Formation

OFFER
For an agreement to be formed, there needs to be an identifiable offer made by one party, and an
acceptance of that offer by the other party.
An offer is an expression of willingness to enter into a contract on certain terms [2]. It is an unequivocal
declaration that the Offeror will be bound immediately upon the Offerees acceptance.
To determine whether an offer has been made, two elements must be satisfied:
1.

Outward intent this means the intent of the Offeror to make an offer. However, intent is
measured objectively, which means the outward manifestations of it rather than actual intent. In
other words, would it appear to a reasonable person that an offer has been made?

2.

Carlil v Carbolic Smoke Ball Co

Finality that the offer is final and requires no further communication bar acceptance. In other
words, that the acceptance of the offer would initiate an immediate binding agreement.

Brambles Holdings Ltd v Bathurst City Council[3]

Gibson v Manchester City Council[4]

Thus, the crucial issue in determining an offer is whether it would appear to a reasonable person in
the position of the Offeree that an offer was made, and that his acceptance of the offer would entail
a binding agreement.
Unilateral contracts
Usually, a unilateral contract is a contract where there is a promise in return for an act, whereas a
bilateral contract is one where there is a promise in return for another promise.
A unilateral is one in which the Offeree accepts the offer by performing his or her side of the
bargain[5]. By performing a specific act, the Offeree:

Accepts the contract.

Completely executes his consideration (his part of the bargain).

This means that by the time of the formation of the contract, one party has already fulfilled all
its obligations under the contract, and only the other party is now is under further contract
obligations. That is why it is called a unilateral contract.

Example: A promises to give $100 to whoever returns an ipod

B finds and returns the ipod, thus accepting the contract and fulfilling his obligation
simultaneously

A now has an outstanding obligation to pay B $100

This is distinguished from a bilateral contract, in which at the time of formation, both
parties still have to fulfil their obligations.

Example: A and B sign a contract regarding the transfer of property.

Both A and B now have obligations to fulfil (transfer the property, pay the agreed price)
The nature of unilateral contracts is discussed further in Carlil v Carbolic Smoke Ball
Co and Australian Woollen Mills Pty Ltd v Commonwealth. The AWM case illustrates
the holy trinity of offer and acceptance, consideration, and intention to create legal
relations.

Offers and invitations to treat

A distinction is made between an offer, and an invitation to treat. An invitation to treat is an
invitation to another party to make an offer. There are no fixed rules about when conduct is
simply an invitation to treat and when the conduct can amount to an offer. There are general
rules and a sense of consistency with regards to general conditions, but the distinction must be
judged on a case to case basis.
Shop Sales
[7]

Items displayed for sale in shops are regarded as invitations to treat, not offers.

This issue was discussed in Pharmaceutical Society of Great Britain v Boots Cash Chemists
Ltd'[8] , in which the plaintiff claimed that the display of items for sale should be viewed as an
offer, which is then accepted when the Offeree takes them off the shelf.

Since customers are allowed to return items to the shelf, the mere display cannot
constitute an offer.

Rather, when the customer presents the item to the cashier, he makes an offer which is
then accepted when the cashier charges him money.

Ticket Cases
Ticket cases are examples of the need to ascertain when and where the contact has
been formed, for purposes of jurisdiction or whether written conditions are a part of the
contract.
[13]

The problem with usual transport tickets is that the written conditions are viewed by the
other party only after he has bought the ticket. This defies the usual offer and acceptance
rules: since the immediate assumption is that the contract is made when the ticket is
bought, doesnt this entail that the conditions are not a part of the contract?
The view held after MacRobertson Miller Airline Services v Commissioner of State Taxation
(WA) is that the ticket only represents an offer made to the passenger, which he accepts by
presenting himself for travel. No contract is formed by the purchase of the ticket alone.
Termination of an offer
There are four types of ways in which an offer could be terminated:
Withdrawal
General rule

An offer can be withdrawn or revoked by the Offeror at any time before it is accepted by the
Offeree. Even if the Offeror promises to hold the offer open for a certain amount of time, he can
withdraw or revoke it at any time as long as it hasnt been accepted.
[14]

Withdrawal of the offer is effective only once it has been communicated to the Offeree. The usual
conditions of the postal rule (see below) do not apply here.
If the Offeree wants to ensure the offer is not withdrawn for a period of time, he will have to
supply consideration (ie, give something of value). This practice is called an option.
Options
If consideration has been given in return for a promise to hold an offer open, that promise will be
binding (essentially, a unilateral contract is formed).
[15]

Parties are split into Grantor (Promisor) and Option Holder (Promisee)

The offer made by the Grantor cannot be revoked for the amount of time specified, and the
Option Holder is entitled to accept it or not.
Lapse
An offer can be terminated through a lapse of time. If a certain time period for which the offer will
be open is expressly specified by the Offeror, the offer will be terminated after that time has lapsed.
[16]

If no time is specified, the offer can also lapse after a reasonable amount of time has passed.

What constitutes reasonable time is subjective to circumstances and subject matter of the
offer.
Usually, verbal offers would lapse more quickly than formal or written offers.

Death of a party
The death of one of the party often causes the termination of the offer.
Rejection and counter-offer
If an offer is rejected, it is terminated and cannot be accepted again. A counter-offer also
terminates the previous offer.
[22]

Because of this counter-offer rule, a distinction needs to be made between a counter-offer to

an inquiry with regards to possible alternation of the terms. An inquiry is when the buyer has not
manifested an intention to reject the offer, merely to see whether there is room for negotiation.
Therefore, the offer is still open.
Unilateral contracts and revocation
A difficulty arises sometimes when an offer to enter into a unilateral contract is withdrawn, especially
when the Offeree has begun to perform the performance but has not finished (so it does not
constitute acceptance).

For example, A promises to pay B $100 to not eat for a whole day.

B doesnt eat for 18 hours, at which point A withdraws his offer

This seems unfair, as B already supplied partial consideration. The general rule is that an offer
cannot be revoked if the act made in exchange for it has been partly performed.

There is an implied condition in the agreement that the offer will not be withdrawn once the
Offeree begins to perform.
However, this general rule was not followed in Mobil Oil Australia Ltd v Wellcome International Pty
Ltd, in which it was established that an An offer made in return for performance of an act is, like any
other offer, revocable at any time.[23]

Such an offer can only be secured against revocation when there is an implied contract not to
revoke, or an estoppel.

ACCEPTANCE
- Acceptance is an unequivocal statement (oral, written or by conduct) by the offeree agreeing to the
offer
- The offer must be one of the reasons for the offeree acting in the way s/he did - even if not the
dominant reason (Crown v Clarke 1927)
- an offeror may not impose a contractual obligation upon an offeree by stating, that if the latter does
not expressly reject the offer as made, it will be taken to have accepted it (Empirnall Holdings Pty
Ltd v Machon Paull Partners Pty Ltd 1988, Felthouse v Bindley 1862)
- Acceptance must be communicated - an agreement is concluded when and where communication
of acceptance is received

- Instantaneous modes of communication acceptance is deemed to be received when it is given to

the offeror (even if they do not read it). Where post (or possibly other non-instantaneous methods of
acceptance) is used a special rule applies (the postal rule!): provided post is contemplated by the
parties (expressly or by implication) acceptance occurs when and where the letter is posted.
(Brinkibon v Stahag Stahl und Stahlwarenhandelsgessellschaft mbH 1983)
- where it appears that the parties have reached agreement, although offer and acceptance cannot
be clearly discerned, the courts will look at the circumstances of the particular case to determine if
true agreement was reached and, if so, on what terms (Butler Machine Tool Co Ltd v Ex-Cell-O
Corp (England) Ltd 1979)
- Unilateral Agreements

- Acceptance in the case of unilateral agreements generally takes the form of performing an act
- There is no general rule that offers for unilateral contracts could not be revoked after the
offeree had commenced performance (Mobil Oil Australia v Wellcome International 1998)

CONSIDERATION
- The price that is asked by the promisor in exchange for their promise the price for a promise
- It need not be monetary or even of monetary value; while it requires some 'detriment' on behalf of
the promisee - giving up freedom or right
- The act requested by the promisor will only be consideration if it was regarded as the price to be
paid for the promise - test is the attitude of the reasonable person ( Australian Woollen Mills Pty Ltd
v The Commonwealth 1954, Beaton v McDivitt 1987)

- The consideration must come into existence either with or after the promise - Where the stipulated
consideration pre-dates the promise, it will not be considered good consideration (Roscorla v
Thomas 1842)
- Part payment of a debt is not good consideration for the creditor s promise to forgo the balance. In
paying part of the debt the promisee is doing no more than performing an existing contractual duty
owed to the promisor (Foakes v Beer 1884)

INTENTION
- The parties to an agreement must intend to create legal relations
- Usually, the presence of consideration will provide evidence of this
- the High Court in Australia has indicated that presumptions should not be used when determining
intent - in each case intention must be proved without the aid of such presumptions (Ermogenous v
Greek Orthodox Community of SA Inc 2002)

CERTAINTY AND CONDITIONS

An offer will only be effective if it spells out the terms of the contracts with sufficient certainty.
This doesnt mean that every detail needs to be identified so clearly that there is only one possible
interpretation. The contract simply needs to be sufficiently certain certain to a degree.
When interpreting contracts, the courts attempt to give effect to the clauses rather than interpret them
in such a way that will declare them void.
Difficulties with certainty resolutions:

Resolution requires consideration of circumstances and nature of the agreement, and deals
with abstract principals.

Judicial opinion as to the extent of certainty required differ.

Judges are reluctant to write contracts (or fill in gaps). However, they are more inclined to do so today
than in the past.
Things to consider:

Intention of the parties

Subject matter

Relation of the parties

Social and economic contexts

3 aspects to certainty:
1.

The contract must be sufficiently completethe parties must at least reach agreement on all
terms that they intended to fix by agreement, rather than have someone else set for them, and
also on all matters the court cannot simply resolve by implication. [2]

2.

The agreed terms must be sufficiently certain and clear that the parties can understand their
rights and obligations and the courts can enforce them. [3]

3.

Promises must not be illusory a promise is illusory if it is an unfettered discretion as to

performance of a promise.[4]

This means that if a party has a choice whether or not to perform a promise.
Questions of incompleteness, uncertainty and illusory depend on whether they are
integral to the contract.

If the problematic part can be severed, remaining part will remain binding

If the problematic part confers a benefit to one party, that party can waive it and enforce
the rest.

No contract is made unless all the essential terms have been agreed upon [6]. Factors that must be
taken into account are:
1. How important is the term?
2. Why has the term been left out?
3. Is the agreement still wholly executory, or has it been partly performed already?

Essential Terms
An essential term, for the purpose of this area of contract law, is a term without which the contract
cannot be enforced[8] and without which the parties would not have not intended to enter the contract.
[7]

This doesnt consider importance

Depends on the nature of the contract, circumstances of the case

For example, commencement date and rental price are essential to lease agreements

In transfer of land agreements, subject matter and price are essential, and most other
details can be filled in by the courts.

In transfer of goods, price isnt essential because reasonable price may be imposed by
Sales of Goods Acts.[9]

In Trollope & Colls Ltd v Atomic Power Constructions Ltd[10], Megaw J said the parties must
agree upon terms which are essential in order to make the contract commercially
workable[11].

Australia and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd.

The more complex the case is, the less likely the courts will fill in implied gaps. [12]
Agreements to Agree
Usually, it makes no difference whether the agreement is silent on an essential term, or provides
that the essential term will be agreed upon in the future. In both cases the agreement is
incomplete.
[13]

The second type is an Agreement to Agree, which is important in a case where a court might
otherwise have implied a term. The court will only imply a term (namely, the obligation to pay a
reasonable price) in cases of a contract is silent in relation to an agreed term. This rule will not
apply to an agreement to agree.

May and Butcher Ltd v The King[14], the court established that when parties have agreed to
defer price negotiations, this indicates that they want to set the price themselves, and the
court imposing a reasonable price would be inconsistent with their intentions.

Executed Contracts
The courts are less inclined to deem a contract incomplete if it has been wholly or partly performed.

[15]

This is because once performance begins, a ruling that the contract was not binding will
have more serious consequences.

The further the parties have gone on with the contractthe courts will do their best not to
destroy the bargain.[16]

Foley v Classique Coaches Ltd[17].

Illusory Promises
A promise will be illusory if the Promisor has an unfettered discretion in relation to
performance[30].
[29]

The Promisor has a free choice how much (if it all) to perform.

Placer Development Ltd v Commonwealth - Commonwealth had complete discretion as to

how much subsidy it pays Placer

Therefore, the Commonwealth has no obligation (can just determine it to be 0) and the
promise is illusory.

A promise which contains an exemption clause which effectively deprives the promise of any
force[31] is also illusory.

MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) - clause

which allows Plaintiff to cancel flights without incurring liability entails that the airline
practically has no obligation.

Therefore, the promise to carry the passenger is illusory.

Effect of illusory promises on a contract

Illusory promises do not constitute good consideration.

If only illusory promises were made in return for another promise, the contract will
collapse for want of consideration

Contracts containing illusory promises are considered incomplete.

If an essential term has been left to be determined at the discretion of one party, the
whole contract will be considered as illusory.

Exemptions
Contracts will not be considered illusory if:

Important matters are to be determined by a third party

Godecke v Kirwan accepted that a contract can leave even essential terms to be
determined by a third party.

Matters to be determined by one of the parties are subsidiary.

The discretion relates to the fulfilment of a condition on which performance of the contract
depends[34]

The discretion is to be exercised according to objective criteria. [35]

Severance

Meehan v Jones fulfils the last two criteria.

A contract is illusory when one of the parties is given discretion as to whether to

perform the contract, but not where one of the parties has a discretion in relation to
the fulfilment of a condition on which the contract depends. [36].

If the court can infer an intention that the agreement should be valid in the absence of the an uncertain,
incomplete, or illusory provision, than that provision can be severed and the remaining agreement will
still be enforceable.

Fitzgerald v Masters - problematic clause was merely an appendage. Parties clearly

intended for the agreement to remain intact if the problematic cause should fail.

Whitlock v Brew - an example of how the problematic clause could not be severed the
parties had no intention of agreeing upon a sale which would entitle the purchaser to a
vacant possession without having to grant any lease to the Shell Co

PRIVITY
The doctrine of privity of contract states that only a person who is a party to a contract can enforce
the contract (gain a benefit) or incur obligations (burdens) under it. Thus, a plaintiff must be a
Promisee and a party to the contract.
Privity is in place to prevent third parties from enforcing contractual promises that benefit them. Applied
in:

Coulls v Bagots Executor and Trustee Co Ltd - The court ruled against the ability of a third
party to enforce a contract.

Also ruled that simply signing a contract doesnt make you a party.

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd - The court allows exception in
insurance cases third parties can enforce contracts.

Privity also prevents contracts from imposing legal burdens upon third parties.

For example, a manufacturer and wholesaler have an agreement. Manufacturer cannot

then impose contractual obligations on retailers who buy the goods from the wholesaler,
because the retailer isnt a part of the contract.

Circumventing the privity rule

Agency
An agent is a person who has power to enter into a contract on behalf of another person [6]
If the non-involved party can prove that one of the parties to the contract acted as its agent, it will be
considered a party to the contract as well. To prove an agency relationship:

The non-involved party (the principal) needs to prove that it expressly or impliedly
consented to the party to the contract (the agent) acting on its behalf.

The agent needs to prove that, with respect to this particular scenario, it was acting on
behalf of the Principal as well (namely, that the agent relationship applied to this particular
case).

Alternatively, the contract can be subsequently ratified:

Ratification: adoption or confirmation of a contract by a person who was not

originally bound by it[7]

Ratification is usually relied upon to circumvent privity rules with regards to Himalaya
clauses in contracts of carriage.

There are two ways for a party to transfer its contractual rights and obligations to a third party:
Assignment
A party assigns its rights a under a contract to another party. The original party to the contract now
cannot enforce those rights. (Pacific Brands Sport & Leisure v Underworks Pty Ltd (2006)

Whether the contract can be assigned is a matter of construction.

Novation
A party assigns both its rights and obligations to another party. This is effectively the termination of
the original agreement and formation of that exact agreement with the new party. (Ashton v Australian
Cruising Yacht Co Pty Ltd [2005])

Requires an agreement between the original and substituted parties; unless

The contract authorises a party to substitute another without agreement.

Trust
A contractual right is a form of property, which can be held on trust for a beneficiary.

[12]

The court may discern an intention on the part of the Promisee to hold on trust for the beneficiary the
contractual right to enforce a promise. This creates an obligation on behalf of the Promisee to enforce
the contractual right.

In practice, the beneficiary can then sue the Promisor if the Promisee joins as codefendant.

Court discerning intention to create a trust

There is no general rule whether the intention must be explicit or inferable. This was discussed
in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd:

Trust should be inferred if it clearly appears that the Promisee intended the third party to
insist on the performance of the promise; and

If trust appears to be the appropriate legal mechanism to this intention.

This uncertainty has invited criticism as to whether trust is an adequate tool to circumvent the privity
rule.
Contracts of Carriage and Himalaya clauses
Contracts of carriage usually include clauses which exempt or limit liability in the case of loss or
damage to the goods. In addition, they include Himalaya Clauses, which extend that exemption to
other non-involved parties, namely subcontractors and stevedores.
[8]

In order for a Himalaya clause to apply to stevedores, they must pass this four-stage test (laid down
in Scruttons Ltd v Midland Silicones Ltd[9]:
1.

Bill of lading states that stevedore is meant to be protected.

2.

Bill of lading states that the carrier was acting as an agent for the stevedore.

3.

Carrier had authority to enter contract as agent of the stevedore/ stevedore ratified.

4.

Stevedore provided consideration.

This test was discussed in Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd
(The New York Star)

FORMALITIES
CONTRACTS FOR SALE OF LAND
Contracts for the sale of other disposition of an interest in land are required to be evidenced in writing
and signed by the person against whom the action is brought. CONVEYANCING ACT 1919 - SECT
54A. Failure to comply with s 126 (or equivalents) renders a contract unenforceable; it does not render
a contract void.
DOCTRINE OF PART PERFORMANCE
This doctrine provides that where the plaintiff has partly carried out the contract, relying on the
defendants promise, equity may enforce the contract despite non-compliance with formalities. In
Australia, where part performance is established the court may order specific performance of the
contract - this equitable remedy is discretionary, so courts will only order it where it appears to them to
be equitable to do so. The main difficulty, however, is determining what constitutes a sufficient act - or
acts - of part performance

TERMS
EXPRESS TERMS
EXPRESS TERMS refer to the statements (whether oral or written down) that were discussed/
communicated between the parties.
THREE ISSUES TO UNDERSTAND IN THIS TOPIC
(1) Whether pre-contractual statements should form part of the main agreement?
(2) If yes, how should the statement be classified?
Puffery (Result: No remedy)
Mere Representation (Result: No remedy)
Warranty (Result: Damages possible)
Collateral Contract (Result: Damages/ Termination)
Term under the Contract (Result: Damages/ Termination)
(3) If the contract is written, does the Parol Evidence Rule apply?
Typically four methods for incorporating terms:
(1) Signature: General Rules
1. General Rule in LEstrange v Graucob Ltd (p 355)
Where a party has signed the contract, that party will be bound by the written terms
Knowledge of the terms need not be established
2. Exceptions to this rule:
Where the party signing the contract was misled (Curtis v Chemical Cleaning and
Dyeing Co - p 357)
Party signed a non-contractual document: LEstrange v Graucob Ltd
Non est factum[mistakenly signed]: Petelin v Cullen (P 687)
(2) Notice: General Rules
1. Where there is no signature, the maker of the statement must have given the other party
SUFFICIENT NOTICE of the term in order for the term to be incorporated into the contract
(Objective test)
2. What is sufficient, depends on the case (Interfoto v Stiletto)
Oceanic Sun Line Special Shipping Co Inc v Fay (P 361)
Baltic Shipping Co v Dillon (The Mikhail Lermontov) (P 365)
NSW Lotteries Co Pty Ltd v Kuamanovski (P 365)
Causer v Browne (p 236)
Thornton v Shoe Lane Parking Ltd (P 238) (TICKET CASE)
Interfoto Picture Library v Stiletto Visual Programs (p 369)
(3) Course of Dealings: General Rules
1. Contract was preceded by a series of transactions between the parties
2. Objective assessment of:
The extent of the dealings between the parties
Steps taken to draw attention to the term
3. Subjective assessment:
Aggrieved partys actual/ constructive knowledge of the term
Rinaldi & Pitroni P/L v Precision Mouldings P/L (P373)
Parol Evidence Rule:

DEFINITION: The Parol Evidence Rule limits the use of extrinsic (external) evidence that a party may
be rely upon to ADD/ VARY the terms of a written contract (Goss v Lord Nugent)
APPLICATION: Where a contract is oral, the court may consider all the relevant evidence. Where the
parties have reduced their agreement to writing, the court is limited by what it can consider due to Parol
Evidence Rule
ISSUE FOR THE COURT: Whether parties intended (assessed OBJECTIVELY) that the document
contained the whole of their agreement (Codelfa Construction v SRA)
Exceptions to the general rule

Evidence as to the validity of the contract

Extrinsic evidence can be given to show there was no binding contract. For example, to
demonstrate the agreement was tainted by fraud or that one of the parties had been operating
under mistake affecting the contract's validity

Evidence as to the true nature of the contract

In cases of mistake that would give rise to rectification (for example, a typo in the price or
address on a contract), evidence may be given as to the true term. Extrinsic evidence may also
be introduced, for example, to show that one party was acting as an agent for an undisclosed
principal.

Evidence of other terms

It is very difficult to displace the presumption that a written document does not or was not
intended to contain all the terms agreed by the parties. However, evidence may be introduced
to demonstrate this was not the intention. For example, the nature of the written document itself
might suggest that it was only intending to address in detail one aspect of a broader
arrangement. Even where the presumption can be displaced, evidence as to oral terms must
not contradict the written part.

Evidence to explain the document

In cases of ambiguity evidence may be given to explain the intended meaning of a term.

NOTE: Entire Agreement Clauses implies that the PER applies

TASK FOR THE COURT: To consider the factual matrix (all the surrounding circumstances) and
determine the (OBJ) mutual intention of the parties (Codelfa v SRA)
EFFECT OF THE PER:
1. The rule prevents extrinsic evidence being given to add to/ vary/ contradict the terms of the
written contract;
The rule limits the evidence that can be given to explain the meaning of the terms of the written
contract
Implied Terms

Definition: Implied terms are terms which the parties failed to address when entering into the
Contract. OBJ assessment by the Court to determine whether those terms should be implied
into the Contract to make the Contract work.

Courts can imply terms into a Contract where:

The parties intended for those terms to be included

Terms were accidentally left out

Contract was badly drafted

Intention of the parties thus critical

Courts will NOT imply terms where:

The term was deliberately excluded

Implied terms will conflict with the express terms

When will terms be implied
Common law recognises three classes of implied term:
1. Terms implied in FACT: Term to be implied to address a missing fact in the case
Formal Contracts: Presumption NOT to imply terms
Informal Contracts: Presumption to imply terms to make the contract
workable
2. Terms implied by LAW: Term usually present in a Contract of the type
3. Terms implied by CUSTOM: Comparable industry standard

(1) Implication by FACT (p 439)

1. Formal Contracts (reduced to writing)
Terms can only be implied where 5 requirements are met:
TEST: BP Refinery Test applied in Codelfa Constructions P/L v State Rail Authority (HC: 1982)
1. Reasonable & Equitable: Implication must be reasonable and equitable between the
parties
2. BUSINESS EFFICACY: Must be necessary to make the contract commercially
workable
3. Obvious: Term must be so obvious, it goes without saying
4. Clear: Term must be capable of clear expression
5. Consistency: Implied term must not contradict the express terms in the Contract
2. Informal Contracts (partly oral/ written): (p 443)
BP Refinery (Codelfa) Test has been relaxed
2. NEW TEST: Byrne v Australian Airlines Ltd (p)
Intention: Court must have regard to the intention of the parties (OBJ)
BUSINESS EFFICACY (relaxed): Court can imply a term where that term is
necessary for the reasonable or effective operation of the contract
Custom: Court may have regard to established mercantile usage; or a past course of
dealings between the parties
Consistency: Court cannot imply a term that contradicts an express term of the
contract
(2) Implication by LAW (P 450)
Terms implied in law are terms implied in all contracts of a particular class or description. Terms implied
in law are NOT based on the intentions of the parties. Their use has been explained as resulting from
policy.
TEST: Test of Necessity (University of WA v Gray [2009: FC])
EXAMPLES of terms implied by LAW:

Employment Contracts: Employer implements OH&S measures

Sale of Goods (Food): Food is safe for human consumption

Residential tenancy: House is fit for habitation

See: Liverpool City Council v Irwin [1977] AC 239 (p 451)

(3) Custom or usage in the Market (P 454)

1. Terms can be implied based on established mercantile usage/ professional practice in the
market
2. TEST: Con-Stan Industries v Norwich Winterthur (p 456)
1. Existence of custom/ usage is a question of fact
2. Custom must be well established and widely accepted test: it goes without saying
3. Party may be bound by the custom despite having no knowledge thereof
4. Implied term cannot be contrary to express terms

TERMINATION
BREACH
Breach of certain terms will entitle an Aggrieved party to terminate a contract, whilst others will only
entitle it to recover damages whilst the contract stays intact. Terms are classified into 3 categories:

Conditions are the most important terms, those without which, the parties would not have
entered the contract. If a condition is breached or proved false, the Aggrieved party will be
entitled to terminate as well as recover damages.
Warranties are less important terms. When a warranty is breached or proved false, the
Aggrieved party not be able to terminate, but will be entitled to damages.

Terms are usually only classified as warranties if it is required by something like statute (i.e. Sale of
Goods Acts). The courts have said before that a term is only classified as a warranty if there is no
possible way that a breach of it would basically deprive the Aggrieved party from the main benefit of the
contract.[8]

Intermediate terms are somewhere between. A breach of an intermediate term will only entitle
the Aggrieved party to terminate if the gravity and consequences of the breach are serious.
A breach of a condition, regardless of gravity or consequence, will entitle the Aggrieved party
to terminate the contract.

The test, which is used to determine which terms are to be classified as conditions, was set
in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd

A term is considered a condition if it appears, as evident by the objective intentions of the

party, that the party considers it so important that it would not have entered the contract
without being assured of strict performance of it.

Other important general points on termination by breach:

A breach of a condition will entitle the Aggrieved party to terminate, no matter how slight.

A breach of a condition does not compel the Aggrieved party to terminate, it may choose to
proceed with performance of the contract.

However, if the Aggrieved party becomes aware of the breach and chooses to ignore it and
proceed, it will lose its entitlement to terminate upon that breach.

If a party terminates the contract without justification (i.e., there was no breach of a condition),
it will be treated as repudiating the contract. Thus, the other party will be entitled to terminate
and seek damages.

In Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, the English court recognised the
existence of intermediate terms. Australian courts have recognised it in later cases. An Aggrieved party
will be entitled to terminate a contract on the breach of an intermediate term if:

The breach is considered serious by the courts. Or

The breach deprives the Aggrieved party of basically the whole benefit which it was going
to gain from the contract.

In practice, the court usually classifies most terms as intermediate because it gives more flexibility,
and because many terms do not justify the right to termination upon small breaches whilst they do
upon serious breaches.

Contingent Condition
A contingent condition is a condition which is outside the responsibility of the parties. When parties
specify that an agreement is subject to the fulfillment of a contingent condition, the following rules are
to be kept in mind:

The existence of an implied or express duty to co-operate - the parties must still do
everything reasonable within their power to ensure the condition is fulfilled.

A failure of the duty to co-operate entails that the party could not rely on the
non-fulfillment of the contingent condition in order to terminate the contract.

Non fulfillment:

Non fulfillment occurs when:

Events occur which are opposite to the condition.

The time period for the event to occur lapses (this may be express,
implied, or determined by a standard of reasonableness)

The courts are currently undecided on the issue of subjective contingent conditions (ie
'subject to satisfactory finance). Some show support for standard of reasonableness
being imposed.

Restriction: a party may not rely on non-fulfilment if that party has

already repudiated the agreement.

The condition may be waived if:

Both parties agree to it.

The condition is completely to the benefit of one party and it decides to waive
it.

The consequences of non-fulfillment of a contingent condition are:

Performance is excused.

If the contingent condition relates to entire contract, the contract is voidable by either party.

AGREEMENT
1.

Under the original contract:

By an expiration of length clause.

By an express termination clause. This can be:

A right to terminate 'at will'.

A right to terminate after a specified period of time.

A right to terminate triggered by a certain event (a contingent condition).

By an implied termination clause. In such a case, a reasonable notice must be given.

Reasonableness varies according to the circumstances.

2.

Under a subsequent agreement:

3.

By a procedure of termination previously specified in the contract. Strict compliance is

no always required.

By an express termination in a subsequent agreement. The new agreement's

consideration is the forfeiting of each other's rights under the original contract. If one party
has no more rights left (they've have all been performed already), a deed or fresh
consideration can be used.
By an inference from a subsequent agreement:

If the subsequeent agreement is inconsistent to the original, the original is

terminated and replaced.

If it is unlikely that the parties intended to abandon their rights under the
original contract, or that the subsequent contract cannot stand alone as an independent
agreement, the original agreement is not terminated and is simply modified.

By abandonment:

If both parties don't consider the contract as operating/don't think it should be

performed further.

If an 'inordinate' length of time has passed with neither party trying to perform or called
the other to perform'.

Abandonment less likely to be ruled if contract is partly performed.

REPUDIATION

Repudiation of a contract occurs when a party's conduct indicates that it no longer intends or able to
abide by the contract.
Repudiation may be made manifest in several ways:

By words or conduct.

By a combination of small breaches, adding up to total repudiation.

By an insistence upon an erroneous interpretation of the contract.

Repudiation is measured objectively and discounts the subjective intention of the party. This means
that the fact that a party 'wishes' to perform but can't does not excuse it from being deemed as
repudiating the contract. Repudiation can be expressed in a number of ways.

Express statement - a party may expressly notify the other party that it is no longer willing
or able to perform his obligations. In the case of an express statement, the Aggrieved
party will be required to mitigate its loss.

Repudiation inferred from words or conduct - When there is no express statement, a

party's conduct or words may signify repudiation.

Repudiation due to an erroneous interpretation of the contract.

Repudiation inferred from words or conduct

It may be inferred, through the actions and words of a party, that it has repudiated the contract. For
example, if a party sells the subject matter of the contract to a third party, it can be inferred that it is
repudiating the contract. This is given illustration in Carr v JA Berriman Pty Ltd:

The Plaintiff's conduct of not moving his machinery and contracting a third party for the
steel fabrication has rightly given the Defendant the right to believe that the contract would
not be performed according to its true construction and that "he did not intend to bound by
the contract within the meaning of the authorities".

Thus, the actions and words of the Plaintiff implied that he is repudiating the contract. As a
result, the Defendant is entitled to terminate the contract and seek damages.

Repudiation may also be inferred from a combination of small breaches. This occurs when
one party repeatedly breaches the contract in small ways, which, when added up, show that
the party does not comply with the agreement. This was discussed in Progressive Mailling
House Pty Ltd v Tabali Pty Ltd, which decided other principles:

As long as a breach or repudiation has indeed occurred, the Aggrieved power will be
entitled to damages regardless of whether it chose to terminate the contract because of a
common law right (the right to terminate by breach) or because of a contractual power to
do so (the right to terminate by agreement).

This means that if repudiation or a breach has occurred, a party can still obtain
damages if it terminates the contract as per its power to do so under the
contract. It does not have to terminate using the breach/repudiation.

While minor breaches viewed in isolation may not be considered to amount to repudiation
of the contract, several consecutive minor breaches may amount to repudiation.

Erroneous interpretation of the contract

A party can be deemed as repudiating the contract if it insists on an erroneous interpretation of the
contract.

In other words, a party will be repudiating if it insists that it has certain rights which the
contract (by its true construction) doesn't entitle it to, or if it requires performance to be
done in a way which the contract does not call for.
The courts as can deem the insistence of the repudiating party on the erroneous
interpretation and indication that the party is unwilling to act in accordance with the
actual contract, and therefore it is repudiating. This was discussed in DTR Nominees
Pty Ltd v Mona Homes Pty Ltd:

"No doubt there are cases in which a party, by insisting on an incorrect interpretation of a
contract, evinces an intention that he will not perform the contract according to its terms."

However, it is possible that the erroneous party would be willing to perform the contract
according to the actual interpretation once he is notified that he has misinterpreted the
contract. In those cases, he will not repudiating.

In order to for a party to be repudiating when erroneously interpreting the contract, it need
to manifest an unwillingness to act in accordance with the contract even after its error is
pointed out to it.

An anticipatory breach is when a contract is already repudiated before it is to be performed (i.e. a party
makes it clear that it will not transfer the money on the date set). The Aggrieved party will be entitled to
terminate even before the actual breach, and damages will not be affected. Note that a party
which elects not to terminate upon an anticipatory breach will still be entitled to terminate again when
the breach actually occurs.

FRUSTRATION
A contract will be 'frustrated' when an event (unprovided for in the contract) renders the contract
practically incapable of being performed, not by fault of either of the parties. The test for frustration is:

If an event occurs, by fault of neither party and unprovided for in the contract, which
completely changes the state of things, making the performance of the contract impossible
or impracticable because the situation or performance are now radically or fundamentally
different to was what originally contemplated, a contract will be frustrated.

However, frustration will not be recognised when:

1. The event was provided for in the contract.
2. The event should have been reasonably foreseeable.
3. The event occurred by fault of the party seeking frustration.
If a contract is determined to be 'frustrated', it means that the contract immediately ended as
the frustrating event occurred:

This means that all rights and liabilities which have accrued unconditionally prior to the
time of the frustrating event remain in place, while the parties will be discharged from
future obligations. - case reference needed.

Impossibility of performance
Originally, frustration could only occur when the performance was rendered absolutely impossible.

For example, A and B enter into a contract for A to paint B's house.

A dies before performance.

It is now absolutely impossible for A to perform the contract. The contract is frustrated.

An absolute impossibility thus rises from the destruction of the subject matter of the contract.
This was discussed in Taylor v Caldwell.

Note: In early cases such as this, there was no reference to frustration. The approach by
the courts was to decide that the contract was subject to an implied term that the subject
matter would continue to exist.

There is a distinction between a positive, definite contract to one where there is an implied
or express condition underlying the contract.

"The principle seems to us to be that, in contracts in which the performance depends on

the continued existence of a given person or thing, a condition is implied that the
impossibility of performance arising from the perishing of the person or thing shall excuse
the performance."

For example, an employment contract has an implied condition that the person to be
employed will be alive...he does not 'breach' the contract if he dies.

Taylor v Caldwell is an example of the early approach of the court. The parties could only be
excused from performance if the subject matter was destroyed and performance was rendered
absolutely impossible.
Foundation of the contract ceases to exist

However, this strict view was relaxed in Krell v Henry, where the court discussed how contract may be
frustrated if the assumption or foundation under which the contract was entered into ceases to exist:

I think that you first have to ascertain, not necessarily from the terms of the contract, but, if
required, from necessary inferences, drawn from surrounding circumstances recgonised
by both contracting parties, what is the substance of the contract, and then ask the
question whether that substantial contract needs for its foundation the assumption of the
existence of a particular state of things."

"If the contract becomes impossible of performance by reason of the non-existence of the
state of things assumed by both contracting parties as the foundation of the contract, there
will be no breach of the contract thus limited."
Effectively, this means that absolute impossibility of performance is not a requirement any
more. If the unforeseen events brought about a new situation where the purpose to which
the contract was entered into ceased to exist, a contract will be frustrated. This can also
be seen as performance being rendered impractical.
This was also discussed in Brisbane City Council v Group Project Pty Ltd, in which
the commercial purpose behind the defendant's agreement ceased to exist:

A comparison needs to be made between the contemplated situation, as revealed by

construction, and the situation in fact resulting from the frustrating event.

In this case, "There has arisen, as a result of the compulsory acquisition of the land by the
Crown for a school site, such a fundamentally different situation from that
contemplated when the contract was entered into that it is properly to be regarded as
having come to an end at the date of acquisition by the Crown."

Thus, if a frustrating event completely changes the situation which was originally
contemplated by the parties, a contract may be frustrated.

DELAY
A contract can be terminated if performance was delayed beyond a certain time.

If the contract specifies that time is 'of the essence'. This can be determined when:

It is expressly stated in the contract.

It can be implied from the contract (this is implied in all contracts for sale of goods).

If time is not of the essence, a party can only terminate for delay if:

There is such long delay that it amounts to repudiation.

There is such long delay that it amounts to breach which would entitle termination.

The party makes use of the notice procedure. The notice must:

1.

Specify a time for completion.

2.

That time must be reasonable.

3.

Notify the other party that this time is of the essence and failure to adhere to it
would entail termination.

If such requirements are complied with, a party may terminate a contract on the basis of delay.
Whether time is of the essence is a question of construction, meaning that it can be both provided both
expressly or impliedly.

In the lack of an express statement providing that time is of the essence, courts will be
more reluctant to rule that it is.

However, the court may conclude that the parties have intended time to be of the essence
and that it is an implied term.

If a court rules that time is of the essence, the Aggrieved party will be entitled to terminate the
contract upon delay.
Delay when time is not of the essence
When time is not of the essence, the Aggrieved party will generally be entitled to damages, but
not to terminate. The Aggrieved party will be entitled to terminate for delay when:
[5]

The delay continues for so long or in a way which amounts to repudiation

The delay continues for so long or in a way which constitutes a serious breach of an
intermediate term.

It makes use of the notice procedure.

Notice procedure for delay

An Aggrieved party may gain the right to terminate through the procedure of providing
notice. When the delay becomes evident, the Aggrieved party is entitled to issue the delaying
party a notice that it must complete its performance within a certain time. If performance is still
not completed by that time, the Aggrieved party will be entitled to terminate. The notice must
satisfy the following requirements:
[6]

1. Must specify a time for completion (deadline).

2. The time specified must be reasonable.
3. The notice must clearly express that the new deadline is of the essence, or that the
Aggrieved party will consider itself as entitled to terminate upon further delay.
The concept of the notice was reaffirmed in Louinder v Leis:

"Where a contract of sale of land contains a stipulation as to time which is not of the
essence of the contract, and one party is in breach or guilty of unreasonable delay, the
party not in default may give a notice fixing a reasonable date for completion and making
that time the essence of the contract[7]"
Whilst the requirements of an effective notice were specified in Laurinda v Capalaba
Park Shopping Centre:

A notice will be adequate to convey such a warning if, but only if, it conveys either that the
time fixed for performance is made of the essence of the contract or that the party giving
the notice will, in the event of non-compliance, be entitled (or regard itself entitled) to
rescind. A notice, particularly one between solicitors, can convey those matters by
implication

CONSEQUENCES AND RESTRICTIONS

A party can only terminate if it was 'ready and willing' to continue to perform the contract. In other
words, an Aggrieved party will not be entitled to terminate if the Aggrieved party itself was not able (or
did not wish) to perform. What must be done to satisfy this requirement, and at one point of time, was
discussed in Foran v Wight:

"Under the old rules a plaintiff was required to plead that he was ready and willing but
under the present rules that fact is implied with the effect that he is not required to prove it
unless the defendant puts it in issue. In that event, the burden of proving readiness and
willingness rests upon the plaintiff."[2]

To show that it was ready and willing, a party simply has to show that it is not 'substantially
incapable' of performing at the time of repudiation (broad application).

In the case of an anticipatory breach, the Aggrieved party is often induced to believe that
there is no point of continuing to perform since the other party will not perform. In such a
case, the Aggrieved party will not be required to prove readiness and willingness.

The right to terminate may be restricted by estoppel. That means that if a party has induced the
assumption that it would not terminate the contract (and the other party relied on that assumption to its
own detriment), it would be estopped from exercising that right. This was discussed in Legione v
Hateley:

In this case, there was no estoppel restricting the right to terminate because the statement
of the defendant's secretary did not constitute clear and unequivocal representation.

VITIATING FACTORS
MISTAKE
There are three types of mistakes:

Parties in agreement

Common mistakes. This is where both parties erroneously assume the same thing.

Parties not in agreement

Mutual mistakes - this is where both parties assume different things.

Unilateral mistakes - this is where both parties assume different things, but one party
is 'right' (according to an objective interpretation).

Note that a mistake is mistake of fact. False assumptions as to future happenings are the subject
of frustration and not mistake.

Parties in agreement - common mistakes

In the case of a common mistake, the parties are both in (erroneous) agreement as to a certain fact.
This fact can be:

The existence of the subject matter of the contract.

The quality of the subject matter of the contract.

The recording of their intentions.

Existence of subject matter

A common mistake as to the existence of subject matter was discussed in McRae v
Commonwealth Disposals Commission:

Uses the constructional approach.

In a case where both parties had equal knowledge as to the existence of the subject
matter, and it turned out to be false, then it would justify the implication of a condition
precedent. In that case, the contract would be void for the failure of the condition
precedent, and parties would be restored to their original position.

However, in a case where only one party has the knowledge, and the other simply relies
on what the first party tells it, than there could be no condition precedent. The first party
promises or guarantees the existence of the subject matter and will be in breach if it does
not exist.

Quality of subject matter

On the other hand, Bell v Lever Brothers is concerned with the quality of subject matter. It
demonstrates the differences between the two theoretical approaches.

When there is a mistake as to the quality of the subject matter, it only negates consent in
circumstance which mean that it is fundamentally or essentially different from what was
contracted for.[8]

From a constructionalist point of view, there is no reason to imply a condition precedent.

Condition precedents are only implied if they are necessary because the new state of facts
makes the contract different in kind from what it was going to be.

For implying a condition precedent, the question is "Does the state of the new facts
destroy the identity of the subject matter as it was in the original state of facts?" [9]
The next case, Solle v Butcher, demonstrates the difference between the common law
and equity.

There is no such thing as 'mistake' in common law. A contract is void only if there was a
breach of a condition precedent.

However, even if a contract is not void in common law, it may be voidable in equity.

Equity may declare a contract as voidable for mistakes if it is unfair that the other party
retains its advantage.

A contract will also be voidable from fundamental common mistake where the party isn't
actually at fault.
In Australia, Solle v Butcher was affirmed in Svanosi v McNamara[10]:

Facts: land sold with a hotel on it. Later found out that hotel was only partially on the land.

Reaffirmed Solle v Butcher, also said "it is difficult to conceive any circumstance in
which equity could properly give relief by setting aside the contract unless there
has been fraud".[11]

Later in Taylor v Johnson, the court gave 'fraud' a wide equitable definition to include
unconscionable dealing.[12]
However, in Great Peace Shipping v Tsavliris Salvage (International) it was
decided that the decision in Solle v Butcher is no longer good authority:

However, if a contract is not void in common law, it cannot be voidable in equity because
of a common mistake (direct opposition to Solle v Butcher).

"there is no jurisdiction to grant rescission of a contract on the ground of common

mistake where that contract is valid and enforceable on ordinary principles of contract
law."[13]

The test remains whether the mistake was so great that the contract is essentially a
different thing from what it was believed to be. If yes, it is void.
Whilst this case is from England, these two statements were confirmed in Australia
Estates Pty Ltd v Cairns City Council.[14]

Recording the agreement

The courts have an equitable power to rectify a written contract where the parties failed
to accurately record their common intention. This was discussed in Maralinga v Major
Enterprises:
[15]

The courts will only rectify a contract where "the writing by common mistake fails to
express that agreement accurately...there has been a firm insistence on the requirement

that the mistake as to the writing must be common to the parties and not merely
unilateral."[16]
The issue was also discussed in Pukallus v Cameron:

Rectification can occur where:

1. There is "an intention common to both parties at the time of contract to include in their
bargain a term which by mutual mistake is omitted therefrom." [17]
2. The plaintiff advances "'convincing proof' that the written contract does not embody the
final intention of the parties. The omitted ingredient must be capable of such proof in
clear and precise terms"

Parties not in agreement

There are also cases where the parties are individually mistaken about aspects of the contracts so that
it could not be said that they are in agreement. A party may mistaken with regards to:

Terms of the contract.

Identity of the other party.

The nature of a document it is signing.

The recording of the agreement.

Mistake as to terms
Sometimes, a party is under a mistaken belief as to a fundamental term of the contract, such as price
or condition of the subject matter. This was discussed in Smith v Hughes, which never yielded a proper
result (a new trial was ordered). It was also discussed in Taylor v Johnson:

A party who entered a contract upon a unilateral mistake will only be entitled to rescission
in equity (declaration that the contract is voidable) if the other party had acted in an
unconscionable way.

For example, if the other party was aware of the mistake, and sought to profit out of it.

Quotation: "a party who has entered into a written contract under a serious mistake about
its contents in relation to a fundamental term will be entitled in equity to an order
rescinding the contract if the other party is aware that circumstances exist which indicate
that the first party is entering the contract under some serious mistake or misapprehension
about either the content or subject matter of that term and deliberately sets out to
ensure that the first party does not become aware of the existence of his mistake or
misapprehension."[20]

Mistake as to identity
A party may be mistaken as to the identity of the other party. In the simple sense, the law follows the
law of unilateral mistake mentioned above:
[21]

A party can will only be entitled to rescission if the unilateral mistake was due to the
unconscionable conduct of the other party.
However, problems arise if third-parties become involved.

Parties not face to face

These situations occur when parties communicate over the telephone, internet, e-mail etc and one
party thinks the other is someone else. This was discussed in Cundy v Lindsay[23]:
[22]

Facts: Lindsay was selling goods to a person named Blenkarn who was impersonating a
well known firm named Blenkiron. Blenkarn then sold the goods to a third-party Cundy.

Held: the title did not pass to Cundy. Lindsay had never met Blenkarn; they knew nothing
of him. They were not ad idem. The property remained the property of Lindsay.
Another example is Kings Norton Metal Co Ltd v Edridge Merrett & Co[24]:

Facts: plaintiff sold goods to a person (Wallis) who was impersonating a made up
company (Hallam & Co). He then sold them to the defendant (a third-party) and never paid
the plaintiff back.

Held: The plaintiffs intended to contract with the writer of the letters. The contract was
made, and title passed to the writer: Wallis. He then transferred it to the Defendant. The
contract is valid.
The two cases seem to have similar facts but produce contrasting results. It is
suggested that if "Hallam & Co" existed as a real company, the title would not
pass, as in Cundy v Lindsay. the importance of the distinction is also
demonstrated in Shogun Finance Ltd v Hudson[25]:

Facts: A Rogue was buying a car off Shogun using someone else's driving license (Mr.
Patel). He then sold the car to Hudson and disappeared. Shogun sought to recover the
value of the car from Hudson.

Held: Shogun intended to contract with the real Mr. Patel. Mr. Patel did not consent to the
contract. No contract can arise between Shogun and Mr. Patel.

Similarly, there was no consensus ad idem between the rogue and Shogun, since Shogun
never meant to contract with him. No contract can arise between them.

Thus, there was no contract. Hudson did not obtain title to the car.

Parties face to face

There are different rules when the parties are face to face. This was discussed in Lewis v Averay:

The difference with face to face mistakes is that even if you're wrong to the actual identity,
you are still contracting with this person standing in front of you, so you can't say you were
contracting with someone else and therefore there was no consensus.

"When a dealing is had between a seller like Mr. Lewis and a person who is actually
there present before him, then the presumption in law is that there is a contract, even
though there is a fraudulent impersonation by the buyer representing himself as a different

man than he is. There is a contract and with the very person there, who is present in
person, liable no doubt to be avoided for fraud, but still a good contract under which title
can pass unless and until it is avoided."[26]

In addition, a contract is only voidable and not void. However, once a third party acquires
rights, there is a bar to rescission.

"the fact that one party is mistaken as to the identity of the other does not mean that
there is no contract, or that the contract is a nullity and void from the beginning. It only
means that the contract is voidable, that is, liable to be set aside at the instance of the
mistaken person, so long as he does so before third parties have in good faith acquired
rights under it."[27]

Mistakenly signed documents

The court may set aside a contract which was signed under the belief that it was a fundamentally
different document to what is actually is. Since this is in contrast to the usual rule of the legal effect of a
signature, it has a narrow application. The requirements are: [29]
[28]

1. The document must have been read without carelessness; and

2. The document was thought to be a fundamentally different document to what it is.
The people who usually manage to rely on this mistake are blind or illiterate people. [30] A lower standard
is required when no third-parties are affected. This was discussed in Petelin v Cullen:

"The insistence that such precautions should be taken as a condition of making out the
defence is of fundamental importance when the defence is asserted against an innocent
person, whether a third party to the transaction or not, who relies on the document and
the signature which it bears and who is unaware of the circumstances in which it came to
be executed."[31]

"It is otherwise when the defence is asserted against the other party to the transaction who
is aware of the circumstances in which it came to be executed and who knows (because
the document was signed on his representation) or has reason to suspect that it was
executed under some misapprehension as to its character. In such a case the law must
give effect to the policy which requires that a person should not be held to a bargain to
which he has not brought a consenting mind for there is no conflicting or countervailing
consideration to be accommodated - no innocent person has placed reliance on the
signature without reason to doubt its validity." [32]

Mistake in Recording Agreement

[33]

Rectification of a contract after a unilateral mistake is only available if: [34]

1. A signs a document under misapprehension, and
2. B knows of the misapprehension and its cause (a mistake on As part), and
3. B lets A remain under misapprehension where B should let A know.

In such a case, B will be precluded from relying on As execution to resist As claim for rectification to
give effect to As intention.

MISREPRESENTATION
DEFINITION:
Misrepresentation is defined as a false, statement of fact, made by the representor, that induces the
other party (representee) to enter into the Contract and which may; or may not become a term of the
contract.
TYPES:
1. Innocent Misrepresentation
2. Fraudulent Misrepresentation
3. Negligent Misrepresentation
Type 1: Innocent Misrepresentation (p 711)
Honest, yet mistaken belief in the truth of the statement
At Common Law: No cause of action/ remedy
Example: Oscar Chess v Williams (1948 model Morris)
In Equity: Representor (guilty party) cannot get Specific Performance (Contract thus
unenforceable)
Remedy:
EQUITY: Innocent party can rescind the Contract if parties can be restored to precontractual position
Statutory rights of compensation in the event of rescission
Type 2: Fraudulent Misrepresentation (p 708-709)
Def (Fraud): Fraud on the part of a representor means knowledge of the falsity or absence of belief
in the truth of the representation
Def (Deceit): False representation of fact made by a representor, without belief in its truth, with the
intention that the representee should act in reliance on the representation. (TORT OF DECEIPT
separate cause of action)
Famous quote: In order to sustain an action of deceit, there must be proof of fraud, and nothing
short of that will suffice. Secondly, fraud is proved when it is shewn that a false representation has
been made (1) knowingly; or (2) without belief in its truth, or (3) recklessly, careless whether it be true
or false. (Derry v Peek , Lord Herschell p 709)
Test is an OBJ assessment of SUB belief: The sense in which the representor intended the
representation to be understood is relevant to the question whether the representation was
fraudulent (see example p 709, car dealer)
Remedy:

Innocent party may rescind the contract + damages under the Tort of Deceit
Type 3: Negligent Misrepresentation (p 709)
DEF: Involves the failure on the part of the representor, to take reasonable care that information
provided by him is accurate and advice given is sound
Elements: Tort (Negligence) Revision only
1.
Plaintiff must prove that the Def owed him a duty of care (to ensure the statement was true/
reliable)
2.
Plaintiff must prove that duty of care was breached (failure to take care)
3.
Plaintiff must prove that he sustained damage
Elements Applied to Negligent Misrepresentation
1.
Representor is seen as having particular expertise

2.
3.

Representor makes representations to representee

Representor realises/ should have realised that their advice is being trusted/ relied upon based
on their expertise
4.
Advice incorrect due to negligence: L Shaddock & Associates P/L v Parramatta Council (p 710)
Remedy:

Innocent party can rescind the Contract + damages (Tort of Negligence)

MISLEADING AND DECEPTIVE CONDUCT

Primary Legislation:
Competition and Consumer Act 2010 (Cth) Sch 2 is referred to as the: Australian
Consumer Law (ACL)
Came into force on 01/01/2011

ACL s 18 Misleading or Deceptive Conduct

(1) A person must not, in trade or commerce, engage in conduct that is misleading or
deceptive or is likely to mislead or deceive.
(2) Nothing in Part 3- 1 (which is about unfair practices) limits by implication subsection (1).

ELEMENTS
We refer to case law to work out what type of conduct may be misleading/ deceptive under the statute
1.A person makes a misleading/ deceptive representation to another party
Parkdale Custom Built Furniture v Puxu P/L (p 730)
Silence can amount to a representation where there is an obligation to
disclose necessary facts: Henjo Investments P/L v Collins Marrickville P/L (p
732);
SILENCE TEST: Reasonable expectation to disclose: Demagogue v
Ramensky (p732)
Puffery: Courts accept a certain degree of exaggeration (p 731)
2.Which induces / OR is capable of inducing error
It is not sufficient for the conduct to cause mere confusion or wonderment
Byers v Dorotea P/L (p 731): Bigger and better than other flats
Gillette Australia P/L v Energizer Australia P/L: Longest lasting battery, comparing lithium to alkaline
3. The intention of the inducer is NOT relevant (Strict liability): Parkdale v Puxu (See p 731 at the top)
4. OBJ test: Whether the conduct of the inducer was misleading or deceptive
5. Other party has suffered damage as a result of relying on the representation
Marks v GIO Australia Holdings Ltd (p 750)

DURESS/UNDUE INFLUENCE
DURESS
The nature of threats which give rise to duress are considered in Universe Tankships of Monrovia v Intl
Transport Workers Federation:

In determining what is legitimate, consider two matters:

1. The nature of the pressure; and if required,

2. The nature of the demand which the pressure is applied to support.

Threat of unlawful action is illegitimate.

Duress can still exist for lawful action this depends on the nature of the demand.

In a another case, Crescendo management Pty Ltd v Westpac Banking Corp [6], the court said the
categories are not limited, and they also include unconscionable dealing.
Overall, the preferred approach to duress is to inquire:
1. Whether any applied pressure induced the victim to enter into the contract; then
2. Whether the pressure went beyond what the law is prepared to class as legitimate.
Pressure is illegitimate if it:

1.

1.

Consists of unlawful threats, or

2.

Amounts to unconscionable conduct.

These are not closed categories. Overwhelming pressure not constituting

unlawful threats or unconscionable conduct can still amount to duress.

UNDUE INFLUENCE
Undue influence usually occurs where a party places reliance or confidence in another and therefore
has an impaired judgment as to its best interests. That party then uses its influence over the other to
enter a contract. Undue influence may be established through:
1. The general relationship between the parties

If a relationship of influence is indeed proven, the onus of proof lies with the stronger
party to show that the weaker party's decision was not unduly influenced but was, on the
contrary, voluntary and well-informed.
2. The facts of the case.

If no relationship is proved, the onus of proof lies with the weaker party to show that it's
decision was under undue influence.

Relationships of influence
Since actual undue influence is hard to prove (the second requirement from above), a party usually
attempts to prove that there was a general relationship of influence. There are a number of
relationships which are deemed to be relationships of influence and therefore the
courtautomatically adopts a presumption that there was undue influence (transferring the onus of
proof to the stronger party):
[5]

Parent and child

Guardian and ward

Religious adviser and disciple

Solicitor and client

Doctor and patient

However, not all relations of trust are automatically relationships which presume undue influence.
The following examples will not automatically generate an undue influence presumption:

Account and client

Husband and wife (and vice versa)

Fiduciary relationships
Obviously, these are just general categories, and a party may nevertheless prove that a
relationship of undue influence exists even if it is not one which generates an automatic
presumption by the courts. But if no relationship can be proved or presumed, the party will have
the burden of proving actual undue influence.
Relationships of influence were discussed in Johnson v Buttress, which describes most of the law
of undue influence:
A relationship of undue influence can be established where the one party relied on the other
because of poor mental capacity or such.

UNCONSCIONABILITY

-Conduct which is against good conscience/ manifestly unfair. Occurs where one party, the stronger
party, takes unconscionable advantage of a party burdened with a particular disability (the weaker
party), to gain a contractual advantage: CBA v Amadio
ELEMENTS (Taken from CBA v Amadio):
(1) Weaker party suffers from a disability (special disadvantage):
CBA v Amadio (p 804)
Blomley v Ryan (p 800)
(2) Stronger party knows (or ought to know) about that disability
Louth v Diprose (p 813)
(3) Stronger party takes unfair and unconscionable advantage of that disability to secure an unfair
bargain and a benefit
Bridgewater v Leahy (p 820)
REMEDY- A party who has entered a contract due to unconscionable conduct will be entitled
to rescind the contract.
(1) AUSTRALIAN CONSUMER LAW (ACL)
Section 20: Prohibits unconscionable conduct within the unwritten law (Referring to
the Common Law/ Equity)
Section 22: Prohibits unconscionable conduct in Business transactions
These provision are closely related to ACL s 18 (Misleading and Deceptive Conduct)
Act expands the equitable doctrine of Unconscionability
Act aims to protect small businesses from larger businesses
(2) CONTRACTS REVIEW ACT (CRA)

Legislation in NSW allows NSW Courts to declare contracts or contractual provisions

'unjust'

ILLEGALITY
Background:
Where a contract as made, or as performed, is found to be illegal, it may become
unenforceable by the Court (VOID)
Quote:
Where a contract which a plaintiff seeks to enforce is expressly or by implication forbidden by
the statute or common law, no court will lend its assistance to give it effect. Either the consideration
for the promise or the act to be done was illegal, as being against the express provisions of the law, or
contrary to justice, morality and sound policy (Lord Tenterden CJ in Wetherell v Jones, p 860)
Types of Illegality:
1.
Contracts prohibited by Statute (Modern Approach)
2.
Contracts prohibited at Common Law (Traditional Approach)
3.
Restraint of Trade provisions

OTHERS
ESTOPPEL

DEFINITION: Estoppel is defined as an Equitable tool that prevents the promisor (person who
made a promise), from asserting their strict legal right in circumstances where the promisee
has reasonably relied on that promise to their own detriment. The basis of Estoppel lies in the
prevention of unconscionability arising.
QUOTE: The object of Equity is not to compel the party bound to fulfill the assumption or
expectation; it is to avoid the detriment which, if the assumption or expectation goes unfulfilled,
will be suffered by the party who has been induced to act or to abstain from acting thereon.
(Waltons v Maher: HC: 1988 per Brennan J @ 423)
Elements:
1. Representation: Unequivocal promise/ assertion by the representor (Legione v
Hateley, Slide 6)
2. Assumption: Relying party adopts an assumption based on the representation
3. Inducement: Which induces the innocent party to act; OR
4. Acquiescence: Representor fails to prevent the innocent party from acting on the
representation
5. Reliance: Party has changed their position in reliance on that promise or
representation (acted/ failed to act) (Beaton v McDivitt, p 133)
6. Reasonableness: Was it reasonable for the innocent party to rely on the
representation?
7. Detriment: Detriment will be suffered by the innocent party (Mobil Oil v Wellcome; p
76)
8. Unconscionability: If the representor is permitted to deny the making of the
representation (Waltons v Maher; p 274)
9. Knowledge: Representor knows/ ought to know that the innocent party will suffer
detriment

REMEDIES:

Damages (Common law)

Plaintiff to be put in the same position as if the contract had been performed

Specific performance (Equity)

Can be ordered OR refused
Party ordered to carry out obligations under the Contract
Injunction (Equity)
Party ordered to do/ not to do something
Rescission (Equity)
Contract is found not to exist as a result of misrepresentation, undue influence,
unconscionable conduct etc
Aim is to put parties in the same position as if the Contract never existed
Restitution (Equity)
Prevention of unjust enrichment
Rectification (Equity)
Prevention of unjust enrichment
Statutory Remedies
ACL ss 237; 243