LWB136 – Contracts Notes

Table of ContentsAgreement........................................................................................................................................ 4

General Overview:........................................................................................................................................4Offer:.............................................................................................................................................................4

3 Features must be present for offer to be legally effective:.....................................................................................4Offers in Bilateral Contracts:..................................................................................................................................... 4Offers in Unilateral Contracts:................................................................................................................................... 4Offers to the Public at Large:............................................................................................................................... 4Offers Made Through the Internet:............................................................................................................................ 4

What is Not an Offer:....................................................................................................................................4Categorising Transactions:....................................................................................................................................... 5Communication of an Offer:...................................................................................................................................... 5Termination of an Offer:............................................................................................................................................ 6

Acceptance:..................................................................................................................................................7Acceptance Must Correspond to Offer......................................................................................................................7Acceptance must be unqualified............................................................................................................................... 7Method of Acceptance.............................................................................................................................................. 7Instantaneous Communication................................................................................................................................. 8Postal Acceptance Rule............................................................................................................................................ 8Acceptance in Unilateral Contracts........................................................................................................................... 8Time and Place of Formation.................................................................................................................................... 9

Certainty and Completeness........................................................................................................10Ambiguity and Uncertainty..........................................................................................................................10

Individual Terms..................................................................................................................................................... 10Agreements to Negotiate........................................................................................................................................ 10Saving Ambiguous, Uncertain or Meaningless Contracts.......................................................................................10Mechanisms to Complete:...................................................................................................................................... 11Saving Incomplete Agreements:............................................................................................................................. 11

‘Subject To’ Agreements:............................................................................................................................13Subject to Finance.................................................................................................................................................. 13Subject to Contract................................................................................................................................................. 13

Intention to Create Legal Relations.............................................................................................14Test.............................................................................................................................................................14Domestic and Social Relationships:...........................................................................................................14

Presumption........................................................................................................................................................... 14Rebutting the Presumption:.................................................................................................................................... 14

Commercial Agreement:.............................................................................................................................14Presumption........................................................................................................................................................... 14Rebutting the Presumption..................................................................................................................................... 14Government Activities:............................................................................................................................................ 14Voluntary Associations:.......................................................................................................................................... 15Honour Clauses...................................................................................................................................................... 15Promotional Puff and Free Gifts.............................................................................................................................. 15Ex Gratia Payments and ‘Without Prejudice’ Offers................................................................................................15Letters of Comfort................................................................................................................................................... 15‘Subject to Contract’ Clauses.................................................................................................................................. 15‘Letters of Intent’ and ‘Understandings’................................................................................................................... 15

Consideration................................................................................................................................16Consideration in Bilateral Contracts...........................................................................................................16Consideration in Unilateral Contracts.........................................................................................................16Executed and Executory Consideration:.....................................................................................................16

Executory consideration......................................................................................................................................... 16Executed consideration.......................................................................................................................................... 16

Rules Governing Consideration..................................................................................................................16Consideration Must Move From the Promisee........................................................................................................16Consideration Must Be Bargained For.................................................................................................................... 16Consideration Must be Sufficient............................................................................................................................ 16Consideration Must Not be Past:............................................................................................................................ 17

Consideration and Formal Agreements......................................................................................................17Consideration: Specific Examples..............................................................................................................17

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Moral Consideration................................................................................................................................................ 17Performance of Existing Duties.............................................................................................................................. 17Performance of Public Duties................................................................................................................................. 17Where Promise is Made to a Third Party................................................................................................................17Part Payment of Debt............................................................................................................................................. 18Forbearance to Sue................................................................................................................................................ 18Bargained-For Conduct Already Performed:...........................................................................................................19

Equitable Estoppel........................................................................................................................20General Overview.......................................................................................................................................20Common Law Estoppel...............................................................................................................................20Development of the Doctrine of Equitable Estoppel:..................................................................................20

High Trees and Promissory Estoppel..................................................................................................................... 20Recognition of Equitable Estoppel.......................................................................................................................... 20A Unified Estoppel?................................................................................................................................................ 20

Elements of Equitable Estoppel..................................................................................................................21Unconscionable Conduct........................................................................................................................................ 21Test for Equitable Estoppel..................................................................................................................................... 21Assumption or Expectation..................................................................................................................................... 21Encouraged or Induced.......................................................................................................................................... 22Reliance.................................................................................................................................................................. 22Knowledge or Intention:.......................................................................................................................................... 22Detriment:............................................................................................................................................................... 23Failure to Avoid Detriment...................................................................................................................................... 23Relevant Remedy................................................................................................................................................... 23

Establishing Contractual Terms..................................................................................................24Incorporating Written terms........................................................................................................................24

Overview................................................................................................................................................................. 24Incorporation by Signature...................................................................................................................................... 24Incorporation by Notice: Unsigned Document:.......................................................................................................25Incorporation by Notice: Signs................................................................................................................................ 25Incorporation by Notice: Website............................................................................................................................ 26Incorporation by Reference.................................................................................................................................... 26

Incorporating Oral Terms:...........................................................................................................................26Mere Puff................................................................................................................................................................ 27Representation or Term.......................................................................................................................................... 27Collateral Contracts................................................................................................................................................ 28

Parol Evidence Rule...................................................................................................................................29Implied Terms.............................................................................................................................................30

Categorisation........................................................................................................................................................ 30Term Implied on the Basis of Business Efficacy:....................................................................................................30Terms Implied From Previous Consistent Course of Dealings:..............................................................................31Terms Implied From Custom or Usage................................................................................................................... 32Term Implied to Complete Agreement.................................................................................................................... 32Term Implied as a Legal Incident of a Particular Class of Contract:.......................................................................32General Duty of Cooperation.................................................................................................................................. 32Implications of Duties of Good Faith, Fair Dealing and Reasonableness...............................................................32Term Implied by Statute.......................................................................................................................................... 32

Construction of Terms.................................................................................................................33Interpreting the Meaning of Terms..............................................................................................................33

General Approach:.................................................................................................................................................. 33Admissible Evidence:.............................................................................................................................................. 33Inadmissible Evidence............................................................................................................................................ 34

Legal Effect of Words: Types of Terms......................................................................................................34Promissory Terms................................................................................................................................................... 34Contingencies......................................................................................................................................................... 35Exemption Clauses................................................................................................................................................. 35Other Common Clauses......................................................................................................................................... 36

Formalities.....................................................................................................................................38Guarantees.................................................................................................................................................38

Nature of a Guarantee............................................................................................................................................ 38Transactions which are Not Guarantees................................................................................................................. 38Requirement of Writing: Content:............................................................................................................................ 38Requirement of Writing: Signed by Party to be Charged or Agent..........................................................................39Contracts relating to Land....................................................................................................................................... 39

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Joinder of Documents............................................................................................................................................. 40Effect of Statutory Non-Compliance: COMMON LAW................................................................................41

Contract is Unenforceable...................................................................................................................................... 41Contract Valid to Pass Title.................................................................................................................................... 41Recovery of Money Paid Under Unenforceable Contract.......................................................................................41Other Restitutionary Claim May Still be Available...................................................................................................41

Effect of Statutory Non-Compliance: EQUITY............................................................................................41Doctrine of Part Performance................................................................................................................................. 41Estoppel.................................................................................................................................................................. 41Constructive Trust................................................................................................................................................... 42

Variation and Termination of Contract........................................................................................................42Common Law:........................................................................................................................................................ 42Test:........................................................................................................................................................................ 42

Privity.............................................................................................................................................43Overview.....................................................................................................................................................43Statutory Abrogation of Privity....................................................................................................................43

Insurance................................................................................................................................................................ 44Maritime Contracts of Carriage............................................................................................................................... 44Other Legislation..................................................................................................................................................... 45

So-Called ‘Exceptions’ At Common Law (p. 403 txt)..................................................................................45Agency.................................................................................................................................................................... 45Trust....................................................................................................................................................................... 45Equitable Estoppel.................................................................................................................................................. 45Unjust Enrichment.................................................................................................................................................. 46Torts....................................................................................................................................................................... 46Trade Practices Act................................................................................................................................................ 46Assignment and Novation....................................................................................................................................... 46Use of Property....................................................................................................................................................... 46Collateral Contract.................................................................................................................................................. 46Restraint of Trade................................................................................................................................................... 46

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Agreement

General Overview:Agreement

Fundamental requirement is that the parties have reached agreement (concluded bargain) occurs when an offer is made and that offer is accepted by the offeree

Courts – examine the whole course of dealings between parties – communication and conduct If an objective bystander would consider a concluded bargain to have been reached, the requirement for

agreement will have been satisfied

Offer: An expression to another of a willingness to be legally bound by the stated terms1

3 Features must be present for offer to be legally effective: 1. Statement by offeror (A) containing stated terms2. Statement made to another person3. Offeror indicates a preparedness to be bound

Nature of the offer can vary according to whether the contract being negotiated is bilateral or unilateral.

Offers in Bilateral Contracts: Most contracts are bilateral contracts.

“Each party undertakes to the other party to do or to refrain from doing something, and in the event of his failure to perform his undertaking, the law provides the other party with a remedy.”2

Offer is effective to bind both parties to perform his/her undertaking. A party failing to perform the respective promise will be in breach of contract.

Offers in Unilateral Contracts: Unilateral contracts arise less frequently

“one party (the promisor) undertakes to do or to refrain from doing something on his part if another party (the promisee) does not himself undertake to do or to refrain from doing that thing.”3

The consideration on the part of the offeree is completely executed by the doing of the very thing which constitutes acceptance of the offer.

Examples: offers of reward; offers for prizes Offeree will never be under an enforceable obligation to perform The obligation on the offeror to perform only arises if the offeree performs the task

Offers to the Public at Large: Form of Unilateral Contract.4

Offers Made Through the Internet: increasing transactions through Internet expansion of electronic commerce – difficulties re: contract formation and which legal regime should govern,

time and place etc can be to public at large

What is Not an Offer:Mere Puff Statement made for advertising purposes – ‘means nothing’

Supply of Information The mere supply of information is not an offer5

1 Australian Woollen Mills Pty Ltd v Commonwealth (1954)2 Lord Diplock, United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd [1968]3 United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd [1968]4 Carlill v Carbollic Smoke Ball Company [1893]5 Harvey v Facey

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Invitation to Treat Technique used by a person who wants another person(s) to make an offer. Indicator of that person’s willingness to negotiate entry into a contract. Cannot be accepted by the other party to conclude an agreement.6

offers to receive offers. eg display of goods, advertisements

Test:Reasonable Person test.

Categorising Transactions: Advertisements: generally regarded as invitations to treat – but depends on the language used, etc.

Auctions: Advertisements for Auction: CL does not bind auctioneer to carry out auction.7

Auctions With a Reserve: call for bids by the auctioneer is akin to an invitation to treat. Bids may be accepted or rejected by the auctioneer.

Auctions Without a Reserve: General view is that auctioneer must knock down the property to the highest bidder.8

Tendering: Advertisements for Tender: akin to an invitation to treat. Liability will not arise if the person chooses not to

accept any of the tenders, or does not even consider all tenders in a bona fide way.9 Individual Tenders: usually no obligation to accept any tenders made. But if party indicates that the

highest/lowest bidder will be accepted, the advertisement will constitute an offer.10

Standing Offers: Indication by one party of his/her willingness to provide goods/services over a specified period. Offeror is entitled to withdraw at any time before acceptance of the offer by placing an order. The offeree may

choose not to accept the standing offer.

Options: An offeror may revoke an offer at any time before it is accepted, unless the offeree provides consideration to keep the offer open for a time.11 Purchase of Tickets for Transport: Exclusion clauses will only assist a carrier if they are introduced before the contract ahs been formed.

Communication of an Offer: Acceptance must take place in reliance upon the offer. The offeree must know of the offer.

For an offer to be valid, it must be communicated to the offeree.12 The communication must be made by the offeror or someone authorised by the offeror. Until the offer is communicated by the offeror to the offeree it will not constitute an offer capable of acceptance.

Offers to world at largeCommunication may be by reading the advertisement or by the details being passed onto the offeree by another party.

6 Carlill v Carbollic Smoke Ball Company [1893]7 Fisher v Bell [1953]8 Warlow v Harrison (1859)9 Spencer v Harding (1870)10 Spencer v Harding (1870)11 Routledge v Grant (1828) 12 Cole v Cottingham (1937)

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Termination of an Offer: Withdrawal by offeror An offer can be withdrawn by an offeror at any time before acceptance.13 There needs to be actual communication of the withdrawal to the offeree.14

The communication may be effective even if made by someone other than the offeror or someone authorised by the offeror (Must be a reliable source).15 What constitutes a reliable source is a QOF.

Unilateral Contracts:An offeror cannot effectively withdraw an offer after that offeree has commenced acceptance of it. Abbott v Lance (1860)

Withdrawal where offer is to world at largeSomething less than actual communication will be sufficient to effectively withdraw the offer. The offeror should tot he extent possible, use the same medium to withdraw as was use to advise of the offer.16

Rejection by OffereeIf the offeree rejects the offer, the offer is terminated.17 Rejection must be communicated to the offeror. If offeree responds to offer by changing its terms, this is a counter offer.18

Lapse of TimeOnce the date/time that the offeror specified for the offer to lapse has passed, the offer lapses and it is unable to be accepted to form an agreement.Where offeror does not specify a time/date, the offer will lapse within a reasonable time.19

Failure of a Condition in a Conditional Offer:If the offeree does not comply with the condition the offer will cease.20

Death of the Offeror of OffereeDeath of offerorThe offer cannot be accepted after offeror is dead. However, where contract was for sale of property the transaction may be able to be completed by the deceased’s estate.21

Death of offereeIf the offeree dies, there is no longer an offer. A contract for the sale of property may not, however, be considered in the same light.22

OptionsIf the contract is one that involves personal services, and that person dies, the parties could not have intended the option to be exercisable following death

Conditional Contract = Enforceable Irrevocable Offer = Unenforceable

13 Goldsbrough Mort & Co Ltd v Quinn (1910)14 Byrne & Co v Leon Van Tien Hoven &Co (1880).15 Dickinson v Dodds (1876)16 Shuey v United States (1875)17 Stevenson Jaques & Co v McLean (1880)18 Hyde v Wrench 1840)19 Manchester Diocesan Council for Education v Commercial & General Investments Ltd [1970]20 Financings Ltd v Stimson [1962]21 Dickinson v Dodds [1876]22 Reynolds v Atherton (1921)

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Acceptance:An agreement is formed once an offer is accepted.

2 requirements for a valid acceptance:1. The offeree must intend to accept the terms of the offer; and2. That intention must be communicated to the offeror.

Acceptance Must Correspond to Offer Acceptance must be unqualified; there must be no attempt to introduce new terms.

Offeree must have knowledge of and act in reliance on the offer. Where an act is to represent acceptance of an offer, the act must be performed for the purpose of accepting the offer.23

A counter offer is not acceptance The offeree must agree to all terms of the offer.24

Exceptions to unqualified acceptqnceAcceptance couched in different language.25

Request by offeree for modification of performance An agreement is not prevented if the offeree, at the time of acceptance, seeks a concession from the offeror in

terms of contractual performance. Provided there is unqualified acceptance, a request by offeree that the offeror allow a different method of

performance will not prevent contract formation.26

Divergence from terms of the offer for benefit of offeror Acceptance can occur by conduct without need for acceptance of terms to be communicated to offeror. If the conduct is more favourable to the offeror than those in the offer, a court is likely to find that agreement

exists.27

Acceptance must be unqualified ‘Subject to Contract’: Test of Intentions

If the intention is not to make a concluded bargain until formal contract, the offeree has not made an unqualified acceptance of the offer.

if there is agreement on all terms and parties intend to be bound immediately but they still want a formal document drawn up, there IS a binding contract

Mere Inquiry does NOT constitute acceptance A mere inquiry is not a rejection of the offer.28

Notification to Offeror of Fact of AcceptanceAn offeree must communicate acceptance of the offer to the offeror. An agreement is not complete until such communication is effected.29

Method of Acceptance Whether acceptance has occurred depends on whether the offeree has complied with the requirements of the method of acceptance for the particular transaction.

Method of Acceptance Stipulated by Offeror An offeror may stipulate how acceptance should take place. Failure to respond in manner specified may be a bar to contract formation. If offeree accepts in a manner more advantageous to the offeror, acceptance will be valid.30

Method of acceptance for benefit of Offeree

23 Crown v Clarke (1927)24 Hyde v Wrench (1840)25 Carter v Hyde (1923) 26 Clive v Beaumont (1848)27 Ex Parte Fealey (1897)28 Stevenson Jaques & Co v McLean (1880)29 Powell v Lee (1908)30 Tinn v Hoffman & Co (1873)

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If method of acceptance was imposed for benefit of offeree, offeree may waive the benefit and accept in different way.31

Prescribed method not only methodEven if a manner of acceptance is prescribed, on a true construction of the terms, this may not be the ONLY method of acceptance that will be effective.

Acceptance by SilenceThe performance of specific acts may waive the need for the offeree to communicate acceptance.32

Offeree’s actions construed as acceptanceSometimes, court may infer acceptance of an offer from the conduct of the parties.33

Instantaneous Communication

Acceptance Must be CommunicatedContract will be formed when acceptance of the offer is communicated to the offeror. The contract is formed when and where the offeror recieves that communication.34

Test: TOI taking in all facts

Meaning of ‘Instantaneous Communication’: - telephone; telex messages; facsimile and possibly electronic communication.

Postal Acceptance Rule

Where circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary uses of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted.35

A contract will be formed when the offeree posts the letter, not when the offeror actually receives it.36 It does not affect the validity of the contract if the letter takes longer than usual to reach the offeror, or is

completely lost in the post. The offeror bears this risk.37 The offeror has the option of displacing the operation of the rule by stipulating that s/he will not be bound until

actual receipt of the offeree’s acceptance.

Displacement of the RuleThe rule is displaced if a court does not consider:

The post was within the contemplation of the parties as a means of communicating the acceptance If the offeror indicates that he or she will not be bound until actual receipt of the acceptance.38

Revocation of Acceptance Prior to ReceiptA contract is formed even though the offeror is notified of the refection of the offer before receiving a letter of acceptance.39

Time of FormationContract is formed at the time an acceptance is communicated to the offeror. There is argument over precisely when this occurs.40

Acceptance Combining TechnologiesAn offeree can accept an offer by using more than one technology.41

Acceptance in Unilateral Contracts

31 Manchester Diocesan Council for Education v Commercial & General Investments Ltd [1970]32 Carlill v Carbollic Smoke Ball Company [1893]33 Empirnall Holdings Pty Ltd v Mark Machon Paull Partners (1988)34 Entores L D v Miles Far East Corporation [1955]35 Lord Hershell, Henthorn v Fraser36 Adams v Lindsell (1818)37 Household Fire and Carriage Insurance Co (Ltd) v Grant (1879) (p.64-5 txt)38 Bressan v Squires [1974]39 Nunin Holdings Pty Ltd v Tullamarine Estates Pty Ltd [1994]40 Powell v Lee (1908)41 Express Airways v Port Augusta Air Services [1980]

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Acceptance Commonly by Conductacceptance is effected by the offeree performing the requirements specified by the offeror. The requirement for acceptance to be communicated is often impliedly waived.42

Withdrawal of Offer After Acceptance CommencedOnce an offeree has begun to accept the offer by performing the acts stipulated, it is likely to be too late for the offeror to withdraw the offer. Who May Accept Offer

An offer can only be accepted by the person to whom it is made.43 An offer can be made to more than one person.44 Courts have interpreted an advertisement for a reward as an offer that is accepted by the first person to come

forward.45

Test: Construction of terms

Multiple AcceptancesIf offer is made to multiple people, and both accept, two contracts have been formed that have to be honoured or leave offeror in breach of contract.46

Time and Place of Formation

Instantaneous CommunicationContract is formed when and where the offeror receives the acceptance communicated.47

PostIf postal acceptance rule applies, the contract is formed when, and at the place that, the letter of acceptance is posted.

42 Carlill v Carbollic Smoke Ball Co [1893]43 Reynolds v Atherton (1921) 44 Carlill v Carbollic Smoke Ball Company [1893]45 Robinson v M’Ewan (1865)46 Patterson v Dolman [1908]47 Entores L D v Miles Far East Corporation [1955]

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Certainty and Completeness ‘In order to constitute a valid contract the parties must so express themselves that their meaning can be determined with a reasonable degree of certainty. It is plain that unless this can be done it would be impossible to hold that the contracting parties had the same intentions; in other words the consensus ad idem would be matter of mere conjecture.’ 48

Even where uncertain or ambiguous language is not used, if the parties have not agreed on all of the essential terms of the agreement, the contract will be unenforceable.

A contract will be unenforceable if it reserves a discretion for one party not to carry out his/her obligations.49 Where a party seeks to bring an action based on a clause in a contract, the onus will be on the plaintiff to

demonstrate the validity of the clause.50

Ambiguity and UncertaintyIt has been suggested that a court, in exercising its equitable jurisdiction, may be more lenient in its deliberations as to whether a clause can be regarded as certain.51

Individual Terms Vague, Ambiguous and Uncertain terms will be VOID. A meaningless clause will be treated in the same way as an uncertain clause.52 The court has a willingness to uphold an agreement entered into by the parties, particularly where the

circumstances indicate that the parties intend to be bound by the agreement.53

Agreements to Negotiate If the parties do not reach final agreement on essential terms, instead agreeing to finalise such matters at a

later time, that contract is an agreement to agree and will not be enforced.54 If the parties provided good consideration and the terms of the agreement to negotiate were sufficiently

certain, agreements to negotiate might be enforceable.55

One mechanism to make an agreement to negotiate more certain would be to include a provision referring matters in dispute to a 3rd party.

If parties indicate a desire to be contractually bound to negotiate in the future, and the language of the agreement is such that the courts can attribute a meaning to it, the agreement should be enforceable.56

Saving Ambiguous, Uncertain or Meaningless Contracts courts try to uphold rather than frustrate agreements.

Link to External StandardA clause that appears uncertain may be enforceable if a meaning can be given to it by reference to an external standard (may also include terms to be inserted by third party).57

Link to Reasonableness StandardCourts willing to adopt principles of reasonableness to make certain something that appears uncertain.

Implying reasonable priceThe complete failure of a contract of sale to provide for the price of the property will raise different issues.

Severance In some circumstances, the invalid term can be severed and the remainder of the contract will be

enforceable.58 Can be severed if the parties intended to be bound even if that clause was to fail.

Divisible Obligations

48 G Scammel and Nephew Ltd v HC & JG Ousten [1941]49 Thorby v Goldberg (1965)50 Falck v Williams [1900]51 Hall v Busst (1960)52 Fitzgerald v Masters (1956)53 Lend Lease Financial Planning Ltd v Southcap Pty Ltd54 Booker Industries Pty Ltd v Wilson Parking (Qld) (1982)55 Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991)56 Aiton v Transfield [1999]57 Hawthorn Football Club v Harding [1988]58 Fitzgerald v Masters (1956)

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Where parties enter into a contract containing different kinds of obligations, and issues of uncertainty arise in relation to one aspect of their arrangement, severance of the latter part may be possible.59

Waiver of Removal of Uncertainty If a clause is inserted in a contract for the benefit of a party, that party may waive the benefit of the clause and

the contract can continue to be performed. If the uncertainty was removed before the action commenced, the court can grant specific performance of the

contract.60

Incomplete Agreement

Parties must reach final agreement on the essential aspects of the contract before they will be regarded as having entered a contract.

If the parties do not finalise all the terms of the agreement themselves, but provide a mechanism for doing so, the agreement may no longer be regarded as an agreement to agree, and will be enforceable.

Mechanisms to Complete:

Reference to a 3rd PartyParties to a contract may leave terms of the contract to be decided by a 3rd party – this extends even to essential terms.61

Discretion retained by a Contracting Party A contract may purport to leave some matters to the discretion of one of the contracting parties. Contracts that

leave essential matters for later determination by one of the contracting parties will be unenforceable.62 The validity of such clauses is a matter of construction, and will turn on the individual facts of the case.63

Breakdown of Mechanism to Complete Traditionally, the court will not rewrite the agreement where the parties themselves have failed to agree on all

terms.64

a court may be prepared to determine a fair and reasonable price, and not to regard that determination as completing the agreement for the parties.

Breakdown of Mechanism to Complete – Sale of Goods

Different principles apply re: sale of goods and the price is to be fixed by the valuation of a 3rd party. The matter is governed by the sale of goods legislation.65

If the 3rd party is prevented from doing so by the fault of one party, the other may maintain an action in damages against the former.66

If any of the goods have been delivered to and appropriated by the buyer, he or she must pay a reasonable price for them.67

Saving Incomplete Agreements:

Implication of TermsCourts have shown a willingness of courts to imply terms.68

ApplicationIf it is clear that the parties have gone beyond the stage of negotiation and intend to be contractually bound, the court will be more likely to imply a term and enforce the agreement. 69 If the contract has been partly executed the court will seek to imply a term necessary for the validity of the agreement.70

Limitations

59 The Life Insurance Company of Australia Ltd v Phillips (1925)60 MacAulay v Greater Paramount Theatres Ltd (1922)61 Godecke v Kinwan (1973)62 May and Butcher Ltd v The King [1934]63 Re Theodorou [1993]64 Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd65 Sale of Goods Act 1896 (Qld), s.12 (1)66 Sale of Goods Act 1896 (Qld), s 12(2)67 Sale of Goods Act 1896 (Qld), s. 12(1a)68 Hillas and Co Ltd v Arcos Ltd (1932)69 Hillas and Co Ltd v Arcos Ltd (1932)70 Hall v Busst (1960)

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If the parties have not reached agreement on the essential terms, the contract is unlikely to be saved in this way.

The greater the number of terms not finally agreed upon by the parties, the less inclined a court will be to exercise its discretion to imply a term.

Test: Test of Fact Contract can only be regarded as concluded if parties agreed on the 3 essential elements: the parties, the

subject matter, and the price.71 ‘The starting point in considering this must be that there can be no binding contract of sale without agreement

as to price.’72

Contracts for the sale of Goods A court will more readily make such an implication where both parties intend to be bound. E.g. where the

contract is partly executed and property in the goods has passed. If the contract is silent as to price, the buyer is required to pay a reasonable price.73 Under common law, court may imply a term that goods will be sold at a reasonable price, and the contract will

be upheld.74

Contracts for Sale of LandContracts for the sale of land are treated differently from contracts for the sale of goods. In the latter case, the courts are sometimes prepared to imply a term that the purchaser will pay a reasonable price for the goods. Hall v Busst (1960)In a contract for the sale of land a court will not imply a term for payment at a reasonable price. Hall v Busst (1960)

Contract Provides for Parties to Agree in the FutureOutcome is likely to differ depending on the nature of the contract.

Sale of goods Contract is likely to be upheld

Sale/lease of property Contract unlikely to be upheld.

Contract Provides for Payment of a Reasonable Price: Whether the agreement is upheld as sufficiently certain may turn on the nature of the subject matter.

Sale of goods contract Likely to be valid.75

Sale of land or sale of unique goods Contract likely to be void for uncertainty. Exception: Court prepared to substitute its own mechanism for arriving at a reasonable rental where the

mechanism established by the parties broke down.76

71 Hall v Busst (1960)72 Hall v Busst (1960)73 Sale of Goods Act 1896 (Qld), s11(2)74 Foley v Classique Coaches Ltd [1934]75 Sale of Goods Act 1896 (Qld)76 Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd

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‘Subject To’ Agreements:Parties may be ready to sign a contract but not able or not prepared to commit to one or more aspects of the agreement – may decide to enter into agreements ‘subject to’ the happening of a particular event.

Subject to Finance Contracts for sale of land may include a clause stating that the contract is subject to ‘the purchaser receiving approval for finance on satisfactory terms and conditions’.

Satisfactory FinanceA clause inserted for the benefit of the purchaser that allows the purchaser alone to determine what is satisfactory is not uncertain, however, the purchaser is required to act honestly.77

Steps to be taken to obtain financeFinance clauses impose obligation on the purchaser to take all steps reasonably necessary to obtain finance approval.78

TestAn objective, ‘Reasonable Man’ test is likely to be used

Subject to Contract Parties may agree on all relevant terms, yet make their agreement ‘subject to contract’. Often hard to determine whether the parties the parties are contractually bound before the formal contract is entered into:

CategorisationHigh Court concluded that the case could fall into one of three categories:79

1. The parties have reached finality in arranging all terms and intend to be immediately bound to perform those terms, but at the same time propose to have the terms restate in a form which will be fuller or more precise but not different in effect. Effect: BINDING contract formed.80

2. The parties have completely agreed upon all terms and intend no departure from or addition to those terms, but have made performance of one or more of the terms conditional upon the execution of a formal document. Effect: BINDING contract formed.81

3. The intention of the parties is NOT to make a concluded bargain at all, unless and until they execute a formal contract Effect: NO BINDING contract formed.82

TestTest of intentions used. Language and conduct of the parties taken into account.83

77 Meehan v Jones78 Meehan v Jones79 Masters v Cameron (1954)80 Branca v Corbarro [1947]81 Niesmann v Collingridge (1921)82 Masters v Cameron (1954)83 Masters v Cameron (1954)

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Intention to Create Legal RelationsTo create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly.84

TestObjective, ‘Reasonable Man’ test taking into account all surrounding circumstances.85

Domestic and Social Relationships:

Presumption Intention of the parties can be gleaned from the surrounding circumstances.

Agreements between husband and wife Courts reluctant to find intention for legal consequences. Presumption is not limited to married couples – extends to de-facto couples both heterosexual and

homosexual.86 Can be extended beyond inter-familial agreements - ie between friends.87

Rebutting the Presumption: The presumption can be easily rebutted:

Parties are entering into a business relationship Parties no longer living in harmony (Natural love and affection)88

Where there is hostility within the relationship between the two parties If the language used shows an intention to create legal relations.

Relevant Factors Seriousness of conduct Expense involve relative to parties wealth. The degree of hostility within the relationship. Closeness of family ties Whether the subject matter is commercial in nature.

Commercial Agreement:

Presumption Where parties negotiate and agree in a business setting, it is presumed that the parties intended the agreement to have legal consequences.89

Rebutting the Presumption If a party can prove lack of intent Express clause stating that no legal consequences arise from the document Overall tenor of the document indicates the parties had no intention to create legal relations.

Government Activities:

Commercial AgreementsIf one of the contracting parties is a government, increased formality may be required to demonstrate the necessary legal intent.90

Policy InitiativesA court may be less likely to find that the parties intended to enter contractual relations.91

84 Atkin LJ, Rose and Frank Co v JR Crompton & Bros Ltd85 Merritt v Merritt86 Balfour v Balfour [1919]87 Heslop v Burns [1974]88 Balfour v Balfour [1919]89 Rose and Frank Co v JR Crompton and Bros Ltd [1923]; Esso Petroleum Ltd v Commissioners of Commissioners of Customs and Excise 90 Coogee Esplanade Surf Motel Pty Ltd v Commonwealth of Australia (1976)91 The Administration of the Territory of Papua New Guinea v Leahy (1960); Australian Woollen Mills Pty Ltd v The Commonwealth (1954)

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Voluntary Associations:

Associations established on consensual basis only: ‘...unless there were some clear positive indication that the members contemplated the creation of legal

relations inter se, the rules adopted for their governance would not be treated as amounting to an enforceable contract.’92

Result may be different if the member has proprietary interest in the assets of the association.

Circumstances Indicating Absence of IntentionIntention can be gleaned through the language/conduct of parties/basis of circumstances in which agreement was reached.

Honour Clauses Court will presume the parties intended to create legal relations by entering the agreement.93

Promotional Puff and Free Gifts Difficult to determine whether advertisements can give rise to legally enforceable contracts. Words used, conduct and the entire context in which the advertising takes place need to be considered. 94

Ex Gratia Payments and ‘Without Prejudice’ Offers Despite the use of the words ‘ex gratia payment’ , Megaw J held that the parties intended to create legal

relations when negotiating the redundancy package.95 Does not indicate the agreement is to be without legal effect.

Letters of Comfort Whether a letter of comfort can be sued upon by the lender if the borrower defaults depends on whether a contract has been created between the writer of the letter and the lender.

TestTo determine the intention of the parties, the courts look at the construction of the document and the circumstances surrounding its sending, in particular whether it has been given in a commercial context.

‘Subject to Contract’ Clauses Whether the parties have entered into an enforceable contract at the negotiation phase depends on the intention of the parties.96

‘Letters of Intent’ and ‘Understandings’ Understanding may arise orally or in writing. A ‘Letter of Intent’ or ‘Understanding’ may indicate something short of an intention to enter a concluded

agreement. Parties may be found to have the requisite intention to enter legally binding contract.97 The nature of the language used, whether one or both parties signed the letter and possibly, whether one of

the parties is a Government Department may be relevant factors. An ‘Understanding’ is a vague term and unlikely to be interpreted as imposing legally binding obligations on

the parties.

92 Cameron v Hogan (1934) 93 Rose and Frank Co v JR Crompton and Bros Ltd [1925]94 Carlill v Carbollic Smoke Ball Co [1893]; Esso Petroleum Ltd v Commissioners of Customs and Excise [1976]95 Edwards v Skyways Ltd [1964]96 Masters v Cameron97 Coogee Esplanade Surf Motel Pty Ltd v Commonwealth of Australia (1976)

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ConsiderationConsideration is ‘An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.’98

Consideration in Bilateral ContractsAt the time of the agreement each party makes a promise. The price paid for that promise – the consideration – is the other party’s promise. Each party promises to do an act or refrain from doing an act.

Consideration in Unilateral ContractsIt is the absence of an obligation undertaken by the promisee that distinguishes a unilateral contract from a bilateral contract. The act or forbearance itself – rather than a promise—constitutes the consideration.

Executed and Executory Consideration:

Executory consideration the obligation to perform has not yet fallen due. (Bilateral contracts)

Executed consideration If B chooses to and does perform the specified acts, consideration is said to be executed. (Unilateral contracts)

Rules Governing Consideration

Consideration Must Move From the Promisee. 99 benefit need not move to promisor: it is sufficient if consideration moves from the promisee to a 3rd party at the direction of the promisor.

Joint promiseesIt is possible for agreements to take place between more than 2 parties. Consideration need only flow from one of the promisees.100

Overlap with Doctrine of Privity Doctrine of privity provides that only a person who is a party to a contract can sue on it. A promisee is only

able to sue on a promise if the promisee has given consideration for that promise = overlap between the doctrines.101

The doctrine of consideration will be regarded as being different from the doctrine of privity.102

Consideration Must Be Bargained For. An act or forbearance (or promise to forbear) can only be valid consideration if it is bargained for. The action

or forbearance from action of the promisee must be in reliance on the promisor’s promise. The act or forbearance must be done at the request of the promisor.

Unilateral contractsIt may be more difficult to like the promise and consideration.103

Consideration Must be Sufficient The price paid by the promisee for the promisor’s promise must be ‘sufficient ‘ – ‘something which is of value

in the eyes of the law’.104 Consideration may be valid although it cannot be given a monetary equivalent.105 Consideration need not be adequate.106 Consideration can be nominal.107

Sustainability of sufficiency principles. 98 Lord Dunedin, Dunlop Pnuematic Tyre Company Ltd v Selfridge & Company Ltd [1915]99 Dunlop Pnuematic Tyre Company Ltd v Selfridge &Company Ltd [1915]100 Coulls v Bagot’s Executor and Trustee Company Ltd (1966)101 Tweddle v Atkinson (1861)102 Trident General Insurance Company Ltd v McNiece Bros Pty Ltd (1987)103 Coombe v Coombe [1951]104 Thomas v Thomas (1842)105 Chappell & Co Ltd v Nestle Co Ltd [1960]106 Woolworths Ltd v Kelly (1991)107 Lennox v Cameron (1997)

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If the motivation for providing consideration (i.e. love and affection) is expressed to be the consideration, it is NOT good consideration.

Consideration Must Not be Past: Consideration moving from the promisee will not be valid to support a promisor’s promise if that consideration

is past. Consideration will be regarded as being past if it has already flowed from the promisee to the promisor.108 In limited circumstances, where a promise relates to previous work done or assurances given by a promisee

on the understanding that the work or assurance would subsequently be rewarded, a promisor’s promise may be enforced.

Consideration is ‘executed’ once it is performed. To determine whether consideration is past or executed the legal position must be examined at the time the

relevant promise was made.

Consideration and Formal Agreements Formal agreements are signed under seal, and are commonly referred to as deeds. Deeds are of a solemn and serious nature, so the common law has recognised these agreements as valid

even if consideration has not been provided by the parties to them.109

Consideration: Specific Examples

Moral Consideration A promise made because of a sense of moral obligation to the promisee will not be sufficient consideration to support the promise.110

Performance of Existing Duties A promise by one party (the promisee) to perform an existing contractual duty owed to another party (the

promisor) is not good consideration for the promisor’s promise.111 Prevents a party to the contract from later attempting to obtain a further benefit from the other party by

suggesting that he/she will be unable/unprepared to continue performance of the contract unless an additional benefit is conferred.112

The principle will not prevent enforcement of a subsequent agreement, but, where the promisee promises to do something more than he or she originally contracted to do.113

Depending on the circumstances, the court may be prepared to find that the parties have agreed to abandon the original contract and enter into a new one.114

promissory estoppel may prevent the promisor from reneging on the subsequent promise made to the promisee.

Performance of Public Duties If a person is obliged by law to do a particular act, then in undertaking to perform that act in exchange for a

promise, he or she is providing NO consideration.115

There is some judicial support for a move to recognise the performance of public duties as constituting consideration.116

Where Promise is Made to a Third Party ‘An agreement to do an act which the promisor is under an existing obligation to a third party to do, may quite well amount to valid consideration and does so in the present case: the promisee obtains a benefit of a direct obligation which he can enforce.’117

The Australian High Court has accepted that a promise to carry out pre-existing contractual duties owed to a third party can provide good consideration.118

Part Payment of Debt 108 Roscorla v Thomas (1842) 109 Rose & Burgess v Commissioner of Stamps (SA) (1979)110 Eastwood v Kenyon (1840)111 Wigan v Edwards (1973)112 Stilk v Myrick (1809)113 Hartley v Ponsonby (1857)114 Hartley v Ponsonby (1857)115 Glasbook Brothers Ltd v Glamorgan County Council116 Ward v Byham [1956]117 New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd [1975]118 Port Jackson Stevedoring Pty Ltd v Samond & Spraggon (Aust) Pty Ltd (1978)

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Rule in Pinnel’s CaseIf an amount of money is owing by a debtor to a creditor, and those parties enter into a subsequent agreement that the creditor will accept a lesser amount in full satisfaction of the amount owing, the later agreement will generally not be binding.119

Circumstances in Which the Rule will not operate

Parties Enter into a deed

Accommodation to Benefit the CreditorIf the debtor provides consideration for the creditor’s promise then the rule will not apply.

payment at an earlier date payment at a location more convenient to the creditor payment in a currency more desirable to creditor

Amount Owing is DisputedThere must be a genuine dispute about the amount owing. It is not enough that the debtor is unhappy about the amount owing.120

Payment By a 3 rd Party As the 3rd party is not indebted to the creditor, his or her promise to pay an amount should be good consideration for the creditor’s promise to forgo the balance of the debt.121 The contract between the 3rd party and the creditor is regarded as valid.

Composition With Creditors Under a ‘composition with creditors’ arrangement, the creditors all agree to accept payment of something less

than the full amount owing by the debtor, in exchange for giving the debtor a full release. As between creditors, it is clear that consideration has been provided – each promises to forgo a portion of the

debt due in exchange for the other creditors agreeing to do the same. As between an individual creditor and debtor, it may be argued that on a strict application of the rule in

Pinnel’s Case, the creditor has not received consideration for his/her promise to accept part payment in full satisfaction of all of the debt owing, so the composition is NOT a valid agreement and the creditor is free to sue for the balance. It is difficult to establish consideration in such an arrangement 122

Forbearance to Sue In an attempt to avoid litigation, parties may attempt to resolve such disputes between themselves. It is likely the agreements will be upheld. A promise not to sue may be good consideration for the other party’s promise even if in fact that claim would

have been unsuccessful. Not all compromises of an action or promises not to sue will provide good consideration for the other party’s

promise. The party promising not to sue or foregoing part of the claim must be acting in good faith. S/he must have an honest belief that the claim may be successful. Parties must be in genuine dispute.123

The claim must not be vexatious or frivolous.124 o Provisos:

the claim is made in good faith it does not matter that the belief was not well founded the claim was in fact bad in law.

119 Pinnel’s case (1602)120 H B F Dalgety Ltd v Moreton [1987]121 Hirachand Punamchand v Temple [1911]122 Estate of Whitehead (1986)123 Wigan v Edwards (1973)124 Hercules Motors Pty Ltd v Schubert (1953)

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Bargained-For Conduct Already Performed: Consideration will generally be ineffective to support a promise if, at the time the promise is given, the

consideration has already been performed.125 Services are often provided without discussion of payment, but it is presumed by all parties that there will be

payment for those services. E.g. professional services. The circumstances in which past services or promises can operate as good consideration for a subsequent

promise have been refined.126 A benefit is conferred upon the promisee. Where a promisee seeks to enforce a promise made after the

provision of the services (or other conduct relied upon), the promisee must demonstrate the following:o the act must have been done at the promisor’s requesto the party must have understood that the act was to be remunerated either by a payment or the

conferment of some other benefito payment, or the conferment of a benefit, must have been legally enforceable had it been promised in

advance.

125 Lampleigh v Braithwaite (1615)126 Pau On vLau Yiu Long

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Equitable Estoppel

General Overview Doctrine of Equitable Estoppel was developed in response to the injustice that could follow from a person

reneging on a promise that s/he has made.

Where equitable estoppel applies a person will be prevented or ‘estopped’ from going back on his/her word.

It’s important to emphasis the need for UNCONSCIONABILITY before equitable estoppel will apply: it is NOT available as a back-up submission in every case where the parties have failed to establish a binding contract.127

Common Law EstoppelCommon law estoppel by conduct prevents a person from unjustly departing from an assumption or representation of past or existing fact that the other party has adopted or relied upon and which, unless the assumption or representation is adhered to, will cause that other party to suffer detriment.128

Classified as a rule of evidence that prevents a person denying what s/he has represented and instead trying to prove the facts.

A rule of evidence because it may help from the factual foundation for an action ---but is NOT a cause of action itself.

If the contract confers a cause of action on the party raising the estoppel, the cause of action may be enforced.

Compels the party bound to adhere to the assumption that a contract exists.129 Only operates in relation to representation of past or existing fact, common law estoppel does NOT compel

adherence to representation s of intention or promises.

Development of the Doctrine of Equitable Estoppel:

High Trees and Promissory Estoppel ‘Where on party has, by his words or conduct, made to the other a promise or assurance which was intended to affect the legal relations between them and to be acted upon accordingly, then, once the other party has taken him at his word and acted on it, the one who gave the promise or assurance cannot afterwards be allowed to revert to the previous legal relations as if no such promise or assurance had been made by him, but he must accept their legal relations subject to the qualification which he himself has so introduced, even though it is not supported in point of law by any consideration but only by his word.’130

Denning restricted promissory estoppel to the limited sense of not allowing the promisor to act inconsistently with the promise.

Promissory estoppel was a ‘shield and not a sword’.

Recognition of Equitable Estoppel Promissory estoppel was but one instance where an equity was created by estoppel.131

‘ the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has ‘played such a part in the assumption that it would be unfair or unjust if he were left free to ignore it.’

The basis for equitable estoppel is the prevention of unconscionable conduct. Equitable estoppel is now both a shield and a sword.

A Unified Estoppel? A number of elements are common to both equitable estoppel and common law estoppel in pais. Mason CJ argued in favour of a ‘single overarching doctrine of estoppel.132

Representations or assumptions concerning the future can only be dealt with by equitable estoppel and not be common law estoppel in pais.

127 Milchaus Investments Pty Ltd v Larkin (1989)128 Thompson v Palmer (1933)129 Waltons Stores (Interstate) Ltd v Maher (1988)130 Denning LJ, Combe v Combe [1951]131 Waltons Stores (Interstate) Ltd v Maher (1988)132 Commonwealth v Verwayen (1990)

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DissentMcHugh J: ‘one important difference between the common law doctrine of estoppel in pais and the equitable doctrines of promissory and proprietary estoppel is that the common law doctrine is concerned with the rules of evidence, notwithstanding that a common law claim of estoppel must be pleaded, while the equitable doctrines are concerned with the creation of new rights between the parties.’

Elements of Equitable Estoppel

Equitable estoppel may apply in the absence of pre-existing relationship of any kind. An equitable estoppel may arise from pre-contractual negotiations.133

Unconscionable Conduct Unconscionable conduct denotes a creation or encouragement by the defendant in the other party of an assumption that a contract will come into existence or a promise will be performed and for the other party to have relied upon that assumption to his or her detriment to the knowledge of the first party.134

Test for Equitable Estoppel 135

1. the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and (in the latter case) that the defendant would not be free to withdraw from the expected legal relationship;

2. the defendant has induced the plaintiff to adopt that assumption or expectation;3. the plaintiff acts or abstains from acting in reliance on the assumption or expectation;4. the defendant knew or intended him to do so;5. the plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and6. the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or

otherwise.

The elements of estoppel must be positively proved and will rarely if ever be inferred.

Assumption or Expectation

Future State of Affairs The relevant assumption or expectation is ‘that a contract will come into existence or a promise will be

fulfilled.’

Clear and Unambiguous The assumption or expectation acted upon by the plaintiff must have been clear and unambiguous.136 Equitable estoppel requires a greater degree of certainty than that required for a contractual undertaking. A representation cannot be said to be clear and unequivocal if important information is omitted.137

Assumptions May be of Fact or Law Equitable estoppel will apply to assumptions or expectations of law as well as those as to future fact.138

133 Waltons Stores (Interstate) Ltd v Maher (1988)134 Waltons Stores (Interstate) Ltd v Maher (1988)135 Brennan J, Walton Stores (Interstate) Ltd v Maher (1988)136 Legione v Hateley (1983)137 Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998)138 Lorimer v State Bank of New South Wales

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Encouraged or Induced

Words or conduct Representation may be oral, or from conduct.139 Silence will be unconscionable only where there is an attempt to afterwards assert a legal relationship different

from the one which, to the knowledge of the silent party, the other party assumed or expected. It will be unconscionable to refrain from making a denial and then to leave the other party to suffer whatever

detriment is occasioned by the non-fulfilment of the assumption or expectation.140 The defendant cannot escape where s/he has wilfully shut his/her eyes to what should have been obvious.141 It will be insufficient if the plaintiff orchestrates matters so that it appears that the defendant’s conduct allowed

the plaintiff to adopt the assumption where the reality is otherwise. Skywest Aviation Pty Ltd v Commonwealth (1995)

Mere Hope The defendant must have ‘played such a part in the adoption of the assumption that it would be unfair or

unjust if he were left free to ignore it’.142

Unauthorised Representations No estoppel will arise if an agent who has no authority to bind his/her principle makes a representation, and

this fact is known or ought to be known to the party claiming estoppel.143 The mere fact that a representation is unauthorised will not necessarily prevent an estoppel being

established.144

Reliance The plaintiff’s reliance upon an assumption or expectation induced by the defendant must have been

reasonable. Departure from an assumption or expectation that is unreasonably formed or unreasonably relied upon will not normally constitute unconscionable conduct by the defendant.145

In assessing the reasonableness of any reliance, the characteristics of the plaintiff – including whether s/he was being advised by solicitors at the time – are relevant.146

It is possible that a party’s solicitor may be encouraged or induced to make the same mistake as his/her client.147

Knowledge or Intention: A party who induces the adoption of an assumption or expectation must know or intend the other party to act

or abstain from acting in reliance on the assumption or expectation.148

139 Legione v Hateley (1983)140 Waltons Stores (Interstate) Ltd v Maher (1988)141 Ampol Ltd v Matthews (1991)142 Waltons Stores (Interstate) Ltd v Maher (1988)143 State Rail Authority (NSW) v Heath Outdoor Pty Ltd (1986)144 Corpers (No. 664) Pty Ltd v NZI Securities Australia (1989)145 Australian Securities Commission v Marlborough Goldmines Ltd (1994)146 Capital Market Brokers Pty Ltd v Hamelyn UPC Ltd147 Waltons Stores (Interstate) Ltd v Maher (1988)148 Waltons Stores (Interstate) Ltd v Maher (1988)

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Detriment: The relevant detriment is that of the plaintiff, not the defendant.149 There must be a link between the assumption or expectation created or encouraged and the detriment

suffered. It is insufficient for the plaintiff merely to change his/her position in reliance upon the assumption or

expectation. The party claiming estoppel must suffer detriment in the sense that they would suffer material disadvantage if

departure from the assumption was to be permitted.150 The detriment is determined as at the date the defendant seeks to resile from the assumption or expectation

he or she has encouraged or induced, and upon which the other party has acted.151 The disadvantage need not be substantial. There will be no estoppel if the plaintiff suffers detriment after learning that the assumption or expectation on

which he or she relied was without basis.152 Any detriment must be suffered by the plaintiff, not be an associated party such as related company.

Failure to Avoid Detriment The purpose of equitable estoppel is to avoid detriment being suffered.

‘It is not to compel the party bound to fulfil the assumption or expectation; it is to avoid the detriment which, if the assumption or expectation goes unfulfilled, will be suffered by the party who has been induced to act or abstain from acting on it’.153

It may be possible to show the relevant detriment where the defendant has made an attempt to avoid detriment being suffered by the plaintiff but the attempt proves to be inadequate.

The defendant may only be required to warn the plaintiff that the assumption is mistaken before the plaintiff incurs irreversible detriment.

Equitable estoppel may be relied upon even where the defendant has taken steps to avoid the detriment but those steps do not go far enough. Silovi Pty Ltd v Barbaro (1988)

Relevant Remedy The appropriate remedy is within the court’s discretion.154 The court goes no further than necessary to prevent unconscionable conduct.155 There should be proportionality between the remedy and the relevant detriment. The object of equitable estoppel is not to enforce promises but rather to avoid detriment.156 In some circumstances, however, the enforcement of a promise may be the only means of avoiding the

detriment.157 The court may order compensation based on the plaintiff’s reliance loss rather than on his or her expectation

loss.158

149 Gobblers Inc Pty Ltd v Stevens (1993)150 Thompson v Palmer (1933)151 Lorimer v State Bank of New South Wales152 Milchas Investments Pty Ltd v Larkin (1989)153 Brennan J, Waltons Stores (Interstate) Ltd v Maher (1988)154 Austotel Pty Ltd v Franklin’s Self Serve Pty Ltd (1989) (p193 txt)155 Waltons Stores (Interstate) Ltd v Maher (1988)156 Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd157 Waltons Stores (Interstate) Ltd v Maher (1988)158 Commonwealth v Verwayen (1990)

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Establishing Contractual Terms Incorporating Written terms

Overview Most contracts will involve some element of writing. Sometimes the arrangement may involve a written document that is not signed by the parties - -e.g. tickets

issued as part of a contract of carriage. Terms can be contained in written notices displayed in prominent places. Businesses may display terms on their websites. Sometimes parties may purport to contract on the basis of terms not expressly set out in the document or

discussed orally, but set out in another document referred to by the parties. The court examines the circumstances of the case to determine whether the parties can be regarded as

having assented to the written terms.159

Incorporation by Signature Parties sometimes wish their contractual arrangement to be formalised by reducing the agreement to writing, the written document being signed by the contracting parties.

Both parties will generally be bound by all of the terms contained in the agreement, regardless of whether the document was read or the parties were aware of the existence of the terms contained in the agreement.160

When the Rule is Displaced Where the signature does not signify assent to the terms Where there has been some competing interest – such as the need to protect the signing party—that

outweighs the desire for contractual certainty achieved by holding a person to the terms in a signed document.

Misrepresentation of the Effect of the Clause:The rule that a party is bound by all of the terms of a signed document will NOT apply where the person is induced to sign by fraud or misrepresentation.161

Document Signed is Not Contractual in Nature:If a party signs a document believing it is something other than a contractual document, s/he may not be bound by its terms.162

Where parties have finalised their agreement, and later sign a written document that contains terms NOT previously agreed to. It is unlikely that a court will find that such a document will be binding.163

Defence of Non Est Factum: A defence only available to a limited class of people who have signed a contractual document and wish to

escape the legal consequences of the contract. The person who signed the document did not know what s/he was signing. Person relying on the defence must sho the document signed was radically different from the document they

thought they signed.

Requirementsthey are unable to read due to blindness/illiteracythrough no fault of their own are unable to have any understanding of the purport of a particular document.164

159 Olly v Marlborough Court Ltd [1949]160 L’Estrange v F Graucob Ltd [1934]161 Curtis v Chemical Cleaning & Dyeing Co [1951]162 Curtis v Chemical Cleaning & Dyeing Co [1951]163 DJ Hill & Co Pty Ltd v Walter H Wright Pty Ltd [1971] (p208 txt)164 Petelin v Cullen (1975)

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Incorporation by Notice: Unsigned Document: Examples of written contractual documents not signed by the contracting parties:

tickets for transport fares car park tickets tickets for entry to performance, amusement park etc brochure given to bidders at auctions describing the lots to be auctioned Quotations given by tradespersons may only be signed by one of the contracting parties.

Often the written will contain terms which include a clause that excludes one party from liability should harm, injury or loss occur in the course of the contractual agreement.

As both parties have not signed the written document, the rule in L’Estrange v F Graucob Ltd (160) will NOT applied.165

If the terms are to form part of the agreement, there must be other evidence that the parties have assented to the terms.

Reasonable Steps Taken By Defendant

By taking the document without objecting to or discussing the terms, the plaintiff can be regarded as having assented to them, and will be regarded as having been bound by them.166

If the document is NOT one that a reasonable person would regard as contractual, and NO extra steps have been taken by the defendant to advise that the document contains contractual terms, the plaintiff would not ordinarily be bound by the written terms.

Where the defendant wants to show that the plaintiff is bound by the terms, the onus is on the defendant to demonstrate that the document was not delivered to the plaintiff merely as a voucher or receipt, but as a contractual document.

There may be some circumstances in which the plaintiff will NOT be bound by its terms even if the document is ordinarily regarded as contractual: If Notice on ticket directing passenger to conditions on the back is illegible If document is folded so as to indicate it does not contain contractual terms If ticket sets out only the place of departure and destination on the front, and the terms are printed on the

other side.

If a document contains a term unusual for that kind of contract, or is particularly harsh, the mere handing over of the ticket, although accepted as being a contractual document, may not be sufficient to bring notice of that particular term to the plaintiff’s attention.167

Test Test of fact as to whether the defendant took reasonable steps to draw the written terms to the attention of

the plaintiff. Reasonable Man Test to determine whether the plaintiff will be bound by the terms.

Effect of Reasonable Person Not Being Able to Read or Understand Terms: The defendant must do what is sufficient to inform people in general that the ticket contains conditions. If this

is done, a person cannot argue that s/he is not bound by the terms on account of his/her ‘exceptional ignorance or stupidity or carelessness’.

If the particular disability preventing a person from reading or understanding the term is expressly brought to the defendant’s attention, it is possible that the outcome will be different.

Reasonable Steps Taken Before or Upon Contract Formation:Once the contract has been formed it is too late for fresh terms to be introduced.168

Incorporation by Notice: Signs Notices or signs can display terms later relied upon by one of the parties:

Sign at entrance to skating rink – informing of own risk Sign at luggage counter - removing liability for loss of goods deposited to an amount more than a specified

sum Sign at motel counter – removing responsibility for stolen goods

165 L’Estrange v F Graucob166 Mendelssohn v Normand Ltd [1970]167 Parker v The South Eastern Railway Company (1877)168 Thornton v Shoe Lane Parking Ltd [1971]

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The crux of the matter is whether, in the circumstances of the case, the plaintiff can be regarded as having assented to the terms.If the plaintiff was aware of the term, it will form part of the contract regardless of the nature of the sign.

Difficulties arise if plaintiff denies observing the sign at the time of contract formation.

TestReasonable Man: (did the defendant take reasonable steps to bring the term to the attention of the plaintiff? If so, did this occur before or at the time of contract?)

Reasonable Steps Taken by Defendant: The crucial factor is the reasonableness of notice given to the plaintiff.169 Greater onus on the defendant by suggesting that the steps taken could only be regarded as sufficient if the

plaintiff actually became aware of the term. ON BALANCE, it is likely that the terms in a sign or notice will be incorporated if the defendant has taken

reasonable steps to bring the information in the sign or notice to the plaintiff’s attention. It does not matter if plaintiff did not actually read the notice/sign.

Effect of Person Not Being Able to Read or Understand Terms:

Generally, it does not matter if a plaintiff under consideration cannot read or understand terms. Provided reasonable steps were taken to bring terms to the attention of an ordinary person in the position of

the plaintiff, that is sufficient.

Reasonable Steps Taken Before or Upon Contract FormationReasonable steps taken by a defendant must be taken before, or upon contract formation.170

Incorporation by Notice: Website It is likely traditional principles will be relevant. Whether reasonable steps were taken before or upon contract formation will depend on precisely what the

customer was required to do to place an order, and when this was done. If a contract is made in person and one party advises the other that terms govern the transaction, and provides

the other with a document setting out the terms, this will be reasonable notice, and the person will be bound. Where contract is formed electronically and the configuration of the website allows the consumer to order the

goods or services without acknowledging that the terms form part of the agreement, the courts may be less inclined to find that they form part of the agreement.

Incorporation by Reference This is common practice where lending institutions advance money and take a mortgage over land to secure that advance. Can incorporate terms by reference to another document that sets them out in full.Common law also recognises that terms can be incorporated into a contract by reference.171 Whether the terms have effectively been incorporated by reference in any given case will depend on the surrounding circumstancesCase law suggests that terms can be incorporated into a contract by reference, regardless of whether the document incorporating the terms is signed by the parties, or is a ticket or a sign.172

TestTest: Objective, Reasonable Man: whether the plaintiff can be regarded as having assented to the terms incorporated by reference. – have reasonable steps been taken?

Incorporating Oral Terms:

169 Balmain New Ferry Company v Robertson (1906)170 Olly v Marlborough Court Ltd [1949]171 Smith v South Wales Switchgear Co Ltd [1978]172 Thompson v London, Midland & Scottish Railway Company [1930] (p218 txt)

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Mere Puff Common advertising technique not intended to be taken seriously and could not be regarded as truly representing the position. No consequences arise at common law for such sales talk. making excessive or exaggerated claims are now in danger of being in breach of statute prohibits deceptive

conduct.173

Representation or Term

Definition of WarrantIn saying that he must prove warrant, I use the word ‘warranty’ in its ordinary English meaning to denote a binding promise. Everyone knows what a man means when he says ‘I guarantee it’ or ‘I warrant it’ or ‘I give you my word on it’ he means that he binds himself to it. That is the meaning it has borne in English law for 300 years…174

What makes a TermA statement will be a term of a contract if it is intended to be promissory – if the statement-maker ‘warrants’ its truth.If the statement-maker cannot be regarded as guaranteeing the truth of the statement, it will not be a term of the contract, and will not have contractual force. It will be a representation only.

If a statement is a contractual term, the buyer can sue the seller for breach, with damages. If the statement is a representation only (having no contractual force) the seller will NOT be liable to pay

damages for breach of contract. Damages for Representations at Common law: buyer will be entitled to the more limited relief available for

innocent misrepresentation.

Test 175 Reasonable Man test

Words and Conduct of the Parties

Test of intention for the parties is objective.176 The importance of the statement alone is not determinative of whether the statement can be regarded as

promissory.177

Knowledge or Expertise of the Statement-Maker Where the statement-maker professes to have personal knowledge of the relevant information, it is more likely

that s/he can be regarded as guaranteeing the truth.178

If the statement-maker is merely passing on information of which he or she has become aware, but does not profess to have any personal knowledge in relation to the information, it would be more difficult to regard that statement as promissory.

If the statement maker is in a better position to ascertain its accuracy than the innocent party, the court will more readily infer that it was intended to be promissory.179

Statement Maker has Control in Relation to Information If the statement is based on information that the statement maker should have control of (I.e. Willingness of

company not to stock opposing product), the statement maker is more likely to be regarded as guaranteeing the truth.180

173 Trade Practices Act (Cth)174 Lord Denning LJ, Oscar Chess Ltd v Williams175 Reardon Smithline v Hansen-Tangen [1976]176 Harling v Eddy.177JJ Savage & Sons Pty Ltd v Blakney178 Oscar Chess Ltd v Williams [1957]179 Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965]180 Hospital Products Ltd v United States Surgical Corporation (1984)

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Oral Statement Not Reduced to Writing: Where, following pre-contractual negotiations, the agreement is reduced to writing and the oral statement

upon which the party seeks to rely is omitted from the document, this may indicated that the parties did not intend the statement to be contractual in nature.181

If an oral statement later becomes part of the written agreement, it is likely that it was intended to form part of the contract.182

Interval of Time The greater the interval of time between when the statement is made and when the contract is formed, the

less likely it will be regarded as promissory.183

Collateral Contracts

Nature of a Collateral Contract An oral statement that is established as being promissory will generally form part of the contract being

considered (the main agreement). However, the oral statement may actually form the basis of a collateral contract instead.184

A collateral contract is one in which the consideration for the promisor’s promise is the promisee’s entry into the main contract.185

For consideration to be valid, it must not be past. If the promisee has already entered into the main agreement at the time the collateral contract is formed – when the promisor’s statement is made – the promisor’s consideration will be past, and a valid collateral contract will not be formed.

The following must be satisfied before a statement will give rise to a collateral contract186

a statement is made to induce entry into the contract the statement is relied upon; and the statement relied upon was promissory in nature

If a collateral contract is established and the statement that forms the basis of the contract is false, the statement-maker (promisor) will be in breach of the collateral contract. Promisor will be liable for damages for loss resulting from that breach. The falsity of the statement does not entitle the promisee to terminate the main contract. (p227 txt)

Bipartite and Tripartite Contracts:Collateral contracts can be bipartite or tripartite.

BipartiteWhere the parties to it are the same as those who enter the main agreement.187

TripartiteArise less frequently. The parties to the collateral contract are different from the parties to the main contract. The receiver of the information under a collateral contract is still entitled to sue for breach if the information turns out to be false.188

Consistency With the Main Contract: The courts will only recognise a collateral contract if it is not inconsistent with the terms of the main contract.189

The requirement for consistency does not apply in England190

Circumstances in Which Collateral Contracts Likely to be Pleaded

181 Routledge v McKay [1954]182 Oscar Chess Ltd v Williams [1957]183 Routledge v McKay [1954]184 De Lassalle v Guilford [1901]185 Heilbut Symons & Co v Buckleton [1913]186 JJ Savage & Sons Pty Ltd v Blakney (1970)187 Shepperd v The Council of the Municipiality of Ryde (1951)188 Wells (Mersthan) Ltd v Buckland Sand & Silica Ltd [1965]189 Hoyt’s Pty Ltd v Spencer (1927)190 City and Westminster Properties (1934) Ltd v Mudd [1959]

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Overview The existence of a collateral contract will be particularly important where the parties have entered into a

written agreement and intend that contract to contain all of the terms of the contract. In such a case the parol evidence rule operates to prevent verbal evidence being led to add to the written

document. This means an innocent party cannot sue for damages for breach of that contract in relation to a false oral statement made before entry into main agreement.

If innocent party can show the oral statement formed to basis of a collateral contract, s/he may be entitled to damages for breach of collateral contract.

Likely to be used: In sales of land to bypass the parol evidence rule To claim some semblance of damages from a failed contract by implying that a collateral contract existed

as consideration for entering the main contract.

Parol Evidence RuleA rule of long standing that may prevent evidence of the oral term being introduced where the contract is later reduced to writing.

the rule applies ‘if there be a contract which has been reduced into writing’. The rule will only apply if there is a written contract, but it will not apply in all such cases.191

The rule applies to verbal evidence, but can also exclude other kinds of extrinsic evidence such as other documents relating to the contract or previous drafts of the written contract ultimately entered into.192

Aspects to the Parol Evidence rule: to exclude extrinsic evidence so as to add to or subtract from or in any manner vary or qualify the written

contract; and to exclude extrinsic evidence to assist in the interpretation of the written contract

Rationale of Rule Originally designed to promote certainty of contractual dealings. If parties reduce their agreement to writing, one party dissatisfied with that written agreement should not be

able to introduce other evidence to affect the contractual arrangements.193

When the Rule Applies The Parol Evidence rule will not apply to all contracts evidenced by writing. The rule only applies where the terms of the agreement are WHOLLY in writing.194 If the parties intend the contract to consist of both oral and written terms, the rule will NOT apply.195 The parol evidence rule only operates to exclude extrinsic evidence once it is established that the parties

intended the written document to represent the entire agreement. A clause that states that the document represents the entire agreement will not necessarily be effective in

demonstrating the parties’ intention for the writing to represent the entire agreement.196

Exceptions to the Parol Evidence Rule Evidence of Collateral Contract197 Evidence that Written Contract is Not Yet in Force198 Evidence that the Written Contract Was Later Varied or Discharged

Unless the contract is one required to be in writing to be enforceable, neither the variation not discharge need be in writing. Therefore, oral or other evidence can be led that the written agreement has been subsequently varied or discharged.199

Evidence to Imply a TermIn some circumstances, the common law recognises that a term forms part of the contractual relationship between the parties even though it is not expressed in the written document. ‘Implied Term’

Evidence Necessary for Rectification

191 Lord Denman192 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982)193 Hope v RCA Photo Phone of Australia Pty Ltd (1937)194 Gordon v MacGregor (1909)195 Hospital Products Ltd v United States Surgical Corporation (1984)196 Hope v RCA Photophone of Australia Pty Ltd (1937)197 De Lassalle v Guilford [1901]198 Pym v Campbell (1815)199 Narich Pty Ltd v Commissioner of Pay-roll Tax [1983]

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Sometimes may make an error when reducing their agreement to writing. The rule will not exclude such evidence if it is necessary to rectify the written document so as to correct such error.200 Conflict with equitable estoppel.

Implied TermsA contract between parties can include terms in addition to terms expressly agreed upon by the parties known as Implied terms.

Categorisation The 8 grounds for implying terms into a contract can be divided into 2 broad categories:

1st CategoryTerms implied to reflect the presumed intention of the parties

A term implied to provide the contract with business efficacy A term implied from previous consistent course of dealings A term implied from custom or usage A term implied to complete the contract

Generally either one or both of the parties will not have specifically turned their minds to the particular term. A term will not be implied under any of these heads if there is an express term to the contrary in the

agreement.

2nd CategoryTerms implied regardless of intention

term implied as legal incident of a particular class of contents term implied imposing on the parties a duty to cooperate term implying duties of good faith, fair dealing and reasonableness term implied by statute.

These categories are driven by public policy considerations. In most of these cases, parties are free to contract out of the implied term.

there can be overlap between the categories. (p238 txt) Implied terms can also be categorised in other ways as the common law is still evolving. Terms can be implied in a contract regardless of whether contract is written or oral. If the contract is one in which the parties have reduced their entire agreement to writing, difficulties may arise

in relation to the operation of the parol evidence rule and the extent to which extrinsic evidence can be admitted.

Term Implied on the Basis of Business Efficacy:

Rationale of Implication:Whether implication of the terms is necessary to provide business efficacy to the transaction.

If the existence or non-existence of a term becomes relevant to the contractual obligation or liability of the parties, the court may consider whether the term needs to be implied.

The issue is whether, on the facts surrounding that particular contract, implication is necessary. Terms implied on this ground are intended to reflect the presumed intention of the parties.201

200 NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986)201 The Moorcock (1889); Commonwealth v Ling (1993; RDJ International Pty Ltd v Preformed Line Products (Australia) Pty Ltd (1996)

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Five-Tier Test202

5 conditions had to be satisfied before it would regard a term as being implied on the basis of business efficacy: term must be reasonable and equitable term must be necessary to give business efficacy to the contract, so that no term will be implied if that contract

is effective without it;o test of necessity: courts interpret this limb relatively strictly.

term must be so obvious that ‘it goes without saying’203 term must be capable of clear expression204 term must not contradict any express term of the contract

Impact of Parol Evidence Rule:‘it is appropriate to admit evidence of the parties’ common understanding of the way the work was to be carried out in the course of determining whether to imply a term.’205

The parol evidence rule would not apply and extrinsic evidence relevant to the implication of the term would be admissible.

Relevance of Formality of Contract:The more formal and detailed the written document, the more reluctant a court will be to imply a term on the basis of business efficacy.206

Terms Implied From Previous Consistent Course of Dealings: The test of whether a term can be incorporated into the contract on the basis of a course of dealing is one based on reasonableness.

In the circumstances of the case, is it reasonable to hold that the parties entered into the contract on the basis, and with the knowledge that their agreement would be on the terms set out in previous contracts entered into?207

If the parties have expressly agreed to incorporate different or inconsistent terms, there is no room for implying a term on this basis.

Criteria Relevant to Establish Previous Course of Dealings208

The relevant term(s) must have formed part of earlier agreements between the parties. There must be evidence of an earlier consistent course of dealings consider # of dealings; and the consistency of the dealings

Term Incorporated After Earlier Contract Formed:The test should be whether the parties could be regarded as having assented to the terms.

Requirement of Actual KnowledgeIncorporation by a prior course of dealings can only occur if the party has actual knowledge of the terms.209

Impact of Parol Evidence RuleBecause the later contract is not in writing, the parol evidence rule will not operate. Extrinsic evidence of previous dealings could be admitted.210

202 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977)203 Codelfa Construction Pty Ltd v State Rail Authority of NSW204 Shell UK Ltd v Lostock Garage Ltd [1977]205 Mason J206 Ansett Transport Industries v Commonwealth (1977)207 Henry Kendall & Sons v William Lillico & Sons Ltd [1969] (p247 txt)208 Horrier v Rambler Motors (AMC) Ltd [1972]; Chattis Nominees Pty Ltd v Norman Ross Homeworks Pty Ltd (1992)209 Lord Devlin, McCuthcheon v David MacBrayne Ltd210 Henry Kendall & Sons v William Lillico & Sons Ltd

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Terms Implied From Custom or Usage In recent times, terms are less likely to be implied on this basis than on many of the other grounds.211 The existence of a custom or usage that will justify the implication of a term into a contract is a question of

fact. There must be evidence that the custom is so well known and acquiesced in that everyone making a contract

can assume it forms part of the contract. A term will not be implied if it is contrary to the express terms of the agreement. A person may be bound by a custom notwithstanding the fact that s/he had no knowledge of it.

Impact of Parol Evidence Rule:The parol evidence rule will not operate to exclude evidence of the custom or usage.

Term Implied to Complete Agreement As a means of upholding agreements where not all the terms have been finalised, in an appropriate case the courts may be prepared to imply a term. 212

Impact of Parol Evidence Rule:There is little guidance on the extent to which the parol evidence rule will prevent admissibility of evidence to enable court to imply a term to complete an agreement.

Term Implied as a Legal Incident of a Particular Class of Contract: Courts imply terms on policy grounds.213 See pp. 256 for list of situations where terms are implied.

Impact of Parol Evidence Rule:Parol evidence rule is not relevant to the implication of terms under this head.

General Duty of Cooperation 214 It is an implied term of all contracts that each party agrees to do all things necessary to enable the other party

to have the benefit of the contract. It is sometimes difficult to determine the extent of the obligation imposed by this duty.

Implications of Duties of Good Faith, Fair Dealing and Reasonableness Increasing recognition of such concepts in many aspects of the contracting process. Whether the common law has evolved to a stage where parties are required to act in this way to satisfy an

implied duty is an issue not entirely settled in Australia215

The doctrine of good faith in performance of contractual obligations is still evolving in Australia.

Impact of Parol Evidence RuleThe implication of good faith terms is unaffected by the operation of the parol evidence rule

Term Implied by Statute

Contracts for the Sale of Goods and Services Sale of goods legislation exists in all Australian jurisdictions.

Statutory Prohibition of Unconscionable Conduct statutes prohibit certain behaviour.216

211 Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1985)212 Hillas & Co Ltd v Arcos Ltd (1932)213 Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998)214 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979)215 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 216 Part IV(A) Trade Practices Act 1974 (Cth) – 3 substantive provisions

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Construction of Terms

Interpreting the Meaning of Terms

General Approach: Construction of Terms involves 2 activities:

Ascertaining the meaning of the words used; Determining the legal effect of those words.

A document is construed as a whole, rather than extracting provisions and construing in isolation. When a court construes a contract, it attempts, as far as possible, to give effect to the bargain.217 Although the court’s purpose is to ascertain the intention of the parties, it adopts an objective approach that

seeks to give effect to the meaning obtained from a reasonable third party’s viewpoint rather than the subjective or actual intentions of the parties.218

Admissible Evidence:

The Parol Evidence Rule The objective of the rule is to preserve the sanctity of the written document and to avoid the process of

construction being muddled by ‘uncertain testimony of slippery memory’. Where the document is NOT intended to be a complete or final record of the contract, or the contract is made

partly orally and partly in writing, the parol evidence rule will not apply, and extrinsic evidence will be admissible to assist in interpretation.

Factual Matrix Courts take into words used and surrounding circumstances.

Exceptions to the Parol Evidence Rule

Ambiguity extrinsic evidence may be used to resolve ambiguity in contract.

Identification of Subject Matter Extrinsic evidence is admissible to resolve ambiguity about subject matter of contract. 219

Identification of the PartiesExtrinsic evidence admissible where there is ambiguity concerning identity of parties, or concerning their relationship or the capacity in which they have entered the contract.220

Identification of Real Consideration Extrinsic evidence admissible to prove real consideration where:221

no consideration or nominal consideration is expressed in the instrument the expressed consideration is in general terms or ambiguously stated a substantial consideration is stated but an additional consideration exists, provided the additional

consideration proved is not inconsistent with the instrument.

Custom or UsageWhere language used has a particular meaning, evidence of that meaning is admissible, even if there is no patent ambiguity.

RectificationExtrinsic evidence may be admitted to show the parties’ intention was not properly recorded.222

217 Hillas & Co v Arcos Ltd (1932)218 Hospital Products Ltd v United States Surgical Corporation (1984)219 White v Australian & New Zealand Theatres Ltd (1943)220 Edwards v Edwards (1918)221 Yaroomba Beach Development Co v Coeur De Lion Investments Pty Ltd (1989)222 Bacchus Marsh Concentrated Milk Co Ltd v Joseph Nathan & Co Ltd (1919)

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Inadmissible Evidence Evidence of certain matters is treated as being inadmissible:

Subjective Intention evidence of subjective intentions of the parties is not admissible.

Prior Negotiations evidence of negotiations that precede the written document is generally not admitted.

Subsequent ConductRecent authorities tend to support the English approach that subsequent conduct cannot be referred to for the purpose of interpreting the contract.223

Legal Effect of Words: Types of TermsThe legal effect of the words used depends on the type of term.

Promissory Terms A promissory term is one pursuant to which a party promise or undertakes to do or refrain from doing

something, or that a state of affairs will or will not exist. The effect of a breach of a promissory term depends upon whether the term is classified as a condition, a

warranty, or an intermediate term. Determination of classification of a term is an objective test of the parties’ intention, taking into account their

words and conduct.224

Conditions A term that lies at the root of the contract and is so important that any breach of it entitles the innocent party to

terminate further performance of the contract and to claim damages for the breach. Also known as ‘essential terms’.

Test of Essentiality ‘test of essentiality is whether it appears form the general nature of the contract as a whole, or from some particular term(s), that the promise is of such importance that the promisee would not have entered into the contract unless assured of a strict or substantial performance of the promise. This ought to have been apparent to the promisor’.225

Warranties May refer to the promise that constitutes a collateral contract; or a term in an insurance contract that is treated

as essential; a term subsidiary to the main purpose of the contract, breach of which gives rise to only a right to damages. There is NO right to terminate for breach of warranty.226

Intermediate or Innominate Terms Stands somewhere between a condition and a warranty.227 Remedy for breach of intermediate term varies according to the gravity of the breach.228

Court must first ascertain intention of the parties with respect to the correct classification of a promissory term – condition, warranty or intermediate term.

Only if it is an intermediate term does the court determine whether in the circumstances of the case the breach ahs deprived the innocent party of substantially the whole of the benefit of the contract. Factors taken into account

223 Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990)224 Bowes v Chaleyer (1923)225 Associated Newspapers Ltd v Banks (1951)226 Bettini v Gye (1876)227 Hong Kong Fir Shipping Co Ltd v Kawasaki Kissen Kaisha Ltd [1962]228 Bunge Corp New York v Tradax Export SA Panama [1981]

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Contingencies A contingency is when the parties wish to make a provision for the existence or the continued operation of the contract, or of an obligation in the contract, conditional upon the occurrence or non-occurrence of an event.May be conditions precedent or conditions subsequent.Non-fulfilment of a contingency does not result in a disappointed party being entitled to a remedy in the same way that a breach of a promissory term does. Contingencies are merely external events that may have an effect upon the existence or operation of the whole or part of the contract.Condition Precedent: an event that must occur before a contract comes into existence or an obligation under the contract arises. If the event fails to occur, there will either be no contract or the obligation will not arise.Condition Subsequent: an event whose occurrence may give rise to a right to terminate further performance of the contract. (p.296 txt)Generally the party for whose benefit the condition subsequent was inserted will be the party who has the right to terminate on non-occurrence.Courts prefer an interpretation of contingencies as requiring an election to terminate on the part of one or both of the parties.Where the contingency is for the benefit of one of the parties, it may be waived by that party, with the effect that the other party is unable to rely on the non-occurrence of the event as terminating the contract.229 In an appropriate case, a party may be estopped from relying upon the contingency.

Exemption Clauses

‘Interpretation of an exemption clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears, including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in the case of ambiguity.’230

may purport to exclude a party’s liability may limit the extent of liability to a particular maximum amount may make liability subject to certain pre-conditions

Irrespective of the kind of exclusion, the court is to apply the same rules of interpretation.231

Exemption clause may involve determination of 2 issues: whether clause forms part of the contract; and whether, on the true construction of the clause, it covers the liability that has arisen.

There are nevertheless certain established rules of law that must govern their interpretation; the Contra Preferentem Rule special rules that govern attempts to exempt negligence; and the ‘four corners’ rule

Contra Preferentum RuleAn exemption clause will be ordinarily construed strictly against the preferens – the party for whose benefit it is inserted.232

Attempts to Exempt Negligence An exemption clause will relieve a party of liability for his/her negligence, or that of his/her servants or agents,

if it expressly or impliedly covers such liability. A clause will cover such liability if there can be no ground of liability other than negligence to which it could

refer.233

an express exemption of liability for negligence must be given effect and is sufficient to exclude liability where there is no express reference to negligence, the court must decide whether the ordinary meaning of the

words used in the clause are wide enough to exclude negligence.

229 Perri v Coolangatta Investments Pty Ltd (1982)230 Darlington Futures Ltd v Delco Australia PtyLtd (1986)231 Darlington Futures Ltd v Delco Australia Pty Ltd (1986)232 Eimco Corporation v Tutt Bryant Ltd [1970]233 Canada Steamship Lines Ltd v The King [1952]

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Rules regarding attempts to exempt negligenceAny doubt in this regard is resolved:

1. contra preferentum; and2. if the words use in the clause are wide enough to cover negligence, but there is some other ground of liability

other than negligence, the clause will be read as applying only to that other ground of liability and will not operate to exclude the claim for negligence.

Where the parties express an intention in unequivocal language that liability for negligence is to be exempted (rule 1) and where no such express intention is shown (rules 2 and 3), it would seem that for rule 1 to apply, the word ‘negligence’ or a close synonym must be used.234

Some authorities suggest that while the use of words such as ‘all liability’ or ‘any loss’ are insufficient, the addition of the words ‘whatever its cause’ or ‘howsoever cause’ will mean that the clause IS wide enough to cover liability in negligence.235

See pp. 300-302 for depth

Four Corners Rule An exemption clause will only operate to exclude liability arising within the ‘four corners’ of the contract. A proferens can only rely on conditions that were intended to protect him/her if he/she carried out the contract

in the way he/she had contract to do it. It will NOT be effective where the proferens acts in a way ‘quite alien to the contract’.236

An exemption clause will NOT apply where the loss or damage results from conduct that is not authorised or permitted by the contract.237

Statute The extent of protection offered by an exemption clause may reflect the degree of inequality of bargaining

power between the parties. At common law, the court has no absolving power and cannot refuse to enforce a valid exemption clause even

where it operates unreasonably. This position has been altered by two statutes: Contracts Review Act 1980 (NSW) Trade Practices Act 1974 (Cth)

Other Common Clauses

Definition clausesNOT promissory and are not capable of being breached.

Duty to Act in Good FaithWhat is enforced is not the cooperation itself but performance in the process. The effect of a breach of this duty depends on the clause and the circumstances.

Best Endeavours Clause Often found in distributorship and licence agreements. Places a party under an obligation not to hinder or

prevent the fulfilment of its purpose. Does not require party to venture beyond the bounds of reason.

Entire Contract (merger) Clause Excludes extraneous terms or interpretations, as well as any representations at common law. The clause will not, however, preclude the receipt of evidence showing that the contract did not record the common intention of the parties for the purpose of the equitable remedy of rectification.

Agreed Damages Clause Provides for payment of an amount that is a genuine pre-estimate of the loss resulting from any breach. Validity of such clauses is governed by the law related to penalties.

Termination ClauseConfers a contractual right to terminate the contract for breach.

Force Majeure ClauseProvides for the disposition of a contract in the event of its being affected by circumstances beyond the control of the parties. – Acts of God etc.

234 Smith v South Wales Switchgear Ltd [1978]235 Aldersland v Hendon Laundry Ltd [1945]236 Davis v Pierce Parking Station Pty Ltd (1954)237 The Council of the City of Sydney v West (1965)

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Restraint of Trade A promise by one party to give up a freedom with respect to his/her trade for the benefit of the other party. At common law, restraints are prima facie void, but may be justified if they are shown to be reasonable. Remedy can be injunction restraining breach.

Dispute Resolution Clauses Are not contrary to the public policy that prevents attempts to oust the court’s jurisdiction. May give rise to a remedy, including an injunction staying any court proceedings commenced contrary to its terms.

Law of ContractThe law that governs the rights and liabilities of the parties is referred to as the ‘proper law’ of the contract. Parties have an unfettered right to choose the proper law of their contract.

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Formalities A contract does NOT have to be in writing to be enforceable. However, a limited number of contracts MUST be evidenced by writing to be enforceable.

GuaranteesIn most Australian jurisdictions, there is a statutory requirement that the contract of GUARANTEE must be in writing and signed by the party to be charged in order to be enforceable.

‘No action may be brought upon any promise to guarantee liability of another unless the promise upon which such action is brought, or some memorandum or note of the promise, is in writing, and signed by the party to be charged, or by some other person by the party lawfully authorised’.238

Nature of a Guarantee Guarantee: a contract to answer for the debt, default or miscarriage of another who is to be primarily liable to the promisee. Yeoman Credit Ltd v Latter [1961]

Where a guarantee is given there will be 2 separate transactions.

Principle Transaction The loan contract entered into between the lender and the debtor. The debtor is primarily liable under that contract of loan.

Contract of guarantee Entered between the lender and the guarantor. The guarantor is secondarily liable to the lender. Liability of guarantor only arises if the principal transaction is VALID, and there has been default under the principle transaction.

Transactions which are Not Guarantees

Contracts of IndemnityGuarantor takes PRIMARY liability. This means the surety may be liable notwithstanding that the principal transaction is unenforceable.239

Promise of Guarantee Made to the DebtorAs this promise is not made to the person with whom the principal obligor contracts (the lender), the contract is not a guarantee. It is a promise to the debtor that s/he will pay the debt of the debtor.

Person Agrees to Take Over the Debt of AnotherA third party agrees with the creditor to take over the debt of the debtor. Does not have to comply with statutory requirement of formality because it is NOT a guarantee.240

The Agreement Imposes No Personal Liability on the PersonWhen a person does not undertake personal liability, but instead proffers his/her property as security to the promisee under the principal transaction.241

Letters of ComfortDependant on whether the parties intended to create legal relations (see intention to create legal relations)242

Requirement of Writing: Content: Document must contain all essential terms of the agreement. Statutory provision requires either the promise to be in writing, or some ‘memorandum or note’ of the promise to be in writing.

238 Property Law Act 1974 (Qld) s.56(1)239 Yeoman Credit Ltd v Latter [1961]240 Gray v Pearson (1877)241 Harvey v Edwards, Dunlop & Co Ltd (1927)242 Banque Brussels Lambert SA v Australian National Industries Ltd (1989)

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Information Particular to the Guarantee Guarantee must contain the names of the relevant parties: lender, debtor, guarantor. Party does not have to

be expressly identified – can be explained by extrinsic evidence.243 The relevant terms of the guarantee must be state. – amount of debt owed and interest payable. *Although the lender must provide valuable consideration to the guarantor for a valid contract of guarantee to

be formed, the nature of that consideration is not required to be contained in the guarantee. *Where a material term has been omitted from the guarantee, there may be limited circumstances in which the

guarantee will still be enforceable against the guarantor.

Acknowledgment of Agreement It is likely the guarantee must indicate that the guarantor has undertaken the obligation to guarantee.

Requirement of Writing: Signed by Party to be Charged or Agent The promise or note or memorandum of the promise must be ‘signed by the party to be charged, or by some

other person by the party lawfully authorised. The guarantee must be signed by the guarantor.244 If the guarantor’s name appears on the guarantee, and it is the guarantor’s intention that the name

authenticates the document, it will be sufficient to satisfy the statutory requirement.

Contracts relating to Land ‘No action may be brought upon any contract for the sale or other disposition of land or any interest in land unless the contract upon which such action is brought, or some memorandum or note of the contract, is in writing, and signed by the party to be charged, or by some person by the party lawfully authorised.’245

Either the contract must be in writing, or some memorandum or note of the contract must be in writing.

Nature of Contract Needing WritingFormalities requirement applies to a contract for sale of land or interest in land, as well as a contract for the ‘other disposition’ of land or any interest in land.

Requirement of WritingDocument must contain all essential terms.246

Information Particular to the ContractFour matters must be recorded to satisfy the statutory requirement:

document must contain the parties to the contract property must be adequately described the consideration for the promise, the price, must be recorded the principal terms of the contract must be disclosed.

Failure to include all essential terms might not necessarily be fatal to a plaintiff. If the term omitted is for the benefit of the plaintiff, the plaintiff may be entitled to waive the benefit of that clause and seek enforcement of the contract without that clause.247

To be successful, the plaintiff must satisfy the court that the term was solely for his/her benefit. If the term is for the benefit of both parties, the term cannot be wived and the contract will not be enforceable.248

Acknowledgment of Agreement The writing must contain an acknowledgment of agreement as well as the terms of the agreement. The

acknowledgment must be expressed or implied in the writing.249 The case law, however, does demonstrate that the judiciary is lenient in interpreting what constitutes

acknowledgment of agreement for such purposes.

243 Rosser v Austral Wine & Spirit Co Pty Ltd [1980]244 Durrell v Evans (1862)245 Property Law Act 1974 (Qld) s. 59246 Harvey v Edwards, Dunlop & Co Ltd (1927)247 Petrie v Jensen [1954]248 Hawkins v Price [1947]249 Price v Saunders (1961)

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Requirement of Writing: Signed by Party to be Charged or Agent: Statutory requirement: document must be signed by the party to be charged. A person may be taken to have signed a document although s/he has not put a signature to it. If the name of

the party is placed on the document, and that party expressly or impliedly indicates that s/he recognises the writing as being an authenticated expression of the contract, that is likely to be sufficient to satisfy the statutory requirements.250

It is sufficient if the document is signed by a person expressly authorised by the party to be charged.

Joinder of Documents In certain circumstances, more than one document may be joined together and, if the documents so joined contain all the material terms, the contract will be enforceable.A document may be joined if there is a reference, express or implied, to another document or to a transaction.251

Reference to a DocumentWhere the document signed by the defendant makes reference to another ‘document’, joinder of that document is permitted.252

Documents Physically Connected A document physically connected to the document signed by the defendant may be joined.253 e.g. joining envelope to letter.254

Documents That are Executed at the Same Time It is not uncommon for a buyer to write a cheque for a deposit, send it to the seller, and later receive a receipt from the seller. If the seller is the part to be charged, it is likely that the cheque could be joined to the receipts (the document signed by the party to be charged).255 If the Buyer is the party to be charged, the seller is probably unable to join the receipt to the cheque, because it is executed later than the cheque. It is difficult to suggest the cheque referred to the later document expressly or impliedly. However, if the writing and exchange of cheque and receipt occurs at the one time and place, it is likely that the document can be joined.256

Reference to a TransactionContrasting decisions on whether there can be a joinder of documents based on a reference to a transaction rather than a document.

Acceptable:257

References in letters expressing happiness as to the conclusion of a transaction258

Reference on a receipt as a deposit facilitating joinder to a contract.259

Receipts from seller facilitating joinder with cheque from buyer.260

Not Acceptable Reference to purchase money insufficient to make reference to other documents. However, this may be

treated differently today (High Court Decision)261

Undecided Whether a cheque can be regarded as an implied reference to a transaction. Whether a receipt can be joined to a cheque if the signatory on both is the same.

250 Price v Saunders (1961)251 Harvey v Edwards, Dunlop and Co Ltd (1927)252 Tonitto v Bassal (1992)253 McEwan v Dynon (1877)254 Pearce v Gardiner [1897]255 Saunderson v Purchase [1958]256 Timmins v Moreland Street Property Co Ltd [1958]257 Fauzi Elias v George Sahely and Co (Barbados) Ltd258 Burgess v Cox259Long v Millar 260 Stokes v Whicher261 Thompson v McInnes

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Effect of Statutory Non-Compliance: COMMON LAWThe effect of failing to comply with statutory provisions re: formality is that; ‘no action may be brought’ on the contract.

Contract is Unenforceable No action can be brought. Action can not be brought to enforce contract. Action cannot be brought for specific

performance or damages.262 The defendant is unable to rely on an unenforceable contract to resist a claim by a plaintiff.263

Contract Valid to Pass Title Although contract will be unenforceable, it will be a valid contract. If the contract is performed it will be effective to pass good title.264

Recovery of Money Paid Under Unenforceable Contract If one of the parties refuses to complete the purchase (relying on failure of compliance with statutory requirements), can the buyer recover the money so paid?

Recovery of Deposit If the sale is not completed due to the buyer’s default, the deposit is liable to forfeiture to the vendor.265 Where an enforceable sale of land is not completed because of the seller’s default, the deposit IS recoverable

by the buyer.266

Recovery of Amount More than Deposit The buyer under an unenforceable contract may pay more than the deposit before the contract is terminated. Where buyer is in default, the court will attempt to establish what portion of the payment was a deposit. That

amount can be retained by the seller.

Other Restitutionary Claim May Still be Available Where money paid under unenforceable contract is recoverable, the action is based on restitutionary, not contractual principles. May also be relevant for services provided under an unenforceable contract.267

Effect of Statutory Non-Compliance: EQUITYThese equitable doctrines more commonly arise for contracts concerning land.

Doctrine of Part Performance If parties enter an oral contract for sale of land and, relying on that contract, one party does certain acts, courts may grant that person specific performance of the contract.

Four conditions must be satisfied Acts are unequivocally referable to some such contract as that alleged268

Acts done in reliance on the agreement and with knowledge of other party: Acts done by party seeking to enforce contract Oral contract must be otherwise enforceable.

Estoppel The doctrine of estoppel may facilitate the enforcement of an oral contract concerning land.269

262 Timmins v Moreland Street Property Co Ltd [1958]263 Gray v Ellis [1925]264 Watson v Royal Permanent Building Society (1888)265 Freedom v AHR Constructions Pty Ltd [1987]266 Fullbrook v Lawes (1876)267 Builders Licensing Act 1971 ss.45; Pavey & Matthews Pty Ltd v Paul (1986)268 Regent v Millett (1976)269 Waltons Stores (Interstate) Ltd v Maher (1988)

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Constructive Trust In some circumstances an interest in land can be created in favour of a person in the absence of writing. This is where equity recognises the creation of a resulting or constructive trust. Constructive trusts commonly arise in the context of the breakdown of a de facto relationship, where a person

who owns property seeks to deny hi/her former partner an interest in the property.270

The effect of a constructive trust An action can be brought in relation to an interest in land, even though the creation of the interest is not

evidenced in writing. Unlikely to assist a plaintiff seeking to enforce a contract for sale of land in where the defendant no longer

wishes to proceed.

Variation and Termination of Contract

Common Law: A contract required to be in writing to be enforceable can be terminated by oral agreement between the parties.271

For any variation agreed upon by the parties to be effective, it must be evidenced in writing.272 Court may need to determine whether the later arrangement entered into is a termination or variation. It might

be that the proposed alteration to the contract is so far-reaching that it discharges the oral contract and puts in place a new one.

If the subsequent arrangement could be a ‘waiver’ rather than a variation, then it may be possible to give effect to it despite the absence of writing.

Circumstances may arise where a party is prevented from enforcing the original contract evidenced in writing, even though the variation agreed to is oral only. This could occur where the principles of equitable estoppel apply.273

Test: INTENTION of the parties.274

270 Baumgartner v Baumgartner (1987)271 Tallerman and Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957)272 Phillips v Ellinson Bros Pty Ltd (1941)273 Waltons Stores (International) Ltd v Maher (1988)274 Electronic Industries v David Jones (1954)

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Privity

Overview Doctrine of privity of contract: only the parties to a contract are legally entitled to enforce it, or by bound by it. Doctrine emerged early-mid 19th Century. Promulgated as result of historical, legal, social and economic

factors – some which are no longer relevant today. Privity doctrine – closely associated with rules of consideration.

Privity doctrine has been subject to extensive judicial criticism. Fails to give effect to express intention of the parties, and also because those who are aware of the promise may reorder their affairs in accordance with it.

Where promisor A enters into an agreement with promisor B which provides that promisor A will confer a benefit on C, a third party to the contract, C is unable to claim the benefit of the promise despite that being the clear intention of the parties.

Where parties A and B enter into a contract, they cannot by their bargain impose a liability of third party C. Should promisor A fail to perform his/her promise to benefit third party C, B has available the normal remedies

for breach of contract. The remedy of specific performance may be a valuable remedy since it forces the promisor to perform the promise.275

Third party C has no influence over any variation or revocation of the promise agreed to by A and B. Some members of the High Court in favour of abolishing the doctrine of privity.276

Statutory Abrogation of PrivityPrivity of contract abrogated by statute in WA and Qld. Cth has abrogated privity in relation to insurance and maritime contracts of carriage.

QueenslandThe Property Law Act 1974 (Qld), s 55(1): ‘A promisor who, for a valuable consideration moving form the promisee, promises to do or refrain from doing an act or acts for the benefit of a beneficiary shall, upon acceptance by the beneficiary, be subject to a duty enforceable by the beneficiary to perform that promise’.

Promisor Under the statute a promisor is the party who actually makes the promise for the benefit of the beneficiary. Where the promise is made by a trustee of a trust who is subsequently replaced by a new trustee, the promise

will not be binding on the new trustee.

BeneficiaryA person may be a beneficiary under the Act if s/he is expressly named in a contract as receiving the benefit of performance of work under a contract.It is unlikely an ‘incidental’ beneficiary can rely on the section. Re Burns Philp Trustees

PromiseUnder s 55(1) a promise is defined as a promise:

which is or appears to be intended to be legally binding, and which creates/ intended to create a duty enforceable by a beneficiary

A contractual term that merely regulates the relationship between promisor and promisee will not be enforceable by a 3rd party if it does not amount to a promise to benefit the 3rd party and create an enforceable duty.

‘Promise’ is treated by s 55 in terms of intention.

Acceptance (Under the Act) An assent by words or conduct communicated by or on behalf of the beneficiary to the

promisor – or to a person authorised on his/her behalf – in the manner (if any) specified in the promise and within the time specified in the promise (or, if no time is specified, within a reasonable time of the promise coming to the notice of the beneficiary).

It may still be sufficient if the promise comes to the notice of the beneficiary’s agent, such as the beneficiary’s solicitor.277

An assent by the beneficiary must purport to ‘accept’ the promise.278

Defences

275 Coulls v Bagot’s Executor and Trustee Co Ltd (1967)276 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd277 Re Davies [1999]278 Hyatt Australia v LTCB Australia Ltd [1996]

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‘any matter that would otherwise be relied on as rendering a promise void, voidable, or unenforceable will be available by way of defence in proceedings for the enforcement of a duty under s 55.’279

‘However, where a statutory enactment imposes a limit on liability, it may operate to directly limit the extent of liability a 3rd party beneficiary may enforce under s 55, just as much as it would limit the amount a directly contracting promisee could recover.’

Variation or Rescission of Promise s 55: before acceptance, the parties to the contract may vary or rescind the promise. s 55(3)(d): after acceptance, the terms of the promise and the duty of the promisor or beneficiary may be

varied or discharged only with the consent of the promisor and the beneficiary.

Imposition of Burdenss 55 may incidentally allow an obligation to be imposed upon the beneficiary.

s 55(3)(b) the beneficiary will be bound by any promise or duty that is imposed as part of the promise that benefits him/her.

Common Law Still Applicable s 55(7) the section does not affect any right or remedy that exists or is available apart from the section. –

Saves the common law. A beneficiary unable to make out a case under the statute would be left to rely on an exception to the privity

doctrine if one were available in the circumstances under CL.

Insurance Insurance cases are subject of legislation enacted to overcome the privity rule.

Marine Insurance ‘a mortgagee, consignee or other person having an interest in the subject matter of a marine insurance contract may insure not only on his/her own behalf but also on behalf of, and for the benefit of, other person who may be interested’.280

Compulsory 3rd Party Motor Vehicle Insurance All Australian jurisdictions have enacted legislation that compels owners of vehicles, on registration of vehicles, to insure against death or personal injuries, and provides that the insurer must indemnify not only the owner of the vehicle but nay person using it – with or without the owner’s permission—even through that person is not a party to the contract of insurance entered into between the insurance company and the owner.281

Insurance in Generalapplies to all contracts of insurance entered into after the Act came into force 1 Jan 1986.282

Persons falling within the class of persons expressed by an insurance policy as being entitled to indemnity should be able to sue on the policy.

Maritime Contracts of Carriage Privity – abolished by legislation in some respects in relation to maritime contracts of carriage.

Servants or Agents of Sea Carriers:gives effect to the International Carriage Convention “Hague Rules’. The servants and agents of the carrier are entitled to the same exemptions from liability as the carrier. Parties such as the master and crew – but not independent contractors such as stevedores – may now rely on the exemptions contained in the contract entered into between the carrier and the owner of goods shipped by sea.283

Consignees and Indorsees: All rights in the original contract of carriage are transferred to a 3rd party buyer as from the time of consignment

or indorsement. A consignee or indorsee may enforce right under a contract to which s/he was a 3rd party.284

All outstanding liabilities under the original contract of carriage are transferred to a 3red party buyer when s/he demands or takes delivery of the goods. It is possible to impose a burden on a consignee or indorsee despite the fact that s/he was a 3rd party to the original contract of carriage.

279 s 55(4) Property Law Act 1974 (Qld):280 The Marine Insurance Act 1909 (Cth)281 Motor Vehicles Insurance Act 1936 (Qld)282 Insurance Contracts Act 1984 (Cth), s 48283 Carriage of Goods by Sea Act 1991 (Cth)284 Sea Carriage Documents Act

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Other Legislation Other legislation abolishes the privity rule.

Commonwealth legislationcertain negotiable instruments like cheques, bills of exchange and promissory notes – which contain promises may be passed on to subsequent holders, who are able to enforce those promises.285 It is possible for a person named as the payee of a cheque to endorse the cheque to another person, who is then legally able to enforce the cheque.Impact of legislation based on English Law of Property Act 1925, s 56(1) (p.401 txt) – does it abolish privity????? While prima facie the words of the statute appear to abolish the rule that a 3rd party is unable to enforce a promise that purports to confer a benefit on him/her, on closer analysis, the section only addresses a limited circumstance of little modern day relevance.

So-Called ‘Exceptions’ At Common Law (p. 403 txt) Where statutory provisions are not met, or there is no statute modifying the privity rule, a beneficiary seeking

to enforce a promise for his/her benefit will need to rely upon one of the so-called ‘exceptions’ to privity at common law.

These exceptions are actually applications of other legal principles to the contractual relationship of promisor, promisee, and 3rd party beneficiary.286

The main principles that may provide a remedy for a disappointed beneficiary are agency, trust, estoppel and recovery of damages and unjust enrichment.

Exceptions are actually ‘evasions’ – despite first appearances that party C is a 3rd party, they in fact represent normal contractual relations between party A and party C.

Agency

Generally Where A has entered into a contract with B, who is acting as agent on behalf of C, then in fact the contract is between A and C, and the privity rule never becomes an issue.The principal, C, will be able to sue and be sued on the contract.Normally it is immaterial that A is unaware that B is contracting as agent for C.

Exemption Clauses and 3rd PartiesCan a person who is not a party to a contract rely upon an exemption from liability contained in a particular contract287

Trust The privity rule may be evaded where a trust is recognised as being created. A trustee holds property (which

may include a promise as a chose in action) on behalf of a beneficiary. Where the promisee is a trustee, the 3rd party does not become a party to the contract but instead acquires an

equitable interest in the promise. The contract binds only the promisor and the promisee; the 3rd party beneficiary is unable to enforce the

promise as if s/he were privy to the contract. The 3rd party can enforce the promise indirectly by an action in which the promisee is joined as a defendant.288

For a trust to be recognised, there need only be requisite intention to create a trust. There still appears to be a reluctance to recognise a trust in some circumstances.

Equitable Estoppel Possibility of a 3rd party being able to enforce the benefit of a promise by equitable estoppel.289

Estoppel: may be available where the promisor A’s promise has induced 3rd party C to act or refrain from acting in reliance such that s/he will suffer detriment if A is allowed to resile from the promise.290

Requires unconscionable conduct by party A. – may not be present in all cases. Any remedy yielded by estoppel will only be proportionate to the detrimental reliance - -in some cases this will

only involve the enforcing A’s promise.

285 Bills of Exchange Act 1909 (Cth)286 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988)287 Scruttons Ltd v Midland Silicones Ltd288 Birmingham v Renfrew (1937)289 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988)290 Waltons Stores (International) v Maher (1988)

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Unjust Enrichment A promisor who has accepted agreed consideration for a promise to benefit a 3rd party owes an obligation to the 3rd party to fulfil that promise and that the 3rd party has a corresponding right to bring action to secure the benefit of the promise.

Torts Sometimes torts may offer a detour around the privity rule. A 3rd party may be able to bring an action for economic loss arising out of negligent performance of the contract.291

Trade Practices Act A 3rd party to a contract may be able to obtain relief in the case of a promisor who has engaged in misleading

and deceptive conduct.292 s 82:where the misleading conduct complained of is of a promissory nature the court should not feel limited to

applying the usual tort measure of loss. The court should focus on the causative consequences of the conduct that is the basis of complaint.

Assignment and Novation Promisee B may effectively assign the benefit of his/her rights to the 3rd party C. This is an exception to the privity rule since a person who is not a party to the original contract can still enforce rights arising under it.

Australian legislation3 requirements for effective assignment:

assignment must be absolute, inasmuch as the entire interest of the assignor (the promisee) must be transferred to the assignee (the 3rd party)

assignment must be in writing, signed by the assignor (the promisee) notice must be given to the debtor

If all requirements are satisfied, promisor A may be sued by the asignnee/3rd party alone, in his/her own name.

If not all requirements are satisfied, it may still be effective as an equitable assignment, in which case the assignee/3rd party C must join the assignor/promisee B either as a co-plaintiff or a co-defendant in the action.293

Use of Property Principles of land law exceptions to privity relate to the transfer of a lease and to the use of land. Because, a

lease creates contractual rights AS WELL as interest in the land. Where a lessee transfers a lease to a new lessee, the new lessee will be able to enforce the benefit and be

bound by those covenants in the lease that ‘touch and concern’ the land –e.g. those concerning repairs/maintenance and uses to which the property may be put.

Where the owner of land sells part of it, they may wish to restrict the use the purchaser may make of the property. Privity would usually prevent a 3rd party who is a subsequent purchaser from being bound. However, equity may grant an injunction preventing breach of the covenant.294

3 elements plaintiff must show to enforce a covenant against a subsequent purchaser of land: Covenant must be negative in character Covenant must touch and concern the land which is benefited Plaintiff must retain land that is in close vicinity of the land subject to the covenant.

Collateral Contract A privity issue will not arise where the consideration for a promise by C was A’s entry into the contract with B, a tripartite collateral contract. Party C agrees to be subject to a liability A may enforce.

Restraint of Trade Prima facie, all restraints on trade are void. However, a restraint may be valid if it can be justified as reasonable both in the interests of the parties to the

contract and in the public interest. May incidentally have significance for 3rd parties.

291 Bryan v Maloney; Hill v Van Erp292 Trade Practices Act 1974 (Cth), s 52; Accounting Systems 2000 (Developments) Pty Ltd v CCH (1993)293 Williams v Atlantic Assurance Co [1933]294 Tulk v Moxhay

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