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Offer p.

39 28/5/07 9:12 AM

Definition of offer:

A promise to do, or refrain from doing something (by the offeror) upon
condition that the other party (the offeree) agrees to do or refrain from
doing something else.

Intention to be bound by an agreement:

Offer need not always be readily & separately identifiable, something


must clearly indicate that the parties intended to deal on (& be bound by)
particular, clearly defined terms. Parties must have a ‘meeting of the
minds’. Courts will look @ surrounding circumstances

TEST:
• Brambles Holdings Ltd v Bathurst City Council (2001) 53
NSWLR 153
• Heydon JA
o “It relevant to ask, can agreement be inferred? Can Mutual
assent manifested? would reasonable person in the
position of plaintiff/defendant think there was a concluded
bargain?”

Intention to deal can be implied from conduct…

Clarke v Dunraven [1897] AC 59


COURT:
• House of Lords (on appeal)
FACTS:
• Yachts entered in club regatta
• Sent letters before regatta to be bound by club sailing rules
• Rules stated “liable for all damages arising therefrom”
• D (Clarke)’s yacht fouled & sank P (Dunraven)
• D denied any contract ∴ no liability
HELD:
• D liable
• There was a contract (hard to discern offer/acceptance)
• Parties had clear intent to create contractual obligation
ANZ Banking Group v Frost Holdings [1989] VR 695
COURT:
• Supreme Court of Victoria
FACTS:
• D agreed to purchase calendars subject to redesign by P (no
signed contract yet)
• After redesign = change in $, size and paper to be used
• D changed mind, P sued for breach
HELD:
• No contract, there was still negotiations over essential terms
• No ‘meeting of minds’ between parties
• Courts distinguished this case from case where parties left one
essential term out to be decided at a later date (and took steps
towards deciding = contract

No formal language is needed to make an offer…


• Provided language clearly shows intention
• Fitzwood v Unique Goal (2001) 188 ALR 566

What constitutes an offer?

1. Must be distinguished → ‘supply of information’


2. Must be distinguished → ‘invitation to treat’
3. Can be made to a person, class of people or ‘offer to the world @
large’
4. Must be communicated to persons intended
5. Must not be a counter/cross offer
6. May be revoked anytime prior to acceptance (Termination of Offer)

1. Supply of Information
The mere supplying of information requested or otherwise is not an offer
to deal…

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Harvey v Facey [1893] AC 552
COURT:
• Privy Council
FACTS:
• P (Harvey) telegrammed D (Facey) “Will you sell us Bumper Hall
Pen? Telegraph lowest cash $.”
• D → “Lowest cash $ for Bumper Hall Pen £900”
• P → “We agree to buy Bumper Hall Pen for £900 asked by you…”
• D did not reply and refused sale, P sued
HELD:
• No contract
• Second telegram and supply of information not an offer
• 3rd telegram (sent by P) was an offer

2. Invitation to Treat
Invitation to treat is an invitation to others to come forward and make me
an offer. It signals a readiness to receive offers. Situations of invitation to
treat:
• Advertising, circulars & newspapers
o Advertising goods for sale not an offer
o Grainger & Sons v Gough [1896] 2 All ER421
• Displays of goods in shops
o Display on shelves ϖ prices marked ↓
Pharmaceutical Society (GB) v Boots Cash Chemists (Southern)
Ltd [1952] 2 QB 795
COURT:
• UK Court of Appeal
FACTS:
• Self service pharmacy
• P brought action against D (Boots) under Pharmacy & Poisons
Act 1933 (UK) → selling of certain poisons was unlawful unless
taken place under pharmacists supervision
HELD:
• Display constituted an invitation to treat, customers offered to
buy goods when they took them to the counter
• Boots decided to accept the offer at the counter

• Display of goods in window of shop ϖ prices marked

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o Treated as invitation to treat
o Fisher & Bell [1961] 1 QB 394
o Lord Parker:
 “It is perfectly clear that according to the ordinary
law of contract the display of an article with a price
on it in a shop window is merely an invitation to
treat. It is in no sense an offer for sale, the
acceptance of which constitutes a contract.”

• Auctions
o Auctioneer’s call for bids is just an invitation to treat
o Bid is an offer, accepted at the fall of the hammer
 Payne v Cave (1789) 100 ER 502
 British Car Auctions v Wright [1972] 1 WLR
1519
o Auctions ‘without reserve’ are still yet to be established in
common law. Obiter dicta of Martin B in Warlow v
Harrison (1859) 1 E&E 309 suggests that it does
constitute an offer. This was followed in:
o Ulbrick v Laidlaw [1924] VLR 247

• Tenders
o Call for tenders is an invitation to treat not an offer…
o Spencer v Harding (1870) LR 5 CP 561
o unless stated in the call to tender that they would accept
the highest option↓
o Harvela Investments Ltd v Royal Trust Co of Canada
Ltd [1986] 1 AC 207

3. Offers to the ‘World @ Large’

Only the person or class of person to whom an offer is intended may


accept it. An offer may be intended for the world @ large, creating
separate contracts for every individual who accepts. This most commonly
appears in:
• reward cases, where the reward is offered for whomever
performs the act; or

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• prove me wrong cases, where the reward is offered for anyone
that can prove a extravagant pitch about something↓

Carlill v Carbolic Smoke Ball Co. [1983] 1 QB 256


COURT:
• UK Court of Appeal
FACTS:
• D (Carbolic) advertised £100 compensation for anyone who
contract influenza after using our product. Advertisement went
on to say £1000 has been deposited into an account to show
sincerity of offer.
• P (Mrs Carlill) bought and used smoke ball as directed and
caught influenza. Her £100 claim rejected, so she sued D
• D stated that advertisement, not an offer but ‘salesman puff’
o Obviously far-fetched statement to induce contract but not
intended to form part of the contractual obligation. See:
o Leonard v PepsiCo Inc 88 F Supp (SDNY 1999), aff’d 210 F
3d 88 (2nd Cir 2000) [7,000,000 pts = Harrier Jet case]
• D also stated P had not accepted offer
HELD:
• Offer to the world @ large, acceptance is buying smoke ball,
consideration is using it ∴ contract
• Not ‘salesman puff’ because of statement deposit of £1000

Limiting offers to the world @ large


• Terminology
o The term ‘offer’ does not always mean offer in a legal
sense… i.e. ‘Today’s Special Offer’ would be an invitation to
treat
• Limiting possible acceptors
o ‘one per customer / ‘first 20 customers’
o ‘while stocks last’
 Lefkowitz v Great Minneapolis Surplus Store 86
NW 2d 689 (Minn. 1957)
 Fur Coat Case: Man tries to buy one of three
$1 fur coats (limited to first come first served
when store opens 9pm Sat). Store told man
coats only for women, he sues and wins

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because newspaper advertisement offer not
invitation to treat.

4. An Offer must be Communicated to Persons Intended

An offer cannot be accepted unless it has been communicated. The


existence of the offer must be clear in the offeree’s mind at the time of
acceptance. This problem comes up a lot in ‘offer for information’ cases.
• Cannot later try to enforce the contract at a later date when you
gain knowledge of its existence:
o Fitch v Snedaker 38 NY 248 (1868)
o Gave information without knowledge of reward but then
tried to claim reward at a later date. The plaintiff sued for
reward → failed: actions were not referable to the offer
• Motive for acceptance is immaterial if knowledge of offer is clear
in the mind of the offeree at time of acceptance:
o Williams v Carwadine (1833) 5 Carr & P 566, 172 ER
1101
o Plaintiff gave information of a murder. Knew of offer for
reward but gave information in remorse of her own
conduct and to ease conscience not for the $. She stated
this fact. → She was entitled to $
• Although knowledge is essential, it is not enough. The existence
of the offer must be clear in the mind of the offeree at
acceptance. Acceptance must be a result of, and in response to
the offerors offer.
o R v Clarke (1927) 40 CLR 227
o WA police gave information for reward of two policemen.
Clarke gave information after he was arrested, he knew of
reward but gave information to save himself from the
murder charge. → Not entitled to $. The offer was not clear
in his mind at the time of acceptance, he had forgotten
about the $ and was giving information to save himself.
• Offers are expected to be made with some care so they are not
bound to obligations they cannot meet. The offerors liability will
depend upon the way in which the terms of the offer are
construed:
o Patterson v Dolman [1908] VLR 354

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o Defendant offered 1 pile of hay to 2 parties, there was
nothing in the contract about first to come forward. Both
parties accepted on the same day and he was found liable
to supply both parties.

5. Cross-Offers & Counter-Offers

Cross-Offer
• Occur when two parties send each other offers to one another at
the same time. These offers are exactly or substantially the
same. This does not result in a contract.
o Tinn v Hoffman & Co (1873) 29 Lt 271
o Parties wrote an offer to one another on same day with
exactly same terms. P tried to enforce → no contract

Counter-Offer
• Occur when a party indicates a willingness to deal on slightly
different terms than the original offer but still in respect of the
same subject matter. The original offer is rejected, and
substituted with the new offer. The original offer cannot be
accepted after a counter-offer is made.
o Hyde v Wrench (1840) 3 Beav 334; ER132
o D (Wrench) offered to sell farm for £1000. P replied with
an offer for £950 which D refused. P then said he would
pay £1000. D refused to sell & P sued → original offer had
lapsed ∴ no contract

The Battle of the Forms


• Each new form is viewed as a counter-offer. The terms of the
offer are contained in the last form submitted
o Butler Machine Tool Co Ltd v Ex-Cell-O Corporation
(England) Ltd [1979] 1 WLR 401
o P form had a clause that they could raise price of machine
tool. D returned form that did not have clause. P signed
D’s form, then raised price. D refused to pay → did not
have to pay, last offer was D’s and that did not have
clause.

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6. Termination of Offers
Revocation
• Revocation by the offeror before acceptance is absolute even
when they promise to keep offer open
o Routledge v Grant (1828) 4 Bing 653; 130 ER 920
o D offered to buy P house. Gave P 6 weeks to think about it
but revoked offer. P sued → failed: D entitled to revoke
• Unless there is consideration provided to keep the promise. In
this case a separate contract is formed to keep the offer open
o Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR
674
o D offered P land with an option to buy it within the week. D
paid 5 shillings to keep option open. P accepted within the
week however D withdrew offer. P sued → was a contract
for offer (because consideration), court ordered specific
performance
• Communication of revocation
o No specific law → just the offeree must become aware of it
even if that is via a third party
o Dickinson v Dodds (1876) 2 Ch d 473
o D offered to sell P some houses with the option open until
Friday. During the week D sold houses to a third party. P
heard of this from another source but tried to enforce
contract → Failed, offeree can become aware of revocation
from a reliable source other than the offeror
o Offers to the world @ large are revoke in the same way
they are advertised: i.e. newspaper advert

Rejection
• If an offer is rejected it cannot, at a later date, be accepted.
• If acceptance is communicated by a faster medium than
rejection, the acceptance will stand (and vice versa).

Lapse of time
• Time can terminate offers:
o Where the offeror imposes a time limit in an express
stipulation…

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 Dickinson v Dodds (1876) 2 Ch d 473 (see
above)
o An implied time consideration:
 Once a ‘reasonable time’ for acceptance has expired
 Cite: Ramsgate Victoria Hotel v Montefiore
(1866) LR 1 Ex 109
 What constitutes a ‘reasonable time’:
 Consider a create of tomatoes? When it goes
off the offer will no longer me good...
• look at what the item is
• look at the way it was expressed
o Both questions of fact
 Cite: Manchester Diocesan Council for
Education v Commercial & General
Investments [1970] 1 WLR 241

Change of circumstances
• Circumstances where the offer no longer become viable
• See ‘frustration’:
o Can be quite complicated if the contract did not clearly
stipulate ‘use’ of the frustrating

Failure of a (pre) condition


• ‘subject to finance’
• ‘subject to legal advice’
Cite: Commonwealth of Australia v Antonio Giorgio Pty Ltd
(1986) 26 ALR 244

Death of a party
• Death of the offeror
o If the offeree receives notice of the death before
acceptance → offer is terminated
 Cite: Fong v Cili (1968) 11 FLR 495
o If the offeree does not receive notice the estate of the
offeror can be bound:
 Cite: Bradbury v Morgan (1862) 158 ER 877

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o NB: The contract will have to be one that does not require
personal performance by the offeror → i.e. if the offeror
had some unique skill the contract will not be enforceable
• Death of the offeree
o Offers are regarded as being personal in nature… ∴ if the
offeree dies then the offer lapses
 Cite: Reynolds v Atherton (1921) 125 LT 690
o If the contract clearly not ‘personal’ then it can be
accepted by the deceased estate:
 Cite: Carter v Hyde (1923) 33 CLR 115

Supervening incapacity = offer will lapse


• Accident
• Loss of capacity

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Acceptance p.71 28/5/07 9:12 AM

Definition of accepted:

Acceptance is the final unqualified assent to the terms of the offer, made
in the manner specified or indicated by the offeror. It can either be made
by action or by some implication of conduct.

Qualifications:

Acceptance must be communicated to be effective.


• Silence can not be form of acceptance
o Felthouse v Bindley (1862) 11 CB (NS) 869; 142 ER
1037
 “If I hear noting more I will assume the horse is
mine” (actually suing the auctioneer that went on to
sell the horse)

Acceptance must be communicated by the acceptor or an authorised


agent.
• In other words… An offer can only be accepted by the person to
whom the offer is made. Unless a third party is considered in the
contract:
o “X or his nominee”
o “X or his lawful assignee”
• Others who accept contracts not made to them have no legal
rights ↓

Boulton v Jones (1857) 2 H & N 564; 157 ER 232


FACTS:
• Jones, who had previously dealt with Brocklehurst, sent him an
order for 50 feet of leather hose. Unknown to Jones, Boulton had
taken over Brocklehurst’s business that very day.
• Boulton filled the order without telling Jones about the change of
owners.
• Jones had only placed the order to reclaim a debt with
Brocklehurst and refused to pay
• Boulton demanded payment
HELD:
• Jones was not liable; he only intended to contract ϖ Brocklehurst
and never contemplated dealings with Boulton

Conduct can constitute acceptance.


• If conduct indicates that a mutual belief that a contract has
arisen
• Brogden v Metropolitan Railway Co (1877) 2 App Cas 666
o Brogden had been supplying coal for years to Metro &
asked for a written contract to be constructed. A draft was
written up by Metro and sent to Brogden who changed it
and sent it back. And it was filled @ Metro.
o The parties then began to deal on the terms of that
contract (debatable whether by law they had a formal
contract but the parties intended it to be). Brogden
disavowed contract because there was no formal
acceptance to his offer.
o Courts found there was a contract → intention of parties to
be bound to those terms.

The offeror may stipulate the method of communication of acceptance.


• If a method is stipulated as the ‘only way’ then it is the only way
that will be binding
• If not stipulated as the only way, and way no less advantageous
may be used (usually determined by speed of communication).
o George Hudson Holdings Ltd v French (1973) 128
CLR 387; French personally delivered an acceptance of a
share offer rather than mail → was acceptance.
• If no method is stipulated the method must be reasonable &
advantageous to the offeror.
• POSTAL ACCEPTANCE RULE
o Where the parties contemplate acceptance by mail,
acceptance occurs when the letter is properly posted, not
when the offeror receives the letter.
o Cite: Adams v Lindsell (1818) 1 B & Ald 681; 106 ER
250
o Contemplate = If offer sent by mail. Postal rule not
applicable if it would create absurdity.

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 British & American Telegraph Co v Colson
(1871) LR 6 EXCH 108
o Negation of Rule – Clause: “I must receive your acceptance
for it to be affective” OR clear intention of actual
communication.
 Holwell Securities Ltd v Hughes [1974] 1 All ER
161
 “by notice in writing to the intended vendor at
any time within 6 months” → interpreted to be
implied actual communication ∴ no contract
o If acceptance was not received through some fault of the
acceptor the postal rule will not apply. i.e.
 Mis-addressed
 Mis-stamped
 Incomplete address
 Getreide-Import GmbH v Contimar SA
Compania Industrial, Comercial y Maritima
[1953] 1 WLR 207

Acceptance cannot occur before an offer is made.

An act done in ignorance of an offer cannot constitute an acceptance of


that offer.
• Fitch v Snedaker (1868) 38 NY 248 (see Offer)
• The offer must be present in the mind of the acceptor when
acceptance occurs
o R v Clark (1927) 40 CLR 227 (see Offer)

What may be accepted:

Only what is offered may be accepted. Any addition, deletion or


qualification will be viewed as a collateral contract. An exception to this
rule is agreements expressed to be ‘subject to contract’. Determining
‘subject to contract’ is a matter of establishing finality.

Agreements ‘subject to contract’.

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Three categories discussed in Masters v Cameron (see below)
1. Where parties have reached final agreement on the terms of the
agreement, intend to be immediately bound to those terms, but want
those terms to be set out in more precise, but not materialistically
different form
• Godecke v Kirwan (1973) 129 CLR 629
o Statement in the contract (document headed offer &
acceptance) to provide for extra terms in contract so long
as they are not inconsistent with those already agreed.
2. Where the parties have reached final agreement on the terms of the
agreement & do not intend to alter their agreement, but want to defer
performance until it has been incorporated into a formal document
• Niesmann v Collinridge (1921) 29 CLR 177
o Appellant agreed to give respondent the ‘firm offer’ to sell
his farm for £1000. £500 upon signing the contract and the
remainder within 3 years. Finality had been reached in the
oral ‘firm offer’ and the formal contract did not change
alter what the parties had already agreed. (contract
stands)
3. Where the parties do not intend to make a concluded bargain unless
and until they sign a formal contract↓

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Masters v Cameron (1854) 91 CLR 353
FACTS:
• The parties signed a memorandum whereby Cameron agreed to
sell to Masters his farm for £17,500. Masters paid a 10%
deposit. The memorandum contained the clause “This agreement
is made subject to the preparation of a formal contract of sale
which shall be acceptable to my (Cameron’s) solicitors on the
above terms and conditions”. The sale did not eventuate.
HELD:
• The parties had not reached finality and the contract was not
enforceable. It still had to pass Cameron’s solicitors and
presumably they would have altered it quite substantially.

Finality.
Whether parties have reached finality (arrived at the final agreement on
which they wish to be bound) is decided by examining on the parties
intention – either by their language and/or inferred from their conduct.

Kirby P summarised this in Geebung Investments v Varga


Investments (1995) 7 BPR 14,551
• Fact that parties contemplate execution of formal contract does
not mean informal agreement is not presently binding.
• Fact that parties contemplate execution of formal contract may
lead to the conclusion that no present agreement is binding until
that formal contract is executed.
• Existence of important matters on which the parties have not
reached consensus make it less likely that they intended to be
bound by the informal agreement.
• Conduct can be examined to determine whether parties had
reached final agreement. If correspondence between the parties
makes mention of terms and conditions not included in the
informal agreement likely = preliminary negotiations rather than
binding agreement.
• The higher the complexity of the issue → (its likely) the higher
the complexity of the agreement. ∴ a simple informal agreement
is unlikely to final for a complex issue.

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• A large consideration/transaction will probably have a significant
agreement
• Complexity of subject matter and use of solicitors to draft
contract is also a consideration.
• Correspondence must be examined as a whole. Must not isolate
one section of correspondence to prove or disprove the existence
of informal contract.
• Essentially:
o As the Queensland Supreme Court stated in Commercial
Bank of Australia v G H Dean & Co Pty Ltd [1983] 2
Qd R 204
 Presumption is that no contract exists
 Unless the parties have agreed on all matters which
in law amount to a concluded contract; and
 They intend the execution of a written contact to be
a mere formality.

Acceptance of vague or incomplete contracts:

If a contract is to vague or uncertain and the courts cannot clearly do


justice they will not enforce the contract.
• Whitlock v Brew (1968) 118 CLR 445
o Whitlock to sell land to Brew on condition that he lease a
portion of his land to Shell (3rd Part) “upon such reasonable
grounds that usually govern such a lease”. Brew had put a
deposit down. Brew changed his mind and sued for his
deposit back.
o The courts found that the contract was to vague and would
not enforce it as to do so would mean they would have to
write a lease for Shell. → Brew could get his deposit back.
• Cite also: G Scammell & Nephew Ltd v H C and J G Ouston
[1941] AC 25; Ouston to buy a van and pay balance on “hire
purchase terms”

HOWEVER:
The courts will uphold contracts if possible… They will always try to do
justice by seeking out the intention of the parties and upholding the

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contract. Courts will look at ‘prior course of dealings’ to ascertain missing
information.
• Hillias & Co v Arcos Ltd (1932) LT 503
• Contract to buy 22,000 standards of softwood goods. Arcos
reneged and stated contract to vague because it didn’t have
shipment or type of wood.
• Prior course of dealings used by court to ascertain missing detail
so upheld contract against Arcos.

Incomplete Contracts
• Same notion as above, courts will seek justice for the parties but
will not add essential terms.
• The courts ability to imply missing terms is limited to a few
minor terms that are needed to make the contract work as it was
intended to work.
• Courts can infer a ‘reasonable price’ if price is missing from a
contract → Sale of Goods Act 1985 (WA)
• ANZ Banking Group v Frost Holdings [1989] VR 695 (at
702)
o Kaye J: “The law does not permit a court to imply a term
into a bargain between the parties for the purposes of
making their bargain an enforceable contract.”
o → Terms will only be implied to give commercial effect to
contract that are already legally enforceable.

Agreements to Agree
• Generally not enforceable → nothing to enforce
• Are circumstances where substantial agreement has been
reached bust the parties have elected to leave one or more of
the terms to be decided later (either by themselves of a third
party) → can be binding
o If missing terms can fairly & objectively be ascertained or
there is some mechanism proved for in the contract to
resolve missing terms
o The intention of the parties is to be immediately bound
• Hawthorn Football Club v Harding [1988] VR 49
o Harding agreed to play for Hawthorn 1987, 1988 & 1989
under the term “as agreed between the parties as being

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fair and reasonable” & any dispute would go to arbitration.
Hardin disavowed the agreement claiming it was
incomplete and unenforceable. Hawthorn sued.
o Contract enforceable. Clear mechanism to resolve
incomplete contract & parties intended to be bound.
• Cite also: Booker Industries Pty Ltd v Wilson Parking (Qld)
Pty Ltd (1982) 149 CLR 600; Vague rental provision of car
park with provision to go to arbitration. Contract upheld against
Booker.

Meaningless Statements
• A well-constructed clear contract can sometimes contain a
clause(s) that are meaningless & vague when the contract is
read as a whole.
• An action to dismiss the contract in regards to this contract will
fail if the meaningless clause can be severed without affecting
the substance of what was agreed.
• TEST: if the parties intended that if the clause, for whatever
reason, could not take effect, would the whole contract fail?
o Fitzgerald v Masters (1956) 95 CLR 420
o South Coast Oils Pty Ltd v Look Enterprises Pty Ltd
[1988] 1 Qd R 680

Revocation of Acceptance

Acceptance can be revoked provided the revocation is communicated to


the offeror before acceptance.

Revocation & The Postal Rule


• Revocation by a faster means is not possible in this situation.
• Revocation of acceptance would be treated as recision.
• Offeror can chose to either accept the recision, or enforce the
contract based on the postal acceptance (should they know of its
existence).
• The offeror would not be disadvantaged by the court if they
relied on the recision, but then were challenged by the offeree
enacting the postal acceptance.

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• Conversely the courts would no let the offeror act on the recision
and then later try to enforce the postal acceptance.

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Intention to Contract p.97 28/5/07 9:12 AM

Lead-In…

(A) & (B) were married, and subsequently split. During the marriage (A)
promised (B) a seaside villa in Tuscany if (B) promised to park on the left
side of the garage. (B) did this and now wishes to enforce the contract for
the seaside villa in Tuscany. Advice (B)?

TEST:
NB:
• Courts aren’t concerned about commercial equity between
consideration parties provided.
• Courts are very loathed to get involved on the domestic sphere.
• A deed, signed, sealed and witnessed, needs no consideration
and will always be viewed by the courts as a contract.

The test of intention is objective:


• The court does not discover intention by looking in the minds of
the parties.
• Courts use a ‘Reasonable Person Test’
• It looks at the situation in which the parties are placed and asks:
‘Would reasonable people regard the agreement as one in which
was intended to be binding’.
• Determined upon
o What was decided;
o Surrounding circumstances;
o Wording of the agreement;
o Effect of the agreement upon parties; and
o Have parties acted as though bound by the agreement
Merritt v Merritt [1970] 1 WLR 1211
 Mr Merritt and his wife had split. He agreed to
transfer property into her name after she finished
paying the mortgage. Mrs Merritt finished paying and
Mr refused to transfer property.
 Courts held this was a commercial contract and
enforced it.

Presumption of Social & Domestic Agreements


= no intention of agreement to be legally enforceable → courts will refuse
to get involved
• E.g. Husband & Wife | Other Family Relationships | Social Clubs,
Societies, Interest Groups & Political Parties

Social & Domestic Agreements = ‘Consensual Contract’


Agreements that are binding in conscience but lacking in any contractual
force
• Husband & Wife
o Balfour v Balfour [1919] 2 KB 571
 £30 p/month allowance while she was in England
until she returned (he was in Ceylon). She never
returned, he stopped payment, she sued
 Domestic agreement ∴ courts will not enforce
o Cohen v Cohen (1929) 42 CLR 91
 £100 annual dress allowance, paid quarterly to wife.
Husband/Wife split and she sued (inter alia) for dress
allowance.
 Domestic agreement ∴ courts will not enforce
• Other Family Relationships
o Murphy v Simpson [1958] VR 598
 Simpson (senior) died leaving his house to his
daughter. Administration of estate handled badly
(took a long time) & in the mean time his son moved
in to look after house. Daughter sought to evict
brother as administrator. Brother agrued that they
had contract that he could live there so long as he
paid all outgoings.
 Domestic agreement ∴ courts will not enforce
• Social Clubs etc
o Cameron v Hogan (1934) 51 CLR 358
 Hogan, ex-Labor Premier of Victoria was refused re-
endorsement by the party’s state executive and was
expelled from party. Hogan stated that this breached
a contract he had with the party.
 Domestic agreement ∴ courts will not enforce

Rebutting the Presumption of Social & Domestic Relationships

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To establish: “Would reasonable people think that this agreement was
intended to be legally binding?” courts look at:
• If the relationship between the parties involves property or
economic entitlements, such as salary, the ‘consensual contract’
may have evolved into a contract. Facts as to the intention of the
parties and nature of the consideration is examined↓

Ermogenous v Greek Orthodox Community (2001) 209 CLR 95 ©


COURT:
• High Court of Australia (on appeal from full SA Supreme Court),
Gaudron, McHugh, Kirby, Hayne & Callinan JJ
FACTS:
• Former Archbishop of Greek Orthodox Church in Australia.
• Resigned and asked to be paid out for unused annual service
leave & long service leave.
• Refused by church ≈ no contract
HELD:
• Relationship, although pre-eminently a spiritual one, had clear
economic entitlements. There was no reason to presume that
there had been no intention to enter into legal relations.
o Also cite:
o Roufos v Brewster (1971) 2 SASR 218
 Mr & Mrs Brewster ran motel business in Coober
Pedy. In the same town there son-in-law, Mr Roufos
ran a general store. Mrs Brewster organised with her
daughter, Mrs Roufos, for Mr Roufos to take their
truck on the back of his semi-trailer to Adelaide for
repairs with the provision that he may engage a
driver to bring it back to Cooper Pedy filled with his
own goods. On the way back the truck was
damaged.
 Courts (Bray CJ) held that this was a commercial
arrangement.
o This case highlights the courts changed presumed stand
point for commercial and domestic arrangements (also
Ermogenous). Courts now morel likely to sit in the middle
and consider objectively commercial or domestic.

Peter Sadler Contract Law 22


• Intention to create legally binding agreements often occur in
normal domestic spheres when parties attempt to finalise
relationships when marriage or relations break down…
o See Merritt v Merritt [1970] 1 WLR 1211 above ↑
o McGregor v McGregor (1888) 21 QBD 424
 Husband, in splitting from his wife, and in prevention
of a assault summons, promised wife weekly
maintenance sum.
 It was not a day-to-day arrangement but a way to
facilitate separation, and the parties intention was for
it to be binding.
o Another way the courts objectively examine intention of
the parties is to look at the consequences of acting in
reliance of the agreement↓

Wakeling v Ripley (1951) 51 SR (NSW)


FACTS:
• Defendant, a bachelor, lived alone in Sydney.
• 1946 wrote a letter to sister & her husband, a Cambridge
University Lecturer (in UK) to come live with him.
• In consideration of this he would provide them with a place to
live and leave his property to them in his estate.
• He left job, they sold house and moved to Sydney.
• A year later they quarrelled and defendant reneged on his
promise claiming it was a domestic agreement.
HELD:
• Seriousness of consideration, i.e. moving to Australia, made this
a binding legal contract rather than a domestic arrangement.

Presumption of Commercial Arrangements:

Presumption is parties intended to be legally bound. Successful rebuttal of


this presumption requires clear evidence that this was not the intention.
Courts will not uphold contracts that are clearly puff:
• Leonard v PepsiCo Inc 88 F Supp (SDNY 1999), aff’d 210 F
3d 88 (2nd Cir 2000)

Peter Sadler Contract Law 23


o Promotional gimmick whereby Pepsi offered a range of
products for points (obtained by buying Pepsi products or
paying 10c a point). In the advertisement the final scene
was Harrier Jump Jet = 7,000,000 Pepsi points.
o Leonard acquired points & after claim being rejected sued
o Held it was clearly intended to inject humour into
advertisement. No reasonable person would ever imagine
that Pepsi would, or could, supply a Harrier Jump Jet.
Courts will not uphold contracts that are clearly jokes:
• Keller v Holderman (1863) 11 Mich 248
o Keller gave Holderman a cheque (that was not honoured)
for $300 for a watch worth $15.
o It is clear in consideration that neither party intended this
to be binding.
• Nyulasy v Rowan (1891) 17 VLR 663
o Defendant verbally offered to purchase shares from
plaintiff. Defendant later refused to buy them stating it was
all a joke. Evidence was adduced showing the plaintiff and
a number of others had taken him seriously.
o Held that there was a legally binding contract…

Honour Clauses [Expressly Excluding Intention]:

Express stipulation that agreement is not meant to be legally binding.


Accepted by the court of law:
• Rose & Frank Co v Crompton (JR) & Bros Ltd [1925] AC
445
o English and American companies made a record of
expression to deal with each other for 3 years, giving 6
months termination notice should agreement fail within 3
years. There was a statement that this was binding in
honour only. English company terminated agreement
without notice.
o Held there was no intention of expression being binding.
English company was not bound to give notice of
termination.
Must be careful in wording of honour clause:

Peter Sadler Contract Law 24


• “This agreement does not give rise to any legal relationship, nor
does it intended by the parties that legal consequences shall flow
from it.”
o ✓ This clause denies the existence of a contract and will be
upheld by a court.
• “No court shall have power or jurisdiction to arbitrate in respect
of any matter arising out of this agreement or any breach
thereof.”
o ✗ This clause acknowledges existence of contract but
attempts to exclude the jurisdiction of the courts to
adjudicate in respect of it.

The clause must be clear, although one or both of the parties may intend
to make it an agreement in honour, this must be manifestly apparent by
their words. Courts will disregard words used and look at surrounding
circumstance to ascertain intention if any ambiguity. (no adequate
citation)

Peter Sadler Contract Law 25


Consideration p.111 28/5/07 9:12 AM

Lead-In…

When (A) makes a promise to (B), (B) MUST do something in return.


Otherwise that promise will not be enforceable.

Definition:

Lord Dunedin adopted Pollock’s definition (from Pollock on Contracts, 8th


ed, p.175) in Dunlop v Selfridges [1915] AC 847
• “An act or forbearance of one party, or the promise thereof, is
the price for which the promise of the other is bought, & the
promise thus given for value is enforceable.”

Consideration can take the form of either:


• A benefit to the promisor
• A detriment to the promisee incurred at the promisor’s request:
o Hamer v Sidway 124 NY 538, 27 NE 256 (1891)
 William Story I promised to pay William Story II
(nephew) $5,000 if he refrained from drinking,
smoking, gambling & swearing until he was 21.
Nephew complied, & upon reaching 21 Story I said
he wished to pay when nephew was older (+
interest) as it was a lot of money for a young man to
have. Story I died without paying, Louise Hamer (on
assignment) sued Story I executor Franklin Sidway.
Sidway argued Story II had not provided good
consideration, courts decided forbearance is good
consideration.
• Examples of valid consideration (acts or forbearances):
o Money (goods or chattels) | Forbearance of a Right (legal
or otherwise) | Forbearance of an action | Interest payable
| Required inconvenient Action | An Undertaken
Responsibility/Obligation.

A failure to provide good consideration can be seen in:


• Parastatidis v Kotaridis [1978] VR 449 where:
o The plaintiff lent $9,000 interest free to the defendant &
promised not to seek repayment for two years. Before the
period was up he demanded the return of the money.
Defendant refused.
o It was held the plaintiff was entitled to be repaid.
Defendant had not given any consideration for the
promise.

Features of ‘Good’ Consideration:

Consideration must move from the Promisee… OR


From someone acting as the promisee’s agent cite:
• Fleming v Bank of New Zealand [1900] AC 577
o Agent of Fleming arranged for 4 cheques to be honoured
by bank. 2250 of Fleming’s sheep as consideration. Bank
did not honour because consideration came from agent.
Bank lost.
But it need not move to the promisor. Conferring a benefit on a third
party, at the request of the other party to the agreement is valid
consideration cite:
• Bolton v Madden (1873) LR 9 QB 55
o The parties were members of a charitable organisation. He
would sponsor a particular child if the other sponsored
another particular child. Madden did not sponsor & claimed
consideration gave him no benefit. Madden had to pay.

Joint Promisees:
• B & C agree that A may use B’s resources
• A is paying consideration to B & C
• C may still enforce the contract even though consideration only
comes from B
• Doctrine of Privity presents no problem as outlined by Barwick CJ
& Windeyer J in the High Court case:
o Coulls v Bagot’s Executor & Trustee Co Ltd (1976)
119 CLR 460
 (on appeal from SA Supreme Court)

Peter Sadler Contract Law 27


 Mr Arthur Coulls allowed O'Neil Construction
Proprietary Ltd to quarry stone from his land for £5
+ royalties of £12 p/week paid to him or his wife
Dorris Coulls (as joint tenants) whoever is the living
partner. After he died they stopped paying. → HC
say she was joint provider of consideration.

Consideration in Unilateral contracts:


• i.e. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 =
offers to the world at large
o The act of forbearance itself constitutes consideration; Mrs
Carlill had put herself to some inconvenience at the
companies request.

Timing of Consideration
Consideration may be executory, executed but not past:
• Executory: act of forbearance still to be completed
• Executed: party has done what was promised
• Consideration cannot be past:
o Consideration pre-dates agreement↓

Eastwood v Kenyon (1840) 11 Ad & El 438; 113 ER 484


FACTS:
• Sutcliffe died, leaving his infant daughter Sarah as his sole
heiress. Eastwood her guardian spent considerable sums of his
own money for her maintenance & benefit. When Sarah came of
age she promised to reimburse him for her upkeep. She later
married the defendant Kenyon. After marriage, when the
Sutcliffe estate vested in him, Kenyon reneged on Sarah’s
promise to Eastwood. Eastwood Sued.
HELD:
• Sarah’s promise of reimbursement had been made after
Eastwood had performed ∴ it was past consideration (and not
consideration at all). Sarah’s promise was a moral obligation, ✗
enforceable at law.

• Also cite:
o Roscorla v Thomas (1842) 3 QB 234; 114 ER 496

Peter Sadler Contract Law 28


 Roscorla bought a horse from Thomas. After the sale
R demanded & received a promise that the hose was
“sound and free from vice”. The horse was vicious
and R sued for breach & failed. → Roscorla had not
provided consideration for the promise. It was made
after the sale of the horse (so there was no collateral
contract).

Exceptions to ‘past consideration’ rule.


• Past consideration will be considered good consideration if the
promise is only a later confirmation of the inferred or implied
promise contained in the initial promise.
• TEST:
o The act was done at the promisor’s request;
o The parties understood that the act was to be remunerated
by the conferring of a benefit (such as a subsequent
payment) in exchange for it; and
 The performance cannot be explained as an act of
friendship or out of generosity.
o The benefit (payment), if it had been promised in advance,
would have been legally recoverable.
• Cite: Lampleigh v Braithwait (1615) Hob 105; 80 ER 255
o Thomas Braithwait killed Patrick Mahume. He asked
Anthony Lampleigh to intercede on his behalf for a royal
pardon. After he did so, Braithwait promised to pay him
£100 for his trouble & expenses. He did not and Lampleigh
sued → he succeeded, Hobart LCJ stated that both parties
had understood there was to be some payment.
• Adopted Australia: Bluebird Investments v Graf (1994) 13
ACSR 271

The Concept of Value


Consideration must be something of value in the eyes of the law →
“Consideration needs to be sufficient but it need not be adequate.”
Sufficient?
• Must be a ‘real’ benefit or ‘real’ detriment

Peter Sadler Contract Law 29


• Not limited to intrinsic value, courts will also consider
significance, however most things that have significance also
have intrinsic value.
• Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87
o Nestlé ran a promotion giving away records of ‘Rocking
Shoes’ for 1s 6d + 3 Nestlé wrappers. This was legal so
long as Nestlé paid the copyright holder 6.25% of the
‘ordinary retail selling price’. (s 8. Copyright Act 1956
(UK)) The offered to pay Chappell (copyright holder)
6.25% of 1s 6d but Chappell asserted that the 3 wrappers
= increased sales profit & wanted more. → House of Lords
rejected that consideration was just 1s 6d, but also implied
revenue from increased sales from promotion.

Forbiddance to Sue is Good Consideration


There is potential [benefit to the promisor / detriment to the promisee] in
not being sued and this will equate to valid consideration if:
• TEST:
o The claim on which the action was based was reasonable.
 Bowen LJ considered in Miles v New Zealand
Alford Estate Co (1886) 32 Ch D 266 at 283 that
claim cannot be:
 ✗ Vexatious: ‘bringing an action for annoyance’
 ✗ Frivolous: ‘not having purpose or value’
o The promisee honestly believed that the case had a good
chance of success
o The promisee had not concealed from the defendant any
fact that could affect the validity of the claim

It does not matter that the action may not have succeeded:
• Callisher v Bischoffsheim (1870) LR 5 QB 449
o Plaintiff honestly believed he was owed money by the
government of Honduras. He was about to commence legal
action, when the defendant handed over £6,000 worth
Honduras Railway Loan Bonds provided he stop the action.
The plaintiff agreed, but when the bonds were not
forthcoming he sued for them. The defendant argued that
since the government did not, in fact, owe him money that

Peter Sadler Contract Law 30


he did not have to turn over the bonds. → plaintiff
succeeded.
• Adopted in Australia: Wigan v Edwards (1973) 1 ALR 497;
47 ALJR 586

Features of Bad Consideration:

Acts or Forbearances in Performance of an Existing Duty

Existing Public Duty ≠ Good Consideration


• Ordered society bestows upon citizens unalienable duties &
benefits that ≠ good consideration.
• Collins v Godefroy (1831) 1 B & ad 950; 109 ER 1040
o Collins had been subpoenaed to give evidence in a case in
which Godefroy was a litigant. He alleged that Godefroy
agreed to pay him for his testimony. → Subpoena imposes
a public duty, did not have to pay.
• Applied, at least in part, to Jamieson v Renwick (1891) 17
VLR 124
• Not all public duties are 24x7 obligations:
• Glasbrook Bros v Glamorgan Country Council [1925] AC
270
o Police protecting coal mine during strike. For £2200 they
would protect coal mine while ‘off duty’. Company later
refused to pay and when sued pleaded absence of
consideration. → Police won, House of Lords: extra work
not public duty but discretionary = good consideration.

Existing Duty to the Promisor ≠ Good Consideration


• CLASSIC RULE:
o If all the promisee has undertaken to/not to do, is what
they were already under a pre-existing obligation to the
promisor to/not to do then the act or forbearance cannot
be good consideration.
o Stilk v Myrick (1809) 2 Camp 317; 170 ER 1168
 While ship was in a foreign port 2 crew had deserted.
The ship’s captain had promised the reaming crew

Peter Sadler Contract Law 31


(Stilk) that if they worked the ship back to London
they could divide up the deserters’ wages between
them. → failed, in working the ship back he had not
done anything he was ✗ already contractually bound
to do.

• Limitations to ‘classic’ rule:


o Where an existing agreement is terminated by the parties
and a new one is substituted for it;
o Where an additional payment is promised in compromise of
a bona fide dispute; and
o Where additional risks are undertaken or where the
promisee provides some additional act or forbearance.
 Hartley v Ponsonby (1857) 7 El & Bl 872; 119
ER 1471
 Ship’s (Mobile) complement was 36. On a
voyage from Liverpool to Port Phillip 17 crew
refused to work and were sent to prison. From
the remaining 19 only five were able seamen.
Master decided to sail to Bombay & promised
£40 on top of normal pay. Captain reneged on
promise and Hartley sued. → Promise made for
additional risks was not made under coercion &
landscape of agreement has changed beyond
the contractual obligation. Extra consideration
is enforceable.

• Recent UK developments:
o 1991 UK Court of Appeal: Williams v Roffey Bros &
Nicholls (Contractors) [1991] 1 QB 1
 D (Roffey) subcontracted the carpentry work on a
series of flat renovations to P (Williams) for £20,000.
During the course of this work the P got into financial
difficulty and could not finish the job unless he was
paid an extra £575 per flat. D, knowing that he
would suffer a significant penalty for late completion
if he was to find another carpenter agreed. D
reneged on this agreement and P sued. → P entitled

Peter Sadler Contract Law 32


to extra money, D had secured a ‘practical benefit’
from promise, by obviating dis-benefit of penalty.
o This case is yet to be cemented in Australian common law;
was applied in Musumeci v Winadell Pty Ltd (1994) 34
NSWLR 723 (NSW Supreme Court)
 P leased a fruit shop in a shopping centre operated
by D. D then leased another part of the shopping
centre to a large retailer who also sold fruit. The
Musumeci’s claimed they could not compete & in
consideration Winadell reduced their rent by a third.
After a large amount of acrimonious correspondence,
Winadell sort to evict them. → Santow J applied the
‘practical benefit’ test from Williams v Roffey Bros &
Nicholls. Court held that in consideration for the
reduced rent, Winadell had received ‘practical
benefit’ of maintaining a fully let shopping centre.
o The reasoning behind the old ‘existing duty’ rule in Stylk &
Myrick was a concern about giving in to parties who used
threats of non-performance to extract payments & benefits
additional to those provided for under the original terms of
the contract. This can now be largely dealt with in
economic duress.

Acts or forbearances in discharge of an existing duty:

(A) owes (B) $1,000, to be paid on the 10th May for a spirited lute
performance. On the 10th May (A) pays (B) $800 in full payment of the
debt. (B) accepts because he needs the money. Can (B) later sue for
outstanding amount?
• Yes…

The rule in Pinnel’s case:


• “Payment of a lesser sum on the day in satisfaction of a greater,
cannot be satisfaction for the whole…”
o Cite: Pinnel’s Case (1602) 5 Co Rep 117a; 77 ER 237
o Cite: Foakes v Beer (1884) 9 App Cas 605
NB:
• Consideration can be payment earlier than was due

Peter Sadler Contract Law 33


• Doesn’t matter if its by cheque, or if the cheque says “in full
payment”.
o Cite: Ferguson v Davies [1997] 1 All ER 315
• Acceptance of a lesser sum from a third party IS binding.
o Cite: Hirachand Punamchand v Temple [1911] 2 KB
330

Peter Sadler Contract Law 34


Promissory Estoppel p.135 28/5/07 9:12 AM

Lead-In…

(A) has made a promise to (B) with ✗ consideration & ∴ not typically
enforceable at law. (B) has relied on (A)’s promise to their detriment.
• The courts will apply doctrine of ‘promissory estoppel’
• The promisor (A) will be held to the consequences of their
promise.
• The court will award promisee (B):
o Probable remedy is damages = minimum amount required
to restore (B) to former position.
o Rare remedy is award of specific performance to make
good (B)’s expectation.

Definition of Estoppel:

Lord Denning in Moorgate Ltd v Twitchings [1976] QB 225 at 241:


• “It comes to this: when a man, by his words or conduct, has led
another to believe in a particular state of affairs, he or she will
not be allowed to go back on it when it would be unjust or
inequitable for him to do so.”
Dixon J in Thompson v Palmer (1933) 49 CLR 507 at 547:
• Explained the object of estoppel “is to prevent an unjust
departure by one person 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”.

Promissory Estoppel ✗ a doctrine applied easily (although its application is


being widened). The promisee relying on the courts to enforce the ‘equity’
of a promise made without consideration must clearly show that not to do
so would be very unjust.
Classic / Originating Case:

Central London Property Trust v High Trees House Ltd [1947] KB


130 ©
COURT:
• Denning J, UK Court of Appeal
FACTS:
• P leased a block of flats from D for 99 years ϖ annual rent of
£2500.
• In 1940, due to war, they could not sublet many flats ∴ P agreed
to reduce rent to £1250 annually.
• In 1945 the situation returned to normal an the flats were fully
let. P sued the D, claiming the full rent for the future and for the
last 2 quarters of 1945.
HELD:
• Action succeeded.
• Parties had intended reduced rent to be temporary while the flats
could not be sublet.
• Promissory Estoppel was born out of Lord Denning’s obiter
dictum:
o If the P had sued for the full amount between 1940 & 1945
the courts would estop (prevent) them.

Australian Adoption:

• Legione v Hateley (1983) 152 CLR 406; 46 ALR 1


o This case confirmed the principle at the highest level, the
High Court.
o Later expanded to situations where there was no pre-
existing legal relationship in ↓ (use this case as authority)

Peter Sadler Contract Law 36


Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 ©
COURT:
• Aus High Court dismissed on appeal from NSW Supreme Court
FACTS:
• Maher’s owned a commercial property in Nowra with old
buildings on it. Waltons and Maher stated negotiations that
stated Maher would demolish and rebuild the property to
Waltons specification by 5th February 1984 if Waltons agreed to
leased it.
• On the 21st October 1983 a draft agreement for lease was sent
to the Maher’s solicitors. Amendments to this agreement were
discussed, and Walton’s solicitors were advised that Maher had
started to demolish the old buildings.
• 7th November Walton’s solicitors were told that it would be
impossible for the new buildings to be completed on time unless
the agreement was completed in the next day or two. The
Maher’s did not wish to demolish a newer section of the old
buildings until the it was clear the agreement was forthcoming.
That same day Walton’s solicitors sent to the Maher’s solicitors
fresh documents incorporating the amendments discussed, but
stated that they had not obtained their clients approval to the
amendments, but believed it to be forthcoming.
• 11th November forwarded the executed documents to Walton’s
solicitors and began to demolish the newer section of the old
buildings.
• Walton, with full knowledge that Maher was demolishing the old
buildings, advised their solicitors to ‘go slow’ on exchanging
contracts.
• On the 19th January 1984 Walton informed the Maher’s that it
had no intention to sign the lease. The new building was about
40% complete.
HELD
• Maher sued and was granted damages as Walton was estopped
from going back on their promise. Appeals to NSW Supreme
Court and the High Court by Walton were dismissed.

Peter Sadler Contract Law 37


Test:

Brennan J outlined a test for promissory estoppel in Waltons Stores v


Maher (↑):
• P assumed that a particular legal relationship then existed
between the P & D or;
• Expected that a particular relationship would exist between
them;
• P expected that D would not be free to withdraw from the
expected legal relationship;
• D has induced the P to adopt assumption of legal relationship.
• P acts on/abstains from acting in reliance on this assumption.
• D knew of P action/abstention, or intended P to act/abstain.
• P will suffer a detriment if the expectation of a legal relationship
is not enforced.
• D has failed to act to avoid detriment, including being silent on
the matter → D had acted unconscionably.

NB:
• As with all equitable doctrines, the person relying on it must
come with clean hands. It follows that…
• Promissory Estoppel must be used as a shield not a sword.
o First proposed by Denning LJ in Combe v Combe [1951]
2 KB 215 and referred to in Waltons Stores v Maher.
o This means that promissory estoppel can not be used to
create a ‘independent, new cause of action’.

Remedies/Relief available:

• The court will not enforce the promise.


• The courts will award the minimum required to rectify what the
courts identify as the detriment the promisee has suffered.
o The courts will identify which form of relief is more
appropriate:
 Relief equivalent to enforcement of the promise; or
 Relief equivalent to the damages suffered.

Peter Sadler Contract Law 38


o Appropriateness is decided on which better rectifies the
promisee’s detriment.
 In extreme cases (such as Waltons Stores v
Maher) the promisor will be held to his promise if
this is the only way that courts feel justice can be
done.
o This notion is supported by Commonwealth of Australia
v Verwayen (1990) 170 CLR 394 & Giumelli v
Giumelli (1999) 196 CLR 101.

Defence against a party using Promissory Estoppel:

Before action is brought against you…


• Give notice of your intention to rescind the promise:
o Notice need not be formal but must be reasonable.
o It must be possible for parties to resume their former
positions.
After action is brought…
• Show that the promisee acted on a gratuitous promise even
though they knew you had no intention for it to be legally
binding.
o This infers that they are now using estoppel as a sword.
• Show that the promisee unconscionably induced you to make the
promise with a false representation of affairs.
• In the case of estoppel being used where there is no pre-existing
legal relations… show clear intention that the promise made,
express or implied, was never meant to be final and absolute.
o Kirby P said in Austotel Pty Ltd v Franklins Selfserve
Pty Ltd (1989) 16 NSWLR 582 at 585:
 “The court should be slow to allow promissory
estoppel to operate in clear contradiction to the
intention of the parties”.

Peter Sadler Contract Law 39


Privity p.178 28/5/07 9:12 AM

Lead-In…

(B) enters a contract to paint (A)’s fence in consideration for (A) paying
(C) $1,000. (B) paints (A)’s fence then leaves town. (A) refuses to pay
(C). Can (C) enforce the contract between (A) and (B)?
• No!

Definition:

The Doctrine of Privity


Only an original party to a contract may sue, or be sued on it.

Attempting to confer benefits on a 3rd party

A 3rd Party cannot enforce benefits from a contract...


Using our example above:
• (C) cannot sue (A) for the money
o Cite: Tweedle v Atkinson (1861) 1 B & S 393; 121 ER
762

• (B) can sue (A) for specific performance


o i.e. (A) will be ordered to pay (C)

• (B) can sue (A) for any damages suffered


o If (C) had loaned (B) money, which (A) was supposed to
pay off, (B) would be entitled to any interest that was
incurred.
 Cite: Trident General Insurance v McNiece Bros
(1988) 165 CLR 107
o If (C) incurred some loss as a result of not being paid, it is
unclear if (B) could recover (C)’s losses from (A).
o (C) has no claim to any money (B) recovers from (A). If
(B) gives (C) the recovered damages it would be an act of
grace.

Attempting to impose restrictions on a 3rd party


A 3rd Party cannot be made subject to liabilities or restrictions under a
contract…
• Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co [1915] AC
847
o Dunlop entered into a contract to sell tyres to Dew Co. A
provision of this contract was that they would not sell tyres
for less than the contract price. If they on-sold to trade
customers they must enforce the price restriction upon
them. Dew sold to Selfridges, who agreed to the price
restrictions, but then sold the tyres for cheaper. Dunlop
attempted to sue Selfridges.
o Action failed, Dunlop not privy to the contract.

Limitations on the Doctrine

Joint Promises

(B) & (C) both paint (A)’s fence. The consideration came from both so
both can enforce the contract even if (A) is only paying (C).
• Cite: Coulls v Bagots Executor & Trustee Co Ltd (1967)
119 CLR 460

Exclusion Clauses

Exclusion Clauses can be constructed to protect a 3rd party.


Test:
• Cite: Lifesavers (A/Asia) v Frigmobile Pty Ltd [1983] 1
NSWLR 431
o The contract made it clear the subcontractor was protected
o The contract made it clear that the carrier had not only
contracted for the exemption in his own behalf, but also on
behalf of the subcontractor.
o The contract under which the subcontractor had take the
goods was drawn in such a way that it appeared to protect
him. It had to be assumed that he accepted the goods for
carriage on the basis that he was protected by the clause.

Peter Sadler Contract Law 41


o The performance of ‘carriage of the goods’ constituted
good consideration for the consignor’s promise of
exemption from liability.

Others

(very generally covered)


“qui facit per alium facit per se”
• He who acts through another acts as himself
• Applies to
o Trusts
o Agency
o Assignments

Peter Sadler Contract Law 42


Terms (Express) p.216 28/5/07 9:12 AM

Lead-In…

(A) breeches a term of the contract they have with (B). The court will
establish if the breeched term is a condition, warranty or innominate term
by looking at its essentiality.

Test of Essentiality:

Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd


(1938) 38 SR (NSW) 632 at 641:
• “The question whether a term in a contract is a condition or a
warranty depends upon the intention of the parties as appearing
in or from the contract.”

Conditions
Conditions are terms that go to the heart of the contract. If breeched,
render the performance of the contract substantially different from what
was agreed.
• Poussard v Spiers & Pond (1876) 1 QBD 410
o P was to play lead role in new opera. Opera to open 28th
November. Poussard rehearsed until 23rd November when
she became ill. D found a replacement on the 25th
November. On the 4th of December, P, having recovered,
offered to sing. D refused, P sued.
o She failed, P performance from opening night went to the
very heart of the contract.
• Remedy
o Innocent party can terminate contract (& be released from
any further contractual obligations)
o Damages

Warranties
A warranty is a minor term of the contract, a breech of this does not
render the contract substantially different.
• Bettini v Gye (1876) 1 QBD 183
o D contracted to use P (Bettini) a singer for 3 months. P
undertook (inter alia) to be in London 6 days before the
contractual start time. P arrived 2 days before start time. D
refused to proceed, P sued.
o Rehearsal clause not vital to the contract, term was a
warranty. Bettini was entitled to damages for wrongful
repudiation.
• Remedy
o Only remedy available is damages for any loss or
inconvenience
o ✗ right to terminate

Innominate / Intermediate Terms.


It is a term capable of being breeched in both minor & major ways.
• Time constraints are often innominate terms because they can
have both minor and major breeches.
• Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha
Ltd [1962] 2 QB 26 ©
o P chartered the defendants a ship for 24 months. Ship was
to be ‘in every way fitted for ordinary cargo service’.
Engine room staff were incompetent and ship’s engine was
ancient. D lost 20 weeks sailing due to this and
repudiated.
o D should not have repudiated, but sought damages. D
found to be in breech for repudiating. P awarded damages.
NB:
• Just because the parties call a term a condition, doesn’t mean it
is. The term must be stated by both parties to be fundamental to
the heart of the contract.
o L Shuler AG v Wickman Machine Tool Sales Ltd [1974] AC
235
 Shuler, a manufacturer of presses agreed to give
Wickman sole selling rights. Their contract provided
‘it shall be a condition of this agreement that …
Wickman shall send its representatives to visit
(certain UK motor manufacturers) at least once in
every week’.
 Wickman committed a number of breeches, including
the condition stated. Shuler attempted to repudiate.

Peter Sadler Contract Law 44


Court found it ✗ = condition ∴ Shuler had no right to
repudiate repudiation

Peter Sadler Contract Law 45


Terms (Implied) p.200 28/5/07 9:12 AM

Lead-In…

(B) is disputing a contract with (A). Although the contract is reduced to


writing, (B) is arguing that what was written and signed is not a true
reflection of their agreement & a statement was left out. (B) must prove
the following:
• Missing statement must be: ✓ term | ✗ representation.
o Courts will look @ the intention of the parties in regards to
the statement. → sub-rules to assist ascertaining intention:
 Time.
 Reduction to writing.
 Special knowledge or skill.
 Importance.
AND
• To be incorporated into contract statement will have to negate
the ‘parol evidence rule’ by proving 1/4:
o Contract is partly written, partly oral.
o Term is implied (by some trade usage, custom or prior
dealings).
o Term is implied (by statute).
o Contract is ambiguous or uncertain.

ALTERNATIVELY
o (B) can show that (A)’s statement created a ‘collateral
contract’ to induce (B) to enter the primary contract.

Effect of ‘Entire Agreement’ Clauses:

This is a clause entered by the parties ostensibly to avoid any subsequent


dispute about what they agreed. It acts much in the same way as the
Parol Evidence Rule. The clause will not completely remove any cause of
action for implying terms, but will ‘raise the bar’ on the proof required by
the party attempting to imply one in, especially if the contract is written
specifically for the deal and not just a standard form agreement.

Term or Representation:
Definition
• A term is something that has contractual significance & is
binding.
o see Terms (expressed).

• A Representation ‘salesman’s puff’ or factual statements not
guaranteed by the promisor & not binding, but to induce the
contract.
o Statement could have legal consequences, see
Misrepresentation.
TEST:
The courts apply an objective contractual intention test:
• Hospital Products Ltd v United States Surgical Corp
(1984) 156 CLR 41
• Would a reasonable person in the position of the parties have
understood from the parties’ words and behaviour that the
statement would become an enforceable obligation on
acceptance?

Sub-rules for ascertaining intention (outcome of sub-rules are weighed


against each other):
• Time of statement
o Time lapsed between statement being made and contract
being finalised can be relevant
o Routledge v McKay [1954] 1 All ER 855
 In course of negotiations for sale, D told P
motorcycle was 1942 model. 7 days later they
contracted, no mention of age was made. P
discovered 1930 model → sued for damages.
 Failed, time between statement & contract + no
mention of age in contract = representation.
o See Van den Esschert v Chappell (↓) for converse
• Reduction to writing
o As in Routledge v McKay (↑), after the statement was
made, a contract was drawn up. The more certain and
complete the contract, and the addition of an entire
agreement clause (↓), the less likely the statement is to be
a term. This is even more so if the contract is purpose
written and not just a standard form agreement.

Peter Sadler Contract Law 47


• Reliance on special knowledge or skill
(A) makes a statement about X… term or representation?
o If (A) has knowledge about X than (B), then (A)’s
statements is more likely to be a term.
o If (B) has more knowledge than (A) about X, or they have
= knowledge, then (A)’s statement is more likely to be a
representation
o Oscar Chess Ltd v Williams [1957] 1 All ER 325
 D offered to buy a new Hillman Minx from P (car
dealers), trading in his Morris. Trade in value
dependent on age, Morris rego book stated 1948 =
£290. 8 months later P discovered rego fraudulent
(previous owner) & car manufactured in 1939 =
£175. P sued for difference of £115.
 Failed → D ✗ have special knowledge or skill required
to ascertain cars true age. D answered to the best of
his knowledge.
• Importance of statement
o If the representee makes it known that a particular fact is
of great importance and of the representor then asserts
that the statement is true, the statement will probably be
considered a contract.
o Bannerman v White (1861) 142 ER 685
 D asked P in the course of negotiations for sale if
hops had been treated with sulphur. D added that if
they had he would not even bother asking a price. D
informed him that they had not. On delivery D found
they had indeed been treated with sulphur and
repudiated the contract. → P sued for price.
 Failed, court found that sulphur was a term, D had
right to repudiate.
o However: If representor does not guarantee accuracy of
statement, or tells the representee to get the statement
independently checked, it is likely to be a representation:
 Cite: Ecay v Godfrey (1947) 80 LI L R 286
o Naturally if representor states that no independent
consultancy is necessary, statement is likely to be a term.
 Cite: Schawel v Reade [1913] 2 IR 81

Peter Sadler Contract Law 48


Parol Evidence Rule (definition)

Parol Evidence:
Butterworths Australian Legal Dictionary:
• any extrinsic evidence of the res gestae (surrounding
circumstances) to ascertain the factual matrix.

Parol Evidence Rule:


Rule formulated in Goss v Lord Nugent (1833) 110 ER 713 at 716
and adopted by Innes J, in Mercantile Bank of Sydney v Taylor
(1891) 12 LR (NSW) 252 at 262:
• “Where a contract is reduced to writing, where the contract
appears in the writing to be entire, it is presumed that the
writing contains all the terms of it ad evidence will not be
admitted of ant previous or contemptuous agreement which
would have the effect of adding to or varying it in any way.

Parol Evidence Rule (exceptions)

The contract is partly written partly oral


• This exception only comes into effect when it is, or should have
been, clear to both parties that the express terms were not
complete.
• This exception runs along the same lines as the contractual
intention test (and subsequent sub-tests) as a contractually
important (yet omitted) statement is more likely to be a term
and part of an oral contract.
• Van den Esschert v Chappell [1960] WAR 114
o Just before signing a contract to buy a house, the
purchaser asked if the house was affected by white ants.
Seller assured her it was not. Several months later she
discovered white ants and had to pay £10 10s to have
them destroyed and house repaired. → Buyer sued the
seller for the cost of the repairs.
o Succeeded, the courts ruled that it was a partly written,
partly oral contract, and the falsity of the statement
constituted an actionable breech.

Peter Sadler Contract Law 49


• However, when the parties’ contract is purpose written there is
less scope for argument (& contains an entire agreement clause)
o Cite: Nemeth v Bayswater Road Pty Ltd [1988] 2 Qd R 406

Term is implied by a Trade Usage, Custom or Prior Dealings


• When the contract is subject to some well-known trade usage or
custom, it cannot be ruled out by the parol evidence rule.
o Showing ‘prior course of dealing’:
 The course of the dealings would have to be
significantly long.
 There must be multiple instances of dealings.
 Dealings must be consistently patterned with reliance
on the statement.
 Cite: Henry Kendall v William Lillico
[1968] 2 All ER 444 – ✓ 3 transactions
p/month for 3 years
 Cite: Hollier v Rambler Motors [1972] 2 QB
71 - ✗ 3 transactions over 5 years
o Showing ‘trade usage and custom’:
 Always a question of ‘fact’
 Custom or usage needs to be so notorious that
everyone in the trade enters into a contract with that
usage
 Cite: Jessel MR in Nelson v Dahl (1879) 12
Ch D 568 (at 575)
 Must not be contrary to legislation or the normal
course of market conduct
 Term must not be inconsistent with express terms of
the agreement
 Cite: Summers v Commonwealth (1919)
25 ALR 141
• Hutton v Warren (1836) 1 M & W 466; 150 ER 517
o P, a tenant who had been given notice to quit his leased
farm claimed that it was custom for him to be reimbursed
by the landlord for both the seed and labour spent on the
farm in the last year of his tenancy.
o Succeeded, the contract had to be read in the light of the
established custom.

Peter Sadler Contract Law 50


Term is implied by statute
• Not covered in detail in this course.
o E.g. Sales of Goods Act s.70 → Goods must match their
description

Contract is ambiguous or uncertain


• Courts are not destroyers of agreements. If a contract is vague
they will consider parol evidence to add a term if:
o The term must be reasonable and equitable
o It will give the contract business efficacy
o The term must almost go without saying (‘officious
bystander’ test)
o The term must be capable of clear expression and
formulated with a sufficient degree of precision
o It must not contradict any express terms of the contract

• However as stated by Mason, J in Codelfa Construction v


State Rail Authority NSW (1982) 149 CLR 337 © approved
by High Court in Royal Botanic Gardens & Domain Trust v
South Sydney Council (2002) 186 ALR 289:
o “The true rule is that evidence of surrounding
circumstances is admissible to assist in the interpretation
of the contract if the language is ambiguous or susceptible
of more than one meaning. But it is not admissible to
contradict the language of the contract when it has a plain
meaning.”
• Cite: Akot v Rathmines Investments [1984] 1 Qd R 302 →
✓ extrinsic evidence (brochure) showed which apartment was
the one they bought
• Cite: Hope v RCA Photophone of Australia (1937) 59 CLR
348 → ✗ salesman demonstrated them new equipment which
they agreed to buy. No mention of it being new equipment in
contract, so when supplied old equipment buyer sought to have
evidence of demonstration. Contract clear, not allowed evidence.

Collateral Contracts

Peter Sadler Contract Law 51


To address statements that lie in the grey area between terms and
representations the courts treat such statements as collateral contracts. It
is a contract entered into to induce a party to enter the main contract.
• The courts are generally reluctant to find existence.
o The promise must be clear and ambiguous as it will be
treated strictly by the court
o As stated by Lord Moulton in Heilbut Symons v
Buckleton [1913] AC 30

The statement must be factual in nature and not representational


• A statement of opinion cannot constitute the basis of an
agreement
• JJ Savage & Sons v Blakney (1970) 119 CLR 435 ©
o Blakney (B) entered into a contract to buy motor cruiser
from Savage (S). During negotiations B asked S about
engine specifications, to which S outlined 3 different types,
their specifications and his recommendations. In the
outline P stated “GM 4/53 estimated speed 15mph”.
o B selected GM 4/53 based on estimated speed
specification. When B got boat it could not do 15mph →
sued for breach of term, or alternatively, for breach of
collateral contract.
o Failed, Court stated that only statements made as firm
promises can give rise to collateral contracts.

Privity and collateral contracts


A collateral contract can be made whereby: (A) induces (B) into a
contract by promising also to enter into a contract with (C).
• Cite: Shanklin Pier v Detel Products [1951] 2 KB 854
Or whereby: (A) induces (B) into a contract by promising to do something
for (C).
• Cite: Charnock v Liverpool Corp [1968] 1 WLR 1498

Collateral contract must be consistent with main contract


It cannot vary or contradict the terms of the main contract in any way.
• Hoyts Pty Ltd v Spencer (1919) 27 CLR 133 ©

Peter Sadler Contract Law 52


o Hoyts agreed to sub-lease premises from Spence on terms
that (inter alia) allowed Spencer to terminate the sublease
at any time by giving four weeks notice.
o Hoyts alleged that they had only signed the agreement
because Spencer has also verbally promised not to
exercise the termination right unless required to by his
own head lessors.
o Spencer terminated the lease without any direction from
head lessors. → Hoyts sued for breach of collateral
contract.
o Failed, Court ruled that statement that formed collateral
contract was inconsistent with the main contract and they
could not stand together.

NB: Innocent party can use promissory estoppel to negate this apparent
unfairness in collateral contracts.

Breach of a Collateral Contract


Innocent party only entitled to damages to a diminished value of the main
contract. ✗ entitled to specific performance.

Peter Sadler Contract Law 53


Terms (Exclusion) p.229 28/5/07 9:12 AM

Lead-In…

(A) has breached a contract with (B). (A) is now relying on an exclusion
clause to limit/exclude their liability. How can (B) negate the exclusion
clause?
This issue appears a lot in dry-cleaning cases…

Definition of Exclusion clauses:

NB: Terminology
exclusion clause = exemption clause → totally excludes liability
limitation clause → limits liability
They both have the same legal tests / definitions etc.
Proferens = Party (A), the one relying on the clause
Test:

Courts have traditionally treated exclusion clauses with dislike.


Before enforcing…
• exclusion clause has actually become a term of the contract
o Party (B) has to have had adequate notice
 Non-Contractual documents → actual notice
 Contractual documents → constructive notice
• on its true construction it has become wide enough to cover the
breech
o contra proferentem rule

Adequate Notice:

A document will be ‘contractual in nature’ if:


• Members of the public generally regard such documents as
contractual.
o A reasonable person would feel obliged to read it
 ✗ ticket, voucher, claim check, receipt
 ✓ deeds, standard form agreements, contracts
• The party that receives the document knows that it is contractual
OR that it contains terms that govern his or her dealings with the
proferens.
o A reasonable person would expect it to contain contractual
terms

Non-Contractual Documents
→ Require ‘actual notice’ before effective

‘actual notice’ = the proferens specifically brings the existence of the


clause AND its contents to the attention of the other party. This is done
prior to contracting.
• Causer v Browne [1962] VLR 1
o Dry-cleaning: Dress stained and thread pulled out. Clause
on docket. P sued, D sought to rely on clause.
o Succeeded, no actual notice, no reasonable person would
think dry-cleaning docket contractual.

Peter Sadler Contract Law 55


• Burnett v Westminster Bank Ltd [1966] 1 Qb 742
o P got cheque book form bank that could only deduct from
1 account (he had 2 accounts at different branches).
Exclusion clause on front of cheque book stated that
money will be directed from that account only. P did not
read. P wrote a cheque that he wanted to deduct from
other account (and then he wanted to stop it), neither
happened and it deducted from wrong account. P sued, D
sought to rely on clause.
o Succeeded, normal people no not expect to find clauses on
cheque book covers. Bank ✗ actual notice.

Contractual Documents
→ Require either ‘constructive notice’ or ‘actual notice’

‘constructive notice’ = the proferens takes ‘reasonable steps’ to bring the


existence of the clause AND its contents to the attention of the other
party. This is done prior to contracting.
• ‘reasonable steps’ → question of fact.
o Must do what is necessary to give notice to the class of
persons you are contracting with. If the proferens is aware
of any disabilities of the other party he must make
adequate extra steps.
• The fact of a ticket with a clause must notify party of clause on
back. Clause, or notice of clause must be readable before given
to other party.
o Cite: Sugar v London, Midland & Scottish Railway Co
[1941] 1 All ER 172
• The notice must be given before entering contract otherwise
there is no consideration for it.
o Oceanic Sun Line Special Shipping Co Inc v Fay
(1988) 165 CLR 197
 Fay booked a Greek Island cruise via a NSW travel
agent. Given an ‘exchange order’ which could be
redeemed for physical ticket at ferry terminal in
Athens. Physical ticket had exclusion clause (also
gave jurisdiction to Greek courts). Fay injured & sued

Peter Sadler Contract Law 56


in NSW, D sought to use clause to exclude NSW
jurisdiction.
 Fay succeeded, exclusion clause was on ticket given
after he had entered contract. NSW courts had
jurisdiction.

Effect of Signature
Documents that require signature a generally contractual in nature and
the courts will rarely help someone that has signed a document they have
not read.
As Scrutton LJ said in L’Estrange v Graucob [1934] 2 KB 394:
• “When a document containing contractual terms is signed, then,
in the absence of fraud, or, I will add, misrepresentation, the
party signing it is bound and it is wholly immaterial whether he
has read the document or not.”

Exceptions to this rule:


• If the document appears to have no contractual effect
o Document they are signing appears to be for a non-
contractual purpose, like a pretend licence at a go-cart
track.
 Cite: Le Mans Grand Prix Circuits v Iliadis
[1998] 4 VR 649 ©
• If the contents of the document (namely the clause) are
misrepresented
o If the clause or its effect is misrepresented by proferens
(or their servant or agent) its full protection will be lost.
 Cite: Curtis v Chemical Cleaning & Dyeing Co
[1951] 1 KB 805
• Pleas of ‘non est factum’ → hard to show!
o The document signed must be radically different from what
the person thought they were signing.
o The signer was not careless in signing without checking the
documents contents.
 Cite: Petelin v Cullen (1975) 132 CLR 355

Prior Course of Dealings


• A exemption clause can be implied into a contract.

Peter Sadler Contract Law 57


o The other party was, or should have been aware, of its
existence from the prior course of dealings.
o The other party would or should have been aware that the
proferens only ever contracted on the basis that the clause
would be included.
↑ Same standards as incorporating terms into contracts!
o In the originating contracts the proferens had done what
was reasonable sufficient to give notice
• Cite:
o ✓ Henry Kendall & Sons v William Lillco & Sons Ltd [1969]
2 AC 31
o ✗ McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125

Assessing the scope of exclusion clauses

Courts interpretation
Exclusion clauses are construed strictly against those trying to enforce
them:
‘verba chartarum fortius accipiuntur contra proferentem’ the ‘contra
proferentem rule’ → the words of a written document are more forcefully
construed against the person inserting them.
• Cite: Alex Kay Pty Ltd v General Motors Acceptance Corp
and Hartford Fire Insurance Co [1963] VR 458

Peter Sadler Contract Law 58


Misrepresentation p.279 28/5/07 9:12 AM

Lead-In…

In the course of pre-contractual negotiations for a block of land (A) told


(B) that the block is “very fertile and improvable”. (B) bought the block of
land and discovered that it was not very fertile at all. The statement does
not fit the requirements to be implied as a term in the contract, what is
(B)’s next course of action?

Dimmock v Hallet (1866) LR 2 Ch App 21


Try to show that the representation was more than salesman’s puff or a
statement of opinion but = actionable misrepresentation… must show:
• That a false statement was made.
• The statement was one of fact.
• It was addressed to the party mislead before the contract was
entered into.
• It was intended to induce the misled party to contract.

Contingent on degree the factual matrix fits these criteria one of the
following actionable misrepresentations will be triggered:
• Innocent Misrepresentation
o Rescission
• Negligent Misrepresentation
o *Damages in the tort of negligence
o Rescission
• Fraudulent Misrepresentation
o *Damages in the tort of deceit
o Rescission

* Damages are not sought in tort law because the representation has not
been incorporated as a term in the contract. Since the representation is
not part of the contract there is no breach, and subsequently no cause for
action in contract law.

And if you can’t prove any of this whack them with s.52 of the Trade
Practices Act… in fact it might be better to do that first!

Criteria of Actionable Representation:

A False Statement was made


General Rule = Caveat Emptor (let the buyer beware):
• The seller is under no obligation to disclose defects in the items
being sold. The buyer must take care to discover them before
they buy.
• Silence does not constitute misrepresentation – but there are
exceptions:

Peter Sadler Contract Law 60


• Cite: Griffiths CJ (at 577) & Isaacs J (at 584) in W Scott Fell &
Co Ltd v Lloyd (1906) 4 CLR 572

5 Exceptions:
• There is a distortion of a positive representation (a half-truth)…
o Cite: Krakowski v Eurolynx Properties (1995) 183
CLR 563
 Organise a ‘strong tenant’ before I buy case.
• Subsequent discovery that the representation was misleading…
o Cite: Lockhart v Osman [1981] VR 57
 Cattle in “excellent condition” and “well suited for
breeding purposes” case.
• The representation becomes untrue because of a change in
circumstance…
o Cite: With v O’Flanagan [1936] 1 Ch 575
 The £2000 medical practice that became worthless
case.
• Parties are in a fiduciary relationship: partnerships, trusts and
beneficiaries…
o Cite: Hill v Rose [1990] VR 129
 $250,000 stake in a worthless seafood business
case.
• Contract ‘uberrimae fidei’: one party has all the information
(insurance contracts)
o Cite: Gordon v Gordon (1821) 3 Swan 400; 36 ER 910
 The bastard child’s inheritance case.
Statements of Fact
The representation must be a statement of fact:
• ✗ a statement of opinion
• ✗ a statement of intention or a promise as to the future
o Bisset v Wilkinson [1927] AC 177
 While negotiating a contract for the sale of his farm,
the owner stated that it could carry 2,000 sheep.
Both vendors were aware that the owner had never
run sheep on his property. The purchaser found it
could not carry that number of sheep and sought to
rescind the contract.

Peter Sadler Contract Law 61


 Courts found the statement was not a
misrepresentation, it was a honest statement of
opinion.

4 Exceptions
• where the representor never held the opinion in the first place
(i.e. where they lied)
• where, although the representor did hold the opinion, no
reasonable person would
• where, although the statement was clearly couched as an
opinion, the representor implied that he or she knew the FACTS
that justified the opinion
• where the facts were not equally known by the parties AND an
opinion was given by one who should have known the facts or
who was in a far stronger position to assert the facts. See:
o Esso Petroleum v Mardon [1976] QB 801
 Esso built a servo and induced Mardon to lease it by
assuring him that it was likely to have a throughput
of 200,000 gallons a year. Mardon thought this was
high, but because of Esso professed expertise in
estimating petrol sales he accepted it. The
throughput was only 78,000 gallons a year. Esso
sued for possession of the premises and moneys /
profit owed. Mardon countersued for negligent
misrepresentation.
 Esso claimed it was a statement of opinion but Lord
Denning found them negligent. Their statement was
one on which no reasonable person would have
relied.
• Where the representor made a statement of opinion on law and
o Wilfully misrepresented the law
o Made statements of mixed law and fact
o Made representations as to the nature or effect of private
rights (as opposed to common law or statutory given
rights)
o Statements of law where the representor knows, or should
suspect that the representee will rely on the representor’s
superior knowledge of the law.

Peter Sadler Contract Law 62


Addressed to the party misled
The plaintiff must be the intended recipient of the misleading statement:
• ✓ if it is communicated directly to you
• ✓ if it is indirectly communicated to you
o Cite: Commercial Banking Co (Sydney) v R H Brown &
Co (1972) 126 CLR 337
 The bank’s assessment of the wool dealers case.
• ✗ if you otherwise become aware of it
o Cite: Peek v Gurney (1873) LR 6 HL 377
 The misleading prospectus case.

Intended to induce the contract


The statement must induce the contract, that will not happen in the
following circumstances:
• Where the representee is not aware of the representation…
o Cite: Re Northumberland and District Banking Co; Ex
Parte Bigge (1858) 28 LJ (Ch) 50
 Bigge had not read the misleading finical reports.
• Where the representee knows the representation to be false…
o Cite: Redgrave v Hurd (1881) 20 Ch D 1
 Hurd was induced by a grossly overstated profit to
purchase into party. However, he was entitled to look
over books where he would have clearly seen that
they were grossly overstated. He did not look
however and was entitled to rescind the contract.
• Where the representee does not act on the representation…
o The representee make their own investigation:
 Cite: Attwood v Small (1838) 6 Cl & Fin 232; 7
ER 684
o The second way is if one party makes an inaccurate claim
but then corrects it before the final agreement is made:
 Cite: Holmes v Jones (1907) 4 CLR 1692
• Where the representation is not material to the contract..
o To be material, the statement need not directly relate to
the subject matter of the contract.
o It just has to have played some part in bringing about the
contract → influenced the representee

Peter Sadler Contract Law 63


 The representation need not be the sole inducement.

Fraudulent Misrepresentation

TEST:
Lord Herschell in Derry v Peek (1889) 14 App Cas 337:
• Fraud is proven when it is shown that a false representation has
been made…
o Knowingly,
o Without belief in its truth,
o Recklessly, careless whether it be true or false (gross,
reckless disregard for the truth)

Remedies
• Damages in the tort of deceit
• Rescission (↓ for rescission discussion)

Negligent Misrepresentation (recent development)

TEST:
UK → Hedley Byrne Ltd v Heller & Partners [1964] AC 465
Aus → MLC Assurance Co v Evatt (1968) 122 CLR 556
• If a person is held out as competent to give information or
advice, AND
• If he or she realises or ought to realise that the are being trusted
to give correct statements, AND
• It is reasonable in the circumstances for the other party to rely
on that information or advice…
The representor will be liable.

Remedies
• Damages in the tort of negligence
• Rescission (↓ for rescission discussion)

Innocent Misrepresentation

Usually occurs when a representor makes a honest, but misleading


statement

Peter Sadler Contract Law 64


Remedies
• Rescission

Rescission

Rescission aims to put the party back exactly (under common law) or a
close as possible (in equity) to their previous positions.
• The party hoping to rescind the contract must give notice to the
other party of their intentions to do so…
o If the other party absconds notice is no required
 Cite: Car & Universal Finance v Caldwell [1965]
1 QB 525
o Can apply to the court for a formal rescission when the
other party refuses to return property transferred under
the contract OR where the other party is seeking specific
performance.
• Restitution must be possible
o If the parties can’t substantially be restored to their former
positions rescission will not be available
o Compensation will be awarded instead
• If you elect to affirm the contract, when your are entitled to
rescind, you cannot later try to rescind.
• Lapse of time (won’t usually remove the right to rescind) unless:
o Representee is aware of the right to rescind and elects not
to
o An inordinate period of time passes
 Cite: Leaf v International Galleries [1950] 2 KB
86
rd
• If a 3 party takes good title of the consideration in a contract
rescission will not be possible.

s.52 of The Trade Practices Act 1974 (Cth)

TEST: Misleading & Deceptive Conduct


3 elements that need proving:
• The section must apply to the party breaching s.52
o Corporations

Peter Sadler Contract Law 65


o Overseas or Interstate trade or commerce
o Trade or commerce between territories
o Use of post
o A telephone, radio or television broadcast
o Governed by some international treaty
• The conduct complained of must have happened in ‘trade &
commerce’
o Anything that occurs in, or relates directly to normal
business activity
 Cite: Concrete Constructions (NSW) v Nelson
(1990) 169 CLR 594
• The conduct must be ‘misleading or deceptive’ OR ‘likely to
mislead or deceive’
o Question of fact…

Remedies
• Damages
• Anything listed under Section87

see Text book for more detail…

Peter Sadler Contract Law 66


Mistake p.253 28/5/07 9:12 AM

Lead-In…
(A) agrees to sell (B) their car. (A) has two cars, a Ferrari and a Volvo. (B) pays the money
and goes to collect the Ferrari, but finds that he has bought the Volvo. What can (B) do?
This is known as a mistake in common law…

Definition: Mistake

When a contract has been entered into because one or more of the
parties are under a misapprehension about something forming the basis
of their agreement, it can be argued that there is no true consent
(mutuality), and consequently no binding contract.
• The contract is deemed ‘void ab initio’ or ‘void from the
beginning’.

Mistakes can be:


• ✓ a mistake of fact
• ✓ a mistake of law
o Cite: David Securities v Commonwealth Bank of
Australia (1992) 175 CLR 353
• ✗ a mistaken motive
o Cite: Bell v Lever Bros Ltd [1932] AC 161

There are 3 categories of mistake:


1) Common Mistake
• The parties make the same mistake.
• This is extended to common mistake in reducing the contract to
writing. [Rectification]
2) Mutual Mistake
• The parties deal at cross purposes (they misunderstand each
other).
3) Unilateral Mistake
• One party is mistaken and the other party knows, or ought to
know of that mistake yet purports to proceed with the contract
anyway.

Common Mistake

Res Extincta → the thing has perished

Peter Sadler Contract Law 68


If the subject matter of the contract ceased to exist at the time the
contract was entered into, there can be no contract.
• Cite: Couturier v Hastie (1852) 8 Ex 40; 155 ER 1250

Res Sua → the thing was already his


One party agrees to buy something that was already theirs.
• Cite: Cooper v Phibbs (1867) LR 2 HL 149

Common Mistake
… when reducing a contract to writing (Rectification by the courts)

If parties reach an agreement, draw up a contract, but then mistakenly


forget to include a term the court can write one in.
• Statement could be implied in as a term? ✗…
o It has to be clear that it was mistakenly left out by
showing:
 A prior complete agreement OR continuing common
intention
 Both parties must believe in the mistake, one party
cannot honest believe that the contract is complete
 There must be a literal disparity between what was
recorded in the contract and what was agreed
 Must be capable of clear expression
 No other remedy/bar to the order must be sought
o Cite: Pukallus v Cameron (1982) 180 CLR 447

Mutual Mistake

TEST:
• The parties must clearly be contracting at cross purposes.
o The courts will ascertain as objectively as possible ‘the
sense of the promise’.
o Cite: Raffles v Wichelhaus (1864) 2 H&C 906; 159 ER
375
 The Oct/Dec cotton ‘ex peerless from Bombay’ case.

• If the court finds against the mistaken party, and some sense
can be read into the contract, it will be upheld.

Peter Sadler Contract Law 69


o However, equity can step in to prevent an order of specific
performance.
 Cite: Denny v Hancock (1870) LR 6 Ch App 1

Unilateral Mistake

(I see it as negligent/fraudulent misrepresentation of a term of a contract


as opposed to a statement in negotiations of a contract)

Unilateral mistake as to the terms of an offer

TEST:
• The parties must clearly be contracting at cross purposes
AND
• The true meaning of the agreement ✗ reasonably ascertained by
a third party overhearing the negotiations.
Cite: Taylor v Johnson (1983) 151 CLR 422 ©

Unilateral mistake as to the identity of the other party


Common law rarely assists in declaring such contracts void. However:

TEST:
• The party (B)’s offer was only intended for party (A) and that
(A)’s identity (for quality, trade relations) was of vital importance
• That party (B) took reasonable steps to ensure that party (A)
was the person being dealt with.
o Failure usually occurs in face to face transactions where
the presumption is greatest you intended to deal with the
person you dealt with.
• That (B) was aware, or should have been aware, of the offeror’s
true intentions
Cite:
• ✓ Cundy v Lindsay (1878) 3 App Cas 459
o Handkerchiefs with the fraudulent label case.
• ✗ Phllips v Brooks Ltd [1919] 2 KB 243
o The rogue called ‘North’ claiming to be Sir George
Bullough, jewellery store & pawn broker case.

Peter Sadler Contract Law 70


Remedies / Relief Available for Mistake

Common Law
• Iff (if and only if) the mistake goes to the heart of the contract
(something fundamental), it will be declared void ab initio.
• The parties are treated as if there is no contract between them;
any money or property transferred between them must be
returned.
• The contract is insufficient to pass title.
• The rights of a third party who has acquired an interest in the
subject matter of the contract will be defeated.

In Equity
• Where a contract cannot be declared void in the common law
sense:
o There must be a common misapprehension
o It must be of a fundamental nature
o The party seeking to have the contract set aside must not
be at fault
o It must be unconscionable to let the other party benefit
from the mistake
o There must be no possibility of a 3rd parties rights being
prejudiced
 Cite: Taylor v Johnson (1983) 151 CLR 422
THEN:
o The contract is voidable not void.
o The contract may be rescinded by the mistaken party or
the contract may be set aside by a court on such terms as
it sees fit.
o This right is limited where it is not possible to put the
parties back in the position they were in
 where an innocent 3rd party has acquired in interest
in the subject matter for value,
 affirmation, or
 lapse of time
o Rectification of the written contract may be ordered;
o The court may refuse a grant of specific performance

Peter Sadler Contract Law 71


Peter Sadler Contract Law 72
DUiU p.313 28/5/07 9:12 AM

D → Duress,

Ui → Undue Influence,

U → Unconscionability.

Lead-In…

(A) threatens to ‘get fresh’ on (B)’s cousin unless (B) enters a contract to
buy (A)’s potatoes. → Duress…

(A) had been given a cottage by (B). (B) was uneducated and heavily
dependent on (A) for help. (B) now seeks to rescind the contract and give
the cottage to his son instead of (A). → Undue Influence…

(B) has entered into a contract with (A) in which there is an extremely
harsh and onerous clause. (B) is a migrant with poor English and business
skills. → Unconscionability…

DURESS

Duress in law must consist of such pressure as would cause a reasonable


person, exercising that ordinary degree of firmness that the law demands
of us all, to do something that he or she would not do otherwise.
• Pressure should be illegitimate
• Pressure must be irresistible
• Must be present at the time of contracting
• Can come from a third party:
o By proving that the other party was aware of actions +
associated in some way.
o Prove that the outsider was that other parties duly
appointed agent for the purpose for making the contract.
• Cite: Magnacrete Ltd v Douglas-Hill (1988) 48 SASR 567
o NB: this case ≠ 3rd party duress!

Duress to the Peron


In general terms, duress to the person will arise through:

Actual Physical Violence


• To the person being coerced
OR
• To someone they are associated

Threat of Violence
• Of death, bodily harm or imprisonment,
AND
• Calculated to cause fear,
AND
• May actually cause fear.
o To the person being coerced
OR
o To someone they are associated

Threat of Imprisonment
• Common Law
o ✗ Threats of warranted imprisonment
o ✓ Threats of unwarranted (malicious) prosecution
• Equity (softer line)
o ✓ Threats of warranted imprisonment
o ✓ Threats of unwarranted (malicious) prosecution
 To the person being coerced

Peter Sadler Contract Law 74


OR
 To someone they are associated
Cite: Barton v Armstrong [1973] 2 NSWLR 598 later approved
on appeal to the privy council: Barton v Armstrong [1976] AC
104

NB: Duress to the person need only be a factor, not the primary reason
for contracting → however if the person would have contracted anyway
the contract will be valid and enforceable.
• Cite: Barton v Armstrong (↑)

Remedies
• Contract is voidable
o ∴ Binding on both until he coerced party elects to bring it
to an end
o Restitution of all money and goods transferred under the
contract
• Damages
o There has been no breach?
o Most likely use Tort…
 Tort of Intimidation
 Tort of Fraudulent Misrepresentation

Duress of Goods
• One party unlawfully sizes, detains, damages or destroys
another’s goods,
OR
• Threatens to do so.

Originally duress of goods conferred no rights on the person coerced →


Resistance should be possible: Goods can be replace and the person
sued… what about burning down someone’s house with photo’s, art and
the family dog?
∴ modern view
• Cite: Hawker Pacific v Helicopter Charter (1991) 22 NSWLR 298

Same remedy as duress to the person…

Peter Sadler Contract Law 75


Economic Duress
Economic Duress is a new & developing legal avenue…
• The test for economic duress is the same as duress to the person
except the pressure exerted is ‘economic’ rather than ‘physical’.
o The questions the court asks are
 Did any pressure induce the contract? (if it did, all
that needs to be shown is that the pressure was one
of the reasons the victim entered into the contract)
AND
 Did that pressure go beyond what was legitimate?
(which it will if it consists of unlawful threats or if it
amounts to unconscionable conduct)
 Question of fact: ‘normal commercial pressure’
or ‘illegitimate pressure’?
• Ambit of this is still unclear…
• See (↓) for a good guideline of the courts thinking

North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd


[1979] QB 705
FACTS:
• The parties contracted for the construction of a ship, The Atlantic
Baron, with the price fixed in $USD.
• After payment of the first instalment the $USD devalued by
10%, so the defendant ship builder demanded a 10% increase in
the price as compensation.
• There were not contractual entitlements to the increase but
Hyundai stated that they would not continue unless it was
granted.
• P had negotiated a particularly profitable charter dependent on
the ship being completed in time so it capitulated to D’s
demands.
• After delivery P sought to regain extra payments from D.
HELD:
• This payment COULD have been set aside for economic duress
• P had taken too long (9 months after completion of ship) to bring
action ∴ affirmed the duress

Peter Sadler Contract Law 76


UNDUE INFLUENCE

The courts have been very careful not to set defined limits to the
situations in which undue influence can be pleaded.

TEST:
• The contract that the influenced party wishes to set aside
resulted from an abuse of influence by the other party.
o (A) influence (B) to contract… (A) benefits
OR
• The influencing party is an agent of the person who benefits from
the contract.
o (A) influences (B) to contract… (C) benefits, (A) & (C) are
in cahoots.
• Do not need to show why the intention of the servant party
entering the contract.

Presumption:
Cases which indicate that requisite undue influence can originate are (2):

1) A relationship of trust and influence (automatic presumption of


influence)
• ‘Special Relationships’ or relationships of trust & influence
o ✓ Parent & Child
o ✓ Guardian & Ward
o ✓ Doctor & Patient
o ✓ Solicitor & Client
o ✓ Trustee & Cestui Que Trust (Beneficiary)
o ✓ Religious Advisor & Disciple
NB:
o ✗ Husband & Wife
 Cite: Yerkey v Jones (1939) 63 CLR 648
o ✗ Brothers
 Cite: Armstrong & Armstrong (1873) 8 Ir Eq R1
• Other Relationships
o Just have to show a relationship with a high level of trust…
 Johnson v Buttress (1936) 56 CLR 113

Peter Sadler Contract Law 77


 Johnson had been given a cottage by Buttress’s
father. At the time of the gift, the father was
elderly, illiterate, recently widowed and heavily
dependant on Johnson – a long time family
friend. On his fathers death, Buttress sought to
have the gift set aside.
 Johnson could not rebut the assumption ∴ the
gift was set aside.
• Rebutting the assumption…
o By proving access to independent advice
 Cite: Inche Noriah v Shaik Allie Bin Omar
[1929] AC 127
o By showing that independent advice would have been
disregarded
 Cite: Linderstam v Barnett (1915) 19 CLR 528
o By proving the donor’s ability to form an independent
judgement
 Cite: Re Brocklehurst’s Estate [1978] Ch 14

2) Some express influence of actual coercion or general domination of the


will.
• Most likely will fall under actionable duress BUT
o Cases usually arise when someone joins a cult….
o See: Morley v Loughanan [1893] 1 Ch 736
• If I get an exam question about someone who tries to get out of
a contract because they joined a cult then I will be upset that I
didn’t put this in more detail... p.331 Graw

Remedy for Undue Influence


• Rescission
o Contract set aside in equity and the parties restored to the
positions they occupies before the contract.
o Must bring the action within a reasonable amount of time.

UNCONSCIONABILITY

The common law will not come to ad of someone that freely enters into a
bargain hoping or expecting that its harsher terms will not be activated.

Peter Sadler Contract Law 78


• Particularly onerous or unusual clauses are required to be
brought to the attention of the other party. This = ‘reasonable
notice’ or exclusion clauses.
o Cite: Interfoto Picture Library v Stiletto Visual Programmes
Ltd [1989] 1 QB 433

The doctrine of ‘inequality of bargaining power’


• ✗ common law
• ✓ equity!

Equity & Unconscionability

Deane J’s judgement in Commercial Bank of Australia v Amadio (↓)


• 1) The weaker party must have been under ‘special disability’
vis-à-vis the stronger party so that there was no real equality
between them.
AND
• 2) The stronger party must have been aware of that ‘special
disability’’
AND
• 3) It must have been unfair or ‘unconscientious’ for the stronger
party to procure agreement in the circumstances in which is was
procured

Commercial Bank of Australia v Amadio (1983) 151 CLR 447


COURT:
• Deane J, in HC of Australia
FACTS:
• Respondents were elderly migrants with poor English and
business skills.
• They were induced to execute mortgage and guarantee in
favour of the appellant bank to secure an overdraft facility that
had been granted to their son’s building company.
• At the time of execution they believed the company was in a
solid financial position & that their liability was limited to
$50,000 for a duration of 6months only.
• To the knowledge of the bank these beliefs were incorrect.

Peter Sadler Contract Law 79


• The company subsequently failed ad the bank made demand
under the guarantee.
HELD:
• The guarantee was set aside, it had been entered into as a direct
result of the bank’s unconscionable conduct ∴ could not be
enforced.

Definition: ‘Special Disability’


‘special disadvantage’
• ≠ Mere disadvantage
• Weaker parties interest have become particularly susceptible to
control or influence by the other party because of the nature of
the relationship.
o Cite: Garcia v National Australia Bank Ltd (1998) 194
CLR 395
• Examples of susceptibility:
o Age, Poverty, Need, Sickness, Infirmity, Drunkenness,
Illiteracy, Lack of Education…

Remedy for Unconscionability


Equity usually renders the contract voidable at the instance of the weaker
party
However:
• As in Amadio’s case (↑) this need not be the case the courts
may just limit the liability rather than extinguish it totally.

Limits:
• Ratification
• Affirmation
• Acquiescence
• Intervention by a 3rd Party
• Innocent party not having ‘clean hands’ → Unconscionability is a
equitable remedy!

Peter Sadler Contract Law 80


Illegality p.349 28/5/07 9:12 AM

Lead-In…

(A) enters a contract to do backyard plastic surgery to (B). Plastic surgery


is express forbid by legislation. (A) botched the job, but it still asserting
that (B) pay. (A) & (B)’s contract is illegal, does (B) have to pay?

Definition: Illegality

An illegal agreement is invalid and unenforceable. Principal based on


maxim: ‘ex turpi causa non oritur actio’ (no action arises from a base
cause).

How do you know if a contract is illegal?


• Statute Law will prevent the contract.
OR
• There will be precedent’s of similar cases being struck down, i.e.
Common Law will prevent the contract.

Contracts Illegal by Statute

This can be complicated… put simply there are 2 sets of considerations…

The statute makes an express OR implied prohibition that…


• Makes the formation of the contract illegal:
o The contract may be to do something the statue forbids.
o The contract may be one that the statute details &
prohibits.
• Makes the performance of the contract illegal:
o The contract, although lawful on its face, may have been
made to effect an unlawful purpose.
o The contract, although totally lawful, may have been
performed in a unlawful manner.

Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd


(1978) 139 CLR 410
o First Chicago lent Yango $132,600 secured by a mortgage
and a number of personal guarantees. Yango defaulted and
First Chicago sued. Yango argued that the loan contracts
were illegal as s.8 of Banking Act 1959 (Cth) prohibited
any banking business operating in Aus without authority to
do so. First Chicago had no such authority.
o s.8 did not make the act illegal:
 There was penalty provision per day rather than per
transaction = not preventing lending of money but
unauthorised banking.
 What is worse, un-authorised banking or Banks not
being able to recover loans to pay depositors? Public
interest…

What does this all mean?!?


→ illustrated using the hypothetical situation involving
• “Bootlegged Booze Act 2007 (WA) s.12”,
• Party (A) who sells stills that can be used for bootlegging booze.
• Party (B) who wants to buy a still.

ASK…
What was parliament trying to achieve with this Act?
What is trying to stop, the contract or the performance of?
Does it render ‘this’ contract illegal? Or is there just a penalty?
Consideration sets from above (2):
1)
• Express prohibition OR implied prohibition?
o Express prohibition:
 s.12: No one shall engage in the selling of stills for
the purposes of making bootlegged booze.
 ∴ It is illegal for (A) & (B) to create a contract.
 Cite: Re Mahmoud & Ispahani [1921] 2 KB 716
 Defence of Realm → Linseed Oil case.
o Implied prohibition:
 ASK: what was the act trying to prevent?
 s.12: It is illegal for a person to own a still for the
purposes of making bootlegged booze.
 ∴ It could be illegal for (A) & (B) to create a
contract.
 Cite: Cope & Rowlands (1836) 150 ER 707
 London unlicensed brokers fee of £25 case.

Peter Sadler Contract Law 82


2)
• Illegal as formed OR illegal as performed?
o Illegal as formed:
 s.12: No one shall engage in the selling of stills for
the purposes of making bootlegged booze.
 ∴ It is illegal for (A) & (B) to create a contract.
 Cite: both cases above…
o Illegal as performed
 s.12 A person shall not sell a still to another if that
person is going to use it for making bootlegged
booze.
 ∴ It is illegal when (B) uses the still to make
bootlegged booze.
 Cite: Ashmore, Benson, Pease & Co v A V
Dawson [1973] 1 WLR 828
 Contract = 2x25tonne trucks, 2x20tonne
trucks provided case.

Contracts Illegal by Common Law

There are 6 types of contract that are illegal for public policy:

1. Contracts to Commit Crimes, Torts or Frauds


• Everet v Williams (1725) no citation
o The highwaymen who fell out over division of their takings
case.

2. Contracts promoting sexual immorality


• Upfill v Wright [1911] 1 KB 506
o Lady of the night & unpaid rent case.
• Andrews v Parker [1973] Qd R 93
o Contract must induce morality, it must not already be
present
o ‘Immorality’ a fluid thing to community standards

3. Contracts promoting corruption in public life


• Wilkinson v Osbourne (1915) 21 CLR 89
o 2 NSW ministers, bribe for Gov’n land buying case.

Peter Sadler Contract Law 83


4. Contracts prejudicial to the administration of justice
• Public Services Employees Credit Union v Champion
(1984) 75 FR 131
o Dad guaranteeing loan repayments for misappropriation of
funds, fraud squad case.

5. Contracts prejudicial to the public safety


• Contracts that harm national interest…
• Contracts that harm international relations…

6. Contracts to defraud the revenue


• Contract to exploit loopholes in tax system…

Effect of Illegality

If the contract is illegal as formed…


The contract is void (ex turpi rule)
• No party can sue on it
o Unless there was a fraudulent misrepresentation to induce
it
o Cite: Burrows v Rhodes [1899] 1 QB 816
• Money paid or property transferred under the contract ✗
recoverable
o Exceptions (4):
 ‘Bowmaker rule’ = if only possession has passed
under the contract then property can be returned
provided the plaintiff does not rely on rights
conferred by that contract.
 Bowmaker v Barnet Instruments [1945]
KB 63
• P had lent certain machine tools to D
under three hire-purchase agreements.
This contravened defence regulations. D
sold some of the machine tools in breach
of the hire-purchase agreements and
refused to return others. P sued, D relied
on illegality.

Peter Sadler Contract Law 84


• Defence of illegality failed. P could bring
the action outside of the illegal contract
as they had property rights outside the
scope of the contract. (The machine tools
were never the D to sell).
 Parties ✗ ‘In pari delicto’ (✗ = guilty)
 One party ignorant/mistaken of illegality
OR
 One party is the person the statute/common
law is trying to protect
• i.e. rent protection statute cannot be
relied on against tenants suing for
exorbitant rents!
• Cite: Kiriri Cotton v Dewani [1960] AC
194
 Plaintiff, after paying money or transferring property,
repents illegality before the contract has been
substantially performed.
• Related transactions, including those involving a 3rd party, can
also be void.
o Cite: Spector v Ageda [1973] Ch 30

If the contract has been illegal as performed…


If illegality only comes about because an otherwise lawful and enforceable
contract is performed for an unlawful purpose or in an unlawful way, it
may not be necessary to find that it is completely void and unenforceable.
• First, the courts look at the (4) exceptions provided for contracts
illegal as formed
• Second, the court look at the appropriateness to upholding the
contract, if doing so will provide justice:
o The sanction of refusing to enforce the contract is
disproportionate to the seriousness of the unlawful conduct
→ courts WILL come to the aid of innocent parties with
clean hands… illegality is not to be used as a sword.
 UNLESS:
 Parliament clearly (specifically) indicated that
the contract should always be unenforceable.

Peter Sadler Contract Law 85


 The sanction is necessary to protect the
statues objects or policies.
 It does not appear that the prescribed
sanctions and remedies were intended to be
the only legal consequences of breaching its
prohibitions.
o Cite: Fitzgerald v Leonhardt (1997) 189 CLR 215
 The NT driller & landowner permit case.
o Cite: Nelson v Nelson (1995) 184 CLR 538
 Mother put house in daughters name case.

Void Contracts

Certain contracts are simply not allowed…


• Gaming Contracts
o Illegal bookkeepers seeking to uphold debts.
• Contracts to oust the jurisdiction of the courts
• Contracts prejudicial to the status of marriage
o Contracts to find someone a marriage partner
o Contracts to marry someone
o Contracts not to marry anyone/someone
o Contracts by a married person to marry a third person
• Contracts in restraint of trade
o Unless they have reasonable, defined, geographical and
time stipulations

Peter Sadler Contract Law 86


Breach p.407 28/5/07 9:12 AM

Lead-In

(A) and (B) have a valid contract to paint a wall. (A) paints the wall with
only one coat and the underlying colour is still showing through. Does (B)
have to pay?

Discharge by failure of performance

When both parties complete their obligations under the contract it has
been ‘performed’ & consequently is discharged.

Performance must be exact


Performance must not fall short of what was required in the agreement.
Failure or performance = breech of contract
• This can generate unjust results as in:
• Cutter v Powell (1795) 6 TR 320; 101 ER 573
o Cutter signed on as second mate on a ship travelling from
Jamaica to Liverpool for 30 guineas. Contract states he
must continue & do his duty to port of Liverpool. ¾ way
through journey he dies. P (his wife) sued for his share of
wages on a quantum meruit. → Her actions failed, he had
not performed as required.

EXCEPTIONS TO THE RULE:


Severable Contracts
• Cutter v Powell was ‘entire contract’ ∴ could not be severable.
Often contracts allocate payment structures to stages of
performance. → courts will utilize to make appropriate payments

De Minimis Rule
• “De minimis non curat lex”: The law does not concern itself with
trifles.
• Shipton, Anderson & Co v Weil Bros & Co [1912] 1 KB 574
o Contract was for cargo of wheat, 4,500 tonnes, 2% more
or less (+ could tender for an additional 8%) (total
allowable 4,950 tonnes). Shipment was 4,950.55 tonnes so
D refused delivery, even thought they were only charged
for 4,950. → Courts made D pay.
Substantial Performance
• Where the has been performance, not enough to = de minimis,
but substantial, the court will not allow the innocent party to
terminate, but will award damages for an actual losses flowing
from the breach.
• Hoenig v Isaacs [1952] 2 All ER 176
o P was to redecorate and furnish D’s flat for £750. Only
£400 was actually paid on the grounds that the work had
been done poorly & needed rectification. → Court found
substantially done, P entitled to contract price - £55 18s 2d
deduction.
• Bolton v Mahadeva [1972] 1 WLR 1009
o P (Bolton) agreed to install a heating system in D home for
£560. D refused to pay as it gave out offensive fumes &
did not heat the house properly. Remedial work would cost
£174.50. → Courts rules object of contract faulted ≠
Substantial Performance. ✗ recover.

Acceptance of Partial Performance


• The parties agree to abandon their original contracts (& with it
their mutual rights and obligations) and substitute for it a new
agreement under which one party accepts partial payment in full
satisfaction. The other party agrees to accept a lesser reciprocal
performance.

Obstruction of Performance
• Prevention of Performance occurs when one party denies the
other party the ability to perform their obligations.
o The ‘prevented’ party may regard the contract as at an
end.
o They will be released from further obligation & may sue for
damages or on a quantum merit (if performance of an
entire contract had commenced but had not been
completed at the point of obstruction).
• Refusal of tender of performance
o One party is not prevented from performing, → the other
party simply refuses to accept the proffered.

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o “tender of performance is equivalent to performance”
o ∴ if payment is dependant on delivery, & delivery is
wrongfully refused, the seller need make no further
attempt at delivery & may sue immediately for the non-
acceptance.
 Startup v Macdonald (1843) 6 Man & G 593; 134 ER
1029
 P contacted to sell 10 tonnes of oil to be
delivered “within the last 14 days of March”. He
delivered 8.3pm on Saturday 31st March, but D
refused because of the lateness of the hour. →
Liable for damages for non-acceptance.
 NB: Statutory Influence (now)… Sale of
Goods Act 1895 (WA) s 29(4) → “tender of
delivery may be treated as ineffectual unless
made at a reasonable hour”
o Extension…
 If one party intimates to the other that it is pointless
to tender performance the performance need not
actually be tendered before the rule takes effect.
• Tender of Payment
o Where one party is required to pay money, tender occurs
by the debtor offering the exact amount due. If that offer
is refused the debtor is NOT released from further
obligation.
o If they are subsequently sued, they need only file a
defence of tender, pay the money into the court and the
creditor will have to bear all costs of the action.

Time effect on Performance


• Under common law time stipulations constitute a breach & allow
automatic termination; this is not so in equity which will award
specific performance.
o Unless time ‘of the essence’:
 Contract expressly makes time ‘of the essence’
 Subject matter makes time ‘of the essence’ i.e.
perishable goods
 Party served a ‘notice to complete’ performance

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 Recipient party already in default
 Party giving notice, ready, willing and able to
complete.
 Time stipulation reasonable.
 Notice must be clear that performance is
required & outline potential consequences of
failure.
 Charles Rickards Ltd v Oppenhaim 1 KB 616

Discharge by breach of a term

Determining if Breach?
Innocent party entitled to…
• Damages if…
o Breach of term: warranty, intermediate term or condition.
o Discharge of contract.
• Damages & Discharge if…
o Breach of term: condition or serious intermediate term.
o Time Clause
o Discharge of contract.
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38
SR (NSW) 632
• Test of essentiality
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd
[1962] 2 QB 26 ©
• Wrongful repudiation (see express terms)
Ankar Pty Ltd v National Westminster Finance (Aust) (1987) 162
CLR 549 ©
• Discharge of obligations via breech..
Bunge Corp New York v Tradax Export SA Panama [1981] 1 WLR
711
• 15 days notice required to seller that ship was coming to port →
Ship came early. Seller terminate contract for breach. Time
clause is a condition ∴ ok to terminate.

Types of breach (2):


1) Actual Breach
• A failure to perform when performance is due.

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• Defective performance whereby a term is breached.
• An underlying term of the contract is proven to be untrue.

2) Anticipatory Breach (one party indicates non-performance)


• Explicitly:
o One party clearly informs the other that they will not do
what is required…
 Hochster v De La Tour (1853) 2 El & Bl 678;
118 ER 922
 D engaged P as a courier on the 1st of June. 3
weeks before appointment was supposed to
take place, D wrote to P stating that his
services would not be needed. Hochster sued.
→ D repudiation clear anticipatory breach.
• Implicit:
o One party acts in a manor… implying that they will breach,
or precluding possible performance of the agreement
 Lovelock v Franklyn (1846) 8 QB 371; 115 ER
916
 Dell agreed to sell a parcel of land to Lovelock
provided he pay £140 within 7 yrs. Before
payment Dell sold the land to Williamson.
Lovelock sued Dell’s executors. → Sale to
Williamson implicit anticipatory breech because
performance is no longer possible.
 Universal Cargo Carriers v Citati [1957] 2 QB
401 at 431
 Reasonable person test for determining
anticipatory breach

• Innocent party must make an election…


o Accept the breach and bring the contract to an end; or
o Reject the breach & keep the contract on foot.
o Specific performance may be sought immediately.
 Hasham v Zenab [1960] AC 316
 Zenab agreed to sell Hasham a 2-acre plot of
land in Nairobi. Within minutes of signing the
contract, Zenab repudiated it on the grounds

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that she had intended to sell only half an acre.
Settlement must have been within 6 months of
signing the contract. 4 months or so later
Hasham sued for performance. → Specific
performance was ordered. Zenab could not
demand that Hasham wait for actual non-
performance after 6 months. D anticipatory
refusal gave P immediate right to seek
performance.
o Performance may continue notwithstanding the
anticipatory breach…
 An innocent party may ignore the anticipatory breach
and continue with the contract. When it comes time
for performance they may sue for full contract price.
Innocent party must have a legitimate reason for
ignoring the breach or the courts may not award
contract price.
 White & Carter (Councils) Ltd v McGregor
[1962] AC 413
 McGregor’s sales manager entered into a
contract for litter bin advertising for three
years. Almost immediately McGregor wrote
repudiating the agreement on the grounds that
his sales manager had made an error. White &
Carter refused to accept the repudiation and
constructed the advertising as agreed. When
payment was not forthcoming they sued for the
full three years. → They were entitled to the
money. They were not required to accept the
repudiation because McGregor could complete
performance.
 Clea Shipping Corp v Bulk Oil International Ltd
(“The Alaskan Trader”) [1984] 1 All ER 129
 When the Alaskan Trader broke down &
required extensive repairs the ships charterers
informed the ships captain that they no longer
needed wanted it and repudiated the contract
of charter. Despite this the owners repaired the

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ship and had it fully crewed ready to go for
nearly nine months (the balance of the charter
period), even though they knew that it would
not be used. The owners sued the charterers
for the hire fee for the time they had the ship
ready. → Although innocent parties normally
have an unfettered right to elect whether to
accept or reject repudiation, the court can, in
exceptional cases, refuse to allow them to
continue a contract where they have no
legitimate interest in doing so.
o The contract remains enforceable..
 The contract remains enforceable by both parties –
subject to the rules that govern contracts generally.
This can have adverse effects:
 Avery v Bowden (1855) 5 El & Bl 714; 119 ER
647
 Bowden chartered Avery’s ship to load cargo at
Odessa – the loading to occur within 45 days.
When the ship arrived, Bowden’s agent, who
had no cargo, advised the captain to go
elsewhere. The captain refused and remain in
port hoping that the cargo would be found.
Before 45 days was up was declared and
Odessa became an enemy port ∴ the contract
was frustrated. The captain should have
elected to repudiate the contract.
 Renard Constructions PL v Minister for Public
Works (1992) 26 NSWLR 234 (CA)
 Defendant terminated contract for a breach of
a term. No entitlement to breach ∴ Plaintiff
terminated. Court awarded damages that
exceeded the contract price. This overturned
the notion that the ceiling for damages was the
contract price.
Remedies

DAMAGES:

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• Actual & Anticipatory breach can entitle the innocent party to sue
for damages (at least where he or she has performed or is ready,
willing and able to perform his or her part of the contract).
• With anticipatory breach the contract can be terminated
immediately, the innocent party need not wait for actual breach.

DISCHARGE:
• Both parties are released from future performance and the
innocent party may sue for damages.
• With anticipatory breach (& election)…
o If the breach makes future performance impossible
discharge is automatic and election is not required.
o If the innocent party elects to accept the breach and
terminate the contract, it must be made in clear &
unequivocal words OR conduct that would evidence such
an election (i.e. entering into another contract).
o If the innocent party elects to keep the contract on foot the
breaching party is given a second chance to go through
with the contract.
 If the breach continues the innocent party can
terminate and get damages.
 If the innocent party fully completes their required
performance they can sue for contract price
(assuming the court aggress that they had a
legitimate interest in continuing the contract.. see
above↑).
o What obligations live on after termination:
 Exclusion clauses
 Confidentiality clauses
 Agreed damages clauses
 Arbitration clauses

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Frustration p.394 28/5/07 9:12 AM

Discharge Through Frustration


Paradine v Jane (1647) Aleyn 26, 82 ER 897
• Parties who voluntarily enter into a contract must perform all
their obligations under that contract irrespective of what
happens.
o Doctrine of ‘Absolute Liability’
o Justified because parties can always provide for
contingencies when they are negotiating their contract.
• Paradine v Jane Overturned in ↓

Taylor v Caldwell (1863) 3 B & S 826; 122 ER 309


FACTS:
• Caldwell hired a concert hall called Surrey Gardens and Music
Hall to Taylor. Before Taylor’s first performance the hall burnt
down. There was no provision in the contract for such an event.
Taylor claimed damages for breach of the agreement.
HELD:
• Destruction of the hall had occurred without fault of either party,
both were excused from future performance. The contract was
subject to an implied term that if performance was impossible
because of some supervening event, without default by either
party, both parties would be discharged from future obligation.
This lead to…

Doctrine of ‘Frustration’
‘Non haec in foedera veni’ = it was not this that I agreed to
Frustration cannot be established where:
• Performance not impossible → just more onerous or
inconvenient.
• Where specific provision for the event is made in the agreement.
• Where the frustrating event should have been foreseen &
provided for by the party relying on it against the other.
• Where the frustrating event is self-induced
• Where the contract is merely delayed or interrupted.

Performance of contract is ‘impossible’ for both parties through no fault of


their own:
• Impossibility = ‘absolute impossibility’
o Subject matter of the contract is destroyed (as in Taylor v
Caldwell)
o Death or serious illness to uniquely skilled persons subject
to the contract

• Impossibility = ‘commercial impossibility’


o Contract is discharged not because its physically impossible
to complete but because it is a commercial impossibility.
o Jackson v The Union Marine Insurance Co Ltd (1874)
LR 10 CP 125
 Contract to transport cargo. Ship had run aground
and could not transport cargo for 6 months with
another ship. Cargo transported with another
company, Jackson (ship owner) claims on insurance
for lost cargo. → On appeal, the court found that a
condition was implied into contract that the ship
would arrive in a time to transport cargo. Contract
commercially impossible & could be frustrated.

• Impossibility = ‘radical difference’


o The ‘landscape’ in which the contract was negotiated has
fundamentally changed…
o Codelfa Construction Pty Ltd v State Rail Authority
(NSW) (1982) 149 CLR 337
 Codelfa contracted by Rail to excavate underground
railway. The work had a strict timeframe of 130
weeks – both parties knew this required Codelfa to
work 3 shifts a day, 7 days a week.
 Construction created a lot of noise. An interlocutory
injunction was brought by residents to prevent
Codelfa from working between 10pm & 6am.
Residents & Codelfa reached a more lenient
compromise to work at reduced noise levels between
those hours and not at all on Sundays.
 This resulted in additional costs & loss of profit +
Codelfa could never hope to complete the work
within the specific time restriction.

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 Codelfa argued that the original contract had been
frustrated by the injunctions & they were entitled to
quantum meruit rather than the originally agreed
price. → Court agreed.

• Impossibility = ‘radical difference’ → via ‘delay’ or ‘interruption’


o Mere delay or interruption ✗ enough to render contract
radically different. However, if performance is ‘radically
different’ than contemplated, the delay or interruption can
be a frustrating event…
o NB: When event occurs the party looking to discharge the
contract must anticipate how long the delay will be &
decide whether it will frustrate the contract. Frustration is
based on anticipated length, not actual length of delay.
o National Carriers Ltd v Panalpina (Northern) Ltd
[1981] AC 675
 D leased warehouse from P for 10 years. 5 years in
local council closes only access road because a
building opposite was in a dangerous condition. Road
was estimated to be closed for 12 months, but it
ended up being 20 months. P sued for unpaid rent, D
claimed frustration of lease. → Held not frustration,
20 months in 120 months does not make
performance radically different (D had to pay).
o F C Shepherd & Co Ltd v Jerrom [1987] QB 301
 Appellants hired Jerrom as a apprentice plumber
under a 4yr apprenticeship. Less than 2 years later
Jerrom was convicted of affray and conspiracy to
assault and was sentenced for 6 months to 2 years in
Borstal prison. On release, the appellants refused to
take him back, Jerrom sued for unfair dismissal. →
He had not been unfairly dismissed. Contract
frustrated, employment ‘radically different’ because
Jerrom could not be taught all the skills needed in
the remaining time.

• Impossibility = ‘supervening illegality’

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o A perfectly legal contract when entered into but has
become unlawful because of some event arising thereafter.
o Metropolitan Water Board v Dick, Kerr & Co Ltd
[1918] AC 119
 D contracted to build a reservoir for P and complete
it within 6 yrs. 2 yrs in the Minister for Munitions
ordered them to cease construction so their labour
force / plant could be utilized to manufacture
munitions. Despite this the water board contended
that the reservoir contract still on foot and had to be
completed (ϖ an appropriate time extension). D
claimed frustration. → Held the Ministers order had
frustrated the contract. Critical was condition that it
be completed ϖin 6 yrs. At time of hearing already
delayed 2 yrs & did not look like resuming until after
war.
 Aus case: Lindsay-Owen v Associated Dairies Pty
Ltd [2000] NSWSC 1095
 D selling ‘milk business’ including all farm,
equipment & milk quota. Milk quotas were
deregulated by NSW government. → Held
contract frustrated.

• Impossibility = ‘futility’
o Performance, although possible, is futile, because the
mutually understood purpose of the contract can no longer
be achieved. The frustrating event must render the entire
underlying purpose of the contract.
o Krell v Henry [1903] 2 KB 740
 Contract to lease a flat overlooking the Kings
coronation. This was implicit in the contract. After
the King took sick and delayed the coronation. D no
longer wanted the flat for the period, but P sought to
enforce contract.
 Courts found that contract had lost it purpose,
contract was predicated by a primary purpose to
watch the procession ∴ frustration.

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Consequences of Frustration
WA is still bound by common law in regards to the effect of frustration
while other states have legislation.

Consequences @ Common Law


Up until the time frustration take effect the contract can still be enforced.
There are ‘accrued’ rights & obligations.
• “The losses lie where they fall”:
o Money paid is not recoverable unless there is a total failure
of consideration.
o Services Rendered (to total performance) before or after
point of frustration will receive quantum meruit.
o Services Rendered (to partial performance) either before or
after the point of frustration can not be recovered.

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Remedy p.419 28/5/07 9:12 AM

Exam lead in:

(A) has breached a contract with (B) what can (B) expect in terms of
compensation.
NB: Mitigation is only talked about after a breach has been established.

Definition:

• A contract exists between the parties.


• There is a breach of this contract.
• The courts will award damages (3 general categories)…
o Actual Damages
o Exemplary Damages
 Given not so much to compensate, but to punish
wrongdoer.
 Cite: Ruxley Electronics v Forsyth [1994] 3 WLR
118
o Nominal Damages
 Small token sums of money to acknowledge a
breach, & to express the courts disapproval (can
often be less than courts cost = expensive victory)

Baron Parke in Robinson v Harman (1848) 1 Ex 850 (at 855); 154


ER 363 (at 365):
• “Where a party sustains a loss by reason of a breach of contract,
he is so far as money can do it, to be placed in the same
situation, with respect to damages, as if the contract had been
performed.”
• Approved by High Court in Commonwealth of Australia v
Amann Aviation Pty Ltd (1991) 174 CLR 64
Torts:
• Remedy will put the innocent party in a position they would have
been in before the tortuous action was inflicted.
Contract Law:
• Remedy will put the innocent party in a position they would have
been in if the contract had been completed → ‘the expectation
principle’.
o Robinson v Harman (1848) (↑)
Principals of Damages (4):

1) Damages ✗ be too remote:

Damages recoverable are limited to those that are not too remote. The
principal was first enunciated in:
• Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145 ©
o BUT/FOR Test:
• ∴ in law damages are only recoverable for those losses that:
o Arise naturally from the breach…
 ‘natural consequence’ OR ‘usual course of things’
 ✗ Victoria Laundry v Newman Industries
[1949] 2 KB 528 ©
• Boiler during the war case.
 ✓ H Parsons (Livestock) v Uttley Ingham
[1978] QB 791 ©
• Mouldy pigs nuts case.
o Are actually contemplated as a probable result of the
breach…
 D will be liable if special circumstances are brought
to the attention at the time of contracting.
 Does not necessarily require a formal term in the
contract just notice.

2) Damages are only compensatory:


• Commonwealth of Australia v Amann Aviation Pty Ltd
(1991) 174 CLR 64 ©
o C’wealth had wrongfully terminated the contract
o How do you quantify the losses of Amann Aviation?

• Damages are assessed at the time of breach


o Lord Wilberforce in Johnson v Agnew [1980] AC 367
(at 401)
 “This is not an absolute rule; if to follow it would give
rise to injustice, the court has the power to fix such
other date as may be appropriate in the
circumstances.”

Peter Sadler Contract Law 101


• Damages are quantified using the market rule.

• Damages for Distress & Disappointment…


o General rule is that damages for distress and
disappointment consequent upon a breach of contract are
not recoverable…
Addis v Gramophone Co Ltd [1909] AC 488
 Employee wrongfully dismissed in a humiliating
manner, courts adjusted his damages from the jury
allotted amount.
o Distress is adjunct to physical injury cased by the breach.
 Physical inconvenience and distress resulting from
this.
o Where there was a breach of contract which had, as its
whole objective, the aim to provide relaxation, enjoyment
or relief from molestations → Holiday Cases
 Jarvis v Swan Tours [1973] 1 QB 233
 Baltic Shipping v Dillon (1993) 111 ALR 289
 Cruise liner sank of New Zealand case.
• Damages are ✗ available for loss of reputations, unless:
o Traders can recover damages for injury to their business
reputation
 Cite: Flamingo Park v Dolly Dolly (1986) 65 ALR
500
 Jenny Kee in what appears to be an IP case!

• Damages for Loss of Chance


o Howe v Teefy (1927) SR (NSW) 301 ©
 Horse Racing
o Chaplin v Hicks [1911] 2 KB 786 ©
 Beauty Contest
o Fink v Fink (1947) 74 CLR 127
 Divorce Arrangements

3) Damages must be mitigated:


• Innocent party has a duty (✗ requirement) to try and rectify/limit
losses.

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o Dunkirk Collery Co v Lever (1878) 9 Ch D 20
o If P doesn’t mitigate D won’t be liable for losses court
deems to be self-inflicted.
o Onus is on D to show that P could have mitigated losses.
 Hasell v Bagot Shakes & Lewis Ltd (1911) 13
CLR 374
o What if attempt to mitigate is unsuccessful or it increases
the total loss?
 Total loss (including increase) may be recoverable.
 Simonius Vischer & Co. v Holt & Thompson
[1979] 2 NSWLR 322 ©
 Party v Auditors that controlled wool futures
contracts
o P need not mitigate if it will injure their commercial
reputation by proceeding
 (A) produces screen prints on t-shirts for (B). They
are of inferior quality. (B) does not need to sell to
mitigate.
o What if attempt to mitigate results in an extra benefit for
the P?
 British Westinghouse Electric v Underground
Electric Railway [1912] AC 673

Peter Sadler Contract Law 103


• The impecunious plaintiff

Burns v Man Automotive (Aust) Pty Ltd (1986) 161 CLR 653
COURT:
• High Court of Australia on Appeal
FACTS:
• July 1977, P bought a truck that was guaranteed to have a
reconditioned engine. P had lots of trouble with this truck.
• In July 1978 P discovers that truck ✗ reconditioned engine,
approached D to fix, but they refused.
• P decides to change from intrastate to interstate haulage (this =
↓ profits)
• November 1979, P defaults on truck payments & Esanda
repossesses.
• P has no $, he has contracts due, no truck to complete & cannot
sell truck for same $ he bought because ✗ reconditioned engine.
P made the best of a bad situation, but could show the lost
profits.
• P sues D for:
o Expectation damages - Loss of profit (4 years)
o Actual Damages for mechanical repairs & towing etc
o Nervous Stress
HELD:
• On appeal, no nervous stress and no damages awarded after
July 1978.

4) Damages may be pre-agreed by the parties:

Set damages, estimated & agreed to, at the time of contracting are called
‘liquidated damages’ or a ‘liquidated damages clause’. → entirely
enforceable.

Other Remedies

Specific Performance
• Equitable remedy ∴ is entirely at the discretion of the court.
• ✗ available where damages will suffice

Peter Sadler Contract Law 104


• ✗ available where it will cause undue hardship on the defendant
• ✗ available where it will re-unite two unwilling parties ∴ create
absurdity (personal contracts etc.)
‘Equity does nothing in vain’

Injunction
• Equitable remedy ∴ is entirely at the discretion of the court.
• ✗ available when the breach is unlikely to occur again
• Mandatory Injunction:
o Can enforce a term of the contract in isolation (Specific
performance will enforce the whole contract)
o Cite: Warner Bros v Nelson [1937] 1 KB 209

Restitution
• It is restoring one party to a state prior to contracting.
• Basis of Restitution is the concept of ‘unjust enrichment’.
• Only available where:
o The D has received some form of benefit.
o That benefit was at the expense of the P.
o It would be unjust to allow D to keep benefit.
• So it follows that unjust enrichment will probably be an
appropriate remedy where:
o There has been a total failure of consideration.
OR
o P is claming ‘reasonable remuneration’

‘Reasonable Remuneration’
• ‘Quantum Meruit’ → ‘as much as he has earned’
• Where Quantum Meruit will be awarded:
o Quasi-Contract
o Where ‘no contract’ ever came into being
o Where an ‘entire’ contract was wrongfully discharged
o For work done before frustrating event
o For a partial-performance of contract (perhaps↓)
• No available where the contract stipulated ‘entire’ performance.
o Cite: ✗ Sumpter & Hedges [1898] 1 QB 673
o Cite: ✓ Steele v Tardiani (1946) 72 CLR 386

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