Law2101 Contract A PDF

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Law2101 Contract A
Contracts A (University of South Australia)
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Formation
1. AGREEMENT
Must first use conventional approach of locating offer and acceptance (Gibson).
Offer
Offeror/promisor = person making the offer.
Offeree/promisee = person to whom the offer is made.
TYPES OF OFFER
1.
Bilateral contract
At the time of formation the obligations of both parties remain to be performed (they are
executory); or
2.
Unilateral contract
At the time of formation the offeree has already performed all their obligations (they are
executed). The obligations of the offeror are executory.
CHARACTERISTICS OF AN OFFER
Offer:
-
Proposal;
Invites acceptance;
With a willingness to enter into a contract upon acceptance.
An offeror will have made an offer where it appears to a reasonable person in the position of the
offeree that an offer was intended.
Subjective intentions are irrelevant.
EXAMPLES
Invitations to treat:
An invitation to others to make offers or enter into negotiations;
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Display of goods for sale (customers make an offer when they present the items to
the cashier. There is no sale until the cashier accepts that offer; Boots Cash
Chemists);
Holding of an auction (each bid constitutes an offer, and the auctioneer accepts the
bid by the fall of the hammer);
Tenders (except where the person calling for tenders bind themselves to accept the
highest offer).
A letter setting out the financial terms on which one party will later be prepared to consider a
sale (Gibson);
REVOCATION
General rule: An offer may be revoked at any time before it is accepted. Withdrawal is only effective
when it has been communicated to the offeree (no exception made for post).
Options
A promise to hold an offer open for a specified period is binding if the offeree has given consideration
for the promise; ie. an option (Goldsbrough Mort).
Unilateral contract
1.
No universal principle that an offeror cannot revoke the offer once the offeree embarks upon
performance of the act of acceptance (Mobil);
2.
The offer1 is revocable at any time;
3.
UNLESS there is an implied ancillary contract not to revoke (Mobil). In Mobil, the Federal
Court held there was no such implied contract because:
i.
It would be difficult to enforce (how to determine whether a franchisee has embarked

upon or commenced performance); and
ii.
Performance was not detrimental to the offeree (it benefited the franchisee by improving
business practices and profitability).
Offer to enter into a unilateral contract.
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Acceptance
BILATERAL CONTRACTS
For bilateral contracts, the acceptance must be:
1.
An unqualified assent to the terms of the offer;
2.
Such that a reasonable person would believe that the offeree is assenting to the terms (even if
there is no real consensus; ie. the parties are not ad idem (of one mind));
3.
In accordance with the designated method of acceptance;
4.
Is communicated to the offeror.
1. Unqualified assent
Does the offeree only accept or reject the terms proposed by the offeror?
YES: Effective acceptance.
NO: If the offeree varies or adds terms this will amount to a counter-offer:
CONFLICT APPROACH
i.
The counter-offer kills the original offer;
ii.
It is then open for acceptance by the original offeror;
iii.
Counter-offers can be continued to be made until the parties are ad idem (of one mind;
consensus between parties);
iv.
The last shot prevails (that is, the terms are decided by those in the last counter-offer
before acceptance; Butler).
SYNTHESIS
Proposed by Lord Denning in Butler as a last resort (but is of more practical value2). The court
builds a contract from the two sets of terms. This synthesised contract is made up of consistent
terms, terms from one set that appeared to be accepted by the other party, and any gap-filling terms
implied by the court. Contradictory terms are removed and replaced by a reasonable implication.
3. Method of acceptance
Does the offer designate an exclusive method (eg. this offer can be accepted only by)?
YES: Communication of acceptance must be in accordance with that method (otherwise it will be
ineffective).
NO: Any method will be effective.
2
Greig and Davis, The Law Of Contract, p288.
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Important points:
-
HOWEVER, mere silence cannot be stipulated as a method of acceptance because mere silence
from the offeree will not = acceptance (Felthouse v Bindley).
BUT, silence of the offeree + conduct may = acceptance (Empirnall). The question is still
whether a reasonable bystander would regard the conduct of the offeree, including their silence,
as signaling acceptance.
In cases like Empirnall, it is open for the jury to find acceptance where an offeree with a
reasonable opportunity to reject the offer of goods or services takes the benefit of them under
circumstances which indicate that they were to be paid for in accordance with the offer (per
McHugh JA at 535).
Conduct may EVEN indicate acceptance, despite express words to the contrary (Brambles). In
this case, Brambles expressly rejected the Councils offer but acted as if it had accepted it (by
charging the higher fees). The Court held that such conduct was, objectively viewed, an
unequivocal acceptance.
4. Communicated
In general, acceptance is effective only when communicated to the offeror (the contract is formed when
the offerees acceptance is received by the offeror).
This depends on the type of communication:
Post
i.
Where post is contemplated as a mode of communication (Bressan v Squires);
ii.
The acceptance is effective as soon as a properly addressed letter is posted (the postal
rule contract is made before offeror learns of acceptance).
Telegram
Postal rule applies.
Telex, telephone and fax

i.
Instantaneous communication;
ii.
General rule applies (acceptance is effective only when communicated to the offeror;
Brinkibon);
iii.
However this general rule is not universal and may be subject to exceptions in certain
circumstances (per Lord Wilberforce at 42) These include where the message may not
reach, or be intended to reach, the recipient immediately (eg. message is: sent or
received through a third party;3 sent out of office hours,4 or; prevented from reaching
Analogous to post?
Burden on sender for not taking care effective when read (if within a reasonable time).
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the recipient due to some error at their end5). His Honour sees these situations as
resolvable by looking at the intentions of the parties, sound business practices and
where the risks should lie.
Electronic communication
o
Email and Interactive websites

i.
Virtually instantaneous general rule should apply (ie. contract is formed

when the offerees acceptance is received by the offeror; per Wilberforce in
Brinkibon)6;
ii.
Time of receipt governed by Electronic Transactions Act 2000 (Vic):

-
Electronic communication = a communication of information in the

form of data, text or images (s 3(1)(a)).
Information system = a system for generating, sending, receiving,
storing or otherwise processing ECs (s 3(1)).
If the recipient has designated7 an information system for the purpose of

receiving electronic communications, then, unless otherwise agreed, time
of receipt = time when the EC enters the IS (s 13(3));
If the recipient has not designated an information system then, unless

otherwise agreed, time of receipt = time when EC comes to the attention
of the addressee (s 13(4)).
UNILATERAL CONTRACTS
For unilateral contracts, the acceptance is:
1.
Performance of the act/condition (Carlill);
2.
On the faith of, in reliance upon, the offer (The Crown v Clarke);
i.
There must be a subjective intention to accept the offer at the time of performance
(unilateral contracts are a special type that necessitate a subjective approach because,
Depends on type of error; most errors would be communicated to the sender (eg. dead phone line,
wrong number) sender is more likely to be aware that the attempt was unsuccessful than a recipient
is to be aware that an attempt has been made (Lord Fraser in relation to why telex should be classed as
instantaneous communication; Brinkibon).
6
Lord Wilberforce said that where the condition of simultaneity is met, and where it appears to be
within the mutual intention of the parties that contractual exchanges should take place in this way, it
[the general rule] is a sound rule. But its not necessarily universal, and is subject to the exceptions
noted above (at 42).
7
Designated = expressly specified for that particular purpose (Article 15(102)(2) of UNCITRAL:
Guide to Enactment of UNCITRAL Model Law on Electronic Commerce (1996) one purpose is to
guide interpretation of legislation based on Model Law).
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by their nature, the law is deprived of objective means by which it judges the intention
of the offeree at the time of acceptance; Starke J);
ii.
Performance raises a presumption of intention (this can be rebutted by subjective

evidence; Higgins J);
BUT the offeree may still act on the faith of the offer if their intention is not
iii.
completely inconsistent with the offer (implied by Isaacs ACJ; ie. in this case, Clarke
was held not to have intention because he gave the information exclusively to
exonerate himself).
3.
Notice of performance, not acceptance, is required (the offeror impliedly dispenses with
notification of acceptance; Carlill).
WHERE O/A CANNOT BE LOCATED

The acid test is whether, viewed as a whole and objectively from the point of view of reasonable
persons of both sides, the dealings show a concluded bargain (per Cooke J in Meates v AttorneyGeneral).
According to Heydon JA in Brambles (Court of Appeal NSW) it is relevant to ask:
1.
In all the circumstances can an agreement be inferred?
2.
Has mutual assent been manifested?
3.
Would a reasonable person in the position of each of the parties think there was a concluded
bargain?
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TICKET CASES
The doctrine of offer and acceptance encounters difficulties when sought to be applied, outside the
realms of commerce and conveyancing, to the everyday contractual situations which are a feature of
life in modern urban communities (eg. contracts of carriage; per Stephen J in MacRobertson).
Conventional analysis of formation of contracts for the carriage of passengers, which involve issue of
ticket in return for fare and subsequent carriage, is to regard:
-
The ticket as the offer
The contract being made upon acceptance of that offer by the passenger
Either by conduct (an overt act consistent only with acceptance, eg. boarding the plane), or, the
passengers failure to reject the offer after the passing of a reasonable time during which the
passenger has had a reasonable opportunity of reading the ticket and its conditions (dependent
upon all the circumstances, including the length and complexity of the conditions).
(MacRobertson per Stephen J at 139)
Rationale (1)
Rationale behind conventional analysis for tickets cases: is to give the intending passenger an
opportunity to read the conditions and then to elect whether to accept or reject them (MacRobertson per
Stephen J at 137). Hence, this analysis cannot be used where:
The customer cannot refuse the ticket and decline to enter into a contract (eg. issued by an
automatic machine, Shoe Lane Parking per Lord Denning at 169 in these cases, the offer is
the machine waiting to take the money and the acceptance is putting money into the slot).
Note in Oceanic, if the passenger refused the ticket she would have to forfeit the fare already
paid and hence refusal was impractical;
Insufficient opportunity to read conditions and elect whether to accept them (eg. where ticket
is given immediately before passenger boards vessel, Oceanic Sun Line per Brennan J at 228);
or
Collecting the ticket is onerous (in Oceanic, the passenger had to travel to Greece to obtain the
ticket).
Rationale (2)
In MacRobertson, both Barwick CJ and Jacobs J thought that when issuing the ticket the airline
assumed no obligation to carry the customer (the exemption clause fully occupies the whole area of
possible obligation, leaving no room for the existence of a contract of carriage per Barwick CJ at 132).
Therefore the facts of this case necessitated the use of the conventional analysis (under both judges, the
contract is formed when customer embarks on carriage and hence promise no longer illusory).
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Is it an illusory contract?
Airline reserves right to abandon any flight, cancel any ticket, and to refuse to carry the
passenger (MacRobertson);
Shipping company reserves right to cancel any cruise. However, if the cruise proceeds they
have no right to refuse carriage (Oceanic).
QANTAS contracts
Online
Offer = filling in details and clicking confirm.
Acceptance = display of electronic ticket (or at least where electronic communication reaches IS).
No need to use conventional analysis in preference to doctrine of offer and acceptance, because:
1.
Customer has opportunity to review conditions and elect whether to accept them before
electronic ticket is issued;
2.
Contract formed when electronic ticket is issued is not illusory (Q still has an obligation to fly
the passenger or procure his carriage, though not at any specified time or date (9.1(a)8) or in any
seat (4.7), or if the passenger falls under or infringes certain conditions (eg. 3.5 Health, 4.8
Special Assistance, 8.4 If You Are Late, 10.1 Refusal of Carriage, 11.2 Control of Passengers)).
Similarly, there are some provisions in the Terms and Conditions of Carriage that are only consistent
with this analysis of formation:
1.
Section 6.1 provides that your ticket is the main evidence of our contract with you. This
implies that the contract is formed when the ticket is issued.
2.
Q purports to reserve the right to charge the customer reasonably incurred administration costs
if they elect to return the ticket (s 13.2), this condition would be unenforceable if no contract
existed since no consideration has moved from Q.
3.
Section 9 governs what will happen if the scheduled flight is changed, delayed or cancelled.
Similarly, these conditions would be unenforceable (eg. where Q cancels a flight before P has
gone to the airport).
Travel agent
Depends on facts. Either:

1.
Where conditions not available before ticket issued = consistent with conventional analysis;
2.
Where conditions are available before ticket issued: offer = heres the ticket, acceptance =
payment of fare.
We do not guarantee the flight times and they do not form part of your contract of carriage with us.
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2. CONSIDERATION
ESSENTIAL ELEMENTS
When is consideration required?
Promisee = person trying to enforce the promise;
As promise to B can only be enforced by B if B has given consideration for that promise;
An agreement not supported by consideration on both sides is nudum pactum (a naked

agreement) and unenforceable.
Elements
1.
Benefit/detriment requirement;
Promisee must incur a detriment or confer a benefit on the promisor (Currie v Misa).
Examples:
Mutual promises: If B makes a promise in return for As promise, this will confer a
benefit on A (because A will have an enforceable legal right to have the promise
performed) and will also be a detriment to B (because B will come under an obligation to
perform the promise).
2.
Where the promisee incurs a detriment, the benefit need not move to the promisor.
Bargain requirement;
ii.
There must be a relation of quid pro quo (this for that) between the promisors promise
and the acts relied on as consideration for that promise the acts must be performed in
return for the promise (AWM);
iii.
In most cases this requirement will be satisfied if the acts are performed at the request
(express or implied) of the promisor9 (however, the presence of a request will not always
establish the relation; H of L in AWM);
iv.
Requirement not met where:

-
The promise is a conditional gift (eg. a promise to pay someone $100 if they
perform a certain act); or
Act is performed in reliance on a promise (Beaton v McDivitt).
For unilateral contracts this has been stated as: whether the offer was made in order to induce the
doing of the act (AWM).
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3.
Consideration must be sufficient (ie. something the law regards as valuable). But not adequate
(its economic value is irrelevant the courts will not inquire whether the value of the
consideration is equal or even proportionate to that of the promise; Woolworths).
INSUFFICIENT CONSIDERATION: PAST CONSIDERATION

General rule
General rule: Past consideration (something already given) is not sufficient consideration.
For example:
-
Something given before a promise is made cannot constitute consideration for that promise (eg.
a gratuitous promise to pay $50 to someone who has just returned my dog); or
Consideration for an old promise will not be sufficient consideration for a new promise (eg.
payment of the purchase price for a horse was consideration for its sale, and cannot be used as
consideration for the later promise that it was sound and free from vice; Roscorla v Thomas).
EXCEPTION: Promise to pay for past services
Discussed by Lord Scarman of the Privy Council in Pao On:

i.
Where an act is done at the promisors request; and
ii.
In circumstances that raise an implication that the act is to be remunerated either by a payment
or conferment of some other benefit;
iii.
Then performance of the act by the promisee will constitute good consideration for a subsequent
promise to pay or give the benefit.
Eg. In this case, act = promise not to sell Fu Chip shares for one year (done at defendants request); this
raised an implication that the restriction on selling must be compensated for by a guarantee against a
price drop; hence promise good consideration for Ds promise of indemnity.
INSUFFICIENT CONSIDERATION: EXISTING LEGAL DUTY RULE

General rule
General rule: Neither a promise to perform an existing legal/contractual duty, nor its performance, is
sufficient consideration (Stilk v Myrick).
Usually a one-sided contract variation. The two parties are the:

-
Beneficiary, B = person who promises to perform existing legal duty; and
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Modifying party, MP = party assuming an additional obligation or releasing B from an

obligation.
EXCEPTIONS:
The existing legal duty rule is inapplicable where:
1.
Fresh consideration
B provides fresh consideration by undertaking to do something more than he originally

promised (even if nominal) (Hartley v Ponsonby).
Contrast:
Stilk v Myrick: 2 sailors deserted. NO fresh consideration as crew contracted to do all
that they could under all the emergencies of the voyage.
Hartley v Ponsonby: the crew had deserted, making it dangerous to continue. YES
fresh consideration remaining crew under no obligation to go to sea and provided fc by
doing so.
2.
Practical benefit
I.
MP obtains a practical benefit from Bs promise to perform an existing

obligation (Williams v Roffey);
II.
This decision was followed by the Supreme Court of NSW in Musumeci. Santow
J applied Glidewell LJs test in Williams v Roffey in a modified form (the
modifications are shown in purple):
i.
If B has entered into a contract with MP to do something for MP in

return for payment; and
ii.
At some stage before completion B might not be able to complete his

side of the bargain;
iii.
MP promises B an additional payment, or other concession (such as

reducing Bs original obligation), in return for Bs promise to perform
his contractual obligation; and
iv.
As a result of giving MPs promise:

a.
MP obtains in practice a benefit or obviates a disbenefit provided

that Bs performance is worth more to MP than any likely
remedy against B (given the uncertainties, delays and costs in
litigation, performance will almost always be preferable); OR
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b.
B suffers a detriment provided that non-performance is worth

more than performance (again taking into account costs of
litigation); and
v.
MPs promise is not given as a result of economic duress or fraud,

undue influence, unconscionable conduct or unfair pressure;
vi.
III.
THEN the benefit to MP, or the detriment to B, is good consideration.
IMPORTANT TO NOTE: The decision in Musumeci is not binding on Victorian

courts (but highly persuasive). Therefore the practical benefit rule is of uncertain
legal status in Victoria.
3.
Promises made to third parties

Bs promise to perform is made to a person who was not a party to the original contract
(B incurs an additional legal obligation, and confers an additional legal right on the third
party) (Pao On).
4.
Compromise and forbearance to sue
i.
Promise by B to perform an existing legal obligation;
ii.
Is sufficient consideration;
iii.
When it is given by way of a bona fide compromise of a disputed claim;
iv.
B having claimed that he is not bound to perform the contract or that he has a cause
of action under that contract;
v.
AND this belief was honestly held (regardless of its legal validity).
(Wigan v Edwards)
Eg. In the leading case, E had a contract to buy a house from W. E (B above) refused to
perform the contract unless W fixed some defects. W signed an agreement to do so. From
the principle above E provided consideration.
5.
Termination and replacement

The parties have terminated their original contract and entered into a new contract (Bs
promise is now a new promise, which provides consideration for MPs promises).
NOTE: The parties must have intended to terminate and replace their original contract
(rather than just modify it).
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Example: Part payment of a debt
The part payment of a debt will not constitute good consideration for a promise to discharge the debt
(Pinnels case). In paying part of the debt, the debtor is simply performing a part of his legal
obligation.
However:
-
Fresh consideration will make the promise enforceable (eg. $1 and an old shoe in discharge of a
$1000 debt) (Foakes v Beer);
BUT practical benefit is not applicable to these cases (for this would leave the principle in
Foakes v Beer without any application; Re Selectmove).
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3. INTENTION
Essential elements
The parties must manifest an intention to create legal relations;
Objective approach (subjective intentions are irrelevant10); the court asks would reasonable
people regard the agreement as intended to be binding?
The party who claims that a contract has been made bears the onus of establishing all elements
of formation (including intention).
There are no presumptions (Ermogenous). Each case must be decided on its own facts, taking into
account the:
i.
Subject matter of agreement;
Serious subject matter, eg. where one party relies heavily on the agreement to their
detriment (Todd v Nicol);
Statements of policy
The government does not intend statements of policy to create legal relations (this
principle is not a presumption, but relates to the general manner in which
governments operate). Eg. An agreement by the Government to spray cattle is an
administrative agreement in pursuance of their agricultural policy, and not a
commercial contract (Administration of PNG).
ii.
Language of agreement;
iii.
Strong language, promissory in character (Banque Brussels).
Parties relationship to one another; and
Intention more likely to exist in a commercial context (as opposed to family, domestic or
social relationship informal nature of relationship and transaction might suggest a lack
of intention).
iv.
10
Other surrounding circumstances.
Except, however, where one party knows the other party does not intend to be bound (per Mahoney
JA in Air Great Lakes).
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Preliminary agreements
Parties who have negotiated the principal terms of a contract may enter into a preliminary written
agreement, with the intention of preparing a more formal agreement in the future. The question is:
Did the parties intend to be bound immediately on the signing of the preliminary agreement?
Such cases may belong to any of three classes (per the High Court in Masters v Cameron):
Class
1.
Is there a binding contract?
Parties have finalised all the terms and intend

to be bound immediately, but propose to
Yes
restate the terms in a form which is fuller or
Irrespective of whether a formal document is
more precise (but not different in effect);
2.
signed.
Parties have completely agreed upon all the

terms, and do not intend to vary them, but
Yes
have made performance conditional upon the

execution of a formal contract;
3.
Parties are bound to create formal contract

(performance is subject to this formal contract).
Parties do not intend to make a binding agreement

at all unless and until they execute a formal
contract (evidenced by words like; the agreement
No
is subject to contract, subject to the preparation

of a formal contract).
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4. CERTAINTY
The courts are reluctant to make, or to destroy, bargains. However, where the agreement has been
wholly or partly performed the courts will do their best not to destroy the bargain (F&G Sykes).
For a contract to be certain it must be:

1.
Sufficiently complete;
2.
Sufficiently certain and clear;
3.
The promises made must not be illusory.
COMPLETENESS
For a contract to be sufficiently complete it must include:
1.
All essential terms;
The essential terms of a contract:

i.
= All the terms that the parties intended only themselves to decide (B Coote11);
ii.
Must be agreed upon at the time of formation;

-
If the agreement provides that an ET will be agreed upon in the future this is an
agreement to agree, which is unenforceable;
HOWEVER, a contract will not be incomplete where the future determination of

terms has been left to one of the parties (the other party agrees to accept such
additional terms12 so no further agreement is required; Godecke v Kirwan);
iii.
BUT need not be specific if the agreement expressly or impliedly provides a way to
determine the ET. For example, by specifying determination by:
-
A third party (Godecke v Kirwan);
A valuer, arbitrator or mediator;
Provisions for payment must be included (otherwise term is incomplete;

Aiton Australia);
If this person is unable or unwilling to determine the term the contract

cannot be enforced (George v Roach), unless the contract provides for such
an event.
A formula; or
11
Contract Formation and the Implication of Terms (1993) 6 Journal of Contract Law 51
12
So long as they satisfy any requirements (consistency being implied by the courts).
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A standard (eg. Reasonable amount but the sale of land cannot be for a
reasonable or fair value; Hall v Busst).
The question then becomes one of CERTAINTY (eg. who is the third party, valuer or
arbitrator? Does such a reasonable standard exist?).
2.
Plus; Any other terms the court is incapable of supplying by implication;
i.
The courts will fill in non-essential terms by reasonable implication;
ii.
However, where the contract is unfamiliar and/or very complex the courts may be
unwilling to supply the terms and the parties must do so themselves (Milne v
Attorney-General (Tas)).
3.
Plus; Enough subsidiary terms for the agreement to be sufficiently complete.

A bare bones promise will be incomplete because the court must fill in terms to an
unacceptable extent (Pace at 135, 138 per Kirby P).
Examples of essential terms
Lease: commencement date, and rent to be paid;
Sale of land: parties, subject matter, and price (Hall v Busst);
Sale of goods: price is not an essential term (where an agreement is silent on price, a
reasonable price is imposed by s 13(2) of the Goods Act 1958 (Vic)13).
CERTAINTY
A term will be sufficiently clear and certain where:
1.
It is capable of a definite or precise meaning (Upper Hunter);
Any third parties, valuers, arbitrators or mediators, or objects or sections of land, must be
named or sufficiently described;
13
s 13(1): The price in a contract of sale may be fixed by the contract or may be left to be fixed in
manner thereby agreed or may be determined by the course of dealing between the parties.
(2): Where the price is not determined in accordance with the foregoing provisions the buyer must pay
a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of
each particular case.
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If the term is to be determined by a standard, evidence must be brought to prove that a

readily ascertainable external standard exists (otherwise the term will be uncertain; Pace);
A term is not uncertain because it has more than one meaning (so long as it is capable of
meaning; the courts can decide which one the parties intended) (Upper Hunter at 436 per
Barwick CJ); and
An agreement is not uncertain because it leaves one party a latitude of choice (eg. a
term containing a specified range of possibilities the court will hold the party to provide
the minimum provision; Pace).
2.
When determining this, the courts will endeavour to uphold the validity of the agreement (no
narrow or pedantic approach is warranted; Upper Hunter);
3.
The meaning of the term can then be determined by the courts (or an arbitrator).
Examples
Is the term/expression certain?
Reasonable terms as commonly govern such a lease

Kitto J observed that this term would have been sufficiently certain had evidence been brought
to show such a set of terms in common use (but there was no evidence). However, the
elements of rent or period of lease could not be included in such a clause (Whitlock v Brew);
Suppliers costs
The courts are able to identify the costs involved in electricity production and it is unnecessary
for the parties to specify every one (Upper Hunter).
An agreement to negotiate in good faith

The courts are able to assess whether or not this term has been met (it is possible to delineate
an essential framework for the notion of good faith per Einstein J at 268) (Aiton Australia).
Satisfactory finance
Satisfactory has two possible meanings (a subjective meaning, does the purchaser honestly
think the finance is satisfactory? this is a simple question of fact; or an objective meaning,
would a reasonable person in the position of the purchaser regard the finance as
satisfactory? this is a question for the court) and if the courts can decide which one the
parties intended, it will not be uncertain (Meehan v Jones);
Sale of land for a reasonable or fair value (Hall v Busst);
Participation in a staff equity sharing scheme of a biotechnology company

The promise to establish such a scheme leaves too many decisions for the court to make (eg.
number and class of shares, terms of acquisition and disposition of the shares). The court
could not fill these gaps by reference to other schemes because the new and speculative nature
of the field makes reasonable comparison difficult (and even if they could, they would not,
because this would be filling in gaps to an unacceptable extent) (Pace).
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ILLUSORY PROMISES
General principle
Test found in Placer Development (at 597 per Kitto J):

1.
Wherever words which by themselves constitute a promise;
2.
Are accompanied by words showing that the promisor (or promisee; Godecke v Kirwan);
3.
Is to have an unfettered discretion or option as to whether he will perform the promise;
4.
This is an illusory promise and unenforceable.
5.
Exceptions have been recognized by the courts, these include where the discretion:
i.
Relates to the fulfilment of a condition upon which performance of the contract

depends (a contract has been made, but performance of some of the obligations of the
contract are contingent upon conditions within one parties discretion. Eg. subject to
finance, subject to suitable/satisfactory finance; Meehan v Jones); OR
ii.
Has to be exercised according to objective criteria (eg. some readily ascertainable

external standard exists by which the promise can be valued. The promisor does not
have complete discretion, because he must perform in accordance with the standard.
The use of such a standard must have been intended by the parties14; Pace); OR
Has to be exercised within specified parameters, or leaves one party a latitude of
iii.
choice (eg. a salary within a range of $7000-$9000; Pace).
HOWEVER, Both Menzies and Windeyer JJ in Placer Development, and Hope JA in Pace, dissented
on the basis that:
Where a promise creates an obligation;
1.
To determine an amount to be paid, or to establish something (eg. a subsidy or an option to

participate in an equity sharing scheme);
2.
AND then to pay the amount, or give benefits under the thing.
The promise is not illusory simply because the promisor has a discretion over the amount to be paid or
the benefits to be given.15 The promisor is still under an obligation to determine and pay the amount, or
to establish the thing and give benefits (and the amount or benefits being honestly and reasonably
arrived at; Hope JA at 147).
This obligation could be enforced by an action for damages or specific performance; Windeyer J at 372.
14
In Pace, McHugh JA stated that even if there were pertinent market measures, the parties did not
intend that the offer should be judged against such standards (at 153).
15
The discretion relates to the amount to be paid, or the benefits to be given; and not whether to
determine the amount and pay it, or to establish the thing and give benefits (per Windeyer J at 370).
And this discretion does not amount to a discretion to pay nothing or a nominal sum; it is a discretion
to pay an amount the Cth considers in all circumstances reasonable (at 374).
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Examples
Is it an illusory promise?
The manner of performance (eg. the amount of money to be paid) is entirely within the
discretion of the promisor and no express or implied criteria to measure performance exists
(eg. a clause providing the Cth will pay a subsidy of an amount or at a rate determined by the
Cth from time to time was held to be illusory because they had a discretion over the amount
to be paid, and no standard to which they had to comply; Placer Development);
An essential term has been left to be determined by one of the parties (Godecke v Kirwan);
An exemption clause is so sweeping in its effect that the promisor assumes no obligation (the
exemption of the ticket fully occupies the whole area of possible obligation; MacRobertson
Miller Airline);
An essential term has been left to be determined by a third party (eg. a solicitor); or nonessential subsidiary terms are left to be determined by one of the parties (Godecke v Kirwan).
RESOLVING PROBLEMS
(1) Is it an essential
term?
YES
NO
(2) Can the court infer an intention that the
agreement should be valid in the absence of the
term?
YES
NO
(3) Can the term be

NO (there can be no
severed?
Or waived (if a term
was inserted for the
benefit of a party, it
NO
YES (hence rest
justification for holding
of agreement is
the parties to something
enforceable)
they have not agreed

upon; Whitlock v Brew).
may be waived by
that party)?
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Matters affecting formation

1. FORMALITIES
STATUTORY REQUIREMENTS
Types of contracts applicable
s 126 of the Instruments Act 1958 (Vic) imposes formal requirements on contracts:
1.
Of guarantee;
-
A special promise to answer for the debt, default or miscarriage of another person;
G promises to pay Ds debt if D defaults;
Gs assumes a secondary liability (G is liable only if D is liable);
(BUT this does not include an indemnity (where G promises to ensure that C suffers no loss
because of their transaction with D; primary liability)).
2.
OR dealing with an interest in land.

-
A contract for the sale or other disposition of an interest in land
= Sales, leases and mortgages.
Formalities required
An action shall not be brought on either type of contract unless:

1.
The agreement, or a memorandum or note of the agreement (for verbal agreements), is in

writing;
2.
AND signed by the party to be charged (the defendant) on the contract or their authorised agent.
(s 126(1) of the I A).
Element 1: Memorandum or note
The memorandum or note (MoN) of the agreement must:

i.
Contain all of the essential terms of the contract;

For example;
-
Parties
Named, or described (if sufficient to identify them);
Subject matter
May be described (if sufficient to point to some particular property. Eg. My
house, but not part of); and
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Consideration
Not required for guarantees (s 129); and
Any other essential provisions

Eg. Special conditions of a lease (Pirie v Saunders).
ii.
Generally, come into existence after the contract has been made;
-
It must recognise the existence of a contract, and not merely that a contract was
contemplated (a solicitors notes to prepare a draft lease was held not to be a MoN
because the parties may have intended no binding contract be made until the
formal document was executed; Pirie v Saunders);
EXCEPTION: A written offer made by the offeror and accepted verbally by the
offeree (once the written offer is accepted, it may become by the conduct of the
parties a sufficient MoN; per the Court in Pirie v Saunders at 154).
iii.
BUT does not need to be one single document.

Two documents may be accepted as together constituting a MoN (called a joinder of
documents). The courts will allow joinder of documents where:
-
They are physically connected (eg. letter and envelope);
OR there is a reference in one document to the other (it is not certain whether the
reference in the first document must be to the other document as such16, or to
some other transaction of which the second document evidences17).
Element 2: Signature
It must be signed:
i.
By the party to be charged (the defendant);
ii.
OR Ds authorised agent
The agent must be authorised in writing (a person lawfully authorised in writing by that
person to sign such an agreement, memorandum or note; s 126(1));
iii.
BUT not by the plaintiff himself (the courts do not require reciprocity of action; a person
who has not signed a document evidencing an agreement can enforce the agreement
against a person who has signed);
The minimum requirement for a valid signature is the authenticated signature fiction.
Where:
i.
Ds name appears on a document (except for a printed name to which parties intend to
affix their handwritten signatures);
ii.
That is a MoN of the agreement;
16
Thomson v McInnes per Griffith CJ at 562, 569.
17
Harvey v Edwards Dunlop and Co per Knox CJ, Gavan Duffy and Starke JJ at 302, 307.
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iii.
And D:
-
Expressly or impliedly;
Recognizes the writing as being an authenticated expression of the contract

(NOTE: recognizes means D has knowledge of its contents).
This is to be treated as a signature (Pirie v Saunders).
NOTE: For emails, either:

1.
The provisions of the Electronic Transactions (Victoria) Act 2000 can be used (permitted
by s 126(2) of the IA). s 9(1) of the ETA provides that the requirement of a signature is met
if an appropriately reliable method has been used to indicate the persons approval and they
consent to the requirement being met by that method;
2.
However, given the courts liberal approach to what constitutes a signature, the authenticated
signature fiction could be used instead of the ETAs provisions.
CONSEQUENCES OF NON-COMPLIANCE
-
Contracts that do not satisfy s 126 of the IA are unenforceable, but not void;
The unenforceable contract may still give rise to enforceable rights.
Doctrine of part performance
Used where one party has wholly or partly performed their obligations under an unenforceable
contract;
Can only be used where specific performance is available (where it is available, the remedies
available to the court are sp or equitable damages in lieu of sp).
Under this doctrine, P must have performed some acts that establish the existence of the contract.
These acts must:
i.
Not be preparatory (eg. acts done before contract is made, doing paperwork);
ii.
At least be pursuant to the contract, even where they are not required by the contract
(eg. taking possession of a house where the contract was just to buy it; Regent v
Millett);
iii.
AND, either:
(1) Narrow approach:
Propounded by Lord Selborne LC in Maddison v Alderson; the acts must:
18
Unequivocally;
And in their own nature;
Point to the existence of a contract of the general nature18 of that alleged;
General nature added by Gibbs J in Regent v Millett (at 800).
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And be explicable on no other basis.
Endorsed by the High Court binding on Australian courts (Ogilvie v Ryan at 525 per
Holland J; NSW Supreme Court decision but same conclusion would be reached in
Victoria).
OR (2) Broad approach:

The acts must point on a balance of probabilities to the existence of some contract, and
be consistent with the contract alleged by P (Steadman v Steadman).
Binding on UK courts.
Constructive trusts
In Ogilvie v Ryan, a constructive trust was established that entitled Ryan to occupy the property for the
remainder of her life. The basis behind this trust was that:
2.
The parties had a common intention;
3.
That R should be entitled to occupy the property for the rest of her life;
4.
In return for benefits provided by (and in fact obtained from) R;
5.
In the course of their joint use/occupation of the property and on the faith of that common
intention; and
6.
It would be unconscionable for D, or his executor, to make a claim for possession based on the
legal title.
NOTE: The declaration of a constructive trust is not inhibited by the Statute of Frauds (Ogilvie v Ryan
at 519 per Holland J).
Doctrine of estoppel could also be used in these cases.
Restitution
The law imposes an obligation on a person who accepts services performed under an unenforceable
contract to pay a reasonable remuneration for those services (established in Pavey & Matthews).
This obligation is:

-
Not imposed where there is the agreement is enforceable;
Not imposed where the services were a gift; and
Not precluded by statute (it is a claim to restitution and not to enforce a contract).
Proof of the oral contract is not required, although it may be an indispensable element in Ps success
because it shows:
a.
Services were not intended as a gift; and
b.
They had not been paid for.
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(per Mason and Wilson JJ at 227-8).
Severance
It is possible to sever the promises required to be in writing if the enforceable promises (those that do
not have to be in writing) are:
1.
Independent of, and not implicated with, the unenforceable promises; and
2.
Supported by an independent consideration, or an identifiable part of a divisible consideration.
VARIATION AND TERMINATION

An oral agreement terminating the contract will be effective.
An oral variation will not be enforceable.
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2. PRIVITY
A person, C, who wishes to enforce a contract must establish that he or she:
1.
Is a party to (that is, privy to) the contract (this is known as the doctrine of privity and was
approved by the High Court in Coulls v Bagots); and
2.
Has provided consideration.
The doctrine of privity:

-
Prevents C from enforcing a contract under which he is a beneficiary but not a party; and
Prevents a contract from imposing a legal burden or obligation on a third party.
IS C A PARTY?
Depends on the construction of the written instrument; Does it manifest an intention for C to be a party
to the agreement?
Elements to be looked at include:

-
Heading
Where the heading specifies the parties to a contract, it might infer that those excluded were not
intended to be parties (eg. in Coulls v Bagots, the heading Agreement between Arthur Coulls
and ONeil Construction evidenced that the contract was only between A Coulls and the
company, and no others; McTiernan J).
Contents
Evidence of promises, expressly or impliedly, made:
o
To C; or
From C;
May indicate C is a party to the agreement.

Eg. In Coulls v Bagots, Taylor and Owen JJ found no express or implied promise by the
company to pay royalties to Mrs Coulls (to C requirement). Similarly, while there was a
promise by Mr Coulls to continue to pay royalties to his wife if he dies (I authorise) there
was no such promise by his wife in the event of her death (from C requirement).
Signature
The mere fact that C has signed the document does not, in itself, make them a party (per the
majority in Coulls v Bagots; Windeyer J, dissenting, argued that a signature shows an intention
to be a party to the agreement).
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HAS C PROVIDED CONSIDERATION?

* NOT an issue of privity; but is an extension of the principles of consideration.
The promise must be supported by consideration;
BUT, where C is a joint promisee,
C does not need to show that he or she personally gave consideration for that promise;
So long as consideration was given by one of the promisees;
Note: in this case an action to recover must be brought by both promisees.

(Coulls v Bagots per Windeyer J at 493)
CIRCUMVENTING THE PRIVITY RULE

Agency
If the promisee (B), acting as an agent of the beneficiary (C), makes a contract with the promisor (A),
then C is a party to that contract.
A generalised version of Lord Reids four-stage test in Scruttons can be used (approved by the Privy
Council in The Eurymedon and then the High Court in The New York Star).
Where:
1.
The contract makes it clear that a benefit is to be conferred on C; and
2.
The contract makes it clear that B was contracting as agent for C as well as on its own
behalf; and
3.
Either; B was authorised to enter into the contract on Cs behalf, or; C subsequently
ratified Bs actions;
o
Can be established by evidence of an ongoing relationship between B and C;
For example in The New York Star, the carriers (B) part-ownership of the
stevedoring company (C), Bs ongoing use of C, and Cs awareness of the terms of
the bill of lading (the contract), established the requisite authorisation;
4.
AND C provided consideration for the promise;

o
Loose requirement, judges find ways to get around it (The New York Star);
Barwick CJ held that Cs consideration does not need to be provided when the
contract was formed, and can be supplied later (approved by the Privy Council);
Mason and Jacobs JJ, alternatively, found a unilateral contract to exist between the
consignee and stevedore through its agent, the carrier. The offer is immunity, to be
accepted by performance (=unloading the goods=consideration). This must be done
with knowledge of the offer (knowledge is sufficient in these cases to satisfy the
reliance requirement; at 273).
Then C is a party to the contract and is entitled to enforce it.
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Trusts
The existence of a trust can be used to circumvent the doctrine of privity (Trident v McNiece).
Does a trust exist?
A trust exists where:

1.
The promisor (A) makes a contract with the promisee/trustee (B) to confer a benefit on the
beneficiary (C);
2.
AND B manifested an intention to hold As promise on trust for C (As promise is property in
the form of a chose in action);
3.
This intention may be either:

a.
Express or implied;
Discerned from the language used and surrounding circumstances (Trident

at 121 per Mason CJ and Wilson J).
b.
OR Inferred or imputed
Authority to suggest intention should not be inferred or imputed

(Vandepitte; Re Schebsman);
BUT in Trident the HC questioned this reluctance;
Mason CJ and Wilson J found intent can be inferred where justified by the
nature of the transaction and its circumstances (eg. commercial necessity)
(at 121);
Deane J argued for much looser requirements; intention should be inferred

provided B intended that C should himself be entitled to insist upon
performance and receipt of the benefit (at 147).
What is the effect of the trust?
If a trust exists:
-
It does not make C a party (he acquires only an equitable interest in the promise);
Instead:
o
B is under an obligation to enforce the promise on behalf of C (B can bring an action

for its enforcement or damages for its breach);
OR if B declines to enforce promise, C can enforce the promise indirectly in an action

against A in his own name, joining B as defendant (per Deane J at 148, and Brennan J
at 135).
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QANTAS contract:
1.F. of Key Terms and Conditions of Carriage provides:

The contract between you and Q, including any exclusion or limitation of liability, applies to benefit
those other carriers employees, agents and representatives (E), and Q holds that benefit on trust, and
can, if requested by them, enforce it on their behalf
So;
Q = trustee
E = beneficiary
If E injures a passenger, P, while flying them on behalf of Q, first case P v E. E is not a party to the
contract between P and Q and so cannot directly enforce provisions, however, Q will join E as
defendant and enforce provisions on his behalf (case becomes P v E and Q).
BUT run through agency exception too.
Special exception: Insurance contracts
An exception to the doctrine of privity and the requirement of consideration exists in the case of
insurance contracts (Trident).19
This exception was justified on the basis that:

-
It is demanded by commercial necessity, practice and widespread use (McHugh JA in the

Court of Appeal);
It avoids injustice caused by reliance on the promise by third parties (that is, third parties order
their affairs and refrain from making their own arrangements for insurance in knowledge of
the promise);
AND this reliance is inadequately protected by other legal remedies (but even if estoppel did
provide adequate protection, the third parties rights should not depend on the vagaries of
such an intricate doctrine; Mason CJ and Wilson J at 123 on appeal to the HC).
Now covered by legislation (s 48 of the Insurance Contracts Act 1984 (Cth)).
19
Note that only the minority in this case approved the exception; two judges found for the respondent
applying different principles; and, the last two judges dissented.
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Terms
1. IS THE TERM PART OF THE CONTRACT?
I. IS THE TERM INCORPORATED IN THE CONTRACT?
Statements made during negotiations
The court asks whether a reasonable person watching the parties would infer that a promise was
intended (objective test: Denning LJ in Oscar Chess);
A promise is a term of the contract;
While a mere representation is not.
Courts will take into consideration (remember the question is, is intended to be a promise?):
1.
Language used
Promissory language (words of strong undertaking = agree, guarantee, warranty.

Eg. ensure; Banque Brussels); but
Not language that indicates an expression of opinion (eg. estimated speed; JJ Savage &
Sons).
2.
Relative expertise of the parties
Inexperienced party
-
A party is less likely to intend to be contractually responsible for a statement

regarding a subject they are inexperienced in (it is more likely to be an opinion;
Denning LJ in Oscar Chess);
For example: a party selling their mothers car to a car dealer, and relying on the
registration book for the year of manufacture, is unlikely to intend to warrant that
information.
Experienced party
Two approaches:
-
A party is more likely to intend to be contractually responsible for a statement

regarding a subject they are in a position to have knowledge about (reasoning in
Oscar Chess); OR
Where a statement induces entry into a contract it will, prima facie, be a promise,
but this can be rebutted by showing it was an innocent misrepresentation and there
was a reasonable foundation for this (Lord Denning in Dick Bentley).
For example: a car dealers untrue statement about the mileage of a car was held to
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be a promise, because his statement had no reasonable foundation given his ability
to find out the true history.
2nd approach produces a different result where experienced partys statement is
based on reasonable, but incorrect, information.
3.
Importance of the statement
A statement the circumstances show was important to the other person is more likely to
be promissory (especially a statement upon which the contract is contingent; eg. a house
being free from white ants; Van den Esschert).
4.
Timing
-
When was the statement made?

o
More proximate to contract formation = more likely to be promissory;
Example 1: a statement made immediately before signing = a part and parcel of the
contract (Van den Esschert);
Example 2: statements made one month before the agreement was concluded,
especially where was no later reference was made to them = indication that the
parties did not intend promises (per Gibbs CJ in Hospital Products).
5.
But remember, the whole of the circumstances must be looked at.

-
A balanced consideration taking into account all of the above factors must be made;
For example: in Hospital Products, Mason J found that the importance of the statements
overcame any timing issues (this was done by interpreting the statements as an offer by
Blackman to USSC, later accepted by USSC and modified by discussions and
correspondence).
Signed document
General rule: a party will be bound by the terms contained in a contractual document which he has
signed, regardless of whether or not he has read or understood the terms (the rule in LEstrange v
Graucob).
This rule does not apply where:

1.
Signature was induced by:

a.
Fraud (per Scrutton LJ in LEstrange v Graucob); or
b.
Misrepresentation;
Per Denning LJ in Curtis:
-
Any behaviour is sufficient;
So long as it misleads the other party about the existence or extent of the term
(Conveys a false impression);
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Can be either:
o
Knowingly (fraudulent misrepresentation); or
Unwittingly (innocent misrepresentation).
OR Express; or
Implied;
Eg. failure to draw attention to the existence or extent of a term

may convey the impression that there is no term at all, or a
narrower term;
In Curtis, there was an implied misrepresentation by the shop

assistant when she said the clause excludes liability for beads
and sequins, because she created the impression that it only
related to those risks and nothing else.
2.
Document cannot reasonably be considered a contractual document

-
For example: the receipt given in Curtis might reasonably be understood to be merely a
voucher for collecting the goods (obiter of Denning LJ at 809).
Terms incorporated through notice
Mainly where one party is alleging that the oral contract contains terms which have been displayed or
delivered.
Whether the terms are incorporated depends on whether:

1.
The terms were available before the contract was formed (A condition printed on a ticket is
ineffective to alter a contract of carriage if the ticket is issued after the contract is made;
Oceanic Sun Line);
2.
Other party had knowledge of the terms party will be bound regardless of whether he has
read the terms (Shoe Lane Parking); or
3.
Reasonable notice of the terms was given.

-
Depends on the:
o
Circumstances of the case;
Mere presentation may be sufficient where a reasonable person would

expect it to contain the terms of contract (PCL p257);
Terms not visible from the position where the contract was made (at the
ticket machine; Shoe Lane Parking);
A brochure directing the passenger to terms located at the shipping

companys office (Oceanic Sun Line).
AND Nature of the terms.
Where the terms are:
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Unusual; or
Onerous.
Eg. a term that limits liability for negligence, or a term expressed in

a way not reasonably understandable such as units of account
(Baltic Shipping at 25 per Kirby P).
Special notice must be given, such as will fairly and reasonably bring the
terms to the attention of the other party (PCL p259);
Mere availability of terms at the shipping companys office was not

reasonable notice for such unusual and onerous terms (they should have
been included on the booking form; Baltic Shipping at 25).
Some clauses would need to be printed in red ink with a red hand pointing
to it (as Denning LJ said in Spurling v Bradshaw).
Terms incorporated through a course of dealings
Where the parties have had a history of dealings, terms introduced in earlier transactions may be
incorporated into a subsequent contract even though the ordinary requirements for the incorporation of
terms have not been met for that later contract (eg. Balmain)20.
1.
The course of dealings must have been:

i.
Regular; and
ii.
Uniform (similar).
(McCutcheon v MacBrayne)
What is sufficient?
2.
More than 100 contract notes over 3 years (Hardwick Game Farm v SAPPA); or
9 or 10 previous contracts (Rinaldi at 136 per Burt CJ).
EXCEPT: if the document relied upon in previous transactions cannot be reasonably considered
a contractual document (Rinaldi).
For example, things that look like:
An acknowledgement of delivery of the goods (as in Hills case); or
An identification of the work done (eg. the yellow cart note attached to the invoice in
Rinaldi).
Reasoning: If document is not contractual, then the parties have never assented to the terms and
hence cannot be bound by them in the future (Full Court in Hills case).
20
In Balmain, OConner J held that it is irrelevant whether R knew about the exit fare of one penny, or
if he had reasonable notice of the terms, because he had travelled on the ferry on many occasions and
must have been aware of the condition of exit.
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II. IS EVIDENCE OF THE TERM ADMISSIBLE?
Parol evidence rule
Parol evidence rule provides that:

-
Extrinsic evidence;
That adds to, varies or contradicts;
The terms of a contract wholly in writing;
Is inadmissible.
(per Denman CJ in Goss v Nugent)
Q: Is the contract wholly in writing?
Two approaches to the PER:

1.
Narrow approach
PER applies to a written document that appears on its face to be the complete contract (Williston
on Contracts); or
2.
Broad approach
PER has no operation until it is first determined that the parties intended the contract to be
wholly in writing. Extrinsic evidence is admissible to determine this (McHugh JA in State Rail
Authority NSW Court of Appeal; Corbin on Contracts).
Eg. a promissory statement, by its nature, shows that the parties intended the document to be
supplemented by oral terms (contract is partly oral, partly written). Hence the PER does not
apply and evidence of the statement is admissible.
No conclusive High Court authority. The court can use either approach.
NOTE: Electronic contracts
Where the terms of a contract are recorded electronically, but are capable of being retrieved and
converted into a readable form, the terms should be treated as being in writing for the purpose of PER
(Chitty on Contracts).
ADMISSIBLE: Term incorporated in contract
EVIDENCE NOT ADMISSIBLE: Consider exceptions
Situations where the PER has no application.
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Collateral contracts
Collateral contract is formed when:

1.
One party makes a promise;
2.
Intended to induce entry into the main contract (JJ Savage & Sons); and
3.
The other party agrees to enter into the main contract (provides consideration for promise);
4.
The rule in Hoyts v Spencer requires the collateral contract to be consistent with the terms of
the main contract:
-
Collateral contract cannot alter the provisions of the main contract;
The two together cannot affect the independence and legal effect of each individual
contract;
NOTE: Be creative about whether they are actually inconsistent (in Hoyts v Spencer,
Ferguson J, dissenting, mentioned the argument that there was no inconsistency between
the two the collateral contract limits the right to give notice provided for in the main
contract; main contract provides that lease may be terminated at any time by giving at
least four weeks notice, whereas the collateral contract makes this right available only
after the currency of the term has expired)).
Evidence of statement is admissible for the purpose of establishing the collateral contract (PER has no
application).
Estoppel
An estoppel might be raised to give relief where one party seeks to depart from an assumption that he
would modify, or refrain from enforcing, the terms of a contract in writing.
Courts are divided as to whether the PER allows the admission of extrinsic evidence to establish an
estoppel:
1.
Admissible (per Rolfe J in Whittet. His Honour found support in the NSW Court of Appeal
decision in State Rail Authority, particularly the views of McHugh JA);
2.
Inadmissible (per Bryson J in Norco. His Honour followed an earlier Supreme Court decision
by McLelland J in Johnson Matthey, instead of Whittet note: his Honour interpreted State
Rail Authority differently, concluding McHugh JA was dissenting on the issue).
Both NSW Supreme Court decisions, so Victorian courts can accept either. However, recent authority
has shown a preference for the views of McHugh JA in State Rail Authority (and hence Whittet see
the Federal Courts decision in Branir v Owston Nominees).
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2. WHAT DOES THE TERM MEAN?

PRINCIPLES OF CONSTRUCTION
-
Construction determines the meaning and legal effect of the terms;
The court aims to give effect to the parties intentions as viewed objectively (by a reasonable
person in the position of the parties);21
Use general test espoused by the High Court in Darlington Futures.

That is, a term is to be construed:
a.
According to its natural and ordinary meaning,
b.
Read in the light of the contract as a whole,
c.
Thereby giving due weight to the context in which the clause appears
d.
Including the nature and object of the contract.
PAROL EVIDENCE RULE

General rule
The parol evidence rule prevents extrinsic evidence from being given to explain the meaning of the
terms of a written contract (meaning can only be ascertained from the contract itself).
EXCEPTION: Evidence of surrounding circumstances
Surrounding circumstances include:

-
Commercial purpose;
Background;
Context; and
Market in which the parties are operating.
Two approaches as to when evidence of the surrounding circumstances is admissible:

1.
Broad approach
Always admissible (House of Lords).
2.
Narrow approach
-
Only admissible if language is ambiguous (Codelfa Construction);
Ambiguous = susceptible of more than one meaning, does not have a readily
ascertainable meaning, or is used in an inconsistent manner.
21
Actual opinions are irrelevant (see Heydon JA in Brambles Holdings).
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In Royal Botanic Gardens, the High Court stated that Australian courts should continue
to follow narrow approach, but contemplated the possibility of deciding otherwise in
the future;
Even using the narrow approach, it appears from the majority judgment in this case that
the standard of ambiguity required is not very high (the words may have regard were
held to be ambiguous because they did not make it clear whether the list was exhaustive
or inclusive Kirby J, dissenting, found no ambiguity; it does not state that these are
the only factors);
It seems that the existence of a viable alternative argument as to what the clause might
mean is sufficient to constitute ambiguity.
Evidence admissible
Includes evidence of prior negotiations to establish background facts which were known to both
parties and the subject matter of the contract.
Example of how its used
In Royal Botanic Gardens, the surrounding circumstances reinforced the non-commercial character of
the transaction (eg. the parties were two public authorities, the purpose of their transaction was the
provision of a public facility, and both parties would suffer financial disadvantage as a result). Hence
the Trustees had could not assess the rent according to the commercial value of the land, but only
according to the factors specified in clause 4(b) (exhaustive list).
SPECIAL CASE: EXCLUSION CLAUSES

An exclusion or exemption clause = a term of a contract that attempts to limit or exclude the liability of
a party for conduct that would otherwise be in breach of contract or constitute a tort (eg. negligence).
For an exclusion clause to exclude or reduce a persons liability, they must show:
1.
It is not void under statute (see Implied Terms);
2.
It was properly incorporated into the contract (see Incorporation of Terms);
3.
They were a party to the contract (see Privity); and
4.
It applies to the issue in dispute (a matter of construction).
Part 4: Construction
The meaning and effect of an exclusion clause is to be determined by the ordinary processes of
construction. That is, it is to be construed:
e.
According to its natural and ordinary meaning,
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f.
Read in the light of the contract as a whole,
g.
Thereby giving due weight to the context in which the clause appears
h.
Including the nature and object of the contract (evidence of surrounding circumstances is only
admissible where there is ambiguity see above; RBG).
(per the Court in Darlington Futures)
Where the words of an exclusion clause have a clear meaning, the High Court has emphasised that a
more restrictive interpretation than its language will naturally bear is not warranted (Darlington
Futures).
NOTE: Malicious damage is outside the contemplation of either party and cannot be excluded (D v PPS).
Cases of ambiguity
Contra proferentem
Where, under the ordinary processes of construction, the words of the exclusion clause are
ambiguous (capable of more than one meaning);
It may be construed contra proferentem (Darlington Futures);
That is, against the interest of the proferens (the party proffering, seeking to rely on, the clause).
Principles of strict construction
The legal status of these principles is uncertain, given the recent preference by the High Court to
apply the ordinary processes of construction to exclusion clauses (see Darlington Futures);
They can, however, be seen as applications of the contra proferentem rule and should only be
applied in cases of ambiguity (PCL p267).
1.
Four corners rule

o
Exclusion clauses do not cover acts that are not authorised22 by the contract (referred to by
Windeyer J in Thomas National Transport).
Rationale: it is unlikely the parties would have intended the clause to apply to acts outside the
four corners of the contract;
For example in Darlington Futures;
The Full Court of the Supreme Court held that an exclusion clause limiting the brokers
liability to $100 in respect of any claim arising out of or in connection with the
22
Not authorised = alien to the contract, a radical breach of obligations under the contract (TNT).
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relationship did not apply to unauthorized acts (since these are outside the scope of the
relationship);
This was overturned on appeal to the High Court, on the basis that there was no
ambiguity and the natural meaning of relationship does not preclude unauthorized acts.
2.
Deviation rule
o
A form of the four corners rule (ie. was the act unauthorized? If so, not covered by clause);
Requirements:
The carrier cannot rely on an exclusion clause;
For loss occurring during or after23;
A radical deviation from;
The contractually agreed voyage or route;
Route either stipulated expressly or by implication as the usual and customary route.
(per Windeyer J in Thomas National Transport)
For example in Thomas National Transport;
The exemption clause stated that TNT assumes no responsibility for loss or damage
to goods in transit or in storage;
The majority thought that it was implicit in the contract that the goods would be
taken to the depot at night, and hence the subcontractors act of taking them home
was a deviation (so TNT could not rely on exemption clause);
Windeyer J, dissenting, found no such implied term. The sole object of the contract
was for TNT to procure the carriage from the consignor to the consignee, and it
reserved to itself a wide discretion as to how it did this. The natural meaning of the
words in transit, read in light of the object of the contract, is in the course of being
moved to the place of delivery.
3.
Negligence
o
Under the principles of strict construction an exclusion clause is not construed as relieving a
party against liability for his negligence, unless it expressly or by implication covers such
liability (Davis v Pearce Parking Station);
Now decided using ordinary processes of construction (Darlington Futures);
That is, look at the natural and ordinary meaning of the words in their context (including
nature and object of contract). For example:
23
After unless he shows that the same loss would have occurred if there had not been a deviation
(per Windeyer J).
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Strong language (howsoever caused, under no circumstances); or
General words, but a contract of a specific nature.
For example in Davis v Pearce Parking Station;
The two exclusion clauses, car is garaged at owners risk and PPS will not be
responsible for loss or damage of any description, were held by the High Court to
exclude liability for negligence;
This was because the nature of contract, a bailment for reward, implied;
1.
PPS could not be liable for loss or damage occurring without negligence (their
only duty was to exercise reasonable care). Hence clauses must exclude
liability for negligence otherwise they would be entirely without effect; and
2.
PPS is making a very small charge for taking the custody of goods of much
greater value. Hence he is likely to intend, and the car owners would
reasonably expect him to intend, to protect himself against very heavy
liability.
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3. IS THERE AN IMPLIED TERM TO COVER P?

COMMON LAW IMPLIED TERMS
-
Gap-fillers;
Hence terms will not be implied under common law where they are expressly excluded by the
parties or are inconsistent with the express terms;
Note: an entire agreement clause will not exclude implied terms24, unless it does so expressly.
IN LAW
-
Implied in all contracts of a particular class or description (typical classes are contracts between
master and servant, for the sale of goods, for the provision of work and materials);
Unless expressly excluded by the parties or inconsistent with the express terms (McHugh and
Gummow JJ in Byrne25).
Test
1.
Is the term applicable to a definable class of contractual relationship (note: classes of contracts
in which the law will imply terms are not closed; Byrne)?
2.
Is it necessary for the term to be implied in all contracts of that class (Liverpool City Council)?
-
McHugh and Gummow JJ in Byrne explained that the courts are concerned that, unless
the term be implied;
The enjoyment of the rights conferred by the contract will be:

o
Rendered nugatory;
Worthless; or
Seriously undermined.
OR the contract will be:
24
Unworkable and ineffective;
Deprived of its substance; or
Drastically devalued in an important respect.
Such a clause excludes what is extraneous to the written contract; it does not exclude implications
arising on a fair construction of the agreement these implied terms are part of the contract (per
Isaacs J in Hart v MacDonald).
25
Although implied in law, these terms had their origins as terms implied in fact on the basis of the
presumed intentions of the parties. And hence must still be implied consistent with those intentions.
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Examples
In Liverpool City Council, the House of Lords held that the landlord was under an implied
obligation to take reasonable care of the common areas in a high-rise apartment block. These
common areas (eg. lifts and stairs) are not just facilities or conveniences but essentials of the
tenancy without which life in the dwellings is not possible;
In Byrne, the High Court refused to imply award provisions into the baggage handlers
individual contracts of employment. No necessity; the contract of employment is perfectly
workable and effective without implying the clause.
IN FACT
-
Unique to the particular contract; because it is
Based on the presumed intentions of the parties.
Formal contracts
To ascertain the presumed intentions and identify an appropriate term, use the Privy Councils statement
in BP Refinery (approved by the High Court on numerous occasions; see Byrne at 441):
For a term to be implied, the following conditions must be satisfied:

1.
It must be reasonable and equitable;

o
Look at the benefits/detriments the term assigns to each party (a large disparity will
usually be contrary to the parties intentions).
2.
It must be necessary to give business efficacy to the contract so that no term will be implied if
the contract is effective without it;
o
Would a reasonable person consider that the proposed term was necessary to enable the
contract to operate in a businesslike manner (PCL)?
For example, where a ship is to be moored at a jetty it is clearly necessary for that
mooring to be safe (The Moorcock). In this case, the jetty owners were held liable for
breach of an implied term requiring them to take reasonable care to ascertain the
condition of the berth. They were in the better position to undertake the task and doing
so would require little trouble (per Bowen LJ).
3.
It must be so obvious that it goes without saying;

o
In the sense that if the term had been raised while the parties were making the contract
they would have replied Oh, of course! (Shirlaw).
4.
It must be capable of clear expression;
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5.
Clear and precise.
It must not contradict any express term of the contract.
Informal contracts
Informal = parties have not attempted to spell out the full terms of their contract (ie. parties did
not reduce their agreement to a complete written form);
Requirements less strict.
For informal contracts:

-
Courts still look at the presumed intentions of the parties;
BUT a more flexible approach is used (an automatic or rigid application of the criteria
identified in BP is not warranted; per McHugh and Gummow JJ in Byrne);
According to McHugh and Gummow JJ in Byrne, the test becomes whether:

1.
The implication of a particular term is necessary for the reasonable or effective

operation of a contract26;
2.
Of that nature in the circumstances of the case;
3.
AND the term is so obvious that it goes without saying (note: this requirement was
added to the general test proposed by Deane J in Hawkins v Clayton).
Eg. In Byrne, the contracts of employment of the two baggage handlers were informal. The High Court
refused to imply award provisions into the baggage handlers individual contracts of employment
because such terms were neither so obvious nor necessary for the reasonable and effective operation
of the contracts.
BY CUSTOM
-
Rationale: where a custom is so well known and acquiesced in then everyone making a
contract in that situation can reasonably be presumed to have imported that term into the
contract (per the High Court in Con-Stan);
For a term to be implied by custom, it must be:

o
Notorious (everybody contracting in that industry adheres to it actual knowledge

or universal acceptance is not required);
26
Uniform;
Reasonable; and
Certain.
Note this test allows a term to be implied if it results in a more reasonable operation. This has been
criticised and some suggest that efficacy is the overriding concern (Tolhurst and Carter).
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(Con-Stan)
The standard required is very high, and consequently there are no examples in modern
Australian law. Unlikely to succeed.
Eg. In Con-Stan, it was necessary to establish a clear course of conduct under which insurers do not
look to the assured for payment of the premium. High Court held this requirement was not satisfied (it
was insufficient to show that in the ordinary course of events the premium is paid to the insurer by the
broker, nor is it sufficient to show that the insurer makes its first demand for payment from the broker).
SPECIAL CASE: GOOD FAITH

-
A duty of good faith may be implied into the contract;

o
No binding High Court authority;
Has only been recognised by the Supreme Courts (eg. Priestley JA in Renard; the Court
in Burger King);
Either as terms implied in:

o
Fact (Priestley JA in Renard. His Honour found that business efficacy can only be
achieved if discretion is exercised reasonably; at 258); or
Law (prevailing opinion; per the Supreme Court in Burger King).

Class of contract to which it applies is undefined:
Includes building (Renard) and franchise contracts (Burger King);
Case law indicates it will be more readily implied in standard form contracts,
particularly if they contain a general power of termination (obiter of the Court in
Burger King, at 163);
Therefore, like all other terms implied in law it has no application where expressly
excluded or inconsistent with the express terms;
REMEMBER: Run through the criteria for implying terms in law (depends on
whether contract is formal or informal).
Has two elements:

1.
Co-operation
o
Duty to co-operate well established in Australian contract law (not controversial;

Burger King at 144);
Each party is under an implied obligation to do all such things as are reasonably
necessary on his part to enable the other party to have the benefit of the contract.
Eg. In Burger King, the Supreme Court held Burger King breached the implied
obligation of co-operation by failing to do things necessary for Hungry Jacks to
perform their side of the contract (eg. not telling HJ which restaurants were in
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the Needs Improvement category, not providing the Franchise Action Plan
needed by them to improve their restaurants);
2.
Fairness
o
Fairness in the exercise of contractual powers;
Standard of conduct required = reasonableness (Priestley JA in Renard);
Eg. In Renard, Priestley JA found that the principal (Minister for Public Works)
failed to exercise reasonableness in deciding27 whether the contractor had
satisfactorily shown cause and in choosing to exercise the power of
termination, when other powers were available;
Duty precludes a party from exercising a contractual power capriciously or for an

extraneous purpose (Burger King at 172, 185);
Note: this does not restrict a party exercising powers so as to promote its own
legitimate interests, so long as its actions are reasonable and in the spirit of the
bargain (eg. not extraneous; Burger King at 172, 185);
Eg. In Burger King, the Supreme Court held Burger King breached the implied
duty of good faith by withholding approval for new franchises with the intention
of terminating the contract, enabling itself to develop the Australian market
unhindered by its contractual arrangements with Hungry Jacks.
STATUTORY IMPLIED TERMS

BY STATUTE
Trade Practices Act 1974 (Cth)
Regulates the conduct of corporations in the course of trade and commerce.

DEFINITIONS
s 4(1)
Interpretation
"services" includes any rights (rights in relation to, and interests in, personal property), benefits,
privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce
supply, when used as a verb, includes:
(b)
27
in relation to services--provide, grant or confer;
Hence imposes obligations relating to the process through which a decision is made.
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s 4B
Consumers
(1)
For the purposes of this Act, unless the contrary intention appears:
(b)
a person shall be taken to have acquired particular services as a consumer if, and only
if:
(i)
the price of the services did not exceed the prescribed amount ($40,000;
s4B(2)(a)); or
(ii)
where that price exceeded the prescribed amount--the services were of a

kind ordinarily acquired for personal, domestic or household use or
consumption.
s6
Extended application of PartsIVA, IVB, V
(2)
This Act has, by force of this subsection, the effect it would have if:
(a)
any references in this Act to trade or commence were, by express provision, confined
to trade or commerce:
(i)
between Australia and places outside Australia;
(ii)
among the States;
(iii)
within a Territory, between a State and a Territory or between two

Territories; or
(c)
any reference in Division 2 of Part V (ss 66-74) to a contract for the supply of goods
or services were, by express provision, confined to a contract made:
(i)
in the course of, or in relation to, trade or commerce between Australia and
places outside Australia;
(ii)
in the course of, or in relation to, trade or commerce among the States; or
(iii)
in the course of, or in relation to, trade or commerce within a Territory,

between a State and a Territory or between two Territories;
(h)
a reference in this Act to a corporation included a reference to a person not being a

corporation.
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SERVICES
s 74 Warranties in relation to the supply of services

(1)
In every contract for the supply by a corporation in the course of a business of services to a
consumer there is an implied warranty that the services will be rendered with due care and
skill and that any materials supplied in connexion with those services will be reasonably fit for
the purpose for which they are supplied.
(2)
Where a corporation supplies services (other than services of a professional nature provided
by a qualified architect or engineer) to a consumer in the course of a business and the
consumer, expressly or by implication, makes known to the corporation any particular purpose
for which the services are required or the result that he or she desires the services to achieve,
there is an implied warranty that the services supplied under the contract and any materials
supplied in connexion with those services will be reasonably fit for that purpose or are of such
a nature and quality that they might reasonably be expected to achieve that result, except
where the circumstances show that the consumer does not rely, or that it is unreasonable for
him or her to rely, on the corporation's skill or judgment.
LIMITATION AND EXCLUSION
s 68
Application of provisions not to be excluded or modified
(1)
Any term of a contract (including a term that is not set out in the contract but is incorporated in
the contract by another term of the contract) that purports to exclude, restrict or modify or has
the effect of excluding, restricting or modifying:
(a)
the application of all or any of the provisions of this Division;
(b)
the exercise of a right conferred by such a provision;
(c)
any liability of the corporation for breach of a condition or warranty implied by such
a provision;
is void.
(2)
A term of a contract shall not be taken to exclude, restrict or modify the application of a
provision of this Division unless the term does so expressly or is inconsistent with that
provision or section.
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s 68A
Limitation of liability for breach of certain conditions or warranties
(1)
Subject to this section, a term of a contract for the supply by a corporation of goods or
services other than goods or services of a kind ordinarily acquired for personal, domestic or
household use or consumption is not void under section 68 by reason only that the term limits
the liability of the corporation for a breach of a condition or warranty to:
(b)
(2)
in the case of services:

(i)
the supplying of the services again; or
(ii)
the payment of the cost of having the services supplied again.
Subsection (1) does not apply in relation to a term of a contract if the person to whom the
goods or services were supplied establishes that it is not fair or reasonable for the corporation
to rely on that term of the contract.
(3)
In determining for the purposes of subsection (2) whether or not reliance on a term of a
contract is fair or reasonable, a court shall have regard to all the circumstances of the case and
in particular to the following matters:
(a)
the strength of the bargaining positions of the corporation and the person to whom
the goods or services were supplied (in this subsection referred to as the buyer )
relative to each other, taking into account, among other things, the availability of
equivalent goods or services and suitable alternative sources of supply;
(b)
whether the buyer received an inducement to agree to the term or, in agreeing to the
term, had an opportunity of acquiring the goods or services or equivalent goods or
services from any source of supply under a contract that did not include that term;
(c)
whether the buyer knew or ought reasonably to have known of the existence and
extent of the term (having regard, among other things, to any custom of the trade and
any previous course of dealing between the parties); and
(d)
in the case of the supply of goods, whether the goods were manufactured, processed
or adapted to the special order of the buyer.
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Estoppel
ELEMENTS
No universal test has been espoused by the courts. Paterson, Robertson and Heffey have identified
three essential, and three non-essential but common, elements used by the courts in estoppel cases
(Principles of Contract Law pp 164-5). Their test will be applied in this case.
Essential elements
Assumption
Relying party must have adopted an assumption;
Assumption either:
o
Of existing fact = common law estoppel; or
Of future conduct = equitable estoppel (unified principle that includes both proprietary
estoppel (interest in land) and promissory estoppel (anything other than land));
Distinction may be unclear on facts (eg. in Waltons Stores, the minority held that W led
M to believe they had signed the contract, whereas the majority held that W led M to
believe they would sign the contract); but
This distinction may eventually become irrelevant if the courts recognise a single general
doctrine of estoppel by conduct (as propounded by Deane J in Waltons Stores and
Verwayen, and Mason CJ in Verwayen). However, this has not yet commanded a majority
in the High Court.
It is uncertain whether the assumption must relate to an existing or expected legal relationship
between the parties;
o
Narrow view advocated by Brennan J in Waltons Stores (doctrine has no application to an

assumption induced by a promise which is not intended by the promisor and understood by
the promisee to affect their legal relations; at 421);
Followed by the Federal Court in Mobil (D must have created or encouraged an assumption
that a particular legal relationship would be established or an interest in land would be
granted);
However, some decisions are consistent only with a broader view (see the NSW Supreme
Court decision in W v G; Hodgson J held D induced an assumption was that she would act
with P as parents of the two children and would assist and contribute to the raising of these
children a mere assumption that a promise be performed).
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Examples
Assumption =
Not to enforce contractual right to unpaid rent (Je Maintiendrai);
Postpone the enforcement of Ls contractual right to rescind contract (Legione);
Waltons would duly complete, or had duly completed, the exchange (Waltons Stores);
Certain defences would not be pleaded in legal proceedings (Verwayen);
Mobil would implement a tenure for achievement scheme (Mobil);
Robert would be given land in exchange for him staying on and working the property
(Giumelli);
D would act with P as parents of the two children and would assist and contribute to the raising
of these children (W v G).
Inducement
The assumption must have been induced by the conduct of the representor;
Can be induced by either:

o
Express statements; or
Implied conduct (eg. silence).

See Waltons Stores: Ws solicitors wrote to M saying we believe the approval will be
forthcoming. We shall let you know tomorrow if any amendments are not agreed to.
Waltons never wrote back. Mason CJ and Wilson J held that this inaction constituted
an implied promise to complete the contract;
NOTE: there is authority to suggest the representation has to be clear and

unequivocal (per Mason and Deane JJ in Legione), or precise (per the Full Federal
Court in Mobil), to induce the assumption;
For example:
In Legione, their Honours thought the statement I think thatll be all right
could not induce the assumption adopted; and
In Mobil, Mobils commitment to find a way was too generalised and

imprecise to give rise to any expectation of the scheme coming into existence
(the essential elements and details of the legal relationship are lacking).
However, the proper view is that these issues should be dealt with under the criterion
of reasonableness, and the sole question for inducement is; Was there an induced
assumption? (PCL).
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Detrimental reliance
The relying party must have acted on the assumption in such a way that he will suffer detriment
if the representor is allowed to depart from the assumption;
The detriment:
o
Must flow from a change of position on the faith of the promise (the very foundation of
estoppel; per Dixon J in Thompson v Palmer). This can result from:
Positive acts; or
Omissions (eg. choosing not to pay the balance within the original contracted time;
Legione however, inactivity will not be detrimental when there is nothing the
RP could have done to improve their position).
Can be either
Financial (eg. the demolition of old building and partial construction of a new
building; Waltons Stores); or
Non-financial (eg. in Verwayen, three of the seven judges, Mason CJ, Deane and
Dawson JJ, found that mental distress28 could constitute a detriment note: only
Brennan J openly dissented on the issue);
AND must be:
Significant or substantial (per Deane J in Verwayen and White J in Je

Maintiendrai); and
Proportional to the remedy that estoppel can provide (eg. legal costs can be
sufficiently recompensed by an order for costs, and it would be wholly inequitable
and unjust to deprive the Cth of the defences available to it; per Mason CJ in
Verwayen).
May depend on the situation of the relying party (eg. a lump sum payment would be
detrimental to an impecunious party, but not to a wealthy one; Je Maintiendrai);
Must be assessed at the time the representor seeks or attempts to resile from the
assumption (Question is: what position would RP be in if R were allowed to disavow the
truth? per White J in Je Maintiendrai. In this case, until the landlord claimed the unpaid
rent, the tenants actually obtained a benefit);
Evidence of detriment must be affirmatively demonstrated (both Mason CJ in Verwayen

and Cox J in Je Maintiendrai dissented because such evidence was not shown).
Examples
Is it a relevant detriment?
28
Includes stress, anxiety, inconvenience and increased ill-health.
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Lump sum payment owed by an impecunious party (note: the change of position in this case
was continuing to remain a tenant; Je Maintiendrai);
Obiter: if the tenants had conducted their affairs differently as a result of the reduction (ie. they
ignored other choices open to them; eg. selling the business, abandoning the shop, looking for
another tenant; or even if they spent the money on other things) (per King CJ and White J in Je
Maintiendrai);
Loss of property which the plaintiff worked to improve without wages, and giving up other
available job opportunities (Giumelli);
Having to bring up two children alone (W v G);
Expenses incurred by the franchisees which lead to increased turnover and sales, thus keeping
their profitability unchanged (in any respect, this small detriment was disproportionate to the
remedy to be granted (the nine years of free tenure); Mobil).
Common elements
Reasonableness
RPs reliance must have been reasonable (concerned with whether the RP is deserving of
protection);
Two elements:
1.
Did RP act reasonably in adopting the assumption?

o
Depends on:
Words used;
Authority of person making the statement (eg. in Legione, Brennan J held it

was unreasonable for the purchasers solicitor to rely on a statement by the
vendors solicitors secretary extending the time for settlement he should
have known this was beyond the limits of her authority).
2.
Did RP act reasonably in taking the relevant detrimental action on the faith of the
assumption?
Unconscionable conduct
It must be unconscionable for R to depart from the assumption (concerned with whether R
deserves blame);
Unconscionable = unjust, unfair, oppressive;
Involves consideration of all the circumstances of the case;
In Verwayen, Deane J identified several factors that can guide this inquiry (at 444-5). These
include:
i.
Rs role in inducing the assumption;
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ii.
Whether R knew, intended, or clearly ought to have known, that the other party would
be induced by his conduct to adopt and act on the assumption (Brennan J sees this as an
independent essential element; see Waltons Stores at 423);
iii.
Rs role in furthering RPs belief in its truth;
iv.
Whether R knew that RP was acting on the assumption to his detriment and yet
refrained from correcting him;
v.
The reasonableness of the conduct of the RP in acting upon the assumption; and
vi.
The nature and extent of the detrimental reliance.
Examples
In Waltons Stores, the situation of urgency created by Waltons, and their knowledge that the
Mahers saw completion of the exchange of deeds a formality, suggests that Waltons either knew,
or should have known, that Maher would act on the assumption. Furthermore, when they learnt
that demolition was proceeding they had two options available; either to complete the contract or
to warn Maher that they were undecided. Waltons inaction also constituted clear encouragement
to Maher to continue. In these circumstances, it was unconscionable for Waltons to depart from the
assumption (Mason CJ and Wilson J).
Departure or threatened departure
An estoppel cannot arise until there has been a departure or threat to depart from the assumption
adopted and acted upon by the relying party.
EFFECT OF AN ESTOPPEL
Traditional approach
The effect of establishing an equitable estoppel is to raise an equity in favour of the relying party
(equity = an entitlement to some equitable relief; per Deane J in Verwayen at 435);
How this equity is satisfied is within the courts discretion;
This will be exercised to compensate either the relying partys:

1.
Reliance loss; or
o
Loss suffered as a result of RPs reliance on the assumption (eg. the wasted
expenditure incurred in demolishing existing building and partially constructing a
new one; Waltons Stores);
Remedy = monetary compensation for the detriment, or granting a lien or charge

over Rs property to the value of loss.
2.
Expectation loss
o
Loss of the benefit the RP assumed he had received, or expected to receive (eg. the
rent Waltons would pay during the term of the anticipated lease; Waltons Stores);
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Remedy = specific performance, or damages in lieu of specific performance, or R

is estopped from asserting contractual rights.
The High Court favours a reliance-based approach (the remedy should not exceed the minimum
equity to do justice) (per the majority in Waltons Stores and Verwayen);
HOWEVER, they continue grant expectation relief. For example:
In Waltons Stores, the High Court gave damages in lieu of specific performance of the
lease the Mahers assumed the Waltons had, or would, sign; and
In Verwayen, the majority held the Commonwealth could not depart from Verwayens
assumption that they would not plead the defences (note: of those judges who based their
decision on estoppel, the majority, 3-2, would have granted reliance-based relief only).
Giumelli v Giumelli: future approach?
In Giumelli v Giumelli:
-
The High Court approved the wide discretion available (the Full Court of the Supreme Court of
WA was not prevented by Verwayen from granting that the parents hold the lot promised to
Robert on trust);
Although they did not expressly reject the reliance-based approach, they emphasised the
statements of Deane J in Verwayen that:
The relying party is prima facie entitled to expectation relief, which will be
qualified only if it appears that that relief would exceed any requirements of good
conscience29 and be unjust/ unduly oppressive to the estopped party.
The High Court held the Full Court erred in the measure of relief because qualification was
necessary to avoid injustice to others, particularly Steven (who substantially improved the lot)
and his family, and to avoid relief which went beyond what was required for conscientious
conduct by the parents; so
A monetary sum should be given (which represents the value of the lot, with interest, and a
share of anticipated profits for future years, and an allowance for the improvements since Robert
left).
29
Eg. What is required for conscientious conduct by the representor?
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Summary of cases
Offer
Gibson
In response to a letter from the Council, Gibson completed an application form to make a formal
application to buy his home. The Council changed before formal contracts were prepared and the
scheme was abandoned. Gibson claimed a contract and sued to enforce it.
Held: The Councils letter was not an offer, but set out the financial terms on which they will
later be prepared to consider a sale. This is evidenced by the words may be prepared to sell and the
invitation, not to accept the offer, but to make a formal application to buy.
Carlill
D advertised that a 100 reward would be paid to anyone who contracted a cold or influenza while
using their product, called a Carbolic Smoke Ball. After reading the advertisement, P purchased a
smoke ball and then contracted influenza. D refused to pay P on the basis that there was no contract
between the parties.
Ds arguments:
Held:
1.
The statement 1000 is deposited with the Alliance Bank shewing
Advertisement was
a mere puff
2.
The contract was

made with all the
world (and this
cannot be done)
3.
4.
Although the offer is made to the whole world (which is acceptable),

the contract is made only with those who perform the conditions on
the faith of the advertisement.
P had not notified
An offer that calls for performance of particular conditions may be
her acceptance of any
accepted by performance of those conditions (the offeror impliedly
offer
dispenses with notification).
Agreement was
uncertain
5.
our sincerity in the matter makes a clear promise.
P supplied no
consideration
When viewed by a reasonable person the offer is sufficiently certain.

Benefit to promisor: Offer promotes sale
Detriment to promisee: Inconvenience
Good consideration for the promise.
Boots Cash Chemists

Legislation provided that the sale of drugs must be under the supervision of a registered pharmacist. D
owned a self-service shop where customers took the goods from the shelves to a cash register; the sale
of which, if drugs, was supervised by a pharmacist.
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Held: Display of goods for sale is an invitation to treat. Customers make an offer when they
present the items to the cashier. There is no sale until the cashier accepts that offer.
MacRobertson Miller Airline Services

The Supreme Court of WA had to decide whether an airline ticket, which contained the conditions of
carriage, was an agreement or memorandum of agreement. The conditions provided that the airline
reserved the right to abandon any flight, cancel any ticket or booking, and to refuse to carry the
passenger.
Held: The conditions are such that the issuing airline operator does not assume any obligation
to carry the passenger (ie. its not an obligation with exemptions, because those exemptions fully
occupy the whole area of possible obligation, leaving no room for the existence of a contract). Stephen
J: Ticket is the offer; the contract is made upon acceptance of that offer by the passenger. Acceptance
will normally be by conduct; either an overt act consistent only with acceptance (eg. getting on the
plane) or the passengers failure to reject the offer after a reasonable time has passed.
Goldsbrough Mort
Q gave G an option to purchase his land at any time within one week of the agreement in return for five
shillings paid to Q. Q repudiated the offer. G had accepted the offer and sued for specific performance.
Held: Approved Bruner v Moore: an option is not revocable during the period for which it is
given (an option is a promise to hold an offer open for a specified period of time, with consideration
given by the option holder to the grantor in return for their promise). The Court viewed an option in
two ways: (1) Irrevocable offer two contracts; the granting of the option is a unilateral contract; the
exercise of the option gives rise to a second contract of sale (per Isaacs J); (2) Conditional contract; an
option to purchase property is a contract for the sale of that property, conditional upon the option being
exercised within the specified period (per Griffith CJ and OConnor J). In both cases Qs attempt to
revoke the offer is ineffective and the contract of sale is enforceable.
Mobil Oil Australia

Mobil (M) told franchisees (F) that it was seeking to implement a rewards scheme whereby those who
achieved certain performance targets (90% or better) over a period of six years would be granted a
nine-year renewal of their franchise. Four years later M abandoned the Circle of Excellence judging
effectively revoking their unilateral contract. Wilcox J at first instance held that M was not entitled to
revoke the contract once F embarked on performance. M appealed.
Acceptance
The Crown v Clarke
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C claimed a 1000 reward for providing information that led to the conviction of the person who
murdered two police officers. C admitted he gave this information exclusively in order to clear himself
from a false charge of murder and not with the intention of claiming the reward.
Held: The offeree must act on the faith of, in reliance upon, the offer. That is, there must be a
subjective intention to accept the offer at the time of performance (unilateral contracts are a special
type that necessitate a subjective approach because, by their nature30, the law is deprived of objective
means by which it judges the intention of the offeree at the time of acceptance; Starke J). Performance
raises a presumption of intention (this can be rebutted by subjective evidence; Higgins J). The offeree
may still act on the faith of the offer if their intention is not completely inconsistent with the offer
(implied by Isaacs ACJ; eg. someone who returns a dog, knowing of the reward, but mostly interested
in seeing the dog safely home; contrast with Clarke who, knowing of the reward, gave evidence solely
to exonerate himself).
Felthouse v Bindley
F wrote to his nephew offering to buy his horse and said: If I hear no more about him, I consider the
horse mine.
Held: Silence cannot be stipulated as a method of acceptance (no external manifestation of
assent; also the law is concerned with protection of freedom; the notion that a person must take action
to reject an uninvited offer opposes this objective; Empirnall). No contract between uncle and nephew
had been formed because the nephew had not communicated his acceptance.
Empirnall Holdings v Machon Paull Partners

M was doing work for E and sent them a contract to be signed and returned. Two weeks later M wrote
to E and said we are proceeding on the understanding that the conditions of the contract are accepted.
M continued to work for E. When E became insolvent, it became necessary to determine the status of
the contract.
Held: Approved Felthouse. However, silence in conjunction with other circumstances may
indicate acceptance. Where an offeree with a reasonable opportunity to reject the offer of goods or
services takes the benefit of them under circumstances which indicate that they were to be paid for in
accordance with the offer, it is open to the tribunal of fact to hold that the offer was accepted. The
question is whether a reasonable bystander would regard the conduct of the offeree, including their
silence, as signaling acceptance. In this case the Court of Appeal of NSW found that a reasonable
bystander would conclude E accepted Ms offer.
Butler Machine Tool Co

B provided a price quotation to sell a machine on certain terms and conditions (1). Bs form stated that
their terms should prevail over any terms and conditions in the buyers order. The buyer, E, then
30
Ie. The offeror dispenses with notification of acceptance. Only notification of performance is
required. An objective approach only shows that performance was intentional.
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requested supply on its own terms and conditions (2). Attached to this form was a tear-off
acknowledgement of order form. B signed and returned this with a letter saying the machine would be
supplied as per their original quotation (3).
Held: Letter (2) rejected offer (1) and constituted a counter-offer (the counter-offer kills the
original offer). B accepted this counter-offer by signing the acknowledgement. Their reference to in
accordance with our revised quotation referred only to the price and identity of the machine; all the
other terms had been replaced by Es terms. Hence Es terms prevailed.
This case is a battle of forms case; the winner is the party who (obiter of Lord Denning):
1.
Fires the last shot (the terms are decided by those in the last counter-offer before
acceptance);
2.
Gets the blow in first (where the offeree accepts the offer, with different terms and
conditions but he does not draw attention to the difference, the offerors terms remain); or
3.
Synthesis there is no clear winner (the court builds a contract from the two sets of terms.
This synthesised contract is made up of consistent terms, terms from one set that appeared to
be accepted by the other party, and any gap-filling terms implied by the court. Contradictory
terms are removed and replaced by a reasonable implication). Using this approach, Lord
Denning found that Es terms prevailed.
Brinkibon Ltd
The buyers in England sent a telex to the sellers in Vienna accepting the terms of sale. The House of
Lords needed to determine where the contract was made.
Held: The general rule is that a contract is formed when acceptance of an offer is
communicated by the offeree to the offeror. The contract is formed where acceptance is communicated
to the offeror (in this case Vienna).
Consideration
Australian Woollen Mills Pty Ltd v Commonwealth
1n 1946 the Commonwealth announced it would pay a subsidy on all wool purchased by Australian
manufacturers. AWM purchased large quantities of wool. The Commonwealth discontinued the
scheme and AWM sued for unpaid subsidies (on the basis of the Cth making a unilateral offer).
Held by HC: There must subsist the relation of quid pro quo between the promise and the act
(ie. the acts must be performed in return for the promise). A test is whether there has been a request by
the promisor that the promisee shall do the act (express or implied) (that is, whether the offer was made
in order to induce the doing of the act). In this case no request to purchase wool could be implied.
Held by H of L: The letters contained statements of policy and not contractual offers. The HC
over emphasised the importance of a request; the presence of a request does not in itself establish a
contract (there may be cases where the absence of a request will negative the existence of a contract,
but the presence of a request will not necessarily establish a relation of quid pro quo).
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Beaton v McDivitt
The McDivitts expected their land to be rezoned in a way that would greatly increase the rates payable
to the local council. McDivitt decided to divide the land into four blocks to minimise the rates. He
decided to make one block available to a person prepared to cultivate it using permaculture methods.
An agreement was reached with Beaton that he would occupy the land and work it rent-free, and M
would transfer the land to B when the rezoning took place. The rezoning never eventuated. A dispute
arose and M ordered B off the land. At first instance Young J held there was an exception to the
bargain requirement whereby reliance can amount to consideration.
Held: No exception to the bargain concept of consideration (an act performed in reliance on a
promise will not constitute consideration unless those acts can be regarded as having been performed in
return for the promise). The majority (Mc Hugh and Mahoney JJA; 2/3) found that by entering onto the
block and performing work B had suffered sufficient detriment to constitute consideration (however, B
ultimately failed because Mahoney JA found that the contract had been brought to an end by frustration
because there was no rezoning).
Roscorla v Thomas
Payment of the purchase price for a horse was consideration for its sale, and cannot be used as
consideration for the later promise that it was sound and free from vice
Stilk v Myrick
On a voyage to the Baltic two sailors deserted. The Captain promised the remaining crew that if they
got the ship home he would pay them the deserters wages.
Held: The crew was under a contractual obligation to do all that they could under all the
emergencies of the voyage. Therefore their agreement to sail the boat back to London was simply a
promise to perform an existing obligation, and did not constitute good consideration for the promise of
extra wages. The captains promise was unenforceable.
Foakes v Beer
A debtor (F) promised to pay a debt in six-monthly installments in return for the creditors promise not
to enforce the debt in one lump sum. When the debt had been repaid in full, the creditor (B) sued for
interest.
Held: Promise was not supported by consideration (rule in Pinnels case). Fresh consideration
will make the promise enforceable, but practical benefit is not applicable to these cases (per Earl of
Selborne LC).
Williams v Roffey
Roffey Bros held a contract to refurbish a block of 27 flats. They entered into a subcontract with
Williams under which he was to carry out the carpentry. W commenced work but got into financial
difficulties. R agreed to pay W an extra 575 for each flat completed. W then completed work on 8
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further flats, but stopped when the promised additional sum was not paid. W sued for these amounts
and R counterclaimed for damages for breach of contract.
Held: The rule in Stilk v Myrick remains good law, but an exception to the rule should be
recognised where the promise to perform confers a practical benefit on the promisee (here the practical
benefit was retaining the services of the plaintiff eg. avoiding the trouble and expense of finding a
replacement carpenter; avoiding incurring financial penalties under the head contract for late
completion).
* Criticisms:
-
Indirectly abolishes the rule in Stilk v Myrick (a practical benefit will always exist; a party will
only agree to a modification if there is some benefit for them);
The rule in Williams v Roffey changes the effect of economic duress and fraud (making the
contract void, rather than voidable at the option of the party affected);
Inconsistent with the bargain theory of consideration (consideration is the thing given in
exchange for a promise. In a modification the thing given and accepted is the promise to
perform, not the practical benefit flowing from it).
Musumeci v Winadell
Landlord, W, promised to accept reduced rent from one of its tenants, M, who were in financial
difficulties. W resiled from the agreement and claimed the unpaid rent.
Held: Practical benefit exception should be accepted in NSW, with three modifications: (1)
the MP can agree to accept less (make a concession) for Bs performance; (2) the exception should not
apply where the promise has been induced by undue influence, unconscionable conduct or unfair
pressure; and (3) a practical benefit will only constitute good consideration if Bs performance is worth
more to MP than any remedy against B.
On these facts, the practical benefit was W secured M as viable tenants (and the practical detriment to
M was that they risked greater profitability elsewhere). This benefit was more attractive than the
alternative of finding new tenants and suing for any rent shortfall. Hence there was good consideration.
Re Selectmove
Held: If the practical benefit principle were to be extended to an obligation to make payment, it
would leave the principle in Foakes v Beer without any application. This would be contrary to the
doctrine of precedent.
Pao On v Lau Yiu Long

Pao On, P, agreed to sell Shing On to Fu Chip. P agreed to acquire shares in the public company Fu
Chip as payment. This contract required them not to sell 60% of the allotted shares for 12 months
(main agreement). They entered into a second contract with the shareholders of the company (of which
LYL were majority shareholders; LYL was a director of Fu Chip) in return for P performing their
obligations under the main agreement, the shareholders agreed to indemnify P against any loss.
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Held by Privy Council: Two ways to find good consideration: 1st; the parties understood at the
time of the main agreement that the restriction on selling must be compensated for by an indemnity
(hence the promise to pay for past services rule in Re Caseys Patents is invoked). 2nd; the promise
given by P to LYL, to perform their contract with Fu Chip, was valid consideration (a promise to
perform a pre-existing contractual obligation to a third party can be valid consideration). Commercial
pressure is not enough for duress (there must be coercion of the will such that the payment made or
contract entered into was not a voluntary act).
Wigan v Edwards
Mr and Mrs Edwards agreed to buy a house from Wigan. After the contract was made, the Edwards
became concerned about some defects in the house and refused to complete the transaction unless the
defects were rectified (they had no legal right to refuse completion). W signed a document agreeing to
remedy the listed defects within one week and to repair any major faults for five years from the
purchase date. W subsequently failed to do so. E sued W for damages for breach of contract. W argued
that E had provided no consideration for his promise to rectify the defects.
Held: A promise to do precisely what the promisor is already bound to do (promisor =
Edwards; they must complete the purchase of the house) is a sufficient consideration, when it is given
by way of a bona fide compromise of a disputed claim, the promisor having asserted that he is not
bound to perform the obligation under the pre-existing contract or that he has a cause of action (it is
unnecessary for E to show that they had a valid legal entitlement to refuse performance; it is sufficient
if they intimate that they do not consider themselves bound to perform and the claim is honestly made).
Eg. There must be a claim that the promisor is not bound to perform the contract (and this belief was
honestly held). It is irrelevant that they were legally bound to perform.
Intention
Banque Brussels Lambert SA v Australian National Industries Ltd
A letter of comfort written by D was held to be an enforceable contractual promise. An intention to
create legal relations was manifested by the strong, promissory language used (it would not be our
intention to reduce our shareholding, it is our practice to ensure that Spedley is at all times in a
position to repay all loans).
Todd v Nicol
D invited the Ps to move from Scotland to Australia. D promised to alter her will so the house would
be left to the Ps until they died. Mayo J found an intention to create legal relations, implied by the
detriment incurred by the Ps (weight had to be given to the interpretation that did not place the Ps at
the whim of D).
Australian Woollen Mills
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The Cth government did not intend to assume a legal obligation to pay the promised subsidies,
indicated by four factors:
1.
No statutory authority was sought for the making of the payments;
2.
The scheme was announced by persons who had no power to commit the Crown to any
expenditure;
3.
The Cth had no commercial interest in the purchases of wool; and
4.
The Cth expressly reserved the right to vary the amount of the subsidy.
Therefore the scheme was administrative, rather than contractual.
Administration of Papua and New Guinea v Leahy

An agreement was made that officers of the Department would spray Leahys cattle to control a tick
infestation and Leahy would provide workers to assist them. The work was not carried out properly,
and Leahy sued for damages.
Held: The Government had no intention to enter into a contract with Leahy. They were merely
pursuing a policy adopted for the eradication of tick (it was an administrative arrangement in pursuance
of the Administrations agricultural policy). The work done was analogous to a social service (which
does not have as its basis a legal relationship of a contractual nature).
Masters v Cameron
The parties signed a document whereby C agreed to sell to M a certain property. The document
contained the following clause; This agreement is made subject to the preparation of a formal contract
of sale. The purchasers encountered financial difficulties and denied that they were bound to purchase.
Held: Preliminary agreement of the third class. The use of expressions such as subject to
contract and subject to the preparation of a formal contract prima facie indicate that the parties have
done no more than establish a basis for a future agreement (and hence it is not intended to be binding).
Certainty
Council of the Upper Hunter County District v Australian Chilling and Freezing
The council C agreed to supply the company A with electricity at certain rates. The agreement provided
for automatic changes in the rates according to changes in basic wage, cost of coal or other changes to
the suppliers costs (clause 5). C sought to increase the rates pursuant to clause 5. A claimed clause 5
was uncertain and hence C had no entitlement to increase rates.
Held by HC: As long as a term is capable of meaning, it will ultimately bear that meaning
which the courts, or an arbitrator, decides is its proper construction. So long as the language used by
the parties is not so obscure and so incapable of any definite or precise meaning that the court is
unable to attribute to the parties any particular intention the contract cannot be held to be void or
uncertain or meaningless. The courts will not use a narrow or pedantic approach.
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Barwick CJ found no uncertainty or ambiguity in the expression suppliers costs in clause 5. It is not
necessary to specify every term, so long as the courts are able to interpret what they are. In this case,
the courts can ascertain the costs in electricity production.
Biotechnology Australia v Pace

Dr Pace entered into a contract of employment with Biotechnology. The salary package included
$36,000 per annum, a company car and the option to participate in the Companys senior staff equity
sharing scheme. P knew, at the time of the offer, that no such scheme existed and none was brought
into existence. P claimed damages for not being given the option to join the scheme.
Hope JA, dissenting, thought that there was a valid and enforceable promise by B to establish
the scheme and to give P an option on terms that it had honestly and reasonably arrived at.
Whitlock v Brew
W agreed to sell an area of land to B under the condition that B will grant a lease to Shell upon such
reasonable terms as commonly govern such a lease (clause 5).
Held by HC: Clause 5 is uncertain no evidence was established that showed such
reasonable terms are in common use. Furthermore, the clause does not address the essential terms of
rent or period of lease. Whether a term is severable depends on the intention of the parties. In this case,
the parties had no intention of agreeing upon a sale where no lease would be granted; therefore to treat
the contract as binding although shorn of clause 5 would be to turn the sale into a different sort of sale
from that which the parties contemplated.
Hall v Busst
H bought land from B. Under the terms of sale H agreed not to resell the land without first obtaining
Bs consent and giving him an option to repurchase it. Clause 5 provided that the purchase price
(should B want to buy back the land) shall be initial purchase price + the value of all additions and
improvements the value of all deficiencies in chattel property and a reasonable sum to cover
depreciation of all buildings and other property.
Held: A contract for the sale of goods is enforceable if it expressly or impliedly provides that
the sale is for a reasonable price, fair value, or value. However, this only applies where a
recognized value, or external standard yielding a figure reasonably fixed or ascertainable, exists. This
principle does not extend to sales of land. In this case there was found to be no external standard for the
reasonable sum to cover depreciation (nor for the value of additions and improvements to the island,
nor the value of deficiencies in property) and the term was therefore uncertain. Regardless, sales of
land cannot be for a reasonable amount.
Windeyer J, dissenting, argued that parties could agree to sell land for a reasonable price if they do so
expressly (the courts will not impose an implication to do so).
Aiton Australia v Transfield
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Clause 28 of a construction contract set out a dispute resolution procedure, the second step of which
was mediation (in good faith). The clause provided that no legal action could be commenced until all 3
steps were completed. A attempted to invoke the procedures, but those attempts were frustrated by T. A
instituted proceedings in the Supreme Court. T sought a stay of those proceedings (on the basis that the
procedures stipulated by clause 28 had not been carried out).
Held: Mediation clause is incomplete because it does not address how the mediator would be
paid or the effect of a declined appointment. A term may be implied into a contract where the term is
(per Einstein J citing Mason J in Codelfa Construction):
1.
Reasonable and equitable;
2.
Necessary to give business efficacy to the contract;
3.
So obvious that it goes without saying;
4.
Capable of clear expression; and
5.
Does not contradict any express term of the contract.
It was argued that there is an implied term in clause 28 that the parties would jointly share payment,
however, Einstein J found this term did not satisfy requirement 3 above (ie. there exists a number of
ways to assign the mediators costs, none of which go without saying; the mediator could have the
power to determine costs, or the parties may share costs etc.)
It is therefore unenforceable and, since this clause is not severable from the negotiation clause, the
dispute resolution process is unenforceable.
Meehan v Jones
A contract for the sale of land was made subject to the purchaser (1) entering into a satisfactory
agreement with Ampol and (2) receiving approval for finance on satisfactory terms and conditions.
Vendor, J, decided he wanted to sell the property to someone else and tried to argue the agreement was
uncertain.
Held: Contingent provision performance of agreement is subject to something happening.
The respondent/vendor main arguments:
1.
The language is so imprecise and indefinite (what does satisfactory mean?)

Fails: A term will only be uncertain where it has no definite meaning. Satisfactory
has two possible meanings, each able to be determined by the courts, (a subjective meaning,
does the purchaser honestly think the finance is satisfactory? this is a simple question of
fact; or an objective meaning, would a reasonable person in the position of the purchaser
regard the finance as satisfactory? this is a question for the court, taking into account ps
financial position and the rates and conditions of loans etc) and if the courts can decide which
one the parties intended, it will not be uncertain. It was not necessary to decide in this case
which interpretation is correct (however, in their obiter, Gibbs CJ at 580 and Murphy J at 596
preferred a subjective meaning the other two judges refrained from deciding).
2.
Clause leaves performance at the discretion of the purchaser (= illusory).

Fails: Per Gibbs CJ: A contract is not illusory where one of the parties has discretion
in relation to the fulfilment of a condition upon which performance of the contract depends
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(as opposed to discretion as to the performance of contractual obligations). That is, in this case
a contract had been made, but performance of the obligations of the contract were contingent
upon two conditions within one parties discretion (this is not illusory).
Per Mason J: The purchaser was under an obligation to obtain finance
(either honestly, or honestly and reasonably, satisfactory) and the existence of this obligation
meant he did not have discretion as to performance.
Godecke v Kirwan
Clause 6 of a preliminary agreement for the sale of land provided that the purchasers (G) would, if
required by the vendor (K), sign a further agreement to be prepared by the vendors solicitors
containing other such covenants and conditions as they may reasonably require. K refused to proceed.
Held by HC: All the essential terms were established. Clause 6 does not mean that the
purchaser is making an agreement to agree later upon additional provisions to govern the bargain. It
means that he is agreeing presently to accept as part of the bargain such additional provisions (if any;
provided that they satisfy the requirements of consistency with the other terms and reasonableness) and
no further agreement is required.
Placer Development Limited v Commonwealth of Australia

An agreement was made between Placer and the Commonwealth for the formation of a timber
company to operate in Papua New Guinea. Clause 14 of the agreement provided that, if customs duty
was paid on the importation of the timber companys products into Australia, the Cth would pay the
timber company a subsidy of an amount or at a rate determined by the Cth from time to time.
Held by HC: The general principle is that wherever words which by themselves constitute a
promise are accompanied by words showing that the promisor is to have a discretion or option as to
whether he will carry out that which purports to be the promise, the result is that there is no contract on
which an action can be brought at all (per Kitto J). The Cths promise to pay an unspecified sum of
money was illusory (in the absence of some criteria the Cth had a discretion to determine the amount).
Menzies J, dissenting, argued the Cth was under an obligation to determine a subsidy and then to pay
the subsidy determined. Windeyer J, dissenting, similarly argued that the Cths promise was to
determine an amount and to pay it it had no discretion to do this, only discretion as to the amount to
be paid (AND the Cths discretion to pay does not amount to a discretion to pay a nominal sum, or
nothing at all (for this would belie the word subsidy) it is a discretion to pay an amount the Cth
considers in all circumstances reasonable).
Formalities
Pirie v Saunders
Standing by while notes for a draft lease are written by a solicitor does not mean D recognizes the
writing as a record of a contract (1. the document is not a MoN, and 2. standing by does not imply D
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recognizes the writing as a record of any contract, especially if he had no knowledge of what was being
written down).
Ogilvie v Ryan
The director of a cinema D came to live with R in her cottage. They lived together for many years until
the company sold the cottages. D proposed that, if R would move into a new house with him and look
after him for the rest of his life, the house would be hers for as long as she lived. R agreed. D died and
R was not mentioned in his will.
Past performance
Acts of past performance were R gave up her original tenancy and moved into Ds house (exchanging
the favourable position of landlady for the lesser proprietary position of sharing a house), performed
services of housekeeping and nursing without payment, and spent a substantial amount of money on
maintaining the house after he died. Last act irrelevant since they were done after proceedings began.
Held: If broad approach could be used R would succeed (acts point, on BOP, to some contract
between the parties and are consistent with the oral agreement alleged). But the acts do NOT meet the
narrow approach. Her acts were not unequivocally referable to or indicative of a promise to give her an
interest in Ds property. They could be explained on the grounds of love and affection, and an
expectation that she would be rewarded in some way on his death (not necessary by receiving an
interest in his property). Holland J felt bound to apply the narrow approach adopted in Millett v Regent
(Glass JA used this approach as it was endorsed by the High Court twice prior to his decision).
Pavey & Matthews

P&M entered into a verbal contract with Mrs Paul to renovate her cottage. She agreed to pay the
builders a reasonable remuneration for that work, calculated by reference to prevailing rates of
payment. P paid less than what the builders thought was reasonable. The verbal contract was
unenforceable (statute required such a contract to be in writing and signed).
Held: If a person does act for the benefit of another in the performance of a contract and the
other so accepts the benefits of those acts, or otherwise behaves in relation to them, that, in the absence
of the contract, the former could maintain an action upon the common money counts, he may sue in
indebtitatus to obtain reasonable remuneration for the executed consideration.
This is not a claim to enforce the oral agreement (and hence not precluded by the statute). BUT Proof
of an oral contract may be an indispensable element in Ps success because it shows
c.
Benefits were not intended as a gift; and
d.
D has not paid.
And may also be used to establish the appropriate amount of compensation.

This is an obligation imposed by law. And does not exist where there is a valid and enforceable
agreement allowing compensation.
Privity
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Coulls v Bagots
Both Arthur Coulls and his wife, Doris, signed an agreement that provided; I Arthur Coulls give
ONeil Construction the sole right to quarry and remove stone from my propertyand to pay all
money connected with this agreement to my wife and myself as joint tenants. When Arthur Coulls
died, the question arose as to whether his wife or his estate was entitled to the royalties. The trial judge
found in favour of Mrs Coulls. Appealed to the HC.
Held: Taylor, Owen and McTiernan JJJ viewed the authorization clause as a revocable
mandate to the company to pay the royalties to Mr Coulls and his wife, and that mandate lapsed on the
death of Mr Coulls (Mrs Coulls not a party to the agreement). Barwick CJ dissented.
Windeyer J (also dissenting) argued that the correct analysis of the contract is that the
company promised Mr Coulls and his wife, for valuable consideration (actually provided by him but on
behalf of both of them), that it would pay the royalties to them for their joint lives and afterwards to the
survivor. The promisee has a legal right to the performance of the contract. The company does not,
therefore, have a right to elect either to perform or to pay damages. Hence: Even if Mrs Coulls was not
a party to the contract, the construction company is bound to pay the royalties to her, for it would break
its contract if it did not do so (regardless of the difficulties involved in compelling them to do so).
Trident v McNiece
Blue Circle entered into a contract of insurance with Trident. Trident agreed to indemnify the
Assured against any liability in respect of bodily injury. The Assured was defined as Blue Circle, all
its subsidiary, associated and related companies, all contractors and subcontractors and/or suppliers.
McNiece Bros was engaged by Blue Circle as principal contractor. Hammond, working under the
direction of a McNiece site engineer, was seriously injured and McNiece was held liable to pay
damage. McNiece sought indemnity from Trident, who denied liability on the grounds that McNiece
was not a party. NSW Court of Appeal found in favour of McNiece. Trident appealed.
Held: Mason CJ, Wilson and Toohey JJ the old rules of privity and consideration do not
apply to insurance contracts.
Deane J: no acceptable justification for exception; however, Blue Circle held the promise on
trust for third parties, including McNiece. His Honour allowed McNiece leave to join Blue Circle as
respondent to enforce the trust. Contracts relating to liability insurance ordinarily manifest an intention
to create a trust. There is an intention that the chose in action constituted by the benefit of Tridents
promise to indemnify each contractor/subcontractor in respect of specified loss should be held by the
promisee (Blue Circle) upon trust for the relevant contractor/subcontractor.
Gaudron J: found for McNiece on the basis of unjust enrichment, so as not to abrogate the
doctrine of privity. A promisor who has accepted agreed consideration for a promise to benefit a third
party is unjustly enriched at the expense of the third party to the extent that the promise is unfulfilled
and the non-fulfilment does not attract proportional legal consequences. A non-contractual obligation
exists between promisor and third party. The third party has a corresponding right to bring action to
secure the benefit of the promise. A right to enforce an obligation imposed by law is an action to
recover a debt on an executed consideration in an action upon a contract.
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Brennan and Dawson JJ (dissenting): no conceptual basis for exempting only contracts of
insurance from privity.
Covered by legislation (s 48 of the Insurance Contracts Act 1984 (Cth) provides that a person who is
covered by a general insurance policy can recover from the insurer notwithstanding that he or she is not
a party to the contract).
The New York Star = Port Jackson Stevedoring v Salmond & Spraggon
Schick Razor Company (= the consignor/seller) shipped 37 cartons of razor blades from Canada to
Sydney on the New York Star (a ship owned by the carrier = Blue Star Line). The bill of lading (which
sets out the terms of the contract of carriage) was issued by the carrier to the consignor and was
transmitted to and accepted by the consignee/buyer (=Salmond &Spraggon). Clause 2 of the bill of
lading was a Himalaya Clause, exempting liability for loss or damage to the goods and extending it to
servants, agents and independent contractors employed by the carrier (such as stevedores). The razor
blades were unloaded by the appellant (=stevedores) and placed in a shed, from which 33 of the 37
cartons were stolen. The consignee sued the appellant. The appellant argued that the carrier, in making
the agreement with the consignor through the bill of lading, was contracting for itself and for the
stevedore as its agent.
Held: High Court, by a majority of 3-2, held that the stevedore was entitled to the protection
of clause 17 (maj: Barwick CJ, Mason and Jacobs JJ). But, by a majority of 4-1, held that the
stevedores actions were not covered by the clause (Barwick CJ disagreeing). On appeal, the Privy
Council held that the stevedore was entitled to rely on the clause (and agreed with the judgment of
Barwick CJ).
Barwick CJ (dissenting): The contract was made when Schick accepted the bill of lading; ie.
Before the shipment was sent. The appellant, through the bill of lading, made no promise to stevedore
the cargo. Hence no consideration supplied at that time. Bilateral offer. The performance of the
contemplated act (eg. unloading the goods) supplies the consideration. Bill of lading is not a unilateral
offer by the consignor (Schick) to be accepted by performance of the stevedoring duties by the
appellant.
Stephen J: Not a unilateral contract. The parties contemplate the creation of a contract having
immediate effect as binding both parties = bilateral at the time of formation, stevedore provided no
consideration. A conclusion that the stevedore is entitled to immunity is inconsistent with public
interest. Australia, reliant on ships for import and export trade, has no reason to accord any benevolent
interpretation to carriers exemption clauses. Broad exemption clauses divorce the power of control
from liability. The consignees, who bear the consequences of carelessness (in the form of increased
insurance premiums), have no power to control the stevedores. The stevedores, who are in a position to
exercise control and supervision, have no incentive to exercise it effectively.
Mason and Jacobs JJ: There exists a unilateral contract between the consignee and stevedore
through its agent, the carrier. The offer is immunity, to be accepted by performance (=unloading the
goods=consideration). This must be done with knowledge of the offer (knowledge is sufficient in these
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cases to satisfy the reliance requirement; at 273). However, the Himalaya Clause does not cover
negligence.
Murphy J: Agreed with Stephen J. Noting, Australian importers have no real freedom in their
arrangements; to regard these as being in the area of contract is a distortion.
Estoppel
Je Maintiendrai v Quaglia 1980 SCSA
Respondent tenant operated a hairdressing business in a shopping centre owned by the appellant
landlord. The initial contract provided for rent to be $278 per month, but some months after the lease
was signed the rent was reduced to $240 per month. When the tenant sought to vacate the premises and
the landlord claimed the unpaid rent. Is landlord estopped from recovering unpaid rent?
Held (per King CJ): Promise made without consideration. Essence is that one party has altered
his position on the faith of the promise. And that it would be inequitable for the promisor to resile from
his promise hence detriment is an important requirement, otherwise no injustice lies.
Promise: Not to enforce the legal right to the difference between the reduced amount and the amount
legally due.
Detriment: faced with a lump sum liability. It is obviously easier for people to make small periodical
payments than to find a lump sum. Respondents case would have been stronger if they could show:
-
Financial hardship or embarrassment; or
That the money had been spent in other ways on the faith of the promise and they could not
pay without difficulty or inconvenience; or
They had conducted their affairs differently as a result of the reduction (eg. they had refrained
from exploring the possibility of selling the business and assigning the lease).
Per White J: The real detriment or harm from which the law seeks to give protection is the detriment
that would flow from the change of position if the assumption were deserted that led to it. Only to be
judged as at the moment when the promisor proposes to resile from his representation what position
would the representee be in if the representor were allowed to disavow the truth. In this case, the tenant
would have had other choices open to him if the landlord had refused to reduce the rent (abandon the
shop and risk litigation; looked around for another tenant). The tenant ordered his affairs on the basis
that the promise would not be resiled from.
Cox J (dissenting): Would that belated, unexpected demand by the appellant give rise to a
detriment to the respondent? His Honour thought it could, but there was insufficient evidence in this
case as to whether or not it actually did. The majority judgments are mere conjecture and speculation,
and estoppel should not be applied so liberally.
Legione v Hateley 1982 HC

Mr and Mrs Hateley agreed to purchase land from Mr and Mrs Legione. H paid the deposit and, as
entitled to, moved into the land and built a house on the land without Ls knowledge. H ran into
financial difficulties and could not pay the balance by the due date. The day before Hs solicitor, Mr
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Gardiner, telephoned the Ls solicitor and told a secretary, Miss Williams, that H had arranged bank
finance and would be ready to settle in a week. Miss Williams said I think thatll be alright but Ill
have to get instructions. Five days later L claimed contract had been rescinded and refused Hs
payment.
Held: High Court recognition of the doctrine of promissory estoppel.
Assumption: L would postpone the enforcement of their strict legal rights.

Inducement: Contentious issue
Gibbs CJ and Murphy J (dissenting):
Ls solicitors had ostensible authority to act on

their behalf, and this authority extended to Miss
Williams. In light of the context of the
conversation, H was entitled to believe that the
position was being left in abeyance until the
instructions were received.
Mason and Deane JJ:
Miss Williams had ostensible authority to extend payment period

(she was the person to whom Mr Gardiner was connected when
he asked to speak to the person dealing with matter; she had
signed, in her own name, the letter advising H that L was not
prepared to extend the due date).
However, her statement was not a clear and unequivocal
representation. She intimated that she was not in a position to
agree to what was being put to her and would have to get
instructions.
Brennan J:
Was it reasonable for H to understand what Miss Williams was saying as

making a promise or representation? No. Mr Gardiner must have known that
she had no authority to make such a promise or representation.
Waltons Stores v Maher 1988 HC

Contract for the lease by Walton of land and premises to be constructed by Maher. M pointed out that
the agreement had to be signed quickly if they were to complete the building by the required time.
They also made it clear that they did not want to start demolition/construction until the agreement was
signed. W said to M, we believe that approval will be forthcoming. We shall let you know tomorrow if
any amendments are not agreed to. No indication was ever given. M commenced building to Ws
knowledge. Unbeknownst to M, W, having changed their commercial plans, instructed their solicitors
to go slow. After M had commenced building, W informed M that they did not intend to proceed with
the lease.
Important Q: Does there need to be a pre-existing legal relationship between the parties?
Commonwealth v Verwayen
V was injured during a collision between two ships engaged in combat exercises. At the time it was
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generally believed that the Cth was under no duty of care and would not be liable for injuries sustained
during combat exercises (the Groves defence). By 1984 this proposition had come to be doubted and V
sued Cth for damages for negligence. The Cth stated that it was its policy not to raise either the Groves
defence or the limitation point (by 1984 the action was barred by the Limitation of Action Act). In 1986
Cth policy changed and it sought leave to amend its pleadings so as to rely on both arguments. V
argued that Cth had agreed to waive, and had waived, such defences. Or that Cth was estopped from
pleading that he action was barred.
Held:
Mason CJ: Proportionality between remedy and detriment which is its purpose to avoid.
Permit a court to do what is required in order to avoid detriment, but no more. Ascertaining
minimum relief necessary to do justice between the parties. Assumption can be made good where: it
is over an extended period, or, substantial and irreversible detriment that cannot satisfactorily be
compensated or remedied. To hold the Cth to its representations = disproportionate.
Brennan J: Would go beyond minimum equity.
Deane J: Prima facie, the operation of estoppel is to preclude departure from the assumed
state of affairs. It is only where relief framed on the basis of that assumed state of affairs would be
inequitably harsh, that some lesser form of relief should be awarded.
Dawson J: Approves minimum equity approach, but finds that equity raised in this case can
only be accounted for by fulfilment of the assumption.
Gaudron J: Approves Deane J. It may be that an assumption should be made good unless it is
clear that no detriment will be suffered other than that which can be compensated by some other
remedy. Where the nature or likely extent of the detriment cannot be accurately or adequately
predicted it may be necessary in the interests of justice that the assumption be made good to avoid the
possibility of detriment even though the detriment cannot be said to be inevitable or more probable
than not.
McHugh J: Court goes no further than is necessary to prevent unconscionable conduct. Costs
sufficient.
Mobil Oil Australia v Wellcome International Federal Court of Australia

At a speech to franchisees, Mobils general manager said: Now weve got a lot more work to do on
this but the commitment that were making to you here today is that we will find a way to extend your
tenure automatically at no costs if you consistently achieve 90 or better in Circle of Excellence
judgings.
Held per the Court: Q: Were the statements as to the one-for-one and nine-for-six proposals
sufficiently unqualified, firm and specific so as to induce an assumption that a particular legal
relationship would be established or an interest granted? Such a generalised commitment to find a
way cannot give rise to an expectation. The essential elements and details of the legal relationship are
lacking as are any specific details relating to the duration or terms of any extension or renewal or of the
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period over which the franchisees would qualify. IE. Where a contract fails due to uncertainty,
estoppel, too, might fail.
Giumelli v Giumelli 1999 HC

Robert Giumelli was a partner in a family orchard business operated on two properties owned by his
parents. During his adult life, his parents made three promises to him in relation to the property:
1.
He would be given part of the Dwellingup property (the general promise);
2.
When he planned to marry in 1980, he could build a house on the property and the house
would be his (second promise);
3.
In 1981, that if he stayed on the property and rejected an offer for work from his father-in-law,
he would be given a subdivided part of the property (the promised lot).
Robert soon divorced his first wife and sought to marry a woman of whom his parents disapproved. In
1985 his parents told him to choose between his new fianc and the property. Robert married and left
the property. In the meantime his brother moved onto the property and made substantial improvements.
W v G 1996 SC of NSW
P and D lived together in a lesbian relationship for several years. During the course of the relationship
P conceived and gave birth to two children through a process of artificial insemination, in which D
assisted. P and D later separated. P instituted the present proceedings seeking child support.
Identifying the Express Terms

JJ Savage & Sons v Blakney
B asked Js manager about a type of boat engine. J said its estimated speed was 15 miles per hour. B
placed a formal order for that boat. The contract had no reference to the speed of the boat. The boat
could not do more than 12 miles per hour. B sued J for (1) breach of term of contract, or (2) breach of
collateral contract.
Held by HC: Estimated speed = expression of opinion promissory statement = not a term
of the contract. A promise is needed to create a collateral contract => so no collateral contract can be
established. There were three courses open to B:
1.
Required the speed to be inserted as a condition of the contract (=contractual breach); or
2.
Sought from the appellant a promise that the boat could attain this speed (=collateral
contractual breach); or
3.
Form his own judgment as to the speed of the boat, relying upon Js opinion (=no remedy).
And B took this last course (I prefer upon your advice).
Oscar Chess v Williams

W sold his mothers car as part payment for a new car purchased from O. W described the car as a
1948 model and produced the registration book. O later discovered the car was actually a 1939 model,
and worth considerably less. O sued, claiming the model a term of contract.
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Held by C of A: Denning LJ: Whether a statement is a promise depends on whether: a

reasonable person in the position of the parties would consider that a promise was intended. Statements
of belief, eg. I believe = not promises. It must have been obvious to both W and O that the seller had
himself no personal knowledge of the year when the car was made and was relying on the date in the
registration book. It is unlikely that such a person would warrant the year of manufacture. The most he
would do would be to state his belief, and then produce the registration book as verification of it.
Morris LJ (dissenting): Statement such an integral part of the contract that is must be
considered a promise.
It is unlikely that inexperienced persons who make statements intend such statements to be promises (it
is more a statement of belief).
Dick Bentley Productions v Harold Smith (Motors)

DB bought a second hand Bentley car from S (a car dealer). S told DB an untrue statement about the
mileage. DB sued for breach.
Held: S was in a position to know, or at least to find out, the history of the car. He ought to
have known better. There was no reasonable foundation for his statement.
Hospital Products Ltd v United States Surgical Corporation

USSC entered into a contract with B whereby B would act as the exclusive distributor in Australia of
their surgical stapling products. B subsequently acquired demonstration products and sold them in
competition with or in substitution for the companys products. B later copied, manufactured and sold
the products through his own company. USSC sued for breach of contract, relying on statements made
by B about one month before the contract was formed.
Held: Gibbs CJ: Statements were made about a month before the agreement was concluded.
No later reference was made to them by the parties (they were absent from the written agreement).
Suggests the parties did not intend them to be warranties (they were statements of fact, or belief, or
self-commendation). Furthermore, the statements do not suggest a promise to act for the common
benefit (and such a meaning cannot be read in). However, B was in breach of an implied term to use
best efforts to promote the sale of USSC products (this imposes an obligation not to take any
deliberate steps to damage the market for those goods).
Mason J: The parties failure to execute a formal contract is not fatal to the incorporation of
the statements made by B into the contract. Statements relate to important matters. They can be
interpreted as being an offer by B to USSC, which was accepted by USSC by its agreement to appoint
him as exclusive distributor.
LEstrange v F Graucob
L purchased from G a cigarette vending machine. She signed an order form headed Sales Agreement,
which contained a clause excluding any implied terms. G signed the form 2 days later. The machine
was faulty and L sued for breach of an implied warranty.
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Oceanic Sun Line Special Shipping Company v Fay

The plaintiff, Dr F, made a booking for a cruise of the Greek islands on a vessel owned by the
defendant, OSL. Upon payment of the fare, P was handed an exchange order which is exchanged for
the ticket when he boards the vessel (eg. in Athens). The ticket stated that the courts of Greece should
have exclusive jurisdiction in any action against the owner.
Held: D argued that because the exchange order allowed them to cancel any cruise the
promise of carriage is illusory and the ticket cannot be the contract (similar to MacRobertson Miller).
However, Brennan J distinguished this case from MacRobertson Miller because the exemption clause
here is not so wide as to preclude the existence of a contractual obligation. That is, if the cruise
proceeds the defendant must carry the passenger (whereas no such obligation existed in MM). A
contract was made when the ticket was issued. This contract was the contract of carriage. The
conventional analysis of ticket as the offer and acceptance by passengers conduct cannot be applied to
this case because:
-
Not the intention of the parties
Insufficient opportunity for the passenger who is boarding a vessel to read the conditions
printed on the ticket and to elect whether to accept them;
Election could be made only after travelling to the destination to collect the ticket (may be
onerous eg. Greece in this case).
A condition printed on a ticket is ineffective to alter a contract of carriage if the ticket is issued after the
contract is made.
The conditions of contract were printed on the Passenger Ticket Contract which may be inspected at
any Sun Line office. F was not aware of these terms, and reasonable notice was not given to bring
them to the passengers notice. Hence they do not form part of the contract.
Thornton v Shoe Lane Parking

Plaintiff T parked his car at a car park owned by the defendants SLP. He had never gone there before.
He received a ticket upon entering the car park. There was a sign at the entrance saying cars parked at
owners risk. The ticket stated it is subject to the conditions of issue as displayed on the premises.
These conditions were contained in a panel on a pillar opposite the ticket machine, and panels in the
paying office.
Held: Lord Denning MR:
First argument: Conventional analysis of tickets does not apply where the customer cannot refuse the
ticket and decline to enter into a contract (eg. where it is issued by an automatic machine). In these
cases the offer is the machine waiting to take the money, and the acceptance is putting money into the
slot. Hence customer is only bound by terms on or near the machine, if reasonable notice is brought.
But not terms on the ticket. In this case, T was only bound by the term displayed at the entrance, and
hence SLP excluded liability just for damage to the car.
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Second argument: Even if the conventional analysis can apply, T did not know that the writing
contained conditions, and secondly, reasonable notice was not given. Hence terms cannot be
incorporated.
A ticket directing the customer to terms in a panel not visible from entrance of the car park or the ticket
machine (Thornton v Shoe Lane Parking) is not reasonable notice.
Baltic Shipping v Dillon (The Mikhail Lermontov)
The respondent, D, made a booking for a cruise with the appellant shipping company. She received a
booking form, which asserted that the contract of carriage was made only when the ticket was issued.
She later received that ticket, which contained exclusion clauses limiting Bs liability. The ship sank
and D sued.
Held: Contract formed when ticket was issued. Although the conditions were available to
passengers at the shipping companys offices this was not reasonable notice, especially considering the
unusual nature of the terms (these included a limitation of liability for damage expressed in units of
account, which is defined by the IMF). Similarly, the passenger would have not idea when the tickets
would be sent and therefore how long she had to look at the terms in the offices. The carrier could have
done more.
Balmain New Ferry v Robertson

Held by OConner J: It is irrelevant whether R knew about the exit fare of one penny, or if he had
reasonable notice of the terms, because he had travelled on the ferry on many occasions and must
have been aware of the condition of exit.
Rinaldi & Patroni v Precision Mouldings

Respondent PM agreed with appellant RP that RP would transport a 42-foot fishing vessel to
Melbourne. During transport the boat collided with the bottom of a bridge and was extensively
damaged. Similar contracts had been entered into on nine or ten occasions. Practice was: oral
agreement, then cart notes, attached to invoice, sent to PM. The cart notes contained exclusion
clauses limiting RPs liability (for damage caused by negligence).
Held: Appellants argued incorporation by conduct (they concede that PM had no knowledge
of the conditions, and irrespective the cart notes were post-contractual).
Construing the terms

Darlington Futures v Delco Aust 1986
Contract between futures broker, the appellant, and its client, the respondent. The broker engaged in
trading on the futures market which was not authorised by the client and as a result the client incurred
substantial losses. The broker sought to limit its liability by relying on two exclusion clauses contained
in the contract:
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6.
The broker will not be responsible for any loss arising in any way out of any trading activity
undertaken on behalf of the client whether pursuant to this agreement or not.
7(c)
Any liability on the brokers behalf in respect of any claim arising out of or in connection with
the relationship established by this agreement shall not in any event exceed $100.
Held per the Court: Broker acted beyond the scope of the authority given to it by the client. The
interpretation of an exclusion 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 case of ambiguity. This is no more than the
general approach to the interpretation of contracts.
Clause 6: plain meaning of on behalf of the client in the context is authorized by the client.
7(c): Full Court of the SC argued that unauthorized trading is outside the scope of the relationship
between the two parties. HC found this to be a more restrictive interpretation on the clause than its
language will naturally bear. A claim in respect of unauthorized trading may nonetheless have a
connection, indeed a substantial connection, with the relationship of broker and client established by
the agreement.
Appeal allowed.
Thomas National Transport (Melbourne) v May & Baker (Australia) 1966

The plaintiff respondent MB regularly used TNT to transport its goods from Melbourne to Sydney. The
goods were collected by TNTs subcontractor from MBs premises and generally then taken to the
TNT depot for transport to Sydney. On this occasion, the subcontractor could not deliver the goods to
the depot and took them home overnight where they were destroyed by fire. TNT relied on the contract
which exempted it from liability for loss or damage or misdelivery of goods in transit or storage.
Held by majority: It was implicit in the contract that the goods would be taken to the depot at
night and as the conduct of the subcontractor was an unauthorized way of performing the companys
obligations, the company could not rely on exemption clause.
Windeyer dissenting: Any deviation from the contract voyage (either stipulated expressly, or
by implication as the usual and customary route of the vessel) is a breach that goes to the root of the
contract. However slight the deviation (deviations are, historically, so serious). A form of the four
corners rule that is, there must be a radical breach or a departure from a fundamental obligation
of the contract. Note: obiter, D is prevented from relying upon the exception clause in the event of a
loss occurring afterwards, unless it be shown that the same loss would have occurred if there had not
been a deviation. In this case, no express contractual obligation on TNT to take the goods to a depot.
Nor did TNT infringe an implied term. TNT reserved to itself a wide discretion as to the means it
should deliver the goods. The subcontractors action of taking the goods home was neither a radical
breach nor a breach. He may have been negligent, but this does not prevent them from using an
exemption clause which covers negligence.
Two ways of viewing the effect of exclusion clauses. They either:
1.
Qualify, or absolve a party from liability for, a breach of a contractual obligation; or
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2.
Define the total content of contractual obligations, and hence a clause excluding liability for
negligence means the party does not have to exercise due care.
Depends on the actual words of the contract (in this case, Windeyer J saw the provisions of the freight
note as belonging to the second form of operation).
Davis v Pearce Parking Station 1954

D, plaintiff/appellant, parked her car at a car parking station owned by the defendant. Ds car was
stolen due to the negligence of the PPSs servants. PPS sought to rely on a term printed on the parking
check stating that the car was parked at the owners risk and that they would not be responsible for
loss or damage of any description.
Held per the Court: PPS negligent in two respects: (1) in placing the car near the footpath
without keeping it under observation or removing the key, and (2) in not contacting the police
immediately after suspecting it was stolen. Used past authority that exempting clause must be
construed strictly, and that clear words are necessary. Drew distinction between cases where
responsibility of bailee is that of an insurer, and cases where there is no liability in the absence of
negligence. In the latter case general words may be held to exclude liability for negligence on the
ground that on any other view they would be entirely without effect. In this case general words are used
(no specific reference to any manner in which loss or damage may be caused). And it is a case where
the bailee would not be liable for loss or damage occurring without negligence (such is the nature of
bailment). => Clause excludes liability for negligence. In support of this conclusion the Court look at
the nature of the transaction, that is, the bailee is making a very small charge for taking the custody of
goods which are or may be of great value. He is likely to intend, and the bailor would reasonably
expect him to intend, to protect himself against a possibly very heavy liability arising from the
negligence of a servant.
Malicious damage is, of course, outside the contemplation of either party.
Parol Evidence Rule

State Rail Authority of NSW v Heath Outdoor
Plaintiff, HO, entered into a number of contracts with the SRA relating to the placement of advertising
on land the property of the authority. Clause 6 provides that: SRA may terminate this contract at any
time upon giving one calendar months notice. In discussions prior to signing D made various
statements including; you [P] have five years on the contract, the only time that that clause is
invoked is for non-payment of rent or objectionable content, and these dont affect you. In Jan 1983
P contracted with a cigarette manufacturer to display cigarette advertising. In March 1983 NSW
government announced a decision to phase out cigarette advertising on government property.
Held: PER has no operation until it is first determined that the terms of the agreement are
wholly contained in writing. The tendering of oral evidence to prove a contractual term, therefore,
cannot be excluded until it is determined that any terms in writing record the whole of the parties
agreement. Support cited includes Corbin on Contracts, and the English Law Reform Commissions
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Report. In this case, the oral statements could be looked at to determine whether the contract was
wholly in writing. McHugh JA concluded it was. Mr Giles for SRA made it clear that he had no
authority to change any condition of the contract (and it was a standard authority document which
could not be changed). Mr Low for HO accepted this. Hence the discussions could not add to terms of
the contract. In standard form contracts that cannot be changed, and this is clear, the contract is always
wholly in writing.
Hoyts v Spencer
Spencer, D, leased to Hoyts, P, certain premises for a period of four years. Clause in agreement
provided Spencer may at any time terminate these lease. Hoyts brought action against D alleging that
in consideration of its taking the lease, D agreed that he would not during the currency of the term give
notice to quit.
Held on appeal to HC (Isaacs J and majority): Collateral contract cannot alter the contractual
relations which are established by the main contract. A collateral contract cannot impinge on the main
contract, or alter its provisions or the rights created by it. In this case collateral contract clearly
inconsistent with main contract, and hence void. By virtue of the main contract forming the
consideration for the collateral contract, the main contract must be taken exactly as it is (the parties
shall be subject to all of the benefits and burdens of the main contract). Practical result cannot affect
the independence and legal effect of each contract.
Ferguson J (dissenting in the Full Court of SC of NSW): Two conflicting contracts, how is it
to be determined which of the two comes under the ban of law? There was an argument that the two
contracts were not inconsistent. Main contract relates to notice (may terminate lease at any time giving
at least four weeks notice), whereas collateral contract limits the right to give notice (only after the
currency of the term has expired). Main ground of judgment: function of the court is not to dictate to
parties what agreement they should make, but to ascertain whether they have made an agreement and
then to interpret it. Collateral contract is a valid agreement, irrespective of whether it contradicts main
contract. The rule of consistency is a radical revision of the accepted definition of a contract.
Whittet v State Bank of NSW

Held by Rolfe J (SC of NSW): Interpreted the SC of NSW decision of State Rail Authority as allowing
pre-contractual negotiations to found an estoppel; where McHugh JA expressly supported the
proposition, and neither Kirby P nor Glass JA suggested this was incorrect (but Kirby P was reserved
about giving estoppel such a broad application, and Glass JA assumed without deciding that estoppel
could be used). His Honour, however, put the restriction that in order to establish an estoppel clear and
convincing proof is required. His decision was based on two findings: (1) the application of estoppel
has not been restricted, and (2) the courts should not deny a remedy to a party deserving of rectification
simply because of the source from which the matters arose
Australian Co-operative Foods v Norco Co-operative
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Bryson J stressed the need to uphold the value of a written contract (as indicating finality and
completeness) and the inefficiency created by giving people the opportunity to claim estoppel for precontractual negotiations (the evidence offered is often extensive, discursive and inconclusive and
clearly of less value than the considered written expression. These claims are common and quite
unuseful and very wasteful of resources).
Codelfa Construction
High Court decision.
Royal Botanic Gardens and Domain Trust v South Sydney City Council
In 1976 the Trustees of the Domain, the lessor, and the Council of the City of Sydney, the lessee,
entered into a lease for a term of 50 years for an area of land called the Domain. The contract provided
for the rental to be varied by the lessor at regular intervals; Clause 4(b) provided that in determining the
new rent payable the lessor may have regard to additional costs and expenses which they may incur in
regard to the surface of the Domain and the footway and which arise out of the construction operation
and maintenance of parking station by the lessee. The question was whether the lessor was only to
have regard to factors mentioned in the clause, or to other considerations (such as the commercial value
of the land)?
Held per the majority: The words the Trustees may have regard to additional costs and
expenses are ambiguous; generally to specify a particular matter to which a party may have regard
without expressly stating either that it is the only such matter, or to the contrary, that the specification
does not limit the generality of the matters to which regard may be had is likely to result in ambiguity.
In cases of ambiguity, the objective framework of the contract can be looked at. Consideration of the
circumstances before entering into the 1976 deed indicates relevant matters:
1.
Parties were two public authorities;
2.
In one of which there had been vested land, dedicated for public recreation;
3.
The purpose of their transaction was the provision of a further public facility (in the form of
parking station and footway);
4.
And without providing for the obtaining by one public authority of commercial profit at the
expense of the other.
5.
The lessee was responsible for the substantial cost of construction of the new facility.
Similarly, the contract does not contain any provisions concerning arbitration, or valuation. It is
also provides that the lessee bears all costs of operating the car park, maintaining it and refurbishing
throughout its life as necessary and, at the end of the term, will be obliged to give up the car park with
no compensation.
These factors show the non-commercial nature of the transaction. Hence Clause 4(b) read as a whole
contains a statement of the totality of the matters to be taken into account in fixing the successive rent
determinations.
Implied terms
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Byrne v Australian Airlines; Frew v Australian Airlines

Appellants, B and F, were employed by the respondents as baggage handlers at Sydney Airport. They
were dismissed from their employment for stealing. They sought relief claiming that their dismissal
was in breach of cl 11(a) of the Transit Workers (Airlines) Award 1988. That clause provided that
termination of employment by an employer should not be harsh, unjust or unreasonable. That is, they
have a right to procedural fairness. Appellants claimed the award provisions should be implied into
their individual contracts and they were not given procedural safeguards and hence can claim
damages.
The Moorcock
Parties had entered into a contract whereby the As ship would be moored at Bs nearby jetty. During
low tide, the vessel would rest on the mud at the bottom of the river. The vessel suffered damage as a
result of resting on a ridge of hard ground beneath the mud.
Held: Jetty owners were liable. Breach of an implied term requiring them to take reasonable
care to ascertain the condition of the berth and either have it made reasonably fit for purpose, or
inform the persons with whom they have contracted that it is not so. Rationale: measures to verify the
safety of the berth were clearly necessary to the performance of the contract. The person responsible
for this task should be the party in the better position to undertake it (Bowen LJ). Clearly this is the
jetty owner (they were there at high and low tide, and with little trouble they could satisfy themselves,
in case of doubt, as to whether the berth was reasonably safe).
Con-Stan Industries of Australia v Norwich Winterthur Insurance

Held per the High Court: Question of fact a finding of custom on the facts of the particular case. It
was necessary to establish a clear course of conduct under which insurers do not look to the assured for
payment of the premium. High Court held this requirement was not satisfied (it was insufficient to
show that in the ordinary course of events the premium is paid to the insurer by the broker, nor is it
sufficient to show that the insurer makes its first demand for payment from the broker). Evidence had
to be brought showing either an absence of claims by insurers against the assured, or the existence of
claims directed exclusively to brokers as a practice rarely, if ever, departed from. Not shown.
Good faith
Renard Constructions (ME) v Minister for Public Works
SC of NSW decision 1992
Condition of contract provided that if contractor, Renard, fails in writing to show cause to the
principal, MPW, why the following powers should not be exercised the principal may take over the
whole of the work and exclude contractor from the site, or cancel the contract. Principals assistant
project manager was concerned by what he considered the delay and poor workmanship of the
contractor. He recommended the contractor be called upon to show cause under the provision. This
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information given by R was never handed up to the officer in charge (showing that the principal had
not supplied some parts, extending the completion date, and that the contractor had increased the work
force, was working longer hours and had brought in a new, highly experienced foreman) and the
principals decision was based on misleading, incomplete and prejudicial information, and the
contract was cancelled. Argument by R is that MPW breached an implied term to act in good faith and
reasonably in the exercise of the contractual powers.
Held by Priestley JA: Implied term requiring principal to give reasonable consideration to the
question whether the contractor had failed to show cause and then that reasonable consideration must
be given to whether any, and if any which, power should be exercised. His Honour treated the
implication as one of fact; the only contentious requirement was business efficacy, which he found
was satisfied on the basis that there are two conflicting opinions (1) a contract will be effective
where it produces fair, reasonable ways of resolving disputes, or (2) a contract will be effective where
it works in practice. His Honour prefers the former; a clause like above not subject to the constraint of
reasonable use is quite inconsistent with all the main contractual promises by each party (to have the
contract work completed by the contractor in return for payment by the principal). Could also be
applied in law (the class of contract being those that share similar standard form contracts). Basis for
decision: terms are needed to make the contracts work more fairly between the parties (analogous to
some legislation by Parliament) ie. the contracts worked perfectly effectively before parliament
changed the law, but it was thought necessary to change on the grounds of fairness.
Meagher JA: Reasonableness should not be imported as a limitation on the exercise of
contractual powers. No express term, nor could a term be implied. There is no reason why the principal
should have regard to any interests except his own. However, principals actions cannot be justified.
They were based on a fundamental misunderstanding of relevant matters. Inherent in the word
satisfied used in the clause is an ability to comprehend the factual background on which satisfaction
is required. Hence is actual lacked contractual justification and amounted to a repudiation.
Handley JA: Principals decision, however honest, was objectively unreasonable and therefore
an invalid exercise of the power. Two reasons why reasonableness should be implied. One, Contractor
entitled to appeal to objective considerations including questions of reasonableness in showing cause
against the exercise of the powers. Two, satisfaction refers to an opinion which is reasonable, or
honest. In this case there is a requirement to act both reasonably and honestly (based on the fact that the
contractor was entitled to show cause thus distinguishing it from other decisions where satisfaction
was held to be merely honest).
By 3/0 the appeal was allowed, finding for the contractor.
Burger King Corporation v Hungry Jacks
SC of NSW decision 2001
In 1973 BK and HJ entered into a number of formal franchise agreements. Under these arrangements
HJ operated restaurants under the name Hungry Jacks but used the BK system and trademarks for
operating those restaurants. Under later agreements HJ were required to develop a certain number of
new franchise restaurants each year, subject to BKs approval (at BKs sole discretion). BK refused to
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give the approval needed for HJ to comply with the requirement. BK served a notice of termination
after HJ failed to open the required number of new franchises. HJ commenced proceedings against BK.
Held per the Court: Implied duty of co-operation was not disputed. However, there was
dispute by the decisions of Rolfe J at first instance that there was an implied term of either
reasonableness or a duty of good faith, or both. Substantial body of authority behind the implication of
good faith and fair dealing (but no High Court decisions). More readily applied in standard form
contracts with a general power of termination. Term implied in law (possibly all commercial contracts).
What is involved if these terms are implied? No distinction in substance between the implied term of
reasonableness and that of good faith (see Priestley JA in Renard). Good faith embraces: 1. an
obligation to co-operate, 2. compliance with honest standards of conduct and 3. compliance with
standards of conduct which are reasonable having regard to the interests of the parties. Imposes an
obligation not to act capriciously. Does not restrict a party acting so as to promote its own legitimate
interests. Never imposes an obligation inconsistent with the express terms.
Arguments of HJ: (1) Criteria for operational approval were wide and indefinite. Provisions required
HJs restaurants to reflect an acceptable BK image. It must comply with the standard specifications
and procedures contained in BKs Manual of Operating Data. Given the minute detail contained in this
manual, it would be impossible not to find at least one operational breach making rights illusory.
And (2) BK had the right to change its standards, specifications and procedures at its sole discretion.
And they could do so without notice to HJ. Therefore, it is necessary to imply the terms of
reasonableness and good faith so as to ensure that HJ had the contractual benefits to which it was
entitled (see the test for terms implied in law; Byrne).
Therefore: exercised in good faith and reasonably. That does not mean BK is not entitled to have
regard only to its own legitimate interests in exercising its discretion. However, it must not do so for a
purpose extraneous to the contract.
Breach: No basis for BK to freeze processing of applications from at least early June 1995. BKs
failure to grant financial approval after the time it had assessed HJ as having complied with its ratios
was a breach of the implied term of good faith. BKs conduct in disapproving applications. BK
breached its obligations of good faith and reasonableness by its conduct in imposing the third party
freeze, and in financially and operationally disapproving HJ from further expansion. In pursuance of a
deliberate plan to prevent HJ expanding, and to enable BK to develop the Australian market
unhindered by its contractual arrangements with HJ.
Page 82 of 82

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Contracts A (University of South Australia)

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With a willingness to enter into a contract upon acceptance.

Subjective intentions are irrelevant.

The offer1 is revocable at any time;

It would be difficult to enforce (how to determine whether a franchisee has embarked

Offer to enter into a unilateral contract.

An unqualified assent to the terms of the offer;

In accordance with the designated method of acceptance;

Is communicated to the offeror.

YES: Effective acceptance.

The counter-offer kills the original offer;

It is then open for acceptance by the original offeror;

Greig and Davis, The Law Of Contract, p288.

This depends on the type of communication:

Where post is contemplated as a mode of communication (Bressan v Squires);

Telex, telephone and fax

Email and Interactive websites

Virtually instantaneous general rule should apply (ie. contract is formed

Time of receipt governed by Electronic Transactions Act 2000 (Vic):

Electronic communication = a communication of information in the

If the recipient has designated7 an information system for the purpose of

If the recipient has not designated an information system then, unless

Performance of the act/condition (Carlill);

Performance raises a presumption of intention (this can be rebutted by subjective

WHERE O/A CANNOT BE LOCATED

In all the circumstances can an agreement be inferred?

Has mutual assent been manifested?

The ticket as the offer

Depends on facts. Either:

Promisee = person trying to enforce the promise;

An agreement not supported by consideration on both sides is nudum pactum (a naked

Requirement not met where:

Act is performed in reliance on a promise (Beaton v McDivitt).

doing of the act (AWM).

INSUFFICIENT CONSIDERATION: PAST CONSIDERATION

EXCEPTION: Promise to pay for past services

Discussed by Lord Scarman of the Privy Council in Pao On:

Where an act is done at the promisors request; and

INSUFFICIENT CONSIDERATION: EXISTING LEGAL DUTY RULE

Usually a one-sided contract variation. The two parties are the:

Beneficiary, B = person who promises to perform existing legal duty; and

Modifying party, MP = party assuming an additional obligation or releasing B from an

The existing legal duty rule is inapplicable where:

B provides fresh consideration by undertaking to do something more than he originally

MP obtains a practical benefit from Bs promise to perform an existing

If B has entered into a contract with MP to do something for MP in

At some stage before completion B might not be able to complete his

MP promises B an additional payment, or other concession (such as

As a result of giving MPs promise:

MP obtains in practice a benefit or obviates a disbenefit provided

B suffers a detriment provided that non-performance is worth

MPs promise is not given as a result of economic duress or fraud,

THEN the benefit to MP, or the detriment to B, is good consideration.

IMPORTANT TO NOTE: The decision in Musumeci is not binding on Victorian

Promises made to third parties

Compromise and forbearance to sue

Promise by B to perform an existing legal obligation;

When it is given by way of a bona fide compromise of a disputed claim;

Termination and replacement

Example: Part payment of a debt

The parties must manifest an intention to create legal relations;