Contracts: Basic Rules

Formation

1. Is there a K?

Offer Acceptance Consideration Intention Certainty

2. If your answer is yes, consider whether there is a reason that the K must be in writing. (e.g. Transfer of an interest in land (lease agreement), Ks for the sale of land, etc.) If the K must be in writing but it is not, it is not a K.

3. If yes, and it is in writing, consider terms. 4. If you find that there is not a K, consider estoppel (Waltons – Brennan’s six

step test. Essential.)

Terms

1. Is the K written?2. If yes, has the K been signed?3. If so, signing parties are bound by the terms, whether they have read them or

not (L’Estrange v Graucob), except where there has been fraud or misrepresentation.

4. If not signed, go to steps for interpreting Ks that are not written.5. Is there a collateral K? (Can be oral.) If there is a collateral K, you need to

look at the terms of the K.6. If the K is wholly written, you may only take the terms of the K (as written)

into account (parol evidence rule).7. Ambiguity? Look at extrinsic material (Codelfa)8. If the K is not written, consider:

What were the representations made? Terms can be incorporated into a K by reference (you are subject to the

terms and conditions on our website) or notice (sign at dry cleaner saying we’re not liable…)

Incorporation by course of dealing

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9. Once you have determined express terms, decide whether there are implied terms. Terms can be implied by law (Liverpool City Council v Irwin), fact (BP; Codelfa if written K. Byrne if not written), or custom (Con Stan Industries). You will need to know the terms that might be implied by the Australian Consumer Law.

Performance and Breach

1. Has performance occurred?2. If yes, parties are discharged from further performance. There may be

circumstances where substantial performance is sufficient (Tramways Advertising v Luna Park)

3. Has performance been frustrated? (Codelfa – relieved of obligations)4. Has there been a breach of a term? Warranty? Damages/No termination.

Condition? Damages (loss of bargain) and right to terminate. Intermediate? Serious breach gives rise to right to terminate (Hongkong Fir; accepted as good law in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd) and damages.

5. Has the K been repudiated? Not ready and willing to perform? Are there other factors that excuse liability?

6. Exclusion clauses? (Negligence must be expressly referred to.)7. TNT – Four Corners Rule.8. Privity? Is the party who is enforcing/relying able to enforce the K?

Damages

Measure of damages is K is the amount that a party would have gotten if the K had been fulfilled.

In estoppel, the remedy is the minimum amount necessary to remedy the injustice (not to be confused with putting the person in the position they were in prior to the K).

Note: Good faith is not implied by law, by can be implied by K on an ad hoc basis. Good faith does not require one party to subvert their interests to the other.

Offer

The fact that the word “offer” is used does not in and of itself conclusively suggest an offer: Seppelt & Sons Ltd v Commission for Main Roads

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An offer, an extension of a promise with the intention to be legally bound, serves as an indication of a party’s willingness to enter a bargain on particular terms: Gibson v Manchester City Council

A counter-offer extinguishes an offer: Hyde v Wrench

Once an offer is rejected by an offeree that offer is no longer open to be accepted. Rather, it is “killed”: Stevenson, Jaques & Co v McLean

A counteroffer is a rejection of original offer: Butler Machine Tool Co v Ex-Cello-o

A counter-offer must be distinguished from a “mere inquiry”: Stevenson, Jaques & Co v McLean

When it comes to standard form Ks, when the last form is sent and received without objection being raised, there is a K: Butler Machine Tool v Ex-Cell-o

Acceptance

Unquestionably, as a general proposition, where an offer is made, it is necessary in order to make a binding K, not only that it should be accepted, but that the acceptance should be notified…I apprehend that [unilateral offers to the world] are an exception to the rule, or, if not an exception, they are open to the observation that the notification of acceptance need not precede performance. One who makes a unilateral offer for the sale of goods by means of an advertisement impliedly waives notification (through language and the nature of the offer) of acceptance if his purpose is to sell as much product as possible: Carlill

Notification of acceptance is not required; an offeror can dispense with that requirement: Carlill

Acceptance of the offer, another vital component of a K, must be ‘unequivocal’ and must ‘precisely correspond’ with the offer: Gibson v Manchester City Council

Acceptance of the offer should be communicated to the offeror. After a reasonable period has elapsed, silence is seen as a rejection and not acceptance of the offer.

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Nevertheless, communication of acceptance is not always necessary. The offeror will be bound if he dispenses with the need to communicate the acceptance of his offer. However, the offeror cannot erect a K between himself and the offeree by the device of stating that unless he hears from the offeree he will consider the offeree bound…The CL’s concern with the protection of freedom is opposed to the notion that a person must take action to reject an uninvited offer to be bound by contractual obligations: Empirnall Holdings v Machon Paull Partners

Silence, in combination with other circumstances (external manifestation of assent to an offer), may constitute acceptance (as where a person presented with a reasonable opportunity to reject offered services takes advantage of them): Empirnall Holdings v Machon Paull Partners

Mere silence is not sufficient to accept an offer; acceptance must be communicated unless notification is waived as in Carlill: Felthouse v Bindley

Acceptance must be done in faith of or in reliance upon the offer: R v Clarke

If a person partially performs an act before learning of an offer for the performance of said act, they are said to be motivated to complete performance of the act by the offer and thus there would be a binding K: R v Clarke

Clarke was undermined by the ruling in Williams v Cardwardine, in which the court held that despite the fact that the promisee was not motivated to act by the award, her motives were not totally inconsistent with the offer and thus she could collect.

Revocation

An open offer to sell terminates when the offeree learns that the offeror has already agreed to sell to someone else: Dickinson v Dodds

A promise to keep an offer open is not binding: Dickinson v Dodds

Where a promise to leave an offer open is supported by consideration, it may not be revoked (e.g. a deposit): Goldsbrough Mort & Co Ltd v Quinn

A person who makes an offer susceptible of acceptance by the performance of an act, cannot revoke that offer after the offeree has embarked upon the performance of the act: Veivers v Cordingley

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Veivers v Cordingley not an absolute principle of law. The respective position of offerer and offeree varies from case to case. (e.g. The offerer may not know the offeree has commenced performance of the act; it might be agreed that offer can be revoked at any time and thus acts not fully performed before revocation of the offer are at risk, etc.): Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd

An uncommunicated revocation is, for all practical purposes and in point of law, no revocation at all: Stevenson, Jaques & Co v McLean (cited Byrne v Van Tienhoven with approval on this point)

Consideration

Consideration must be sufficient but need not be adequate: Chappell & Co Ltd v Nestle & Co Ltd

A promise to perform existing legal duty is not sufficient consideration (because the new promise, indistinguishable from the old, is illusory consideration): Wigan v Edwards

A promise to perform an existing contractual duty is not regarded as sufficient consideration. The issue often arises in the context of one-sided modification of an existing K: Williams & Roffey Bros v Nicholls

If A has a K with B for work, and before it is done A has reason to believe B may not be able to complete, and A promises B more to finish on time, A ‘obtains in practice a benefit, or obviates a disbenefit’ from giving the

promise (assuming there is no fraud or blackmail), and thus there is new consideration.

The practical benefit of timely completion, even though a pre-existing duty is performed, constitutes good consideration: Williams & Roffey Bros v Nicholls

If one party has a  bona fide belief  (which is not frivolous or vexatious) that he is excused from performing a pre existing contractual obligation, then performing or promising to perform this obligation will be good consideration for a new promise by the other party: Wigan v Edwards

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Dicta (articulated in dissenting discussion of consideration): Where a promise is made to joint promisees either promisee can enforce the K even though consideration only moved from one: Coulls v Bagots

Performance of public duty is not good consideration, but performance of more than required public duty is good consideration: Glasbrook Bros Ltd v Glamorgan County Council (Note: Popiw v Popiw (wife/domestic violence case) similarly held that there is no consideration where a party performs an existing duty, but there is consideration where additional detriment is incurred – in that case, living with an abusive partner.)

Part payment of a debt is not consideration for a promise to discharge the debt: Foakes v Beer Conditional Promise or K?

It is important to determine whether “the act was really done in consideration of a potential promise inherent in the announcement.” There must quid pro quo -the statement and act referred to must exist in a clear relationship to each other. The doing of the act must be based upon the promise, and not merely coincide with it: Australian Woollen Mills Pty Ltd v Cth (Note: A test which has often been applied is to ask whether there has been a request by the alleged promisor that the promisee do the act on which the latter relies (105).

Wherever words which by themselves constitute a promise are accompanied by words showing that the promisor is to have a discretion or option as to whether he will carry out that which purports to be the promise, there is no K on which an action can be brought at all: Loftus v Roberts

The principle established in Loftus v Roberts is that a promise - combined with a discretion as to whether it will be carried out - amounts to no [enforceable] promise (or no K) at all. A promise of a subsidy is meaningless if there is no specification of the amount. If the Government promises to pay such a subsidy as it thinks fit, then there is no K: Placer Developments Ltd v Cth

Certainty

A K is not automatically void for uncertainty just because it may be construed in more than one way: ‘As long as it is capable of a meaning, it will ultimately bear

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the meaning that the courts, or in an appropriate case an arbitrator, decide is its proper construction…The question becomes one of construction, of ascertaining the intention of the parties, and of applying it’: Council of the Upper Hunter County District Council v Australian Chilling Freezing Co Ltd

When a K contains a number of stipulations, one of which is void for uncertainty, the question of whether the whole K is void depends on the intention of the parties to be gathered from the instrument as a whole. If the K be divisible, the part which is void may be separated from the rest and does not affect its validity: Whitlock v Brew

Regarding certainty, where terms appear uncertain the court may turn to external standards to determine their meaning: Hillas & Co v Arcos Ltd

Finance clauses are not necessarily void for uncertainty (they do not render the purchaser’s consideration illusory. “It is only if the court is unable to put any definite meaning on the K that it can be said to be uncertain”: Meehan v Jones

Legal Relations

Domestic and social agreements are traditionally approached on the basis that the parties are presumed not to intend legal obligations: Jones v Padavatton; Cohen v Cohen

The presumption against a contractual intention will not apply where the spouses are not living together in amity at the time of the agreement: Balfour v Balfour

Commercial and professional agreements are traditionally approached on the basis that the parties are presumed to intend legal obligations: Ermogenous v Greek Orthodox Community of South Australia

Re: Gentlemen’s Agreements: It is illegal to attempt to oust the jurisdiction of the court. Yet, it is perfectly legitimate to say that the agreement is not a K. The line between these two can be very fine: Rose and Frank Co v JR Crompton & Bros Ltd

A letter of comfort is a document supplied by a third party to a creditor indicating a concern to ensure that a debtor meet his obligations to a creditor. Depending on the terms, such letters may be binding Ks, or informal assurances resting entirely on business goodwill: Banque Brussels Lambert SA v Australian National Industries Ltd

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There should be no room in the proper flow of commerce for some purgatory where statements made by businessmen, after hard bargaining and made to induce another business person to enter into a business transaction, would, without any express statement to that effect, reside in a twilight zone of merely honourable engagement: Banque Brussels Lambert SA v Australian National Industries Ltd

Miscellaneous Formation Rules

A K to K is not binding (well-settled law), but this was not a K to K - it was an agreement to negotiate in good faith (which, since vague, is difficult to enforce but valid): Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd

Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal K, the case may belong to any of three categories:” 1) The parties may have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect (common); 2) It may be that parties have completely agreed upon all the terms of their bargain and intend no departure or addition to that which their agreed terms express or imply, but nevertheless have made performance of one of more of the terms conditional upon the execution of a formal document (rare); 3) It may be that the intention of parties is not to make a concluded bargain at all, unless and until they execute a formal K. In Masters v Cameron, the judge held that “subject to K” suggested that the parties did not intend to be bound until K was completed (although not always the case when these words are used); “which shall be acceptable to my solicitors” suggests that an agreement may be made in the future (basis for future K), when lawyers find conditions acceptable, but no agreement now: Masters v Cameron

The formation of agreement will in many cases be inferred from the conduct of the parties: Empirnall Holdings

In determining the enforceability of a K in restraint of trade (ROT) the court will consider the fairness of the bargain having regard to whether the restrictions are both reasonably necessary for the protection of the legitimate interests of the promisee and commensurate with the benefits secured by the promisor: Schroeder Music Publishing Co v Macaulay

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Terms and Incorporation

Is the term a “mere representation?”: five subsidiary tests:

1. Words and conduct of the partiesThe importance of the term in the minds of the parties as indicated by words and conduct (Couchman v Hill).

2. Knowledge or expertise of the statement makerIf the party who made the statement is in a better position than the other party to ascertain the accuracy of the statement, it is probably a term (Oscar Chess Ltd v Williams).

3. Statement maker has control in relation to informationDick Bentley Productions Ltd v Harold Smith Ltd

4. Oral statement not reduced to writingIf the statement is made orally and it is not included when the K is reduced to writing, it is probably not a term. However, if a pre-printed standard form K is used then it may be argued that this signifies the written K was not intended to contain all the terms.

5. Interval of timeIf there is a long interval between the making of a statement and the conclusion of the K, it is probably not a term of the K (Routledge v McKay)

Collateral Contracts: In JJ Savage & Sons Pty Ltd v Blakney, the HC held that in order to establish a collateral K in respect of a statement of fact three elements must be established:

1. That the statement was intended to be relied on;2. Reliance by the party alleging the existence of a K;3. An intention, on the part of the maker of the statement, to guarantee its truth.

Conditions Necessary to Ground the Implication of a Term (BP Refinery Pty Ltd v Hastings Shire Council):

1. It must be reasonable and equitable;2. It must be necessary to give business efficacy to the K, so that no term will

be implied if the K is effective without it;3. It must be so obvious that it “goes without saying”;

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4. It must be capable of clear expression;5. It must not contradict any express term of the K.

In an exam, apply these five principles with reference to other cases which have relied on these principles (Codelfa).

Terms Implied by Custom (as per Con-Stan)

1. The existence of a custom or usage is a question of fact.2. The custom must be so well known that everyone making a K in that

situation can reasonably be presumed to have imported that term into the K.3. A term will not be implied into a K where it is contrary to the express terms

of the agreement.4. A person may be bound by a custom notwithstanding the fact that they had

no knowledge of it.5. In order to establish a custom, it is necessary to establish a clear course of

conduct. (For example, insurance companies do not look to the assured for payment of the premium.)

Terms can be implied by law (Liverpool City Council v Irwin), fact (BP; Codelfa – if written contract. Byrne – if not written), or custom (Con Stan Industries).Where there is ambiguity, surrounding circumstances can be used to give meaning to express words of K: Royal Botanic Gardens and Domain Trust v South Sydney City Council (Note: In this case, 5 HC judges expressly confirmed Codelfa)

Pacific Carriers v BNP Paribas: Construction should be determined by what a reasonable person in P’s position would have taken the letter/co-signing to mean. Court held that determining what a reasonable person in the position of P would believe requires consideration not only of the text of the document, but also of the surrounding circumstances. Court did not require ambiguity to look at surrounding circumstances (nor did the Court require ambiguity in Toll). A departure from Codelfa. In an exam, apply Codelfa but say, “notwithstanding what might be implied from the HC statement in Pacific, it is still necessary, in order for a court

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to consider surrounding circumstances, for there to be ambiguity in the terms of the K: Pacific Carriers v BNP Paribas

The parole evidence rule does apply where the parties K partly in writing and partly orally; where a statement is important in the minds of both parties, it is probably a term: Couchman v Hill

RE: whether puff or warranty: The general test is the intention of the parties, that is, did the maker of the statement intend to guarantee the truth of the statement? Objective test: What would a reasonable third person have understood the statement to mean? Oscar Chess

If the representation is made in the course of dealings for a K for the very purpose of inducing the other party to act on it, and it actually induces him to act by entering a K, that is prima facie grounds for inferring that the representation was intended to be a warranty. The maker of the representation can, however, prove otherwise if he can prove that it was really an innocent misrepresentation and that it would not be reasonable in the circumstances for him to be bound by it (as in Oscar where the D was innocent of fault): Dick Bentley Productions Ltd v Harold Smith Ltd

Although the court is reluctant to find that promises or warranties made in collateral contracts are made in consideration of the K (why wasn’t the promise reduced to writing?), where the representation is serious/central to the main K, the court will often find a willingness to be bound: Shepperd v Ryde Municipal Council

There must be intention on the part of the statement-maker to guarantee veracity of the statement; that is, for a statement to give rise to a collateral K, the statement must be made as a promise and must be intended to induce entry into the K: JJ Savage & Sons Pty Ltd v Blakney

The terms of the collateral K must be consistent with the terms of the main K; it cannot impinge on it, or alter its provisions or the rights created by it. This is known as Hoyt’s rule: Hoyt’s Pty Ltd v Spencer

To the extent that the parties have deliberately agreed to record any part of their K, that record stands unimpeachable: Hoyt’s Pty Ltd v Spencer

Time clauses are terms which are capable of only one kind of breach, namely to be late, and therefore cannot be an intermediate term: Bunge Corporatin New York v

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Tradax Export SA (although this logic has been questioned since one might argue that time clauses can be viewed as giving rise to minor and significant breaches)

A term is a condition if a party would not have entered into the K unless assured of a strict or at least a substantial compliance with the term: Associated Newspapers v Bancks (where successive breaches of a term led Bancks to claim that AN had repudiated the contract)

The relevant classification [of a term] depends upon the intention of the parties, ascertained objectively, at the time when the contract was made (Associated Newspapers Ltd v Bancks).

A term is a condition if it can be said that every breach of the term will give rise to an ‘event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the K’: Hong Kong Fir (adopted as good law in Koompahtoo)

Good faith does not mean that you must subvert your own interests to the interests of others: Burger King v Hungry Jacks

When a party signs a document, he or she is generally bound by its terms, regardless of whether they have read them or not: L’Estrange v Graucob

Parker’s Case (Guideline for ticket cases)

Did the person who received the ticket know that there was writing on the ticket? If yes, go to next question.

Did the person know that the ticket referred to terms? If yes, bound. If no, go to question three.

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Did the party relying on the terms do what was reasonable to bring notice of the existence of the terms sought to be incorporated to the other party’s attention?

Note: Thorton illustrates a refinement of Parker, from an analysis of the terms as a whole to consideration of particular terms.

In Causer, a docket was given when a dress was left for cleaning. Court held that ticket cases did not apply because the D had not proved that the document would reasonably be understood as stating the terms of the K: Causer v Browne

An automatic ticket machine is an offer, rather than an invitation to treat. Thus, the K is already concluded when the ticket came out of the machine (P accepts when they put money in machine), and so any condition on the ticket cannot be incorporated in the K: Thornton v Shoe Lane Parking Ltd

Where a term can be breached in various ways, some of which will have serious consequences, and others only minor effects on the performance of the contract, the term is not likely to be a condition: The Hansa Nord

Breach of an essential term or a breach going to the root of the K will discharge the surety from future liability if the surety elects to rescind for breach: Ankar Pty Ltd v National Westminster Finance (Australia) Ltd

A K entered into with the object of committing an illegal act will not be enforced: St. John Shipping Corps v Joseph Rank Ltd

For a term to be incorporated by a course of dealings, that course of dealings must have been regular and uniform. A party sought to be affected by an implied term need not have actual notice of it. It is enough if it was brought to his or her notice during prior negotiations/course of dealings: Hardwick Game Farms

A term will only be implied into a contract where the custom to be relied upon to show the implication of the term is so well known and agreed upon that all parties to the agreement would have agreed to its importation: Con-Stan

A term will only be implied into a class of K if the Court deems it necessary to prevent its efficacy from being “seriously undermined”: Byrne v Australian Airlines

The difference between implying a term because it is inherent in a class of K (implied term by law) and implying a term because it is necessary for the effective

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operation of the K is that an inherent term is universal (generic) to that class, whereas a term specific to a particular K’s effective operation is factual (specific): Byrne v Australian Airlines

Where the K is not in writing…caution is required against a rigid application of the criteria in BP because when you have a less formal K it is more likely that the parties did not turn their minds to all issues, and implied terms are more common (test is relaxed). Process to be applied to partly written or oral K? Must identify all express terms of a K, and then ask whether there are implied terms. Apply test offered by Gummow: Is it necessary to imply terms for the reasonable and effective operation of the K in the circumstance of the case? Obviousness? Byrne v Australian Airlines

When a contract has been entirely reduced to writing, extrinsic evidence is excluded except with respect to surrounding circumstances in which the contract was formed which are objectively known to both parties. Thus, not allowed to add to, contradict, or vary the terms of the contract: Codelfa

Time Conditions: Is Time of the Essence?

Where a K does not expressly specify the time at which an obligation is to be performed, a term will be implied requiring performance of the obligation within a reasonable time: Reid v Moreland Timber Co Ltd (cited in Canning v Temby)

What is a reasonable time will depend on the circumstances of the case, including the subject matter of the contract and the context in which it was made: Canning v Temby

In a K, unless time is expressly said to be of the essence, the innocent party cannot terminate the contract on the basis of a breached time clause. Must give notice: Conveyancing Act, s 13

Where a contract of sale of land contains a stipulation as to time which is not of the essence of the contract, and one party is in breach or guilty of unreasonable delay, the party not in default may give a notice fixing a reasonable date for completion and making that time the essence of the contract: Louinder v Leis

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You may give the promisor extra time to perform, without waiving your right to terminate: Tropical Traders Ltd v Goonan

Where a K does not expressly specify the time at which an obligation is to be performed, a term will be implied requiring performance of the obligation within a reasonable time. What is a reasonable time will depend on the circumstances of the case, including the subject matter of the K and the context in which it was made: Canning v Temby

Exclusion and Onerous Clauses

A clause cannot be incorporated into a K after it has been concluded, without reasonable notice beforehand. The more onerous the clause, the better the notice required to make it part of the contract: Thornton v Shoe Lane Parking Ltd

A ‘particularly onerous or unusual’ term must have special notice: Interphoto Picture Library Ltd v Stilletto Visual Programmes Ltd

Where a commercial party signs a contract, exclusion clauses, even if onerous, will be upheld by the court because it is expected that the party did or ought to have read and accepted the terms of the contract: Toll Pty Ltd v Alpha Pharm; Darlington

In Canada SS Lines Ltd v The King the PC restated the approach to exclusion of liability for negligence in three construction rules:

1. An express exclusion of liability must be given effect and is sufficient to exclude liability (285).

2. Where there is no express reference to negligence, the court must consider whether the words used are wide enough, with any doubt or ambiguity being resolved contra proferentem. Clauses excluding “all liability” are generally considered insufficient to exclude liability for negligence, but the addition of phrases like “howeverso caused” or “whatever its cause” has been treated as a sufficient indication. Still, not conclusive.

3. If the words used are wide enough to cover liability for the negligence it must be considered whether the “head of damage may be based on some ground other than negligence.” Must not be so fanciful or remote that the proferens cannot be supposed to have desired protection against it. Rule is controversial.

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Rules should not be taken too literally. There is dicta in recent Australian cases that suggests these rules are no longer valid (287).

In Care Park, D’s regular and frequent use of the car park meant that the terms and conditions were fully incorporated into the K (even though the terms were quite onerous): Care Park v Universal

If you undertake to do a thing in a certain way, or keep a thing in a certain place, with certain conditions protecting it, and have broken the contract by not doing the thing contracted for in the way contracted for, or not keeping the article in the place in which you have contracted to keep it, you cannot rely on the conditions which were only intended to protect you if you carried out the contract in the way in which you had contracted to do it: Scrutton LJ, Gibaud v Great Eastern Railway Co, cited in TNT

“Four corners rule”/“deviation rule” (separate but related concepts): Deviation rule initially applied to sea voyages, but Windeyer held that rule should now be applied more broadly to land voyages (routes). Four corners principle basically expands the deviation rule, applying the idea to Ks more generally, not just to routes. Applies when a party is carrying out a K in a way that deviates significantly from the way outlined in the K: TNT

As a matter of implication (by reading the K as a whole), it is clear that the parties intended that the exclusion clause would cover negligence because when you look at the nature of the transaction, it is highly unlikely that a bailer would agree to take on significant liability for a small sum of money. Risk disproportionate to amount paid and thus not reasonable to hold D liable for negligence: Davis v Pearce Parking Station

Diplock: In commercial Ks, entered into by professional businessmen, it is wrong to place a strained construction on ECs: Darlington Futures

A clause which restricts or partially excludes the liability of a party by limiting it to a specific sum is governed by the same rules as a total exclusion: Darlington Futures

The interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and where appropriate,

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construing the clause contra proferentem (against the person who seeks to rely on the EC) in case of ambiguity. Strained constructions ought to be avoided. The same principle applies to limitation clauses: Darlington Futures Ltd v Delco Australia

Performance (Partial and Substantial)

Despite recognizing that a professional does not undertake an unqualified obligation to produce the desired result (“The law does not usually imply a warranty that he will achieve the desired result, but only a term that he will use reasonable care and skill. The surgeon does not warrant that he will cure the patient. Nor does the solicitor warrant that he will win the case.”), the court held that the exchanges between the parties gave rise to an implied term that the warehouse would be constructed so as to satisfy its purpose. In other words, the engineers assumed an unqualified obligation to provide a suitable design: Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners

In relation to lump sum Ks, unless the contracting party performs the entire K, he is not entitled to recover. This rule has been undermined a bit by Hoenig v Isaacs: Cutter v Powell; Sumpter v Hedges

The buyer cannot refuse to pay if he proves only the breach of a term collateral to the main purpose of the K (Sale of Goods Act 1893); The price must be paid (subject to counter-claim) if there was substantial compliance with the K. It is not every breach of term which absolves the employer from their promise to pay the price, but only breach which goes to the root of the K: Hoenig v Isaacs

If the K has not been substantially completed, the Contractor cannot recover: Bolton v Mahadeva

Where a K has been substantially performed and the cost of replacement would be grossly out of proportion to the difference in value, the correct measure of damages is the difference in value: Jacob & Youngs Inc v Kent

Where a contract is severable, a promisor may be able to recover in respect of a severable part of the contract, notwithstanding a failure to discharge obligations under the contract: Government of Newfoundland v Newfoundland Railway Co

A party cannot claim exact performance is required when they have de facto accepted inexact performance: Steele v Tardiani

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In Luna, Jordon CJ distinguished between conditions which require strict compliance and terms which require substantial compliance. “Jordan Test” for whether a term is a condition: “If the innocent party would not have entered into the K unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight. If he contracted in reliance upon a substantial performance of the promise, any substantial breach will ordinarily justify a discharge”: Tramways v Luna

Repudiation

Test for whether repudiation warranted: Does the occurrence of the breach deprive the party who has further undertakings still to perform substantially the whole benefit which it was the intention of the parties as expressed in the K that he should obtain as the consideration for performing these undertakings? In other words, if there is a breach which goes to the root of the K, the other party may consider they are discharged: Hong Kong Fir

If by words or conduct the promisor evinces that it is not ready and willing or will not, at the appointed time, be ready and willing to perform, the law treats the promisee as possessing a right to terminate the performance of the K under the doctrine of repudiation, provided that the absence of readiness and willingness satisfies the requirement of seriousness

Where one party repudiates the other party has an option. They may accept and sue for damages for breach, whether or not time for performance has come. Or they may disregard the repudiation and contract remains in full effect. In most cases the innocent party cannot complete the contract without the other party's cooperation. Even where possible, it is contrary to public interest to allow it. To do so would merely allow the party to extort a greater payment [like expert preparing a report which the party commissioning has stated is unnecessary]. But there is no requirement that a contract be enforced only in a reasonable way. Thus, it is impossible to say that the party should be deprived of their right to complete and claim the contract price: White & Carter Councils Ltd v McGregor

Repudiation may occur where a promisor merely refuses to perform in accordance with the K: Associated Newspaper v Bancks).

The court will not lightly find an absence of readiness and willingness. If you repudiate for the wrong reasons, but then subsequently find valid reasons to support your claim, and the court will allow you to terminate: Rawson v Hobbs

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Where promisor’s inability to perform results from words or conduct, the promisee need not prove that the promisor was in fact not able to perform. In the case of factual inability to perform the position is different since the promisee must prove that the promisor was in fact “wholly and finally disabled” from performing.Not every indication that a party is unwilling or unable to perform his or her obligation under the K will amount to a repudiation of the K. There will be a repudiation if the absence of willingness or ability to perform relates to a condition or essential term of the contract: Federal Commerce & Navigation CO Ltd v Molena Alpha Ltd

The test for repudiation is whether or not the party’s words or conduct would lead a reasonable person to conclude that the party did not intend or was unable to perform the contract: Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd

Either unwillingness or inability to perform will suffice to constitute repudiation. Thus, repudiation may be shown where a party, although genuinely willing, is unable to perform: Universal Cargo Carriers Corp v Citati

In order to claim anticipatory repudiation, the innocent party must not be substantially incapable of being ready, willing, and able to perform. At the time when performance comes due, in order for the innocent party to claim repudiation and terminate on that basis, they must be ready, willing, and able to perform: Foran v Wight

Privity

Only persons who are parties to a contract may enforce benefits or be subject to burdens arising under it. Only parties can sue to enforce it: Coulls v Bagot’s; Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd

There is a limited exception to the doctrine of privity in the context of an insurance K. Third-party beneficiaries may uphold a promise made for their benefit in a K of insurance to which they are not a party?: Trident (3 of 5 judges thought this statement was true, while two others in the majority found for P on basis of trust and unjust enrichment)

Where A contracts with B for C’s sake, though C cannot sue B for breach of obligation, A can recover damages in respect of loss to C. Moreover, where equitable remedy of specific performance is available, A may obtain it in favour of C: Beswick v Beswick

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“Lord Reid test” outlines agency as a possible way to circumvent the PD (although agency not found in this case): Scruttons Ltd v Midland Silicones Ltd

Lord Reid test applied in New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd (‘The Eurymedon’) to limit stevedores’ liability (unilateral contract, consideration is the protection of the EC)

Termination and Breach

Termination is not automatic. If termination arises via breach or repudiation, the innocent party must elect to terminate.

If the promisee elects to terminate, they can do so straight away. They do not need to give the promisor an opportunity to perform. (White & Carter Councils v McGregor)

Election requires unequivocal words or conduct at CL. An election must be communicated to the other party. The right to terminate is lost once you elect to affirm the K. (If you are faced

with a serious breach of a condition, you have a right to terminate or affirm. Once you exercise an option, you are bound to it. You cannot change your mind. If there is a further significant breach, you can still terminate. Election to continue does not waive right to damages.)

In order to make an election to terminate, you have to have knowledge of the facts giving rise to a right to terminate. (Note: You don’t have to prove they had knowledge of their right to terminate.)

Election is a question of fact, not law. You may give the promisor extra time to perform, without waiving your

right to terminate. (Tropical Traders Ltd v Goonan) Election is final.

When you are confronted with a breach of contract/wrongful termination you are required to try and mitigate your loss: White & Carter Councils Ltd v McGregor

Rights and obligations survive the termination of the contract if they are unconditionally accrued. An obligation will accrue when an innocent party has done whatever they agreed to do to earn it. Generally, deposits are an exception to this rule: McDonald v Dennys Lascelles Ltd.

Estoppel

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A representation to found an estoppel must be clear: Legione and Hately

The established doctrine of estoppel by representation is confined to representation of fact and does not extend to representations of intention as to the future: Jorden v Money

Mason CJ and Wilson J ruling in Waltons: The element of urgency that pervaded the negotiation in terms of the proposed lease is relevant (because M would not have proceeded if implied K did not require completion of construction by January). The second factor of importance is that M’s lawyer gave counterpart deed to W’s lawyer in November and M made an assumption thereafter that completion was simply a formality. Thus, A under the obligation to communicate intention to the R within a reasonable time of receiving the deed, and certainly when they learned that M was proceeding with demolition. W’s action constituted clear encouragement to the R to continuing relying on the assumption. Unconscionable: Waltons

Brennan J (Waltons) held that “equitable estoppel” arises where:

(a) P assumed a particular legal relationship existed between the parties (or expected that it would exist) from which the D is not free to withdraw;

(b) D has induced that assumption in P;

(c) P acts (or abstains from acting) in reliance on the assumption;

(d) D knew or intended him to so act;

(e) P’s action/inaction will cause him/her detriment if the assumption is not fulfilled

(f) D has failed to act to avoid that detriment (eg, by fulfilling expectation)

To constitute unconscionable conduct, there needs to be more than a simple departure from basic assumptions underlying a voluntary promise. HE says this may be found, if at all, in the creation or encouragement by the party estopped in the other party of an assumption that a K will come into existence or that a promise will be performed and that the other party relied on that assumption to his detriment to the knowledge of the first party: Humphrey’s Estate

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For equitable estoppel to operate there must be the creation or encouragement by the D in the P of an assumption that a K will come into existence or a promise be performed, and reliance on that by the P, in circumstances where departure from the assumption by the D would be unconscionable: Austotel v Franklins

Unless the specific terms are in place and there is a meeting of the minds on terms, estoppel cannot give rise to a binding agreement: Austotel v Franklins

In estoppel, the remedy that will be granted is the “minimum equity to do justice”: Giumelli v Giumelli

Frustration

Ks can be frustrated where performance has become impossible. In Taylor v Caldwell, Blackburn J reasoned that the continued existence of the Music Hall in Surrey Gardens was an implied condition essential for the fulfilment of the K. The destruction of the music hall was the fault of neither party, and rendered the performance of the K by either party impossible: Taylor v Caldwell

Frustration of purpose (eg Non-occurrence of an event which is the basis of the K): Krell v Henry

Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do: Davis Contractor Ltd v Fareham UDC; Codelfa

The mere fact that performance has become more onerous is not enough to frustrate the contract. Frustration occurs only where the supervening event is such that the substance of the obligation, considered as a whole, cannot be performed or the event has effected such a change in the significance of the obligation that what has been undertaken would, if performed, be a different thing from that contracted for: Davis Contractor Ltd v Fareham UDC

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If some supervening event impacts on the parties’ performance in a particular way, the contract might be frustrated: Krell v Henry

The risk of the frustrating event must not have been provided for by the parties in their contract: Codelfa

Frustration will not be recognized where the frustrating event should have been reasonably foreseeable: Davis Contractor v Fareham

Frustration will not be recognized where the frustrating event occurred by the fault of a party to the contract: Bank Line Ltd v Arthur Capel & Co

A contract will not be deemed frustrated where frustration is self-induced: Maritime National Fish Ltd v Ocean Trawlers Ltd; Super Servant Two

Where the performance of a contract has begun, but further performance of a contract becomes impossible due to events unanticipated by the parties and beyond their control, the contract fails for lack of consideration, and any partial payment by the buyer is refundable. The mere fact that a contract has been frustrated does not mean that a party who had received no effect of the contract cannot recover: Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd (adopted into Australian law in Baltic Shipping Co v Dillon (The Mikhail Lermontov)

Effect of Frustration

1. K stops automatically at point where frustration occurred.2. Future obligations unenforceable.3. Unconditionally accrued rights remain on foot.4. Right to damages survives if breach occurs prior to frustration. (But

remember that frustration does not result from breach so parties might not be able to sue, because there might not be a breach.)

Restitution

Underlying principle of restitution is unjust enrichment (the law intervening to prevent one party from being unjustly enriched by the other).

Where a party is seeking restitution for partial performance of the K: Authority at CL is that restitution is not available to parties who have partially performed.

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Where a party seeks to recover money that they have already paid under the K: Must consider intention of the parties to the K (construction). Also, total failure of consideration?

“There is a failure of consideration if a promisor does not receive the performance (agreed) which was promised as the price of (in return for) a money payment made by the promisor.”

The Frustrated Ks Act 1978 (NSW) replaces the CL in NSW in relation to Ks covered by it. It provides a series of fixed rules for the adjustment of the parties’ rights. Students are not expected to master the intricacies of the adjustments in ss 9-11.

Under CL principles, P needs to show total failure of consideration before they can recover money through restitution. So where a P has gotten some benefit, no matter how small, they cannot recover.

Inability to recover for partial performance. These are two problems that the FCA attempts to address. The aim of the

Act is to distribute the loss amongst the parties. For example, regarding partial performance there is a formula outlined in the Act.

Miscellaneous

Referrability: There must be some connection between a promise which is sought to be enforced and the consideration which is alleged to support the promise. Although it is not necessary for consideration to be the only inducement for a promise, it is necessary that it was an inducement.

Note or Memorandum 9-13 (To satisfy requirement that K, or elements of K, must be written)

What kinds of information must be contained in the document?

Must contain all the terms of the K, or at least all of the “essential terms.” All parties to the K must be identified. Must state consideration for the promise sought to be enforced. Must sufficiently describe the subject matter of the K (188).

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Written proof may be found in several documents (joinder of documents) Harvey v Edwards Dunlop & Co Ltd is the case you cite for joinder of

documents.

Re: statute of frauds: If a person does acts for the benefit of another in performance of a K that is unenforceable by reason of statute, and the other accepts the benefits of said acts, an action in restitution (unjust enrichment) to obtain reasonable remuneration will be available: Pavey & Matthews v Paul

No term can be enforced where a contract has been rescinded (as opposed to where terms can continue to govern as in the case of termination): Heyman v Darwins

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