Formation of Contracts



1. Formation of Contracts 13

1.1.1 Essentials of a Valid Contract 13

1.1.2 Process of Negotiation/Types of Contract 13

Others 13

2 Offer 14

Two Regimes 14

2.1.1 An offer is: 14

2.2 Do We Have a Contract? 14

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256: 14

2.2.1 Offers and Puff 15

2.2.2 Powerplay with offers 15

Battle of the Forms – offer/counter-offer 15

Butler v Ex-Cell-O Corp [1979] 1 All ER 965 15

2.3 Stages in negotiation not amounting to Offer: 15

2.3.1 i) Invitations to Treat. 15

Marked prices on shelves 15

Pharmaceutical Society of GB v Boots Cash Chemist [1953] 1 QB 401 15

Display of items in shop windows 16

Fisher v Bell [1961] 1 QB 394 16

Attorney-General (NSW) v Mutual Home Loan Fund (Aust) Ltd [1971] 2 NSWLR 162 16

Periodicals and catalogues 16

Partridge v Crittendon [1968] 1 WLR 1204 16

Distinction / commercial basis 16

Grainger & Sons v Gough [1896] AC 325 at 334 - ‘The transmission of such a price list does not amount to an offer to supply an unlimited quantity of the wine described at the price named so that as soon as an order is given there is a binding contract to supply that quantity.’ 16

2.3.2 ii) Offering Goods for Sale by Auction: - See p16-17 (Graw) 17

British Car Auctions v Wright [1972] 1 WLR 1519 17

Reserve Price 17

AG,C (Advances) Ltd. v McWhirter (1977) 1 BPR 9454: 17

2.3.3 iii) Supplying information 17

Harvey v Facey [1893] AC 552 17

2.3.4 iv) Cross Offers 17

Butler v Ex Cell-O-Corp 17

Hyde v Wrench (1840) 49 ER 132 17

cross offers sent in ignorance of each other 17

Tinn v Hofman & Co 17

Mere inquiry 18

Stevenson, Jacques & Co v McLean (1880) 5 QBD 346: 18

2.4 Termination of the Offer 18

an offer may be revoked at any time prior to acceptance 18

Payne v Cave (1789) 100 ER 502 18

2.4.1 Forms of revocation 18

own terms 18

death of a party 18

DEATH OF THE OFFEROR 19

where offeree knows of death 19

where offeree doesn’t know of death 19

DEATH OF THE OFFEREE 19

lapse of time 19

IF STIPULATED, A CONTRACT EXPIRES AUTOMATICALLY AT THE END OF THAT TIME 19

IF THERE IS NO CLAUSE TO STIPULATE, OFFER WILL EXPIRE AFTER A ‘REASONABLE TIME’ 20

Certain matters will affect the determination of ‘what constitutes a reasonable time’. 20

What is reasonable will depend on case to cases and will depend greatly on what the court considers just on the facts before it. 20

If there has been no firm offers 20

Change of Circumstances 20

Financings Ltd v Stimson [1962] 3 All ER 386 20

Failure of a condition to which the offer was subject – 21

McCaul (Aust) Pty Ltd v Pit Club Ltd [1959] SR (NSW) 122 21

Masters v Cameron 21

Rejection (distinguish an inquiry for further information – 21

Stevenson v McLean 21

Hyde v Wrench 1940 UK 21

By revocation: 21

2.5 Special problems of revocation 21

Revocation is not effective until it is communicated to the offeree. 21

Byrne v van Tienhoven 21

2.5.1 Notice of revocation from other sources: 21

Dickinson v Dodds 21

2.5.2 Revoking offers to the world at large 21

Shuey, Executor v United States (1875) 92 US 73 21

2.5.3 Bilateral contracts 21

2.5.4 Unilateral contracts: (a promise in exchange for an act) 21

when performance is underway 21

Vievers v Cordingley: 21

2.5.5 Options 21

Routledge v Grant (1828) 130 ER 920 21

Goldsborough Mort Ltd v Quinn (1920) 10 CLR 674 21

3 Acceptance 21

3.1 Nature of Acceptance 21

Outer Suburban Property v Clarke 21

3.2 Who can accept an offer? 21

Boulton v Jones: 21

3.3 Acceptance must correspond with offer 21

Hyde v Wrench 21

Stevenson Jacques v McLean (180) 5 QB 346 21

3.4 Acceptance ‘Subject to contract’ 21

Masters v Cameron 21

Godecke v Kirwan: 21

3.5 Acceptance ‘Subject to finance’ 21

Meehan v Jones: 21

3.6 Communication of acceptance 21

Offeror stipulating method of communication 21

George Hudson Holdings Ltd vFrench (1973) 128 CLR 587 21

Eliason v Henshaw 4 Wheaton 225 (1819) 21

Cross-Offers? 21

Tinn v Hoffman (1873) 29 LT 271 21

Manner of acceptance may be prescribed by offeror 21

Manchester Diocesan Council for Education v C&G Investments (1970) 1 WLR 241 21

3.7 Offer accepted by Conduct 21

Brogden v Metropolitan Railway 21

R v Clarke (1927) 40 CLR 227: 21

notification of acceptance? 21

Latec Finance v Knight 21

Acceptance by silence? 21

Felthouse v Bindley (1862) 142 ER 1037 21

3.8 Communication of acceptance 21

3.8.1 When is the acceptance effective? 21

3.8.2 Postal Acceptance Rule 21

When is a letter of acceptance effective? 21

Henthorn v Fraser [1892] 2 Ch 27 21

Reasons for UK postal rule 21

3.8.3 The strict effect of the postal rule 21

Household Fire & Carriage Accident Insurance Co (Ltd) v Grant (1879) 4 Ex D 216 21

Tallermanns v Nathans Merchandise: 21

3.8.4 Limits of UK Postal Rule 21

Holwell Securities Ltd v Hughes [1974] 1 All ER 161 21

jurisdiction 21

Entores Ltd v Miles Far East Corp [195] 22 QB 327 21

Getreide-Import GmbH v Contimar SA Compania Industrial, Commercial v Maritima [1953] 1 WLR 207 21

3.8.5 Position in Australia 21

Tallerman & Co v Nathan’s Mercandise Ltd (1957) 98 CLR 93 21

Bressan v Squires 21

Tallermanns: 21

3.8.6 Instantaneous methods? 21

3.9 Where was the contract made? – Where is acceptance effected? 21

Brinkibon v Stahag [1983] 2 AC 34 (H of L) 21

4 Intention 21

4.1 The Test: 21

4.1.1 Classification 21

4.2 Commercial Dealings 21

Carlill 21

obvious joke 21

Keller v Holderman 11 Mich 248 (1863) 21

Where it is not so obvious 21

esso petroleum 21

Esso Petroleum v Comm of Customs & Excise [1976] 1 AER 117 21

Honour Clauses 21

Rose & Frank v Crompton [1923] 2 KB 261 21

4.3 Family Arrangements 21

Balfour v Balfour 21

4.3.1 Rebutting the Presumption 21

Merritt v Merritt [1970] 1 WLR 1211 21

Popiw v Popiw 21

Dunton v Dunton 21

Jones v Padvatton 21

Wakeling v Ripley 21

4.4 Dealings With Governments 21

4.4.1 Government Policy 21

PNG v Leahy: 21

4.5 Principles extracted from cases 21

5 Certainty 21

5.1 General principle 21

Scammell Ltd v Ousten [1941] AC 251 21

5.2 Certainty and Complex Agreements 21

5.3 How Courts Deal with Complex Agreements? 21

- Scammell v Ouston 21

5.3.1 Severance of vague part 21

Fitzgerald v Masters (1956) 95 CLR 420 21

5.4 What is reasonable? 21

5.4.1 Referring to incomplete agreements 21

ANZ Banking Group v Frost Holdings [1989] VR 695 21

5.5 External formula or method 21

Hawthorn FC v Harding [1988] VR 49 21

5.6 “…subject to finance” 21

Meehan v Jones (1982) 149 CLR 57 21

5.7 Subject to Contract 21

Masters v Cameron (1954) 91 CLR 353 21

Godecke v Kirwan (193) 47 ALJR 543 21

Niesmann v Collingridge 1921) 29 CLR 177 21

Coal Cliff v Sijehama 21

5.7.1 Was there a Contract, or merely an Agreement to Agree? 21

5.7.2 General Principles taken from Coal Cliff v Sijehama: 21

5.8 ‘Well-meaning and paternalistic interference’ of the Courts? 21

6 Doctrine of Consideration 21

6.1 Possible filtering methods 21

6.2 The english solution 21

6.3 Definition: 21

Australian Woolen Mills v The Commonwealth 21

6.4 Rules: 21

6.4.1 Cons must move from the promisee, but need not move to the promisor 21

Exception - joint promisees? 21

Coulls v Bagots Executor (1967) 119 CLR 460 21

The Trident exception 21

Trident Insurance v McNiece (1988) 165 21

Statutory Exceptions 21

? Insurance Contracts Act 1984 (Cth) 21

? Property Law Act 1974 (Qld) 1969 (WA) 21

6.4.2 Cons may be executory or executed, but not past 21

Illustration and exception 21

Roscorla v Thomas 21

Exceptions: 21

Lampleigh v Braithwait 21

Re Casey’s Patents (1892) 1 Ch 104 21

6.4.3 Consideration must be sufficient but need not be adequate 21

Thomas v Thomas 21

MacRobertson Miller Airlines v Commissioner of Taxes WA (1975) 133 CLR 125 21

6.5 Problem areas 21

6.5.1 …to perform a legal duty? 21

Collins v Godefroy (1831) 109 ER 1040 21

Popiw v Popiw (1959) VR 197 21

6.5.2 Exceeding the duty? 21

police 21

Glasbrook v Glamorgan CC (1925) AC 270 21

father/child relations 21

Ward v Byham (1956) 2 All ER 318 21

6.5.3 …Contractual duty already owed? 21

Stilk v Myrick (1809) 170 ER 1168 21

Hartley v Ponsonby (1857) 119 ER 1471 21

6.5.4 Rule in Pinnel’s case 21

Pinnel’s Case (1602) 5 Co Rep 117a; 77 ER 237 21

Foakes v Beer (1884) 9 AC 605 21

6.5.5 …duty to third party? 21

Shadwell v Shadwell (1860) 142 ER 62 21

6.5.6 …to change one’s behaviour 21

cf White v Bluett (1853) 22 LJ Exch 36 21

6.5.7 Forbearance to sue / compromise? 21

6.5.8 Criticisms 21

6.5.9 Performance of an existing duty (double dipping) 21

Arising under a contract with a third person 21

The Stevedoring Cases 21

Performance of a duty already owed to the promisee 21

Sundell v Emm Yannoulatas 21

7 Estoppel 21

7.1.1 Equitable estoppel 21

Pinnel’s Case (1602) 21

Hughes v Metropolitan Railway (1877) 2 AC 439 at 448 21

Central London Property Trust v Hightrees house 21

Je Maintiendrai v Quaglia 21

Legione v Hately 21

7.2 Elements of Estoppel 21

These cases retrieved the old equitable rule that: 21

7.3 Acceptance in Australia 21

Je Maintiendrai v Quagla (1980) 26 SASR 101 21

D & C Builders v Rees (1983) 152 CLR 406 21

7.3.1 1988 watershed 21

Waltons Stores v Maher (1988) 164 CLR 387 21

7.3.2 Post-1988 requirements 21

7.3.3 Later cases 21

Austotel v Franklins Selfserve (1989) 16 NSWLR 582 21

Commonwealth v Verwayen (1990) 170 CLR 394 21

7.3.4 Limitations to the doctrine 21

7.3.5 Unconscionability 21

7.3.6 Further requirements 21

7.4 Relevance to Contract 21

8 Privity 21

8.1 Elements 21

Coulls v Bagot 21

8.2 The early cases 21

8.2.1 Attempting to Confer benefits on a 3rd party 21

Tweddle v Atkinson – 21

8.2.2 Attempted to impose restrictions on a 3rd party 21

Dunlop Pneumatic Tyre v Selfridge [1915] A.C. 21

Van Der Pit v Insurance 21

8.3 Exceptions 21

8.4 Limitations upon and exceptions to the doctrine 21

8.4.1 Joint promisees 21

Coulls v Bagots Executor (1967) 119 CLR 460 (P 141 Graw) 21

8.4.2 Co-operative party 21

Beswick v Beswick [1968] A.C 21

8.4.3 Exemption clauses intended to benefit an agent or employee 21

Wilson v Darling Island Stevedoring 21

Scruttons ltd v Midland Silicones Ltd 21

8.4.4 Himalaya Clause 21

8.4.5 Comments on Eurymedon 21

Policy imperatives 21

Problems 21

Port Jackson v Salmond & Spraggon (1980) 144 CLR 300 (PC) 21

8.5 Today, Problems of structure are overcome by: 21

The Stevedoring Cases 21

8.6 Statutory provisions 21

s. 55 Property Law Act (Qld) 21

Further notes on the Property Law Act 21

Note Statutes 21

8.7 Recent Developments 21

Trident Insurance v McNiece (1988) 165 21

9 Terms of the contract 21

9.1.1 Outline 21

9.2 How can you tell a term? 21

9.2.1 English Cases: 21

Heilbut Symons v Buckleton 21

9.2.2 Australian Cases: 21

Ellul v Ellul & Oaks 21

Savage v Blakney 21

Ross v Alice Chalmers 21

9.3 Parole evidence rule 21

Thorne v Thomas Borthwick (1956) 56 SR 81 21

9.3.1 Partly written contracts 21

Couchman v Hill [1947] KB 554 21

asking Q’s before signing document 21

Van den Esschert v Chappell [1960] WAR 114 21

Nemeth v Bayswater Road Pty Ltd [1988] 2 Qd R 406 21

9.3.2 Collateral contracts 21

Hoyts v Spencer (1919) 27 CLR 133 21

Shepperd v Ryde Municipality (1952) 85 CLR 1 21

Agreement 21

JJSavage v Blakeney 21

9.3.3 Arguments to counter the rule 21

9.3.4 Exceptions 21

Apparent exceptions, which include 21

True Exceptions to the Parol Evidence Rule W 21

9.3.5 Limitations on the rule 21

9.4 Pre-contractual statements 21

9.4.1 Puffs and opinions 21

PUFFS 21

OPINIONS 21

9.4.2 Representations 21

9.4.3 Terms 21

9.4.4 Summary of classification 21

9.5 Terms vs. Representations 21

Oscar Chess v Williams [1957] 1 WLR 370 – not a term 21

Dick Bentley Productions v Harold Smith Motors [1965] 1 WLR 623 – was a term 21

9.5.1 Importance in the Minds of the Parties 21

Bannerman v White 21

If person making statement shows that they do not warrant the accuracy of the statement or that the representee should have the statement checked independently 21

Ecay v Godfrey 21

if said in such a way that the other party would be dissuaded from checking it 21

Schawel v Reade 21

9.5.2 Helpful factors 21

9.6 Types of terms 21

conditions 21

warranties 21

9.6.1 Test of essentiality 21

Associated Newspapers v Bancks (1951) CLR 21

9.6.2 The Wait and See Rule 21

Hong Kong Fir Shipping v Kawasaki (English Crt of App, Lord Devlin) 21

9.6.3 Alternative category develops 21

9.6.4 Useful analysis 21

Photoproductions Ltd v Securior 21

2. Where the consequences of the failure to performs are so serious that they deprive the innocent party substantially of the whole benefit of the contract. – Hong Kong Fir 21

9.6.5 Australian view 21

Associated Newspapers v Bancks (1951) 83 CLR 322 (before Hong Kong Fir) 21

Ankar P/L v National Westminster Finance – HCA 1987 21

9.7 express and implied terms 21

EXPRESS TERMS 21

IMPLIED TERMS 21

9.8 Implied Terms 21

9.8.1 The test for implied terms 21

9.8.2 Where one can look to find implied terms: 21

Liverpool County Council v Irwin 21

9.8.3 High Court discussion 21

Codelfa Construction v State Rail Authority (NSW) (1983) 1149 CLR 337 21

9.8.4 Assisting an implication 21

9.8.5 Terms implied (?) by law 21

9.9 Exemption and exclusion clauses 21

Exemption clauses 21

Exclusion clauses 21

Limitation clause 21

Theoretical tension 21

Use and abuse 21

Judicial techniques 21

9.9.1 Incorporation – 2 main rules 21

RULE 1: 21

L’Estrange v Graucob 21

EXAMPLE OF AN EXCEPTION 21

Curtis v Chemical Cleaning & Dyeing (1951) 1 KB 805 21

RULE 2: - CONTRACTUAL OBLIGATIONS 21

Causer v Brown [1952] VLR 1 21

Chapelton v Barry UDC [1940] 1 KB 532 21

9.9.2 Notice? 21

Hill v Wright [19711 V.R. 749 21

where contract was / is made 21

Ocenaic Sun Line Special Shipping v Fahey 21

9.9.3 REASONABLE STEPS 21

Parker v. S.E Railway (1877) 2 C.P.D 416: 21

9.9.4 Particularly onerous terms 21

Interphoto Picture Library v Stiletto Visual Programmes [1989] QB 43 (CA) 21

9.9.5 Mere display may be sufficient 21

Olley v Marlborough Court [1949] 1 KB 532 (CA) 21

9.9.6 Before or at time of contract 21

Thornton v Shoe Lane Parking [1971] 2 QB 163 21

where conditions are on the reverse side of the ticket 21

Sugar v London, Midland & Scottish Railway Co [1941] 1 All ER 172 21

9.9.7 Verbal assurances 21

Mendelssohn v Normand [1970] 1 QB 177 (CA) 21

9.9.8 Previous course of dealings 21

Henry Kendall v William Lillico [1969] 2 AC 31 21

Balmain New Ferry v. Robertson (1906) 4 C.L.R. 379 21

DJ Hill v Walter Wright (1971) VR 749 21

9.9.9 Statements during negotiations 21

Rationale: 21

Factual Matrix 21

Codelfa Construction P/L v NSW Rail Authority (1982) 56 ALJR 459: 21

9.10 Interpretation issues 21

9.10.1 Contra proferens 21

Wallis & Wells v Pratt & Haynes (1911) AC 394 21

9.10.2 Liability for negligence 21

White v John Warwick (1953) 2 All ER 1021 21

9.10.3 Fundamental breach 21

Karsales (Harrow) v Wallis [1956] 1 WLR 936 21

FUNDAMENTAL BREACH IN THE UK 21

Suisse Atlantique v NV Rotterdamsche [1967] AC 361 21

Photo Productions of Securicor [1980] AC 827 21

FUNDAMENTAL BREACH IN AUSTRALIA 21

Sydney City v West (1965) 114 CLR 481 21

DIAGRAMATIC REPRESENTATION 21

9.10.4 Deviation principle 21

FOUR CORNERS 21

TNT v May Baker (1966) 115 CLR 353 21

9.10.5 Main object 21

Van der Sterren v Cibernetics (1970) 44 ALJR 157 21

OTHER ARGUMENTS 21

FINAL COMMENTS 21

Alisa Craig Fishing v Malvern Fishing (‘Securicor No 2’) [1983] 1 All ER 101 21

Aust ( Darlington Features v Delco (Australia) Ltd (1986) 161 CLR 500 21

10 Terms Implied by Statute 21

10.1 a) Sale of Goods Act (1896) Qld ss.17-20 21

10.2 b) Trade Practices Act 1974 (Cwth) Part V div 2. C&H - 274-276 21

10.2.1 Implied terms under the TPA 21

10.2.2 Monetary & Purposive Limits 21

Goods include: 21

Services 21

Supply of Services 21

Section 74 21

Section 68 & 68A 21

Section 70 – Implied term goods comply with description etc 21

11 Exemption or Exclusion Clauses 21

11.1 Use and Abuse of such terms 21

11.2 Hostility of the Courts 21

Glynne v Morgenson (HoL) 21

11.2.1 What is permitted or authorized by the contract? 21

Sydney City Council v West: 21

11.2.2 What is within the four corners of the contract? 21

TNT v May & Baker HCA 21

11.2.3 The Securior Cases 21

Photo Production Ltd v Securior (HofL) – 1980 21

Ails Craig Fishing Co v Securior 21

11.3 Australian Views 21

Darlington Futures v Delco Australia – 1986 21

11.4 Statutory Regimes 21

11.5 Exclusion clauses and privity 21

Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (1978) 139 CLR 321 21

Midland Silicones v Scrutton 21

The Himalaya Clause 21

New Zealand Shipping Co. v Satthervaite & Co. Ltd [1975] AC 154 (Privy Council) 21

Celthene P/L v WKJ Hauliers 21

12 Problems of Construction 21

12.1 Canons of Construction 21

12.1.1 Objective interpretation of contracts: 21

12.1.2 When the meaning is unclear? 21

12.1.3 Inferring the Parties intention: 21

Commercial v Consumer 21

Does the contract have to be in English? 21

12.2 Indefiniteness 21

White v Bluett 21

Raffles v Wichelhaus 21

ANZ v Frost Holdings 21

12.2.1 Devices to reduce uncertainty 21

Cavallari v Premier Refrigeration 21

12.3 Incompleteness 21

12.3.1 Construction and Certainty 21

12.3.2 The importance of intent 21

Butler v Ex Cello Corporation 21

12.3.3 How to Fill the Gaps 21

Arbitration 21

Sykes v Fine Fair 21

who to consult first – arbitrator or each other 21

Booker Industries v Wilson Parking 21

saved by a clause! 21

Hawthorn Football Club v Harding 21

Severance 21

Uncertainty 21

Brew v Witlock 21

Illegality 21

Carney v Herbert 21

Brown v Fazal Deen 21

12.3.4 Open Terms 21

Price 21

Quantity 21

Kier v Whitehead 21

Time 21

Electronic Industries v David Jones Ltd 21

13 Termination by Performance or Agreement 21

13.1 Performance 21

13.2 Exceptions to performance 21

13.3 Discharge by performance 21

13.3.1 Order of performance 21

Automatic Fire Sprinklers v Watson (1946) 72 CLR 435 21

13.3.2 Time for performance 21

Bunge Corp v Tradax [1981] 1 WLR 711 21

Louinder v Leis (1982) 149 CLR 509 21

13.3.3 Requirements for discharge 21

13.4 Potential for unjust enrichment 21

13.4.1 Entire contracts 21

Cutter v Powell (1795) 101 ER 573 21

AN INTERESTING APPLICATION 21

Corio Guarantee v McCallum [1956] VLR 755 21

13.4.2 Substantial performance 21

Hoenig v Isaacs [1952] 2 All ER 176 21

CONFUSION REIGNS 21

Bolton v Mahadeva [1972] 1 WLR 1009 21

13.4.3 Substantial performance divisible 21

Property Law Act 1974 (Qld) s 231-2 21

Does substantial performance apply to each divisible party? 21

Steele v Tardiani (1946) 72 CLR 386 21

13.4.4 Refusal of Tender of Performance 21

Startupv Macdonald 21

13.4.5 Where Tender would be futile 21

Mahoney v Lindsay 21

13.4.6 ‘Quantum meruit’ 21

Sumpter v Hedges (1898) 1 QB 673 21

Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 321 21

13.4.7 Discharge by agreement 21

13.4.8 Without consideration 21

PROMISSORY ESTOPPEL 21

Waltons Stores (Interstate) Ltd v Maher (1987-1988) 164 CLR 387 21

Craine v Colonial Mutual Fire Insurance (1920) 28 CLR 305 21

13.4.9 WAIVER 21

May be withdrawn upon reasonable notice 21

Charles Rickards Ltd v Oppenhaim (1950) 1 KB 616 (CA) 21

The party voluntarily waiving strict performance will be required to honour that waiver at least unless and until the other party receives adequate notice of any change of heart. 21

Hartley v Hymans 21

If one party seeks a waiver from the other, he or she cannot subsequently disregard it and demand that the contract be performed in accordance with its originally agreed (pre-waiver) terms 21

Levey & Co v Goldberg 21

13.5 Contingent Conditions 21

CONDITION PRECEDENT 21

Perri v Coolangatta Investments 21

Head v Tatteersall 21

13.6 Good Faith Performance 21

Cth v Aman Aviation 21

Hughes Aircraft Systems v Air services 21

13.7 Ready, Willing and Able 21

Cutter v Powell 21

13.8 The De Minimis Rule 21

A party who falls slightly short of perfection will not be affected by the shortfall 21

Shipton, Anderson & Co v Weil Bros & Co 21

13.9 Partial Performance 21

Planche v Colburn 21

Steele v Tardiani 21

13.10 Rules relating to performance: 21

13.10.1 Tender 21

13.10.2 Time 21

time is of the essence 21

Lounder v Leis – High Court 21

Stern v McAurthur 21

Legione v Hately 21

Time will be of the essence when – 21

The parties expressly agree 21

A party is guilty of an unreasonable delay (Lounder v Leis) 21

If it is unconscionable to rely on legal rights (Stern v McAurthur) 21

There has been a waiver or estoppel of this right (Legione v Hately) 21

14 Termination by Agreement (LN) 21

Circumstances where one can terminate: 21

A continuing contract of indefinite duration (Barro Group v Fraser): 21

Unilaterally by reasonable notice 21

By tacit mutual agreement (DTR v Moner Homes) 21

All contracts: 21

Agreement following a contractual term (Aman Aviation) 21

An Agreement subsequent to a contract 21

DTR v Moner Homes 21

Aman Aviation 21

14.1 Contract- Based Termination 21

14.1.1 Types: 21

Shevilled v Builder’s Licencing Board 21

Perri v Coolangatta Investments 21

14.1.2 When can you terminate? 21

14.1.3 There are two devices to enforce promises in the absence of consideration: 21

Waiver: 21

Central London Property Trust v Hightrees 21

Cth v Verwayen 21

15 Termination by Breach / Repudiation 21

15.1.1 Topics 21

15.2 The Breach 21

15.3 Consequences of discharge 21

McDonald v Dennys Lascelles 21

15.4 Breach by failure to perform 21

15.4.1 Matching the concepts 21

15.4.2 When can one terminate? 21

Tramways Advertising v Luna Park 21

15.4.3 Innominate terms 21

Hongkong Fir Shipping v Kawasaki Kisen Kaisha 21

Cehave NV v Bremer Handelsgesellschaft mbH 21

Ankar Pty Ltd v National Westminster Finance 21

LIMIT OF INNOMINATE TERMS 21

15.5 Repudiation 21

15.5.1 Anticipatory breach 21

Universal Cargo Carriers v Citati 21

Results of Wait and See: 21

Avery v Bowden 21

White & Carter (Councils) v McGregor 21

Automatic Fire Sprinklers v Watson 21

Consequences of an Anticipatory breach: 21

Sunbird Plaza v Maloney 21

Fercometal SARL v Mediterranian Shipping Co 21

Foran v White 21

Progressive Mailing v Tabali 21

15.5.2 Dangers 21

Maple Flock v Universal Furniture Products 21

15.6 Nature and effect 21

Heyman v Darwins Ltd 21

15.6.1 Accrued obligations 21

McDonald v Dennys Lascelles Ltd 21

15.6.2 Waiver & estoppel 21

Tropical Traders v Goonan 21

15.6.3 Unintended consequences 21

Shevill v Builders Licensing Board 21

15.7 Essential Terms Giving Rise to Termination 21

15.7.1 Tests to establish degree of seriousness of the breach: 21

Essentiality Test: 21

Tramways Advertising v Luna Park 21

Associated Newspapers v Banks 21

The Hong Kong Fir Test 21

Bowes v Chaleyer 21

15.8 Can a contract breaker sue for breach by the other party? 21

15.8.1 1. Loss of Access to Equitable Remedies 21

Bahr v Nicolay (Important dicta) 21

15.8.2 2. Abandonment 21

DTR v Mona Homes, 21

15.8.3 3. Repudiation 21

Turnball v Mundas (HCA) 21

Mahoney v Lindsay 21

The effect of Estoppel 21

Foran v Wight 21

15.8.4 4. Can you ‘cure’ a breach? 21

Vendor taking initiative whilst contract still on foot 21

Rawson v Hobbs 21

Cure by waiver 21

Brien v Dwyer 21

Cure by construction 21

Sunbird v Maloney 21

Cure and Pleadings 21

Shepherd v Felt & Textiles 21

16 Termination by Frustration 21

16.1.1 Discharge by Frustration 21

16.2 Early development 21

Taylor v Caldwell 21

Jackson v Union Marine 21

16.3 Current scope 21

16.3.1 Non-occurrence of an event which is the basis of the contract 21

Krell v Henry 21

16.3.2 Frustration of a commercial venture 21

Codelfa Constructions v NSW State Rail Authority 21

16.4 Self-induced frustration 21

16.4.1 What if event is foreseen, eg contract provides for the event? 21

Simmonds v Hay 21

16.4.2 What if foreseen, but no provisions made in contract? 21

Walton Harvey v Walker Homfrays 21

Codelfa Construction v NSW State Rail Authority 21

16.4.3 What if not foreseen but should have been 21

The Eugenia 21

16.5 Juristic basis of doctrine 21

16.5.1 ‘Implied term’ theory 21

16.5.2 ‘Just and reasonable solution’ theory 21

16.5.3 ‘Change in the obligation’ theory 21

Codelfa Construction v NSW State Rail Authority 21

16.5.4 Requirements 21

Davis Contractors Ltd v Fareham UDC 21

It is not easy to persuade a court that performance is radically different. 21

Tsakiroglou v Noblee Thorl 21

16.6 Effects of frustration 21

16.6.1 Quantum meruit 21

16.6.2 Total failure of consideration 21

Fibrosa Spolka v Fairbairn Lawson Combe Barbour Ltd 21

16.6.3 Australian view 21

Re Continental C&G Rubber Co 21

16.6.4 Reform 21

L’s notes 21

1. Formation of Contracts

First element of contract is agreement, which equals offer and acceptance.

1 Essentials of a Valid Contract

▪ Parties with legal capacity to enter the particular contract

▪ Intention to establish or affect legal relations between themselves

▪ Agreement (offer and acceptance)

▪ Consideration or seal (or in some cases by estoppel)

▪ The absence of a character which would nullify or void the intent such as duress, undue influence, unconscionability, fraud, misrepresentation, mistake or illegality.

Deals do not have to be in writing to be binding

2 Process of Negotiation/Types of Contract

▪ Contracts wholly in writing (e.g. commercial, serious, complex)

▪ Contracts under seal – deeds (mostly property deals today)

▪ Standard form contracts (don’t argue, accepted)

▪ Customized contracts (yet set out the terms)

▪ Multiple Document contracts (lots of documents make up contract)

Others

▪ Oral contracts

▪ Contracts partly oral and partly in writing

▪ Contracts inferred from conduct

▪ Contracts created electronically

Offer

The formula of offer and acceptance is a constructed model that serves to identify four important contractual matters:

• The fact of agreement (Is there a legally binding contract?)

• The time of the agreement (No further unilateral change)

• The content of the agreement (Express terms)

• The place of the agreement (Determines which law applies to the contract and which jurisdiction disputes are heard under)

Two Regimes

← Domestic contracts

- Common law as supplemented by statute

← International contracts

- Rules of private international law

- Multilateral treaty United Nations Convention on the International Sale of Goods (known as the Vienna Convention)

- Implemented in each Australian state

2 An offer is:

• A promise, with appropriate intent, certain and comprehensive.

• It can be addressed to the offeree, or to the entire world.

- A manifestation by one party (offeror) to the other (offeree), of willingness to be bound by certain terms, if the offeree will be bound on those same terms.

- The offeree has the power to create a contract by accepting the offer. The offeror has the power to dictate the terms of the contract

2 Do We Have a Contract?

The parties may think they have a contract, they may think they know the terms of the contract, but do they?

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256:

Facts:

← The defendants made a statement that said they would pay 100 pounds to anyone who caught influenza who had smoked the smoke ball three times daily for three weeks. Mrs. Carlill reads the advert, buys the smoke ball and uses it, but still got influenza. She sues for the reward of 100 pounds

- Is there offer and acceptance? Is there a valid contract?

Ratio:

• Offer ( The offer was made to everyone who saw the poster as that was the intention

• Acceptance ( The offeror waived the right to communication. All that was required was to use the smoke ball as directed and the offer was accepted. The item had been purchased with the intention of accepting. The offer was validly accepted without communication

• Intention ( The intention was objectively there for the company to contract. It was indicated by the deposit of 1000 pounds in the bank.

• Consideration ( In this case, the fact that the company could engender confidence in the public to use its product and that there was detriment to the promisee was enough to constitute consideration. (The money paid for the ball may be consideration for the sale of it not for the promise in the advertisement)

• This is a unilateral contract. In such a contract, the offer is the promise to do something in return for an act. The acceptance is the doing of the act and it is implied that a notice of acceptance is not required.

• Today, adverts to the ‘whole world’ do not attract such liability. A matter like this would be heard under the TPA. In Carlill – The only way to get money for Mrs. Carlill was to find a contract offer in the advert. Today, these are not seen as offers, but rather as invitations to treat. This gives supermarkets, shops etc. the final decision whether or not to accept, and he customer is effectively offering. For instance, 5000 people want to by 2000 advertised products, supermarket is entitled to decline 3000 offers.

2 Offers and Puff

← ‘Puffs’ consist of all those statements which, while made to induce contracts, are so obviously far-fetched that no reasonable person would believe them.

- Though they may induce a contract, they are not biding upon the party making them.

3 Powerplay with offers

← Offeror has power to dictate terms of contract when making offer

← Offeree has power to create contract by accepting the offer

← Sometimes difficult to identify the exact moment of offer and acceptance

Battle of the Forms – offer/counter-offer

Butler v Ex-Cell-O Corp [1979] 1 All ER 965

Facts:

← Butler quotes for the machine, terms on the back with the price to be settled at delivery. Excello accepts, but on their own terms, with a fixed price. There was effectively no agreement. BUT

The acceptance had a tear-off slip for acknowledgment of receipt of acceptance. The seller filled it in and sends it to the buyer BUT A covering letter says that the Seller notes acceptance by the Buyer of the Seller’s terms.

Ratio:

← The D’s were not liable. Their order of 27th May was not an acceptance of the seller’s offer of 23rd May, but a counter-offer to purchase. The sellers had accepted this by their letter of 5th June at which point the contract was complete w/o any price variation clause. Hence the seller’s were not entitled to a price variation, as it was not part of the contract.

3 Stages in negotiation not amounting to Offer:

(They do not manifest an intention to be bound, but only a willingness to discuss terms)

1 i) Invitations to Treat.

• An ‘invitation to treat’ is merely an initial approach to others inviting them to deal - or to instigate dealings - with you on certain specified terms which, if offered, you will probably accept.

Marked prices on shelves

Pharmaceutical Society of GB v Boots Cash Chemist [1953] 1 QB 401

Facts

← The United Kingdom Pharmacy and Poisons Act 1933 prohibited the sale of any listed poison unless it was ‘effected under the supervision of a registered pharmacist.’ Boots was a retail pharmacist company and it had converted one of its shops to self-service. Customers chose the products required, took them to a cash desk and paid for them. Near the cash desk was a registered pharmacist who was authorised, if necessary, to stop the sale of any particular item. Boots was charged with breaching the statutory prohibition. It was alleged that the display of the goods was an offer to sell, and that the offer was accepted when the customer selected those goods and that the contract of sale, therefore, arose at a point which was not under the immediate supervision of the pharmacist who could not see all parts of the shop from the cash desk.

Held:

← Boots was not in breach of the Act. The display of the goods was only an invitation to treat. Customers ‘offered to buy’ when they took the goods to the counter and at that point Boots decided whether to accept their offers or not. That part of each transaction formed the culmination of the sale and it was supervised by a pharmacist.

Display of items in shop windows

Fisher v Bell [1961] 1 QB 394

Facts:

← The defendant displayed a flick knife with a clearly inscribed price tag in his shop window. At that time it was an offence to offer for sale flick knives.

Held:

← Acquitted. The display of the weapon, even with a price tag was merely an invitation to treat. Consequently it was not an offer to sell and the offence had no been established.

← In Australia, the problem has not arisen as the courts agree that words should be given their usually accepted and wider meaning in preference to a narrow legalistic meaning.

Attorney-General (NSW) v Mutual Home Loan Fund (Aust) Ltd [1971] 2 NSWLR 162

( Held that the word ‘offer’ has to be read to include invitations to treat as well as offers.

Periodicals and catalogues

Partridge v Crittendon [1968] 1 WLR 1204

Facts:

← Partridge was charged with ‘offering for sale’ a wild bird contrary to the provisions of the Protection of Birds Act 1954 (UK). He had planned an advertisement in a periodical called the Cage and Aviary Birds which read in part: ‘Bramblefinch cocks, bramblefinch hens, 25s each.’ A Mr Thompson read the advertisement, send Partridge 25s for a hen and Partridge filled his order. He was charged.

Held;

← He was found not guilty. The advertisement was not an offer for sale but an invitation to treat. Therefore, the offence charged, ‘offering for sale’, had not been committed.

- It is a curious aspect of this case that Partridge was charged with ‘offering for sale’ rather than ‘selling’. Both were offences under the Act. He was quite rightly, if somewhat semantically, acquitted on the charge ‘offering for sale’ but he should have been found guilty on the alternative charge of ‘selling’; a clear illustration of the need to choose one’s words carefully.

Distinction / commercial basis

← The distinction between offers and invitations to treat can be justified on a commercial basis. When a shopkeeper, or any other person for that matter, advertises a willingness to deal on certain terms, it is always possible that there will be more acceptors than can be supplied from available stock. In such cases the shopkeeper would be forced to breach at least some of these ‘contracts’

Grainger & Sons v Gough [1896] AC 325 at 334 - ‘The transmission of such a price list does not amount to an offer to supply an unlimited quantity of the wine described at the price named so that as soon as an order is given there is a binding contract to supply that quantity.’

2 ii) Offering Goods for Sale by Auction: - See p16-17 (Graw)

British Car Auctions v Wright [1972] 1 WLR 1519

Held:

← An auctioneer’s call for bids is only an invitation to treat. When made, a bid is an offer from the bidder to buy at that price. It is then up to the auctioneer to either accept or reject the bid on behalf of the principal.

Reserve Price

AG,C (Advances) Ltd. v McWhirter (1977) 1 BPR 9454:

Ratio:

← The bidder is no more than an offeror and consequently no contract can be made until his bid is accepted (usually by the fall of the hammer). No statements, such as the highest bidder shall be the purchaser or that the sale was no longer subject to a reserve price affected the right to say no to the highest eventual bidder.

3 iii) Supplying information

Harvey v Facey [1893] AC 552

Facts:

← The appellant telegramed the respondent asking if they would sell a pen and to telegraph the lowest price. The respondents replied that the lowest price was 900 pounds. The appellants construed this as an offer then sued for specific performance.

Ratio:

← There was no contract. The 2nd telegram was not an offer, merely a supply of information – the price at which the respondent might be prepared to deal if he was made an appropriate offer. Consequently, the 3rd telegram was not an acceptance but an offer to buy. That offer was never accepted and, thus, there was no contract.

4 iv) Cross Offers

Counter offers do not constitute acceptance – they override old offers (

Butler v Ex Cell-O-Corp

Hyde v Wrench (1840) 49 ER 132

Facts:

← The defendant offered to sell his farm for £1000. The plaintiff replied, offering £950 for which the defendant refused. The plaintiff then agreed to pay the originally asked £1000. The defendant, though he had not withdrawn his offer at that stage, neither assented to nor rejected this proposal but he subsequently refused to go through with the sale. The plaintiff sued

Held:

← The plaintiff had made a counter-offer which effectively rejected the defendant’s original offer, which ceased to exist at that point. Consequently, when the plaintiff ‘agreed’ to pay the asked price, his ‘arrangement’ was not an acceptance of the defendant’s now defunct offer to sell but a fresh offer to buy. As that offer was never accepted, there was no contract.

cross offers sent in ignorance of each other

Tinn v Hofman & Co

Facts:

← The parties wrote to one another on the same day, the plaintiff offering to buy 800 tons of iron at 69s per ton, the defendant offering to sell the same quantity at the same price. The plaintiff sought to enforce the resulting contract

Held:

← There was no contract. Neither letter amounted to an acceptance because both had been sent in ignorance of the other party’s offer and, therefore, could not be an acceptance of it. Blackburn J (at 279) said: ‘When a contract is made between two parties, there is a promise by one in consideration of the promise made by the other; there are two assenting minds…and…there is an exchange of promises; but I do not think exchanging offers would, upon principle, be at all the same thing…The promise or offer being made on each side in ignorance of the promise or the offer made on the other side, neither of them can be construed as an acceptance of the other.’

Mere inquiry

← Merely asking whether an offeror might be prepared to modify the offer must be distinguished from a counter-offer. A mere inquiry is not acceptance but neither is it rejection. It has an entirely neutral effect on the offer, and when the offeror replies, the offeree still has the option of accepting or rejecting.

Stevenson, Jacques & Co v McLean (1880) 5 QBD 346:

Facts:

← McLean telegraphed Stevenson on Saturday offering to sell 3,800 tons of iron ‘at 40s net cash per ton, open till Monday’. On Monday morning Stevenson telegrammed McLean: ‘Please wire whether you would accept 40 for delivery over 2 months or if not the longest limit you would give.’ McLean did not respond.’ McLean did not respond. At 1.34pm that same afternoon, Stevenson telegrammed accepting the original offer. Unfortunately, between Stevenson’s morning and afternoon telegrams, McLean had sold the iron to a third party. He had sent a telegram giving Stevenson notice of this at 1.25pm but that telegram crossed with Stevenson’s second telegram. Stevenson sued.

Held:

← Stevenson’s first telegram was not a counter-offer. It was a mere inquiry. As a result, McLean’s offer was still open at 1.34pm, it had been validly accepted, a contract had arisen and McLean was in breach of that contract. Lush J (at 35) said: ‘Here there is no counter-proposal. There is nothing specific by way of offer or rejection, but a mere inquiry, which should have been measured and not treated as a rejection of the offer.

4 Termination of the Offer

An offer can not be accepted after it ceases to exist.

an offer may be revoked at any time prior to acceptance

Payne v Cave (1789) 100 ER 502

Facts:

← The defendant bid for £40 for goods being auctioned, but before they were knocked down to him, he withdrew his bid. The question was whether he could withdraw the bid in this fashion.

Held:

← A bid is merely an offer and it may be revoked at any time prior to acceptance. Acceptance at auctions occurs on the fall of the hammer, and as the defendant had withdrawn his bid before that happened, his offer had terminated and the auctioneer could not accept.

Therefore, the time of termination and of acceptance must be determined.

2 Forms of revocation

own terms

death of a party

← One must look at which of the parties has died and whether the death has any bearing on the continuation of the offer.

DEATH OF THE OFFEROR

where offeree knows of death

Fong v Cili (1986) 11 FLR 495

← An offeree cannot accept an offer after he or she has notice of the offeror’s death. Notice terminates the offer

← However where the offeree is unaware of the death, it appears that valid acceptance is possible, a valid contract can arise and the deceased’s estate can be bound.

where offeree doesn’t know of death

Bradbury v Morgan (1862) 158 ER 877

Facts:

← Joseph Leigh wrote to the plaintiffs, requesting them to give credit to his son and guaranteeing payment of the running balance of the account up to £100. The son extended credit on that basis. Joseph leigh then died by the plaintiffs in ignorance of the fact, continued giving the son credit. When the son defaulted in payment the plaintiffs sued Leigh’s executor, Morgan, on the guarantee. Morgan denied liability arguing that the debt arose out of transactions entered into after Leigh’s death.

Held:

← The estate was liable. The guarantee could continue after death, at least until the plaintiff had notice of it, because the continue existence of the offer was really only dependant upon the continuation of thee credit arrangement - not the continued life of the deceased.

DEATH OF THE OFFEREE

Reynolds v Atherton (1921) 125 LT 690 Warrington J:

- ‘I think it would be more accurate to say that the offer having been made to a living person who ceased to be a living person before the offer is accepted, there is no longer an offer at all. The offer is not intended to be made to a dead person or to its executors, and the offer ceases to be an offer capable of acceptance’

← The problem with this rules is that is presupposes that all offers are personal to the offeree and are not intended to be capable of acceptance by the estate. This presumption will not always accord with the facts, and if the parties intend that the offer be acceptable by the offeree’s estate, then the death will not terminate it.

Carter v Hyde (1923) 33 CLR 115

Facts:

← Carter gave Hyde an option to buy certain premises, the offer to remain open for a period of three months. Hyde died, but before the three months expired, his executors exercised the option. Carter disputed their right to do so, arguing that the offer had lapsed on Hyde’s death.

Held:

← As the option was not intended to be one which was personal to Hyde, it could be exercised by his executors for the benefit of his estate. Carter was bound to sell.

lapse of time

IF STIPULATED, A CONTRACT EXPIRES AUTOMATICALLY AT THE END OF THAT TIME

← An offeror can always stipulate a time by which the offer must be accepted if it is to be accepted at all ( Dickinson v Dodds (1876) 2 Ch D 463

- Offer was to be left open until Friday 9am.

← If time stipulation is imposed the offer automatically terminates unless it is accepted by that time.

IF THERE IS NO CLAUSE TO STIPULATE, OFFER WILL EXPIRE AFTER A ‘REASONABLE TIME’

← Where no time limit is stipulated, the offer must still be accepted within a ‘reasonable time’. Once that reasonable time expires, the offer comes to an end.

Dencio v Zivanovic (1991) 105 FLR 117

Facts:

← The plaintiff offered to settle her personal injuries claim against the defendant for $20,000 plus $3,000 costs. The D did nothing for 11 months (during which time preparations for trial continued and costs increased), but he then tried to accept the plaintiff’s offer of settlement.

Held:

← While the plaintiff had not specified a time within in which her offer of settlement had to be accepted it was implied that it had to be accepted within a reasonable time. Here, the defendant’s delay in accepting was unreasonable (especially given the escalation of costs in the interim), the offer had therefore lapsed and the defendant’s ‘acceptance’ was, consequently, too late.

Certain matters will affect the determination of ‘what constitutes a reasonable time’.

Manchester Diocesan Council of Education v Commercial & General Investments Ltd [1970] 1 WLR 241

1) The nature of the subject matter of the contract (in particular whether it was of a wasting nature); and

2) The means used to communicate the offer (the more urgent the means used, the more reasonable it would be to presume that a rapid reply was required).

What is reasonable will depend on case to cases and will depend greatly on what the court considers just on the facts before it.

Ballas v Theophilos (No 2) (1957) 98 CLR 193

Facts:

← Partnership agreement gave the two partners an option to purchase the deceased’s share of the business. No specified time limit. Partners not to anything till 16 months after deceased’s death. Was the offer for acceptance still open?

Held:

← Acceptance had lapsed. The value of the business assets could be expected to fluctuate over time and, therefore, it was reasonable to expect that, if the option was going to be exercised at all, it would be exercised soon after the deceased’s death. Here 16 months was too long.

If there has been no firm offers

Change of Circumstances

← It is reasonable for the terms of the offer to provide, expressly or impliedly, that the offer will only remain open as long as the existing state of affairs continues

Financings Ltd v Stimson [1962] 3 All ER 386

Facts:

← The defendant signed an ‘agreement’ to by a car on hire-purchase from the plaintiff. The ‘agreement’ contained a clause which stated that it would only become binding after it had been accepted by the company. Before the company signed its acceptance the car was stolen, and when it was subsequently recovered, it was in a damaged condition. Stimson refused to accept it. The company sued for damages for ‘breach’ of the ‘contract.’

Held:

← The ‘agreement’ Stimson signed was really only an offer since it contemplated acceptance by the company. This offer could only be accepted if the car remained in substantially the same condition as it was in when the offer was made. Since its condition had changed, the offer had lapsed and there was no contract.

Failure of a condition to which the offer was subject –

← Particular problems occur where an offeree has to satisfy some condition before he or she can accept the offer and, through inadvertence or otherwise, does not meet the condition.

← In such cases, if the condition is not waived, there is nothing the offeree can do; inadvertence is impossible because the condition precedent to the right to accept has not been fulfilled.

McCaul (Aust) Pty Ltd v Pit Club Ltd [1959] SR (NSW) 122

Facts:

← In 5 year lease there was a clause giving the tenant an option of a further five years subject to two conditions - three months notice of intention to exercise the option, and the punctual payment of rent and due performance of all covenants during the term of the original lease. During the first five years, the tenant frequently failed to pay the rent punctually. The tenant did, however, give the three months’ notice required to exercise the option. The lessor refused the renewal. The tenant sued.

Held:

← Punctual payment of rent was a condition precedent to the tenant’s right to exercise the option. The fact that the lessor had never complained about the tenant’s lack of punctuality was not a waiver of that condition precedent. The tenant had not complied with it and hence could not demand renewal.

Masters v Cameron

Facts:

← The parties signed a memorandum whereby Cameron agreed to sell and Masters agreed to buy Cameron’s farm for £17,500. Masters paid a deposit of £1,750. The memorandum contained the following clause: ‘This agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to my [Cameron’s] solicitors on the above terms and conditions.’ The sale did not eventuate and the question of entitlement of deposit arose. If the contract was enforceable, it went to Cameron; it not, it went to Masters.

Held:

← The contract was not enforceable and Masters got the deposit. The reason was that the agreement was not in its final form – it had to be acceptable to Cameron’s solicitors. Presumably they could have altered it quite substantially, adding, deleting and modifying terms. Whether they did so was immaterial; the agreement gave them the power and, hence, it was not final.

Rejection (distinguish an inquiry for further information –

Stevenson v McLean

▪ McLean inquired as to limits of an offer. This was not a rejection of the original offer with a counter proposal, but rather a mere inquiry.)

BUT - counter offer

Hyde v Wrench 1940 UK

Facts:

← One party offered to sell an estate for £1000 and the other party answered by offering £950.

Held.

← Court held that the second party could not revert back and agree to the first proposal.

By revocation:

• Anytime before acceptance

• Statement that an offer will be kept open for a certain time is not binding unless there is consideration

5 Special problems of revocation

An offer can be revoked at any time before acceptance.

Revocation is not effective until it is communicated to the offeree.

Byrne v van Tienhoven

Facts:

▪ 1st October – Seller (in London) offer a tinplate to Buyer (in New York)

▪ 11th October – B cables acceptance

▪ 8th October – S revokes offer and sends a letter to B

▪ 20th October – The letter arrives in New York

Ratio:

← While an offer can be revoked at any time before acceptance, a revocation is not effective until it has been communicated to the offeree. Here, the revocation was not effective until 20th October by which time the defendants’ offer had been validly accepted. An enforceable contract had arisen on 11 October.

2 Notice of revocation from other sources:

Can you ignore info from other sources other than the offeror?

Dickinson v Dodds

Facts:

← Dodds offered to sell his house to Dickinson (offer open until Friday). On Thursday, Dickinson hear that the house has been sold to X. Dickinson subsequently accepts the offer. Only 1 house, who gets it?

Ratio:

← Court held that Dickinson had knowledge of the revocation. The offeror need not give revocation of an offer personally to the offeree for it to be effective. If the offeree receives notice from a reliable source, that will suffice. The offer had been validly revoked.

3 Revoking offers to the world at large

← Revocation can be communicated to all potential acceptors by notifying revocation in exactly the same way that the offer was notified or by notifying it in any other way that would give the same degree of circulation and notoriety.

← There can be no guarantee that this will bring revocation to the attention of all those who saw the offer but that does not matter. Such a revocation will be effective whether everyone sees it or not.

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

Facts:

← After the assassination of Lincoln, the United States government advertised a reward for apprehension of the assassins. Later this offer was revoked by the same means (by an advertisement in the same newspapers). Subsequently the plaintiff, who was aware of the offer but not of its revocation, claimed the reward.

Held:

← When an offer is made in a newspaper, it can be withdrawn through the same channels. It does not matter that the revocation does not reach a particular offeree. Offers to the world at large can be validly withdrawn in the same way in which they were made.

4 Bilateral contracts

• Where both parties to the contract have an obligation to perform

e.g. In the sale of a car one party has the obligation to transfer ownership of the car to the other and the other has the obligation of paying the purchase price to the vendor.

• Most contracts will be able to be classified as bilateral contracts as both parties to the agreement have obligations to perform

• The offeror’s entitlement to revoke is absolute. Even if there is a promise to keep the offer open for a particular time, the offeror cannot normally be held to it.

5 Unilateral contracts: (a promise in exchange for an act)

← A strict application that offers can be revoked at any time prior to acceptance can cause problems with some unilateral contracts.

← The suggested principle is that inherent in the original offer there are in fact two offers.

1. The express offer concerning the main subject matter of the proposed transaction

2. An implied promise not to revoke the express offer once the offeree has started performance, at least until there has been a reasonable opportunity to complete it

← Commencement of the required performance constitutes both the offeree’s acceptance of the implied promise and the consideration for that promise.

when performance is underway

Vievers v Cordingley:

Facts:

← Contract for the sale of land subject to rezoning. There was an offer to pay an extra $200,000 if rezoned (unilateral). Vievers (the seller) started to get the approvals for rezoning. Cordingley ‘revokes’.

Ratio:

← Court held that once the process of acceptance is underway, even though acceptance is not complete, an offeror cannot revoke.

6 Options

Routledge v Grant (1828) 130 ER 920

Facts:

← The defendant offered to buy the plaintiff’s house and gave the defendant six weeks to think about it. Before the six weeks were up the defendant revoked his offer. The plaintiff sued.

Held:

▪ He failed. Because the defendant’s offer had not been accepted he was entitled to revoke it, even during the six weeks that he had promised to hold it open.

← Only if the promisee has paid to keep the offer open or if the promise to keep it open is made by deed will the offeror not be able to withdraw it. In both cases the offeror creates a new and quite separate contractual obligation to keep the offer open.

← Where consideration is provided or a deed is involved the agreement to keep it open is called an option. Should an offeror revoke the original offer in defiance of the option the offeree can take action, not on the basis of the unaccepted offer but on the basis of the option (that is, the separate contract to keep the offer open)

Goldsborough Mort Ltd v Quinn (1920) 10 CLR 674

Facts:

← Quinn granted the company the following option: ‘I Quinn, in consideration of the sum of five shillings paid to me hereby grant to Goldsborough Mort & Co Ltd the right to purchase the whole of my freehold…lands…within one week from this date at the price of £1 10s per acre, calculated on a freehold basis, and subject to the usual terms and conditions of sale relating to such lands, and upon exercise of this option I agree to transfer the whole of the said lands to Goldsborough Mort & Co Ltd or its nominee.’

← Before the week had expired or the plaintiff had accepted, Quinn informed the company that he had been mistaken as to the meaning of the document and that he was withdrawing his offer. Notwithstanding this, the company formally accepted the offer within the time and sued for specific performance.

Held:

← The option, having been given for value, that is the 5s, was enforceable and non-revocable. Consequently, the company’s acceptance was good and gave rise to a binding contract. That contract was properly enforceable by an order for specific performance. Griffith CJ (at 678) said: ‘an offer may be withdrawn at any time before acceptance. A mere promise to leave it open for a specified time makes no difference, because there is, as yet, no agreement, and the promise, if made without some distinct consideration, is nudum pactum and not binding. But if there is (as in the present case) a consideration for the promise it is binding. This is often expressed by saying that an option given for value is not revocable.’

Acceptance

1 Nature of Acceptance

Absolute, unqualified, in exact terms of the offer. Otherwise it will be a counter offer, which destroys the original offer.

Outer Suburban Property v Clarke

Facts:

← Contract for the sale of land, signed by the purchaser. The vendors agents received the signed contract, and added particulars to it before signing it themselves.

Ratio:

← There was held to be no contract, and rather the vendors signature constituted a counter-offer.

2 Who can accept an offer?

By a person to whom offer was made (only in very limited circumstances can the opposite default)

An offer by A to B.

Can C accept the offer? – No, except when it is an offer made to all the world - Carlill

Can C accept if C thinks the offer is addressed to C?, Or if he thinks C is B?

Boulton v Jones:

Facts:

← Jones ordered goods from an unincorporated firm. From previous dealings, the firm owner owed Jones money, but the firm was sold to a new owner, who kept the firm’s name. Is there a contract between Jones and the firm?

Ratio:

← Court held there to be no contract. Jones had addressed the contract to the previous owner. When a contract is made, in which the personality of the contracting party is or may be of importance… no other person can interpose and adopt the contract.

3 Acceptance must correspond with offer

Hyde v Wrench

- Otherwise it is a counter-offer

Stevenson Jacques v McLean (180) 5 QB 346

- But a request for information is not a rejection (

4 Acceptance ‘Subject to contract’

Acceptance subject to further documents being signed. Three possibilities as to when the contract comes into existence:

1. No contract unless and until new document signed

2. Contract now – new document part of performance

3. Contract now – new document fixes time for performance of terms.

Masters v Cameron

Facts:

← Contract for the sale of land with the clause: “Agreement subject to preparation of formal contract acceptable to my solicitors on above terms and conditions”. Buyer moved in, but the vendor withdrew before they moved out.

Ratio:

← The contract was not enforceable and Masters got the deposit. The reason was that the agreement was not in its final form - it had to be acceptable to Cameron’s solicitors. Presumably they could have altered it quite substantially, adding, deleting and modifying terms. Whether they did so was immaterial; the agreement gave them the power and, hence, it was not final.

Godecke v Kirwan:

Facts:

← Parties signed “Offer & Acceptance”, with clause “If required by the vendor, a further document will be executed”.

Ratio:

← Court held there to be an immediate binding contract.

5 Acceptance ‘Subject to finance’

Meehan v Jones:

Facts:

← Contract for the sale of land, subject to finance “On satisfactory terms and conditions”. Date was specified, but otherwise void. This was a conditional contract, but was it a condition precedent or subsequent? It is difficult to determine, as the judges disagree.

Ratio:

← Held that subject to finance clauses do not render the contract illusory/voidable, such clauses leave satisfaction with the finance to the purchaser’s discretion. It is necessary to find what the clause actually intended.

6 Communication of acceptance

• An offeror can waive the requirement of communication of acceptance. (This would occur in:

- Offers to all the world, or

- Offers to be accepted by conduct

- But, the offeror cannot impose a condition that silence shall be construed as acceptance: Felthouse v Bindley (Supreme Court of NSW disagrees with the HCA in Tallermanns)

• Or inertia selling: Carlill (an offerer can dispense with communication if they are prepared to take the risk of not knowing whether the offer has been accepted)

Offeror stipulating method of communication

George Hudson Holdings Ltd vFrench (1973) 128 CLR 587

Facts:

← The appellant made a takeover offer for a company in which French held shares. The offer document required shareholders in the target market to post their acceptances to the appellants but French personally delivered his acceptance and the accompanying share certificates. Was this a valid accept.?

Held:

← It was. It was clear that the offeror was concerned with the delivery or receipt of the acceptance…rather than forwarding…and the receipt by the appellant company…was, without question…an acceptance.

HOWEVER!

Eliason v Henshaw 4 Wheaton 225 (1819)

Facts:

• Eliason sent a letter to Henshaw by wagon, offering to buy flour. He requested that an answer be sent to him at Harpers Ferry by the same wagon. Despite this, Henshaw sent his letter of acceptance to Georgetown by mail, believing that this would reach Eliason faster. He was wrong. The letter arrived six days after the wagon and, in the interim period, Eliason arranged to buy flour elsewhere. Henshaw sued for breach of contract

Held:

• His action failed. His acceptance was not in the stipulated manner nor, as it turned out, in one equally advantageous to the offeror. Consequently, it was not a valid acceptance and there was no contract.

Cross-Offers?

Tinn v Hoffman (1873) 29 LT 271

Facts:

← The parties wrote to one another on the same day, the plaintiff offering to buy 800 tonnes of iron at 69s per tonne, the defendant offering to sell the same quantity at the same price. The plaintiff sought to enforce the resulting ‘contract’

Held:

← There was no contract. Neither letter amounted to an acceptance because both had been sent in ignorance of the other party’s offer and, therefore, could not be an acceptance of it.

Manner of acceptance may be prescribed by offeror

Manchester Diocesan Council for Education v C&G Investments (1970) 1 WLR 241

← The court held that at least 2 considerations were important:

1. The nature of the subject matter of the contract; and

2. The means used to communicate the offer (the more urgent the means used, the more reasonable it would be to presume that a rapid reply was required).

7 Offer accepted by Conduct

Brogden v Metropolitan Railway

Facts:

← Brogden who had been supplying the defendant company with coal for several years, requested a written contract. A draft was drawn up by the defendant’s agent and was sent to Brogden. He filled in certain banks, including the name of the arbitrator, and sent it back. The agent put it in his desk. Nothing more was done, but the parties subsequent dealings were apparently made on the basis of its terms (which differed from those that had prevailed previously) and it was mentioned in occasional discussions between them. A dispute eventually arose and Brogden refused to continue supplying coal. He contended that there had been no formal acceptance of his offer and that, therefore, there was no contract inexistence by which he was bound.

Held:

← The HoL rejected this contention. It found that even though the filling in of the blanks by Brogden could be considered a counter-offer, a ‘contract’ had come into existence when the defendant placed its first order for coal, apparently in accordance with the terms of the draft contract, and when that order was filled by Brogden, also apparently in accordance with those terms. Thus, even though no formal contract had arisen, the fact that the parties had conducted themselves as if they were bound was sufficient to establish a binding contractual relationship. Brogden was liable.

R v Clarke (1927) 40 CLR 227:

Facts:

← Police were murdered in WA, and the Crown offers a reward and a pardon. Clarke was an accomplice to the murders, and saw the offer but was later arrested. He gave full details of the murders. He later claimed the reward, and sued for it.

Ratio:

← The court said he had no entitlement.

1) The offer must be in the mind of the ‘acceptor’ when the ‘acceptance’ occurs or there is no true acceptance. In confessions, Clarke had only attempted to save his own skin.

2) If you forget there was an offer then this is like not knowing there ever was an offer. You can not accept an offer you know nothing about. Clarke had ‘forgotten’ it in confessions.

notification of acceptance?

Latec Finance v Knight

Facts:

← Knight offers to ‘buy’ a TV set on Hire purchase (option to purchase). The company is not ‘bound’ until it signs acceptance. The company signs the acceptance and files it away. 2 months later, K swaps the set for a new one. 1 months after that, the set is returned altogether. 6 years later, the company finds the form, and claims all installments. Had the offeror waived the need for acceptance?

Ratio:

← This is not a silence equals acceptance scenario. The Court held that notification of acceptance is required. No contract, and Knight gets back deposit

Acceptance by silence?

Felthouse v Bindley (1862) 142 ER 1037

Facts:

← The plaintiff, Paul Felthouse, wrote to his nephew John on 2 February offering to buy his horse for £30 15s and adding: ‘If I hear no more about him I consider the horse mine at that price.’ The nephew did not reply but intimated to the auctioneer who was going to sell the horse that it was to be kept out of the sale. The defendant auctioneer inadvertently sold it and the plaintiff, upon discovering this sued him in conversion

Held:

← The action failed. The nephew had not accepted his uncle’s offer. His silence did not constitute acceptance, and although he had told Bindley to keep the horse back from the auction, the fact had not been communicated to his uncle and he had no title to ground an action in conversion

8 Communication of acceptance

Offeror can prescribe the method of communication

What if the acceptance is prescribed by ‘registered post’ and it is actually sent by courier? What happens if it arrives at the same time? Or earlier, or later?

1 When is the acceptance effective?

▪ When it is communicated to the offeror

▪ Offeror settles the method of acceptance and communication.

2 Postal Acceptance Rule

When is a letter of acceptance effective?

❑ Expedition theory (when posted)

❑ Reception theory (when received at destination)

❑ Information theory (when communicated)

← ‘The Postal Rule’ is the one major exception to the rule that acceptance must be communicated.

Henthorn v Fraser [1892] 2 Ch 27

- ‘Where circumstances are such that it must have been within the contemplation of the parties that the post might be used as a means of communicating acceptance, the acceptance is complete as soon as it is posted’

Reasons for UK postal rule

← Uncertainty about revoking by quicker method?

← Risky method of communication in early days

- If offeror chooses postal communication, he must accept the risks involved?

← Easier to prove sending of letter?

← Gives certainty at early stage - offeree can act on contract after posting letter?

3 The strict effect of the postal rule

Household Fire & Carriage Accident Insurance Co (Ltd) v Grant (1879) 4 Ex D 216

Facts:

← The defendant applied for, and was allocated, shares in the plaintiff company. The letter of allotment was properly addressed and was posted to Grant at his home. It was never delivered. Grant never paid the amount due on the share and when the company went into liquidation, it was still owing. The liquidator demanded payment, Grant refused, arguing that his offer to purchase the shares had never been accepted, that he was not a shareholder and that he was not liable to pay calls

Held:

← He was liable. The postal rule applied because it had been within the contemplation of the parties that the acceptance would be by mail. Accordingly, the company’s acceptance of his offer to take up shares (the allotment) was complete upon posting and Grant was a shareholder from that point. As a result he was liable to the liquidator for the uncalled amount. The non-delivery of the acceptance was immaterial.

Tallermanns v Nathans Merchandise:

“A finding that a contract is complete by the posting of a letter cannot be justified unless it is to be inferred that the offeror contemplated and intended that his offer be accepted by the doing of that act” per Dixon CJ & Fullagar J at 111

4 Limits of UK Postal Rule

← An unusual exception to general principle that acceptance must be communicated

← Based on assumption that

- Letter correctly addressed and stamped

- Postal services operating normally at the time

← Can be varied by objective intention tot the contrary, either express or implied

Holwell Securities Ltd v Hughes [1974] 1 All ER 161

Facts:

← On 19 October 1971 Hughes granted the plaintiff company a six-month option to purchase property he owned in Wembley. The agreement provided that the option was exercisable ‘by notice in writing to the intending vendor at any time within [the] six months’. On 14 April 1972 the plaintiff’s solicitors wrote to Hughes’ solicitors advising that the plaintiff intended to exercise its option and enclosing a cheque for the required deposit.. That letter was hand delivered. On the same day they sent a copy if it to Hughes but it was never delivered. Hughes subsequently refused to sell and the plaintiff company sued. It argued that the postal rule applied and that, accordingly, a valid contract had arisen upon the posting og the letter on 14 April - just inside the six month period.

Held:

← Even though the parties had probably contemplated use of the post to communicate acceptance, that was not the end of the matter. The essential consideration was whether they had intended use of the post to displace the usual requirement for actual communication. In this case that did not seem to be their intention. Their use of the words ‘notice in writing to the …vendor’ was held to mean that actual communication was required. Accordingly, as the letter had never been received by Hughes, there was no acceptance and no contract under which he could be forced to sell.

jurisdiction

Entores Ltd v Miles Far East Corp [195] 22 QB 327

Facts:

← The plaintiffs, a London company, telexed an offer to the defendants in Amsterdam. They accepted it also by telex. The defendants then allegedly breached the resulting contract and the plaintiffs wanted to sue. Which court had jurisdiction?

Held:

← The contract had been made in England. The requirement for actual communication applied to telexed acceptances and there was no acceptance until it was actually received in London. Thus the contract was made in England and Entores could sued in the English courts using the English law

NOTE!

Getreide-Import GmbH v Contimar SA Compania Industrial, Commercial v Maritima [1953] 1 WLR 207

( If the error is the fault of the acceptor, then the postal rule will not apply

5 Position in Australia

Tallerman & Co v Nathan’s Mercandise Ltd (1957) 98 CLR 93

Facts:

▪ Following protracted correspondence over the defendant’s alleged wrongful failure to take delivery of a consignment of bullets, the Ps solicitors wrote ‘accepting’ a compromise offer that D’s solicitors had put forward in a previous letter.

Held:

▪ In the circumstances the mere posting of the ‘acceptance’ did not give rise to a completed contract. Dixon CJ & Fullagar J – ‘a finding that a contract is completed by the posting of a letter of acceptance cannot be justified unless it is to be inferred that the offeror contemplated and intended that his offer might be accepted by the doing of that act. In such as case as the present, where solicitors are conducting a highly contentious correspondence, one would have thought that actual communication would be regarded as essential to the conclusion of agreement on anything.’

Bressan v Squires

Facts:

← In this case, offer saying “option may be exercised by notice, on or before December 20th. 18th December – letter posted. 21st December – letter received. Notice?

Ratio:

← Found that no notice.

Tallermanns:

Supreme Court of NSW disagrees with the HCA in Bressan v Squires

6 Instantaneous methods?

← Postal acceptance rule applies to telegrams

← But not where communication is virtually instantaneous

Brinkibon v Stahag Stahl Mbh {1983] 2 AC 34

- See statement by Wilberforce LJ (C&H p 60)

❑ Except in unusual situations, eg where agents involved

❑ Telex, telephone, radio and fax, eg Reese Plastics v Harmon-Sobelco (1988) NSW

- What about e-mail, EDI, web data transfers, etc?

The answer depends on:

• The intent of the parties

• Sound business practice

• Any relevant legislation

9 Where was the contract made? – Where is acceptance effected?

Brinkibon v Stahag [1983] 2 AC 34 (H of L)

Facts:

← Acceptance was sent by telex from London to Vienna.

Ratio:

← Was held that if either letter or telegram – acceptance in London. If telephone – acceptance in Vienna

Intention

Controlling factor of contracts

No legal rules, tools of experience are used for ascertaining intent. The is overlaid by policy, so sometimes you have an offer, sometimes you have an invitation to treat (shop windows etc)

1 The Test:

• The standard is always objective - not concerned with what parties REALLY thought or REALLY intended - Not concerned with motive or private reservations.

• The court looks at behaviour – words and conduct – to see what they must be taken to have intended.

• Your intentions are compared to a reasonable person if you’re suspected of unreasonableness. The requirement for ‘objective intention’ applies equally to their intention as to the terms of their agreement and to their intention to contract.

1 Classification

There are differing presumptions of the parties intent between

• Commercial dealings,

- presumption that intended to ELR

• Family arrangements and

- presumption that did not intend to ELR

• Agreements with governments.

- Policy reasons make it difficult to assume IELR

• All are rebuttable

2 Commercial Dealings

Presumed to give rise to legally binding contracts.

Carlill

( Rebuttable presumption that you look at the express words and draw inferences of fact

Carlill ( The offer appeared serious and it was of a type which might be expected in a commercal context.

- Mere puff claim failed

- Seriousness was enhanced by that statement that £1000 had been deposited with the company’s bankers to cover contingent clams, thus ‘showing our sincerity in the matter’

- The company failed to rebut the presumption of intention

obvious joke

Keller v Holderman 11 Mich 248 (1863)

Facts:

← K gave H a cheque for $300 for a watch worth $15. The cheque was not paid and H sued

Held:

← No contract had arisen and there was no right to remedy. There had been no serious intention to create legal relations and this fact was, or should have been obvious to all.

- In this case the defendant succeeded because the joke was obvious.

Where it is not so obvious

Where it is not so obvious and the plaintiff honestly believes that he or she had a binding contract, the practical joker may have to perform

Nyulasy v Rowan

( In this case a number of people had taken the offer seriously.

esso petroleum

Esso Petroleum v Comm of Customs & Excise [1976] 1 AER 117

← Free World Cup soccer coins with every 4 gallons of petrol

← Tax of £200,000 if produced for sale

← Was this an enforceable contract, or a conditional gift promise?

- 3:2 held binding

← If a contract, was it a sale?

- 4:1 held not a sale

Honour Clauses

Make the agreement unenforceable at law

Rose & Frank v Crompton [1923] 2 KB 261

Facts:

← R&F was a paper manufacturer in the UK. Crompton was paper supplier. They had an honorable pledge of mutual friendship and honest dealings, but no formal or legal agreement. It was merely a definite record an expression of the parties. A US customer places order with R&F, who contact Crompton to supply the paper. Dispute arises, and Crompton does not supply the goods. R&F sues for damages for non-delivery

Ratio:

← The agreement was not a legally binding contract. The ‘honourable pledge’ clause showed that it was intended to be binding in honour only and not intended to create legal obligations. Accordingly, the English companies were not bound to give the notice and their termination was valid and effective.

← The pledge was not a contract, and probably came to an end by agreement BUT once the order had been placed, a contract was in existence, because the property in the goods can only be transferred by legal contract.

← The court agreed that there must be an intention to create a legally binding contract. This intention, in commercial dealings, is usually presumed as the parties follow all standard requirements in making a contract.

- The clause sufficiently rejected this presumption as it clearly expressed that the parties did not intend it to be a legally binding contract but rather one based on mutual trust and confidence.

3 Family Arrangements

Balfour v Balfour

Facts:

← The Balfours were married in 1900 & spent the first 15 years of their marriage in Ceylon where the husband was employed. In 1915 they went to England on leave, and when the husband later returned to Ceylon, his wife was too ill to accompany him. He agreed to pay her a monthly allowance of £30 until she could rejoin him on her promise that she would support herself on that sum without asking for more. As it eventuated, Mrs Balfour remained in England permanently. The husband ceased payment. Mrs Balfour sued, alleging a contractual right to the money.

Ratio:

← Their agreement was not a contract, merely an ordinary domestic arrangement. Consequently, there had been no intention to create legal relations and no action lay for any alleged breach.

2 Rebutting the Presumption

← Often courts look at what the consequences of acting in reliance upon the agreement would be. The more serious the consequences, the more likely it is that the parties intended to be bound.

Merritt v Merritt [1970] 1 WLR 1211

Facts:

← Mr Merritt had left his wife. She pressed him to finalise arrangements between them, they met, discussed matters and Mr Merritt finally wrote, signed and dated a note in the following terms: ‘In consideration off the fact that you will pay all charges in connection with the house…until such time as the mortgage repayment has been completed, when the mortgage has been completed I will agree to transfer the property into your sole ownership’ In reliance on this undertaking, the wife paid the mortgage. The husband subsequently refused to transfer the house. She sued

Held:

← Mrs Merritt was entitled to the transfer. The agreement was contractually binding. Discussions involving matters such as separation and maintenance do not fall within the area of domestic agreement and the presumption of lack of intention did not arise.

Popiw v Popiw

Facts:

← A wife was induced to return to her husband by the husband’s promise to transfer title to the matrimonial home from his sole name into their joint names. Later, because of the husband’s cruelty, the wife left again and brought an action to enforce the husband’s, as yet unperformed, promise of the transfer of title.

Ratio:

← The husband’s promise was supported by consideration and was therefore enforceable. In returning to him the plaintiff had done something which the law neither could not would force her to do. It was also both a benefit to the husband and a detriment to her incurred at his request. Accordingly, it was good consideration.

Dunton v Dunton

Facts:

← “I will conduct myself with sobriety, and in a respectable, orderly and virtuous manner”. Is this a legally enforceable promise, and a basis for a promise to pay maintenance?

Ratio:

← She succeeded. Whilst Mr Dunton’s motive in offering the payment, his desire that she conduct herself in such a way as not to bring discredit upon their five young children could not be good consideration, Mrs Dunton’s promised forbearance was. She had a perfect legal right to act in a disorderly manner, to drink and to behave as she pleased within the limitations of public decency. Giving up these rights constituted a detriment and thus was sufficient consideration to support the promise.

Jones v Padvatton

Facts:

← 1962 ( Mother promised daughter £200pm if she gave up her job and read for the bar in the UK

← Agreement prepared by attorney

← 1964 ( Mother provided rent-free house in UK instead, with rent income from other tenants

← 1967 ( Mother wanted to evict daughter

Held:

← CA held not binding

- Terms always unclear, no insistence on them

- Reasonable time and changed circumstances.

Wakeling v Ripley

Facts:

← The defendant, a bachelor, resided alone in Sydney. The plaintiffs were his sister and her husband, a Cambridge University lecturer. In 1946 the defendant wrote to his sister to persuade her and her husband to come to live with him. He promised that he would leave them his property upon his death and that, in the meantime, he would provide them with a home and a living. Considerable correspondence ensued and eventually the plaintiffs agreed. The husband resigned his lectureship, they sold their house and they came to live with the defendant. Just over a year later the parties quarrelled, the defendant reneged on his promise, sold his house and disinherited the plaintiffs. They sued. At first instance they succeeded and were awarded £12,000 damages. The defendant appealed, arguing (inter alia) that the agreement was purely social and thus enforceable.

Held:

← He failed. The voluminous correspondence and the seriousness of the move for the plaintiffs showed that the parties had intended their agreement to be binding. Consequently, it was binding and the defendant was liable for his unjustified breach. Street CJ (at 187) said: ‘The consequences for the plaintiffs were so serious, in taking the step that they did, that it would seem obvious that they were anxious to get a definite assurance and a definite agreement as to the provision that was to be made for them, and accepting…their account of the letters…I think that the parties did intend to enter into a binding and enforceable contract.’

4 Dealings With Governments

1 Government Policy

PNG v Leahy:

Facts:

← Australia was governing PNG under a UN mandate at the time. It was the Government’s policy promise to undertake a scheme to eradicate ticks from the colony. Leahy’s asked for governmental assistance in eradicating ticks. The Department of Agriculture agreed to carry out an eradication program free of charge. The program was unsuccessful, and Leahy’s cattle died. Was this policy, or promise? What are the policy issues? Fettering of Govt.’s discretion.

Ratio:

← Court held that there was no contract, simply government policy – political sanctions (if you don’t like them, vote them out)

5 Principles extracted from cases

← Factors tending to favour IELR

- Substantial mutual sacrifice

- Symbolic consideration (evidence on intention)

- Formal contract, lawyers involved

- Made in atmosphere of distrust

← Factors tending to count against IELR

- Closeness of relationship

- Virtually gratuitous benefits

- Informal contract, eg not reduced to writing

Certainty

1 General principle

← Contract is void for uncertainty, vagueness, or incompleteness

← ‘void’ means there never was a valid contract (known as ab initio)

Scammell Ltd v Ousten [1941] AC 251

Facts:

← Car sold on ‘hire purchase terms’ over 2 years

← No detail of hire purchase terms ever agreed

Held:

- No agreement yet. The expression ‘hire-purchase terms’, used in the order was too vague and uncertain. Hire-purchase terms differed from company to company and even within companies, depending upon differing considerations. Consequently the court had nothing certain to enforce and, therefore, would not enforce anything.

2 Certainty and Complex Agreements

▪ Significance of Heads of Agreement

▪ May represent an immediate binding commitment

▪ May indicate areas where further detail need

▪ May just be historical record of negotiation

3 How Courts Deal with Complex Agreements?

← Courts generally try to find meaning and certainty where they can

- Scammell v Ouston

← Typical methods include

- Customs or trade practices

- Previous course of dealings ( Hillas & Co v Arcos Ltd [1932] All ER Rep 494

- External formula or method

- Impliedly what is reasonable

- Severance of vague part

2 Severance of vague part

← Severance possible if

← Agreement on all substantial terms, and

← Cutting out meaningless clause leaves basis of contract intact, and

← Parties (objectively) intended to be bound whether clause was operative or not

Fitzgerald v Masters (1956) 95 CLR 420

P 48-49

Facts:

← ‘usual conditions of sale in use by REI of NSW…shall be embodied herein’ - No such conditions existed in the contract

Held:

← The contract was operable without the clause and the clause could be validly severed. The intention of the parties was clear.

4 What is reasonable?

← Early cases refused to countenance term (express or implied) referring to what was reasonable in the circumstances

← Too vague and subjective

← s 11 Sale of Goods Act 1896 (Qld)

← If price omitted, it is to be a ‘reasonable price’

← If courts can determine ‘reasonableness’ objectively, why not do so in common law as well?

1 Referring to incomplete agreements

ANZ Banking Group v Frost Holdings [1989] VR 695

← The courts ability to ‘cure’ incompleteness by implying missing terms is restricted to adding to an already binding contract those few, extra (forgotten) terms that are needed to make it work as it was intended to work.

← If the parties have not agreed on all the essential terms of their ‘bargain’ there can be no legally binding contract and the courts will not intervene at all.

5 External formula or method

← Agreement to agree - terms to be determined by future agreement - no contract

← Incomplete because no meeting of the minds

← When substantial agreement has been reached, parties can leave terms to be decided later, eg by independent third party

← In both instances the unfinalised agreement can be binding if the missing terms can be fairly and objectively ascertained , and if the intention of the parties was that they would be immediately bound.

Hawthorn FC v Harding [1988] VR 49

Facts:

← In 1983 Harding agreed to play for the Hawthorn Football Club during 1987, 1988, 1989. The agreement went on to provide that the terms under which Harding would play would be ‘as agreed between the parties as being fair and reasonable’ and that any dispute would be referred to arbitration. At the end of the 1986 season the terms had not been agreed and Harding disavowed the agreement claiming that it was incomplete and unenforceable. Hawthorn sued

Held:

← The contract was enforceable. The fact that the terms under which he was to play for Hawthorn had not been agreed in any final form was immaterial because there was a clear and certain mechanism by which those terms were to be ascertained - they were to be ‘as agreed between the parties as being fair and reasonable’ with any dispute being referred to arbitration. As Tagdell J put it (at 55): ‘An apparent want of certainty will be cured if some means or standard, or some machinery or formula, is prescribed by the parties whereby that which on the fact of it is uncertain can be rendered certain.’

6 “…subject to finance”

Meehan v Jones (1982) 149 CLR 57

← Sale of land and oil refinery

← Subject to the purchaser receiving approval for finance on satisfactory terms and conditions

← If not satisfied by 317/79, contract void

← Satisfied on 30//79, but by then seller had sold to someone else, claiming this was void for uncertainty

← Earlier cases did suggest this was void, but HC held it was binding.

7 Subject to Contract

Acceptance subject to further document being signed. Three possibilities as to when the contract comes into existence:

• No contract unless and until new document signed

• Contract now – new document part of performance

• Contract now – new document fixes time for performance of terms.

Masters v Cameron (1954) 91 CLR 353

Facts:

← The parties signed a memorandum whereby Cameron agreed to sell and Masters agree to buy Cameron’s farm for £17,500. Masters paid a deposit of £1,750. The memorandum contained the following clause: ‘This agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to my [Cameron’s] solicitors on the above terms and conditions.’ The sale did not eventuate and the question of entitlement to the deposit arose. If the contract was enforceable, it went to Cameron; if not, it went to Masters.

Held:

← The contract was enforceable and Masters got the deposit. The reason was that the agreement was not in its final form - it had to be acceptable to Cameron’s solicitors. Presumably they could have altered it quite substantially, adding, deleting and modifying the terms. Whether they did so was immaterial; the agreement gave them the power and, hence, it was not final.

➢ The court discussed in some detail the three possible categories into which agreements expressed to be ‘subject to contract’ could fall and the legal position of the agreements in each category.

1. Where the parties have reached final agreement on the terms of their bargain, intend to be immediately bound, but want those terms to be set out in a more precise but not materially different form;

2. Where the parties have reached finality and do not intend to alter their agreement, but want to defer performance of all or part of it until it has been incorporated into a formal document; and

3. Where the parties do not intend to make a contractual bargain unless and until they sign a formal contract.

➢ First two cases the parties have really finalised their agreement and, consequently, they have a binding contract.

➢ First case each must perform obligations undertaken whether the formal document comes into existence or not, and each may require the other to do all that is necessary to create the formal document if that is what they want.

➢ Second case, because they have agreed that performance should be deferred until a formal document is signed, neither can demand immediate performance but both may demand that the other do all that is necessary to get the formal contract written and signed. Once that happens, performance becomes due and can be demanded..

➢ Only in the final case is there a conditional acceptance and there is no contract unless and until the agreement is reduced to writing. There is nothing to enforce - what has been agreed is merely the intended basis of a future contract and not a contract in itself. Such an ‘agreement to agree’ is not enforceable.

Godecke v Kirwan (193) 47 ALJR 543

Facts:

← A document headed ‘offer and acceptance’ contained Godecke’s offer to sell certain land for $110,000, and Kirwan’s acceptance of it. It contained a clause which provided: ‘if required by the vendor the purchaser will execute a further agreement to be prepared by [the vendor’s] solicitors containing the foregoing and such other covenants and conditions as they may reasonably require.’

Held:

← The agreement was valid and enforceable. It was an example of the ‘first’ class of contract discussed in Masters v Cameron. Walsh and Mason JJ held that the effect of the clause was to allow the vendor (through his solicitor) the choice of inserting further terms provided such terms were not inconsistent with those already agreed to and provided they were reasonable in an objective sense. Unlike Masters v Cameron, the clause did not permit substantial variation of what had been agreed.

Niesmann v Collingridge 1921) 29 CLR 177

Held:

← The use of the term ‘firm offer’ indicated that the parties intended that a binding contract would immediately result from acceptance of that offer. The formal document was in no way intended to alter that to which the parties had already agreed - finality had been reached in their oral agreement.

Coal Cliff v Sijehama

Facts:

← 4 companies negotiate a joint venture. The Heads of Agreement are executed. 4 years later, there is still no joint venture agreement, and Coal Cliff decides to withdraw from the negotiations. Sijehama treats this as repudiation. Contractual breach?

← The agreement to negotiate read as follows:

- “This document will serve to record the terms and conditions…The parties will proceed in good faith to consult together on the formulation of a more comprehensive and detailed joint venture agreement…This will not prejudice the full and binding effect of what is now agreed.”

2 Was there a Contract, or merely an Agreement to Agree?

Look at the words – 8 Internal features 2 Extrinsic features listed by Kirby P indicating that there was merely an agreement to agree. In the document contained constructions such as:

• “Proceed in good faith and consult together” – why not execute the joint venture at that time?

• “A proposal” – A short document, with no dispute resolution clauses (what saved Hawthorn)

• An obligation to “consult together” – no guarantee of success

• Lack of detail makes it look “Provisional”

• 2 extrinsic features - no agreement as to the subject matter, and failure is a feature of commercial negotiations.

In argument for the existence of a contract, Kirby P cited 4 internal feature and 2 extrinsic features indicating the existence of a contract. He looked to general principles on agreements to agree and agreements to negotiate in England and the USA. He cited the following:

• Title refers to agreement

• “A MORE comprehensive and detailed agreement”

• Some provisions were immediately enforceable

• There was an exclusion of partnership and agency (very prudent legal craftsmanship)

• Subsequent conduct of the parties

• “Full and binding effect of what is now agreed”

3 General Principles taken from Coal Cliff v Sijehama:

• A court will not recognize an agreement to agree

• A priori – An agreement to negotiate. This is even harder to recognize

• What is the remedy if there was to be legally binding agreements to agree? Cannot have specific performance.

• Can judges judge in these matters?

• Freedom to contract, or not to contract

• Can be done in some cases, but Kirby P decided it was not relevant in this case.

8 ‘Well-meaning and paternalistic interference’ of the Courts?

• What is the balance of the actions of the courts and of the parties?

• What is the place of a concept of good faith in the making, performance, and enforcement of contractual rights?

• How much do judges know about commercial practice?

Doctrine of Consideration

Consideration is that which makes a promise binding

1 Possible filtering methods

← Ritual

← Based on cultural expectations

← Morally binding

← Serious intention (subjective or objective)

← Detrimental reliance

← Something given in exchange

← Historical developments of deeds vs simple contracts

2 The english solution

← If not under seal (ie a deed), contract is not binding unless promisee has given consideration for the promise

← Consideration is needed when a promise is first made, and again if it is varied

← Method for identifying the consideration issue:

❑ Identify promise that a party is trying to enforce

❑ Ask what that party gave in return for the promise

← In some circumstances, a promise without consideration may be binding if an estoppel arises

3 Definition:

• The price paid for the other person’s promise (what the promisee is doing in return for the promisor’s promise). Or, as Mary likes to put it:

• - An act or forbearance of one party, or the promise thereof is the price for which the promise of the other party is bought; and the promise thus given for value is enforceable ( Dunlop v Selfridge (1915) AC 847 at 855

• Either a benefit flowing to one party or detriment suffered by the other

• Must be given in return for the promise (price of promise or bargain theory)

• Must be sufficient in the eyes of the law

• Must move from the promisee

• So, find the promise that the party is seeking to enforce, and ask: What did the party give in return for that promise?

Australian Woolen Mills v The Commonwealth

Facts:

← To keep the cost of woollen goods down the Australian government announced that it would subsidise woollen manufacturers to effectively reduce the cost of their wool purchases. When the scheme was later discontinued the plaintiff company had wool which it had bought but for which it had not received the subsidy. The Commonwealth refused to pay. The P sued for ‘breach of contract.’

Ratio:

← There was no contract because the announcement of the subsidy was merely a statement of government policy and not an ‘offer’ that was capable of acceptance. The Court’s reasoning was explained at 457: ‘What is alleged to be an offer should have been intended to give rise, on the doing of the act, to an obligation…in the absence of such an intention, actual or imputed, the alleged ‘offer’ cannot lead to a contract: there is, indeed, in such a case no true ‘offer’.

Consideration is completed by the doing of the very thing that constitutes acceptance of the offer – but there must be an exchange (usually furnished by a request – expressed or implied - to the offeree) – the link

between one’s promise and another’s action

Carlill ( Implied request to do something in return for the promise to pay reward

4 Rules:

1 Cons must move from the promisee, but need not move to the promisor

❑ Consideration must flow from either the promisee or from someone acting on the promisee’s behalf.

❑ Fleming v Bank of New Zealand

( For agency to apply, the third party must in fact pay the consideration on the promisee’s behalf

❑ Bolton v Madden (1873) LR 9 QB 55

( Consideration need not flow to the promisor - it can be for the benefit of a third party

❑ There is a distinct but similar rule relating to privity of contract

← Note the injustice that can result

Hamer v Sidway 27 NE 256 (1891)

( Consideration may be a benefit to the promisor or a detriment to the promisee

Exception - joint promisees?

Coulls v Bagots Executor (1967) 119 CLR 460

Facts:

← Coulls sells the right to quarry stone, and the payment is to be made to himself and his wife. He dies and his wife seeks to recover the payments under the contract – is the money hers, or does this become part of his estate to be transmitted under his will?

← What had she done for the money? – Signed the contract. The property didn’t belong to her, she didn’t take part in the negotiations, but her husband intended that the money would go to her after his death.

Ratio:

← On the basis of the contract, it was found that the promise was made to the husband alone, giving him a revocable mandate to pay his wife, revoked by his death.

The Trident exception

Trident Insurance v McNiece (1988) 165

Facts:

← McNiece Bros Pty Ltd was the principal contractor for construction work being carried out at the Marulan plant of Blue Circle Southern Cement Ltd. Blue Circle had a contract of insurance with Trident whereby Trident agreed to provide insurance cover to Blue Circle, its subsidiaries, its contractors and its suppliers in respect of (inter alia) liability for personal injury. A workman on site,, Gary Hammond, was injured in circumstances allowing him to sue McNiece Bros in negligence. McNiece sought indemnity from Trident and Trident denied liability on the grounds that McNiece was not a party to the policy.

Held:

← Even though McNiece had not been a party to the original contract of insurance, it was entitled to be indemnified under the resulting policy. The judges, however, differed on the reasons for their finding and there is no real ratio of the case. What is significant, however, is the detailed discussion which appeared in individual judgments of the worth of continuing with privity as both a legal concept and as a bar to recovery by third parties intended beneficiaries.

← Two judges, Mason CJ and Wilson J, were prepared to accept that the established doctrine should be totally reconsidered, at least in respect of insurance contracts. Gaudron J expressed a general agreement with this view but decided the question was without reference to the operation of the doctrine of privity and Toohey J, whilst conceding that the doctrine was not so entrenched as to be capable of change, preferred to base his decision on a narrow proposition of his own formulation that where a policy is issued in circumstances evidencing an intention by both insurer and assured that third parties would be indemnified, then third parties who ordered their affairs on the basis of that presumed indemnity would be entitled to sue on the policy not withstanding that they had neither provided consideration nor been parties to the contract. The remaining three judges, Brennan, Dawson, and Deane JJ, whilst differing in their conclusions, were not prepared to abandon the doctrine of privity, essentially holding that it was so well entrenched in the law of contract that any arbitrary departure from it would raise as many problems as it might solve.

Statutory Exceptions

Insurance Contracts Act 1984 (Cth)

❑ s 48 introduced to provide that third parties to whom cover is extended under general insurance contract may sue insurer

Property Law Act 1974 (Qld) 1969 (WA)

❑ Third party beneficiary can enforce a contract

❑ Do not have to provide consideration, but may have to fulfil any duty imposed by the consideration originally promised

❑ See later under privity

2 Cons may be executory or executed, but not past

• Executory consideration (a promise for a promise; at time of dispute, still to be performed)

• Executed consideration (a promise for an act or forbearance; at time of dispute, already performed)

• Past consideration (a promise on account of something that happened in the past) – won’t make a promise binding

• Good consideration ( a moral obligation) – does not make a promise binding

• Valuable consideration (executed or executory consideration which has value in the eyes of the law)

Illustration and exception

Roscorla v Thomas

Facts:

← Seller promised (after the sale) that the horse was not vicious, then it bit him.

Ratio:

← The buyer was unsuccessful, as he had given nothing in return for the promise. Since it was made after the promise (the transaction was complete), it was past consideration, and unable to support the promise, therefore unenforceable.

Exceptions:

Lampleigh v Braithwait

Facts:

← B in prison for murder, L visited, and B asked him to get him out. L obliged, and B promised, after he was free, to pay him 100 pounds. He didn’t, and L sued

Ratio:

← It was an implied term of the contract that there would be a monetary reward/payment involved (need to bribe people, etc) the subsequent promise was just to fix a sum – he had to pay

Re Casey’s Patents (1892) 1 Ch 104

← Rule in Lampleigh v Braithwait (1615) 80 ER 255

Facts:

← Stewart and Carlton jointly owned patents over vessels for storing and transporting volatile and inflammable liquids. They arranged with Casey for him to introduce their patents to the commercial world. Casey spent time, money and effort in pushing the invention and subsequently, Stewart and Carlton wrote to him saying: ‘In consideration of your services…we hereby agree to give you a one-third share of the patents.’ Stewart and Carlton afterwards gave Casey the letters patent to assist him in a sale of the invention but the sale did not eventuate. Casey subsequently registered the letter assigning him a one-third interest and claimed an entitlement to possession of the letters patent as co-owner. Stewart and Carlton dispute the co-ownership and demanded return of the letters. The matter turned on whether Casey had provided consideration for the promise of his one third interest.

Held:

← Casey won. Bowen LJ (at 115-116) said: ‘the promise to render future services, if an effectual promise, is certainly good consideration…the fact of a past service raises an implication that at the time it was rendered it was to bee 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 positive bargain which fixes the amount of that reasonable remuneration on the faith of which the service was originally rendered.’

3 Consideration must be sufficient but need not be adequate

Consideration provided b the promisee need not necessarily be equal in value to the promisor’s promise/ It must, however, have a value.

Thomas v Thomas

Facts:

← When Mr Thomas died the matrimonial home was in his name. He had verbally expressed a desire that his wife be permitted to continue living in the house after his death and his executors, relying on that desire, agreed to her continued possession. Their permission was stated to be in consideration of her husband’s expressed wish, but they attempted to protect themselves by requiring that the wife undertake to keep the house in good repair and that she pay a nominal ground rent of £1 per annum. The executors subsequently refused to sign the necessary deed and the wife sued.

Held:

← She succeeded. Whereas the executors’ motive (to carry out her husbands last wishes) could not be consideration, her promise to pay £1 per annum in rent could be and that was enough to make the agreement enforceable. That promise was valuable, it was sufficient and, needing only to be sufficient, it made the agreement binding. Patterson J (at 333) said: “Motive is not the same thing as consideration. Consideration means something which s of some value in the eye of the law, moving from the plaintiff…a pious respect for the wishes of the testator, does not in any way move from the plaintiff; it moves from the testator.’

MacRobertson Miller Airlines v Commissioner of Taxes WA (1975) 133 CLR 125

← If no real obligation, would be illusory

5 Problem areas

← Promise to perform a legal duty?

← Promise to perform a contractual duty already owed?

← Promise to perform a duty owed to a third party?

← Promise to change one’s behaviour?

← Promise not to sue or to compromise a disputed claim?

← Arrangement or composition with creditors?

1 …to perform a legal duty?

← Generally not good consideration

Collins v Godefroy (1831) 109 ER 1040

Facts:

← Collins had been subpoenaed to give evidence in a case in which Godefroy was a litigant. He alleged that Godefroy had promised to pay him six guineas for his trouble and that he had not been paid.

Held:

← There was no consideration for the promise. A subpoena imposes a public duty to give evidence, performance of a public duty is not consideration and, therefore, Collins was not legally entitled to the promised payment. Lord Tenterden CJ (at 1042) said:

- ‘If it be a duty imposed by law upon a party regularly subpoenaed, to attend from time to time to give his evidence, then a promise to give him any remuneration for loss of time incurred in such attendance is a promise without consideration.’

Popiw v Popiw (1959) VR 197

Facts:

← A wife was induced to return to her husband by the husband’s promise to transfer title to the matrimonial home from his sole name into their joint names. Later, Because of the husband’s cruelty, the wife left again and brought an action to enforce the husband’s, as yet, unperformed, promise of the transfer of title.

Held:

← The husband’s promise was supported by consideration and was therefore enforceable. In returning to him the plaintiff had done something which the law neither could not would force her to do. It was also both a benefit to the husband and a detriment to her incurred at his request. Accordingly, it was good consideration. Hudson J (at 198-199) said:

- ‘The objection that the act of…returning to cohabitation did not amount to a valid consideration…was founded on the view that the applicant was under a duty…to return…and this being so it could not be said that…she suffered any detriment or that the respondent gained any advantage in exchange for his promise…Although it may be true to state that the applicant was under a duty to cohabit with the respondent [he could not] compel the performance of that duty…therefore what the respondent was to get in exchange for that promise was something…which he had no means of enforcing and the applicant in returning was submitting to a detriment in placing herself in a position to which she could not have been compelled to occupy. On any view therefore I think there was good consideration for the respondent’s promise.’

2 Exceeding the duty?

police

Glasbrook v Glamorgan CC (1925) AC 270

Facts:

← A question had arisen as to how the appellant’s coal mine could best be protected during a strike. The police thought it enough to provide a mobile force, the colliery manager wanted a stationary guard. It was ultimately agreed that the police would provide a guard for payment of £2,200. The company subsequently refused to pay and, when sued, pleaded the absence of consideration. They alleged that the police were merely doing what they were bound to do anyway.

Held:

← The H of L have judgement for the police. Whilst recognising that they were bound to give protection, the court still felt that the form such protection should take was in their discretion. The provision of more than the police felt necessary was good consideration for the manager’s promise to pay the £2,200.

father/child relations

Ward v Byham (1956) 2 All ER 318

Facts:

← The father of an illegitimate child promised to pay the child’s mother £1 per week as maintenance ‘provided you can prove that she [the child] will be well looked after and happy and also that she is allowed to decide for herself whether or not she wishes to come and live with you’. The father subsequently reneged on his promise and the mother sued for arrears. The father argued that the mother had not provided consideration for his promise in that she was already under a statutory duty to maintain the child.

Held:

← The mother succeeded. Morris and Parker LJJ found for her on the basis that she had undertaken to do more than was required of her under her duty as a mother. Denning LJ took the alternative view that even though she had only done that which was required of her that performance could still constitute good consideration for the father’s promise. He said (at 498):

- ‘the mother, in looking after the child, is only doing what she is legally bound to do. Even so, I think that there was sufficient consideration to support the promise. I have always thought that a promise to perform an existing duty, or the performance of it, should be regarded as good consideration, because it is a benefit to the person to whom it is given.’

3 …Contractual duty already owed?

Stilk v Myrick (1809) 170 ER 1168

Facts:

← The plaintiff, Stilk, who had signed on as a seaman, sued to recover additional wages promised by his ship’s captain whilst the ship was in a foreign port. Two sailors had deserted and the captain had promised the remaining crew that if they would work the ship back to London the deserters’ wages would be divided equally among them.

Held:

← Stilk’s claim failed. In working the ship back, even undermanned as it was, he had not done anything he was not already contractually bound to do anyway. Lord Ellenborough (at 1169) said:

- ‘Before they sailed from London they [the crew] had undertaken to do all that they could under all the emergencies of the voyage…the desertion of a part of the crew is to be considered an emergency of the voyage as much as their death; and those who remain are bound by the terms of their original contract to exert themselves to the utmost to bring the ship in safely to her destined port. Therefore…I think [the agreement to share the wages of the deserters] is void for want of consideration’

➢ Stilk lost because desertion and death were considered to be normal emergencies and ones which the average crew might reasonably expect to encounter. As a result the additional work performed did not stand outside the original contractual obligation and, in performing the additional duties, Stilk and his fellow crew members had done nothing more than that which they were already contractually bound do to anyway. Had they done something which had gone beyond that which could be properly regarded as part of the original contract, then their actions would have been good consideration for the fresh promise. They would have performed some act which they were not already under a duty to perform - see below

Hartley v Ponsonby (1857) 119 ER 1471

Facts:

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

Held:

← Hartley succeeded. The additional performance went beyond that originally contracted for and was good consideration for the master’s promise of the additional money. Lord Campbell CJ (at 1473) said:

- ‘for the ship to go to sea with so few hands was dangerous to life. If so, it was not incumbent on the plaintiff to perform the work…There was therefore a consideration for the contract; and the captain made it without coercion. This is therefore a voluntary agreement upon sufficient consideration.’

4 Rule in Pinnel’s case

Payment of part of a debt not consideration for promise of release from balance

Pinnel’s Case (1602) 5 Co Rep 117a; 77 ER 237

Facts:

← Mr Cole owed Pinnel £8 10s which was due on 11 November. On 1 October Pinnel agreed to accept £5 2s 2d in complete satisfaction of the debt. Cole paid. Later Pinnel sued for the balance.

Held:

← Pinnel won on a technical point of pleading. However, the payment and acceptance of part of the debt before the day on which it was due would otherwise have resulted in judgment for Cole. The difference in timing would have been sufficient consideration for Pinnel’s promise to discharge the debt. That is, the payment of a lesser sum than that owed on a date earlier than that upon which the debt was due would discharge the debt. Cole had done something he was not originally bound to do, and that was sufficient consideration for Pinnel’s promise. The court said (at 237):

- ‘payment of a lesser sum on the day in satisfaction of a greater, cannot be any satisfaction for the whole, because it appears to the judges that by no possibility can a lesser sum be a satisfaction to the plaintiff for a greater sum, but the gift of a horse, hawk or robe etc in satisfaction is good. For it shall be intended that a horse, hawk, or robe etc might be more beneficial to the plaintiff than the money, in respect of some circumstance, or otherwise the plaintiff would not have accepted it in satisfaction.’

Foakes v Beer (1884) 9 AC 605

Facts:

← The parties agreed that Dr Foakes, against whom Mrs Beer had just obtained judgment, would pay £500 immediately and the balance in instalments. Mrs Beer agreed not to ‘take any proceedings whatever on judgment’. All judgements bear interest from the date of judgment, and after Foakes had paid all the instalments as agreed, Beer sued for interest of £360. Foakes denied liability relying on the agreement.

Held:

← Mrs Beer was entitled to recover as there had been no consideration to support her promise not to sue. Foakes’s promise to pay the judgment was merely a promise to do something he was already bound to do.

5 …duty to third party?

Shadwell v Shadwell (1860) 142 ER 62

Facts:

← Shadwell wrote to his nephew who was engaged to be married: ‘I am glad to hear of your intended marriage with Miss Ellen Nicholl; and as I promised to assist you in starting…I will pay you £150 during my life or until your annual income…shall amount to six hundred guineas.’ The annuity fell into arrears, the uncle died and the plaintiff sued the executors.

Held:

← There was a benefit to the uncle in that the marriage was ‘an object of interest to a near relative’ and a detriment to the plaintiff because he might undertake obligations and be embarrassed if uncle did not pay. He recovered even though he had merely carried out an already existing contract to marry.

6 …to change one’s behaviour

Dunton v Dunton (1892) 18 VLR 114

Facts:

← Mr D signed document to pay ex-wife if she “conducted herself with sobriety, and in a respectable, orderly and virtuous manner.” The ex-wife sued to recover the promised amount when the husband reneged.

❑ Argued:

← Void for vagueness 2:1 not void

← No intention to ELR 3:0 did not intend ELR

← Non consideration 2:1 was consideration

conditional 3:0 not conditional

gift promise gift promise

Held:

← She succeeded. Whilst Mr Dunton’s motive in offering the payment, his desire that she conduct herself in such a way as not to bring discredit upon their five young children could not be good consideration, Mrs Dunton’s promised forbearance was. She had a perfect legal right to act in a disorderly manner, to drink and to behave as she pleased within the limitations of public decency. Giving up these rights constituted a detriment and thus was sufficient consideration to support the promise.

cf White v Bluett (1853) 22 LJ Exch 36

Facts:

← The defendant had borrowed money from his father and had secured the debt with a promissory note. When his father died the debt was still outstanding and the executors sued. In his defence his son alleged that, in consideration of his promise to stop complaining that his brothers received preferential treatment, his father had promised to forgive him the debt and discharge him from further liability.

Held:

← The son had no legal right to complain in the first place. That is, in not complaining, he had suffered no legal detriment. The agreement therefore was wholly attributable to the father’s desire not to suffer further annoyance (his motive, ie no detriment and no consideration) and it was unenforceable.

7 Forbearance to sue / compromise?

Settling cases

← Promise not to sue is good consideration

← Compromise of disputed claim is good consideration

← Debtor’s composition with creditors?

❑ Now dealt with by statute, eg Bankruptcy Act 1966 (Cth)

8 Criticisms

← Illogical, offends expectations, unethical and immoral

← UK Law Revision Committee (1937)

❑ Shd be enforceable if in writing, only if verbal shd consideration be required

❑ Shd not require consideration for

← Options

← Agreement to accept a lesser sum

← Promise to do something bound to do

← Promises to benefit third party

← Anticipated detrimental reliance

6.5.9 Performance of an existing duty (double dipping)

Arising under a contract with a third person

The Stevedoring Cases

Facts:

← A contract for the sale of goods was made o/s and sold to the purchaser in Australian and New Zealand. The contract for the transportation of goods was made by the seller directly with the carrier – part of this agreement said that the seller promised that the wharfies were immune form liability for damaged goods (the sellers insurance company was to carry the burden). This was the usual practice, but how can the wharfie take advantage of this if they weren’t a party to the contract, and hadn’t given consideration.

The House of Lords identified two problems:

• How can we make the wharfies a party to the contract?

• How could they find a promise and subsequent consideration?

With regard to the first problem, they made the carrier the agent of the wharfies for the purposes of entering into the contract. So, if the carrier became the agent of the wharfie for the benefit for immunity from suit, then the carrier also became an agent of the wharfie for promising they would use care in handling.

With regard to the second problem, consideration proved difficult, because if the wharfie’s promise to the seller is the same as their promise to the stevedoring company, how can they furnish separate consideration for both? The court said that in the case of the seller, the consideration was not the promise to unload the ship, but the actual action of unloading the ship.

So,

• The contract between the wharfie and the stevedoring company = executory consideration (If you unload the ship, I’ll pay)

• The contract between the wharfie and the seller = executed consideration (I’ll make you immune from liability if you actually perform the action of unloading my ship)

Therefore, until the wharfie unloads the ship, there is no contract for consideration with the seller. The Court came up with the concept of inchoate consideration (consideration which has the potential to grow and ripen)

Performance of a duty already owed to the promisee

Sundell v Emm Yannoulatas

Facts:

← Contract for the sale of iron when there is an iron shortage in France. After the contract has been made, the guy says that he will only sell if he is given more money. The purchaser agrees, then sued and won.

Ratio:

← There was nothing more that he was entitled to for the extra money (no consideration)

Estoppel

← The doctrine designed to protect a party from the detriment which would flow from the party’s change of position if the assumption or expectation that led to it were to be rendered groundless by another. ( Walton’s

← Promise to pay a smaller sum as consideration for a promise to release the balance of the debt.

1 Equitable estoppel

Pinnel’s Case (1602)

Facts:

▪ A gave B a lesser sum on the day the entire amount was due

Held:

▪ That this was not sufficient to prevent a breach since A gives no consideration. If A had paid a day earlier, benefiting B, this may have been considered consideration

Hughes v Metropolitan Railway (1877) 2 AC 439 at 448

← ‘…if parties…so conduct themselves as to induce one of the parties to suppose that the strict rights arising under the contract will not be enforced or will be kept in suspense…the person who otherwise might have enforced those rights will not be allowed to enforce them when it would be inequitable having regard to the dealings which have taken place.’

Central London Property Trust v Hightrees house

Facts:

← The plaintiffs leased a block of flats to the defendants for 99 years at an annual rental of £2,500. In 1940 the defendants found that, because of the war, they were unable to sublet many of the flats. The plaintiffs agreed to reduce the rental to £1,250. In 1945 the situation had returned to normal and the flats were full again. A receiver of the plaintiff company brought an action against the defendants claiming the full original rent both for the future and, as a test case, for the last two quarters of 1945.

Held:

← The action succeeded. The parties had intended that the rent reduction was to be a temporary expedient while the flats could not be fully sublet. That situation had ceased in early 1945. Therefore the full rent was payable for the last two quarters of early 1945, which was all that was actually claimed. Denning J went on to state, however, that had the plaintiffs sued for the full rent between 1940 and 1945, they would have failed. They would have been estopped from asserting their strict legal right to payment in full by their promise to accept the lesser sum. He said that the authority for this proposition was the decision in Hughes and Metropolitan Railway.

- ‘’if parties…by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties.’

Detriment should be assessed at the moment when the promisor purposes to result from his position

Je Maintiendrai v Quaglia

Facts

▪ Je Maintiendrai agreed indefinitely to reduce the rent paid by Quaglia under the lease of a hairdresser’s shop. When Quaglia later proposed to vacate the shop, Je Maintiendrai sued for $2392 accumulated arrears.

Held:

▪ It failed, by choosing to continue paying rent, albeit a lesser rent, in the particular circumstances and in electing to continue liable as tenant in reliance on the lessor’s assurance that a less rent would be accepted in satisfaction, the tenant had altered his position so that, judging the matter as the date when the lessor proposed to resile from the arrangement, it would have been inequitable for the ct to condone such an action.

Can be used to enforce alleged informal contract modifications

Legione v Hately

Facts:

• L agreed to sell H some property. The buyer paid a deposit and the balance was due 1 year later. The H’s took possession of and built a house before that date arrived, but were unable to raise the balance of that price. On the day before a default notice was to expire their solicitor spoke with a secretary of the L’s solicitor who states than an extension on the time allowance for when the balance owing was due would probably be OK but she had to get instructions. The L’s later claimed that the contract had been rescinded.

Held:

• The L’s were not estopped from asserting that the contract was at an end on the expiry of the time allowed by the notice, since secretary had not made clear and unequivocal representation to the effect that the H’s could disregard its expiry. It was not regarded as sensible or reasonable to rely on the statement by the secretary. No assurance had been given that the legal rights would not be insisted upon.

2 Elements of Estoppel

These cases retrieved the old equitable rule that:

• Where a person makes an unequivocal representation (the representor)

• Which is intended to be binding and

• Which is intended to be acted upon by the other party (the representee)

• And is acted upon by the representee to their detriment

• The representee aquires and equity

• To compel the representor to do whatever may be necessary to compensate for the detriment,

• Even to the extent of making good the representation

3 Acceptance in Australia

A number of cases prior to 1988 had tentatively accepted the doctrine, eg

Je Maintiendrai v Quagla (1980) 26 SASR 101

← Held that promissory estoppel was part of the law of their own jurisdictions and that it could apply when a promise not to enforce existing legal rights was made in circumstances where it was reasonable to expect that it would be acted upon and where it was in fact acted upon to the promisee’s detriment.

D & C Builders v Rees (1983) 152 CLR 406

Facts:

← The defendant owed the plaintiffs, a small firm of builders, £482 for work they had done. He delayed payment for several months and then offered £300 stating, in effect, that if they did not accept this sum they would get nothing. As the plaintiffs were in desperate financial straits they accepted a cheque for £300 in full settlement of the debt. They then sued for the balance.

Held:

← The plaintiffs were entitled to recover the difference between what was owed and what was paid. The payment by cheque was not a material consideration.: ‘No sensible distinction can be taken between payment of a lesser sum by cash and payment of it by cheque…In point of law payment of a lesser sum, whether by cash or by cheque, is no discharge of a greater sum.

Early requirements

- Existing legal relationship

- Clear representation that right will not be enforced

- Representee acts to his substantial detriment

- Representor inequitably reneges and sues

- Valid defence

2 1988 watershed

Waltons Stores v Maher (1988) 164 CLR 387

Facts:

← The Mahers owned commercial premises in Nowra which they proposed to replace with new premises which Waltons were to lease. Negotiations proceeded and Waltons solicitors send the Mahers’ solicitors a draft agreement specifying that the new premises were to be ready for fitting out by 15 Jan 1984. On 7 Nov the Mahers’ solicitor spoke to Waltons’ solicitor pointing out that final agreement would have to be reached ‘in the next day or two otherwise it will be impossible for Maher to complete’ the rebuilding in time. Waltons’ solicitor then forwarded a fresh set of documents incorporating a number of amendments. The covering letter stated that, whilst he had no formal instructions from Waltons, he believed that Waltons’ approval would be forthcoming and that he would advise the following day if Waltons did not agree to any of the amendments. Four days later the Mahers’ solicitor, having heard nothing further, returned the documents duly signed ‘by way of exchange’, indicating that the Mahers’ thought they had a contract. The Mahers then proceeded with the demolition and rebuilding work, a fact made known to Waltons by its Nowra manager. In the meantime Waltons, which was reviewing its country operations, told its solicitors to ‘go slow’ on the Maher contract. Eventually on 18th January, 1984, Waltons had its solicitor notify the Mahers that it was pulling out of the transaction. As the building work was then well advanced, the Mahers sued for specific performance.

Held:

← Waltons were liable. Even though no contract had ever been formally concluded, the High Court held that Waltons was bound and could not deny the existence of a binding agreement. The essence of a decision was an acceptance of the doctrine of promissory estoppel. By remaining silent when it knew that the Mahers were acting on the assumption that they had a concluded contract, Waltons had clearly induced them to continue acting on that basis. That being the case ‘it was unconscionable for [Waltons] knowing that the [Mahers] were exposing themselves to detriment by acting on…a false assumption, to adopt a course of inaction which encouraged [the Mahers] in the course they had adopted’: at 407-408 per Mason CJ and Wilson J. Their honours went on in the same passage to say: ‘To express the point in the language of promissory estoppel the appellant is estopped…from retreating from its implied promise to complete the contract’

ELEMENTS AS STATED IN WALTON’S CASE

1. There must be a clear and unambiguous assumption or expectation on the party of party A which was encouraged or induced by party B. The assumption or expectation may be as a result of a promise by B ( Legione v Hately

2. Party A acts in reliance upon the assumption or expectation. The reliance of party A must be reasonable reliance ( Waltons Stores

3. Party A will suffer detriment if the assumption or expectation goes unfulfilled. Detriment is assessed as at the time party B attempts to resile from the assumption or expectation, not at the time the assumption or expectation is induced ( Legione v Hately

4. Party B knows party A will suffer detriment if the assumption or expectation is unfulfilled

5. Party B fails to avoid detriment by fulfilling the assumption or expectation of otherwise.

3 Post-1988 requirements

← Clear representation by word or conduct

← Induces representee to rely on it

← To his substantial detriment

← Reliance is objectively foreseeable

← Representor knows or ought to know that reliance is taking place (conscience affected)

← Specific performance or expectation damages

❑ Note sword, not shield, no existing relationship

❑ Note dissenting judgment on reliance damages

4 Later cases

Austotel v Franklins Selfserve (1989) 16 NSWLR 582

❑ Distinguishable facts, opposite conclusion

Effect of estoppel: the remedy for equitable estoppel is the minimum necessary to do justice between the parties:

Commonwealth v Verwayen (1990) 170 CLR 394

❑ Messy case and judgments!

Facts:

← Verwayen was one of those members of the Royal Australian Navy who were injured when HMAS Voyager and HMAS Melbourne collided in 1964. In 1984, he sued the Commonwealth seeking damages for negligence. The defences that were open to it (that it had not owed Verwayen a duty of care because, when he was injured, he was a serviceman engaged in combat exercises and that, in any case, the action was barred under the Statute of Limitations). However, following a change in government policy, the Commonwealth amended its defence to plead both those grounds to defeat Verwayen’s claim. Verwayen argued that, having indicated it would not do so, the Commonwealth could not change its mind and plead either defence.

Held (4:3):

← The Commonwealth could not use either of the two defences. Of the majority judges, two decided the question on the basis of ‘waiver’ but the other two found that the Commonwealth’s earlier actions estopped it from raising either plea. The other judges also considered the question of estoppel but they found that, in the circumstances, the Commonwealth could still amend its pleadings. They found that the detriment that the defendant would suffer as a result of the Commonwealth’s change of heart could be adequately compensated by an award of costs and that it was not necessary to deprive the Commonwealth of its legally-available defences.

5 Limitations to the doctrine

Coombe v Coombe [1951] 2 KB 215

Facts:

▪ In a divorce action the husband promised to pay the wife a sum of £100 per year in maintenance. At trial, the wife, who had an income of her own in excess of her husband’s, did not apply for maintenance. There was no suggestion or indication that the wife’s failure to apply was based on her husband’s promise. That is, there was nothing to show that she had acted in any way in reliance on the promise. Several years later, she attempted to sue her husband for his failure to keep it.

Facts:

▪ Her action failed. The court held that there was no consideration to support the husband’s promise. Consideration must be bargained for any detriment that is suffered must be suffered at the request and with the agreement of the promisor and as the price of his promise. This was not the case her. Further, her inaction was not directly referable to the husband’s promise and, therefore the wife could not invoke the doctrine of promissory estoppel. Lord Denning: Much as I am inclined to favour the principle stated in the High Trees case, it is important that it should not be stretched too far, lest it should be endangered. That principle does not create new causes of action where none existed before. It only prevents a party from insisting upon his strict legal rights, when it would be unjust to allow him to enforce them, having regard to the dealings which have taken place between the parties.’

6 Unconscionability

← The unconscionability element comes through strongly in Australian cases

← Developed much further here, and mirrors similar development in statutes

← Preventing unconscionability seen as more important than strict compliance with traditional requirements of contract formation and performance

7 Further requirements

▪ Even to the extent of making good the representation if that is necessary

▪ To permit the representee to resile from the representation would be unconscionable

▪ The representation is clear and unequivocal and made with the appropriate authority

4 Relevance to Contract

▪ Generally, as an alternative to consideration

▪ In the creation of a binding promise, or more so in the variation of a contract.

▪ As a modification of strict legal rights & alternative to waiver in such situations as time clauses and termination clauses; and

▪ Where less than strict performance of a clause inserted to benefit one party only

Privity

Privity = The corollary for the power to create rights and duties for a third party, if a contract imposes obligations on someone else without statutory powers (it makes them a party to the contract)

1 Elements

They interact, but are separate concepts

Coulls v Bagot

← Only one who is a party can sue, or be sued on that contract (so a non-party has no rights under a contract)

• Consideration must move from the promisee (so, how can a third party provide consideration?)

2 The early cases

1 Attempting to Confer benefits on a 3rd party

Tweddle v Atkinson –

Also an example of horizontal privity (2 people agreed to benefit a 3rd)

Facts:

← Contract between the fathers of a bride and groom in consideration of marriage. The bride’s father promises to the groom’s father (not the groom) that he will give the groom money when they get married. Then he died. Can the son in law enforce the promise?

Ratio:

← No. He is a stranger to the consideration. As he had not paid for the promise, he could not enforce it

2 Attempted to impose restrictions on a 3rd party

← 3rd party can not sue or be sued

Dunlop Pneumatic Tyre v Selfridge [1915] A.C.

Distribution: Dunlop -> Dew -> Selfridge -> Customer

Facts:

← There was a contract between Dunlop and Dew to sell tyres for a certain price. There was also a clause to indicate that there would be a similar arrangement with people who bought tyres off Dew (Selfridge). Selfridge began to sell them at a lower price.

Ratio:

← Court said this was okay, because they had no contract with Dunlop. Not a party, no consideration – a stranger can’t enforce.

Van Der Pit v Insurance

Facts:

← A third party beneficiary tried to sue on a contract.

Ratio:

← The House of Lords said that you can’t without privity. By the 1930’s it was felt that this was outdated.

3 Exceptions

← Non-contractual

- Misrepresentation in torts

- Statutes TPA – Property Law Act

- Express or implied trusts

- Restitution

- Promissory estoppel Waltons v Maher

← Contractual

- Joint promisees – Coulls v Bagot

- Co-operative party – Beswick v Beswick

- Narrow CL exceptions – Trident v McNiece

- Exclusion clauses

- Collateral contracts (see under Terms)

4 Limitations upon and exceptions to the doctrine

1 Joint promisees

← Where the promise is not merely made to a promisee for the benefit of a 3rd party but is made to the promisee and the intended beneficiary together, then, in fact, there is no third party to the contract; there is instead a promisor and joint promisees.

← The fact that the beneficiary did not provide consideration personally is immaterial. As long as consideration has been provided by one of the joint promisees on behalf of them both, it will be consideration for them both and both will be entitled to require performance.

Coulls v Bagots Executor (1967) 119 CLR 460 (P 141 Graw)

Facts:

← Coulls sells the right to quarry stone, and the payment is to be made to himself and his wife. He dies and his wife seeks to recover the payments under the contract – is the money hers, or does this become part of his estate to be transmitted under his will?

← What had she done for the money? – Signed the contract. The property didn’t belong to her, she didn’t take part in the negotiations, but her husband intended that the money would go to her after his death.

Ratio:

▪ On the basis of the contract, it was found that the promise was made to the husband alone, giving him a revocable mandate to pay his wife, revoked by his death.

▪ Mrs Coulls took her interest as a beneficiary under the will rather than in her own right as a party to the contract.

2 Co-operative party

Beswick v Beswick [1968] A.C

Facts:

← Peter Beswick was a coal merchant who was advancing in years. He contracted to sell his business to his nephew who undertook to pay him £6 10s a week for as long as he lived and, if she survived him, to pay Peter’s widow £5 a week for the balance of her life. When Peter died John paid the widow one instalment only and then refused to pay any more. The widow sued John for the unpaid arrears and for specific performance or future payments.

Ratio:

← Suing in her capacity as administrator of her husband’s estates, she succeeded in obtaining an order for specific performance. It was an appropriate remedy here because of the peculiar circumstances of the case. Because she had not been a party to the original contract, the widow could not sue in her personal capacity and was thus restricted to an action as administrator. In her capacity as administrator she (the estate) would have only been entitled to nominal damages because the estate did not suffer as the result of John’s default. To do justice, therefore, an order for specific performance (forcing John to honour his promise) was necessary.

3 Exemption clauses intended to benefit an agent or employee

Wilson v Darling Island Stevedoring

Facts

▪ Goods being shipped to the plaintiff in Sydney were damaged by the defendants, a stevedoring company hired by the carrier to unload and store them. The bill of lading (the contract of affreightment) entered into between the shipper and the carrier including this clause:

- ‘the carrier has no responsibility whatsoever for the goods…subsequent to the discharge from the vessel. Goods in the custody of the carrier or his agents or servants before loading and after discharge…are in such custody at the sole risk of the owners of the goods and the carrier shall not be liable for loss or damage arising or resulting from any cause whatsoever’

▪ The damage complained of had clearly occurred after the discharge of the goods in Sydney and through the negligence of the defendant stevedores in stacking and storing them. When sued by the plaintiff for this damage, the defendants claimed to be agents of the carrier and thus under the protection of the exemption clause in the bill of lading.

Held:

▪ The HC rejected this defence. It held that the exclusion clause protected the carrier but could not be used as protection for the stevedoring company. The company had not been a party to the contract (the bill of lading) and thus could not take the benefit of any of its terms. Fullagar J said:

- ‘the defendant is not a party to the contract evidenced by the bill of lading, it can neither sue nor be sued on that contract, and nothing in a contract between the two can relieve it from the consequences of a tortious act committed by it against the plaintiff.’

Scruttons ltd v Midland Silicones Ltd

Lord Reid said that it is possible for servants, agents and independent contractors to take advantage of exemption clauses if four conditions were fulfilled:

• The contract of carriage made it clear that the clause was intended to affect third parties

• It was clear that the contractor was doing so not only on its own behalf, but as an agent for the third parties

• The carrier had authority from the third parties to make the contract on their behalf

• That any difficulties about consideration moving from the third parties were overcome.

← In both Wilson’s and Scrutton’s case, the stevedores did not gain exemption from liability as the clauses did not exempt 3rd parties from liability. The omission was rectified with the Himalaya clause.

4 Himalaya Clause

The Privy Council accepted a “Himalaya Clause”, specifically drafted to cover third parties in this way. It was established in a case involving a passenger injured on the liner Himalaya, as a result of the crew’s negligence. She had a contract with the company saying that she couldn’t sue the crew for negligence. The crew they were a third party to the contract, and therefore couldn’t benefit from it. This problem led to the development of the Himalaya clause:

• “It is hereby expressly agreed that no servant or agent of the carrier

• Including every independent contractor employed from time to time by the carrier

• Shall in any circumstances whatsoever be under any liability whatsoever

• To the shipper owner or consignee of the foods or holder of the bill of lading

• For any loss or damage or delay of whatsoever kind arising or resulting directly or indirectly from any act of negligence or default on his part while acting in the course of his employment

• And every right exemption from liability defence and immunity of whatsoever nature applicable to the carrier shall also be available to such a servant or agent

• And the carrier shall be deemed to be acting as an agent and trustee on behalf of all such persons and for the benefit of all such persons who are or might be his servants. .

• Including independent contractors

• And all such persons shall be deemed to be parties to the contract”

This clause was used by the stevedores, as the contract was evidenced by a bill of lading, which renders the consignee and endorsee of a bill of lading has all the rights and liabilities of a consignor

• It was held that consideration for the promise was the actual unloading of the ship by the stevedore.

5 Comments on Eurymedon

Policy imperatives

- Uniformity of international shipping laws

- Freight rates allocated risks according to liability

- Reflects clear intention of commercial parties

Problems

- What if no prior relationship

- Is there really good consideration

- Perhaps consignee making unilateral offer, stevedore accepts by unloading goods?

- Can’t accept offer if don’t know it exists

Port Jackson v Salmond & Spraggon (1980) 144 CLR 300 (PC)

Facts:

• Goods were consigned to Salmond and Spraggon and the bill of lading was transferred to them (this effectively made them the owners of the goods from that point). Port Jackson Stevedoring Pty Ltd was a stevedoring company in the port of discharge and it usually acted for the shipping line. It did so in this case and arranged for the goods to be discharged from the ship and stored in a shed. It negligently misdelivered the goods to an unauthorised person so that when Salmond and Spraggon produced the bill of lading, it was not able to deliver them. When sued, it pleaded, inter alia, an exclusion clause in the bill of lading as a defence to Salmond and Spraggon’s action in negligence. (standard Himalaya clause)

Held:

• A majority of the HC approved, for differing reasons, the decision in Satterthwaite’s case but found, on the facts, that the exemption clause was not effective to protect the third party here. The court held that at the time the loss occurred, the stevedores were no longer covered by the exclusion clause because the contract containing the clause only endured while the goods were on the ship and until they were sent over the ship’s rail. Unloading had been completed and the goods were stored on the dock when the loss occurred.

• Barwick CJ was of the opinion that Lord Reid’s four requirements were satisfied. On the requirement for consideration, the Chief Justice’s view was that the essence of the agreement arranged through the agent was that if the stevedores performed certain functions (the unloading etc), they would thereupon be entitled to the protection of the exclusion clause in the bill of lading. The unloading therefore constituted good consideration for the promise of exemption.

• On appeal to the Privy council, the decision in Satterthwaite’s case was again approved and the court specifically adopted Barwick CJ’s view of the effect of that case. However, the appeal to the Privy Council was successful because the court held that, on the true construction of the contract, and taking into account the general practice of the port, it was clear that the parties contemplated that either the carriers or the stevedores would store the goods and that the clause would operate in such an event.

5 Today, Problems of structure are overcome by:

Vertical Privity – (e.g. Dunlop) statute / torts / TPA

Horizontal Privity – (e.g. Stevedoring cases) Statute / Case law ( 2 people who agree to benefit a 3rd.

The Stevedoring Cases

The seller makes a contract with the buyer and the carrier, in each case including a clause that shall benefit a third party (the stevedore)

How can the stevedore enforce against the seller or the buyer – what consideration for the promise did the stevedore have?

6 Statutory provisions

s. 55 Property Law Act (Qld)

• s 55(1) ( A promisor who makes a contractual promise to a pomisee to act or refrain from acting for the benefit of a third party is legally bound to that third party subject to acceptance by the third party.

• s 55(2) ( Prior to that acceptance, the promisor and promisee may vary or discharge the terms of the promise without the beneficiary’s consent.

• s 55(3) ( Upon acceptance, the third party beneficiary acquires a right to remedies for the enforcement of the promise.

← Main difficulty is that original parties to the contract lose power to amend it without consent after the beneficiary accepts the contract

Further notes on the Property Law Act

← Acceptance must occur within a reasonable time

← The beneficiary may be bound to act in accordance with the promise

← The promisor can enforce this duty

← The promise may be varied if both promisor and beneficiary give their consent.

Note Statutes

▪ Compare WA and Qld provisions in Property Law Act

- Qld includes concept of acceptance which has to be communicated to the promisor

- WA includes concept of adoption – does it have to be notified?

▪ Usefulness will depend on willingness of courts to give wide interpretations

7 Recent Developments

Trident Insurance v McNiece (1988) 165

Facts:

← McNiece Bros Pty Ltd was the principal contractor for construction work being carried out at the Marulan plant of Blue Circle Southern Cement Ltd. Blue Circle had a contract of insurance with Trident whereby Trident agreed to provide insurance cover to Blue Circle, its subsidiaries, its contractors and its suppliers in respect of (inter alia) liability for personal injury. A workman on site,, Gary Hammond, was injured in circumstances allowing him to sue McNiece Bros in negligence. McNiece sought indemnity from Trident and Trident denied liability on the grounds that McNiece was not a party to the policy.

Held:

← Even though McNiece had not been a party to the original contract of insurance, it was entitled to be indemnified under the resulting policy. The judges, however, differed on the reasons for their finding and there is no real ratio of the case. What is significant, however, is the detailed discussion which appeared in individual judgments of the worth of continuing with privity as both a legal concept and as a bar to recovery by third parties intended beneficiaries.

← Two judges, Mason CJ and Wilson J, were prepared to accept that the established doctrine should be totally reconsidered, at least in respect of insurance contracts. Gaudron J expressed a general agreement with this view but decided the question was without reference to the operation of the doctrine of privity and Toohey J, whilst conceding that the doctrine was not so entrenched as to be capable of change, preferred to base his decision on a narrow proposition of his own formulation that where a policy is issued in circumstances evidencing an intention by both insurer and assured that third parties would be indemnified, then third parties who ordered their affairs on the basis of that presumed indemnity would be entitled to sue on the policy not withstanding that they had neither provided consideration nor been parties to the contract. The remaining three judges, Brennan, Dawson, and Deane JJ, whilst differing in their conclusions, were not prepared to abandon the doctrine of privity, essentially holding that it was so well entrenched in the law of contract that any arbitrary departure from it would raise as many problems as it might solve.

← Only 3 of the judges indicated support ‘for the proposition that in addition to the qualifications and exceptions already established to the doctrine of privity of contract, the old rules do not apply in their full rigour’

← Even those judges who were prepared to contemplate that option carefully restricted their comments to the particular facts of the case and to the law of insurance in general.

Terms of the contract

← Obligations and liabilities

1 Outline

5 topics relating to terms of the contract

1. Parole evidence rule

2. Terms compared with other pre-contractual statements

3. Types of terms – warranties, conditions and innominate terms

4. How they got there – express and implied terms

5. Exemption and exclusion clauses

2 How can you tell a term?

By the intention of the parties – established in the following cases:

1 English Cases:

Heilbut Symons v Buckleton

Facts:

← A prospective investor was inquiring about investment in a company dealing with South American Rubber. He inquires to the underwriter, who says “we’re bringing it out”, the investor replied “that’s good enough for me”. The company expires, and the investor sues the underwriter for saying that it is a sound investment.

Ratio:

← House of Lords said that you must look at the totality of the evidence – not every assertion of the party is a term with intent to create contractual responsibility for advice. To determine whether a promise was meant to be a term, use the objective test of the reasonable bystander. That the underwriter knew it all and the investor knew nothing makes no difference.

Later English cases move away and say that knowledge of a topic and fault against innocence should be taken into account.

2 Australian Cases:

Ellul v Ellul & Oaks

Facts:

← A house was listed for sale with many estate agents. Prospective buyer looks at a statement by the owner that the house had been sewered (the owner knew it wasn’t). There was no clause about the sewer in the written contract. The buyer buys the house without checking, and discovers that it isn’t sewered. Was there a contractual promise?

Ratio:

← The Supreme Court of South Australia said that the owner does have peculiar knowledge, but is not at fault. (It was the buyer’s fault for not checking it out before buying)

Other factors that court said to consider are:

• The length of time between the inducing statement and the contract?

• If a written contract, is the statement included?

• Who is in a better position to know the truth of the statement?

• Who will decide – judge (question of law) or jury (question of fact)

Savage v Blakney

Facts:

← A contract to build a boat. False statement was made about the capacity of the engine. Was it a promise intended to be a term, or an accurate, though misguided expression of opinion?

Ratio:

← High Court said it was just the opinion of the boat-builder – not a term.

Ross v Alice Chalmers

Facts:

← Statement about the capacity of a combine harvester was false. Was it an estimate, or a promise on behalf of the company that the statement was true?

Ratio:

• It depends on a review of the evidence. In this case, the person didn’t intend to be contractually bound, therefore there was no contractual promise

3 Parole evidence rule

• Where a contract is reduced to writing, oral evidence cannot be used to add to, vary or contradict the written document.

• There are different rules for evidence of the parties depending on the form of the contract

• If the contract is written, then the parole evidence rule applies.

Thorne v Thomas Borthwick (1956) 56 SR 81

• The def (Borthwick) informed the pl (Thorne) that it had neatsfoot oil for sale. Thorne asked for a sample and said the oil had to be under 30 degrees Fahr cloud point. The plaintiff then sent an order for 50 drums but did not make reference to the cloud point. Samples from the oil sold indicated that most of the drums were over 30 degrees.

• The mere fact that a sample has been shown by the intending vendor to the prospective purchaser during the course of negotiations does not make the final contract a contract of sale by sample

• If the written document is clear on its face and contains all terms appropriate to the transaction, and is signed by the parties as the record of their agreement, then further evidence is not admissible.

Codelfa v NSW State Rail

▪ The broad purpose of the parole evidence rule is to exclude extrinsic evidence (except as to surrounding circumstances), including direct statements of intention and antecedent negotiations, that subtract from, add to, vary or contradict the language of the written instrument.

▪ Evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. It is not admissible to contradict the language of the contract.

2 Partly written contracts

• Court had to be satisfied that the written document was intended to be the whole contract

- Rebuttable presumption that what looks like a written contract is just that

- Evidence of disputed statements is admissible to show it was partly written and partly oral

• Can also adduce evidence to prove other related facts

- Contract subject to a condition precedent

- Contract has been discharged

- Contract requires rectification

Couchman v Hill [1947] KB 554

• Auction of cattle – written term that description may be incorrect and no warranty given

• Owner also said orally ‘this is unserved’

• Heifer later died in labour

• Held to be partly written partly oral

- Test is objective intention

- The more formal, the less likely to be partly oral

- If statement made soon before contract, intended to be binding

- May even overcome ‘merger’ clause

-

asking Q’s before signing document

Van den Esschert v Chappell [1960] WAR 114

▪ Just before signing a contract asked if there were white ants

▪ Said ‘no’

▪ Signed contract

▪ Turned out that there were white ants in the house

▪ Held to be binding and could receive damages

Nemeth v Bayswater Road Pty Ltd [1988] 2 Qd R 406

Facts:

▪ The parties contracted for the hire of an aircraft

▪ Details recorded in an agreement, especially prepared for the day

▪ Clause ‘all the terms of the agreement R contained in this document’

▪ P later sued for additional hire charges

Held:

▪ The written document contained all the terms of the contract and evidence of any other alleged ‘agreement or term’ was inadmissible.

3 Collateral contracts

• Device to get around difficulties with

- Parole evidence rule

- Requirement that contract be in writing

- Perhaps even privity rule?

• Popular in UK, but not so well accepted in Aus

ELEMENTS

• Must have entered main contract on basis of collateral statement, and in reliance on it

• Statement must satisfy all requirements of a contract, eg agreement, consideration, intent

Hoyts v Spencer (1919) 27 CLR 133

• Sublease of theatre, terminable on 4 wks notice

• S gave notice, H left but sued for damages

• Alleged oral promise that S would not give notice unless head landlord required him to.

• HC held

- Entering main contract could be consideration for promise

- But collateral contract cannot be inconsistent with main contract

Shepperd v Ryde Municipality (1952) 85 CLR 1

• Before buying land, S confirmed with RM that they would stick to plan to have park opposite

• S sought injunction when bulldozers arrived

• Failed in SC, succeeded in HC, but limited its usefulness

- Only where it is the type of promise you would not expect to see in the main contract.

Agreement

JJSavage v Blakeney

← A mere statement of opinion does not constitute a promise and therefore cannot form the basis of an agreement.

4 Arguments to counter the rule

▪ Partly written, partly oral contracts

▪ Evidence to prove related relevant facts

▪ Collateral contracts

▪ Exceptions to the rule

- Fraud or misrepresentation

- Latent ambiguity (objective background), ie what must have been meant by the written terms

- To prove mercantile or trade usage

5 Exceptions

Apparent exceptions, which include

• Evidence that the contract is subject to a condition precedent – Pym v Campbell

• To show the document was not intended to contain complete agreement – Thorne v Borthwick

• Evidence that the contract has been discharged – Air Great Lakes v K.S

• Applications for the remedy of rectification – Bacchus Marsh Milk co v Joseph Nathan & co

• Allegations that the oral terms are part of a collateral contract:

Collateral contracts Sheppard v Ryde Corporation – see below

• Principal contract is usually in writing. Collateral terms are usually oral. They are collateral because they are not as important.

• Consideration for the terms of a collateral contract is entering the principal contract.

True Exceptions to the Parol Evidence Rule W

▪ When there is fraud or misrepresentation: Curtis v Chemical Cleaning Co

▪ The rule in Shore v Wilson which applies when there is a LATENT ambiguity to the words of the contract

▪ Bank of New Zealand v Simpson: If the words of a contract are subject to more than one meaning, extrinsic evidence is admissible to show the definition the parties intended.

▪ When mercantile or trade terms are used in a trade contract, as long as this does not contradict the plain meaning of the other express terms – Constan Industries v Norwich Winterthur

6 Limitations on the rule

• The Court has to be satisfied that the writing was intended to be the whole contract, and that the contract is not partly oral and partly in writing

• Evidence of the disputed statements is admissible on this issue

• But there is a presumption that what looks like a contract in writing is just that.

•

4 Pre-contractual statements

← Statements made prior to the contract

← Puff

← Opinion

← Representation

- Innocent

- Negligent

- Fraudulent

- TP Act

- FT Act

← Contractual term

1 Puffs and opinions

PUFFS

▪ Intended to praise, and thus induce contract

▪ But not intended to be relied on literally

▪ No leal consequence of untrue

- eg. ‘This 4x4 climbs glass mountains,’

OPINIONS

▪ No promise as to its truth

▪ No legal consequences if untrue

▪ Unless not genuinely held at the time

- eg. I guess it should do 7 litres/100kms’

2 Representations

← Statement of fact as opposed to opinion

← Induces the contract

← Intended to be relied on

← But not part of the contract (although it can become a term)

← If false, contract may be set aside (terminated)

← If fraudulent or negligence, damages may be claimed in tort

3 Terms

← Statements agreed on by the parties

← That defined the obligations undertaken by each side

← Intended to be enforceable

- Promises made to each other, eg

• That certain facts are true

• That will or won’t act in a certain way

← Also called

- Provisions, stipulations, covenants

- Conditions, warranties

4 Summary of classification

Pre-Contractual Statements

Term Non Term

Condition Warranty Innominate misrepresentation Opinion Puff

5 Terms vs. Representations

▪ Why do we need to know the difference?

- Contractual damages vs tortious damage

▪ How do we know the difference?

- Objective intention of the parties

- Compare car cases

Oscar Chess v Williams [1957] 1 WLR 370 – not a term

Facts:

▪ Williams offered to buy a new Hillman minx from the plaintiff car dealers, offering a second hand Morris in part exchange. The trade-in allowable on the Morris depended on its age and according to the registration book, its date of manufacture was 1948. The defendant confirmed this in good faith and the plaintiffs, believing him, allowed a trade-in of £290. Eight months later the plaintiffs found that the Morris was a 1939 model and the trade-in should have been only £175. The registration book had presumably been altered by a previous owner before the car reached the defendant’s hands. The plaintiffs sued for the £115 difference between what had been allowed and what should have been allowed.

Held:

▪ The defendant’s statement was a mere representation and not a term of the contract. Whilst there was little or no time lapse between the defendant’s statement and the oral agreement (ad there was no writing to confuse the issue), the critical point was special knowledge and skill. It was not Williams, the maker of the statement, but the plaintiffs, the car dealers, who possessed special knowledge and skill and it was they, if anyone, who could have discovered the true age of the car. They were not justified in relying on Williams’ ‘expertise’. Therefore, the statement had not become a term and they were not entitled to recover.

Dick Bentley Productions v Harold Smith Motors [1965] 1 WLR 623 – was a term

Facts:

▪ In the course of negotiating the sale of a Bentley motor car, the defendants told Dick Bentley that it had had a new engine and gearbox fitted and that since then, it had only been driven 20,000 miles. This statement was, in fact, not true by the defendant made it believing that it was. The car had actually travelled 100.000 miles, and when Dick Bentley discovered this, he sued.

Held:

▪ The misleading statement had been incorporated into the contract as a term and Bentley was entitled to damages. The person who made the statement (the dealer) had had special knowledge and skill and the statement was made in such a way that both parties should have realised that the buyer would rely upon it. The dealer ‘stated a fact that should be within his own knowledge’. The likely importance of the statement made in the minds of the parties was also a factor that the court considered in deciding that it was a term. Salmon LJ said:

- ‘Was what Mr. Smith said intended and understood as a legally binding promise? If so, it was a warranty, and as such may be part of the contract of sale or collateral to it. In effect, Mr Smith said: ‘I you will enter into a contract to buy this motor car from me for £1850. I undertake that you will be getting a motor car which has done no more than 20,000 miles since it was fitted with a new engine and a new gearbox.’ I have no doubt at all that what was said by Mr. Smith was so understood and was intended to be so understood by Mr. Bentley.’

2 Importance in the Minds of the Parties

If the representee makes it known that a particular fact is of great importance and if the representor then asserts that the fact is true, the statement will probably be treated as a term.

Bannerman v White

Facts:

▪ In the course of negotiating the purchase price of a quantity of hops, the buyer asked if they had been treated with sulphur. He added that if they had been, he would not even bother to ask the price. The seller informed him that sulphur had not been used, the buyer bought them, but on delivery, found that sulphur had been used. He repudiated the contract. The seller sued for the price

Held:

▪ The seller’s untrue assurance that sulphur had not been used had become a term of the contract. The facts showed a true intention that the contract would be null and void if the stipulation was untrue. Consequently, the buyer’s repudiation was justified and valid and he was not bound to pay the price.

If person making statement shows that they do not warrant the accuracy of the statement or that the representee should have the statement checked independently

Ecay v Godfrey

Facts:

▪ The seller of a boat stated that it was sound but advised the buyer have it surveyed. The buyer did not have it surveyed, the boat was no sound and the buyer sued for breach of this alleged term.

Held:

▪ He failed. From the words used it was clear that neither party had intended the stipulation to be binding. It was a mere expression of opinion which the buyer could have had, and should have had checked.

if said in such a way that the other party would be dissuaded from checking it

Schawel v Reade

Facts:

▪ The plaintiff who wanted to buy a horse for stud purposes, went to the defendant’s stables. As he was examining one particular horse, the defendant said to him, ‘You need not look for anything; the horse is perfectly sound. If there was anything the matter with the horse, I would tell you.’ In reliance on this statement, the plaintiff purchased the horse. It proved to be totally unfit for stud purposes and the plaintiff sued.

Held:

▪ The plaintiff as entitled to succeed. The seller’s statement was intended to be, and had become, a term of the contract. It was said in such a way that a reasonable person would believe it to be accurate and would be dissuaded from making any independent check.

3 Helpful factors

• Objective intention of the parties is not always easy to discover

• Helpful factors extended from cases

- Time betweens statement and conclusion of contract

- Oral statement not intended in written contract

- Subjectively important to one party

- Who is in a better position to know the truth?

6 Types of terms

At Common Law, terms have either been conditions or warranties. All terms can be classified this way when the contract is formed, depending on the result if the term is breached.

conditions

• Are major terms of the contract, breaches render performance of the contract something substantially different to that which was agreed. If a condition was breached the innocent party can terminate the contract and also sue for damages.

warranties

• Are minor terms of the contract, a breach of which renders the contract different but not substantially different. In general, a breach of a warranty can be compensated for in damages and this is the only remedy available for such a breach.

In Australian law, the test of essentiality was applied to determine whether a term was a condition or a warranty.

2 Test of essentiality

▪ ‘Whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise of such importance for the promisee, that he would not have entered into the contract unless he had been assured of a strict or substantial performance of the promise…and that this ought to have been apparent to the promisor’

- Luna Park v Tramways Advertising at 641

▪ Traditionally terms were regarded as capable of characterisation at time of contract

The test is from Associated Newspapers v Bancks, which adopted the test from the NSW case of Tramways Advertising v Luna Park (1938). It has subsequently been approved on a number of occasions right up until the present day.

The test to determine whether or not a term is a condition is as follows:

• Whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms.

• The promise must be of such importance to the promisee that they would not have entered into the contract without an assurance of strict performance of the term. This ought to have been apparent to the promisor.

• If the promissory term is broken, they the promisee may treat himself as discharged from the obligation of the contract – the nature of the condition (i.e. you do not claim damages for breach of a condition).

Associated Newspapers v Bancks (1951) CLR

Facts:

← Bancks was the cartoonist who developed Ginger Meggs. He signed a 10 year contract with AN to put his cartoon on the front page of the comic supplement of the paper. His comic was put on page 3 of the supplement for 3 weeks. Bancks repudiated the contract.

Ratio:

← HCA said that the place of the publication of his comic (i.e. on the front page) was an essential term of the contract. Bancks would not have entered the contract without this assurance. He was therefore entitled to repudiate.

This is very strict test, as demonstrated by the fact there was only 3 weeks in 10 years the comic was not on the front of the comic supplement. Thus, an alternative test has developed, the ‘Wait and See test”

3 The Wait and See Rule

The Wait & See Rule awaits the extent of the loss or damage that results when the term is broken.

Hong Kong Fir Shipping v Kawasaki (English Crt of App, Lord Devlin)

Facts:

← A ship was leased from HKF Shipping for 2 years. It was, however, in such poor condition that it spent much of the two years immobile. Kawasaki claimed that there was a breach by the promisee that the ship would be seaworthy. The meaning of the breach of the promise of seaworthiness became a technical issue.

Ratio:

← The Court employed the ‘Wait and See’ rule, preferring to wait and see how much damage occurred before assuming the right of Kawasaki to repudiate.

Thus, there are two different lines

1. Australian line – Associated Newspapers v Bancks

2. English line – Hong Kong Fir v Kawasaki

The English courts have stressed the importance of certainty in commercial contracts, and some feel that the ‘Wait and See’ method undermines this certainty.

4 Alternative category develops

▪ Some terms are always conditions or always warranties, and can be characterised at the time of contract

▪ But others are more complex, and classification awaits the extent of the loss that follows when it is breached

▪ Normally only damages claimable (like a warranty) but if consequences serious enough, can terminate (like a condition)

- Wait and see – innominate term

5 Useful analysis

Photoproductions Ltd v Securior

Facts:

← Photoproductions was a large firm who hired Securior to protect their factory. Security company was unaware that the officer they put on duty was a pyromaniac. He set fire to the building, and burned down the factory. Photoproductions Ltd sued. Securior said that in the contract, it was stated that they couldn’t sue them for damage, but rather they had to claim it on insurance.

Ratio:

← Lord Devlin puts it together nicely:

• Contracts create a primary obligation to perform according to the terms of the contract. If this obligation cannot be performed, then a secondary obligation to pay damages arises by law.

• There is an obligation to perform the primary obligation, even if it is broken by the other party, except in two cases:

1. When the parties have agreed in advance that the term is so important that any breach will justify the discharge the contract. Eg Bancks

Where the consequences of the failure to performs are so serious that they deprive the innocent party substantially of the whole benefit of the contract. – Hong Kong Fir

• In these cases, the innocent party has the right to terminate the primary obligation.

6 Australian view

Associated Newspapers v Bancks (1951) 83 CLR 322 (before Hong Kong Fir)

▪ ‘Us Fellers’ – Ginger Meggs comic strip to be on front of the comic section

▪ Held justified in terminating – substantial breach of a condition

Ankar P/L v National Westminster Finance – HCA 1987

• Unanimous, but tentative approval of the alternative test. It did not matter which test was chosen. The result was the same from both.

• But, in Australia, the authority remains the Essentiality Test. The courts in Australia have not properly determined the ‘Wait and See’ rule’s future.

7 express and implied terms

EXPRESS TERMS

▪ Can be oral or in writing

▪ If in writing, parole evidence rule might apply

IMPLIED TERMS

▪ If, from all the surrounding facts, it was obviously intended to apply

▪ ‘The Moorcock’ (1989) 14 PD 64

- Contract to unload ship at def’s wharf

- Implied term that it was safe to do s

8 Implied Terms

1 The test for implied terms

▪ Where reasonable and equitable

▪ Not if contract effective without it – must need to give ‘business efficacy’ to the contract

▪ So obvious it goes without saying (‘officious bystander test’

▪ Capable of clear expression

▪ Does not contradict express terms

2 Where one can look to find implied terms:

• The need to give the contract business efficacy

• Previous dealings between the parties

• Local custom or usage

• Statute

•

Liverpool County Council v Irwin

• Look to Lord Wilberforce’s methodology

• A spectrum of situations exist for implying terms, there is no one-size-fits-all

1. Where a complete contract exists

• The court may add established commercial custom and usage implied terms, but not much else

• Terms that the parties would unhesitatingly agree to

• Courts action concurs with the intent of the parties

2. An apparently complete bargain, but it will not work

• Court will imply term to give business efficacy

• How much is it in lie with the party’s original intention?

3. A contract which appears to lack a reasonable solution

▪ Will the court imply a reasonable term, to make the solution reasonable?

▪ Controversial

4. The court states all the terms because the parties have not done so

▪ How much do you read in?

What must be implied by necessity – no more, no less

3 High Court discussion

Codelfa Construction v State Rail Authority (NSW) (1983) 1149 CLR 337

▪ Formal written construction contract with time limit

▪ Common assumption that would be able to run 3x8 hours shifts per day

▪ Injunction obtained by residents due to noise

▪ Was it a term?

▪ Held: not so obvious that it went without saying

- Mere common assumption not sufficient

4 Assisting an implication

▪ Custom, common trade usage

- Must be well-known and agreed in the trade

- Such that parties can reasonably be presumed to have imported the term

- Can be bound even where no subjective knowledge of the term

▪ Previous dealings between the parties

- Again, an objective test

5 Terms implied (?) by law

▪ Implied terms are unique to each contract

- Based on presumption of intention of the parties

▪ Some terms are imposed by law

- Often called implied terms, but not strictly so

- Implied on all contracts of that particular kind

- They do not intend on intention of parties

- Can be imposed by common law or statute

• eg in CL – that employee exercise reasonable care in discharging duties

• Warranties in Sale of Goods Act, etc.

9 Exemption and exclusion clauses

Exemption clauses

▪ Exempt a party from liability

Exclusion clauses

▪ Exclude something from the contract that would otherwise apply

Limitation clause

▪ Limits the remedies or the amounts claimable or the time for the claim

← May be express, implied or imposed by law

• Some statutorily imposed terms cannot be excluded, or can only be excluded up to a limit

Theoretical tension

▪ Tension between freedom of contract vs reality of consumer society

Reality of society

• Standard form contracts

• Welfarism

Freedom of contract

▪ Freedom to bargain

▪ Equal bargaining power

Use and abuse

▪ Legitimate to use such terms to

- Define subject matter and obligations

- Allocate risks and responsibilities

- Make realistic pricing possible

▪ Illegitimate to use standard forms for surprise and exploitation

▪ Judges developed techniques to stop exploitation, as did legislators

▪ Result is different rules for consumers and commercial contracts

Judicial techniques

▪ Based on 2 approaches

- Deciding whether the term is properly to be seen as part of the contract – the incorporation principle

- If the term is part of the contract, deciding what the term means by construing it restrictively – the interpretation principle

▪ Techniques developed before consumer protection statutes such as TPA (Cth), FTA (states), Contract Review Act (NSW)

2 Incorporation – 2 main rules

1. Party who signs or knows of term is bound

- Caveat subscriptor – let the signer beware

- Except where fraud or misrepresentation (query: duress, undue influence, mistake, etc)

- L’Estrange v Graucob [1934] 2 KB 394

2. Party who does not sign or does not know of term is not bound, unless

- Reasonable person would know it was a contractual document or of significance, or

- Reasonable steps were taken to give notice before the contract was entered into

RULE 1:

L’Estrange v Graucob

Facts:

▪ The plaintiff purchased a cigarette vending machine from the defendant on terms contained in a document described as a ‘sales agreement’. The agreement included the following clause: ‘This agreement contains all the terms and conditions under which I agree to purchase the machine specified above and any express or implied condition, statement or warranty statutory or otherwise not stated herein is hereby excluded.’ The clause was in ‘legible, but regrettably small print’. Mrs L’Estrange signed the agreement without reading it. The vending machine did not work and she sued Graucob, alleging breach of statutorily implied condition of fitness for purpose.

Held:

▪ She failed. There was no implied condition as to fitness for purpose and, consequently, the defendants were not in breach of the contract. Mrs L’Estrange’s argument that as she had not read the clause excluding statutorily implied terms, she could not be bound by it, failed. The court held that once a document is signed, the signer is deemed to have read, understood and agreed to its terms. Mrs L’Estrange therefore could not deny the existence or effect of the clause restricting the terms of the contract to those included in the document. Scrutton LJ (at 403) said: ‘When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.’

EXAMPLE OF AN EXCEPTION

Curtis v Chemical Cleaning & Dyeing (1951) 1 KB 805

Facts:

▪ The plaintiff took a white satin wedding dress trimmed with beads and sequins to the defendant’s shop for cleaning. The shop assistant gave her a docket headed ‘receipt’ and asked her to sign it. Mrs Curtis asked why her signature was required and the assistant replied that it exempted the defendants from certain specified risks and, in the present instance, from the risk of damage to the beads and sequins on the dress. Mrs Curtis signed the document. In fact it contained a clause ‘that the company is not liable for any damage, however arising’. When the dress was returned it was stained and when Mrs Curtis sued for damages, the defendants relied on the clause to deny liability.

Held:

▪ The defence failed. A clause is not effective if its effect is misrepresented, however innocently, by either the proferens or anyone else acting on the proferens’ behalf. In this case, the clause had been misrepresented as only affecting beads and sequins and that, therefore, was its limit. It did not extend to exclude liability for stains. Denning LJ (at 810) said: ‘In my opinion when the signature is a condition, purporting to exempt a person from his common law liabilities, is obtained by an innocent misrepresentation, the party who has made that misrepresentation is disentitled to rely on the exemption.’

RULE 2: - CONTRACTUAL OBLIGATIONS

STATUS OF TICKETS, RECEIPTS, SIGNS, BROCHURES?

Causer v Brown [1952] VLR 1

Facts:

▪ The plaintiff’s husband left one of her frocks with the defendant for dry-cleaning. A week later, when he collected it, the dress was stained and some of the threads had been pulled out of it. The plaintiff sued. The defendant sought to escape liability by relying on clauses printed on the docket that had been handed to the husband. They purportedly exempted the cleaners from liability for any loss of or damage to articles left for cleaning.

Held:

▪ The defendants could not rely on the exemption clauses and were liable in damages. The document was not such that a reasonable person would assume it to be contractual; it appeared to be a mere receipt. As such, it would reasonably be understood to be only a voucher to be produced when collecting the goods, not something which would contain conditions exempting the defendants from liability for negligence. There had been no effective notice.

Chapelton v Barry UDC [1940] 1 KB 532

Facts:

▪ Whilst on holidays, the plaintiff hired a deck chair on a beach controlled by the defendant council. He paid a fee for use of the deck chair and received a ticket in exchange for payment. On the back of the ticket was a clause to the effect that the council was not to be liable in the event of ‘any accident or damage arising from the hire of the chair’. When the plaintiff sat on the chair it collapsed and he was injured. He sued the council which relied upon the exclusion clause to escape liability

Held:

▪ The council’s defence failed. A reasonable man would have assumed that the ticket was no more than a receipt for the payment. Consequently, actual notice was required before the exemption would become effective and, as the clause had not actually come to Chapelton’s attention, he was not affected by it.

3 Notice?

Hill v Wright [19711 V.R. 749

Facts:

← Hill contracted Wright to carry a large piece of machinery. It was damaged and Hill sued. Upon delivery of the goods Wright's employee gave Hill's employee some contracts to sign regarding receipt of the goods, one of which excluded liability for Wright.

Ratio:

▪ Wright was still held liable. He could not rely on the exclusion clause as it had not been brought to Hill’s notice. Hill’s signature was not relevant, as it had not been intended to operate as the acceptance of a contractual term.

where contract was / is made

Ocenaic Sun Line Special Shipping v Fahey

Facts:

← Dr. Fahey went to Sydney to book a luxury cruise, inspired by a glossy brochure. He received a voucher which he had to exchange in the Greek port to which he was headed. He got there, and discovered that one of the terms is that any dispute arising would be heard under Greek jurisdiction. He was injured by pigeon shooters, and he wanted to sue in NSW. Where was the contract made? Had he agreed that the Greeks had exclusive jurisdiction?

Ratio:

← Held that he had made offer and acceptance in NSW. The notice of the term took place too late, it should have taken place in Sydney when the ticket was brought to be an effective contractual term.

Very important to look to when and where the contract was made

4 REASONABLE STEPS

← Depends on surrounding facts

Parker v. S.E Railway (1877) 2 C.P.D 416:

First ticket case

Facts:

← Two people deposited goods at a minding station and received a ticket stating they would not be liable for any losses over 10 pounds. The question was whether the minding station could rely on the clause on the ticket.

Ratio:

← The court said it was whether a person would reasonably expect to get a ticket containing conditions when they deposit their goods. Did the offeree take reasonable steps to bring them to the offeree’s attention?

← The court said:

• If he did not see or know there was writing - he is not bound.

• If he knew there was writing which constituted conditions - he is bound by the conditions

• If he knew there was writing but did not know it was conditions then he will be bound if a jury finds that the giving of the ticket occurred in such a way that would constitute reasonable notice of the conditions.

• If the transaction was one normally made on the basis of special conditions, and the ticket gave conditions or where they could be found, that was reasonable notice

• This was a contract of bailment: That is the transfer of possession on the proviso you will get it back.

5 Particularly onerous terms

Interphoto Picture Library v Stiletto Visual Programmes [1989] QB 43 (CA)

Facts

▪ The plaintiffs ran a photographic transparency lending library. The defendants, who were involved in advertising, rang them and asked whether they had any photographs that could be suitable for a presentation the defendants were preparing. The plaintiffs sent around 47 possible useful transparencies together with a delivery note containing a number of printed conditions. One condition required return of the transparencies within 14 days and it also imposed a ‘holding fee’ of £5 (plus VAT) per transparency per day thereafter. Through inadvertence, the defendants (who had not read the conditions), did not return the transparencies for 4 weeks. They were billed £3,783.50 which they refused to pay. The plaintiffs sued

Held:

▪ The plaintiffs could not recover the full £3,783.50 and were restricted to a quantum meruit. The clause imposing the fee was particularly onerous and unusual (because the ‘holding fee’ normally charged in the industry was only £3.50 per transparency per week.) Consequently, the clause could only be enforced if the plaintiffs could show that they had fairly and reasonably drawn it to the other party’s attention before the agreement was finalised. They had not done so and, therefore, the clause was not part of the contract. As Bingham LJ put it (at 445): ‘The defendants are not to be relieved of that liability because they did not read the condition…but….because the plaintiffs did not do what was reasonably necessary to draw this unreasonable and extortionate clause fairly to their attention.’

6 Mere display may be sufficient

Olley v Marlborough Court [1949] 1 KB 532 (CA)

Facts:

▪ The Olleys arrived at the defendants’ hotel as guests, paid for a week in advance and went up to the bedroom allotted to them. On one of its walls was a notice to the effect that ‘the proprietors will not hold themselves responsible for articles lost or stolen unless handed to the manageress for safe custody.’ A little later, the wife closed the room’s self-locking door, went downstairs and hung the key on the board in the reception office. In her absence, the key was taken by a third party who opened the room and stole her furs. The defendants sought to incorporate the notice into the contract to escape liability for the loss

Held:

▪ The hotel was liable. The contract was completed at the reception desk before the Olleys went up to their room and no subsequent notice could affect their rights. The ‘reasonable steps’ have to be taken before or at the rime the contract is made. Here, notice occurred after the contract and thus was not effective.

7 Before or at time of contract

Thornton v Shoe Lane Parking [1971] 2 QB 163

Facts:

▪ Thornton drove his vehicle to the entrance of the defendant’s automated parking station, received a ticket from the machine and drove in. The ticket referred to ‘conditions of issue’ displayed on the premises. Those conditions (inter alia) exempted the defendant from liability for personal injury that customers suffered on their premises. Thornton was injured and sued. The company pleaded the exemption clause. At trial it admitted that it had not done what was reasonably sufficient to give Thornton notice of the exemption clause before he contracted but it argued that he was still bound by it because he either ‘knew or believed’, from the ticket’s fact, that it had been issued subject to conditions.

Held:

▪ As there was no evidence that Thornton had ever been aware of either the conditions generally or the exemption clause in particular he was not bound by it. He could, therefore, recover.

where conditions are on the reverse side of the ticket

Sugar v London, Midland & Scottish Railway Co [1941] 1 All ER 172

Facts:

▪ Mrs Sugar had purchased an excursion ticket which contained the words on its face ‘For conditions, see back’. These had been obliterated by a date stamp before she received the ticket. When she arrived at Westcliff, she left the defendant’s station by an ill-lit passage, fell into a hole & was injured. She sued. The company pleaded the exclusion clause on the back of the ticket.

Held:

▪ They failed. Because the words ‘For conditions see back’ had been obliterated, there was no proper notice and the clause was ineffective.

8 Verbal assurances

Mendelssohn v Normand [1970] 1 QB 177 (CA)

Facts:

▪ Mendelssohn drove his motor vehicle into a parking station operated by the defendant company. He wanted to lock the vehicle but he was prevented from doing so by one of the attendants. He informed the attendant that the car contained valuables and asked him to ensure that it was locked after it had been parked. When he returned he found the car unlocked and he subsequently discovered that the suitcase containing the valuables had been stolen. He sued the defendant company. They relied upon an exclusion clause printed on the ticket exempting them from liability for loss or damage to the vehicle, its accessories or its contents ‘howsoever caused’.

Held:

▪ Mendelssohn succeeded against the company but not on the grounds that the ticket constituted invalid notice. The company had done what was reasonably necessary to bring the clause to his attention. Lord Denning MR (at 143) said: ‘He may not have read it. But that does not matter. It was plainly a contractual document: and, as he accepted it without objection, he must be taken to have agreed to it. The conditions on that ticket were, therefore, part of the contract.’

▪ There were 2 reasons for the above finding.

(1) The clause on the ticket was inconsistent with the attendant’s implied promise, found in his undertaking to lock the car, that the valuables would be kept safe. As a result the clause had to be read down so that it did not apply to the loss of the valuables.

(2) The clause was only intended to operate when the contract was performed in a particular way. It was not intended to operate when, the contract was performed in a way not contemplated by the parties (that is, by leaving the car unlocked)

9 Previous course of dealings

May be inferred if sufficient consistent courts of dealings between parties

Henry Kendall v William Lillico [1969] 2 AC 31

Facts:

▪ A poultry producers’ association, SAPPA, brought contaminated poultry food from Lillico under an oral contract evidenced by a later ‘sold note’. The sold note expressly provided that ‘the buyer takes the responsibility of any latent defects’. Lillico argued that, even though its sold note was submitted too late to form part of the contract, the exemption clause it contained could be incorporated into the agreement between the parties’ prior course of dealing. They had three or four dealings a month for the previous three years and, in each case, there had been an oral contract followed immediately by a written sold note. The sold notes had all contained the standard exemption clause.

Held:

▪ Even though SAPPA had never actually read any of the sold notes, it knew that the clauses were there and it also knew that Lillico always dealt on the basis that they applied to the transaction. That being the case, the court held (at 105) that, ‘SAPPA, by continuing to conduct their business…on the basis of the sold notes…and by not objecting to the condition, must be taken to have asserted to the incorporation of these terms in the contract’. The exemption clause formed part of the agreement.

Balmain New Ferry v. Robertson (1906) 4 C.L.R. 379

Facts:

← The defendants operated a ferry line. You had to pay when you entered or left the wharf. This was stated on a large sign on the front of the wharf. Robertson got onto the wharf missed the ferry and tried to return out without paying. He sued Balmain for false imprisonment.

Ratio:

▪ The Balmain were not liable. If Robertson was aware of the terms then he agreed to them by obtaining admission. If it was his first time he might have been able to prove he was not given reasonable notice or was unaware of the sign. He had been on the ferry before and this was reasonable notice. He was aware of the terms and was therefore bound by them.

DJ Hill v Walter Wright (1971) VR 749

▪ H employed WW as carrier (over phone) on 10 occasions over previous 7 months

▪ Form with exemption clause signed each time on delivery of goods

▪ More like a receipt, ie post-contractual document

▪ Because always post-contractual, course of dealings did not establish clause without further evidence of intention.

10 Statements during negotiations

• How far can you take into the contract as statements made during negotiations?

• Terms must be promissory statements

• In an ideal world, all would be set out in the offer, or they would be included in a written contract or note of the terms.

Rationale:

• Prior negotiations not admissible as evidence of the parties’ intention, as they may change their mind, or the possibility might inhibit negotiations.

• But the factual matrix of the transaction may emerge from the negotiations

Factual Matrix

This consists of surrounding circumstance and factual background as known to the parties at the time of contracting, and the objective of the parties as appears from those circumstances.

This is admissible in evidence. Therefore, evidence can be admitted as to intentions and purposes for entering negotiations.

Codelfa Construction P/L v NSW Rail Authority (1982) 56 ALJR 459:

Facts:

← Codelfa was a large Italian multinational construction and engineering company. They accepted a tender from the NSW Rail Authority to begin construction of the Eastern Railway. After a short period of time, a dispute arose. There was nothing in the agreement that said how the problem would be dealt with and who would bear the risk.

← The problem was a clarification problem: A term in the contract required Codelfa to work 24hrs/day, 7 days/wk, in return for a promise by NSW that there would be no noise complaints from local residents and now possible injunction for their dynamite usage. Codelfa sought advice from the law authority.

NSW was wrong, as Codelfa received an injunction to stop work 11pm-4am. They knew that there would be no way to finish the contract on time, and went to court to argue that the assurance of no injunction in the tender was actually part of the contract.

Held:

▪ Because of the injunctions, the actual mode of performance forced upon Codelfa was radically different from that which had been contemplated by the contract – Codelfa could no loner hope to complete the work within the specific time limit set by the contract. Accordingly, the contract had been frustrated and Codelfa’s claim for payment on a quantum meruit could succeed.

10 Interpretation issues

▪ Question is how widely or narrowly should the exclusion clause be interpreted

▪ Principle is that, apart from fraud, any liability can be excluded by clear drafting

- Principle of freedom of contract

▪ However, cases disclose numerous different possibilities for arguing against an exclusion clause

1 Contra proferens

← Where ambiguous, must interpret against party who was to benefit – who proffered the term

Wallis & Wells v Pratt & Haynes (1911) AC 394

Facts:

▪ The defendants sold the plaintiffs seed which they described as ‘common English sainfoin’. It was an express term of the contract that ‘the seller gives no warranty express or implied as to growth, description or any other matter’. The seed supplied turned out not to be ‘common English sainfoin’ but ‘giant sainfoin’. Giant sainfoin is a different and inferior seed and the plaintiffs, debarred from repudiating the contract under the Sale of Goods Act 1893 (UK), sued for damages. The defendants relied on the term excluding any ‘warranty’ to avoid liability.

Held:

▪ The defence failed. Under the Sale of Goods Act there was an implied condition that the seed would correspond with its description as ‘common English sainfoin’ and this condition could not be ousted by a clause excluding ‘warranties’. Warranties could be excluded but conditions, being terms of a higher status, could not. Accordingly, the clause did not cover the breach and the defendants were liable.

▪ Did it cover breach of a condition?

2 Liability for negligence

← Exclusion clauses in a contract would normally not cover contractual liability

← Negligence is a tortious remedy

← To exclude liability for negligence, must mention negligence clearly

- Or use other words that are objectively wide enough to cover negligence

← If it does not, and there are other possible causes of the damage, a general clause will not exclude liability for negligence.

White v John Warwick (1953) 2 All ER 1021

Facts:

▪ Involved a contract of hire of a bicycle. Under the contract, the defendants were obliged to maintain the bicycle in working order. The plaintiff suffered injury when the seat of a bicycle came off due to a defective nut which held the seat in place. The plaintiff sued in both contract and tort but the defendants relied upon an exclusion clause contained in the contract of hire.

Held:

▪ As there were two possible causes of action, in contract and in the tort of negligence, the exemption clause contained in the contract of hire was only effective to preclude the action under the contract, but not the action for negligence, as there was no express reference to negligence in the clause.

3 Fundamental breach

← Central obligation = fundamental term

← If breached ( non-performance, same effect as breach of condition

Can you exclude liability for fund breach?

Karsales (Harrow) v Wallis [1956] 1 WLR 936

Facts:

▪ W bought second-hand Buick in excellent condition from S on HP finance by

▪ When K approved hp, S delivered by leaving it outside W’s garage overnight.

▪ No cylinder head, burn valves, broken pistons, old tyres, radio & chrome gone – tow rope.

▪ W returned it to S; K sued under hp contract

Held:

▪ W was not liable. The delivery of the wreck was a fundamental breach of contact in that Wallis had been deprived of substantially the whole benefit he was to have received under the agreement (that is, a usable car) As the sellers actions were outside the contract, they were not covered by the exemption.

▪ Denning LJ:

- Cannot rely on an exemption clause if breach goes to root of whole contract

- It goes to the root of the whole contract if you are deprived substantially of the benefit of the contract.

FUNDAMENTAL BREACH IN THE UK

← Goes against freedom of contract

← History of CA (Denning) vs House of Lords

Suisse Atlantique v NV Rotterdamsche [1967] AC 361

▪ HoL said not absolute – just a rule of construction

▪ Depends on presumed intention of parties

▪ Unfortunate hints of modified fund breach

- If contract ‘rescinded’ for breach of condition, then doesn’t exist, so exclusion clause no longer operative

Photo Productions of Securicor [1980] AC 827

Facts:

▪ A security guard lit a fire that burnt down the factory

▪ ‘no liability for any injurious act unless it could have been foreseen and avoided by the due diligence of the employer’

▪ PP failed at trail but succeeded at CA

Held:

▪ There is no principle of law that a fundamental breach of contract will automatically nullify the effect of an exemption clause.

▪ Clause was clear and unambiguous – intended to cover the negligence of the employee

FUNDAMENTAL BREACH IN AUSTRALIA

← Never follow Denning – always just an aid to interpretation

← All a question of construction

Sydney City v West (1965) 114 CLR 481

▪ Car parked in garage – had to produce ticket with rego no on it to get car back

▪ Thief stole car by using ticket with wrong rego

▪ Q raised is: what was authorised / excluded by this contract?

▪ Would expect dramatic fundamental breach to be excluded specifically

DIAGRAMATIC REPRESENTATION

4 Deviation principle

← In maritime law, if you deviate from your route, you can no longer claim the benefit of exclusion clauses in the contract

← Probably the forerunner of Denning’s fundamental breach, but the doctrines are slightly different

← Does it apply to non-maritime contracts?

• Yes – probably known by a different name

← ‘four corners’ rule

FOUR CORNERS

TNT v May Baker (1966) 115 CLR 353

Held:

▪ If you undertake to do a thing in a certain way, or keep a thing in a certain place, and you don’t

▪ Cannot rely on the exclusion clause which was intended to protect you if you carried out the contract in the way you said you would.

5 Main object

Van der Sterren v Cibernetics (1970) 44 ALJR 157

• obiter statement that clause MUST be read down where

- creates an absurdity

- defeats the main object of the contract

▪ Is it a different rule from the presumption against fundamental breach?

OTHER ARGUMENTS

← Misrepresentation that clause doesn’t apply

← Qualification by another term

← Total failure of consideration

← Unconscionability (equity or statute), eg

▪ Comercial Bank of Australia v Amadio (1983) 151 CLR 447

▪ S 52A TPA ( Corporation shall not, in trade or commerce, in connection with the supply of goods to a person, engage in conduct that is unconscionable.

FINAL COMMENTS

← UK has Unfair Contract Terms Act (1977) – can exclude only what is reasonable

← NSW has Contracts Review Act (1980) – courts can vary unjust contracts/clauses

← Distinction between excluding and limiting clauses, ie do they need to be read down?

Alisa Craig Fishing v Malvern Fishing (‘Securicor No 2’) [1983] 1 All ER 101

Facts:

▪ The appellants owned a fishing vessel which sank when it fouled the vessel moored next to it. The other vessel also sank. Securicor had been contracted to provide security in the harbour, it was clearly in breach of its obligation and its breach was a material factor in the sinkings. However, it denied liability for the consequent loss. Its argument was based on two clauses in the contract – one an exclusion clause (which was found not to apply on the facts) and the other a limitation clause which purported to restrict Securicor’s liability to the sum of £1,000. The court below assessed actual damages at £55,000 but applied the limitation clause and only ordered Securicor to pay £1,000. The appellants appealed.

Held:

▪ The appeal was dismissed. The limitation clause was effective and Securicor was only liable for £1,000. Although a limitation clause must be clearly and unambiguously expressed in order to be effective, the words used were to be given their natural meaning and limitation clauses were not to be construed as rigidly or strictly as exclusion clauses. The reasoning for this was that an agreed limitation of liability was more likely to accord with the true intentions of the parties than would a total exclusion of that same liability. That is, the plaintiff may well have agreed to accept part of the risk in exchange for (say) a reduction in price. Lord Wilberforce (at 102-103) said:

- ‘Clauses of limitation are not regarded by the courts with the same hostility as clauses of exclusion; this is because they must be related to other contractual terms, in particular to the risks to which the defending party may be exposed, the remuneration which he receives and possibly also the opportunity of the other party to insure.’

Aust ( Darlington Features v Delco (Australia) Ltd (1986) 161 CLR 500

- The English idea that there should be some differential treatment of excluding and limiting clauses has not found much favour in Australia. In fact, the High Court expressly rejected the contention in Darlington on the very logical grounds that a limitation clause could be drafted such that it was (at 510): ‘so severe in its operation as to make its effect virtually indistinguishable from that of an exclusion clause.’

- It is yet to be seen whether the High Court maintains this strict view where the limitation clause is not a de facto exclusion clause but a bona fide attempt to trade a limitation of liability for seom other concession in favour of the (now) plaintiff.

Terms Implied by Statute

• Distinguish between mandatory and dispositive terms

• Mandatory – obligatory, statute says part of contract, no question of intention or will, cannot exclude

• Dispositive – In place unless parties otherwise alter them, by excluding them expressly or making them inconsistent

• Most these days are mandatory eg TPA

1 a) Sale of Goods Act (1896) Qld ss.17-20

• The implied terms in these sections are in Common Law jurisdictions all around the world.

• They are depositive

• They form the basis of the TPA’s implied terms ss.69-72

2 b) Trade Practices Act 1974 (Cwth) Part V div 2. C&H - 274-276

TPA goes further than the SGA, talks about not just the sale of goods, but also of the transfer & supply of goods also.

1 Implied terms under the TPA

• Governs transactions between a corporation and a consumer. Corporations now include small businesses etc

• See definition of a corporation (s.4(1)), of a consumer (s.4B), and of a relevant transaction (supply rather than just sale)

2 Monetary & Purposive Limits

A transaction will only fall under TPA jurisdiction if:

• It is a transaction worth less than $40,000; and not purchased for resale, repair or business transformation; and it has not become a fixture

• OR it is a transaction more than $40,000 that is of a kind ordinarily purchased for personal, domestic or household use

Goods & Services – s.4(1) TPA

• Similar monetary and purposive tests

Goods include:

• Ships, aircraft and other vehicles

• Animals, including fish

• Minerals, trees and crops

• Gas & Electricity

Services

• The third main distinction between the SGA and the TPA is the TPA deals with services

Services are:

• Any rights (including rights in relation to, and interests in, real or personal property)

• Benefits, privileges and facilities that are provided in trade or commerce

• Includes rights, benefits and privileges in contracts for the performance of work, amusement, entertainment or instruction

• Contract where remuneration is by way of royalty, levy etc.

• Other contracts for services (eg. insurance, banking, lending money)

• But EXCLUDES contracts of service (eg. employment)

This summary is designed to show what is in each provision and there effect. It is not quotable or written verbatim.

Supply of Services

Section 74

(1) Every corporation in business or service there is an implied warranty that the person will carry out that service with due care and skill. Also that all materials supplied will be fit and proper for their purpose. (Unless consumer says does not rely on skill and judgement, expressly or impliedly)

(2) Where a corporation is providing a service to a consumer and the consumer says why the services are required or the desired result there is an implied warranty that they will adequately meet that need or that result except where unreasonable.

(3) This does not include services under

(a) a contract for the transportation or storage of goods for trade or business of whom the goods are being transported for

(b) a contract of insurance

Section 68 & 68A

s.68 makes all these sections mandatory

• “Any attempt to exclude, restrict or modify rights conferred under TPA is void”

Note limitations in s.68A

• Provided this is fair and reasonable e.g. a clause to repair or replace goods would not be foul of s.68

• Mostly remedies to consumer complaint clauses

• If it is not fair and reasonable for the corporation to rely on this clause, then it will not be incorporated in the contract.

s.68A(3) – Relevant factors of determination for courts if term is fair and reasonable for inclusion contrary to s.68

• Bargaining positions

• Monopolistic or quasi-monopolistic control over goods or services

• Reasonable prices

• Buyer knew/ought to have known of that term

• Significant modification bought in by a custom

• Did the buyer put in special considerations in this transaction?

Burden on defendant to prove these

Section 69 – Implied terms & warranties: Goods

(1) In every contract of supply of goods by a corporation to a consumer;

(a) an implied condition that the supplier can sell the goods,

(b) an implied warranty that the consumer will enjoy quiet possession of the goods except so far as it may lawfully be disturbed by the supplier.

(c) an implied warranty that the goods are free from any charges and encumbrances.

(2) A floating charge over assets is not a breach of 1 (c) unless it becomes fixed and enforceable

(3) In a contract where a supplier can only transfer such title as he or a third party has there is;

(a) an implied warranty that all known charges are disclosed.

(b) an implied warranty that the supplier or third party won't disturb the quiet possession of those goods.

Section 70 – Implied term goods comply with description etc

1) In a contract of supply between a corporation to a consumer, there is an implied condition that goods will correspond to the description. If a sample and a description is provided it is not sufficient that the goods correspond to the sample if they do not correspond to the description.

(2) Subsection 1 is not effected if the goods were selected by the consumer if they were for sale or hire.

Section 71 – Merchantable quality

(1) There is an implied condition that the goods are of merchantable quality.

(a) unless defects were brought to notice before the contract was made

(b) if the consumer examines the goods and such examination should have revealed the defect.

(2) There is an implied condition that the goods will fit their purpose if that purpose was made known

(3) These sections apply to a corporation supplying to a consumer and anybody acting as an agent for that business.

Section 72

(1) Where goods are supplied by reference to a sample;

(a) there is an implied condition that the goods will correspond the sample

(b) there is an implied condition that the consumer will have time to compare the goods and sample

c) there is an implied condition that the goods will be free from any defect that would not be apparent on inspection of the consumer and would render the bulk unmerchantable.

Exemption or Exclusion Clauses

Focus on the ligitament and illegitament functions of such clauses and devices developed to deal with them.

They:

• Seek to exclude terms from contract that would otherwise be there.

• Terms may be express, implied, or statutory. If statutory implied terms, can exclude or limit only so far as permitted.

• Limitation clause seeks to limit available remedies.

1 Use and Abuse of such terms

Legitimate functions include:

• To define subject matter and obligations in negative rather than positive terms (eg suicide exempted from life insurance policy)

• To allocate risk and responsibilities

• To make realistic pricing possible

• Abuses especially in standardized commerce where imbalance of power (mass documents produced or 1 party who has no say)

2 Hostility of the Courts

• Judges have developed techniques to deal with unrealistic abuses, surprises and exploitation.

• Manipulation of offer and acceptance rules (eg Olly v Malborough, ticket cases)

• Construction contra proferentem (always construed against person who drafted it). Williams: term excluding implied terms, but didn’t exclude conditions. Courts construed against the drafter.

• Overriding behavior of parties (estoppel. Curtis: misrepresentation overrode contract)

• The repugnancy test – End of 19th Century shipping cases. Deviate from contracted route of sailing, and got to another ships aid. Law of salvage meant they could claim an empty ship. This was an implied term of the contract

Glynne v Morgenson (HoL)

Facts:

← This case regarded the repugnancy tests. An extravagant ship captain took the really long route to Spain.

Ratio:

← Court said that there had to be a reasonable reason to deviate. They looked to the factual matrix of the situation: if this is not the ‘main purpose’ of the agreement, it can be repugnanced.

← Construction of the Clauses Looking at whole instrument, one must reject whole provisions if they are inconsistent with what the parties intended when entering the contract

There is a concept of legal democracy. Legislation is merely creating guidelines.

Judges are now free to concentrate on issues of construction of these exclusion clauses.

2 What is permitted or authorized by the contract?

Sydney City Council v West:

Facts:

← There was a car-parking contract. The council sought to exclude themselves of any responsibility for damage. When West had parked his car, he received a ticket which he had to produce to get out of the carpark. A thief created a duplicate ticket, pretended to be West and drove off with his car. West gave the car to the SCC, and they should have given it back in the same condition he had left it - But instead, they sought to rely on their ticket.

Ratio:

← The SCC acted negligently, and this was not performance of the contract. The HCA said that the clause did not protect the SCC when their actions were not authorized or permitted by the contract. They had deviated too far from the contract. The court construed the terms to favour West.

3 What is within the four corners of the contract?

TNT v May & Baker HCA

Facts:

← Contract for the carriage of goods by land. The carrier company was to collect the goods, take them to the depot where they would then be sent. The carrier had accepted responsibility for most things, but the owner retained responsibility for fire damage. The goods were picked up, but the driver took them home overnight. Overnight, his garage caught on fire, and the carrier sought to rely on their exclusion term.

Ratio:

← HCA said no, the storage of goods in that place was not contemplated, and therefore not covered by the contract. It was outside the 4 corners.

4 The Securior Cases

Photo Production Ltd v Securior (HofL) – 1980

▪ Very important.

Facts:

▪ A security guard lit a fire that burnt down the factory

▪ ‘no liability for any injurious act unless it could have been foreseen and avoided by the due diligence of the employer’

▪ PP failed at trail but succeeded at CA

Ratio:

← H of L- No commercial parties. They deliberately decided to apportion risks as they like and the court gives effect where those parties have done so on equal terms. In this case, there were clear terms, covering the actions of the employee, in the contract. The party responsible for the fire was successfully exempted.

- Lord Diplock – The words were clear regardless of the unfair results, that is what they agreed.

▪ There is no principle of law that a fundamental breach of contract will automatically nullify the effect of an exemption clause.

▪ Clause was clear and unambiguous – intended to cover the negligence of the employee

Ails Craig Fishing Co v Securior

Facts:

← Securior representative looking after a dock of boats on New Year’s Eve. The contract had a clause that limited liability if damage was caused. The tide rose during the night, and a boat got damaged.

Ratio:

← H of L – Exclusion clause, clear, unambiguous and cover what happened in this case. Therefore, the Securior company were excluded again.

Main purpose of contract – identify and allocate risk

3 Australian Views

Darlington Futures v Delco Australia – 1986

Facts:

← These people were very optimistic about making money. A brokerage and a client had a contract with 2 significant clauses. Delco was a futures market, seeking to limit its tax. Over the course of 25 unauthorized transactions, Delco lost $280,000. Darlington admitted that they had breached the clause when they had claimed tax. The clause had said that they were not responsible for any loss – whether authorized or not. Darlington still relied on clause.

Ratio:

← HCA said the contract governed liability in the case of authorized trading, not unauthorized. The clause had excluded responsibility for any loss – authorized or not. The court did not accept this clause, and as the act was unauthorized, they held the clause irrelevant.

← There was, however, a 2nd clause that said if they were liable, then the damages were limited. They successfully relied on this clause, and only had to pay $2500.

← Necessary to look at contract as a whole

← The court didn’t accept the English distinction between exemption and limitation – they held it to be all the same.

4 Statutory Regimes

• TPA There is not different treatment of exclusion (s.68) and modification (s.68A) terms under the TPA.

• Contracts Review Act (NSW)

• The Fair Trading Acts: Freed from need to protect consumers. Courts now concentrate on what parties have objectively agreed to. Lost a lot of heat since consumer protection.

5 Exclusion clauses and privity

• Where relevant, this is used a restrictive technique of interpretation. Courts use privity doctrine strictly.

• As the need for judicial techniques eased, courts recognized greater freedom of contract in commercial transactions (Stevedoring cases, who are we insuring?)

The turning point is Lord Reid in Midland Silicones v Scrutton – A Stevedoring case in the H of L.

Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (1978) 139 CLR 321

• Similar to New Zealand v Satterwaite.

• The court affirmed its decision, and also stated that the relationship between the carrier and the stevedore was relevant in deciding if the stevedore was covered by the “Himalaya Clause”.

• The effect of the dual consideration was to make the Stevedores a party to the contract such that they could rely on the exemption clause of liability

---------------------------------------------------------------------------------------------------------------------------------

▪ In Stevedoring cases, certain specific problems arose. Firstly, contractual insurance was no longer simply for the voyage of ship’s rail to ship’s rail. It now had to include the delivery and pick-up of the goods also, and the labor force involved in the processes. The owner of the goods had to set certain rules for all parties to a transaction, whether a party or not. This was causing severe problems in privity.

▪ The turning point in Lord Reid in Midland Silicones v Scrutton – A stevedoring case in the H of L.

Midland Silicones v Scrutton

The Himalaya Clause

Lord Reid specified that an effective clause to avoid restrictive nature of privity must

• Reflect the intent of the parties

• Include the stevedore through agency

• Provide for ratification of the carrier’s act

• Stipulate consideration for the promise of immunity

New Zealand Shipping Co. v Satthervaite & Co. Ltd [1975] AC 154 (Privy Council)

• The stevedore who damaged the goods could rely on the time limitation provisions in the bill of lading

• Because he was a party to the transaction made by his agent

• Because he had given consideration for the promises in the contract by unloading the cargo

Celthene P/L v WKJ Hauliers

The principle was extended to a contract of carriage of goods by road. The Himalaya clause worked as Lord Reid had indicated that it should.

Problems of Construction

1 Canons of Construction

1 Objective interpretation of contracts:

The state of mind is a matter to be inferred by admissible evidence as to words and acts

• Oral / partly oral, partly writing Contracts – interpretation a question of fact (jury)

• Written Contracts – Interpretation a matter of law (judge)

2 When the meaning is unclear?

• The court can look at the conduct of the parties prior to the contract. There is doubt about whether they can look at the subsequent conduct, though. This is a hot issue. In the USA, they look at the performance of the contract (i.e. subsequent conduct) to ascertain unclear meanings. In other jurisdictions, like the UK, they do not. In Australia, it is more uncertain. During the 1940’s, we were guided by subsequent conduct. In the 1970’s, however, the courts said no, it was orthodoxy and didn’t help in interpretation. The current HCA position is unclear.

• A subsequent admission against interest can be used as evidence, therefore do not say what you meant because it can be held against you. An agreement in negotiations that a certain meaning will not apply or something is excluded is also allowed in evidence.

3 Inferring the Parties intention:

• Parties are presumed to have intended what they have said

• Terms are interpreted in their plain and ordinary popular sense, unless something in the document shows another sense was intended – Life Insurance v Phillips

• If the parties intention is clear, the court can reject superfluous or repugnant words and add others to give effect

• Terms that can be reasonable or unreasonable, lawful or unlawful, are presumed to have their reasonable or lawful meaning. – ABC v Australasian Performing Rights Association

• When constructing any particular word or phrase, one must look at its context in the whole contract, and the nature of the document / transaction – R v Aird

• Construction of the contract will vary according to the context in which the contract was made – Butt v Long

• The ejusdim generis rule applies so that general words following a list of specific words will be read down to that class, but this is not as strong in contracts as in statutes – Upper Hunter v Australian Chilling and Freezing

• If it is clear that the contract had a meaning to the parties, but that meaning was not clear, the court may call for extrinsic evidence – Schuler AG v Wickam Machine Tool Sales

Commercial v Consumer

Courts are much less interventionist where the parties are evenly matched in their contractual relationships. If all else fails, the courts will employ contra proferentem (construe it against the drafter).

Does the contract have to be in English?

Normally is, but if there is not, then the parties normally agree to a translation.

2 Indefiniteness

White v Bluett

Facts:

← A father promises money to his son if he does not bore him by asking him for more money.

Ratio:

← The court found that there was insufficient content in this contract. There was a problem of consideration, enforceability and of a breach of contract.

Raffles v Wichelhaus

Facts:

← A contract for the sale of cotton aboard the ship called the ‘Peerless Bombay’. There were however at least 2 ships of that name, and both parties evidently thought that they meant the other one.

Ratio:

← The court held that there was no contract. There was an indefiniteness that simply couldn’t be resolved.

ANZ v Frost Holdings

2 Devices to reduce uncertainty

Cavallari v Premier Refrigeration

Facts:

← There was a statement in the agreement that said “I require a period of not less than six months to make other arrangements”. Was this an agreement to agree in six months? Or maybe it was an expectation of six months? A reasonable time, but not less than six months?

Ratio:

← If a court can find any meaning, the contract is OK and the court will apply their meaning. They will do this even if the parties are surprised at what they meant. In this case, the court held that the contract meant a reasonable time, but not less than six months.

← Multiple meanings do not make the contract invalid

3 Incompleteness

1 Construction and Certainty

Now goes wider to include implied terms. Must ask whether the terms are too vague and uncertain to enforce a bargain.

• For courts to infer bargain, they must ascertain whether the dealings amount to consideration, and are therefore enforceable.

• For courts to enforce, they must derive exactly what the agreement was (an agreement to agree is not enforceable)

2 The importance of intent

What if essential terms are missing? – The court must look to the intention of the parties.

If the parties have a belief that there is an agreement, and have begun to perform what they believe to be their obligations under that contract, the court will begin to accept the existence of a contract – but such action is by no means conclusive.

Butler v Ex Cello Corporation

Facts:

← After a series of negotiations between the parties, it still wasn’t clear on what basis the price had been agreed, no one had looked at the terms and conditions – court was compelled to make a decision.

Ratio:

← Court said that the terms of the offer were contained in the last form submitted will govern the transaction. Each new form is a counter offer destroying the previous offer.

3 How to Fill the Gaps

Arbitration

Parties hand over their right to determine to an independent third party.

Sykes v Fine Fair

Facts:

← Contract to breed chickens with specifications for only the first year – after that was unclear.

Ratio:

← The court directed the parties to make use of the arbitration clause, appointing a third party to determine the situation

who to consult first – arbitrator or each other

Booker Industries v Wilson Parking

Facts:

← Concerns the option to renew a lease. It was said that the rent would be agreed or submitted to the president of QLS. The parties couldn’t agree on rent, and they didn’t consult the arbitrator.

Ratio:

← The court was hesitant to appoint the arbitrator right away, so they made a judgement based on business efficacy and an implied term that the parties must co operate, directing the parties to first consult each other and then the arbitrator.

saved by a clause!

Hawthorn Football Club v Harding

Harding’s pay for three years with the club was to be decided between the parties, if not an independent arbitrator would be appointed. The court said that this clause saved the contract from falling to the grounds

of vagueness and uncertainty. Demonstrates the importance of such clauses

Severance

A court may sever a clause which is void, meaningless or illegal as a matter of syntax and preserve the rest. Providing:

• No part of the promise seeking enforcement is illegal

• The promises that are to be served are separate and independent

• The substantial character of the contract is not altered by the severance

Uncertainty

Brew v Witlock

Facts:

← Contract with two dimensions: the sale of land and the leased back of the same land “upon such reasonable terms as comely govern such a lease”. The parties couldn’t agree, nor could they find a common feeling. Could the court sever the lease for being too uncertain and preserve the sale?

Ratio:

← The court said no – to do that would not serve the original aim of the parties, so both aspects of the contract failed.

Illegality

Makes severance much more difficult.

Carney v Herbert

Facts:

← A single transaction involved three contracts: a sale, a guarantee and a mortgage. The mortgage was illegal.

Ratio:

← The court said that the main thing was the sale – they can just sever the illegal mortgage. – Opposite to Brew v Whitlock

Brown v Fazal Deen

Facts:

← The government had just made private ownership of gold illegal. Transaction contained two separate obligations, one relating to ownership of gold, the other to precious stones (only terms relating to precious stones were legal)

Ratio:

← The court was able to sever and preserve the contract regarding the precious stones, but not the gold.

4 Open Terms

Gaps in the contract.

Price

• Goods - If no price is set, the parties may agree or pay a reasonable price – s. 11 Sale of Goods Act (If international transaction, absence of price is fatal

• Land – If not price, or formula for determining the price is set, it is a fatal flaw – Hall v Busst

Quantity

Some states have legislation, or model contracts

Kier v Whitehead

If the buyer doesn’t have any special requirements, there is no point to the transaction. “Buyer’s total requirements up to eight tons”

Time

Electronic Industries v David Jones Ltd

Facts:

← Contract to demonstrate TV in David Jones in 1949. At this time in Australia, there were many strikes, leading to a breakdown in the transport system, and very few customers. David Jones kept putting it off and off, saying that it was okay to put it off, because no time had been set.

Ratio:

← The court said that they must allow them to come into the store within a reasonable time.

Termination by Performance or Agreement

1 Performance

Once parties have strictly performed their obligations at common law, the contract is discharged.

• The Sale of Goods Act spells out guidelines in s 3(1) as to the standards of performance required for the obligations to be fulfilled.

• Parties may describe the obligations themselves if they wish, but the obligation must be performed exactly, otherwise the contract hasn’t be performed and cannot be discharged (this is why description and exclusion clauses are so important

• The parties may insert hardship, or force majeure clauses, which direct that if a hardship occurs, the parties have an opportunity to renegotiate.

• Parties may also have to qualify their promises (instead of saying “I will. . .”, say “I will try my hardest to . . .”)

2 Exceptions to performance

a. Severable contracts

b. The de minimis rule

c. Substantial performance

d. Acceptance of partial performance; and

e. Obstruction of performance

3 Discharge by performance

1. The order of performance

2. Time for performance

3. Requirements for discharge by performance

▪ Entire contracts doctrine and

▪ 3 ways of arguing around entire contracts doctrine

1 Order of performance

← No general rule – depends on interpretation of the contract, practice in the trade etc.

← Where dependant on the other to perform, a tender of performance is sufficient

Automatic Fire Sprinklers v Watson (1946) 72 CLR 435

Facts:

▪ Watson employed as manager - Wrongfully dismissed - Continued to present for work every day - Claimed a years salary

Held:

▪ Consideration for the pay was the work actually done - No doctrine of ‘constructive work’ - Could sue for pay up to dismissal - And damages or quantum meruit.

2 Time for performance

← Common law – time was presumed to be of the essence

← Equity – time was presumed not to be of the essence

← Now Property Law Act 1974 (Qld) s 62

← Three exceptions

• Express agreement

• Implied agreement

• Notice to perform within a reasonably state time, and notice that will rescind.

Bunge Corp v Tradax [1981] 1 WLR 711

• Seller agreed to deliver 3 loads of 5000 tons of soya beans – May, June, July

• Buyers to give 15 days notice when ship ready, and sellers to nominate port

• Notice given 17 June – not enough days

• Seller purported to terminate, resold soya beans at a loss and claimed £317,000

• Argued time clause was not a condition – must expressly make time of the essence

• Held: It was impliedly a condition

Louinder v Leis (1982) 149 CLR 509

▪ Buyer to tender transfer form within 28 days

▪ 3 months later, seller served notice to complete the purchase within 21 days

▪ 24 days later seller purported to terminate

▪ Held: (obiter):

- Non-essential time clause

- Non-compliance was a breach and plaintiff could claim damages

- To terminate, must prove repudiation, or fundamental breach or failure to comply with a valid notice.

3 Requirements for discharge

← Complete performance by both parties discharges the contract

← What is complete performance?

← If there isn’t complete performance, can you claim for part performance?

- Cases distinguish between ‘entire’ and ‘divisible’ contracts

4 Potential for unjust enrichment

← If the contract is ‘entire’, can’t claim for part performance

← Ensuing unjust enrichment can be circumvented in 3 ways:

1. 1. Doctrine of substantial performance

2. 2. Arguing the contract is divisible

3. Claiming quantum meruit (injust enrichment)

1 Entire contracts

← Contract is entire where:

▪ Obligation depends on complete performance by other

▪ Or agreement to pay lump sum with no provision for part performance

← Performance must be complete & exact

← Known as the rule in Cutter v Powell

Cutter v Powell (1795) 101 ER 573

Facts:

▪ Cutter signed on as second mate on a ship ‘Governor Parry’ sailing from Jamaica. The contract stipulated that he was to be paid 30 guineas ‘provided he proceeds, continues and does his duty…to the port of Liverpool’. About three quarters of the way through the voyage Cuter died. His wife sued for a proportionate share of his wages on a quantum meruit

Held:

▪ Her action failed. Cutter’s contract was ‘entire’, meaning that he had to serve out the full voyage before he became entitled to any part of the 30 guineas. As he had not completed the voyage he had not performed as required and, consequently, was not entitled to any payment at all.

AN INTERESTING APPLICATION

Corio Guarantee v McCallum [1956] VLR 755

Facts:

▪ McCallum employed as GM from 1948-53

▪ Overpaid himself since 1951

▪ Corio sued for non-performance of entire contract

- ie return of all wages

- Was successful!

2 Substantial performance

← Prima facie – Cutter v Powell applies to all contracts

← Common method of avoiding strictness of entire contracts rule is to argue the contract was not intended to be entire

- Look at objective intention of parties to see whether they intended that substantial performance would be acceptable

Hoenig v Isaacs [1952] 2 All ER 176

Facts:

▪ The plaintiff was engaged to redecorate and furnish the defendant’s flat for £750 to be paid ‘as the work proceeds, and balance on completion’. Only £400 was actually paid. The defendant refused to pay the balance on the grounds that the work had been poorly done and required rectification. When sued, he argued that the contract was entire, that it had not been performed as agreed and that, therefore, the plaintiff could not recover.

Held:

▪ Contract was not entire

▪ Breach go to root of contract or be serious before disentitling plaintiff from a remedy

▪ Breach did not go to root and not serious – ie there was substantial performance

▪ Entitled to payment less cost of defects

CONFUSION REIGNS

Bolton v Mahadeva [1972] 1 WLR 1009

Facts:

▪ Bolton agreed to install a central heating system in Mahadeva’s home for £560. When the work was complete, Mahadeva refused to pay because the system gave out offensive fumes and did not heat the house properly. Remedial work could be performed but it would cost £174.50

Held:

▪ Not substantial performance in any event, so did not recover the contract price

▪ Whole purpose of the contract was a workable heating system

Worrying Comments:

▪ Contract was entire, but substantial performance would have been sufficient

- Doesn’t make sense - contradictory

▪ It was a condition which was breached, but they went on to look at seriousness of breach.

- If a contract is breached the whole point is to be able to terminate it. As soon as look at seriousness, should he be looking at inomerate terms

3 Substantial performance divisible

← Another argument is that the contract is not entire, but divisible

← If divisible, can sue for part only.

Property Law Act 1974 (Qld) s 231-2

- ‘rents, annuities, dividends, periodical payments in the nature of income…’

Does substantial performance apply to each divisible party?

Steele v Tardiani (1946) 72 CLR 386

▪ Italian interns worked for Steele

▪ Employed to cut firewood to 6” diameter

▪ Payment rate was 6s per ton

▪ T cut wood in diameters ranging from 6” to 15”

▪ Divisible contract into each ton (not entire)

▪ Doctrine of substantial performance applies to each ton

▪ Quantum meruit could not apply to everything cut (as it might be necessary for Steele to get someone else to fix up the work done, but it could apply to any wood sold.

4 Refusal of Tender of Performance

Startupv Macdonald

Facts:

▪ The P contracted to sell to the D ten tons of oil to be delivered ‘within the last 14 days of March. He finally attempted delivery, which the defendant refused because of the lateness of the hour, at 8:30pm on Saturday, 31 March. P sued

Held:

▪ The D was liable in damages for non-acceptance. The tender had been valid and within the time provided for. Consequently, the P was under no further obligation to attempt delivery (which could not have occurred within the agreed time anyway) and could immediately sue for damages. His attempted delivery was equivalent in law to actual delivery.

5 Where Tender would be futile

Mahoney v Lindsay

Facts:

▪ M agreed to sell L 2 parcels of land and the goodwill of a business. M subsequently made it clear that he wanted to get out of the contracts and that he would not complete. L sued for specific performance. M argued that L had never tendered the purchase price, had not therefore done what was required of him and, accordingly was not entitled to specific performance.

Held:

▪ Specific performance was ordered. In the circumstances it would have been unreasonable to demand actual tender of payment. It was clear that such tender would have been rejected and, accordingly, that it would have been pointless. Gibbs J: ‘if one party to a contract prevents the other from fulfilling a condition of the contract, that is equivalent to performance by the latter.’

6 ‘Quantum meruit’

← Quantum meruit – claim that other is unjustly enriched

Sumpter v Hedges (1898) 1 QB 673

Facts:

▪ S agreed to build a house & stable for £560

▪ Stopped after building walls

▪ Sued for reasonable sum for work done

Held:

▪ Unjust enrichment only claimable if H accepted the benefit of the work done

▪ Here H had no option to accept or reject

▪ But H had to pay for the bricks used

Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 321

Facts:

▪ Mrs Paul asked P&M to carry out some building work

▪ Oral agreement

▪ Work done

▪ Refused to pay as not in writing (Act said it needed to be in writing)

Held:

▪ The contract was unenforceable but P& M could still recover reasonable remuneration as a quantum meruit

▪ Mrs Paul had taken the benefit of P&M’s work and she had to pay a reasonable price for it.

▪ Otherwise she would be unjustly enriched at their expense.

Sale of Goods Act 1896 (Qld) s 32

▪ If seller delivers less than ordered, and buyer accepts, must pay at contract rate.

7 Discharge by agreement

← Parties can agree

- To vary some terms of a contract

- To discharge a contract without replacing it

- To replace a contract with another contract

← Consideration is required if not under seal

← Evidence of oral discharge / variation of written contract does not breach parole evidence rule

8 Without consideration

← If no consideration, may still be effective under waiver or promissory estoppel.

PROMISSORY ESTOPPEL

Waltons Stores (Interstate) Ltd v Maher (1987-1988) 164 CLR 387

Facts:

← The Mahers owned commercial premises in Nowra which they proposed to replace with new premises which Waltons were to lease. Negotiations proceeded and Waltons solicitors sent the Mahers’ solicitors a draft agreement specifying that the new premises were to be ready for fitting out by 15 Jan 1984. On 7 Nov the Mahers’ solicitor spoke to Waltons’ solicitor pointing out that final agreement would have to be reached ‘in the next day or two otherwise it will be impossible for Maher to complete’ the rebuilding in time. Waltons’ solicitor then forwarded a fresh set of documents incorporating a number of amendments. The covering letter stated that, whilst he had no formal instructions from Waltons, he believed that Waltons’ approval would be forthcoming and that he would advise the following day if Waltons did not agree to any of the amendments. Four days later the Mahers’ solicitor, having heard nothing further, returned the documents duly signed ‘by way of exchange’, indicating that the Mahers’ thought they had a contract. The Mahers then proceeded with the demolition and rebuilding work, a fact made known to Waltons by its Nowra manager. In the meantime Waltons, which was reviewing its country operations, told its solicitors to ‘go slow’ on the Maher contract. Eventually on 18th January, 1984, Waltons had its solicitor notify the Mahers that it was pulling out of the transaction. As the building work was then well advanced, the Mahers sued for specific performance.

Held:

← Waltons were liable. Even though no contract had ever been formally concluded, the High Court held that Waltons was bound and could not deny the existence of a binding agreement. The essence of a decision was an acceptance of the doctrine of promissory estoppel. By remaining silent when it knew that the Mahers were acting on the assumption that they had a concluded contract, Waltons had clearly induced them to continue acting on that basis. That being the case ‘it was unconscionable for [Waltons] knowing that the [Mahers] were exposing themselves to detriment by acting on…a false assumption, to adopt a course of inaction which encouraged [the Mahers] in the course they had adopted’: at 407-408 per Mason CJ and Wilson J. Their honours went on in the same passage to say: ‘To express the point in the language of promissory estoppel the appellant is estopped…from retreating from its implied promise to complete the contract’

Craine v Colonial Mutual Fire Insurance (1920) 28 CLR 305

9 WAIVER

May be withdrawn upon reasonable notice

Charles Rickards Ltd v Oppenhaim (1950) 1 KB 616 (CA)

Facts:

▪ Oppenhaim engaged Rickards to construct a Rolls Royce car body. The work which was to be finished by March was not completed on time. Oppenhaim continued to press for delivery thereby impliedly waiving the condition regarding delivery date. Eventually in June, he wrote demanding delivery by late July indicating that, otherwise, he would not accept the body at all. Delivery was finally made in October. Oppenhaim refused to accept it. Rickards sued.

Held:

▪ Rickards failed. Even though Oppenhaim had originally waived his right to reject the body for non-delivery, he had revived that right by his June letter giving Rickards reasonable notice that delivery was to be made no later than 25 July. By failing to deliver until October, Rickards was in breach entitling Oppenhaim to refuse delivery.

The party voluntarily waiving strict performance will be required to honour that waiver at least unless and until the other party receives adequate notice of any change of heart.

Hartley v Hymans

Facts:

• The plaintiff agreed to sell the defendant 11,000lb of cotton yarn with delivery between early September and 15 November. Despite this, he made no deliveries until 29 November and they were of smaller quantities than the contract required. The defendant wrote repeatedly requesting deliveries and reminding the plaintiff that, because of his failure to perform, the contract could be cancelled – but he continued to accept late deliveries. Finally, in March the following year, when the plaintiff was ready to deliver the balance of the order, the defendant, without making any final demand or giving any other warning, refused to accept further deliveries of yarn.

Held:

• He succeeded. By not terminating the contract on 15 November and by accepting deliveries thereafter the defendant had waived his right to insist on delivery within the agreed timeframe. Therefore, he could not terminate the contract without giving the plaintiff notice requiring delivery within a reasonable period.

If one party seeks a waiver from the other, he or she cannot subsequently disregard it and demand that the contract be performed in accordance with its originally agreed (pre-waiver) terms

Levey & Co v Goldberg

Facts:

▪ The defendant agreed to buy a quantity of cloth from the plaintiffs, with delivery to be within a stipulated time. He then asked the plaintiffs to delay delivery. The plaintiffs agreed, but not in writing. After the original date for delivery had passed but before delivery took place, the defendant repudiated the contract on the basis that the plaintiffs had failed to deliver as originally agreed (the alleged ‘variation’ being invalid for want of writing).

Held:

▪ The plaintiff’s agreement was not an invalid and ineffective variation, merely a waiver of their right to deliver at the originally agreed time. The defendant, was therefore bound to accept delivery and was liable for his failure to do so.

5 Contingent Conditions

CONDITION PRECEDENT

Perri v Coolangatta Investments

Facts:

← Contract for the sale of land without the inclusion of a date of completion – subject to the contingent condition of the purchasers selling their own property. The sale of the purchaser’s property took ages, but the buyers were bound to the purchaser subject to that contingent condition.

Ratio:

← The court included an implied term that the purchaser must do everything in their power to sell the property. The selling of the property was condition precedent to the obligation to settle, so until it was sold, they couldn’t demand settlement. BUT if it didn’t take place within a reasonable time, either party could bring the contract to an end by giving reasonable notice (provided they weren’t in breach).

CONDITION SUBSEQUENT

Head v Tatteersall

Facts:

▪ Head bought a horse from Tattersall. The contract warranted that the horse had hunted with the Bicester and Duke of Grafton’s hounds and expressly provided that if this were not the case, the horse could be returned. The horse had never hunted as warranted. Head discovered this, returned it within the time allowed and demanded return of the price.

Held:

▪ Head was entitled to his money. Although a valid contract of sale had arisen, it was subject to a condition subsequent that if the warranty proved to be untrue and the horse was returned by the specified date, the contract would terminate and the price would be returned.

6 Good Faith Performance

There is no compelling decision at High Court level on whether performance must be strict, or infused with a good faith obligation (Mary thinks its moving towards the idea that not only must you comply with the contract, you must act in good faith, too)

Cth v Aman Aviation

Facts:

← The Commonwealth had contractual power to terminate the contract with notice. They told Amman that as soon as the contract came into operation, they were going to terminate.

Ratio:

← The Court said – BAD FAITH!, as the commonwealth had no grounds for termination (just that they didn’t like Amman was not enough). This was not, however, the basis of the decision, as the commonwealth were in breach anyway.

Hughes Aircraft Systems v Air services

Recommended that the legal system should move towards good faith (extensive discussion)

7 Ready, Willing and Able

There is a mutuality of contract requirement saying that a non performing party cannot expect the other party to perform, but the exception is if they are ready, willing and able, but prevented from performance. In that case, they can demand performance. The same applies with partial performance.

Cutter v Powell

Facts:

← A master and seaman were on a voyage, and the sailor died.

Ratio:

← The court said his estate was not entitled to his pay from the voyage, because he didn’t complete it. This happened because the contract was entire (now, contracts are usually broken into components – allowed in s. 38 of the Sale of Goods Act)

8 The De Minimis Rule

A party who falls slightly short of perfection will not be affected by the shortfall

Shipton, Anderson & Co v Weil Bros & Co

Facts:

▪ The parties had entered into a contract for the sale and purchase of a cargo of wheat. The vendors were to supply ‘4500 tons, 2 % more or less’ and were permitted to tender an additional 8% if they so wished – giving an allowable maximum of 4,950 tons. The wheat actually delivered weighed 4,950 tons 55 pounds and, although the vendors only charged for 4,950 tons, the purchasers, refused to accept I on the grounds that the vendor’s performance was not exact.

Held:

▪ The purchasers could not refuse delivery. The difference in weight was so trivial as to be insignificant when taken against the consignment as a whole. Consequently, the de minimis rule applied to override the vendor’s failure to render exact performance.

9 Partial Performance

If it is the defendant who has prevented the completion of the contract, the plaintiff can sue on quantum meruit (unjust enrichment) to recover a fair amount for the work done.

Planche v Colburn

Facts:

← A journalist was contracted to write a story, and after he had done a significant portion, the publisher cancelled.

Ratio:

← He was entitled to recover a reasonable sum for the work he had done.

Steele v Tardiani

Facts:

← During WWII, Italians were interned by the government as an involuntary labour force. They were made to chop down trees on a farm, and were paid a small amount. The farmer promised to pay them extra if they chopped the tress into a certain length. Once the job was completed, he refused to pay them because the dimensions were out.

Ratio:

← The High Court said that he took the benefit, so he had to pay a reasonable price. There was voluntary acceptance, as he had stood and watched them chop the wood, hence constituting a waiver of the requirement for the measurements to be exact (his conduct waived the requirement of strict performance)

10 Rules relating to performance:

1 Tender

• Unless you have performed the contract, you can’t enforce it, but if you tender and it's rejected, you need not keep coming back – just sue. – Startup v McDonald

• BUT – the tender of money does not immediately discharge the contract

• Once you are prepared to pay, you don’t owe any further interest, but still owe that principle, plus interest up to that point. You are also entitled to refuse a tender all in 5cent coins, and are under no obligation to give change.

2 Time

• Common Law – Time is of the essence

- Must be stated in the contract – only in those that it is, will failure to complete on time permit termination.

• Equity – time is not of the essence, unless the parties have expressly or impliedly said so in the contract

• Today - The breach of a major time requirement is not usually a major breach (doesn’t lead to repudiation)

time is of the essence

Lounder v Leis – High Court

Contract for the sale of land – transfer should be completed within 28days, but there was no indication as to when that period began. The contract was made in December, and notice was given in February that from the date on the letter, they had 28 days to deliver.

The High Court was split 4:3 on the stages in which the process should be executed. In this case, the proper procedure had been followed – an unreasonable time delay is a minor breach. If the other party wants to terminate, they should give notice warning that if performance is not delivered within a specific time, the contract will be terminated (effectively, making time of the essence), and then if there is still no performance, they are entitled to terminate.

Stern v McAurthur

Even if time after notice does elapse, the party is not entitled to termination if they acted unconscionably

Legione v Hately

Facts:

← Contract for the sale of land. The deposit had been paid, and the principle was to be paid back at the end of three years. The purchaser built a house on the land, then had trouble getting money together. The seller gave him fourteen days. The purchaser got the money together, and told the secretary at the seller’s firm that he needed a few more days to sort out formalities. She said that was okay.

Ratio:

← The High Court said that that was not an appropriate form of estoppel, because it wasn’t reasonable for the purchaser to rely on her word. BUT the case was sent back to re-trial, and the matter settled, so we will never really know the answer.

Time will be of the essence when –

The parties expressly agree

A party is guilty of an unreasonable delay (Lounder v Leis)

If it is unconscionable to rely on legal rights (Stern v McAurthur)

There has been a waiver or estoppel of this right (Legione v Hately)

Termination by Agreement (LN)

Circumstances where one can terminate:

A continuing contract of indefinite duration (Barro Group v Fraser):

Unilaterally by reasonable notice

By tacit mutual agreement (DTR v Moner Homes)

All contracts:

Agreement following a contractual term (Aman Aviation)

An Agreement subsequent to a contract

DTR v Moner Homes

Facts:

← Contract died out of boredom. Contract for the sale of land. One party wanted it subdivided, the other didn’t. Each party thought that the other was in breach.

Ratio:

← Since neither had an interest in following it up anymore, the court implied a tacit termination, and both parties walked a way

Aman Aviation

Ratio:

← Their contract included a termination clause that would have been valid, had the commonwealth acted in good faith and followed the correct procedure.

2 Contract- Based Termination

1 Types:

• An expressed power to terminate on the happening of certain events (Shevilled v Builder’s Licencing Board)

• The non-fulfillment of a contingent condition has been made grounds for termination (Perri v Coolangatta Investements)

Shevilled v Builder’s Licencing Board

Facts:

← Land Lease – the landlord had the right to enter if rent had not been paid for fourteen days, and he could also sue for loss of contract.

Ratio:

← The court said that it was unlawful, as it was the landlord’s decision to terminate. The court held that the seeking of damages must come from the breach – in this case, it didn’t.

Perri v Coolangatta Investments

Ratio:

← The seller was able to terminate after giving notice of a reasonable time to fulfil the contingent condition.

In these cases, the contracts continue until they are terminated – The courts dislike self-destructive contracts. They prefer human intervention – decided in Suther v Gundana

Circumstances render the contract voidable – in order to make it void that parties must give notice.

2 When can you terminate?

Termination by agreement always requires consideration, i.e.:

• Bilaterally (each party is surrendering something)

• If both sides have outstanding obligations, mutuality = consideration

• Unilaterally (one party has completely performed)

• One party has fully performed its side, and discharges the other party from performance – there must be consideration for the discharge

3 There are two devices to enforce promises in the absence of consideration:

• Doctrine of Waiver

• Doctrine of Estoppel

Waiver:

▪ If you say that you will accept less than full performance, you cannot go back to your original. In some cases, you can if you give notice.

▪ In this situation, the party had an equitable legal defence to an action on the original contract, but in order for there to be an effective legal variation on the contract, there must be consideration and satisfaction of the formal requirements.

Central London Property Trust v Hightrees

Ratio:

← A person who unilaterally discharges a contract may be estopped from calling for performance even without consideration

Cth v Verwayen

Facts:

← Collision of the Melbourne Voyager (a ship). Many sailors were killed. It was accepted that the commonwealth was under a duty of care, and the royal commissioner admitted negligence, but the commonwealth wanted to settle with every party individually.

Ratio:

← Discussed waiver and estoppel. The High Court was divided:

• You can have waiver without unconsionability

• You can’t have estoppel without unconsionability

The Court dissented on the proportionality of the defence. They said that the critical issue in estoppel was the proportionality of the response of the court and the conduct of the commonwealth. Concluded that on either ground (estoppel or waiver), the commonwealth had acted so badly that they were unable to rely on their legal rights.

• Dawson J said that waiver is obsolete – all may now be delt with under estoppel

• McHugh & Brennen JJ said that estoppel refers to actions in the future, unlike waiver.

Termination by Breach / Repudiation

Every failure to perform strictly in accordance with the contract is a breach, and every breach gives rise to a claim for damages. Breach of an essential term will give rise to termination as well as damages.

1 Topics

1. Breach and termination for failure to perform

2. Repudiation (includes anticipatory breach)

4. Nature and effect of termination for breach

2 The Breach

A breach may occur in three ways:

• A failure to perform strictly according to the contract

• An expressed repudiation of the contract by one party

• One party disables itself from performing

3 Consequences of discharge

• If the contract is executory, it is discharged – but only for the future. What is done remains valid, but neither party is obliged to fulfil their future obligations.

• If the contract is fully performed, the innocent party may only claim damages.

McDonald v Dennys Lascelles

• In the case of deposits, it depends on the condition upon which it is paid as to whether it can be recovered after repudiation

• If the deposit is given on the condition that certain requirements will be fulfilled – entitled to it back

• If the deposit is given as a token of good faith – the money is forfeited

The innocent party:

• Need not restore any benefit incurred prior to the breach unless a contrary intention appears in the contract (McDonald v Dennys Lascelles)

• If the contract is entire and unperformed, they may sue on the basis of quantum meruit Planche v Colburn

• There may also be quasi contractual remedies available (a range of possibilities relying on the extent of the loss.)

4 Breach by failure to perform

← Firstly need to ascertain and interpret terms of contract

← Note there is ‘strict liability’ for breach

← If breached, right to terminate depends on

- Important of promise, ie whether a condition

- Or where can’t decide at outset whether the promise is important enough, depends on seriousness of the breach, ie innominate term

← Note attempt to link language of breach with language of performance

1 Matching the concepts

|INNOCENT PARTY |BREACHING PARTY |

|Language of Breach: |Language of performance: |

|Breach of condition |Entire contract and failed to perform exactly |

|Breach of innom term with serious consequences |Not entire, ie substantial performance, acceptable but failed to |

| |perform substantially |

|Breach of innom term with less serious consequences |Not entire, ie substantial performance acceptable, and performed |

| |substantially |

2 When can one terminate?

Tramways Advertising v Luna Park

Facts:

▪ TA to advertise on 53 trams – 8hrs per day

▪ Luna Park not satisfied and terminated

▪ TA kept advertising and sued for contract price

▪ LP cross-claimed for damages for breach

Held:

▪ 8 hrs per day was a condition

▪ Even if innominate term, serious consequences

▪ LP had a right to terminate

▪ TA’s claim for contract price failed

3 Innominate terms

← Gradual acceptance of the principle

Hongkong Fir Shipping v Kawasaki Kisen Kaisha

▪ HL applying innominate term principle

Cehave NV v Bremer Handelsgesellschaft mbH

▪ CA applying at to sales of goods despite Sale of Goods Act 1893 (UK) recognising only conditions and warranties

Ankar Pty Ltd v National Westminster Finance

▪ HC approval of doctrine

LIMIT OF INNOMINATE TERMS

Recall Bunge Corp v Tradex

▪ Late notice – seller purported to terminate, resold soya beans and claimed £317,000 loss]

▪ Argued time clause was at best innom ter, and

▪ Right to terminate arises only if breach deprives innocent party of substantial benefit of the contract

Held: - that seriousness of breach test does not override initial classification as a condition

5 Repudiation

← Rejection of contract by refusal to perform obligations

← Can be

- After performance is due – breach

- Before performance is due – anticipatory breach

← Frost v Knight (1872) LR 7 Ex 111 ( Recognised anticipatory breach for policy reasons

- Give more certainty and

- Assists in mitigation

1 Anticipatory breach

← May be express or implied from the facts

Universal Cargo Carriers v Citati

Facts:

▪ UCC chartered ship to C

▪ C did not have his cargo ready to load

▪ UCC waited 6 days – contract said would be loaded within 9 days

▪ Impossible to load in 3 days

▪ UCC re-chartered to someone else for less and sued for damages

▪ Has the repudiating party acted in such a way as to lead a reasonable person (obj test) in the other’s shoes to believe that he does not have a contract or the substantial benefit of performance?

When faced with an anticipatory breach, the innocent party is faced with two choices:

• Accept repudiation as discharging the contract

OR

• Keep contract alive and wait for the due date of performance in the hope that it will be performed on the date, and then, if not, suing for non-performance on that date

Results of Wait and See:

The contract stays alive for the benefit of both parties, and is subject to all the normal hazards.

Avery v Bowden

Facts:

← The defendant was leased to charter the plaintiff’s ship. It was agreed that he would load the ship within 45 days. D repeatedly advised P that he wouldn’t be able to fulfil his obligation (there was a war). P stayed on in hope that he might pull through. Before the due date, the Russians seized P’s ship (in the course of the war).

Ratio:

← He was then seeking to sue for the anticipatory breach, but the court said no – he had chosen to keep the contract alive and forfeited his right to sue for anticipatory breach. He couldn’t sue for non-performance, either, because the contract had been interrupted by war.

White & Carter (Councils) v McGregor

Facts:

← Contract to advertise business on rubbish bins and park benches. The parties had agreed that the council would just do it and send them the bills. The day before the contract came into operation, McGregor wrote a letter repudiating. White had the option to sue immediately, or leave it. He kept the contract going for one year as planned as if nothing had happened and sent McGregor the bill.

Ratio:

← The court was faced with a decision on where to draw the line between the innocent party’s choice and its duty to mitigate its losses. The court held 3:2 that the council was entitled to do exactly what it did.

← Subsequent decisions have said that you must ask if the innocent party’s conduct was wholly unreasonable, and if so, there is a duty to mitigate, but if it was unreasonable, and merely unreasonable, then the innocent party may uphold its right to choose.

Automatic Fire Sprinklers v Watson

Facts:

← Watson was wrongfully dismissed as the General Manager of Sprinklers. He refused to accept it, and turned up ready for work each day for one year, then sued for the year’s wages.

Ratio:

• The court said that it wasn’t a contract Watson could perform by himself, and therefore different to White. Since he couldn’t perform his contractual obligation (there was no work for him to do ) he couldn’t recover his wages. In such a case, there must be two dimensions to the relationship:

• Status of employee / employer

• Action of employee / employer

• In this case, it was impossible to serve the latter

Consequences of an Anticipatory breach:

Sunbird Plaza v Maloney

Facts:

← Contract for the sale of land – all of the obligations were laid out by the date of settlement, but no date was ever fixed because the seller repudiated the contract before a date had been set.

Ratio:

← The court said, there was no breach because there was no date fixed to validate the rest of the obligations, so no party had failed to fulfil them.

Fercometal SARL v Mediterranian Shipping Co

Facts:

← The Plaintiff chartered a ship owned by D. P repudiated, and D chose to wait and see. In the course of keeping the contract alive, D found themselves in breach, and P sued on that ground. D then tried to resurrect their right to sue for the anticipatory breach.

Ratio:

← The court said they were too late. Their choice to wait and see forfeited their right to sue for anticipatory breach and left the contract open to all the usual hazards (including breach)

Foran v White

Facts:

← Contract for the sale of land. Two days before settlement, the seller realized that they couldn’t fulfill their obligations, so neither showed up for settlement. Two days after settlement, the purchaser sued to recover their deposit, and it occurred to the seller that they probably didn’t have the finance anyway (this was proved by the trial judge). The seller was a bit angry that their honesty had put them into breach. The court was faced with the question s to whether the purchaser was bound to establish that they were ready, willing and able.

Ratio:

← Normally, this is a requirement, but since they had been given notice two days before that performance wasn’t necessary, the seller was estopped from using ready, willing and able as a defence.

← So, giving notice of an anticipatory breach has two effects:

• Unaccepted repudiation – The contract stays afoot

• Accepted repudiation – Creates estoppel so that innocent party can suspend preparations to perform on the day (need not show that you performed, just show that you weren’t disabled from performing). The strict rights of performance are mitigated by estoppel.

Progressive Mailing v Tabali

Facts:

← The court was faced with the question as to whether a lease is a contract or a property transaction to establish whether one could rely on anticipatory breach or had to wait for non-performance action. In this case, one party had fully performed and was waiting for the other party to do the same when they repudiated before the due date.

Ratio:

▪ The court acknowledged that anticipatory breach was designed to let innocent parties out of their fruitless obligations, but concluded that despite the nature in which it was developed, cases such as this were able to rely upon anticipatory breach in order to preserve efficiency and certainty.

2 Dangers

← What happens where there is no proof that the repudiating party could not perform?

← ‘innocent party’ is then in breach – becomes the guilty party

Maple Flock v Universal Furniture Products

▪ MF to supply uncontaminated flock for furniture

▪ Tested after 16th delivery

▪ UFP withdrew from contract after accepting 2 more deliveries

▪ HELD: depends on objective intent; here no implied renunciation

6 Nature and effect

← Termination for breach is not automatic – must elect whether to terminate or not

← Once elected, cannot change back again

← Leads to ‘rescission’ in contractual sense, not tortious sense

- not ab initio – no restitution

- Merely that any unperformed obligations are brought to an end

- C&H suggest using ‘termination’ not ‘rescission’

Heyman v Darwins Ltd

▪ Contract with arbitration clause if dispute arose

▪ Dispute arose – H purported to terminate contract because of D’s repudiation, then claimed damages in tort

▪ D asked for stay of proceedings for arbitration

▪ H argued the clause was no longer enforceable since contract had been terminated

▪ HELD: Performance of continuing obligations terminated, not whole contract

← Recall primary and secondary obligation theory ( Photo Productions v Securicor [1980] AC 827

2 Accrued obligations

← Can one sue for accrued obligations?

- Yes, unless total failure of consideration

McDonald v Dennys Lascelles Ltd

▪ Sued for payment of 3rd instalment of £1000

▪ Normally claim is for debt due – not discharged if accrued at termination – so can sue for it

▪ But where total failure of consideration, refund of all money received, subject to claim for damages/

3 Waiver & estoppel

Tropical Traders v Goonan

▪ Instalment sale of land over 5 years with purchaser in occupation

▪ Time of the essence, and if payments late, seller can cancel and keep all instalments paid

▪ Buyer unable to pay last instalment, so seller gave 8 days grace with notice that he would cancel if late

▪ Duly cancelled when not paid

← 3 previous instalments accepted late – waiver?

← Accepting interest on outstanding instalments? – Why should he be allowed to double dip?

← Act of waiver included reinstatement of time of the essence by notice of intention to cancel.

4 Unintended consequences

← Where contract specifically gives right to terminate, damages may bot be claimable in addition

← Need to be careful in drafting the clause

Shevill v Builders Licensing Board

Facts:

▪ A lease for 7 years with a provision that if rent wasn’t paid in 14 days then the landlord could re-enter the land ‘without prejudice to any action or other remedy’ and the lease would be over. The tenant was frequently behind on payments however on one occasion he was 2 months overdue, so the landlord sued for 7 years of lost profit

Held:

▪ Court held that the loss of profit was not the tenant’s fault. The landlord was only able to recover damages for the unpaid rent – not the value of the contract.

7 Essential Terms Giving Rise to Termination

Will have the effect of giving rise to termination if:

• It shows an intention to no longer be bound

OR

• It breaks a stipulation so vital that the foundation of the contract is destroyed and performance as contemplated is no longer possible

1 Tests to establish degree of seriousness of the breach:

There are two that the Australian Courts endorse:

• Essentiality test (looks at formation)

• Hong Kong Fir test (looks at effect)

Essentiality Test:

Tramways Advertising v Luna Park

Contract to display advertising on trams for eight hours per day. The court was faced with the question as to whether this meant 8 hours on average, or exactly eight hours during the main periods of the day. Luna Park wanted the latter. The court asked the question: was it so important that Luna Park wouldn’t have entered into the transaction had advertising for exactly eight hours in the main periods of the day been a term. The court said no.

Associated Newspapers v Banks

The cartoon strip Ginger Meggs was removed from the front page of the comics section. The court employed the above test and concluded that appearing on the front page was an essential term of the contract.

The Hong Kong Fir Test

Asks the question: Did the breach substantially deprive the plaintiff of the whole benefit?

Bowes v Chaleyer

Contract for the shipment of silk – half shipped as soon as possible, and the other half two months later. The load came in three instalments. Was non-compliance to the quantity and timing enough to repudiate on? The Majority said that it was an essential term, and they did have the right to repudiate. There was also an important dissent that said that since most contracts are made without a lawyer, it is unrealistic to hold parties strictly to what they have said.

8 Can a contract breaker sue for breach by the other party?

If both parties break a contract, 4 options exists

1 1. Loss of Access to Equitable Remedies

Bahr v Nicolay (Important dicta)

• “A party seeking specific performance must show that they are ready an willing to perform. They must also do this if they seek damages for breach unless it is an anticipatory breach. This readiness and willingness is only in relation to essential terms of the contract.”

• For anticipatory breach they must also show they were not disabled.

2 2. Abandonment

DTR v Mona Homes,

• Each party gave an ineffective notice. Both were in breach, but the court ruled that the contract had been mutually abandoned, and it was discharged. The court further took into account the time lapse.

3 3. Repudiation

▪ Repudiation is always the result of a major breach of an essential term, severely disabling the other party. You can repudiate by words and by conduct, but this repudiation must be absolute.

▪ Repudiation normally comes about because of 3 reasons

i) Inability – I cannot perform

ii) Conduct – I frustrate the performance of the contract

iii) Breach with a likelihood of repetition so that the absolute benefit is destroyed This is held as an underlying intention to repudiate

Turnball v Mundas (HCA)

Facts:

← Contract for the sale of oats. The seller delivers the oats to a ship nominated by the buyer. The seller subsequently found out that they couldn’t access the grain in their Sydney facilities, and seemingly couldn’t perform their part of the contract. The buyer, however, asked if the seller could do it in Melbourne. The seller told them they would try, but after another month (which represented a breach of a time clause), they found out they could not complete the transaction in Melbourne either.

← The seller was in obvious breach, because they couldn’t produce the grain. But the seller also claimed that the buyer was in breach, because they had not nominated a ship.

Ratio:

← The court held that the buyers were absolved from the duty to arrange a ship, because the sellers told them that they couldn’t perform.

← “The Court will not permit a party to rely on a technical breach if in reliance on the other party – not a repudiation”

Is their conduct repudiation?

Mahoney v Lindsay

Facts:

← There was an arrangement for sale on a certain day. The purchaser obtains a specific performance order after the vendor states that he does not wish to go on with the contract. The vendor appeals this on the ground that the purchaser had not tendered the purchase money on the appropriate day.

Ratio:

← The court said that normally, a party not showing up to the arranged place of sale was indication of a breach of contract. But in this case, the court held that this had been waived by the vendor’s conduct.

Both these cases, Turnball and Mahoney, are cases of waiver.

The effect of Estoppel

Foran v Wight

▪ This case makes it clear that the real explanation of cases like Turnball and Mahoney is estoppel. The conduct of one party excuses what appears to be a breach which may amount to repudiation by the other party. It refutes repudiation and prevents a reassertion of the original position.

4 4. Can you ‘cure’ a breach?

▪ Yes, but it depends on the circumstances

Vendor taking initiative whilst contract still on foot

Rawson v Hobbs

Facts:

← Contract for the sale of land. The sale of leasehold land required a pastoral lease, and was subject to statutory limitations on the size of the land being sold. These restrictions on the sale of leasehold, however, could be avoided in the land was converted to freehold.

← Hobbs sold the land to Rawson, but he sold too much land while still leasehold. Rawson built houses and sheds on it. Rawson then decided he wanted to get out of the deal. Rawson brought up the fact Hobbs had been in breach. Hobbs countered by saying that Rawson was in breach, and sought to terminate himself, presumably to attract remedies. But in his termination, Hobbs didn’t follow the proper procedure outlined. In any case, it was clear that the parties did not want to go on with the contract.

← Hobbs attempted to save the deal and cover his breach, by converting the land to freehold.

Ratio:

← He was too slow in doing so. The contract was already dead, and incapable of being saved.

← To properly save:

- The vendor had to take the initiative

- He did not do this before the purchasers purported to rescind on the ground of the vendors breach, and thus it was ineffective.

- This vendor, and others, can effectively cure and enforced the contract, but did not do so here in time. It must be prompt, while the contract is still on foot

Cure by waiver

Brien v Dwyer

Facts:

← Vendor signed contract not knowing that the purchaser had not paid as required by the contract. The purchaser did end up paying, but the vendor found out that he had not paid as required. Does the vendor have the right to rescind?

Ratio:

← The court held that the vendor has the option either rescind or waive, and the contract is to the vendor’s benefit.

Cure by construction

Sunbird v Maloney

Facts:

← The performance of all obligations was fixed by reference to the ‘date of settlement’. It was the purchaser’s duty to fix this day, and they never did so. Thus, there was never any ‘breaches’ committed. The contract had made no provisions for this situation.

Ratio:

← This is an avenue for a kind of quasi-cure, but there have been no breaches.

Cure and Pleadings

Shepherd v Felt & Textiles

• A party can justify a termination of a contract on the ground of breach, even if the grounds of breach pleaded in the court of law are not the same as those given at the time of notification of termination.

• If there is justification for the termination, it doesn’t matter that you purported a different ground, so long as the contract does not exclude this option.

• This also gives the option for intermediate curing in the contractual process.

Termination by Frustration

Frustration =

• a very limited exception to the rule that supervening impossibility of performance, even without the fault of the other party, does not excuse non performance

• A premature determination of a contract because f the occurrence of some intervening event or change in circumstance so fundamental as to be regarded by the law as striking at the root of the agreement and being an event or change in circumstances for which the parties had made no provisions in the contract.

1 Discharge by Frustration

1. Early development

4. Current scope

5. Self-induced frustration

6. Juristic basis of the doctrine

7. Effects of frustration

2 Early development

▪ Common law position of absolute contracts (‘strict liability’)

▪ Exception where physically impossible – Taylor v Caldwell (1863) 3 B&S 826

▪ Or where commercial venture frustrated – Jackson v Union Marine (1874) LR 10 CP 125

Taylor v Caldwell

Facts:

▪ Caldwell hired a concert venue to Taylor. Before Taylor’s scheduled first performance took place the hall burnt down. Taylor claimed damages for breach of the agreement

Held:

▪ As destruction of the hall had occurred without fault of either party, both were excused from future performance. The contract was subject to an implied term that if performance became impossible because of some supervening event, without default by either party, both parties would be discharged from future obligation.

▪ Held: Action failed because subject matter of contract had ceased to exist, so contract was discharged

Jackson v Union Marine

▪ J chartered his ship to go to Newport to collect a cargo ‘with all possible dispatch, perils of the sea excepted.’

▪ Ran aground on the way to Newport

▪ Towed away and eventually sold

▪ J claimed from UM insurance for loss of freight

▪ UM argued charterer was still obliged to pay, so there was no loss of freight

▪ Held: Charterer was released from obligation to pay

3 Current scope

Following categories recognised:-

▪ Destruction of physical subject matter

▪ Death or incapacity of one party to a contract for personal service

▪ Non-occurrence of an event which is the basis of the contract

▪ Supervening legal impossibility

▪ Frustration or commercial venture

1 Non-occurrence of an event which is the basis of the contract

Krell v Henry

Facts:

▪ Krell agreed to hire a flat in Pall Mall to Henry for two days and received a £25 deposit. Although not stated in the written agreement, it was clear that Henry required the flat to view Edward VII’s coronation procession. The King became ill, the coronation was postponed and Henry refused to pay the balance of the agreed rent. Krell sued.

Held:

▪ He failed. Both parties were aware that the object of the agreement was for Henry to view the procession. Strictly speaking, he could have occupied the rooms on the days agreed but it would have been futile. The King’s illness made achievement of the mutually understood underlying purpose of the contract impossible and, consequently, discharged the contract on the grounds of frustration.

2 Frustration of a commercial venture

Codelfa Constructions v NSW State Rail Authority

Facts:

▪ The parties entered into a contract under which Codelfa was to carry out excavations for the construction of an underground railway. The work was to be completed within 130 weeks. The parties were both aware that this would only be achievable if Codelfa was able to work three shifts a day, seven days a week. The work generated a great deal of noise and vibration and, three months after it had started, local residents obtained an interlocutory injunction preventing Codelfa from working between 10pm and 6am. A compromise was subsequently reached whereby Codelfa agreed to work at reduced noise levels during those hours and not at all on Sundays. This resulted in additional costs and loss of profit. Codelfa claimed that it was entitled to a quantum meruit rather than the originally agreed price because the contract had been frustrated by the injunctions.

Held:

▪ HC held not an implied term

▪ But injunction rendered performance something radically different ie frustration

▪ Foresight of event did not matter, as long as extent of risk and damage not foreseen

▪ Accordingly, the contract had been frustrated and Codelfa’s claim for payment on a quantum meruit could succeed.

▪ Note: In Eugenia, Denning suggested that performance being rendered more difficult or expensive was not frustration, Can this be reconciled with Codelfa?

4 Self-induced frustration

▪ If self-induced you cannot rely on it, but the other party can

1 What if event is foreseen, eg contract provides for the event?

- Assumed they foresaw and catered for it, so the contractual provisions apply

- But if radical change compared with intent of clause, the frustration doctrine may still apply

Simmonds v Hay

• Facts:

• H employed by S for 3 years

• Clause provided that salary would be paid if H provided satisfactory evidence of illness

• H had a heart condition, and eventually became permanently incapacitated

• S paid salary for 7 months before terminating

• H sued for breach

• Held:

• S could rely on frustration – contract terminated

2 What if foreseen, but no provisions made in contract?

Walton Harvey v Walker Homfrays

Facts:

• The defendants, knowing that there was some likelihood that their hotel would be compulsorily acquired and demolished, permitted the plaintiffs to erect an advertising sign on its roof. Party way through the seven-year term of the contract, the building was resumed and the sign was removed. The plaintiffs sued for damages; the defendants argued that the resumption had frustrated the contract and excused them from further liability.

Held:

• The contract had not been frustrated. The defendants had been aware of the risk, had entered into the contract despite it, had made no provision for it and, consequently, were not excused from liability when it eventuated.

← But even if the event is foreseen, if the extent of the risk and damages were not foreseen, frustration may apply.

Codelfa Construction v NSW State Rail Authority

▪ Argued that since they had discussed the right to work through nights and weekends, the event had been foreseen

▪ Held: That foresight of event did not matter, as long as extent of risk and damage were not foreseen

3 What if not foreseen but should have been

The Eugenia

▪ Ship entered the Suez Canal when there was gunfire around

▪ Trapped in the canal for 2 months

▪ Per Denning MR ( should have foreseen these events, and so the frustration was self-induced and the doctrine did not apply

Does it apply to sale or lease of land?

5 Juristic basis of doctrine

1 ‘Implied term’ theory

▪ Was there an implied term that the contract would come to an end if the event occurred?

2 ‘Just and reasonable solution’ theory

▪ Based on equitable principle that the contract will not be enforced where it could not be just

3 ‘Change in the obligation’ theory

Codelfa Construction v NSW State Rail Authority

▪ 5 judges agreed with the UK cases that this was the basis of the doctrine

4 Requirements

▪ Where a reasonable person would recognise that without default of either party

▪ A contractual obligation had become incapable of being performed

▪ Because the circumstances in which it is called for would render it a thing radically different from that which was undertaken in the contract

- Per Lord Radcliffe in Davis Contractors Ltd v Fareham UDC [1956] AC 696

Davis Contractors Ltd v Fareham UDC

Facts:

▪ Davis Contractors had agreed to build 78 houses over an eight-month period for an all-up price of £92, 425. Because of factors beyond its control (shortage of labour and materials), the work took 22 months and ran £17, 651 over budget. Davis claimed that the contract had been frustrated by the unavailability of skilled labour and adequate materials and that, there being no remaining contractual stipulation as to the amount that they should be paid, they were entitled to recover on a quantum meruit for the work they had actually done.

Held:

▪ The contract had not been frustrated. Frustration only occurs when, without default by either party, a contractual obligation cannot be performed because the circumstances under which performance must take place have been so altered that the actual performance would be ‘radically different’ from that which was so envisaged by the contract. Here, performance had not been rendered ‘radically different’ by the shortages. It had become more onerous for the builders but the delay was a risk that they had voluntarily undertaken and they could not now complain.

It is not easy to persuade a court that performance is radically different.

Tsakiroglou v Noblee Thorl

Facts:

▪ Tsakiroglou contracted to sell Noblee Thorl 300 tons of Sudanese groundnuts under a contract requiring the sellers to bear the cost of freight between Port Sudan and Hamburg. The normal route for the shipment would have been via the Suez Canal but closure of the canal by the Egyptian government made this impossible. The only alternative route, via the Cape of Good Hope, was more than twice as long and was far more expensive. The sellers refused to complete on the grounds that closure of the canal had frustrated the contract

Held:

▪ The contract had not been frustrated. Although shipping the goods via the Cape involved greater expense and was a method of performance nor originally contemplated, the change in the obligation was not so fundamental (or ‘radically different’) from that which had been agreed, to justify allowing the sellers to get out of the contract. Their duty was to ship the goods by such reasonable and practicable routes as were available and, unlike the situation in Codelfa Construction v State Rail Authority NSW, there was no specific time limit set for performance. Accordingly, particularly as there was sufficient shipping available to carry the goods via the Cape, they were bound to perform.

6 Effects of frustration

▪ Terminates the contract automatically

▪ Except for self-induced frustration, either party may rely on it

▪ The loss lies where it falls – no damages are payable and no money can be recovered under the contract

▪ Except for quantum meruit or perhaps Total failure of considerationCampbell Page 21 11/02/2012

1 Quantum meruit

▪ See quantum meruit in Codelfa

2 Total failure of consideration

Fibrosa Spolka v Fairbairn Lawson Combe Barbour Ltd

▪ Fairbairn contracted to supply Fibrosa (a Polish company) with a number of textile machines to be delivered in Gdynia. The all-up price was £4,800 of which £1,000 was actually paid in advance. Before delivery could be made war broke out and Gdynia was occupied by the Germans. The contract was thus frustrated and Fibrosa sued to recover is £1,000.

Held:

▪ Fibrosa was entitled to return its money. The House of Lords ruled that where there has been a total failure of consideration prepayments are recoverable in quasi-contract. There must, however, be a total failure of consideration. Lord Atkin (at 55) said: ‘The man who pays money in advance on a contract which is frustrated and receives nothing for his payment is entitled to recover it back.’

3 Australian view

Re Continental C&G Rubber Co

Facts:

▪ Continental engaged Anderson’s to construct and erect a quantity of machinery on Continental’s land between April and December 1914. Provision was made for periodic progress payments. Upon the outbreak of war on 4 August 1914 the company, which was controlled by alien enemies, was placed under a court-appointed ‘controller’ for the duration of hostilities. That order remained in place until June 1918 when the company was ordered to be wound up. The contract was never completed and, although some progress payments were received, no part of the machinery was ever delivered to or erected on Continental’s land. Upon notification of the winding up, Anderson demanded compensation for non-fulfilment of the contract. The controller sought court direction as whether such compensation was payable and whether Continental could wither demand delivery of the machinery or recover the progress payments.

Held:

▪ Commencement of the war on 4 August had frustrated the contract. Consequently, Anderson’s were not entitled to compensation for Continental’s failure to perform. Neither, however, was entitled to delivery of the machinery (fulfilment of an obligation that they had not accrued due at the point of frustration) or to return of the progress payments. Those payments had accrued due before the outbreak of war and were not effected by the frustration.

- Isaacs and Rich JJ – minority who commented that the doctrine of total failure of consideration was inapplicable.

4 Reform

▪ Results in all or nothing approach in common law – one of the parties is likely to lose out

▪ NSW, Vic, UK have introduced legislative reform

- Give courts wide power to adjust the parties’ rights

▪ Frustrated Contracts Act 1978 (NSW)

- Series of rules for adjusting parties’ rights

- To manifest injustice, court had a broad discretion to make adjustments

• Courts can vary the obligations under the contract

▪ Result had been uncertainty, and many contract exclude its provisions

▪ Queensland – no Frustrated Contracts Act so have to rely on the common law

- This could lead to injustice

L’s notes

Occurs when:

• The death of a party or incapacity through illness

• The non occurrence of the event which is the basis of the contract – Krell v Henry

• If the government prohibits or interferes with the contract – Scalan’s New Neon v Toohey’s

• If a statute makes performance illegal – Gelling v Crespin

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Used by

Carrier

Shipping Agent

Stevedoring Company

Wharfie

Hired by

Hired by

Can occur before performance is due = anticipatory breach

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