Complete contracts 'a' study notes

Contract Law Notes
Contracts ‘A’
Offer
- Bilateral contracts
- Unilateral contracts
- Offers to the public at large
What is an offer?
- Mere puff
- Supply of information
- Invitation to treat
Categorizing transactions
- Advertisements
a) Advertisements in a catalogue or a curricular
b) Advertisements in newspapers or magazines
c) Advertisements appearing on the internet
d) Display of goods
- Auctions
a) Advertisement of auction
b) Auctions with reserves
c) Auctions without a reserve
- Tendering
- Standing offers
 Options
Communication of an offer
Termination of an offer
- An offer may be terminated by
a) Revocation by the offeror
b) Rejected by the offeree
c) Lapse of time
d) Failure of a condition subject to which the offer
was made
e) Death
Acceptance
Requirements of acceptance
Acceptance must correspond to offer
- Offeree must have knowledge of and act in reliance to an
offer
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- A counter offer is not acceptance
- Acceptance must be unqualified
- Mere enquiry does not constitute acceptance
Notification to the offerer of the fact of acceptance
- Method of acceptance
a) Method of acceptance stipulated by offer
b) Acceptance by silence
c) Acceptance by conduct
- Instantaneous communication: Acceptance must be
communicated
a) General rule
b) Meaning of instantaneous communication
- Postal acceptance rule
a) Statement of the rule
b) Policy behind the rule
c) To what communication does the rule extend
d) Where is the rule displaced
e) Revocation of acceptance prior to receipt
Acceptance in unilateral contracts
- Acceptance commonly by conduct
- Withdrawal of an offer after acceptance has commenced
Who may accept an offer?
Contract formation: time and place
- Instantaneous communication
- Post
Certainty and Completeness
Statement of the rule
- Facets to the principal
Ambiguity and uncertainties
- Individual terms
- Agreements to negotiate
Saving ambiguous, uncertain or meaningless terms
- Link to external standard
- Link to reasonableness standard
- Severance
- Waiver or removal of certainty
Incomplete agreement
- Agreement contains mechanism to complete
a) Reference to a third party
b) Discretion retained by contracting party
- Breakdown of mechanism to complete
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Saving incomplete agreements
- Incompletion of terms
- Failure to specify a price
a) Contract silent on price
b) Contract provides for parties to agree in the future
c) Contract make provisions for mechanism to
complete
d) Contract provides for payment of a reasonable
price
- Subject to agreements
 Subject to finance agreements
a) Satisfactory finance
b) Steps to be taken to obtain finance
 Subject to contract
Intention to create legal relations
Statement of rule
Domestic and social relationships
- Presumption
- Rebutting the presumption
a) Husband and wife
b) Separated husband and wife
c) Other family relationships
d) Social relationships
Commercial agreement
- Presumption
- Rebutting the presumption
Government activities
- Commercial agreements
- Policy initiatives
Voluntary associations
Circumstances indicating absence of intent
- Honour clause
- Promotional puff and free gifts
- Ex gratia payments and without prejudice offers
- Letter of comfort
- Letter of intent and understanding
Consideration
Nature of consideration
- Consideration in bilateral contracts
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- Consideration in unilateral contracts
- Executed and executory consideration
Rules governing consideration
- Consideration must move from the promisee
a) Benefit need not move to the promisor
b) Joint promises
c) Overlap with Doctrine of privity
- Consideration must be bargained for
- Consideration must be sufficient
a) General principal
b) Consideration need not be adequate
c) Consideration can be nominal
- Consideration must not be past
a) General principal
b) Past consideration distinguished from executed
consideration
Consideration and formal agreements
- Deeds
Consideration: specific examples
- Moral consideration
- Performance of existing duties
a) Performance of existing contractual duties
b) Performance of a public duty
c) Where promise is made to a third party
- Payment of a debt
a) Rule in Pinnel’s case
b) Circumstances in which the rule will not operate
• Parties enter into a deed
• Accommodation to benefit the creditor
• Amount owing is disputed
• Payment by a third party
• Composition with creditors
- Forbearance to sue
- Bargain for conduct already performed
Equitable Estoppel
Elements of estoppel
- Assumption of expectation
- Encouraged or induced
- Reliance
- Knowledge or intention
- Detriment
- Failure to avoid detriment
Remedies
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Privity
General rule
Statutory abrogation of rights
- Queensland
a) Promisor
b) Beneficiary
c) Promise
d) Acceptance
e) Defences
f) Variation and rescission of promise
g) Imposition of burdens
h) Common law still applicable
- Commonwealth
- Insurance Contracts Act 1984 (Cth) s 48
 Entitlement of a named person to claim
- Maritime contracts of carriage
a) Servants or agents of sea carriers
b) Consignees and endorsees
So called exemption at common law
- Agency
 Definition
 Exemption clauses and third parties
 Trusts
 Unjust enrichment
Formalities
Guarantees
- Nature of guarantees
- Transaction which are not guarantees
a) Contracts of indemnity
b) Promise of guarantee made to the debtor
c) Person agrees to take over the debt of another
d) The agreement imposes no personal liability on the
person
e) Letters of comfort
- Requirements of writing: content
a) Information particular to the guarantee
b) Acknowledgement of the agreement
- Requirements of writing: signed by party to be charged or
agent
Contracts relating to land
- Nature of contract needing writing
- Req
uire
men
ts of
writ
ing:
cont
ent
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- Requirements of writing: signed by party to be charged or
agent
Joinder of document
- Reference to a document
a) Documents that are physically connected
b) Documents that are executed at the same time
- Reference to a transaction
Effect of statutory non-compliance: common law
- Contract valid to pass title
- Recovery of money paid under unenforceable contract
a) Recovery of deposit
b) Recovery of amount more than deposit
- Other restitutionary claim may still be available
Effect of statutory non-compliance: equity
- Doctrine of part performance
a) Acts are unequivocally referable to some such
contract
b) Acts done in reliance on the agreement and with
knowledge of the other party
c) Acts done by the party seeking to enforce the
contract
d) Oral contract must be otherwise enforceable
- Estoppel
- Constructive trust
Establishing contractual terms
Incorporation by signature
a) General rule
b) When the rule is displaced
Incorporation by notice: unsigned document
a) Reasonable steps taken by the defendant
b) Reasonable steps must be taken on or before contract
formation
Incorporati
on by
notice:
signs
c) Rea
sona
ble
step
s
take
n by
the
defe
nda
nt
d) Rea
sona
ble
step
s
mus
t be
take
n on
or
befo
re
cont
ract
for
mati
on
Incorporati
on of
notice:
website
Incorporati
on by
reference
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Incorporating oral terms
- Mere puff
- Representation or term
a) Words or conduct of parties
b) Knowledge and expertise of statement maker
c) Statement maker has control in relation to
information
d) Oral statement not reduced to writing
e) Interval of time
- Coll
ater
al
cont
ract
s
a) N
a
t
u
r
e
o
f
a
c
o
l
l
a
t
e
r
a
l
c
o
n
t
r
a
c
t
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b) Bipartite and tripartite collateral contracts
c) Consistency with the main contract
Parole evidence rule
- Statement of the rule
- When the rule applies
- Exceptions of the rule
a) Evidence of a collateral contract
b) Evidence that the written contract is not yet in
force
c) Evidence that the written contract was later varied
or changed
d) Evidence to imply a term
e) Evidence necessary for rectification
Implied terms
- Terms implied to give effect to the presumed intention of
the parties
a) Term implied on the basis of business efficiency
b) Term implied from previous consistent course of
dealings
c) Term implied from custom or usage
d) Term implied to complete an agreement
- Terms implied irrespective of parties intentions
e) Term implied as a legal incident of a particular
class of contract
f) General duty of co-operation
g) Implication of duties of good faith, fair dealings
and reasonableness
h) Term Implied by statute
Construction of terms
Interpreting the meaning of terms
- General approach
- Admissible evidence
a) The parole evidence rule
b) Factual matrix
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c) Exceptions to the parole evidence rule
 Ambiguity
 Identification of subject matter
 Identification of parties and their
relationship
 Identification of the real consideration
 Custom or usage
 Rectification
- Inadmissible evidence
a) Subjective intention
b) Prior negotiation
c) Subsequent conduct
Legal effect of words: types and terms
- Promissory terms
a) Conditions
 The statutory position
b) Warranties
 The statutory position
c) Intermediate or innominate terms
Contingencies
- Conditions precedent
- Conditions subsequent
Exemption clauses
- Specific rules of construction
a) The contra proferentem rule
b) Attempts to exempt negligence
 The rules regarding attempts to exempt
negligence
c) The four corners rule
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Contract Law Exam Notes
Offer:
An offer is an expression to another of a willingness to be bound by the stated terms
Australian Woollen Mills Pty Ltd v The Commonwealth
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Bilateral Contracts
Under Bilateral Contracts each party undertakes to the other party to do or to refrain
from doing something, and in the event of his/her failure to preform his/her
undertaking, the law provides the other party with a remedy.
United Dominions Trust Ltd v Eagle Aircraft Services Ltd
Unilateral Contracts
Under unilateral contracts the promisor undertakes to do or to refrain from doing
something if another party, the promisee, does or refrains from doing something, but
the promisee does not at the time of the offer undertake to do or to refrain from doing
that thing.
United Dominions Trust Ltd v Eagle Aircraft Services Ltd
The position in such cases is simply that the consideration on the part of the offeree
on the part of the offeree is completely executed by the doing of the very thing that
constitutes acceptance of the offer.
Offers to the Public at Large
An offer can be made to the public at large.
Carlill v Carbollic Smoke Ball Company
What is not an Offer?
Mere Puff
Sometimes statements can be regarded only as ‘mere puffery’- the claims are made
only for advertising purposes and mean nothing.
Supply of Information
The supply of information is not an offer.
A request for information must be discerned from a contractual offer. A clearer
indication of a preparedness to enter into a contract, than merely providing terms or
information upon which a party maybe prepared to enter into such a contract, is
needed.
Harvey v Facey
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Invitation to Treat
An invitation to treat is an indicator of a parties willingness to negotiate entry into a
contract. It is a technique used by a party who desire another party to make an offer
and cannot be construed or the terms be accepted as if it were a valid legal offer in
itself.
The display of goods in a store is an invitation to treat.
Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd
An advertisement that gives information about goods for sale and their price will
generally be an invitation to treat rather than an offer.
Partridge v Crittenden
Categorizing Transactions
Advertisements
Most advertisements are considered invitations to treat but some may be regarded as
offers depending on language used in the advertisement and other relevant factors.
a) Advertisements in a catalogue or in a curricular.
Circulars, which provide information about items for sale and their prices, are
regarded as invitations to treat. If it were regarded as an offer and the manufacturer
ran out of stock, they would be in breach of contract for anyone who accepted such an
offer as they could not provide stock
Grainger v Gough
b) Advertisements in Newspapers and Magazines.
These are also considered invitations to treat unless the advertisement is couched
in terms which indicate the retailers willingness to be bound if the specified
terms are accepted (eg. there is a promise (Carlill) rather than a mere invitation
(Partridge v Crittenden).
c) Advertisements appearing on the Internet.
The application of the same principle as newspapers and magazines is used.
d) Display of Goods.
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Items appearing in retail outlets, even if the price is attached, are regarded as an
invitation to treat.
Pharmaceutical Society of Great Britain v Boots Cash Chemists.
Auctions
a) Advertisement of Auctions
The advertisement of an auction is considered an invitation to treat on the part of the
auctioneer. The auctioneer may withdraw items from the auction or cancel the
auction all together without incurring any liability from potential bidders.
Harris v Nickerson
The auctioneer may withdraw various lots from the auction or cancel the auction
altogether without incurring any liability from potential bidders.
Harris v Nickerson
b) Auctions with Reserve
Each bid represents an offer, which the auctioneer may reject or accept. Acceptance
of an offer occurs, and an agreement is formed, when the auctioneer knocks down the
property to the successful bidder.
Because the agreement is not formed until the bid is knocked down, the bidder can
withdraw a bid (offer) before this time.
Payne v Cave
c) Auction without a Reserve
Even in an auction without a reserve, each bid represents an offer that could be
accepted or rejected by the auctioneer.
AGC Ltd v. McWhirter
Tendering
An advertisement for tenders will generally be the same as an advertisement for an
auction, which is akin to an invitation to treat. Therefore no liability will be incurred
if the person does not accept any of the tenders or even consider them in a bona fide
way. Each tender will be considered an offer, which can be accepted or rejected.
Spencer v. Harding
Standing Offers
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A standing offer is an indication by one party of his/her willingness to provide goods
over a specified period of time.
A standing offer is accepted every time an order is placed. If the goods are not
delivered or are refused the offending party will be in breach of contract.
Great Northern Railway Co v. Witham
An offeror may withdraw the offer, anytime, before acceptance of the offer is made in
the form of an order.
Further, unless the parties agree to the contrary, there is no obligation of the offeree to
order goods only through the offeror, (eg. the offeree may choose not to accept the
standing offer)
Colonial Ammunition Co v Reid
• Options
The standing offer may be revoked at anytime before acceptance by the offeree.
However, if the offeree provides consideration (eg paying money) to the offeror to
keep the offer open for some period, the offer cannot be withdrawn during this period.
Routledge v Grant
Communication of an Offer
For an offer to be valid it must be communicated to the offeree by the offeror, or
someone authorised by the offeror.
Cole v Cottingham
An offer becomes effective once it is communicated to the offeree
Taylor vLaird
Acceptance must take place in reliance upon an offer. If the offeree performs a
particular act that corresponds to the terms of the offer without knowledge of the
offer, there is no agreement, and no contract comes into existence.
Tinn v Hoffman & Co
If it is an offer to the world at large, the offer could be accepted by any fulfilling the
requirements of the offer.
Carlill v Carbolic Smoke Company
Termination of an Offer
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An offer may be terminated at any time before it is accepted. However, once an offer
is accepted it becomes irrevocable.
Goldsbrough Mort & Co Ltd v Quinn
An offer may be terminated by
a) Revocation by the offeror
Revocation is the formal withdrawal of the offer by the offeror. Before acceptance,
an offer can be freely revoked
Goldsbrough Mort & Co v Quinn
Veivers v Cordingly
Unless there is a promise, supported by consideration or under seal, by the offeror to
keep it open for a fixed period.
Routledge v Grant
A revocation will only be effective once it has been communicated to and received by
the offeree
Bryrne v Leon Van Tien Hoven
In unilateral contracts, the offer cannot be withdrawn after the offeree has begun to
perform the necessary conditions of acceptance of the offer and completion of the
contract.
Abbot v Lance
b) Rejected by the offeree
The rejection must be communicated to the offeror before it is effective. Once
rejected, an offer cannot be later accepted. If an offeree attempts to accept the offer
but introduces new terms, the offeree is rejected the offer and is deemed to be making
a counter offer
Stevenson Jaques & Co v McLean
c) Lapse of time
An offeror may stipulate that his or her offer must be accepted within a certain period
of time, and if the offeree fails to accept, the offer will lapse. If no time is prescribed,
the offer must be accepted within a reasonable time.
Ramsgate Victoria Hotel Co v Montefiore
d) Failure of a condition subject to which the offer was made
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If a condition upon which the offer is made is not fulfilled the offer will lapse
McCaul Pty Ltd v Pitt Club Ltd
e) Death
If the offeror dies and the offeree has not been notified of that death, it is still possible
for the offeree to accept the offer, thus binding the offeror’s estate. If the offeree has
been notified of the death he/she cannot accept the offer.
Coulthart v Clementson
Nor can a representative of the offerors estate accept the offer on their behalf
therefore the offer lapses
Reynolds v Atherton
Acceptance:
Requirements of Acceptance
Acceptance of an offer is the expression, by words or conduct, of assent to the terms
of the offer in the manner prescribed or indicated by the offer. Thus acceptance may
be expressed or implied
HBF Dalgety v Morton
There are two requirements to satisfy for valid acceptance to occur:
1. The offeree must agree to accept the terms of the offer
2. This information must be communicated to the offeror.
Acceptance must correspond to Offer
Offeree must have knowledge of and act in reliance to an offer
The offeree must have knowledge of the terms of the offer at the time of purported
acceptance. Acceptance is not valid if two identical offers are made or if a party
performs the act of acceptance without knowledge of the offer.
Tinn v Hoffman
A Counter Offer is not Acceptance
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If a counter offer is made, the original offer is rejected and the counter offer can then
itself be accepted or rejected. Once a counter offer is made and the original offer
rejected, the offeree can no longer accept the original offer
Hyde v. Wrench
A purported acceptance that departs from the terms of the offer but only in a minor
non-material way may be effective and not amount to a counter offer
Turner Kempson v Camm
Acceptance must be Unqualified
If there is an agreement on all terms of the offer, and the parties intend to be bound
immediately, this would be considered unqualified acceptance of the offer.
Masters v Cameron
Mere Inquiry does not Constitute Acceptance
After receiving an offer, an offeree may want further clarification of one or more
terms. This inquiry can at most, only communicate interest but not acceptance nor
rejection of an offer.
Stevenson Jaques v McLean
Notification to the Offeror of the Fact of Acceptance
The offeree must communicate acceptance of the offer to the offeror and agreement is
not complete until such communication is affected.
Powell v Lee
Soares v Simpson
Method of Acceptance
What is an appropriate method of acceptance in any given situation will depend on
each situation, whether the offeror has outlined a specified method of acceptance with
in the offer, or if it is not stipulated, the appropriate method of acceptance will depend
on the intention of the parties as derived from the particular facts. Whether
acceptance has occurred depends on whether the offeree has complied with the
requirements for the method of acceptance for the particular situation.
a) Method of Acceptance Stipulated by Offeror
The offeror may stipulate how acceptance should take place (eg. the performance of
an act, return post etc.). If acceptance does not occur in this way, generally there is
no agreement.
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Although, if the offeree accepts in a manner that is more advantageous for the offeror,
then the acceptance will be valid
Tinn v Hoffman
Also, if the method of acceptance was inserted for the convenience of the offeree, the
offeree may wave the benefit of the clause and accept in a different way
Or even if a manner of acceptance is prescribed in the offer, on the true construction
of the terms in the offer, this may not be the only method of acceptance that will be
effective
Manchester Diocesan Council for Education v Commercial & General Investments
Ltd
b) Acceptance by Silence
The offeror cannot stipulate silence to constitute consent under any circumstances.
Felthouse v Bindley
Empirnall Holdings Pty Ltd v Machon Paul Partners Pty Lty
Braund v Mutual Life & Citizens’ Assurance Co Ltd
The technique of delivering a product with a notice stating that unless the goods are
returned within a stated period (or rejection communicated in a different way), the
buyer will be taken to have agreed to buy the product on the stated terms is now
prohibited by statute.
Trade Practices Act 1974 (cth) s. 64 & s.65
Fair Trading Act 1989 (qld) s.52 & s.53
c) Acceptance by Conduct
An offeror may stipulate the manner of acceptance by advising the offeree that if
he/she wishes to accept the offer, the offeree should perform stipulated acts waiving
the need to communicate acceptance. Acceptance can be express or implied.
Brogden v The Director of the Metropolitan Railway Company
Carlill’s case
Instantaneous Communication: Acceptance must be communicated
a) General Rule
When the mode of acceptance is instantaneous communication, the general rule of
law is that the contract will be formed when acceptance of the offer is communicated
to the offeror and that communication is received.
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Entores L D v Miles Far East Corporation
Brinkibon Ltd v Stahag Stahl und Stahlwarenhandels-Gesellshaft mbH
b) Meaning of instantaneous Communication
Face to face communication, telephone conversations and telex messages are all
considered forms of instantaneous communication.
Reese Bros Plastics Ltd v Hammon-Sabelco Australia Pty Ltd
Postal Acceptance Rule
The postal acceptance rule is the exception to the general rule that acceptance occurs
when it is communicated to the offeror.
a) Statement of the rule
Where the circumstances are such that it must have been within the contemplation of
the parties that, according to the ordinary usages of mankind, the post might be used
as a means of communicating the acceptance of an offer, the acceptance is completed
as soon as it is posted.
Henthorn v Fraser
The rule operates only where the post is an acceptable method of communication
between the two parties (eg. the offer was made by post or it is stipulated in the offer
that the post is an acceptable method of communication)
Adams v Lindsell
b) Policy behind the rule
The postal rule promotes contractual certainty.
c) To what communication does the rule extend
The postal acceptance rule applies to forms of communication that are akin to mail
but does not extend to any form of instantaneous communication, even if that
communication bears some similarities to communication by post.
Coot Pty Ltd v Admin Management Pty Ltd
d) Where is the rule displaced?
The rule is displaced if the court decides that it was not within the contemplation of
the parties that the post was an accepted method of communication. Whether the
postal rule is displaced turns the intention of the offeror. If the offeror says or implies
that actual notification is required before an agreement if formed the postal
acceptance rule will be displaced.
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Bressan v Squires
e) Revocation of the acceptance prior to receipt
The offer is formed when the letter of acceptance is posted. A subsequent purported
withdrawal of that acceptance will be ineffective.
There is still no definitive Australian authority on the issue, only early New Zealand
dicta that’s suggests that it cannot be withdrawn in this way and an even earlier
Scottish authority to suggest that it can!!
Weinkheim v Arndt (NZ)
Dunmore (Countess) v Alexander (Scottish)
Acceptance in Unilateral Contracts
Acceptance commonly by conduct
The requirement for acceptance to be communicated is often impliedly waived.
Acceptance is affected by the offeree by performing the requirements that are
specified by the offeror.
Withdrawal of an offer after acceptance has commenced
Generally, once an offeree has begun to accept the offer by performing the acts
stipulated, it is likely to be too late for the offeror to withdraw the offer and claim
there has been no contract formation.
Abbot v Lance
Who may accept an offer?
An offer can only be accepted by the person to whom it was made.
Reynolds v Atherton
Acceptance may be communicated only by the offeree or his or her agent
Powell v Lee
If an offer is made to the public at large it can sometimes be accepted by a number of
people. In Carlill’s Case the offer was capable of acceptance by anyone who
qualified under the terms of their offer (eg. anyone who purchased a smoke ball,
however, in the case of a reward, while many people may have the information which
qualifies them for the reward, only the first person to come forth will be eligible).
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Carlill’s case
Contract formation: time and place
Instantaneous communication
A contract is formed when and where the offeror receives and accepts the acceptance
communicated.
Hampstead Meats Pty Ltd v Emerson & Yates Pty Lty
Post
If the postal acceptance rule applies, the contract is formed when, and at the place
that, the letter of acceptance is posted.
Henthorn v Fraser
The Postal Rule can be excluded {Covered earlier in “The postal Acceptance Rule” at
(d)}
Holwell Securities Ltd v Hughes
Bressan v Squires
Certainty and Completeness:
Concepts of uncertainty or vagueness are relevant to a determination of whether there
has been an offer made which is capable of acceptance, and whether the parties could
have had the requisite intention to enter into legal relations. If an offer is so vague
that the respective obligations of the parties on acceptance are unclear, it is unlikely
to be a valid offer in legal terms. Similarly, if the terms of the offer are vague and
uncertain, it may indicate that the parties lack intention, not having yet reached the
stage of negotiations at which each intends to be legally bound to the other party.
Statement of the Rule
In order to constitute a valid contract the parties must so express themselves that their
meaning can be determined with a reasonable degree of certainty. It is plain that
unless this can be done it would be impossible to hold that the contracting parties had
the same intentions; in other words the consensus ad idem would be a matter of mere
conjecture
G Scammell and Nephew Ltd v HC and JG Ouston
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Facets to the principal
There are a number of facets to this principle:
• A contract containing language that is so obscure and so incapable of any
definite or precise meaning that the court is unable to attribute to the parties
any particular contractual intention will be unenforceable The uncertainty
may relate to one of the pivotal terms of the agreement or may go to the very
heart of the agreement.
G Scammell and Nephew v HC & JG Ouston
• Even where uncertain or ambiguous language is not used, if the parties have
not agreed on all of the essential terms of the agreement, the contract will be
unenforceable.
Loftus v Roberts
• A contract will be unenforceable if it reserves a discretion for one party not to
carry out his or her obligations
Thorby v Goldberg
Ambiguity and Uncertainty
Individual Terms
There can be no contract unless what the parties agreed can be determined objectively
with a reasonable degree of certainty. A number of different terms have been used to
describe clauses that are struck down for want of certainty. Whether the clause is said
to be vague, ambiguous or uncertain matters little, the clause is void. Sometimes the
court will label a term meaningless or illusory. A meaningless clause is one to which
a meaning cannot be attributed and will be treated the same way as an uncertain
clause. An illusory clause has an identifiable meaning but will be treated as uncertain
as it promises an illusory term.
The modern approach appears to emphasise the courts willingness to uphold an
agreement entered into by the parties, particularly where the circumstance indicate
that the parties intended to be bound by the agreement.
Lend Lease Financial Planning Ltd v Southcap Pty Ltd
Agreements to Negotiate
If parties do not reach final agreement on essential terms, instead agreeing to finalise
such matters at a later time, the contract is an agreement to agree, therefore it is
incomplete and will not be enforced.
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Booker Industries Pty Ltd v Wilson Parking Qld Pty Ltd
If an agreement to negotiate is regarded as an agreement to agree, it to will be
unenforceable
Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd
However, it was contemplated by Kirby P (in Coal Cliff Collieries Pty Ltd v
Sijehama Pty Ltd), that in appropriate circumstances, an agreement to negotiate could
be enforceable. He concluded that if the parties provided good consideration and the
terms of the agreement to negotiate were sufficiently certain, such agreement might
be enforceable. One mechanism to make an agreement to negotiate more certain, it
was suggested, would be to include a provision referring matters in dispute to a third
party.
Saving Ambiguous, uncertain or meaningless contracts
Link to External Standard
A clause in a contract, which, on its face, appears uncertain, may be enforceable if a
meaning can be given to it by reference to an external standard. The parties may
provide for “a standard, machinery or formula designed by the parties to take the
place of their own agreement”.
Hawthorn Football Club v Harding
The reference may be made in a direct way for example, incorporating standard hire
purchase terms used by the particular hiring company. If such a set of standard hire
purchase terms exists, the clause will be valid.
Recourse may also be made to external standards, even where the contract itself does
not expressly provide such a link.
Hillas and Co Ltd v Arcos Ltd
Specifications agreed in the original contract could be regarded as an external
standard.
Sometimes, the contract may provide for one or more terms to be inserted by a third
party. (In a fashion, this is also a link to an external standard).
Hawthorn Football Club v Harding
Godecki v Kirwan
Link to reasonableness standard
The court may be willing, in some circumstances, to adopt principles of
reasonableness to make certain something that, on its face, is not.
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‘The implication of what is just and reasonable to be ascertained by the court as a
matter of machinery where the contractual intention is clear but the contract is silent
on some detail’
Hillas and Co Ltd v Arcos Ltd
Severance
The invalidity of one term will not necessarily mean that the whole contract will be
unenforceable. In some circumstances the invalid term can be severed and the
remainder of the contract will be enforceable. Generally, if the parties would have
intended to be bound in the absence of an uncertain clause, the clause can be severed
and the remainder of the contract is enforceable
Fitzgerald v Masters
If the offending clause forms a pivotal part of the contract, so that without out it the
parties could not have intended to be bound, severance of the particular clause is not
possible.
Whitlock v Brew
Waiver or Removal of Uncertainty
If a clause is inserted in a contract for the benefit of one party only, but is drafted in
such vague terms as to make it void, that party can choose to waive the benefit of the
clause and have the remainder of the contract specifically enforced.
Whitlock v Brew
Incomplete agreement
The courts will not lend their aid to the enforcement of an incomplete agreement,
being no more than an agreement for the parties to agree at some time in the future.
Agreement contains mechanism to complete
It may suit the needs of contracting parties not to finalise various aspects of their
agreement, but rather to insert in a mechanism for determining one or more terms at a
later date for example external standard or third party.
a) Reference to a third party
Parties to a contract may leave terms of the contract to be decided by a third party,
even essential terms.
Godecke v Kirwan
Hawthorn Football Club Ltd v Harding
23

b) Discretion retained by a contracting party
It is uncertain that a contract that leaves minor terms to be determined by one of the
contracting parties is enforceable.
A contract that leaves essential matter for later determination by one of the
contracting parties will be unenforceable as it is either incomplete or uncertain or
because the promises contained in the agreement are illusory.
Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd
However, if a subsidiary matter was left to the determination of one of the parties
such as how the contractual obligations are carried out by that party, it may be
enforceable.
Godecke v Kirwan
Breakdown of Mechanism to Complete
If the parties a mechanism for determining a term and that mechanism fails, the court
will not substitute it’s own view and complete the agreement.
Milnes v Gery
If the disputed issue is one of something such as the “price” of something (eg. Rent),
a court may be prepared to determine a fair and reasonable price, and not to regard
that determination as completing the agreement for the parties.
Sudbrook Trading Estate Ltd v Eggleton
Saving Incomplete Agreements
Implication of Terms
There is a willingness of the courts to imply terms into an agreement. It is not for the
court to make the contract for the parties, or to go outside the words they have used,
except insofar as there are appropriate implications of law, as for instance, the
implication of what is just and reasonable to be ascertained by the court as matter of
machinery where the contractual intention is clear but the contract is silent on some
details.
Hillas v Arcos
However, the court may not rewrite the agreement for parties where the parties
themselves have failed to agree on essential terms. The greater the number of terms
not finally agreed upon by the parties, the less inclined the court will be to exercise its
discretion to imply a term. A contract could only be regarded as concluded if the
parties agreed on the three essential elements: “the parties”, “the subject matter” and
24

“the price” and if these elements have been agreed upon with sufficient certainty the
court will provide the rest.
Hall v Busst
In addition, there are two other factors that may be relevant in the courts
determination.
First, if it is clear that the parties have gone beyond the state of negotiation and intend
to be contractually bound, the court will be more minded to imply a term and enforce
the agreement.
Hillas v Arcos
Secondly, and related to the first, if the contract has between partly executed, for
example in a contract for the sale of goods, property has been delivered and title has
passed, the court will seek to imply a term necessary for the validity of the agreement
Hall v Busst
Failure to specify price
a) Contract silent on price
The general principle is that a contract will only be regarded as valid if the parties to
it agree on price (as this is one of the essential terms), this means that if there is no
agreement on price stipulated in the contract, then the contract is not complete, and
would not be upheld by the court.
Hall v Busst
However, there are exceptions.
There is a distinction between the sale of land and sale of goods with respect to the
implication of terms by a court. For the sale of goods, the court is sometimes prepared
to imply a term that the purchaser will pay a reasonable price for the goods. This
intention is demonstrated for example, where the contract is partly executed and
property in the goods has passed. A court will not imply a term for payment at a
reasonable price into a contract for the sale of land
Hall v Busst
b) Contract provides for parties to agree in future
An agreement to agree in the future also offends against the general principle of
completeness. However, in some instances, in contracts for the sale of goods the
court may imply a reasonable price and the contract will be upheld.
Foley v Classique Coaches Ltd
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However, if the contract is to sell land, or on rental in an option to renew a lease, it is
unlikely to be upheld) and will be treated as such matters which are silent on price.
Stocks &Holdings Pty Ltd v Arrowsmith
c) Contract makes provision for mechanism to complete
A contract that contains a mechanism for setting a term at a later time is likely to be
valid. It is not uncommon for such a mechanism to be used in relation to setting a
price.
Godecke v Kirwan
d) Contract provides for payment of a reasonable price
Whether the agreement is upheld as being sufficiently certain may turn on the nature
of the subject matter in dispute. A contract for the sale of goods at a reasonable price
is likely to be valid.
Sale of Goods Act 1896 (Qld)
Reasonable price is an objective standard that can be determined without further
agreement between the parties. If one party breaches the agreement, the court can
assess the price to be attributed to the goods, and damages can be awarded
accordingly.
British bank of Foreign Trade Ltd v Novinex Ltd
However, clauses to attribute reasonable price to the sale of land will generally be
uncertain or for the sale of goods if they are unique or of very special character eg
original painiting
Hall v Busst
Subject to agreements:
Sometimes parties may be ready to sign a contract but not able or not prepared to
commit to one or more aspects of the agreement. In these circumstances parties may
decide to enter into agreements subject to the happening of a particular event.
Subject to finance agreements
Contracts for sale may contain a clause stating that the contract is subject to the
purchaser receiving approval for finance on satisfactory terms and conditions. The
contract is immediately binding on the parties but will come to an end if the purchaser
is unable to obtain finance and terminates the contract pursuant to its terms.
Meehan v Jones
a) Satisfactory Finance
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It has been argued that a clause that provided for finance to be obtained on
‘satisfactory terms’ is either to uncertain to be valid or gave the purchaser such a wide
discretion that it was illusory. The High Court disagreed, and stated that as the clause
was inserted for the benefit of the purchaser, the determination of whether the finance
was satisfactory was left to the purchaser
Meehan v Jones
b) Steps to be taken to obtain finance
The finance clause in most standard land contracts imposes an obligation on the
purchaser to take all steps reasonably necessary to obtain finance approval.
Meehan v Jones
Subject to Contract
For agreements that are formed subject to contract, the case could fall into one of
three categories:
1. The parties have reached finality in arranging all terms and intend to be
immediately bound to perform those terms, but at the same time propose to
have the terms restated in a form which will be fuller or more precise but not
different in effect. The parties intend to be bound immediately thus a binding
contract is formed.
Masters v Cameron
Branca v Corbarro
2. The parties have completely agreed upon all terms and intend no departure
from or addition to those terms, but have made performance of one or more of
those terms conditional upon the execution of a formal document. An offer in
such a case is not expressed to be subject to or conditional upon a formal
execution of a contract and all essential terms have been agreed upon thus a
binding contract is formed.
Masters v Cameron
Niesmann v Collingridge
3. The intention of the parties is not to make a concluded bargain at all, unless
and until they execute a formal contract. Parties in such a case do not intend
to be bound until they entered into a formal document thus no binding
contract is formed.
Masters v Cameron
The category a particular case falls into turns on the intention of the parties. If the
parties intend the agreement to be binding on them even before entry into the final
contract, the contract will fall into one of the first two categories.
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Masters v Cameron.
Intention to create legal relations:
Statement of the Rule
To create a contract there must be a common intention of the parties to enter into
legal obligations, mutually communicated expressly or impliedly.
Rose and Frank Co v JR Crompton & Bros Ltd
The courts use an objective test in making a determination about the intention of the
parties. In making an objective determination of the parties intention, the court looks
at the surrounding circumstances and asks if a reasonable person would regard the
agreement as intended to be binding.
Merritt v Merritt
Domestic and social relationships
Presumption
The presumption is that domestic and social agreements are not intended to have legal
force.
Heslopv Burns
Balfour v Balfour
Jones v Padavatton
Rebutting the presumption
The presumption can be easily rebutted for example if parties who are in a familial
relationship are contracting in a business context or if a husband and wife enter into
an agreement in circumstances in which they are no longer living in harmony.
Similarly, if the words used in the contract indicate a legal intention, the presumption
that may otherwise have arisen may be rebutted.
Case Examples:
a) Husband and Wife
Parties involved in a domestic relationship, will generally not have intended legal
consequences to follow their arrangement thus a contract will not be enforceable.
Given many couples now choose to cohabit without marrying, the same presumption
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should apply where an agreement is entered into between a couple living in a de facto
relationship.
Balfour v Balfour
b) Separated husband and wife
Where parties are divorced, separated, or in the process of separating, the negotiation
do not take place in the context of natural love and affection therefore there is no
room left for the application of such a presumption and the court will generally find
that the requisite contract intent existed.
Merrit v Merrit
c) Other familial relationships
Parties in other familial relationships are considered the same as married or de facto
couples, and it is presumed that they do not intend to cerate legal relationships as the
agreements made in this context are based on natural love and affection. The bond of
natural love and affection is likely to weaken according to the remoteness of the tie
and will subsequently be easier to rebut.
Jones v Padavatton
In fact, those cases where the court finds that the presumption has been rebutted, one
or more of the following factors are often relevant
• The seriousness of the conduct involved (such as moving countries or
giving up full time employment)
• The expense involved, especially if the relevant party is not wealthy
• Whether there is or has been a degree of hostility in the relationship
• The closeness of the family ties
• Whether the subject matter of the agreement is business or commercial in
nature
Examples
Jones v Padavatton
Wakeling v Ripley
Roufos v Brewster
d) Social Relationships
The presumption of lack of legal intent can extend beyond familial relationships to
agreements entered into in a social context, or agreements made between friends.
Heslop v Burns
However, a court will not always find that the parties lacked legal intention, even
when the arrangement is clearly made between friends or a relative in a social setting.
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(eg. parties who pool funds to enter a competition in one person’s name may intent
that arrangement to have legal consequences. Therefore, if the person wins, action
can be brought to force that person to share the winnings with the other members of
the groups. While this is fair, it is doubtful that parties who participated in syndicate
intended their action to have legal consequences). The court may be more likely to
uphold such a decision if large amounts of money are involved.
Simpkins v Pays
Commercial Agreement
Presumption
Where parties negotiate and agree in a business setting, it is assumed that the parties
intended the agreement to have legal consequences. Therefore, the party alleging that
an agreement relating to business matter is of no legal effect has the heavy onus of
demonstrating that to be the case.
Edwards v Skyways
It can sometimes be difficult determining whether a transaction has taken place in a
business setting, a broad approach to what constitutes a business setting must be
adopted.
Esso Petroleum Co Ltd v Customs & Excise
Rebutting the Presumption
The intention not to create legal relations may be evident in a number of different
ways. For example, the agreement may contain an express clause that no legal
consequences flow from the document, or the overall tenor of the particular document
may indicate that the parties had no intention to enter into legal relations.
Rose and Frank Co v JR Crompton & Bros Ltd
Government Activities
Commercial Agreements
If a government contract arises out of the commercial need for the operation of
government, for example the order of stationary or contracts to purchase vehicles, the
usual contractual principles apply to determine whether a contract has been formed.
For other types of contracts, increased formality may be required to demonstrate the
necessary legal intent when one of the contracting parties is the government.
Coogee Esplanade Surf Motel Pty Ltd v Commonwealth of Australia
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Policy Initiatives
Where the government activity relates to a policy initiative a court may be less likely
to find that the parties intended to enter contractual relations.
Australian Woollen Mills v The Commonwealth
Administration of PNG v Leahy
Voluntary associations
Unless there was some clear positive indication that the members contemplated the
creation of legal relations inter se, the rules adopted for their governance would not
be treated as amounting to an enforceable contract.
Cameron v Hogan
The parties could possess requisite legal intent if the member has a proprietary
interest in the club.
Cameron v Hogan
Circumstances indicating absence of intention
Honour Clauses
The presumption that arises in a commercial context is that the parties intended to
create legal relations by entering the agreement. It is however, open for the parties to
form a contrary. The presence of an honour clause in contracting parties agreements
will indicate by express words that they did not intend the agreement to have legal
consequences.
Rose and Frank Co v JR Crompton and Bros Ltd
Jones v Vernon’s Pools Ltd
Promotional puff and free gifts
Where language such as ‘free gift’ is used, or an apparently extravagant claim is set
out in an advertisement, there may be a tendency to think that a person who acts in
response to the advertisement may not intend legal consequences to follow. To
determine whether the requisite intention exists, the court will look not only at the
words used, but also at the entire context in which the advertising takes place.
Esso Petroleum Co Ltd v Customs & Commissioners of Customs & Excise
Similarly, if the language used conveys intention, such as the deposit of $1000 in a
bank for the purpose of payment, it would have legal consequences.
Carlill v Carbolic Smoke Ball Co
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Ex gratia payments and without prejudice offers
Parties who offer to make an ex gratia payment or who write a ‘without prejudice’
letter which is accepted, are still seen to posses the intention to create legal relations.
Edwards v Skyways.
The words ex gratia do not carry a necessary, or even a probably, implication that the
agreement is to be without legal effect . . . a party is certainly not seeking to include
the legal enforceability of the settlement itself by describing the contemplated
payment as ex gratia.
Edwards v Skyways.
Letter of Comfort
Central to the determination of whether a letter of comfort gives rise to legal intent is
whether the parties intended to create legal obligations by the giving and receiving of
the letter. To determine this, the courts look at the construction of the document and
the circumstances surrounding its sending. The following points were considered by
the authority in assigning legal intent to the letter of comfort:
• On a construction of the letter, the terms were sufficiently promissory in
nature.
• The letter was part of a commercial transaction in which there is a
presumption that legal relations were intended.
• Intention is deduced from the document as a whole seen against the
background of the practices of the particular trade or industry.
Banque Brussels Lambert SA v National Industries Ltd
Letter of intent and understandings
Parties sometimes conduct their affairs on the basis of an understanding between
them, which may arise orally or be put in writing. Question about its contractual
standing may arise where one party no longer wishes to be bound. A related issue
arises in the area of letters or documents of intent. Generally, a letter of intent or an
understanding will represent something short of an intention to enter a concluded
agreement.
Coogee Esplande Surf Motel v Commonwealth
Milner & Son v Percy Bilton Ltd
Consideration:
Whether or not a promise that is part of an agreement can be enforced depends on,
among other things, whether the promisee has given consideration for the promise.
Consideration is perhaps best understood as an act or promise of an act which is the
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price paid for the other's promise. The common law will only enforce a promise for
which a price is paid.
Dunlop Pneumatic Tyre Co v Selfridge & Co
The development of the Doctrine of Promissory Estoppel, under which a promise that
has been relied upon to another’s detriment may be enforced by that other despite the
lack of consideration.
Waltons v Maher
Nature of Consideration
An act or forbearance of one party, or the promise there of, is the price for which the
promise of the other is bought, and the promise thus given for value is enforceable.
Dunlop Pneumatic Tyre Company v Selfridge & Company Ltd
Consideration in Bilateral Contracts
A bilateral contract is formed where the parties exchange promises. At the time
agreement is reached, each party makes a promise. The price paid for that promise –
the consideration – is the other party’s promise. Each party promises to do an act or
refrain from doing an act.
United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd
Consideration in Unilateral Contracts
Unlike bilateral contracts, a unilateral contract does not constitute an exchange of
promises. The only promise is the one made by the promisor to do or refrain from
doing an act if the other party does or refrains from doing an act. Thus, the act or
forbearance itself, rather than the promise, constitutes the consideration.
United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd
Executed and executory consideration
In bilateral contracts, the consideration is considered executory. In bilateral contracts
each party exchange promises with the other to do or refrain from doing an act. This
means that the obligation to perform has not yet fallen due, therefore the
consideration is “executory”. In unilateral contracts the parties do not exchange
promises. Only one party will make the promise and an obligation will only arise if
the other party carries out the specified acts. Consideration for the promise is not
executory because the act has not been promised by the promisee. If the promisee
chooses to and does perform the specified acts, the consideration is “executed”.
Rules governing consideration
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Consideration must move from the promisee
For there to be a contract between the promisor and the promisee, consideration must
move from the promisee.
Dunlop Pneumatic Tyre Company v Selfridge & Company Ltd
Trident General Insurance Company Ltd v McNiece bros Pty Ltd
Tweddle V Atkinson
a) Benefit need not move to promisor
It will generally be the case that consideration moves from the promisee to the
promisor, whether the promisee promises to pay money, or do or forbear from doing
an act. However, it is sufficient if consideration moves from the promisee to a third
party at the direction of the promisor.
b) Joint promisees
When a promise is made to joint promisees, it is enough if consideration is given by
one on behalf of all because it is then deemed to have moved from all.
Coulls v Bagot’s Executor & Trustee Co Ltd
c) Overlap with doctrine of privity
The doctrine of privity provides that only a person who is a party to a contract can sue
on it. A promisee is only able to sue on a promise if the promisee has given
consideration for the promise.
Tweddle v Atkinson
Consideration must be bargained for
The act of forbearance must be done in reliance of the promise and at the request of
the promisor and not done for other reasons (that are unrelated to the contract in
question).
Combe v Combe
Consideration must be sufficient
a) General principle
To be valid, consideration must be sufficient in that it is ‘something which is of value
in the eyes of the law’. Consideration may be valid although it cannot be given
monetary equivalent.
Thomas v Thomas
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b) Consideration need not be adequate
Consideration must be sufficient but need not be adequate. The court will not enquire
into the adequacy or value of the consideration.
Chappell & Co v Nestle Co Ltd
A moral obligation or worthy motive does not constitute consideration.
Eastwood v Kenyan
Thomas v Thomas
White v Bluett
c) Consideration can be nominal
Consideration will be regarded as valid even if it is nominal only. (Eg. Token gesture)
Thomas v Thomas
Lennox v Cameron
Niesmann v Collingridge
Consideration must not be past
a) General Principle
The consideration will be regarded as being past if it has already flowed from the
promisee to the promisor prior to the agreement being entered into.
Roscorla v Thomas
b) Past consideration distinguished from executed consideration
If the act, forbearance or promise that is claimed to be consideration has already
occurred or been given before the agreement is entered into, the consideration is past
not executed.
Consideration and formal agreements
Deeds
Formal agreements are signed under seal, and are more commonly referred to as
deeds. Because of the solemnity or seriousness of the manner of execution of such
documents, the common law has recognized these agreements as valid even if
consideration has not been provided. Simple agreements are agreements other than
formal agreements, which are oral or written and require consideration to be valid.
Consideration: specific examples
35

Moral Consideration
A promise made because of a sense of moral obligation to the promisee will not be
sufficient consideration to support that promise.
Eastwook v Kenyon
A promise made because of the love and affection that the promisor and promisee
have for each other, or that the promisor has for the promisee is not legally
recognized (without consideration)
White v Bluett
Performance of existing duties
a) Performance of existing contractual duties
Generally a promise by one party (the promisee) to perform an existing contractual
duty owed to another party (the promisor) does not constitute good consideration for
the promisor’s promise.
Wigan v Edwards
Where the plaintiff is bound by an existing contractual duty to the defendant,
performance of that duty will not amount to sufficient consideration to support a
further promise made by the promisor, unless the duty is exceeded.
Stilk v Myrick
A court may be prepared to find that the parties have agreed to abandon their original
agreement and enter a new one.
Hartley v Ponsonby
The court may be willing to accept performance of an existing contractual duty as
good consideration where it provides a benefit to the promisor.
Williams v Roffey Bros
b) Performance of a public duty
Where a public duty is imposed upon the plaintiff by law, performance of that duty is
insufficient consideration for the defendants promise unless the duty is exceeded.
Glasbrook Bros v Glamorgan County Council
c) Where promise is made to a third party
A promise to perform an existing contractual duty owed to another party can be good
consideration for a promise.
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Pao On v Lau Yiu Long
New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd
Part Payment of Debt
a) Rule in Pinnel’s Case
A promise to pay part of a debt cannot constitute consideration for a creditor’s
promise to forgo the balance (commonly referred to as the ‘rule in Pinnel’s case’).
Pinnels case
If an amount of money is owing by a debtor to a creditor, and those parties enter into
a subsequent agreement that the creditor will accept a lesser amount in full
satisfaction of the amount, the later amount agreement will generally not be binding
because the debtor has not provided consideration for the creditor’s promise to forgo
the balance due. Therefore, even if the debtor acts on this agreement by paying the
lesser sum agreed – and the sum is accepted by the creditor – the creditor will
generally be able to sue the debtor for the balance due.
Foakes v Beer
b) Circumstances in which the rule will not operate
• Parties enter into a deed
Consideration is not required, however, for specialty agreements (formal agreement
under seal). If the parties enter into a deed under which the creditor forgoes part of
the amount owing, that arrangement will be enforceable despite the absence of
consideration.
• Accommodation to benefit the creditor
If a debtor provides consideration for the creditor’s promise, Pinnel’s rule will not
apply.
Van Burgen v St Edmonds Properties
Examples of how the arrangement could be altered by the creditor:
• Payment on an earlier than scheduled date
• Payment at a location more convenient to the creditor
• Payment in a currency more desirable to the creditor
Payment made at a different place for the debtor's convenience does not evade the
rule.
• Amount owing is disputed
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The rule in Pinnel’s case will only operate when there is no dispute between the
parties as to the amount owed. If the parties cannot agree on an amount owing, they
may wish to enter into a compromise agreement. In the case of a compromise,
although the creditor promises to accept an amount less than what the creditor
contends is the account of the debt in full settlement of the debt, the debtor has
provided consideration for the creditor’s promise. The debtor has agreed to pay an
amount more than the debtor believes to be due. This is good consideration even if
the creditor is in fact correct and the amount claimed by the creditor is actually due.
H B F Dalgety LTd v Moreton
• Payment by a third party
If a debtor is unable to meet his debt to the creditor and obtains assistance from a
third party to do so, the third party to placate the creditor may offer a lesser some than
the full amount owed to bring the matter to an end. As the third party is not indebted
to the creditor, his/her promise to pay an amount should be good consideration for the
creditor’s promise to forgo the balance of the debt. The fact that payment is by a
third party and not the debtor takes the case outside the operation of the rule in
Pinnel’s case.
Hirachand Punamchand v Temple
• Composition with creditors
Under a composition with creditor’s agreement, the creditors all agree to accept
payment of something less than the full amount owing by the debtor, in exchange for
giving the debtor a full release. Creditors may agree to such an arrangement if it
appears that this is the most likely avenue to recover any amount from the debtor
In the Estate of Whitehead
Forbearance to sue
A forbearance to sue or to refrain from exercising some legal right may constitute
consideration, even if the plaintiff would have been unsuccessful in the original
claim, provided:
- The claim was reasonable and not frivolous or vexatious
- The plaintiff honestly believed the claim would succeed
- The plaintiff did not conceal from the defendant any facts that to the
plaintiff’s knowledge might affect the validity of the claim.
Hercules Motors Pty Ltd v Schubert
Bargain for conduct already performed
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The exception to the rule that past consideration will be ineffective to support a
promise is that if the services would only have been provided on the basis of
payment.
In some cases it is possible to infer that a certain sum would be paid, and a
subsequent promise merely fixes the amount of payment.
Re Casey’s Patents
Lampleigh v Braithwaite
Pau On v Lau Yiu Long
In all cases where a promisee seeks to enforce a promise made after the provision of
the services, or other conduct relied upon, the promisee must be able to demonstrate
that
1. the act must have been done at the promisor’s request:
2. the parties must have understood that the act was to be remunerated either by
payment or the conferment of some other benefit
3. payment, or the conferring of the benefit, must have been legally enforceable
had it been promised in advance
Pau On v Lau Yiu Long
Equitable Estoppel
The Doctrine of Equitable Estoppel states that a promise not supported by
consideration could give rise to rights in circumstances where it would be
unconscionable conduct for the promisor to renege on the promise. An estoppel may
arise from pre-contractual negotiations
Waltons Stores (Interstate) Ltd v Maher
For equitable estoppel to apply there must be unconscionable conduct by one party.
(Unconscionable conduct denotes a creation or encouragement by the defendant in
the other party of an assumption that a contract will come into existence or a promise
will be performed and for the other party to have relied upon that assumption to his or
her detriment to the knowledge of the first party).
Milchaus Investments Pty Ltd v Larkin
However, a different result may apply where the parties subsequently execute a
formal contract that is expressed to constitute the whole of the contract between the
parties, but where one party asserts that the other is estopped from relying on rights
created by the written contract due to an assumption formed during negotiations
Skywest Aviation Pty Ltd v Commonwealth
The elements of estoppel must be positively proved and will rarely if ever be inferred
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Chellaram & Co v China Ocean Shipping Co
Elements of Estoppel
Assumption or Expectation
There must be a clear and unambiguous assumption or expectation by Party A that a
contract will come into existence or that a promise will be fulfilled.
Encouraged or Induced
A clear and unambiguous representation may be implied from words used or be
adduced from a failure to speak, where there was a duty to speak, or from conduct.
Thompson v Palmer
If a party acts upon mere hope rather than a belief induced or encouraged by the other
party, it will not be sufficient grounds for estoppel
Lorimer v State Bank of New South Wale
Chellaram & Co v China Ocean Shipping Co
If an unauthorized statement is made to the knowledge of the principle in
circumstances where the principal knows or ought to know that the statement is being
relied upon, a failure to deny the statement is in fact authorized and may reasonably
be relied upon by the other party.
Corpers (No. 664) Pty Ltd v NZI Securities Australia Ltd
Reliance
The party claiming estoppel must act or abstain from acting in reliance upon the
assumption or expectation.
Australian Securities Commission v Marlborough Goldmines Ltd
The parties reliance upon an assumption must be reasonable.
The characteristics of the plaintiff in assessing the reasonableness of the reliance, are
relevant. (Eg. if the parties are stockbrokers and merchant banker experienced in
commerce with the intention of their solicitor to prepare formal documentation or are
large commercial entities represented by solicitors).
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Austotel Pty Ltd v Franklins Self Serve Pty Ltd
Capital Market Brokers Pty Ltd v Hamelyn UPC Ltd
Knowledge or Intention
The party who induced the adoption of an assumption or expectation must know or
intend the other party to act or abstain from acting on reliance on the assumption or
expectation.
Detriment
The relevant detriment is that of the plaintiff, not the defendant.
Gobblers Inc Pty Ltd v Stevens
There must be a link between the assumption or expectation created and the detriment
suffered.
Gobblers Inc Pty Ltd v Stevens
Australia & New Zealand Banking Group v PA Wright & Sons Pty Ltd
Re Ferdinando
The party claiming estoppel must suffer detriment in the sense that ‘as a result of
adopting the assumption as the basis of action or inaction, the plaintiff will have
placed himself in a position of material disadvantage if departure from that
assumption is permitted
Thompson v Palmer
The detriment is determined as at the date the defendant seeks to resile from the
assumption or expectation he or she has encouraged or induced, and upon which the
othe party has acted
Lorimer v State Bank of NSW
Failure to avoid detriment
The object of the equity (equitable estoppel) is not to compel the party bound to fulfil
the assumption or expectation; it is to avoid the detriment which, if the assumption or
detriment goes unfulfilled , will be suffered by the party who has been induced to act
or to abstain from acting on it
The party encouraging or inducing the assumption must fail to avoid the detriment
suffered by the party claiming estoppel, by failing to fulfil the assumption or
encouragement.
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Depending on the circumstances, the defendant may be required to do no more than
warn the plaintiff that the assumption or expectations mistaken before the plaintiff
incurs irreversible detriment
Lorimer v State Bank of NSW
It may be possible to show the relevant detriment where the defendant has made an
attempt to avoid detriment being suffered by the plaintiff but the attempt proves to be
inadequate.
Silovi Pty Ltd v Barbaro
Remedies
The object of equitable estoppel is not necessarily to enforce promises but to avoid
the detriment suffered by a party who relies on a promise.
Therefore the remedy for equitable estoppel is the minimum equity to do justice
between the parties
(Commonwealth v Verwayen
However, in some circumstances the enforcement of a promise may be the only
means of avoiding the detriment.
The remedy should be proportionate to the unconscionability. Normally this will be
reliance loss rather than expectation loss, (Eg. compensation for loss incurred in
reliance on the assumption rather than making good the expectation of the parting
invoking estoppel).
Commonwealth v Verwayen
There may, however, be a prima facie entitlement to have the expectation made good
where the relief to reliance would exceed what could be granted by enforcing the
expectation.
Also, where the nature or likely extent of the detriment cannot be accurately or
adequately predicted, it may be necessary in the interest of justice that the assumption
be made good to avoid the possibility of detriment.
Conversely, if the enforcement of the expectation is shown to be too great a remedy it
will not be enforced.
Giumelli v Giumelli
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Privity
General rule
A third party to a contract is unable to acquire rights or benefits under the contract.
Wilson v Darling Island Stevedoring Co
Price v Easton
Tweddle v Atkinson
Statutory Abrogation of Privity
Queensland
The Property Law Act 1974 (Qld) s55 (1) provides that:
A promisor who, for a valuable consideration moving from the promisee, promises to
do or to refrain from doing an act or acts for the benefit of a beneficiary shall, upon
acceptance by the beneficiary, be subject to a duty enforceable by the beneficiary to
perform that promise.
(a) Promisor
The relevant promisor under the statue is the party who actually makes the promise
for the benefit of the beneficiary. In the absence of an assignment, the promise is not
binding upon a new party who merely stands in the shoes of the promisor who makes
the promise. (Eg. where the promise is made by a trustee of a trust who, in turn, is
subsequently replaced by a new trustee, the promise will not be binding on the new
trustee).
Re Davies
(b) Beneficiary
For the purpose of s55, a party is clearly a beneficiary if they are expressly named in
a contract as receiving the benefit of performance of work under a contract
Re Burns Philp Trustees
A person who is not named in the promise but is incidentally benefited by the
promise generally cannot enforce the promise in reliance of s55.
Re Burns Philp Trustees
Northern Sandblasting Pty Ltd v Harris
(c) Promise
Promise is defined in s55 (6) as being a promise:
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• Which is or appears to be intended to be legally binding and
• Which creates or is intended to create a duty enforceable by a beneficiary
A contractual term that merely regulates the relationship between promisor and
promisee will not be enforceable by a third party if it does not amount to a promise to
benefit the third party and create an enforceable duty
Davis v Archer Park Newsagency Rockhampton
(d) Acceptance
Section 55(6) defines ‘acceptance’ as an assent by words or conduct communicated
by or on behalf of the beneficiary to the promisor – or to a person authorised on his or
her behalf – in the manner (if any) specified in the promise and within the time
specified in the promise.
It seems that an acceptance must on its face be an assent. It is insufficient for there to
be words or conduct that is merely consistent with acceptance.
Re Davies
It may be sufficient if the promise comes to the notice of the beneficiary’s solicitor.
Re Davies
Provided the beneficiary’s assent purports to accept the promise, it is immaterial if in
fact the purported acceptance precedes the promise to benefit the beneficiary thus an
anticipatory acceptance may suffice.
Hyatt Australia Ltd v LTCB Australia Ltd
(e) Defences
Section 55(4) provides that any matter that would otherwise be relied on as rendering
a promise void, voidable or unenforceable will be available by way of defence in
proceedings for the enforcement of a duty under s 55.
The intended object of this subsection provides that defences such as mistake, fraud,
misrepresentation, Stature of Frauds and Statue of Limitations etc, which may be
available to the promisor against the promisee are also available to the former against
the beneficiary.
(f) Variation or Rescission of Promise
Under s 55 (2), before acceptance, the parties to the contract may vary or rescind the
promise. However, s 55(3) provides that after acceptance, their terms of the promise
and the duty of the promisor or beneficiary may be varied or discharged only with
consent of the promisor and the beneficiary.
(g) Imposition of Burdens
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Section 55(3)(b) states that the beneficiary will be bound by any promise or duty that
is imposed as part of the promise that benefits him or her. An obligation may be
imposed upon the beneficiary but only as part of a promise that confers a benefit upon
him/her.
(h) Common Law Still Applicable
Section 55(7) saves the common law so that where the statue cannot be applied, the
common law still does. Consequently, a beneficiary who is unable to make out a case
under the statute would be left to rely on an exception to the privity doctrine if one
were available in the circumstances.
Commonwealth
Insurance Contracts Act 1984 (Cth) s48
Today in Australia, insurance cases are the subject of legislation to overcome the
Privity rule. Section 48 of the Insurance Contracts Act 1984 has provided a third
party with a right to recover directly from an insurer the amount of his or her loss.
Entitlement of named persons to claim
Where a person who is not a party to a contract of general insurance is specified or
referred to in the contract, whether by name or otherwise, as a person to whom the
insurance cover provided by the contract extends, that person has a right to recover
the amount of the person's loss from the insurer in accordance with the contract
notwithstanding that the person is not a party to the contract.
Section 48 of the Insurance Contracts Act 1984
Maritime contracts of carriage
(a) Servants or agents of sea carriers
If the privity rule were to be applied, then the usual exemption from liability that
appear in contracts of carriage exempting the carrier from liability to the owner of
goods for loss or damage to the goods could be simply evaded by, for example, suing
instead the servants or agents of the carrier. This has, in the past, been avoided by the
inclusion of a bill of lading evidencing the contract of carriage a provision known as a
‘Himalaya Clause’.
Such a clause makes the carrier the agent for its servants, agents or independent
contractors in relation to an exemption of liability for loss or damage to the goods.
The clause has been held effective to exempt from liability third parties to the
contract of carriage such as the master, crew, or stevedores who are entrusted with
loading and unloading the goods.
45

Now by force of law rather than by provisions in a contract, parties such as the master
and crew – but not individual contractors such as Stevedores – may now rely on the
exemptions contained in a contract entered into between the carrier and the owner of
the goods shipped by sea.
Carriage of Goods by Sea Act 1991
(b) Consignees and indorsees
All rights in the original contract of carriage are transferred to a third party buyer as
from the time of consignment or indorsement. Effectively, therefore, a consignee or
indorsee may now enforce rights under a contract to which he or she was a third
party.
Sea Carriage Documents Act
Secondly, all outstanding liabilities under the original contract of carriage are
transferred to a third party buyer when he or she demands or takes delivery of the
goods. Thus, it is possible to impose a burden on a consignee or indorsee despite the
fact that he or she was a third party to the original contract of carriage.
Sea Carriage Documents Act.
So called exceptions at common law
Agency
Agency is a legal relationship between two people where one of them, the principal,
give to the other, the agent, the authority to create legal relations between the
principal and the third party. If the agent acts within his or her actual authority, either
express or implied, or within his or her ostensible authority, such act will bind the
principal: that is the principal can take action in his or her own name to enforce the
contract made by the agent or become personally liable should the contract be
breached.
Trident General Insurance Co Ltd v McNiece Brothers Pty Ltd
Teheran Europe Co Ltd v St Belton Ltd
Definition
The principal is not a stranger to a contract made by the agent, he is one of the parties,
the agent being the medium by which the contract is made.
Harvester Co of Aust Pty Ltd v Carrigans Hazeldene Pastoral Co
The principles of agency may also apply where the agent does not disclose to the
other contracting party that he or she is acting on behalf of a principal if the other
party is willing to contract with anyone on whose behalf the agent acts, such
willingness may be assumed by the agent.
46

Teheran – Europe Co Ltd v St Belton (Tractors) Ltd
Exemption clauses and third parties
The issue of whether a party who is not party to a contract, particularly for the
carriage of goods, can nevertheless rely on an exemption from liability contained in
that contract.
An exclusion clause in a document like a bill of lading may be drafted so at to
effectively protect third parties such as stevedores if four conditions are met:
1. the relevant bill of lading must make it clear that the stevedore is intended to
be protected;
2. the bill of lading must also make it clear that the carrier is contracting not only
on its own behalf but also as agent for the stevedores in relation to the
exemption;
3. the carrier was so authorised by the stevedores, although later ratification by
the stevedores will do; and
4. any difficulties concerning consideration moving from the stevedores are
overcome.
If these four conditions are satisfied, the carrier-promisor effectively contracts as
agent for the stevedore-beneficiary.
Scruttons v Midland Silicones
Trusts
A trust is created where a trustee holds property on behalf of a beneficiary.
The trustee holds the legal title to such property subject to the interest of the
beneficiary in such property.
A promisee will be regarded as a trustee of a promise if it was the clear intention of
that party at the time of the contract was entered into. Unless an intention to create a
trust is clearly to be collected from the language used and the circumstances of the
case, the courts will be reluctant to infer such a trust exists.
Re Schembsman
Trident v McNiece
Whether a trust is created will depend on a true construction of the terms of the
contract and the intention of the parties. In deriving intention from the language that
the parties have employed the courts may look to the nature of the transaction and the
circumstances, including the commercial necessity of the arrangement.
Trident v McNiece
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The intention required to create a trust need not be held by both parties, it is sufficient
if the promisee alone holds the intention.
Trident v McNiece
Unjust Enrichment
If an insurer is paid and refuses to offer benefit to a third party on the ground that they
are not party to the contract, the third party may take action on the principles of unjust
enrichment.
Trident v McNiece
The key element of unjust enrichment is the unconscionability of the defendant’s
conduct in retaining a particular benefit at the expense of the plaintiff. But this issue
remains whether the benefit retained by the defendant is the premium paid or the
promised benefit. An argument could be made that the defendant has been unjustly
enriched only to the extent of the premium paid to it.
Formalities
Provided a contract is validly formed and there are no vitiating factors, action can
usually be brought to enforce a verbal contract. Notwithstanding this general
proposition however, a limited number of contracts must be evidenced by writing for
them to be enforceable.
Guarantees
A contract of guarantee must be in writing and signed by the party to be charged in
order to be enforceable. “No action may be brought upon any promise to guarantee
any liability of another unless the promise upon which such action is brought, or
some memorandum or note of the promise, is in writing, and signed by the party to be
charged, or by some other person by the party lawfully authorised”.
Section 56(1) of the Property Law Act 1971 (Qld)
Nature of Guarantee
A contract to answer for the debt, default or miscarriage of another who is primarily
liable to the promisee.
Yoeman Credit Ltd v Latter
Transactions which are not guarantees
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Transactions that are not guarantees ‘will not’ have to comply with the statutory
requirements of formalities.
a) Contracts of indemnity
In an indemnity, the surety undertakes primary liability, rather than secondary
liability, meaning that the surety will be liable notwithstanding that the principal
transaction is unenforceable
Yeoman Credit Ltd v Latter
b) Promise of guarantee made to the debtor
It is possible for a person to promise the principal obligator (the debtor), rather than
the creditor, that he or she will pay the debt of the debtor. As the promise is not made
to the person with whom the principal obligor contracts, the contract is not one of
guarantee
Eastwood v Kenyon
c) Person agrees to take over the debt of another
Where a debtor and creditor have entered into a contract of loan, it could occur that a
third party agrees with the creditor to take over the debt of the debtor. Such an
arrangement is not a contract of guarantee and therefore need not comply with the
statutory requirement of formality.
Gray v Pearson
d) The agreement imposes no personal liability on the person
If a person does not undertake personal liability, but instead proffers his or her
property as security to the promisee under the principal transaction it is not a
guarantee.
Harvey v Edwards, Dunlop & Co Ltd
e) Letters of comfort
Whether the letter of comfort is binding as a contractual document, so that he third
party may be called upon to pay, depends on the construction of the document.
Frequently the issue is whether there was an intention by the parties, namely the third
party and the lender, to create legal relations.
Banque Brussels Lambert SA v Australian National Industries Ltd
Requirement of writing: content
For a contract of guarantee to be enforceable the relevant statutory provision requires
either the promise is to be in writing, or some ‘memorandum or not’ of the promise is
49

to be in writing. The provision does not, however, elaborate on precisely the
information that must be contained in the writing to satisfy the statutory requirement.
Property Law Act 1974 (Qld)
Guidance from case law, in Harvey v Edwards Dunlop & Co, provides that the
document must contain ‘all essential terms of the agreement’.
First, ‘the guarantee must contain the names of the relevant parties: the lender, the
debtor and the guarantor’. It may happen that the guarantee makes reference to a
party without expressly identifying them. Authorities suggest that even if a party is
not expressly identified, ‘a description of the party will be sufficient if the description
used can be explained by extrinsic evidence without having to resort to evidence to
prove the intention of the author.
Rosser v Austral Wine & Spirit Co
Secondly, ‘the relevant terms of the guarantee must be stated’. This would generally
require the amount of debt being guaranteed must be specified. If the guarantee is
given of the amount advanced by the lender together with interest on that amount, the
interest payable by the debtor should also be specified.
There are two other important caveats to the general proposition that a guarantee must
contain all of these essential terms.
First, while the lender must provide valuable consideration to the guarantor for a valid
contract of guarantee to be formed, the nature of that consideration will not be
required to be contained in the guarantee.
Property Law Act 1974 (Qld) s 56(2)
Second, where a material term has been omitted from the guarantee, there may be
limited circumstances in which the guarantee will still be enforceable against the
guarantor for example, if the term is for the benefit of the lender, the lender will be
entitled to waive the benefit of the oral term not reduced to writing to enforce the
guarantee as modified (Eg. A waiver to collect interest on the amount owed if details
of the interested are omitted)
Hawkins v Price
The writing must contain an acknowledgement of a concluded agreement.
Pirie v Saunders
Tiverton Estates Ltd v Wearwell Ltd
50

Requirement of writing: signed by party to be charged or agent
To satisfy the statutory provision, the promise or note or memorandum of the promise
must be ‘signed by the party to be charged, or by some other person by the party
lawfully authorised’.
(Upon the debtor’s default, the lender will seek to enforce the guarantee against the
guarantor. Therefore, it is the guarantor who is the party to be charged within the
meaning of the provision. To satisfy the formalities requirement, therefore, the
guarantee must be signed by the guarantor).
Property Law Act 1974 (Qld)
To apply this principle in the context of a guarantee, if the guarantor’s name appears
on the guarantee, and it is the guarantor’s intention that the name authenticates the
document, it will be sufficient to satisfy the statutory requirement.
Durrell v Evans
Contracts relating to land
No action may be brought upon any contract for the sale or other disposition of land
or any interest in land unless the contract upon which such action is brought, or some
memorandum or note of the contract, is in writing, and signed by the party to be
charged, or by some person by the party lawfully authorised.
Property Law Act (Qld) s 59
Nature of contract needing writing
The requirement of formality applies to a contract for the sale of land or any interest
in land as well as a contract for the other disposition of land or any interest in land.
Property Law Act (Qld) s 59
Requirement of writing: content
As was the case for guarantees the document must contain ‘all the essential terms’, is
also relevant to land.
Harvey v Edwards, Dunlop & Co
a) Information particular to the contract
There are four matters that must be recorded to satisfy the statutory requirement in a
contract involving land.
Twynam Pastoral Co v Anburn
51

1. The document must contain the parties to the contract
Williams v Byrnes
As with guarantees, as long as the intention of the parties is clear, extrinsic evidence
may be introduced to establish the identity of the parties.
Rosser v Austral Wine & Spirit Co
2. The property must be adequately described.
Pirie v Saunders
South Coast Oils v Look Enterprises
If the property the subject of the sale is part only of a particular lot, care must be
taken to specifically identify the portion being sold.
Pirie v Saunders
In contrast, if freehold property is sold subject to an existing leasehold and the
leasehold interest is known to the purchaser, there is authority to suggest that the
property is sufficiently described even if there is no reference to the lease.
Timmins v Moreland Street Property Co
3. The consideration for the promise, namely the price, must be recorded
Burgess v Cox
Wain v Walters
4. The principal terms of the contract must be disclosed. (Eg. If the parties
require time to be of the essence, that condition should be included in the
contract).
Failure to include in the document all essential terms might not necessarily be
fatal to the plaintiff, if the term omitted is for the benefit of the plaintiff they may
waive the benefit of clause and seek enforcement of the contract without it.
Petrie v Jensen
b) Acknowledgment of agreement
The writing must contain an acknowledgment of agreement as well as the terms of the
agreement. Such acknowledgement may be expressed or implied in the writing.
Pirie v Saunders
There will be insufficient writing where a contract is made ‘subject to contract’ in the
sense of a condition made before the formation of the contract.
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Darter v Molloy
Requirement of writing: signed by party to be charged or agent
The document must be signed by the party to be charged.
Property Law Act (Qld)
(If there is purported contract for the sale of the land and the seller claims not to be
bound by the agreement, the seller will be the party to be charged for the purposes of
any action brought. Similarly, if the buyer claims not to be bound, the buyer will be
the party charged).
A person may have been taken to sign a document if the signature is absent as long as
the name of the party is placed on the document and that party expressly or impliedly
indicates that he or she recognizes the writing as being an authenticated expression of
the contract. It is sufficient if a person who is duly authorised by the party to be
charged signs the document.
Pirie v Saunders
Joinder of documents
It is possible to satisfy the statutory requirement of writing even if all of the relevant
information is not contained in the one document. A document may be able to be
joined if there is a reference, express or implied, to another document or to a
transaction.
Harvey v Edwards, Dunlop and Co
Reference to a document
Where the document signed by the defendant makes reference to another document,
joinder of that document is permitted.
Tonitto v Bassal
As the document joined in this way is referred to in the document signed by the
defendant, it follows that the joined document will be in existence at the same time
the document is signed by the defendant. There are two exceptions to this general
position.
a) Documents that are physically connected
A document physically connected to the document signed by the defendant may be
joined.
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M’Ewan v Dynon
Where a letter is signed by the defendant and sent to the plaintiff, but the letter does
not, on its own, contain the necessary information, the court will allow the envelope
to be joined to the letter. In this way, there will be a note or memorandum of the
information on the envelope, namely the name of the plaintiff.
Pearce v Gardner
b) Documents that are executed at the same time
.
‘Where two documents relied on as a memorandum are signed and exchanged at one
and the same meeting as part of the same transaction, so that they may fairly be said
to have been to all intents and purposes contemporaneously signed, the document
signed by the party to be charged should not be treated as incapable of referring to the
other document merely because the latter, on a minute investigation of the order of
events at the meeting, is found to have come second in the order of preparation and
signing.
Reference to a transaction.
Where the writing signed by the party to be charged refers to a transaction (rather
than a document), Joinder is allowed and parol evidence may be given to explain the
transaction, and to identify any document relating to it.
Fauzi Elias v George Sahely & Co
Effect of statutory non-compliance: common law
Under common law principles, if a contract fails to comply with statutory provisions
‘no action can be brought’. Therefore if one of the parties refuses to complete a
contract, no action can be taken by the other party to enforce the contract…
Property Law Act (Qld)
…Action cannot be brought for specific performance…
…Or for damages for breach.
Contract valid to pass title
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Although a contract failing to comply with statutory requirements will be
unenforceable, it will be a valid contract. This means that, if the contract is
performed by the parties, it will be effective to pass good title.
Maywald v Riedel
Recovery of money paid under unenforceable contract
a) Recovery of deposit
A deposit paid by a buyer is considered to be ‘an earnest to bind the bargain’. If the
sale is not completed due to the buyer’s default, the deposit is liable to forfeiture to
the vendor. This is the position if the contract is one that complies with or fails the
statutory requirements of formality.
Freedom v AHR Constructions
Where an enforceable contract for the sale of land is not completed because of the
seller’s default, the deposit is recoverable by the buyer as money had and received
upon a total failure of consideration, where the consideration for which it was paid is
the conveyance or transfer that has not taken place. The action is one brought in
restitution, not on the contract.
Fullbrook v Lawes
b) Recovery of amount more than deposit
If the purchaser breaches the contract and refuses to complete the purchase, any
deposit paid may be forfeited. However, it is likely that any amount over and above
that which is deemed to be the deposit could be recovered.
Freedom v AHR Constructions
Other restitutionary claim may still be available
If the contract is unenforceable, it will not usually prevent a claim in restitution for
recovery on a quantum meruit (so much money as the plaintiff deserves to have)
basis.
Pavey & Mathews Pty Ltd v Paul
Effect of statutory non-compliance: equity
Doctrine of part-performance
If parties enter into an oral contract for the sale of land and, relying on that contract,
one party does certain acts, the courts may be prepared to grant that person specific
performance of the contract if four conditions are satisfied.
55

a) Acts are unequivocally referable to some such contract
The acts relied upon by the plaintiff must unequivocally referable to some such
agreement as is alleged between the parties.
Regent v Miller
Maddison v Alderson.
The payment of money alone cannot be regarded as a sufficient act of part
performance.
Maddison v Alderson.
Steadman v Steadman
Cooney v Burns
Giving instructions and the ensuing preparation of documents are unlikely to be
considered sufficient acts of part performance.
Steadman v Steadman
b) Acts done in reliance on the agreement and with knowledge of other party
The plaintiff must show that the acts were done in reliance on the agreement and with
the knowledge of the other parties.
McBride v Sandland
It is not necessary that the acts be required by the contract but the fact that they were
done voluntarily is sufficient.
Regent v Miller
c) Acts done by the party seeking to enforce the contract
The acts of part performance must be by the party who is seeking to enforce the
contract.
King v Grimwood
d) Oral contract must be otherwise enforceable
The plaintiff must be able to show that the contact would have been enforceable had
it satisfied the statutory requirement of writing. The agreement must be concluded
and satisfy the usually contractual requirements for enforceability.
McBride v Sandland
Estoppel
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Alternatively, in appropriate circumstances a party may be estopped from relying on
the Property Law Act
Walton Stores v Maher
Constructive trust
In an appropriate situation, a person can claim an interest in land on the basis of
creation of a constructive trust although there is no writing.
Baumgartner v Baumgartner
Establishing Contractual Terms:
In determining whether written terms form part of the contract the parties, the crucial
issue is whether the parties can be regarded as having assented to the written terms.
Olly v Marlborough Court Ltd
Incorporation by Signature
a) General Rule
When a document containing contractual terms is signed, in the absence of fraud or
misrepresentation, the party signing the document is bound by its terms. It is
immaterial whether the signing party has read the document or not.
L’Estrange v F Groucob Ltd
b) When the Rule is Displaced
The party may not be bound by the terms even though the contract is signed if the
circumstances indicate that the signature does not signify assent. This may be the case
if:
• The person relying on the clause misrepresented its effect.
Curtis v Chemical Cleaning & Dying Co
• The document signed is thought to have no contractual effect.
DJ Hill & Co Pty Ltd v Walter H Wright Pty Ltd
• The person signing can plead non est factum (The mind did not
accompany the signature…no intent). (The person relying on the
defence must show that the document is radically different from the
one he/she thought they were signing. Usually used for blind or
illiterate people).
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Petelin v Cullen
Incorporation by Notice: Unsigned Document
A person is likely to be bound the terms in a written document (not signed by him or
her) if reasonable notice of the existence of the terms has been given, and this notice
was given before or upon contract formation.
a) Reasonable Steps must be Taken by Defendant
Reasonable steps must be taken to give the class of person to which the recipient
belonged, notice of the existence of the term. (This is a question of fact).
Parker v The South Eastern Railway Co
Mendelssohn v Normand Ltd
In determining whether reasonable steps were taken it may be relevant whether the
document was one that would be assumed by a reasonable person to be contractual in
nature.
Causer v Browne
Mendelssohn v Normand Ltd
If reasonable steps are taken it does not matter if the recipient of the notice did not
read the terms or that he or she were unable to read them.
Thompson v London Midland & Scottish Railway Co.
The onus will be on the defendant to demonstrate that the document was not delivered
to the plaintiff as a voucher or receipt, but as a contractual document.
Causer v Browne
b) Reasonable steps taken before or upon contract formation
Reasonable steps must be taken to bring terms to the attention of the plaintiff before,
or at the time of, contract formation.
Thornton v Shoe Lane Parking Ltd
• Effect of Person not being able to Read or Understand Terms
A person who is particularly unworldly, and does not know that a particular document
will contain contractual terms, will still be bound by those terms, providing the issuer
took reasonable steps to bring that fact to the notice of people in general.
58

Incorporation by Notice: Signs
A person is likely to be bound the terms in a sign if reasonable notice of the existence
of the terms has been given, and this notice was given before or upon contract
formation.
a) Reasonable steps taken by the defendant
Reasonable steps must be taken to give the class of person to which the recipient
belonged, notice of the existence of the term. (This is a question of fact).
Balmain New Ferry Co Ltd v Robertson
Olly v Marlborough Court Ltd
If reasonable steps are taken it does not matter if the recipient of the notice did not
read the terms or that he or she were unable to read them.
Thompson v London Midland & Scottish Railway Co.
b) Reasonable steps taken before or upon contract formation
Reasonable steps must be taken to bring terms to the attention of the plaintiff before,
or at the time of, contract formation.
Thornton v Shoe Lane Parking Ltd
• Effect of Person not being able to Read or Understand Terms
A person who is particularly unworldly, and does not know that a particular document
will contain contractual terms, will still be bound by those terms, providing the issuer
took reasonable steps to bring that fact to the notice of people in general.
Incorporation by Notice: Website
The issue is yet to be encountered by the courts by it is likely it will apply the same
principles as the incorporation of terms in an unsigned document or on a sign.
Reasonable steps must still be taken and these steps must have occurred prior to or
upon contract formation.
Incorporation by Reference
Terms contained elsewhere can be incorporated into a contract by reference to those
terms, regardless of whether the document incorporating those terms is signed by the
parties or is a ticket or a sign.
Smith v South Wales Switchgear Co Ltd
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Incorporating oral Terms
Mere Puff
A “puff” is an exaggerated claim about the subject matter that is not intended to be
taken seriously. There is no common law consequences that arise from such sales
talk.
However, an excessive or exaggerated claim/s can now be a breach of statute.
Trade Practices Act 1974 (Cth)
Representation or Term
A statement will be a term of a contract if it is intended to be promissory in nature. A
statement will be promissory in nature if the statement maker warrants its truth.
Oscar Chess Ltd v Williams
Hospital Products Ltd v United States Surgical Corporation
a) Words and conduct of the parties
The words and conduct of the parties can give an indication of intention. (It is
relevant whether the words are promissory in nature as well as the conduct of the
parties that indicate the importance of the statement).
Harling v Eddy
b) Knowledge or expertise of the statement maker
If the party who made the statement is in a better position than the other party to
ascertain the accuracy of the statement, it is probably a term.
Mihaljevic v Eiffel Tower Motors Pty Ltd
c) Statement maker has control in relation to information
A person who has control over the subject matter will be in the position to guarantee
the truth of the statements.
d) Oral statement not reduced to writing
A statement that is made orally but not included when the contract is reduced to
writing may be an indication that the parties did not intend it to be contractual in
nature.
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Routledge v Mckay
All of the previous factors are indicators of intention only. Failure to reduce an oral
statement to writing is not determinative of the matter. As illustrated in:
If an oral statement later becomes part of the written contract, it is likely it was
intended to form part of the contract.
Oscar Chess Ltd v Williams
e) Interval of time
If there is a long interval between making the statement and the conclusion of a
contract, it is probably not a part of the contract.
Routledge v Mckay
Collateral contracts
a) Nature of a collateral contract
A collateral contract is one in which the consideration for a promise is the making of
another contract.
Heilbut Symons & Co v Buckleton
De Lassalle v Guildford
Three elements must be established:
• A statement must be made to induce entry into the contract
• The statement must be relied upon
• The statement relied upon must be promissory in nature.
JJ Savage & Sons Pty Ltd v Blakney
Where the main contract precedes the collateral contract there can be no contract as
past consideration is not good consideration.
Hercules Motors v Schubert
b) Bipartite and tripartite collateral contracts
A collateral contract is bipartite where the parties to it are the same as those who enter
the main agreement.
Shepperd v The Council of the Municipality of Ryde
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A collateral contract may be tripartite where the parties to it are different from the
parties in the main contract.
Wells (Merstham) Ltd v Buckland Sand & Silica Co Ltd
c) Consistency with the main contract
The courts will only recognise a collateral contract if it is consistent with the terms of
the main contract.
Hoyt’s Pty Ltd v Spencer
(There has been criticism of this rule as it does not give effect to the actual intention
of the parties)
In an appropriate case estoppel may apply.
Waltons Stores v Maher
Parole evidence rule
Statement of the rule
When a contract is reduced into writing, and the contract appears in the writing to be
entire, it is presumed that the writing contains all the terms of it and evidence will not
be admitted of any previous or contemporaneous agreement, which would have the
effect of adding to or varying the contract in any way.
Mercantile Bank of Sydney v Taylor
(The rule applies to two aspects: 1. the content of the contract and 2. the interpretation
of contracts…Here the rule applies to the content).
When the rule applies
The rule does not apply when the parties intend a contract to be partly in writing and
partly oral.
Couchman v Hill
Regarding the content of the contract: If the parties intended the contract to be wholly
in writing, parole evidence is not admissible to add to, vary or contradict the writing.
Robertson v Kern Land Pty Ltd
The intention of the parties is construed objectively.
Couchman v Hill
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Exceptions to the rule
a) Evidence of a collateral contract
The collateral contract is a separate contract, therefore the rule preventing evidence
being led to effect the main contract does not apply to it.
De Lassalle v Guildford
b) Evidence that the written contract is not yet in force
Evidence that the contract has not yet commenced operation is admissible, even if the
parties have signed the agreement.
Pym v Campbell
c) Evidence that the written contract was later varied or discharged
Evidence can be led demonstrating that the agreement has been varied or discharged.
Narich Pty Ltd v Commissioner of pay-roll Tax
(The parole evidence rule prevents the introduction of evidence regarding what
happened “before” the agreement was reduced to writing, not evidence that the
parties “later” agreed to change or end it).
d) Evidence to imply a term
The court may hear evidence regarding a term that is one that is implied by the
common law. (This will depend on why the term is sought to be applied).
Summers v The Commonwealth
e) Evidence necessary for rectification
Extrinsic evidence may be allowed to rectify a contract where the agreement can not
be regarded as reflecting the common intention of the parties or a mistake in the
writing of the contract (such as the wrong price recorded unintentionally).
Maralinga v Major Enterprises
NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd
Implied Terms
Terms implied to give effect to the presumed intention of the parties
a) Term implied on the basis of business efficacy
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A term that is either so obvious there was no need to express it, or not thought of by
the parties may be implied by the courts in order to successfully carry out the
contract.
The Moorcock
The following elements must be satisfied before a court will imply a term on the basis
of business efficiency.
• The implication must be reasonable and equitable.
• The implication must be necessary to give business efficacy to the contract so
that no term will implied if the contract is effective without it.
• The term must be so obvious that “it goes without saying”.
• The term must be capable of clear expression.
• The term must not contradict any express term of the contract.
BP Refinery (Westernport) Pty Ltd v Shire of Hastings
Codelfa Constructions Pty Ltd v State Rail Authority of NSW
If the parties have gone to some length to reduce their agreement to writing and to
ensure it reflects their intentions, it is difficult to suggest that the term omitted is so
obvious that it goes without saying.
Ansett Transport Industries v Commonwealth
b) Terms implied from previous consistent course of dealings
If two parties have made a series of similar contracts each containing certain
conditions, and then they make another without expressly without expressly referring
to those conditions it may be that those conditions ought to be implied.
Henry Kendall & Sons v William Lillico & Sons Ltd
Relevant to the assessment are
- The number of dealings between the parties; and
- The consistency of the dealings between the parties.
Horrier v Rambler Motors (AMC) Ltd
Henry Kendall & Sons v William Lillico & Sons Ltd
Chattis Nominees Pty Ltd v Norman Ross Homeworks
c) Term implied from custom or usage
A term can be implied if there is existence of a particular custom or usage that is
recognised as giving effect to the intentions of the parties.
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Sagar v Ridehalge
Con-Stan Industries of Australia Pty Ltd v Norwich Winterhur Insurance (Aust) Ltd
The following elements must be satisfied before a court will imply a term on the basis
of custom or usage:
- The existence of the custom or trade usage is a question of fact.
- The custom or trade usage must be so well known that all parties can
reasonably be assumed to have imported that term into the contract.
- The term will not be implied if it is contrary to the express terms of the
agreement.
- A person may be bound although they had no knowledge of the term
provided the requirements of the second element are established.
Con-Stan Industries of Australia Pty Ltd v Norwich Winterhur Insurance (Aust) Ltd
d) Term implied to complete an agreement
A court may attempt to construct the contract by implying the necessary term in order
to fill in the gaps and complete an agreement.
Hillas (WN) & Co Ltd v Arcos Ltd
Term implied Irrespective of parties intention
e) Term implied as a legal incident of a particular class of contract
Terms may be implied as a matter of law in contracts of a particular class. (Examples
of some of these classes are given at p256 of text).
Liverpool City Council v Irwin
Samuels v Davis
Derbyshire Building Co Pty Ltd v Becker
Although terms of this kind are implied through necessity, the parties may expressly
agree to the contrary.
Byrne v Australian Airlines Ltd
Gemmel Power Farming Co Ltd v Nies
Derbyshire Building Co Pty Ltd v Becker
f) General duty of co-operation
It is an implied term of all contracts that each party agrees to do all things necessary
to enable the other party to have the benefit of the contract.
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Butt v McDonald
The parties may expressly agree to the contrary.
Butt v McDonald
Examples:
• There is a duty to comply with reasonable requests.
Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd
• There is a duty not to impair the basis of the contract.
RDJ International Pty Ltd v Preformed Line Products
• There is a duty to do all thing necessary to enable the agreement to be
completed.
Adelaide Petrolium v Poseidon
g) Implication of duties of good faith, fair dealing and reasonableness
It has been suggested that the courts may be prepared to imply a duty for the parties
to act in good faith in preforming a contract.
Renard Constructions v Minister for Public Works
Butt v McDonald
h) Terms implied by statute
A term may be implied into a contract by a relevant statute. However these terms may
be negatived or varied by express agreement.
Sale of Goods Act 1896 (Qld)
Trade Practices Act 1974 (Cth)
Consumer Credit Code 1994
Hire Purchase Act 1959 (Qld)
Insurance Contracts Act 1984 (Cth)
Etc.
Construction of Terms
Interpreting the meaning of terms
General approach
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Construction of contracts may be seen as involving two activities. Firstly,
ascertaining the meaning of the words used (Question of fact). Secondly, determining
the legal effect of those words (Question of law).
Life Insurance Co of Australia Ltd v Phillips
A document is read as a whole.
George v Cluning
Amalgamated Television Services Pty Ltd v Television Corporation Ltd
The purpose is to construe the document as to produce what it was ultimately
intended for.
Hume v Rundell
Lloyd v Lloyd
The court does its best to give effect to the parties’ bargain.
Hillas & Co Ltd v Arcos Ltd
York Airconditioning & Refrigeration (Australasia) Pty Ltd v Commonwealth
In giving effect to the agreement:
- The court will endeavour to be neither to astute nor too pedantic.
Hillas & Co Ltd v Arcos Ltd
Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd
- The court will steer clear of meanings that are commercially
unworkable or inconvenient.
Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd
The court takes an objective approach to interpretation as that of a reasonable third
parties view point, rather than the subjective or actual intentions of the parties.
Hospital products Ltd v United States Surgical Corporation
Taylor v Johnson
Admissible evidence
a) The Parole Evidence rule
When a contract is reduced into writing, and the contract appears in the writing to be
entire, it is presumed that the writing contains all the terms of it and evidence will not
be admitted of any previous or contemporaneous agreement, which would have the
effect of adding to or varying the contract in any way.
67

Mercantile Bank of Sydney v Taylor
(The rule applies to two aspects: 1. the content of the contract and 2. the interpretation
of contracts…Here the rule applies to interpretation).
When a formal document is conclusive of a contract, its meaning can only be
determined by reference to words in that document.
Gordon v McGregor
Allen v Carbone
b) Factual matrix
When determining the parties intentions, the court may take into account not only the
words recorded in the document but also the evidence of the surrounding
circumstances
Allen v Carbone
DTR Nominees Pty Ltd v Mona Homes Pty Ltd
The evidence of the surrounding circumstances must be known to both parties,
although if facts are notorious the court may presume knowledge of them.
Codelfa Construction Pty Ltd v State Rail Authority of NSW
In a commercial contract it is appropriate for the court to have reference to the
commercial purpose of the contract, which in turn presupposes knowledge of the way
the transaction started, its background, and the context and market in which in parties
are operating.
Reardon Smith Line Ltd v Yengvar Hansen-Tangen
c) Exceptions to the parole evidence rule
• Ambiguity
Cases of obvious or underlying ambiguity. It may not always be safe to assume that
the words of a document will simply carry their plain or ordinary meaning.
White v Australian & New Zealand Theatres Ltd
Hope v RCA Photophone of Australia Pty Ltd
• Identification of subject matter
Extrinsic evidence is admissible to resolve ambiguity about the subject matter of the
contract.
White v Australian & New Zealand Theatres Ltd
Cf. Hope v RCA Photophone of Australia Pty Ltd
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• Identification of parties or their relationship
Extrinsic evidence is admissible to resolve an ambiguity concerning the identity of
the parties of the agreement.
Edwards v Edwards
GR Securities Pty Ltd v Baulkham Hills Private Hospital
It may also be used to resolve an ambiguity concerning the capacity or the
relationship between the parties.
Gilberto v Kenny
• Identification of real consideration
Extrinsic evidence is admissible in order to prove/identify the real consideration
under a contract.
Pau On v Lou Yiu Long
Yaroombe Beach Development Co v Coeur De Lion Investments Pty Ltd
• Custom or Usage
Where the language used has a particular meaning (eg. By custom or usage in a
particular trade, industry or region), evidence of that meaning is admissible, even if
there is no patent ambiguity.
Summers v Commonwealth
Thornley v Tilley
• Rectification
Extrinsic evidence may be admitted to show that a parties’ intention was not
accurately recorded in the written instrument. In the appropriate circumstances the
document may be rectified so that it accords with the parties’ actual agreement.
Maralinga v Major Enterprises
Bacchus Marsh Concerntrated Milk Co Ltd v Joseph Nathan & Co Ltd
Inadmissible Evidence
In particular the following extrinsic evidence is inadmissible:
a) Subjective intention
Evidence of the actual, subjective intentions of the parties is not admissable
69

Life Insurance Co of Australia Ltd v Phillips
DTR Nominees Pty Ltd v Mona homes Pty Ltd
b) Prior negotiations
The negotiations that preceded the agreement are not permitted as it is only the final
document that properly reflects a consensus between the parties.
Prenn v Simonds
Cf. Codelfa Construction Pty Ltd v State Rail Authority of NSW per Mason J.
c) Subsequent conduct
Anything that the parties’ say or do after the contract can not be used in order to aid
in the construction of the contract
Administration of Papua & New Guinea v Daera Guba
Legal effect of words: types of terms
Promissory terms
A promissory term is one pursuant to which a party makes a promise to another party
regarding events that will or will not occur in accordance with the agreement. If the
party fails to carry out the promise, that party will have breached the term. The effect
of the breach depends upon whether the term is classified as a condition, a warranty,
or an intermediate term. Determination of the appropriate term is an objective test of
the parties intention, taking into account their words and conduct.
Bowes v Chaleyer
Associated Newspapers Ltd v Bancks
a) Conditions
A condition is a term that is essential to the performance of the contract. The promise
is of such importance to the promisee that he would not have entered into the contract
without assurance of the performance of the promise, and this ought to have been
apparent to the promisor.
Any breach of this type of term will allow the innocent party to terminate further
performance of the contract and to claim damages for the breach.
L Schuler AG v Wickman Machine Tool Sales Ltd
The fact that a term is described in an agreement as a condition, is persuasive not
conclusive.
70

If damages alone seem to be an inadequate remedy, the courts may be persuaded to
construe a term as a condition.
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd
Associated Newspapers Ltd v Bancks (Regarding essentiality)
The courts may be influenced to construe a term as a condition if a particular
construction leads to an unreasonable result.
Associated Newspapers Ltd v Bancks (Regarding essentiality)
 The statutory position.
In legislation relating to the sale of goods, it is implicit in the drafting that a
breach of condition in a contract for the sale of goods will have the same effect as
a breach of condition under the common law.
Sale of Goods Act 1896 (Qld) s.14 (2)
b) Warranties
A warranty is a term that is subsidiary to the main purpose of the contract, a breach of
which only entitles the innocent party to damages.
Bettini v Gye
Ellul v Oakes
 The statutory position.
An agreement with reference to goods which are the subject of a contract of sale
but collateral to the main purpose of such contract, the breach of which gives rise
to a claim for damages but not the right to reject the goods and treat the contract
as repudiated.
Sale of Goods Act 1896 (Qld) s.3
It has also been suggested that this test might also apply at common law.
c) Intermediate or innominate terms
An intermediate term is once that stands between a condition and a warranty and
cannot be satisfactorily classified as either.
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Ankar Pty Ltd v National Westminster Finance (Australia) Ltd
Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd
It may be defined as a term capable of a variety of breaches, some serious some
trivial.
Bunge Corporation New York v Tradax Export SA (Panama)
The remedy for the breach of an intermediate term varies according to the severity of
the breach.
If the breach deprives the innocent party of substantially the whole of the benefit of
the contract, then the innocent party will be entitled to terminate the contract.
If the effect of the breach is not significantly serious, the innocent party will only be
able to claim damages
The court must first ascertain the intentions of the parties in order to categorise the
term. If the court decides it is an intermediate term it then determines the gravity of
the breach
Bunge Corporation New York v Tradax Export SA (Panama)
In order to determine the seriousness of the breach a number of matters may be taken
into account:
- The degree of performance up to the breach compared to the
performance required under the contract.
- Whether damages will adequately compensate the lost expectations of
the innocent party.
- Whether the expectations of the party in breach would be unfairly
prejudiced by terminating the contract.
- Attitude and conduct of the party in breach including the likelihood of
the breach persisting
The decision in Hong Kong Fir Shipping case also applies to a contract for sale of
goods.
Cehave NV v Bremer Handelgesellschaft mbH
Contingencies
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Since a contingency clause may be able to be construed as either a condition
precedent or a condition subsequent the essential question is what effect does the
contingency have on the contract.
Perri v Coolangatta Investments Pty Ltd
Under appropriate circumstances a party may be estopped from relying upon a
contingency.
Condition precedent
A condition precedent is a condition that will prevent a contract from coming into
existence until such time as the condition is fulfilled.
Perri v Coolangatta Investments Pty Ltd
Condition subsequent
A condition subsequent is a condition within a contract that has taken effect. However
the performance of the contract is prevented until the condition is fulfilled.
Meehan v Jones
Clauses such as “subject to finance”, “subject to rezoning” or “subject to town
planning approval” are conditions subsequent.
Meehan v Jones
A party may waive a condition subsequent that is solely for their own benefit
Meehan v Jones
If the clause is for the benefit of both parties, either may be able to terminate. Such a
clause may only be waived with the consent of both parties.
Raysun v Taylor
Where a clause provides for the a contract to be rendered void on the occurrence or
non-occurrence of an event, and the event is out the control of both parties, the
contract may be automatically ended if the event occurs.
Carpentaria Investments Pty Ltd v Airs
A clause such as “subject to contract” is usually categorised as a condition precedent
but it will depend on the intention of the parties
Exemption clauses
There are three main types of exemption clauses:
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1. A complete exclusion of a parties liability
Eg. Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty Ltd
2. A limitation to the extent of liability to a particular maximum amount.
Eg. Darlington Futures Ltd v Delco Australia Pty Ltd
3. Liability may be subject to certain preconditions, such as the commencement
of any suit or the giving of notice of a default within a certain time.
Eg. New Zealand Shipping Co Ltd v A N Satterthwith & Co Ltd
The court must apply the same rules of interpretation regardless of the kind of
exclusion.
Darlington Futures Ltd v Delco Australia Pty Ltd
Exemption clauses may involve the determination of two separate issues:
• Whether the clause forms part of the contract
(This is covered earlier in “Incorporating Written Terms”).
• Whether, on the true construction of the clause it covers the liability that has
arisen.
An exemption clause is determined by construing the clause according to its natural
and ordinary meaning, read in light of the contract as a whole.
Specific rules of construction
There are also a number of specific rules of construction that help to interpret an
exemption clause.
Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty Ltd
a) The Contra Proferentem rule
An exemption clause will be construed according to which parties benefit the clause
was inserted for in case of ambiguity.
b) Attempts to exempt negligence
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A clause will relieve a party of liability for negligence of their own or the servants or
agents, if it expressly or impliedly covers such liability. A term will cover such
liability if there can be no ground of liability other than negligence to which it could
refer.
• Rules regarding attempts to exempt negligence
The Privy Council in stated the following rules in: -
Canada Steamship Lines Ltd v The King
i) Express exclusion is effective.
ii) Where the “only” possible cause of action against the defendant is
an action for damages based on negligence, then the court will interpret a
“wide” clause to cover the defendant’s liability for negligence.
Alderslade v Hendon Laundry Ltd
iii) If the words used in the clause are wide enough to cover negligence, but there
is some other ground of liability other than negligence, the clause will be read
as applying only to that other ground of liability and will not operate to
exclude the claim for negligence.
White v John Warwick & Co Ltd
For the first rule to apply it there would have to be the use of the word negligence or a
close synonym.
Smith v South Wales Switchgear Ltd
c) The four corners rule
A person can only rely on the conditions of a contract, that were intended to protect
them, if they have carried out the contract in the way that they had contracted to do.
Council of the city of Sydney v West
Davis v Pierce Parking Station Pty Ltd
In Queensland the court has no power to disallow an exemption clause on the basis
that it is unreasonable.
Faramus v Film Advertises’ Association
75

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