Contract Law “A contract is a legally binding promise or agreement. The person (or persons) who make a promise is termed the ‘promisor’. The person (or persons) to whom the promise is made is termed the ‘promisee’.” What is a contract?
Legally binding promise or agreement. The person who makes a promise is termed the ‘promisor’. The person whom the promise is made is the ‘promisee’. (TB, p5) ‘A contract is a promise or a set of promises for the breach of which law gives a remedy, or the performance of which the law in some way recognises as duty. (TB, p5) ‘A contract is an effective assumption of legal contractual obligation. (TB, p14)
There are several factors for a contract to be effective: -
Offer Acceptance Consideration Certainty Intention Capacity
Contract law aims at providing an institutional basis for arrangements made for the transfer of land, goods, and services There is an “institutional basis” that includes not only the fact that contract law comprises various doctrines but also the fact that society provides an institutionalised system for the enforcement of contracts Contract law holds the principle of freedom to a high regard – all “arrangements” that are referred to are consensual arrangements. Doctrine of freedom of contract – “1) Contracting parties should be free to agree to whatever agreement they wish; and 2) people should be free to decide to enter into contracts with whoever they please and should not be compelled to enter contractual relationships”
Theories to explain contract law: The will theory – representation of the will of the contracting parties The bargain theory – suggests that contracts are binding because they represent a bargain made between the parties. Doesn’t explain contracts where the parties have exchanged something valuable The promise theory – the belief that contracts are established on the moral principle that people ought to do what they promise. However this is not rational The reasonable expectations theory – there should be a reasonable expectation that the promise will be performed – fails to look at the rationale of all cases. The reliance theory –a contract is formed when one party has relied on ta promise made by another and the reliance has resulted in a detriment
The consent theory – there must be a manifestation of the consent of the transferring party o However, none of these theories offer a complete explanation as to why contracts are enforced
Types of contracts:
A contracted expressed as a sealed instrument is a ‘deed’ TB pg 7. A ‘special contract’ is a contract under seal All other contracts are simple contracts – one that is supported by consideration Also, note that contact can be ‘unilateral’ or bilateral. A contract is said to be ‘unilateral’ is there is only one promisor. However, if there is more than one promisor the contract is ‘bilateral’ or ‘multilateral’.
The doctrine of Freedom of Contract -
The doctrine of freedom of contract is central to CL and holds: ‘(1) Contracting parties should be free to agree to whatever agreement they wish; and (2) people should be free to decide to enter into contracts with whoever they please and should not be compelled to enter contractual relationships (TB, p6-7).
Critiques of the doctrine of Freedom of Contract -
The doctrine of freedom of contract has been critiqued because its underlying assumptions do not account for structural power imbalances in society. ‘ The ability to a free to whatever terms the parties wish is only valid if the assumption behind the concept of freedom of contract is valid. The assumption, of equal bargaining positions, is simply not valid in most customer contracts.’ (TB, p7)
Inroads into the doctrine of Freedom of Contract -
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Criticisms that the doctrine of freedom of contract operated unjustly in certain situations due to inequality of bargaining power led to the development of some inroads in order to give greater protection to the party with the weaker bargaining power in some types of contracts. E.g. Consumer Protection legislation such as the Australian Consumer Law (which contains provisions about unfair contract terms, consumer guarantees, product safety, misleading and deceptive conduct and unconscionable conduct. (TB, p27)
Bringing a contract to an end -
There are numerous ways for a contract to come to an end. E.g. where the party has failed to perform their obligation under a contract they will have breached the contract and may be entitled to an award of damages (provided that certain elements are satisfied). The type of damages awarded will depend upon the nature of the term breached. For the purpose of damages, contract law classifies terms as conditions (very
serious), warranties (less serious) or intermediate terms (terms which could cover a range of consequences some of which are serious and others trivial). These are important to determine the award for parties. Remedies -
When a contract is not brought to an end simply by the parties performing their contractual obligations there are a range of remedies that may be pursued depending on the circumstances. Remedies include: Damages: a form of monetary compensation where the object is to compensate not to punish the breaching party. Awarded provided that certain elements are satisfied. Specific performance: a discretionary equitable remedy where a court orders a party to perform their contractual obligation provided that certain elements are satisfied. - Injunction - Rescission - Restitution
Formation of a contract: 1. Offer
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Offer: An expression of willingness to contract on the terms stated. Offeree: The person to whom the offer is made. Offeror: The person who makes an offer. Offer and Acceptance are the traditional approaches in determining whether parties who were contemplating entering into a contract have passed the stage of negotiating and concluded an agreement The law of contract will enforce obligations where there has been agreement between parties. Absent of agreement, there can be no contract. (Gibson v Manchester City Council) The courts are looking for consensus ad idem- a meeting of the minds between two parties. The traditional analysis is to ask: has there been an offer made by on party to be bound by terms of a contract is accepted by another? Besides offer and acceptance, the necessary elements of an enforceable contract are: i. An intention to create binding legal relations ii. Consideration Offer and acceptance are a means of analysing the process of negotiation to decide whether and when a contract has been made and what therefore constitutes its terms.
Key principle is that an offer is an expression of willingness to contract on the terms stated in the offer. Whether there is an offer depends on whether a reasonable person in the position of the offeree would consider that an offer was made. Question of intention-determined objectively. Agreement: What is an offer?
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Any proposition is an offer if it shows a party’s intention to be legally bound immediately upon acceptance of the proposal. Such an intention is met where an offer has been made in clear and unequivocal terms. (Gibson v Manchester City Council) An offer can be made by words and/or conduct. The existence of an offer is ascertained by asking whether a reasonable third party would conclude an offer had been made. This objective test takes into account: The express conduct or words used by the parties rather than their subjective intentions. Whether the terms are complete enough so that acceptance is enough to constitute a contract. An offer must be communicated to the offeree and received, otherwise the offer is ineffective. Thus, one cannot receive an offer from a third party; offeror or an authorised agent of offeror to offeree must communicate offer. However, it is not necessary for an offer to be made to be a specific person or a glass or group of people. An offer can be made to ‘all of the world’, in which case the offeree is regarded as a member of the general public. (Carlill v Carbolic Smoke Ball Co) When an offer is made, the terms of the proposed contract must be communicated to the offeree. However, an offer can be made in general terms, leaving the precise terms of the contract to be settled later. The facts that the word ‘offer’ is used is not itseld conclusive (B Seppelt & Sons Ltd v Commissioner for Main Roads) An offer must be distinguished from an ‘invitation to treat’, which can be described as any part of the negotiation process that invites further bargaining, rather than acceptance.
Australian Woollen Mills P/L v Commonwealth (1954) Facts: In June 1946 the Commonwealth Government announced that it would pay a subsidy to manufacturers of wool who purchased and used it for local manufacture after 30 June 1946. The Plaintiff purchased and used wool for local manufacture between 1946-48 and received some payments. The Government subsequently stopped its subsidy scheme and the Plaintiff sued the Government for subsidies it claimed it was due. Plaintiff argued: (1) There was a contract between it and the Government under which Commonwealth promised to pay subsidies if wool was bought for domestic consumption/manufacture. (2) The plaintiff made purchases of wool in pursuance of the agreement. Held There was no contract. The statement made by the Commonwealth was not offered as consideration for the plaintiff buying the wool. There must be a relationship of quid pro quo between the statement and the Act. Here there was no promise offered in consideration of doing an act.
Buying the wool was merely a condition precedent to entitlement to the subsidy. It was not intended as the consideration for a promise to pay the subsidy. In this respect the Court also noted that there was no offer or request or invitation to purchase wool or anything else suggesting that ‘payment of subsidy and the purchase of wool were regarded as related in such a way that the one was a consideration for the other.’ The Court also concluded that there was no intention on the part of the government to create legal relations; it was instead a government scheme to promote industry. In this respect the Court noted that ‘It is of the essence of contract … that there is a voluntary assumption of a legally enforceable duty. … It is necessary that what is alleged to be an offer should have been intended to give rise, on the doing of the act, to an obligation.
Carlill v Carbolic Smoke Ball Co -
Unilateral contract – where the offer contemplated the doing of an act
Facts
The defendants were the proprietors and vendors of a pseudo-medical preparation called “The Carbolic Smoke Ball” Plaintiff bought a smoke ball as per the ad and used it over 8 weeks unfortunately she contracted the flu She sued the defendants as per the ad she was entitled to 100 pounds The defendant appealed – principle matter of the case was whether or not the ad was a matter of the law, an offer
Issues Lindley LJ The advertisement was more than a “mere puff” on the basis that 1000 pounds was deposited with the Alliance Bank. An offer can be made to all of the word, and can be accepted by performance of the conditions. As a general proposition, when an offer is made it is necessary that acceptance must be notified in order to constitute a binding contract. But a person may show “by his language and from the nature of the transaction that he does not expect and does not require notice of the acceptance” Bowen LJ A court will look at who was intended to read the offer and what a reasonable person would understand it as saying An offer may be made to all the word, which will “ripen into a contract with anybody who comes forward and performs the condition” Acceptance of an offer ought to be notified to the person who makes the offer, but the person who makes the offer may dispense with the notice requirement Key points: The terms of an offer are determined objectively An offer must be more than a “mere puff” An offer can be made to all the world An offeror can prescribe the mode of acceptance Does one who makes a unilateral offer for the sale of goods by means of an advertisement impliedly waive notification of acceptance, if his purpose is to sell as much product as possible? Principle issue” whether the advertisement was, as a matter of law, an offer. Outcome on Issue On the issue of whether there was a valid offer: The Company argued that the ‘promise’ was not made to anyone in particular. The Court, however, held that this was not a 'contract with the world' (which would not be practicable) but was simply an offer to the world capable of becoming a contract with anyone performing the stipulated conditions. The Court also
rejected the Company's claim that their advertisement constituted a mere 'puff' and was not intended to be promissory. The Court was assisted in this regard by the stipulation in the Company's advertisement that a bank deposit of £1,000 had been made as a demonstration of sincerity. On the issue of communication of acceptance: Lindley LJ: ‘Unquestionably, as a general proposition, when an offer is made, it is necessary in order to make a binding contract, not only that it should be accepted, but that the acceptance should be notified.’ In this case, however, it was not necessary to notify of acceptance prior to performing the requisite acts the language of the offer showed the Company had waived the need for notification. Bowen LJ also made it clear that the ordinary rule was that acceptance ‘ought to be notified to the person who makes the offer, in order that the two minds may come together.’ However, as ‘notification of acceptance is required for the benefit of the person who makes the offer, the person who makes the offer may dispense with notice’ if he wishes or to stipulate a preferred method of acceptance. If the Offeror (in this case the Company) expressly or impliedly indicates that it will be sufficient to perform the acts requested in the offer without communicating that to him, then ‘performance of the condition is a sufficient acceptance without notification.’ In most advertising cases, including this one, the inference in the advertisement is that ‘a person is not to notify his acceptance of the offer before he performs the condition, but that if he performs the condition notification is dispensed with.’ On the issue of consideration: There was consideration. Consideration was the benefit of sales to the promisor and the inconvenience Mrs. Carlill suffered at the request of the promisor (although the Court said that it would be sufficient if Mrs. Carlill suffered the detriment from using the smoke ball as directed even if the Carbolic Smoke Ball Co received no benefit). Outcome Appeal was dismissed – Ms Carlill was entitled to be paid 100 pounds
Commentary -
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In Carlill the contract was unilateral contract - a one-sided agreement whereby you promise to do (or refrain from doing) something in return for a performance (not a promise)., and the offer took the form of a promise in return for the doing of an act rather than in return for a counter promise. However, in some cases the making of a counter promise will be inferred from the doing of an act called for by the Offeror. Such a contract is bilateral.
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern Ltd) Question of whether a person who sells goods on a ‘self serve’ basis makes an offer by displaying the goods for sale Facts
Boots operated a self-service shop in one part of which certain drugs were displayed.
Issues
When a customer chose goods, he or she put them in a wire basket and took them to an attendant at the cash register at one of the shop’s exists. Whenever a customer took drugs to the cash register the pharmacist supervised that part of the transaction.
Somervell LJ: In the case of an ordinary shop, it is intended that customers should go and choose what they want, and the contract is not completed until after the customer indicates the goods that he or she needs and the shopkeeper accepts that offer. Key points: An invitation to treat is not an offer
Outcome
In favour of the defendants – appeal was dismissed
MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) (1975) 133 CLR 125 Issue
Whether an airline ticket issued by MacRobertson Miller was chargeable with stamp duty as an ‘agreement’ The airline’s practice was first to quote the fare and availability of seats and then to issue a ticket in return for the fare (invitation to treat- still the common way when dealing paper tickets/ travel agents) The ticket contained a condition giving the airline the right to cancel a flight or cancel a booking without incurring any liability The High Court unanimously held: a ticket did not record the terms of an agreement, rather the terms of an offer which was subsequently accepted by conduct i. ii. iii. iv.
Airline- Invitation to treat Passenger- Payment (Not strictly an offer) Airline- Ticket (the offer- contains terms of the K) Passenger- Able to accept or reject once had reasonable opportunity to read the conditions
Slightly different reasoning behind the decision: Barwick CJ:
The arrangement was similar to a unilateral K The passenger made the offer which could be accepted by conduct
If the airline carried the passenger, then the airline would be entitled to retain the fare as a reward If the passenger was not carried, the airline incurred no obligation other than to refund the fare On that basis, there were no Contractual obligations between the airline and the passenger until the airline provided the passenger with a seat on the plane
Jacobs J
Agreed with Stephen J- formation of K could not
precede the notification of special conditions The ticket simply recorded the terms of an offer made by an airline
Stephen J:
B Seppelt and Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147
Adopted the conventional analysis in ‘ticket cases’ The ticket constituted an offer by the airline The passenger could accept or reject once has had reasonable opportunity to read the conditions The ticket therefore records the terms of the offer (the offer)
Plantiff negotiated with the defendant for the sale of land in which D needed in connection with the construction of a proposed freeway. A number of letters passed between the parties. Attention focused on a letter from the commissioner-dated 5.3.1974, which referred to the possible sale on terms set out in the letter.
Duration of Offers
Three main principles applicable to the duration of offers: 1. Offer may be withdrawn at any time before the acceptance, even if the offer is stated to remain open for a definite period of time 2. Revocation of an offer must be communicated to the offeree (the postal rule doesn’t apply to revocation of an offer in a letter) o Technique in applying these principles is to distinguish between an offer not supported by consideration from which one has been purchased, known as an ‘option’ – that cannot be withdrawn prior to its expiry 3. Rejection of an offer or the making of a counter offer revokes an offer.
Dickinson v Dodds Facts
On 10 June 1874 Dodds delivered to the plaintiff, “I hereby agree
Issues
Outcome on the Issue Rule of Law
Held
to sell to Mr George Dickinson {property} for the sum of 800 pounds – this offer to be left over until Friday, 9am 12th June 1974” On Thursday Dickinson was informed that Dodds was selling that property to Allan He then went and delivered a formal acceptance letter to Dodd’s house where his mother in law took it; she forgot to give this to Dodds Dodds entered a formal contract with Allan and claimed that Dickinson was too late – Dickinson sought specific performance Bacon VC held that there was a binding contract to Dickinson, ordered special performance and made a declaration that Allan had no interest in the property Dodds and Allan appealed Issue of whether Dickinson had agreed to purchase the property – whether the acceptance of Dodd’s offer was given on time and whether Dodd’s had effectively revoked the offer The appeal would be allowed if Dodds revoked the offer and communicated revocation Things to be considered: - What is revocation? - The point that revocation can take place prior to expiry - The question of when indirect communication is sufficient Dependent on whether his acceptance of Dodd’s offer was given in time. Promises to keep an offer open until a certain time will be only a promise unless made by binding by consideration and acceptance necessary to form a binding agreement. The offer to be held open until Friday 9 o’clock was only an offer that was not supported by consideration or acceptance by Plaintiff. There was no binding agreement to keep the property unsold until 9 o’clock Friday morning.
Concurrence. The other party was free to make a more favorable offer to Defendant, which he was free to accept. There was no binding agreement between Defendant and Plaintiff since Plaintiff had not accepted the offer. In addition, it was questionable whether Plaintiff could accept at all once he had knowledge that the person had sold the property to someone else.
Outcome
Offer can be withdrawn anytime before acceptance - Appeal was dismissed
Goldsbrough Mort and Co Ltd v Quinn Facts
On 8 February John Thomas Quinn and Goldsbrough agreed that in consideration of 5 shillings, G had the right to purchase land from Quinn
within 1 week and on the exercise of that option, agreed to transfer the whole of the land to G. Quinn subsequently revoked the offer G accepted the offer within the week (but after the “revocation”). Issues
Griffiths CJ: An offer may be withdrawn at any time before acceptance. In this case, it was not a mere promise, but a contract for valuable consideration (an ancillary contract). G was bound in contract to keep the offer open. Isaacs J Unsupported by valuable consideration, the “offer” was a mere promise and could be withdrawn. The consideration ensured the continuance of the offer, by “creating a relation in which the law forbids the offeror retracting it”
Outcome
Key Points An offer can be withdrawn at any time before acceptance Where there is consideration for an offer, it cannot be withdrawn Appeal was allowed – the appellants were allowed to an order for specific performance
Australian Woollen Mills Pty Ltd v Commonwealth (1954) Facts In June 1946 the Commonwealth Government announced that it would pay a subsidy to manufacturers of wool who purchased and used it for local manufacture after 30 June 1946. The Plaintiff purchased and used wool for local manufacture between 1946-48 and received some payments. The Government subsequently stopped its subsidy scheme and the Plaintiff sued the Government for subsidies it claimed it was due.
Issues
The facts of this case are somewhat involved, but in essence, the Australian Govt announced a subsidy scheme to maintain the price structure in the wake of the Second World War. The plaintiff claimed to have made purchases of wool "in pursuance of the said agreement", that is, under the subsidy scheme, but the Government refused to pay the subsidy. The plaintiff argued that a contract had been formed by the offer of a subsidy by the Government that offer being accepted by the doing of an act by the plaintiff, that is, buying the wool. The Court criticised the use of the word unilateral in respect of this type of contracting, but commented that the alleged contract
Conclusion
here was of the promise for an act type of contract. The court said that one needs a quid pro quo the statement and actreferred to must exist in a clear relationship to each other. The doing of the act must be based upon the promise - not merely coinciding with it. Eg, if A says to B "I will pay you $100 on your arrival in Sydney" B could not necessarily enforce the promise on arrival. It may be that B was planning to go to Sydney anyway and did not act in response to the offer. There must have been a voluntary assumption of a legally enforceable duty, so that the offer should have been intended to give rise to a legal obligation. Without such an intention, no "offer" so-called can lead to a contract. A test which has often been applied is to ask whether there has been a request by the alleged promisor that the promisee do the act on which the latter relies. The request may be express or implied. Was the promise in this case in the nature of a request EXPRESSED or IMPLIED? It is impossible to say that there is a contract binding on the Commonwealth. Here, the announcements were not from commercial motivation, but from a Government trying to deal with the aftermath of war - public money is involved. If there was an intention to create a legal obligation, one would have expected statutory authority to be sought. One has to look at the context in which the documents arose they cannot be seen as a standing offer - capable of acceptance by the act of purchase. The subsidy was not a request, invitation or an inducement to purchase wool. There was nothing to suggest that the subsidy and purchase of wool were related, no quid pro quo. Held There was no contract. The statement made by the Commonwealth was not offered as consideration for the plaintiff buying the wool. The Court stated that in cases such as this: ‘… it is necessary, … that it should be made to appear that the statement or announcement which is relied on as a promise [here the subsidy statement] was really offered as consideration for the doing of the act, and that the act [buying and using the wool as directed] was really done in consideration of a potential promise inherent in the statement or announcement.’ There must be a relationship of quid pro quo between the statement and the Act. Here there was no promise offered in consideration of doing an act.
Appeal was dismissed
MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) (1975) 133 CLR 125 Facts
Issues
Conclusion
A person wishing to fly on MacRobertson Miller Airline Services was told what seats were available and the fare. Passenger was handed a ticket in return for the fare Passenger presented the ticket to board the flight Airline reserved the right to abandon any flight, or cancel any ticket or booking. Passenger would be entitled to a refund equal to the proportion of the cancelled flight. Airline was under no other liability to the passenger for failure to carry her or him at the scheduled time.
Barwick CJ Where a ticket does not contain a promise to carry a passenger on a specified flight, there is no contract until the airline has provided the passenger with a seat on the plane. Stephen J The ticket is an offer, the contract being made upon acceptance of that offer by the passenger, usually by conduct. Acceptance may be: an overt act consistent only with acceptance (eg. boarding the plane); or the passenger’s failure to reject the offer after he has had an opportunity of learning the conditions upon which carriage is offered (but see Felthouse v Brindley) What will be a reasonable time within which to reject proffered terms will be a question of fact in every case Key points: Where there is no promise contained on the ticket, the ticket for carriage is an offer Acceptance does not occur when ticket is purchased, but at some time afterwards (depends on the facts of the case)
Gibson v Manchester City Council [1979] 1 WLR 294 Facts
In 1970, Manchester City Council adopted a scheme that allowed tenants to purchase their homes MCC circulated a brochure to tenants On 28 November 1970, Mr Gibson filled in an application attached to the brochure On 10 February 1871, Council wrote to Mr Gibson stating the
Issues
Conclusion
purchase price of the house. Gibson completed an application form (leaving the purchase price blank) and returned it to the council. Before formal contracts were prepared, Council resolved to abandon the scheme and would complete only sales for which binding contracts had been completed. Lord Diplock There may be exceptional circumstances that do not fit into the normal analysis of a contract being constituted by offer and acceptance Saw no reason in this case to depart from the conventional approach of offer and acceptance Found that there was no firm offer There can be no acceptance without an offer Key points: Use the classical analysis of offer/acceptance except in exceptional circumstances A contract cannot be formed unless there is a firm offer Acceptance must be in response to an offer
Mobil Oil Australia v Wellcome International (1998) 81 FCR 475 Facts
Issues
Mobil operated a franchise scheme known as the Circle of Excellence GM for Retail Marketing told franchisees that Mobil wanted to implement a scheme whereby a franchisee who: achieved a score of 90% or better would receive a free year Achieved a score of 90%+ in each of the 6 years following 1991, would be granted a 9 year renewal for free A videotape of this address was sent to all franchisees, and also communicated in brochures Several franchisees commenced to improve their services on the basis of this information. In 1994, Mobil announced that it would not grant renewals free of charge
Lockhart, Lindgren and Tamberlin JJ Was there an offer? Too vague and uncertain to give rise to contractual obligations If there was an offer, could it be revoked? Traditionally understood that an offeror is not at liberty to revoke the offer once the offeree embarks upon the act of acceptance This approach was questioned – concluded that there is no universal proposition that an offeror is not at liberty to revoke the
Conclusion
offer once the offeree embarks upon the act of acceptance The absence of a universal rule does not result in unfairness – may be an implied ancillary contract not to revoke the offer. Key points: The offer must be sufficiently certain In unilateral contracts, commonly understood that offer can’t be revoked once acceptance has commenced, but this is not a universal rule and depends on the facts
Stevenson Jacques and Co v McLean (1880) 5 QBD 346 [3.82] Facts
The defendant held documents of title to certain quantities of iron and offered to sell them to the plaintiff for 40/- cash, indicating that the offer would be held open until the following Monday. The plaintiff was a broker and would only buy once they had lined up a buyer to take from them. On Monday at 9:42am P sent a telegram to D sounding out what flexibility there might be to negotiate before the days trading got under way. The market was unstable and P wanted to know the negotiating range. "Please wire whether you would accept 40 for delivery over 2 months, if not, longest time limit." There was no response from D and P later purported to accept the original offer. D claimed that the acceptance was not effective as their telegram had rejected the offer by way of counter-offer. HELD This case should be distinguished from Hyde v Wrench (1840). In that case D had offered his estate for £1000. P offered to pay £950. When this was refused, P then purported to agree to pay the full £1000. P could not claim the estate, because his original counter-offer had put an end to D's offer. Here, the telegram was not a counter-proposal, but a mere inquiry "which should have been answered" [morally or legally?]. It was not as a rejection of the offer. Pothier has suggested a more subjective view. He has argued that if the offeror changes their mind (but does not communicate this) before acceptance, then at the moment of acceptance, there is no meeting of minds, and therefore no contract (Cooke v Oxley). However a more objective view is preferable. Once an offer is made, it is taken to be continuing each moment until accepted or withdrawn. The law will regard the intention evidenced in the offer as continuing, until notice of its revocation has been communicated to the other party. As stated in Byrne v Van Tienhoven (1880) "an uncommunicated revocation is, for all practical
purposes and in point of law, no revocation at all". As no notice of withdrawal was given by the offeror, the P could regard it as a continuing offer, and their acceptance of it made the contract complete.
Seminar Exercise Tender-invitation to treat ‘We will pay best price for top quality’ pg 58 general proposition Each person making an offer, the offeror has the authority to accept or reject (spencer). In reference to funds (Carbolic) Sincerity/Seriousness of the person making the offer. No agreement if the terms or the phrases are not clear ch 4 and 5 (issues of uncertainty) Too vague Mode of acceptance Postal acceptance rule (won’t apply if you take this case into account, because the mode of acceptance is not clear in the advertisement) Manchester council (Communication of mode) 2. Acceptance Acceptance determines when a contract comes into being. In some cases it may also be necessary to determine where a contract comes into being. The place of acceptance may answer this. Just as with offer, the courts have over the years devoted some attention to the crucial step of acceptance. After all, it is the difference between contract and no contract. In doing so, the courts have developed some pretty precise rules which reflect the assumptions underlying the mechanistic model of offer and acceptance. An acceptance must be in response to an offer - in other words you cannot accept if you did not know of the offer. This rule does not sit very easily with the objective test, which is supposed not to look into the minds of the parties. There are very precise rules about how the acceptance must correspond with the offer. Rules of Acceptance The acceptance: 1. 2. 3. 4. 5. 6. 7.
Must be made in reliance of the offer. Must comply with any conditions in the offer. Must be communicated to the offeror. Cannot be a cross-offer or counter offer. Can only be made by the party to whom the offer was made. Must be absolute and unqualified. Cannot be revoked without the assent of the offeror.
An offer becomes a contract only if it is accepted – there are 4 key principles in relation to the concept of ‘acceptance’: 1. Offeror may stipulate what is necessary for an offer to be accepted – subject to statute apply the freedom of contract principle o Offeror cannot impose a contract onto an offeree 2. Offer and acceptance must exactly correspond o Attempt to introduce new terms is a counter-offer o Any departure from the terms of the offer will result in the purported acceptance being ineffective except as a ‘counter offer’ o A counter offer nullifies the offer 3. Acceptance need not be expressed, it may be inferred by the party’s conduct – technique: objective approach (Brogden v Metropolitan Railway Co; carlill v Carbolic Smoke Ball co) 4. Only whom and offer is made may accept it – technique: construe the offer
Felthouse v Bindley Facts
Issues
Outcome
John Felthouse discussed with his uncle the prospect of selling his horse. Uncle wanted to pay £30. JF wanted 30 guineas. 1 January 1861 – JF wrote to uncle confirming price of 30 guineas 2 January 1861 – Uncle wrote to JF offering £30 15s, “if I hear no more about him, I consider the horse mine” Horse was subsequently sold at auction to a 3rd party Had the horse been sold to the Plaintiff?
Willes J Uncle had no right to impose upon his nephew the sale of the horse unless he chose to reject his offer Although the nephew may have considered himself bound, he had not communicated that intention to his uncle, or done anything to bind himself. Silence with nothing else is not sufficient to accept an offer. Subsequent letter of 25 February – created the contract at that time Key Point Mere silence is not sufficient to accept an offer Appeal was dismissed – the defendant was not liable (in tort) because he had not sold a horse which belonged to the plaintiff Felthouse could not impose a sale of the horse on his nephew by requiring him to notify Felthouse if he did not wish to sell on those terms. There was no communication of acceptance before the sale; consequently the nephew was not bound to sell Felthouse the horse on the day of the auction.
Crown v Clarke (1927) 40 CLR 227 Facts
Issues
Outcome
Commissioner of Police offered a reward of £1000 for information that would lead to the arrest and conviction of murderers Treffene and Clarke were arrested and charged. Four days later, Clarke made a statement that led to the arrest of Coulter Coulter and Treffene were convicted. Clarke claimed the reward Admitted at trial that Clarke was only motivated by clearing his name
Issue before the HC was whether the Full Court was correct – this depended on whether Clarke could establish a contract Any such contract would be unilateral The question of whether Clarke could say that he had done the acts stipulated in the offer of reward as acceptance was raised as superficially this was outlined Isaacs ACJ The person accepting must “act on the offer”. As Clarke did not act “on the faith of, in reliance upon” the offer there was no acceptance Starke J It is an inference of fact that reliance on the offer is “probable”, but that may be rebutted by evidence Key points: Acceptance must be on the faith of / in reliance upon the offer Appeal was allowed – Clarke was not entitled to the reward HCHELD:
It was held that Clarke was not entitled to the reward because he did not have the offer in mind and had not acted in reliance on the offer, but rather to secure his own safety from the hand of the law His action could not be taken as an acceptance of the offer of a reward and he was unsuccessful in claiming the reward There was no connection with the offer ‘...unless a person performs the conditions of the offer, acting upon its faith or in reliance upon it, he [she] does not accept the offer and the offeror is not bound to him [her]
Butler Machine Tool Co Ltd v Ex-Cell-O Corp Facts
BMTC quoted a price of £75,535 on 23 May 1969. T&Cs where included on back of quotation (included a price variation clause) ECOC responded to quote with their own T&Cs (did not include a price variation clause)
Issues
BMTC acknowledged order on 5 June 1969 Lord Denning MR “In many of these cases our traditional analysis of offer, counteroffer, rejection, acceptance and so forth is out of date” Noted that in many circumstances where there is a battle of the forms, the contract is formed as soon as the last of the forms is sent and received without objection. Lawton LJ Applied the traditional analysis Key points: In most cases, there is a contract as soon as the last of the forms is sent and received without objection being taken to it If the difference in terms is so material, the buyer ought not to be able to take advantage of the difference unless he draws it to the attention of the seller
Outcome
Sale was on the terms of the buyer. The appeal of the buyers was therefore successful They were not obliged to pay extra sum claimed because the price variation clause was not a term of the contract
Brinkibon Ltd v Stahag Stahl Facts
Issues
Outcome
SSS offered terms to B on 3 May 1979 (via telex) On 4 May 1979, B sent a telex to Vienna accepting the terms offered by SSS Lord Wilberforce General rule is that a contract is formed at the time that acceptance is communicated to the offeror, at the place where acceptance is communicated to the offeror Where communication is at a distance, acceptance occurs when the acceptance is put in charge of the post office Where communication is instantaneous, a contract is formed when acceptance is communicated to the offeree Telex was determined to be an instantaneous communication (principle also applied to fax messages in Reese Bros Plastics Ltd v Hamon-Sobelco Australia Pty Ltd (1988) 5 BPR 11,106) What is the importance of the Electronic Transactions Act 2000? Appeal was dismissed on the basis that any contract formed by the exchange of telexes was formed in Vienna The postal rule does not apply to direct/instant forms of communication (including telex) – as telex was used here the postal rule did not apply and the contract was formed in Vienna. The Court also observed that even though with telex the
message may not be received by the intended recipient immediately (there may be agents or other third parties who receive the messages to be passed on to the intended recipient) a telex that goes directly from the offeree’s business to the offeror’s business (unlike a telegram which employs the use of a post office) should be treated as if it were an instantaneous communication. If a telex is sent to an office acceptance occurs when the telex reaches the place of business, not when it actually gets to the person it is addressed to.
Other Key Cases: Manchester Diocesan Council for Education
v Commercial & General Investments Ltd [1970] 1 WLR 241
FACTS: MD called for tenders relating to property. C&G submitted a tender (offer to buy). The tender stated that acceptance was to be notified to the person whose tender was accepted by letter sent ‘by post addressed to the address given in his tender’. MD decided to accept C&G tender and sent their acceptance to the CG's solicitor, which was not the address given in the offer. C&G knew of this acceptance. Was there a contract? In particular, was a mandatory form stipulated for acceptance and, if so, was it complied with? HELD The method of acceptance prescribed in the tender was not mandatory - here the offeror was made aware of the acceptance by an equally effective method and thus the acceptance was effective.
Bressan v Squires [1974] 2 NSWLR 460
FACTS: Squires gave Bressan an option to purchase land. Clause 1 provided that it could be exercised ‘by notice in writing addressed to me at any time on or before 20 December, 1972.’ On 18 December Bressan posted a notice, addressed to Squires, exercising this option. It was received on 21 December. Was the option exercised? HELD The general rule is that ‘a contract is not concluded until acceptance of an offer is actually communicated …’ but that post presented an exception ‘based upon notions of expediency and convenience’. The rule applies whenever the parties contemplated post as a mode – even if just a possible or
permitted mode – of communication. It is ‘not required that it should be within the contemplation of the parties that the action of posting should have the consequence of concluding the contract’ as this would considerably narrow the exception. In this case the parties contemplated the option could be exercised by post. Consequently, prima facie, the exception applied. However, in this case there was further language used in the option that suggested actual notice of acceptance was required before acceptance would occur; consequently P’s case failed.
3. Certainty 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. The principles applicable to the question of whether parties have entered into an agreement have been examined. However, for any agreement to amount to a contract it must also be sufficiently certain and complete. These two related, but distinct, concepts refer to the requirement that the agreement’s words be sufficiently precise and clear so that the scope of obligations can be ascertained (certainty) and that the key or important parts of the agreement have been set out (completeness): Thorby v Goldberg (1964) 112 CLR 597 at 607. Does the law does not demand absolute certainty and completeness? Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433. In addition to the issues of completeness and certainty, also deal with situations in which parties have reached an informal agreement on all the terms of the contract but contemplate that a further formal contract will be subsequently be prepared and executed by the parties. These ‘subject to contract’ cases give rise to the question of whether the informal agreement is enforceable even if no subsequent formal agreement is executed. 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. Even where uncertain or ambiguous language is not used, if the parties have not agreed on all of the essential terms of the agreement, the contract will be unenforceable. A contract will be unenforceable if it reserves a discretion for one party not to carry out his or her obligations
Principal cases The courts are faced with a conflict between: (1) The desire to avoid making such efforts to uphold an agreement that what is enforced is something that the parties did not in fact agree to: and (2) The concern to uphold reasonable expectations of parties who believed that they had a binding contract and to avoid ‘the reproach of being the destroyer of bargains (Hillas & Co Ltd v Arcos Ltd)
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Requirement that the language used in a contract id able to attribute a sufficiently clear and precise meaning Key Principle: In order to be enforceable, as a contract an agreement must be sufficiently certain , that is not so vague and uncertain that no meaning can be given to it The issue lied within the construction of the contract Technique for applying this principle: Between uncertainty and difficulty in interpretation or application Between material (or essential) terms and non-material (non-essential terms) Materiality depends on the intentions of the party Severance – a term may only severed only if that would be consistent with the intention of the parties the construction of the contract needs to be clarified to distinguish between the terms of elimination that would affect the bargain, from the severance of other terms Courts are faced with the conflict of: The desire to avoid making efforts to uphold an agreement
Additional Notes The fourth requirement of contract formation is that an agreement between the parties must be certain and complete. An offer will only be effective if it identifies with sufficient certainty the terms of the proposed contract. The Court will resolve ambiguities and fill gaps in agreements to some extent only where the agreement is sufficiently certain and complete. This is a matter of some controversy. A promise may not be enforceable because it is: - Incomplete - Uncertain - Illusory The cases reflect the tension between the desire to hold parties to their bargains, and the courts’ reluctance to make a bargain for the parties Requirement that a contract be certain has three aspects: The contract must be sufficiently complete so that there is agreement on all terms. The agreed terms must be sufficiently certain and clear so that the parties can understand their rights and obligations and the court can enforce them. The promises made must not be illusory. How to save an uncertain contract:
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Where a term is incomplete, uncertain or illusory it may be possible to sever the offending term or part so that the remainder will be binding. Where an uncertain, incomplete or illusory provision has been inserted for the benefit of one party, it may be possible to waive compliance with the offending term and enforce the remainder of the contract.
Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd Facts
Council entered into a contract to supply ACF with electricity. Clause 5 stated "if the Supplier's costs shall vary in other respects than has been hereinbefore provided the Supplier shall have the right to vary the maximum demand charge and energy charge ...". Council sought to increase its charges, but ACF alleged the clause was void for uncertainty, placing reliance on the term ‘supplier’s costs’. The NSW SC agreed and the Council appealed.
Issues
Barwick CJ: Noted that a contract is not automatically void for uncertainty just because it may be construed in more than one way: ‘As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it.' He observed that a ‘narrow or pedantic approach’ to interpretation should not be taken - it is clear that Australian courts will be slow to find an agreement void for uncertainty. In this case there was no uncertainty even though there may be scope for disagreement about what constitued suppliers costs in individual cases.
Outcome
HELD
Barwick CJ: Noted that a contract is not automatically void for uncertainty just because it may be construed in more than one way: ‘As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it.' He observed that a ‘narrow or pedantic approach’ to interpretation should not be taken - it is clear that Australian courts will be slow to find an agreement void for uncertainty. In this case there was no uncertainty even though there may be scope for disagreement about what constituted suppliers costs in individual cases.
Whitlock v Brew (1968) 118 CLR 445 Facts P entered a contract to purchase land from D. A condition provided
Issue
Outcome
that part of the land was to be used for the sale of Shell products and that on taking possession of the land, P would then lease that part of the land at present used for the sale of those products to Shell upon such reasonable terms as commonly govern such a lease. Disputes to be referred to arbitration - failing agreement the arbitrator to be appointed by the President of the Law Institute of Victoria. - D rescinded the contract and forfeited the deposit - P sued to recover deposit - judgment for D
- P appealed to Full Court - allowed - condition void for uncertainty - not severable therefore the whole condition falls. No consideration for the deposit, therefore recoverable as money had and received. D appeals to HC Considered the issue of certainty and whether or not a clause in a contract which was uncertain could be severed from the contract or if it was material and inseverable and therefore made the whole contract invalid. HELD In a majority decision, the High Court (Kitto, Taylor, Menzies and Owen JJ; McTiernan J dissenting) held in favour of Brew. The entire agreement was void because of the uncertainty of Special Condition 5, there being no evidence of a lease in common use that could be used to establish specific terms on key issues such as the rent and term of the lease.
Uncertain and incomplete promises Parties must reach final agreement on the essential aspects of the contract before they will be regarded as having entered a contract. It is not enough for them to leave a matter to be agreed upon at a later state ie an agreement to agree. However, if parties provide a mechanism for finalizing terms it will no longer be regarded as an agreement to agree and will be enforceable. 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). b) Discretion retained by a contracting party It is uncertain that a contract that leaves 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 obligation are carried out by that party, it may be enforceable (Godecke v Kirwan). Breakdown of Mechanism to Complete The traditional view of contract formation is that the court will not rewrite the agreement for the parties where the parties themselves have failed to agree on all terms. If the parties have established a mechanism for determining a term and the mechanism fails, the court will not substitute its own view and complete the agreement (Milnes v Gery). Coal Cliff Collieries P/L v Sijehama P/L (1991) 23 NSWLR 1 Facts Parties entered into a ‘heads of agreement’ to jointly develop mining rights. The agreement anticipated execution of a joint venture in the future. However, they failed to reach final agreement and a few years later negotiations were terminated. Sijehama alleged breach of ‘heads of agreement’ and claimed damages. It succeeded at trial. Issues
Outcome
Issue of damages payable Issue for the COA was whether the heads of the agreement was a contract to negotiate a joint venture agreement in good faith. Considered the issue of certainty and completeness and whether or not an agreement to agree or enter into a contract was enforceable. A statement in a "heads of agreement" for a proposed complex joint venture for a coal mine said that the parties "would proceed in good faith to consult together upon the formation of a more comprehensive and detailed Agreement". Held to be too vague or uncertain to be enforceable. Kirby P rejected the idea that such contracts were intrinsically unenforceable and that in some circumstances a promise to negotiate in good faith can be enforceable. It will depend on the construction of each particular contract. It is established law in England and Australia that agreements to agree or contracts to make contracts where the terms have not yet been ascertained are not legally enforceable. Until the terms are agreed the person can withdraw from the arrangement. May & Butcher agreement to agree no contract at all - to be binding there must be a concluded agreement which settles everything which is needed to be settled and those things to be determined should not be subject to agreement between the parties. In Australia this is settled law, see Masters v Cameron - Booker Industries.
Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 Facts P entered into a contract with the following term: “I confirm a salary package of $36,000 per annum, fully maintained company car and the option to participate in the company’s senior staff equity sharing scheme.” At the time of the offer, no such scheme existed. No such scheme was subsequently brought into effect. When his contract of employment was terminated P claimed damages for failure to provide him with the option to participate in the non-existent company senior staff equity sharing scheme. Issues Two types of uncertainty Vague uncertain and ambiguous clause – can’t be determined what the words in the contract meant Illusory promise – retains a discretion as to whether to implement the scheme. Outcome The court will endeavour to uphold the validity of the agreement, but will not do so where the court is asked to spell out to an unacceptable extent terms on which the parties have failed to agree Per Kirby P in Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130
Conditional Promises Meehan v Jones (1982) 149 CLR 571 Facts J agreed to sell land to M. Contract was executed subject to the following conditions: M entering into a satisfactory agreement with Ampol for the supply of a satisfactory quantity of oil. M receiving approval for finance on satisfactory terms and conditions. If these conditions were not satisfied by 31 July 1979 then the agreement was null and void. J claimed the contract was void and on 23 July 1979 sold the property to another person. Before 31 July 1979, M gave notice that it had made satisfactory arrangements with Ampol and obtained finance – sought specific perforamance of the contract. Issue
(1) Was the clause void for uncertainty? (2) Did the clause condition formation of the contract or its
Outcome
performance? (3) Did the word ‘satisfactory (4) Attract an objective or a subjective standard? Wherever words which by themselves constitute a promise are accompanied by words showing that the promisor is to have a discretion or option as to whether he will carry out that promise, the contract is void for uncertainty. HELD An order for a specific performance was made. Therefore, the vendors were required to complete the contract of sale.
Per Mason J – the implied obligation of honesty means there is sufficient certainty as it removes the purchaser’s discretion as to whether finance is actually sought. The discretion is not unfettered because the Court is capable of determining whether acts of the purchaser are honest. Promise not illusory – contract of sale is enforceable. How to reconcile Placer Developments? The promise is not unbounded – objective criterion of honesty.
About preliminary agreements and ‘subject to formal contract’ clauses. Three categories of agreements: (1) Parties have reached a finality in arranging the terms of their bargain and intend to be immediately bound by those terms.(Rossiter v Miller) (2) Parties have completely agreed upon the terms but nevertheless have made performance conditional upon the execution of a formal document.(Niesmann v Collingridge) (possibly Godecke?) (3) The parties do not intend to make a concluded bargain at all, unless a formal document is executed. (Summergreene v Parker, Rossiter v Miller) (Masters v Cameron falls into this category) (4) ‘The question depends upon the intention disclosed by the language the parties have employed, and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape’ Application: ‘Subject to contract’ and ‘subject to the preparation of a formal contract’ and ‘expressions of a similar import’... ‘such words prima facie create an overriding condition, so that what has been agreed upon must be regarded as the intended basis of for a future contract…’ Application: the formal contract can not only contain the terms agreed on but also new terms as the solicitors see fit. -
Masters v Cameron (1954) 91 CLR 353 Facts An agreement was reached to sell a farming property on certain terms. It was stated that, "this agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on the above terms and conditions." On the same day a deposit of £1750 was paid to the vendor's agent. When the purchaser refused to proceed with the sale, both parties claimed the deposit - the purchaser on the basis that there was no contract, therefore money paid should be returned - the vendor claiming that there was a contract and in the event of a failure to proceed, the money was forfeited. The judge held that there was a contract. The purchaser appealed. Issue Considered the issue of the intention to enter into a contract and whether or not a statement by a vendor regarding the upcoming sale of her property was sufficient to prove her intention to enter into a binding contract or whether it was a mere agreement to enter into a binding contract at some later date. Outcome HELD Dixon CJ, McTiernan and Kitto JJ Reasoning Default interpretation of a ‘subject to contract’ is that there is no intention to be legally bound. Negotiating parties reserve rights to withdraw might be more than two parties, complex negotiations of large contracts etc. Distinction between conditions to relating to formation and conditions relating to performance: A contract may not be formed until a formal document is drawn up and signed; or The obligations in an agreement may not be performed until some condition is met. Note however that interpretation is a question of fact.
Consideration
Consideration is the enforcement of promises Only one that has given consideration to the other party’s promise may enforce a contract Promisor makes a promise to the promisee to do something or refrain from doing something In order to enforce this the promisee must be able to demonstrate that they have paid or given something in exchange for the promise this “something given in exchange” is the consideration (Beaton v McDivitt 1987) Bilateral contract – two promisors, each party’s promise is consideration for the other Unilateral contract – one promisor
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 another’s detriment may be enforced by that other despite the lack of consideration. 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. 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.
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.
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
Consideration must move from the promisee For there to be a contract between the promisor and the promisee, consideration must move from the promisee. 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.
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). Australian Woollen Mills Pty Ltd v The Commonwealth
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. 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. c) Consideration can be nominal Consideration will be regarded as valid even if it is nominal only. (Eg. Token gesture)
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
Moral Consideration A promise made because of a sense of moral obligation to the promisee will not be sufficient consideration to support that promise. 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)
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. A court may be prepared to find that the parties have agreed to abandon their original agreement and enter a new one. 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.
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. 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 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. 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.
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
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.
Bargain for conduct already performed 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 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
Capacity -
People are generally presumed to have the capacity to enter into contracts. However, there are certain types of people who are considered to lack such capacity and special laws have been developed for those situations. Capacity will frequently be an issue where contracts are entered into by minors and people who are mentally unsound.
Minors -
A person is a minor if they are under the age of eighteen. Minors have limited capacity to enter into contracts.
Contracts for necessaries -
Under common law a minor will be bound by a contract if it is a contract for necessaries. A contract for necessaries does not mean that the contract must be absolutely necessary for the survival of the minor. At common law a minor will not be liable under a contract merely because they derive some benefit from it, the contract must meet the specific criteria for a contract for necessaries, and the definition of ‘necessaries’ is found in legislation. See Nash v Inman *1908+ 2 KB 1 (clothes including ‘11 fancy waistcoats’ were held not to be necessaries because they did not meet the criteria)
Contracts not for necessaries -
Under common law if a minor enters into a contract that is not for necessaries then the contract is voidable. There are some situations where a minor will be bound by a contract unless they repudiate the contract when they turn eighteen. However, contracts entered into by a minor that are not for necessaries are not usually binding under common law unless the minor ratifies them. However legislation needs to be considered as well.
Minors’ contracts in New South Wales -
The law relating to minors in New South Wales is largely covered under the Minors (Property and Contracts) Act 1970 (NSW). Section 19 requires the court to consider whether the contract was for the benefit of the minor: ‘Where a minor participates in a civil act and his or her participation is for his or her benefit at the time of his or her participation, the civil act is presumptively binding on the minor.’ Note that ‘civil act’ includes entering into a contract – that under this legislation there is no requirement that the contract be for ‘necessaries’, unlike every other Australian jurisdiction.
Minors’ contracts in New South Wales
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Sections 26 and 27 allow the court to grant contractual capacity to a minor for certain contracts. Sections 30, 31, 33, and 34 cover affirmation and repudiation of a minor’s contract Section 38 requires any contract made at the time that a person was a minor to be repudiated before that person reaches nineteen, or lack of capacity will not be a defence. Section 36 enables an adult who has entered into a contract with a minor to ask the court to affirm or repudiate the contract. If a contract has been repudiated then s 37 allows the court to modify the rights of the parties.
Mental disability and intoxication -
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People with a disability have limited capacity to enter into contracts. The law in this area covers any form of disability or unsoundness of mind, whether it is caused by disease, intoxication or other drug use. Two elements must be satisfied in order for lack of capacity to succeed as a defence where a person suffered from some disability or unsoundness of mind. It must be proven that they lacked the capacity to enter into a contract: Molton v Camroux (1848) 154 ER 584 and Gibbons v Wright (1954) 91 CLR 423. It must be proven that the other party knew of the disability or unsoundness of mind: Molton v Camroux and Gibbons v Wright.
If a person suffering from some disability or unsoundness of mind signs a contract without intending to then the contract will be void. However, if they intend to sign a contract but do not adequately understand it then the contract is voidable. Under sale of goods legislation a person who lacks capacity to contract will still be liable to pay a reasonable price for necessaries. Section 7 of the Sale of Goods Act 1923 (NSW) defines ‘necessaries’ as ‘goods suitable to the condition in life of such person, and to the person’s actual requirements at the time of the sale and delivery ’.
Corporations -
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Under the doctrine of ultra vires if a corporation had limited capacity and they entered into a contract outside the scope of their capacity then the contract was a nullity. However, the doctrine of ultra vires has now been abolished - s 124 of the Corporations Act 2001 (Cth) A corporation can only enter into contracts through action taken by its agents or officers – s 126 of the Corporations Act 2001 (Cth) Under legislation there are certain assumptions that people dealing with corporations are entitled to make – s 128 of the Corporations Act 2001 (Cth) Problems can arise where a person promoting a corporation enters into contracts for the benefit of a corporation that has not yet been formed. Legislation allows a corporation to ratify contracts made on its behalf before it was registered. However, if the corporation
does not end up being registered or if it decides not to ratify the contract then the promoter can be held personally liable for the contract. Australian Woollen Mills (1954) 92 CLR 424 Facts In June 1946 the Commonwealth Government announced that it would pay a subsidy to manufacturers of wool who purchased and used it for local manufacture after 30 June 1946. The Plaintiff purchased and used wool for local manufacture between 1946-48 and received some payments. The Government subsequently stopped its subsidy scheme and the Plaintiff sued the Government for subsidies it claimed it was due. Issue Considered the issue of consideration and intention and whether or not a government announcement related to subsidies amounted to an offer and if there was the consideration necessary to enable a contract to exist. Outcome Held There was no contract. The statement made by the Commonwealth was not offered as consideration for the plaintiff buying the wool. There must be a relationship of quid pro quo between the statement and the Act. Here there was no promise offered in consideration of doing an act. Buying the wool was merely a condition precedent to entitlement to the subsidy. It was not intended as the consideration for a promise to pay the subsidy. In this respect the Court also noted that there was no offer or request or invitation to purchase wool or anything else suggesting that ‘payment of subsidy and the purchase of wool were regarded as related in such a way that the one was a consideration for the other.’ The Court also concluded that there was no intention on the part of the government to create legal relations; it was instead a government scheme to promote industry. In this respect the Court noted that ‘It is of the essence of contract … that there is a voluntary assumption of a legally enforceable duty. … It is necessary that what is alleged to be an offer should have been intended to give rise, on the doing of the act, to an obligation.
Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460 [6.16C] Facts Mr Coulls entered into a contract to allow O’Neil Constructions to quarry part of his land. In exchange, O’Neil was to pay royalties to Mr Coulls and his wife as joint tenants. Following Mr Coulls’ death, his executor (Bagots) sought to determine whether O’Neil was required to pay the royalties to the estate or to Mrs Coulls. A majority of the High
Court held that the royalties were payable only to the estate on the ground Mrs Coulls was not a party to the contract. In discussing the issue of consideration, a majority of judges (concurring with Barwick CJ) concluded that where a promise is made to joint promisees then either promisee can enforce even though consideration only moved from one. Issue
Outcome
Whether Doris was a party to the contract and could enforce the contract in view of the fact that she offered no consideration on the contract. Held (Barwick CJ) Mrs Coulls was intended to be a party to the document – the promise to pay made by O’Neil was made to both Mr & Mrs Coulls. The position is: (a) A promise by A made to B & C for consideration to pay B & C. (b) In such a case, A cannot question whether the consideration moved from both B & C or only one of them. The promise was not a gratuitous promise (c) Such a promise is enforceable only if B &C are parties to the action to enforce it. B could not sue alone. (d) If C would not join the action, B could join C as defendant. However, judgement would be for a payment to B & C. (e) If B would not join, C could sue, joining B as a defendant
Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 [6.29C] Facts This was not a case directly on contract - it was in fact a copyright case. Nestles advertised that they would provide customers with a copy of a record "Rockin Shoes" if they sent in 1/6d together with three wrappers from bars of Nestles' chocolate. The owners of the copyright in the record were entitled to 6.25% of the normal selling price. They argued that the value was to be calculated on the 1/6d plus the value of the wrappers. Nestles said the wrappers had no value. Issue Whether the chocolate bar wrapper were part of the consideration for the sale of the records? Outcome HELD By 3:2 majority in the House of Lords that the wrappers were part of the consideration price, and an injunction was granted.
Lord Reid: it is unrealistic to divorce the buying of the chocolate from the supply of the records. The consideration has two parts: (a) the buying of the chocolate bars for the wrappers; and (b) the payment of money. Clearly both are of value to Nestles. It was said that the provision of wrappers was merely a condition prior to purchase. But if the qualification is of value to the vendor and must be re-acquired on each occasion, then it is hard not to see this as part of the consideration. Acquiring the wrappers might well involve expenditure which would not otherwise have been incurred. Viscount Simonds (dissenting): The wrappers are valueless, and not really evidence of sale of chocolate bars to the purchaser of the record. Hence the acquisition of the wrappers was not really part of the record transaction. Lord Somervell: A peppercorn does not cease to be a good consideration if it is established that the promisee [promisor?] does not like pepper and will throw away the corn.
Re Casey’s Patents; Stewart v Casey [1892] 1 Ch 104 [6.39C] Facts The holders of letters patent employed Casey to promote their invention in the commercial world. Afterwards, they undertook in a letter, "in consideration of his services as manager in working the patents" to give him A one third share of the patents. Later, the other patent holders attempted to have his name removed from the Register of Patents. Issue Whether Casey had furnished fresh consideration in return for Stewart's and Chalton's promise to give him a one third share in the patent or whether Casey's consideration was past consideration. Outcome HELD (appeal dismiss) Bowen LJ: Counsel for the applicants presented a number of arguments: 1. It was argued that there was no consideration and that the document was not under seal. 2. It was also argued that the consideration here was a future consideration, for which nothing was done. Yet that cannot be so, for the consideration is not the doing of a future act, but the promise to do the future act. 3. Counsel then said that it was really past consideration, in that it refers to past services - and past services cannot support a future
promise. The correct approach is to look at the document and see if it cannot receive a proper effect. A past service raises an implication at the time it was rendered, that it was to be paid for. When subsequently there is evidence of a promise to pay, that may be seen as an admission which fixes the amount of the bargain, on the basis of which the service was rendered. Fry LJ took the same view. [NB. Bowen's argument really is a factual one rather than a legal one. He is saying that on the evidence adduced he is able to infer that payment was part of the original agreement. As such, the decision would carry little value as a precedent. One gets the impression that Bowen was determined to find grounds for finding an enforceable contract for the payment].
Dunton v Dunton (1892) 18 VLR 114 [6.47C] Facts The parties entered into a written agreement whereby Mr Dunton agreed to pay his former wife an allowance so long as she behaved ‘with sobriety, and in a respectable, orderly, and virtuous manner’ or committed an act whereby she or Mr Dunton could be subjected to ‘hate, contempt, or ridicule’. The question arose as to whether this agreement was legally binding. Plaintiff argued A promise to behave respectably constitutes good consideration. Defendant argued
Issue
Outcome
The promise to behave respectably was merely a promise to do that which Mrs Dunton was already bound to do (ie, she was already required to behave respectably!) and was, therefore, not good consideration. Was there consideration for Mr Dunton’s promise to pay the allowance? HELD Higginbotham CJ (for the majority): That this was not just a promise to do what one was already bound to do - it was a promise which involved surrendering a degree of liberty it therefore a good consideration.
Hood J (dissenting): It was argued that the promise was enforceable, because it would help maintain Mr D's public image. The judge, however, found that the consideration was illusory - it was too vague. Was it that Mrs D should not drink, or just that she should not do it in public? To be good consideration one must be able to enforce the promise. How could that be done here? This sort of illusory consideration is just like the promise made by the father to the son, to reward the son if he would promise “not to carry on boring him” - White v Bluett (1853) The judge also suggested that if the wife had merely acted in a sober way, then that might have constituted a good consideration, using the unilateral contract analysis. Yet to promise to do the same might not doesn't this seem rather odd?
Placer Development Ltd v The Commonwealth (1969) 121 CLR 353 [6.53C] Facts P and D arranged to form a company which would, as part of its operations import and export timber. The Commonwealth provided that it would pay a subsidy on any timber on which import duty had been paid and not remitted on export "of an amount or at a rate to be determined by the Commonwealth from time to time". Issue Both parties Stated a Case for the opinion of the High Court as to whether: (a) Was there an obligation to pay a subsidy? (b) If so, was there a complete discretion as to amount (including a nominal amount)? (c) If yes to a and no to b then on what basis should the calculation be made? Outcome HELD Kitto J The principle established in Loftus v Roberts is that a promise combined with a discretion as to whether it will be carried out amounts to no [enforceable] promise (or no contract) at all. A promise of a subsidy is meaningless if there is no specification of the amount. There is no implication that a reasonable subsidy should be paid, for there is no standard by which to judge such a thing. If the Government promises to pay such a subsidy as it thinks fit, then there is no contract. HELD Taylor and Owen JJ A promise to pay an unspecified amount is not enforceable. There is no criteria by which the court could fix the amount. HELD Menzies J (dissenting) Either there is an illusory promise, or there is a promise subject to
conditions (i) to fix an amount (ii) to pay that amount. Obviously there can be no obligation in advance of a determination, but if one asks whether there is a duty to fix a subsidy, the answer must be yes. It is hard to imagine the parties giving the agreement any other interpretation at the time. I do not regard a promise by the Commonwealth to fix an amount as being illusory. HELD Windeyer J (dissenting) Ordinarily the court would have no difficulty, where an unspecified sum is to be paid, in inferring that a reasonable sum was intended. A quantum meruit, requires such a judgment. In this case there is no course of business dealing which the court can use for comparison, therefore the court has no basis upon which to substitute its own judgment. But because the court cannot make such a judgment, it does not follow that the Commonwealth is released from the obligation to make such a judgment.
Wigan v Edwards (1973) 47 ALJR 586 [6.66C] Facts The plaintiffs agreed to buy a house from the defendants for $15,000. Before settlement, the plaintiffs said they had found defects and were not going to proceed. In return for their promise to go ahead, the defendants gave an additional promise that any major faults within 5 years from purchase, would be put right. The plaintiffs later brought this action claiming damages for defects not put right by the defendants. Issue Whether this promise was legally enforceable. Outcome HELD Menzies J (dissenting) That the plaintiffs could enforce the defendants promise as it was given in consideration of the plaintiffs not pursuing their claim, and the promise had been breached. McTiernan ACJ agreed with Menzies. HELD Walsh and Gibbs JJ (in separate judgments) They found for the defendant on the ground that the defendant had not repudiated the contract and had not been given the opportunity to rectify the faults complained of. HELD Mason J The general rule is that a promise to perform an existing duty is no consideration, at least when: 1. the promise is made by a party to a pre-existing contract; 2. it is made to the promisee under that contract; and 3. it is an illusory consideration. The first party's new promise of performance generally provides no
consideration for the benefit. An important qualification to this general principle is that a promise to do what the promisor is already bound to do is sufficient consideration when it is a bona fide compromise of a disputed claim that the promisor has a cause of action under the contract. But the law seeks to prevent a party gaining unfair advantage by threatening unscrupulously to withhold performance under a contact by insisting that the claim be bona fide. What is meant by bona fide? It is not required that the promisor's claim would have succeeded had it been litigated. Is it necessary that the claim not be vexatious or frivolous? Or is it sufficient that the claim be honest? There is little between the two tests, and in this case it is unnecessary to decide, as the facts satisfy the more stringent test. The defendants were therefore contractually bound to correct the defects. In this case however, the plaintiff must fail, as the main defect complained of was not disclosed before this action was commenced.
Glasbrook Bros Ltd v Glamorgan Council [1925] AC 270 [6.74C] Facts Facts Glasbrook promised to pay Council for special police protection during a strike (after requesting police protection and being refused). The protection Glasbrook received was more than the police thought necessary. Glasbrook refused to pay and Council sued. Appellant argued
Issue Outcome
There was no consideration because the provision of protection was a public duty. Whether the council had agreed to exceed its public duty? Held ( Viscount Cave LC) (1) The public cannot be called upon to pay the police for performing their obligations and any promise to do so will be unenforceable (in this case there is an obligation to keep the peace, prevent crime, protect property etc) (2) But if individuals require services of a special kind, not within their obligations, then a promise to pay for these will be enforced (this was the case here and legislation permitted the ‘lending’ of police for
purposes of extra-service) ‘If in the judgment of the police authorities, formed reasonably and in good faith, the garrison was necessary for the protection of life and property, then they were not entitled to make a charge for it, for that would be to exact a payment for the performance of a duty which they clearly owed to the appellants and their servants; but if they thought the garrison a superfluity and only acceded [Glasbrook’s] request with a view to meeting his wishes, then in my opinion they were entitled to treat the garrison duty as special duty and to charge for it.’ Point 1. Performance of public duty is not good consideration
2. But performance of more than required public duty is good consideration
Popiw v Popiw [1959] VR 197 [6.81C] Facts The wife claimed an interest in the matrimonial home. She had left her husband, and to encourage her to return home, he said that if she did return, he would put the title to the home in their joint names. She returned and stayed for four weeks, when she left again. Following the commencement of the action the husband acknowledged the existence of the contract in an affidavit. However, at the hearing, he sought to raise a defence based on the Instruments Act. The wife responded by relying on his affidavit. Issue
Outcome
Issue of consideration Whether or not a woman who was promised a half share in the matrimonial home by her husband in order for her to return home to live with him could enforce this promise as a legally binding contract. Held (Hudson J) Even if it could be said that Helga was under a duty to cohabit with the respondent there was no remedy in law which would compel her to do so. Thus, in exchange for his promise the husband, from a practical viewpoint, obtained something more advantageous than the ‘right of cohabiting with his wife’ which he could not enforce; Helga suffered a detriment by ‘placing herself in apposition which she could not have been compelled to occupy’ – there was good consideration.
Foakes v Beer (1884) 9 App Cas 605 [6.86C] Facts As the result of a previous judgment of the Court of Exchequer, Foakes
Issue
owed Beer £2,090 19s. The two parties entered into an agreement on December 21, 1876 (not under seal) that Foakes would pay £500 immediately and £150 every 6 months until he had paid off the debt and in return Beer wouldn't take any action. By June of 1882, Foakes has paid off the entire principal and sought leave to proceed on the judgment. Beer claimed she was entitled to interest because the debt was not paid off immediately. Foakes claimed there was a contract with no mention of interest which Beer claimed was invalid because she did not receive any consideration. Is partial payment of a debt sufficient consideration for the contract made between the two? Was Beer prevented by the agreement from enforcing the judgement?
Decision
Appeal dismissed with costs, interest payment due.
Reasons
Earl of Selborne LC (1) The agreement could only be enforced if there was consideration. (2) The only consideration expressed was the payment of $500 – which was part of a larger debt already due. The payment of instalments could not be consideration unless payment of the $500 was consideration (3) The doctrine of Pinnels case is that payment of a lesser sum on the day cannot be satisfaction for the whole sum. i.e. payment of a lesser sum on the day cannot be good consideration for a promise by the creditor not to claim the rest of the money due.
Ratio
This rule is still the law and therefore there was no consideration provided here. As a result Beer could recover the interest. Payment of a lesser amount cannot serve as satisfaction of a larger amount.
Other KEY CASES Beaton v McDivitt (1987) 13 NSWLR 162 [6.11] Facts The respondent (McDivitt) promised to transfer a portion of his land to the appellant (Beaton) when a proposed rezoning occurred if, in the meantime, the appellant worked the land in a specified way. Beaton moved onto the land and worked it as required (inc building a house). Seven years later a dispute arose and Beaton was ordered off
the land. Issue
Issue of consideration Whether or not consideration was present in a situation where a man lived rent free on land in return for a promise to be given title to the land.
Outcome
Held (on this point) Beaton had provided consideration for the respondent’s promise to transfer the property by working on the land in the manner stipulated. Kirby P (dissenting on this point) 'The modern theory of consideration has arisen from the notion that a contract is a bargain struck between the parties by an exchange’ – it is not based on notions of reliance. The ‘price’ for a promise can be an act, forbearance or promise. Here there was no consideration – the promises given (in relation to the land transfer) were not provided as a ‘quid pro quo’ for anything provided by Beaton. McHugh JA Noted that the bargain theory of consideration applies in Australia (amounting to a rejection of the ‘reliance’ theory); in particular, that theory requires a ‘quid pro quo’ between the parties. In this case there was such consideration – consideration for the promise to transfer was the act of Beaton in coming and working on the block as requested. This constituted a ‘detriment’ suffered by Beaton and that is sufficient for consideration. Mahoney JA Agreed with McHugh JA on the issue of consideration. ***The appeal was dismissed because the contract was found to have been frustrated
Roscorla v Thomas (1842) 3 QB 234 [6.37] Facts P purchased a horse from D. D then promised the horse was sound. The horse was in fact not sound and P sued for breach of contract.
Issue
Outcome
Issue of consideration Whether or not a promise that a horse was sound and free from vice was enforceable when it occurred after the sale of the horse was executed. Held There was no consideration for the promise that the horse was sound. The only consideration that had been alleged was the contract for the sale of the horse – this, however, had preceded the defendant’s promise – it was not part of the bargain – not given in exchange for the promise. Consequently it was not good consideration.
Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 [6.95] Facts P contracted to perform carpentry work for D. When it became apparent he could not complete on time, D promised to pay P extra money to ensure it was completed on time. D would incur liability to a third party if the work was not completed on time. Issue Outcome
Was D liable to pay the extra amount? Held D was liable. Per Glidewell LJ: If (1) A enters into a contract with B for the supply of goods or services in return for payment by B; and (2) Prior to completion B has reason to doubt whether A will complete; and (3) B then promise A additional payment in return for B promising to perform on time; and (4) As a result of this promise B obtains a benefit or obviates a disbenefit [eg, liability to third party]; and (5) B’s promise is not given as a result of A’s economic duress or fraud Then (6) The benefit to B (or obviation of disbenefit) is capable of being
good consideration for B’s promise
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. 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 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. (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
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
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 Jones v Padavatton [1969] 2 All ER 616 [8.06C] Facts In 1962 the Padavatton was 34 years old and living in Washington, USA, with her son. She had a good job, salary and pension rights. Jones, her mother, wanted her daughter to leave Washington, become a barrister in England and then return to Trinidad, and promised to pay her $200 per month if she did this. Padavatton did this; Jones paid her bar tuition fees and £42 per month. No agreement was reached about how long this arrangement would continue. In 1964 Jones proposed that she would purchase a house in which Padavatton could live with her son and derive income by letting out other rooms to tenants. Jones subsequently sought possession of the house. Issue
Issue of the intention to create legal relations and Whether or not a legally enforceable contract existed between a mother
and daughter surrounding an arrangement for the mother to support her daughter while she was studying. Was there a contract allowing Padavatton to continue in possession? At first instance it was held there was. Outcome
Court allowed the appeal. The counterclain by the defendant was referred to the Registrar. - Justification for the conclusion that a presumption arose; - Analysis of the relationship between certainty and intention;and - The nature of the evidence which the court considered could be taken into account in relation to intetntion. Held (Danckwerts LJ) There was no intention here; this was ‘one of those family arrangements which depend on the good faith of the promises which are made and are not intended to be rigid, binding agreements.’ The same principles as applied in Balfour apply here – the arrangement regarding the house was an adaptation of the arrangement for the mother to financially assist her daughter and was not a binding contract. Danckwerts noted that the parties were on good terms until 1967. Salmon LJ An objective test is applied to determine if contractual intent is present. As a general rule when agreements are made between close relations there is a presumption against intention – this is a presumption of fact which ‘derives from experience of life and human nature which shoes that in such circumstances men and women usually do not intend to create legal rights and obligations, but intend to rely solely on family ties of mutual trust and affection. …’ His Honour considered that this presumption had been rebutted here – the parties did intend that Padavatton should have some legal rights - but also that this arrangement was not to continue indefinitely and had therefore validly terminated. Fenton Atkinson LJ Agreed with Danckwerts LJ – he noted that conduct subsequent to that act shed great light on the intent of the parties. First, the daughter accepted £42 per month from her mother which was less than she had thought her mother had promised; second, many material matters were left open when the arrangement changed from direct financial support to the arrangement with the house; third, when the daughter was asked about her conduct in refusing
to let her mother into the house on one occasion, testified that ‘I didn’t open the door because a normal mother doesn’t sue her daughter in court. …’ That provided a strong indication that the daughter ‘never for a moment contemplated the possibility of the mother or herself going to court to enforce legal obligations’.
Rose & Frank Co v JR Crompton & Bros Ltd [1923] 2 KB 261 [8.16C] Facts The defendant manufactured carbon paper in England. The plaintiff bought the defendant's paper and sold it in New York. After dealing with each other for a number of years they entered into a written agreement as to the plaintiff having exclusive rights to buy and sell the defendant's goods.
Issue Outcome
Following a series of disputes the plaintiff claimed that the defendant was in breach of the agreement and the trial judge held that it was legally binding. The defendant appealed. Whether the ‘honourable pledge’ clause deprived the agreement of contractual intent? The court found that no contract had been formed due to the inclusion of such a clause. Scrutton LJ held that ‘If the parties clearly express themselves so as to avoid legal relations, then no reason in public policy why they should not do so.’ HELD Bankes LJ An intention to be legally bound is essential. With business arrangements it usually follows as a matter of course that legal relations are intended. With social arrangements the reverse is the case. It is most improbable that firms engaged in international business arrangements, which are intended to take place over a period of years, should not have intended legal consequences. But there is no legal obstacle to prevent them from doing so. There is no law or issue of public policy against it. Once one reads the agreement in its ordinary meaning, then it is manifest that no action can be maintained on the basis of it. HELD Scrutton LJ If the parties clearly express themselves so as to avoid legal relations, then no reason in public policy why they should not do so. HELD Atkin LJ The normal presumption may be offset by implication and if that is so then it may surely be offset expressly. I have never seen a clause whereby business people would enter into a written agreement which was not intended to be legally binding - but it is not necessarily absurd to do so. I do not agree with the judge that the clause should be rejected on the basis of repugnancy. It is a
dominant and operative clause.
Other Key Cases Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 Facts Archbishop Ermogenous made a claim for payments he thought due for annual and long service leave from the Greek Orthodox Community. He succeeded at first instance but the Full Court of the Supreme Court of SA found there was no intention to create legal relations between the parties. An appeal was made to the High Court. Issues
Issue of the intention to create legal relations Whether or not an employment relationship between a church and an archbishop carried with it an intention to create legal relations.
Outcomes
Claimed it would be both difficult and wrong to ascribe rules to determining whether or not intention exists in any particular case. They noted the objectivity of the requirement (the Court does not search for uncommunicated subjective reservations of intention) and that this meant that the circumstances in which intention may or may not exist could potentially be so varied that prescriptive rules were not appropriate. In this case, their Honours considered use of presumptions could (wrongly) lead to the conclusion there was no intention here (because of the nature of the employment contract) without full consideration of the circumstances surrounding this particular contract. Their Honours considered the Full Court in error in inferring there was no intention here. In a separate judgment Kirby J reached the same conclusion.
Administration of Papua and New Guinea v Leahy (1961) 105 CLR 6 [8.25] Government Agreement Facts There was an agreement between the parties (instigated by Leahy) that PNG officers would eradicate ticks infesting the plaintiff’s cattle. They failed in their endeavours and Leahy sued – he succeeded at first instance. Issues
How is intention approached is cases involving contracts with governments?
Outcomes
Held (Dixon CJ) There was no contract as there was no intention to create legal relations. The Department was doing no more than giving effect to government policy for tick eradication when it agreed to assist Leahy. The plaintiff had sought aid and in responding the defendant was doing no more than performing a function of government in accordance with settled policy. Held (McTiernan J) Agreed promises alone are insufficient to make a contract. The Administration did not intend to enter into legal relations with Leahy – it was an administrative arrangement in accordance with the Administration’s agricultural policy – McTiernan considered it analogous to a ‘social service’ which does not have ‘as its basis a legal relationship of a contractual nature’. Held (Kitto J ) Reached the same conclusion
Todd v Nicol [1957] SASR 72 Facts - Mrs N resided in South Australia. - She wrote to her sister-in-law and niece (the Todds), in Scotland, inviting them to come and live with her. - She promised them free accommodation and that she would alter her will so that after she died, the house would become theirs. - Mrs T quit her job and she and her daughter moved to Australia. - Later an argument developed and Mrs N told the Todds to leave the house. Issue Did the Todds have a contractual right to stay? Did this family arrangement amount to a contract? Outcome It was a contract. Factors that influenced the court were the cost of the journey, the lack of any condition covering a possible return, and the fact that if this was not an enforceable agreement the plaintiffs would have been largely subject to what was no more than the whim of the defendant. The court will look not only at the agreement between the parties but also at: the circumstances surrounding the agreement, the effect of the agreement on the parties and the manner in which the parties have conducted themselves subsequent to the agreement.
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 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 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’. a) Information particular to the guarantee 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 b) Acknowledgement of the agreement The writing must contain an acknowledgement of a concluded agreement. Pirie v Saunders Tiverton Estates Ltd v Wearwell Ltd
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 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 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
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. 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. Timmins v Moreland Street Property Co
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… Tiverton Estates Ltd v Wearwell Ltd …Or for damages for breach. Timmins v Moreland Street Property Co
Contract valid to pass title 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
Pirie v Saunders (1960) 104 CLR 149 Facts The plaintiff brought an action for the alleged breach of a shop lease by the defendant. The main defence was that the Conveyancing Act required written evidence of the lease. The plaintiff relied upon a note of the defendant's instructions written by the defendant's solicitor. The note referred to the property as "Lot B Princess Highway, Sylvania Heights", and specified the rent and duration of the lease, but there was no statement of the commencement date, and the note contemplated the formulation of further terms. The plaintiff was unsuccessful in the Supreme Court of NSW. On appeal to the full court, a new trial was ordered. The defendant appealed to the High Court. Issue Did the document contain sufficent information? Was the document ‘signed’ in accordance with the statue? Outcome HELD The Full Court considered that the solicitors note was capable of being regarded as a sufficient note or memorandum of an earlier concluded agreement. This view was based upon the "authenticated signature fiction". If the name of the party being charged appears on the document, and the such party expressly or impliedly indicates that he recognises the writing as being an authenticated expression of the contract, then the parties written name is to be treated as a signature for the purposes of the statute. However, the principle cannot be applied to a document which is not recognisable as a note or memorandum of a concluded agreement. It is not necessary that the written note appear to have been made after the making of the contract - in some cases a written offer subsequently accepted will suffice. But the note in this case is merely a notation of instructions for the preparation of a draft lease for submission to the other party. They are not indicative of the existence of any binding contract. There is no evidence that the defendant had any knowledge of what was written down, let alone, that the defendant recognised the writing as an authentic record of a prior oral bargain. Quite apart from these problems, the document is incapable of being regarded as a sufficiently complete record of the contract: it fails to specify the property with necessary precision, and it contemplates the formulation of further special conditions
Fauzi Elias v George Shaley & Co (Barbados) Ltd [1983] 1 AC 646 [9.20C] Facts P sought specific performance of an agreement with D for the sale of D's land. D raised the defence under the Statute of Frauds with regard to the requirement that such a contract be evidenced in writing. P relied upon two documents: (1) A letter from P's lawyer specifying the land, parties, price and asking for the contract to be forwarded; and
Issues Outcome
(2) A receipt from D's lawyer, which identified the parties and the property. Whether a sufficient memorandum of the contract could be pieced together by reference to the two documents? First instance: Elias succeeded at first instance On appeal: Sahely won and appeal HELD Lord Scarman (Delivering the advice of the Board) The oral contract had been established. If the letter and receipt can be read together they will be sufficient to satisfy the Statute of Frauds. D argues that to be proof of the contract the receipt must refer to some written transaction or document which by acceptance becomes an integral part of the transaction. But, it is argued, the receipt refers not to the letter, but to the oral agreement. To accept this line of argument would be to take the law back to what it was in the middle of the 19th Century. Counsel's submission repeats the principle of Dobell v Hutchinson (1853). In Timmins however, it was accepted that where there is signed writing which refers to another transaction, parol evidence may be given to explain the other transaction. If this process leads to another document coming to light which with the first provides the necessary details they can be read together to satisfy the Statute of Frauds. We accept this as a correct statement of the modern law. In this case the receipt clearly referred to another transaction - parol evidence can be given to identify it and any document related to it. This leads us to the letter which contains all the terms of the bargain. It evidences the transaction, though it is not itself the transaction. The Statute of Frauds is concerned to suppress FRAUD, not EVIDENCE. As Steadman (1976) emphasised, an oral contract for the sale of land is not VOID, but merely UNENFORCEABLE.
Regent v Millett (1976) 133 CLR 679 [9.32C] Facts The Regents' bought a house. Shortly afterwards - by an oral agreement - they sold it to their daughter and son-in-law, the Milletts. Consideration involved making mortgage payments and paying a lump sum of $1,000. The Milletts' went into possession and began paying the mortgage. They also made repairs to the house with the knowledge and acquiescence of the Regent’s. The Regents' refused to transfer the house. The Milletts claimed specific performance and the Regents' sought to rely on failure to comply with formalities. Milletts' succeeded at first instance
Milletts' argued that there was part performance constituted by - taking of possession - repairs and renovations - making mortgage payments Regents' argued that there was no part performance because: the acts were not unequivocally referable to some such contract as alleged by Milletts (they also claimed that a narrower test should apply – that is, that ‘performance must necessarily imply the existence of the contract’, but this was rejected) - the acts must be done in part performance of the of the agreement alleged – they must have been done under terms of the particular agreement alleged and ‘by force of that agreement’ Whether there were sufficient acts of part performance? Appeal Dismissed HELD Gibbs J -
Issue Outcome
The Conveyancing Act requires that written evidence of the contract be produced. Are there sufficient acts of part performance to take the contract out of the Act's operation? The plaintiffs rely on: 1. taking of possession;
2. effecting repairs and renovations;
3. making mortgage repayments. The principle of part performance was stated by Lord Cranworth in Caton v Caton (1866): When one of two contracting parties has been induced or allowed by the other to alter their position on the faith of the contract, eg by taking possession of land, and expending money on it, there would be fraud in the other party to rely on the legal invalidity of the contract. The defendants argue firstly that the acts relied upon must be unequivocally referable to some such contract as that alleged (Maddison v Alderson (1888)), and secondly that the acts must have been done in performance of the contract. It should be noted that these arguments are inconsistent with the reasoning of the House of Lords in Steadman v Steadman (1976). However it is not necessary to decide whether the defendant's statements of the law are correct. In this case the parties' giving and taking of possession are unequivocally referable to some such contract as that alleged, and are pursuant to the contract. The case is distinguishable from McBride v Sandland in this respect, in which case the acts of possession were referable to an authority other than the contract. The contract does not actually require the plaintiffs to take possession, but if this were necessary the utility of the equitable doctrine would be reduced to vanishing point, and many cases would have been wrongly decided.
Other Key Cases Morris v Baron & Co (1918) AC 1 [9.45C] Facts
Issues
Outcome
Ogilvie v Ryan [1976] 2 NSWLR 504 Facts In 1939 the defendant, who worked in a cinema, commenced living in a house owned by the cinema, at rental of £1 per week. She came to know the managing director of the company that owned the cinema, and when his wife died in 1955, he moved in with her and paid board. They lived in a de facto relationship. In 1969 the company contracted to sell its cinema and cottages to a developer. The managing director said that they could move to another house, which would be hers for life. They moved to house purchased in his name. He died in 1972, she was not mentioned in the will, and his executors sought to evict her. Issues Outcome
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: 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 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. 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. 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 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. Trident General Insurance Co Ltd v McNiece Bros P/L (1988) 165 CLR 107 [16.07C] Privity Doctrine Facts Blue Circle cement entered into an insurance contract with Trident General Insurance Co, covering public liability for construction work being carried out at the plant. The "assured" was to include BC and contractors and subcontractors. McNeice became a principal contractor for construction work being carried out at the plant of BC. A worker injured at the site obtained
Issue
Outcome
judgement against McNeice who sought an indemnity under the policy. Trident denied liability. Whether McNiece could succed even though it was not a party to contract. Three different paths that may be taken on that issue: i. application on a general exeption to the privity ii. application of a specific exception to the rule iii. abolition of the privity rule Appeal was dismissed (Brennan and Dawson JJ dissenting). Court was not unanimous as to why that should occur. General level What do the judgements say about the privity rule itself? What exceptions do the judgement canvass or apply? 1. Mason CJ and Wilson J advocated a reform of the rule, including in the context og liability insurance; 2. Brennan J did not adovcate any reform. Rather, any injustive should be dealt with by developng such areas as the trust on a promise and rethinking the assessment of damages (referred to Tweedle v Atkinson); 3. Deae J did not advocate judicial reform, his judgement suggests a broad approach to the trust concept. Justifications for privity and consideration rules? 1. Preclude risk of double recovery from promisor by promisee and third party. One may seek specific performance after the other has sought damages. This is insignificant - joinder of all in first action makes decision binding on all. 2. Privity is a barrier for contracting party to whole range of potential plaintiffs. Maybe important where government contracts are for benefit of class of persons. Difficult to justify rule by reference to indirect results if otherwise unsatisfactory.
Beswick v Beswick, [1968] AC 58 Third Party Contracts Facts Peter Beswick was a coal merchant. He agreed to sell his business to his nephew, the respondent, if he paid him a certain sum of money for as long as he lived, and then to pay his wife (the appellant) £5 per week for the rest of her life after he died. He died, and the nephew only paid his aunt once before stating that no contract existed between them. She was also the administratrix of her husband's will. Mrs. Beswick was unsuccessful at trial and successful at appeal, which John Joseph Beswick appealed. Issues
1. Is Mrs. Peter Beswick able to sue her nephew either in her own personal capacity, as the executrix of the will, or both? 2. Issue of privity of contract 3. Whether or not a person who was not a party to a contract could enforce a contract that they received a benefit from
Decision
Appeal dismissed.
Reasons
The House of Lords decide that the aunt has no right to sue her nephew in her
own capacity as she was not a party to the contract. This overturns Denning's findings in the lower court allowing third parties to sue for benefits that were guaranteed to them under a contract. However, in her capacity as the administratrix she is able to sue him for the specific performance of his promise that was made in the contract. Ratio
1. Third parties cannot sue for breach of contract when they were not a party to the contract, even if they were named as a benefactor of the contract. 2. Executors of wills can sue for specific performance of promises made in contracts with the deceased person.
Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414 [17.13C] Assignment and Novation Facts Tollhurst (D) was the owner of property containing extensive chalk quarries. He sole some land to the Imperial Portland Cement Co Ltd (co-plantiff, respondent) and that company bought another piece of land from another company. The Imperial Company was formed with the object of establishing cement works and carrying on the business of Portland cement manyfacturers at Northfleet. The agreement proviedd that Tolhurts agreeed to supply the Imperial company with chalk for a period of up to 50 years of fur such shorter period as he has chalk available and suitable and capable of being quarried. The imperial company agreed to buy at least 750 tons per week. In 1990 Imperial company sold its land and businesses, and also assigned contractual rights to Assoicated Portland Cement Manufacturers (1990) Ltd (The other plaintiff). Tolhurt challeneged the assignment. Matthew J gave judgement for Tolhurst to see. Issue Whether the assignment was invali on the basis that the right assigned was personal to the imperial company? Outcome
Majority affirmed decision of COA in holding that the right to supply chalk was not a personal right. It was held thattge ussye was determined by construction of the contract between tolhurst and the Imperial Company. Other Key Cases Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 [16.29] Facts Mr Coulls entered into a contract to allow O’Neil Constructions to quarry part of his land. In exchange, O’Neil was to pay royalties to Mr Coulls and his wife as joint tenants. Following Mr Coulls’ death, his executor (Bagots) sought to determine whether O’Neil was required to pay the royalties to the estate or to Mrs Coulls. A majority of the High Court held that the royalties were payable only to the estate on the ground Mrs Coulls was not a party to the contract. In discussing the issue of consideration, a majority of judges (concurring with Barwick CJ) concluded that where a promise is made to joint promisees then
Issue Decision
either promisee can enforce even though consideration only moved from one. Whether Doris was a party to the contract and could enforce the contract in view of the fact that she offered no consideration on the contract. Held (Barwick CJ) Mrs Coulls was intended to be a party to the document – the promise to pay made by O’Neil was made to both Mr & Mrs Coulls. The position is: a. A promise by A made to B & C for consideration to pay B & C. b. In such a case, A cannot question whether the consideration moved from both B & C or only one of them. The promise was not a gratuitous promise c. Such a promise is enforceable only if B &C are parties to the action to enforce it. B could not sue alone. d. If C would not join the action, B could join C as defendant. However, judgement would be for a payment to B & C. e. (e) If B would not join, C could sue, joining B as a defendant HELD Taylor and Owen JJ (majority) They held that the promise of the Construction Co was made to Arthur alone. However they went on to consider the joint promisee situation, and said that where only one of 2 joint promisees provides the consideration for the promise, it does not mean that the other promisee cannot benefit from it. At common law however, the action should be brought by both, and it may well fail if brought by one only. Barwick CJ (dissenting) Given that we have the grant of a licence to quarry for cash consideration, and all 3 parties have participated in a single arrangement, the promise to pay should be considered a promise to both of them. This was a promise made by one party to 2 others - it is not therefore open to the first party to question whether the consideration came from one party or the other or both. Such promise however is only enforceable if both parties acting together to enforce it. However if one of the joint promisees refused to join as a plaintiff, the other could join them as a defendant, and judgment would be given for them jointly. Windeyer J (dissenting)
This is either a contract with 1 party and 2 others, or a contract with 1 party and another for the benefit of a 3rd. In my view the former is correct. However, it is said that there was no consideration from the wife. This is irrelevant. Joint promisees do not have to furnish the consideration separately. It means a consideration on behalf of them both. McTiernan J He considered that the promise was made to Arthur alone, and did not consider the joint promisee situation.
Wilson v Darling Island Stevedoring & Lighertage Co Ltd (1956)
The HC held that an exclusion clause in a bull of lading, which purported to protect ‘the Carrier or his agents or servants’, did not protect a stevdore which unloaded the goods as agent of the carrier.
New Zealand Shipping Co. Ltd. v Satterthwaite & Co Ltd (The Eurymedon) [1975] AC 154, Privy Council Facts At issue was the liability for damage to a drilling machine that was being shipped from the United Kingdom to New Zealand. The damage was caused by the negligence of the stevedores, the company responsible for unloading the ship. The question was whether the stevedores could take advantage of certain exemption and limitation clauses in the Bill of Lading, the contract of carriage. The Bill of Lading was expressed to extend the protection of these clauses to servants and agents of the carrier (including the stevedores) on whose behalf the carrier was deemed to be acting as agent or trustee. Decision HELD Lord Wilberforce He affirmed the general proposition that a contract between two parties cannot be sued on by a third person even though expressed to be for that person's benefit. However this does not rule out agency contracts. Lord Reid in Midland Silicones Ltd v Scruttons Ltd [1962] AC 446 set four conditions for the validity of such an agency contract in this situation: 1. The bill of lading makes it clear that the stevedore is to be protected by the limitations provisions. 2. The bill of lading makes it clear that the carrier is contracting as agent for the stevedore. 3. The carrier has authority from the stevedore to act as agent, or perhaps later ratification by the stevedore would suffice.
4. Any difficulties about consideration moving from the stevedore are overcome. In this case only point 4 is in question. There can be little doubt that in the commercial reality of this situation that relations were entered into for financial gain, ie there was consideration. Nevertheless, as in many common situations, eg auctions, train tickets, offers for rewards, it is difficult to fit this complex of relations into the classical offer and acceptance with identifiable consideration. Demonstrating that English law, having committed itself to a technical and schematic doctrine of contract, in application takes a practical approach, making it difficult to reconcile theory and practice. In this case the bill of lading should be considered a unilateral contract, in which the shipper offers exemptions to the carrier and/or any contractors of the carrier who carry out the contract. As in Carbolic Smoke Ball the offer is accepted by action. The fact that the stevedores were already obliged to carry out the unloading through a contract with the carrier does not prevent these same actions being consideration in a contract with the shipper. The shipper gains the benefit of a direct obligation which it can enforce. An additional argument in favour of this interpretation is that it is consistent with US law. Commercial considerations should have the same force on both sides of the Pacific. HELD Viscount Dilhorne and Lord Simon of Glaisdale dissented.
Port Jackson Stevedoring v Salmond & Spraggon (Aust) (The ‘New York Star’) (1978) Facts The case concerned shipment of razor blades from Canada to Australia. Following usual practice, on arrival in Sydney the packages of razor blades were discharged from the ship by the stevedores and placed in a shed under its control. Later servants of the stevedores delivered the packages to persons who had no right to receive them, and from whom they were not retrieved. The consignee brought the action against the stevedores alleging negligence. The stevedores relied on a Himalaya clausepurporting to extend the benefit of immunities in the bill of lading to independent contractors of the carrier (substantially identical terms to those under consideration inSatterthwaite's case). The consignee attempted to distinguish Satterthwaite on a number of grounds, and claimed that the stevedore could not rely upon the "Himalaya clause" in this case. Decision HELD Lord Wilberforce (delivering their Lordships' judgment)
He emphasised the significance of Satterthwaite. While there will be room for evidence as to the precise relationship between the carrier and stevedore and as to the practice at the relevant port, in the typical case there will be found a contract between the shipper and the stevedore so that the latter will be entitled to contractual immunity. The court would not support a search for fine distinctions which would diminish the general applicability of the decision in the light of established commercial practice. This case is typical of those to which Satterthwaite applies and it is unnecessary to consider in any greater detail the way in which this contract was formed. The consignee argued that in this case the stevedore's conduct was a fundamental breach. As a result the consignee is excused from further performance of the contract. In particular, the consignee is not required to bring its action within the space of a year in accordance with a time limitation clause of the bill of lading. Alternatively, the time limitation clause relates only to contractual liability, and not liability in tort, which is alleged in the current action. The court rejected this argument. The time limitation clause is expressed in such broad terms as to apply to liability both in contract and tort, and moreover, it clearly was intended to regulate the manner in which liability is to be established, and survives even a repudiatory breach. The consignees argued further that the immunity clauses do not extend to liability for loss of the goods once the goods have been unloaded from the ship. The court considered the terms of the bill of lading, which contemplated the carriers or their agent’s responsibilities for the goods after their unloading, and made clear that the immunities extend over this period also.
Express Terms/ Incorporation of Terms KEY CASES JJ Savage & Sons P/L v Blakney (1970) 119 CLR 435 [10.06C] Facts Blakney wanted to buy a boat from Savage.
A letter from Savage detailed fuel consumption, power, speed etc.
Specific mention of an 'estimated speed' of 15 mph
Blakney took Savage's advice on speed (whilst another expert told him differently) and placed an order for the boat. Contract made and executed. No reference to the boat's speed.
Boat could only do 12 mph, Blakney sued.
Issue
Whether (as the FC held) there was a promise in relation to the estimated speed of the vessel?
Decision
Trial Judge:
The representation was neither a term of the contract nor a collateral warranty. The statement was an estimate only, not an unequivocal promise of a future speed. It was only an approximate speed referred to dictionary. Full Court: Reversed the decision. Statement was a collateral warranty. High Court: Statements made during negotiations
"The words in themselves tend, in our opinion, against the inference of a promise that the boat would in fact the nominated speed[1]."
The words indicated ‘an expression of opinion’ only.
"So far from being a promissory expression, 'estimated speed 15 mph' indicates, in our opinion, an expression of opinion as the result 'of approximate calculation based on probability'[2]."
The question is "whether there was a promise given about the speed and the entry into the contract to purchase the boat providing the consideration to make the promise effective[3]". There needed to be a condition in the in contract that the boat must reach that speed to show the promise.
Collateral contract
It is insufficient to use the idea that Blakney would not have ordered without the statement.
To establish a collateral contract, the statement needed to be promissory in nature, and made with intent to induce the entry of the other party.
This statement, as mentioned above, is not promissory in nature.
Full court decision reversed.
Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623 [10.10C] Facts Dick Bentley knew the defendant, who was a car trader specialising in the prestige market, for some time. He had asked him to look out for a well vetted Bentley car. The defendant obtained a Bentley and recommended it to the claimant. He told him that the car had been owned by a German Baron and had been fitted with a replacement
Issue
Decision
engine and gearbox and had only done 20,000 miles since the replacement. Mr Bentley Purchased the car but it developed faults. The defendant had done some work under the warranty but then more faults developed. It transpired that the car had done nearer 100,000 miles since the refit. Issue of terms of a contract Whether or not a representation about the mileage of a car from a car salesman that induced him to purchase the car amounted to a term of the contract. Whether an award was justified? The question for the court was whether the statement amounted to a term in which case damages would payable for breach of contract, or whether the statement was a representation, in which case no damages would be payable since it was an innocent misrepresentation and the claimant has also lost his right to rescind due to lapse of time. Held: The statement was a term. Mr Smith as a car dealer had greater expertise and the claimant relied upon that expertise.
the experienced/expert party (a dealer) made a statement which proved to be false.
Due to his position of power, and ability to check, his statement is considered promissory.
Can't claim innocence as in the case of the inexperienced user in Oscar Chess Ltd v Williams.
Relevant expertise of the parties thus makes a difference to whether statements are promissory or representational.
Hoyt’s v Spencer (1919) 27 CLR 133 [10.16C] Facts The Defendant (Spencer) leased premises to the Plaintiff (Hoyts) The lease was done through a registered memorandum of lease. Contained a clause that enabled the Defendant to terminate the lease at any time as long as it give the Plaintiff 4 weeks notice in writing. Later on, the Defendant invoked that right and terminated the agreement, giving the due notice. The Plaintiff complied. However, afterwards, the Plaintiff brought an action that, in consideration for him entering the agreement, the Defendant promised him he will not terminate the agreement during the term.
Issue
Whether the FC’s decision should be affirmed because the collateral contract relied on was inconsistent with the main contract.
Decision
Majority opinion: The Plaintiff claims that "the respondent Spencer was to have the
unqualified right as a matter of property to resume possession whenever he chose to exercise his power...but he was under a personal contractatual obligation, by virtue of the collateral promise, not to exercise his property right except in accordance with the collateral promise[1]." - this is a fallacy. As we know, collateral contracts by definition involve the entrance
into a contract as consideration for a promise. However, this also means by definition that the "main contract,
when utilised to form the consideration for the collateral contract, must be taken exactly as it is...the parties shall have and be subject to all (not some only) of the respective benefits and burdens of the main contract[2]." This means that a collateral contract cannot contradict a
contractual right or obligation in the original contract. It cannot be inconsistent to it. It also needs to be made before or at the time of formation. "a collateral contract...may be either antecedent or
contemporaneous [to the main contract, and]...cannot impinge on it [main contract], or alter its provisions or the rights created by it[3]." "where the main contract is relied on as the consideration...for the
promise contained in the collateral contract, it is a wholly inconsistent and impossible contention that the other party is not to have the full benefit of the main contract as made[4]." In this case, it was obvious that the consideration for the promise was that the plaintiff would "take a lease and become lessee for the term mentioned and 'upon certain terms'[5]". One of those terms was the ability of the Defendant to terminate at will. Accordingly, a collateral warranty cannot exist as to deprive the
Defendant of this right, because the consideration for that promise is the Plaintiff's acceptance of all the terms of the contract, including the ability to terminate at will. This is clearly inconsistent, and "the appellant's [Plaintiff, Hoyts]
first contention is therefore unsound[6]." Dissenting opinion: Note: this was in the Full Court, not in the High Court, where the
above judgment is taken from
The parties have full rights to modify the contract. As they
previously negotiated the terms of the contract, they are able to modify those terms through collateral contracts and such. If a person promised he wouldn't do a specific thing if another signed a document then obviously he bound himself to do so if the other has signed the document. It shouldn't be up to the court to look at the document and say -
the former person's promise is inconsistent with the document and therefore is worthless. The parties have clearly modified the agreement. APPEAL DISMISSED.
Oscar Chess Ltd v Williams [1957] 1 WLR 370 [10.30C] Existence of writing and expertise Facts Mrs Williams purchased a second hand Morris car on the basis that it was a 1948 model. The registration document stated it was first registered in 1948. The following year her son used the car as a trade in for a brand new Hillman Minx, which he was purchasing from Oscar Chess. The son stated the car was a 1948 model and on that basis the Oscar Chess offered £290 off the purchase price of the Hillman. Without this discount Williams would not have been able to go through with the purchase. 8 months later Oscar Chess ltd found out that the car was in fact a 1939 model and worth much less than thought. They brought an action for breach of contract arguing that the date of the vehicle was a fundamental term of the contract thus giving grounds to repudiate the contract and claim damages. Issue Differentiating between terms and representations - relevant expertise of the parties Decision Held: The statement relating to the age of the car was not a term but a representation. The representee, Oscar Chess ltd as a car dealer, had the greater knowledge and would be in a better position to know the age of the manufacture than the defendant. Court held the circumstances of the sale were not such to make the statement a term of the contract as the owner of the vehicle had no more knowledge than the purchaser - In fact, the purchaser may have had more knowledge as they were a car dealer. * Statement was an innocent misrepresentation and the court would have set it aside in equity if Oscar Chess had acted earlier (8 months was too long)
Ellul v Oakes (1972) 3 SASR 377 Facts Ellul (appellants) claimed damages for breach of contract, based on a statement that a property which they purchased from the defendant was sewered. This statement had been made in certain advertising material, that statement was signed by the defendant, it was false. Judgement for the defendants. The plaintiffs appealed to the Full Court. Issue Whether the statement was a term of the contract? Decision Appeal allowed. Reason - Zelling, “what effect the statement would have on the mind of a reasonable person so as to make him think that such a representation was contractual in its nature?.” He then explains the reasoning in Oscar Chess v Dick Bentley: “it does not matter if he was innocent or not but, if he didn’t behave as a reasonable man, it’s function of the Court to hold him to his promises. It was obviously within the knowledge of the defendant whether his property was sewered and the plaintiffs, who were ignorant of that fact, were justified in regarding the statement as more than a mere representation”.
Couchman v Hill [1947] KB 554 [10.25C] Content of Statement Facts P (Couchman, A before the COA) sought to recover damages from D for breach of a term in a contract made at an auction. The subject matter of the contract was red and white stirk heifer. Prior to the heifer being out under the hammer P has inquired whether the heifer was unserved, to which both the defendant and the auctioneer replied “yes”. The sale catalogue also described the heifer as ‘unserved’. The fact, the heifer was in calf and later died from the strain of carrying the calf at a young age. Outcome COA held that it was a term of the contract of sale that the heifer was unserved. The county court judge was wrong. APPEAL ALLOWED. Therefore, P was entitled to recover damages for breach of contract.
Shepperd v Ryde Council (1952) 85 CLR 1 [10.36C] Collateral contracts
In that case Shepperd was buying a house from the local council. The council said in a pamphlet that parkland near the house which Shepperd was proposing to buy would remain as parkland. This was obviously an attractive feature and Shepperd went ahead with the purchase. The contract of sale made no mention of parkland. The council later wished to build on the parkland and Shepperd sought an injunction to stop it. The argument was that there was a collateral promise concerning the park land and this had induced Shepperd to sign the sale agreement. The High Court was prepared to accept this argument, stressing that the heavy onus of establishing a collateral
contract is more easily discharged when the subject-matter of the alleged collateral contract is something quite separate from the main agreement and which you would not expect to find in the main agreement. In Australia, there is a restrictive rule concerning collateral contract and that is the so-called rule in Hoyt's Pty Ltd v Spencer. This was a High Court case which said that a collateral contract cannot stand if it contradicts the main agreement. This was not a problem in Shepperd because the subject-matter of the collateral contract was separate from the subject-matter of the main agreement.
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). 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.
Parker v The South Eastern Railway Co
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. Parker v The South Eastern Railway Co
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
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. 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. 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. 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 L’Estrange v F Graucob Ltd [1934] 2 KB 394 [10.46C] Signature Facts L purchased the cigarette vending machine from G As part of transaction L signed the form headed “sales agreement” L brought an action for damages for breach of an implied warranty that the machine was reasonably fit for the purpose G relied on a clause in the Sales Agreement excluding all implied warranties as a defense to L’s claim L claimed not have read them Issue Can the exclusion clause operate even when L was not aware of the term? Outcome It was held that Mrs L'Estrange could not claim damages on the grounds that she did not see the clause in the contract. There was no evidence of fraud or misrepresentation that might have mitigated this judgement. Decision Implied warranty’s can be excluded by exemption clauses even where the promisee has not read, but has signed the document and is not aware of its terms. Note – whilst it appears to be unfair, other remedies may apply such as estoppel. Was there any inducement here?
Causer v Browne [1952] VLR 1 [10.51C] Facts Mr Causer took his wife’s dress to a dry cleaner. Mr Causer said to the shop assistant that it was his wife’s favourite dress and that great care needed to
Issue Outcome
be taken. The shop assistant told him not to worry that the dress would come back fine. The shop assistant gave Mr Causer a docket at the foot of which was certain printing containing certain terms. The dress was damaged and Mrs Causer sued. Were the special conditions at the foot of the ticket communicated to the offeree? Held: The court found in favour of Causer on the basis that the offeree had not been made aware of the terms. Causer thought that the docket was merely a voucher by which he could pick up the dress when it had been cleaned.
Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 [10.55C] Facts Plaintiff was injured in the defendant’s carpark
Issue Outcome
There was a sign “All cars parked at owner’s risk” at the entrance to the carpark The ticket was issued by a machine as the plaintiff entered the carpark The plaintiff was later injured when he returned to pick up his car The trial judge found that fault lay partially with the defendant who was found liable Defendant appealed, claiming to rely upon the exemption clause – in small print on the ticket appeared the words “this ticket is issued subject to the conditions of issue as displayed on the premises” Plaintiff says he looked at the ticket on entering the carpark but only noticed the time printed, and not the small print. The conditions which appeared on a panel near the entrance were exhaustive and sought to exclude liability inter alia for any personal injury caused by their negligence Was the exclusion clause part of the contract between the parties Held: The court found for Thornton on the basis that the plaintiff didn’t have adequate notice of the exclusion clause and the defendant’s hadn’t done what was reasonably sufficient to bring the conditions to the notice of Thornton. Parker’s case was distinguished on the basis that the ticket in this case was issued by an automatic machine. The offeree had no chance of returning the ticket once taken. Denning MR, stated that in this case the offer was the notice at the entrance of the car park. The acceptance was Thornton driving up to the entrance and having the ticket thrust at him. The contract was then concluded and nothing on the ticket could change the terms of the contract because it had already been entered into. In particular it could not be altered to include an exclusion clause in favour of the offeror. 1. Did the offeree know that there was printing on the ticket?
2. Did the offeree know that the ticket contained or referred to conditions? And 3. Did the offeror do what was reasonable in the way of notifying prospective passengers of the existence of conditions and where their terms might be considered?
Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association Ltd [1966] 1 All ER 309 [10.61C] Course of dealing Facts Grimsdale & sons (P) sold quanities of Brazilian ground nuts to Sufffolk *SAPPA+ (D). “sold notes” were sent to SAPPA in relation to prior oral contracts. “conditions of sale” were contained on the back of each note. Grimsdale alleged that these terms, including cl 9 which dealt with responsbility for latent defects in goods, were part of the contract. Havers J found that there had been frequent prior transactions between the parties, three or four months during the previous 3 years. The practice was for sold notes to be sent on the day of the oral contract or the fay following. SAPPA knew there were terms, but had never read them. Havers J held that the terms has not been incorporated. Issue Whether Havers J was correct to condlude that ther terms was not incorporated. Outcome COA held that the evidence should have led Havers J to conclude that the terms of the sold notes were incorporated into the contract. From that perspective, Havers J’s decision was revered. Appeal allowed.
DJ Hill & Co P/L v Walter H Wright P/L [1971] VR 749 [10.67C] Facts D agreed to carry valuable machinery for P and in doing so it was damaged. The contract was agreed by telephone, and the documents were signed on delivery. They said that the carriage was subject to terms which excluded liability for damage. Previous work of this type had been done on about 10 occasions, and similar forms had been signed. There was no evidence to say that the terms had actually been read. Issue Issue of exemption clauses Whether or not the term written on the back of a delivery document were to be incorporated into the terms of the contract. Considered whether or not there was a course of dealings between the parties sufficient to incorporate the terms on the back of the document into the contract. Outcome HELD On the first occasion it was an oral contract, made before performance had
been completed. So the documents could not be contractual. The same applies to all the subsequent transactions. In the later transactions, P did know of the existence of the forms but did not know the content of the terms and conditions as the documents were seen as acknowledgment of delivery. Here, there was no evidence of any “course of dealing” being established. Even though the parties had contracted on a number of previous occasions they had not done so by incorporating terms as are now sought. Spurling and Hardwick can be distinguished as the documents there were plainly accepted or treated as being contractual. [This is often regarded as a poor decision - after all both were commercial parties, and should have known that such documents incorporate terms. It was clearly said here that previous dealings could not cure the "postcontractual" problem, whereas in Hardwick the House of Lords had clearly said that it could].
Toll (FGCT) P/L v Alphapharm P/L (2004) 219 CLR 165 [10.71] Facts RT was the Australian importer of a drug that was extremely temperature sensitive RT asked T to provide a quotation for transportation and store of its drug. RT was asked to and did sign an “Application for Credit” The front of the application included the statement “please read conditions of contract” prior to signing – RT did not read the conditions The terms set out on the back of the application exempted T from liability for loss and contained a clause where by RT agreed to indemnify T for loss of liability to others. - this would mean that RT would pay damages for a successful action by A against T RT then engaged T to carry a supple of the drug to A by an additional contract of carriage. A separate contract of carriage T negligently held the drug in an incorrect temperature A sued T T sought indemnification from RT based on the application for credit Issue Can T rely on the indemnification clause Outcome The indemnity clause was held not to form part of the contract between RT and T T had not done what was reasonably required to bring the clause to the attention of RT The contract of carriage between T and A is a different contract to the application of credit between RT and T Shellor J – the principle in the L’estrange is not black and white Here there are two contracts one for distribution and one for credit
The indemnity clause was not in the main contract so T had an obligation bring the clause to RT’s attention The application for credit form contained a disclaimer of a very large scope; this was no reasonably to be expected and notice of it needs to be given to RT. Reasonable notice was not given – where a clause is in a different document and not one to be reasonably expected the promissor must insure that the promisee is given reasonable notice of it In order to notify customers of the indemnity either the existing clause should be brought to each customers attention or expressly excluded liability in the main consignment contract.
Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805 [10.73] Facts Mrs Curtis took a white satin wedding dress, trimmed with beads and sequins into the defendant’s dry cleaning shop. The defendant’s shop assistant asked Mrs Curtis to sign a receipt. When Mrs Curtis asked “why”, the shop assistant said it was so that she (Mrs Curtis) accepted responsibility for any damage to the beads and sequins. Mrs Curtis accepted this and signed the receipt. In fact, the receipt stated, “This or these articles are accepted on condition that the company is not liable for any damage howsoever arising”. The dress was damaged and Mrs Curtis sued for damages. Issue Was the exemption clause incorporated into the contract between Mrs Curtis and the dry cleaners? Outcome Held: As to the general rule relating to signing documents, Denning LJ stated, at 808: “If the party affected signs a written document, knowing it to be a contract which governs the relations between them, his signature is undeniable evidence of his assent to the whole contract, including the exempting clauses, unless the signature is shown to be obtained by fraud or misrepresentation”. The court found for Mrs Curtis on the basis that the shop assistant failed to explain the full extent of the exclusion clause.
General Rule: Express terms overrule implied terms (Byrne v Australian Airlines) Implied terms can be categorised as follows: 1. Terms implied to give efficacy (produce a desired result) to a particular contract based upon the facts and circumstances of a particular case; 2. Terms which the law finds in a certain class of contract, either pursuant to the common law or statute, although these terms may not find specific expression in the contractual statements or documents of the parties; 3. Terms implied into a contract to give effect to a notorious custom or usage in a particular trade, industry or locality.
Terms implied in fact: Presumption: The contract is effective without the implied term.
The onus of proof rests upon the party alleging the existence of the implied term (Heimann v The Commonwealth). Terms implied by law Presumption: The term is to be part of the contract. Terms implied by law do not depend on the intentions of the parties and are implied on more general considerations (Lister v Romford Ice and Cold Storage Co Ltd). The onus of proof rests upon the party who alleges that the term should not be implied in the contract (Heimann v The Commonwealth). In relation to discharging the onus of proof, it can be noted that the courts are generally reluctant to imply a term into a contract (Roxborough v Rothmans of Pall Mall Aust Pty Ltd). Where parties have entered into a detailed contract setting out express terms of the agreement establishing that there is an implied term is difficult (Codelfa Construction Pty Ltd v State Rail authority of New South Wales).
Implication of terms on the facts of a contract Here, a court is asked to imply a particular term on the basis of the specific facts and circumstances of the case. The principles to be applied depend upon whether the contract is formal or informal. The implication of such terms is designed to give effect to the presumed intention of the parties (Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce).
Formal Contracts: In BP Refinery and Codelfa the question was whether a term should be implied in a formal written contract which was complete on its face. In the case of BP Refinery v Shire of Hastings the Privy Council listed the five requirements necessary to be satisfied:
1. It must be reasonable and equitable 2. It must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it the contract won’t work unless the implication of the term is made (Moorcock). 3. It must be so obvious that ‘it goes without saying’ courts wont imply a complex provision as per Codelfa Case 4. It must be capable of clear expression; and 5. It must not contradict any express terms of the contract
1. Equitable and Reasonable: As in Byrne v Australian Airlines; the requirement refers to fairness as between the parties. Further, the reasonableness and equity is to be judged by reference to the benefits and burdens each party can expect to enjoy or undertake under the contract. Reasonableness alone is not enough to imply a term Codelfa 2. Necessary to give business efficacy: Element requires that the alleged implied term must be necessary to make the contract effective and workable according to the presumed intention of the parties State of New South Wales v Banabelle Electrical Pty Ltd. 3. So obvious it goes without saying: The requirement is tested by asking whether the parties would have readily agreed on the proposed implied term if it had been suggested to them in the course of their negotiations (Codelfa). Element considers the presumed intention as reasonable persons.
In Codelfa Codelfa was contracted by State Rail Authority to do excavation work as part of construction of railway line … they worked 8 hours per day 6 days per week; local residents complained and obtained injunction so no work was to be done between 10pm-6am … this meant increased costs; Codelfa claimed that the written contract between the parties had an implied term to the effect that the SRA would pay these additional costs. High Court rejected Codelfa’s claim; on the basis of obviousness being not present.
4. Capable of clear expression: Two elements, the term on which the parties would have agreed on had the matter at issue been drawn to their attention must be clear. Second the term to be implied must have been one capable of being formulated with a sufficient degree of precision. 5. Consistency with Express Terms: Self explanatory Informal Contracts: As per Byrne v Australian Airlines, judges Gummow and McHugh warned against strictly applying the elements established in BP Refinery, in circumstances where the contract is not in written form, or is oral or partly oral. Reinforced that the question of whether the implication of a particular term is necessary for the reasonable or effective operation of the contract is subject to the circumstances of the case.
Implication of Terms by Law: The implication of terms by law can be pursuant to statute or common law. The implication of such terms reflects policy considerations rather than the intentions of the parties.
Implied by Statute: Important statutes include legislation relating to sale of goods contracts, and the Trade Practices Act 1974. Statutes that imply terms may also limit or preclude the parties from expressly excluding these implied terms. Implied by Common Law: Two part test used.
1. Court must determine the type or class of contractual relationship to which term would apply 2. Court must determine that the term is appropriate for all contracts in that type or class To satisfy the 2nd requirement, the test of necessity is used needs to be satisfied that implication of the term is necessary in the sense that if the term is not implied ‘the enjoyment of the rights conferred by the contract would be or could be rendered nugatory, worthless or undermined’ (Byrne v Australian Airlines). Thus in Liverpool City Council v Irwin in relation to tenancy agreements for units in a block of flats owned by a landlord, the House of Lords held that it was necessary to imply a term to the effect that the landlord was obliged to take reasonable care of the common areas. Important example of terms implied by common law is with employment contracts. Thus in the absence of an express term or statutory provision to the contrary; an employee is bound by terms to the effect that he/she will: a) Take reasonable care in carrying out employment Kashemije Stud Pty Ltd v Hawkes b) Will faithfully serve the employer Blyth Chemicals Ltd v Bushnell c) Will obey lawful and reasonable commands from the employer R v Darling Island Stevedoring d) On the other hand, employers are bound by terms to the effect that he/she will; will provide a safe system of work O’Connor v The Commissioner for Government Transport e) Indemnify an employee for costs incurred by the employee in the course of employment Re Famantina Development corporation Recently, English courts have asserted that there is an implied term in an employment contract to the effect that neither party will engage in conduct calculated to destroy or seriously damage the relationship of mutual trust and confidence between employer and employee Eastwood v Magnox Electric plc 2005 Implied obligation on each party to a contract to do all that is reasonably necessary to secure its performance Mackay v Dick Implication of Terms by Custom: Term may be implied into a contract to incorporate a relevant custom in a particular market, trade or locality. Leading case on terms implied by custom is Con-stan Industries of Australia v Norwich Winterthur Insurance High Court had to deal with claim that there existed customary term in a contract of insurance to the effect that, in cases where the insured had paid the insurance premium to a broker and the broker had failed to pass it on to the insurer, the insurer’s only claim for the premium was against the broker and not the insurer. In rejecting this claim the HC set out the following propositions in relation to terms implied by custom;
1. The existence of a custom or usage that will justify the implication of a term into a contract is a question of fact …
2. There must be evidence that the custom relied on is so well known … that everyone making a contract can be reasonable presumed to have imported that term in the contract … not necessary for the custom to be universally accepted 3. Term will not be implied when it is contrary to the express terms of the agreement 4. Person may be bound by custom notwithstanding the fact that he/she had no knowledge of it Implied Term of Good Faith: Controversial issue as to whether there is an implied term of good faith. According to Patterson, Robertson and Duke “The recognition of a duty of good faith and fair dealing is important because it would directly acknowledge the relevance of good faith and fair dealing to contractual relationships”. In Royal Botanical Gardens and Domain Trust v South Sydney Council six HC judges left the question open regarding the concerned implied term. Kirby also left it open but stated that ‘such an implied term appears to conflict with the fundamental notions of caveat emptor that are inherent in common law conceptions of economic freedom’.
No previous cases have explicitly stated that an implied term of good faith applies to all commercial contracts. However in CGU Workers Compensation v Garcia Mason P suggested such a tem could be implied into certain classes of contract … Furthermore it has been observed that standard form contracts, especially if they contain a general power of termination will contain the implied term to act in good faith; Burger King v Hungry Jacks. Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL indicated that an implied term of good faith can only be established on the facts of a given case.
Meaning of Term As per Burger King v Hungry Jacks adopted statement made by Sir Anthony Mason in 1993 lecture; where Mason said the implied term of good faith embraced the following 3 related notions: 1. An obligation on the parties to co-operate in achieving the contractual objects (loyalty to promise itself) 2. Compliance with honest standards of conduct 3. Compliance with standards of conduct which are reasonable having regard to the interests of the parties Jobern Pty Ltd v Breakfree Resorts Pty Ltd Gordon J identified specific conduct constituting bad faith; 1. Acting arbitrarily, capriciously, unreasonably or recklessly 2. Acting in a manner that is oppressive or unfair in its result by, for example, seeking to prevent the performance of the contract or to withhold its benefits 3. Failing to have reasonable regard to the other parties interests
4. Failing to act ‘reasonably’ in general Exclusion of the Term: Issue of whether an express term can exclude any duty of good faith has left Australian cases divided. As stated, “it is plain no duty of good faith can be implied where the duty is inconsistent with an express term of the contract” (Ingot Capital Investments v Macquarie Equity Capital Markets). However Finn J in Marconi Systems v BHP Information Techology ‘it is, perhaps, difficult to envisage an express provision authorising dishonesty’. Byrne v Australian Airlines Ltd (1995) 185 CLR 411 [11.06C] Facts B was employed by AA as a baggage handler; B was dismissed for pilfering B sought relief claiming that his dismissal was in breach of the Award, which provided that termination should not be harsh, unjust or unreasonable B sought damages for breach of contract, arguing that the Award term was also an implied term of his employment contract Issue This case considered the issue of implied terms Whether the terms of a statutory award could be implied terms of a contract of employment. Outcome In order to be implied as a generic term into a particular class of contract, a term must satisfy the necessity test A term will not be implied by law into a particular class of contract unless the enjoyment of rights conferred by the contract would or could be rendered nugatory, worthless or perhaps seriously undermined unless the term is implied Essentially the basis of the contract must be seriously undermined Such a term should not be implied in a contract of employment Benefits are still conferred upon an employee by the contract which is thus not worthless The difference between implying a term because it is inherent in a class of contract and implying a term because it is necessary for the effective operation of the contract is that an inherent term is universal (i.e. generic) to that class whereas a term specific to a particular contract’s effective operation is factual (i.e. specific) It is not necessary to imply the Award term into the class of employment contracts, so AA cannot have been in breach
The Moorcock (1889) 14 PD 64 [11.16C] Terms Implied Facts In November 1887, P (R before the COA) reached an agreement with the defendants, who were wharfingers. That agreement was for the discharge and loading by the D of the Moorcok, the vessel owned by the P. The vessel was moored alongside a jetty at D’s wharf. It suffered damage when at a low tide
Issue Outcome
the centre of the vessel settled on a ridge of had ground beneath the mud. Butt J, held D liable for this damage. D appealed to the COA. Is the proposed implied term necessary to make the contract work? Appeal dismissed. COA considered that a term was to be implied into the agreement to the effect that the ground beneath the vessel was safe, or that reasonable steps had been take to ensure or verify that it was safe. Accordingly, the defendants were liable to compensate the Plaintiff foe the damage to the vessel.
Liverpool City Council v Irwin (1977) AC 239 [11.24C] Facts Liverpool city council owned a block of flats in which the defendant was a tenant. The common parts of the flats, the lifts, stair cases, rubbish chutes etc, had fallen into disrepair. A rent strike was implemented by many of the tenants including the defendant. The council sought to evict the defendant for non payment of rent and she counter claimed for breach of an obligation to repair. However, the tenancy agreement did not mention any obligation to repair. In fact the tenancy agreement only imposed obligations on the tenant with no mention of the obligations of the landlord. The defendant asked the court to imply a term that the council had an obligation to repair the common parts of the block of flats. Issue Whether the plaintiffs were in breach of contract? Since they were not in breach of any express terms, Ds case was depended on proof of an implied term. Where the plaintiff has impliedly agreed to keep the common parts in repair. Outcome D was successful, but online in the sense that the leases were held to include an implied term to keep the common parts in reasonable repair. The appeal dismissed because no breach of term has been proved. D was liable to pay rent.
OTHER KEY CASES Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 [11.09], [11.10] Facts An Australian company (Hospital Products) was USSC’s agent in Australia. Hospital Products was to be the sole Oz distributor for a product made by USSC, called Auto-Suture. The contract (written) between Hospital Products and USSC stated that Hospital Products was to use its “best efforts” to promote the sale of Auto-Suture. Failure to do this would be breach of contract (and this happened and was found in the court case). Whether there’s a breach of fiduciary duty. Hospital Products had developed a competitor for Auto-Suture and pursued their own interests in selling their own product rather than Auto-
Suture when the opportunity arose – this is what USSC complained about. Either party were free to terminate the contract at any time. The agreement didn’t define what quantities of Auto-Suture had to be sold by Hospital Products. They didn’t have to purchase a quantity of Auto-Suture. Whether the relationship between Hospital Products and USSC was a contractual relationship and, in addition, a fiduciary relationship. Hospital Products v United States Surgical Corporation (1984) 156 CLR 41, 66 per Gibbs CJ: i. ‘One person is obliged, or undertakes, to act in relation to a particular matter in the interests of another and is entrusted with the power to affect those interests in a legal or practical sense’; ii. ‘The special vulnerability of those whose interests are entrusted to the power of another to the abuse of that power’
Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Facts State Rail contracted with Codelfa to excavate the site for the Eastern suburbs railway line. Codelfa was required to complete the work in 130 weeks from the commencement date of 7 March 1972. Codelfa commenced work on that date operating three shifts a day. The work generated considerable noise and vibration and on 28 June 1972, local residents successfully obtained injunctions restricting the hours of work to between 6am and 10pm. Codelfa settled the subsequent litigation by abiding by those hours and further restrictions on the removal of soil on Sundays. Codelfa then claimed from State Rail an additional amount of money to cover the additional costs and the lost profit brought about by the litigation. Codelfa asserted that there was a warranty implied into the contract that if it were restrained from working, then State Rail would indemnify Codelfa from any loss brought about by such a restraint. Outcome Held: The court finds for State Rail, only on the issue of the implied term (not on the issue of whether the contract had been frustrated – Codelfa won on that issue), that is, a term covering the ramifications of the injunction could not be implied. The court applied Lord Simon’s five (from BP Refinery (Westenport) Pty Ltd –v- Shire of Hastings (1977) 180 CLR 266) conditions to ground an implied term.
Con-Stan Industries of Australia v Norwich Winterhur Insurance (Australia) (1986) 160 CLR 226 Facts In 1976, Con-Stan employed Bedford as their insurance brokers. In 1977, ConStan sought insurance to cover motor vehicles, workers’ compensation and manufacturer’s output. Norwich was selected as the insurer. The premiums were paid to Bedford but Bedford did not pay them to Norwich. Norwich moved to wind up Bedford but did not recover the premiums. Norwich then
Issue Outcome
sued Con-Stan for the premiums. Was there an implied term in the contract of insurance to the effect that the broker was liable to pay and not C? Held: The court finds in favour of Norwich Insurance, on the basis of a four point test. (i) The existence of a custom or usage will justify the implication of a term into the contract is a question of fact; (ii) There must be evidence that the matters relied on are so well known and acquiesced in that everyone making a contract in the situation can reasonably be presumed to have imported a term embodying them into the contract; (iii) A person may be bound by custom notwithstanding the fact that he had no knowledge of it; and (iv) But a term will not be implied into a contract on the basis of custom where it is contrary to the express terms of the agreement. The court stated that this case failed the second test.
CONSTRUCTION OF CONTRACTUAL TERMS – other notes Gordon v Macgregor (1909) 8 CLR 316 [12.07C] Facts P (Macgregor, R before HC) was a timber merchant. He sued on a contract to supply a quantity of log timber. He proved that a document has been signed by the parties which said that the logs were to be of an average girth not less than 10ft 6in. No time for delivery was stated. D said that two essential terms had not been included in writing: (1) Delivery was to commence 3 months after date of contract (2) Min. girth of 6ft had been agreed upon. SC of QLD gave a judgment for D n the basis that the contract included the alleged terms. Issue Whether D could prove the document, which was executed, did not express all the terms of the contract. Outcome HC agreed with the FC, with the result that P retained the judgment for $2500 damages for breach of contract. Appeal dismissed.
Prenn v Simmonds [1971] 1 WLR 1381 [12.13C] Fact Simmonds (P, R before House of Lords) was employed as MD and lead technician of a company owned by RTT. Under cl of an agreement, P was entitled to acquire from D $% interest in RTT. However, P’s right was subject to provisos set out in cl2.
Issue Outcome
D contended that as less than $300,00 provides were available for dividend over the relevant period, cl2(b), was not satisfied. D based his contention on the profits of RTT along. P argued that the required amount had been exceeded because ‘profits’ meant the consolidated profits of the group of companies consisting of RTT and its subsidiaries. In order to support this he sought to reply on extrinsic evidence, namely prior negotiations of the parties. What was the meaning of the phrase ‘profits…available for dividend? Were the prior negotiations of parties admissible on the interpretation issue? Decision of COA upheld. Simmonds was entitled to acquire 4% interest in RTT. Appeal dismissed.
L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 [12.05], [12.20]
Schuler -- a machine tool manufacturer -- entered into a contract with Wickman in which Wickman would have the sole right to distribute one of S's products in the UK. The contract had a term 'it shall be a condition of this agreement that' W visit six specified dealers one a weekly basis to promote S's product. On a few occasions W failed to do this. S repudiated the contract, claiming that W had breached a condition. The House of lords held that stating that something was a condition was evidence that it was, but not irrebutable. In this case, they reasoned that the parties could never have intended a breach of this nature to result in the destruction of the contract when they first entered into it.
Pym v Campbell (1856) 119 ER 903 [12.23C]
P (Pym) agreed to sell D three one-eight parts of the benefits which might accure from his invention. It was alleged to be a term of the agreement that P would explain the invention to two engineers appointed by D and if they approved the invention the sale would go through. One of the engineers did not approve of the invention. D alleged that this meant they were not contractually bound to the purchase At trial the verdict was in favour of D. P btained the rule nisi for new trial on grounds of misdirection
Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348 [12.30C]
Resolution: The rule of nisi was discharged. Favour of D. Rule Dismissed. P agreed in writing to lease to D some sound reproduction equipment as described in a schedule. When P sued for the hire, D said by way of setoff that only second hand equipment had been provided instead of new equipment. D wanted to submit evidence to this effect. This matter was heard as a preliminary issue. Resolution: Appeal dismissed. HC did not consider that there was any obligation on RCA to ensure that the equipment was new. D’s claim therefore failed and D was liable to pay for the hire.
Gilberto v Kenny (1983) 48 ALR 620 [12.39C]
J Evans & Sons (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 2 All ER 930 [12.44C]
Mrs Kenny (P, R before HC) agreed the existence of an agreement to purchase property from A. The document headed ‘offer and acceptance’, which was signed by R and A, stated that R agreed t pay for the land. But the document also said that A agreed to sell the land to Mr Kenny (they intended the purchase the land together). When A refused to go on with the transaction. Resolution: Appeal dismissed. Court was able to resolve the patent ambiguity in the contract by recourse to extrinsic evidence. The order for specific performance was confirmed. Defendant (carriers) shipped machinery for plaintiffs Used standard conditions used by trade Pre-1967, defendants used trailers and agreed machinery would always be carried below deck 1967, defendants switched to containers and assured plaintiffs machinery would still be stored below deck BUT new standard conditions said could be stored on deck Later plaintiff’s good were washed off deck Plaintiff sued for breach of contract successfully Resolution: Appeal allowed because COA considered that parol evidence rule did not prevent P from proving that the contract was partly written and partly oral. Court held defendants could not rely on written contract only and allowed plaintiffs to adduce oral evidence
Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Facts State Rail contracted with Codelfa to excavate the site for the Eastern suburbs railway line. Codelfa was required to complete the work in 130 weeks from the commencement date of 7 March 1972. Codelfa commenced work on that date operating three shifts a day. The work generated considerable noise and vibration and on 28 June 1972, local residents successfully obtained injunctions restricting the hours of work to between 6am and 10pm. Codelfa settled the subsequent litigation by abiding by those hours and further restrictions on the removal of soil on Sundays. Codelfa then claimed from State Rail an additional amount of money to cover the additional costs and the lost profit brought about by the litigation. Codelfa asserted that there was a warranty implied into the contract that if it were restrained from working, then State Rail would indemnify Codelfa from any loss brought about by such a restraint. Outcome Held: The court finds for State Rail, only on the issue of the implied term (not on the issue of whether the contract had been frustrated – Codelfa won on that issue), that is, a term covering the ramifications of the injunction could
not be implied. The court applied Lord Simon’s five (from BP Refinery (Westenport) Pty Ltd –v- Shire of Hastings (1977) 180 CLR 266) conditions to ground an implied term.
CONSTRUCTION OF EXCLUSION CLAUSES Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 [14.06C] Facts Securicor Transport agreed to provide a night patrol service for Photo Production's factory to protect from theft and fire etc. An employee of Securicor Transport, whilst supposed to be patrolling the premises, lit a fire (to keep warm) and ended up burning the factory down. Securicor Transport's standard form of contract had a condition which stated that: "the company will not be liable for injurious act or default of the employee, unless it could have been foreseen and avoided by due diligence of the employer, nor for loss by burglary, theft or fire or any other cause, except so far as it is attributable to negligence or the company's employees acting within the course of their employment.” Further provisions limited liability of the Company to stated amounts. Photo Production claimed damages of some £648.000 for breach of contract and / or negligence.
Issue Outcome
At trial, it was held that Securicor Transport were not negligent or in breach of any want of care as employers, and Condition 1 excluded liability for acts of the employees. Whether Mackenna J was correct in his construction of the contract? (If he was the appeal would be allowed) House of Lords unanimously allowed the appeal. There for Mackenna J’s decision was reinstated and P’s claim failed. Appeal allowed
Darlington Futures Ltd Delco Aust (1986) 161 CLR 500 [14.12C] Facts The Plaintiff [Delco] hired the Defendant [Darlington] to trade for it in the stock market.
The contract contained exclusion/limitation clauses:
Clause 6 excluded liability for ‘loss arising in any way out of any trading activity undertaken on behalf of the client whether pursuant to this agreement or not.’
Issue Outcome
Clause 7 limited the broker’s liability to $100 in respect of ‘any claim arising out of or in connection with the relationship established by this agreement.’ Without the authority of the Plaintiff, the Defendant traded in his names heavy losses were sustained. The Plaintiff sued to recover the damages.
Whether Darlington had breached the contract? Whether cl 6 and 7 protected Darlington? Darlington’s appeal was successful. Therefore, its liability is limited to $2500. Given that Darlington acted without authority, the decision is a strong indictment of the commercial approach in Photo Production Ltd v Securicor Transport Ltd
Council of the City of Sydney v West (1965) 114 CLR 481 [14.19C] Facts In December 1981, West (P, R before HC) parked his car at Sydney Domain Parking which was owned and operated by D. He received a ticket which contained three clauses headed ‘Parking conditions’. Beneath these clauses was a clause headed ‘important’ which said: ‘this ticket must be presented for time stamping and payment before taking delivery of the vehicle’. When P returned to collect his car it could not be found. It transpired that it had be delivered to a thief who had tricked D into issuing a duplicate ticket. When the car was later found it had been damaged. P sued for damages, alleging: i. breach of implied promise of safe keeping ii. cause of action to detinue (wrongful detention of goods after a demand for their return by the person entitled.) Outcome Majority of HC dismissed appeal. Applying the four concern rule, the exclusion clause was held not to apply. D was liable for damaged. Appeal dismissed.
Thomas National Transport v May & Baker (1966) 115 CLR 353 [14.27C] Facts May & baker (P, R before HC) contracted with TNT for the carriage of goods from VIC to other stated. One, pay, was engaged to TNT’s depot to collect the goods for transport to TNT’s depot to be sorted for onward movement. Pay collected the goods from R but by the time he had collected the other consignors’ goods TNT’s depot was closed and Pay took the goods home. This was in accordance with TNT’s practice. The shed in which the goods were stored overnight caught on fire and the goods were damaged. The damage was agreed upon $8622. R sued TNT for breach of contract and/or negligence.
Outcome
On trail the judgment was in favor of P. Appeal dismissed. Applied deviation rule and held that the parties did not
intend the clauses to apply if TNT deviated from the agreed couse of carriage.
Alderslade v Hendon Laundry Ltd [1945] KB 189 [14.34C] Facts Alderslade (P, R before HC) left 1 Irish lien handkerchiefs with D for washing. When they were not returned P sued for damages. There was evidence of negligence on the part of the defendants who nevertheless relied on the conditions under which they accepted the handkerchiefs as limiting their liability. This sum was much less than that claimed by P. The county court judgment favoured P. Outcome Appeal allowed. COA held that the exclusion clause applied. Because the only rational basis for liability was negligence, effect could be given to condition 3 even though it did not expressly refer to negligence.
For negligence by a contract breaker to be within the scope of an EC it is clear that it must be clearly intended that the clause covers negligence:Davis v Pearce Parking Station
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.
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. 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: -
The degree of performance up to the breach compared to the performance required under the contract.
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Whether damages will adequately compensate the lost expectations of the innocent party.
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Whether the expectations of the party in breach would be unfairly prejudiced by terminating the contract.
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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 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 Hongkong Fir Shipping Co v Kawaski Kisen Kaisha Ltd [1962] 2 QB 26 [13.06C] Facts In 1956, the plaintiffs bought a boat called the “Antrim” from the Avon Shipping Company. In December of that year the plaintiffs chartered the boat to the defendant’s for a period of two years. The boat was refitted for cargo duties in Liverpool. The charter agreement stated that boat was to be renamed the “Hongkong Fir” and fully loaded would be capable of
steaming about 12½ knots in good weather and smooth water. There was a penalty clause in the contract that provided that in the event of breakdown or maintenance that hindered the boat from working and that continued for more than 24 consecutive hours, no hire would be paid in respect of any time lost where the boat was unable to perform service.
Issue Outcome
The Hongkong Fir’s first voyage was to leave Liverpool on 13 February 1957, sail to Newport News Virginia in the USA, pick up a cargo of coal and carry it to Osaka in Japan, via the Panama Canal, taking no longer than two months. Due to constant breakdowns, the Hongkong Fir didn’t arrive in Osaka, until 25 May, 1957, some 1½ months late. On 5 June, 1957, Kawasaki repudiated the contract. Whether the plaintiffs had breached the contract of charter by failing to deliver a seaworthy boat. Appeal dismissed The court found that seaworthiness wasn’t a condition of the charter contract. It was discussion of this issue that led Diplock LJ, to find that the express or implied obligation of seaworthiness is neither a condition nor a warranty but one of that large class of contractual undertakings one breach of which might have the effect ascribed to a breach of condition and a different breach of which might have only the same effect as that ascribed to a breach of warranty.
Luna Park Ltd v Tramways Advertising P/L (1938) 61 CLR 286 [30.06C] Facts Luna Park entered into a contract with Tramways Advertising to have 53 advertising signs displayed on the roofs of trams. The contract was entered into in December 1935 and was to run for three seasons. There were two documents that are important to understand. The first was a letter from Tramways Advertising to Luna Park that set out an offer that stated, in part, that “The average time that each car is on the tracks is eight hours per day, and we would recommend all routes serving the industrial suburbs” The second document was a formal contract between the parties that stated, “We guarantee that these boards will be on the tracks at least eight hours per day throughout the season”. After two seasons, Luna Park alleged that the display contracted for was not being provided and they sued for damages. In evidence it became apparent that Tramways Advertising thought the contract meant that they would warrant that the advertising posters would be displayed an average of eight hours a day spread across the whole season. Whereas, Luna Park thought that a condition of the contract was that each tram
Issues Outcome
would be out on the tracks a minimum of eight hours every day. Whether the plaintiff had earned its fee? Appeal allowed Held: The High Court reversed the decision of the appeal court and found in favour of Luna Park. The court stated that Tramways’ undertaking was that each and every roof board would be displayed for at least eight hours each and every day and that this undertaking was a condition of the contract. The court is persuaded by the fact that the guarantee in the contract did not refer to averages and on the issue of whether the undertaking was a condition or a promise, the court had this to say, affirming the judge at first instance: “It was a term of the contract which went so directly to the substance of the contract or was so essential to its very nature that its non-performance may fairly be considered by the other party as a substantial failure to perform the contract at all.” The court stated that the only way to determine whether a term of a contract was a condition or a warranty was to look at the contract in light of surrounding circumstances and the intention of the parties. So this they did. The court discovered three things. First, the words used by the parties, “we guarantee” mean the parties emphasised the importance of the clause. Second, no payment was due until all 53 advertising boards were ready to be displayed. Therefore, the parties clearly regarded the completeness of all of the display boards as an essential element of the contract. Finally, the correspondence showed that the continuity of display was an important feature. Tramways advertised their service as, “an exclusive full powered type of publicity that is continuous day in day out and gets 100% attention all the time”.
Associated Newspapers v Bancks (1951) 83 CLR 322 [30.13C] Facts Bancks entered a ten year contract with Associated Newspapers Ltd to draw a weekly full page cartoon called. The Newspaper agreed to publish Bancks’ cartoon every week on the front page of the comics section in two different newspapers. Everything went OK for two years. In January 1951 the Newspaper dropped its comic section and printed it in the colour magazine that accompanied the newspaper and was printed in a different paper. Bancks comic was printed on the third page of the comic section, which was page nine of the colour magazine. For three weeks the defendant’s comic appeared on the third page of the comic section. The Newspaper had never advised Bancks that they would change the format of the comic section and drop his comic to page three of the colour
Issue Outcome
magazine. Whether termination of contract was valid? Appeal dismissed The court found in favour of Bancks on the basis that the Newspaper’s undertaking was not a mere warranty or non-essential subsidiary term of the contract, but was a condition or essential term going to the root of the contract, a breach of which entitled Bancks to rescind. In a joint judgment of the court, the first issue they looked at was how to determine whether a term is a condition or a warranty. The court examined English law and referred to Blackburn J’s, in judgment in Bettini v Gye (1876) 1 QBD 183 at 186, that the court must ascertain the intention of the parties to be collected from the instrument and the circumstances legally admissible with reference to which it is to be construed.
Cehave NV v Bremer Handelsgesellsschaft mbH (The Hansa Nord) [1976] QB 44 [30.17C] Facts This case involved contracts to sell citrus pulp pellets on GAFTA terms. Cl 7 of the contract said that the shipment was to be "in good condition". The buyers were to use the product in animal feedstuffs. On arrival in Rotterdam , there was major damage to 1260 metric tons and minor damage to a further 2053 tons. The buyers rejected the shipment and claimed the return of the price which had already been paid.
Issue
Outcome
L Sculer AG v Wickman Machine Tool Sales Ltd [1974] AC 235 [13.05]
The sellers refused to repay the money, and the goods were sold to X for £33,000. The goods were then resold to the original buyers for the same reduced price. The goods were then used for cattle food. The contract price was for £100,000 and the market price at the time was about £86,000. Wheher cl7 was a condition? If the term was not a condition, whether the consequenced of the breach nevertheless justified rejection Whether the sellers had breached the condition of mechantable quality implied by s12(s) of Sale of Goods Act 1893 (UK) COA held in favor of the sellers on all grounds. Mocatta J’s decision was therefore revered.
ickman alleged that Schuler AG wrongfully terminated their contract for Wickman to visit car makers to market Schuler’s panel presses, as their sole representative for 4 and a half years, even though Wickman had failed to make visits. Clause 7(b) said, ‘It shall be a condition of this agreement that [Wickman] shall send its representatives to visit [the six
Ankar v National Westminster Finance Ltd (1987) 162 CLR 549 [30.23], [30.25]
largest UK car manufacturers of the time] at least once in every week for the purpose of soliciting orders for panel presses.’ Clause 11 said either party could end the agreement if the other was in material breach and did not change its behaviour on 60 days' notice. Mr Wickman failed to make any visits at the start. This was waived by Schuler at first, but then when Wickman was making some but not all the visits, Schuler terminated. Wickman sued, alleging Schuler was not allowed to terminate. Issue of express terms in a contract and whether or not a term was a condition, the breach of which would allow for termination of the contract.
DISCHARGE TOPICS REF: Other Notes Cutter v Powell [1795] 101 ER 573 [28.06C] Facts The claimant's husband agreed by contract to act as a second mate on the ship the 'Governor Parry' on a return voyage to Jamaica. The voyage was to take eight weeks and he was to be paid on completion. A term in the contract stated: "Ten days after the ship 'Governor Parry,' myself master, arrives at Liverpool, I promise to pay to Mr. T. Cutter the sum of thirty guineas, provided he proceeds, continues and does his duty as second mate in the said ship from hence to the port of Liverpool. Kingston, July 31st, 1793."
Outcome
Six weeks into the voyage the claimant's husband died. The claimant sought to claim a sum to represent the six weeks work undertaken. Court found in favour of D. Therefore, P got nothing for the work which Cutter ad done. Judgment for D
Government of Newfoundland v Newfoundland Railway Co [1883] 13 App Cas 199 [28.16C] Facts D (Government of Newfoundland) agreed to grant 25000 acres of lad to P every 5 miles of railway constructed. P only completed 25%. Outcome Appeal dismissed. Therefore, P were entitled to subsidies and land grants in respect of the completed parts.
Koompahtoo Local Aboriginal Land Council v Sanpine (2007) 233 CLR 115 Facts Koompahtoo entered a joint venture with Sanpine for development of Koompahtoo’s land. Liabilities were incurred against the land in preparing proposals for development, but development consent could not be achieved. An admistrator was appointed to Koompahtoo and terminated the agreement. Issue Was the agreement validly terminated? Analysis/Decision Agreement was validly terminated because of Sanpine’s failure to adhere to its accounting obligations, to keep proper records and books was sufficiently serious to give Koopahtoo the right to terminate the contract, either because it was an essential term, or even if it were non-essential, the breach was sufficiently serious as to justify termination. Ration The right for repudiation for breach of contract may aris even if the breach was not of an ‘essential term’ of the contract, where there has been a sufficiently serious breach of non-essential term as to justify termination. Obiter There may be times when it is impossible to say when the contract is entered into whether breach of a particular term will entitle the other party to terminate, but still breached of the term may be serious enough to have that consequence. Order Appeal allowed with costs.
McDermott v Black (1940) 63 CLR 161 [6.94] Facts There was an agreement that the plaintiff purchase certain shares from the defendant. The plaintiff had difficulty paying the purchase price and obtained a three week extension. Toward the end of this period the plaintiff complained that he had been misled about the shares by the defendant's misrepresentations. The plaintiff offered to withdraw these allegations on condition that the defendant granted a further extension. This was agreed, but the plaintiff was still unable to pay. The defendant rescinded the contract of sale, and the plaintiff commenced the present action alleging fraud. The defendant claimed that the plaintiff was contractually bound not to bring such an action. Issue Issue of discharge by agreement Whether or not a subsequent agreement discharged any cause of action for breach of contract in the initial agreement. Outcome Held that this was allowed as there was no consideration given for the agreement.
Maynard v Goode (1926) 37 CLR 529 [13.14C] Facts Goode (P, R1 for HC) agreed to buy land know as the ‘Cairnton’ from one Crosby (R2). The land comprised about 1455 acres of soldier settlement land. Agreement was subject to a proviso tat the transfer of land owned by Good went through in a ‘reasonable time’. This was necessary because of the statutory restriction on amount of land he could own.
Outcome
Shortly afterwards, Crosby purported to sell the land to Maynard (A). Crosby also refused to join with Good in applying for the consent of the Ministered of Public Lands to the transfer. Goode managed to sell his land to one Angel, which transfers being registered in June. Good sought damages and specific performance of the contract with Crosby in the Supreme Court. Maynard and Crosby were restrained from proceeding with their transfer. Appeal dismissed. There the order for specific performance would remain in force and Crosby was obliged to complete the transaction.
Lewes Nominees Pty Ltd v Strang (1983) 49 ALR 328 [13.21C] Facts Strang (R) granted A an option to purchase property. Cl 3 dealt with the exercise of this option. The option was due to expire on 11.11.1980. On that day a written notice of exercise, together with a bank cheque for the amount payable under cl13 were placed in an envelope addressed to R and forward to him by registered mail. This was received on 12.11.1980. In addition, a photocopy of the notice and bank cheque was delivered to R at his home on 11.11.1980. SC held that the option had been exercised in accordance with cl.13. That decision was reversed by FC. Outcome Appeal dismissed. On the basis that the option had not been exercised at the time. That was not because the appellant breached the contract. It was simply that a condition precedent had failed.
Kingston v Preston (1773) 2 Doug 689 [28.12] Facts The Defendant was a silk mercer and the Plaintiff was his apprentice. Their agreement provided that after a year and a quarter, the Defendant would retire from the business. The Plaintiff and a partner were to carry on the business. The Plaintiff would buy out the Defendant’s share of the business in monthly installments and to assure these payments, the Plaintiff agreed to provide security to the Defendant at and before the sealing and delivery of the deeds conveying the business. The Plaintiff subsequently sued, averring that the Defendant had not surrendered the business at the appointed time, and the Defendant claimed that the Plaintiff had not provided sufficient security. Issue Did the Defendant breach the agreement? Outcome Held. No. There are three types of covenants: (1) mutual and independent – each party can sue the other for breach, but one party cannot cite a breach of the other party’s covenant as an excuse for his own breach; (2) conditions and dependent – the performance of one depends on the performance of another and the duty to perform does not arise until the prior condition is performed; (3) mutual conditions – the conditions must be performed at the same time and the failure of one
party to perform is a ground for alleging breach. The dependence and independence of these covenants must be determined from the “evident sense and meaning” of the parties. The important factor to consider is when in the order of time the covenants should be performed. Here, the agreement essentially dictates that the Defendant would not entrust his business to the Plaintiff without sufficient security.
Discussion
Therefore, the giving of security is a condition precedent. Thus, the Defendant did not breach the agreement since the Plaintiff had not yet performed his obligation The timing of the performance of covenants is extremely important, as it dictates if and when a breach has occurred.
Hoenig v Isaacs [1952] 2 All ER 176 [28.22C] Facts Demonstrates how a court may rule that even in a Breach of contract the injured party may still have obligations Heonig agreed to decorate Isaacs's flat for £750. Isaacs was not satisfied with the work, and offered only £400, so Hoenig sued for the balance. Isaacs claimed that the contract was for the whole job, and Hoenig had not finished it properly. At most, it was argued, he was entitled to an award of Quantum meruit for the work done. However, the court ruled that the contract was substantially complete, and the Hoenig should be paid the full price less the amount it would cost to finish the job (estimate at £55). Outcome
Considered the doctrine of substantial performance and whether or not a contract had been substantially completed or if full completion was a condition of the contract. This case is significant because it applied the principle of substantial performance. Held: The claimant had substantially performed the contract and was therefore entitled to the contractually agreed price minus the cost of the defects.
Bolton v Mahadeva [1972] 1 WLR 1009 [ 28.29C] Facts The claimant installed central heating in the defendant's home. The agreed contract price was £560. The defendant was not happy with the work and refused to pay. Defects in the work amounted to £174. The action by the claimant to enforce the payment failed since the court held there was no substantial performance. Outcome Sachs LJ held that Bolton was entitled to nothing because there had been no
substantial performance at all. At 1015 he said, ‘It is not merely that so very much of the work was shoddy, but it is the general ineffectiveness of it for its primary purpose that leads me to that conclusion.’
Jacob & Youngs Inc v Kent 230 NY 239 (1921) [28.35C] Facts Plaintiff built a house for Defendant for the price of $77,000 and sued to recover the balance due of $3,483.46. One of the specifications for construction was that all wrought iron pipe used must be Reading pipe. By the inadvertence of Plaintiff, not all pipe installed in the house was Reading pipe. When Defendant realized this, he had already begun to occupy the house. Nevertheless, he demanded that Plaintiff replace the pipe with Reading pipe. Doing so would have required Plaintiff to demolish substantial parts of the house and reconstruct it, which would have been a great expense to Plaintiff. He therefore refused and billed Defendant for the remaining amount due for the construction. Defendant refused to pay, and Plaintiff initiated this action. Issue Is Defendant entitled to the cost of replacement of the pipe for Plaintiff’s breach of contract? Outcome Holding: Yes Rational: The court reasoned about what is important and trivial, when it comes to not following the exact terms of the contract. The court held in this case that the measure of the allowance is not the cost of replacement, which would be great, but the difference in value, which would be either nominal or nothing. The court also made an analogy by stating “Specifications call, let us say, for a foundation built of granite quarried in Vermont. On the completion of the building, the owner learns that though the blunder of a subcontractor part of the foundation has been built of granite of the same quality quarried in New Hampshire. The measure of allowances is not the cost of reconstruction”. Furthermore, when the defect is insignificant, the court will find that there was substantial performance and excuse the breach of using the same type and quality of pipe which parties had agreed were the same except for the brand name. The measure of damages is not the cost to rip out the old pipe and install a new one, but the difference in value, which in this case is zero. Dissent: Disagreed with majority’s decision by stating that the defendant specified in the contract exactly what he wanted and that he was entitled to that. The failure to perform was either intentional or due to gross negligence.
A right to terminate the contract for repudiation may arise if one of the parties is not willing or able to perform their contractual obligations. If one party repudiates the contract then the other party (the aggrieved party) will be entitled to terminate the contract.
Where a party repudiates their contractual obligations before they fall due this is known as an anticipatory breach. Where there is an anticipatory breach the party affected by the repudiation has the option of terminating the contract and claiming damages or they can refuse to accept the repudiation and wait until there is an actual breach of the contract. If a party refuses to accept the repudiation then the contract continues along with all the obligations to be performed under it: Bowes v Chaleyer (1923) 32 CLR 159. Actual Breach If there is an actual breach of contract then the party seeking to terminate the contract must prove that they were ready and willing to perform their contractual obligations at the time the breach occurred: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 and Foran v Wight (1989) 168 CLR 385.
Anticipatory breach Where the repudiation is accepted Where there is an anticipatory breach and the repudiation is accepted by the other party then if that party seeks to terminate the contract they must prove that they were ready and willing to perform their contractual obligations at the time the contract was repudiated: Foran v Wight. However, it will usually be sufficient if the party seeking to terminate the contract can show that they were not substantially ‘disabled or incapacitated from such performance’ at the time set for performance: Foran v Wight (1989) 168 CLR 385 at 408-409
Where the repudiation is not accepted and the contract is not terminated Where there is an anticipatory breach and the repudiation is not accepted by the other party then the contract will remain operative. However, in some situations the conduct of the repudiating party may indicate that the other party is no longer required to perform the contract. In such a case the repudiating party may be estopped from arguing that there was lack of readiness or willingness on the part of the other party if that party seeks termination. This issue was also discussed in Foran v Wight.
The absence of willingness or ability Repudiation may relate to the performance of the whole contract or it may relate to specific contractual obligations. Repudiation is likely to give rise to a right of termination where the repudiation goes ‘to the root of the contract’ and it effectively deprives one party of ‘substantially the whole benefit of the contract’: Universal Cargo Carriers Corp v Citati [1957] 2 QB 401 at 426 and 430; Federal Commerce and Navigation Co Ltd v Molena Alpha Inc [1979] AC 757 at 779.
Conduct amounting to repudiation If one party’s conduct indicates that they are not willing or able to perform the contract then the other party is entitled to treat this as a repudiation of the contract: Freeth v Burr (1874) LR 9 CP 208 at 213; Universal Cargo Carriers Corp v Citati [1957] 2 QB 401 at 436.
There are several ways in which a party’s conduct may amount to repudiation: An express statement of unwillingness or inability A party may expressly state that they are unwilling or unable to perform the contract. This is the simplest way that repudiation occurs.
Repudiation based on words or conduct A party’s words or conduct may imply that they are unwilling or unable to perform the contract. When determining whether words or conduct amount to repudiation the courts apply an objective test: Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; Satellite Estate Pty Ltd v Jaquet (1968) 71 SR(NSW) 126 at 150; Universal Cargo Carriers Corp v Citati [1957] 2 QB 401 at 436. Repudiation based on words or conduct The Court examines whether a reasonable person would consider the words or conduct to amount to a repudiation of the contract. In Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd Brennan J suggested that the subjective intentions of the repudiating party are not relevant. He stated (at 647): ‘Repudiation is not ascertained by an inquiry into the subjective state of mind of the party in default; it is to be found in the conduct, whether verbal or other, of the party in default which conveys to the other party the defaulting party’s inability to perform the contract or promise or his *or her+ intention not to perform it’
Repudiation and erroneous interpretation of the contract Repudiation may be the consequence of one party being mistaken in their interpretation of the contract. This will occur if a party refuses to perform their contractual obligations or refuses to accept the other party’s performance because they adhere to an incorrect interpretation of the contract. Repudiation may also occur if a party attempts to terminate a contract based on an incorrect interpretation. In these situations one factor that the court assesses is whether the terminating party was honestly mistaken in their incorrect interpretation: Green v Somerville (1979) 141 CLR 594; DTR Nominees v Mona Homes Pty Ltd (1978) 138 CLR 423.
Repudiation and erroneous interpretation of the contract
If a party is honestly mistaken in their interpretation and acts in good faith then their actions may not be viewed as repudiation of the contract: Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277.
Inability in fact A party may be unable to perform their contractual obligations. In such cases the party desiring to terminate the contract for repudiation must be able to prove inability in fact: Universal Cargo Carriers Corp v Citati [1957] 2 QB 401. The court will consider whether the repudiating party was ‘wholly and finally disabled’ from performing their contractual obligations. (at 446)
Rationale for the doctrine of repudiation One practical reason justifying the principles relating to repudiation is that they allow parties to make alternative arrangements as soon as possible so that they can minimise any loss they might suffer as a result of the breach. In Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 Justice Brennan explained (at 46): ‘The principles relating to anticipatory breach are intended to avoid the necessity for useless performance and to mitigate the damages for which the repudiating party is liable by permitting the innocent party to dispose of any property, services, or other benefits to which the repudiating party would have been entitled under the contract.’
In the Progressive Mailing House case the court considered that the contract for lease was repudiated based on a range of factors. These involved several breaches of the contract which included ‘inflicting physical damage to the premises, failing to rectify that damage, subletting the premises without the consent of the lessor and failing to pay rent’. (Jeannie Paterson, Andrew Robertson and Peter Heffey, Principles of Contract Law (2nd ed, Lawbook Co., 2005) 370).
Note that there are some situations which would give a right of termination both in relation to breach of a term classified as a condition and also a right of termination for repudiation: Associated Newspapers Ltd v Bancks (1951) 83 CLR 322; Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286. Bowes v Chaleyer (1923) 32 CLR 159 [30.52C] Facts R agreed to sell 89 pieces of tie silk containing 1780 yards to A by contract. It provided for shipment by ‘sailer/steamer. Half as soon as possible. Half two moths later’. In June the buyer purported to cancel the contract. Nevertheless, the seller shopped the gods in three lots between Otc to Dec. Nineteen pieces were tendered on 19/01 and 30 on 25/01. The buyer
Issue
Outcome
rejected these. An offer to tender the balance of the goods on the expiration of two months was declined and the seller claimed for damages for non-acceptance of the goods. In the Supreme court: Macfarlan J gave judgement for the seller. Construction of the contract to determine whether the term quoted above was a condition? The consequences of A’s attempt to cancel the contract in June. Appeal allowed. Macfarlan J’s award for damages in favour of R was set aside.
Universal Cargo v Citati [1957] 2 QB 401 [30.59C] Facts Vessel chartered to load cargo of scrap iron at Basrah and to go to Buenos Aires. Arrived at Basra on 12 July but charterer unable to supply cargo. Owners decided charterer unable to perform and chartered vessel to 3rd party in 18 July. How long is a ship obliged to remain on demurrage before the owner can throw the towel in and reallocate the vessel? [demurrage obligation to pay a fixed sum by way of damages for delay]. Owners justify their action before the lay days expired because they held the charterer to have committed an actual or anticipatory breach. Charterer says not in breach of obligation until the expiry of the lay days. Not a good submission.
Issue
Outcome
The vessel should be able to be loaded (with 6,000 tons) within the lay days remaining. Arbitrator found this could not be done. Although it cannot be a breach of an express term to load before the time expires, there must be an implied term that the party should not by act or omission put it out of his power to perform obligations within time and here the party in breach of that implied term. Whether the shipowners were entitled to terminate the charter party 18 July? Whether actual breach of implied term or anticipatory breach of express term? Award remitted. Devlin J: considered that the arbitrator should not have concluded that the charterer could have performed before the delay became so long as to frustrate the contract. Therefore, upheld the arbitrator’s award by remitted the case for further findings. Anticipatory breach concept. Included the analysis of the idea that anticipatory breach concept posits an ‘inevitable breach’. There is a link between discharge by frustration and termination of anticipatory breach in the context of delay. This link arises because the test in cases of delay is ‘frustrating’ delay. Devlin J applies the ‘wholly and finally disabled from performing’ concept.
Carr v J A Berriman (1953) 89 CLR 327 [30.42] Facts Plaintiff [Carr, building owner] hired the Defendant [Berriman, builder] to build a building for him.
Issue Outcome
Plaintiff was to make certain preparations (excavations) by himself and then let the Defendant build on the land starting from a set time. Plaintiff was to acquire steel and the Defendant was to fabricate it.
Come the set time, the Plaintiff did not make the preparations. Moreover, the site was covered in heavy machinery.
The Plaintiff also notified the Defendant that it found a third party to fabricate the steel for him, despite knowing that the Defendant already accepted a tender for the fabrication of steel.
The Defendant considered the Plaintiff's conduct as two breaches and terminated the contract. The Plaintiff brought an action for wrongful termination.
There were two breaches of the contract - the failure to make arrangements and the deliberate decision to do the steel work with a third party despite what was decided in the contract.
The conduct of the Plaintiff in both cases amounted to repudiation - he has given the Defendant “the right to believe that the contract would not be performed according to its true construction[1]” and that "he did not intend to bound by the contract within the meaning of the authorities[2]"
The Plaintiff can argue both that he didn't intend to repudiate his obligation to make the preparations (heavy rain out of his control stopped him from moving the machinery and making preparations) and that the Defendant forfeited his right to terminate for that breach because he kept on going with the contract.
However, the second breach is deliberate and definite repudiation. It also has even greater force combined with the first breach to display utter repudiation on behalf of the Plaintiff.
Thus, the Defendant had the right to terminate.
Progressive Mailing House v Tabali (1985) 157 CLR 17 [30.66] Facts Respondent [Tabali, lessor] leased a property to the Appellant [Progressive Mailing, lessee].
They had a lease in a registrable form which was left unregistered.
Issue
Outcome
A clause allowed the Respondent to retake possession of the property [re-enter] if rent was unpaid.
Another clause required the Respondent to make certain arrangements before the Appellant enters, and then notify the Appellant.
Appellant took possession of the property prematurely. He then contended that the Respondent failed to make the arrangements.
The Appellant failed to make payments, and also made a number of other small breaches of the agreement, which the Respondent demanded remedy for. None was supplied by the Appellant.
The Respondent sued in order to regain possession, obtain damages and outstanding rent.
Whether the principles of contract law apply to lease agreements Whether the fact that the agreement contains the re-entry clause mean that the Respondent uses that clause and thus cannot claim repudiation Firstly, there is the issue of whether the principles of contract law apply to lease agreements.
According to Shevill v Builders' Licensing Board[1] and other sources, they do (including the rules regarding termination and repudiation).
Repudiation is important here because the Respondent can only recover damages for the loss of benefit (rather than just the outstanding rent etc) through repudiation. The issue is whether the fact that the agreement contains the re-entry clause mean that the Respondent uses that clause and thus cannot claim repudiation.
However, this isn't the case. As long as a breach or repudiation has indeed occurred, the Aggrieved power will be entitled to damages regardless of whether it chose to terminate the contract because of a common law right (the right to terminate by breach) or because of a contractual power to do so (the right to terminate by agreement).
"this does not mean that such damages are recoverable only in the event of discharge for breach...This essential foundation may be established by a common law rescission of the contract...or by a termination of the contract in the exercise of a contractual power...In either event, assuming repudiation or fundamental breach by the defendant, he...is liable for damages for the loss of bargain[2]."
"The well recognised distinction between common law rescission and termination pursuant to a contractual power supplies no reason in principle why such damages are recoverable by the innocent party in one case and not the
other, provided of course that the exercise of the power is consequent upon a reach or default of by the defendant which would attract an award for such damages[3]."
DTR Nominees v Mona Homes P/L (1978) 138 CLR 423 [30.65]
In this case, the combination of the unwillingness to pay rent as well as other minor breaches formed a conduct which amounted to repudiation.
"It is not suggested that the breaches so far discussed that the breaches so far discussed, viewed in isolation, amounted to a repudiation or fundamental breach of the lease. It is the breach of the covenant to pay rent, in association with the other breaches...[4]"
lIlustrate how unpredictable is the outcome of litigation arising out of breach of contract. In a contract for the sale of land (lots 1-9) the vendor promised to lodge and register a plan of subdivision with the municipal council. The plan was attached to the contract. The plan attached to the contract actually covered 35 lots, that is, it covered more lots than the contract was dealing with. In fact the vendor lodged a plan that only covered lots 1-9 which were the subject of the contract of sale. Without any warning to the vendor the purchaser terminated ("rescinded") the contract on the basis that the vendor had lodged a plan which was different from the one annexed to the contract. The vendor then responded by saying that the purchaser was in breach by wrongfully repudiating the contract and the vendor then terminated the contract and claimed that it was entitled to keep the deposit. This case is dealt with, at least in part, on the basis that the vendor by insisting on its interpretation of the contract was committing an anticipatory breach. But this aspect of the case really does not matter, that is, it does not matter whether the vendor’s conduct is seen as an anticipatory or actual breach. The trial judge said that the vendors were in breach of the term which dealt with lodging the plan of subdivision but the breach was not serious enough to justify termination. Therefore the purchasers were in breach by wrongfully terminating and the vendors could keep the deposit. The High Court got itself into an extraordinary knot. The starting point was that the vendor was in breach by lodging a plan which did not accord with the plan attached to the contract. They then said that there was a bona fide dispute about the interpretation of a term of the contract. In the 3rd last para on p 588 they then say that insisting on a wrong interpretation of the contract does not necessarily mean that such insistence is evincing an intention not to be bound by the contract. So putting forward a wrong interpretation of the contract is not necessarily repudiatory conduct. They then go on to say, like the trial judge did, that the purchasers were not entitled to treat the vendor’s conduct as repudiatory and that therefore the purchasers were not
entitled to terminate on that basis. One would have thought that would then be the end of the matter. But No. The High Court then went on to ask whether the vendor was entitled to terminate ("rescind") because of the purchaser’s wrongful purported termination. Amazingly they said that the vendor was not entitled to terminate. Why? Because the purchaser’s motive in terminating was honest and it did not intend to repudiate its obligations if the vendor had stuck to the contract. The vendor was insisting on its incorrect interpretation of the contract so the purchaser cannot be blamed for responding to that by purporting to terminate. The upshot of all this was that neither party had effectively terminated the contract. In fact what subsequently happened was that both parties (not surprisingly) thought that the contract was no longer on foot and so nothing more was done. The High Court came to the conclusion that there was mutual abandonment of the contract. This meant that no-one had justifiably terminated and that the contract simply came to an end. This would mean that the purchaser would get back its deposit. As already indicated, this case shows how hazardous is the process of terminating. I have already made the point that one has to be careful because if one makes a wrong assessment of the crucial question - has the other party committed a sufficiently serious breach? - and one then terminates, the wrongful termination will itself be a repudiatory breach and the boot will be on the other party’s foot. But this is not necessarily so according to DTR Nominees. It may be that a purported termination in response to a purported termination is no termination and then the boot shifts back to the first party again!. How on earth do you advise a client in such a situation?
Frustration Codelfa Construction P/L v State Rail Authority NSW (1982) 149 CLR 337 [33.05C] Facts Codelfa entered an agreement with State Rail to construct tunnels, open cuts, other substantial excavation work and construction. Most of the work was to be carried out in residential areas. The work was however, authorized by the City and Suburban Electric Railways Amendment Act 1967 (NSW), in which s11 provided that they could carry on with their work despite injunctions issued to stop him. In fact an injunction was granted by the courts hindering their work. A claim by Codelfa was put on an alternative basis: Either a warranty should be implied for which breach would allow Codelfa to claim damages, or the injunction frustrated the contract and Codelfa should recover on a quantum meruit basis which would be more than the price payable under the contract. Issue Issue of Implied term Issue of Frustration
Outcome
Appeal allowed Held: The court finds for State Rail, only on the issue of the implied term (not on the issue of whether the contract had been frustrated – Codelfa won on that issue), that is, a term covering the ramifications of the injunction could not be implied. The court applied Lord Simon’s five (from BP Refinery (Westenport) Pty Ltd –v- Shire of Hastings (1977) 180 CLR 266) conditions to ground an implied term. Mason J Implied Term: [CB-459] In the case of the implied term the [CB-460] deficiency in the expression of theconsensual agreement is caused by the failure of the parties to direct their minds to a particular eventuality and to make explicit provision for it. The implication of a term is designed to give effect to the parties’ presumed intention. The conditions necessary to ground the implication of a term were summarized by the majority in BP Refinery Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26: 1. It must be reasonable and equitable. 2. It must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it. 3. It must be so obvious that “it goes without saying”. 4. It must be capable of clear expression 5. It must not contradict any express term of the contract. The broad purpose of the parol evidence rule is to exclude extrinsic evidence (except as to surrounding circumstances), including direct statements of intention (except in cases of latent ambiguity) and antecedent negotiations, to subtract from, add to, vary or contradict the language of a written instrument. [CB-463] The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Prior negotiations will tend to establish objective background facts which were known to both paties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable… they are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them. Frustration: [CB-468] The doctrine of frustration is closely related to the concept of
mutual mistake. However, in general, relief on the ground of mutual mistake is confined to mistakes of fact, not of law.
Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 [33.17C] Facts Davis Contractors agreed with Fareham UDC to build 78 houses over eight months for £92,425. It ended up taking 22 months, because Davis was short of labour and materials. It cost £115,223. Davis submitted the contract was frustrated, void, and therefore they were entitled to quantum meruit for the value of work done. Outcome
House of Lords agreed with COA. Therefore appeal dismissed. The result was that A were not entitled to the additional claim payment.
Embiricos v Sydney Reid & Co[1914] 3 KB 45 [33.25C] Facts A Greek vessel went to a port via the Dardanelles into the Black Sea to load grain. The loading, although started, was discontinued as the shippers had heard that the Turkish authorities were seizing Greek vessels. The Turkish Govt then said that they would allow Greek vessels to pass for specified period. It was not now possible to load the ship to enable it to travel through the Dardanelles, within that time. The shipowners cancelled the charter party as they thought the contract had been frustrated, and that they could use the vessel elsewhere. The Turkish Govt then unexpectedly extended the period of permission. As it turned out, had they waited, they would have been able to load the full cargo and get away in time. Issue Whether Chandler v Webster was correctly decided? Outcome HELD That the delay would not, in fact, have frustrated the contract was not the issue. Commercial people are entitled to act on reasonable probabilities which exist at the time they are called upon to act. The parties could not have foreseen an unexpected turn of events and they should not be required to pursue an adventure which seemed hopelessly destroyed at the time. House of Lords overruled Chandler v webster. Appeal allowed.
Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524 [33.63C] Facts The claimant owned five fishing vessels one of which was chartered to the defendants. The fishing vessels were all fitted with otter trawler nets. New legislation was introduced requiring licences to be held by those using otter trawl nets. The claimant applied for five licences but was only granted three. He had to name which vessels the licence would be used on. He named his own vessels and excluded the vessel which the defendant was
Issue
Outcome
using. This meant that the defendant was unable to use the vessel for fishing. The claimant sued the defendant for the price of hire and the defendant in his defence stated the defendant had committed a breach in not providing a licence so he was not obliged to pay for the cost of hire. The claimant argued there was no breach as the failure to provide a licence was a frustrating event in that the decision to grant licences rested with the secretary of state. Issue of frustration of a contract Whether or not a company who chartered a boat were relieved from their obligations after they did not register the boat after there was a change in the legislation regarding the boats eligibility for a license. Held: The contract was not frustrated since the claimant had chosen to keep the three licences granted for himself rather than using one to fulfil his contractual obligation. He had therefore induced the frustrating event and was therefore in breach of contract.
Goldsbrough Mort & Co Ltd v Carter (1914) 19 CLR 429 [34.06C] Facts By contract for the sale of goods Goldsbrough (D, A before HC) agreed to deliver 4000 sheep. Price payable was to be increased o decreased according to the number actually delivered. Drought conditions existed and it was common knowledge that the sheep on the station had died. The station recorded provided the only basis on which D could calculate the number of sheep. These showed 5000 of the type of sheep subject to are available on the contract. This figure was reduced to 4000, to allow for mortality. Delivery took place, only 932 sheep could be found of which P rejected 42. P claimed damages for breach of contract. At trial SC the jury brought in a verdict for P. A motion to set aside verdict was dismissed by FC. D appealed to HC. Issue Whether D had breached contract by not tendering 4000 sheep for delivery? Outcome Appeal allowed. P’s claim for damages failed. Things to look for: 1. Applying the doctrine of frustration. 2. Application of frustration (whether there was promise [expressed or implied] that 4000 sheep existed)
Appleby v Myers (1867) LR 2 CP 651 [34.12C] Facts Appleby (P) who were engineers brought an action to recover $419 for work done and materials supplied. By contract with D, P had agreed to build 10 items of plant and machinery for the price of $459. Eight of the ten items referred to were erected, but not finally completed, when a fire
Issue
Outcome
occurred at D’s premises. This destroyed the plant and machinery, which had been fixed on the premises. Whether P were entitled to recover the payment for the plant and machinery? COA held that they were. D appealed on the basis of whether the contract was frustrated, the issue for the court was whether P were entitled to payment (by way of restitution) for the work done prior frustration. That depended on whether there was evidence that the benefit of the work done had been accepted independently of the contract under which it was done? Appeal allowed.
Fibrosa Spolka Akcjna v Fairbairn Lawson [1943] AC 32 [34.16C] Facts The ¹ is a polish company who expressly contracted with the Æ to buy some machines and have them delivered to Poland. They were supposed to have made a down payment of 1/3 upon order, but paid somewhat less than that. The Æ began the construction of the machines. Poland was subsequently invaded by Germany, which made it impossible to deliver the machines. The ¹ sued to get his down payment back. Issue Issue of frustration of a contract Whether or not the invasion of Poland amounted to frustration rendering the performance of a contract impossible. Outcome Holding: Yes. Where the performance of a contract has begun, but further performance of a contract becomes impossible due to events unanticipated by the parties and beyond their control, the contract fails for lack of consideration, and any partial payment by the buyer is refundable. Reasoning: The court expressly overruled Chandler v. Webster, and claimed that the ¹ was entitled to recovery, not by release by implied condition, but that failure of consideration prevented the contract from being formed at all. The court reasoned that the contract was for delivery, and so when delivery became impossible, the whole contract failed for lack of consideration. Thus, they awarded restitution damages to the ¹ on a theory of quasi-contract because the whole contract had failed. [The promise by the Æ to deliver was an unconditional one. Thus, the risk of invasion preventing delivery was never reallocated to the ¹. Under that view, this is an express contract, entitling the ¹ to expectation damages. But these would be hard to calculate. The burden would be on the ¹ to demonstrate how much it would have made if the machines were actually delivered. However, they only sued for their down-payment. It seems that the announced theory of the case - quasi contract, was a means to get the theory to match the request for reimbursement.]
Bringing a contract to an end A contract is usually concluded when all the obligations are performed. In some circumstances, a contract can be brought to an end prematurely. 1. Frustration 2. Failure of a condition 3. Termination by agreement by an express clause by an implication by new agreement 4. Termination for breach 5. Termination by repudiation 6. Termination for delay
Termination for breach of a term 1. A party can terminate a contract if a condition is breached (also known as an essential term) Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 Look at actual language used eg) is the term specified as “essential” If language not clear, it is a matter of construction. Would the parties have entered into contract if not assured of performance of that term? Note that this is not an easy test to satisfy 2. A party can terminate a contract if there is a sufficiently serious breach of an intermediate term (an intermediate term is a non-essential term) Hongkong Fir Shipping Co v Kawasaki Kisen Kaisha [1962] 2 QB 26 Affirmed by the High Court in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 (breach must be “sufficiently serious”, be a “fundamental breach”, go to “the root” of the contract or deprive the promisor of a “substantial part” of the contract) 3. Breach of a warranty, or a mere breach of an intermediate term does not entitle a party to terminate the contract.
Termination for delay - Time is of the essence
Delay in performance may cause no loss at all. “Time is of the essence” terms have the status of conditions. “Reasonable time” terms will otherwise apply.
When time is of the essence
Express terms + Breach = Right to terminate. However, some argue the right to terminate is inconclusive and an inquiry is required to prove time is of the essence: Hewitt v Debus [2004] NSWCA 54.
Where time is not stipulated
Where no express stipulation, whether time is of the essence is a matter of construction. Conveyancing Act 1919 (NSW) s 13 - Stipulations in contracts, as to time or otherwise, which would not before the commencement of this Act have been deemed to be or to have become of the essence of such contracts in a court of equity, shall receive in all courts the same construction and effect as they would have heretofore received in such court.
Where time is not of the essence
Breach alone will not permit termination. Termination will be permitted where: it amounts to repudiation; or a serious breach of an intermediate term.
Time stipulations as intermediate terms
Fundamental fallacy - In obiter, no intermediacy of time as “there is only one kind of breach possible, namely to be late”: Bunge Corp New York v Tradax; Ankar v National Westminster. Carter - Yes, but degree and consequences may vary.
Notice
A party may terminate by giving reasonable notice to perform even where: 1. Time is not of the essence; 2. Delay is not a serious breach; and 3. There is no repudiation. See Louinder v Leis at CLR 524, 532-3.
Requirements of valid notice
A valid notice to perform an obligation must specify: 1. The new time deadline to perform; 2. This time must be reasonable; and 3. The new deadline is of the essence and that termination will result if unsatisfied. See Laurinda v Capalaba at CLR 646, 653-4
Reasonable time for compliance?
Reasonable time depends upon circumstances of particular case which may include: Subject matter of obligation; What remains to be done;
Whether aggrieved party has been continually pressing for performance; and Any unnecessary delay in complying with non-essential time stipulation.
Termination for delay
Contracts may or may not specify a time for performance of particular obligations 1. If no time is specified, the law implies an obligation to perform within a reasonable time 2. If a time is specified and is specified to be an essential term (or “of the essence”), a failure to perform entitles a party to terminate 3. If a time is specified with nothing more, generally considered not to be an essential term
No Time for performance
Time for performance specified
When Does the Breach Occur?
After unreasonable delay
When may a party terminate?
After notice to perform where a party is given a reasonable time to perform
At time specified
Time of the essence
At time specified
Immediately
Termination is possible because failure to comply with a notice is strong evidence of repudiation
OR Without notice when delay amounts to repudiation (hard to prove) What must a notice contain?
Notice to terminate is only effective in relation to the provision that has been breached Notice must fix a reasonable time for performance of that term Notice must convey a definite and specific intent to require strict compliance with the terms of the contract
KEY CASES Holland v Wiltshire (1954) 90 CLR 409 [29.09C] Facts The Hollands (the purchaser, D in the action and A before HC) agreed to purchase a property in Flinders park. Agreed price $3750 was to be paid by a $2 deposit and balance due on 14.1.1952, the day fixed for completion. Contract conferred on the vendor the right to re-sell the property and to forfeit any money paid ‘if default shall be made in due payment of the –purchase money and interests or any part thereof respectively at the respective times aforesaid.’ Deposit was paid. D asked for extension on time and this was granted. However, in the second week of March, D said they would not proceed with the contract. P served a notice that if D did not settle by 28 march proceedings for breach of contract would be taken. Nothing further was heard from D and P resold the land. LC awarded $645 damages to P. Decision was affirmed b FC. D appealed to HC. Issue Whether the vendor breached the contract by selling the land? Outcome Appeal dismissed.
Canning v Temby (1905) 3 CLR 149 [29.17C] Facts Canning (P, A before HC) was vendor under a contract for the sale of land. Contract specified no date for completion (that is, payment of the price and transfer of the property) but the purchaser knew that if completion did not take place on or before 1.9.1902 the vendor would be unable to discharge a mortgage and would therefore not be in a position to convey the title to the land. Completion did not take place on 1.9. On 5.9, P wrote to the purchasers requesting assistance to save the property. When there was no response provided she sued for damages in SC. SC gave judgement to the purchaser. P appealed to FC, which affirmed SC decision. P appealed to HC. Outcome Appeal dismissed. Therefore, P failed to recover damages. This was on the basis that failure to complete on 1.09 was not a breach of contract.
Bunge Corporation New York v Tradax Export SA Panama [1981] 1 WLR 711 [30.29C] Facts T agreed to sell 15 long tons of soya bean meal. Buyers to provide transport and to give 15 days notice of probable readiness of vessel and approximate quantity required for that shipment. Notice given 17 June, less than 15 days before the end of June, therefore in breach of cl 7. Damages claimed for
Issue Outcome
breach of condition. More understandable if a rise in price and seller wanted to sell elsewhere. As there was a fall in price during the 4 days late, why didn't the seller waive the breach and supply? Lord Wilberforce Cl 7 of the GAFTA form is called a "condition". Argued that this was an innominate term as per Diplock in Hong Kong, and breach did not make performance impossible, and effect inconsequential. This argument based upon a dangerous misunderstanding of HK. A time clause in a mercantile contract totally different in character from the seaworthiness provision of HK. The test of HK "substantially the whole benefit" would have unfortunate consequences here. It would remove the certainty which is vital to commercial contracts and increase arbitrations. The submission is unacceptable in law. The judgment of Diplock does not give any support to such a proposition, for it recognises that the parties may agree that any breach will lead to repudiation. I have myself commended the greater flexibility in contracts to which HK points the way. But court should not be reluctant to find a condition where intended. In such cases, the gravity of breach favoured by HK would be unsuitable. Time clauses important because the ability of the seller may be dependent on punctual performance by the buyer. Appeal dismissed.
Louinder v Leis (1982) 149 CLR 509 [30.37C] Facts Louinder, the vendor/appellant, sold property to Leis, the purchaser/respondent. No date was fixed for completion and time was not stated to be of the essence. However, under cl 4 the purchaser was to tender a transfer to the vendor for execution within 28 days of receipt of the vendor’s statement of title. The statement was delivered in early November 1979. The parties agreed to settle in January 1980, but in January the vendor sought a delay in settlement for three months. The purchaser agreed, but was then informed that the vendor required settlement within a week. In early February, no tender of transfer had been made by the purchaser, and the vendor issued a notice to complete within 21 days. In early March, the vendor terminated the contract on the ground that the notice had not been complied with. In mid April, the purchasers sought to complete, but were informed that the contract had been terminated. The purchaser then sued for specific performance, and the vendor claimed a declaration that the contract had been validly terminated. Helsham CJ in Equity found in favour of Leis. The vendor appealed.
Issue
Issue of unreasonable delay Whether or not a party could give notice to the other party to complete the contract where a clause in the contract specified a date to complete. Issue was whether the fixed time was reasonable in the circumstances.
Ratio
Where a contract contains a promise to do a particular thing on or before a specified day, and time is not of the essence of the promise, the promisee can, generally speaking, only rescind for nonperformance on that day if he has given a notice requiring performance within a specified reasonable time and there has been a failure to comply with that notice. A mere failure to comply with a non-essential time stipulation as to time justifies the giving of a notice having the effect of making time the essence of performance of that stipulation, even though the failure to comply does not involve an unreasonable delay. The nonessential stipulation as to time is a term of the contract enforceable by an action for damages and it is the breach of this term that justifies the giving of the notice. The time limit which the Appellant seeks to rely on applies to the tendering of transfer, not to completion of the contract. He was allowed to give notice with regards to the tendering of the transfer once the delay became evident, but his notice could not require the completion of the entire contract.
Outcome
To be entitled to terminate the agreement, there must have been an unreasonable delay in the completion of the contract , and then the party can issue a notice with regards to termination.
"Where a contract of sale of land contains a stipulation as to time which is not of the essence of the contract, and one party is in breach or guilty of unreasonable delay, the party not in default may give a notice fixing a reasonable date for completion and making that time the essence of the contract[1]"
In this case, the completion of the contract means settlement, an issue which the parties haven't even gotten to yet. This means that there wasn't an unreasonable delay for completion.
Appeal dismissed.
OTHER KEY CASES Ankar v National Westminster Finance Ltd (1987) 162 CLR 549 [30.45] Notes Where in the short extract from the joint judgment of Mason A-CJ, Brennan, Wilson and Dawson JJ you can see that Lord Diplock’s approach was welcomed
as bringing "a greater flexibility to the law of contract". So, in answer to the basic question: which breaches justify termination? We have so far two approaches, viz breach of condition and a breach, which goes to the root of the contract. There are still other approaches. One is when one party by his or her words or conduct manifests an apparent intention not to be bound by the contract. This is dealt with under the next heading. Issues
Issue of express terms in a contract Whether or not a term was a condition, the breach of which would allow for termination of the contract.
Laurinda P/L v Capalaba Park Shopping Centre P/L (1989) 166 CLR 623 [30.46] Facts On 31 October 1985, Capalaba, the lessor, and Laurinda, the lessee, entered into a lease agreement of a shop forming part of the retail centre being constructed by Capalaba. In 3 December 1985, Laurinda went into possession of the shop and shortly thereafter, paid the appropriate sums for preparation of the lease. On 14 March 1986, Laurinda’s accountants asked Capalaba’s solicitors to forward a copy of the lease. On 25 March 1986, Capalaba’s solicitors advised that the lease had been sent to Melbourne for execution, and was expected ‘in the near future’. On 21 August 1986, Laurinda’s solicitors wrote to Capalaba’s solicitors, giving notice for Capalaba to register the lease or deliver it in registrable form. On 3 September 1986, Capalaba’s solicitors replied that they had referred the matter to their client and were awaiting instructions. On 5 September 1986, Laurinda terminated the agreement on the ground that Capalaba had repudiated the agreement or was in breach of essential terms. Capalaba contended that Laurinda’s purported termination was a wrongful repudiation, and claimed unpaid rent, damages and interest. At trial, Connolly J held that the letter was not an effective notice to complete, but that the agreement for the lease had been validly terminated by Laurinda for Capalaba’s repudiation. The Full Court overturned this decision. Laurinda appealed. Issues Issue of time delays in a contract Whether or not a company could terminate a contract as a result of non-compliance with a 14 day notice to remedy the breach or alternatively the long delay in performing the obligation under the term of the contract. Ratio A notice must convey an intention to require strict compliance with the terms of the contract within a reasonable time, so that the recipient will be made aware that the party giving the notice may elect to treat the contract as at an end at the conclusion of such reasonable time unless
Outcome
compliance is forthcoming. In considering whether the time limited by a notice is reasonable in such a case, it is necessary to consider whether an inference of repudiation would be drawn from non-performance if that were to persist beyond that time. Appeal allowed
Bowes v Chaleyer (1923) 32 CLR 159 [30.52C] Facts The Seller [plaintiff/respondent, Chaleyer] entered a contract contract for sale of 1800 yards tie silks with the Buyer [defendant/appellant, Bowes].
Issues Outcome
Short time after, Defendant wrote to the Plaintiff that the Defendant would be compelled to cancel the order due to concerns about prices.
The Plaintiff nonetheless continued to import the silks:
340 yards 21st October 800 yeards 17th November
580 yards 13th December
The Defendant refused to accept them, asserting the contract had been cancelled shortly after it was made.
The Plaintiff sued claiming damages for the difference between contract price and price obtained on sale by auction, alleging buyer’s wrongful repudiation.
Election - Consequences of affirmation
Repudiation
Higgins J:
When the Buyer purported to cancel the contract, that was repudiation. However, that repudiation was affirmed and therefore all rights and obligations remain in place for both parties.
"It is clear, therefore, that on and after 19th January, if not before, the defendant gave absolute and unequivocal notice to the plaintiff that he would not accept the goods—would not perform the contract. The plaintiff then had a right of election: he could have concurred with the defendant in rescinding the contract, and bring an action for the breach; or he could have treated the notice as inoperative, and proceed with the contract. The plaintiff chose the latter course; and thereby he remained subject to all his own obligations under the contract, and the defendant remained in a position to take advantage of any failure of the plaintiff to do his part."[1]
Knox CJ:
In determining whether the buyer repudiated by accepting the goods, the question is 'was the buyer entitled to reject the goods on the ground that the conditions of the shipment had not been complied with?
This question has three parts: 1. What is the meaning of the shipping stipulation? there was no ambiguity – natural and literal meaning means half now, half in two months. Nonetheless, this is not necessary to decide.
1. Did the seller comply with the stipulation? - No. Two months did not elapse between shipments. The shipments were uneven. 2. If not, did the failure to comply with it entitle the buyer to reject the goods? - There is a general rule: A stipulation in a contract for the sale of goods that goods shall be shipped by a certain time is a condition precedent, the breach of would justify the buyer in rejecting the goods tendered (terminating the contract). No reason in this case to ignore the rule - the stipulation was a condition precedent.
Therefore, on the grounds that the Seller breached a condition, the buyer was justified in rejecting the goods and his conduct did not amount to repudiation.
Appeal allowed, the Plaintiff fails.
Repudiation
Even where time is not of the essence, a right to terminate will exist where there is repudiation. This requires a party to indicate intention to no longer be bound by contract: Carr v Berriman. It must be gross, protracted and frustrate commercial purpose of contract: Neeta v Phillips; Universal Cargo Carriers v Citati.
Waiver
The term “waiver” is best understood as an umbrella term. It encompasses the legal principles when rights under a contract may be “waived” In Agricultural and Rural Finance Pty Limited v Gardiner [2008] HCA 57, the High Court held that “waiver” is made up of two principles:
Election Estoppel
Election to terminate
In order for a party to accept a repudiation or terminate for breach, that party itself must be ready and willing to perform its obligations In cases of anticipatory breach, this simply means that the party did not have a substantial incapacity, or definitive resolve not to perform In cases of termination for breach, the party must be able to show that they were ready and willing Where Party A has relied on a representation by Party B that it will not perform its obligations, and Party A has relied on that representation to its detriment, Party B is estopped from maintaining otherwise When a party is faced with two mutually exclusive course of action (affirmation or termination), the party must make a choice between the two and is bound by that choice. A party may keep the question of election open, so long as it does nothing to affirm the contract, or the other party’s position is not prejudiced.
Termination for repudiation
Where one party manifests an inability or unwillingness to perform his or her contractual obligations under the contract, the other party may have a right to terminate (objective test) Only a repudiation of a promise or promises of which an actual breach would found a right to discharge will give rise to a right for the aggrieved party to terminate the contract: Foran v Wright (1989) 168 CLR 385 per Dawson J Conduct that amounts to repudiation Express statement Repudiation based on words or conduct Carr v JA Berriman Pty Ltd (1953) 89 CLR 327
On 3 May 1950, T Carr & Co (owner) and J A Berriman (builder) entered into a contract. Builder promised to erect a factory on the land Owner promised to excavate site prior to 29 May 1950 All steel would be supplied by Owner and fabricated by builder Site was not excavated by the owner by 29 May (site was covered by heavy machinery) Owner accepted another contract for the supply and fabrication of the steelwork for the building On 31 July 1950, Builder wrote to Owner stating that the Owner committed two breaches of the agreement and purported to cancel the contract. Fullagar J: Carr intended to take steps towards the performance of his duty if and when it suited him and not before. The two breaches combined showed, objectively, that Carr did not intend to be bound by the contract
Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17
Tabali leased premises to Progressive Mailing House Progressive ceased to pay rent Progressive committed various other breaches that were not remedied (such as a failure to repair) Mason J: Repudiation of a contract is a serious matter and is not to be lightly inferred. Neither a breach of a covenant to pay rent nor a breach of a covenant to repair, without more, amounts to a repudiation of a lease. However, the breach of the covenant to pay rent, in association with the other breaches, amounted to repudiation.
Relief against forfeiture
Under Australian law, relief may be granted where a sale of land contract is terminated, in order to prevent the forfeiture of the purchaser’s equitable interest in the land. In extreme cases, it may be appropriate for the court to give relief by decreeing specific performance of the contract. Relevant factors to consider include: Did the conduct of the Vendor contribute to the purchaser’s breach? Was the purchaser’s breach trivial or slight, inadvertent and not wilful? What damage or other adverse consequences did the vendor suffer by reason of the purchaser’s breach? What is the magnitude of the purchaser’s loss and the vendor’s gain if the forfeiture is to stand? Important cases: Legione v Hateley (1982) 152 CLR 406 Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315
KEY CASES Rawson v Hobbs (1961) 107 CLR 466 [31.06C] Facts By agreement dated 7th July 1958 Rawson (purchaser, p in the action, A before HC) agreed to purchase a grazing property from the Hobbs (Vendors). The price of the property ($10,160) was payable by way of deposit ($3160) and three instalment payments. The deposit was paid. Land was held under part V of the Land Act 1933 (WA), which governed the conditional purchase of leases of grazing property. S 143(1) provided that a transfer of the lease would not be valid or operative until the approval in writing of the minister of lands. Such an approval could lawfully be given if the transfer infringed s47, by vesting in the transferee a total area of land larger than that allowed. Under s151, registration of a transfer was necessary and the transfer of an excessive quantity of land could not be
Issue Outcome
registered. As husband and wife, the Rawson’s could not become transferees of the leases without the consent of the minister. Cl 12 of the contract provided that P to obtain on both parties to ‘annul’ the sale if the minister refused consent. Rawson’s took possession of the property. They spent money on it. On 16 march 1959 they purported to ‘annul’ the sale, pursuant to cl12, on the basis that information from the Under-secretary of lands indicated that the minister would refuse his consent to the transfer. On 6th may ‘59, the Hobbs responded by a notice that they would ‘rescind’ the contract unless certain breaches were remedied. In the CS, Rawsons sought a declaration that the contract had been annulled. They also claimed damages. By counter claim, Hobbs sought orders on the basis that they had validly given notice of ‘rescission’. Wolff CJ ordered that the contract had been rescinded. FC set aside the judgement and dismissed both the claim and counter claim. Rawson’s appealed and Hobbs cross-appealed. Whether the Hobbs were unable to perform the contract? Full courts decision was affirmed. Two points to look for: 1. HC held that the right conferred by cl 12 was not available. 2. A party who fails to justify termination by reference to a stated ground may nevertheless rely on an alternative ground is very important in practice. However, HC does not deal with the qualifications to that facility. Appeal allowed. Cross-appeal dismissed.
Tropical Traders Ltd v Goonan (1964) 111 CLR 41 [31.13C] Facts D agreed to purchase land in Perth in Jan 58. Price to be paid by deposit, four instalments due in 59, 60, 61 and 62 with final payment in 63. Cl 12 made time the essence of the contract in all respects. Cl 11 said that if D failed to make payments at the proper times, all the money paid by them would be absolutely forfeited. This clause also allowed them to "rescind" the contract without notice and to retake possession of the property. Title was to be transferred on payment of the full purchase price.
Issue
D took possession and paid deposit. The first 3 instalments were each a few days late, and the 4th a few days early. Final payment due on 6 Jan 63. Interest was paid on the following day and an extension of time requested. On 8 Jan P informed of right to rescind for breach but said the right would not be exercised before 11 Jan. On 15 Jan P wrote to say money forfeit and agreement rescinded. 31 Jan P issued writ for declaration that rescission lawful and claiming possession. Whether allowing further time to perform the appell and had affirmed the
Outcome
contract and thereby lost the right to terminate, or otherwise waived the benefit of the right of termination. Acceptance of late payments
The acceptance of late payment did not result in the waiver for the 'time is of the essence' clause neither does it give rise to an estoppel.
Each time the Appellant accepted a late payment was a separate election not to terminate for that particular breach of a condition.
"...it does not follow that in respect of the final payment of...the appellant was giving the respondents to understand that they might safely rely upon its treating of cl 12 of the contract as no longer in force...Each acceptance of a late payment operated, of course, as an election by the appellant not to rescind the contract for non-payment of the relevant amount on its due date[1]"
Granting of the extension
Granting an extension does not nullify a 'time is of the essence' clause - it can, but does not do so generally. More likely, it usually merely substitutes the original time with a new one, which is still 'of the essence'.[2]
The granting of an extension in no way waived the Appellant's right or affirmed the contract.
"On the contrary, the extension was granted with a plain intimation...that the appellant was insisting upon its strict rights under the contract except to the extent of the indulgence it was offering. In the face of the letter the respondents had no reasonable ground for a belief that if they should fail to pay...they could still count on being allowed further time[3]."
Election in general
A party is not required to elect at once.
"It might keep the option open, so long as it did nothing to affirm the contract and so long as the respondents' position was not prejudiced in consequence of the delay[4]."
In this case, the Appellant merely decided to defer its election until the new deadline, after which it elected to terminate. This is perfectly fine.
The Appellant wins.
Legione v Hateley (1983) 152 CLR 406 [31.26C] Facts There was a contract for the sale of land between the parties. The buyers paid a
Issue
deposit and the balance was due one year later. In the meantime, the buyer occupied the land and built a house on it without the knowledge of the person selling the land. The buyer had intended to finance the purchase from the sale of another property, but that sale fell through. They asked for, but were refused, an extension of time. The vendors said that the buyer should obtain a bridging loan. They managed to set this up, but required a week in which to finalise it. There was a stipulation that the balance be paid by 10 August. Clause 5 had made time the essence of the contract. On 9 August, the buyer spoke to the solicitor for the seller and offered to settle on 17 August. - the secretary at the solicitors office said "I think that will be alright, but I'll have to get further instructions." On 14 August, the vendors solicitors said that the contract had been rescinded as from 11 August. Estoppel – Inducement element
Outcome
Restrictions on termination - Estoppel
Gibbs CJ & Murphy J:
The secretary had authority:
"The solicitors...must be treated as having the authority[1]."
"When the solicitors selected or permitted Miss Williams to speak on their behalf, in their capacity as solicitors for the vendors, her words bound the vendors[2]."
The conduct of secretary induced the assumption that there is an extension.
"The statement by Miss Williams was in our opinion both intended and likely to induce a belief in the mind of the purchaser' solicitors that the vendors would not enforce their strict legal rights until they indicated their intention to do so[3]." Therefore, the Vendors were estopped from treating the contract as withdrawn/terminating the contract.
Mason & Deane JJ:
Promissory Estoppel can only result from a clear representation.
Secretary’s conduct did not constitute clear and unequivocal representation.
No estoppel arose. Brennan J:
Secretary and solicitors didn’t have the authority to extend without instructions anyway, and purchaser’s solicitors knew that.
Therefore, under no inducement or assumption.
No estoppel. Final decision:
3:2 majority - no estoppel
Heyman v Darwins Ltd [1942] AC 356 [32.06C] Facts 1938 Darwin’s Ltd (R before of Lords) who were manufactures of steel, appointed the appellants (Heyman, etc) to be their agents in the western hemisphere (excluding the US and Argentine), Australia, NS and India. The contract contained an arbitration cl in the terms. (See case for terms). A dispute arose and A alleged that R to have repudiated their obligations. A writ was issued by them in the Kings Bench Division seeking a declaration to this effect, and also claiming damages. R applied for a stay of these proceedings pursuant to s4 of the Arbitration act 1889 (UK). This was refused by Cassels J but granted by the English COA. A, appealed to House of Lords. Issue Whether the arbitration clause was intended to apply to a dispute in relation to repudiation? Whether the allegation of vlud termination by the appealants meant that they respondents could not rely on the clause – as a provision in the terminated contract? Whether the CO was right in reversing Cassel H’s decision not to grant stay? Outcome It was held that as a matter of construction the arbitration clause was intended to apply to the dispute. The House of lords held that COA was correct to reverse Cassel J’s decision. Appeal dismissed.
OTHER KEY CASES
Bowes v Chaleyer (1923) 32 CLR 159 [30.52C] Facts The Seller [plaintiff/respondent, Chaleyer] entered a contract contract for sale of 1800 yards tie silks with the Buyer [defendant/appellant, Bowes]. Short time after, Defendant wrote to the Plaintiff that the Defendant would be compelled to cancel the order due to concerns about prices.
The Plaintiff nonetheless continued to import the silks:
340 yards 21st October
800 yeards 17th November 580 yards 13th December
Issue
Outcome
The Defendant refused to accept them, asserting the contract had been cancelled shortly after it was made.
The Plaintiff sued claiming damages for the difference between contract price and price obtained on sale by auction, alleging buyer’s wrongful repudiation.
Election - Consequences of affirmation Repudiation
Higgins J:
When the Buyer purported to cancel the contract, that was repudiation. However, that repudiation was affirmed and therefore all rights and obligations remain in place for both parties.
"It is clear, therefore, that on and after 19th January, if not before, the defendant gave absolute and unequivocal notice to the plaintiff that he would not accept the goods—would not perform the contract. The plaintiff then had a right of election: he could have concurred with the defendant in rescinding the contract, and bring an action for the breach; or he could have treated the notice as inoperative, and proceed with the contract. The plaintiff chose the latter course; and thereby he remained subject to all his own obligations under the contract, and the defendant remained in a position to take advantage of any failure of the plaintiff to do his part."[1]
Knox CJ:
In determining whether the buyer repudiated by accepting the goods, the question is 'was the buyer entitled to reject the goods on the ground that the conditions of the shipment had not been complied with?
This question has three parts: 1. What is the meaning of the shipping stipulation? there was no ambiguity – natural and literal meaning means half now, half in two months. Nonetheless, this is not necessary to decide.
1. Did the seller comply with the stipulation? - No. Two months did not elapse between shipments. The shipments were uneven. 2. If not, did the failure to comply with it entitle the buyer to reject the goods? - There is a general rule: A stipulation in a contract for the sale of goods that goods shall be shipped by a certain time is a condition precedent, the breach of would justify the buyer in rejecting the goods tendered (terminating
the contract). No reason in this case to ignore the rule - the stipulation was a condition precedent.
Therefore, on the grounds that the Seller breached a condition, the buyer was justified in rejecting the goods and his conduct did not amount to repudiation.
Appeal allowed, the Plaintiff fails.
Foran v Wight (1989) 168 CLR 385 [30.63], [30.67] Facts The parties entered into a contract for sale of land.
A date was specified for completion, and time was of the essence.
The Vendor notified the Purchaser that it would not be able to complete on time.
Neither of the parties took any action on the day set for completion. Two days after, the Purchaser's notified the Vendor that they are terminating the contract because of the breach of the time clause. They moved to get their deposit back. The Vendor alleged wrong termination
Argument: The Vendor argues that the Purchaser was not in a financial position to complete any way on the set date, and therefore they were not 'ready and willing'. Issue
Outcome
Issue of rescission Whether or not the purchasers of a property could rescind a contract where the vendor had told them they could not complete the contract. The notification before the set time amounted to an anticipatory breach (and thus repudiation) by the Vendor.
An Aggrieved party who suffers an anticipatory breach does not have to terminate - it can continue with the contract and let the anticipatory breach become an actual breach.
"Repudiation by way of anticipatory breach by a party to a contract does not put an end to the contract unless the other party accepts the repudiation and rescinds the contract...He may continue to treat the contract as on foot and hold the guilty party to the performance of his obligations. If those obligations fail to be performed the anticipatory breach will become an actual breach[1]."
"If the other party keeps the contract alive, he does so not only for his own benefit but also for the benefit of the party guilty of repudiation. The latter may, upon giving reasonable notice, withdraw his repudiation and complete the contract and...the other party remains bound by the contract, enabling the repudiating party to take advantage of any breach by the other party or any
supervening event which would discharge him from liability."[2]." Readiness and willingness
An Aggrieved party can only terminate on grounds of a breach if it was ready and willing to perform the contract.
This is presumed these days, but a defendant can still require the plaintiff to prove readiness and willingness.
"Under the old rules a plaintiff was required to plead that he was ready and willing but under the present rules that fact is implied with the effect that he is not required to prove it unless the defendant puts it in issue. In that event, the burden of proving readiness and willingness rests upon the plaintiff."[3]
To show that it was ready and willing, a party simply has to show that it is not 'substantially incapable' of performing at the time of repudiation (broad application).
However, in the case of an anticipatory breach, the repudiating party's words or conduct may mean that there is no point for the Aggrieved party to perform his obligation on the set date because it will be futile considering the non-performance of the repudiating party.
This means the conduct of the repudiating party effectively induces the Aggrieved party to adopt the assumption that its performance is futile and therefore it does not need to show readiness and willingness. An estoppel will arise in favour of the Aggrieved party to estop the repudiating party from demanding that the Aggrieved party needed to be ready and willing.
This is what happened here, the Purchaser wins.
Tanwar Enterprises v Cauchi (2003) 201 ALR 359 [31.33] Facts The Plaintiff [Tanwar] entered into a contract with the Defendant [Cauchi] to purchase three properties.
Issue
After some problems with the date of settlement, the parties agreed on a certain date for settlement, which was to be 'of the essence'. The Plaintiff did not have the funds on the date, but said he could have them the next day (he did). On the next day, the Plaintiff was ready to settle but the Defendant already terminated the agreement.
Argument: The Plaintiff argued that it had equitable interests in the land and therefore seeks specific performance or relief against forfeiture. Contracts For Sale of Land - Equitable Title
Outcome
The court analyses the relationship of a mortgagee and a mortgagor and how equitable interests arise.
A mortgagee (the lender) acquires the land in fee simple. The mortgagor (borrower) acquires an 'equity of redemption' which entitles him to receive the title back once he pays the debt.
Whilst at common law, a date can be specified for the payment, equity will not deem the equitable interest of the mortgagor lost just because the date has passed.
However, this means that the notion in law that a vendorpurchaser relationship is essentially a mortgagee-mortgagor relationship is false.
Other Notes: STATUTORY ILLEGALITY; COMMON LAW ILLEGALITY; EFFECT OF ILLEGALITY KEY CASES St John Shipping Corp v Joseph Rank Ltd [1957] 1 QB 267 [25.06C] Facts P owned a vessel St John which was chartered to charterers to carry grain from US Gulf port to Birkenhead. Freight amounting to $18,893 4s on carriage of 28 parcels of wheat was payable by D to P. They withheld $2000 on the grounds that P had, in carrying the goods, infringed the Merchant Shipping (Safety and Load Line Conventions) Act 1982 (UK) S44 and 47 made it an offence to load a vessel to an extenet which submerged the vessel’s load line. The load line was a line on each side of the St John, which indicated the max depth to which the vessel was entitled to be loaded. The max fine provided for the Act was $100 for submergence, plus $100 for every inch or fraction of an inch by which the load line was submerged. The St John load line was submerged by 10 inches after the vessel called at Port Everglades. This increased to 16 inches when the vessel entered the winter zone and on arrival to Birkenhead the vessel was laden below the watermark by 11 inches. The vessel master was fined $1200 for contravention of the Act. In present action P sought to recover the freight due form S who, in consultation with other cargo owners, had sought to withhold freight equivalent to 427 tons of cargo. That tonnage was equivalent to the overall additional cargo on board dude to the overload of the vessel. Issue Whether the contract of carriage was a contract prohibited by the Act? Outcome The defense of illegality failed and the claim to recover the unpaid freight was therefore successful. Important aspects of the judgment: - General principles of Illegality - Principles regulating statutory illegality - The application of those principles in cases where there is no express
statutory prohibition. Judgment for the plaintiffs.
Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 [25.11C] Facts First Chicago (R, P in the action) lent $132,600 to Yango (first A). The loan, which was secured by a mortgage, incorporated a guarantee given by the other A’s. When Yango defaulted on the loan, R sued Yango and the guarantors who pleaded illegality as a defence. This was based on s8 of Banking Act 1959 (Cth) [See case for s8]. It was assumed that R was at the time of transaction carrying on the business of banking contrary to s8. Sheppard J in the SC decided in favour of R. COA affirmed his decision. D and guarantors appealed to the HC. Outcome Appeal dismissed. On the bases that contracts were not prohibited by the Banking Act.
Alexander v Rayson [1936] 1 KB 169 [25.26C] Facts In 1929, Alexander (P, R before English COA) leased a flat in Piccadilly, to D for a rent of $1200 a year. D signed two documents prepared by P: 1. A lease at 450 per year which also covered the provision of certain services and 2. Service agreement for 750 year. The services covered by the service agreement were, with some small additions, practically the same as those covered by the lease. In 1934 D refused to pay the full amount due alleging that P had failed to comply with certain of his obligations. P sued to recover 300 – a quarterly installment was due under two documents. Her defence was that the agreement for the lease was void for illegality. Du Parcq K ruled in favour of P. D appealed to COA. Outcome Appeal allowed. Matter sent back to du Parcq J for hearing. However, if assumed facts were found to be correct, the contracts were not enforceable by P.
Wilkinson v Osborne (1915) 21 CLR 89 [25.31] Facts - Obsourne and Jones (R before HC) who were members of the Legislative Assembly, successfully sued Wilkinson (A) for unpaid balance of a sum of 250. (See Osborne v Wilkinson). The money was commission, which Wilkinson had agreed to pay for services rendered in connection with the sale of a piece of land to NSW government. - By statute the approval of both houses of parliament was required for the sale, an advisory board was constituted to advise the government. The owners of the land offered the property for the government for
Issue
Outcome
30,000. They employed Wilkinson as a land agent to negotiate the sale on their behalf. A commission of 1000 was to be paid if negotiations were successful. Although the advisory board recommended the purchase, there was a delay in the final decision and Wilkinson asked R (who were the land agents) to urge the government to ‘close the deal’. They were to be paid 250. - Judgment was not met and R issued a bankruptcy notice in respect to the judgment. Wilkinson moved to have the notice set aside, the relevant ground being that the judgment was bad in law because it arose from an illegal contract. Street J dismissed the motion. - Wilkinson appealed to HC. - Issue of contracts being void for public policy reasons - Whether not contracts entered into with members of parliament to exert pressure on the political process were void for public policy reasons. Appeal allowed. Contract was injurious to public life and therefore contravened public policy.
Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535 (vUWS + [26.11], [26.12) Facts Nordenfelt had a machine gun manufacturing business. He (effectively) sold the business the Maxim Nordenfelt. He entered into a restrictive covenant by which he could not engage in the trade of manufacturing guns, explosives or ammunition or engage in any competing business for a period of 25 years. Nordenfelt later entered into an agreement with another gun company. Issue
Outcome
Decision History of Restraint of Trade In the age of Queen Elizabeth 1st all ROT's were void as contrary to public policy. This was relaxed to focus only on general restraints. Present The current (1894) view is that: General rule: ‘All interference with individual liberty of action in trading, and all restraints of trade themselves, if there is nothing more, are contrary to
public policy and therefore void’ – as a general rule Exceptions: if justified because it is reasonable having regard to interests of the parties and the public – generally ‘area of restriction should correspond with the area in which protection is required’ Applied in this case The restraint was reasonable in the Nordenfelt obtained full value for his sale
interests
of
the
parties
The restraint was reasonable in the public interest No injury in fact that person is ‘prevented from carrying on a trade in weapons of war abroad’. Also no injury in fact that N can no longer earn a living Macnaghton LJ could not conceive of how anyone could get rid of £200,000 so thought it far-fetched to suggest he might become a public burden.
Linder v Murdock’s Garage (1950) 83 CLR 628 (vUWS) Facts Linder was a mechanic employed by Murdock’s Garage. His contract of employment applied to the sales territory for motor vehicles, which encompassed two towns, Crystal Brook and Wirrabara, over 10 miles apart. After several years of service at Crystal Brook, Lindner left his employment. Murdock’s garage sought to restrain him by injunction for a competing business in Crystal Brook. Murdock’s relied on the cl of Linder’s employment contract which stated that Linder would not work in the same sort of business within the same area within one year of termination of his employment. Issue Was the restraint of trade cl in the contract enforceable? What are the reasonable limits for the protection of Murdock’s Garage business? Was the restraint of trade against public policy? Reasoning Majority of the court held that the cl was unenforceable. It went beyond what was reasonable for the protection of Murdock’s business. The garage sought protection for its business connections that might be affected by Linder’s knowledge of the business and influence over customers he developed while working with the business. This was a recognised interest and was not held to make the cl invalid. However, the cl was unenforceable on the grounds that its geographical limits were unreasonable. Ratio A restraint upon the employee’s becoming connected with a rival business after he leaves the employment will give employer’s business reasonable protection against the effects of the intimacies and knowledge, it is limited to the area or areas in which the employee in fact works within a reasonable time before the termination of his employment. A restraint which applies
Obiter
indiscriminately to all the areas in which the employer carries on business will exceed what is reasonable necessary to prevent the injury to this business against which he is justified in guarding. Appeal allowed.
George v Greater Adelaide Land Development Co Ltd (1929) 43 CLR 91 [27.06C] Facts Greater Adelaide (P, R before HC) entered into a contract dated 15 November 1925 for the sale of certain allotments of land to George (D and R). The price was 1070 and contract was ‘subject to the conditions of sale and to the provisions’ of the Town Planning and development act 1920being complied with. However the Act was not fully complied with. Installments of the purchase money totaling 156 were paid between 19 November 1925 and 17 August 1927. P sued D in SC for the balance of the purchase money. D defence Illegality. Also counter-claimed for repayment of the 156 paid by him. Murray CJ judgment for the vendor on both the claim and counter-claim. Purchaser appealed. Outcome Appeal allowed. HC held that because the contract was illegal no action could be brought to claim the balance of the price.
Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215 [27.12C] Facts Fitzgerald (the owner) owned land in NT. He contracted Leonhardt (the driller) for the drilling of bores on his land. The driller claimed that money was owned under the contract. The owner raised the defence of illegality. [See case for Water Act 1992] LC held that non of the drilling work was authorized, and that as a result the driller was seeking to recover under an illegal contract. The driller’s claim was therefore dismissed. Driller successfully appealed to SC and obtained a judgment for $20,595.An appeal by the owner to COA was dismissed. Issue Issue of illegality Was the contract illegal? Did the fact that an offence had been committed provide the owner with a defence to the claim? Whether or not a contract was void because there was an issue of illegality that related to the activity contained within the contract. Outcome Appeal dismissed. In relation to whether the contract was illegal Court held that the contract was not expressly or impliedly prohibited.
Thomas Brown and Sons Ltd v Fazal Deen (1962) 108 CLR 391 [27.48C]
Facts
Issue
Outcome
The plaintiff had deposited a quantity of gold with the defendants in contravention of the National Security Regulations. In addition, the plaintiff also deposited a quantity of gems, which did not contravene the legislation. - In relation to the gold, whether P could establish an independent cause of action? - In relation to the safe and gems, whether the contract was severable? Held: The Courts severed the bailment contract and permitted the enforcement of the contractual obligations in regards to the gems. This suggest that the plaintiff could demand the return of other part of the property bailed, the bailment of the gems was in effect distinct form the bailment of gold.
Carney v Herbert [1985] AC 301 [27.66C] Facts Carney, (A before Privy Council) held 93 shares in a company. The 18 remained shared were held by 3 plaintiffs (Herbert and other R’s). D and P were all directors of Airfoil. A company (Illerain) controlled by D contracted to purchase P’s shares. Contracts of sales between Illerain and P provided for transfers of the shares to be executed on payment of the first of three installments. P’s insisted on security for the balance of the purchase price. Newbridge Industries Pty Ltd was a subsidiary of Airfoil if which P and D were directors. Newbridge executed mortgages charging some of its property in favour of P. D signed a guarantee of payment to P if Illerain defaulted. Illerain defaulted in the payment of 2nd and 3rd installment. P sued D on the guarantee in SC. D claimed the sale agreements were illegal by reason of s67 of the Companies Act 1961. The provisions made it illegal for purchases of shares in the holding company or its subsidiary to give financial assistance in connection with purchase of share in the holding company. It was alleged that in connection with a subsidiary of Airfoil, Illerain had no obligations under those agreements and accordingly nothing was due under the guarantee. Rodger K held that mortgages although Illegal, could be severed from the sales agreement and the guarantee. Judgment for P on the guarantee. D appealed to Privy Court (PC). Issue Whether Rogers J was correct to treat the mortgages as severable. Outcome Appeal dismissed. PC held that mortgages were severable.
Introduction (1) Bargains versus reliance
•
An act performed in reliance on a promise will not constitute good consideration but may give rise to an estoppel. • Acts performed in reliance on a promise will not constitute consideration for that promise unless those acts can be regarded as having been performed in return for the promise (Beaton v McDivitt). (2) Non-contractual obligations •
The modern law recognises numerous non-contractual obligations between negotiating and contracting parties which are owed even if a contract is never formed. • Estoppel has developed to protect pre-contractual reliance. • Restitution may require payment for work done in anticipation of a contract which fails to form. • Tort recognises a duty of care in provision of information. • ACL/FTA - impose numerous obligations on parties engaged in negotiations (no bait advertising, no misleading and deceptive conduct, et cetera). (3) Estoppel •
Estoppel will prevent injustice arising from a party relying to its detriment on an expected benefit or entitlement arising from a contract to which it is not a party. • Beneficiary induced by a promisor + reliance on that promise to its detriment if promise not fulfilled = entitlement to estoppel • Estoppel recognises detrimental reliance on a promise as a basis for enforcing the promise. • Estoppel operates where non-contractual promises have been relied upon so that A will be estopped from acting inconsistently with A’s promise OR will take steps to ensure B does not suffer harm as a result of B’s reliance on A’s promise. (4) Estoppel by conduct •
An estoppel arises where the representor induces the relying party to:
– –
Adopt and act upon an assumption of fact (common law estoppel); or Adopt and act upon an assumption as to the future conduct of the representor (equitable estoppel) (5) Common Law Estoppel • • •
Also known as estoppel by representation. Occurs where A tells B that they have actually done something which they, in fact, have not. B relies and acts upon this assumed “fact”. A will be estopped from denying there is no contract and B will be able to sue in contract.
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. 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 Reliance based approach to relief •
Reliance based relief is founded on the idea that the object of equitable estoppel is to prevent detriment flowing from reliance on promises, rather than to enforce those promises, and relief is determined accordingly.
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 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 Waltons Stores (Interstate) Ltd v Maher 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. Waltons Stores (Interstate) Ltd v Maher 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. 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 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 Facts • Waltons Stores negotiated to lease land to the Mr and Mrs Maher. • Terms required the Maher’s to demolish a building on their land and construct a new building to Waltons’ specifications. • Time was short so lease was finalised quickly to enable Maher’s to complete construction. • Maher’s were concerned that there be no problems with the lease prior to the commencement of construction. • Upon negotiations ending, Waltons solicitors sent Maher a copy of the lease with Maher’s last suggested amendments. • Waltons’ solicitors indicated that if Waltons did not agree to Mahers amendments they would inform Maher the next morning. • Waltons did not contact Maher again on this issue. • Maher signed lease on 11 November and returned it to Waltons “by way of exchange”. • Waltons then instructed their solicitors to “go slow” pending a review of their retail strategy. • Waltons became aware in December that Maher had commenced constructions but said nothing to Maher and delayed execution of the lease. • On 19 January, with construction 40% complete, Waltons informed Maher that they did not intend to sign lease. Issue Issue of promissory estoppel Whether or not a land owner was entitled to relief from the detriment they suffered based on reliance on a representation from the other party even though a contract had not been signed. Judgement • Deane and Gaudron JJ found a common law estoppel as the Maher’s had been made to believe that Waltons had signed the lease. • Mason CJ, Wilson and Brennan JJ found an equitable estoppel as the
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Maher’s has been induced to assume that Waltons would sign the lease. • Mason CJ, Wilson and Brennan JJ at 407 said that Waltons’ inaction encouraged the Mahers to continue to act on the assumption that the completion of the transaction was merely a formality. Appeal dismissed
Giumelli v Giumelli (1999) 196 CLR 101 [7.16] Facts • Robert Giumelli and his father were partners in a family orchard business. • Robert lived in a house on one of the properties used by the partnership. • Robert’s parents stated the land would be subdivided and the house portion transferred to him if he stayed on the property. • Robert gave up the opportunity to pursue another career and stayed on the property. • The relationship broke down when Robert married a woman of whom his parents disapproved and the parents refused to transfer the property. • Full Court held that the parents held the property on trust to convey the promised lot to Robert. Issue
Outcome
•
•
•
Issue of equitable estoppels What type of relief is appropriate to firstly provide equitable relief but secondly avoid an unjust outcome to another separate party. The High Court rejected the parents appeal that the granted relief went beyond the reversal of detriment. High Court altered the trial decision by awarding monetary relief. The High Court did not explicitly reject the reliance-based approach to relief, but the Court’s failure to consider whether it was possible to assess the compensation on a reliance basis suggests a shift away from the reliance-based approach. Deane J – the relying party has a prima facie right to relief based on the assumed state of affairs.
Commonwealth v Verwayen (1990) 170 CLR 394 [7.18] Facts In 1964 the ship Melbourne collided with and sank the ship Voyager whilst they were engaged in combat exercises. The general view was that the Commonwealth did not owe a duty of care in such circumstances and thus would not be liable (the Groves defence). By 1984, there was some doubt about this, and Verwayen, a member of the RAN sued for damages. The Commonwealth admitted liability, did not plead Groves or Statute of Limitations, saying that it was not its policy to take advantage of either. In 1986, this policy changed and the Commonwealth sought to take advantage
Issue Outcome
of both. V said that they had waived their right to these defences. The issue before the High Court was dealt with on the basis of estoppel. Appeal dismissed with costs.
Je Maintiendrai P/L v Quaglia (1980) 26 SASR 101 [7.27] Facts • The situation of the relying party will determine whether the particular action is detrimental. • Here, the question was whether a landlords’ gratuitous promise to accept a lower rent would be detrimental to a tenant if there was reliance. • Landord agreed to lower rent because tenants were having financial difficulties and the units were difficult to rent out. • The reduction extended 18 months until the tenants decided to move out. The landlord then demanded the unpaid amount. • Full Court of SA upheld the decision that promissory estoppel prevented the landlord from claiming the unpaid rent. • The tenants had altered their position on the faith of the promise by the landlord. • Detriment must be assessed at the time the representor seeks to resile form the relevant assumption. Issue Estoppel – Detrimental reliance Outcome • Until the landlord attempted to resile from the assumption that the full rent was not payable, the tenants actually obtained a benefit in paying a reduced rent. • This benefit would have become a detriment if the landlord were to reclaim the unpaid rent by way of a lump sum.
Promissory estoppel prevented landlord from denying his promise, can’t claim full amount
Promissory estoppel could only arise if the Relying Party has changed his position on the faith of the promise, and would suffer a detriment if the Representor was allowed to depart from his representation/enforce his previous contractual rights
Detrimental Reliance
King CJ & White J:
In view of Relying Party’s financial situation, paying the lump sum would be a detriment
Note: the Relying Party’s detriment arose from their inability to pay a lump sum of all the discounts they got. If they were wealthy, maybe no estoppel would arise.
White J adding: Tenants remaining in the premises rather than going
somewhere else also constituted detrimental reliance.
Cox J:
No proof that act to their detriment was done on faith of the assumption.
W v G (1996) 20 Fam LR 49 Facts
Issues
Outcome
Pl and def were in a lesbian relationship at the time. They both had respected assets at the time they were together While expenses were shared between the two of them, they had one joint cheque account but individual savings accounts for the receipt of income/unemployment benefits During cohabitation they acquired a residential property which was funded largely by the def the pl only contributed a small cash payment towards the deposit While they were living together, the couple decided to have children with the help of artificial insemination pl alleged that she had conceived both children with the undertaking by the def that she would participate in the upbringing of the children as a “parent” and would provide financially for them The defendant had inherited significant assets from the estate of her late father upon his death and at the time of hearing had reasonably substantial assets. The plaintiff had few assets and claimed an interest in the home, which had been acquired by the plaintiff during the relationship, ownership of a motor vehicle in the defendant's possession and child maintenance in respect of the two children. She alleged a constructive trust giving rise to an interest in the home, a gift to her in respect of the motor vehicle and a clear agreement on the part of the defendant to provide, inter alia, financial support for the children. The plaintiff's claim for child support was put on the following basis. By virtue of her statements and her conduct by way of support for the plaintiff and her participation in the actions leading to the impregnation of the plaintiff and by her silence as to any contrary view, the defendant created or encouraged in the plaintiff a belief or assumption, or otherwise could be said to have promised to the plaintiff, that she the def would accept the role as a parent for the children and would therefore accept responsibility On this matter, as well as disputing the plaintiff's allegations, the defendant seeks to answer the claim by relying on the primary liability of the sperm donor, as biological father, to support the children, public policy and lack of clean hands. Defendant provides just over $150,000 towards the costs of raising the children. I would not propose that this be made by way of outright payment to the plaintiff. The payment is not to the plaintiff for her benefit but must strictly be used for the benefit of the
children.
Johnson v Buttress High Court of Australia (1936) 56 CLR 113 Facts
Issue
After the death of his wife, Buttress made a will in favour of his stepson’s child. The will, which it superseded, specified his son as the sole beneficiary, but his son had long ceased to please him. Later on he made another will deciding to leaving the property to his sisters, Ms Job for life and after her death to Mrs Hart, a daughter of another sister. Finally he decided he wanted to transfer the property to her. His solicitor handled the transfer and Buttress himself went to live in a shack, which he built on the defendants land. Eventually he became ill and on his way to hospital gave another will that he had lately made to Mrs Hart. Under it Mrs Hart was the sole beneficiary. The primary judge found that Buttress was a man of less than average intelligence, that he had little or no experience of or capacity of business and that when he executed the transfer he did not understand that he had parted with the land and cottage irrevocably. He held that upon evidence, the transfer could not stand and must be set aside.
Dixon J The basis of the equitable jurisdiction to set aside an alienation of property on the ground of undue influence is the prevention of an unconscientious use of any special capacity or opportunity that may exist or arise of affecting the alienator’s will or freedom of judgment in reference to such a matter. The source of power to practice a domination may be found in no antecedent relation but in a particular situation, or in the deliberate contrivance of the party. If this be so, facts must be proved showing that the transaction was the outcome of such an actual influence over the mind of the alienator that it cannot be considered a free act. Whenever one party occupies or assumes towards another a position naturally involving an ascendancy or influence over that other, or dependence or trust on his part. One occupying such a position under a duty in which fiduciary characteristics may be seen. When the transaction is not one of gift but of purchase or other contract, the matters affecting its validity are necessarily somewhat different. Adequacy of consideration becomes a material question. The decision of the present appeal depends, I think, altogether on the question whether, before the transfer, Mrs Johnson, or possibly
Outcome
the Johnson family collectively, stood in a special relation of influence to Buttress. The first and most important consideration affecting the question is the standard of intelligence, the equipment and character or Buttress. The appeal was dismissed
Commercial Bank of Australia v Amadio High Court of Australia (1983) 151 CLR 447 Facts
Issues
Mr and Mrs Amadio, who were limited in English and business experience, were the parents of Vincenzo Amadio, who lived in an opulent style. Their son carried on business as a land developer and seemed to be very successful. But by October 1976, Amadio’s builders had proved unable to keep within its overdraft limit. Application was made for an increase in the overdraft limit which was approved. The business, however, sunk further into debt. A second account was open which was also overdrawn. Vincenzo told the bank that his parents would give security over an office building that they owned if they allowed him to proceed with his overdraft limit. In fact his parents were unaware. Vincenzo called his parents to ask them to give a guarantee of $50,000 for about six months. In fact there was no such limit. The Amadios with very little discussion signed the guarantee. The respondents did not read the document and Mr Virgo on behalf of the bank did not explain its effect to them, but when Mr Amadio said that the mortgage was only for six months, Mr Virgo pointed out that there was no such limitation in time. The business failed and the bank sought for amount under guarantee. The Court of Appeal allowed for an appeal by Mr and Mrs Amadio. The bank appealed to the High Court.
Deane J The jurisdiction is long established as extending generally to circumstances in which: (1) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them; (2) the disability was sufficiently evident to the stronger party to make it prima facie unfair or ‘unconscientious’ that he procure, or accept, the weaker party’s assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have exited, an onus is cast upon the stronger party to show that the transaction was fair just
Outcome
and reasonable. Jurisdiction extends, in an appropriate case, to relive a guarantor of the burden of a guarantee of existing and future indebtedness. If they had been informed as to the true financial position of Amadio Builders, it would be strongly arguable that the guarantee/mortgagee could not properly be said either to have resulted from their special disability or to be other than fair, just and reasonable. Relief against unconscionable dealing is a purely equitable remedy. The appeal was dismissed
Yerkey v Jones (1939) 63 CLR 649 The Yerkey Principle:
Principle applies where a wife acts as a guarantor (surety) of her husbands debts In Garcia it is explained that because there is a “trust and confidence, in the ordinary sense of those words…between marriage partners”, the guarantee may be rescinded by the wife if certain requirements are met These requirements establish that it would be unconscionable for the creditor to enforce a guarantee by the wife
Garcia v National Australia Bank (1998) 194 CLR 395 Facts
Issues
Outcome
Garcia and her then husband Garcia had a mortgage for their matrimonial home with the NAB Between 1979 and 1987 Jean Garcia (wife) signed several guarantees, these were signed to secure a loan that was made to Fabio Garcia (husband) for his company Citizens Gold Bullion Exchange Pty Ltd In 1988 the couple separated and the company wound up In 1990, Jean Balharry Garcia commenced proceedings in the Supreme Court of New South Wales seeking declarations that the various documents were of no force or effect, and void. The trial judge applied the rule in Yerkey v Jones' and granted a declaration that none of the guarantees which the appellant had given bound her. On appeal, the New South Wales Court of Appeal held that the rule in Yerkey v Jonesshould no longer be applied as it had been overruled by Commercial Bank of Australia Ltd v Amadio. The appellant was granted leave to appeal to the High Court of Australia. By a majority of five to one, the High Court declined to adopt the approach taken by Lord Browne-Wilkinson in Barclays Bank Plc v
O'Brien, and instead, held that the rule inYerkey v Jones still applied in Australia. Justice Kirby in his dissenting judgement argued that the approach taken in Yerkey v Jones should be rejected. However, the High Court was unanimous in overturning the decision of the Court of Appeal in favour of reinstating the trial judge's orders. The High Court also held that the law of unconscionability as established in Commercial Bank of Australia Ltd v Amadio did not cover the rule in Yerkey v Jones, and instead, both of these cases were considered as distinct doctrines.
Blomley v Ryan High Court of Australia (1956) 99 CLR 362
Blomley entered into a contract to purchase a farm from Ryan. Ryan was 78 and was suffering the effects of prolonged and excessive consumption of alcohol. When Ryan sought to resile from the sale Blomley sought specific performance – one issue (this case will also crop up later in the unit) was whether Ryan had the requisite capacity to contract. The terms of “special disadvantage” and “special disability” are interchangeable Fullagar J: This is, I think, not so much because intoxication is a self-induced state and a reprehensible thing, but rather because it would be dangerous to lend any countenance to the view that a man could escape the obligation of a contract by simply proving that he was "in liquor" when it was made.
‘Mere’ drunkenness will not permit a person to get out of a contract. However, where one party was – to the knowledge of the other – ‘seriously affected by drink’, equity will refuse specific performance. In addition, if a court is satisfied a ‘contract disadvantageous to the party affected has been obtained by "drawing him in to drink", or that there has been real unfairness in taking advantage of his condition, the contract may be set aside.‘
Inadequacy of consideration will be relevant but not determinative. In cases like this where intoxication is the main disadvantage relied upon, the adequacy (or otherwise) of consideration is particularly important. In this case the sale price was significantly below market price – the only explanation for this was that Ryan was old and impaired by habitual drinking to excess and who contracted during a bout of heavy drinking rendering him ‘utterly incapable of forming a rational judgment about the terms of any business transaction.’
This was apparent to Blomley (through his agent) who took unfair advantage of that condition. Specific performance and damages were, therefore, denied.
West v AGC (Advances) Ltd (1986) 5 NSWLR 610 Facts
AGC lent $68k to Mr West. She saw the loan having a two fold purpose: - to discharge an existing mortgage on her home (she had not paid interest on the mortgage for the past 3 years) - to lend money to a company (quiche) where her husband was a
Issues
Outcome
part time employee She lent nearly $40k to Quiche, the three directors of which were Cranston, Kennedy and Young - husband had suggested the loan from AGC as a way of profiting from Quiche’s expansion Together with Quiche and the 3 directors he guaranteed payment by Mrs West – the arrangement between Mrs West and Quiche was the latter would pay the instalments due under the loan from AGC in return for the interest free loan from Mrs West In order to secure the loan from AGC, Mrs West had executed a mortgage (by way of guarantee) over her home – she had no substantial guarantees from Quiche directors Quiche made some payments but was wound up in 1982 – following her default of the loan, AGC sought in proceedings in the Supreme Court to enforce the loan and guarantee against Mrs West and obtain possession of the mortgaged home McHugh JA drew a distinction between ‘procedural’ and ‘substantive’ injustice, and raised the question of whether substantive injustice alone could give rise to a case for relief under the Contracts Review Act 1980 (NSW) Mrs West made a very bad decision when she agreed to her husband’s overture to borrow money for the purposes she did the contract was not unjust in the circumstances as she knew that Quiche was unable to pay its debts at the time she borrowed the money So far as AGC was concerned there was no difference between this contract and one made with the most sophisticated and alert commercial borrower The appeal was dismissed by a majority of the court (Kirby P dissenting) on the basis that, in the circumstances, the loan and the guarantee were not unjust contracts
Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd Facts
Mr and Mrs Roberts leased a fish and chip shop business in a commercial shopping centre owned by Berbatis and others Their lease was about to expire, and without a renewal the business was impossible to sell The owner’s ultimately agreed to renew the lease and consented o its assignment to a purchaser but only because Roberts signed a deed which included cl 14, under which they agreed to withdraw from litigation which they and the other tenants had brought against the owners disputing certain charges levied against the tenants under the leases The Roberts agreed reluctantly
Issues
Outcome
The ACCC brought proceedings pursuant to the Trade Practices Act 1974 – it alleged unconscionable conduct in contravention of s 51AA id rhe act in respect of the respondents dealings with Mr and Mrs Roberts argued that s 51AA had been contravened French J in Amadio The leesees suffered from a ‘situational’ as distinct from a ‘constitutional’ disadvantage, and it didn’t stem from any inherent infirmity or weakness or deficiency The majority of the judges of the High Court focused particularly on the difference between the notion of a 'special disability', which they felt would attract protection under the TPA, and in particular, section 51AA, and a 'hard bargain', which the court felt was a commercial reality with which the court should not concern itself. In that context, certain members of the court were possibly suggesting that even in the context of section 51AC, where the notion of unconscionability is given a wider meaning by virtue of specific guidelines, this underlying principle may well prevail, despite those guidelines. The majority held that the conduct of Berbatis 'fell short of a disabling condition or circumstance seriously affecting their ability to make a judgment as to their own best interests.' In reaching this conclusion, the High Court observed that for an action to be 'unconscionable', the weaker party must be in a position of 'special disadvantage,' that is exploited by the stronger party. While acknowledging that the Roberts were at a 'distinct disadvantage', the majority felt there was nothing 'special' about it. All members of the majority were inclined to view the transaction as an example of a difficult commercial decision arising out of an inevitable disparity of bargaining power. In this regard, the family illness, and the imminent sale of the business were insufficient to demonstrate the relevant disadvantage.
Appeal dismissed
North Ocean Shipping Co. Ltd v Hyundai Construction Co Ltd [1979] 1 QB 705; [1979] 3 WLR. 419 Queens Bench Division Facts The defendants agreed to build a tanker for the plaintiffs at a price fixed in U.S. dollars to be paid by instalments. After the first instalment the U.S. dollar was devalued by 10 per cent and the defendants insisted on further instalments being increased by 10 per cent. The plaintiffs refused and suggested arbitration, but it became apparent that the defendants would not continue their work without this agreement. The plaintiffs paid the increased amount "without prejudice" to their rights. Issues HELD Mocatta J
Outcome
Mocatta found that certain actions by the defendants in relation to the arrangements for increased payments were sufficient to constitute consideration for the increased contract price. The judge said that merely to agree to a change to "maintain amicable relations" would not be enough to amount to consideration. But in this case the parties had agreed to cancel the old deal and replace it with a new one. Mocatta then considered whether the money was nevertheless recoverable on the ground that the agreement was vitiated by economic duress. Maskell v Horner [1915] is authority that payments to avoid the wrongful seizure of goods are recoverable. The circumstances must indicate that the payments were involuntary. Although it is not necessary that there be express words of protest, these would provide useful evidence. The general principle expressed in Parker v Great Western Railway Co (1844) approved in Great Wester Railway Co v Sutton (1869) is that where one party pays more than they are bound to do by law for the performance of a duty which the law says is owed to him for nothing, or less than he has paid, there is compulsion or concession in respect of which they are entitled to recover the excess. The question then arises whether the excess sum can be recovered where it is supported by consideration. Earlier English cases appear only to recognise physical threats (to the person or goods) as constituting duress, and not economic threats. More recent Australian cases do not draw such a distinction speaking in terms of compulsion generally see Smith v Charlick (1924)). Does it make any difference that the compulsion in this case resulted in a varied contract? In T.A. Sundell v Emm Yannoulatos(1955) the court found increased payments recoverable on alternative grounds of lack of consideration and economic duress. In the circumstances of this case there was economic duress. The plaintiffs sought to avoid agreeing to the additional payments, but had no practical alternative. Hence the contract was voidable, but due to the plaintiff's delay, they affirmed the contract. Owners had entered a contract under duress Judgement for the Yard
Barton v Armstrong Privy Council [1976] AC 104 Facts
The plaintiff, Barton, alleged that the defendants had coerced him into executing a deed relating to the sale of certain companies by threatening to have him murdered. The Court held that he could not succeed unless he could establish that ‘but for’ the threat, he would not have executed the deed and
Issues
Outcome
that this he had failed to do. Barton appealed. Lord Cross of Chelsea [In cases where threats involve death:] It can be only in the most unusual circumstances that there can be any doubt whether the threats operated to induce him to execute the document. If Armstrong’s threats were ‘a’ reason for Barton’s executing the deed, he is entitled to relief, even though he might well have entered into the contract if Armstrong had uttered no threats to induce him to do so. *The onus does not rest on Barton+… On the contrary it was for Armstrong to establish, if he could, that the threats which he was making and the unlawful pressure, which he was exerting,…contributed nothing to Barton’s decision to sign. The appeal was allowed
Crescendo Management Pty Ltd v Westpac Banking Corp (1988) 19 NSWLR 40
This case considered the issue of duress and whether or not a contract entered into with a bank was entered into under economic duress. The issue was whether the pressure applied by the bank in the circumstances was the cause for entering into a contract. McHugh: A victim of impaired consent has got no other practical choice open: “the overbearing will theory of duress should be rejected. A person who is the subject of duress usually knows only too well what he is doing. But he chooses to submit to the demand or pressure rather than take an alternative course of action” Not every form of pressure is sufficient to render the contract voidable “Ask whether any applied pressure induced the victim to enter into the contract and then ask whether the pressure went beyond what the law is prepared to countenance (tolerate) as legitimate. Pressure will be illegitimate if it consists of unlawful threats or amount to unconscionable conduct” (Crescendo Mgt v Westpac Banking per McHugh J) but this is not very useful because: o But not every unlawful threat necessarily constitutes illegitimate pressure E.g. a bona fide but legally misguided threat bit to perform a contract may lead to a valid contract of compromise. o And a lawful threat may nonetheless be regarded as illegitimate E.g. blackmail (which is illegitimate) to report crime to police
Estoppel: Assumption – o
Party relying on the promise or representation must have made the assumption - that some sort of legal representation did exist or would exist at some time in the future Walton Stores
PROBLEM QUESTION 1: Rupert landowner – Bruce the labourer
Consideration must be sufficient but not need be adequate. (Chappel v Nestle) Part payment of a debt is not good consideration Pimels case Rupert offers to pay $25000 as a full settlement of a $30000 Debt to Bruce, which according to Pimels Case and Foaks v Beer is not sufficient consideration on Rupert’s part. The Palm trees, can they be part of Rupert’s consideration? The facts indicate that the palm trees were a gift – the parties can stipulate for what contribution they choose (peppercorn analogy in Chappel v Nestle case) Bruce appreciated the palm trees given by Rupert but there was no offer and acceptance that the trees value would come of the contract price – if there is a problem with consideration then estoppel may provide a remedy. (William v Roffey) If there is a problem with consideration not being ‘sufficient’ then no contract will be validly formed. If you argue that there was sufficient consideration, they you could explore repudiation (anticipatory breach) and whether Bruce elected to affirm Estoppel, elements: assumption induced and reliance on the assumption and detriment if the promise is not performed in circumstances where it would be unconscionable: Walton stores Rupert induced an assumption in Bruce that he could only pa $25000 because he would have the extra expense of putting up the pool fence. Bruce relied on this assumption – but the money was not won until the job was completed and paid for Could Bruce (being opportunistic) be estopped from climing the extra $5000
PROBLEM QUESTION 2:
Jim – issues relevant to discuss: - equity unconscionability - Amadio case and West case ; legislation Contracts Review Act 1980 (NSW), ACL s20(1) - Consider if there is unconsconability under the Amadio principles in equity. There would need to be a “specific disability” on the part of the weaker party and there has to be evident to the ‘stronger party’ in order for there to be unconscionability conduct. This could only be rebutted by the proof that the contract was ‘fair, just and reasonable’. In terms of Jim- does he have a special disability? Consider the possibility of gambling addiction (but if so this would not be sufficiently evident to the stronger without more being said. Eg. I lost money lasr week but I’ll win it back.) - Blomley v Ryan ‘need of any kind’ – very broad. Might be argued. “lack of assistance” – brother’s advice - Emotional dependence may also be a factor Louth v Diprose Bridgewater - Revision would e a remedy and a defence to specific performance - S20(1) – judge made law on unconscionability where there us a breach of this section. Remedies under the ACL s232 injunction against selling property; s243 remedial order
Contracts Review Act – ACL v West where the lender has not engaged in the conduct that is unjust then there will be no remedy for an unconscionable act under the Contracts Review Act (McHugh J). The directors not the lender engaged in unjust conduct. S6(2) will come within s9(2)(h) independent Seminar 13:
After a contract has been formed, one of the parties may discover that they have entered the contract under the influence of a mistake This mistake may relate to the existence of significant facts that is, if the party had known of this they would not have entered the contract to begin with In such cases, the consent of that party to be contractually bound may be described as impaired or vitiated by the mistake Mistakes in the context of formation of contract are often induced by the misrepresentation or misleading conduct of the other party Mistake – common law approach – potentially void
Law and Equity: o
As a general rule, parties to a contract can not avoid their contractual obligations by claiming that they entered a contract under the influence of a mistake o However, when relief is given a contract is treated as voidable rather than void a voidable contract may or may not be set aside (rescinded) o If a contract is rescinded, it would be done on the terms which aim at achieving fairness between the parties Types of Mistakes:
Common mistake – occurs where the parties make the same mistake. That is, both parties enter the contract under the same mistaken belief that a particular state of affairs exists or that a particular underlying fact is correct Mutual mistake – when the parties each misunderstood what the other meant. That is, the parties deal at cross purposes Unilateral mistake – occurs when only one party is mistaken and the other party knows or ought to know of that mistake yet purports to proceed with the contract anyway under the test for Taylor v Johnson, for equity to intervene because it is “unconscionable” to allow the other party to benefit in the contract there must be: - a written contract - serious mistake - Knowledge of the mistake by the other party a - One more thing McRae v Commonwealth Disposals Commission McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 Facts
Plaintiffs purchased a non-existent oil tanker from the Commonwealth
Issues
Outcome
Disposals Commission. The officers had made a “reckless and irresponsible” mistake in thinking they had a tanker to sell. They had relied on mere gossip. The plaintiffs however had no reason to suspect this and had incurred considerable expense in fitting out a salvage expedition. At trial, the judge held the contract to be void and therefore could not give rise to damages, but held that the defendants had made out their claim in deceit and awarded damages for this. This did not include the sum in respect of the salvage expedition, which his Honour held to be too remote a consequence of the deceit. The plaintiffs appealed. Dixon and Fullagar JJ [CB-788] A party cannot rely on mutual mistake where the mistake consists of a belief that is, on the one hand, entertained by him without any reasonable ground, and, on the other hand deliberately induced by him in the mind of the other party. There was a contract, and the Commission contracted that a tanker existed in the position specified. Since there was no such tanker, there has been a breach of contract, and the plaintiffs are entitled to damages for that breach. [CB-790] The practical substance of the case lies in three factors: (1) The commission promised that there was a tanker at or near to the specified place (2) In reliance on that promise the plaintiffs expended considerable sums of money (3) There was in fact no tanker at or anywhere near to the specified place. Ratio: A party cannot be allowed to rely on a common mistake where the mistake consists of a belief which is entertained by him without any reasonable grounds for such belief The appeal was allowed
Solle v Butcher [1950] 1 KB 671 Facts
Butcher leased a flat to Solle for seven years at a rate of $250. The flat had previously been rented at an annual rate of $140. Both Butcher and Solle believed that because of extensive structural alterations to the premises the flat was a new one and was hence was not subject to rent control. This view was incorrect. Unless notice of increase had been given to the tenant before lease was signed, the allowable rate was to be $140. The trial judge found for Solle allowing for Solle to recover excess paid under the lease. Butcher appealed.
Issues
Outcome
Denning LJ [CB-801] Once a contract has been made, that is to say, once the parties, whatever their inmost states of mind, have to all outward appearances agreed with sufficient certainty in the same terms on the same subject matter, then the contract is good unless and until it is set aside for failure of some condition on which the existence of the contract depends, or for fraud, or on some equitable ground. Neither party can rely on his own mistake to say it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew that he was under a mistake. [CB-802] The court of equity would often relieve a party from the consequences of his own mistake so long as it could do so without injustice to third parties It is now clear that a contract will be set aside if the mistake of the one party has been influenced by a material misrepresentation of the other, even though it was not fraudulent or fundamental, or if one party, knowing that the other is mistaken about the terms of an offer, or the identity of the person by whom it is made, lets him remain under his delusion and concludes a contract on the mistaken terms instead of pointing out the mistake. A contract is also liable in equity to be seat aside if the parties were under a common misapprehension either as to facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault [CB-803] The practice has always been for a court of equity to give relief whenever, by the exercise of its powers, it can do what is practically just, though it cannot restore the parties precisely to the state they were in before the contract. Ratio: A contract will not be considered if the mistake of one party has been influenced by a material misrepresentation of the other even if it was not fraudulent or fundamental A contract will also be set aside if one party, knowing the other is mistaken about the terms of the offer, or the identity of the person by whom it is made lets him remain under his delusion and concludes a contract on the mistaken terms instead of clarifying the mistake The appeal was allowed
Goldsbrough Mort & Co. Ltd v Quinn (1910) Facts
D - for consideration - gave P an option with regard to the purchase and lease of 2590 acres of land. The option was to last for one week. Before the expiry of that time, D repudiated the option, saying it had resulted from a mistake. P accepted the offer within the week. P sought specific performance of the sale. D claimed that the contract for sale was not complete and hence damages only were payable.
Issues
This case considered the issue of mistake and irrevocable offers regarding the sale of land and whether or not a man could revoke an offer where that offer had been given for consideration.
HELD Griffith CJ
A mere promise to leave an offer open for a period of time is not enforceable - the promise without consideration is nudum pactum. But if there is consideration for the promise, it becomes binding. It is often said that "an option given for value is not revocable". The true principle is that an option is an offer to sell upon condition - a conditional contract. If the promise were only not to withdraw the offer ie an irrevocable offer, then a breach could be compensated for in damages [thus implying that there could be no specific performance of the sale].
HELD O'Connor J
The undertaking may be viewed as an agreement to sell subject to a condition subsequent - the acceptance by the other in the time provided for. Withdrawal of the undertaking is a breach - the remedy for which is damages or specific performance. Alternatively it may be viewed as an option for value, in which case the correct approach is to ignore a purported withdrawal before acceptance and treat it as still open for acceptance. From either view, there is nothing to prevent the party from obtaining specific performance of the sale.
HELD Isaacs J
He viewed the situation in terms of two contracts, the first of which requires the vendor to keep open the offer of the second contract to sell the land. The defendant is not entitled to breach the first contract merely by offering damages. The option is irrevocable and an attempt to withdraw it will be ignored. During the period of the option an injunction could be obtained preventing the sale to another. An acceptance turns the position of optionee to that of vendee. That has
been done here, so that specific performance of the original agreement is not only inappropriate but also unnecessary and impossible.
Outcome
High Court held that the plaintiff’s construction of the option was correct therefore the defendant couldn’t rely on his construction The defendant couldn’t rely oh his construction, he made a mistake and there was no legal significance It was at best a unilateral mistake but not one to which th plaintiffs had contributed Appeal was allowed
Taylor v Johnson (1983) 151 CLR 422 Facts
Issues
Mrs Johnson granted an option to Mr Taylor or his nominee to purchase her land for a total price of $15,000. She declined to perform the contract as she had believed the sale price to be $15,000 per acre. The Taylors claimed specific performance and Mrs Johnson sought an order to set aside the contract. On appeal, the Court found in favor of Mrs Johnson, holding that Mr Taylor believed that Mrs Johnson was probably mistaken as to what the option and contract stipulated as the price. Mr Taylor appealed to the High Court. Mason ACJ, Murphy and Deane JJ [CB-815] *It has been said that+ ‘a contract is void if one party to the contract enters into it under a serious mistake as to the content or existence of a fundamental term and the other party has knowledge of that mistake’. According to the subjective theory, there is no binding contract either at common law or in equity, equity following the common law in this respect. According to the objective theory, there is a contract that, in conformity with the common law, continues to be binding unless and until it is avoided in accordance with equitable principles, which take as their foundation a contract valid at common law but transform it so that it becomes voidable. A clear trend in decided cases and academic writings has been to leave the objective theory in command of the field. While mistake in Solle v Butcher was a mistake of fact which affected the operation of a formal written contract, it is plain that the above remarks of Denning LJ were intended to extend to a mistake as to the existence or content of an actual term of such a contract. [CB-817] In the absence of fraud or misrepresentation, resort must be
Outcome
had to equity to escape from the terms of a contract on the ground of unilateral mistake. Neither party to a contract ‘can rely on his own mistake to say it was a nullity from the beginning’. [CB-818] Our comment can, for present purposes, be limited in its application to the case where the second party has not materially altered his position and the rights of strangers have not intervened
Ratio: A party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension. The appeal was dismissed
Unilateral Mistake as to Identity:
Where the parties are at a distance is that if one of the parties has pretended to be another person (with whom the other party had no intention to contract), there us no contract Eg. If A makes an offer to B which is accepted by C, since C is not the offeree there is no contract Here it must be established if the mistake was fundamental or not When the situation is face to face presumption that each intends to contract with the person present. Hence, it needs to be considered if this presumption should be rebutted Reliance on a fraudulent misrepresentation as to identity does not itself rebut the presumption
Cundy v Lindsay (1877–78) LR 3 App Cas 459 Facts
Lindsay & Co were manufacturers of linen handkerchiefs, amongst other things. They received correspondence from a rogue named Blenkarn.
He had rented a room at 37 Wood Street, Cheapside, but purported to be 'Blenkiron & Co', with premises on 123 Wood Street.[4] Lindsay & Co knew of a business named as 'Blenkiron & Co', and knew them to be reputable and residing on the same road.
Under this guise, and the rogue's signing of his letters as 'Blenkiron & Co', Lindsay & Co sold the rogue a large order of handkerchiefs.[4] Blenkarn then sold the goods - 250 dozen linen handkerchiefs - to an innocent third party, Cundy, whom Lindsay & Co
sued for conversion of the goods.
Issues
Lord Cairns L.C
His Lordship considered the case to turn on the simple question: whether there was a contract between the plaintiff and the rogue. If yes, then property in the goods validly passed to the defendant, in spite of the fraud on grounds of which the contract may be later impeached. The evidence clearly demonstrated that the plaintiffs believed themselves to be dealing with, not the rogue Blenkarn, but the reputable firm, Blenkiron & Co. They never intended a contract with Blenkarn, "of him they knew nothing", and hence, there was no contract. "[T]here was no consensus of mind which could lead to any agreement or any contract whatever." Property remained with the plaintiff.
Lords Hatherly and Penzance agreed. Lord Gordon concurred.
Outcome
Appeal was dismissed
Lewis v Averay [1972] 1 QB 198 Facts
Issues
Lewis sold a motor car to a person who claimed to be Richard Green a well known actor. As proof, he showed a studio pass which had his name on it. The student believed him and allowed him to purchase the car with a cheque that was later dishonored. In the meantime the rogue sold the car to an innocent purchaser Averay. Lewis claimed the car was still his and sued Averay for conversion. The trial judge found awarded Lewis damages. Averay appealed. Lord Denning MR [CB-820] The real question in the case is whether on 8 May 1969, there was a contract of sale under which the property in the car passed from Mr Lewis to the rogue. [CB-821] There is no doubt that Mr Lewis was mistaken as to the identity of the person who handed him the cheque. [CB-822] I think the true principle is this: When two parties have come to a contract – or rather what appears, on the face of it, to be a contract – the fact that one party is mistaken as to the identity of the other does not mean that there is no contract, or that the contract is a nullity and void from the beginning. It only means that the contract is voidable, that is, liable to be set aside at the instance of the mistaken person, so long as he does so before third parties in good faith acquired rights
Outcome
under it. The presumption in law is that there is a contract… under which the title will pass unless and until it is avoided. The appeal was allowed
Documents Mistakenly Signed: Two types of mistake – 1. First type relates to what the document says – if the requirements of the doctrine of rectification are satisfied, the error in setting out the terms of the bargain in a document can be corrected 2. Second type related to the nature and effect of the document if the requirements of non est factum are satisfied, a party is entitled to deny that document was signed: the contract is void Rectification: Errors in setting out the terms of the bargain in a document can be corrected by an order for rectification. There are two key principles: a) A document can be rectified if it purports to set out the terms of the contract but doesn’t accurately record the intention of the parties, provided there was a continuing common intention in relation to what the document should have said technique for applying this principle is to consider all the evidence to determine whether there was a common mistake of a kind to which the remedy is applicable b) Rectification may be ordered for a unilateral mistake as to the terms of the document if the other party knew of the mistake at the time of the execution of the document technique for applying this is to determine whether the unmistaken party acted unconscionably
Pukallus v Cameron (1982) 180 CLR 447 Facts
Issues
The Plaintiff [Pukallus, purchaser] was buying land off the Defendant [Cameron, vendor]
The contract specified he is buying Subdivision 1 - both parties mistakenly believed Subdivision 1 included some other land which was actually a part of Subdivision 2.
When this was discovered, the Plaintiff sought to rectify the contract to include the rest of the land he originally contracted for
Rectification can occur where: 1. There is "an intention common to both parties at the time of contract to include in their bargain a term which by mutual mistake is omitted therefrom."[1] 2. The plaintiff advances "'convincing proof' that the written
contract does not embody the final intention of the parties. The omitted ingredient must be capable of such proof in clear and precise terms"[2] In this case, the Plaintiff fails to show that it was the intention of the parties to sell contract for the other area as well - rather, the intention of the parties was to contract for Subdivision 1.
The fact that he mistakenly thought there is more land on it (even if so did the vendor) is his fault. The purchaser has a responsibility.
The Plaintiff fails.
Outcome
Appeal was dismissed
Non Est Factum
Under the doctrine of the non est factum a contract is void if a document was signed by mistake The technique for applying the key principle I application of the elements of the defence, namely: 1. that the signer labored under a disability 2. a fundamental difference between the document executed and as the signer believed it to be
Petelin v Cullen (1975) 132 CLR 355 Facts
Issues
The respondent, Cullen, wished to buy a property from the appellant, Petelin. The appellant spoke little English and could not read English. For $50, Petelin granted him an option to purchase the property. The document was only signed after the appellant consulted his solicitor. The respondent wanted an extension of the option and hence drew up another document that he gave the appellant to sign upon the payment of another $50. The option was later exercised but the appellant refused to sign the document stating that he thought he was merely signing a receipt upon receiving the extra $50. ! The Court of Appeal found for the respondent. The appellant appealed to the High Court. The Court (Barwick CJ, McTiernan, Gibbs, Stephen and Mason JJ) The problem is that the principle must accommodate two policy considerations [CB-825] which pull in opposite directions: First, the injustice of holding a person to a bargain to which he has not brought a consenting mind; and, secondly, the necessity of holding a person who signs a document to that document, more particularly so as to protect
Outcome
innocent persons who rely on that signature when there is no reason to doubt its validity. The importance, which the law assigns to the act of signing and to the protection of innocent persons who rely upon a signature, is readily discerned in the statement that a plea is one which must be kept within narrow limits. The class of persons who can avail themselves of the defence is limited. It is available to those who are unable to read owing to blindness or illiteracy and who must rely on others for advice as to what they are signing; it is also available to those who through no fault of their own are unable to have any understanding of the purport of a particular document. To make out the defence a defendant must show that he signed the document in the belief that it was radically different from what it was in fact and that, at least as against innocent persons, his failure to read and understand it was not due to carelessness on his part. Finally, it is accepted that there is a heavy onus on a defendant who seeks to establish the defence. When we speak of negligence or carelessness in connection with non est factum we are not referring to the tort of negligence but to a mere failure to take reasonable precautions in ascertaining the character of a document before signing it. The appeal was allowed
Smith v Hughes (1871) LR 6 QB 597 Facts
Issues
Plaintiff offered to sell the defendant oats, and exhibited a sample that the defendant took. The defendant wrote back to say that he would buy the oats. The defendant afterwards refused to accept the oats on the ground that he thought he was buying old oats instead of new. The jury found for the defendant. The plaintiff appealed. Blackburn J [CB-814] If the parties as not ad idem, there is no contract, unless the circumstances are such as to preclude one of the parties from denying that he has agreed to the terms of the other. If, whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms. Hannen J [CB-815] It matters not in what way the knowledge of the meaning in
Outcome
which the promisor made it brought to the mind of the promise, whether by express words, or by conduct, or previous dealings, or other circumstances. If by any means he knows that there was no real agreement between him and the promisor, he is not entitled to insist that the promise shall be fulfilled in a sense to which the mind of the promisor did not assent. The appeal was allowed
Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679 Facts
Issues
A defective ship, the Cape Providence, was stranded out at sea. In order to save lives, another ship, the Great Peace, which was thought to the closest vessel, was asked to evacuate the crew. They agreed to depart from their route to help out on conditions that they were to be paid. A contract was drawn up at a gross rate of $16,500 a day. In fact Great Peace was much further away than they thought, yet they kept the contract on foot until they heard that there was another ship within close proximity. They then informed Great Peace that they were no longer needed. Great Peace sued for monies payable under the terms of the contract. Alternatively, they claimed the same sum as damages for the wrongful repudiation of the contract. The defendants contended that the contract had concluded by reason of fundamental mistake of fact that Great Peace was in close proximity, when she was not. It followed that the contract was void in law, or that the contract was voidable and the defendants were entitled to relief in equity by way of rescission. Lord Phillips of Worth Matravers MR, May and Laws LJJ [MB-50] The common law has drawn the line in Bell v Lever Brothers. The effect of Solle v Butcher is not to supplement or mitigate the common law; it is to say that Bell v Lever Brothers was wrongly decided [MB-51] There is no jurisdiction to grant rescission of a contract on the ground of common mistake where the contract is valid and enforceable on ordinary principles of contract law. Was the “Great Peace” so far away from ‘Cape Providence” at the time of the contract as to defeat the contractual purpose – or in other words to turn it into something essentially different from that for which the parties bargained? This is a question of fact and degree, but in my view the answer is no. The parties entered into a binding contract for the hire of “Great Peace”. That contract gave the express right to cancel the contract subject to the obligation to pay the “cancellation fee’ of 5 days hire.
Outcome
When they engaged the “Nordfarer” they cancelled the “Great Peace”. They became liable to pay the cancellation fee. There is no injustice in this result. The appeal was dismissed
Svanosio v McNamara (1956) 96 CLR 186 Facts
Issues
Outcome
P contracted to buy land together with licensed premised Following a conveyancing survey revealed that the hotel fell outside the boundaries of the land conveyed. P asked for the return of the money and to have the contract set aside on the basis of common mistake as they believed that the hotel stood wholly on the land sold Dixon J and Fullagar J It was ruled “difficult to conceive any circumstances in which equity could properly give relief by setting aside the contract unless there has been fraud or misrepresentation or a condition can be found expressed or implied in the contract” Court declined, as there was no evidence of fraud or total failure of consideration Rescission was possible had it been sought after the completion of the conveyance
Shogun Finance Ltd v Hudson [2003] UKHL 62 Facts
Issues
Shogun Finance Ltd v Hudson UKHL 62 is an English contract law decided in the House of Lords, on the subject of mistaken identity as a basis for rescission of a contract. The case has been the subject of much criticism in failing to effectively clarify the area ofmistake to identity. A rogue went to buy a Mitsubishi Shogun on hire purchase. The rogue told Shogun Finance Ltd that his name was Mr Patel and produced Mr Patel’s driving licence. The finance company did a credit check on Mr Patel, finding no problems, and the rogue drove away. Then, the rogue sold the car to Mr Norman Hudson. Under s.27 Hire Purchase Act 1964 a non-trade buyer of a car who buys in good faith from a hirer under a hire purchase agreement becomes the owner, so Mr Hudson would have been the owner if the hire purchase agreement were valid. Shogun Finance argued that it was not on the basis that there was a mistake as to identity. They therefore claimed against Mr Hudson for conversion. The majority of the House of Lords (Lord Hobhouse, Lord Phillips and Lord Walker) held there was no contract (rescission) of hire
purchase between Shogun Finance and the rogue, so that the car was not Mr Hudson's. This followed the principle established inCundy v Lindsay, that written agreements do not infer a presumption to sell to the immediate purchaser, where identity is of key importance to contracting. Lord Nichollsand Lord Millett dissented. Outcome
The House of Lords dismissed the appeal by a bare majority made up of Lords Hobhouse , Phillips and Walker (Lords Nicholls and Millett dissenting), finding that there was no valid contract between Shogun Finance and the crook, and that s 27 therefore did not apply so as to give Mr Hudson good title. The contract was made between Shogun Finance and Mr Patel, although it was a nullity and could not bind Mr Patel (or Shogun Finance) because it had been made without Mr Patel’s authority. All five of their Lordships gave reasoned judgments.
Maralinga v Major Enterprises (1973) 128 CLR 336 Facts
Issues
The respondent sold a property from the appellant at an auction. During the auction the auctioneer stated that the sale was subject to Special Condition 23, which included that the purchaser had the option to demolish the house on the property at the expense of the vendor. He further added that the respondent was offering finance, that it required a cash payment of $75,000 and would allow the balance of the purchase price to remain on first mortgage over three years at 8 per cent fixed interest. On the draft contract, finance offered did not contain a provision for any part of the price to remain on mortgage for three years. Mr Mutton who was to sign on behalf of the appellants sought to obtain an alteration to Special Condition 23 so it would more clearly reflect the option. This request was met with a curt refusal “Sign it as it is or the deal is off”. Faced with the ultimatum, Mr Mutton signed the contract in the form in which it was presented. The Court of Appeal allowed for the rectification of Clause 23. Appellants appealed for rectification and specific performance with regards to finance provision. Mason J The person seeking rectification must establish clearly that the alleged intention to which he desires to be made conformably continued concurrently in the minds of all parties down to the time of its execution, and also must be able to shew exactly and precisely the form to which the deed ought to be bought. Remedy is designed to relieve against the mistaken expression of the true agreements of the parties
-
Outcome
As Buckley LJ said in Lovell and Christmas v Wall: For rectification it is not enough to set about to find what one or even both of the parties to the contract intended. What you have to find out is what intention one side to the other, and with what common intention and common agreement they made their bargain communicates. The purpose of the remedy is to make the instrument conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately. There has been a firm insistence on the requirement that the mistake as to writing must be common to the parties and not merely unilateral, except in cases of a special class… In order to succeed the appellant must show that the parties intended by the writing to give effect to the whole of the antecedent agreement and that by common mistake it failed to do so. The court must be satisfied that the instrument does not reflect the true agreement of the parties It cannot be so satisfied unless the writing was intended to record the earlier agreement and by mistake of the parties it fails to do so. If one party to a transaction knows that the instrument contains a mistake in its favour but does nothing to correct it, he will be precluded from asserting that the mistake is unilateral and not common. In my opinion this principle has no application to this case as there was no relevant mistake on the part of the appellant as to the contents of the written contract. The appeal was dismissed
Elements of Misrepresentation: 1. There must be a false statement of fact exclude silence and statements of intention, as to future matters, opinion and law 2. Statement must be material rule to statements which are immaterial, and the technique for applying it is simple factual analysis 3. Statement must have been an inducement – this means that the representor must have intended to induce the representee and that the representee must have been influenced by the representation technique for applying this principle includes application of a presumption that any contract entered into following a misrepresentation was induced by it
Edgington v Fitzmaurice (1885) 29 Ch D 459 Facts
Edgington (plaintiff) issued a loan of 1,500 pounds to a business controlled by Fitzmaurice (defendant). To obtain the loan, Fitzmaurice and the other directors and officers of the business misrepresented that they had acquired valuable property
Issues
Outcome
subject to a payment of 500 pounds twice yearly on a total mortgage of 21,500 pounds. Fitzmaurice stated the loan was needed to complete renovations to buildings on the property, and to purchase horses and vans to be used to obtain cheap fish from the coast. Edgington brought suit against Fitzmaurice for fraud on the grounds that the loan agreement made with him failed to include a second mortgage taken out against the property, that the entire balance of the first mortgage could come due at any time, and that the real reason for the loan of 1,500 pounds was to pay off pressing liabilities of the company and not to improve the buildings or buy horses or vans to develop the business of the company. The trial court held for Edgington, and Fitzmaurice appealed. Cotton LJ “It is true that if he had not supposed he would have a charge he would not have taken the debentures; but if he also relied on the misstatement in the prospectus, his loss nonetheless resulted from that misstatement. It is not necessary to shew that the misstatement was the sole cause of his acting as he did. If he acted on that misstatement, though he was also influenced by an erroneous supposition, the defendants will still be liable... It was a statement of intention, but it is nevertheless a statement of fact, and if it could not be fairly said that the objects of the issue of the debentures were those which were stated in the prospectus the Defendants were stating a fact which was not true…” To fulfil the requirement that Mr Edgington relied on the statement, it is not necessary to show the misstatement was the sole cause of acting, so long as there was an influence. Bowen LJ said ‘the state of a man’s mind is as much a fact as the state of his digestion… A misrepresentation as to the state of a man’s mind is, therefore, a misstatement of fact... such misstatement was material if it was actively present to his mind when he decided to advance his money.’ Fry LJ said the ‘inquiry is whether this statement materially affected the conduct of the Plaintiff in advancing his money.’ He pointed out the ‘prospectus was intended to influence the mind of the reader.’
Appeal dismissed
Holmes v Jones (1907) 4 CLR 1692 Facts
This case considered the issue of misrepresentation and whether or not a misrepresentation regarding the cattle numbers on a property was fraudulent and whether or not this alleged fraudulent misrepresentation induced a person to purchase the property. Jones agreed by a contract dated 3rd Jan 1906 to purchase a Qld pastoral
Principle
Outcome
property plant, stock stores and effects for 15,000 pounds They sued the defs for fraudulent misrepresentation inducing the contract and for breach of the warranty Pl’s case was that the def had represented their number of cattle incorrectly – however the def claimed that the statements were untrue from their knowledge If the representee makes his or her own investigations and relies solely on the results of that investigation rather than the representor’s false statement, the representee’s claim will be defeated. Appeal was allowed – Court took the view that there was no reliance, and that any presumption of reliance was rebutted
Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd Facts
Issues
There was a contract between AS2000 to Castle Douglas.
AS2000 assigned copyright to a software to Castle Douglas.
Clause 3.1 warranted that AS2000 was entitled to assign copyright and no claim against AS2000 for breach of copyright has been made.
Actually, there was a copyright infringement to a 4th party.
CCH was a 3rd party which entered contracts with Castle Douglas on reliance that it had copyright from AS2000.
CCH sued AS2000 for misleading or deceptive conduct in making those warranties under the Trade Practices Act 1974 (Cth).
It was held that unintentionally giving a false warranty amounted to a breach of section 52 of the Act.
The broadest view of the scope of s 52 to attach liability to contractual promises was stated by the Full Federal Court in Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470.
That case concerned a warranty that one of the parties was the owner of copyrights in an accounting software package, and was entitled to assign that copyright. Having dealt with the question of copyright in the software, the issue was whether the provision of the warranty was actionable under s 52.
As well as noting the policy of giving a broad interpretation to the Act (citing Devenish v Jewel Food Stores Pty Ltd (1991) 172 CLR 32 at 44 per Mason CJ), the majority (Lockhart and Gummow JJ) placed particularemphasis on s 4(2)(a) of the act, which states:
In this Act . . . a reference to engaging in conduct shall be read as a reference to doing or refusing to do any act, including the making of, or the giving effect to a provision of, a contract or arrangement, the arriving at, or the giving effect to a provision of, an understanding or the requiring of the giving of, or the giving of, a covenant . . [emphasis added]
In addition, they warned of the dangers in transferring common law concepts of misrepresentation, which was traditionally treated as extra-contractual, or of treating a "warranty" as a separate concept from "representation. The majority endorsed (at 505): . . . the general proposition that the making of a statement as to a presently existing state of affairs, if false, may be the engaging in misleading or deceptive conduct, where the statement is embodied as aprovision of a contract.
Redgrave v Hurd Court of Appeal (1881) 20 Ch D 1 Facts
Issues
The plaintiff was a solicitor who put out an advertisement stating that he would take on a partner if they agreed to buy his suburban residence. In an interview, he told the defendant that his business brought in about $300 a year. The defendant wanted to know the amount of business done in the past three years and hence plaintiff produced three summaries showing business of not quite the amount. He did, however, offer to show him other papers which he said made up the difference. The defendant did not check the papers, which in fact, showed a most trifling amount of business. The defendant shortly afterwards signed the agreement and paid a deposit, the plaintiff refusing to have any reference to the business inserted in the agreement. The defendant later found the business to be worthless and refused to complete. The plaintiff sued for specific performance, and the defendant disputed this on the ground of misrepresentation seeking for rescission and for damages due to expense incurred. Baggallay LJ The mere fact that a party has the opportunity of investigating and ascertaining whether a representation is true or false is not sufficient to deprive him of his right to rely on a misrepresentation as a defence to an action for specific performance. The representation once made relieves the party from an investigation, even if the opportunity is afforded. I do not mean to say that there may not be certain circumstances which might put a person upon inquiry and make it his duty to inquire, but under ordinary circumstances, the mere fact that he does not avail
Outcome
himself of the opportunity of testing the accuracy of the representation made to him will not enable the opposing party to succeed on that ground. The appeal was allowed
Shaddock V Parramatta City Council (1981) Alr 385 Facts
Issues
Outcome
Shaddock wanted to purchase property located in the area governed by the council. Shaddock’s solicitor both orally and by a written standard form, asked the council whether the property was the subject of any proposals to widen roads. The council carelessly said there were no proposals when in fact there were such proposals. The value of the property was reduced by the proposal. The appellants claimed that they had sustained loss by reason of their reliance on erroneous information supplied to them innocently but negligently by the respondent. The trial judge found that the respondent had been careless but that it owed no relevant duty of care to the appellants. This decision was affirmed by the Court of Appeal on appeal to the High Court.
The court had to decide the circumstances in which a local government body could be held liable for information it supplied to the general public. Finding A person comes under a duty of care in relation to the provision of advice or information if he carries on a business or profession and in the course of it provides advice or information of a kind which calls for skill and competence or he otherwise professes to possess skill and competence and he provides advice or information when he knows or ought to know that the recipient intends to act or rely on it. Liability for negligent mis-statement is not confined to those who carry on, or profess to carry on a profession, business or occupation involving the possession of skill and competence. This case establishes that liability for negligent mis-statement will arise where the government authority ought to have known that the person seeking the information would rely on that information and could suffer loss if the information was incorrect. Government bodies, which provide information for tender submissions, must make sure that all such information is as accurate as possible. Failure to do so in the absence of an appropriate disclaimer could lead to liability for negligent mis-statement. This duty to ensure that information is accurate extends to all dealings which governmental
authorities have with the public.
Nicholas v Thompson Supreme Court of Victoria, Full Court [1924] VLR 554 Facts
Issues
Outcome
The plaintiffs purchased the defendant’s interest in a speculative venture. The defendant had represented that he had been offered a very large sum of money for the interest and had refused to sell. Plaintiffs sought to rescind the contract and recover their money on the basis that the representation was fraudulent and had induced them to enter into the contract. At trial, the Court declared the contract void and directed that the money be repaid. The defendants appealed on various grounds. McArthur J When a party has practiced a deception with a view to a particular end which has been attained by it, he cannot be allowed to deny it materiality (Smith v Kay). A representation is material when its tendency or its natural and probably result is to induce the representee to act on the faith of it in the kind of way in which he is proved to have in fact acted. *In Lord Haldbury’s Law of England, the author goes on to say:+ But, to the knowledge of the representor, there may be special circumstances or peculiarities in the moral or mental constitution, or in the situation, of the representee, of such a character as to render the particular representation of the utmost importance to the particular representee to whom it was addressed, though it would be utterly inoperative on the mind of a normal person under normal condition. In all such cases the representation is material as between the parties. Appeal is dismissed
Concrete Constructions (NSW) Pty Ltd v Nelson (HPH 1104) A worker was injured after he had been told incorrectly that it was safe to work in a certain place on a building site. He tried to use s 52 to claim damages. It was advantageous to try this because there were certain limits on recovery in the relevant workers' compensation legislation. The High Court had to consider whether a communication within a company between its employees was in "trade or commerce". It was concluded that this was not in trade or commerce but the High Court had a rather difficult time in describing what is in trade or commerce and why, in this particular instant, the communication was not in trade or commerce. It was said that what goes on within a company is merely incidental to trade or commerce. Its trading and commercial activities are what it does with the outside world. But there were certainly some difficult lines to draw. One of the hypothetical examples which the Court considered was: suppose a truck driver gives a misleading hand signal which causes an accident. Was the hand signal given in trade or commerce? It was thought that this would not be in trade or commerce, even though the truck driver was delivering goods at the time.
Apart from this case, there have been very few cases testing the limits of what constitutes "trade or commerce". Suffice it to say that almost every business activity is in trade or commerce. For example, it has been held that a bank which provides a free reference concerning one of its customers was acting in trade or commerce. It has been held that politicians when they make misleading statements are not "in trade or commerce": Durant v Greiner (1990) 21 NSWLR 119; Unilan Holdings Pty Ltd v Kerin (1992) 107 ALR 709. There is also a hint in these cases that a politician's statement is, in any case, not misleading! Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd Federal Court of Australia, Full Court (1988) 79 ALR 83
Facts
Issues
Henjo owned a licensed restaurant in which the seating capacity was 84 people. The number of seats however were increased to 128 seats without authority from local council or licensing authorities. Collins negotiated the purchase of the business from Henjo, and a card was shown with the written words 128 seats under which were the words ‘licensed’. Collins instructed their solicitor to check and confirm that all council laws and by-laws were complied with and to check liquor license. The solicitor failed to do so. Collins purchased the business which contained clause 6 & 7 acknowledging that the purchaser had not relied upon any statement, representation or warranty given on behalf of the vendor, and a provision that the document contained the whole of the contract. Collins operated the business which fared badly. The company then commenced proceedings claiming that Henjo had engaged in misleading and deceptive conduct contrary to s 52 of the Trade Practices Act, and sought relief under s 87. The Court found the contract to be void and entered judgment for damages, but no provision for interest. Henjo appealed. Lockhart J Section 52 ‘Mislead’ does not necessarily involve an element of intent and it is a word of wider reach that ‘deceive’. However, it is difficult, in my opinion, to read the word ‘deceive’ in s 52 other than as involving some degree of moral turpitude as it does in ordinary English language. Representation by silence Silence may be relied on in order to show a breach of s 52 when the circumstances give rise to an obligation to disclose relevant facts. Reliance upon the misleading conduct It is broadly true that an applicant in an action under s 52 cannot
Outcome
recover damages unless he establishes that he acted on or was influenced by the conduct contravening the section. The representation made ‘need not be the sole inducement. It is sufficient as long as it plays some part even if only a minor part in contributing to the formation of the contract. Special condition 6 & 7 An exclusion clause of that kind cannot oust the effect of the Act or deprive an applicant of remedies under it. It has been held that exclusion clauses, of which Special conditions 6 & 7 are examples, cannot operate to defeat claim under s 52. In granting remedy under s 87, the court is not restricted by the limitations under the general law of a party’s right to rescind for breach of contract or misrepresentation. Nevertheless, in exercising its discretions under s87, the court will consider the conduct of the parties after they had knowledge of the misleading quality of the conduct. Damages but no rescission
Seminar 14: Revision BE MINDFUL OF WHETHER THE QUESTION IS ASKING FOR STATUTORY OR COMMON LAW PROVISIONS Question 1:
Privity of contract for Douglas (Trident) Exclusion Clauses construction of exclusion clasuses involves gining the words their “natural and ordinary meaning” Darlington Futures contra proferentum if ambiguity Negligence White v John Warrick Incorporation of terms – no reasonable notice – Thorton/ J Spurling red hand rule notice for onerous terms are only for signed contracts pg.247 TB
Clause 1:
Exclusion clause similar to Photo Productions TB p323; very clear words were used to exclude liability for a deliberate act of the employee. Apply this to Douglas’ conduct. Douglas sets a trio wire (deliberate act) but the clear wording of the clause may protect him according to Photo Productions Douglas has PTS does this affect the deliberateness? Photo Productions; no he may not have intended it but the actions were still deliberate An employee screening process may have shown he had PTS and that some sort of issue would result from that – whether the particular issue could have been forseen (trip wire set) is a matter of debate but the general risk of harm may have been forseeable
Clause 2:
The words excludability/limiting liability for matters arising ‘in correction with’ the contractual relationship are similar to the clause7 of the Darlington Futures case TB pg 329 which was upheld as valid so this clause may be effective to limit liability of the Sodor Resort to $500 Yu lost a $5000 bike – if clause 2 was upheld he would only get $500in damages potentially Negligence there are clear words on facts necessary to exclude liability for negligence Alderslade pg 341 TB
Clause 3:
Does it effectively cover Douglas’ behavior privity of contract – it gives a benefit to Douglas even though he is not a party to the contract between Yu and Sodor Resort. TB pg 388 lack of consideration provided by the 3rd party is often an issue In Trident Deane J decided on the basis of a trust as his judgement would be persuasive rather than binding. If the same approach was adopted here then Sodor Resort would hold the rights in Clause 3 on trust for Douglas Clause 3 also says that SR is an agent for Douglas
Negligence
An action in tort may be available even where exclusion clauses exclude liability: White v John Warwick Sodor Resort may well have a duty of care for in tort for occupies liability This may help Yu even if some of the other clauses (1-3) are upheld
Question 3:
Breach of contract – claimed by RE against BB contract is valid as it says that there is a six month period however termination of the contract needs to be considered Repudiation – claimed by BB
Breach
Need to consider if BB has breached an implied term by bringing in RR RE would argue for a term to be implied; that BB not bringing in different producer not successfully There is a written contract (formal contract) need to go through the criteria in BP Refinery which Byrnes v Australian Airlines says applies to formal not informal contracts It is unlikely to satisfy the BP Refinery test Codelfa says that all 5 elements need to be satisfied: 1) Necessary for business efficiency 2) Must be so obvious it goes without saying 3) Must be capable of clear expression 4) Not contradict the express terms of the contract
RE v BB Repudiation
Repudiation claimed by BB that RE have engaged in terms of the cause alleged to be repudiated it is like TB ph 304 White v Aust & NZ Theatres – ‘sole professional services’ was a phrase that required extrinsic evidence to assist with construction but here there is more substance in clause 1 ‘act, dance, sing’ etc as to what the clause means Knox CJ pg 731 Bowes Question 2: FRUSTRATION - Meehan v Jones – Gibbs CJ saying that there is a subjective test; Mason CJ that there is reasonableness Estoppel – an assumption that has been induced by a party and it has to be to the detriment of the relying parties – Walton stores case (different types of estoppel, make note of the different judgements)
