definition of contract

Definition of ContractA Basic Definition:an agreement or set of promises that the law will enforce.

The word Contract is derived from latin word “Contrahare” – to draw together.

Parties can contract with each other for whatever they like. Thecourt enforces what the contract is for.

Tort – a civil wrong. Obligations (by law) and Duties Duty of care Negligence.

Not all agreements are enforceable – such as those between family members.

• Definition of Contract • the need for a promise or promises• need for promise(s) to be between two or more legally

capable people (“parties to the contract”)• need for the promises to create an obligation enforceable by

law• provided, it’s agreed, a need for that obligation to be

enforceable at law

The court looks at:• Whether the agreement is a contract, and if so, is it

legally valid and enforceable• If yes, what are the rights, duties and obligations of the

parties.

Sources of contract law• General principles derive from Common law, as developed from

the 1200s• Supplemented by principles of equity –from the 1400s –

origin of equity courts demanding principles• Judicature Acts – 1870’s reform of structure of courts so

courts bought together principles and equity• Supplemented by statute –eg Competition & Consumer Act 2010

(Cth) which has ACL – Australian consumer law.• + International law, e.g. International Sale of Goods (CISG)

CLASSIFICATION OF CONTRACTS

Simple and Formal Contracts

Forms of simple contract: Little in way of formality

• Written, partly written and partly oral• wholly oral• implied – like 10 orders the same way, the 11th is implied• certain simple contracts are required to be in writing –

because of the statue of fraud; prevents fraud; like property law Act; contract of guarantees

• Simple contracts require consideration

Formal Contracts Contracts under seal Form of a deed Don’t require consideration (price paid for a promise)

TYPES OF CONTRACTSway of classifying contracts

UnilateralONLY one party is obliged to do anything.Constituted of an exchange of a promise for an act. Ie….

• Lost dog, reward for $100.00• At the time the sign is put up, no one is under

obligation to do anything• But if someone does and finds him, then a contract is

formed and an obligation to pay the $• Being, an exchange of a promise for an Act.

Under unilateral contracts the promisor undertakes to do or to refrain from doing something if another party, the promisee, does or refrains from doing something, but the promisee does not at the time of the offer undertake to door to refrain from doing that thing.

o United Dominions Trust Ltd v Eagle Aircraft Services Ltd

The position in such cases is simply that the consideration on the part of the offeree is completely

executed by the doing of the very thing that constitutes acceptance of the offer.

o Australian Woollen Mills Pty Ltd v The Commonwealth

Bilateral - both of the parties have an obligation to perform. (This

is most contracts)

Under Bilateral Contracts each party undertakes to the other party to do or to refrain from doing something, andin the event of his/her failure to preform his/her undertaking, the law provides the other party with a remedy.

o United Dominions Trust Ltd v Eagle Aircraft Services Ltd

the acceptance of a bilateral contract may be inferred from conduct

o Brodgen v Metropolitan Railway Co (1877) the House of Lords concluded that, although there had been no formal

acceptance of terms and conditions, there had nevertheless been acceptance by virtue of the defendant ordering products upon the terms of the contract

Multilateral –contracts involving more than 2 parties

IS IT Void, Voidable, Unenforceable & Illegal Contracts

• A valid contract creates legal rights and obligations and therefore is enforceable at law.

o Central to Formation

• A void contract is of no legal effect, ie void ab initio (e.g. illegal contract)

o Void from beginning (such as an illegal contract, even if someone doesn’t know they are entering into an illegal contract

• A voidable contract is a contract that remains valid and binding unless and until it is repudiated by the injured party (e.g. for misrepresentation)

• An unenforceable contract is one that is valid on its face, but no legal action can be brought on the contract due to some substantive, technical or procedural defect.

Status of a contract

• Executory–promises have not yet been performed by at least one party.

o A promise for the future

• Executed –when there is nothing left to be done under the contract

o ‘terminated’ by performance Ie car wash $10. Contract set aside by complete by

performance

Essential Elements of a Contract AGREEEMENT

Offer and Acceptance One party must accept an offer made by the other party Must be distinguished from invitations to treat, supply of

information and puffery

CONSIDERATION

Flowing from the offeree Courts will only enforce an agreement if both sides have

provided something of value

INTENTION Each party must have the intention to create binding legal

obligations

SUFFICIENT CERTAINTY OF TERMS Agreement must be sufficiently CERTAIN and sufficiently

COMPLETE so parties rights and obligations can be identified and enforced

AGREEMENT (offer and acceptance) is the FIRST essential element of contract formation

INTENTION - is the SECOND essential element of contract formation

CONSIDERATION – is the THIRD essential element of contract formation

- only simple contracts require consideration- a simple contract may be oral, in writing, or both- made between 2 or more parties- require consideration

(as opposed to formal contract which is wholly in writing and under seal, usually in the form of a deed)

- the price for which the promise is bought- is something of value bargained for & may take the form ofan act for a promise- a promise for an act- a promise for a promise- a promise to forebear (not to do something)

Agreementusually consists of :-o an identifiable offer by one party and o an identifiable acceptance by the other

BUT courts can also examine the acts and conduct of the parties toinfer a ‘meeting of minds’ of the parties

Rules of acceptance are used to find:

• WHEN the contract was entered into o this can be a very important matter because, in cases where

stamp duty is payable on the contract, it has to be paid within a certain time from the date the contract was entered into.

o Furthermore, often the time that the parties have to perform their obligations is often tied to the date of the contract.

• WHERE the contract was entered into o this is important in cases where a contract is entered into

between parties in different legal jurisdictions and it has tobe established which jurisdiction’s courts will resolve the dispute.

o Note: in Australia each of the states and territories is a different legal jurisdiction.

• The EXPRESS TERMS of the contract o were statements made in pre-contract negotiations

incorporated into the contract?? o offer and acceptance analysis is not the only way in which a

court can resolve the q’ of whether a contract exists.4.6

o whether a contract exists is determined objectivelyo RTS Flexible Systems Ltd v Molkerei Alois Muller Gmbh & Company KG (UK

Productions) [2010] 3 All ER 1 at 22, Lord Clarke of the SC of the UK:

“Whether there was a contract between the parties and if so, on what terms depends upon what they have agreed. It depends not upon the their subjective state of mind, but upon consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusionthat they intended to create legal relations and had agreed upon all the terms…”

4.7o statements made during negotiations may not result in an

agreemento whether a statement amounts to an offer depends on whether the

offeree would reasonably interpret it as an offero objective test (not a subjective test of the offeree actually

thought)o BUT – may give rise to claims based on equitable estoppel

and /or misleading or deceptive conduct such claims do not depend on the existence of a contract

• Note: different rules can apply if one party overseas

OFFERDefinition: An offer is a clear statement of the terms on which anofferor is prepared to be contractually bound.

•it may be express or implied – written or spoken by conduct

•must be promissory in nature – exchange of promises, willingness to create legal relations.

- In Nielsen v Dysart Timbers Limited [2009] 3 NZLR 160 at 168 Tipping & Wilson JJ:

“An offer is a statement of the terms upon which the offeror is prepared to be bound if acceptance is communicated while the offer remains alive”

REQUIREMENTS OF A VALID OFFER

TESTS - must be communicated by the offeror to the offeree may be made to a particular person, a group of

persons, or to the entire world must be clear and unequivocal must be distinguished from ‘mere puffs’, request for

further information, or ‘invitation to treat’.

Will or Intent4.12- central to an offer is the will or intent of the offeror to be bound in contract by the terms of the offer- a statement lacking will or intent is not an offer

- eg. the simple supply of information an invitation to treat

offer determined by Reasonable Person Test–

In determining whether an offer has been made, the crucial issue is whether it would appear to a reasonable person in theposition of the offeree that an offer was intended, and that abinding agreement would be made upon acceptance.

• Crest Nicholson (Londinium) Ltd v Akaria Investments Ltd [2010] EWCA Civ 1331 at 25

The correct test when interpreting a contract is a question ofwhat a reasonable person, having all the background knowledge that would have been available to the parties, would have

understood them to be using the language in the contract to mean

• Chartbrook Ltd v Persimmon Homes Ltd & ors [2009]

WHO can offer be made to?

Important to know – for reasons like issues of capacity and an offer being made only to those people who can accept the offer.

only persons who are offerees are entitled to accept the offer:• T W Hedley (Investments) Pty Lld v Richardson Plant Hire Pty Ltd [2005] QSC

99.

• one person - bilateral• an identified group of peopleo subject to various statutory restrictions – such as not to a

minor• the world at largeo no real limitation of peopleo Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 After seeing this advertisement Mrs Carlill bought one of the

balls and used it as directed. She subsequently caught the fluand claimed the reward. The company refused to pay. Mrs Carlill sued for the reward.

The court held that the advertisement for the smoke ball couldbe offered to the whole world, and could be accepted by any person who performed the conditions on the faith of the advertisement.

Mrs Carlill was entitled to the reward. There was a unilateralcontract comprising the offer (by advertisement) of the Carbolic Smoke Ball company) and the acceptance (by performance of conditions stated in the offer) by Mrs Carlill.

- anyone who is aware of the offer can accept the offer by complying with the terms- automatic ticket machine usually makes an offer, acceptance isby driving in, terms must be displayed o/s- offers can have limitations eg. no raincheckseg. Lefkowitz v Great Minneaplois Surplus Store 86 NW 2d (Minn1957): 1 x

$1 fur coat offer

What is not an Offer? – being that which is distinguishable from a valid offer (AS ABOVE)

http://www.bailii.org/uk/cases/UKHL/2009/38.html

Mere Puff

• Sometimes statements can be regarded only as ‘mere puffery’-the claims are made only for advertising purposes and mean nothing. Eg Leonard v Pepsico Ltd 88 F Supp2d 116 (1996)

• This case illustrates that when an advertisement that would normally be considered and offer, are so absurd that a reasonable person would not consider them to beserious, then there is no offer and there cannot be any acceptance.

• Also worth noting, is the fact that the advertisement referred viewers to the catalog of Pepsi products where Defendant did not list a Harrier Jet. This catalog was the true offer.

Mere Supply of Information

• The supply of information is not an offer.• A request for information must be discerned from a contractual

offer. • A clearer indication of a preparedness to enter into a contract,

than merely providing terms or information upon which a party maybe prepared to enter into such a contract, is needed.

Eg Harvey v Facey[1893] AC 552• Harvey telegraphed Facey• It was a mere supply of information• The Privy Council held that there was no contract

concluded between the parties. • Facey had not directly answered the first question as to

whether they would sell and the lowest price stated was merely responding to a request for information not an offer.

• There was thus no evidence of an intention that the telegram sent by Facey was to be an offer.

Invitation to Treat

An invitation to treat is an indicator of a parties willingness to negotiate entry into a contract.

It is a technique used by a party who desire another party to make an offer and cannot be construed or the terms be accepted as if it were a valid legal offer in itself.

Whereas an offer will be expressed in promissory terms so asto give rise to a binding agreement if accepted, an invitation to treat is an invitation designed to induce potential offerors to come forward and do so.

Examples of Invitation to Treat…….

Circulars, catalogues and Advertisements:

Partridge v Crittenden [1968] 2 All ER 421• Partridge was charged by Crittenden, on behalf of the RSPCA,

with illegally offering for sale a live wild bird which was not a close-ringed specimen, bred in captivity, against s. 6(1)*and Sch. 4* of the Protection of Birds Act 1954.

• It was held that the advertisement in question constituted inlaw an invitation to treat and not an offer to sell; therefore the offence with which the appellant was charged was not established.

a) Advertisements in a catalogue or in a curricular.

Circulars, which provide information about items for sale and their prices, are regarded as invitations to treat. If it were regarded as an offer and the manufacturer ran out of stock, theywould be in breach of contract for anyone who accepted such an offer as they could not provide stock .

- Grainger v Gough

Display of goods in a shop

Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd 1952]2 QB 795;

• An advertisement that gives information about goods for sale and their price will generally be an invitation to treat rather than an offer.

• They held that the display of goods was not an offer. • Rather, by placing the goods into the basket, it was the

customer that made the offer to buy the goods. • This offer could be either accepted or rejected by the

pharmacist at the cash desk. • The moment of the completion of contract was at the cash

desk, in the presence of the supervising pharmacist. • Therefore, there was no violation of the Act.

Whilst this case did uphold the legal concept of invitation to treat way back in 1953, some jurisdictions have since enacted legislation in either consumer protection or fair trading that would either make such a situation a legally binding offer by the retailer, or an offence for the retailer to refuse to carry out the transaction (bait advertising or misleading/deceptive conduct).

Fisher v Bell [1961] 1 QB 394.

http://en.wikipedia.org/wiki/Fair_trade

http://en.wikipedia.org/wiki/Fair_trade

http://en.wikipedia.org/wiki/Consumer_protection

http://en.wikipedia.org/wiki/Invitation_to_treat

http://en.wikipedia.org/wiki/Offer

http://en.wikipedia.org/wiki/Invitation_to_treat

http://en.wikipedia.org/w/index.php?title=Protection_of_Birds_Act_1954&action=edit&redlink=1

http://en.wikipedia.org/wiki/Partridge_v._Crittenden#Annex

http://en.wikipedia.org/wiki/Partridge_v._Crittenden#Annex

http://en.wikipedia.org/wiki/RSPCA

• A shopkeeper displayed in his shop window a knife with a price ticket behind it. He was charged with offering for salea flick knife, contrary to s. 1 (1) * of the Restriction of Offensive Weapons Act, 1959.

• Held: the shopkeeper was not guilty of the offense with whichhe was charged because the displaying of the knife in the shop window was merely an invitation to treat and the shopkeeper had not thereby offered the knife for sale, withinthe meaning of s. 1 (1) of the Act of 1959.

• The Prosecutor appealed the judges' decision. The court dismissed the appeal.

Although occasionally a display has been held to be an offer:Chapleton v Barry Urban District Council [1940] 1 KB 532

- a display of deckchairs with a sign indicating the fee for their hire was held to be an offer.

Auctions

- Holding of an auction will usually be regarded as in invitation to treat by the auctioneer inviting bids to be placed

- Each bid is considered an offer- The Auctioneer communicates acceptance of the final bid by the

fall of the hammer.

- Warlow v Harrison(1859) 120 ER 925.- Re Auctions without reserve- Auctioneer advertised an auction of three horses ‘without

reserve’- Plaintiff bid for one of the horses but there was a higher bid

from the vendor of that horse- The plaintiff therefore bid no further but claimed the horse

from the vendor – offerhin the the amount the plaintiff had lastbid, which the vendor refused.

- Held – the plaintiff was entitled to damages on the basis of a breach of his contractual rights to buy the horse at the amount of his last bid because if the vendor’s bid was accepted, this would amount to a reserve price.

• This means that no contractual claim can arise if the auctionis cancelled (Harris v Nickerson)

• A bidder is entitled to withdraw his or her bid before it is accepted (Payne v Cave)

• The Auctioneer is not obliged to accept the offer of the highest bidder (AGC (Advances) Ltd v McWhirter)

• An auction can be advertised as being one without a reserve price implies that the highest offer (bid) will be placed. If, in such a case, there was no acceptance of the highest bid by the auctioneer, the auctioneer would be in breach of contract with the highest bidder (Barry v Davies)

Online Auctioneer -- when there is offer and acceptance via a so called “auction”

online, an enforceable contract has been entered into by the parties to it.

Peter Smythe v. Vincent Thomas [2007] NSWSC 844) • In this case, a dispute arose between the seller of a vintage

Australian war-time aircraft and the buyer of that aircraft. The Buyer (Smythe) had made a “winning” bid on theonline auction site, eBay. “Congratulations, the item is yours. Please pay now! Wirraway Australian Warbird Aircraft”.

• Mr Thomas was disappointed that the highest bid received was $150,000.00 and he disputed that a contract had been formed for the sale of the aircraft to Smythe.

• The Court concluded that a binding contract for sale had in fact been entered into between the parties.

• That normal contractual terms apply to ebay contracts and arebinding.

Tenders

• An advertisement for tenders will generally be the same as an advertisement for an auction, which is akin to an invitation to treat.

• Therefore no liability will be incurred if the person does not accept any of the tenders or even consider them in a bona fide way.

o Meudell v Mayor of Bendigo (1900) 26 VLR 158

• Each tender will be considered an offer, which can be accepted or rejected.

o EXCEPT in ‘process contracts’ – where an invitation to tender creates an offer with the result that the submission of a tenderamounts to an acceptance

o whether or not a process contract exists depends on the intention of the parties

o the terms of a process contract will be found in the tender documents

o the willingness of the courts to find that a process contract exists is largely motivated by policy – the desire to protect the integrity of the tendering process by gov’ts and their agencies

Hughes Aircraft Systems International v Airservices Australia(1997) 146 ALR 1o two corporations tendered for a government contract. o In negotiations prior to the submission of tenders, the

parties agreed to a set of guidelines for the assessment of Tenders, in particular that there would be “fairness betweenthe tenderers”.

o The Court found that Hughes Aircraft relied on these representations in deciding to participate in the Tender Process, and therefore selection of a tender “was required to follow the procedures and be in accordance with the criteria specified”

o A breach of the Process Contract was found when Airservices Australia failed to abide by the agreed guidelines for assessment and awarded the contract to another tenderer.

o Hughes Aircraft was subsequently awarded damages.o Finn J went further to suggest that in order for there to be

a breach of a term to act fairly, one must establish the proof of unfair dealing.

• However, the invitation to tender may carry with it a separate offer to consider all tenders submitted.

Blackpool & Fylde Aero Club v Blackpool Borough Council [1990] 3 All ER 25o D invited tenders to operate flights, tenders had to be

submitted no later than noon on 17 March 1983o claimant posted tender in Town Hall letter box at 11am on 17

March 1983, letter box was due to be collected at noon but was not

o D did not consider C's tender as it was wrongly recorded as a late submission

o ISSUE: could C sue for breach of an implied promise that tendersreturned on time would be considered?

o HELD: Court of Appeal found invitation was an offer to consider any tender which was submitted as required and tenders correctly submitted would be acceptance of that offer

o there was a unilateral contract, binding D to consider C's tender

Standing Offers

• Standing offer is an indication by one party of his/her willingness to provide goods over a specified period of time.

• A standing offer is accepted every time an order is placed. o If the goods are not delivered or are refused the offending

party will be in breach of contract.- Great Northern Railway Co v. Witham

• An offeror may withdraw the offer, anytime, before acceptance ofthe offer is made in the form of an order.

• Further, unless the parties agree to the contrary, there is no obligation of the offeree to order goods only through the offeror, (eg. the offeree may choose not to accept the standing offer)

- Colonial Ammunition Co v Reid (1900) 21 LR (NSW) 338

Options- The standing offer may be revoked at anytime before acceptance

by the offeree.- However, if the offeree provides consideration (eg paying money)

to the offeror to keep the offer open for some period, the offercannot be withdrawn during this period.

- Routledge v Grant

- A promise to hold an offer open is binding so long as consideration has been given in return of that promise

Goldsborough Mort Co v Quinn An option is an agreement between an option holder and a grantor

under which the option holder is entitled to enter into a contract with the grantor on the execution of the option, prior to the expirty of option period.

OFFERS MUST BE COMMUNICATED

For an offer to be valid It must be communicated to the offeror agent

acceptor must be aware of offer’s existence and its termso Fitch v Snedaker (1868) 38 NY 248; o R v Clarke 1927) 40 CLR 227 The claimant wanted to compel the Crown to pay a reward it

had offered for information leading to the conviction of a murderer.

The claimant gave the information. But he gave it while he was under investigation himself for

murder. He told the police "exclusively in order to clear himself".

Reward (offer) wasn’t in his mind at time of acceptance so hewas unsuccessful.

An offeree may perform the act that constitutes acceptance ofan offer, with knowledge of that offer, but for a motive other than accepting the offer.

o Being, motive of the acceptor is immaterialo Williams v Carwardine (1833) 172 ER 1101. Reward for information Plaintiff knew of reward and gave information Motivation wasn’t reward though. It was about her health Motive wasn’t relevant Offer WAS in her mind at the time of acceptance cross-offers = 2 offers, but no acceptance, therefore no

contract o An offeree may perform the act that constitutes acceptance of an

offer, with knowledge of that offer, but for a motive other thanaccepting the offer. Tinn v Hoffman & Co (1873) 29 LT 271

A writes to B offering to sell certain property at a stated price.

B writes to A offering to buy the same property at the same price. The letters cross in the post.

It was held that two parties making identical offers to each other, in ignorance of each other’s offer, is called a cross offer.

Such offers don’t constitute acceptance of one’s offer by theother and as such there is no agreement between parties.

if the offeree learns of the offer through a 3rd person, there is no offer:

o Banks and Williams (1912) 12 SR (NSW) 382 Decision of government Minister approving purchase of certain

goods not offer capable of acceptance when communicated without

authority by member of Minister’s department. once the offer is communicated the offeree has the power to

transform it into an agreement by accepting it

The Offeree’s Options

1 accept the offer

2 reject the offer

3. make a counter-offer –destroys the original offer

Hyde v Wrench(1840) 49 ER 132 counter offer wasn’t accepted therefore no contract it was a fresh offer to buy

Butler Machine Tool Co ltd v Ex-cell-O Corp (England) Ltd [1979] 1 WLR 401

re ‘battle of the forms’ seller made offer to sell tool for 75k term included price variation clause if delay on delivery seller claimed increase on price wasn’t payable as seller used buyer’s new form in the

transaction process which didn’t include various clause it amounted to a counter offer

see also Brambles Holdings Ltd v Bathurst CC (2001) 53 NSWLR 153.

4. seek more information –neither acceptance or rejection

Stevenson, Jaques & Co v McLean (1880) 5 QBD 346 ‘offer open until Monday’ Stevenson and J asked for interest terms Seller sold to someone else S and J claimed they had a contract McLean claimed that the acceptance was not effective as

their telegram had rejected the offer by way of counter-offer.

Interest terms request was just a request for more information, thereby leaving the offer open for the offeree to subsequently accept it, not a refusal of offer

The more objective view is preferable. Once an offer is made, it is taken to be continuing each moment until accepted or withdrawn

As no notice of withdrawal was given by the offeror, S and J P could regard it as a continuing offer, and their acceptance of it made the contract complete.

5. do nothing at all –offer eventually lapses

Termination of an offer

An offer may be terminated at any time before it is accepted. However, once an offer is accepted it becomes irrevocable.

Goldsbrough Mort & Co Ltd v Quinn

And once it is terminated, it can’t be accepted or reinstated.

a) Revocation by the offeror

• Revocation is the formal withdrawal of the offer by the offeror.o at any time before acceptance: Payne v Cave(1789) 100 ER 502.

o unless the offeror has contracted (eg given an option) to keep the offer open – such as property sales

Goldsborough Mort & Co Ltd v Quinn (1910) 10 CLR 674. Quinn gave an option then tried to withdraw Court said option was enforceable and non-revokable and overcame

consideration Mort’s acceptance was fine

o revocation must be communicated to offeree before it becomes effective

Byrne v van Tienhoven(1880) 5 CPD 344

o Before acceptance, an offer can be freely revoked EXCEPT where an option has been granted

Routledge v Grant (1828) 130 ER 920 if consideration is given for the promise to keep the offer

open, an option contract is created an option contract is a contract by which the option holder is

entitled to enter into a contract with the granter of the option, either on a specified date, or any time during the option period, by exercising the option in accordance with its terms. The option holder is not bound to exercise the option.

whether the option is a conditional contract or an irrevocable offer will depend upon the relevant facts and circumstances

• revocation can be by words, or by doing an inconsistent acto Dickinson v Dodds(1876) 2 Ch D 463

• offers to the world at large can be revoked in the same manner that the offer was made

o Shuey, Executor v United States 92 US 73 (1875)

Communication of Revocation

• A revocation will only be effective once it has been communicated to and received by the offeree

o Financings Ltd v Stimson [1962] 3 All ER 386 &o Byrne v van Tienhoven 91980) 5 CPD 344

• communication of revocation need not be communicated by the offeror, it does not matter who communicates the revocation to the

offeree so long as the information given is reliable:o Dickson v Dodds (1876) 2 Ch D 463 Dickson v Dodds has been criticised as it leaves the

offeree in the position of having to decide whether ornot his source is reliable.

certainty would be achieved if revocation had to be communicated by the offeror

offerors should make it clear that the offer is open to acceptance by the first offeree where he is offering to a number of offerees

critical issue for the communication rule is to establish exactly when communication occurs 4.62

4.62 two-way instantaneous communication: face to face & telephone• it takes place when the offeror speaks to the offeree

o if the offeror’s words are drowned out by background noise, interference, a dead line etcsuch that the offeree does not hear them => there is no communication:

Entores v Miles far East Corporation [1955] QB 327 at 332

4.63 When communication by means of sending a message, • communication occurs when, in all the circumstances,

a reasonable offeree would have received the messag• conduct of both the offeree or the offeror could

displace actual notification-ie where notification is sent to a last known

address, or to a phone number when the person has several phone numbers

4.64 email:

• notification by email is regulated by legislation• if offeree specifies an email address then comm’n

occurs when the offeror’s email enters the offeree’ssystem

• if not specified, comm’n occurs when the email is actually comes to his attention

4.65 revocation of offers to the world at large • are to be published as broadly and with the same

notoriety as the offer:o Shue, Executory v United States 92 US 73 (1875)

• this holds even where a person aware of the offer does not become aware of the revocation

4.66 offers to the world at large where performance by the offeree has commenced but is not complete

• offeror can still withdraw the offer under some circumstances ie. where the performance is of benefit to the offeree:

Mobil Oil v Lyndel Nominees (1998) 153 ALR 198

the increase in sales achieved by the performance was of benefit to the franchisee & thus not unjust for Mobil towithdraw its offer

revocation can be by words, or an act inconsistent with the contract (provided the act becomes known to the

offeror):o Dickonson v Dodds (1876) 2 Ch D 463

Postal Rule• in some circumstances a letter or telegram that is used to

accept an offer is effective to accept that offer when posted or sent, rather than when communication of acceptance takes place.

• Where acceptance by post has been requested or where it is an appropriate and reasonable means of communication between the parties, then acceptance is complete as soon as the letter of acceptance is posted, even if the letter is delayed, destroyedor lost in the post so that it never reaches the offeror.with revocation of an offer there is no postal rule• if a letter or telegram is used to revoke an offer, it

must be received by the offeree before revocation is effective.

b) Rejected by the offeree

• rejection terminates an offer - an offer cannot be later accepted

• rejection can be express or implied 4.51• rejection must be communicated before it becomes effective• counter-offers act as rejections of the offer to which

they relateo a counter offer is a response that indicates a willingness

to contract, but on different terms from the offero a request for further information about an offer is not a

counter offer 4.52• rejection must be communicated before it becomes effective

• If an offeree attempts to accept the offer but introduces new terms, the offeree is rejected the offer and is deemedto be making a counter offer

- send rejection, but before it arrives, you call and say changed mind and you want to

accept – the acceptance is valid ** check on this – see acceptance notes

below 4.104 ( 5)

c) Lapse of time

• Time limit on acceptance of offer may be:o Expresso implied “reasonable time” is implied for acceptance, Dencio v Zivanovic(1991) 105 FLR 117 Manchester Diocesan Council for Education v Commercial & General

Investments Ltd[1970] 1 WLR 241.

• If no time is prescribed, the offer must be accepted within a reasonable time.

- an offer remains open until the offeree accepts it or it lapses- once lapsed, it no longer legally exists; offeree cannot accept it- may lapse:

- through the effluxion of time- the death of the offeror or offeree- by the failure of a condition

4.49- an offer stated to be open for a set time lapses if not accepted within that time- if no time is stipulated, it lapses after a reasonable time:

Empirnall Holdings Pty Ltd v Machon Paul Partners Pty Ltd (1988) 14 NSWLR 523

d) Failure of a condition subject to which the offer was made

• If a condition (eg Subject to finance) upon which the offer is made, is not fulfilled, the offer will lapse

o McCaul Pty Ltd v Pitt Club Ltd Ltd [1959] SR (NSW) 122

4.68- an offer may be made subject to an express or implied condition that a certain state of affairs remains unchanged until acceptance

- if that changes, the offer lapses and cannot then be accepted

4.71- in order to avoid doubt in situations of possible changes in circumstances after the offer has been made, • an offeror should give careful consideration to

circumstances that could lead to the lapse of the ofeer • and clearly stipulate that the offer will lapse if such

occurs

e) Death

• death of offeror –notice of death terminates the offer: o Fong v Cilli(1968) 11 FLR 495

• If the offeror dies and the offeree has not been notified ofthat death, it is still possible for the offeree to accept the offer DEPENDING on the circumstance and nature of the offer, Thus binding the offeror’s estate.

• death of offeree –depends if offer can be accepted by the offeree’s estate –

o eg Carter v Hyde(1923) 33 CLR 115.

• Nor can a representative of the offerors estate accept the offer on their behalf therefore the offer lapses

o Reynolds v Atherton

4.72- generally, if the offeror dies before acceptance & the offereeknows of the death, he cannot accept the the offer: Dickinson v Dodds at 475

• this could be subject to an establish contrary intention

4.73- generally the death of the offeree terminates the offer: Reynolds v Atherton (1921)

• BUT intention and circumstances could produce a different result

eg. a deceased’s state could accept the offer

AcceptanceWho may accept?Only those persons:

• to whom the offer was made; and• who have the offer in mind at the point of ‘acceptance’.

Requirements of a valid acceptance must be:- communicated by the offeree- made in response to the offer and correspond with the offer

- if the acceptance attempts to vary the offer, it is usually construed as a counter offer that the offeror may consider

- made while the offer is still in force- may be express of implied from conduct

(a) Acceptance must be unequivocal

the acceptance must be clear in that it must be understood that nothing is left to be negotiated.

a final and unqualified assent to the terms of the offer o (Masters v Cameron (1954) 91 CLR 353) When the words 'subject to contract' are given their natural

meaning, they prima facie create an overriding condition, so that what has been agreed upon must be regarded as the intended basis for a future contract and not as constituting a contract.

otherwise it may amount to a counter-offer. if the offeror specifies a method of acceptance, it must be

followed

(b) The requirement of knowledge of the offer

for an offer to be accepted in must have been in reliance on and in response to the offer:.

R v Clarke (1927) 40 CLR 227. o Clarke came forward to provide info re the murders of two

police officers, o he knew of the rewardo BUT on his own admission, he gave the info solely for purpose

of clearing himselfo court HELD that there was no acceptance in this case and

thus he was not entitled to the reward

o it has been suggest that this principle is weak as it relies on the claimant’s own admissions, such cases are likely to berare

acts done in ignorance of an offer, even if they satisfy the terms of the offer – are NOT a valid acceptance

(c) Acceptance must be correspond with the offer

• The acceptance must correspond exactly with the terms of theoffer.

• Any response to an offer that adds additional terms or alters existing terms set out in the offer is not an acceptance.

• Such a response is a counter-offer, and has the effect of rejecting, rather than accepting, the offer.

Turner Kempson & Co Pty Ltd v CammI [1922] VLR 498 – Camm sent a letter accepting an offer from Kempson to sell

him a quantity of raspberry pulp he added that he wanted it delivered in 3 lots of 5 tonees,

10 days apart The Full Court in Vic HELD this to be a counter-offer not

an acceptance

4.80- not all responses to offers will be counter-offers

- acceptance with additional terms may be construed as being able to be accepted

or rejected by the offeror as he wishes , without effecting the acceptance of the original terms in their original form- there may be a valid acceptance if the deviation is solely in favour of the offeror:

Boreland v Docker (2007) Aust Contract R 90-256- a response where the offer doesn’t offer new terms as

such, but rather only terms that reasonably follow consequentially on the agreement

-ie. “if the terms merely make express what would otherwise be implied”:

Lark v Outhwaite [1991] Llyod’s Rep 132 at 139- where acceptance does not coincide exactly with the

terms of the offer due to some error or misdescription by theofferee does not necessarily invalidate the acceptance eg. in Carter v Hyde (1923) 33 CLR 1115

(d) Acceptance can be express or implied

• Most acceptances are by means of some express statement madeby the offeree to the offeror.

• An offeror cannot stipulate that silence/no response to an offer will be deemed to constitute as an acceptance:

Felthouse v Bindley (1862) 142 ER 1037. There was no complete bargain at the time of the conversation between

uncle and nephew. NOr was there a complete bargain when the uncle wrote to the nephew stating, in part, 'If I hear no more about him, I consider the horse mine at 30l. 15s.

The uncle had 'no right to impose upon the nephew a sale of his horse for 30l. 15s. unless he chose to comply with the condition of writing to repudiate the offer.'

(e) Acceptance generally must be communicated

- the rationale for the requirement of communication is that it would be unfair for an offeror to be legally bound by an offer that he made without any knowledge of the offeree’s acceptance of it.

General rule: acceptance must be communicated to the offeror to be effective.

o By this we mean that the offeror has been notified that the offeree accepts the offer: see Carlill v Carbolic Smoke Ball Co,

Acceptance can occur thorough conduct: An offeror may stipulate the manner of acceptance by advising

the offeree that if he/she wishes to accept the offer, the offeree should perform stipulated acts waiving the need to communicate acceptance. Acceptance can be express or implied.

Brogden v Metropolitan Railway Co(1877) 2 App Cas 666. o This case considered the issue of acceptance of a contract

and whether or not a contract for the supply of coal was enforceable even though the formal document had not been completed.

o Metropolitan's agents drew up some terms of agreement and sent them to Brogden.

o Brogden wrote in some parts which had been left blank and inserted an arbitrator who would decide upon differences which might arise. He wrote "approved" at the end and sent back the agreement documents.

o Metropolitan's agent filed the documents and did nothing more. For a while, both acted according to the agreement document's terms.

o But then some more serious disagreements arose, and Brogden argued that there had been no formal contract actually established.

o Court held a contract had arisen by conducto “I have always believed the law to be this, that when an offer is made to another

party, and in that offer there is a request express or implied that he must signify his acceptance by doing some particular thing, then as soon as he does that thing, he is bound”

o “ If the parties have by their conduct said, that they act upon the draft which has been approved of by Mr. Brogden, and which if not quite approved of by the railway company, has been exceedingly near it, if they indicate by their conduct that they accept it, the contract is binding”

The offeror may stipulate the manner of communication

however unless it is clear that the offeror’s stipulated means of acceptance is the ONLY means that he/ she will accept, the offeree may accept the offer by any means no less advantageous to the offeror, eg George Hudson Holdings Ltd v French (1973) 128 CLR 387

if no method is specified, courts consider what is reasonable.

The requirement of communication is not universal.

It can be dispensed with by the offeror. Furthermore, communication is not required in cases where

the postal acceptance rule applies.

(i) Offeror Dispenses with Need for Communication

As the communication requirement is for the benefit of the offereor, he/she is at liberty to dispense with the need for communication and thereby permit acceptance to arise without communication having taken place. Such dispensation can be express or implied: Carlill at 269.

Cases involving offers of reward and leading to unilateral contracts upon acceptance are ones in which almost always the court will find that the need to communicate has, by implication, been dispensed with by the offeror: see Carlill at 270.

In such cases the acceptance is performance of the terms of theoffer – there being no need to also communicate acceptance of the offer to create a contract.

(ii) The Postal Acceptance Rule

is an exception to the rule that acceptance must be formally communicated

o A statement of the postal acceptance rule is found in :-o Henthorn v Fraser [1892] 2 Ch 27 at 33. “Where the circumstances are such that it must have been within the

contemplation or the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted.”

When the rule applies, acceptance takes place at the time the letter is posted, and not at the later time when the letter is received.

The postal rule does not apply where: the parties’ dealings were protracted and contentious o (Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vic) Pty Ltd); The rule only applies if it is reasonable, contemplated or

authorised that acceptance be by post.

It is clear that simply because a letter is used to make the offer does not mean that a letter of acceptance attracts the postal rule.

The nature and circumstances in which negotiations take place could indicate that actual communication is required even thoughnegotiations are conducted via the post, eg. letters between solicitors engaged in highly contentious communications to negotiate a dispute between their respective clients.

it would produce manifest inconvenience or absurdity –o see dicta statement in British & American Telegraph Co v Colson (1871)

LR 6 Exch 108 the courts will not apply the postal rule if they believe that

its practice will manifest inconvenience or absurdity, as remarked by Lord Bramwell …

"if a man proposed marriage, and the woman was to consult her friends and let him know, would it be enough if she wrote and posted a letter which never reached him? ...[That] would be wholly unjust and unreasonable".

the offeror expressly or by implication requires that acceptancebe actually communicated

o (Holwell Securities Ltd v Hughes [1974] 1 WLR 155 at 161.) Ordinarily, a contractual offer can be deemed to be accepted

when it leaves the offeree and enters the postal system. In this case, the original offer clearly stipulated the method

by which acceptance was to take place, and this superseded the postal rule – in that the letter had to be received for it to bea valid acceptance, not where it was sent.

(postal rule)… that rule does not apply where the express terms of the offer specify that acceptance must reach the offeror. The public are now familiar with this exception to the general rule through their involvement with football coupons. Also, the rule does not apply if it would lead to manifest absurdity or inconvenience.

The postal rule does not apply to: letters of offer letters revoking an offer letters revoking an acceptance Email/ instantaneous communication:

Olivaylle Pty Ltd v Flottweg GMBH & KGSS (No 4) [2009] FCA 522 at [25] o “email is often, but not invariably, a form of near instantaneous communication … I

consider that there are analogies to be drawn with the way the law developed in relation to telex communications in an earlier era where what I have termed “the instantaneous communication rule” came to be adopted … I consider that the contractwas made where the acceptance was received”.

o In other words, His Honour thought the postal accceptance rule should not apply to email.

Instantaneous Communication Where the communication of acceptance is instantaneous, the

contract is effective when the acceptance is received (Entores Ltd v Miles Far East Corp[1955] 2 QB 327.

A decision in contract law on the moment of acceptance of a contract over telex.

Denning LJ found that the regular postal rule did not apply for instantaneous means of communications such as a telex.

Instead, acceptance occurs where the message of acceptance is read.

Electronic Transaction (Queensland) Act 2001(Qld) contains rules to determine when and where an electronic communication (such as email) is sent and received

similar legislation in other States/ Cth.

an electronic communication (eg email) is taken to have been sent when it first enters an information system outside the control of the originator (s 23).

4.104points to note about the operation of the postal rule:

1. the rule only applies if it is reasonable, contemplated or authorised that acceptance be by letter or telegram

2. the letter or telegram must be properly posted: properly addressed; postage paid; properly deposited with the PO

3. it is irrelevant whether the latter or telegram ever reaches its destination

a. since acceptance occurs when the letter is posted:b. Household Fire & Accident Insurance Company v Grant at 223, 2274. an offeror can exclude the operation of the rule at the time

the offer is made5. where the rule applies and the offeree sends a letter of

acceptance, a. BUT before it received by the offeror, the offeree changes his

mindb. AND uses a quicker method to inform the offeror of his

rejection of the offerthc. e q’ arises as to whether the acceptance is binding and a

contract is formedd. there are differing views and the issue remains unsettled see

p.73

Acceptance and the date and place of contract4.107- the date of a contract is the date of acceptance- this is the date that the fact of acceptance takes place- where the postal acceptance rule applies, this is the date of posting (not received)- it is not necessary to identify a precise time of offer or acceptance for a contract to come into existence

4.108- the place of the contract is the place of acceptance- this is the place where the offeror is when the communication of acceptance takes place- where the postal acceptance rule applies, it is the place fromwhich the letter / telegram was sent

Revocation of acceptance an acceptance can be revoked provided the revocation comes to

the offeror’s attention before he or she receives the acceptance.

1113 NOTES MODULE 2: WEEK 3

CONSIDERATION CHAPTER 6

Elements necessary for formation of a contract

Has an offer been made? offers must be distinguished from invitations to treat

Has the offer been accepted? acceptance is only valid when it has been properly

communicated. One of the elements of a valid offer andacceptance is certainty.

Was consideration provided? Essentially, the courts will only enforce an agreement

if both sides have provided something of value.

Did the parties intend to make a contract? the parties to the agreement must have intended their

agreement to be legally enforceable.

Enforceable agreements may be divided into 2 types

Formal contracts which don’t require consideration (eg a deed)

“Signed, sealed and delivered)By John Smith )this day of 20xx)_____________In the presence of:________________________Witness

Simple contracts which do require consideration.

Rann v Hughes(1778) 101 ER 1014 the common law will not enforce a gratuitous or bare

promise –[but sometimes the promisee may be able to obtain a remedy, despite the lack of consideration through the equitable doctrine of estoppel.]

6.1• a common aspect of the definition of contract is that the

promise or obligation is enforceable by law• the doctrine of consideration explains why the remedies of

breach of contract are available to a plaintiff

What is consideration?

In contract law consideration is concerned with the bargain of the contract. A contract is based on an exchange of promises.

Each party to a contract must be both a promisor and a promisee.

They must each receive a benefit and each suffer a detriment.

This benefit or detriment is referred to as consideration.

A one sided promise which is not supported by consideration is agift.

The law does not enforce gifts unless they are made by deed.

Whilst the common law strictly adheres to the requirement of consideration (although in some instances the courts seem to go to some lengths to invent consideration (eg Ward v Byham [1956] 1 WLR 496, Williams v Roffey Bros [1990] 2 WLR 1153) equity will, in some instances, uphold promises which are not supportedby consideration through the doctrine of promissory estoppel.

o An act or promise.o Price paid for a promiseo From promisor to promisee Or o Offeror – offeree

6.2- an agreement in itself is not a contract- it must be supported by consideration

- the doctrine of consideration is based on the concept of reciprocity

- a promisee must have given something of value in exchange forthe promise

(promise – the person to whom the promise is made)- a promisee will not succeed in any action for a

remedy based on a breach of contract unless he has provided consideration for the promise

- the promisee may obtain remedies based on other principles such as equitable estoppel

- the requirement of consideration is the rule that consideration must move from a promisee

- need not be given to the promisor, can be given to a 3rd party

Consideration is the price paid for a promise.- this conception of consideration has been firmly entrenched in Australian contract Law since: Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424 at 456-7

6.16- before a promisee’s promise or act can be consideration, it must be established that the promise / act is given at the request of the promisor and in reliance upon the promisor’s promise.

6.25- on the basis of R v Clarke (1927) 40 CLR 227

- an acceptance of an offer must be in reliance upon the offer

Consideration is the price paid for apromise. Some rules of consideration:

A. Consideration is something of value exchanged for the promise B. Consideration must move from the promisee (person receiving

the promise) C. Past consideration is no consideration D. Consideration need not be adequate, but it must be sufficient.

A. Consideration is something of value exchanged for the promise

Currie v Misa (1875) LR 10 Ex 153“A valuable consideration in the eyes of the law mayconsist either in some right, interest, profit or benefit accruing to one party,or

some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.”

B. Consideration must move from the promisee- need not be given to the promisor, can be given to a 3rd party

6.26- essence of the doctrine:A promisor’s promise can only be enforced by a promisee if he has provided consideration:there are 2 parts to the rule:

1. The person who alleges the contact was breached must show that the promise breached was bought or bargained for: consideration is said to flow from the promisee.and2. it need not move to the promisor:

o Pico Holdings Inc v Wave Vistas Pty Ltd (2005) 214 ALR 392 at 407

If A & B enter into a contract where B(the promisor) agrees tomow A’s lawn and in return A(the promisee) agrees to pay $100 to C

A’s promise to pay is consideration that has moved from Ato C

C, who has not provided any consideration cannot, on thatground alone, enforce

the promise that A made to BB can enforce the promise as B provided the consideration

for A’s promise

Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd[1915] AC 847.•Joint promisee rule –if the promise is made by the promisor to 2+ persons jointly, only one of those persons need provide consideration:

ie generally only the person who has paid the price for a promise cansue on it.

JOINT PROMISEE - Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 at 478-9, 493.•A promises B and C cfA promises B only•ie generally only the person who has paid the price for a promise can sue on it.

- A makes a promise to B & C jointly as promisees

- B provides the consideration, C provides no consideration

- any action must involve both B & C- if B refuses to sue => C can sue A and join B as a

defendant- any damages recovered from A will be for both B & C- if B dies before proceedings start, C must join B’s

estate to the proceedings- damages recovered will belong to C alone

- Coulls owned land; entered an agreement with O’Neil to quarry stone on the land

- agreement stipulated that royalties be paid to Mr & MrsC as joint tenants

- after Mr C dies, the issue was whether the royalties were to be pd to Mrs C alone, or shared with Mr C’s estate

- Mrs C’s claim was denied by a bare majorityBUT Windeyer J said

“Mrs Coulls, on the basis that she is a surviving promisee, could now bring an action on the contract; and in respect of money’s becoming available due and payable under itsince the death of her husband recover them for herself alone”

C Past consideration is no consideration

Consideration must be executory (yet to be performed) or executed (present/ part of the 1 transaction.)

The promise must have been bargained for –therefore past consideration is not valid. Consideration is past when thepromise is made after the performance of an act and independently of it.

-‘past consideration’ is a misnomer – it is a situation where something is done before any promise is made

- typically arises where a contract is entered into and

completed and then one party makes a further promise to the other. The earlier contract does not amount to consideration.

Past consideration may be valid where it was proceeded by a request:

Lampleigh v Braithwait(1615) 80 ER 255 (murder) The defendant had killed a man and was due to be hung

for murder. He asked the claimant to do everything in his power to

obtain a pardon from the King. The claimant went to great efforts and managed to get

the pardon requested. The defendant then promised to pay him £100 for his

efforts but never paid up.Held: Whilst the promise to make payment came after the

performance and was thus past consideration, the consideration was proceeded by a request from the defendant which meant the consideration was valid.

The defendant was obliged to pay the claimant £100.

Roscorla v Thomas(1842) 114 ER 496 (horse)- R bought a horse from T- after the sale was complete, T promised R that the

horse was sound and ‘free from Vice’- this was not true- R sued T for breach of contract on the basis of that

promise- he failed: there was no consideration for the promise- fresh consideration had to be given for T’s promise to

be enforceable

6.33 exceptions exists

- in Forbes Engineering (Asia) Pty Ltd v Forbes (No 4) [2009] FCA 675 at [173]- giving consideration and making the promise were one transaction- exact order of events were not decisive- consideration was treated as executed consideration rather than

past consideration

6.34- in Pao On v Lau Yiu Long [1980] AC 614 at 629; [1976] 3 All ER at 74- the Privvy Council held were there has been performance of an act- and the promise to pay for the act comes later

- the promise will be supported by consideration & therefore enforceable if:

1.the earlier act was done at the promisor’s request;2.the parties understood at the time of the act that it would

require some payment or remuneration

3. payment / remuneration must have been legally enforceable had it been made before the performance of the act

- in Re Casey’s patents; Stewart v Casey [1892] 1 Ch 104- C promoted a patent owned by his employers- was later promised a 1/3 interest in the patent for his promotional

work- issue: was his promotional work past consideration- the court held for Casey

“… the fact of past service raises an implication that atthe time it was rendered it was to be paid for, and, if it was a service which was to be paid for, when you get in the subsequent document a promise to pay, that promise may be treated either as an admission which evidences or as a positivebargain which fixes the amount of that reasonable remuneration on the faith of which the service was originally rendered. So that here for past services there is ample justification for the promise to give a third share”

D Consideration must be sufficient, not adequate Consideration need not be adequate–court’s don’t enquire

into value –eg promise to pay $10 for a new BMW is good consideration

Consideration must be sufficient There is no requirement that the consideration must be

market value, providing something of value is given eg £1 given in exchange for a house would be valid.

The courts are not concerned with whether the parties havemade a good or bad bargain

6.38- this principle is about the threshold of validity of what is offered as consideration- applies to both executory and executed consideration

- for the promisee’s promise / act to be consideration, itmust be of value in the eyes of the law- it does not have to be commercially adequate to be sufficient in law

eg promise to pay $10 for a new BMW is good consideration

NB Kirby P in Woolworths Ltd v Kelly (1991) 22 NSWLR 189 at 193-4point 6 “ Contract law is a reflection of the doctrine of freedom of contract, namely, that parties are at liberty to negotiate contracts on whatever terms they wish, free from the ‘paternalistic superintendence of the courts as to the adequacy of their bargains’.”

Illusory promises are not consideration: “in consideration of natural love and affection” “A promise made in return for a son’s promise not to bore

his father”: White v Bluett(1853) 23 LJ Ex 366.35 - illusory consideration relates to circumstances in which

it is claimed that there is consideration by the promise of the performance of some act, but where there is also a discretion as to whether to perform that act.

- the conditional nature of the obligation to perform, precludes the promise from being consideration

- this is to be distinguished from situations where there is an obligation to perform, but the manner or extent or the performance is discretionary – this does give rise to a contract

eg. employment contracts with terms relating to the payment of bonuses

See also DPP Vic v Le (2007) 232 CLR 562 at 576-7 for a discussionof the adequacy of consideration

But note: Dunton v Dunton(1892) 18 VLR 114•Giving up a legal right might be consideration, eg the injured pl may agree not to proceed with threatened litigation in return for the payment of an agreed sum of monetary compensation.

No consideration if:

(a) performing an existing duty(b) discharging an existing duty

(a) Performing an existing public duty is no consideration:

Collins v Godefroy(1831) 109 ER 1040; The claimant, Collins, had been subpoenaed to attend court

as a witness in separate court case involving the defendant,Godefrey.

Godefrey had sued his attorney for malpractice and Collins was required by the court to attend as an expert witness.

In fact Collins never gave evidence but was required to be on standby for six days in case he was called.

After the trial Collins gave Godefrey an invoice to cover his time spent at court and demanded payment by the next day.

Without giving him the full day to pay, Collins commenced anaction to enforce payment.

Held: Collins was under a public duty to attend court due to the

subpoena. Where there exists an existing public duty this cannot be

used as consideration for a new promise. Godefrey was not required to pay him.

cf Glasbrook Bros v Glamorgan CC[1925] AC 270 police agreed to garrison a colliery during a strike to

protect workers police assessed that foot patrols would be sufficient, but

agreed to the garrison for a specified price afterwards, Glasbrook Bros refused to pay claiming it was

the police service’s duty to do what they did The defendants refused to pay arguing that the police were

under an existing public duty to provide protection and keepthe peace.

Held 3:2 decision: In providing additional officers to that required, the

police had gone beyond their existing duty. it was HELD that the police authority gave consideration to

the promise to pay for the garrison because they had done more than they considered necessary

They were therefore entitled to payment.

(b) Discharging an existing duty

Renegotiating a debt

Pinnel’s Case(1602) 77 ER 237.“I owe you $100 but I can’t pay. So I’ll give you $50 if you agree to forget about the other $50.” The claimant was owed £8 10 shillings. The defendant paid

£5 2 shillings and 2p. The claimant sued for the amount outstanding.Held:

The claimant was entitled to the full amount even if they agreed to accept less.

Part payment of a debt is not valid consideration for a promise to forebear the balance unless at the promisor's request part payment is made either:

o a). before the due date oro b). with a chattel oro c). to a different destination

As a general rule part payment of a debt is not good consideration for the creditor’s promise to forgo the balance.

In paying part of the debt the promisee is doing no more than performing an existing contractual duty owed to the promisor.

This rule, that payment of a lesser sum on the day cannot be satisfaction for the whole – known as the rule in Pinnels case – was finally established by Foakes v Beer.

However, payment of a lesser sum by a 3rdparty is good consideration:

Hirachand Punamchand v Temple[1911] 2 KB 330. The claimants were money lenders in India. They lent money to the defendant Lieutenant Temple who was

an army officer serving in India. The claimants sought return of the money from the claimant

but were unable to get any response so they contacted his father.

Some correspondence went between the claimant and the father's solicitors.

The claimants asked how much the father would be prepared topay to settle the son's accounts.

An amount was agreed which was a substantial, amount although not the full amount due.

The claimant promised to send the promissory note relating to the son's debt to the father once they received payment.

The father paid, but the claimant retained the promissory note and sued the son to enforce the balance.

Held: The payment made by the father was sufficient to

discharge the full balance. Where the person making payment in return for

discharging the debt owed by another this will amount to good consideration as the existing duty tomake payment was not owed by them but a third party.

Equitable Estoppel Equitable doctrine Its about future conduct

The Doctrine of Equitable Estoppel states that a promise not supported by consideration could give rise to rights in circumstances where it would be unconscionable conduct for the promisor to renege on the promise. An estoppel may arise from pre-contractual negotiations

The failure of the common law to provide a remedy for broken non-contractual promises has resulted in increased reliance on equity.

Namely, the Representor induced the Relying Party to believe he has signed a contract.

The equitable doctrine of estoppel allows the courts to avoid the need for consideration to enforce a promise in certain situations.

Essence of estoppel: the courts will stop a person from denying something when this would be inequitable.

The effect of Common Law Estoppel is to prevent the Representor from denying his representation when in court. The contractual rights and obligations will be determined as if the Representor’s representation was true.

This means that the Representor will be ‘estopped’ from denying he has signed the contract. For all intents and purposes, the contract will be deemed as signed, and therefore enforceable.

Equitable Estoppel or representation of future conduct occurs where the Relying Party acted upon an assumption as to the future conduct of the Representor.

• Namely, the Representor induced the Relying Party to believe he will sign the contract in the future.

The effect of Equitable Estoppel is to prevent the Representor from acting inconsistently with his representation without taking steps to ensure the Relying Party does not suffer detriment as a result ofhis inconsistent conduct.

This means the Representor will need to give reasonable notice of its intention to act inconsistently with the representation, and in

the case damages will still be suffered by the Relying Party, compensate the Relying Party for those damages.

Equitable Estoppel can be divided into Proprietary Estoppel (representation deals with interest in land) and Promissory Estoppel(all other Equitable Estoppel which doesn’t relate to land).

The word estopped means precluded or prevented Prevents someone going back on a promise even if no consideration

was made.

Promissory estoppel

promissory estoppel is an exception to the rule that the promisee must provide the requisite sufficient considerationto bind the promisor to their subsequent promise.

first discuss the primary rule that consideration must be sufficient and that the facts as presented deal with an exception to that rule -namely, with promissory estoppel.

mention should be made that it can now be used as a sword as well as a shield although on the facts as given, it is being used as a defence and must therefore be analysed in accordancewith the principles laid down in High Trees and subsequent

Australian case law has indicated, however, that the element of detriment must be established by the promisee before a court will consider the question of whether promissory estoppel applies in a particular set of circumstances and whether or not detriment can be established

Promissory estoppel is an equitable doctrine which in some instances can stop a person going back on a promise which is notsupported by consideration. Promissory estoppel was developed by an obiter statement by Denning J (as he then was) in Central London Property Trust Ltd v High Trees Ltd [1947] KB 130

Denning J based the doctrine on the decision in Hughes v Metropolitan Railway (1876-77) L.R. 2 App. Cas. 439

Promissory Estoppel operates where the Representor induces the Relying Party to believe that certain contractual rights within their contracts will not be enforced.

If the Relying Party changed his position in reliance on that representation, the Representor will not be allowed to enforce those rights.

there are specific elements that must be present:

• Promisor made a promise significant enough to cause the promisee to act on it

• Promisee relied upon the promise

• Promisee suffered a significant detriment• Relief can only come in the form of the promisor

fulfilling the promise

And, there need not be a contract involved. In fact, when promissory estoppel is used, it is because a contract did not exist. Now it may not be as simple as this. The court will look at a few things. First, the court will decide whether there was detrimental reliance, or a change in the position of the promisee, who acts based on the promise and becomes damaged as aresult

Estoppel begins with the decision of

Hughes v Metropolitan Ry Co(1877) 2 App Cas 439 A tenant of property was given notice to repair certain

defects within a 6 month period. During this time, the tenant thought it might be better to sell the remainder of their interest back to the landlord, rather than incurthe expense of repairs.

The parties did not successfully conclude an agreement tosell the interest, and it was held that whilst negotiations were taking place, there was an implied understanding that the notice period would not continue to run.

The landlord’s action for ejectment for failing to repairwithin the stipulated period failed. It can be seen that this case did not involve a "promise" as such, but merelyan "understanding" - an implied understanding is one which the court will infer from the circumstances - one which they take to be a reasonable inference.

Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 (rent during WWII) – Revival and broadening of Promissory Estoppel.

Where a Representor makes any representation which affects legal relations, and that representation wasboth intended to be acted upon and in fact acted upon, Promissory Estoppel will prevent the Representor from acting inconsistently with that representation.

o No cause of actions for damages, simply forcing Representor to make good of his representation.

o Requires pre-existing legal contracto Still Only operates as a defence from

enforcing certain rights

equity estopped the owner from going back on their promise, despite lessee being contractually obligated to pay the full amount.

Elements of Estoppel

• The parties must be in a pre-existing contractual relationship – but extended beyond this in Waltons Store (Interstate) Ltd v Maher (1988) [leading Austcase];

o There was no written/formal contract between the parties

o In this case, equity intervenedo No contract, just contractual obligations for the

futureo A way of incorporating unconscionable conduct.o Promissory Estoppel can occur in pre-contractual

negotiations – no need of pre-existing legal relationship.

o Promissory Estoppel could be used to support a case of action in contract.

o Landmark case, departure from the idea that consideration is needed and reliance does not matter

o the courts adopted a reliance interest based approach – the minimum necessary to prevent the detriment suffered by the Relying Party. This means that the enforcement of promises was not available

o The significance of this case was that it consolidatedpromissory and proprietary estoppels into the single, and broader, principle of equitable estoppel

o We believe approval will be forthcoming. We shall let you know tomorrow if any amendments are not agreed to…’…

o This is the case where the High Court of Australia made thebig breakthrough in relation to promissory estoppel

o Breakthrough was twofold and now sets us apart from BritishLaw

Promissory estoppel able to be used as a sword, not just a shield

Promissory estoppel a general principle which could operate in any legal relations, not just existing contractual relations

• There must be a clear representation or promise (not an

ambiguous promise) ; and

• The person alleging the estoppel must have relied on the promise so that if the other was allowed to depart from it the promisee would be materially disadvantaged.

Focus of estoppel:

the unconscionable conduct of the promisor in moving away from the assumptions created by his words or conduct.

i.e. the belief or assumption created by the words or conduct ofthe first party has been relied upon by the second party, who has thereby altered his position in such a manner that this second party would suffer loss, damage or detriment if the firstparty were allowed to resile. • Its when a change of mind inconveniences someone, when one has

gone ahead and acted on something. so this is about promises and unfairness (unconscionability) ‘

merely breaking a promise is not by itself unconscionable, but itdoes become unconscionable conduct when the promisee has relied on it to his or her detriment

Detrimental reliance is particularly important because it goes toproving unfairness

Mere reliance is not enough, it has to be reliance that was encouraged by the promisor.

‘unconscionability’ Asks whether the representor deserves blame – did they act

unconscionably. This is usually a summing up of all factors.

NOTE: Detrimental reliance determines the issue and show unconscionability.

o The doctrine extends to the enforcement of voluntary promises on the footing that a departure from the basic assumption must be unconscionable

So this is about promises and unfairness (unconscionability) ‘ merely breaking a promise is not by itself unconscionable, but it does become unconscionable conduct when the promisee has relied onit to his or her detriment

Detrimental reliance is particularly important because it goes to proving unfairness

o Mere reliance is not enough, it has to be reliance that was encouraged by the promisor.

Commonwealth v Verwayen (1990) 170 CLR 394; Often the only way to prevent the promisee suffering

detriment will be to enforce the promise

Despite a clear contractual right to terminate, a provider may be estopped from terminating in circumstances where it would be unconscionable to do so

In order to prevent the provider from terminating, a participant would have to show that the provider had represented that it would not terminate, that the participant relied on that representation to his or her detriment, and that it would be unjust or inequitable forthe provider to terminate in those circumstances.

Verwayen was seeking compensation after he was injured inthe Voyager disaster

Commonwealth government repeatedly assured Verwayen and others that they won’t plead the statute of limitations as a defence but in 1985 decided they would.

Verwayen argued that they were estopped from pleading that defence

On question of inducement, Mason J had said that normallyit wouldn’t be reasonable for one to form an assumption on what a party said leading up to a case because it is always open for them to change their pleadings, but here commonwealth is no ordinary litigant. Coming from them itwas like a statement of policy, so it was perfectly reasonable for Verwayen to form an assumption they would not use the defence.

So elements for estoppel: An assumption, induced by the Commonwealth which Verwayen then relied on to pursue an action in negligence against the Commonwealth

So the case which went to the High Court of Australia wason the question of ‘what flows from this estoppel’?

boiled down to this detriment/remedy issue; reliance lossvs remedy loss

So they had a choice, the Commonwealth could be estopped from pleading statute of limitations and Verwayen would probably recover damages thus fulfilling his expectation OR the Commonwealth could be allowed to plead the defenceand Verwayen wouldn’t be able to pursue his action in negligence but could recover his expenses thus far in relying on what the Commonwealth had said.

Whilst the 'normal' remedy of estoppel is to 'estopp' rather than to provide compensation, some cases call for the operation of the minimum of equity idea (in the form of equitable compensation etc).

HELD: The Commonwealth could not plead that defence, but only Deane and Dawson based their decisions on estoppel.

Commonwealth v Clark[1994] 2 VR 333 –

Cth estopped from relying on defences –Voyager collision The court estopped the Commonwealth from resiling on the

agreement, because it was deemed the normal function and the best possible way to avoid a detriment (which Verwayen identify as the role of equitable estoppel).

In doing so, the court refused to define ‘minimum equity’.

Remedy in cases of estoppel: court will order remedy on the basis of the minimum order required to remove the detriment, eg by adequate compensation.

Reading NOTES MODULE 2: WEEK 3

EQITABLE ESTOPPEL CHAPTER 36

•The failure of the common law to provide a remedy for broken non-contractual promises has resulted in increased reliance on equity.

•The equitable doctrine of estoppel allows the courts to avoid the need for consideration to enforce a promise in certain situations.

•Essence of estoppel: the courts will stop a person from denyingsomething when this would be inequitable.

36.1- the doctrine of consideration has often been seen as leading to injustice- the equitable doctrine of promissory estoppel evolved to overcome many of these injustices- estopped = precluded or prevented- the essence of promissory estoppel is that a promisor is precluded from going back on his or her promise even though the promise is not supported by consideration moving from the promisee- the various forms of estoppel in equity all arose where it would be unconscientious for a plaintiff’s action against a defendant to be denied, and, accordingly, they all fell within abroader principal of equitable estoppel

36.3- fairly simple as a broad principle- BUT ‘estoppel’ raises a multiplicity of more precise meanings dependent upon the circumstances of the case. - estoppel exists under the common law and equity

36.4- initial impact of promissory estoppel on the law of contract was to provide equitable relief where a contractual remedy was not available due to the absence of consideration- the modern doctrine of equitable estoppel can provide relief in various other areas where contractual remedies are unavailable: where, during negotiations to enter into a contract, an offeree,

believing that

the offer will not be revoked, proceeds to act to his or her detrimentupon that belief where the rule in Pinnel’s case would otherwise apply where there has been non-compliance with the statutory requirement of

writing with respect to a contract involving land where the rule in Hoyt’s Pty Ltd v Spencer (1919) precludes the finding of a

collateral contract where the doctrine of privity prevents a third party to the contract from

enforcing it where a contract is rendered illegal and thus unenforceable because a

party to it is not licensed as required by leg’n, but had stated to the other party that he was

COMMON LAW ESTOPPEL

36.6- the basic notion is that estoppel prevents parties from insisting on their actual legal rights- the major difference b/w types of estoppel is determined by the nature of the belief which has led to the compromise of those rights- at CL the focus has been on the assumptions of fact, which could arise by: judicial decisions (estopped by record or issue estoppel) agreement by both parties (estoppel by deed or estoppel by convention) by representation made by one to the other (estoppel by representation)

- the general principle was stated by Dixon J in Grundt v Great Boulder Pty Gold Mines (1937) 59 CLR 641 at 674

“ the law should not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purpose of their legal relations”.

Civil Obs A Week 4 R&G Textbook and Casebook -Chapter 7 PLUS

•Capacity to Contract•R&G Textbook and Casebook Chapter 9

MODULE 2 PART 3

INTENTION TO CREATE LEGAL RELATIONSThird requirement in the formation of a contract

Parties must manifest an intention to create legal relations.

The cases deal with and illustrate the following principles: the application of the presumption in the context of

family, social or domestic agreements: o Balfour v Balfour [1919] 2 KB 571; o Cohen v Cohen o Merritt v Merritt

the rebuttal of the presumption in the context of family, social or domestic agreements:

o Jones v Padavatton [1969] 2 All ER 616; and Todd v Nicol

the operation of the presumption in the context of commercial arrangements:

o Carlill v Carbolic Smoke Ball Coo Rose and Frank Co v JR Crompton & Bros Ltdo Edwards v Skyways Ltd

the future of presumptions as a means of establishing contractual intention:

o Ermogenous v Greek Orthodox Community of South Australia Inc (2002)209 CLR 95.

Where the parties do not expressly state their intentions to be bound by the contract, the courts have relied on two presumptions.

o BUT, utility of presumptions now doubted: Ermogenous

Family, Domestic & Social Arrangements

are presumed not to be intended to be legally binding thus, onus here rests on the person seeking to enforce such

an agreement to convince the court the parties did manifest an intention to be bound

Commercial Transactions

are presumed to be intended to be legally binding thus, burden of disproving intention is thus on a person

denying the enforceability of a such a transaction

Intention to Contract

Parties must have the intention to constitute an agreementenforceable at law.

Party seeking to rely on contract must prove intention – but generally where there is agreement, rare for courts tofind no intention.

Intention may be express (unusual) or implied, and usuallyimplied by their conduct.

o Words used, how did the parties act, did they act like it was binding on them or not?

Presumptions **regarding intentionWho has the onus of proof? Two presumptions – HIGH COURT SAYS they’re the same thing

Commercial

Where the parties are in a commercial relationship–presumption is they intended to create a legally binding contract by their agreement.

Commercial Context Agreements made in a commercial context or of a commercial

nature are automatically presumed to be made with legal intention.

The burden falls on the person denying enforceability to disprove the intention.

Exceptions: Letters of comfort, which are deliberately left unclear. Non-Binding agreements (or Honour Clauses): this is where

parties expressly stipulated the agreement is not legally binding – see Rose v Frank Co below.

A person seeking to deny the enforceability of a commercial transaction bears the onus of proving that it was not intended to be binding.

See Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 in relation to letters of comfort.

the following points were considered in assigning legal intent to the letter of comfort:

On a construction of the letter, the terms were sufficiently promissory in nature

The letter was part of a commercial transaction in which there is a presumption that legal relations were intended

Intention is deduced from the document as a whole seen against the background of the practices of the particular trade or industry.

2. Family, Domestic & Social Arrangements

Where the parties are in a purely domestic or social agreement–no intention to create a legally binding contract.

Non commercial context On the other hand, agreements made in other (non-

commercial) contexts are presumed not to be made with legal intention.

The burden falls on the person seeking enforceability to prove the intention.

It should be noted that in Ermogenous v Greek Orthodox Communityof SA Inc,[11] the court decided that there should not be

a general rule or presumption. Rather, each case must be decided on its own facts.

Note that since Ermogenous, the relationship between the parties is just one of the factors to be taken into account when determining whether the intention requirementis satisfied.

** but note onus of proof approach, see OH 7

Both presumptions (A and B above) are rebuttable by evidence about the true intentions of the parties.

Ultimately: objective test!!! O bjective approach : has the party manifested or appeared

to have manifested (as could be reasonably perceived) an intention to be legally bound, not whether it actually hadthe intention to be so.

This was discussed in Merritt v Merritt: 'The court does not try to discover the intention by looking into the minds of the

parties. It looks at the situation in which they were placed and asks itself: wouldreasonable people in the agreement as intended to be binding?'

And Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd: When there is a written agreement, 'The Courts may also take into account the

surrounding circumstances, including the actions and statements of the parties'.

Agreements in the Private Sphere/Domestic agreements?

Financial agreements between spouses are traditionally presumed to be made without intention to enter legal relations. This is discussed in Balfour; and Cohen:

Cohen v Cohen (1929) 42 CLR 91No intention

The parties were married and separated some time later, after which an action was commenced with respect to money which plaintiff claimed was due to her. She said that before they were married, defendant had promised to pay £100-00 per annum as a dress allowance. The payments were only made for a limited period therefore £278-00 was outstanding for 1921-1923 the balance of the period.

Only relevant about the dress. If the intended marriage, it might well be that the

promise to marry was already existent therefore it would fail as an existing obligation. But this would only be

http://www.unistudyguides.com/wiki/Objective_approach

relevant if it were thought that this arrangement was one which was intended to give rise to legal obligations.

The judge thought that there was no such intention in thiscase. Wasn’t part of the promise of marriage.

Balfour v Balfour [1919] 2 KB 571 (domestic arrangements not contractual)

Husband (defendant) promised to pay his wife £30 per month whilst she remained in England due to illness (he resided in Ceylon (Sri Lanka)). The parties subsequently divorced and an issue arose as to whether verbal agreement was enforceable (she had, by this time, received an order for alimony). When verbal agreement was made, the parties were on amicable terms. Mrs Balfour succeeded at first instance.

The agreement was not enforceable because the parties did not intend to create legal relations. This is so even though there may have been consideration. Agreements between spouses ‘are not contracts because the parties did not intend that they should be attended by legal consequences.’ The parties, ‘in the inception of the arrangement, never intended that they should be sued upon.’

Domestic agreements of this nature [between spouses] are outside the realm of contract altogether. Atkin LJ also noted that ‘The consideration that really obtains for [spouses] isthat natural love and affection which counts for ‘so much’ in these cold courts.’

The onus was on the plaintiff to prove intent and she failed.

Merritt v Merritt [1970] 1 WLR 1211 Separated husband and wife Here the court distinguished the case from Balfour v Balfour on

the fact that Mr and Mrs Merritt, although still married, were estranged at the time the agreement was made and therefore any agreement between them was made with the intention to create legal relations. Both cases are often quoted examples of the principle of precedent.

Other arrangements between family members – Todd v Nicol [1957] SASR72 (move from Scotland)

(Exception to the rule re private sphere agreements)

An exception of where an agreement between spouses who areseparating or are about to separate, in which case the courts have been willing to find legal intention

Promise of accommodation to encourage emigration – contractual

Nicol invited overseas family members to come live with her, promised them her house would be theirs until they died. The Relationship broke down, Todd sought to enforce the contract.

Held: it was a contract - the permanent nature and detriment suffered of the arrangement meant a high degree of reliance, therefore an intent to be legally binding.

This suggests that if there are serious consequences for the party taking invitation, then the agreement could be viewed as being made with intent to be legally binding.

Lastly, even if a party can’t seek remedy via contract law, he can try an Estoppel.

Jones v Padavatton [1969] 1 WLR 328, A resident of England invited her daughter who lived and

worked in the United States to move to England to study. They agreed that the mother would let the daughter stay inthe house rent free. A dispute arose and the mother brought an action to evict the daughter from the house.

The court found for the mother in that there was no legally binding agreement between the parties regarding the offer to live in the house in reliance on the presumption that family members do not intend to enter into legal relations. This was the case, notwithstanding the seriousness and expense of the daughters actions in moving.

Major Exception: Commercial Agreements Between Relatives If an agreement is essentially commercial in nature,

the requirement of legal intention will be satisfied regardless of whether it is between relatives.

This was discussed in :- Roufosv Brewster(1971) 2 SASR218 (Coober Pedy –truck) the parties (a man and his father in-law) entered into

a legally bound agreement because they entered the agreement for strictly commercial and separate interests).

Mr. and Mrs. Brewster owned a motel at Coober Pedy while their son in law, Roufos, ran a small store. Roufos drove the Brewster’s truck to Adelaide for repairs. It was agreed between them that if Roufos could arrange for someone to drive the truck back to

Coober Pedy, Roufos could transport goods for his business back on the truck. The truck was involved inan accident and the Brewster’s sued Roufos for the cost of repairs.

The court held that the parties had entered a binding contract as the setting of the agreement was commercial and no domestic or social.

Social or domestic arrangement?

4 relevant factors:1. Clarity of terms -are rights/ obligations spelt out?a.2. Does 1 party incur expense, inconvenience or substantial

detriment?a.3. The flavour of the agreement?a. Is predominantly commercial or domestic?4. Was litigation contemplated if 1 party failed their

obligations? a.

{Woodward v Johnston [1992] 2 Qd R 214} Facts: She was originally housekeeper though they had two

kids together. Ms Woodward agreed to help her husband do work to

establish a cement -gravel supply business. In a fight he wrote on the back of an envelope that gave her 10% of the business. For 18 months, Ms Woodward did a lot of work renovating the barge, mostly on the weekends. Her husband profited exclusively from this work and did not formalise her interest in the business.

She hid envelope in the wardrobe and it was gone 6 weeks later (after a trip to England)

Issue: Could Ms Woodward rebut the presumption that parties in domestic relationships do not intend to be in alegally binding contract? Was it a commercial relationship?

Decision: No. Trying to tie him down to document it didn’tconstitute a binding and enforceable contract. The arrangement was purely a family arrangement. She was not forced to do this work by her partner and he would not have sued her if she failed to do the work. But there wasa constructive trust – that he held part of the business on trust for her – which is the way the court got around it.

Commercial arrangementsGeneral rule: courts seeks to uphold commercial agreementso eg Carlill v Carbolic Smoke Ball Co The existence of intention must be thought about

objectively- here the court said that Smoke Ball Co. intent to be legally bound (intent to make a contract withanyone who try smoke ball) as it had shown its seriousnessin the invitation to treat by putting 1,000 pounds in the bank.

Rejected the promise was mere puffery

o Rose and Frank Co v JR Crompton & Bros Ltd[1923] 2 KB 261 (distribution of paper products) Rebuttal of the presumption Express exclusion of intent What is meant by an ‘honour clause’? FACTS: The plaintiff supplied the defendant with tissues

used for carbonising paper. There was a written arrangement that the plaintiff would be the sole supplier.

However, the agreement also contained an honourable pledgeclause which stated: This arrangement is not entered into, nor is this memorandum written, as a formal legal agreement and shall not be subject to legal jurisdiction in the Law Courts... but is only a definite expression and record of the purpose and intention of the... parties to which they each honourably pledge themselves....

ISSUE: Could the clause rebut the presumption to create legal relations?

HELD: No Contract. Intention not to create legal relations as the clause was capable of expressly rebuttingthe presumption.

o Edwards v Skyways Ltd [1964] 1 All ER 494 – (ex gratia payment on redundancy) FACTS: Edwards, a pilot, was made redundant by Skyways.

Edwards was offered and accepted an ex-gratia payment as part of his redundancy arrangements. Skyways refused to pay.

ISSUE: Did the term ex-gratia imply that Skyways did not intend to be legally bound?

HELD: It was predominantly a commercial agreement therefore the onus to prove it wasn’t a contract lay on Skyways.

– There was a presumption that the parties intended it to belegally binding and the words ex-gratia merely meant that the defendant did not admit any pre-existing liability to

make the payment. Skyways had not rebutted the presumption.

Some situations are neither wholly domestic nor commercial:

o Teen Ranch Pty Ltd v Brown 1995 NSW Ct of Appeal. Does a ‘volunteer’ agreement (or other similar terms)

provide objective evidence that the parties did not intendto create legal relations?

Teen Ranch ran a Christian camping facility in New South Wales. To cater for the many teenagers that participated in any given camp, Teen Ranch had a small number of permanent staff, which they supplemented with volunteer staff. Brown was injured whilst horse riding at a camp in 1990.

He claimed compensation and was awarded $5,433. Teen Ranch appealed this decision to the Court of Appeal,

on the grounds that Brown was not an employee. The decision would turn on “the characterisation of the arrangement made” the point of dispute between the parties.

Brown conceded in cross-examination that his motivation for attending the camps was more than to receive the free food and accommodation. It was “to extend [his] Christian involvement. He had not intended to create legal relations, and Teen Ranch was ultimately successful in their appeal.

Onus of proof rather than presumptions

Ermogenous v Greek Orthodox Community of SA Inc (2002) 187 ALR 92o This case reinforced that, like all other elements of

contract formation, intention was to be determined objectively and proven by the person alleging the contractexists

o ISSUE: The issues before the High Court were whether a minister of religion could be employed by their church and, if so, whether the Archbishop and the Community had in fact demonstrated the requisite intention to enter intoa contract of employment.

o If a contract of employment existed, the Archbishop was entitled to be paid the accrued employee entitlements.

o DECISION: The High Court (Gaudron, McHugh, Hayne, Callinanand Kirby JJ)

unanimously held that YES there was a contract of employment and that the Archbishop was entitled to his accrued employee entitlements.

said no presumptions guiding intention to create legal intentions, because they do little more than establish onus of proof, need to look at every cases facts

“At best, the use of that language does no more than invite attention to identifying the party who bears the onus of proof.”

Rather than presumptions regarding legal relations, look to which party bears the onus of proof that legal relations were intended.

Putting this in context of Balfour v Balfour [1919] 2 KB 571: Under presumption approach OOP on Mrs B to rebut the

presumption against contractual intent in the context of agreement between spousesBUT

Under Ermogenous approach, Mrs B would bear the same OOP, although expressed as her having to establish that the agreement with her husband did have contractual intent.

Module 3 part 1

CapacityWhere a person (Including a corporation) purports to enter into a contract, it is presumed that there is capacity to do so. This presumption may b e rebutted by proof of lack of capacity.

Defects in the contractEven where the basic requirements for formation of a simple contract are met, contracts won’t be enforced where:

1. One of the parties lacks contractual capacity [the focus of thismodule]

2. The contract does not have true agreement/ consent3. The contract is illegal4. The contract does not meet the formal requirements for that type

of contract a. For eg – if in the property law act it’s required in writing.

Lack of contractual capacity Policy behind it – the law recognises that certain class of

persons in society that don’t’ have the maturity or capacity to make agreements – incapable of giving true consent – therefore legally incapable of contracting except in certain specifically defined circumstances.

Contracts shouldn’t be enforced against certain people because they lack contractual capacity (not sui juris)

Historically – married women had no contractual capacity Minors persons with a mental disability bankrupts corporations

MinorsBoth the common law and statute operate to restrict the capacity of minors to contract. The existing mix of common law and multiple different state legislative rules in relation to the capacity of minors has rendered the assessment of the contractual capacity of minors exceedingly complex.

Common law

At common law a person under the age of 18 is an infant. The general rule at common law is that a contract made by a

minor (a person under the age of 18) is voidable.

A. Enforceable contracts

contracts which are valid and enforceable against the minora. contracts for the employment or apprenticeship where the contract

as a whole is beneficial to the infanti. A contract by a minor for employment is binding provided

beneficial (not unfair or oppressive). A minor can, however, repudiate such a contract upon adulthood.

b. contract for necessariesi. A contract by a minor for necessities is binding on both parties.

Necessities are determined by reference to the minor’s ‘existing life style’ and must be necessary for maintaining that lifestyle.

B. Voidable contracts

Contracts which the minor may enter or withdraw if required

C. Unenforceable contracts

Contracts that a minor is unable to make

A. Enforceable Contracts – contracts for necessaries Necessary goods – defined in Sale of Goods Act s 5 necessaries means goods suitable to the condition in life of such infant or other

person, and to his or her actual requirements at the time of the sale and delivery. Minors should pay for those goods and services actually supplied

to them that are necessaries according to their station in life.

Purpose of this rule: to allow minors to enter into contracts beneficial to them

to prevent unscrupulous businesses from taking advantage of their youth and inexperience.

Chapple v Cooper (1844) 153 ER 105 where a service was considered necessaries.o Contract by a widow who was a minor to pay for her husband’s

funeral.o She agreed with undertaker to bury her husbando Then she refused to pay as she was a minor.o What are necessaries – those things an individual can’t exist –

food, clothing, lodging and the likeo The funeral was for her private benefit ans was necessary as she

had an obvious obligation to bury her husband.o The court held her liable to pay the bill.

Note – necessary does not mean necessity.

‘the proper cultivation of the mind is as expedient as the support ofthe body’ – Alderson in Chapple Necessary can be more than just food and clothing What is deemed necessary may differ according to the particular

minor.

How do the court determine what is necessary?

The goods/service must be necessary according to the ‘station in life’ of the minor - is it capable of being a necessary?

And can the goods/service properly be regarded as a necessary forthis particular minor at the time of the contract?

The onus is on the supplier of the goods/service to satisfy the court.

Nash v Inman[1908] 2 KB 1 (waistcoat); eg of GOODS Nash supplied minro Inman with clothing Inman’s father was an architect Inman didn’t pay so Nash sued Court found there was no evidence that the goods were

necessaries as he had enough clothes anyway. Clothing didn’t meet Inmans actual requirements at the time Nash couldn’t get money for clothes To render an infant's contract for necessaries an enforceable contract two

conditions must be satisfied, namely, (1.) the contract must be for goods reasonably necessary for his support in his station in life, and (2.) he must not have already a sufficient supply of these necessaries.

This could not be satisfied here.

McLaughlin v Darcy (1918) 18 SR (NSW) 585 (legal fees) - SERVICES

Boxer was a minor Sol got passport for minor Darcy absconded without passport and died there Sols sued estate for passport $ Held – services were engaged to purpose of enabling minor to

obtain employment he was dependant on Yes regarded as necessary

How much does the minor have to pay? Minors are obliged to pay a reasonable amount for

necessaries(goods/ services necessary for safety, health or wellbeing)

o Even if a necessary has to pay reasonable price for the goods, not necessarily the contract price.

o Sale of Goods Act QLD– legislation s 5 where necessaries are soldto an infant they must pay a reasonable price.

(2) when necessaries are sold and delivered to an infant, or to a person who by reason of mental incapacity or drunkenness is incompetent to contract, the person must pay a reasonable price therefor.

(3) In this section— necessaries means goods suitable to the condition in life of such infant or other person, and to his or her actual requirements at the time of the sale and delivery.

Who can recover payment for necessaries supplied to a minor? + What price can be recovered?

o the Trader who supplied the minor directly; and/oro Any Person who: buys necessaries for the minor at the minor’s request on the minor’s (actual or implied) promise to pay for them

(acquires the same rights as a trader).

All other contracts entered into a minor are not binding unless ratified (taking positive steps to affirm) by a minor when they become an adult (Hamilton v Lethbridge)

Enforceable Contracts – Contracts for Employment Minors are bound by beneficial contracts of service, A contract by a minor for employment is binding provided

beneficial (not unfair or oppressive). A minor can, however, repudiate such a contract upon adulthood.Hamilton v Lethbridge (1912) 14 CLR 236

o articles included a covenant about articled clerko not practice within 50 miles from Toowoombao Lethbridge 2 years later started law firm in Toow when he

was admitted

o Argued he was a minor when he signed contract for restraint

o Held – even though a minor when he entered into contract and continued in the same work, and beyond that the fact he’d entered into for employment it was a beneficial contract of service.

o It was binding on him even signing it as a minoro Pg 240-241 Qu for purpose of determining if it’s

beneficial – qu of whole of contract must be looked into not just parts of it. He affirmed it – ratified it in any event by continuing after he was 18 - They ratify the contract after 18

Loans to a Minor – giving money to a minor to buy somethingo at common law – a loan of money to a minor to pay for

necessaries was not recoverable: rationale: Earle v Peale (1711) 91 ER 336 judge says The money may be borrowed for monies though laid out

and spent at a tavern so therefore not recoverable. Can’t recover loans from a minor whether for necessaries or not.o In Equity - o A minor cannot be made liable on a loan advanced to enable him

to buy necessaries. If however the loan is actually expended on necessaries, the lender CAN recover the amount spent on them under the equitable principle of subrogation laid down in Marlowv Pitfield. in equity – the lender could recover such amount as the minor actually spent on necessaries,

Marlow v Pitfield (1919) 22 ER 435 Pitfield during his infancy borrowed money (which

money " borrowed amounted to £130.) and therewith bought some necessaries, made his will, devising his real estate to trustees for the payment of his debts with interest.

The question was, whether the monies actually advancedto the testator Pitfield during his infancy were to bepaid within this trust?

Court held that this money actually lent to the testator, though during his infancy, was within the trust and ought to be paid.

Though the law be, that if one actually lend money to an infant, even to pay for necessaries, yet as the infant in such case may waste and misapply it, he is therefore not liable, according to the resolution in Salk. 279.

It is however otherwise in equity; for if one lends money to an infant to pay a debt for necessaries, and in consequence thereof the infant does pay the debt, here although he may not be liable at law, he must nevertheless be so in equity ; because in this case the lender of the

money stands in the place of the person paid the creditor for necessaries, and shall recover in equity, as the other should have done at law.

Persons with mental disabilities/ intoxicated persons

A contract is voidable at the option of a party who, as a result of mental disorder or intoxication, is unable to understand the nature of the contract being made - provided that the other party knew, or ought to have known, of that person’s disability.

The party seeking to withdraw from the contract has the onus of proving both these requirements:

(a) that they were suffering from such a disability and

(b) that the other party was - or ought to have been - aware of it.

For purposes of the first requirement, the question is whether the party seeking to avoid the contract was incapable of ‘understanding the general nature of what he is doing by his participation’: Blomley vRyan.

It is not essential that the resulting contract be 'unfair' (althoughthis might provide some evidence of lack of understanding).

At common law intoxicated ppl are treated the same way as minors Contract made by a person who has been declared by a court to be

of unsound mind –void, even though it has been made during a lucid interval.

Contracts made by persons not so declared/ contracts made by intoxicated

valid unless person can show:o So incapable they didn’t know what they were doingo The other party had known or should have known of their

conditiono Repudiate within a reasonable time Except where the contract is for the provision of necessaries

and beneficial contracts [like minors].

Onus of proof of existence of incapacity/ knowledge of that incapacity – is on the person seeking to rely on it.

Blomley v Ryan (1956) 99 CLR 362o Ryan owned grazing propertyo Wife died then had extended drinking sessions – on rum.

o Property had sheep shearing and benders happened at shearing time.

o Some days and prior to signing agreement he did not possess requisite capacity but even if he was his mind was so displaced by drink he was at a disadvantage.

o Ryan signed contract with a drinking buddy to sell his property.o Friend took him in sometime over next couple of days when he was

incapacitated to sign agreement.o Got sober then tried to repudiate it.o Friend said drinking was so much it stopped understanding what

was going on.o Said Ryan knew what was going on. o Housekeeper gave independent evidence he was very intoxicated.o Court set aside transaction (p 412) – satisfied of a thoroughly

unconscionable transactiono Onus of proof could be satisfied

The general principle was essentially stated as follows:Where one party by reason of some condition or circumstance is placed at a special disadvantage regarding anotherand unfair or unconscientious advantage is taken of the opportunity thus created then the court will set aside the transaction on grounds of “unconscionable conduct”.

Once onus satisfied –onus then shifts to other party to show that contract was entered into during a lucid period:

Once it can be shown they’re mentally ill, if I’M saying he in fact knew what he was doing then I HAVE burden of proof/onus to show that.

o Griffiths CJ in McLaughlin v Daily Telegraph Newspaper Co Ltd [No 2]

(1904) 1 CLR 243 at 277. McL was mentally incapacitated – unsound mind Whilst temporarily insane wife took over management of financial

affairs 4.5 yrs after he recovered his sanity he sought to repudiate

transactions Couldn’t be invalidated, his actions were ratified and therefore

bound by them

A party may ratify a contract made while suffering a mental disorder after that disability ceases to operate upon them.

Ratification can be express or implied, eg McLaughlin v City Bank of Sydney (1912) 14 CLR 684 don’t seem to have any more on this????????????????????

Bankrupts – won’t be a question on this Bankrupt is not by reason of the bankruptcy deprived of capacity

to contract Bankruptcy Act imposes some limits on dealings of bankrupts

Corporations Power to contract through individuals authorised to contract on

behalf of company (contracts entered into prior to incorporationcan be ratified on incorporation) –Corporations Act 2001(Cth).

Has limitations Like actions prior to incorporation

Contracts not falling within either of the above exceptions are voidable. However the Courts treat ‘voidable’ in this context differently from voidable as normally understood in contract.

Where the contract results in the minor permanently acquiring property (eg land) or involves ongoing obligations (eg partnerships) then the contract is binding unless and until avoided by the minor – the minor remains bound by any obligations that arising prior to that point.

Week 5 –Lecture 5M3, Pt2:

Privity of contract (and the exceptions thereto) –R&G Ch39

The doctrine of privity- Ties in with formation consideration o It’s the other part of consideration

Whenever a legal principle has ‘stayed around’ for a significant period of time (and in the case of the common law this is measured incenturies) it becomes elevated in the legal mind to a ‘Doctrine’. This does not mean it is inviolate, merely that it has proven to be useful.

The doctrine of privity As a general rule, only original parties to a contract may enforce

or be bound by the terms of that contract The doctrine of privity of contract states that only a person who

is a party to a contract can enforce the contract (gain a benefit) or incur obligations (burdens) under it. Thus, a plaintiff must be a Promisee and a party to the contract.

o Rationale: only parties which agreed to the contract should be bound by it

o Third-parties haven’t provided considerationo Described as fundamental in Englando Greatly criticised sinceo Can be circumvented in numerous ways

A person who is not a party to a contract can neither enforce a contract nor any obligations under it

So if I enter into a contract and a third party doesn’t like it, then they can’t sue under it. It’s between the two people who entered into the contract.

o Of course there’s overlap with consideration as a promisEE is only able to sue on a promise if that PROMISEE has given consideration for it.

•eg Alex and Bill agree that if Bill does specified work for Alex, Alex will pay Cindy $500. Bill does the work, but Alex refuses to pay Cindy the $500. Can Cindy sue? No – because she’s not one of the parties – no privity of contract

(She’s not one of the joint promisee’s as we saw in an exception) She’s given no consideration

You can certainly agree to benefit a third party, but the third party has to be within one of the exceptions to the

doctrine of privity of contract to be able to sue.

So, the pirnciples of consideration were restated in Dunlop Pneumatic Tyre Co and there the judge lay down two principles….

eg Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, ViscountHaldane’s 2 principles:

a stranger to the contract cannot sue on it, and a stranger to the consideration cannot sue on the contract.

eg if A agrees with B to do something for the benefit of X, X cannot sue A if A fails to fulfil his promise; however B may have a remedy against A for breach of contract.,

Case examples

Tweddle v Atkinson (1861) 121 ER 762 this is a case where the doctrine of privity was first accepted

into English lawo John Tweddle (the Plaintiff's father) agreed with William Guy (the

Plaintiff's father in law) for the latter to pay money to the Plaintiff upon marriage – and had it in writing (btw – their writing of recourse of the law overcame issue of intention!)

o Willaim Guy died before making payment and the son (William Tweddle) sued the estate (Atkinson was the executor) for the promised sum.

o Held - The son sued for the money but failed on the ground that, although the contract had been made for his benefit, he was not a contracting part y .

No consideration moved from the plaintiff to Guy and therefore the plaintiff had no right to sue on the contract. Natural love and affection is not good consideration (Crompton J)

Privity is in place to prevent third parties from enforcing contractual promises that benefit them. Applied in:•Coulls v Bagot’s Executor & Trustee co Ltd (1967) 119 CLR 460 Suggest you do not read – it’s quite confusing. Couple of actions involved so adds to confusion Stick to one set of facts to understand it – don’t read too deeply

into it.

Here a contract was made between a husband and a Quarry Company It was drafted without legal advice Coulls grants a company the ability to quarry stone from his

property in exchange for royalties Agreement signed by Plaintiff and his wife, although wife not

mentioned in agreement title Agreement authorised company to pay royalties to him and his wife

as joint tenants. Plaintiff died, Quarry wanted to know whether the company has a

contractual obligation to the wife Signed by the wife but she wasn’t a party to it It ended up in the HC Majority opinion:o Company owed no obligation to the wife: she wasn’t a party to the

agreemento Contract was expressly between Plaintiff and the companyo Company made no promise to pay wifeo Wife signing did not make her a party Dissenting opinion:o Signature did make the wife a partyo The Company’s promise was made to the Plaintiff and his wife

jointly. Consideration - Joint-Promiseeso If the wife was a party to the contract, and specified as a joint-

Promisee, the consideration of her husband would have applied to her as well.

Exceptions to Privity1. Joint promises – as per Coulls2. exemption clauses intended to benefit an agent or employee* → 3. statutory provisions * →4. trust situations5. agency arrangements6. three party collateral contracts 7. assignments

Exemption clauses to benefit agent or third party

exemption clauses in contracts seek to limit or exclude liabilityo we’ll look at these in the last lecture but it an exemption clause

may say…o ‘no liability if you lean on a balcony; or no liabilities are

accepted – cars parked at own risk’o Next lecture we’ll look at – are those clauses incorporated into

dealings with a company o But today we look at where they are for the BENEFIT of the THIRD

PARTY who may be named in the contract but not a party to the contract.

So the question is who has the benefit of these clauses?

Insurance contractso Trident General Insurance v McNiece Bros(1988) 165 CLR 107 o The court allows exception in insurance cases – third parties can enforce

contracts.o McNiece was principal contractor and one of their employee’s names

was Gary Hammond. o Hammond was injured on the site and McNiece was found liable for

breach of duty of personal injuries – so liable in NEGLIGENCEo So McN made a claim under Blue Circle’s insurance policy because it

deemed to cover all the workers on the siteo Trident Insurance rejected it saying that McNiece hadn’t provided

any consideration, that her wasn’t a party to the contract, and therefore couuldn’t claim insurance under that contract

o Went to the HCo Majority 4:3 found McN hadn’t been a party to the original contract

of insurance HOWEVER it was entitled to be indemnified under the policy

o The judges differed for the reasons to this decision and there’s noreal ratio of the case

o Detailed discussion about continuing doctrine of privityo HC decided to keep it but still looking for exceptions to it to

work around it.o This case is authority for the proposition that the privity rule

will not be applied to deny indemnity to third parties to insurancepolicies.

o So here if falls into the scope that third parties can claim even though they haven’t entered into any form of consideration. –IT’S AN EXCEPTION TO THE DOCTRINE OF PRIVITY OF CONTRACT

Statutory provisions WONT HAVE TO CITE LEGISLATIONS BUT KNOW THESE LEGISLATIONS PROVIDE

A NUMBER OF EXCEPTIONS TO THE DOCTRINE OF PRIVITY

Because this was such a significant issue, after that the legislationwas changed to s 48:-

s 48 Insurance Contracts Act 1984 (Cth) o –re 3rdparty’s ability to sue on contract of insurance

Entitlement of named persons to claim 1. Where a person who is not a party to a contract of general

insurance is specified or referred to in the contract, whether by name or otherwise, as a person to whom the insurance cover providedby the contract extends, that person has a right to recover the amount of the person's loss from the insurer in accordance with thecontract notwithstanding that the person is not a party to the contract.

2. Subject to the contract, a person who has such a right: o (a)has, in relation to the person's claim, the same obligations to

the insurer as the person would have if the person were the insured; and

o (b)may discharge the insured's obligations in relation to the loss.

3. The insurer has the same defences to an action under this section as the insurer would have in an action by the insured.

s 55 Property Law Act (Qld)

o BE AWARE THAT PROPERTY LAW ACT CONTAINS RULES ABOUT GENERAL RULES AFFECTING CONTRACT SO NOT ONLY PROPERTY CONTRACTS

IT SAYS that 3rd parties are able to enforce contracts made for theirbenefit provided they accept the contract (‘accept’ is defined in subsection 6)

Sub section 6 says HOW DO YOU ACCEPT THE BENEFITo Says acceptance means by assent by words or conduct communicated by on or behalf of

the beneficiary to the promisor, or someone authorised on their behalf, in the manner andwithin the time specified in the promise or within a reasonable time

o The beneficiary is the person who is at the time acceptance is identified and is in existence although the person may not have been identified at the time the promise is given.

Sole requirement is that the third party must have accepted the promise

3rd party can personally enforce, as of a right, a promise made between others even though he or she wasn’t a party to the contract, provided ss (6) is satisfied.

If a contract is made where it specifies someone is to benefit from it provided that they have ACCEPTED within the definition of the ACT

(as in notified it’s for their benefit) then they can sue on the contract even if they’re not a party to it or haven’t provided consideration !!

eg To illustrate this, in Westralian Farmers’ Co-operative Ltd v Southern Meat Packers Ltd [1981] WAR 241 Livestock agents had a contract with king in the sale of his cattle So Southern Meat Packers bought cattle Contract therefore between King as cattle owner and buyers of

cattle Contract of sale provided that SMPackers were to pay Westfarmers so

they could get their commission and then onforward it to King SMPackers accidentally paid King This action of Westfarmers suing for commission King argued they weren’t a party to the contract of sale therefore

weren’t entitled to commission Court found that even though they weren’t a party to the contract

of sale THE CLAUSE ABOUT PAYMENT did directly confer a benefit on them and even though they hadn’t provided consideration

Because otherwise this statutory provision would be rendered inoperative

Therefore they had deemed to accept the benefit of the contract event though they weren’t a party to this contract - they were entitled to their consideration.

So some text books say there are ‘exceptions” to the privity of contractAnd some people say these are just the ‘instances of where it doesn’t apply’.It’s the same thing.

So the take home message is doctrine of privity dovetails with consideration but there can be some exceptions where it is appropriate.

Interpretation of Contracts

4.1 Express Terms(R&G Ch10 + Casebook Ch10)

Module 4.1.1TERMS & REPRESENTATIONS

Question now is – WHAT HAS BEEN AGREED BY THE PARTIES?

What are those statements? Statements made that we want to enforce!!

What if I bought a block of land because the real estate agent saidI could subdivide it? It’s not in the standard property contract but I did it on the basis of the statement they made.

Do we incorporate those statements into a contract so we can sue?

Terms and Representationso It’s about identifying the contents of a contract.o We work from the point that Courts intervene to enforce only what

has been already agreed between the partieso Aim of court isn’t to rewrite agreement or make it fairer, if

someone has struck a bad dealo Each parties rights are limited to the promises which were part of

the contracto Enforcing those promises presupposes we can work out what are the

‘terms of the contract’ in the first instance.o So, the parties – what did they intend to be terms? And then later the courts looking at it and saying ‘well what ARE

the terms?’ So we need to IDENTIFY WHAT ARE THE CONTRACTUAL TERMS?

A court hearing a breach of contract action will have to determine A RANGE OF THINGS.1. Firstly was there a contract and what the parties actually said and

agreed –what is a ‘promissory term’ – like the real estate person saying they could subdivide – was it intended to be acted upon.

2. whether they intended the statements to be contractually binding orsomething else

NEXT TIME WE LOOK AT…..3. the level of importance the parties intended to attach to those

statements4. whether they have provided an appropriate and adequate remedy in

the event of a breach (in Civ Obs B).

1. Statements made in the course of negotiations may/ may or may not operate as terms of the contract, o even if they are not included in the written document. So really we’re looking at pre-contract (usually oral) statementso What is their legal affect?o May be a range of things?

May be just mere PUFFERY – exaggerated statements.

o Those that are unlikely to be true – ‘this house boasts five bedrooms’ etc

o Is it a contractual statement we can sue on or not?

Alternatively it may be a REPRESENTATION. a statement that induces you to enter into a contract. You want it to be a TERM of the contract, not a MISREPRESENTATION. It may be reproduced as an express term of a contract. o If it HAS become a term you can seek remedies under the contract.

o if it has NOT become a term, seek rescission of the contract and possibly damages in tort side to put you back to the pre tort position (deposit back).

THESE STATEMENTS THAT WERE MADE….

HAS IT BECOME A TERM OR A COLLATERAL CONTRACT?

So the whole thing is … these statements you want to sue on … how canyou take an action? Has it become a term or a collateral contract?

If it is Term of the contract–as we know statements may be intended by parties to operate as terms.

Statements/Terms can be express or implied, written or oral. If breached, you sue for breach of contract o remedy will depend on what type of term it is (condition, intermediate term or warranty)

It may become a Term but of a collateral contract–statement may form the basis of a collateral contract, which is subsidiary to the main contract.

Considering whether it’s a term or representation? Courts use a variety of tests to determine whether a statement made

prior to a contracto Can they become terms?o is a representation or a term of a contract. (A statement that’s

become a term has contractual force).

General test :THIS IS THE MAIN TEST!what is the intention of the parties objectively determined

(Lord Denning test) (objectivity test), Oscar Chess Ltd v Williams [1957] 1 WLR 370.o June 1955o Williams sold car to Chess Ltd – car dealers – sold it as a trade

in,.o Second hand morris motor caro Car said first reg 1948 and showed reg book and told salesmano Trade in price on 1948o Dealership found it was 1939 model months later which made it

cheapero Chess ltd sued Williams for ‘breach of warranty’ – in those days it

was ‘JUST A TERM’ – read warranty as a term – collateral contract on 1948 model.

o Is the statement made that it was a 1948 a promissory statement? o Had it become a term of the contract? o “regard should be had as to what an intelligent bystander…”– objective, reasonable person testo not an inquiry into what the parties thoughto Court said it was innocent – and selling it to a car dealer

that should have had a superior knowledge. AT BEST IT WAS ANINNOCENT MISREPRESENTATION

o Thus, "it is unlikely that such a person would warrant the year of manufacture. The most he would do is state his belief, and then produce the registration book in verification of it. In these circumstances the intelligent bystander would...say that the seller did not intend to bind himself...[8]"

o This means that the lack of expertise and personal knowledge of the Defendant, who was making a statement to an expert and experienced Plaintiff, indicate that it is less likely thathis statement intended to be binding.

Subsidiary tests:

1. Time betweenThis is a test about TIME between making the statement and concludingthe contract –The longer the time between the statement and the formal agreement the less likely it is to be a term because the less likely it’s to be important

o A bit like the subdivision example she gave – signing immediately by an agent sayingyou can subdivide is quite different than going off looking at other properties for six months then coming back and signing.

Routledge v McKay [1954] 1 WLR 615. o Another Lord Denning Caseo Similar thing as Oscar Chess Ltd example – but this time a side caro Registered in 1930o In the course of time a reg’n book issued that it was first

registered in 1941o Manufactured told him it was Probably 1936 or 38 but not as early

as 1930o Seller told buyer on 23 Oct that ‘it’s late 41 or 42’ but knew it

was 36 or 38.o On 30 Oct they entered into contract of sale but agreement didn’t

refer to date of modelo Buyer later found out model was not as seller had said.o Buyer sued for breach/damageso Was that issue about the date of the model – was IT A TERMo WAS IT INCORPORATED INTO THE CONTRACT?o Pre-contract statement not part of the contract?o It was a misrepresentation but if it had been that important then

the parties should have mentioned in the contract. o Previous sellers can falsify what’s in the book.o The seller made an innocent misrepresentation and cannot be

expected to warrant it’s accuracy unless in EXPRESS TERMS makes himself responsible for it.

o No liability to the seller

2. importance in the mind of the partieso if the representee makes a fact known that is of particular

importance and then the representor asserts that fact, then the statement will generally be treated as a term.

o more important the content of the statement, the more likely the parties intended it to be a term

Couchman v Hill [1947] 1 KB 554; o where buyer advised to make his own enquiries;

C bought a heifer from H, C had asked if the heifer had been serviced, and H said she had NOT

H’s stmt was judged to be a term because C had specifically askedabout this before entering into the C to buy her

cf Ecay v Godfrey (1947) 80 LI LR 286

boat buyer asked if the boat was sound, seller answered that it probably was but advised the buyer

that he should have it checked so his stmt that it’ was probably sound’ was not a

term clear to both parties that from the words used that

statement was not to be binding it was an opinion – if however it his opinion was to dissuade the buyer

from having it checked, it would have been considered a promissory statement … such as in ……

o Schawel v Reade [1913] 2 IR 81. plaintiff wanted a horse for stud purposes seller emphatically stated that you wouldn’t find

better “If there was anything wrong with the horse I’d tell

you” actively dissuaded the buyer from making further

checks / enquiries intended to be a term said in such a way a reasonable person would intend

it to be accurate and would be dissuaded from making an independent

check ∴ seller did effectively warrant his stmts

3. knowledge and expertise of the parties

o is one party more knowledgeable than the other about the subject matter,

Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623. DBentely told HSmith that he was wanting to purchase a Bentley car sometime later HS found a car & purchased it, advised DB that he

had a car for him HS told DB that car had been owned by a German Baron, that the car

had low mileage as the engine and gear box had been replaces, and he was giving a 12 month warranty on the engine & gear box

DB later found out that the car had been driven a great deal longerthat what HS had said

‘intelligent bystander’ test used to decide on HSmith statements and: stmt was used to induce DB to buy the car fault on the dealer yes- it was a term of the contract because of the knowledge and

area of expertise of the dealer HS was held to be in breach of contract & DB was able to recover

damages

4. oral statement made then not reduced into writing

o inference is that an oral statement, followed by a written document, that doesn’t include it, isn't a term of the contract.

Especially so if:o not a standard form contracto written contract contains an “entire agreement clause” – sometimes

an agreement will say ‘there are no representations, this agreementrepresents the whole of the dealings between the parties” and that is an entire agreement clause, that there are no other warranties given.

Module 4.1.2 COLLATERAL CONTRACTS

Final question – has it become a collateral contract? Is it a term that is collateral to the main contract?

** how do you get the stmt that you want to sue on, to be construed as part of the contract?statement is it mere puffery = no action can be taken

is it a representation = remedy in tort is it a term = can bring an action for breach of contract

if it is not in the main C is it in a collateral C

- all about finding a way in which you can sue for a breach of contract

COLLATERAL CONTRACTS

Statements made in the course of negotiations may:

A. CAN become terms of the contract ORB. ‘mere representations’o Intended to have some contractual significance, but have not been

included as terms of the contract.

Or….. the courts have treated these statements as collateral contracts

These are promissory statements collateral to or related to the main contract.o So that it is separate and distinct from the main contracto And what it does is allow for a remedy in contract despite the fact

the representation isn’t included as the main contract by the parties

A collateral contract is a contract that exists alongside the main contract.

De Lassalle v Guildford [1901] 2 KB 215. o De L family were leasing a house, they had previously had

drainage problems and so were specifically concerned to ensure that this house would not have such problems

o they specifically told the agent that good drainage was important

o wife & daughter went to sign the lease and before doing so again sought reassurance that the drainage was in good order – he said YES

o BUT this requirement was not written into the leaseo Q is: how can the DeL family sue??o the verbal assurance was a collateral contract: without the

warranty the lease wouldn’t have been executed. It was a promissory statement.

o so they sued for and received damages on this basis (51 POUNDS)

o (courts could have also said it could satisfy the ‘time’ test; but the court could have said it was a partly oral partly written contract; and it’s collateral to the main contract where the main contract was silent on the drainage issue)

- the consideration for the collateral contract was the fact of entering into the main contract

Collateral contracts can arise in 2 situations

1. Bipartite collateral contracts

Where A gives B an undertaking in consideration of B’s entry into a further contract with A -See e.g.

Shepperd v Council for Municipality of Ryde (1952) 85 CLR 1.o re: a new subdivisiono S bought a block of land off the plan for the subdivisiono the plan showed the location of two planned parkso S sought assurance from the council that the parks would be

located as indicated on the plan these were important to thebuyer

the buyer made it clear that the parks were a main factor in his decision to buy

o Council later decided not to put the parks in, but rather to subdivide them into residential blocks

o How would you construe that promise? The council own the land and was the developer.

o Buyer bought it on the basis there’d be a park there but it wasn’t in the contract of sale but in the course of this sort of contract it wouldn’t be the type of thing in there anyway – that a

council park was being put there. One would assume council wouldadhere and maintain the project. It provided an incentive to buythe lot.

o the C’s stmts assuring the inclusion of the parks were held to form part of the contract

o ∴ the injunction was granted – council had to install the parks

2. Tripartite collateral contracts

Where A gives B an undertaking in consideration of B’s entry into a contract with C, e.g.

Wells (Merstham) Ltd v Buckland Sand & Silica Co Ltd [1965] 2 QB 170. o Buckland sands was a sand merchanto Gave assurance to wells that if he bought a certain type of sand

for growing chrysanthemums, they said THEIR BW sand was best composition

o BS&S used a 3rd party to deliver the sand to Wo for ease of transport, the 3rd party delivered a different blend of

sand o Sand was no good and he suffered losso Wells was able to recover damages for breach of contract

Proving the existence of a collateral contractCourts are generally reluctant to find a collateral contract exists.

Proving the existence of a collateral contract

Courts are generally reluctant to find a collateral contract exists.To prove a valid collateral contract, there needs to be:1. Agreement2. Consideration as per normal / main contract +3. Intention4. Consistency with the main contract (for bilateral contracts)

1. Agreemento The statement must have been promissory,

and not :o merely representational, oro a statement of opinion

- must show that a firm promise has been made

JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435o JJ buying a motor boat from Blakneyo wanted to be able to reach a particular high speed, so sought

B’s advice as to motor specso Blakney provided a list of options and suggested a motor that

would reach “estimated speed” – recommended one engine but did not promise, just estimated. Indicates an expression of an opinion

o Buyer said he’d read advice of another expert who said another engine .. but said he’d rely on JJ advice to buy the boat and engine

o the boat could not actually reach the speed that the buyer wanted

o the sellers recommendation was not held to be promissory – “although made to be acted on it wasn’t a promise/promissory as part of the maincontract.”

o also the court said that it was open to the buyer to make speed a condition, but he did not do so

2. Consideration

Like all contracts, collateral contracts have to be supportedby consideration but easy to show as consideration is entry into the main contract

o In a bilateral contract: “if you promise me this, I will enter into the main contract with you.” – satisfies that general requirements that something of value must frlow from the promisee to the promisor.

o In can also be made in a tripartite contract: By contracting with C, B has suffered detriment (by doing something that he/ she was not previously obliged to do) and has done it at A’s request

Shanklin Pier Ltd v Detel Products Ltd [1951] 2 KB 85 S was the owner of pier and needed to paint it so sought

contractors Contracted paint manufacturer about what pain they should use D said that their paint product would do the job and last 7 – 10

years S had a contracted a 3rd party to do the painting but specified

that D’s product was to be used paint failed: it lasted about 3 months – could not withstand the

conditions; water etc Pier owners sued manufacturer’s alleging breach of collateral

contract the court found that a collateral contract existed between

Shanklin and Detel consideration was the contract for the painter to use D’s product

3. Intentiono The statement was intended to be relied upono (intention determined objectively) - Apply objective test

to facts and circumstances surrounding the promise

J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd (1976) 1 WLR 1078. re: shipping containers – shipped on deck, rather than under it

as stipulated by the owner of the goods standard form contract with exclusion clauses standard conditions allowed the shipping co. to decide where to

locate the container : in contract said ‘we have the right to stack the boat as we see fit’

owners said it wanted it said it to be stored UNDER deck ended up being stored ON deck by accident could statement that they’ll store it under deck – was it

promissory even when it conflicted with the standard terms and conditions

can those two statement exist together? Lord denning said yes, they could. Satement was promissory as it was intended to be binding Oral over rode standard terms in contract. Lord denning said it was binding as a collateral contract because where a promise or

assurance as to the future had been given to another with the intention he should act on it by entering into a contract he was therefore induced to enter into the contract ANDTHAT PROMISE WAS BINDING AS A COLLATERAL CONTRACT.

(HOWEVER now our courts have said there can’t be any inconsistency between collateral and main contracts).

although one of the judges considered it to be a term of the mainC

4. Promise must be consistent with main contracto Contracts must co-exist, so there cannot be inconsistency

between the 2 contracts- an inconsistency with the main C can rule out the existence ofa collateral C∴ better to have the stmt judged as a term of the main C

e.g. Hoyts Pty Ltd v Spencer (1919) 27 CLR 133o Spencer was head lesseeo He sub-leased to Hoytso That lease had a provision that hoyt’s lease could be terminated

on four weeks noticeo Hoyts said ‘we don’t like that being in the lease’o And said ‘I won’t give you four week’s notice unless the landlord

gives ME four weeks notice’ – so unless the landlord says o So – at one stage Spencer gave Hoyts four weeks notice to

terminate leaseo Hoyt’s said to Spencer ‘you promised you wouldn’t give me notice

unless landlord required to, and they haven’t, so it’s invalid.o H said that the assurance was promissory and should be seen as

part of the term of the leaseo H would not have signed the lease w/o that verbal assuranceo BUT: the written lease states 4 weeks notice was all that was

requiredo so the written lease contradicted the verbal assurance

Court said: o there was inconsistency b/w the verbal assurance & the

written lease the promise in the alleged collateral lease conflicted with the lease and so they could not stand together

“WHEN PARTIES NEGOTITATE AN ORAL AGREEMENT THEN SUBSEQUENTLY REDUCE IT IN WRITING, THE WRITING CONSTITUTES THE CONTRACT. A distinct collateral contract whether in oral or in writing – and whether priorto or contemporaneous with the main contract in agreement – is valid and enforceable even though the main agreement is in writing PROVIDED THE TWO MAY CONSISTENLY STAND TOGETHER so that the provisions of the main agreement remain in full force and affect notwithstanding the collateral agreement”

o Here there may have been consideration but it can’t sit with the main contract as it’s in contradiction with the main contract.

o Didn’t have a remedy for breach of main contract

Note however that estoppel may apply:- If main contract has an ‘entire agreement’ clause, the

courts will not find there is a collateral contract.

Breach of a collateral contract

o Remedy for breach of collateral contract: damages only canbe awarded

oo Cannot terminate the main contract.o - the advantage is that you can sue for contract damages,

rather than tort

NB: collateral contracts can be found BUT only in LIMITED circumstances

definition of contract

Documents