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LAW7428 Principles of Contract Law A Lecturer – Jason Harkess SAMPLE REVISION NOTES Note: These revision notes were prepared by Jason Harkess for the purposes of summarising most (but not all) legal principles of contract law covered in LAW2101 Contract A for Semester 1, 2009. They should not be regarded as a substitute for students reading and understanding the relevant materials/cases referred to in the Reading & Unit Guide. Moreover, these revision notes are five years old (i.e. they do not take into account any legislation passed or case law decided since 2009). The revision notes are provided merely as an example of how students might go about preparing revision notes for this unit.

IS THERE A CONTRACT? Note the 2 possible contract types:  Bilateral (A and B exchange promises to be performed in future - most common type of contract);  Unilateral (A promises B that A will do X if B performs Y – B’s performance of Y is acceptance). Agreement  Conventional approach: o identify “offer” and “acceptance” (Gibson v Manchester City Council) o but this can yield different results (Barwick CJ vs. Stephen J in MacRobertson (ticket case):  “Offer”: o Definition – indication by one person to another of his/her willingness to enter into a contract with that other on certain terms (Carter, Peden & Tolhurst) o Determined objectively - reasonable person (Carlill v Carbolic Smoke Ball Company) o Cf. “invitation to treat”:  not an “offer” capable of being accepted (statements that precede “offer”)  Boots Cash (goods displayed in shop not “offers” to sell)  McWhirter (Auctioneer merely “invites” bids)  Special case of tenders:  Harvela (fixed price tender going to highest bidder = offer, and highest tender = acceptance);  Blackpool and Hughes Aircraft (tender process contract obliging fair consideration of the tender which may lead to tender being accepted) o Termination of offer:  Withdrawal/revocation by offeror:  any time before acceptance (Financings Ltd v Stimson);  but not for option agreements (Goldsborough Mort);  Lapse:  after time specified in offer or after reasonable time;  after death of offeror and before acceptance (Fong v Cilli);  Condition not satisfied in “conditional offer”:  express condition not satisfied;  implied condition not satisfied (Stimson; Neill v Hewens);  “acceptance” futile in such circumstances.

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Rejection by offeree:  “kills” the offer;  counter-offer = rejection of original offer;  cf. mere inquiry by offeree about the offer (does not kill offer); Special case of unilateral contracts:  No firm rule that offeror must keep offer open after offeree starts performing (Mobil v Wellcome)  but it may be unjust to allow offeror to revoke (see circumstances listed in Mobil); o if unjust, specific court order that offeror keep offer open?

“Acceptance”: o Definition – unqualified assent to terms of offer o Determined objectively – reasonable person test (Toll v Alphapharm):  outward manisfestations of offeree’s conduct (Taylor v Johnson);  signing a document = objective manifestation of acceptance ( Fitness First v Chong)  subjective state of mind as to what is being agreed irrelevant (Smith v Hughes; Fitness First);  but note:  equity may intervene if one party mistaken and other party knew (Taylor v Johnson);  acceptance must be made in (subjective) response to offer (Crown v Clarke). o Communication of acceptance:  Acceptance communicated to offeror = binding contract formed.  Acceptance effected when and where communication received by offeror (Latec Finance v Knight; Felthouse v Bindley; Brinkibon).  Silence not good enough to consititute acceptance (Felthouse)  Exceptions:  Unilateral contracts (performance = acceptance) (Carlill);  Postal rule (posting = acceptance);  Parties expressly/impliedly contemplate actual communication not necessary – but need clear language to support this (Latec)  acceptance inferred from conduct – silence and other circumstances (Empirnall);  Method of communication:  Instantaneous communication most effective - oral or in writing;  Postal rule exception (not instantaneous communication, but acceptence effected as soon as posted) but note: o parties must contemplate post as a possible or permitted mode of communication (Tallerman; Bressan v Squires); o no analagous telex, fax or email rules (Brinkibon; Reese Bros Plastic; Electronic Transactions Act 2000 (Vic)); Correspondence between offer and acceptance: o Offeree must accept or reject terms of offer (can’t add to or vary them, which would be counter-offer) o “Battle of forms” scenarios (Butler Machine Tool):  Conventional analysis (Lawton LJ - majority) – whoever makes last “offer” has their terms prevail;  Synthesis approach (Lord Denning - minority) – look at all documents and parties’ conduct to see if there is agreement on all material points. Agreement without “offer” and “acceptance”: o If conventional approach cannot be applied or not helpful, consider (Brambles Holdings):  all the circumstances to see whether an agreement be inferred;  whether there mutual assent manifested;  a reasonable person’s on whether there’s a concluded bargain.

Consideration  Basic definition: o price paid by promisee for promisor’s promise (Beaton v McDivett) o something of value moving from the promisee  2 elements – “benefit/detriment” and “bargain”

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“Bargain” requirement:  price agreed by promisee must be in return for the promise (Australian Woolen Mills);  referred to as the quid pro quo requirement (“this for that”) (Beaton v McDivett). o “Benefit/detriment” requirement:  benefit to promisor or detriment to promisee (in practice, there is usually both);  must be something of appreciable value or significance ( Ballantyne – judges disagreed on application of this principle to facts; Beaton v McDivett (Kirby P vs. McHugh JA));  consideration needs to be sufficient but not adequate (Woolworths v Kelly; Thomas v Thomas) Past consideration: o General rule: something of value given before promisor makes promise is not good consideration for the promise (Roscorla v Thomas); o Exception: promise to pay for past services (Lampleigh v Brathwait; Ipex v Hosking). Existing legal duty rule: o Promise to perform existing legal duty is not good consideration:  Stilk v Myric (sailor’s promise to continue voyage for more money when already contractually bound to do so is not good consideration);  Foakes v Beer (judgment debtor’s promise to pay part of debt when already legally obliged to pay the full amount by court order is not good consideration). o Exceptions:  fresh consideration given in return for other party modifying pre-existing contractual obligation (Hartley v Ponsonby – sailors promising to do something more than was originally agreed);  party promising to perform existing duty confers practical benefit on other party (Williams v Roffey Bros 6-stage test; Musumeci – NSW judge modifies Williams v Roffey; Re Selective – English CA refusing to extend Williams v Roffey to promises to pay a pre-existing debt);  promise to perform existing legal duty is made to a third party (Pao On – such a promise creates a direct obligation enforceable by that third party);  promise to perform existing legal duty = bona fide compromise of legal dispute (Wigan v Edwards);  parties agree to terminate original contract and replace it with a new one. o

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Intention to create legal relations  Intention approached objectively (Ermogenous): o requires objective assessment of state of affairs between the parties – subject matter of contract, status of parties, their relationship, other surrounding circumstances ( Ermogenous) o circumstances suggesting there is an intention include: importance of subject matter, comprehensiveness of documents involved, time and commitment involved, business-like context, signficance of fees/costs paid, parties at arms length ( Shahid in context of student/academic institution relationship); o intention is probably obvious where money has been paid in consideration for a promise to provide a service/confer a benefit (Shahid) o uncommunicated subjective motives/intentions of parties not relevant (Ermogenous); o but subjective intention may be relevant if it is the same as the other party’s or the other party is aware of it (Air Great Lakes v KS Easter).  Presumptions: o Traditional approach to the “intention to create legal relations” issue:  commercial agreements:  intention presumed (Banque Brussels v ANI);  but presumption can be rebutted (e.g. Kleinwort Benson v Malaysia Mining Corp);  agreements between family members:  presumption against intention (Balfour v Balfour);:  but presumption can be rebutted having regard to circumstances of the case (Salmon LJ in Jones v Padavatton; Todd v Nicol);  and where the arrangement is commercial, rather than social/domestic, intention is readily inferred (Roufos v Brewster)

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 agreements in other contexts – no presumption one way or the other. Usefulness of presumptions questioned in Ermogenous (employment agreement between church organisation and bishop):  every case must be determined on its own facts;  ultimately, party seeking to enforce contract bears onus of establishing intention;  but Ermogenous did not abolish presumptions altogether (it was not a case about commercial or family agreements so the old “presumption” cases with these sorts of contract remain persuasive authorities in determining the issue of intention); Special case of government agreements: o Government entities are primarily political beasts, not commercial ones - but can enter into contracts too. o A “promise” made by government may not be intended to have contractual significance because it is merely a statement of government policy (Leahy); o But the language used and commercial character of an agreement between government and another party can suggest there was an intention to create contractual relations, just like any other contract (Windeyer J in Placer Developments). Special case of Preliminary Agreements: o Definition – parties enter into preliminary agreement with intention to record it more formally and fully in future (issue if one party wants to withdraw before final agreement concluded). o Three categories of preliminary agreement (Masters v Cameron):  Cat 1: parties reach finality on all terms and intend to be immediately bound – formal agreement simply a restatement and makes no difference (intention established);  Cat 2: parties reach agreement on all terms, but make performance of term(s) conditional upon execution of a formal document (intention established – parties bound to bring about formal document);  Cat 3: parties reach agreement on major terms, but contemplate others may arise in formal document, and ultimately contemplate either party may withdraw (no intention to make concluded bargain) (e.g. “subject to contract” or “subject to preparation of contract” prima facie falls into this category) o Cat 4: parties intend to be immediately bound by preliminary agreement but expect a further contract to be made in substitution of the preliminary one – intention established (Baulkham Hills Private Hospital v GR Securities). o Ultimately which category the facts fall into depends on the parties’ intention as disclosed by the language they have used (Masters v Cameron). o

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Certainty  Agreement must be sufficiently certain and complete: o agreement reached on all essential terms (completeness); o these terms must be certain and clear in meaning (certainty); o and can’t be illusory (i.e., can’t be completely discretionary) o but note that courts will sometimes fill a gap (see implied terms below)  Completeness: o Parties must agree on everything essential to make contract commercially workable – otherwise no enforceable contract :  parties, subject matter and price typically are essential terms (but not always – e.g. “reasonable price” will be implied for goods under s 13, Goods Act 1958 (Vic))  must look at nature of contract and circumstances of case to determine which terms are critical/essential (ANZ v Frost Holdings);  courts won’t fill essential term gaps where transaction is very complex (Milne v A-G); o Agreements to agree:  If parties expressly agree to defer agreement on essential term, contract unenforceable even if court could have implied a term (e.g. price to be agreed – May and Butcher v The King);  Exceptions:

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Parties have partly performed the contract – courts less inclined to declare that there is no contract if parties have acted on the assumption that there is (Foley v Classique Coaches) Parties provide effective mechanism/machinery for supplying the essential term if they fail to agree – but if the machinery fails, contract is void (George v Roach; s 14, Goods Act 1958(Vic)); Parties may agree on a formula for settling an essential term in event of a dispute;

 Certainty of meaning: o an essential term so vague and imprecise may render contract void for uncertainty: o but narrow/pedantic approach to interpreting a term is to be avoided, especially in commercial transactions (Upper Hunter Council v Australian Chilling & Freezing Co – meaning of “supplier’s costs” can be worked out by courts if parties can’t agree); o where parties expressly agree to “reasonable”, “fair” or “fair and equitable” terms, etc:  these are inherently uncertain;  must show ascertainable term(s) that are in common use (Whitlock v Brew);  or, if essential term is price or value, must show an external standard that could fix it (Hall v Busst; Biotech v Pace);  otherwise contract void for uncertainty o express terms to “negotiate in good faith” or to “mediate” can be sufficiently certain to be enforceable (Coal Cliff Colieries; Aiton Australia). Illusory promises: o Promisor who has unfettered discretion in relation to performance of promise means there is no contract (Placer Developments; Biotech v Pace); o But note the following:  this principle does not apply where the discretion relates to the fulfilment of a condition upon which performance of the contract depends (Gibbs CJ in Meehan v Jones);  what would seem to be an unfettered discretion (e.g. contract subject to purchaser obtaining “satisfactory” finance) may not be an absolute discretion – purchaser obliged to act honestly or honestly and reasonably (Mason J in Meehan Jones);  an express term giving one party a discretion to add further terms is not illusory because the courts would impose a requirement that the terms be “reasonable” ( Godecke)  implied term of good faith would also restrict any discretionary contractual power (see implied terms below) Consequences of uncertainty: o Agreement is void:  Courts reluctant to make such an order of if parties have partly performed – more likely to try and imply a term to fill gap (see below);  Client may also not want contract to be declared void!; o Ineffective term could instead be severed or waived (especially if not an essential term).

Formalities  Common law does not require contracts to be in writing (so this part of course only relates to the few exceptions).  Instruments Act 1958, s 126 (Victoria’s successor to Statute of Frauds) – contracts of guarantee (but not indemnity) and contracts for sale or disposition of land are unenforceable unless: o agreeement in writing, or memorandum or note of agreement in writing; and o agreement/memorandum/note is signed by party to be charged (sued).  Contracts of guarantee: o Definition in statute – “a special promise to answer for the debt, default or miscarriage of another person” (this is not a contract of indemnity – see Yeoman Credit v Latter as to the distinction); o Guarantee = promise to pay another person’s debt if that person defaults (guarantor’s liability contingent on existence of principal debtor’s liability). o Indemnity = promise to ensure a person suffers no loss arising out of a transaction (indemnifier’s liability is primary, not secondary to debtor’s).  Contracts for sale or disposition of land:

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5 issues arise with “memorandum or note” requirement:  How much detail must a document contain?  at least all the essential terms – the parties, subject matter, price, etc, depending on the nature of the contract (Pirie v Saunders)  When must the document come into existence?  ordinarily after the agreement is made (earlier note may simply indicate probability that agreement was made).  exception: – written offer subsequently accepted verbally (the written offer embodies the terms of the agreement)  Must it be a single document or can separate documents be read together?  Joinder of documents permitted: o if documents are physically connected or one document refers to another document (e.g., “We refer to your letter of 23 April 2009…”). o if unclear whether a document refers to another document, oral evidence can be given to resolve any doubt (Tonitto v Bassal).  When is a document taken to be “signed”?  Must be “signed by the party to be charged” (i.e. the defendant).  “Signature” is liberally interpreted – printed name of party on document can be “authenticated”/ recognised by the party as the final record of the contract.  Electronic Transactions (Victoria) Act 2000, s 9.  Is a document in electronic form (e.g. email) good enough?  Section 126 states its requirements “may be met in accordance with the Electronic Transactions (Victoria) Act 2000”. Non-compliance with formality requirements: o Contract is not void – just can’t enforce it in law by way of court action. o Party could instead enforce equitable rights:  Part-performance – can seek court order for specific peformance (i.e. court orders that the parties specifically perform obligations under the contract, namely transfer the land) if party has wholly/partly acts on the agreement (Ogilvie v Ryan):  Narrow test – acts relied on as constituting “performance” must be unequivocally and in their own nature referable to the agreement ( Maddison v Alderson – adopted by NSW Supreme Court in Ogilvie).  Broad test – acts relied on pointed on balances pointed to some contract and were consistent with it (Steadman v Steadman (HL) – rejected in Ogilvie).  Constructive trust (Ogilvie).  Estoppel (see below) o

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WHO CAN SUE FOR BREACH OF CONTRACT? Privity  Common law doctrine of privity (Coulls): o a person who is not a party to a contract:  cannot enforce it;  cannot incur obligations under it.Consequences of uncertainty.  Privity usually an issue of a contract between A and B confers benefit on C (a third party), and C wants to enforce that benefit.  C would have to get B to sue A. B would see an order of specific performance (obliging A to confer the benefit on C). Circumventing privity doctrine  Parliament could simply legislate to fix the problem (e.g. NZ has effectively abolished the privity doctrine).  Alternatively, the common law can: o create “exceptions” to the rule:

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in relation to insurance contracts between A (Insurer) and B (Assured) which confer benefit of insurance on C (a company working for B) – C can enforce the beneift of insurance (Trident General Insurance vMcNiece Bros);  in relation to promise made by A to B to provide financial support to C – C can enforce the promise (Gate Gourmet); o analyse the various parties’ relationships so that C is recognised as a party to the contract – B entered into the contract with A on behalf of both B and C (Barwick CJ’s 4-stage test in The New York Star) The law may provide other causes of action for the aggrieved party (not based in contract law): o unjust enrichment (Gaudron J in Trident); o law of trusts (Deane J in Trident); o tort of negligence o estoppel (if a representation is made leading to deterimental reliance); o statutory rights of action (e.g. misleading and deceptive conduct) 

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IF CONTRACT NOT LEGALLY ENFORCEABLE – ESTOPPEL? Estoppel – important points  Esto...