Contracts Scaffolds

Agreement
Offer – expression of willingness to be bound immediately on certain terms w/o further negs
(AWM)

Acceptance – unqualified assent to the terms of offer

IS IT AN OFFER?

Objective test for an offer: whether reasonable person would construe it as one (Carbolic
Smoke Ball)
1. NO- Is it an invitation to treat? (Boots Cash Chemist)
- Display of goods in a shop are not offers, invitation to treat. Contract occurs when
customer offers to buy at counter and is accepted by salesperson

2. Is it a unilateral offer? - party makes offer to anyone who performs specific conditions
- Promise in return for performance of an act, offer is accepted by those who fulfil
conditions (Carlill)
- Tickets are written offers open for acceptance through subsequent actions (MacRobertson
Miller Airline)

3. Is it a bilateral offer? - promise in return for another promise

4. Can the offer be revoked?

Can be revoked before acceptance (Dickinson)

- A contract with consideration can’t be revoked (Goldsborough)

- Revocation need not be expressed, but offeree must have knowledge of revocation
(Dickinson)
- Unilateral offer can be revoked if not fully performed (Mobil Oil)

HAS THE OFFER BEEN ACCEPTED?

Knowledge of the offer is required, performance needs to be in pursuance of or on reliance upon
the offer (R v Clarke)

- Silence is not acceptance (Felthouse v Bindley)

1. If not express acceptance:
a. Acceptance through conduct?
i. If party takes the benefit of another, this is acceptance (Empirnall)
ii. Express O+A not needed for binding K, can b conduct (Brambles)
2. Does acceptance correspond to the offer? (Butler Machine Tool)
a. Depature from offer is a counter offer which kills the prev one, party has to
accept/reject this
b. Battle of forms according to the last one sent
3. What is the form of communication of acceptance?
a. Postal acceptance rule – as soon as posted (Brinkinbon)
b. Instantaneous messaging - as soon as received (Brinkibon) + Electronic
Transactions Act

Certainty
When language is so obscure, incapable of being given precise meaning (Aus Chilling and
Freezing)

- If language is ambiguous/vague, it becomes sufficiently certain if can give meaning to it

(Aus Chilling and Freezing)
- Is the K certain of: parties involved, subject matter and price? (Hall v Busst)
- K can’t refer to standards that don’t exist, this is uncertain (Whitlock v Brew)
- K to neg in good faith is binding if promise isn’t too vague (Coal Cliff)

Are terms left to third parties?

- K can leave terms to one party to decide, but they can only add objectievely reasonable
ones (Godecke v Kirwan)

Is the promise illusory? - party has too much discretion as to whether they will fulfil promise,
fails for uncertainty (Placer Development)

- Performance isn’t unfettered when it is subject to limitations and party acts

honestly/reasonably (Meehan v Jones)
If void for uncertainty, can the term be severed?

- Would parties have entered into the K without the term? (Whitlock v Brew)

Consideration
An act, forebearance or promise by the promisee as the agreed price for the promise

In unilateral – consideration is performance of the act (Carlill)

In bilateral – consideration is the promise itself

Is there consideration given by the promisee in exchange for the promise?

- Consideration is a quid pro quo (AWM)
- Must be of value in law (anything stipulated by promisor) (Chappell)
- Doesn’t have to be proportionate to promise, just adequate (Woolworths v Kelly)
1. Is it past consideration?
- Past consideration is no consideration (Roscorla v Thomas)
- Performing existing legal duty isn’t good consideration for new agreement (Foakes v
Beer)

Does the promisor gain practice benefit or obviate a disbenefit from continuation of the
relo? (Willaims v Roffey)

- YES – then sufficient consideration (Musumeci)

Is there a bona fide compromise of a legal claim?

- Forebearance to sue is good consideration

- Promise to perofrm existing legal duty is good consideration when it is part of a bona fide
compromise (Wigan v Edwards)

Intention to Create Legal Relations

Have parties expressed ITCLR?

Modern approach: objective assessment of state of affairs between parties (Ermogenous)

1. Subject matter of agreement

2. Status of parties
3. Relationship of parties
 4. Context of agreement
a. Commercial – presumption, courts will enforce when there is no clear indication
that it was NOT intended to be binding (Banque)
b. Domestic, no presumption unless evidence that objectively indicates intention
(Todd v Nichol)
c. Gov, no presumption (AWM)

Is a preliminary agreement enforceable? (Masters v Cameron)

1. Parties intend to be bound immediately, but restating terms in a more precise form
(BINDING), parties immediately bound
2. Parties have agreed on all terms but have made performance conditional upon
executing formal doc (BINDING)
3. Parties don’t intend to make binding agreement at all unless they execute formal K (NOT
BINDING) - “subject to formal contract” usually in here
a. Missing essential terms, language indicates possibility of modifying terms

Formalities
Is there a formality requirement for K to be enforceable?

- Conveyancing Act
o S54A (1)– K involving land must be in writing and signed
o S54A(4) can also be electronically
- Electronic Transaction Act
o S7 – valid if partly or wholly via electronic communications
o S8 – if someone needs to give info in writing, this is sufficient electronically
o S9 if signature required, electronic is ok if specified/consented to and is
appropriate/reliable

Is it in writing and signed?

- Memorandum must include all essential terms, and documents are sufficiently connected
if they refer to another (Harvey v Edwards)
- Memorandum can be made before or after the contract, and signature not required (Pirie
v Saunders)

If the writing requirement isn’t satisfied, has there been part performance? - where P has
carried out contract, relying on D’s promise (equity can enforce the K despite no formalities)
 - Test for part performance: whether act is unequivocally referable to the alleged K for
interest in land, can’t be any other plausible explanation for these acts (Ogilvie v Ryan)
- Mere payment is equivocal (open to more than one interpretation ), can’t be sufficient for
part performance of itself (Pipikos v Trayans)

If formalities not met, can they bring a claim in restitution (quantum meruit)? - equitable
remedy that provides restitution for unjust enrichment

- When someone has performed under an unenforceable contract

- Can obtain damages on a quantum meruit basis if a party accepted the benefit of the
other’s performance (Pavey & Matthews)

Estoppel
Where a party has relied on a promise made to the extent that it would be unconscionable for the
maker to go back on it. Can be used to enforce a contract.

By rep: where party acts on a representation and it is detrimental if the representor denies this is
true. (Jorden v Money)

- Equitable estoppel as a shield – clear rep that one party will not exercise legal rights is
binding if relied on to a party’s detriment (Legione)
- As a sword (obtain smth) - when promisor has made a promise about future conduct to a
promisee (Walton Stores)

If no enforceable contract, does estoppel arise? (Crown v Cosmo)

TEST FOR EQUITABLE ESTOPPEL (Walton Stores): Mason CJ – see other scaffold for
Brennan J test

1. Promissor must make promise

2. Party A created in the mind of B the assumption that it had/will enter into a
contract
a. Factually, what language indicates this

3. B acted/abstained from acting in reliance on that assumption and will suffer

detriment if A deserts that assumption.
a. Is acting upon the assumption reasonable? (Crown v Cosmo)
 i. If rep is ambiguous, then is the assumption “reasonably attributed to the
rep’ (Cosmo)
b. Test of detriment: whether it is unjust that representor should be resile from their
rep having regard to what representee has done in reliance of it. (Detriment at the
time of resile) - (Je Maintiendrai)

4. In the circumstances, is it unconscionable for A to depart from the assumption

(Austotel v Franklins)
a. Unconscionable if A knew or intended for B to act on the assumption (Walton
Stores)

Terms
Are there any express terms arising from pre-contractual oral statements?
1. Is statement promissory or mere representation
- Test for a term: would a reasonable person in the position of the hearer interpret the
maker as guaranteeing truth (Couchman v Hill)
- Take into account the expertise of parties in determining whether they are guaranteeing
truth (Oscar Chess)
- If representation induces the other party to act on it, this is grounds for inferring it as a
term (Dick Bentley)

Or mere puff (Carlill)

If representation --> not a binding contract

2. If promissory, does the statement give rise to a collateral K? (promise to enter into a
contract, consideration being entering the main contract) JJ Savage

Test to establish collateral K (JJ Savage):

1. Statement must have been intended to be relied upon

2. The party relies on it
3. Maker of statement intends to guarantee truth
- But unenforceable if contains term inconsistent with main K (Hoyts)
- Statement must be precise enough to found collateral K, if not, then could claim estoppel
(Crown v Cosmo)
 3. If the K is wholly in writing, does the parole evidence rule apply to exclude extrinsic
evidence to explain meaning of K? (Codelfa)
- Prove that K is wholly in writing:
o Can examine external evidence to determine the presumed intentions of parties
(SRA v Heath Outdoor)

OR IS THERE AMBIGUITY? - language is susceptible to more than one meaning

- Can use the factual matrix (Codelfa) where evidence of surrounding circumstances is
admissible to assist in interpretation.

4. Is there an “entire agreement” clause? (Saleh v Romanous)

- But EACs can’t stand in the way of equity if elements of estoppel are made out (Saleh)
- Can consider extrinsic materials for estoppel to restrain the enforcement of an EAC

Are the express terms incorporated?

 BY SIGNATURE (L’Estrange)
o A party who signs a contract is presumed to have read/understood it
o But it must be known that the document contains contractual terms (Toll v
Alphapharm)
o Behaviour/words is sufficient misrep if it misleads another about the
existence/extent of exemption (Curtis v Chemical Cleaning)
 In this case, if there is fraud then parties aren’t bound

 BY REASONABLE NOTICE must consider:

o Reasonableness of notice – if the document contains a promise or is just a receipt
(Causer v Browne)
o Sufficient notice before K is formed (Thornton v Shoe Lane Parking)
o Party wishing to enforce term did all that was reasonably necessary to bring it to
attention (Oceanic Sun Line)

 BY COURSE OF DEALINGS – reasonable test:

o Regular contracting between parties/no. Of past dealings (Balmain Ferry)
 o Recency of dealings (La Rosa)
o Uniformity of past dealings (subject matter) (La Rosa)

Are there any implied terms?

For formal contracts: BP REFINERY TEST

1. it must be reasonable AND equitable (it isn’t reasonable if it imposes significant

detriment to the other party - Codelfa);
2. it must be necessary to give business efficacy to the contract so that no term will be
implied if the contract is effective without it (is it necessary for the contract)
2.1. Test of necessity (Liverpool city council): if K is effective w/o implied
term
3. it must be so obvious that ‘it goes without saying’ (Codelfa)
4. it must be capable of clear expression;
5. it must not contradict any express term of the contract.

Informal contracts: Byrne v Aus Airlines Implied term must be:

1. Necessary for reasonable OR effective operation of K

2. Obvious
a. Realestate.co.au - what a reasonable person would agreed to through words and
conduct in light of surrounding circumstances
3. Clear and unambiguous
4. Not conflicting with express terms

Implied in law:

- In lease agreement it is implied that landlords take reasonable steps to maintain and light
common areas (Liverpool City Council)
- No implied term of mutual trust and confidence in employment contracts (CBA v Barker)

Implied in fact: Good faith:

To be in good faith – should only exercise power reasonable for purpose of K (Royal Botanic
Gardens)
 - Duty to cooperate – do all things reasonably necessary for other party to have benefits of
the contract (Secure Income Real Estate)
- Duty of good faith (Burger King v Hungry Jacks)
- Reasonableness is implied in commercial contexts (Renard Construction)

Implied by custom and usage (Con-Stan Industries)

1. Existence of custom that justifies implied term is a question of fact

2. Must be evidence that the custom is so well known that everyone in the situation can
reasonably presumed to have implied that term
3. Term can’t be implied if it contradicts express terms of K
4. Actual knowledge of custom not required

Implied by Statute:

- Sale of Goods Act

- Australian Consumer Law

Construction
It’s in terms – if words give rise to constructional choice, does parole or factual matrix apply

For reasonable endeavour clauses (Electricity Generation Corporation):

1. Obligation to use reasonable endeavours isn’t absolute

2. The nature of obligation depends on what is reasonable in circumstances, considering
party’s own business interests
3. If K sets out express standard for determining what is reasonable, can be used to interpret
cl
Exclusion Clauses
Excludes liability for outcomes

Is the natural and ordinary meaning of the cl ambiguous? (Darlington v Delco)

- Read in light of the contract as a whole (does parole apply)

- Nature and object of the K (cl is invalid if it defeats this)
- IF AMBIGUOUS: construe the cl contra proferentum

Does the four corners rule apply to exclude liability?

Four corners rule (Sydney Corporation v West): Parties are presumped not to exclude liability
for damage resulting from an act not authorised by the K

Does the cl shield proferens from liability?

- If cl is wide enough that it’s clear to a reasonable person that liability is excluded, then it
sufficiently excludes liability for negligence (Davis Pearce Parking)

Privity
Only the parties to the K can benefit from it, benefits or burdens can’t be conferred upon a non-
party (Coulls v Bagots)

If there is a privity issue, can the privity rule be circumvented?

- If one joint promisee has provided consideration, then both have in law (Coulls)

1. Trust – one holding property on trust for another

2. Agency – given express authorisation
3. Special Exceptions – a person covered by insurance policy can recover from insurer
even if no party(Trident)
Discharge by performance
Parties have performed their contractual obligations

Are the obligations entire or divisible?

This is a question of construction (Cutter v Powell)

1. ENTIRE CONTRACT?
- Look for “lump sum” or high contract price
- Entire contract must be wholly performed for the party to be entitled to K price
(Cutter v Powell)
o Building contracts are entire contracts (Sumter v Hedges)

If entire obligation, has there been SUBSTANTIAL PERFORMANCE?

YES --> then entitled to recover for remainder of the K price. (Hoenig v Isaacs)

- Test for substantial performance: A breach that goes to the ROOT of the contract
means there has not been substantial performance
o But this needs to be serious
o Need to consider performance and the nature of defects, are they minor/trivial?
o Consider the nature of defects and proportion between cost of rectifying them and
the K price (Bolton v Mahadeva)
 If defects were minor (can be rectified by slight amendments) then there is
substantial performance

2. DIVISIBLE CONTRACT?
- Look for “rate payment”, pay as you go by tonnes installment
- Is work divided into corresponding segments?
o Each divisible aspect of the K is only satisfied by complete performance (Steele v
Tardiani)
o If YES --> claimant entitled to the price specified under K for each segment of
work performed (Steele v Tardiani)

If party isn’t entitled to the K price, is claimant entitled to reasonable remuneration for
services (restitutionary remedy)?

P can get reasonable remuneration where D had a (Steele v Tardiani):

  Clear opportunity to accept/reject work
 Knowledge that it was not done for free
 Accepted it

Can’t have been total failure of consideration

Discharge by agreement
Can be through express cl in K, or accord + satisfaction

When there has been accord (agreement to end K) and satisfaction (consideration supporting
this) - McDermott v Black

Has there been accord and satisfaction?

- P’s cause of action remains alive until consideration provided (Mcdermott)

- Satisfaction (Consideration) – look for payment of money in lieu or promise not to sue
o If P agrees to accept a promise in satisfaction, the discharge of liability is
immediate
o If P agrees to accept performance of an action in satisfaction, the discharge of
liability is when this promise is performed.

Discharge for failure of contingent condition

Condition precedent to formation: Contingency that has to happen to bring K into existence
“Subject to contract” (Masters v Cameron)

- If this does not occur --> there is no ITCLR, there is no K/binding obligations (Lewes
Nominees v Strang)
- If does occur --> part is bound to perform (Cutter)

Condition precedent to performance (of contract): “subject to the purchaser obtaining

suitable finance (Meehan v Jones)

- If this does not occur, then both parties are released from obligations under the K

Condition subsequent to performance: obligation to perform is immediate, but fulfilment of

this condition terminates duty to perform.

Discharge for breach

1. What type of breach?
 - Time problem – discharged by delay
- Non-performance
- Defective performance – need to define the standard of performance (degree to which
performance is satisfied – which is a question of construction or implied term

2. Has there been a breach of an express term giving rise to the right to terminate?

CLASSIFY THE TERM

1. Condition – right to terminate (Luna Part v Tramways Advertising)

a. Test for essentiality (condition): Whether it appears that the promise is of
importance to the promisee that they would not have entered into the K unless
they were assured of strict or substantial performance of the promise AND this
ought to have been apparent to the promisor
i. IF YES – condition
b. Can look at the likely consequences of breach, the more dire the more likely the
parties intended it to be a condition (don’t look at the actual consequences, its
what they intended at formation)

2. Intermediate term – right to terminate if serious breach (Hongkong Fir)

a. Test for intermediate term: Whether it can be breached in a variety of ways
(e.g. ship could have a faulty anchor,
b. Test for serious breach: if breach of intermediate term deprives the inno of
substantially the whole benefit of the K, can terminate
i. If it goes to the ROOT of the contract (Hoenig v Isaacs)

3. Warranty – no right to terminate, damages only (Luna Park)

a. Can be classified as such under statute e.g. Sales of Goods Act
b. If there is no possible way that breach would deprive the aggrieved from the main
benefit of the K (HongKong)

Termination by Delay
Is time of the essence?

1. Can be expressly stated (Bunge Corporation v Tradax)

a. Then it is a condition
2. Can be implied form the contract (Bowes v Chaleyer)
a. Look at the nature of the contract, nature of term and consequences of delay
b. If a condition – right to terminate
IF TIME ISNT OF THE ESSENCE:

3. If not, there is an equitable presumption time stipulations are non-essential

a. Conveyancing Act 1919 s13 → Time stipulations are not of the essence (need to
follow prev court decisions). Need to look at intentions of parties.
4. If time, non-essential, must be a warranty (Bunge Corporation)
a. Can terminate if there is such a long delay that it amounts to repudiation
(Laurinda v Capalaba)
b. The party can issue a notice to performance (Louinder v Leis)
i. One party must be giving unreasonable delay and the other must be free of
breach (Louinder) and RW to perform their own obs (Bunge)
ii. Notice should give a reasonable time for performance (Laurinda)
iii. Then can terminate if this is breached
Time can be an intermediate term, it is a question of construction

Discharge for repudiation

A party evinces unwillingness or inability to perform K according to its terms. Gives rise to right
of termination.

1. Anticipatory breach – before time of performance (need to classify first)

a. Anticipating breach of condition – can terminate
b. Intermediate term – if its breached will the consequences deprive party of
substantially the whole benefit?
c. Warranty – can't terminate
2. Refusal to perform by words or conduct
a. Test for refusal: where party has acted in such a way to lead a reasonable person
to conclude they are not willing to complete K (Universal Cargo Carrier)
3. Factual inability to perform (Universal Cargo Carrier v Citati)
a. Needs to prove that the repudiating party has become wholly and finally disabled
from performance – question of fact (Citati)
 b. Can terminate if inevitable that when performance time comes, the innocent party
would have a right to terminate

Process and Effect of Termination

Can only talk about election when there are two inconsistent legal rights. Can only do this once.
A party can elect to affirm or terminate the K (Foran v Wight)

Is there a breach or repudiation that allows party to terminate?

1. Can elect to affirm

a. If don’t need the other party’s cooperation to do so and there is a legitimate
interest in maintaining the K
b. There will be no right to damage until an actual breach occurs (Bowes v
Chaleyer)
c. If affirmed, innocent party must perform (Bowes)

2. Can elect to terminate (Bowes v Chaleyer)

Needs and unequivocal election by words or conduct to terminate

a. Innocent party must demonstrate RWA to perform contractual obligations at the

time of breach/repudiation (Foran v White)
b. Can elect to terminate if anticipatory breach (Bowes), BUT if party performs on
time, the party that wrongly terminate is now guilty of repudiation (Luna Park)

Can provide an extension for performance WHILE reserving the right to terminate if
performance isn’t completed (this isn’t affirming the K) (Tropical Traders)

Are there any restrictions on the right to terminate? Estoppel?

- If a party represented that they would be unable to perform (repudiation), they are
estopped from raising that the other party wasn’t RWA. (Foran v White)
- Representation to found an estoppel restricting right to terminate must be clear (Legione
v Hateley)
What is the effect of termination?

- Parties are discharged from future obligations, but any rights that have unconditionally
accrued to the time of termination still exist (McDonald v Dennys)
o But can only enforce this ob if it is consistent with discharge of the K (e.g. can’t
retain instalments for a house you never get)
- Who keeps deposit depends on who is in breach (Bot v Ritevski)
o PURCHASER – seller keeps/recovers deposit
o SELLER/VENDOR - deposit refunded

Discharge for frustration

Without default by either party, the K is not capable of being perform as parties objectively
intended. (Davis Contractors)

- Needs to be beyond either party’s control (Bank Line)

1. Did a party foresee the event?

- If foreseen, and acc for in K, then no frustration (Davis Contractors)
- If not included, if parties could have reasonably foreseen, no frustration (Davis)

If they did, can still be frustration if it is radially diff:

- Test for frustration: the extent of the interruption creates a situation “radically different
from that which was undertaken by the K”(Davis in Codelfa)

2. What are the consequences of frustration?

- K terminates the moment the frustrating event takes place (futuro) but all accrued rights
and obs survive
- Under CL “losses lie where they fall” (Fibrosa)
o Work performed after K had be frustrated can only be claimed on quantum meruit
basis
o Right to recover damages for breach b4 event is enforceable
 o Money already paid under K can’t be recovered unless there is a TOTAL
FAILURE OF CONSIDERATION (didn’t get any part of the bargain) Fibrosa;
 But if received some part, claim fails, can’t get money back (Baltic
Shipping)
- Statute: Frustrated Contracts Act