ContractsSemester 2

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Contracts

Semester 2

ANU

U4664456

ContractsSemester 2

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How to approach a problem question:

1. Contract formation:

a. Offer and acceptance

b. Consideration

c. Intention to create legal relations

d. Requirements of writing

e. Estoppels

2. Contract construction:

a. Express terms

b. Incorporation of terms

c. Implied terms

d. Parol evidence rule

e. Exclusion clauses

f. Integration clauses

g. Privity

h. Contract variation

3. Performance and breach:

a. Discharges

4. Termination

5. Repudiation

6. Remedies

7. Unfair dealing:

a. Unfair contracts terms regime

b. Unconscionability

c. Undue influence

d. Duress

8. Misrepresentation and misleading conduct

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9. Mistake

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Contract Formation: Before parties will be regarded as having entered into a binding legal contract, there must

be an agreement An offer must have been communicated by the offeror (the party making the offer) and the

offeree (the party accepting the offer) must have accepted the terms of that offer in circumstances where the parties intended to create legal relations

A court will ONLY enforce a contract if the terms of the agreement are created with sufficient certainty and that the parties have agreed on all terms necessary to carry out the contract (completeness)

o The basic principles of an offero The duration of an offer; how long does it last? Can it be revoked?o The basic principles of acceptanceo The need for certainty and completeness

What is a contract?o A legal expression of agreement between parties; a set of promises the law will

enforceo The parties make the rules, the law provides parameterso A mechanism to define, arrange and regulate a transactiono Carter & Harland - “Legally binding promise or agreement”

The Offer:o Basic concepto Offers distinguished from mere puffs –

Carlill v Carbolic Smoke Ball Co. [1893] 1 QB 256o Offers distinguished from invitations to treat –

Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd [1953] 1 QB 401

o Offers to the world at large – Smythe v Thomas [2007] NSWSC 844

o Offers at auctions and over the internet

Auctions:

At an auction it is considered that the auctioneer invites potential buyers to make an offer, who can accept or reject them. Therefore the auctioneer is not bound by any price that is given until he accepts the price (by banging gavel). This is regardless of any reserves.

Payne v. Cave (1789) Each bid made at an auction is an offer, and the auctioneer accepts that offer by

‘knocking down’ the goods Until acceptance any bid can be withdrawn (this follows the principle that an offer can

be withdrawn any time before it is accepted) No contract comes into existence until bidder’s bid is accepted ‘a bidding at an auction, instead of being a conditional purchase is a mere offer; that

the auctioneer is the agent of the vendor; that the assent of both parties is necessary to the contract; that this is signified by knocking down the hammer; and that, till then,

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either party may retract.’ A) The Offer - definition of an offer:

Offeror – makes offer Offeree – accepts offer An objective test is applied to determine whether an offer is made and accepted, that is,

whether there is a contract or not. The test: a reasonable person who reads/sees contract or hears conversation relating to the contract determines whether an offer has been made and accepted

Authority for the reasonable person test: John Howard v J P Knight [1969]

Australian Woollen Mills v Commonwealth (1954)

An offer can only lead to a binding agreement if the offer identifies the terms of the proposed agreement with sufficient certainty

This case demonstrates the inextricable connection between the requirement of offer and acceptance, intention, consideration and certainty

Government encouraged cloth manufacturers to use local wool and if they did would subsidise it. Subsidy disappeared during the ware, and in 1946, it resumed. From 1946-8 the Australian Woollen (plaintiff) operated under the subsidy. After several years, the subsidy ceased. Plaintiff sued for breach

Plaintiff argued that the subsidy was a commercial agreement, and that the presumption applied. Defendant argued that there was no intention to be a binding contract, it was only cos they were being nice.

Court held there was no contract as the parties did not intend to be legally bound: it was only a govt policy, where the govt was using subsidies for social policy reasons, not for commercial reasons

Presumption rebutted

Who can be an offeree?

• A valid offer may be made to a particular person, a group of persons, or to the entire world.

• Bilateral offer – agreement made between two persons or group of people

• Unilateral offer – offer made to the world at large

Carlill v Carbolic Smoke Ball [1893]

Advertisements appeared in a periodical advising that were a person to use the product of the carbolic company as directed, and to contract influenza, then they would be entitled to the sum of $100 that was locked away in a bank vault for the purpose. Mrs Carlill of course, caught influenza and took legal action to recover the $100.

Defendant’s arguments as to why they shouldn’t pay the plaintiff: Made a ‘puff’, not a promise, to attract attention Can’t make an offer to the entire world

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Even if they made an offer, they had no notice of acceptance that the plaintiff took up the offer/challenge of not getting the flu

Offer was too vague – not specific enough – so it could not be a contract Plaintiff gave no consideration/anything of value to the promise Court’s response to the defendant’s arguments It was not merely a puff, because the ad said that they will put money into a trust just in case

someone contracted influenza even after using the smoke ball Yes you can make an offer to the entire world because only a limited portion of the

population would see the article, read the article, and even bother to even buy the product and carry out the conditions mentioned in the ad (page 35 of the case)

Plaintiff doesn’t need to notify acceptance before carrying out the conditions; common sense dictates that the offeree doesn’t need to notify a manufacturer that they’ve bought a product

Not too vague – ordinary public could understand this and accept the offer There are two contracts here – plaintiff offering to buy the product and the defendant

allowing it; and the defendant offering to pay 100 pounds if the plaintiff got sick the plaintiff accepting. The defendant’s arguments that the plaintiff gave no consideration was thrown out by the court. The court held that the plaintiff was inconvenienced – she did use the smoke ball which was uncomfortable – so she did supply consideration, therefore the contracts exists and is valid

In this situation there was a contract, which could and was accepted by the public, and since the contract was valid, it had to be executed.

Today – in theory, the Carlill case would work today. In addition, however, we have legislation to help us – s 52 of the TPA (42 FTA) deals with misleading and deceptive conduct– and can apply whether or not an offer is accepted; s 53 TPA (s44 FTA) deals with false/misleading representation of supply of goods/services; s 54 TPA (s48 FTA) prohibits the offer of gifts of supplying a product if there is no intention in giving the gift

This case established that an advertisement can sometimes be an offer, and that the notification of acceptance is not always necessary.

Idea that an off may be unilateral: ie, ‘offer takes the form of a promise in return for the performing of an act rather than in return for a counter-promise…the performing of the act called for is the acceptance of the offer, the offeror normally being taken…to have impliedly dispensed with the necessity for notice of acceptance…the person accepting is never bound by any unperformed obligation as he or she has never promised any performance to the offeror.’

Mere Supply of Information:

A request for further information is NOT an offer These also are not considered to be contracts

Harvey v. Facey (1893) Plaintiff (Harvey) sent a telegram requesting the lowest price at which Facey would sell

his property, ‘Bumper Hall Pen’. When he received this price he assumed that a contract had been thus formed and sent a telegraph to state that he accepted.

Court held that there had been no offer, just a request for information, and the mere statement of the lowest price was not a promise to sell.

The plaintiff’s cable accepting was an offer to buy, which the defendant refused.

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Puff:

Non-promissory statement (because it is unbelievable) For this reason, offer is distinguished from a puff Offers must be distinguished from non-promissory statements made during the course of

negotiations. An advertisement that is in an exaggerated statement that no reasonable person would

believe true.

Leonard v Pepsico Inc 88 Supp 2nd (1999)

Wanted to redeem points, sent in vouchers Court held: not an offer, no reasonable person would believe it to be an offer- distinguish this

from Carlill

Invitations to treat:

This is an offer to consider offers, or a request to commence negotiations. An example is a display of goods with a price tag in the shops.

Merely advertises the ability to talk about offers – invitation to ‘come and talk to me’ A person who responds to an invitation to treat is making an offer

Pharmaceutical Society Of Great Britain v. Boots (1953). In this case it was held that goods that are on display in a shop are an invitation to treat, and that any

contract is established at the checkout of the shop even though there may be no conversation. This was done for economic expediency as if there were a contract formed when a person picked up goods off the shelf, would this place them in breach of this contract when they changed their minds and put them back?

Other forms of invitations to treat include brochures and catalogues received by mail.

Fisher v Bell [1961]: Display of items in shop windows Held: only an offer when purchased

Grainger v. Gough (1896) Facts: wine merchant distributed a circular listing prices of wines Court held that a circular was an invitation to treat Therefore a prices list does not amount to an offer to supply unlimited goods at the

advertised price

B) The offer – Duration: Knowledge of offer? Revocation by offeror Rejection by offeree Failure of an essential condition Lapse of time

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Death of one of the partieso An offer may be withdrawn at any time prior to acceptance if it is communicated to

the offeree. This is even if it is expressly stated to be open for a certain period. However, options must be kept open for the agree time because consideration has been paid.

o Dickinson v Dodds [1876] 2 Ch D 463

C) Acceptance:a. Communication of Acceptance

i. Generally requiredii. Felthouse v Bindley (1862) 142 ER 1037

iii. Empirnall Holdings Pty Ltd v Machon Paul Partners Pty Ltd (1988) 14 NSWLR 523

iv. In an offer, sometimes, an offeror can specify how an offer can be accepted/method of acceptance – for example, ‘in writing by delivery by 5pm on Friday’. The offeree must comply with the terms of the offer.

v. Tinn v Hoffman – stated that you can accept a more advantageous method to offeror (eg sending a response by fact is quicker than by the post so although it is not following the method stated by the offeror, it is a more advantageous method so is still part of the offer)

b. Acceptance corresponding with the Offeri. Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (Eng) Ltd [1979] 1 All ER

965c. The Postal Acceptance Rule

i. Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34

ii. Oilwaylle Pty Ltd v Flottweg A G (No 4) (2009) 225 ALR 632 A counter offer is not acceptance

o To continue a valid acceptance, the offeree must agree to all terms of the offero If the offeree indicates acceptance of the offer, but on the basis of different terms

suggested by the offeree, this will not constitute acceptanceo The offeree has made a counter-offer, which can then be accepted or rejected by

the offerorHyde v Wrench

A seller offered to sell his farm for 1000 pounds. The buyer replies that he would buy it for 950. The seller refused. The buyer later purported to accept the seller’s original offer to buy the farm for 1000 pounds.

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 for 950 pounds, the buyer rejected the seller’s original offer. The original offer cannot later be revived by the buyer’s purported acceptance of it.

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D) Certainty and Completeness: Classic statement of the rule – made by Viscount Maugham in G Scammell and Nephew Ltd v

HC and JG Ouston:o “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.”

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. (G Scammell and Nephew Ltd v HC and JG Ouston)

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 (Fitzgerald v Masters)

A contract will be unenforceable if it reserves a discretion for one party not to carry out his or her obligations (Thorby v Goldberg 1965)

a. In order to be enforceable, the rights and obligations of the parties must be sufficiently certain; if some contractual obligation is still to be agreed upon, there may be no contract between the parties at all

b. However, as far as possible, the courts will strive to give effect to contractsi. Basic Principle:

1. Whitlock v Brew (1968) 118 CLR 445

2. Godeke v Kirwan (1973) 129 CLR 629ii. Incomplete Agreements:

1. The parties much reach final agreement on the essential aspects of the contract before they will be regarded as having entered a contract

2. It is not enough for them to create an ‘agreement to agree’a. Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24

NSWLR 1iii. ‘Subject to’ Agreements

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 leaser as aforesaid be used by Shell or their sub-tenant or licensee for the sale of [Shell] 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 (Kitto, Taylor, Menzies and Owen JJ, McTiernan J dissenting) held that the clause was uncertain, as it did not prescribe the term of the lease or the rent.

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1. Sometimes parties may be ready to enter into a contract but make the final commitment “subject to” the happening of an event. Is there a binding contract?

a. Masters v Cameron (1954) 91 CLR 353b. Meehan v Jones (1982) 149 CLR 571

c. Issues for considering:i. The usefulness of the offer/acceptance analysis in the area of contract

formationii. The consequences of revocation of an offer

iii. The significance of uncertainty and incompleteness in contract formation

Intention to create legal relations and consideration: Before parties will be regarded as having entered into a binding legal contract, there must

be an agreement involving an offer, acceptance and certainty of contract 2 other elements are required

o Parties must have intended their agreement to create legal relations between them as opposed to an informal or ‘social’ agreement, such as ‘who agreed to wash the dishes

o The law requires consideration to move from the promisee to the promisor as the ‘price paid’ for the promisor’s promise

A) Intention to create legal relationsa. A valid contract requires that the parties must intend their bargain to be legally

enforceable. That is, the parties must ‘intend to create legal relations’b. Traditionally courts have relied upon a series of rebuttable presumptions in

attempting to identify whether the parties held this intentionc. However, the High Court has recently cast doubt on this proves

i. Ermogenous v Greek Othordox Community of South Australia Inc (2002) 209 CLR 95

B) Consideration

• “A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.” (Currie v Misa 1875)

Australian Woolen Mills Pty Ltd v The Commonwealth

Wool subsidy scheme What is alleged to be an offer should be intended to give rise to an obligation There is a voluntary assumption of a legally enforceable duty in a contract

Formal v Simple Contracts:

Formal contract must be entirely in writing (eg a deed) Simple contract may be oral or in writing or both Formal contracts consideration isn’t a requirement (you can have it, but it’s not necessary) Simple contracts require consideration

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Executory v Executed:

Executory consideration: consideration in the form of a promise – a promise for a promise Executed consideration: something of value already provided by the promisee at the request

of the promisor Unilateral: Carlill case – promise in return for the performing of an act rather than in return

for a counter-promise Bilateral – each party’s promise is consideration for the other party’s promise

Forbearance as a consideration:

• Deliberately not doing something or not exercising some right, usually at the request of another can constitute good consideration

*Callisher v Bischoffsheim (1870)

• Important in a practical sense because forbearance and compromise is about settling disputes

Callisher v Bischoffsheim (1870)

Facts: P threatened to sue the Govt of Honduras for an alleged debt. D promised to provide bonds to the value of £600 if P promised not to sue for an agreed time. When the bonds were not delivered, P claimed damages for breach of that agreement. D claimed that as no money had been due in the first place there was no consideration for the promise to give the bonds.

Held: If a party to an action believes bona fide that there is a chance of success, then there is reasonable ground for suing and the forbearance (promise not to sue) will constitute good consideration

Rule 1: Simple contracts must have consideration

• The Doctrine of Privity: Only an original party to a contract may sue or be sued.

• Doctrine of Consideration: A promisor’s promise must be paid for to be enforceable and the payment must proceed from the promisee

• The two doctrines are interrelated.

• Under the traditional law if a third party is specifically intended to benefit from a contract he or she cannot sue to enforce that benefit. Why? : because there is no consideration passing form the 3rd party.

• Consideration essential for every simple contract.

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988)

Involved insurance Court held that whilst there is a requirement for consideration, a different view may be

taken on it

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Rule 2: Must move from the “promisee” but need not flow to the promisor

• A person who wants to enforce a promise must have paid for it. Only by providing consideration can one establish a right to have it enforced.

• Strictly construed.

• By someone or someone acting for them (an agent)

– Move from the promisee

» Coulls v Bagot’s Executor & Trustee Co Ltd (1967)

– Need not flow to the promisor

» Bolton v Madden (1873)

Coulls v Bagot’s Executor Exception to the rule that a person who seeks to enforce a promise must, as a

promisee, establish that consideration was given for the promise 3 party agreement, where the man says the company must pay him and his wife; he

dies, and the company argues that they need no longer pay wife as she has shown no consideration

Court held that they were joint promisees and that consideration can be given on behalf of them both

Therefore where a promise is made to two or more persons jointly, and only one of them provides consideration, the person not providing the consideration directly can still enforce the promise

Bolton v Madden (1873):

Held: A promise conferred to 3rd party is good consideration.’ Need not flow to the promisor’

Rule 3: Must be sufficient (legally effective):

Consideration need not be adequate, but must be sufficient, good, nominal Consideration does not necessarily have to represent market value, but something serious

must be shown in the eyes of the law to show that you’re serious ‘Something of value’

Chappel & Co Ltd v Nestle & Co Ltd [1960] AC 87 For facts, see casebook p. 118 and essentials p. 19 Court found for plaintiff: held that the chocolate bar wrappers constituted part of the

consideration for the purchased record even though they were discarded after being received

Court reaffirms the issue that consideration can be nominal

Thomas v Thomas

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‘Motive is not the same thing with consideration. Consideration means something which is of some value in the eye of the law, moving from the plaintiff…’

Annual rent of 1 pound was sufficient

Woolworths Ltd v Kelly

General principle is that courts do not inquire into the adequacy of consideration Thus a nominal consideration will be adequate consideration

Rule 4: Must be lawful:

Consideration must not be illegal and not involve a breach of civil law or public policy

Wyatt v Kreglinger [1933]: Held: not allowed to restrict trade. Not good consideration

Parkinson v College of Ambulance Court refused to make the order to enforce money to be paid in return for a promise

because it promoted public corruption, making it against public policy and therefore illegal

Rule 5: Cannot be illusionary (discretionary):

Consideration must be so certain (and not necessarily be adequate) that a court must be able to place legal value on it

‘A promise cannot constitute consideration if it is too uncertain to be enforced, or if the promisor has reserved an absolute discretion on whether or not to perform that promise.’

Placer Development v Commonwealth Plywood in PNG Commonwealth (promisor) had a discretion – to subsidise, if any, that was to be

decided by the Commonwealth at any time – in the agreement; therefore there is no contract on which an action can be brought.

‘A promise to pay an unspecified amount of money is not enforceable where it expressly appears that the amount to be paid is to rest in the discretion of the promisor and the deficiency is not remedied by a subsequent provision that the promisor will, in his discretion fix the amount of the payment.’ (p. 359-60 of judgment)

Court noted the illusory nature of the promise and Kitto J stated that ‘a promise of a governmental subsidy is meaningless in the absence of some amount or some basis of calculation.’

‘The general principle… is that wherever words which by themselves constitute a promise are accompanied by words showing that the promisor is to have a discretion or option as to whether he will carry out that which purports to be the promise, the result is that there is no contract on which an action can be brought at all.’

Rule 6: Must be definite:

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Must not be vague, or a vague promise

Shiels v Drysdale Plaintiff said that they would look after their father (defendant); property to be given to

the daughter; didn’t happen Court held that the consideration was too vague to be enforceable

White v Bluett Court found for plaintiff and held the promise was to vague to have any legal value

Dunton v Dunton ‘A promise in order to be a good consideration must be such as may be enforced…must

be not only lawful, and in itself possible…reasonably definite.’

Rule 7: May be executed, executory but cannot be past consideration:

• past consideration is no consideration

• Executory if the act or forbearance has still to occur.

• Once the act that constitutes the consideration has been performed it is executed.

• Past consideration occurs where the act or forbearance pre dates the promise.

Roscorla v Thomas Plaintiff buys a horse from the defendant; after the sale, the defendant promised that it

wasn’t malicious; horse was in fact vicious and plaintiff sued for breach Court held the promise was not binding as it was made after the sale, and the

defendant’s promise had no promise or no new consideration in return ‘promise must be coextensive with the consideration’

Lampleigh v Brathwait In this case, the difference between past consideration and executed consideration has

been noted Defendant wanted to obtain pardon case Court held that the request for assistance and the promise to pay the money were part

of the same transaction, no new consideration necessary ‘where past services are rendered at the request of the promisor, then a subsequent

promise to pay is enforceable’

Re Casey’s Patents: Stuart v Casey Again deals with a subsequent promise to pay If there’s initial discussion and no price is mentioned, and later discussion mention

price, it may be argued that the later discussions were making definite the terms of the contract, not being part of the past consideration rule

Court held subsequent promise to pay can be construed as an admission of the act or as a means of making definite or fixing the terms of the contract (through fixing the

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amount of reasonable remuneration for the act)

• An act done before a promise can be good consideration if:

• The act was done at the promisor’s request.

• the parties understood that the act was to be remunerated by the conferring of a benefit such as a payment. (The act must have required some performance and can’t be an act done out of friendship or generosity)

• The payment, if it had been promised in advance, would have been legally recoverable.

Rule 8: Existing obligation is not good consideration:

• Traditionally it has been said that merely performing an existing duty - doing what you are obliged to do - cannot be a good consideration.

• A promise to perform a contractual duty already in existence is generally not valid consideration. This rule is commonly known as the rule in Stilk v Myrick [1809] EWHC J58 (KB); )

• There are three situations to distinguish. The first two involve performing existing contractual duties.

• Where there are two parties already in a contractual relationship.

• Where there are three parties, two of whom are in a contractual relationship.

• Where there is some duty owed under the general law rather than because of a contract.

• A promise to perform an existing contractual obligation is not good consideration

Stilk v Myrick (1809) Court held that there was no consideration for the promise of the promisor to pay

extra wages to the promisee – the plaintiff didn’t supply fresh consideration – his consideration was his existing legal obligation

Exceptions:

Hartley v Ponsonby Different conclusion to Stilk Court said plaintiff did show consideration because the crew was so small, dangerously

small, so their promise to stay meant that they had done something extra, more than they were contractually bound to do, and the defendant’s promise of paying him extra was enforced

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Williams v Roffey Brothers & Nicholls (Contractors) Ltd (1991) 1 All ER 512 Practical benefits to defendant are consideration – therefore the defendant must pay

plaintiff: Didn’t go to court Didn’t have to find other carpenters Didn’t’ et hit with extra fines for not having it done in time Original contract Court held that the general rule will not apply if the promisor benefits from the

promise or its performance (of the existing obligation) General rule will also not apply if ‘the promisor avoids a ‘disbenefit’ which might have

resulted from the promisee’s failure to perform the existing obligation.’ (essentials p. 22)

Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 Plaintiffs – tenant – vegetable vendors in shopping centre owned by plaintiff Defendant leased another shop to other vegetable vendor, therefore direct

competition for plaintiff, decrease in profits As a result, plaintiff can’t afford rent, and defendant agreed to decrease the rent Plaintiff were eventually evicted Plaintiff went to court, said new contract said they could pay the new rent Court said that there were practical benefits to the plaintiff, but there was also practical

detriment because they were kicked out wrongly Therefore practical detriment is also consideration You had to be sure that you couldn’t raise another argument about duress or

unconscionability

Pao On v lau Yiu Long Court noted 3 requirements for the exception (of allowing subsequent promise to pay)1. act must have taken place at the promisor’s request2. parties must have understood that act was to be paid for or compensated (objective

test)3. compensation must be legally effective (not a bribe)

Re Selectmove Ltd Court of Appeal [1995]

Selectmove was going bankrupt and tax office was hunting him down. He could not pay debt. So struck a deal saying he would start paying $1000 from next month

Held: that a promise to pay a sum which the debtor was already bound to pay was not good consideration; Selectmove's attempt to use the principle in Williams v Roffey failed as it was applicable only where the ELD is to supply goods or services, not where it is an obligation to pay money.

Rule 9: Part payment of a debt is not good consideration:

• Payment of a lesser sum than the amount due, cannot normally be treated as a satisfaction for an existing debt.

Pinnel’s Case

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Pinnel loaned money to Cole, who said that he didn’t have all of it, so asked if Pinnel could accept half. Pinnel agreed. He then sued for the remainder of the money

Court said that part payment of a debt is not good consideration Even if a creditor will agree to accept something less, they can still have a go at the

debtor for the rest of the payment

Foakes v Beer Reaffirmed the decision in Pinnel’s case Court held that payment of the debt in installments was not sufficient consideration

Exceptions to Pinnel’s case: Different promise: if the debtor can provide something different, it can be good

consideration, e.g. earlier time, different place, etc. Differences to be objectively examined by the court in coming to a conclusion

D and C Builders v Rees: court rejected argument that paying by cheque instead of cash was payment by a different method/different promise

Make new contract a deed – because consideration is not required in a formal contract Legislation – Bankruptcy Act 1966 (Cth) and Corporations Law (Cth) Third party promise – a third party contracts to pay the debt e.g.

Hirachand Punamchand v Temple Facts – see essentials p. 24 Defendant’s father paid part debt as agreed, and the plaintiff could not sue for

remainder of money Court held that the debt owed by defendant had been extinguished and that it was

consideration from the third party; there would be fraud on the third party to sue the original debtor

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Contract Formation: 1. Contracts requiring written evidence and 2. Equitable estoppel

Contracts requiring written evidence:

Contracts need not be in writing to be enforceable

Exceptions

– must be made by deed

– must be totally in writing

– must be evidenced in writing

There is no general rule requiring that an enforceable contract must be in writing. Where written evidence of a contract is required this is usually as a result of a Statute. Most of these statutes are based on the Statute Of Frauds (Imp) of 1677.

At common law, a contract can be wholly oral Alternatively, a contract can be partly oral, partly written Or a contract can be totally in writing

Contracts which must be made in writing in the form of a deed:

Formalities:

written on …

names had to appear

sealed

delivered

Examples - gratuitous promises, transfer of ‘old system’ land

Formalities now governed by s 38 Conveyancing Act, 1919, NSW

signature,

name of parties,

date,

witness,

expressed to be ‘sealed and delivered’

Deeds used to be known as ‘specialities’ Deeds obtain their validity from their form alone They are valid even if there is no consideration Formalities:

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Written or printed on paper Names of parties had to appear on it Sealed Delivered If two parties make a deed, it’s called an indenture If 1 party makes a deed, it’s called a deed poll (e.g. changing your name)

S38(1) Conveyancing Act 1919 (NSW): requirements for a deed: ‘Every deed, whether or not affecting property, shall be signed as well as sealed, and

shall be attested by at least one witness not being a party to the deed…’ Other subsections under s 38 say that you can state ‘sealed’ and ‘delivered’ in the

documents so you don’t have to physically seal it Usually at the end of a deed ‘signed, sealed and delivered’ is written

Types of contracts that have to be by deed to be legally effective and enforceable: Gratituous promises – a promise that is not compensated by a return promise/act (ie

consideration) Leases of land for more than 3 years

Contracts that must be evidenced in writing:

Statute of Frauds 1677 (Imp ) Passed to prevent fraudulent practices In NSW, section 4 of the act is no longer in force S 54A of the Conveyancing Act 1919 (NSW) is the only remnant of the Statute of Frauds

Riches v Hogben (1986) Qld court said that the contract had to be in writing (but used equity to get around it)

Conveyancing Act 1919 S54A This sets out that some contracts must be evidenced in writing, particularly contracts

for the sale of land If s54A applies, three questions arise dealing with what actually needs to evidenced in

writing:1. What is a note or memo?2. Must the note be only one document? 3. When must the note come into existence?

Summary of types of contracts needed to be evidenced in writing under Statute of Frauds

a special promise by an executor or administrator to satisfy the liability of the deceased out of the executor’s/administrator’s own money

a promise to answer for the debt, default or miscarriage of another person (a guarantee)

agreements made in consideration of marriage

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agreements for the transfer of land

agreements not to be performed within the space of one year from the making thereof

agreements for sale of goods of value of $20.00 or more

Section 54A (1) Conveyancing Act , 1919

No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action or proceedings is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto by him lawfully authorised to be charged.

If s 54A applies … to be evidenced in writing?

5 questions arise...

What is a note or memorandum - what is its minimum content?

What does signature mean?

Does an electronic transaction satisfy the requirements?

Must the note be only one document?

When must the note come into existence?

Contents of a memorandum or note:

It’s not a prescribed form, but must contain all the material terms of the contract Sinclair Scott v Naughton emphasised the above point Harvey v Edwards Dunlop interpreted ‘material terms’ to mean ‘essential terms’ What does ‘essential terms’ mean in this context? Identification of the parties (either expressly named or described so using extrinsic evidence

can enable identification) Stating the consideration accurately Description of the subject matter Other material terms Must contain the signature of the person being sued

Sinclair Scott v Naughton (1929):

emphasised that not the total contract in writing but the essential terms in writing

Harvey v Edwards Dunlop (1927):

Must put all essential terms in writing. Essential terms (means material terms), which are:

– 3Ps: Parties, Price, Property. Identification of the parties.

Rosser v Austral Wine and Spirit Co Pty Ltd [1980] VR 313: the best evidence is

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writing the full names of the parties, but can be specific description of party or some identification of their identity, not necessary for name. Can also look at external evidence to prove identity.

Accurate statement of the consideration/price. Ram Narayan case: land and chattels priced together, there was no itemised pricing,

thus no accurate price in the terms and so there was no contract (could not be evidenced in writing). E.g. I’ll buy the land and the house for $400,000; but must state that the house costed $300,000.

Accurate description of the subject/property.– Other material terms must also be included. (note the doctrine of severance)

Unless a term is in writing, it is not enforceable. E.g. the Date of settlement If the term is not in writing, it can be waived with the contract still being enforceable.

(sever it from the contract)– Signature of person being sued needs to be included. See below heading “Requirement of

Signature”

Pirie v Saunders (1961):

- leasing land also captured by s51A(1). Includes “any transfer of interest of land.”- Lease doc was totally in writing. Princes Hwy, in Sylvania, lot B is long.

Requirements of signature:

3 types of signature:

1. Actual signature of the party

2. Signed on behalf (amanuensis)

3. Signed by an agent

Thomson v McInnes: Griffiths CJ said that the Statute of Frauds contemplated:

“Three different modes of signature, first by a person with his own hand, secondly by, an amanuensis [a clerk or secretary who writes from dictation] signing the name of another person in that other person’s presence by his direction, and thirdly by an agent”.

Signature requirement

Blackburn J in Durrell v Evans summarised the requirement in the following terms:

“If the name of the party to be charged is printed e.g. ‘typed’ or written on a document intended to be a memorandum of the contract, either by himself or his authorised agent, it is his signature whether it is at the beginning or middle or foot of the document”

This has been loosely interpreted.

Thompson v McInnes High Court - Griffith J. - He stated that the Statute Of Frauds allowed for three types of

signature to validate a contract. These are:

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Your own By a clerk signing at your request on your behalf By an agent (e.g. real estate agent given power to sign on your behalf) If the name of the party to be charged is typed or written in the document then it is his

signature, no matter where in the document that it is found. Case law dictates that whatever form the signature of the party takes, it must

represent an intention by the defendant to enter into the contract.

Durrell v Evans (1862) A typed name (and forgetting to sign it) when dictating a letter is enough to be a

signature

Pirie v Saunders (1961):

- Leasing land also captured by s51A(1). Includes “any transfer of interest of land.”- Lease doc was totally in writing. Princes Hwy, in Sylvania, lot B is long.

Must the note be one document (joinder of documents)?

“Joinder” of documents. Many documents put together so that when read, can satisfy section 54A if they have the essential information for a note. However they must be connected, and when connected form a complete note.

Thomson v McInnes (1911) Court held that there must be a connecting reference (internal) between the

documents ‘note…need not be contained in one piece of paper…read together.’ Di Biase v Rezek (1971): Approved Thomson v McInnes

Harvey v Edwards Dunlop and Co. (1927) Stated that reference in one document to another transaction will allow oral evidence

to adduce that the transaction was reduced to writing and allow this record to be held by the court as being linked to the first document.

Direct reference in one document to another is not essential As long as there is a reference in one document to an event to produce oral evidence

to another document, that is sufficient Commonwealth v John White and Sons (1967): Approved decision in Harvey

Cable Ltd v Carratti (1971): Affirmed the decision in Harvey v Edwards Dunlop and Co.

Tonitto v Basel (1992):

When you read the docs together and it is ambiguous, the court is would be willing to take the expansive method to link the documents.

Compliance if electronic writing and electronic signature:

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Electronic signatures – Electronic Transactions Act, 2000, NSW, s 9

(1) If, under a law of this jurisdiction, the signature of a person is required, that requirement is taken to have been met in relation to an electronic communication if:

(a) A method is used to identify the person and to indicate the person’s approval of the information communicated, and

(b) having regard to all the relevant circumstances at the time the method was used, the method was as reliable as was appropriate for the purposes for which the information was communicated, and

(c) The person to whom the signature is required to be given consents to that requirement being met by way of the use of the method mentioned in paragraph (a).

Does an electronic transaction satisfy the requirements under 54A (1)?

Electronic Transactions Act, 2000, NSW, s 8

Give information in writing?

Information is accessible for subsequent reference

Consent to use electronic means

Time of creation of note:

When must the note come into existence?

After formation – it doesn’t have to be done at the time when parties enter into transaction Before commencement of litigation on the contract - The note can come into existence anytime

before the commencement of litigation. (Can’t create a document when you’ve already started litigation.)

Popiw v Popiw [1957] VR 197

- Husband and wife divorcing, arguing about children etc- Both had affidavit about the matrimonial home. The note was acceptable because it had

everything from parties ppty price before the divorce.- Note was not prepared during negotiation but the note was still valid ultimately.

Effect of non compliance at common law:

Common Law states that no action can be taken to get the parties to comply with the contract. If you don’t comply with s54A, you’re stuffed

The contract is not void, it is just not enforceable by the court. This means that because it is valid, property can pass down the chain: ie, down the chain of a

sale for example should not be affected: Maywald v Riedel (1927)

Maywald v Riedel (1927):If you don’t comply, then the court will not enforce it for you. Options:

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o Can pass titleo Perhaps can be used as a defenceo Doctrine of severanceo Equity

can seek specific performance through part performance promissory estoppel but not damages

Effect of non-compliance at equity (used as a defence):

Take Harvest v Liu [1993]:Vendor and purchaser agreed to buy the land. Purchaser can move in early. Vendor change mind to sell land. Purchaser asked to enforce.

- Court: can’t enforce because it doesn’t comply with s54a(1). Vendor wants to force purchaser off. Court says if there isn’t a contract, then you’d become a trespasser.

Creation of enforceable rights despite non-compliance:

1. Part performance

a) Conveyancing Act 1919 (NSW)

b) Elements of part performancei. Plaintiff’s acts - must be the acts of the party seeking enforcement of the

contractii. Referrability - the acts must be referable to the alleged contract

Maddison v Alderson (1883):- A housekeeper to keep the house if she worked for no wages. Working for the house could be

part-performance. - Court: However, there might have been other reasons which led to you to work the house.

Steadman v Steadman [1976]:- Court not as strict- Husband wife divorcing and worked out husband will pay arrears of child maintenance and

would give a capital sum to the wife and she’ll give him the house. - Court denied enforce of contract. But husband ask for part performance. So Court ordered the

wife to sign the transfer.

Ogilvie v Ryan [1976]:- Woman gave up old accommodation and moves in with defacto husband. He promised that

the house will be hers as long as she lives with him. He died. She was not in his will.- No compliance with s54- Court: Adopt narrow test – could have looked after the husband because you loved him rather

than for the contract, so don’t have to transfer the house to her. - However, there may have been some part performance, so the court allowed her to keep the

house until she dies, and then it goes to whoever was in the his will.- Issues: Were the actions preparatory acts? Or just what is required by the contract? (question

of fact)

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enforceability - the remedy of specific performance must be available Unconscionability - it must be unconscionable for the other party to deny the contract.

– Is it unfair for the other party to rely in the circumstances on the technicality of non – compliance with s54A to get out of the contract? (esp when there has been part-performance)

– What is the appropriate remedy for part-performance?– Can you have unconscionability when they actually thought there was no contract?

McBride v Sandland (1918):o there must be adequate oral evidence of the contract – plaintiff

must prove contract formation (offer, acceptance, intention, consideration) There must be sufficient oral evidence (adequate parol evidence) in lieu of written evidence.

Regent v Millett (1976):- Purchaser to renovate & repair house and take over mortgage- Court: You wouldn’t do it unless there was a contract. So there was part performance- The acts constituting the part performance must be referable to the alleged agreement and

be explicable for no other reason

2. Constructive trust/promissory estoppel

Walton Stores v Maher (1988):

3. Restitution: quantum meruit

Pavey and Matthews v Paul (1987) Paul got P&M to do some work for him and then did not pay them. The law stated that

a contract was not enforceable unless with a licensed builder and in writing. Because not evidenced in writing, he couldn’t sue at common law – it went to equity This case led to the equitable doctrine of quantum mereuit. This doctrine allows the

courts to award a reasonable sum for work done and goods supplied. The court used this doctrine and found that the equitable prices for the work that had been done was the contract price. Did not order specific performance as this was not available, but ordered that she pay damages to the same effect. That is, can get a reasonable sum for work done – compensated even though no agreement.

Therefore case showed that a plaintiff is entitled to recover under a fully completed but unenforceable contract. However, it must be shown that the job is finished – partial performance will not usually lead to recovery

4. Variation

Variation v termination and creation of new contract If variation and original contract required to be in writing then variation required to be in writing

Oral discharge of written contract:

Tallerman v Nathan’s Merchandise (VIC) (1957):

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Variation of contract required to be in writing:

British and Benningtons v North Western Cachar Tea [1923]:- Sold tea. The tea be at the port of London and delivered.- Port of London was too crowded. Asked if it was ok, to be delivered on another port.

Purchaser said it was ok with extra cost. Oral variation.- Purchaser refused to pay extra- Court: any variation must also be in writing since the old contract was also in writing. Has to

show the old contract been abandoned and there’s a new contract.- If a contract exists and is completely oral, it can be varied orally.- If a contract must be reduced to writing, or at least evidenced in writing, it cannot be varied

orally.

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Promissory Estoppel

• The broad concept is a fairly simple one:

An equitable claim that prevents a party from denying the existence of an assumption as to a state of affairs (which assumption the other party has acted upon), in circumstances where the denial would be unconscionable.

Stops people from denying their promises

Unjust departure from assumption (between parties) Detriment (this departure would cause at least one party detriment) Unconscionability (unfair for a party to backwards on that assumption) Reliance

Legal definition: Thompson v Palmer per (Dixon J):

‘A rule of evidence that is used to prevent an unjust department from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to would operate to that other’s detriment.’

That is, it is a rule of law or evidence allowing a party to a contract to enforce a promise in circumstances where the other party cannot resile (backtrack) from an assumption it knows the party is operating under, and has by its conduct allowed that party to operate under to its detriment.

The forms of estoppel:

• Estoppel by record

• Estoppel by deed

*facts stated in a document cannot be denied

• Estoppel by conduct

*Estoppel by agreement or convention

*common Law estoppel

*equitable estoppel

The Elements of Promissory Estoppel:

Universal agreement has not really been reached on the necessary elements to establish estoppel. The main elements can be listed but there are some unresolved issues.

1. Some form of pre-existing legal relationship - P assumed or expected that a particular legal relationship exists between P and D or that a

particular legal relationship will exist between them. D is not free to withdraw from the expected legal relationship.

2. A promise by one party the s/he will not insist on his or her strict legal rights.

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- a person promised that contractual rights would not be enforced, and that promise was relied upon by the promisee, the effect of the estoppel was to prevent the promisor from asserting those rights.

3. An adopted assumption (can be of fact or future conduct) - An expectation that the assumption is honoured even without consideration.

4. Inducement - Induced P to adopt that assumption

5. An actual reliance by the other party on the promise- D failed to avoid the detriment by fulfilling assumption/expectation

6. An element of detriment - The most difficult and potentially troublesome element in estoppel is the element of

detrimental reliance. It is sometimes unclear what this means. In some of the estoppel cases in which Lord Denning had a say he would argue that it is sufficient if the promisee has acted on the promise. He de-emphasised the requirement of detriment.

- It is probably safe to assume that in Australia the courts require detrimental reliance. (Verwayen)

7. Reasonability and Unconscionability- A reasonable reliance on the assumption- A degree of unconscionability by D – the behaviour must be unfair. Refer to Walton stores

case- NB: In a simplified version, it can be broken down to Assumption, Inducement, Detriment,

Reasonableness, Unconscionable Conduct, Departure or threatened departure.

The Relief Available:

- The effect of an equitable estoppel is to raise equity in favour of the relying party.- Equals an entitlement to some equitable relief within the courts discretion. The plaintiff

needs to persuade the court to fashion a remedy to suit the particular case.- Equity tailors the remedy to suit D. e.g. specific performance is only available in equity.

Expectation based relief

Simply the loss of benefit you would expect to receive (e.g. the rent)

Reliance based relief

The amount of expenditure incurred in reliance on the promise (the cost of demolishing the building)

Traditionally equitable estoppel has been preclusionary. Stop one from denying something. The unifying approach to estoppel has meant that equitable relief has become more flexible.– Giumelli v Giumelli – Robert Guimelli and his parents were partners in a family orchard

business. Robert lived in a house he had build on one of the properties used by the partnership, which was owned by his parents. Robert’s parents promised him that, if he stayed on the ppty, it would be subdivided and a portion including the house and an orchard would be transferred to him. On the faith of that promise, Robert gave up an opportunity to pursue a different career and continued to work the ppty. The son married someone the parents didn’t approve. Parents kick him off the ppty. But son relied on promise. Remedy was not granting house/land. Monetary compensation was more appropriate because it was beyond reversal of detriment since the relationship between parent and son had broken down. The court substituted expectation relief in monetary form. relief is flexible

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Are there limitations to the doctrine?Estoppel as a cause of action:

• From its earliest days it has been recognised not as a separate cause of action. It does not override consideration and it does not make voluntary promises enforceable

• Does an estoppel create an independently enforceable right or can it be relied upon by the pl only when it supports another cause of action in contract or tort?

• From its earliest days it has been recognised not as a separate cause of action. It does not override consideration and it does not make voluntary promises enforceable.

• Essentially it only operates when concepts of equity and fair play demand that it be used.

• But do you still need a cause of action independent of the plea?

• Probably not W v G 1996 and Gray v National Crime Authority 2003

Case development of Promissory Estoppel

Stage One - Foundation Cases:

Hughes v Metropolitan Railway (1877) Lease between D and P. The lease had a clause stating that it was required that a repair

be made within 6 months of notice being given. P requested a repair and during the course of the proceedings it became unclear as to whether it should proceed or not. The railway which was the tenant eventually undertook to make the repair, however this was outside the 6 month period. Railway Co was given a notice of eviction.

Defendant argued that the landlord had told them, during the time the negotiations regarding the lease were being carried out, that the time would not be running for the notice to repair during that time. The landlord has now backtracked on that assumption to their detriment. The defendant is asking that the promise/assumption (that time was not running during the negotiations) be enforced, because it would be unfair of the landlord to alter that assumption

This went to the House Of Lords and the court held that Hughes was estopped from terminating the lease on that assumption

Combe v Combe [1951] This was a divorce action between Mr and Mrs Combe. Mr Combe stated that he would

pay his wife $100 pa as maintenance. Mrs C sued as at 6 years later he had only given her $25. Court decided that there was not sufficient consideration to validate the contract that the husband had made; however the court proceeded by way of promissory estoppel to make the husband pay arrears.

This was appealed, and the decision was overturned on appeal In the appeal Denning stated that ‘Promissory estoppel does not exist to give new

causes of action where none existed before.’ Therefore it can be used as a defence only and cannot be used to do away with the requirement of consideration for a contract.

Principles of the Foundation cases

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Where there is a pre-existing legal relationship and there is an act by another party trying to enforce a particular right and there arises an assumption that there will be no enforcement of the right then this will be upheld by the courts.Need to have the following elements to use this defence:

Pre-existing legal relationship Act by other party to enforce original agreement Successful defence by other party relying on estoppel – that is, a successful defence due to

the other party’s action (based on estoppel – due to the original party’s unfair conduct in going back on the assumption/promise)

Stage Two – High Trees:

Central London Property Trust v High Trees House Ltd [1947] 1939 - A block of units is leased by High Trees for 99 years at $2,500 per year.

Defendant sub leased the individual flats to individual tenants. Because of WWII, London was evacuated and there was a scarcity of tenants. Owner of the property agreed to drop the rental of the property by 50% for the duration of the war. When the war ended the rent went back to its old level, but prior to that, during the last two quarters of 1945, flats filled up again.

Owner sued for the amounts of additional rent in last two quarters only It was held that the owner would be entitled to these arrears; and that the High Trees

was liable to pay the old rent again In a statement that was obiter to the matter Lord Denning stated that if the plaintiff

had come with a claim for arrears to the start of the war, he would not have succeeded, because the plaintiff would have been estopped because of the new agreement: the plaintiff had made a promise to be fulfilled by the promisee, and even though there was no consideration, the promisee would have suffered detriment

Therefore the court would have seen it (and does see the promise) as legally binding, even though there is no consideration, the other party would suffer detriment if the promised is not kept.

In this case it was stated by Denning that PE is a shield and not a sword. It was also stated that the doctrine could be extended to include agreements of future intentions.

Important because it took the law one step further. Prior to this, estoppel had only applied to pre-existing fact. Now estoppel can apply to a promise for the future

Main points to consider arising from this case in relation to a ‘mere promise’: Lord Denning extended estoppel to representation of future intention Is a shield and not a sword (i.e., a defence only) Per King, CJ: detriment is an element

Je Maintiendrai Pty Ltd v Quaglia (1980) Tenant of shopping centre negotiated a reduction in rent on the basis that most of the

shops were vacant. After approx 18 months a dispute arose and the owner sued for the arrears of the rent owing.

It was clear to the court that the owners had made a promise and that the tenant would suffer harm (in having to incur a lump sum liability) as a result of the promise being going back on, thus rendering an injustice.

SA Supreme Court found in favour of tenant. Stated that they agreed to allow promissory estoppel to be used as a course due to the ‘detriment’ that would be

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suffered by the tenant. Therefore for promissory estoppel to apply, detriment had to be established

Legione v Hately (1983) This is the first High Court case that examined the doctrine of Promissory Estoppel. Until this decision, it was not entirely clear that promissory estoppel would be

recognised in Australia Written contract for the purchase of land stipulated the date that the parties were to

settle the contract. Clause in contract stated that if not settled on that date notice to complete would be issued. The day before the date arrived the solicitor of the purchaser called the vendor and stated that they were having difficulties and the contract would be settled a few days late. Spoke to the secretary who stated ‘I think that’ll be alright but I’ll have to get instructions.’ A few days later the contract was rescinded by the vendor on the basis that settlement was late.

This went to the High Court where the question was whether the comments by the secretary estopped the purchaser from doing this.

Held that the secretary’s statement did not raise an estoppel for the plaintiff, as it was not a clear representation or promise

Mason and Deane stated that there are 2 conditions for promissory estoppel to apply: Promise must be clear and unequivocal (this can be express or implied from conduct) There must be a material loss through reliance on the promise if there is a departure

from the promise

Principles drawn from Stage 2 cases:

Need pre-existing legal relationship, i.e., cannot use promissory estoppel to create a new cause of action (not a sword but only a shield)

Must be representation of existing fact or promise of future intention Representation can be express or implied (from words, conduct or silence where there is a

duty to speak) Representation must be clear and unequivocal Must be inequitable to allow the promisor to go back on promise Promisee has relied on representation or promise and altered its position Promisee cannot return to original position without detriment

Stage 3 - Second Development of promissory estoppel – ‘Walton’s Stores’

Walton’s Stores (interstate) Limited v Maher (1988) Maher owned commercial property and Waltons Stores was negotiating to lease a part

of the development. Building was being constructed to Walton’s specifications; work commenced and building was demolished. A draft lease had been submitted and Maher believed a formal lease would be entered into in due course. Maher solicitors contacted Waltons to sign the contract and they stated “OK but we’ll need some amendments. If we haven’t told you the changes before tomorrow feel safe to assume that the lease is OK”. Building was 40% complete when Waltons stated that they would not go ahead with the lease.

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Went to court where the High Court allowed promissory estoppel to be used as an offence rather than just a defence. The result was that now promissory estoppel can be used as a sword, to commence a course of action in Australia in limited circumstances (this is not the case in England).

Principles from Stage 3 cases:

Promissory Estoppel can be used even where there is no pre-existing legal relationship. Promissory estoppel can be used to create a cause of action (i.e. a sword rather than a

shield) Plaintiff can use promissory estoppel to enforce a promise (rather than just a defence)

Silence will support promissory estoppel, i.e. sometimes by not saying anything you promise, if it is inequitable to then assert a different legal relationship from the one the other party assumed or expected

Promisor must act unconscionably, i.e., know the promisee is acting to his detriment on a false assumption and do nothing about it

Stage Four – Recent Developments

Move promissory estoppel back to commercial reality. Promissory Estoppel became a popular remedy post Waltons.

Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) This is similar to the facts in the Waltons case however in reverse. In this matter the majority of judges held that when dealing with commercial parties

who had contracted their legal relations carefully promissory estoppel should not be used as a remedy.

Doctrine unlikely to apply in larger commercial transactions – court noted that there was equal bargaining power between the commercial entities, unlike Waltons

Court held that plaintiff (Franklins) acted in its own commercial interests rather than on any promises made by defendant (Austotel)

The Commonwealth v Verwayen (1990) Mr V sued the Commonwealth over Voyager accident. This was outside the statute of

limitations at the time. In 1984 the Commonwealth had stated that they would not rely on the Statute of limitations and they admitted responsibility. Change of government and they reneged on this.

Went to High Court where it was determined that promissory estoppel could be used in this situation to make the Commonwealth keep its promise.

However could they only reimburse legal fees as these were the only loss that V suffered as a result of the Commonwealth’s promise, or had the statement that the government made deprived him of damages also? The court found in favour of fees and damages.

High Court affirmed requirement that promisor must have acted unconscionably and to the detriment of the party relying on the promise

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Guimelli v Guimelli (1999):

– Robert Giumelli and his parents were partners in a family orchard business. Robert lived in a house he had build on one of the properties used by the partnership, which was owned by his parents. Robert’s parents promised him that, if he stayed on the ppty, it would be subdivided and a portion including the house and an orchard would be transferred to him. On the faith of that promise, Robert gave up an opportunity to pursue a different career and continued to work the ppty. The son married someone the parents didn’t approve. Parents kick him off the ppty. But son relied on promise.

– Son claimed for promissory estoppel– Remedy was not granting house/land. Monetary compensation was more

appropriate because it was beyond reversal of detriment since the relationship between parent and son had broken down. The court substituted expectation relief in monetary form. relief is flexible

Principles from Stage 4 cases:

There must be a representation (express or implied) of existing fact (common law variety) or promise of future intentions (equitable variety)

The representations must be clear and unequivocal The party alleging promissory estoppel must have assumed that a particular legal

relationship either existed or would exist and that the other party was bound by the relationship

The alleging party was induced by the other party to adopt the assumption or expectation The alleging party acts or refrains from acting in reliance on the assumption or expectation –

there is an altering of position The alleging party suffers or will suffer detriment if the assumption or expectation is not

fulfilled The other party has failed to act to avoid the detriment to the alleging party Promissory estoppel will be exercised in favour of the party alleging it only if it would be

unconscionable for the other party to go back on the representation or promise The promisor can resile from his promise on giving reasonable notice and giving the

promisee a reasonable opportunity of resuming his position The promise becomes final and irrevocable if the promisee cannot resume his former

position

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Contract Construction

1. Express Terms2. Incorporation of Terms3. Implied Terms

Overview:

Written contracto Integration clause – whole of a written clause

Oral contract or written contract without the integration clause –o Disputes arriveo Negotiation = pre-contractual statements are made (made before the contract is

concluded) can these statements be upheld? Expressed Terms:

o Terms or Purported Termso Not a term until the judge says it is a termo Explicit

Definitely stated Actually said it or written it = expressed terms

Three different statements;o Mere puff (Carbolic Smoke Ball Company) – advertising term, not a contractually

enforceable term; e.g. ‘sexiest car around’o Representation/mere representation – factual statements – they induce entry into

the contract (I wouldn’t have bought the car unless it was a 2007 model) – no guarantee by the maker. The statement has no contractual force

o Is a term = found to be a term. Pre-contractual statement takes the form as an expressed term. Breach of such a term gives rise to damages

Maker of the statement intends to guarantee the trutho Objective Test:

Hospital Products United States Surgical Corporation (High Court case) The reasonable person – would they, in those circumstances, that the maker

of the statement intended to guarantee its truth Have to decide the intention of the parties – objectively speaking:

1. Time of statement – how long before entry into the contract?o The shorter the time between the statement being made

and the contract then it is more likely that the statement will be found to be a term

o Short period of time = good indication that the person entering into the contract has agreed with the statement

2. Content of the statemento More important the content, more likely to be found a termo Couchman v Hill

Cow was unserved = too young to have a calf = died Hill, seller of the cow. Not the only person in the

case who said it was unserved, the auctioneer did as well

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Exclusion clause in the auction sales brochure – no liability for any misconduct

Because the content of that statement was so significant, objectively speaking it was intended to be a part of the contract

3. Written memorandum – is it written down?o The term or statement is not written down in the agreement

– suggests that it wasn’t important enough to write down then probably not a term of the contract

o Very essentialo Holds great weight

4. Relative knowledge and expertise of the partieso Most important factor - suggestiono A lot rests on this factoro What are the relevant positions of the parties in regards to

the facts of the statemento Oscar Chess v Williams (model)

Did the court find that it was a term? NO Mr Williams selling his mothers’ car – only

information he had to go by was the information on the rego (which was wrong)

When the party is at fault in making the statement, is not relevant in terms of defining if it is a term

Objective test Don’t focus on if the statement made was a

genuine mistake or innocent etc = subjective = WRONG

o Dick Bentley v Harold Smith Motors Statement being contractually enforced by dealer Dealer made the statement Harold Smith Motors were in a better position to

know – better ability to know the truth of the statement

o Conclude: yes, it is a contractual term What next? Enforce the promise – sue them for the breach of a contractual term

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Types of terms in Contracts:

Express terms Implied terms

Pre-contractual statements:

Statements can be oral, by conduct, written, e.g. drafts, emails, web page. They are categorised as either:

(i) Puffs

(ii) Representations

(iii) Terms

Pre – contractual statements are representations that are made in the negotiations and never actually end up in the final statement. These can be:

Puffs – sales/advertising – s 52 TPA (don’t usually form part of the contract) Representations – statement of fact (don’t usually form part of the contract) Term of the contract (if adopted) – Look at the intention of the parties (objective test)

Puff (or is it intended to be a promise, if so its not a puff) No legal effect Sales/advertising – s 52 TPA: puffs don’t usually form part of the contract

Representations Statements that induced the representee to enter into an agreement; but not guaranteed by

representor Representee has some legal remedies (depends on whether representation was innocent,

fraudulent or negligent) Did the maker of the statement intend to guarantee the truth of the statement? If not, it’s

merely a representation, if so, it’s a term (Ellul and Ellul v Oakes (1972)). Objective question: what conclusion would a reasonable person in the position of the

representee (person to who the statement was made) have reached?

Factors to determine intention on whether statement is “mere” representation or term:

This will determine whether it is a representation or term of the contract. Test: On the totality of evidence, must the person making the statement be taken to have

warranted its accuracy, i.e. promised to make it good? (Heilbut Symons & Co v Buckleton [1913]).

Language of statement:

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Oscar Chess v Williams [1957] Williams sold a car described as being a 1948 Morris, and had a log book showing the

car to be registered in 1948. Purchaser found out that the car was in fact a ‘39 model and took action for a breach of contract.

Court held that the statement was made by a non-expert to an expert (and the expert should have known better)

The English court of appeal found that the fact that the car was stated as being a 1958 model did was not a ‘binding promise’, did not form a part of the contract and was an innocent representation.

Objective intention: ‘if an intelligent bystander would reasonably infer that a (term) was intended, that will suffice.’ (Lord Denning – p. 375 judgment)

JJ Savage and Sons v Blakney (1970) Blakney bought a motor cruiser, and on the recommendation from the company

bought a particular type of engine. This was a piece of garbage. B brought an action against the company for breach of contract.

The court held that there was no mention of the engine in the main contract, B argued that there was a collateral contract partly evidenced by writing.

Court held that there was no collateral contract for the sale of the engine. When the company wrote him a letter regarding the engine, negotiations were still continuing as to the purchase of the boat and he had ample opportunity to incorporate this into the contract.

Court held that in order to form a collateral agreement, the statement must be promissory and not representational

Time of statement:

The closer the interval between the making of the statement and the formation of a contract, the more likely that it will become a term.

Harling v Eddy [1951] D auctioned a cow that was found to have TB, and would have had this at the time that

the purchase was made. He told plaintiff that the cow was in really good health, and would take it back if problems. Upon that offer, the plaintiff bought it

The court held here that a statement that was made as to the health of the cow only moments before it was sold were sufficiently close to the time of the formation of the contract as to constitute one of its terms.

Content/importance of statement:

Language Use of words such as ‘I promise, agree, guarantee, warrant’ all indicate that the statement was

meant to be promissory. Words such as ‘I believe, estimate, speculate, have heard’ are not a promise but rather a matter

of hypothesis/ opinion.

Importance

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The more important that a statement is to the contract the more likely that it will be held to be a term.

Couchman v Hill [1947]:

P bought heifer at auction- b4 he bought it the seller and auctioneer had both said it had been unserved- hadn’t had sex.

Bit it was found to be pregnant, and died of complications re: birth. Court held: the statement was a term of the contract cause it was of such importance that the

bidder wouldn’t have entered into the contract without it. What did the parties understand by the statement, i.e. a term or representation?

Van Den Esschert v Chappell [1960]:

Purchaser asked whether white ants existed in the house. Vendor said no, and subsequently a written contract was drawn up with no mention of

anything to do with white ants. White ants found and purchaser went to court and argued that the promise made was a

condition used to purchase the house. Court said that a reasonable buyer would not enter into a contract apart from the promise

from vendor that no white ants existed. Also, the assurance was made just prior to when written contract was signed. Realty; buyer asked if there were white ants/termites in the house, the seller said no, but it

wasn’t written in the contract. After buying the house, the buyer found it was loaded with white ants Court held: it did form point of contract – reasonable person would only enter the contract

with that assurance

Relative knowledge & expertise of parties:

If an expert makes a statement and non-expert enters into the contract, it will be more likely to be held a term.

Oscar Chess v Williams [1957] Williams sold a car described as being a 1948 Morris, and had a log book showing the

car to be registered in 1948. Purchaser found out that the car was in fact a ‘39 model and took action for a breach of contract.

Court held that the statement was made by a non-expert to an expert (and the expert should have known better)

The English court of appeal found that the fact that the car was stated as being a 1958 model did was not a ‘binding promise’, did not form a part of the contract and was an innocent representation.

Objective intention: ‘if an intelligent bystander would reasonably infer that a (term) was intended, that will suffice.’ (Lord Denning – p. 375 judgment)

Dick Bentley Productions v Harold Smith (Motors) [1965]:

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This case distinguished Oscar Chess on its facts. I.e. the facts from OC are so different that we can’t apply it. The principle is correct but the facts warrant a different conclusion.

During negotiations for the purchase of a luxury car, D made assertions that the gearbox had been replaced <20,000 kms ago, and V found that this was in fact >100,000 kms.

English Court of appeal held: as he was a motor dealer, the car dealers would be expected to have that knowledge.

Although the statement was made innocently – the dealer “was in a position to know, or at least find out, the history of the car”. (Certain expertise).

Existence of written memo:

I.e. what has been written down may have been done for a reason. If a statement is not included in the written agreement, then it is not likely that the parties

intended it to become a term of the agreement

Routledge v McKay (1954):

If the parties have recorded the terms of the contract (and the pre-contractual term in dispute isn’t in it) it will be more than likely not be considered a term.

Comprehensiveness of written memo (parol evidence rule):

Signature of party on document:

L’Estrange v F Graucob [1934]:

A party will be bound by the terms contained in a contractual document which he/she has signed, whether or not he/she has read the document

Scrutton LJ at 404: ‘the plaintiff…cannot be heard to say that she is not bound by the terms of the document because she has not read them…’

Whole of circumstances approach:

Hospital Products v United States Surgical Corporation (1984):

This case demonstrated that to determine the intentions of the parties, it often becomes a matter of sifting through whatever was said at the time of making the contract.

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Express Terms

Does the contested written statement form part of contract?

Q/ whether a statement made before the contract was formed is a term of the contract? You can’t presume that everything discussed is a term. Pre-contractual statements: representations made in the negotiations and never actually end up

in the final statement- Look at the intention of the parties (objective test)

3-part test:

Is the document contractual in nature? Did the party disputing the term know of the term or was reasonable notice given that

the document contained terms? Was notice of the statement given at or before entry into the contract?

Parker v South Eastern Railway Co (1877) 2 CPD 416

To look at notice look at the types of transactions:

1. Unsigned documents

– Notices

– Tickets

2. Signed documents (incorporation by signature)

3. Course of dealings

4. Reference to other documents

Type One – Unsigned documents: Notices, tickets, delivery slips etc - incorporation of terms by reasonable notice

Document of a contractual nature? Is the document of a kind that would normally be expected to be contractual in

nature?

Causer v Browne [1952] VLR 1

Actual knowledge or Reasonable notice of terms in document “reasonable term”

Parker v South Eastern Railway Co (1877)

Established that the appropriate questions in a ticket case are:

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1. Did the passenger know that there was printing on the railway ticket?

2. Did he know that the ticket contained or referred to conditions?

3. Did the railway company do what was reasonable in the way of notifying prospective passengers of the existence of conditions and where their terms might be considered?

“harsh/ onerous term”Thornton v Shoe Lane Parking Ltd [1971]

Sir Gordon Willimer: ‘In all the previous so called ‘ticket cases’ the ticket has been proffered by a human hand, and there has always been at least the notional opportunity for the customer to say – if he did not like the conditions. ‘I do not like your conditions: I will not have this ticket’. But in the case of a ticket which is proffered by an automatic machine there is something quite irrevocable about the process’

Appeal dismissed

Interfoto Picture Library v Stiletto Visual Programmes Ltd [1989]

Given delivery notice with conditions. Conditions said that there were large fines for overdue transparencies. It was not stated clearly though. Handed transparencies back 14 days late, and refuses to pay huge bill.

Defendants not to be relieved of liability because they didn’t need rather because the plaintiff didn’t give reasonable notice to the term in the contract

Baltic Shipping Co v Dillon (the Mikhail Lermontov) (1991)

Respondent booked a cruise and received a ticket for it from the appellant

The ticket contained terms and conditions limiting the liability of the shipping company for personal injury and personal effects

Ship sank during cruise; respondent suffered injury, shock and loss of luggage

Appellant admitted liability; but argued that provisions in the contract should limit liability

Kirby P at 25: ‘the mere presentation...of the passenger ticket with its terms and conditions would not fix the respondent with acceptance of those terms and conditions, simply because thereafter she began the cruise. She was entitled to regard the subsequent purported imposition of such conditions upon her by unilateral acts of the appellant as wholly ineffective’

Timing of notice at or before formation of contract Face to face dealing

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Dealing with machine

if the timing requirement is satisfied, a party will be bound be delivered or displayed terms if a party knows that the relevant document contains contractual terms, he/she will be bound by

those terms regardless of whether he/she has read them in the absence of knowledge, a party will be bound by delivered or displayed terms

Thornton v Shoe Lane Parking Ltd [1971]

Sir Gordon Willimer: ‘In all the previous so called ‘ticket cases’ the ticket has been proffered by a human hand, and there has always been at least the notional opportunity for the customer to say – if he did not like the conditions. ‘I do not like your conditions: I will not have this ticket’. But in the case of a ticket which is proffered by an automatic machine there is something quite irrevocable about the process’

Appeal dismissed

Type Two – Signed documents: GENERAL RULE:

You are bound to what you sign (even if you don’t read it!)

L’Estrange v F Graucob [1934]

A party will be bound by the terms contained in a contractual document which he/she has signed, whether or not he/she has read the document

Scrutton LJ at 404: ‘the plaintiff…cannot be heard to say that she is not bound by the terms of the document because she has not read them…’

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004]

A signed document titled ‘Application for Credit’ contained onerous exclusion and indemnity clauses

HC affirmed that, in the absence of misrepresentation or other equitable grounds for setting the contract aside, the rule in L’Estrange applied and the clauses were binding

EXCEPTIONS TO THE GENERAL RULE:

Nature of the documentDJ Hill and Co Pty Ltd v Walter H Wright Pty Ltd [1971]

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Misrepresentation

The rule from L’Estrange will not apply where the signature was induced by misrepresentation or fraud

Curtis v Chemical Cleaning & Dyeing Co [1951]

Customer (Curtis) took dress to dry cleaners, and was asked to sign a ‘receipt’ which contained a condition that the cleaners were not responsible for damage

Dress was returned to the customer with a stain on it; cleaners denied negligence, relying on the condition on the signed receipt

County judge awarded damages to Curtis

Denning LJ at 809-10: ‘the conduct of the cleaners might well be such that it conveyed the impression that the document contained no conditions, or at any rate, no condition exempting them from their common law liability, in which case they could not rely on it’

Appeal dismissed

TimingDJ Hill and Co Pty Ltd v Walter H Wright Pty Ltd [1971]

non est factum (type of mistake) unconscionability

common law statutory

Contracts Review Act, NSW, s 9 Trade Practices Act, C’lth s 51AA –AC

Type Three – Other method terms become part of contract (past dealings):

Balmain New Ferry Co. V Robertson (1906) Robertson paid 1 penny to get onto the wharf of the Balmain ferry Co. Missed the ferry

and wanted to leave wharf and did not want to pay the required 1 penny to get off the wharf. Went to court arguing that he did not have to pay as he had not caught the ferry.

The court implied that there was term in the contract for admission that you had to pay when you left, as there was big signs stating this and Robertson should have seen these as he had caught the ferry from the same spot many times before

Hillas & Co. v Arcos Ltd (1932) Arcos sold wood. In the contract for the sale of goods was an optional agreement for

the purchaser in the following year. This option was exercised by the purchaser. This

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went to court and it was argued that contract was uncertain as it did not state the terms such as price etc..

The other party argued successfully that the terms and conditions that existed in the original contract would apply.

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Contract Construction1. Parol Evidence Rule2. Exclusion Clauses3. Integration Clauses

EXTRINSIC EVIDENCE/PAROL EVIDENCE RULE

Purpose of the Parol Evidence Rule:

1. To aid in identifying the terms of the contract2. To prohibit the use of extrinsic evidence to construe the meaning of the terms of the

contract

Examples of terms indicating application of the parol evidence rule: ( entire contract clause )

“All the terms of this agreement are contained in this document” “The parties acknowledge that this document contains the whole agreement and that no

other statements induced the sale.” “This contract represents the entire agreement between the parties and no other terms and

conditions are enforceable outside of this contract” “no warranty is given except as expressed herein”

Statement of rule:

Goss v Lord Nugent (1833):

Entire contract clauses:

British Moviettonews Ltd v London and District Cinemas Ltd [1952] BM had a contract to supply London cinemas. (which could be terminated after giving 4

weeks notice of termination). WWII broke out and certain types of movies could not be shown. There was a new contract entered into stating that the parties would continue with the new agreement until the provisions were repealed. These provisions were not repealed after the war as had been assumed, and the matter went to the High Court as one of the parties wanted out

The Court held that the contract was in writing stating that you couldn’t get out, therefore there was nothing that you could do to vary this. On paper, there was no reference to the 4 week deal in the new contract

Exceptions to the Parol Evidence Rule

Purpose One – Identify Terms:

A court will allow oral evidence when dealing with:

Rectify Mistake:

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It is possible to admit parol evidence to show a mistake in the writing of the contract (ie the omission of a zero of a sale price) – rectify document to reflect true intention of the parties

Bacchus March Concentrated Milk v Joseph Nathan (1918):

Higgins J: Aim of rectification is to remake the written agreement ‘to accord with what the parties actually agreed to, or with what one party intended and the other party know the first intended.’

Higgins J stated that oral evidence would only be admissible if it is ‘legitimate to show that it was intended to use words bearing a different sense…when applied to the circumstances.’

Ambiguity must be clear and apparent

Condition precedent:

The operation of the contract is dependent on a unique special event. This term is an exception and is called a condition precedent.

Pym v Campbell (1856) P put it into writing that he would sell one of his inventions to C. Orally it was agreed

that this sale would not go ahead unless the item was inspected and given the OK from an engineer. The engineer disapproved of the invention and P sued for breach of contract when the sale went ahead.

Court held that the oral evidence was admissible and that the verbal acknowledgement was condition precedent of the contract

‘The distinction in point of law is that evidence to vary the terms of an agreement in writing is not admissible, but evidence to shew that there is not an agreement at all is admissible.’

Sham:

Essanda v Burgess (1984):

Not totally in writing:

Parol evidence rule only applies if the agreement is totally in writing

SRA v Health Outdoor Pty Ltd (1986) In this case it was decided that just because you have a written contract, that does not

mean that this is the whole contract. However, existence of writing is persuasive – McHugh JA stated that the existence of

writing provides ‘an evidentiary foundation for a conclusion that (the) agreement is wholly in writing.’

Burden of proof (ie must prove the contract is not wholly in writing) rests on the party to rebut this conclusion

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Implied term: custom/trade usage:

In the case of Hutton v Warren (1836) it was held that the “custom must be certain legal and reasonable”

In above case, court held that the lease had to be read in light of established custom

British Crane v Ipswich Plant Hire [1975]:

Purpose Two – Construe Meaning:

Evidence of the factual Matrices:

Codelfa Contruction v SRA of NSW (1982):

Although the broad purpose of the parol evidence rule is to exclude extrinsic evidence so as not to ‘subtract from, add to, vary or contradict the language of a written instrument’, the court stated that ‘there is more to the construction of the words of written instruments than merely assigning to them their plain and ordinary meaning…this has led to a recognition that evidence of surrounding circumstances is admissible in aid of the construction of a contract.’

Therefore the court qualified the parol rule, holding that evidence of discussion before signing the contract was admissible for the ‘purpose of establishing the common understanding of the parties in relation to a matter of fact.’ (Essentials p. 48)

Royal Botanic Gardens v South Sydney Council (2002):

Domain is in the hands of the Domain Trust SthSC wanted to build a carpark Entered into contract, lease of space for 50 years from RBG. 1st 3 years, rent $2000/year. Then each subsequent 3 years the trust may have regard to any

additional costs and expenses that may occur in the parking station. Court Held: phrase was ambiguous- does it mean that trustees could only consider add.

costs and expenses or any no. of factors. So it was appropriate to consider the following:

Negotiations and correspondence between the parties Nature of the parties (2 public authorities, both acting for the public welfare; purpose of

transaction was to provide a public facility) Background of the party’s relationship.

Reasons why it is important to consider the above: very low rent, uncertainty in future price. In this case, it was found that the totality of what could be considered by DT was found to be

only what was contained in the clause.

Ambiguity:

There are 2 types of ambiguity:

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patent ambiguity (something left out which causes document to not make sense) latent ambiguity (where words used can have more than one meaning)

Royal Botanic Gardens v South Sydney Council (2002):

Domain is in the hands of the Domain Trust SthSC wanted to build a carpark Entered into contract, lease of space for 50 years from RBG. 1st 3 years, rent $2000/year. Then each subsequent 3 years the trust may have regard to any

additional costs and expenses that may occur in the parking station. Court Held: phrase was ambiguous- does it mean that trustees could only consider add.

costs and expenses or any no. of factors. So it was appropriate to consider the following:

Negotiations and correspondence between the parties Nature of the parties (2 public authorities, both acting for the public welfare; purpose of

transaction was to provide a public facility) Background of the party’s relationship.

Reasons why it is important to consider the above: very low rent, uncertainty in future price. In this case, it was found that the totality of what could be considered by DT was found to be

only what was contained in the clause.

Prove identity of parties:

Gilberto v Kenny (1983):

In this matter there was a contract that stated in one part Mr Kenny and in another Mrs Kenny.

The court used oral evidence to infer that both Mr and Mrs Kenny were the purchasers. Parol evidence can also be used to identify the relationship of a party or who contracted (ie,

whether it was an agent or principal)

Collateral Contracts:

A collateral contract is a contract where one party makes a promise connected to, but independent of the main contract in response to consideration of a promise by the other party to enter into the main contract. (textbook at p. 274)

This is the device that is most frequently used to circumvent the Parol evidence Rule. Even if a statement is seen as a mere representation, the innocent party may be able to

argue the existence of a separate, collateral agreement based on that representation, and that the new agreement was breached

If a collateral agreement exists, it will be enforceable even if the main agreement is not valid or enforceable

Heilbut Symons v Buckleton Definition for a collateral contract: A collateral contract is one in which the consideration for a promise is usually the

making of another contract

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De Lassalie v Guilford Parties negotiating a lease, put in writing, tenant about to sign, wants assurance from

the landlord that the drains are in good Working order. Landlord says yes, tenant signs, therefore there is a contract Drains don’t end up working – plaintiff goes to court There is nothing in the contract about the drains. Tenant needs to get around the parol

evidence rule Argued that there was a second contract: the landlord promised the plaintiff that the

drains were in good working order, and the tenant’s consideration was his entering into the lease

Thus the tenant is suing on an oral contract, to which the parol evidence rule obviously doesn’t apply

Court held that there was a breach of the oral contract, and the plaintiff was entitled to damages

Bipartiet contract: 2 parties Tripartiet contract: a party makes a promise to party 2, that they’ll enter into a contract with

a third party, (that’s the consideration) – e.g., buying a car: finance company, vendor, purchaser.

Criteria for a term to become a collateral contract:a) The statement must be intended to be a promise was used to induce the main contractb) The statement is not inconsistent with the main contract.c) The statement has separate consideration

a) Intended as a promise and not just a representation

JJ Savage and Sons v Blakney (1970) Blakney bought a motor cruiser, and on the recommendation from the company

bought a particular type of engine. This was a piece of garbage. B brought an action against the company for breach of contract.

The court held that there was no mention of the engine in the main contract, B argued that there was a collateral contract partly evidenced by writing.

Court held that there was no collateral contract for the sale of the engine. When the company wrote him a letter regarding the engine, negotiations were still continuing as to the purchase of the boat and he had ample opportunity to incorporate this into the contract.

Court held that in order to form a collateral agreement, the statement must be promissory and not representational

b) Not be inconsistent with main agreement

Hoyts Limited v Spencer (1919) Spencer sublet building to Hoyts, lease stated that this could be cancelled with 4 weeks

notice in writing. Spencer at the time was renting the premises from another party and gave Hoyts notice to quit. Hoyts argued that there was a collateral oral contract that Spencer would not give them notice to vacate unless he was given notice.

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Court held that the oral evidence could not be used to counter the written contract - ie it was not in accordance with the actual contract.

c) Separate consideration

Must be separate consideration for a collateral agreement

Hercules Motors v Schubert Must prove that the collateral contract was made at the same time or just prior to the

main contract (NB: past consideration is no consideration, so it is not a collateral contract if it is made after the main contract)

The existence of a collateral contract and its ensuing breach and damages can’t have any impact on the main contract

Example: with the drain case, it can only be used to get remedy for damages – the guy could not get out of the contract

Therefore collateral contracts may be used to get some remedy, but not total remedy

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EXCLUSION CLAUSES

Definition :

An exclusion clause or term is a clause that excludes the liability of a party for the wrongful conduct specified in that clause. This type of clause is also called an exemption clause, exception clause, limitation clause or a disclaimer.

This is a condition that excludes liability for a wrongful act that is specified in the clause.

Types of exclusion clauses:

1. They can exclude a ‘right’ of the other party – L’Estrange2. Limit liability to a specified amount ; e.g. the maximum amount claimable for lost luggage is

$100 – Darlington Futures3. Place conditions or limits on the exercise of ‘a right’ (time limit)4. Indemnity clauses

Sometimes called exemption clause/exception clause/disclaimer Definition: a term of the contract that excludes the liability of a party for the wrongful

conduct specified in that clause. They operate for the benefit of one party only Only argue it as a defendant normally How and when do courts apply it? Two stage process:

1. Does the clause form a part of the contract?2. What would be the legal effect of the exclusion clause if this does? (i.e. what does it

mean?)

Question 2: Does the clause cover the breach?

Construction and Interpretation of Exclusion Clauses:

Overall:

Apply ordinary meaning unless the word is technical, customary, or defined Look at the internal context Promote validity

Where parties are of equal bargaining power, courts are less hostile to uphold the validity of the exclusion clausePhoto Production v Securior Transport

Defendant agreed to supply plaintiff with security patrol for their factory. Security guard destroyed plaintiff’s factory through a fire.

Defendant relied on an exclusion clause in the agreement which exempted them from liability for an employee’s actions ‘except in so far as such loss is solely attributable to the negligence of the [defendant’s] employees acting the course of their employment…’

Court held that defendant could only be liable if it could have reasonably foreseen the employees actions and have been in a position to stop them

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Because the clause was clear and unambiguous, the defendant could rely on it given the facts

Traditional Approach:• Courts were suspicious of exclusion terms so a party had to work hard to make sure an

exclusion term was a part of the contract and then express it in very clear words as the courts interpreted the words very restrictively

• Courts used a number of presumptions (rules of evidence) in construing exclusion clauses

Traditional Rules: Six rules of construction:

1. Contra Proferentem

2. Fundamental Breach

3. Four Corners

4. Main Purpose

5. Deviation

6. Negligence

a) Contra Proferentum Rule

Any ambiguity will be construed against the party relying on the protection

If there is a situation involving an exclusion clause where there is some ambiguity, read the exclusion clause against the person that is seeking to rely on it to the favour of the party that it will harm?

Any ambiguity will be construed against the party relying on it

White v Jonn Warnick and Co Ltd [1956]: P hires a bicycle from D. Condition in the contract stated that the owners not to be held

liable for personal injury. Defective bike here – and there was no question as to it being negligence on the part of the bike rider.

Court had to decide whether the clause applied to busted bikes. D relied on the exclusion clause as his defence.

Court found that the clause relieved the company from liability for breach of contract, but not for tort of negligence. It was a defective bike, and was construed against the hire company.

b) Fundamental Breach Rule

An exclusion clause may prevent liability for a fundamental breach of contract only if the clause is clear and unambiguous and where the Court in viewing the circumstances of the particular

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case determines that the intention of the parties was to agree to an exclusion clause covering the particular breach alleged.

The more serious the breach, the less likely that they would be let out of something they agreed to do unless the above is shown

Suisse Atlantic Societe v NV Rotterdam [1967]: This case defined a fundamental breach as ‘a breach that goes straight to the heart of

the matter.’ Upjohn J stated that a fundamental breach ‘goes to the root’ of an agreement, entitling

the innocent party to repudiate the whole agreement Therefore there couldn’t be a clause to cover a fundamental breach. A rule of law

should not allow that to happen

Council of the City of Sydney v West (1965): West arrived in car park. Given a ticket - on this ticket is a clause that disclaims

responsibility for everything - broadly worded. Also stated that the ticket must be presented when picking up the vehicle. West’s car is then stolen

Issue existed that the thief could have gotten out of the car park was with West’s ticket – although the thief did not have the ticket.

Council tried to rely on exclusion clause on the ticket. Windeyer J dismissed any notion that there was a rule of law which would stop the

operation of an exclusion clause in relation to a fundamental breach – question is ‘one of interpretation’

High Court did not rule the exclusion clause out because it was a fundamental breach; rather, ‘the contract was broken because the appellant did not do the thing it had contracted to do in the way in which it had contracted to do it.’ The thief did not show the ticket to get the car out, so that’s what the clause wasn’t attached to.

Photo v Securior [1980]: House of Lords rejected the doctrine of fundamental breach adopted in Suisse

Atlantique Court held that the question of reliance on an exclusion clause and fundamental breach

is a ‘one of construction and that there is no principal of law that a fundamental breach will automatically invalidate an exclusion clause.’

Court was not entitled to reject the exclusion clause ‘however unreasonable the court itself may think it is, if the words are clear and fairly susceptible of one meaning only.’ (p. 851)

c) Four Corners Rule

An exclusion clause will not protect a party from damages for loss caused by its breach if the breach was outside the 4 corners of the contract as contemplated by the parties

Court construes the clause within the four corners (overall feel) of the contractCouncil of the City of Sydney v West (1965): West arrived in car park. Given a ticket - on this ticket is a clause that disclaims

responsibility for everything - broadly worded. Also stated that the ticket must be presented when picking up the vehicle. West’s car is then stolen

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Issue that the thief could have gotten out of the car park was with West’s ticket – although the thief did not have the ticket.

Council tried to rely on exclusion clause on the ticket. Windeyer J dismissed any notion that there was a rule of law which would stop the

operation of an exclusion clause in relation to a fundamental breach – question is ‘one of interpretation’

High court did not rule the exclusion clause out because it was a fundamental breach; rather, ‘the contract was broken because the appellant did not do the thing it had contracted to do in the way in which it had contracted to do it.’ The thief did not show the ticket to get the car out, so that’s what the clause wasn’t attached to.

Davis v Pearce Parking Station (1954): Exclusion clause existed for parking station D’s car was stolen from parking station as a result of negligence Clause: park at owner’s risk and station not responsible for loss Clause held to be broad enough to allow attendant to leave keys in the car Words are general but P couldn’t have been liable outside of negligence, because this clause

only applied to negligence.

d) Main Purpose Rule

An exclusion clause will not protect a party from damages for loss caused by its breach if the breach was outside the main purpose of the contract as contemplated by the parties.

Glynn v Margetson [1893]: ‘You are justified in looking at the main object and intent of the contract and in limiting

the general words used, having in view that object and intent.’ (p. 355) ‘one must in the first instance look at the whole of the instrument and not at one part

of it only’ (p. 357) Looking at the whole of the instrument, and seeing what one must regard…as its main

purpose, one must reject words, indeed whole provisions, if they are inconsistent with what one assumes to be the main purpose of the contract.’

Nissho Iwai Australia v Malaysia International Shipping (1989)

Liberty to give D to stay at any parts in Mediterranean Oranges damaged- inedible If the object of the clause always excludes liability- i.e. if the clause always defeats the main

purpose of the contract, this rule may still be applicable.

e) Deviation Rule

An exclusion clause will not protect a party from damages for loss caused by its breach if the performance causing the breach deviated from the performance as contemplated by the parties.

If you deviate from the contract, you may lose the effect of the exclusion clause

TNT v May and Baker (1966):

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TNT purported to rely on the exclusion clause Court held: they couldn’t rely on it because the performance of the contract hadn’t

been done Barwick CJ: ‘departure from the promised carriage disentitled TNT to rely on the

exclusion clauses and concurred in the reasoning of the other members of the court.’

f) Negligence Rule

Rule 1: an express exclusion of liability for negligence will exclude liability e.g., “The operator will not be liable for any loss or injury arising from his or her negligence

Rule 2: if there is no express exclusion for negligence, the clause may still be effective if the words are broad enough to cover negligence. The words “any loss however caused or whatever its cause or under no circumstances” will generally cover negligence.

Rule 3: if the words are wide enough to cover negligence but there is an alternate ground for a cause of action besides negligence, the words will be interpreted to cover and protect that other cause of action and not cover negligence, e.g., the John Warwick case

Canada Steamships v The King [1952]:

Davis v Pearce Parking Station (1954):

D’s car was stolen from parking station as a result of negligence. Clause: park at owners risk and not responsible for loss… Words are general but P couldn’t have been liable outside of negligence, because this clause

only applied to negligence.

Glenmont Investments v O’Loughlin (2000):

GL Nederlands v Expertise Events [1999]:

Darlington Futures v Delco (1986):

D had contract with P for the sale of futures. D lost a lot of money and was sued by the P for negligence. D argued that they were in fact

covered by an exclusion clause. Clause was very broadly constructed and covered almost everything. The contra proferentum rule was used by the court to find Darlington guilty. (However they

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managed to get out of this through a different legal argument). Clause construed against party relying on it ‘the interpretation of an exclusion clause is to be determined by construing the clause

according to its natural and ordinary meaning, read in the light of the contract as a whole, whereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in the case of ambiguity.’ (p. 510)

Modern Approach:

• Apply ordinary meaning unless the word is technical, customary of defined

• Look at the internal context

• Promote validity

• Commercial reality – risk allocation mechanism

• Impact of insurance

Photo v Securior [1980]: House of Lords rejected the doctrine of fundamental breach adopted in Suisse

Atlantique Court held that the question of reliance on an exclusion clause and fundamental breach

is a ‘one of construction and that there is no principal of law that a fundamental breach will automatically invalidate an exclusion clause.’

Court was not entitled to reject the exclusion clause ‘however unreasonable the court itself may think it is, if the words are clear and fairly susceptible of one meaning only.’ (p. 851)

Nissho Iwai v Malaysian International Shipping (1989):

Liberty to give D to stay at any parts in Mediterranean Oranges damaged- inedible If the object of the clause always excludes liability- i.e. if the clause always defeats the main

purpose of the contract, this rule may still be applicable.

Life Savers v Frigmobile [1983]:

Darlington Futures v Delco (1986):

D had contract with P for the sale of futures. D lost a lot of money and was sued by the P for negligence. D argued that they were in fact

covered by an exclusion clause. Clause was very broadly constructed and covered almost everything.

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The contra proferentum rule was used by the court to find Darlington guilty. (However they managed to get out of this through a different legal argument).

Clause construed against party relying on it ‘the interpretation of an exclusion clause is to be determined by construing the clause

according to its natural and ordinary meaning, read in the light of the contract as a whole, whereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in the case of ambiguity.’ (p. 510)

Statutory Prohibition on exclusion clauses:

Sale of Goods Act 1923 (NSW):

s 64: can’t exclude implied terms

Trade Practices Act 1974:

s68 –68A: says that a clause that says ‘TPA doesn’t apply’ is void

s74 K-L: manufacturers liability for exclusion clauses

Contracts Review Act 1980 (NSW):

gives court the ability to rewrite unjust contracts in certain circumstances

Relationship between Privity and Exclusion Clauses:

See 3(b)

Exceptions to the Parol Evidence Rule

Purpose One – Identify Terms:

A court will allow oral evidence when dealing with:

Rectify Mistake:

It is possible to admit parol evidence to show a mistake in the writing of the contract (ie the omission of a zero of a sale price) – rectify document to reflect true intention of the parties

Bacchus March Concentrated Milk v Joseph Nathan (1918):

Higgins J: Aim of rectification is to remake the written agreement ‘to accord with what the parties actually agreed to, or with what one party intended and the other party know the first intended.’

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Higgins J stated that oral evidence would only be admissible if it is ‘legitimate to show that it was intended to use words bearing a different sense…when applied to the circumstances.’

Ambiguity must be clear and apparent

Condition precedent:

The operation of the contract is dependent on a unique special event. This term is an exception and is called a condition precedent.

Pym v Campbell (1856) P put it into writing that he would sell one of his inventions to C. Orally it was agreed

that this sale would not go ahead unless the item was inspected and given the OK from an engineer. The engineer disapproved of the invention and P sued for breach of contract when the sale went ahead.

Court held that the oral evidence was admissible and that the verbal acknowledgement was condition precedent of the contract

‘The distinction in point of law is that evidence to vary the terms of an agreement in writing is not admissible, but evidence to shew that there is not an agreement at all is admissible.’

Sham:

Essanda v Burgess (1984):

Not totally in writing:

Parol evidence rule only applies if the agreement is totally in writing

SRA v Health Outdoor Pty Ltd (1986) In this case it was decided that just because you have a written contract, that does not

mean that this is the whole contract. However, existence of writing is persuasive – McHugh JA stated that the existence of

writing provides ‘an evidentiary foundation for a conclusion that (the) agreement is wholly in writing.’

Burden of proof (ie must prove the contract is not wholly in writing) rests on the party to rebut this conclusion

Implied term: custom/trade usage:

In the case of Hutton v Warren (1836) it was held that the “custom must be certain legal and reasonable”

In above case, court held that the lease had to be read in light of established custom

British Crane v Ipswich Plant Hire [1975]:

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Purpose Two – Construe Meaning:

Evidence of the factual Matrices:

Codelfa Contruction v SRA of NSW (1982):

Although the broad purpose of the parol evidence rule is to exclude extrinsic evidence so as not to ‘subtract from, add to, vary or contradict the language of a written instrument’, the court stated that ‘there is more to the construction of the words of written instruments than merely assigning to them their plain and ordinary meaning…this has led to a recognition that evidence of surrounding circumstances is admissible in aid of the construction of a contract.’

Therefore the court qualified the parol rule, holding that evidence of discussion before signing the contract was admissible for the ‘purpose of establishing the common understanding of the parties in relation to a matter of fact.’ (Essentials p. 48)

Royal Botanic Gardens v South Sydney Council (2002):

Domain is in the hands of the Domain Trust SthSC wanted to build a carpark Entered into contract, lease of space for 50 years from RBG. 1st 3 years, rent $2000/year. Then each subsequent 3 years the trust may have regard to any

additional costs and expenses that may occur in the parking station. Court Held: phrase was ambiguous- does it mean that trustees could only consider add.

costs and expenses or any no. of factors. So it was appropriate to consider the following:

Negotiations and correspondence between the parties Nature of the parties (2 public authorities, both acting for the public welfare; purpose of

transaction was to provide a public facility) Background of the party’s relationship.

Reasons why it is important to consider the above: very low rent, uncertainty in future price. In this case, it was found that the totality of what could be considered by DT was found to be

only what was contained in the clause.

Ambiguity:

There are 2 types of ambiguity: patent ambiguity (something left out which causes document to not make sense) latent ambiguity (where words used can have more than one meaning)

Royal Botanic Gardens v South Sydney Council (2002):

Domain is in the hands of the Domain Trust SthSC wanted to build a carpark Entered into contract, lease of space for 50 years from RBG. 1st 3 years, rent $2000/year. Then each subsequent 3 years the trust may have regard to any

additional costs and expenses that may occur in the parking station.

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Court Held: phrase was ambiguous- does it mean that trustees could only consider add. costs and expenses or any no. of factors.

So it was appropriate to consider the following: Negotiations and correspondence between the parties Nature of the parties (2 public authorities, both acting for the public welfare; purpose of

transaction was to provide a public facility) Background of the party’s relationship.

Reasons why it is important to consider the above: very low rent, uncertainty in future price. In this case, it was found that the totality of what could be considered by DT was found to be

only what was contained in the clause.

Prove identity of parties:

Gilberto v Kenny (1983):

In this matter there was a contract that stated in one part Mr Kenny and in another Mrs Kenny.

The court used oral evidence to infer that both Mr and Mrs Kenny were the purchasers. Parol evidence can also be used to identify the relationship of a party or who contracted (ie,

whether it was an agent or principal)

Collateral Contracts:

A collateral contract is a contract where one party makes a promise connected to, but independent of the main contract in response to consideration of a promise by the other party to enter into the main contract. (textbook at p. 274)

This is the device that is most frequently used to circumvent the Parol evidence Rule. Even if a statement is seen as a mere representation, the innocent party may be able to

argue the existence of a separate, collateral agreement based on that representation, and that the new agreement was breached

If a collateral agreement exists, it will be enforceable even if the main agreement is not valid or enforceable

Heilbut Symons v Buckleton Definition for a collateral contract: A collateral contract is one in which the consideration for a promise is usually the

making of another contract

De Lassalie v Guilford Parties negotiating a lease, put in writing, tenant about to sign, wants assurance from

the landlord that the drains are in good Working order. Landlord says yes, tenant signs, therefore there is a contract Drains don’t end up working – plaintiff goes to court There is nothing in the contract about the drains. Tenant needs to get around the parol

evidence rule Argued that there was a second contract: the landlord promised the plaintiff that the

drains were in good working order, and the tenant’s consideration was his entering

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into the lease Thus the tenant is suing on an oral contract, to which the parol evidence rule obviously

doesn’t apply Court held that there was a breach of the oral contract, and the plaintiff was entitled to

damages

Bipartiet contract: 2 parties Tripartiet contract: a party makes a promise to party 2, that they’ll enter into a contract with

a third party, (that’s the consideration) – e.g., buying a car: finance company, vendor, purchaser.

Criteria for a term to become a collateral contract:d) The statement must be intended to be a promise was used to induce the main contracte) The statement is not inconsistent with the main contract.f) The statement has separate consideration

d) Intended as a promise and not just a representation

JJ Savage and Sons v Blakney (1970) Blakney bought a motor cruiser, and on the recommendation from the company bought a

particular type of engine. This was a piece of garbage. B brought an action against the company for breach of contract.

The court held that there was no mention of the engine in the main contract, B argued that there was a collateral contract partly evidenced by writing.

Court held that there was no collateral contract for the sale of the engine. When the company wrote him a letter regarding the engine, negotiations were still continuing as to the purchase of the boat and he had ample opportunity to incorporate this into the contract.

Court held that in order to form a collateral agreement, the statement must be promissory and not representational

e) Not be inconsistent with main agreement

Hoyts Limited v Spencer (1919) Spencer sublet building to Hoyts, lease stated that this could be cancelled with 4 weeks

notice in writing. Spencer at the time was renting the premises from another party and gave Hoyts notice to quit. Hoyts argued that there was a collateral oral contract that Spencer would not give them notice to vacate unless he was given notice.

Court held that the oral evidence could not be used to counter the written contract - ie it was not in accordance with the actual contract.

f) Separate consideration

Must be separate consideration for a collateral agreement

Hercules Motors v Schubert Must prove that the collateral contract was made at the same time or just prior to the

main contract (NB: past consideration is no consideration, so it is not a collateral contract if it is made after the main contract)

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The existence of a collateral contract and its ensuing breach and damages can’t have any impact on the main contract

Example: with the drain case, it can only be used to get remedy for damages – the guy could not get out of the contract

Therefore collateral contracts may be used to get some remedy, but not total remedy

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PRIVITY OF CONTRACT

1. General Rule

Only the parties to a contract can acquire rights and liabilities under the contract. (ie, only parties to a contract are legally bound by it and can enforce it). A 3 rd party that benefits under a contract cannot enforce it. (ie, it’s a private contract between the parties)

Dunlop Pneumatic Tyre v Selfridge (1915) ‘only a person who is a party to a contract can sue on it’

Coulls v Bagot’s Executor and Trustee (1967) ‘A person not a party to a contract may not himself sue upon it so as directly to enforce

its obligations’ Thus a 3rd party may be benefitted or burdened in fact by performance of the contract,

but in accordance with the privity doctrine, only the parties to the contract are benefitted and burdened in law by the making of the contract.

Beswick v Beswick [1968] B agreed to sell his business to his nephew in return for the payment of an annuity for

life. Mrs B was to also receive annuity after Mr B died under the contract, but she was not one of the contracting parties. Mr B died and the nephew would not pay Mrs B.

Court held that the parties to a contract were the only persons that could enforce this and that therefore Mrs B could not sue on this basis (She won the case based on a different argument that as the executor/adminstratrix of the estate she could enforce this).

Taddy v Sterious [1904] T had an arrangement with S where he would sell him goods on a wholesale basis.

There was a contract that S had to ensure that the goods were sold by the retailer at a particular price. A retailer cut the price and T took him to court. Retailer argued that as he was not a party to the contract between T and S then he would not be bound by this. Court upheld this and stated that you cannot impose a contract on a 3rd party who is not a part of this.

Price v Easton (1833) Doctrine of privity applied where the court held that the plaintiff could not enforce the

agreement made between the defendant and the debtor (3rd party)

Note - The notion of privity and lack of consideration often go together, ie in the Dunlop Case.

2. Exceptions to the Privity Rule

a) Agency

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Contract between principal and other party even though agent signs on behalf of principal – agreement is enforceable by the principal and the third party against each other (authority: International Harvester Co. V Carrigans (1958))

Undisclosed principal: 2 parties, authorised agent contracting on behalf of undisclosed principal (even though the other party is not aware of who they are really contracting with) and the undisclosed principal can sue and be sued (authority: Teheran-Europe Co Ltd v ST Belton (Tractors) Ltd (1968)). The agent or the undisclosed principal, but not both, can sue and be sued on the contract.

b) Covenants on Land

3rd parties can be benefitted and burdened by contractually created covenants

Tulk v Moxhay (1848) In this case it was held that parties further down the chain of title can be bound by the

original covenant to a title even though they were not a party to the original contract.

c) Negotiable instruments

An example of these is a cheque which is a contract between a person and a bank to pay somebody else money (also bills of exchange, promissory notes)

These are negotiable and further down the chain of commerce a person can cash a cheque even though he was not a party to the original contract – thus they may be enforced by someone not a party to the contract

d) Trusts

A trust is in equity, where a person owns property legally, but it is administered under a trust, who is not the equitable owner

A trustee holds property on behalf of a beneficiary Many business arrangements use the trust If a contracting party is a trustee for a 3rd party, the 3rd party can enforce contractual rights

held by the trustee regarding the trust

e) Insurance contracts

Insurance Contracts Act 1984 (Cth) s 48(1) allows a party who is not a party to a contract of insurance to recover directly from the insurer (nb: this came about after Trident)

The act indemnifies a party in contracts of insurance property

Case- Barroora Pty Ltd v Provincial Insurance Limited This is a NSW Supreme Court Case that used the decision in Trident as a basis to allow a

beneficiary who was not a party to the contract to enforce an insurance contract.

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f) Other Statutory Remedies

Some interstate property law acts can overcome the privity rule (but not in NSW) TPA can also interfere Section 55 of the Property Law Act (Qld) states that any beneficiary to a contract for

property can sue on that contract. Property Law Act (WA) s11(2), 11(3) Section 48 (1) of the Commonwealth Insurance Contracts Act states that a named

beneficiary in an insurance contract can sue on the contract although not a party. Contracts Review Act (NSW) enables beneficiaries to a contract to sue on that contract.

g) Exclusion clauses

Are used to give benefit of exclusion down the transaction or pass liability down or lack of liability down the transaction

Wilson v Darling Island Stevedoring & Lighthouse Co Ltd (1956) High Court held that an exclusion clause in a bill of lading which purported to protect

‘the Carrier or his agents or servants’ did not protect a stevedore which was the agent of the issuer (here it was the shipowner that was the carrier that issued the bill) as the stevedore could not sue or be sued as he was not party to the contract

Scrutton Ltd V Midland Silicones Ltd (1972) Privity rule applied to ‘deny the protection of an exclusion clause in a bill lading to a

stevedore' House of Lords: Lord Reid: comments made on exclusion clauses Criteria for 3rd party to benefit under an exclusion clause:1. limitation clause is intended to protect the stevedore –that that was the intention

behind the clause2. carrier (who takes good from country A to country B) contracts on its own behalf

and is ‘also contracting as agent for the stevedore’ (stevedore unloads/loads docks at ports)

3. carrier must have authority to do this from the stevedore4. any difficulties about the need for consideration moving from the stevedore are

overcome – whole idea is to pass down the limitation on liability to all the relevant players in the transactions

Lifesavers (Australiasia) Ltd v Frigmobile Pty Ltd (1983) This is a transport case with a similar view to that of Scrutton but regarding transport

by land and taking to some sort of agency loading etc.

For further stuff on this area, see casebook p. 354 onwards and textbook p. 340 onwards

h) Assignment

Transferring of rights and liabilities under the contract It is possible that A and B can enter a contract where A says that they reserve the right to

transfer their interests in the property to C at any time

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Thus contractual rights may be assigned to C by A without the consent of B, provided that nothing in the contract is contrary to the assignment.

i) General Exceptions at Common Law

Is the Trident case just a general exception, or a case just in general exception of insurance, or has the privity rule now been abolished?

Trident General Insurance v Mc Niece Bros. (1988) This is a High Court case. Blue Circle Cement had contracted with Trident for the

provision of Insurance Services. The policy included the BCC as well as all of their contractors.

McNiece was a sub-contractor and one of his employees had an accident. The employee sued McNiece who was found to be liable. McNiece then tried to claim under his insurance policy. Trident argued that McNiece could not enforce the contract as he was not a party and not in a contractual arrangement with them, but with Blue Circle Cement. (they also argued that there was a lack of consideration, but this was rejected by the court for equitable reasons)

HC held that McNiece could claim on the policy and recover; however this was a split decision of 5:2. It was stated that to enforce the privity rule so strictly would not advance the enforcement of justice.

Mason CJ & Wilson J said: privity rule should be reconsidered (at the least in dealing with contracts of insurance); noted that the rule was illogical and had often resulted in unjust and unsatisfactory results for 3rd parties; it was unjust not to depart from privity rule in contracts of insurance especially where the 3rd party thought they were covered; too many exceptions – so why do they need this rule to complicate the law even more; in this case, the intention of the policy was to cover the contractors and subcontractors thus McNeice should be remedied.

Toohey J: also criticised the rule, but didn’t overrule it - held that the rule did not apply to these types of insurance policies

Deane J: said that there was still a doctrine of privity, but found for McNiece by applying an equitable trust as an exception to the rule

Gaudron J: found for McNeice by application of the equitable principle of unjust enrichment

Brennan & Dawson JJ: delivered separate dissenting judgments, whereby they agreed with the doctrine and said that it was not appropriate to overturn a well-established principle, and that justice could be sought for 3rd parties through equitable concepts (as exceptions to the rule)

We now have the Insurance Contracts Act 1984 (Cth) so in similar situations, the plaintiff (in the same position as McNeice, would be able to recover) – casebook p. 346 for extract of section 48. Section 48(1) provides: ‘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 his loss from the insurer in accordance with the contract notwithstanding that he is not party to the contract.’

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Barroora Pty Ltd v Provincial Insurance Limited This is a NSW Supreme Court Case that used the decision in Trident as a basis to allow a

beneficiary who was not a party, to enforce an insurance contract. The Supreme Court judges said that maybe only Mason & Wilson’s judgment applied to

insurance contracts only

Winterton v Hambros (1991) Federal Court decision Gummo J – pushed the idea that judges are getting rid of the privity rule – especially in

terms of insurance contracts

Hickey v Australian Rope Works (1998) Unreported judgment in Sup Ct Victoria per Beach J Sup Ct Vic distinguished the Trident rule to insurance contracts and held that privity still

lives

Thus until the High Court clears up the issue, as to whether Trident is only dealing with insurance contracts, or in the broader sense, the privity issue and rule is still up in the air. However, with Trident decision, we see more of the privity rule being put aside

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Performance and Breach

Performance:

(a) Order of Performance: Determining the order in which the parties to a contract must perform their respective obligations is a question of construction of the contract

(b) Prevention of Performance: Where a party cannot perform without the co-operation of the other party to the contract, an offer to perform is sufficient to make the other party liable. The offer to perform will be regarded as equivalent to performance insofar as the party refusing to cooperation will be liable in damages

(c) Discharge by Performance:i. Entire contracts: If A’s obligation to perform depends on B completely performing his or her

obligations, then B will not be discharged until she or he has completely performed and cannot there demand performance from A

ii. Substantial Performance: In certain, limited circumstances, the law will recognise substantial performance of a contract as sufficient to discharge the party required to perform. The parties may have expressed this intention or it may be implied from the nature of the obligations. However, substantial performance is not sufficient to discharge the promisor.

a. Hoenig v Isaacs [1952] 2 All ER 176b. Bolton v Mahadeva [1972] 1 WLR 1009

Exact performance/entire contract/lump sum contract:

This is the ‘entire contract principle’ A party will only be discharged from their obligations under a contract if they have

completed performance of the contract At common law, partial performance would not be enough Consequence: a party who has not completed performance can’t be fully paid Unless they’ve done all they promised to do, they’ll be treated as having done nothing at all

Cutter v Powell (1795) C was a sailor. He was to be paid 30 guineas on the basis that he ‘proceeds, continues

and does his duty as the 2nd mate’. Died 75% of the way through the voyage, and his wife requested a pro-rata payment of the wage he was owed – she sued for recovery of a proportionate amount

Court held that there was no payment owing as there was no entitlement to pay for part performance. This is called the

‘Entire Contract Principle’ Court held that the agreement was entire – and as it was not completed, plaintiff could not

succeed

Exceptions to exact performance:

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a) Severable/divisible contracts:

An agreement may stipulate that performance is to be completed in parts/segments; ie, a contract may indicate that some performance less than whole may be enough to confer rights of part performance on the party (e.g. payment at certain stages of construction)

Severability may be express/implied If this is so, then performance that is not entire may be sufficient for there to be partial rights on

that performing party – they have to be paid along the way

Government of Newfoundland v Newfoundland Railway Co (1888) Privy Council D (govt) agreed to grant 25,000 acres of land for every 5 mile section of railway

constructed to P (railway). P completed 25% of railway Court held that the reasonable intention of the contract was for D to pay P along the

way – D had to pay P for every 5 mile section – despite the fact that the whole agreement was no performed

Thus each 5 mile section is severable/divisable from the entire agreement

b) De Minimus rule

The law does not concern itself with trivialities - this means that a small or trivial aspect will not cause trouble for a contract

The law is unlikely to punish parties who perform more than substantial performance, almost exact performance, but not quite?

Shipton Anderson and Co. v Weil Brothers and Co (1912) Contract for 4950 tons, 55 pounds were delivered in excess. Court held that purchaser could not discharge the contract – it was only a trivial thing,

not an issue to discharge the contract

c) Substantial performance

Hoenig v Isaacs [1952] Party had finished work and P stated that he was not satisfied with the work and would

not pay him. Court held that the work was partly defective, but that this was correctable, and that

the defect was not trivial but was minor. Court used equity to state that D had ‘substantially’ performed the contract.

Court held that the party should be paid, but with a discount for the cost of the repairs that were still required

Deciding whether performance is substantial depends on the facts Performance can be considered substantial unless the failure goes to the root of the

matter

d) Acceptance of partial performance

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If the other party expressly or impliedly consents to anything less than the whole contract then this may suffice

Ie, if a party chooses to accept part performance then it may discharge the contract – unless the accepting party had no choice

Sumpter v Hedges [1898] P agreed to build 2 houses for D. Half way through he abandoned job because didn’t

have enough finance to complete. D arranged for 3rd party to finish work. P then brought suit of quantum meruit – an amount representing the work done

Court held the entire agreement rule applied – D had done nothing to show he accepted part performance and caused P to abandon job – and he didn’t have a choice in getting the 3rd party to finish the job

Thus court rejected claim, although it is possible that the court would consider substantial performance

e) Obstruction

If one party obstructs the other from the performance of the contract then it may be discharged

Startup v MacDonald (1843) S to sell oil to McD,; to be delievered in last 14 days of March. Delivery was made 8.30

pm 31 March. McDonald (D) refused it Court held the performance of the delivery at that time was sufficient as it fell in the

times stated in the contract Court held: D was obstructing performance by refusing it, and that P was entitled to be

paid

f) Sale of Goods Act

Would affect the Startup v McD case s 32 – reasonable hour s 33 – if less than agreed quantity is delivered, buyer has the option to reject all the goods or

accept and pay on a pro rata basis s 34 – buyer not bound to accept delivery by installment (unless agreed)

Breach:

Breach by failure to perform

One of the difficulties in relation to breach can be in deciding whether a breach of the contract has in fact occurred. In order to determine this, it is necessary to construe the provisisons of the contract to see whether there has been a failure to act as required. As a general rule, liability is ‘strict’, that is, negligence and intention are irrelevant, unless the contract provides for this

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It is important to remember that every breach gives rise to a right to damages. This is by far the most common remedy sought (and obtained) for breach of contract. The plaintiff must be able to prove their

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Mistake – problematic doctrine

Unilateral Mistake

One mistake or the other is mistaken about the legal meaning of a contract The mistake is such that it warrants setting the contract aside

o Not just one side is mistaken, but the other side knows they are mistaken – banks on it

o Two categories Mistake as to the terms of the contract Mistake as to the identity of the party

Mistake as to the term(s) of the contract:

Taylor v Johnson 1983 (High Court)o Bad behaviouro Unconscionability – underlying principle

Mrs Johnson granted Mr Taylor an option to purchase her land, 10 acres. Price set out in contract = $15000, Mrs Johnson thought it was $15000 per acre.

Evidence at first instance: Mr Taylor DID NOT KNOW Mrs Johnson had made a mistake

Court of Appeal, found that Mr Taylor did know that she had a made a mistake

High Court agreed with the Court of Appeal Adopted the principle established in Solley v Butcher Contract was voidable Equity makes the contract voidable if the non-mistaking party is

acting unconscionably

Mistake as to the identity of the party:

Someone has pretended to be someone else The ‘rogue’ Litigation is all about the rights of third-parties

o Contract between A and Bo B has pretended to be someone elseo Obtained the goods of the contract under false pretenceso B has sold the goods to Co Does C get to keep the goods?

Cundy v Lindsay (1878) o Posed as the company – rented a room in the same street as the company he posed

as (Blend Kirron)o Lindsay = manufacturers of linen

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o Wrote a letter to Lindsay, requesting linen, signed Blend Kirron & Co Sent the linen to the address Without payment – thought they were reputable Blend Kirron & CO sold the linen to Cundy (no knowledge)

Cundy further on-sold the lineno Blen Karn convicted of fraudo Lindsay wanted their linen back from CUndy – on the basis of the tort of conversion

– dealing with property you are not entitled too Lindsay argued that the original contract should be void, because they thought they

were contracting with Blend Kirron, but had actually contracted with a rogue Therefore should be void Thus, the rogue never had title to the linen Then they couldn’t legally sell it to Cundy Thus, Cundy had not title to the linen

o Cundy won at first instanceo Court of Appeal, found in favour of Lindsayo House of Lords, found there had never been a contract, therefore void – because of

the mistake of identity Decision has been criticised Though, it is theoretically correct Leads to a pretty harsh result for the third party who has no notice of the

wrongs that may have occurred Lewis v Averay

o Contract formed face-to-faceo Mr Lewis, wanted to sell his mini coopero Rogue answered the advertisement as Richard Greene, here’s a cheque in the name

of Richard Greene, here’s a car-park pass with my name on ito Lewis accepted the chequeo Very quickly, Greene, on-sells the car to Averayo The cheque he has given to Lewis bounceso Lewis sues Averay to get the car back

Issue: is this contract valid? Court found it was (Lord Denning)

Mistake to identity does not make the contract void, makes it voidable – departure from Cundy v Lindsay

Equitable approach for the 3rd party – principles of equity require that the rights of third parties are taken into account

Thus the contract was not voided Could be voidable for fraud

Mistake that has been made is not to the identity of the individual but their credit-worthiness

Lewis should have protected himself

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Third-party was not in a position to be able to protect

Rectification of documents:

Purely mechanical mistake on the face of the document The document does not represent the true agreement of the parties Maralinga Pty Ltd v Major Enterprises Ltd (1973)

o Rectification is one of the accepted exceptions to the parol evidence rule Has to be consideration for variation Must bring evidence to the court

Non est factum – this is not my deed:

Restricted doctrine If it is non est factum then the contract is void (this contract never existed) Carelessness is not sufficient

o Someone who is illiterate or blind or induced by fraud (think they are signing something completely different)

o The document signed is fundamentally different to the document they thought they were signing

o Someone really taking advantage of someone to get them to signo Petelin v Cullen

Petelin had limited English skills Entered into an option When that expired Was told he was signing a receipt for the first option – in actual fact, it was a

new option