AGREEMENT

First required element of a binding contract

- combination of two factors – an offer and corresponding acceptance
- must be seen as sufficiently certain before it will be enforceable
- a valid agreement can exist between two or more parties
Clarke v Dunraven
- Contracts separated into two categories:
 Formal agreements
a) Deeds: signed under seal, are considered valid even if consideration not provided
 Simple agreements
b) Agreements other than formal agreements, oral or written, consideration must be present

1. OFFER

Definition an expression to another of willingness to be legally bound by the stated terms

o Bilateral where each party makes a promise to each other to do or not to do something – not to
the world at large

A B
United Dominions Trust (commercial) Ltd v Eagle Aircraft Services (1968)

o Unilateral where only one party makes a promise – generally to the world at large

A B
E.g. One party offers a reward in return for finding lost item
One party offers a prize if another party sends in certain things
Carlill v Carbolic Smoke Ball Company (1983)

Communication of offer
o An offer is only effective once it is communicated to the offeree
Taylor v Laird (1856)
o which may be one person
o or the world at large
Carlill v Carbolic Smoke Ball Company (1893)
o communication must be made by offeror or their authorized representative
o is not an offer available for acceptance until it is communicated

Counter offer
o A person tries to accept an offer but introduces new terms
o Is not an acceptance but causes the original offer to terminate
Hyde v Wrench (1840)

Standing Offer
o an offer to supply goods for up to a certain period of time
o offer is accepted at time of placement of order, thereby creating a series of independent contracts
Colonial Ammunition Co v Reid (1900)

Tendering
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 o Tenders same as bids, except from afar and are not accepted immediately.
o are usually advertised when needed
o owner has option of selecting most attractive bid
Hughes Aircraft Systems International v Airservices Australia (1997)
Electronic Communication
o General Rule A contract is formed at time acceptance is communicated to offeror
Powell v Lee
o Instantaneous communication
 Telex
 Fax
 Telephone
 Email (?)
o Postal acceptance rule does not apply to instantaneous communication*
*Yet to be decided judicially whether email is regarded as instantaneous
communication
o Acceptance is complete when offeror receives communication of offer
Entores v Miles Far East Corp [1955]

ELECTRONIC TRANSACTIONS (QUEENSLAND) ACT 2001 - SECT 24

23 Time of dispatch
(1) If an electronic communication enters a single information system outside the control of the
originator of the communication, then, unless otherwise agreed between the originator and the
addressee of the communication, the dispatch of the communication occurs when it enters the
information system.
(2) If an electronic communication enters successively 2 or more information systems outside the
control of the originator of the communication, then, unless otherwise agreed between the
originator and the addressee of the communication, the dispatch of the communication occurs
when it enters the first of the information systems.

What is not an offer

o Mere puffery common feature of advertising to make exaggerated or unsustainable claims
about products
o Supply of information enquiry about the details of the offer
Harvey v Facey (1893)
o Invitation to treat (offer to make offers) technique used by one party who want others to make
an offer. (see 2. Acceptance)
 Advertisements of goods for sale
Grainger v Gough ((1896)
 goods displayed in shops
Fisher v Bell (1961)
 announcement inviting tenders
Spencer v Harding (1870)
 auctioneers request for bids/ad for auction
AGC (Advances) v McWhirter (1977)
 (perhaps) passenger boarding public transport
Wilkie v London Passenger Transport Board (1947)

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Termination
o withdrawal by offeror
 any offer can terminated before acceptance
Routledge v Grant (1828)
 Ineffective till received by offeree
Byrne v Van Tienhoven (1880)
o rejection by offeree
Stevenson Jacques & Co v McLean (1880)
o by lapse of time
 offer must be accepted within prescribed time or offer terminates within reasonable time
Ramsgate Victoria Hotel Co v Montefiore (1866)
 reasonable time depends on circumstances – nature of subject matter and communication
method
Manchester Diocesan Council for Education v Commercial and General Investments Ltd
(1970)
o failure of a condition of the offer
McCaul (Aust) Pty Ltd v Pitt Clubb Ltd (1959)
o by death
 offer cannot be accepted after offeror’s death
Coultart v Clementson (1879)
 offeree’s representative cannot accept offer on behalf of offeree in event of their death
Reynolds v Atherton (1921)
o Unilateral contracts
 Offer cannot be withdrawn after an offeree has commenced acceptance of it
 Where an offer is to the world at large, something less than actual communication to every
offeree will be sufficient as it would be impossible to ensure every offeree received actual
communication. Offeror should, if possible, use same medium for advertising withdrawal that
was used to advertise offer
 A promise to perform the act is insufficient performance

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2. ACCEPTANCE

Second requirement of agreement

- Definition expression, by words or conduct, of assent to the terms of the offer in the manner
prescribed or indicated by the offer
- May be express or implied
HBF Dalgety v Moreton (1987)
- An offer can only be accepted by the person to whom it was made
Reynolds v Atherton
3.
3.1 Bilateral Contracts
4.
Requirements A person cannot accept an offer that has not been communicated
Taylor v Laird (1856)
1. Offeree must accept terms of offer
 Consensus ad idem For a valid agreement, the offeror must make the offer and the offeree
must accept the terms of the offer at the one moment in time E.g. where each party
coincidentally sends to the other an offer for the sale and purchase of one item on the same
terms, no agreement has been formed.
Tinn v Hoffman & Co (1873)
2. Acceptance must be communicated to offeror

- Conditional acceptance = subject to preparation of formal contract

Communication of acceptance
o Acceptance has no effect until communicated to the offeror
Byrne & Co v Leon Van Tienhoven & Co (1880)
o May only be communicated by offeree or agent
Powell v Lee (1908)
o Silence is not acceptance (unless impliedly waived in unilateral contracts)
Empirnall Holdings v Machon Paull (1988)
o Postal Acceptance Rule
 Acceptance is communicated as soon as letter is properly sent, not when the letter is received.
Henthor v Fraser (1892)
 Is only applied when it was comprehended that postage might be a possible method of
communication
Adams v Lindsell (1818)
 Can be excluded
Bressan v Squires (1974)

o Instantaneous Communication
 Contract is formed when and where the offeror receives communication of acceptance
Entores v Miles Far East Corp [1955]

o Electronic Communication

ELECTRONIC TRANSACTIONS (QUEENSLAND) ACT 2001 - SECT 24

24 Time of receipt
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 (1) If the addressee of an electronic communication has designated an information system to receive
electronic communications, then, unless otherwise agreed between the originator of the
communication and the addressee, the time of receipt of the communication is the time when it
enters the information system.
(2) If the addressee of an electronic communication has not designated an information system to
receive electronic communications, then, unless otherwise agreed between the originator of the
communication and the addressee, the time of receipt of the communication is the time when it
comes to the attention of the addressee.

25 Place of dispatch and receipt

(1) Unless otherwise agreed between the originator of an electronic communication and the addressee
of the communication--
(a) the communication is taken to have been dispatched from the originator's place of business; and
(b) the communication is taken to have been received at the addressee's place of business.
(2) For subsection (1)--
(a) if the originator or addressee of the communication has more than 1 place of business, and 1 of
the places (the relevant place) has a closer relationship to the underlying transaction the
communication is about--the relevant place is taken to be the originator's or addressee's only
place of business; and
(b) if the originator or addressee has more than one place of business, but paragraph (a) does not
apply--the originator's or addressee's principal place of business is taken to be the originator's
or addressee's only place of business; and
(c) if the originator or addressee does not have a place of business--the place where the originator
or addressee ordinarily resides is taken to be originator's or addressee's place of business.

Withdrawal of acceptance
o After time of acceptance, neither offer nor acceptance cannot be withdrawn without both parties
facing potential legal liability

4.1 Unilateral contracts

Two types
o Invitation to treat
o World at large
Carlill v Carbolic Smoke Ball Company
Requirements
o Offeror may impliedly waive communication of acceptance
Carlill v Carbolic Smoke Ball Company
o Acceptance is in the form of the performance of acts specified by the offeror
Withdrawal of acceptance
o After time of acceptance, neither offer nor acceptance cannot be withdrawn without both parties
facing potential legal liability

5. CERTAINTY

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- Test whether the agreement can be seen as certain (clear) in they eyes of a third party

- Ambiguity and Uncertainty

o Individual terms there can be no contract unless what the parties agreed on can be determined
objectively with a reasonable degree of certainty. If uncertain then the contract will be void
Whitlock v Brew (1968)
o Agreements to negotiate are incomplete and therefore unenforceable
Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991)
o An uncertain contract may be saved if the court can use some mechanism to give meaning to it or
if the ambiguous term can be severed from the contract
Fitzgerald v Masters (1956) – for serverance

- Complete Agreements
o Agreement where terms are determined by third party is complete
Godecke v Kirwan (1973)
o Not certain whether agreement where one party is able to further add terms to the contract is
complete

o Agreements made subject to finance are complete
 Subject to finance clause that may be contained in a contract that terminates the contract if
the purchaser (generally of land) does not have sufficient funds to complete the transaction
Meehan v Jones (1981-82)

- Incomplete Agreements
o Agreements to agree are incomplete (heads of agreement)
BiotechnologyAust v Pace (1988)
o Failure to specify a price may or may not be incomplete as it is a question of fact
 See s11, Sale of Goods Act (purchaser required to pay a reasonable rpice if price is not
otherwise determined

- Invalidity of one term of the contract does not mean the whole contract is therefore invalid, invalid
term may be severed from the contract
Fitzgerald v Masters (1956)

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 INTENTION TO CREATE LEGAL RELATIONS
- parties must possess mutual requisite intention to create legal relations
- Objective test whether a reasonable person would regard the agreement binding
- More often than not, intention of the parties will be implied from the circumstances of each case.
- Factors relevant in making an objective determination of intent
o subject matter
o status of parties prior to agreement
o parties relationship with each other (if any)
o language used by parties
o subsequent conduct of parties
- Merrit v Merrit (1970)

1. Domestic and social agreements

a) Traditional method
- there is a presumption that all agreements made between married and de facto couples that they
do not intend to be legally bound by their agreements
- exceptions
o contracting in business context
o hostility between parties
o parties are divorced or are in the process of separating
- presumption also applies to parties in other familial relationships as well as agreements made in a
social context and those made between friends
- agreements in these contexts are made out of natural love and affection and are not intended to be
legally binding
- however, the more remote the familial tie the weaker the presumption
- under the traditional process the court begins with a presumption that the parties did not intend to
be legally bound
Jones v Padavatton (1969)
Balfour v Balfour (1919)

b) New method
- court starts off with proposition that the party alleging there was a contract has onus of
establishing parties intentions
- all relevant factors then considered to objectively determine intent
Ermogenous v Greek Orthodox Community (2002)

2. Commercial agreements
a) Traditional method
- agreements created in commercial context are considered to have intent to create legal relations
- court likely to find intent
Edwards v Skyways Ltd (1964)

b) New method
- instead of presumption, court enquires as to whether both parties intended to create legally
binding contract
- onus of proving intent is on person alleging there is a contract
Ermogenous v Greek Orthodox Community

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3. Government Activities
- whether the transaction is in furtherance of a government policy (less likely to have intent as it’s a
social service and is not the basis of a legal relationship upon which a citizen could sue for
inefficiency in performing the service) or is more commercial in nature (more likely to find intent)
Coogee Esplanade Surf Motel v Commonwealth (1976) for Commercial agreements
Administration of PNG v Leahy (1960) for policy initiatives

4. Voluntary Associations
- Conduct and the way transactions are to be carried out are usually outlined in a set of rules or a
constitution developed for that purpose
- Whether or not the rules or constitution create a legally binding contract between the parties
- Whether parties intended to create legal relations by joining association or club
Ermogenous v Greek Orthodox Community

5. Honour clause
- a clause contained in a contract that prevents either party from seeking litigation, that they do not
intend the contract to have legal consequences
Jones v Vernon’s Pools Ltd

6. Subject to contract clauses

- where parties may reach an agreement but state that such an agreement should be subject to the
preparation of a formal contract
Masters v Cameron

7. Letters of comfort
- a letter from a third party to the lender assuring them about the likelihood of the debtor meeting
their obligations contained in the contract
- They are not always binding (meaning the third party cannot be called upon to pay the debt – it is a
question of the construction of the agreement
Banque Brussles Lambert SA v National Industries Ltd (1989)

8. Ex gratia
- payment of money made or given as a concession without legal compulsion
- where parties are negotiating to resolve a particular matter, one party may offer to make an ex
gratia payment to the other
Edwards v Skyways Ltd

9. Letters of intent and understandings

- Parties sometimes conduct affairs based on understanding between them which may be orally or in
writing.
- Use of terms ‘letter of intent’ and ‘understanding’ may indicate something short of intention to
create legal relations
- Where one party is the government, more formality may be required to demonstrate necessary
intent
Coogee Esplanade Surf Motel v Commonwealth of Australia (1976)

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 CONSIDERATION
A gratuitous promise is a promise not supported by consideration and unenforceable

1. Four rules of consideration

1) Consideration must come from the promisee, but it doesn’t need to go to the promisor (can go
to third party).
Tweddle v Atkinson (1861)
i) Consideration can move to third party at direction of promisor
ii) Joint promisees – sufficient if consideration moves from one on behalf of all because it
is deemed to move from all
Coulls v Bagot’s Executor & Trustee Co Ltd (1967)
iii) Overlap with doctrine of privity - only a party who is privy to contract can sue on it
Tweddle v Atkinson
Coulls v Bagot’s Executor & Trustee Co Ltd (1967)

2) Consideration must be bargained for – the act must be done in reliance of the promise and not
for other reasons
Combe v Combe (1951)
o Acts of forbearance (see below)

3) Consideration must be sufficient, something of value in the eyes of the law.

Thomas v Thomas (1842)
o Consideration does not need to be adequate or of proper value in relation to the
product or service.
Chappell & Co v Nestles (1960)
o Moral obligations or worthy motives are not consideration
Eastwood v Kenyon ((1840)
o Consideration can be nominal
Thomas v Thomas
o Sufficiency of promises
e.g. 1: Father promises to transfer real estate to daughter in consideration the daughter pays
him $100 000. Is sufficient consideration, consideration does not need to be
adequate.
2: Father promises to transfer real estate to daughter in consideration the daughter pays
him $1. This is sufficient consideration, even though it is less than the real value of the
property
e.g. 3: Father promises to transfer real estate to daughter in consideration the daughter
gives him love and affection. Not sufficient consideration as it is not of value in eyes of
the law
e.g. 4: Father promises to transfer real estate to daughter in consideration the daughter
conduct herself respectably in society. Is or may be sufficient consideration in eyes of
the law
Duncan v Dunton
e.g. 5: Father promises to transfer real estate to daughter in consideration the daughter
complete sale agreement. Not sufficient consideration as it is a promise to perform a
pre-existing legal duty owed

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 4) Past consideration is not (good) consideration
Roscorla v Thomas (1842)
o Will generally be ineffective if at time promise is given the consideration has already
been performed
o Will be considered past if it has already flowed from promisee to promisor
Roscorla v Thomas (1842)
o If at the time of the act/forbearance/promise that is claimed to be consideration has
already occurred or been given, it is past consideration, not executed consideration

- A promise made because of a sense of moral obligation to promisee will not be sufficient
consideration
Eastwood v Kenyon
- A promise made because of love and affection that the parties have for each other is not legally
recognized
White v Bluett

- One party cannot attempt to obtain a further benefit from the promisor to continue performing an
act they are already contracted to perform unless duty is exceeded
Williams v Roffey Bros (1990)

– If a person is obliged to do something under the law, they cannot promise to undertake that act in
return for a promise. Consideration is not being provided as the act would have to be performed
anyway
Collins v Godefroy (1831)
Cf. Glasbrook Bros v Glamorgan County Council

Example A’s promise B’s consideration

1 Agreement for sale of land by A to B A to sell land to B B’s promise to pay
for $200 000
2 Agreement for A to paint B’s house for A to paint B’s house B promise to pay
$5000 to be paid on completion $5000
3 Agreement for A to provide tennis A to provide tennis B’s promise to give
coaching to C and D if B (C and D’s coaching to C and D remedial math
mother) provides remedial lessons to E
mathematics to E (A’s son)
4 A and B are neighbours in dispute A to pay B $3000 B’s promise not to
over the fence line, B claiming it is on litigate
her property. They agree that if A
pays B $3000, B will not litigate the
matter
5 A needs transport for a week. A and B A to service the car B’s promise to lend
agree that if B lends her to A for this her the car for the
time, A will pay for the car to be week
serviced

2. Bilateral Contracts
– Parties exchange promises
– Consideration is the other parties promise
o consideration is regarded as executory, the obligation to perform has not fallen due/come to
pass
United Dominions Trust v Eagle Aircraft
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3. Unilateral Contracts
– No exchange of promises
– The act itself is the consideration
o consideration is executed when act is performed
Carlill v Carbolic Smoke Ball

4. Doctrine of privity
– only a person who is a party to the contract can sue on it
Tweddle v Atkinson (1861)
Cf. Coulls v Bagot’s (1967)

5. PINNEL’S RULE
Part payment of debt
o A later agreement where the creditor promises to accept lesser payment instead of the full
amount is not enforceable as the debtor has not provided adequate consideration for the
creditor’s promise to forgo the balance due
o Based on absence of consideration

Exceptions – where part payment will be valid

o parties enter into a deed
o to better convenience/be of benefit to the creditor
o amount owing is disputed
o payment by a third party
Hirachand Punamchand v Temple
o composition with creditors – creditors all agree to accept lesser payment in return of fully
releasing debtor, where it appears most likely avenue of receiving any amount
see Coulls v Bagots
Hirachand Punamchand v Temple

6. Forbearance to sue
– a promise not to sue or to refrain from exercising a legal right
– An act of forbearance is only valid consideration if it is bargained for
– Action of forbearance from action of promisee must be in reliance on promisor’s promise and done
at request of promisor
– provided
o plaintiff acting in good faith and honestly believes claim would succeed
o claim was reasonable and not vexatious, and will generally not be if the plaintiff was acting in
good faith
o promise not to sue or compromise the claim must be bargained for
(Hercules Motors v Schubert, Wigan v Edwards)

7. Bargained-for conduct
– services are frequently provided without discussion of payment, but it is presumed by all parties
that there will be a payment for hose services
– a benefit is conferred (granted) upon promisee
– where a promisee seeks to enforce a promise made after the provision of services, must show
o act must have been done at promisor’s request
o parties must have understood that the act was to be remunerated by payment or conferment
of another benefit

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 o payment or benefit had to be legally enforceable and promised in advance (Pau On v Yiu
Long, Re Casey’s Patents)
EQUITABLE ESTOPPEL
- Prevents a person from denying an assumption or expectation of past or existing fact that the other
party relied upon, where to do so would be unconscionable and would cause detriment to the
person who acted upon assumption
Thompson v Palmer
- Equitable estoppel will not apply without unconscionability
Milchaus Investments v Larkin
- A contractual obligation must be supported by consideration whereas an equity created by estoppel
need not be supported by consideration
- Can be a cause of action as well as a defence
Waltons Stores Ltd v Mahers (1988)
- Need not be pre-existing contractual or legal relationship between parties before estoppel can arise
Waltons Stores Ltd v Mahers (1988)

1. Elements
1) A clear and unambiguous expectation by Party A
Legione v Hateley (1983)
o plaintiff assumed that a particular legal relationship existed or would exist that the defendant
could not renege
Waltons Stores Ltd v Mahers (1988)
o A promise will not be clear or unambiguous if important information is omitted

2) Expectation is encouraged or caused by Party B - clearest way it may be encouraged or induced is by

a promise or representation made by defendant
o Silence may be sufficient – will only be unconscionable where the defendant afterwards tries to
assert a legal relationship different to the one assumed or expected
Thompson v Palmer
o Mere hope will not suffice – defendant must have played part in adoption of assumption
Lorimer v State Bank of New South Wales
Waltons Stores v Maher
o Unauthorised agent making representation = no estoppel
Copers Pty Ltd v NZI Securities Australia Ltd
 Estoppel may arise where the principal fails to denounce statement made by unauthorised
representative when they had opportunity to do so
Corpers v NZI Securities
o Defendant must know or must reasonably ought to know of the mistake being made by plaintiff
Ampol v Matthews

3) Party A acts or abstains from acting in reliance upon the assumption or expectation made by Party B
o Reliance must be reasonable
Waltons Stores Ltd v Mahers (1988)
o Plaintiff’s characteristics may be relevant
Austotel Pty Ltd v Franklins Self Serve Pty Ltd

4) Party B knew, intended, or ought to have known Party A to do so

o party who induces the assumption or expectation must know or intend other party toact in
reliance of the assumption or expectation: Waltons Stores Ltd v Mahers
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 5) Party A will suffer detriment if the assumption is not fulfilled
o Detriment is that of the plaintiff and not the defendant
Gobblers Inc
o Detriment suffered as a result of acting in reliance with the assumption or expectation
Thompson v Palmer
o No estoppel available after learning assumption or expectation was without foundation
Milchas Investments Pty Ltd v Larkin

6) Party B failed to act to prevent detriment by fulfilling the assumption or expectation

Waltons Stores Ltd v Mahers (1988)
o Defendant may be required to do no more than warn the plaintiff the assumption or
expectation is mistaken before that plaintiff incurs irreversible detriment
Waltons Stores Ltd v Mahers (1988), Lorimer v State Bank of New South Wales

2. Unconscionable conduct
- Second, fourth and sixth elements reflect unconscionability
- Unconscionable conduct requires more than mere failure to fulfil a promise or reliance on a
promise that results in detriment.
o Denotes creation or encouragement by the defendant 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 resulting in their detriment
- Is unconscionable to refrain from making a denial and then leave other party to suffer detriment
caused by non-fulfillment of promise
- Is generally hard to prove when representation is ambiguous and unclear

3. Remedies
- Minimum equity to do justice between the parties
Waltons Stores Ltd v Mahers (1988)
- Should be proportionate to the unconscionability
o Compensation for loss incurred in reliance on assumption, rather than making good expectation
Commonwealth v Verwayen
- Correct approach in determining proportionate amount is to make good the assumption unless in
case circumstances that would be harsh on defendant and then lesser remedy will apply

Common law doctrine of estoppel in pais Equitable doctrines of promissory and

Concerned with rules of evidence
Must be clear and unambiguous
Estoppel arising from facts not as a matter
of record or deed
Prevents unjust departure from an
assumption of fact which the person has
caused another to adopt or accept for the
purposes of their legal relation
propriety estoppel
Concerned with creation of new rights
between parties
Must be clear and unambiguous
Representations or assumptions
concerning future only dealt with by
equitable estoppel
Foundation is unconscionability
Applies to assumptions or expectations of
law as well as future fact
Applies to existing and future fact or
representation
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 PRIVITY OF CONTRACT
1. General Rule
- only the parties to a contract are legally entitled to enforce it or be bound by it
Wilson v Darling Island Stevedoring
- a third party cannot enforce a contract
Bonke v Flight Centre
- a third party cannot be subject to liabilities imposed by a contract
Hardinge v Schidor
- where promisee bring action against promisor for failing to confer benefit upon third party,
promisee is entitle to nominal damages only
West v Houghton
o promisee may be entitle to specific performance
Beswick v Beswick
- a contract cannot impose liability upon a third party
o unless a purchaser of land is subject to a restrictive covenant (privity of estate)
Tulk v Moxhay

2. Statutory Exemptions to General Rule

2.1 Property Law Act 1974 (Qld)

- a beneficiary may enforce a promise to confer (grant) a benefit upon them

s55(1)
o Promisor is the party who actually makes the promise for the benefit of the beneficiary, not
someone stepping into shoes of promisor
Re Davies
o Beneficiary must be expressly named or described in the contract
Re Eagle Star Trustees
 A beneficiary not named in the contract but is ‘incidentally’ benefited by the promise cannot
claim the benefit under the section
Re Burns Philip Trustees
Robert Jones v First Abbot Corp
o Promise defined as a promise
 Which is appears or appears to be intended to be legally binding – excludes arrangements
between family/friends which are not intended to be legally binding
 Which is created or is intended to create a duty enforceable by a beneficiary – will not be
enforceable by a third party unless the promise creates or appears to have been intended to
create a duty enforceable by that person
s55(6)
o Acceptance is an assent by words or conduct communicated by the beneficiary (or person on
behalf of beneficiary) to the promisor (or person on behalf of promisor) in the manner specified
and within the time specified in the promise
s55(6)
 Words or conduct consistent with an acceptance will not suffice
Re Davies
Robt Jones v First Abbort Corp
o Any matter that would otherwise be relied on as rendering a promise void or unenforceable will
be available by way of defence in proceedings for enforcement of a duty
s55(4)

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 o Parties may vary/rescind the contract before acceptance
s55(2)
 After acceptance terms and duty of promisor/beneficiary can only be varied or rescinded
with consent of both parties
s55(3)(d)
o Beneficiary is bound by any duty that is imposed from the party that will benefit them
s55(3)(b)
o Where statutory obligations cannot be applied, common law still applicable
s55(7)

2.2 Insurance Contracts Act 1984 (Cth)

- A person who is not a party to a contract of general insurance may, if they are referred to in the
contract by name or otherwise, recover the amount of their loss from the insurer in accordance
with the contract of insurance
s48

2.3 Motor Vehicles Insurance Act 1994 (Qld)

- Insurer must indemnify any person using the vehicle, with or without owner’s permission, even
though that person is not a party to the contract between insurance company and the owner
Sched cl2

2.4 Trade Practices Act

- a third party to a contract may obtain relief from a promisor who has engaged in misleading or
deceptive conduct
s52

3. Common Law exception to General Rule

3.1 Agency
- Where A enters into a contract with B, who is an agent on behalf of C, the contract is in fact
between A and C
- C will be able to enforce the benefit if B acting on actual authority or later ratifies unauthorised
conduct of B. C will also be liable if B acting on actual authority
o Immaterial that A does not know B is an agent for C. A will still be taken to have contracted with
C. B can assume A is willing to treat as a party to the contract anyone on whose behalf B may
have been acting unless A has manifested their unwillingness.
o In case of undisclosed principal, either B or C – not both – may be sued on the contract
Bain Securities v Curmi
Exemption Clauses
- An exclusion clause can be drafted to protect third parties. Four conditions:
1. Relevant clause must expressly protect third party
2. Clause must make it clear party exempting from liability on behalf of self and third party
3. Party was so authorised by third party
4. any difficulties concerning consideration moving from third party is overcome
Scruttons v Midland Silicones

3.2 Trust
- Created where a trustee hold property on behalf of beneficiary

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- Privity rule not applicable where trust has been entered into
- Third party does not become third party to contract, acquires an equitable interest in promise
Construction Engineering v Hexyl
- Trust only binds promisor and promisee, third party beneficiary is unable to enforce contract unless
joined with promisee as defendant
Birmingham v Renfrew

3.3 Equitable Estoppel

- a third party may be able to enforce a benefit by equitable estoppel
Trident General Insurance v McNeice
- Requires unconscionable conduct on the part of promisor
- Any available remedy will be proportionate to the detrimental reliance

3.4 Unjust Enrichment

- where a promisor had received consideration but then refused to observe promise they have been
unjustly enriched
Trident General Insurance v McNeice

PROPERTY LAW ACT 1974 - 55 Contracts for the benefit of third parties
(1) 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.

(2) Prior to acceptance the promisor and promisee may, without the consent of the beneficiary,
vary or discharge the terms of the promise and any duty arising from it.

(3) Upon acceptance--

(a) the beneficiary shall be entitled in the beneficiary's own name to such remedies and relief as
may be just and convenient for the enforcement of the duty of the promisor, and relief by
way of specific performance, injunction or otherwise shall not be refused solely on the
ground that, as against the promisor, the beneficiary may be a volunteer; and
(b) the beneficiary shall be bound by the promise and subject to a duty enforceable against the
beneficiary in the beneficiary's own name to do or refrain from doing such act or acts (if any)
as may by the terms of the promise be required of the beneficiary; and
(c) the promisor shall be entitled to such remedies and relief as may be just and convenient for
the enforcement of the duty of the beneficiary; and
(d) the terms of the promise and the duty of the promisor or the beneficiary may be varied or
discharged with the consent of the promisor and the beneficiary.

(4) Subject to subsection (1), any matter which would in proceedings not brought in reliance on
this section render a promise void, voidable or unenforceable, whether wholly or in part, or
which in proceedings (not brought in reliance on this section) to enforce a promissory duty
arising from a promise is available by way of defence shall, in like manner and to the like
extent, render void, voidable or unenforceable or be available by way of defence in
proceedings for the enforcement of a duty to which this section gives effect.

(5) In so far as a duty to which this section gives effect may be capable of creating and creates
an interest in land, such interest shall, subject to section 12,6 be capable of being created
and of subsisting in land under any Act but subject to that Act.

(6) In this section--

16
 acceptance means an assent by words or conduct communicated by or on behalf of the
beneficiary to the promisor, or to some person authorised on the promisor's behalf, in the
manner (if any), and within the time, specified in the promise or, if no time is specified,
within a reasonable time of the promise coming to the notice of the beneficiary.
beneficiary means a person other than the promisor or promisee, and includes a person
who, at the time of acceptance is identified and in existence, although that person may not
have been identified or in existence at the time when the promise was given.
promise means a promise--
(a) which is or appears to be intended to be legally binding; and
(b) which creates or appears to be intended to create a duty enforceable by a beneficiary;
and includes a promise whether made by deed, or in writing, or, subject to this Act, orally, or
partly in writing and partly orally.
promisee means a person to whom a promise is made or given.
promisor means a person by whom a promise is made or given.

(7) Nothing in this section affects any right or remedy which exists or is available apart from this
section.

(8) This section applies only to promises made after the commencement of this Act.

17
 TERMS I:

ESTABLISHING CONTRACTUAL TERMS

1. Incorporating Written Terms

1.1 Incorporation by signature

- General Rule: by signing a document that party is generally bound by its terms. The signature
indicates agreement to the terms contained in it
L’Estrange v Graucob
o A party who does not terms before signing assumes the risk

1.1.1 Exceptions
- Party may not be bound if circumstances indicate that signature does not signify assent
o If person induced to sign by fraud or misrepresentation
Curtis v Chemical Cleaning Co
o Document signed was thought to have no contractual effect, the terms will not be incorporated
into the contract even if it is signed
DJ Hill and Co v Walter
o Signer will not be bound by the terms if the document signed did not form part of contractual
arrangement and/or contained extraneous terms
 Q of fact – if circumstances suggest that parties did not intend signed document to form
part of contract, will not be bound regardless of signature
Toll v Alphapharm
o Non est Factum
 Person who signed document did not know what they were signing
 Person must show document was radically different to what they thought they were signing
 Person must be unable to read owing to blindness or illiteracy and must rely on others for
advice as to what they are signing
 Available to those who through no fault of their own are unable to understand the
document
Petelin v Cullen

1.2 Incorporation by notice: unsigned documents

- the general rule in L’Estrange will not apply as both parties have not signed the document

a) Reasonable steps
o Whether the defendant took reasonable steps to draw the written terms to the attention of the
plaintiff
 Q of fact
Parker v South Eastern Railway
 Onus on defendant to demonstrate that the document given to plaintiff was a contractual
document
Causer v Browne

18
 o By being advised of terms contained on a ticket and then buying it, purchaser has assented to
those terms
Parker v South Eastern Railway
o If plaintiff is given a document by the defendant that a reasonable person would regard as being
contractual in nature, plaintiff generally bound by terms in document
Mendelssohn v Normand
 By taking document without reading/objecting to terms, plaintiff regarded as assenting to
them

1.2.1 Exceptions

- Plaintiff will not be bound by terms if

o Notice directing purchaser to further terms at back is illegible
Sugar v London Midland & Scottish Railways
o Document is folded to indicate does not contain written terms
Richardson Steamship v Rowntree
o Ticket sets out place of departure/destination on front and terms are on the other side
Henderson v Stevenson
o Non est factum will not apply
 Provided defendant took reasonable steps to bring fact to notice of people in general
Thompson v London Midland & Scottish Railways
 if disability brought to defendant’s attention, plaintiff could not be regarded as having
assented to the terms

b) Reasonable steps taken before contract formation

o once contract has been formed it is too late for fresh terms to be introduced
o reasonable steps must occur before or at time of contract formation
Thornton v Shoe Lane Parking Ltd

1.3 Incorporation by notice: signs

- the general rule in L’Estrange will not apply as both parties have not signed the document
- Signs displayed to inform patrons of a term of the contract

a) Reasonable steps
o Whether the defendant took reasonable steps to draw the written terms to the attention of the
plaintiff
Balmain New Ferry Co v Robertson
Olley v Marlborough Court
o Q of fact
o Onus on defendant to demonstrate that the document given to plaintiff was a contractual
document
o Non est factum will not apply
 Provided defendant took reasonable steps to bring fact to notice of people in general
Thompson v London Midland & Scottish Railways

b) Reasonable steps taken before contract formation

o once contract has been formed it is too late for fresh terms to be introduced
o reasonable steps must occur before or at time of contract formation
Thornton v Shoe Lane Parking Ltd

19
 1.4 Incorporation by notice: website

- person placing order will be bound by terms appearing on the web site only if they can be regarded
as having assented to them
- Some web sites display the terms and require that the consumer indicate agreement to terms,
provider has then taken reasonable steps to bring notice to the plaintiff
o By indicating agreement, consumer regarded as having assented to terms
- If consumer was required to scroll through terms, likely they haven’t been read, and if not required
to indicate agreement, courts may still regard this as reasonable notice

a) Reasonable steps
o Whether the defendant took reasonable steps to draw the written terms to the attention of the
plaintiff
Balmain New Ferry Co v Robertson
Olley v Marlborough Court
o Q of fact
o Onus on defendant to demonstrate that the document given to plaintiff was a contractual
document
o Non est factum will not apply
 Provided defendant took reasonable steps to bring fact to notice of people in general
Thompson v London Midland & Scottish Railways

b) Reasonable steps taken before contract formation

o once contract has been formed it is too late for fresh terms to be introduced
o reasonable steps must occur before or at time of contract formation
Thornton v Shoe Lane Parking Ltd

1.5 Incorporation by reference

- terms are contained elsewhere but incorporated into the contract by reference, avoiding need to
set out terms in full in main contract
Smith v South Wales Switchgear
Land Titles Act 1884 (Qld) s170
- Test: whether the plaintiff can be regarded as having assented to the terms incorporated by
reference
o For signed documents test is usually satisfied
o For other documents ‘reasonable steps’ taken by defendant as outlined above are applicable

20
2. Incorporating Oral Terms

- The test: whether from an objective perspective the parties intended the term to be promissory in
nature

2.1 Mere puf

- an exaggerated claim about the subject matter which is not intended to be taken seriously
Byers v Dorotea
- no common law consequences that arise from these statements

2.2 Representation

- whether a statement made in the course of negotiations is promissory in nature and has become a
term or falls short and is a mere representation
o depends on the intention of the parties
Oscar Chess v Williams

2.2.1 Elements

a) Words and conduct of the parties

o can give an indication of intention
 objective test to determine intent
o whether words of the statement indicate that they warrant/guarantee the truth, strong
evidence the statement was contractual in nature
 objective test
Oscar Chess v Williams
o conduct may indicate importance of statement
Harling v Eddy

b) Knowledge or expertise of the statement maker

o if party who made the statement is in a better position than the other party to ascertain the
accuracy of the statement then it is probably a term
Bentley Productions v Harold Smith (Motors)
o where statement maker professes to have personal knowledge of the relevant information, is
more likely to be regarded as guaranteeing its truth
c/f Oscar Chess v Williams

c) Statement maker has control in relation to information

o where the pre-contractual statement relates to the subject matter that is or should be in the
control of the statement maker
Hospital Products v United States Surgical Corp

d) Oral statement not reduced to writing

o is statement is made orally and is not included in the written contract, it is probably not a term
Routledge v McKay

21
 e) Interval of time
- if there is along intercal between the making of a statement and the conclusion of the contract it is
probably not a term of the contract
Routledge v McKay

2.3 Collateral Conracts

See Parol Evidence Rule, Exceptions

3. Parol Evidence Rule

- Two aspects to the rule

1. To exclude extrinsic evidence so as not to vary or change the content of the contract
2. To exclude extrinsic evidence to assist in the interpretation of the contract (see construction of
terms)
Codelfa Construction v State Rail Authority of NSW

3.1 The content of the Contract

If the parties intended the contract to wholly in writing extrinsic evidence is not admissible to add to or
vary or contradict the written contract
Robertson v Kern

- Rule of evidence
Goss v Nugent
- Objective test
Couchman v Hill
- ‘Where a contract is reduced into writing, where the contract appears in the writing to be entire, it
is presumed the writing contains all the terms of it and evidence will not be admitted of any
previous or contemporaneous agreement which would have the effect of adding to or varying it in
any way’
Mercantile Bank v Taylor
Goss v Nugent
- Only applies where contract is fully in writing and not part writing/part oral
Couchman v Hill

3.1.1 Exceptions

a) Collateral Contracts
- An oral statement that is promissory in nature will generally form part of contract, may also form
basis of a collateral contract
De Lassalle v Guildford
 Main contract: the lease agreement between tenant and landlord
 Collateral contract: landlords promise that the drains are in good working order. The
promisee’s consideration for that promise was a promise to enter into the main contract
- A collateral contract is where the consideration for the promisor’s promise is the promisee’s
promise to enter into the main contract
Heilbut Symons v Buckleton
- Consideration must not be past
Hercules Motors v Schubert
- Bipartite collateral contracts: where parties to it are same as parties in main contract
Shepperd v Council of Municipality of Ryde
22
 - Tripartite collateral contracts: parties to collateral contract are different to parties in main contract
Wells v Buckland Sand
- A collateral contract must be consistent with main contract
Hoyts v Spencer
- Where parties have entered into a written contract, the parol evidence rule prevents them from
relying on oral statements unless it can be proven they were a collateral contract
- Remedy: damages only, innocent party is not entitled to terminate main contract

Elements
- A statement made to induce entry to contract
- Reliance upon statement
- Statement was promissory in nature, an intention by the statement maker to guarantee the truth of
the statement. If the statement maker intends to guarantee the truth of the statement it will be
regarded as a contractual term.
Savage v Blackney

b) Evidence that a written contract is not yet in force/has not come into effect
- parol evidence rule only operates on a contract that has come into effect
- will not apply to a contract not yet in force
Pym v Campbell

c)Evidence that written contract was later varied or discharged

- The parol evidence rule prevents introduction of extrinsic evidence that the parties
added/subtracted/varied to the agreement before it was reduced to writing and not evidence the
parties later agreed to.
Narich v Commissioner of Pay-roll Tax

d) Evidence to imply a term – see below

Summers v the Commonwealth
- a term may form part of the contractual relationship between parties even though it is not
expressed in the written document
o term is said to be implied by the common law
- custom or usage in a particular trade may be relevant

e) Evidence necessary for rectification

- parties may verbally agree on all contractual terms, but the written contract may contain an error
Maralinga v Major Enterprises
NSW Medical Defence Union v Transport Industries

4. Implied Terms
- Terms can be implied regardless if it is oral or in writing
- If it is in writing, difficulties may arise re parol evidence rule which may impact on the implication of
terms

4.1 Terms Implied to reflect the presumed intention of parties

- Can be broken down into four categories

4.1.1 Term implied on basis of business efficacy/efficiency

The Moorcock [Court implying term for business efficacy]

23
 BP Refinery v Shire of Hastings [rules are summarised in Privy Council]
Codelfa Construction v State Rail Authority [rules approved in High Court]

Elements – Five tier test

i) implication must be reasonable and equitable
 Because a term implied for reasons of business efficacy is intended to reflect the presumed
intention of the parties the term must be both reasonable and equitable
BP Refinery v Shire of Hastings

ii) implication must be necessary to five business efficacy to the contract so that no term will be
implied if the contract is effective without it
 Test of necessity is narrow
Shell v Lostock Garage
 the parties must have clearly intended the term or would have included it if the they had
thought of it
Scanlan’s New Neon v Tooheys
iii) Term must be so obvious that it goes without saying
 Objective test – whether reasonable person would consider term as obvious
BP Refinery v Shire of Hastings
iv) term must be capable of clear expression
 if a term is obvious it goes without saying it will be capable of clear expression
Shell v Lostock Garage
v) term must not contradict any express terms of the contract
 if implied terms contradicts express terms then it cannot accurately reflect the presumed
intentions of both parties
Codelfa Construction v State Rail Authority

4.1.2 Term implied from previous consistent course of dealings

- General Principle
o Test: whether it is reasonable to hold that the parties entered into the contract on the basis and
with knowledge that their agreement would be on the terms set out in previous contracts
entered into
McCutcheon v David MacBrayne

o Criteria relevant to establish - the greater number of dealings the greater likelihood of
incorporating the term
 the number of dealings between the parties
 the consistency of dealings between the parties
Henry Kendall v William Lillico
Chattis Nominees v Norman Ross
- if parties have contracted using the same terms over a long period of without either party objecting
to the terms it is reasonable to regard the parties as having assented to them, regardless of
whether one of the parties has chosen not to familiarise themselves with content

4.1.3 Term implied from custom or usage

- terms can be incorporated if parties of a particular trade or profession always contract on the basis
of those terms
Con-Stan v Norwich Winterthur

24
Elements
i) existence of custom or usage is a question of fact
Con-Stan v Norwich Winterthur

ii) custom or trade usage must be so well known that all parties can reasonably be presumed to
have imported the term into the contract
 Must be sufficient evidence a custom of the kind alleged exists. Custom must be sufficiently
widespread and consistent that it can be articulated with some kind of certainty
 Custom must be so widespread that it is well known to people within the trade or profession
Con-Stan v Norwich Winterthur

iii) the term will no be implied if it is contrary to the express terms of the agreement
 term cannot properly express the proper intention of the parties if there is an express term
in the agreement stating otherwise and will therefore not be implied
Con-Stan v Norwich Winterthur
Summers v the Commonwealth

iv) person may be bound without knowledge of the term

 if term has sufficient notoriety then parties are presumed to have contracted on the basis of
the term forming part of the contract and parties will be bound without knowledge of the
custom
 provided custom is widespread the contracting party is regarded as having constructive
knowledge of the term
Con-Stan v Norwich Winterthur
Summers v the Commonwealth

- Parol evidence rule will not operate to exclude evidence of the custom or usage

4.1.4 Term implied to fill in gaps

- where not all of the terms have been finalised a court may imply a term to complete the agreement
Hillas v Arcos

4.2 Terms implied irrespective of parties intention

Can be broken down into four categories

- terms implied as a matter of law are contractual terms that the law implies as a necessary incident
of a definable class of contractual relationship
Australis Media Holdings v Telstra
- Implied term will operate regardless of parties’ intentions
Breen v Williams

Elements
1. must be a definable class of contractual relationship
i. Contracts for the sale of goods and services
o Common law provides term that goods be reasonably fit for the purpose for which they
were supplied and services fit for the purpose which they were rendered
Samuels v Davis
ii. Contracts for the provision of professional services
o Common law implies a term that reasonable care be taken by the professional in providing
such services

25
 Greaves v Baynham
iii. Contracts of employment
o Common law imply term that it is employers duty to provide a safe work place
Wylie v ANI Group
o Implied duty to advise employees of their rights where such rights are exercisable only in a
certain period
Scally v Southern Health and Social Services Board
o Implied duty to perform the employment with reasonable care
Wylie v ANI Group
iv. Building contracts
o (in contract to build a house) implied term that house will be reasonably fit for habitation
and that work carried out in a proper and workmanlike fashion
Sterling Estates Development v Malouf

2. satisfy the test of necessity

Lister v Romford
o Public policy also to be considered
Simonous v Holt

4.2.1 Term implied as a legal incident of a particular class of contract

- terms may be implied as a matter of law in a particular class of contracts

Liverpool City Council v Irwin
Samuels v Davis
Derbyshire Building
- Courts impose obligations as a necessary incident of a definable class of contracts even though such
obligations were not expressly agreed upon by the parties
Liverpool City Council v Irwin
- Courts have taken view that such obligations should be implied
Liverpool City Council v Irwin
Australis Media Holdings v Telstra
o e.g. when a dentist makes a denture for the patient there will be implied at common law that a
reasonable care will be taken in doing the work and that the materials used are of good quality
and fit for the purpose
- parol evidence rule will not apply to extrinsic evidence concerning these implied terms

- Categories of contract to which legal terms will be implies are not closed
Esso v Plowman

- Examples of categories of contracts where terms are implied as a matter of law

4.2.2 Term implied imposing on the parties a general duty to co-operate

- a general duty to co-operate is implied into all contracts, each party is required to do all things
necessary to enable the other party to have the benefit of the contract
Butt v McDonald
- Is implied as a matter of law and not because the facts of a particular case warrant the implication
- Examples
o Duty to comply with reasonable requests
o Duty not to impair the basis of the contract
RDJ International v Preformed Line Products
26
 o Duty to do all things necessary to enable the agreement to be completed
Adelaide Petroleum v Poseidon

4.2.3 Term implying duties of good faith, fair dealing and reasonableness

- Courts are prepared to imply a duty of good faith into a range of contracts
Renard Constructions v Minister for Public Works
- Classes of contracts in which a term can be implied as a matter of law are not closed
Esso v Plowman
- This duty will generally be implied as a legal incident of all commercial contracts
Burger King Corp v Hungry Jacks
Vodafone v Mobile Innovations
- Parties will not be bound by a duty to act in good faith if it is expressly stated otherwise in the
contact
Hurley v McDonald’s Australia
- duties of good faith, fair dealing and reasonableness are imposed to reflect community standards
 their implication as a matter of law is not affected by parol evidence rule

4.2.4 Term implied by statute

- term implied into a contract by statute

Sale of Goods Act 1896 (Qld)

- s 15(a)
Implied condition that the seller has title to the goods being sold or will have title at the time
property in the goods is to pass
- 15(b)
Implied warranty that the buyer will have quiet possession of the goods
- s15(c)
Implied warranty that the goods are free from any charge or encumbrance
- 16
In a contract for the sale of goods by description there is an implied condition that the goods shall
correspond with the description; and if the sale is by sample, as well as by description, the bulk of
the goods must correspond with the sample as well as the description.
- 17(a)
Whether the buyer expressly/impliedly makes known to the seller the particular purpose for which
the goods are required, to let the seller know they rely on their skill/judgment, implied condition
that the goods be fit for purpose
- s17(b)
Implied condition that the goods are of merchantable quality where they are purchased by
description
- s18(2)
Implied term where sale is by sample that the bulk shall correspond with the sample in quality, the
buyer shall have a reasonable opportunity of comparing the bulk with the sample, the goods shall
be free from any defect
- 56
Parties can contract out of statutory conditions and warranties that are implied

Sale of Goods Act 1896 (Qld) applies to all transactions for the sale of goods

27
Trade Practices Act 1974 (Cth) only operate where the supplier is a corporation and the acquirer is a
consumer (c/f with ss4, 4A, 6)

Trade Practices Act 1974 (Cth)

- 68
Any term that aims to exclude, restrict or modify or has the effect of excluding, restricting or
modifying any implied terms contained in the act is void
- 68A
A term of contract for supply of goods/services under $40 000 will not be void if it limits the liability
of the corporation in terms of
(a) Goods
(i) The replacement of the goods or the supply of equivalent goods;
(ii) The repair of the goods;
(iii) The payment of the cost of replacing the goods or of acquiring equivalent goods;
(iv) The payment of the cost of having the goods repaired; or

(b) Services
(i) The supplying of the services again; or
(ii) The payment of the cost of having the services supplied again.
- 70
For the supply of goods by consumer to supplier, implied condition that the goods will correspond
with the description, and, if the supply is by reference to a sample as well as by description, it is not
sufficient that the bulk of the goods corresponds with the sample if the goods do not also
correspond with the description.
- 71
For the supply of goods by consumer to supplier, implied condition that the goods supplied under
the contract for the supply of the goods are of merchantable quality
- 72
For the supply of goods by consumer to supplier, there is an implied term that the bulk shall
correspond with the sample in quality, the buyer shall have a reasonable opportunity of comparing
the bulk with the sample, the goods shall be free from any defect
- 74
Implied warranty that the services will be rendered with due care and skill and that any materials
supplied will be reasonably fit for the purpose for which they are supplied
- 51AB
Prohibits unconscionable conduct in the course of trade or commerce
- 51AC(1
Prohibits unconscionable conduct in the course of trade or commerce where goods are supplied for
personal/domestic/household use or consumption
- 51AC(3)(k)
Contains eleven steps to help the court determine whether the supplier has contravened s51AC(1)

28
 TERMS II:

CONSRUCTION OF TERMS
- Court takes an objective approach to interpretation
Hospital Products v US Surgical
Taylor v Johnson
- Court does its best to give effect to the parties bargains
Hillas v Arcos
York v Refridgeration
- Court will endeavour to be neither too astute nor to pedantic
Hillas v Arcos
Upper Hunter County v Australian Chilling
- Court will steer clear of meanings that are commercially unworkable or inconvenient
Hide &Skin v Oceanic Meat

1. Parol Evidence Rule

- Two aspects to the rule

1. To exclude extrinsic evidence so as not to vary or change the content of the contract
2. To exclude extrinsic evidence to assist in the interpretation of the contract
Codelfa Construction v State Rail Authority of NSW

1.1 The interpretation of the Contract

In relation to the meaning of the contract i.e. when a formal document is conclusive of a contract its
meaning may only be determined by reference to the words in the document
Gordon v McGregor
Allen v Carbone

- Admissible evidence
o Factual matrix or surrounding circumstances
Allen v Carbone
DTR Nominees v Mona Homes
Codelfa Construction v State Rail Authority

- Inadmissible evidence (in particular)

o Subjective intention of the parties
 Evidence of party regarding their own intentions is inadmissable
Life Insurance Co v Phillips
DTR Nominee v Mona Homes

o Antecedent/prior negotiation
 Evidence of negotiations that precede written document is inadmissable
Prenn v Simonds
c/f Codelfa Construction v State Rail Authority

o Subsequent conduct

Administration of PNG v Daera Guba
29
 Codelfa Construction v State Rail Authority

- Exceptions
a) cases of patent or latent ambiguity
 patent ambiguity: language that on its face is capable of more than one possible meaning or
is made unclear by other language in the document
White v Australian and NZ Theatres
 latent ambiguity: where an apparently clear meaning is made ambiguous when extrinsic
evidence is taken into account
Hope v RCA

b) identification of subject matter

 evidence admissible to resolve ambiguity concerning subject matter
Cameron v Slutzkin
 usually as a result of latent ambiguity, the doubt caused by extrinsic knowledge is resolved
by extrinsic knowledge
Great Western Railway v Bristol

c) identification of parties or their relationship

 where there is ambiguity concerning the identification of the parties to the agreement or
concerning the relationship or capacity in which they have entered the contract
Edwards v Edwards
GR Securities v Baulkham Hills
Gilberto v Kenny
 where party did not sign document on own behalf but for and on behalf of a company
Hardinge v Schidor

d) in order to identify the real consideration

 where
 no consideration or nominal consideration is expressed
 expressed consideration is in general terms or ambiguously stated
 a substantial consideration is stated but an additional consideration exists; provided the
additional consideration proved is not inconsistent
Pau On v Lau Yiu Long

e) custom or usage
 Evidence where the language used in the instrument has a particular meaning by
custom/usage in a particular trade, industry, region is admissible even if no patent ambiguity
Thornley v Tilley
Summers v the Commonwealth

f) in order to rectify
 evidence to show parties’ intention was not accurately recorded
Bacchus v Joseph Nathan
Maralinga v Major Enterprises

30
2. Promissory Terms
- A promissory term is one pursuant to which a party promises or undertakes to do or refrain from
doing something
- Objective test of parties intentions with reference to their words or conduct
Bowes v Chaleyer
- relevant classification depends on intention of parties
Associated Newspapers v Bancks

2.1 Conditions

Common Law
- Wide interpretation
- Test of essentiality: one party would not have entered into the contract unless assured of strict or
substantial performance of a term which the other party knows or ought to know of
Associated Newspapers v Bancks
o Court determine real intention of parties from language used and surrounding circumstances
- A term will be regarded as a condition where the stipulation is so important that a breach would
make further performance of the contract performance of a substantially different nature or
destroy the main object of the contract
Bowes v Chaleyer
- Remedy: entitles the innocent party to terminate the contract and or sue for damages
L Schuler v Wickham
o right to terminate available regardless of whether the breach has serious consequences
Luna Park v Tramways
- if damages are inadequate remedy for breach of the term the court may construe term as condition
Ankar v Westminster Finance

Statutory Position
- a breach of condition in a contract for sale of goods will have the same effect as a breach of
condition under common law
s14 Sale of Goods Act 1896 (Qld)

2.2 Warranties

Common Law
- Wide interpretation
- A term that is subsidiary to the main purpose of the contract
Bettini v Gye
- Remedy: breach entitles innocent party to damages only, there is no right to terminate
Bettini v Gye

Statutory position
- ‘an agreement with reference to goods which are subject to a contract of sale but collateral to
main purpose of such contract, the breach of which gives rise to a claim for damages but not a right
to reject goods and treat contract as repudiated’
s3 Sale of Goods Act 1896 (Qld)

31
 2.3 Intermediate Terms

- Does not fit as a condition or warranty

Hong Kong Fir v Kawasaki
Ankar v Westminster Finance [Hong Kong test adopted in Australia]
- A term capable of a variety of breaches, some serious, some trifling
Bunge v Tradax
- Is elevated to status of warranty or condition
L Schuler v Wickham
- Test:
o Decide what type of term parties intended
o What consequences of breach will be
Bunge v Tradax
 Consequences depend on seriousness of breach, did it deprive innocent party of
substantially the whole of the benefit if the contract
 When determining consequences consider:
 Degree of performance before and after breach
 Whether damages are adequate compensation for lost expectations of the innocent
party
 Whether expectations of party in breach would be unfairly prejudiced by termination of
contract
 Attitude and conduct of party in breach including likelihood of breach persisting
Hong Kong Fir v Kawasaki

3. Contingencies

- Existence or continued obligation of contract conditional upon occurrence or non-occurrence of an

event. Events are merely external events that may have effect upon existence/operation of contract
- An event may be both condition precedent and subsequent, so essential question is the effect of
the contingency
- Two types
o Conditions precedent
 an event that must occur before a contract comes into existence or an obligation under the
contract arises
Perri v Coolangatta Investments
 ‘Subject to contract’ clauses is precedent but depends on parties intentions
Masters v Cameron
 Condition will not normally be construed as a condition precedent to the formation of the
contract unless the contract read as a suggests it is
Perri v Coolangatta Investments
o Conditions subsequent
 Contract will come into existence but the performance of the contract is prevented until the
condition is fulfilled
 If a condition subsequent is not fulfilled the contract becomes void
 Contract will generally not come to an end automatically but may be terminated by the
party for whose benefit the clause was inserted
 A party may waive it if solely for their benefit (i.e. subject to finance clauses)
Meehan v Jones
 Party for whose benefit the condition subsequent was inserted will have right to terminate
on non-occurrence

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  If the clause is for the benefit of both parties either may be able to terminate, with consent
of the other party

4. Exemption Clauses

Note: Not always written into contract, usually appear on a notice or ticket. Therefore require
resolution of two issues
o Was exemption clause incorporated into the contract?
o Does the clause cover the defendant's misconduct?

- Three main kinds

o May purport to exclude a parties liability
Thomas v May &Baker
o May limit extent of liability to a particular maximum amount
Darlington v Delco
o May make liability subject to time limit/pre-condition
NZ Shipping v Satterworth

- General rule: an exemption clause is determined by construing the clause according to its natural
and ordinary meaning, read in light of contract as a whole
Darlington v Delco
o In Qld, court has no absolving power to disallow exemption clauses on basis of
unreasonableness
Faramus v Film Artists
- Therefore there are other specific rules of interpretation/construction that govern interpretation of
exemption clauses

a) Contra Proferentum Rule

o Narrow interpretation
o Term is interpreted against person relying on the clause
Thomas v May &Baker
Darlington v Delco

b) Four corners rule (more reliable than contra rule)

o Narrow interpretation
o Exclusion clause to cover breach only within the four corners of the contract
 Party can only rely on clause if they carried out the contract in the way they were supposed
to
Sydney Council v West
Darlington v Delco
Thomas v May &Baker

c) Attempts to exempt negligence

o Express exclusion of negligence is effective if it expressly or impliedly covers such liability
Canada Steamship v The King
Thomas v May &Baker
 Words negligence or a close synonym / all liability are followed by howsoever caused or
similar
o Where the only possible action against the defendant is an action in negligence, the court will
interpret the clause broadly to give it a wide interpretation so it includes negligence
Alderslade v Hendron
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5. Other Clauses

a) best endeavours clause

o places a party under an obligation not to hinder or prevent fulfilment of its purpose
Shepherd v Felt & Textiles
o required to do all that can reasonably be done to fulfil contractual terms but no more
Sheffield v Central Railway

b) agreed damages clause

o provides for payment of an amount that is a genuine pre-estimate of loss resulting from any
breach
 states what is to be recoverable (e.g. value of goods, rental of goods, etc)
o purpose of clause is to remove the need to prove the actual extent of loss

c) force majeure clause

o In the event of it being affected by something beyond the control of parties – such as an act of
God, catalogue of events contained in clause
o If catalogued event occurs, contract may be terminated/suspended/re-negotiated

d) restraint of trade
o a promise by one party to give up freedom of their trade for the benefit of other party
 e.g. employer agrees not to take up other employment of same/different kind whilst
employed without prior consent of employer
o At common law all restraint clauses are void unless they can be shown to be reasonable
o Remedy: may result in injunction to stop breach

e) dispute resolution clause

o any dispute arising under contract should be referred to alternative means of resolution
o failure to observe may result in a breach of contract
o Remedy: may result in injunction to stop court proceedings

f) law of contract
o contract has capacity to span jurisdictions
o parties can choose which jurisdiction of laws the contract is governed under

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 CONTRACTS NOTES
AGREEMENT1
1) Ofer.......................................................................................................................................................1
2) Acceptance............................................................................................................................................4
3) Certainty................................................................................................................................................6
INTENTION TO CREATE LEGAL RELATIONS7
CONSIDERATION................................................................................................................................................9
Pinnel’s Rule................................................................................................................................................11

EQUITABLE ESTOPPEL......................................................................................................................................12
PRIVITY OF CONTRACT....................................................................................................................................14

TERMS I:ESTABLISHING CONTRACTUAL TERMS17

1. INCORPORATING WRITTEN TERMS..................................................................................................................17
Incorporation by signature
Incorporation by notice: unsigned documents
Incorporation by notice: signs
Incorporation by notice: website
Incorporation by reference
2. INCORPORATING ORAL TERMS.......................................................................................................................20
Mere puff
Representation
3. PAROL EVIDENCE RULE.................................................................................................................................21
The content of the contract21
Exceptions
Collateral Contracts
Evidence that a written contract is not yet in force/has not come into effect
Evidence that written contract was later varied or discharged
Evidence to imply a term – see below
Evidence necessary for rectification
4. IMPLIED TERMS...........................................................................................................................................23
Terms Implied to reflect the presumed intention of parties.................................................................23
Terms implied irrespective of parties intention.....................................................................................25

TERMS II: CONSRUCTION OF TERMS28

1. PAROL EVIDENCE RULE.................................................................................................................................28
The interpretation of the contract28
Exceptions
Cases of patent or latent ambiguity
Identification of subject matter
Identification of parties or their relationship
In order to identify the real consideration
Custom or usage
In order to rectify
2. PROMISSORY TERMS
Conditions............................................................................................................................................30
Warranties...........................................................................................................................................30
Intermediate Terms.............................................................................................................................31
3. CONTINGENCIES...........................................................................................................................................31
4. EXEMPTION CLAUSES....................................................................................................................................32

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 Contra Proferentum Rule
Four corners rule
Attempts to exempt negligence
5. OTHER CLAUSES...........................................................................................................................................33

36