Contract Law Notes Contracts A

Offer
Bilateral contracts Unilateral contracts Offers to the public at large ,age ,age -

What is an offer? - Mere puff - Supply of information - Invitation to treat Categorizing transactions !vertisements a" !vertisements in a catalogue or a curricular b" !vertisements in ne#spapers or magazines c" !vertisements appearing on the internet !" $isplay of goo!s uctions a" !vertisement of auction b" uctions #ith reserves c" uctions #ithout a reserve - %en!ering - Stan!ing offers Options Communication of an offer %ermination of an offer n offer may be terminate! by a" &evocation by the offeror b" &e'ecte! by the offeree c" (apse of time !" )ailure of a con!ition sub'ect to #hich the offer #as ma!e e" $eath

,age ./

,age .0 ,age .1

Acceptance
&e*uirements of acceptance cceptance must correspon! to offer - Offeree must have +no#le!ge of an! act in reliance to an offer

,age .2 ,age.2 ,age.2

counter offer is not acceptance cceptance must be un*ualifie! Mere en*uiry !oes not constitute acceptance ,age .8

3otification to the offerer of the fact of acceptance - Metho! of acceptance a" Metho! of acceptance stipulate! by offer b" cceptance by silence c" cceptance by con!uct - Instantaneous communication4 cceptance must be communicate! a" 5eneral rule b" Meaning of instantaneous communication - ,ostal acceptance rule a" Statement of the rule b" ,olicy behin! the rule c" %o #hat communication !oes the rule e6ten! !" Where is the rule !isplace! e" &evocation of acceptance prior to receipt cceptance in unilateral contracts cceptance commonly by con!uct - With!ra#al of an offer after acceptance has commence! Who may accept an offer? Contract formation4 time an! place - Instantaneous communication - ,ost

,age .9

,age .9 ,age .-

Certainty and Completeness

Statement of the rule - )acets to the principal mbiguity an! uncertainties - In!ivi!ual terms greements to negotiate Saving ambiguous7 uncertain or meaningless terms - (in+ to e6ternal stan!ar! - (in+ to reasonableness stan!ar! - Severance - Waiver or removal of certainty Incomplete agreement greement contains mechanism to complete a" &eference to a thir! party b" $iscretion retaine! by contracting party - Brea+!o#n of mechanism to complete

,age .,age 0/ ,age 0/

,age 0.

,age 00

Saving incomplete agreements - Incompletion of terms - )ailure to specify a price a" Contract silent on price b" Contract provi!es for parties to agree in the future c" Contract ma+e provisions for mechanism to complete !" Contract provi!es for payment of a reasonable price - Sub'ect to agreements Sub'ect to finance agreements a" Satisfactory finance b" Steps to be ta+en to obtain finance Sub'ect to contract

,age 01

Intention to create legal relations

Statement of rule $omestic an! social relationships - ,resumption - &ebutting the presumption a" :usban! an! #ife b" Separate! husban! an! #ife c" Other family relationships !" Social relationships Commercial agreement - ,resumption - &ebutting the presumption 5overnment activities - Commercial agreements - ,olicy initiatives ;oluntary associations Circumstances in!icating absence of intent - :onour clause - ,romotional puff an! free gifts - <6 gratia payments an! #ithout pre'u!ice offers - (etter of comfort - (etter of intent an! un!erstan!ing

,age 0= ,age 0= ,age 0=

,age 0-

,age 1/

,age 1/ ,age 1/

Consideration
3ature of consi!eration - Consi!eration in bilateral contracts

,age 10 ,age 10

Consi!eration in unilateral contracts <6ecute! an! e6ecutory consi!eration

&eme!ies

&ules governing consi!eration - Consi!eration must move from the promisee a" Benefit nee! not move to the promisor b" >oint promises c" Overlap #ith $octrine of privity - Consi!eration must be bargaine! for - Consi!eration must be sufficient a" 5eneral principal b" Consi!eration nee! not be a!e*uate c" Consi!eration can be nominal - Consi!eration must not be past a" 5eneral principal b" ,ast consi!eration !istinguishe! from e6ecute! consi!eration Consi!eration an! formal agreements - $ee!s Consi!eration4 specific e6amples - Moral consi!eration - ,erformance of e6isting !uties a" ,erformance of e6isting contractual !uties b" ,erformance of a public !uty c" Where promise is ma!e to a thir! party - ,ayment of a !ebt a" &ule in ,innel?s case b" Circumstances in #hich the rule #ill not operate ,arties enter into a !ee! ccommo!ation to benefit the cre!itor mount o#ing is !ispute! ,ayment by a thir! party Composition #ith cre!itors - )orbearance to sue - Bargain for con!uct alrea!y performe!

,age 11

,age 1A

,age 1A

Equitable Estoppel
,age 19 <lements of estoppel ssumption of e6pectation - <ncourage! or in!uce! - &eliance - @no#le!ge or intention - $etriment - )ailure to avoi! !etriment ,age 1-

,age 2.

Pri ity
5eneral rule Statutory abrogation of rights - Bueenslan! a" ,romisor b" Beneficiary c" ,romise !" cceptance e" $efences f" ;ariation an! rescission of promise g" Imposition of bur!ens h" Common la# still applicable - Common#ealth - Insurance Contracts ct .-92 CCth" s 29 <ntitlement of a name! person to claim - Maritime contracts of carriage a" Servants or agents of sea carriers b" Consignees an! en!orsees So calle! e6emption at common la# gency $efinition <6emption clauses an! thir! parties %rusts Un'ust enrichment

&e* uire men ts of #rit ing4 cont ent

,age 20 ,age 20 ,age 20

!ormalities
5uarantees - 3ature of guarantees - %ransaction #hich are not guarantees a" Contracts of in!emnity b" ,romise of guarantee ma!e to the !ebtor c" ,erson agrees to ta+e over the !ebt of another !" %he agreement imposes no personal liability on the person e" (etters of comfort - &e*uirements of #riting4 content a" Information particular to the guarantee b" c+no#le!gement of the agreement - &e*uirements of #riting4 signe! by party to be charge! or agent Contracts relating to lan! - 3ature of contract nee!ing #riting

,age 2A

,age 2= ,age 2=

,age A/ a" Information particular to the guarantee b" c+no#le!gement of the agreement &e*uirements of #riting4 signe! by party to be charge! or agent

>oin!er of !ocument - &eference to a !ocument a" $ocuments that are physically connecte! b" $ocuments that are e6ecute! at the same time - &eference to a transaction <ffect of statutory non-compliance4 common la# - Contract vali! to pass title - &ecovery of money pai! un!er unenforceable contract a" &ecovery of !eposit b" &ecovery of amount more than !eposit - Other restitutionary claim may still be available <ffect of statutory non-compliance4 e*uity - $octrine of part performance a" cts are une*uivocally referable to some such contract b" cts !one in reliance on the agreement an! #ith +no#le!ge of the other party c" cts !one by the party see+ing to enforce the contract !" Oral contract must be other#ise enforceable - <stoppel - Constructive trust

Incorporati on by notice4 signs c" &ea sona ble step s ta+e n by the !efe n!a nt !" &ea sona ble step s mus t be ta+e n on or befo re cont ract for mati on Incorporati on of notice4 #ebsite Incorporati on by reference

Establis"ing contractual terms

Incorporation by signature a" 5eneral rule b" When the rule is !isplace! Incorporation by notice4 unsigne! !ocument a" &easonable steps ta+en by the !efen!ant b" &easonable steps must be ta+en on or before contract formation

,age A0

,age A1

,age AA

Coll ater al cont ract s a" 3 a t u r e o f a c o l l a t e r a l c o n t r a c t

,age A8 ,age A8

,age A=

,age A9

,age A,age AIncorporating oral terms - Mere puff - &epresentation or term a" Wor!s or con!uct of parties b" @no#le!ge an! e6pertise of statement ma+er c" Statement ma+er has control in relation to information !" Oral statement not re!uce! to #riting e" Interval of time

b" Bipartite an! tripartite collateral contracts c" Consistency #ith the main contract ,arole evi!ence rule - Statement of the rule - When the rule applies - <6ceptions of the rule a" <vi!ence of a collateral contract b" <vi!ence that the #ritten contract is not yet in force c" <vi!ence that the #ritten contract #as later varie! or change! !" <vi!ence to imply a term e" <vi!ence necessary for rectification Implie! terms - %erms implie! to give effect to the presume! intention of the parties a" %erm implie! on the basis of business efficiency b" %erm implie! from previous consistent course of !ealings c" %erm implie! from custom or usage !" %erm implie! to complete an agreement - %erms implie! irrespective of parties intentions e" %erm implie! as a legal inci!ent of a particular class of contract f" 5eneral !uty of co-operation g" Implication of !uties of goo! faith7 fair !ealings an! reasonableness h" %erm Implie! by statute ,age 8.

,age 80

Construction of terms
Interpreting the meaning of terms - 5eneral approach !missible evi!ence a" %he parole evi!ence rule b" )actual matri6 ,age A-

,age 88 ,age 88

c" <6ceptions to the parole evi!ence rule mbiguity I!entification of sub'ect matter I!entification of parties an! their relationship I!entification of the real consi!eration Custom or usage &ectification Ina!missible evi!ence a" Sub'ective intention b" ,rior negotiation c" Subse*uent con!uct

(egal effect of #or!s4 types an! terms - ,romissory terms a" Con!itions %he statutory position b" Warranties %he statutory position c" Interme!iate or innominate terms Contingencies - Con!itions prece!ent - Con!itions subse*uent <6emption clauses - Specific rules of construction a" %he contra proferentem rule b" ttempts to e6empt negligence %he rules regar!ing attempts to e6empt negligence c" %he four corners rule

,age 8-

,age =0

,age =1

Contract Law E#am Notes

Offer$
n offer is an e6pression to another of a #illingness to be boun! by the state! terms Australian Woollen Mills Pty Ltd v The Commonwealth

%ilateral Contracts
Un!er Bilateral Contracts each party un!erta+es to the other party to !o or to refrain from !oing something7 an! in the event of hisDher failure to preform hisDher un!erta+ing7 the la# provi!es the other party #ith a reme!yE United Dominions Trust Ltd v Eagle Aircraft Services Ltd

&nilateral Contracts
Un!er unilateral contracts the promisor un!erta+es to !o or to refrain from !oing something if another party7 the promisee7 !oes or refrains from !oing something7 but the promisee !oes not at the time of the offer un!erta+e to !o or to refrain from !oing that thingE United Dominions Trust Ltd v Eagle Aircraft Services Ltd %he position in such cases is simply that the consi!eration on the part of the offeree on the part of the offeree is completely e6ecute! by the !oing of the very thing that constitutes acceptance of the offerE Australian Woollen Mills Pty Ltd v The Commonwealth

Offers to t"e Public at Large

n offer can be ma!e to the public at largeE Carlill v Car ollic Smo!e "all Com#any

'"at is not an Offer(

)ere Puff
Sometimes statements can be regar!e! only as Fmere puffery?- the claims are ma!e only for a!vertising purposes an! mean nothingE Carlill v Car ollic Smo!e "all Com#any

*upply of Information
%he supply of information is not an offerE re*uest for information must be !iscerne! from a contractual offerE clearer in!ication of a prepare!ness to enter into a contract7 than merely provi!ing terms or information upon #hich a party maybe prepare! to enter into such a contract7 is nee!e!E $arvey v %acey

./

In itation to +reat
n invitation to treat is an in!icator of a parties #illingness to negotiate entry into a contractE It is a techni*ue use! by a party #ho !esire another party to ma+e an offer an! cannot be construe! or the terms be accepte! as if it #ere a vali! legal offer in itselfE Carlill v Car ollic Smo!e "all Com#any %he !isplay of goo!s in a store is an invitation to treatE Pharmaceutical Society of &reat "ritain v' "oots Cash Chemists (Southern) Ltd n a!vertisement that gives information about goo!s for sale an! their price #ill generally be an invitation to treat rather than an offerE Partridge v Crittenden

Categori,ing +ransactions
Ad ertisements
Most a!vertisements are consi!ere! invitations to treat but some may be regar!e! as offers !epen!ing on language use! in the a!vertisement an! other relevant factorsE a" !vertisements in a catalogue or in a curricularE

Circulars7 #hich provi!e information about items for sale an! their prices7 are regar!e! as invitations to treatE If it #ere regar!e! as an offer an! the manufacturer ran out of stoc+7 they #oul! be in breach of contract for anyone #ho accepte! such an offer as they coul! not provi!e stoc+ &rainger v &ough

b" !vertisements in 3e#spapers an! MagazinesE %hese are also consi!ere! invitations to treat unless the a!vertisement is couche! in terms #hich in!icate the retailers #illingness to be boun! if the specifie! terms are accepte! CegE there is a promise CCarlill" rather than a mere invitation CPartridge v Crittenden"E c" !vertisements appearing on the InternetE

%he application of the same principle as ne#spapers an! magazines is use!E !" $isplay of 5oo!sE

..

Items appearing in retail outlets7 even if the price is attache!7 are regar!e! as an invitation to treatE Pharmaceutical Society of &reat "ritain v "oots Cash ChemistsE

Auctions
a" !vertisement of uctions

%he a!vertisement of an auction is consi!ere! an invitation to treat on the part of the auctioneerE %he auctioneer may #ith!ra# items from the auction or cancel the auction all together #ithout incurring any liability from potential bi!!ersE $arris v *ic!erson %he auctioneer may #ith!ra# various lots from the auction or cancel the auction altogether #ithout incurring any liability from potential bi!!ersE $arris v *ic!erson b" uctions #ith &eserve

<ach bi! represents an offer7 #hich the auctioneer may re'ect or acceptE cceptance of an offer occurs7 an! an agreement is forme!7 #hen the auctioneer +noc+s !o#n the property to the successful bi!!erE Because the agreement is not forme! until the bi! is +noc+e! !o#n7 the bi!!er can #ith!ra# a bi! Coffer" before this timeE Payne v Cave c" uction #ithout a &eserve

<ven in an auction #ithout a reserve7 each bi! represents an offer that coul! be accepte! or re'ecte! by the auctioneerE A&C Ltd v' McWhirter

+endering
n a!vertisement for ten!ers #ill generally be the same as an a!vertisement for an auction7 #hich is a+in to an invitation to treatE %herefore no liability #ill be incurre! if the person !oes not accept any of the ten!ers or even consi!er them in a bona fi!e #ayE <ach ten!er #ill be consi!ere! an offer7 #hich can be accepte! or re'ecte!E S#encer v' $arding

*tanding Offers

.0

stan!ing offer is an in!ication by one party of hisDher #illingness to provi!e goo!s over a specifie! perio! of timeE stan!ing offer is accepte! every time an or!er is place!E If the goo!s are not !elivere! or are refuse! the offen!ing party #ill be in breach of contractE &reat *orthern +ailway Co v' Witham n offeror may #ith!ra# the offer7 anytime7 before acceptance of the offer is ma!e in the form of an or!erE )urther7 unless the parties agree to the contrary7 there is no obligation of the offeree to or!er goo!s only through the offeror7 CegE the offeree may choose not to accept the stan!ing offer" Colonial Ammunition Co v +eid

Options
%he stan!ing offer may be revo+e! at anytime before acceptance by the offereeE :o#ever7 if the offeree provi!es consi!eration Ceg paying money" to the offeror to +eep the offer open for some perio!7 the offer cannot be #ith!ra#n !uring this perio!E +outledge v &rant

Communication of an Offer
)or an offer to be vali! it must be communicate! to the offeree by the offeror7 or someone authorise! by the offerorE Cole v Cottingham n offer becomes effective once it is communicate! to the offeree Taylor vLaird cceptance must ta+e place in reliance upon an offerE If the offeree performs a particular act that correspon!s to the terms of the offer #ithout +no#le!ge of the offer7 there is no agreement7 an! no contract comes into e6istenceE Tinn v $offman , Co If it is an offer to the #orl! at large7 the offer coul! be accepte! by any fulfilling the re*uirements of the offerE Carlill v Car olic Smo!e Com#any

+ermination of an Offer

.1

n offer may be terminate! at any time before it is accepte!E :o#ever7 once an offer is accepte! it becomes irrevocableE &olds rough Mort , Co Ltd v -uinn

An offer may be terminated by

a" &evocation by the offeror &evocation is the formal #ith!ra#al of the offer by the offerorE Before acceptance7 an offer can be freely revo+e! &olds rough Mort , Co v -uinn .eivers v Cordingly Unless there is a promise7 supporte! by consi!eration or un!er seal7 by the offeror to +eep it open for a fi6e! perio!E +outledge v &rant revocation #ill only be effective once it has been communicate! to an! receive! by the offeree "ryrne v Leon .an Tien $oven In unilateral contracts7 the offer cannot be #ith!ra#n after the offeree has begun to perform the necessary con!itions of acceptance of the offer an! completion of the contractE A ot v Lance b" &e'ecte! by the offeree %he re'ection must be communicate! to the offeror before it is effectiveE Once re'ecte!7 an offer cannot be later accepte!E If an offeree attempts to accept the offer but intro!uces ne# terms7 the offeree is re'ecte! the offer an! is !eeme! to be ma+ing a counter offer Stevenson /a0ues , Co v McLean c" (apse of time n offeror may stipulate that his or her offer must be accepte! #ithin a certain perio! of time7 an! if the offeree fails to accept7 the offer #ill lapseE If no time is prescribe!7 the offer must be accepte! #ithin a reasonable timeE +amsgate .ictoria $otel Co v Montefiore !" )ailure of a con!ition sub'ect to #hich the offer #as ma!e

.2

If a con!ition upon #hich the offer is ma!e is not fulfille! the offer #ill lapse McCaul Pty Ltd v Pitt Clu Ltd e" $eath If the offeror !ies an! the offeree has not been notifie! of that !eath7 it is still possible for the offeree to accept the offer7 thus bin!ing the offeror?s estateE If the offeree has been notifie! of the !eath heDshe cannot accept the offerE Coulthart v Clementson 3or can a representative of the offerors estate accept the offer on their behalf therefore the offer lapses +eynolds v Atherton

Acceptance$
-equirements of Acceptance
cceptance of an offer is the e6pression7 by #or!s or con!uct7 of assent to the terms of the offer in the manner prescribe! or in!icate! by the offerE %hus acceptance may be e6presse! or implie! $"% Dalgety v Morton %here are t#o re*uirements to satisfy for vali! acceptance to occur4 .E %he offeree must agree to accept the terms of the offer 0E %his information must be communicate! to the offerorE

Acceptance must correspond to Offer

Offeree must "a e .nowledge of and act in reliance to an offer
%he offeree must have +no#le!ge of the terms of the offer at the time of purporte! acceptanceE cceptance is not vali! if t#o i!entical offers are ma!e or if a party performs the act of acceptance #ithout +no#le!ge of the offerE Tinn v $offman

A Counter Offer is not Acceptance

.A

If a counter offer is ma!e7 the original offer is re'ecte! an! the counter offer can then itself be accepte! or re'ecte!E Once a counter offer is ma!e an! the original offer re'ecte!7 the offeree can no longer accept the original offer $yde v' Wrench purporte! acceptance that !eparts from the terms of the offer but only in a minor non-material #ay may be effective an! not amount to a counter offer Turner 1em#son v Camm

Acceptance must be &nqualified

If there is an agreement on all terms of the offer7 an! the parties inten! to be boun! imme!iately7 this #oul! be consi!ere! un*ualifie! acceptance of the offerE Masters v Cameron

)ere Inquiry does not Constitute Acceptance

fter receiving an offer7 an offeree may #ant further clarification of one or more termsE %his in*uiry can at most7 only communicate interest but not acceptance nor re'ection of an offerE Stevenson /a0ues v McLean

Notification to t"e Offeror of t"e !act of Acceptance

%he offeree must communicate acceptance of the offer to the offeror an! agreement is not complete until such communication is affecte!E Powell v Lee Soares v Sim#son

)et"od of Acceptance
What is an appropriate metho! of acceptance in any given situation #ill !epen! on each situation7 #hether the offeror has outline! a specifie! metho! of acceptance #ith in the offer7 or if it is not stipulate!7 the appropriate metho! of acceptance #ill !epen! on the intention of the parties as !erive! from the particular factsE Whether acceptance has occurre! !epen!s on #hether the offeree has complie! #ith the re*uirements for the metho! of acceptance for the particular situationE a" Metho! of cceptance Stipulate! by Offeror %he offeror may stipulate ho# acceptance shoul! ta+e place CegE the performance of an act7 return post etcE"E If acceptance !oes not occur in this #ay7 generally there is no agreementE

.8

lthough7 if the offeree accepts in a manner that is more a!vantageous for the offeror7 then the acceptance #ill be vali! Tinn v $offman lso7 if the metho! of acceptance #as inserte! for the convenience of the offeree7 the offeree may #ave the benefit of the clause an! accept in a !ifferent #ay Or even if a manner of acceptance is prescribe! in the offer7 on the true construction of the terms in the offer7 this may not be the only metho! of acceptance that #ill be effective Manchester Diocesan Council for Education v Commercial , &eneral 2nvestments Ltd b" cceptance by Silence

%he offeror cannot stipulate silence to constitute consent un!er any circumstancesE %elthouse v "indley Em#irnall $oldings Pty Ltd v Machon Paul Partners Pty Lty "raund v Mutual Life , Citi3ens4 Assurance Co Ltd %he techni*ue of !elivering a pro!uct #ith a notice stating that unless the goo!s are returne! #ithin a state! perio! Cor re'ection communicate! in a !ifferent #ay"7 the buyer #ill be ta+en to have agree! to buy the pro!uct on the state! terms is no# prohibite! by statuteE Trade Practices Act 5678 (cth) s' 98 , s'9: %air Trading Act 56;6 (0ld) s':< , s':= c" cceptance by Con!uct

n offeror may stipulate the manner of acceptance by a!vising the offeree that if heDshe #ishes to accept the offer7 the offeree shoul! perform stipulate! acts #aiving the nee! to communicate acceptanceE cceptance can be e6press or implie!E "rogden v The Director of the Metro#olitan +ailway Com#any Carlill4s case

Instantaneous Communication$ Acceptance must be communicated

a" 5eneral &ule When the mo!e of acceptance is instantaneous communication7 the general rule of la# is that the contract #ill be forme! #hen acceptance of the offer is communicate! to the offeror an! that communication is receive!E

.=

Entores L D v Miles %ar East Cor#oration "rin!i on Ltd v Stahag Stahl und Stahlwarenhandels>&esellshaft m $ b" Meaning of instantaneous Communication )ace to face communication7 telephone conversations an! tele6 messages are all consi!ere! forms of instantaneous communicationE Entores L D v Miles %ar East Cor#oration +eese "ros Plastics Ltd v $ammon>Sa elco Australia Pty Ltd

Postal Acceptance -ule

%he postal acceptance rule is the e6ception to the general rule that acceptance occurs #hen it is communicate! to the offerorE a" Statement of the rule Where the circumstances are such that it must have been #ithin the contemplation of the parties that7 accor!ing to the or!inary usages of man+in!7 the post might be use! as a means of communicating the acceptance of an offer7 the acceptance is complete! as soon as it is poste!E $enthorn v %raser %he rule operates only #here the post is an acceptable metho! of communication bet#een the t#o parties CegE the offer #as ma!e by post or it is stipulate! in the offer that the post is an acceptable metho! of communication" Adams v Lindsell b" ,olicy behin! the rule %he postal rule promotes contractual certaintyE c" %o #hat communication !oes the rule e6ten! %he postal acceptance rule applies to forms of communication that are a+in to mail but !oes not e6ten! to any form of instantaneous communication7 even if that communication bears some similarities to communication by postE Coot Pty Ltd v Admin Management Pty Ltd !" Where is the rule !isplace!? %he rule is !isplace! if the court !eci!es that it #as not #ithin the contemplation of the parties that the post #as an accepte! metho! of communicationE Whether the postal rule is !isplace! turns the intention of the offerorE If the offeror says or implies that actual notification is re*uire! before an agreement if forme! the postal acceptance rule #ill be !isplace!E .9

"ressan v S0uires e" &evocation of the acceptance prior to receipt %he offer is forme! #hen the letter of acceptance is poste!E #ith!ra#al of that acceptance #ill be ineffectiveE subse*uent purporte!

%here is still no !efinitive ustralian authority on the issue7 only early 3e# Gealan! !icta that?s suggests that it cannot be #ith!ra#n in this #ay an! an even earlier Scottish authority to suggest that it canHH Wein!heim v Arndt (*?) Dunmore (Countess) v Ale@ander (Scottish)

Acceptance in &nilateral Contracts

Acceptance commonly by conduct
%he re*uirement for acceptance to be communicate! is often implie!ly #aive!E cceptance is affecte! by the offeree by performing the re*uirements that are specifie! by the offerorE Carlill v Car ollic Smo!e "all Com#any

'it"drawal of an offer after acceptance "as commenced

5enerally7 once an offeree has begun to accept the offer by performing the acts stipulate!7 it is li+ely to be too late for the offeror to #ith!ra# the offer an! claim there has been no contract formationE A ot v Lance

'"o may accept an offer(

n offer can only be accepte! by the person to #hom it #as ma!eE +eynolds v Atherton cceptance may be communicate! only by the offeree or his or her agent Powell v Lee If an offer is ma!e to the public at large it can sometimes be accepte! by a number of peopleE In Carlill4s Case the offer #as capable of acceptance by anyone #ho *ualifie! un!er the terms of their offer CegE anyone #ho purchase! a smo+e ball7 ho#ever7 in the case of a re#ar!7 #hile many people may have the information #hich *ualifies them for the re#ar!7 only the first person to come forth #ill be eligible"E

.-

Carlill4s case

Contract formation$ time and place

Instantaneous communication
contract is forme! #hen an! #here the offeror receives an! accepts the acceptance communicate!E $am#stead Meats Pty Ltd v Emerson , Aates Pty Lty Entores L D v Miles %ar East Cor#oration

Post
If the postal acceptance rule applies7 the contract is forme! #hen7 an! at the place that7 the letter of acceptance is poste!E $enthorn v %raser %he ,ostal &ule can be e6clu!e! ICovere! earlier in J%he postal cceptance &uleK at C!"L $olwell Securities Ltd v $ughes "ressan v S0uires

Certainty and Completeness$

Concepts of uncertainty or vagueness are relevant to a !etermination of #hether there has been an offer ma!e #hich is capable of acceptance7 an! #hether the parties coul! have ha! the re*uisite intention to enter into legal relationsE If an offer is so vague that the respective obligations of the parties on acceptance are unclear7 it is unli+ely to be a vali! offer in legal termsE Similarly7 if the terms of the offer are vague an! uncertain7 it may in!icate that the parties lac+ intention7 not having yet reache! the stage of negotiations at #hich each inten!s to be legally boun! to the other partyE

*tatement of t"e -ule

In or!er to constitute a vali! contract the parties must so e6press themselves that their meaning can be !etermine! #ith a reasonable !egree of certaintyE It is plain that unless this can be !one it #oul! be impossible to hol! that the contracting parties ha! the same intentionsM in other #or!s the consensus a! i!em #oul! be a matter of mere con'ecture & Scammell and *e#hew Ltd v $C and /& Buston

0/

!acets to t"e principal

%here are a number of facets to this principle4 contract containing language that is so obscure an! so incapable of any !efinite or precise meaning that the court is unable to attribute to the parties any particular contractual intention #ill be unenforceable %he uncertainty may relate to one of the pivotal terms of the agreement or may go to the very heart of the agreementE

& Scammell and *e#hew v $C , /& Buston <ven #here uncertain or ambiguous language is not use!7 if the parties have not agree! on all of the essential terms of the agreement7 the contract #ill be unenforceableE

Loftus v +o erts contract #ill be unenforceable if it reserves a !iscretion for one party not to carry out his or her obligations

Thor y v &old erg

Ambiguity and &ncertainty

Indi idual +erms
%here can be no contract unless #hat the parties agree! can be !etermine! ob'ectively #ith a reasonable !egree of certaintyE number of !ifferent terms have been use! to !escribe clauses that are struc+ !o#n for #ant of certaintyE Whether the clause is sai! to be vague7 ambiguous or uncertain matters little7 the clause is voi!E Sometimes the court #ill label a term meaningless or illusoryE meaningless clause is one to #hich a meaning cannot be attribute! an! #ill be treate! the same #ay as an uncertain clauseE n illusory clause has an i!entifiable meaning but #ill be treate! as uncertain as it promises an illusory termE %he mo!ern approach appears to emphasise the courts #illingness to uphol! an agreement entere! into by the parties7 particularly #here the circumstance in!icate that the parties inten!e! to be boun! by the agreementE Lend Lease %inancial Planning Ltd v Southca# Pty Ltd

Agreements to Negotiate
If parties !o not reach final agreement on essential terms7 instea! agreeing to finalise such matters at a later time7 the contract is an agreement to agree7 therefore it is incomplete an! #ill not be enforce!E

0.

"oo!er 2ndustries Pty Ltd v Wilson Par!ing -ld Pty Ltd If an agreement to negotiate is regar!e! as an agreement to agree7 it to #ill be unenforceable Coal Cliff Collieries Pty Ltd v SiCehama Pty Ltd :o#ever7 it #as contemplate! by @irby , Cin Coal Cliff Collieries Pty Ltd v SiCehama Pty Ltd)7 that in appropriate circumstances7 an agreement to negotiate coul! be enforceableE :e conclu!e! that if the parties provi!e! goo! consi!eration an! the terms of the agreement to negotiate #ere sufficiently certain7 such agreement might be enforceableE One mechanism to ma+e an agreement to negotiate more certain7 it #as suggeste!7 #oul! be to inclu!e a provision referring matters in !ispute to a thir! partyE

*a ing Ambiguous/ uncertain or meaningless contracts

Lin. to E#ternal *tandard
clause in a contract7 #hich7 on its face7 appears uncertain7 may be enforceable if a meaning can be given to it by reference to an e6ternal stan!ar!E %he parties may provi!e for Ja stan!ar!7 machinery or formula !esigne! by the parties to ta+e the place of their o#n agreementKE $awthorn %oot all Clu v $arding %he reference may be ma!e in a !irect #ay for e6ample7 incorporating stan!ar! hire purchase terms use! by the particular hiring companyE If such a set of stan!ar! hire purchase terms e6ists7 the clause #ill be vali!E &ecourse may also be ma!e to e6ternal stan!ar!s7 even #here the contract itself !oes not e6pressly provi!e such a lin+E $illas and Co Ltd v Arcos Ltd Specifications agree! in the original contract coul! be regar!e! as an e6ternal stan!ar!E Sometimes7 the contract may provi!e for one or more terms to be inserte! by a thir! partyE CIn a fashion7 this is also a lin+ to an e6ternal stan!ar!"E $awthorn %oot all Clu v $arding &odec!i v 1irwan

Lin. to reasonableness standard

%he court may be #illing7 in some circumstances7 to a!opt principles of reasonableness to ma+e certain something that7 on its face7 is notE

00

F%he implication of #hat is 'ust an! reasonable to be ascertaine! by the court as a matter of machinery #here the contractual intention is clear but the contract is silent on some !etail? $illas and Co Ltd v Arcos Ltd

*e erance
%he invali!ity of one term #ill not necessarily mean that the #hole contract #ill be unenforceableE In some circumstances the invali! term can be severe! an! the remain!er of the contract #ill be enforceableE 5enerally7 if the parties #oul! have inten!e! to be boun! in the absence of an uncertain clause7 the clause can be severe! an! the remain!er of the contract is enforceable %it3gerald v Masters If the offen!ing clause forms a pivotal part of the contract7 so that #ithout out it the parties coul! not have inten!e! to be boun!7 severance of the particular clause is not possibleE Whitloc! v "rew

'ai er or -emo al of &ncertainty

If a clause is inserte! in a contract for the benefit of one party only7 but is !rafte! in such vague terms as to ma+e it voi!7 that party can choose to #aive the benefit of the clause an! have the remain!er of the contract specifically enforce!E Whitloc! v "rew

Incomplete agreement
%he courts #ill not len! their ai! to the enforcement of an incomplete agreement7 being no more than an agreement for the parties to agree at some time in the futureE "oo!er 2ndustries Pty Ltd v Wilson Par!ing -ld Pty Ltd

Agreement contains mec"anism to complete

It may suit the nee!s of contracting parties not to finalise various aspects of their agreement7 but rather to insert in a mechanism for !etermining one or more terms at a later !ate for e6ample e6ternal stan!ar! or thir! partyE a" &eference to a thir! party ,arties to a contract may leave terms of the contract to be !eci!e! by a thir! party7 even essential termsE &odec!e v 1irwan $awthorn %oot all Clu Ltd v $arding

01

b" $iscretion retaine! by a contracting party It is uncertain that a contract that leaves minor terms to be !etermine! by one of the contracting parties is enforceableE contract that leaves essential matter for later !etermination by one of the contracting parties #ill be unenforceable as it is either incomplete or uncertain or because the promises containe! in the agreement are illusoryE Coal Cliff Collieries Pty Ltd v SiCehama Pty Ltd :o#ever7 if a subsi!iary matter #as left to the !etermination of one of the parties such as ho# the contractual obligations are carrie! out by that party7 it may be enforceableE &odec!e v 1irwan

%rea.down of )ec"anism to Complete

If the parties a mechanism for !etermining a term an! that mechanism fails7 the court #ill not substitute it?s o#n vie# an! complete the agreementE Milnes v &ery If the !ispute! issue is one of something such as the JpriceK of something CegE &ent"7 a court may be prepare! to !etermine a fair an! reasonable price7 an! not to regar! that !etermination as completing the agreement for the partiesE "oo!er 2ndustries Pty Ltd v Wilson Par!ing -ld Pty Ltd Sud roo! Trading Estate Ltd v Eggleton

*a ing Incomplete Agreements

Implication of +erms
%here is a #illingness of the courts to imply terms into an agreementE It is not for the court to ma+e the contract for the parties7 or to go outsi!e the #or!s they have use!7 e6cept insofar as there are appropriate implications of la#7 as for instance7 the implication of #hat is 'ust an! reasonable to be ascertaine! by the court as matter of machinery #here the contractual intention is clear but the contract is silent on some !etailsE $illas v Arcos :o#ever7 the court may not re#rite the agreement for parties #here the parties themselves have faile! to agree on essential termsE %he greater the number of terms not finally agree! upon by the parties7 the less incline! the court #ill be to e6ercise its !iscretion to imply a termE contract coul! only be regar!e! as conclu!e! if the parties agree! on the three essential elements4 Jthe partiesK7 Jthe sub'ect matterK an!

02

Jthe priceK an! if these elements have been agree! upon #ith sufficient certainty the court #ill provi!e the restE $all v "usst In a!!ition7 there are t#o other factors that may be relevant in the courts !eterminationE )irst7 if it is clear that the parties have gone beyon! the state of negotiation an! inten! to be contractually boun!7 the court #ill be more min!e! to imply a term an! enforce the agreementE $illas v Arcos Secon!ly7 an! relate! to the first7 if the contract has bet#een partly e6ecute!7 for e6ample in a contract for the sale of goo!s7 property has been !elivere! an! title has passe!7 the court #ill see+ to imply a term necessary for the vali!ity of the agreement $all v "usst

!ailure to specify price

a" Contract silent on price %he general principle is that a contract #ill only be regar!e! as vali! if the parties to it agree on price Cas this is one of the essential terms"7 this means that if there is no agreement on price stipulate! in the contract7 then the contract is not complete7 an! #oul! not be uphel! by the courtE $all v "usst :o#ever7 there are e6ceptionsE %here is a !istinction bet#een the sale of lan! an! sale of goo!s #ith respect to the implication of terms by a courtE )or the sale of goo!s7 the court is sometimes prepare! to imply a term that the purchaser #ill pay a reasonable price for the goo!sE %his intention is !emonstrate! for e6ample7 #here the contract is partly e6ecute! an! property in the goo!s has passe!E court #ill not imply a term for payment at a reasonable price into a contract for the sale of lan! $all v "usst b" Contract provi!es for parties to agree in future n agreement to agree in the future also offen!s against the general principle of completenessE :o#ever7 in some instances7 in contracts for the sale of goo!s the court may imply a reasonable price an! the contract #ill be uphel!E %oley v Classi0ue Coaches Ltd

0A

:o#ever7 if the contract is to sell lan!7 or on rental in an option to rene# a lease7 it is unli+ely to be uphel!" an! #ill be treate! as such matters #hich are silent on priceE Stoc!s ,$oldings Pty Ltd v Arrowsmith c" Contract ma+es provision for mechanism to complete contract that contains a mechanism for setting a term at a later time is li+ely to be vali!E It is not uncommon for such a mechanism to be use! in relation to setting a priceE &odec!e v 1irwan !" Contract provi!es for payment of a reasonable price Whether the agreement is uphel! as being sufficiently certain may turn on the nature of the sub'ect matter in !isputeE contract for the sale of goo!s at a reasonable price is li+ely to be vali!E Sale of &oods Act 5;69 (-ld) &easonable price is an ob'ective stan!ar! that can be !etermine! #ithout further agreement bet#een the partiesE If one party breaches the agreement7 the court can assess the price to be attribute! to the goo!s7 an! !amages can be a#ar!e! accor!inglyE "ritish an! of %oreign Trade Ltd v *ovine@ Ltd :o#ever7 clauses to attribute reasonable price to the sale of lan! #ill generally be uncertain or for the sale of goo!s if they are uni*ue or of very special character eg original painiting $all v "usst

*ub0ect to agreements$
Sometimes parties may be rea!y to sign a contract but not able or not prepare! to commit to one or more aspects of the agreementE In these circumstances parties may !eci!e to enter into agreements sub'ect to the happening of a particular eventE

*ub0ect to finance agreements

Contracts for sale may contain a clause stating that the contract is sub'ect to the purchaser receiving approval for finance on satisfactory terms an! con!itionsE %he contract is imme!iately bin!ing on the parties but #ill come to an en! if the purchaser is unable to obtain finance an! terminates the contract pursuant to its termsE Meehan v /ones a" Satisfactory )inance 08

It has been argue! that a clause that provi!e! for finance to be obtaine! on Fsatisfactory terms? is either to uncertain to be vali! or gave the purchaser such a #i!e !iscretion that it #as illusoryE %he :igh Court !isagree!7 an! state! that as the clause #as inserte! for the benefit of the purchaser7 the !etermination of #hether the finance #as satisfactory #as left to the purchaser Meehan v /ones b" Steps to be ta+en to obtain finance %he finance clause in most stan!ar! lan! contracts imposes an obligation on the purchaser to ta+e all steps reasonably necessary to obtain finance approvalE Meehan v /ones

*ub0ect to Contract
)or agreements that are forme! sub'ect to contract7 the case coul! fall into one of three categories4 .E %he parties have reache! finality in arranging all terms an! inten! to be imme!iately boun! to perform those terms7 but at the same time propose to have the terms restate! in a form #hich #ill be fuller or more precise but not !ifferent in effectE %he parties inten! to be boun! imme!iately thus a bin!ing contract is forme!E Masters v Cameron "ranca v Cor arro 0E %he parties have completely agree! upon all terms an! inten! no !eparture from or a!!ition to those terms7 but have ma!e performance of one or more of those terms con!itional upon the e6ecution of a formal !ocumentE n offer in such a case is not e6presse! to be sub'ect to or con!itional upon a formal e6ecution of a contract an! all essential terms have been agree! upon thus a bin!ing contract is forme!E Masters v Cameron *iesmann v Collingridge 1E %he intention of the parties is not to ma+e a conclu!e! bargain at all7 unless an! until they e6ecute a formal contractE ,arties in such a case !o not inten! to be boun! until they entere! into a formal !ocument thus no bin!ing contract is forme!E Masters v Cameron %he category a particular case falls into turns on the intention of the partiesE If the parties inten! the agreement to be bin!ing on them even before entry into the final contract7 the contract #ill fall into one of the first t#o categoriesE

0=

Masters v Cameron'

Intention to create legal relations$

*tatement of t"e -ule
%o create a contract there must be a common intention of the parties to enter into legal obligations7 mutually communicate! e6pressly or implie!lyE +ose and %ran! Co v /+ Crom#ton , "ros Ltd %he courts use an ob'ective test in ma+ing a !etermination about the intention of the partiesE In ma+ing an ob'ective !etermination of the parties intention7 the court loo+s at the surroun!ing circumstances an! as+s if a reasonable person #oul! regar! the agreement as inten!e! to be bin!ingE Merritt v Merritt

1omestic and social relations"ips

Presumption
%he presumption is that !omestic an! social agreements are not inten!e! to have legal forceE $eslo#v "urns "alfour v "alfour /ones v Padavatton

-ebutting t"e presumption

%he presumption can be easily rebutte! for e6ample if parties #ho are in a familial relationship are contracting in a business conte6t or if a husban! an! #ife enter into an agreement in circumstances in #hich they are no longer living in harmonyE Similarly7 if the #or!s use! in the contract in!icate a legal intention7 the presumption that may other#ise have arisen may be rebutte!E Case E#amples$ a" :usban! an! Wife ,arties involve! in a !omestic relationship7 #ill generally not have inten!e! legal conse*uences to follo# their arrangement thus a contract #ill not be enforceableE 5iven many couples no# choose to cohabit #ithout marrying7 the same presumption

09

shoul! apply #here an agreement is entere! into bet#een a couple living in a !e facto relationshipE "alfour v "alfour b" Separate! husban! an! #ife Where parties are !ivorce!7 separate!7 or in the process of separating7 the negotiation !o not ta+e place in the conte6t of natural love an! affection therefore there is no room left for the application of such a presumption an! the court #ill generally fin! that the re*uisite contract intent e6iste!E Merrit v Merrit c" Other familial relationships ,arties in other familial relationships are consi!ere! the same as marrie! or !e facto couples7 an! it is presume! that they !o not inten! to cerate legal relationships as the agreements ma!e in this conte6t are base! on natural love an! affectionE %he bon! of natural love an! affection is li+ely to #ea+en accor!ing to the remoteness of the tie an! #ill subse*uently be easier to rebutE /ones v Padavatton In fact7 those cases #here the court fin!s that the presumption has been rebutte!7 one or more of the follo#ing factors are often relevant %he seriousness of the con!uct involve! Csuch as moving countries or giving up full time employment" %he e6pense involve!7 especially if the relevant party is not #ealthy Whether there is or has been a !egree of hostility in the relationship %he closeness of the family ties Whether the sub'ect matter of the agreement is business or commercial in nature <6amples /ones v Padavatton Wa!eling v +i#ley +oufos v "rewster !" Social &elationships %he presumption of lac+ of legal intent can e6ten! beyon! familial relationships to agreements entere! into in a social conte6t7 or agreements ma!e bet#een frien!sE $eslo# v "urns :o#ever7 a court #ill not al#ays fin! that the parties lac+e! legal intention7 even #hen the arrangement is clearly ma!e bet#een frien!s or a relative in a social settingE

0-

CegE parties #ho pool fun!s to enter a competition in one person?s name may intent that arrangement to have legal conse*uencesE %herefore7 if the person #ins7 action can be brought to force that person to share the #innings #ith the other members of the groupsE While this is fair7 it is !oubtful that parties #ho participate! in syn!icate inten!e! their action to have legal conse*uences"E %he court may be more li+ely to uphol! such a !ecision if large amounts of money are involve!E Sim#!ins v Pays

Commercial Agreement
Presumption
Where parties negotiate an! agree in a business setting7 it is assume! that the parties inten!e! the agreement to have legal conse*uencesE %herefore7 the party alleging that an agreement relating to business matter is of no legal effect has the heavy onus of !emonstrating that to be the caseE Edwards v S!yways It can sometimes be !ifficult !etermining #hether a transaction has ta+en place in a business setting7 a broa! approach to #hat constitutes a business setting must be a!opte!E Esso Petroleum Co Ltd v Customs , E@cise

-ebutting t"e Presumption

%he intention not to create legal relations may be evi!ent in a number of !ifferent #aysE )or e6ample7 the agreement may contain an e6press clause that no legal conse*uences flo# from the !ocument7 or the overall tenor of the particular !ocument may in!icate that the parties ha! no intention to enter into legal relationsE +ose and %ran! Co v /+ Crom#ton , "ros Ltd

2o ernment Acti ities

Commercial Agreements
If a government contract arises out of the commercial nee! for the operation of government7 for e6ample the or!er of stationary or contracts to purchase vehicles7 the usual contractual principles apply to !etermine #hether a contract has been forme!E )or other types of contracts7 increase! formality may be re*uire! to !emonstrate the necessary legal intent #hen one of the contracting parties is the governmentE Coogee Es#lanade Surf Motel Pty Ltd v Commonwealth of Australia

1/

Policy Initiati es
Where the government activity relates to a policy initiative a court may be less li+ely to fin! that the parties inten!e! to enter contractual relationsE Australian Woollen Mills v The Commonwealth Administration of P*& v Leahy

3oluntary associations
Unless there #as some clear positive in!ication that the members contemplate! the creation of legal relations inter seD the rules a!opte! for their governance #oul! not be treate! as amounting to an enforceable contractE Cameron v $ogan %he parties coul! possess re*uisite legal intent if the member has a proprietary interest in the clubE Cameron v $ogan

Circumstances indicating absence of intention

4onour Clauses
%he presumption that arises in a commercial conte6t is that the parties inten!e! to create legal relations by entering the agreementE It is ho#ever7 open for the parties to form a contraryE %he presence of an honour clause in contracting parties agreements #ill in!icate by e6press #or!s that they !i! not inten! the agreement to have legal conse*uencesE +ose and %ran! Co v /+ Crom#ton and "ros Ltd /ones v .ernon4s Pools Ltd

Promotional puff and free gifts

Where language such as Ffree gift? is use!7 or an apparently e6travagant claim is set out in an a!vertisement7 there may be a ten!ency to thin+ that a person #ho acts in response to the a!vertisement may not inten! legal conse*uences to follo#E %o !etermine #hether the re*uisite intention e6ists7 the court #ill loo+ not only at the #or!s use!7 but also at the entire conte6t in #hich the a!vertising ta+es placeE Esso Petroleum Co Ltd v Customs , Commissioners of Customs , E@cise Similarly7 if the language use! conveys intention7 such as the !eposit of N./// in a ban+ for the purpose of payment7 it #oul! have legal conse*uencesE Carlill v Car olic Smo!e "all Co

1.

E# gratia payments and wit"out pre0udice offers

,arties #ho offer to ma+e an e6 gratia payment or #ho #rite a F#ithout pre'u!ice? letter #hich is accepte!7 are still seen to posses the intention to create legal relationsE Edwards v S!yways' %he #or!s e6 gratia !o not carry a necessary7 or even a probably7 implication that the agreement is to be #ithout legal effect E E E a party is certainly not see+ing to inclu!e the legal enforceability of the settlement itself by !escribing the contemplate! payment as e6 gratiaE Edwards v S!yways'

Letter of Comfort
Central to the !etermination of #hether a letter of comfort gives rise to legal intent is #hether the parties inten!e! to create legal obligations by the giving an! receiving of the letterE %o !etermine this7 the courts loo+ at the construction of the !ocument an! the circumstances surroun!ing its sen!ingE %he follo#ing points #ere consi!ere! by the authority in assigning legal intent to the letter of comfort4 On a construction of the letter7 the terms #ere sufficiently promissory in natureE %he letter #as part of a commercial transaction in #hich there is a presumption that legal relations #ere inten!e!E Intention is !e!uce! from the !ocument as a #hole seen against the bac+groun! of the practices of the particular tra!e or in!ustryE "an0ue "russels Lam ert SA v *ational 2ndustries Ltd

Letter of intent and understandings

,arties sometimes con!uct their affairs on the basis of an un!erstan!ing bet#een them7 #hich may arise orally or be put in #ritingE Buestion about its contractual stan!ing may arise #here one party no longer #ishes to be boun!E relate! issue arises in the area of letters or !ocuments of intentE 5enerally7 a letter of intent or an un!erstan!ing #ill represent something short of an intention to enter a conclu!e! agreementE Coogee Es#lande Surf Motel v Commonwealth Milner , Son v Percy "ilton Ltd

Consideration$
Whether or not a promise that is part of an agreement can be enforce! !epen!s on7 among other things7 #hether the promisee has given consi!eration for the promiseE Consi!eration is perhaps best un!erstoo! as an act or promise of an act #hich is the 10

price pai! for the otherOs promiseE %he common la# #ill only enforce a promise for #hich a price is pai!E Dunlo# Pneumatic Tyre Co v Selfridge , Co %he !evelopment of the $octrine of ,romissory <stoppel7 un!er #hich a promise that has been relie! upon to another?s !etriment may be enforce! by that other !espite the lac+ of consi!erationE Waltons v Maher

Nature of Consideration
n act or forbearance of one party7 or the promise there of7 is the price for #hich the promise of the other is bought7 an! the promise thus given for value is enforceableE Dunlo# Pneumatic Tyre Com#any v Selfridge , Com#any Ltd

Consideration in %ilateral Contracts

bilateral contract is forme! #here the parties e6change promisesE t the time agreement is reache!7 each party ma+es a promiseE %he price pai! for that promise P the consi!eration P is the other party?s promiseE <ach party promises to !o an act or refrain from !oing an actE United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd

Consideration in &nilateral Contracts

Unli+e bilateral contracts7 a unilateral contract !oes not constitute an e6change of promisesE %he only promise is the one ma!e by the promisor to !o or refrain from !oing an act if the other party !oes or refrains from !oing an actE %hus7 the act or forbearance itself7 rather than the promise7 constitutes the consi!erationE United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd

E#ecuted and e#ecutory consideration

In bilateral contracts7 the consi!eration is consi!ere! e6ecutoryE In bilateral contracts each party e6change promises #ith the other to !o or refrain from !oing an actE %his means that the obligation to perform has not yet fallen !ue7 therefore the consi!eration is Je6ecutoryKE In unilateral contracts the parties !o not e6change promisesE Only one party #ill ma+e the promise an! an obligation #ill only arise if the other party carries out the specifie! actsE Consi!eration for the promise is not e6ecutory because the act has not been promise! by the promiseeE If the promisee chooses to an! !oes perform the specifie! acts7 the consi!eration is Je6ecute!KE

-ules go erning consideration

11

Consideration must mo e from t"e promisee

)or there to be a contract bet#een the promisor an! the promisee7 consi!eration must move from the promiseeE Dunlo# Pneumatic Tyre Com#any v Selfridge , Com#any Ltd Trident &eneral 2nsurance Com#any Ltd v Mc*iece ros Pty Ltd Tweddle . At!inson a" Benefit nee! not move to promisor It #ill generally be the case that consi!eration moves from the promisee to the promisor7 #hether the promisee promises to pay money7 or !o or forbear from !oing an actE :o#ever7 it is sufficient if consi!eration moves from the promisee to a thir! party at the !irection of the promisorE b" >oint promisees When a promise is ma!e to 'oint promisees7 it is enough if consi!eration is given by one on behalf of all because it is then !eeme! to have move! from allE Coulls v "agot4s E@ecutor , Trustee Co Ltd c" Overlap #ith !octrine of privity %he !octrine of privity provi!es that only a person #ho is a party to a contract can sue on itE promisee is only able to sue on a promise if the promisee has given consi!eration for the promiseE Tweddle v At!inson

Consideration must be bargained for

%he act of forbearance must be !one in reliance of the promise an! at the re*uest of the promisor an! not !one for other reasons Cthat are unrelate! to the contract in *uestion"E Com e v Com e Australian Woollen Mills Pty Ltd v The Commonwealth

Consideration must be sufficient

a" 5eneral principle %o be vali!7 consi!eration must be sufficient in that it is Fsomething #hich is of value in the eyes of the la#?E Consi!eration may be vali! although it cannot be given monetary e*uivalentE Thomas v Thomas 12

b" Consi!eration nee! not be a!e*uate Consi!eration must be sufficient but nee! not be a!e*uateE %he court #ill not en*uire into the a!e*uacy or value of the consi!erationE Cha##ell , Co v *estle Co Ltd moral obligation or #orthy motive !oes not constitute consi!erationE Eastwood v 1enyan Thomas v Thomas White v "luett c" Consi!eration can be nominal Consi!eration #ill be regar!e! as vali! even if it is nominal onlyE C<gE %o+en gesture" Thomas v Thomas Lenno@ v Cameron *iesmann v Collingridge

Consideration must not be past

a" 5eneral ,rinciple %he consi!eration #ill be regar!e! as being past if it has alrea!y flo#e! from the promisee to the promisor prior to the agreement being entere! intoE +oscorla v Thomas b" ,ast consi!eration !istinguishe! from e6ecute! consi!eration If the act7 forbearance or promise that is claime! to be consi!eration has alrea!y occurre! or been given before the agreement is entere! into7 the consi!eration is past not e6ecute!E

Consideration and formal agreements

1eeds
)ormal agreements are signe! un!er seal7 an! are more commonly referre! to as !ee!sE Because of the solemnity or seriousness of the manner of e6ecution of such !ocuments7 the common la# has recognize! these agreements as vali! even if consi!eration has not been provi!e!E Simple agreements are agreements other than formal agreements7 #hich are oral or #ritten an! re*uire consi!eration to be vali!E

Consideration$ specific e#amples

1A

)oral Consideration
promise ma!e because of a sense of moral obligation to the promisee #ill not be sufficient consi!eration to support that promiseE Eastwoo! v 1enyon promise ma!e because of the love an! affection that the promisor an! promisee have for each other7 or that the promisor has for the promisee is not legally recognize! C#ithout consi!eration" White v "luett

Performance of e#isting duties

a" ,erformance of e6isting contractual !uties 5enerally a promise by one party Cthe promisee" to perform an e6isting contractual !uty o#e! to another party Cthe promisor" !oes not constitute goo! consi!eration for the promisor?s promiseE Wigan v Edwards Where the plaintiff is boun! by an e6isting contractual !uty to the !efen!ant7 performance of that !uty #ill not amount to sufficient consi!eration to support a further promise ma!e by the promisor7 unless the !uty is e6cee!e!E Stil! v Myric! court may be prepare! to fin! that the parties have agree! to aban!on their original agreement an! enter a ne# oneE $artley v Ponson y %he court may be #illing to accept performance of an e6isting contractual !uty as goo! consi!eration #here it provi!es a benefit to the promisorE Williams v +offey "ros b" ,erformance of a public !uty Where a public !uty is impose! upon the plaintiff by la#7 performance of that !uty is insufficient consi!eration for the !efen!ants promise unless the !uty is e6cee!e!E &las roo! "ros v &lamorgan County Council c" Where promise is ma!e to a thir! party promise to perform an e6isting contractual !uty o#e! to another party can be goo! consi!eration for a promiseE

18

Pao Bn v Lau Aiu Long *ew ?ealand Shi##ing Co Ltd v AM Satterthwaite , Co Ltd

Part Payment of 1ebt

a" &ule in ,innel?s Case promise to pay part of a !ebt cannot constitute consi!eration for a cre!itor?s promise to forgo the balance Ccommonly referre! to as the Frule in ,innel?s case?"E Pinnels case If an amount of money is o#ing by a !ebtor to a cre!itor7 an! those parties enter into a subse*uent agreement that the cre!itor #ill accept a lesser amount in full satisfaction of the amount7 the later amount agreement #ill generally not be bin!ing because the !ebtor has not provi!e! consi!eration for the cre!itor?s promise to forgo the balance !ueE %herefore7 even if the !ebtor acts on this agreement by paying the lesser sum agree! P an! the sum is accepte! by the cre!itor P the cre!itor #ill generally be able to sue the !ebtor for the balance !ueE %oa!es v "eer b" Circumstances in #hich the rule #ill not operate Parties enter into a deed

Consi!eration is not re*uire!7 ho#ever7 for specialty agreements Cformal agreement un!er seal"E If the parties enter into a !ee! un!er #hich the cre!itor forgoes part of the amount o#ing7 that arrangement #ill be enforceable !espite the absence of consi!erationE Accommodation to benefit t"e creditor

If a !ebtor provi!es consi!eration for the cre!itor?s promise7 ,innel?s rule #ill not applyE .an "urgen v St Edmonds Pro#erties <6amples of ho# the arrangement coul! be altere! by the cre!itor4 ,ayment on an earlier than sche!ule! !ate ,ayment at a location more convenient to the cre!itor ,ayment in a currency more !esirable to the cre!itor ,ayment ma!e at a !ifferent place for the !ebtorOs convenience !oes not eva!e the ruleE Amount owing is disputed

1=

%he rule in ,innel?s case #ill only operate #hen there is no !ispute bet#een the parties as to the amount o#e!E If the parties cannot agree on an amount o#ing7 they may #ish to enter into a compromise agreementE In the case of a compromise7 although the cre!itor promises to accept an amount less than #hat the cre!itor conten!s is the account of the !ebt in full settlement of the !ebt7 the !ebtor has provi!e! consi!eration for the cre!itor?s promiseE %he !ebtor has agree! to pay an amount more than the !ebtor believes to be !ueE %his is goo! consi!eration even if the cre!itor is in fact correct an! the amount claime! by the cre!itor is actually !ueE $ " % Dalgety LTd v Moreton Payment by a t"ird party

If a !ebtor is unable to meet his !ebt to the cre!itor an! obtains assistance from a thir! party to !o so7 the thir! party to placate the cre!itor may offer a lesser some than the full amount o#e! to bring the matter to an en!E s the thir! party is not in!ebte! to the cre!itor7 hisDher promise to pay an amount shoul! be goo! consi!eration for the cre!itor?s promise to forgo the balance of the !ebtE %he fact that payment is by a thir! party an! not the !ebtor ta+es the case outsi!e the operation of the rule in ,innel?s caseE $irachand Punamchand v Tem#le Composition wit" creditors

Un!er a composition #ith cre!itor?s agreement7 the cre!itors all agree to accept payment of something less than the full amount o#ing by the !ebtor7 in e6change for giving the !ebtor a full releaseE Cre!itors may agree to such an arrangement if it appears that this is the most li+ely avenue to recover any amount from the !ebtor 2n the Estate of Whitehead

!orbearance to sue
forbearance to sue or to refrain from e6ercising some legal right may constitute consi!eration7 even if the plaintiff #oul! have been unsuccessful in the original claim7 provi!e!4 - %he claim #as reasonable an! not frivolous or ve6atious - %he plaintiff honestly believe! the claim #oul! succee! - %he plaintiff !i! not conceal from the !efen!ant any facts that to the plaintiff?s +no#le!ge might affect the vali!ity of the claimE $ercules Motors Pty Ltd v Schu ert

%argain for conduct already performed

19

%he e6ception to the rule that past consi!eration #ill be ineffective to support a promise is that if the services #oul! only have been provi!e! on the basis of paymentE In some cases it is possible to infer that a certain sum #oul! be pai!7 an! a subse*uent promise merely fi6es the amount of paymentE +e Casey4s Patents Lam#leigh v "raithwaite Pau Bn v Lau Aiu Long In all cases #here a promisee see+s to enforce a promise ma!e after the provision of the services7 or other con!uct relie! upon7 the promisee must be able to !emonstrate that .E the act must have been !one at the promisor?s re*uest4 0E the parties must have un!erstoo! that the act #as to be remunerate! either by payment or the conferment of some other benefit 1E payment7 or the conferring of the benefit7 must have been legally enforceable ha! it been promise! in a!vance Pau Bn v Lau Aiu Long

Equitable Estoppel
%he $octrine of <*uitable <stoppel states that a promise not supporte! by consi!eration coul! give rise to rights in circumstances #here it #oul! be unconscionable con!uct for the promisor to renege on the promiseE n estoppel may arise from pre-contractual negotiations Waltons Stores (2nterstate) Ltd v Maher )or e*uitable estoppel to apply there must be unconscionable con!uct by one partyE CUnconscionable con!uct !enotes a creation or encouragement by the !efen!ant in the other party of an assumption that a contract #ill come into e6istence or a promise #ill be performe! an! for the other party to have relie! upon that assumption to his or her !etriment to the +no#le!ge of the first party"E Waltons Stores (2nterstate) Ltd v Maher Milchaus 2nvestments Pty Ltd v Lar!in :o#ever7 a !ifferent result may apply #here the parties subse*uently e6ecute a formal contract that is e6presse! to constitute the #hole of the contract bet#een the parties7 but #here one party asserts that the other is estoppe! from relying on rights create! by the #ritten contract !ue to an assumption forme! !uring negotiations S!ywest Aviation Pty Ltd v Commonwealth %he elements of estoppel must be positively prove! an! #ill rarely if ever be inferre!

1-

Chellaram , Co v China Bcean Shi##ing Co

Elements of Estoppel
Assumption or E#pectation
%here must be a clear an! unambiguous assumption or e6pectation by ,arty contract #ill come into e6istence or that a promise #ill be fulfille!E Waltons Stores (2nterstate) Ltd v Maher that a

Encouraged or Induced
clear an! unambiguous representation may be implie! from #or!s use! or be a!!uce! from a failure to spea+7 #here there #as a !uty to spea+7 or from con!uctE Thom#son v Palmer Waltons Stores (2nterstate) Ltd v Maher If a party acts upon mere hope rather than a belief in!uce! or encourage! by the other party7 it #ill not be sufficient groun!s for estoppel Lorimer v State "an! of *ew South Wale Chellaram , Co v China Bcean Shi##ing Co If an unauthorize! statement is ma!e to the +no#le!ge of the principle in circumstances #here the principal +no#s or ought to +no# that the statement is being relie! upon7 a failure to !eny the statement is in fact authorize! an! may reasonably be relie! upon by the other partyE Cor#ers (*o' 998) Pty Ltd v *?2 Securities Australia Ltd

-eliance
%he party claiming estoppel must act or abstain from acting in reliance upon the assumption or e6pectationE Australian Securities Commission v Marl orough &oldmines Ltd %he parties reliance upon an assumption must be reasonableE Waltons Stores (2nterstate) Ltd v Maher %he characteristics of the plaintiff in assessing the reasonableness of the reliance7 are relevantE C<gE if the parties are stoc+bro+ers an! merchant ban+er e6perience! in commerce #ith the intention of their solicitor to prepare formal !ocumentation or are large commercial entities represente! by solicitors"E

2/

Austotel Pty Ltd v %ran!lins Self Serve Pty Ltd Ca#ital Mar!et "ro!ers Pty Ltd v $amelyn UPC Ltd

5nowledge or Intention
%he party #ho in!uce! the a!option of an assumption or e6pectation must +no# or inten! the other party to act or abstain from acting on reliance on the assumption or e6pectationE Waltons Stores (2nterstate) Ltd v Maher

1etriment
%he relevant !etriment is that of the plaintiff7 not the !efen!antE &o lers 2nc Pty Ltd v Stevens

%here must be a lin+ bet#een the assumption or e6pectation create! an! the !etriment suffere!E &o lers 2nc Pty Ltd v Stevens Australia , *ew ?ealand "an!ing &rou# v PA Wright , Sons Pty Ltd +e %erdinando %he party claiming estoppel must suffer !etriment in the sense that Fas a result of a!opting the assumption as the basis of action or inaction7 the plaintiff #ill have place! himself in a position of material !isa!vantage if !eparture from that assumption is permitte! Thom#son v Palmer %he !etriment is !etermine! as at the !ate the !efen!ant see+s to resile from the assumption or e6pectation he or she has encourage! or in!uce!7 an! upon #hich the othe party has acte! Lorimer v State "an! of *SW

!ailure to a oid detriment

%he ob'ect of the e*uity Ce*uitable estoppel" is not to compel the party boun! to fulfil the assumption or e6pectationM it is to avoi! the !etriment #hich7 if the assumption or !etriment goes unfulfille! 7 #ill be suffere! by the party #ho has been in!uce! to act or to abstain from acting on it Waltons Stores (2nterstate) Ltd v Maher %he party encouraging or in!ucing the assumption must fail to avoi! the !etriment suffere! by the party claiming estoppel7 by failing to fulfil the assumption or encouragementE Waltons Stores (2nterstate) Ltd v Maher 2.

$epen!ing on the circumstances7 the !efen!ant may be re*uire! to !o no more than #arn the plaintiff that the assumption or e6pectations mista+en before the plaintiff incurs irreversible !etriment Lorimer v State "an! of *SW It may be possible to sho# the relevant !etriment #here the !efen!ant has ma!e an attempt to avoi! !etriment being suffere! by the plaintiff but the attempt proves to be ina!e*uateE Silovi Pty Ltd v "ar aro

-emedies
%he ob'ect of e*uitable estoppel is not necessarily to enforce promises but to avoi! the !etriment suffere! by a party #ho relies on a promiseE %herefore the reme!y for e*uitable estoppel is the minimum e*uity to !o 'ustice bet#een the parties CCommonwealth v .erwayen :o#ever7 in some circumstances the enforcement of a promise may be the only means of avoi!ing the !etrimentE Waltons Stores (2nterstate) Ltd v Maher %he reme!y shoul! be proportionate to the unconscionabilityE 3ormally this #ill be reliance loss rather than e6pectation loss7 C<gE compensation for loss incurre! in reliance on the assumption rather than ma+ing goo! the e6pectation of the parting invo+ing estoppel"E Commonwealth v .erwayen %here may7 ho#ever7 be a prima facie entitlement to have the e6pectation ma!e goo! #here the relief to reliance #oul! e6cee! #hat coul! be grante! by enforcing the e6pectationE lso7 #here the nature or li+ely e6tent of the !etriment cannot be accurately or a!e*uately pre!icte!7 it may be necessary in the interest of 'ustice that the assumption be ma!e goo! to avoi! the possibility of !etrimentE Conversely7 if the enforcement of the e6pectation is sho#n to be too great a reme!y it #ill not be enforce!E &iumelli v &iumelli

20

Pri ity
2eneral rule
thir! party to a contract is unable to ac*uire rights or benefits un!er the contractE Wilson v Darling 2sland Stevedoring Co Price v Easton Tweddle v At!inson

*tatutory Abrogation of Pri ity

6ueensland
The Pro#erty Law Act .-=2 CBl!" sAA C." provi!es that4 A promisor who, for a valuable consideration moving from the promisee, promises to do or to refrain from doing an act or acts for the benefit of a beneficiary shall, upon acceptance by the beneficiary, be subject to a duty enforceable by the beneficiary to perform that promise. Ca" ,romisor %he relevant promisor un!er the statue is the party #ho actually ma+es the promise for the benefit of the beneficiaryE In the absence of an assignment7 the promise is not bin!ing upon a ne# party #ho merely stan!s in the shoes of the promisor #ho ma+es the promiseE C<gE #here the promise is ma!e by a trustee of a trust #ho7 in turn7 is subse*uently replace! by a ne# trustee7 the promise #ill not be bin!ing on the ne# trustee"E +e Davies Cb" Beneficiary )or the purpose of s::7 a party is clearly a beneficiary if they are e6pressly name! in a contract as receiving the benefit of performance of #or+ un!er a contract +e "urns Phil# Trustees person #ho is not name! in the promise but is inci!entally benefite! by the promise generally cannot enforce the promise in reliance of s::E +e "urns Phil# Trustees *orthern Sand lasting Pty Ltd v $arris Cc" ,romise

21

,romise is !efine! in s:: (9) as being a promise4 Which is or appears to be inten!e! to be legally bin!ing an! Which creates or is inten!e! to create a !uty enforceable by a beneficiary contractual term that merely regulates the relationship bet#een promisor an! promisee #ill not be enforceable by a thir! party if it !oes not amount to a promise to benefit the thir! party an! create an enforceable !uty Davis v Archer Par! *ewsagency +oc!ham#ton C!" cceptance

Section ::(9) !efines Facceptance? as an assent by #or!s or con!uct communicate! by or on behalf of the beneficiary to the promisor P or to a person authorise! on his or her behalf P in the manner Cif any" specifie! in the promise an! #ithin the time specifie! in the promiseE It seems that an acceptance must on its face be an assentE It is insufficient for there to be #or!s or con!uct that is merely consistent #ith acceptanceE +e Davies It may be sufficient if the promise comes to the notice of the beneficiary?s solicitorE +e Davies ,rovi!e! the beneficiary?s assent purports to accept the promise7 it is immaterial if in fact the purporte! acceptance prece!es the promise to benefit the beneficiary thus an anticipatory acceptance may sufficeE $yatt Australia Ltd v LTC" Australia Ltd Ce" $efences Section ::(8) provi!es that any matter that #oul! other#ise be relie! on as ren!ering a promise voi!7 voi!able or unenforceable #ill be available by #ay of !efence in procee!ings for the enforcement of a !uty un!er s ::E %he inten!e! ob'ect of this subsection provi!es that !efences such as mista+e7 frau!7 misrepresentation7 Stature of )rau!s an! Statue of (imitations etc7 #hich may be available to the promisor against the promisee are also available to the former against the beneficiaryE Cf" ;ariation or &escission of ,romise Un!er s :: (<)D before acceptance7 the parties to the contract may vary or rescin! the promiseE :o#ever7 s ::(=) provi!es that after acceptance7 their terms of the promise an! the !uty of the promisor or beneficiary may be varie! or !ischarge! only #ith consent of the promisor an! the beneficiaryE

22

Cg" Imposition of Bur!ens Section ::(=)( " states that the beneficiary #ill be boun! by any promise or !uty that is impose! as part of the promise that benefits him or herE n obligation may be impose! upon the beneficiary but only as part of a promise that confers a benefit upon himDherE (h) Common Law Still A##lica le Section ::(7) saves the common la# so that #here the statue cannot be applie!7 the common la# still !oesE Conse*uently7 a beneficiary #ho is unable to ma+e out a case un!er the statute #oul! be left to rely on an e6ception to the privity !octrine if one #ere available in the circumstancesE

Commonwealt" Insurance Contracts Act 1984 (Cth) s48

%o!ay in ustralia7 insurance cases are the sub'ect of legislation to overcome the ,rivity ruleE Section 8; of the 2nsurance Contracts Act .-92 has provi!e! a thir! party #ith a right to recover !irectly from an insurer the amount of his or her lossE

Entitlement of named persons to claim

Where a person #ho is not a party to a contract of general insurance is specifie! or referre! to in the contract7 #hether by name or other#ise7 as a person to #hom the insurance cover provi!e! by the contract e6ten!s7 that person has a right to recover the amount of the personOs loss from the insurer in accor!ance #ith the contract not#ithstan!ing that the person is not a party to the contractE Section 8; of the 2nsurance Contracts Act .-92

)aritime contracts of carriage

7a8 Servants or agents of sea carriers If the privity rule #ere to be applie!7 then the usual e6emption from liability that appear in contracts of carriage e6empting the carrier from liability to the o#ner of goo!s for loss or !amage to the goo!s coul! be simply eva!e! by7 for e6ample7 suing instea! the servants or agents of the carrierE %his has7 in the past7 been avoi!e! by the inclusion of a bill of la!ing evi!encing the contract of carriage a provision +no#n as a F$imalaya Clause4E Such a clause ma+es the carrier the agent for its servants7 agents or in!epen!ent contractors in relation to an e6emption of liability for loss or !amage to the goo!sE %he clause has been hel! effective to e6empt from liability thir! parties to the contract of carriage such as the master7 cre#7 or steve!ores #ho are entruste! #ith loa!ing an! unloa!ing the goo!sE

2A

3o# by force of la# rather than by provisions in a contract7 parties such as the master an! cre# P but not in!ivi!ual contractors such as Steve!ores P may no# rely on the e6emptions containe! in a contract entere! into bet#een the carrier an! the o#ner of the goo!s shippe! by seaE Carriage of &oods y Sea Act 5665 7b8 Consignees an! in!orsees ll rights in the original contract of carriage are transferre! to a thir! party buyer as from the time of consignment or in!orsementE <ffectively7 therefore7 a consignee or in!orsee may no# enforce rights un!er a contract to #hich he or she #as a thir! partyE Sea Carriage Documents Act Secon!ly7 all outstan!ing liabilities un!er the original contract of carriage are transferre! to a thir! party buyer #hen he or she !eman!s or ta+es !elivery of the goo!sE %hus7 it is possible to impose a bur!en on a consignee or in!orsee !espite the fact that he or she #as a thir! party to the original contract of carriageE Sea Carriage Documents ActE

*o called e#ceptions at common law

Agency
gency is a legal relationship bet#een t#o people #here one of them7 the principal7 give to the other7 the agent7 the authority to create legal relations bet#een the principal an! the thir! partyE If the agent acts #ithin his or her actual authority7 either e6press or implie!7 or #ithin his or her ostensible authority7 such act #ill bin! the principal4 that is the principal can ta+e action in his or her o#n name to enforce the contract ma!e by the agent or become personally liable shoul! the contract be breache!E Trident &eneral 2nsurance Co Ltd v Mc*iece "rothers Pty Ltd Teheran Euro#e Co Ltd v St "elton Ltd

1efinition
%he principal is not a stranger to a contract ma!e by the agent7 he is one of the parties7 the agent being the me!ium by #hich the contract is ma!eE $arvester Co of Aust Pty Ltd v Carrigans $a3eldene Pastoral Co %he principles of agency may also apply #here the agent !oes not !isclose to the other contracting party that he or she is acting on behalf of a principal if the other party is #illing to contract #ith anyone on #hose behalf the agent acts7 such #illingness may be assume! by the agentE

28

Teheran E Euro#e Co Ltd v St "elton (Tractors) Ltd

E#emption clauses and t"ird parties

%he issue of #hether a party #ho is not party to a contract7 particularly for the carriage of goo!s7 can nevertheless rely on an e6emption from liability containe! in that contractE n e6clusion clause in a !ocument li+e a bill of la!ing may be !rafte! so at to effectively protect thir! parties such as steve!ores if four con!itions are met4 .E the relevant bill of la!ing must ma+e it clear that the steve!ore is inten!e! to be protecte!M 0E the bill of la!ing must also ma+e it clear that the carrier is contracting not only on its o#n behalf but also as agent for the steve!ores in relation to the e6emptionM 1E the carrier #as so authorise! by the steve!ores7 although later ratification by the steve!ores #ill !oM an! 2E any !ifficulties concerning consi!eration moving from the steve!ores are overcomeE If these four con!itions are satisfie!7 the carrier-promisor effectively contracts as agent for the steve!ore-beneficiaryE Scruttons v Midland Silicones

+rusts
trust is create! #here a trustee hol!s property on behalf of a beneficiaryE %he trustee hol!s the legal title to such property sub'ect to the interest of the beneficiary in such propertyE promisee #ill be regar!e! as a trustee of a promise if it #as the clear intention of that party at the time of the contract #as entere! intoE Unless an intention to create a trust is clearly to be collecte! from the language use! an! the circumstances of the case7 the courts #ill be reluctant to infer such a trust e6istsE +e Schem sman Trident v Mc*iece Whether a trust is create! #ill !epen! on a true construction of the terms of the contract an! the intention of the partiesE In !eriving intention from the language that the parties have employe! the courts may loo+ to the nature of the transaction an! the circumstances7 inclu!ing the commercial necessity of the arrangementE Trident v Mc*iece

2=

%he intention re*uire! to create a trust nee! not be hel! by both parties7 it is sufficient if the promisee alone hol!s the intentionE Trident v Mc*iece

&n0ust Enric"ment
If an insurer is pai! an! refuses to offer benefit to a thir! party on the groun! that they are not party to the contract7 the thir! party may ta+e action on the principles of un'ust enrichmentE Trident v Mc*iece %he +ey element of un'ust enrichment is the unconscionability of the !efen!ant?s con!uct in retaining a particular benefit at the e6pense of the plaintiffE But this issue remains #hether the benefit retaine! by the !efen!ant is the premium pai! or the promise! benefitE n argument coul! be ma!e that the !efen!ant has been un'ustly enriche! only to the e6tent of the premium pai! to itE

!ormalities
,rovi!e! a contract is vali!ly forme! an! there are no vitiating factors7 action can usually be brought to enforce a verbal contractE 3ot#ithstan!ing this general proposition ho#ever7 a limite! number of contracts must be evi!ence! by #riting for them to be enforceableE

2uarantees
contract of guarantee must be in #riting an! signe! by the party to be charge! in or!er to be enforceableE JNo action may be brought upon any promise to guarantee any liability of another unless the promise upon which such action is brought, or some memorandum or note of the promise, is in writing, and signed by the party to be charged, or by some other person by the party lawfully authorised. Section :9(5) of the Pro#erty Law Act 5675 (-ld)

Nature of 2uarantee
contract to ans#er for the !ebt7 !efault or miscarriage of another #ho is primarily liable to the promiseeE Aoeman Credit Ltd v Latter

+ransactions w"ic" are not guarantees

29

%ransactions that are not guarantees F#ill not? have to comply #ith the statutory re*uirements of formalitiesE a" Contracts of in!emnity In an in!emnity7 the surety un!erta+es primary liability7 rather than secon!ary liability7 meaning that the surety #ill be liable not#ithstan!ing that the principal transaction is unenforceable Aeoman Credit Ltd v Latter b" ,romise of guarantee ma!e to the !ebtor It is possible for a person to promise the principal obligator Cthe !ebtor"7 rather than the cre!itor7 that he or she #ill pay the !ebt of the !ebtorE s the promise is not ma!e to the person #ith #hom the principal obligor contracts7 the contract is not one of guarantee Eastwood v 1enyon c" ,erson agrees to ta+e over the !ebt of another Where a !ebtor an! cre!itor have entere! into a contract of loan7 it coul! occur that a thir! party agrees #ith the cre!itor to ta+e over the !ebt of the !ebtorE Such an arrangement is not a contract of guarantee an! therefore nee! not comply #ith the statutory re*uirement of formalityE &ray v Pearson !" %he agreement imposes no personal liability on the person If a person !oes not un!erta+e personal liability7 but instea! proffers his or her property as security to the promisee un!er the principal transaction it is not a guaranteeE $arvey v EdwardsD Dunlo# , Co Ltd e" (etters of comfort Whether the letter of comfort is bin!ing as a contractual !ocument7 so that he thir! party may be calle! upon to pay7 !epen!s on the construction of the !ocumentE )re*uently the issue is #hether there #as an intention by the parties7 namely the thir! party an! the len!er7 to create legal relationsE "an0ue "russels Lam ert SA v Australian *ational 2ndustries Ltd

-equirement of writing$ content

)or a contract of guarantee to be enforceable the relevant statutory provision re*uires either the promise is to be in #riting7 or some Fmemoran!um or not? of the promise is 2-

to be in #ritingE %he provision !oes not7 ho#ever7 elaborate on precisely the information that must be containe! in the #riting to satisfy the statutory re*uirementE Pro#erty Law Act 5678 (-ld) 5ui!ance from case la#7 in $arvey v Edwards Dunlo# , Co7 provi!es that the !ocument must contain Fall essential terms of the agreement?E a" Information particular to the guarantee )irst7 Fthe guarantee must contain the names of the relevant parties4 the len!er7 the !ebtor an! the guarantor?E It may happen that the guarantee ma+es reference to a party #ithout e6pressly i!entifying themE uthorities suggest that even if a party is not e6pressly i!entifie!7 Fa !escription of the party #ill be sufficient if the !escription use! can be e6plaine! by e6trinsic evi!ence #ithout having to resort to evi!ence to prove the intention of the authorE +osser v Austral Wine , S#irit Co Secon!ly7 Fthe relevant terms of the guarantee must be state!?E %his #oul! generally re*uire the amount of !ebt being guarantee! must be specifie!E If the guarantee is given of the amount a!vance! by the len!er together #ith interest on that amount7 the interest payable by the !ebtor shoul! also be specifie!E %here are t#o other important caveats to the general proposition that a guarantee must contain all of these essential termsE )irst7 #hile the len!er must provi!e valuable consi!eration to the guarantor for a vali! contract of guarantee to be forme!7 the nature of that consi!eration #ill not be re*uire! to be containe! in the guaranteeE Pro#erty Law Act .-=2 CBl!" s A8C0" Secon!7 #here a material term has been omitte! from the guarantee7 there may be limite! circumstances in #hich the guarantee #ill still be enforceable against the guarantor for e6ample7 if the term is for the benefit of the len!er7 the len!er #ill be entitle! to #aive the benefit of the oral term not re!uce! to #riting to enforce the guarantee as mo!ifie! C<gE #aiver to collect interest on the amount o#e! if !etails of the intereste! are omitte!" $aw!ins v Price b" c+no#le!gement of the agreement

%he #riting must contain an ac+no#le!gement of a conclu!e! agreementE Pirie v Saunders Tiverton Estates Ltd v Wearwell Ltd

A/

-equirement of writing$ signed by party to be c"arged or agent

%o satisfy the statutory provision7 the promise or note or memoran!um of the promise must be Fsigne! by the party to be charge!7 or by some other person by the party la#fully authorise!?E CUpon the !ebtor?s !efault7 the len!er #ill see+ to enforce the guarantee against the guarantorE %herefore7 it is the guarantor #ho is the party to be charge! #ithin the meaning of the provisionE %o satisfy the formalities re*uirement7 therefore7 the guarantee must be signe! by the guarantor"E Pro#erty Law Act .-=2 CBl!" %o apply this principle in the conte6t of a guarantee7 if the guarantor?s name appears on the guarantee7 an! it is the guarantor?s intention that the name authenticates the !ocument7 it #ill be sufficient to satisfy the statutory re*uirementE Durrell v Evans

Contracts relating to land

No action may be brought upon any contract for the sale or other disposition of land or any interest in land unless the contract upon which such action is brought, or some memorandum or note of the contract, is in writing, and signed by the party to be charged, or by some person by the party lawfully authorised. Pro#erty Law Act CBl!" s A-

Nature of contract needing writing

%he re*uirement of formality applies to a contract for the sale of lan! or any interest in lan! as #ell as a contract for the other !isposition of lan! or any interest in lan!E Pro#erty Law Act CBl!" s A-

-equirement of writing$ content

s #as the case for guarantees the !ocument must contain Fall the essential terms?7 is also relevant to lan!E $arvey v EdwardsD Dunlo# , Co a" Information particular to the contract %here are four matters that must be recor!e! to satisfy the statutory re*uirement in a contract involving lan!E Twynam Pastoral Co v An urn

A.

.E %he !ocument must contain the parties to the contract Williams v "yrnes s #ith guarantees7 as long as the intention of the parties is clear7 e6trinsic evi!ence may be intro!uce! to establish the i!entity of the partiesE +osser v Austral Wine , S#irit Co 0E %he property must be a!e*uately !escribe!E Pirie v Saunders South Coast Bils v Loo! Enter#rises If the property the sub'ect of the sale is part only of a particular lot7 care must be ta+en to specifically i!entify the portion being sol!E Pirie v Saunders In contrast7 if freehol! property is sol! sub'ect to an e6isting leasehol! an! the leasehol! interest is +no#n to the purchaser7 there is authority to suggest that the property is sufficiently !escribe! even if there is no reference to the leaseE Timmins v Moreland Street Pro#erty Co 1E %he consi!eration for the promise7 namely the price7 must be recor!e! "urgess v Co@ Wain v Walters 2E %he principal terms of the contract must be !isclose!E C<gE If the parties re*uire time to be of the essence7 that con!ition shoul! be inclu!e! in the contract"E )ailure to inclu!e in the !ocument all essential terms might not necessarily be fatal to the plaintiff7 if the term omitte! is for the benefit of the plaintiff they may #aive the benefit of clause an! see+ enforcement of the contract #ithout itE Petrie v /ensen b" c+no#le!gment of agreement

%he #riting must contain an ac+no#le!gment of agreement as #ell as the terms of the agreementE Such ac+no#le!gement may be e6presse! or implie! in the #ritingE Pirie v Saunders Tiverton Estates Ltd v Wearwell Ltd

A0

%here #ill be insufficient #riting #here a contract is ma!e Fsub'ect to contract? in the sense of a con!ition ma!e before the formation of the contractE Tiverton Estates Ltd v Wearwell Ltd Darter v Molloy

-equirement of writing$ signed by party to be c"arged or agent

%he !ocument must be signe! by the party to be charge!E Pro#erty Law Act CBl!" CIf there is purporte! contract for the sale of the lan! an! the seller claims not to be boun! by the agreement7 the seller #ill be the party to be charge! for the purposes of any action broughtE Similarly7 if the buyer claims not to be boun!7 the buyer #ill be the party charge!"E person may have been ta+en to sign a !ocument if the signature is absent as long as the name of the party is place! on the !ocument an! that party e6pressly or implie!ly in!icates that he or she recognizes the #riting as being an authenticate! e6pression of the contractE It is sufficient if a person #ho is !uly authorise! by the party to be charge! signs the !ocumentE Pirie v Saunders

9oinder of documents
It is possible to satisfy the statutory re*uirement of #riting even if all of the relevant information is not containe! in the one !ocumentE !ocument may be able to be 'oine! if there is a reference7 e6press or implie!7 to another !ocument or to a transactionE $arvey v EdwardsD Dunlo# and Co

-eference to a document
Where the !ocument signe! by the !efen!ant ma+es reference to another !ocument7 'oin!er of that !ocument is permitte!E Tonitto v "assal s the !ocument 'oine! in this #ay is referre! to in the !ocument signe! by the !efen!ant7 it follo#s that the 'oine! !ocument #ill be in e6istence at the same time the !ocument is signe! by the !efen!antE %here are t#o e6ceptions to this general positionE a" $ocuments that are physically connecte!

A1

!ocument physically connecte! to the !ocument signe! by the !efen!ant may be 'oine!E M4Ewan v Dynon Where a letter is signe! by the !efen!ant an! sent to the plaintiff7 but the letter !oes not7 on its o#n7 contain the necessary information7 the court #ill allo# the envelope to be 'oine! to the letterE In this #ay7 there #ill be a note or memoran!um of the information on the envelope7 namely the name of the plaintiffE Pearce v &ardner b" $ocuments that are e6ecute! at the same time E FWhere t#o !ocuments relie! on as a memoran!um are signe! an! e6change! at one an! the same meeting as part of the same transaction7 so that they may fairly be sai! to have been to all intents an! purposes contemporaneously signe!7 the !ocument signe! by the party to be charge! shoul! not be treate! as incapable of referring to the other !ocument merely because the latter7 on a minute investigation of the or!er of events at the meeting7 is foun! to have come secon! in the or!er of preparation an! signingE Timmins v Moreland Street Pro#erty Co

-eference to a transaction:
Where the #riting signe! by the party to be charge! refers to a transaction Crather than a !ocument"7 >oin!er is allo#e! an! parol evi!ence may be given to e6plain the transaction7 an! to i!entify any !ocument relating to itE %au3i Elias v &eorge Sahely , Co

Effect of statutory non;compliance$ common law

Un!er common la# principles7 if a contract fails to comply #ith statutory provisions Fno action can be brought?E %herefore if one of the parties refuses to complete a contract7 no action can be ta+en by the other party to enforce the contractQ Pro#erty Law Act CBl!" Q ction cannot be brought for specific performanceQ Tiverton Estates Ltd v Wearwell Ltd QOr for !amages for breachE Timmins v Moreland Street Pro#erty Co

A2

Contract alid to pass title

lthough a contract failing to comply #ith statutory re*uirements #ill be unenforceable7 it #ill be a vali! contractE %his means that7 if the contract is performe! by the parties7 it #ill be effective to pass goo! titleE Maywald v +iedel

-eco ery of money paid under unenforceable contract

a" &ecovery of !eposit !eposit pai! by a buyer is consi!ere! to be Fan earnest to bin! the bargain?E If the sale is not complete! !ue to the buyer?s !efault7 the !eposit is liable to forfeiture to the ven!orE %his is the position if the contract is one that complies #ith or fails the statutory re*uirements of formalityE %reedom v A$+ Constructions Where an enforceable contract for the sale of lan! is not complete! because of the seller?s !efault7 the !eposit is recoverable by the buyer as money ha! an! receive! upon a total failure of consi!eration7 #here the consi!eration for #hich it #as pai! is the conveyance or transfer that has not ta+en placeE %he action is one brought in restitution7 not on the contractE %ull roo! v Lawes b" &ecovery of amount more than !eposit If the purchaser breaches the contract an! refuses to complete the purchase7 any !eposit pai! may be forfeite!E :o#ever7 it is li+ely that any amount over an! above that #hich is !eeme! to be the !eposit coul! be recovere!E %reedom v A$+ Constructions Ot"er restitutionary claim may still be a ailable If the contract is unenforceable7 it #ill not usually prevent a claim in restitution for recovery on a *uantum meruit Cso much money as the plaintiff !eserves to have" basisE Pavey , Mathews Pty Ltd v Paul

Effect of statutory non;compliance$ equity

1octrine of part;performance

AA

If parties enter into an oral contract for the sale of lan! an!7 relying on that contract7 one party !oes certain acts7 the courts may be prepare! to grant that person specific performance of the contract if four con!itions are satisfie!E a" cts are une*uivocally referable to some such contract

%he acts relie! upon by the plaintiff must une*uivocally referable to some such agreement as is allege! bet#een the partiesE +egent v Miller Maddison v AldersonE %he payment of money alone cannot be regar!e! as a sufficient act of part performanceE Maddison v AldersonE Steadman v Steadman Cooney v "urns 5iving instructions an! the ensuing preparation of !ocuments are unli+ely to be consi!ere! sufficient acts of part performanceE Steadman v Steadman b" cts !one in reliance on the agreement an! #ith +no#le!ge of other party

%he plaintiff must sho# that the acts #ere !one in reliance on the agreement an! #ith the +no#le!ge of the other partiesE Mc"ride v Sandland It is not necessary that the acts be re*uire! by the contract but the fact that they #ere !one voluntarily is sufficientE +egent v Miller c" cts !one by the party see+ing to enforce the contract

%he acts of part performance must be by the party #ho is see+ing to enforce the contractE 1ing v &rimwood !" Oral contract must be other#ise enforceable %he plaintiff must be able to sho# that the contact #oul! have been enforceable ha! it satisfie! the statutory re*uirement of #ritingE %he agreement must be conclu!e! an! satisfy the usually contractual re*uirements for enforceabilityE

A8

Mc"ride v Sandland

Estoppel
lternatively7 in appropriate circumstances a party may be estoppe! from relying on the Pro#erty Law Act Walton Stores v Maher

Constructi e trust
In an appropriate situation7 a person can claim an interest in lan! on the basis of creation of a constructive trust although there is no #ritingE "aumgartner v "aumgartner

Establis"ing Contractual +erms$

In !etermining #hether #ritten terms form part of the contract the parties7 the crucial issue is #hether the parties can be regar!e! as having assente! to the #ritten termsE Blly v Marl orough Court Ltd

Incorporation by *ignature
a" 5eneral &ule When a !ocument containing contractual terms is signe!7 in the absence of frau! or misrepresentation7 the party signing the !ocument is boun! by its termsE It is immaterial #hether the signing party has rea! the !ocument or notE L4Estrange v % &rouco Ltd b" When the &ule is $isplace! %he party may not be boun! by the terms even though the contract is signe! if the circumstances in!icate that the signature !oes not signify assentE %his may be the case if4 %he person relying on the clause misrepresente! its effectE Curtis v Chemical Cleaning , Dying Co %he !ocument signe! is thought to have no contractual effectE

D/ $ill , Co Pty Ltd v Walter $ Wright Pty Ltd

A=

%he person signing can plea! non est factum C%he min! !i! not accompany the signatureQno intent"E C%he person relying on the !efence must sho# that the !ocument is ra!ically !ifferent from the one heDshe thought they #ere signingE Usually use! for blin! or illiterate people"E

Petelin v Cullen

Incorporation by Notice$ &nsigned 1ocument

person is li+ely to be boun! the terms in a #ritten !ocument Cnot signe! by him or her" if reasonable notice of the e6istence of the terms has been given7 an! this notice #as given before or upon contract formationE a" &easonable Steps must be %a+en by $efen!ant &easonable steps must be ta+en to give the class of person to #hich the recipient belonge!7 notice of the e6istence of the termE C%his is a *uestion of fact"E Par!er v The South Eastern +ailway Co Mendelssohn v *ormand Ltd In !etermining #hether reasonable steps #ere ta+en it may be relevant #hether the !ocument #as one that #oul! be assume! by a reasonable person to be contractual in natureE Causer v "rowne Mendelssohn v *ormand Ltd If reasonable steps are ta+en it !oes not matter if the recipient of the notice !i! not rea! the terms or that he or she #ere unable to rea! themE Thom#son v London Midland , Scottish +ailway Co' %he onus #ill be on the !efen!ant to !emonstrate that the !ocument #as not !elivere! to the plaintiff as a voucher or receipt7 but as a contractual !ocumentE Causer v "rowne b" &easonable steps ta+en before or upon contract formation &easonable steps must be ta+en to bring terms to the attention of the plaintiff before7 or at the time of7 contract formationE Thornton v Shoe Lane Par!ing Ltd <ffect of ,erson not being able to &ea! or Un!erstan! %erms

A9

person #ho is particularly un#orl!ly7 an! !oes not +no# that a particular !ocument #ill contain contractual terms7 #ill still be boun! by those terms7 provi!ing the issuer too+ reasonable steps to bring that fact to the notice of people in generalE Par!er v The South Eastern +ailway Co

Incorporation by Notice$ *igns

person is li+ely to be boun! the terms in a sign if reasonable notice of the e6istence of the terms has been given7 an! this notice #as given before or upon contract formationE a" &easonable steps ta+en by the !efen!ant &easonable steps must be ta+en to give the class of person to #hich the recipient belonge!7 notice of the e6istence of the termE C%his is a *uestion of fact"E "almain *ew %erry Co Ltd v +o ertson Blly v Marl orough Court Ltd If reasonable steps are ta+en it !oes not matter if the recipient of the notice !i! not rea! the terms or that he or she #ere unable to rea! themE Thom#son v London Midland , Scottish +ailway Co' b" &easonable steps ta+en before or upon contract formation &easonable steps must be ta+en to bring terms to the attention of the plaintiff before7 or at the time of7 contract formationE Thornton v Shoe Lane Par!ing Ltd <ffect of ,erson not being able to &ea! or Un!erstan! %erms

person #ho is particularly un#orl!ly7 an! !oes not +no# that a particular !ocument #ill contain contractual terms7 #ill still be boun! by those terms7 provi!ing the issuer too+ reasonable steps to bring that fact to the notice of people in generalE Par!er v The South Eastern +ailway Co

Incorporation by Notice$ 'ebsite

%he issue is yet to be encountere! by the courts by it is li+ely it #ill apply the same principles as the incorporation of terms in an unsigne! !ocument or on a signE &easonable steps must still be ta+en an! these steps must have occurre! prior to or upon contract formationE

Incorporation by -eference

A-

%erms containe! else#here can be incorporate! into a contract by reference to those terms7 regar!less of #hether the !ocument incorporating those terms is signe! by the parties or is a tic+et or a signE Smith v South Wales Switchgear Co Ltd

Incorporating oral +erms

)ere Puff
JpuffK is an e6aggerate! claim about the sub'ect matter that is not inten!e! to be ta+en seriouslyE %here is no common la# conse*uences that arise from such sales tal+E :o#ever7 an e6cessive or e6aggerate! claimDs can no# be a breach of statuteE Trade Practices Act 5678 (Cth)

-epresentation or +erm
statement #ill be a term of a contract if it is inten!e! to be promissory in natureE statement #ill be promissory in nature if the statement ma+er #arrants its truthE Bscar Chess Ltd v Williams $os#ital Products Ltd v United States Surgical Cor#oration a" Wor!s an! con!uct of the parties %he #or!s an! con!uct of the parties can give an in!ication of intentionE CIt is relevant #hether the #or!s are promissory in nature as #ell as the con!uct of the parties that in!icate the importance of the statement"E $arling v Eddy b" @no#le!ge or e6pertise of the statement ma+er If the party #ho ma!e the statement is in a better position than the other party to ascertain the accuracy of the statement7 it is probably a termE MihalCevic v Eiffel Tower Motors Pty Ltd c" Statement ma+er has control in relation to information person #ho has control over the sub'ect matter #ill be in the position to guarantee the truth of the statementsE $os#ital Products Ltd v United States Surgical Cor#oration !" Oral statement not re!uce! to #riting

8/

statement that is ma!e orally but not inclu!e! #hen the contract is re!uce! to #riting may be an in!ication that the parties !i! not inten! it to be contractual in natureE +outledge v Mc!ay ll of the previous factors are in!icators of intention onlyE )ailure to re!uce an oral statement to #riting is not !eterminative of the matterE s illustrate! in4 $os#ital Products Ltd v United States Surgical Cor#oration If an oral statement later becomes part of the #ritten contract7 it is li+ely it #as inten!e! to form part of the contractE Bscar Chess Ltd v Williams e" Interval of time If there is a long interval bet#een ma+ing the statement an! the conclusion of a contract7 it is probably not a part of the contractE +outledge v Mc!ay

Collateral contracts
a" 3ature of a collateral contract collateral contract is one in #hich the consi!eration for a promise is the ma+ing of another contractE $eil ut Symons , Co v "uc!leton De Lassalle v &uildford %hree elements must be establishe!4 statement must be ma!e to in!uce entry into the contract %he statement must be relie! upon %he statement relie! upon must be promissory in natureE

// Savage , Sons Pty Ltd v "la!ney Where the main contract prece!es the collateral contract there can be no contract as past consi!eration is not goo! consi!erationE $ercules Motors v Schu ert b" Bipartite an! tripartite collateral contracts

8.

collateral contract is bipartite #here the parties to it are the same as those #ho enter the main agreementE She##erd v The Council of the Munici#ality of +yde collateral contract may be tripartite #here the parties to it are !ifferent from the parties in the main contractE Wells (Merstham) Ltd v "uc!land Sand , Silica Co Ltd c" Consistency #ith the main contract %he courts #ill only recognise a collateral contract if it is consistent #ith the terms of the main contractE $oyt4s Pty Ltd v S#encer C%here has been criticism of this rule as it !oes not give effect to the actual intention of the parties" In an appropriate case estoppel may applyE Waltons Stores v Maher

Parole e idence rule

*tatement of t"e rule
When a contract is re!uce! into #riting7 an! the contract appears in the #riting to be entire7 it is presume! that the #riting contains all the terms of it an! evi!ence #ill not be a!mitte! of any previous or contemporaneous agreement7 #hich #oul! have the effect of a!!ing to or varying the contract in any #ayE Mercantile "an! of Sydney v Taylor C%he rule applies to t#o aspects4 .E the content of the contract an! 0E the interpretation of contractsQ:ere the rule applies to the content"E

'"en t"e rule applies

%he rule !oes not apply #hen the parties inten! a contract to be partly in #riting an! partly oralE Couchman v $ill &egar!ing the content of the contract4 If the parties inten!e! the contract to be #holly in #riting7 parole evi!ence is not a!missible to a!! to7 vary or contra!ict the #ritingE

80

+o ertson v 1ern Land Pty Ltd %he intention of the parties is construe! ob'ectivelyE Couchman v $ill

E#ceptions to t"e rule

a" <vi!ence of a collateral contract %he collateral contract is a separate contract7 therefore the rule preventing evi!ence being le! to effect the main contract !oes not apply to itE De Lassalle v &uildford b" <vi!ence that the #ritten contract is not yet in force <vi!ence that the contract has not yet commence! operation is a!missible7 even if the parties have signe! the agreementE Pym v Cam# ell c" <vi!ence that the #ritten contract #as later varie! or !ischarge! <vi!ence can be le! !emonstrating that the agreement has been varie! or !ischarge!E *arich Pty Ltd v Commissioner of #ay>roll Ta@ C%he parole evi!ence rule prevents the intro!uction of evi!ence regar!ing #hat happene! JbeforeK the agreement #as re!uce! to #riting7 not evi!ence that the parties JlaterK agree! to change or en! it"E !" <vi!ence to imply a term %he court may hear evi!ence regar!ing a term that is one that is implie! by the common la#E C%his #ill !epen! on #hy the term is sought to be applie!"E Summers v The Commonwealth e" <vi!ence necessary for rectification <6trinsic evi!ence may be allo#e! to rectify a contract #here the agreement can not be regar!e! as reflecting the common intention of the parties or a mista+e in the #riting of the contract Csuch as the #rong price recor!e! unintentionally"E Maralinga v MaCor Enter#rises *SW Medical Defence Union Ltd v Trans#ort 2ndustries 2nsurance Co Ltd

81

Implied +erms
+erms implied to gi e effect to t"e presumed intention of t"e parties
a" %erm implie! on the basis of business efficacy term that is either so obvious there #as no nee! to e6press it7 or not thought of by the parties may be implie! by the courts in or!er to successfully carry out the contractE The Moorcoc! %he follo#ing elements must be satisfie! before a court #ill imply a term on the basis of business efficiencyE %he implication must be reasonable an! e*uitableE %he implication must be necessary to give business efficacy to the contract so that no term #ill implie! if the contract is effective #ithout itE %he term must be so obvious that Jit goes #ithout sayingKE %he term must be capable of clear e6pressionE %he term must not contra!ict any e6press term of the contractE

"P +efinery (Western#ort) Pty Ltd v Shire of $astings Codelfa Constructions Pty Ltd v State +ail Authority of *SW If the parties have gone to some length to re!uce their agreement to #riting an! to ensure it reflects their intentions7 it is !ifficult to suggest that the term omitte! is so obvious that it goes #ithout sayingE Ansett Trans#ort 2ndustries v Commonwealth b" %erms implie! from previous consistent course of !ealings If t#o parties have ma!e a series of similar contracts each containing certain con!itions7 an! then they ma+e another #ithout e6pressly #ithout e6pressly referring to those con!itions it may be that those con!itions ought to be implie!E $enry 1endall , Sons v William Lillico , Sons Ltd &elevant to the assessment are - %he number of !ealings bet#een the partiesM an! - %he consistency of the !ealings bet#een the partiesE

82

$orrier v +am ler Motors (AMC) Ltd $enry 1endall , Sons v William Lillico , Sons Ltd Chattis *ominees Pty Ltd v *orman +oss $omewor!s c" %erm implie! from custom or usage term can be implie! if there is e6istence of a particular custom or usage that is recognise! as giving effect to the intentions of the partiesE Sagar v +idehalge Con>Stan 2ndustries of Australia Pty Ltd v *orwich Winterhur 2nsurance (Aust) Ltd %he follo#ing elements must be satisfie! before a court #ill imply a term on the basis of custom or usage4 - %he e6istence of the custom or tra!e usage is a *uestion of factE %he custom or tra!e usage must be so #ell +no#n that all parties can reasonably be assume! to have importe! that term into the contractE %he term #ill not be implie! if it is contrary to the e6press terms of the agreementE person may be boun! although they ha! no +no#le!ge of the term provi!e! the re*uirements of the secon! element are establishe!E

Con>Stan 2ndustries of Australia Pty Ltd v *orwich Winterhur 2nsurance (Aust) Ltd !" %erm implie! to complete an agreement court may attempt to construct the contract by implying the necessary term in or!er to fill in the gaps an! complete an agreementE $illas (W*) , Co Ltd v Arcos Ltd

+erm implied Irrespecti e of parties intention

e" %erm implie! as a legal inci!ent of a particular class of contract %erms may be implie! as a matter of la# in contracts of a particular classE C<6amples of some of these classes are given at p0A8 of te6t"E Liver#ool City Council v 2rwin Samuels v Davis Der yshire "uilding Co Pty Ltd v "ec!er lthough terms of this +in! are implie! through necessity7 the parties may e6pressly agree to the contraryE

8A

"yrne v Australian Airlines Ltd &emmel Power %arming Co Ltd v *ies Der yshire "uilding Co Pty Ltd v "ec!er f" 5eneral !uty of co-operation It is an implie! term of all contracts that each party agrees to !o all things necessary to enable the other party to have the benefit of the contractE "utt v McDonald %he parties may e6pressly agree to the contraryE "utt v McDonald <6amples4 %here is a !uty to comply #ith reasonable re*uestsE

Secured 2ncome +eal Estate (Aust) Ltd v St Martins 2nvestments Pty Ltd %here is a !uty not to impair the basis of the contractE

+D/ 2nternational Pty Ltd v Preformed Line Products %here is a !uty to !o all thing necessary to enable the agreement to be complete!E

Adelaide Petrolium v Poseidon g" Implication of !uties of goo! faith7 fair !ealing an! reasonableness It has been suggeste! that the courts may be prepare! to imply a !uty for the parties to act in goo! faith in preforming a contractE +enard Constructions v Minister for Pu lic Wor!s "utt v McDonald h" %erms implie! by statute term may be implie! into a contract by a relevant statuteE :o#ever these terms may be negative! or varie! by e6press agreementE Sale of &oods Act 5;69 (-ld) Trade Practices Act 5678 (Cth) Consumer Credit Code 5668 $ire Purchase Act 56:6 (-ld) 2nsurance Contracts Act 56;8 (Cth) Etc'

88

Construction of +erms
Interpreting t"e meaning of terms
2eneral approac"
Construction of contracts may be seen as involving t#o activitiesE )irstly7 ascertaining the meaning of the #or!s use! CBuestion of fact"E Secon!ly7 !etermining the legal effect of those #or!s CBuestion of la#"E Life 2nsurance Co of Australia Ltd v Philli#s !ocument is rea! as a #holeE &eorge v Cluning Amalgamated Television Services Pty Ltd v Television Cor#oration Ltd %he purpose is to construe the !ocument as to pro!uce #hat it #as ultimately inten!e! forE $ume v +undell Lloyd v Lloyd %he court !oes its best to give effect to the parties? bargainE $illas , Co Ltd v Arcos Ltd Aor! Airconditioning , +efrigeration (Australasia) Pty Ltd v Commonwealth In giving effect to the agreement4 %he court #ill en!eavour to be neither to astute nor too pe!anticE

$illas , Co Ltd v Arcos Ltd U##er $unter County District Council v Australian Chilling , %ree3ing Co Ltd %he court #ill steer clear of meanings that are commercially un#or+able or inconvenientE

$ide , S!in Trading Pty Ltd v Bceanic Meat Traders Ltd %he court ta+es an ob'ective approach to interpretation as that of a reasonable thir! parties vie# point7 rather than the sub'ective or actual intentions of the partiesE $os#ital #roducts Ltd v United States Surgical Cor#oration Taylor v /ohnson

8=

Admissible e idence
a" %he ,arole <vi!ence rule When a contract is re!uce! into #riting7 an! the contract appears in the #riting to be entire7 it is presume! that the #riting contains all the terms of it an! evi!ence #ill not be a!mitte! of any previous or contemporaneous agreement7 #hich #oul! have the effect of a!!ing to or varying the contract in any #ayE Mercantile "an! of Sydney v Taylor C%he rule applies to t#o aspects4 .E the content of the contract an! 0E the interpretation of contractsQ:ere the rule applies to interpretation"E When a formal !ocument is conclusive of a contract7 its meaning can only be !etermine! by reference to #or!s in that !ocumentE &ordon v Mc&regor Allen v Car one b" )actual matri6 When !etermining the parties intentions7 the court may ta+e into account not only the #or!s recor!e! in the !ocument but also the evi!ence of the surroun!ing circumstances Allen v Car one DT+ *ominees Pty Ltd v Mona $omes Pty Ltd %he evi!ence of the surroun!ing circumstances must be +no#n to both parties7 although if facts are notorious the court may presume +no#le!ge of themE Codelfa Construction Pty Ltd v State +ail Authority of *SW In a commercial contract it is appropriate for the court to have reference to the commercial purpose of the contract7 #hich in turn presupposes +no#le!ge of the #ay the transaction starte!7 its bac+groun!7 an! the conte6t an! mar+et in #hich in parties are operatingE +eardon Smith Line Ltd v Aengvar $ansen>Tangen Codelfa Construction Pty Ltd v State +ail Authority of *SW c" <6ceptions to the parole evi!ence rule mbiguity

Cases of obvious or un!erlying ambiguityE It may not al#ays be safe to assume that the #or!s of a !ocument #ill simply carry their plain or or!inary meaningE

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White v Australian , *ew ?ealand Theatres Ltd $o#e v +CA Photo#hone of Australia Pty Ltd I!entification of sub'ect matter

<6trinsic evi!ence is a!missible to resolve ambiguity about the sub'ect matter of the contractE White v Australian , *ew ?ealand Theatres Ltd Cf' $o#e v +CA Photo#hone of Australia Pty Ltd I!entification of parties or their relationship

<6trinsic evi!ence is a!missible to resolve an ambiguity concerning the i!entity of the parties of the agreementE Edwards v Edwards &+ Securities Pty Ltd v "aul!ham $ills Private $os#ital It may also be use! to resolve an ambiguity concerning the capacity or the relationship bet#een the partiesE &il erto v 1enny I!entification of real consi!eration

<6trinsic evi!ence is a!missible in or!er to proveDi!entify the real consi!eration un!er a contractE Pau Bn v Lou Aiu Long Aaroom e "each Develo#ment Co v Coeur De Lion 2nvestments Pty Ltd Custom or Usage

Where the language use! has a particular meaning CegE By custom or usage in a particular tra!e7 in!ustry or region"7 evi!ence of that meaning is a!missible7 even if there is no patent ambiguityE Summers v Commonwealth Thornley v Tilley &ectification

<6trinsic evi!ence may be a!mitte! to sho# that a parties? intention #as not accurately recor!e! in the #ritten instrumentE In the appropriate circumstances the !ocument may be rectifie! so that it accor!s #ith the parties? actual agreementE Maralinga v MaCor Enter#rises "acchus Marsh Concerntrated Mil! Co Ltd v /ose#h *athan , Co Ltd

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Inadmissible E idence
In particular the follo#ing e6trinsic evi!ence is ina!missible4 a" Sub'ective intention <vi!ence of the actual7 sub'ective intentions of the parties is not a!missable Life 2nsurance Co of Australia Ltd v Philli#s DT+ *ominees Pty Ltd v Mona homes Pty Ltd b" ,rior negotiations %he negotiations that prece!e! the agreement are not permitte! as it is only the final !ocument that properly reflects a consensus bet#een the partiesE Prenn v Simonds Cf' Codelfa Construction Pty Ltd v State +ail Authority of *SW #er Mason /' c" Subse*uent con!uct nything that the parties? say or !o after the contract can not be use! in or!er to ai! in the construction of the contract Administration of Pa#ua , *ew &uinea v Daera &u a Codelfa Construction Pty Ltd v State +ail Authority of *SW

Legal effect of words$ types of terms

Promissory terms
promissory term is one pursuant to #hich a party ma+es a promise to another party regar!ing events that #ill or #ill not occur in accor!ance #ith the agreementE If the party fails to carry out the promise7 that party #ill have breache! the termE %he effect of the breach !epen!s upon #hether the term is classifie! as a con!ition7 a #arranty7 or an interme!iate termE $etermination of the appropriate term is an ob'ective test of the parties intention7 ta+ing into account their #or!s an! con!uctE "owes v Chaleyer Associated *ews#a#ers Ltd v "anc!s a" Con!itions con!ition is a term that is essential to the performance of the contractE %he promise is of such importance to the promisee that he #oul! not have entere! into the contract #ithout assurance of the performance of the promise7 an! this ought to have been apparent to the promisorE

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Associated *ews#a#ers Ltd v "anc!s ny breach of this type of term #ill allo# the innocent party to terminate further performance of the contract an! to claim !amages for the breachE L Schuler A& v Wic!man Machine Tool Sales Ltd %he fact that a term is !escribe! in an agreement as a con!ition7 is persuasive not conclusiveE L Schuler A& v Wic!man Machine Tool Sales Ltd If !amages alone seem to be an ina!e*uate reme!y7 the courts may be persua!e! to construe a term as a con!itionE An!ar Pty Ltd v *ational Westminster %inance (Australia) Ltd Associated *ews#a#ers Ltd v "anc!s C&egar!ing essentiality" %he courts may be influence! to construe a term as a con!ition if a particular construction lea!s to an unreasonable resultE L Schuler A& v Wic!man Machine Tool Sales Ltd Associated *ews#a#ers Ltd v "anc!s C&egar!ing essentiality" %he statutory positionE In legislation relating to the sale of goo!s7 it is implicit in the !rafting that a breach of con!ition in a contract for the sale of goo!s #ill have the same effect as a breach of con!ition un!er the common la#E Sale of &oods Act 5;69 (-ld) s'58 (<) b" Warranties #arranty is a term that is subsi!iary to the main purpose of the contract7 a breach of #hich only entitles the innocent party to !amagesE "ettini v &ye Ellul v Ba!es %he statutory positionE n agreement #ith reference to goo!s #hich are the sub'ect of a contract of sale but collateral to the main purpose of such contract7 the breach of #hich gives rise to a claim for !amages but not the right to re'ect the goo!s an! treat the contract as repu!iate!E Sale of &oods Act 5;69 (-ld) s'= It has also been suggeste! that this test might also apply at common la#E =.

Associated *ews#a#ers Ltd v "anc!s c" Interme!iate or innominate terms n interme!iate term is once that stan!s bet#een a con!ition an! a #arranty an! cannot be satisfactorily classifie! as eitherE An!ar Pty Ltd v *ational Westminster %inance (Australia) Ltd $ong 1ong %ir Shi##ing Co v 1awasa!i 1isen 1aisha Ltd It may be !efine! as a term capable of a variety of breaches7 some serious some trivialE "unge Cor#oration *ew Aor! v Trada@ E@#ort SA (Panama) %he reme!y for the breach of an interme!iate term varies accor!ing to the severity of the breachE If the breach !eprives the innocent party of substantially the #hole of the benefit of the contract7 then the innocent party #ill be entitle! to terminate the contractE If the effect of the breach is not significantly serious7 the innocent party #ill only be able to claim !amages Associated *ews#a#ers Ltd v "anc!s $ong 1ong %ir Shi##ing Co v 1awasa!i 1isen 1aisha Ltd %he court must first ascertain the intentions of the parties in or!er to categorise the termE If the court !eci!es it is an interme!iate term it then !etermines the gravity of the breach "unge Cor#oration *ew Aor! v Trada@ E@#ort SA (Panama) In or!er to !etermine the seriousness of the breach a number of matters may be ta+en into account4 %he !egree of performance up to the breach compare! to the performance re*uire! un!er the contractE Whether !amages #ill a!e*uately compensate the lost e6pectations of the innocent partyE Whether the e6pectations of the party in breach #oul! be unfairly pre'u!ice! by terminating the contractE ttitu!e an! con!uct of the party in breach inclu!ing the li+elihoo! of the breach persisting

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$ong 1ong %ir Shi##ing Co v 1awasa!i 1isen 1aisha Ltd %he !ecision in $ong 1ong %ir Shi##ing case also applies to a contract for sale of goo!sE Cehave *. v "remer $andelgesellschaft m $

Contingencies
Since a contingency clause may be able to be construe! as either a con!ition prece!ent or a con!ition subse*uent the essential *uestion is #hat effect !oes the contingency have on the contractE Perri v Coolangatta 2nvestments Pty Ltd Un!er appropriate circumstances a party may be estoppe! from relying upon a contingencyE

Condition precedent
con!ition prece!ent is a con!ition that #ill prevent a contract from coming into e6istence until such time as the con!ition is fulfille!E Perri v Coolangatta 2nvestments Pty Ltd

Condition subsequent
con!ition subse*uent is a con!ition #ithin a contract that has ta+en effectE :o#ever the performance of the contract is prevente! until the con!ition is fulfille!E Meehan v /ones Clauses such as Jsub'ect to financeK7 Jsub'ect to rezoningK or Jsub'ect to to#n planning approvalK are con!itions subse*uentE Meehan v /ones party may #aive a con!ition subse*uent that is solely for their o#n benefit Meehan v /ones If the clause is for the benefit of both parties7 either may be able to terminateE Such a clause may only be #aive! #ith the consent of both partiesE +aysun v Taylor Where a clause provi!es for the a contract to be ren!ere! voi! on the occurrence or non-occurrence of an event7 an! the event is out the control of both parties7 the contract may be automatically en!e! if the event occursE

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Car#entaria 2nvestments Pty Ltd v Airs clause such as Jsub'ect to contractK is usually categorise! as a con!ition prece!ent but it #ill !epen! on the intention of the parties

E#emption clauses
%here are three main types of e6emption clauses4 .E complete e6clusion of a parties liability

<gE Thomas *ational Trans#ort (Mel ) Pty Ltd v May , "a!er (Aust) Pty Ltd 0E limitation to the e6tent of liability to a particular ma6imum amountE

<gE Darlington %utures Ltd v Delco Australia Pty Ltd 1E (iability may be sub'ect to certain precon!itions7 such as the commencement of any suit or the giving of notice of a !efault #ithin a certain timeE <gE *ew ?ealand Shi##ing Co Ltd v A * Satterthwith , Co Ltd %he court must apply the same rules of interpretation regar!less of the +in! of e6clusionE Darlington %utures Ltd v Delco Australia Pty Ltd <6emption clauses may involve the !etermination of t#o separate issues4 Whether the clause forms part of the contract

CThis is covered earlier in F2ncor#orating Written TermsG"E Whether7 on the true construction of the clause it covers the liability that has arisenE

n e6emption clause is !etermine! by construing the clause accor!ing to its natural an! or!inary meaning7 rea! in light of the contract as a #holeE Darlington %utures Ltd v Delco Australia Pty Ltd

*pecific rules of construction

%here are also a number of specific rules of construction that help to interpret an e6emption clauseE Thomas *ational Trans#ort (Mel ) Pty Ltd v May , "a!er (Aust) Pty Ltd

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a" %he Contra ,roferentem rule n e6emption clause #ill be construe! accor!ing to #hich parties benefit the clause #as inserte! for in case of ambiguityE Thomas *ational Trans#ort (Mel ) Pty Ltd v May , "a!er (Aust) Pty Ltd Darlington %utures Ltd v Delco Australia Pty Ltd b" ttempts to e6empt negligence

clause #ill relieve a party of liability for negligence of their o#n or the servants or agents7 if it e6pressly or implie!ly covers such liabilityE term #ill cover such liability if there can be no groun! of liability other than negligence to #hich it coul! referE Thomas *ational Trans#ort (Mel ) Pty Ltd v May , "a!er (Aust) Pty Ltd &ules regar!ing attempts to e6empt negligence

%he ,rivy Council in state! the follo#ing rules in4 Canada Steamshi# Lines Ltd v The 1ing i" <6press e6clusion is effectiveE ii" Where the JonlyK possible cause of action against the !efen!ant is an action for !amages base! on negligence7 then the court #ill interpret a J#i!eK clause to cover the !efen!ant?s liability for negligenceE

Alderslade v $endon Laundry Ltd iii" If the #or!s use! in the clause are #i!e enough to cover negligence7 but there is some other groun! of liability other than negligence7 the clause #ill be rea! as applying only to that other groun! of liability an! #ill not operate to e6clu!e the claim for negligenceE White v /ohn Warwic! , Co Ltd )or the first rule to apply it there #oul! have to be the use of the #or! negligence or a close synonymE Smith v South Wales Switchgear Ltd c" %he four corners rule person can only rely on the con!itions of a contract7 that #ere inten!e! to protect them7 if they have carrie! out the contract in the #ay that they ha! contracte! to !oE Thomas *ational Trans#ort (Mel ) Pty Ltd v May , "a!er (Aust) Pty Ltd Council of the city of Sydney v West =A

Davis v Pierce Par!ing Station Pty Ltd In Bueenslan! the court has no po#er to !isallo# an e6emption clause on the basis that it is unreasonableE %aramus v %ilm Advertises4 Association

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