THIRD ELEMENT OF CONTRACT – CONSIDERATION

Definition of Consideration

Currie v Misa (1875) LR 10 Ex 153; (1875-76) LR 1 App Cas 554,

is an English contract law case, which in the Exchequer Chamber contains a famous
statement by Lush J giving the definition of consideration in English law. Lush J said, “A
valuable consideration, in the sense of the law, may consist either in some right,
interest, profit, or benefit accruing to the one party, or some forbearance,
detriment, loss, or responsibility, given, suffered, or undertaken by the other.”

Rules for Consideration

Rule 1: Consideration must be present in every simple contract

 Formal contracts / contracts under seal (deeds) do not require consideration.

 Informal or simple contracts must have consideration.

Apart from deeds under seal, which required certain strict formalities, the law provided that those
promises supported by consideration would be legally enforceable.

Rule 2: Consideration may be “executed”, “executor” but not “past”

 Executory - only an exchange of promises. The act or forbearance is yet to

occur. If consideration is executory, the contract is made as soon as the
promises are exchanged.

 Executed - when one or both parties have performed their obligations if, for
example, I offer a reward of $20 to anyone who finds and returns my lost dog,
and one of you finds and returns that dog, then your act is both acceptance of my
offer and executed consideration. You have performed your part of the bargain,
and it only remains for me to perform my part.

 Past - promise made after the act and independently of it. Past consideration is
no consideration. For example, Roscorla v Thomas [L-5-410][GF-p.231]

Roscorla v Thomas (1842) 3 QB 234; 114 ER 496,

Thomas sold a horse to Roscorla. After the sale was completed Thomas promised that
the horse was free from vice. It was in fact vicious.
Was there consideration to support the promise that the horse was not vicious?

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 It was held that the prior sale was no consideration for the promise by Thomas, which
was therefore unenforceable.

The modern equivalent of Thomas is a used car salesman making representations about
the quality of a used car AFTER you have bought and paid for it.

Pau Onn v Lau Yiu Long (exception) [1979] 3 WLR 435

Facts: Pao On agreed to sell shares to Fu Chip (controlled by Long) in consideration for
certain shares. To protect the share value, Pao On and Fu Chip agreed that Pao On
would retain 60% of the acquired shares until April 1974. However, in April 1973, Pao On
refused to proceed with the contract unless Long agreed to indemnify him against the
value of the retained shares falling below a set level. Long agreed, but only to ensure
public confidence in the company. The sale proceeded and Pao On sought to enforce the
indemnity.

Held (Privy Council): There was consideration here – an act done prior to a promise
can be good consideration in some cases; in particular, it will be good
consideration if the act done was done at the promisor’s request, the parties
understood that the act would be remunerated in some way and, if the promise
had been given in advance of the act it would be legally enforceable. In this case all
three elements were present. In particular, the defendant had requested that Pao On
retain 60% of shares and the parties understood at that time that that act would be
compensated by the provision of a guarantee.

Principle
An act done prior to a promise will be good consideration if:
 the act was done at the promisor’s request
 the parties understood that that act would be remunerated; and
 had the promise occurred in advance of the act it would have been enforceable

The Court also observed that a promise perform ‘a pre-existing contractual obligation to a
third party can be valid consideration’ in the absence of duress.

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Rule 3: Consideration must move from the promisee but it need not necessarily move to
the promisor

 Must move from the promisee - promisee must show that he has paid a price for
the promise i.e. he has 'bought' it. Dunlop Pneumatic Tyre Co Ltd v Selfridge

 Consideration need not necessarily move to the promisor ie promisor may

stipulate who is to receive the benefit.

Dunlop Pneumatic Tyre Co. Ltd v. Selfridge & Co. Ltd [1915] AC 847

Dunlop, a tyre manufacturer, sold its tyres to dealers who undertook to allow a 10%
discount from the plaintiff’s list when re-selling the tyres to retailers.

The dealer agreed that when he sold any tyres to a retailer he would obtain from them a
written undertaking that they would observe the tyre manufacturer’s prices. Dunlop is the
beneficiary of this contract.

Dew & Co, a dealer, entered into a contract with Dunlop. It sold tyres to Selfridge & Co,
a retailer, who undertook to abide by Dunlop’s requirements.

However, the retailer later sold tyres below Dunlop’s recommended price and Dunlop
then brought an action against them for breach of the undertaking.

Issue: Could Dunlop enforce an agreement to which it was not a party?

Held: Only the parties to the contract could sue on the contract. Dunlop had not
provided any consideration for Selfridge’s promise and was not a party to the contract
(See privity of contract) between Dew and Selfridge.

Privity of Contract

 A contract creates obligations only between those persons who agree to be bound
to each other.
 These persons are called the parties to the contract.
 Everyone else is a stranger to the contract and is referred to as a third party.
 The doctrine of Privity of Contract means that a contract is a private matter between
the parties to the agreement.
 This means that only the parties to the contract acquire rights and duties under a contract
and the resultant obligations can only be enforced by the parties.

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  Anyone who is not a party to the contract does not acquire legally enforceable
rights, even if performance of the contract would benefit a third party.
 Agency Law - When one person makes a contract as an agent for another, the principal,
they are only acting as a representative of that principal and the agent does not become
a party to that contract.

Privity of Contract – Exceptions

 There are some important exceptions to this rule, but they are largely embodied in
statutes for particular types of contract.

 Apart from the sections mentioned on the overhead, there are also sections in the Trade
Practices Act and Fair Trading Acts which give consumers rights to sue manufacturers
even though they are not parties to a contract.

Rule 4 – Consideration need be adequate

 Consideration must have some value but adequacy of value is a non-issue.

 It is for the parties to determine the adequacy of the consideration.
 It does not matter if the parties make a bad bargain, you could sell something at a
giveaway price.
 BUT it must have some legal value.

Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87

Facts: As a promotional gimmick, Nestle offered to sell records of a song for 1/6 plus 3
nestle chocolate bar wrappers. Chappell & Co owned the copyright on the particular
song and nestle had not obtained their permission to use it. Chappell & Co sued and it
was clear that they would succeed unless Nestle could prove that they had complied with
s8 of the Copyright Act 1956 (UK). That Act provided that anyone could make copies of
records provided they paid the copyright holder royalties of 6.25% of the “ordinary retail
selling price’. Nestle offered Chappell & Co 6.25% of the 1/6 but they, Chappell & Co,
refused it, arguing that the proffered amount did not satisfy the s8. The “ordinary retail
price” was, they said, not 1/6 but 1/6 plus 3 chocolate wrappers. Nestle argued that the
wrappers were not part of the consideration, they were valueless, and nestle, in fact,
threw them away.

Held: The wrappers did form part of the consideration. They had value to the
company because requiring them to be sent in promoted nestle products. The
value was not in the wrapper itself but in the increased sales and public relations
that were generated. As s8 contemplated that the “ordinary retail selling price” would be
a money sum and that it would constitute the whole consideration, the transaction was
not covered by the section and Nestle could not use the records.

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Rule 5 – Consideration must be sufficient in the eyes of the law

 Adequacy and sufficiency are not the same thing.

 As we have found, as long as consideration exists and has some value, the law is not
concerned about its adequacy.
 But, it must be sufficient, that is, it must have some legal value or it may be considered
insufficient or no consideration at all

A number of situations can be identified which can amount to insufficiency.

 Moral obligation to perform a promise - not sufficient.

Eastwood v Kenyon (1840) 11 AD&EI 438

Facts: Sarah Sutcliffe, a minor, was left as sole heiress when her father died. The
plaintiff, eastwood, was the girl’s guardian, and spent money on her education and for
the benefit of her estate. After the girl became an adult she promised to repay the
plaintiff. She then married the defendant, Kenyon, who also promised the plaintiff that
out of gratitude for his actions over the years, that he would pay for the money spent on
his now wife and the estate. When the husband failed to pay the plaintiff sued on the
husband’s promise.
Issue: Was there sufficient consideration to support the husband’s promise to repay the
money?

Held: This was no more than a moral obligation and not something that amounted to
sufficient consideration.

The only possible consideration, the payments made for her education and upkeep of the
estate, were things he had done before Kenyon made those promises. The payments
were voluntary or gratuitous, and gave rise to a moral obligation only, which is not
enforceable at law.

 Performance of a public duty owed by law.

Glasbrook Bros Ltd v Glamorgan County Council [1925] AC 270

A question had arisen about how best to protect the Glasbrook Bros coal mine during a
strike. The police thought that a mobile patrol was sufficient, while the colliery manager
wanted a stationary guard. It was finally agreed that the police would provide a guard for
a payment of £2,200. The company later refused to pay, and when sued, pleaded
absence of consideration. They argued that the police were merely doing what they
were bound to do anyway.

Issue: Were the police doing more or no more than they were legally required to do?

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 Held: The police won. While recognising that they were bound to provide protection, the
House of Lords felt that the form such protection should take was at the discretion of the
police. Providing more than the police felt was necessary was good consideration for the
manager’s promise to pay.

 Duty already imposed by contract.

Stilk v Myrick (1809) 2 camp 317

Facts: The plaintiff, Stilk, a seaman, sued to recover additional wages promised by his
ship’s captain while the the ship was in a foreign port. Two sailors had deserted and the
captain had promised the remaining crew that if they worked the ship back to London
they could divide up the deserter’s wages between them. When the ship got back to
London, the ship owners refused to pay.

Issue: Was the ship Captain’s promise enforceable?

Held: Stick’s claim failed. In working the ship back, even undermanned as it was, the
crew had done no more than they were already contractually bound to do. They were
under an Existing Duty to do so. The desertion of the 2 seamen did not extend the
remaining seamen’s existing contractual duty, so there was no new consideration.

In contrast case of Hartley v Ponsonby (1857) 7 EI & BI; 119 ER 1471 (Performance over &
above existing duties)

Facts: Hartley was a seaman on the ship Mobile. He had agreed to serve “on a vogage
from Liverpool to Port Phillip, from thence (if required) to any ports and places in the
Pacific Ocean, Indian or China Seas”. The proper ship’s complement was 36. When the
ship reach Port Phillip, 17 of the crew refused to work and were sent to prison. Among
the remaining 19, there were only four or five able seamen. The master decided to sail
for Mbmbay and, to induce the remaining crew to sail, he promised to pay some of them
£40 in addition to their wages. He later reneged on that promised and Hartley sued.

Held: He succeeded. The additional performance went beyond what he had originally
contracted for and was good consideration for the master’s promise.

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PROMISSORY ESTOPPEL

PROMISSORY ESTOPPEL IS THEREFORE A RULE THAT STOPS A PERSON FROM

BREAKING A PROMISE IN CERTAIN CIRCUMSTANCES

According to the rule of promissory estoppel a promise may be enforced even if there is no
consideration provided:

 the promise was made with the intention to create legal relations;
 that it should be acted on; and
 is in fact so acted on

CENTRAL LONDON PROPERTY TRUST LTD v HIGH TREES HOUSE LTD

Landlord promised to receive from the tenant half of the ground rent because of the
difficulty of finding tenants during wartime period.

After the war, the flats became occupied and the landlord sued for outstanding arrears
during the wartime.

The court evolving the principle of promissory estoppel held that the landlord was not
entitled to the arrears rent of the wartime period.

High Trees shows how Promissory Estoppel can be used as a defence instead as a
weapon.

The High Trees principle may be stated in summary as follows;

1 ORIGINAL CONTRACT MUST HAVE CONSIDERATION

WHERE THERE IS A SUBSEQUENT PROMISE TO VARY CONRACT BUT NO

CONSIDERATION GIVEN FOR IT, THEN

2 If it is INTENDED TO CREATE LEGAL RELATIONS;

And it is INTENDED TO BE ACTED ON;
And it is IN FACT ACTED ON

3 THEN promissory Estoppel will apply, but the PROMISE MAY ONLY BE
USED AS A SHIELD AND NOT AS A SWORD

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Brinkom Investments Ltd V. Carr (1979)CA

Promissory estoppel may arise from promise made by parties negotiating contracts.

Durham Fancy Goods V. Michael Jackson (1969) 2 QB 839

Donaldson J. held that contractual relationship is irrelevant provided that there is “a

pre-existing legal relationship which could, in certain circumstances, give rise to
liabilities and penalties”.

Ajayi V. Briscoe (1964) 1 WLR 1326

Promissory estoppel often arise where promisee in reliance on that promise suffered
detriment as in Ajayi V. Briscoe (1964) 1 WLR 1326; or where he alters his position as a
result of relying on that promise when though he suffers no detriment. In Alan Co. Ltd V
El Nasr & Import Co. (1972) 2 QB 18, Lord Denning held that detriment is not an
essential element of promissory estoppel.

AJAYI v BRISCOE [1964] 1 WLR 1326

This was decision of the Privy Council:

Promisee has altered his position based on the original promise.

This case provides that just because a promise was made with the intention to create
legal relations;
 was intended to be acted on and
 was in fact acted on
 does not of itself make the promise binding.

*The promisor can still revoke that promise provided that a reasonable notice of
revocation is given and the promisee is able to re-adopt his/her original position without
suffering any loss or detriment.

Promisor can revocate from the promise giving reasonable notice and opportunity
to resume his/her original position.

*However the promise becomes final and irrevocable if promisee cannot resume
that position without suffering any loss or detriment. (Exception to point 2)

WALTONS STORE (Interstate) LTD v MAHER (1988) 164 CLR 387

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o FACTS: The plaintiffs, Mr and Mrs Maher, had been negotiating with the defendant,
Waltons Store (Interstate) Ltd, for the lease of their property to the defendant. It was
envisaged that the existing building on the plaintiff’s property would be demolished
and a new building built to the defendant's specifications. The events that unfolded
were as follows:
 21 October 1983 - defendant’s solicitors sent a draft agreement to the
plaintiffs' solicitors. Proposed amendments were discussed and the
Defendant’s solicitors were also informed that demolition work on the old
building had begun.
 It was expected that the new building would be completed by 5
February 1984.
 7 November - the plaintiff's solicitors told the defendant's solicitors that
agreement must be reached within the next few days if building is to be
completed in time.
 The defendant's solicitors stated in reply that they had no specific
instructions but believed that the defendant would agree to the
amendments and they would inform the plaintiffs' solicitors the next
day if there were any difficulties.
 11 November - the plaintiffs' solicitors forwarded to the defendant's solicitors
the documents, executed by the plaintiffs, "by way of exchange".
 The plaintiffs commenced the demolition of the new part of the
building and the defendants became aware of this fact on 10
December.
 21st November, the defendant lost interest in the project and instructed its
solicitors to "go slow".
 In early January the plaintiffs commenced construction of the new
building. This was 40 per cent complete by 19 January, when the
Defendant's solicitor informed the plaintiffs' solicitor that they did not
intend to proceed with the proposed contract.
 18 January 1984: Defendant decided not to proceed with the project.
 As known to defendant - building was 40% complete

o ISSUE: Whether equitable estoppel operated to bind D, even though no contract had
been made between the parties and, technically, D was not bound by what had
transpired between the parties?

o HELD: The rule of promissory estoppel could be extended to apply to pre-

contractual promises. The defendant should not have remained silent and it
should have either exchanged contracts and bound itself, or informed the
plaintiff that it remained undecided about proceeding with the proposed
contract.
The facts showed that the plaintiff assumed that amendments were acceptable
to the defendant and that exchange of contracts was only a mere formality.
Rule of promissory estoppel applied here and the defendant was bound by it.

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 o *****Brennan J. laid out the six conditions that must be satisfied before this rule is
applied to pre-contractual promises:

1. Plaintiff assumed or expected that a particular legal relationship will exist

between the parties.
2. The defendant induced the plaintiff to adopt that assumption or expectation.
3. The plaintiff acts or abstains from acting in reliance on the assumption or
expectation.
4. The defendant knew or intended the plaintiff to act on that assumption or
expectation.
5. The plaintiff will suffer a detriment as a result of relying on the assumption or
expectation.
6. The defendant has failed to prevent the plaintiff from suffering that detriment.

 How does the Waltons’ case differ from the high trees’ case?
1. It (Promissory Estoppel) may be applied to pre-contractual relationships. (Key
difference between UK PE and Australia PE).

2. It may be used to establish a cause of action against the defendant i.e. Used as a
sword - therefore not necessarily confined to it being used as a shield or defence.

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FOURTH ELEMENT: LEGAL CAPACITY

INFANTS OR MINORS
In all jurisdictions in Australia an infant or minor is any person who is under the age of eighteen
years.
For Western Australia, see Age of Majority Act 1972 (WA).

Contracts entered into by minors can be divided into a number of categories.

• Void – that is “of no legal effect”
• Voidable – That is, an agreement that maybe affirmed or rejected at the option of
one of the parties
• Valid – an enforceable contract

 Void Contracts

In some Australian jurisdictions some contracts are declared to be void. For example in
Victoria and Tasmania three types of contracts involving minors have been declared void.
 Loans made to minors during their infancy.
 Goods sold to the minor on credit.
 Account stated by a minor admitting a debt.

In WA contracts with minors are made void under the provisions of Lord Tenterden’s Act
1828 (Imp) and the provisions of the Statute of Frauds, this means that debts are not
enforceable unless ratified in writing and signed by the minor.

Note, this is primarily in relation to contracts that are NOT for necessaries and trading
contracts with some form of credit

 Voidable Contracts

These are contracts that can be repudiated by a minor during his/her minority or within a
reasonable time after attaining the age of majority.
There seems to be no logical explanation for the existence of such a rule.
Types of contract that have been considered to fall within this class include:
 Leases of land.
 Marriage settlements.
 Partnership contracts.
 Shares in a company.

It is generally believed that while a minor is at liberty to repudiate a contract and be absolved
of all future liabilities, s/he is still required to settle all liabilities that have arisen before the
contract is repudiated.
Steinberg v Scala (Leeds) Ltd [1923] 2 Ch 452

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 A minor applied for shares in a company and paid the amount due on application. The
shares were duly allotted to her, and she paid the further amounts due on allotment and
on the first call. Eighteen months after allotment, while still under age, she repudiated
the contract and asked for repayment of the money paid by her to the company.

It was held that she was entitled to repudiate the contract to take the shares, but could
not recover the money paid because she could have obtained a benefit, the shares being
at one time of considerable value.

Innocent party may rescind, BUT bars to rescission exist.

The option to terminate is with the minor e.g. Tenancy agreement.

 Valid Contracts

Valid contracts are those that are enforceable by and against a minor.
In such circumstances, minors are required to pay a reasonable price (and not necessarily the
contract price) for the goods and services found to be necessaries.

There are two types of such contracts:

 Contracts for the supply of necessaries

If a minor makes a contract for “necessaries”, the contract will be regarded as enforceable
against a minor. See section 2 of the Sale of Goods Act 1985 (WA).

Food, drink and essential clothing are some examples of necessaries.

Generally the courts will consider a range of factors:

 If the goods could be regarded as necessaries according to the minor’s station in life.

 If the quality or quantity of the goods is excessive to the needs of the minor.

 Whether the supplier has discharged the onus to show that the goods are
necessaries and have been sold and delivered to the minor.

 Whether the terms are harsh and onerous to the minor.

It is for this reason that it is not possible to categorize which goods and services would be
regarded as necessaries and which will fall outside such a qualification.
It is a question of fact based on each individual case.

Broadly, some goods that have been regarded as necessaries include:

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  Furniture for an infant about to be married
 Purchase of a bicycle to enable an infant to go to work
 A horse for exercise that was purchased pursuant to medical advice
 Household goods for a minor’s wife and children

Nash v Inman 1908

A case, where whether or not a number of fancy waistcoats which an undergraduate
student purchased were capable of being necessaries.

Ultimately it did not matter because the minor was already adequately supplied with
clothes, therefore the contract for the clothes was not a contract for necessaries and
therefore not enforceable.

 Contracts made for the benefit of the minor

Where a contract is made for the benefit of the minor as a whole it will be regarded as a valid
contract. The entire contract will be assessed and even if some minor provisions are
considered prejudicial, the contract will not be invalidated. The question to be considered is
whether, having regard to all the surrounding circumstances, the contract is substantially for
the minor’s benefit.

McLaughlin v Darcy (1918)

Les Darcy (1895-1917) was a professional boxer, who, as his career developed wanted
to go to the USA for further training which was unavailable in Australia. The plaintiff, at
Darcy’s request, went to the passport office in Melbourne to arrange for a passport. In
the meantime, however, Darcy absconded to the USA, in circumstances still hotly
debated, without a passport. It was understood by Darcy that he would have to pay for
the Plaintiff’s application whether successful or not.

Darcy pleaded “infancy” as a defence to legal action by the plaintiff for his remuneration.

The plaintiff was successful, the jury finding that the services rendered were not only
necessaries but also for the benefit of the minor.

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FIFTH ELEMENT OF CONTRACT – GENUINE CONSENT

The fifth essential element of a valid contract is that there must be genuine consent given by the
parties to the contract.
Lack of real consent may be caused by any of the following: (Vitiating factors to a contract – to
vitiate is to nullify/void)

 mistake
 misrepresentation
 duress
 undue influence
 inequality of bargaining power

Mistake (ctt -> void)

In some cases a mistake of fact made at the time the contract was made may make the
contract void ab initio (ie void from the beginning). The rights and liabilities of a third party
may be affected. The law will only come to the assistance of the aggrieved party if a
mistake was made as to the:

 Existence or identity of the subject matter.

 Identity of one of the parties.
 Real nature of the contract.
 Mistake is known to the other party.

Mistakes usually classified into three types:

 Common mistake

Both parties have made the same mistake. It usually deals with the existence or non-
existence of the subject matter or to the title of the property itself.

McRae v Commonwealth Disposals Commission (1951) 84 CLR 377

Facts: The Disposals Commission advertised for tenders for the purchase of a
wrecked tanker in a specified position on a reef and the plaintiff was the
successful tenderer. After fitting out a salvage expedition it was discovered that
there had never been a wreck on the reef specified.

Issue: Could the Commission rely on the defence of Mistake to have the contract
declared void ab initio?

Decision: The defence failed. Even though both parties were ultimately mistaken
as to the existence of the wreck, as the Commission’s own staff were responsible
for inducing the belief that a wreck existed by their reckless conduct they could
not rely on mistake to avoid the contract.

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 Mutual mistake

This occurs when both parties make a mistake but about different matters and
are at cross-purposes with each other.
The contract is void because the offer and acceptance do not coincide.
There is no consensus ad idem.

Raffles v Wichelhaus (1864) 159 ER 375

Wichelhaus agreed to buy from Raffles cotton to arrive in England ex Peerless

from Bombay. There were two ships by the name of Peerless sailing from
Bombay, each arriving in England at different times.

It was proved that Wichelhaus had meant the one and Raffles the other and so it
was held that there was no contract.

In this case the description of the goods sold pointed equally well to two different
cargoes and there being nothing to indicate one rather than the other, it was
impossible for a reasonable person to infer a contract in respect of either cargo.

 Unilateral mistake

Here only one party is mistaken as to a fact, which caused it to be induced to enter into
the contract, and the other party is aware of that mistake.

Unilateral mistakes can be divided into two categories.

1. Mistake as to the terms of the contract

Taylor v Johnson (1983) 151 CLR 422

• Johnson granted to Taylor an option to purchase two adjoining blocks of land.

The option was exercised and the parties entered into a written contract of sale
for the land.
• In both the option and the sale agreements the purchase price stipulated was
$15,000. Johnson later refused to complete the purchase on the ground that she
had mistakenly believed that the option and sale agreements provided for a price
of $15,000 per acre which would have amounted to a total purchase price of
$150,000, the two blocks comprising ten acres.
• The High Court considered that the evidence led to the inference that Taylor
believed that Johnson was acting under a serious mistake or misapprehension

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 about either the terms (the price) or the subject matter (the value) of the
transaction and deliberately set out to ensure that she was not disabused of the
mistake or misapprehension.
• It was held that the contract of sale should be set aside.

2. Mistake as to the identity of the party to the contract

Lewis v Avery [1972] 1 QB 198

Mistake as to the identity of the party to the contract

Lewis advertised his car for sale. A person posing as a well known TV star of the
time, Richard Greene, agreed to buy the car and paid by cheque. As proof of his
identity, the buyer produced a pass to a large TV/Movie studio in England. Lewis let
him take the car, only to have the cheque dishonoured.
The fraudster sold the car almost immediately to Avery who bought the car in good
faith.

Who did Lewis intend to deal with?

The contract between Lewis and the fraudster was not void, only voidable. Lewis
had intended to contract with the person before him even though that person was
pretending to be someone else.

The title in the car had passed to Avery before Lewis could rescind the contract with
the fraudster.

There is a growing trend for the courts to protect innocent third parties. In order to
succeed, the person alleging the mistake must prove that:

 There was an intention to deal with some other party.

 The other party was aware of that mistake
 The identity was of fundamental importance in the making of the contract
 Reasonable steps had been taken to verify the identity of the other party

In the postal dealings, this presumption is generally mad (Cindy v Lindsay)

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Misrepresentation (cct -> voidable)

A representation (statement or silence), which induces another person to enter the contract, may
be actionable if in fact later discovered to be not true.
In order to prove misrepresentation the aggrieved party must establish that:

 The untrue statement is one of fact and not of law.

 The statement was made by the other party to the contract.
 The statement actually induced him/her to enter into the contract.

 Rescission

Generally, the remedy available is the equitable right to rescind the contract. The aim of
rescission is to wipe out the purported contract completely as though it never existed and to
restore the parties to the position they occupied before the purported contract was made.

The right to rescind may be lost in the following circumstances:

 If the innocent party, having full knowledge of all the facts, elects to either expressly or
impliedly affirm and continue with the contract.
 Where it is no longer possible to restore the parties to their original position (restitutio in
integrum) because the subject matter of the contract has either been substantially altered
or no longer exists.
 Where an innocent third party has acquired some interest in the subject matter and it
would be inequitable for that party to suffer a loss if the contract is rescinded.

 Misrepresentation is usually classified as:

 Innocent misrepresentation

 believed to be true by the maker and may not be actionable under the common law
(perhaps under statute).

 It is distinguished from fraudulent misrepresentation by the lack of intentional deceit

and the right to recover damanages.

 Negligent misrepresentation
 actionable in torts because of a special relationship. Here there is no remedy
available under contract law but the innocent party can recover damages under the
law of tort.
 There is a right to recover damages under Tort of Negligent Misstatement (only if
there is a duty of care owed by the representator). Recoverable damages would
only be for losses that are foreseeable.

17
 Case of Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465

 Fraudulent misrepresentation - a false representation made:

 Knowingly; or,
 Without believing in its truth; or
 Recklessly - not caring whether it be true or false.

There is a right to recover damages under the Tort of Deceit (definition: knowledge that
the statement was untrue or reckless as to whether it is true or false). Subjective test of
intention is used. Recoverable damages would be for ALL losses that are caused by the
misrepresentation even it are unforeseeable.

Undue Influence (ctt -> voidable)

An equitable doctrine which is applied in the case of improper use of a position of power or
influence possessed byone person over another in order to induce that other to act for their
benefit (Union Bank of Australia Ltd v Whitelaw [1906] VLR 711)

Undue influence occurs where there is an absence of a free and deliberate decision.

The law recognises that in certain type of contracts there may be a dominant party that may
bring pressure to bear on the weaker party causing it to be unduly or unfairly influenced.

The equitable remedy that is available to the aggrieved party is to have the contract avoided
or rescinded.

Some special relationships raise a presumption of Undue Influence in any contract between
these parties;
 Parent and child
 Solicitor and client
 Religious advisor and devotee
 Doctor and patient

The defendant (stronger party) must bring evidence to show there was no actual undue
influence in the particular circumstances.

The contract is voidable at the option of the weaker party

Where no such special relationship exists, the weaker party must prove actual undue
influence has been exerted in the circumstances.

18
 If undue influence can be established, the contract is voidable at the option of the weaker
party.

If the weaker party is going to exercise the option of repudiation of the contract, they must
do so within a reasonable time.

Allcard v Skinner (1887) 36 CH D 154

The plaintiff joined a religious order as a novice and took vows of chastity, obedience and
poverty. As a result of her vows, the plaintiff had to give away all her property. She left it
to the sisterhood. The plaintiff ultimately left the sisterhood and some five years later
asked for her money back.

ISSUE: What is a reasonable time in which to act?

DECISION: While there was a presumption of undue influence, this had not been
rebutted. The fact that she had waited 5 years to exercise her rights amounted to an
affirmation of the contract.

Duress (ctt -> voidable)

 At common law, where a person is coerced or forced into a contract by the other party,
the contract is voidable (i.e. the contract may be rescinded) at the option of the
aggrieved party.

 In order to succeed the aggrieved party must show that there was illegitimate pressure
applied that caused the party to be induced into making that contract.

 Section 60 of the TPA now provides that “...a corporation shall not use physical force or
undue harassment or coercion in connection with the supply or possible of goods or
services to a consumer or the payment of goods or services by a customer”.

 Damages may also be claimed under section 82 of the TPA.

 Duress to the person consists of actual or threatened violence to one contracting party,
or their immediate family, by or on behalf of the other contracting party (Kaufman v
Gerson [1904] 1 KB 591)
 Duress to goods arises if the coerced party can show that there was extreme pressure
being used by the coercing party, thus leaving no real alternative for the coerced party
but to submit.

 Economic duress will operate if the coerced party can show, that pressure was one of the
reasons which induced the contract and that the pressure was such that it was beyond
what would be accepted as reasonable commercial practice.

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Unconscionable contracts

Equity has always recognised that in some cases a party to the contract may suffer a
special disadvantage.

This could result from such reasons as illness, inexperience, financial pressures, ignorance
and impaired faculties.

Where unfair advantage is taken of one party of the other the courts have allowed the
equitable remedy of rescission to set aside the contracts made between the parties.

Commercial Bank of Australia v. Amadio [1983].

Facts: Mrs and Mr Amadio were an elderly couple with limited grasp of English language
went guarantor for their son. They were unaware of their son’s company’s precarious
financial predicament. They mistakenly believed that the guarantee was limited in time and
amount.

Held: Amadios were in a position of disability to the bank. Their lack of knowledge and
understanding of the contents of the mortgage and the circumstances in which the
document was signed, particularly the lack of any assistance and advice where it was plain
necessary, was sufficient to make it unconscionable of the bank to rely on the guarantee.
The bank manager knew that it was vital to the bank to secure the guarantee in light of his
knowledge of the son’s financial position. The transaction was improvident from the view
point of the Amadios.

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Legality

Ex turpi causa non oritur actio

“The principle of public policy is this…No court will lend its aid to a man who founds his
cause of action upon an immoral or illegal act...If the cause of action appears to arise ex
turpi causa, or in the transgression of a positive law of this country, there the court says
he has no right to be assisted.”

Lord Mansfield in Holman v Johnson (1775) 98 ER 1120

Legality of object
1 Illegality
2 Where there is conflict
3 Contracts void by statute
4 Contracts illegal by statute
5 Contracts illegal at common law
6 Contracts void at common law
7 Clauses in contracts in restraint of trade
 Clauses in contracts of employment
 Sale of businesses

1. Illegality

The law will obviously not enforce all contracts. This section will consider those
contracts which are void through illegality and the effect on the rights of the
parties to such contracts.

A contract may be illegal;

 at common law
 by statute

Although the effect of illegality will be considered in detail later, it should be noted here
that illegal contracts are void and thus will not be enforced by the courts. The law
will refuse to come to the aid of those involved “Ex turpi causa non oritur actio” (No
cause of action arises out of an illegal cause)

Moreover, the parties may in some cases incur criminal liability and in the case of
illegality in the strict sense collateral transactions are tainted. It should be further noted
that although a statute may declare a certain type of contract void it may not
necessarily be an illegal contract in the strict sense.
Furthermore, a statute may prescribe a penalty for non-compliance with its
provisions but not affect the validity of contracts entered into by a party who has
failed to comply with some statutory requirement.

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  Illegality may arise either because the contract is of a kind prohibited by
statute, or because it is of a class regarded as contrary to public policy.

 The general rule is that an illegal contract is void, and any rights arising out of
such a contract are unenforceable.

2. Where there is conflict

 In the case of conflict with statutory enactments, the contract will be either void or
illegal.

 The nature and extent to which a contravention of a statute restricts the rights and
remedies of the parties depends on the intention of the Parliament as expressed in
the statute.

 The normal rules of statutory interpretation apply.

 Remember, void means completely ineffective, and illegal means valid but incapable
of being enforced.

3. Contracts void by statute

a. The parties have no rights or remedies

b. The contract may NOT necessarily be void ab initio (from the initial) unless
permitted by statute
c. The extent of the invalidty depends upon the terms of the statute – it may be possible
to sever the void term out of the contract (e.g. hire purchase agreements) and leave
the remainder of the contract still valid
d. Subsequent transactions directly linked to the void contract are void due to a failure
of consideration

4. Contracts illegal by statute

 Contracts entered into with the express intention of breaking the law are clearly
illegal. The parties have no legal rights and may face fines, penalty provisions or
other forms of state sanctions.

 There is little difficulty in determining whether or not the contract is illegal where a
statute expressly prohibits the making (or specifies the mode of performance) of a
contract, as there is usually a clear breach of statutory duty imposed for the public
benefit.

 Where the statute contains an implied prohibition, the court will analyse the statute
looking at the scope and purpose of the legislation and whether this purpose is either
served or frustrated by the class of contract being illegal.

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 An exercise in Statutory Interpretation

Two examples are:

Cope v Rowlands [1836] 150 ER 707

Facts: A UK statute provided that brokers in the city of London had to be licensed or
forfeit a fine of £25. The plaintiff, an unlicensed broker, performed work for the defendant
and sued for his unpaid fee. The defendant argued that the contract was illegal and
unenforceable.

Decision: The fee was not recoverable. The legislation was aimed at protecting the
public by ensuring that only those who had passed the licensing process could act as
financial intermediaries.

As a result, contracts negotiated by unlicensed persons were impliedly prohibited.

St John Shipping Corp v Joseph Rank Ltd [1957] 1 QB 267

Facts: The defendants chartered the plaintiff’s ship. During the course of the voyage the
ship had to put into port to load more fuel. As a result the ship was overloaded contrary
to the Merchant Shipping Act 1932. When the ship arrived in England, the Master was
successfully prosecuted for the offence. The defendants refused to pay part of the
freight costs on the grounds that the plaintiffs had performed the contract illegally.

Issue: Was the Act intended to invalidate contracts or impose a penalty?

Decision: The illegal loading was incidental to, rather than central to, the performance of
the contract. Therefore, the contract was valid as performed.

Consequences of statutory illegality depend upon when the contract becomes illegal:

 If it is illegal as formed, the contract is void ab initio and property is recoverable if

disclosure of illegality is not essential to the cause of action (Re Mahmoud v. Ispahani
[1921]).

Re Mahmoud v Ispahani [1921] 2 KB 716

Facts: An order made under the Defence of the Realms Regulations provided that no one
could buy, sell or otherwise deal in linseed oil without being licensed. The defendant
falsely told the plaintiff that he had the necessary licence, and then entered into an
agreement with him for the supply of linseed oil. The defendant subsequently refused to
take delivery and was sued by the plaintiff for non-acceptance.

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 Issue: Was the purpose of the statute to prohibit the making of the contract itself, thus
making it unenforceable, or did the statute require the contract to be performed in a
certain way?

Decision: Because the contract was with an unlicensed purchaser and this was expressly
prohibited under the statute, the contract was illegal as formed, and thus void

 If the contract is illegal as performed, the contract is void, but not void ab initio. The
guilty party has no rights, but the innocent party is little affected (Anderson Ltd v. Daniel
[1924]) (Ashmore, Benson Pease & Co v AV Dawson Ltd)

Anderson Ltd v. Daniel [1924]

If the contract is illegal as performed, the contract is void, but not void ab initio.
The guilty party has no rights, but the innocent party is little affected.

Ashmore, Benson, Pease & Co v AV Dawson [1973] 1 WLR 828

Facts: The parties contracted for 2, 25 ton tube banks to be trucked to a port to be
shipped overseas. The defendants had always intended to use trucks whose lawful
maximum load under the Road Traffic Act (UK) was 20 tons. This subsequently became
apparent to the plaintiffs, but they took no action to prevent the journey taking place. One
of the vehicles overturned during transit and its load was damaged. The plaintiffs sued to
recover the resultant loss.

Decision: While the contract was legal itself – a simple contract for the carriage of goods
by road – it was illegal as performed. The defendant has always intended to perform it in
an illegal manner. As this had come to the notice of, and been acquiesced to by, the
plaintiff, the contract was not enforceable by either party.

5. Contracts illegal at common law

These are contracts which would violate the social or moral attitudes of the community
and are void ab initio.

a) Agreements to commit a crime or tort.

An agreement to commit a crime or to commit a civil injury, as a matter of common

sense, is void

b) Agreements contrary to good morals. Agreements for the letting of premises or

employment of any property or person for an immoral purpose are void.

c) Agreements which hinder the administration of justice.

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 An example of this is where the defendant guaranteed repayment of a loan advanced by
the plaintiff Credit Union to his son on the understanding that the Credit Union would not
report his son to police for misappropriation of moneys from the Credit Union.

It was held that the guarantee was void for illegality as an agreement to stifle
prosecution for an indictable public offence. (Public Service Employees Credit
Union Co-operative Ltd v Campton (1984) 75 FLR 131)

d) Agreements to restrain or discourage marriage.

Agreements in general restraint of marriage are void, but not where they are only in
restraint of marriage with a particular person. A pre-marriage agreement not to live
together after marriage is contrary to public policy and therefore void. (Scott v Scott
(1904) 25 ALT 174)

One type of contract invalidated is that known as "marriage brokage", ie an agreement to

procure a marriage for a consideration.

e) Agreements which prejudiciously effect the relationship of one country with other
countries.

Agreements in this category are of two types. Firstly there are agreements with a
national of a foreign country at war with their own. Secondly there are agreements
which might rupture the existing friendly relationships between one country and
another. Such agreements are void.

f) Contracts tending to promote corruption in public life.

An example was where A, the agent for the owners of land, who was negotiating on their
behalf for its sale to the Crown, entered into an agreement with B and C, who were
members of the State Parliament and carried on business in partnership as land agents.

Under the agreement, B and C for monetary consideration undertook to put pressure
upon the government, of which they were supporters, to agree to purchase the land, the
completion of the purchase and the earning of the reward being contingent upon the
approval of the House of which they were members, so that the completion was or might
be dependent upon their votes.

It was held that the agreement was contrary to public policy and void. (Wilkinson v
Osborne (1915) 21 CLR 89)

Parkinson v College of Ambulance [1925] 2 KB 1

Facts: Colonel Parkinson was told by the defendant charity, through one of their
employees a Mr Harrison, that they could secure him a knighthood if he made a
substantial donation. He agreed to donate £10,000, £3,000 immediately and the balance
on receipt of the knighthood. The knighthood never eventuated and he sued for the
recovery of the money paid.

25
 Decision: The contract, to purchase a title, was improper and illegal on public policy
grounds. Parkinson knew he was entering an illegal contract and the law would not help
him recover his money.

LUSH J. said, ”The contract, in my opinion, is one that could not be sanctioned or
recognized in a Court of justice. Such a contract as that which the plaintiff and Harrison
made is, in my judgment, an illegal and improper contract to enter into. I do not, of
course, say that it involves the same degree of moral turpitude that an actually immoral
contract involves; still less a contract to commit a crime…The money paid by the plaintiff
was not paid as the price or "wages" of immorality. It was not paid as a bribe to Harrison.
It was paid to a public charity, a meritorious service in itself. But the contract which was
entered into is not a contract which one can describe as innocent in itself. There are
contracts which the law prohibits which are of that description…But a contract for the
purchase of a title, however the money is to be expended, is in itself an improper
contract.”

g) Agreements involving a conflict between private interest and duty.

Contracts involving a breach of duty by an employee are illegal.

B, a local bank manager, sold a business to A and claimed commission on the sale. The
contract for the payment of commission was declared illegal.

It was stated that “a customer who, when he is largely indebted to the bank, goes to
a bank manager with the object of influencing him in the performance of his duty
to the bank, in such a way as to cause him to consider the interests of that
customer before those of the bank, is assuredly doing an improper thing. Without
entering into the question whether the action of the plaintiff in this case was done under
compulsion or otherwise, we think that the consideration was an illegal one.” (Field v
Bennett [1907] QSR 187 at 192)

6. Contracts void at common law

Contracts which attempt to oust the jurisdiction of the courts. Here you need to
distinguish contracts which are binding in honour only (where the parties expressly
declare that they do not intend to create legal relations) from contracts which attempt to
oust the jurisdiction of the courts.

Case called Rose & Frank & Co where the parties simply expressed that they did not
INTEND to create legal relations.

One of the rights enjoyed by a citizen is that entitling them to have questions relating to
their legal rights and obligations determined by the ordinary courts. Any contract which
purports to deprive a person of this right is void. Clauses are often inserted in
commercial contracts to provide for arbitration of disputes as a condition precedent to the

26
 bringing of an action at law, and this has been held not to be void (Scott v Avery (1856)
10 ER 1121.)

One of the most common types of situations in this area that many of us would have
encountered are related to terms in a contract of employment.

It is more accurate to speak of clauses in contracts which are in restraint of trade which
are void rather than the contract itself.

7. Clauses in contracts in restraint of trade

a) Clauses in contracts in restraint of trade are prima facie void as being contrary to
public policy unless the restraint is reasonable. That is, the law presumes them to be
void, a presumption that can be rebutted.

A contract in restraint of trade is one which restricts a person from freely exercising his or
her trade, business or profession. The most widely accepted definition of “restraint of
trade” is that enunciated by Diplock LJ in Petrofina (Great Britain) Ltd v Martin [1966]
1 All ER 126 at 138,

“A contract in restraint of trade is one in which a party (the covenantor) agrees with any
other party (the covenantee) to restrict his liberty in future to carry on trade with other
persons not parties to the contract in such manner as he chooses.”

The main points in considering whether at common law a contract in restraint of trade is
void or binding are:

 the restraint must be reasonable as between parties, ie it must be no wider than is

reasonably necessary to protect the person for whose benefit it is imposed ; and

 the restraint must be reasonable in the interest of the public, ie. it must be in no way
injurious to the public.

Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. Ltd [1894] AC 535

Facts: Nordenfelt sold his munitions manufacturing business which traded worldwide.
He entered into a contract not to engage in the manufacture of guns, except for the
company, anywhere in the world for the next 25 years. 2 years later the company was
amalgamated with another company and the original contract in restraint of trade was
expanded so that it read,” ..or in any business competing or liable to compete in any
way with that for the time being carried on by the company..”

Nordenfelt subsequently opened a new munitions manufacturing business in competition

with the company he had sold his business to.

Issue: Were the clauses reasonable or a restraint of trade and void?

27
Decision: If the restraint was to be valid, it had to be reasonable in the interests of the
parties and the public. The first clause was reasonable because it enabled the
company to protect its interests. The second clause, while it was unrestricted as to
space, it was not unrestricted with regard to the nature of the business or the limited
number of customers. It was also reasonable in the interests of the parties and not
against the public interest.

b) Reasonableness is determined by:

• the geographic extent;

• the time period involved;

• the nature of the business and the activity being restrained; and

• whether the restraint is reasonable, both in the interests of the parties and the
public.

c) The restraint must not be any wider than is reasonably necessary to protect the
covenantee’s interest. The onus of proof lies with the plaintiff or the person seeking to
have it enforced.

d) Clauses in contracts of employment

Attwood v Lamont [1920] 3 KB 571

Thus, covenants in restraint of trade contained in contracts of employment will only

be enforced so far as is necessary to prevent the employee using the knowledge,
trade secrets or connections of his or her past employer in competition with that
employer and not to prevent the employee from using his or her own skill and
knowledge in his or her trade or profession, even if acquired in the previous
employer's service.

Lindner v Murdock’s Garage (1950) 83 CLR 628

The law does not readily allow a person to contract out his or her means of
livelihood.

Amber Size Chemical Co v Menzel [1913] 2 Ch 239

A person can be restrained from disclosing a secret process which he or she has
memorised.

28
Robb v Green [1895] 2 QB 315

A person can be prevented from using a list of his or her or his employer’s customers
for the purpose of soliciting business for herself or himself.

Littlewoods Organisation Ltd v Harris [1978] 1 All ER 1026

Thus, where a senior employee gained confidential information in the course of

planning and preparing mail order catalogues for his employer, it was held that a
covenant in his contract of employment restraining him from working for a rival
competitor in the mail order business for 12 months after leaving his employment
was reasonable in the circumstances and therefore enforceable.

Forster & Sons Ltd v. Suggett [1918] 35 TLR 87.

Facts: Suggett was employed as the works manager of a firm engaged in glass and
glass bottle manufacture. He was instructed in certain confidential techniques of
glassmaking and he agreed that during the five years following the termination of his
employment he would not engage I glass bottle manufacturing, or any other
business connected with glassmaking, anywhere in the UK.

Issue: Is the restraint of trade reasonable in the circumstances? Is their a proprietary

interest that needs protecting?

Decision: In these circumstances the restrain was reasonable.

The employer was entitled to protect and safeguard the confidential techniques it
had developed. It could therefore legally restrain a former employee from using this
information while employed by a rival firm.

Atwood v Lamont [1920] 3 KB 571

Facts: Atwood carried on business in Melbourne as a tailor. He entered into a

contract of employment with Lamont which contained a clause providing that in the
event of termination of the contract, Lamont would not carry on business as “a tailor,
dressmaker, general draper, milliner, hatter, haberdasher, gentlemen’s, ladies’ or
children’s outfitter” at any place within a 10 miles radius of Melbourne.

Subsequently, Lamont set up business in Geelong, outside the 10 mile radius, but he
had clients in Melbourne.

Issue: Was the geographic extent of the clause reasonable or merely an attempt to
restrict competition?

Decision: After accepting that the clause was too wide in its application, the plaintiffs
still did not succeed as the court found that the clause was invalid because it was
directed only to the prevention of competition.

29
Sale of businesses

These are applied to protect good will, and are easier to sustain than contracts of
employment as the parties are dealing on a more equal basis (Amoco Aust Pty Ltd v.
Rocca Bros Motor Engineering Co. Pty Ltd [1973]).

Amoco Aust Pty Ltd v. Rocca Bros Motor Engineering Co. Pty Ltd [1973]

The vendor of a business is frequently restrained from competing with the purchaser for
a specific period and, usually, within a defined area. Such a restraint is enforceable if it
is reasonable in the circumstances for the protection of the purchasers goodwill in the
business.

CONTENTS OF CONTRACT & EXCLUSION CLAUSES

Whether statements made in the course of dealings or negotiations by the parties, are terms of
the contract or mere representations?

a) IF the statements are found to be mere representations, then they are not a part of
the contract
b) IF the statements are terms, then they form part of the contract between the
parties.

Statements that are made by the parties are either terms of the contract or
representations.

If they are representations, they can either be ACTIONABLE or NOT ACTIONABLE.

Actionable representations are MISREPRESENTATIONS.

These can be:

 Innocent
 Negligent
 Fraudulent.

This is an area where one of the questions is whether or not the parties have genuinely
consented to the contract.

Misrepresentations, in some cases, will result in a contract being found to be void, that is
of no legal effect between the parties.

Non Actionable representations can be categorised as;

 Mere advertising puffery

 Predictions
 Statements of opinion or law.

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  Representations are statements not intended to be part of the contract - usually
oral statements made in the course of negotiations.

However, a statement of fact made by a party before or at the time of making the contract, which
is addressed to the other party and in fact induces the other party to enter into the contract is a
REPRESENTATION or "MERE REPRESENTATION".

If that representation is in fact later discovered to be untrue it will be called a

MISREPRESENTATION.

Determining whether or not a statement is a TERM OF THE CONTRACT or a

REPRESENTATION is a test of intention, that is, would a reasonable person in the position of
the parties have understood from the parties’ words that the statement made would become an
enforceable obligation?

Tests to decide whether statements are representations or terms

1. How important was it that the statement was the truth?

Since we are talking about statements of FACT, the question is, how important is the truth of
the statement to the representee in terms of their reliance on it in deciding whether or not to
enter the contract.

IF it is important then it is more likely to be incorporated as a TERM of the contract.

IF it is not important, it is more likely to be a mere representation, and NOT a term of the
contract.

2. Similarly, ask whether the contract would have been entered into EVEN IF the statement
was known to be false.

IF no, then the statement is more likely to be a term of the contract.

IF yes, then the statement is more likely to be a mere representation.

3. How long was the period of time between the making of the statement and the entering into
the contract?

If the statement is made in the course of preliminary negotiations, and some time then
expires before any final agreement is reached, the statement is less likely to be a term of the
contract and will be seen by the courts to be a mere representation.

If, however, the statement is made immediately before final agreement is reached, there is
greater scope for the courts to find that the parties had intended that the statement be
contractually binding and therefore a term of the contract.

4. Was there reliance on any special skill or knowledge of the maker of the statement?

31
 If the maker of the statement possessed some special skill or knowledge upon which the
receiver of the statement relied, then it is more likely that the statements made will be held to
be terms of the contract.

If, however, the 2 parties had equal skills or knowledge, or the recipient of the statement had
more knowledge in that particular area, the courts will be more inclined to view the statement
as a mere representation and not a term of the contract.

We will briefly look at 2 cases that highlight this point shortly.

5. If it can be shown that the maker of the statement had the intention of deceiving the other
party, the courts will tend towards finding that it was a fraudulent misrepresentation and not a
term of the contract.

If it can be shown that there was no intention to deceive, but the statement was misleading
anyway, the courts will be more inclined to view it as a term of the contract.

6. Finally, if the statement made during negotiations is followed by a written document which
incorporates it, then it is clear that the parties intended that what was said was to be part of
the contractual obligations.

If, however, the written document does not include the statement, then the inference is that
the parties did not intend that it be part of the contractual obligations.

Routledge v McKay (mere representation and not term)

Facts: in the course of negotiating the sale of his motor cycle, the defendant told the
plaintiff that it was a 1942 model. 7 days later, the parties entered into a written contract
for the sale. It made no mention of the year of manufacture. The plaintiff later discovered
that it was a 1930 model. He sued for damages.

Held: failed. The interval between the negotiations and the final agreement coupled with
the failure to include the motorcycle’s age in the written contract indicated that the parties
had not intended the statement to be anything but a mere representation – made to
induce the contract but not intended to have any contractual effect. Accordingly, it had
not become a term and there was no breach.

Dick Bentley Productions Ltd v Harold Smith Motors Ltd [1965] 1 WLR 623

In the course of negotiating for the sale of a Bentley motor car, the defendant made a
statement that the vehicle had a new engine and gearbox and that since then it had only
travelled 20,000 miles.

This was not in fact true, but the defendant believed it to be true. The car had actually
travelled 100,000 miles since the new engine and gearbox were installed. When the
purchaser discovered the truth, he sued.

32
 The court HELD that the statement had been incorporated into the contract as a TERM
and the purchaser was entitled to damages.

The person who made the statement (the car dealer) had had special knowledge and
skill and the statement was made in such a way that both parties should have realised
that the buyer would rely on it. The dealer “stated a fact that should be within his own
knowledge”.

The court also took into account the “likely importance of the statement in the minds of
the parties”.

Oscar Chess v Williams (contrasting outcome).

Oscar Chess Ltd v Williams [1957] 1 WLR 370 is an English contract law case,
concerning the difference between a term and a representation.

Facts: Williams sold Oscar Chess Ltd a Morris car for £290. It was described as a 1948
Morris 10, but it was really a 1939 model worth £175. Williams said it was 1948 in good
faith, relying on the car log book, but the book was a forgery.

Judgment: Denning LJ said the only possible remedy was a warranty, whose ordinary
meaning is ‘to denote a binding promise’. This comes from Chandelor v Lopus (1603)
Cro.Jac 4. In Cross v Gardner (1689) Cart. 90, Holt CJ held that ‘An affirmation at the
time of a sale is a warranty, provided it appears on evidence to be so intended.’ And this
was the ordinary English meaning of a binding promise. But in Heilbut, Symons & Co v
Buckleton [1913] AC 30</ref> Lord Haldane LC and Lord Moulton said ‘warranty’ in a
technical sense, distinguished from a condition. The crucial point of this case was not
whether the representation was a warranty or condition, but a term of the contract at all.
Williams’ statement was a mere representation.

“One final word… [the motor dealers only checked the log book] eight months later. They
are experts, and, not having made that check at the time, I do not think they should now
be allowed to recover against the innocent seller who produced to them all the evidence
he had, namely, the registration book... If the rogue can be traced, he can be sued by
whomsoever has suffered the loss: but if he cannot be traced, the loss must lie where it
falls. It should not be inflicted on innocent sellers, who sold the car many months,
perhaps many years before…”

Here we can see that the statement did not become a term because a reasonable man
(objective test) in the position of the car dealer (Oscar Chess Ltd) would not have thought
that a person with no experience in the car market would have guaranteed the truth of
the statement.

So the third principle is that the balance of information power between the parties, or one
party’s special knowledge, affects whether a representation is a term.

33
 Hodson LJ concurred and Morris LJ dissented because he thought the parties did intend
it to be a warranty.

Terms of the contract

EXPRESS TERMS

Where the contract is made orally, the express terms of the contract will be ascertained by
determining the words actually used by the parties when the contract was made. This is
essentially a question of fact and in the event of dispute, will have to be resolved by due
consideration of the relevant evidence. It will then become a question for the court to decide the
effect of the transaction.

If the contract has been reduced to writing, the general rule is that the terms of the contract are
to be found in the writing, the interpretation of that writing being a question for the court.

Parol evidence rule: Where a contract is wholly in writing, evidence is not admissible to add to,
vary, or contradict the written document.

The parol evidence rule is subject to certain qualifications:

I. Custom or trade usage terms are regarded as part of the contract (Implied terms).

II. The operation of the written document is to be suspended until the happening of a
certain event (a condition precedent)

III. Contract is partly oral and partly written

IV. To clarify any ambiguous language used in the written contract.

V. Collateral contracts: where oral statements made are regarded as a separate oral
contract, the consideration for which is the making of some other contract.

In addition to its express terms, a contract may contain a number of terms that the parties or
the courts may ‘read into’ the contract.

Implied Terms

Generally speaking, the courts have shown a willingness to imply terms into contracts where the
following situations have arisen (4 Rules)

Where there has been PREVIOUS DEALINGS between the parties.

Where CUSTOM & TRADE USAGE applies
Where there are AMBIGUOUS TERMS

1. Previous dealings

 Hillas & Co. v Arcos Ltd.

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 Hillas & Co. v Arcos Ltd.

Facts: Hillas & Co agreed to buy “22,000 standards of softwood goods of fair
specification over the season 1930” from Arcos Ltd. The written agreement also
contained an option to buy 100,000 standards in 1931, but the option did not specify
the kind or size of timber or the manner or date of shipment. No difficulties arose on the
original purchase, but when the buyers sought to exercise the option, the sellers tried to
renege. They argued that the failure to define the various particulars in detail showed
the option was not intended to bind either party; it was intended merely to provide a
basis for future agreement.

Held: That argument failed. The house of lords held that the language used had to be
interpreted in the light of the prior course of dealings and the usual practice in
the timber industry that equivalent timber would be supplied. Accordingly, there
was no uncertainty; the court could objectively ascertain the parties intentions.
Consequently, the sellers were bound to supply in accordance with the implied term, or
pay damages.

2. Custom and usage - four circumstances in which such terms may be implied have been
confirmed by the High Court in the following case:

 Con-Stan Industries of Australia Pty. Ltd. v Norwich Winterthur Insurance (Australia)

Ltd.

 Propositions: -

 The existence of a custom or usage that will justify the implication of the implied term

 Custom or usage is well known and can reasonably be presumed to be imported into
the contract

 No term will be imported into the contract if it is contrary to an express term

 Person ignorant of a custom or usage is not bound by it unless it is of such notoriety

that it ought to be known or could be easily ascertained by all persons dealing in that
matter

3. Ambiguous terms - contract is not void so long as its terms are capable of being given a
meaning by the courts.

 Nicolene Ltd. v Simmonds

 Scammell v Ousten

4. For a condition to be implied into a contract, they must generally satisfy the following
CONDITIONS TO BE SATISFIED:

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 * MUST BE REASONABLE & EQUITABLE
* NECESSARY TO GIVE BUSINESS EFFICACY TO THE CONTRACT (or
OFFICIOUS BYSTANDER TEST)
* MUST NOT CONTRADICT EXPRESS TERMS OF THE CONTRACT

Business efficacy – types of terms that are absolutely necessary in order for the contract
to be workable.

Officious Bystander Test – type of terms that are so obvious that if goes without saying

The Moorcock (1889) 14 PD 64

The defendant wharfingers contracted to allow the plaintiff to use their jetty to unload his
ship. The ship was damaged at low tide by settling on a ridge of hard ground which lay
beneath the river mud.
It was held that the defendants were liable for the damage because the parties must
have intended to contract on the basis that the berth would be safe for the plaintiff’s ship
at low tide and accordingly, the defendants were in breach of an implied term that they
would take reasonable care to see that the berth was safe for the vessel.

In the words of Bowen LJ, “In business transactions such as this, what the law
desires to effect by implication is to give such business efficacy to the transaction
as must have been intended at all events by both parties who are businessmen.”

5. Terms implied by Statutes

 Trade Practices Act 1974 (Cth) [TPA]

 The Fair Trading Act 1988 (W.A.) [FTA]
 Sale of Goods Act(WA)

SOME BASIC PROVISIONS OF THE FTA & TPA

 These Acts only apply to consumer transactions ie. if the price of the goods does not
exceed $40,000 and the goods are not acquired for resupply, to be used in
commercial production or repair activities.

 However even if the goods were to exceed $40,000 but were of a kind ordinarily
acquired for personal or domestic use the Acts would still apply.

 The implied provisions of these Acts may not be excluded by any express provision in
the contract.

SOME BASIC PROVISIONS OF THE SGA

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  Sale of Goods Act 1895 (W.A.) [SGA]

 This Act will apply to all contracts for the sale of goods and is not restricted to consumer
goods as the TPA & FTA are.

 The implied provisions of this Act could however be excluded by the parties expressly.
The Fair Trading Act 1987 (W.A.) by sections 34 & 35 now prevents the exclusion of
these implied conditions from consumer contracts.

All three Acts imply similar terms and conditions, which basically are: -

 Seller has title

 Goods correspond with their description

 Of merchantable quality

 Fit for their purpose

 Seller has a title: S.69 TPA; S.12 SOG; S.36 FTA.

In these sections there is one implied condition and two implied warranties.

 Condition

If it is a sale then there is an implied condition that the seller has a right to sell at the time
of contracting.
OR
If it is an agreement to sell then that the seller will have a right to sell when the time to
transfer ownership matures.

 Warranties

 The buyer shall have and enjoy quite possession of the goods.

 The goods shall be free from all charges or encumbrances in favour of third parties
not declared or known to the buyer.

 Rowland v Divall
 Niblett Ltd v Confectioners’ Materials Co Ltd

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 Goods correspond to their description: S.70 TPA; S.13 SOG; S.37 FTA.

 Two conditions

 If bought by description, goods will correspond with description.

 If bought by sample and description, goods will correspond with both sample and
description.

See Beale v Taylor

And Ashington Piggeries Ltd v Christopher Hill Ltd

 Merchantable quality: S.71(1) TPA; S.14(11) & S.15(2)(c) SOG; S.38(1) FTA.

Where goods are bought by description; from a seller who deals in goods of that description
there is an implied condition that the goods shall be of merchantable quality BUT if the
buyer has examined the goods there is no implied condition as regards the defects which
such examination ought to have revealed.

S.66(1) of the TPA defines merchantable quality to mean that the goods are as fit for the
purpose as is reasonable to expect having regard to any description applied to them,
the price (if relevant) and all other relevant circumstances.

This requirement must be satisfied even if the article is sold under its patent or trade name.

 Fit for Purpose: S.71(2) TPA; S.14(1) SOG; S.38(2) FTA.

Under the early common law the maxim of caveat emptor (let the buyer beware) applied, but
the above provisions have now overcome it.

There are now 3 basic requirements for the operation of this implied term by statute:

1) Where a buyer expressly or impliedly makes known to the seller the particular
purpose for which the goods are required there is an implied condition that the goods
will be reasonably fit for that purpose.

2) The buyer must show that they have expressly made known the purpose for which
the goods will be used for and has relied on the seller's skill and judgement

3) The goods were of a description that is in the normal course of the seller's business
to supply.

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 Expressly makes known:

 Wallis v Russell [1902] 2 IR 85

FACTS: A went to a fishmonger and asked for "two nice fresh crabs for tea". He was
informed that there were no fresh crabs but was given some boiled ones -that were in
fact not fresh and A became ill after consuming them.

HELD: Seller liable as buyer had expressly made known the particular purpose for
which the goods were required and goods were of a description which it was in the
course of the seller's business to supply - there was therefore an implied condition
that the goods shall be reasonably fit for such purpose

 Impliedly makes known:

 Grant v Australian Knitting Mills Ltd. [L 7.090] [GF-p.460]

FACTS: Grant purchased woolen underwear from AKML whose business it was to
deal in such articles. After wearing the articles for some time he contracted severe
dermatitis because of excessive sulphite in the material left over from the process of
cleaning the wool.

HELD: held by the High Court that the goods were not reasonably fit for their only
proper use. The plaintiff Grant relied on the retailers choice of a quality product that
could be worn without being washed first and as this was not the case, there was a
breach of the implied condition of fitness for purpose.

 Heil v Hedges
 not successful as he cooked the pork insufficiently. Some products require
treatment before consumption.

 Griffith v Peter Conway

 A lady bought a coat without disclosing that her skin was peculiarly sensitive. She
contracted dermatitis and sued for damages under s.14(3). It was proved that the coat
was suitable for wearing by a person whose skin was normal.
 Held Court of Appeal. The action was dismissed on the ground that the particular
purpose, viz, wearing by an abnormal buyer, had not been disclosed.

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 Conditions and Warranties
 Conditions

 Condition: is a term vital to the contract, breach of which entitles the injured party
to repudiate the contract and to treat his obligations at an end and/or sue for
damages.

Associated Newspapers Ltd. V Bancks [L-6-090] [GF-p.307]

FACTS: Banks was the creator of the cartoon character “Ginger Meggs”. He
contracted with the plaintiff newspaper company to provide them with a full page of his
comic each Sunday to be published on the front page of their Sunday comic section for a
period of ten years. Two years later, as a result of a newsprint shortage the cartoon
appeared on page three of the comic section instead of page one on three successive
Sundays. Banks considered this as a breach of a condition of his contract and
repudiated saying that he was no longer bound by the contract.

ISSUE: WHETHER THE UNDERTAKING TO PUBLISH THE COMIC ON THE FIRST

PAGE WAS A CONDITION OR WARRANTY?

HELD: IT WAS A BREACH OF CONDITION

Test to be applied from Banks case to help determine whether a term of the
contract is a condition or a warranty is;

1) Expressed intention of the parties to be bound

2) Does the stipulation go to the root of the matter so that the failure to perform it
would render the performance of the rest of the contract by the plaintiff a thing
different in substance from what the defendant has stipulated for, or
Does it only partially affect it so that it can be compensated for in damages?

 Condition subsequent: Refers to a requirement that must be complied with after

the contract is made

 Condition precedent: Refers to a fact that must exist before a contract can come
into existence.

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 Warranties

 Warranty: is a lesser term and only entitles the injured party to sue for damages
only.

Case example of a Warranty

Bettini v. Gye [L-6-050] [GF-p.308]

FACTS: Gye, the director of an opera company, contracted for the exclusive
services of Bettini as a singer in opera and concerts for a period of three months.
The contract contained a provision that Bettinni would be in London at least six days
before the commencement of his engagement for rehearsals. Bettini, through
illness, only arrived two days earlier, whereupon Gye refused to accept his services
and treated the contract as at an end.

ISSUE: WAS THE CLAUSE FOR THE REHEARSALS A CONDITION OR

WARRANTY?

HELD: It was held that in the particular circumstances the term in question was not
a condition but a warranty and accordingly, although Gye was entitled to damages
for any loss (if any) he had suffered for Bettini’s breach of contract, he had not been
entitled to treat the contract as terminated.
THE BREACH OF THE TERM DID NOT GO TO THE ROOT OF THE CONTRACT -
ONLY A BREACH OF WARRANTY (contract remains valid)

 Innominate Terms

 Innominate terms:
 Is a contractual term whose importance lies between a condition and a warranty.
 Case law focuses on the effect of the breach of the term rather than on the
classification of the term.

Hong Kong Fir Shipping Co. Ltd. V Kawasaki Kisen Kaisha Ltd.

FACTS: The contract in this case was for a 2 year lease of a “seaworthy” ship, but
the ship provided was out of action for 5 months, during which time the cost of hiring
ships dropped dramatically and the charterers purported to terminate the contract for
breach. The owners said that this was repudiation, ie wrongful, and they were
entitled to terminate on that basis. The owners sued for damages

HELD: NOT ENTITLED TO REPUDIATE THE CONTRACT - SHOULD NOT

LOOK AT THE CLASSIFICATION OF TERMS BUT THE EFFECT OF THE
BREACH - WAS IT MATERIAL OR IMMATERIAL?

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EXCLUSION CLAUSES

What is an Exclusion Clause ?

They are terms in a contract which seek to reduce, limit or remove what would otherwise
be a party’s rights, obligations or limitations under that contract.
They are severally referred to as exception clauses, exemption clauses or limitation
clauses.
They always operate for the benefit of only one party.

Some basic rules affecting exclusion clauses

Rule 1 - Must be a term of the contract

Rule 2 - If it is in a written document signed by the signatory s/he will be bound by the exclusion
clauses.

 It is irrelevant that the person has not read the document.

 The written document need not be a complete record of the contract.
 Exceptions: Does not apply if there is undue influence or duress or if the signature was
obtain by fraud or misrepresentation.

Rule 3 - Knowledge of exclusion clauses is more readily inferred if parties have dealt with each
other previously.

Balmain New Ferry Co. Ltd. v Robertson

FACTS: The ferry company operated a service between Balmain and Sydney. Entry to the ferry
was through a turnstile, operated by inserting a penny in a slot in the machine. Above the
turnstile was a sign saying, ‘A fare of one penny must be paid on entering or leaving the wharf.
No exception will be made to this rule whether the passenger has travelled on the ferry or not’.
Robertson paid his penny to gain admission and finding that he had just missed the ferry, he
attempted to leave without paying another penny. He was stopped and forced to pay by the
attendants. Subsequently he brought an action against the ferry company for assault and false
imprisonment.

ISSUE: As Robertson had used the ferry numerous times before, could knowledge of the terms
and conditions of travel be implied?

DECISION: The High Court held that as Robertson had travelled on the ferry numerous times
before, he was aware of the conditions of travel and bound by them as he had reasonable notice
of them, the sign was in a prominent place and he had dealt with them as a regular customer.

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Rule 4

 Contra proferentum rule: exclusion clauses are interpreted strictly against the party relying
on them.
 Rule of Construction / Interpretation – that enables the court to find out the meaning/scope of
the exclusion clauses to determine its effectiveness

Assuming that the exclusion clause has been properly incorporated into the contract, there are
several ways to interpret them.

One way is that It will be strictly construed against the party who attempt to rely on it (the
contra proferentum rule).The clause will be ‘read down’ by the court unless it specifies the type
of liability to be covered and any ambiguity will be resolved in favour of the injured party. Courts
will look for ambiguity and construe it strictly against the repartee relying on the exclusion
clauses.

Rule 5

The second way is through using Notice

NOTICE of exclusion clauses must be given before or at the time the contract is made but not
after. 2 examples of this are;

Balmain New Ferry Co. Ltd. v Robertson

 FACTS: The ferry company operated a service between Balmain and Sydney. Entry to
the ferry was through a turnstile, operated by inserting a penny in a slot in the machine.
Above the turnstile was a sign saying, ‘A fare of one penny must be paid on entering or
leaving the wharf. No exception will be made to this rule whether the passenger has
travelled on the ferry or not’. Robertson paid his penny to gain admission and finding
that he had just missed the ferry, he attempted to leave without paying another penny.
He was stopped and forced to pay by the attendants. Subsequently he brought an action
against the ferry company for assault and false imprisonment.
 ISSUE: As Robertson had used the ferry numerous times before, could knowledge of the
terms and conditions of travel be implied?
 DECISION: The High Court held that as Robertson had travelled on the ferry
numerous times before, he was aware of the conditions of travel and bound by
them as he had reasonable notice of them, the sign was in a prominent place and
he had dealt with them as a regular customer.

Olley v.Marlborough Court Ltd

The plaintiff and her husband booked into the defendant’s hotel. They went up to their
room where on one of the walls a notice was displayed saying that, “The proprietors
will not hold themselves responsible for articles lost or stolen unless handed to
the manageress for safe custody”.

43
 The plaintiff’s furs were stolen from the room as a result of negligence on the part of the
hotel staff.
It was held that the defendants were liable for the loss since the exemption clause was
not incorporated in the contract.
The contract had already been made before the plaintiff and her husband went up to their
room and so the notice could not thereafter affect their rights.

Therefore it was HELD:

NOTICE WAS INVALID AS - NOT INCORPORATED INTO THE CONTRACT - TO BE
EFFECTIVE MUST EITHER BE:
a) IN A WRITTEN DOCUMENT SIGNED BY THE GUESTS;
b) WRITTEN NOTICE HANDED TO THE GUESTS BEFORE OR AT THE
TIME OF THE CONTRACT;
c) DISPLAYED PROMINENTLY BEFORE OR AT THE TIME OF THE
CONTRACT

Thornton v. Shoe Lane Parking Ltd

FACTS: The plaintiff, Thornton, WENT TO PARK AT A NEW AUTOMATED CAR PARK.
OUTSIDE THE CAR PARK THERE WAS A NOTICE: "ALL CARS PARKED AT
OWNER'S RISK".
AN AUTOMATIC TICKETING MACHINE DISPENSED A TICKET ON WHICH WAS
ANOTHER CLAUSE STATING: "...ISSUED SUBJECT TO THE
CONDITIONS...DISPLAYED ON THE PREMISES".
IN THE car park, ON A PILLAR OPPOSITE, WERE A SET OF CONDITIONS THAT
PROVIDED THAT THE MANAGEMENT WAS NOT LIABLE FOR ANY PERSONAL
INJURIES HOWSOEVER CAUSED. Thornton sued the car park for personal injuries
received in an accident when he returned to collect his car.

HELD: The defendant COULD NOT RELY ON THE EXEMPTION CLAUSE GIVEN ON
THE TICKET AS IT WAS GIVEN AFTER THE CONTRACT HAD BEEN MADE -
LIABLE FOR THE PERSONAL INJURIES

Rule 6

 Four Corners or Deviation Rule

 Exclusion clauses are only enforced in respect of goods where the party at fault has dealt
with the goods in a way contemplated by the contract.
 This is known as the "four corners" or the "deviation" rule.
 Exclusion clauses cannot be relied upon where the goods have been used in a way not
permitted or authorised under the contract.

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  Exclusion clause is only valid if it is consistent with the contract i.e. with the intention of
the parties.
 Exclusion clause only valid if the act is within the four corners of the contract

Sydney City Council v West

In West's case, Mr West parked his car in the defendant's car park and was issued a
ticket.
When he came to pick it up it had gone.

It had been delivered to a rogue who had posed as a Mr Robinson and who had obtained
a duplicate ticket for a different car by saying that he had lost his ticket.
He then drove the plaintiff's car away without any objection. The plaintiff’s car, when later
found, had suffered serious damage.

The car park tried to rely on an exclusion clause in the ticket which was handed to each
customer.
It said, “The Council does not accept any responsibility for the loss or damage to any
vehicle...however such loss…may arise or be caused”.

The court held that the clause was not drafted sufficiently comprehensively to cover what
had happened.
What the court said was that this is all a matter of construing the contract.

This involves asking whether the words cover the particular event.

In this case, the court spent no time looking at the words themselves but, instead, just
said that they could not possibly have been meant to apply to the delivery of the vehicle
to the wrong person.
This was something which was not authorised or permitted by the contract.
Had the car park attendant been merely negligent in carrying out the contract then the
car park would have been protected. But this was something else.

For an Exclusion clause to be effective it must be a term of a contract with notice of its terms
brought to the attention of the customer BEFORE the contract is made.

Factors to consider are that a signatory of a written contract will be bound by its terms, or
where there has been a course of dealings between the parties they will be more readily
found to be valid.

When it comes to interpreting their meaning and scope of application, the courts will apply the
contra preferentum rule and the four corners rule, which will construe the meaning and
application of the clauses in a narrow way.

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In the case of signed documents, unless there is fraud or misrepresentation the document is
binding whether it has been read or not

However, VOUCHERS, RECEIPTS & TICKETS HAVE BEEN GENERALLY HELD TO BE

NON-CONTRACTUAL

Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805

Here Mrs Curtis took her wedding dress to be dry cleaned. She was asked to sign a receipt.
Mrs Curtis was an enquiring sort of person and wanted to know why she had to sign the
receipt. She was told that the dry cleaners would not accept certain risks and the dry
cleaning person specifically mentioned the beads and sequins on the wedding dress as
being something which the dry cleaners could not take responsibility for. Mrs Curtis then
signed. In fact the exclusion clause was very wide-ranging and covered much else besides
the beads and sequins being damaged.
When Mrs Curtis went to recover her wedding dress the beads and sequins were fine.
There was, however, a stain on the dress. She complained and the dry cleaners pointed to
the clause which she had signed which was perfectly general and covered any type of
damage.
She sued them for damages.

HELD: DOCUMENT WAS A MERE RECEIPT AND NOT A CONTRACTUAL DOCUMENT

EVEN WHERE A DOCUMENT HAS BEEN SIGNED A COURT MAY DRAW THE
INFERENCE THAT IT WAS MEANT TO BE A MERE RECEIPT AND NOT A
CONTRACTUAL DOCUMENT
The trial judge found in her favour, saying that the shop assistant had misled Mrs Curtis
about the scope of the exclusion clause and that the dry cleaners could only rely on the
clause as it was represented not as it actually was.

In the English Court of Appeal the same analysis was adopted by Lord Denning. He
makes the point that the dry cleaners had innocently misled Mrs Curtis and that they could
only rely on the exclusion clause in relation to damage to the beads and sequins but not in
relation to other types of damage.

A PARTY IS ONLY BOUND BY HIS/HER SIGNATURE IN THE ABSENCE OF FRAUD OR

MISREPRESENTATION

IN THIS CASE THERE WAS MISREPRESENTATION

Suffice it to say that the case demonstrates that it is always a good thing to be assertive and
to ask questions.

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Causer v Browne [1952] VLR 1
Here we have another dry cleaning case but this time the docket was not signed.
(Remember Mrs Curtis was asked to sign the docket.)
In this case, Mr Causer left a dress with Browne for dry cleaning. During the dry cleaning
process it was stained. Causer claimed damages for breach of contract, and Browne relied
upon provisions printed on the docket, handed over to Causer when he left the dress for dry
cleaning, which read ‘no responsibility is accepted for loss or injury to articles through
any cause whatsoever’.
The question for the court was whether an exemption clause which was in the ticket given to
the customer protected the dry cleaners in respect of damage that had been done to an
article of clothing.

HELD: A reasonable person would have assumed that the docket was a mere
voucher that had to be produced when collecting the frocks and would not have
regarded it as a contractual document containing any terms excluding the defendant
from any liability for negligence

TEST TO BE APPLIED: WHETHER A REASONABLE PERSON WOULD HAVE

REGARDED THE DOCUMENT AS ONE THAT WOULD CONTAIN
CONTRACTUAL TERMS?

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