Law of Contract A Summary Laws2111 2012 N PDF

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Law Of Contract A - Summary - LAWS2111 2012 N
Law Of Contract A (University of Queensland)
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CONTRACTS NOTES
Agreements vs. Contracts

o Agreements are not legally binding (e.g. agreement to drive your friend
home) while contracts are legally binding (e.g. sale of land)
o How to distinguish between the two look at the intention of the two parties
(What would a reasonable third party think about the words and actions of
the two parties? Does it amount to a contract?)
Law of Contract
o Different types of contracts one type of contract law
o There are common, fundamental principles that apply to all types of
contracts
o No Contracts Act/Code based on common law (some statutes)
o English law is sometimes used in international cases (e.g. a Chinese buyer and
a Norwegian shipper)
How to plead a contract case:
o Agreement there was an agreement (offer and acceptance)
o Terms there was a clause/term that stated
o Breach it was a breach that the defendant did
o Remedy due to this breach, the remedy required is
Creating a contract:
o A contract comes into existence when the acceptance of an offer has been
communicated to the offeror
o Up until a contract if formed, the two parties are under no obligation to one
another and can withdraw from negotiations (some exceptions)
Offer
For an agreement, there must be an offer and acceptance of that offer

Offeror = the person who makes the offer
Offeree = the person to whom the offer was made
What is an offer? an offer must be a statement that is intended to be an offer
from an objective, reasonable viewpoint (Harvey v Facey) would a reasonable
person believe an offer was made
OR
an offer must take the form of a
proposal for consideration which gives the offeree an opportunity to accept or
reject (Bramblers Holdings Ltd v Bathurst City Council)
o As opposed to an invitation to treat an invitation of one party to another
party to make the first party an offer (Pharmaceutical Society of Great Britain
v Boots)
Generally, displays in shop windows (Fisher v Bell) and
advertisements in newspaper (Wallace v Brodribb) are an invitation
to treat
The scope of the offer (who the offer is made to) depends on the language used can
be restricted to certain classes of people, the public at large, everyone but with
certain exclusions, etc
An offer is ineffective until it has been communicated (Henthorn v Fraser)
If an offer is communicated to the offeree by a third party, the offer is not effective
until it has been communicated by the offeror or by the third part acting with the
authority of the offeror (Cole v Cottingham)
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Unilateral vs. Bilateral Contracts

o Bilateral two parties undertake negotiations and come to an agreement of
executory promises (often the case)
o Unilateral acceptance of an offer occurs when one party perform the
actions requested by the offeror (a promise in return for doing an act) e.g. a
reward contract - $100 reward if you find a dog)
Carlill v Carbolic Smoke Ball Co example of a unilateral contract
o Difference the obligations in a unilateral contract are executed (contract
formed after task is completed) while the obligations in a bilateral contract
are executor (contract is formed before tasks are completes)
o For a unilateral contract to exist, there must be a relationship of quid pro quo
(this for that). There are three ways of establishing qui pro quo (Australian
Woolen Mills Pty Ltd v Commonwealth):
Has the offeror expressly or impliedly requested the doing of the act
by the offeree?
Has the offeror stated a price that the offeree must pay for the
promise?
Was the offer made in order to induce the doing of the act?
Auctions
o In an auction, the bidder makes an offer and the seller accepts the offer with
the fall of the hammer (Sale of Goods Act 1896 (Qld)) thus, a bidder can
withdraw their bid before the fall of the hammer (as there has been no
acceptance)
o An advertisement that an auction will take a place is not an offer (Harris v
Nickerson)
o There is no automatic contract between the seller and the highest bidder in
an auction without a reserve (AGC v McWhirter)
Tenders
o Putting a project out to tender is an invitation to treat the people
submitting tenders are making an offer
o There is no obligation to accept the highest offer (Blackpool & Fylde Aero
Club v Blackpool BC or IPEX v State of Victoria)
o There is an obligation to follow the advertised process (a process contract)
(Blackpool or Hughes Aircraft Systems v Airservices Australia)
o An advertisement calling for tender will be considered an offer if it states that
they will accept the highest or lowest tender (Harvela Investments Ltd v Royal
Trust Co of Canada)
Passenger Tickets
o Key question: When is a contract formed?
o Conventional Analysis: Asking for a ticket is an invitation to treat. The sales
person handing a passenger a ticket is an offer. Acceptance occurs when the
passenger looks at the ticket, is given time to read the terms and walks
away (MacRobertson Miller v Commissioner of State Taxation)
Why? the offeree must accept the offer with knowledge of the
terms of the offer. This would not occur if acceptance occurred when
the passenger was issued with the ticket and terms were printed on
the ticket
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This reasoning applied in Thornton v Shoe Lane Parking (Lord Denning

said that the conventional analysis cant apply because you cant
negotiate with a machine)
The conventional analysis was not applied Baltic Shipping v Dillon the offer
and acceptance occurred before the issue of the ticket (which included
terms) thus, the terms were not included in the contract
Every case is different need to look at each case and decided when both
parties intended for offer and acceptance to take place
Electronic Transactions
o Same rules of offer and acceptance apply to electronic transactions
o Electronic Transaction Acts have been enacted in all States with the objective
of providing a framework that facilitates confidence in electronic transactions
o A contract between a person and an automated system or between two
automated systems is not invalid
Acceptance
Acceptance is an unqualified assent to the terms of the offer

Two aspects:
o Fact of acceptance - has the offeree actually accepted?
o Has the acceptance been communicated to the offeror?
Fact of Acceptance what counts as acceptance?

Acceptance can occur through words or conduct
Need to ask would a reasonable person assume acceptance was meant by ones
words or actions?
Signature indicates acceptance even if the offeree hasnt read the terms they are
signing to (Fitness First v Chong)
o Indicates that a meting of the minds is not necessary it doesnt matter if
the offeree has misinterpreted the offer this may be affected by estoppel
Counter-Offers
o A counter-offer can destroy an original offer (Hyde v Wrench)
E.g. A offers to sell for $1000. B replies that he will buy at $950. A
refuses $950. B says he accepts at $1000. There is no acceptance as
the counter-offer destroyed the original offer
Not always the case a counter-offer wont destroy an original offer
if the original offeror treats the counter-offer as part of the process
as working out what is meant by the original offer (Oriolo v Wolfram)
o If a response to an offer is only a request for information (not a counteroffer), then the offer remains open for acceptance (Stevenson v Maclean)
o If an acceptance is unclear due to a number of queries, this is not a counteroffer, acceptance or rejection the offer remains open (Rest Sea v APT)
Acceptance Through Conduct
o When an offeree says nothing, just performs some action that indicates
acceptance this is harder to prove
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E.g. commercial businesses will tend to start work and sign contracts later.
There will be acceptance inferred through conduct in these situations
(Brogden v Metropolitan Railway)
Key Case: Empirnall v Machon Paull the developer refused to sign a contract
but acted in accordance with the contract until he came into financial
difficulties. Held that his conduct inferred acceptance
If A writes to B offering to sell something for a set price and B writes to A at
the same time offering to buy that thing and the set price there is no
obligation to accept the offer
Test: Would a reasonably bystander regard the offerees conduct as
signalling acceptance of the offer?
Acceptance Must be in Exchange of the Offer

o Reward cases the act performed must be done in exchange for an offer/on
faith of the offer
o E.g. R v Clarke a man who gave information given that lead to the rest of a
criminal was not entitled to the reward as he did not give this information in
exchange for the offer; rather, to avoid his own conviction
Communication of Acceptance
General Rule Acceptance only has effect when communicated to the offeror (Latec
Finance v Knight)
Generally, silence can not indicate acceptance (Felthouse v Bindley)
If the contract is signed but not communicated to the other party, there is no
communication of acceptance; thus, no contract (Latec Finance v Knight)
If an offer prescribes an exclusive method for the communication of acceptance, then
only an acceptance communicated by that method will be effective (Manchester
Diocesan Case must accept the offer in the prescribed way or by any not less
advantageous mode)
Communication of acceptance can be waived (Carlill v Carbolic Smoke Ball)
The Postal Rule
o The Postal Rule = acceptance is effective as soon as it is posted (the time at
which acceptance is received is irrelevant) (Adam v Lindsell)
Acceptance occurs when/where the acceptance is posted
If the letter is lost in the post, the postal rule still applies (Household
Fire v Grant)
The postal rule can be varied (e.g. stating that the contract arises
when the acceptance is received by post Holwell Securities v
Hughes)
Instantaneous Forms of Communication
o The postal rule does not apply to instantaneous forms of communication
acceptance is effective when received by the offeror (Entores v Miles Far
Eastern Corp)
o Acceptance by an instantaneous form of communication occurs
when/where it is received (Brinkibon v Stahag Stahl; Olivaylle Pty Ltd v
Flottwed AG (No 4))
o Fax is a instantaneous form of communication (Reese Bros Plastics v
Hamon-Sobelco Australia)
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Emails acceptance is effective once it is received by the server operated by

the recipient or a commercial server used by the recipient (United Nations
Convention on the Use of Electronic Communications in International
Contracts 2005)
s.24(1) of the Electronic Transactions (Queensland) Act (2001) states
that If the addressee of an electronic communication has designated
an information system to receive electronic communications the
time of receipt of the communication is the time when it enters the
information system.
s.24(2) if no designated information system, the time of receipt of
the communication is the time when it comes to the attention of the
addressee.
UNCITRAL notes an information system is designated if it
has been expressly specified for a particular purpose (listing
an email address or number on a letterhead is not enough)
Lord Wilberforce said that there is no universal rule that covers all
circumstances (said different principles may apply when acceptance is sent or
received through a third party, sent out of office hours or not intended to be
read immediately) need to look at each individual case and apply relevant
factors (e.g. intention of the parties (mainly the offeror), sound business
practices, where the risks should lie)
Battle of the Forms

o When two companies send different contracts/standard forms to each other.
Which contract is used?
English approach the last form sent is seen as a counter-offer and
will destroy the previous offer (Butler Machine Tool Co Ltd v Ex-CellO-Corp (England) Ltd)
Two approaches: Conflict (the exchange of terms is a battle and the
court must determine which set of terms prevail) or Synthesis (the
court building a contract from the two forms)
Not all contracts fit into the classic offer/acceptance style agreement. Sometimes
need to look at whether the parties conduct reveals a manifestation of mutual
consent with an intention to be legally bound (Kriketos v Livschitz)
o Test: does the two parties conduct (what was said/not said, commercial aims
and expectations) reveal an agreement (manifestation of mutual assent)
which shows an intention to be legally bound by the essential elements of a
contract? (Branir Pty Ltd v Owston Nominees (no 2) Pty Ltd)
o Where no offer and acceptance can be identified, need to ask whether an
agreement can be inferred, whether mutual assent has manifested and
whether a reasonable person in the position of each party think there was a
concluded bargain (Brambles Holdings Ltd v Bathurst City Council)
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Termination of Offer
An offer is terminated when it is revoked, lapses or rejected by the offeree

An offer can be revoked anytime before acceptance has occurred. Revocation has to
be communicated to the offeree (Byrne v Van Tienhoven)
What counts as revocation?
o If one party hears about the revocation from a third party, providing that
third party is a reliable source, the offer has been revoked (Dickinson v
Dodds)
Can you promise to keep an offer open for a period of time?
o Generally, a promise to keep an offer (a firm offer) is not contractually
binding unless:
There is a process contract (collateral contract)
The offeree purchases an option (Dickinson v Dodds)
Option: consideration is given in exchange for keeping an
offer open. The option holder can enter into the contract at
any time within a specified period
Estoppel Waltons v Maher
Sale of Goods (Vienna Convention) Act 1986 (Qld) Art. 16(2) states
one cannot revoke an offer if the offer indicates it is irrevocable or it
is reasonable to rely on the offer as being irrevocable
Revocation of Unilateral Offers

o One can withdraw a unilateral offer even if the offeree does not see the
revocation if no tasks have been performed (do so in the same way the offer
was advertised)
o There is an implied promise not to revoke a unilateral offer after performance
has commenced (Abbott v Lance; Veivers v Cordingly)
o Mobil v Wellcome held that there was no universal principle that the
offeror may not revoke an offer after the offeree has begun performance
Need to consider - does the offeror know the offeree has commenced
performance, does the offeree understand that incomplete performance
is at their risk, did the parties intend that the offeror should be at liberty
to revoke the offer, are the acts of performance detrimental or beneficial
to the offeree?
Lapse of Offer
o An offer will lapse after a certain time
Time period may be expressly mentioned
If no time period is stipulated, the offer will lapse after a reasonable
period of time (Bartolo v Hancock) (possible that offers are here and
now offers)
Reasonable time will depend on the circumstances
Failure to accept within a certain time indicates rejection
(Manchester Diocesan Council Case)
If acceptance occurs too late, the offeror may treat this as a
counter-offer which they choose to accept
o If an offeree dies, the estate can accept the offer (except for personal
contracts)
o If an offeror dies, the offer lapses if the offeree knows of the death (Fong v
Cilli)
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Rejection and Counter-Offer

o Once an offer is rejected, it can no longer be accepted (Tim v Hoffman & Co)
o Counter-offers will extinguish the original offer (Harris v Jenkins)
Failure of Conditions and Changed Circumstances

o An offer may be subject to a condition that must be fulfilled before the offer
is accepted or a condition that states an offer will lapse upon the occurrence
of a certain event (Financings Ltd v Stimson)
o If two parties are supposed to sign a contract, the agreement does not
become binding until both parties sign the contract (Neill v Hewens)
Restitutionary Remedies
o Can a negotiating party recover costs of preparing for a contract that is not
eventually agreed
o No general right individual risk
o Unjust enrichment (restitution) applies when there is no contract (British
Steel v Cleveland Bridge)
o One can recover costs associated with work requested to be done by the
other party (Peet v Richmond)
Certainty
An agreement must be complete and certain

o Not necessary to provide every detail courts can fill in gaps
Certainty is linked with intention the more certain an argument is, the more likely
the parties intended to be legally bound by the agreement
Key Question: Is the agreement sufficiently certain and sufficiently complete that it
is capable of constituting a binding contract?
When there is uncertainty you take an objective approach (What would a
reasonable person conclude?)
Complexity and uncertainty are different cant say that a contract is not binding
because the terms are complex and are capable of having multiple meanings (Upper
Hunter v Australian Chilling)
Types of uncertainty: Uncertainty as to the identity of the parties, content (clauses
contradict each other), scope (clauses are missing)
Three requirements:
o A contract must be sufficiently complete (parties must reach an agreement
on all terms that the contract intended to cover and on matters that the
court cannot resolve)
o A contract must be sufficiently certain and clear (parties understand their
rights and obligations)
o Promises made by the parties must not be illusory
The effect that uncertainty, incompleteness or of an illusory term will differ between
each case depends on how essential the matter is to the heart of the agreement
o If the term is essential the contract will fail
o If the term is unessential the provision will be severed if the court infers
an intention that the agreement should be valid in the absence of the
provision (Fitzgerald v Masters)
The provision can also be waived if possible (cannot waive a essential
provision Grime v Bartholomew)
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Geebung Investments v Varga Group Investments that courts should be the upholder
of bargains and not their destroyers uphold a contract as far as it is possible
Completeness
o Both parties must agree on all terms (or at least the essential terms)
o A contract will be sufficiently complete if the parties reach an agreement on
the essential terms
o Essential term = a term without which the contract cannot be enforced
(Thomas v White)
(will differ between cases)
o Consider how essential the term is, why the term has been left out, does
the agreement remain wholly executor or has it been partly or wholly
performed
o If an agreement has been wholly or partly performed, the court is more
willing to imply terms into the contract, rather than destroy it
o If an agreement is incomplete, you can look at the parties conduct after the
contract to determine intent (Quarante v Owners Strata Plan)
Certainty
o A contract can fail because a term is too vague that the court cannot attribute
a meaning to it
o If you have a meaningless expression (e.g. a clause is unclear), you can sever
it (Fitzgerald v Masters)
o If a clause is left blank, you can sever it (Laybutt v Amoco)
Contradictory in Scammel v Ouston
o If a term is incompletely expressed, it cannot be severed if it was central to
the contract (Whitlock v Brew)
Gap Filling of Incomplete Expressions

o One way to fill in gaps is by the courts implying terms into a contract
o Statutory Gap Filling:
o Sale of Goods Act 1896 (Qld): implied terms
s.11(2) price
s.16 sale by description (good must meet the description that you
sell them by)
s.17 goods shall be reasonably fit for purpose (e.g. if you are selling
a car, the car must work)
o Competition and Consumer Act 2010
ACL statutory guarantees
s.56 supply by description
s.54 goods to be of acceptable quality
Terms Left Open: General Principles

o If an issue is intentionally left undecided, it is difficult to say that a binding
contract exists as the matter was raised but not dealt with
E.g. May & Butcher v R a clause stating that a price is to be agreed
on was to uncertain so that the contract was not binding
o If there is a history of dealing between the parties, the court may infer a term
though conduct and intention (Foley v Classique Coaches)
o Giving someone the power to decide a term in the future is not uncertain as
the two parties have agreed to let one party choose something (Godeke v
Kirwan)
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Defective Machinery
o When the contract specifies some form of machinery (e.g. arbitration to deal
with disputes) but the contract doesnt specify how to carry out this
machinery or the machinery fails (e.g. the contract doesnt state who will be
the arbitrator, a nominated arbitrator refuses to participate)
A contract can be held void on this basis (Hall v Busst; George v
Roach)
The court will operate the machinery if necessary (Sudbrook v
Eggleton)
Negotiations in Good Faith

o Can you have an agreement to negotiate?
English approach No, an agreement to negotiate is not legally binding
as negotiating parties should be free to withdraw at anytime
(Walford v Miles, Petromec Inc v Petroleo Brasileiro SA)
o Traditional Approach there is no obligation to negotiate in good faith as
contract law is adversarial (Walford v Miles)
o Is there an obligation to continue negotiations? Usually no (but have we
moved on in Australia)
o You can have an agreement to negotiate in good faith, but this agreement
must be very clear (Coal Cliff v Sijehama)
o Good faith means to act honestly within the framework or fidelity to the
bargain not to act in the interests of the other party (Strzelecki Holdings v
Cable Sands)
Conditional Agreements
o A condition is a factual event. Three types of conditional agreements:
Condition Precedent a condition must occur prior to there being a
binding contract
Condition Subsequent a binding contract exists but may be void if a
condition occurs after the contract arises
Condition Precedent to Performance A contract is binding but
performance is condition on a condition occurring (e.g. there is a
contract that A has to sell land to B but A doesnt have to do this until
B gets the finances)
o Subject to Contract an agreement exists but is not binding until a contract
is signed (e.g. Masters v Cameron an agreement existed but was subject to
a formal contract being signed).
o There are four types of cases where there is an agreement but a later
contract.
Intention to be immediately bound (the contract will just act as
record of the contract) (CBA v Dean)
There is an agreement but performance is conditional on the later
contract (Niesmann v Collingridge)
No intention for there to be an agreement until a formal contract is
drawn up (Masters v Cameron)
An intention to be immediately bound, but for this agreement to be
superseded by a later agreement (Anaconda Nickel v Tarmoola)
o Subject to finance there is a contract but if the buyer cannot get the
needed finance, the seller can walk away (Meehan v Jones)
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Illusory Promises
o A promise is illusory if the promisor has an unfettered discretion in relation
to performance of that promise
o A clause that includes an illusory promise is void (Placer Development Ltd v
Cth)
o A promise may be rendered illusory by an exemption clause that has such a
large effect that a promise has no force (MacRobertson Miller Airline Services
v Commissioner of State Taxation)
o A promise is not illusory if important matters are left to be determined by a
third party or if subsidiary matters are left to be determined by one of the
parties (Godecke v Kirwan)
Intention
Key Question: Was there an intention to create legal relation? Did the parties intend
on being legally bound by their agreement?
Must be a manifestation of intention to create legal relations for a contract to exist
This is determined objectively look at whether there was a manifestation (making
the other party believe that there was intention) rather than if the party really did
have intention Would a reasonable person regard the agreement as intended to
be binding? (Merritt v Merritt)
o A party cannot say that there was no intention if a reasonable person in the
position of the other party would have assumed there was intention (Air
Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd) exception if the other
party knew the party had no intention
o Factors to consider = subject matter of the agreement, status of the parties,
relationship of the parties and surrounding circumstances
Possible that parties did not intend on being legally bound (SA v Cth)
There are some presumptions in regards to intention (family and commercial)
Ermogenous v Greek Orthodox Community of SA Inc warned of using presumptions,
there is the danger that a presumption will become a rule
Family Agreements
o Presumption that family agreements are not intended to be legally binding
Onus of proof rests on the person trying to prove a contract exists
Ermogenous suggests that there should be no presumption rather,
relationship should be one of the factors to consider (courts now take
a more objective approach)
o E.g. Balfour v Balfour husband agreed to pay wife 30 but failed to. Wife
sued but lost held that most agreements between husband and wife were
not binding it is possible for such an agreement to be binding, depends on
objective intention
o The court is more willing to find intention in cases of couples separating
(Merritt v Merritt)
o Example of binding family agreements Wakeling v Ripley the letter
indicated that there was an intention to be legally bound; Todd v Nicol
there was intention to be legally binding as the agreement concerned
permanent future arrangements that affected financial security
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Commercial agreements between family members will usually satisfy the

intention requirement Roufos v Brewster held there was an intention to
create legal relations as the transaction was inherently commercial
Social Agreements
o Presumption that social agreements are not intended to be legally binding
(e.g. promise to give a friend a lift home) there are exceptions, will depend
on objective intention
o The Satanta; Clarke v Dunrabem a contract for a social competition can be
binding of it was serious and knowledge of the risks were possessed
o Trevey v Grubb there may be intention in an agreement between friends to
share the winnings of a lottery ticket
Commercial Agreements:
o Presumptions that commercial agreements are intended to be legally binding
this presumption can be rebutted
Onus of proof rests on the person trying to say that a contract does
not exist
o Ex Gratia payments Edwards v Skyways even if a company does not have
to make a payment, if they make the offer they are legally bound
o Can expressly state in a contract that there was no intention to create legal
relations (may affect issues of certainty)
Letters of intent Pirt Biotechnologies v Pirtferm need to look at
the language a letter of intent (a statement that the party would like
to create legal relations in the future) to determine if there is no
intention
Letters of comfort a letter from a parent company to bank saying
that it is going to lend money to a subsidiary company offering some
assurance in regards to a guarantee of supporting the subsidiary
company but without creating clear liability
Kleinwort Benson Ltd v Malaysia Mining Corp Bhd intention
will depend on the language used
Banque Brussles Lambert SA v Australian National Industries
Ltd held that a letter of comfort did intend to create legal
relation as there is no room in commerce for a such a
statement not to be binding
o Government schemes will depend if the agreements is commercial or
implementation of government policy Australian Woolen Mills v Cth held
to be no intention as it was only a conditional gift or administrative action
o Honour clauses saying that there is no legal intention but the parties
honourably pledge themselves to carry out their intentions, can be no
intention in these cases Rose & Frank Co v J R Compton & Bros
o Preliminary agreements (subject to contract) need to consider whether
these preliminary agreements were intended to be binding will consider
post-agreement conduct and communication and the language used in the
agreement
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Consideration
Which promises ought to be binding? ones that have consideration (based on

Roman Law causa a reason for enforcing a promise)
Basis something must be given in return for a promise for it to be binding
Questions arise when A has made a promise to B that B wishes to enforce but there is
doubt as to whether B has given A anything in return
What is consideration? no single definition
o Currie v Misa some right, interest, profit or benefit accruing to the one
party, or some forbearance, detriment, loss or responsibility, given, suffered
or undertaken by the other.
o Thomas v Thomas Consideration must move from the promisee and be of
some benefit to the promisor or some detriment to the promisee
Consideration doesnt have to be given to the promisor
There must be good consideration a recognised, legally enforceable consideration
(there will be no contract if there is bad consideration)
Consideration must be sufficient (consideration must be something that the law
regards as valuable) but does not need to be adequate (worth the promise)
Woolworths Ltd v Kelly (nominal consideration is allowed Thomas v Thomas)
Key Terms:
o Promisor = the person making the promise that is trying to be enforces
o Promisee = the person seeking to enforce the promise
o Executed consideration contract/consideration has been performed
o Executory consideration one or both sets of obligations are yet to be
performed
Consideration must be in exchange for a promise Australian Woolen Mills v Cth
If two or more parties are joint promisees, consideration may be provided by one of
them on behalf of both or all of them (Coulls v Bagots Executor and Trustee Co)
It is possible for a party to be a stranger to the consideration yet still a party to the
contract; however, such a party cannot enforce the contract (Trident General
Insurance Co Ltd v McNiece Bros Pty Ltd)
A promise will not constitute good consideration if the promisee retains an
unfettered discretion as to performance illusory consideration (Place Development
Ltd v Cth)
Two aspects of consideration:
o The Benefit/Detriment Requirement:
Currie v Misa the consideration must consist of a detriment to the
promisee or a benefit to the promisor
An exchange of promises will be sufficient (each promise is
consideration for the other promise)
o The Bargain Requirement:
Benefit or detriment bust be given in return for the promise
(Australian Woolen Mills v Commonwealth)
Difference between a bargain and a conditional gift (a conditional gift
doesnt usually have a benefit for the promisor)
An act performed in reliance on a promise will not amount to good
consideration (Beaton v McDivitt)
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Past Consideration
o General rule: past consideration is not sufficient (something given to the
promisor before a promise was made)
o There must be a link between the consideration and promise
o Past consideration will usually not suffice Roscoria v Thomas
o Executed consideration is different to past consideration (e.g. unilateral
contracts if someone finds a dog and there is a promise for a $100 reward,
the consideration is executed but the promise remains executory)
o Exception when services are performed at the request of another party in
circumstances that would raise implications that they are to be paid for in the
future, the performance will amount to good consideration (Lampleigh v
Braithwait)
This exception will only apply in cases where there is an
understanding throughout the transaction that services were to be
paid for
The Existing Legal Duty Rule

o General rule: A promise to perform or the performance of an existing legal
duty does not constitute sufficient consideration (Wigan v Edward)
o Terms:
Beneficiary: the person who promises to perform an existing legal
duty and claims the benefit of the contractual modification
Modifying Party: the party assuming an additional obligation or
releasing the beneficiary from an obligation
o Example B promised to build a garage and fence for MP for $30,000. Postcontract, B realises she has agreed to perform the work at a loss. B shows
reluctance so B and MP reach an agreement that if B build the garage, MP
will pay an extra $5000 and will not make B build the fence. In return for MPs
promise, B promises to perform her contractual obligation (hasnt agreed to
anything she wasnt already obliged to do) the court will not enforce MPs
promise even though it was intended to be binding
o Part-Payment of a debt part-payment will not constitute good
consideration for an agreement to discharge the debt (Pinnels Case)
Exceptions to the existing legal duty rule
o Fresh Consideration When the beneficiary undertakes fresh consideration
(they undertake something more that what there were obliged to do)
Hartley v Ponsonby
o Practical Benefit When the beneficiarys promise to perform an existing
obligation confers a practical benefit to the modifying party Williams v
Roffey Bros & Nicholls (Contractors) Ltd
o Promises Made to Third Parties A promise to perform an existing contract
does amount to good consideration if it is made to a third party Pau On v
Lau Yiu Long
o Compromise and Forbearance to Sue When a promise made through a
bona fide compromise of legal claim will be considered good consideration
Wigan v Edwards
o Termination and Replacement The existing legal duty rule doesnt apply
where the original contract is terminated by agreement and replaced with a
new contract (must be an intention to terminate the contract, rather than
modify it)
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Equitable Estoppel
Estoppel arises where an assumption of non-contractual promises and

representations, induced by the representors conduct, have been relied on to the
relying partys detriment if the representor acts inconsistent with the assumption
Lord Denning invented the doctrine of estoppel in The High Trees Case the landlord
has a 99 year lease of a block of flats with a tenant for 2500 p.a. Tenant couldnt get
anyone to occupy flats during the war. Landlord reduced rent to 1250 p.a. 5 years
later all flats were let. Landlord claimed arrears and full rent in the future. The
defendant was estopped from asserting his strict legal rights under the contract. The
idea that the existing contractual rights will not be enforced if defendant was induced
to believing they are suspended. The landlord was estopped from receiving full rent
for the period where it was inequitable to receive full rent.
Equitable doctrine discretionary remedies (up to the courts to decided what is fair).
Operates when it is unjust to depart from an assumption
Parties:
o Representor (R) = the person making a promise or representation
o Relying party (RP) = the party who relies on this promise or representation
Different types of estoppel:
o Common law estoppel R induces RP to believe that they have signed the
contract. R is estopped from denying that an assumption is untrue and the
rights of a party will be determined according to the assumed state of affairs
(Walton Stores v Maher)
o Equitable Estoppel: R induces RP to believe that they will sign the contract. R
is estopped from acting inconsistently with the assumption without ensuring
that the departure does not cause harm to RP
Proprietary Estoppel: Where RP is encouraged to act on or in relation
to someone elses land in the expectation of getting some form of
proprietary right (Riches v Hogben)
Promissory Estoppel: Where RP has acted to their detriment in
reliance to a future promise (High Trees)
Estoppel involves assumptions that R will enter into a contract with RP in the future;
R will transfer land, pay money or provide another benefit to RP; or R will not enforce
a certain contractual right against RP
Development of Promissory Estoppel in Australia

Je Maintiendrai v Quaglia similar to High Trees. Landlord not awarded repayment of
unpaid rent
Legione v Hateley doctrine of promissory estoppel accepted by HC as part of
Australian law. Wanted to consider estoppel as a variation of contractual rights, not
the creation of a new doctrine
Walton Stores v Maher promissory estoppel can apply even if there is no preexisting contract (confirmed in Saleh v Romanous)
Cth v Verwayen looked for a single, unifying doctrine of estoppel
Giumelli v Giumelli
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Walton Stores v Maher (1988)

Facts: Draft contract sent by tenant (Walton Stores) to landlord (Maher) for the
demolition of old building on land and to build a new one. Landlord suggested
amendments. Ws solicitor said the amendment had been approved orally and later
sent a redraft on the contract with amendments and aid that they would let M know
tomorrow if the amendment were not agreed to. W did not contact M. M signed
contract and sent to W. W changed mind and said to go slow and did not sign the
contract. M begins demolition work. W has knowledge of this but does nothing.
When the new building was 40% completed, W told M they did not want to proceed
and had not signed a contract, thus were entitled to withdraw.
o Held: that W was estopped from denying their implied promise to complete
the contract.
o W knew that M was exposed to detriment by acting on the basis of false
assumption and it was unconscionable for W to adopt a course of action that
encouraged Ms asumptions
Brennan J stated how to establish an equitable estoppel:

o (1) P assumed that a particular legal relationship existed between him and D
or expected that a particular legal relationship would exist between them
o (2) D induced P to adopt that assumption or expectation
o (3) P acts or abstains from acting in reliance on the assumption or
expectation
o (4) D knew or intended him to do so
o (5) P's action or inaction will occasion detriment if the assumption or
expectation is not fulfilled; and
o (6) D has failed to act to avoid that detriment whether by fulfilling the
assumption or expectation or otherwise.
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Elements of Estoppel
Three elements are requires: assumption, inducement and detrimental reliance
Three elements are not necessarily required but must always be considered:
reasonableness, unconscionability and departure or threatened departure
Assumption:
RP adopted an assumption either to fact (CL) or future conduct (equity)
Jordan v Money said estopped can only arise from an assumption of act but there Is
suggestion that this is no longer good law in Australia
This assumption must be based on a clear and unambiguous promise/representation
(either express, implied or though conduct) Legione v Hateley
Inducement
Assumption of RP must be induced by Rs conduct (either an express representation
or inaction) R must know or intend that RP will act or abstain from acting
If assumption induced by silence must show that RP intended reliance, knew of the
acts of reliance should have reasonably expected reliance
Murphy v Overton Investments - do not need a promise or representation, need to
look at whether RP was induced to adopt an assumption
Detrimental Reliance
RP must act on assumption in a way that they will suffer detriment if R is allowed to
depart from assumption
Two types of loss:
o Reliance Loss: Loss suffered by RP due to relying on the assumption when R
acts inconsistently with the assumption occurs if RP has taken some action
on the faith of the promise
o Expectation Loss: Loss of benefit the relying party assumed they were going
to receive
o E.g. Walton Stores v Maher Reliance loss = expenditure incurred in
demolishing the existing building and partially constructing a new one.
Expectation Loss = Rent they were expecting to receive during the lease
Cth v Verwayen detriment does not have to be financial
o Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd detriment suffered must
be material, significant or substantial
Reasonableness
RPs reliance must be reasonable taking relevant detrimental action on reliance on
assumption must be reasonable (Murphy v Overton Investments Pty Ltd)
Rs departure from the assumption must be unconscionable
Unconscionable Conduct
Cth v Verwayen unconscionability relates to the conduct of R in the circumstances
and how R induced the adoption of the assumption
Knowledge of RPs assumption and any intention to induce reliance is relevant
Galaxidis v Galaxidis denying responsibility for detriment sustained as a result of
unreasonable reliance is not unconscionable
It must be unconscionable/inequitable to allow R to go back on the promise
Departure or Threatened Departure
R must depart or threaten to depart from the assumption for estoppel to arise
(Ashton Mining Ltd v Commissioner of Taxation)
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The Effect of an Estoppel

Common law estoppel prevents R from saying that certain facts are untrue. Rights
of parties are determined according to the assumed state of affairs
Equitable estoppel raises an equity (entitlement to equitable relief)
Dilwyn v Llewelyn requires the representor to perform the relevant promise or to
act in accordance with the relevant representation
Two interests:
o Reliance Interest: RP has an interest in protection from harm resulting from
their reliance on the relevant promise or representation
Order R to pay monetary compensation for detriment suffered by RP
o Expectation Interest: RP has an interest in receiving the benefit that they
expected to receive
Order R to conduct specific performance or payment of damages in
lieu of specific performance
Equitable estoppel can arise if the offeror leads the offeree to believe that the offer
will not be revoked and the offeree acts to his or her detriment in reliance on that
assumption wont necessarily make the offer irrevocable, the court will grant the
offeree an equity and the court may grant relief in some other way
It is difficult to establish an estoppel in pre-contractual negotiations
o Walton Stores v Maher different because terms of the contract had been
concluded, immediate commencement of work was required and WS knew M
were acting on the assumption that WS had or would sign the contract
o Contrast to Austotel v Franklins Services no estoppel as the two parties had
failed to reach an agreement on rent (a crucial element)
Privity estoppel can arise where a contractual claim is barred based on the privity
rule a person is not a party to the contract but who had been led to believe that
they were a party or would receive benefit under a contract may be able to establish
an estoppel if they acted to their detriment on the faith of the assumption (Trident
General Insurance v McNiece Bros)
R does not necessarily have to be a party to a contract to be liable
Equitable estoppel may apply if a contract is unenforceable because it fails to comply
with formal requirements under statute Colin v Holden
Estoppel can operate where one party induces another party to believe that a
contract has been or will be varied or that a term will not be enforced (Anaconda
Nickel v Edensor Nominees)
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Terms
Terms = conditions, warranties, innominate terms

Conditions vs. warranty:
o Condition = very important, can terminate contract if breached
o Warranty not as important, cannot terminate contract if breached, only get
damages
Key question: Was an oral statement expressed before a written contract but not
included in the written contract intended to be a term of the contract?
o Complex when the terms on which the parties have contracted are unclear
Express terms = terms actually agreed to by parties (either expressed in writing or
orally)
Implied terms = terms that are assumed to have been agreed on (e.g. terms that a
contract cannot function without); the court or a Statute can insert terms
Terms can be incorporated by reference e.g. a contract states that a certain set of
terms expressed elsewhere will be part of the contract
Terms can be made through any form of communication email, letters, telephone
conversations, sign displays, websites
Express Terms:
Formalities:
o Assumption unless there are some statutory requirements, a contract can
be made informally (no requirement of a written contract or signature)
o Some legislation requires an agreement to be in writing:
Property Law Act 1974 (Qld) s.56: a guarantee must be in writing
Electronic Transaction Act 2001 (Qld) s.8: transaction is not invalid
because it took place by electronic means;
Other Corporations Act, Copyright Act, Consumer legislation
Signature:
o A party is bound by a contractual document that they have signed
regardless of whether they have read or understood the terms (providing
there is no fraud or misrepresentation) LEstrange v Graucob; affirmed in
Australia in Toll (FGCT) Pty v Alphapharm Pty Ltd
o Misrepresentation of the effect or extent of the document will affect the
signature Curtis v Chemical Cleaning and Dyeing
E.g. if you think you are just signing a receipt from a delivery
company but you are actually signing a contract. The contract wont
be enforceable Hill v Wright
o Doctrine of non est factum (not my deed) when one didnt realise what
they were doing and thought they were signing something else
Requirements: need some sort of disability, the document signed was
radically different and the plaintiff has taken reasonable care
E.g. Petellin v Cullen
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Incorporation of Terms by Notice

If there is no signed contract, one party may attempt to incorporate some terms
through notice (giving the other party reasonable notice of the terms before the
contract is made)
Two requirements:
o The terms must be available to the party to be bound before the contract is
made Oceanic Sun Line Special Shipping Co Inc v Fay
o Reasonable steps must be taken to bring the terms to the notice of the
party to be bound
Party must have actual knowledge of the terms or have been given
reasonable notice of terms
Knowledge: one is bound if they know that a document delivered or a
signed displayed contains contractual terms, regardless of whether
they have read it or not
The mere presentation of a document that a reasonable person
would expect to contain contractual terms will be sufficient notice
If the terms are not in an obvious contractual document, the party
seeking to incorporate the terms must take reasonable steps to bring
the terms to the notice of the party to be bound Causer v Brown
Reasonable notice depends on the circumstances generally,
the notice must be in such a form that it is likely to come to
the attention of the party to be bound
Incorporating terms by reference:

o Generally not sufficient notice to tell a party that terms found in another
document that is not readily available will form part of the contract Baltic
Shipping v Dillon
o Need to take reasonable steps to notify the plaintiff of the existence of the
terms and where they can be found
Parker v South East Railway if reasonable steps to notify the
plaintiff are taken, it is irrelevant whether or not the plaintiff has read
them
o Need to consider:
Nature of document referring plaintiff elsewhere, is it a contractual
document?: Chapelton v Barry Council a receipt is not a contractual
document
Access to incorporated document Oceanic Sun Line v Fay; Baltic
Shipping v Dillon
Identification of applicable terms are terms identified with specific
precision or does it just say our usual conditions
Time of incorporation terms must be incorporated before
acceptance Olly v Marlborough Court Hotel; Thornton v Shoe Land
Parking
Nature of clause is it unusual? The more unusual the clause, the
greater notice must be given Baltic Shipping v Dillon
Unusual terms suggested that if there are unusual terms, special notice that will
fairly and reasonably bring the terms to the attention of the party to be bound must
be given Interfoto Picture Library Ltd v Stiletto Visual Programs Ltd
o Toll v Alphapham rejected the idea that special notice must be given to
unusually onerous terms in a signed contract
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Summary:
o If a party signs a document that includes all of the terms, they are bound
o If a party signs a document that seeks to incorporate terms that are located
elsewhere, they are bound providing that reasonable notice has been given and there
are no unusual terms
o If no document has been signed, a party may still be bound if terms have been
incorporated by notice
Electronic Contracts
Contracts made on the internet or via email will not usually be signed will either be
a clickwrap contract (party clicks a box to say they agree to a term) or a browse wrap
contract (party will be able to access the standard terms through a the website)
Electronic Transactions Act 2001 (Qld) s.14: a signature requirement is met if a
reliable method is used to identify a person and their approval and the person
consents to this method
If such a method is not used, the party seeking to incorporate terms must take
reasonable steps to bring those terms to the attention of the other party
Incorporation of Terms by a Course of Dealings
Where two parties have had a history of dealings, contractual terms introduced in
earlier transactions may be incorporated into subsequent transactions even if the
ordinary requirement of incorporation has not been met in the subsequent contracts
the parties show a willingness to be bound by such terms through their continual
dealings with the other party - Balmain New Ferry Co Ltd v Robertson
Requirements the course of dealing must be regular and uniform and the document
relied on previously must be considered a contractual document
Statements Made During Negotiations
A written contract may contain some but not all of the oral statements made during
negotiations
If a statement made during negotiations is false, there will be consequences:
o If the statement was a term of the contract remedy for breach of contract
o If the statement was not a term of the contract, rather a mere representation
remedy for breach of contract will not be available (maybe
misrepresentation, a statutory remedy or estoppel
Need to consider two things when determining whether a statement made during
negotiations forms part of the written contract:
o The parol evidence rule
o Did the parties intend the statement to be an express term of the contract, or
was it merely part of the negotiations and not intended to have legal effect?
The Parol Evidence Rule:
The rule limits the extrinsic evidence that may add to or vary the terms of a written
contract
o Oral contract court will consider all relevant evidence
o Written contract evidence is limited by the parol evidence rule
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Goss v Lord Nugent if there is a written contract, verbal evidence is not allowed to
be given in regards to what passed between the parties either before or during the
time the contract was made
Rule = no evidence can be allowed if it subtracts from, adds to, varies or contradicts
the language of a written contract Codelfa v State Rail of NSW
This rule only applied when the contract is wholly in writing (need to determine
whether or not the contract was intended to be wholly in writing)
o Presumption if there is a written document, it was intended to be wholly in
writing (can be rebutted)
o Entire Agreement Clauses: a clause that states that the contract is treated as
being wholly in writing and any extrinsic statements are not part of the
contract Inntrepreeur Pub Co v East Crown
Effectiveness is affected by misrepresentation, rectification of the
document, operation of an implied term, the ACL, later oral variation,
estoppel
o It is possible for a contract to be partly written and partly oral The Ardennes
[1951]
o Easier to say that a contract is part oral/part written if there is no direct
contradiction Skyrise Consultant v Metroland
o Extrinsic evidence can be used to determine whether a contract is partly or
wholly in writing Equuscorp Pty Ltd v Glengallan Investments Pty Ltd
Can evidence of the surrounding circumstances be admitted?
o Extrinsic evidence of the circumstances is used only where the language of
the contract is ambiguous or susceptible to more than one meaning Codelfa
Construction v State Rail Authority of NSW
o Surrounding circumstances does not include evidence of the parties
subjective intentions, only objectively known facts Byrne v Kendle
What extrinsic evidence can be excluded oral statements made while negotiating,
written materials such as letters or memoranda relating to the negotiations, earlier
drafts of the written record
Exceptions where extrinsic evidence can be used to add to or vary the contract when
the contract is wholly in writing collateral contracts, estoppel, rectification, contract
subject to a condition precedent, implied terms, determining the true consideration
If language used in a contract has special meaning in the parties particular trade or
industry, extrinsic evidence of this meaning may be admitted but this meaning must
be well-known, uniform and certain Homestake Australia Ltd v Metana Minerals
The parol evidence rule will apply to electronic contracts that are capable of being
treated as if in writing
Exceptions to the parol evidence rule:
o Ambiguity extrinsic evidence may be given when a word does not have a
readily ascertainable meaning or is used in an inconsistent manner Royal
Botanic Gardens and Domain Trust v South Sydney City Council
o Implied terms Codelfa
o Condition Precedent Pym v Campbell
o Invalidity (e.g. misrepresentation or mistake) Curtis v Chemical Cleaning
o Rectification
o Estoppel Saleh v Romanous
o Collateral Contracts:
A collateral contract is a contract made when one party makes a
promise, connected to, but independent, of a main contract and, as
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consideration for that promise, the other party agrees to enter into
the main contract Van Den Exchert v Chappel
Such a statement must be made as a promise, must be intended to
induce entry into the contract and must be consistent with the terms
of the main contract (can add to but not alter the main contract). If
there is a direct conflict between the main and collateral contract,
the parol evidence rule applies and the collateral contract does not
exist Hoyts Pty Ltd v Spencer
When is a Statement a Term of the Contract

A party seeking to show that a statement made in negotiation forms a term of the
contract has the burden of establishing that the statement has contractual force
Oral statements the statement must have been intended by the party making it to
be a promise and to form part of the written contract (intention is judged objectively
would a reasonable person in the circumstance have considered the statement to
be a contractual promise) Oscar Chess Ltd v Williams
o There is a distinction between a promise and a representation, though this
may be hard to determine Ross v Allis Chalmers
The existence of a formal contract suggests that any statement made by the parties
during negotiations and not included in the written contract were not intended to be
part of the final contract Equuscorp v Glengallan Investments
It might be possible to argue that an oral statement forms part of the contract.
Relevant factors:
o Importance of statement: A statement that was highly significant to the
transaction is more likely to be regarded as a promise than a statement of
lesser significance Van den Esschert v Chappell
o Content of statement: A statement is more likely to be a promise if the party
making it uses words that suggest it was a promise (e.g. promise, agree,
guarantee, warranty) a statement will be a mere representation if the word
indicate an expression of opinion or a hypothesis JJ Savage & Sons v
Blakney
o Knowledge of parties: A statement made by a party with expertise to a
person who is inexperienced is more likely to be a promise than statement
made by a party known to be inexperience or between two highly
experienced parties Oscar Chess Ltd v Williams
o Time of statement: a statement made immediately before the contract was
entered into is more likely to be regarded as a promise
o Reliance: did the party rely on the statement when entering into the
contract?
o Relationship to written contract: was there an intention to have the whole
agreement in one document?
Even if an oral statement made in negotiations does not form part of the written
contract, there are a number of doctrines that may give legal effect to the term
o Collateral contracts see above
o Estoppel where one party seeks to depart from an assumption that they
would modify or refrain from enforcing the terms of a contract in writing
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Implied Terms
Three categories of implied terms:

o Terms implied in fact
o Terms implied in law
o Terms implied by custom
Possible fourth category universal terms represented by a duty of good faith
Terms will not be implied if they are expressly excluded by the parties or are
inconsistent with the express terms of the contract
An implied term wont necessarily be excluded because of an entire agreement clause
Hart v MacDonald
Terms Implied in Fact

Terms that are unique to the particular contract
Based on the presumed intentions of the parties
Terms do not add to the contract; rather, spell out what the contract means
Attorney General of Belize v Belize Telecom Ltd
For a term to be implied in a written contract, it must satisfy the BP Refinery test (BP
Refinery (Westenport) Pty Ltd v Hastings Shire Council):(Must satisfy all 5 conditions)
o 1. It must be reasonable and equitable
o 2. It must be necessary to give business efficacy to the contract
o 3. It must be so obvious that it goes without saying
o 4. It must be capable of clear expression
o 5. It must not contradict any express term of the contract
1. Reasonable and Equitable
o A term cannot be beneficial to one party but detrimental to the other party
BP Refinery (Westenport) Pty Ltd v Hastings Shire Council
2. Business Efficacy
o A term wont be implied if the contract is effective without it ask: Would a
reasonable person regard the proposed term as necessary to enable the
contract to operate in a businesslike manner?
o If the contract can still operate without the term, but not operate effectively,
the term can be implied Re Romin Pty Ltd
o E.g. The Moorcock (implied term that wharf owner should make the berth
reasonably fit for the purpose or inform the other party that it is not); Breen v
Williams (no implied term that a patient is entitled to obtain their medial
records from their doctor as this is not necessary for effective performance of
the contact)
3. Obviousness
o Most important condition
o An implied term must be so obvious that it goes without saying and if an
officious bystander was to suggest making a provision about it, the parties
would agree without hesitation (Shirlaw v Southern Foundries)
o E.g. Gwan Investments Pty Ltd v Outback Health Screenings (implied a term
that the overall weight of the truck and health unity should be within the
limit to allow it to drive on public roads); Codelfa Construction v State Rail
Authority of NSW (no implied term that the State Rail Authority had to pay
Codelfas increased costs as this was not a case where an obvious provision
had been overlooked)
4. Clarity
o Terms must be able to be expressed in a clear and precise manner Ansett
Transport Industries v Cth
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5. Consistency
o An implied term must not be inconsistent with an express term of the
contract
Fairness is not a ground for implying a term in if it does not satisfy the 5 conditions
BP Refinery test is very strict may be less strict when there is no formal contract
(e.g. oral contract between lawyer and client or doctor and patient)
o Hard to draw a distinction between the term of the contract and implied
terms
o Hawkins v Clayton a terms can be implied if it is necessary for the
reasonable or effective operation of a contract (reasonableness or efficacy
are sufficient grounds alone)
o Suggested that obviousness is still an important element in informal contracts
Byrne v Australian Airlines Ltd
Terms Implied in Law

Terms implied in all contracts of a particular class or description not based on the
intention of the parties
E.g. condition of reasonable fitness and merchantable quality on a contract for sale
of goods, implied condition on letting a furnished house that it will be reasonably fit
for habitation, implied duty of care in the carriage of passengers
Requirements for implying terms in law for the first time: (new terms implied in law
may develop over time)
o The term must be applicable to a definite class of contractual relationship
o The terms must be suitable for it to be recognised as implied in all contract of
that class
o Test of necessity a term is necessary if the enjoyment of rights conferred
by the contract would or could be rendered nugatory, worthless or seriously
undermined Byrne v Australian Airlines Ltd
Different to the business efficacy test more general and have
consideration to the inherent nature of the contract and of the
relationship established
Terms Implied by Custom
A term may be implied on the basis of custom or usage in a particular market or
context if a custom is well-known and acquiesced in, then everyone making a
contract in that situation can reasonably be presumed to have imported that term
into the contract
Principles of implying a term by custom are expressed in Con Stan Industries of
Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Pty Ltd:
o 1. The existence of a custom or usage that will justify the implication of a
term into a contract (question of fact)
o 2. The custom does not have to be universally accepted, but must be so wellknown and acquiesced in that everyone making such a contract is presumed
to have included the terms (question of fact)
o 3. The term cannot be contrary to the express terms of the contract
o 4. A person can be bound by a term implied by custom even if they did not
know of the custom
Strict requirements not many terms are implied by custom
It is not enough to prove that such a term was the ordinary course of events; rather,
must prove a clear course of conduct were the practice always happened (Con-Stan)
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Implied Duty of Good Faith in Contract Performance

Undecided by the High Court whether Australia should recognise a duty of good faith
(issue left open in Royal Botanic Gardens and Domain Trust v South Sydney City
Council) duty has been recognised in Federal and State courts
Why recognised a duty of good faith?
o Ensures co-operation and fairness in contract performance supplements
express terms that deal with this matter
Some argue that good faith is not an implied term; rather, should be a principle of
construction (all contracts should be construed on the basis that there is an
expectancy of good faith in all terms unless explicitly otherwise stated)
Some court treat a duty of good faith as a term implied in law Burger King
Corporation v Hungry Jacks Pty Ltd (if so, the class of contracts that it applies to is
undefined)
Good faith is equated with unconscionability the principles of good faith restrains
the deliberate pursuit of self-interest; concerns with the extent to which one party is
obliged to acknowledge and respect the interests of the other
Good faith is not concerned with the fairness of terms agreed on
What does good faith require?
o No clear statement as to what the implied duty requires from the parties
o Complemented by the duty of co-operation: each party agrees to do all such
things as are necessary on his part to enable the other party to have the
benefit of the contract Secured Income Real Estate (Australia) Ltd v St
Martins Investments Pty Ltd
Where the performance of a contract is qualified by a contingent
condition, requiring the occurrence of some specified event before
the parties are obliged to continue with the performance of the
contract, the duty of co-operation will require that both parties do
what is reasonably necessary to satisfy the condition (e.g. if the
contract is subject to the approval of a plan of subdivision, the vendor
has an implied duty to submit the plan for approval
o Good faith doesnt preclude the exercise of a power whenever the exercise
will have harsh consequences for the other party; rather, ensures that there
is some level of regard for the interests of the other party
o Good faith can be measured by a number of different standards:
Reasonableness under a duty of good faith or reasonableness, a
party exercising a contractual discretion must act in an unbiased way
and also make an attempt to verify the information on which the
decision is to be based Renard Construction (ME) v Minister for
Public Works
Extraneous Purpose suggest that an implied duty of good faith
should preclude a party from exercising a contractual power for an
extraneous purpose
Legitimate interests good faith will not restrict decisions and
actions, reasonably taken, which are designed to promote the
legitimate interests of a party; loyalty to the contract (South Sydney
District Rugby League Football Club Ltd v News Ltd)
Can a duty of good faith be excluded?
o Reasonably specific words may exclude an implied duty of good faith
o A clause that states that all implied terms are excluded can be effective in
excluding a duty of good faith Vodafone Pacific Ltd v Mobile Innovations
o Suggested that an entire agreement clause is not enough to exclude a duty
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Interpretation/Construction
Rule for Interpretation
The court will try to give effect to the parties intention intentions are determined
objectively (need to consider what the words and conduct of the parties would have
lead a reasonable person in the position of the parties to believe)
Subjective beliefs of the parties are irrelevant (Pacific Carriers v BNP Paribas)
The general rule is that words are construed according to their plain, ordinary or
natural meaning (Codelfa)
Move towards considering extrinsic factors (only in times of ambiguity) in light of
the surrounding circumstances known to the parties and the purpose and object of
the transaction, how would a reasonable person have understood the words to
mean? (Pacific Carrier v BNP Paribas)
The meaning of words are determined objectively according to objective background
facts (Reardon Smith v Hansen Tangen (The Diana Prosperity)
o Background facts can only be considered if the language of the contract is
ambiguous and susceptible to more than one meaning (Codelfa)
Pacific Carrier v BNP Paribas had a wider view ambiguity is not
required to consider surrounding circumstances (not authority)
Subsequent conduct cannot be used as evidence when interpreting the meaning of
terms (Codelfa)
Evidence of what the parties said their actual intentions were, evidence of
negotiations and post-contract conduct is excluded by the parol evidence rule
(Codelfa)
o Evidence of negotiations is not considered as drafts of contracts can often
change and the intention of parties can change over time only the final
document and objective intentions are relevant (Prenn v Symmonds)
If the term is open to two possible constructions, the Court will choose the option
that avoids a result which is capricious, unreasonable, inconvenient or unjust even if
it is not the most obvious or most grammatically accurate (ABC v Australian
Performing Rights Association)
o Will avoid interpretations that result in unreasonable or uncommercial
consequences assumption that parties intended their agreement to have a
reasonable commercial meaning
Some support for the idea that If the natural and ordinary meaning of the term is
absurd (and flouts business common sense), the court may interpret the term
differently to generate a reasonable outcome (The Antaios)
Rectification a contract can be changed if there is a mistake (e.g. it says 100 instead
of 1000) not varying the contract; rather, expressing the common intention of the
parties (Franklins v Metcash Trading)
o Possible to correct a mistake through construction interpreting the term to
mean what was intended by the parties (Chartbrook v Persimmon)
Specific Rules of Interpretation

Expressio unius exclusio alterius the express mention of one thing, excludes all other
things (Hare v Horton)
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Ejuisdem generis if a term such as any other cause is used, only causes of a like
kind are included (Tillman v Knutsford)
If there is a conflict between a pre-printed clause and typed/handwritten additions,
the court will tend to give effect to the additions (The Starsin)
Contracts are to be interpreted so as to avoid defeating the main purpose and intent
of the contract (Glyn v Margetson)
Exclusion Clauses
Exclusion/exemption/exception clauses = clauses that aim to exclude a partys liability
for conduct that would otherwise be a breach of contract or constitute a tort
Other types of clauses Indemnity clause (insurance), limitation of liability clause,
time limit clause, liquidated damage clause, penalty clause
Some concern in regards to exclusion clauses where there is a substantial degree of
inequality between the parties (e.g. an individual and a large business)
Exclusion clauses for contract for the supply of goods and services are subject to
regulations under the ACL
Need to ask:
Was the exclusion clause properly incorporated into the contract?
Is the person seeking to rely on the protection of the clause a party to the contract?
Does the clause apply to exclude or reduce liability in relation to the issue in dispute
Interpretation of Exclusion Clauses:
The meaning and effect of an exclusion clause is to be determined by the ordinary
processes of construction of a contract (natural and ordinary meaning read in the
light of the contract as a whole) (Darlington Futures v Delco Australia)
In cases of ambiguity, exclusion clauses may be construed contra proferentem
construed strictly against the interests of the party seeking to rely on the clause
(Wallis Sons & Wels v Pratt & Haynes)
Ambiguity is an indemnity should be construed in favour of the person providing the
indemnity
Ambiguity in a guarantee should be construed in favour of the guarantor
Four Corners Rule an exclusion clause wont exclude liability for acts that are not
authorised by a contract (outside the four corners of the contract)
An exclusion clause is unlikely to exclude liability for a breach that would defeat the
main object of the contract (Council of the City of Sydney v West)
No special rule for fundamental breaches Photo Production v Securior
An exclusion clause is unlikely to exclude liability for loss occurring during a deviation
from the contractually agreed voyage or route (Thomas National Transport
(Melbourne) v Mary & Baker (Australia))
To exclude liability for negligence, an express reference to negligence as an exclude
head of liability, general words that include expansive language that would
encompass negligence or if negligence is the only basis on which one can be liable is
needed (David v Pearce Parking Station)
An exclusion clause will only exclude liability for a deliberate breach of contract if
the words are very clear
Reading Down Exemption Clauses if the exemption clause cannot be applied
literally without creating an absurdity or defeating the main object of the contract,
the term will be read down
Still need to look at the ACL
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Australian Consumer Law
The Australian Consumer Law (Schedule 2 of the Competition and Consumer Act 2010
(Cth)) replaces implied terms in contracts for the sale of goods or services with
statutory guarantees
These statutory guarantees always apply to every contract in relation to goods or
services (cant contract out of the ACL will always apply)
Statutory guarantees replaced implied conditions and warranties goods:
o s.51 guarantee as to title
o s.52 guarantee as to undisturbed possession
o s.53 guarantee as to undisclosed securities
o s.54 guarantee as to acceptable quality
o s.55 guarantee as to fitness for any disclose purpose
o s.56 guarantee relating to the supply of goods by description
o s.57 guarantees relating to the supply of goods by sample or demonstration
model
o s.58 guarantee as to repairs and spare parts
o s.59 guarantee as to express warranties
Statutory guarantees replaced implied conditions and warranties services:
o s.60 guarantee as to due care and skill
o s.61 guarantee as to fitness for a particular purpose
o s.62 guarantee as to reasonable time for supply
o s.63 services to which subdivision does not apply
Application of ACL:
The Act applies to the conduct of corporations
Protect consumers (either individuals or small businesses)
Consumer is defined in s.3 a party is a consumer if:
o The price of goods does not exceed the prescribed amount ($40,000); or
o If there is a higher price, goods were of a kind ordinary acquired for personal
domestic use or consumption; or
o The good was a vehicle/trailer for use on public roads;
AND
o The plaintiff did not acquire the goods for re-supply, or using/transforming
them in trade or commerce, manufacture or repairing other goods
Some Key Sections
s.51 Title
o (1) If a person (the supplier) supplies goods to a consumer, there is a
guarantee that the supplier will have a right to dispose of the property in the
goods when that property is to pass to the consumer.
o (2) Subsection (1) does not apply to a supply (a supply of limited title) if an
intention that the supplier of the goods should transfer only such title as the
supplier, or another person, may have: (a) appears from the contract for the
supply; or(b) is to be inferred from the circumstances of that contract.
s.54 Acceptable Quality
o s.54(2) Goods are of acceptable quality if they are:
(a) fit for all the purposes for which goods of that are commonly
supplied; and
(b) acceptable in appearance and finish; and
(c) free from defects; and
(d) safe
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(e) durable as a reasonable consumer fully acquainted with the state

and condition of the goods (including any hidden defects of the
goods) would regard as acceptable having regard to the maters in
subsection (3) (nature, price, statements or representation made
about the goods and any other relevant circumstances).
s.56 Description
o (1) If:
(a) a person supplies, in trade or commerce, goods by description to a
consumer; and
(b) the supply does not occur by way of sale by auction;
there is a guarantee that the goods correspond with the description.
o (2) A supply of goods is not prevented from being a supply by description only
because, having been exposed for sale or hire, they are selected by the
consumer.
o (3) If goods are supplied by description as well as by reference to a sample or
demonstration model, the guarantees in this section and in section 57 both
apply.
s.58 Repairs and spare parts
o s.58 guarantee that the manufacturer of the goods will take reasonable
action to ensure that facilities for the repair of the goods, and parts for the
goods, are reasonably available for a reasonably period after the goods are
supplied
s.59 Express Warranties
o s.59 guarantee that a manufacturer or supplier will comply with any express
warranty that they provide
o Express warranty = an additional, extended warranty that manufacturers may
provide or suppliers may try to seel
o Is this express warranty needed as s.55 guarantees acceptable quality an
express warranty will provide more certainty as the ACL does not state how
long a statutory guarantee will last for
s.60 Due Care and Skill (Services)
o s.2 defined services as the performance of work (e.g. cleaning, security), the
provision of facilities (e.g. parking) or entertainment (e.g. holidays, cinemas)
s.63 excludes transportation or storage of goods
o s.60 guarantee that services will be rendered with due care and skill (not an
absolute guarantee, just what is due)
s.61 Fitness for a Particular Purpose
o s.61 If the consumer make known a particular result they want from the
service, there is a guarantee that the services, and any product resulting from
the service, will be reasonably fit for that purpose and will be of such a
nature, quality, state or condition to reasonably achieve that result
s.259 Remedies if a statutory guarantee is breached
o Use these remedies not common law
o Non-major vs. major failures
Non-major consumer can ask supplier to remedy failure in a
reasonable time
Major consumer can reject the goods or recover compensation for
reduction in value
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Unfair Terms
Legislation has been enacted in order to protect consumers from unfair terms
Part 3 of the Fair Trading Act 1989 (Qld) is referred to the Australian Consumer Law
(Qld) refers directly to the ACL in the CCA
Unfair contract terms (UCT) are covered in the Australian Consumer Law, Part 2-3
s.23(1): A term of a consumer contract is void if:
o (a) the terms is unfair; and
o (b) the contract is a standard form contract
Who is affected by this legislation?

Defendants:
o Corporations
As the CCA 2010 is a Cth Act, its application is limited to
constitutional corporations (foreign, trading or financial corporations)
Restricted to corporations that engage in interstate trade or
commerce
S.2A extends the application of the ACL to the Crown and their affairs
o Businesses
Part 3 of the ACL (Qld) in the Fair Trading Act 1989 (Qld) sates that
the Act applies to and in relation to persons carrying on business
within Queensland; or persons ordinarily resident in this jurisdiction
Plaintiffs:
o UCT legislation only applies to a consumer contract
s.23(2): A consumer contract is a contract for:
(a) a supply of goods or services; or
(b) a sale or grant of an interest in land
Contract must be with an individual only (excludes a corporation,
partnership and small businesses (unless there is a sole trader))
Individual use must be wholly or predominantly for personal,
domestic or household use/consumption
What contracts are regulated by UCT legislation?
s.23(1)(b) provides that for UCT legislation to apply, the contract must be a standard
form contract
Standard form contract is not defined in the ACL does list factors to consider when
determining whether or not a contract is a standard form contract
o It is commonly understood to mean a document prepared by the trader of
goods or services that is used by the trader in all transaction of that kind and
concluded without negotiations
s.23(2) must be a consumer contract and concern the relevant areas
The burden of proof rests on the corporation (s.27(1): if a party alleges that a
contract is a standard form contract, it is presumed to be a standard form contract
unless another party proves otherwise)
s.27(2): In determining whether a contract is a standard form contract, a court may

take into account such matters as it thinks relevant, but must take into account the
following:
o (a) whether one of the parties has all or most of the bargaining power
relating to the transaction;
o (b) whether the contract was prepared by one party before any discussion
relating to the transaction occurred between the parties;
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(c) whether another party was, in effect, required either to accept or reject
the terms of the contract in the form in which they were presented;
o (d) whether another party was given an effective opportunity to negotiate
the terms of the contract ;
o (e) whether the terms of the contract take into account the specific
characteristics of another party or the particular transaction;
o (f) any other matter prescribed by the regulations.
If a contract is not a standard form contract, Part 2-3 will not apply and the plaintiff
will have to rely on common law remedies
Exclusions: s.28 lists contracts to which UCT legislation does not apply:
o s.28(1): This Part does not apply to:
(a) a contract of marine salvage or towage; or
(b) a charterparty of a ship; or
(c) a contract for the carriage of goods by ship
o s.28(3): This Part does not apply to a contract that is the constitution of a
company
What amounts to a term being unfair?

s.24(1): A term of a consumer contract if unfair if:
o (a) it would cause a significant imbalance in the parties rights and
obligations arising under the contract; and
An imbalance will be significant if the imbalance would detract from
the rights of the consumer under the common law or from the
reasonable expedition of consumer as to the likely distraction of
rights and obligations under the contract
o (b) it is not reasonably necessary in order to protect the legitimate interests
of the party who would be advantaged by the term; and
Presumption in s.24(4) that a terms is not reasonably necessary in
order to protect legitimate interests
Must first prove that there was a legitimate interest (if the term
protects the trader from a business risk inherent in the transaction
rather than an attempt to appropriate gains not contemplated as
part of the original bargain)
Must then prove that the term is reasonably necessary to protect
the interest (must be proportionate)
o (c) it would cause detriment (whether financial or otherwise) to a party if it
were to be applied or relied on.
s.24(2): The court must take into account:

o (a) the extent to which the term is transparent
o (b) the contract as a whole
s.24(3): A term is transparent if the term is:

o (a) expressed in reasonably plain language; and
(plain, not legal)
o (b) legible; and
(print is not too small)
o (c) presented clearly; and
(presented in paragraphs)
o (d) readily available to any party affected by the term.
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s.25(1) provides examples of unfair terms. A term will be unfair if it:

o (a) allows one party to avoid or limit performance
o (b) permits one party to terminate a contract
o (c) penalises one party (but not another party) for a breach or termination
o (d) permits one party to vary the terms of the contract
o (e) permits one party to renew or not renew the contract
o (f) permits one party to vary the upfront price without the right of the other
party to terminate
o (g) permits one party unilaterally to vary the characteristics of
goods/services/interest in land
o (h) permits one party unilaterally to determine whether the contract was
breached or to interpret the meaning
o (i) limits one partys vicarious liability for its agents
o (j) permits one party to assign contract to the detriment of the other party
without the parties consent
o (k) limits one partys right to sue another party
o (l) limits evidence one party can adduce
o (m) imposes the evidential burden on one party
o (n) prescribed by the regulations.
s.26(1): Section 23 does not apply to a term of a consumer contract to the extent
that the term:
o (a) defines the main subject matter of the contract;
o (b) sets the upfront price payable under the contract; or
Thus cant complain that the price of a good or service is unfair if
the party was notified at the start of the upfront price
o (c) is a term required, or expressly permitted, by a law of the Cth [or State]
Outcome
If the term is an unfair term in a standard form contract, the ACL, Part 2-3 will apply
and render the term void
s.23(2) The contract continues to bind the parties if it is capable of operating
without the unfair term
If the term is not unfair or is not in a standard form contract, the plaintiff will have to
rely on common law remedies
A party will either argue that a term is unfair as a defence to an action trying to
enforce the term of may take pre-emptive action against an unfair term
Remedies = injunction, compensation orders and compensation order for non-parties
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Preliminary Common Law Matters

Do we have a contract?
Has there been a breach of a term or a statutory guarantee?
Is there a liability to be excluded?
Is the clause incorporated into the contract?
Does the clause cover the breach as a matter of construction?
UCT Legislation
Is there a breach of any term?
No stop
Yes next question
Any term clearly modifying or excluding obligations?
No next question
Yes next question
Is the contract between a corporation and consumer?
No apply term according to its meaning
Yes next question
Is this an excluded contract?
Yes apply term according to its meaning
No next question
Is the term in a standard for question?
Yes next question
Is there a significant imbalance in rights and obligations?
No stop
Yes next question
Is the imbalance to the detriment of the consumer?
No stop
Yes next question
Is the term reasonably necessary for the defendants
legitimate interest?
Yes stop
No next question
Is the term transparent?
Yes or no next question
Is the term in the list of examples and/or unfair?
Yes cannot apply unfair term
33

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Agreements vs. Contracts

For an agreement, there must be an offer and acceptance of that offer

Unilateral vs. Bilateral Contracts

This reasoning applied in Thornton v Shoe Lane Parking (Lord Denning

Acceptance is an unqualified assent to the terms of the offer

Fact of Acceptance what counts as acceptance?

Acceptance Must be in Exchange of the Offer

Emails acceptance is effective once it is received by the server operated by

Battle of the Forms

An offer is terminated when it is revoked, lapses or rejected by the offeree

Revocation of Unilateral Offers

Rejection and Counter-Offer

Failure of Conditions and Changed Circumstances

An agreement must be complete and certain

Gap Filling of Incomplete Expressions

Terms Left Open: General Principles

Negotiations in Good Faith

Commercial agreements between family members will usually satisfy the

Which promises ought to be binding? ones that have consideration (based on

The Existing Legal Duty Rule

Estoppel arises where an assumption of non-contractual promises and

Development of Promissory Estoppel in Australia

Walton Stores v Maher (1988)

Brennan J stated how to establish an equitable estoppel:

The Effect of an Estoppel

Terms = conditions, warranties, innominate terms

Incorporation of Terms by Notice

Incorporating terms by reference:

When is a Statement a Term of the Contract

Three categories of implied terms:

Terms Implied in Fact

Terms Implied in Law

Implied Duty of Good Faith in Contract Performance

Specific Rules of Interpretation

Australian Consumer Law

(e) durable as a reasonable consumer fully acquainted with the state

Who is affected by this legislation?

s.27(2): In determining whether a contract is a standard form contract, a court may

What amounts to a term being unfair?

s.24(2): The court must take into account:

s.24(3): A term is transparent if the term is:

s.25(1) provides examples of unfair terms. A term will be unfair if it:

Preliminary Common Law Matters

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