Contract Law Exam Notes Offer : An offer is an expression to another of a willingness to be bound by the stated terms Australian Woollen Mills Pty Ltd v The Commonwealth Bilateral Contracts Under Bilateral Contracts each party undertakes to the other party to do or to refrain from doing something, and in the event of his/her failure to perform his/her undertaking, the law provides the other party with a remedy. United Dominions Trust Ltd v Eagle Aircraft Services Ltd Unilateral Contracts Under unilateral contracts the promisor undertakes to do or to refrain from doing something if another party, the promisee, does or refrains from doing something, but the promisee does not at the time of the offer undertake to do or to refrain from doing that thing. United Dominions Trust Ltd v Eagle Aircraft Services Ltd The position in such cases is simply that the consideration on the part of the offeree on the part of the offeree is completely executed by the doing of the very thing that constitutes acceptance of the offer. Australian Woollen Mills Pty Ltd v The Commonwealth Offers to the Public at Large An offer can be made to the public at large. 1
Transcript
Contract Law Exam Notes
Offer :
An offer is an expression to another of a willingness to be bound by the stated terms
Australian Woollen Mills Pty Ltd v The Commonwealth
Bilateral Contracts
Under Bilateral Contracts each party undertakes to the other party to do or to refrain from doing something, and in the event of his/her failure to perform his/her undertaking, the law provides the other party with a remedy.
United Dominions Trust Ltd v Eagle Aircraft Services Ltd
Unilateral Contracts
Under unilateral contracts the promisor undertakes to do or to refrain from doing something if another party, the promisee, does or refrains from doing something, but the promisee does not at the time of the offer undertake to do or to refrain from doing that thing.
United Dominions Trust Ltd v Eagle Aircraft Services Ltd
The position in such cases is simply that the consideration on the part of the offeree on the part of the offeree is completely executed by the doing of the very thing that constitutes acceptance of the offer.
Australian Woollen Mills Pty Ltd v The Commonwealth
Offers to the Public at Large
An offer can be made to the public at large.
Carlill v Carbollic Smoke Ball Company
The defendant (the company) was the manufacturer of a product called the Carbolic Smoke Ball, which was designed to prevent the user of the smoke ball from contracting the flu. To promote its product, the Company advertised in a newspaper to pay 100 pounds to any person who contracted the flu after using one of their smoke balls in the specified manner for a specified period. The plantiff relied on the advertisement, purchased one of the smoke balls, and used it in the prescribed period. The plantiff contracted the flu and sued the Company to recover 100 pounds.
The English Court of Appeal held that the plantiff was entitled to recover the money from the Company. The court rejected the Company’s argument that the promise was
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not binding because it was not made with anyone in particular. As stated by lindley LJ, ‘in point of law this advertisement is an offer to pay 100 pounds to anybody who will perform these conditions, and the performance of the conditions is the acceptance of the offer’
In Carlill’s case the offer made to the world at large formed the basis of a unilaterial contract. This will not always be the case. Depending on the terms of the advertisement to the general public, the advertisement may constitute an offer which, if accepted, forms a bilateral contract.
Offers made through the Internet
In recent times, there has been an enormous increase in the extent to which commerce is transacted through the Internet. The expansion of electric commerce has also highlighted a number of difficulties, particularly in relation to issues of contract formation. Given the transnational transactions and processes difficult legal problems can arise- such as establishing the place and time of contract formation, and the appropriate legal regime to govern the transaction. Some of the traditional contractual concepts will continue to be relevant. For example offers made to the public at large still abide by the principals set about in Carlill’s case.
What is not an Offer? Mere Puff
Sometimes statements can be regarded only as ‘mere puffery’- the claims are made only for advertising purposes and mean nothing. In years gone by, it is particularly common practise to make exaggerated or perhaps unsustainable claims about products.
Carlill v Carbollic Smoke Ball Company
Not all statements made in advertising, however, can be dismissed so lightly. The case of Carlill provides such an example. In that case, it was held that the statement was more than mere puffery.
The deposit of £1,000 in the bank was an indication of the manufacturer’s intention that the offer was genuine.
Supply of Information
The supply of information is not an offer.
A request for information must be discerned from a contractual offer. A clearer indication of a preparedness to enter into a contract, than merely providing terms or information upon which a party maybe prepared to enter into such a contract, is needed.
Harvey v Facey
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One party was anxious to purchase property of another, the property being known as ‘Bumper Hall Pen’. The prospective purchasers sent a telegram to the owners in the following terms: Will you sell us Bumper Hall Pen? Telegraph lowest cash price.’ The owners responded: ‘Lowest price for Bumper Hall Pen £900’. The final communication was by the purchasers to say: ‘We agree to buy Bumper Hall for £900 asked by you...’ The purchasers later brought an action for specific performance when the owners refused to complete the purchase.
The Privy Council did not grant the relief sought because a contract had not been formed. The plaintiff made two enquiries of the owners: Whether they were willing to sell; and what the lowest price of the sale would be. The owners responded only to the second question by supplying the information. It could not be implied that they responded to the first question by agreeing to sell.
Invitation to Treat
An invitation to treat is an indicator of a party’s willingness to negotiate entry into a contract. It is a technique used by a party who desire another party to make an offer and cannot be construed or the terms be accepted as if it were a valid legal offer in itself.
Carlill v Carbollic Smoke Ball Company
Bowen LJ described an invitation to treat in the following terms: Cases in which you offer to negotiate, or you issue advertisements that you
have got a stock of books to sell, or houses to let, in which case there is no offer to be bound by any contract. Such advertisements are offers to negotiate- offers to receive offers- offers to chaffer, as, I think, some learned judge in one of the cases has said.
Bowen LJ pointed out that advertisements for sale, such as those appearing in advertisements or display of goods on shelves will generally be regarded as an invitation to treat.
They are not offers by themselves, but ‘offers to receive offers’. They are designed to generate offers by others. Therefore an invitation to treat cannot be accepted by the other person and bind the person who advertised the product.
The display of goods in a store is an invitation to treat.
Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd
Pharmaceutical Society GB v Boots Cash Chemists appellant argued display of drugs in pharmacy (with prices attached) infringed a statute prohibiting sale of drugs except where registered pharmacist in attendance. Did display constituted an offer so contract of sale at the moment that the customer selected drug when pharmacist not in attendance?
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Court of Appeal held display was an invitation to treat; the customer made an offer at check-out and offer accepted by ringing up on cash register in presence pharmacist.
Does this make sense? Right not to sell floor stock/window display stock? Fisher v Bell shopkeeper displayed a flick-knife in window with price ticket.
Charged with offering for sale flick-knife contrary to statute Held ” display of an article with a price on it in a shop window is merely an
invitation to treat. It is in no sense an offer for sale the acceptance of which constitutes a contract.” Lord Parker
An advertisement that gives information about goods for sale and their price will generally be an invitation to treat rather than an offer.
Partridge v Crittenden
Appellant charged with statutory offence of unlawfully offering for sale wild live bird (a "Bramblefinch hen") in a periodical.
Held advert an invitation to treat not “offering for sale” in statute. "when one is dealing with advertisements and circulars, unless they indeed
come from manufacturers, there is business sense in their being construed as invitations to treat and not offers for sale.” per Lord Parker CJ.
Categorizing Transactions
Advertisements
Most advertisements are considered invitations to treat but some may be regarded as offers depending on language used in the advertisement and other relevant factors.
a) Advertisements in a catalogue or in a curricular.
Circulars, which provide information about items for sale and their prices, are regarded as invitations to treat. If it were regarded as an offer and the manufacturer ran out of stock, they would be in breach of contract for anyone who accepted such an offer as they could not provide stock
However common legislation also regulates the sale of certain types of products such as fauna and flora that may be offered for sale. The advertising material must be an offer for the legislation to apply but not if it is an invitation to treat.
Grainger v Gough
b) Advertisements in Newspapers and Magazines .These are also considered invitations to treat unless the advertisement is couched in terms which indicate the retailers willingness to be bound if the specified terms are accepted (eg. there is a promise (Carlill) rather than a mere invitation (Partridge v Crittenden).
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c) Advertisements appearing on the Internet.
The application of the same principle as newspapers and magazines is used.
d) Display of Goods.
Items appearing in retail outlets, even if the price is attached, are regarded as an invitation to treat.
Pharmaceutical Society of Great Britain v Boots Cash Chemists.
The display of an article together with its price constitutes an invitation to treat. A customer who selects the item and takes it to the counter for payment makes the offer. It is then open to the retailer to accept the offer to form an agreement or reject it.
Auctions
a) Advertisement of Auctions
The advertisement of an auction is considered an invitation to treat on the part of the auctioneer. The auctioneer may withdraw items from the auction or cancel the auction all together without incurring any liability from potential bidders.
Harris v Nickerson
The auctioneer may withdraw various lots from the auction or cancel the auction altogether without incurring any liability from potential bidders.
Harris v Nickerson
b) Auctions with Reserve
Each bid represents an offer, which the auctioneer may reject or accept. Acceptance of an offer occurs, and an agreement is formed, when the auctioneer knocks down the property to the successful bidder.
Because the agreement is not formed until the bid is knocked down, the bidder can withdraw a bid (offer) before this time.
Payne v Cave
c) Auction without a Reserve
Even in an auction without a reserve, each bid represents an offer that could be accepted or rejected by the auctioneer.
AGC Ltd v. McWhirter
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The auction was originally advertised as being with a reserve, but ultimately procedded without one. The legal status of bids made at the auction arose because the auctioneer knocked the property down to the second highest bidder, not the highest bidder. The Higest bidder then lodged a caveat over the property on the basis that the purchasers of the property- the contract having been formed when they made the highest bid. The sellers then brought an action against the highest bidders removal of the caveat.
The court held that the caveat should be removed, as the sellers had not entered into a contract with them. According to the court, even in an acution without a reserve, each bid represents an offer that could be accepted by the auctioneer. As the bid was not accepted, a contract had not been formed. The court did not differentiate between the legal character of bids at an auction on the basis of whether or not there was a reserve price.
d) Internet Auctions
Recent years have seen a proliferation of Internet auctions, often described as ‘online auctions’. Before participating in an online auction, parties will typically first become a registered user of the online site. As part of becoming a registered user, parties will accept relevant terms and conditions appearing on the online site. Acceptance of the stipulated terms and conditions will normally be constituted by the parties clicking on an accept button. The significance of the terms and conditions being accepted by all registered users is that those terms and conditions will govern any contractural relationship arising from an online auction. The position is well illustrated by the result in:Smythe v Thomas
The owner of a Wirraway Australian Warbird Aircraft, a registered eBay user, listed the aircraft on eBay with a notation of a minum bid of $150,000. Another registered eBay user made a bid in accordance with the Ebay rules for $150, 000. Bothe parties received a notification from Ebay to the effect that the bidder had now ‘won’ the aircraft. Notwithstanding that both parties had agreed to Ebay’s terms and conditions which required a seller to honour winning bids at the selller’s minim bid, the owner of the aircraft denied any contractual obligations to sell on the basis that the owner had contracted with eBay and not the party bidding for the aircraft.
This contention was not accepted by Rein AJ who found that a binding contract has been formed between the parties. By listing the Aircraft on Ebay’s site with an effective disclosed reserve of $150,000, the owner offered to sell the aircraft to that bidder who was the highest bodder of any others.
Importantly Rein AJ accepted that online auctions were simply a species of auction:
In circumstances where both the buyer and the seller agree to accept the terms and conditions on eBay I see no difficulty in treating the parties as having accepted that the online auction will have features that are both simular and different to auctions conducted in other
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forums... The Parties have agreed to allow eBay, or its computer to automatically close the bidding at a fixed time and the generation of an eBay advice headed ‘won’ appear to have been accepted by the parities to an eBay auction as the equivalent of the fall of the hammer.
Tendering
An advertisement for tenders will generally be the same as an advertisement for an auction, which is akin to an invitation to treat. Therefore no liability will be incurred if the person does not accept any of the tenders or even consider them in a bona fide way. Each tender will be considered an offer, which can be accepted or rejected.
Spencer v. Harding
Standing Offers
A standing offer is an indication by one party of his/her willingness to provide goods over a specified period of time.
A standing offer is accepted every time an order is placed. If the goods are not delivered or are refused the offending party will be in breach of contract.
Great Northern Railway Co v. Witham
An offeror may withdraw the offer, anytime, before acceptance of the offer is made in the form of an order.
Further, unless the parties agree to the contrary, there is no obligation of the offeree to order goods only through the offeror, (eg. the offeree may choose not to accept the standing offer)
Colonial Ammunition Co v Reid
Options
The standing offer may be revoked at anytime before acceptance by the offeree. However, if the offeree provides consideration (eg paying money) to the offeror to keep the offer open for some period, the offer cannot be withdrawn during this period.
Routledge v Grant
Purchase of Tickets prior to carriage
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Tickets from automatic vending machines
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Purchase of tickets for transport
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Automatic vending machines
Automatic vending machines are in widespread use, and serve a variety of functions. They are commonly used for the automatic issue of snack food, tickets to public transport, and entry into car park. Owners of vending machines may sometimes attempt to impose terms on the other contracting party, so it may be important to determine precisely when the contract is formed. After the offer is accepted it is too late to impose additional terms.
The timing of contract formation in such transactions was considered by the English Court of Appeal in Thorton v Shoe Lane Parking Ltd- a case involving an automatic ticket vending machine that allowed access to a car park. Once the car approached the machine a ticket was issued to the customer automatically. The question was whether the terms referred to on the ticket issued automatically by the machine as the car approached formed part of the contract.
In finishing that they did not, the Court of Appeal considered that generally for vending machines ‘ the offer is made when the proposition is slightly different in the car park context. If a notice is displayed- giving prices and stating that cars are parked at owners own risk- the offer is contained in the notice.
Acceptance occurs when the care process to the machine and the ticket is taken by the driver.
Communication of an Offer
For an offer to be valid it must be communicated to the offeree by the offeror, or someone authorised by the offeror.
Cole v Cottingham
An offer becomes effective once it is communicated to the offeree
Taylor vLaird
Acceptance must take place in reliance upon an offer. If the offeree performs a particular act that corresponds to the terms of the offer without knowledge of the offer, there is no agreement, and no contract comes into existence.
Tinn v Hoffman & Co
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If it is an offer to the world at large, the offer could be accepted by any fulfilling the requirements of the offer.
Carlill v Carbolic Smoke Company
Termination of an Offer
An offer may be terminated at any time before it is accepted. However, once an offer is accepted it becomes irrevocable.
Goldsbrough Mort & Co Ltd v Quinn
An offer may be terminated by
a) Revocation by the offeror
Revocation is the formal withdrawal of the offer by the offeror. Before acceptance, an offer can be freely revoked
Goldsbrough Mort & Co v QuinnVeivers v Cordingly
Unless there is a promise, supported by consideration or under seal, by the offeror to keep it open for a fixed period.
Routledge v Grant A revocation will only be effective once it has been communicated to and received by the offeree
Bryrne v Leon Van Tien Hoven
Byrne and Co v Van Tienhoven and Co. D, in Cardiff, on 1st October, offered to sell to P, in New York, 1000 boxes tin plates, subject to cable reply by 15th Oct. P received letter 11th Oct and accepted same day. On 8th Oct, D wrote to P revoking offer by letter (received 20 Oct).
Held withdrawal of an offer, made and accepted by letters sent through the post, is inoperative if notice of withdrawal does not reach the person accepting until after the letter of acceptance has been posted.
Lindley J "If the defendant's contention were to prevail no person who had received an offer by post and had accepted it would know his position until he had waited such a time as to be quite sure that a letter withdrawing the offer had not been posted before his acceptance of it...A person who has accepted an offer not known to him to have been revoked shall be in a position safely to act upon the footing that the offer and acceptance constitute a contract binding on the parties.”
Dickson v Dodds
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The owner offered to sell his property and advised the offeree that he would keep the offer open until 5 January. Before this date, the owner sold to another third party. The original offeree was advised of the sale by another party who was not authorised by the offeror. The offeree subsequently purported to accept the original offer.
The Chancery Division held that the offer to sell to the offeree had been validly withdrawn. There is no requirement for there to be an express or actual withdrawal of the offer.
The focus of the courts in determining the validity of an agreement is whether the two minds were at one, at the same moment of time. On the facts of Dickson v Dodds, this was not the case. That the offeree was advised that the offer was withdrawn by a third party did not alter this fact. The only requirement is that the offeree be informed about the withdrawal from a reliable source. What constitutes a reliable source is a question of fact that must be established in each case.
Withdrawal in Unilateral contracts
In unilateral contracts, the offer cannot be withdrawn after the offeree has begun to perform the necessary conditions of acceptance of the offer and completion of the contract.
Abbot v Lance
b) Rejected by the offeree
The rejection must be communicated to the offeror before it is effective. Once rejected, an offer cannot be later accepted. If an offeree attempts to accept the offer but introduces new terms, the offeree is rejected the offer and is deemed to be making a counter offer
Stevenson Jaques & Co v McLean
D wrote to the P offering to sell warrants for iron for 40s. Offer stipulated open until following Monday. Monday morning Ps sent telegram inquiring whether D would accept 40s for delivery over two months or, if not, the longest limit D would give. D no answer and sold warrants to another, notifying Ps at 1.25pm. At 1.34pm, prior to D's telegram, Ps telegram accepting Ds’ offer. Ps sued for damages for non-delivery.
Held Ps first telegram not rejection of Ds’ offer, but inquiry whether D would modify offer. D at liberty to revoke offer at any time before close on Monday but not effectual until it reached Ps. For this reason, Ds offer still open at time
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Ps accepted it. P had no notice of withdrawal of offer and entitled to treat offer as continuing and acceptance was binding
c) Lapse of time
An offeror may stipulate that his or her offer must be accepted within a certain period of time, and if the offeree fails to accept, the offer will lapse. If no time is prescribed, the offer must be accepted within a reasonable time.Ramsgate Victoria Hotel Co v Montefiore
In Manchester Dioceasan Council for Education v Commercial & General Investments Ltd,
Buckley J considered two possible basis for the rule that an offer would lapse within a reasonable time
1) It is implied into the offer that if it is not accepted within a reasonable time, it is withdrawn or,
2) If the offeree does not accept the offer within a reasonable time, the offeree must be regarded as having refused it.
While the legal basis for this rule would generally not alter an assessment of what constitutes a reasonable time, Buckley J considered that in some instances, this could influence the outcome. Under the first approach, what is reasonable must be determined at the date of the offer based on the circumstances existing at the time of circumstances reasonably likely to arise during the continuance of the offer.
If the second approach is adopted it would be appropriate to consider the actual conduct of the offeree after the offer is made. Buckley J favoured the second approach, allowing him to take into consideration the conduct of the offeree subsequent to the making of the offer.
d) Failure of a condition subject to which the offer was made
If a condition upon which the offer is made is not fulfilled the offer will lapse. If the stock has deteriorated, the condition has not been satisfied and the offer cannot be accepted
McCaul Pty Ltd v Pitt Club Ltd
e) Death
If the offeror dies and the offeree has not been notified of that death, it is still possible for the offeree to accept the offer, thus binding the offeror’s estate. If the offeree has been notified of the death he/she cannot accept the offer.
Coulthart v Clementson
Nor can a representative of the offerors estate accept the offer on their behalf therefore the offer lapses
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Reynolds v Atherton
Acceptance:
Requirements of Acceptance
Acceptance of an offer is the expression, by words or conduct, of assent to the terms of the offer in the manner prescribed or indicated by the offer. Thus acceptance may be expressed or implied
HBF Dalgety v Morton
There are two requirements to satisfy for valid acceptance to occur:
1. The offeree must agree to accept the terms of the offer2. This information must be communicated to the offeror.
Acceptance must correspond to Offer
The offeree must assent to the terms of the offer. The acceptance must be unqualified, and there must not be an attempt to induce new terms. It is implicit in the notion of acceptance that the offeree must have knowledge of and responding to that offer.
Offeree must have knowledge of and act in reliance to an offer
The offeree must have knowledge of the terms of the offer at the time of purported acceptance. Acceptance is not valid if two identical offers are made or if a party performs the act of acceptance without knowledge of the offer.
Tinn v Hoffman
A Counter Offer is not Acceptance
If a counter offer is made, the original offer is rejected and the counter offer can then itself be accepted or rejected. Once a counter offer is made and the original offer rejected, the offeree can no longer accept the original offer
Hyde v. Wrench
A seller offered to sell his farm for £1,000. The buyer replied that he would buy it for 950. The seller refused. The buyer later purported to accept the sellers original offer to buy the farm for £1,000.
In an action for specific performance by the buyer, the Master of the Rolls held that no contract existed between the parties. By making the counter offer
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for 950, the buyer rejected the sellers original offer. The original offer cannot later be revived by the buyers purported acceptance.
Butler machine Tool Co ltd v Ex-cell o Corperation ltd The seller of machinery quoted a price on a standard form. The form
contained a clause entitling the seller to vary that price. The buyer placed an order for the same machinery on its own order form. The order form contained different standard conditions. The seller acknowledged the order by returning the acknowledgment form (which formed part of the buyers order form) to the buyer.
The English court of Appeal held that the seller was not entitled to rely on the price of variation clause as it did not form part of the contract. The buyers order constituted a counter offer because it contained terms different from the sellers original offer. That counter- offer was accepted when the seller returned the acknowledgement.
Turner Kempson v Camm
A purported acceptance that departs from the terms of the offer but only in a minor non-material way may be effective and not amount to a counter offer.
Where the offeree purported to accept an offer to sell a quantity of raspberry pulp at a stated price, a contract was held not to exist because the offeree purported to add a term requiring the delivery in three separate lots, with approximately ten days between each delivery.
The Australian and English Courts operate in rather inflexible ways in determining whether a new term by the offeree will constitute a rejection of the original offer.
Acceptance must be Unqualified
If there is an agreement on all terms of the offer, and the parties intend to be bound immediately, but they still want a formal agreement drawn up, there is a binding contract and this would be considered unqualified acceptance of the offer.
Masters v Cameron
Mere Inquiry does not Constitute Acceptance
After receiving an offer, an offeree may want further clarification of one or more terms. This inquiry can at most, only communicate interest but not acceptance nor rejection of an offer.
Stevenson Jaques v McLean
Cooke J in Pwierza v Daley
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The line between rejecting an offer and merely inquring as a to a possible variation is a fine one, but the basic test is the effect on a reasonable person in the shoes of the offeror.
For example, if a person offers to buy stock for sale at a particular price, the offeree may be interested to know whether the seller would be prepared to accept credit.
Notification to the Offeror of the Fact of Acceptance
The offeree must communicate acceptance of the offer to the offeror and agreement is not complete until such communication is affected.
Powell v Lee
Method of Acceptance
What is an appropriate method of acceptance in any given situation will depend on each situation, whether the offeror has outlined a specified method of acceptance with in the offer, or if it is not stipulated, the appropriate method of acceptance will depend on the intention of the parties as derived from the particular facts. Whether acceptance has occurred depends on whether the offeree has complied with the requirements for the method of acceptance for the particular situation.
a) Method of Acceptance Stipulated by Offeror
The offeror may stipulate how acceptance should take place (eg. the performance of an act, return post etc.). If acceptance does not occur in this way, generally there is no agreement.
Although, if the offeree accepts in a manner that is more advantageous for the offeror, then the acceptance will be valid.
Tinn v Hoffman
Also, if the method of acceptance was inserted for the convenience of the offeree, the offeree may wave the benefit of the clause and accept in a different way
Or even if a manner of acceptance is prescribed in the offer, on the true construction of the terms in the offer, this may not be the only method of acceptance that will be effective
Manchester Diocesan Council for Education v Commercial & General Investments Ltd
P sought to sell by tender school property. Conditions of tender ”person whose tender is accepted… shall be informed of the acceptance… by letter sent…by post ..to the address given and… shall be deemed to have been received in due course of post.” Deposit of 10% within 7 days. P's surveyor wrote on 1 Sept, P accepted offer and would write when had formal
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instructions ( from Minister). D’s letter of the 14 Sept asked for acceptance to be sent to their solicitor’s address (rather than tenderer’s address ). On15th, letter sent by P’s surveyor confirming the sale approved would write when Minster consented (23 Dec ).
P tried to avoid the purchase.
b) Acceptance by Silence
The offeror cannot stipulate silence to constitute consent under any circumstances.
Felthouse v Bindley
The technique of delivering a product with a notice stating that unless the goods are returned within a stated period (or rejection communicated in a different way), the buyer will be taken to have agreed to buy the product on the stated terms is now prohibited by statute.
An offeror may stipulate the manner of acceptance by advising the offeree that if he/she wishes to accept the offer, the offeree should perform stipulated acts waiving the need to communicate acceptance. Acceptance can be express or implied.
Brogden v The Director of the Metropolitan Railway Company
Although there has been no formal recognition of the agreement in terms by the one side, yet the course of dealing and conduct of the party to whom the agreement was propounded has been such as legitimately to lead to the inference that those with whom they were dealing were made aware by that course of dealing, that the contract which they had propounded had been in fact accepted by the persons who so dealt with them.
Empirnall Holdings Pty Ltd v Machon Paull Partners
A property developer engaged an architect to undertake a property development. The architect forwarded a printed contract to the property developer. The property developer preferred not to sign contracts, and the architect was told this. Nevertheless, building work proceeded and a number of progress claims were paid by the property developer to the architect. In a claim for payment of outstanding fees, the property developer denied the existence of a contract.
It was held by the NSW Court of Appeal that a contract existed between parties. Although the offeror indicated that the acceptance should be effected by signing and returning the formal document, the conduct of the offeree indicated acceptance of the terms of the offer.
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Instantaneous Communication: Acceptance must be communicated
a) General Rule
When the mode of acceptance is instantaneous communication, the general rule of law is that the contract will be formed when acceptance of the offer is communicated to the offeror and that communication is received.
Entores L D v Miles Far East CorporationBrinkibon Ltd v Stahag Stahl und Stahlwarenhandels-Gesellshaft mbH
b) Meaning of instantaneous Communication
Face to face communication, telephone conversations and telex messages are all considered forms of instantaneous communication.
Entores L D v Miles Far East CorporationReese Bros Plastics Ltd v Hammon-Sabelco Australia Pty Ltd
Postal Acceptance Rule
The postal acceptance rule is the exception to the general rule that acceptance occurs when it is communicated to the offeror.
a) Statement of the rule
Where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is completed as soon as it is posted.
Henthorn v Fraser
The rule operates only where the post is an acceptable method of communication between the two parties (eg. the offer was made by post or it is stipulated in the offer that the post is an acceptable method of communication)
Adams v Lindsell
b) Policy behind the rule
The postal rule promotes contractual certainty.
c) To what communication does the rule extend
The postal acceptance rule applies to forms of communication that are akin to mail but does not extend to any form of instantaneous communication, even if that communication bears some similarities to communication by post.
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Coot Pty Ltd v Admin Management Pty Ltd
d) Where is the rule displaced?
The rule is displaced if the court decides that it was not within the contemplation of the parties that the post was an accepted method of communication. Whether the postal rule is displaced turns the intention of the offeror. If the offeror says or implies that actual notification is required before an agreement if formed the postal acceptance rule will be displaced.
Bressan v Squires
A buyer was given an option to buy land. The option was to be exercised ‘by notice in writing addressed to me at any time on or before 20 December, 1972’. Notice was posted by the offeree on 18 December but not received until December 21. The offeree argued that the postal acceptance rule applied and occurred on 18 December, within the time stipulated by the offeror.
The NSW supreme court held that the postal acceptance rule did not apply in the circumstances of the case. The wording of the option implied that the seller required actual notice by the specified date. This requirement was not fulfilled by simply posting a letter of acceptance.
e) Revocation of the acceptance prior to receipt
The offer is formed when the letter of acceptance is posted. A subsequent purported withdrawal of that acceptance will be ineffective.
There is still no definitive Australian authority on the issue, only early New Zealand dicta that’s suggests that it cannot be withdrawn in this way and an even earlier Scottish authority to suggest that it can!!
Weinkheim v Arndt (NZ)Dunmore (Countess) v Alexander (Scottish)
Acceptance in Unilateral Contracts
Acceptance commonly by conduct
The requirement for acceptance to be communicated is often impliedly waived. Acceptance is affected by the offeree by performing the requirements that are specified by the offeror.
Carlill v Carbollic Smoke Ball Company
Withdrawal of an offer after acceptance has commenced
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Generally, once an offeree has begun to accept the offer by performing the acts stipulated, it is likely to be too late for the offeror to withdraw the offer and claim there has been no contract formation.
Abbot v Lance
Who may accept an offer?
An offer can only be accepted by the person to whom it was made.
Reynolds v Atherton
Acceptance may be communicated only by the offeree or his or her agent
Powell v Lee
If an offer is made to the public at large it can sometimes be accepted by a number of people. In Carlill’s Case the offer was capable of acceptance by anyone who qualified under the terms of their offer (eg. anyone who purchased a smoke ball, however, in the case of a reward, while many people may have the information which qualifies them for the reward, only the first person to come forth will be eligible).
Carlill’s case
Contract formation: time and place
Instantaneous communication
A contract is formed when and where the offeror receives and accepts the acceptance communicated.
Hampstead Meats Pty Ltd v Emerson & Yates Pty LtyEntores L D v Miles Far East Corporation
Post
If the postal acceptance rule applies, the contract is formed when, and at the place that, the letter of acceptance is posted.
Henthorn v Fraser
The Postal Rule can be excluded {Covered earlier in “The postal Acceptance Rule” at (d)}
Holwell Securities Ltd v HughesBressan v Squires
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Certainty and Completeness:
Concepts of uncertainty or vagueness are relevant to a determination of whether there has been an offer made which is capable of acceptance, and whether the parties could have had the requisite intention to enter into legal relations. If an offer is so vague that the respective obligations of the parties on acceptance are unclear, it is unlikely to be a valid offer in legal terms. Similarly, if the terms of the offer are vague and uncertain, it may indicate that the parties lack intention, not having yet reached the stage of negotiations at which each intends to be legally bound to the other party.
Statement of the Rule
In order to constitute a valid contract the parties must so express themselves that their meaning can be determined with a reasonable degree of certainty. It is plain that unless this can be done it would be impossible to hold that the contracting parties had the same intentions; in other words the consensus ad idem would be a matter of mere conjecture
G Scammell and Nephew Ltd v HC and JG Ouston
Facets to the principal
There are a number of facets to this principle:
A contract containing language that is so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention will be unenforceable The uncertainty may relate to one of the pivotal terms of the agreement or may go to the very heart of the agreement.
G Scammell and Nephew v HC & JG Ouston
O agreed to buy a new van from S stipulating “this order .. on the understanding that the balance of .. price can be had on hire-purchase terms over a period of two years”.
House of Lords (now Supreme Court) held sentence “so vaguely expressed that is cannot, standing by itself, be given a definite meaning... it requires further (emphasis added) agreement to be reached between the two parties before there would be a complete consensus ad idem”.
Viscount Maugham -reasonable degree of certainty; Lord Wright- Court needs to be able to attribute contractual intention
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Even where uncertain or ambiguous language is not used, if the parties have not agreed on all of the essential terms of the agreement, the contract will be unenforceable.
Loftus v Roberts
An option to renew a lease “at a rental to be agreed upon by the lessor” created no contractual obligations
This option relied not upon agreement but upon unfettered discretion of the lessor.
This is an example of an illusory agreement as the lessor’s unfettered discretion sets the tent.
A contract will be unenforceable if it reserves a discretion for one party not to carry out his or her obligations
Thorby v Goldberg
Ambiguity and Uncertainty
Individual Terms
There can be no contract unless what the parties agreed can be determined objectively with a reasonable degree of certainty. A number of different terms have been used to describe clauses that are struck down for want of certainty. Whether the clause is said to be vague, ambiguous or uncertain matters little, the clause is void. Sometimes the court will label a term meaningless or illusory. A meaningless clause is one to which a meaning cannot be attributed and will be treated the same way as an uncertain clause. An illusory clause has an identifiable meaning but will be treated as uncertain as it promises an illusory term.
The modern approach appears to emphasise the courts willingness to uphold an agreement entered into by the parties, particularly where the circumstance indicate that the parties intended to be bound by the agreement.
Whitlock v Brew
The parties entered into a contract for the sale of land. On part of the land, a petrol service station business was being conducted. The contract required the purchaser to grant a lease of a portion of the land sold, ‘to the Shell Co of Australia Ltd upon terms that the said land leased as aforesaid be used by Shell or their sub-tenant or licensee for sale of products and upon such reasonable terms as commonly govern such a lease.’ The contract went on to provide for an arbitrator to resolve any disputes that arose in relation to the interpretation of the agreement.
The majority of the High Court held that the clause was uncertain, as it did no prescribe the term of the lease or the rent.
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Hall v Busst
The parties entered into a contract for the sale of land. The seller was given an option to repurchase the property at a sum of 3, 157 4s 0d to which shall be added the value of all additions and improvements to the sum property since the date of purchase by the purchaser and from which shall be subtracted the value of all definciencies of chattel property and reasonable sum to cover depreciation of all buildings and other property on the land’.
A majority of the High court held that the option to purchase was void because the price was not stated with sufficient certainty.
G Scammel and Nephew Ltd v HC & JG Ouston The parties agreed on the sale of a van, ‘ on the understandin that the balance
of the purchase price can be had on hire-purchase terms over the period of two years’.
The house of lords held that the agreement was too uncertain to be enforceable. As there were no common hire purchase terms, the agreement required further agreement of the parties.
Fitzgerald v Masters The parties agreed to the sale of an interest in a farm. The final clause in the
contract purported to embody a set of conditions of sale ‘so far as they are inconsistent’ with the terms of their agreement. In fact no such set of conditions exsisted.
The High court held that this clasuse was meangless and therefore void.
Biotechnology Australis v Pace As part of an employment contract, a senior research scientist was given the
option to partake in the Company’s senior staff equity sharing scheme. At the time of the contract was entered into and at the time of termination, no such scheme hd been established.
The NSW court of appeal held that the reference to the scheme did not give rise to an enforceable contractual obligation.
Lend Lease Financial Planning Ltd v Southcap Pty Ltd The parties entered into an agreement for lease. In relation to ‘outgoings’, the
tenant agreed to ‘pay a proportion based on the area of the tenancy to include airconditiong and electricity costs’.
The QLD Court of Appeal held that this clause was sufficiently certain and ordered specific performance of the lease agreement.
State of New South Wales v Banabelle Electrical A clause in construction contract provided that disputes that arose between the
parties would be resolved by an expert as agreed between the parties or, if they did not agree, an expert nominated by a person named in the Annexure. No such person was named.
The NWS supreme court held that this clause was void for uncertainty.
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Agreements to Agree
If parties do not reach final agreement on essential terms, instead agreeing to finalise such matters at a later time, the contract is an agreement to agree, therefore it is incomplete and will not be enforced.
Booker Industries Pty Ltd v Wilson Parking Qld Pty Ltd
If an agreement to negotiate is regarded as an agreement to agree, it to will be unenforceable
Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd
However, it was contemplated by Kirby P (in Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd), that in appropriate circumstances, an agreement to negotiate could be enforceable. He concluded that if the parties provided good consideration and the terms of the agreement to negotiate were sufficiently certain, such agreement might be enforceable. One mechanism to make an agreement to negotiate more certain, it was suggested, would be to include a provision referring matters in dispute to a third party.
Saving Ambiguous, uncertain or meaningless contracts
Link to External Standard
A clause in a contract, which, on its face, appears uncertain, may be enforceable if a meaning can be given to it by reference to an external standard. The parties may provide for “a standard, machinery or formula designed by the parties to take the place of their own agreement”.
Hawthorn Football Club v Harding
The reference may be made in a direct way for example, incorporating standard hire purchase terms used by the particular hiring company. If such a set of standard hire purchase terms exists, the clause will be valid.
Recourse may also be made to external standards, even where the contract itself does not expressly provide such a link.
Hillas and Co Ltd v Arcos Ltd
Specifications agreed in the original contract could be regarded as an external standard.
Sometimes, the contract may provide for one or more terms to be inserted by a third party. (In a fashion, this is also a link to an external standard).
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Hawthorn Football Club v Harding Godecki v Kirwan
Link to reasonableness standard
The court may be willing, in some circumstances, to adopt principles of reasonableness to make certain something that, on its face, is not.
‘The implication of what is just and reasonable to be ascertained by the court as a matter of machinery where the contractual intention is clear but the contract is silent on some detail’
Hillas and Co Ltd v Arcos Ltd
Severance
The invalidity of one term will not necessarily mean that the whole contract will be unenforceable. In some circumstances the invalid term can be severed and the remainder of the contract will be enforceable. Generally, if the parties would have intended to be bound in the absence of an uncertain clause, the clause can be severed and the remainder of the contract is enforceable
Fitzgerald v Masters
If the offending clause forms a pivotal part of the contract, so that without out it the parties could not have intended to be bound, severance of the particular clause is not possible.
Whitlock v Brew
Waiver or Removal of Uncertainty
If a clause is inserted in a contract for the benefit of one party only, but is drafted in such vague terms as to make it void, that party can choose to waive the benefit of the clause and have the remainder of the contract specifically enforced.
Whitlock v Brew
Incomplete agreement
The courts will not lend their aid to the enforcement of an incomplete agreement, being no more than an agreement for the parties to agree at some time in the future.
Booker Industries Pty Ltd v Wilson Parking Qld Pty Ltd
Agreement contains mechanism to complete
It may suit the needs of contracting parties not to finalise various aspects of their agreement, but rather to insert in a mechanism for determining one or more terms at a later date for example external standard or third party.
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a) Reference to a third party
Parties to a contract may leave terms of the contract to be decided by a third party, even essential terms.
Godecke v KirwanHawthorn Football Club Ltd v Harding
b) Discretion retained by a contracting party
It is uncertain that a contract that leaves minor terms to be determined by one of the contracting parties is enforceable.
A contract that leaves essential matter for later determination by one of the contracting parties will be unenforceable as it is either incomplete or uncertain or because the promises contained in the agreement are illusory.
Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd
However, if a subsidiary matter was left to the determination of one of the parties such as how the contractual obligations are carried out by that party, it may be enforceable.
Godecke v Kirwan The parties entered into an agreement relating to the sale of land. Clause 6 of
the agreement provided that ‘ if required by the vendor the purchaser shall execute a further agreement to be prepared... by the vendor, appointed solitors containing the foregoing and such other convents and conditions as they may reasonably require’. The vendor refused to complete the sale and claimed on a number of grounds that the contract was unenforceable.
The high court held that the contract was binding. The clause 6 expressed the view that there was ‘no reson in principal for holding that there cannot be any binding contract of some matter is left to be determined by one of the contracting parties.
Breakdown of Mechanism to Complete
If the parties a mechanism for determining a term and that mechanism fails, the court will not substitute it’s own view and complete the agreement.
Milnes v Gery
If the disputed issue is one of something such as the “price” of something (eg. Rent), a court may be prepared to determine a fair and reasonable price, and not to regard that determination as completing the agreement for the parties.
Booker Industries Pty Ltd v Wilson Parking Qld Pty Ltd
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The parties entered into a lease of agreement under which the lease was given an option to take a further term. The rental for that further term was ‘to be agreed with the lessor or failing agreement to be determined by an arbitrator’.
The high court held that the option constituted a valid agreement. Ion his judgment Brennan J, drew a distinction between a clause for deterininmg price or rent where the manner of calculation as set out in the clause was essential to the parties, and a clasue where the mechanism was simply one by which the parties could ascertain a reasonable price or rent.
While in the former case, completion of the contract would be conditional ipon determination of ther price or rent in the manner specified, the same could not be said of the later case. F the parties simply wish to establish a reasonable price or rent and the mechanism stated failed Brennan j, suggested that a court would be more inclined to substitute its own objecteice determination of a reasonable price or rent and uphold the agreement.
Sudbrook Trading Estate Ltd v Eggleton
Court was prepared to enforce its own machinery if the contractraul machinery broke down, to establish an appropriate value of the house.
Saving Incomplete Agreements
Implication of Terms
There is a willingness of the courts to imply terms into an agreement. It is not for the court to make the contract for the parties, or to go outside the words they have used, except insofar as there are appropriate implications of law, as for instance, the implication of what is just and reasonable to be ascertained by the court as matter of machinery where the contractual intention is clear but the contract is silent on some details.
Hillas v Arcos
This is a case involving the enforcablity of an option to sell Russian softwood timber. The contract did not specify quality or price of the timber nor the dates of delivery.
However, the court may not rewrite the agreement for parties where the parties themselves have failed to agree on essential terms. The greater the number of terms not finally agreed upon by the parties, the less inclined the court will be to exercise its discretion to imply a term. A contract could only be regarded as concluded if the parties agreed on the three essential elements: “the parties”, “the subject matter” and “the price” and if these elements have been agreed upon with sufficient certainty the court will provide the rest.
Hall v Busst
In addition, there are two other factors that may be relevant in the courts determination.
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First, if it is clear that the parties have gone beyond the state of negotiation and intend to be contractually bound, the court will be more minded to imply a term and enforce the agreement.
Hillas v Arcos
Secondly, and related to the first, if the contract has between partly executed, for example in a contract for the sale of goods, property has been delivered and title has passed, the court will seek to imply a term necessary for the validity of the agreement
Hall v Busst
Failure to specify price
a) Contract silent on price
The general principle is that a contract will only be regarded as valid if the parties to it agree on price (as this is one of the essential terms), this means that if there is no agreement on price stipulated in the contract, then the contract is not complete, and would not be upheld by the court.
Hall v Busst
However, there are exceptions.
There is a distinction between the sale of land and sale of goods with respect to the implication of terms by a court. For the sale of goods, the court is sometimes prepared to imply a term that the purchaser will pay a reasonable price for the goods. This intention is demonstrated for example, where the contract is partly executed and property in the goods has passed.
A court will not imply a term for payment at a reasonable price into a contract for the sale of land
Hall v Busst
b) Contract provides for parties to agree in future
An agreement to agree in the future also offends against the general principle of completeness. However, in some instances, in contracts for the sale of goods the court may imply a reasonable price and the contract will be upheld.
Foley v Classique Coaches Ltd
However, if the contract is to sell land, or on rental in an option to renew a lease, it is unlikely to be upheld) and will be treated as such matters which are silent on price.
Stocks &Holdings Pty Ltd v Arrowsmith
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c) Contract makes provision for mechanism to complete
A contract that contains a mechanism for setting a term at a later time is likely to be valid. It is not uncommon for such a mechanism to be used in relation to setting a price.
Godecke v Kirwan
d) Contract provides for payment of a reasonable price
Whether the agreement is upheld as being sufficiently certain may turn on the nature of the subject matter in dispute. A contract for the sale of goods at a reasonable price is likely to be valid.
Sale of Goods Act 1896 (Qld)
Reasonable price is an objective standard that can be determined without further agreement between the parties. If one party breaches the agreement, the court can assess the price to be attributed to the goods, and damages can be awarded accordingly.
British bank of Foreign Trade Ltd v Novinex Ltd
However, clauses to attribute reasonable price to the sale of land will generally be uncertain or for the sale of goods if they are unique or of very special character eg original painiting
Hall v Busst
Subject to agreements:
Sometimes parties may be ready to sign a contract but not able or not prepared to commit to one or more aspects of the agreement. In these circumstances parties may decide to enter into agreements subject to the happening of a particular event.
Subject to finance agreements
Contracts for sale may contain a clause stating that the contract is subject to the purchaser receiving approval for finance on satisfactory terms and conditions. The contract is immediately binding on the parties but will come to an end if the purchaser is unable to obtain finance and terminates the contract pursuant to its terms.
Meehan v Jones
Sale of land that included a clause “subject to…the purchaser or his nominee receiving approval for finance on satisfactory terms and conditions in an amount sufficient to complete the purchase.”
High Court held clause to be sufficiently certain, subject to cautionary remark Gibbs CJ (at 578) “that every case must depend on the particular words of the
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contract in question, and that it is not profitable to compare with each other cases decided under different contractual provisions”.
The High Court is essentially imposing some obligations as to reasonable conduct on the parties when construing the words “subject to”.
“The fact that opinions may differ as to which of two meanings is given to the clause does not mean that the clause is uncertain. If the court, in construing the contract, can decide which of the two possible meanings is that which the parties intended (emphasis added), there will be no uncertainty” at 578 per Gibbs CJ
Comment This case resolved a gulf between New South Wales and Queensland Courts in their attitudes during the 60s and 70s with respect to “subject to finance” contracts for the sale of land.
Until this case, New South Wales generally struck these down whereas Queensland Courts preferred to uphold their validity where possible.
a) Satisfactory Finance
It has been argued that a clause that provided for finance to be obtained on ‘satisfactory terms’ is either to uncertain to be valid or gave the purchaser such a wide discretion that it was illusory. The High Court disagreed, and stated that as the clause was inserted for the benefit of the purchaser, the determination of whether the finance was satisfactory was left to the purchaser
Meehan v Jones
b) Steps to be taken to obtain finance
The finance clause in most standard land contracts imposes an obligation on the purchaser to take all steps reasonably necessary to obtain finance approval.
Meehan v Jones
Subject to Contract
For agreements that are formed subject to contract, the case could fall into one of three categories:
Masters v Cameron
1. The parties have reached finality in arranging all terms and intend to be immediately bound to perform those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. The parties intend to be bound immediately thus a binding contract is formed.
Branca v Corbarro
The parties agreed to the sale of a mushroom farm, the buyer paying a deposit to the seller. The agreement contained a clause stating that the agreement ‘was a provisional agreement until a fully legalized agreement, drawn up by a
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solicitor and embodying all the conditions herewith stated, is signed’. The English Court of Appeal held that the parties intended to be bound
immediately. Relevant to this determination was the use of the words ‘provisional’ and ‘until’. Also relevant was payment by the purchaser to be made by a date before the formal agreement was to be executed
2. 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 those terms conditional upon the execution of a formal document. An offer in such a case is not expressed to be subject to or conditional upon a formal execution of a contract and all essential terms have been agreed upon thus a binding contract is formed.
Masters v CameronNiesmann v Collingridge Page 110
3. The intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. Parties in such a case do not intend to be bound until they entered into a formal document thus no binding contract is formed.
Masters v Cameron
The parties agreed to the sale of a farm. The agreement was stated to be ‘subject to the preparation of a formal contract of sale which shall be acceptable to the vendor’s solicitors on the above terms and conditions’. The purchaser agreed to the purchase in these terms, paid a deposit to the vendor’s agent and, among other things, made some minor structural alterations to the property. The purchaser subsequently claimed that a binding contract had not been entered into
The high Court agreed, and held that a binding agreement had not been entered into. The parties had not intended to be bound until they signed a formal document. The payment of the deposit to the seller was made on the basis that if a formal contract should be executed, that amount should be treated as a deposit and, if such an agreement were not entered into, should be returned to the purchaser.
The category a particular case falls into turns on the intention of the parties. If the parties intend the agreement to be binding on them even before entry into the final contract, the contract will fall into one of the first two categories.
Masters v Cameron.Note: Fourth Catagory of Masters v Cameron talks about heads of agreement can be found on 109-110 Case book.
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Intention to create legal relations:
Statement of the Rule
To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly.
Rose and Frank Co v JR Crompton & Bros Ltd
The courts use an objective test in making a determination about the intention of the parties. In making an objective determination of the parties intention, the court looks at the surrounding circumstances and asks if a reasonable person would regard the agreement as intended to be binding.
Merritt v Merritt
Domestic and social relationships
Presumption
The presumption is that domestic and social agreements are not intended to have legal force.
Balfour v BalfourJones v Padavatton
$200 per month if divorced daughter (34 years of age) came from Washington to London to read for Bar (mother in Trinidad so, Trinidad or US dollars?). Later offer to buy house and let rooms in place of the $200. No rent sent to mother but used for mortgage.
Mother sought possession and daughter counter-claimed for money spent. County Court judgment for daughter. Appeal
Held - majority not intended to be enforceable binding agreement. “family arrangements which depend on good faith..promises..not intended to be rigid, binding agreements”per Danckwerts LJ
(Balfour v Balfour) But Salmon LJ special circumstances, neither
could have intended that“no legal right to …pay the allowance”.
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Heslopv Burns
Rebutting the presumption
The presumption can be easily rebutted for example if parties who are in a familial relationship are contracting in a business context or if a husband and wife enter into an agreement in circumstances in which they are no longer living in harmony. Similarly, if the words used in the contract indicate a legal intention, the presumption that may otherwise have arisen may be rebutted.
Case Examples:
a) Husband and Wife Parties involved in a domestic relationship, will generally not have intended legal consequences to follow their arrangement thus a contract will not be enforceable. Given many couples now choose to cohabit without marrying, the same presumption should apply where an agreement is entered into between a couple living in a de facto relationship.
Balfour v Balfour
After the parties were married in England in 1900 they moved to and lived in Ceylon where the husband had a government posting. They returned to England in 1915 for a holiday. Although the husband went back to Ceylon in 1916, his wife remained in England for health reasonas. Before the husband left for Ceylon, they entered an agreement that if the wife supported herself and sis not call on the husband for any further maintence, the husband would pay the wife 30 per month.
When the wife late sued on the agreement, an issue before the court was wherher the parties intended the agreement to have legal consequences. All of the Lord Justices considered the agreement to be unenforceable on the basis that the parties were in a domestic relationship and did not intend legal consequences to flow from their arrangement. As Atkin LJ put it, ‘ one of the most usal forms of agreement which does not constitute a contract appears to me to be the arrangements which are made between husband and wife.
b) Separated husband and wife
Where parties are divorced, separated, or in the process of separating, the negotiation do not take place in the context of natural love and affection therefore there is no room left for the application of such a presumption and the court will generally find that the requisite contract intent existed.
Merrit v Merrit
After the parties to the marriage separated ( but before their divorce) they agreed that the wife would contune to pay off the morgage over the former matrimonial home (in which she still lived), and when that had been fully
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paid, the husband would transfer his interest in the house to her. The husband also signed a document to that effect. The wife paid off the mortgage, but the husband refused to transfer his interest to the wife.
In finding for the wife, the English court of appeal held that the parties possessed the requiste legal intention when agreeing on the arrangements for the house. In the words of Widgery LJ, ‘once that natural love and affection has gone, as it normally has when the marriage has broken up, there is no room at all for the application of such a presumption’.
c) Other familial relationships
Parties in other familial relationships are considered the same as married or de facto couples, and it is presumed that they do not intend to cerate legal relationships as the agreements made in this context are based on natural love and affection. The bond of natural love and affection is likely to weaken according to the remoteness of the tie and will subsequently be easier to rebut.
Jones v Padavatton
In fact, those cases where the court finds that the presumption has been rebutted, one or more of the following factors are often relevant
The seriousness of the conduct involved (such as moving countries or giving up full time employment)
The expense involved, especially if the relevant party is not wealthy Whether there is or has been a degree of hostility in the relationship The closeness of the family ties Whether the subject matter of the agreement is business or commercial in
nature
ExamplesJones v Padavatton
A mother, redident in England invited her daughter, who lived and worked in the United States, to move to England to study for the Bar. The Mother promised to procide her with maintence of $200 a month to do so. The daughter agreed. Subsequently, the mother and daughter altered their arragmnets so that, instead of being paid, the daughter was able to live in her mother’s house. A dispute arose, and the mother brought an action to evict the daughter from the house.
The English Court of Appeal found for the mother on the basis that there was no leggaly binding agreement between the parties regarding the provison of maintence (and later the offer to live in the mother’s house). Relyiong on the presumption that family members do not intend to enter legal relations, it was held that it was merly one of those family arrangements which depend on the good faith of the promises which are made and are not intended to be rigid, binding arragmnets. Thiswas the case notwithstanding the seriousness of the actions of the daughter taken in reliance on the mother’s promise and the obvious expense involved in moving from the United States.
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Wakeling v Ripley
The defendent was an elderly man of considerable wealth who lived in Australia. He invited his sister and her husband to come to Australia to live with and care for him until his death. In consideration of this the defendent promised to provide them with an income for life, and to leave them his property on his death. The plantiffs agreed, the husband giving up secure employment in England. A dispute arose and the plantiffs sued the defendent for breach of contract.
The New South Wales Court of Appeal found in favour of the plantiffs. It was held that, in circumstances of the case, the agreement was something very much more than a mere family or social agreement. Relevent to this finding was the seriuous consequences of the arrangement for the plantioffs, namely the husband giving up his salaried position and pension, and both of them moving permanently to Australia.
Roufos v Brewster
Mr and MRs Brewster owned a motel at Coober Pedy, while their son in law, mr Roberts, ran a small store. Mr Rufos drove the Brewsters truck to Adeleade for repairs. It was agreed between them that if Roufos could arrange for someone to drive the truck back to Coober Pedy, Roufos could transport goods for his business back on the truck. The truck was involved in an accident on the way back, and the Brestwers sued Roufos for the cost of repairing the truck.
Although the Brewsters were unsuccseful in their action, the cout held that the paritres had entered a binding contract. As the setting of the agreement was commercial, and not domestic or social, a legal relationship had been created between the parties.
d) Social Relationships
The presumption of lack of legal intent can extend beyond familial relationships to agreements entered into in a social context, or agreements made between friends.
Heslop v Burns
However, a court will not always find that the parties lacked legal intention, even when the arrangement is clearly made between friends or a relative in a social setting. (eg. parties who pool funds to enter a competition in one person’s name may intent that arrangement to have legal consequences. Therefore, if the person wins, action can be brought to force that person to share the winnings with the other members of the groups. While this is fair, it is doubtful that parties who participated in syndicate intended their action to have legal consequences). The court may be more likely to uphold such a decision if large amounts of money are involved.
Simpkins v Pays
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Commercial Agreement
Presumption
Where parties negotiate and agree in a business setting, it is assumed that the parties intended the agreement to have legal consequences. Therefore, the party alleging that an agreement relating to business matter is of no legal effect has the heavy onus of demonstrating that to be the case.
Edwards v Skyways
It can sometimes be difficult determining whether a transaction has taken place in a business setting, a broad approach to what constitutes a business setting must be adopted.
Esso Petroleum Co Ltd v Customs & Excise
For the promotional purposes, Esso Petrolum distributed millions of coins to petrol stations that sold Esso petrol. The coins were of little intrinsic value, but each featured one of the members of the English Soccer team. There were 30 coins in the series. It was advertised to the public that for every 4 gallons of Esso petrol they bought, they would receive one of these coins. The advertisements indicated that these coins were a ‘gift’ and were being given ‘free;. The matter before the court was wheter the coins were being ‘sold’ and therefore liable to be assessed for purchase tax. One of the issues crucial to the court’s determination was whether the parties had the necessary intention to form a contract of sale.
The House of Lords was split 3:2 on this point. Three of the Lords held that the parties possededd the requise legal intent in raltion to the provison of the coins upon a customer buying 4 gallons of petrol. Lord Simon provided a number of grounds for this conclusion. First, the promotion took place in a business context. It was intended that sales would be promoted as a result of the cpins. Secondly, this scheme had a potentially large commercial benefit to Esso. Thirdly this view was supported by authority.
The contracy view was reached by Viscount Dilhorne. Central to his lordship’s argumernt was that ‘the offer of the gift of a free coin’ could not properly be regarded as a business matter that attracted the presumption of legal intention.
Rebutting the Presumption
The intention not to create legal relations may be evident in a number of different ways. For example, the agreement may contain an express clause that no legal consequences flow from the document, or the overall tenor of the particular document may indicate that the parties had no intention to enter into legal relations.
Rose and Frank Co v JR Crompton & Bros Ltd
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Government Activities
Commercial Agreements
If a government contract arises out of the commercial need for the operation of government, for example the order of stationary or contracts to purchase vehicles, the usual contractual principles apply to determine whether a contract has been formed.
For other types of contracts, increased formality may be required to demonstrate the necessary legal intent when one of the contracting parties is the government.
Coogee Esplanade Surf Motel Pty Ltd v Commonwealth of Australia
Policy Initiatives
Where the government activity relates to a policy initiative a court may be less likely to find that the parties intended to enter contractual relations.
Australian Woollen Mills v The CommonwealthAdministration of PNG v Leahy
Voluntary associations
Unless there was some clear positive indication that the members contemplated the creation of legal relations inter se, the rules adopted for their governance would not be treated as amounting to an enforceable contract.
Cameron v Hogan
The parties could possess requisite legal intent if the member has a proprietary interest in the club.
Cameron v Hogan
Circumstances indicating absence of intention
Honour Clauses
The presumption that arises in a commercial context is that the parties intended to create legal relations by entering the agreement. It is however, open for the parties to form a contrary. The presence of an honour clause in contracting parties agreements will indicate by express words that they did not intend the agreement to have legal consequences.
Rose and Frank Co v JR Crompton and Bros LtdJones v Vernon’s Pools Ltd
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Promotional puff and free gifts
Where language such as ‘free gift’ is used, or an apparently extravagant claim is set out in an advertisement, there may be a tendency to think that a person who acts in response to the advertisement may not intend legal consequences to follow. To determine whether the requisite intention exists, the court will look not only at the words used, but also at the entire context in which the advertising takes place.
Esso Petroleum Co Ltd v Customs & Commissioners of Customs & Excise
Similarly, if the language used conveys intention, such as the deposit of $1000 in a bank for the purpose of payment, it would have legal consequences.
Carlill v Carbolic Smoke Ball Co
Ex gratia payments and without prejudice offers
Parties who offer to make an ex gratia payment or who write a ‘without prejudice’ letter which is accepted, are still seen to posses the intention to create legal relations.
Edwards v Skyways.
The words ex gratia do not carry a necessary, or even a probably, implication that the agreement is to be without legal effect . . . a party is certainly not seeking to include the legal enforceability of the settlement itself by describing the contemplated payment as ex gratia.
Edwards v Skyways.
Letter of Comfort
Central to the determination of whether a letter of comfort gives rise to legal intent is whether the parties intended to create legal obligations by the giving and receiving of the letter. To determine this, the courts look at the construction of the document and the circumstances surrounding its sending. The following points were considered by the authority in assigning legal intent to the letter of comfort:
On a construction of the letter, the terms were sufficiently promissory in nature.
The letter was part of a commercial transaction in which there is a presumption that legal relations were intended.
Intention is deduced from the document as a whole seen against the background of the practices of the particular trade or industry.
Banque Brussels Lambert SA v National Industries Ltd
“confirm our practice..that our affiliate Spedley Securities will at all times..meet its financial obligations .. These financial obligations include all loans made by your Bank..mentioned in this letter”
Document as whole assessed and practices of industry
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Commonwealth Bank v TLI Management Pty Ltd
Cheques from customer “confirm..will complete take-over arrangements…include the injection of
sufficient capital to repay temporary [credit] facility by the ..Bank within 30 days”
Letter of intent and understandings
Parties sometimes conduct their affairs on the basis of an understanding between them, which may arise orally or be put in writing. Question about its contractual standing may arise where one party no longer wishes to be bound. A related issue arises in the area of letters or documents of intent. Generally, a letter of intent or an understanding will represent something short of an intention to enter a concluded agreement.
Coogee Esplande Surf Motel v Commonwealth Milner & Son v Percy Bilton Ltd
Consideration:
Whether or not a promise that is part of an agreement can be enforced depends on, among other things, whether the promisee has given consideration for the promise. Consideration is perhaps best understood as an act or promise of an act which is the price paid for the other's promise. The common law will only enforce a promise for which a price is paid.
Dunlop Pneumatic Tyre Co v Selfridge & Co
The development of the Doctrine of Promissory Estoppel, under which a promise that has been relied upon to another’s detriment may be enforced by that other despite the lack of consideration.
Waltons v Maher
Nature of Consideration
An act or forbearance of one party, or the promise there of, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.
Dunlop Pneumatic Tyre Company v Selfridge & Company Ltd
Australian Woollen Mills Pty Ltd v Commonwealth
Comm announced subsidy for purchasers of wool for
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domestic use by Aust manufacturers. Calculated as difference between present (Aug 1946) and average market price but amount determined by Aust Wool Realisation Commission. Scheme discontinued, AWM alleged promise by Commonwealth, in consideration that AWM purchase wool for domestic consumption, would pay a subsidy.
“It is impossible to find anywhere anything in the nature of a request or invitation to purchase wool, or anything which suggests that the payment of subsidy was put forward in order to induce any manufacturer to purchase wool…If we ask whether there is a promise offered in consideration of the doing of an act, as a price which is to be paid for the doing of an act, we cannot find such a promise. No relation of quid pro quo between the promise and an act can be inferred.” (Emphasis added, at 461).
Consideration in Bilateral Contracts
A bilateral contract is formed where the parties exchange promises. At the time agreement is reached, 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.
United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd
Consideration in Unilateral Contracts
Unlike bilateral contracts, a unilateral contract does not constitute an exchange of promises. The only promise is the one made by the promisor to do or refrain from doing an act if the other party does or refrains from doing an act. Thus, the act or forbearance itself, rather than the promise, constitutes the consideration.
United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd
Executed and executory consideration
In bilateral contracts, the consideration is considered executory. In bilateral contracts each party exchange promises with the other to do or refrain from doing an act. This means that the obligation to perform has not yet fallen due, therefore the consideration is “executory”. In unilateral contracts the parties do not exchange promises. Only one party will make the promise and an obligation will only arise if the other party carries out the specified acts. Consideration for the promise is not executory because the act has not been promised by the promisee. If the promisee chooses to and does perform the specified acts, the consideration is “executed”.
Rules governing consideration
Consideration must move from the promisee
For there to be a contract between the promisor and the promisee, consideration must move from the promisee.
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Viscount Haldane LC in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd that only a person who has given consideration may enforce a contract not under seal represented part of the “fundamental law of England”.
Thus if A promises to pay B $100 if C will fix A's car, B cannot enforce A's promise because she has given no consideration (at 853).
Dunlop Pneumatic Tyre Company v Selfridge & Company Ltd
Dunlop sold some products to a third party at a discount price. In consideration for the discount price, the third party agreed that if it on sold for a discount price it would require an undertaking by that purchaser not to sell at less than the list price. The third party sold to Selfridge did not honour this undertaking and was sued by Dunlop for breach of contract.
The House of Lords found in favour of Selfridge. Even if it could be considered that an agreement was entered into between Dunlop (the third party acting as agent for Dunlop, an undisclosed principal) and Selfridge, Dunlop could not be regarded as having provided consideration for Selfridge’s promise not to sell at less than the list price. Consideration for this promise moved only from the third party.
Trident General Insurance Company Ltd v McNiece bros Pty Ltd
Tweddle V Atkinson
a) Benefit need not move to promisor
It will generally be the case that consideration moves from the promisee to the promisor, whether the promisee promises to pay money, or do or forbear from doing an act. However, it is sufficient if consideration moves from the promisee to a third party at the direction of the promisor.
b) Joint promisees
When a promise is made to joint promisees, it is enough if consideration is given by one on behalf of all because it is then deemed to have moved from all.
Coulls v Bagot’s Executor & Trustee Co Ltd
C granted right to quarry, remove stone and right of way to a company for £5 and royalties. Agreement to pay C and his wife as joint tenants. Wife survived and sought to enforce the contract.
Majority of High Court construed contract as one between Coulls and company. Mrs C was not a party to the contract, so could not enforce it under privity. On issue of consideration (obiter), Barwick CJ & Windeyer J (dissenters on privity), and Taylor & Owen JJ considered that merely because Mrs C had not provided consideration did not affect enforceability of contract.
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c) Overlap with doctrine of privity
The doctrine of privity provides that only a person who is a party to a contract can sue on it. A promisee is only able to sue on a promise if the promisee has given consideration for the promise.
Tweddle v Atkinson
A man the plaintiff and a women were engaged to be married. The plaintiff’s father and the deceased (the womens father) agreed for each to pay specified amounts to the plaintiff upon the marriage. The deceased died without paying the agreed sum. The plaintiff sued the deceased’s estate to recover the amount.
It was held that the plaintiff could not succeed. The reason provided was that an action could not be brought upon a promise where the plaintiff is a stranger to the consideration.
Consideration must be bargained for
The act of forbearance must be done in reliance of the promise and at the request of the promisor and not done for other reasons (that are unrelated to the contract in question).
Combe v Combe
After a married couple separated, the husband promised to pay the wife 100 per year. This husband failed to pay the money as prmied and the wife brought action to recovert he payments.
The English court of Apeal found in favour of the husband. The parties had not entered a contract for the payment of 100 per year as the wife had not provided consideration for the husbands prmise. The wifes forbearance from bringing an action for maintanice did not constitute consideration because it was done at the express or implied request of the husband.
Australian Woollen Mills Pty Ltd v The Commonwealth
The Commonwealth implemented a subsidy scheme to lower the purchase price of wool for local manufactures. Upon discontinuances of the scheme, a local manufacturer sued the Commonwealth for breach of contract to recover the outstanding subsidy. The manufacturer claimed that a contract was in existence between it and the Commonwealth, the manufacturer buying quantities of wool in consideration for the Commonwealth’s promise to provide a subsidy.
In finding in favour of the Commonwealth, the high court was not persuaded that a contract had come into existence. There was no indication that the commonwealth’s promise was made to induce the manufacturer to purchase wool, nor that the manufacturer purchases the wool because of the commonwealth’s promise.
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Consideration must be sufficient
a) General principle
To be valid, consideration must be sufficient in that it is ‘something which is of value in the eyes of the law’. Consideration may be valid although it cannot be given monetary equivalent.
Thomas v Thomas
b) Consideration need not be adequate but must be sufficient
Consideration must be sufficient but need not be adequate. The court will not enquire into the adequacy or value of the consideration.
Chappell & Co v Nestle Co Ltd
Nestle manufactured chocolate. To promote the chocolate sales, Nestle promised to give a record to any member of the public who sent in 1s 6d plus three chocolate wrappers.
The issue before the court was whether the three chocolate wrappers did form part of the sale price. Consideration for the record was both money pas and three chocolate wrappers. The sending in of the wrappers was of value to Nestle. Given the large number of records sold, there would be a large number of wrappers sent in. This was of commercial benefit to Nestle. The fact that chocolate wrappers could not be reconverted into money was irrelevant.
Sufficiency: (a) A promise to perform a duty imposed by law This does not constitute sufficient consideration (eg subpoena). If promisee
that does more than required pursuant to public duty, can sue for amount promised.
Glasbrook Bros Ltd v Glamorgan County Council Miners' strike, colliery manager applied for police to provide a live-in
garrison. Superintendent agreed on condition colliery pay £2,200. Order restored, colliery refused to pay, as police performing what legally bound to do.
Held supply of garrison beyond protection which police bound to provide so constituted sufficient consideration.
Ward v Byham £1 per week for maintenance of exnuptial child “provided you can prove that she will be well looked after and happy and also that she is allowed to decide for herself whether [to] live with you”. CA promise of mother to adequately care for child was sufficient consideration. Lord Denning MR “a promise to perform an existing duty… should be regarded as good consideration, because it is a benefit to the person to whom it is given.” at 319. Morris and Parker LJJ mother’s obligation exceeded statutory duty to maintain child, and was sufficient consideration.
Popiw v Popiw
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Mr & Mrs P separated. Mr P then promised Mrs P title of matrimonial home in joint names if returned to live with him. Mrs P returned, then separated within 3/4 weeks. Mrs P sought declaration of interest in home, order for sale and division of proceeds. Argued there was an enforceable contract. Mr P argued no intention to create legal relations, no consideration and agreement not evidenced in writing. Note evidence about domestic violence.
Held there was good consideration for Mrs P’s promise. Now Family Law Act.
A moral obligation or worthy motive does not constitute consideration.
Eastwood v KenyanThomas v ThomasWhite v Bluett
c) Consideration can be nominal
Consideration will be regarded as valid even if it is nominal only. (Eg. Token gesture)
Thomas v ThomasLennox v CameronNiesmann v Collingridge
Consideration must not be past
a) General Principle
The consideration will be regarded as being past if it has already flowed from the promisee to the promisor prior to the agreement being entered into.
Roscorla v Thomas
A buyer bought a horse from a seller. After the sale, the seller promised that the horse was free from vice. The horse was vicious, and the buyer sued the seller for breach of his promise that the horse was free from vice.
Chief Justice Lord Denman dismissed the buyers action as he did not provide any consideration for the sellers promise. Agreement to buy the horse could not be regarded as consideration because the sale had already taken place.
b) Past consideration distinguished from executed consideration
If the act, forbearance or promise that is claimed to be consideration has already occurred or been given before the agreement is entered into, the consideration is past not executed.
Consideration and formal agreements
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Deeds
Formal agreements are signed under seal, and are more commonly referred to as deeds. Because of the solemnity or seriousness of the manner of execution of such documents, the common law has recognized these agreements as valid even if consideration has not been provided. Simple agreements are agreements other than formal agreements, which are oral or written and require consideration to be valid.
Consideration: specific examples
Moral Consideration
A promise made because of a sense of moral obligation to the promisee will not be sufficient consideration to support that promise.
Eastwood v Kenyon
A promise made because of the love and affection that the promisor and promisee have for each other, or that the promisor has for the promisee is not legally recognized (without consideration)
White v Bluett
Performance of existing duties
a) Performance of existing contractual duties
Generally a promise by one party (the promisee) to perform an existing contractual duty owed to another party (the promisor) does not constitute good consideration for the promisor’s promise.
Wigan v Edwards
Where the plaintiff is bound by an existing contractual duty to the defendant, performance of that duty will not amount to sufficient consideration to support a further promise made by the promisor, unless the duty is exceeded.
Stilk v Myrick
The plantiff was a seaman who was employed as a crew member to work a ship from London to the Baltic and back. In the course of the voyage, two of the seaman deserted. Because the captain was unable to replace these men, he entered an agreement with the rest of the crew to distribute the wages of the two deserters qually among them if they continued to work the ship back to London. They proceded to do so, but the captain refused to distribute the wages of the deserters. The plantiff brought an action to claim his portion of the wages.
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The plantiff was unsuccessful, the English court finding the agreement to share the wages void for want of consideration. As part of the orginal agreement, the crew had undertaken to do all that they could under all the emergencies of the voyage. The desertion of part of the crew was such an emergency. As the crew members were merly performing what they were originally bound to do under the exsiting contract, they did not provide consideration for the captains promise.
A court may be prepared to find that the parties have agreed to abandon their original agreement and enter a new one.
Hartley v Ponsonby
The plantiff was a seaman who was part of a crew of 19 employed to work a ship from Australia to Bombay. While the ship was in harbour, some of the seaman deserted. To induce the remaining crew to complete the voyage, the master promised to pay them a sum of money in addition to their wages. The plantiff later brought an action against the captian to recover the additional money prmised.
An English court found in favour of the plantiff. After the desertions, it was dangerous to life for the ship to go to sea. This operated to release the orginal crew from their contracts. Therefore, the plantiff agreeing to remain on the ship for the rest of the voyage was consideration for the captains prmise to pay additional money.
The court may be willing to accept performance of an existing contractual duty as good consideration where it provides a benefit to the promisor.
Williams v Roffey Bros
Page 157
b) Performance of a public duty Where a public duty is imposed upon the plaintiff by law, performance of that duty is insufficient consideration for the defendants promise unless the duty is exceeded.
Glasbrook Bros v Glamorgan County Council
c) Where promise is made to a third party
A promise to perform an existing contractual duty owed to another party can be good consideration for a promise.
If A owes duty to B, requiring payment of $1000, a promise made to C by A, to perform the duty owed to B, may be good consideration for a promise by C to do something for A.
Shadwell v Shadwell - Uncle wrote to nephew : “ glad to hear of your intended marriage with Ellen Nicholl; and, as I promised to assist …. I will pay you £150 yearly during my life, and until your annual income ….[as] a chancery barrister shall amount to 600 guineas, of which your admission shall be the
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only evidence that I shall .. require.” P married EN and never earned 600 guineas. Not all instalments paid. After uncle’s death, P action v personal representatives who refused to pay claiming no consideration. Held marriage at uncle's request, detriment to P
(altering his position?) and benefit to the uncle (?).
Pao On v Lau Yiu Long
New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd
P holder of a bill of lading, sued for damages to cargo being discharged caused by negligence of D’s stevedores. Bill of lading stated any carrier, servant, agent or independent contractor would not be sued by the holder of the bill for negligence. No arrangements for unloading ship, so on arrival, Ds engaged as independent contractors.
Privy Council on appeal NZCA, found that the consideration to support the promise exempting them from liability for any damage caused by negligence was the unloading of the ship.
HCt Australia Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd (The New York Star) (1978) 139 CLR 231. followed this case and held consideration existed in the performance of a contractual duty owed to a third party.
Part Payment of Debt
a) Rule in Pinnel’s Case
A promise to pay part of a debt cannot constitute consideration for a creditor’s promise to forgo the balance (commonly referred to as the ‘rule in Pinnel’s case’).
Pinnels 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, the later amount agreement will generally not be binding because the debtor has not provided consideration for the creditor’s promise to forgo the balance due. Therefore, even if the debtor acts on this agreement by paying the lesser sum agreed – and the sum is accepted by the creditor – the creditor will generally be able to sue the debtor for the balance due.
Foakes v Beer
b) Circumstances in which the rule will not operate
Parties enter into a deed
Consideration is not required, however, for specialty agreements (formal agreement under seal). If the parties enter into a deed under which the creditor forgoes part of
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the amount owing, that arrangement will be enforceable despite the absence of consideration.
Accommodation to benefit the creditor
If a debtor provides consideration for the creditor’s promise, Pinnel’s rule will not apply.
Van Burgen v St Edmonds Properties
Examples of how the arrangement could be altered by the creditor: Payment on an earlier than scheduled date Payment at a location more convenient to the creditor Payment in a currency more desirable to the creditor
Payment made at a different place for the debtor's convenience does not evade the rule.
Amount owing is disputed
The rule in Pinnel’s case will only operate when there is no dispute between the parties as to the amount owed. If the parties cannot agree on an amount owing, they may wish to enter into a compromise agreement. In the case of a compromise, although the creditor promises to accept an amount less than what the creditor contends is the account of the debt in full settlement of the debt, the debtor has provided consideration for the creditor’s promise. The debtor has agreed to pay an amount more than the debtor believes to be due. This is good consideration even if the creditor is in fact correct and the amount claimed by the creditor is actually due.
H B F Dalgety LTd v Moreton
Payment by a third party
If a debtor is unable to meet his debt to the creditor and obtains assistance from a third party to do so, the third party to placate the creditor may offer a lesser some than the full amount owed to bring the matter to an end. As the third party is not indebted to the creditor, his/her promise to pay an amount should be good consideration for the creditor’s promise to forgo the balance of the debt. The fact that payment is by a third party and not the debtor takes the case outside the operation of the rule in Pinnel’s case.
Hirachand Punamchand v Temple
Composition with creditors
Under a composition with creditor’s agreement, the creditors all agree to accept payment of something less than the full amount owing by the debtor, in exchange for giving the debtor a full release. Creditors may agree to such an arrangement if it appears that this is the most likely avenue to recover any amount from the debtor
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In the Estate of Whitehead
Forbearance to sue
A forbearance to sue or to refrain from exercising some legal right may constitute consideration, even if the plaintiff would have been unsuccessful in the original claim, provided:
- The claim was reasonable and not frivolous or vexatious- The plaintiff honestly believed the claim would succeed- The plaintiff did not conceal from the defendant any facts that to the
plaintiff’s knowledge might affect the validity of the claim.
Hercules Motors Pty Ltd v Schubert
Bargain for conduct already performed
The exception to the rule that past consideration will be ineffective to support a promise is that if the services would only have been provided on the basis of payment. In some cases it is possible to infer that a certain sum would be paid, and a subsequent promise merely fixes the amount of payment.
Re Casey’s PatentsLampleigh v BraithwaitePau On v Lau Yiu Long
In all cases where a promisee seeks to enforce a promise made after the provision of the services, or other conduct relied upon, the promisee must be able to demonstrate that
1. the act must have been done at the promisor’s request:2. the parties must have understood that the act was to be remunerated either by
payment or the conferment of some other benefit3. payment, or the conferring of the benefit, must have been legally enforceable
had it been promised in advance
Pau On v Lau Yiu Long
Equitable Estoppel
The Doctrine of Equitable Estoppel states that a promise not supported by consideration could give rise to rights in circumstances where it would be unconscionable conduct for the promisor to renege on the promise. An estoppel may arise from pre-contractual negotiations
Waltons Stores (Interstate) Ltd v Maher
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For equitable estoppel to apply there must be unconscionable conduct by one party. (Unconscionable conduct denotes a creation or encouragement by the defendant in the other party of an assumption that a contract will come into existence or a promise will be performed and for the other party to have relied upon that assumption to his or her detriment to the knowledge of the first party).
Waltons Stores (Interstate) Ltd v Maher
In Waltons Stores (Interstate) Ltd v Maher H Ct modified this original formulation in three important respects.
First, abandoned requirement of parties’ pre-existing legal relationship. Secondly, promissory estoppel as a cause of action (a sword) rather than
merely a defence (a shield). Thirdly, court’s jurisdiction based on “unconscionability”.
“the laws will not permit an unconscionable…departure by one party [the
representor] from the subject matter of an assumption which has been adopted by the other party [the representee] as the basis of some relationship, course of conduct, act or omission which would operate to that other party’s detriment if the assumption be not adhered to for the purpose of the litigation.” Commonwealth v Verwayen at 444 per Deane J
Milchaus Investments Pty Ltd v Larkin
However, a different result may apply where the parties subsequently execute a formal contract that is expressed to constitute the whole of the contract between the parties, but where one party asserts that the other is estopped from relying on rights created by the written contract due to an assumption formed during negotiations
Skywest Aviation Pty Ltd v Commonwealth
The elements of estoppel must be positively proved and will rarely if ever be inferred
Chellaram & Co v China Ocean Shipping Co
Elements of Estoppel
Assumption or Expectation
There must be a clear and unambiguous assumption or expectation by Party A that a contract will come into existence or that a promise will be fulfilled.
Waltons Stores (Interstate) Ltd v Maher
Clear and unambiguous
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A concept shared by both common law estoppels in pais and equitable estoppels is that the assumption or expectation acted upon by the plaintiff must have been clear and unambiguous.
Encouraged or Induced
A clear and unambiguous representation may be implied from words used or be adduced from a failure to speak, where there was a duty to speak, or from conduct.
Thompson v PalmerWaltons Stores (Interstate) Ltd v Maher
Representation must be clear and unequivocal- silence can constitute a representation. Legione v Hateley, HCt recognised promissory estoppel as part of Australian law.
Sale of land completion July 1, time of essence. Contract provided- to enforce rights, written notice specifying default, intention to enforce rights unless default made good within 14 days. Non-compliance - contract “rescinded” on expiry of period. Failed to complete July 1, vendors (V) gave notice expiring Aug 10. Aug 9, purchasers’ (P) solicitors phoned Vs’ solicitors - bridging finance obtained, settle on Aug 17. Miss Williams at Vs’ office, “I think that’ll be all right but I’ll have to get instructions”. Aug 14 Vs’ solicitors advised Ps’ contract rescinded. Ps sought specific performance.
Majority held relief against forfeiture. On estoppel , Brennan J secretary could not countermand rescission, Miss Ws’ statement not a in clear and unequivocal to the effect that, Ps could “ disregard the time allowed for settlement by the notice of rescission” (at 440 per Mason and Deane JJ), Gibbs CJ and Murphy J considered Miss W’ statement “ intended and likely to induce a belief in the mind of the Ps’ solicitors that the Vs would not enforce their strict legal rights ” (at 422).
HCt - promissory estoppel where existing legal relationship, promise in clear and unequivocal terms not to exercise strict legal rights, promisee relies on promise, promisor not permitted to withdraw where would place representee in a position of material disadvantage at 436-437 per Mason and Deane JJ. ( Note elements of representation, reliance and detriment).
If a party acts upon mere hope rather than a belief induced or encouraged by the other party, it will not be sufficient grounds for estoppel
Lorimer v State Bank of New South WaleChellaram & Co v China Ocean Shipping Co
If an unauthorized statement is made to the knowledge of the principle in circumstances where the principal knows or ought to know that the statement is being relied upon, a failure to deny the statement is in fact authorized and may reasonably be relied upon by the other party.
Corpers (No. 664) Pty Ltd v NZI Securities Australia Ltd
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Reliance
The party claiming estoppel must act or abstain from acting in reliance upon the assumption or expectation.
Australian Securities Commission v Marlborough Goldmines Ltd
The parties reliance upon an assumption must be reasonable.
Waltons Stores (Interstate) Ltd v Maher
The characteristics of the plaintiff in assessing the reasonableness of the reliance, are relevant. (Eg. if the parties are stockbrokers and merchant banker experienced in commerce with the intention of their solicitor to prepare formal documentation or are large commercial entities represented by solicitors).
Austotel Pty Ltd v Franklins Selfserve Pty Ltd
For equitable estoppel “there must be the creation or encouragement by the [D] in the [P] of an assumption that a contract will come into existence or a promise be performed or an interest granted to the plaintiff by the defendant, and reliance on that by the [P], in circumstances where departure from the assumption by the [D] would be unconscionable.” at 610 per Priestley JA
Kirby P, Court should be slow to allow promissory estoppel in clear contradiction to the intention of the parties, and where relative equality in bargaining positions of parties. “We are not dealing here with individuals invoking the protection of equity from the unconscionable operation of a rigid rule of the common law. Nor are we dealing with parties which were unequal in bargaining power. Nor were the parties lacking in advice either of a legal character or of technical expertise.....At least in circumstances such as the present, courts should be careful to conserve relief so that they do not, in commercial matters, substitute lawyerly conscience for the hard-hearted decisions of business people....[C]ourts should..be wary lest they distort the relationships of substantial, well-advised corporations in transactions by subjecting them to the overly tender consciences of judges.” at 585-6
FS had refrained from entering into lease for good commercial reasons ” to avoid preliminary agreement on rent, but had misjudged the sway it had over Austotel. ….The deliberate gamble that the [P] has embarked on failed and it is not for equity to put the [P] in the position it would have been in had it never embarked on its gamble." at 620 per Rogers AJA.
Capital Market Brokers Pty Ltd v Hamelyn UPC Ltd
Knowledge or Intention
The party who induced the adoption of an assumption or expectation must know or intend the other party to act or abstain from acting on reliance on the assumption or expectation.
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Waltons Stores (Interstate) Ltd v Maher
Detriment
Detriment must arise from reliance on the representation. Rationale if representee suffers no detriment from reliance, it is difficult to
see where any injustice or loss arises. Courts struggle with detriment flowing from reliance on assumption (“narrow
view”) and detriment result from non-fulfilment of promise (“broad view”). Brennan J Commonwealth v Verwayen : “relevant detriment in…equitable
estoppel is detriment occasioned by reliance on a promise, ….that is not fulfilled. The relevant detriment does not consist in a loss attributable merely to non-fulfilment of the promise” at 429.
Example A represents to B that will enter a contract with B. Terms of Contract: A to pay B $100,000 for the construction of a road. B reasonably relies upon the representation and starts construction of the road, expending an initial $30,000. Detriment suffered?
Narrow: The relevant detriment is that which has been suffered in reliance on the representation - $30,000
Broad: -The relevant detriment is that which would be suffered if the promise/representation is not fulfilled - $100,000
Commonwealth v Verwayen
Detriment must arise from reliance on the representation. Rationale if representee suffers no detriment from reliance, it is difficult to
see where any injustice or loss arises. Courts struggle with detriment flowing from reliance on assumption (“narrow
view”) and detriment result from non-fulfilment of promise (“broad view”). Brennan J Commonwealth v Verwayen : “relevant detriment in…equitable
estoppel is detriment occasioned by reliance on a promise, ….that is not fulfilled. The relevant detriment does not consist in a loss attributable merely to non-fulfilment of the promise” at 429.
Example A represents to B that will enter a contract with B. Terms of Contract: A to pay B $100,000 for the construction of a road. B reasonably relies upon the representation and starts construction of the road, expending an initial $30,000. Detriment suffered?
Narrow: The relevant detriment is that which has been suffered in reliance on the representation - $30,000
Broad: -The relevant detriment is that which would be suffered if the promise/representation is not fulfilled - $100,000
Mason CJ “...there is but one doctrine of estoppel, which provides that a court of common law or equity may do what is required, but not more, to prevent the person who has relied upon an assumption as to the present, past or future state of affairs...which assumption to the party estopped has induced him to hold, from suffering detriment in reliance upon the assumption as a result of a denial of its correctness. An essential element of that doctrine is that there
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must be proportionality between the remedy and the detriment which is its purpose to avoid.”
On detriment: To hold Com “to its representations, thereby depriving it of defences which were available ...would be a disproportionate response to the detriment suffered by the respondent in reliance upon the assumption that the defences would not be pleaded....The apparent reliability of the representations does not enlarge the nature or scope of the detriment...” at 412-7
His Honour made order for costs for V, as a sufficient and proportional relief for detriment suffered by V.
The relevant detriment is that of the plaintiff, not the defendant.
Gobblers Inc Pty Ltd v Stevens
There must be a link between the assumption or expectation created and the detriment suffered.
Gobblers Inc Pty Ltd v StevensAustralia & New Zealand Banking Group v PA Wright & Sons Pty LtdRe Ferdinando
The party claiming estoppel must suffer detriment in the sense that ‘as a result of adopting the assumption as the basis of action or inaction, the plaintiff will have placed himself in a position of material disadvantage if departure from that assumption is permitted
Thompson v Palmer
The detriment is determined as at the date the defendant seeks to resile from the assumption or expectation he or she has encouraged or induced, and upon which the othe party has acted
Lorimer v State Bank of NSW
Failure to avoid detriment
The object of the equity (equitable estoppel) is not to compel the party bound to fulfil the assumption or expectation; it is to avoid the detriment which, if the assumption or detriment goes unfulfilled , will be suffered by the party who has been induced to act or to abstain from acting on it
Waltons Stores (Interstate) Ltd v Maher
The party encouraging or inducing the assumption must fail to avoid the detriment suffered by the party claiming estoppel, by failing to fulfil the assumption or encouragement.
Waltons Stores (Interstate) Ltd v Maher
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Depending on the circumstances, the defendant may be required to do no more than warn the plaintiff that the assumption or expectations mistaken before the plaintiff incurs irreversible detriment
Lorimer v State Bank of NSW
It may be possible to show the relevant detriment where the defendant has made an attempt to avoid detriment being suffered by the plaintiff but the attempt proves to be inadequate.
Silovi Pty Ltd v Barbaro
Remedies
The object of equitable estoppel is not necessarily to enforce promises but to avoid the detriment suffered by a party who relies on a promise.
Therefore the remedy for equitable estoppel is the minimum equity to do justice between the parties
Commonwealth v Verwayen
However, in some circumstances the enforcement of a promise may be the only means of avoiding the detriment.
Waltons Stores (Interstate) Ltd v Maher The remedy should be proportionate to the unconscionability. Normally this will be reliance loss rather than expectation loss, (Eg. compensation for loss incurred in reliance on the assumption rather than making good the expectation of the parting invoking estoppel).
Commonwealth v Verwayen
There may, however, be a prima facie entitlement to have the expectation made good where the relief to reliance would exceed what could be granted by enforcing the expectation.
Also, where the nature or likely extent of the detriment cannot be accurately or adequately predicted, it may be necessary in the interest of justice that the assumption be made good to avoid the possibility of detriment.
Conversely, if the enforcement of the expectation is shown to be too great a remedy it will not be enforced. Giumelli v Giumelli
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Privity
General rule
A third party to a contract is unable to acquire rights or benefits under the contract.
Wilson v Darling Island Stevedoring Co Price v EastonTweddle v Atkinson
Statutory Abrogation of Privity
Queensland
The Property Law Act 1974 (Qld) s55 (1) provides that:
A promisor who, for a valuable consideration moving from the promisee, promises to do or to refrain from doing an act or acts for the benefit of a beneficiary shall, upon acceptance by the beneficiary, be subject to a duty enforceable by the beneficiary to perform that promise.
(a) Promisor
The relevant promisor under the statue is the party who actually makes the promise for the benefit of the beneficiary. In the absence of an assignment, the promise is not binding upon a new party who merely stands in the shoes of the promisor who makes the promise. (Eg. where the promise is made by a trustee of a trust who, in turn, is subsequently replaced by a new trustee, the promise will not be binding on the new trustee).
Re Davies
(b) Beneficiary
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For the purpose of s55, a party is clearly a beneficiary if they are expressly named in a contract as receiving the benefit of performance of work under a contract
Re Burns Philp Trustees
A person who is not named in the promise but is incidentally benefited by the promise generally cannot enforce the promise in reliance of s55.
Re Burns Philp TrusteesNorthern Sandblasting Pty Ltd v Harris
(c) Promise
Promise is defined in s55 (6) as being a promise: Which is or appears to be intended to be legally binding and Which creates or is intended to create a duty enforceable by a beneficiary
A contractual term that merely regulates the relationship between promisor and promisee will not be enforceable by a third party if it does not amount to a promise to benefit the third party and create an enforceable duty
Davis v Archer Park Newsagency Rockhampton
(d) Acceptance
Section 55(6) defines ‘acceptance’ as an assent by words or conduct communicated by or on behalf of the beneficiary to the promisor – or to a person authorised on his or her behalf – in the manner (if any) specified in the promise and within the time specified in the promise.
It seems that an acceptance must on its face be an assent. It is insufficient for there to be words or conduct that is merely consistent with acceptance.
Re Davies
It may be sufficient if the promise comes to the notice of the beneficiary’s solicitor.
Re Davies
Provided the beneficiary’s assent purports to accept the promise, it is immaterial if in fact the purported acceptance precedes the promise to benefit the beneficiary thus an anticipatory acceptance may suffice.
Hyatt Australia Ltd v LTCB Australia Ltd
(e) Defences
Section 55(4) provides that any matter that would otherwise be relied on as rendering a promise void, voidable or unenforceable will be available by way of defence in proceedings for the enforcement of a duty under s 55.
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The intended object of this subsection provides that defences such as mistake, fraud, misrepresentation, Stature of Frauds and Statue of Limitations etc, which may be available to the promisor against the promisee are also available to the former against the beneficiary.
(f) Variation or Rescission of Promise
Under s 55 (2), before acceptance, the parties to the contract may vary or rescind the promise. However, s 55(3) provides that after acceptance, their terms of the promise and the duty of the promisor or beneficiary may be varied or discharged only with consent of the promisor and the beneficiary.
(g) Imposition of Burdens
Section 55(3)(b) states that the beneficiary will be bound by any promise or duty that is imposed as part of the promise that benefits him or her. An obligation may be imposed upon the beneficiary but only as part of a promise that confers a benefit upon him/her.
(h) Common Law Still Applicable
Section 55(7) saves the common law so that where the statue cannot be applied, the common law still does. Consequently, a beneficiary who is unable to make out a case under the statute would be left to rely on an exception to the privity doctrine if one were available in the circumstances.
Commonwealth
Insurance Contracts Act 1984 (Cth) s48
Today in Australia, insurance cases are the subject of legislation to overcome the Privity rule. Section 48 of the Insurance Contracts Act 1984 has provided a third party with a right to recover directly from an insurer the amount of his or her loss.
Entitlement of named persons to claim
Where a person who is not a party to a contract of general insurance is specified or referred to in the contract, whether by name or otherwise, as a person to whom the insurance cover provided by the contract extends, that person has a right to recover the amount of the person's loss from the insurer in accordance with the contract notwithstanding that the person is not a party to the contract.
If the privity rule were to be applied, then the usual exemption from liability that appear in contracts of carriage exempting the carrier from liability to the owner of goods for loss or damage to the goods could be simply evaded by, for example, suing instead the servants or agents of the carrier. This has, in the past, been avoided by the inclusion of a bill of lading evidencing the contract of carriage a provision known as a ‘Himalaya Clause’.
Such a clause makes the carrier the agent for its servants, agents or independent contractors in relation to an exemption of liability for loss or damage to the goods. The clause has been held effective to exempt from liability third parties to the contract of carriage such as the master, crew, or stevedores who are entrusted with loading and unloading the goods.
Now by force of law rather than by provisions in a contract, parties such as the master and crew – but not individual contractors such as Stevedores – may now rely on the exemptions contained in a contract entered into between the carrier and the owner of the goods shipped by sea.
Carriage of Goods by Sea Act 1991
(b) Consignees and indorsees
All rights in the original contract of carriage are transferred to a third party buyer as from the time of consignment or indorsement. Effectively, therefore, a consignee or indorsee may now enforce rights under a contract to which he or she was a third party.
Sea Carriage Documents Act
Secondly, all outstanding liabilities under the original contract of carriage are transferred to a third party buyer when he or she demands or takes delivery of the goods. Thus, it is possible to impose a burden on a consignee or indorsee despite the fact that he or she was a third party to the original contract of carriage.
Sea Carriage Documents Act.
So called exceptions at common law
Agency
Agency is a legal relationship between two people where one of them, the principal, give to the other, the agent, the authority to create legal relations between the principal and the third party. If the agent acts within his or her actual authority, either express or implied, or within his or her ostensible authority, such act will bind the principal: that is the principal can take action in his or her own name to enforce the contract made by the agent or become personally liable should the contract be breached.
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Trident General Insurance Co Ltd v McNiece Brothers Pty LtdTeheran Europe Co Ltd v St Belton Ltd
Definition
The principal is not a stranger to a contract made by the agent, he is one of the parties, the agent being the medium by which the contract is made.
Harvester Co of Aust Pty Ltd v Carrigans Hazeldene Pastoral Co
The principles of agency may also apply where the agent does not disclose to the other contracting party that he or she is acting on behalf of a principal if the other party is willing to contract with anyone on whose behalf the agent acts, such willingness may be assumed by the agent.Teheran – Europe Co Ltd v St Belton (Tractors) Ltd
Exceptions to Privity – Land contracts
Leases, lessor (A), lessee B assigns lease to C with A’s consent. A liable to lessee C (the assignee) in respect of covenants in the A/B lease affecting the land.
2. Restrictive covenant the sale of land by A to B can be enforced by A against later purchasers where they have notice of it.
Exemption clauses and third parties
The issue of whether a party who is not party to a contract, particularly for the carriage of goods, can nevertheless rely on an exemption from liability contained in that contract.
An exclusion clause in a document like a bill of lading may be drafted so at to effectively protect third parties such as stevedores if four conditions are met:
1. the relevant bill of lading must make it clear that the stevedore is intended to be protected;
2. the bill of lading must also make it clear that the carrier is contracting not only on its own behalf but also as agent for the stevedores in relation to the exemption;
3. the carrier was so authorised by the stevedores, although later ratification by the stevedores will do; and
4. any difficulties concerning consideration moving from the stevedores are overcome.
If these four conditions are satisfied, the carrier-promisor effectively contracts as agent for the stevedore-beneficiary.
Scruttons v Midland Silicones
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Trusts
A trust is created where a trustee holds property on behalf of a beneficiary.
The trustee holds the legal title to such property subject to the interest of the beneficiary in such property.
A promisee will be regarded as a trustee of a promise if it was the clear intention of that party at the time of the contract was entered into. Unless an intention to create a trust is clearly to be collected from the language used and the circumstances of the case, the courts will be reluctant to infer such a trust exists.
Re Schembsman Trident v McNiec
Whether a trust is created will depend on a true construction of the terms of the contract and the intention of the parties. In deriving intention from the language that the parties have employed the courts may look to the nature of the transaction and the circumstances, including the commercial necessity of the arrangement.
Trident v McNiece
• Indemnity Clause “The Insurance...indemnifies the Assured against all sums which the
Assured shall become legally liable to pay in respect of...death of or bodily injury to or illness of any person not being a person who at the time of the occurrence is engaged in and upon the service of the Assured under a contract of service or apprenticeship...”
“Assured” defined to include the company, all subsidiary, associated and related companies, all contractors, subcontractors and suppliers.
Mason CJ and Wilson J“The injustice which would flow from [applying the privity doctrine to policies of insurance] arises not only from its failure to give effect to the expressed intention of the person who takes out the insurance but also from the common intention of the parties and the circumstance that others, aware of the existence of the policy, will order their affairs accordingly.....This argument has even greater force when it is applied to an insurance against liabilities which is expressed to cover the insured and its subcontractors. It stands to reason that many subcontractors will assume that such an insurance is an effective indemnity in their favour and that they will refrain from making their own arrangements for insurance on that footing.” (at 515)
Toohey J Similar grounds to Mason CJ and Wilson J Gaudron J Unjust Enrichment Deane J Trust Dissent - Brennan and Dawson JJ “To hold that policies of liability insurance are an exception to the doctrine of
privity, some criterion must be found to distinguish the exception from the general rule. I can find none. Indeed, if the doctrine of privity should be overthrown in its application to policies of liability insurance, no reason either
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of policy or logic is advanced for retaining the doctrine for application to other contracts...” per Brennan J at 516
The intention required to create a trust need not be held by both parties, it is sufficient if the promisee alone holds the intention.
Trident v McNiece
Unjust Enrichment
If an insurer is paid and refuses to offer benefit to a third party on the ground that they are not party to the contract, the third party may take action on the principles of unjust enrichment.
Trident v McNiece
The key element of unjust enrichment is the unconscionability of the defendant’s conduct in retaining a particular benefit at the expense of the plaintiff. But this issue remains whether the benefit retained by the defendant is the premium paid or the promised benefit. An argument could be made that the defendant has been unjustly enriched only to the extent of the premium paid to it.
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Formalities
Provided a contract is validly formed and there are no vitiating factors, action can usually be brought to enforce a verbal contract. Notwithstanding this general proposition however, a limited number of contracts must be evidenced by writing for them to be enforceable.
Guarantees
A contract of guarantee must be in writing and signed by the party to be charged in order to be enforceable. “No action may be brought upon any promise to guarantee any liability of another unless the promise upon which such action is brought, or some memorandum or note of the promise, is in writing, and signed by the party to be charged, or by some other person by the party lawfully authorised”.
Section 56(1) of the Property Law Act 1971 (Qld)
Nature of Guarantee
A contract to answer for the debt, default or miscarriage of another who is primarily liable to the promisee.
Yoeman Credit Ltd v Latter
Transactions which are not guarantees
Transactions that are not guarantees ‘will not’ have to comply with the statutory requirements of formalities.
a) Contracts of indemnity
In an indemnity, the surety undertakes primary liability, rather than secondary liability, meaning that the surety will be liable notwithstanding that the principal transaction is unenforceable
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Yeoman Credit Ltd v Latter
b) Promise of guarantee made to the debtor
It is possible for a person to promise the principal obligator (the debtor), rather than the creditor, that he or she will pay the debt of the debtor. As the promise is not made to the person with whom the principal obligor contracts, the contract is not one of guarantee
Eastwood v Kenyon
c) Person agrees to take over the debt of another
Where a debtor and creditor have entered into a contract of loan, it could occur that a third party agrees with the creditor to take over the debt of the debtor. Such an arrangement is not a contract of guarantee and therefore need not comply with the statutory requirement of formality.
Gray v Pearson
d) The agreement imposes no personal liability on the person
If a person does not undertake personal liability, but instead proffers his or her property as security to the promisee under the principal transaction it is not a guarantee.
Harvey v Edwards, Dunlop & Co Ltd
e) Letters of comfort
Whether the letter of comfort is binding as a contractual document, so that he third party may be called upon to pay, depends on the construction of the document. Frequently the issue is whether there was an intention by the parties, namely the third party and the lender, to create legal relations.
Banque Brussels Lambert SA v Australian National Industries Ltd
Statute of Frauds-equivalents in all jurisdictions Conveyancing and Law of Property Act 1884 (Tas), s 36 (1):“No action..
upon any contract for the sale or other disposition of land, or any interest in land, unless the agreement upon which such action is brought, or memorandum or note thereof, is in writing, and signed by the party to be charged or by some person thereunto by him lawfully exercised.”(also CLPA s 60(2))
Sales of Goods Act 1896 (Tas), s 9(1) contract for sale of goods of value of twenty dollars or more not enforceable unless buyer accept part of goods, or give something in earnest, or in part payment, or “unless some note or memorandum in writing of the contract be made and signed by the party to be charged or his agent in that behalf.”
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Mercantile Law Act 1935 (Tas), s 6 Agreement, or some memorandum or note thereof is required in writing and signed in respect of agreements relating to:
Personal liability of an executor/administrator Answering the debt of another Agreements not to be performed within one year Contracts for sale of land, tenements or hereditaments (intestacy)
Requirement of writing: content
For a contract of guarantee to be enforceable the relevant statutory provision requires either the promise is to be in writing, or some ‘memorandum or not’ of the promise is to be in writing. The provision does not, however, elaborate on precisely the information that must be contained in the writing to satisfy the statutory requirement.
Property Law Act 1974 (Tas)
Guidance from case law, in Harvey v Edwards Dunlop & Co, provides that the document must contain ‘all essential terms of the agreement’.
Does memorandum require recognition of legal obligation? Two views (1)writing contains terms and recognises contract entered into or (2)writing refers to terms but no need to refer to contract existence
Pirie v Saunders
May be immaterial when memorandum evidencing agreement is made as long as it was intended to recognise the terms of the binding agreement. here, a solicitor’s notes of instructions from client referred to “part of Lot B, Princes Highway, Sylvania Heights”
Held did not constitute a memorandum because it could not relate to an existing contract. (High Court took narrower view ie (1) above).
Query why should instructions not be “indicative of…any binding contract”?
On time that memorandum comes into existence? Popiw v Popiw
Mr & Mrs P separated. Mr P then promised Mrs P title of matrimonial home in joint names if returned to live with him. Mrs P returned, then separated within 3/4 weeks. Mrs P sought declaration of interest in home, order for sale and division of proceeds. Argued there was an enforceable contract. Mr P argued (no intention to create legal relations, no consideration) agreement not evidenced in writing.
Held good consideration but no sufficient memorandum (Query, argument that affidavit was a sufficient memorandum though after agreement)
Now Family Law Act
a) Information particular to the guarantee
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First, ‘the guarantee must contain the names of the relevant parties: the lender, the debtor and the guarantor’. It may happen that the guarantee makes reference to a party without expressly identifying them. Authorities suggest that even if a party is not expressly identified, ‘a description of the party will be sufficient if the description used can be explained by extrinsic evidence without having to resort to evidence to prove the intention of the author.
Rosser v Austral Wine & Spirit Co
Secondly, ‘the relevant terms of the guarantee must be stated’. This would generally require the amount of debt being guaranteed must be specified. If the guarantee is given of the amount advanced by the lender together with interest on that amount, the interest payable by the debtor should also be specified.
There are two other important caveats to the general proposition that a guarantee must contain all of these essential terms.
First, while the lender must provide valuable consideration to the guarantor for a valid contract of guarantee to be formed, the nature of that consideration will not be required to be contained in the guarantee.
Property Law Act 1884 (Tas), s 36 (1)
:“No action.. upon any contract for the sale or other disposition of land, or any interest in land, unless the agreement upon which such action is brought, or memorandum or note thereof, is in writing, and signed by the party to be charged or by some person thereunto by him lawfully exercised.”(also CLPA s 60(2))
Second, where a material term has been omitted from the guarantee, there may be limited circumstances in which the guarantee will still be enforceable against the guarantor for example, if the term is for the benefit of the lender, the lender will be entitled to waive the benefit of the oral term not reduced to writing to enforce the guarantee as modified (Eg. A waiver to collect interest on the amount owed if details of the interested are omitted)
Hawkins v Price
b) Acknowledgement of the agreement
The writing must contain an acknowledgement of a concluded agreement.
Pirie v SaundersTiverton Estates Ltd v Wearwell Ltd
Requirement of writing: signed by party to be charged or agent
To satisfy the statutory provision, the promise or note or memorandum of the promise must be ‘signed by the party to be charged, or by some other person by the party lawfully authorised’.
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(Upon the debtor’s default, the lender will seek to enforce the guarantee against the guarantor. Therefore, it is the guarantor who is the party to be charged within the meaning of the provision. To satisfy the formalities requirement, therefore, the guarantee must be signed by the guarantor).
Property Law Act 1974 (Qld)
To apply this principle in the context of a guarantee, if the guarantor’s name appears on the guarantee, and it is the guarantor’s intention that the name authenticates the document, it will be sufficient to satisfy the statutory requirement.
Durrell v Evans
Contracts relating to land
No action may be brought upon any contract for the sale or other disposition of land or any interest in land unless the contract upon which such action is brought, or some memorandum or note of the contract, is in writing, and signed by the party to be charged, or by some person by the party lawfully authorised.
Property Law Act (Qld) s 59
Nature of contract needing writing
The requirement of formality applies to a contract for the sale of land or any interest in land as well as a contract for the other disposition of land or any interest in land.
Property Law Act (Qld) s 59
Requirement of writing: content
As was the case for guarantees the document must contain ‘all the essential terms’, is also relevant to land.
Harvey v Edwards, Dunlop & Co
a) Information particular to the contract
There are four matters that must be recorded to satisfy the statutory requirement in a contract involving land.
Twynam Pastoral Co v Anburn
1. The document must contain the parties to the contract
Williams v Byrnes
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As with guarantees, as long as the intention of the parties is clear, extrinsic evidence may be introduced to establish the identity of the parties.
Rosser v Austral Wine & Spirit Co
2. The property must be adequately described.
Pirie v SaundersSouth Coast Oils v Look Enterprises
If the property the subject of the sale is part only of a particular lot, care must be taken to specifically identify the portion being sold.
Pirie v Saunders
In contrast, if freehold property is sold subject to an existing leasehold and the leasehold interest is known to the purchaser, there is authority to suggest that the property is sufficiently described even if there is no reference to the lease.
Timmins v Moreland Street Property Co
3. The consideration for the promise, namely the price, must be recorded
Burgess v CoxWain v Walters
4. The principal terms of the contract must be disclosed. (Eg. If the parties require time to be of the essence, that condition should be included in the contract).
Failure to include in the document all essential terms might not necessarily be fatal to the plaintiff, if the term omitted is for the benefit of the plaintiff they may waive the benefit of clause and seek enforcement of the contract without it.
Petrie v Jensen
b) Acknowledgment of agreement
The writing must contain an acknowledgment of agreement as well as the terms of the agreement. Such acknowledgement may be expressed or implied in the writing.
Pirie v SaundersTiverton Estates Ltd v Wearwell Ltd
There will be insufficient writing where a contract is made ‘subject to contract’ in the sense of a condition made before the formation of the contract.
Tiverton Estates Ltd v Wearwell LtdDarter v Molloy
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Requirement of writing: signed by party to be charged or agent
The document must be signed by the party to be charged.
Property Law Act (Qld)
(If there is purported contract for the sale of the land and the seller claims not to be bound by the agreement, the seller will be the party to be charged for the purposes of any action brought. Similarly, if the buyer claims not to be bound, the buyer will be the party charged).
A person may have been taken to sign a document if the signature is absent as long as the name of the party is placed on the document and that party expressly or impliedly indicates that he or she recognizes the writing as being an authenticated expression of the contract. It is sufficient if a person who is duly authorised by the party to be charged signs the document.
Pirie v Saunders
Joinder of documents
It is possible to satisfy the statutory requirement of writing even if all of the relevant information is not contained in the one document. A document may be able to be joined if there is a reference, express or implied, to another document or to a transaction.
Harvey v Edwards, Dunlop and Co
Reference to a document
Where the document signed by the defendant makes reference to another document, joinder of that document is permitted.
Tonitto v Bassal
As the document joined in this way is referred to in the document signed by the defendant, it follows that the joined document will be in existence at the same time the document is signed by the defendant. There are two exceptions to this general position.
a) Documents that are physically connected
A document physically connected to the document signed by the defendant may be joined.
M’Ewan v Dynon
Where a letter is signed by the defendant and sent to the plaintiff, but the letter does not, on its own, contain the necessary information, the court will allow the envelope
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to be joined to the letter. In this way, there will be a note or memorandum of the information on the envelope, namely the name of the plaintiff.
Pearce v Gardner
b) Documents that are executed at the same time . ‘Where two documents relied on as a memorandum are signed and exchanged at one and the same meeting as part of the same transaction, so that they may fairly be said to have been to all intents and purposes contemporaneously signed, the document signed by the party to be charged should not be treated as incapable of referring to the other document merely because the latter, on a minute investigation of the order of events at the meeting, is found to have come second in the order of preparation and signing.
Timmins v Moreland Street Property Co
Reference to a transaction.
Where the writing signed by the party to be charged refers to a transaction (rather than a document), Joinder is allowed and parol evidence may be given to explain the transaction, and to identify any document relating to it.
Fauzi Elias v George Sahely & Co
Effect of statutory non-compliance: common law
Under common law principles, if a contract fails to comply with statutory provisions ‘no action can be brought’. Therefore if one of the parties refuses to complete a contract, no action can be taken by the other party to enforce the contract…
Property Law Act (Qld)
…Action cannot be brought for specific performance…
Tiverton Estates Ltd v Wearwell Ltd
…Or for damages for breach.
Timmins v Moreland Street Property Co
Contract valid to pass title
Although a contract failing to comply with statutory requirements will be unenforceable, it will be a valid contract. This means that, if the contract is performed by the parties, it will be effective to pass good title.
Maywald v Riedel
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Recovery of money paid under unenforceable contract
a) Recovery of deposit
A deposit paid by a buyer is considered to be ‘an earnest to bind the bargain’. If the sale is not completed due to the buyer’s default, the deposit is liable to forfeiture to the vendor. This is the position if the contract is one that complies with or fails the statutory requirements of formality.
Freedom v AHR Constructions
Where an enforceable contract for the sale of land is not completed because of the seller’s default, the deposit is recoverable by the buyer as money had and received upon a total failure of consideration, where the consideration for which it was paid is the conveyance or transfer that has not taken place. The action is one brought in restitution, not on the contract.
Fullbrook v Lawes
b) Recovery of amount more than deposit
If the purchaser breaches the contract and refuses to complete the purchase, any deposit paid may be forfeited. However, it is likely that any amount over and above that which is deemed to be the deposit could be recovered.
Freedom v AHR Constructions
Other restitutionary claim may still be available
If the contract is unenforceable, it will not usually prevent a claim in restitution for recovery on a quantum meruit (so much money as the plaintiff deserves to have) basis.
Pavey & Mathews Pty Ltd v Paul
P and M were builders licenced under NSW Builders Licencing Act. Oral contract with P to carry out building work. P paid part of the amount. though work satisfactory. P declined to pay the balance and argued builder not complied with formalities of S 45 Act (contract not in writing and signed by the parties).
HCt allowed quantum meruit as Act did not expressly exclude restitutionary (quasi contract) claim.
“If the effect of…quantum meruit was simply to enforce the oral contract…all the plaintiff [would have ] to prove was that he had fully executed the contract on his part and that he had not been paid the contract price. However, when success on a quantum meruit depends, not only on the plaintiff proving that the did the work, but also on the defendant’s acceptance of the work without paying the agreed
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remuneration, it is evident that the court is enforcing against the defendant an obligation that differs in character from the contractual obligation had it been enforceable.” per Mason CJ and Wilson J at 228
“The consequences of [P’s] interpretation are so draconian that it is difficult to suppose that they were intended. An interpretation that serves the statutory purpose yet avoids a harsh and unjust operation is to be preferred” per Mason CJ and Wilson J at 229.
Effect of statutory non-compliance: equity
Doctrine of part-performance
If parties enter into an oral contract for the sale of land and, relying on that contract, one party does certain acts, the courts may be prepared to grant that person specific performance of the contract if four conditions are satisfied.
a) Acts are unequivocally referable to some such contract
The acts relied upon by the plaintiff must unequivocally referable to some such agreement as is alleged between the parties. Regent v MillerMaddison v Alderson.
The payment of money alone cannot be regarded as a sufficient act of part performance.
Maddison v Alderson.Steadman v SteadmanCooney v Burns
Giving instructions and the ensuing preparation of documents are unlikely to be considered sufficient acts of part performance.
Steadman v Steadman
b) Acts done in reliance on the agreement and with knowledge of other party
The plaintiff must show that the acts were done in reliance on the agreement and with the knowledge of the other parties.
McBride v Sandland
It is not necessary that the acts be required by the contract but the fact that they were done voluntarily is sufficient.
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Regent v Miller
c) Acts done by the party seeking to enforce the contract
The acts of part performance must be by the party who is seeking to enforce the contract.
King v Grimwood
d) Oral contract must be otherwise enforceable
The plaintiff must be able to show that the contact would have been enforceable had it satisfied the statutory requirement of writing. The agreement must be concluded and satisfy the usually contractual requirements for enforceability.
McBride v Sandland
In 1895, M promised to allow daughter, Mrs. S and husband to occupy a farming property during his lifetime and to transfer it to them upon his death. Promise made in exchange for certain undertakings. The Ss occupied the land and after Mr. S’s death, Mrs. S continued to occupation under a lease with McBride. In 1916, lease expired and McB claimed possession. Mrs. S refused on the ground that she had an interest under the 1895 promise.
HCt concluded that 1895 promise did not constitute a contract and occupancy by Mrs. S did not constitute part performance (also part performance by payment of land tax and improvements). Here part performance could not be unequivocably referred to the arrangement.
“(1) The act relied upon must be unequivocally and in its own nature referable to “some such agreement as that alleged”…
(3) The proved circumstances in which the “act” must be considered in order to judge whether it refers unequivocally to such an agreement as is alleged…
(4) It must have been in fact done by the party relying on it on the faith of the agreement, and further the other party must have permitted it to be done on that footing…
(5) It must be done by a party to the agreement....These requirements must be satisfied before the actual terms of the alleged agreement are allowed to be deposed to. Further, when those terms are established, it still remains to be shown:-
(6) That there was a completed agreement.… (7) That the act was done under the terms of that agreement by force of that
agreement....” (Isaacs and Rich JJ at 78-79)
Estoppel
Alternatively, in appropriate circumstances a party may be estopped from relying on the Property Law Act
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Walton Stores v Maher
Constructive trust
In an appropriate situation, a person can claim an interest in land on the basis of creation of a constructive trust although there is no writing.
Baumgartner v Baumgartner
Establishing Contractual Terms:
In determining whether written terms form part of the contract the parties, the crucial issue is whether the parties can be regarded as having assented to the written terms.
Olly v Marlborough Court Ltd
Incorporation by Signature
a) General Rule
When a document containing contractual terms is signed, in the absence of fraud or misrepresentation, the party signing the document is bound by its terms. It is immaterial whether the signing party has read the document or not.
L’Estrange v F Groucob Ltd
L’Estrange v Graucob P purchased automatic cigarette vending machine with “sales agreement” with terms, some in small print: “This 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.” P did not read this and machine did not work satisfactorily. P claimed return under sale of goods legislation.
Scrutton LJ : “...the plaintiff, having put her signature to the 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 the terms of the document because she has not read them.” (at 404)
Toll v Alphapharm “The meaning of the terms of a contractual document is to be determined by….not only the text, but also the surrounding circumstances know to the parties, and the purpose and object of the transaction” (at 179).
b) When the Rule is Displaced
The party may not be bound by the terms even though the contract is signed if the circumstances indicate that the signature does not signify assent. This may be the case if:
The person relying on the clause misrepresented its effect.
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Curtis v Chemical Cleaning & Dying Co
The document signed is thought to have no contractual effect.
DJ Hill & Co Pty Ltd v Walter H Wright Pty Ltd
The person signing can plead non est factum (The mind did not accompany the signature…no intent). (The person relying on the defence must show that the document is radically different from the one he/she thought they were signing. Usually used for blind or illiterate people).
Petelin v Cullen
Incorporation by Notice: Unsigned Document
A person is likely to be bound the terms in a written document (not signed by him or her) if reasonable notice of the existence of the terms has been given, and this notice was given before or upon contract formation.
a) Reasonable Steps must be Taken by Defendant
Reasonable steps must be taken to give the class of person to which the recipient belonged, notice of the existence of the term. (This is a question of fact).
Parker v The South Eastern Railway Co
Parker v South Eastern Railway Co. Deposited luggage received ticket excluding liability for “package” over value of £10
Mendelssohn v Normand Ltd
In determining whether reasonable steps were taken it may be relevant whether the document was one that would be assumed by a reasonable person to be contractual in nature.
Causer v Browne
Causer v Browne -P’s husband took frock for dry cleaning and received ticket with terms excluding claims for negligence. Frock damaged. Here a “voucher” for collecting frock not exemption clause
Mendelssohn v Normand Ltd
If reasonable steps are taken it does not matter if the recipient of the notice did not read the terms or that he or she were unable to read them.
Thompson v London Midland & Scottish Railway Co.
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The onus will be on the defendant to demonstrate that the document was not delivered to the plaintiff as a voucher or receipt, but as a contractual document.
Causer v Browne
b) Reasonable steps taken before or upon contract formation
Reasonable steps must be taken to bring terms to the attention of the plaintiff before, or at the time of, contract formation.
Thornton v Shoe Lane Parking Ltd
Thornton v Shoe Lane Parking Ltd - Multi-storey car park with notice: “All Cars Parked at Owner’s risk”. Automatic ticket “issued subject to the conditions.. displayed on the premises”. P accident in parking station and sought damages. Where one party makes an offer to contract on terms stated on or referred to in a document (usually no more than a ticket) received by the other party, that party’s decision to keep the document indicates assent to a contract on the terms stated or referred to. Held terms referred to in ticket not incorporated because contract concluded when customer took irrevocable step of causing machine to operate, ie prior to issue of ticket.
Effect of Person not being able to Read or Understand Terms
A person who is particularly unworldly, and does not know that a particular document will contain contractual terms, will still be bound by those terms, providing the issuer took reasonable steps to bring that fact to the notice of people in general.
Parker v The South Eastern Railway Co
Incorporation by Course of Dealing
Henry Kendall & Sons v William Lillico & Sons Ltd Brazilian ground nuts to Suffolk Agricultural Poultry Producers Association with “sold notes” confirming prior oral contracts and clause with responsibility for latent defects. 3 or 4 transactions per month in previous three years. In order to rely on a course of dealing as incorporating need not show that the other party had actual knowledge of terms
Compare DJ Hill & Co Pty Ltd v Walter H Wright Pty Ltd Oral contract to carry machinery, which was damaged. On arrival two documents presented with exclusion of liability. Evidence that carried goods on some ten occasions with similar documents signed each occasion. Held form presented when goods delivered and oral contract before form presented
• Hollier v Rambler Motors Vehicle destroyed by fire. D relied on exclusion term on invoice. On 3 or 4 occasions in previous five years, P used D’s services and on 2 signed invoice. Held “course of dealing” consisted only of three or four transactions in the course of five years, and not sufficient for incorporation of “invoice” term.
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Incorporation by Notice: Signs
A person is likely to be bound the terms in a sign if reasonable notice of the existence of the terms has been given, and this notice was given before or upon contract formation.
a) Reasonable steps taken by the defendant
Reasonable steps must be taken to give the class of person to which the recipient belonged, notice of the existence of the term. (This is a question of fact).
Balmain New Ferry Co Ltd v RobertsonOlly v Marlborough Court Ltd
If reasonable steps are taken it does not matter if the recipient of the notice did not read the terms or that he or she were unable to read them.
Thompson v London Midland & Scottish Railway Co.
b) Reasonable steps taken before or upon contract formation
Reasonable steps must be taken to bring terms to the attention of the plaintiff before, or at the time of, contract formation.
Thornton v Shoe Lane Parking Ltd
Effect of Person not being able to Read or Understand Terms
A person who is particularly unworldly, and does not know that a particular document will contain contractual terms, will still be bound by those terms, providing the issuer took reasonable steps to bring that fact to the notice of people in general.
Parker v The South Eastern Railway Co
Incorporation by Notice: Website
The issue is yet to be encountered by the courts by it is likely it will apply the same principles as the incorporation of terms in an unsigned document or on a sign. Reasonable steps must still be taken and these steps must have occurred prior to or upon contract formation.
Incorporation by Reference
Terms contained elsewhere can be incorporated into a contract by reference to those terms, regardless of whether the document incorporating those terms is signed by the parties or is a ticket or a sign.
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Smith v South Wales Switchgear Co Ltd
Incorporating oral Terms
Mere Puff
A “puff” is an exaggerated claim about the subject matter that is not intended to be taken seriously. There is no common law consequences that arise from such sales talk.
However, an excessive or exaggerated claim/s can now be a breach of statute.
Trade Practices Act 1974 (Cth)
Representation or Term
A statement will be a term of a contract if it is intended to be promissory in nature. A statement will be promissory in nature if the statement maker warrants its truth.
Objective standard- court influenced by the following factors: (a) time of the statement; (b) content of the statement (precise? important?); (c) knowledge and expertise of the parties (Also matter within the control of statement maker; failure to record
statement in writing?) Dick Bentley Productions v Harold Smith (Motors) D, motor vehicle dealer,
told P that Bentley had covered only 20,000 miles since replacement engine and gearbox. D aware manufacturers kept complete record of their cars so mileage easily checked. Statement about miles “palpably wrong” – car travelled nearly 100,000 miles
Denning MR :“...if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act upon it, and actually inducing him…, by entering into the contract, that is a prima facie ground for inferring that it was intended as a warranty...But ..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,….” at 627-628
Oscar Chess Ltd v WilliamsHospital Products Ltd v United States Surgical Corporation
a) Words and conduct of the parties
The words and conduct of the parties can give an indication of intention. (It is relevant whether the words are promissory in nature as well as the conduct of the parties that indicate the importance of the statement).
Harling v Eddy
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b) Knowledge or expertise of the statement maker
If the party who made the statement is in a better position than the other party to ascertain the accuracy of the statement, it is probably a term.
Mihaljevic v Eiffel Tower Motors Pty Ltd
c) Statement maker has control in relation to information
A person who has control over the subject matter will be in the position to guarantee the truth of the statements.
Hospital Products Ltd v United States Surgical Corporation
d) Oral statement not reduced to writing
A statement that is made orally but not included when the contract is reduced to writing may be an indication that the parties did not intend it to be contractual in nature.
Routledge v Mckay
All of the previous factors are indicators of intention only. Failure to reduce an oral statement to writing is not determinative of the matter. As illustrated in:
Hospital Products Ltd v United States Surgical Corporation
If an oral statement later becomes part of the written contract, it is likely it was intended to form part of the contract.
Oscar Chess Ltd v Williams
e) Interval of time
If there is a long interval between making the statement and the conclusion of a contract, it is probably not a part of the contract.
Routledge v Mckay
1 Terms v Representations(d) Consumer contracts ACL Part 3-1—Unfair practicesDivision 1—False or misleading representations etc.29 False or misleading representations about goods or services30 False or misleading representations about sale etc. of land31 Misleading conduct relating to employment32 Offering rebates, gifts, prizes etc.33 Misleading conduct as to the nature etc. of goods34 Misleading conduct as to the nature etc. of services
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(recall 35 Bait advertising)
Collateral contracts
a) Nature of a collateral contract
A collateral contract is one in which the consideration for a promise is the making of another contract.
Heilbut Symons & Co v BuckletonDe Lassalle v Guildford
Three elements must be established:
A statement must be made to induce entry into the contract The statement must be relied upon The statement relied upon must be promissory in nature.
JJ Savage & Sons Pty Ltd v Blakney
Where the main contract precedes the collateral contract there can be no contract as past consideration is not good consideration.
Hercules Motors v Schubert
b) Bipartite and tripartite collateral contracts
A collateral contract is bipartite where the parties to it are the same as those who enter the main agreement.
Shepperd v The Council of the Municipality of Ryde
P and D contract for sale of land after D said would maintain land located opposite, as a park. D subsequently decided to subdivide park for housing project. P sought injunction for subdivision plans alleging a collateral contract.
High Court -whether a collateral contracts exist is question of fact. Courts reluctant to give effect to alleged collateral contracts because “too often the collateral warranty put forward is one that you would expect to find its place naturally in the principal contract.” at 13 per Dixon, McTiernan, Fullagar and Kitto JJ.
However, here common intention that P would rely upon the representation and proceed to contract to buy land. P would not have entered into the contract but for the statement of D to maintain land as a park.
Consideration for promise was P’s contract, therefore, collateral contract established..
A collateral contract may be tripartite where the parties to it are different from the parties in the main contract.
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Wells (Merstham) Ltd v Buckland Sand & Silica Co Ltd
c) Consistency with the main contract
The courts will only recognise a collateral contract if it is consistent with the terms of the main contract.
Hoyt’s Pty Ltd v Spencer
(There has been criticism of this rule as it does not give effect to the actual intention of the parties)
In an appropriate case estoppel may apply.
Waltons Stores v Maher
Parole evidence rule
Statement of the rule
When a contract is reduced into writing, and the contract appears in the writing to be entire, it is presumed that the writing contains all the terms of it and evidence will not be admitted of any previous or contemporaneous agreement, which would have the effect of adding to or varying the contract in any way.
Mercantile Bank of Sydney v Taylor
(The rule applies to two aspects: 1. the content of the contract and 2. the interpretation of contracts…Here the rule applies to the content).
When the rule applies
The rule does not apply when the parties intend a contract to be partly in writing and partly oral.
Couchman v Hill
Regarding the content of the contract: If the parties intended the contract to be wholly in writing, parole evidence is not admissible to add to, vary or contradict the writing.
Robertson v Kern Land Pty Ltd
The intention of the parties is construed objectively.
Couchman v Hill
1. Exclusion of Prior Negotiations
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Can pre-contractual comments or discussions be adduced in evidence to explain the contractual “context” ? such evidence regarded as superseded by written agreement.
Prenn v Simmonds -meaning “profits” in contract for acquisition of shares when “profits” reached a specified figure. Did “profits” refer to profits of company or contract “aggregate profits” of company and subsidiaries. Negotiations showed “profits” meant “consolidated profits”.
“The reason for not admitting [evidence as to prior negotiations] is....simply that such evidence is unhelpful....It is only the final document which records a consensus. If the previous documents use different expressions, how does construction of those expressions, itself a doubtful process, help on the construction of the contractual words?....and [at the negotiation] stage there is no consensus of the parties to appeal to.” at 1384-1385 per Lord WilberforceDocument in question had to be construed without the aid of such evidence.2. Exclusion of subsequent conduct
L Schuler AG v Wickman Machine Tool Sales Ltd distributorship agreement made visits by the latter to German company customers “condition” of contract. Some visits missed and the S sought to terminate. WM argued “condition” meant simply “term”, relying on evidence that during contract parties had conducted themselves on basis not an essential promise.
HL evidence not admissible - contract must be construed at time of entry not at subsequent time.
“ … subsequent conduct is of no greater probative value in the interpretation of an instrument than prior negotiations or direct evidence of intention: it might, indeed, be most misleading to let in subsequent conduct without reference to these other matters… subsequent conduct is equally referable to what the parties meant to say as to the meaning of what they said … the practical difficulties involved in admitting subsequent conduct as an aid to interpretation are only marginally, if at all, less than are involved in admitting evidence of prior negotiations” (at 268-269 per Lord Simon).
3. Factual matrix: Terms should be construed with regard to context of agreement
Where matter cannot be fully resolved by reference to written words, admission of extrinsic evidence possible to ascertain intention of parties, where this cannot be conclusively discovered from the written document.
Effect of admitting evidence of surrounding circumstances is to establish facts indicating the “reasonable” intentions of parties.
“The true rule is that evidence of surrounding circumstances is admissible to assist 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. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties … ” (Codelfa Construction at 352 per Mason J).
4. Exceptions to Parole Evidence Rulea) Ambiguity/uncertainty in contract (see interpretation of contracts)
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White v Australian and New Zealand Theatres Ltd D to stage revue (“Thumbs Up”) for P, theatrical artists. Contract D engaged “sole professional services” of P for specified period
Hope v RCA Photophone of Australia Pty Ltd lease “electrical sound reproduction” equipment but did not specify whether equipment to be “new”.
Giliberto v Kenny Extrinsic evidence to show Mrs Kenny acting as agent for her husband and herself.
b) Implied terms Shepperd v Council of the Municipality of Ryde contract sale of land
described “part of the vendor’s Housing Project No 4” -“ reference to the project makes it both legitimate and necessary to resort to evidence to ascertain what is the project and what are its constituent parts or features.” Extrinsic evidence, in this case the plan, scrutinised.
c) Proof of collateral contracts
Exceptions to the rule
a) Evidence of a collateral contract
The collateral contract is a separate contract, therefore the rule preventing evidence being led to effect the main contract does not apply to it.
De Lassalle v Guildford
b) Evidence that the written contract is not yet in force
Evidence that the contract has not yet commenced operation is admissible, even if the parties have signed the agreement.
Pym v Campbell
c) Evidence that the written contract was later varied or discharged
Evidence can be led demonstrating that the agreement has been varied or discharged.
Narich Pty Ltd v Commissioner of pay-roll Tax
(The parole evidence rule prevents the introduction of evidence regarding what happened “before” the agreement was reduced to writing, not evidence that the parties “later” agreed to change or end it).
d) Evidence to imply a term
The court may hear evidence regarding a term that is one that is implied by the common law. (This will depend on why the term is sought to be applied).
Summers v The Commonwealth
e) Evidence necessary for rectification
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Extrinsic evidence may be allowed to rectify a contract where the agreement can not be regarded as reflecting the common intention of the parties or a mistake in the writing of the contract (such as the wrong price recorded unintentionally).
Maralinga v Major EnterprisesNSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd
Implied Terms
Terms implied to give effect to the presumed intention of the parties
a) Term implied on the basis of business efficacy
A term that is either so obvious there was no need to express it, or not thought of by the parties may be implied by the courts in order to successfully carry out the contract.
The Moorcock
The following elements must be satisfied before a court will imply a term on the basis of business efficiency.
The implication must be reasonable and equitable.
The implication must be necessary to give business efficacy to the contract so that no term will implied if the contract is effective without it.
The term must be so obvious that “it goes without saying”.
The term must be capable of clear expression.
The term must not contradict any express term of the contract.
BP Refinery (Westernport) Pty Ltd v Shire of HastingsCodelfa Constructions Pty Ltd v State Rail Authority of NSW
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales contract to build a portion of the eastern suburbs railway in Sydney (from Edgecliff to Bondi Junction) within 130 weeks. C costed on the understanding of three 8 hour shifts continuously, six days a week, and if necessary, seven days a week. Rail authority immunity for nuisance to extend to C but could not claim an immunity and prevented from working between 10pm and 6am.
C argued term, that if the contractor was prevented from working 24 hours a day, the additional costs thereby incurred must be the responsibility of the rail authority. The implication of such a term was necessary to give the contract business efficacy.
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If the parties have gone to some length to reduce their agreement to writing and to ensure it reflects their intentions, it is difficult to suggest that the term omitted is so obvious that it goes without saying.
Ansett Transport Industries v Commonwealth
b) Terms implied from previous consistent course of dealings
If two parties have made a series of similar contracts each containing certain conditions, and then they make another without expressly without expressly referring to those conditions it may be that those conditions ought to be implied.
Henry Kendall & Sons v William Lillico & Sons Ltd
Relevant to the assessment are- The number of dealings between the parties; and- The consistency of the dealings between the parties.
Horrier v Rambler Motors (AMC) LtdHenry Kendall & Sons v William Lillico & Sons LtdChattis Nominees Pty Ltd v Norman Ross Homeworks
c) Term implied from custom or usage
A term can be implied if there is existence of a particular custom or usage that is recognised as giving effect to the intentions of the parties.
Sagar v RidehalgeCon-Stan Industries of Australia Pty Ltd v Norwich Winterhur Insurance (Aust) Ltd
The following elements must be satisfied before a court will imply a term on the basis of custom or usage:
- The existence of the custom or trade usage is a question of fact.
- The custom or trade usage must be so well known that all parties can reasonably be assumed to have imported that term into the contract.
- The term will not be implied if it is contrary to the express terms of the agreement.
- A person may be bound although they had no knowledge of the term provided the requirements of the second element are established.
Con-Stan Industries of Australia Pty Ltd v Norwich Winterhur Insurance (Aust) Ltd
Con-Stan Industries
CS pays insurance broker (Bedford) who pays N. B is wound up and N claims second payment from CS (that not sent by B to N). CS argues paid B,
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therefore no need to pay second payment to N. Argument that implied term. However, evidence of a number of insurers seeking a second payment from the assured notwithstanding that they had already paid brokers.
Argument of Appellant“...there is an implied term in the contract of insurance, arising by virtue of custom or usage in the industry, that a broker alone is liable to an insurer for payment of the premium, or alternatively there is an implied term that payment of the premium to a broker discharges the assured’s obligation to the insurer.”
High Court did not imply term not well known practice that only paid brokers.
d) Term implied to complete an agreement
A court may attempt to construct the contract by implying the necessary term in order to fill in the gaps and complete an agreement.
Hillas (WN) & Co Ltd v Arcos Ltd
Term implied Irrespective of parties intention
e) Term implied as a legal incident of a particular class of contract
Terms may be implied as a matter of law in contracts of a particular class. (Examples of some of these classes are given at p256 of text).
Liverpool City Council v IrwinSamuels v DavisDerbyshire Building Co Pty Ltd v Becker
Where term implied, as a matter of law, usually because of nature of contract and because same term applied in the past. Eg, employment contracts, bailment contracts and contracts for work and materials.
Term requiring employee to exercise proper and reasonable care usually implied. Similarly, bailment contract obligation not to convert and to exercise reasonable care
Liverpool City Council v Irwin HL held term implied into lease to effect that council obligation to maintain stairs and lifts in such a condition as to enable them to be used for access to and from the flats.
Although terms of this kind are implied through necessity, the parties may expressly agree to the contrary.
Byrne v Australian Airlines LtdGemmel Power Farming Co Ltd v NiesDerbyshire Building Co Pty Ltd v Becker
f) General duty of co-operation
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It is an implied term of all contracts that each party agrees to do all things necessary to enable the other party to have the benefit of the contract.
Butt v McDonald
The parties may expressly agree to the contrary.
Butt v McDonald
Examples:
There is a duty to comply with reasonable requests.
Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd
There is a duty not to impair the basis of the contract.
RDJ International Pty Ltd v Preformed Line Products
There is a duty to do all thing necessary to enable the agreement to be completed.
Adelaide Petrolium v Poseidon
g) Implication of duties of good faith, fair dealing and reasonableness
It has been suggested that the courts may be prepared to imply a duty for the parties to act in good faith in preforming a contract.
Renard Constructions v Minister for Public Works
JA suggestion that time may be right to impose “in all contracts of a duty upon the parties of good faith and fair dealing in its performance” (compare Meagher JA). Case dealt with exercise of contractual powers on default by contractor, namely exclusion from site and take over of work to be completed.
Butt v McDonald
h) Terms implied by statute
A term may be implied into a contract by a relevant statute. However these terms may be negatived or varied by express agreement.
Sale of Goods Act 1896 (Tas),
s 17 (a) an implied condition on the part of the seller that in the case of a sale he has a right to sell the goods, and that in the case of an agreement to sell he will have a right to sell the goods at the time when the property is to pass
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S 18 sale of goods by description there is an implied condition that the goods shall correspond with the description; and if the sale be by sample as well as by description it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description
s 19 (a) a condition relating to fitness for purpose is implied where the buyer makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply (b) a condition relating to merchantable quality of the goods is implied where the goods are bought by description from a seller who deals with goods of that description
s 20 sale by sample there is an implied condition that (a) the bulk shall correspond with the sample in quality;(b) the buyer shall have a reasonable opportunity of comparing the bulk with the sample NOTE the conditions and warranties implied by the Sale of Goods Act can be excluded or the liability of the seller can be limited by the terms of a contract
1. Guarantee as to title ACL s51(1) there is a guarantee that the supplier will have a right to dispose of the property in the goods
(2) Subsection (1) does not apply to a supply of limited title or (3) a supply by way of hire or lease.
2. Guarantee as to acceptable quality ACL, s54(1) there is a guarantee that the goods are of acceptable quality.(2) Goods are of acceptable quality if they are as:
(a) fit for all the purposes for which goods of that kind are commonly supplied; and
(b) acceptable in appearance and finish; and (c) free from defects; and (d) safe; and (e) durable;as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects of the goods)… having regard to the matters in subsection (3).(3) The matters for the purposes of subsection (2) are: (a) the nature of the goods; and (b) the price of the goods (if relevant); and (c) any statements made about the goods on any packaging or label on the goods; and (d) any representation made by the supplier or manufacturer of the goods; and (e) any other relevant circumstances relating to the supply of the goods.
3. Guarantee as to fitness for any disclosed purposes ACL, s55 there is a guarantee to this effect, and for any purpose for which supplier represents.
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4. Guarantee as to description and supply sample ACL, s56 and also S 57 guarantee that goods correspond with the sample or demonstration model in quality, state or condition; and if goods supplied by reference to sample—the consumer has reasonable opportunity to compare goods with sample
5. Guarantee as to express warranties ACL, s59 guarantee that manufacturer of goods will comply with any express warranty given or made by the manufacturer and guarantee that supplier will comply with any express warranty given or made by the supplier.
Guarantee as to the supply of services ACL, ss60-6360 If person supplies services, guarantee services will be rendered with due care and skill.61 guarantee that services, and product from services, will be reasonably fit for that purpose.62 guarantee that services will be supplied within a reasonable time.63 No application to the transportation or storage of goods for the purposes of a business, trade, profession or contracts of insurance.
GUARANTEE TERMS NOT TO BE EXCLUDED Terms to exclude or limit the guarantees on goods and services in the ACL are void. s64 (1) A term of a contract (including a term incorporated) is void to the extent that the term purports to exclude, restrict or modify, or has the effect of excluding, restricting or modifying: (a) the application of all or any of the provisions of this Division; or (b) the exercise of a right conferred by such a provision; or (c) any liability of a person for a failure to comply with a guarantee that applies under this Division to a supply of goods or services.
s64A on limitations of liability for non-compliance with these guarantees (1) a) the replacement of the goods or the supply of equivalent goods ;(b) the repair of the goods; (c) the payment of the cost of replacing the goods or of acquiring equivalent goods; (d) the payment of the cost of having the goods repaired.(3) This section does not apply in relation to a term of a contract if the person to whom the goods or services were supplied establishes that it is not fair or reasonable for the person who supplied the goods or services to rely on that term of the contract. (4) In determining for the purposes of subsection (3) whether or not reliance on a term of a contract is fair or reasonable, a court is to have regard to all the circumstances of the case, and in particular to: (a) the strength of the bargaining positions…, taking into account, among other things, the availability of equivalent goods or services and suitable alternative sources of supply; (b) whether the buyer received an inducement to agree to the term; (c) whether the buyer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties); (d) … whether the goods were manufactured, processed or adapted to the special order of the buyer.
REMEDIES RELATING TO GUARANTEES ACL ss259-273
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Construction of Terms
Interpreting the meaning of terms
General approach
Construction of contracts may be seen as involving two activities. Firstly, ascertaining the meaning of the words used (Question of fact). Secondly, determining the legal effect of those words (Question of law).
Life Insurance Co of Australia Ltd v Phillips
A document is read as a whole.
George v CluningAmalgamated Television Services Pty Ltd v Television Corporation Ltd
The purpose is to construe the document as to produce what it was ultimately intended for.
Hume v RundellLloyd v Lloyd
The court does its best to give effect to the parties’ bargain.
Hillas & Co Ltd v Arcos LtdYork Airconditioning & Refrigeration (Australasia) Pty Ltd v Commonwealth
In giving effect to the agreement:
- The court will endeavour to be neither to astute nor too pedantic.
Hillas & Co Ltd v Arcos LtdUpper Hunter County District Council v Australian Chilling & Freezing Co Ltd
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- The court will steer clear of meanings that are commercially unworkable or inconvenient.
The court takes an objective approach to interpretation as that of a reasonable third parties view point, rather than the subjective or actual intentions of the parties.
Hospital products Ltd v United States Surgical CorporationTaylor v Johnson
Admissible evidence
a) The Parole Evidence rule
When a contract is reduced into writing, and the contract appears in the writing to be entire, it is presumed that the writing contains all the terms of it and evidence will not be admitted of any previous or contemporaneous agreement, which would have the effect of adding to or varying the contract in any way.
Mercantile Bank of Sydney v Taylor
(The rule applies to two aspects: 1. the content of the contract and 2. the interpretation of contracts…Here the rule applies to interpretation).
When a formal document is conclusive of a contract, its meaning can only be determined by reference to words in that document.
Gordon v McGregorAllen v Carbone
b) Factual matrix
When determining the parties intentions, the court may take into account not only the words recorded in the document but also the evidence of the surrounding circumstances
Allen v CarboneDTR Nominees Pty Ltd v Mona Homes Pty Ltd
The evidence of the surrounding circumstances must be known to both parties, although if facts are notorious the court may presume knowledge of them.
Codelfa Construction Pty Ltd v State Rail Authority of NSW
In a commercial contract it is appropriate for the court to have reference to the commercial purpose of the contract, which in turn presupposes knowledge of the way the transaction started, its background, and the context and market in which in parties are operating.
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Reardon Smith Line Ltd v Yengvar Hansen-TangenCodelfa Construction Pty Ltd v State Rail Authority of NSW
c) Exceptions to the parole evidence rule
Ambiguity
Cases of obvious or underlying ambiguity. It may not always be safe to assume that the words of a document will simply carry their plain or ordinary meaning.
White v Australian & New Zealand Theatres LtdHope v RCA Photophone of Australia Pty Ltd
Identification of subject matter
Extrinsic evidence is admissible to resolve ambiguity about the subject matter of the contract.
White v Australian & New Zealand Theatres LtdCf. Hope v RCA Photophone of Australia Pty Ltd
Identification of parties or their relationship
Extrinsic evidence is admissible to resolve an ambiguity concerning the identity of the parties of the agreement.
Edwards v EdwardsGR Securities Pty Ltd v Baulkham Hills Private Hospital
It may also be used to resolve an ambiguity concerning the capacity or the relationship between the parties.
Gilberto v Kenny
Identification of real consideration
Extrinsic evidence is admissible in order to prove/identify the real consideration under a contract.
Pau On v Lou Yiu LongYaroombe Beach Development Co v Coeur De Lion Investments Pty Ltd
Custom or Usage
Where the language used has a particular meaning (eg. By custom or usage in a particular trade, industry or region), evidence of that meaning is admissible, even if there is no patent ambiguity.
Summers v CommonwealthThornley v Tilley
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Rectification
Extrinsic evidence may be admitted to show that a parties’ intention was not accurately recorded in the written instrument. In the appropriate circumstances the document may be rectified so that it accords with the parties’ actual agreement.
Maralinga v Major EnterprisesBacchus Marsh Concerntrated Milk Co Ltd v Joseph Nathan & Co Ltd
Inadmissible Evidence
In particular the following extrinsic evidence is inadmissible:
a) Subjective intention
Evidence of the actual, subjective intentions of the parties is not admissable
Life Insurance Co of Australia Ltd v PhillipsDTR Nominees Pty Ltd v Mona homes Pty Ltd
b) Prior negotiations
The negotiations that preceded the agreement are not permitted as it is only the final document that properly reflects a consensus between the parties.
Prenn v SimondsCf. Codelfa Construction Pty Ltd v State Rail Authority of NSW per Mason J.
c) Subsequent conduct
Anything that the parties’ say or do after the contract can not be used in order to aid in the construction of the contract
Administration of Papua & New Guinea v Daera GubaCodelfa Construction Pty Ltd v State Rail Authority of NSW
Legal effect of words: types of terms
Promissory terms
A promissory term is one pursuant to which a party makes a promise to another party regarding events that will or will not occur in accordance with the agreement. If the party fails to carry out the promise, that party will have breached the term. The effect of the breach depends upon whether the term is classified as a condition, a warranty, or an intermediate term. Determination of the appropriate term is an objective test of the parties intention, taking into account their words and conduct.
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Bowes v ChaleyerAssociated Newspapers Ltd v Bancks
a) Conditions
A condition is a term that is essential to the performance of the contract. The promise is of such importance to the promisee that he would not have entered into the contract without assurance of the performance of the promise, and this ought to have been apparent to the promisor.
Associated Newspapers Ltd v Bancks
Any breach of this type of term will allow the innocent party to terminate further performance of the contract and to claim damages for the breach.
L Schuler AG v Wickman Machine Tool Sales Ltd
The fact that a term is described in an agreement as a condition, is persuasive not conclusive.
L Schuler AG v Wickman Machine Tool Sales Ltd
If damages alone seem to be an inadequate remedy, the courts may be persuaded to construe a term as a condition.
Ankar Pty Ltd v National Westminster Finance (Australia) LtdAssociated Newspapers Ltd v Bancks (Regarding essentiality)
The courts may be influenced to construe a term as a condition if a particular construction leads to an unreasonable result.
L Schuler AG v Wickman Machine Tool Sales LtdAssociated Newspapers Ltd v Bancks (Regarding essentiality)
The statutory position .
In legislation relating to the sale of goods, it is implicit in the drafting that a breach of condition in a contract for the sale of goods will have the same effect as a breach of condition under the common law.
Sale of Goods Act 1896 (Qld) s.14 (2)
b) Warranties
A warranty is a term that is subsidiary to the main purpose of the contract, a breach of which only entitles the innocent party to damages.
Bettini v GyeEllul v Oakes
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The statutory position .
An agreement with reference to goods which are the subject of a contract of sale but collateral to the main purpose of such contract, the breach of which gives rise to a claim for damages but not the right to reject the goods and treat the contract as repudiated.
Sale of Goods Act 1896 (Qld) s.3
It has also been suggested that this test might also apply at common law.
Associated Newspapers Ltd v Bancks
c) Intermediate or innominate terms
An intermediate term is once that stands between a condition and a warranty and cannot be satisfactorily classified as either.
Ankar Pty Ltd v National Westminster Finance (Australia) LtdHong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd
The plaintiffs hired the Hongkong Fir to the defendants for a period of 24 calendar months. Clause 1 of the hire agreement described the vessel as “being in every way fitted for ordinary cargo service” (the “seaworthiness” term). There was a breach of this term when the plaintiffs delivered the vessel with an insufficient and incompetent engine room staff. in a 2 year (Feb-Feb) charter - May in dock; June rejection; repairs Sept. The defendants sought to terminate performance of the contract.
Diplock LJ characterised a “condition” as a term “..which it can be predicated that every breach of such an undertaking must give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract.” at 69
”(Query voyage charterparty)do not follow automatically from a prior classification of the undertaking as a “condition” or a “warranty”.” (emphasis added)
There are, however, many contractual undertakings of a more complex character which cannot be categorised as being “conditions” or “warranties”…Of such undertakings all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon the nature of the event to which the breach gives rise and do not follow automatically from a prior classification of the undertaking as a “condition” or a “warranty”.” (emphasis added) Lord Diplock at 69
It may be defined as a term capable of a variety of breaches, some serious some trivial.
Bunge Corporation New York v Tradax Export SA (Panama)
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The remedy for the breach of an intermediate term varies according to the severity of the breach.
If the breach deprives the innocent party of substantially the whole of the benefit of the contract, then the innocent party will be entitled to terminate the contract.
If the effect of the breach is not significantly serious, the innocent party will only be able to claim damages
Associated Newspapers Ltd v BancksHong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd
The court must first ascertain the intentions of the parties in order to categorise the term. If the court decides it is an intermediate term it then determines the gravity of the breach
Bunge Corporation New York v Tradax Export SA (Panama)
In order to determine the seriousness of the breach a number of matters may be taken into account:
- The degree of performance up to the breach compared to the performance required under the contract.
- Whether damages will adequately compensate the lost expectations of the innocent party.
- Whether the expectations of the party in breach would be unfairly prejudiced by terminating the contract.
- Attitude and conduct of the party in breach including the likelihood of the breach persisting
Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd
The decision in Hong Kong Fir Shipping case also applies to a contract for sale of goods.
Cehave NV v Bremer Handelgesellschaft mbH
Contingencies
Since a contingency clause may be able to be construed as either a condition precedent or a condition subsequent the essential question is what effect does the contingency have on the contract.
Perri v Coolangatta Investments Pty Ltd
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Under appropriate circumstances a party may be estopped from relying upon a contingency.
Condition precedent
A condition precedent is a condition that will prevent a contract from coming into existence until such time as the condition is fulfilled.
Condition Precedent (Meehan v Jones) A condition precedent is defined as an external event which must occur as a condition of:
(a) the contract coming into existence; or (b) performance under an existing contract is required.
Perri v Coolangatta Investments Pty Ltd
Condition subsequent
A condition subsequent is a condition within a contract that has taken effect. However the performance of the contract is prevented until the condition is fulfilled.
Meehan v Jones
Clauses such as “subject to finance”, “subject to rezoning” or “subject to town planning approval” are conditions subsequent.
Meehan v Jones
A party may waive a condition subsequent that is solely for their own benefit
Meehan v Jones
If the clause is for the benefit of both parties, either may be able to terminate. Such a clause may only be waived with the consent of both parties.
Raysun v Taylor
Where a clause provides for the a contract to be rendered void on the occurrence or non-occurrence of an event, and the event is out the control of both parties, the contract may be automatically ended if the event occurs.
Carpentaria Investments Pty Ltd v Airs
A clause such as “subject to contract” is usually categorised as a condition precedent but it will depend on the intention of the parties
Exemption clauses There are three main types of exemption clauses:
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1. A complete exclusion of a parties liability
Eg. Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty Ltd
2. A limitation to the extent of liability to a particular maximum amount.
Eg. Darlington Futures Ltd v Delco Australia Pty Ltd
3. Liability may be subject to certain preconditions, such as the commencement of any suit or the giving of notice of a default within a certain time.
Eg. New Zealand Shipping Co Ltd v A N Satterthwith & Co Ltd
The court must apply the same rules of interpretation regardless of the kind of exclusion.
Darlington Futures Ltd v Delco Australia Pty Ltd
Exemption clauses may involve the determination of two separate issues:
Whether the clause forms part of the contract
(This is covered earlier in “Incorporating Written Terms”).
Whether, on the true construction of the clause it covers the liability that has arisen.
An exemption clause is determined by construing the clause according to its natural and ordinary meaning, read in light of the contract as a whole.
Darlington Futures Ltd v Delco Australia Pty Ltd
Specific rules of construction
There are also a number of specific rules of construction that help to interpret an exemption clause.
Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty Ltd
a) The Contra Proferentem rule
An exemption clause will be construed according to which parties benefit the clause was inserted for in case of ambiguity.
Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty LtdDarlington Futures Ltd v Delco Australia Pty Ltd
b) Attempts to exempt negligence
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A clause will relieve a party of liability for negligence of their own or the servants or agents, if it expressly or impliedly covers such liability. A term will cover such liability if there can be no ground of liability other than negligence to which it could refer.
Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty Ltd
Rules regarding attempts to exempt negligence
The Privy Council in stated the following rules in: -
Canada Steamship Lines Ltd v The King
i) Express exclusion is effective.
ii) Where the “only” possible cause of action against the defendant is an action for damages based on negligence, then the court will interpret a “wide” clause to cover the defendant’s liability for negligence.
Alderslade v Hendon Laundry Ltd
iii) If the words used in the clause are wide enough to cover negligence, but there is some other ground of liability other than negligence, the clause will be read as applying only to that other ground of liability and will not operate to exclude the claim for negligence.
White v John Warwick & Co Ltd
For the first rule to apply it there would have to be the use of the word negligence or a close synonym.
Smith v South Wales Switchgear Ltd
c) The four corners rule
A person can only rely on the conditions of a contract, that were intended to protect them, if they have carried out the contract in the way that they had contracted to do.
Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty LtdCouncil of the city of Sydney v WestDavis v Pierce Parking Station Pty Ltd
In Queensland the court has no power to disallow an exemption clause on the basis that it is unreasonable.
