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TABL 1710

Business and the Law

In-Class Exercise
on Lecture Topics 1 and 2
In tutorials this week
Closed Book
Worth 10%

Lecture 4
Contract Law (Contd)
Promissory estoppel, Intention,
Terms of a Contract

Lecturers: Paul Tuohy/Leela Cejnar


2015 The University of New South Wales
Sydney 2052 Australia
The original material prepared for this guide is copyright. Apart from fair dealing for the purposes of private study, research, criticism or
review, as permitted under the Copyright Act, no part may be reproduced by any process without written permission.
Enquiries should be addressed to the Head of School, Taxation and Business Law, UNSW, Sydney

Major Assignment

Discussion Forum
Available from this week
One per tutorial group
For students to use to collaborate with their tutorial
group as they wish (voluntary)
Tutors will provide details about how to use the
Discussion Forum for your tutorial class
NO MARKS attached to this but a very useful
collaboration tool

Available from Friday


On Moodle
Due 5pm, Monday 4 May (Wk 9)

Discussion Forum
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Students are especially encouraged to read and
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Work closely with your tutor and communicate with your
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Lecture 3: Summary

Tutorial Attendance

Essential elements of a contract:

Intention to enter into a legally binding contract (to


be covered today)

Agreement
Offer
Acceptance

Consideration (or price)

Reminder: you can only attend the tutorial you


are enrolled in!
Tutors will refuse your attendance in a class where
you are not on the roll, unless prior arrangements
have been made (eg: due to illness, unavoidable
absence because of a job interview etc)
Remember there is an 80% attendance
requirementdont miss your tutorials!

Lecture 3: Summary
Lecture 3: Summary

Essential elements of contract

Other elements for a valid contract:


Legal capacity
Genuine consent
Legality of purpose
Any formal/procedural requirements must be satisfied
(See Latimer at 5-510 to 5-570)

1. The Offer
Must be
Firm promise
Communication: Notice of Offer (Carlill v Carbolic Smoke
Ball)
Revocation of offer to occur before acceptance
Invitation to treat (Pharmaceutical Society of Great Britain v
Boots): offer to make an offer
Counter-Offers (Hyde v Wrench)
Requests for Information (Harvey v Facey)

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Lecture 3: Summary
Consideration: what is it?

Lecture 3: Summary
2. The Acceptance
Must be in response to Offer (R v Clarke)
Communicated (note: silence is not acceptance: Felthouse v
Bindley)
Express or implied (eg by conduct: Brogden v Metrop Rway
Corp; Empirnall Holdings)
Absolute, unqualified
Any conditions must be fulfilled
Clear and certain
Postal Rule/Instantaneous communications

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See Latimer 5-400 - 5-485


Something for something
Concept of VALUE
BUT can be broader than just price
Can include acts, promises etc

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Lecture 3: Summary
Rules for Consideration

Lecture 3: Summary
Consideration: what is it?
It is what the promisor gives in exchange for the
return promise or the return action from the promisee

1.

Consideration is essential to the validity of every simple


contract

Consideration turns an agreement into a contract


Failure of consideration can make an agreement
unenforceable

Must move between the parties to the contract (Promisor to


Promisee):
Dunlop Pneumatic Tyres v Selfridge & Co
A B
BC
(ASK: Why cant A sue C?)

Coulls v Bagott

A B+C

See Latimer 5-405

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Lecture 3: Summary
Rules for Consideration

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Lecture 3: Summary
Rules for Consideration

2. Consideration must not be past


Past consideration:
occurs where a promise is given after an act has been
performed

BUT: past consideration can be good consideration IF:


the act was done at the promisors request
the parties understood that the act would be remunerated
the promise would have been enforceable if it had been promised
in advance of the act

is generally not enforceable


Case:

Cases:
Lampleigh v Braithwait
Re Caseys Patents
See Latimer at 5-410

Roscorla v Thomas, Latimer 5-410

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Lecture 3: Summary
Rules for Consideration

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Lecture 3: Summary
Rules for Consideration

Therefore:

3. Consideration must have value but need not be adequate

Consideration must be
Present (executed) consideration which is an act done now
in return for a promise when the act is completed: see
Latimer at 5-430
Or
Future (executory) consideration where the parties agree to
exchange promises to do something in the future: see
Latimer at 5-420

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Consideration must have value but need not be adequate


as this is something only the parties to the contract can
decide
Case: Chappell & Co Ltd v Nestle Co Ltd
See Latimer at 5-440

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Lecture 3: Summary
Rules for Consideration

Lecture 3: Summary
Rules for Consideration

4. Consideration must be sufficient

5. Consideration must be possible of performance

This means that it must have some legal value

6. Consideration must be definite

If not, it may be considered insufficient and no consideration at


all

7. Consideration must be legal

As long as consideration exists, the courts will not be concerned


about its adequacy

8. Consideration must be referable to the other partys


promise

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Lecture 3: Summary
Rules for Consideration

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Todays lecture

9. Practical benefit can be good consideration


.BUTsee next slide!

Consideration: Insufficient Consideration


Exception to Consideration; Doctrine of Promissory Estoppel
Intention to enter into legal relations
Terms of a contract

Cases:
Musumeci v Winadell Pty Ltd
Williams v Roffey Bros & Nicholls (Contractors) Ltd
See Latimer at 5-470

Representation vs terms
Parol evidence rule
Express vs implied terms
Collateral contracts
Conditions and warranties
Uncertain terms
Meaningless terms
Ambiguous terms

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Overview - Lecture 4
Terms of a Contract

Insufficient Consideration

On completion of this lecture you should be able to:


9 Explain what is meant by promissory estoppel
9 Clarify the roles of intention in contract law
9 Set out the legal requirements for a valid contract
9 Clarify the role of intention in contract law
9 Explain the difference between terms and
representations
9 Explain what is a collateral contract
9 Identify different types of terms (condition, warranty
etc)

1.

Promise to perform a duty already imposed by contract is


not good consideration
(Exception: Practical Benefit see previous slide)

Cases:

Stilk v Myrick

Hartley v Ponsonby

See Latimer at 5-470

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Consideration and Promissory Estoppel:


the exception to the rule

Insufficient Consideration
2.

Part payment is insufficient consideration

Part payment is NOT good consideration

Exception: if creditor agrees to accept smaller amount (or


something different), a debt is considered discharged.

Cases: Pinnels case; Foakes v Beer


See Latimer at 5-480

3.

Moral obligations as well as natural love and affection will


NOT convert a promise into good consideration

Case: Eastwood v Kenyon


See Latimer at 5-471

Promissory estoppel will allow a promise to be


enforced even though the promisee has not provided
good consideration for that promise
It operates where it would be inequitable, or
unconscionable, for the promisor not to be held to
their promise
You cant go back on your word!
See Latimer at 5-485

See Latimer at 5-470


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Promissory estoppel

Promissory estoppel

Brennan Js (Waltons v Maher) six-point test for when the promisor


cannot go back on his/her word:

Cases:
Central London Property Trust Ltd v High Trees
House Ltd
Legione v Hateley
Waltons Stores (Interstate) Ltd v Maher
See Latimer at 5-485

Promisee (Maher = P) assumes existence of particular legal


relationship
Promisor (Waltons = D) responsible for this assumption
Promisee acted/did not act in reliance on that assumption
Promisor knew what promisee would do or intended for
promisee to act in this way
Promisee will suffer loss or some detriment or harm if the
assumption/expectation is not fulfilled
Promisor did not take any steps to warn promisee s/he may not
fulfil expectation etc
See Latimer at 5-485
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Promissory estoppel

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Intention to create legal relations

The central principle of the doctrine is that the law


will not permit an unconscionable or, more
accurately, unconscientious departure by one party
from the subject matter of an assumption which has
been adopted by the other party as the basis of some
relationship, course of conduct, act or omission which
would operate to the other partys detriment if the
assumption be not adhered to.

There must be evidence that the parties INTENDED to


make a legally enforceable contract

Deane J in Commonwealth of Australia v Verwayen [1990] HCA 39


See Latimer at 5-485
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Subject to contract

Presumed intention
The courts have to determine objectively whether the parties
intended the agreement to be legally enforceable

Expressly NO intention
Subject to contract clauses
Document not in its final form
Subject to preparation of written document

To assist, traditionally agreements are divided into consider two


categories:
Social, family, domestic, voluntary
Commercial or business

Case:
Masters v Cameron: see Latimer at 5-250

Presumptions about intention are applied to eachsee next slide

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Presumed intention

Presumed intention

Traditionally:

Traditionally:

Social, family, domestic, voluntary (ie between


friends, family members or where services
volunteered)

Relevant presumption applied


Presumption could be rebutted by evidence
evidence

PRESUMED NO INTENTION

Party without benefit of presumption (eg defendant in


commercial agreement) bears onus of rebutting it

Commercial or business
PRESUMED INTENTION TO BE BOUND

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Intention
Presumptions now abolished
Traditional approach no longer apply
Better approach: situation will DEPEND ON THE
FACTS OF A CASE
Cases:
Ermogenous v Greek Orthodox Community of SA Inc:
wrong to formulate prescriptive rules concerning intention
Evans v Secretary, Department of Families, Housing,
Community Services and Indigenous Affairs
See: Latimer at 5-090

Intention: Relationship of the Parties

Social: - relationships made between friends or


acquaintances
Domestic: relationships between family members
and relatives
Voluntary: parties volunteer their services

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Intention: Voluntary Agreements

Intention: Domestic Agreements

Voluntary agreements
Domestic agreements

Cases:
Teen Ranch Pty Ltd v Bro

Cases:

Ermogenous v Greek Orthodox Community of SA Inc

Balfour v Balfour
Cohen v Cohen

See Latimer at 5-090

Wakeling v Ripley
Evans v Secretary, Department of Families, Housing,
Community Services and Indigenous Affairs
See Latimer at 5-090
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The contract

Intention: Commercial/Business
Case:

What have the parties agreed to?


What is the extent of the rights and
obligations that the parties have entered into?
The answer is found in the contents of the
contract

Rose & Frank Company v JR Crompton &Bros Ltd


See Latimer at 5-060

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Contents of a contract

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Representations

Contents of a contract can be classified into


two categories:
(1) a representation:
non-contractual statement
made pre-contract during negotiations
not intended to be legally binding
if false, it is a misrepresentation
(2) a term:
contractual statement
intended to be legally binding
breach of term gives rise to action for breach of
contract

Importance of truth of the representation


Reliance of innocent party on representation
Time period between representation and final
agreement
Intention behind making of representation
Omission of representation from contract
Consider any special knowledge or skills of person
who made representation
See Latimer at 6-020
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Representations and
the parol evidence rule

Representation
Cases:
Oscar Chess Ltd v Williams
Bentley (Dick) Productions Ltd v Harold Smith (Motors) Ltd

Parol = oral, spoken


If a contract is in writing and if the writing
appears to contain the whole contract, it is
presumed that the writing contains all of the
terms of the contract

(Compare these two decisions)

See Latimer at 6-015

See Latimer at 6-020

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Representations
and the parol evidence rule

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Terms of the contract


Terms include both:
express terms
implied terms

Courts are generally reluctant to admit


evidence of words, acts or representations
made prior to the execution of the contract
that might add to, vary or contradict the
written contract
See Latimer at 6-015

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Terms of the contract

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Implied Terms

(1) Express can be:


oral
written
oral and written

Case:
The Moorcock

(2) Implied can be:


to give the contract business efficacy (ie: to help make sense of
the contract)
from custom or business usage
from previous dealings
by the intention of the parties
by the courts (ie: to define uncertain/meaningless/ambiguous
terms)
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See Latimer at 6-110

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Implied Terms

Statutory Implied Terms


Some statutes imply (add) terms to contracts where consumers
are involved

For terms to be implied into a contract, they must:


be reasonable and equitable
be necessary to give business efficacy
be so obvious it goes without saying
be capable of clear expression
not contradict an express term of the contract

For example, concerning fitness for purpose, merchantable


(acceptable) quality, compliance with description/sample etc

See:
Australian Consumer Law, which is Schedule 2 of the Competition
and Consumer Act, 2010 (Cth)

See Latimer at 6-140

See Latimer at 6-110 at footnote 16: BP Refinery Case

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Types of terms

Condition or Warranty

1. Condition

an essential term going to the root of the contract

allows injured party option of rescinding (ie ending) the


contract and/or suing for damage

2. Warranty

a non-essential term of lesser importance

allows the injured party only to recover damages (and


requires continued performance of the contract)

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Cases:
Bettini v Gye
Poussard v Spiers
(Compare these two decisions)
Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market
See Latimer at 6-050

See Latimer at 6-050 to 6-090

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Uncertain terms

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Meaningless terms

If there have been prior dealings, courts may imply


appropriate terms

If the term has no meaning, the courts will sever it if


possible and leave the rest of the contract valid

Where there are no past dealings, courts may be


forced to find contract void for uncertainty

If this is not possible, the contract will be void for


uncertainty

See Latimer at 6-150

See Latimer at 6-160

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Ambiguous terms

Exclusion Clauses

If a term has more than one meaning, the contract


will not necessarily be void for uncertainty, so long as
the term can be given a meaning

Limitation of liability clauses


To be discussed next week

See Latimer at 6-170

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The FIVE STEP PLAN


to answering a legal problem

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The FIVE STEP PLAN


to answering a legal problem

1. Identify relevant facts

3. Note similarities to (follow) or differences from (distinguish)


prior cases

What are the key facts that are relevant to the problem?
2. Identify key, relevant statutory provisions and case law
principles
Ask:
(a) does a statutory provision apply to this situation and does it
provide a specific answer to the problem?
(b) are there any cases which have dealt with a similar fact
situation to the one you are considering and/or which have
interpreted any relevant statutory provisions?
NOTE: you should provide the name/section of any relevant
legislation and the names of any relevant cases in your
answer

Jot down the names of cases that you have studied, where the
facts were similar, if not identical to the ones in the problem you
are considering
Note any factual differences from previous cases and state
whether or not you consider that the differences matter to your
problem
Often the facts of a problem may be similar to but a little
different to those in a decided case: think about whether any
factual differences matter
Whether or not any differences matter will depend on the scope
of the legal principle that the relevant case stands for

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The FIVE STEP PLAN


to answering a legal problem

The FIVE STEP PLAN


to answering a legal problem
4.

Apply the relevant statutory provisions and case law


principles to the facts

5. Reach a conclusion based on the application of the


statutory provisions and case law principles to the facts

Key aspect of answering legal problem question


After identifying the relevant facts, and referring to the relevant
statutory provisions and case law, you then have to apply the
relevant statutory and/or case law principles to the facts
of your problem
This step involves saying what the legal principles you have
identified mean to the facts of your problem and what the
effect of these legal principles will be on the rights and
obligations of the parties in your problem
Key part of the process of reasoning that leads to a conclusion
both in a legal problem question and in an actual court case

You need to reach a conclusion


The fact that a subsequent court can overrule the decision of a
previous court demonstrates that there is no absolutely correct
answer to legal problem questions
More important than the conclusion you reach is the process of
reasoning that led you to that conclusion

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Next lecture

How to answer a legal problem


Remember:
In your discussion/answer, you must include
references to relevant statutory provisions
(legislation name and, where possible, section
numbers) and case names

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Exclusion Clauses
Collateral contracts
Changing terms of a contract
Capacity
Privity
Agency
Vitiating elements (eg mistake, misrepresentation, unconscionable
conduct etc)

Read: Latimer Ch 5 5-610-5-810; Ch 6 6-180-6-275; Ch 11

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