Cooper v Phibbs.
o However, this must be fundamental (i.e. a lease may still be valid if you lessee 10% of
the property being leased) – Bligh v Martin.
Common mistake at equity
First check if it is void via common law, and then see if equity may grant relief – Associated Japanese
Bank (International) Ltd v Credit Du Nord SA.
Equity may set aside a contract for common mistake if there is no injustice to third parties and there
has been unconscionability amounting to fraud – Solle v Butcher. The following must be satisfied:


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There was a common misapprehension;
The misapprehension was fundamental;
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


The party seeking relief must not be at fault;
It must be unconscionable to allow the other party to benefit from the mistake; and,
The rights of third parties must not be unjustly affected.
There are arguments as to whether or not a common mistake at equity must be to subject matter – Solle
v Butcher says quality is fine, Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd suggests
that a mistake must render the contract fundamentally different. In Queensland, the matter is decided:
mistake must be fundamental – Australia Estates Pty Ltd v Cairns City Council.
Equity may also rectify the contract where the contract does not accurately reflect the nature of the
agreement. If rectification is available, the mistaken segment will be replaced with one that accurately
reflects the agreement. It deals only with what was agreed upon and what was written, not intention –
Frederick E Rose (London) Ltd v William H Pim Junior and Co Ltd | Pukallus v Cameron. For rectification
to be obtained, the following must be established:


A concluded oral agreement; and,
Convincing proof that the written contract does not accord with the agreement.
Rectification will not occur where there is a third party.
Mutual mistake
A mutual mistake occurs when parties make different mistakes, i.e. they are at cross purposes and
there is no consensus ad idem. The contract will be void, since the parties did not reach contract on the
same subject matter.
Mutual mistake at common law
An objective test, if it is not possible to prefer one meaning over the other, the contract is coid for
mistake – Raffles v Wichelhaus. The contract will be enforced if a reasonable person interprets the
contract according to what one of the parties alleges it means – Goldsborough Mort and Co Ltd v Quinn.
Mutual mistake in equity
Equity usually doesn’t touch mutual mistake; sometimes equity will interfere will interfere (refusing
specific performance) where there is injustice or undue hardship.
Unilateral mistake
Where one of the parties is mistaken, and the other party is aware of the mistake, or should have been
aware of it, given the circumstances. Either to a term of the contract, or to the parties, but it must be
fundamental.
Unilateral mistake at common law
Unilateral mistake may be as to terms or identity.
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Unilateral mistake as to terms – Hartog v Colin & Shields:
o The mistake was a fundamental mistake as to the terms of the contract;
o The mistake was knowingly induced by the words or conduct of the other party;
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o


Non innocent party was aware or ought to have been aware of the mistake (objective
test).
Mistaken identity, has to be a fundamental error, the “character or worthiness” of a person is
irrelevant. The following must be made out:
o The identity was of critical importance to the formation of the contract;
o The mistaken party intended to deal with someone other than the other party; and
o The other party knew or ought to have known about the error.
o Further:
 Where the meeting is face to face, it is difficult to rebut intention to contract –
Lewis v Avery | Phillips v Brook.
 When the contracting is done at a distance, it is easier to rebut the presumption
of intention – Cundy v Lindsay.
Non Est Factum, or this is not my deed – Petelin v Cullen.
o The claimant belonged to a relevant class who is:
 Blind/illiterate, and relies on others for advice; and who,
 Through no fault, was unable to understand the nature of the contract.
o The claimant signed the document believing it to be radically different to the one
signed; and,
o Where there are innocent persons involved, that the mistake was not due to laziness or
carelessness.
Unilateral mistake at equity
 Usually voidable
 Refuse specific performance where – Webster v Cecil:
o No fault by P;
o Hardship amounting to injustice arises;
o Unreasonable to hold P to his bargain.
 Setting aside the contract where – Taylor v Johnson:
o Serious mistake about fundamental term or subject matter;
o Knowledge of the mistake by the non-mistaken party (may include wilful ignorance);
o Non-mistaken party is guilty of unconscionable conduct;
o Third party rights not affected.
 Rectification – Thomas Bates & Son v Wyndam:
o Mistaken party believed that the contract contained (or did not contain) a particular
term;
o Non-mistaken party was aware of the other party’s mistake;
o Non-mistaken party does not draw the mistaken party’s attention to the mistake; and
o Non-mistaken party derives some particular benefit or advantage from the mistake or
the mistaken party suffers a detriment from the mistake.
o NB: Taylor v Johnson requires an additional element of unconscionability should
rectification be sought in Australia.
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5(c) – Duress
Duress vitiates consent; it is illegitimate pressure exerted by a dominant party to coerce a weaker party
into the contract, and that the weaker party loses the freedom to choose whether or not to enter into
the contract.

Illegitimate pressure =/ commercial pressure – Smith v William Charlick Ltd.
If proven, the contract is voidable at the option of the weaker party; rescission and restitution may be
possible. There may be further damages available in tort.



The pressure exerted must be illegitimate (unlawful) – ANZ v Karam.
The duress must have caused the weaker party to enter into contract
No alternative? – Universal Tankships Inc of Monrovia v International Transport Workers
Federation.
S60 of the TPA and s55 of the FTA forbid “harassment and coercion.” Here, damages under s82 or a
court order under s87 will be available. Contracts Review Act s9(2)j) regarding unjustness and “unfair
tactics.”
Duress to the person
Duress to the person requires actual or threatened violence (or confinement) to the innocent party, a
close relative, or an associate. This unlawful act must be aimed at obtaining consent; it must be a
contributing factor to the decision to consent – Barton v Armstrong. The accused party has to prove
that they did not use duress.
TPA S53A(2) | FTA s45(2) – prohibits physical force or harassment when it has to do with the sale etc. of
land.
Duress of goods
Duress of goods requires that one party unlawfully seizes, detains, damages or destroys the goods of
the other, or threatens to, in order to procure consent – Occidental Worldwide Investment Corp v Skibs
A/S Avanti (The Siboen and the Sibotre) | Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd.
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Economic duress
Economic duress occurs when a threat is made by the dominant party to prejudice the innocent party’s
economic interest with the view to procuring consent.

Threatening to breach existing contracts is enough – North Ocean Shipping Co Ltd v Hyundai
Construction Co Ltd (The Atlantic Baron).
Elements as in Pao On v Lau Yiu Long: commercial pressure can render the contract voidable where the
innocent party does:




Not have any alternative course of action
Protest
Not have independent advice
Take steps to avoid the contract
Crescendo Management Pty Ltd v Wespac Banking Corporation suggests that for duress to be
established:


The applied pressure must actually induce the innocent party to enter into contract – News
Limited v Australian Rugby Football League Ltd; and,
The pressure must be beyond what the law believes is legitimate.
What is illegitimate pressure? Unlawful threats or unconscionable conduct (=/ unconscionable conduct
in equity) amount to illegitimate pressure. Unconscionable here means pressuring the plaintiff’s
consent rather than what the defendant did – Ford Motor Company of Australia Limited v Arrowcrest
Group Pty Ltd. This view was criticised by Kirby J in Equiticorp Finance Ltd (in liq) v Bank of New Zealand.
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5(d) – Undue Influence
Undue influence occurs when a stronger party influences the will of a weaker party to consent. It need
not be unlawful.
Where it is proven, the transaction is voidable at the option of the weaker party. Rescission may be
available. Undue influence may amount to “misleading and deceptive conduct” TPA s52.
The difference between presumed and actual undue influence lies only with the burden of proof – Royal
Bank of Scotland Plc v Etridge (No 2).
Presumed undue influence
Given certain relationships, undue influence will be presumed, namely, recognised fiduciary
relationships and special relationships – Barclays Bank Plc v O’Brien.

Recognised fiduciary relationships that attract the presumption:
o Parent/child
o Guardian/ward
o Trustee/beneficiary
o Solicitor/client
o Doctor/patient
o Religious advisor/disciple
If no recognised fiduciary relationship exists, there may be a special relationship on the balance of the
following – Johnson v Buttress:
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

Extent of relationship between the parties (living together, etc.)
Length of relationship
Character/personality of the weaker party
Age/state of health of the weaker party
Intelligence/education/business sense/experience of the weaker party
Character/personality/education/business acumen of the stronger party
How the stronger party influenced the weaker party
If a relationship is proven, the stronger party has to prove that he did not unduly influence the weaker
party, e.g. by – Lloyds Bank Ltd v Bundy:
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Full disclosure of material facts
The availability of independent advice
The supply of reasonable consideration
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Actual undue influence
Where a relationship that attracts the presumption of undue influence cannot be found, the weaker
party must prove – Allcard v Skinner | Public Service Employees Credit Union Co-operative Ltd v
Camption:

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That there was an appropriately influential relationship,
That the stronger party exercised undue influence to secure an advantage,
That undue influence motivated the weaker party to contract; and,
That the weaker party acted promptly in trying to avoid the contract.
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5(e) – Unconscionable conduct
Equity may be willing to set aside a contract where there is unconscionability; there is unconscionability
only where the weaker party is under a special disadvantage, and the stronger party know of it –
Blomley v Ryan.
The burden of proof rests with the weaker party to establish a special disadvantage (poverty, sickness,
need, age, infirmity, etc.). Then the burden shifts to the stronger party who must show that the
contract was, in fact, fair and reasonable – Lloyds Bank Ltd v Bundy.
Where there is unconscionable conduct, it is voidable at the option of the weaker party (it may be
totally or party rescinded) or it can be used as a defence for specific performance. For rescission to be
available, it has to be able to return the parties to their pre-contractual conditions.
The stronger party need not be dishonest or engage in wrong-doings for unconscionability to be found –
Lloyds Bank Ltd v Bundy.
The elements of unconscionability are – Commercial Bank of Australia Limited v Amadio:



A party to the transaction was under a special disability;
The disability was evident to the stronger party (actual or constructive knowledge); and,
It would be unfair for the stronger party to accept the weaker party’s assent.
Regarding relationships, if there is “infatuation”, “crisis” and “manipulation”, there may be
unconscionability – Louth v Diprose.
When a party to the contract is aware that a third party may be unduly influencing the weaker party,
and this occurs, equity may set the contract aside – Bank of New South Wales v Rogers.
Special wife’s equity
A wife who guarantees her husband’s loan (under certain conditions) is either unduly influenced by him
or is misled by him – Yerkey v Jones.
Elements may include – NAB v Garcia:
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
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Wife did not understand the purport and effect of the transaction;
Wife did not gain any benefit;
No independent advice given.
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Statutory intervention
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TPA:
o
s51AA(1): prohibits a corporation from engaging in conduct that is unconscionable
within the meaning of the unwritten law.
o S51AB(1): prohibits conduct that is in all circumstances unconscionable.
o S51AB(2): Lists factors which may be relevant to a court determining whether the
conduct is unconscionable, although this list is not exhaustive.
 Includes the availability and price of equivalent goods from other suppliers.
o S51AC: Protects small businesses by prohibiting a corporation in connection with the
supply or possible supply of goods and services to a person or the acquisition of goods
and services from a person engaging in unconscionable conduct.
CRA – application is only to consumers:
o S7: relief – including:
 Refusal to enforce any or all of the provisions of the contract
 Declaring the contract void in whole or in part
 Varying in whole or in part any provision.
o S8: ancillary relief:
 Disposition of property
 Payment of money
 Supply or repair of goods, etc
o S9(2): relevant matters….shall have regard to:
 Material in equality of bargaining power
 Negotiations
 Further negotiations
 Unreasonably difficult condition(s)
 Not reasonably able to protect materials
 Education/literacy
 Written language
 Independent legal advice
 Explanations
 Undue influence
 Similar contracts conduct
 Commercial/other setting
o S9(3): where a party represents another party, the factors in s9(2) will be applied to the
representative.
o S9(4): In determining whether unjust, court shall not regard any injustice arising from
circumstances that weren’t reasonably foreseeable at the time the contract was made.
o S9(5): Court shall also have regard to how the contract was performed.
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Topic 6: Terms of the Contract
6(a) – Express terms
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6(b) – Extrinsic information and the Parol Evidence rule
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6(c) – Implied Terms
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6(d) – Interpretation/construction of terms
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6(e) – Exclusion clauses
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Topic 7: Discharge of a contract
7(a) – Performance
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7(b) – Agreement
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7(c) – Discharge by the operation of law
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7(d) – Termination due to breach
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7(e) – Frustration
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Topic 8: Remedies
8(a) – Contract remedies
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8(b) – Fixed sums and debt
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8(c) – Equitable remedies
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8(d) – Other remedies
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Appendix 1: Latin Maxims
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