Professional Documents
Culture Documents
Offer
Bilateral contracts Unilateral contracts Offers to the public at large Page 9 Page 9
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
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Acceptance
Requirements of acceptance Acceptance must correspond to offer - Offeree must have knowledge of and act in reliance to an offer
A counter offer is not acceptance Acceptance must be unqualified Mere enquiry does not constitute acceptance Page 16
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
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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
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Consideration
Nature of consideration - Consideration in bilateral contracts Page 23
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Remedies
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 Pinnels 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
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Equitable Estoppel
Elements of estoppel - Assumption of expectation - Encouraged or induced - Reliance - Knowledge or intention - Detriment - Failure to avoid detriment Page 38 Page 39
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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
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Page 50 a) Information particular to the guarantee b) Acknowledgement of the agreement 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
Incorporatio n 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 Incorporatio n of notice: website Incorporatio n by reference
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b) B i p a r t i t e a n d t r i p a r t i t e c o l l a t e r a l c o n t r a c t s
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Page 59 Page 59 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 - Collateral contracts a) Nature of a collateral contract
c) Consistency with the main contract Page 61 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 Page 62
Construction of terms
Interpreting the meaning of terms - General approach - Admissible evidence a) The parole evidence rule b) Factual matrix Page 59
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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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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. Australian Woollen Mills Pty Ltd v The Commonwealth
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. Carlill v Carbollic Smoke Ball Company 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
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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 offerors 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.
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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
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 Carlills case
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b) Meaning of instantaneous Communication Face to face communication, telephone conversations and telex messages are all considered forms of instantaneous communication. Entores L D v Miles Far East Corporation Reese Bros Plastics Ltd v Hammon-Sabelco Australia Pty Ltd
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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 thats 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)
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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
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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
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. 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
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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.
Severance
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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
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. Booker Industries Pty Ltd v Wilson Parking Qld Pty Ltd
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
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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
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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.
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. Masters v Cameron.
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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. (eg. parties who pool funds to enter a competition in one persons 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 29
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
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
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
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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
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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
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 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 anothers detriment may be enforced by that other despite the lack of consideration. 32
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
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 Bagots 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
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
White v Bluett
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 creditors 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 creditors promise, Pinnels 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
The rule in Pinnels 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 creditors 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
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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 creditors 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 Pinnels case. Hirachand Punamchand v Temple Composition with creditors
Under a composition with creditors 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 plaintiffs knowledge might affect the validity of the claim. Hercules Motors Pty Ltd v Schubert
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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). Waltons Stores (Interstate) Ltd v Maher 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 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. Waltons Stores (Interstate) Ltd v Maher
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.
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Thompson v Palmer Waltons Stores (Interstate) Ltd v Maher 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. Waltons Stores (Interstate) Ltd v Maher 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). 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. Waltons Stores (Interstate) Ltd v Maher
Detriment
The relevant detriment is that of the plaintiff, not the defendant. Gobblers Inc Pty Ltd v Stevens
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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
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. 41
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. Waltons Stores (Interstate) Ltd v Maher 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
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
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: 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.
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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 beneficiarys solicitor. Re Davies Provided the beneficiarys 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 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.
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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.
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. Teheran Europe Co Ltd v St Belton (Tractors) Ltd
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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 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 defendants 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.
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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
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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
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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 b) Acknowledgement of the agreement The writing must contain an acknowledgement of a concluded agreement. Pirie v Saunders Tiverton Estates Ltd v Wearwell Ltd
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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
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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 Tiverton Estates Ltd v Wearwell Ltd 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. Tiverton Estates Ltd v Wearwell Ltd Darter v Molloy
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. MEwan 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. Timmins v Moreland Street Property Co
Reference to a transaction.
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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
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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
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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
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
Incorporation by Signature
a) General Rule
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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. LEstrange 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 signatureno 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).
Petelin v Cullen
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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. Parker v The South Eastern Railway Co
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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. Parker v The South Eastern Railway Co
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
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). 59
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. Hospital Products Ltd v United States Surgical Corporation 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. 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: Hospital Products Ltd v United States Surgical Corporation 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.
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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 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. Hoyts 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
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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 contractsHere the rule applies to the content).
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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 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.
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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. 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
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. 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.
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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
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.
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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. Mercantile Bank of Sydney v Taylor (The rule applies to two aspects: 1. the content of the contract and 2. the interpretation of contractsHere 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
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the transaction started, its background, and the context and market in which in parties are operating. Reardon Smith Line Ltd v Yengvar Hansen-Tangen Codelfa Construction Pty Ltd v State Rail Authority of NSW 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 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. 68
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 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 Codelfa Construction Pty Ltd v State Rail Authority of NSW
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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. Associated Newspapers Ltd v Bancks 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. L Schuler AG v Wickman Machine Tool Sales Ltd 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. L Schuler AG v Wickman Machine Tool Sales Ltd 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.
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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. Associated Newspapers Ltd v Bancks 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. 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 Associated Newspapers Ltd v Bancks Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd 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:
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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
Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd The decision in Hong Kong Fir Shipping case also applies to a contract for sale of goods. Cehave NV v Bremer Handelgesellschaft mbH
Contingencies
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
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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: 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.
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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. Darlington Futures Ltd v Delco Australia Pty Ltd
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 defendants 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
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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. Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty Ltd 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
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